Cannabis Sativa, Inc. 2019 Quarterly Report 10-Q

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Washington, D.C. 20549

 

———————

FORM 10-Q

———————

 

x

 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

 

 ACT OF 1934

 

For the quarterly period ended: September 30, 2019

or

 

 

o

 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 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 its charter)

 

NEVADA

 

20-1898270

(State or Other Jurisdiction

 

(I.R.S. Employer

of Incorporation)

 

Identification No.)

 

1646 W. Pioneer Blvd., Suite 120, Mesquite, Nevada  89027

(Address of Principal Executive Office) (Zip Code)

 

(702) 346-3906

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

———————

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes

No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

Non-accelerated filer

 

 

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

 


1



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 November 14, 2019, is 22,079,199.

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.

 

Certain statements in this Report constitute “forward-looking statements.” Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Factors that might cause such a difference include, among others, uncertainties relating to general economic and business conditions; industry trends; changes in demand for our products and services; uncertainties relating to customer plans and commitments and the timing of orders received from customers; announcements or changes in our pricing policies or that of our competitors; unanticipated delays in the development, market acceptance or installation of our products and services; changes in government regulations; availability of management and other key personnel; availability, terms and deployment of capital; relationships with third-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

 

Three Months Ended September 30, 2019, compared with the Three Months Ended September 30, 2018

 

Revenue for the three-month periods ended September 30, 2019 and 2018 was $453,653 and $107,616, respectively. Cost of revenues for the three-month periods ended September 30, 2019 and 2018 was $176,516 and $53,745, respectively. Gross profit for the three-month periods ended September 30, 2019 and 2018 was $277,137 and $53,871, respectively.  The fluctuation in these numbers is primarily the result of higher online evaluation revenues at the Company’s subsidiary PrestoDoctor for Oklahoma and New York.  The Company acquired a 51% interest in PrestoCorp on August 1, 2017.

 

Net loss for the three-month period ended September 30, 2019 was $549,492 compared to net loss of $744,091 for the three-month period ended September 30, 2018.  The lower loss resulted from increased revenue from PrestoCorp and a decrease in professional and consulting fees at Cannabis Sativa, Inc.

 

Total operating expenses were $730,183 for the three-month period ended September 30, 2019 and $767,793 for the three-month period ended September 30, 2018, resulting in a decrease in total operating expenses of $37,610.  The decrease was attributable primarily to a decrease of $133,155 in professional fees and an increase of $95,545 in general and administrative expenses.  The decrease in professional fees came about as a result of the elimination of three consulting positions. The increase in general and administrative expenses came about as a result of higher operating expenses at PrestoCorp.


2



Nine Months Ended September 30, 2019, compared with the Nine Months Ended September 30, 2018

 

Revenue for the nine-month periods ended September 30, 2019 and 2018 was $704,998 and $408,680, respectively, an increase of 72%. Cost of revenues for the nine-month periods ended September 30, 2019 and 2018 was $291,713 and $167,810, respectively. Gross profit for the nine-month periods ended September 30, 2019 and 2018 was $413,285 and $240,870, respectively, yielding a gross margin improvement of 71%.  As with the third quarter discussed above, the increased revenue is a result of an increase in on-line medical evaluations.  

 

Net loss for the nine-month period ended September 30, 2019 was $1,850,088 compared to net loss of $2,944,895 for the nine-month period ended September 30, 2018.  As with the three-month periods ended September 30, 2019 and 2018, the change resulted from a decrease in professional fees and an increase in revenue from PrestoCorp.

 

Total operating expenses were $2,142,947 for the nine-month period ended September 30, 2019 and $3,355,596 for the nine-month period ended September 30, 2018, resulting in a decrease in total operating expenses of $1,212,649.  The decrease was attributable to a reduction of $664,900 in professional fees and a decrease of $547,749 in general and administrative expenses.  The decrease in professional fees came about as a result of the elimination of three consulting positions, and the decrease in general and administrative expenses came about as a result of lower marketing costs due to the termination of the TransHigh marketing agreement, and lower overhead costs at Cannabis Sativa, Inc.

 

Liquidity and Capital Resources

Cash flow from operating activities for the nine-month period ended September 30, 2019, was a positive $11,173. During the same period, our total cash increased by $70,483 accounted for primarily by the acquisition of $60,945 in cash from financing activities from related parties and higher revenues and profit from PrestoCorp.  Our expenses during the period were paid primarily by the issuance of stock.

 

The Company continues to see benefits of its aggressive cost control program, implemented two years ago. Selling, general and administrative costs are down 36% from the nine months ended September 30, 2018, and down 66% from the nine months ended September 30, 2017.  Cash flow from operations also improved by approximately $579,000 during the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018, resulting in a positive $11,173 for the nine months as noted above.

 

Operating loss for the nine months ended September 30, 2019 was  $1.7 million, an improvement of $1.4 million (44%) from the same period in the prior year

 

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.  As stated above, we incurred a net loss of $1,850,088 and $2,944,895 respectively for the nine-month periods ended September 30, 2019, and 2018, and had an accumulated deficit of approximately $72,700,000 as of September 30, 2019.  These factors raise substantial doubt about the Company’s ability to continue as a going concern.  The Company may seek to raise money for working capital purposes through a public offering of its equity capital or through a private placement of equity capital or convertible debt.  It will be important for the Company to be successful in its efforts to raise capital in this manner if it is going to be able to further its business plan in an aggressive manner.  Raising capital in this manner will cause dilution to current shareholders.

 

Off Balance Sheet Arrangements

 

None

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.


3



Not required.

 

Item 4. Controls and Procedures.

 

Disclosure Controls and Procedures

 

Under the supervision and with the participation of our management including our chief executive officer and our chief financial officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered by this report. Based upon that evaluation, our chief executive officer and our chief financial officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were not effective such that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding disclosure. A discussion of the material weaknesses in our controls and procedures is described below.

 

Based on its evaluation, our management concluded that there are material weaknesses in our internal control over financial reporting.  A material weakness is a deficiency, or combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

 

Management’s 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) under 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 of accounting principles generally accepted in the United States.

 

Our management assessed the effectiveness of our internal control over financial reporting as of September 30, 2019. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control – Integrated Framework (2013). Based on management’s assessment, management concluded that its internal control over financial reporting was not effective as of September 30, 2019, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP.

 

Management identified the following material weaknesses:

 

We have not performed a risk assessment and mapped our processes to control objectives;  

We have not implemented comprehensive entity-level internal controls;  

We have not implemented adequate system and manual controls; 

We did not employ an adequate number of people to ensure a control environment that would allow for the   

accurate and timely reporting of the financial statements in accordance with GAAP; and  

We do not have sufficient segregation of duties.    

 

To compensate for control weaknesses identified above, management reviews the financial results of operations on a regular, on-going basis and investigates unexpected and unusual variances and changes. Additionally, management reviews and approves all significant transactions.

 

Changes in Internal Control over Financial Reporting


4



There was no change in our internal control over financial reporting during the quarter ended September 30, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

PART II – OTHER INFORMATION

Item 1.  Legal Proceedings.

 

We are not a party to any material legal proceedings, and, to the best of our knowledge, no such legal proceedings have been threatened against us.

 

Item 1A.  Risk Factors

 

Not required.

 

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

 

During the fiscal quarter ended September 30, 2019, the board of directors issued 47,020 unregistered common shares and 74,925 unregistered preferred shares to two persons in exchange for services rendered to the Company.  The shares were valued and issued at $1.35 per share.  The issuance of the shares was 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

 

 

(1) Incorporated by reference to Exhibits 3.01 and 3.02 of the Company’s Registration Statement on Form 10 filed January 28, 2009.

 

 (2) XBRL information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934, and is not subject to liability under those sections, is not part of any registration statement or prospectus to which it relates and is not incorporated or deemed to be incorporated by reference into any registration statement, prospectus or other document.   

 

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:  November 14, 2019

 

By:  /s/ David Tobias

David Tobias, Chief Executive Officer

 

 

 

By:  /s/ Donald J. Lundbom

Donald J. Lundbom, Chief Financial Officer and

Principal Accounting Officer


5



CANNABIS SATIVA, INC.

 

 

 

 

 

 

 

 

 

 

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

Unaudited

 

 

 

September 30,

 

December 31,

 

2019

 

2018

 

 

 

 

Assets

Current Assets

 

 

 

Cash

$ 222,429   

 

$ 151,946   

Accounts Receivable, Net of Allowance of $4,961 and $-0-, respectively

3,851   

 

10,646   

Investment, at Fair Value

116,000   

 

200,000   

Prepaid Consulting and Other Current Assets

22,000   

 

29,853   

Inventories

–   

 

5,714   

 

 

 

 

Total Current Assets

364,280   

 

398,159   

 

 

 

 

Property and Equipment, Net

6,148   

 

6,548   

Intangible Assets, Net

1,874,882   

 

2,294,101   

Goodwill

2,173,869   

 

2,173,869   

 

 

 

 

Total Assets

$ 4,419,179   

 

$ 4,872,677   

 

 

 

 

 

 

 

 

Liabilities and  Stockholders’ Equity

Current Liabilities

 

 

 

Accounts Payable and Accrued Expenses

$ 181,616   

 

$ 110,065   

Stock Payable

466,341   

 

532,146   

Due to Related Parties

987,583   

 

926,638   

 

 

 

 

Total Current Liabilities

1,635,540   

 

1,568,849   

 

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

Preferred stock $0.001 par value; 5,000,000 shares authorized;

 

 

 

   914,706 and 759,444 issued and outstanding, respectively

914   

 

759   

Common stock $0.001 par value; 45,000,000 shares authorized;

 

 

 

  21,722,147 and 21,316,201 shares issued and outstanding, respectively

21,724   

 

21,318   

Additional Paid-In Capital

74,300,901   

 

72,971,563   

Accumulated Deficit

(72,722,885)  

 

(70,918,761)  

 

 

 

 

Total Cannabis Sativa, Inc. Stockholders’ Equity  

1,600,654   

 

2,074,879   

 

 

 

 

Non-Controlling Interest

1,182,985   

 

1,228,949   

 

 

 

 

Total Stockholders’ Equity

2,783,639   

 

3,303,828   

 

 

 

 

Total Liabilities and Stockholders’ Equity

$ 4,419,179   

 

$ 4,872,677   

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements


6



CANNABIS SATIVA, INC.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME – UNAUDITED

 

 

 

 

 

 

 

For the Three Months Ended

 

For the Nine Months Ended

 

 

September 30,

 

September 30,

 

September 30,

 

September 30,

 

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

 

Revenues

 

$ 453,653   

 

$ 107,616   

 

$ 704,998   

 

$ 408,680   

 

 

 

 

 

 

 

 

 

Cost of Revenues

 

176,516   

 

53,745   

 

291,713   

 

167,810   

 

 

 

 

 

 

 

 

 

Gross Profit

 

277,137   

 

53,871   

 

413,285   

 

240,870   

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

Professional Fees

 

100,827   

 

233,982   

 

397,595   

 

1,062,495   

General and Administrative Expenses

 

629,356   

 

533,811   

 

1,745,352   

 

2,293,101   

 

 

 

 

 

 

 

 

 

Total Operating Expenses

 

730,183   

 

767,793   

 

2,142,947   

 

3,355,596   

 

 

 

 

 

 

 

 

 

Loss from Operations

 

(453,046)  

 

(713,922)  

 

(1,729,662)  

 

(3,114,726)  

 

 

 

 

 

 

 

 

 

Other (Income) and Expense

 

 

 

 

 

 

 

 

Realized Gain on Settlement of Digital Currency

 

–   

 

–   

 

–   

 

(200,000)  

Impairment of Digital Currency

 

–   

 

30,169   

 

–   

 

30,169   

Unrealized Loss on Investment

 

84,000   

 

–   

 

84,000   

 

–   

Interest Expense

 

12,446   

 

–   

 

36,426   

 

–   

 

 

 

 

 

 

 

 

 

Total Other (Income) and Expense, Net

 

96,446   

 

30,169   

 

120,426   

 

(169,831)  

 

 

 

 

 

 

 

 

 

Loss Before Income Taxes

 

(549,492)  

 

(744,091)  

 

(1,850,088)  

 

(2,944,895)  

 

 

 

 

 

 

 

 

 

Income Taxes

 

–   

 

–   

 

–   

 

–   

 

 

 

 

 

 

 

 

 

Net Loss for the Period

 

(549,492)  

 

(744,091)  

 

(1,850,088)  

 

(2,944,895)  

 

 

 

 

 

 

 

 

 

Income (Loss) Attributable to Non-Controlling Interest

 

20,915   

 

7,897   

 

(45,964)  

 

(151,314)  

 

 

 

 

 

 

 

 

 

Net Loss Attributable To Cannabis Sativa, Inc.

 

$ (570,407)  

 

$ (751,988)  

 

$ (1,804,124)  

 

$ (2,793,581)  

 

 

 

 

 

 

 

 

 

Net Loss for the Period

 

$ (549,492)  

 

$ (744,091)  

 

$ (1,850,088)  

 

$ (2,944,895)  

Other Comprehensive Income

 

 

 

 

 

 

 

 

 Realized Gain (Loss) on Weed Coin Exchange to REFG Shares

 

–   

 

11,022   

 

–   

 

(188,978)  

 

 

 

 

 

 

 

 

 

Total Comprehensive Loss

 

$ (549,492)  

 

$ (733,069)  

 

$ (1,850,088)  

 

$ (3,133,873)  

 

 

 

 

 

 

 

 

 

Net Loss for the Period per Common Share:

 

 

 

 

 

 

 

 

Basic & Diluted

 

$ (0.03)  

 

$ (0.04)  

 

$ (0.08)  

 

$ (0.13)  

 

 

 

 

 

 

 

 

 

Weighted Average Common Shares Outstanding:

 

 

 

 

 

 

 

 

Basic & Diluted

 

 

21,569,362

 

20,892,220

 

21,524,387   

 

20,937,541   

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements


7



CANNABIS SATIVA, INC.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended September 30,

 

2019

 

 

2018

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

Net Loss for the Period

 

$ (1,850,088)  

 

 

$ (2,944,895)  

 

Adjustments to Reconcile Net Loss for the Period to Net Cash

 

 

 

 

 

 

Provided by (Used in) Operating Activities:

 

 

 

 

 

 

Bad Debts

 

4,961   

 

 

–   

 

Change in Accounting Method for Digital Currency

 

 

 

 

11,022   

 

Impairment of Digital Currency

 

 

 

 

30,169   

 

Realized Gain on Settlement of Digital Currency

 

–   

 

 

(200,000)  

 

Unrealized Loss on Investment

 

84,000   

 

 

–   

 

Depreciation and Amortization

 

421,254   

 

 

421,843   

 

Stock Issued and to be Issued for Services

 

1,264,094   

 

 

2,096,860   

 

Amortization of Stock Based Prepaids

 

–   

 

 

75,055   

 

Changes in Assets and Liabilities:

 

 

 

 

 

 

Accounts Receivable

 

1,834   

 

 

(974)  

 

Inventories

 

5,714   

 

 

272   

 

 Prepaid Consulting and Other Current Assets

 

7,853   

 

 

(46,005)  

 

Accounts Payable and Accrued Expenses

 

71,551   

 

 

(10,820)  

Net Cash Provided by (Used in) Operating Activities:

 

11,173   

 

 

(567,473)  

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

Purchase of Fixed Assets

 

(1,635)  

 

 

(897)  

Net Cash Used In Investing Activities:

 

(1,635)  

 

 

(897)  

 

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

Cash Proceeds Received from Sale of Common Stock and Warrant Exercises

 

–   

 

 

361,750   

 

Proceeds from Related Parties, Net

 

60,945   

 

 

253,530   

Net Cash Provided by Financing Activities:

 

60,945   

 

 

615,280   

 

 

 

 

 

 

 

NET CHANGE IN CASH

 

70,483   

 

 

46,910   

 

 

 

 

 

 

 

Cash – Beginning of Period

 

151,946   

 

 

175,857   

 

 

 

 

 

 

 

Cash – End of Period

 

$ 222,429   

 

 

$ 222,767   

 

 

 

 

 

 

 

Supplemental Disclosures of Non Cash Activities:

 

 

 

 

 

 

Purchase of Investment with Digital Currency

 

$ –   

 

 

$ 200,000   

 

Preferred and Common Stock Issued for Services

 

$ 454,296   

 

 

$ 1,534,835   

 

Rescinded Transaction & Elimination of Prepaid Expense

 

$ –   

 

 

$ 639,822   

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements


8


CANNABIS SATIVA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

For the Nine Months Ended September 30, 2019 and 2018


 

1. Organization and Summary of Significant Accounting Policies      

 

Nature of Corporation:

 

Ultra Sun Corp (the “Company,” “us”, “we” or “our”) was incorporated under the laws of Nevada in November 2004.  On November 13, 2013, we changed our name to Cannabis Sativa, Inc.    Our wholly-owned subsidiary Wild Earth Naturals, Inc. (“Wild Earth”) was acquired by us in July 2013 in exchange for shares of our common stock. From our inception through September 30, 2013 we were engaged in the tanning salon business and operated a tanning salon in Saratoga Springs, Utah under the name “Sahara Sun Tanning.”  As a result of our acquisition of Wild Earth in July 2013, we became engaged in the herbal skin care products business.  On September 30, 2013, we sold the assets of the tanning salon business to a third party.   We are now engaged in the developing and promoting of natural cannabis products.   On August 8, 2016 the Company entered into a securities purchase agreement with iBudtender Inc. to purchase 50.1% of iBudtender Inc.  On August 1, 2017, the Company entered into a securities purchase agreement with PrestoCorp, Inc. (“PrestoCorp”) to purchase 51% of PrestoCorp.  

 

During the quarter ended September 30, 2014, the Company created Eden Holdings LLC, (the “LLC”).  The purpose of the LLC is to hold the intellectual property of Cannabis Sativa, Inc.  As of September 30, 2019 and December 31, 2018, there has been no activity in the LLC.  

 

Basis of Presentation:

 

The accompanying condensed consolidated balance sheet at December 31, 2018, has been derived from audited consolidated financial statements and the unaudited condensed consolidated financial statements as of September 30, 2019 and 2018, have been prepared in accordance with generally accepted accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements, and should be read in conjunction with the audited consolidated financial statements and related footnotes included in our Annual report on Form 10-K for the year ended December 31, 2018 (the “2018 Annual Report”), filed with the Securities and Exchange Commission (the “SEC”).  It is management’s opinion, however, that all material adjustments (consisting of normal recurring adjustments), have been made which are necessary for a fair financial statements presentation.  The condensed consolidated financial statements include all material adjustments (consisting of normal recurring accruals) necessary to make the condensed consolidated financial statements not misleading as required by Regulation S-X, Rule 10-01.  Operating results for the three and nine months ended September 30, 2019 are not necessarily indicative of the results of operations expected for the year ending December 31, 2019.

 

Principles of Consolidation:

 

The condensed consolidated financial statements include the accounts of Cannabis Sativa, Inc., and its wholly-owned subsidiaries; Wild Earth Naturals, Inc., Hi-Brands International, Inc., Eden Holdings LLC, our 50.1% ownership of iBudtender Inc. and our 51% ownership of PrestoCorp, (collectively referred to as the “Company”). All significant inter-company balances have been eliminated in consolidation.

 

Method of Accounting:

 

The Company maintains its books and prepares its condensed consolidated financial statements on the accrual basis of accounting.

 

Use of Estimates:

 

The preparation of these condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting


10


CANNABIS SATIVA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

For the Nine Months Ended September 30, 2019 and 2018


period.  Such management estimates include valuation of intangible assets in connection with business combinations, recoverability of long-lived assets and goodwill, and the valuation of equity-based instruments. Actual results could differ from those estimates.  

 

Liquidity:

 

Our operations have been financed primarily through proceeds from notes payable, convertible notes payable, sale of common stock, warrants exercised for common stock and revenue generated from sales of our products. These funds have provided us with the resources to operate our business, sell and support our products, attract and retain key personnel and add new products to our portfolio. We have experienced net losses and negative cash flows from operations each year since our inception. As of September 30, 2019, we had an accumulated deficit of approximately $72,700,000 and negative working capital.

 

Segment Information:

 

We operate our business on the basis of a single reportable segment, which is the business of delivering products and services ancillary to the medical cannabis market. Our chief operating decision-maker is the Chief Executive Officer, who evaluates us as a single operating segment.

 

Accounts Receivable:

 

We estimate credit loss reserves for accounts receivable on an individual receivable basis. A specific impairment allowance reserve is established based on expected future cash flows and the financial condition of the debtor.  We charge off customer balances in part or in full when it is more likely than not that we will not collect that amount of the balance due.  We consider any balance unpaid after the contract payment period to be past due.  At September 30, 2019 and December 31, 2018 the Company has established an allowance for doubtful accounts of $4,961 and $-0-, respectively.

 

Inventories:

 

Inventory cost includes those costs directly attributable to the product before sale. Inventory consists of salves, ointments, lotions, creams and balms and is carried at the lower of cost or (net realizable value), using first-in, first-out method of determining cost.  At September 30, 2019 the Company had $-0- in inventory.  As of December 31, 2018, the Company had $5,714 in raw materials and $-0- in finished goods 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. 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.  


11


CANNABIS SATIVA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

For the Nine Months Ended September 30, 2019 and 2018


Fair Value of Financial Instruments:

 

The estimated fair values for financial instruments are determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. The carrying amounts of accounts receivable, accounts payable, accrued liabilities, and notes payable approximate fair value given their short term nature or effective interest rates.

 

Cash:

 

Cash is held at major financial institutions and insured by the Federal Deposit Insurance Corporation (FDIC) up to federal insurance limits.

 

Net Loss per Share:

 

Net loss per share is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding for the period and contains no dilutive securities. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity.  Potentially dilutive shares are excluded from the calculation of diluted net loss per share because the effect is anti-dilutive.

 

Revenue Recognition:

 

On January 1, 2018, the Company adopted the new revenue recognition standard ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”, using the cumulative effect (modified retrospective) approach. Modified retrospective adoption requires entities to apply the standard retrospectively to the most current period presented in the financial statements, requiring the cumulative effect of the retrospective application as an adjustment to the opening balance of retained earnings at the date of initial application. No cumulative-effect adjustment in retained earnings was recorded as the adoption of ASU 2014-09 did not significantly impact the Company’s reported historical revenue. Revenue from substantially all of our contracts with customers continues to be recognized over time as services are rendered. The impact of the adoption of the new standard was not material to the Company’s consolidated financial statements for the year ended December 31, 2018. The Company expects the impact to be immaterial on an ongoing basis.

 

The primary change under the new guidance is the requirement to report the allowance for uncollectible accounts as a reduction in net revenue as opposed to bad debt expense, a component of operating expenses. The Company has historically included the allowance for uncollectible accounts amounts with its allowance for contractual adjustments as a reduction in operating expenses. However most contracts are collected in full at time of delivery and the Company has immaterial account receivables and also related uncollectible accounts.  Accordingly, the adoption of this guidance did not have an impact on our condensed consolidated financial statements, other than additional financial statement disclosures.

 

The guidance requires increased disclosures, including qualitative and quantitative disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.

 

The Company operates as one reportable segment.

 

The Company receives payments from individual clients and patients. As the period between the time of service and time of payment is typically one day or less if it is an internet sale otherwise payment can be up to 30 days, the Company elected the practical expedient under ASC 606-10-32-18 and did not adjust for the effects of a significant financing component. Revenue is recognized at the point of time at the conclusion of when services are performed for individual clients and patients and all performance obligations have been met.

 


12


CANNABIS SATIVA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

For the Nine Months Ended September 30, 2019 and 2018


Under the new revenue standard, the Company has elected to apply the following practical expedients and optional exemptions:

 

Recognize incremental costs of obtaining a contract with amortization periods of one year or less as expense when incurred. These costs are recorded within general and administrative expenses.  

 

Recognize revenue in the amount of consideration to which the Company has a right to invoice the customer if that amount corresponds directly with the value to the customer of the Company’s services completed to date.   

 

Exemptions from disclosing the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, (ii) contracts for which revenue is recognized in the amount of consideration to which the Company has a right to invoice for services performed, and (iii) contracts for which variable consideration is allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct service that forms part of a single performance obligation.  

 

No adjustment is made for the effects of a significant financing component as the period between the time of service and time of payment is typically one year or less.  

 

The Company recognizes revenue from product sales or services rendered when the following five revenue recognition criteria are met: identify the contract with the client, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to performance obligations in the contract and recognize revenues when or as the Company satisfies a performance obligation.  For the nine months ended September 30, 2019 and 2018, 100% of the revenue is from PrestoCorp operations.

 

Investment

 

Investments in marketable securities are stated at fair value, and consist of minority ownership in a cannabis related company.  Beginning in 2018, the Company recognizes unrealized holding gains and losses in Other (Income) Expenses in the condensed consolidated statements of operations.

 

During the three months ended March 31, 2018, the Company purchased 10,000,000 shares of common stock of Medical Cannabis Payment Solutions (ticker:  REFG) in exchange for 1,000,000 units of Weed coins (valued at $200,000).  At September 30, 2019, the fair value of the investment in REFG was adjusted to $116,000, which resulted in an unrealized loss on investment of $84,000 which is shown in the statement of operations.  Through the period ended September 30, 2019, the value of the Company’s ownership has been very volatile.  There can be no assurances that when the Company liquidates its position of REFG, that it will realize the valuation included in the accompanying condensed consolidated financial statements at September 30, 2019.

 

Goodwill and Intangible Assets:

 

Intangible assets other than goodwill, are comprised of patents, trademarks, the Company’s “CBDS.com” website domain and intellectual property rights.  The patents are being amortized using the straight-line method over its economic life, which is estimated to be ten (10) years.  The trademarks are being amortized between 5 and 10 years. The CBDS.com website is being amortized using the straight-line method over its economic life, which is estimated to be five (5) years.  The intellectual property rights are being amortized using the straight-line month over its economic life, which are estimated to be between three (3) and five (5) years.

 

The Company tests its goodwill for impairment annually, or whenever events or changes in circumstances indicates an impairment may have occurred, by comparing its reporting unit’s carrying value to its implied fair value. The goodwill impairment test consists of a two-step process as follows:


13


CANNABIS SATIVA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

For the Nine Months Ended September 30, 2019 and 2018


Step 1. The Company compares the fair value of each reporting unit to its carrying amount, including the existing goodwill. The fair value of each reporting unit is determined using a discounted cash flow valuation analysis. The carrying amount of each reporting unit is determined by specifically identifying and allocating the assets and liabilities to each reporting unit based on headcount, relative revenue or other methods as deemed appropriate by management. If the carrying amount of a reporting unit exceeds its fair value, an indication exists that the reporting unit’s goodwill may be impaired, and the Company then perform the second step of the impairment test. If the fair value of a reporting unit exceeds its carrying amount, no further analysis is required.

 

Step 2. If further analysis is required, the Company compares the implied fair value of the reporting unit’s goodwill, determined by allocating the reporting unit’s fair value to all of its assets and its liabilities in a manner similar to a purchase price allocation, to its carrying amount. If the carrying amount of the reporting unit’s goodwill exceeds its fair value, an impairment loss will be recognized in an amount equal to the excess.

 

Impairment may result from, among other things, deterioration in the performance of the acquired business, adverse market conditions, adverse changes in applicable laws or regulations and a variety of other circumstances. If the Company determines that an impairment has occurred, it is required to record a write-down of the carrying value and charge the impairment as an operating expense in the period the determination is made. In evaluating the recoverability of the carrying value of goodwill, the Company must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the acquired assets. Changes in strategy or market conditions could significantly impact those judgments in the future and require an adjustment to the recorded balances.

 

The goodwill was recorded as part of the acquisition of PrestoCorp that occurred on August 1, 2017 and iBudtender that occurred on August 8, 2016. For each of the nine months ended September 30, 2019 and 2018 the Company did not record any impairment of goodwill.  The Company recorded an impairment of its PrestoCorp goodwill in the amount of $1,173,000 during the year ended December 31, 2018.

 

Advertising Expense:

 

Advertising costs are expensed as incurred and are included in general and administrative expense in the accompanying consolidated statements of operations. Advertising costs were approximately $104,000 and $65,000 for the nine months ended September 30, 2019 and 2018, respectively.

 

Long-Lived Assets:

 

We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. We evaluate assets for potential impairment by comparing estimated future undiscounted net cash flows to the carrying amount of the assets. If the carrying amount of the assets exceeds the estimated future undiscounted cash flows, impairment is measured based on the difference between the carrying amount of the assets and fair value. Assets to be disposed of would be separately presented in the consolidated balance sheet and reported at the lower of the carrying amount or fair value less costs to sell and are no longer depreciated. The assets and liabilities of a disposal group classified as held-for-sale would be presented separately in the appropriate asset and liability sections of the consolidated balance sheet, if material. During the nine months ended September 30, 2019 and 2018 we did not recognize any impairment of our long-lived assets.

 

Stock-Based Compensation:

 

Stock-based compensation is computed in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 718. FASB ASC 718 requires all share-based payment to employees, including grants of employee stock options, to be recognized as compensation expense in the consolidated financial statements based on their fair values.  That expense will be recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period). The Company has selected the Black-Scholes option pricing model as the most appropriate fair value method for our awards and have recognized compensation costs immediately as our awards are 100% vested.  

 


14


CANNABIS SATIVA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

For the Nine Months Ended September 30, 2019 and 2018


The Company’s accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of FASB ASC 505-50.  The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor’s performance is complete.

 

In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement.  Stock-based compensation related to non-employees is accounted for based on the fair value of the related stock or options or the fair value of the services, whichever is more readily determinable in accordance with ASC 718.  

  

Business Combinations:

 

We account for business combinations by recognizing the assets acquired, liabilities assumed, contractual contingencies, and contingent consideration at their fair values on the acquisition date. The final purchase price may be adjusted up to one year from the date of the acquisition. Identifying the fair value of the tangible and intangible assets and liabilities acquired requires the use of estimates by management and was based upon currently available data. Examples of critical estimates in valuing certain of the intangible assets we have acquired or may acquire in the future include but are not limited to future expected cash flows from product sales, support agreements, consulting contracts, other customer contracts, and acquired developed technologies and patents and discount rates utilized in valuation estimates.

 

Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results. Additionally, any change in the fair value of the acquisition-related contingent consideration subsequent to the acquisition date, including changes from events after the acquisition date, such as changes in our estimate of relevant revenue or other targets, will be recognized in earnings in the period of the estimated fair value change. A change in fair value of the acquisition-related contingent consideration or the occurrence of events that cause results to differ from our estimates or assumptions could have a material effect on the consolidated statements of operations, financial position and cash flows in the period of the change in the estimate.

 

Recent Accounting Pronouncements:

 

In February 2016, the FASB issued ASU 2016-02, Leases. The standard requires lessees to recognize lease assets and lease liabilities on the consolidated balance sheet and requires expanded disclosures about leasing arrangements. We adopted the standard on January 1, 2019. Based on our assessment of the new standard on our condensed consolidated financial statements, we have concluded that there is no impact to our condensed consolidated financial statements based on the short-term nature of our leases and our election of such practical expedient.

 

In June 2018, the FASB issued ASU 2018-07, Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The update aligns the accounting for share-based payment awards issued to nonemployees with those issued to employees. Under the new guidance, the nonemployee awards will be measured on the grant date and compensation costs will be recognized when achievement of the performance condition is probable. This new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The adoption of the new guidance 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. While the Company is still in the process of completing our analysis on the impact this guidance will have on the consolidated financial statements and related disclosures, the Company does not expect the impact to be material.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework- Changes to the Disclosure Requirements for Fair Value Measurement. The update modifies the disclosure


15


CANNABIS SATIVA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

For the Nine Months Ended September 30, 2019 and 2018


requirements for recurring and nonrecurring fair value measurements, primarily those surrounding Level 3 fair value measurements and transfers between Level 1 and Level 2. The new standard is effective for fiscal years beginning after December 15, 2019, including interim periods within that reporting period. The Company is currently evaluating the new guidance and does not expect it to have a material impact on its consolidated financial statements.

In November 2018, the FASB issued ASU 2018-18, Clarifying the Interaction Between Topic 808 and Topic 606, which clarifies when transactions between participants in a collaborative arrangement are within the scope of the FASB’s revenue standard, Topic 606. This ASU becomes effective for the Company in the year ending December 31, 2020 and early adoption is permitted. The Company is currently assessing the impact that this ASU will have on its consolidated financial statements.

 

2.   Fair Value Measurements

 

We adopted ASC Topic 820 for financial instruments measured at fair value on a recurring basis. ASC Topic 820 defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States and expands disclosures about fair value measurements.

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 establishes a three-tier fair value

hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:

 

Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;

 

 

Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and 

 

Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. 

 

The estimated fair values for financial instruments are determined at discrete points in time based on relevant market information.  These estimates involve uncertainties and cannot be determined with precision.  The carrying amounts of accounts receivable, inventory, investments, notes payable, accounts payable, accrued liabilities approximate fair value given their short-term nature or effective interest rates.  We measure our investment in marketable securities at fair value on a recurring basis.  The Company’s available for sale securities are valued using inputs observable in active markets for identical securities and are therefore classified as Level 1 within the fair value hierarchy.

 

3.  Fixed Assets  

 

Property and equipment consisted of the following at September 30, 2019 and December 31, 2018:

 

 

September 30,

December 31,

 

2019

2018

Furniture and Equipment

$

16,680 

 

$

15,045 

 

Leasehold Improvements

2,500 

 

2,500 

 

 

19,180 

 

17,545 

 

Less:  Accumulated Depreciation

(13,032)

 

(10,997)

 

 

 

 

Net Property and Equipment

$

6,148 

 

$

6,548 

 

 


16


CANNABIS SATIVA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

For the Nine Months Ended September 30, 2019 and 2018


Depreciation expense for the nine months ended September 30, 2019 and 2018 was approximately $2,000 and $2,600, respectively.

 

4.  Intangibles

 

Intangibles consisted of the following at September 30, 2019 and December 31, 2018: 

 

September 30,

December 31,

 

2019

2018

 

 

 

CBDS.com website (Cannabis Sativa)

$

13,999 

 

$

13,999 

 

Intellectual Property Rights (Cannabis Sativa)

1,484,250 

 

1,484,250 

 

Intellectual Property Rights Vaporpenz (Cannabis Sativa)

210,100 

 

210,100 

 

Intellectual Property Rights (iBudtender)

330,000 

 

330,000 

 

Intellectual Property Rights (PrestoCorp)

240,000 

 

240,000 

 

Patents and Trademarks (Cannabis Sativa)

8,410 

 

8,410 

 

Patents and Trademarks (Wild Earth)

4,425 

 

4,425 

 

Patents and Trademarks (KPAL)

1,410,000 

 

1,410,000 

 

 

3,701,184 

 

3,701,184 

 

Less:  Accumulated Amortization

(1,826,302)

 

(1,407,083)

 

 

 

 

Net Intangible Assets

$

1,874,882 

 

$

2,294,101 

 

 

Amortization expense for each of the nine months ended September 30, 2019 and 2018 was approximately $419,000.   

 

Amortization for each of the next 5 years approximates:

2020

$559,000 

2021

$499,000 

2022

$367,000 

2023

$342,000

2024

$108,000

 

5.  Related Parties

 

The Company has received advances from related parties and officers of the Company to cover operating expenses. As of September 30, 2019 and December 31, 2018, net amounts due to the related parties were $987,583 and $926,638, respectively. During the nine months ended September 30, 2019 and 2018, the Company has imputed interest on these advances at 5% per annum and has recorded interest expense related to these balances in the amount of $36,000 and $-0-, respectively which is included in accounts payable and accrued expenses in the accompanying condensed consolidated balance sheet. Prior to January 1, 2019 interest on these notes was calculated and posted to the note balances annually.  

 

At September 30, 2019 and December 31, 2018, the Company had a note payable to the founder of iBudtender of $10,142 and $9,197, respectively, which is included in Due to Related Parties in the accompanying consolidated balance sheet. The note earns interest at 0% and is due in December 2019.

 

During the nine months ended September 30, 2019 and 2018, the Company incurred approximately $50,000 and $33,000, respectively, which was included general and administrative expenses in the accompanying condensed consolidated statement of operations, for consulting services from a relative of the Company’s president.

 

6.  Stockholders’ Equity

 

Preferred Stock


17


CANNABIS SATIVA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

For the Nine Months Ended September 30, 2019 and 2018


The Company authorized 5,000,000 shares of preferred stock.  The Company designated and determined the rights of Series A preferred stock (“Series A”) with a par value of $0.001.  The Company is authorized to issue 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.

 

During the three and nine months ended September 30, 2019, the board of directors had approved the issuance of 74,925 and 115,871 shares of preferred stock for services in the amount of approximately $108,000 that was recorded in stock payable at December 31, 2018 and for current period services of approximately $208,000, respectively. The fair value of the shares issued was based on the market price of the related number of shares of Company’s common stock.  The preferred stock is immediately convertible into common stock and the rights of the preferred are similar to those of common.

 

Common Stock 

As of September 30, 2018 the board of directors had approved the issuance of 94,060 and 335,415 shares of common stock for services in the amount of approximately $486,000 that was recorded in stock payable at December 31, 2017 and for current year services in the amount of approximately $1,238,000, respectively. The fair value of the shares issued was based on the market price of the Company’s common stock on the measurement date.

 

As of September 30, 2018, approximately $202,000 in cash had been received for 101,000 outstanding warrants exercised at $2.00 each. 101,000 shares of common stock were issued.  

 

During the nine months ended September 30, 2018, 332,447 shares common stock were returned in connection with a previous issuance of stock for services due to the non performance of a marketing vendor.  The total value of the transaction in the amount of approximately $991,000 was reversed with $103,197 reported as income in the statement of operations reducing general and administrative expense since the vendor never performed and this amount represented the amount that was expensed in the prior period.

 

As of September 30, 2019 and December 31, 2018, the Company had outstanding warrants to purchase 49,900 shares of the Company’s common stock. The exercise price of the warrants was $2.00 per share. All warrants are exercisable and expire February 1, 2020.  The intrinsic value of outstanding warrants as of September 30, 2019 and December 31, 2018 is approximately $-0-.

 

During the nine months ended September 30, 2019, the board of directors had approved the issuance of 127,061 shares of common stock for services in the amount of approximately $347,000 that was recorded in stock payable at December 31, 2018. The fair value of the shares issued was based on the market price of the Company’s common stock on the measurement date.

 

During the nine months ended September 30, 2019, the board of directors approved the issuance of 348,885 shares of common stock for services in the amount of approximately $668,000. The fair value of the shares issued was based on the market price of the Company’s common stock on the measurement date.

 

During the nine months ended September 30, 2019, the Company received 70,000 shares of common stock that were returned by iBudtender in relation to the amended purchase contract that was effective July 2018.  Based on the related party nature of the transaction, no gain or loss was recorded such value was recorded as a capital transaction at par value. The reason for the return of the shares was due to the amended contract.

 

7.  Going Concern Considerations

The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying consolidated financial statements, the Company has minimal working capital, has incurred operating losses since inception, and has not yet produced significant continuing revenues from operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

 


18


CANNABIS SATIVA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

For the Nine Months Ended September 30, 2019 and 2018


The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event that the Company cannot continue as a going concern. Management anticipates that it will be able to raise additional working capital through the issuance of stock and through additional loans from investors. 

 

The ability of the Company to continue as a going concern is dependent on its ability to raise adequate capital to fund operating losses until it is able to engage in profitable business operations. To the extent financing is not available, the Company may not be able to, or may be delayed in, developing its services and meeting its obligations. The Company will continue to evaluate its projected expenditures relative to its available cash and to evaluate additional means of financing in order to satisfy its working capital and other cash requirements. The accompanying condensed consolidated financial statements do not reflect any adjustments that might result from the outcome of these uncertainties.

 

8.  Commitments and Contingencies

Lease

The Company leases an office and warehouse facility in Mesquite, Nevada that serves as the principal executive offices and provides manufacturing and warehouse space. The leased space consists of approximately 900 square feet. On September 1, 2018, a new lease agreement was signed at a monthly rate of $600.  Lease term is for 12 (twelve) months, which expired in September 2019. The Company renewed their lease in Mesquite, Nevada in November 2019.  Monthly rate is still $600 but the lease is now on a month to month basis.  Rent expense for the nine months ended September 30, 2019 and 2018 was $5,400 and $11,700, respectively. PrestoCorp leases office space in San Francisco at $2,800 per month and $800 per month for a New York office. PrestoCorp terminated its lease and closed its office in San Francisco as of the end of February 2019.  Primary operations for Presto are now focused in New York City.  Rent expense for the nine months ended September 30, 2019 and 2018 was $24,000 and $34,000, respectively.

 

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. Management believes the outcomes of currently pending claims are not likely to have a material effect on our consolidated financial position and results of operations.

 

Stock Payable

As of September 30, 2019 and December 31, 2018 the Company recorded approximately $466,000 and $532,000, respectively, of stock payable related to common and preferred stock to be issued.  The following summary approximates the activity of stock payable during the nine months ended September 30, 2019:

 

 

 

 

 

Beginning Balance – January 1, 2019

$

532,000 

 

Additions, net of recovery

1,122,000 

 

Issuances

(1,188,000)

 

 

 

Ending Balance –September 30, 2019 

$

466,000 

 

 

Indemnities

The Company’s Articles of Incorporation and bylaws require us, among other things, to indemnify the director or officer against specified expenses and liabilities, such as attorneys’ fees, judgments, fines and settlements, paid by the individual in connection with any action, suit or proceeding arising out of the individual’s status or service as our director or officer, other than liabilities arising from willful misconduct or conduct that is knowingly fraudulent or deliberately dishonest, and to advance expenses incurred by the individual in connection with any proceeding against the individual with respect to which the individual may be entitled to indemnification by us. We also indemnify our lessor in connection with our facility lease for certain claims arising from the use of the facilities. These indemnities


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CANNABIS SATIVA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

For the Nine Months Ended September 30, 2019 and 2018


do not provide for any limitation of the maximum potential future payments we could be obligated to make. Historically, we have not incurred any payments for these obligations and, therefore, no liabilities have been recorded for these indemnities in the accompanying condensed consolidated balance sheets. 

 

9.   Subsequent Events

For the period October 1, 2019 through November 10, 2019, the Company issued 377,052 shares of common stock and 107,143 shares of preferred stock, with an aggregate value of approximately $466,000 (based on the respective measurement dates), to consultants and officers for services rendered in the 2nd and 3rd quarter of 2019.  The value of 377,052 shares of common stock and 107,143 shares of preferred stock were included in stock payable at September 30, 2019 for services rendered prior to that date. 

 

In October 2019, the Company signed an agreement to acquire an interest in the assets of GK Marketing & Media, of California, for $500,000 cash to be paid into NEWCO and 100,000 shares of the Company’s common stock to be paid to the sellers. The Company will pay $150,000 cash to the NEWCO at closing from cash on hand and proceeds of a PPM. The balance of $350,000 payable over the following 60-180 days will be paid from proceeds of a PPM. Additional stock payments of up to $1.5 million are payable to the sellers based on achievement of revenue targets in 2020.  The deal is expected to close on or before November 30, 2019.

 

Mr. Stephen Downing the Company’s Chairman of the Board and board of director resigned on October 16, 2019.  

 

In October 2019 the Company elected to cancel the remaining 30,000 shares of common stock held by its iBudtender subsidiary, and direct commensurate resources to further consulting activities for completion of the software platform.

 

In October 2019, the board of directors approved a grant of 10,000 shares of the Company’s restricted common stock to a manager of PrestoDoctor.  

 

The Company also approved a private placement memorandum (PPM) of up to 800,000 shares of restricted common stock at $0.40 per share for use in acquisition financing.


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