DOGP 10-Q
Dogecoin Cash, Inc. (DOGP)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE |
|---|---|
| ACT OF 1934 | |
| For the quarterly period ended: June 30, 2020 | |
| or | |
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE |
| ACT OF 1934 | |
| For the transition period from: _____________ to _____________<br><br>Commission File Number: 000-53571 |
Cannabis Sativa, Inc.
(Exact name of registrant as specified in its charter)
| NEVADA | 20-1898270 | |
|---|---|---|
| (State or Other Jurisdiction | (I.R.S. Employer | |
| of Incorporation) | Identification No.) |
450 Hillside Dr. #A224 , Mesquite, Nevada 89027
(Address of Principal Executive Office) (Zip Code)
(702) 762-3123
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
|---|---|---|---|---|---|---|
| Non-accelerated filer | ☐<br><br> | Smaller reporting company | ☒ | |||
| Emerging growth company | ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐ Yes ☒ No
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
The number of shares of the issuer's Common Stock outstanding as of August 5, 2020, is 25,319,538.
1
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
Attached after signature page.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Three Months Ended June 30, 2020 compared with the Three Months Ended June 30, 2019
Net operating loss for the three-month period ended June 30, 2020 was $458,346 compared to net loss of $538,801 for the three-month period ended June 30, 2019.The decrease in net operating loss resulted primarily from an increase in revenue from PrestoCorp and a corresponding 7% improvement in the gross profit as a percent of sales.
[Total operating expenses were $897,158 for the three-month period ended June 30, 2020 and $620,276 for the three-month period ended June 30, 2019. The increase in total operating costs was largely attributable to increases personnel, the addition of GKMP, and increases in activity brought on by the significant increase in revenue and patient load at PrestoDoctor. The Company significantly reduced its depreciation and amortization expense due to impairment of amortizable intangible assets taken in the year ended December 31, 2019. Management expects that operating costs will continue to increase as revenues rise, but the increases in operating costs are expected to rise at a slower rate than revenue due to expected efficiencies of scale. Six Months Ended June 30, 2020 compared with the Six Months Ended June 30, 2019 Six Months Ended ABB-A June 30, 2019June 30, 2020Change Change %REVENUE251,3451,214,235 $ 962,890 383%Cost of Sales115,197469,618 354,421 308%Cost of sales % of total sales46%39%-7% Gross Profit136,148744,617 608,469 447%Gross profit % of sales54%61%7% OPERATING EXPENSES Professional fees296,768489,262 192,494 65%Depreciation and amortization280,917104,651 (176,266)-63%Wages and salaries124,976348,803 223,827 179%Advertising61,488212,480 150,992 246%General and administrative648,615720,542 71,927 11%Total operating expenses1,412,7641,875,738 462,974 33%NET LOSS FROM OPERATIONS(1,276,616)(1,131,121) 145,495 -11% All values are in US Dollars. Revenues, cost of revenues and gross profit for the six-month periods ended June 30, 2020 and 2019 are included in the above table. The fluctuation in these numbers is primarily the result of significant increases in patient visits due to expanded market coverage and the generally increasing acceptance of telehealth platforms in the age of the Covid-19 pandemic. Revenues grew 383% in the six months ended June 30, 2020 compared to the six months ended June 30, 2019. Of this increase, approximately 99% was attributable to Presto Doctor and 1% from our start-up operations in GKMP. This large increase in revenue in Presto Doctor is the result of expanded market area, increased advertising which drove an increase in patient visits to our online platform, and a general increase in consumer awareness of the 3 PrestoDoctor brand. The Company now operates in the states of California, Nevada, New York, Oklahoma, Missouri, and Pennsylvania and recently opened in Illinois. The Company is currently exploring expansion opportunities in additional states, including Ohio, Virginia, and Massachusetts. Net operating loss for the three-month period ended June 30, 2020 was $1,131,121 compared to net loss of $1,276,616 for the six-month period ended June 30, 2019. The decrease in net operating loss resulted primarily from an increase in revenue from PrestoCorp and a corresponding 7% improvement in the gross profit as a percent of sales. Total operating expenses were $1,875,738 for the six-month period ended June 30, 2020 and $1,412,764 for the six-month period ended June 30, 2019. The increase in total operating costs was largely attributable to increases personnel, the addition of GKMP, and to increases in activity brought on by the significant increase in revenue and patient load. The Company also significantly reduced its depreciation and amortization expense due to impairment of amortizable intangible assets taken in the year ended December 31, 2019. Management expects that operating costs will continue to increase as revenues rise, but the increases in operating costs are expected to rise at a slower rate than revenue due to expected efficiencies of scale. Liquidity and Capital Resources Net cash provided by operating activities for the six-month period ended June 30, 2020, was $23,218. During the same period, our cash increased by $123,782. The Company generated $107,742 in the six months from advances from related parties, and applied a $50,000 advance as partial consideration for the acquisition of assets by GK Manufacturing and Packaging, Inc., a newly formed contract manufacturing entity that is owned 51% be the Company. We also reported $1,083,539 during the six-month period from issuance of common and preferred stock as compensation for services performed by officers, directors, and contractors. On June 30, 2020, our cash position was $459,889, primarily derived from our PrestoCorp operations. We have funding obligations totaling approximately $130,000 for GK Manufacturing in the coming months. Given the level of operations in our second quarter, we expect that additional funds will be required. Management is currently evaluating several fund-raising alternatives including private placement of equity securities, a secondary public offering, and various debt instruments. In addition, key members of management have indicated a willingness to provide additional operating capital from time to time. Based on all of these considerations, we believe we will have sufficient capital to operate the business for the next twelve months. The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. We incurred a net loss of $1,129,507 and $1,300,596, respectively, for the six-month periods ended June 30, 2020, and 2019, and had an accumulated deficit of $75,961,660 as of June 30, 2020. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company is currently seeking to raise money for working capital purposes through a private placement of equity capital and is evaluating other opportunities to raise capital from a public offering or the sale of convertible debt. It will be important for the Company to be successful in its efforts to raise capital in this manner if it is going to be able to further its business plan in an aggressive manner. Raising capital in this manner will cause dilution to current shareholders. COVID-19 In March 2020, COVID-19 was declared a pandemic by the World Health Organization and the Centers for Disease Control and Prevention. Its rapid spread around the world and throughout the United States prompted many countries, including the United States, to institute restrictions on travel, public gatherings and certain business operations. These restrictions significantly disrupted economic activity in the United States and Worldwide. To date, the disruption did not materially impact the Company’s financial statements. However, if the severity of the economic disruptions increase as the duration of the COVID-19 pandemic continues, the negative financial impact due to reduced demand could be significantly greater in future periods than in the first quarter. 4 The effects of the continued outbreak of COVID-19 and related government responses could also include extended disruptions to supply chains and capital markets, reduced labor availability and a prolonged reduction in economic activity. These effects could have a variety of adverse impacts to the Company, including our ability to operate our facilities. To date, there have been no material adverse impacts to the Registrants’ operations due to COVID-19. In addition, the economic disruptions caused by COVID-19 could also adversely impact the impairment risks for certain long-lived assets, equity method investments and goodwill. Management evaluated these impairment considerations and determined that no such impairments occurred through the date of this report. Off Balance Sheet Arrangements None Item 3. Quantitative and Qualitative Disclosures About Market Risk. Not required. Item 4. Controls and Procedures. Disclosure Controls and Procedures Conclusions of Management Regarding Effectiveness of Disclosure Controls and Procedures At the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operations of the Company’s disclosure controls and procedures (as defined in Rule 13a – 15(e) and Rule 15d – 15(e) under the Exchange Act). Based on that evaluation, the CEO and the CFO have concluded that as of the end of the period covered by this report, the Company’s disclosure controls and procedures were not effective as it was determined that there were material weaknesses affecting our disclosure controls and procedures. Management of the Company believes that these material weaknesses are due to the small size of the company’s accounting staff. The small size of the Company’s accounting staff may prevent adequate controls in the future, such as segregation of duties, due to the cost/benefit of remediation. To mitigate the current limited resources and limited employees, we rely heavily on direct management oversight of transactions, along with the use of external legal and accounting professionals. As the Company grows, management expects to increase the number of employees, which will enable us to implement adequate segregation of duties within the internal control framework. Changes in Internal Control over Financial Reporting There was no change in our internal control over financial reporting during the quarter ended June 30, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. PART II – OTHER INFORMATION Item 1. Legal Proceedings. We are not a party to any material legal proceedings, and, to the best of our knowledge, no such legal proceedings have been threatened against us. 5 Item 1A. Risk Factors Not required. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. During the fiscal quarter ended June 30, 2020, the board of directors issued 211,644 shares of unregistered common stock and 79,366 shares of unregistered preferred stock to six persons in exchange for services rendered to the Company. These unregistered shares were in addition to an aggregate of 421,602 common shares that were registered for resale on Form S-8. The unregistered shares were valued at the closing price of the shares in the OTCQB Market on the dates of issuance. The issuances of the unregistered shares were exempt from the registration requirements of Section 5 of the Securities Act of 1933 pursuant to Section 4(2) of the Act since the recipients of the shares were persons closely associated with the Company and the issuance of the shares did not involve any public offering. Item 3. Defaults Upon Senior Securities. None. Item 4. Mine Safety Disclosures. Not applicable. Item 5. Other Information. None. Item 6. Exhibits. The following documents are included as exhibits to this report: (a) Exhibits Exhibit Number SEC Reference Number Title of Document Notes 3.1 3 Articles of Incorporation(1) 3.2 3 Bylaws(1) 31.1 31 Section 302 Certification of Principal Executive Officer 31.2 31 Section 302 Certification of Principal Financial Officer 32.1 32 Section 1350 Certification of Principal Executive Officer 32.2 32 Section 1350 Certification of Principal Financial Officer 101.INS XBRL Instance Document(2) 101.SCH XBRL Taxonomy Extension Schema(2) 101.CAL XBRL Taxonomy Extension Calculation Linkbase(2) 101.DEF XBRL Taxonomy Extension Definition Linkbase(2) 101.LAB XBRL Taxonomy Extension Label Linkbase(2) 101.PRE XBRL Taxonomy Extension Presentation Linkbase(2) (1) Incorporated by reference to Exhibits 3.01 and 3.02 of the Company's Registration Statement on Form 10 filed January 28, 2009. (2) XBRL information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934, and is not subject to liability under those sections, is not part of 6 any registration statement or prospectus to which it relates and is not incorporated or deemed to be incorporated by reference into any registration statement, prospectus or other document. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Cannabis Sativa, Inc.
Date: August 12, 2020 By: /s/ David TobiasDavid Tobias, Chief Executive Officer By: /s/ Brad E. HerrBrad E. Herr, Chief Financial Officer andPrincipal Accounting Officer 7 CANNABIS SATIVA, INC. Contents Page FINANCIAL STATEMENTS – for the quarterly period ended June 30, 2020 (unaudited): Condensed consolidated balance sheets FS - 2 Condensed consolidated statements of operations FS - 3 Condensed consolidated statements of changes in stockholders’ equityFS - 4 Condensed consolidated statements of cash flowsFS - 5 Notes to condensed consolidated financial statementsFS – 6 through FS – 20 FS - 1 CANNABIS SATIVA, INC. CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED June 30,December 31, 20202019ASSETS Current Assets Cash 459,889 $ 336,107 Accounts receivable, net4,701 4,551 Prepaid consulting and other current assets12,669 3,999 Advance for acquisition— 50,000 Inventories64,605 — Total Current Assets541,864 394,657 Other Assets Investment in equity security, at fair value78,000 48,000 Property and equipment, net226,091 6,440 Intangible assets, net592,582 695,218 Deposits and other assets51,519 — Right to use asset61,367 — Goodwill1,837,202 1,837,202 Total Other Assets2,846,7612,586,860 Total Assets3,388,625 $ 2,981,517 LIABILITIES AND STOCKHOLDERS EQUITY Current Liabilities Accounts payable117,179 $ 73,579 Accrued interest - related parties114,621 87,979 Due to related parties 1,126,262 1,018,520 Operating lease liability - current29,191 — Total Current Liabilities1,387,253 1,180,078 Long-Term Liabilities Operating lease liability - long term32,176 — Stock payable— 640,685 Total Long-Term Liabilities32,176 640,685 Total Liabilities1,419,429 1,820,763 Commitments and contingencies (Notes 6 and 7) Stockholders' Equity: Preferred stock $0.001 par value; 5,000,000 shares authorized; 1,073,543 and 1,021,849 issued and outstanding, respectively1,073 1,021 Common stock $0.001 par value; 45,000,000 shares authorized; 25,319,538 and 22,224,199 shares issued and outstanding, respectively25,321 22,226 Additional paid-in capital76,664,109 74,834,032 Accumulated deficit(75,961,660)(74,855,147) Total Cannabis Sativa, Inc. Stockholders' Equity 728,843 2,132 Non-Controlling Interests1,240,353 1,158,622 Total Stockholders' Equity 1,969,1961,160,754 Total Liabilities and Stockholders' Equity 3,388,625 $ 2,981,517 The accompanying notes are an integral part of these condensed consolidated financial statements.All values are in US Dollars. FS - 2 CANNABIS SATIVA, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED For the three months ended June 30,For the six months ended June 30, 2020201920202019 Revenues721,095 $ 151,063 1,214,235 $ 251,345 Cost of Revenues282,283 69,588 469,618 115,197 ` Gross Profit 438,812 81,475 744,617 136,148 Operating Expenses Professional fees210,176 42,680 489,262 296,768 Depreciation and amortization53,016 140,399 104,651 280,917 Wages and salaries163,894 92,342 348,803 124,976 Advertising125,392 28,335 212,480 61,488 General and administrative344,680 316,520 720,542 648,615 Total Operating Expenses897,158 620,276 1,875,738 1,412,764 Loss from Operations(458,346) (538,801)(1,131,121) (1,276,616) Other (Income) and Expenses Unrealized gain on investment(11,000) — (30,000) — Interest expense14,834 13,137 28,386 23,980 Total Other (Income) Expenses, Net3,834 13,137 (1,614) 23,980 Loss Before Income Taxes(462,180) (551,938)(1,129,507) (1,300,596) Income Taxes- — — — Net Loss for the Period(462,180) (551,938)(1,129,507) (1,300,596)Net loss attributable to non-controlling interest - GK Manufacturing(73,047) — (127,400) — Net loss attributable to non-controlling interest - iBudTender(970)(12,861)(1,939)(25,296)Net income (loss) attributable to non-controlling interest - PrestoCorp101,943 (28,119)106,345 (41,583) Net Loss for the Period Attributable To Cannabis Sativa, Inc.(490,106) $ (510,958)(1,106,513) $ (1,233,717) Net Loss for the Period per Common Share: Basic & Diluted (0.02) $ (0.02)(0.05) $ (0.06) Weighted Average Common Shares Outstanding: Basic & Diluted24,738,61321,454,193 24,323,14821,446,268 The accompanying notes are an integral part of these condensed consolidated financial statements.All values are in US Dollars. FS - 3 CANNABIS SATIVA, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019 UNAUDITED Preferred Stock Common Stock Shares AmountShares AmountAdditional Paid-In CapitalAccumulated DeficitNon-controlling Interest - PrestocorpNon-controlling Interest - iBudTenderNon-controlling Interest - GK ManufacturingTotal Balance - April 1, 2019 798,835 799 21,408,262 21,41073,541,728(71,641,520)1,092,030111,020— $ 3,125,467 Shares issued for services 40,946 40 105,842 106377,449———— 377,595 Net loss for the period — — — ——(510,958)(28,118)(12,862)— (551,938)Balance - June 30, 2019 839,781 839 21,514,104 21,51673,919,177(72,152,478)1,063,91298,158— $ 2,951,124 Preferred Stock Common Stock Shares AmountShares AmountAdditional Paid-In CapitalAccumulated DeficitNon-controlling Interest - PrestocorpNon-controlling Interest - iBudTenderNon-controlling Interest - GK ManufacturingTotal Balance - April 1, 2020 1,254,012 1,254 24,341,154 24,34276,173,444(75,471,554)1,111,88250,17350,372 $ 1,939,913 Conversion of Preferred to Common (259,835) (260) 259,835 260————— — Shares issued for services 79,366 79 718,549 719490,665———— 491,463 Net income (loss) for the period — — — ——(490,106)101,943(970)(73,047) (462,180)Balance - June 30, 2020 1,073,543 1,073 25,319,538 25,32176,664,109(75,961,660)1,213,82549,203(22,675) $ 1,969,196 Non-controlling Interest - PrestocorpNon-controlling Interest - iBudTenderNon-controlling Interest - GK Manufacturing Preferred Stock Common Stock Additional Paid-In CapitalAccumulated Deficit Total Shares Amount Shares Amount Balance - January 1, 2019 759,444 759 21,316,201 21,31872,971,563(70,918,761)1,105,495123,454— $ 3,303,828 Cancellation and retirement of shares — — (70,000) (70)70———— — Shares issued for services 40,946 41 140,842 141493,414———— 493,596 Shares issued for stock payable 39,391 39 127,061 127454,130———— 454,296 Net loss for the period — — — ——(1,233,717)(41,583)(25,296)— (1,300,596)Balance - June 30, 2019 839,781 839 21,514,104 21,51673,919,177(72,152,478)1,063,91298,158— $ 2,951,124 Non-controlling Interest - PrestocorpNon-controlling Interest - iBudTenderNon-controlling Interest - GK Manufacturing Preferred Stock Common Stock Additional Paid-In CapitalAccumulated Deficit Total Shares Amount Shares Amount Balance - January 1, 2020 1,021,849 1,021 22,224,199 22,22674,834,032(74,855,147)1,107,48051,142— $ 1,160,754 Conversion of Preferred to Common (340,172) (340) 340,172 340————— — Purchase of GK Manufacturing — — 100,000 100108,900———104,725 213,725 Shares issued for services 168,652 169 1,691,929 1,6921,081,678———— 1,083,539 Shares issued for stock payable 223,214 223 963,238 963639,499———— 640,685 Net income (loss) for the period — — — ——(1,106,513)106,345(1,939)(127,400) (1,129,507)Balance - June 30, 2020 1,073,543 1,073 25,319,538 25,32176,664,109(75,961,660)1,213,82549,203(22,675) $ 1,969,196 **The accompanying notes are an integral part of these condensed consolidated financial statements.**All values are in US Dollars. FS - 4 CANNABIS SATIVA, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED For the Six Months Ended June 30, 2020 2019 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss for the period (1,129,507) $ (1,300,596) Adjustments to reconcile net loss to net cash used in operating activities: Bad Debts — 1,509 Unrealized gain on investment (30,000) — Depreciation and amortization 104,651 280,917 Stock issued and to be issued for services 1,083,539 912,476 Write off of prior year stock payable — (77,850) Changes in Assets and Liabilities: Accounts receivable (150) 1,434 Inventories (16,618) 5,714 Prepaid consulting and other current assets (8,670) 2,478 Deposits and other assets (50,269) — Accounts payable and accrued expenses 43,600 35,860 Accrued interest - related parties 26,642 — Net Cash Provided by (Used in) Operating Activities: 23,218 (138,058) Cash Flows from Investing Activities: Purchase of fixed assets (57,178) — Advance to GK settled with asset acquisition 50,000 — Net Cash Used in Investing Activities: (7,178) — Cash Flows from Financing Activities: Proceeds from related parties 107,742 45,945 Net Cash Provided by Financing Activities: 107,742 45,945 NET CHANGE IN CASH 123,782 (92,113) CASH AT BEGINNING OF PERIOD 336,107 151,946 CASH AT END OF PERIOD 459,889 $ 59,833 Supplemental Disclosures of Non Cash Activities: Noncash investing and financing activities: Net asset acquisition acquired with shares of common stock 213,725 $ — Common stock issued from stock payable 640,685 $ 454,296 Operating lease liablility from acquiring right to use asset 61,367 $ — **The accompanying notes are an integral part of these condensed consolidated financial statements.**All values are in US Dollars. FS - 5 1. Organization and Summary of Significant Accounting Policies Nature of Business: Cannabis Sativa, Inc. (the “Company,” “us”, “we” or “our”) was incorporated as Ultra Sun Corp. under the laws of Nevada in November 2004. On November 13, 2013, we changed our name to Cannabis Sativa, Inc. We operate through several subsidiaries including PrestoCorp, Inc. (“PrestoCorp”), iBudtender, Inc. (“iBudtender”), Wild Earth Naturals, Inc. (“Wild Earth”), Kubby Patent and Licenses Limited Liability Company, (“KPAL”), Hi Brands, International, Inc. (“Hi Brands”), GK Manufacturing and Packaging, Inc. (“GKMP”), and Eden Holdings LLC (“Eden”). PrestoCorp and GK Manufacturing are both 51% owned subsidiaries and iBudtender is a 50.1% owned subsidiary. Wild Earth, KPAL, Hi Brands, and Eden are wholly owned subsidiaries. Currently, PrestoCorp, GKMP and iBudtender are operating subsidiaries, although iBudtender is not currently generating any revenue. The Company is reviewing opportunities for business development relating to Wild Earth, KPAL, and Hi Brands. Eden is not operating and had no activity for the six months ended June 30, 2020 and 2019. Our primary operations in the six months ended June 30, 2020 were through PrestoCorp, which provides telemedicine online referral services for customers desiring medical marijuana cards in states where medical marijuana has been legalized. GKMP commenced operations during the second quarter of 2020. The Company is also actively seeking new business opportunities for acquisition and is continually reviewing opportunities for product and brand development through our Wild Earth, Hi Brands, and KPAL subsidiaries. iBudtender is also working to complete and commercialize an application (the iBudtender App) that will provide a convenient means for sharing information about cannabis products, patients and businesses.]()
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.
The authorized capital of the Company consists of 45,000,000 shares of Common Stock with a par value of $0.001 and 5,000,000 shares of preferred stock issuable in series with such rights, preferences and conditions as the Board of Directors may establish. The Company has designated and established the rights of Series A preferred stock (“Series A”) with a par value of $0.001. The Company is authorized to issue up to 5,000,000 shares of Series A. The holders of Series A are entitled to dividends if the Company declares a dividend on common shares, have no liquidation preference, have voting rights equal to 1 vote per share, and can be converted into one share of common at any time.In the six months ended June 30, 2020, a related party converted 340,172 preferred shares into 340,172 shares of common stock. No preferred shares were converted in the six months ended June 30, 2019.
[FS - 15 6. Stockholders’ Equity, Continued: Shares of Stock issued for Asset Acquisition In the six months ended June 30, 2020, the Company acquired assets and established GK Manufacturing and Packaging, Inc. (“GKMP”) to conduct contract manufacturing operations for customers seeking to obtain CBD infused products, including salves, tinctures, edibles, and other products containing CBD. In connection with the acquisition, the Company issued two key individuals an aggregate of 100,000 shares of common stock with a fair value of $109,000 for a 51% interest in GKMP. Assets acquired included inventory needed for manufacturing the CBD products ($47,987); a packaging line and other manufacturing equipment ($164,488); and a deposit ($1,250). The assets values totaled $213,725, of which $104,725 relates to the 49% non-controlling interest. GKMP also assumed the payments on a lease for equipment, agreed to provide up to $500,000 of additional working capital to GKMP, and agreed to an earnout provision where additional shares of common stock may become issuable to the key individuals in the event certain performance standards are met. See Note 7. Upon completion of the acquisition of assets for GKMP, GKMP entered into employment agreements with the two key individuals. The employment agreements are terminable at any time with or without cause, but in the event of termination without cause, the salary will continue for six months. Salary for the president of GKMP is set at $65,000 per annum and salary for the Vice President – Sales and Marketing is set at $50,000 per annum. The agreements also provide the individuals with expense reimbursements and other employee benefits comparable to those being offered to the other employees of the Company. Currently, GKMP has not established any other employee benefit programs. The 49% non-controlling interest is considered a related party to the Company because the non-controlling interest is owned, in part by the president of GKMP. The completion of the GKMP asset acquisition resulted in payment of a finder’s fee to an unrelated party. The finder’s fee was paid by issuance of 50,000 shares of common stock with a fair value at the time of issuance of $36,000 which was recognized as an expense upon completion of the acquisition. 2017 Stock Plan On July 28, 2017, the Company adopted the Cannabis Sativa 2017 Stock Plan which authorized the Company to utilize common stock to compensate employees, officers, directors, and independent contractors for services provided to the Company. The Company authorized up to 3,000,000 shares of common stock to be issued pursuant to the 2017 Stock Plan. At June 30, 2020, the Company was authorized to issue up to 533,118 additional shares under the 2017 Stock Plan. Warrants At June 30, 2020 and December 31, 2019, the Company had outstanding warrants to purchase 125,000 shares and 174,900 shares of the Company’s common stock, respectively. The exercise price on 125,000 warrants was $0.80 per share and these warrants expire in November 2022. FS - 16 6. Stockholders’ Equity, Continued: Warrants to purchase up to 49,900 shares of common stock at $2.00 per share expired on February 1, 2020. Securities Issuances During the six months ended June 30, 2020 and 2019, shares of common stock and preferred stock were issued to related and non-related parties for stock payable as of the prior year end, and/or for services, acquisitions and settlements. The following table breaks out the issuances by type of transaction and by related and non-related parties. Six months ended June 30, 2020 Share Issuances Services Other Activity Total Shares issued for stock payable Common Preferred Value Common Preferred Value Common Preferred Value Related party issuance 521,411 223,214 431,201 - - - 521,411 223,214 $ 431,201 Unrelated party issuance 441,827 - 209,484 - - - 441,827 - 209,484 Total shares for stock payable 963,238 223,214 640,685 - - - 963,238 223,214 $ 640,685 Conversion of preferred stock - - - 340,172 (340,172)- 340,172 (340,172) $ - Services Related party issuances David Tobias, Officer, Director - 168,652 92,064 - - - - 168,652 $ 92,064 Brad Herr, Officer, Director 248,695 - 135,715 - - - 248,695 - 135,715 Robert Tankson, Director 97,554 - 48,677 - - - 97,554 - 48,677 Cathy Carroll, Director 168,652 - 92,064 - - - 168,652 - 92,064 Trevor Reed, Director 28,109 - 15,344 - - - 28,109 - 15,344 Keith Hyatt, President GKMP 75,232 - 41,378 - - - 75,232 - 41,378 Kyle Powers, CEO PrestoCorp 92,593 - 44,444 - - - 92,593 - 44,444 Total related party issuances 710,835 168,652 469,686 - - - 710,835 168,652 469,686 Unrelated Party issuances 981,094 - 613,853 - - - 981,094 - 613,853 Total shares for services 1,691,929 168,652 1,083,539 - - - 1,691,929 168,652 $1,083,539 Issuance for acquisitions - - - 100,000 109,000 100,000 - $ 109,000 Aggregate totals 2,655,167 391,866 1,724,224 440,172 109,000 3,095,339 51,694 $1,833,224 All values are in US Dollars. FS - 17 6. Stockholders’ Equity, Continued: Six months ended June 30, 2019 Share Issuances Services Other Activity Total Shares issued for stock payable Common Preferred Value Common Preferred Value Common Preferred Value Related party issuances 85,681 39,391 340,080 - - - 85,681 39,391 $ 340,080 Unrelated paryt issuances 41,380 - 114,216 - - - 41,380 - 114,216 Total shares for stock payable 127,061 39,391 454,296 - - - 127,061 39,391 $ 454,296 Services Related Party issuances David Tobias, Officer, Director - 40,946 106,240 - - - - 40,946 $ 106,240 Donald Lundbom, CFO 32,803 - 85,833 - - - 32,803 - 85,833 Stephen Downing, Director 5,308 - 13,889 - - - 5,308 - 13,889 Cathy Carroll, Director 10,616 - 27,778 - - - 10,616 - 27,778 Trevor Reed, Director 4,246 - 11,111 - - - 4,246 - 11,111 Deborah Goldsberry, Director 4,246 - 11,111 - - - 4,246 - 11,111 Michael Gravel, Director 4,246 - 11,111 - - - 4,246 - 11,111 Total related party issuances 61,465 40,946 267,073 - - - 61,465 40,946 $ 267,073 Unrelated party issuances 79,377 - 226,523 - - 79,377 - $ 226,523 Total shares for services 140,842 40,946 493,596 - - - 140,842 40,946 $ 493,596 Shares cancelled - - - (70,000) - - (70,000) - $ - Aggregate totals 267,903 80,337 947,892 (70,000) - - 197,903 80,337 $ 947,892 All values are in US Dollars. 7. Commitments and Contingencies Leases. The Company renewed a lease in Mesquite, Nevada in November 2019 on a month to month basis at a cost of $600 per month. The Company terminated the lease at the end of February 2020, and now operates out of a virtual office maintained by our Chief Executive Officer. PrestoCorp leases office space through WeWork in New York for $2,444 per month on a month to month arrangement. Until February 2019, PrestoCorp also leased space in San Francisco for $2,800 per month. PrestoCorp terminated its lease and closed its office in San Francisco as of the end of February 2019. Primary operations for PrestoCorp are now based in New York City. Rent expense for the three and six months ended June 30, 2020 was $7,432 (2019: $7,793) and $18,119 (2019: $21,062), respectively. GKMP leases a commercial printer and a bottle filling line, both of which are used in its manufacturing and packaging operations. The Company assumed the printer lease as part of the acquisition of GKMP’s assets (see Note 6). The bottle filler was leased by GKMP commencing on April 1, 2020. The Company recognizes a right to use asset for each lease at the time the lease obligation is fixed. To calculate the liability and right of use asset, the Company utilized a 10% incremental borrowing rate to discount the future rent payments over the remaining lease terms. For the three and six months ended June 30, 2020, the Company recognized $8,144 and $8,919, respectively in lease expense. Lease expense is reported as cost of goods sold in the consolidated statements of operations. At June 30, 2020, the remaining lease term is 36 months on the printer and 21 months on the bottle filling line. The lessors hold deposits of $1,250 on the printer lease and $8,500 on the bottle filling line. Future minimum lease payments over the remaining term are as follows: FS - 18 7. Commitments and Contingencies, Continued: From July 1, 2020 to June 30, 2021$ 35,481 From July 1, 2021 to June 30, 202227,039 From July 1, 2022 to June 30, 20238,190 Total70,710 Less imputed interest (9,343) Net lease liability61,367 Current portion(29,191) Long term$ 32,176 Litigation. In the ordinary course of business, we may face various claims brought by third parties and we may, from time to time, make claims or take legal actions to assert our rights, including intellectual property disputes, contractual disputes and other commercial disputes. Any of these claims could subject us to litigation. As of June 30, 2020, one claim was pending or threatened relating to general business disputes and accounts payable for services. Management believes the outcome of currently pending claim is not likely to have a material effect on our consolidated financial position and results of operations. Shares in Escrow. At June 30, 2020 and December 31, 2019, the Company has 419,475 shares of common stock in escrow as part of the acquisition of PrestoCorp. These shares are issuable in certain circumstances to the principals of PrestoCorp based on performance of the PrestoCorp business in 2020 and 2021. The escrow account originally contained 629,213 shares of common stock but 209,738 shares were cancelled in 2018 when the performance requirements were not met. The escrowed shares are not counted in the outstanding stock of the Company and will be considered compensation to the principals if and when issued. The escrow account also includes an additional 500 shares of PrestoCorp common stock which is distributable either back to the principals of PrestoCorp or to the Company, also depending on certain minimum performance requirements which extend into 2021. If all of the PrestoCorp shares are ultimately distributed to the Company, the shares would have the effect of increasing the Company’s ownership of PrestoCorp to 61% from the current level of 51%. Contingent Consideration. In connection with the GKMP asset acquisition, the Company agreed to pay additional consideration to the two key individuals employed by GKMP upon achievement of certain performance goals. If GKMP net revenues exceed $3,000,000 and net income exceeds 25% of net revenues in the year ended December 31, 2020, an additional $1,000,000 in consideration will be due to the key individuals. If GKMP net revenues exceed $6,000,000 and net income exceeds 25% of net revenues in the year ended December 31, 2020, an additional $500,000 in consideration will be due to the key individuals ($1,500,000 in the aggregate). Through June 30, 2020, GKMP has reported net revenues of approximately $14,000. The additional consideration amounts, if any, are payable in stock at the average closing price of the shares in the five trading days prior to the date of payment. FS - 19 7. Commitments and Contingencies, Continued: Working Capital Obligation. In connection with the GKMP asset acquisition, the Company agreed to provide up to an additional $500,000 in working capital to GKMP. These amounts are recorded as investment in GKMP by CBDS and as equity on the books of GKMP and are eliminated in the consolidation. Due to the ownership structure of GKMP, 49% of the working capital payments from the Company to GKMP benefit the holders of the non-controlling interest. 8. COVID- 19: The outbreak of COVID-19, the coronavirus, has grown both in the United States and globally, and related government and private sector responsive actions have adversely affected the Company’s business operations. The World Health Organization has declared Covid-19 to be a global pandemic, resulting in an economic downturn and changes in global economic policy that will reduce demand for the Company’s products and may have an adverse impact on the Company’s business, operating results and financial condition. 9. Subsequent Events: Through August 6, 2020, the Company has received $25,000 in subscriptions for 50,000 units consisting of one share of common stock and one warrant exercisable for one share of common stock. The unit price was $0.50 per share and the warrant exercise price is $1.00 per share. The units were offered in a private placement and the units sold are restricted securities. FS - 20]()
d) disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materiallyaffected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
d) disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materiallyaffected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002