UNITED STATES

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

———————

 

x

 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

 

 ACT OF 1934

 

For the quarterly period ended: June 30, 2020

or

 

 

o

 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

 

 ACT OF 1934

 

For the transition period from: _____________ to _____________

 

Commission File Number:  000-53571

 

Cannabis Sativa, Inc.

(Exact name of registrant as specified in its charter)

 

NEVADA

 

20-1898270

(State or Other Jurisdiction

 

(I.R.S. Employer

of Incorporation)

 

Identification No.)

 

450 Hillside Dr. #A224, Mesquite, Nevada  89027

(Address of Principal Executive Office) (Zip Code)

 

(702) 762-3123

(Registrant's telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

———————

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No

 

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

 

Large accelerated filer

 

 

Accelerated filer

 

Non-accelerated filer

 

 

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes No 

 

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

 

The number of shares of the issuer's Common Stock outstanding as of August 5, 2020, is 25,319,538.


1


 

PART I—FINANCIAL INFORMATION

 

Item 1.  Financial Statements.

 

Attached after signature page.

 

Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations.

 

Certain statements in this Report constitute “forward-looking statements.” Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Factors that might cause such a difference include, among others, uncertainties relating to general economic and business conditions; industry trends; changes in demand for our products and services; uncertainties relating to customer plans and commitments and the timing of orders received from customers; announcements or changes in our pricing policies or that of our competitors; unanticipated delays in the development, market acceptance or installation of our products and services; changes in government regulations; availability of management and other key personnel; availability, terms and deployment of capital; relationships with third-party equipment suppliers; and worldwide political stability and economic growth. The words “believe,” “expect,” “anticipate,” “intend” and “plan” and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made.

 

Results of Operations

 

Three Months Ended June 30, 2020 compared with the Three Months Ended June 30, 2019

 

 

 

 

 

 

 

 

Three Months Ended

 

 

A

 

B

 

B-A

 

June 30, 2019

 

June 30, 2020

 

Change

Change %

REVENUE

$          151,063

 

$          721,095

 

$    570,032

377%

Cost of Sales

             69,588

 

           282,283

 

     212,695

306%

Cost of sales % of total sales

46%

 

39%

 

-7%

 

Gross Profit

             81,475

 

           438,812

 

     357,337

439%

Gross profit % of sales

54%

 

61%

 

7%

 

OPERATING EXPENSES

 

 

 

 

 

 

Professional fees

             42,680

 

           210,176

 

     167,496

392%

Depreciation and amortization

           140,399

 

             53,016

 

    (87,383)

-62%

Wages and salaries

             92,342

 

           163,894

 

       71,552

77%

Advertising

             28,335

 

           125,392

 

       97,057

343%

General and administrative

           316,520

 

           344,680

 

        28,160

9%

Total operating expenses

           620,276

 

           897,158

 

      276,882

45%

NET LOSS FROM OPERATIONS

          (538,801)

 

         (458,346)

 

       80,455

-15%

 

 

 

 

 

 

 

Revenues, cost of revenues and gross profit for the three-month periods ended June 30, 2020 and 2019 are included in the above table.  The fluctuation in these numbers is primarily the result of significant increases in patient visits due to expanded market coverage and the generally increasing acceptance of telehealth platforms in the age of the Covid-19 pandemic.


2


Revenues grew 377% in the three months ended June 30, 2020 compared to the three months ended June 30, 2019. Of this increase, approximately 98% was attributable to Presto Doctor and 2% from our start-up operations in GKMP. This large increase in revenue in Presto Doctor is the result of expanded market area, increased advertising which drove an increase in patient visits to our online platform, and a general increase in consumer awareness of the PrestoDoctor brand. The Company now operates in the states of California, Nevada, New York, Oklahoma, Missouri, and Pennsylvania and recently opened in Illinois. The Company is currently exploring expansion opportunities in additional states, including Ohio, Virginia, and Massachusetts.

 

Net operating loss for the three-month period ended June 30, 2020 was $458,346 compared to net loss of $538,801 for the three-month period ended June 30, 2019.  The decrease in net operating loss resulted primarily from an increase in revenue from PrestoCorp and a corresponding 7% improvement in the gross profit as a percent of sales.

 

Total operating expenses were $897,158 for the three-month period ended June 30, 2020 and $620,276 for the three-month period ended June 30, 2019.  The increase in total operating costs was largely attributable to increases personnel, the addition of GKMP, and increases in activity brought on by the significant increase in revenue and patient load at PrestoDoctor. The Company significantly reduced its depreciation and amortization expense due to impairment of amortizable intangible assets taken in the year ended December 31, 2019. Management expects that operating costs will continue to increase as revenues rise, but the increases in operating costs are expected to rise at a slower rate than revenue due to expected efficiencies of scale.

 

Six Months Ended June 30, 2020 compared with the Six Months Ended June 30, 2019

 

 

 

 

 

 

 

 

Six Months Ended

 

 

A

 

B

 

B-A

 

June 30, 2019

 

June 30, 2020

 

Change

Change %

REVENUE

$               251,345

 

$            1,214,235

 

$        962,890

383%

Cost of Sales

                 115,197

 

                 469,618

 

          354,421

308%

Cost of sales % of total sales

46%

 

39%

 

-7%

 

Gross Profit

                 136,148

 

                 744,617

 

          608,469

447%

Gross profit % of sales

54%

 

61%

 

7%

 

OPERATING EXPENSES

 

 

 

 

 

 

Professional fees

                 296,768

 

                 489,262

 

          192,494

65%

Depreciation and amortization

                 280,917

 

                 104,651

 

        (176,266)

-63%

Wages and salaries

                 124,976

 

                 348,803

 

          223,827

179%

Advertising

                   61,488

 

                 212,480

 

          150,992

246%

General and administrative

                 648,615

 

                 720,542

 

            71,927

11%

Total operating expenses

              1,412,764

 

              1,875,738

 

          462,974

33%

NET LOSS FROM OPERATIONS

            (1,276,616)

 

            (1,131,121)

 

          145,495

-11%

 

 

 

 

 

 

 

Revenues, cost of revenues and gross profit for the six-month periods ended June 30, 2020 and 2019 are included in the above table.  The fluctuation in these numbers is primarily the result of significant increases in patient visits due to expanded market coverage and the generally increasing acceptance of telehealth platforms in the age of the Covid-19 pandemic.

 

Revenues grew 383% in the six months ended June 30, 2020 compared to the six months ended June 30, 2019.  Of this increase, approximately 99% was attributable to Presto Doctor and 1% from our start-up operations in GKMP. This large increase in revenue in Presto Doctor is the result of expanded market area, increased advertising which drove an increase in patient visits to our online platform, and a general increase in consumer awareness of the


3


PrestoDoctor brand. The Company now operates in the states of California, Nevada, New York, Oklahoma, Missouri, and Pennsylvania and recently opened in Illinois. The Company is currently exploring expansion opportunities in additional states, including Ohio, Virginia, and Massachusetts.

 

Net operating loss for the three-month period ended June 30, 2020 was $1,131,121 compared to net loss of $1,276,616 for the six-month period ended June 30, 2019.  The decrease in net operating loss resulted primarily from an increase in revenue from PrestoCorp and a corresponding 7% improvement in the gross profit as a percent of sales.

 

Total operating expenses were $1,875,738 for the six-month period ended June 30, 2020 and $1,412,764 for the six-month period ended June 30, 2019.  The increase in total operating costs was largely attributable to increases personnel, the addition of GKMP, and to increases in activity brought on by the significant increase in revenue and patient load. The Company also significantly reduced its depreciation and amortization expense due to impairment of amortizable intangible assets taken in the year ended December 31, 2019. Management expects that operating costs will continue to increase as revenues rise, but the increases in operating costs are expected to rise at a slower rate than revenue due to expected efficiencies of scale.

 

Liquidity and Capital Resources

 

Net cash provided by operating activities for the six-month period ended June 30, 2020, was $23,218. During the same period, our cash increased by $123,782.  The Company generated $107,742 in the six months from advances from related parties, and applied a $50,000 advance as partial consideration for the acquisition of assets by GK Manufacturing and Packaging, Inc., a newly formed contract manufacturing entity that is owned 51% be the Company.  We also reported $1,083,539 during the six-month period from issuance of common and preferred stock as compensation for services performed by officers, directors, and contractors. On June 30, 2020, our cash position was $459,889, primarily derived from our PrestoCorp operations.  We have funding obligations totaling approximately $130,000 for GK Manufacturing in the coming months. Given the level of operations in our second quarter, we expect that additional funds will be required. Management is currently evaluating several fund-raising alternatives including private placement of equity securities, a secondary public offering, and various debt instruments. In addition, key members of management have indicated a willingness to provide additional operating capital from time to time.  Based on all of these considerations, we believe we will have sufficient capital to operate the business for the next twelve months.

 

The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business.  We incurred a net loss of $1,129,507 and $1,300,596, respectively, for the six-month periods ended June 30, 2020, and 2019, and had an accumulated deficit of $75,961,660 as of June 30, 2020.  These factors raise substantial doubt about the Company’s ability to continue as a going concern.  The Company is currently seeking to raise money for working capital purposes through a private placement of equity capital and is evaluating other opportunities to raise capital from a public offering or the sale of convertible debt.  It will be important for the Company to be successful in its efforts to raise capital in this manner if it is going to be able to further its business plan in an aggressive manner.  Raising capital in this manner will cause dilution to current shareholders.

 

COVID-19

 

In March 2020, COVID-19 was declared a pandemic by the World Health Organization and the Centers for Disease Control and Prevention. Its rapid spread around the world and throughout the United States prompted many countries, including the United States, to institute restrictions on travel, public gatherings and certain business operations. These restrictions significantly disrupted economic activity in the United States and Worldwide. To date, the disruption did not materially impact the Company’s financial statements. However, if the severity of the economic disruptions increase as the duration of the COVID-19 pandemic continues, the negative financial impact due to reduced demand could be significantly greater in future periods than in the first quarter.


4


The effects of the continued outbreak of COVID-19 and related government responses could also include extended disruptions to supply chains and capital markets, reduced labor availability and a prolonged reduction in economic activity. These effects could have a variety of adverse impacts to the Company, including our ability to operate our facilities. To date, there have been no material adverse impacts to the Registrants’ operations due to COVID-19.

 

In addition, the economic disruptions caused by COVID-19 could also adversely impact the impairment risks for certain long-lived assets, equity method investments and goodwill. Management evaluated these impairment considerations and determined that no such impairments occurred through the date of this report.

 

Off Balance Sheet Arrangements

 

None

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

 

Not required.

 

Item 4. Controls and Procedures.

 

Disclosure Controls and Procedures

 

Conclusions of Management Regarding Effectiveness of Disclosure Controls and Procedures

 

At the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operations of the Company’s disclosure controls and procedures (as defined in Rule 13a – 15(e) and Rule 15d – 15(e) under the Exchange Act). Based on that evaluation, the CEO and the CFO have concluded that as of the end of the period covered by this report, the Company’s disclosure controls and procedures were not effective as it was determined that there were material weaknesses affecting our disclosure controls and procedures.

 

Management of the Company believes that these material weaknesses are due to the small size of the company’s accounting staff. The small size of the Company’s accounting staff may prevent adequate controls in the future, such as segregation of duties, due to the cost/benefit of remediation. To mitigate the current limited resources and limited employees, we rely heavily on direct management oversight of transactions, along with the use of external legal and accounting professionals. As the Company grows, management expects to increase the number of employees, which will enable us to implement adequate segregation of duties within the internal control framework.

 

Changes in Internal Control over Financial Reporting

 

There was no change in our internal control over financial reporting during the quarter ended June 30, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

PART II – OTHER INFORMATION

Item 1.  Legal Proceedings.

 

We are not a party to any material legal proceedings, and, to the best of our knowledge, no such legal proceedings have been threatened against us.


5


Item 1A.  Risk Factors

 

Not required.

 

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

 

During the fiscal quarter ended June 30, 2020, the board of directors issued 211,644 shares of unregistered common stock and 79,366 shares of unregistered preferred stock to six persons in exchange for services rendered to the Company. These unregistered shares were in addition to an aggregate of 421,602 common shares that were registered for resale on Form S-8.  The unregistered shares were valued at the closing price of the shares in the OTCQB Market on the dates of issuance. The issuances of the unregistered shares were exempt from the registration requirements of Section 5 of the Securities Act of 1933 pursuant to Section 4(2) of the Act since the recipients of the shares were persons closely associated with the Company and the issuance of the shares did not involve any public offering.

 

Item 3.  Defaults Upon Senior Securities.

None.

 

Item 4.  Mine Safety Disclosures.

Not applicable.

 

Item 5.  Other Information.

None.

 

Item 6.  Exhibits. 

The following documents are included as exhibits to this report:

 

(a) Exhibits

 

 

Exhibit

Number

 

SEC Reference Number

 

 

 

Title of Document

 

 

Notes

 

 

 

 

 

 

 

 

3.1

 

3

 

Articles of Incorporation

(1)

 

3.2

 

3

 

Bylaws

(1)

 

31.1

 

31

 

Section 302 Certification of Principal Executive Officer

 

 

31.2

 

31

 

Section 302 Certification of Principal Financial Officer

 

 

32.1

 

32

 

Section 1350 Certification of Principal Executive Officer

 

 

32.2

 

32

 

Section 1350 Certification of Principal Financial Officer

 

 

101.INS

 

 

 

XBRL Instance Document

(2)

 

101.SCH

 

 

 

XBRL Taxonomy Extension Schema

(2)

 

101.CAL

 

 

 

XBRL Taxonomy Extension Calculation Linkbase

(2)

 

101.DEF

 

 

 

XBRL Taxonomy Extension Definition Linkbase

(2)

 

101.LAB

 

 

 

XBRL Taxonomy Extension Label Linkbase

(2)

 

101.PRE

 

 

 

XBRL Taxonomy Extension Presentation Linkbase

(2)

 

 

 

 

 

 

 

 

(1) Incorporated by reference to Exhibits 3.01 and 3.02 of the Company's Registration Statement on Form 10 filed January 28, 2009.

(2) XBRL information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934, and is not subject to liability under those sections, is not part of


6


any registration statement or prospectus to which it relates and is not incorporated or deemed to be incorporated by reference into any registration statement, prospectus or other document.   

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Cannabis Sativa, Inc. 

Date:  August 12, 2020

 

By:  /s/ David Tobias

David Tobias, Chief Executive Officer

 

 

 

By:  /s/ Brad E. Herr

Brad E. Herr, Chief Financial Officer and

Principal Accounting Officer


7


CANNABIS SATIVA, INC.

 

 

 

Contents

 

 

 

Page 

 

FINANCIAL STATEMENTS – for the quarterly period ended June 30, 2020 (unaudited):

 

Condensed consolidated balance sheets FS - 2 

 

Condensed consolidated statements of operations               FS - 3 

 

Condensed consolidated statements of changes in stockholders’ equityFS - 4 

 

Condensed consolidated statements of cash flowsFS - 5 

 

Notes to condensed consolidated financial statementsFS – 6 through FS – 20 


FS - 1


 

CANNABIS SATIVA, INC.

 

 

 

 

 

 

 

CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED

 

 

 

June 30,

 

December 31,

 

2020

 

2019

ASSETS

 

 

 

Current Assets

 

 

 

Cash

$          459,889

 

$          336,107

Accounts receivable, net

               4,701

 

               4,551

Prepaid consulting and other current assets

             12,669

 

               3,999

Advance for acquisition

                   — 

 

             50,000

Inventories

             64,605

 

                   — 

Total Current Assets

           541,864

 

           394,657

 

 

 

 

Other Assets

 

 

 

Investment in equity security, at fair value

             78,000

 

             48,000

Property and equipment, net

           226,091

 

               6,440

Intangible assets, net

           592,582

 

           695,218

Deposits and other assets

             51,519

 

                   — 

Right to use asset

             61,367

 

                   — 

Goodwill

         1,837,202

 

         1,837,202

Total Other Assets

2,846,761

 

2,586,860

 

 

 

 

Total Assets

$       3,388,625

 

$       2,981,517

 

 

 

 

LIABILITIES AND STOCKHOLDERS EQUITY

 

 

 

Current Liabilities

 

 

 

Accounts payable

$          117,179

 

$           73,579

Accrued interest - related parties

           114,621

 

             87,979

Due to related parties

         1,126,262

 

         1,018,520

Operating lease liability - current

             29,191

 

                   — 

Total Current Liabilities

         1,387,253

 

         1,180,078

 

 

 

 

Long-Term Liabilities

 

 

 

Operating lease liability - long term

             32,176

 

                   — 

Stock payable

                   — 

 

           640,685

    Total Long-Term Liabilities

             32,176

 

           640,685

 

 

 

 

Total Liabilities

         1,419,429

 

         1,820,763

 

 

 

 

Commitments and contingencies (Notes 6 and 7)

 

 

 

 

 

 

 

Stockholders' Equity:

 

 

 

Preferred stock $0.001 par value; 5,000,000 shares authorized;

 

 

 

  1,073,543 and 1,021,849 issued and outstanding, respectively

               1,073

 

               1,021

Common stock $0.001 par value; 45,000,000 shares authorized;

 

 

 

  25,319,538 and 22,224,199 shares issued and outstanding, respectively

             25,321

 

             22,226

Additional paid-in capital

       76,664,109

 

       74,834,032

Accumulated deficit

      (75,961,660)

 

(74,855,147)

 

 

 

 

Total Cannabis Sativa, Inc. Stockholders' Equity  

           728,843

 

               2,132

 

 

 

 

Non-Controlling Interests

         1,240,353

 

         1,158,622

 

 

 

 

Total Stockholders' Equity

         1,969,196

 

1,160,754

 

 

 

 

Total Liabilities and Stockholders' Equity

$       3,388,625

 

$       2,981,517

 

 

 

 

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


FS - 2


 

 

CANNABIS SATIVA, INC.

 

 

 

 

 

 

 

 

 

 

 

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED

 

 

 

 

 

 

 

 

 

For the three months ended June 30,

For the six months ended June 30,

 

2020

 

2019

2020

 

2019

 

 

 

 

 

 

 

Revenues

$           721,095

 

$       151,063

$     1,214,235

 

$       251,345

 

 

 

 

 

 

 

Cost of Revenues

            282,283

 

           69,588

         469,618

 

         115,197

 

 

`

 

 

 

 

Gross Profit

            438,812

 

           81,475

         744,617

 

         136,148

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

Professional fees

            210,176

 

           42,680

         489,262

 

         296,768

Depreciation and amortization

              53,016

 

         140,399

         104,651

 

         280,917

Wages and salaries

            163,894

 

           92,342

         348,803

 

         124,976

Advertising

            125,392

 

           28,335

         212,480

 

           61,488

General and administrative

            344,680

 

         316,520

         720,542

 

         648,615

 

 

 

 

 

 

 

Total Operating Expenses

            897,158

 

         620,276

       1,875,738

 

       1,412,764

 

 

 

 

 

 

 

Loss from Operations

           (458,346)

 

        (538,801)

     (1,131,121)

 

     (1,276,616)

 

 

 

 

 

 

 

Other (Income) and Expenses

 

 

 

 

 

 

Unrealized gain on investment

             (11,000)

 

                 — 

         (30,000)

 

                 — 

Interest expense

              14,834

 

           13,137

           28,386

 

           23,980

 

 

 

 

 

 

 

Total Other (Income) Expenses, Net

                3,834

 

           13,137

           (1,614)

 

           23,980

 

 

 

 

 

 

 

Loss Before Income Taxes

           (462,180)

 

        (551,938)

     (1,129,507)

 

     (1,300,596)

 

 

 

 

 

 

 

Income Taxes

                    -   

 

                 — 

                 — 

 

                 — 

 

 

 

 

 

 

 

Net Loss for the Period

           (462,180)

 

        (551,938)

     (1,129,507)

 

     (1,300,596)

Net loss attributable to non-controlling interest - GK Manufacturing

             (73,047)

 

                 — 

        (127,400)

 

                 — 

Net loss attributable to non-controlling interest - iBudTender

                 (970)

 

(12,861)

           (1,939)

 

(25,296)

Net income (loss) attributable to non-controlling interest - PrestoCorp

            101,943

 

         (28,119)

         106,345

 

         (41,583)

 

 

 

 

 

 

 

Net Loss for the Period Attributable To Cannabis Sativa, Inc.

$         (490,106)

 

$      (510,958)

$   (1,106,513)

 

$   (1,233,717)

 

 

 

 

 

 

 

Net Loss for the Period per Common Share:

 

 

 

Basic & Diluted

$              (0.02)

 

$           (0.02)

$           (0.05)

 

$           (0.06)

 

 

 

 

 

 

 

Weighted Average Common Shares Outstanding:

 

 

 

 

 

 

Basic & Diluted

24,738,613

 

21,454,193

24,323,148

 

21,446,268

 

 

 

 

 

 

 

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


FS - 3


 

 

CANNABIS SATIVA, INC.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE THREE  AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019

UNAUDITED

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Additional Paid-In Capital

 

Accumulated Deficit

 

Non-controlling Interest - Prestocorp

 

Non-controlling Interest - iBudTender

 

Non-controlling Interest - GK Manufacturing

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - April 1, 2019

     798,835

 

$    799

 

  21,408,262

 

$   21,410

 

$  73,541,728

 

$(71,641,520)

 

$   1,092,030

 

$     111,020

 

$                 — 

 

$      3,125,467

Shares issued for services

       40,946

 

        40

 

      105,842

 

         106

 

        377,449

 

               — 

 

              — 

 

              — 

 

                   — 

 

          377,595

Net loss for the period

             — 

 

        — 

 

             — 

 

          — 

 

                — 

 

      (510,958)

 

       (28,118)

 

       (12,862)

 

                   — 

 

         (551,938)

Balance - June 30, 2019

     839,781

 

$    839

 

  21,514,104

 

$   21,516

 

$  73,919,177

 

$(72,152,478)

 

$   1,063,912

 

$       98,158

 

$                 — 

 

$      2,951,124

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Additional Paid-In Capital

 

Accumulated Deficit

 

Non-controlling Interest - Prestocorp

 

Non-controlling Interest - iBudTender

 

Non-controlling Interest - GK Manufacturing

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - April 1, 2020

   1,254,012

 

$  1,254

 

  24,341,154

 

$   24,342

 

$  76,173,444

 

$(75,471,554)

 

$   1,111,882

 

$       50,173

 

$            50,372

 

$      1,939,913

Conversion of Preferred to Common

    (259,835)

 

     (260)

 

      259,835

 

         260

 

                — 

 

               — 

 

              — 

 

              — 

 

                   — 

 

                  — 

Shares issued for services

       79,366

 

        79

 

      718,549

 

         719

 

        490,665

 

               — 

 

              — 

 

              — 

 

                   — 

 

          491,463

Net income (loss) for the period

             — 

 

        — 

 

             — 

 

          — 

 

                — 

 

      (490,106)

 

       101,943

 

           (970)

 

            (73,047)

 

         (462,180)

Balance - June 30, 2020

   1,073,543

 

$  1,073

 

  25,319,538

 

$   25,321

 

$  76,664,109

 

$(75,961,660)

 

$   1,213,825

 

$       49,203

 

$          (22,675)

 

$      1,969,196

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-controlling Interest - Prestocorp

 

Non-controlling Interest - iBudTender

 

Non-controlling Interest - GK Manufacturing

 

 

 

Preferred Stock

 

Common Stock

 

Additional Paid-In Capital

 

Accumulated Deficit

 

 

 

 

Total

 

Shares

 

Amount

 

Shares

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - January 1, 2019

     759,444

 

$    759

 

  21,316,201

 

$   21,318

 

$  72,971,563

 

$(70,918,761)

 

$   1,105,495

 

$     123,454

 

$                 — 

 

$      3,303,828

Cancellation and retirement of shares

             — 

 

        — 

 

      (70,000)

 

         (70)

 

                70

 

               — 

 

              — 

 

              — 

 

                   — 

 

                  — 

Shares issued for services

       40,946

 

        41

 

      140,842

 

         141

 

        493,414

 

               — 

 

              — 

 

              — 

 

                   — 

 

          493,596

Shares issued for stock payable

       39,391

 

        39

 

      127,061

 

         127

 

        454,130

 

               — 

 

              — 

 

              — 

 

                   — 

 

          454,296

Net loss for the period

             — 

 

        — 

 

             — 

 

          — 

 

                — 

 

    (1,233,717)

 

       (41,583)

 

       (25,296)

 

                   — 

 

      (1,300,596)

Balance - June 30, 2019

     839,781

 

$    839

 

  21,514,104

 

$   21,516

 

$  73,919,177

 

$(72,152,478)

 

$   1,063,912

 

$       98,158

 

$                 — 

 

$      2,951,124

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-controlling Interest - Prestocorp

 

Non-controlling Interest - iBudTender

 

Non-controlling Interest - GK Manufacturing

 

 

 

Preferred Stock

 

Common Stock

 

Additional Paid-In Capital

 

Accumulated Deficit

 

 

 

 

Total

 

Shares

 

Amount

 

Shares

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - January 1, 2020

   1,021,849

 

$  1,021

 

  22,224,199

 

$   22,226

 

$  74,834,032

 

$(74,855,147)

 

$   1,107,480

 

$       51,142

 

$                 — 

 

$      1,160,754

Conversion of Preferred to Common

    (340,172)

 

     (340)

 

      340,172

 

         340

 

                — 

 

               — 

 

              — 

 

              — 

 

                   — 

 

                  — 

Purchase of GK Manufacturing

             — 

 

        — 

 

      100,000

 

         100

 

        108,900

 

               — 

 

              — 

 

              — 

 

            104,725

 

          213,725

Shares issued for services

     168,652

 

      169

 

   1,691,929

 

      1,692

 

      1,081,678

 

               — 

 

              — 

 

              — 

 

                   — 

 

        1,083,539

Shares issued for stock payable

     223,214

 

      223

 

      963,238

 

         963

 

        639,499

 

               — 

 

              — 

 

              — 

 

                   — 

 

          640,685

Net income (loss) for the period

             — 

 

        — 

 

             — 

 

          — 

 

                — 

 

    (1,106,513)

 

       106,345

 

         (1,939)

 

          (127,400)

 

      (1,129,507)

Balance - June 30, 2020

   1,073,543

 

$  1,073

 

  25,319,538

 

$   25,321

 

$  76,664,109

 

$(75,961,660)

 

$   1,213,825

 

$       49,203

 

$          (22,675)

 

$      1,969,196

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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


FS - 4


 

 

CANNABIS SATIVA, INC.

 

 

 

 

 

 

 

 

 

 

 

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

 

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended June 30,

 

2020

 

 

2019

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

Net loss for the period

 

$      (1,129,507)

 

 

$      (1,300,596)

 

Adjustments to reconcile net loss to net cash

 

 

 

 

 

 

used in operating activities:

 

 

 

 

 

 

Bad Debts

 

                   — 

 

 

               1,509

 

Unrealized gain on investment

 

            (30,000)

 

 

                   — 

 

Depreciation and amortization

 

            104,651

 

 

            280,917

 

Stock issued and to be issued for services

 

         1,083,539

 

 

            912,476

 

Write off of prior year stock payable

 

                   — 

 

 

            (77,850)

 

Changes in Assets and Liabilities:

 

 

 

 

 

 

Accounts receivable

 

                (150)

 

 

               1,434

 

Inventories

 

            (16,618)

 

 

               5,714

 

 Prepaid consulting and other current assets

 

              (8,670)

 

 

               2,478

 

 Deposits and other assets

 

            (50,269)

 

 

                   — 

 

Accounts payable and accrued expenses

 

             43,600

 

 

             35,860

 

Accrued interest - related parties

 

             26,642

 

 

                   — 

 

Net Cash Provided by (Used in) Operating Activities:

 

             23,218

 

 

          (138,058)

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

Purchase of fixed assets

 

            (57,178)

 

 

                   — 

 

Advance to GK settled with asset acquisition

 

             50,000

 

 

                   — 

Net Cash Used in Investing Activities:

 

              (7,178)

 

 

                   — 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

Proceeds from related parties

 

            107,742

 

 

             45,945

 

Net Cash Provided by Financing Activities:

 

            107,742

 

 

             45,945

 

 

 

 

 

 

 

NET CHANGE IN CASH

 

            123,782

 

 

            (92,113)

 

 

 

 

 

 

 

CASH AT BEGINNING OF PERIOD

 

            336,107

 

 

            151,946

 

 

 

 

 

 

 

CASH AT END OF PERIOD

 

$          459,889

 

 

$            59,833

 

 

 

 

 

 

 

Supplemental Disclosures of Non Cash Activities:

 

 

 

 

 

Noncash investing and financing activities:

 

 

 

 

 

 

Net asset acquisition acquired with shares of common stock

 

$          213,725

 

 

$                 — 

 

Common stock issued from stock payable

 

$          640,685

 

 

$          454,296

 

Operating lease liablility from acquiring right to use asset

 

$            61,367

 

 

$                 — 

 

 

 

 

 

 

 

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


FS - 5


 

1. Organization and Summary of Significant Accounting Policies

 

Nature of Business:

 

Cannabis Sativa, Inc. (the “Company,” “us”, “we” or “our”) was incorporated as Ultra Sun Corp. under the laws of Nevada in November 2004.  On November 13, 2013, we changed our name to Cannabis Sativa, Inc.  We operate through several subsidiaries including PrestoCorp, Inc. (“PrestoCorp”), iBudtender, Inc. (“iBudtender”), Wild Earth Naturals, Inc. (“Wild Earth”), Kubby Patent and Licenses Limited Liability Company, (“KPAL”), Hi Brands, International, Inc. (“Hi Brands”), GK Manufacturing and Packaging, Inc. (“GKMP”), and Eden Holdings LLC (“Eden”).  PrestoCorp and GK Manufacturing are both 51% owned subsidiaries and iBudtender is a 50.1% owned subsidiary. Wild Earth, KPAL, Hi Brands, and Eden are wholly owned subsidiaries. Currently, PrestoCorp, GKMP and iBudtender are operating subsidiaries, although iBudtender is not currently generating any revenue. The Company is reviewing opportunities for business development relating to Wild Earth, KPAL, and Hi Brands. Eden is not operating and had no activity for the six months ended June 30, 2020 and 2019.

 

Our primary operations in the six months ended June 30, 2020 were through PrestoCorp, which provides telemedicine online referral services for customers desiring medical marijuana cards in states where medical marijuana has been legalized. GKMP commenced operations during the second quarter of 2020. The Company is also actively seeking new business opportunities for acquisition and is continually reviewing opportunities for product and brand development through our Wild Earth, Hi Brands, and KPAL subsidiaries. iBudtender is also working to complete and commercialize an application (the iBudtender App) that will provide a convenient means for sharing information about cannabis products, patients and businesses.

 

Basis of Presentation:

 

The fiscal year end is December 31. The accompanying condensed consolidated balance sheets as of June 30, 2020 and December 31, 2019, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of the Company’s management all material adjustments (consisting only of normal recurring adjustments) which are considered necessary for a fair presentation of the interim financial statements have been included. Operating results for the three and six months ended June 30, 2020 are not necessarily indicative of the results of operations expected for the year ending December 31, 2020.

 

The interim financial statements should be read in conjunction with the audited financial statements and related footnotes set forth in our annual report filed on Form 10-K for the year ended December 31, 2019 as filed with the United States Securities and Exchange Commission on May 14, 2020.


FS - 6


 

1. Organization and Summary of Significant Accounting Policies, Continued:

 

Principles of Consolidation:

 

The condensed consolidated financial statements include the accounts of Cannabis Sativa, Inc. (the “Company” or “CBDS”), and its wholly-owned subsidiaries; Wild Earth Naturals, Inc., Hi-Brands International, Inc., Eden Holdings LLC, our 50.1% ownership of iBudtender Inc., our 51% ownership of PrestoCorp, and our 51% ownership of GK Manufacturing Inc., (collectively referred to as the “Company”).  All significant inter-company balances have been eliminated in consolidation. We hold controlling interests in iBudTender, PrestoCorp and GK Manufacturing and exercise control through management practices and oversight by the Company’s Board of Directors.  GK Manufacturing was established in February 2020.

 

Non-controlling Interests:

 

Non-controlling interests are portions of entities included in the condensed consolidated financial statements that are not attributable to the Company.  Non-controlling interest are identified separately from the Company’s stockholders’ equity and its net income (loss). Non-controlling interest equity balances include the non-controlling entity’s initial contribution at the date of the original acquisition, ongoing contributions, distributions, and percentage share of earnings since inception. The non-controlling interests are calculated based on percentages of ownership.

 

Going Concern:

 

The Company has an accumulated deficit of $75,961,660 at June 30, 2020, which, among other factors, raises substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to generate profitable operations in the future and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they are due.

 

Use of Estimates:

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Significant estimates and assumptions by management affect the allowance for doubtful accounts, the carrying value of long-lived assets (including goodwill and intangible assets), the provision for income taxes and related deferred tax accounts, certain accrued liabilities, revenue recognition, contingencies, and the value attributed to stock-based awards.

 


FS - 7


1. Organization and Summary of Significant Accounting Policies, Continued:

 

Accounts Receivable:

 

We estimate credit loss reserves for accounts receivable on an individual receivable basis. A specific allowance reserve is established based on expected future cash flows and the financial condition of the debtor.  We charge off customer balances in part or in full when it is more likely

than not that we will not collect that amount of the balance due.  We consider any balance unpaid after the contract payment period to be past due.

 

Inventories:

 

Inventory costs, when applicable, include those costs directly attributable to the manufacture of the product before sale. Inventory consists of raw materials and finished goods and is carried at the lower of cost or net realizable value, using the first-in, first-out method of determining cost. As of June 30, 2020, the Company had $64,605 in inventory relating to GKMP. Inventory consists of the raw materials and packaging used to manufacture cannabidiol (“CBD”) infused products for our customers. As of December 31, 2019, the Company had no inventory.

 

Property and Equipment:

 

Property and equipment are recorded at cost.  Depreciation is provided for on the straight-line method over the estimated useful lives of the assets.  The average lives range from five (5) to ten (10) years.  Leasehold improvements are amortized on the straight-line method over the lesser of the lease term or the useful life. Maintenance and repairs that neither materially add to the value of the property nor appreciably prolong its life are charged to expense as incurred.  Betterments or renewals are capitalized when incurred.  

 

Fair Value of Financial Instruments:

 

The carrying amounts of cash and cash equivalents and amounts due to related parties approximate fair value given their short-term nature.

 

Cash:

 

Cash is held at major financial institutions and insured by the Federal Deposit Insurance Corporation (FDIC) up to federal insurance limits. The Company considers all highly liquid investments purchased with an original maturity of three months or less when acquired to be cash equivalents.

 


FS - 8


1. Organization and Summary of Significant Accounting Policies, Continued:

 

Net Loss per Share:

 

Net loss per share is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding for the period and contains no dilutive securities. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of the Company.  Potentially dilutive shares are excluded from the calculation of diluted net loss per share because the effect is anti-dilutive. At June 30, 2020 and 2019 the Company had 125,000 and 49,900 outstanding warrants, respectively, that would be dilutive to future periods net income. Also, at June 30, 2020 and 2019 the Company had 1,073,543 and 839,781 shares of convertible Series A preferred stock, respectively, that would be dilutive to future periods net income.  See Note 6.

 

Revenue Recognition:

 

Revenues are recognized when control of the promised goods or services are transferred to a customer, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. The Company recognizes revenue from the sale of products and services in accordance with ASC 606,” Revenue Recognition”. The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements:

 

·

identify the contract with a customer;

·

identify the performance obligations in the contract;

·

determine the transaction price;

·

allocate the transaction price to performance obligations in the contract; and

·

recognize revenue as the performance obligation is satisfied.

 

Provision for sales incentives, discounts and returns and allowances, if applicable, are accounted for as reductions of revenue in the period the related sales are recorded. The Company had no warranty costs associated with the sales of its products in the periods presented in the accompanying Consolidated Statements of Operations and no provision for warranty expenses has been included.

 

The Company generates revenue based on a per telehealth visit basis for clients looking to obtain a permit to use marijuana for medical purposes in states that have legalized medical marijuana. Revenues are recognized when the Company satisfies its performance obligation to stand ready to provide telehealth services. This occurs at the same time an online client subscribes for the visit and gains access to our network of health care professionals. The billing and payment processes are automated through our online platform. Revenue is recognized in an amount that reflects the consideration that is received in exchange for the service.

 


FS - 9


1. Organization and Summary of Significant Accounting Policies, Continued:

 

Revenue Recognition: - continued

 

With the recent addition of GKMP, the Company is also reporting revenue from manufacturing operations.  The Company recognizes revenue from manufacturing operations when the products are shipped to the customer. Shipment terms are FOB origination.

 

In the three and six-month periods ended June 30, 2020, the operations of GKMP were still in the start-up phase and generated approximately $14,000 in total revenue, substantially all of which occurred in the three-month period ended June 30, 2020. The Company’s other product line consists of the telehealth business of PrestoCorp, which reported approximately $707,000 and $1,200,000 in revenue in the three and six-month periods ended June 30, 2020, respectively. All revenue in the respective 2019 periods was from the telehealth business.  In future periods, the Company will report each segment separately.

 

Investments

 

Investments in equity securities that are less than 20% owned are stated at fair value. The Company recognizes unrealized holding gains and losses in other (Income) Expenses in the condensed consolidated statement of operations. On disposal of an investment, the difference between the disposal proceeds and the carrying amount is recognized as income or loss on the condensed consolidated statement of operations.

 

Intangible Assets and Goodwill:

 

We account for intangible assets and goodwill in accordance with ASC 350 “Intangibles-Goodwill and Other” (“ASC 350”).

 

Intangible asset amounts represent the acquisition date fair values of identifiable intangible assets acquired. The fair values of the intangible assets were determined by using the income approach, discounting projected future cash flows based on management’s expectations of the current and future operating environment. The rates used to discount projected future cash flows reflected a weighted average cost of capital based on our industry, capital structure and risk premiums including those reflected in the current market capitalization. Definite-lived intangible assets are amortized over their useful lives, which have historically ranged from 5 to 10 years. The carrying amounts of our definite-lived intangible assets are evaluated for recoverability whenever events or changes in circumstances indicate that the entity may be unable to recover the asset’s carrying amount. We do not have any indefinite-lived intangible assets recorded from acquisitions.

 

Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in a business combination. Goodwill is not amortized but is tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset may be impaired. The fair value of the reporting unit is evaluated on qualitative factors to determine if the reported value may be impaired.  If the qualitative factors indicate a likelihood of impairment, we then evaluate carrying value of the reporting unit based on quantitative factors


FS - 10


1. Organization and Summary of Significant Accounting Policies, Continued:

 

using the income approach. An impairment charge is recognized for the excess of the carrying value of goodwill for the reporting unit over its implied fair value.

 

Advertising Expense:

 

Advertising costs are expensed as incurred and are broken out separately in the accompanying consolidated statements of operations. Advertising costs for the three and six months ended June 30, 2020 were $125,392 (2019: $28,335) and $212,480 (2019: $61,488), respectively.

 

Stock-Based Compensation:

 

Stock-based payments to employees and non-employees are recognized at their fair values.  Compensation expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).  The Company uses the Black-Scholes option pricing model when necessary as the most appropriate fair value method for option awards. Most awards have been in the form of shares of the Company’s common and preferred stock issued under the Company’s 2017 Stock Plan. See Note 6. The Company currently recognizes compensation costs immediately as our awards are 100% vested at the time of issuance.  

 

Income Taxes:

 

The Company utilizes the liability method of accounting for income taxes which requires that deferred tax assets and liabilities be recorded to reflect the future tax consequences of temporary differences between the book and tax basis of various assets and liabilities.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Additionally, deferred tax assets are evaluated, and a valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized. There can be no assurance that the Company’s future operations will produce sufficient earnings so that the deferred tax asset can be fully utilized. The Company currently maintains a full valuation allowance against net deferred tax assets.

 

Leases:

 

The Company determines if an arrangement is a lease, or contains a lease, at the inception of an arrangement. If the Company determines that the arrangement is a lease, or contains a lease, at lease inception, it then determines whether the lease is an operating lease or finance lease. Operating and finance leases result in recording a right-of-use (“ROU”) asset and lease liability on the consolidated balance sheets. ROU assets represent the Company’s right to use an underlying


FS - 11


 

1. Organization and Summary of Significant Accounting Policies, Continued:

 

Leases: - continued

 

asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. For purposes of calculating operating lease ROU assets and operating lease liabilities, the Company uses the non-cancellable lease term plus options to extend that it is reasonably certain to exercise. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. The Company’s leases generally do not provide an implicit rate.

 

As such, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company has elected not to recognize ROU assets and lease liabilities that arise from short-term (12 months or less) leases for any class of underlying asset. The Company has elected not to separate lease and non-lease components for any class of underlying asset.

 

Fair Value Measurements

 

When required to measure assets or liabilities at fair value, the Company uses a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used. The Company determines the level within the fair value hierarchy in which the fair value measurements in their entirety fall. The categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Level 1 uses quoted prices in active markets for identical assets or liabilities, Level 2 uses significant other observable inputs, and Level 3 uses significant unobservable inputs. The amount of the total gains or losses for the period are included in earnings that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date. We measure our investment in equity securities at fair value on a recurring basis.  The Company’s equity securities are valued using inputs observable in active markets and are therefore classified as Level 1 within the fair value hierarchy.

 

Recent Accounting Pronouncements:

 

Accounting Standards Updates Adopted

 

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The update simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount. This update is effective for annual and interim periods beginning after December 15, 2019, and interim periods within that reporting period. The adoption of the new guidance on January 1, 2020 did not have a material impact on the Company’s consolidated financial statements.

 


FS - 12


1. Organization and Summary of Significant Accounting Policies, Continued:

 

In August 2018, the FASB issued ASU No. 2018-13 Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. The update removes, modifies, and makes additions to the disclosure requirements on fair value measurements. The update was adopted as of January 1, 2020, and its adoption did not have a material impact on the Company’s financial statements.

 

Accounting Standards Updates to Become Effective in Future Periods

 

In December 2019, the FASB issued ASU No. 2019-12 Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The update contains a number of provisions intended to simplify the accounting for income taxes. The update is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. Management is evaluating the impact of this update on the Company’s financial statements.

 

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption.

 

2.  Property and Equipment

 

Property and equipment consisted of the following at June 30, 2020 and December 31, 2019:

 

 

June 30, 2020

December 31, 2019

Furniture and Equipment

$   224,265   

$     17,414   

Leasehold Improvements

  17,315   

2,500   

 

241,580   

19,914   

Less:  Accumulated Depreciation

(15,489)  

(13,474)  

Net Property and Equipment

$   226,091   

$       6,440   

 

Depreciation expense for the three and six months ended June 30, 2020 was $1,698 (2019: $659) and $2,015 (2019: $1,438), respectively.

 

3.  Intangibles and Goodwill

 

The Company considers all intangibles to be definite-lived assets with lives of 5 to 10 years. Intangibles consisted of the following at June 30, 2020 and December 31, 2019:   

 

 

June 30, 2020

December 31, 2019

CBDS.com website (Cannabis Sativa)

$       13,999   

$       13,999   

Intellectual Property Rights (PrestoCorp)

240,000   

240,000   

Patents and Trademarks (KPAL)

1,281,411   

1,281,411   

Total Intangibles

1,535,410   

1,535,410   

Less:  Accumulated Amortization

(942,828)  

(840,192)  

Net Intangible Assets

$     592,582   

$    695,218   


FS - 13


 

3.  Intangibles and Goodwill, Continued:

 

Amortization expense for the three and six months ended June 30, 2020 were $52,756 (2019: $139,739) and $102,636 (2019: $279,479), respectively.

 

Amortization of intangibles for each of the next five years is: 

 

2021

$187,206  

2022

$169,142  

2023

$153,137  

2024

$  83,097  

 

Goodwill in the amount of $3,010,202 was recorded as part of the acquisition of PrestoCorp that occurred on August 1, 2017.  Cumulative impairment of the PrestoCorp goodwill totals $1,173,000 as of June 30, 2020 and December 31, 2019.

 

Goodwill in the amount of $336,667 was recorded as part of the acquisition of iBudtender that occurred on August 8, 2016. For the year ended December 31, 2019 the Company recorded a $336,667 impairment of the iBudtender goodwill. The impairment of the iBudtender goodwill was due to delays in completion of the iBudtender software and mobile app, and failure to commence viable business operations, as well as the uncertainty surrounding the future of the business opportunity.  Cumulative impairment of the iBudtender goodwill totals $336,667 as of June 30, 2020 and December 31, 2019.

 

There were no additions, deletions, and impairments recognized in the six months ended June 30, 2020 and 2019. The Company considered the impact of the COVID-19 impact on intangible assets for the interim period ended June 30, 2020 and concluded that an interim impairment analysis is not necessary.  The Company’s telehealth business has been positively impacted by the pandemic. 

 

4.  Related Party Transactions

 

The Company has received advances from related parties and officers of the Company to cover operating expenses. Related parties include the officers and directors of the Company, and a significant shareholder holding in excess of a 10% interest in the Company. As of June 30, 2020, and December 31, 2019, amounts due to the related parties were $1,126,262 and $1,018,520, respectively. During the six months ended June 30, 2020 and 2019, the Company recorded interest expense related to these advances at the rates between 5% and 8% per annum and in the amount of $28,386 and $23,980, respectively. The Company does not have written notes payable for these balances but has a verbal understanding with the related parties that written notes will be created in 2020 to reflect the balances due and payable December 31, 2025. These balances were classified as current liabilities as of June 30, 2020 as the written notes have not yet been finalized.  New advances in the six months ended June 30, 2020 were $107,742.

 


FS - 14


 

4.  Related Party Transactions, Continued:

 

At June 30, 2020 and December 31, 2019, the Company had a note payable to the founder of iBudtender of $10,142 and $10,142, respectively, which is included in due to related parties on the consolidated balance sheets. The note earns interest at 0% and was due on December 2019. The note has not yet been paid pending further review of the iBudtender business and adjustment of the agreements between the parties.

 

In the three and six months ended June 30, 2020, the Company incurred approximately $37,778 (2019: $16,667) and $88,000 (2019: $35,000), respectively, for consulting services from a nephew of the Company’s president. These services were paid in shares of the Company’s common stock.

 

The Company paid officer and director compensation for services in shares of common stock in order to reduce operating cash flow requirements.  The shares were recorded at fair value at the time of issuance as compensation expense. See Note 6 regarding shares issued to related parties. In the three and six months ended June 30, 2020, the Company paid $273,012 (2019: $267,073) and $469,687 (2019: $267,073), respectively.  The amounts are included in the statements of operations in general and administrative expenses.

 

5.  Investments

 

The Company owns 10,000,000 shares of common stock of Medical Cannabis Payment Solutions (ticker:  REFG). At June 30, 2020, the fair value of the investment in REFG was adjusted to $78,000 based on the closing price of the stock on that date, which resulted in an unrealized gain on investment of $30,000 during the six month period ended June 30, 2020. At December 31, 2019, the fair value of the investment in REFG was adjusted to $48,000 based on the closing price of the stock on that date, which resulted in an unrealized loss on investment of $152,000 during the  year ended December 31, 2019.

 

6.  Stockholders’ Equity

 

Share Capital

 

The authorized capital of the Company consists of 45,000,000 shares of Common Stock with a par value of $0.001 and 5,000,000 shares of preferred stock issuable in series with such rights, preferences and conditions as the Board of Directors may establish.  The Company has designated and established the rights of Series A preferred stock (“Series A”) with a par value of $0.001.  The Company is authorized to issue up to 5,000,000 shares of Series A.  The holders of Series A are entitled to dividends if the Company declares a dividend on common shares, have no liquidation preference, have voting rights equal to 1 vote per share, and can be converted into one share of common at any time. In the six months ended June 30, 2020, a related party converted 340,172 preferred shares into 340,172 shares of common stock. No preferred shares were converted in the six months ended June 30, 2019.

 


FS - 15


6.  Stockholders’ Equity, Continued:

 

Shares of Stock issued for Asset Acquisition

 

In the six months ended June 30, 2020, the Company acquired assets and established GK Manufacturing and Packaging, Inc. (“GKMP”) to conduct contract manufacturing operations for customers seeking to obtain CBD infused products, including salves, tinctures, edibles, and other products containing CBD. In connection with the acquisition, the Company issued two key individuals an aggregate of 100,000 shares of common stock with a fair value of $109,000 for a 51% interest in GKMP. Assets acquired included inventory needed for manufacturing the CBD products ($47,987); a packaging line and other manufacturing equipment ($164,488); and a deposit ($1,250). The assets values totaled $213,725, of which $104,725 relates to the 49% non-controlling interest. GKMP also assumed the payments on a lease for equipment, agreed to provide up to $500,000 of additional working capital to GKMP, and agreed to an earnout provision where additional shares of common stock may become issuable to the key individuals in the event certain performance standards are met. See Note 7.

 

Upon completion of the acquisition of assets for GKMP, GKMP entered into employment agreements with the two key individuals. The employment agreements are terminable at any time with or without cause, but in the event of termination without cause, the salary will continue for six months. Salary for the president of GKMP is set at $65,000 per annum and salary for the Vice President – Sales and Marketing is set at $50,000 per annum.  The agreements also provide the individuals with expense reimbursements and other employee benefits comparable to those being offered to the other employees of the Company. Currently, GKMP has not established any other employee benefit programs. The 49% non-controlling interest is considered a related party to the Company because the non-controlling interest is owned, in part by the president of GKMP.

 

The completion of the GKMP asset acquisition resulted in payment of a finder’s fee to an unrelated party. The finder’s fee was paid by issuance of 50,000 shares of common stock with a fair value at the time of issuance of $36,000 which was recognized as an expense upon completion of the acquisition.

 

2017 Stock Plan

 

On July 28, 2017, the Company adopted the Cannabis Sativa 2017 Stock Plan which authorized the Company to utilize common stock to compensate employees, officers, directors, and independent contractors for services provided to the Company.  The Company authorized up to 3,000,000 shares of common stock to be issued pursuant to the 2017 Stock Plan. At June 30, 2020, the Company was authorized to issue up to 533,118 additional shares under the 2017 Stock Plan.

 

Warrants

 

At June 30, 2020 and December 31, 2019, the Company had outstanding warrants to purchase 125,000 shares and 174,900 shares of the Company’s common stock, respectively. The exercise price on 125,000 warrants was $0.80 per share and these warrants expire in November 2022.


FS - 16


6.  Stockholders’ Equity, Continued:

 

Warrants to purchase up to 49,900 shares of common stock at $2.00 per share expired on February 1, 2020.

 

Securities Issuances

 

During the six months ended June 30, 2020 and 2019, shares of common stock and preferred stock were issued to related and non-related parties for stock payable as of the prior year end, and/or for services, acquisitions and settlements. The following table breaks out the issuances by type of transaction and by related and non-related parties.

 

Six months ended June 30, 2020

Share Issuances

 

Services

 

Other Activity

 

Total

Shares issued for stock payable

 

Common

Preferred

Value

 

Common

Preferred

Value

 

Common

Preferred

Value

Related party issuance

 

    521,411

  223,214

$   431,201

 

          -   

         -   

$        -   

 

     521,411

    223,214

$   431,201

Unrelated party issuance

 

    441,827

          -   

     209,484

 

          -   

         -   

          -   

 

     441,827

            -   

     209,484

Total shares for stock payable

 

    963,238

  223,214

$   640,685

 

          -   

         -   

$         -   

 

     963,238

    223,214

$   640,685

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of preferred stock

 

            -   

          -   

$           -   

 

  340,172

(340,172)

$         -   

 

     340,172

  (340,172)

$           -   

 

 

 

 

 

 

 

 

 

 

 

 

 

Services

 

 

 

 

 

 

 

 

 

 

 

 

Related party issuances

 

 

 

 

 

 

 

 

 

 

 

 

David Tobias, Officer, Director

 

            -   

  168,652

$     92,064

 

          -   

         -   

$         -   

 

             -   

    168,652

$     92,064

Brad Herr, Officer, Director

 

    248,695

          -   

     135,715

 

          -   

         -   

          -   

 

     248,695

            -   

     135,715

Robert Tankson, Director

 

      97,554

          -   

       48,677

 

          -   

         -   

          -   

 

       97,554

            -   

      48,677

Cathy Carroll, Director

 

    168,652

          -   

       92,064

 

          -   

         -   

          -   

 

     168,652

            -   

      92,064

Trevor Reed, Director

 

      28,109

          -   

       15,344

 

          -   

         -   

          -   

 

       28,109

            -   

      15,344

Keith Hyatt, President GKMP

 

      75,232

          -   

       41,378

 

          -   

         -   

          -   

 

       75,232

            -   

      41,378

Kyle Powers, CEO PrestoCorp

 

      92,593

          -   

       44,444

 

          -   

         -   

          -   

 

       92,593

            -   

      44,444

Total related party issuances

 

    710,835

  168,652

     469,686

 

          -   

         -   

          -   

 

     710,835

    168,652

     469,686

Unrelated Party issuances

 

    981,094

          -   

     613,853

 

          -   

         -   

          -   

 

     981,094

            -   

     613,853

Total shares for services

 

 1,691,929

  168,652

$ 1,083,539

 

          -   

         -   

$         -   

 

  1,691,929

    168,652

$1,083,539

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance for acquisitions

 

            -   

          -   

$           -   

 

  100,000

 

$ 109,000

 

     100,000

            -   

$   109,000

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregate totals

 

 2,655,167

  391,866

$ 1,724,224

 

  440,172

 

$ 109,000

 

  3,095,339

      51,694

$1,833,224


FS - 17


 

6.  Stockholders’ Equity, Continued:

 

Six months ended June 30, 2019

Share Issuances

 

Services

 

Other Activity

 

Total

Shares issued for stock payable

 

Common

Preferred

Value

 

Common

Preferred

Value

 

Common

Preferred

Value

Related party issuances

 

      85,681

    39,391

$   340,080

 

          -   

         -   

$        -   

 

       85,681

      39,391

$   340,080

Unrelated paryt issuances

 

      41,380

          -   

     114,216

 

          -   

         -   

          -   

 

       41,380

            -   

     114,216

Total shares for stock payable

 

    127,061

    39,391

$   454,296

 

          -   

         -   

$         -   

 

     127,061

      39,391

$   454,296

 

 

 

 

 

 

 

 

 

 

 

 

 

Services

 

 

 

 

 

 

 

 

 

 

 

 

Related Party issuances

 

 

 

 

 

 

 

 

 

 

 

 

David Tobias, Officer, Director

 

            -   

    40,946

$   106,240

 

          -   

         -   

$         -   

 

             -   

      40,946

$   106,240

Donald Lundbom, CFO

 

      32,803

          -   

       85,833

 

          -   

         -   

          -   

 

       32,803

            -   

      85,833

Stephen Downing, Director

 

       5,308

          -   

       13,889

 

          -   

         -   

          -   

 

        5,308

            -   

      13,889

Cathy Carroll, Director

 

      10,616

          -   

       27,778

 

          -   

         -   

          -   

 

       10,616

            -   

      27,778

Trevor Reed, Director

 

       4,246

          -   

       11,111

 

          -   

         -   

          -   

 

        4,246

            -   

      11,111

Deborah Goldsberry, Director

 

       4,246

          -   

       11,111

 

          -   

         -   

          -   

 

        4,246

            -   

      11,111

Michael Gravel, Director

 

       4,246

          -   

       11,111

 

          -   

         -   

          -   

 

        4,246

            -   

      11,111

Total related party issuances

 

      61,465

    40,946

$   267,073

 

          -   

         -   

$         -   

 

       61,465

      40,946

$   267,073

Unrelated party issuances

 

      79,377

          -   

$   226,523

 

          -   

 

$         -   

 

       79,377

            -   

$   226,523

Total shares for services

 

    140,842

    40,946

$   493,596

 

          -   

         -   

$         -   

 

     140,842

      40,946

$   493,596

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares cancelled

 

            -   

          -   

$           -   

 

  (70,000)

         -   

$         -   

 

     (70,000)

            -   

$           -   

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregate totals

 

    267,903

    80,337

$   947,892

 

  (70,000)

         -   

$         -   

 

     197,903

      80,337

$   947,892

 

7.  Commitments and Contingencies

 

Leases.  The Company renewed a lease in Mesquite, Nevada in November 2019 on a month to month basis at a cost of $600 per month. The Company terminated the lease at the end of February 2020, and now operates out of a virtual office maintained by our Chief Executive Officer.

 

PrestoCorp leases office space through WeWork in New York for $2,444 per month on a month to month arrangement. Until February 2019, PrestoCorp also leased space in San Francisco for $2,800 per month. PrestoCorp terminated its lease and closed its office in San Francisco as of the end of February 2019.  Primary operations for PrestoCorp are now based in New York City. Rent expense for the three and six months ended June 30, 2020 was $7,432 (2019: $7,793) and $18,119 (2019: $21,062), respectively.

 

GKMP leases a commercial printer and a bottle filling line, both of which are used in its manufacturing and packaging operations. The Company assumed the printer lease as part of the acquisition of GKMP’s assets (see Note 6).  The bottle filler was leased by GKMP commencing on April 1, 2020. The Company recognizes a right to use asset for each lease at the time the lease obligation is fixed.  To calculate the liability and right of use asset, the Company utilized a 10% incremental borrowing rate to discount the future rent payments over the remaining lease terms. For the three and six months ended June 30, 2020, the Company recognized $8,144 and $8,919, respectively in lease expense. Lease expense is reported as cost of goods sold in the consolidated statements of operations.  At June 30, 2020, the remaining lease term is 36 months on the printer and 21 months on the bottle filling line.  The lessors hold deposits of $1,250 on the printer lease and $8,500 on the bottle filling line.  Future minimum lease payments over the remaining term are as follows:


FS - 18


 

7.  Commitments and Contingencies, Continued:

 

 

From July 1, 2020 to June 30, 2021

$  35,481  

From July 1, 2021 to June 30, 2022

27,039  

From July 1, 2022 to June 30, 2023

8,190  

Total

70,710  

Less imputed interest 

(9,343)  

Net lease liability

61,367  

Current portion

(29,191)  

Long term

$  32,176  

 

Litigation.  In the ordinary course of business, we may face various claims brought by third parties and we may, from time to time, make claims or take legal actions to assert our rights, including intellectual property disputes, contractual disputes and other commercial disputes. Any of these claims could subject us to litigation. As of June 30, 2020, one claim was pending or threatened relating to general business disputes and accounts payable for services. Management believes the outcome of currently pending claim is not likely to have a material effect on our consolidated financial position and results of operations.

 

Shares in Escrow.  At June 30, 2020 and December 31, 2019, the Company has 419,475 shares of common stock in escrow as part of the acquisition of PrestoCorp. These shares are issuable in certain circumstances to the principals of PrestoCorp based on performance of the PrestoCorp business in 2020 and 2021.  The escrow account originally contained 629,213 shares of common

 

stock but 209,738 shares were cancelled in 2018 when the performance requirements were not met.  The escrowed shares are not counted in the outstanding stock of the Company and will be considered compensation to the principals if and when issued. The escrow account also includes an additional 500 shares of PrestoCorp common stock which is distributable either back to the principals of PrestoCorp or to the Company, also depending on certain minimum performance requirements which extend into 2021.  If all of the PrestoCorp shares are ultimately distributed to the Company, the shares would have the effect of increasing the Company’s ownership of PrestoCorp to 61% from the current level of 51%.

 

Contingent Consideration. In connection with the GKMP asset acquisition, the Company agreed to pay additional consideration to the two key individuals employed by GKMP upon achievement of certain performance goals. If GKMP net revenues exceed $3,000,000 and net income exceeds 25% of net revenues in the year ended December 31, 2020, an additional $1,000,000 in consideration will be due to the key individuals. If GKMP net revenues exceed $6,000,000 and net income exceeds 25% of net revenues in the year ended December 31, 2020, an additional $500,000 in consideration will be due to the key individuals ($1,500,000 in the aggregate). Through June 30, 2020, GKMP has reported net revenues of approximately $14,000. The additional consideration amounts, if any, are payable in stock at the average closing price of the shares in the five trading days prior to the date of payment.


FS - 19


7.  Commitments and Contingencies, Continued:

 

Working Capital Obligation. In connection with the GKMP asset acquisition, the Company agreed to provide up to an additional $500,000 in working capital to GKMP.  These amounts are recorded as investment in GKMP by CBDS and as equity on the books of GKMP and are eliminated in the consolidation.  Due to the ownership structure of GKMP, 49% of the working capital payments from the Company to GKMP benefit the holders of the non-controlling interest.  

 

8.   COVID- 19:

 

The outbreak of COVID-19, the coronavirus, has grown both in the United States and globally, and related government and private sector responsive actions have adversely affected the Company’s business operations. The World Health Organization has declared Covid-19 to be a global pandemic, resulting in an economic downturn and changes in global economic policy that will reduce demand for the Company’s products and may have an adverse impact on the Company’s business, operating results and financial condition.

 

9. Subsequent Events:

 

Through August 6, 2020, the Company has received $25,000 in subscriptions for 50,000 units consisting of one share of common stock and one warrant exercisable for one share of common stock. The unit price was $0.50 per share and the warrant exercise price is $1.00 per share. The units were offered in a private placement and the units sold are restricted securities.


FS - 20

 

Cannabis Sativa (QB) (USOTC:CBDS)
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