10-Q 1 cbds_10q.htm CANNABIS SATIVA, INC. - FORM 10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

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: March 31, 2021

or

 

 

¨

 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.)

 

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)

 

 

 

 

 

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

 

Title of each class

Trading Symbol

Name of each exchange on which registered.

None

 

 

 

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 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


1


 

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

 

 

 

 

 

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐ Yes ☒ No 

 

The number of shares of the issuer's Common Stock outstanding as of May 10, 2021, is 28,731,622.


2


 

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 March 31, 2021 compared with the Three Months Ended March 31, 2020

 

The Company operates two business segments: PrestoCorp, Inc. (“PrestoCorp”), a telehealth business, and GK Manufacturing and Packaging, Inc. (“GKMP”), a contract manufacturing business.  The results of PrestoCorp and GKMP are consolidated in the Company’s financial statements. Discussion of results of operations includes the consolidated results and the business segment results in the following sections.

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

A

 

B

 

A-B

 

March 31, 2021

March 31, 2020

Change

Change %

REVENUE

$          557,323

 

$          493,140

 

$            64,183

13%

Cost of revenues

            265,014

 

            187,335

 

              77,679

41%

Cost of sales % of total sales

48%

 

38%

 

10%

 

Gross profit

            292,309

 

            305,805

 

             (13,496)

-4%

Gross profit % of sales

52%

 

62%

 

-10%

 

OPERATING EXPENSES

 

 

 

 

 

 

Professional fees

            119,739

 

            279,086

 

           (159,347)

-57%

Depreciation and amortization

              47,582

 

              51,635

 

               (4,053)

-8%

Wages and salaries

            208,462

 

            184,909

 

              23,553

13%

Advertising

              93,449

 

              87,088

 

                6,361

7%

General and administrative

            457,792

 

            375,862

 

              81,930

22%

Total operating expenses

            927,024

 

            978,580

 

             (51,556)

-5%

NET LOSS FROM OPERATIONS

           (634,715)

 

           (672,775)

 

              38,060

-6%

 

 

Revenues grew 13% in the three months ended March 31, 2021 compared to the three months ended March 31, 2020.  Revenues in the first quarter of 2021 increased primarily due to growth in revenue of GKMP.  GKMP began operations in the first quarter of 2020 and reported nominal revenues in that quarter.  Revenues reported by GKMP were up 374% in the first quarter of 2021 compared the first quarter of 2020.  GKMP operations however, has not achieved positive margins and the increase in revenue did not support the added cost of the contract manufacturing operations. As a result, margins decreased in the three months ended March 31, 2021 compared to the same period in 2020. See discussion under Business Segments, below.   


3


 

Net operating loss for the three-month period ended March 31, 2021 was $634,715 compared to net loss of $672,775 for the three-month period ended March 31, 2020.  Total operating expenses were $927,024 for the three-month period ended March 31, 2021 and $978,580 for the three-month period ended March 31, 2020.  The decrease in total operating costs was largely attributable to a significant reduction of 57% in professional fees partially offset by a 22% increase in general and administrative expenses and a 13% increase in wages and salaries brought on by the addition of GKMP operations. The increase in general and administrative expenses was primarily the result of compensation paid to the principals of PrestoCorp.

 

Business Segment Results.

 

 

 

 

 

 

 

 

Three months ended

 

 

A

 

B

 

A-B

PRESTOCORP

March 31, 2021

March 31, 2020

Change

Change %

REVENUE

$  482,350

 

$  478,231

 

$    4,119

1%

Cost of revenues

    183,503

 

    183,874

 

       (371)

0%

Cost of revenues % of total sales

38%

 

38%

 

0%

 

Gross profit

    298,847

 

    294,357

 

      4,490

2%

Gross profit % of sales

62%

 

62%

 

0%

 

 

 

 

 

 

 

 

PrestoCorp revenues increase slightly in the first quarter of 2021 compared to the same period in 2020.  The relatively flat change in sales was the result of a revenue spike in the first quarter of 2020 when the COVID 19 pandemic was starting, telehealth regulations had begun to ease, and the Company had expanded its market footprint.  That rapid rise in 2020 was not sustained in 2021, primarily due to a leveling off of demand after the 2020 rush. Management expects that growth in demand for our services will be slower than in 2020 but we expect to see continued growth through the remainder of the year as we expand into new states that recently legalized medical marijuana and as consumers continue to be more accepting of telehealth services. Margins were consistent with prior periods at 62% of revenue.

 

 

Three months ended

 

 

 

 

A

 

B

 

A-B

GKMP

March 31, 2021

March 31, 2020

Change

Change %

REVENUE

$    74,973

 

$    15,830

 

$ 59,143

374%

Cost of revenues

      81,511

 

         3,461

 

    78,050

2255%

Cost of revenues % of total sales

109%

 

22%

 

87%

 

Gross profit (loss)

       (6,538)

 

      12,369

 

  (18,907)

-153%

Gross profit % of sales

-9%

 

78%

 

-87%

 

 

GKMP was newly organized in the first quarter of 2020 and reported only nominal revenues in the three months ended March 31, 2020. While revenue grew by 374% in the first quarter of 2021, cost of sales increased by 2255% and GKMP generated negative gross margins. The Company experienced headwinds from the COVID 19 pandemic which were reflected in slow sales as customers delayed buying decisions while they assessed market demand for their products.  As a result, GKMP has operated at a loss since inception and currently does not have sufficient business to achieve profitability.

 

While management of GKMP reports sales opportunities in 2021, they have yet to turn into firm orders and there is substantial uncertainty regarding the timing when GKMP will be able to achieve breakeven results.  Management of CBDS is currently evaluating options, including sale of CBDS’s 51% ownership of GKMP to another public company, and it appears likely that this sale will occur in the second quarter 2021.  If the discussions regarding sale of GKMP are finalized, CBDS will exit the contract manufacturing space.

 

In April 2021, the Company entered into discussions with THC Farmaceuticals, Inc. (“CBDG”) a company related to CBDS through interlocking ownership by David Tobias, president, regarding sale of CBDS’s majority ownership positions in GK Manufacturing and Packaging, Inc. and iBudtender Inc. The discussions were triggered by an interest on the part of CBDS management to refocus business efforts on growing PrestoCorp while simplifying the financial statements by eliminating assets that are no longer considered essential to the Company’s core focus.  Management believes that the sale of GKMP and iBudtender will free up management time to seek other acquisitions that are more closely aligned with the PrestoCorp business model.  The agreement with CBDG has not yet been finalized pending completion of additional due diligence review by both CBDS and CBDG, but it is likely that the sale will be finalized in the second quarter of 2021. Consideration for the sale of the majority interests will consist of 1,500,000 shares of CBDG preferred stock and 1,500,000 shares of CBDG common stock.  The due diligence investigation on this sale is ongoing.


4


 

 

Liquidity and Capital Resources

 

Net cash used in operating activities for the three-month period ended March 31, 2021, was $87,217.  During the same period, our cash decreased by $13,459.  Financing activities generated $73,758 in the three months from advances from related parties totaling $48,258, from related party notes payable totaling $20,500, and from the sale of common stock totaling $5,000.  We also reported stock-based compensation of $489,986 during the three-month period from issuance of common and preferred stock as compensation for services performed by officers, directors, and contractors. On March 31, 2021, our cash position was $308,648. Given the level of operations in our first quarter, we expect that additional funds will be required.

 

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 net losses attributable to Cannabis Sativa, Inc. of $419,990 and $616,407, respectively, for the three-month periods ended March 31, 2021 and 2020, and had an accumulated deficit of $77,448,329 as of March 31, 2021, which, among other factors, raises substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to generate profitable operations in the future and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they are due.

 

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. We are also currently selling a portion of our investment securities to generate cash for operations. Based on all these considerations, we believe we will have sufficient capital to operate the business for the next twelve months. It will be important for the Company to be successful in its efforts to raise capital 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

 

COVID-19 has been 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. The pandemic has had a positive impact on the telehealth business, but this positive impact was partially offset by a negative impact on our start-up operations in GKMP. If the severity of the economic disruptions increase as the duration of the COVID-19 pandemic continues, the negative financial impact due to reduced demand could be significantly greater in future periods than in the first quarter.

 

The effects of the continued outbreak of COVID-19 and related government responses could also include extended disruptions to supply chains and capital markets, reduced labor availability and a prolonged reduction in economic activity. These effects could have a variety of adverse impacts on 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.


5


 

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 March 31, 2021 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 March 31, 2021, the board of directors issued 669,301 shares of unregistered common stock and 73,530 shares of unregistered preferred stock to seven persons/entities in exchange for services rendered to the Company. These unregistered shares were in addition to an aggregate of 209,701 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 the shares became issuable. The company also issued 10,466 shares to one individual pursuant to their investment in a private offering. 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/or 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.


6


 

 

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 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.    


7


 

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:  May 17, 2021

 

By:  /s/ David Tobias

 

David Tobias, Chief Executive Officer

 

 

 

 

By:  /s/ Brad E. Herr

 

Brad E. Herr, Chief Financial Officer and

 

Principal Accounting Officer

 


8


CANNABIS SATIVA, INC.

 

Contents

 

 

Page

 

 

FINANCIAL STATEMENTS - UNAUDITED – for the three months ended March 31, 2021 and 2020:

 

 

 

Condensed Consolidated balance sheets

FS - 2

 

 

Condensed Consolidated statements of operations

FS - 3

 

 

Condensed Consolidated statements of changes in stockholders’ equity

FS - 4

 

 

Condensed Consolidated statements of cash flows

FS - 5

 

 

Notes to Condensed consolidated financial statements

FS – 6
through
FS – 20


FS - 1


CANNABIS SATIVA, INC.

 

CONDENSED CONSOLIDATED BALANCE SHEETS – UNAUDITED


 

March 31,

 

December 31,

 

2021

 

2020

ASSETS

 

 

 

Current Assets

 

 

 

Cash

$308,648  

 

$322,107  

Accounts receivable, net

2,495  

 

2,495  

Inventories

29,435  

 

56,485  

Investment in equity security, at fair value

346,000  

 

195,000  

 Other current assets

61,132  

 

55,199  

Total Current Assets

747,710  

 

631,286  

 

 

 

 

Other Assets

 

 

 

 

 

 

 

Property and equipment, net

184,895  

 

199,120  

Intangible assets, net

447,661  

 

489,946  

Deposits and other assets

9,250  

 

9,250  

Right to use asset

43,796  

 

47,312  

Goodwill

1,837,202  

 

1,837,202  

 

 

 

 

Total Assets

$3,270,514  

 

$3,214,116  

 

 

 

 

LIABILITIES AND STOCKHOLDERS EQUITY

 

 

 

Current Liabilities

 

 

 

Accounts payable

$198,116  

 

$179,200  

Accrued interest - related parties

158,875  

 

144,024  

Advances from related parties

67,058  

 

18,800  

Notes payable to related parties

1,181,520  

 

1,161,020  

Customer deposits

- 

 

25,545  

Operating lease liability - current

35,672  

 

31,891  

Total Current Liabilities

1,641,241  

 

1,560,480  

 

 

 

 

Long-Term Liabilities

 

 

 

Operating lease liability - long term

8,124  

 

15,421  

 

 

 

 

Total Liabilities

1,649,365  

 

1,575,901  

 

 

 

 

Commitments and contingencies (Notes 7 and 9)

 

 

 

 

 

 

 

Stockholders' Equity:

 

 

 

Preferred stock $0.001 par value; 5,000,000 shares authorized;
995,692 and 1,090,128 issued and outstanding, respectively

996  

 

1,090  

Common stock $0.001 par value; 45,000,000 shares authorized;
28,455,056 and 27,453,178 shares issued and outstanding, respectively

28,455  

 

27,455  

Additional paid-in capital

78,134,094  

 

77,660,014  

Accumulated deficit

(77,448,329) 

 

(77,028,339) 

 

 

 

 

Total Cannabis Sativa, Inc. Stockholders' Equity  

715,216  

 

660,220  

 

 

 

 

Non-Controlling Interests

905,933  

 

977,995  

 

 

 

 

Total Stockholders' Equity

1,621,149  

 

1,638,215  

 

 

 

 

Total Liabilities and Stockholders' Equity

$3,270,514  

 

$3,214,116  

 

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


FS - 2


CANNABIS SATIVA, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED


For the three months ended March 31,

2021

 

2020

 

 

 

 

Revenues

$557,323  

 

$493,140  

 

 

 

 

Cost of Revenues

265,014  

 

187,335  

 

 

 

 

Gross Profit

292,309  

 

305,805  

 

 

 

 

Operating Expenses

 

 

 

Professional fees

119,739  

 

279,086  

Depreciation and amortization

47,582  

 

51,635  

Wages and salaries

208,462  

 

184,909  

Advertising

93,449  

 

87,088  

General and administrative

457,792  

 

375,862  

 

 

 

 

Total Operating Expenses

927,024  

 

978,580  

 

 

 

 

Loss from Operations

(634,715) 

 

(672,775) 

 

 

 

 

Other (Income) and Expenses

 

 

 

Unrealized gain on investment

(151,000) 

 

(19,000) 

Interest expense

8,337  

 

13,552  

 

 

 

 

Total Other (Income) Expenses, Net

(142,663) 

 

(5,448) 

 

 

 

 

Loss Before Income Taxes

(492,052) 

 

(667,327) 

 

 

 

 

Income Taxes

—   

 

—   

 

 

 

 

Net Loss for the period

(492,052) 

 

(667,327) 

Loss attributable to non-controlling interest -     GK Manufacturing

(79,495) 

 

(54,353) 

Loss attributable to non-controlling interest - iBudTender

(970) 

 

(969) 

Income attributable to non-controlling interest - PrestoCorp

8,403  

 

4,402  

 

 

 

 

Net Loss for the Period Attributable To Cannabis Sativa, Inc.

$(419,990) 

 

$(616,407) 

 

 

 

 

Net Loss for the Period per Common Share:

 

 

 

Basic & Diluted

$(0.02) 

 

$(0.03) 

 

 

 

 

Weighted Average Common Shares Outstanding:

 

 

 

Basic & Diluted

27,988,129  

 

23,510,224  

 

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


FS - 3


CANNABIS SATIVA, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2021 AND 2020 - UNAUDITED


 

 

Preferred Stock

 

Common Stock

 

Additional Paid-In

 

Accumulated

 

Non-
controlling
Interest -

 

Non-
controlling
Interest

 

Non
-controlling Interest - GK

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Deficit

 

Prestocorp

 

iBudTender

 

Manufacturing

 

Total

Balance - January 1, 2020

1,021,849  

 

$1,021  

 

22,224,199  

 

$22,226  

 

$74,834,032  

 

$(74,855,147) 

 

$1,107,480 

 

$51,142  

 

$ 

 

1,160,754  

Conversion of preferred to common

(80,337) 

 

(80) 

 

80,337  

 

80  

 

—   

 

—   

 

—   

 

—   

 

—   

 

—   

Acquisition of GKMP assets

—   

 

—   

 

100,000  

 

100  

 

108,900  

 

—   

 

—   

 

—   

 

104,725  

 

213,725  

Shares issued for services

89,286  

 

89  

 

973,380  

 

973  

 

591,013  

 

—   

 

—   

 

—   

 

—   

 

592,075  

Shares issued for stock payable

223,214  

 

223  

 

963,238  

 

963  

 

639,499  

 

—   

 

—   

 

—   

 

—   

 

640,685  

Net income (loss) for the period

—   

 

—   

 

—   

 

—   

 

—   

 

(616,407) 

 

4,402 

 

(969) 

 

(54,353)  

 

(667,327) 

Balance - March 31, 2020

1,254,012  

 

1,253  

 

24,341,154  

 

24,342  

 

76,173,444  

 

(75,471,554) 

 

1,111,882 

 

50,173  

 

50,372  

 

1,939,912  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - January 1, 2021

1,090,128  

 

1,090  

 

27,453,178  

 

27,455  

 

77,660,014  

 

(77,028,339) 

 

1,193,798 

 

47,264  

 

(263,067) 

 

1,638,215  

Conversion of Preferred to Common

(167,966) 

 

(167) 

 

167,966  

 

167  

 

—   

 

—   

 

—   

 

—   

 

—   

 

—   

Cash proceeds from sale of stock

—   

 

—   

 

10,466  

 

10  

 

4,990  

 

—   

 

—   

 

—   

 

—   

 

5,000  

Shares issued for services

73,530  

 

73  

 

879,002  

 

880  

 

489,033  

 

—   

 

—   

 

—   

 

—   

 

489,986  

Shares cancelled

—   

 

—   

 

(55,556) 

 

(57) 

 

(19,943) 

 

—   

 

—   

 

—   

 

—   

 

(20,000) 

Net income (loss) for the period

—   

 

—   

 

—   

 

—   

 

—   

 

(419,990) 

 

8,403 

 

(970) 

 

(79,495) 

 

(492,052) 

Balance - March 31, 2021

995,692  

 

$996  

 

28,455,056  

 

$28,455  

 

$78,134,094  

 

$(77,448,329) 

 

$1,202,201 

 

$46,294  

 

$(342,562) 

 

$1,621,149  

 

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


FS - 4


CANNABIS SATIVA, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED


For the three months ended March 31,

2021

 

2020

 

 

 

 

Cash Flows from Operating Activities:

 

 

 

Net loss

$(492,052) 

 

$(667,327) 

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

 

 

 

Unrealized gain on investment

(151,000) 

 

(19,000) 

Cancellation of shares for services

(20,000) 

 

—   

Depreciation and amortization

47,582  

 

51,635   

Depreciation included in cost of revenues

8,929  

 

—   

Stock issued for services

489,986  

 

592,075  

Changes in Assets and Liabilities:

 

 

 

Accounts receivable

—   

 

(30) 

Inventories

27,050   

 

(16,905) 

Prepaid consulting and other current assets

(5,933)  

 

(5,824) 

Deposits and other assets

—   

 

(53,000) 

Accounts payable and accrued expenses

18,915  

 

10,979  

Accrued interest - related parties

14,851  

 

12,788  

Customer deposits

(25,545) 

 

                      — 

Net Cash Used by Operating Activities

(87,217) 

 

(94,609) 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

Purchase of fixed assets

—   

 

(11,867) 

Advance to GK settled with asset acquisition

—   

 

50,000  

Net Cash Used in Investing Activities

—   

 

38,133  

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

Proceeds from sale of stock

5,000  

 

—   

Proceeds from advances from related parties

48,258  

 

—   

Proceeds from related parties notes payable, net

20,500  

 

65,500  

Net Cash Provided by Financing Activities

73,758  

 

65,500  

 

 

 

 

NET CHANGE IN CASH

(13,459) 

 

9,024  

 

 

 

 

CASH AT BEGINNING OF PERIOD

322,107  

 

336,107  

 

 

 

 

CASH AT END OF PERIOD

$308,648  

 

$345,131  

 

 

 

 

Noncash investing and financing activities:

 

 

 

Net asset acquisition acquired with shares of common stock

$ 

 

$213,725  

Common stock issued from stock payable

$ 

 

$640,685  

Operating lease liablility from acquiring right to use asset

$ 

 

$21,120  

 

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


FS - 5


CANNABIS SATIVA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

For the three-month periods ended March 31, 2021 and 2020


1. Organization and Summary of Significant Accounting Policies

 

Nature of Business:

 

Cannabis Sativa, Inc. (the “Company,” “us”, “we” or “our”) was incorporated as Ultra Sun Corp. under the laws of Nevada in November 2004.  On November 13, 2013, we changed our name to Cannabis Sativa, Inc.  We operate through several subsidiaries including PrestoCorp, Inc. (“PrestoCorp”), iBudtender, Inc. (“iBudtender”), Wild Earth Naturals, Inc. (“Wild Earth”), Kubby Patent and Licenses Limited Liability Company, (“KPAL”), Hi Brands, International, Inc. (“Hi Brands”), GK Manufacturing and Packaging, Inc. (“GKMP”), and Eden Holdings LLC (“Eden”).  PrestoCorp and GK Manufacturing are both 51% owned subsidiaries and iBudtender is a 50.1% owned subsidiary. Wild Earth, KPAL, Hi Brands, and Eden are wholly owned subsidiaries. Currently, PrestoCorp, GKMP and iBudtender are operating subsidiaries, although iBudtender is not currently generating any revenue. The Company is reviewing opportunities for business development relating to Wild Earth, KPAL, and Hi Brands. Eden is not operating and had no activity for the three months ended March 31, 2021 and 2020.

 

Our primary operations in the three months ended March 31, 2021 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.

 

Basis of Presentation

 

Operating results for the three months ended March 31, 2021, may not be indicative of the results expected for the full year ending December 31, 2021. For further information, refer to the financial statements and notes thereto in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

 

The interim financial statements should be read in conjunction with audited financial statements and related footnotes set forth in our annual report filed on Form 10-K for the year ended December 31, 2020 as filed with the United States Securities and Exchange Commission on April 16, 2021.

 

In the opinion of management, the accompanying unaudited financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of the Company's financial position as of March 31, 2021, and its results of operations, cash flows, and changes in stockholders’ equity for the three months ended March 31, 2021. The financial statements do not include all of the information and notes required by GAAP for complete financial statements.


FS - 6


CANNABIS SATIVA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

For the Three Months Ended March 31, 2021 and 2020


Principles of Consolidation:

 

The condensed consolidated financial statements include the accounts of Cannabis Sativa, Inc. (the “Company” or “CBDS”), and its wholly-owned subsidiaries; Wild Earth Naturals, Inc., Hi-Brands International, Inc., Eden Holdings LLC, our 50.1% ownership of iBudtender Inc., our 51% ownership of PrestoCorp, and our 51% ownership of GK Manufacturing Inc., (collectively referred to as the “Company”).  All significant inter-company balances have been eliminated in consolidation. We hold controlling interests in iBudTender, PrestoCorp and GK Manufacturing and exercise control through management practices and oversight by the Company’s Board of Directors.  GK Manufacturing was established in February 2020.

 

Going Concern:

 

The Company has an accumulated deficit of $77,448,329 at March 31, 2021, which, among other factors, raises substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to generate profitable operations in the future and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they are due.

 

Use of Estimates:

 

The preparation of financial statements in conformity with accounting principles generally accepted in the Unites States (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Significant estimates and assumptions by management affect the allowance for doubtful accounts, possible impairment of long-lived assets (including goodwill and intangible assets), the provision for income taxes and related deferred tax accounts, contingencies, and the value attributed to stock-based awards.

 

Inventories:

 

As of March 31, 2021 and December 31, 2020, the Company had $29,435 and $56,485, respectively, in inventory relating to GKMP which consists of the raw materials and packaging used to manufacture cannabidiol (“CBD”) infused products for our customers.

 

Net Loss per Share:

 

Net loss per share is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding for the period and contains no dilutive securities. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of the Company.  Potentially dilutive shares are excluded from the calculation of diluted net loss per share because the effect is anti-dilutive. At March 31, 2021 and 2020 the Company had 125,000 and 49,900 outstanding warrants, respectively, that would be dilutive to future periods net income. Also, at March 31, 2021 and 2020 the Company had 995,692 and


FS - 7


CANNABIS SATIVA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

For the Three Months Ended March 31, 2021 and 2020


1,254,012 shares of convertible Series A preferred stock, respectively, that would be dilutive to future periods net income.

 

Revenue Recognition:

 

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

 

The telehealth division generates revenue based on a per telehealth visit for clients looking to obtain a permit to use marijuana for medical purposes in states that have legalized medical marijuana. Revenues are recognized when the Company satisfies its performance obligation to provide telehealth services upon a referral to a contracted physician. The obligation to perform the referral and the referral are automated and occur at the same time an online client subscribes for the visit and gains access to our network of health care professionals. Recognition of revenue is not dependent on the issuance of a marijuana card since issuance of the card is dependent on health and other factors beyond our control. This initial service is a one-time referral to a physician. Clients may return for other telehealth consultations, typically regarding product recommendations, and such additional physician referrals are provided at an additional cost. The billing and payment processes for each physician referral are automated through our online platform. Revenue is recognized in an amount that reflects the consideration that is received in exchange for each physician referral provided to the client.

 

The contract manufacturing division recognizes revenue from manufacturing operations when the products are shipped to the customer. In some instances, customers provide inventory for the manufacturing process and GKMP provides labor, supplies and manufacturing operations to mix and package the products.  Revenues are recognized when the manufacturing and packaging process are completed and the goods have been shipped to the customer.  In other instances, the Company acquires inventory and manufactures products for customers and/or to hold in inventory for later sale to customers through the GKMP on-site dispensary, through the GKMP online store, or to independent distributors. In these instances, revenue is recognized when the product is shipped to the customer or distributor.  Shipment terms are FOB origination.

 

Provision for sales incentives, discounts and returns and allowances, if applicable, are accounted for as reductions of revenue in the period the related sales are recorded. The Company had no warranty costs associated with the sales of its products.

 

Intangible Assets and Goodwill:

 

Intangible asset amounts represent the acquisition date fair values of identifiable intangible assets acquired. The fair values of the intangible assets were determined by using the income approach, discounting projected future cash flows based on management’s expectations of the current and future operating environment. The rates used to discount projected future cash flows reflected a weighted average cost of capital based on our industry, capital structure and risk premiums including those reflected in the current market capitalization. Definite-lived intangible assets are amortized over their useful lives, which have historically ranged from 5 to 10 years. The carrying


FS - 8


CANNABIS SATIVA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

For the Three Months Ended March 31, 2021 and 2020


amounts of our definite-lived intangible assets are evaluated for recoverability whenever events or changes in circumstances indicate that the entity may be unable to recover the asset’s carrying amount.   At March 31, 2021 and December 31, 2020, we do not have any indefinite-lived intangible assets.

 

Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in a business combination. Goodwill is not amortized but is tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset may be impaired. To assess impairment, the fair value of the reporting unit is evaluated on qualitative factors.  If the qualitative factors indicate a likelihood of impairment, we then evaluate carrying value of the reporting unit based on quantitative factors using the income approach. A goodwill impairment loss is recognized for the excess of the carrying value of goodwill for the reporting unit over its implied fair value.

 

Recent Accounting Pronouncements:

 

Accounting Standards Updates Adopted

 

In December 2019, the FASB issued ASU No. 2019-12 Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The update contains a number of provisions intended to simplify the accounting for income taxes. Adoption of this update on January 1, 2021 had no  impact on the Company’s condensed consolidated financial statements.

 

Accounting Standards Updates to Become Effective in Future Periods

 

In August 2020, the FASB issued ASU No. 2019-12 Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The update is to address issues identified as a result of the complexity associated with applying generally accepted accounting principles for certain financial instruments with characteristics of liabilities and equity. The update is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years and with early adoption permitted. Management is evaluating the impact of this update on the Company’s condensed consolidated financial statements.

 

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption.


FS - 9


CANNABIS SATIVA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

For the Three Months Ended March 31, 2021 and 2020


2.  Property and Equipment

 

Property and equipment consisted of the following at March 31, 2021 and December 31, 2020:

 

 

March 31, 2021

December 31, 2020

Furniture and Equipment

$225,629  

$225,629  

Leasehold Improvements

17,315  

17,315  

 

242,944  

242,944  

Less:  Accumulated Depreciation

(58,049) 

(43,824) 

Net Property and Equipment

$184,895  

$199,120  

 

Depreciation expense for the three months ended March 31, 2021 and 2020 was $14,226 and $317, respectively.

 

3.  Intangibles and Goodwill

 

All of the Company’s intangibles are definite-lived assets with lives of 5 to 10 years. Intangibles consisted of the following at March 31, 2021 and December 31, 2020:

 

 

March 31, 2021

December 31, 2020

CBDS.com website (Cannabis Sativa)

$13,999  

$13,999  

Intellectual Property Rights (PrestoCorp)

240,000  

240,000  

Patents and Trademarks (KPAL)

1,281,411  

1,281,411  

Total Intangibles

1,535,410  

1,535,410  

Less:  Accumulated Amortization

(1,087,749) 

(1,045,464) 

Net Intangible Assets

$447,661  

$489,946  

 

Amortization expense for the three months ended March 31, 2021 and 2020 was $42,285 and $51,318, respectively.

 

Amortization of intangibles for each of the next five years is:

 

2022

$169,142

2023

157,501

2024

116,115

2025

932

2026

932

 

Goodwill in the amount of $3,010,202 was recorded as part of the acquisition of PrestoCorp that occurred on August 1, 2017.  Cumulative impairment of the PrestoCorp goodwill totals $1,173,000 as of March 31, 2021 and December 31, 2020. The balance of goodwill at March 31, 2021 and December 31, 2020 was $1,837,202 and $1,837,202, respectively.


FS - 10


CANNABIS SATIVA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

For the Three Months Ended March 31, 2021 and 2020


There were no additions, deletions, and impairments recognized in the three months ended March 31, 2021 and 2020. The Company considered the impact of COVID-19 on intangible assets at March 31, 2021 and December 31, 2020 and concluded that annual impairment analysis is not necessary.

 

4.  Related Party Transactions

 

The Company has received funds from borrowings on notes payable and advances from related parties and officers to cover operating expenses. Related parties include the officers and directors of the Company and a significant shareholder holding in excess of 10% of the Company’s outstanding shares. During the three months ended March 31, 2021 and 2020, the Company recorded interest expense related to these advances at the rates between 5% and 8% per annum and in the amounts of $8,337 and $13,552, respectively.

 

In 2020, the Company converted all of the outstanding advances at December 31, 2019 into one year notes due on December 31, 2020 bearing interest at 5%. New borrowings on notes payable in the year ended December 31, 2020 were $142,500. In April 2021 the notes were extended to December 31, 2021. The Company is currently in discussions with the note holders to covert these notes into long-term obligations, but the terms have not been finalized.

 

In the three months ended March 31, 2021, David Tobias advanced $20,500 to the Company for notes payable bearing interest at the rate of 5% per annum due on December 31, 2021.

 

In three months ended March 31, 2021, the Company received short-term advances from the principals of GKMP in the amounts of $48,258. At March 31, 2021, the Company owed the principals of GKMP an aggregate of $67,058.  These advances were not pursuant to notes payable and are expected to be repaid in 2021. These advances are not interest bearing.

 

At March 31, 2021 and December 31, 2020, the Company had a note payable to the founder of iBudtender of $10,142 and $10,142, respectively. The note earns interest at 0% and was due on December 2019. The note has not yet been paid pending further review of the iBudtender business and adjustment of the agreements between the parties.

 

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

 

 

 

Advances from
related parties

 

Notes payable to
related parties

 

Accrued interest - related parties

 

 

March 31, 2021

David Tobias, CEO & Director

 

$- 

 

$964,878 

 

$132,201 

New Compendium, Affiliate

 

- 

 

152,500 

 

21,969 

Keith Hyatt, Affiliate (GKMP)

 

46,682 

 

- 

 

- 

Jason Washington, Affiliate (GKMP)

 

20,376 

 

- 

 

- 

Chris Cope, Affilitate (iBudtender)

 

- 

 

10,142 

 

- 

Cathy Carroll, Director

 

- 

 

50,000 

 

4,055 

Other Affiliates

 

- 

 

4,000 

 

650 

Totals

 

$67,058 

 

$1,181,520 

 

$158,875 


FS - 11


CANNABIS SATIVA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

For the Three Months Ended March 31, 2021 and 2020


 

 

Advances from
related parties

 

Notes payable to
related parties

 

Accrued interest - related parties

 

 

December 31, 2020

David Tobias, CEO & Director

 

 

 

$944,378 

 

$120,293 

New Compendium, Affiliate

 

- 

 

152,500 

 

20,063 

Keith Hyatt, Affiliate (GKMP)

 

13,100 

 

- 

 

- 

Jason Washington, Affiliate (GKMP)

 

5,700 

 

- 

 

- 

Chris Cope, Affilitate (iBudtender)

 

- 

 

10,142 

 

- 

Cathy Carroll, Director

 

- 

 

50,000 

 

3,068 

Other Affiliates

 

- 

 

4,000 

 

600 

Totals

 

$18,800 

 

$1,161,020 

 

$144,024 

 

In the three months ended March 31, 2021 and 2020, the Company incurred approximately $28,000 and $45,000 respectively, for consulting services from a nephew of the Company’s president. These services were paid in shares of the Company’s common stock. These amounts are included in the statements of operations in general and administrative expenses.

 

5.  Investments

 

The Company owns 10,000,000 shares of common stock of Medical Cannabis Payment Solutions (ticker:  REFG). At March 31, 2021, the fair value of the investment in REFG was adjusted to $346,000 based on the closing price of the stock on that date, which resulted in an unrealized gain on investment of $151,000 during the three month period ended March 31, 2021.

 

6.  Stockholders’ Equity

 

Securities Issuances

 

During the three months ended March 31, 2021 and 2020, shares of common stock and preferred stock were issued to related and non-related parties for the purposes indicated as follows:


FS - 12


CANNABIS SATIVA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

For the Three Months Ended March 31, 2021 and 2020


 

 

 

 

 

Three months ended March 31, 2021

 

Common Shares

Preferred Shares

Value

Related party issuances

 

 

 

 

David Tobias, Officer, Director

 

 

73,530  

$37,500  

Brad Herr, Officer, Director

 

122,550  

 

62,500  

Robert Tankson, Director

 

54,203  

 

28,482  

Cathy Carroll, Director

 

73,530  

 

37,500  

Trevor Reed, Director

 

12,255  

 

6,250  

Keith Hyatt, President GKMP

 

35,404  

 

18,056  

Kyle Powers, CEO PrestoCorp

 

167,790  

 

88,929  

Total related party issuances

 

465,732  

73,530  

279,217  

Non-related party issuances

 

413,270  

 

210,769  

Total shares for services

 

879,002  

73,530  

489,986  

Issuance for cash

 

10,466  

 

5,000  

Preferred stock converted to common

 

167,966  

(167,966) 

 

Shares cancelled

 

(55,556) 

 

(20,000) 

Aggregate totals

 

1,001,878  

(94,436) 

$474,986  

 

 

 

 

 

 

Three months ended March 31, 2020

 

Common Shares

Preferred Shares

Value

Related Party issuances

 

 

 

 

David Tobias, Officer, Director

 

- 

89,286  

$42,857 

Brad E. Herr, CFO

 

131,964 

 

63,342 

Robert Tankson, Director

 

84,326 

 

40,476 

Cathy Carroll, Director

 

89,286 

 

42,857 

Trevor Reed, Director

 

14,881 

 

7,142 

Keith Hayatt, President GKMP

 

37,616 

 

18,056 

Kyle Powers, President PrestoCorp

 

92,593 

 

44,444 

Total related party issuances

 

450,666 

89,286  

259,174 

Total unrelated party issuances

 

522,714 

 

332,901 

Total shares for services

 

973,380 

89,286  

592,075 

Preferred stock converted to common

 

80,337 

(80,337) 

- 

Acquisition of GKMP assets, see Note 7

 

100,000 

 

109,000 

Shares issued for stock payable

 

963,238 

223,214  

640,685 

Aggregate Totals

 

2,116,955 

232,163  

$1,341,760 

 

During the three months ended March 31, 2021 and 2020, David Tobias, Chief Executive Officer and Director, converted 167,966 and 80,337 shares of preferred stock into common stock in accordance with the terms of the preferred stock, respectively.


FS - 13


CANNABIS SATIVA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

For the Three Months Ended March 31, 2021 and 2020


7.  Acquisition of GK Manufacturing and Packaging, Inc.

 

In the year ended December 31, 2020, the Company acquired assets and established GK Manufacturing and Packaging, Inc. (“GKMP”) to conduct contract manufacturing operations for customers seeking to obtain CBD infused products, including salves, tinctures, edibles, and other products containing CBD. In connection with the acquisition, the Company issued two key individuals an aggregate of 100,000 shares of common stock with a fair value of $109,000 for a 51% interest in GKMP.  The 49% non-controlling interest is considered a related party to the Company because the non-controlling interest is owned, in part, by the president of GKMP.

 

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

 

Contingent Consideration.  In connection with the GKMP asset acquisition, the Company agreed to pay additional consideration to the two key individuals employed by GKMP upon achievement of certain performance goals. If GKMP net revenues exceed $3,000,000 and net income exceeds 25% of net revenues in the year ended December 31, 2020, an additional $1,000,000 in consideration would be due to the key individuals. If GKMP net revenues exceed $6,000,000 and net income exceeds 25% of net revenues in the year ended December 31, 2020, an additional $500,000 in consideration would be due to the key individuals ($1,500,000 in the aggregate). The additional consideration amounts, if any, would be payable in stock at the average closing price of the shares in the five trading days prior to the date of payment.  During the year ended December 31, 2020, GKMP had net revenues of approximately $95,000 and no additional consideration was paid under this provision.

 

Working Capital Obligation. In connection with the GKMP asset acquisition, the Company agreed to provide up to an additional $500,000 in working capital to GKMP.  The full amount of the working capital commitment to GKMP was funded in the year ended December 31, 2020.

 

8.  Business Segments and Revenues

 

The Company is currently organized and managed in two segments which represent our operating units: PrestoCorp and GKMP.  PrestoCorp is a telehealth business and GKMP is a contract manufacturing business. General corporate activities not associated with these segments are presented as “other.” Other income (expense) items are considered general corporate items and are not allocated to our segments.


FS - 14


CANNABIS SATIVA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

For the Three Months Ended March 31, 2021 and 2020


 

 

 

 

Property and equipment, net

March 31, 2021

 

December 31, 2020

PrestoCorp

$2,618 

 

3,148 

GKMP

180,239 

 

193,616 

Other

2,038 

 

2,356 

Total

$184,895 

 

$199,120 

 

 

 

 

 

 

Capital expenditures

 

Three months ended

Three months ended

 

 

March 31, 2021

 

March 31, 2020

PrestoCorp

 

$- 

 

$2,660 

GKMP

 

- 

 

9,207 

Total

 

$- 

 

$11,867 

 

Financial information for each operating segment is as follows:

 

 

 

 

 

 

 

Three months ended

Three months ended

 

 

March 31, 2021

 

March 31, 2020

PrestoCorp

 

 

 

 

Revenue

 

$482,350  

 

$478,231 

Cost of revenue

 

183,503  

 

183,874 

Gross profit

 

298,847  

 

294,357 

Depreciation and amortization

 

$530  

 

$- 

 

 

 

 

 

GKMP

 

 

 

 

Revenue

 

74,973  

 

15,830 

Cost of revenue

 

81,511  

 

3,461 

Gross profit (loss)

 

(6,538) 

 

12,369 

Depreciation and amortization

 

$13,378  

 

$- 

 

 

 

 

 

OTHER

 

 

 

 

Revenue

 

 

 

79 

Depreciation and amortization

 

$42,603  

 

$51,635 

 

 

 

 

 

Total

 

 

 

 

Revenue

 

557,323  

 

494,140 

Cost of revenue

 

265,014  

 

187,335 

Gross profit

 

$292,309  

 

$306,805 

Depreciation and amortization

 

$56,511  

 

$51,635 

 

 

 

 

 


FS - 15


CANNABIS SATIVA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

For the Three Months Ended March 31, 2021 and 2020


Revenues from major customers by operating segments are as follows:

 

 

 

 

 

Three months ended

Three months ended

Customer Concentrations

March 31, 2021

 

March 31, 2020

PrestoCorp

 

 

 

Total PrestoCorp concentrations

$-   

 

$-   

% of PrestoCorp revenues

0% 

 

0% 

GKMP

 

 

 

Customer A

-   

 

11,950   

Customer B

-   

 

3,000   

Customer C

35,503   

 

-   

Customer D

6,962   

 

-   

Total GKMP conentrations

42,465   

 

14,950   

% of GKMP revenues

57% 

 

94% 

 

9.  Commitments and Contingencies

 

Leases.

 

PrestoCorp leases office space through WeWork in New York for $2,444 per month on a month to month arrangement. Rent expense for the three months ended March 31, 2021 and 2020 was $4,888 and $7,322, respectively.

 

GKMP leases a facility in Anaheim California where its operations are based.  The Anaheim lease includes approximately 16,000 square feet of combined office, manufacturing, and warehouse space.  Rent expense for the three months ended March 31, 2021 and 2020 was $67,119 and $24,740, respectively.

 

GKMP leases a commercial printer and a bottle filling line, both of which are used in its manufacturing and packaging operations. For the three months ended March 31, 2021 and 2020, the Company recognized $6,872 and nil, respectively, in lease expense on these two items. Lease expense is reported as cost of goods sold in the consolidated statements of operations.  At March 31, 2021, the remaining lease term is 27 months on the printer and 12 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:

 

From April 1, 2021 to March 31, 2022

$       31,473   

From April 1, 2022 to March 31, 2023

14,473   

From April 1, 2023 to March 31, 2024

4,095   

Total

50,041   

Less imputed interest 

(6,245)   

Net lease liability

43,796   

Current portion

(35,672)   

Long term

$       8,124   

 

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


FS - 16


CANNABIS SATIVA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

For the Three Months Ended March 31, 2021 and 2020


intellectual property disputes, contractual disputes and other commercial disputes. Any of these claims could subject us to litigation. As of March 31, 2021, one claim was pending or threatened relating to general business disputes and accounts payable for services. Management believes the outcome of currently pending claim is not likely to have a material effect on our consolidated financial position and results of operations.

 

Shares in Escrow.  At March 31, 2021 and December 31, 2020, the Company has 209,738 and 419,475, respectively, 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.  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 originally contained 629,213 shares of common stock but 209,738 shares were cancelled in 2018 when the performance requirements related to those shares were not met.  Another 209,738 shares were released to the principals in January 2021 upon satisfaction of performance requirements for which compensation expense of $111,161 was recognized during the three month period ended March 31, 2021.  The escrow account includes 500 shares of PrestoCorp common stock which is distributable either back to the principals of PrestoCorp or to the Company depending on certain minimum performance requirements which extend into 2021.  If all of the PrestoCorp shares are ultimately distributed to the Company, the shares would have the effect of increasing the Company’s ownership of PrestoCorp to 61% from the current level of 51%.

 

In August 2020, the Company entered into discussions with the principals of PrestoCorp regarding the escrowed shares and various compensation matters relating to their work for the Company through the date of the discussions. The principals of PrestoCorp have requested adjustment of their compensation and bonus structure retroactive back to January 1, 2021 and have requested the right to earn back the 500 shares of PrestoCorp common stock over a three-year period ending on December 31, 2023 based on future performance. The Company is still in discussions with the principals of PrestoCorp regarding repayment of advances made to PrestoCorp by CBDS for operating expenses and compensation. Management believes this remaining issue will be amicably resolved in the second quarter, at which point the disagreement will be fully resolved.   No contingent liability has been established for this disagreement. Management does not believe the outcome of this matter will have a material impact on the financial statements or the results of operations even if the matter required a more formal dispute resolution process and the PrestoCorp principals prevail on their claims.

 

10.   COVID- 19:

 

The outbreak of COVID-19, the coronavirus, has grown both in the United States and globally, and related government and private sector responsive actions have adversely affected the Company’s business operations. The World Health Organization has declared Covid-19 to be a global pandemic, resulting in an economic downturn and changes in global economic policy that will reduce demand for the Company’s products and may have an adverse impact on the Company’s business, operating results and financial condition.


FS - 17