Docoh
Loading...

CBDS Cannabis Sativa

Filed: 16 Apr 21, 4:36pm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

Form 10-K

 

 

(Mark One)

 

xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

 

For the fiscal year ended DECEMBER 31, 2020

 

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934 

 

For the transition period from _______________________ to __________________________

 

Commission File Number 000-53571

 

CANNABIS SATIVA, INC.

(Exact name of registrant as specified in charter)

 

NEVADA

20-1898270

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

 

 

450 Hillside Dr. #A224, Mesquite, NV

89027

(Address of principal executive offices)

(Zip Code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol

 

Name of exchange on which registered

None

  

 

  

 

 

 

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  ¨   No x

 

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 ¨    No x

 

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 ¨


1


 

Indicate by check mark whether the registrant has submitted electronically 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 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

 

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 held by non-affiliates was $14,000,000 as of June 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, 2021, there were 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.


2



CANNABIS SATIVA, INC.

 

TABLE OF CONTENTS TO ANNUAL REPORT ON FORM 10-K

 

YEAR ENDED DECEMBER 31, 2020

 

 

 

 

 

PAGE

 

PART I

 

 

 

 

Item 1.

Business

4

Item 1A.

Risk Factors

13

Item 1B.

Unresolved Staff Comments

13

Item 3.

Legal Proceedings

13

Item 4.

Mine Safety Disclosures

13

 

 

 

 

PART II

 

 

 

 

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters

13

 

  and Issuer Purchases of Equity Securities

 

Item 6.

Selected Financial Data

14

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

14

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

16

Item 8.

Financial Statements and Supplementary Data

16

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

17

Item 9A.

Controls and Procedures

17

Item 9B.

Other Information

18

 

 

 

 

PART III

 

 

 

 

Item 10.

Directors, Executive Officers and Corporate Governance

19

Item 11.

Executive Compensation

22

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

23

Item 13.

Certain Relationships and Related Transactions, and Director Independence

24

Item 14.

Principal Accounting Fees and Services

24

Item 15.

Exhibits, Financial Statement Schedules

25

 

SIGNATURES

26


3



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

 

Company Background

 

Cannabis Sativa, Inc., formerly named Ultra Sun Corporation, was incorporated under laws of Nevada in November 2005.  In 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, 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. I-Budtender, Wild Earth, Eden, KPAL, and Hi Brands are currently inactive. Our business strategy is discussed below.

 

Our common stock is quoted for trading on the OTCQB Market under the symbol CBDS.

 

We currently maintain virtual principal executive offices with our staff and contractors located remotely and typically working out of their homes. Our mailing address is 450 Hillside Drive, #A224, Mesquite, Nevada 89027. Our telephone number is (702) 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

 

PrestoCorp (“PrestoDoctor”), offers an online telemedicine platform providing customer access to knowledgeable physicians to obtain a medical marijuana recommendation. PrestoDoctor uses secure video conferencing technology (https://prestodoctor.com) to provide a safe and confidential forum for the Doctor patient interview in accordance with state regulations governing issuance of medical marijuana cards.  Appointments through PrestoDoctor's website generally take 10-15 minutes and can be scheduled and completed in the same day. This convenience eliminates the need for patients to travel to a clinic. More than 100,000 users have registered to consult with PrestoDoctor's 15+ licensed physicians across the United States. PrestoDoctor currently offers services in California, Nevada, New York, Missouri, and Oklahoma, and is actively targeting expansion into multiple additional states in the coming months.

 

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


4



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 have 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 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 received 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 composition and methods of treating hypertension. In 2019, we were not able to focus on further development of these assets due to limitations on availability of capital and the 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:

 

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 selected to meet a number of criteria, including, but not limited 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.

 

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").  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


5



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 appropriate 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 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, and to order products 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.

 

Other 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.

 

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.

 

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.


6



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 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 our 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, 2020, the products discussed 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 offers 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-acting anti-inflammatory pain reliever for sore muscles, joints, arthritic and back pain. Organic with hemp seed oil, menthol, capsicum, and black pepper. 


7



·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 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 to promote and grow the telemedicine business under our PrestoDoctor brand, while also focusing on the start-up and ramp up of 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 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 Industry. Our target markets are located in states that have legalized the production and use of cannabis.  Eleven states plus the District of Columbia have approved measures to legalize cannabis for adult recreational use.  Thirty-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 Merchandise. We launched our www.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 revenue at this 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 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 Products. 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.


8



We plan to build brand awareness by utilizing a mix of social media, trade shows, education efforts, and direct marketing to targeted businesses.

 

Geographic Presence. 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 Industry. While we do not sell cannabis, we expect to license our intellectual property to others in the future to 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 will 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 Care. 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.

 

Technology. The competition against our information technology platform iBudtender.com and the iBudtender App, both of which we had hoped to release in 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 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.


9



Intellectual Property

 

We hold certain intellectual property (the "IP") consisting of recipes and process/methods 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. Any 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.


10



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 skincare and nutraceutical 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 Position 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, including 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 event a change is announced, the Company will consider taking actions to 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; 


11



·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, safety, potency, purity, stability, 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 April 1, 2021, we have no employees in Cannabis Sativa, Inc. During the year ended December 31, 2020, the Company had independent contractor arrangements with five officers and directors, and eight outside service providers.  PrestoCorp has six employees, including two officers 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

 

During all of 2020, CBDS operated out of virtual offices maintained by our officers, directors and contractors.  

 

Our subsidiary PrestoDoctor leases an office in New York on a month-to-month basis for $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.


12



Item 1A.  Risk Factors

Not required.

Item 1B.  Unresolved Staff Comments.  

 

None

 

Item 3.  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. 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”.

 

On April 1, 2021, the stock closed at $0.73.

 

Holders of Record

 

On April 1, 2021, there were 69 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


13



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 year ended December 31, 2020, the Company issued 50,000 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 compensation and 4,575,298 shares of common stock to various officers and 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;


14



announcements or changes in our pricing policies or that of our competitors; unanticipated delays in the development, market acceptance or installation of our products and services; changes in government regulations; availability of management and other key personnel; availability, terms and deployment of capital; relationships with third-party equipment suppliers; and worldwide political stability and economic growth. The words believe, expect, anticipate, intend and plan and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made.

 

Results of Operations

 

Fiscal year ended December 31, 2020 compared with fiscal year ended December 31, 2019

 

Revenue for the fiscal years ended December 31, 2020 and 2019 were $2,035,283 and $1,159,737, respectively. Cost of revenues for the fiscal years ended December 31, 2020 and 2019 were $893,482 and $462,940, respectively. Gross profit for the fiscal years ended December 31, 2020 and 2019 were $1,141,801 and $696,797, respectively.  The increases for 2020 are a result of the improved business operations of PrestoCorp, our 51% owned subsidiary. Telemedicine is a growth area, especially now with the COVID-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 goods sold.

 

Net loss for the fiscal year ended December 31, 2020 was $2,458,544 compared to net loss of $4,006,713 for the fiscal year ended December 31, 2019.  The decrease in the net loss resulted primarily from an impairment loss of $1,376,593 taken in 2019, compared to no impairment losses taken in 2020. The 2019 impairment losses also resulted in a decrease in amortization in 2020 to $217,768 compared to $561,434 in 2019.  In 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 reduced our reliance 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 description of our business, we negotiated the acquisition of certain production equipment and in February 2020, we closed on the acquisition and established a new operating subsidiary to engage in contract manufacturing of products containing hemp-based CBD.

 

Total operating expenses were $3,686,989 for the year ended December 31, 2020 compared to $4,501,902 for the fiscal year ended December 31, 2019.  The bulk of the operating expenses for both years were paid using the Company’s common stock and therefore required minimal cash. The 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 Year Ended December 31, 2020

 

 

Years Ended

 

 

 

A

B

 

A-B

PRESTOCORP

December 31,
2020

December 31,
2019

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 sales decreased to 38% in the year ended December 31, 2020 compared to 2019.  This resulted in an increase in gross margin to 62% in 2020 compared to 60% in 2019.  These operational improvements were driven by improved efficiencies through scale of the company’s business and as a result of increased telehealth opportunities due to Covid-19.


15



 

Years Ended

 

 

A

B

A-B

GKMP

December 31,
2020

December 31,
2019

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% 

 

GKMP did not operate in the year ended December 31, 2019.  Results of operations for the contract 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 $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 in the amount of $50,000 and from proceeds from related parties in the amount of $91,882. We ended 2019 with $336,107 in cash 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 losses attributable to Cannabis Sativa, Inc. of $2,173,192 and $3,936,386, respectively, for the years ended December 31, 2020 and 2019 and had an accumulated deficit of $77,028,339 as of December 31, 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.  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 April 16, 2021, the Company had cash on hand of 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.”

 

Item 8.  Financial Statements

 

The following financial statements are being filed with this report and are located immediately following the signature page.


16



Financial Statements, December 31, 2020 and 2019

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets, December 31, 2020 and 2019

Consolidated Statements of Operations for the Years Ended December 31, 2020 and 2019

Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2020 and 2019

Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019

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

 

We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, or the Exchange Act, that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, as appropriate, to allow timely decisions regarding required disclosure. In 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 the Company’s internal control of financial reporting as discussed below.

 

Management Report on Internal Control Over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) of 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 records that, in reasonable detail, accurately and fairly reflect the 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.

 

Under the supervision of and with the participation of our CEO and our CFO and with the oversight of the Board of Directors, our management conducted an assessment of the effectiveness of our internal control over financial reporting based on the framework and criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“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.


17



A material weakness is a deficiency, or a combination of deficiencies, in 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 our evaluation under the framework described above, our management concluded that, due to the material weakness, our internal control over financial reporting was not effective as of December 31, 2020.

 

Remedial Actions

 

Management is committed to maintaining a strong internal control environment. We plan to address the 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 are focused on improving our communications to deliver information where and when needed.

 

Management believes that the remediation efforts to be undertaken will effectively address the material weaknesses. As we continue to evaluate and work to improve our internal control over financial reporting, management may determine to take additional measures to address control deficiencies or determine to modify the remediation plan described above. We cannot assure you, however, when we will remediate such weaknesses, nor can we be certain of whether additional actions will be required or the costs of any such actions.

 

Changes in Internal Controls

 

Other than the identification and assessment of the material weaknesses described above, there was no change in our internal control over financial reporting during the quarter ended December 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

Item 9B. Other Information

 

None.  


18



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

Incumbency

Positions Held

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

70

2014

CEO, Secretary and Director

 

Certain biographical information with respect to our executive officers and directors.

 

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 been self-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 no longer serves as the Company’s CFO and will focus her efforts on her positions as Treasurer and Director and keeping the books of the Company.

 

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 be 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 Herr. Mr. Herr is a Principal of Nexit Opportunities LLC, a financial consulting firm, and also serves as CFO for MJ Harvest, Inc., a publicly traded company providing agricultural and horticultural tools and supplies to the marijuana and hemp industries. Brad graduated from the University of Montana with a Bachelor of Science Degree in Business Accounting in 1977 and a Juris Doctorate in 1983. In 2005, Mr. Herr received an MBA from Gonzaga University.


19



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 $75 million over his career.

 

Brad has served in a number of increasingly responsible management positions over his career.  Brad was Director of Finance, Vice-President of Business Development and later President of AC Data Systems, Inc., in Post Falls, Idaho.  AC Data is a privately held manufacturing business engaged in the design, manufacture and sale of surge 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 Chief Financial Officer.  Command Center operated 80 offices in 20 states with annual revenues of nearly $100 million.  In 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 auspices 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. Tankson worked for Google from 2011 through 2012.  After leaving Google in 2012, to pursue his passion for business finance and technology, 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 Missouri, with more states in the pipeline. As an executive of PrestoCrop, Rob directed the search for a business partner and ultimately the acquisition of 51% of PrestoCorp by Cannabis Sativa, Inc., in August 2017.  Rob continues as an executive of PrestoCorp and is now helping to direct the rapid expansion of the PrestoDoctor platform in the rapidly changing world during and after the Covid-19 pandemic.

 

The following 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. 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. 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.


20



Term of Office

 

The term of office of each director is one year and until his or her successor is elected at the 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.  David Tobias was appointed President of the Company on March 29, 2016, and CEO of the Company on January 9, 2019. Cathy 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 appointed CFO and Director on 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 five persons. One director, Trevor Reed, is "independent" within the meaning of Rule 5605(a)(3) of the NASDAQ Marketplace.  The four that are not independent are officers of the Company or a subsidiary.

 

Our board of directors designated an audit committee to be comprised of two independent directors. At this time, the Company only has one independent director, Trevor Reed. The board also does not have an independent "financial expert" to serve on the audit committee. As a result, the Company is not able to designate an audit committee and the function of the audit committee is currently being performed by the entire Board.

 

The board of directors has designated a compensation committee comprised of two independent directors.  At this time, the Company only has one independent director, Trevor Reed. As a result, the Company is not able to designate a compensation committee and the function of 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

 

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 are 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 by consent signed by each of the directors.


21



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, 450 Hillside Dr., #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 one of our directors needs 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 principal financial officer in all capacities for the fiscal years ended December 31, 2019 and 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. Gravel, Mr. Tobias, Ms. Carroll, and Mr. Lundbom as set forth in the table.

 

Summary Compensation Table

 

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

$—

$-- 

$-- 

 


22



1.Catherine Carroll serves as Treasurer and Director of the Company and also keep the books of the Company. 

2.Mr. Lundbom served as Chief Financial Officer and Chief Accounting Officer through December 31, 2019. Mr. Lundbom resigned his positions effective December 31, 2019. 

 

We do not have any retirement, pension or profit-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.  During 2019, the Directors were paid $10,000 and the Chairman was 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.

 

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

The following table sets forth as of April 1, 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 28,530,613 shares of our common stock issued and outstanding.  As of such date, we had 995,692 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.

 

SHARE OWNERSHIP

 

Name and Address of Beneficial Owner

Amount of Direct Ownership

Amount of Indirect
Ownership

Total
Beneficial

 

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 2,556,538 Common Shares and 151,884 Preferred shares owned by New Compendium Corporation as a result of her status as an officer, director and significant shareholder of New Compendium. Ms. Barrameda’s address is P.O. Box 1363, Discovery Bay, CA 94505.   

 

(2)New Compendium Corp. is deemed the beneficial owner of 661,046 Common Shares owned by Sadia Barrameda. Ms. Barrameda is an affiliate of New Compendium Corp. New Compendium’s address is P.O. Box 1363, Discovery Bay, CA 94505.  

 

(3)Ms. Carroll is deemed to be the beneficial owner of 136,068 Common Shares owned by Carroll’s Consulting LLC, and company wholly owned by Ms. Carroll. 


23



(4)Brad E. Herr is deemed to be the beneficial owner of 285,885 Common Shares owned by Nexit, Inc., a corporation solely owned by Mr. Herr. 

 

*Less than 1%. 

 

Item 13.  Certain Relationships and Related Transactions, and Director Independence

 

During the years ended December 31, 2020 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, 2020 and 2019, net borrowings on related party notes were $1,166,021 and $10,142, respectively, and advances from related parties were $18,800 and $1,008,378, respectively.  In 2020, the Company converted advances totaling $1,008,378 to short-term notes payable.  The Company has calculated 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 $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, 2020, and 2019, for professional services rendered by Assure CPA LLC (formerly DeCoria Maichel & Teague, P.S.).

 

 

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 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 Board of Directors.


24



 

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

 

Articles of Incorporation

 

Incorporated by Reference(2)

3.2  

 

3

 

Bylaws

 

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

 

Offer for Purchase and Sale of Business and Assets Between LST Utah, LLC and the Registrant dated August 23, 2013 and related agreements

 

Incorporated by

Reference(3)

10.4

 

10

 

Noncompetition Agreement among the Registrant, David Tobias and LST Utah, LLC dated as of September 27, 2013.

 

Incorporated by

Reference(3)

 

Exhibit

Number

 

SEC Reference Number

 

 

 

Title of Document

 

 

 

Location

31.1

 

31

 

Section 302 Certification of Chief Executive Officer

 

This Filing

31.2

 

31

 

Section 302 Certification of Chief Financial Officer

 

This Filing

32.1

 

32

 

Section 1350 Certification of Chief Executive Officer

 

This Filing

32.2

 

32

 

Section 1350 Certification of Chief Financial Officer

 

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

 

 

*The exhibits and schedules to the Agreement and Plan of Reorganization are not included in the foregoing exhibit.  The Registrant undertakes to furnish 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. These files will be added by amendment. 

[SIGNATURES ON NEXT PAGE]


25



SIGNATURES

 

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 16, 2021

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 16, 2021

David Tobias

 

Chief Executive Officer and Director

 

(Principal Executive Officer)

 

 

 

/s/ Brad E. Herr

Dated: April 16, 2021

Brad E. Herr

 

Chief Financial Officer and Director

 

(Principal Financial Officer)

 

(Principal Accounting Officer)

 

 

 

/s/ Catherine Carroll

Dated: April 16, 2021

Catherine Carroll

 

Director

 

 

 

/s/ Trevor Reed

Dated: April 16, 2021

Trevor Reed

 

Director

 

 

 

/s/ Robert N. Tankson III

Dated: April 16, 2021

Robert N. Tankson III

 

Director


26



CANNABIS SATIVA, INC.

 

Contents

 

 

 

Page

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

FS-1

 

 

FINANCIAL STATEMENTS – for the years ended December 31, 2020 and 2019:

 

 

Consolidated balance sheets

 

FS - 2

Consolidated statements of operations

FS - 3

Consolidated statements of changes in stockholders’ equity

FS - 4

Consolidated statements of cash flows

FS - 5

Notes to consolidated financial statements

FS – 6 through
FS – 19




Report of Independent Registered Public Accounting Firm

 

To the stockholders and the board of directors of Cannabis Sativa, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheet of Cannabis Sativa, Inc. the "Company")  as of December 31, 2020 and 2019, the related consolidated statements of operations, changes in stockholders’ equity and cash flows for each of the years then ended, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

The 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 1 to the financial statements, the Company has negative working capital and accumulated deficit. These factors raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 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 audits 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'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.

 

Picture 2 

Assure CPA, LLC (formerly DeCoria, Maichel & Teague, P.S.)

 

We have served as the Company's independent auditor since 2019.

 

Spokane, Washington

April 16, 2021


FS-1


CANNABIS SATIVA, INC.

 

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


For the years ended December 31,

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
DECEMBER 31, 2020 AND 2019


 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-controlling Interest - Prestocorp

 

Non-controlling Interest - iBudTender

 

Non-controlling Interest - GK Manufacturing

 

 

 

Preferred Stock

 

Common Stock

 

Additional Paid-In Capital

 

Accumulated Deficit

 

 

 

 

Total

 

Shares

 

Amount

 

Shares

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - January 1, 2019

759,444  

 

$759  

 

21,316,201 

 

$21,318  

 

$72,971,563 

 

$(70,918,761) 

 

$1,105,495 

 

$123,454  

 

$                 — 

 

$3,303,828  

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  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of Preferred to Common

(503,681) 

 

(504) 

 

503,681 

 

504  

 

                — 

 

               — 

 

              — 

 

              — 

 

                   — 

 

                  — 

Shares of stock issued in acquisition of GK Manufacturing assets

             — 

 

        — 

 

100,000 

 

100  

 

108,900 

 

               — 

 

              — 

 

              — 

 

104,725  

 

213,725  

Sales of shares of stock and warrants for cash

             — 

 

        — 

 

50,000 

 

50  

 

24,950 

 

               — 

 

              — 

 

              — 

 

                   — 

 

25,000  

Shares issued for services

348,746  

 

350  

 

3,612,060 

 

3,612  

 

2,052,633 

 

               — 

 

              — 

 

              — 

 

                   — 

 

2,056,595  

Shares issued for stock payable

223,214  

 

223  

 

963,238 

 

963  

 

639,499 

 

               — 

 

              — 

 

              — 

 

                   — 

 

640,685  

Net income (loss) for the year

             — 

 

        — 

 

             — 

 

          — 

 

                — 

 

(2,173,192) 

 

86,318 

 

(3,878) 

 

(367,792) 

 

(2,458,544) 

Balance - December 31, 2020

1,090,128  

 

$1,090  

 

27,453,178 

 

$27,455  

 

$77,660,014 

 

$(77,028,339) 

 

$1,193,798 

 

$47,264  

 

$(263,067) 

 

$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

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

Net loss

 

$(2,458,544) 

 

$(4,006,713) 

Adjustments to reconcile net loss to net cash
provided (used) by operating activities:

 

 

 

 

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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019

 


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 years ended December 31, 2020 and 2019.

 

Our primary operations in the year ended December 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 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 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 had recurring losses and has 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 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 accounting principles generally accepted in the Unites States (“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, possible impairment of long-lived assets (including goodwill and intangible assets), the provision for income taxes and related deferred tax accounts, contingencies, and the value attributed to stock-based awards.


FS-6


CANNABIS SATIVA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019


Accounts Receivable:

 

Accounts receivable are stated at the amount that management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through an allowance for doubtful accounts. Changes to the allowance for doubtful accounts are based on management’s judgment, considering historical write-offs, collections and 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 costs, when applicable, include those costs directly attributable to the manufacture of the product before sale. Inventories consist of raw materials and finished goods and are carried at the lower of cost or net realizable 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, 2019, the Company had no inventory.

 

Property and Equipment:

 

Property and equipment are recorded at cost.  Depreciation is provided for on the straight-line method over the estimated useful lives of the assets.  The average lives range from five (5) to ten (10) years.  Leasehold improvements are amortized on the straight-line method over the lesser of the lease term or the useful life. 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 carrying amounts of cash and cash equivalents and balances 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 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019


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:

 

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.

 

The Company currently operates two divisions, the telehealth business operated through PrestoCorp and the contract manufacturing business operated through GKMP.

 

The telehealth division generates revenue based on a per telehealth visit 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 provide telehealth services upon a referral to a contracted physician. The obligation to perform the referral and the referral are automated and occur at the same time an online client subscribes for the visit and gains access to our network of health care professionals. Recognition of revenue is not dependent on the issuance of a 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.

 

The contract manufacturing division recognizes revenue from manufacturing operations when the 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 acquires inventory and manufactures products for customers and/or to hold in inventory for later sale to customers through the GKMP on-site dispensary, through the GKMP online store, or to independent distributors. In these instances, revenue is recognized when the product is shipped to the customer or distributor.  Shipment terms are FOB origination.

 

Intangible Assets and Goodwill:

 

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.   At December 31, 2020 and 2019, we do not have any indefinite-lived intangible assets.

 

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. To assess impairment, the fair value of


FS-8


CANNABIS SATIVA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019


the reporting unit is evaluated on qualitative factors.  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. A goodwill impairment loss is recognized for the excess of the carrying value of goodwill for the reporting unit over its implied fair value.

 

Advertising Expense:

 

Advertising costs are expensed as incurred and are broken out separately in the accompanying consolidated statements of operations.

 

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).  Transactions in which goods or services are received for the issuance of shares of the Company’s preferred or common stock are accounted for based on the fair value of the common stock issued.  When options to 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 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.

 

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-to-use (“RTU”) asset and lease liability on the consolidated balance sheets. RTU 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 RTU 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 RTU 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 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 RTU 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.


FS-9


CANNABIS SATIVA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019


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.

 

Contingencies:

 

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,


FS-10


CANNABIS SATIVA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019


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 consisted of the following at December 31, 2020 and 2019:

 

 

2020

2019

Furniture and Equipment

$225,629  

$17,414  

Leasehold Improvements

17,315  

2,500  

 

242,944  

19,914  

Less:  Accumulated Depreciation

(43,824) 

(13,474) 

Net Property and Equipment

$199,120  

$6,440  

 

Depreciation expense for the years ended December 31, 2020 and 2019 was $30,352 and $2,477, respectively.

 

3.  Intangibles and Goodwill

 

All of the Company’s intangibles are definite-lived assets with lives of 5 to 10 years. Intangibles consisted of the following at December 31, 2020 and 2019:

 

 

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, 2020 and 2019 was $205,272 and $558,958, respectively.   Amortization of intangibles for each of the next five years is:

 

2021

$169,142

2022

161,865

2023

151,686

2024

3,049

2025

932

 

Goodwill 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 2019.

 

Goodwill of $336,667 was recognized with the 2016 IBudtender acquisition which is fully impaired as of December 31, 2020 and 2019.  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.


FS-11


CANNABIS SATIVA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019


There were no intangible nor goodwill additions, deletions, and impairments recognized in the year ended December 31, 2020.

 

4.  Related Party 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. Related parties include the officers and directors of the Company, and a significant shareholder holding in excess of 10% of the Company’s outstanding shares. During the years ended December 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 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 at 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 $18,800 which was not pursuant to a note payable and is expected to be repaid in 2021. This advance is not interest bearing.  In the year 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 finalized.

 

Included in the note payable balances at December 31, 2020 and 2019 is a note payable to the founder of iBudtender of $10,142 and $10,142, respectively. 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.

 

The following tables reflect the related party advance and note payable balances.

 

 

 

Advances from
related parties

 

Notes payable to
related parties

 

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 year ended December 31, 2020 and 2019, the Company incurred approximately $162,300 and $69,000 respectively, for consulting services from a nephew of the Company’s president. These services were paid in shares of the Company’s common stock. 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


FS-12


CANNABIS SATIVA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019


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

 

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 year ended December 31, 2020, a related party converted 503,681 preferred shares into 503,681 shares of common stock. No preferred shares were converted in the year ended December 31, 2019.

 

Stock Compensation Plans

 

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 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 independent contractors for services provided to the Company.  By board of director 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 by resolution. No shares were issued under the 2020 Stock Plan in the year ended December 31, 2020.


FS-13


CANNABIS SATIVA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019


Warrants

 

Transactions in common stock purchase warrants for the years ended December 31, 2020 and 2019 are as follows:

 

 

Number of
Warrants

 

Exercise
Prices

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 and preferred stock were issued to related and non-related parties as follows:

 

Year ended December 31, 2020

 

Services

 

Other Activity

 

Total

Shares issued for stock payable

Common

Preferred

Value

 

Common

Preferred

Value

 

Common

Preferred

Value

Related party issuance

521,411 

223,214 

$431,201 

 

 

 

$- 

 

521,411 

223,214  

$431,201 

Non-related party issuance

441,827 

- 

209,484 

 

 

 

- 

 

441,827 

 

209,484 

Total shares for stock payable

963,238 

223,214 

$640,685 

 

 

 

$- 

 

963,238 

223,214  

$640,685 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of preferred stock

- 

- 

$- 

 

503,681  

(503,681) 

$- 

 

503,681 

(503,681) 

$- 

 

 

 

 

 

 

 

 

 

 

 

 

Services

 

 

 

 

 

 

 

 

 

 

 

Related party issuances

 

 

 

 

 

 

 

 

 

 

 

David Tobias, Officer, Director

- 

348,746 

$175,964 

 

 

 

$- 

 

348,746  

$175,964 

Brad Herr, Officer, Director

498,878 

- 

250,201 

 

 

 

- 

 

498,878 

 

250,201 

Robert Tankson, Director

127,570 

- 

62,661 

 

 

 

- 

 

127,570 

 

62,661 

Cathy Carroll, Director

348,746 

- 

175,964 

 

 

 

- 

 

348,746 

 

175,964 

Trevor Reed, Director

58,125 

- 

29,328 

 

 

 

- 

 

58,125 

 

29,328 

Keith Hyatt, President GKMP

278,237 

- 

140,237 

 

 

 

- 

 

278,237 

 

140,237 

Kyle Powers, CEO PrestoCorp

92,593 

- 

44,444 

 

 

 

- 

 

92,593 

 

44,444 

Total related party issuances

1,404,149 

348,746 

878,799 

 

 

 

- 

 

1,404,149 

348,746  

878,799 

Non-related party issuances

2,207,911 

- 

1,177,794 

 

 

 

- 

 

2,207,911 

 

1,177,794 

Total shares for services

3,612,060 

348,746 

$2,056,593 

 

 

 

$- 

 

3,612,060 

348,746  

$2,056,593 

Issuance for cash

- 

- 

$- 

 

50,000  

 

$25,000 

 

50,000 

 

$25,000 

Issuance for acquisition

- 

- 

$- 

 

100,000  

 

$109,000 

 

100,000 

 

$109,000 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregate totals

4,575,298 

571,960 

$2,697,278 

 

603,681  

 

$109,000 

 

5,228,979 

68,279  

$2,831,278 


FS-14


CANNABIS SATIVA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019


Year ended December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

Services

 

Other Activity

 

Total

Shares issued for stock payable

Common

Preferred

Value

 

Common

Preferred

Value

 

Common

Preferred

Value

Related party issuances

85,681 

39,391 

$340,080 

 

 

 

$- 

 

85,681 

39,391  

$340,080 

Non-related party issuances

41,380 

- 

114,216 

 

 

 

- 

 

41,380 

 

114,216 

Total shares for stock payable

127,061 

39,391 

$454,296 

 

 

 

$- 

 

127,061 

39,391  

$454,296 

 

 

 

 

 

 

 

 

 

 

 

 

Services

 

 

 

 

 

 

 

 

 

 

 

Related Party issuances

 

 

 

 

 

 

 

 

 

 

 

David Tobias, Officer, Director

- 

223,014 

$308,732 

 

 

 

$- 

 

223,014  

$308,732 

Donald Lundbom, CFO

178,659 

- 

247,330 

 

 

 

- 

 

178,659 

 

247,330 

Stephen Downing, Director

28,910 

- 

40,023 

 

 

 

- 

 

28,910 

 

40,023 

Cathy Carroll, Director

57,819 

- 

80,043 

 

 

 

- 

 

57,819 

 

80,043 

Trevor Reed, Director

23,127 

- 

32,015 

 

 

 

- 

 

23,127 

 

32,015 

Deborah Goldsberry, Director

12,016 

- 

21,572 

 

 

 

- 

 

12,016 

 

21,572 

Michael Gravel, Director

23,127 

- 

32,015 

 

 

 

- 

 

23,127 

 

32,015 

Total related party issuances

323,658 

223,014 

$761,730 

 

 

 

$- 

 

323,658 

223,014  

$761,730 

Non-related party issuances

402,279 

- 

$597,613 

 

125,000  

 

$50,000 

 

527,279 

 

$647,613 

Total shares for services

725,937 

223,014 

$1,359,343 

 

125,000  

 

$50,000 

 

850,937 

223,014  

$1,409,343 

 

 

 

 

 

 

 

 

 

 

 

 

Shares cancelled

- 

- 

$- 

 

(70,000) 

 

$- 

 

(70,000)

 

$- 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregate totals

852,998 

262,405 

$1,813,639 

 

55,000  

 

$50,000 

 

907,998 

262,405  

$1,863,639 

 

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:

 

Asset fair value on acquisition date

 

Inventories

$47,987 

Packaging line and other manufacturing equipment

164,488 

Lease deposit

1,250 

Net Assets acquired

$213,725 

 

 

 

 

CBDS at 51% (fair value of common shares issued)

$109,000 

NCI at 49%

104,725 

 

$213,725 

 

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.

 

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

 

Contingent Consideration.  In connection with the GKMP asset acquisition, the Company agreed to pay additional consideration to the two key individuals employed by GKMP upon achievement of certain performance goals. If GKMP net revenues exceed $3,000,000 and net income exceeds 25% of net revenues in the year ended December 31, 2020, an additional $1,000,000 in consideration would 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


FS-15


CANNABIS SATIVA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019


in consideration would be due to the key individuals ($1,500,000 in the aggregate). The additional consideration amounts, if any, would be payable in stock at the average closing price of the shares in the five trading days prior to the date of payment.  During the year ended December 31, 2020, GKMP has reported net revenues of approximately $95,000; thus no additional consideration will be paid under this provision.

 

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.  The full amount of the working capital commitment to GKMP was funded in the year ended December 31, 2020.

 

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.

 

Property and equipment, net

 

December 31,
2020

 

December 31,
2019

PrestoCorp

 

$3,148 

 

2,815 

GKMP

 

193,616 

 

- 

Other

 

2,356 

 

3,625 

Total

  

$199,120 

 

$6,440 

 

Capital expenditures

 

For the Years Ended

 

 

December 31,
2020

 

December 31,
2019

PrestoCorp

 

$2,662 

 

$2,369 

GKMP

 

55,882 

 

- 

Other

 

- 

 

- 

Total

  

$58,544 

 

$- 


FS-16


CANNABIS SATIVA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019


Financial information for each operating segment is as follows:

 

 

 

Years ended December 31,

 

 

2020

 

2019

PrestoCorp     

 

 

 

 

Revenue

 

$1,940,154  

 

$1,157,437 

Cost of revenue     

 

740,645  

 

462,940 

Gross profit

 

1,199,509  

 

694,497 

Depreciation and amortization     

 

$55,911  

 

$79,391 

 

 

 

 

 

GKMP     

 

 

 

 

Revenue

 

94,552  

 

- 

Cost of revenue     

 

152,837  

 

- 

Gross profit

 

(58,285) 

 

- 

Depreciation and amortization     

 

$26,754  

 

$- 

 

 

 

 

 

Other     

 

 

 

 

Revenue

 

577  

 

2,300 

Depreciation and amortization     

 

$152,959  

 

$482,043 

 

 

 

 

 

Total     

 

 

 

 

Revenue

 

2,035,283 

 

1,159,737 

Cost of revenue     

 

893,482 

 

462,940 

Gross profit

 

$1,141,801 

 

$696,797 

Depreciation and amortization     

  

$235,624 

 

$561,434 

 

Revenues from major customers by operating unit are as follows:

 

Customer Concentrations

 

Year ended December 31,

 

 

2020

 

2019

PrestoCorp

 

 

 

 

Total PrestoCorp concentrations

 

$-   

 

$-   

% of PrestoCorp revenues

 

0% 

 

0% 

GKMP

 

 

 

 

Customer A

 

$8,257   

 

$-   

Customer B

 

19,670   

 

-   

Total GKMP concentrations

 

$27,927   

 

$-   

% of GKMP revenues

  

30% 

 

0% 

 

9.  Commitments and Contingencies

 

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

 

PrestoCorp leases office space through WeWork in New York for $2,444 per month on a month to month arrangement. Until February 2019, PrestoCorp also leased space in San Francisco for $2,800 per month. PrestoCorp terminated its lease and closed its office in San Francisco as of the end of February 2019.  Primary operations for PrestoCorp are now based in New York City. Rent expense for the years ended December 31, 2020 and 2019 was $38,458 and $29,950, respectively.

 

GKMP leases a commercial printer and a bottle filling line, both of which are used in its manufacturing and packaging operations. The Company assumed the printer lease as part of the acquisition of GKMP’s assets (see Note 6).  The


FS-17


CANNABIS SATIVA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019


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:

 

From January 1, 2021 to December 31, 2021

$       36,022   

From January 1, 2021 to December 31, 2022

14,473   

From January 1, 2022 to December 31, 2023

4,095   

Total

54,590   

Less imputed interest 

(7,278)   

Net lease liability

47,312   

Current portion

(31,891)   

Long term

$       15,421   

 

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 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 December 31, 2020 and 2019, the Company had 419,475 shares of common stock in escrow as part of the acquisition of PrestoCorp. These shares were issuable in certain circumstances to the principals of PrestoCorp based on performance of the PrestoCorp business in 2020 and 2021.  The escrow account originally contained 629,213 shares of common stock but 209,738 shares were cancelled in 2018 when the performance requirements for that tranche of shares 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%.

 

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


CANNABIS SATIVA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019


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, 2020 and 2019 due to ongoing net losses and a valuation allowance.  At December 31, 2020 and 2019, the Company had net deferred tax assets which will not be realized and are fully reserved by valuation allowances.

 

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:

 

 

 

2020

 

2019

Deferred tax asset:

 

 

 

 

Net operating loss carryforwards

 

$3,424,000  

 

$2,990,000  

Goodwill and intangibles

 

998,000  

 

955,000  

Other

 

33,000 

 

1,000  

Total deferred tax assets

 

4,455,000  

 

3,946,000  

Valuation allowance

 

(4,455,000) 

 

(3,946,000) 

Net deferred tax assets

  

$ 

 

$ 

 

At December 31, 2020 the Company had net operating loss carry forwards of approximately $16,100,000 for federal and state purposes, $10,000,000 of which expire between 2021 through 2037. The remaining balance of $6,100,000 will never expire but utilization is limited to 80% of taxable income in any future year.

 

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:

 

 

 

2020

 

2019

Net loss

 

$(2,458,544) 

 

$(4,006,713) 

Less non-controlling interests net loss

 

285,352  

 

70,327  

Net loss attributable to CBDS

 

(2,173,192) 

 

(3,936,386) 

 

 

 

 

 

Provision (benefit) computed using the statutory rate

 

$(456,000) 

 

$(827,000) 

Non-deductible items

 

4,000  

 

92,000  

Change in estimate

 

(57,000) 

 

 

Change in valuation allowance

 

509,000  

 

735,000  

Total income tax provision (benefit)

  

$ 

 

$ 

 

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 recognized.  The Company is subject to possible tax examinations for the fiscal years 2017 through 2020.  Prior year tax attributes could be adjusted by taxing authorities.  If applicable, the Company will deduct interest and penalties as interest expense on the financial statements.


FS-19


CANNABIS SATIVA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019


12.  Subsequent Events

 

Subsequent to year end, the Company has issued shares to contractors for services in the quarter ending March 31, 2021.  An aggregate total of 669,264 shares common shares and 73,530 shares were issued. All of the shares were issued as compensation for services rendered in the first quarter of 2021 with an aggregate value of $378,825.

 

On March 5, 2021, The Company sold 10,466 shares of common stock pursuant to private placement at an offering price of $0.46 per share for aggregate proceeds of $4,814.

 

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 into 167,966 shares of common stock in accordance with the conversion feature included in the preferred shares.


FS-20