UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CANNABIS GLOBAL, INC.
(Exact Name of Registrant as Specified in its Charter)
Nevada |
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2836 |
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83-1754057 |
(State
or Other Jurisdiction of |
|
(Primary
Standard Industrial |
|
(I.R.S.
Employer |
Incorporation) |
|
Classification
Code Number) |
|
Identification
No.) |
(Address, including zip code, and telephone number, including
area code, of registrant’s principal executive offices)
Arman Tabatabaei
520 S Grand Avenue, Suite 320
Los Angeles, California 90071
(310) 986-4929
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Mailander Law Office, Inc.
Tad Mailander
4811 49th Street
San Diego, CA 92115
(619) 239-9034
Approximate date of commencement of proposed sale to the
public: From time to time after the effective date of
this Registration Statement.
If any of
the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 check the following
box: ☒
If this
Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check
the following box and list the Securities Act Registration
Statement number of the earlier effective Registration Statement
for the same offering. ☐
If this
Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box
and list the Securities Act Registration Statement number of the
earlier Registration Statement for the same
offering. ☐
If this
Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following box
and list the Securities Act Registration Statement number of the
earlier Registration Statement for the same
offering. ☐
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 definitions of “large
accelerated filer,” “accelerated filer,” “smaller reporting
company” and “emerging growth company” in Rule 12b-2 of the
Exchange Act.
Large
accelerated filer |
☐ |
Accelerated
filer |
☐ |
Non-accelerated
filer |
☒ |
Smaller
reporting company |
☒ |
|
Emerging
growth company |
☐ |
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 7(a)(2)(B) of the Securities
Act. ☒
Calculation of Registration Fee
Title of Each Class of Securities to be Registered |
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Amount to be Registered (1) |
|
Proposed Maximum Offering Price Per Unit (2) |
|
Proposed Maximum Aggregate Offering Price (1) |
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Amount of Registration Fee |
Common Stock, par value $0.001 |
|
15,000,000 Shares |
|
$ |
0.04 |
|
|
$ |
600,000 |
|
|
$ |
65.46 |
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
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(1) |
|
This
preliminary prospectus relates to the registration of 15,000,000 of
common stock in Cannabis Global, Inc. a Nevada Corporation
(referred to herein as the
“Company,” “CBGL,” “we,” “our,” “us,” or other similar
pronouns). The Company is registering 15,000,000 shares
of common stock, par value $0.001 under a stock purchase agreement
with Dutchess Capital Growth Fund LP, a Delaware limited
partnership (“Dutchess”) and an indeterminate number of
additional shares of Common Stock issuable pursuant to Rule 416
under the Securities Act of 1933, as amended (the “Securities Act”)
to prevent dilution resulting from stock splits, stock dividends or
similar transactions, and in such an event the number of shares
registered shall automatically be increased to cover the additional
shares in accordance with Rule 416. |
(2) |
|
Estimated
solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457(c) under the
Securities Act. The actual offering price shall equal
ninety three percent (93%) of the lowest traded price of the Common
Stock the five (5) Business Day prior to the closing date of the
sales of the common shares (the “Closing Date”). The
Closing Date shall mean the date that is five (5) days after first
entire business day Dutchess holds the purchased common shares in
its brokerage account and is eligible to trade purchase common
shares. Please see sections designated Summary of
this Offering and The Offering. |
(3) |
|
The Registrant formerly filed a Form
S-1 registration statement on July 26, 2021(file number 333-258171)
and withdrew the registration on August 4, 2021. The registration
statement was not made effective. No securities were sold pursuant
to the registration statement. Pursuant to Rule 457(p), the
Registrant hereby applies the aggregate total dollar amount of the
filing fees associated with its prior withdrawn S-1 registration,
equaling $109.10 as an offset against the filing fee associated
with this registration statement. |
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH
DATES OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE
UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH
SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SECTION
8(a) MAY DETERMINE.
The information in this Prospectus is not complete and may be
changed. We may not sell these securities until the Registration
Statement filed with the Securities and Exchange Commission is
effective. This Prospectus is not an offer to sell these securities
and it is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
Subject to completion, dated August 27, 2021
PRELIMINARY PROSPECTUS
CANNABIS GLOBAL, INC.
520 S. Grand Avenue, Suite 320
Los Angeles, California 90071
(310) 986-4929
This preliminary prospectus relates to the registration of
15,000,000 shares of the Common Stock of Cannabis Global, Inc., a
Nevada corporation (referred to herein as the “Company,” “we,”
“our,” “us,” or other similar pronouns) by Dutchess Capital Growth
Fund LP a Delaware limited partnership (“Dutchess” or the
“Investor” or the “Selling Security Holder”) pursuant to a Common
Stock Purchase Agreement (the “Purchase Agreement”), dated August
23, 2021 and an indeterminate number of additional shares of Common
Stock issuable pursuant to Rule 416 under the Securities Act of
1933, as amended (the “Securities Act”) to prevent dilution
resulting from stock splits, stock dividends or similar
transactions, and in such an event the number of shares registered
shall automatically be increased to cover the additional shares in
accordance with Rule 416, pursuant to the Purchase Agreement.
We will not receive any proceeds from the sale of the Shares by
Dutchess. However, we will receive proceeds from our initial sale
of the Common Shares to Dutchess pursuant to the Purchase Agreement
Agreement. Subject to the terms of the Purchase Agreement, we have
the right to “drawdown,” or sell an amount of Common Shares equal
to the lesser of ; (i) $250,000 or (ii) 200% of the Average Daily
Traded Value of the Stock during the five (5) days immediately
preceding the Drawdown Notice date or (iii) the Beneficial
Ownership Limitation defined as shall be 4.99% of the number of
shares of the Common Stock outstanding immediately prior to the
issuance of shares of Common Stock issuable pursuant to a Drawdown
Notice. The Purchase Agreement is attached as an exhibit to this
registration statement.
The price at which the Company will sell the Common Shares to
Dutchess shall be ninety three percent (93%) of the lowest traded
price of the Common Stock the five (5) Business Days prior to the
Closing Date of the sales of the Common Shares. The Closing Date
shall the date that is five (5) business days after the Clearing
Date. The Clearing Date is defined as the first entire Business Day
that Dutchess holds the purchased Common Shares in its brokerage
account and is eligible to the Purchased Common Shares.
If issued presently, the 15,000,000 Shares registered for resale by
Dutchess would represent approximately 17.7% of our issued and
outstanding shares of Common Stock as of August 26, 2021
(84,940,028). Subject to the terms and conditions of the Purchase
Agreement, we have the right to sell up to $5,000,000 of shares of
our Common Stock to Dutchess.
The Company will be registering all common stock under the Exchange
Act in connection with this Offering. 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.
Dutchess is an “underwriter” within the meaning of the Securities
Act in connection with the resale of the Shares under the Purchase
Agreement, and any broker-dealers or agents that are involved in
such resales may be deemed to be “underwriters” within the meaning
of the Securities Act in connection therewith. In such event, any
commissions received by such broker-dealers or agents and any
profit on the resale of the Shares purchased by Dutchess may be
deemed to be underwriting commissions or discounts under the
Securities Act. For more information, please see the section of
this Prospectus titled “Plan of Distribution” beginning on page
30.
Our Common Stock is currently quoted on the OTC Markets Pink under
the symbol “CBGL”. On August 26, 2021, the closing price as
reported was $0.04 per share.
INVESTING IN OUR SECURITIES INVOLVES RISKS. YOU SHOULD REVIEW
CAREFULLY THE RISKS AND UNCERTAINTIES DESCRIBED UNDER THE HEADING
“RISK FACTORS” CONTAINED ON PAGE 6 HEREIN AND IN OUR ANNUAL REPORT
ON FORM 10-K FOR THE YEAR ENDED AUGUST 31, 2020, AS WELL AS
OUR SUBSEQUENTLY FILED PERIODIC AND CURRENT REPORTS, WHICH WE FILE
WITH THE SECURITIES AND EXCHANGE COMMISSION AND ARE INCORPORATED BY
REFERENCE INTO THIS PROSPECTUS. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY BEFORE YOU MAKE YOUR INVESTMENT
DECISION.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES
OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is August 27, 2021
TABLE OF CONTENTS
PROSPECTUS
SUMMARY |
5 |
SUMMARY
FINANCIAL INFORMATION |
9 |
SUMMARY
OF THIS OFFERING |
10 |
RISK
FACTORS |
11 |
USE
OF PROCEEDS |
26 |
THE
OFFERING |
26 |
DILUTION |
28 |
PLAN
OF DISTRIBUTION |
30 |
DESCRIPTION
OF SECURITIES |
32 |
INTERESTS
OF EXPERTS |
33 |
DESCRIPTION
OF BUSINESS |
34 |
DESCRIPTION
OF PROPERTY |
46 |
LEGAL
PROCEEDINGS |
46 |
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS |
47 |
MANAGEMENT’S
DISCUSSION AND ANALYSIS |
48 |
CRITICAL
ACCOUNTING POLICIES INVOLVING MANAGEMENT ESTIMATES AND
ASSUMPTIONS |
53 |
INTERIM
FINANCIAL STATEMENTS |
57 |
DIRECTORS
AND EXECUTIVE OFFICERS |
58 |
EXECUTIVE
AND DIRECTOR COMPENSATION |
65 |
CERTAIN
RELATIONSHIPS AND FEE TRANSACTIONS |
69 |
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
F-2 |
WHERE
YOU CAN FIND MORE INFORMATION |
72 |
You should rely only on the information contained or
incorporated by reference to this Prospectus in deciding whether to
purchase our Shares. We have not authorized anyone to provide you
with information different from that contained in 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. Our
business, financial condition, operating results and prospects may
have changed since that date. 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.
Cannabis Global, Inc., the Cannabis Global logo, Hemp You Can
Feel™, Gummies You Can Feel™, Comply Bag™ and other trademarks or
service marks of Cannabis Global, Inc. appearing in this Prospectus
are the property of Cannabis Global, Inc. This Prospectus also
includes trademarks, tradenames and service marks that are the
property of other organizations. Solely for convenience, trademarks
and tradenames referred to in this Prospectus appear without the ®
and ™ symbols, but those references are not intended to indicate,
that we will not assert, to the fullest extent under applicable
law, our rights, or that the applicable owner will not assert its
rights, to these trademarks and tradenames.
GENERAL MATTERS
Unless otherwise noted or the context indicates otherwise “we,”
“us,” “our,” “Company” or “CBGL” refers to Cannabis Global, Inc., a
Nevada corporation. 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, we filed
Articles of Incorporation and Articles of Domestication with the
Nevada Secretary of State incorporating the Company in Nevada under
the name Cannabis Global, Inc. and accepting the re-domicile of our
former Delaware corporation. There is no change to our fiscal year
end. On August 1, 2020, FINRA approved our name change to Cannabis
Global, Inc. with a corresponding new trading symbol: “CBGL.”
References to “Management” in this Prospectus mean the senior
officers of the Company. See “Directors and Executive Officers.”
Any statements in this Prospectus made by or on behalf of
Management are made in such persons’ capacities as officers of the
Company and not in their individual capacities.
Prospective purchasers should rely only on the information
contained in this Prospectus. We have not authorized any other
person to provide prospective purchasers with additional or
different information. If anyone provides prospective purchasers
with additional or different or inconsistent information, including
information or statements in media articles about us, prospective
purchasers should not rely on it. Prospective purchasers should
assume that the information appearing in this Prospectus is
accurate only as the date of filing, regardless of its time of
delivery or of any distribution of the Offered Shares. Our
business, financial conditions, results of operations and prospects
may have changed since that date.
Our Consolidated Financial Statements included with this Prospectus
are presented in United States dollars.
CAUTIONARY NOTE TO INVESTORS
Our business is focused on the research and development of
cannabis, hemp and associated products, and on the legal sales of
cannabis permitted under California law. Cannabis is a Schedule 1
illegal drug under the Controlled Substances Act, 21 U.S.C. § 811
(hereafter referred to as the “CSA”). As is discussed below, Hemp
containing less than 0.3 percent THC is not a Schedule 1 drug under
the CSA.
As of the date of this filing, thirty-five states, the District of
Columbia and four U.S. Territories currently have laws broadly
legalizing cannabis in some form for either medicinal or
recreational use governed by state specific laws and regulations.
Although legalized in some states, cannabis and hemp containing
more than 0.3 percent THC are “Schedule 1” drugs under the CSA and
are illegal under federal law. Active enforcement of the current
CSA regarding cannabis and hemp containing more than 0.3 percent
THC may directly and adversely affect our revenues and profits. The
risk of strict enforcement of the CSA in light of Congressional
activity, judicial holdings, and stated federal policy remains
uncertain; See “Risk Factors” and “Government Regulation of
Cannabis.”
On August 29, 2013, The Department of Justice set out its
prosecutorial priorities in light of various states legalizing
cannabis for medicinal and/or recreational use. The “Cole
Memorandum” provided that when states have implemented strong and
effective regulatory and enforcement systems to control the
cultivation, distribution, sale, and possession of cannabis,
conduct in compliance with those laws and regulations is less
likely to threaten the federal priorities. Indeed, a robust system
may affirmatively address those priorities by, for example,
implementing effective measures to prevent diversion of cannabis
outside of the regulated system and to other states, prohibiting
access to cannabis by minors, and replacing an illicit cannabis
trade that funds criminal enterprises with a tightly regulated
market in which revenues are tracked and accounted for. In those
circumstances, consistent with the traditional allocation of
federal-state efforts in this area, the Cole Memorandum provided
that enforcement of state law by state and local law enforcement
and regulatory bodies should remain the primary means of addressing
cannabis-related activity. If state enforcement efforts are not
sufficiently robust to protect against the harms set forth above,
the federal government may seek to challenge the regulatory
structure itself in addition to continuing to bring individual
enforcement actions, including criminal prosecutions, focused on
those harms.
On January 4, 2018, Attorney General Jeff Sessions issued a
memorandum for all United States Attorneys concerning cannabis
enforcement under the CSA. Mr. Sessions rescinded all previous
prosecutorial guidance issued by the Department of Justice
regarding cannabis, including the August 29, 2013 “Cole
Memorandum”.
In rescinding the Cole Memorandum, Mr. Sessions stated that U.S.
Attorneys must decide whether or not to pursue prosecution of
cannabis activity based upon factors including: the seriousness of
the crime, the deterrent effect of criminal prosecution, and the
cumulative impact of particular crimes on the community. Mr.
Sessions reiterated that the cultivation, distribution and
possession of marijuana continues to be a crime under the U.S.
Controlled Substances Act.
On March 23, 2018, President Donald J. Trump signed into law a $1.3
trillion-dollar spending bill that included an amendment known as
“Rohrabacher-Blumenauer,” which prohibits the Justice Department
from using federal funds to prevent certain states “from
implementing their own State laws that authorize the use,
distribution, possession or cultivation of medical cannabis.”
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,
was classified as a Schedule 1 controlled substance, and so illegal
under the federal CSA.
With the passage of the Farm Bill, hemp cultivation containing less
than 0.3 percent THC is now 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 the
CSA and would not be legally protected under this new legislation
and would be treated as an illegal Schedule 1 drug.
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 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 percent 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 a still a lot to learn
about hemp and its products from commercial and market
perspectives.
As a result of the November 2020 federal elections, and the
election of Joseph R. Biden as President, it is expected that the
federal government will move to amend parts of the CSA and
de-schedule cannabis as a Schedule 1 drug.
In late January 2021, Senate Majority Leader Chuck Schumer said
lawmakers are in the process of merging various cannabis bills,
including his own legalization legislation. He is working to enact
reform in this Congressional session. This would include the
Marijuana Freedom and Opportunity Act, that would federally
de-schedule cannabis, reinvest tax revenue into communities most
affected by the drug war, and fund efforts to expunge prior
cannabis records. It is likely that the Marijuana Opportunity,
Reinvestment, and Expungement (MORE) Act would be incorporated.
Other federal legislation under review for possible submission
includes the SAFE Banking Act (or Secure and Fair Enforcement Act),
a bill that would allow cannabis companies to access the federally
insured banking system and capital markets without the risk of
federal enforcement action, and the Strengthening the Tenth
Amendment Through Entrusting States Act (or STATES Act), a bill
that seeks protections for businesses and individuals in states
that have legalized and comply with state laws).
Active enforcement of the current CSA on cannabis and hemp
containing more than 0.3 percent THC may directly and adversely
affect our revenues and profits. The risk of strict enforcement of
the CSA considering Congressional activity, judicial holdings, and
stated federal policy remains uncertain; See sections entitled
“Risk Factors” and “Government Regulation of Cannabis.”
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
Current Operations
Cannabis Global operates multiple cannabis businesses in California
and hemp-related business in the United States. The Company also
has an active research and development program in the areas of
cannabis and hemp.
The Company operates and manages Natural Plant Extract of
California, Inc. (NPE) which operates a licensed cannabis
manufacturing and distribution business in Lynwood, California,
holding a Type 7 California Manufacturing and a distribution
license, allowing for cannabis product distribution anywhere in the
state. We plan to use the Lynwood NPE operation, combined with our
internally developed technologies, as a testbed to launch
multi-state operations as soon as possible after the expected
removal of cannabis as a Scheduled substance from the federal CSA
is completed, and interstate commerce in cannabis is approved by
the federal government. The Company recently commenced operations
at the NPE facility effective immediately with emphasis on product
manufacturing and distribution. The Company began taking customer
orders for its product manufactured by NPE on April 21, 2021. These
products included several types of cannabis products.
The Company also operates Northern Lights Distribution, Inc. (NLD)
out of its Lynwood facility. During April of 2021, the Company
signed a distribution agreement relating to the distribution of
cannabis and products containing cannabis with a local licensed,
permitted, and compliant, cannabis delivery services. The Company
is seeking to further expand its business opportunities for both
NPE and NLD for its Lynwood location.
We are 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. Our shares of Common Stock
are quoted on the OTC Markets Pink Tier, operated by OTC Markets
Group, Inc., under the ticker symbol “CBGL.”
Historical Operations
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. 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.”
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. 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 or an
aggregate of $325,000. These series of transactions constituted a
change in control.
On August 9, 2019, we 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 (see “Related Party
Transactions”).
Subsequent to the closing of the fiscal year ending August 31,
2019, we affected a reverse split of our common shares effective as
of September 30, 2019, at the rate of 1:15.
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. Currently 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. As a
result of our FINRA corporate action, our name was changed to
Cannabis Global, Inc. and our trading symbol changed to “CBGL.”
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. Currently HYCF has no operations.
On May 6, 2020, we 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, our director, is a shareholder in Whisper Weed (see
“Related Party Transactions”). Whisper Weed conducts licensed
delivery 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 will be
designated and issued to Whisper Weed in an amount equal to two
times the quarterly payment made to the Company. The preferred
shares will 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 27, 2021, the Company has not issued the common
or preferred shares, and the business is in the development
stage.
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, we 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 June 11, 2021, the Company and Hymers
amended the stock purchase agreement to exchange the Registrant’s
obligations to make monthly payments, for our issuance of a
Convertible Note for the same amount, with principal and interest
due on June 11, 2022. The Convertible Note also provides Hymers
with the right to convert outstanding principal and interest into
our common stock at a fixed price of $0.04 per share, unless, at
the time the amounts due under this Note are eligible for
conversion, the Securities and Exchange Commission has not enacted
any amendment to the provisions of Rule 144(d)(iii) or other
provision in a manner that would adversely affect the tacking of
variable rate securities. In such event the Conversion Price shall
equal 60% of the lowest trading price of the Company’s Common Stock
for the 10 trading days immediately preceding the delivery of a
Notice of Conversion to the Company. The Company also agreed, in
the event that it determined to prepare and file a registration
statement concerning its common stock, to include all the shares
issuable upon conversion of this Note.
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 June 9, 2021, the parties amended
their securities exchange agreement to delete the lock up leak out
agreement, and the requirement to conduct quarterly reviews of each
party’s respective stock price for purposes of evaluating whether
additional share issuances are required to maintain the value of
exchanged common shares equal to $650,000. As consideration for the
amendment, we issued MCOA 618,000 shares of restricted common
stock. We issued the common stock pursuant to the exemption
from the registration requirements of the Securities Act of 1933,
as amended, available to the Company by Section 4(a)(2) promulgated
thereunder due to the fact that it was an isolated issuance and did
not involve a public offering of securities.
On November 16, 2020, we entered into a business acquisition
agreement with Ethos Technology LLC, dba Comply Bag, a California
limited liability company (“Ethos”). Ethos is a development stage
business in the process of entering the market for cannabis
trackable storage bags. By virtue of the agreement, Ethos sold,
assigned, and transferred to the Company all of Ethos’ business,
including all of its assets and associated liabilities, in exchange
for the Company’s issuance of an aggregate of 6,000,000 common
shares. 3,000,000 shares were due at signing, with 1,500,000 shares
being issued to Edward Manolos, and 1,500,000 shares being issued
to Thang Nguyen. Mr. Manolos is our director and a related party.
Mr. Nguyen is the brother of Dan Van Nguyen, our director and a
related party. After Ethos ships orders for Ethos products equaling
$1,000,000 to unaffiliated parties, the Company will issue to
Messrs. Manolos and Nguyen an additional 1,500,000 shares of common
stock each. At the closing we sold an aggregate 3,000,000 shares of
Company common stock, par value $0.001, equal in value to $177,000
based on the closing price on November 16, 2020. Of the total sold,
1,500,000 shares of common stock were sold to Edward Manolos and
1,500,000 shares of common stock were sold to Thang Nguyen.
We issued the above shares of its common stock pursuant to the
exemption from the registration requirements of the Securities Act
of 1933, as amended, available to the Company by Section 4(a)(2)
promulgated thereunder since it was an isolated issuance and did
not involve a public offering of securities.
On January 27, 2021, we closed a material definitive agreement
(MDA) with Edward Manolos, our director and related party. Pursuant
to the MDA, the Company purchased from Mr. Manolos 266,667 shares
of common stock in 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
privately held corporation. Under the terms of the MDA, we acquired
all beneficial ownership over the NPE shares in exchange for a
purchase price of two million forty thousand dollars ($2,040,000).
In lieu of a cash payment, we agreed to issue Mr. Manolos
11,383,929 restricted common shares, valued for purposes of the MDA
at $0.1792 per share. In connection with the MDA, we became a party
to a Shareholders Agreement 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.
Mr. Manolos is our director as well as a directly of Marijuana
Company of America and is therefore a related party.
On February 16, 2021, we purchased 266,667 shares of common stock
of Natural Plant Extract of California Inc., a California
corporation (“NPE”), from Alan Tsai, in exchange for the issuance
of 1,436,368 common shares. Other than with respect to the
transaction, there was no material relationship between Mr. Tsai
and the Registrant. By virtue of the transaction, the Registrant
acquired 18.8% of the outstanding capital stock of NPE, bringing
its total beneficial ownership in NPE to 56.5%. NPE operates a
licensed psychoactive cannabis manufacturing and distribution
business operation in Lynwood, California. By virtue of its 56.5%
ownership over NPE, the Company will control production,
manufacturing and distribution of both NPE and Company products. In
connection with the MDA, the Registrant became a party to a
Shareholders Agreement by and among Edward Manolos, a director of
the Company, Robert L. Hymers III, Betterworld Ventures, LLC,
Marijuana Company of America, Inc. and NPE. The Shareholders
Agreement contains customary rights and obligations concerning
operations, management, including restrictions on the transfer of
the Shares.
On May 12, 2021, The Company and Marijuana Company of America
(MCOA) agreed to operate a joint venture through a new Nevada
corporation named MCOA Lynwood Services, Inc. The parties agreed to
finance a regulated and licensed laboratory to produce various
cannabis products under the legal framework outlined by the City of
Lynwood, California, Los Angeles County and the State of
California. We own a controlling interest in Natural Plant Extract
of California, Inc., which operates a licensed cannabis
manufacturing operation in Lynwood, California. As its contribution
the joint venture, MCOA agreed to purchase and install equipment
for joint venture operations, which will then be rented to the
joint venture, and also provide funding relating to marketing the
products produced by the capital equipment. We agreed to provide
use of our manufacturing and distribution licenses; access to the
Lynwood, California facility; use of the specific areas within the
Lynwood Facility suitable for the types of manufacturing selected
by the joint venture; and, management expertise require to carry on
the joint venture’s operations. Our ownership of the joint venture
was agreed to be 60% to us and 40% with MCOA. Royalties from
profits realized as the result of sales of products from the joint
venture were also agreed to be distributed as 60% to us and 40% to
MCOA. MCOA contributed $135,000 of cash to the joint venture for
its operations.
For more information about current business operations, please see
the section of this Prospectus entitled “Description of Business”
beginning on page 34.
SUMMARY FINANCIAL INFORMATION
The following tables summarize our financial data for the periods
presented and should be read together with the sections of this
Prospectus entitled “Risk Factors,” “Selected Financial Data” and
“Management’s Discussion and Analysis of Financial Condition and
Results of Operations,” as well as our financial statements and
related notes appearing elsewhere in this Prospectus. We derived
the summary financial information for the period ended August 31,
2020, from our audited financial statements and related notes
appearing elsewhere in this Prospectus. The audited historical
results are not necessarily indicative of the results we expect in
the future.
The Company sustained continued operating losses during the fiscal
years ended August 31, 2020, and 2019. 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 Company’s consolidated financial statements have been prepared
assuming that the Company will continue as a going concern;
however, the above condition raises 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.
CONSOLIDATED
BALANCE SHEETS |
|
May
31,
2021 |
|
Aug.
31,
2020 |
|
Aug.
31,
2019 |
Cash |
|
$ |
268,007 |
|
|
$ |
2,338 |
|
|
$ |
152,082 |
|
Total
Current Assets |
|
|
909,888 |
|
|
|
77,676 |
|
|
|
154,381 |
|
TOTAL
ASSETS |
|
|
12,247,405 |
|
|
|
2,325,185 |
|
|
|
214,829 |
|
Total
Liabilities |
|
|
8,671,622 |
|
|
|
3,760,471 |
|
|
|
153,414 |
|
Working
Capital (Deficit) |
|
|
(6,430,490 |
) |
|
|
(3,682,795 |
) |
|
|
967 |
|
Stockholder’s
Deficit |
|
|
|
|
|
|
|
|
|
|
|
|
Total
Stockholder’s Deficit |
|
|
(365,828 |
) |
|
|
(1,435,286 |
) |
|
|
61,415 |
|
Accumulated
Deficit |
|
|
(11,329,224 |
) |
|
|
(6,056,949 |
) |
|
|
(1,127,601 |
) |
CONSOLIDATED
STATEMENTS OF OPERATIONS |
|
9
Months Ended |
|
|
May,
31,
2021 |
|
May
31,
2020 |
Revenues |
|
$ |
970,717 |
|
|
$ |
24,753 |
|
Total
Operating Expenses |
|
|
1,585,866 |
|
|
|
2,023,358 |
|
Operating
Loss |
|
|
(1,352,691 |
) |
|
|
(2,013,293 |
) |
Total
Other Income (Expense) |
|
|
(3,827,266) |
|
|
|
(1,882,909 |
) |
Net
Income (Loss) |
|
$ |
(5,179,957 |
) |
|
$ |
(3,896,202 |
) |
Basic
& Diluted Loss per Common Share |
|
$ |
(0.11) |
|
|
$ |
(0.31 |
) |
Weighted
Average Common Shares |
|
|
49,661,819 |
|
|
|
12,549,491 |
|
CONSOLIDATED
STATEMENTS OF OPERATIONS |
|
12
Months Ended |
|
|
Aug
31,
2020 |
|
Aug
31,
2019 |
Revenues |
|
$ |
27,004 |
|
|
$ |
- |
|
Total
Operating Expenses |
|
|
3,626,375 |
|
|
|
549,918 |
|
Operating
Loss |
|
|
(3,623,892 |
) |
|
|
(549,918 |
) |
Total
Other Income (Expense) |
|
|
(1,305,456 |
) |
|
|
160,321 |
|
Net
Income (Loss) |
|
$ |
(4,929,348 |
) |
|
$ |
(389,597 |
) |
Basic
& Diluted Loss per Common Share |
|
$ |
(0.29 |
) |
|
$ |
(0.03 |
) |
Weighted
Average Common Shares |
|
|
17,101,743 |
|
|
|
12,261,293 |
|
SUMMARY OF THIS OFFERING
Securities
being offered by the Selling Security Holder |
|
Up to
15,000,000 shares of Common Stock. Our Common Stock is described in
further detail in the section of this Prospectus titled
“Description of Securities – Common Stock.” |
|
|
|
Common
Stock Outstanding Before the Offering |
|
84,940,028 Shares
|
|
|
|
Common
Stock Outstanding After the Offering |
|
99,940,028 Shares, assuming the sale of all of the Shares being
registered in this Registration Statement.
|
|
|
|
Offering Price per Share
|
|
The Selling Security Holder may sell all or a portion of the Shares
being offered pursuant to this Prospectus at fixed prices, at
prevailing market prices at the time of sale, at varying prices or
at negotiated
prices.
|
|
|
|
Use
of Proceeds |
|
We will not receive any proceeds from the resale or other
disposition of the Shares covered by this Prospectus by the Selling
Security Holder.
We will receive proceeds from the sale of Shares to the Selling
Security Holder and it has committed to purchase up to $5,000,000
of shares of our Common Stock over a period of time terminating on
the earlier of the date on which Dutchess shall have purchased
Shares under the Purchase Agreement for an aggregate purchase Price
of $5,000,000 or for a period of 36 months, beginning on the
effective date of this Registration Statement.
The
price at which the Company will sell the Common Shares To Dutchess
shall be ninety three percent (93%) of the lowest Traded price of
the Common Stock the five (5) Business Days prior to the Closing
Date of the sales of the Common Shares as reported by Bloomberg
Finance L.P. The Closing Date shall be the date that is five (5)
business days after the Clearing Date. The Clearing Date is defined
as the first entire Business Day that Dutchess holds the purchased
Common Shares in its brokerage account and is eligible to sell the
Purchased Common Shares. For further information, see “The
Offering” beginning on page 26.
|
|
|
|
OTC
Markets Symbol
|
|
CBGL:
OTC Markets PINK |
Plan
of Distribution |
|
Dutchess may, from time to time, sell any or all of the Shares on
any stock exchange, market or trading facility on which the shares
are traded or in private transactions. These sales may be at fixed
or negotiated prices.
For further information, see “Plan of Distribution”
beginning on page 30.
|
|
|
|
|
|
Risk
Factors |
|
You
should read the “Risk Factors” section of this Prospectus and the
other information in this Prospectus for a discussion of factors to
consider carefully before deciding to invest in shares of our
Common Stock. |
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 following risk factors are not a complete list or explanation
of the risks involved with an investment in our 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 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:
• |
|
Our ability to raise sufficient
capital to take advantage of opportunities and generate sufficient
revenues to cover expenses. |
• |
|
Our ability to source strong
opportunities with sufficient risk adjusted returns. |
• |
|
Our ability to manage our capital
and liquidity requirements based on changing market
conditions. |
• |
|
The amount and timing of operating
and other costs and expenses. |
• |
|
The nature and extent of
competition from other companies that may reduce market share and
create pressure on pricing and investment return expectations. |
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 May 31, 2021, we had $358,813 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 $3,335,129 in cash from either investors or
operations to fully execute our business plan and to repay
debts. While we intend to engage in future financings, there
is no assurance that these will 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 $11,329,224 as of May 31, 2021.
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.
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 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 Chief Financial
Officer, and do not believe our Chief Executive Officer or Chief
Financial Officer is planning to leave or retire in the near term,
we cannot assure you that he 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
own any federally registered patents or trademarks. 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 may not able to deduct some of our business
expenses.
Section 280E of the Internal Revenue Code prohibits marijuana
businesses from deducting their ordinary and necessary business
expenses, forcing us to pay higher effective federal tax rates than
similar companies in other industries. The effective tax rate on a
marijuana business depends on how large its ratio of nondeductible
expenses is to its total revenues. Therefore, our marijuana
business may be less profitable than it could otherwise be.
Laws and regulations affecting the medical and adult use
marijuana industry are constantly changing, which could
detrimentally affect our operation.
Local, state, and federal medical and adult use marijuana 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 certain aspects of our business
plan. In addition, violations of these laws, or allegations of such
violations, could disrupt certain aspects of our business plan and
result in a material adverse effect on certain aspects of our
planned operations. In addition, it is possible that regulations
may be enacted in the future that will be directly applicable to
certain aspects of our businesses. 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.
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.
If we incur substantial liability from litigation,
complaints, or enforcement actions, our financial condition could
suffer.
Our participation in the medical and adult use marijuana industry
may lead to litigation, formal or informal complaints, enforcement
actions, and inquiries by various federal, state, or local
governmental authorities against us. Litigation, complaints, and
enforcement actions could consume considerable amounts of financial
and other corporate resources, which could have a negative impact
on our sales, revenue, profitability, and growth prospects.
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 CSA and 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.
High tax rates on cannabis and compliance costs in California
may limit our customer base.
The State of California imposes a 15.0% excise tax on products sold
at licensed cannabis dispensaries. Local jurisdictions typically
impose additional taxes on cannabis products. In addition, we incur
significant costs complying with state and local laws and
regulations. As a result, our products may likely cost more than
similar products sold by other licensed vendors and we may lose
market share to those vendors.
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 state and federal laws regarding
cannabis, our investments and 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:
|
• |
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.” |
|
• |
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.” |
|
• |
It
also removes the import and export controls described in 21 CFR
1312.30(b) over those same substances. |
|
• |
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.” |
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 later
become subject to increased government regulation. Such additional
regulations and could have an adverse effect on our business
operations.
We may not obtain the necessary permits and authorizations to
operate the medical and adult use marijuana business.
We may not be able to obtain or maintain the necessary licenses,
permits, authorizations, or accreditations for our cultivation,
production, and dispensary businesses, or may only be able to do so
at great cost. In addition, we may not be able to comply fully with
the wide variety of laws and regulations applicable to the medical
and adult use marijuana industry. Failure to comply with or to
obtain the necessary licenses, permits, authorizations, or
accreditations could result in restrictions on our ability to
operate the medical and adult use marijuana business, which could
have a material adverse effect on our business.
We operate a cannabis extraction facility, which is subject
to strict local, state and other regulations and codes.
We operate a licensed cannabis manufacturing and distribution
business in Lynwood, California, holding a Type 7 California
Manufacturing and a distribution license, allowing for cannabis
product distribution anywhere in the state. The existing Type 7
license allows us to produce cannabis products using volatile
solvents. While we plan to operate a business unit that will
process cannabis using volatile solvents, the business operation
will be subject to regulatory approval. Delays in gaining
compliance and/or approval could negatively affect our business
operations and our ability to produce revenue and profits.
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.
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 able 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 can 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 500,000,000 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. On February 28,
2021 the Company filed a Certificate of Designation of Preferences,
Rights of Series B Preferred Stock. The Series B Convertible
Preferred stock has 1,000,000 shares authorized, has a par value of
$0.001 per share and a stated value of $1.00. Each share of Series
B Preferred Stock will carry an annual dividend in the amount of
eight percent (8%) of the Stated Value, which shall be cumulative,
payable solely upon redemption, liquidation or conversion. Upon the
occurrence of an Event of Default, the Dividend Rate shall
automatically increase to twenty two percent (22%). Based on the
terms of the Series B Preferred Stock Purchase Agreement, and in
accordance with ASC 480-10, the instruments are accounted for as a
liability. During the nine months ended May 31, 2021, the Company
entered into four Series B Preferred Stock Purchase Agreements for
an aggregate amount of $329,500, with an accredited investor. As of
May 31, 2021, the carrying value of the liability was $60,660, net
of discount of $268,840, and accrued interest was $4,852.
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. Progress of the action was significantly delayed due to
the Covid-19 pandemic. Further, the Company’s retained counsel
abandoned the case and his representation of the Company without
notice or communication to the Company. As a result, the court
dismissed the action without prejudice. The Company intends on
re-filing the action.
RISKS RELATED TO THE OFFERING
Our existing shareholders may experience significant dilution
from the sale of our shares of Common Stock pursuant to the
Purchase Agreement with Dutchess.
The sale of our shares of Common Stock to Dutchess in accordance
with the Purchase Agreement may have a dilutive impact on our
shareholders. As a result, the market price of our shares of Common
Stock could decline. In addition, the lower our stock price is at
the time we issue a drawdown notice under the terms of the Purchase
Agreement, the more shares of our Common Stock we will have to
issue to Dutchess. If our stock price decreases, then our existing
shareholders would experience greater dilution for any given dollar
amount raised through the offering.
The perceived risk of dilution may cause our shareholders to sell
their shares, which may cause a decline in the price of our shares
of Common Stock. Moreover, the perceived risk of dilution and the
resulting downward pressure on our stock price could encourage
investors to engage in short sales of our shares of Common Stock.
By increasing the number of shares offered for sale, material
amounts of short selling could further contribute to progressive
price declines in our shares of Common Stock.
The issuance of Shares pursuant to the Purchase Agreement
with Dutchess may have a significant dilutive effect.
Depending on the number of shares we issue pursuant to the Purchase
Agreement, it could have a significant dilutive effect upon our
existing shareholders. Although the number of shares that we may
issue pursuant to the Purchase Agreement will vary based on our
stock price (the higher our stock price, the less shares we have to
issue) the information set out below indicates the potential
dilutive effect to our shareholders, based on different potential
future stock prices, if the full amount of the Purchase Agreement
is realized.
Dilution is based upon shares of Common Stock sold to Dutchess and
the stock price discounted to Dutchess’s purchase price of 93% of
the lowest traded price of the Common Stock the five (5) Business
Day prior to the Closing Date of the sale.
Dutchess will pay less than the then-prevailing market price
for our Common Stock
Dutchess will pay less than the then-prevailing market price of our
shares of Common Stock, which could cause the price of our shares
of Common Stock to decline. The price at which the Company will
sell the Common Shares to Dutchess shall be ninety three percent
(93%) of the lowest traded price of the Common Stock the five (5)
Business Days prior to the Closing Date of the sales of the Common
Shares as reported by Bloomberg Finance L.P. The Closing Date shall
the date that is five (5) business days after the Clearing Date.
The Clearing Date is defined as the first entire Business Day that
Dutchess holds the purchased Common Shares in its brokerage account
and is eligible to sell the Purchased Common Shares. Dutchess has a
financial incentive to sell our shares immediately upon receiving
the shares to realize the profit between the discounted price and
the market price. If Dutchess sells our shares, the price of our
shares of Common Stock may decrease. If our stock price decreases,
Dutchess may have a further incentive to sell such shares.
Accordingly, the discounted sales price in the Purchase Agreement
may cause the price of our shares of Common Stock to decline.
We are registering an aggregate of 15,000,000 Shares to be
issued under the Purchase Agreement with Dutchess. The sale of such
shares could depress the market price of our shares of Common
Stock.
We are registering an aggregate of 15,000,000 Shares under the
Registration Statement of which this Prospectus forms a part for
issuance pursuant to the Purchase Agreement. The sale of these
Shares into the public market by Dutchess could depress the market
price of our shares of Common Stock.
Unless an active trading market develops for our securities,
investors may not be able to sell their shares.
We are a reporting company and our shares of Common Stock are
quoted on the OTC Markets Pink under the symbol “CBGL:PINK”.
However, there is not currently an active trading market for our
shares of Common Stock and an active trading market may never
develop or, if it does develop, may not be maintained. Failure to
develop or maintain an active trading market will have a generally
negative effect on the price of our shares of Common Stock, and you
may be unable to sell your shares of Common Stock or any attempted
sale of such shares of Common Stock may have the effect of lowering
the market price and therefore your investment could be a partial
or complete loss.
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.
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
This Prospectus may contain certain “forward-looking” statements as
such term is defined by the SEC in its rules, regulations and
releases, which represent the registrant’s expectations or beliefs,
including but not limited to, statements concerning the
registrant’s operations, economic performance, financial condition,
growth and acquisition strategies, investments, and future
operational plans. For this purpose, any statements contained
herein that are not statements of historical fact may be deemed to
be forward-looking statements. Without limiting the generality of
the foregoing, words such as “may,” “will,” “expect,” “believe,”
“anticipate,” “intent,” “could,” “estimate,” “might,” “plan,”
“predict” or “continue” or the negative or other variations thereof
or comparable terminology are intended to identify forward-looking
statements. These statements by their nature involve substantial
risks and uncertainties, certain of which are beyond the
registrant’s control, and actual results may differ materially
depending on a variety of important factors, including uncertainty
related to acquisitions, governmental regulation, managing and
maintaining growth, the operations of the Company and its
subsidiary, volatility of stock price, federal enforcement and
state enforcement, and any other factors discussed in this and
other registrant filings with the Securities and Exchange
Commission.
The risks and uncertainties and other factors include but are not
limited to those set forth under “Risk
Factors” of this Prospectus. Given these risks
and uncertainties, readers are cautioned not to place undue
reliance on our forward-looking statements. All subsequent written
and oral forward-looking statements attributable to us or to
persons acting on our behalf are expressly qualified in their
entirety by these cautionary statements. Except as otherwise
required by applicable law, we undertake no obligation to publicly
update or revise any forward-looking statements or the risk factors
described in this Prospectus or in the documents we incorporate by
reference, whether as a result of new information, future events,
changed circumstances or any other reason after the date of this
Prospectus.
Actual events or results may differ materially from those discussed
in forward-looking statements as a result of various factors,
including, without limitation, the risks outlined under “Risk
Factors” and matters described in Prospectus generally. In light of
these risks and uncertainties, there can be no assurance that the
forward-looking statements contained in this Prospectus will in
fact occur. We caution you not to place undue reliance on these
forward-looking statements. In addition to the information
expressly required to be included in this Prospectus, we will
provide such further material information, if any, as may be
necessary to make the required statements, in light of the
circumstances under which they are made, not misleading.
Except as required by federal securities laws, we do not intend to
update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
USE OF PROCEEDS
The Selling Security Holder is selling all of the shares of our
Common Stock covered by this Prospectus for its own account.
Accordingly, we will not receive any proceeds from the resale of
our Common Stock. However, we will receive proceeds from any sale
of the shares of Common Stock to Dutchess under the Purchase
Agreement.
We intend to use the net proceeds received for working capital or
general corporate needs. We assume a price of $0.27 (93% of the
average closing trading price of $0.04 for the last 24 months) per
share to complete the offering.
|
|
If
25% of the Offering is Raised |
|
If
50% of the Offering is Raised |
|
If
75% of the Offering is Raised |
|
If
100% of the Offering is Raised |
Aggregated
Amount (Raised Amount) |
|
$ |
2,990,193 |
|
|
$ |
5,980,387 |
|
|
$ |
8,970,580 |
|
|
$ |
11,960,774 |
|
Inventory
(COGS) |
|
$ |
700,000 |
|
|
$ |
1,500,000 |
|
|
$ |
2,000,000 |
|
|
$ |
3,000,000 |
|
Acquisitions |
|
$ |
1,500,000 |
|
|
$ |
3,500,000 |
|
|
$ |
5,000,000 |
|
|
$ |
7,000,000 |
|
Operation
Expansion |
|
$ |
790,193 |
|
|
$ |
980,387 |
|
|
$ |
1,970,580 |
|
|
$ |
1,960,774 |
|
Total
Use of Proceeds |
|
$ |
2,990,193 |
|
|
$ |
5,980,387 |
|
|
$ |
8,970,580 |
|
|
$ |
11,960,774 |
|
The Company anticipates the estimated $600,000 gross proceeds from
the Maximum Offering will enable it meets its business goals. If
the Maximum Offering is not completed, the Company will likely be
required to seek additional financing as the Company needs a
minimum of approximately $600,000 in gross proceeds to
implement its stated business plan and support its operations over
the next twelve months. There can be no assurance that additional
financing will be available when needed, and, if available, that it
will be on terms acceptable to the Company.
THE OFFERING
We will not receive any proceeds from the resale or other
disposition of the Shares covered by this Prospectus by the Selling
Security Holder. We will receive proceeds from the sale of Shares
to the Selling Security Holder and it has committed to purchase up
to $5,000,000 of shares of our Common Stock over a period of time
terminating on the earlier of the date on which Dutchess shall have
purchased Shares under the Purchase Agreement for an aggregate
purchase price of $5,000,000 or for a period of 36 months,
beginning on the effective date of this Registration Statement.
Dutchess may offer and resale of up to 15,000,000 shares of our
Common Stock, par value $0.001 per share, pursuant to this
Prospectus. All of such shares represent shares that
Dutchess has agreed to purchase from us pursuant to the terms
and conditions of an Purchase Agreement we entered into with them
on August 23, 2021 (the “Purchase Agreement”).
Subject to the terms and conditions of the Purchase Agreement, we
have the right to sell up to $5,000,000 worth of shares of our
Common Stock to Dutchess. Unless terminated earlier,
Dutchess’s purchase commitment will automatically terminate on the
earlier of the date on which Dutchess shall have purchased shares
pursuant to the Purchase Agreement for an aggregate purchase price
of $5,000,000 or thirty-six (36) months from the effective date of
the Registration Statement that this Prospectus is a part of. We
have no obligation to sell any shares under the Purchase
Agreement.
As provided in the Purchase Agreement, the Company shall have the
right, but not the obligation, to direct the Dutchess, by its
delivery to the Dutchess of a Drawdown Notice from time to time, to
purchase Drawdown Notice Shares provided that the amount of
Purchase Notice Shares shall not exceed the lesser of; (i) $250,000
or (ii) 200% of the Average Daily Traded Value of the Stock during
the five (5) days immediately preceding the Drawdown Notice date or
(iii) the Beneficial Ownership Limitation set at 4.99% and as
futhrer outlined in the Purchase Agreement. Notwithstanding the
foregoing, the Company may not deliver a subsequent Drawdown Notice
until the Closing of an active Drawdown Notice, except if waived by
the Investor in writing. Further, Dutchess will have no obligation
to purchase shares under the Purchase Agreement to the extent that
such purchase would cause Dutchess to own more than 4.99% of our
Common Stock.
A Drawdown Notice shall be deemed delivered on (i) the Business Day
it is received by email by the Investor if such notice is received
on or prior to 8:00 a.m. New York time or (ii) the immediately
succeeding Business Day if it is received by email after 8:00 a.m.
New York time on a Business Day or at any time on a day which is
not a Business Day. The Closing of a Drawdown Notice shall occur
after the market close five (5) Business Days after the Clearing
Date, whereby the Investor, shall deliver the Investment Amount
(minus the Clearing Costs), by wire transfer of immediately
available funds to an account designated by the Company.
The price at which the Company will sell the Common Shares to
Dutchess shall be ninety three percent (93%) of the lowest traded
price of the Common Stock the five (5) Business Days prior to the
Closing Date of the sales of the Common Shares as reported by
Bloomberg Finance L.P. The Closing Date shall the date that is five
(5) business days after the Clearing Date. The Clearing Date is
defined as the first entire Business Day that Dutchess holds the
purchased Common Shares in its brokerage account and is eligible to
sell the Purchased Common Shares.
The Purchase Agreement contains covenants, representations and
warranties of us and Dutchess that are typical for transactions of
this type. In addition, we and Dutchess have granted each other
customary indemnification rights in connection with the Purchase
Agreement.
In connection with the Purchase Agreement, we also entered into
Registration Rights Agreement with Dutchess requiring us to prepare
and file a Registration Statement registering the resale by
Dutchess of shares to be issued under the Purchase Agreement, to
use commercially reasonable efforts to cause such Registration
Statement to become effective, and to keep such Registration
Statement effective until (i) three months after the last closing
of a sale of shares under the Purchase Agreement, (ii) the date
when Dutchess may sell all the shares under Rule 144 without volume
limitations, or (iii) the date Dutchess no longer owns any of the
shares. In accordance with the Registration Rights Agreement, we
are obligated to file one or more registration statements with the
SEC to register the resale by Dutchess of shares of common stock
issued or issuable under the Purchase Agreement. The aggregate
number of shares registered prior to this registration statement is
zero. We have agreed that, in the event that this registration
fails to register all of the shares necessary to fulfill our
contractual obligations, we will amend this statement and file new
registration statements. This registration process will continue
until such time as all of the dollar amounts available under the
credit line, using shares of common stock issuable under the
Purchase Agreement, have been registered for resale on effective
registration statements.
The foregoing description of the terms of the Purchase Agreement
and Registration Rights Agreement does not purport to be complete
and is subject to and qualified in its entirety by reference to the
agreements and instruments themselves, copies of which are filed as
Exhibits to this filing. The benefits and representations and
warranties set forth in such agreements and instruments are not
intended to and do not constitute continuing representations and
warranties of the Company or any other party to persons not a party
thereto.
We intend to sell Dutchess periodically shares of Common Stock
under the Purchase Agreement and Dutchess may, in turn, sell such
shares to investors in the market at the market price or at
negotiated prices. This may cause our stock price to decline, which
will require us to issue increasing numbers of shares of Common
Stock to Dutchess to raise the intended amount of funds, as our
stock price declines.
Statement of which this Prospectus is a part will be subject to our
filing a subsequent Registration Statement with the SEC and the SEC
declaring it effective.
DIVIDEND POLICY
We have not declared or paid dividends on our common stock since
our formation, and we do not anticipate paying dividends in the
foreseeable future. Declaration or payment of dividends, if any, in
the future, will be at the discretion of our Board of Directors and
will depend on our then current financial condition, results of
operations, capital requirements and other factors deemed relevant
by the Board of Directors. There are no contractual restrictions on
our ability to declare or pay dividends. Consequently, you will
only realize an economic gain on your investment in our common
stock if the price appreciates. You should not purchase our common
stock expecting to receive cash dividends. Since we do not
anticipate paying dividends, and if we are not successful in
establishing an orderly public trading market for our shares, then
you may not have any manner to liquidate or receive any payment on
your investment. Therefore, our failure to pay dividends may cause
you to not see any return on your investment even if we are
successful in our business operations. In addition, because we may
not pay dividends in the foreseeable future, we may have trouble
raising additional funds which could affect our ability to expand
our business operations.
MARKET FOR OUR COMMON STOCK
Market Information
Our common stock is currently listed on the OTC Markets Pink
quotation system under the symbol CBGL. We are authorized to issue
up to 500,000,000 shares of Common Stock with a par value of $.001
per share, and have issued 78,733,317 common shares as of July 23,
2021. Of these common shares 38,670,590 are restricted as of the
filing.
The Company is authorized to issue up to 10,000,000 shares of
preferred stock. As of this filing date there is two classes of
preferred stock, designated Series A and Series B. There are
6,000,000 Series A shares outstanding. The Series A shares have no
conversion rights. Please see Section “Description of Securities”
on Page 26 for information on the designations for the class of
preferred stock.
On February 28, 2021, the Company designated 1,000,000 shares of
Series B Convertible Preferred Stock (“Series B Convertible
Preferred Stock”). The Series B Convertible Preferred Stock earns
dividends at 8% per year, and is convertible into shares of common
stock at a rate of 63% of the market price, based on the average of
the two lowest trading prices during the previous 15 days.
Additionally, the Series B Convertible Preferred Stock is
mandatorily redeemable 16 months from the issuance date in cash.
The Company entered into an agreement with an investor for 153,500
shares of Series B Convertible Preferred Stock on February 28, 2021
for a total purchase amount of $153,500, and an agreement with the
same investor for 78,500 shares of Series B Convertible Preferred
Stock for a purchase amount of $78,500. In March 2021, the Company
received proceeds of $225,000.
As of the end of the three-month reporting period ending May 31,
2021, there were 670,750 shares of Series B Convertible Preferred
Stock issued and outstanding.
Holders
We had 63 shareholders of record of our common stock as of
August 26, 2021.
Securities Authorized for Issuance under Equity Compensation
Plans
We do not have any compensation plan under which equity securities
are authorized for issuance.
Dividends
Please see “Dividend Policy” above.
DILUTION
From time to time during the term of the Purchase Agreement, and at
our sole discretion, we may present Dutchess with a Drawdown Notice
requiring Dutchess to purchase shares of our Common Stock. As a
result, our existing shareholders will experience immediate
dilution upon the purchase of any of the shares by Dutchess.
Dutchess may resell some, if not all, of the shares that we issue
to it under the Purchase Agreement and such sales could cause the
market price of our Common Stock to decline significantly. To the
extent of any such decline, any subsequent sales would require us
to issue and sell a greater number of shares to Dutchess Capital in
exchange for each dollar of the sale amount. Under these
circumstances, the existing shareholders of our company will
experience greater dilution. The effect of this dilution may, in
turn, cause the price of our shares of Common Stock to decrease
further, both because of the downward pressure on the stock price
that would be caused by a large number of sales of our shares into
the public market by Dutchess, and because our existing
shareholders may disagree with a decision to sell shares to
Dutchess at a time when our stock price is low, and may in response
decide to sell additional shares, further decreasing our stock
price. If we draw down amounts under the Purchase Agreement when
our share price is decreasing, we will need to issue more shares to
raise the same amount of funding.
SELLING SECURITY HOLDER
We agreed to register for resale 15,000,000 Shares that we will
sell to Dutchess pursuant to the Purchase Agreement. The Purchase
Agreement with Dutchess provides that Dutchess is committed to
purchase up to $5,000,00 of our shares of Common Stock. We may draw
on the facility from time to time, as and when we determine
appropriate in accordance with the terms and conditions of the
Purchase Agreement.
Dutchess is the purchaser of our shares of Common Stock under the
Purchase Agreement. The 15,000,000 Shares offered in this
Prospectus are based on the Purchase Agreement of August 23, 2021
between Dutchess and the Company. Dutchess may from time to time
offer and sell any or all of the Shares that are registered under
this Prospectus. The price at which the Company will sell the
Common Shares to Dutchess shall be ninety three percent (93%) of
the lowest traded price of the Common Stock the five (5) Business
Days prior to the Closing Date of the sales of the Common Shares as
reported by Bloomberg Finance L.P. The Closing Date shall the date
that is five (5) business days after the Clearing Date. The
Clearing Date is defined as the first entire Business Day that
Dutchess holds the purchased Common Shares in its brokerage account
and is eligible to sell the Purchased Common Shares. For further
information, see “The Offering” beginning on page 26.
We are unable to determine the exact number of Shares that will
actually be sold by Dutchess according to this Prospectus due
to:
|
• |
the
ability of Dutchess to determine when and whether it will sell any
of the Shares under this Prospectus; and |
|
• |
the
uncertainty as to the number of Shares that will be issued upon
exercise of drawdown rights options under the Purchase
Agreement. |
The following information contains a description of how Dutchess
acquired (or shall acquire) the shares to be sold in this offering.
Dutchess has not held a position or office, or had any other
material relationship with us, except as follows.
Dutchess is a limited partnership organized and existing under the
laws of the State of Delaware. Dutchess acquired, or will acquire,
all shares being registered in this offering in the financing
transaction with us. The transaction involves a private offering,
Dutchess is an “accredited investor” and/or qualified institutional
buyer and Dutchess has access to information about the Company and
its investment. The Company has taken reasonable steps to verify
that Dutchess and all members of Dutchess are accredited
investors.
In the event that we sell the entire 15,000,000 Put Shares to
Dutchess and fail to receive $5,000,000 in gross proceeds, we may
be required to register additional shares to obtain the remaining
balance of $5,000,000 under the Purchase Agreement. Dutchess has
agreed, subject to certain exceptions listed in the Purchase
Agreement, to refrain from holding a number of shares which would
result in Dutchess or its affiliates from owning more than 4.99% of
the then-outstanding shares of the Company’s Common Stock at any
one time.
There are substantial risks to investors as a result of the
issuance of shares of our Common Stock under the Purchase
Agreement. These risks include dilution of shareholders and
significant decline in our stock price. Please see section “Risk
Factors” for more information.
Dutchess will periodically purchase shares of our Common Stock
under the Purchase Agreement and will in turn, sell the Shares to
investors in the market at the prevailing market price. This may
cause our stock price to decline, which will require us to issue
increasing numbers of Shares to Dutchess to raise the same amount
of funds, as our stock price declines.
Dutchess and any participating broker-dealers are “underwriters”
within the meaning of the Securities Act. All expenses incurred
with respect to the registration of the shares of Common Stock will
be borne by us, but we will not be obligated to pay any
underwriting fees, discounts, commission or other expenses incurred
by the Selling Security Holder in connection with the sale of such
Shares.
Except as indicated below, neither the Selling Security Holder nor
any of its associates or affiliates has held any position, office,
or other material relationship with us in the past three years.
The following table sets forth the name of the Selling Security
Holder, the number of shares of Common Stock beneficially owned by
the Selling Security Holder as of the date hereof and the number of
shares of Common Stock being offered by the Selling Security
Holder. The Shares being offered hereby are being registered to
permit public secondary trading, and the Selling Security Holder
may offer all or part of the Shares for resale from time to time.
However, the Selling Security Holder is under no obligation to sell
all or any portion of such Shares nor is the Selling Security
Holder obligated to sell any Shares immediately upon effectiveness
of this Prospectus. All information with respect to share ownership
has been furnished by the Selling Security Holder. The column
entitled “Amount Beneficially Owned After the Offering” assumes the
sale of all Shares offered.
Name |
|
Shares
Beneficially Owned Prior to Offering (1) |
|
Shares
to be Offered |
|
Amount
Beneficially Owned After Offering |
|
Percent
Beneficially Owned After Offering (1)(2) |
|
Dutchess |
|
|
|
0 |
|
|
|
15,000,000 |
|
|
|
15,000,000 |
|
|
15.01%
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Beneficial
ownership is determined in accordance with Securities and Exchange
Commission rules and generally includes voting or investment power
with respect to shares of Common Stock. Shares of Common Stock
subject to options and warrants currently exercisable, or
exercisable within 60 days, are counted as outstanding for
computing the percentage of the person holding such options or
warrants but are not counted as outstanding for computing the
percentage of any other person. |
(2) |
|
The
amount and percentage of Shares of our Common Stock that will be
beneficially owned by the Selling Security Holder after completion
of the offering assume that they will sell all Shares being offered
pursuant to this Prospectus. Based on 84,940,028 shares of our
Common Stock issued and outstanding as of August 23, 2021. All
shares of our Common Stock being offered pursuant to this
Prospectus by the Selling Security Holder are counted as
outstanding for computing the percentage beneficial ownership of
such Selling Security Holder. |
PLAN OF DISTRIBUTION
This Prospectus relates to the resale of up to 15,000,000
Shares issued pursuant to the Purchase Agreement held by Dutchess
(the “Selling Security Holder”).
The Selling Security Holder 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 in private
transactions. The Selling Security Holder may use any one or more
of the following methods when selling Shares:
|
• |
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers; |
|
• |
block
trades in which the broker-dealer will sell the Shares as
agent; |
|
• |
purchases
by a broker-dealer as principal and resale by the broker-dealer for
its account; |
|
• |
privately
negotiated transactions; |
|
• |
broker-dealers
may agree with the Selling Stockholder to sell a specified number
of such Shares at a stipulated price per share; |
|
• |
through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or otherwise; |
|
• |
a
combination of any such methods of sale; or |
|
• |
any
other method permitted pursuant to applicable law. |
The Selling Security Holder may be deemed an underwriter. Pursuant
to the terms of the Purchase Agreement, the Selling Security Holder
may not engage in any short sales of the Company’s shares of Common
Stock or other hedging activities. The Selling Security Holder may
sell the Shares directly to market makers acting as principals
and/or broker-dealers acting as agents for itself or its customers.
Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Security
Holder and/or the purchasers of Shares for whom such broker-dealers
may act as agents or to whom they sell as principal or both, which
compensation as to a particular broker-dealer might be in excess of
customary commissions. Market makers and block purchasers
purchasing the Shares will do so for their own account and at their
own risk. It is possible that the Selling Security Holder will
attempt to sell shares of the Company’s Common Stock in block
transactions to market makers or other purchasers at a price per
share which may be below the then market price. The Selling
Security Holder cannot assure that all or any of the Shares offered
in this Prospectus will be issued to, or sold by, the Selling
Security Holder. In addition, any brokers, dealers or agents, upon
effecting the sale of any of the Shares offered in this Prospectus
are “underwriters” as that term is defined under the Securities Act
or the Exchange Act, or the rules and regulations under such acts.
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, attributable to the sale of Shares will be borne by the
Selling Security Holder. The Selling Security Holder may agree to
indemnify any agent, dealer or broker-dealer that participates in
transactions involving sales of the Shares if liabilities are
imposed on that person under the Securities Act.
The Selling Security Holder may from time to time pledge or grant a
security interest in some or all of the shares of our Common Stock
owned by it and, if it defaults in the performance of its secured
obligations, the pledgee or secured parties may offer and sell such
the shares of Common Stock from time to time under this Prospectus
after we have filed an amendment to this Prospectus under Rule
424(b)(3) or any other applicable provision of the Securities Act
amending the list of selling security holders to include the
pledgee or transferee as selling security holders under this
Prospectus.
The Selling Security Holder also may transfer the shares of Common
Stock in other circumstances, in which case the transferees or
pledgees will be the selling beneficial owners for purposes of this
Prospectus and may sell the shares of Common Stock from time to
time under this Prospectus after we have filed an amendment to this
Prospectus under Rule 424(b)(3) or other applicable provision of
the Securities Act amending the list of selling security holders to
include the pledgee or transferee as selling security holders under
this Prospectus.
We are required to pay all fees and expenses incident to the
registration of the shares of Common Stock. Otherwise, all
discounts, commissions or fees incurred in connection with the sale
of our shares of Common Stock offered hereby will be paid by the
Selling Security Holder.
The Selling Security Holder acquired the securities offered hereby
in the ordinary course of its business under the Purchase Agreement
and has advised us that it has not entered into any agreements,
understandings or arrangements with any underwriters or
broker-dealers regarding the sale of its shares of Common Stock,
nor is there an underwriter or coordinating broker acting in
connection with a proposed sale of shares of Common Stock by the
Selling Security Holder. We will file a supplement to this
Prospectus if the Selling Security Holder enters into a material
arrangement with a broker-dealer for sale of shares of Common Stock
being registered. If the Selling Security Holder uses this
Prospectus for any sale of the shares of Common Stock, it will be
subject to the Prospectus delivery requirements of the Securities
Act.
Pursuant to a requirement by the Financial Industry Regulatory
Authority, or FINRA, the maximum commission or discount to be
received by any FINRA member or independent broker/dealer may not
be greater than eight percent (8%) of the gross proceeds received
by us for the sale of any securities being registered pursuant to
SEC Rule 415 under the Securities Act.
The anti-manipulation rules of Regulation M under the Exchange Act
may apply to sales of our shares of Common Stock and activities of
the Selling Security Holder. The Selling Security Holder will act
independently of us in making decisions with respect to the timing,
manner and size of each sale.
We will pay all expenses incident to the registration, offering and
sale of the shares of our Common Stock to the public hereunder
other than commissions, fees and discounts of underwriters,
brokers, dealers and agents. If any of these other expenses exist,
we expect Dutchess to pay these expenses. We have agreed to
indemnify Dutchess and its controlling persons against certain
liabilities, including liabilities under the Securities Act. We
estimate that the expenses of the offering to be borne by us will
be approximately $50,000.00. We will not receive any proceeds from
the resale of any of the shares of our Common Stock by Dutchess. We
may, however, receive proceeds from the sale of our shares of
Common Stock under the Purchase Agreement. Neither the Purchase
Agreement nor any rights of the parties under the Purchase
Agreement may be assigned or delegated to any other person.
DESCRIPTION OF SECURITIES
General
The corporation is authorized to issue up to 500,000,000
shares of Common Stock with a par value of $.001 per share. On July
10, 2019, the Company implemented a reverse stock split of the
outstanding common shares in the ratio of 1:15.
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 there were 84,940,028 common
shares outstanding. This amount does not include the 15,000,000
shares being offered via this filing.
On June 17, 2021, the company increased its authorized common
shares from 290,000,000 to 500,000,000.
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.
Two Series of Preferred shares have been designated: Series A
Preferred and Series B Convertible Preferred Stock. The number of
Shares constituting Series A Preferred 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.
On February 28, 2021, the Company designated 1,000,000 shares of
Series B Convertible Preferred Stock. The Series B Convertible
Preferred Stock earns dividends at 8% per year, and is convertible
into shares of common stock at a rate of 63% of the market price,
based on the average of the two lowest trading prices during the
previous 15 days. Additionally, the Series B Convertible Preferred
Stock is mandatorily redeemable 16 months from the issuance date in
cash. The Company entered into an agreement with an investor for
153,500 shares of Series B Convertible Preferred Stock on February
28, 2021 for a total purchase amount of $153,500, and an agreement
with the same investor for 78,500 shares of Series B Convertible
Preferred Stock for a purchase amount of $78,500. In March 2021,
the Company received proceeds of $225,000.
As of the end of the three-month reporting period ending May 31,
2021, there were 670,750 shares of Series B Convertible Preferred
Stock issued and outstanding.
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
There are no outstanding warrants.
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
INTERESTS OF EXPERTS
The consolidated financial statements of the Company as of and for
the years ended August 31, 2020, and 2019 appearing in this
Prospectus and the Registration Statement of which it is a part,
have been audited Boyle CPA, LLC, an independent registered public
accounting firm, as set forth in their report dated October 27,
2020 (which contains an explanatory paragraph regarding the
Company’s ability to continue as a going concern) appearing
elsewhere herein.
INFORMATION WITH RESPECT TO THE REGISTRANT
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ TOGETHER WITH
THE CONSOLIDATED FINANCIAL STATEMENTS OF CANNABIS GLOBAL, INC. AND
THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THIS
REGISTRATION STATEMENT. THIS DISCUSSION SUMMARIZES THE SIGNIFICANT
FACTORS AFFECTING OUR OPERATING RESULTS, FINANCIAL CONDITIONS AND
LIQUIDITY AND CASH-FLOW SINCE INCEPTION.
DESCRIPTION OF BUSINESS
Current Business Operations
Cannabis Global manufactures and distributes various cannabis
products via its majority ownership of Natural Plant Extract, Inc.
and conducts research and development in the areas of hemp,
cannabis and consumer food goods.
We recently announced our acquisition of a 56.5%, controlling
interest in Natural Plant Extract (NPE), which operates a licensed
cannabis manufacturing and distribution business in Lynwood,
California, holding a Type 7 California Manufacturing and a
distribution license, allowing for cannabis product distribution
anywhere in the state. We plan to use the Lynwood NPE operation,
combined with our internally developed technologies, as a testbed
to launch multi-state operations as soon as possible after the
expected removal of cannabis as a Scheduled substance from the
federal CSA is completed, and interstate commerce in cannabis is
approved by the federal government. As of the date of this filing,
cannabis remains a Schedule 1 controlled substance and so illegal
under the CSA. However, As a result of the November 2020 federal
elections, and the election of Joseph R. Biden as president, it is
expected that the federal government will move to amend parts of
the CSA and de-schedule cannabis as a Schedule 1 drug. In late
January 2021, Senate Majority Leader Chuck Schumer said lawmakers
are in the process of merging various cannabis bills, including his
own legalization legislation. He is working to enact reform in this
Congressional session. This would include the Marijuana Freedom and
Opportunity Act, that would federally de-schedule cannabis,
reinvest tax revenue into communities most affected by the drug
war, and fund efforts to expunge prior cannabis records. It is
likely that the Marijuana Opportunity, Reinvestment, and
Expungement (MORE) Act would be incorporated. Other federal
legislation under review for possible submission includes the SAFE
Banking Act (or Secure and Fair Enforcement Act), a bill that would
allow cannabis companies to access the federally insured banking
system and capital markets without the risk of federal enforcement
action, and the Strengthening the Tenth Amendment Through
Entrusting States Act (or STATES Act), a bill that seeks
protections for businesses and individuals in states that have
legalized and comply with state laws).
Our operations at the Natural Plant Extract facility emphasizes
cannabis product manufacturing and distribution. In addition to
business opportunities available from cannabis product
manufacturing and distribution to all parts of the State of
California, we also see strong synergies between NPE operations and
our developing technologies in the areas of secure cannabis
transport, cannabis infusions, and all-natural polymeric
nanoparticle technologies.
We also have an active research and development program primarily
focused on creating and commercializing engineered technologies
that deliver hemp extracts and cannabinoids to the human body.
Additionally, we invest, or provide managerial services, in
specialized areas of the regulated hemp and cannabis industries.
Thus far, the Company has filed six provisional patents, three
non-provisional patents and recently announced its "Comply Bag"
secure cannabis transport system with integrated track and trace
capabilities via smartphones, which will be available soon.
On April 9, 2021, we entered into a distribution agreement with
Lynwood Roads Delivery, LLC (”LDR”). LRD owns a regulatory permit
issued by the City of Lynwood permitting commercial retailer
non-storefront operation in Lynwood, California. Under the terms of
the agreement, the Company’s majority owned subsidiary, Natural
Plant Extract of California, via is licensed Northern Lights
Distribution, Inc. operation will distribute selected products for
LDR.
On April 21, 2021, The Company began taking orders for its new
product lines produced at the NPE facility, completing its initial
product development phase.
On May 12, 2021, we entered into an agreement to operate a joint
venture through a new Nevada corporation named MCOA Lynwood
Services, Inc. The parties agreed to finance a regulated and
licensed laboratory to produce various cannabis products under the
legal framework outlined by the City of Lynwood, California, Los
Angeles County and the State of California. The Registrant owns a
controlling interest in Natural Plant Extract of California, Inc.,
which operates a licensed cannabis manufacturing operation in
Lynwood, California. As its contribution the joint venture, MCOA
agreed to purchase and install equipment for joint venture
operations, which will then be rented to the joint venture, and
also provide funding relating to marketing the products produced by
the capital equipment. We agreed to provide use of NPE’s
manufacturing and distribution licenses; access to its Lynwood,
California facility; use of the specific areas within the Lynwood
Facility suitable for the types of manufacturing selected by the
joint venture; and, management expertise require to carry on the
joint venture’s operations. Ownership of the joint venture was
agreed to be 60% in us and 40% with MCOA. Royalties from profits
realized as the result of sales of products from the joint venture
was also agreed to be distributed as 60% to us and 40% to MCOA.
Development of the joint venture is ongoing and is considered in
the development stage.
Comply Bag™
Comply Bag™ features a multi-layer, low-density polyethylene outer
shell that protects valuable shipments and allows manufacturers,
buyers, and processors full view of contents to assess quality.
Each Comply Bag™ contains financial institution-grade
tamper-evident seams, self-sealing closures, and sequential
numbering to ensure what is sent is what is received. In addition,
because all U.S. states have implemented specific regulations for
the tracking and tracing of cannabis shipments from seed to sale,
Comply Bags™ features regulator demanded tracking features, such as
those required in the California Cannabis Track-and-Trace (CCTT)
system, including Unique Identifier Tags (UID) mandated by
California via its contracted service provider, METRC, Inc.
Cannabis-Related Research and Development
Cannabis Global also has an active research and development program
primarily focused on creating and commercialize engineered
technologies delivering hemp extracts and cannabinoids to the human
body. Additionally, we invest, or provide managerial services, in
specialized areas of the regulated hemp and cannabis industries.
Thus far, the Company has filed six provisional patents, three
non-provisional patents and has recently announced its Comply Bag"
secure cannabis transport system with integrated track and trace
capabilities via smartphones which will be available soon.
Our R&D programs included the following:
|
1. |
Development
of new routes and vehicles for hemp extract and cannabinoid
delivery to the human body. |
|
2. |
Production
of unique polymeric nanoparticles and fibers for use in oral and
dermal cannabinoid delivery. |
|
3. |
Research
and commercialization of new methodologies to isolate and/or
concentrate various cannabinoids and other substances that comprise
industrial hemp oil and other extracts. |
|
4. |
Establishment
of new methods to increase the bioavailability of cannabinoids to
the human body utilizing nanoparticles and other proven
bioenhancers, including naturally occurring and insect produced
glycosides. |
|
5. |
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. |
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 multiple
provisional patents and three non-provisional patents as
follows:
Cannabinoid Delivery System and Method of Making
|
• |
September
1, 2020, Original File Date - Cannabinoid Delivery System and
Method of Making |
|
• |
September
6, 2021, Second Filing Date - Cannabinoid Delivery System and
Method of Making |
Water Soluble Compositions With Enhanced
Bioavailability
|
• |
September
24, 2019 - Water Soluble Compositions With Enhanced
Bioavailability |
|
• |
This
provisional patent filing was abandoned, although the Company may
refile later. |
Printed Shape Changing Article for the Delivery of
Cannabinoids
|
• |
October
15, 2019, Original File Date - Printed Shape Changing Article for
the Delivery of Cannabinoids. |
|
• |
September
23, 2021, Second File Date - Printed Shape Changing Article for the
Delivery of Cannabinoids. |
Cannabinoid Enriched Composition and Method of Treating a
Medical Condition Therewith
|
• |
The invention relates to a method of treating a medical condition
addressed by one or more cannabinoids, and a cannabinoid enriched
treatment composition. In particular, 1) wherein the cannabinoid
enriched treatment is produced by honeybees yielding a dry
free-flowing solid or 2) wherein the cannabinoid enriched treatment
is produced by other insects.
November 4, 2019 – Original provisional patent filing - Cannabinoid
enriched composition and method for dry free-flowing powder.
|
|
• |
December 15, 2020, Non-provisional Patent Filing - Cannabinoid
enriched composition and method of treating a medical condition
therewith. This was a non-provisional patent filing.
December 15, 2020, the Company filed an application under the
Patent Cooperation Treaty (PCT) seeking international protection of
the Cannabinoid enriched composition and method for dry
free-flowing powder.
The Company plans to utilize these unique compounds and powdered
technologies to produce new cannabinoid infusion technologies for
drugs, foods and beverages. The solid form of the bee honey
compounds are already being utilized in the Company's Hemp You Can
Feel™ branded products. Cannabis Global plans to conduct additional
development on its other insect-based technologies to determine the
extent of the unique properties of these new insect produced
cannabinoid compounds.
There can be no assurance any patent protection will be provided,
or that we will be successful in protecting our patents if
issued.
|
Electrosprayed and Electrospun Cannabinoid
Compositions
|
|
The application addresses new methods for the creation of highly
bioavailable and ultra-fast acting polymeric nanoparticles and nano
fibers of cannabinoids for use in beverages, food, topical, and
other applications.
The non-provisional application expands on the developments and
technologies outlined in the provisional applications that were
filed on November 4, 2019.
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.
The Company believes this technology holds significant advantages
over legacy cannabis infusion technologies. For example:
1) While legacy infusion technologies generally rely on chemicals
to maintain stability, the Company invented a chemical free method
utilizing only two ingredients. Surfactants and stabilizers are not
needed.
2) The technology allows manufacturers to use only two ingredients
(the “Two Ingredient Method”). Surfactants and stabilizers are not
needed. This allows for the production of products with “Clean
Labels”.
3) Utilizing the "Two-Ingredient" method, food, beverage, and
consumer product formulators can add cannabinoids using very small
amounts of product, as each of the two ingredients make up about
50% of the product. For example, the technology allows
manufacturers of cannabis-infused foods to add as little as 20
milligrams of material to dose psychoactive cannabinoids at the
10-milligram legal limit within most states. Cannabis Global
expects to significantly improve this already high 50% loading rate
over the next few months, with loading rates of up to 75%
expected.
4) by reducing cannabinoid particle sizes to nanometer proportions,
ultra-high levels of active ingredients get absorbed into the body
in very short periods of time. This allows formulators to use
cannabis to gain a desired effect, which can result in significant
cost saving, especially relating to the rare cannabinoids, which
sell at many times more than common cannabinoids, such as CBD or
THC.
There can be no assurance any patent protection will be provided,
or that we will be successful in protecting our patents if
issued.
|
Animal Based Cannabosides
|
• |
On January 18, 2021, the Company filed a non-provisional patent on
a novel method to produce water-soluble cannabinoids. The invention
relates to a composition comprising one or more cannabosides and a
method of producing one or more cannabosides. In particular, by
feeding an insect a cannabinoid and harvesting the insect,
excluding honeybees, to improve aqueous solubility and stability of
cannabinoids. The patent claims coverage of both the process to
create the compounds, and the use of the compounds in foodstuffs
and pharmaceutical preparations.
We believe this set of technologies represents a new class of
nature-based cannabinoid preparations. This technology is separate
from our chemical free Two Ingredient nanoparticle and nano fiber
infusion technologies for which we filed a patent application
during November of 2002. We believe both sets of technologies are
consistent with our corporate objective to introduce novel chemical
free cannabinoid infusion technologies to the cannabis and hemp
marketplaces.
On January 18, 2021, the Company filed an application under the
Patent Cooperation Treaty (PCT) seeking international protection of
a composition comprising one or more cannabosides and a method of
producing one or more cannabosides.
There can be no assurance any patent protection will be provided,
or that we will be successful in protecting our patents if
issued.
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Trademark applications are as follows:
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• |
Trademark
– 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 plans to re-file the
application. |
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• |
Trademark
– 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. |
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• |
Trademark
– Comply Bag™. During January of 2021, the Company filed a
trademark application with the U.S. Patent and Trademark Office
(USPTO) for its Comply Bag™ trade name. |
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• |
There
can be no assurance any trademark protection will be provided, or
that we will be successful in protecting our trademarks if
issued. |
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 online 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™ Sweeteners – A line of natural and artificial
sweeteners. |
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.
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, our director, is a shareholder in Whisper Weed (see
“Related Party Transactions”). Whisper Weed conducts licensed
delivery 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 will be
designated and issued to Whisper Weed in an amount equal to two
times the quarterly payment made to the Company. The preferred
shares will 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 February 28, 2021, the Company has not issued the
common or preferred shares, and the business is in the development
stage.
Company History
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 27, 2018, we changed domiciles from the State of Nevada to
the State of Delaware, and thereafter reorganized under the
Delaware Holding Company Statute. 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 or an
aggregate of $325,000. These series of transactions constituted a
change in control.
On August 9, 2019, we 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 (see “Related Party
Transactions”).
Subsequent to the closing of the fiscal year ending August 31,
2019, we affected a reverse split of our common shares effective as
of September 30, 2019, at the rate of 1:15.
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. Currently 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. As a
result of our FINRA corporate action, our name was changed to
Cannabis Global, Inc. and our trading symbol changed to “CBGL.”
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. Currently HYCF has no operations.
On May 6, 2020, we 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, our director, is a shareholder in Whisper Weed (see
“Related Party Transactions”). Whisper Weed conducts licensed
delivery 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 will be
designated and issued to Whisper Weed in an amount equal to two
times the quarterly payment made to the Company. The preferred
shares will 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 27, 2021, the Company has not issued the common
or preferred shares, and the business is in the development
stage.
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, we 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 June 11, 2021, the Company and Hymers
amended the stock purchase agreement to exchange the Registrant’s
obligations to make monthly payments, for our issuance of a
Convertible Note for the same amount, with principal and interest
due on June 11, 2022. The Convertible Note also provides Hymers
with the right to convert outstanding principal and interest into
our common stock at a fixed price of $0.04 per share, unless, at
the time the amounts due under this Note are eligible for
conversion, the Securities and Exchange Commission has not enacted
any amendment to the provisions of Rule 144(d)(iii) or other
provision in a manner that would adversely affect the tacking of
variable rate securities. In such event the Conversion Price shall
equal 60% of the lowest trading price of the Company’s Common Stock
for the 10 trading days immediately preceding the delivery of a
Notice of Conversion to the Company. The Company also agreed, in
the event that it determined to prepare and file a registration
statement concerning its common stock, to include all the shares
issuable upon conversion of this Note.
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 June 9, 2021, the parties amended
their securities exchange agreement to delete the lock up leak out
agreement, and the requirement to conduct quarterly reviews of each
party’s respective stock price for purposes of evaluating whether
additional share issuances are required to maintain the value of
exchanged common shares equal to $650,000. As consideration for the
amendment, we issued MCOA 618,000 shares of restricted common
stock. We issued the common stock pursuant to the exemption
from the registration requirements of the Securities Act of 1933,
as amended, available to the Company by Section 4(a)(2) promulgated
thereunder since it was an isolated issuance and did not involve a
public offering of securities.
On November 16, 2020, we entered into a business acquisition
agreement with Ethos Technology LLC, dba Comply Bag, a California
limited liability company (“Ethos”). Ethos is a development stage
business in the process of entering the market for cannabis
trackable storage bags. By virtue of the agreement, Ethos sold,
assigned, and transferred to the Company all of Ethos’ business,
including all of its assets and associated liabilities, in exchange
for the Company’s issuance of an aggregate of 6,000,000 common
shares. 3,000,000 shares were due at signing, with 1,500,000 shares
being issued to Edward Manolos, and 1,500,000 shares being issued
to Thang Nguyen. Mr. Manolos is our director and a related party.
Mr. Nguyen is the brother of Dan Van Nguyen, our director and a
related party. After Ethos ships orders for Ethos products equaling
$1,000,000 to unaffiliated parties, the Company will issue to
Messrs. Manolos and Nguyen an additional 1,500,000 shares of common
stock each. At the closing we sold an aggregate 3,000,000 shares of
Company common stock, par value $0.001, equal in value to $177,000
based on the closing price on November 16, 2020. Of the total sold,
1,500,000 shares of common stock were sold to Edward Manolos and
1,500,000 shares of common stock were sold to Thang Nguyen.
We issued the above shares of its common stock pursuant to the
exemption from the registration requirements of the Securities Act
of 1933, as amended, available to the Company by Section 4(a)(2)
promulgated thereunder since it was an isolated issuance and did
not involve a public offering of securities.
On January 27, 2021, we closed a material definitive agreement
(MDA) with Edward Manolos, our director and related party. Pursuant
to the MDA, the Company purchased from Mr. Manolos 266,667 shares
of common stock in 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
privately held corporation. Under the terms of the MDA, we acquired
all beneficial ownership over the NPE shares in exchange for a
purchase price of two million forty thousand dollars ($2,040,000).
In lieu of a cash payment, we agreed to issue Mr. Manolos
11,383,929 restricted common shares, valued for purposes of the MDA
at $0.1792 per share. In connection with the MDA, we became a party
to a Shareholders Agreement 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.
Mr. Manolos is our director as well as a directly of Marijuana
Company of America and is therefore a related party.
On February 16, 2021, we purchased 266,667 shares of common stock
of Natural Plant Extract of California Inc., a California
corporation (“NPE”), from Alan Tsai, in exchange for the issuance
of 1,436,368 common shares. Other than with respect to the
transaction, there was no material relationship between Mr. Tsai
and the Registrant. By virtue of the transaction, the Registrant
acquired 18.8% of the outstanding capital stock of NPE, bringing
its total beneficial ownership in NPE to 56.5%. NPE operates a
licensed psychoactive cannabis manufacturing and distribution
business operation in Lynwood, California. By virtue of its 56.5%
ownership over NPE, the Company will control production,
manufacturing, and distribution of both NPE and Company products.
In connection with the MDA, the Registrant became a party to a
Shareholders Agreement by and among Edward Manolos, a director of
the Company, Robert L. Hymers III, Betterworld Ventures, LLC,
Marijuana Company of America, Inc. and NPE. The Shareholders
Agreement contains customary rights and obligations concerning
operations, management, including restrictions on the transfer of
the Shares.
On May 12, 2021, The Company and Marijuana Company of America
(MCOA) agreed to operate a joint venture through a new Nevada
corporation named MCOA Lynwood Services, Inc. The parties agreed to
finance a regulated and licensed laboratory to produce various
cannabis products under the legal framework outlined by the City of
Lynwood, California, Los Angeles County and the State of
California. We own a controlling interest in Natural Plant Extract
of California, Inc., which operates a licensed cannabis
manufacturing operation in Lynwood, California. As its contribution
the joint venture, MCOA agreed to purchase and install equipment
for joint venture operations, which will then be rented to the
joint venture, and also provide funding relating to marketing the
products produced by the capital equipment. We agreed to provide
use of our manufacturing and distribution licenses; access to the
Lynwood, California facility; use of the specific areas within the
Lynwood Facility suitable for the types of manufacturing selected
by the joint venture; and, management expertise require to carry on
the joint venture’s operations. Our ownership of the joint venture
was agreed to be 60% to us and 40% with MCOA. Royalties from
profits realized as the result of sales of products from the joint
venture were also agreed to be distributed as 60% to us and 40% to
MCOA. MCOA contributed $135,000 of cash to the joint venture for
its operations.
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 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.”
|
1. |
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). |
• |
|
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. |
• |
|
Regardless
of being hemp-derived, if the derivative, extract or product has
more than 0.3% Delta-9 THC, it is a controlled
substance. |
• |
|
None
of these changes, alters or affects the FDA’s
jurisdiction over products containing cannabis and
cannabis-derived compounds. |
• |
|
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. |
• |
|
Synthetically derived THCs are all
controlled substances, regardless of THC content. |
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.
Sales and Marketing
The Company recently began sales and marketing activities for its
products, with new products being released for sales on April 21,
2021. The Company primarily plans to market its non-psychoactive
products via its own brands and plans to sell its psychoactive
products into permitted and licensed entities only within the State
of California.
Competition
We operated and 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 afect 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.
The psychoactive cannabis sector is also highly competitive with
many participants being better capitalized. The Company plans to
distinguish its products based on both quality and brand
appearance.
Employees
As of May 31, 2021, we have three employees, including Arman
Tabatabaei, our chief executive officer and chief financial
officer. The Company also relies on the services of multiple
contractors and service providers that perform various R&D,
operational and financial related services for the
organization.
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
26, 2021, there were approximately 63 holders of record of our
common stock.
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.
LEGAL PROCEEDINGS
From time to time and in the course of business, we may become
involved in various legal proceedings seeking monetary damages and
other relief. The amount of the ultimate liability, if any, from
such claims cannot be determined. As of the date of this filing,
there were no legal claims currently pending or threatened against
us that in the opinion of Management would be likely to have a
material adverse effect on our financial position, results of
operations or cash flows.
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. Progress of the action was significantly delayed due to
the Covid-19 pandemic. Further, the Company’s retained counsel
abandoned the case and his representation of the Company without
notice or communication to the Company. As a result, the court
dismissed the action without prejudice. The Company intends on
re-filing the action.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Our Company is a reporting public company (a public company that is
fully subject to the Securities and Exchange Commission’s reporting
requirements). Shares of Common Stock trades under the symbol
“CBGL” on the OTC Markets Quotation System.
The OTC Markets Quotation System is quotation service that display
real-time quotes, last-sale prices and volume information in
over-the-counter equity securities. The market is limited for our
stock and any prices quoted may not be a reliable indication of the
value of our shares of Common Stock. The following Table 1 sets
forth the high and low bid prices per share of our shares of Common
Stock by both the OTC Bulletin Board and OTC Markets for the
periods indicated.
For the year ended
August 31, 2019 |
|
High |
|
Low |
Fourth Quarter |
|
$ |
0.43 |
|
|
$ |
0.10 |
|
Third Quarter |
|
$ |
0.98 |
|
|
$ |
0.12 |
|
Second Quarter |
|
$ |
0.60 |
|
|
$ |
0.05 |
|
First Quarter |
|
$ |
1.54 |
|
|
$ |
0.48 |
|
For the year ended
August 31, 2020 |
|
High |
|
Low |
Fourth Quarter |
|
$ |
0.63 |
|
|
$ |
0.10 |
|
Third Quarter |
|
$ |
0.85 |
|
|
$ |
0.10 |
|
Second Quarter |
|
$ |
0.60 |
|
|
$ |
0.05 |
|
First Quarter |
|
$ |
1.85 |
|
|
$ |
0.48 |
|
As of the August 26, 2021, the shares traded at low of $0.037 and a
high of $0.042 ask price with a total of 549,515 shares traded.
Holders of Record
As August 26, 2021 and just prior this filing, we have 84,940,028
shares of our Common Stock issued and outstanding held by
approximately 63 shareholders of record.
Dividends
We have not paid, nor declared any cash dividends since our
inception and do not intend to declare or pay any such dividends in
the foreseeable future. Our ability to pay cash dividends is
subject to limitations imposed by state law.
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.
|
|
For the years ended
August 31 |
|
|
2020 |
|
2019 |
Revenues |
|
$ |
27,004 |
|
|
$ |
— |
|
Cost
of goods sold: |
|
|
24,521 |
|
|
|
— |
|
Gross
margin |
|
|
2,483 |
|
|
|
— |
|
Operating Expense |
|
|
3,626,375 |
|
|
|
549,918 |
|
|
|
|
|
|
|
|
|
|
Loss
from operations |
|
|
(3,623,892 |
) |
|
|
(549,918 |
) |
Non-operating income (expense): |
|
|
(1,305,456 |
) |
|
|
160,321 |
|
Net
Income (Loss) |
|
$ |
(4,929,348 |
) |
|
$ |
(389,597 |
) |
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. Progress of the action was significantly delayed due to
the Covid-19 pandemic. Further, the Company’s retained counsel
abandoned the case and his representation of the Company without
notice or communication to the Company. As a result, the court
dismissed the action without prejudice. The Company intends on
re-filing the action.
Related Party Transactions
In October 2017 – August 31, 2018, we 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.
From November 30, 2017 through August 31, 2018, we 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.
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, we 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, we 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 6 - Notes Payable.
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 considers these transactions as
transactions with related persons, promoters and certain control
persons.
During the three months ended February 29, 2020, we 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 our 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. Mr. Hymers 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 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. Hymers 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 then Chief Financial Officer (the
“CFO”), whereby Mr. Hymers resigned, and we 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. Mr. Hymers 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.
On November 16, 2020, we entered into a business acquisition
agreement with Ethos Technology LLC, dba Comply Bag, a California
limited liability company (“Ethos”). Ethos is a development stage
business in the process of entering the market for cannabis
trackable storage bags. By virtue of the agreement, Ethos sold,
assigned, and transferred to the Company all of Ethos’ business,
including all of its assets and associated liabilities, in exchange
for the Company’s issuance of an aggregate of 6,000,000 common
shares. 3,000,000 shares were due at signing, with 1,500,000 shares
being issued to Edward Manolos, and 1,500,000 shares being issued
to Thang Nguyen. Mr. Manolos is a director of the Company and a
related party. Mr. Nguyen is the brother of Dan Van Nguyen, a
director of the Company and a related party. After Ethos ships
orders for Ethos products equaling $1,000,000 to unaffiliated
parties, the Company will issue to Messrs. Manolos and Nguyen an
additional 1,500,000 shares of common stock each.
On November 16, 2020, the Company sold an aggregate 3,000,000
shares of Company common stock, par value $0.001, equal in value to
$177,000 based on the closing price on November 16, 2020. Of the
total sold, 1,500,000 shares of common stock were sold to Edward
Manolos and 1,500,000 shares of common stock were sold
to Thang Nguyen. The sales were made in regard to the
Company’s acquisition of Ethos, and its disclosures under Item 1.01
are incorporated herein by reference. The Company issued the
above shares of its common stock pursuant to the exemption from the
registration requirements of the Securities Act of 1933, as
amended, available to the Company by Section 4(a)(2) promulgated
thereunder due to the fact that it was an isolated issuance and did
not involve a public offering of securities. Messrs. Manolos and
Nguyen were “accredited investors” and/or “sophisticated investors”
pursuant to Section 501(a)(b) of the Securities Act, who provided
the Company with representations, warranties and information
concerning their qualifications as “sophisticated investors” and/or
“accredited investors.” The Company provided and made available to
Messrs. Manolos and Nguyen full information regarding its business
and operations. There was no general solicitation in connection
with the offer or sale of the restricted securities. Messrs.
Manolos and Nguyen acquired the restricted common stock for their
own accounts, for investment purposes and not with a view to public
resale or distribution thereof within the meaning of the Securities
Act. The restricted shares cannot be sold unless subject to an
effective registration statement by the Company, or by an exemption
from registration requirements of Section 5 of the Securities
Act—the existence of any such exemption subject to legal review and
approval by the Company.
On January 27, 2021, Cannabis Global, Inc. (the “Registrant”)
closed a material definitive agreement (MDA) with Edward Manolos, a
director and related party. Pursuant to the MDA, the Registrant
purchased from Mr. Manolos 266,667 shares of common stock in
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 privately held corporation. Under the
terms of the MDA, the Registrant acquired all beneficial ownership
over the NPE shares in exchange for a purchase price of two million
forty thousand dollars ($2,040,000). In lieu of a cash payment, the
Registrant agreed to issue Mr. Manolos 11,383,929 restricted common
shares, valued for purposes of the MDA at $0.1792 per share. In
connection with the MDA, the Registrant became a party to a
Shareholders Agreement 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. Additionally,
the Registrant intends, upon completion of the terms and conditions
of the Material Definitive Agreement, to control the production,
manufacturing and distribution of both NPE and the Registrant’s
products.
On May 12, 2021, we entered into an agreement to operate a joint
venture through a new Nevada corporation named MCOA Lynwood
Services, Inc. Mr. Edward Manolos is a director of both parties to
the agreement and this the agreement was an agreement between
related parties. The parties agreed to finance a regulated and
licensed laboratory to produce various cannabis products under the
legal framework outlined by the City of Lynwood, California, Los
Angeles County, and the State of California. We own a controlling
interest in Natural Plant Extract of California, Inc., which
operates a licensed cannabis manufacturing operation in Lynwood,
California. As its contribution the joint venture, MCOA agreed to
purchase and install equipment for joint venture operations, which
will then be rented to the joint venture, and also provide funding
relating to marketing the products produced by the capital
equipment. We agreed to provide use of its manufacturing and
distribution licenses; access to its Lynwood, California facility;
use of the specific areas within the Lynwood Facility suitable for
the types of manufacturing selected by the joint venture; and,
management expertise require to carry on the joint venture’s
operations. Ownership of the joint venture was agreed to be 60% in
us and 40% with MCOA. Royalties from profits realized as the result
of sales of products from the joint venture was also agreed to be
distributed as 60% in us and 40% to MCOA. Development of the joint
venture is ongoing and is considered in the development stage.
On May 12, 2021, we entered into a material definitive agreement
not made in the ordinary course of its business. The parties to the
material definitive agreement are the Registrant and Marijuana
Company of America, Inc., a Utah corporation (“MCOA”). Mr. Edward
Manolos is a director of both the Company and MCOA, and thus
agreement is between related parties. Previously, on September 30,
2020, the Registrant and MCOA entered into a Share Exchange
Agreement whereby the Registrant acquired that number of shares of
MCOA’s common stock, par value $0.001, equal in value to $650,000
based on the closing price for the trading day immediately
preceding the effective date, in exchange for the number of shares
of the Registrant’s common stock, par value $0.001, equal in value
to $650,000 based on the closing price for the trading day
immediately preceding the effective date. For both parties, the
Share Exchange Agreement contained a “true-up” provision requiring
the issuance of additional common stock if a decline in the market
value of the parties’ common stock should cause the aggregate value
of the stock acquired pursuant to the Share Exchange Agreement to
fall below $650,000.
Complementary to the Share Exchange Agreement, Registrant and MCOA
entered into a Lock-Up Agreement dated September 30, 2020 (the
“Lock-Up Agreement”), providing that the shares of common stock
acquired pursuant to the Share Exchange Agreement shall be subject
to a lock-up period preventing its sale for a period of 12 months
following issuance and limiting the subsequent sale to aggregate
maximum sale value of $20,000 per week, or $80,000 per month. On
June 9, 2021, the parties amended their securities exchange
agreement to delete the lock up leak out agreement, and the
requirement to conduct quarterly reviews of each party’s respective
stock price for purposes of evaluating whether additional share
issuances are required to maintain the value of exchanged common
shares equal to $650,000. As consideration for the amendment, we
issued MCOA 618,000 shares of restricted common stock. We issued
the common stock pursuant to the exemption from the registration
requirements of the Securities Act of 1933, as amended, available
to the Company by Section 4(a)(2) promulgated thereunder since it
was an isolated issuance and did not involve a public offering of
securities.
On May 12, 2021, the parties agreed to operate a joint venture
through a new Nevada corporation named MCOA Lynwood Services, Inc.
The parties agreed to finance a regulated and licensed laboratory
to produce various cannabis products under the legal framework
outlined by the City of Lynwood, California, Los Angeles County,
and the State of California. The Registrant owns a controlling
interest in Natural Plant Extract of California, Inc., which
operates a licensed cannabis manufacturing operation in Lynwood,
California.
As its contribution the joint venture, MCOA agreed to purchase and
install equipment for joint venture operations, which will then be
rented to the joint venture, and also provide funding relating to
marketing the products produced by the capital equipment. The
Registrant agreed to provide use of its manufacturing and
distribution licenses; access to its Lynwood, California facility;
use of the specific areas within the Lynwood Facility suitable for
the types of manufacturing selected by the joint venture; and,
management expertise require to carry on the joint venture’s
operations.
Ownership of the joint venture was agreed to be 60% in us and 40%
with MCOA. Royalties from profits realized as the result of sales
of products from the joint venture was also agreed to be
distributed as 60% to us and 40% to MCOA.
On July 15, 2021, two of our Directors, Edward Manolos and Dan Van
Nguyen, each loaned the Company $22,000. The signed promissory
notes call for annual interest at the rate of 5% per annum and are
due 90 days for issuance.
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 note 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
Our 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. After the end of the financial reporting
period, ending May 31, 2021, the Company agreed to extend the lease
for commercial food production facility located in Los Angeles,
California, on a month-to-month basis. As of May 31, 2021, the
obligation was completed with the month-to-month contact ending in
that date.
On June 5, 2020, the Company entered into an Assignment and
Amendment to Commercial Lease Agreement whereby it leased
commercial property located at 11116 Wright Road, Los Angeles, CA
90262. The monthly rent is $11,000 per month. The lease
terminates on June 30, 2022. The premises is used in connection
with NPE’s operations including Cannabis delivery and operation in
accordance with applicable city, county and California state law
including, but not limited to, the state cannabis licensing and
program rules and local ordinances.
CRITICAL ACCOUNTING POLICIES INVOLVING MANAGEMENT ESTIMATES AND
ASSUMPTIONS
Use of Fair Value
ASC Topic 820 defines fair value, establishes a framework for
measuring fair value, establishes a three-level valuation hierarchy
for disclosure of fair value measurement and enhances disclosure
requirements for fair value measurements. The valuation hierarchy
is based upon the transparency of inputs to the valuation of an
asset or liability as of the measurement date. The three levels are
defined as follows:
Level l - observable inputs that reflect quoted prices (unadjusted)
for identical assets or liabilities in active markets.
Level 2 - include other inputs that are directly or indirectly
observable in the marketplace.
Level 3 - unobservable inputs which are supported by little or no
market activities.
Use of Estimates
The preparation of our consolidated financial statements in
conformity with accounting principles generally accepted in the
United States of America requires our management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
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 objective of the guidance is to establish the
principles that an entity shall apply to report useful information
to users of financial statements about the nature, amount, timing,
and uncertainty of revenue and cash flows arising from a contract
with a customer. The core principal is to recognize revenue to
depict the transfer of promised goods or services to customers in
an amount that reflects the consideration to which the Company
expects to be entitled in exchange for those goods or services. Two
options were made available for implementation of the standard: the
full retrospective approach or modified retrospective approach. The
guidance became effective for annual reporting periods beginning
after December 15, 2017, including interim periods within that
reporting period, with early adoption permitted. We adopted FASB
ASC Topic 606 for our reporting period as of the year ended
December 31, 2017, which made our implementation of FASB ASC Topic
606 effective in the first quarter of 2018. We decided to implement
the modified retrospective transition method to implement FASB ASC
Topic 606, with no restatement of the comparative periods
presented. Using this transition method, we applied the new
standards to all new contracts initiated on/after the effective
date. We also decided to apply this method to any incomplete
contracts we determine are subject to FASB ASC Topic 606
prospectively. For the quarter ended March 31, 2019, there were no
incomplete contracts. 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.
The Company’s will be to recognizes revenue in accordance with
Accounting Standards Codification subtopic 606, Revenue Recognition
(“ASC 606”) which requires that four basic criteria must be met
before revenue can be recognized: (1) persuasive evidence of an
arrangement exists; (2) delivery has occurred; (3) the selling
price is fixed and determinable; and (4) collectability is
reasonably assured. Determination of criteria (3) and (4) are based
on management’s judgments regarding the fixed nature of the selling
prices of the products delivered and the collectability of those
amounts. Provisions for discounts and rebates to customers,
estimated returns and allowances, and other adjustments are
provided for in the same period the related sales are recorded.
Upon adoption of ASC 606 there were no adjustments converting from
ASC 605 to ASC 606 because product sales are recorded upon delivery
of goods and payment of product.
Product Sales
We have established a policy where revenue from product sales,
including delivery fees, is recognized when (1) an order is placed
by the customer; (2) the price is fixed and determinable when the
order is placed; (3) the customer is required to and concurrently
pays for the product upon order; and, (4) the product is shipped.
The evaluation of our recognition of revenue after the adoption of
FASB ASC 606 did not include any judgments or changes to judgments
that affected our reporting of revenues, since our product sales,
both pre and post adoption of FASB ASC 606, were evaluated using
the same standards as noted above, reflecting revenue recognition
upon order, payment and shipment, which all occurs concurrently
when the order is placed and paid for by the customer, and the
product is shipped. Further, 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, and there is no delay in shipment, we are of the opinion
that our product sales do not 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.
Cash
The Company has operated during the most recent fiscal periods with
minimal cash.
From time to time in the future, as we raise funds via sales of
equity and notes, we may maintain bank balances in interest bearing
accounts in excess of the $250,000 currently insured by the Federal
Deposit Insurance Corporation for interest bearing accounts (there
is currently no insurance limit for deposits in
non-interest-bearing accounts). We have not experienced any losses
with respect to cash. Management believes our Company is not
exposed to any significant credit risk with respect to its
cash.
Accounts Receivable
At the present time we have no accounts receivable. In the future,
accounts receivable are carried at their estimated collectible
amounts, net of any estimated allowances for doubtful accounts. We
grant unsecured credit to our customer’s deemed credit worthy.
Ongoing credit evaluations are performed, and potential credit
losses estimated by management are charged to operations on a
regular basis. At the time any particular account receivable is
deemed uncollectible, the balance is charged to the allowance for
doubtful accounts. The Company had accounts receivable net of
allowances of $0 as of August 31, 2019, and $0 as of August 31,
2018. The Company had accounts receivable net of allowances of
$5,000 as of February 29, 2020.
Inventory
The Company currently has no inventories. In the future, we plan to
value inventories using the weighted average costing method
(approximate FIFO costing method).
We plan to regularly review inventory and consider forecasts of
future demand, market conditions and product obsolescence. In the
future, if the estimated realizable value of our inventory is less
than cost, we make provisions in order to reduce its carrying value
to its estimated market value.
Intangible assets, net
Currently the Company has no intangible assets. Intangible assets
with finite lives are amortized over their estimated useful life.
The Company monitors conditions related to these assets to
determine whether events and circumstances warrant a revision to
the remaining amortization period. The Company tests its intangible
assets with finite lives for potential impairment whenever
management concludes events or changes in circumstances indicate
that the carrying amount may not be recoverable. The original
estimate of an asset’s useful life and the impact of an event or
circumstance on either an asset’s useful life or carrying value
involve significant judgment.
Derivative Instruments
The fair value of derivative instruments is recorded and shown
separately under current liabilities. Changes in the fair value of
derivatives liability are recorded in the consolidated statement of
operations under non-operating income (expense).
The Company evaluates all of its financial instruments to determine
if such instruments are derivatives or contain features that
qualify as embedded derivatives. For derivative financial
instruments that are accounted for as liabilities, the derivative
instrument is initially recorded at its fair value and is then
re-valued at each reporting date, with changes in the fair value
reported in the consolidated statements of operations. For
stock-based derivative financial instruments, the Company uses a
weighted average Black-Scholes Merton option pricing model to value
the derivative instruments at inception and on subsequent valuation
dates. The classification of derivative instruments, including
whether such instruments should be recorded as liabilities or as
equity, is evaluated at the end of each reporting period.
Derivative instrument liabilities are classified in the balance
sheet as current or non-current based on whether net-cash
settlement of the derivative instrument could be required within 12
months of the balance sheet date.
Stock Based Compensation
Stock based compensation cost is measured at the date of grant,
based on the calculated fair value of the stock-based award, and
will be recognized as an expense over the employee’s requisite
service period (generally the vesting period of the award). We
estimate the fair value of employee stock options granted using the
Black-Scholes-Merton Option Pricing Model. Key assumptions used to
estimate the fair value of stock options will include the exercise
price of the award, the fair value of our shares of Common Stock on
the date of grant, the expected option term, the risk-free interest
rate at the date of grant, the expected volatility, and the
expected annual dividend yield on our shares of Common Stock.
Income taxes
We account for income taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their perspective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable
income in the years in which the temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. Valuation allowances are
recorded, when necessary, to reduce deferred tax assets to the
amount expected to be realized.
As a result of the implementation of certain provisions of ASC 740,
Income Taxes (“ASC 740”), which clarifies the accounting and
disclosure for uncertainty in tax positions, as defined, ASC 740
seeks to reduce the diversity in practice associated with certain
aspects of the recognition and measurement related to accounting
for income taxes. We adopted the provisions of ASC 740 as of
October 2, 2008 and have analyzed filing positions in each of the
federal and state jurisdictions where we are required to file
income tax returns, as well as open tax years in these
jurisdictions. We have identified the U.S. federal and California
as our “major” tax jurisdictions and generally, we remain subject
to Internal Revenue Service examination of our 2013 U.S. federal
income tax returns. However, we have certain tax attribute
carryforwards, which will remain subject to review and adjustment
by the relevant tax authorities until the statute of limitations
closes with respect to the year in which such attributes are
utilized.
We believe that our income tax filing positions and deductions will
be sustained on audit and do not anticipate any adjustments that
will result in a material change to our financial position.
Therefore, no reserves for uncertain income tax positions have been
recorded pursuant to ASC 740. In addition, we did not record a
cumulative effect adjustment related to the adoption of ASC 740.
Our policy for recording interest and penalties associated with
income-based tax audits is to record such items as a component of
income taxes. We have no interest or penalties as of August 31,
2020.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic
842). The new standard establishes a right-of-use (“ROU”) model
that requires a lessee to record a ROU asset and a lease liability
on the balance sheet for all leases with terms longer than 12
months. Leases will be classified as either finance or operating,
with classification affecting the pattern of expense recognition in
the income statement. The new standard is effective for fiscal
years beginning after December 15, 2018, including interim periods
within those fiscal years. A modified retrospective transition
approach is required for lessees for capital and operating leases
existing at, or entered into after, the beginning of the earliest
comparative period presented in the financial statements, with
certain practical expedients available. The Company is in the
process of evaluating the impact of adoption of this ASU on the
consolidated financial statements.
In May 2014, the FASB issued No. 2014-09, Revenue from Contracts
with Customers, which supersedes the revenue recognition
requirements in Accounting Standards Codification 605 - Revenue
Recognition and most industry-specific guidance throughout the
Codification. The standard requires that an entity recognizes
revenue to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to which the
company expects to be entitled in exchange for those goods or
services. In August 2015, the FASB approved a one-year deferral of
the effective date of the new revenue recognition standard. Public
business entities, certain not-for-profit entities, and certain
employee benefit plans should apply the guidance in ASU 2014-09 to
annual reporting periods beginning after December 15, 2017,
including interim reporting periods within that reporting period.
Earlier application is permitted only as of annual reporting
periods beginning after December 31, 2016, including interim
reporting periods within that reporting period. In March 2016, the
FASB issued ASU 2016-08, Revenue from Contracts with Customers
(Topic 606), Principal versus Agent Considerations (Reporting
Revenue versus Net). In April 2016, the FASB issued ASU 2016-10,
Revenue from Contracts with Customers (Topic 606), Identifying
Performance Obligations and Licensing. In May 2016, the FASB issued
ASU 2016-11, Revenue from Contracts with Customers (Topic 606) and
Derivatives and Hedging (Topic 815) - Rescission of SEC Guidance
Because of ASU 2014-09 and 2014-16, and ASU 2016-12, Revenue from
Contracts with Customers (Topic 606) - Narrow Scope Improvements
and Practical Expedients. These ASUs clarify the implementation
guidance on a few narrow areas and adds some practical expedients
to the guidance Topic 606. The Company is evaluating the effect
that these ASUs will have on its consolidated financial statements
and related disclosures.
On March 30, 2016, the FASB issued ASU No. 2016-09, Improvements to
Employee Share-Based Payment Accounting, which includes amendments
to accounting for income taxes at settlement, forfeitures, and net
settlements to cover withholding taxes. The amendments in ASU
2016-09 are effective for public companies for fiscal years
beginning after December 31, 2016, and interim periods within those
annual periods. The Company adopted this new guidance on
January 1, 2017 and this standard does not have a material
impact on the Company’s consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial
Instruments-Credit Losses (Topic 326), which requires entities to
measure all expected credit losses for financial assets held at the
reporting date based on historical experience, current conditions,
and reasonable and supportable forecasts. This replaces the
existing incurred loss model and is applicable to the measurement
of credit losses on financial assets measured at amortized cost.
This guidance is effective for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2019. Early
application will be permitted for all entities for fiscal years,
and interim periods within those fiscal years, beginning after
December 15, 2018. The Company is currently evaluating the impact
that the standard will have on its consolidated financial
statements and related disclosures.
In August 2016, the FASB issued ASU No. 2016-15, Classification of
Certain Cash Receipts and Cash Payments. ASU 2016-15 clarifies the
presentation and classification of certain cash receipts and cash
payments in the statement of cash flows. This ASU is effective for
public business entities for fiscal years, and interim periods
within those years, beginning after December 15, 2017. Early
adoption is permitted. The Company is currently assessing the
potential impact of ASU 2016-15 on its financial statements and
related disclosures.
In October 2016, the FASB issued ASU No. 2016-16—Income Taxes
(Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.
This ASU improves the accounting for the income tax
consequences of intra-entity transfers of assets other than invent
tory. For public business entities, the amendments in this update
are effective for annual reporting periods beginning after December
15, 2017, including interim reporting periods within those annual
reporting periods. Early adoption is permitted. The Company does
not anticipate that the adoption of this ASU will have a
significant impact on its consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, Statement
of Cash Flows (Topic 230): Restricted Cash. The guidance
requires that a statement of cash flows explain the change during
the period in the total of cash, cash equivalents, and amounts
generally described as restricted cash or restricted cash
equivalents. Therefore, amounts generally described as restricted
cash and restricted cash equivalents should be included with cash
and cash equivalents when reconciling the beginning-of-period and
end-of-period total amounts shown on the statement of cash flows.
The standard is effective for fiscal years beginning after
December 15, 2017, and interim period within those fiscal
years. Early adoption is permitted, including adoption in an
interim period. The standard should be applied using a
retrospective transition method to each period presented. The
Company does not anticipate that the adoption of this ASU will have
a significant impact on its consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-01, Business
Combinations (Topic 805): Clarifying the Definition of a
Business, which clarifies the definition of a business with the
objective of adding guidance to assist entities with evaluating
whether transactions should be accounted for as acquisitions or
disposals of assets or businesses. The standard is effective for
fiscal years beginning after December 15, 2017, including
interim periods within those fiscal years. Early adoption is
permitted. The standard should be applied prospectively on or after
the effective date. The Company will evaluate the impact of
adopting this standard prospectively upon any transactions of
acquisitions or disposals of assets or businesses.
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test
for Goodwill Impairment. The guidance removes Step 2 of the
goodwill impairment test, which requires a hypothetical purchase
price allocation. A goodwill impairment will now be the amount by
which a reporting unit’s carrying value exceeds its fair value, not
to exceed the carrying amount of goodwill. The guidance should be
adopted on a prospective basis for the annual or any interim
goodwill impairment tests beginning after December 15, 2019.
Early adoption is permitted for interim or annual goodwill
impairment tests performed on testing dates after January 1,
2017. The Company is currently evaluating the impact of adopting
this standard on its consolidated financial statements.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
None.
INTERIM FINANCIAL STATEMENTS
The interim financial statements for the quarter ended May 31,
2021, are provided and can found on page F-26. Our unaudited
quarterly results of operations data have been prepared on the same
basis as our audited consolidated financial statements included
elsewhere in this prospectus. In the opinion of management, the
financial information set forth in the table below reflects all
normal recurring adjustments necessary for the fair statement of
results of operations for these periods in accordance with
generally accepted accounting principles in the United States. Our
historical results are not necessarily indicative of the results
that may be expected in the future and the results of a particular
quarter or other interim period are not necessarily indicative of
the results for a full year. This data should be read in
conjunction with the section titled “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” and our
consolidated financial statements and related notes included
elsewhere in this prospectus.
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 following table is based on 99,940,028 common shares, which
includes 84,940,028 outstanding as of August 26, 2021 and an
additional 15,000,000 shares of common stock to be issued under the
Purchase Agreement, assuming all shares are sold.
Officers and Directors |
|
Amount and Nature of Beneficial Ownership |
|
Percentage of Class Beneficially Owned |
Dan Van Nguyen |
|
|
2,888,889 |
|
|
|
2.9 |
% |
Edward Manolos |
|
|
15,772,828 |
|
|
|
15.8 |
% |
Arman Tabatabei |
|
|
3,330,000 |
|
|
|
3.3 |
% |
Melissa Riddell |
|
|
543,333 |
|
|
|
0.5 |
% |
All
Directors and Executive Officers as a Group |
|
|
22,505,050 |
|
|
|
22.5 |
% |
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.
As of the date of this filing, our Chairman, CEO and CFO Arman
Tabatabaei, owns 3,330,000 common shares, which represents 3.3%
percent of the total outstanding shares.
Changes in Control
As of the date of this Prospectus, we are not aware of any
arrangement that may result in a change in control of our
company
Family Relationships
There are no family relationships between any director or executive
officer.
Leadership Structure
Arman Tabatabaei, who is also a director and serves as chairman,
CEO, CFO, treasurer 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 has not formally adopted a written code of business
conduct and ethics that governs the Company’s employees, officers
and Directors as the Company is not required to do so.
Director Independence
Melissa Ridell is considered an Independent Director meeting the
definition of “Independent Director outlined in NASDAQ Marketplace
Rule 4200(a)(15). Ms. Ridell was added to the board of directors on
February 3, 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 June 14,
2019, we believed such reports were timely filed.
Liquidity and Capital Resources
As of May 31, 2021, and August 31, 2020 our cash and cash
equivalent balances were $268,007 and $2,338, respectively.
Our primary internal sources of liquidity were provided by proceeds
from the sale of unregistered common shares and warrants of the
Company as follows:
On July 3, 2019, we sold 2,000,000 restricted shares at $0.025 a
share for $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 $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 $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 $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 $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 $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 $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 November 6, 2019, we sold a convertible not to an accredited
investor for $20,000. The terms of the six months 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, because 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 June 19, 2020, we sold 352,941 registered common shares to an
investor in exchange for $60,000 by subscription from our Form S-1
registration, file number 333-238974.
On June 23, 2020, we sold 116,667 registered common shares to an
investor in exchange for a settlement by subscription form our Form
S-1 registration, file number 333-238974.
On June 30, 2020, we sold 289,301 registered common shares to an
investor in exchange for $50,000 by subscription form our Form S-1
registration, file number 333-238974.
On July 7, 2020, we sold 305,810 registered common shares to an
investor in exchange for $35,000 by subscription form our Form S-1
registration, file number 333-238974.
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, we sold 2,899,017 registered common shares to an
investor in exchange for $278,338, by subscription form our Form
S-1 registration, file number 333-238974. 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 registered common shares to an
investor in exchange for $51,275.50 by subscription form our Form
S-1 registration, file number 333-238974.
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.
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 restricted common stock to MCOA in
exchange for 650,000,000 shares of MCOA restricted 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 November 16, 2020, the Company sold an aggregate 3,000,000
shares of Company common stock, par value $0.001, equal in value to
$177,000 based on the closing price on November 16, 2020. Of the
total sold, 1,500,000 shares of common stock were sold to Edward
Manolos and 1,500,000 shares of common stock were sold
to Thang Nguyen. The sales were made in regards to the
Company’s acquisition of Ethos, and its disclosures under Item 1.01
are incorporated herein by reference. The Company issued the
above shares of its common stock pursuant to the exemption from the
registration requirements of the Securities Act of 1933, as
amended, available to the Company by Section 4(a)(2) promulgated
thereunder due to the fact that it was an isolated issuance and did
not involve a public offering of securities. Messrs. Manolos and
Nguyen were “accredited investors” and/or “sophisticated investors”
pursuant to Section 501(a)(b) of the Securities Act, who provided
the Company with representations, warranties and information
concerning their qualifications as “sophisticated investors” and/or
“accredited investors.” The Company provided and made available to
Messrs. Manolos and Nguyen full information regarding its business
and operations. There was no general solicitation in connection
with the offer or sale of the restricted securities. Messrs.
Manolos and Nguyen acquired the restricted common stock for their
own accounts, for investment purposes and not with a view to public
resale or distribution thereof within the meaning of the Securities
Act. The restricted shares cannot be sold unless subject to an
effective registration statement by the Company, or by an exemption
from registration requirements of Section 5 of the Securities
Act—the existence of any such exemption subject to legal review and
approval by the Company.
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 anytime 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 Note and Purchase Agreement are attached to this
filing. The Company received net cash proceeds of $30,000.
On December 1, 2020, the Company entered into an additional
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 anytime 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 during February 2021.
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
$0.005. 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 $0.001. The Company received net
proceeds of $97,500.
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.
On January 26, 2021, the Company entered into two Securities
Purchase Agreements in connection with the issuance of two 10%
convertible note with the principal amount of $487,750, with an
accredited investor. The note is convertible at 70% of the average
of the three lowest trading prices for 20 days prior to conversion.
The Company received net proceeds of $431,000.
On February 3, 2021, the Registrant completed the sale of an
aggregate of 4,700,000 registered shares of common stock registered
on Form S-1 (File No. 333-250038) in two transactions in exchange
for a total purchase price of $282,000. The parties to the
transactions were the Registrant and BHP Capital NY, Inc., and
Platinum Point Capital, LLC. There was no material relationship,
other than in respect of the transactions, between BHP Capital NY,
Inc., Platinum Point Capital, LLC and the Registrant or any of its
affiliates, or any director or officer of the Registrant, or any
associate of any such director or officer. BHP Capital NY, Inc.
purchased 2,350,000 registered common shares in exchange for
$141,000. Platinum Point Capital, LLC purchased 2,350,000
registered common shares in exchange for $141,000.
On January 27, 2021, we closed a material definitive agreement
(MDA) with Edward Manolos, a director and related party. Pursuant
to the MDA, the Registrant purchased from Mr. Manolos 266,667
shares of common stock in 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
privately held corporation. Under the terms of the MDA, the
Registrant acquired all beneficial ownership over the NPE shares in
exchange for a purchase price of two million forty thousand dollars
($2,040,000). In lieu of a cash payment, the Registrant agreed to
issue Mr. Manolos 11,383,929 restricted common shares, valued for
purposes of the MDA at $0.1792 per share. In connection with the
MDA, the Registrant became a party to a Shareholders Agreement 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. Additionally, the Registrant
intends, upon completion of the terms and conditions of the
Material Definitive Agreement, to control the production,
manufacturing, and distribution of both NPE and the Registrant’s
products.
On February 16, 2021, we purchased 266,667 shares of common stock
of Natural Plant Extract of California Inc., a California
corporation (“NPE”), from Alan Tsai, in exchange for the issuance
of 1,436,368 common shares. Other than with respect to the
transaction, there was no material relationship between Mr. Tsai
and the Registrant. By virtue of the transaction, the Registrant
acquired 18.8% of the outstanding capital stock of NPE, bringing
its total beneficial ownership in NPE to 56.5%. NPE operates a
licensed psychoactive cannabis manufacturing and distribution
business operation in Lynwood, California. By virtue of its 56.5%
ownership over NPE, the Company will control production,
manufacturing and distribution of both NPE and Company products. In
connection with the MDA, the Registrant became a party to a
Shareholders Agreement by and among Edward Manolos, a director of
the Company, Robert L. Hymers III, Betterworld Ventures, LLC,
Marijuana Company of America, Inc. and NPE. The Shareholders
Agreement contains customary rights and obligations concerning
operations, management, including restrictions on the transfer of
the Shares.
On February 16, 2021, the Company sold 1,133,334 registered common
shares to accredited investors, realizing $68,000.
On February 18, 2021, the Company sold 683,333 registered common
shares to an accredited investor, realizing proceeds of
$41,000.
On February 28, 2021, the Company sold 153,000 Preferred Series B
shares to an accredited investor, realizing proceeds of $153,000.
The proceeds were not received until March 2021, and the agreement
was accounted for as a liability based on the terms of the
Preferred Series B designation.
On March 19, 2021, the Company sold 78,500 Preferred Series B
shares to an accredited investor, realizing gross proceeds of
$78,500, and the agreement was accounted for as a liability based
on the terms of the Preferred Series B designation.
On April 22, 2021, the Company sold 53,750 Preferred Series B
shares to an accredited investor, realizing gross proceeds of
$53,750, and the agreement was accounted for as a liability based
on the terms of the Preferred Series B designation.
On May 27, 2021, the Company sold 43,500 Preferred Series B shares
to an accredited investor, realizing gross proceeds of $43,500, and
the agreement was accounted for as a liability based on the terms
of the Preferred Series B designation.
On March 8, 2021, the Company sold a convertible note with a face
value of $215,000. The note carries interest at 10% annually with a
maturity date of March 8, 2022, with a Conversion Price that shall
be equal to the lesser of $0.10 per share (the “Fixed Conversion
Price”), or seventy percent (70%) of the average the three (3)
lowest traded prices during the twenty (20) consecutive trading day
period ending on the trading day immediately prior to the
applicable conversion date.
On March 16, 2021, the Company sold a convertible note with a face
value of $215,000. The note carries interest at 10% annually with a
maturity date of March 16, 2022, with a Conversion Price that shall
be equal to the lesser of $0.10 per share (the “Fixed Conversion
Price”), or seventy percent (70%) of the average the three (3)
lowest traded prices during the twenty (20) consecutive trading day
period ending on the trading day immediately prior to the
applicable conversion date.
On March 25, 2021, the Company sold 1,314,188 registered common
shares at a price of $0.06 for a total purchase price of $78,851.28
from the Registration Statement effective November 19, 2020.
On May 20, 2021, the Company sold a convertible note to an
accredited investor for proceeds of $130,000 at 8% per annum with a
maturity date of May 20, 2022, with a Conversion Price of Common
Stock equal to 60% of the lowest trading price of the Common Stock
which the Company’s shares are traded for the fifteen prior trading
days of Notice of Conversion.
On June 16, 2021, the Company sold a convertible note to an
accredited investor for proceeds of $135,000 at 8% per annum with a
maturity date of June 16, 2022, with a Variable Conversion Price at
a discount rate of 35% for the average of the two (2) lowest
Trading Prices for the Common Stock during the fifteen (15) Trading
Day period ending on the latest complete Trading Day prior to the
Conversion Date.
Other Disclosures and Event Subsequent to Last Reporting Period
Ending May 31, 2021
After May 31, 2021, the Company repaid two convertible notes
payable with aggregate principal of $47,009.22.
On June 9, 2021, the Company entered into an amendment of a
material definitive agreement previously entered into on September
30, 2020. The parties to the amended agreement are the Registrant
and Marijuana Company of America, Inc. There is no material
relationship between the Registrant and Marijuana Company of
America, Inc. other than with respect to the material definitive
agreement. The Registrant and Marijuana Company of America amended
the previously disclosed share exchange agreement to:
(i) jointly waive the provisions of a lock up leak out agreement
applicable to the share exchange. The lock up leak out agreement
prevented sale of the exchanged stock for a period of 12 months
following issuance, and limited the subsequent sale to aggregate
maximum sale value of $20,000 per week, or $80,000 per month;
and,
(ii) delete Article II, Sections 2.3 and 2.4 providing for
quarterly review of each parties stock price, possibly resulting in
additional issuances of shares of common stock to true up the
Parties respective holdings of exchanged shares in the event that
the Parties price for its respective common stock yielded a value
of less than $650,000.
The amended agreement also required the Company to issue an
additional 618,000 shares of unregistered common stock to Marijuana
Company of America, Inc., in consideration for a release of claims
related to the Registrant’s failure to conduct quarterly reviews
pursuant to Article II, Sections 2.3 and 2.4.
On June 11, 2021, the Registrant and Robert L. Hymers, III amended
a material definitive agreement originally entered into on August
31, 2020, previously reported on Form 8-K on September 1, 2020. The
August 31, 2020, agreement obligated the Registrant to pay Mr.
Hymers $20,000 per month, to retire a $540,000 debt connected to a
stock purchase agreement, whereby the Registrant acquired 266,667
shares of common stock of Natural Plant Extract of California Inc.
As of the date of the amendment, the Registrant owed Mr. Hymers
$440,000. The parties agreed to exchange the Registrant’s
obligations to make monthly payments under the stock purchase
agreement for a Convertible Note for the same amount with a
conversion price of $0.04 per share.
On June 11, 2021, director Jim Riley resigned. Mr. Riley did not
hold any other positions with the Registrant, and did not
participate in any committee of the board. Mr. Riley’s decision to
resign as director was not due to any disagreement with the
Registrant.
On June 16, 2021, the Company sold a convertible note to an
accredited investor for proceeds of $135,000 at 8% per annum with a
maturity date of June 16, 2022 with a Variable Conversion Price at
a discount rate of 35% for the average of the two (2) lowest
Trading Prices for the Common Stock during the fifteen (15) Trading
Day period ending on the latest complete Trading Day prior to the
Conversion Date.
On June 17, 2021, the Company amended its articles of incorporation
to increase the number of its authorized shares from 290 million to
500 million shares, par value $0.001 per share.
EXECUTIVE AND DIRECTOR COMPENSATION
Compensation of Directors
Our directors, Tabatabaei, Manolos and Nguyen 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 99,940,028 common shares, which
includes 84,940,028 outstanding as of August 26, 2021 and an
additional 15,000,000 shares of common stock that could be issued
under the Purchase Agreement, assuming all shares are sold.
Officers and Directors |
|
Amount and Nature of Beneficial Ownership |
|
Percentage of Class Beneficially Owned |
Dan Van Nguyen |
|
|
2,888,889 |
|
|
|
2.9 |
% |
Edward Manolos |
|
|
15,772,828 |
|
|
|
15.28 |
% |
Arman
Tabatabei(1) |
|
|
3,300,000 |
|
|
|
3.3 |
% |
Melissa
Riddell(3) |
|
|
543,333 |
|
|
|
0.5 |
% |
All
Directors and Executive Officers as a Group |
|
|
22,505,050 |
|
|
|
22.5 |
% |
(1) Mr. Tabatabaei is chairman, CEO, CFO, treasurer, and
Secretary of the corporation.
(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 no 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) |
Former
Director, Mr. Riley received no 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. . On February 18, 2020, Mr. Riley
was compensated with an additional 360,000 restricted common
shares. |
(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 (ii) 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”):
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. Currently, 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. |
Biographies
Arman Tabatabaei. - Mr. Arman Tabatabaei (Age 38), 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.
Edward Manolos. - Mr. Edward Manolos (Age 47), 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 (OTC: MCOA). In 2016, Mr. Manolos
was appointed to the advisory board of Marijuana Company of America
and Cannabis Strategic Ventures (OTCQB: NUGS) and was tasked with
identifying and structuring strategic partnerships and driving
product development.
Dan Nguyen. - Dan Nguyen (Age 47), 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 Riddell (Age 38) was added to the board of directors on
February 3, 2020. Since the beginning of the Registrant’s last
fiscal year to the effective date of Ms. Riddell’s appointment, Ms.
Riddell has not been a participant, nor has she had any direct or
indirect material interest in any transaction in which the
Registrant was or is to be a participant, and the amount involved
exceeded $120,000. There is no any arrangement or understanding
between Ms. Riddell and any other person(s) pursuant to which she
was or is to be selected as a director. Ms. Riddell has extensive
knowledge in food sciences and substantial industry experience in
areas of interest to the Registrant.
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, who 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 84,940,028 outstanding as of August
26, 2021 and immediately prior to the filing of this
prospectus.
Officers,
Directors and Others |
|
Amount
and Nature of Beneficial Ownership |
|
Percent
of Class Beneficial Ownership |
Edward
Manolos |
|
|
15,772,828 |
|
|
|
18.6 |
% |
H
Smart, Inc. |
|
|
7,222,222 |
|
|
|
8.5 |
% |
Arman
Tabatabaei |
|
|
3,330,000 |
|
|
|
3.9 |
% |
Dan
Van Nguyen |
|
|
2,888,889 |
|
|
|
3.4 |
% |
Jim
Riley(1) |
|
|
500,000 |
|
|
|
0.5 |
% |
Melissa
Riddell |
|
|
543,333 |
|
|
|
0.5 |
% |
All
Directors and Executives as a Group |
|
|
34,439,494 |
|
|
|
40.5 |
% |
(1) Mr. Riley resigned as
director on June 11, 2021.
Changes in Control
As of the date of this Prospectus, we are not aware of any
arrangement that may result in a change in control of our
company.
CERTAIN RELATIONSHIPS AND FEE TRANSACTIONS
Transactions with Related Persons
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.
In October 2017 – August 31, 2018, we 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, we 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.
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, we 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, we 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 6 - Notes Payable.
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 considers these transactions as
transactions with related persons, promoters, and certain control
persons.
During the three months ended February 29, 2020, we 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 our 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. Mr. Hymers 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 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. Hymers 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 then Chief Financial Officer (the
“CFO”), whereby Mr. Hymers resigned, and we 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. Mr. Hymers 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.
On November 16, 2020, we entered into a business acquisition
agreement with Ethos Technology LLC, dba Comply Bag, a California
limited liability company (“Ethos”). Ethos is a development stage
business in the process of entering the market for cannabis
trackable storage bags. By virtue of the agreement, Ethos sold,
assigned, and transferred to the Company all of Ethos’ business,
including all of its assets and associated liabilities, in exchange
for the Company’s issuance of an aggregate of 6,000,000 common
shares. 3,000,000 shares were due at signing, with 1,500,000 shares
being issued to Edward Manolos, and 1,500,000 shares being issued
to Thang Nguyen. Mr. Manolos is a director of the Company and a
related party. Mr. Nguyen is the brother of Dan Van Nguyen, a
director of the Company and a related party. After Ethos ships
orders for Ethos products equaling $1,000,000 to unaffiliated
parties, the Company will issue to Messrs. Manolos and Nguyen an
additional 1,500,000 shares of common stock each.
On November 16, 2020, the Company sold an aggregate 3,000,000
shares of Company common stock, par value $0.001, equal in value to
$177,000 based on the closing price on November 16, 2020. Of the
total sold, 1,500,000 shares of common stock were sold to Edward
Manolos and 1,500,000 shares of common stock were sold
to Thang Nguyen. The sales were made in regard to the
Company’s acquisition of Ethos, and its disclosures under Item 1.01
are incorporated herein by reference. The Company issued the
above shares of its common stock pursuant to the exemption from the
registration requirements of the Securities Act of 1933, as
amended, available to the Company by Section 4(a)(2) promulgated
thereunder due to the fact that it was an isolated issuance and did
not involve a public offering of securities. Messrs. Manolos and
Nguyen were “accredited investors” and/or “sophisticated investors”
pursuant to Section 501(a)(b) of the Securities Act, who provided
the Company with representations, warranties and information
concerning their qualifications as “sophisticated investors” and/or
“accredited investors.” The Company provided and made available to
Messrs. Manolos and Nguyen full information regarding its business
and operations. There was no general solicitation in connection
with the offer or sale of the restricted securities. Messrs.
Manolos and Nguyen acquired the restricted common stock for their
own accounts, for investment purposes and not with a view to public
resale or distribution thereof within the meaning of the Securities
Act. The restricted shares cannot be sold unless subject to an
effective registration statement by the Company, or by an exemption
from registration requirements of Section 5 of the Securities
Act—the existence of any such exemption subject to legal review and
approval by the Company.
On January 27, 2021, Cannabis Global, Inc. (the “Registrant”)
closed a material definitive agreement (MDA) with Edward Manolos, a
director and related party. Pursuant to the MDA, the Registrant
purchased from Mr. Manolos 266,667 shares of common stock in
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 privately held corporation. Under the
terms of the MDA, the Registrant acquired all beneficial ownership
over the NPE shares in exchange for a purchase price of two million
forty thousand dollars ($2,040,000). In lieu of a cash payment, the
Registrant agreed to issue Mr. Manolos 11,383,929 restricted common
shares, valued for purposes of the MDA at $0.1792 per share. In
connection with the MDA, the Registrant became a party to a
Shareholders Agreement 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. Additionally,
the Registrant intends, upon completion of the terms and conditions
of the Material Definitive Agreement, to control the production,
manufacturing, and distribution of both NPE and the Registrant’s
products.
On May 12, 2021, we entered into an agreement to operate a joint
venture through a new Nevada corporation named MCOA Lynwood
Services, Inc. Mr. Edward Manolos is a director of both parties to
the agreement and this the agreement was an agreement between
related parties. The parties agreed to finance a regulated and
licensed laboratory to produce various cannabis products under the
legal framework outlined by the City of Lynwood, California, Los
Angeles County, and the State of California. We own a controlling
interest in Natural Plant Extract of California, Inc., which
operates a licensed cannabis manufacturing operation in Lynwood,
California. As its contribution the joint venture, MCOA agreed to
purchase and install equipment for joint venture operations, which
will then be rented to the joint venture, and also provide funding
relating to marketing the products produced by the capital
equipment. We agreed to provide use of its manufacturing and
distribution licenses; access to its Lynwood, California facility;
use of the specific areas within the Lynwood Facility suitable for
the types of manufacturing selected by the joint venture; and,
management expertise require to carry on the joint venture’s
operations. Ownership of the joint venture was agreed to be 60% in
us and 40% with MCOA. Royalties from profits realized as the result
of sales of products from the joint venture was also agreed to be
distributed as 60% in us and 40% to MCOA. Development of the joint
venture is ongoing and is considered in the development stage.
On May 12, 2021, we entered into a material definitive agreement
not made in the ordinary course of its business. The parties to the
material definitive agreement are the Registrant and Marijuana
Company of America, Inc., a Utah corporation (“MCOA”). Mr. Edward
Manolos is a director of both the Company and MCOA, and thus
agreement is between related parties. Previously, on September 30,
2020, the Registrant and MCOA entered into a Share Exchange
Agreement whereby the Registrant acquired that number of shares of
MCOA’s common stock, par value $0.001, equal in value to $650,000
based on the closing price for the trading day immediately
preceding the effective date, in exchange for the number of shares
of the Registrant’s common stock, par value $0.001, equal in value
to $650,000 based on the closing price for the trading day
immediately preceding the effective date. For both parties, the
Share Exchange Agreement contained a “true-up” provision requiring
the issuance of additional common stock if a decline in the market
value of the parties’ common stock should cause the aggregate value
of the stock acquired pursuant to the Share Exchange Agreement to
fall below $650,000.
Complementary to the Share Exchange Agreement, Registrant and MCOA
entered into a Lock-Up Agreement dated September 30, 2020 (the
“Lock-Up Agreement”), providing that the shares of common stock
acquired pursuant to the Share Exchange Agreement shall be subject
to a lock-up period preventing its sale for a period of 12 months
following issuance and limiting the subsequent sale to aggregate
maximum sale value of $20,000 per week, or $80,000 per month. On
June 9, 2021, the parties amended their securities exchange
agreement to delete the lock up leak out agreement, and the
requirement to conduct quarterly reviews of each party’s respective
stock price for purposes of evaluating whether additional share
issuances are required to maintain the value of exchanged common
shares equal to $650,000. As consideration for the amendment, we
issued MCOA 618,000 shares of restricted common stock. We issued
the common stock pursuant to the exemption from the registration
requirements of the Securities Act of 1933, as amended, available
to the Company by Section 4(a)(2) promulgated thereunder due to the
fact that it was an isolated issuance and did not involve a public
offering of securities.
On May 12, 2021, the parties agreed to operate a joint venture
through a new Nevada corporation named MCOA Lynwood Services, Inc.
The parties agreed to finance a regulated and licensed laboratory
to produce various cannabis products under the legal framework
outlined by the City of Lynwood, California, Los Angeles County,
and the State of California. The Registrant owns a controlling
interest in Natural Plant Extract of California, Inc., which
operates a licensed cannabis manufacturing operation in Lynwood,
California.
As its contribution the joint venture, MCOA agreed to purchase and
install equipment for joint venture operations, which will then be
rented to the joint venture, and also provide funding relating to
marketing the products produced by the capital equipment. The
Registrant agreed to provide use of its manufacturing and
distribution licenses; access to its Lynwood, California facility;
use of the specific areas within the Lynwood Facility suitable for
the types of manufacturing selected by the joint venture; and,
management expertise require to carry on the joint venture’s
operations.
Ownership of the joint venture was agreed to be 60% in us and 40%
with MCOA. Royalties from profits realized as the result of sales
of products from the joint venture was also agreed to be
distributed as 60% to us and 40% to MCOA.
On July 15, 2021, two of our Directors, Edward Manolos and Dan Van
Nguyen, each loaned the Company $22,000. The signed promissory
notes call for annual interest at the rate of 5% per annum and are
due 90 days for issuance.
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.
COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
Our Articles of Incorporation provide that we shall indemnify our
directors and officers to the fullest extent permitted by Nevada
law and that none of our directors will be personally liable to the
Company or its shareholders for monetary damages for breach of
fiduciary duty as a director, except for liability:
|
● |
for
any breach of the director’s duty of loyalty to the Company or its
shareholders; |
|
● |
for
acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of the law; |
|
● |
under
Nevada General Corporation Law for the unlawful payment of
dividends; or |
|
● |
for
any transaction from which the director derives an improper
personal benefit. |
These provisions require us to indemnify our directors and officers
unless restricted by Nevada law and eliminate our rights and those
of our shareholders to recover monetary damages from a director for
breach of his or her fiduciary duty of care as a director except in
the situations described above. The limitations summarized above,
however, do not affect our ability or that of our shareholders to
seek non-monetary remedies, such as an injunction or rescission,
against a director for breach of his or her fiduciary duty.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to our directors, officers and
controlling persons pursuant to the foregoing provisions, we have
been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
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 |
|
|
Interim
Financial Statements |
|
|
|
Condensed
consolidated balance sheets as of May 31, 2021 (unaudited) and
August 31, 2020 (audited) |
F-26 |
|
|
Condensed
consolidated statements of operations for the three and nine months
ended May 31, 2021 and 2020 (unaudited) |
F-27 |
|
|
Condensed
consolidated statements of equity for the nine months ended May 31,
2021 and 2020 (unaudited) |
F-28 |
|
|
Condensed
consolidated statements of cash flows for the nine months ended May
31, 2021 and 2020 (unaudited) |
F-29 |
|
|
Notes
to Condensed Consolidated Financial
Statements (unaudited) |
F-30 |
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 II