Cannabis Sativa, Inc. - Quarter Report: 2023 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________

FORM 10-Q

___________________

Commission File Number: 000-53571

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:

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

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.

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 June 13, 2023, is 49,329,540.

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, 2023, compared with the Three Months Ended March 31, 2022

Revenue for the fiscal quarter ended March 31, 2023, decreased 18% compared to the period ended March 31, 2022. Cost of revenues as a percentage of sales decreased 6% between the periods. The decrease in revenues is primarily a result of the lessening impact COVID-19 as we progressed into 2022.  In 2021, COVID-19 and the associated concerns with in-person visits to doctors’ offices caused a surge in the use of telemedicine in general and the Company benefitted from this with an increase in customers seeking medical marijuana cards through telemedicine.  The first quarter of 2022 continued to benefit somewhat from this surge but as the public grew more accustomed to the pandemic, and as vaccinations and booster shots became widely available, the demand for remote visits with physicians for medical marijuana cards decreased. This softening in the demand for our service continued during the first quarter of 2023.

Total operating expenses decreased 41% in the first quarter of 2023 compared with the first quarter of 2022 which trended down as did revenue in the current period. Professional fees and general and administrated fees decreased with continuing efforts at cost reduction. Wages and salaries decreased as a result of the death of our CFO in the fourth quarter of 2022 and our CEO assuming those duties without an increase in salary.

Liquidity and Capital Resources

Cash provided by operating activities was $4,241 in the quarter ended March 31, 2023, compared to cash used by operating activities of $47,799 during the quarter ended March 31, 2022. In the first quarter of 2023, financing activities provided $11,061, consisting of net proceeds from related party notes. We ended the first quarter of 2023 with $102,399 in cash on hand.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. We incurred net losses of $500,101 and $100,353, respectively, for the quarters ended March 31, 2023, and 2022 and had an accumulated deficit of $81,125,991 as of March 31, 2023. 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.

The amount of cash on hand the Company has does not provide sufficient liquidity to meet the immediate needs of our current operations.

Off Balance Sheet Arrangements

None

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not required.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

Conclusions of Management Regarding Effectiveness of Disclosure Controls and Procedures

At the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operations of the Company’s disclosure controls and procedures (as defined in Rule 13a – 15(e) and Rule 15d – 15(e) under the Exchange Act). Based on that evaluation, the CEO and the CFO have concluded that as of the end of the period covered by this report, the Company’s disclosure controls and procedures were not effective as it was determined that there were material weaknesses affecting our disclosure controls and procedures.

Management of the Company believes that these material weaknesses are due to the small size of the company’s accounting staff. The small size of the Company’s accounting staff may prevent adequate controls in the future, such as segregation of duties, due to the cost/benefit of remediation. To mitigate the current limited resources and limited employees, we rely heavily on direct management oversight of transactions, along with the use of external legal and accounting professionals. As the Company grows, management expects to increase the number of employees, which will enable us to implement adequate segregation of duties within the internal control framework.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting during the quarter ended March 31, 2023, 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, 2023, 320,513 shares of common stock were issued to convert $15,000 of a note payable to a non-related party. Also, during the quarter, the Company issued a convertible note to a contract services provider in the principal amount of $72,262. The note bears interest at 8% and is due December 31, 2023.

The securities issued were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933.

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: June 14, 2023

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

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 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, 2022 and 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, 2022 through March 31, 2023 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 months ended March 31, 2023 may not be indicative of the results expected for the full year ending December 31, 2023. 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, 2022.

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, 2022, as filed with the United States Securities and Exchange Commission on April 20, 2023.

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 March 31, 2023, and its results of operations, cash flows, and changes in stockholders’ equity for the three months ended March 31, 2023. 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 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. All significant inter-company balances have been eliminated in consolidation.

Going Concern:

The Company has an accumulated deficit of $81,125,991 at March 31, 2023, 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 generally accepted accounting principles in the United States of America (“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 months ended March 31, 2023 and 2022, the Company had 50,000 and 175,000 outstanding warrants, respectively, and -0- and 777,654 shares of convertible preferred stock, respectively, that would be dilutive to future periods net income if converted. The number of shares that can be converted per the convertible note agreement can be converted after December 31, 2022 thus are dilutive as of March 31, 2023.

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, 2023, including interim periods within those fiscal years and with early adoption permitted. Early 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.

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 December 31, 2022 and 2021:

Amortization expense for each of the three months ended March 31, 2023 and 2022 was $37,921 and $42,285, respectively.

Amortization of intangibles through 2027 is: 

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, 2023 and December 31, 2022. The balance of goodwill at March 31, 2023 and December 31, 2022 was $1,837,202.

3. Related Party Transactions

In addition to items disclosed in Note 6, the Company had additional related party transactions during the three months ended March 31, 2023 and 2022.

Historically, 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 three months ended March 31, 2023, David Tobias, the Company’s chief executive officer and director, loaned $11,060 to the Company for notes payable bearing interest at the rate of 5% per annum due on December 31, 2023. 

During the three months ended March 31, 2023, the Company and Cathy Carroll, director, entered into a note payable for $70,000 for compensation due her for services. Ms. Carroll’s note bears interest at 8% per annum and is due December 31, 2024. The notes payable totaled $55,000  at December 31, 2022.

During the year ended December 31, 2021, David Tobias loaned $42,160 to the Company for notes payable bearing interest at the rate of 5% per annum due on December 31, 2021. During the year ended December 31, 2021, the Company and Cathy Carroll, director, entered into a note payable for $25,000 for compensation due her for services. Ms. Carroll’s note bears interest at 5% per annum and is due December 31, 2021. The notes payable to Mr. Tobias and Ms. Carroll were extended and are now due December 31, 2022.

During the years ended December 31, 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 $16,374 and $66,872, respectively.

The following tables reflect the related party note payable balances. 

During the three months ended March 31, 2023 and 2022, the Company incurred approximately $-0- and $14,000, respectively, for consulting services from a nephew of the Company’s president. The services were accrued at March 31, 2022 and paid in common stock in April 2022. These amounts are included in the statements of operations in general and administrative expenses.

At March 31, 2023 and December 31, 2022, the Company has a balance due from MJ Harvest, Inc., with whom the Company plans to merge, of $75,054 and $55,666 (see Note 8). The amount is included in advances to related party on the condensed consolidated balance sheets. The funds were advanced to MJ Harvest, Inc. to cover operating expenses.

4. Investments

At March 31, 2023 and December 31, 2022, the Company owns -0- and 8,238,769 shares respectively, of common stock of Medical Cannabis Payment Solutions (ticker: REFG). At March 31, 2023 and December 31, 2022, the fair value of the investment in REFG was $-0- and $12,358, respectively. The Company sold all of its position in REFG during the three months ended March 31, 2023 and recognized a loss on the sale of investment securities in the amount of $155,735.  For the three months ended March 31, 2022 the Company recognized a gain on the change in fair value of $15,654.

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. 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 March 31, 2023 and December 31, 2022 was $3,600 and $367,500 resulting in a gain (loss) of ($211,483) and $231,000 for the change in fair value during the three months ended March 31, 2023 and 2022, respectively.

5. Convertible Notes Payable

On August 25, 2022 and November 7, 2022, the Company entered into an agreement with 1800 Diagonal Lending, LLC (“Diagonal”) whereby the Company issued convertible notes to Diagonal with principal amounts of $104,250 and $64,250, respectively. The notes bear interest at 10% and have terms of one year when payment of principal and interest is due. After 180 days, the notes are convertible into shares of the Company’s common stock the number of which determined by dividing the principal balance outstanding by 65% of the lowest trading price of the Company’s stock during the five previous trading days before the date of the conversion.  On March 2, 2023, Diagonal converted $15,000 of their note payable from August into 320,513 shares of common stock.  As of March 31, 2023 amounts due to Diagonal total $89,250 and $64,250, respectively.

On January 1, 2023, the Company entered into an agreement with Carolyn Merrill (“Carolyn”) whereby the Company issued a convertible note to Carolyn with a principal amount of $72,262.  As stated in the January 1, 2023 agreement Ms Merrill’s contract compensation will also be added to the note for her services through March 31, 2023 in the amount of $25,000. Total note payable at March 31,2023 is $ 97,262. The note bears interest at 8% and has a term of one year when payment of principal and interest is due. If payment by S-8 shares the amount paid will be with a 10% discount, if by agreement and paid with restricted stock will be with a 20% discount.  Both methods are calculated using the lowest 3 closing prices during the 15 trading days preceding the first day of the next calendar quarter.

At March 31, 2023 and December 31, 2022, accrued interest payable and interest expense on these notes was $10,204 and $4,546. Accrued interest payable is included in accounts payable and accrued expenses on the consolidated balance sheet.

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 on August 8, 2022. 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.

Securities Issuances

During the three months ended March 31, 2023, 320,513 shares of common stock were issued to convert $15,000 of a note payable to a non-related party.  See Note 5.

Stock payable at March 31, 2023 consists of 1,219,513 preferred shares and 838,415 common shares owed to members of the board of directors for directors’ fees and contract services. These shares were valued at $84,375 based on the fair value of the Company’s common stock at the date of board authorization. Subsequent to year end, no issuances of the shares have been made.

Stock payable at December 31, 2022 consists of 1,306,302 preferred shares and 1,469,590 common shares owed to members of the board of directors for directors’ fees and contract services. These shares were valued at $212,500 based on the fair value of the Company’s common stock at the date of board authorization. An additional 2,393,873 common shares were owed to various non-related vendors at December 31, 2022 valued at $205,656 based on the fair value of the Company’s common stock at the date of board authorization. Subsequent to year end, no issuances of the shares have been made.

Stock Compensation Plans

2017 Stock Plan

On July 28, 2017, the Company adopted the Cannabis Sativa 2017 Stock Plan which authorized the Company to utilize common stock to compensate employees, officers, directors, and independent contractors for services provided to the Company. The Company authorized up to 3,000,000 shares of common stock to be issued pursuant to the 2017 Stock Plan. At December 31, 2021, no shares were available for further issuance under this plan.

 2020 Stock Plan

On September 25, 2020, the Company adopted the Cannabis Sativa 2020 Stock Plan which authorized the Company to utilize common stock to compensate employees, officers, directors, and independent contractors for services provided to the Company. By resolution dated September 25, 2020, the Company authorized up to 1,000,000 shares of common stock to be issued pursuant to the 2020 Stock Plan. This amount was subsequently increased to 2,000,000 shares on January 27, 2021. At March 31, 2023, 44,425 shares were available for future issuance.

Warrants

At March 31, 2023 and December 31, 2022, the Company has outstanding warrants to purchase 50,000 shares of the Company’s common stock. As of March 31, 2023, the warrants have an exercise price of $2.00 and expire in July and August 2023. During the three months ended March 31, 2023 and 2022, warrants activity consisted of the following: warrants issued – none (2022: none), warrants exercised – none (2022: none), warrants expired – none (2022: none).

7. Commitments and Contingencies

Leases.

PrestoCorp leased office space through WeWork in New York on a month-to-month basis which ended in April 2022. 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. 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:

Rent expense for the three months ended March 31, 2023 and 2022 was $8,416 and $18,723, 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. As of March 31, 2023, no claims are outstanding.

8. Proposed Merger with MJ Harvest, Inc.

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 second quarter of calendar year 2023. The terms of the Merger Agreement are summarized below:

9. Subsequent Event

On May 5, 2023, the Company issued an aggregate of 2,450,000 restricted shares of common stock of the Company to two persons who are officers of a subsidiary of the Company. The issued shares were bonus shares awarded to the individuals in the first quarter of 2023 and had a fair value of $88,200.