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, 2021, 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.
38
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 and
hemp-related business in the United States. The Company also has an active
research and development program in the areas of cannabis and hemp.
The Company operates and manages Natural Plant Extract of California, Inc. (NPE)
which operates a licensed cannabis manufacturing and distribution business in
Lynwood, California, holding a Type 7 California Manufacturing and a
distribution license, allowing for cannabis product distribution anywhere in the
state. We plan to use the Lynwood NPE operation, combined with our internally
developed technologies, as a testbed to launch multi-state operations as soon as
possible after the expected removal of cannabis as a Scheduled substance from
the federal CSA is completed, and interstate commerce in cannabis is approved by
the federal government. The Company recently commenced operations at the NPE
facility effective immediately with emphasis on product manufacturing and
distribution. The Company began taking customer orders for its product
manufactured by NPE on April 21, 2021. These products included several types of
cannabis products.
The Company also operates Northern Lights Distribution, Inc. (NLD) out of its
Lynwood facility. During April of 2021, the Company signed a distribution
agreement relating to the distribution of cannabis and products containing
cannabis with a local licensed, permitted and compliant, cannabis delivery
services. The Company is seeking to further expand its business opportunities
for both NPE and NLD for its Lynwood location.
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.
39
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 and has recently announced its Comply Bag" secure
cannabis transport system with integrated track and trace capabilities via
smartphones which will be available soon.
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.
The Company owns no issued patents. The Company has filed multiple provisional
patents and three non-provisional patents as follows:
Cannabinoid Delivery System and Method of Making
• September 1, 2020 Original File Date - Cannabinoid Delivery System and
Method of Making
• September 6, 2021 Second Filing Date - Cannabinoid Delivery System and
Method of Making
Water Soluble Compositions With Enhanced Bioavailability
• September 24, 2019 - Water Soluble Compositions With Enhanced Bioavailability
• This provisional patent filing was abandoned, although the Company may
refile at a later date.
Printed Shape Changing Article for the Delivery of Cannabinoids
• October 15, 2019 Original File Date - Printed Shape Changing Article for
the Delivery of Cannabinoids.
• September 23, 2021 Second File Date - Printed Shape Changing Article for
the Delivery of Cannabinoids.
40
Cannabinoid Enriched Composition and Method of Treating a Medical Condition
Therewith
• The invention relates to a method of treating a medical condition
addressed by one or more cannabinoids, and a cannabinoid enriched
treatment composition. In particular, 1) wherein the cannabinoid enriched
treatment is produced by honey bees yielding a dry free-flowing solid or
2) wherein the cannabinoid enriched treatment is produced by other
insects.
November 4, 2019 - Original provisional patent filing - Cannabinoid
enriched composition and method for dry free-flowing powder.
• December 15, 2020 Non-provisional Patent Filing - Cannabinoid enriched
composition and method of treating a medical condition therewith. This was
a non-provisional patent filing.
December 15 2020, the Company filed an application under the Patent
Cooperation Treaty (PCT) seeking international protection of the
Cannabinoid enriched composition and method for dry free-flowing powder.
The Company plans to utilize these unique compounds and powdered
technologies to produce new cannabinoid infusion technologies for drugs,
foods and beverages. The solid form of the bee honey compounds are already
being utilized in the Company's Hemp You Can Feel™ branded products.
Cannabis Global plans to conduct additional development on its other
insect-based technologies to determine the extent of the unique properties
of these new insect produced cannabinoid compounds.
There can be no assurance any patent protection will be provided, or that
we will be successful in protecting our patents if issued.
Electrosprayed and Electrospun Cannabinoid Compositions
The application addresses new methods for the creation of highly
bioavailable and ultra-fast acting polymeric nanoparticles and nano fibers
of cannabinoids for use in beverages, food, topical, and other
applications.
The non-provisional application expands on the developments and
technologies outlined in the provisional applications that were filed on
November 4, 2019.
November 4, 2020, the Company filed an application under the Patent
Cooperation Treaty (PCT) seeking international protection of the
Electrosprayed and Electrospun Cannabinoid Compositions and Process to
Produce inventions.
The Company believes this technology holds significant advantages over
legacy cannabis infusion technologies. For example:
1) While legacy infusion technologies generally rely on chemicals to
maintain stability, the Company invented a chemical free method utilizing
only two ingredients. Surfactants and stabilizers are not needed.
2) The technology allows manufacturers to use only two ingredients (the
"Two Ingredient Method"). Surfactants and stabilizers are not needed. This
allows for the production of products with "Clean Labels".
3) Utilizing the "Two-Ingredient" method, food, beverage, and consumer
product formulators can add cannabinoids using very small amounts of
product, as each of the two ingredients make up about 50% of the product.
For example, the technology allows manufacturers of cannabis-infused foods
to add as little as 20 milligrams of material to dose psychoactive
cannabinoids at the 10 milligram legal limit within most states. Cannabis
Global expects to significantly improve this already high 50% loading rate
over the next few months, with loading rates of up to 75% expected.
4) by reducing cannabinoid particle sizes to nanometer proportions,
ultra-high levels of active ingredients get absorbed into the body in very
short periods of time. This allows formulators to use cannabis to gain a
desired effect, which can result in significant cost saving, especially
relating to the rare cannabinoids, which sell at many times more than
common cannabinoids, such as CBD or THC.
There can be no assurance any patent protection will be provided, or that
we will be successful in protecting our patents if issued.
41
Animal Based Cannabosides
• On January 18, 2021, the Company filed a non-provisional patent on a novel
method to produce water-soluble cannabinoids. The invention relates to a
composition comprising one or more cannabosides and a method of producing
one or more cannabosides. In particular, by feeding an insect a
cannabinoid and harvesting the insect, excluding honey bees, to improve
aqueous solubility and stability of cannabinoids. The patent claims
coverage of both the process to create the compounds, and the use of the
compounds in foodstuffs and pharmaceutical preparations.
We believe this set of technologies represents a new class of nature-based
cannabinoid preparations. This technology is separate from our chemical
free Two Ingredient nanoparticle and nano fiber infusion technologies for
which we filed a patent application during November of 2002. We believe
both sets of technologies are consistent with our corporate objective to
introduce novel chemical free cannabinoid infusion technologies to the
cannabis and hemp marketplaces.
On January 18, 2021, the Company filed an application under the Patent
Cooperation Treaty (PCT) seeking international protection of a composition
comprising one or more cannabosides and a method of producing one or more
cannabosides.
There can be no assurance any patent protection will be provided, or that
we will be successful in protecting our patents if issued.
Trademark applications are as follows:
Trade Mark - Hemp You Can Feel™ - On August 27 2019, the Company filed a
trademark application with the U.S. Patent and Trademark Office (USPTO) 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.
Trade Mark - 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.
Trade Mark - 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.
There can be no assurance any trademark protection will be provided, or that we
will be successful in protecting our trademarks if issued.
42
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™ 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
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.
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 February 28,
2021, the Company has not issued the common or preferred shares, and the
business is in the development stage.
43
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, 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 afect
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, 2021, 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.
44
Results of Operations
For the Three months Ended May 31, 2021 and May 31, 2019
Company revenues for the quarterly financial period ending May 31, 2021, were
$940,491 compared to $19,750 reported during the quarterly financial period
ending May 31, 2020. The increase was attributable to several factors,
including: 1) inclusion of consolidated revenues after acquiring a controlling
position in Natural Plant Extract of California, Inc. While quarterly financial
period ending May 31, 2021 reports NPE related revenues, no such revenues were
included during the quarterly financial period ending May 31, 2020, 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, 2021, cost of goods sold was $729,589
compared to $16,788 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. While quarterly financial period ending May 31, 2021 reports
NPE related revenues, no such revenues and cost of goods sold were included
during the quarterly financial period ending May 31, 2020,
During the financial period ending May 31, 2021, the Company decreased operating
expense to $706,904 from $1,238,650 for the financial period ending May 31,
2020. These decreases were mainly attributable to lower fees for consulting
services and professional fees. These decreases were offset by an increase on
general and administrative fees to $420,649 for the financial period ending May
31, 2021 compared to only $170,303 for the financial period ending May 31, 2020.
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, 2021 were $3,630,290
compared to $283,448 for the financial period ending May 31, 2020. The increase
was attributable to high levels of funding obtain to finance product development
and infrastructure in anticipation of increased customer orders and shipments.
During the financial period ending May 31, 2021, net loss was $2,715,963
compared to net loss of $2,748,569 for the financial period ending May 31, 2020.
The increase the relative net loss was mainly attributable to the higher cost of
goods sold and the increases in interest expenses incurred, which are only
partially offset by the increases in revenues.
The net loss financial period ending May 31, 2021, results in a loss per share
of $0.04, compared to a loss of $0.22 per share during the same period one-year
ago.
For the Nine Months Ended May 31, 2021 and May 31, 2020
Company revenues for the nine-month quarterly financial period ending May 31,
2021, were $970,717 compared to $24,753 reported during the nine-month financial
period ending May 31, 2020. The increase was attributable to several factors,
including: 1) inclusion of consolidated revenues after acquiring a controlling
position in Natural Plant Extract of California, Inc. While quarterly financial
period ending May 31, 2021 reports NPE related revenues, no such revenues were
included during the quarterly financial period ending May 31, 2020, 2)
reorganization of our distribution business and the signing of new customer
accounts, and 3) the beginning of contract manufacturing for cannabis products.
During the nine-month financial period ending May 31, 2021, cost of goods sold
was $737,542 compared to $19,688 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. While quarterly financial period ending May 31, 2021 reports
NPE related revenues, no such revenues and cost of goods sold were included
during the quarterly financial period ending May 31, 2020,
45
During the nine-month financial period ending May 31, 2021, the Company
decreased operating expense to $1,585,866 from $2,023,358 for the nine-month
financial period ending May 31, 2020. These decreases were mainly attributable
to lower fees for consulting services and professional fees.
Interest expenses for the nine-month financial period ending May 31, 2021 were
$6,336,773 compared to $836,901 for the nine-month financial period ending May
31, 2020. The increase was attributable to increased funding obtain to finance
product development and infrastructure in anticipation of increased customer
orders and shipments.
During the nine-month financial period ending May 31, 2021, net loss was
$5,179,957 compared to net loss of $3,896,202 for the nine-month financial
period ending May 31, 2020. The increase the relative net loss was mainly
attributable to the higher cost of goods sold and the increases in interest
expenses incurred, which are only partially offset by the increases in revenues.
The net loss nine-month financial period ending May 31, 2021, results in a loss
per share of $0.11, compared to a loss of $0.31 per share during the same period
one-year ago.
Liquidity and Capital Resources
As of May 31, 2021 and August 31, 2020 our cash and cash equivalent balances
were $268,007 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.
46
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.
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.
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.
47
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.
48
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.
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.
49
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.
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 December 1, 2020, the Company entered into an additional 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 Company received net cash proceeds of $30,000.
On January 3, 2021, we entered into a settlement agreement with Robert L.
Hymers, III ("Hymers") concerning five delinquent payments totaling $100,000 due
under the stock purchase agreement whereby the Company purchased 266,667 shares
of common stock of Natural Plant Extract of California Inc., a California
corporation ("NPE"), The Company was required to make $20,000 monthly for a
period of twenty-seven (27) months to Hymers, with the first payment commencing
September 1, 2020 and the remaining payments due and payable on the first day of
each subsequent month until Hymers received $540,000. On January 3, 2021, we
entered into a settlement concerning the outstanding payments by agreeing to
issue to Hymers a total of 1,585,791 shares of registered common stock from our
S-1 registration statement made effective during February 2021.
50
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.
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 $0.05. 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 $0.01. The Company received net proceeds
of $97,500.
On January 12, 2021, the Company entered into a Securities Purchase Agreement in
connection with the issuance of an 10% convertible note with the principal
amount of $115,500, with an accredited investor. The note is convertible
beginning 61 days from issuance at a fixed conversion price of $0.10 per share
or 60% or the lowest trading price for ten days prior to conversion in the event
that the Company's stock trades at less than $0.10 per share. The Company
received net proceeds of $100,000.
On January 26, 2021, the Company entered into two Securities Purchase Agreements
in connection with the issuance of two 10% convertible note with the principal
amount of $487,750, with an accredited investor. The note is convertible at 70%
of the average of the three lowest trading prices for 20 days prior to
conversion. The Company received net proceeds of $431,000.
On February 3, 2021, the Registrant completed the sale of an aggregate of
4,700,000 registered shares of common stock registered on Form S-1 (File No.
333-250038) in two transactions in exchange for a total purchase price of
$282,000. The parties to the transactions were the Registrant and BHP Capital
NY, Inc., and Platinum Point Capital, LLC. There was no material relationship,
other than in respect of the transactions, between BHP Capital NY, Inc.,
Platinum Point Capital, LLC and the Registrant or any of its affiliates, or any
director or officer of the Registrant, or any associate of any such director or
officer. BHP Capital NY, Inc. purchased 2,350,000 registered common shares in
exchange for $141,000. Platinum Point Capital, LLC purchased 2,350,000
registered common shares in exchange for $141,000.
On January 27, 2021 Cannabis Global, Inc. (the "Registrant") closed a material
definitive agreement (MDA) with Edward Manolos, a director and related party.
Pursuant to the MDA, the Registrant purchased from Mr. Manolos 266,667 shares of
common stock in Natural Plant Extract of California Inc., a California
corporation ("NPE"), representing 18.8% of the outstanding capital stock of NPE
on a fully diluted basis. NPE operates a licensed psychoactive cannabis
manufacturing and distribution business operation in Lynwood, California. NPE is
a privately held corporation. Under the terms of the MDA, the Registrant
acquired all beneficial ownership over the NPE shares in exchange for a purchase
price of two million forty thousand dollars ($2,040,000). In lieu of a cash
payment, the Registrant agreed to issue Mr. Manolos 11,383,929 restricted common
shares, valued for purposes of the MDA at $0.1792 per share. In connection with
the MDA, the Registrant became a party to a Shareholders Agreement by and among
Alan Tsai, Hymers, Betterworld Ventures, LLC, Marijuana Company of America, Inc.
and NPE. The Shareholders Agreement contains customary rights and obligations,
including restrictions on the transfer of the Shares. Additionally, the
Registrant intends, upon completion of the terms and conditions of the Material
Definitive Agreement, to control the production, manufacturing and distribution
of both NPE and the Registrant's products.
51
On February 16, 2021, we purchased 266,667 shares of common stock of Natural
Plant Extract of California Inc., a California corporation ("NPE"), from Alan
Tsai, in exchange for the issuance of 1,436,368 common shares. Other than with
respect to the transaction, there was no material relationship between Mr. Tsai
and the Registrant. By virtue of the transaction, the Registrant acquired 18.8%
of the outstanding capital stock of NPE, bringing its total beneficial ownership
in NPE to 56.5%. NPE operates a licensed psychoactive cannabis manufacturing and
distribution business operation in Lynwood, California. By virtue of its 56.5%
ownership over NPE, the Company will control production, manufacturing and
distribution of both NPE and Company products. In connection with the MDA, the
Registrant became a party to a Shareholders Agreement by and among Edward
Manolos, a director of the Company, Robert L. Hymers III, Betterworld Ventures,
LLC, Marijuana Company of America, Inc. and NPE. The Shareholders Agreement
contains customary rights and obligations concerning operations, management,,
including restrictions on the transfer of the Shares.
On February 16, 2021, the Company sold 1,133,334 registered common shares to
accredited investors, realizing $68,000.
On February 18, 2021, the Company sold 683,333 registered common shares to an
accredited investor, realizing proceeds of $41,000.
On February 28, 2021, the Company sold 153,000 Preferred Series B shares to an
accredited investor, realizing proceeds of $153,000. The proceeds were not
received until March 2021, and the agreement was accounted for as a liability
based on the terms of the Preferred Series B designation.
On March 19, 2021, the Company sold 78,500 Preferred Series B shares to an
accredited investor, realizing gross proceeds of $78,500, and the agreement was
accounted for as a liability based on the terms of the Preferred Series B
designation.
On April 22, 2021, the Company sold 53,750 Preferred Series B shares to an
accredited investor, realizing gross proceeds of $53,750, and the agreement was
accounted for as a liability based on the terms of the Preferred Series B
designation.
On May 27, 2021, the Company sold 43,500 Preferred Series B shares to an
accredited investor, realizing gross proceeds of $43,500, and the agreement was
accounted for as a liability based on the terms of the Preferred Series B
designation.
On March 8, 2021, the Company sold a convertible note with a face value of
$215,000. The note carries interest at 10% annually with a maturity date of
March 8, 2022 with a Conversion Price that shall be equal to the lesser of $0.10
per share (the "Fixed Conversion Price"), or seventy percent (70%) of the
average the three (3) lowest traded prices during the twenty (20) consecutive
trading day period ending on the trading day immediately prior to the applicable
conversion date.
52
On March 16, 2021, the Company sold a convertible note with a face value of
$215,000. The note carries interest at 10% annually with a maturity date of
March 16, 2022 with a Conversion Price that shall be equal to the lesser of
$0.10 per share (the "Fixed Conversion Price"), or seventy percent (70%) of the
average the three (3) lowest traded prices during the twenty (20) consecutive
trading day period ending on the trading day immediately prior to the applicable
conversion date.
On March 25, 2021, the Company sold 1,314,188 registered common shares at a
price of $0.06 for a total purchase price of $78,851.28 from the Registration
Statement effective November 19, 2020.
On May 20, 2021, the Company sold a convertible note to an accredited investor
for proceeds of $130,000 at 8% per annum with a maturity date of May 20, 2022
with a Conversion Price of Common Stock equal to 60% of the lowest trading price
of the Common Stock which the Company's shares are traded for the fifteen prior
trading days of Notice of Conversion.
On June 16, 2021, the Company sold a convertible note to an accredited investor
for proceeds of $135,000 at 8% per annum with a maturity date of June 16, 2022
with a Variable Conversion Price at a discount rate of 35% for the average of
the two (2) lowest Trading Prices for the Common Stock during the fifteen (15)
Trading Day period ending on the latest complete Trading Day prior to the
Conversion Date.
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 May 31, 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 May 31, 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.
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.
53
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, 2020, 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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CANNABIS GLOBAL, INC. 
