Washington, D.C. 20549
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FORM 10-Q10-Q/A
(Amendment No. 1)
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x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE |
| ACT OF 1934
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For the quarterly period ended: March 31, 2020 | |
or | |
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o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE |
| ACT OF 1934
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For the transition period from: _____________ to _____________
Commission File Number: 000-53571 | |
Cannabis Sativa, Inc.
(Exact name of registrant as specified in its charter)
NEVADA |
| 20-1898270 |
(State or Other Jurisdiction |
| (I.R.S. Employer |
of Incorporation) |
| Identification No.) |
450 Hillside Dr. #A224, Mesquite, Nevada 89027
(Address of Principal Executive Office) (Zip Code)
(702) 762-3123
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
———————
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.☒ Yes☐ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).☒ Yes☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ |
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| Accelerated filer | ☐ |
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Non-accelerated filer |
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| Smaller reporting company | ☒ |
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Emerging growth company | ☐ |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐ Yes☒ No
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐
The number of shares of the issuer's Common Stock outstanding as of June 24, 2019, is 24,341,154.
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
Attached after signature page.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Results of Operations
Three Months Ended March 31, 2020, compared with the Three Months Ended March 31, 2019
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Revenue for the three-month periods ended March 31, 2020 and 2019 was $493,140 and $100,282, respectively. Cost of revenues for the three-month periods ended March 31, 2020 and 2019 was $187,335 and $45,609, respectively. Gross profit for the three-month periods ended March 31, 2020 and 2019 was $305,805 and $54,673, respectively. The fluctuation in these numbers is primarily the result of significant increases in patient visits due to expanded market coverage and the generally increasing acceptance of telehealth platforms in the age of the Covid-19 pandemic.
Revenues from our PrestoCorp subsidiary grew 392% in the three months ended March 31, 2020 compared to the three months ended March 31, 2019. This large increase in revenue is the result of expanded market area, increased advertising which drove and in increase in patient visits to our online platform, and a general increase in consumer awareness of the PrestoDoctor brand. The Company now operates in the states of California, Nevada, New York, Oklahoma, Missouri, and Pennsylvania. The Company is currently exploring expansion opportunities in four additional states, including Illinois, Ohio, Virginia, and Massachusetts.
Net operating loss for the three-month period ended March 31, 2020 was $672,775 compared to net loss of $737,815 for the three-month period ended March 31, 2019. The decrease in net operating loss resulted primarily from an increase in revenue from PrestoCorp and a corresponding 7% improvement in the gross profit as a percent of sales.
Total operating expenses were $978,580 for the three-month period ended March 31, 2020 and $737,815 for the three-month period ended March 31, 2019. The increase in total operating costs was largely attributable to increases in activity brought on by the significant increase in revenue and patient load. The Company also significantly reduced its depreciation and amortization expense as a result of impairment of amortizable intangible assets taken in the year ended December 31, 2019. Management expects that operating costs will continue to increase as revenues rise, but the increases in operating costs are expected to rise at a slower rate than revenue due to expected efficiencies of scale.
Liquidity and Capital Resources
Net cash used in operating activities for the three-month period ended March 31, 2020, was $94,609. During the same period, our cash increased by $9,024. The Company generated $65,500 in the quarter from advances from related parties, and applied a $50,000 advance balance as partial consideration for the acquisition of assets by GK Manufacturing and Packaging, Inc., a newly formed contract manufacturing entity that is owned 51% be the Company. We also reported $592,075 during the period from issuance of common and preferred stock as compensation for services performed by officers, directors, and contractors. On March 31, 2020, our cash position was approximately $345,000, primarily derived from our PrestoCorp operations. We have funding obligations totaling approximately $310,000 for GK Manufacturing in the coming months. Given expected operations in our second quarter, we expect that additional funds will be required. Management is currently evaluating several fund-raising alternatives including private placement of equity securities, a secondary public offering, and various debt instruments. In addition, key members of management have indicated a willingness to provide additional operating capital from time to time. Based on all of these considerations, we believe we will have sufficient capital to operate the business for the next twelve months.
The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. We incurred a net loss of $616,407 and $722,759, respectively, for the three-month periods ended March 31, 2020, and 2019, and had an accumulated deficit of $75,471,544 as of March 31, 2020. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company may seek to raise money for working capital purposes through a public offering of its equity capital or through a private placement of equity capital or convertible debt. It will be important for the Company to be successful in its efforts to raise capital in this manner if it is going to be able to further its business plan in an aggressive manner. Raising capital in this manner will cause dilution to current shareholders.
COVID-19
In March 2020, COVID-19 was declared a pandemic by the World Health Organization and the Centers for Disease Control and Prevention. Its rapid spread around the world and throughout the United States prompted many countries, including the United States, to institute restrictions on travel, public gatherings and certain business operations. These restrictions significantly disrupted economic activity in the United States and Worldwide. To date, the disruption did not materially impact the Company’s financial statements. However, if the severity of the economic disruptions increase as the duration of the COVID-19 pandemic continues, the negative financial impact due to reduced demand could be significantly greater in future periods than in the first quarter.
The effects of the continued outbreak of COVID-19 and related government responses could also include extended disruptions to supply chains and capital markets, reduced labor availability and a prolonged reduction in economic activity. These effects could have a variety of adverse impacts to the Company, including our ability to operate our facilities. To date, there have been no material adverse impacts to the Registrants’ operations due to COVID-19.
In addition, the economic disruptions caused by COVID-19 could also adversely impact the impairment risks for certain long-lived assets, equity method investments and goodwill. Management evaluated these impairment considerations and determined that no such impairments occurred through the date of this report.
Off Balance Sheet Arrangements
None
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not required.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
Conclusions of Management Regarding Effectiveness of Disclosure Controls and Procedures
At the end of the period covered by this Quarterly Report onIssuer’s Form 10-Q an evaluation was carried out under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operations of the Company’s disclosure controls and procedures (as defined in Rule 13a – 15(e) and Rule 15d – 15(e) under the Exchange Act). Based on that evaluation, the CEO and the CFO have concluded that as of the end of the period covered by this report, the Company’s disclosure controls and procedures were not effective as it was determined that there were material weaknesses affecting our disclosure controls and procedures.
Management of the Company believes that these material weaknesses are due to the small size of the company’s accounting staff. The small size of the Company’s accounting staff may prevent adequate controls in the future, such as segregation of duties, due to the cost/benefit of remediation. To mitigate the current limited resources and limited employees, we rely heavily on direct management oversight of transactions, along with the use of external legal and accounting professionals. As the Company grows, management expects to increase the number of employees, which will enable us to implement adequate segregation of duties within the internal control framework.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting during the quarter ended March 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
We are not a party to any material legal proceedings, and, to the best of our knowledge, no such legal proceedings have been threatened against us.
Item 1A. Risk Factors
Not required. However, the Company filed an 8-K on May 14, 2020 to take advantage of an extension of time to file its quarterly report on Form 10-Q for the quarter ended March 31, 2020 due to the COVID-19 pandemic. As a condition of the extension of time to file the annual report, the Company agreed to include the following Risk Factor in this Report.
The occurrence of the COVID-19 pandemic may negatively affect our operations depending on the severity and longevity of the pandemic.
The COVID-19 pandemic is currently impacting countries, communities, supply chains, and markets. The global financial markets have also been severely impacted. The response to the pandemic has so far been focused on social distancing, travel bans, and quarantines in an effort to slow the spread of the disease. This may limit or restrict access to customers, facilities, inventory supplies, personnel, and advisors. Government agencies and regulatory bodies are also impacted. All of these impacts are being felt by the Company now and they may have a significant and lasting effect on our businesses and on our efforts to expand our business through acquisitions and similar transactions. The impacts may also affect our ability to comply with regulatory requirements, including making timely filings with the Securities and Exchange Commission. Depending on the longevity and severity of the COVID-19 pandemic, our business, customers, and shareholders may experience significant negative impacts.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the fiscal quarter ended March 31, 2020, filed on June 29, 2020 (the “Original Filing”). The purpose of this amendment is to add disclosure required by the boardSecurities and Exchange Commission’s March 4, 2020, Order (Release No. 34-88318), as modified on March 25, 2020, (Release No. 34-88465) dealing with permitted extensions of directors issued 603,548 sharesfiling deadlines as a result of unregistered common stockthe impact of COVID-19. All information and 312,500 sharesdisclosure, including exhibits, in the Original Filing remain in full force and effect as augmented by the disclosure below.]
When we filed the Form 10-Q for the fiscal quarter ended March 31, 2020, we relied on the Securities and Exchange Commission’s March 4, 2020, Order (Release No. 34-88318), as modified on March 25, 2020, (Release No. 34-88465) dealing with permitted extensions of unregistered preferred stockfiling deadlines as a result of the impact of COVID-19. The reasons why we could not file the 10-Q on a timely basis are as follows:
During the normal preparation time table for the 10-Q, the State of Washington was subject to eight personsa “stay at home” order in exchangean attempt to prevent the further spread of the COVID-19 virus. The order asked all Washingtonians to remain home unless they had an essential reason for services renderedgoing out. The Issuer’s CFO and auditor reside in the State of Washington. The Issuer also has staff in remote locations of Florida, Nevada, California, and New York, and each of those states have also been hit with varying impacts due to COVID-19. The disruptions in transportation, staffing, and technology systems, as well as the stress on the workforces of the Issuer and the reviewing auditor limited the timeliness of responses from the Issuer to the Company (including stock payable as of December 31, 2019). These unregistered shares were in addition to an aggregate of 1,333,070 common shares that were registered for resale on Form S-8. The unregistered shares were valued atauditor’s inquiries, the closing priceability of the shares inIssuer to gather and review documentation needed for the OTCQB Market onForm 10-Q, and limited the dates of issuance. In addition, the Company issued 100,000 shares of common stock upon acquisition of assets for GK Manufacturing and Packaging, Inc. The issuancestimeliness of the unregistered shares were exempt fromForm 10-Q drafting and editing process. These same complications had delayed the registration requirementscompletion and the filing of Section 5our Form 10-K until May 14, 2020, one day prior to the normal filing deadline of the Securities Act of 1933 pursuantForm 10-Q, thereby making it impossible to Section 4(2) ofprepare and file the Act since the recipients of the shares were persons closely associated with the Company and the issuance of the shares did not involve any public offering.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Form 10-Q on a timely basis.
Item 6. Exhibits.
The following documents are included as exhibits to this report:
(a) Exhibits
Exhibit Number |
| SEC Reference Number |
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Title of Document |
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3.1(1) |
| 3 |
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3.2(1) |
| 3 |
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31.1 |
| 31 |
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31.2 |
| 31 |
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32.1 |
| 32 |
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32.2 |
| 32 |
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101.INS(2) |
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| XBRL Instance Document |
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101.SCH(2) |
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| XBRL Taxonomy Extension Schema |
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101.CAL(2) |
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| XBRL Taxonomy Extension Calculation Linkbase |
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101.DEF(2) |
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| XBRL Taxonomy Extension Definition Linkbase |
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101.LAB(2) |
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| XBRL Taxonomy Extension Label Linkbase |
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101.PRE(2) |
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| XBRL Taxonomy Extension Presentation Linkbase |
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(1) Incorporated by reference to Exhibits 3.01 and 3.02 of the Company's Registration Statement on Form 10 filed January 28, 2009.
(2) XBRL information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934, and is not subject to liability under those sections, is not part of any registration statement or prospectus to which it relates and is not incorporated or deemed to be incorporated by reference into any registration statement, prospectus or other document.
Exhibit Number |
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Title of Document |
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31.1 |
| 31 |
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31.2 |
| 31 |
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SIGNATURES(SIGNATURES)
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Cannabis Sativa, Inc.
Date: June 29,July 9, 2020
By: /s/ David Tobias |
David Tobias, Chief Executive Officer
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By: /s/ Brad E. Herr |
Brad E. Herr, Chief Financial Officer and |
Principal Accounting Officer |
CANNABIS SATIVA, INC.
Contents
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FS - 1
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CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED |
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| March 31, |
| December 31, |
| 2020 |
| 2019 |
ASSETS |
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Current Assets |
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Cash | $345,131 |
| $336,107 |
Accounts receivable, net | 4,581 |
| 4,551 |
Prepaid consulting and other current assets | 9,823 |
| 3,999 |
Advance for acquisition | — |
| 50,000 |
Inventories | 64,892 |
| — |
Total Current Assets | 424,427 |
| 394,657 |
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Other Assets |
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Investment in equity security, at fair value | 67,000 |
| 48,000 |
Property and equipment, net | 182,478 |
| 6,440 |
Intangible assets, net | 643,900 |
| 695,218 |
Deposits and other assets | 54,250 |
| — |
Right to use asset | 21,120 |
| — |
Goodwill | 1,837,202 |
| 1,837,202 |
Total Other Assets | 2,805,950 |
| 2,586,860 |
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Total Assets | $3,230,377 |
| $2,981,517 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current Liabilities |
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Accounts payable | $84,558 |
| $73,579 |
Accrued interest - related parties | 100,767 |
| 87,979 |
Due to related parties | 1,084,020 |
| 1,018,520 |
Operating lease liability - current | 6,498 |
| — |
Total Current Liabilities | 1,275,843 |
| 1,180,078 |
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Long-Term Liabilities |
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Operating lease liability - long-term | 14,622 |
| — |
Stock payable | — |
| 640,685 |
Total Long-Term Liabilities | 14,622 |
| 640,685 |
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Total Liabilities | 1,290,465 |
| 1,820,763 |
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Commitments and contingencies (Notes 6 and 7) |
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Stockholders' Equity: |
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Preferred stock $0.001 par value; 5,000,000 shares authorized; 1,254,012 and 1,021,849 issued and outstanding, respectively | 1,253 |
| 1,021 |
Common stock $0.001 par value; 45,000,000 shares authorized; 24,341,154 and 22,224,199 shares issued and outstanding, respectively | 24,342 |
| 22,226 |
Additional paid-in capital | 76,173,444 |
| 74,834,032 |
Accumulated deficit | (75,471,554) |
| (74,855,147) |
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Total Cannabis Sativa, Inc. Stockholders' Equity | 727,485 |
| 2,132 |
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Non-Controlling Interests | 1,212,427 |
| 1,158,622 |
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Total Stockholders' Equity | 1,939,912 |
| 1,160,754 |
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Total Liabilities and Stockholders' Equity | $3,230,377 |
| $2,981,517 |
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The accompanying notes are an integral part of these condensed consolidated financial statements. | |||
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FS - 2
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED | |||||
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For the Three Months Ended March 31, |
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| 2020 |
| 2019 |
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Revenues |
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| $493,140 |
| $100,282 |
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Cost of Revenues |
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| 187,335 |
| 45,609 |
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Gross Profit |
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| 305,805 |
| 54,673 |
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Operating Expenses |
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Professional fees |
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| 279,086 |
| 254,088 |
Depreciation and amortization |
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| 51,635 |
| 140,518 |
Wages and salaries |
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| 184,909 |
| 32,634 |
Advertising |
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| 87,088 |
| 33,153 |
General and administrative |
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| 375,862 |
| 332,095 |
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Total Operating Expenses |
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| 978,580 |
| 792,488 |
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Loss from Operations |
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| (672,775) |
| (737,815) |
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Other (Income) and Expenses |
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Unrealized gain on investment |
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| (19,000) |
| — |
Interest expense - related parties |
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| 13,552 |
| 10,843 |
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Total Other (Income) Expenses, Net |
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| (5,448) |
| 10,843 |
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Loss Before Income Taxes |
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| (667,327) |
| (748,658) |
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Income Taxes |
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| — |
| — |
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Net Loss |
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| (667,327) |
| (748,658) |
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Non-controlling interests net income (loss): |
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Loss attributable to non-controlling interest - GK Manufacturing |
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| (54,353) |
| — |
Loss attributable to non-controlling interest - iBudTender |
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| (969) |
| (12,434) |
Income (loss) attributable to non-controlling interest - PrestoCorp |
| 4,402 |
| (13,465) | |
Total non-controlling interests net income (loss): |
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| (50,920) |
| (25,899) |
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Net Loss Attributable To Cannabis Sativa, Inc. |
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| $(616,407) |
| $(722,759) |
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Net Loss per Common Share: |
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Basic & Diluted |
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| $(0.03) |
| $(0.03) |
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Weighted Average Common Shares Outstanding: |
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Basic & Diluted |
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| 23,510,224 |
| 21,392,324 |
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The accompanying notes are an integral part of these condensed consolidated financial statements. | |||||
FS - 3
CANNABIS SATIVA, INC. |
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CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019 - UNAUDITED | |||||||||||||||||||
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| Preferred Stock |
| Common Stock |
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| Shares |
| Amount |
| Shares |
| Amount |
| Additional Paid-In Capital |
| Accumulated Deficit |
| Non-controlling Interest - Prestocorp |
| Non-controlling Interest - iBudTender |
| Non-controlling Interest - GK Manufacturing |
| Total |
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Balance - January 1, 2019 | 759,444 |
| $ 759 |
| 21,316,201 |
| $ 21,318 |
| $ 72,971,563 |
| $ (70,918,761) |
| $ 1,105,495 |
| $ 123,454 |
| $ — |
| $ 3,303,828 |
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Cancellation and retirement of shares | — |
| — |
| (70,000) |
| (70) |
| 70 |
| — |
| — |
| — |
| — |
| — |
Shares issued for services | — |
| — |
| 35,000 |
| 35 |
| 115,965 |
| — |
| — |
| — |
| — |
| 116,000 |
Shares issued for stock payable | 39,391 |
| 40 |
| 127,061 |
| 127 |
| 454,130 |
| — |
| — |
| — |
| — |
| 454,297 |
Net income (loss) for the period | — |
| — |
| — |
| — |
| — |
| (722,759) |
| (13,465) |
| (12,434) |
| — |
| (748,658) |
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Balance - March 31, 2019 | 798,835 |
| $ 799 |
| 21,408,262 |
| $ 21,410 |
| $ 73,541,728 |
| $ (71,641,520) |
| $ 1,092,030 |
| $ 111,020 |
| $ — |
| $ 3,125,467 |
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| Preferred Stock |
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| Common Stock |
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| Shares |
| Amount |
| Shares |
| Amount |
| Additional Paid-In Capital |
| Accumulated Deficit |
| Non-controlling Interest - Prestocorp |
| Non-controlling Interest - iBudTender |
| Non-controlling Interest - GK Manufacturing |
| Total |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - January 1, 2020 | 1,021,849 |
| $ 1,021 |
| 22,224,199 |
| $ 22,226 |
| $ 74,834,032 |
| $ (74,855,147) |
| $ 1,107,480 |
| $ 51,142 |
| $ — |
| $ 1,160,754 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Preferred to Common | (80,337) |
| (80) |
| 80,337 |
| 80 |
| — |
| — |
| — |
| — |
| — |
| — |
Acquisition of GK Manufacturing assets | — |
| — |
| 100,000 |
| 100 |
| 108,900 |
| — |
| — |
| — |
| 104,725 |
| 213,725 |
Shares issued for services | 89,286 |
| 89 |
| 973,380 |
| 973 |
| 591,013 |
| — |
| — |
| — |
| — |
| 592,075 |
Shares issued for stock payable | 223,214 |
| 223 |
| 963,238 |
| 963 |
| 639,499 |
| — |
| — |
| — |
| — |
| 640,685 |
Net income (loss) for the period | — |
| — |
| — |
| — |
| — |
| (616,407) |
| 4,402 |
| (969) |
| (54,353) |
| (667,327) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - March 31, 2020 | 1,254,012 |
| $ 1,253 |
| 24,341,154 |
| $ 24,342 |
| $ 76,173,444 |
| $ (75,471,554) |
| $ 1,111,882 |
| $ 50,173 |
| $ 50,372 |
| $ 1,939,912 |
|
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The accompanying notes are an integral part of these condensed consolidated financial statements. | |||||||||||||||||||
FS - 4
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
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| |||
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|
| |||
For the Three Months Ended March 31, |
| 2020 |
|
| 2019 | |
|
|
|
|
| ||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
| |||
| Net loss for the period |
| $(667,327) |
|
| $(748,658) |
| Adjustments to reconcile net loss to net cash |
|
|
|
|
|
| (used in) provided by operating activities: |
|
|
|
|
|
| Bad Debts |
| — |
|
| 1,461 |
| Unrealized gain on investment |
| (19,000) |
|
| — |
| Depreciation and amortization |
| 51,635 |
|
| 140,518 |
| Stock issued and to be issued for services |
| 592,075 |
|
| 467,797 |
| Changes in Assets and Liabilities: |
|
|
|
|
|
| Accounts receivable |
| (30) |
|
| 2,282 |
| Inventories |
| (16,905) |
|
| 5,714 |
| Prepaid consulting and other current assets |
| (5,824) |
|
| (7,617) |
| Deposits and other assets |
| (53,000) |
|
|
|
| Accounts payable and accrued expenses |
| 10,979 |
|
| 31,608 |
| Accrued interest -related parties |
| 12,788 |
|
|
|
| Net Cash Used in Operating Activities: |
| (94,609) |
|
| (106,895) |
|
|
|
|
|
|
|
| Cash Flows from Investing Activities: |
|
|
|
|
|
| Advance to GK settled with asset acquisiton |
| 50,000 |
|
| — |
| Purchase of fixed assets |
| (11,867) |
|
| (128) |
Net Cash Provided by (Used In) Investing Activities: |
| 38,133 |
|
| (128) | |
|
|
|
|
|
|
|
| Cash Flows from Financing Activities: |
|
|
|
|
|
| Proceeds from related parties advances |
| 65,500 |
|
| — |
| Net Cash Provided by Financing Activities: |
| 65,500 |
|
| — |
|
|
|
|
|
|
|
NET CHANGE IN CASH |
| 9,024 |
|
| (107,023) | |
|
|
|
|
|
|
|
CASH AT BEGINNING OF PERIOD |
| 336,107 |
|
| 151,946 | |
|
|
|
|
|
|
|
CASH AT END OF PERIOD |
| $345,131 |
|
| $44,923 | |
|
|
|
|
|
|
|
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 for stock payable |
| $640,685 |
|
| $454,296 |
| Operating lease liability arising from acquiring right to use asset |
| $21,120 |
|
| $ — |
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements. | ||||||
FS - 5
CANNABIS SATIVA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2019 and 2018
1. Organization and Summary of Significant Accounting Policies
Nature of Business:
Cannabis Sativa, Inc. (the “Company,” “us”, “we” or “our”) was incorporated as Ultra Sun Corp. under the laws of Nevada in November 2004. On November 13, 2013, we changed our name to Cannabis Sativa, Inc. We operate through several subsidiaries including PrestoCorp, Inc. (“PrestoCorp”), iBudtender, Inc. (“iBudtender”), Wild Earth Naturals, Inc. (“Wild Earth”), Kubby Patent and Licenses Limited Liability Company, (“KPAL”), Hi Brands, International, Inc. (“Hi Brands”), GK Manufacturing and Packaging, Inc. (“GKMP”), and Eden Holdings LLC (“Eden”). PrestoCorp and GK Manufacturing are both 51% owned subsidiaries and iBudtender is a 50.1% owned subsidiary. Wild Earth, KPAL, Hi Brands, and Eden are wholly owned subsidiaries. Currently, PrestoCorp, GKMP and iBudtender are operating subsidiaries, although iBudtender is not currently generating any revenue. The Company is reviewing opportunities for business development relating to Wild Earth, KPAL, and Hi Brands. Eden is not operating and had no activity for the three months ended March 31, 2020 and 2019.
Our primary operations in the three months ended March 31, 2020 were through PrestoCorp, which provides telemedicine online referral services for customers desiring medical marijuana cards in states where medical marijuana has been legalized. GKMP commenced operations during the quarter ended March 31, 2020. The Company is also actively seeking new business opportunities for acquisition and is continually reviewing opportunities for product and brand development through our Wild Earth, Hi Brands, and KPAL subsidiaries. iBudtender is also working to complete and commercialize an application (the iBudtender App) that will provide a convenient means for sharing information about cannabis products, patients and businesses.
Basis of Presentation:
The fiscal year end is December 31. The accompanying condensed consolidated balance sheets as of March 31, 2020 and December 31, 2019, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of the Company’s management all material adjustments (consisting only of normal recurring adjustments) which are considered necessary for a fair presentation of the interim financial statements have been included. Operating results for the three months ended March 31, 2020 are not necessarily indicative of the results of operations expected for the year ending December 31, 2020.
The interim financial statements should be read in conjunction with the audited financial statements and related footnotes set forth in our annual report filed on Form 10-K for the year ended December 31, 2019 as filed with the United States Securities and Exchange Commission on May 14, 2020.
FS - 6
CANNABIS SATIVA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2019 and 2018
1. Organization and Summary of Significant Accounting Policies, Continued:
Principles of Consolidation:
The condensed consolidated financial statements include the accounts of Cannabis Sativa, Inc., and its wholly-owned subsidiaries; Wild Earth Naturals, Inc., Hi-Brands International, Inc., Eden Holdings LLC, our 50.1% ownership of iBudtender Inc., our 51% ownership of PrestoCorp, and our 51% ownership of GK Manufacturing Inc., (collectively referred to as the “Company”). All significant inter-company balances have been eliminated in consolidation. We hold controlling interests in iBudTender, PrestoCorp and GK Manufacturing and exercise control through management practices and oversight by the Company’s Board of Directors. GK Manufacturing was established in February 2020.
Non-controlling Interests:
Non-controlling interests are portions of entities included in the condensed consolidated financial statements that are not attributable to the Company. Non-controlling interest are identified separately from the Company’s stockholders’ equity and its net income (loss). Non-controlling interest equity balances include the non-controlling entity’s initial contribution at the date of the original acquisition, ongoing contributions, distributions, and percentage share of earnings since inception. The non-controlling interests are calculated based on percentages of ownership.
Going Concern:
The Company has an accumulated deficit of $75,471,554 at March 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 Company’s ability to generate profitable operations in the future and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they are due.
Use of Estimates:
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.Significant estimates and assumptions by management affect the allowance for doubtful accounts, the carrying value of long-lived assets (including goodwill and intangible assets), the provision for income taxes and related deferred tax accounts, certain accrued liabilities, revenue recognition, contingencies, and the value attributed to stock-based awards.
Accounts Receivable:
We estimate credit loss reserves for accounts receivable on an individual receivable basis. A specific allowance reserve is established based on expected future cash flows and the financial condition of the debtor. We charge off customer balances in part or in full when it is more likely
FS - 7
CANNABIS SATIVA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2019 and 2018
1. Organization and Summary of Significant Accounting Policies, Continued:
than not that we will not collect that amount of the balance due. We consider any balance unpaid after the contract payment period to be past due.
Inventories:
Inventory costs, when applicable, include those costs directly attributable to the manufacture of the product before sale. Inventory consists of raw materials and finished goods and is carried at the lower of cost or net realizable value, using the first-in, first-out method of determining cost. As of March 31, 2020, the Company had $64,892 in inventory relating to GKMP. Inventory consists of the raw materials and packaging used to manufacture CBD infused products for our customers. As of December 31, 2019, the Company had no inventory.
Property and equipment are recorded at cost. Depreciation is provided for on the straight-line method over the estimated useful lives of the assets. The average lives range from five (5) to ten (10) years. Leasehold improvements are amortized on the straight-line method over the lesser of the lease term or the useful life. Maintenance and repairs that neither materially add to the value of the property nor appreciably prolong its life are charged to expense as incurred. Betterments or renewals are capitalized when incurred.
Fair Value of Financial Instruments:
The carrying amounts of cash and cash equivalents and amounts due to related parties approximate fair value given their short-term nature.
Cash:
Cash is held at major financial institutions and insured by the Federal Deposit Insurance Corporation (FDIC) up to federal insurance limits. The Company considers all highly liquid investments purchased with an original maturity of three months or less when acquired to be cash equivalents.
Net Loss per Share:
Net loss per share is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding for the period and contains no dilutive securities. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of the Company. Potentially dilutive shares are excluded from the calculation of diluted net loss per share because the effect is anti-dilutive. At March 31, 2020 and March 31, 2019 the Company had 125,000 and 49,900 outstanding warrants, respectively, that would be dilutive to future periods net income. Also, at March 31, 2020 and March 31, 2019 the Company had 1,254,012 and 798,835 shares of convertible Series A preferred stock, respectively, that would be dilutive to future periods net income. See Note 6.
FS - 8
CANNABIS SATIVA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2019 and 2018
1. Organization and Summary of Significant Accounting Policies, Continued:
Revenue Recognition:
Revenues are recognized when control of the promised goods or services are transferred to a customer, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. The Company recognizes revenue from the sale of products and services in accordance with ASC 606,” Revenue Recognition”. The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements:
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Provision for sales incentives, discounts and returns and allowances, if applicable, are accounted for as reductions of revenue in the period the related sales are recorded. The Company had no warranty costs associated with the sales of its products in the periods presented in the accompanying Consolidated Statements of Operations and no provision for warranty expenses has been included.
The Company generates revenue based on a per telehealth visit basis for clients looking to obtain a permit to use marijuana for medical purposes in states that have legalized medical marijuana. Revenues are recognized when the Company satisfies its performance obligation to stand ready to provide telehealth services. This occurs at the same time an online client subscribes for the visit and gains access to our network of health care professionals. The billing and payment processes are automated through our online platform. Revenue is recognized in an amount that reflects the consideration that is received in exchange for the service.
With the recent addition of GKMP, the Company will also be reporting revenue from manufacturing operations in future periods. The Company will recognize revenue from manufacturing operations when manufacturing and packaging processes are complete, and the products are shipped to the customer.
In the quarter ended March 31, 2020, the Company operated as one reportable segment.
Investments
Investments in equity securities that are less than 20% owned are stated at fair value. The Company recognizes unrealized holding gains and losses in other (Income) Expenses in the condensed consolidated statement of operations. On disposal of an investment, the difference between the disposal proceeds and the carrying amount is recognized as income or loss on the condensed consolidated statement of operations.
FS - 9
CANNABIS SATIVA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2019 and 2018
1.Organization and Summary of Significant Accounting Policies, Continued:
Intangible Assets and Goodwill:
We account for intangible assets and goodwill in accordance with ASC 350“Intangibles-Goodwill and Other” (“ASC 350”).
Intangible asset amounts represent the acquisition date fair values of identifiable intangible assets acquired. The fair values of the intangible assets were determined by using the income approach, discounting projected future cash flows based on management’s expectations of the current and future operating environment. The rates used to discount projected future cash flows reflected a weighted average cost of capital based on our industry, capital structure and risk premiums including those reflected in the current market capitalization. Definite-lived intangible assets are amortized over their useful lives, which have historically ranged from 5 to 10 years. The carrying amounts of our definite-lived intangible assets are evaluated for recoverability whenever events or changes in circumstances indicate that the entity may be unable to recover the asset’s carrying amount. We do not have any indefinite-lived intangible assets recorded from acquisitions.
Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in a business combination. Goodwill is not amortized but is tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset may be impaired. The fair value of the reporting unit is evaluated on qualitative factors to determine if the reported value may be impaired. If the qualitative factors indicate a likelihood of impairment, we then evaluate carrying value of the reporting unit based on quantitative factors using the income approach. An impairment charge is recognized for the excess of the carrying value of goodwill for the reporting unit over its implied fair value.
Advertising Expense:
Advertising costs are expensed as incurred and are included in general and administrative expense in the accompanying consolidated statements of operations. Advertising costs were $87,088 and $33,153 for the three months ended March 31, 2020 and 2019, respectively.
Stock-Based Compensation:
Stock-based payments to employees and non-employees are recognized at their fair values. Compensation expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period). The Company uses the Black-Scholes option pricing model when necessary as the most appropriate fair value method for option awards. Most awards have been in the form of shares of the Company’s common and preferred stock issued under the Company’s 2017 Stock Plan. See Note 6. The Company currently recognizes compensation costs immediately as our awards are 100% vested at the time of issuance.
FS - 10
CANNABIS SATIVA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2019 and 2018
1.Organization and Summary of Significant Accounting Policies, Continued:
Income Taxes:
The Company utilizes the liability method of accounting for income taxes which requires that deferred tax assets and liabilities be recorded to reflect the future tax consequences of temporary differences between the book and tax basis of various assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Additionally, deferred tax assets are evaluated, and a valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized. There can be no assurance that the Company’s future operations will produce sufficient earnings so that the deferred tax asset can be fully utilized. The Company currently maintains a full valuation allowance against net deferred tax assets.
Leases:
The Company determines if an arrangement is a lease, or contains a lease, at the inception of an arrangement. If the Company determines that the arrangement is a lease, or contains a lease, at lease inception, it then determines whether the lease is an operating lease or finance lease. Operating and finance leases result in recording a right-of-use (“ROU”) asset and lease liability on the consolidated balance sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. For purposes of calculating operating lease ROU assets and operating lease liabilities, the Company uses the non-cancellable lease term plus options to extend that it is reasonably certain to exercise. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. The Company’s leases generally do not provide an implicit rate. As such, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company has elected not to recognize ROU assets and lease liabilities that arise from short-term (12 months or less) leases for any class of underlying asset. The Company has elected not to separate lease and non-lease components for any class of underlying asset.
Recent Accounting Pronouncements:
Accounting Standards Updates Adopted
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The update simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount. This update is effective for annual and interim periods beginning after December 15, 2019, and interim periods within that reporting period. The adoption
FS - 11
CANNABIS SATIVA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2019 and 2018
1.Organization and Summary of Significant Accounting Policies, Continued:
of the new guidance on January 1, 2020 did not have a material impact on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13 Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. The update removes, modifies, and makes additions to the disclosure requirements on fair value measurements. The update was adopted as of January 1, 2020, and its adoption did not have a material impact on the Company’s financial statements.
Accounting Standards Updates to Become Effective in Future Periods
In December 2019, the FASB issued ASU No. 2019-12 Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The update contains a number of provisions intended to simplify the accounting for income taxes. The update is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. Management is evaluating the impact of this update on the Company’s financial statements.
Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption.
Fair Value Measurements
When required to measure assets or liabilities at fair value, the Company uses a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used. The Company determines the level within the fair value hierarchy in which the fair value measurements in their entirety fall. The categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Level 1 uses quoted prices in active markets for identical assets or liabilities, Level 2 uses significant other observable inputs, and Level 3 uses significant unobservable inputs. The amount of the total gains or losses for the period are included in earnings that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date.We measure our investment in equity securities at fair value on a recurring basis. The Company’s equity securities are valued using inputs observable in active markets and are therefore classified as Level 1 within the fair value hierarchy.
FS - 12
CANNABIS SATIVA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2019 and 2018
2. Property and Equipment
Property and equipment consistedof the following at March 31, 2020 and December 31, 2019:
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Depreciation expense for the three months ended March 31, 2020 and 2019 was $317 and $779, respectively.
3. Intangibles and Goodwill
The Company considers all intangibles to be definite-lived assets with lives of 5 to 10 years. Intangibles consistedof the following at March 31, 2020 and December 31, 2019:
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Amortization expense for the three months ended March 31, 2020 and 2019 was $51,318 and $139,739, respectively.
Amortization of intangibles for each of the next five years is:
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Goodwill in the amount of $3,010,202 was recorded as part of the acquisition of PrestoCorp that occurred on August 1, 2017. Cumulative impairment of the PrestoCorp goodwill totals $1,173,000 as of March 31, 2020 and December 31, 2019.
Goodwill in the amount of $336,667 was recorded as part of the acquisition of iBudtender that occurred on August 8, 2016. For the year ended December 31, 2019 the Company recorded a
FS - 13
CANNABIS SATIVA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2019 and 2018
3. Intangibles and Goodwill, Continued:
$336,667 impairment of the iBudtender goodwill. The impairment of the iBudtender goodwill was due to delays in completion of the iBudTender software and mobile app, and failure to commence
viable business operations, as well as the uncertainty surrounding the future of the business opportunity. Cumulative impairment of the iBudTender goodwill totals $336,667 as of March 31, 2020 and December 31, 2019.
There were no additions, deletions, and impairments recognized in the three months ended March 31, 2020 and 2019.
4. Related Party Transactions
The Company has received advances from related parties and officers of the Company to cover operating expenses. Related parties include the officers and directors of the Company, and a significant shareholder holding in excess of a 10% interest in the Company. As of March 31, 2020, and December 31, 2019, amounts due to the related parties were $1,084,020 and $1,018,520, respectively. During the three months ended March 31, 2020 and 2019, the Company recorded interest expense related to these advances at the rates between 5% and 8% per annum and in the amount of $13,552 and $10,843, respectively. The Company does not have written notes payable for these balances but has a verbal understanding with the related parties that written notes will be created in 2020 to reflect the balances due and payable December 31, 2025. At March 31, 2020 and December 31, 2019, there was $100,767 and $87,979, respectively, of accrued interest on these advances.
At March 31, 2020 and December 31, 2019, the Company had a note payable to the founder of iBudtender of $10,142 and $10,142, respectively, which is included in due to related parties on the consolidated balance sheets. The note earns interest at 0% and was due on December 2019. The note has not yet been paid pending further review of the iBudtender business and adjustment of the agreements between the parties.
During the three months ended March 31, 2020 and 2019, the Company incurred approximately $45,000 and $17,000, respectively, for consulting services from a nephew of the Company’s president. These services were paid in shares of the Company’s common stock.
During the three months ended March 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. See Note 6 regarding shares issued to related parties. These amounts totaled $196,674 and $0 at March 31, 2020 and March 31, 2019, respectively. The amounts are included in the statements of operations in general and administrative expenses.
FS - 14
CANNABIS SATIVA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2019 and 2018
5. Investments.
In 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). At March 31, 2020, the fair value of the investment in REFG was adjusted to $67,000 based on the closing price of the stock on that date, which resulted in an unrealized gain on investment of $19,000 during the three month period ended March 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
Share Capital
The authorized capital of the Company consists of 45,000,000 shares of Common Stock with a par value of $0.001 and 5,000,000 shares of preferred stock issuable in series with such rights, preferences and conditions as the Board of Directors may establish. The Company has designated and established the rights of Series A preferred stock (“Series A”) with a par value of $0.001. The Company is authorized to issue up to 5,000,000 shares of Series A. The holders of Series A are entitled to dividends if the Company declares a dividend on common shares, have no liquidation preference, have voting rights equal to 1 vote per share, and can be converted into one share of common at any time. In the three months ended March 31, 2020, a related party converted 80,337 preferred shares into 80,337 shares of common stock. No preferred shares were converted in the three months ended March 31, 2019.
Shares of Stock issued for Asset Acquisition
In the three months ended March 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. Assets acquired included inventory needed for manufacturing the CBD products, a packaging line, and other manufacturing equipment. The assets were valued at $213,725, of which $104,725 relates to the 49% non-controlling interest. GKMP also assumed the payments on a lease for equipment, agreed to provide up to $500,000 of additional working capital to GKMP, and agreed to an earnout provision where additional shares of common stock may become issuable to the key individuals in the event certain performance standards are met. See Note 7.
Upon completion of the acquisition of assets for GKMP, GKMP entered into employment agreements with the two key individuals. The employment agreements are terminable at any time
FS - 15
CANNABIS SATIVA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2019 and 2018
6. Stockholders’ Equity, Continued:
with or without cause, but in the event of termination without cause, the salary will continue for six months. Salary for the president of GKMP is set at $65,000 per annum and salary for the Vice President – Sales and Marketing is set at $50,000 per annum. The agreements also provide the individuals with expense reimbursements and other employee benefits comparable to those being offered to the other employees of the Company. Currently, GKMP has not established any other employee benefit programs. The 49% non-controlling interest is considered a related party to the Company because the non-controlling interest is owned, in part by the president of GKMP.
The completion of the GKMP asset acquisition resulted in payment of a finder’s fee to an unrelated party. The finder’s fee was paid by issuance of 50,000 shares of common stock with a fair value at the time of issuance of $36,000.
2017 Stock Plan
On July 28, 2017, the Company adopted the Cannabis Sativa 2017 Stock Plan which authorized the Company to utilize common stock to compensate employees, officers, directors, and independent contractors for services provided to the Company. The Company authorized up to 3,000,000 shares of common stock to be issued pursuant to the 2017 Stock Plan. At March 31, 2020, the Company was authorized to issue up to 954,720 additional shares under the 2017 Stock Plan.
Warrants
At March 31, 2020 and December 31, 2019, the Company had outstanding warrants to purchase 125,000 shares and 174,900 shares of the Company’s common stock, respectively. The exercise price on 125,000 warrants was $0.80 per share and these warrants expire in November 2022. The exercise price on 49,900 warrants was $2.00 per share and these warrants expired February 1, 2020.
Securities Issuances for Acquisitions and Services
During the quarter ended March 31, 2020, shares of common stock and preferred stock were issued to related and non-related parties for services. The following table breaks out the issuances by type of transaction and by related and non-related parties under the plan.
FS - 16
CANNABIS SATIVA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2019 and 2018
6. Stockholders’ Equity, Continued:
Three months ended March 31, 2020 |
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| Acquistions |
| Services |
| Total | |||||
Related Parties | Common | Value |
| Common | Preferred | Value |
| Common | Preferred | Value |
David Tobias, Officer, Director | - | $- |
| - | 89,286 | $42,857 |
| - | 89,286 | $42,857 |
Brad Herr, Officer, Director | - | - |
| 131,964 | - | 63,342 |
| 131,964 | - | 63,342 |
Robert Tankson, Director | - | - |
| 84,326 | - | 40,476 |
| 84,326 | - | 40,476 |
Cathy Carroll, Director | - | - |
| 89,286 | - | 42,857 |
| 89,286 | - | 42,857 |
Trevor Reed, Director | - | - |
| 14,881 | - | 7,142 |
| 14,881 | - | 7,142 |
Total for related parties | - | $- |
| 320,457 | 89,286 | $196,674 |
| 320,457 | 89,286 | $196,674 |
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Related parties - acquistion | 100,000 | $109,000 |
| 652,923 | - | $395,401 |
| 752,923 | - | $504,401 |
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Aggregate Totals | 100,000 | $109,000 |
| 973,380 | 89,286 | $592,075 |
| 1,073,380 | 89,286 | $701,075 |
During the three months ended March 31, 2020, David Tobias, Chief Executive Officer and Director, converted 80,337 shares of preferred stock into common stock in accordance with the terms of the preferred stock. No preferred shares were converted in the three months ended March 31, 2019
During the quarter ended March 31, 2019, shares of common stock were issued to non-related parties. The following table breaks out the issuances by type of transaction and by related and non-related parties under the plan.
Three months ended March 31, 2019 |
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| Services | |||||
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| Common | Preferred | Value |
Unrelated parties issued |
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| 35,000 | - | $ 116,000 |
Unrelated Parties Cancelled |
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| (70,000) | - | - |
Aggregate Totals |
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| (35,000) | - | $ 116,000 |
Stock Payable
At December 31, 2019, there was a balance of $640,685 in stock payable. The balance in stock payable at December 31, 2019 was paid through issuance of 223,214 preferred shares and 963,238 common shares of stock in the quarter ended March 31, 2020. Of these shares issued, 223,214 shares of preferred stock and 521,411 shares of common stock valued in the aggregate at $196,674 were issued to officers and directors of the Company. The balance in stock payable at March 31, 2020 was $0.
At December 31, 2018, there was a balance of $532,146 in stock payable. The balance in stock payable at December 31, 2018 was paid through issuance of 39,391 preferred shares and 127,061 common shares of stock in the quarter ended March 31, 2019. Of these shares issued, 39,391 shares of preferred stock and 85,681 shares of common stock, valued in the aggregate at $340,198 were issued to officers and directors of the Company.
FS - 17
CANNABIS SATIVA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2019 and 2018
7. Commitments and Contingencies
Leases. The Company renewed a lease in Mesquite, Nevada in November 2019 on a month to month basis at a cost of $600 per month. The Company terminated the lease at the end of February 2020, and now operates out of a virtual office maintained by our Chief Executive Officer.
PrestoCorp leases office space through WeWork in New York for $2,444 per month on a month to month arrangement. Until February 2019, PrestoCorp also leased space in San Francisco for $2,800 per month. PrestoCorp terminated its lease and closed its office in San Francisco as of the end of February 2019. Primary operations for PrestoCorp are now based in New York City. Rent expense for PrestoCorp for the three months ended March 31, 2020 and 2019 was $7,322 and $8,044, respectively.
GKMP leases a commercial printer used in its manufacturing and packaging operations. The Company assumed the lease as part of the acquisition of GKMP’s assets (see Note 6). On the date it was assumed, the Company recognized an operating lease liability and a right of use asset of $23,286. To calculate the liability and right of use asset, the Company utilized a 10% incremental borrowing rate to discount the future rent payments of $683 per month over the remaining lease term of 40 months. For the quarter ended March 31, 2020, the Company recognized $683 in rent expense in the consolidated statements of operations. At March 31, 2020, the remaining lease term is 39 months. The lessor holds a deposit of $1,250 on the lease. Future minimum lease payments over the remaining term are as follows:
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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 March 31, 2020, one claim was pending or threatened relating to general business disputes and accounts payable for services. Management believes the outcome of currently pending claim is not likely to have a material effect on our consolidated financial position and results of operations.
Shares in Escrow. At March 31, 2020 and December 31, 2019, the Company has 419,475 shares of common stock in escrow as part of the acquisition of PrestoCorp. These shares are issuable in certain circumstances to the principals of PrestoCorp based on performance of the PrestoCorp business in 2020 and 2021. The escrow account originally contained 629,213 shares of common
FS - 18
CANNABIS SATIVA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2019 and 2018
7. Commitments and Contingencies, Continued:
stock but 209,738 shares were cancelled in 2018 when the performance requirements were not met. The escrowed shares are not counted in the outstanding stock of the Company and will be considered compensation to the principals if and when issued. The escrow account also includes an additional 500 shares of PrestoCorp common stock which is distributable either back to the principals of PrestoCorp or to the Company, also depending on certain minimum performance requirements which extend into 2021. If all of the PrestoCorp shares are ultimately distributed to the Company, the shares would have the effect of increasing the Company’s ownership of PrestoCorp to 61% from the current level of 51%.
Contingent Consideration. In connection with the GKMP asset acquisiton, the Company agreed to pay additional consideration to the two key individuals employed by GKMP upon achievement of certain performance goals. If GKMP net revenues exceed $3,000,000 and net income exceeds 25% of net revenues in the year ended December 31, 2020, an additional $1,000,000 in consideration will be due to the key individuals. If GKMP net revenues exceed $6,000,000 and net income exceeds 25% of net revenues in the year ended December 31, 2020, an additional $500,000 in consideration will be due to the key individuals ($1,500,000 in the aggregate). This amount is payable in stock at the average closing price of the shares in the five trading days prior to the date of payment.
Working Capital Obligation. In connection with the GKMP asset acquisition, the Company agreed to provide up to an additional $500,000 in working capital to GKMP. These amounts are recorded as investment in GKMP by CBDS and as equity on the books of GKMP and are eliminated in the consolidation. Due to the ownership structure of GKMP, 49% of the working capital payments from the Company to GKMP benefit the holders of the non-controlling interest.
8. COVID- 19:
The outbreak of COVID-19, the coronavirus, has grown both in the United States and globally, and related government and private sector responsive actions have adversely affected the Company’s business operations. The World Health Organization has declared Covid-19 to be a global pandemic, resulting in an economic downturn and changes in global economic policy that will reduce demand for the Company’s products and may have an adverse impact on the Company’s business, operating results and financial condition.
FS - 19