NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended June 30, 2022 and 2021
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”) |
| ● | Wild
Earth Naturals, Inc. (“Wild Earth”) |
| ● | Kubby
Patent and Licenses Limited Liability Company (“KPAL”) |
| ● | Hi
Brands, International, Inc. (“Hi Brands”) |
| ● | Eden
Holdings LLC (“Eden”). |
| ● | iBudtender,
Inc. (“iBud”) – through April 2021 |
| ● | GK
Manufacturing and Packaging, Inc. (“GKMP”) - through April 2021 |
PrestoCorp
is a 51% owned subsidiary and until April 22, 2021, GKMP and iBud were 51% and 50.1% owned subsidiaries. Wild Earth, KPAL, Hi Brands,
and Eden are wholly owned subsidiaries. At December 31, 2021, PrestoCorp is the sole operating subsidiary. Until sale of the Company’s
interest in April 2021, GKMP and iBud tender were operating subsidiaries although iBud was not generating any revenue.
Our
primary operations for the years ended December 31, 2021 and 2020 were through PrestoCorp, which provides telemedicine online referral
services for customers desiring medical marijuana cards in states where medical marijuana has been legalized. The Company is 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.
Basis
of Presentation
Operating
results for the three and six months ended June 30, 2022 may not be indicative of the results expected for the full year ending December
31, 2022. 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, 2021.
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, 2021, as filed with the United States Securities and Exchange Commission on
April 14, 2022.
In
the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting
of only normal recurring adjustments, necessary for a fair statement of the Company’s financial position as of June 30, 2022, and
its results of operations, cash flows, and changes in stockholders’ equity for the three and six months ended June 30, 2022. The
financial statements do not include all of the information and notes required by accounting principles generally accepted in the United
States (‘GAAP”) for complete financial statements.
Principles
of Consolidation:
The
condensed consolidated financial statements include the accounts of Cannabis Sativa, Inc. (the “Company” or “CBDS”),
and its wholly-owned subsidiaries and PrestoCorp, a 51% owned subsidiary. On April 22, 2021, we sold our interests in two companies in
which the Company had majority control, iBud and GKMP. These condensed consolidated financial statements include operations of iBud and
GKMP through April 22, 2021. All significant inter-company balances have been eliminated in consolidation.
CANNABIS SATIVA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended June 30, 2022 and 2021
Going
Concern:
The
Company has an accumulated deficit of $79,917,424 at June 30, 2022, which, among other factors, raises substantial doubt about the Company’s
ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s
ability to generate profitable operations in the future and/or to obtain the necessary financing to meet its obligations and repay its
liabilities arising from normal business operations when they are due.
Use
of Estimates:
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes. Significant estimates and assumptions by management affect
the allowance for doubtful accounts, the carrying value of long-lived assets (including goodwill and intangible assets), the provision
for income taxes and related deferred tax accounts, certain accrued liabilities, revenue recognition, contingencies, and the value attributed
to stock-based awards.
Net
Loss per Share:
Basic
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. For the three and six months ended June 30, 2022 and 2021, the Company had 175,000 and 175,000
outstanding warrants, respectively, and 1,104,107 and 777,654 shares of convertible preferred stock, respectively, that would be dilutive
to future periods net income if converted.
Recent
Accounting Pronouncement:
Accounting
Standards Updates Adopted
In
August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. Adoption of this update had no impact on the Company’s consolidated
financial statements.
Other
accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have
a material impact on the financial statements upon adoption.
CANNABIS SATIVA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended June 30, 2022 and 2021
2.
Intangibles and Goodwill
The
Company considers all intangibles to be definite-lived assets with lives of 5 to 10 years. Intangibles consisted of the following at
June 30, 2022 and December 31, 2021:
| Schedule of Intangible Assets and Goodwill | |
| | | |
| | |
| | |
June 30, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| 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 | |
| (1,299,174 | ) | |
| (1,214,604 | ) |
| Net Intangible Assets | |
$ | 236,236 | | |
$ | 320,806 | |
Amortization
expense for each of the three and six months ended June 30, 2022 and 2021 were $42,285 and $84,570, respectively.
Amortization
of intangibles through 2027 is:
| Schedule of Amortization | |
| | |
| July 1, 2022 to June 30, 2023 | |
$ | 153,137 | |
| July 1, 2023 to June 30, 2024 | |
| 78,430 | |
| July 1, 2024 to June 30, 2025 | |
| 932 | |
| July 1, 2025 to June 30, 2026 | |
| 932 | |
| July 1, 2026 to June 30, 2027 | |
| 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 June 30, 2022 and December 31, 2021. The balance of goodwill at June 30, 2022 and
December 31, 2021 was $1,837,202.
3.
Sale of Majority Owned Subsidiaries and Discontinued Operations
On
April 22, 2021, the Company sold its majority interests in GKMP (51%) and iBud (50.1%) to THC Farmaceuticals, Inc. (“CBDG”).
In consideration of the transaction, the Company received 1,500,000 shares of CBDG common stock and 1,500,000 shares of CBDG preferred
stock. The Company’s Chief Executive Officer and Chairman of the Board, David Tobias is a Director of CBDG. Shares of CBDG common
stock are traded on the OTC Pink Sheets Market.
The
sale of the Company’s majority interests was undertaken to allow the Company to focus on its other operating subsidiary, PrestoCorp,
to focus on capital formation for expansion of PrestoCorp, and to pursue other opportunities. At the time of the sale, iBud was inactive
and GKMP had not yet achieved positive cash flow from operations.
On
the closing date of the sale, CBDG common shares closed at $0.20 per share, for a fair value of $300,000. The CBDG preferred stock received
is convertible into CBDG common stock on a one for one basis and has no other rights or preferences that distinguish it from the common
stock and are convertible at any time by the Company. Management determined that the shares of preferred stock received are equivalent
to CBDG’s common stock and valued the preferred shares at the same rate. In the aggregate, the total shares of CBDG stock received
were valued at $600,000 on the date of the sale.
CANNABIS SATIVA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended June 30, 2022 and 2021
During
the six months ended June 30, 2021, the Company recognized a gain on sale of subsidiaries of $164,736
which represented the value of the consideration received consisting of the value of CBDG’s shares plus the carrying value of
the subsidiaries’ non-controlling interest reduced by the net asset of each subsidiary:
| Summary of value of the consideration received | |
| | |
| Consideration received: | |
| |
| Common stock of CBDG, fair value | |
$ | 300,000 | |
| Preferred stock of CBDG, fair value | |
| 300,000 | |
| Total consideration | |
| 600,000 | |
| Non-controlling interests | |
| (331,884 | ) |
| Consideration attributable to the Company | |
| 268,116 | |
| | |
| | |
| Less: Net assets of subsidiaries on date of disposition: | |
| | |
| GKMP | |
| 112,350 | |
| iBud | |
| (8,704 | ) |
| Total net assets | |
| 103,646 | |
| Gain on sale of subsidiaries | |
$ | 164,470 | |
As
a result of the sale, the Company has discontinued its operations for both subsidiaries. Summaries of the discontinued operations of
GKMP and iBud for the period January 1, 2021 to June 30, 2021 are provided below.
| Summary of the discontinued operations of GKMP and iBud | |
| | |
| | |
January 1 to | |
| Discontinued Operations | |
June 30,
2021 | |
| | |
| |
| REVENUE | |
| 75,866 | |
| Cost of revenues | |
| 91,316 | |
| Gross profit | |
| (15,450 | ) |
| EXPENSES | |
| | |
| Professional fees | |
| - | |
| Depreciation and amortization | |
| 5,861 | |
| Wages and salaries | |
| 106,224 | |
| Advertising | |
| 1,693 | |
| General and administrative | |
| 102,833 | |
| Interest expense | |
| 2,144 | |
| Total expenses | |
| 218,755 | |
| NET LOSS FROM DISCONTINUED OPERATIONS | |
| (234,205 | ) |
GKMP
and iBud generated losses from operations during the periods they were operated by the Company. The sale of our interests in GKMP and
iBud was to allow management to devote more resources to PrestoCorp.
4.
Related Party Transactions
In
addition to items disclosed in Notes 3 and 6, the Company had additional related party transactions during the three and six months ended
June 30, 2022 and 2021.
The
Company has received funds from borrowings on notes payable and advances from related parties and officers of the Company to cover operating
expenses. Related parties include the officers and directors of the Company and a significant shareholder holding in excess of 10% of
the Company’s outstanding shares.
During the
six months ended June 30, 2022, David Tobias loaned $41,340 cash to the Company for notes payable bearing interest at the rate of 5%
per annum due on December 31, 2022. In the six months ended June 30, 2022, the Company and Cathy Carroll, director, entered into a
note payable for $30,000 for compensation due her for services. Ms. Carroll’s note bears interest at 5% per annum and is due December
31, 2022.
CANNABIS SATIVA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended June 30, 2022 and 2021
During
the three and six months ended June 30, 2022 and 2021, the Company recorded interest expense related to notes payable to related parties
at the rates between 5% and 8% per annum in the amounts of $1,995 (2021: $23,693) and $19,171 (2021: $32,030), respectively.
During
the six months ended June 30, 2022, the Company issued 7,089,255 shares of common stock in settlement of $1,214,038 in related party
notes payable and $203,813 in accrued interest attributable to these notes. The fair value of the shares issued approximated the carrying
value of the notes and interest payable.
In
2021, the Company received short-term advances from the principals of GKMP in the amounts of $48,083 bringing the balance due to $67,058.
These advances are not interest bearing. The advances were assumed by the acquirer of GKMP and are no longer an obligation of the Company.
See Note 3.
The
following tables reflect the related party advance and note payable balances.
| Schedule of related party advance and note payable | |
| | | |
| | | |
| | |
| | |
Related party notes | | |
Accrued interest | | |
Total | |
| | |
June 30, 2022 | |
| David Tobias, CEO & Director | |
$ | 41,340 | | |
$ | 12,482 | | |
$ | 53,822 | |
| New Compendium, greater than 10% Shareholder | |
| - | | |
| 1,906 | | |
| 1,906 | |
| Cathy Carroll, Director | |
| 30,000 | | |
| 986 | | |
| 30,986 | |
| Other Affiliates | |
| 4,000 | | |
| 850 | | |
| 4,850 | |
| Totals | |
$ | 75,340 | | |
$ | 16,224 | | |
$ | 91,564 | |
| | |
Related party notes | | |
Accrued interest | | |
Total | |
| | |
December 31, 2021 | |
| David Tobias, CEO & Director | |
$ | 986,538 | | |
$ | 169,057 | | |
$ | 1,155,595 | |
| New Compendium, greater than 10% Shareholder | |
| 152,500 | | |
| 27,688 | | |
| 180,188 | |
| Cathy Carroll, Director | |
| 75,000 | | |
| 7,068 | | |
| 82,068 | |
| Other Affiliates | |
| 4,000 | | |
| 800 | | |
| 4,800 | |
| Totals | |
$ | 1,218,038 | | |
$ | 204,613 | | |
$ | 1,422,651 | |
In
the three and six months ended June 30, 2022 and 2021, the Company incurred approximately $12,500 (2021: $27,778) and $26,389 (2021:
$55,556), respectively, for consulting services from a nephew of the Company’s president. The services for the three and six months
ended June 30, 2022 and 2021 were paid in shares of the Company’s common stock. These amounts are included in the statements of
operations in general and administrative expenses.
CANNABIS SATIVA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended June 30, 2022 and 2021
5.
Investments
At
June 30, 2022 and December 31, 2021, the Company owns 8,238,769 shares respectively, of common stock of Medical Cannabis Payment Solutions
(ticker: REFG). At June 30, 2022 and December 31, 2021, the fair value of the investment in REFG was $13,182 and $25,540, respectively.
The Company recognized a loss on the change in fair value of $28,012 (2021: $162,215) and $12,358 (2021: $11,215) during the three
and six months ended June 30, 2022 and 2021, respectively.
In
2021, the Company received 1,500,000 shares of common stock and 1,500,000 shares of preferred stock of THC Pharmaceuticals Inc. (ticker:
CBDG). The CBDG shares were received as consideration for the sale of the Company’s majority interest in iBud and GKMP in the year
ended December 31, 2021. On the date of sale, the shares were valued at fair value which was $0.20 per share or $600,000 in the aggregate.
See Note 4. The Company’s Chief Executive Officer and Chairman of the Board, David Tobias is a Director of CBDG.
The Company’s
investment in CBDG represents 15% of CBDG’s voting shares on a fully diluted basis which, coupled with Mr. Tobias’ position
as a director and his individual investment in CBDG, results in the Company having significant influence over CBDG. The Company
elected to account for its investment in CBDG at fair value because the Company does not intend to hold the investment for a long period
of time and the shares are readily marketable. The fair value of the Company’s investment at June 30, 2022 and
December 31, 2021 was $300,000 and $183,000 resulting in a (gain) loss of $114,000 (2021: ($236,700)) and ($117,000) (2021: ($236,700))
for the change in fair value during the three and six months ended June 30, 2022 and 2021, respectively.
6.
Stockholders’ Equity
Change
in Authorized Shares
The
Company increased the number of authorized common shares the Company is authorized to issue to 495,000,000. This change in capital structure
was approved without a meeting by the consent of the shareholders holding a majority of the common stock outstanding and Articles of
Amendment were filed with the State of Nevada on August 8, 2022.
Securities
Issuances
During
the six months ended June 30, 2022, shares of common stock and preferred stock were issued to related and non-related parties for the
purposes indicated, as follows:
| |
| | |
| | |
| |
| Common Stock and Preferred stock issued to related and Non Related Parties | |
| |
| |
Share
Issuances in the Six Months
Ended June 30, 2022 | |
| Services | |
Common | | |
Preferred | | |
Value | |
| Related
Parties | |
| | | |
| | | |
| | |
| David
Tobias, Officer, Director | |
| - | | |
| 458,333 | | |
$ | 90,000 | |
| Brad
Herr, Officer, Director | |
| 458,333 | | |
| - | | |
| 90,000 | |
| Robert
Tankson, Director | |
| 28,646 | | |
| - | | |
| 5,625 | |
| Trevor
Reed, Director | |
| 28,646 | | |
| - | | |
| 5,625 | |
| Total
related party issuances | |
| 515,625 | | |
| 458,333 | | |
| 191,250 | |
| Non-related
party issuances | |
| 790,617 | | |
| - | | |
| 159,257 | |
| Total
shares for services | |
| 1,306,242 | | |
| 458,333 | | |
| 350,507 | |
| Shares
issued in consideration of notes and accrued interest - related parties | |
| 7,089,255 | | |
| - | | |
| 1,417,851 | |
| Conversion
of preferred to common (1:1) | |
| 131,880 | | |
| (131,880 | ) | |
| - | |
| Conversion
of preferred to common (19:1) | |
| 5,476,237 | | |
| (288,223 | ) | |
| - | |
| Aggregate
Totals | |
| 14,003,614 | | |
| 38,230 | | |
$ | 1,768,358 | |
CANNABIS SATIVA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended June 30, 2022 and 2021
During
the six months ended June 30, 2021, shares of common stock and preferred stock were issued to related and non-related parties for the
purposes indicated, as follows:
| | |
Share
Issuances in the Six Months
Ended June 30, 2021 | |
| Services | |
Common | | |
Preferred | | |
Value | |
| Related Parties | |
| | | |
| | | |
| | |
| David Tobias, Officer, Director | |
| - | | |
| 124,901 | | |
$ | 75,000 | |
| Brad Herr, Officer, Director | |
| 208,167 | | |
| - | | |
| 125,000 | |
| Robert Tankson, Director | |
| 30,357 | | |
| - | | |
| 17,461 | |
| Cathy Carroll, Director | |
| 124,901 | | |
| - | | |
| 75,000 | |
| Trevor Reed, Director | |
| 20,817 | | |
| - | | |
| 12,500 | |
| Total related party issuances | |
| 384,242 | | |
| 124,901 | | |
| 304,961 | |
| Non-related party issuances | |
| 1,030,387 | | |
| - | | |
| 601,316 | |
| Total shares for services | |
| 1,414,629 | | |
| 124,901 | | |
| 906,277 | |
| Preferred stock converted to common | |
| 288,072 | | |
| (288,072 | ) | |
| - | |
| Issuance for cash | |
| 10,466 | | |
| - | | |
| 5,000 | |
| Shares cancelled | |
| (55,556 | ) | |
| - | | |
| (20,000 | ) |
| Aggregate Totals | |
| 1,657,611 | | |
| (163,171 | ) | |
$ | 891,277 | |
During
the six months ended June 30, 2021, the Company cancelled shares that had been returned after it was determined the shares have been
erroneously issued to a vendor in 2020.
During
the six months ended June 30, 2022, two preferred shareholders agreed to convert an aggregate of 288,223 shares of preferred stock into
5,476,237 shares of common stock. The Company requested the shareholders to convert to simplify its capital structure in contemplation
of a proposed merger (see Note 8, Subsequent Events). The conversion rate was determined on various factors, including recent market
price of the Company’s common stock and the proposed merger. The conversion rate differed from the original conversion rate resulting
in a deemed dividend to the preferred shareholders of $25,940 which is the fair value of the common stock issued less the carrying value
of the preferred shares that were converted. The dividend had $nil impact on net loss per share for the three
and six months ended June 30, 2022.
7.
Commitments and Contingencies
Leases.
PrestoCorp
leased office space through WeWork in New York on a month-to-month arrangement. On April 12, 2022, PrestoCorp signed a new lease
in New York with Spaces for a two-year term at $2,590 per month expiring in April 2024. Rent expense for the three months ended June
30, 2022 and 2021 was $2,602 and $4,592, respectively, and for the six months ended June 30, 2022 and 2021 was $21,325 and $9,480, respectively.
Upon signing the lease with Spaces, the Company recognized a lease liability and a right of use asset of $56,595 using a discount rate
of 10%. The future lease payments under the new lease are as follows:
| Schedule of future lease payments | |
| | |
| From July 1, 2022 to June 30, 2023 | |
$ | 31,080 | |
| From July 1 2023 to April 30, 2024 | |
| 23,310 | |
| Less imputed interest | |
| (4,268 | ) |
| Net lease liability | |
| 50,122 | |
| Current Portion | |
| (27,340 | ) |
| Long-term portion | |
$ | 22,782 | |
CANNABIS SATIVA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended June 30, 2022 and 2021
Litigation.
In
the ordinary course of business, we may face various claims brought by third parties and we may, from time to time, make claims or take
legal actions to assert our rights, including intellectual property disputes, contractual disputes and other commercial disputes. Any
of these claims could subject us to litigation. As of June 30, 2022, no claims are outstanding.
8.
Subsequent Events
On
August 8, 2022, the Company entered into a Merger Agreement (the “Merger Agreement”) with MJ Harvest, Inc. (“MJHI”).
Pursuant to the Merger Agreement, MJHI will merge with and into the Company and the Company will be the surviving corporation in the
Merger. The Merger is expected to be consummated once the shareholders of the Company and the shareholders of MJHI approve the Merger
which management expects will be completed early in the fourth quarter of calendar year 2022. The terms of the Merger Agreement are summarized
below:
| ● | The
name of the surviving company in the Merger will be Cannabis Sativa, Inc. |
| ● | Each
share of MJHI common stock outstanding on the effective date of the Merger will be converted
into 2.7 shares of CBDS Common Stock. |
| ● | The
Merger is subject to majority approval of the shareholders of both MJHI and CBDS. |
| ● | The
shareholders of MJHI and CBDS will have rights to dissent from the Merger, and, if the notice
of dissent is properly given, the dissenting shareholders may be paid fair value for such
dissented shares. |
| ● | The
Board of Directors of the surviving company following the Merger is intended to consist of
Patrick Bilton, Brad Herr, Randy Lanier, Clinton Pyatt, and David Tobias. |
| ● | The
Executive Officers of the Company following the Merger are intended to include Patrick Bilton
- Chief Executive Officer, Clinton Pyatt - Chief Operating Officer, and Brad Herr - Chief
Financial Officer. |
| ● | The
Merger Agreement includes representations and warranties, covenants, and conditions for MJHI
and CBDS as are customary for transactions of this nature. |
| ● | No
brokerage fees are payable in connection with the Merger. |
| ● | If
majority shareholder approval of the merger is not obtained, the Merger will not occur, and
the Merger Agreement will be terminated. |
| ● | All
costs and expenses in connection with the Merger transactions will be borne by CBDS, except
that MJHI will be responsible for expenses of its own legal counsel and auditing costs. |
On
July 8, 2022, David Tobias converted 120,176 shares of preferred stock into 120,176 common shares at a conversion rate of 1:1.. On August
18, 2022, David Tobias converted all of his remaining preferred shares (695,708 in the aggregate) into 1,391,416 common shares at a conversion
rate of 2:1.