424B3
PROSPECTUS SUPPLEMENT
Direct Public Offering of 4,473,940 Shares
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Pursuant to Rule 424(b)(3)
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of Common Stock – Terminated as of August 17, 2020
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Registration Number 333-238974
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3,775,163 Shares of Common Stock as part
Of a Secondary Offering by Selling Shareholders
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Cannabis Global, Inc.
This prospectus relates to the resale of 4,473,940
shares of our common stock in a direct public offering, par value $0.001 per share, and, 3,775,163 Shares of Common Stock as part
of a Secondary Offering by Selling Shareholders.
This prospectus relates to the registration
of 8,249,103 shares of common stock in Cannabis Global, Inc., a Nevada corporation (referred to herein as the “Company,”
“we,” “our,” “us,” or other similar pronouns). The Company is registering 4,473,940 shares
of common stock at $0.49 per share in a direct public offering (“Direct Offering”). In addition, the Company is registering
3,775,163 shares of common stock currently held by our “Selling Shareholders,” or individually, “Selling Shareholder.”
The Selling Security Holders will sell the shares of common stock at the fixed price of $0.49 per share until such time, if ever,
that the common stock is quoted on the OTC Bulletin Board, the OTCQX, the OCTQB or listed on a securities exchange.
Our shares of common stock subject to the
Direct Offering and Selling Shareholders are referred to herein collectively as our “Shares.” We estimate our
total offering registration costs to be approximately $524.66 and our legal and auditor related fees will be $6,000 equaling
at total expense to the Company of $6,524.66 relating to the registration, which will be paid from existing corporate funds,
thus not affecting the proceeds of this offering. There is no minimum number of shares that must be sold by us for the
offering to proceed. The Company will retain any proceeds from the Direct Offering, while the Selling Shareholders will
retain the proceeds from the Resale. The Selling Shareholders are deemed to be statutory underwriters under Section 2(a)(11)
of the Securities Act of 1933 (“Securities Act”).
The selling stockholders will sell the shares
of common stock at the fixed price of $0.49 per share until such time, if ever, that the common stock is quoted on the OTC Bulletin
Board, the OTCQX or listed on a securities exchange . Discounts, concessions, commissions and similar selling expenses attributable
to the sale of common stock covered by this prospectus will be borne by the selling stockholders. We will pay all expenses (other
than discounts, concessions, commissions and similar selling expenses) relating to the registration of the common stock with the
Securities and Exchange Commission.
Our Common Stock is currently quoted on the
OTC Markets Pink under the symbol “CBGL”. On January 19, 2021 the closing price as reported was $0.20 per share. This
price will fluctuate based on the demand for our Common Stock.
Investing in our common stock involves risks.
See “Risk Factors” beginning on page 4.
Neither the Securities and Exchange Commission
nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful
or complete. Any representation to the contrary is a criminal offense.
No dealer, salesperson or any other person
is authorized to give any information or make any representations in connection with this offering other than those contained in
this Prospectus and, if given or made, the information or representations must not be relied upon as having been authorized by
us. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any security other than the securities
offered by this Prospectus, or an offer to sell or a solicitation of an offer to buy any securities by anyone in any jurisdiction
in which the offer or solicitation is not authorized or is unlawful.
The date of this Prospectus is January 20, 2021
TABLE OF CONTENTS
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Page
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Prospectus Summary
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1
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The Offering
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1
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Risk Factors
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4
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Use of Proceeds
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17
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Selling Security Holders
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18
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Plan of Distribution; Terms of the Offering
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19
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Dilution
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21
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Description of Property
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22
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Description of Securities
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22
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Description of Our Business
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24
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Management’s Discussion and Analysis
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36
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Directors, Executive Officers, Promoters and Control Persons
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42
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Executive Compensation
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45
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Security Ownership of Certain Beneficial Owners and Management
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48
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Certain Relationships and Related Transactions
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49
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Legal Matters
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50
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Experts
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50
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Where you can find more Information
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51
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Index to Financial Statements
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F-1
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You should rely only on the information
contained or incorporated by reference to this prospectus in deciding whether to purchase our common stock. We have
not authorized anyone to provide you with information different from that contained or incorporated by reference to this prospectus.
Under no circumstances should the delivery to you of this prospectus or any sale made pursuant to this prospectus create any implication
that the information contained in this prospectus is correct as of any time after the date of this prospectus. To the extent that
any facts or events arising after the date of this prospectus, individually or in the aggregate, represent a fundamental change
in the information presented in this prospectus, this prospectus will be updated to the extent required by law.
PROSPECTUS SUMMARY
The following summary highlights material information contained
in this Prospectus. This summary does not contain all of the information you should consider before investing in the securities.
Before making an investment decision, you should read the entire Prospectus carefully, including the risk factors section, the
financial statements and the notes to the financial statements. You should also review the other available information referred
to in the section entitled “Where You Can Find More Information” in this Prospectus and any amendment or supplement
hereto.
Our Business and Corporate History
We are a research and development company primarily focused on entering
a wide array of hemp and related market sectors. Our primary objective is to create and commercialize engineered technologies delivering
hemp extracts and cannabinoids to the human body. We have recently expanded our focus to include middle portions of the hemp value
chain, including the licensing of our core technologies to manufacturers of hemp and related products.
We have an active research & development program focused on
developing technologies to be utilized to develop consumer products, based on these and other technologies.
Our R&D programs included the following;
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1)
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Development of new routes and vehicles for hemp extract and cannabinoid delivery to the human body.
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Production of unique polymeric nanoparticles and fibers for use in oral and dermal cannabinoid delivery.
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Research and commercialization of new methodologies to isolate and/or concentrate various cannabinoids and other substances that comprise industrial hemp oil and other extracts.
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Establishment of new methods to increase the bioavailability of cannabinoids to the human body through utilization of proven bioenhancers, including d-α-Tocopherol polyethylene glycol 1000 succinate (TPGS), which is widely used as a water-soluble vitamin E formulation and polymeric nanoparticles.
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5)
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Development of other novel inventions for the delivery of cannabinoids to the human body, which at this time are considered trade secrets by the Company.
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Our principal executive office is located at
520 S Grand Avenue, Suite 320, Los Angeles, California 90071. Our telephone number is (310) 986-4929 and our website is www.cannabisglobalinc.com.
Unless expressly noted, none of the information on our website is part of this Prospectus or any Prospectus Supplement. Our shares
of Common Stock are quoted on the OTC Markets Pink tier, operated by OTC Markets Group, Inc., under the ticker symbol “CBGL.”
The following summary highlights material information
contained in this Prospectus. This summary does not contain all of the information you should consider before investing in the
securities. Before making an investment decision, you should read the entire Prospectus carefully, including the risk factors section,
the financial statements and the notes to the financial statements. You should also review the other available information referred
to in the section entitled “Where You Can Find More Information” in this Prospectus and any amendment or supplement
hereto.
Our Business and Corporate History
We are a research and development company primarily
focused on entering a wide array of cannabis, hemp and related market sectors. Our primary objective is to create and commercialize
engineered technologies delivering hemp extracts and cannabinoids to the human body. We have recently expanded our focus to include
middle portions of the hemp value chain, including the licensing of our core technologies to manufacturers of hemp and hemp-related
products. We also invest, or provide managerial services, in specialized areas of the regulated hemp and cannabis industries.
We incorporated in Nevada in 2005 under the
name MultiChannel Technologies Corporation, a wholly owned subsidiary of Octillion Corporation, a development stage technology
company focused on the identification, acquisition and development of emerging solar energy and solar related technologies, and
related products having the potential for commercialization. In April, 2005, we changed our name to MicroChannel Technologies,
Inc., and in June, 2008, began trading on the OTC Markets under the trading symbol “MCTC.” Our business focused on
research and development of a patented combination of physical, chemical and biological cues at the “cellular” level
to facilitate peripheral nerve regeneration.
In August, 2011, we ceased operations and attempted
to identify, locate, and if warranted, acquire new commercial opportunities. On June 27, 2018, we changed domiciles from the State
of Nevada to the State of Delaware and thereafter reorganized under the Delaware Holding Company Statute (Delaware General Corporation
Law Section 251(g). On or about July 12, 2018, we formed two subsidiaries for the purpose of effecting the reorganization. We incorporated
MCTC Holdings, Inc. and MCTC Holdings Inc. incorporated MicroChannel Corp. We then effected a merger involving the three constituent
entities, and under the terms of the merger we were merged into MicroChannel Corp., with MicroChannel Corp. surviving and our separate
corporate existence ceasing. Following the merger, MCTC Holdings, Inc. became the surviving publicly traded issuer and all of our
assets and liabilities were merged into MCTC Holdings, Inc.’s wholly owned subsidiary MicroChannel Corp. Our shareholders
became the shareholders of MCTC Holdings, Inc. on a one for one basis.
On May 25, 2019, Lauderdale Holdings, LLC,
a Florida limited liability company, and beneficial owner 70.7% of our issued and outstanding common stock, sold 130,000,000 common
shares, to Mr. Robert Hymers, Mr. Edward Manolos and Mr. Dan Nguyen, all of whom were previously unaffiliated parties of the Company.
Each individual purchased 43,333,333 common shares for $108,333,333 or an aggregate of $325,000. These series of transactions constituted
a change in control.
On August 9, 2019, the Company filed a DBA
in California registering the operating name Cannabis Global. On July 1, 2019, the Company entered into a 100% business acquisition
with Action Nutraceuticals, Inc., a company owned by our CEO, Arman Tabatabaei in exchange for $1,000.
On February 20, 2020, the Company entered into
a material definitive agreement with Lelantos Biotech, Inc., a Wyoming corporation (“Lelantos”), and its owners Ma
Helen M. Am Is, Inc., a Wyoming corporation (“Helen M.”), East West Pharma Group, Inc., a Wyoming corporation (“East
West”), and New Horizons Laboratory Services, Inc., a Wyoming corporation (“New Horizons”). In exchange for intellectual
properties owned by Lelantos, the Company agreed to issue 400,000 shares of common stock and convertible promissory notes to Lelantos
and its owners. On June 15, 2020, the Company and Lelantos entered into a modification agreement cancelling the Company's obligation
to issue 400,000 shares of common stock and the convertible promissory notes. The Company and Lelantos agreed to a purchase price
of five hundred thousand dollars ($500,000), payable by the issuance of a promissory note. The aggregate unpaid principal amount
of the note is paid in monthly payments of seven thousand, five hundred dollars ($7,500) beginning on September 1, 2020, terminating
on February 1, 2025. There is no interest on the note or on the unpaid balance.
On March 30, 2020, we completed a redomicile
from Delaware to Nevada, and changed the Company’s name to Cannabis Global, Inc. and concurrently its trading symbol to “CBGL.”
On May 6, 2020, the Company signed a joint
venture agreement with RxLeaf, Inc. (“RxLeaf”) a Delaware corporation, creating a joint venture for the purpose of
marketing the Company’s products to consumers. Under the terms of the agreement, the Company will produce products, which
will be sold by RX Leaf via its digital marketing assets. The Company agreed to share the profits from the joint venture on a 50/50
basis.
On July 22, 2020, we signed a management agreement
with Whisper Weed, Inc., a California corporation (“Whisper Weed”). Edward Manolos, a director of the Company, is a
shareholder in Whisper Weed (see “Related Party Transactions”). Whisper Weed conducts licensed delivery activity of
cannabis products in California. The material definitive agreement requires the parties to create a separate entity, CGI Whisper
W, Inc. in California as a wholly owned subsidiary of the Company. The business of CGI Whisper W, Inc. will be to provide management
services for the lawful delivery of cannabis in the State of California. The Company will manage CGI Whisper W, Inc. operations.
In exchange for the Company providing management services to Whisper Weed through the auspices of CGI Whisper W, Inc., the Company
will receive as consideration a quarterly fee of 51% of the net profits earned by Whisper Weed. As separate consideration for the
transaction, the Company agreed to issue to Whisper Weed $150,000 in the Company’s restricted common stock, valued for purposes
of issuance based on the average closing price of the Company’s common stock for the twenty days preceding the entry into
the material definitive agreement. Additionally, the Company agreed to amend its articles of incorporation to designate a new class
of preferred shares. The preferred class shall be designated and issued to Whisper Weed in an amount equal to two times the quarterly
payment made to the Company. The preferred shares shall be convertible into the Company’s common stock after 6 months, and
shall be senior to other debts of the Company. The conversion to common stock will be based on a value of common stock equal to
at least two times the actual sales for the previous 90 day period The Company agreed to include in the designation the obligation
to make a single dividend payment to Whisper Weed equal to 90% of the initial quarterly net profits payable by Whisper Weed. As
of November 30, 2020, the Company has not issued the common or preferred shares.
On August 31, 2020, we entered into a stock
purchase agreement with Robert L. Hymers III (“Hymers”). Pursuant to the Stock Purchase Agreement, the Company purchased
from Hymers 266,667 shares of common stock of Natural Plant Extract of California Inc., a private California corporation (“NPE”),
in exchange for $2,040,000. The purchased shares of common stock represents 18.8% of the outstanding capital stock of NPE on a
fully diluted basis. NPE operates a licensed psychoactive cannabis manufacturing and distribution business operation in Lynwood,
California. In connection with the stock purchase agreement, the Company became a party to a Shareholders Agreement, dated June
5, 2020, by and among Alan Tsai, Hymers, Betterworld Ventures, LLC, Marijuana Company of America, Inc. and NPE. The Shareholders
Agreement contains customary rights and obligations, including restrictions on the transfer of the Shares.
On September 30, 2020, the Company entered
into a securities exchange agreement with Marijuana Company of America, Inc., a Utah corporation (“MCOA”). By virtue
of the agreement, the Company issued 7,222,222 shares of its unregistered common stock to MCOA in exchange for 650,000,000 shares
of MCOA unregistered common stock. The Company and MCOA also entered into a lock up leak out agreement which prevents either party
from sales of the exchanged shares for a period of 12 months. Thereafter the parties may sell not more than the quantity of shares
equaling an aggregate maximum sale value of $20,000 per week, or $80,000 per month until all Shares and Exchange Shares are sold.
On December 1, 2020, the Company entered into
a Securities Purchase Agreement in connection with the issuance of an 8% convertible note with the principal amount of $33,500,
with an accredited investor. The note is convertible any time after 180 days of issuance at a variable conversion price of 63%
of the Market Price at time of conversion. Market Price is defined as the average of the two lowest trading prices during the fifteen
(15) days prior to conversion. The Company received net cash proceeds of $30,000.
On January 3, 2021, we entered into a settlement
agreement with Robert L. Hymers, III (“Hymers”) concerning five delinquent payments totaling $100,000 due under the
stock purchase agreement whereby the Company purchased 266,667 shares of common stock of Natural Plant Extract of California Inc.,
a California corporation (“NPE”), The Company was required to make $20,000 monthly for a period of twenty-seven (27)
months to Hymers, with the first payment commencing September 1, 2020 and the remaining payments due and payable on the first day
of each subsequent month until Hymers received $540,000. On January 3, 2021, we entered into a settlement concerning the outstanding
payments by agreeing to issue to Hymers a total of 1,585,791 shares of registered common stock from our S-1 registration statement
made effective November 12, 2020.
On January 5, 2021, the Company entered into
a Securities Purchase Agreement in connection with the issuance of an 10% convertible note with the principal amount of $110,000,
with an accredited investor. The note is convertible at a fixed conversion price of $0.05. In the event of default by the Company,
or after the public announcement of a change of control transaction as defined in the agreement, the conversion price is $0.01.
The Company received net proceeds of $97,500.
On January 12, 2021, the Company entered into
a Securities Purchase Agreement in connection with the issuance of an 10% convertible note with the principal amount of $115,500,
with an accredited investor. The note is convertible beginning 61 days from issuance at a fixed conversion price of $0.10 per share
or 60% or the lowest trading price for ten days prior to conversion in the event that the Company’s stock trades at less
than $0.10 per share. The Company received net proceeds of $100,000.
RISK FACTORS
Investing in our Common Stock involves a
high degree of risk. You should carefully consider the risks described below, as well as the other information in this Prospectus,
including our financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition
and Results of Operations,” before deciding whether to invest in our shares of Common Stock. The occurrence of any of the
events or developments described below could harm our business, financial condition, operating results, and growth prospects. In
such an event, the market price of our shares of Common Stock could decline, and you may lose all or part of your investment. Additional
risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.
There could be unidentified risks involved
with an investment in our securities.
The foregoing risk factors are not a complete
list or explanation of the risks involved with an investment in the securities. Additional risks will likely be experienced that
are not presently foreseen by the Company. Prospective investors must not construe the information provided herein as constituting
investment, legal, tax or other professional advice. Before making any decision to invest in our securities, you should read this
entire prospectus and consult with your own investment, legal, tax and other professional advisors. An investment in our securities
is suitable only for investors who can assume the financial risks of an investment in the Company for an indefinite period of time
and who can afford to lose their entire investment. The Company makes no representations or warranties of any kind with respect
to the likelihood of the success or the business of the Company, the value of our securities, any financial returns that may be
generated or any tax benefits or consequences that may result from an investment in the Company.
RISKS RELATED TO OUR BUSINESS
The novel coronavirus (COVID-19) pandemic
may have unexpected effects on our business, financial condition and results of operations.
In March 2020, the World Health Organization
declared COVID-19 a global pandemic, and governmental authorities around the world have implemented measures to reduce the spread
of COVID-19. These measures have adversely affected workforces, customers, supply chains, consumer sentiment, economies, and financial
markets, and, along with decreased consumer spending, have led to an economic downturn across many global economies.
The COVID-19 pandemic has rapidly escalated
in the United States, creating significant uncertainty and economic disruption, and leading to record levels of unemployment nationally.
Numerous state and local jurisdictions have imposed, and others in the future may impose, shelter-in-place orders, quarantines,
shut-downs of non-essential businesses, and similar government orders and restrictions on their residents to control the spread
of COVID-19. Such orders or restrictions have resulted in temporary facility closures (including certain of our third-party VRCs),
work stoppages, slowdowns and travel restrictions, among other effects, thereby adversely impacting our operations. In addition,
we expect to be impacted by a downturn in the United States economy, which could have an adverse impact on discretionary consumer
spending and may have a significant impact on our business operations and/or our ability to generate revenues and profits.
In response to the COVID-19 disruptions, we
have implemented a number of measures designed to protect the health and safety of our staff and contractors. These measures include
restrictions on non-essential business travel, the institution of work-from-home policies wherever feasible and the implementation
of strategies for workplace safety at our facilities that remain open. We are following the guidance from public health officials
and government agencies, including implementation of enhanced cleaning measures, social distancing guidelines and wearing of masks.
The extent to which COVID-19 ultimately impacts
our business, financial condition and results of operations will depend on future developments, which are highly uncertain and
unpredictable, including new information which may emerge concerning the severity and duration of the COVID-19 outbreak and the
effectiveness of actions taken to contain the COVID-19 outbreak or treat its impact, among others. Additionally, while the extent
to which COVID-19 ultimately impacts our operations will depend on a number of factors, many of which will be outside of our control.
The COVID-19 outbreak is evolving and new information emerges daily; accordingly, the ultimate consequences of the COVID-19 outbreak
cannot be predicted with certainty.
In addition to the COVID-19 disruptions possibility
adversely impacting our business and financial results, they may also have the effect of heightening many of the other risks described
in “Risk Factors,” including risks relating to changes due to our limited operating history; our ability to generate
sufficient revenue, to generate positive cash flow; our relationships with third parties, and many other factors. We will endeavor
to minimize these impacts, but there can be no assurance relative to the potential impacts that may be incurred.
Uncertainty of profitability
Our business strategy may result in meaningful
volatility of revenues, loses and/or earnings. As we will only develop a limited number of business efforts, services and products
at a time, our overall success will depend on a limited number of business initiatives, which may cause variability and unsteady
profits and losses depending on the products and/or services offered and their market acceptance.
Our revenues and our profitability may be adversely
affected by economic conditions and changes in the market for our products. Our business is also subject to general economic risks
that could adversely impact the results of operations and financial condition.
Because of the anticipated nature of the products
that we offer and attempt to develop, it is difficult to accurately forecast revenues and operating results and these items could
fluctuate in the future due to a number of factors. These factors may include, among other things, the following:
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Our ability to raise sufficient capital to take advantage of opportunities and generate
sufficient revenues to cover expenses.
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Our ability to source strong opportunities with sufficient risk adjusted returns.
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Our ability to manage our capital and liquidity requirements based on changing market
conditions.
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The amount and timing of operating and other costs and expenses.
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The nature and extent of competition from other companies that may reduce market share
and create pressure on pricing and investment return expectations.
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We have incurred losses since our inception,
have yet to achieve profitable operations and anticipate that we will continue to incur losses for the foreseeable future.
Even if we obtain more customers or increase
sales to our existing customers, there is no guarantee we will be able to generate a profit. Because we are a small company and
have limited capital, we must limit our products and services. Because we will be limiting our marketing activities, we may not
be able to attract enough customers to buy our products to operate profitably.
We do not have sufficient cash on hand.
As of August 31, 2020, we had $2,338 of cash
on hand. Our cash resources are not sufficient for us to execute our business plan. If we do not generate sufficient
cash from our intended financing activities and sales, we will be unable to continue our operations. We estimate that within
the next 12 months we will need approximately $600-840,000 in cash from either investors or operations. While we intend to
engage in future financings, there is no assurance that these will actually occur. Nor can we assure our shareholders that
we will not be required to obtain additional financing on terms that are dilutive of their interests. You should recognize
that if we are unable to generate sufficient revenues or obtain debt or equity financing, we will not be able to earn profits and
may not be able to continue operations.
We may not be able to continue our business
as a going concern.
The Company's financial statements are prepared
using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets
and liquidation of liabilities in the normal course of business. However, the Company has accumulated a deficit of $6,056,949 as
of August 31, 2020. Management plans to raise additional capital through the sale of shares of Common Stock to pursue business
development activities, but there are no assurances of success relative to the efforts.
If we are not able to raise enough funds,
we may not be able to successfully develop and market our products and our business may fail.
We do not have any commitments for financing
and we will need additional financing to meet our obligations and to continue our business. Although we plan to raise funds through
our Public Offering, we cannot guarantee that we will be successful in such efforts.
Our business may suffer if we are unable
to attract or retain talented personnel.
Our success will depend in large measure on
the abilities, expertise, judgment, discretion, integrity and good faith of Management, as well as other personnel. We have a small
management team, and the loss of a key individual or our inability to attract suitably qualified replacements or additional staff
could adversely affect our business. Our success also depends on the ability of Management to form and maintain key commercial
relationships within the marketplace. No assurance can be given that key personnel will continue their association or employment
with us or that replacement personnel with comparable skills will be found. If we are unable to attract and retain key personnel
and additional employees, our business may be adversely affected. We do not maintain key-man life insurance on any of our executive
employees.
The loss of key Management personnel
could adversely affect our business.
We depend on the continued services of our
executive officer and senior consulting team as they work closely with independent associate leaders and are responsible for our
day-to-day operations. Our success depends in part on our ability to retain executive officers, to compensate executive officers
at attractive levels, and to continue to attract additional qualified individuals to our management team. Although we have entered
into an employment agreement with our Chief Executive Officer, and do not believe our Chief Executive Officer is planning to leave
or retire in the near term, we cannot assure you that our Chief Executive Officer or senior managers to be hired will remain with
us. The loss or limitation of the services of any of our executives or members of our senior management team, or the inability
to attract additional qualified management personnel, could have a material adverse effect on our business, financial condition,
results of operations, or independent associate relations.
The lack of available and cost-effective
directors and officer’s insurance coverage in our industry may cause us to be unable to attract and retain qualified executives,
and this may result in our inability to further develop our business.
Our business depends on attracting independent
directors, executives and senior management to advance our business plans. We currently do not have directors and officer’s
insurance to protect our directors, officers and the company against the possible third-party claims. This is due to the significant
lack of availability of such policies in the cannabis industry at reasonably competitive prices. As a result, the Company and our
executive directors and officers are susceptible to liability claims arising by third parties, and as a result, we may be unable
to attract and retain qualified independent directors and executive management causing the development of our business plans to
be impeded as a result.
If we fail to maintain satisfactory relationships
with future customers, our business may be harmed.
Due to competition or other factors, we could
lose business from our future customers, either partially or completely. The future loss of one or more of our significant customers
or a substantial future reduction of orders by any of our significant customers could harm our business and results of operations.
Moreover, our customers may vary their order levels significantly from period to period and customers may not continue to place
orders with us in the future at the same levels as in prior periods. In the event that in the future we lose any of our larger
customers, we may not be able to replace that revenue source. This could harm our financial results.
Management of growth will be necessary
for us to be competitive.
Successful expansion of our business will depend
on our ability to effectively attract and manage staff, strategic business relationships, and shareholders. Specifically, we will
need to hire skilled management and technical personnel as well as manage partnerships to navigate shifts in the general economic
environment. Expansion has the potential to place significant strains on financial, management, and operational resources, yet
failure to expand will inhibit our profitability goals.
We cannot guarantee that we will succeed
in achieving our goals, and our failure to do so would have a material adverse effect on our business, prospects, financial condition
and operating results.
Some of business initiatives in the hemp and
cannabis sectors are new and are only in the early stages of commercialization. As is typical in a new and rapidly evolving industry,
demand and market acceptance for recently introduced products and services are subject to a high level of uncertainty and risk.
Because the market for our Company is new and evolving, it is difficult to predict with any certainty the size of this market and
its growth rate, if any. We cannot guarantee that a market for our Company will develop or that demand for our products will emerge
or be sustainable. If the market fails to develop, develops more slowly than expected or becomes saturated with competitors, our
business, financial condition and operating results would be materially adversely affected.
We are attempting to enter into several
new business areas. We plan to address these new business areas with unproven technologies. Our inability to master the technical
details of these new technologies could negatively impact our business.
We are attempting to enter several new areas
of the hemp and cannabis markets, including THC remediation, the production of highly bioavailable cannabis infused drinks and
the production of functional foods based on nanoparticle technologies. These businesses will require extensive technical expertise.
There can be no assurances we will have the capital, personnel resources, or expertise to be successful relative to these advanced
technologies.
Our chosen method for cannabinoid delivery
is controversial with an unproven safety of efficacy.
The safety profile relative to oral consumption
of polymeric or other forms of nanoparticles is unproven. There can be no guarantee of a proven safety profile for any of our emerging
technologies.
We may be unable to respond to the rapid
technological change in the industry and such change may increase costs and competition that may adversely affect our business.
Rapidly changing technologies, frequent new
product and service introductions and evolving industry standards characterize our market. The continued growth of the Internet
and intense competition in our industry exacerbates these market characteristics. Our future success will depend on our ability
to adapt to rapidly changing technologies by continually improving the performance features and reliability of our products and
services. We may experience difficulties that could delay or prevent the successful development, introduction or marketing of our
products and services. In addition, any new enhancements must meet the requirements of our current and prospective customers and
must achieve significant market acceptance. We could also incur substantial costs if we need to modify our products and services
or infrastructures to adapt to these changes. We also expect that new competitors may introduce products or services that are directly
or indirectly competitive with us. These competitors may succeed in developing products and services that have greater functionality
or are less costly than our products and services and may be more successful in marketing such products and services. This competition
could increase price competition and reduce anticipated profit margins.
The failure to enforce and maintain our
intellectual property rights could adversely affect the value of the Company.
The success of our business will partially
depend on our ability to protect our intellectual property. As of the date hereof, we do not have any federally registered patents
or trademarks owned by us. We do have provisional patent and trademark applications pending. The unauthorized use of our intellectual
property could diminish the value of our business, which would have a material adverse effect on our financial condition and results
of operation.
We have incurred losses since our inception,
have yet to achieve profitable operations and anticipate that we will continue to incur losses for the foreseeable future.
Even if we obtain customers, there is no guarantee
that we will be able to generate a profit. Because we are a small company and have limited capital, we must limit our products
and services. Because we will be limiting our marketing activities, we may not be able to attract enough customers to buy our products
to operate profitably. Further, we are subject to raw material pricing which can erode the profitability of our products and put
additional negative pressure on profitability. If we cannot operate profitably, we may have to suspend or cease operations.
For the fiscal year ended August 31, 2020 we
incurred an operating loss of $3,623,892. For the fiscal year ended August 31, 2019, we incurred an operating loss of $549,918.
At August 31, 2020 we had an accumulated deficit of $6,056,949. Although we anticipate generating revenue in future periods, such
revenues may be insufficient to make the Company profitable. We plan to increase our expenses associated with the development of
our business. There is no assurance we will be able to derive revenues from the development of our business to successfully achieve
positive cash flow or that our business will be successful. If we achieve profitability, we may be unable to sustain or increase
profits on a quarterly or annual basis.
We are reliant on single source suppliers
for several components of our products. In the future, such supplies could be difficult or impossible to obtain, which would affect
our ability to produce our products.
We purchase components for our products from
several larger corporations and from single source providers. Any difficulty in obtaining such supplies could restrict our ability
to manufacture products for sales, which would affect our ability to generate revenues. There can be no assurances such suppliers
of the components we require will not become difficult or impossible to obtain in the future.
RISKS OF GOVERNMENT ACTION AND REGULATORY
UNCERTAINTY
We could be found to be violating laws
related to cannabis.
Our future business activities, including providing
management services for cannabis delivery services in California, and the research and development of cannabis infused drinks,
will fall outside of the Farm Bill. Currently, many U.S. states plus the District of Columbia and Guam, have laws and/or regulations
that recognize, in one form or another, legitimate medical and adult uses for cannabis and consumer use of cannabis in connection
with medical treatment or for recreational use. Many other states are considering similar legislation. Conversely, under the CSA,
the policies and regulations of the federal government and its agencies are that cannabis has no medical benefit and a range of
activities including cultivation and the personal use of cannabis is illegal and prohibited. Unless and until Congress amends the
CSA with respect to cannabis, as to the timing or scope of any such potential amendments there can be no assurance, there is a
risk that federal authorities may enforce current federal law, and we may be deemed to be producing, cultivating, dispensing and/or
aiding or abetting the possession and distribution of cannabis in violation of federal law. Active enforcement of the current CSA
on cannabis may thus directly and adversely affect our revenues and profits.
The Farm Bill recently passed, and undeveloped
shared state-federal regulations over hemp cultivation and production may impact our business.
The Farm Bill was signed into law on December
20, 2018. Under Section 10113 of the Farm Bill, state departments of agriculture must consult with the state’s governor
and chief law enforcement officer to devise a plan that must be submitted to the Secretary of USDA. A state’s plan to license
and regulate hemp can only commence once the Secretary of USDA approves that state’s plan. In states opting not to devise
a hemp regulatory program, USDA will need to construct a regulatory program under which hemp cultivators in those states must apply
for licenses and comply with a federally-run program. The details and scopes of each state’s plans are not known at this
time and may contain varying regulations that may impact our business. Even if a state creates a plan in conjunction with its governor
and chief law enforcement officer, the Secretary of the USDA must approve it. There can be no guarantee that any state plan will
be approved. Review times may be extensive. There may be amendments and the ultimate plans, if approved by the states and the USDA,
may materially limit our business depending upon the scope of the regulations.
Laws and regulations affecting our industry
to be developed under the Farm Bill are in development.
As a result of the Farm Bill’s recent
passage, there will be a constant evolution of laws and regulations affecting the hemp industry that could detrimentally affect
our operations. Local, state and federal hemp laws and regulations may be broad in scope and subject to changing interpretations.
These changes may require us to incur substantial costs associated with legal and compliance fees and ultimately require us to
alter our business plan. Furthermore, violations of these laws, or alleged violations, could disrupt our business and result in
a material adverse effect on our operations. In addition, we cannot predict the nature of any future laws, regulations, interpretations
or applications, and it is possible that regulations may be enacted in the future that will be directly applicable to our business.
The approach to the enforcement of cannabis
laws may be subject to change, which creates uncertainty for our business.
As a result of the conflicting views between
state legislatures and the federal government regarding cannabis, as not strictly defined in the 2018 Farm Bill, investments in,
and the operations of, cannabis businesses in the U.S. are subject to inconsistent laws and regulations. Laws and regulations affecting
the cannabis industry are constantly changing, which could detrimentally affect our operations. Local, state and federal cannabis
laws and regulations are broad in scope and subject to evolving interpretations, which could require us to incur substantial costs
associated with compliance or alter our business plan. In addition, violations of these laws, or allegations of such violations,
could disrupt our business and result in a material adverse effect on our operations. It is also possible that regulations may
be enacted in the future that will be directly applicable to our business. These ever-changing regulations could even affect federal
tax policies that may make it difficult to claim tax deductions on our returns. We cannot predict the nature of any future laws,
regulations, interpretations or applications, nor can we determine what effect additional governmental regulations or administrative
policies and procedures, when and if promulgated, could have on our business.
The possible FDA Regulation of hemp and
industrial hemp derived CBD, and the possible registration of facilities where hemp is grown and CBD products are produced, if
implemented, could negatively affect the cannabis industry generally, which could directly affect our financial condition.
The Farm Bill established that hemp containing
less the 0.3% THC was no longer a Schedule 1 drug under the CSA. Previously, the U.S. Food and Drug Administration (“FDA”)
did not approve hemp or CBD derived from hemp as a safe and effective drug for any indication. The FDA considered hemp and hemp-derived
CBD as illegal Schedule 1 drugs. Further, the FDA has concluded that products containing hemp or CBD derived from hemp are excluded
from the dietary supplement definition under sections 201(ff)(3)(B)(i) and (ii) of the U.S. Food, Drug & Cosmetic Act, respectively.
However, as a result of the passage of the Farm Bill, at some indeterminate future time, the FDA may choose to change its position
concerning products containing hemp, or CBD derived from hemp, and may choose to enact regulations that are applicable to such
products, including, but not limited to: the growth, cultivation, harvesting and processing of hemp; regulations covering the physical
facilities where hemp is grown; and possible testing to determine efficacy and safety of hemp derived CBD. In this hypothetical
event, our powdered drink products, which we plan to introduce will likely contain CBD and may be subject to regulation. In the
hypothetical event that some or all of these regulations are imposed, we do not know what the impact would be on the hemp industry
in general, and what costs, requirements and possible prohibitions may be enforced. If we are unable to comply with the conditions
and possible costs of possible regulations and/or registration, as may be prescribed by the FDA, we may be unable to continue to
operate segments of our business.
The scheduling status of Tetrahydrocannabivarin
(THC-V) and other cannabinoids with the Drug Enforcement Administration is uncertain.
During August of 2020, Drug Enforcement Administration
(the “DEA”) issued a rule regarding the scheduling of hemp and marijuana. The ruling could affect our ability to successfully
market our THC-V beverage line.
Should the DEA determine the manufactured cannabinoids
we use in some of our products are scheduled under the CSA, our future business opportunities could be negatively impacted.
The Company is currently working with the supplier
of THC-V to determine the impact, if any, the ruling may have on our ability to market THC-V products.
The DEA published the following summary:
The purpose of this interim final rule is to
codify in the Drug Enforcement Administration (DEA) regulations and statutory amendments to the Controlled Substances Act (CSA)
made by the Agriculture Improvement Act of 2018 (AIA), regarding the scope of regulatory controls over marihuana, tetrahydrocannabinols,
and other marihuana-related constituents. This interim final rule merely conforms DEA's regulations to the statutory amendments
to the CSA that have already taken effect, and it does not add additional requirements to the regulations.
The Agriculture Improvement Act of 2018, Public
Law 115-334 (the AIA), was signed into law on December 20, 2018. It provided a new statutory definition of “hemp” and
amended the definition of marihuana under 21 U.S.C. 802(16) and the listing of tetrahydrocannabinols under 21 U.S.C. 812(c). The
AIA thereby amends the regulatory controls over marihuana, tetrahydrocannabinols, and other marihuana-related constituents in the
Controlled Substances Act (CSA).
The rulemaking makes four conforming changes
to DEA's existing regulations:
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It modifies 21 CFR 1308.11(d)(31) by adding language stating that the definition of “Tetrahydrocannabinols” does not include “any material, compound, mixture, or preparation that falls within the definition of hemp set forth in 7 U.S.C. 1639 o.”
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It removes from control in schedule V under 21 CFR 1308.15(f) a “drug product in finished dosage formulation that has been approved by the U.S. Food and Drug Administration that contains cannabidiol (2-[1R-3-methyl-6R-(1-methylethenyl)-2-cyclohexen-1-yl]-5-pentyl-1,3-benzenediol) derived from cannabis and no more than 0.1% (w/w) residual tetrahydrocannabinols.”
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It also removes the import and export controls described in 21 CFR 1312.30(b) over those same substances.
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It modifies 21 CFR 1308.11(d)(58) by stating that the definition of “Marihuana Extract” is limited to extracts “containing greater than 0.3 percent delta-9-tetrahydrocannabinol on a dry weight basis.”
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According to the DEA, the AIA does not impact
the control status of synthetically derived tetrahydrocannabinols (for Controlled Substance Code Number 7370) because the statutory
definition of “hemp” is limited to materials that are derived from the plant Cannabis sativa L. For synthetically derived
tetrahydrocannabinols, the concentration of Δ9-THC is not a determining factor in whether the material is a controlled
substance. All synthetically derived tetrahydrocannabinols remain schedule I controlled substances.
We could become subject to other FDA
regulations.
The cannabinoid delivery technologies we are
developing could at a later date become subject to increased government regulation. Such additional regulations and could have
an adverse effect on our business operations.
RISKS ASSOCIATED WITH BANK AND INSURANCE
LAWS AND REGULATIONS
We and our customers may have difficulty
accessing the service of banks, which may make it difficult to sell our products and services and manage our cash flows.
Since the commerce in cannabis, as not strictly
defined in the 2018 Farm Bill, is illegal under federal law, federally most chartered banks will not accept deposit funds from
businesses involved with cannabis. Consequently, businesses involved in the cannabis industry often have trouble finding a bank
willing to accept their business. The inability to open bank accounts may make it difficult for our customers to operate. There
does appear to be recent movement to allow state-chartered banks and credit unions to provide banking to the industry, but as of
the date of this report there are only nominal entities that have been formed that offer these services. Further, in a February
6, 2018, Forbes article, United States Secretary of the Treasury, Steven Mnuchin, is reported to have testified that his department
is “reviewing the existing guidance.” But he clarified that he doesn’t want to rescind it without having an alternate
policy in place to address public safety concerns.
Financial transactions involving proceeds generated
by cannabis-related conduct can form the basis for prosecution under the federal money laundering statutes, unlicensed money transmitter
statute and the U.S. Bank Secrecy Act. Despite guidance from the U.S. Department of the Treasury suggesting it may be possible
for financial institutions to provide services to cannabis-related businesses consistent with their obligations under the Bank
Secrecy Act, banks remain hesitant to offer banking services to cannabis-related businesses. Consequently, those businesses involved
in the cannabis industry continue to encounter difficulty establishing banking relationships. Our inability to maintain our current
bank accounts would make it difficult for us to operate our business, increase our operating costs, and pose additional operational,
logistical and security challenges and could result in our inability to implement our business plan. Similarly, many of our customers
are directly involved in cannabis sales and further restrictions to their ability to access banking services may make it difficult
for them to purchase our products, which could have a material adverse effect on our business, financial condition and results
of operations.
We are subject to certain federal regulations
relating to cash reporting.
The Bank Secrecy Act, enforced by FinCEN, requires
us to report currency transactions in excess of $10,000, including identification of the customer by name and social security number,
to the IRS. This regulation also requires us to report certain suspicious activity, including any transaction that exceeds $5,000
that we know, suspect or have reason to believe involves funds from illegal activity or is designed to evade federal regulations
or reporting requirements and to verify sources of funds. Substantial penalties can be imposed against us if we fail to comply
with this regulation. If we fail to comply with these laws and regulations, the imposition of a substantial penalty could have
a material adverse effect on our business, financial condition and results of operations.
Due to our involvement in the cannabis
industry, we may have a difficult time obtaining the various insurances that are desired to operate our business, which may expose
us to additional risk and financial liability.
Insurance that is otherwise readily available,
such as general liability, and directors and officer’s insurance, is more difficult for us to find, and more expensive, because
we are service providers to companies in the cannabis industry. There are no guarantees that we will be able to find such insurance(s)
in the future, or that the cost will be affordable to us. If we are forced to go without such insurance(s), it may prevent us from
entering into certain business sectors, may inhibit our growth, and may expose us to additional risk and financial liabilities
RISK ASSOCIATED WITH OUR INDUSTRY
Our Business Can be Affected by Unusual
Weather Patterns.
Hemp and cannabis cultivation can be impacted
by weather patterns and these unpredictable weather patterns may impact our ability to harvest hemp. In addition, severe weather,
including drought and hail, can destroy a hemp crop, which could result in us having no hemp to harvest, process and sell. If suppliers
are unable to obtain sufficient hemp from which to process CBD, our ability to meet customer demand, generate sales, and maintain
operations will be impacted.
Our business and financial performance
may be adversely affected by downturns in the target markets that we serve or reduced demand for the types of products we sell.
Demand for our products is often affected by
general economic conditions as well as product-use trends in our target markets. These changes may result in decreased demand for
our products. The occurrence of these conditions is beyond our ability to control and, when they occur, they may have a significant
impact on our sales and results of operations. The inability or unwillingness of our customers to pay a premium for our products
due to general economic conditions or a downturn in the economy may have a significant adverse impact on our sales and results
of operations.
Changes within the cannabis industry
may adversely affect our financial performance.
Changes in the identity, ownership structure
and strategic goals of our competitors and the emergence of new competitors in our target markets may harm our financial performance.
New competitors may include foreign-based companies and commodity-based domestic producers who could enter our specialty markets
if they are unable to compete in their traditional markets. The paper industry has also experienced consolidation of producers
and distribution channels. Further consolidation could unite other producers with distribution channels through which we intend
to sell our products, thereby limiting access to our target markets.
We may be subject to certain tax risks
and treatments that could negatively impact our results of operations.
Section 280E of the Internal Revenue Code,
as amended, prohibits businesses from deducting certain expenses associated with trafficking-controlled substances (within the
meaning of Schedule I and II of the Controlled Substances Act). The IRS has invoked Section 280E in tax audits against various
cannabis businesses in the U.S. that are permitted under applicable state laws. Although the IRS issued a clarification allowing
the deduction of certain expenses, the scope of such items is interpreted very narrowly, and the bulk of operating costs and general
administrative costs are not permitted to be deducted. While there are currently several pending cases before various administrative
and federal courts challenging these restrictions, there is no guarantee that these courts will issue an interpretation of Section
280E favorable to cannabis businesses.
The Company’s industry is highly
competitive, and we have less capital and resources than many of our competitors which may give them an advantage in developing
and marketing products similar to ours or make our products obsolete.
We are involved in a highly competitive industry
where we may compete with numerous other companies who offer alternative methods or approaches, who may have far greater resources,
more experience, and personnel perhaps more qualified than we do. Such resources may give our competitors an advantage in developing
and marketing products similar to ours or products that make our products less desirable to consumers or obsolete. There can be
no assurance that we will be able to successfully compete against these other entities.
We may be unable to respond to the rapid
technological change in the industry and such change may increase costs and competition that may adversely affect our business.
Rapidly changing technologies, frequent new
product and service introductions and evolving industry standards characterize our market. The continued growth of the Internet
and intense competition in our industry exacerbates these market characteristics. Our future success will depend on our ability
to adapt to rapidly changing technologies by continually improving the performance features and reliability of our products. We
may experience difficulties that could delay or prevent the successful development, introduction or marketing of our products.
In addition, any new enhancements must meet the requirements of our current and prospective customers and must achieve significant
market acceptance. We could also incur substantial costs if we need to modify our products and services or infrastructures to adapt
to these changes.
We also expect that new competitors may introduce
products or services that are directly or indirectly competitive with us. These competitors may succeed in developing products
and services that have greater functionality or are less costly than our products and services and may be more successful in marketing
such products and services. Technological changes have lowered the cost of operating, communications and computer systems and purchasing
software. These changes reduce our cost of selling products and providing services, but also facilitate increased competition by
reducing competitors’ costs in providing similar products and services. This competition could increase price competition
and reduce anticipated profit margins.
RISKS RELATED TO OUR COMMON STOCK
We may need additional capital
that will dilute the ownership interest of investors.
We may require additional capital to fund our
future business operations. If we raise additional funds through the issuance of equity, equity-related or convertible debt securities,
these securities may have rights, preferences or privileges senior to those of the rights of holders of our shares of common stock,
who may experience dilution of their ownership interest of our shares of Common Stock. We cannot predict whether additional financing
will be available to us on favorable terms when required, or at all. Since our inception, we have experienced negative cash flow
from operations and expect to experience significant negative cash flow from operations in the future. The issuance of additional
shares of Common Stock by our board of directors may have the effect of further diluting the proportionate equity interest and
voting power of holders of our shares of Common Stock.
Our shares of Common Stock qualify as
a penny stock. As such, we are subject to the risks associated with "penny stocks". Regulations relating to "penny
stocks" limit the ability of our shareholders to sell their shares and, as a result, our shareholders may have to hold their
shares indefinitely.
Our shares of Common Stock are deemed to be
"penny stock" as that term is defined in Regulation Section 240.3a51-1 of the Securities and Exchange Commission. Penny
stocks are stocks: (a) with a price of less than $5.00 per share; (b) that are not traded on a "recognized" national
exchange; (c) whose prices are not quoted on the NASDAQ automated quotation system (NASDAQ - where listed stocks must still meet
requirement (a) above); or (d) in issuers with net tangible assets of less than $2,000,000 (if the issuer has been in continuous
operation for at least three years) or $5,000,000 (if in continuous operation for less than three years), or with average revenues
of less than $6,000,000 for the last three years.
Section 15(g) of the Securities Exchange Act
of 1934 and Regulation 240.15g(c)2 of the Securities and Exchange Commission require broker dealers dealing in penny stocks to
provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written
receipt of the document before effecting any transaction in a penny stock for the investor's account. Potential investors in our
shares of Common Stock are urged to obtain and read such disclosure carefully before purchasing any shares of Common Stock that
are deemed to be "penny stock".
Moreover, Regulation 240.15g-9 of the SEC requires
broker dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny
stock to that investor. This procedure requires the broker dealer to: (a) obtain from the investor information concerning his or
her financial situation, investment experience and investment objectives; (b) reasonably determine, based on that information,
that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as
to be reasonably capable of evaluating the risks of penny stock transactions; (c) provide the investor with a written statement
setting forth the basis on which the broker dealer made the determination in (ii) above; and (d) receive a signed and dated copy
of such statement from the investor confirming that it accurately reflects the investor's financial situation, investment experience
and investment objectives. Compliance with these requirements may make it more difficult for investors in our shares of Common
Stock to resell their shares to third parties or to otherwise dispose of them. Holders should be aware that, according to SEC Release
No. 34-29093, dated April 17, 1991, the market for penny stocks suffers from patterns of fraud and abuse.
Our Management is aware of the abuses that
have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of
the market or of broker-dealers who participate in the market, Management will strive within the confines of practical limitations
to prevent the described patterns from being established with respect to our securities.
We will be controlled by existing shareholders.
Our directors and officers currently in place
control a significant portion of our shares and have super voting rights relative to preferred shares. Thus, they will continue
to oversee the Company’s operations. As a result, our directors and officers will likely have a significant influence on
the affairs and management of the Company, as well as on all matters requiring stockholder approval, including electing and removing
members of its board of directors, causing the Company to engage in transactions with affiliated entities, causing or restricting
the sale or merger of the Company and changing the company’s dividend policy. Such concentration of ownership and control
could have the effect of delaying, deferring or preventing a change in control of the Company, even when such a change of control
would be in the best interests of the company’s other stockholders.
We have the ability to issue additional
shares of our shares of preferred stock without asking for stockholder approval, which could cause your investment to be diluted.
Our Articles of Incorporation authorizes the
Board of Directors to issue up to 290,000,000 shares of Common Stock. The power of the Board of Directors to issue shares
of Common Stock, preferred stock or warrants or options to purchase shares of Common Stock or preferred stock is generally not
subject to stockholder approval. Accordingly, any additional issuance of our shares of Common Stock, or shares of preferred stock
that may be convertible into Common Stock, may have the effect of diluting your investment. Currently authorized are ten million
(10,000,000) shares of preferred stock, par value $0.0001 per share, of the Company Preferred Stock in one or more series, and
expressly authorized the Board of Directors of the Company, subject to limitations prescribed by law, to provide, out of the unissued
shares of Preferred Stock, for series of Preferred Stock, and, with respect to each such series, to establish and fix the number
of shares to be included in any series of Preferred Stock and the designation, rights, preferences, powers, restrictions, and limitations
of the shares of such series. On December 16, 2019, the Board of Directors authorized the issuance of eight million (8,000,000)
preferred shares as “Series A Preferred Stock.” The Series A Preferred Stock is not convertible into any other form
of Securities, including common shares, of the Company. Holders of Series A Preferred Stock shall be entitled to fifty (50) votes
for every Share of Series A Preferred Stock beneficially owned as of the record date for any shareholder vote or written consent.
On May 28, 2020, Mr. Robert L. Hymers III, a former director and former chief financial officer, returned 2,000,000 Series A Preferred
shares to the corporate treasury. As of the date of this filing, there were 6,000,000 Series A Preferred shares issued and outstanding.
FINRA sales practice requirements may
also limit a stockholder’s ability to buy and sell our stock and to deposit certificates in paper form or to clear shares
for trading under Safe Harbor exemptions and regulations for unregistered shares.
In addition to the “penny stock”
rules described above, the Financial Industry Regulatory Authority (known as “FINRA”) has adopted rules that require
that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment
is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers
must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives
and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced
securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker- dealers to recommend
that their customers buy our shares of Common Stock, which may limit your ability to buy and sell our stock and have an adverse
effect on the market for our shares. FINRA requirements make it more difficult for our investors to deposit paper stock certificates
or to clear our shares of Common Stock that are transferred electronically to brokerage accounts. There can be no assurances that
our investors will be able to clear our shares for eventual resale.
Costs and expenses of being a reporting
company under the 1934 Securities Exchange Act may be burdensome and prevent us from achieving profitability.
As a public company, we are subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended, and parts of the Sarbanes-Oxley Act. We expect that
the requirements of these rules and regulations will continue to increase our legal, accounting and financial compliance costs,
make some activities more difficult, time-consuming and costly, and place significant strain on our personnel, systems and resources.
Since our shares of Common Stock is thinly
traded it is more susceptible to extreme rises or declines in price, and you may not be able to sell your shares at or above the
price paid.
Since our shares of Common Stock are thinly
traded its trading price is likely to be highly volatile and could be subject to extreme fluctuations in response to various factors,
many of which are beyond our control, including (but not necessarily limited to): the trading volume of our shares, the number
of analysts, market-makers and brokers following our shares of Common Stock, new products or services introduced or announced by
us or our competitors, actual or anticipated variations in quarterly operating results, conditions or trends in our business industries,
additions or departures of key personnel, sales of our shares of Common Stock and general stock market price and volume fluctuations
of publicly traded, and particularly microcap, companies.
Investors may have difficulty reselling shares
of our Common Stock, either at or above the price they paid for our stock, or even at fair market value. The stock markets often
experience significant price and volume changes that are not related to the operating performance of individual companies, and
because our shares of Common Stock are thinly traded it is particularly susceptible to such changes. These broad market changes
may cause the market price of our shares of Common Stock to decline regardless of how well we perform as a company. In addition,
there is a history of securities class action litigation following periods of volatility in the market price of a company’s
securities. Although there is no such litigation currently pending or threatened against us, such a suit against us could result
in the incursion of substantial legal fees, potential liabilities and the diversion of management’s attention and resources
from our business. Moreover, and as noted below, our shares are currently traded on the OTC Markets Pink and, further, are subject
to the penny stock regulations. Price fluctuations in such shares are particularly volatile and subject to potential manipulation
by market-makers, short-sellers and option traders.
We do not expect to pay any dividends
on our common stock.
We do not anticipate that we will pay any cash
dividends to holders of our common stock in the foreseeable future. Instead, we plan to retain any earnings to maintain and expand
our existing operations. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never
occur, as the only way to realize any return on their investment.
We are involved in litigation, the outcome
of which could affect the value of our common shares.
On November 22, 2019, the Company filed suit
against Jeet Sidhru and Jatinder Bhogal in the District Court of Clark County Nevada, Case number A-19-805943-C. Mr. Sidhru and
Mr. Bhogal were formerly directors and officers of the Company. The Company’s complaint alleges that Mr. Sidhru and Mr. Bhogal
breached their fiduciary duties to the Company, including their fiduciary duties of due care, good faith and loyalty, by recklessly
and intentionally failing to maintain the Company’s statutory corporate filings with the State of Nevada, OTC Markets and
the U.S. Securities and Exchange Commission, and abandoning the Company and its shareholders. The Company’s complaint also
alleges that Mr. Sidhru and Mr. Bhogal engaged in conflicted transactions involving the Company, in which each were unjustly enriched.
The Company served Mr. Bhogal, and received notice of representation of both defendants. The case is currently in its early phase,
as neither defendant has answered the complaint. The outcome of this suit againt Mr. Bhogal and Mr. Sidjru is uncertain. If the
Company were unable to prevail in the suit, the value of the common shares and the overall value of the Company could be negatively
affected.
There could be unidentified risks involved
with an investment in our securities or relating to our Company.
The foregoing risk factors are not a complete
list or explanation of the risks involved with an investment in the securities. Additional risks will likely be experienced that
are not presently foreseen by the Company. Prospective investors must not construe this and the information provided herein as
constituting investment, legal, tax or other professional advice. Before making any decision to invest in our securities, you should
read this entire filing and consult with your own investment, legal, tax and other professional advisors. An investment in our
securities is suitable only for investors who can assume the financial risks of an investment in the Company for an indefinite
period of time and who can afford to lose their entire investment. The Company makes no representations or warranties of any kind
with respect to the likelihood of the success or the business of the Company, the value of our securities, any financial returns
that may be generated or any tax benefits or consequences that may result from an investment in the Company.
RISKS RELATED TO THE OFFERING
Since our shares of Common Stock is thinly
traded it is more susceptible to extreme rises or declines in price, and you may not be able to sell your shares at or above the
price paid.
Since our shares of Common Stock are thinly
traded its trading price is likely to be highly volatile and could be subject to extreme fluctuations in response to various factors,
many of which are beyond our control, including (but not necessarily limited to): the trading volume of our shares, the number
of analysts, market-makers and brokers following our shares of Common Stock, new products or services introduced or announced by
us or our competitors, actual or anticipated variations in quarterly operating results, conditions or trends in our business industries,
additions or departures of key personnel, sales of our shares of Common Stock and general stock market price and volume fluctuations
of publicly traded, and particularly microcap, companies.
Investors may have difficulty reselling shares
of our Common Stock, either at or above the price they paid for our stock, or even at fair market value. The stock markets often
experience significant price and volume changes that are not related to the operating performance of individual companies, and
because our shares of Common Stock are thinly traded it is particularly susceptible to such changes. These broad market changes
may cause the market price of our shares of Common Stock to decline regardless of how well we perform as a company. In addition,
there is a history of securities class action litigation following periods of volatility in the market price of a company’s
securities. Although there is no such litigation currently pending or threatened against us, such a suit against us could result
in the incursion of substantial legal fees, potential liabilities and the diversion of management’s attention and resources
from our business. Moreover, and as noted below, our shares are currently traded on the OTC Markets Pink and, further, are subject
to the penny stock regulations. Price fluctuations in such shares are particularly volatile and subject to potential manipulation
by market-makers, short-sellers and option traders.
Our existing directors, executive officers
and principal stockholders will continue to have substantial control over us after this offering, which could limit your ability
to influence the outcome of key transactions, including a change of control.
After this offering our directors, executive
officer, principal stockholders and their affiliates will beneficially own or control, directly or indirectly, a significant majority
of our shares. As a result, these stockholders, acting together, could have significant influence over the outcome of matters submitted
to our stockholders for approval, including the election or removal of directors, any amendments to our certificate of incorporation
or bylaws and any merger, consolidation or sale of all or substantially all of our assets, and over the management and affairs
of our company. This concentration of ownership may also have the effect of delaying or preventing a change in control of our company
or discouraging others from making tender offers for our shares and might affect the market price of our common stock.
Because we do not expect to pay any dividends
on our common stock for the foreseeable future, investors in this offering may never receive a return on their investment.
We do not anticipate that we will pay any cash
dividends to holders of our common stock in the foreseeable future. Instead, we plan to retain any earnings to maintain and expand
our existing operations. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never
occur, as the only way to realize any return on their investment.
There could be unidentified risks involved
with an investment in our securities.
The foregoing risk factors are not a complete
list or explanation of the risks involved with an investment in the securities. Additional risks will likely be experienced that
are not presently foreseen by the Company. Prospective investors must not construe this and the information provided herein as
constituting investment, legal, tax or other professional advice. Before making any decision to invest in our securities, you should
read this entire prospectus and consult with your own investment, legal, tax and other professional advisors. An investment in
our securities is suitable only for investors who can assume the financial risks of an investment in the Company for an indefinite
period of time and who can afford to lose their entire investment. The Company makes no representations or warranties of any kind
with respect to the likelihood of the success or the business of the Company, the value of our securities, any financial returns
that may be generated or any tax benefits or consequences that may result from an investment in the Company.
USE OF PROCEEDS
We will not receive any proceeds from the sale
of shares of our common stock by the selling stockholders. However, we received proceeds from the sale of shares of our common
stock pursuant to the Direct Public Offering. We will use these proceeds for general corporate and working capital purposes and
acquisitions or assets, businesses or operations or for other purposes that our board of directors, in its good faith, deems to
be in the best interest of the Company.
We paid for expenses of this offering, except
that the selling stockholders will pay any broker discounts or commissions or equivalent expenses and expenses of its legal counsel
applicable to the sale of its shares.
Proceeds from the Direct Public Offering were used for general working
capital, purchase of capital equipment to enter new business areas and research and development, and to pay outstanding debt, as
set forth below. The table below reflects the gross amounts of the Offering prior to the expenses of $6,524.66.
Percentage of Offering
Shares Sold
|
|
100%
|
|
75%
|
|
50%
|
|
25%
|
|
|
|
|
|
|
|
|
|
Debt Repayment
|
|
$
|
200,000
|
|
|
$
|
150,000
|
|
|
$
|
100,000
|
|
|
$
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounting, Audit, Transfer Agent, Edgar Agent, and Other Fees associated with being a publicly traded company
|
|
$
|
100,000
|
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
|
$
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
|
$
|
50,000
|
|
|
$
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product Supplies
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
|
$
|
25,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
100,000
|
|
|
$
|
75,000
|
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working Capital
|
|
$
|
250,000
|
|
|
$
|
175,000
|
|
|
$
|
125,000
|
|
|
$
|
25,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Use of Proceeds
|
|
$
|
800,000
|
|
|
$
|
600,000
|
|
|
$
|
400,000
|
|
|
$
|
200,000
|
|
The Company anticipates the estimated $800,000
gross proceeds from the Maximum Offering will enable it to continue its research and development effort, launch product lines and
fund its other capital needs for the next fiscal year.
SELLING STOCKHOLDERS
The following table sets forth the shares beneficially
owned, as of June 5, 2020, by the Selling Security Holders prior to the offering contemplated by this prospectus, the number of
shares each Selling Security Holder is offering by this prospectus and the number of shares which each would own beneficially if
all such offered shares are sold.
Beneficial ownership is determined in accordance
with Securities and Exchange Commission rules. Under these rules, a person is deemed to be a beneficial owner of a security if
that person or his/her spouse has or shares voting power, which includes the power to vote or direct the voting of the security,
or investment power, which includes the power to vote or direct the voting of the security. The person is also deemed to be a beneficial
owner of any security of which that person has a right to acquire beneficial ownership within 60 days. Under the Securities and
Exchange Commission rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may
be deemed to be a beneficial owner of securities as to which he or she may not have any pecuniary beneficial interest. Except as
noted below, each person has sole voting and investment power.
In total, 3,775,163 shares are being registered
by the Selling Shareholders. Of these shares, 1,452,941 were purchased in private transactions, 1,388,888 for services in lieu
of cash compensation and 400,000 are related to compensation for the Lelantos Biotech, Inc. acquisition. The Company will not receive
any proceeds from the sale of the Selling Shareholder shares. The Selling Shareholders have no agreement with any underwriters
with respect to the sale of the Selling Shareholder Shares. The Selling Shareholders, who are deemed to be statutory underwriters,
will offer their shares at market prices from time to time through various methods, including, but not limited to ordinary broker’s
transactions, privately negotiated transactions or through sales to one or more dealers for resale. None of the Selling Security
Holders is a registered broker-dealer or an affiliate of a registered broker-dealer.
The percentages below are calculated based
on 27,069,598 common shares, which includes 22,595,658 common shares outstanding as of June 5, 2020 and 4,473,940 shares from the
Company to be sold in the Offering.
Name of Selling Security Holder
|
|
Number of Shares Owned by the Selling Security Holder
|
|
Number of Shares offered by Selling Security Holder
|
|
Number of Shares Held After the Offering
|
|
Percentage of Total Issued and Outstanding after the Offering
|
Pinnacle Consulting Services (1)
|
|
|
1,100,000
|
|
|
|
1,100,000
|
|
|
|
0
|
|
|
|
0.00
|
%
|
Arman Tabatabaei(2)
|
|
|
2,994,902
|
|
|
|
1,000,000
|
|
|
|
1,994,902
|
|
|
|
7.37
|
%
|
Tabular Investments LLC(3)
|
|
|
3,682,222
|
|
|
|
500,000
|
|
|
|
3,182,222
|
|
|
|
11.76
|
%
|
Paladin Advisors, LLC
|
|
|
602,942
|
|
|
|
469,608
|
|
|
|
133,334
|
|
|
|
0.49
|
%
|
Mount Fire, LLC
|
|
|
400,000
|
|
|
|
400,000
|
|
|
|
0
|
|
|
|
0.00
|
%
|
Sayed Ehasn Tabatabaei(4)
|
|
|
333,333
|
|
|
|
277,777
|
|
|
|
55,556
|
|
|
|
0.21
|
%
|
Thomas Shea
|
|
|
27,778
|
|
|
|
27,778
|
|
|
|
0
|
|
|
|
0.00
|
%
|
Notes on Selling Shareholders:
|
(1)
|
Pinnacle Consulting Services, Inc. is controlled by Robert L. Hymers III, who is a former director and a former chief financial officer of the Company.
|
|
(2)
|
Arman Tabatabaei is the chairman and its chief executive officer, chief financial officers, and treasurer.
|
|
(3)
|
Tabular Investments, LLC is controlled by Tad Mailander. Ownership includes 33,333 shares personally owned. Mr. Mailander is outside legal counsel for the Company.
|
|
(5)
|
Sayed Ehasn Tabatabaei is the brother of chairman, CEO, CFO, and treasurer, Arman Tabatabaei. Arman Tabatabaei disavows ownership of the shares held by Sayed E. Tabatabaei.
|
PLAN OF DISTRIBUTION
The Primary Offering shares are sold in a “Direct
Public Offering” through our officer and director, Arman Tabatabaei, who may be considered an underwriter as that term is
defined in Section 2(a) (11). Mr. Tabatabaei did not receive any commission in connection with the sale of shares. Mr. Tabatabaei
sold the shares being registered according to the following plan of distribution:
Shares were offered to friends, family, business
associates and other associates of Mr. Tabatabaei.
Mr. Tabatabaei relied on Rule 3a4-1(a)(4)(ii)
of the Exchange Act as a “safe harbor” from registration as a broker-dealer in connection with the offer and sale of
the shares. In order to rely on such “safe harbor” provisions provided by Rule 3a4-1(a) (4) (ii), he complied with
all of the following:
|
●
|
he was not be subject to a statutory disqualification;
|
|
|
|
|
●
|
he was not compensated in connection with such selling participation by payment of commissions or other payments based either directly or indirectly on such transactions;
|
|
|
|
|
●
|
he was not be an associated person of a broker-dealer;
|
|
|
|
|
●
|
he primarily performed substantial duties for or on behalf of the Company otherwise than in connection with transactions in securities; and
|
|
|
|
|
●
|
he performed substantial duties for the issuer after the close of the offering not connected with transactions in securities, and has not been associated with a broker or dealer for the preceding 12 months.
|
Mr. Tabatabaei purchased no shares in the offering.
Shares were purchased by completing a subscription
agreement and delivering it with payment in full for all shares, purchased. A copy of the form of that subscription agreement was
attached as an exhibit to our registration statement of which this Prospectus is a part. Acceptance will be based upon confirmation
that you have purchased the shares in a state providing for an exemption from registration. Our subscription process is as follows:
|
●
|
prospectus, with subscription agreement, was delivered by the Company to each offeree;
|
|
●
|
the subscription was completed by the offeree, and submitted with check back to the Company;
|
|
●
|
each subscription is reviewed by the Company to confirm the subscribing party completed the form, and to confirm the state of acceptance;
|
|
●
|
once approved, the subscription is accepted by Mr. Tabatabaei, and the funds were deposited into an account labeled: Action Nutraceuticals, Inc., a wholly owned subsidiary of Cannabis Global, Inc. within four (4) days of acceptance;
|
|
●
|
subscriptions not accepted are returned with all funds sent with the subscription within three business days of the Company’s receipt of the subscription, without interest or deduction of any kind.
|
The Direct Primary Offering terminated on August 17, 2020. The Company
sold a total of 4,473,940 common shares in five transactions.
The Selling Security Holders and any of their
pledgees, donees, transferees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of
our common stock on any stock exchange, market or trading facility on which the shares are traded or quoted or in private transactions.
The Selling Security Holders may use any one or more of the following methods when selling shares:
|
●
|
ordinary brokerage transactions and transactions in which the broker-dealer solicits Investors;
|
|
●
|
block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
|
|
●
|
purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
|
|
●
|
an exchange distribution in accordance with the rules of the applicable exchange;
|
|
●
|
privately negotiated transactions;
|
|
●
|
broker-dealers may agree with the Selling Security Holders to sell a specified number of such shares at a fixed price per share;
|
|
●
|
a combination of any such methods of sale; and
|
|
●
|
any other method permitted pursuant to applicable law.
|
Broker-dealers engaged by the Selling Security
Holders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from
the Selling Security Holders, or, if any broker-dealer acts as an agent for the purchaser of shares, from the purchaser, in amounts
to be negotiated. The Selling Security Holders do not expect these commissions and discounts to exceed what is customary in the
types of transactions involved.
The Selling Security Holders may from time
to time pledge or grant a security interest in some or all of the shares owned by them and, if they default in the performance
of their secured obligations, the pledgees or secured parties may offer and sell shares of our common stock from time to time under
this prospectus, or under an amendment to this prospectus under Rule 462(c) or other applicable provision of the Securities Act
of 1933 amending the list of selling security holders to include the pledgee, transferee or other successors in interest as selling
security holders under this prospectus.
The SEC has adopted rules that regulate broker-dealer
practices in connection with transactions in “penny stocks.” Penny stocks generally are equity securities with a price
of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided
that current price and volume information with respect to transactions in such securities is provided by the exchange or system.
The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to
deliver to the prospective purchaser a standardized risk disclosure document prepared by the Securities and Exchange Commission
that provides information about penny stocks and the nature and level of risks in the penny stock market. In addition, the penny
stock rules require that prior to a transaction in a penny stock not otherwise exempt from such rules; the broker-dealer must make
a special written determination that the penny stock is a suitable investment for the prospective purchaser and receive the purchaser’s
written agreement to the transaction. Furthermore, subsequent to a transaction in a penny stock, the broker-dealer will be required
to deliver monthly or quarterly statements containing specific information about the penny stock. It is anticipated that our common
stock will be traded on the OTC Pink at a price of less than $5.00. In this event, broker-dealers would be required to comply with
the disclosure requirements mandated by the penny stock rules. These disclosure requirements will likely make it more difficult
for investors in this offering to sell their common stock in the secondary market.
Upon our being notified in writing by a Selling
Security Holder that any material arrangement has been entered into with a broker-dealer for the sale of our common stock through
a block trade, special offering, exchange distribution or secondary distribution or a purchase by a broker or dealer, a post-effective
amendment to this prospectus will be filed, if required, pursuant to Rule 462(c) under the Securities Act, disclosing (i) the name
of each such Selling Security Holder and of the participating broker-dealer(s), (ii) the number of shares involved, (iii) the price
at which such shares of our common stock were sold, (iv)the commissions paid or discounts or concessions allowed to such broker-dealer(s).
In addition, upon our being notified in writing by a Selling Security Holder that a donee or pledgee intends to sell more than
500 shares of our common stock, a post-effective amendment to this prospectus will be filed if then required in accordance with
applicable securities law.
Prior to any involvement of any broker-dealer
in the offering, such broker-dealer must seek and obtain clearance of the underwriting compensation and arrangements from FINRA.
The Selling Security Holders also may transfer
the shares of our common stock in other circumstances, in which case the transferees, pledgees or other successors in interest
will be the selling beneficial owners for purposes of this prospectus.
The Selling Security Holders and any broker-dealers
or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities
Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Discounts,
concessions, commissions and similar selling expenses, if any, that can be attributed to the sale of Securities will be paid by
the Selling Security Holder and/or the purchasers. Each Selling Security Holder has represented and warranted to us that it acquired
the securities subject to this prospectus in the ordinary course of such Selling Security Holders business and, at the time of
its purchase of such securities such Selling Security Holder had no agreements or understandings, directly or indirectly, with
any person to distribute any such securities.
We have advised each Selling Security Holder
that it may not use shares registered on this prospectus to cover short sales of our common stock made prior to the date on which
this prospectus shall have been declared effective by the Commission. If a Selling Security Holder uses this prospectus for any
sale of our common stock, it will be subject to the prospectus delivery requirements of the Securities Act. The Selling Security
Holders will be responsible to comply with the applicable provisions of the Securities Act and Exchange Act, and the rules and
regulations there under promulgated, including, without limitation, Regulation M, as applicable to such Selling Security Holders
in connection with resales of their respective shares under this prospectus.
We are required to pay all fees and expenses
incident to the registration of the shares. We have agreed to indemnify the Selling Security Holders against certain losses, claims,
damages and liabilities, including liabilities under the Securities Act.
All sales by the Company through direct Primary
Offering will be issued directly from the Company to the subscriber as a proceeds-generating offering for the Company.
DILUTION
Prior to the Offering, there were 37,314,845
common shares outstanding. The shares of the Company’s common stock being offered by the Company represent dilution to common
shareholders and resulted in a new total for outstanding and issued common shares of 47,314,845, assuming all such shares are sold
under this Offering.
The following table illustrates the net result
to investors on an approximate dollar per share basis, depending upon whether we sell 100%, 75%, 50%, or 25% of the shares being
offered in the Primary Offering based on net proceed, less $6,524.66 in expense, as outlined above:
Percentage of Offering Shares Sold
|
|
|
100%
|
|
|
|
75%
|
|
|
|
50%
|
|
|
|
25%
|
|
Offering price per share
|
|
|
0.49
|
|
|
|
0.49
|
|
|
|
0.49
|
|
|
|
0.49
|
|
Net tangible book value per share before offering
|
|
|
(0.10
|
)
|
|
|
(0.10
|
)
|
|
|
(0.10
|
)
|
|
|
(0.10
|
)
|
Increase per share attributable to investors
|
|
|
0.11
|
|
|
|
0.08
|
|
|
|
0.05
|
|
|
|
0.03
|
|
Pro forma net tangible book value per share after offering
|
|
|
0.05
|
|
|
|
0.02
|
|
|
|
0.00
|
|
|
|
(0.03
|
)
|
DESCRIPTION OF PROPERTY
Our headquarters are located at 520 S. Grand
Avenue, Suite 320, Los Angeles, California 90071 where are we lease office space under a contract effective August 15, 2019, which
expired on August 14, 2020. We now rent the office space on a month to month basis for $800 per month.
Our Company has also entered into a lease for
a commercial food production facility, which is also located in Los Angeles, California. The one-year lease at rate of $3,300 per
month was entered into as of August 2019. The lease is expired with the location now being rented on a month to month basis.
We believe that our existing office facilities
are adequate for our needs. Should we require additional space at that time, or prior thereto, we believe that such space can be
secured on commercially reasonable terms.
DESCRIPTION OF SECURITIES
General
The corporation is authorized to issue up to 290,000,000
shares of Common Stock with a par value of $.001 per share.
As of August 31, 2020, which is the date of
the closing of our last fiscal year, there were 27,082,419 shares issued and outstanding.
As of immediately prior to this filing, November
10, 2020, there were 37,314,845. This amount does not include the 10,000,000 shares being offer by the Company.
Our Certificate of Incorporation of the Corporation
(the "Certificate of Incorporation") authorizes the issuance of up to ten million (10,000,000) shares of preferred stock,
par value $0.0001 per share, of the Corporation ("Preferred Stock") in one or more series, and expressly authorizes the
Board of Directors of the Corporation (the "Board"), subject to limitations prescribed by law, to provide, out of the
unissued shares of Preferred Stock, for series of Preferred Stock, and, with respect to each such series, to establish and fix
the number of shares to be included in any series of Preferred Stock and the designation, rights, preferences. One Series of Preferred
shares has been designated named Series A Preferred. The number of Shares constituting such series is eight million (8,000,000).
As of August 31, 2020, 6,000,000 shares have been issued. With respect to payment of assets upon liquidation, dissolution, or winding
up of the Corporation, whether voluntary or involuntary, all Shares of the Series A Preferred Stock shall rank senior to all Junior
Securities. Series A is not eligible to participate, receive or accrue dividends. Each holder of outstanding Shares of Series A
Preferred Stock shall be entitled to vote with holders of outstanding shares of Common Stock, voting together as a single class,
with respect to any and all matters presented to the stockholders of the Corporation for their action or consideration (whether
at a meeting of stockholders of the Corporation, by written action of stockholders in lieu of a meeting or otherwise. Each Share
of Series A Preferred Stock shall be entitled to fifty (50) votes for every Share of Series A Preferred Stock.
Subject to the preferences that may be applicable
to any outstanding classes of stock, the holders of the shares of Common Stock will share equally on a per share basis any dividends,
when and if declared by the Board of Directors out of funds legally available for that purpose. If the Company is liquidated, dissolved,
or wound up, the holders of the shares of Common Stock will be entitled to a ratable share of any distribution to shareholders,
after satisfaction of all the Company’s liabilities and of the prior rights of any outstanding classes of the Company’s
stock. Shares of Common Stock carry no preemptive or other subscription rights to purchase shares of the Company’s stock
and are not convertible, redeemable, or assessable.
Outstanding Warrants
On July 3, 2019, we sold 2,000,000 restricted
shares at $0.025 a share for the amount of $50,000 to an accredited investor. The investor also received 2,000,000 warrants to
purchase 2,000,000 shares at a price of $0.15 per share. The warrants expire on July 3, 2020. The sale was made pursuant to
SEC Rule 506 Section 4(2), which provides exemption from registration for transactions, which are not public offerings.
On July 10, 2019, we sold 1,000,000 restricted
shares at $0.025 a share for the amount of $25,000 to an accredited investor. The investor also received 1,000,000 warrants to
purchase 1,000,000 shares at a price of $0.15 per share. The warrants expire on July 10, 2020. The sale was made pursuant
to SEC Rule 506 Section 4(2), which provides exemption from registration for transactions, which are not public offerings.
On July 16, 2019, we sold 1,400,000 restricted
shares at $0.025 a share for the amount of $35,000 to an accredited investor. The investor also received 1,400,000 warrants to
purchase 1,400,000 shares at a price of $0.15 per share. The warrants expire on July 16, 2020. The sale was made pursuant
to SEC Rule 506 Section 4(2), which provides exemption from registration for transactions, which are not public offerings.
On July 19, 2019, we sold 1,000,000 restricted
shares at $0.025 a share for the amount of $25,000 to an accredited investor. The investor also received 1,000,000 warrants to
purchase 1,000,000 shares at a price of $0.15 per share. The warrants expire on July 19, 2020. The sale was made pursuant
to SEC Rule 506 Section 4(2), which provides exemption from registration for transactions, which are not public offerings.
On August 15, 2019, we sold 2,000,000 restricted
shares at $0.025 a share for the amount of $50,000 to an accredited investor. The investor also received 2,000,000 warrants to
purchase 2,000,000 shares at a price of $0.15 per share. The warrants expire on August 15, 2020. The sale was made pursuant
to SEC Rule 506 Section 4(2), which provides exemption from registration for transactions, which are not public offerings.
On August 19, 2019, we sold 1,000,000 restricted
shares at $0.025 a share for the amount of $50,000 to an accredited investor. The investor also received 1,000,000 warrants to
purchase 1,000,000 shares at a price of $0.15 per share. The warrants expire on August 19, 2020. The sale was made pursuant
to SEC Rule 506 Section 4(2), which provides exemption from registration for transactions, which are not public offerings.
On August 27, 2019, we sold 1,000,000 restricted
shares at $0.025 a share for the amount of $25,000 to an accredited investor. The investor also received 1,000,000 warrants to
purchase 1,000,000 shares at a price of $0.15 per share. The warrants expire on August 27, 2020. The sale was made pursuant to
SEC Rule 506 Section 4(2), which provides exemption from registration for transactions, which are not public offerings. As of the
date of this filing, these shares have not yet been issued to the purchaser.
On March 19, 2020, the Company issued a convertible
promissory note, payable in tranches, having an aggregate principal amount of $150,000, aggregate original issue discount (OID)
of $15,000, and an aggregate of 468,750 three-year warrants exercisable at $0.48/share, which contain certain exercise price reset
provisions in the event of dilutive issuances. The notes mature one year from the respective issuance date of each tranche
and bear interest at the rate of 10% per annum, payable at maturity. Commencing immediately following the issuances, the noteholder
shall have the right to convert all or any part of the outstanding and unpaid principal balance of the note, at any time, into
shares of common stock of the Company at a variable conversion price equal to the lower of 60% of the lowest closing trade price
of the Company’s common stock, subject to adjustment, during the 25 trading days prior to: (i) the issuance date; or (ii)
the conversion date. On March 19, 2020, the first tranche of $50,000, less OID of $5,000, was received, resulting in net proceeds
to the Company of $45,000, and the Company issued 156,250 three-year warrants exercisable at $0.48 per share. On May 4, 2020, the
second tranche of $25,000, less OID of $2,500, was received, resulting in net proceeds to the Company of $22,500, and the Company
issued 78,125 three-year warrants exercisable at $0.48 per share. On July 10, 2020, the third tranche of $25,000, less OID of $2,500
was received, resulting in net proceeds to the Company of $22,500, and the Company issued 78,125 three year warrants exercisable
at an initial price of $0.48 per share. As a result of the OID and the variable conversion price, upon issuance, the Company recognized
total debt discount of $75,000, which is being amortized to interest expense over the respective term of the tranches. The Company
is prohibited from effecting a conversion of the note to the extent that, as a result of such conversion, the noteholder, together
with its affiliates, would beneficially own more than 4.99% of the number of shares of the Company’s common stock outstanding
immediately after giving effect to the issuance of shares of common stock upon conversion of the note. During the three months
ended November 30, 2020, the Company repaid principal of $75,000, accrued interest of $3,712 and early repayment interest and penalties
of $40,913. As of November 30, 2020, and August 31, 2020, the carrying value of these notes was $14,187 and $37,088, net of debt
discount of $10,813 and $62,912 and accrued interest was $979 and $3,431, respectively. In January 2021, the Company paid $39,875
to settle the final tranche, its accrued interest and early repayment penalties in full. The sale was made pursuant to SEC Rule
506 Section 4(2), which provides exemption from registration for transactions, which are not public offerings. As of the date of
this filing, these shares have not yet been issued to the purchaser.
Options
There are no outstanding options.
Transfer Agent
Our transfer agent is Pacific Stock Transfer Company, with offices
at:
6725 Via Austin Parkway
Suite 300
Las Vegas, NV 89119
DESCRIPTION OF BUSINESS
Company History
Our principal executive office of Cannabis
Global, Inc., a Nevada corporation, is located at 520 S Grand Avenue, Suite 320, Los Angeles, California 90071. Our telephone number
is (310) 986-4929 and our website is accessible at www.cannabisglobal.com. Unless expressly noted, none of the information on our
website is part of this Prospectus Supplement.
Our shares of Common Stock are quoted on the
OTC Markets Pink Tier, operated by OTC Markets Group, Inc., under the ticker symbol “CBGL.”
We are a research and development company commercializing
proprietary hemp extract infusion technologies. We also invest, or provide managerial services, in specialized areas of the regulated
cannabis industry.
The Company was incorporated on February 28,
2005 in Nevada as MultiChannel Technologies, Inc. (“MultiChannel”), a wholly owned subsidiary of Octillion Corp. (“Octillion”),
a Canadian corporation traded on the OTC Markets under the symbol “OCTL”. On April 4, 2005, MultiChannel changed its
name to MicroChannel Technologies Corporation (“MicroChannel”).
On June 24, 2008, MicroChannel announced that
it initiated trading of its stocks on the OTC Bulletin Board under the stock symbol “MCTC”.
On or about June 27, 2018, we changed domiciles
from the State of Nevada to the State of Delaware and thereafter reorganized under Section 251(g) of the Delaware General Corporation
Law. On or about July 12, 2018, we formed two subsidiaries for the purpose of effecting a reorganization. We incorporated MCTC
Holdings, Inc. and MCTC Holdings Inc. incorporated MicroChannel Corp. We then effected a merger involving the three constituents
and under the terms of the merger we were merged into MicroChannel Corp., with MicroChannel Corp. surviving, and our separate corporate
existence ceasing. Following the merger, MCTC Holdings, Inc. became the surviving publicly traded issuer, and all of our assets
and liabilities were merged into MCTC Holdings, Inc.’s wholly owned subsidiary MicroChannel Corp. Our shareholders became
the shareholders of MCTC Holdings, Inc. on a one for one basis.
On July 1, 2019, the Company entered into a
100% business acquisition with Action Nutraceuticals, Inc., a company owned by our CEO, Arman Tabatabaei in exchange for $1,000.
Subsequent to the closing of the fiscal year
ending August 31, 2019, the Company affected a reverse split of its common shares as of September 30, 2019 at the rate of 1:15.
All share amounts within this Form 10-K reflect the reverse split.
On April 18, 2020, we formed a subsidiary
Hemp You Can Feel, Inc., a California corporation (“HYCF”), as a wholly owned subsidiary of the Company. HYCF will
be engaged in various related business opportunities. At this time HYCF has no operations.
On September 11, 2019, we formed a subsidiary
Aidan & Co, Inc. (“Aidan”) a California corporation as a wholly owned subsidiary of the Company. Aidan will be
engaged in various related business opportunities. At this time Aidan has no operations.
On December 4, 2019, our shareholders approved
and authorized (i) re-domiciling the Company from Delaware to Nevada; (ii) changing the name of the Company from MCTC Holdings,
Inc. to Cannabis Global, Inc.; and, (iii) seeking a corresponding change of name and new trading symbol for the Company with FINRA.
On March 30, 2020, we filed Articles of Conversion
with the Delaware Secretary of State, electing to convert and re-domicile the Company from a Delaware corporation to a newly formed
Nevada corporation named Cannabis Global, Inc. Concurrently, the Registrant filed Articles of Incorporation and Articles of Domestication
with the Nevada Secretary of State incorporating the Registrant in Nevada under the name Cannabis Global, Inc. and accepting the
re-domicile of Registrant’s Delaware corporation. There was no change to the Registrant’s fiscal year end.
On May 6, 2020, the Company signed a joint
venture agreement with RxLeaf, Inc. (“RxLeaf”) a Delaware corporation, creating a joint venture for the purpose of
marketing the Company’s products to consumers. Under the terms of the agreement, the Company will produce products, which
will be sold by RX Leaf via its digital marketing assets. The Company agreed to share the profits from the joint venture on a 50/50
basis.
On July 22, 2020, we signed a management agreement
with Whisper Weed, Inc., a California corporation (“Whisper Weed”). Our director Edward Manolos is a shareholder in
Whisper Weed, (see “Related Party Transactions”). Whisper Weed conducts licensed delivery of cannabis products in California.
The agreement requires the parties to create a separate entity, CGI Whisper W, Inc. in California as a wholly owned subsidiary
of the Company. The business of CGI Whisper W, Inc. will be to provide management services for the lawful delivery of cannabis
in the State of California. The Company will manage CGI Whisper W, Inc. operations. In exchange for the Company providing management
services to Whisper Weed through the auspices of CGI Whisper W, Inc., the Company will receive as consideration a quarterly fee
of 51% of the net profits earned by Whisper Weed. As separate consideration for the transaction, the Company agreed to issue to
Whisper Weed $150,000 in the Company’s restricted common stock, valued for purposes of issuance based on the average closing
price of the Company’s common stock for the twenty days preceding the entry into the material definitive agreement. Additionally,
the Company agreed to amend its articles of incorporation to designate a new class of preferred shares. The preferred class shall
be designated and issued to Whisper Weed in an amount equal to two times the quarterly payment made to the Company. The preferred
shares shall be convertible into the Company’s common stock after 6 months, and shall be senior to other debts of the Company.
The conversion to common stock will be based on a value of common stock equal to at least two times the actual sales for the previous
90 day period. The Company agreed to include in the designation the obligation to make a single dividend payment to Whisper Weed
equal to 90% of the initial quarterly net profits payable by Whisper Weed. As of August 31, 2020, the Company has not issued Whisper
Weed the common stock or preferred stock.
On August 31, 2020, we entered into a stock
purchase agreement with Robert L. Hymers III (“Hymers”), whereby we purchased Mr. Hymers’ 266,667 shares of common
stock of Natural Plant Extract of California Inc., a private California corporation (“NPE”). This purchase represents
18.8% of the outstanding capital stock of NPE on a fully diluted basis. NPE operates a licensed psychoactive cannabis manufacturing
and distribution business operation in Lynwood, California. Under the terms of the stock purchase agreement, the Company acquired
beneficial ownership of Mr. Hymers’ NPE equity for a purchase price of Two Million Forty Thousand United States Dollars ($2,040,000)
(the “Purchase Price”). In connection with the stock purchase agreement, the Company became a party to a separate shareholders
agreement, dated June 5, 2020, by and among Alan Tsai, Hymers, Betterworld Ventures, LLC, Marijuana Company of America, Inc. and
NPE. The Shareholders Agreement contains customary rights and obligations, including restrictions on the transfer of the Shares.
The Company accounts for the investment in NPE under the equity method of accounting.
On September 30, 2020, the Company entered
into a securities exchange agreement with Marijuana Company of America, Inc., a Utah corporation (“MCOA”). By virtue
of the agreement, the Company issued 7,222,222 shares of its unregistered common stock to MCOA in exchange for 650,000,000 shares
of MCOA unregistered common stock. The Company and MCOA also entered into a lock up leak out agreement which prevents either party
from sales of the exchanged shares for a period of 12 months. Thereafter the parties may sell not more than the quantity of shares
equaling an aggregate maximum sale value of $20,000 per week, or $80,000 per month until all Shares and Exchange Shares are sold.
Our Business Summary
We are a developmental company primarily focused
on entering a wide array of hemp and related market sectors. Our primary objective is to create and commercialization engineered
technologies to deliver hemp extracts and cannabinoids to the human body. We have recently expanding our focus to include middle
portions of the hemp and related value chain, including the licensing of our core technologies to manufacturers of hemp and related
products.
Our Research and Development Programs
Our research and development program focuses
on the development of new methods to infuse cannabinoids, hemp, and hemp extracts into consumer products, or into products to be
sold to hemp, cannabis and hemp extract consumer product manufacturers.
Our research and development programs include
the following:
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1)
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Development of new methods for hemp extraction and cannabinoid delivery to the human body.
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2)
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Production of unique polymeric nanoparticles and fibers for use in oral and dermal cannabinoid delivery.
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Research and commercialization of new methodologies to isolate and/or concentrate various cannabinoids and other substances that comprise industrial hemp oil and other extracts.
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Development of new methods to administer both common and rare cannabinoids to the human body. These efforts have centered on Cannabidiol (CBD), Tetrahydrocannabivarin (THV-V), and Cannabinol (CBN), but also apply to other cannabinoids.
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Invention of new methods to create free flowing and other powders of hemp extract and cannabinoid containing liquid substances.
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6)
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Development of systems to infused coffee, tea and single service beverage pods with hemp extracts and/or cannabinoids.
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These research and development efforts resulted
in the filing of six provisional patent filings with the United States Patent and Trademark Office, which are disclosed below,
and other technologies which the Company protects as trade secrets. A provisional patent application is a legal document filed
in the United States Patent and Trademark Office, that establishes an early filing date, but does not mature into an
issued patent unless the applicant files a regular non-provisional patent application within one year. We received one trademark
and have one application pending.
Our Intellectual Property Portfolio
The Company’s strategy is to develop
a growing portfolio of intellectual property relating to the processing of hemp extracts and cannabinoids into forms that are easily
and efficiently delivered to the human body and to companion animals.
The Company owns no issued patents. The Company
has filed provisional patents for the following technologies and products:
Cannabinoid Delivery System and Method of Making
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September 1, 2020 Original File Date - Cannabinoid Delivery System and Method of Making
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September 6, 2021 Second Filing Date - Cannabinoid Delivery System and Method of Making
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Water Soluble Compositions With Enhanced Bioavailability
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September 24, 2019 - Water Soluble Compositions With Enhanced Bioavailability
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This provisional patent filing was abandoned, although the Company may re-file at a later date.
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Printed Shape Changing Article for the Delivery of Cannabinoids
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October 15, 2019 Original File Date - Printed Shape Changing Article for the Delivery of Cannabinoids.
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September 23, 2021 Second File Date - Printed Shape Changing Article for the Delivery of Cannabinoids.
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Cannabinoid enriched composition and method of Treating a
Medical Condition Therewith
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November 4, 2019 - Cannabinoid enriched composition and method for dry free-flowing powder.
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December 11, 2020 Second File Date - Cannabinoid enriched composition and method of treating a medical condition therewith.
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Electrosprayed and Electrospun Cannabinoid Compositions
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December 22, 2019 - Electrosprayed and Electrospun Cannabinoid Compositions and Process to Produce.
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November 4, 2020 Second File Date - Electrosprayed and Electrospun
Cannabinoid Compositions and Process to Produce. This filing was a non-provisional patent filing.
November 4, 2020, the Company filed an application under the
Patent Cooperation Treaty (PCT) seeking international protection of the Electrosprayed and Electrospun Cannabinoid Compositions
and Process to Produce inventions.
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Article, Method and Apparatus for Producing Cannabinoid Beverages
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January 16, 2020 - Article, Method and Apparatus for Producing Cannabinoid Beverages.
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January 16, 2021 Second File Date - Article, Method and Apparatus for Producing Cannabinoid Beverages.
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Trademark applications are as follows:
• Trade Mark – Hemp You
Can Feel™ – On August 27 2019, the Company filed a trademark application with the U.S. Patent and Trademark Office
(USPTO) for its Hemp You Can Feel™ trade name. The U.S. Application Serial Number is 88595425.
On June 24, 2020, the Company received a Notice of Nonfinal Office
Action from the USPTO indicating the Company would have six months to respond to issues presented the Company by USPTO or be abandoned.
The Company intends to continue to pursue to the trademark application
and will be responding accordingly.
• Trade Mark – Gummies You Can
Feel™. The Company received a Notice of Allowance from the USPTO on March 24, 2020. The U.S. Serial Number for the trademark
is 88590925
There can be no assurance any trademark protection will be provided,
or that we will be successful in protecting our trademarks if issued.
Industry Overview
Industrial Hemp
The market for hemp and cannabis, and for products
based on extracts of hemp and cannabis, is expected to grow substantially over the coming years. Arcview Market Research and BDS
Analytics are forecasting the combined market to reach nearly $45 billion within the U.S. in the year 2024. While much of this
market is expected to be comprised of high potency THC-based products sold in licensed dispensaries, the research firms are still
predicting the market for the product areas of low THC cannabinoids, THC-free Cannabinoids and pharmaceutical cannabinoids, respectively
to grow to $5.3 billion, $12.6 billion, and $2.2 billion by 2024.
Industrial Hemp (Cannabis sativa L.) has been
cultivated by humans for thousands of years. Hemp was originally cultivated as a source of fibers with most of this early cultivation
occurring in temperate climates, thus most genotypes had very low tetrahydrocannabinol (THC) content. Hemp was introduced into
North America in the early part of the 17th century and it played an important part in early American agriculture throughout the
18th and 19th centuries, with cultivation in virtually every one of the original American colonies.
Hemp seed oil became an important industrial
input that was used in inks, paints, varnishes and many other products. The proliferation of cotton cultivation and the significant
profitability of tobacco cultivation in the mid-1800s led to a sharp decline in hemp production. From the mid 1800s through the
pre-World War II period, hemp cultivation continued at relatively low levels. During World War II, hemp production increased to
meet the military needs for fibers to support various industrial production.
The early 1930’s was a period when higher
THC strains of cannabis native to southeast Asia were introduced to North America and Western Europe and as a result, psychoactive
strains became associated with very low THC containing industrial strains that were being cultivated in North America. This resulted
in efforts to prohibit the cultivation and possession of Cannabis sativa L. in the United States.
Since 1937, Cannabis sativa L. has been a federally
regulated Schedule I drug under the Controlled Substances Act, 21 U.S.C. § 811 (the “CSA”), regulated by the Drug
Enforcement Agency (the “DEA”).
It was not until 2014 when a distinction between
the use of Cannabis sativa L. for medical, recreational, and industrial purposes was made via Section 7606 of the Agricultural
Act of 2014, which cleared a legal path for industrial hemp to be grown in three limited circumstances, 1) by researchers at an
institute of higher education, 2) by state departments of agriculture, or 3) by farmers participating in a research program permitted
and overseen by a state department of agriculture.
In 2016 the DEA, U.S. Department of Agriculture,
and the Food and Drug Administration (FDA) issued a joint statement detailing the guidelines for growth of industrial hemp as part
of state-sanctioned research programs. Those guidelines state that hemp can only be sold in states with pilot programs, plants
and seeds can only cross state lines as part of permitted state research programs, and seeds can only be imported by individuals
registered with the DEA.
We believe the recent passage of the 2018 Farm
Bill will allow the Company to expand its marketplace opportunities. On December 20, 2018, President Donald J. Trump signed into
law the Agriculture Improvement Act of 2018, otherwise known as the “Farm Bill”. Prior to its passage, hemp, a member
of the cannabis family, and hemp-derived CBD were classified as a Schedule I controlled substances, and so illegal under the CSA.
With the passage of the Farm Bill, hemp cultivation is broadly permitted. The Farm Bill explicitly allows the transfer of hemp-derived
products across state lines for commercial or other purposes. It also puts no restrictions on the sale, transport, or possession
of hemp-derived products, so long as those items are produced in a manner consistent with the law.
Under Section 10113 of the Farm Bill, hemp
cannot contain more than 0.3 percent THC. THC refers to the chemical compound found in cannabis that produces the psychoactive
“high” associated with cannabis. Any cannabis plant that contains more than 0.3 percent THC would be considered non-hemp
cannabis—or marijuana—under federal law and would thus face no legal protection under this new legislation and would
be an illegal Schedule 1 drug under the CSA.
Additionally, there will be significant, shared
state-federal regulatory power over hemp cultivation and production. Under Section 10113 of the Farm Bill, state departments of
agriculture must consult with the state’s governor and chief law enforcement officer to devise a plan that must be submitted
to the Secretary of the United States Department of Agriculture (hereafter referred to as the “USDA”). A state’s
plan to license and regulate hemp can only commence once the Secretary of USDA approves that state’s plan. In states opting
not to devise a hemp regulatory program, USDA will construct a regulatory program under which hemp cultivators in those states
must apply for licenses and comply with a federally run program. This system of shared regulatory programming is similar to options
states had in other policy areas such as health insurance marketplaces under the Affordable Care Act, or workplace safety plans
under Occupational Health and Safety Act—both of which had federally-run systems for states opting not to set up their own
systems.
The Farm Bill outlines actions that are considered
violations of federal hemp law (including such activities as cultivating without a license or producing cannabis with more than
0.3% THC). The Farm Bill details possible punishments for such violations, pathways for violators to become compliant, and even
which activities qualify as felonies under the law, such as repeated offenses.
One of the goals of the previous 2014 Farm
Bill was to generate and protect research into hemp. The 2018 Farm Bill continues this effort. Section 7605 re-extends the protections
for hemp research and the conditions under which such research can and should be conducted. Further, section 7501 of the Farm Bill
extends hemp research by including hemp under the Critical Agricultural Materials Act. This provision recognizes the importance,
diversity, and opportunity of the plant and the products that can be derived from it, but also recognizes that there is still a
lot to learn about hemp and its products from commercial and market perspectives.
Psychoactive Cannabis
A total of 35 states, District of Columbia, Guam, Puerto
Rico and U.S. Virgin Islands have approved some form of cannabis legalization or decriminalization. These laws are in direct
conflict with the United States Federal Controlled Substances Act (21 U.S.C. § 811) (“CSA”), which places controlled
substances, including cannabis, in a schedule. Cannabis is classified as a Schedule I drug, which is viewed as having a high potential
for abuse, has no currently-accepted use for medical treatment in the U.S., and lacks acceptable safety for use under medical supervision.
Medical cannabis decriminalization is generally
referred to as the removal of all criminal penalties for the private possession and use of cannabis by adults, including cultivation
for personal use and casual, nonprofit transfers of small amounts. Legalization is generally referred to as the development of
a legally controlled market for cannabis, where consumers purchase from a safe, legal, and regulated source.
The dichotomy between federal and state laws
has limited the access to banking and other financial services by marijuana businesses. The U.S. Department of Justice and the
U.S. Department of Treasury have issued guidance for banks considering conducting business with marijuana dispensaries in states
where those businesses are legal, pursuant to which banks must file a Marijuana Limited Suspicious Activity Report that states
the marijuana business is following the government’s guidelines with regard to revenue that is generated exclusively from
legal sales. However, as banks can still face prosecution if they provide financial services to marijuana businesses, there is
widespread refusal of the banking industry to offer banking services to marijuana businesses operating within state and local laws.
In November 2016, California approved marijuana
use for adults over the age of 21 without a physician’s prescription or recommendation, and permitted the cultivation and
sale of marijuana, in each case subject to certain limitations. Despite the changes in state laws, marijuana remains illegal under
federal law.
In November 2016, California voters approved
Proposition 64, which is also known as the Adult Use of Marijuana Act (“the AUMA”), in a ballot initiative. Among other
things, the AUMA makes it legal for adults over the age of 21 to use marijuana and to possess up to 28.5 grams of marijuana flowers
and 8 grams of marijuana concentrates. Individuals are also permitted to grow up to six marijuana plants for personal use. In addition,
the AUMA establishes a licensing system for businesses to, among other things, cultivate, process and distribute marijuana products
under certain conditions. On January 1, 2018, the California Bureau of Marijuana Control enacted regulations to implement the AUMA.
The U.S. Department of Justice (the “DOJ”)
has not historically devoted resources to prosecuting individuals whose conduct is limited to possession of small amounts of marijuana
for use on private property but has relied on state and local law enforcement to address marijuana activity. In the event the DOJ
reverses its stated policy and begins strict enforcement of the CSA in states that have laws legalizing medical marijuana and recreational
marijuana in small amounts, there may be a direct and adverse impact to our business and our revenue and profits.
We are monitoring the Biden administration’s,
the DOJ’s and Congress’ positions on federal marijuana law and policy. Since the start of the new Congress in January
2021, there have been positive discussions about the Federal Government’s approach to cannabis. The DOJ has not signaled
any change in their enforcement efforts. Based on public statements and reports, we understand that certain aspects of those laws
and policies are currently under review, but no official changes have been announced. It is possible that certain changes to existing
laws or policies could have a negative effect on our business and results of operations.
Although the possession, cultivation and distribution
of marijuana for medical and adult use is permitted in California, provided compliance with applicable state and local laws, rules,
and regulations, marijuana is illegal under federal law. We believe we operate our business in compliance with all state and local
laws and regulations. Any changes in federal, state or local law enforcement regarding marijuana may affect our ability to operate
our business. Strict enforcement of federal law regarding marijuana would likely result in the inability to proceed with our business
plans, could expose us to potential criminal liability and could subject our properties to civil forfeiture. Any changes in banking,
insurance or other business services may also affect our ability to operate our business.
FDA Regulation of Hemp Extracts
The United States Food & Drug Administration
(“FDA”) is generally responsible for protecting the public health by ensuring the safety, efficacy, and security of
(1) prescription and over the counter drugs; (2) biologics including vaccines, blood & blood products, and cellular and gene
therapies; (3) foodstuffs including dietary supplements, bottled water, and baby formula; and, (4) medical devices including heart
pacemakers, surgical implants, prosthetics, and dental devices.
Regarding its regulation of drugs, the FDA
process requires a review that begins with the filing of an investigational new drug (IND) application, with follow on clinical
studies and clinical trials that the FDA uses to determine whether a drug is safe and effective, and therefore subject to approval
for human use by the FDA.
Aside from the FDA’s mandate to regulate
drugs, the FDA also regulates dietary supplement products and dietary ingredients under the Dietary Supplement Health and Education
Act of 1994. This law prohibits manufacturers and distributors of dietary supplements and dietary ingredients from marketing products
that are adulterated or misbranded. This means that these firms are responsible for evaluating the safety and labeling of their
products before marketing to ensure that they meet all the requirements of the law and FDA regulations, including, but not limited
to the following labeling requirements: (1) identifying the supplement; (2) nutrition labeling; (3) ingredient labeling; (4) claims;
and, (5) daily use information.
The FDA has not approved cannabis, marijuana,
hemp or derivatives as a safe and effective drug for any indication. As of the date of this filing, we have not, and do not intend
to file an IND with the FDA, concerning any of our products that contain CBD derived from industrial hemp or cannabis to be delivered
in the State of California. Further, our products containing CBD derived from industrial hemp are not marketed or sold using claims
that their use is safe and effective treatment for any medical condition subject to the FDA’s jurisdiction.
The FDA has concluded that products containing
cannabis or industrial hemp derived CBD are excluded from the dietary supplement definition under sections 201(ff)(3)(B)(i) and
(ii) of the U.S. Food, Drug & Cosmetic Act, respectively. The FDA’s position is that products containing cannabis, CBD
or derivatives are Schedule 1 drugs under the Controlled Substances Act, and so are illegal. Our products containing CBD derived
from industrial hemp or cannabis delivered in the State of California are not marketed or sold as dietary supplements. However,
at some indeterminate future time, the FDA may choose to change its position concerning generally cannabis and products containing
hemp derived CBD, and may choose to enact regulations that are applicable to such products. In this event, our industrial hemp
based products containing CBD and cannabis may be subject to regulation (See “Risk Factors”).
Effective on July 1, 2019, the Company acquired
Action Nutraceuticals, Inc., a California Corporation (“Action Nutraceuticals”) and its assets from our CEO, Arman
Tabatabeai, in exchange for $1,000 (see “Related Party Transactions”). Action Nutraceuticals is a developmental stage
company engaged in research and development relating to powdered soft drink, coffee, and tea mixes containing non-psychoactive
CBD. No intellectual property, patents or trademarks were acquired in the transaction.
The Company’s research and development
efforts relative to the production of nutraceuticals will center on methodologies to infuse hemp extracts, CBD and other cannabinoids
into highly bioavailable powders to be used in the Company’s products or sold to other manufacturers. The Company plans to
utilize its internally-developed infusion technologies, technical knowhow and equipment acquired from Action Nutraceuticals to
manufacture and sell consumer-oriented powdered drink mixes that include industrial hemp derived, non-psychoactive CBD as an ingredient.
All products sold are being specifically developed with a composition containing less than three-tenths of one percent (0.3%) of
THC concentration by dry weight.
The Drug Enforcement Administration (the “DEA”)
has issued a rule regarding the scheduling of hemp and marijuana.
The ruling creates uncertainty relating to
the regulatory status of the manufactured cannabinoids we are using in some of our products. Should the DEA conclude that manufactured
cannabinoids are regulated under the CSA, we might not be able to continue to our plans to launch products based on manufactured
cannabinoids. This could affect our business opportunities in the future.
The Rule states there are only four conforming
changes, The rule reiterates these changes outlined below were already mandated under the 2018 Farm Bill: “DEA’s regulatory
authority over any plant with less than 0.3% THC content on a dry weight basis, and any of the plant’s derivatives under
the 0.3% THC content limit, is removed as a result.”
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The definition of “Tetrahydrocannabinols” on Schedule I of the official “Schedule of Controlled Substances” is modified to carve out “any material, compound, mixture, or preparation that falls within the definition of hemp” (as defined in the 2018 FarmBill, i.e., any plant with less than 0.3% THC content on a dry weight basis, and any of the plant’s derivatives under the 0.3% THC).
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Regardless of what any product label may say (i.e., “hemp” or otherwise), if a product has more than 0.3% Delta-9 THC, it is a controlled substance.
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Regardless of being hemp-derived, if the derivative, extract or product has more than 0.3% Delta-9 THC, it is a controlled substance.
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None of these changes, alters or affects the FDA’s jurisdiction over products containing cannabis and cannabis-derived compounds.
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Naturally occurring THCs in cannabis are not controlled substances so long as they are at or under the 0.3% Delta-9 THC threshold. Any of those that are above the 0.3% Delta-9 THC threshold are controlled substances.
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•
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Synthetically derived THCs are all controlled substances, regardless of THC content.
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2.
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Essentially removes Epidiolex (and any generics the FDA may subsequently approve) from control in schedule V (21 CFR 1308).
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3.
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Also removes the requirement for import and export permits for Epidiolex (and any future generics).
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4.
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The definition of “Marihuana Extract” on Schedule I is modified to be limited to extracts “containing greater than 0.3 percent delta-9-tetrahydrocannabinol on a dry weight basis.”
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•
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Regardless of whether the extract comes from hemp or marijuana, if it exceeds the 0.3% threshold, it is illegal.
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•
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It is important to point out that this definition, even before the Rule, includes the following exception: “other than the separated resin (whether crude or purified) obtained from the plant.”
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Our Business Operations
Our business operations are as follows:
Hemp You Can Feel Products
The Hemp You Can Feel product line consists
of hemp infused foods and beverages. The infusion technologies utilized are a combination on water soluble preparations invented
by the Company’s internal partner research teams.
The product line consists of the following:
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Hemp You Can Feel™ Alcohol Replacement Cocktail Mixers – This is a line of alcohol-free cocktail mixers marketed on line via our own website site and via our marketing partners. All products in this line test as having non-detectable levels of THC.
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Hemp You Can Feel™ Coffee Products – This is a line of hemp infused coffee products. All products in this line test as having non-detectable levels of THC.
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Hemp You Can Feel™ Gummies – This is a line of all natural hemp infused candy products. All products in this line test as having non-detectable levels of THC.
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Hemp You Can Feel™ Kombucha Beverages. This is a line of hemp infused fermented tea products. All products in this line test as having non-detectable levels of THC.
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Hemp You Can Feel™ Sweeteners – This is a line of natural and artificial sweeteners consisting of:
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Hemp You Can Feel Organic Sugar
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Hemp You Can Feel Sucralose Blend
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Hemp You Can Feel Stevia Blend
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Hemp You Can Feel Aspartame
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Hemp You Can Feel Saccharin
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Upcoming additions to the product line will include:
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Hemp You Can Feel Monk Fruit Sweetener (monk fruit extract and erythritol)
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Hemp You Can Feel Non-Dairy Creamer
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Hemp You Can Feel French Vanilla Non-Dairy Creamer
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Hemp You Can Feel Non-Dairy Creamy Chocolate Creamer
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Coffee Pod and Single Serving Beverage Pod Infusion System
Based on internally developed technology and
those developed by the Company’s contract research organization, the Company is marketing product lines consisting of infusion
technologies designed to easily and to accurately dose single serving coffee and other beverage pods.
Marketing Joint Venture Agreement
On May 6, 2020, the Company signed a joint
venture agreement with RxLeaf, Inc. (“RxLeaf”) a Delaware corporation, creating a joint venture for the purpose of
marketing the Company’s products to consumers. Under the terms of the agreement, the Company will produce products, which
will be sold by RX Leaf via its digital marketing assets. The Company agreed to share the profits from the joint venture on a 50/50
basis. Marketing of the Company’s product began during August of 2020.
Polymeric Nanoparticles and Polymeric Nanofibers Research
Program
The Company has an active research and development
program to develop novel polymeric nanoparticles and nanofibers of cannabinoids and hemp extracts. Polymeric nanoparticles are
very small solid particles with a size in the range of 10–1000 nanometers (nm or billionth of a meter), and are made of biodegradable
and biocompatible polymers or copolymers, in which cannabinoids or other active ingredients can be entrapped or encapsulated. Polymeric
nanoparticles are noted for and have attractive characteristics, such as small size, near water solubility, high degrees of bioavailability,
long shelf life and stability during storage. These properties are thought to be especially beneficial relative to delivery of
cannabinoids and hemp extracts to the human body.
Polymeric nanofibers are fibers with diameters
several orders of magnitude smaller than conventional fibers, typically in the size range of a few nanometers to one micrometer.
Due to their large surface areas per unit mass and extremely small pore size, these nanofibers demonstrate unique properties, making
the technology especially well-suited to transdermal delivery of active ingredients, including cannabinoids.
Project Varin
The primary goal of Project Varin is the development
of THC-V delivery methods that improve bioavailability of the cannabinoid to the human body. The project was recently expanded
to include cannabinol (CBN) an additional rare cannabinoid.
In the first stage of the program researchers
produced THC-V polymeric nanoparticles and nanofibers based on the Company’s patent-pending technologies. In the second phase
of development, the Company plans to apply its ongoing cannabinoid glycosides research to THC-V, in order to produce THC-V with
unparalleled levels of availability at minimal usage levels.
As a result of Project Varin, the Company has
developed several new methods to produce cannabinoid nanoparticles and nanofibers, which the Company plans to formulate into food
and beverage ingredients for used in its own products or to be sold to other companies for inclusion in food, beverage, or other
consumer goods. The Company plans to continue other areas of delivery systems research via Project Varin including its programs
pertaining to cannabinoid glycosides, polymeric cannabinoid nanoparticles and nanofibers, and its hemp extract-based alcohol replacement
technologies.
Edible, Dissolvable Film Enhanced with Solid Nanoparticles
of Cannabinoids Research Program
The Company is seeking to commercialize a unique
invention of edible, disposable film enhanced with solid nanoparticles of cannabinoids under an agreement with Kirby & Padgett,
LLC, a California limited liability company, entered into during June of 2019. Management believes there are numerous applications
for such a product, such as a container for ready-made foods, protein powders, vitamins, and nutraceuticals that can be simply
dropped into cold beverages, thus allowing the consumer to avoid additional steps of mixing ingredients. Additionally, since the
film is impregnated with what is believed to be highly bioavailable cannabinoids, the film will perhaps serve a dual purpose as
a delivery vehicle for cannabinoids to the body. Future versions of the film could include ingredients such as vitamins, trace
minerals or active pharmaceutical ingredients. On June 6, 2019, the Company entered into a joint intellectual property ownership
and consulting agreement with Kirby & Padgett, LLC, a California Limited liability company in order to more fully develop and
to commercialize the invention. Any intellectual property developed under the collaboration effort will be considered joint property
with all rights, title and interest assigned jointly to the Company and Kirby. Each Party shall work with the other Party relative
to all business and monetization of such new Joint Intellectual Property and neither Party shall have any preferred rights over
the other. Additionally, either party shall have the right to market the new invention with any and all revenues, costs and profits
to be shared on a fifty percent/fifty percent (50%/50%) shares by the parties. All expenses will be agreed to in advance, with
each Party sharing based on predetermined percentages of such expenses.
Tetrahydrocannabivarin (THC-V) Beverages
The Company has recently begun test marketing beverages infused
with THC-V.
Management Services for Whisper Weed
On July 22, 2020, we signed a management agreement
with Whisper Weed, Inc., a California corporation (“Whisper Weed”). Edward Manolos, a director of the Company, is a
shareholder in Whisper Weed (see “Related Party Transactions”). Whisper Weed conducts licensed delivery activity of
cannabis products in California. The material definitive agreement requires the parties to create a separate entity, CGI Whisper
W, Inc. in California as a wholly owned subsidiary of the Company. The business of CGI Whisper W, Inc. will be to provide management
services for the lawful delivery of cannabis in the State of California. The Company will manage CGI Whisper W, Inc. operations.
In exchange for the Company providing management services to Whisper Weed through the auspices of CGI Whisper W, Inc., the Company
will receive as consideration a quarterly fee of 51% of the net profits earned by Whisper Weed. As separate consideration for the
transaction, the Company agreed to issue to Whisper Weed $150,000 in the Company’s restricted common stock, valued for purposes
of issuance based on the average closing price of the Company’s common stock for the twenty days preceding the entry into
the material definitive agreement. Additionally, the Company agreed to amend its articles of incorporation to designate a new class
of preferred shares. The preferred class shall be designated and issued to Whisper Weed in an amount equal to two times the quarterly
payment made to the Company. The preferred shares shall be convertible into the Company’s common stock after 6 months, and
shall be senior to other debts of the Company. The conversion to common stock will be based on a value of common stock equal to
at least two times the actual sales for the previous 90 day period The Company agreed to include in the designation the obligation
to make a single dividend payment to Whisper Weed equal to 90% of the initial quarterly net profits payable by Whisper Weed. As
of August 31, 2020, the no common shares or preferred shares have been designated or issued.
Sales and Marketing
The Company recently began sales and marketing
activities for its products and inventions. The Company primarily plans to market its non-psychoactive products via a “white
label” strategy where the company produces products marketed and sold by other companies. The Company also plans to market
its products directly to consumers.
Please reference the section labeled “Risk
Factors to our Business” for additional information.
Significant Customers
The company has no significant customers.
Competition
We are entering markets that are highly competitive.
Relative to our prospects for commercializing
polymeric nanoparticles and nanofibers, there are many competitors with various approaches to cannabinoid infusion for foods, beverages
and other consumer products. While these currently available technologies are not directly competitive with us, such technologies
may be viewed as being directly competitive by the marketplace in the future. Many of the current market participants are well
established with considerable financial backing. We expect the quality and composition of the competitive market in the hemp processing
environment to continue to evolve as the industry matures. Additionally, increased competition is possible to the extent that new
states and geographies enter into the marketplace as a result of continued enactment of regulatory and legislative changes that
de-criminalize and regulate cannabis and hemp products, including the 2018 Farm Bill. We believe the contemporaneous growth of
the industry as a whole will result in new customers entering the marketplace, thereby further mitigating the impact of competition
on our expected operations and results relating to our hemp processing businesses.
Relative to our non-psychoactive cannabis extract
powdered drink business, there are relatively few market participants in this sector, but management of the Company believes the
competitive situation will advance quickly over the coming months as new companies target this potentially lucrative market opportunity.
Additionally, while large beverage industry participants have yet to launch products in this area, we believe such market entrances
are likely as the regulatory environment is clarified by the FDA. This could significantly affect our ability to achieve market
success.
We believe the contemporaneous growth of the
cannabis beverage sector and the industry as a whole will result in new customers entering the marketplace, thereby further mitigating
the impact of competition on our expected operations and results relating to hemp cultivation and processing business and joint
venture.
Employees
The Company has one employee, CEO, Arman Tabatabaei.
Additionally, the Company relies on the services of numerous consultants who perform various tasks for the Company. Our U.S employee
is not represented by a labor union.
Legal Proceedings
On November 22, 2019, the Company filed suit
against Jeet Sidhru and Jatinder Bhogal in the District Court of Clark County Nevada, Case number A-19-805943-C. Mr. Sidhru and
Mr. Bhogal were formerly directors and officers of the Company. The Company’s complaint alleges that Mr. Sidhru and Mr. Bhogal
breached their fiduciary duties to the Company, including their fiduciary duties of due care, good faith and loyalty, by recklessly
and intentionally failing to maintain the Company’s statutory corporate filings with the State of Nevada, OTC Markets and
the U.S. Securities and Exchange Commission, and abandoning the Company and its shareholders. The Company’s complaint also
alleges that Mr. Sidhru and Mr. Bhogal engaged in conflicted transactions involving the Company, in which each were unjustly enriched.
The Company served Mr. Bhogal, and received notice of representation of both defendants. The case is currently in its early phase,
as neither defendant has responded to the complaint.
Market Information
Our common stock trades on the OTC Markets
Pink under the stock symbol CBGL.
Transfer Agent
Pacific Stock Transfer Company, located at
6725 Via Austin Pkwy., #300, Las Vegas NV 89119 and telephone number of (702) 361-3033 is the registrar and transfer agent for
our common stock. As of August 31, 2020, there were approximately 61 holders of record of our common stock.
MANAGEMENT’S DISCUSSION AND ANALYSIS
This discussion and analysis may include statements
regarding our expectations with respect to our future performance, liquidity, and capital resources. Such statements, along with
any other non-historical statements in the discussion, are forward-looking. These forward-looking statements are subject to numerous
risks and uncertainties, including, but not limited to, factors listed in other documents we file with the SEC (the “SEC”).
We do not assume an obligation to update any forward-looking statements. Our actual results may differ materially from those contained
in or implied by any of the forward-looking statements contained herein.
Overview and Financial Condition
Going Concern
The Company sustained continued operating losses
during the years ended August 31, 2020. The Company’s continuation as a going concern is dependent on its ability to generate
sufficient cash flows from operations to meet its obligations, in which it has not been successful, and/or obtaining additional
financing from its shareholders or other sources, as may be required.
The accompanying consolidated financial statements
have been prepared assuming that the Company will continue as a going concern; however, the above conditions raise substantial
doubt about the Company’s ability to do so. The consolidated financial statements do not include any adjustments to reflect
the possible future effects on the recoverability and classification of assets, or the amounts and classifications of liabilities
that may result, should the Company be unable to continue as a going concern.
Management is endeavoring to increase revenue-generating
operations. While priority is on generating cash from operations through the sale of the Company’s products, management is
also seeking to raise additional working capital through various financing sources, including the sale of the Company’s equity
and/or debt securities, which may not be available on commercially reasonable terms, if at all. If such financing is not available
on satisfactory terms, we may be unable to continue our business as desired and our operating results will be adversely affected.
In addition, any financing arrangement may have potentially adverse effects on us and/or our shareholders. Debt financing (if available
and undertaken) will increase expenses, must be repaid regardless of operating results and may involve restrictions limiting our
operating flexibility. If we issue equity securities to raise additional funds, the percentage ownership of our existing shareholders
will be reduced and the new equity securities may have rights, preferences or privileges senior to those of the current holders
of our shares of Common Stock.
Results of Operations
The following table sets forth the results
of our operations for the periods ended August 31, 2020 and 2019. Certain columns may not add due to rounding.
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For the years ended
August 31
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2020
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2019
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Revenues
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$
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27,004
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$
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—
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Cost of goods sold:
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24,521
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—
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Gross margin
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2,483
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—
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Operating Expense
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3,626,375
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549,918
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Loss from operations
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(3,623,892
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)
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(549,918
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)
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Non-operating income (expense):
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(1,305,456
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)
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160,321
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Net Income (Loss)
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$
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(4,929,348
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)
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$
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(389,597
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)
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Revenues
For the years ended August 31, 2020 and 2019,
revenues were $27,004 and $0, respectively.
Cost of goods sold
For the years ended August 31, 2020 and 2019,
cost of goods sold were $24,521 and $0, respectively.
Gross Profit
For the years ended August 31, 2020 and 2019,
gross profit was $2,483 and $0, respectively.
Selling, general and administrative, and
expenses
For the years ended August 31, 2020 and 2019,
selling, general and administrative expenses were $3,626,375 and $549,918 respectively. The increase was attributable to the expansion
of business operating activities.
Non-operating income expenses
The Company had total non-operating expense
of $1,305,456 and $160,321 for the years ended August 31, 2020 and 2019, respectively. The increase is primarily due to increased
interest expense and an increase in the fair value of derivatives for the year ended August 31, 2020 compared with the year ended
August 31, 2019.
Net loss
Net loss totaled $4,929,348 for the year ended
August 31, 2020, compared to a net loss of $389,597 for the year ended August 31, 2019. The increase in net loss was primarily
a result of increased expenses due to expansion of business activities.
Outstanding Litigation
On November 22, 2019, the Company filed suit
against Jeet Sidhru and Jatinder Bhogal in the District Court of Clark County Nevada, Case number A-19-805943-C. Mr. Sidhru and
Mr. Bhogal were formerly directors and officers of the Company. The Company’s complaint alleges that Mr. Sidhru and Mr. Bhogal
breached their fiduciary duties to the Company, including their fiduciary duties of due care, good faith and loyalty, by recklessly
and intentionally failing to maintain the Company’s statutory corporate filings with the State of Nevada, OTC Markets and
the U.S. Securities and Exchange Commission, and abandoning the Company and its shareholders. The Company’s complaint also
alleges that Mr. Sidhru and Mr. Bhogal engaged in conflicted transactions involving the Company, in which each were unjustly enriched.
The Company served Mr. Bhogal, and received notice of representation of both defendants. The case is currently in its early phase,
as neither defendant has answered the complaint. The outcome of this suit against Mr. Bhogal and Mr. Sidjru is uncertain. If the
Company were unable to prevail in the suit, the value of the common shares and the overall value of the Company could be negatively
affected.
Related Party Transactions
In March 2018 and May 2018, a legal custodian
of the Company funded the Company $600 in advances. On August 31, 2018, this amount was reclassified as a note payable, that bears
interest at an annual rate of 10% and is payable upon demand.
In connection with the above notes, the Company
recognized a beneficial conversion feature of $27,954, representing the intrinsic value of the conversion features at the time
of issuance. This beneficial conversion feature was accreted to interest expense during the year ended August 31, 2018.
On May 25, 2019, the Company issued two notes
payable to Company directors Edward Manolos and Dan Nguyen for loans made to the Company, each in the amount of $16,666.67 for
a total balance of $33,334. The notes bear interest at 5% per annum and do not have a fixed payment schedule or maturity date.
These notes are additionally described herein in Footnote 7 - Notes Payable.
On July 1, 2019, the Company acquired Action
Nutraceuticals, Inc., a company owned by our current CEO, Arman Tabatabaei for one thousand dollars ($1,000).
On July 9, 2019, the Company, through its Action
Nutraceuticals subsidiary, loaned, Split Tee, LLC (“Split Tee”), a venture associated with Director Edward Manolos,
$20,000 to engage in an exploratory research project. An additional $20,000 was supplied to Split Tee on August 23, 2019 (the “Split
Tee Note”). The loans carry interest at the rate of 10% per annum and are due in one year for issuance. In addition, The
Company, via Action Nutraceuticals subsidiary, invoiced Split Tee $5,000 as a consulting fee. Because of Mr. Manolos’ association
as a director, the Company believes these transactions are defined by 17 CFR § 229.404 - (Item 404) Transactions with related
persons, promoters and certain control persons, which would require specific disclosures under the section cited. On May 15, 2020,
the outstanding balance of the Split Tee Note was reduced via a payment of $15,000.
During the three months ended February 29,
2020, the Company issued two convertible promissory notes having an aggregate principal amount of $133,101 in exchange for accrued
expenses owed to related parties, of which $79,333 is payable to the Company’s Chief Executive Officer and $53,768 is payable
to the Company’s previous Chief Financial Officer, Robert L. Hymers III. The notes mature two years from the respective issuance
date and bear interest at the rate of 10% per annum, payable at maturity. The noteholders shall have the right to convert
all or any part of the outstanding and unpaid principal balance of the note, at any time, into shares of common stock of the Company
at a variable conversion price of 50% of the average of the previous twenty (20) trading day closing prices of the Company’s
common stock, subject to adjustment. As a result of the variable conversion prices, upon issuance, the Company recognized total
debt discount of $133,101, which is being amortized to interest expense over the term of the notes. On May 22, 2020, Mr. Tabatabaei
converted the principal amount of $79,333 and interest of $2,608, for a total amount of $81,941.55 into 694,902 common shares.
As of August 31, 2020, the carrying value of the remaining note with the former chief financial officer was $15,884, net of debt
discount of $37,884 and accrued interest was $3,138.
On April 30, 2020, the Company entered into
a settlement agreement with Robert L. Hymers III, its Chief Financial Officer (the “CFO”), whereby the CFO resigned
and the Company issued a promissory note for $30,000, which represented the remaining amount owed to the CFO for services rendered.
The note matures December 31, 2020 and bears interest at the rate of 10% per annum, payable at maturity. The noteholder has
the right to convert all or any part of the outstanding and unpaid principal balance of the note, at any time, into shares of common
stock of the Company at a fixed conversion price of $0.02 per share, subject to adjustment. As a result of the beneficial conversion
price, upon issuance, the Company recognized debt discount of $30,000, which is being amortized to interest expense over the term
of the note. As of August 31, 2020, the carrying value of the note was $15,061, net of debt discount of $14,939 and accrued interest
was $1,011.
On August 31, 2020, the Company issued a convertible
note payable and a note payable to Robert L. Hymers III in connection with the acquisition of an 18.8% equity interest in NPE.
See Note 8.
On August 21, 2020 the Company, issued a convertible
note pursuant to a Stock Purchase Agreement (the “SPA) to acquire 266,667 shares of common stock of Natural Plant Extract
of California Inc., a California corporation (“NPE”), representing 18.8% of the outstanding capital stock of NPE on
a fully diluted basis. With the exception of the entry into the subject material definitive agreements, no material relationship
exists between the Registrant, or any of the Registrant’s affiliates or control persons and Hymers. Under the terms of the
SPA, the Company acquired all rights and responsibilities of the equity stake for a purchase price of Two Million Forty Thousand
United States Dollars ($2,040,000) (the “Purchase Price”). Relative to the payment of the Purchase Price, the Company
agreed to: 1) pay Hymers Twenty Thousand United States Dollars ($20,000) each month for a period of twenty-seven (27) months, with
the first payment commencing September 1, 2020 and the remaining payments due and payable on the first day of each subsequent month
until Hymers has received Five Hundred Forty Thousand United Stated Dollars ($540,000), and 2) issue Hymers a convertible promissory
note in the amount of One Million Five Hundred Thousand United States Dollars ($1,500,000) (the “Note”). The Note bears
interest at ten percent (10%) per annum. Hymers shall have the right at any time six (6) months after the Issuance Date to convert
all or any part of the outstanding and unpaid principal, interest, fees, or any other obligation owed pursuant to the note. Conversion
Price shall be calculated as follows: 60% of the lowest Trading Price of the common shares during the ten (10) days preceding the
date the Company receive a notice of conversion. Unless permitted by the applicable rules and regulations of the principal securities
market on which the Common Stock is then listed or traded, in no event shall the Company issue upon conversion of or otherwise
pursuant to the note and the other notes issued more than the maximum number of shares of Common Stock that the Company can issue
pursuant to any rule of the principal United States securities market on which the Common Stock is then traded, which shall be
4.99% of the total shares outstanding at any time. A debt discount of $54,212 on the note payable at issuance was calculated based
on the present value of the note using an implied interest rate of 10%. A debt discount of $270,886 was recognized. Accordingly,
the Company recorded an initial value of its investment in NPE of $1,714,903. At the time the note becomes convertible, the Company
will recognize a derivative liability at fair value related to the embedded conversion option at that time. Prior to these transactions,
Robert Hymers III and Alan Tsai each sold equity interest representing a total of 18.8% of the outstanding equity interest of NPE
to Edward Manolos, a Director and preferred stockholder of the Company in a private transaction. As a result of these two transactions,
the Company beneficially controls approximately 37% of the equity of NPE. After this transaction, a venture capital company controls
40% of the equity interests in NPE, the Company, Alan Tsai and Edward Manolos each control 18.8% and one other entity controls
3.5%.
The Company evaluated its interest in NPE as
of August 31, 2020 under ASC 810. Management determined that it had a variable interest in NPE, but that NPE does not meet the
definition of a variable interest entity, and does not have an indirect voting interest of greater than 50%. Based on these factors,
the investment in NPE by the Company, the investment in NPE will be accounted for as an equity method investment under the measurement
alternative available under ASC 321 with the Company recording its share of the profits and losses of NPE at each reporting period.
The initial investment balance was $1,714,903 based on the initial fair value estimate of the note payable and convertible note
payable issued as consideration for the investment. For the three months ended August 31, 2020, the Company recognized no equity
method income or losses due and no impairment of the investment.
Liquidity and Capital Resources
As of August 31, 2020, and August 31, 2019
our cash and cash equivalent balances were $2,338 and $152,082, respectively.
Our primary internal sources of liquidity were
provided by proceeds from the sale of registered and unregistered common shares and warrants of the Company as follows:
On June 19, 2020, we sold 352,941 registered
common shares to an investor by subscription from our Form S-1 registration, file number 333-238974, in exchange for $60,000.
On June 23, 2020, we sold 116,667 registered
common shares to an investor in exchange for a settlement by subscription from our Form S-1 registration, file number 333-238974.
On June 30, 2020,
we sold 289,301 registered common shares to an investor by subscription from our Form S-1 registration, file number 333-238974,
in exchange for $50,000.
On July 7, 2020,
we sold 305,810 registered common shares to an investor by subscription from our Form S-1 registration, file number 333-238974,
in exchange for $35,000.
On August 6,
2020, we sold 2,899,017 registered common shares to an investor by subscription from our Form S-1 registration, file number 333-238974,
in exchange for $278,338.
On August 17,
2020, we sold 510,204 registered common shares to an investor by subscription from our Form S-1 registration, file number 333-238974,
in exchange for $51,275.50.
On November 6, 2019, we sold a convertible
note to an accredited investor for $20,000. The terms of the six month note allow 7% annual interest and for the conversion into
common shares at $0.75. Additionally, the investor received a warrant providing the investor the right to purchase 26,666 common
shares at a price of $3.50.
On December 30, 2019, The Company sold a convertible
note to an accredited investor. The $63,000 note calls for annualized interest of 10% and is due on December 20, 2020. The note
converts in common shares at 40% discount. This note is attached as an exhibit hereto.
On December 16, 2019, the Company’s board
of directors by unanimous written consent caused the authorization of ten million (10,000,000) shares of preferred stock, par value
$0.0001 per share, of the Company ("Preferred Stock") in one or more series, and expressly authorized the Board of Directors
of the Company (the "Board"), subject to limitations prescribed by law, to provide, out of the unissued shares of Preferred
Stock, for series of Preferred Stock, and, with respect to each such series, to establish and fix the number of shares to be included
in any series of Preferred Stock and the designation, rights, preferences, powers, restrictions, and limitations of the shares
of such series.
During the quarterly period ended February
29, 2020, the Company issued four convertible promissory notes having an aggregate principal amount of $256,500, aggregate original
issue discount (OID) of $10,500, and aggregate legal fees of $11,000, resulting in aggregate net proceeds to the Company of $235,000.
The notes mature in one year from the respective issuance date and bear interest at the rate of 10% per annum, payable at
maturity. Commencing one hundred eighty (180) days following the issuance date of $198,750 of the notes and commencing immediately
following the issuance of $57,750 of the notes, the noteholders shall have the right to convert all or any part of the outstanding
and unpaid principal balance of the note, at any time, into shares of common stock of the Company at variable conversion prices
ranging from 50% - 60% of the lowest previous fifteen (15) to twenty (20) trading day closing trade prices of the Company’s
common stock, subject to adjustment. As a result of the variable conversion prices, upon issuance, the Company recognized total
debt discount of $256,500, which is being amortized to interest expense over the term of the notes. The Company is prohibited from
effecting a conversion of the note to the extent that, as a result of such conversion, the noteholder, together with its affiliates,
would beneficially own more than 4.99% of the number of shares of the Company’s common stock outstanding immediately after
giving effect to the issuance of shares of common stock upon conversion of the note.
On March 19, 2020, the Company entered into
a Securities Purchases Agreement and Convertible Promissory Note in the principal amount of $150,000. The note, which is payable
one year after issuance, carries interest at 10% per annum. On March 19, 2020, the Company received its first disbursement under
this agreement in the amount of $50,000. Less an original discount and other certain fees, the Company netted $43,000. The note
converts to common shares at a 40% discount to the lowest traded price during the 25 days prior to conversion. Additionally, the
issuer was granted three-year warrant coverage at $0.48. The note shall not be able to be converted in an amount that would result
in the beneficial ownership of more than 4.99% of the Company outstanding common stock.
On May 4, 2020 the Company received its Second
disbursement under this agreement win the amount of $25,000. Less an original discount and other certain fees, the Company netted
$21,000. This note converts to common shares at a 40% discount to the lowest traded price during the 25 days prior to conversion.
On May 28, 2020, Mr. Robert L. Hymers III,
a former director and former chief financial officer, returned 2,000,000 Series A Preferred shares to the corporate treasury. As
of the date of this filing, there were 6,000,000 Series A Preferred shares issued and outstanding.
On July 10, 2020, the Company receives a $25,000
disbursement from a previously signed convertible note. On March 19, 2020, the Company entered into a Securities Purchases Agreement
and Convertible Promissory Note in the principal amount of $150,000. The note, which is payable one year after issuance, carries
interest at 10% per annum. On March 19, 2020, the Company received its first disbursement under this agreement in the amount of
$50,000. Less an original discount and other certain fees, the Company netted $43,000. The note converts to common shares at a
40% discount to the lowest traded price during the 25 days prior to conversion. Additionally, the issuer was granted three-year
warrant coverage at $0.48. The note shall not be able to be converted in an amount that would result in the beneficial ownership
of more than 4.99% of the Company outstanding common stock.
On July 21, 2020, the Company entered into
a Securities Purchases Agreement and Convertible Promissory Note in the principal amount of $78,750. The note, which is payable
one year after issuance, carries interest at 6% per annum. The note converts to common shares at a 60% discount to the lowest traded
price during the 30 days prior to conversion.
On August 6, 2020, the Company entered into
a stock purchase agreement selling 2,749,017 common shares for a price of $278,338. Additionally, the investor was provided with
150,000 commitment shares, and was issued a convertible for $50,000. The note calls for annualized interest of 10% and is due on
August 7, 2021. The note converts into common shares at a fixed price of $0.1631.
On August 12, 2020, The Company sold a convertible
note to an accredited investor. The $55,000 note calls for annualized interest of 10% and is due on May 21, 2021. The note converts
into common shares at a fixed price of $0.1005.
On August 14, 2020, The Company sold a convertible
note to an accredited investor. The $50,000 note calls for annualized interest of 10% and is due on May 14, 2021. The note converts
into common shares at a fixed price of $0.1005.
On August 17, 2020, we sold 510,204 restricted
common shares in a private placement for $51,275.
On August 28, 2020, the Company sold a convertible
note to an accredited investor. The $113,000 note calls for annualized interest of 8% and is due on August 28, 2021. The note converts
to common shares at a 37% discount to the lowest traded price during the 15 days prior to conversion.
On September 2, 2020, the Company issued two
convertible promissory notes with an aggregate principal amount of $107,000, with the Company receiving proceeds of $100,000 after
original issue discount of $5,000 and deferred finance costs of $2,000. The notes mature in September 2021 and bear interest at
12% per annum. Commencing one hundred eighty (180) days following the issuance date of the notes, the noteholders shall have the
right to convert all or any part of the outstanding and unpaid principal balance of the note, at any time, into shares of common
stock of the Company at variable conversion price of 60% of the lowest previous twenty (20) trading day closing trade prices of
the Company’s common stock, subject to adjustment. The Company is prohibited from effecting a conversion of the note to the
extent that, as a result of such conversion, the noteholder, together with its affiliates, would beneficially own more than 4.99%
of the number of shares of the Company’s common stock outstanding immediately after giving effect to the issuance of shares
of common stock upon conversion of the note.
On September 22, 2020, the Company issued a
convertible note in the amount of $78,000. The note matures on September 22, 2021 and bears 8% interest rate per annum. The note
is convertible into common shares at 37% discount for the average of the two lowest trading price of the common stock during the
15 trading day period ending on the latest complete trading day prior to the conversion date.
On September 24, 2020, the Company issued a
convertible note in the amount of $78,000. The note matures on June 24, 2021 and bears 10% interest rate per annum. The note is
convertible into common shares at a fixed conversion price of $0.06 or a conversion discount at rate of 30% to the lowest trading
price during the previous twenty (20) trading days to the date of a conversion notice; whichever is lower.
We used the proceeds from sales of the primary
offering to partially finance our business operations. We also intend to utilize cash on hand, loans and other forms of financing
such as the sale of additional equity and debt securities and other credit facilities to conduct our ongoing business, and to also
conduct strategic business development and implementation of our business plans generally. We are not intending to use any off-balance
sheet financing arrangements.
The following is a summary of cash provided
by or used in each of the indicated types of activities during the years ended August 31, 2019 and 2018:
|
|
2020
|
|
2019
|
Cash (used in) provided by:
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(1,522,141
|
)
|
|
$
|
(109,408
|
)
|
Investing activities
|
|
|
(15,499
|
)
|
|
|
(14,000
|
)
|
Financing activities
|
|
|
1,387,896
|
|
|
|
270,838
|
|
Operating Activities
For the fiscal year ending August 31, 2020
and the fiscal year ending August 31, 2019, the Company used cash for operating activities of $1,522,141 and $109,408, respectively.
Operating activities consisted of corporate overhead and initial research and development projects. The increase in operating activity
costs was primarily due to the hiring of staff, the hiring of consultants, increased activities relating to reorganization of the
business operations and implementation of new research and development programs.
Investing Activities
For the fiscal years ended August 31, 2020
and August 31, 2019 net cash used in investment activities was $15,499 and $14,000, respectively. Investing activities during the
year ended August 31, 2020 consisted of equipment purchases used to produce new products. For the fiscal year ending August 31,
2019, investing activities consisted of equipment purchases of $14,000, which is considered a Related Party Transaction and is
described in the section marked “Related Party Transactions”.
Financing Activities
During the fiscal year ended August 31, 2020,
the Company had cash inflows from financing activities of $714,612 via the sales of common shares, and $673,284 from a convertible
notes payable. During the fiscal year ended August 31, 2019, the Company had cash inflows from financing activities of $235,000
via the sales of unregistered common shares, $42,504 from proceeds from a note payable and $33,334 from a convertible note payable.
The Company also repaid $40,000 of advances to a related party during the year ended August 31, 2019.
Other Contractual Obligations
The Company entered into a one-year lease during
August of 2019 for a commercial food production facility located in Los Angeles, California. The one-year lease at a base rate
of $3,600 per month through September of 2020. Subsequent to the end of the financial reporting period, ending May 31, 2020, the
Company agreed to extend the lease for commercial food production facility located in Los Angeles, California, on a month-to-month
basis, upon the August 2020 expiration.
The Company leased office space under a contract
effective August 15, 2019, expiring on August 14, 2020. We now rent the premises on a month to month basis and paying $800 per
month.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names and
ages of our current directors and executive officers, the principal offices and positions held by each person, and the date such
person became a director or executive officer. Our executive officers are appointed by the Board of Directors. The directors serve
one-year terms until their successors are elected. The executive officers serve terms of one year or until their death, resignation
or removal by the Board of Directors. Unless described below, there are no family relationships among any of the directors and
officers.
The percentages below are calculated based
on 27,082,419 common shares issued and outstanding as of August 31, 2020.
Officers and Directors
|
|
Amount and Nature of Beneficial Ownership
|
|
Percentage of Class Beneficially Owned
|
Arman Tabatabaei(1)
|
|
|
3,330,000
|
|
|
|
12.30
|
%
|
Edward Manolos
|
|
|
2,888,889
|
|
|
|
10.67
|
%
|
Dan V Nguyen
|
|
|
2,888,889
|
|
|
|
10.67
|
%
|
Melissa Riddell(2)
|
|
|
143,333
|
|
|
|
0.53
|
%
|
All Directors and Executive Officers as a Group
|
|
|
9,251,111
|
|
|
|
34.16
|
%
|
(1) Mr. Tabatabaei is chairman, CEO, CFO
and Secretary of the corporation.
(2) Director Riddell is considered an Independent
Director meeting the definition of “Independent Director outlined in NASDAQ Marketplace Rule 4200(a)(15). Ms. Riddell was
added to the board of directors on February 3, 2020.
We are not aware of any person who owns of
record, or is known to own beneficially, five percent or more of the outstanding securities of any class of the issuer, other than
as set forth above. We are not aware of any person who controls the issuer as specified in Section 2(a)(1) of the 1940 Act. There
are no classes of stock other than common stock issued or outstanding. We do not have an investment advisor.
Changes in Control
As of the date of this filing, we are not aware
of any arrangement that may result in a change in control of our company
Biographies
Arman Tabatabaei. - Mr. Arman Tabatabaei (Age
37), was appointed to the board of directors and named as Chairman and CEO. Mr. Tabatabaei is a founder and Chairman of Cannabis
Global, Inc. Mr. Tabatabaei has served as president of Pacific Pro Financial Services, Inc. for the last 5 years. Pacific
Pro is a company that provides commercial and private lending services. With over 15 years of management and operations experience,
he has earned a strong reputation for a numbers-based analytical approach to the management of organizations. An expert at data
collection and analysis relative to resource management, risk forecasting and profit and loss management, he has made significant
progress in revamping operations of several companies over the past five years. Most recently, Mr. Tabatabaei has consulted with
Cannabis Strategic Ventures (OTC:NUGS) on various growth initiatives relative to both cannabis cultivation and the organization
of new hemp-related retail operations. He has been instrumental in revamping various operations relative to the Company’s
hydroponic growth supplies initiatives.
Edward Manolos. - Mr. Edward Manolos (Age 45),
was elected to the board of directors. Mr. Manolos is one of the founders and Directors of Cannabis Global, Inc. and is an accomplished
pioneer in California’s Medical Marijuana industry. In 2004, he opened the very first Medical Marijuana Dispensary in Los
Angeles County under the name CMCA. He has managed and operated over thirty-five dispensaries from Los Angeles to San Jose including
twenty in Los Angeles Pre-ICO/Proposition D. He is also credited with starting Los Angeles’ first Medical Marijuana
farmers market referred to as “The California Heritage Farmer’s Market,” which attracted local and international
media attention and was the first of its kind. He is currently a member of the board of directors of Marijuana Company of America,
Inc. (OTC: MCOA). In 2016, Mr. Manolos was appointed to the advisory board of Cannabis Strategic Ventures (OTCQB: NUGS) and
was tasked with identifying and structuring strategic partnerships and driving product development.
Dan Nguyen. - Dan Nguyen (Age 46), was elected
as a director of the Company. Mr. Nguyen has been employed for the last 5 years with Thermalfisher Scientific, Inc. as an equipment
product specialist.
Melissa Ridell (Age 39) is an accomplished
food scientist with decades of experience in the food ingredient industry.
The Company does not carry key man life insurance
policies on any of the above principals or key personnel.
There has never been a petition under the Bankruptcy
Act or any State insolvency law filed by or against the Company or its principals or key personnel. Additionally, there has never
been a receiver, fiscal agent, or similar officer appointed by a court for the business or property of any such persons, or any
partnership in which any of such persons was a general partner at or within the past five years, or any corporation or business
association of which any such person was an executive officer at or within the past five years.
Jim Riley is the former Vice President of Public
Relations and Marketing for Ketel One Vodka has been emersing himself in the Cannabis sector. Mr Riley has been involved with several
top brands in the US such as In N Out Burger, Booth Creek Ski Holdings, and Galardi Group all before launching two successful Import
Companies bringing tequila, beer, and wine to the USA from Mexico. Mr. Riley has had a keen interest in the cannabis industry since
his business partner Bill Walton, NBA Hall of Famer, suggested he do some research to see what all the hype was about 5 years ago.
At that time Riley formed a startup company with Walton’s lifelong friend Andy Hill the former President of CBS studios.
Although the company remained a startup, the team learned a lot from the experience. Riley spent the last three months working
on compliance and banking for a privately held Cannabis Grow facility in Salinas, California. Riley looks forward to applying his
years of sales and marketing experience to the team at CGI. Mr. Riley was appointed to the board October 30, 2020.
Family Relationships
There are no family relationships between any
director or executive officer.
Corporate Governance
Leadership Structure
Arman Tabatabaei, who is also a director and
serves as chairman, CEO, CFO and corporate Secretary.
Board Committees
We do not have a standing audit committee,
an audit committee financial expert, or any committee or person performing a similar function. We do not have any board committees
including a nominating, compensation, or executive committee. Presently, we have no independent directors.
Code of Ethics
The Company adopted a written code of business
conduct and ethics that governs the Company’s employees, officers and Directors.
Director Independence
Directors Riddell and Riley are considered
an Independent Directors meeting the definition of “Independent Director outlined in NASDAQ Marketplace Rule 4200(a)(15).
Ms. Riddell was added to the board of directors on February 3, 2020. Mr. Riley was added to the board of directors on October 30,
2020.
Section 16(a) Beneficial Ownership Reporting
Compliance
Section 16(a) of the Securities Exchange Act
of 1934 requires our Company’s directors and officers, and persons who own more than ten-percent (10%) of our Company’s
shares of Common Stock, to file with the SEC reports of ownership on Form 3 and reports of changes in ownership on Forms 4 and
5. Such officers, directors and ten-percent shareholders are also required to furnish our Company with copies of all Section 16(a)
reports they file. As of the date of this filing, we believe all such reports have been filed.
Involvement in Certain Legal Proceedings
None of our directors and executive officers
has been involved in any of the following events during the past ten years:
(a)
|
|
Any petition under the federal bankruptcy laws or any state insolvency laws filed by or against, or an appointment of a receiver, fiscal agent or similar officer by a court for the business or property of such person, or any partnership in which such person was a general partner at or within two years before the time of such filing, or any corporation or business association of which such person was an executive officer at or within two years before the time of such filing;
|
|
|
|
(b)
|
|
Any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
|
|
|
(c)
|
Being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining such person from, or otherwise limiting, the following activities: (i) acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity; engaging in any type of business practice; or (iii) engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state securities laws or federal commodities laws;
|
|
|
(d)
|
Being the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any federal or state authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph (c)(i) above, or to be associated with persons engaged in any such activity;
|
|
|
(e)
|
Being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission to have violated a federal or state securities or commodities law, and the judgment in such civil action or finding by the Securities and Exchange Commission has not been reversed, suspended, or vacated;
|
|
|
(f)
|
Being found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;
|
(g)
|
|
Being the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of: (i) any federal or state securities or commodities law or regulation; or (ii) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease- and-desist order, or removal or prohibition order; or (iii) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
|
|
|
|
(h)
|
|
Being the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Securities Exchange Act of 1934), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
|
EXECUTIVE AND DIRECTOR COMPENSATION
Compensation of Directors
Our directors receive $0 per month in compensation.
Relative to any unpaid amounts due to the Director, the Director has the option to convert any monies owed into the Company’s
common at the end of his or her term. The Director’s term ends on the earlier of the date of the next annual stockholders
meeting and the earliest of the following to occur: (a) the death of the Director; (b) the termination of the Director from his
membership on the Board by the mutual agreement of the Company and the Director; (c) the removal of the Director from the Board
by the majority stockholders of the Company; and (d) the resignation by the Director from the Board. Reimbursements. During the
Director’s term, the Company reimburses the Director for all reasonable out-of-pocket expenses incurred by the Director in
attending any in-person meetings, provided that the Director complies with the generally applicable policies, practices and procedures
of the Company for submission of expense reports, receipts or similar documentation of such expenses. Any reimbursements for allocated
expenses (as compared to out-of-pocket expenses of the Director in excess of $500.00) must be approved in advance by the Company.
Our Chairman, Arman Tabatabaei receives no
compensation as a director or for service on the board of directors.
Director Common Share Ownership Table
– Current Directors
The following table is based on 47,314,845 common shares, which includes 37,314,845 outstanding as of November 10, 2020 and an
additional 10,000,000 shares of common stock being issued as part of the Primary Offering.
Officers and Directors
|
|
Amount and Nature of Beneficial Ownership
|
|
Percentage of Class Beneficially Owned
|
Dan Van Nguyen
|
|
|
2,888,889
|
|
|
|
6.1
|
%
|
Edward Manolos
|
|
|
2,888,899
|
|
|
|
6.1
|
%
|
Arman Tabatabei(1)
|
|
|
3,300,000
|
|
|
|
7.0
|
%
|
Jim Riley(2)
|
|
|
500,000
|
|
|
|
1.1
|
%
|
Melissa Riddell(3)
|
|
|
143,333
|
|
|
|
0.4
|
%
|
All Directors and Executive Officers as a Group
|
|
|
9,721,121
|
|
|
|
20.55
|
%
|
(1) Mr. Tabatabaei is chairman, CEO, CFO,
treasurer, and Secretary of the corporation.
(2) Mr. Riley is considered an Independent
Director. Mr. Riley was added to the board of directors on October 31, 2020.
(3) Ms. Riddell is considered an Independent
Director. Ms. Riddell was added to the board of directors on February 3, 2020.
Directors Compensation Table
Directors
|
|
Title
|
|
Monthly
Compensation
|
Arman Tabatabaei(1)
|
|
|
Chairman
|
|
|
$
|
0
|
|
Edward Manolos(2)
|
|
|
Director
|
|
|
|
0
|
|
Dan Van Nguyen(3)
|
|
|
Director
|
|
|
|
0
|
|
Jim Riley(5)
|
|
|
Director
|
|
|
|
0
|
|
Melissa Riddell(4)
|
|
|
Director
|
|
|
|
0
|
|
Garry McHenry(6)
|
|
|
Director
|
|
|
|
0
|
|
(1)
|
This table represents Mr. Tabatabaei’s zero compensation as a director of the corporation. Please see section marked “Executive Compensation” for other information about Mr. Tabatabaei’s compensation as an executive of the Corporation.
|
(2)
|
From July 2019 through January 31, 2019, Director Manolos accumulated $7,500 in monthly compensation as a director. This compensation was terminated on January 31, 2020 via an agreement to cancel the outstanding debt of $53,767.74 in exchange for 309,010 restricted common shares. At this time, Mr. Manolos receives no director compensation.
|
(3)
|
From July 2019 through January 31, 2019, Director Nguyen accumulated $7,500 in monthly compensation as a director. This compensation was terminated on January 31, 2020 via an agreement to cancel the outstanding debt of $53,767.74 in exchange for 309,010 restricted common shares. At this time, Mr. Nguyen receives no director compensation.
|
(4)
|
Ms. Riddell receives not cash compensation as a director. On February 3, 2020, the Company and Ms. Riddell entered into an Independent Directors Agreement providing her with one hundred thousand (100,000) shares of common stock, which vests are the rate of one twelfth (1/12) per month for 12 months. There is no cash compensation under the agreement. Ms. Riddell is also the beneficial owner of 43,333 additional common shares separate from her directorship. A copy of the additional agreement is attached hereto.
|
(5)
|
Mr. Riley receives not cash compensation as a director. On October 31, 2020, the Company and Mr. Riley entered into an Independent Directors Agreement providing him with four hundred thousand (400,000) shares of common stock, which vests are the rate of one twelfth (1/12) per month for 12 months. There is no cash compensation under the agreement.
|
(6)
|
Mr. McHenry served as the Company’s Chief Executive Officer, Chief Financial Officer, President, Secretary, Treasurer and Director during our fiscal year ended August 31, 2018. Mr. McHenry resigned all positions on June 19, 2019.
|
(7 )
|
From July 2019 through January 31, 2019, former director Robert L. Hymers III accumulated $7,500 in monthly compensation as a director. This compensation was terminated on January 31, 2020 via an agreement to cancel the outstanding debt of $53,767.74 in exchange for 309,010 restricted common shares. Mr. Hymers is no longer a director. A copy of Mr. Hymers resignation is attached hereto.
|
Summary Compensation Table
The following tables set forth certain information
about compensation paid, earned or accrued for services by (i) our past Chief Executive Officer, our Directors and (iii) all other
executive officers who earned in excess of $100,000 in the fiscal year ended August 31, 2020, and to date (“Named Executive
Officers”):
|
|
Year Ended
August 31,
|
|
Monthly Salary
($)
|
|
Total
($)
|
|
|
|
|
|
|
|
Arman Tabatabaei
|
|
|
2020
|
|
|
$
|
6,500
|
|
|
$
|
78,000
|
|
Director, President, Chief Executive Officer, Chief Financial Officer, Treasurer and Secretary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dan Van Nguyen(1)
|
|
|
2020
|
|
|
$
|
7,500
|
|
|
$
|
37,500
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert L. Hymers, III(2)
|
|
|
2020
|
|
|
$
|
7,500
|
|
|
$
|
60,000
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edward Manolos(1)
|
|
|
2020
|
|
|
$
|
7,500
|
|
|
$
|
37,500
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
From July 2019 through January 31, 2019, Directors Manolos and Nguyen accumulated $7,500 in monthly compensation as a director. This compensation was terminated on January 31, 2020 via an agreement to cancel the outstanding debt of $53,767.74 in exchange for 309,010 restricted common shares. At this time, directors Manolos and Nguyen receive no director compensation.
|
(2)
|
Mr. Hymers is a former CFO of the Company serving from June 19, 2019 until his resignation as CFO and as a Director on April 30, 2020.
|
Executive Compensation
As of June 17, 2019, our CEO, Mr. Arman Tabatabaei
signed an Executive Compensation Agreement. The Company shall pay the Executive an annual rate of base salary of Sixty thousand
dollars ($60,000.00) in monthly installments of five thousand dollars ($5000.00) per month plus an accrued monthly compensation
of ten thousand dollars ($10,000.00) per month in accordance with the Company’s customary payroll practices and applicable
wage payment laws. The Executive’s base salary shall be reviewed at least annually by the Board and the Board may, but shall
not be required to, increase the base salary during the Employment Term. The Executive’s annual base salary, as in effect
from time to time, is hereinafter referred to as “Base Salary.” In lieu of the payment of the Executive’s Base
Salary, the Executive is hereby granted the option to convert any or all unpaid Base Salary due and owing into common stock of
the Company at any time by providing a written notice to the Board.
In addition, Arman Tabatabaei received 800,000
common shares for his one-year employment contract. These shares vested up the effective date of the agreement. The full agreement
is attached hereto.
On June 30, 2020, the Company’s Board
of Directors extended the Executive Employment Agreement for the Company’s CEO and CFO, Arman Tabatabaei for a term of one
(1) additional year. Under the terms of the extension, Mr. Tabatabaei’s monthly salary was increased to $6,500. A copy of
the unanimous resolution of the Board of Directors is included as an exhibit.
Pursuant to the employment agreement, Mr. Tabatabaei
is eligible for stock award bonuses from time to time. On May 20, 2020 the Company’s board of directors voted to issue Mr.
Tabatabaei 1,500,000 in restricted common shares as a performance bonus. This agreement and the resolution of the board of directors
is attached hereto.
Mr. Tabatabaei receives no additional compensation
as a director of the Company.
Employment Agreements
On June 20, 2019, we signed an employment agreement
with our CEO, Arman Tabatabaei. Under the terms of his one year agreement, he will receive a monthly salary of $5,000 and
$10,000 in accrued salary due and payable as the end of his one year term. In addition, he received 12,000,000 common shares for
his one year employment contract. See “Executive Compensation” for additional information. This agreement is attached
hereto.
On June 30, 2020, the Company’s Board
of Directors extended the Executive Employment Agreement for the Company’s CEO and CFO, Arman Tabatabaei for a term of one
(1) additional year. Under the terms of the extension, Mr. Tabatabaei’s monthly salary was increased to $6,500. A copy of
the unanimous resolution of the Board of Directors is included as an exhibit.
Grants of Stock and Other Equity Awards
As is outlined above, pursuant to the employment
agreement with our CEO, Mr. Tabatabaei is eligible for stock award bonuses from time to time. On May 20, 2020 the Company’s
board of directors voted to issue Mr. Tabatabaei 1,500,000 in restricted common shares as a performance bonus. This agreement and
the resolution of the board of directors is attached hereto.
Mr. Tabatabaei receives no additional compensation
as a director of the Company.
Option Exercises
There have been no option exercises.
Long-Term Incentive Plans
We currently do not have any Long-Term Incentive
Plans.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
As of the date hereof, here is information
with respect to the securities holdings of (i) our officers and directors, and (ii) all persons, which pursuant to filings with
the SEC and our stock transfer records, we have reason to believe may be deemed the beneficial owner of more than five percent
(5%) of the shares of Common Stock.
The securities “beneficially owned”
by an individual are determined in accordance with the definition of “beneficial ownership” set forth in the regulations
promulgated under the Exchange Act and, accordingly, may include securities owned by or for, among others, the spouse and/or minor
children of an individual and any other relative who resides in the same home as such individual, as well as other securities as
to which the individual has or shares voting or investment power or which each person has the right to acquire within 60 days through
the exercise of options or otherwise. Beneficial ownership may be disclaimed as to certain of the securities.
The following table is based on a total of
37,314,845 common shares issued and outstanding as of November 10, 2020. This table does not include the 10,000,000 being sold
by the Company in this Offering.
Officers, Directors and Others
|
|
Amount and Nature of Beneficial Ownership
|
|
Percent of Class Beneficial Ownership
|
|
|
|
|
|
H Smart, Inc.
|
|
|
7,222,222
|
|
|
|
19.35
|
%
|
Tabular Investments, LLC(1)
|
|
|
4,182,222
|
|
|
|
11.21
|
%
|
Arman Tabatabaei
|
|
|
3,330,000
|
|
|
|
8.92
|
%
|
Dan Van Nguyen
|
|
|
2,888,889
|
|
|
|
7.74
|
%
|
Edward Manolos
|
|
|
2,888,889
|
|
|
|
7.74
|
%
|
Jim Riley
|
|
|
500,000
|
|
|
|
1.34
|
%
|
Melissa Riddell
|
|
|
143,333
|
|
|
|
0.38
|
%
|
All Directors and Executives as a Group
|
|
|
21,155,555
|
|
|
|
56.69
|
%
|
(1) Includes 33,333 held by Tad Mailander,
the control person for Tabular Investments, LLC
TRANSACTIONS WITH RELATED PARTIES
Our Company reviews transactions between our
Company and persons or entities considered to be related parties (collectively “related parties”). Our Company considers
entities to be related parties where an executive officer, director or a 5% or more beneficial owner of our shares of Common Stock
(or an immediate family member of these persons) has a direct or indirect material interest. Transactions of this nature require
the approval of our Board.
On July 1, 2019, the Company acquired Action
Nutraceuticals, Inc., a company owned by our CEO, Arman Tabatabaei. The value of the transaction value was nominal, at only one
thousand dollars ($1,000). Therefore, the Company believes its acquisition of Action Nutraceuticals, Inc. is not an acquisition
of a significant amount of assets, or a transaction defined by 17 CFR § 229.404 - (Item 404) “Transactions with Related
Persons, Promoters and Certain Control Persons” that would require specific disclosure under the section cited. Regardless,
the Company will disclose the transaction pursuant to 17 CFR § 229.404 - (Item 404) “Transactions with Related Persons,
Promoters and Certain Control Persons.” No intellectual property, patents or trademarks were acquired in the transaction.
On July 9, 2019, the Company, through its Action
Nutraceuticals subsidiary, loaned, Split Tee, LLC (“Split Tee”), a venture associated with Director Edward Manolos,
$20,000 to engage in an exploratory research project. An additional $20,000 was supplied to Split Tee on August 23, 2019. The loans
carry interest at the rate of 10% per annum and are due in one year for issuance. In addition, The Company, via Action Nutraceuticals
subsidiary, invoiced Split Tee $5,000 as a consulting fee. Because of Mr. Manolos’ association as a director, the Company
believes these transactions are defined by 17 CFR § 229.404 - (Item 404) Transactions with related persons, promoters and
certain control persons, which would require specific disclosures under the section cited. As of the end of the fiscal year August
31, 2020, the Company determined it is not likely that repayment of the $40,000 note would occur, thus the Company booked an allowance
for Bad Debt expense for the amount, bringing the note balance to zero, as of the end of the fiscal year ending August 31, 2020.
During the three months ended February 29,
2020, the Company issued two convertible promissory notes having an aggregate principal amount of $133,101 in exchange for accrued
expenses owed to related parties, of which $79,333 is payable to the Company’s Chief Executive Officer and $53,768 is payable
to the Company’s former Chief Financial Officer (Robert L. Hymers III). The notes mature two years from the respective issuance
date and bear interest at the rate of 10% per annum, payable at maturity. The noteholders shall have the right to convert
all or any part of the outstanding and unpaid principal balance of the note, at any time, into shares of common stock of the Company
at a variable conversion price of 50% of the average of the previous twenty (20) trading day closing prices of the Company’s
common stock, subject to adjustment. As a result of the variable conversion prices, upon issuance, the Company recognized total
debt discount of $133,101, which is being amortized to interest expense over the term of the notes. On May 22, 2020, the Chief
Executive Officer converted $79,333 in principal and $2,608 of accrued interest into 694,902 shares of common stock to be issued
having a fair value of $232,792. The conversion resulted in the elimination of $70,313 of remaining debt discount, the elimination
of $231,632 of derivative liabilities, and a $10,468 gain on conversion that resulted from a related party and was therefore included
in Additional paid-in capital. As of August 31, 2020, the carrying value of the remaining note with the former chief financial
officer was $15,884, net of debt discount of $37,884 and accrued interest was $3,138.
On April 30, 2020, the Company entered into
a settlement agreement with its former Chief Financial Officer (Robert L. Hymers III, hereinafter referred to as the “CFO”)
whereby the CFO resigned and the Company issued a promissory note for $30,000, which represented the remaining amount owed to the
CFO for services rendered. The note matures December 31, 2020 and bears interest at the rate of 10% per annum, payable at
maturity. The noteholder has the right to convert all or any part of the outstanding and unpaid principal balance of the note,
at any time, into shares of common stock of the Company at a fixed conversion price of $0.02 per share, subject to adjustment.
As a result of the beneficial conversion price, upon issuance, the Company recognized debt discount of $30,000, which is being
amortized to interest expense over the term of the note. As of August 31, 2020, the carrying value of the note was $15,061, net
of debt discount of $14,939 and accrued interest was $1,011.
On July 22, 2020, we signed a management agreement
with Whisper Weed, Inc., a California corporation (“Whisper Weed”). Our director Edward Manolos is a shareholder in
Whisper Weed. Whisper Weed conducts licensed delivery activity of cannabis products in California. The agreement requires the parties
to create a separate entity, CGI Whisper W, Inc. in California as a wholly owned subsidiary of the Company. The business of CGI
Whisper W, Inc. will be to provide management services for the lawful delivery of cannabis in the State of California. The Company
will manage CGI Whisper W, Inc. operations. In exchange for the Company providing management services to Whisper Weed through the
auspices of CGI Whisper W, Inc., the Company will receive as consideration a quarterly fee of 51% of the net profits earned by
Whisper Weed. As separate consideration for the transaction, the Company agreed to issue to Whisper Weed $150,000 in the Company’s
restricted common stock, valued for purposes of issuance based on the average closing price of the Company’s common stock
for the twenty days preceding the entry into the material definitive agreement. Additionally, the Company agreed to amend its articles
of incorporation to designate a new class of preferred shares. The preferred class shall be designated and issued to Whisper Weed
in an amount equal to two times the quarterly payment made to the Company. The preferred shares shall be convertible into the Company’s
common stock after 6 months, and shall be senior to other debts of the Company. The conversion to common stock will be based on
a value of common stock equal to at least two times the actual sales for the previous 90 day period. The Company agreed to include
in the designation the obligation to make a single dividend payment to Whisper Weed equal to 90% of the initial quarterly net profits
payable by Whisper Weed. As of August 31, 2020, no common or preferred shares have been issued.
On August 21, 2020 the Company, issued a convertible
note pursuant to a Stock Purchase Agreement (the “SPA) to acquire 266,667 shares of common stock of Natural Plant Extract
of California Inc., a California corporation (“NPE”), representing 18.8% of the outstanding capital stock of NPE on
a fully diluted basis. With the exception of the entry into the subject material definitive agreements, no material relationship
exists between the Company, or any of the Company’s affiliates or control persons and Hymers. Under the terms of the SPA,
the Company acquired all rights and responsibilities of the equity stake for a purchase price of Two Million Forty Thousand United
States Dollars ($2,040,000) (the “Purchase Price”). Relative to the payment of the Purchase Price, the registrant agreed
to: 1) pay Robert L. Hymers, III twenty thousand United States Dollars ($20,000) each month for a period of twenty-seven (27) months,
with the first payment commencing September 1, 2020 and the remaining payments due and payable on the first day of each subsequent
month until Hymers has received Five Hundred Forty Thousand United Stated Dollars ($540,000), and 2) issue Hymers a convertible
promissory note in the amount of One Million Five Hundred Thousand United States Dollars ($1,500,000) (the “Note”).
The Note bears interest at ten percent (10%) per annum. Hymers shall have the right at any time six (6) months after the Issuance
Date to convert all or any part of the outstanding and unpaid principal, interest, fees, or any other obligation owed pursuant
to the note. Conversion Price shall be calculated as follows: 60% of the lowest Trading Price of the common shares during the ten
(10) days preceding the date the Company receive a notice of conversion. Unless permitted by the applicable rules and regulations
of the principal securities market on which the Common Stock is then listed or traded, in no event shall the Company issue upon
conversion of or otherwise pursuant to the note and the other notes issued more than the maximum number of shares of Common Stock
that the Company can issue pursuant to any rule of the principal United States securities market on which the Common Stock is then
traded, which shall be 4.99% of the total shares outstanding at any time. A debt discount of $54,212 on the note payable at issuance
was calculated based on the present value of the note using an implied interest rate of 10%. A debt discount of $270,886 was recognized.
Accordingly, the Company recorded an initial value of its investment in NPE of $1,714,903. At the time the note becomes convertible,
the Company will recognize a derivative liability at fair value related to the embedded conversion option at that time. Prior to
these transactions, Robert Hymers III and Alan Tsai each sold equity interest representing a total of 18.8% of the outstanding
equity interest of NPE to Edward Manolos, a Director and preferred stockholder of the Company in a private transaction. As a result
of these two transactions, the Company beneficially controls approximately 37% of the equity of NPE. After this transaction, a
venture capital company controls 40% of the equity interests in NPE, the Company, Alan Tsai and Edward Manolos each control 18.8%
and one other entity controls 3.5%.
LEGAL MATTERS
The validity of the shares sold by us under
this Prospectus will be passed upon for us by the Mailander Law Office, Inc., 4811 49th Street, San Diego, CA 92115.
EXPERTS
Boyle CPA, LLC, our independent registered
public accounting firm, has audited our financial statements included in this Prospectus and Registration Statement to the extent
and for the periods set forth in their audit report. Boyle CPA, LLC has presented its report with respect to our audited financial
statements.
CANNABIS GLOBAL, INC.
INDEX TO FINANCIAL STATEMENTS
Index
to Consolidated Financial Statements
Report of Independent Registered
Public Accounting Firm
|
F-2
|
|
|
Consolidated Balance Sheets as of August 31,
2020 and 2019
|
F-3
|
|
|
Consolidated Statements of Operations for the
years ended August 31, 2020 and 2019
|
F-4
|
|
|
Consolidated Statement of Shareholders’
Equity (Deficit) for the years ended August 31, 2020 and 2019
|
F-5
|
|
|
Consolidated Statements of Cash Flows for the
years ended August 31, 2020 and 2019
|
F-6
|
|
|
Notes to Consolidated Financial Statements
|
F-7
|
Boyle CPA, LLC
Certified
Public Accountants & Consultants
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and
Stockholders of Cannabis Global,
Inc. (formerly MCTC Holdings, Inc.)
Opinion on
the Financial Statements
We have audited
the accompanying consolidated balance sheets of Cannabis Global, Inc. (formerly MCTC Holdings, Inc.) (the “Company”)
as of August 31, 2020 and 2019, and the related consolidated statements of operations, stockholders’ equity (deficit), and
cash flows for each of the years in the two-year period ended August 31, 2020, and the related notes (collectively referred to
as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly,
in all material respects, the financial position of the Company as of August 31, 2020 and 2019, and the results of its operations
and its cash flows for each of the two years in the period ended August 31 2020, in conformity with accounting principles generally
accepted in the United States of America.
Substantial Doubt About the Company’s
Ability to Continue as a Going Concern
As
discussed in Note 2 to the consolidated financial statements, the Company’s continuing net losses and negative operating
cash flows raise substantial doubt about its ability to continue as a going concern for a period of one year from the issuance
of these consolidated financial statements. Management’s plans are also described in Note 2. The consolidated financial
statements do not include adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the
Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect
to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted
our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free
of material misstatement, whether due to fraud or error. The Company is not required to have, nor were we engaged to perform,
an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of
internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included
performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud,
and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that our audit provide a reasonable basis for our opinion.
/s/ Boyle CPA, LLC
We have served as the Company’s
auditor since 2017
Bayville, New Jersey
October 27, 2020
361 Hopedale Drive SE
|
P
(732) 822-4427
|
Bayville, NJ 07701
|
F (732) 510-0665
|
CANNABIS
GLOBAL, INC.
(formerly
MCTC HOLDINGS, INC.)
CONSOLIDATED
BALANCE SHEETS
|
|
August 31,
|
|
August 31,
|
|
|
2020
|
|
2019
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
2,338
|
|
|
$
|
152,082
|
|
Inventory
|
|
|
75,338
|
|
|
|
2,299
|
|
|
|
|
77,676
|
|
|
|
154,381
|
|
|
|
|
|
|
|
|
|
|
Machinery & Equipment-
Net
|
|
|
25,406
|
|
|
|
13,248
|
|
|
|
|
|
|
|
|
|
|
Other Assets
|
|
|
|
|
|
|
|
|
Long-Term Investments
|
|
|
1,714,903
|
|
|
|
—
|
|
Intangible Assets
|
|
|
500,000
|
|
|
|
—
|
|
Notes Receivable
|
|
|
—
|
|
|
|
40,000
|
|
Security
Deposit
|
|
|
7,200
|
|
|
|
7,200
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
2,325,185
|
|
|
$
|
214,829
|
|
LIABILITIES & STOCKHOLDER'S
EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts Payable
|
|
$
|
233,568
|
|
|
$
|
92,806
|
|
Accounts Payable
- Related Party
|
|
|
1,139
|
|
|
|
1,139
|
|
Accrued Interest
|
|
|
33,301
|
|
|
|
—
|
|
Accrued Professional
and Legal Expenses
|
|
|
—
|
|
|
|
5,885
|
|
Accrued R&D
Expenses
|
|
|
—
|
|
|
|
6,250
|
|
Convertible Notes,
Net of Debt Discount of $678,246 and $0, respectively
|
|
|
1,866,872
|
|
|
|
33,334
|
|
Derivative Liability
|
|
|
1,125,803
|
|
|
|
—
|
|
Notes
Payable - Related Party
|
|
|
499,788
|
|
|
|
14,000
|
|
Total
Current Liabilities
|
|
|
3,760,471
|
|
|
|
153,414
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
3,760,471
|
|
|
|
153,414
|
|
|
|
|
|
|
|
|
|
|
Stockholder's
Equity (Deficit)
|
|
|
|
|
|
|
|
|
Preferred Stock, par value $0.0001,
|
|
|
|
|
|
|
|
|
10,000,000
shares Authorized, 6,000,000 shares Issued and
|
|
|
|
|
|
|
|
|
Outstanding
at August 31, 2020 and 2019
|
|
|
600
|
|
|
|
—
|
|
Common Stock, par value $0.001,
|
|
|
|
|
|
|
|
|
290,000,000
shares Authorized, 12,524,307 shares Issued and
|
|
|
|
|
|
|
|
|
Outstanding
at August 31, 2019 and 27,082,419 at August 31, 2020
|
|
|
2,708
|
|
|
|
1,253
|
|
Additional Paid-in
Capital
|
|
|
4,618,168
|
|
|
|
1,184,923
|
|
Shares to be
issued
|
|
|
227
|
|
|
|
2,840
|
|
Accumulated
Deficit
|
|
|
(6,056,949
|
)
|
|
|
(1,127,601
|
)
|
|
|
|
|
|
|
|
|
|
Total
Stockholder's Equity (Deficit)
|
|
|
(1,435,286
|
)
|
|
|
61,415
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
|
|
$
|
2,325,185
|
|
|
$
|
214,829
|
|
The
accompanying notes are an integral part of these audited consolidated financial statements
CANNABIS GLOBAL,
INC.
(formerly
MCTC HOLDINGS, INC.)
CONSOLIDATED
STATEMENT OF OPERATIONS
|
|
For
the Year Ended
|
|
|
August 31
|
|
August 31
|
|
|
2020
|
|
2019
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
Products
Sales
|
|
$
|
27,004
|
|
|
$
|
—
|
|
Total
Revenue
|
|
|
27,004
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Cost
of Goods Sold
|
|
|
24,521
|
|
|
|
—
|
|
Gross
Profit
|
|
|
2,483
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses:
|
|
|
|
|
|
|
|
|
Advertising
Expenses
|
|
|
213,302
|
|
|
|
1,155
|
|
Consulting
Services
|
|
|
2,033,801
|
|
|
|
59,865
|
|
Professional
Fees
|
|
|
717,548
|
|
|
|
102,765
|
|
General
and Administrative Expenses
|
|
|
661,724
|
|
|
|
386,133
|
|
Total
Operating Expenses
|
|
|
3,626,375
|
|
|
|
549,918
|
|
|
|
|
|
|
|
|
|
|
Operating
Loss
|
|
|
(3,623,892
|
)
|
|
|
(549,918
|
)
|
|
|
|
|
|
|
|
|
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
(1,422,469
|
)
|
|
|
(7,827
|
)
|
Gain on Debt Cancellation
|
|
|
45,745
|
|
|
|
168,048
|
|
Changes in Fair Value of
Derivatives
|
|
|
111,268
|
|
|
|
|
|
Uncollectible Note Receivable
|
|
|
(40,000
|
)
|
|
|
|
|
Other
Income
|
|
|
—
|
|
|
|
100
|
|
Total Other Income (Expense)
|
|
|
(1,305,456
|
)
|
|
|
160,321
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(4,929,348
|
)
|
|
$
|
(389,597
|
)
|
|
|
|
|
|
|
|
|
|
Basic & Diluted
Loss per Common Share
|
|
$
|
(0.29
|
)
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
17,101,743
|
|
|
|
12,261,293
|
|
See
the accompanying notes to these audited consolidated financial statements
CANNABIS GLOBAL,
INC.
(FORMERLY
MCTC HOLDINGS, INC.)
CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS
ENDED AUGUST 31, 2020 AND 2019
|
|
Class
A Preferred Stock
|
|
Common
Stock
|
|
Common
Stock to be issued
|
|
Additional
Paid In
|
|
Accumulated
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Total
|
Balance,
August 31, 2018
|
|
|
—
|
|
|
$
|
—
|
|
|
|
12,257,640
|
|
|
$
|
1,226
|
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
601,825
|
|
|
$
|
(738,004
|
)
|
|
$
|
(134,953
|
)
|
Common stock issued
for services rendered
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,533,333
|
|
|
|
153
|
|
|
|
350,812
|
|
|
|
—
|
|
|
|
350,965
|
|
Proceeds from common
stock subscriptions
|
|
|
—
|
|
|
|
—
|
|
|
|
266,667
|
|
|
|
27
|
|
|
|
—
|
|
|
|
—
|
|
|
|
99,973
|
|
|
|
—
|
|
|
|
100,000
|
|
Proceeds from common
stock subscriptions- to be issued
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
360,000
|
|
|
|
36
|
|
|
|
134,964
|
|
|
|
—
|
|
|
|
135,000
|
|
Net
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(389,597
|
)
|
|
|
(389,597
|
)
|
Balance,
August 31, 2019
|
|
|
—
|
|
|
|
—
|
|
|
|
12,524,307
|
|
|
|
1,253
|
|
|
|
1,893,333
|
|
|
|
189
|
|
|
|
1,187,574
|
|
|
|
(1,127,601
|
)
|
|
|
61,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
August 31, 2019
|
|
|
—
|
|
|
$
|
—
|
|
|
|
12,524,307
|
|
|
$
|
1,253
|
|
|
|
1,893,333
|
|
|
$
|
189
|
|
|
$
|
1,187,574
|
|
|
$
|
(1,127,601
|
)
|
|
$
|
61,415
|
|
Stock based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
9,188,888
|
|
|
|
919
|
|
|
|
(1,226,579
|
)
|
|
|
(122
|
)
|
|
|
2,347,336
|
|
|
|
—
|
|
|
|
2,348,133
|
|
Proceeds from common
stock subscriptions
|
|
|
—
|
|
|
|
—
|
|
|
|
5,180,402
|
|
|
|
517
|
|
|
|
510,204
|
|
|
|
51
|
|
|
|
714,044
|
|
|
|
—
|
|
|
|
714,612
|
|
Common stock to be
issued for investment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Common stock issued
in settlement of convertible notes payable and accrued interest
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
694,900
|
|
|
|
69
|
|
|
|
242,566
|
|
|
|
—
|
|
|
|
242,635
|
|
Discount on convertible
notes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
126,467
|
|
|
|
—
|
|
|
|
126,467
|
|
Preferred stock issued
|
|
|
6,000,000
|
|
|
|
600
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
200
|
|
|
|
—
|
|
|
|
800
|
|
Effects of Reverse
stock-split
|
|
|
—
|
|
|
|
—
|
|
|
|
188,822
|
|
|
|
19
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(19
|
)
|
|
|
—
|
|
|
|
—
|
|
Net
Loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
(4,929,348
|
)
|
|
|
(4,929,348
|
)
|
Balance,
August 31, 2020
|
|
|
6,000,000
|
|
|
$
|
600
|
|
|
|
27,082,419
|
|
|
$
|
2,708
|
|
|
|
1,871,858
|
|
|
$
|
187
|
|
|
$
|
4,618,168
|
|
|
$
|
(6,056,949
|
)
|
|
$
|
(1,435,286
|
)
|
See
the accompanying notes to these audited consolidated financial statements
CANNABIS GLOBAL,
INC.
(formerly
MCTC HOLDINGS, INC.)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
For the Year Ended
|
|
|
August 31
|
|
August 31
|
|
|
2020
|
|
2019
|
CASH FLOWS FROM OPERATING
|
|
|
|
|
|
|
|
|
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
(4,929,348
|
)
|
|
|
(389,597
|
)
|
Adjustments to reconcile net loss to net cash
|
|
|
|
|
|
|
|
|
used in operating activities:
|
|
|
|
|
|
|
|
|
Non-Cash Interest Expense
|
|
|
1,299,876
|
|
|
|
—
|
|
Uncollectible Note Receivable
|
|
|
40,000
|
|
|
|
|
|
Depreciation Expense
|
|
|
3,342
|
|
|
|
752
|
|
Stock Based Compensation
|
|
|
2,348,133
|
|
|
|
350,965
|
|
Changes in Fair Value of Derivative Liabilities
|
|
|
(111,268
|
)
|
|
|
—
|
|
Gain on Debt Cancellation
|
|
|
(45,745
|
)
|
|
|
(168,048
|
)
|
Changes In:
|
|
|
|
|
|
|
|
|
Rent Deposit
|
|
|
—
|
|
|
|
(7,200
|
)
|
Inventory
|
|
|
(73,039
|
)
|
|
|
(2,299
|
)
|
Accounts Payable
|
|
|
(75,258
|
)
|
|
|
91,118
|
|
Accounts Payable - Related Party
|
|
|
-
|
|
|
|
(5,061
|
)
|
Accrued Professional and Legal Expenses
|
|
|
(5,885
|
)
|
|
|
5,885
|
|
Accrued R&D Expenses
|
|
|
(6,250
|
)
|
|
|
6,250
|
|
Accrued Interest
|
|
|
33,301
|
|
|
|
5,235
|
|
Accrued Interest - Related Party
|
|
|
—
|
|
|
|
2,592
|
|
Net Cash Used in Operating Activities
|
|
|
(1,522,141
|
)
|
|
|
(109,408
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Purchase of Machinery &
Equipment
|
|
|
(15,499
|
)
|
|
|
(14,000
|
)
|
Net Cash Provided by Investing Activities
|
|
|
(15,499
|
)
|
|
|
(14,000
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds from Issuances of Common Stock
|
|
|
714,612
|
|
|
|
235,000
|
|
Proceeds from Convertible Debentures
|
|
|
673,284
|
|
|
|
33,334
|
|
Proceeds from Note Payable - Related Party
|
|
|
—
|
|
|
|
42,504
|
|
Advances to related party
|
|
|
—
|
|
|
|
(40,000
|
)
|
Net Cash Provided by Financing Activities
|
|
|
1,387,896
|
|
|
|
270,838
|
|
|
|
|
|
|
|
|
|
|
Net (Decrease) Increase in Cash
|
|
|
(149,744
|
)
|
|
|
147,430
|
|
Cash at Beginning of Period
|
|
|
152,082
|
|
|
|
4,652
|
|
|
|
|
|
|
|
|
|
|
Cash at End of Period
|
|
$
|
2,338
|
|
|
$
|
152,082
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
—
|
|
|
$
|
—
|
|
Taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Shares to be issued and loan incurred for investment
|
|
$
|
1,714,903
|
|
|
$
|
—
|
|
See
the accompanying notes to these audited consolidated financial statements
CANNABIS
GLOBAL, INC. AND SUBSIDIARIES
(formerly
MCTC HOLDINGS, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
August
31, 2020
NOTE
1 — Organization and Description of Business
Cannabis
Global, Inc. is located at 520 S Grand Avenue, Suite 320, Los Angeles, California 90071. Our telephone number is (310) 986-4929
and our website is accessible at www.cannabisglobalinc.com Our shares of Common Stock are quoted on the OTC Markets
Pink, operated by OTC Markets Group, Inc., under the ticker symbol “CGBL.”
Our
aim is to grow our revenues in the marketplace for hemp, hemp extracts, and cannabis. While we are indirectly involved in the
cannabis business, we do not directly engage in the cultivation, manufacturing, distribution or sales of regulated cannabis products.
By way of our investment in Natural Plant Extract of California Inc., a California corporation (“NPE”) and our management
agreement with Whisper Weed, Inc., a California corporation (“Whisper Weed”), we are indirectly involved in the business
of the cultivation, manufacturing, distribution or sales of regulated cannabis products. Edward Manolos, a director of the Company,
is a shareholder in Whisper Weed, thus the management agreement is Related Party Transaction and is described in the sections
marked “Related Party Transactions”.
Our
business focus is twofold: 1) Development and commercialization of proprietary engineered technologies to deliver hemp extracts
and cannabinoids to the human body. We are achieving this goal by way of an active research and development programs and of the
introduction to the industry of new hemp and hemp extract infusion technologies; and, 2) Investments into specialized area of
the regulated and licenses cannabis business where are hold either an equity state or provide managerial services.
On
April 4, 2005, MultiChannel changed its name to MicroChannel Technologies Corporation. The Company’s original name was MultiChannel
Technologies Corporation (“MultiChannel”) which was incorporated on February 28, 2005 under the laws of the State
of Nevada (U.S.A.) and was originally formed as a wholly-owned subsidiary of Octillion Corp. (“Octillion”). Octillion
(a Canadian company was trading in the OTC Markets under the symbol “OCTL”). At the time of Octillion’s existence,
Octillion was a development stage technology company focused on the identification, acquisition and development of emerging solar
energy and solar related technologies and products.
On
January 14, 2009, Octillion Corp. (Symbol: OCTL), parent company of MicroChannel announced that it had changed its name to New
Energy Technologies, Inc. (Symbol: NENE) (“New Energy”). The name change became effective on the Over-the-Counter
Bulletin Board at the opening of trading on January 14, 2009. On June 24, 2008, MicroChannel announced that it initiated trading
of its stocks on the OTC Bulletin Board under the stock symbol “MCTC”. On August 22, 2007, by corporate action taken
by MicroChannel’s executive team and board members, the company amended its Articles of Incorporation to increase its authorized
capital stock to 300,000,000 million shares of common stock, $0.0001 par value per share. As of September 25, 2007, there were
1,000,000 shares of common stock were issued and outstanding; there were no preferred shares issued and outstanding. The directors
and sole shareholder have approved a forward split of their issued and outstanding shares of common stock on the basis of 538,646
for 1 for the purpose of effecting the distribution.
On
or about June 27, 2018, we changed domiciles from the State of Nevada to the State of Delaware and thereafter reorganized under
the Delaware Holding Company Statute Delaware General Corporation Law Section 251(g). On or about July 12, 2018, two subsidiaries
were formed for the purpose of effecting the reorganization. We incorporated MCTC Holdings, Inc. and MCTC Holdings Inc. incorporated
MicroChannel Corp. We then effected a merger involving the three constituents and under the terms of the merger we were merged
into MicroChannel Corp., with MicroChannel Corp. surviving and our separate corporate existence ceasing. Following the merger
MCTC Holdings, Inc. became the surviving publicly traded issuer and all of our assets and liabilities were merged into MCTC Holdings,
Inc.’s wholly owned subsidiary MicroChannel Corp. Our shareholders became the shareholders of MCTC Holdings, Inc. on a one
for one basis.
CANNABIS
GLOBAL, INC. AND SUBSIDIARIES
(formerly
MCTC HOLDINGS, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
August
31, 2020
On
July 1, 2019, the Company acquired Action Nutraceuticals, Inc., a company owned by our current CEO, Arman Tabatabaei (see “Related
Party Transactions”). The transaction value was nominal, at only One Thousand Dollars ($1,000).
On
April 18, 2020, we formed a subsidiary Hemp You Can Feel, Inc. a California corporation (“HYCF”) as a wholly
owned subsidiary of the Company. HYCF will be engaged in various related business opportunities. At this time HYCF has no operations.
On
August 9, 2019, the Company filed a DBA in California registering the operating name Cannabis Global. On July 1, 2019, the Company
acquired Action Nutraceuticals, Inc., a company owned by our current CEO, Arman Tabatabaei (see “Related Party Transactions”).
The transaction value was nominal, at only One Thousand Dollars ($1,000).
On
August 9, 2019, our board of directors determined the Company no longer meets the definition of a Shell Company as defined in
Item 1101(b) of Regulation AB (§ 229.1101(b) of this chapter), which defines a Shell Company as one that has: 1) No or nominal
operations; and 2) Either: (i) No or nominal assets; (ii) Assets consisting solely of cash and cash equivalents; or (iii) Assets
consisting of any amounts of cash and cash equivalents and nominal other assets. By way of the Company: 1) beginning business
activities and operations, 2) hiring its CEO, 3) appointing a highly experienced board of directors, 4) retaining consultants,
5) signing two property leases, 6) approval of budgets and business plans for several initiatives, 6) production of product samples,
7) sales initiatives to prospective customers, and other related business activities, the board of directors believes such activities
are qualified as non-nominal operations and therefore the board of directors declared its believe the Company is no longer defined
by Item 1101(b) of Regulation AB ( § 229.1101(b) of this chapter).
On
September 11, 2019, we formed a subsidiary Aidan & Co, Inc. (“Aidan”) a Nevada corporation as a wholly owned subsidiary
of the Company. Aidan will be engaged in various related business opportunities. At this time Aidan has minimal operations.
On
February 20, 2020, the Company entered into a material definitive agreement with Lelantos Biotech, Inc., a Wyoming corporation
(“Lelantos”), and its owners Ma Helen M. Am Is, Inc., a Wyoming corporation (“Helen M.”), East West Pharma
Group, Inc., a Wyoming corporation (“East West”), and New Horizons Laboratory Services, Inc., a Wyoming corporation
(“New Horizons”). In exchange for intellectual properties owned by Lelantos, the Company agreed to issue 400,000 shares
of common stock and convertible promissory notes to Lelantos and its owners. On June 15, 2020, the Company and Lelantos entered
into a modification agreement cancelling the Company's obligation to issue 400,000 shares of common stock and the convertible
promissory notes. The Company and Lelantos agreed to a purchase price of five hundred thousand dollars ($500,000), payable by
the issuance of a promissory note. The aggregate unpaid principal amount of the note is paid in monthly payments of seven thousand,
five hundred dollars ($7,500) beginning on September 1, 2020, terminating on February 1, 2025. There is no interest on the note
or on the unpaid balance.
On
May 6, 2020, the Company signed a joint venture agreement with RxLeaf, Inc. (“RxLeaf”) a Delaware corporation, creating
a joint venture for the purpose of marketing the Company’s products to consumers. Under the terms of the agreement, the
Company will produce products, which will be sold by RX Leaf via its digital marketing assets. The Company agreed to share the
profits from the joint venture on a 50/50 basis.
CANNABIS
GLOBAL, INC. AND SUBSIDIARIES
(formerly
MCTC HOLDINGS, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
August
31, 2020
On
July 22, 2020, we signed a management agreement with Whisper Weed, Inc., a California corporation (“Whisper Weed”).
Edward Manolos, a director of the Company, is a shareholder in Whisper Weed (see “Related Party Transactions”). Whisper
Weed conducts licensed and compliant delivery activity of cannabis products in California. The material definitive agreement requires
the parties to create a separate entity, CGI Whisper W, Inc. in California as a wholly owned subsidiary of the Company. The business
of CGI Whisper W, Inc. will be to provide management services for the lawful delivery of cannabis in the State of California.
The Company will manage CGI Whisper W, Inc. operations. In exchange for the Company providing management services to Whisper Weed
through the auspices of CGI Whisper W, Inc., the Company will receive as consideration a quarterly fee of 51% of the net profits
earned by Whisper Weed. As separate consideration for the transaction, the Company agreed to issue to Whisper Weed $150,000 in
the Company’s restricted common stock, valued for purposes of issuance based on the average closing price of the Company’s
common stock for the twenty days preceding the entry into the material definitive agreement. The Company recognized stock-based
compensation of $116,282 related to the 666,754 shares to be issued to Whisper Weed. Additionally, the Company agreed to amend
its articles of incorporation to designate a new class of preferred shares. The preferred class shall be designated and issued
to Whisper Weed in an amount equal to two times the quarterly payment made to the Company. The preferred shares shall be convertible
into the Company’s common stock after 6 months, and shall be senior to other debts of the Company. The conversion to common
stock will be based on a value of common stock equal to at least two times the actual sales for the previous 90 day period The
Company agreed to include in the designation the obligation to make a single dividend payment to Whisper Weed equal to 90% of
the initial quarterly net profits payable by Whisper Weed. No preferred share designation or issuance occurred as of August 31,
2020.
On
August 31, 2020, we entered into a stock purchase agreement with Robert L. Hymers III (“Hymers”), an individual. With
the exception of the entry into the subject material definitive agreements, no material relationship exists between the Company,
or any of the Company’s affiliates or control persons and Hymers. Pursuant to the Stock Purchase Agreement (the “SPA”)
the Company purchased 266,667 shares of common stock of Natural Plant Extract of California Inc., a California corporation (“NPE”),
representing 18.8% of the outstanding capital stock of NPE on a fully diluted basis. NPE operates a licensed psychoactive cannabis
manufacturing and distribution business operation in Lynwood, California. NPE is a private corporation and is not publicly traded.
Under the terms of the SPA, the Company acquired all rights and responsibilities of the equity stake for a purchase price of Two
Million Forty Thousand United States Dollars ($2,040,000) (the “Purchase Price”). In connection with the SPA, the
Company became a party to a Shareholders Agreement, dated June 5, 2020, by and among Alan Tsai, Hymers, Betterworld Ventures,
LLC, Marijuana Company of America, Inc. and NPE. The Shareholders Agreement contains customary rights and obligations, including
restrictions on the transfer of the Shares.
NOTE
2 – Going Concern Uncertainties and Liquidity Requirements
During
financial reporting period ending August 31, 2020, the Company generated $27,004 in revenues, has an accumulated deficit of $6,056,949,
and does not have positive cash flows from operating activities. The Company expects to incur additional losses as begins to execute
its business strategy in the cannabinoid marketplace. The Company will be subject to the risks, uncertainties, and difficulties
frequently encountered by early-stage companies. The Company may not be able to successfully address any or all of these risks
and uncertainties. Failure to adequately do so could cause the Company’s business, results of operations, and financial
condition to suffer. These conditions raise substantial doubt about the Company’s ability to continue as a going concern
for a period of one year from the issuance date of these financial statements.
The
Company’s ability to continue as a going concern is an issue due to its net losses and negative cash flows from operations,
and its need for additional financing to fund future operations. Management plans to obtain necessary funding from outside sources
and through the sales of Company shares. There can be no assurance that such funds, if available, can be obtained on terms reasonable
to the Company. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern
and do not include any adjustments that may result from the outcome of this uncertainty.
Based
on the Company’s current level of expenditures, management believes that cash on hand is not adequate to fund operations
for the next twelve months. Management of the Company is estimating approximately $1,000,000 will be required over the next twelve
months to fully execute its business strategy. These can be no assurance the Company will be able to obtain such funds.
CANNABIS
GLOBAL, INC. AND SUBSIDIARIES
(formerly
MCTC HOLDINGS, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
August
31, 2020
NOTE 3
– Summary of Significant Accounting Policies
Our
discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements,
which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us
to make estimates and judgments that affect the amounts reported in those statements. We have made our best estimates of certain
amounts contained in our consolidated financial statements. We base our estimates on historical experience and on various other
assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about
the carrying value of assets and liabilities. However, application of our accounting policies involves the exercise of judgment
and use of assumptions as to future uncertainties, and, as a result, actual results could differ materially from these estimates.
Management believes that the estimates, assumptions, and judgments involved in the accounting policies described below have the
most significant impact on our consolidated financial statements.
We
cannot predict what future laws and regulations might be passed that could have a material effect on our results of operations.
We assess the impact of significant changes in laws and regulations on a regular basis and update the assumptions and estimates
used to prepare our financial statements when we deem it necessary.
Consolidation
The
consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances
and transactions have been eliminated in consolidation.
Variable
Interest Entities
The
Company accounts for arrangements that are not controlled through voting or similar rights as variable interest entities (“VIEs”).
An enterprise is required to consolidate a VIE if it is the primary beneficiary of the VIE. A VIE is created when (i) the equity
investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial
support from other parties, or (ii) the entity’s equity holders as a group either: (a) lack the power, through voting or
similar rights, to direct the activities of the entity that most significantly impact the entity’s economic performance,
(b) are not obligated to absorb expected losses of the entity if they occur, or (c) do not have the right to receive expected
residual returns of the entity if they occur. If an entity is deemed to be a VIE, the enterprise that is deemed to have a variable
interest, or combination of variable interests, that provides the enterprise with a controlling financial interest in the VIE,
is considered the primary beneficiary and must consolidate the VIE. Investments where the Company has significant influence, but
not control, and joint ventures which are VIEs in which the Company is not the primary beneficiary, are recorded under the equity
method of accounting on the accompanying consolidated financial statements.
As
of August 31, 2020, the Company held a variable interest in an entity for which it directly held an 18.8% equity interest, and
indirectly controlled 37.6% of the equity. The entity was not determined to be a VIE under ASC 810, as it did not meet the criteria
outlined above. Since the Company indirectly controls less than 50% of the voting interest of the entity, the entity is not consolidated,
and the Company accounts for the investment under the equity method of accounting in accordance with ASC 321. Since the entity
in which the Company holds its investment does not have a readily determinable fair value, the Company elected to account for
the investment under the measurement alternative, accounting for the investment at cost less impairment, plus or minus any changes
resulting from observable price changes in orderly transactions for the same investment. See Note 8 for additional information
on this investment.
Use of Estimates
The
preparation of financial statements in conformity with U.S. GAAP 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 financial
statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those
estimates.
CANNABIS
GLOBAL, INC. AND SUBSIDIARIES
(formerly
MCTC HOLDINGS, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
August
31, 2020
The
extent to which the COVID-19 pandemic impacts the Company’s business and financial results will depend on numerous evolving
factors including, but not limited to: the magnitude and duration of the COVID-19 pandemic, the extent to which it will impact
worldwide macroeconomic conditions, the speed of the anticipated recovery, and governmental and business reactions to the pandemic.
The Company assessed certain accounting matters that generally require consideration of forecasted financial information in context
with the information reasonably available to the Company and the unknown future impacts of COVID-19 as of August 30, 2020 and
through the date of this report. The matters assessed included accounts receivable and the carrying value of investments, intangible
assets and other long-lived assets. The Company’s future assessment of the magnitude and duration of COVID-19, as well as
other factors, could result in additional material impacts to the Company’s consolidated financial statements in future
reporting periods.
Cash
and Cash Equivalents
We
consider all highly liquid investments with original maturities of three months or less to be cash equivalents. Cash and cash
equivalents are held in operating accounts at a major financial institution.
Inventory
Inventory
is primarily comprised of work in progress. Inventory is valued at cost, based on the specific identification method, unless and
until the net realizable value for the inventory is lower than cost, in which case an allowance is established to reduce the valuation
to the net realizable value. As of August 31, 2020, and August 31, 2019, market values of all of our inventory were at cost, and
accordingly, no such valuation allowance was recognized.
Deposits
Deposits
is comprised of advance payments made to third parties, primarily for inventory for which we have not yet taken title. When we
take title to inventory for which deposits are made, the related amount is classified as inventory, then recognized as a cost
of revenues upon sale (see “Costs of Revenues” below). There were no deposits as of August 31, 2020 or August 31,
2019.
Prepaid
Expenses and Other Current Assets
Prepaid
expenses and other current assets is primarily comprised of advance payments made to third parties for independent contractors’
services or other general expenses. Prepaid services and general expenses are amortized over the applicable periods which approximate
the life of the contract or service period.
Accounts
Receivable
Accounts
receivable are recorded at the net value of face amount less any allowance for doubtful accounts. On a periodic basis, we evaluate
our accounts receivable and, based on a method of specific identification of any accounts receivable for which we deem the net
realizable value to be less than the gross amount of accounts receivable recorded, we establish an allowance for doubtful accounts
for those balances. In determining our need for an allowance for doubtful accounts, we consider historical experience, analysis
of past due amounts, client creditworthiness and any other relevant available information. However, our actual experience may
vary from our estimates. If the financial condition of our clients were to deteriorate, resulting in their inability or unwillingness
to pay our fees, we may need to record additional allowances or write-offs in future periods. This risk is mitigated to the extent
that we collect retainers from our clients prior to performing significant services.
The
allowance for doubtful accounts, if any, is recorded as a reduction in revenue to the extent the provision relates to fee adjustments
and other discretionary pricing adjustments. To the extent the provision relates to a client's inability to make required payments
on accounts receivables, the provision is recorded in operating expenses. As of August 31, 2020, and August 31, 2019, we had $0
and $0 allowance for doubtful accounts, respectively.
Property
and Equipment, net
Property
and Equipment is stated at net book value, cost less depreciation. Maintenance and repairs are expensed as incurred. Depreciation
of owned equipment is provided using the straight-line method over the estimated useful lives of the assets, ranging from two
to seven years. Depreciation of capitalized construction in progress costs, a component of property and equipment, net, begins
once the underlying asset is placed into service and is recognized over the estimated useful life. Property and equipment is reviewed
for impairment as discussed below under “Accounting for the Impairment of Long-Lived Assets.” We did not capitalize
any interest as of August 31, 2020, and as of August 31, 2019.
Accounting
for the Impairment of Long-Lived Assets
We
evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Upon such an occurrence, recoverability of assets to be held and used is measured by comparing the
carrying amount of an asset to forecasted undiscounted net cash flows expected to be generated by the asset. If the carrying amount
of the asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount
of the asset exceeds the fair value of the asset. For long-lived assets held for sale, assets are written down to fair value,
less cost to sell. Fair value is determined based on discounted cash flows, appraised values or management's estimates, depending
upon the nature of the assets. We have not recorded any impairment charges related to long-lived assets during the year ended
August 31, 2020, and August 31, 2019.
CANNABIS
GLOBAL, INC. AND SUBSIDIARIES
(formerly
MCTC HOLDINGS, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
August
31, 2020
Beneficial
Conversion Feature
If
the conversion features of conventional convertible debt provides for a rate of conversion that is below market value at issuance,
this feature is characterized as a beneficial conversion feature (“BCF”). We record a BCF as a debt discount
pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ACF”) Topic
470-20 Debt with Conversion and Other Options. In those circumstances, the convertible debt is recorded net of the
discount related to the BCF, and we amortize the discount to interest expense over the life of the debt using the effective interest
method.
Revenue
Recognition
For
annual reporting periods after December 15, 2017, the Financial Accounting Standards Board (“FASB”) made effective
ASU 2014-09 “Revenue from Contracts with Customers” to supersede previous revenue recognition guidance under current
U.S. GAAP. Revenue is now recognized in accordance with FASB ASC Topic 606, Revenue Recognition. The guidance presents a single
five-step model for comprehensive revenue recognition that requires an entity to recognize revenue to depict the transfer of promised
goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange
for those goods or services. Two options are available for implementation of the standard which is either the retrospective approach
or cumulative effect adjustment approach. The guidance becomes effective for annual reporting periods beginning after December
15, 2017, including interim periods within that reporting period, with early adoption permitted. We determined to implement the
cumulative effect adjustment approach to our implementation of FASB ASC Topic 606, with no restatement of the comparative periods
presented. We apply this method to any incomplete contracts we determine are subject to FASB ASC Topic 606 prospectively. As is
more fully discussed below, we are of the opinion that none of our contracts for services or products contain significant financing
components that require revenue adjustment under FASB ASC Topic 606.
In
accordance with FASB ASC Topic 606, Revenue Recognition, we recognize revenue when persuasive evidence of a significant financing
component exists in our consulting and product sales contracts. We examine and evaluate when our customers become liable to pay
for goods and services; how much consideration is paid as compared to the cash selling price of the goods or services; and, the
length of time between our performance and the receipt of payment.
Product
Sales
Revenue
from product sales, including delivery fees, is recognized at a point in time when control of the promised goods is transferred
to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for those goods. Generally,
we drop-ship orders to our clients with shipping-point or destination terms. For any shipments with destination terms, the Company
defers revenue until delivery to the customer. Given the facts that (1) our customers exercise discretion in determining the timing
of when they place their product order; and, (2) the price negotiated in our product sales is fixed and determinable at the time
the customer places the order, we are not of the opinion that our product sales indicate or involve any significant customer financing
that would materially change the amount of revenue recognized under the sales transaction, or would otherwise contain a significant
financing component for us or the customer under FASB ASC Topic 606.
Costs
of Revenues
Our
policy is to recognize costs of revenue in the same manner in conjunction with revenue recognition. Cost of revenues include the
costs directly attributable to revenue recognition and includes compensation and fees for services, travel and other expenses
for services and costs of products and equipment. Selling, general and administrative expenses are charged to expense as incurred.
Stock-Based
Compensation
Restricted
shares are awarded to employees and entitle the grantee to receive shares of restricted common stock at the end of the established
vesting period. The fair value of the grant is based on the stock price on the date of grant. We recognize related compensation
costs on a straight-line basis over the requisite vesting period of the award, which to date has been one year from the grant
date.
CANNABIS
GLOBAL, INC. AND SUBSIDIARIES
(formerly
MCTC HOLDINGS, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
August
31, 2020
Income
Taxes
We
recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the
financial statements or tax returns in accordance with applicable accounting guidance for accounting for income taxes, using currently
enacted tax rates in effect for the year in which the differences are expected to reverse. We record a valuation allowance when
necessary to reduce deferred tax assets to the amount expected to be realized. For the year ended August 31, 2020 and August
31, 2019 we incurred no income taxes. As of August 31, 2020, and August 31, 2019, we had no liabilities related to federal or
state income taxes.
Other
Tax Related Policies
Incentive
Stock Options. For federal income tax purposes, the holder of an ISO has no taxable income at the time of the grant or
exercise of the ISO. If such person retains the Common Stock acquired under the ISO for a period of at least two years after the
stock option is granted and one year after the stock option is exercised, any gain upon the subsequent sale of the Common Stock
will be taxed as a long-term capital gain. A participant who disposes of shares acquired by exercise of an ISO prior to the expiration
of two years after the stock option is granted or before one year after the stock option is exercised will realize ordinary income
equal to the lesser of (i) the excess of the fair market value over the exercise price of the shares on the date of exercise,
or (ii) the excess of the amount realized on the disposition over the exercise price for the shares. Any additional gain
or loss recognized upon any later disposition of the shares would be a short- or long-term capital gain or loss, depending on
whether the shares have been held by the participant for more than one year. Utilization of losses is subject to special rules
and limitations.
Nonstatutory
Stock Options. A participant who receives a nonstatutory stock option generally will not realize taxable income on the
grant of such option, but will realize ordinary income at the time of exercise of the stock option equal to the difference between
the option exercise price and the fair market value of the stock on the date of exercise.
Restricted
Stock. A participant will generally not have taxable income upon grant of unvested restricted shares unless he or she
elects to be taxed at that time pursuant to an election under Code Section 83(b). Instead, he or she will recognize ordinary
income at the time(s) of vesting equal to the fair market value (on each vesting date) of the shares or cash received minus any
amount paid for the shares, if any.
Stock
Units. No taxable income is generally reportable when unvested stock units are granted to a participant. Upon settlement
of the vested stock units, the participant will recognize ordinary income in an amount equal to the fair market value of the shares
issued or payment received in connection with the vested stock units.
Stock
Appreciation Rights. No taxable income is generally reportable when a stock appreciation right is granted to a participant.
Upon exercise, the participant will recognize ordinary income in an amount equal to the amount of cash received plus the fair
market value of any shares received.
Income
Tax Effects for the Company. We generally will be entitled to a tax deduction in connection with an award under the 2020
Plan in an amount equal to the ordinary income realized by a participant at the time the participant recognizes such income (for
example, upon the exercise of an nonqualified stock option or vesting of restricted stock).
Internal
Revenue Code Section 162(m) Deduction Limitation. Section 162(m) of the Code places a limit of $1 million
on the amount of compensation that we may deduct in any one fiscal year with respect to our executive officers and other persons
who are subject to Code Section 162(m). Therefore, compensation derived from 2020 Plan awards may not be fully deductible by the
Company.
Internal
Revenue Code Section 280G. For certain persons, if a change in control of the Company causes an award to vest or
become newly payable, or if the award was granted within one year of a change in control and the value of such award or vesting
or payment, when combined with all other payments in the nature of compensation contingent on such change in control, equals or
exceeds the dollar limit provided in Section 280G of the Code (generally, this dollar limit is equal to three times the five-year
historical average of the individual’s annual compensation received from the Company), then the entire amount exceeding
the individual’s average annual compensation will be considered an excess parachute payment. The recipient of an excess
parachute payment must pay a 20% excise tax on this excess amount and the Company cannot deduct the excess amount from its taxable
income.
CANNABIS
GLOBAL, INC. AND SUBSIDIARIES
(formerly
MCTC HOLDINGS, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
August
31, 2020
Certain
types of nonqualified deferred compensation arrangements. A violation of Section 409A of the Code generally results in
an acceleration of the recognition of income of amounts intended to be deferred and the imposition of a federal excise tax of
20% on the employee over and above the income tax owed, plus possible penalties and interest. The types of arrangements covered
by Section 409A of the Code are broad and may apply to certain awards available under the 2020 Plan (such as stock units).
The intent is for the 2020 Plan, including any awards available thereunder, to comply with the requirements of Section 409A
of the Code to the extent applicable. As required by Code Section 409A, certain nonqualified deferred compensation payments
to specified employees may be delayed to the seventh month after such employee’s separation from service.
Loss
Contingencies
From
time to time the Company is subject to various legal proceedings and claims that arise in the ordinary course of business. On
at least a quarterly basis, consistent with ASC 450-20-50-1C, if the Company determines that there is a reasonable possibility
that a material loss may have been incurred, or is reasonably estimable, regardless of whether the Company accrued for such a
loss (or any portion of that loss), the Company will confer with its legal counsel, consistent with ASC 450. If the material loss
is determinable or reasonably estimable, the Company will record it in its accounts and as a liability on the balance sheet. If
the Company determines that such an estimate cannot be made, the Company's policy is to disclose a demonstration of its attempt
to estimate the loss or range of losses before concluding that an estimate cannot be made, and to disclose it in the notes to
the financial statements under Contingent Liabilities.
Net
Income (Loss) Per Common Share
We
report net income (loss) per common share in accordance with FASB ASC 260, “Earnings per Share”. This statement requires
dual presentation of basic and diluted earnings with a reconciliation of the numerator and denominator of the earnings per share
computations. Basic net income (loss) per share is computed by dividing net income attributable to common stockholders by the
weighted average number of shares of common stock outstanding during the period and excludes the effects of any potentially dilutive
securities. Diluted net income (loss) per share gives effect to any dilutive potential common stock outstanding during the period.
The computation does not assume conversion, exercise or contingent exercise of securities that would have an anti-dilutive effect
on earnings.
Note
4 - Net Loss Per Share
During
fiscal years ending August 31, 2020 and August 31, 2019, the Company recorded a net loss. Basic and diluted net loss per share
is the same for those periods.
Note
5 – Notes Receivable
On
July 9, 2019, the Company, through its Action Nutraceuticals subsidiary, loaned, Split Tee, LLC (“Split Tee”), a venture
associated with Director Edward Manolos, $20,000 to engage in an exploratory research project. An additional $20,000 was supplied
to Split Tee on August 23, 2019. The loans carry interest at the rate of 10% per annum and are due in one year for issuance. Because
of Mr. Manolos’ association as a director, the Company believes these transactions are defined by 17 CFR § 229.404
- (Item 404) Transactions with related persons, promoters and certain control persons, which would require specific disclosures
under the section cited. As of the end of the fiscal year August 31, 2020, the Company determined it is not likely that repayment
of the $40,000 note would occur, thus the Company booked an allowance for Bad Debt expense for the amount, bringing the note balance
to zero, as of the end of the fiscal year ending August 31, 2020.
CANNABIS
GLOBAL, INC. AND SUBSIDIARIES
(formerly
MCTC HOLDINGS, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
August
31, 2020
Note
6 - Notes Payable
On
January 9, 2014, the Company issued a $70,000 note payable to a shareholder of the Company. The note payable bears interest at
an annual rate of 7%, which then increased to 10% after it was in default. Principal and accrued interest on the note payable
were due on January 9, 2016, with a default annual rate of 10% interest after that date. The outstanding balance of principal
and accrued interest may be prepaid without penalty. During the years ended August 31, 2018 and August 31, 2017, the Company recorded
an interest expense of $6,999, respectively, related to the note payable. As of August 31, 2018, the original principal balance
of $70,000 on the note payable remained outstanding, with accrued interest of $28,306. The note payable was not repaid on January
9, 2016 and was spun out to Lauderdale Holdings, LLC as part of the change in control. During the Fourth Quarter of 2019. Consequently,
it is included as part of the $168,048 in Cancellation of Debt income on the Statement of Operations.
In
November 30, 2017 – August 31, 2018, the Company issued a $35,554 in multiple notes payable to an entity related to the
legal custodian of the Company. The notes payable bear interest at an annual rate of 10% and is convertible to common shares of
the Company at $0.0001 per share. On May 8, 2018, $13,000 of the principal balance on notes payable were converted to common stock.
As of August 31, 2019 the remaining principal balance was forgiven and included as Cancellation of Debt income on the Income Statement
for the year ended August 31, 2019.
On
May 25, 2019, the Company issued two notes payable to Company directors Edward Manolos and Dan Nguyen, each in the amount of $16,666,67.
The notes, which do not have a defined due date, outline a 5% per annum interest rate. These notes are additionally described
herein in Footnote 7- Notes Payable, Related Party and in Footnote 11 – Related Party Transactions.
On
July 9, 2019, the Company, through its Action Nutraceuticals subsidiary, loaned, Split Tee, LLC (“Split Tee”), a venture
associated with Director Edward Manolos, $20,000 to engage in an exploratory research project (see “Related Party Transactions”).
An additional $20,000 was supplied to Split Tee on August 23, 2019. The loans carry interest at the rate of 10% per annum and
are due in one year for issuance. In addition, The Company, via Action Nutraceuticals subsidiary, invoiced Split Tee $5,000 as
a consulting fee.
On
February 12, 2020, the Company issued three Sellers Acquisition promissory notes having an aggregate principal amount of $500,000
pursuant to an Acquisition Agreement to acquire Lelantos Biotech. The notes mature May 31, 2020; $450,000 (two tranches of $225,000)
and $50,000 of the notes bear interest at the rate of 8% and 5% per annum, respectively. In the event, the notes are not paid
within the Cash Repayment Period (prior to the Maturity Date), the notes specify the holder shall have two options for repayment
including: [a] an Alternative Payment Stake Option equal to a 6.75%, 6.75% and 1.5% (or a pro-rated amount if the debt has been
partially paid) fully diluted ownership position in the Company after August 4, 2020, August 12, 2020 and August 30, 2020, respectively;
or [b] a Buy Out Option, anytime after the note has been outstanding for at least one year, equal to the total outstanding shares
of the Company on the day of election, times 6.75%, 6.75% and 1.5%, respectively, times the average closing price of the Company’s
common stock over the preceding 30 trading days, times 40% (due and payable within 90 days). Anti-dilution rights are provided
for five years on the Sellers Acquisition notes and for 182 days after conversion to an Alternative Payment Stake. The notes include
a Leak Out provision, should the Alternative Payment Stake option be elected, whereby no more than 30% of the holdings may be
sold during the first 30 days after clearance for trading and no more than 25% of the remaining shares sold during any subsequent
30-day period. The notes are secured by a Security Agreement, require common shares to be reserved, are transferrable and are
Senior to other debt of the Company. At maturity, on May 31, 2020, (i) the Company received forbearance agreements for the two
tranches of $225,000 each whereby the maturity date was extended to July 15, 2020 and the interest rate was increased to 9%; and
(ii) the $50,000 note and all accrued interest thereon, in the amount of $747, was forgiven. Accordingly, the Company recognized
a gain for debt forgiveness of $50,747. As of August 31, 2020, the carrying value of the notes was $450,000 and accrued interest
payable was $19,824.
CANNABIS
GLOBAL, INC. AND SUBSIDIARIES
(formerly
MCTC HOLDINGS, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
August
31, 2020
The
parties to the June 15, 2020 modification agreement were the Company and Lelantos, including its including without limitation
its shareholders, owners, affiliates, control persons, successors and assigns, including, but not limited to, Mt. Fire, LLC, a
Nevada limited liability company (“Mt. Fire”), Ma Helen M. Am Is, Inc., a Wyoming Corporation (“Helen M.”),
New Horizons Laboratory Services, Inc., a Wyoming Corporation (“New Horizons”), and East West Pharma Group, Inc.,
a Wyoming Corporation (“East – West”) (or collectively, “Lelantos”). There is no material
relationship between the Registrant or its affiliates and Lelantos, Helen M., East West, Mt. Fire, New Horizons, or any of their
respective affiliates, other than in respect of the June 15, 2020 modification agreement. Pursuant to the June 20, 2020 modification
agreement, the Company and Lelantos agreed to the following material modifications to the material definitive agreement as follows;
1) The Registrant shall have no obligation to issue 400,000 common shares under Section 3.1 of the previously disclosed acquisition
agreement, 2) The Sellers acquisition notes referenced in the February 20 ,2020 agreement were all cancelled with prejudice to
any and all rights of any kind whatsoever pertaining to and in favor of Helen M., New Horizons, and East – West. (The Company
and East – West previously terminated their note on May 31, 2020, and 3) As complete and full consideration for the acquisition
of the intellectual property, trade secrets, research and development and associated pending patent applications, the agreed to
pay to Lelantos, a purchase price of five hundred thousand dollars ($500,000), payable by the issuance of a promissory note. The
Company may prepay the note in whole or in part at any time or from time to time without penalty or premium by paying the
principal amount to be prepaid. The aggregate unpaid principal amount of the note is paid in monthly payments of seven thousand,
five hundred dollars ($7,500) beginning on September 1, 2020, terminating on February 1, 2025. There is no interest on the note
or on the unpaid balance.
On
February 12, 2020, the Company entered into an Independent Consulting Agreement with a consultant to provide services from February
12, 2020 through December 14, 2020 (the “Consulting Agreement”). Pursuant to the Consulting Agreement, the Company
issued to the consultant a Compensation promissory note having a principal amount of $100,000 for the Deferred Compensation portion
of the Consulting Agreement. The note matures August 4, 2020 and bears interest at the rate of 8% per annum. In the event, the
note is not paid within the Cash Repayment Period (prior to the Maturity Date), the note specifies the holder shall have
two options for repayment including: [a] an Alternative Payment Stake Option equal to a 8.5% (or a pro-rated amount if the debt
has been partially paid) fully diluted ownership position in the Company after August 4, 2020; or [b] a Buy Out Option, any time
after the note has been outstanding for at least one year, equal to the total outstanding shares of the Company on the day of
election, times 8.5% times the average closing price of the Company’s common stock over the preceding 30 trading days, times
40% (due and payable within 90 days). Anti-dilution rights are provided for five years on the Compensation note and for 182 days
after conversion to an Alternative Payment Stake. The note includes a Leak Out provision, should the Alternative Payment Stake
option be elected, whereby no more than 30% of the holdings may be sold during the first 30 days after clearance for trading and
no more than 25% of the remaining shares sold during any subsequent 30-day period. The note is secured by a Security Agreement,
requires common shares to be reserved, is transferrable and is Senior to other debt of the Company. As of August 31, 2020, the
carrying value of the note was $100,000 and accrued interest payable was $4,405.
Note
7. Related Party Transactions
In
October 2017 – August 31, 2018, the Company incurred a related party debt in the amount of $10,000 to an entity related
to the legal custodian of the Company for professional fees. As of August 31, 2018, this balance was forgiven and was included
as part of the $168,048 Cancellation of Debt Income on the Statement of Operations.
In
November 30, 2017 – August 31, 2018, the Company issued a $35,554 in multiple notes payable to an entity related to the
legal custodian of the Company. The notes payable bear interest at an annual rate of 10% and is convertible to common shares of
the Company at $0.0001 per share. On May 8, 2018, $13,000 of the principal balance on notes payable were converted to common stock.
The remaining principal balance was forgiven and included as Cancellation of Debt Income on the Income Statement for the year
ended August 31, 2019.
CANNABIS
GLOBAL, INC. AND SUBSIDIARIES
(formerly
MCTC HOLDINGS, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
August
31, 2020
In
March 2018 and May 2018, a legal custodian of the Company funded the Company $600 in advances. On August 31, 2018, this amount
was reclassified as a note payable, that bears interest at an annual rate of 10% and is payable upon demand.
In
connection with the above notes, the Company recognized a beneficial conversion feature of $27,954, representing the intrinsic
value of the conversion features at the time of issuance. This beneficial conversion feature was accreted to interest expense
during the year ended August 31, 2018.
On
May 25, 2019, the Company issued two notes payable to Company directors Edward Manolos and Dan Nguyen for loans made to the Company,
each in the amount of $16,666.67 for a total balance of $33,334. The notes bear interest at 5% per annum and do not have a fixed
payment schedule or maturity date. These notes are additionally described herein in Footnote 7 - Notes Payable.
On
July 1, 2019, the Company acquired Action Nutraceuticals, Inc., a company owned by our current CEO, Arman Tabatabaei for one thousand
dollars ($1,000).
On
July 9, 2019, the Company, through its Action Nutraceuticals subsidiary, loaned, Split Tee, LLC (“Split Tee”), a venture
associated with Director Edward Manolos, $20,000 to engage in an exploratory research project. An additional $20,000 was supplied
to Split Tee on August 23, 2019 (the “Split Tee Note”). The loans carry interest at the rate of 10% per annum and
are due in one year for issuance. In addition, The Company, via Action Nutraceuticals subsidiary, invoiced Split Tee $5,000 as
a consulting fee. Because of Mr. Manolos’ association as a director, the Company believes these transactions are defined
by 17 CFR § 229.404 - (Item 404) Transactions with related persons, promoters and certain control persons, which would require
specific disclosures under the section cited. On May 15, 2020, the outstanding balance of the Split Tee Note was reduced via a
payment of $15,000.
During
the three months ended February 29, 2020, the Company issued two convertible promissory notes having an aggregate principal amount
of $133,101 in exchange for accrued expenses owed to related parties, of which $79,333 is payable to the Company’s Chief
Executive Officer and $53,768 is payable to the Company’s previous Chief Financial Officer, Robert L. Hymers III. The notes
mature two years from the respective issuance date and bear interest at the rate of 10% per annum, payable at maturity. The
noteholders shall have the right to convert all or any part of the outstanding and unpaid principal balance of the note, at any
time, into shares of common stock of the Company at a variable conversion price of 50% of the average of the previous twenty (20)
trading day closing prices of the Company’s common stock, subject to adjustment. As a result of the variable conversion
prices, upon issuance, the Company recognized total debt discount of $133,101, which is being amortized to interest expense over
the term of the notes. On May 22, 2020, Mr. Tabatabaei converted the principal amount of $79,333 and interest of $2,608, for a
total amount of $81,941.55 into 694,902 common shares. As of August 31, 2020, the carrying value of the remaining note with the
former chief financial officer was $15,884, net of debt discount of $37,884 and accrued interest was $3,138.
On
April 30, 2020, the Company entered into a settlement agreement with Robert L. Hymers III, its Chief Financial Officer (the “CFO”),
whereby the CFO resigned and the Company issued a promissory note for $30,000, which represented the remaining amount owed to
the CFO for services rendered. The note matures December 31, 2020 and bears interest at the rate of 10% per annum, payable
at maturity. The noteholder has the right to convert all or any part of the outstanding and unpaid principal balance of the note,
at any time, into shares of common stock of the Company at a fixed conversion price of $0.02 per share, subject to adjustment.
As a result of the beneficial conversion price, upon issuance, the Company recognized debt discount of $30,000, which is being
amortized to interest expense over the term of the note. As of August 31, 2020, the carrying value of the note was $15,061, net
of debt discount of $14,939 and accrued interest was $1,011.
On
August 31, 2020, the Company issued a convertible note payable and a note payable to Robert L. Hymers III in connection with the
acquisition of an 18.8% equity interest in NPE. See Note 8.
See
Note 9 for further discussion of the accounting treatment of the embedded conversion options of the above promissory notes payable
as derivative liabilities.
CANNABIS
GLOBAL, INC. AND SUBSIDIARIES
(formerly
MCTC HOLDINGS, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
August
31, 2020
Note
8. Convertible Notes Payable
On
November 6, 2019, the Company issued a convertible promissory note in the principal amount of $20,000 along with 26,667 three-year
warrants exercisable at $3.50 per share in exchange for proceeds of $20,000. The note matures May 6, 2020 and bears interest
at the rate of 7% per annum, payable at maturity. Commencing thirty (30) days following the issuance date, the noteholder shall
have the right to convert all or any part of the outstanding and unpaid principal balance of the note, at any time, into shares
of common stock of the Company at a conversion price equal to the lower of (i) $0.75 per share; or (ii) 80% of the average of
the previous twenty (20) trading day closing prices of the Company’s common stock, subject to adjustment. As a result of
the issuance of the warrants as well as the beneficial conversion feature, upon issuance, the Company recognized total debt discount
of $20,000, which is being amortized to interest expense over the term of the note. The Company is prohibited from effecting a
conversion of the note to the extent that, as a result of such conversion, the noteholder, together with its affiliates, would
beneficially own more than 4.99% of the number of shares of the Company’s common stock outstanding immediately after giving
effect to the issuance of shares of common stock upon conversion of the note. At maturity, on May 6, 2020, the Company entered
into a settlement agreement with the noteholder whereby the Company paid the entire principal balance of $20,000 and accrued interest
of $712 in cash and the warrants were canceled. There was no gain or loss recognized for the settlement.
During
the three months ended February 29, 2020, the Company issued four convertible promissory notes having an aggregate principal amount
of $256,500, aggregate original issue discount (OID) of $10,500, and aggregate legal fees of $11,000, resulting in aggregate net
proceeds to the Company of $235,000. The notes mature in one year from the respective issuance date and bear interest at
the rate of 10% per annum, payable at maturity. Commencing one hundred eighty (180) days following the issuance date of $198,750
of the notes and commencing immediately following the issuance of $57,750 of the notes, the noteholders shall have the right to
convert all or any part of the outstanding and unpaid principal balance of the note, at any time, into shares of common stock
of the Company at variable conversion prices ranging from 50% - 60% of the lowest previous fifteen (15) to twenty (20) trading
day closing trade prices of the Company’s common stock, subject to adjustment. As a result of the variable conversion prices,
upon issuance, the Company recognized total debt discount of $256,500, which is being amortized to interest expense over the term
of the notes. The Company is prohibited from effecting a conversion of the note to the extent that, as a result of such conversion,
the noteholder, together with its affiliates, would beneficially own more than 4.99% of the number of shares of the Company’s
common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the note.
In August 2020, the Company repaid the notes in full, consisting of principal of $256,500, accrued interest of $13,772, and early
repayment interest and penalties of $127,565.
On
March 19, 2020, the Company issued a convertible promissory note, payable in tranches, having an aggregate principal amount of
$150,000, aggregate original issue discount (OID) of $15,000, and an aggregate of 468,750 three-year warrants exercisable at $0.48/share,
which contain certain exercise price reset provisions in the event of dilutive issuances. The notes mature one year from the respective
issuance date of each tranche and bear interest at the rate of 10% per annum, payable at maturity. Commencing immediately
following the issuances, the noteholder shall have the right to convert all or any part of the outstanding and unpaid principal
balance of the note, at any time, into shares of common stock of the Company at a variable conversion price equal to the lower
of 60% of the lowest closing trade price of the Company’s common stock, subject to adjustment, during the 25 trading days
prior to: (i) the issuance date; or (ii) the conversion date. On March 19, 2020, the first tranche of $50,000, less OID of $5,000,
was received, resulting in net proceeds to the Company of $45,000, and the Company issued 156,250 three-year warrants exercisable
at $0.48 per share. On May 4, 2020, the second tranche of $25,000, less OID of $2,500, was received, resulting in net proceeds
to the Company of $22,500, and the Company issued 78,125 three-year warrants exercisable at $0.48 per share. On July 10, 2020,
the third tranche of $25,000, less OID of $2,500 was received, resulting in net proceeds to the Company of $22,500, and the Company
issued 78,125 three year warrants exercisable at an initial price of $0.48 per share. As a result of the OID and the variable
conversion price, upon issuance, the Company recognized total debt discount of $75,000, which is being amortized to interest expense
over the respective term of the tranches. The Company is prohibited from effecting a conversion of the note to the extent that,
as a result of such conversion, the noteholder, together with its affiliates, would beneficially own more than 4.99% of the number
of shares of the Company’s common stock outstanding immediately after giving effect to the issuance of shares of common
stock upon conversion of the note. As of August 31, 2020, the carrying value of these notes was $37,088, net of debt discount
of $62,912 and accrued interest was $3,431.
CANNABIS
GLOBAL, INC. AND SUBSIDIARIES
(formerly
MCTC HOLDINGS, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
August
31, 2020
On
July 21, 2020, the Company issued a convertible promissory note with a principal amount of $78,750, with the Company receiving
proceeds of $71,250 after original issue discount of $3,750 and deferred finance costs of $3,750. The note matures on July 21,
2021 and bears interest at 6% per annum. Commencing immediately following the issuances, the noteholder shall have the right to
convert all or any part of the outstanding and unpaid principal balance of the note, at any time, into shares of common stock
of the Company at a variable conversion price equal to the 60% of the lowest closing trade price of the Company’s common
stock, subject to adjustment, during the 30 trading days prior to: the conversion date. As a result of the OID and the variable
conversion price, upon issuance, the Company recognized total debt discount of $78,750, which is being amortized to interest expense
through the maturity date. The Company is prohibited from effecting a conversion of the note to the extent that, as a result of
such conversion, the noteholder, together with its affiliates, would beneficially own more than 4.99% of the number of shares
of the Company’s common stock outstanding immediately after giving effect to the issuance of shares of common stock upon
conversion of the note. As of August 31, 2020, the carrying value of these notes was $8,846, net of debt discount of $69,904 and
accrued interest was $531.
In
August 2020, the Company issued two convertible promissory notes with an aggregate principal amount of $129,250, with the Company
receiving proceeds of $117,500 after original issue discount of $11,750. The notes mature in May 2021 and bear interest at 10%
per annum. Commencing immediately following the issuances, the noteholder shall have the right to convert all or any part of the
outstanding and unpaid principal balance of the note, at any time, into shares of common stock of the Company at a fixed price
of $0.1005 per share of common stock. The conversion price may reset to a lower price if the Company issues common stock to any
suppliers or vendors. As a result of the OID and the potential result for dilutive issuances, upon issuance, the Company recognized
total debt discount of $129,250, which is being amortized to interest expense through the maturity date. The Company is prohibited
from effecting a conversion of the note to the extent that, as a result of such conversion, the noteholder, together with its
affiliates, would beneficially own more than 4.99% of the number of shares of the Company’s common stock outstanding immediately
after giving effect to the issuance of shares of common stock upon conversion of the note. As of August 31, 2020, the carrying
value of these notes was $8,452, net of debt discount of $120,798 and accrued interest was $632.
The
Company also entered into common stock subscription agreements with this lender, totaling share issuances of 3,409,221 (of which
510,204 are to be issued as of August 31, 2020), for cash proceeds of $329,613. In connection with these subscriptions, the Company
issued a convertible promissory note of $50,000 for no consideration. The note matures on August 7, 2021 and bears interest at
10$% and is convertible at a fixed price of $0.1631 per share, subject to potential rest in the event the Company issues shares
to vendors or suppliers. The Company recognized total debt discount of $50,000, which is being amortized to interest expense over
the respective term of the tranches. The Company is prohibited from effecting a conversion of the note to the extent that, as
a result of such conversion, the noteholder, together with its affiliates, would beneficially own more than 4.99% of the number
of shares of the Company’s common stock outstanding immediately after giving effect to the issuance of shares of common
stock upon conversion of the note. As of August 31, 2020, the carrying value of these notes was $3,288, net of debt discount of
$46,712 and accrued interest was $329.
CANNABIS
GLOBAL, INC. AND SUBSIDIARIES
(formerly
MCTC HOLDINGS, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
August
31, 2020
Related
Parties
During
the three months ended February 29, 2020, the Company issued two convertible promissory notes having an aggregate principal amount
of $133,101 in exchange for accrued expenses owed to related parties, of which $79,333 is payable to the Company’s Chief
Executive Officer and $53,768 is payable to the Robert L. Hymers III. The notes mature two years from the respective issuance
date and bear interest at the rate of 10% per annum, payable at maturity. The noteholders shall have the right to convert
all or any part of the outstanding and unpaid principal balance of the note, at any time, into shares of common stock of the Company
at a variable conversion price of 50% of the average of the previous twenty (20) trading day closing prices of the Company’s
common stock, subject to adjustment. As a result of the variable conversion prices, upon issuance, the Company recognized total
debt discount of $133,101, which is being amortized to interest expense over the term of the notes. On May 22, 2020, the Chief
Executive Officer converted $79,333 in principal and $2,608 of accrued interest into 694,902 shares of common stock to be issued
having a fair value of $232,792. The conversion resulted in the elimination of $70,313 of remaining debt discount, the elimination
of $231,632 of derivative liabilities, and a $10,468 gain on conversion that resulted from a related party and was therefore included
in Additional paid-in capital. As of August 31, 2020, the carrying value of the remaining note with the former chief financial
officer was $15,884, net of debt discount of $37,884 and accrued interest was $3,138.
On
April 30, 2020, the Company entered into a settlement agreement with its former Chief Financial Officer (Robert L. Hymers III,
hereinafter referred to as the “CFO”) whereby the CFO resigned and the Company issued a promissory note for $30,000,
which represented the remaining amount owed to the CFO for services rendered. The note matures December 31, 2020 and bears
interest at the rate of 10% per annum, payable at maturity. The noteholder has the right to convert all or any part of the outstanding
and unpaid principal balance of the note, at any time, into shares of common stock of the Company at a fixed conversion price
of $0.02 per share, subject to adjustment. As a result of the beneficial conversion price, upon issuance, the Company recognized
debt discount of $30,000, which is being amortized to interest expense over the term of the note. As of August 31, 2020, the carrying
value of the note was $15,061, net of debt discount of $14,939 and accrued interest was $1,011.
On
August 21, 2020 the Company, issued a convertible note pursuant to a Stock Purchase Agreement (the “SPA) to acquire 266,667
shares of common stock of Natural Plant Extract of California Inc., a California corporation (“NPE”), representing
18.8% of the outstanding capital stock of NPE on a fully diluted basis. With the exception of the entry into the subject material
definitive agreements, no material relationship exists between the Registrant, or any of the Registrant’s affiliates or
control persons and Hymers. Under the terms of the SPA, the Registrant acquired all rights and responsibilities of the equity
stake for a purchase price of Two Million Forty Thousand United States Dollars ($2,040,000) (the “Purchase Price”).
Relative to the payment of the Purchase Price, the registrant agreed to: 1) pay Hymers Twenty Thousand United States Dollars ($20,000)
each month for a period of twenty-seven (27) months, with the first payment commencing September 1, 2020 and the remaining payments
due and payable on the first day of each subsequent month until Hymers has received Five Hundred Forty Thousand United Stated
Dollars ($540,000), and 2) issue Hymers a convertible promissory note in the amount of One Million Five Hundred Thousand United
States Dollars ($1,500,000) (the “Note”). The Note bears interest at ten percent (10%) per annum. The Holder shall
have the right at any time six (6) months after the Issuance Date to convert all or any part of the outstanding and unpaid principal,
interest, fees, or any other obligation owed pursuant to the note. Conversion Price shall be calculated as follows: 60% of the
lowest Trading Price of the common shares during the ten (10) days preceding the date the Company receive a notice of conversion.
Unless permitted by the applicable rules and regulations of the principal securities market on which the Common Stock is then
listed or traded, in no event shall the Registrant issue upon conversion of or otherwise pursuant to the note and the other notes
issued more than the maximum number of shares of Common Stock that the Company can issue pursuant to any rule of the principal
United States securities market on which the Common Stock is then traded, which shall be 4.99% of the total shares outstanding
at any time. A debt discount of $54,212 on the note payable at issuance was calculated based on the present value of the note
using an implied interest rate of 10%. A debt discount of $270,886 was recognized. Accordingly, the Company recorded an initial
value of its investment in NPE of $1,714,903. At the time the note becomes convertible, the Company will recognize a derivative
liability at fair value related to the embedded conversion option at that time. Prior to these transactions, Robert Hymers III
and Alan Tsai each sold equity interest representing a total of 18.8% of the outstanding equity interest of NPE to Edward Manolos,
a Director and preferred stockholder of the Company in a private transaction. As a result of these two transactions, the Company
beneficially controls approximately 37% of the equity of NPE. After this transaction, a venture capital company controls 40% of
the equity interests in NPE, the Company, Alan Tsai and Edward Manolos each control 18.8% and one other entity controls 3.5%.
CANNABIS
GLOBAL, INC. AND SUBSIDIARIES
(formerly
MCTC HOLDINGS, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
August
31, 2020
The
Company evaluated its interest in NPE as of August 31, 2020 under ASC 810. Management determined that it had a variable interest
in NPE, but that NPE does not meet the definition of a variable interest entity, and does not have an indirect voting interest
of greater than 50%. Based on these factors, the investment in NPE by the Company, the investment in NPE will be accounted for
as an equity method investment under the measurement alternative available under ASC 321 with the Company recording its share
of the profits and losses of NPE at each reporting period. The initial investment balance was $1,714,903 based on the initial
fair value estimate of the note payable and convertible note payable issued as consideration for the investment. For the three
months ended August 31, 2020, the Company recognized no equity method income or losses due and no impairment of the investment.
See
Note 9 for further discussion of the accounting treatment of the embedded conversion options of the above promissory notes payable
as derivative liabilities
Note
9. Derivative Liability and Far Value Measurement
Upon
the issuance of the convertible promissory notes with variable conversion prices and fixed conversion prices with reset provisions,
the Company determined that the features associated with the embedded conversion option embedded in the debentures should be accounted
for at fair value, as a derivative liability, as the Company cannot determine if a sufficient number of shares would be available
to settle all potential future conversion transactions.
At
the issuance date of the convertible notes payable during the year ended August 31, 2020, the Company estimated the fair value
of all embedded derivatives of $1,038,111 using the Black-Scholes Pricing Model based on the following assumptions: (1) dividend
yield of 0%, (2) expected volatility of 389.94% to 398.53%, (3) risk-free interest rate of 0.13% to 1.60%, and (4) expected life
of 0.75 to three years.
On
August 31, 2020, the Company estimated the fair value of the embedded derivatives of $1,125,803 using the Black-Scholes Pricing
Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 385%, (3) risk-free interest rate
of 0.12%, and (4) expected life of 0.5 to 1.4 years.
CANNABIS
GLOBAL, INC. AND SUBSIDIARIES
(formerly
MCTC HOLDINGS, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
August
31, 2020
The
Company adopted the provisions of ASC 825-10, Financial Instruments (“ASC 825-10”). ASC 825-10 defines fair value
as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted
to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers
assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions,
and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of inputs that
may be used to measure fair value.
|
•
|
Level
1 — Observable inputs that reflect quoted market prices (unadjusted) for identical assets and liabilities in active
markets;
|
|
•
|
Level
2 — Observable inputs, other than quoted market prices, that are either directly or indirectly observable in the marketplace
for identical or similar assets and liabilities, quoted prices in markets that are not active, or other inputs that are observable
or can be corroborated by observable market data for substantially the full term of the assets and liabilities; and
|
|
•
|
Level
3 — Unobservable inputs that are supported by little or no market activity that are significant to the fair value of
assets or liabilities.
|
All
items required to be recorded or measured on a recurring basis are based upon Level 3 inputs.
To
the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination
of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of
the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair
value measurement is disclosed and is determined based on the lowest level input that is significant to the fair value measurement.
The
Company recognizes its derivative liabilities as Level 3 and values its derivatives using the methods discussed below. While the
Company believes that its valuation methods are appropriate and consistent with other market participants, it recognizes that
the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in
a different estimate of fair value at the reporting date. The primary assumptions that would significantly affect the fair values
using the methods discussed are that of volatility and market price of the underlying common stock of the Company.
As
of August 31, 2020, the Company did not have any derivative instruments that were designated as hedges.
CANNABIS
GLOBAL, INC. AND SUBSIDIARIES
(formerly
MCTC HOLDINGS, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
August
31, 2020
Items
recorded or measured at fair value on a recurring basis in the accompanying financial statements consisted of the following items
as of August 31, 2020 and August 31, 2019:
|
|
August
31,
2020
|
|
Quoted
Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Derivative liability
|
|
$
|
1,125,803
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,125,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
2019
|
|
Quoted
Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Derivative liability
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities for the nine
months ended August 31, 2020:
Balance, August 31, 2019
|
|
$
|
—
|
Transfers in due to issuance of convertible promissory
notes
|
|
|
1,468,704
|
|
Transfers out due to repayments of convertible promissory notes
|
|
|
(449,389
|
)
|
Transfers out due to conversions of convertible promissory notes
|
|
|
(231,632
|
)
|
Mark to market to August 31, 2020
|
|
|
787,683
|
|
Balance, August 31, 2020
|
|
$
|
1,125,803
|
|
Loss on change in derivative liability for the year ended August
31, 2020
|
|
$
|
338,120
|
|
Fluctuations
in the Company’s stock price are a primary driver for the changes in the derivative valuations during each reporting period.
As the stock price increases for each of the related derivative instruments, the value to the holder of the instrument generally
increases, therefore increasing the liability on the Company’s balance sheet. Additionally, stock price volatility is one
of the significant unobservable inputs used in the fair value measurement of each of the Company’s derivative instruments.
The simulated fair value of these liabilities is sensitive to changes in the Company’s expected volatility. Increases in
expected volatility would generally result in higher fair value measurement. A 10% change in pricing inputs and changes in volatilities
and correlation factors would not result in a material change in our Level 3 fair value.
Note
10 - Commitments and Contingencies
The
Company has entered into a lease for a production and warehouse facility located in Los Angeles, California to produce such products.
The term of the lease is 12 months at a base price of $3,600 per month, beginning August 2019. The total financial obligation
for the lease is $43,200. At this time the lease agreement has ended and the Company rents to same facility on a month to month
basis.
Our
headquarters are located at 520 S. Grand Avenue, Suite 320, Los Angeles, California 90071 where we leased office space under a
contract effective August 15, 2019, expiring on August 14, 2020. We now rent the premises on a month to month basis and paying
$800 per month.
Note
11 - Common Stock
Subsequent
to the closing of the fiscal year ending August 31, 2019, the Company affected a reverse split as of September 30, 2019, which
had the effect of reducing the number of outstanding shares from 187,864,600 to 12,524,307. All share and per share amounts in
this filing have been retrospectively adjusted to reflect the impact of the reverse stock split. As of August 31, 2020, there
were 27,082,419 shares of Common Stock issued and outstanding.
On
May 20, 2020, we issued 1,100,000 common shares to a Pinnacle Consulting Services Inc. for consulting service provided to the
Company. The agreement is attached hereto.
On
May 20, 2020, we issued 1,000,000 common shares to a Tabular Investments LLC for consulting service provided to the Company.
CANNABIS
GLOBAL, INC. AND SUBSIDIARIES
(formerly
MCTC HOLDINGS, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
August
31, 2020
Note 12 - Preferred Stock
There
are 10,000,000 shares of preferred stock, par value $0.0001 per share, of the Company Preferred Stock in one or more series, and
expressly authorized the Board of Directors of the Company. On December 16, 2019, the Board of Directors authorized the issuance
of 8,000,000 preferred shares as “Series A Preferred Stock.” The Series A Preferred Stock is not convertible into
any other form of Securities, including common shares, of the Company. Holders of Series A Preferred Stock shall be entitled to
50 votes for every Share of Series A Preferred Stock beneficially owned as of the record date for any shareholder vote or written
consent. On May 28, 2020, Mr. Robert L. Hymers III, a former director and former chief financial officer, returned 2,000,000 Series
A Preferred shares to the corporate treasury. As of August 31, 2020, there were 6,000,000 Series A Preferred shares issued and
outstanding.
Note
13 – Income Taxes
Deferred
income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
|
|
August
31, 2020
|
|
August
31, 2019
|
|
|
|
|
|
Expected federal income tax benefit
at statutory rate
|
|
$
|
1,041,213
|
|
|
$
|
81,815
|
|
Nondeductible items
|
|
|
(127,358
|
)
|
|
|
1,068
|
|
Change in valuation allowance
|
|
|
(913,855
|
)
|
|
|
(80,747
|
)
|
Income tax benefit
|
|
$
|
—
|
|
|
$
|
—
|
|
Significant
components of the Company’s deferred tax assets at August 31, 2020 and 2019 are as follows:
|
|
August
31, 2020
|
|
August
31, 2019
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
1,126,473
|
|
|
$
|
212,618
|
|
Research and development
credit carry forward
|
|
|
1,963
|
|
|
|
1,963
|
|
Total deferred tax assets
|
|
|
1,128,436
|
|
|
|
214,581
|
|
|
|
|
|
|
|
|
|
|
Less: valuation allowance
|
|
|
(1,128,436
|
)
|
|
|
(214,581
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
—
|
|
|
$
|
—
|
|
The
Company evaluates its valuation allowance on an annual basis based on projected future operations. When circumstances change and
this causes a change in management’s judgment about the realizability of deferred tax assets, the impact of the change on
the valuation allowance is reflected in current operations.
For
federal income tax purposes, the Company has net U.S. operating loss carry forwards at August 31, 2020 available to offset future
federal taxable income, if any, of approximately $5,337,000 which will fully expire by the fiscal year ended August 31, 2040.
Accordingly, there is no current tax expense for the nine months ended August 31, 2020. In addition, the Company has research
and development tax credit carry forwards of $1,963 at August 31, 2020, which are available to offset federal income taxes and
fully expire by August 31, 2040. The utilization of the tax net operating loss carry forwards may be limited due to ownership
changes that have occurred as a result of sales of common stock.
The
effects of state income taxes were insignificant for the twelve months ended August 31, 2020 and August 31, 2019.
CANNABIS
GLOBAL, INC. AND SUBSIDIARIES
(formerly
MCTC HOLDINGS, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
August
31, 2020
Note
14. Subsequent Events
In
August 2020, the Company issued a convertible promissory note with a principal amount of $113,000, with the Company receiving
proceeds of $100,000 after original issue discount of $5,000 and deferred finance costs of $2,000 in September 2020. As a result
of the timing of receipt of the proceeds, no amounts related to this convertible note payable were recognized in the Company’s
financial statements as of August 31, 2020. The note matures in August 2021 and bears interest at 8% per annum. Commencing one
hundred eighty (180) days following the issuance date of the note, the noteholder shall have the right to convert all or any part
of the outstanding and unpaid principal balance of the note, at any time, into shares of common stock of the Company at variable
conversion prices of 63% of the two lowest trading prices during previous fifteen (15) trading day of the Company’s common
stock, subject to adjustment. The Company is prohibited from effecting a conversion of the note to the extent that, as a result
of such conversion, the noteholder, together with its affiliates, would beneficially own more than 4.99% of the number of shares
of the Company’s common stock outstanding immediately after giving effect to the issuance of shares of common stock upon
conversion of the note.
On
September 2, 2020, the Company issued two convertible promissory notes with an aggregate principal amount of $107,000, with the
Company receiving proceeds of $100,000 after original issue discount of $5,000 and deferred finance costs of $2,000. The notes
mature in September 2021 and bear interest at 12% per annum. Commencing one hundred eighty (180) days following the issuance date
of the notes, the noteholders shall have the right to convert all or any part of the outstanding and unpaid principal balance
of the note, at any time, into shares of common stock of the Company at variable conversion price of 60% of the lowest previous
twenty (20) trading day closing trade prices of the Company’s common stock, subject to adjustment. The Company is prohibited
from effecting a conversion of the note to the extent that, as a result of such conversion, the noteholder, together with its
affiliates, would beneficially own more than 4.99% of the number of shares of the Company’s common stock outstanding immediately
after giving effect to the issuance of shares of common stock upon conversion of the note.
On
September 22, 2020, the Company issued a convertible note in the amount of $78,000. The note matures on September 22, 2021 and
bears 8% interest rate per annum. The note is convertible into common shares at 37% discount for the average of the two lowest
trading price of the common stock during the 15 trading day period ending on the latest complete trading day prior to the conversion
date.
On
September 24, 2020, the Company issued a convertible note in the amount of $78,000. The note matures on June 24, 2021 and bears
10% interest rate per annum. The note is convertible into common shares at a fixed conversion price of $0.06 or a conversion discount
at rate of 30% to the lowest trading price during the previous twenty (20) trading days to the date of a conversion notice; whichever
is lower.
On
September 30, 2020, the Company entered into a securities exchange agreement with Marijuana Company of America, Inc., a Utah corporation
(“MCOA”). By virtue of the agreement, the Company issued 7,222,222 shares of its unregistered common stock to MCOA
in exchange for 650,000,000 shares of MCOA unregistered common stock. The Company and MCOA also entered into a lock up leak out
agreement which prevents either party from sales of the exchanged shares for a period of 12 months. Thereafter the parties may
sell not more than the quantity of shares equaling an aggregate maximum sale value of $20,000 per week, or $80,000 per month until
all Shares and Exchange Shares are sold.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a Registration Statement
on Form S-1 under the Securities Act, and the rules and regulations promulgated thereunder, with respect to the common stock offered
hereby. This Prospectus, which constitutes a part of the Registration Statement, does not contain all of the information set forth
in the Registration Statement and the exhibits thereto. While we have summarized the material terms of all agreements and exhibits
included in the scope of this Registration Statement, for further information regarding the terms and conditions of any exhibit,
reference is made to such exhibits. Upon effectiveness of this Prospectus, we will be subject to the reporting and other requirements
of Section 15(d) of the Securities Exchange Act of 1934 and will file periodic reports with the Securities and Exchange Commission,
including a Form 10-K for the year ended June 30, 2019 and periodic reports on Form 10-Q during that period. We will make available
to our shareholders annual reports containing financial statements audited by our independent auditors and our quarterly reports
containing unaudited financial statements for each of the first three quarters of each year; however, we will not send the annual
report to our shareholders unless requested by an individual shareholder.
For further information with respect to us
and the common stock, reference is hereby made to the Registration Statement and the exhibits thereto, which may be inspected and
copied at the principal office of the SEC, 100 F Street NE, Washington, D.C. 20549, and copies of all or any part thereof may be
obtained at prescribed rates from the Commission’s Public Reference Section at such addresses. Also, the SEC maintains a
website at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants
that file electronically with the SEC. To request such materials, please contact Arman Tabatabaei our Chief Executive Officer.
PROSPECTUS
Cannabis Global, Inc.
520 S. Grand Avenue
Suite 320
Los Angeles, CA 90071
(310) 986-4929
8,249,103 Common Shares
Cannabis Global (PK) (USOTC:CBGL)
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