UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
WASHINGTON, D.C. 20549
Form 10-K/A
(Amendment No. 1)10-K
(Mark One)
[ X ] xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year endedDECEMBER 31, 20182020
[ ]¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934
For the transition period from _______________________ to __________________________
Commission File Number000-53571000-53571
CANNABIS SATIVA, INC.
(Exact name of registrant as specified in charter)
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Securities registered pursuant to Section 12(b) of the Act:None
Title of each class | Trading Symbol | Name of exchange on which registered | ||
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Securities registered pursuant to Section 12(g) of the Act: Common Stock, Par Value $0.001
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ Nox
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ Nox
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x No¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (22.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated filer o |
Non-accelerated filer o | Smaller reporting company x |
Emerging growth company x |
Indicate by check mark whether the issuer is a shell company (as defined in rule 12b-2 of the Exchange Act).
Yes ¨ Nox
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15U.S.C. 7262(b)) by the registered accounting firm that prepared or issued its audit report. o
Indicate by check mark whether the issuer is a shell company (as defined in rule 12b-2 of the Exchange Act).
Yes ¨ No x
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.
The aggregate market value of the voting and non-voting common stock was $40,554,923 based on 12,713,142 shares held by non-affiliates. The shares were valued at $3.19 per share, that being the closing price onnon-affiliates was $14,000,000 as of June 29, 2018, the last business day of the registrant’s most recently completed second quarter.30, 2020.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ¨ No¨
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of April 1, 2019,2021, there were 22,027,476 (including 584,214 net amount shares held in escrow that are not considered outstanding for financial reporting purposes)28,510,613 shares of the issuer’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933. The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1980).
None.
[EXPLANATORY NOTE]
This Amendment No. 1 to our Form 10-K for the year ended December 31, 2018, is filed for the purpose of adding the Auditor’s Report, the XBRL files and Exhibit 23.1 which were not included with the original filing. Otherwise there are no changes from the original filing.
CANNABIS SATIVA, INC.
TABLE OF CONTENTS TO ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 20182020
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Item 1B. |
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| PART II |
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Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters |
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Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 8. |
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Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
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Item 9B. |
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| PART III |
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Item 10. |
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Item 11. |
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Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
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Item 13. | Certain Relationships and Related Transactions, and Director Independence |
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Item 15. |
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FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements reflect the Company’s views with respect to future events based upon information available to it at this time. These forward-looking statements are subject to certain uncertainties and other factors that could cause actual results to differ materially from these statements. These uncertainties and other factors include, but are not limited to: the ability of the Company to locate business opportunities for acquisition or participation by the Company; the terms of the Company’s acquisition of or participation in a business opportunity; the operating and financial performance of any business opportunity following its acquisition or participation by the Company and the risk factors described herein under the caption “Risk Factors.” The words “anticipates,” “believes,” “estimates,” “expects,” “plans,” “projects,” “targets” and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, changes in assumptions, future events or otherwise.
Part I
Item 1. Description of Business
Cannabis Sativa, Inc., formerly named Ultra Sun Corporation, was incorporated under laws of Nevada in November 2005. We conduct some ofIn 2019, we conducted our operations through our subsidiaries PrestoCorp, Inc. (“PrestoCorp”), a 51% owned Delaware corporation engaged in the telemedicine business, and GK Manufacturing and Packaging, Inc., a 51% owned California corporation that serves as a contract manufacturer of products containing hemp-based CBD. We also own 51% of i-Budtender and 100% of the following subsidiaries: Wild Earth Naturals, Inc. (“Wild Earth”), a Nevada corporation, iBudtender, Inc., a Colorado corporation, Eden Holdings LLC (“Eden”), a Virginia limited liability company, Kubby Patent and Licenses, Limited Liability Company (“KPAL”), a Texas limited liability company and Hi Brands International Inc. (“Hi Brands”), a Nevada corporation. We acquired a wholly-owned subsidiary named Kush, a Nevada corporation, in June 2014 in exchange for shares of our common stock. Since November 2015, Kush has been spun off and is no longer a subsidiary of the Company. Our wholly-owned subsidiaryI-Budtender, Wild Earth, Naturals, Inc. ("Wild Earth") was acquired by us in July 2013 in exchange for shares of our common stock. We acquired a 50.1% interest in our subsidiary iBudtender, Inc., including its wholly-owned subsidiary iBudtender, LLC, a California limited liability company (collectively, "iBudtender") in August of 2016 in exchange for cashEden, KPAL, and shares of our common stock. Effective August 1, 2017, we acquired a 51% interest in PrestoCorp, a Delaware corporation, in exchange for shares of our common stock. From our inception through September 30, 2013, we were engaged in the tanning salonHi Brands are currently inactive. Our business and operated a tanning salon in Saratoga Springs, Utah under the name "Sahara Sun Tanning." As a result of our acquisition of Wild Earth in July 2013, we became engaged in the herbal skin care products business. On September 30, 2013, we sold the assets of the tanning salon business to a third party.strategy is discussed below.
Our common stock is quoted for trading on the OTCOTCQB Market QB under the symbol CBDS.
OurWe currently maintain virtual principal executive offices arewith our staff and contractors located at 1646 W. Pioneer Blvd., Suite 120,remotely and typically working out of their homes. Our mailing address is 450 Hillside Drive, #A224, Mesquite, Nevada 89027. Our telephone number is (702) 346-3906.763-3123.
Business Strategy
In 2021, we intend to focus on continuing to grow our business in three divisions, telemedicine, contract manufacturing, and brand development and marketing of products and services to the cannabidiol (“CBD”) and marijuana industries.
Telemedicine
Management is currently evaluating opportunities to expand the platform for medical marijuana evaluations into other states and is reviewing other telemedicine applications. The COVID-19 pandemic has been a catalyst for expansion
of telemedicine services across the United States, and our existing systems and infrastructure are well suited to provide other similar medical evaluations. The continuing growth of wearable devices and remote monitoring capabilities are further evidence that telemedicine will continue to grow in the coming periods. Growth of the platform to take advantage of these opportunities will require capital for development of new features and capabilities necessary to provide a new service, expansion of personnel and expansion of our contracted physician pool. No assurances can be given that our efforts to expand into new areas and/or provide new services will be successful.
Contract Manufacturing
Early in 2020, we completed the acquisition of certain manufacturing equipment and inventory to commence operations as a contract manufacturer of products containing hemp-based CBD. Our 51% owned subsidiary, GK Manufacturing and Packaging, Inc. (“GKMP”) leases a 16,000 square foot facility in Anaheim, California. GKMP recently completed its certification process as an ISO9000 manufacturer, which the Company expects will allow GKMP to attract new and higher volume customers for its contract manufacturing capabilities. GKMP is currently working with several larger customers to complete test runs that may lead to new contracts later this year.
Contract manufacturing is a competitive sector, particularly in the CBD and marijuana space. GKMP intends to differentiate its business model by providing significant product formulation capabilities and expertise, and by providing best in class customer service. The on-site management team has experience in developing successful proprietary products and in working with customers to produce and package customer specified products that conform exactly to the customers’ expectations. We expected stronger operating results in 2020, but our start-up of the facility coincided with the economic impact from COVID-19, and the resulting uncertainty delayed a number of orders that we anticipated would generate revenue in 2020. The delay from COVID-19 has pushed out our time table for the start-up phase and we will continue to evaluate the business as the economy begins to pick up.
Brand Development and Product Marketing
We are engaged in thehave assembled a portfolio of brands, products, intangible assets, and expertise to allow research, development, acquisition and licensing of specialized cannabis and CBD related products, including cannabis and CBD formulas, edibles, topicals, strains, recipes and delivery systems. We also are engaged in marketing and branding within the cannabis space,and CBD spaces, including our trademark pending "hi" brand and others. We hold a license for a proprietary cannabis lozenge delivery methodology, and a proprietary cannabis trauma cream formula. We have recently been awardedreceived a U.S. patent for a strain of cannabis plant named Ecuadorian Sativa (also referred to as CTS-A or CTA). We also have U.S. patents pending on cannabis-based compositionscomposition and methods of treating hypertensionhypertension. In 2019, we were not able to focus on further development of these assets due to limitations on availability of capital and a lozenge delivery system. Wethe need to devote our energies to growth in the telemedicine space and efforts to acquire contract manufacturing capabilities.
In 2021, we plan to begin to license our intellectual property, including patents, branding and know-how to companies licensed under, and in full compliance with, state regulations applicable to cannabis businesses. Descriptions of our brand portfolio follow:
Through our iBudtender subsidiary, we are in the technology space with proprietary software, and an application (the “iBudtender App”) focused on sharing information between cannabis products, patients and businesses, which application we plan releasing in 2019. The iBudtender App will feature patient reviews, nutritional information, directions, warnings, local availability and more. We intend to monetize this technology through advertisements, business to business sales and additional technology offerings.
Through its 51% owned subsidiary PrestoCorp, the Company operates a proprietary online telemedicine service that allows patients to use secure a confidential video conference technology to speak with a licensed physician for a medical marijuana evaluation. PrestoCorp currently offers its services in California, Nevada and New York and is actively targeting expansion into additional states where medical marijuana is legal.
In addition to licensing, branding and technology, we have the ability to offer, free of charge to patients, mainstream medical prescription discount cards, for which the Company will receive a small percentage on each prescription refill with the hi Benefits Discount Pharmacy Card. The Company has yet to receive monies from prescription refills but expects to do so once cards are distributed and the program implemented. Furthermore, the Company continues to seek the acquisition of companies, intellectual property and other assets that fit within the company's strategic plan of assembling a portfolio of cannabis industry related businesses that have a high growth potential and are accretive to shareholder value.
Wild Earth Naturals, Inc.
Wild Earth Naturals, Inc. is an herbal skin care products formulation and marketing company that targets the growing natural health care products market in the United States and abroad. We intend to develop and manufacture high-quality, herbal based skin care products providing healthier choices to consumers. We use specialized ingredient mixing processes to produce plant glycerite/mineral herbal blends and oil extractions, which we believe will be unique to the natural health products industry. The ingredients for our products are and will continue to be selected to meet a number of criteria, including, but not limited to:to, safety, potency, purity, stability, bio-availability, and efficacy. We plan to control the quality of our products beginning at the formulation stage and continuing through controlled sourcing of raw ingredients, manufacturing, packaging, and labeling.
iBudtenderHi Brands International Inc. On February 6, 2015, the Company formed Hi Brands International Inc., a Nevada Corporation and wholly owned subsidiary of the Company ("Hi Brands"). Hi Brands entered into a Purchase, Supply and Joint Venture Agreement (the "Agreement"), with Centuria Natural Foods, Inc. ("Centuria") to develop a supply of proprietary CBD (Cannabidiol) Rich Hemp Oil products, but the agreement was never implemented and no business was ever transacted. As a result, Hi Brands International, Inc. has been inactive for the last several years. Although the Hi Brands business has been inactive, the Company believes that there is value in the name and that it may afford
iBudtender (www.ibudtender.com)a sound outlet for the Company’s products as we build out our product portfolio and as we bring our contract manufacturing capabilities on-line in 2021.
In order to capitalize on the Hi Brands concept, the Company will require capital for a virtual storefront design, online web presence, virtual shopping cart and e-payment capabilities. The concept may also be an attractive base for physical locations, which would then require capital for facilities, physical storefront and interior design, staffing, inventory, and marketing. Until a suitable capital formation plan can be developed and funded, the Hi Brands concept is likely to remain inactive.
Patents and Intangible Assets. The Company holds a U.S. plant patent (PP 27,475) for a strain of cannabis plant named "Ecuadorian Sativa" (also known as CTS-A and CTA). The patent is assigned to our wholly owned subsidiary, Kubby Patent and Licenses Limited Liability Company. The CTA strain has unique energizing and motivating properties rather than creating the lethargy, sleepiness and increased food consumption common from use of other cannabis plant products. The Company believes products derived from Ecuadorian Sativa may be particularly suited to members of the baby boom generation that want to experience the benefits of marijuana use without the incapacitating high common with more psychoactive strains. The aging population has shown a willingness to use marijuana to address aches and pains caused by normal aging but may be unwilling to have their faculties significantly impaired in the process. The Company is currently evaluating Ecuadorian Sativa for further development and expects the evaluation to continue in 2020. The patented strain is also licensed on a non-exclusive basis to Kush, Inc., formerly a subsidiary of the Company that was spun out as a separate entity in 2017. The Company and Kush are working together on plans for further development of products utilizing the patented strain, but it is possible that Kush could become a competitor of ours at some point in the future.
The Company is also pursuing additional patents and proprietary formulations on cannabis-based compositions and methods of treating hypertension and lozenge delivery systems. These proprietary products will be added to the overall product portfolio and branding platform at an online portal that offersappropriate future date.
iBudtender. We have also been developing proprietary software, and an application (the “iBudtender App”) focused on sharing information between cannabis products, patients and patient reviews on marijuana dispensaries, cannabis businesses, marijuana strains, edibles, concentrates and products.businesses. iBudtender's software has been designed to help cannabis patients find cannabis products that are right for them via patient reviews, to provide nutritional information, directions, warnings and information on local availability;availability, and to order itproducts locally for pickup or delivery. The iBudtender business platform for dispensary owners, delivery services owners and manufacturers is designed to increase business as well as promote data sharing in an effort to help patients find the best and most effective products. The development of the iBudtender App was stopped in 2020 by limited availability of growth capital and limited resources. While we believe there is still a need for the iBudtender App, as the marijuana market has matured, competition has intensified, and the window of opportunity has narrowed. Further evaluation will take place in the second quarter of 2021 and a decision will be made then on further development of the iBudtender App.
PrestoCorpOther Opportunities. In addition to licensing, branding and technology, we have the ability to offer, free of charge to patients, mainstream medical prescription discount cards, for which the Company will receive a small percentage on each prescription refill with the hi Benefits Discount Pharmacy Card. This concept has not been implemented and is likely to be a lower priority than the other opportunities mentioned above.
Eden Holdings LLC
Eden Holdings LLC ("Eden Holdings") was formed under the laws of Virginia as a wholly owned subsidiary of the Company. Eden Holdings was formed on August 8, 2014, for the purpose of holding the intellectual property of the Company. As of December 31, 2018 and 2017, there has been no activity in Eden Holdings.
Hi Brands International Inc.
On February 6, 2015, the Company formed Hi Brands International Inc., a Nevada Corporation and wholly owned subsidiary of the Company ("Hi Brands"). On February 25, 2015, Hi Brands entered into a Purchase, Supply and Joint Venture Agreement (the "Agreement"), with Centuria Natural Foods, Inc. ("Centuria") whereby Cannabis Sativa would market Centuria's proprietary CBD (Cannabidiol) Rich Hemp Oil products. No business was ever transacted under the Agreement. The Agreement was terminated on October 6, 2016, by the mutual consent of the parties. As of December 31, 2018 and 2017, there has been no activity in Hi Brands other than the execution of and the termination of the Agreement.
Kubby Patent and Licenses, Limited Liability Company ("KPAL").
KPAL is a Texas limited liability company which holds the Company's U.S. patent for a strain of cannabis plant named "Ecuadorian Sativa" (also known as CTS-A and CTA) and patent applications on cannabis-based compositions and methods of treating hypertension and a lozenge delivery system. During the year ended December 31, 2016, the U.S. Patent and Trademark issued a patent to KPAL for the Ecuadorian Sativa strain of cannabis.
Perceived Cannabis Industry Trends
We believe the cannabis industry will be characterized by the following principal trends: an
increased emphasis on high quality products; an increased emphasis on scientific validation for products in the market place; more liberal regulation in regard to cannabis, even under the current administration as states' rights continue to emerge; more consolidation, take-over, and buy-out of companies in the retail, wholesale, and supply side channels; more mainstream companies entering the marketplace; and more funded research on the potential long-term health benefits of cannabis as well as its potential curative properties.
Vision
Our vision is to become a highly visible, diversified, international business promoting superior quality branded products and services and offering effective customer service, fair compensation, sound management and a great working environment. Over time, we plan to expand our branding, research and development, intellectual properties and licensing activities to reach markets worldwide.worldwide covering telemedicine, education (through the iBudtender App or some other framework). In order to achieve this vision, our goal is to develop and/or acquire manufacturing capabilities, intellectual property, and brands which will allow our licensees to provide innovative and effective medicinal cannabis products and cost-effective alternatives for customers seeking quality, affordable natural health products to aid in wellness and appearance. In conducting our day-to-day operations, we will strive to:
• ·Treat all colleagues and co-workers with respect & fairness.
• ·Follow a philosophy that says, "Delivering quality and customer satisfaction is our business."
• ·Develop and enhance the skills of itsour associates with the intention of providing financially rewarding business opportunities.
Through a long-term commitment to this vision statement, we hope to become known as a company that is committed to its customers, associates, and communities.
Products
Online Telemedicine. Through PrestoDoctor we provide access to knowledgeable physicians for a safe and confidential way to get a medical marijuana recommendation using secure video conferencing technology. Our online telemedicine generates over 95% of our revenues.
Contract Manufacturing Services. Through GK Manufacturing and Packaging, Inc., we are beginning to provide contract manufacturing capabilities to a wide range of customers for a wide range of products for the hemp based-CBD market sector. We did not generate significant revenues from contract manufacturing in 2020 but are evaluating steps to increase revenues and cash flows in this operating division so that this division is cash flow positive in 2021.
Consumer Products. Through December 31, 2018, the balance of2020, the products discussed below in this section are conceptual and have produced no significant revenues. We had intended to pursue the strategy described below in 2020, but the COVID-19 impacts largely shifted our strategic implementation plans to 2021. In the remainder of 2021, we expect to begin production on some of these products using our contract manufacturing arm for manufacturing when feasible. Our goal for 2021 is to solidify the branding and product marketing programs for the following products:
·Proprietary Cannabis Strain. The Company owns a patented cannabis sativa plant strain known as Ecuadorian Sativa or "CTA". The Company intends to further research the CTA strain and to ultimately monetize this intellectual property through licensing agreements in conjunction with state medical marijuana laws as well as establish business relationships with scientific research organizations to develop agricultural biologic applications based upon specific plant strain research and development methodologies.
·Lozenges and Edibles. The Company owns intellectual property (recipes and process/methods) for use in medical marijuana edibles and lozenges. The Company's proprietary lozenge isoffers rapid relief, unlike other edibles of which may take up to an hour or more to take effect. Based upon preliminary results, our lozenges generally take effect within a period of five to 15 minutes. We believe the rapid acting
characteristics of our lozenges will overcome a major issue with cannabis consumption, which has been the need to inhale cannabis in order to receive a rapid response. In addition to the lozenges, we have other forms of edibles under development.
·Recover. Recover Deep Penetrating Healing Balm is a fast actingfast-acting anti-inflammatory pain reliever for sore muscles, joints, arthritic and back pain. Organic with hemp seed oil, menthol, capsicum, and black pepper.
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Trauma Cream. Developed for blended infusion of cannabinoids and THC; Arnica is a primary ingredient for its numbing effect.
·Face Garden. An antioxidant, moisturizing cream for the face. The ingredients in this formula include DMAE, Vitamins Ester C, B5, Oils of Evening Primrose and Borage Seed, which are believed to firm the skin and reduce puffiness and wrinkles, while restoring the skin to a natural glow and supple appearance. Hempseed, Neem, and Jojoba Oils are added to lock in moisture.
·Body Garden. A moisturizing body lotion designed to relieve itchy dry skin and protect against sun damage. The ingredients in this formula include Hempseed Oil, Green Tea, and Blue Green Algae. The organic herbs, essential oils, butters, and minerals used in "Body Garden" have been formulated to provide nutrition to the skin which we believe encourages the dermis to remain healthy or return to health.
·Lip Garden. An emollient balm containing Vitamin E and Hemp Butter that we believe can assist with healing of the lips while keeping them supple and moist.
·Clothing and Merchandise. We offer Wild Earth Naturals and "hi" branded logo men's and women's fashion tee shirts and sweatshirts from American Apparel, as well as caps and coffee mugs through the Company's www.wildearthnaturals.com website. However, as of the date of this filing the website is not operational. We expect that it will be operational again later in 2019.2021.
·Cut Cream. Through the acquisition and initiation of operations of GK Manufacturing and Packaging, we acquired a cut cream product formulation that has proven effective at healing the effects of bare knuckle fighting, boxing and MMA fighting. We also recently retained Stitch Duran, a preeminent cut man with a world-wide reputation in the fight industry, to promote the product.
Objectives
Our current strategy is to continue prosecutionto promote and grow the telemedicine business under our PrestoDoctor brand, while also focusing on the start-up and ramp up of the pending patents,operations in our contract manufacturing business. We also intend to develop and acquire new patents when warranted, as well as developing or acquiring trade secrets, trademarks and other intellectual property.property that extends our reach in our targeted markets. In addition, we will seek new branding and licensing opportunities for our intellectual property, and we will seek strategic corporate and product acquisitions.
Marketing & Distribution
Market Conditions in the Cannabis IndustryIndustry.
Our target markets are those wherelocated in states that have legalized the production and use of cannabis. TenEleven states plus the District of Columbia have approved measures to legalize cannabis for adult recreational use. Thirty-twoThirty-three states, the District of Columbia and the territories of Guam and Puerto Rico have legalized the use of cannabis for medical use in some form. However, it may take multiple years for a state to establish regulations and for cannabis businesses to begin generating revenue from operations in a given state.
Non-Infused Products and MerchandiseMerchandise.
We launched our wildearthnaturals.comwww.wildearthnaturals.com website in August 2013, employing high quality graphic artists and designers. We intend to use social media, primarily Facebook, to drive traffic to our websites. Our online stores at www.wildearthnaturals.com are not producing salesrevenue at this time.time, but the website is active and ready to process sales orders once the Company rolls out the brand development and product marketing plan for our consumer products lines.
During 2019,2021, we plan to utilize direct business to business sales, internet advertising, social media market, and trade show participation to generate sales leads, orders and to entry into leading retailers and wholesalers throughout the U.S. No assurances can be given that we will be successful in such efforts.
Infused ProductsProducts.
For cannabis infused products, we are developing our customer base through licensing agreements with third parties who are compliant with state cannabis laws in the states in which they conduct business.
We plan to build brand awareness by utilizing a mix of social media, trade shows, education efforts, and direct marketing to targeted businesses.
Geographic PresencePresence.
We plan to build brand awareness for our products in states where medical cannabis is legal, and to sell non-infused products throughout the United States.
Competition
Cannabis IndustryIndustry.
While we do not sell cannabis, we expect to license our intellectual property to others in the future who doto businesses that will sell cannabis in states where medicinal cannabis is legal. Therefore, we look to the participants in the medical cannabis market for information on competition, as such competition will have an effect on our ability to license our branding and other intellectual property.
We believe the competition in the cannabis market will include numerous cannabis product companies that are highly fragmented in terms of geographic market coverage, distribution channels and product categories – with companies taking a state by state approach. We believe that competition is principally based upon price, quality, efficacy of products, branding, marketing, customer service, and trade support. We anticipate that large pharmaceutical companies maywill eventually begin to more aggressively compete in the cannabis product market. These companies and certain larger entities may have broader product lines and/or larger sales volumes than companies such as ours our those of our licensees. Larger entities entering this market may have significantly greater financial and other resources available to them and possess extensive manufacturing, distribution and marketing capabilities. We anticipate that many of the larger competitors will be able to compete more effectively due to a greater extent of vertical integration. The entry of larger competitors could have a material adverse effect on our results of operations and financial condition.
Skin CareCare.
Our competition includes numerous skin care companies that are highly fragmented in terms of geographic market coverage, distribution channels, and product categories. In addition, large pharmaceutical companies compete with us in the skin care market. These companies and certain large entities have broader product lines and larger sales volumes than us and have greater financial and other resources available to them and possess extensive manufacturing, distribution and marketing capabilities. Among our more prominent competitors are: Earthly Body, Burt's Bees, Melaleuca and Clarins, all of which have substantially longer track records and greater financial resources and operating efficiencies than do we. As a company with limited capital resources, we believe we will be at a competitive disadvantage until such time as we develop a broad portfolio of products that are known and accepted in the industry and we are able to demonstrate a history of financial stability. There can be no assurance that we will be able to compete effectively in the market.
TechnologyTechnology.
The competition against our information technology platform iBudtender.com and the iBudtender App, both of which will be releasedwe had hoped to release in 2019,2020, include companies such as Weedmaps, Leafly, MassRoots, and Leafstrain. Competition in the information technology market for cannabis is growing rapidly and many of our competitors are have more experience and greater financial resources than do we. As a company with limited capital resources, we may be at a competitive disadvantage in a rapidly changing information technology market.
Raw Materials and Suppliers
Our products are produced using ingredients that we believe to be readily available from several sources. We purchase our raw materials from a number of different vendors. Our apparel and merchandise are procured through Printful.com. While we expect the raw materials we use to be readily available in normal times, the current COVID-19 pandemic has disrupted elements of the supply chain and we cannot determine the effect such disruptions may have on the availability of raw materials in future periods.
Intellectual Property
We hold certain intellectual property (the "IP") consisting of reciperecipes and process/methodmethods to maximize the cannabinoid concentrations to be used to make a medical marijuana ("MMJ") edible or to make a MMJ lozenge. We also hold rights to a proprietary recipe and process/method to maximize the cannabinoid concentrations to be used to make a salve/ointment containing CBD and Arnica Montana.
We also hold the rights of a patent for the CTA strain of cannabis and we hold two patent applications filed with the U.S. Patent and Trademark Office with regard to use of the CTA strain in a lozenge and as a treatment for hypertension. We are continuing to pursue these applications; however, no assurances can be given that the remaining patent applications will result in the issuance of any patents.
We are also pursuing the "hi" mark in several categories filed with the U.S. Patent and Trademark Office. An objection has been filed by Tweed Corporation which wishes to use the mark on apparel. Settlement talks are ongoing. The Company uses (or licenses) the "hi" branding for skin care products, edibles (infused and non-infused), apparel and branded merchandise.
We hold a Federal trademark on the name and stylized branding of "Wild Earth Naturals". We have acquired the following registered U.S. Trademarks: Cannabis*Sativa(R), DISPENSARxY(R), and CannaRx(R). The IP identifiers are Cannabis*Sativa(R), Registration Number 4,868,622, DISPENSARxY(R), Registration Number 4,642,830 and CannaRx(R), Registration Number 4,725,687. The Marks are registered in CL 35 under Goods and Services. No assurance can be given that such steps as the company has and will take will provide sufficient protection against potential competitors and we may be unable to successfully assert our intellectual property rights or these rights may be invalidated, circumvented or challenged. Any such invalidity, particularly with respect to our product names, or a successful intellectual property challenge or infringement proceeding against us, could have a material adverse effect on our business.
Effect of Existing or Probable Governmental Regulations on the Business
Currently, our products consist of a telemedicine service and we are establishing contract manufacturing capabilities for products containing Hemp-based CBD. We do not, at this time cultivate, process or sell products derived from cannabis plants or products containing THC. We do hold patents and intellectual property relating to cannabis and cannabis derived products, and our business plan envisions that we may seek to begin selling cannabis or cannabis derived products at some point in the future. Accordingly, while the following discussion on governmental regulation is not directly applicable to the Company today, we may become subject to these regulations in the near future.
Cannabis is currently a Schedule I controlled substance under the Controlled Substances Act (CSA) and is, therefore, illegal under federal law. Even in those states in which the use of cannabis has been legalized pursuant to state law, its use, possession or cultivation remains a violation of federal law. A Schedule I controlled substance is defined as one that has no currently accepted medical use in the United States, a lack of safety for use under medical supervision and a high potential for abuse. The U.S. Department of Justice (the "DOJ") defines Schedule I controlled substances as "the most dangerous drugs of all the drug schedules with potentially severe psychological or physical dependence." If the federal government decides to enforce the CSA, persons that are charged with distributing, possessing with intent to distribute or growing cannabis could be subject to fines and/or terms of imprisonment, the maximum being life imprisonment and a $50 million fine, even though these persons are in compliance with state law.
In light of such conflict between federal laws and state laws regarding cannabis, the previous administration under President Obama had effectively stated that it was not an efficient use of resources to direct federal law enforcement agencies to prosecute those lawfully abiding by state-designated laws allowing the use and distribution of medical cannabis. The new administration under President Trump could decide to strongly enforce the federal laws applicable to cannabis.See Justice Department Memo on Marijuana Enforcement discussed below.Any such change in the federal government's enforcement of current federal laws could cause significant financial damage to us. While we do not currently harvest, distribute or sell cannabis, we may be irreparably harmed by a change in enforcement policies of the federal government.
The Company and our licensed products will also be subject to a number of other federal, state and local laws, rules and regulations. We anticipate that our licensees and vendors will be required to manufacture our products in accordance with the Good Manufacturing Practices guidelines and will be subject to regulations relating to employee safety, working conditions, protection of the environment, and other items. The current administration has indicated that it will closely scrutinize the cannabis industry, in particular, recreational marijuana. Changes in laws, rules and regulations or the recall of any product by a regulatory authority, could have a material adverse effect on our business and financial condition.
In addition to cannabis related regulations, our skin careskincare and nutraceuticalsnutraceutical products are subject to a number of federal, state and local laws, rules and regulations. We are required to manufacture our products in accordance with the Good Manufacturing Practices guidelines and we are also subject to regulations relating to employee safety, working conditions, protection of the environment, and
other items. Changes in such laws, rules and regulations or the recall of any product by a regulatory authority, could have a material adverse effect on our business and financial condition.
Justice Department MemoPosition on Marijuana Enforcement
Because of the inconsistencies in federal and state law, on January 4, 2018, the Department of Justice (DOJ) issued a memo on federal marijuana enforcement policy announcing what it deemed to be a return to the rule of law and the rescission of previous guidance documents, which would includeincluding the so called Cole Memorandum. Since the passage of the Controlled Substances Act in 1970, Congress has generally prohibited the cultivation, distribution, and possession of marijuana. There continues to be uncertainty respecting the enforcement of prohibitions against cultivation, distribution and possession of marijuana and the Company is monitoring the situation closely. In the memorandum, Attorney General Jeff Sessions directs all U.S. Attorneysevent a change is announced, the Company will consider taking actions to enforce the laws enacted by Congress and to follow well-established principles when pursuing prosecutions related to marijuana activities. The DOJ asserts this return to the rule of law is also a return of trust and local control to federal prosecutors who know where and how to deploy Justice Department resources most effectively to reduce violent crime, stem the tide of the drug crisis, and dismantle criminal gangs.
"It is the mission of the Department of Justice to enforce the laws of the United States, and the previous issuance of guidance undermines the rule of law and the ability of our local, state, tribal, and federal law enforcement partners to carry out this mission," said Attorney General Jeff Sessions. "Therefore, today's memo on federal marijuana enforcement simply directs all U.S. Attorneys to use previously established prosecutorial principles that provide them all the necessary tools to disrupt criminal organizations, tackle the growing drug crisis, and thwart violent crime across our country."protect its business if warranted.
We intend to conduct rigorous due diligence to verify the legality of all activities that we engage in and ensure that our activities do not interfere with any of the enforcement priorities of the Department of Justice.
COVID-19
COVID-19 was declared a pandemic by the World Health Organization and the Centers for Disease Control and Prevention. Its rapid spread around the world and throughout the United States prompted many countries, including the United States, to institute restrictions on travel, public gatherings and certain business operations. These restrictions significantly disrupted economic activity in the United States and Worldwide. In retrospect, the pandemic did have a negative impact on the contract manufacturing business start-up (primarily delay) and had a positive impact on our telehealth business through loosening of regulations allowing telehealth services and an increase in persons seeking telehealth services to avoid in person visits to doctors offices. ON a combined basis, the COVID-19 disruption did not materially impact the Company’s financial statements. It now appears that the impacts from COVID are lessening and we anticipate a general improvement in the contract manufacturing space in 2021.
Research and Development
We plan to conduct research, develop products and engage in development activities with an initial focus on the following:
• ·Consider and research telemedicine platforms and expansion opportunities that can supplement or enhance the PrestoDoctor platform and business operations;
·Identify and research Hemp derived CBD oils and related products to determine quality, availability, and efficacy in order to formulate and manufacture new CBD products;
·Identify and research new strains of cannabis and combinations of cannabis and cannabinoid nutrients that may be candidates for new products;
• ·Identify and research products, including intellectual property, that will benefit enhance or benefit the cannabis industry, from cultivation to consumers;
• ·Introduce new herbal ingredients for use in supplements;
• ·Study the metabolic activities of existing and newly identified ingredients;
• ·Enhance existing products, as new discoveries in cannabis are made;
• ·Formulate products to meet diverse regulatory requirements across all of its markets;
•
·Investigate processes for improving the production of its formulated products; and
• ·Investigate activities of natural extracts and formulated products in laboratory and clinical settings.
It is through our internal research and development efforts and our relationships with outside research organizations and health care providers that we believe we will be able to develop high quality products. We plan for our research and development activities to include developing products that are new to the industry, updating existing formulas to keep them current with the latest science, and adapting existing formulas to meet ever-changing regulations in new and existing domestic markets. We will select our ingredients to meet a number of criteria, including, but not limited to:to, safety, potency, purity, stability, bio-availability,bioavailability, and efficacy. We will require our licensees and vendors to control the quality of our products beginning at the formulation stage and maintain quality control through controlled sourcing of raw ingredients, manufacturing, packaging, and labeling. Going forward, we intend to increase our spending and resources for research and development.
Environmental Laws
We have no known costs, and none are anticipated, from environmental laws, rules and regulations.
Number of Total Employees and Number of Full Time Employees
As of March 20, 2019,April 1, 2021, we have no employees in Cannabis Sativa, Inc. During the year ended December 31, 2020, the Company had one employee, notindependent contractor arrangements with five officers and directors, and eight outside service providers. PrestoCorp has six employees, including our five executivetwo officers who receive non-cash salary.of PrestoCorp, and GK Manufacturing and Packaging, Inc. has a variable workforce, including two officers of GK. Our employees are not represented by unions and we consider our relationship with our employees to be good. The Company also has relationships with several independent contractors who provide services to the Company on a regular and on-going basis.
Facilities
Our officeDuring all of 2020, CBDS operated out of virtual offices maintained by our officers, directors and warehouse facility is located at 1646 W. Pioneer Blvd., Suite 120, Mesquite, Nevada. The leased space constitutes a total of approximately 900 square feet. The building is in an industrial park setting, and a new exit off of Interstate 15 was recently completed, indicating more growth in the area which is the fastest growing city in Nevada. We pay a total of $600 per month for our space. We signed a new 12 month lease on September 1, 2018, that has an option to renew of an addition 12 months.contractors.
Our subsidiary PrestoDoctor leases an office in New York on a month-to-month basis for $800$2,444 per month. Our subsidiary GK Manufacturing and Packaging Inc. operates out of a 16,000 square foot facility in Anaheim, California. The monthly lease for the office, manufacturing and warehouse space in Anaheim is $20,000 per month plus triple net charges of $2,120 per month or $11,120 per month total. The Anaheim lease term runs from April 1, 2020, through March 31, 2021.
Not required.
Item 1B. Unresolved Staff Comments.
None
We are not a party to any material legal proceedings, and, to the best of our knowledge, no such legal proceedings have been threatened against us. We are currently working to resolve a disagreement between the principal officers of PrestCorp and the Company, and we believe that the disagreements will be amicably resolved without resort to dispute resolution proceedings.
Item 4. Mine Safety Disclosures.
Not Applicable.
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our shares of common stock are quoted on the OTCQB by the OTC Markets Group Inc. of the Financial Industry Regulatory Authority, Inc. (“FINRA”) under the symbol “CBDS”. Set forth below are the high and low closing bid prices for our common stock for each quarter of 2017 and 2018. All prices listed herein reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not represent actual transactions.
Period | High | Low |
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January 1, 2017 through March 31, 2017 | $9.50 | $5.45 |
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April 1, 2017 through June 30, 2017 | $6.45 | $3.22 |
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July 1, 2017 through September 30, 2017 | $4.95 | $2.61 |
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October 1, 2017 through December 31, 2017 | $8.20 | $2.61 |
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January 1, 2018 through March 31, 2018 | $9.74 | $3.84 |
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April 1, 2018 through June 30, 2018 | $5.29 | $3.00 |
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July 1, 2018 through September 30, 2018 | $8.50 | $1.92 |
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October 1, 2018 through December 31, 2018 | $5.89 | $2.60 |
On March 19, 2019,April 1, 2021, the stock closed at $2.95.$0.73.
Holders of Record
On March 29, 2019,April 1, 2021, there were 5869 holders of record of our common stock, as reported by the Company’s transfer agent. In computing the number of holders of record, each broker-dealer and clearing corporation holding shares on behalf of its customers is counted as a single stockholder.
No Dividends
No dividends have ever been paid on our securities, and we have no current plans to pay dividends in the foreseeable future.
Equity Compensation Plan
During 2017, the Company adopted the Cannabis Sativa, Inc. 2017 Stock Plan which authorizes the board of directors to issue up an aggregate of 3,000,000 shares of common stock to allow the Company to compensate employees and consultants from time to time by issuing them shares of Company common stock in return for services provided to the Company rather than paying for the services in cash thereby depleting the cash assets of the Company. Under the plan there were no set issuances of stock to which any party is entitled. Distributions are only allowed pursuant to the discretion of the board of directors if and when it is in the best interest of the Company to make any distribution. As of April 1, 2021, the Company had issued 3,000,000 shares under the 2017 Stock Plan, leaving no shares available for future issuance under the 2017 Plan.
On September 25, 2020, the Company adopted the Cannabis Sativa 2020 Stock Plan which authorized the Company to utilize common stock to compensate employees, officers, directors, and independent contractors for services provided to the Company. By resolution dated September 25, 2020, the Company authorized up to 1,000,000 shares of common stock to be issued pursuant to the 2020 Stock Plan. This amount was subsequently increased to 2,000,000
shares on January 27, 2021, and all shares under the 2020 Stock Plan were registered with the Securities & Exchange Commission on Form S-8 on January 29, 2021. Registration of the shares in the 2020 Stock Plan allows immediate sale of the shares by the recipient of such shares. As of April 1, 2021, the Company has issued 154,044 shares under the 2020 Plan and has 1,845,956 shares available for future issuance under the 2020 Plan.
Transfer Agent
Colonial Stock Transfer Co., Inc., 66 Exchange Place, Suite 100, Salt Lake City, Utah 84111, telephone (801) 355-5740, serves as the transfer agent and registrar for our common stock.
Recent Sales of Unregistered Securities
During the quarteryear ended December 31, 2018,2020, the Company issued 27,42650,000 shares of restricted common stock for private investment of $25,000. The Company also issued 100,000 shares for acquisition of assets from GK Manufacturing and Packaging, Inc. The Company also issued 571,960 shares of preferred stock to one of our officers for stock payable and 216,895compensation and 4,575,298 shares of restricted common stock to various officers and consultants.consultants for stock payable and compensation. Aggregate stock payable and compensation paid in stock for officers, directors and consultants totaled $2,697,280 for the year.
During the year ended December 31, 2019, the Company issued 125,000 shares of restricted common stock for private investment of $50,000. The Company also issued 262,405 shares of preferred stock to one of our officers for compensation and 852,998 shares of common stock to various officers and consultants for compensation. Aggregate compensation paid in stock and for stock payable for officers, directors and consultants totaled $1,813,639 for the year. The Company also had stock payable for compensation at year end totaling $640,685. This amount was paid through issuance of shares in the quarter ended March 31, 2020.
Special Sales Practice Requirements with Regard to “Penny Stocks”
To protect investors from patterns of fraud and abuse that have occurred in the market for low priced securities commonly referred to as “penny stocks,” the SEC has adopted regulations that generally define a “penny stock” to be any equity security having a market price (as defined) less than $5.00 per share, or an exercise price of less than $5.00 per share, subject to certain exceptions. Our stock is subject to the “penny stock” regulations during periods in which the price is below $5.00 per share. During any such periods, broker-dealers selling our common stock are subject to additional sales practices when they sell our stock to persons other than established clients and “accredited investors.” For transactions covered by these rules, before the transaction is executed, the broker-dealer must make a special customer suitability determination, receive the purchaser’s written consent to the transaction and deliver a risk disclosure document relating to the penny stock market. The broker-dealer must also disclose the commission payable to both the broker-dealer and the registered representative taking the order, current quotations for the securities and, if applicable, the fact that the broker-dealer is the sole market maker and the broker-dealer’s presumed control over the market. Monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. Such “penny stock” rules may restrict trading in our common stock and may deter broker-dealers from effecting transactions in our common stock.
Item 6. Selected Financial Data
Not Applicable. The Company is a “smaller reporting company” and not subject to the Selected Financial Data requirement of Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Certain statements in this Report constitute “forward-looking statements.” Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Factors that might cause such a difference include, among others, uncertainties relating to general economic and business conditions; industry trends; changes in demand for our products and services; uncertainties relating to customer plans and commitments and the timing of orders received from customers;
announcements or changes in our pricing policies or that of our competitors; unanticipated delays in the development, market acceptance or installation of our products and services; changes in government regulations; availability of management and other key personnel; availability, terms and deployment of capital; relationships with third-partythird-party equipment suppliers; and worldwide political stability and economic growth. The words “believe,“believe,” “expect,“expect,” “anticipate,“anticipate,” “intend”“intend” and “plan”“plan” and similar expressions identify forward-lookingforward-looking statements. Readers are cautioned not to place undue reliance on these forward-lookingforward-looking statements, which speak only as of the date the statement was made.
Results of Operations
Fiscal year ended December 31, 20182020 compared with fiscal year ended December 31, 20172019
Revenue for the fiscal years ended December 31, 20182020 and 2017 was $505,7052019 were $2,035,283 and $317,985,$1,159,737, respectively. Cost of revenues for the fiscal years ended December 31, 20182020 and 2017 was $209,8712019 were $893,482 and $154,451,$462,940, respectively. Gross profit for the fiscal years ended December 31, 20182020 and 2017 was $295,8342019 were $1,141,801 and $163,534,$696,797, respectively. The increase in each of the numbersincreases for 2018 is primarily2020 are a result of the increased impact of theimproved business operations of PrestoCorp, our 51% owned subsidiary, onsubsidiary. Telemedicine is a growth area, especially now with the businessCOVID-19 pandemic, and this growth drove revenues higher in 2020. In 2020, the Company also commenced operations in GK Manufacturing and Packaging, Inc. (GKMP), and this division added approximately $95,000 in revenues and $153,000 in cost of the Company.goods sold.
Net loss for the fiscal year ended December 31, 20182020 was $4,909,769$2,458,544 compared to net loss of $7,811,489$4,006,713 for the fiscal year ended December 31, 2017.2019. The decrease in the net loss resulted primarily from a changean impairment loss of $1,376,593 taken in our compensation structure2019, compared to no impairment losses taken in 2018 for members of management, consultants, board members, and attorneys. In 2017, these persons were compensated primarily with the issuance of set amounts of stock. Compensation expense during 2017 rose with the rise in our stock price resulting2020. The 2019 impairment losses also resulted in a higher net loss.decrease in amortization in 2020 to $217,768 compared to $561,434 in 2019. In 2018,addition, professional fees increased to $750,030 in 2020, compared to $547,284 in 2019, wages and salaries increased to $810,027 in 2020 compared to $393,310 in 2019, and advertising increased to $503,973 in 2020 compared to $195,879 in 2019. General and administrative expenses were essentially unchanged between periods. In 2020, we changedreduced our compensation arrangements with persons being issued stock based uponreliance on outside professionals and focused primarily on building our PrestoCorp subsidiary while looking for other acquisition candidates to expand our base business. As noted in the valuedescription of our business, we negotiated the stock atacquisition of certain production equipment and in February 2020, we closed on the timeacquisition and established a new operating subsidiary to engage in contract manufacturing of issuance rather than a set number of shares.products containing hemp-based CBD.
Total operating expenses were $5,336,005$3,686,989 for the year ended December 31, 2020 compared to $4,501,902 for the fiscal year ended December 31, 2018 and $8,010,622 for the fiscal year ended December 31, 2017.2019. The bulk of the operating expenses for both years were paid using the Company’s common stock and therefore required nominimal cash. In 2018, consulting and legal services were incurredThe Company used $191,756 in net cash from operating activities in 2020, compared to positive net cash provided by operating activities in 2019 of $94,648.
Results by Operating Divisions in the amountYear Ended December 31, 2020
Years Ended | ||||
A | B | A-B | ||
PRESTOCORP | December 31, | December 31, | Change | Change % |
REVENUE | $1,940,154 | $1,157,437 | $782,717 | 68% |
Cost of Sales | 740,645 | 462,940 | 277,705 | 60% |
Cost of sales % of total sales | 38% | 40% | -2% | |
Gross Profit | 1,199,509 | 694,497 | 505,012 | 73% |
Gross profit % of sales | 62% | 60% | 2% | |
PrestoCorp grew revenue by 68% and cost of $2,186,796. In 2017, the large non-cash transaction was also stock issued for servicessales decreased to 38% in the amount of $4,729,452. During 2018 and 2017, the Company impaired its goodwill and intangible assets an aggregate of $1,173,000 and $980,944,
respectively. Despite the large net loss amounts for both years, because of non-cash transactions, the net cash used in operating activities was $689,876 for 2018 and $964,661 for 2017. Also during the year ended December 31, 2018, 332,447 shares2020 compared to 2019. This resulted in an increase in gross margin to 62% in 2020 compared to 60% in 2019. These operational improvements were returneddriven by improved efficiencies through scale of the company’s business and as a result of increased telehealth opportunities due to cancellation of a service contract that was originated in 2017. The value of the shares returned was approximately $991,000 which was recorded as a reduction of the professional fees incurred since the inception of the contract.Covid-19.
Years Ended | |||
A | B | A-B | |
GKMP | December 31, | December 31, | Change |
REVENUE | $94,552 | $- | $94,552 |
Cost of Sales | 152,837 | - | 152,837 |
Cost of sales % of total sales | 162% | 162% | |
Gross Profit | (58,285) | - | (58,285) |
Gross profit % of sales | -62% | -62% | |
Liquidity and Capital Resources
As stated above, our operations used $689,876GKMP did not operate in cash for the year ended December 31, 2018. During2019. Results of operations for the samecontract manufacturing business reflect the start-up nature of this segment and the impact of the pandemic on prospective customers and their willingness to commit to contract manufacturing efforts when there is substantial uncertainty surrounding the long-term effect of the pandemic. GKMP operated with a negative gross profit in the year ended December 31, 2020. This was primarily due to high labor costs incurred during the start-up phase of operations.
Liquidity and Capital Resources
As noted above, cash used for operating activities was $191,756 in 2020 compared to positive cash flow in 2019 of $94,648. In 2020, financing activities provided cash of $665,295. Cash required during 2018 came$186,300, consisting of proceeds from sales of restricted stock in the amount of $25,000 and from proceeds from related parties notes and advances in the amount of $161,300. We ended 2020 with $322,107 in cash on hand.
In the year ended December 31, 2019, our operations generated positive cash flow of $94,648. In 2019, financing activities provided cash of $141,882 consisting of cash proceeds from sales of restricted stock and warrant exercises in the amount of $361,750$50,000 and from proceeds from related parties in the amount of $303,545.
As stated above, our operations used $964,661$91,882. We ended 2019 with $336,107 in cash for the year ended December 31, 2017. During the same year, financing activities provided cash of $1,042,370. Cash required during 2017, came from proceeds from related parties in the amount of $271,214 and cash proceeds from a private offering of stock in the amount of $771,156.on hand.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. We incurred net losslosses attributable to Cannabis Sativa, Inc. of $3,736,769$2,173,192 and $7,811,489,$3,936,386, respectively, for the years ended December 31, 20182020 and 20172019 and had an accumulated deficit of $70,320,531$77,028,339 as of December 31, 2018.2020 which raises substantial doubt about the Company’s ability to continue as a going concern. The Company may seek to raise money for working capital purposes through a public offering of its equity capital or through a private placement of equity capital or convertible debt. The Company also has outstanding warrants that upon potential exercise could bring funding into the Company. It will be important for the Company to be successful in its efforts to raise capital in this manner if it is going to be able to further its business plan in an aggressive manner. Raising capital in this manner will cause dilution to current shareholders.
As of March 20, 2019,April 16, 2021, the Company had cash on hand of $15,810.approximately $330,000. As a result, the Company has does not have sufficient liquidity to meet the immediate needs of our current operations. Cash represents cash deposits held at financial institutions. Cash is held at major financial institutions and insured by the Federal Deposit Insurance Corporation (FDIC) up to federal insurance limits.
Off Balance Sheet Arrangements
None
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
Not Applicable. The Company is a “smaller reporting company.”
The following financial statements are being filed with this report and are located immediately following the signature page.
Financial Statements, December 31, 20182020 and 20172019
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets, December 31, 20182020 and 20172019
Consolidated Statements of Operations for the Years Ended December 31, 20182020 and 2017
Consolidated Statement of Other Comprehensive Loss for the Year Ended December 31, 2018 (included in the Consoldated Statement of Operations)2019
Consolidated Statements of Changes in Stockholders’ Equity from January 1, 2017 through
for the Years Ended December 31, 20182020 and 2019
Consolidated Statements of Cash Flows for the years ended December 31, 20182020 and 20172019
Notes to the Consolidated Financial Statements
Item 9. Changes in and Disagreements with Accountants on Accounts and Financial Disclosure
None
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management including our chief executive officer and our chief financial officer, we evaluated the effectiveness of the design and operation of our disclosureWe maintain “disclosure controls and procedures, (as” as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, (the “Exchange Act”)) as ofor the end of the period covered by this report. Based uponExchange Act, that evaluation, our chief executive officer and our chief financial officer concludedare designed to ensure that our disclosure controls and procedures as of the end of the period covered by this report were not effective such that the information required to be disclosed by us in reports filedthat we file or submit under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC’sSEC rules and forms, and (ii)that such information is accumulated and communicated to our management, including our chief executive officerChief Executive Officer, or CEO, and chief financial officer,Chief Financial Officer, or CFO, as appropriate, to allow timely decisions regarding required disclosure. A discussionIn designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of disclosure controls and procedures is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
At December 31, 2020, disclosure controls and procedures were not effective due primarily to the material weaknesses in our controls and procedures is describedthe Company’s internal control of financial reporting as discussed below.
Management’sManagement Report on Internal Control overOver Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) underof the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Our internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of accounting principles generally acceptedrecords that, in reasonable detail, accurately and fairly reflect the United States.transactions and dispositions of the Company’s assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that the Company’s receipts and expenditures are being made only in accordance with authorizations of the Company’s management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
OurUnder the supervision of and with the participation of our CEO and our CFO and with the oversight of the Board of Directors, our management assessedconducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2018. In making this assessment, management usedbased on the framework and criteria set forthestablished in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”2013 Framework”).
A system of controls, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the system of controls are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
A material weakness is a deficiency, or a combination of deficiencies, in Internal Control - Integrated Framework (2013). internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
We identified material weaknesses in our internal controls over equity issuances as compensation for services, period end cut-off for recording payables, and communications between accounting personnel and management concerning related party and inter-company transactions.
Based on management’s assessment,our evaluation under the framework described above, our management concluded that, itsdue to the material weakness, our internal control over financial reporting was not effective as of December 31, 2018,
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP.2020.
Remediation of Previous Material WeaknessesRemedial Actions
DuringManagement is committed to maintaining a strong internal control environment. We plan to address the year ended December 31, 2018,material weaknesses identified by adding additional accounting personnel and functions, and by designing additional controls over the documentation and application of technical accounting guidance to our business. We are also reviewing our period end cut-off procedures and reconciliation procedures to strengthen our controls in these areas, and we implemented the initiatives described below:are focused on improving our communications to deliver information where and when needed.
Performed a risk assessment and mapped our processesManagement believes that the remediation efforts to control objectives.
Documented our controls and procedures in accordance with COSO, identified gaps and, where necessary, implemented additional controls.
Evaluated our entity-level controls, identified gaps, and updated our processes and documentation.
Implemented controls and proceduresbe undertaken will effectively address the material weaknesses. As we continue to identify, evaluate and record significant transactions, along with the necessary documentation.
Evaluatedwork to improve our system controls and, as needed, implemented additional controls.
Established appropriate levels of segregation of duties as part of our overall assessment and implementation of internal control processes and procedures.
Because of its inherent limitations, internal control over financial reporting, management may not preventdetermine to take additional measures to address control deficiencies or detect misstatements. Therefore, even those systems determineddetermine to modify the remediation plan described above. We cannot assure you, however, when we will remediate such weaknesses, nor can we be effective can provide only reasonable assurancecertain of achieving their control objectives.whether additional actions will be required or the costs of any such actions.
Our independent registered public accounting firm, Hall & Company, has issued an audit report on our internal controls over financial reporting, which appears in Part II, Item 8 of this Annual Report on Form 10-K.
This annual report does not include an attestation report of the company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this annual report.
Changes in Internal Control over Financial ReportingControls
The remedial actions set forthOther than the identification and assessment of the material weaknesses described above, with regard to changesthere was no change in our internal control over financial reporting were made during the quarter ended December 31, 2018, and2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
None.
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Directors and Executive Officers
The following table indicates the name, age, term of office and position held by each of our executive officers and directors. The term of office for each officer position is for one year or until his or her successor is duly elected and qualified by the board of directors. The term of office for a director is for one year or until his or her successor is duly elected and qualified by the stockholders.
Name | Age | Term Of Office | Positions Held | Age | Incumbency | Positions Held |
Mike Gravel | 89 | 2015 | Director | |||
Catherine Carroll | 80 | 2014 | Treasurer, Director | |||
Brad E. Herr | 66 | 2020 | CFO, Director | |||
Trevor Reed | 57 | 2016 | Director | |||
Robert N. Tankson III | 34 | 2020 | Director | |||
David Tobias | 67 | 2014 | CEO, President, Secretary and Director | 70 | 2014 | CEO, Secretary and Director |
Catherine Carroll | 78 | 2014 | Treasurer and Director | |||
Stephen Downing | 80 | 2014 | Director | |||
Deborah Goldsberry | 52 | 2015 | Director | |||
Trevor Reed | 55 | 2016 | Director | |||
Donald J. Lundbom | 67 | 2017 | CFO and Chief Accounting Officer | |||
Certain biographical information with respect to our executive officers and directors.
Mike Gravel. Mike Gravel, retired, served as a U.S. Senator from Alaska from 1969 to 1981. Senator Gravel sat on the Finance, Interior, Environmental and Public Works committees, and chaired the Energy, Water Resources, Buildings and Grounds and Environmental Pollution subcommittees. Senator Gravel is best known for his work on the Vietnam War. He filibustered for five months which contributed to the end of the military draft. He challenged the U.S. Government by releasing the Pentagon Papers. When the Nixon administration refused to allow the New York Times to publish information on the Pentagon Papers, Senator Gravel attempted to read the entire 7,000 pages of the document into the Senate record. The Supreme Court blocked his attempt. Senator Gravel then wrote The Senator Gravel Edition, The Pentagon Papers in 1971. He again had to go before the Supreme Court and received a ruling that affected the Speech and Debate Clause of the Constitution. In retirement, Gravel has written two books, Jobs and More Jobs, and Citizen Power. Senator Gravel served as a director of Kush, Inc. (“Kush”) from March 2013 to July 2014, prior to its acquisition by the Registrant. Effective December 31, 2018, Mr. Gravel retired from his position as CEO but will continue to serve as a member of the board of directors until the next annual meeting of shareholders.
David Tobias. Mr. Tobias has served as President of Wild Earth Naturals, Inc. since May, 2013. He also served as the President of Hemp, Inc. from August 2011 to January 9, 2014. Prior to that, from October 2009 until May 2011,Mr. Tobias held the position of Vice President at Medical Marijuana Inc. where he was instrumental in bringing forward and culminating the merger between CannaBank and Medical Marijuana, Inc. He was earlier Sales Manager for Tulsa custom builder Xcite Homes, from October 2008 to August 2009.Among other qualifications, Mr. Tobias brings to the Board executive leadership experience, including his service as a president of a public company, along with extensive entrepreneurial experience. Mr. Tobias also has a keen sense of the social, political, and economic environment in which the company operates. On January 1, 2019, Mr. Tobias was appointed CEO as a result of the resignation of Mr. Gravel.
Catherine Carroll. Ms. Carroll has beenself-employedbeenself-employed since 1984. Ms. Carroll brings an extensive background in accounting, tax preparation, IRS audits, and tax appeals to the company. The Board believes that her insights gained from teaching basic tax preparation classes for 15 years, being an expert witness in tax court; along with her “Life Time Limited Services” teacher’s credential in accounting at Delta College in Stockton, CA for 6 years brings the company a valuable perspective. Ms. Carroll had been serving as the CFO, Director and as the Treasurer of the Company since July of 2013. Effective January 30, 2017, she will no longer functionserves as the Company’s CFO and will focus her efforts on her positions as Treasurer and Director and keeping the books of the Company.
Stephen Downing. Mr. Downing served as a member of the Los Angeles Police Department for 20 years. He started as a patrol officer and rose through the ranks working assignments that included vice, narcotics, detectives, and staff and command positions, ultimately being appointed to the rank of Deputy Chief of Police, where he oversaw the LAPD’s Special Investigations and Personnel and Training Bureaus. While still on the force, Downing wrote for numerous network television series. After retiring from the LAPD, Mr. Downing expanded his creative endeavors into television production, working both as a writer and producer, ultimately becoming the executive producer/show runner of several series including MacGyver, Robocop, and Fx – The Series. Mr. Downing has been semi-retired for the past 10 years. During that time, because of his law enforcement experiences commanding the LAPD’s narcotic enforcement program, he has become a nationally recognized advocate for finding an exit strategy to end the war on drugs. Mr. Downing currently divides his time between drug reform advocacy and his love of creative writing. Mr. Downing served as a director of Kush from March 2013 to July 2014 prior to its acquisition by the Company.
Deborah Goldsberry. Ms. Goldsberry’s business affiliations during the past six years include the following:
Works as Executive Director for Magnolia Wellness of Oakland, California where she is responsible for operations and management. She has worked for Magnolia since February 2014, and in this position from October 2014 to the present.
Works as a business consultant for Liana Limited of Oakland, California where she is responsible for policy analysis and advocacy work, and public relations and outreach to clients. She also consults on a variety of medical marijuana and related projects.
Ms. Goldsberry is a long-time medical cannabis activist. She has hands-on experience having pioneered the highly acclaimed Berkeley Patients Group in Berkeley, California and Magnolia Wellness in Oakland, California. As an activist, Ms. Goldsberry co-founded several industry non-profit organizations, including Americans for Safe Access, the Medical Cannabis Safety Council, and Cannabis Action Network. She is a former board member at California NORML and the Marijuana Policy Project. She was twice named Freedom Fighter of the Month by HIGH TIMES, as well as Freedom Fighter of the Year at the 2011 Cannabis Cup in Amsterdam. Ms. Goldsberry was also honored with NORML’s Paula Sabine Award for the importance of women in leadership in ending marijuana prohibition.
Ms. Goldsberry’s thirty years of experience in the medical cannabis industry and her high-profile
work in the cannabis industry in California is a natural fit as the Company prepares to expand its reach in the California medical cannabis community.
Trevor Reed.Mr. Reed has experience as a contractor, builder and cannabis producer. Mr. Reed started his first company 1989, a hardwood flooring company in Santa Fe, New Mexico. That experience led 15-year career as a custom builder of spec homes in New Mexico. Mr. Reed also engaged in small scale land development and commercial construction in New Mexico. In 2008, Trevor moved to Bend, Oregon to be closer to family. During his time in Oregon, Mr. Reed began to learn about the cannabis business and started growing cannabis. Mr. Reed then returned to New Mexico where he became one of the twenty-five licensed producers of cannabis in the State of New Mexico. Mr. Reed’s curiosity and tenacity have led him to beingbe the number one cannabis producer in the State of New Mexico for three years in a row. Mr. Reed has also consulted with State regulatory authorities regarding the development of their state cannabis programs. Under Mr. Reed’s direction Natural Rx in New Mexico was the first dispensary to become a United Food and Commercial Workers International Union (UFCW) cannabis division member company in 2014. In 2015, Mr. Reed (with partners) established several cannabis dispensaries and cannabis farms in the State of Oregon.
Brad practiced law for 13 years focusing primarily on business representation and securities law. In 1996, Brad left the practice of law to pursue a career in business. Brad participated as legal counsel or principal in private and public offerings raising more than 30 years experience$75 million over his career.
Brad has served in progressivelya number of increasingly responsible financial and business management positions including Corporate Controllerover his career. Brad was Director of Finance, Vice-President of Business Development and Vicelater President of FinanceAC Data Systems, Inc., in divisionsPost Falls, Idaho. AC Data is a privately held manufacturing business engaged in the design, manufacture and sale of three Fortune 500 companies. He has also servedsurge suppression products marketed primarily to the telecommunications industry. In 2006, Brad left AC Data to join Command Center, Inc., a publicly traded temporary labor business as the Chief Operating Officer of a private homebuilder and developerFinancial Officer. Command Center operated 80 offices in 20 states with annual revenues of nearly $100 million. DuringIn 2009, Brad joined Echelon LLC as Chief Financial Officer and was promoted to President of Echelon in May of 2010. Echelon was a tribal entity operated under the last ten yearsauspices of the Coeur d’Alene Tribe in Northern Idaho. Echelon manufactured fuel tanks for the US Government and designed and manufactured a line of portable and expandable shipping containers to serve as military facilities including laboratories, field hospitals, and data centers. In 2010, Brad joined Spur Industries, a metals manufacturing firm with a proprietary bonding system for dissimilar metals.
Brad brings a diverse business development, accounting and legal background to his current positions.
Robert Tankson. Mr. Lundbom has served as a consulting CFO andTankson worked for Google from 2011 through 2012. After leaving Google in 2012, to pursue his passion for business advisor to clients in manufacturing and distribution; healthcare delivery; and engineering. His business expertise is focused in business planning and analysis, operations, finance and accounting, mergerstechnology, Rob saw an opportunity in the cannabis space to develop a telemedicine platform. This led to the cofounding of PrestoCorp. The PrestoCorp platform, known as PrestoDoctor, is an online medical cannabis evaluation service that connects patients with cannabis friendly doctors in California, Nevada, New York, Oklahoma and acquisitions,Missouri, with more states in the pipeline. As an executive of PrestoCrop, Rob directed the search for a business partner and international. Mr. Lundbom holds B.S. and MBA degrees from Auburn Universityultimately the acquisition of 51% of PrestoCorp by Cannabis Sativa, Inc., in August 2017. Rob continues as an executive of PrestoCorp and is a certified public accountant licensednow helping to direct the rapid expansion of the PrestoDoctor platform in the state of Alabama. He completed Columbia University’s post-graduate Executive Leadership Education program; has been active in angel investment groups;rapidly changing world during and has taught management accounting atafter the university level and for a national entrepreneurial program.Covid-19 pandemic.
The followingfollowing is a brief description of the specific experience and qualifications, attributes or skills of each director that led to the conclusion that such person should serve as a director of the Company.
Mr. Gravel’s experience as a director of Kush prior to its acquisition by the Company are important to the continued functioning of the Company. His contacts as a prior U.S. senator are important to the Company.
Mr. David Tobias’ knowledge regarding the business of Wild Earth and the implementation of its business plan, provides a critical link between management and the board, enabling the board to provide its oversight function with the benefit of management’s perspective of the business.
Ms. Carroll’s knowledge regarding the history, operations and financial condition of Wild Earth provides a critical link between management and the board, enabling the board to provide its oversight function with the benefit of management’s perspective of the business.
Mr. Downing’s background of commanding the Los Angeles Police Department’s narcotic enforcement program and his being a nationally recognized advocate for finding an exit strategy to end the war on drugs makes him an ideal choice as a board member to assist our push into the cannabis industry.
Ms. Goldsberry’s twenty-five years of experience in the medical cannabis industry and her high-profile work in the cannabis industry in California is a natural fit as the Company prepares to expand its reach in the California medical cannabis community.
Mr. Reed’s knowledge of the cannabis industry and his work with state regulators in connection with cannabis legislation brings valuable insight regarding the emerging cannabis industry and regulation to the board of directors.
Mr. Herr’s experience as an attorney and CPA along with his extensive experience advising boards of directors of public and private companies will assist the board in evaluating opportunities, following best corporate governance practices, and providing oversight to the officers of the company and its subsidiaries as they execute the strategic business plan.
Mr. Tankson’s experience in the telemedicine space and his position as an executive of PrestoCorp will provide the Board with insights into the company’s attempts to grow the telemedicine business as telemedicine becomes an ever more important aspect of life after the COVID-19 pandemic abates.
Family Relationships
There are no family relationships between any of our officers and directors.
Term of Office
The term of office of each director is one year and until his or her successor is elected at the Registrant's annual stockholders' meeting and is qualified, subject to removal by the stockholders. The term of office for each officer is for one year and until his or her successor is elected at the annual meeting of the board of directors and is qualified, subject to removal by the board of directors. Mr. Tobias and Ms. Carroll assumed their respective offices and positions in connection with the Wild Earth acquisition in July 2013. Except as noted below, our other officers and directors assumed their respective offices and positions in connection with the Kush acquisition in June 2014. Mike Gravel and David Tobias have served as directors since 2014 and 2013, respectively. However, David Tobias was appointed President of the Company on March 29, 2016, and CEO of the Company on January 9, 2019. Donald LundbomCathy Carroll joined the Board in 2013 and also serves as Treasurer of the Company. Trevor Reed joined the Board in 2017. Brad E. Herr was electedappointed CFO and Director on June 20, 2017.January 2, 2020. Robert Tankson joined the Board on January 31, 2020.
Directors during 2019 also included Stephen Downing and Deborah Goldsberry, both of whom resigned in 2019.
Board of Directors
Our board of directors consists of six persons, three of whom arefive persons. One director, Trevor Reed, is "independent" within the meaning of Rule 5605(a)(3) of the NASDAQ Marketplace. The threefour that are not independent are officers of the Company.Company or a subsidiary.
Our board of directors has designated an audit committee to be comprised of two independent directors. The two directors who serve onAt this committee are Stephen Downing andtime, the Company only has one independent director, Trevor Reed. The board of directorsalso does not have an independent "financial expert" because it doesto serve on the audit committee. As a result, the Company is not believeable to designate an audit committee and the scopefunction of the Company's activities to date has justifiedaudit committee is currently being performed by the expenses involved in obtaining such a financial expert. In addition, our securities are not at this time listed on a national exchange and we are not subject to the special corporate governance requirements of any such exchange.entire Board.
The board of directors has designated a compensation committee comprised of two independent directors. The two directors who serve onAt this committee are Stephen Downing and Trevor
Reed. To date,time, the Company only has one independent director, Trevor Reed. As a result, the Company is not engaged independentable to designate a compensation consultants to determine or recommendcommittee and the amount or formfunction of executive or director compensation.the compensation committee is currently being performed by the entire Board.
The Company does not have a standing nominating committee and the Company's Board of Directors performs the functions that would customarily be performed by a nominating committee. The Board of Directors does not believe a separate nominating committee is required at this time due to the limited resources of the Company. The Board of Directors has not established policies with regard to the consideration of director candidates recommended by security holders or the minimum qualifications of such candidates.
Director Meetings
Generally,In 2020, the Company’s Board of Directors meetings were held as needed via remote conference call. As a matter of convenience, many of the actions requiring Board approval are conducted telephonically and then documented as consent minutes. All minutes approved by consent require signatures from all directors. Most Board meetings every two weeks during 2018. At almost everyare attended by all of the Directors, and absences, if any, are noted in the minutes. In 2021, meetings will be held at least once quarterly and more often if needed. Actions may also be taken in 2021 without formal meeting every director was in attendance.by consent signed by each of the directors.
Communications with Directors
Stockholders may communicate with the Board of Directors by sending written communications addressed to the Board of Directors, or any individual director, to: Cannabis Sativa, Inc., Attention: Corporate Secretary, 1646 W. Pioneer Blvd.450 Hillside Dr., Suite 120,#A224, Mesquite, NV 89027. All communications will be compiled by the corporate secretary and forwarded to the Board of Directors or any individual director, as appropriate. In order to facilitate a response to any such communication, the Company’s Board of Directors suggests, but does not require, that any such submission include the name and contact information of the shareholder submitting the communication.
Code of Ethics
We have not adopted a Code of Ethics that applies to our executive officers, including our principal executive, financial and accounting officers. We do not believe the adoption of a code of ethics at this time would provide any meaningful additional protection to the Company because we have only four executive officers and our business operations are not complex.
During the past ten years none of our directors, executive officers, promoters, or control persons was:
1.the subject of any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
2.convicted in a criminal proceeding or is subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
3.subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or
4.found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who own more than 10 percent of a registered class of our equity securities to file reports of securities ownership and changes in such ownership with the SEC. Officers, directors, and greater than ten percent shareholders also are required by rules promulgated by the SEC to furnish us with copies of all Section 16(a) reports they file. Based solely on a review of the copies of such reports furnished to us, we believe that threeone of the sixour directors needneeds to file a Form 3.
Item 11. Executive Compensation
The following table sets forth certain information regarding the annual compensation paid to our principal executive officer and principleprincipal financial officer in all capacities for the fiscal years ended December 31, 20182019 and 2017.2018. No other person served as an executive officer of the Company or received total annual compensation from the Company in excess of $100,000 other than Mr. Tobias, Mr. Gravel, Mr. LundbomTobias, Ms. Carroll, and Ms. CarrollMr. Lundbom as set forth in the table.
Summary Compensation Table
Name and Position | Year | Salary($) | Stock Awards | Total($) |
| 2018 | $0 | $152,564 | $152,564 |
Mike Gravel, CEO (4) | 2017 | $0 | $391,809 | $391,809 |
| 2018 | $0 | $273,076 | $273,076 |
David Tobias, President and Secretary | 2017 | $0 | $633,809 | $633,809 |
Catherine Carroll, CFO and Treasurer (1) | 2017 | $36,000 | $290,855 | $326,855 |
|
|
|
|
|
Carolyn Merrill, Controller (2) | 2017 | $0 | $63,661 | $63,661 |
Donald J. Lundbom, CFO, CAO ( 3) | 2018 | $0 | $344,337 | $344,337 |
| 2017 | $0 | $278,936 | $278,936 |
Name and Position | Year | Salary ($) | Stock Awards | Total ($) |
2019 | $— | $428,572 | $428,572 | |
David Tobias, President, Sec., Director | 2020 | $— | $175,964 | $175,964 |
2019 | $— | $-- | $-- | |
Brad E. Herr, CFO, Director | 2020 | $— | $250,201 | $250,201 |
2019 | $— | $111,112 | $111,112 | |
Catherine Carroll, Treasurer, Director (1) | 2020 | $— | $175,964 | $175,964 |
2019 | $— | $343,332 | $343,332 | |
Donald J. Lundbom, CFO, CAO (2) | 2020 | $— | $-- | $-- |
(2) During 2017 Ms. Merrill served as CFO from January 30, 2017, through June 20, 2017, and for those services was paid the compensation indicated.
(3) During 2017 2.Mr. Lundbom served as CFO from June 20, 2017,Chief Financial Officer and Chief Accounting Officer through December 31, 2017, and for those services was paid $278,000 in common stock.2019. Mr. Lundbom resigned his positions effective December 31, 2019.
(4) Mr. Gravel resigned his position as CEO on December 31, 2018.
We do not have any retirement, pension or profit sharingprofit-sharing plans covering our officers or directors, and we are not contemplating implementing any such plans at this time.
Director Compensation
Our directors are issued shares of common stock quarterly for their service on the board of directors. As of September 30, 2017During 2019, the Directors are issuedwere paid $10,000 of shares quarterly and the Chairman is issuedwas paid $12,500 each quarter, payable in shares of common stock of the Company. On January 1, 2020, the compensation for directors, including the Chairman of the Board, was changed to $5,000 of shares quarterly. The 2020 Directors compensation level has been continued for 2021.
The following table sets forth as of April 1, 2019,2021, the number of shares of our common stock, par value $0.001, owned of record or beneficially by each person known to be the beneficial owner of 5% or more of our issued and outstanding shares of common stock, and by each of our officers and directors, and by all officers and directors as a group. On such date, there were 22,027,477 issued and outstanding28,530,613 shares of our common stock.stock issued and outstanding. As of such date, we had 798,835995,692 shares of preferred stock issued and outstanding that are convertible into shares of common stock on a share for share basis. For purposes of the ownership table, the Preferred Shares are considered equivalent to the Common Shares are included on an “as if” converted basis. Total shares outstanding at April 1, 2021 on an “as if” converted basis would be 29,526,305.
Unless indicated otherwise, the address for any shareholder is the same as the address of the Registrant.
Name and Address of Beneficial Owner Principal Stockholders | Amount of Direct Ownership | Amount of Indirect Ownership | Total Beneficial Ownership | Percentage of Class |
Sadia Barrameda P.O. Box 1363 Discovery Bay, CA 94505 | 0 | 4,665,008(1) | 4,665,008 | 21.2% |
New Compendium Corp P.O. Box 1363 Discovery Bay, CA 94505 | 3,800,172(2) | 21.2% | ||
David Tobias | 3,819,223 | 545,612 | 4,364,835(4) | 19.4% |
Officers and Directors |
|
|
|
|
David Tobias | 545,612 | 4,364,835(4) | 19.4% | |
Catherine Carroll | 173,905 | 0 | 173,905 | * |
Mike Gravel | 61,705 | 0 | 61,705 | * |
Stephen Downing | 5,106 | 0 | 5,106 | * |
Deborah Goldsberry | 4,085 | 0 | 4,085 | * |
Trevor Reed | 30,788 | 0 | 30,788 | * |
Donald J. Lundbom | 8,903 | 0 | 8,903 | * |
All Officers and Directors as a Group (7 persons) | 4,103,715 | 545,612 | 4,649,327 | 20.6% |
SHARE OWNERSHIP
Name and Address of Beneficial Owner | Amount of Direct Ownership | Amount of Indirect | Total |
| ||
Principal Stockholders | Common | Preferred | Common | Preferred | Ownership | Percentage |
Sadia Barrameda (1) | 661,046 | - | 2,404,654 | 151,884 | 3,217,584 | 10.9% |
New Compendium Corp. (2) | 2,404,654 | 151,884 | 661,046 | - | 3,217,584 | 10.9% |
David Tobias | 3,104,300 | 707,469 | - | - | 3,811,769 | 12.9% |
Officers and Directors |
|
|
|
|
|
|
David Tobias | 3,104,300 | 707,469 | - | - | 3,811,769 | 12.9% |
Catherine Carroll (3) | 575,802 | - | 136,068 | - | 711,870 | 2.4% |
Brad E. Herr (4) | - | - | 285,885 | - | 285,885 | 1.0% |
Trevor Reed | 147,443 | - | - | - | 147,443 | 0.5% |
Robert Tankson | 84,220 | - | - | - | 84,220 | 0.3% |
All Officers and Directors as a Group | 3,911,765 | 707,469 | 421,953 | - | 5,041,187 | 17.1% |
(1)Ms. Barrameda is deemed to be the beneficial owner of the 4,665,0082,556,538 Common Shares and 151,884 Preferred shares owned by New Compendium Corporation as a result of her status as an officer, director and sole stockholdersignificant shareholder of New Compendium. Ms. Barrameda’s address is P.O. Box 1363, Discovery Bay, CA 94505.
(2) Of the 4,665,008 shares indicated, 3,800,172 are directly held common shares and 864,836 are indirectly held shares as described in note (3) below.
(3) New Compendium Corp. is deemed the beneficial owner of 713,252 shares661,046 Common Shares owned by Honeysuckle Research, Inc. sinceSadia Barrameda. Ms. Barrameda is an affiliate of New Compendium owns 92% of Honeysuckle Research, Inc.Corp. New CompendiumCompendium’s address is alsoP.O. Box 1363, Discovery Bay, CA 94505.
(3)Ms. Carroll is deemed to be the beneficial owner of 151,584 preferred shares that may136,068 Common Shares owned by Carroll’s Consulting LLC, and company wholly owned by Ms. Carroll.
(4)Brad E. Herr is deemed to be converted into common shares onthe beneficial owner of 285,885 Common Shares owned by Nexit, Inc., a share for share basis. The Honesuckle shares and the preferred shares total the 864,836 shares indicated that are indirectly held.
(4) Of the 4,364,835 shares indicated, 3,819,223 are common shares directlycorporation solely owned by Mr. Tobias, 35,000 are common shares owned by Mr. Tobias’ spouse, and 510,612 are preferred shares that may be converted into common shares on a share for share basis.Herr.
*Less than 1%.
Item 13. Certain Relationships and Related Transactions, and Director Independence
During the yearyears ended December 31, 20182020 and 2019 the Company received additional short-term borrowings and advances from related parties and officers of the Company to cover operating expenses. As of December 31, 2018,2020 and 2019, net borrowings on related party notes were $1,166,021 and $10,142, respectively, and advances tofrom related parties were $18,800 and $1,008,378, respectively. In 2020, the Company were $926,638.converted advances totaling $1,008,378 to short-term notes payable. The Company has imputedcalculated interest on these sums at rates between 5% and 8% per annum and has recorded interest expense related to these balances in the amount of $39,429 during 2018. $56,045 and $49,608 for the years ended December 31, 2020 and 2019, respectively.
Approval of Related Party Transactions
Related party transactions are reviewed and approved or denied by the board of directors of the Company. If the related party to a transaction is a member of the board of directors, the transaction must be approved by a majority of the board that does not include the related party.
Item 14. Principal Accounting Fees and Services
The following table presents aggregate fees that were billed or expected to be billed for the fiscal years ended December 31, 2018,2020, and 2017,2019, for professional services rendered by HallAssure CPA LLC (formerly DeCoria Maichel & Company, Inc.Teague, P.S.).
| Hall &Co 2018 | Hall & Co 2017 |
Audit Fees | $73,500 | $70,500 |
Audit-Related Fees | $10,000 | $39,000 |
Tax Fees | - | $1,300 |
Other Fees | - | - |
Total | $83,500 | $110,800 |
| 2020 | 2019 |
Audit Fees | $77,750 | $61,000 |
Audit-Related Fees | 2,750 | - |
Tax Fees | - | - |
Other Fees | - | - |
Total | $80,500 | $61,000 |
“Audit Fees” represents fees for professional services provided in connection with the audit of our annual financial statements, review of financial statements included in our quarterly reports and related services normally provided in connection with statutory and regulatory filings and engagements and consents.
“Audit-Related Fees” represent fees for professional services provided in connection with providing the audit of the financial statements of Presto Corp.auditor’s consent on SEC filings.
“Tax Fees” consists of fees for professional services rendered by our principal accountants for tax compliance, tax advice and tax planning.
“Other Fees” consists of fees for products and services provided by our principal accountants, other than the services reported under “Audit Fees,” “Audit-Related Fees,” or “Tax Fees” above.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors
It is the policy of the Company for all work performed by our principal accountant to be approved in advance by our audit committee. Currently the audit committee does not have the requisite number of independent Board Members. Accordingly, the functions of the audit committee are now being performed by the Full Board. All of the services described above in this Item 14 were approved in advance by our audit committee or by our Board of Directors for engagements prior to the formation of our audit committee.Directors.
Item 15. Exhibits, Financial Statement Schedules.
The following documents are included as exhibits to this report.
(a) Exhibits
Exhibit Number |
| SEC Reference Number |
|
Title of Document |
|
Location |
|
|
|
|
|
|
|
2.1 |
| 2 |
| Agreement and Plan of Reorganization among Ultra Sun Corporation, Ultra Merger Corp. and Wild Earth Naturals, Inc., dated as of July 12, 2013* |
| Incorporated by Reference(1) |
2.2 |
| 2 |
| Articles of Merger among Ultra Merger Corp. and Wild Earth Naturals dated as of July 12, 2013 |
| Incorporated by Reference(1) |
2.3 |
| 2 |
| Plan of Merger among Ultra Merger Corp. and Wild Earth Naturals dated as of July 12, 2013 |
| Incorporated by Reference(1) |
3.1 |
| 3 |
|
| Incorporated by Reference(2) | |
3.2 |
| 3 |
|
| Incorporated by Reference(2) | |
10.1 |
| 10 |
| Consulting Agreement dated July 12, 2013 between Ultra Sun Corporation and Neil Blosch |
| Incorporated by Reference(1) |
10.2 |
| 10 |
| Form of Convertible Promissory Notes dated as of April 22, 2013 and Schedule of Notes Beneficially Owned by Officers, Directors and Principal Stockholders as of July 15, 2013 |
| Incorporated by Reference(1) |
10.3 |
| 10 |
|
| Incorporated by Reference(3) | |
10.4 |
| 10 |
|
| Incorporated by Reference(3) | |
Exhibit Number |
| SEC Reference Number |
|
Title of Document |
|
Location |
31.1 |
| 31 |
|
| This Filing | |
31.2 |
| 31 |
|
| This Filing | |
32.1 |
| 32 |
|
| This Filing | |
32.2 |
| 32 |
|
| This Filing | |
101.INS(4) |
|
|
| XBRL Instance Document |
|
|
101.SCH(4) |
|
|
| XBRL Taxonomy Extension Schema |
|
|
101.CAL(4) |
|
|
| XBRL Taxonomy Extension Calculation Linkbase |
|
|
101.DEF(4) |
|
|
| XBRL Taxonomy Extension Definition Linkbase |
|
|
101.LAB(4) |
|
|
| XBRL Taxonomy Extension Label Linkbase |
|
|
101.PRE(4) |
|
|
| XBRL Taxonomy Extension Presentation Linkbase |
|
|
Exhibit Number |
| SEC Reference Number |
|
Title of Document |
|
Location |
|
|
|
|
|
|
|
2.1 |
| 2 |
|
| Incorporated by Reference(1) | |
2.2 |
| 2 |
| Articles of Merger among Ultra Merger Corp. and Wild Earth Naturals dated as of July 12, 2013 |
| Incorporated by Reference(1) |
2.3 |
| 2 |
| Plan of Merger among Ultra Merger Corp. and Wild Earth Naturals dated as of July 12, 2013 |
| Incorporated by Reference(1) |
3.1 |
| 3 |
|
| Incorporated by Reference(2) | |
3.2 |
| 3 |
|
| Incorporated by Reference(2) | |
10.1 |
| 10 |
| Consulting Agreement dated July 12, 2013 between Ultra Sun Corporation and Neil Blosch |
| Incorporated by Reference(1) |
10.2 |
| 10 |
|
| Incorporated by Reference(1) | |
10.3 |
| 10 |
|
| Incorporated by Reference(3) | |
10.4 |
| 10 |
|
| Incorporated by Reference(3) |
Exhibit Number |
| SEC Reference Number |
|
Title of Document |
|
Location |
23.1 |
| 23 |
|
|
| |
31.1 |
| 31 |
|
| Incorporated by Reference(5) | |
31.2 |
| 31 |
|
| Incorporated by Reference(5) | |
32.1 |
| 32 |
|
| Incorporated by Reference(5) | |
32.2 |
| 32 |
|
| Incorporated by Reference(5) | |
101.INS(4) |
|
|
| XBRL Instance Document |
|
|
101.SCH(4) |
|
|
| XBRL Taxonomy Extension Schema |
|
|
101.CAL(4) |
|
|
| XBRL Taxonomy Extension Calculation Linkbase |
|
|
101.DEF(4) |
|
|
| XBRL Taxonomy Extension Definition Linkbase |
|
|
101.LAB(4) |
|
|
| XBRL Taxonomy Extension Label Linkbase |
|
|
101.PRE(4) |
|
|
| XBRL Taxonomy Extension Presentation Linkbase |
|
|
|
|
|
|
|
|
|
*The exhibits and schedules to the Agreement and Plan of Reorganization are not included in the foregoing exhibit. The Registrant undertakes to furnish supplementally to the Commission with supplemental copies of any omitted items on request.
(1)Incorporated by reference to the Company’s current report on Form 8-K report filed July 18, 2013.
(2)Incorporated by reference to Exhibits 3(i) and 3(ii) of the Company’ s registration statement on Form 10-12G, filed with the SEC on January 28, 2009.
(3)Incorporated by reference to the Company’s current report on Form 8-K filed October 25, 2013.
(4)XBRL information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934, and is not subject to liability under those sections, is not part of any registration statement or prospectus to which it relates and is not incorporated or deemed to be incorporated by reference into any registration statement, prospectus or other document.
(5) Incorporated These files will be added by reference to the Company’s annual report on Form 10-K report filed April 1, 2019.
amendment.
[SIGNATURES ON NEXT PAGE]
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Cannabis Sativa, Inc. | |
| (Registrant) | |
|
|
|
Dated: April | By: | /s/ David Tobias |
| David Tobias | |
| Chief Executive Officer and Director | |
| (Principal Executive Officer) | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| /s/ David Tobias |
Dated: April | David Tobias |
| Chief Executive Officer and Director |
| (Principal Executive Officer) |
|
|
| /s/ |
Dated: April |
|
| Chief Financial Officer and Director |
| (Principal Financial Officer) |
| (Principal Accounting Officer) |
|
|
| /s/ Catherine Carroll |
Dated: April | Catherine Carroll |
| |
| |
|
|
| |
| |
|
|
| |
| |
|
|
| Director |
|
|
| /s/ Trevor Reed |
Dated: April | Trevor Reed |
| Director |
/s/ Robert N. Tankson III | |
Dated: April 16, 2021 | Robert N. Tankson III |
Director |
CANNABIS SATIVA, INC. |
Contents |
Page | |
FS-1 | |
FINANCIAL STATEMENTS – for the years ended December 31, 2020 and 2019: | |
FS - 2 | |
FS - 3 | |
FS - 4 | |
FS - 5 | |
FS – 6 through |
Report of Independent Registered Public Accounting Firm
To the Boardstockholders and the board of Directors and Stockholdersdirectors of
Cannabis Sativa, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheetssheet of Cannabis Sativa, Inc. and subsidiaries (thethe "Company") as of December 31, 20182020 and 2017,2019, the related consolidated statements of operations, changes in stockholders’ equity and cash flows for each of the two years in the periodthen ended, December 31, 2018, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20182020 and 2017,2019, and the results of its operations and its cash flows for each of the two years in the periodthen ended, December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.
Emphasis of Matter RegardingThe Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 81 to the financial statements, the Company has suffered recurring losses from operationsnegative working capital and has a net capital deficiency thataccumulated deficit. These factors raise substantial doubt about its ability to continue as a going concern. Management'sManagement’s plans in regard to these matters are also described in Note 8.1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. 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 the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. 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’sCompany's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits 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 audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/Hall
Assure CPA, LLC (formerly DeCoria, Maichel & CompanyTeague, P.S.)
We have served as the Company’sCompany's independent auditor since 20172019.
Irvine, CASpokane, Washington
April 1, 201916, 2021
FS-1
CONSOLIDATED BALANCE SHEETS |
December 31, | 2020 | 2019 |
ASSETS |
|
|
Current Assets |
|
|
Cash | $322,107 | $336,107 |
Accounts receivable, net | 2,495 | 4,551 |
Advance for acquisition | — | 50,000 |
Inventories | 56,485 | — |
Investment in equity security, at fair value | 195,000 | — |
Other current assets | 55,199 | 3,999 |
Total Current Assets | 631,286 | 394,657 |
|
|
|
Investment in equity security, at fair value | — | 48,000 |
Property and equipment, net | 199,120 | 6,440 |
Intangible assets, net | 489,946 | 695,218 |
Deposits and other assets | 9,250 | — |
Right to use asset | 47,312 | — |
Goodwill | 1,837,202 | 1,837,202 |
|
|
|
Total Assets | $3,214,116 | $2,981,517 |
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
Current Liabilities |
|
|
Accounts payable and accrued liabilities | $179,200 | $73,579 |
Accrued interest - related parties | 144,024 | 87,979 |
Advances from related parties | 18,800 | 1,008,378 |
Notes payable to related parties | 1,161,020 | 10,142 |
Customer deposits | 25,545 | — |
Operating lease liability – current | 31,891 | — |
Total Current Liabilities | 1,560,480 | 1,180,078 |
|
|
|
Long-Term Liabilities |
|
|
Operating lease liability - long term | 15,421 | — |
Stock payable | — | 640,685 |
|
|
|
Total Liabilities | 1,575,901 | 1,820,763 |
|
|
|
Commitments and contingencies (Notes 7 and 8) |
|
|
|
|
|
Stockholders' Equity: |
|
|
Preferred stock $0.001 par value; 5,000,000 shares authorized; 1,090,128 and 1,021,849 issued and outstanding, respectively | 1,090 | 1,021 |
Common stock $0.001 par value; 45,000,000 shares authorized; 27,453,178 and 22,224,199 shares issued and outstanding, respectively | 27,455 | 22,226 |
Additional paid-in capital | 77,660,014 | 74,834,032 |
Accumulated deficit | (77,028,339) | (74,855,147) |
|
|
|
Total Cannabis Sativa, Inc. Stockholders' Equity | 660,220 | 2,132 |
|
|
|
Non-Controlling Interests | 977,995 | 1,158,622 |
|
|
|
Total Stockholders' Equity | 1,638,215 | 1,160,754 |
|
|
|
Total Liabilities and Stockholders' Equity | $3,214,116 | $2,981,517 |
The accompanying notes are an integral part of these consolidated financial statements.
FS-2
CANNABIS SATIVA, INC. |
CONSOLIDATED STATEMENTS OF OPERATIONS |
2020 | 2019 | |
|
|
|
Revenues | $2,035,283 | $1,159,737 |
|
|
|
Cost of Revenues | 893,482 | 462,940 |
|
|
|
Gross Profit | 1,141,801 | 696,797 |
|
|
|
Operating Expenses |
|
|
Impairment of Intangibles | — | 1,039,926 |
Impairment of iBudTender goodwill | — | 336,667 |
Professional fees | 750,030 | 547,284 |
Depreciation and amortization | 217,768 | 561,434 |
Wages and salaries | 810,027 | 393,310 |
Advertising | 503,973 | 195,879 |
General and administrative | 1,405,191 | 1,427,402 |
|
|
|
Total Operating Expenses | 3,686,989 | 4,501,902 |
|
|
|
Loss from Operations | (2,545,188) | (3,805,105) |
|
|
|
Other (Income) and Expenses |
|
|
Unrealized (gain) loss on investment | (147,000) | 152,000 |
Interest expense | 60,356 | 49,608 |
|
|
|
Total Other (Income) Expenses, Net | (86,644) | 201,608 |
|
|
|
Loss Before Income Taxes | (2,458,544) | (4,006,713) |
|
|
|
Income Taxes | — | — |
|
|
|
Net Loss | (2,458,544) | (4,006,713) |
Loss attributable to non-controlling interest - GK Manufacturing | (367,792) | — |
Loss attributable to non-controlling interest - iBudTender | (3,878) | (72,312) |
Income attributable to non-controlling interest - PrestoCorp | 86,318 | 1,985 |
|
|
|
Net Loss Attributable To Cannabis Sativa, Inc. | $(2,173,192) | $(3,936,386) |
|
|
|
Net Loss per Common Share: |
|
|
Basic & Diluted | $(0.09) | $(0.18) |
|
|
|
Weighted Average Common Shares Outstanding: |
|
|
Basic & Diluted | 25,408,676 | 21,664,986 |
The accompanying notes are an integral part of these consolidated financial statements.
FS-3
CANNABIS SATIVA, INC. |
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE YEARS ENDED |
|
|
| Non-controlling Interest - Prestocorp | Non-controlling Interest - iBudTender | Non-controlling Interest - GK Manufacturing | ||||||||||||||
Preferred Stock | Common Stock | Additional Paid-In Capital | Accumulated Deficit | Total | |||||||||||||||
Shares | Amount | Shares | Amount |
|
|
|
| ||||||||||||
|
|
|
| ||||||||||||||||
|
|
|
| ||||||||||||||||
| |||||||||||||||||||
|
|
|
| ||||||||||||||||
|
|
|
| 21,316,201 | $21,318 | $72,971,563 | $(70,918,761) | $1,105,495 | $123,454 | $ — | $3,303,828 | ||||||||
Sales of shares of stock and warrants for cash | — | — | 125,000 | 125 | 49,875 | — | — | — | — | 50,000 | |||||||||
Cancellation and retirement of shares | — | — | (70,000) | (70) | 70 | — | — | — | — | — | |||||||||
Shares issued for services | 223,014 | 223 | 725,937 | 726 | 1,358,394 | — | — | — | — | 1,359,343 | |||||||||
Shares issued for stock payable | 39,391 | 39 | 127,061 | 127 | 454,130 | — | — | — | — | 454,296 | |||||||||
Net income (loss) for the year | — | — | — | — | — | (3,936,386) | 1,985 | (72,312) | — | (4,006,713) | |||||||||
Balance - December 31, 2019 | 1,021,849 | 1,021 | 22,224,199 | 22,226 | 74,834,032 | (74,855,147) | 1,107,480 | 51,142 | — | 1,160,754 | |||||||||
|
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|
| ||||||||||||||||
| |||||||||||||||||||
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| ||||||||||||||||
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| ||||||||||||||||
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|
| ||||||||||||||||
|
|
|
| ||||||||||||||||
|
|
|
| ||||||||||||||||
|
|
| |||||||||||||||||
|
|
| |||||||||||||||||
|
|
|
| ||||||||||||||||
|
|
|
| ||||||||||||||||
|
| 503,681 |
| 504 | — | — | — | — | — | — | |||||||||
| — | — | 100,000 |
|
|
| |||||||||||||
| — | — | — |
|
|
| |||||||||||||
Sales of shares of stock and warrants for cash | — |
| — |
| |||||||||||||||
|
|
|
| ||||||||||||||||
|
| — |
| ||||||||||||||||
| — | — |
| ||||||||||||||||
Shares issued for services |
|
|
| ||||||||||||||||
|
| ||||||||||||||||||
3,612,060 |
| ||||||||||||||||||
| |||||||||||||||||||
| |||||||||||||||||||
|
|
|
| — | — | — | — |
| |||||||||||
|
|
|
| ||||||||||||||||
| 963,238 |
|
|
| |||||||||||||||
|
| — |
| ||||||||||||||||
| — | — |
| ||||||||||||||||
Net income (loss) for the year | — | — | — | — | — | (2,173,192) |
|
| |||||||||||
| |||||||||||||||||||
| |||||||||||||||||||
|
|
|
| ||||||||||||||||
| |||||||||||||||||||
|
|
|
| ||||||||||||||||
|
|
|
| ||||||||||||||||
|
|
|
| ||||||||||||||||
| 27,453,178 |
|
|
| |||||||||||||||
|
|
|
| ||||||||||||||||
|
|
|
| ||||||||||||||||
|
|
|
| ||||||||||||||||
| $ |
| $ | $1,638,215 | |||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
FS-4
CANNABIS SATIVA, INC. |
|
CONSOLIDATED STATEMENTS OF CASH FLOWS |
|
| 2020 |
| 2019 |
|
|
|
| |
Net loss |
| $(2,458,544) |
| $(4,006,713) |
Adjustments to reconcile net loss to net cash |
|
|
|
|
Unrealized (gain) loss on investment |
| (147,000) |
| 152,000 |
Impairment of intangibles |
| — |
| 1,039,926 |
Impairment of iBudTender goodwill |
| — |
| 336,667 |
Depreciation and amortization |
| 235,624 |
| 561,434 |
Shares issued for services |
| 2,056,595 |
| 1,922,178 |
Changes in Operating Assets and Liabilities: |
|
|
|
|
Accounts receivable |
| 2,056 |
| 6,095 |
Inventories |
| (8,498) |
| 5,714 |
Other current assets |
| (51,200) |
| 25,854 |
Deposits and other assets |
| (8,000) |
| — |
Accounts payable and accrued liabilities |
| 105,621 |
| 51,493 |
Accrued interest - related parties |
| 56,045 |
| — |
Customer deposits |
| 25,545 |
| — |
Net Cash Provided (Used) by Operating Activities |
| (191,756) |
| 94,648 |
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
Purchase of property and equipment |
| (58,544) |
| (2,369) |
Advance to GK settled with asset acquisition |
| 50,000 |
| (50,000) |
Net Cash Used in Investing Activities |
| (8,544) |
| (52,369) |
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
Proceeds from sale of common stock and warrants |
| 25,000 |
| 50,000 |
Notes payable from related parties |
| 142,500 |
|
|
Advances from and payables to related parties |
| 18,800 |
| 91,882 |
Net Cash Provided by Financing Activities |
| 186,300 |
| 141,882 |
|
|
|
|
|
NET CHANGE IN CASH |
| (14,000) |
| 184,161 |
|
|
|
|
|
CASH AT BEGINNING OF YEAR |
| 336,107 |
| 151,946 |
|
|
|
|
|
CASH AT END OF YEAR |
| $322,107 |
| $336,107 |
|
|
|
|
|
Supplemental Disclosures of Non Cash Activities: |
|
|
|
|
Noncash investing and financing activities: |
|
|
|
|
Net asset acquisition acquired with shares of common stock |
| $213,725 |
| $— |
Common stock issued from stock payable |
| $640,685 |
| $454,296 |
Operating lease liability from acquiring right to use asset |
| $61,367 |
| $— |
Advances from related parties exchanged for notes payable to related parties |
| $1,008,378 |
| $— |
The accompanying notes are an integral part of these consolidated financial statements.
FS-5
CANNABIS SATIVA, INC. | |||
| |||
| |||
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME |
|
| |||
| |||||
|
|
|
|
|
|
|
|
|
| ||
For the Years Ended December 31, |
|
| 2018 |
| 2017 |
|
|
|
|
|
|
Revenues |
|
| $505,705 |
| $317,985 |
|
|
|
|
|
|
Cost of Revenues |
|
| 209,871 |
| 154,451 |
|
|
|
|
|
|
Gross Profit |
|
| 295,834 |
| 163,534 |
|
|
|
|
|
|
Operating Expenses |
|
|
|
|
|
Impairment Expense |
|
| 1,173,000 |
| 980,944 |
Professional Fees |
|
| 2,186,796 |
| 4,729,452 |
General and Administrative Expenses |
|
| 1,976,209 |
| 2,300,226 |
|
|
|
|
|
|
Total Operating Expenses |
|
| 5,336,005 |
| 8,010,622 |
|
|
|
|
|
|
Loss from Operations |
|
| (5,040,171) |
| (7,847,088) |
|
|
|
|
|
|
Other (Income) and Expenses |
|
|
|
|
|
Realized Gain on Settlement of Digital Currency |
|
| (200,000) |
| — |
Impairment of Digital Currency |
|
| 30,169 |
| — |
Other Income |
|
| — |
| (48,303) |
Interest Expense |
|
| 39,429 |
| 12,704 |
|
|
|
|
|
|
Total Other (Income), net |
|
| (130,402) |
| (35,599) |
|
|
|
|
|
|
Loss Before Income Taxes |
|
| (4,909,769) |
| (7,811,489) |
|
|
|
|
|
|
Income Taxes |
|
| — |
| — |
|
|
|
|
|
|
Net Loss |
|
| (4,909,769) |
| (7,811,489) |
|
|
|
|
|
|
Loss Attributable to Non-Controlling Interest |
|
| (781,423) |
| (247,405) |
|
|
|
|
|
|
Net Loss Attributable To Cannabis Sativa, Inc. |
|
| $(4,128,346) |
| $(7,564,084) |
|
|
|
|
|
|
Net Loss |
|
| $(4,909,769) |
| $(7,811,489) |
Other Comprehensive Income |
|
|
|
|
|
Unrealized Gain on Digital Currency |
|
| — |
| 188,978 |
Write Down Basis of Digital Currency |
|
| 11,022 |
| — |
Realized Gain on Weed Coin Exchange to REFG Shares |
|
| (200,000) |
| — |
|
|
|
|
|
|
Total Comprehensive Income |
|
| (5,098,747) |
| (7,622,511) |
|
|
|
|
|
|
Net Loss per Common Share: |
|
|
|
|
|
Basic & Diluted |
|
| $(0.20) |
| $(0.38) |
|
|
|
|
|
|
Weighted Average Common Shares Outstanding: |
|
|
|
|
|
Basic & Diluted |
|
| 21,016,230 |
| 19,924,108 |
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements | |||||
|
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|
| ||
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|
|
|
CONSOLIDATED STATEMENTS OF CASH FLOWS |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
| |||
For the Years Ended December 31, |
| 2018 |
|
| 2017 | |
|
|
|
|
| ||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
| |||
| Net Loss |
| $(4,909,769) |
|
| $(7,811,489) |
| Adjustments to Reconcile Net Loss to Net Cash |
|
|
|
|
|
| Used in Operating Activities: |
|
|
|
|
|
| Bad Debts |
| 8,044 |
|
| 15,000 |
| Gain on Sale of Fixed Assets |
| (115) |
|
| - |
| Write Down to Cost Basis - Digital Currency |
| 11,022 |
|
| - |
| Impairment of Digital Currency |
| 30,169 |
|
| - |
| Realized Gain on Settlement of Digital Currency |
| (200,000) |
|
| - |
| Impairment |
| 1,173,000 |
|
| 980,944 |
| Depreciation and Amortization |
| 562,456 |
|
| 549,305 |
| Stock Issued and to be Issued for Services |
| 2,583,156 |
|
| 3,732,886 |
| Amortization of Stock Based Prepaids |
| 84,472 |
|
| - |
| Imputed Interest on Loans |
| - |
|
| 5,649 |
| Changes in assets and liabilities: |
|
|
|
|
|
| Accounts Receivable |
| (6,833) |
|
| (1,140) |
| Inventories |
| 2,797 |
|
| 617 |
| Prepaid Consulting and Other Current Assets |
| (30,187) |
|
| (29,864) |
| Deposits |
| - |
|
| 35,000 |
| Accounts Payable and Accrued Expenses |
| 1,912 |
|
| (190,442) |
| Stock Payable |
| - |
|
| 1,748,873 |
Net Cash Used in Operating Activities: |
| (689,876) |
|
| (964,661) | |
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
| |
| Purchase of Fixed Assets |
| (630) |
|
| (9,598) |
| Proceeds from Sales of Fixed Assets |
| 1,300 |
|
| - |
| Purchase of Intangibles |
| - |
|
| (150,000) |
Net Cash Provided by (Used In) Investing Activities: |
| 670 |
|
| (159,598) | |
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
| |
| Cash Proceeds from Sale of Stock |
| - |
|
| 771,156 |
| Proceeds Received from Sales of Common Stock and Warrant Exercises |
| 361,750 |
|
| - |
| Proceeds from Related Parties, Net |
| 303,545 |
|
| 271,214 |
Net Cash Provided by Financing Activities: |
| 665,295 |
|
| 1,042,370 | |
|
|
|
|
|
|
|
NET CHANGE IN CASH |
| (23,911) |
|
| (81,889) | |
|
|
|
|
|
|
|
Cash - Beginning of Year |
| 175,857 |
|
| 257,746 | |
|
|
|
|
|
|
|
Cash - End of Year |
| $151,946 |
|
| $175,857 | |
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Activities: |
|
|
|
|
| |
| Interest |
| $- |
|
| $- |
| Income taxes |
| $- |
|
| $- |
|
|
|
|
|
|
|
Supplemental Disclosures of Non Cash Activities: |
|
|
|
|
| |
| Fair Value of Conversion of Amounts Due to Related Party and Accrued Interest |
| $- |
|
| $100,086 |
| Purchase of Investment with Digital Currency |
| $200,000 |
|
| $- |
| Common Stock Issued from Stock Payable |
| $735,604 |
|
| $379,900 |
| Fair Value of Shares Issued for Intangibles |
| $- |
|
| $60,100 |
| Fair Value of Shares and NCI Issued for Purchase of Presto Corp |
| $- |
|
| $5,463,202 |
| Fair Value of Shares Issued for Services in Prepaid Expenses |
| $- |
|
| $1,000,000 |
| Rescinded Transaction & Elimination of Prepaid Expense, Net |
| $639,822 |
|
| $- |
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements | ||||||
CANNABIS SATIVA, INC. |
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 |
|
|
|
|
|
| |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
| Preferred Stock |
| Common Stock |
| Additional |
| Other |
|
|
| Non- |
| Total | ||||
| $0.001 Par |
| $0.001 Par |
| Paid-In |
| Comprehensive |
| Accumulated |
| Controlling |
| Stockholders' | ||||
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Income |
| Deficit |
| Interest |
| Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - January 1, 2017 | 732,018 |
| $ 732 |
| 18,645,021 |
| $ 18,645 |
| $ 61,820,910 |
| $ - |
| $ (59,226,331) |
| $ 218,952 |
| $ 2,832,908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Issued for Investment | - |
| - |
| 10,000 |
| 10 |
| 60,090 |
| - |
| - |
| - |
| 60,100 |
Shares Issued - PrestoCorp | - |
| - |
| 564,943 |
| 565 |
| 2,332,649 |
| - |
| - |
| 1,996,000 |
| 4,329,214 |
Adjustment to Valuation - iBudtender | - |
| - |
| - |
| - |
| - |
| - |
| - |
| 43,719 |
| 43,719 |
Conversion of Debt to Equity | - |
| - |
| 43,169 |
| 43 |
| 104,667 |
| - |
| - |
| - |
| 104,710 |
Imputed Interest on Loans | - |
| - |
| - |
| - |
| 5,649 |
| - |
| - |
| - |
| 5,649 |
Shares Issued for Services | - |
| - |
| 1,229,308 |
| 1,229 |
| 5,489,553 |
| - |
| - |
| - |
| 5,490,782 |
Cash Purchases of Stock | - |
| - |
| 310,775 |
| 311 |
| 968,916 |
| - |
| - |
| - |
| 969,227 |
Other Comprehensive Income | - |
| - |
| - |
| - |
| - |
| 188,978 |
| - |
| - |
| 188,978 |
Net Loss | - |
| - |
| - |
| - |
| - |
| - |
| (7,564,084) |
| (247,405) |
| (7,811,489) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2017 | 732,018 |
| 732 |
| 20,803,216 |
| 20,803 |
| 70,782,434 |
| 188,978 |
| (66,790,415) |
| 2,011,266 |
| 6,213,798 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write off of KPAL Investment | - |
| - |
| - |
| - |
| - |
| - |
| - |
| (894) |
| (894) |
Write Down to Cost Basis - Digital Currency | - |
| - |
| - |
| - |
| - |
| 11,022 |
| - |
| - |
| 11,022 |
Realized Gain on Weed Coin Exchange to REFG Shares | - |
| - |
| - |
| - |
| - |
| (200,000) |
| - |
| - |
| (200,000) |
Cancellation of Shares Due to iBud | - |
| - |
| (50,000) |
| (50) |
| - |
| - |
| - |
| - |
| (50) |
Cash Purchases for Exercise of Stock Warrants | - |
| - |
| 180,875 |
| 181 |
| 361,569 |
| - |
| - |
| - |
| 361,750 |
Return of Shares Previously Issued for Services | - |
| - |
| (332,447) |
| (332) |
| (990,360) |
| - |
| - |
| - |
| (990,692) |
Shares Issued for Services | 27,426 |
| 27 |
| 557,837 |
| 558 |
| 2,082,501 |
| - |
| - |
| - |
| 2,083,059 |
Shares Issued for Services - Stock Payable | - |
| - |
| 156,720 |
| 158 |
| 735,419 |
| - |
| - |
| - |
| 735,604 |
Net Loss | - |
| - |
| - |
| - |
| - |
| - |
| (4,128,346) |
| (781,423) |
| (4,909,769) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2018 | 759,444 |
| 759 |
| 21,316,201 |
| 21,318 |
| 72,971,563 |
| - |
| (70,918,761) |
| 1,228,949 |
| 3,303,828 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements | |||||||||||||||||
CANNABIS SATIVA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017
1. Organization and Summary of Significant Accounting Policies
Nature of Corporation:Business:
Ultra Sun CorpCannabis Sativa, Inc. (the “Company,” “us”, “we” or “our”) was incorporated as Ultra Sun Corp. under the laws of Nevada in November 2004. On November 13, 2013, we changed our name to Cannabis Sativa, Inc. Our wholly-owned subsidiary Kush,We operate through several subsidiaries including PrestoCorp, Inc. (“Kush”PrestoCorp”) was acquired by us in June 2014 in exchange for shares of our common stock. Our wholly-owned subsidiary, iBudtender, Inc. (“iBudtender”), Wild Earth Naturals, Inc. (“Wild Earth”) was acquired by us in July 2013 in exchange for shares of our common stock. From our inception through September 30, 2013 we were engaged in the tanning salon business, Kubby Patent and operated a tanning salon in Saratoga Springs, Utah under the name “Sahara Sun Tanning.” As a result of our acquisition of Wild Earth in July 2013, we became engaged in the herbal skin care products business. On September 30, 2013, we sold the assets of the tanning salon business to a third party. As a result of our acquisition of Kush in June 2014, along with our Wild Earth operations we are now engaged in the developingLicenses Limited Liability Company, (“KPAL”), Hi Brands, International, Inc. (“Hi Brands”), GK Manufacturing and promoting of natural cannabis products. On November 2, 2015, Kush was spun off from the Company. On August 8, 2016 the Company entered into a securities purchase agreement with iBudtenderPackaging, Inc. to purchase 50.1% of iBudtender Inc. On August 1, 2017, the Company entered into a securities purchase agreement with PrestoCorp, Inc. (“PrestoCorp”GKMP”) to purchase 51% of PrestoCorp.
During the quarter ended September 30, 2014, the Company created, and Eden Holdings LLC (the “LLC”(“Eden”). PrestoCorp and GK Manufacturing are both 51% owned subsidiaries and iBudtender is a 50.1% owned subsidiary. Wild Earth, KPAL, Hi Brands, and Eden are wholly owned subsidiaries. Currently, PrestoCorp, GKMP and iBudtender are operating subsidiaries, although iBudtender is not currently generating any revenue. The purpose ofCompany is reviewing opportunities for business development relating to Wild Earth, KPAL, and Hi Brands. Eden is not operating and had no activity for the LLC is to hold the intellectual property of Cannabis Sativa, Inc. As ofyears ended December 31, 20182020 and 2019.
Our primary operations in the year ended December 31, 2017 there2020 were through PrestoCorp, which provides telemedicine online referral services for customers desiring medical marijuana cards in states where medical marijuana has been no activity inlegalized. GKMP commenced operations during the LLC. second quarter of 2020. iBudtender is also working to complete and commercialize an application (the iBudtender App) that will provide a convenient means for sharing information about cannabis products, patients and businesses.
Principles of Consolidation:
The consolidated financial statements include the accounts of Cannabis Sativa, Inc. (the “Company” or “CBDS”), and its wholly-owned subsidiaries; Wild Earth Naturals, Inc., Hi-Brands International, Inc., Eden Holdings LLC, our 50.1% ownership of iBudtender Inc., our 51% ownership of PrestoCorp, and our 51% ownership of PrestoCorp,GK Manufacturing Inc., (collectively referred to as the “Company”). All significant inter-company balances have been eliminated in consolidation. We hold controlling interests in iBudTender, PrestoCorp and GK Manufacturing and exercise control through management practices and oversight by the Company’s Board of Directors. GK Manufacturing was established in February 2020.
MethodNon-controlling Interests:
Non-controlling interests are portions of Accounting:entities included in the condensed consolidated financial statements that are not attributable to the Company. Non-controlling interest are identified separately from the Company’s stockholders’ equity and its net income (loss). Non-controlling interest equity balances include the non-controlling entity’s initial contribution at the date of the original acquisition, ongoing contributions, distributions, and percentage share of earnings since inception. The non-controlling interests are calculated based on percentages of ownership.
Going Concern:
The Company maintains its bookshas had recurring losses and prepares its consolidated financial statementshas an accumulated deficit of $77,028,339 at December 31, 2020, which, among other factors, raises substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the accrual basis of accounting.Company’s ability to generate profitable operations in the future and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they are due.
Use of Estimates:
The preparation of these condensed consolidated financial statements in conformity with accounting principles generally accepted in the UnitedUnites States of America(“GAAP”) requires management to make estimates and assumptions that affect the amounts reported amounts of assets and liabilities and disclosure of contingent assets and liabilities atin the date of the condensed consolidated financial statements and accompanying notes. Significant estimates and assumptions by management affect the reported amounts of revenues and expenses during the reporting period. Such management estimates include valuation of intangible assets in connection with business combinations, recoverabilityallowance for doubtful accounts, possible impairment of long-lived assets and(including goodwill and intangible assets), the valuation of equity-based instruments. Actual results could differ from those estimates.
Liquidity:
Our operations have been financed primarily through proceeds from notes payable, convertible notes payable, sale of common stock, warrants exercisedprovision for common stockincome taxes and revenue generated from sales of our products. These funds have provided us withrelated deferred tax accounts, contingencies, and the resourcesvalue attributed to operate our business, sell and support our products, attract and retain key personnel and add new products to our portfolio. We have experienced net losses and negative cash flows from operations each year since our inception. As of December 31, 2018, we had an accumulated deficit of approximately $71,000,000 and negative working capital.
CANNABIS SATIVA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017stock-based awards.
FS-6
CANNABIS SATIVA, INC. |
Liquidity: –continuedAccounts Receivable:
We have raised fundsAccounts receivable are stated at the amount that management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through the issuance of debt and the sale of common stock. We have also issued equity instruments in certain circumstances to pay for services from vendors and consultants. During the year ended December 31, 2018, approximately $362,000 was raised in gross proceeds from the issuance of common stock from the exercise of warrants.
Segment Information:
We operate our business on the basis of a single reportable segment, which is the business of delivering products and services ancillary to the medical cannabis market. Our chief operating decision-maker is the Chief Executive Officer, who evaluates us as a single operating segment.
Accounts Receivable:
We estimate credit loss reserves for accounts receivable on an individual receivable basis. A specific impairment allowance reserve is established based on expected future cash flows and the financial condition of the debtor. We charge off customer balances in part or in full when it is more likely than not that we will not collect that amount of the balance due. We consider any balance unpaid after the contract payment period to be past due. At December 31, 2018 and 2017 the Company has established an allowance for doubtful accounts. Changes to the allowance for doubtful accounts of $-0-are based on management’s judgment, considering historical write-offs, collections and $-0-, respectively.current credit conditions. Balances which remain outstanding after management has used reasonable collection efforts are written off through a charge to the allowance for doubtful accounts and a credit to the applicable accounts receivable. Payments received on receivables subsequent to being written off are considered a bad debt recovery.
Inventories:
Inventory cost includescosts, when applicable, include those costs directly attributable to the manufacture of the product before sale. Inventory consistsInventories consist of salves, ointments, lotions, creamsraw materials and balmsfinished goods and isare carried at the lower of cost or (netnet realizable value),value, using the first-in, first-out method of determining cost. Inventories at December 31, 2020 consist of emoluments, CBD oils, scents, flavors, and similar components of the salves, edibles, drinks, and topical products that GKMP produces. As of December 31, 2018,2019, the Company had $5,714 in raw materials and $-0- in finished goods inventory. At December 31, 2017 there was $8,346 in raw materials and $165 in finished goodsno inventory.
Property and Equipment:
Property and equipment are recorded at cost. Depreciation is provided for on the straight-line method over the estimated useful lives of the assets. The average lives range from five (5) to ten (10) years. Leasehold improvements are amortized on the straight-line method over the lesser of the lease term or the useful life. When assets are retired or sold, the costs and related accumulated depreciation are eliminated from the accounts and any resulting gain or loss is reflected in operations. Maintenance and repairs that neither materially add to the value of the property nor appreciably prolong its life are charged to expense as incurred. Betterments or renewals are capitalized when incurred.
Fair Value of Financial Instruments:
The estimated fair values for financial instruments are determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. The carrying amounts of accounts receivable, accounts payable, accrued liabilities,cash and notes payablecash equivalents and balances due to related parties approximate fair value given their short term nature or effective interest rates.short-term nature.
Cash:
Cash is held at major financial institutions and insured by the Federal Deposit Insurance Corporation (FDIC) up to federal insurance limits.
CANNABIS SATIVA, INC. The Company considers all highly liquid investments purchased with an original maturity of three months or less when acquired to be cash equivalents.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017
Net Loss per Share:
Net loss per share is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding for the period and contains no dilutive securities. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity.the Company. Potentially dilutive shares are excluded from the calculation of diluted net loss per share because the effect is anti-dilutive. At December 31, 2020 and 2019, the Company had 175,000 and 174,900 outstanding warrants, respectively, that could be dilutive to future periods net income. Also, at December 31, 2020 and 2019, the Company had 1,090,128 and 1,021,849 shares of convertible Series A preferred stock, respectively, that could be dilutive to future periods net income.
Investments:
Equity securities of investments in which the Company owns less than 20% and/or has no significant influence are generally measured at fair value. Unrealized gains and losses for equity securities are included in earnings. Upon sale of an equity security, the realized gain or loss is recognized in earnings.
FS-7
CANNABIS SATIVA, INC. |
Investments in companies in which the Company has the ability to exercise significant influence, but do not control, will be accounted for under the equity method of accounting. In determining whether significant influence exists, the Company will consider its participation in policy-making decisions and representation on governing bodies. Under the equity method of accounting, the Company’s share of the net earnings or losses of the investee will be included in earnings. At December 31, 2020 and 2019, the Company has no investments accounted for using the equity method (Note 2).
Investments in companies in which the Company holds more than 50% of the voting interests, but less than 100%, and has significant influence, the company is consolidated and other investor interests are presented as non-controlling.
Revenue Recognition:
On January 1, 2018, the Company adopted the newProvision for sales incentives, discounts and returns and allowances, if applicable, are accounted for as reductions of revenue recognition standard ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”, using the cumulative effect (modified retrospective) approach. Modified retrospective adoption requires entities to apply the standard retrospectively to the most current period presented in the financial statements, requiringperiod the cumulative effect of the retrospective application as an adjustment to the opening balance of retained earnings at the date of initial application. No cumulative-effect adjustment in retained earnings was recorded as the adoption of ASU 2014-09 did not significantly impact the Company’s reported historical revenue. Revenue from substantially all of our contracts with customers continues to be recognized over time as servicesrelated sales are rendered. The impact of the adoption of the new standard was not material to the Company’s consolidated financial statements for the year ended December 31, 2018.recorded. The Company expectshad no warranty costs associated with the impact to be immaterial on an ongoing basis. The 2017 comparative information has not been restated and continues to be reported under the accounting standards in effect for that period.
The primary change under the new guidance is the requirement to report the allowance for uncollectible accounts as a reduction in net revenue as opposed to bad debt expense, a componentsales of operating expenses. The Company has historically included the allowance for uncollectible accounts amounts with its allowance for contractual adjustments as a reduction in operating expenses. However most contracts are collected in full at time of delivery and the Company has immaterial account receivables and also related uncollectible accounts. Accordingly, the adoption of this guidance did not have an impact on our condensed consolidated financial statements, other than additional financial statement disclosures.
The guidance requires increased disclosures, including qualitative and quantitative disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.
At the adoption of Topic 606, the majority of what was previously classified as the provision for bad debts in the consolidated statements of income is now reflected as implicit price concessions and, therefore, included as a reduction to revenues in 2018. For changes in credit issues not assessed at the date of service, the Company will prospectively recognize those amounts in operating expenses on the consolidated statements of income.products.
The Company currently operates as one reportable segment.two divisions, the telehealth business operated through PrestoCorp and the contract manufacturing business operated through GKMP.
The Company receives payments from individual clients. As the period between the time of service and time of payment is typically one day or less if it is an internet sale otherwise payment can be uptelehealth division generates revenue based on a per telehealth visit for clients looking to 30 days,obtain a permit to use marijuana for medical purposes in states that have legalized medical marijuana. Revenues are recognized when the Company electedsatisfies its performance obligation to provide telehealth services upon a referral to a contracted physician. The obligation to perform the practical expedient under ASC 606-10-32-18referral and did not adjustthe referral are automated and occur at the same time an online client subscribes for the effectsvisit and gains access to our network of health care professionals. Recognition of revenue is not dependent on the issuance of a significant financing component.marijuana card since issuance of the card is dependent on health and other factors beyond our control. This initial service is a one-time referral to a physician. Clients may return for other telehealth consultations, typically regarding product recommendations, and such additional physician referrals are provided at an additional cost. The billing and payment processes for each physician referral are automated through our online platform. Revenue is recognized in an amount that reflects the consideration that is received in exchange for each physician referral provided to the client.
UnderThe contract manufacturing division recognizes revenue from manufacturing operations when the new revenue standard,products are shipped to the customer. In some instances, customers provide inventory for the manufacturing process and GKMP provides labor, supplies and manufacturing operations to mix and package the products. Revenues are recognized when the manufacturing and packaging process are completed and the goods have been shipped to the customer. In other instances, the Company has electedacquires inventory and manufactures products for customers and/or to applyhold in inventory for later sale to customers through the following practical expedients and optional exemptions:
·Recognize incremental costs of obtaining a contract with amortization periods of one yearGKMP on-site dispensary, through the GKMP online store, or less as expenseto independent distributors. In these instances, revenue is recognized when incurred. These costs are recorded within general and administrative expenses.
·Recognize revenue in the amount of consideration to which the Company has a right to invoice the customer if that amount corresponds directly with the valueproduct is shipped to the customer of the Company’s services completed to date.
CANNABIS SATIVA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017
Revenue Recognition - continued:
·Exemptions from disclosing the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, (ii) contracts for which revenue is recognized in the amount of consideration to which the Company has a right to invoice for services performed, and (iii) contracts for which variable consideration is allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct service that forms part of a single performance obligation.
·No adjustment is made for the effects of a significant financing component as the period between the time of service and time of payment is typically one year or less.
The Company recognizes revenue from product sales or services rendered when the following five revenue recognition criteriadistributor. Shipment terms are met: identify the contract with the client, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to performance obligations in the contract and recognize revenues when or as the Company satisfies a performance obligation. For the years ended December 31, 2018 and 2017, approximately 98% and 95% of the revenue is from PrestoCorp operations, respectively.
Digital Currencies Translations and Re-measurements
Digital currencies are included in current assets in the consolidated balance sheets. As the digital currencies are not financial assets and they lack physical substance, such assets meet the definition of an intangible asset. Accordingly, the Company records the assets at cost less impairment.
Realized gain (loss) on sale of digital currencies is included in other income (expense) in the consolidated statements of operations.FOB origination.
Investment
Investments in marketable securities are stated at fair value,Intangible Assets and consist of minority ownership in a cannabis related company. Beginning in 2018, the Company recognizes unrealized holding gains and losses in other (Income) Expenses in the consolidated statement of operations.
During the year ended December 31, 2018, the Company purchased 10,000,000 shares of common stock of Medical Cannabis Payment Solutions (ticker: REFG) in exchange for 1,000,000 units of Weed coins (valued at $200,000). There has been no change in the fair value of the investment in REFG during the year ended December 31, 2018. During the period January 1, 2019 through March 22, 2019 the investment was extremely volatile. The value being as low as $128,000 and as high as $285,000. There can be no assurances that when the Company liquidates its position of REFG, that it will realize the valuation at December 31, 2018.
Goodwill and Intangible Assets:Goodwill:
Intangible asset amounts represent the acquisition date fair values of identifiable intangible assets other than goodwill, are comprisedacquired. The fair values of patents, trademarks, the Company’s “CBDS.com” website domain and intellectual property rights. The patents are being amortizedintangible assets were determined by using the straight-line methodincome approach, discounting projected future cash flows based on management’s expectations of the current and future operating environment. The rates used to discount projected future cash flows reflected a weighted average cost of capital based on our industry, capital structure and risk premiums including those reflected in the current market capitalization. Definite-lived intangible assets are amortized over its economic life,their useful lives, which is estimatedhave historically ranged from 5 to be ten (10) years. The trademarks are being amortized between 5 and 10 years. The CBDS.com website is being amortized using the straight-line method over its economic life, which is estimated to be five (5) years. The intellectual property rightscarrying amounts of our definite-lived intangible assets are being amortized using the straight-line month over its economic life, which are estimated to be between three (3) and five (5) years.
The Company tests its goodwillevaluated for impairment annually, orrecoverability whenever events or changes in circumstances indicates an impairmentindicate that the entity may be unable to recover the asset’s carrying amount. At December 31, 2020 and 2019, we do not have occurred, by comparing its reporting unit's carrying value to its implied fair value. The goodwill impairment test consists of a two-step process as follows:any indefinite-lived intangible assets.
CANNABIS SATIVA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ForGoodwill represents the Years Ended December 31, 2018 and 2017
Step 1. The Company comparesexcess of the purchase price over the fair value of each reporting unit to its carrying amount, including the existing goodwill. Thenet tangible and intangible assets acquired in a business combination. Goodwill is not amortized but is tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset may be impaired. To assess impairment, the fair value of each
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CANNABIS SATIVA, INC. |
the reporting unit is determined usingevaluated on qualitative factors. If the qualitative factors indicate a discounted cash flow valuation analysis. Thelikelihood of impairment, we then evaluate carrying amountvalue of each reporting unit is determined by specifically identifying and allocating the assets and liabilities to each reporting unit based on headcount, relative revenue or other methods as deemed appropriate by management. Ifquantitative factorsusing the carrying amount of a reporting unit exceeds its fair value, an indication exists that the reporting unit’sincome approach. A goodwill may be impaired, and the Company then perform the second step of the impairment test. If the fair value of a reporting unit exceeds its carrying amount, no further analysis is required.
Step 2. If further analysis is required, the Company compares the implied fair value of the reporting unit’s goodwill, determined by allocating the reporting unit’s fair value to all of its assets and its liabilities in a manner similar to a purchase price allocation, to its carrying amount. If the carrying amount of the reporting unit’s goodwill exceeds its fair value, an impairment loss will beis recognized in an amount equal tofor the excess.
Impairment may result from, among other things, deterioration in the performance of the acquired business, adverse market conditions, adverse changes in applicable laws or regulations and a variety of other circumstances. If the Company determines that an impairment has occurred, it is required to record a write-down of the carrying value and charge the impairment as an operating expense in the period the determination is made. In evaluating the recoverabilityexcess of the carrying value of goodwill for the Company must make assumptions regarding estimated future cash flows and other factors to determine thereporting unit over its implied fair value of the acquired assets. Changes in strategy or market conditions could significantly impact those judgments in the future and require an adjustment to the recorded balances.value.
The goodwill was recorded as part of the acquisition of PrestoCorp that occurred on August 1, 2017 and iBudtender that occurred on August 8, 2016. The Company recorded an impairment of its PrestoCorp goodwill in the amount of $1,173,000 for the year ended December 31, 2018. There was impairment recorded for PrestoCorp goodwill for approximately $509,000 during the year ended December 31, 2017.
Advertising Expense:
Advertising costs are expensed as incurred and are included in general and administrative expensebroken out separately in the accompanying consolidated statements of operations. Advertising costs were approximately $104,000 and $353,000 for the years ended December 31, 2018 and 2017, respectively.
CANNABIS SATIVA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017
Long-Lived Assets:
We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. We evaluate assets for potential impairment by comparing estimated future undiscounted net cash flows to the carrying amount of the assets. If the carrying amount of the assets exceeds the estimated future undiscounted cash flows, impairment is measured based on the difference between the carrying amount of the assets and fair value. Assets to be disposed of would be separately presented in the consolidated balance sheet and reported at the lower of the carrying amount or fair value less costs to sell and are no longer depreciated. The assets and liabilities of a disposal group classified as held-for-sale would be presented separately in the appropriate asset and liability sections of the consolidated balance sheet, if material. During the years ended December 31, 2018 we did not recognize any impairment of our long-lived assets.During the year ended December 31, 2017 we recognized an impairment charge of $980,944 related to the assets of PrestoCorp.
Stock-Based Compensation:
Stock-based compensation is computed in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 718. FASB ASC 718 requires all share-based paymentpayments to employees including grants of employee stock options, to beand non-employees are recognized as compensation expense in the consolidated financial statements based onat their fair values. ThatCompensation expense will beis recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period). The Company has selected the Black-Scholes option pricing model as the most appropriate fair value method for our awards and have recognized compensation costs immediately as our awardsTransactions in which goods or services are 100% vested.
Stock-Based Compensation: - continued
The Company’s accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of FASB ASC 505-50. The measurement datereceived for the fair valueissuance of shares of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultantCompany’s preferred or vendor is reached or (ii) the date at which the consultant or vendor’s performance is complete.
In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement. Stock-based compensation related to non-employees iscommon stock are accounted for based on the fair value of the relatedcommon stock orissued. When options or theto purchase shares of stock are granted, fair value is determined using the Black-Scholes option pricing model. Most awards to date have been in the form of shares of the services, whichever is more readily determinable in accordance with ASC 718. Company’s common and preferred stock issued under the Company’s 2017 Stock Plan. The Company currently recognizes compensation costs immediately as our awards are 100% vested at the time of issuance.
Business Combinations:
We account for business combinations by recognizing the assets acquired, liabilities assumed, contractual contingencies, and contingent consideration at their fair values on the acquisition date. The final purchase price may be adjusted up to one year from the date of the acquisition. Identifying the fair value of the tangible and intangible assets and liabilities acquired requires the use of estimates by management and was based upon currently available data. Examples of critical estimates in valuing certain of the intangible assets we have acquired or may acquire in the future include but are not limited to future expected cash flows from product sales, support agreements, consulting contracts, other customer contracts, and acquired developed technologies and patents and discount rates utilized in valuation estimates.
Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results. Additionally, any change in the fair value of the acquisition-related contingent consideration subsequent to the acquisition date, including changes from events after the acquisition date, such as changes in our estimate of relevant revenue or other targets, will be recognized in earnings in the period of the estimated fair value change. A change in fair value of the acquisition-related contingent consideration or the occurrence of events that cause results to differ from our estimates or assumptions could have a material effect on the consolidated statements of operations, financial position and cash flows in the period of the change in the estimate.
CANNABIS SATIVA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017
Income Taxes:
The Company adopted FASB Accounting Standard Codification (ASC) 740 which clarifiesutilizes the liability method of accounting for uncertainty in income taxes recognizedwhich requires that deferred tax assets and liabilities be recorded to reflect the future tax consequences of temporary differences between the book and tax basis of various assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the Company's consolidated financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken oryears in which those temporary differences are expected to be taken in arecovered or settled. Additionally, deferred tax return. ASC 740 also provides guidance on derecognitionassets are evaluated, and measurement of a tax position taken or expected to be taken in a tax return. The Company had no unrecognized tax benefits during the year nor any interest or penalties on unrecognized tax benefits as of December 31, 2018.
The Company estimates the annual tax rate based on projected taxable income for the full year and records a quarterly income tax provision in accordance with the anticipated annual rate. As the year progresses, we refine the estimates of the year’s taxable income as new information becomes available, including year-to-date financial results. This continual estimation process can result in a change to the expected effective tax rate for the year.
When this occurs, the Company adjusts the income tax provision during the quarter in which the change in estimate occurs so that the year-to-date provision reflects the expected annual tax rate. Significant judgment may be required in determining the Company’s effective tax rate and in evaluating our tax positions.
The effective income tax rate of 0% for the years ended December 31, 2018 and 2017 differed from the statutory rate, due primarily to net operating losses incurred by the Company in the respective periods. For the year ended December 31, 2018 a tax benefit of approximately $1,130,000 would have been generated. For the year ended December 31, 2017 a tax benefit of approximately $2,500,000 would have been generated. However, all benefits have been fully offset through a valuation allowance account due to the uncertainty of the utilization of the net operating losses. As of December 31, 2018 the Company had accumulated net operating losses of approximately $10,028,000is established if it is more likely than not that would result inall or a deferred tax asset of approximately $3,200,000. However, the Company has established a valuation allowance in the full amountportion of the deferred tax asset due towill not be realized. There can be no assurance that the uncertainty ofCompany’s future operations will produce sufficient earnings so that the utilization of operating losses in future periods.deferred tax asset can be fully utilized. The Company currently maintains a full valuation allowance against net deferred tax assets.
Correction of ErrorLeases:
The Company management has determined, after discussion with our independent registered public accounting firm,determines if an arrangement is a lease, or contains a lease, at the inception of an arrangement. If the Company determines that the arrangement is a lease, or contains a lease, at lease inception, it then determines whether the lease is an operating lease or finance lease. Operating and finance leases result in recording a right-to-use (“RTU”) asset and lease liability on the consolidated balance sheets. RTU assets represent the Company’s digital currency were not properly accountedright to use an underlying asset for the lease term and the amounts previously reported were misstated.
Based on our analysis, the Company has concluded that it erroneously recorded its digital currencies at fair value in the prior year and previous quarters rather than at cost, less impairment. Accordingly, the digital currency asset has been stated at zero value, which represents the cost basis, and the related decrease in valuation of approximately $30,000 was recorded as an impairment and the accumulated other comprehensive income of $11,022 was expensed to general and administrative expense. The prior year balance of approximately $230,000 and the prior periods unrealized gain/loss have not been restated, as such amounts are determined not to be significant tolease liabilities represent the Company’s overall financial statements as such amounts represent less than 5% of assets and less than 1% of net loss.
Recent Accounting Pronouncements:
In February 2016,obligation to make lease payments arising from the FASB issued ASU 2016-02, Leases. The standard requires lessees to recognizelease. Operating lease RTU assets and lease liabilities are recognized at the commencement date based on the consolidated balance sheetpresent value of lease payments over the lease term. For purposes of calculating operating lease RTU assets and requires expanded disclosures about leasing arrangements. We planoperating lease liabilities, the Company uses the non-cancellable lease term plus options to adoptextend that it is reasonably certain to exercise. Lease expense for operating lease payments is recognized on a straight-line basis over the standardlease term. The Company uses its incremental borrowing rate based on January 1, 2019. Based on our assessmentthe information available at commencement date in determining the present value of the new standard on our consolidated financial statements, which will consist primarily of a balance sheet gross up of our operating leaseslease payments. The Company has elected not to show equal and offsetting leaserecognize RTU assets and lease liabilities we have concluded that the impact is insignificantarise from short-term (12 months or less) leases for any class of underlying asset. The Company has elected not to our consolidated financial statements.
CANNABIS SATIVA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018separate lease and 2017non-lease components for any class of underlying asset.
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CANNABIS SATIVA, INC. |
Recent Accounting Pronouncements:- continuedFair Value Measurements:
In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718) When required to expand the scope of ASC 718, Compensation - Stock Compensation (Topic 718) (“ASU 2018-07”), to include share-based payment transactions for acquiring goods and services from nonemployees. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. We do not expect this ASU to have a significant impact on our consolidated financial statements and related disclosures.
FASB ASU 2017-11 “Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815)” - In July 2017, the FASB issued 2017-11. The guidance eliminates the requirement to consider “down round” features when determining whether certain equity-linked financial instrumentsmeasure assets or embedded features are indexed to an entity’s own stock. Our warrants issued with our convertible notes are treated as derivative instruments, because they include a “down round” feature. The ASU is effective for annual periods beginning after December 15, 2018, and for interim periods within those years, with early adoption permitted. We do not expect this ASU to have a significant impact on our consolidated financial statements and related disclosures.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments – “Overall: Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”). ASU 2016-01 provides guidance to improve certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Specifically, the guidance: (1) Require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measuredliabilities at fair value, with changes inthe Company uses a fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions forhierarchy based on the identical or a similar investmentlevel of independent, objective evidence surrounding the same issuer. (2) Simplifyinputs used. The Company determines the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value. (3) Eliminate the requirement to discloselevel within the fair value of financial instruments measured at amortized cost for entities that are not public business entities. (4) Eliminate the requirement for public business entities to disclose the method(s) and significant assumptions used to estimatehierarchy in which the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet. (5) Require public business entities to use the exit price notion when measuringmeasurements in their entirety fall. The categorization within the fair value hierarchy is based upon the lowest level of financial instruments for disclosure purposes. (6) Require an entityinput that is significant to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. (7) Require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or accompanying notes to the financial statements. (8) Clarity that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. This guidance was effective for the Company in 2018. Accordingly, the Company adopted this guidance in 2018, but it had no effect on its opening retained earnings.
2. Fair Value Measurements
We adopted ASC Topic 820 for financial instruments measured at fair value on a recurring basis. ASC Topic 820 defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States and expands disclosures about fair value measurements.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 establishes a three-tier fair value
hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjustedmeasurement. Level 1 uses quoted prices in active markets for identical assets or liabilities, (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:
CANNABIS SATIVA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017
2. Fair Value Measurements – continued
Level 1, defined as2 uses significant other observable inputs, such as quoted pricesand Level 3 uses significant unobservable inputs. The amount of the total gains or losses for identical instrumentsthe period are included in active markets;
Level 2, defined as inputs other than quoted prices in active marketsearnings that are either directlyattributable to the change in unrealized gains or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active;losses relating to those assets and
Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
The estimated fair values for financial instruments are determinedliabilities still held at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. The carrying amounts of accounts receivable, inventory, notes payable, accounts payable, accrued liabilities approximate fair value given their short-term nature or effective interest rates. the reporting date. We measure our investment in marketableequity securities at fair value on a recurring basis. The Company’s available for saleequity securities are valued using inputs observable in active markets for identical securities and are therefore classified as Level 1 within the fair value hierarchy.
3. Fixed AssetsContingencies:
In determining accruals and disclosures with respect to loss contingencies, the Company evaluates such accruals and contingencies for each reporting period. Estimated losses from loss contingencies are accrued by a charge to income when information available prior to issuance of the financial statements indicates that it is probable that a liability could be incurred, and the amount of the loss can be reasonably estimated. Legal expenses associated with the contingency are expensed as incurred. If a loss contingency is not probable or reasonably estimable, disclosure of the loss contingency is made in the financial statements when it is at least reasonably possible that a material loss could be incurred.
Recent Accounting Pronouncements:
Accounting Standards Updates Adopted
In August 2018, the Financial Accounting Standards Board (“FASB”) issued Auditing Standards Update (“ASU”) No. 2018-13 Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. The update removes, modifies and makes additions to the disclosure requirements on fair value measurements. The update was adopted as of January 1, 2020, and its adoption did not have a material impact on the Company’s consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The update simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount. This update is effective for annual and interim periods beginning after December 15, 2019, and interim periods within that reporting period. The update was adopted as of January 1, 2020, and its adoption did not have a material impact on the Company’s consolidated financial statements.
Accounting Standards Updates to Become Effective in Future Periods
In December 2019, the FASB issued ASU No. 2019-12 Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The update contains a number of provisions intended to simplify the accounting for income taxes. The update is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. Management is evaluating the impact of this update on the Company’s consolidated financial statements.
In August 2020, the FASB issued ASU No. 2019-12 Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The update is to address issues identified as a result of the complexity associated with applying generally accepted accounting principles for certain financial instruments with characteristics of liabilities and equity. The update is effective for fiscal years beginning after December 15, 2021,
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CANNABIS SATIVA, INC. |
including interim periods within those fiscal years and with early adoption permitted. Management is evaluating the impact of this update on the Company’s consolidated financial statements.
Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption.
2. Property and Equipment
Property and equipment consistedofconsistedof the following at December 31, 20182020 and 2017:2019:
|
|
| 2020 | 2019 |
December 31, | 2018 | 2017 | ||
Furniture and Equipment | $ 15,045 | $ 17,425 | $225,629 | $17,414 |
Leasehold Improvements | 2,500 | 2,500 | 17,315 | 2,500 |
| 17,545 | 19,925 | 242,944 | 19,914 |
Less: Accumulated Depreciation | (10,997) | (9,325) | (43,824) | (13,474) |
|
|
| ||
Net Property and Equipment | $ 6,548 | $ 10,600 | $199,120 | $6,440 |
Depreciation expense for the years ended December 31, 20182020 and 20172019 was approximately $3,500$30,352 and $1,400,$2,477, respectively.
CANNABIS SATIVA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 20183. Intangibles and 2017
4. IntangiblesGoodwill
All of the Company’s intangibles are definite-lived assets with lives of 5 to 10 years. Intangibles consistedofconsisted of the following at December 31, 20182020 and 2017: 2019:
|
|
|
December 31 | 2018 | 2017 |
|
|
|
CBDS.com website (Cannabis Sativa) | $ 13,999 | $ 13,999 |
Intellectual Property Rights (Cannabis Sativa) | 1,484,250 | 1,484,250 |
Intellectual Property Rights Vaporpenz (Cannabis Sativa) | 210,100 | 210,100 |
Intellectual Property Rights (iBudtender) | 330,000 | 330,000 |
Intellectual Property Rights (PrestoCorp) | 240,000 | 240,000 |
Patents and Trademarks (Cannabis Sativa) | 8,410 | 8,410 |
Patents and Trademarks (Wild Earth) | 4,425 | 4,425 |
Patents and Trademarks (KPAL) | 1,410,000 | 1,410,000 |
| 3,701,184 | 3,701,184 |
Less: Accumulated Amortization | (1,407,083) | (848,125) |
|
|
|
Net Intangible Assets | $ 2,294,101 | $ 2,853,059 |
| 2020 | 2019 |
CBDS.com website (Cannabis Sativa) | $13,999 | $13,999 |
Intellectual Property Rights (PrestoCorp) | 240,000 | 240,000 |
Patents and Trademarks (KPAL) | 1,281,411 | 1,281,411 |
Total Intangibles | 1,535,410 | 1,535,410 |
Less: Accumulated Amortization | (1,045,464) | (840,192) |
Net Intangible Assets | $489,946 | $695,218 |
Amortization expense for the years ended December 31, 20182020 and 20172019 was approximately $559,000$205,272 and $557,000,$558,958, respectively.
Amortization of intangibles for each of the next 5five years approximates:is:
2019 | $ 558,000 |
2020 | $ 558,000 |
2021 | $ 526,000 |
2022 | $ 422,000 |
2023 | $ 230,101 |
2021 | $169,142 |
2022 | 161,865 |
2023 | 151,686 |
2024 | 3,049 |
2025 | 932 |
Goodwill consisted of the following at December 31, 2020 and 2019 was $1,837,202 and relates to the 2017 PrestoCorp acquisition and is comprised the original goodwill recognized $3,010,202 less cumulative impairment of $1,173,000 recognized in 2018 No impairment of the PrestoCorp goodwill was recognized during the years ended December 31, 2020 and 2017:2019.
December 31, | 2018 | 2017 |
|
|
|
Beginning Balance | $ 3,346,869 | $ 247,051 |
Acquisition PrestoCorp | –– | 3,010,202 |
|
|
|
Impairment Presto Corp | (1,173,000) | –– |
Adjustment to Valuation of iBudtender Acquisition | –– | 89,616 |
|
|
|
Ending Balance | $ 2,173,869 | $ 3,346,869 |
CANNABIS SATIVA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ForGoodwill of $336,667 was recognized with the Years Ended2016 IBudtender acquisition which is fully impaired as of December 31, 20182020 and 20172019. During the year ended December 31, 2019, the Company recognized a full impairment of the balance ($336,667). The impairment of the iBudtender goodwill was due to delays in completion of the iBudtender software and mobile app, and failure to commence viable business operations, as well as the uncertainty surrounding the future of the business opportunity.
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CANNABIS SATIVA, INC. |
There were no intangible nor goodwill additions, deletions, and impairments recognized in the year ended December 31, 2020.
4. Related PartiesParty Transactions
The Company has received funds from borrowings on notes payable and advances from related parties and officers of the Company to cover operating expenses. AsRelated parties include the officers and directors of December 31, 2018the Company, and 2017, net amounts due toa significant shareholder holding in excess of 10% of the related parties were $926,638 and $623,093, respectively.Company’s outstanding shares. During the years ended December 31, 20182020 and 2017,2019, the Company has imputedrecorded interest onexpense related to these advances at the rates between 5% and 8% per annum and has recordedin the amounts of $56,045 and $49,608, respectively.
In 2020, the Company converted all of the outstanding advances at December 31, 2019 into one year notes due on December 31, 2020 bearing interest expense related to these balancesat 5%. New borrowings on notes payable in the year ended December 31, 2020 were $142,500. In 2020, the Company also received a short-term advance in the amount of $39,429$18,800 which was not pursuant to a note payable and $12,704, respectively. Because the related parties did not expect the imputed interestis expected to be repaid in 2021. This advance is not interest bearing. In the interest hasyear ended December 31, 2019, advances totaled $91,882.
In April 2021, the notes were extended to December 31, 2021. The Company is currently in discussions with the note holders to covert these notes into long-term obligations, but the terms have not been recorded as a contribution of capitalfinalized.
Included in the note payable balances at December 31, 2017 only, in the amount of $5,649.
5. Related Parties – continued
At December 31, 20182020 and 2017, the Company had2019 is a note payable to the founder of iBudtender of $9,197$10,142 and $55,667, respectively, which is included in Due to Related Parties in the accompanying consolidated balance sheet.$10,142, respectively. The note earns interest at 0% and iswas due inon December 2019. The note has not yet been paid pending further review of the iBudtender business and adjustment of the agreements between the parties.
The following tables reflect the related party advance and note payable balances.
Advances from | Notes payable to | Accrued interest -related parties | ||||
December 31, 2020 | ||||||
David Tobias, CEO & Director | $- | $944,378 | $120,293 | |||
New Compendium, Affiliate | - | 152,500 | 20,063 | |||
Keith Hyatt, Affiliate (GKMP) | 13,100 | - | - | |||
Jason Washington, Affiliate (GKMP) | 5,700 | - | - | |||
Chris Cope, Affilitate (iBudtender) | - | 10,142 | - | |||
Cathy Carroll, Director | - | 50,000 | 3,068 | |||
Other Affiliates | - | 4,000 | 600 | |||
Totals | $18,800 | $1,161,020 | $144,024 | |||
December 31, 2019 | ||||||
David Tobias, CEO & Director | $851,878 | $- | $75,141 | |||
New Compendium, Affiliate | 152,500 | - | 12,438 | |||
Chris Cope, Affilitate (iBudtender) | - | 10,142 | - | |||
Other Affiliates | 4,000 | - | 400 | |||
Totals | $1,008,378 | $10,142 | $87,979 | |||
During the yearsyear ended December 31, 20182020 and 2017,2019, the Company incurred approximately $69,000$162,300 and $ 60,000,$69,000 respectively, for consulting services from a relativenephew of the Company’s president. These services were paid in shares of the Company’s common stock. These amounts are included in the statements of operations in general and administrative expenses.
In the years ended December 31, 2020, and 2019, the Company paid officer and director compensation for services in shares of common stock in order to reduce operating cash flow requirements. The shares were recorded at fair value at the time of issuance as compensation expense. These amounts totaled $678,870 and $761,730, respectively, in years
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CANNABIS SATIVA, INC. |
ended December 31, 2020 and 2019. The amounts are included in the statements of operations in general and administrative expenses. See Note 6 regarding shares issued to related parties.
5. Investments
The Company owns 10,000,000 shares of common stock of Medical Cannabis Payment Solutions (ticker: REFG) that has an original cost of $200,000. At December 31, 2020, the fair value of the investment in REFG was adjusted to $195,000 based on the closing price of the stock on that date, which resulted in an unrealized gain on investment of $147,000 during the year ended December 31, 2020. At December 31, 2019, the fair value of the investment in REFG was adjusted to $48,000 based on the closing price of the stock on that date, which resulted in an unrealized loss on investment of $152,000 during the year ended December 31, 2019.
6. Stockholders’ Equity
Preferred StockShare Capital
The authorized capital of the Company authorizedconsists of 45,000,000 shares of Common Stock with a par value of $0.001 and 5,000,000 shares of preferred stock.stock issuable in series with such rights, preferences and conditions as the Board of Directors may establish. The Company has designated and determinedestablished the rights of Series A preferred stock (“Series A”) with a par value of $0.001. The Company is authorized to issue up to 5,000,000 shares of Series A. The holders of Series A are entitled to dividends if the Company declares a dividend on common shares, have no liquidation preference, have voting rights equal to 1 vote per share, and can be converted into one share of common.common at any time.
During In the year ended December 31, 2018 the Company issued 27,4262020, a related party converted 503,681 preferred shares into 503,681 shares of common stock. No preferred stock to the Company’s President for consulting servicesshares were converted in the amount of approximately $160,000. The fair value of the shares issued was based on the market price of the Company’s common stock as of September 30, 2018.
Common Stock
During the year ended December 31, 2017, a related party purchased 80,000 shares common stock for approximately $415,000 in cash.2019.
During the year ended December 31, 2017, a related party convertible note payable was repaid in the amount of $100,000 plus approximately $5,000 in interest with the issuance of 43,169 shares of common stock, per the terms of the note agreement.Stock Compensation Plans
During the year ended December 31, 2017 the Company paid $150,000 and issued 10,000 shares of common stock to purchase intellectual property Vaporpenz (see note 5). The total investment was valued at $210,100 of whichthe 10,000 shares of common stock issued was valued at $60,100. The Company has recorded the intellectual property rights in intangible assets in the accompanying consolidated balance sheet.Stock Plan
During the year ended December 31, 2017, the Company issued 564,943 shares of common stock to purchase a controlling interest in PrestoCorp. The total investment was valued at $2,333,202. The Company has recorded the intellectual property rights in intangible assets in the accompanying consolidated balance sheet. See Note 7.
During the year ended December 31, 2017 the board of directors approved the issuance of 1,229,308 shares of common stock for services in the amount of approximately $5,500,000. Approximately $1,600,000 was recorded as prepaid consulting due to the non-forfeitable nature of the shares issued. During the year ended December 31, 2017, the Company amortized approximately $555,000 of such prepaid amount to consulting fees in the accompanying
CANNABIS SATIVA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017
consolidated statement of operations. The fair value of the shares issued was based on the market price of the Company’s common stock on the measurement date.
As of December 31, 2017, the Company had outstanding warrants to purchase 230,775 shares of the Company’s common stock. The exercise price of the warrants was $2.00 per share. All warrants are exercisable.
During the year ended December 31, 2018 the board of directors approved the issuance of 557,837 shares of common stock for services in the amount of approximately $2,083,000. The fair value of the shares issued was based on the market price of the Company’s common stock on the measurement date.
6. Stockholders’ Equity – continued
Common Stock - continued
DuringOn July 28, 2017, the Company adopted the Cannabis Sativa Inc. 2017 Stock Plan which authorizesauthorized the board ofCompany to utilize common stock to compensate employees, officers, directors, and independent contractors for services provided to issuethe Company. The Company authorized up an aggregate ofto 3,000,000 shares of common stock to allowbe issued pursuant to the 2017 Stock Plan. At December 31, 2020, the Company was authorized to issue up to 55,657 additional shares under the 2017 Stock Plan.
2020 Stock Plan
On September 25, 2020, the Company adopted the Cannabis Sativa 2020 Stock Plan which authorized the Company to utilize common stock to compensate employees, officers, directors, and consultants from time to time by issuing them shares of Company common stock in returnindependent contractors for services provided to the Company. By board of director resolution dated September 25, 2020, the Company rather than paying for the services in cash thereby depleting the cash assetsauthorized up to 1,000,000 shares of the Company. Under the plan there were no set issuances ofcommon stock to which any party is entitled. Distributions are only allowedbe issued pursuant to the discretion of2020 Stock Plan. This amount was subsequently increased to 2,000,000 shares on January 27, 2021 by resolution. No shares were issued under the board of directors if and when it is2020 Stock Plan in the best interest of the Company to make any distribution.
During the year ended December 31, 2018,2020.
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CANNABIS SATIVA, INC. |
Warrants
Transactions in common stock purchase warrants for the Company issued 156,720years ended December 31, 2020 and 2019 are as follows:
|
| Number of |
| Exercise |
Balance December 31, 2018 |
| 49,900 |
| $2.00 |
Issued |
| 125,000 |
| 0.80 |
Balance December 31, 2019 |
| 174,900 |
| $0.80 -$2.00 |
Issued |
| 50,000 |
| 2.00 |
Expired |
| (49,900) |
| (2.00) |
Balance December 31, 2020 |
| 175,000 |
| $0.80 -$2.00 |
These warrants expire as follows:
Shares | Exercise Price | Expiration Date |
125,000 | $0.80 | November 2022 |
50,000 | 2.00 | July and August 2023 |
175,000 |
|
|
Securities Issuances
During the years ended December 31, 2020 and 2019, shares of common stock with the fair value of $735,604, whichand preferred stock were classifiedissued to related and non-related parties as stock payable at December 31, 2017.follows:
During the yearYear ended December 31, 2018 the Company amended its purchase contract with iBudtender (its 50.1% subsidiary). In that agreement, 50,000 shares of common stock due to iBud were cancelled. Those shares while never officially issued were accounted for and were included in stock issued since the acquisition in August 2016. Based on the related party nature of the transaction, no gain or loss was recorded, such value was recorded as a capital transaction at par value.2020
During the year ended December 31, 2018, $361,750 cash was received for 180,875 outstanding warrants exercised at $2.00 each. 180,875 shares of common stock were issued.
During the year ended December 31, 2018, 332,447 shares were returned due to cancellation of a service contract that was originated in 2017. The value of the shares returned was approximately $991,000 which was recorded as a reduction of the professional fees incurred since the inception of the contract.
As of December 31, 2018, the Company had outstanding warrants to purchase 49,900 shares of the Company’s common stock. The exercise price of the warrants was $2.00 per share. All warrants are exercisable and expire February 1, 2020. The intrinsic value of outstanding warrants as of December 31, 2018 is approximately $36,000.
7. Purchase of PrestoCorp
Effective August 1, 2017, the Company purchased 51% voting interest in PrestoCorp. The Company can issue PrestoCorp up to 1,027,169 shares of common stock valued at approximately $4,200,000 on the closing date of the transaction. In exchange, PrestoCorp issued 2,550 shares of its common stock to the Company. The purchase price includes an earn-out based on future performance of PrestoCorp if certain revenue and income milestones are achieved, which under ASC 805 are considered compensatory in nature and have been excluded from the purchase price allocation below.
CANNABIS SATIVA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017
The following summarizes the transaction with PrestoCorp at closing on August 1, 2017:
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7. Acquisition of GK Manufacturing and Packaging, Inc. In the year ended December 31, 2020, the Company acquired assets and established GK Manufacturing and Packaging, Inc. (“GKMP”) to conduct contract manufacturing operations for customers seeking to obtain CBD infused products, including salves, tinctures, edibles, and other products containing CBD. In connection with the acquisition, the Company issued two key individuals an aggregate of 100,000 shares of common stock with a fair value of $109,000 for a 51% interest in GKMP. Allocation of the acquisition price to the assets acquired was as followed:
Employment Agreements. Upon completion of the
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in consideration would be due to Working Capital Obligation. In connection with the GKMP asset acquisition, the Company 8. Business Segments and Revenues The Company is currently organized and managed in two segments which represent our operating units: PrestoCorp and GKMP. PrestoCorp is a telehealth business and GKMP is a contract manufacturing business. General corporate activities not associated with these segments are presented as “other.” Other income (expense) items are considered general corporate items and are not allocated to our segments.
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Financial information for each operating segment is as follows:
9. Commitments and Contingencies
The Company PrestoCorp leases office space through WeWork in New York for $2,444 per month on a month to month arrangement. Until February 2019, PrestoCorp also leased space in San Francisco
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bottle filler was leased by GKMP commencing on April 1, 2020. The contracts for both these leases are required to be accounted for as a right to use assets with a related operating lease liability. To calculate the right of use asset and related liability, the Company utilized a 10% incremental borrowing rate to discount the future rent payments over the remaining lease terms. For the year ended December 31, 2020, the Company recognized $22,527 in manufacturing equipment lease expense which is included in cost of good sold in the consolidated statements of operations. No manufacturing equipment lease expense was recognized in the year ended December 31, 2019. At December 31, 2020, the remaining lease term is 30 months on the printer and 15 months on the bottle filling line. The lessors hold deposits of $1,250 on the printer lease and $8,000 on the bottle filling line. Future minimum lease payments over the remaining term are as follows:
Litigation.In the ordinary course of business, we may face various claims brought by third parties and we may, from time to time, make claims or take legal actions to assert our rights, including intellectual property disputes, contractual disputes and other commercial disputes. Any of these claims could subject us to litigation. As of December 31, 2020, one claim was pending or threatened relating to general business disputes and accounts payable for services. Management believes the
In August 2020, the Company entered into discussions with the principals of PrestoCorp regarding the escrowed shares and various compensation matters relating to their work for the Company through the date of the discussions. In December, the Company received a demand letter from the PrestoCorp principals’ attorney demanding release of all escrowed shares to them and demanding additional compensation. The Company denied the initial demand and has continued its discussions with the principals. In January 2021, the Company released a tranche of 209,738 escrowed shares to the PrestoCorp principals to show good faith in the ongoing negotiations. The parties are continuing to evaluate the others respective positions and management believes that the disagreements over performance, compensation and escrowed shares will be amicably resolved in 2021. No contingent liability has been established for this disagreement and it is management’s intention to address the PrestoCorp principals’ issues so they can continue to focus their attention on their ongoing business responsibilities. Management does not believe that this matter will have a material impact on the financial statements or the results of operations even if the matter requires a more formal dispute resolution process, and the PrestoCorp principals prevail on their claims. FS-18
10. COVID- 19: The outbreak of COVID-19, the coronavirus, has grown both in the United States and globally, and related government and private sector responsive actions have adversely affected the Company’s business operations. The World Health Organization has declared Covid-19 to be a global pandemic, resulting in an economic downturn and changes in global economic policy that will reduce demand for the Company’s products and may have an adverse impact on the Company’s business, operating results and financial condition. 11. Income Taxes The Company did not recognize a tax provision or benefit for the years ended December 31, At December 31, 2020 and 2019, the Company had net deferred tax assets principally arising from net operating loss carryforwards for income tax purposes and differences in the carrying values of goodwill and intangibles between the Company’s financial statements and its income tax returns. As management of the Company cannot determine that it is more likely than not that the Company will realize the benefit of the deferred tax assets, a valuation allowance equal to 100% of the net deferred tax asset exists at December 31, 2020 and 2019. The components of the Company’s net deferred tax assets at December 31, 2020 are as follows:
At December 31, 2020 the Company had net operating loss carry forwards of approximately The reconciliation of the statutory federal income tax rate of 21% and the Company’s tax provision (benefit) at December 31, 2020 is as follows:
The Company has analyzed its filing positions in all jurisdictions where it is required to file income tax returns and found no positions that would require a liability for uncertain income tax benefits to be
12. Subsequent Events
On March 5, 2021, The IN the period from January 1, 2021 through April 1, 2021, David Tobias, Chief Executive Officer of the Company, converted 167,966 shares of preferred stock
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