Forward-Looking Statements
Except for the historical information presented in this document, the matters
discussed in this Form 10-Q for the quarter ended November 30, 2020, 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 "GBGL" refer to Cannabis
Global, Inc, formerly known as MCTC Holdings, Inc.
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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.
Our Business
We are a developmental company primarily focused on entering a wide array of
hemp and related market sectors. Our primary objective is to create and
commercialization engineered technologies to deliver hemp extracts and
cannabinoids to the human body. We have recently expanding our focus to include
middle portions of the hemp and related value chain, including the licensing of
our core technologies to manufacturers of hemp and related products.
Ethos Bag
On November 16, 2020, the Company closed the acquisition of Ethos Technology
LLC, a Los Angeles startup ("Ethos") specializing in ultra-secure cannabis
transport containers for the commercial cultivation, processing and distribution
markets. Cannabis Global plans to utilize this technology to market a line of
secure transport products under the brand name Comply Bag™.. Under the terms of
the agreement with Directors Manolos and Nguyen from which Ethos was acquired,
Cannabis Global acquired all technologies and products of Ethos for up to six
million shares of restricted common stock to be paid out based on performance
milestones achieved as this unique transport technology is rolled out into the
licensed and regulated cannabis sector. Cannabis Global expects to begin
offering the products on a nationwide basis over the next few months. The Ethos
acquisition was with related parties, Directors Manolos and Nguyen. See section
designated Related Party Transactions for additional disclosures.
The Company believes the current generation of cannabis transport and security
products has not advanced to keep pace with the industry. All states where
cannabis has been legalized require cultivators, processors and distributors to
track all shipments, and shippers need to ensure the exact contents of what is
shipped to be received by the intended recipient. The new products to be
released by Cannabis Global are designed to meet these needs. The Company is
still in development for Comply Bag™products with expected delivery beginning
during the first calendar quarter of 2021. As of the date of this report, the
Company was not yet shipping or booking revenue from this product segment, and
this business is in the development stage as of the date of this filing.
26
Our Research and Development Programs
Our research and development program focuses on the development of new methods
to infuse cannabinoids, hemp, and hemp extracts into consumer products, or into
products to be sold to hemp, cannabis and hemp extract consumer product
manufacturers.
Our research and development programs include the following;
1) Development of new methods for hemp extraction 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) Development of new methods to administer both common and rare
cannabinoids to the human body. These efforts have centered on
Cannabidiol (CBD), Tetrahydrocannabivarin (THV-V), and Cannabinol
(CBN), but also apply to other cannabinoids.
5) Invention of new methods to create free flowing and other powders
of hemp extract and cannabinoid containing liquid substances.
6) Development of systems to infused coffee, tea and single service
beverage pods with hemp extracts and/or cannabinoids.
These research and development efforts resulted in the filing of six provisional
patent filings with the United States Patent and Trademark Office, which are
disclosed below, and other technologies which the Company protects as trade
secrets. A provisional patent application is a legal document filed in the
United States Patent and Trademark Office, that establishes an early filing
date, but does not mature into an issued patent unless the applicant files a
regular non-provisional patent application within one year. We received one
trademark and have one application pending.
Our Intellectual Property Portfolio
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.
The Company owns no patents, trademarks or service marks. The Company has
developed several technologies for which it plans to apply for patent protection
over the coming months.
The Company has filed six provisional patents on various hemp and related
cannabinoid infusion technologies. None of these have been accepted, evaluated
or issued by the U.S. patent office. All filings were made on a provisional
basis. Generally, filers of provisional patents have one year from the time of
filing to either re-file the patents as formal patent applications or to abandon
the filings. The Company plans to re-file the below, prior to the expiration of
the one year time period beginning on the dates listed below.
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These are as follows:
? September 1, 2020 - Cannabinoid Delivery System and Method of Making
Summary of Invention: This invention relates to a substrate comprising of a
biologically active component having one or mower biologically active components
disbursed on a surface of the substrate in the form of cannabinoid nanoparticles
or nanofibers.
Ownership Note: The patent rights are joint assigned to the Company and Kirby &
Padgett, LLC, a California Limited liability company.
? September 24, 2019 - Water Soluble Compositions With Enhanced Bioavailability
Summary of Invention: This invention relates to a composition comprising a
plurality of discrete nanoparticles
? October 15, 2019 - Printed Shape Changing Article for the Delivery of
Cannabinoids
Summary of Invention: This invention relates to a composition comprising a
morality of swallowable layers, which change shape when hydrated.
? November 4, 2019 - Electrosprayed and Electrospun Cannabinoids
Composition and Method to Produce
Summary of Invention - This invention relates to a composition comprising of a
plurality of discrete nanoparticles or nanofibers comprising one or more
cannabinoids disposed at least partially with any water-soluble or
water-miscible carrier having a maximum overall dimension of less than 1 micron.
? December 11, 2019 - Cannabinoid enriched composition and method for dry
free-flowing powder
Summary of Invention - A method for creating a free-flowing cannabinoid power at
room temperature without the use of surfactants, emulsifiers, or chemical
additives.
? January 16, 2020 - Article, Method and Apparatus for Producing
Cannabinoid Beverages
Summary of Invention - An apparatus and formulation of cannabinoids dispersible
in a matrix to be placed in a beverage pod or suitable for use as a single
serving beverage pod.
On March 24, 2020, the Company received notice of allowance for its trade mark
applications for Gummies You Can Feel™. The trademark numbers is U.S. Trademark
SN 88590925: GUMMIES YOU CAN FEEL: Docket/Reference No. MCTC-201.
The Company claims common law trademark rights to "Hemp You Can Feel" and has
put forth an application to the U.S. Patent and Trademark Office for registered
trademark protection. As the time of filing this applications is pending.
28
There can be no assurance any trademark protection will be provided, or that we
will be successful in protecting our trademarks if issued.
Our Business Operations
Our business operations are as follows:
Hemp You Can Feel Products
The Hemp You Can Feel product line consists of hemp infused foods and beverages.
The infusion technologies utilized are a combination on water soluble
preparations invented by the Company's internal partner research teams.
The product line consists of the following:
• Hemp You Can Feel™ Alcohol Replacement Cocktail Mixers - This is a line of
alcohol-free cocktail mixers marketed on line 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™ Kombucha Beverages. This is a line of hemp infused
fermented tea products. All products in this line test as having
non-detectable levels of THC.
• Hemp You Can Feel™ Sweeteners - This is a line of natural and artificial
sweeteners consisting of:
• Hemp You Can Feel Organic Sugar
• Hemp You Can Feel Sucralose Blend
• Hemp You Can Feel Stevia Blend
• Hemp You Can Feel Aspartame
• Hemp You Can Feel Saccharin
Upcoming additions to the product line will include:
• Hemp You Can Feel Monk Fruit Sweetener (monk fruit extract and erythritol)
• Hemp You Can Feel Non-Dairy Creamer
• Hemp You Can Feel French Vanilla Non-Dairy Creamer
• Hemp You Can Feel Non-Dairy Creamy Chocolate Creamer
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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 is marketing product lines
consisting of infusion technologies designed to easily and to accurately dose
single serving coffee and other beverage pods.
Marketing Joint Venture Agreement
On May 6, 2020, the Company signed a joint venture agreement with RxLeaf, Inc.
("RxLeaf") a Delaware corporation, creating a joint venture for the purpose of
marketing the Company's products to consumers. Under the terms of the agreement,
the Company will produce products, which will be sold by RX Leaf via its digital
marketing assets. The Company agreed to share the profits from the joint venture
on a 50/50 basis. Marketing of the Company's product began during August of
2020.
Polymeric Nanoparticles and Polymeric Nanofibers Research Program
The Company has an active research and development program to develop novel
polymeric nanoparticles and nanofibers of cannabinoids and hemp extracts.
Polymeric nanoparticles are very small solid particles with a size in the range
of 10-1000 nanometers (nm or billionth of a meter), and are made of
biodegradable and biocompatible polymers or copolymers, in which cannabinoids or
other active ingredients can be entrapped or encapsulated. Polymeric
nanoparticles are noted for and have attractive characteristics, such as small
size, near water solubility, high degrees of bioavailability, long shelf life
and stability during storage. These properties are thought to be especially
beneficial relative to delivery of cannabinoids and hemp extracts to the human
body.
Polymeric nanofibers are fibers with diameters several orders of magnitude
smaller than conventional fibers, typically in the size range of a few
nanometers to one micrometer. Due to their large surface areas per unit mass and
extremely small pore size, these nanofibers demonstrate unique properties,
making the technology especially well-suited to transdermal delivery of active
ingredients, including cannabinoids.
Project Varin
The primary goal of Project Varin is the development of THC-V delivery methods
that improve bioavailability of the cannabinoid to the human body. The project
was recently expanded to include cannabinol (CBN) an additional rare
cannabinoid.
In the first stage of the program researchers produced THC-V polymeric
nanoparticles and nanofibers based on the Company's patent-pending technologies.
In the second phase of development, the Company plans to apply its ongoing
cannabinoid glycosides research to THC-V, in order to produce THC-V with
unparalleled levels of availability at minimal usage levels.
As a result of Project Varin, the Company has developed several new methods to
produce cannabinoid nanoparticles and nanofibers, which the Company plans to
formulate into food and beverage ingredients for used in its own products or to
be sold to other companies for inclusion in food, beverage, or other consumer
goods. The Company plans to continue other areas of delivery systems research
via Project Varin including its programs pertaining to cannabinoid glycosides,
polymeric cannabinoid nanoparticles and nanofibers, and its hemp extract-based
alcohol replacement technologies.
30
Edible, Dissolvable Film Enhanced with Solid Nanoparticles of Cannabinoids
Research Program
The Company is seeking to commercialize a unique invention of edible, disposable
film enhanced with solid nanoparticles of cannabinoids under an agreement with
Kirby & Padgett, LLC, a California limited liability company, entered into
during June of 2019. Management believes there are numerous applications for
such a product, such as a container for ready-made foods, protein powders,
vitamins, and nutraceuticals that can be simply dropped into cold beverages,
thus allowing the consumer to avoid additional steps of mixing ingredients.
Additionally, since the film is impregnated with what is believed to be highly
bioavailable cannabinoids, the film will perhaps serve a dual purpose as a
delivery vehicle for cannabinoids to the body. Future versions of the film could
include ingredients such as vitamins, trace minerals or active pharmaceutical
ingredients. On June 6, 2019, the Company entered into a joint intellectual
property ownership and consulting agreement with Kirby & Padgett, LLC, a
California Limited liability company in order to more fully develop and to
commercialize the invention. Any intellectual property developed under the
collaboration effort will be considered joint property with all rights, title
and interest assigned jointly to the Company and Kirby. Each Party shall work
with the other Party relative to all business and monetization of such new Joint
Intellectual Property and neither Party shall have any preferred rights over the
other. Additionally, either party shall have the right to market the new
invention with any and all revenues, costs and profits to be shared on a fifty
percent/fifty percent (50%/50%) shares by the parties. All expenses will be
agreed to in advance, with each Party sharing based on predetermined percentages
of such expenses.
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, a director of the
Company, is a shareholder in Whisper Weed (see "Related Party Transactions").
Whisper Weed conducts licensed delivery activity 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 shall be
designated and issued to Whisper Weed in an amount equal to two times the
quarterly payment made to the Company. The preferred shares shall 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 January 7, 2021, no
preferred shares have been designated or issued.
31
Sales and Marketing
The Company recently began sales and marketing activities for its products and
inventions. The Company primarily plans to market its non-psychoactive products
via a "white label" strategy where the company produces products marketed and
sold by other companies. The Company also plans to market its products directly
to consumers.
The Company plans to market is secure cannabis transport system - Comply Bag -
via direct and distribution sales methods.
Significant Customers
The company has no significant customers.
Competition
We 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, 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.
Employees
The Company has one employee, CEO, Arman Tabatabaei. Additionally, the Company
relies on the services of numerous consultants who perform various tasks for the
Company. Our U.S employee is not represented by a labor union.
32
Results of Operations
For the Three months Ended November 30, 2020 and November 30, 2019
Product revenues from sales of products for the quarterly financial period
ending November 30, 2020, were $4,410 compared to $5,003 reported during the
quarterly financial period ending November 30, 2019. The Company is in process
of introducing our products to the marketplace. Including $120 of Other
Revenues, total revenues for the quarterly financial period ending November 30,
2020, were $4,530 compared to $10,003 for the quarterly financial period ending
November 30, 2019.
During the financial period ending November 30, 2020, Cost of Goods Sold was
$1,300 compared to $2,900 for the year earlier period. The decrease was
attributable to a changing mix of products sold during the period ending
November 30, 2020.
During the financial period ending November 30, 2020, the Company increased
Operating Expense as it organized the production of new products. Advertising
Expense during the period was $51,022 and Consulting Services were $231,301.
Professional Fees and General and Administrative Fees were $50,632 and $114,436,
respectively. Total operating expenses were $447,391. For the period ending
November 30, 2019, the Company incurred only $373,793 in operating expenses. The
increase in operating expenses for the period ending 2020 versus 2019 was
attributable to the ongoing reorganization of the business, the hiring of
consultants and preparation for an increasing number of customer orders for new
products developed.
Interest expenses for the financial period ending November 30, 2020 were
$772,755 compared to $31,250 for the financial period ending November 30, 2019.
The increase was attributable to increased funding obtained to finance product
development and infrastructure in anticipation of increased customer orders and
shipments.
During the financial period ending November 30, 2020, net loss was $353,224
compared to net loss of $385,437 for the financial period ending November 30,
2019. The decrease the relative net loss compared to a profit was attributable
mainly attributable to a favorable change in the amount of carried derivative
liabilities, which offset the large increase in interest expenses.
The net loss financial period ending November 30, 2020, results in a net loss
per share of $0.02, compared to a net loss of $0.03 per share for the financial
period ending November 30, 2020.
Market Information
Our common stock trades on the OTC Markets Pink under the stock symbol CBGL.
Transfer Agent
Pacific Stock Transfer Company, located at 6725 Via Austin Pkwy., #300, Las
Vegas NV 89119 and telephone number of (702) 361-3033 is the registrar and
transfer agent for our common stock. As of November 30, 2020, there were
approximately 72 holders of record of our common stock.
33
DESCRIPTION OF PROPERTY
Our headquarters are located at 520 S. Grand Avenue, Suite 320, Los Angeles,
California 90071 where are we lease office space under a contract effective
August 15, 2019, which expired on August 14, 2020. We now rent the office space
on a month to month basis for $800 per month.
Our Company has also entered into a lease for a commercial food production
facility, which is also located in Los Angeles, California. The one-year lease
at rate of $3,300 per month was entered into as of August 2019. The lease is
expired with the location now being rented on a month to month basis.
We believe that our existing office facilities are adequate for our needs.
Should we require additional space at that time, or prior thereto, we believe
that such space can be secured on commercially reasonable terms.
Liquidity and Capital Resources
As of November 30, 2020 and November 30, 2019 our cash and cash equivalent
balances were $59,885 and $2,338, respectively.
Our primary internal sources of liquidity were provided by proceeds from the
sale of unregistered common shares and warrants of the Company as follows:
On July 3, 2019, we sold 2,000,000 restricted shares at $0.025 a share for the
amount of $50,000 to an accredited investor. The investor also received
2,000,000 warrants to purchase 2,000,000 shares at a price of $0.15 per share.
The warrants expire on July 3, 2020. The sale was made pursuant to SEC Rule 506
Section 4(2), which provides exemption from registration for transactions, which
are not public offerings.
On July 10, 2019, we sold 1,000,000 restricted shares at $0.025 a share for the
amount of $25,000 to an accredited investor. The investor also received
1,000,000 warrants to purchase 1,000,000 shares at a price of $0.15 per share.
The warrants expire on July 10, 2020. The sale was made pursuant to SEC Rule 506
Section 4(2), which provides exemption from registration for transactions, which
are not public offerings.
On July 16, 2019, we sold 1,400,000 restricted shares at $0.025 a share for the
amount of $35,000 to an accredited investor. The investor also received
1,400,000 warrants to purchase 1,400,000 shares at a price of $0.15 per share.
The warrants expire on July 16, 2020. The sale was made pursuant to SEC Rule 506
Section 4(2), which provides exemption from registration for transactions, which
are not public offerings.
On July 19, 2019, we sold 1,000,000 restricted shares at $0.025 a share for the
amount of $25,000 to an accredited investor. The investor also received
1,000,000 warrants to purchase 1,000,000 shares at a price of $0.15 per share.
The warrants expire on July 19, 2020. The sale was made pursuant to SEC Rule 506
Section 4(2), which provides exemption from registration for transactions, which
are not public offerings.
On August 15, 2019, we sold 2,000,000 restricted shares at $0.025 a share for
the amount of $50,000 to an accredited investor. The investor also received
2,000,000 warrants to purchase 2,000,000 shares at a price of $0.15 per share.
The warrants expire on August 15, 2020. The sale was made pursuant to SEC Rule
506 Section 4(2), which provides exemption from registration for transactions,
which are not public offerings.
34
On August 19, 2019, we sold 1,000,000 restricted shares at $0.025 a share for
the amount of $50,000 to an accredited investor. The investor also received
1,000,000 warrants to purchase 1,000,000 shares at a price of $0.15 per share.
The warrants expire on August 19, 2020. The sale was made pursuant to SEC Rule
506 Section 4(2), which provides exemption from registration for transactions,
which are not public offerings.
On August 27, 2019, we sold 1,000,000 restricted shares at $0.025 a share for
the amount of $25,000 to an accredited investor. The investor also received
1,000,000 warrants to purchase 1,000,000 shares at a price of $0.15 per share.
The warrants expire on August 27, 2020. The sale was made pursuant to SEC Rule
506 Section 4(2), which provides exemption from registration for transactions,
which are not public offerings. As of the date of this filing, these shares have
not yet been issued to the purchaser.
On November 6, 2019, we sold a convertible not to an accredited investor for
$20,000. The terms of the six month note allow 7% annual interest and for the
conversion into common shares at $0.75. Additionally, the investor received a
warrant providing the investor the right to purchase 26,666 common shares at a
price of $3.50.
On December 30, 2019, The Company sold a convertible note to an accredited
investor. The $63,000 note calls for annualized interest of 10% and is due on
December 20, 2020. The note converts in common shares at 40% discount. This note
is attached as an exhibit hereto.
On December 16, 2019, the Company's board of directors by unanimous written
consent caused the authorization of ten million (10,000,000) shares of preferred
stock, par value $0.0001 per share, of the Company ("Preferred Stock") in one or
more series, and expressly authorized the Board of Directors of the Company (the
"Board"), subject to limitations prescribed by law, to provide, out of the
unissued shares of Preferred Stock, for series of Preferred Stock, and, with
respect to each such series, to establish and fix the number of shares to be
included in any series of Preferred Stock and the designation, rights,
preferences, powers, restrictions, and limitations of the shares of such series.
During the quarterly period ended February 29, 2020, the Company issued four
convertible promissory notes having an aggregate principal amount of $256,500,
aggregate original issue discount (OID) of $10,500, and aggregate legal fees of
$11,000, resulting in aggregate net proceeds to the Company of $235,000. The
notes mature in one year from the respective issuance date and bear interest at
the rate of 10% per annum, payable at maturity. Commencing one hundred eighty
(180) days following the issuance date of $198,750 of the notes and commencing
immediately following the issuance of $57,750 of the notes, the noteholders
shall have the right to convert all or any part of the outstanding and unpaid
principal balance of the note, at any time, into shares of common stock of the
Company at variable conversion prices ranging from 50% - 60% of the lowest
previous fifteen (15) to twenty (20) trading day closing trade prices of the
Company's common stock, subject to adjustment. As a result of the variable
conversion prices, upon issuance, the Company recognized total debt discount of
$256,500, which is being amortized to interest expense over the term of the
notes. The Company is prohibited from effecting a conversion of the note to the
extent that, as a result of such conversion, the noteholder, together with its
affiliates, would beneficially own more than 4.99% of the number of shares of
the Company's common stock outstanding immediately after giving effect to the
issuance of shares of common stock upon conversion of the note.
35
On March 19, 2020, the Company entered into a Securities Purchases Agreement and
Convertible Promissory Note in the principal amount of $150,000. The note, which
is payable one year after issuance, carries interest at 10% per annum. On March
19, 2020, the Company received its first disbursement under this agreement in
the amount of $50,000. Less an original discount and other certain fees, the
Company netted $43,000. The note converts to common shares at a 40% discount to
the lowest traded price during the 25 days prior to conversion. Additionally,
the issuer was granted three-year warrant coverage at $0.48. The note shall not
be able to be converted in an amount that would result in the beneficial
ownership of more than 4.99% of the Company outstanding common stock.
On May 4, 2020 the Company received its Second disbursement under this agreement
win the amount of $25,000. Less an original discount and other certain fees, the
Company netted $21,000. This note converts to common shares at a 40% discount to
the lowest traded price during the 25 days prior to conversion.
On May 28, 2020, Mr. Robert L. Hymers III, a former director and former chief
financial officer, returned 2,000,000 Series A Preferred shares to the corporate
treasury. As of the date of this filing, there were 6,000,000 Series A Preferred
shares issued and outstanding.
On June 19, 2020, we sold 352,941 registered common shares to an investor in
exchange for $60,000 by subscription from our Form S-1 registration, file number
333-238974.
On June 23, 2020, we sold 116,667 registered common shares to an investor in
exchange for a settlement by subscription form our Form S-1 registration, file
number 333-238974.
On June 30, 2020, we sold 289,301 registered common shares to an investor in
exchange for $50,000 by subscription form our Form S-1 registration, file number
333-238974.
On July 7, 2020, we sold 305,810 registered common shares to an investor in
exchange for $35,000 by subscription form our Form S-1 registration, file number
333-238974.
On July 10, 2020, the Company receives a $25,000 disbursement from a previously
signed convertible note. On March 19, 2020, the Company entered into a
Securities Purchases Agreement and Convertible Promissory Note in the principal
amount of $150,000. The note, which is payable one year after issuance, carries
interest at 10% per annum. On March 19, 2020, the Company received its first
disbursement under this agreement in the amount of $50,000. Less an original
discount and other certain fees, the Company netted $43,000. The note converts
to common shares at a 40% discount to the lowest traded price during the 25 days
prior to conversion. Additionally, the issuer was granted three-year warrant
coverage at $0.48. The note shall not be able to be converted in an amount that
would result in the beneficial ownership of more than 4.99% of the Company
outstanding common stock.
On July 21, 2020, the Company entered into a Securities Purchases Agreement and
Convertible Promissory Note in the principal amount of $78,750. The note, which
is payable one year after issuance, carries interest at 6% per annum. The note
converts to common shares at a 60% discount to the lowest traded price during
the 30 days prior to conversion.
On August 6, 2020, we sold 2,899,017 registered common shares to an investor in
exchange for $278,338, by subscription form our Form S-1 registration, file
number 333-238974. Additionally, the investor was provided with 150,000
commitment shares, and was issued a convertible for $50,000. The note calls for
annualized interest of 10% and is due on August 7, 2021. The note converts into
common shares at a fixed price of $0.1631.
36
On August 12, 2020, The Company sold a convertible note to an accredited
investor. The $55,000 note calls for annualized interest of 10% and is due on
May 21, 2021. The note converts into common shares at a fixed price of $0.1005.
On August 14, 2020, The Company sold a convertible note to an accredited
investor. The $50,000 note calls for annualized interest of 10% and is due on
May 14, 2021. The note converts into common shares at a fixed price of $0.1005.
On August 17, 2020, we sold 510,204 registered common shares to an investor in
exchange for $51,275.50 by subscription form our Form S-1 registration, file
number 333-238974.
On August 28, 2020, the Company sold a convertible note to an accredited
investor. The $113,000 note calls for annualized interest of 8% and is due on
August 28, 2021. The note converts to common shares at a 37% discount to the
lowest traded price during the 15 days prior to conversion.
On September 2, 2020, the Company issued two convertible promissory notes with
an aggregate principal amount of $107,000, with the Company receiving proceeds
of $100,000 after original issue discount of $5,000 and deferred finance costs
of $2,000. The notes mature in September 2021 and bear interest at 12% per
annum. Commencing one hundred eighty (180) days following the issuance date of
the notes, the noteholders shall have the right to convert all or any part of
the outstanding and unpaid principal balance of the note, at any time, into
shares of common stock of the Company at variable conversion price of 60% of the
lowest previous twenty (20) trading day closing trade prices of the Company's
common stock, subject to adjustment. The Company is prohibited from effecting a
conversion of the note to the extent that, as a result of such conversion, the
noteholder, together with its affiliates, would beneficially own more than 4.99%
of the number of shares of the Company's common stock outstanding immediately
after giving effect to the issuance of shares of common stock upon conversion of
the note.
On September 22, 2020, the Company issued a convertible note in the amount of
$78,000. The note matures on September 22, 2021 and bears 8% interest rate per
annum. The note is convertible into common shares at 37% discount for the
average of the two lowest trading price of the common stock during the 15
trading day period ending on the latest complete trading day prior to the
conversion date.
On September 24, 2020, the Company issued a convertible note in the amount of
$78,000. The note matures on June 24, 2021 and bears 10% interest rate per
annum. The note is convertible into common shares at a fixed conversion price of
$0.06 or a conversion discount at rate of 30% to the lowest trading price during
the previous twenty (20) trading days to the date of a conversion notice;
whichever is lower.
On September 30, 2020, the Company entered into a securities exchange agreement
with Marijuana Company of America, Inc., a Utah corporation ("MCOA"). By virtue
of the agreement, the Company issued 7,222,222 shares of its restricted common
stock to MCOA in exchange for 650,000,000 shares of MCOA restricted common
stock. The Company and MCOA also entered into a lock up leak out agreement which
prevents either party from sales of the exchanged shares for a period of 12
months. Thereafter the parties may sell not more than the quantity of shares
equaling an aggregate maximum sale value of $20,000 per week, or $80,000 per
month until all Shares and Exchange Shares are sold.
37
On November 16, 2020, the Company sold an aggregate 3,000,000 shares of Company
common stock, par value $0.001, equal in value to $177,000 based on the closing
price on November 16, 2020. Of the total sold, 1,500,000 shares of common stock
were sold to Edward Manolos and 1,500,000 shares of common stock were sold
to Thang Nguyen. The sales were made in regards to the Company's acquisition of
Ethos, and its disclosures under Item 1.01 are incorporated herein by
reference. The Company issued the above shares of its common stock pursuant to
the exemption from the registration requirements of the Securities Act of 1933,
as amended, available to the Company by Section 4(a)(2) promulgated thereunder
due to the fact that it was an isolated issuance and did not involve a public
offering of securities. Messrs. Manolos and Nguyen were "accredited investors"
and/or "sophisticated investors" pursuant to Section 501(a)(b) of the Securities
Act, who provided the Company with representations, warranties and information
concerning their qualifications as "sophisticated investors" and/or "accredited
investors." The Company provided and made available to Messrs. Manolos and
Nguyen full information regarding its business and operations. There was no
general solicitation in connection with the offer or sale of the restricted
securities. Messrs. Manolos and Nguyen acquired the restricted common stock for
their own accounts, for investment purposes and not with a view to public resale
or distribution thereof within the meaning of the Securities Act. The restricted
shares cannot be sold unless subject to an effective registration statement by
the Company, or by an exemption from registration requirements of Section 5 of
the Securities Act-the existence of any such exemption subject to legal review
and approval by the Company.
On December 1, 2020, the Company entered into a Securities Purchase Agreement in
connection with the issuance of an 8% convertible note with the principal amount
of $33,500, with an accredited investor. The note is convertible anytime after
180 days of issuance at a variable conversion price of 63% of the Market Price
at time of conversion. Market Price is defined as the average of the two lowest
trading prices during the fifteen (15) days prior to conversion. The Note and
Purchase Agreement are attached to this filing. The Company received net cash
proceeds of $30,000
On January 5, 2021, the Company entered into a Securities Purchase Agreement in
connection with the issuance of an 10% convertible note with the principal
amount of $110,000, with an accredited investor. The note is convertible at a
fixed conversion price of $0.005. In the event of default by the Company, or
after the public announcement of a change of control transaction as defined in
the agreement, the conversion price is $0.001. The Company received net proceeds
of $97,500.
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. The Company has
agreed to extend the lease for commercial food production facility located in
Los Angeles, California, on a month-to-month basis, upon the August 2019
expiration.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
38
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, 2019, however we consider our critical accounting policies to
be those related to derivative financial instruments.
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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