Forward-Looking Statements
Except for the historical information presented in this document, the matters
discussed in this Form 10-Q for the quarter ended May 31, 2022, contain
forward-looking statements which involve assumptions and our future plans,
strategies, and expectations. These statements are generally identified by the
use of words such as "may," "will," "should," "expect," "anticipate,"
"estimate," "believe," "intend," or "project," or the negative of these words or
other variations on these words or comparable terminology. These statements are
expressed in good faith and based upon a reasonable basis when made, but there
can be no assurance that these expectations will be achieved or accomplished.
Such forward-looking statements include statements regarding, among other
things, (a) our potential profitability and cash flows, (b) our growth
strategies, (c) our future financing plans, and (d) our anticipated needs for
working capital. This information may involve known and unknown risks,
uncertainties, and other factors that may cause our actual results, performance,
or achievements to be materially different from the future results, performance,
or achievements expressed or implied by any forward-looking statements. These
statements may be found under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" as well as in this Form 10-Q generally.
Actual events or results may differ materially from those discussed in
forward-looking statements as a result of various factors, including, without
limitation, the matters described in this Form 10-Q generally. In light of these
risks and uncertainties, there can be no assurance that the forward-looking
statements contained in this filing will in fact occur. In addition to the
information expressly required to be included in this filing, we will provide
such further material information, if any, as may be necessary to make the
required statements, in light of the circumstances under which they are made,
not misleading.
Although forward-looking statements in this report reflect the good faith
judgment of our management, forward-looking statements are inherently subject to
known and unknown risks, business, economic and other risks and uncertainties
that may cause actual results to be materially different from those discussed in
these forward-looking statements. Readers are urged not to place undue reliance
on these forward-looking statements, which speak only as of the date of this
report. We assume no obligation to update any forward-looking statements in
order to reflect any event or circumstance that may arise after the date of this
report, other than as may be required by applicable law or regulation. Readers
are urged to carefully review and consider the various disclosures made by us in
our reports filed with the Securities and Exchange Commission which attempt to
advise interested parties of the risks and factors that may affect our business,
financial condition, results of operation and cash flows. If one or more of
these risks or uncertainties materialize, or if the underlying assumptions prove
incorrect, our actual results may vary materially from those expected or
projected.
Except where the context otherwise requires and for purposes of this Form 10-Q
only, "we," "us," "our," "Company," "our Company," and "MCTC" refer to Cannabis
Global, Inc, formerly known as MCTC Holdings, Inc.
33
Overview
The following discussion and analysis of our financial condition and results of
operations ("MD&A") should be read in conjunction with our financial statements
and the accompanying notes to the financial statements included in this Form
10-Q.
The disclosure is based on our financial statements, which have been prepared in
accordance with U.S. GAAP. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities and expenses and related disclosure of contingent assets and
liabilities. Management bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
Description of Business
Cannabis Global operates multiple cannabis businesses in California. The Company
also has an active research and development programs in hemp and cannabis. Our
previous research and development of industrial hemp, and industrial hemp-based
CBD products, are currently suspended pending regulatory guidance from the U.S.
Food and Drug Administration.
The Company operates and manages Natural Plant Extract of California, Inc. (NPE)
which holds two active California cannabis licenses: (i) a Type 7 Manufacturing
License; and, (ii) a Distribution License. These licenses allow NPE to
distribute cannabis products in the State of California. Our operations at the
NPE facility emphasize product manufacturing and distribution. We began taking
customer orders for products manufactured at the NPE facility on April 21, 2021.
These products included several types of cannabis products, including
• Cannabis flower packaged in various weights, which are sold to California
licensed cannabis retailers and distributors;
• Cannabis Pre-rolls, which are sold to California licensed cannabis retailers
and distributors; and,
• Cannabis edible products, which are sold to California licensed cannabis
retailers and distributor
The cannabis products are Schedule 1 Controlled Substances under the CSA, and so
are illegal under federal law.
Our sales from the above product categories amount to 97% of our operating
revenues. Our cannabis research and development efforts have not generated
material revenue as of the date of this Prospectus
On April 18, 2020, we formed a subsidiary Hemp You Can Feel, Inc., a California
corporation ("HYCF"), as a wholly owned subsidiary of the Company. HYCF will be
engaged in research and development of hemp and CBD products. However, HYCF's
operations are currently suspended pending regulatory guidance from the U.S.
Food and Drug Administration.
In April, 2021, we signed a cannabis distribution agreement with Northern Lights
Distribution, Inc. (NLD), a wholly owned subsidiary of NPE. NLD has a California
cannabis distribution agreement allowing it to distribute cannabis and cannabis
products in California.
Comply Bag™
Comply Bag™ features a multi-layer, low-density polyethylene outer shell that
protects valuable shipments and allows manufacturers, buyers, and processors
full view of contents to assess quality. Each Comply Bag™ contains financial
institution-grade tamper-evident seams, self-sealing closures, and sequential
numbering to ensure what is sent is what is received. In addition, because all
U.S. states have implemented specific regulations for the tracking and tracing
of cannabis shipments from seed to sale, Comply Bags™ features regulator
demanded tracking features, such as those required in the California Cannabis
Track-and-Trace (CCTT) system, including Unique Identifier Tags (UID) mandated
by California via its contracted service provider, METRC, Inc.
34
Cannabis-Related Research and Development
Cannabis Global also has an active research and development program primarily
focused on creating and commercialize engineered technologies delivering hemp
extracts and cannabinoids to the human body. Additionally, we invest, or provide
managerial services, in specialized areas of the regulated hemp and cannabis
industries. Thus far, the Company has filed six provisional patents, three
non-provisional patents.
Our R&D programs included the following:
1. Development of new routes and vehicles for hemp extract and cannabinoid
delivery to the human body.
2. Production of unique polymeric nanoparticles and fibers for use in oral
and dermal cannabinoid delivery.
3. Research and commercialization of new methodologies to isolate and/or
concentrate various cannabinoids and other substances that comprise
industrial hemp oil and other extracts.
4. Establishment of new methods to increase the bioavailability of
cannabinoids to the human body utilizing nanoparticles and other proven
bioenhancers, including naturally occurring and insect produced
glycosides.
5. Development of other novel inventions for the delivery of cannabinoids
to the human body, which at this time are considered trade secrets by
the Company.
The Company's strategy is to develop a growing portfolio of intellectual
property relating to the processing of hemp extracts and cannabinoids into forms
that are easily and efficiently delivered to the human body and to companion
animals.
Caliwanna Joint Venture
On March 11, 2022, our subsidiaries Natural Plant Extract of California, Inc.
("NPE"), and Northern Lights Distribution ("NLD"), entered into a material
definitive agreement with Brand Packaging Factory, LLC, doing business as
"Caliwanna," a California limited liability company, and Nicolas Bitzer and
Daniel Afari (collectively, "Caliwanna"). Other than with respect to the
material definitive agreement, no material relationship exists between the
parties.
The parties agreed to form a joint venture operated through a Nevada corporation
to be named "Caliwanna Cannabis Global, Inc." The purpose of the Joint Venture
is to engage in business operations related to the manufacturing, distribution,
sales, and marketing of cannabis products as permitted under California laws,
codes, regulations, and issued permits and licenses held by NPE and NLD. The
term of the joint venture is perpetual. The firm will initially have a board of
directors consisting of three members, two of which are appointed by the
Registrant and one by Caliwanna. The board will appoint a general manager who
will be responsible for the day-to-day operations of the joint venture.
The parties intend to market and sell both "Caliwanna" branded products, and
other cannabis products developed for sale by the Registrant, NPE and NLD.
Subject to the completion of preliminary steps including making changes to the
Caliwanna web site and marketing a variety of the Registrant's current cannabis
products, the Registrant agreed to issue to Messrs. Bitzer and Afari a number of
common shares each equal to $25,000 valued as of the closing price on the ninety
first day after the closing of the material definitive agreement. One hundred
and twenty days after the closing of the material definitive agreement, the
Registrant will issue Messrs. Bitzer and Afari a number of common shares each
equal to $25,000 valued as of the closing price on the one hundred and twentieth
day after closing. Additional incentive shares of preferred stock are eligible
to be issued based upon revenues booked and collected by the joint venture for
both sales of the Caliwanna products and the Registrant's cannabis products in
subsequent quarters.
The joint venture may be dissolved by mutual decision of the parties, or by
Caliwanna in its discretion, within nine months from the effective date, or by
the occurrence of any event beyond the reasonable control of the joint venture,
which prevents it from operations consistent with the purpose of the joint
venture, or the joint venture is otherwise unable to carry out its purpose, and
such event or condition cannot be corrected within a reasonable time, at a
reasonable expense.
35
Lemon Glow Cultivation and Supply Agreement
On April 28, 2022, we entered into a material definitive agreement with Lemon
Glow Company, Inc., a wholly owned subsidiary of Sugarmade, Inc. (OTC: "SGMD").
Other than with respect to the material definitive agreement, no material
relationship exists between the parties.
Pursuant to a Cultivation and Supply Agreement, Lemon Glow agreed to cultivate
licensed cannabis for the Company during the 2022 Spring outdoor season. We
expect to utilize the cannabis for its manufacture and production of cannabis
products to be distributed by its wholly owned subsidiary, Northern Lights
Distribution. As consideration for the Cultivation and Supply Agreement, we
issued Lemon Glow a convertible promissory note in the principal amount of
$400,000. There is 8% interest. The maturity date is April 28, 2023. The
outstanding principal and interest are convertible into the Registrant's common
stock calculated at 75% of the average closing price of the Registrant's common
shares during the ten (10) trading days prior to Lemon Glow's election to
convert.
The Company owns no issued patents. The Company's patent activity to date is
disclosed below. There are two categories of patents: (i) expired provisional
patent applications which the Company now maintains as trade secrets; and, (ii)
filed patent applications currently pending review by the U.S. Patent and
Trademark Office (U.S.P.T.O.) and the International Patent Cooperation Union.
Expired Provisional Patents
A provisional patent application is a document issued by the U.S.P.T.O., that
helps protect a new invention from being copied during the 12-month period
before a formal patent application is filed. It is intended to give an inventor
time to explore the idea, test its commercial feasibility, or refine a product
before committing to the expensive and time-intensive process of a formal
application. The Company filed the following provisional patent applications but
chose not to pursue the filing of formal patent applications. The provisional
patents thus lapsed 12 months after each respective filing, and the Company now
maintains the intellectual properties related to each expired provisional patent
application as a trade secret. Each of the following provisional patent
applications were filed with the U.S.P.T.O.
Cannabinoid Delivery System and Method of Making
This provisional patent was filed September 13, 2019 (U.S. #62/900,181). A
formal patent application was required to be filed by September 13, 2020. The
Company chose to not pursue a formal patent application for this method patent
and decided to maintain the intellectual properties as trade secrets. The
provisional patent dealt the infusion of cannabis compounds into
pharmaceuticals, foods, and beverages.
Water Soluble Compositions With Enhanced Bioavailability
This provisional patent was filed September 24, 2019 (U.S. #62/905,129). A
formal patent application was required to be filed by September 24, 2020. The
Company chose to not pursue a formal patent application for this method patent
and decided to maintain the intellectual properties as trade secrets. The
provisional patent dealt the infusion of cannabis compounds into
pharmaceuticals, foods, and beverages.
Printed Shape Changing Article for the Delivery of Cannabinoids
This provisional patent was filed October 1, 2019 (U.S. #62/909,189). A formal
patent application was required to be filed by October 1, 2020. The Company
chose to not pursue a formal patent application for this method patent and
decided to maintain the intellectual properties as trade secrets. The
provisional patent dealt the infusion of cannabis compounds into
pharmaceuticals, foods, and beverages.
Electrosprayed and Electrospun Cannabinoid Compositions
This provisional patent was filed November 4, 2019 (U.S. #62/930,358). A formal
patent application was required to be filed by November 4, 2020. The Company
chose to not pursue a formal patent application for this method patent and
decided to maintain the intellectual properties as trade secrets. The
provisional patent dealt the infusion of cannabis compounds into
pharmaceuticals, foods, and beverages.
36
Cannabinoid Enriched Composition and Method of Treating a Medical Condition
Therewith
This provisional patent was filed December 11, 2019 (U.S. #62/946,894). A formal
patent application was required to be filed by December 11, 2020. The Company
chose to not pursue a formal patent application for this method patent and
decided to maintain the intellectual properties as trade secrets. The
provisional patent dealt the infusion of cannabis compounds into
pharmaceuticals, foods, and beverages.
Article, Method and Apparatus for Producing a Cannabinoid Enriched Beverage
This provisional patent was filed January 16, 2020 (U.S. #62/962,040). A formal
patent application was required to be filed by January 16, 2021. The Company
chose to not pursue a formal patent application for this method patent and
decided to maintain the intellectual properties as trade secrets. The
provisional patent dealt the infusion of cannabis compounds into
pharmaceuticals, foods, and beverages.
Printed Shape Changing Article for Delivery of Cannabinoids
This provisional patent was filed September 23, 2020 U.S. (#62/082,399). A
formal patent application was required to be filed by September 23, 2021. The
Company chose to not pursue a formal patent application for this method patent
and decided to maintain the intellectual properties as trade secrets. The
provisional patent dealt the infusion of cannabis compounds into
pharmaceuticals, foods, and beverages.
Filed Pending Patent Applications
A Cannaboside Composition and Method to Produce
This patent application was filed on January 18, 2021 (U.S.P.T.O. #17/151,607)
and is currently pending review by the U.S. Patent and Trademark Office. The
Company currently filed this patent application for international patent
protection through the Patent Cooperation Treaty (PCT/US2021/013830). The Patent
Cooperation Treaty was ratified by the United States and 152 other countries
which constitute the International Patent Cooperation Union for the cooperation
in the filing, searching, and examination, of applications for the protection of
inventions, and for rendering special technical services amongst the treaty
members. The application is pending. This patent application seeks protection
for a method to allow the easier mixing of cannabis into foods and beverages.
Generally, cannabis extracts are oil-based and do not mix well with water-based
foods and beverages. The technology invented by the company involves feeding
oil-based cannabis extracts to insects. The insects then process the extracts
through their bodies resulting in water-based compounds being excreted in the
insect bodies. These newly created water-soluble compounds can then be harvested
for use in foods, beverages, or pharmaceuticals. The patent claims coverage of
both the process to create the compounds, and the use of the compounds in
foodstuffs and pharmaceutical preparations.
Electrosprayed and Electrospun Cannabinoid Compositions and Process to Produce
This patent application was filed on November 4, 2020 (U.S.P.T.O. #17/089,497
and is currently pending review by the U.S. Patent and Trademark Office. The
Company currently filed this patent application for international patent
protection through the Patent Cooperation Treaty (PCT/US2020/058937). The Patent
Cooperation Treaty was ratified by the United States and 152 other countries
which constitute the International Patent Cooperation Union for the cooperation
in the filing, searching, and examination, of applications for the protection of
inventions, and for rendering special technical services amongst the treaty
members. The application is pending. The compositions invented by the company
are nanoparticles and nanofibers made from cannabinoids. Nanoparticles and
nanofibers are very small units of a substance. In the case of the technologies
invented by the company, the units of cannabinoids created are in the areas
between 100 nanometer and 700 nanometers wide. One nanometer is equal to one
billionth of a meter. It is thought that cannabinoids of these sizes are more
available to the human body and can be utilized in a host of different product
applications to increase efficacy. An added feature of the invented technology
is that the nanoparticles and nanofibers are based on all natural ingredients.
This differs, in the company's opinion, significantly from other preparations
that previously existed. Considering growing consumer taste for clean label
products, the company believes natural compositions of cannabinoids will be
highly preferred by consumers.
37
Cannabinoid Enriched Composition and Method of Using
This patent application was filed on December 11, 2020 (U.S.P.T.O. 17/120,042)
and is currently pending review by the U.S. Patent and Trademark Office. The
Company currently filed this patent application for international patent
protection through the Patent Cooperation Treaty (PCT/US2021/64683). The Patent
Cooperation Treaty was ratified by the United States and 152 other countries
which constitute the International Patent Cooperation Union for the cooperation
in the filing, searching, and examination, of applications for the protection of
inventions, and for rendering special technical services amongst the treaty
members. The application is pending. This patent application was filed on
December 11, 2020 (U.S.P.T.O. 17/120,042) and is currently pending review by the
U.S. Patent and Trademark Office. The Company currently filed this patent
application for international patent protection through the Patent Cooperation
Treaty (PCT/US2021/64683). The Patent Cooperation Treaty was ratified by the
United States and 152 other countries which constitute the International Patent
Cooperation Union for the cooperation in the filing, searching, and examination,
of applications for the protection of inventions, and for rendering special
technical services amongst the treaty members. The application is pending.
Specifically, the technology for which the company seeks protection are
cannabinoids in the form of free-flowing powders that can be used in foods and
beverages. The Company believes use of the technology could potentially
significantly lower manufacturing costs for numerous manufacturers. Cannabinoids
are typically sticky and unstable substances that are difficult to work with
relative to the manufacturing of foods, beverages, and pharmaceutical products.
The cannabinoid containing free-flowing powders invented by the company are
significantly easier for manufacturers to utilize, thus potentially reducing
manufacturing costs.
Trademark applications are as follows:
• Trademark - Hemp You Can Feel™ - On August 27, 2019, the Company
filed a trademark application with the U.S.P.T.O. for its Hemp You
Can Feel™ trade name. The U.S. Application Serial Number is
88595425. On June 24, 2020, the Company received a Notice of
Nonfinal Office Action from the USPTO indicating the Company would
have six months to respond to issues presented the Company by USPTO
or be abandoned. The Company plans to re-file the application.
• Trademark - Gummies You Can Feel™. The Company received a Notice of
Allowance from the USPTO on March 24, 2020. The U.S. Serial Number
for the trademark is 88590925.
• Trademark - Comply Bag™. During January of 2021, the Company filed a
trademark application with the U.S. Patent and Trademark Office
(USPTO) for its Comply Bag™ trade name. The application is pending.
• There can be no assurance any trademark protection will be provided,
or that we will be successful in protecting our trademarks if
issued.
38
Hemp You Can Feel Products
Our Hemp You Can Feel products reflect our research and development into hemp
infused foods and beverages. Our research and development focus are solely on
"Industrial Hemp" containing .3% or less of THC. As of the date of this filing,
our Hemp You Can Feel Product research and development operations are suspended
pending regulatory guidance from the U.S. Food and Drug Administration. We
intend to restart our research and development if and when the FDA issues
regulatory guidance on the use of hemp and hemp-based CBD.
Our research and development consisted of the following products, none of which
are available for sale as of the date of this filing:
• Hemp You Can Feel™ Alcohol Replacement Cocktail Mixers - This is a line
of alcohol-free cocktail mixers marketed online via our own website site
and via our marketing partners. All products in this line test as having
non-detectable levels of THC.
• Hemp You Can Feel™ Coffee Products - This is a line of hemp infused
coffee products. All products in this line test as having non-detectable
levels of THC.
• Hemp You Can Feel™ Gummies - This is a line of all-natural hemp infused
candy products. All products in this line test as having non-detectable
levels of THC.
• Hemp You Can Feel™ Sweeteners - A line of natural and artificial
sweeteners.
• Hemp You Can Feel™ Coffee Pod and Single Serving Beverage Pod Infusion
System - Based on internally developed technology and those developed by
the Company's contract research organization, the Company developed
product lines consisting of infusion technologies designed to easily and
to accurately dose single serving coffee and other beverage pods.
Management Services for Whisper Weed
On July 22, 2020, we signed a management agreement with Whisper Weed, Inc., a
California corporation ("Whisper Weed"). Edward Manolos, our director, is a
shareholder in Whisper Weed (see "Related Party Transactions"). Whisper Weed
conducts licensed delivery of cannabis products in California. The material
definitive agreement requires the parties to create a separate entity, CGI
Whisper W, Inc. in California as a wholly owned subsidiary of the Company. The
business of CGI Whisper W, Inc. will be to provide management services for the
lawful delivery of cannabis in the State of California. The Company will manage
CGI Whisper W, Inc. operations. In exchange for the Company providing management
services to Whisper Weed through the auspices of CGI Whisper W, Inc., the
Company will receive as consideration a quarterly fee of 51% of the net profits
earned by Whisper Weed. As separate consideration for the transaction, the
Company agreed to issue to Whisper Weed $150,000 in the Company's restricted
common stock, valued for purposes of issuance based on the average closing price
of the Company's common stock for the twenty days preceding the entry into the
material definitive agreement. Additionally, the Company agreed to amend its
articles of incorporation to designate a new class of preferred shares. The
preferred class will be designated and issued to Whisper Weed in an amount equal
to two times the quarterly payment made to the Company. The preferred shares
will be convertible into the Company's common stock after 6 months and shall be
senior to other debts of the Company. The conversion to common stock will be
based on a value of common stock equal to at least two times the actual sales
for the previous 90 day period The Company agreed to include in the designation
the obligation to make a single dividend payment to Whisper Weed equal to 90% of
the initial quarterly net profits payable by Whisper Weed. As of May 31, 2022,
the Company has not issued the common or preferred shares, and as of the date of
this filing the business is in the development stage.
39
Sales and Marketing
The Company recently began sales and marketing activities for its products, with
new products being released for sales on April 21, 2021. The Company primarily
plans to market its non-psychoactive products via its own brands and plans to
sell its psychoactive products into permitted and licensed entities only within
the State of California.
Competition
We operated and are entering markets that are highly competitive.
Relative to our prospects for commercializing polymeric nanoparticles and
nanofibers, there are many competitors with various approaches to cannabinoid
infusion for foods, beverages and other consumer products. While these currently
available technologies are not directly competitive with us, such technologies
may be viewed as being directly competitive by the marketplace in the future.
Many of the current market participants are well established with considerable
financial backing. We expect the quality and composition of the competitive
market in the hemp processing environment to continue to evolve as the industry
matures. Additionally, increased competition is possible to the extent that new
states and geographies enter into the marketplace as a result of continued
enactment of regulatory and legislative changes that de-criminalize and regulate
cannabis and hemp products, including the 2018 Farm Bill. We believe the
contemporaneous growth of the industry as a whole will result in new customers
entering the marketplace, thereby further mitigating the impact of competition
on our expected operations and results relating to our hemp processing
businesses.
Relative to our non-psychoactive cannabis extract powdered drink business
currently paused awaiting guidance from the FDA, there are relatively few market
participants in this sector, but management of the Company believes the
competitive situation will advance quickly over the coming months as new
companies target this potentially lucrative market opportunity. Additionally,
while large beverage industry participants have yet to launch products in this
area, we believe such market entrances are likely as the regulatory environment
is clarified by the FDA. This could significantly affect our ability to achieve
market success.
We believe the contemporaneous growth of the cannabis beverage sector and the
industry as a whole will result in new customers entering the marketplace,
thereby further mitigating the impact of competition on our expected operations
and results relating to hemp cultivation and processing business and joint
venture.
The psychoactive cannabis sector is also highly competitive with many
participants being better capitalized. The Company plans to distinguish its
products based on both quality and brand appearance.
Employees
As of May 31, 2022, we have three employees, including Arman Tabatabaei, our
chief executive officer and chief financial officer. The Company also relies on
the services of multiple contractors and service providers that perform various
R&D, operational and financial related services for the organization.
40
Results of Operations
For the Three months Ended May 31, 2022 and May 31, 2021
Company revenues for the quarterly financial period ending May 31, 2022, were
$792,406 compared to $940,491 reported during the quarterly financial period
ending May 31, 2021. The decrease was primarily attributable to certain
individually significant distribution sales in the prior period that did not
occur in the current period.
During the quarterly financial period ending May 31, 2022, cost of goods sold
was $780,778 compared to $729,589 for the year earlier period. The increase was
mainly attributable to higher input costs in the current period, and the prior
period containing certain higher margin distribution sales that were one time
transactions. While the quarterly financial period ending May 31, 2022 reports
NPE related revenues, no such revenues and cost of goods sold were included
during the quarterly financial period ending May 31, 2021,
During the quarterly financial period ending May 31, 2022, the Company decreased
operating expense to $354,816 from $706,904 for the financial period ending May
31, 2021. These decreases were mainly attributable to higher fees for
amortization expense related to final purchase price allocation on the NPE
Acquisition, and lower professional fees. These increases were offset by
decreases in general and administrative fees for the financial period ending May
31, 2022 compared to the financial period ending May 31, 2021, respectively.
Interest expenses for the quarterly financial period ending May 31, 2022 were
$301,220 compared to $3,630,290 for the financial period ending May 31, 2021.
The decrease was attributable to the prior period including charges related to
the issuance of convertible debt with derivative liabilities in excess of the
value of principal, and higher amortization of debt discount in the prior
period.
The Company had a gain on derivative liabilities of $145,714 for the quarterly
financial period ending May 31, 2022 compared to a gain of $1,410,329 for the
quarterly financial period ending May 31, 2021.
During the quarterly financial period ending May 31, 2022, net loss was $505,925
compared to net loss of $2,715,963 for the financial period ending May 31, 2021.
The decline in net loss in the current period was primarily due to the declines
in interest expense.
The net loss financial period ending May 31, 2022, results in a loss per share
of $0.00, compared to a loss of $0.04 per share during the same period one-year
ago.
For the Nine months Ended May 31, 2022 and May 31, 2021
Company revenues for the quarterly financial period ending May 31 2022, were
$1,989,358 compared to $970,717 reported during the quarterly financial period
ending May 31, 2021. The increase was primarily attributable to several factors,
including: 1) inclusion of consolidated revenues after acquiring a controlling
position in Natural Plant Extract of California, Inc. in February 2021 2)
reorganization of our distribution business and the signing of new customer
accounts, and 3) beginning of contract manufacturing for cannabis products.
During the financial period ending May 31 2022, cost of goods sold was
$2,004,642 compared to $737,542 for the year earlier period. The increase was
mainly attributable the inclusion of consolidated revenues and associated costs
of goods sold after acquiring a controlling position in Natural Plant Extract of
California, Inc. in February 2021, and increased input costs. While quarterly
financial period ending May 31, 2022 reports NPE related revenues, no such
revenues and cost of goods sold were included during the quarterly financial
period ending May 31, 2021,
41
During the financial period ending May 31, 2022, the Company increased operating
expense to $1,627,880 from $1,585,866 for the financial period ending May 31,
2021. These increases were mainly attributable to higher fees for amortization
expense related to final purchase price allocation and increase in professional
fees associated with increased operations. These increases were offset by
decreases in general and administrative fees for the financial period ending May
31, 2022 compared to the financial period ending May 31, 2021, respectively. The
increase in general and administrative fees was primarily due to the
reorganization of business activities after assuming control of NPE.
Interest expenses for the financial period ending May 31, 2022 were $4,044,453
compared to $6,336,773 for the financial period ending May 31, 2021. The
decrease was attributable to the prior period including charges related to the
issuance of convertible debt with derivative liabilities in excess of the value
of principal, and higher amortization of debt discount in the prior period.
During the financial period ending May 31, 2022, net loss was $834,972 compared
to net loss of $5,179,957 for the financial period ending May 31, 2021. The
decline in net loss in the current period was primarily due lower interest
expense, and the Company also recognized a gain on sale of investments of
$53,736, a gain on acquisition of $454,768 and equity investment income of
$934,867.
The net loss financial period ending May 31, 2022, results in a loss per share
of $0.00, compared to a loss of $0.11 per share during the same period one-year
ago.
Liquidity and Capital Resources
As of May 31, 2022 and August 31, 2021 our cash and cash equivalent balances
were $253,368 and $30,813, respectively.
Our primary internal sources of liquidity during the nine months ended May 31,
2022 were provided by proceeds from the issuance of convertible notes payable,
Series B Convertible preferred stock, and the sale of unregistered common shares
of the Company as follows:
On October 14, 2021, the Company sold 68,500 Preferred Series B shares to an
accredited investor, realizing gross proceeds of $68,500, and the agreement was
accounted for as a liability based on the terms of the Preferred Series B
designation.
On November 2, 2021, the Company sold 58,500 Preferred Series B shares to an
accredited investor, realizing gross proceeds of $58,500, and the agreement was
accounted for as a liability based on the terms of the Preferred Series B
designation.
On November 9, 2021, the Company sold 55,000 Preferred Series B shares to an
accredited investor, realizing gross proceeds of $55,000, and the agreement was
accounted for as a liability based on the terms of the Preferred Series B
designation.
On December 20, 2021, the Company sold 45,500 Preferred Series B shares to an
accredited investor, realizing gross proceeds of $45,500, and the agreement was
accounted for as a liability based on the terms of the Preferred Series B
designation.
On January 14, 2022, the Company sold 50,000 Preferred Series B shares to an
accredited investor, realizing gross proceeds of $50,000, and the agreement was
accounted for as a liability based on the terms of the Preferred Series B
designation.
On January 3, 2022, the Company entered into a Securities Purchase Agreement in
connection with the issuance of a 10% convertible note with the principal amount
of $100,000, with an accredited investor.
42
On January 6, 2022, the Company entered into a Securities Purchase Agreement in
connection with the issuance of a 8% convertible note with the principal amount
of $120,000, with an accredited investor.
On February 11, 2022, the Company entered into a Securities Purchase Agreement
in connection with the issuance of a 8% convertible note with the principal
amount of $130,000, with an accredited investor.
On February 11, 2022, the Company entered into a Securities Purchase Agreement
in connection with the issuance of a 12% convertible note with the principal
amount of $615,000, with an accredited investor.
On April 21, 2022, the Company entered into a Securities Purchase Agreement in
connection with the issuance of a 12% convertible note with the principal amount
of $200,000, with an accredited investor.
On April 28, 2022, the Company entered into a Securities Purchase Agreement in
connection with the issuance of a 8% convertible note with the principal amount
of $400,000, with an accredited investor.
We plan to use the proceeds from sales of the primary offering to partially
finance our business operations. We also intend to utilize cash on hand, loans
and other forms of financing such as the sale of additional equity and debt
securities and other credit facilities to conduct our ongoing business, and to
also conduct strategic business development and implementation of our business
plans generally. We are not intending to use any off-balance sheet financing
arrangements.
Other Contractual Obligations
Our Company entered into a one-year lease during August of 2019 for a commercial
food production facility located in Los Angeles, California. The one-year lease
at a base rate of $3,600 per month through September of 2020. Subsequent to the
end of the financial reporting period, ending November 30, 2021, the Company
agreed to extend the lease for commercial food production facility located in
Los Angeles, California, on a month-to-month basis. As of November 30, 2021, the
obligation was completed with the month-to-month contact ending in that date.
On June 5, 2020, the Company entered into an Assignment and Amendment to
Commercial Lease Agreement whereby it leased commercial property located at
11116 Wright Road, Los Angeles, CA 90262. The monthly rent is $11,000 per month.
The lease terminates on June 30, 2022. The premises is used in connection with
NPE's operations including Cannabis delivery and operation in accordance with
applicable city, county and California state law including, but not limited to,
the state cannabis licensing and program rules and local ordinances (see Part
II, Item 1, Legal Proceedings).
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Critical Accounting Policies
In December 2001, the SEC requested that all registrants list their most
"critical accounting polices" in the Management Discussion and Analysis. The SEC
indicated that a "critical accounting policy" is one which is both important to
the portrayal of a company's financial condition and results, and requires
management's most difficult, subjective or complex judgments, often as a result
of the need to make estimates about the effect of matters that are inherently
uncertain.
Our accounting policies are discussed in detail in the footnotes to our
financial statements included in our Annual Report on Form 10-K for the year
ended August 31, 2021, however we consider our critical accounting policies to
be those related to derivative financial instruments.
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Recently Issued Accounting Pronouncements
We review new accounting standards as issued. Although some of these accounting
standards issued or effective after the end of our previous fiscal year may be
applicable to the Company, we have not identified any standards that we believe
merit further discussion. We do not expect the adoption of any recently issued
accounting pronouncements to have a significant impact on our financial
position, results of operations, or cash flows.
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CANNABIS GLOBAL, INC. 
