UNITED STATES

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DCD.C. 20549

FORM 10-Q

FORM 10-Q

(Mark One)

For the quarterly period ended November 30, 2019

For the transition period from ___________ to ___________.

Commission File Number: Number 000-27039

CANNABIS GLOBAL, INC.

MCTC HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

(310) 986-4929

(Registrant’sRegistrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧[X] No ◻[_]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-TST (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒[X] No ☐[_]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2). [_]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐[_]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o[_]   No ý

[X]

As of November 30, 2019, and January 14,the end of the quarterly reporting period ending May 31, 2020 there were 14,833,128 and 15,093,12817,066,096 shares of the registrant's common stock outstanding. As of July 15, 2020, there were 24,127,592 shares of the registrant’s common stock outstanding, respectively.

MCTC HOLDINGS, INC. 

FORM 10-Q

CANNABIS GLOBAL, INC. 

FORM 10-Q

For the Period Ended November 30, 2019May 31, 2020

Table of Contents

PART I — FINANCIAL INFORMATION

MCTC Holdings, Inc.

CONSOLIDATED BALANCE SHEETS

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

MCTC Holdings, Inc.

CONSOLIDATEDITEM I — FINANCIAL STATEMENTS OF OPERATIONS

Unaudited 

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

MCTC HOLDINGS INCCANNABIS GLOBAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICITBALANCE SHEET

FOR THE THREE MONTHS ENDED NOVEMBER 30, 2019 AND 2018

(Unaudited)

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

MCTC Holdings, Inc.

CONSOLIDATED STATEMENTS OF CASHFLOWS

Unaudited 

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

CANNABIS GLOBAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)

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

CANNABIS GLOBAL INC AND SUBSIDIARIES 

 CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT

 FOR THE NINE MONTHS ENDED MAY 31, 2020

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

CANNABIS GLOBAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

MCTC HOLDINGS,The accompanying notes are an integral part of these unaudited consolidated financial statements

CANNABIS GLOBAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2019May 31, 2020

(Unaudited)

Note 1. Organization and Description of Business

Cannabis Global, Inc., formerly known as MCTC Holdings, Inc., is located at 520 SS. Grand Avenue, Suite 320, Los Angeles, California 90071. Our telephone number is (310) 986-4929 and our website is accessible at www.cannabisglobalinc.com. Our shares of Common Stock are quoted on the OTC Markets Pink Tier, operated by OTC Markets Group, Inc., under the ticker symbol “MCTC.” We are a research and development company focused on cannabinoid research.research and unique delivery cannabinoid delivery methods.

Our aim is to create and commercialize proprietary engineered technologies to deliver hemp extracts and cannabinoids to the human body. Additionally, we planWe are achieving this goal by way of the introduction to developthe industry of new hemp and hemp extract infusion technologies, and via the introduction of new consumer products based on these and other proprietary technologies.

Our R&Dresearch and development programs included the following;

1)Development of new routes and vehicles 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. In particular, we are developing specific technology to delivery rare cannabinoids.

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, nanofibers, and other proven bioenhancers, including naturally occurring glycosides, unique infusions with other food stuffs, and d-α-Tocopherol polyethylene glycol 1000 succinate (TPGS), which is widely used as a water-soluble vitamin E formulation.

5)A comprehensive research and development initiative, named Project Varin, to develop novel production methods for production of, and use for, rare cannabinoids, Tetrahydrocannabivarin (THC-V) and Cannabinol (CBN). Several developments have been made via the research initiative, including novel production methods for polymeric nanoparticles and nanofibers, and novel products based on the nanoparticles and nanofibers produced by the Company is its research partners.

6)Unique “powderization” technologies to transform liquid based cannabinoid-containing substances into free flowing power form for use in foods and beverages.

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. A copy of the joint venture agreement is included as an exhibit.

On March 30, 2020, the Company filed Articles of Incorporation for Cannabis Global, Inc. in the State of Nevada. Concurrently, the Company filed Articles of Domestication in the State of Nevada and Articles of Conversion in the State of Delaware, to effectively change its domicile from Delaware to Nevada, effective March 30, 2020, and to begin operations as of that date as Cannabis Global, Inc., a Nevada Corporation. On April 13, 2020, the Company filed a Notice of Corporate Action with FINRA to formally change its name, trading symbol and domicile. The Company is not planning to change its fiscal year. As of the date of this filing, the FINRA Corporate Action is pending.

On February 16, 2020, the Company acquired Lelantos Biotech, Inc., a Wyoming corporation (“Lelantos”). Lelantos owned assets including intellectual property in the form of trade secrets, intellectual property rights and trade secrets concerning cannabinoid delivery systems. Lelantos had no liabilities or other business operations. The parties to the acquisition agreement were the Company, Lelantos, Ma Helen M. Am Is, Inc., a Wyoming corporation (“Helen M.”), East West Pharma Group, Inc., a Wyoming corporation (“East West”), and New Horizons Laboratory Services, Inc., a Wyoming corporation (“New Horizons”). There were no material relationships between the Company or its affiliates, and Lelantos, Helen M., East West, New Horizons, or any of their respective affiliates, other than in respect of the material definitive agreement. The terms and conditions of the agreement required the Company to issue 400,000 shares of its common stock to Lelantos, and separately, issue an aggregate of $500,000 in the form of notes payable as follows: $225,000 to Helen M.; $50,000 to East West, $225,000 to New Horizons. The notes matured on May 31, 2020. All notes payable had terms and conditions more fully described in the Company’s Form 8-K filing of February 20, 2020. On May 31, 2020, the Company and East West agreed to cancel the $50,000 note. All principal and interest were forgiven. The Company did not incur any penalty or other costs associated with the cancellation of the East West note. On May, 30, 2020, the Company, New Horizons and Helen M. entered into forbearance agreements concerning their respective notes payable, The forbearance agreements resulted in new notes amending the maturity dates to November 15, 2020, and increased the interest rates on the notes to 9% respectively. On May 31, 2020, the Company, New Horizons and Helen M, entered into material modification agreements cancelling the original February 4, 2020 notes, as amended, completely, and the obligation to issue 400,000 shares to Lelantos under the acquisition agreement. The modification agreement required the Company, as consideration for the acquisition of Lelantos, to issue a new single note to Lelantos in the sum of $500,000, with payment terms and conditions more fully disclosed in the Company’s Form 8-K filed on June 18, 2020. This modification agreement is outlined in further detail in Subsequent Events.

On August 9, 2019, our board of directors determined the Company no longer meetsmet the definition of a Shell Company as defined in Item 1101(b) of Regulation AB ( §(§ 229.1101(b) of this chapter), which defines a Shell Company as one that has: 1) No or nominal operations; and 2) Either: (i) No or nominal assets; (ii) Assets consisting solely of cash and cash equivalents; or (iii) Assets consisting of any amounts of cash and cash equivalents and nominal other assets. By way of the Company: 1) beginning business activities and operations, 2) hiring its CEO, 3) appointing a highly experienced board of directors, 4) retaining consultants, 5) signing two property leases, 6) approval of budgets and business plans for several initiatives, 7) production of product samples, 8) sales initiatives to prospective customers, and other related business activities, the board of directors believes such activities are qualified as non-nominal operations and therefore the board of directors declared its believe the Company is no longer defined by Item 1101(b) of Regulation AB ( §(§ 229.1101(b) of this chapter).

On August 9, 2019, the Company filed a DBA in California registering the operating name Cannabis Global.

On July 1, 2019, the Company acquired Action Nutraceuticals, Inc., a company owned by our current CEO, Arman Tabatabaei. The transaction value was nominal, at only One Thousand DollarsTabatabaei for one thousand dollars ($1,000). Therefore, the Company believes its acquisition of Action Nutraceuticals, Inc. is not an acquisition of a significant amount of assets, or a transaction defined by 17 CFR § 229.404 - (Item 404) Transactions with related persons, promoters and certain control persons, that would require specific disclosures under the section cited. Regardless, the Company will disclose the transaction pursuant to 17 CFR § 229.404 - (Item 404) (See “Transactions with Related Persons, Promoters and Certain Control Persons.” No intellectual property, patents or trademarks were acquired in the transaction.Persons”).

On July 1, 2019, the Company entered into a 100% business acquisition with Action Nutraceuticals, Inc., a company owned by our CEO, Arman Tabatabaei. The value of the transaction value was nominal, at only One Thousand Dollars ($1,000) thus, the Company believes the business acquisition of Action Nutraceuticals, Inc. is transaction NOT defined by 17 CFR § 229.404 - (Item 404) Transactions with related persons, promoters and certain control persons that would require specific disclosure under the section cited. Regardless, of the requirements of 17 CFR § 229.404 - (Item 404) Transactions with related persons, promoters and certain control persons, the Company makes this disclosure.

MCTC HOLDINGS,

CANNABIS GLOBAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2019May 31, 2020

(Unaudited)

On or about June 27, 2018 we changed domiciles from the State of Nevada to the State of Delaware and thereafter reorganized under the Delaware Holding Company Statute Delaware General Corporation Law Section 251(g). On or about July 12, 2018, two subsidiaries were formed for the purpose of effecting the reorganization. We incorporated MCTC Holdings, Inc. and MCTC Holdings Inc. incorporated MicroChannel Corp. We then effected a merger involving the three constituents and under the terms of the merger we were merged into MicroChannel Corp., with MicroChannel Corp. being the surviving entity, and our separate corporate existence ceasing. Following the merger MCTC Holdings, Inc. became the surviving publicly traded issuer and all of our assets and liabilities were merged into MCTC Holdings, Inc.’s wholly owned subsidiary MicroChannel Corp. Our shareholders became the shareholders of MCTC Holdings, Inc. on a one for one basis.

On May 25, 2019, Lauderdale Holdings, LLC, a Florida limited liability company, in which former Chief Executive Officer, Garry McHenry maintains a controlling interest, sold 8,666,667 common shares of MCTC Holdings, Inc., representing approximately 70.7% of the 12,257,640 issued and outstanding shares to Messrs. Robert Hymers, Edward Manolos and Dan Nguyen, all of whom were previously unaffiliated parties. Each purchased 2,888,889 common shares for $108,333.33 each or an aggregate of $325,000, utilizing personal funds. This series of transactions constitute a change in control of the Company. The assets and liabilities of MicroChannel Corp. were spun out to Lauderdale Holdings, LLC as part of the change in control.

On April 4, 2005, MultiChannel changed its name to MicroChannel Technologies Corporation. The Company’s original name was MultiChannel Technologies Corporation (“MultiChannel”) which was incorporated on February 28, 2005 under the laws of the State of Nevada (U.S.A.) and was originally formed as a wholly-owned subsidiary of Octillion Corp. (“Octillion”). Octillion (a Canadian company was trading in the OTC Markets under the symbol “OCTL”). At the time of Octillion’s existence, Octillion was a development stage technology company focused on the identificati0n, acquisition and development of emerging solar energy and solar related technologies and products.

On January 14, 2009, Octillion Corp. (Symbol: OCTL), the parent company of MicroChannel announced that it had changed its name to New Energy Technologies, Inc. (Symbol: NENE) (“New Energy”). The name change became effective on the Over-the-Counter Bulletin Board at the opening of trading on January 14, 2009. On June 24, 2008, MicroChannel announced that it initiated trading of its stocks on the OTC Bulletin Board under the stock symbol “MCTC”. On August 22, 2007, by corporate action taken by MicroChannel’s executive team and board members, the company amended its Articles of Incorporation to increase its authorized capital stock to 300,000,000 million shares of common stock, $0.0001 par value per share. As of September 25, 2007, there were 1,000,000 shares of common stock were issued and outstanding; there were no preferred shares issued and outstanding. The directors and sole shareholder have approved a forward split of their issued and outstanding shares of common stock on the basis of 538,646 for 1 for the purpose of effecting the distribution.

On April 4, 2005, MultiChannel changed its name to MicroChannel Technologies Corporation. The Company’s original name was MultiChannel Technologies Corporation (“MultiChannel”) which was incorporated on February 28, 2005 under the laws of the State of Nevada (U.S.A.) and was originally formed as a wholly-owned subsidiary of Octillion Corp. (“Octillion”). Octillion (a Canadian company was trading in the OTC Markets under the symbol “OCTL”). At the time of Octillion’s existence, Octillion was a development stage technology company focused on the identificati0n, acquisition and development of emerging solar energy and solar related technologies and products.

Note 2. Going Concern Uncertainties

During recent financial reporting periods, the Company began reporting revenuehas continued its research and has been active in reorganizingdevelopment programs and completed the development of several of its business operations, theseproducts, beginning initial shipments to new customers. For the quarter ending May 31, 2020, revenues being generated are nominal.were $19,750. The Company has an accumulated deficit of $1,513,038$5,023,803 as of November 30, 2019,May 31, 2020, and does not have positive cash flows from operating activities. Furthermore, as shown in the accompanying financial statements for nine months ended May 31, 2020, the Company had a net loss of $3,896,202 and used cash in operations of $1,054,985. The Company expects to incur additional losses as it executes its business strategy in the cannabinoid marketplace.strategy. The Company will be subject to the risks, uncertainties, and difficulties frequently encountered by early-stage companies. The Company may not be able to successfully address any or all of these risks and uncertainties. Failure to adequately do so could cause the Company’s business, results of operations, and financial condition to suffer. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the issuance date of these financial statements.

CANNABIS GLOBAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2020

(Unaudited)

The Company’s ability to continue as a going concern is an issue due to its net losses and negative cash flows from operations, and its need for additional financing to fund future operations. Management plans to obtain necessary funding from outside sources and through the sales of Company shares. There can be no assurance that such funds, if available, can be obtained on terms reasonable to the Company. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern and do not include any adjustments that may result from the outcome of this uncertainty.

Based on the Company’s current level of expenditures, management believes that cash on hand is not adequate to fund operations for the next twelve months. Management of the Company is estimating approximately $1,000,000 will be required over the next twelve months to fully execute its business strategy. These can be no assurance the Company will be able to obtain such funds.

MCTC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2019

(Unaudited)

Note 3.  Summary of Significant Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the amounts reported in those statements. We have made our best estimates of certain amounts contained in our consolidated financial statements. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities. However, application of our accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties, and, as a result, actual results could differ materially from these estimates. Management believes that the estimates, assumptions, and judgments involved in the accounting policies described below have the most significant impact on our consolidated financial statements.

We cannot predict what future laws and regulations might be passed that could have a material effect on our results of operations. We assess the impact of significant changes in laws and regulations on a regular basis and update the assumptions and estimates used to prepare our financial statements when we deem it necessary.

Derivative Instruments

The fair value of derivative instruments is recorded and shown separately under current liabilities. Changes in the fair value of derivatives liability are recorded in the consolidated statement of operations under non-operating income (expense).

Our Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations. For stock-based derivative financial instruments, the Company uses a weighted average Binomial option-pricing model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Action Nutraceuticals, Inc. and Aidan & Co, Inc. All intercompany balances and transactions have been eliminated in consolidation.

Cash and Cash Equivalents

We consider all highly liquid investments with original maturities of three months or less to be cash equivalents. Cash and cash equivalents are held in operating accounts at a major financial institution.

Inventory

Inventory is primarily comprised of work in progress. Inventory is valued at cost, based on the specific identification method, unless and until the market value for the inventory is lower than cost, in which case an allowance is established to reduce the valuation to market value. As of November 30,May 31, 2020, and May 31, 2019, and November 30, 2018, market values of all of our inventory were at cost, and accordingly, no such valuation allowance was recognized.

CANNABIS GLOBAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2020

(Unaudited)

Deposits

Deposits is comprised of advance payments made to third parties, primarily for inventory for which we have not yet taken title. When we take title to inventory for which deposits are made, the related amount is classified as inventory, then recognized as a cost of revenues upon sale (see “Costs of Revenues” below). There were no deposits as of November 30, 2019May 31, 2020 or November 30, 2018.May 31, 2019.

MCTC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2019

(Unaudited)

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets is primarily comprised of advance payments made to third parties for independent contractors’ services or other general expenses. Prepaid services and general expenses are amortized over the applicable periods, which approximate the life of the contract or service period.

Accounts Receivable

Accounts receivable are recorded at the net value of face amount less any allowance for doubtful accounts. On a periodic basis, we evaluate our accounts receivable and, based on a method of specific identification of any accounts receivable for which we deem the net realizable value to be less than the gross amount of accounts receivable recorded, we establish an allowance for doubtful accounts for those balances. In determining our need for an allowance for doubtful accounts, we consider historical experience, analysis of past due amounts, client creditworthiness and any other relevant available information. However, our actual experience may vary from our estimates. If the financial condition of our clients were to deteriorate, resulting in their inability or unwillingness to pay our fees, we may need to record additional allowances or write-offs in future periods. This risk is mitigated to the extent that we collect retainers from our clients prior to performing significant services.

The allowance for doubtful accounts, if any, is recorded as a reduction in revenue to the extent the provision relates to fee adjustments and other discretionary pricing adjustments. To the extent the provision relates to a client's inability to make required payments on accounts receivables, the provision is recorded in operating expenses. As of November 30,May 31, 2020, and May 31, 2019, and November 30, 2018, we had $0 and $0 allowance for doubtful accounts, respectively.

Property and Equipment, net

Property and Equipment is stated at net book value, cost less depreciation. Maintenance and repairs are expensed as incurred. Depreciation of owned equipment is provided using the straight-line method over the estimated useful lives of the assets, ranging from two to seven years. Depreciation of capitalized construction in progress costs, a component of property and equipment, net, begins once the underlying asset is placed into service and is recognized over the estimated useful life. Property and equipment are reviewed for impairment as discussed below under “Accounting for the Impairment of Long-Lived Assets.”

Accounting for the Impairment of Long-Lived Assets

We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Upon such an occurrence, recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to forecasted undiscounted net cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. For long-lived assets held for sale, assets are written down to fair value, less cost to sell. Fair value is determined based on discounted cash flows, appraised values or management's estimates, depending upon the nature of the assets. We have not recorded any impairment charges related to long-lived assets during the quarter ended November 30, 2019,May 31, 2020 and November 30, 2018.May 21, 2019.

Beneficial Conversion Feature

If the conversion features of conventional convertible debt provides for a rate of conversion that is below market value at issuance, this feature is characterized as a beneficial conversion feature (“BCF”). We record a BCF as a debt discount pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ACF”) Topic 470-20Debt with Conversion and Other Options. In those circumstances, the convertible debt is recorded net of the discount related to the BCF, and we amortize the discount to interest expense over the life of the debt using the effective interest method.

MCTC HOLDINGS,

CANNABIS GLOBAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2020

November 30, 2019

(Unaudited)

Revenue Recognition

For annual reporting periods after December 15, 2017, the Financial Accounting Standards Board (“FASB”) made effective ASU 2014-09 “Revenue from Contracts with Customers” to supersede previous revenue recognition guidance under current U.S. GAAP. Revenue is now recognized in accordance with FASB ASC Topic 606, Revenue Recognition. The guidance presents a single five-step model for comprehensive revenue recognition that requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Two options are available for implementation of the standard which is either the retrospective approach or cumulative effect adjustment approach. The guidance becomes effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, with early adoption permitted. We determined to implement the cumulative effect adjustment approach to our implementation of FASB ASC Topic 606, with no restatement of the comparative periods presented. We intend to apply this method to any incomplete contracts we determine are subject to FASB ASC Topic 606 prospectively. As is more fully discussed below, we are of the opinion that none of our contracts for services or products contain significant financing components that require revenue adjustment under FASB ASC Topic 606.

In accordance with FASB ASC Topic 606, Revenue Recognition, we will recognize revenue when persuasive evidence of a significant financing component exists in our consulting and product sales contracts. We examine and evaluate when our customers become liable to pay for goods and services;goods; how much consideration is paid as compared to the cash selling price of the goods or services;goods; and, the length of time between our performance and the receipt of payment.

Product Sales

Revenue from product sales, including delivery fees, is recognized when an order has been obtained from the customer, the price is fixed and determinable when the order is placed, the product is shipped, and collectability is reasonably assured. Generally, we drop-ship orders to our clients with shipping-point or destination terms. For any shipments with destination terms, the Company defers revenue until delivery to the customer. Given the facts that (1) our customers exercise discretion in determining the timing of when they place their product order; and, (2) the price negotiated in our product sales is fixed and determinable at the time the customer places the order, we are not of the opinion that our product sales indicate or involve any significant customer financing that would materially change the amount of revenue recognized under the sales transaction, or would otherwise contain a significant financing component for us or the customer under FASB ASC Topic 606.

Costs of Revenues

Our policy is to recognize the costs of revenue in the same manner in conjunction with revenue recognition. Costs of revenues include the costs directly attributable to revenue recognition and include compensation and fees for services, travel and other expenses for services and costs of products and equipment. Selling, general and administrative expenses are charged to expense as incurred.

Stock-Based Compensation

Restricted shares are awarded to employees and entitle the grantee to receive shares of restricted common stock at the end of the established vesting period. The fair value of the grant is based on the stock price on the date of grant. We recognize related compensation costs on a straight-line basis over the requisite vesting period of the award, which to date has been one year from the grant date. We had no stock-based compensation during the year ended November 30, 2019.

CANNABIS GLOBAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2020

(Unaudited)

Income Taxes

We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns in accordance with applicable accounting guidance for accounting for income taxes, using currently enacted tax rates in effect for the year in which the differences are expected to reverse. We record a valuation allowance when necessary to reduce deferred tax assets to the amount expected to be realized. For the quarterly reporting periods ending November 30, 2018,May 31, 2020, and November 30,May 31, 2019, we incurred no income taxes and had no liabilities related to federal or state income taxes.

MCTC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2019

(Unaudited)

Loss Contingencies

From time to time the Company is subject to various legal proceedings and claims that arise in the ordinary course of business. On at least a quarterly basis, consistent with ASC 450-20-50-1C, if the Company determines that there is a reasonable possibility that a material loss may have been incurred, or is reasonably estimable, regardless of whether the Company accrued for such a loss (or any portion of that loss), the Company will confer with its legal counsel, consistent with ASC 450. If the material loss is determinable or reasonably estimable, the Company will record it in its accounts and as a liability on the balance sheet. If the Company determines that such an estimate cannot be made, the Company's policy is to disclose a demonstration of its attempt to estimate the loss or range of losses before concluding that an estimate cannot be made, and to disclose it in the notes to the financial statements under Contingent Liabilities.

Net Income (Loss) Per Common Share

We report net income (loss) per common share in accordance with FASB ASC 260, “Earnings per Share”. This statement requires dual presentation of basic and diluted earnings with a reconciliation of the numerator and denominator of the earnings per share computations. Basic net income (loss) per share is computed by dividing net income attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period and excludes the effects of any potentially dilutive securities. Diluted net income (loss) per share gives effect to any dilutive potential common stock outstanding during the period. The computation does not assume conversion, exercise or contingent exercise of securities that would have an anti-dilutive effect on earnings.

MCTC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2019

(Unaudited)

Note 4. Net Loss Per Share

During the financialthree-month quarterly reporting period ending November 30, 2019,May 31, 2020, the Company recorded a net loss of $385,437,$2,748,569, which equals a loss of $0.03$0.22 on both a basicweighted average common shares outstanding of 12,549,491 common shares.   Net loss per share during the three-month quarterly reporting period ending May 31, 2019 was $0.00 per share.  The increase in the net loss per share for the three-month quarterly reporting period ending May 31, 2020 was primarily a result of increased operating expenses as the Company reorganized and fully diluted basis, per common share.due to increased interest expenses. 

CANNABIS GLOBAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2020

(Unaudited)

Note 5. – Notes Receivable – Related Party

On April 30, 2020, the Company entered into a settlement agreement with its Chief Financial Officer (the “CFO”) whereby the CFO resigned and the Company issued a promissory note for $30,000, which represented the remaining amount owed to the CFO for services rendered. The note matures December 31, 2020 and bears interest at the rate of 10% per annum, payable at maturity. The noteholder has 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 a fixed conversion price of $0.02 per share, subject to adjustment. As a result of the beneficial conversion price, upon issuance, the Company recognized debt discount of $30,000, which is being amortized to interest expense over the term of the note. As of May 31, 2020, the carrying value of the note was $3,796, net of debt discount of $26,204 and accrued interest was $255.

Upon the issuance of the convertible promissory notes with variable conversion prices, the Company determined that the features associated with the embedded conversion option embedded in the debentures should be accounted for at fair value, as a derivative liability, as the Company cannot determine if a sufficient number of shares would be available to settle all potential future conversion transactions.

At the issuance date of the convertible notes payable, the Company estimated the fair value of the embedded derivatives of $1,038,111 using the Black-Scholes Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 389.94% to 398.53%, (3) risk-free interest rate of 0.16% to 1.60%, (4) expected life of one to three years and (5) estimated fair value of the Company’s common stock of $0.17 to $1.07 per share.

On May 31, 2020, the Company estimated the fair value of the embedded derivatives of $2,189,684 using the Black-Scholes Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 395.12%, (3) risk-free interest rate of 0.16% to 0.17%, (4) expected life of 0.57 to 1.75 years, and (5) estimated fair value of the Company’s common stock of $0.55 per share.

The Company issued two convertible promissory notes during the three month financial period ended February 29, 2020 having an aggregate principal amount of $133,101 in exchange for accrued expenses owed to related parties, of which $79,333 is payable to the Company’s current executive officer, Arman Tabatabaei, and $53,768 is payable to the Company’s former chief financial officer. The notes mature two years from the respective issuance date and bear interest at the rate of 10% per annum, payable at maturity. 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 a variable conversion price of 50% of the average of the previous twenty (20) trading day closing 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 $133,101, which is being amortized to interest expense over the term of the notes. As of May 31, 2020, the carrying value of the notes was $19,021, net of debt discount of $114,080 and accrued interest was $3,782. On May 22, 2020, Mr. Tabatabaei converted the principal amount of $79,333 and interest of 2,608.33, for a total amount of $81,941.55 into 694,902 common shares.

On May 25, 2019, the Company issued two notes payable to Company directors Edward Manolos and Dan Nguyen, each in the amount of $16,666,67. The notes, which do not have a defined due date, outline a 5% per annum interest rate. These notes are additionally described herein in Footnote 5-5 - Notes Receivable, Related Party and in the footnote outlining Related Party Transactions. These notes are additionally described herein in Footnote 6- Notes to Shareholders, Related Party and in the footnote outlining Related Party Transactions. Because of Mr. Manolos’ and Mr. Nguyen’s associations as directors, the Company believes these transactions are defined by 17 CFR § 229.404 - (Item 404) Transactions with related persons, promoters and certain control persons, which would require specific disclosures under the section cited.

On July 9, 2019, the Company, through its Action Nutraceuticals subsidiary, loaned, Split Tee, LLC (“Split Tee”), a venture associated with Director Edward Manolos, $20,000 to engage in an exploratory research project. An additional $20,000 was supplied to Split Tee on August 23, 2019. The loans carry interest at the rate of 10% per annum and are due in one year for issuance. In addition, The Company, via Action Nutraceuticals subsidiary, invoiced Split Tee $5,000 as a consulting fee. Because of Mr. Manolos’ association as a director, the Company believes these transactions are defined by 17 CFR § 229.404 - (Item 404) Transactions with related persons, promoters and certain control persons, which would require specific disclosures under the section cited.

Note 6. Note Payable to Shareholders

On May 25, 2019, the Company issued two notes payable to Company directors Edward Manolos and Dan Nguyen, each in the amount of $16,666,67. The notes, which do not have a defined due date, outline a 5% per annum interest rate. These notes are additionally described herein in Footnote 5- Notes Payable, Related Party and in the footnote outlining Related Party Transactions. Because of Mr. Manolos’ and Mr. Nguyen’s associations as directors, the Company believes these transactions are defined by 17 CFR § 229.404 - (Item 404). Transactions with related persons, promoters and certain control persons, which would require specific disclosures under the section cited.

Note 7. Stock Subscription Receivable

On November 26, 2019, the Company received $65,000 in advance related to the sale of 260,000 registered common shares to an accredited investor. While $65,000 was received on November 26, 2019, the agreement was not signed until December 2, 2019 and thus as of the end of the reporting period, November 30, 2019, the Company had not issued the 260,000 shares to the investors. The $65,000 was booked as a Stock Subscription Receivable. These underlying shares were issued during December of 2019 and will be reflected in the quarterly financial reporting period ending February 2020 and are listed herein in the Subsequent Events footnote.

MCTC HOLDINGS,CANNABIS GLOBAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2020

November 30, 2019(Unaudited)

(Unaudited)

Note 6. Intangible Assets

On February 16, 2020, the Company acquired Lelantos Biotech, Inc., a Wyoming corporation (“Lelantos”). Lelantos owned assets including intellectual property in the form of trade secrets, intellectual property rights and trade secrets concerning cannabinoid delivery systems. Lelantos had no liabilities or other business operations. The parties to the acquisition agreement were the Company, Lelantos, Ma Helen M. Am Is, Inc., a Wyoming corporation (“Helen M.”), East West Pharma Group, Inc., a Wyoming corporation (“East West”), and New Horizons Laboratory Services, Inc., a Wyoming corporation (“New Horizons”). There were no material relationships between the Company or its affiliates, and Lelantos, Helen M., East West, New Horizons, or any of their respective affiliates, other than in respect of the material definitive agreement. The terms and conditions of the agreement required the Company to issue 400,000 shares of its common stock to Lelantos, and separately, issue an aggregate of $500,000 in the form of notes payable as follows: $225,000 to Helen M.; $50,000 to East West, $225,000 to New Horizons. The notes matured on May 31, 2020. All notes payable had terms and conditions more fully described in the Company’s Form 8-K filing of February 20, 2020. On May 31, 2020, the Company and East West agreed to cancel the $50,000 note. All principal and interest were forgiven. The Company did not incur any penalty or other costs associated with the cancellation of the East West note. On May, 30, 2020, the Company, New Horizons and Helen M. entered into forbearance agreements concerning their respective notes payable, The forbearance agreements resulted in new notes amending the maturity dates to November 15, 2020, and increased the interest rates on the notes to 9% respectively. On May 31, 2020, the Company, New Horizons and Helen M, entered into material modification agreements cancelling the original February 4, 2020 notes, as amended, completely, and the obligation to issue 400,000 shares to Lelantos under the acquisition agreement. The modification agreement required the Company, as consideration for the acquisition of Lelantos, to issue a new single note to Lelantos in the sum of $500,000, with payment terms and conditions more fully disclosed in the Company’s Form 8-K filed on June 18, 2020. This modification agreement is outlined in further detail in Subsequent Events.

All of the Company’s patents are provisional patents. As such, the cost of the provisional patents and pending applications will not be amortized until the permanent patent is filed and approved.

Note 7. Note Payable

On February 12, 2020, the Company issued three Sellers Acquisition promissory notes having an aggregate principal amount of $500,000 pursuant to an Acquisition Agreement to acquire Lelantos Biotech. The notes mature May 31, 2020; $450,000 (two tranches of $225,000) and $50,000 of the notes bear interest at the rate of 8% and 5% per annum, respectively. In the event, the notes are not paid within the Cash Repayment Period (prior to the Maturity Date), the notes specify the holder shall have two options for repayment including: [a] an Alternative Payment Stake Option equal to a 6.75%, 6.75% and 1.5% (or a pro-rated amount if the debt has been partially paid) fully diluted ownership position in the Company after August 4, 2020, August 12, 2020 and August 30, 2020, respectively; or [b] a Buy Out Option, anytime after the note has been outstanding for at least one year, equal to the total outstanding shares of the Company on the day of election, times 6.75%, 6.75% and 1.5%, respectively, times the average closing price of the Company’s common stock over the preceding 30 trading days, times 40% (due and payable within 90 days). Anti-dilution rights are provided for five years on the Sellers Acquisition notes and for 182 days after conversion to an Alternative Payment Stake. The notes include a Leak Out provision, should the Alternative Payment Stake option be elected, whereby no more than 30% of the holdings may be sold during the first 30 days after clearance for trading and no more than 25% of the remaining shares sold during any subsequent 30-day period. The notes are secured by a Security Agreement, require common shares to be reserved, are transferrable and are Senior to other debt of the Company. At maturity, on May 31, 2020, (i) the Company received forbearance agreements for the two tranches of $225,000 each whereby the maturity date was extended to July 15, 2020 and the interest rate was increased to 9%; and (ii) the $50,000 note and all accrued interest thereon, in the amount of $747, was forgiven. Accordingly, the Company recognized a gain for debt forgiveness of $50,747. As of May 31, 2020, the carrying value of the notes was $450,000 and accrued interest payable was $10,750.

CANNABIS GLOBAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2020

On February 12, 2020, the Company entered into an Independent Consulting Agreement with a consultant to provide services from February 12, 2020 through December 14, 2020 (the “Consulting Agreement”). Pursuant to the Consulting Agreement, the Company issued to the consultant a Compensation promissory note having a principal amount of $100,000 for the Deferred Compensation portion of the Consulting Agreement. The note matures August 4, 2020 and bears interest at the rate of 8% per annum. In the event, the note is not paid within the Cash Repayment Period (prior to the Maturity Date), the note specifies the holder shall have two options for repayment including: [a] an Alternative Payment Stake Option equal to a 8.5% (or a pro-rated amount if the debt has been partially paid) fully diluted ownership position in the Company after August 4, 2020; or [b] a Buy Out Option, anytime after the note has been outstanding for at least one year, equal to the total outstanding shares of the Company on the day of election, times 8.5% times the average closing price of the Company’s common stock over the preceding 30 trading days, times 40% (due and payable within 90 days). Anti-dilution rights are provided for five years on the Compensation note and for 182 days after conversion to an Alternative Payment Stake. The note includes a Leak Out provision, should the Alternative Payment Stake option be elected, whereby no more than 30% of the holdings may be sold during the first 30 days after clearance for trading and no more than 25% of the remaining shares sold during any subsequent 30-day period. The note is secured by a Security Agreement, requires common shares to be reserved, is transferrable and is Senior to other debt of the Company. As of May 31, 2020, the carrying value of the note was $100,000 and accrued interest payable was $2,389.

Note 8. Related Party Transactions

In October 2017 – August 31, 2018, the Company incurred a related party debt in the amount of $10,000 to an entity related to the legal custodian of the Company for professional fees. As of August 31, 2018, this balance was forgiven and was included as part of the $168,048 Cancellation of Debt Income on the Statement of Operations.

In November 30, 2017 – August 31, 2018, the Company issued a $35,554 in multiple notes payable to an entity related to the legal custodian of the Company. The notes payable bear interest at an annual rate of 10% and is convertible to common shares of the Company at $0.0001 per share. On May 8, 2018, $13,000 of the principal balance on notes payable were converted to common stock. The remaining principal balance was forgiven and included as Cancellation of Debt Income on the Income Statement for the year ended August 31, 2019.

In March 2018 and May 2018, a legal custodian of the Company funded the Company $600 in advances. On August 31, 2018, this amount was reclassified as a note payable, that bears interest at an annual rate of 10% and is payable upon demand.

In connection with the above notes, the Company recognized a beneficial conversion feature of $27,954, representing the intrinsic value of the conversion features at the time of issuance. This beneficial conversion feature was accreted to interest expense during the year ended August 31, 2018.

On May 25, 2019, the Company issued two notes payable to Company directors Edward Manolos and Dan Nguyen for loans made to the Company, each in the amount of $16,666,67$16,666.67 for a total balance of $33,334. The notes bear interest at 5% per annum and do not have a fixed payment schedule or maturity date. These notes are additionally described herein in Footnote 67 - Notes Payable.

On July 1, 2019, the Company acquired Action Nutraceuticals, Inc., a company owned by our current CEO, Arman Tabatabaei for one thousand dollars ($1,000).

On July 9, 2019, the Company, through its Action Nutraceuticals subsidiary, loaned, Split Tee, LLC (“Split Tee”), a venture associated with Director Edward Manolos, $20,000 to engage in an exploratory research project. An additional $20,000 was supplied to Split Tee on August 23, 2019.2019 (the “Split Tee Note”). The loans carry interest at the rate of 10% per annum and are due in one year for issuance. In addition, The Company, via Action Nutraceuticals subsidiary, invoiced Split Tee $5,000 as a consulting fee. Because of Mr. Manolos’ association as a director, the Company believes these transactions are defined by 17 CFR § 229.404 - (Item 404) Transactions with related persons, promoters and certain control persons, which would require specific disclosures under the section cited. On May 15, 2020, the outstanding balance of the Split Tee Note was reduced via a payment of $15,000.

During the quarterly financial period ending November 30, 2019,three months ended February 29, 2020, the Company recorded $5,000issued two convertible promissory notes having an aggregate principal amount of $133,101 in consulting revenue associated with a Related Party, Edward Manolos. Mr. Manolosexchange for accrued expenses owed to related parties, of which $79,333 is a Related Party by waypayable to the Company’s Chief Executive Officer and $53,768 is payable to the Company’s previous Chief Financial Officer, Robert L. Hymers III. The notes mature two years from the respective issuance date and bear interest at the rate of his position as a director10% per annum, payable at maturity. 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 and due to his partial ownershipat a variable conversion price of 50% of the contracted consulting organizationaverage of the previous twenty (20) trading day closing 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 $133,101, which is being amortized to interest expense over the term of the notes. On May 22, 2020, Mr. Tabatabaei converted the principal amount of $79,333 and interest of 2,608.33, for a total amount of $81,941.55 into 694,902 common shares. As of May 31, 2020, the carrying value of the notes was $19,021, net of debt discount of $114,080 and accrued interest was $3,782.

On April 30, 2020, the Company entered into a settlement agreement with Robert L. Hymers III, its Chief Financial Officer (the “CFO”), whereby the CFO resigned and the Company issued a promissory note for $30,000, which represented the remaining amount owed to the CFO for services have been offered.rendered. The note matures December 31, 2020 and bears interest at the rate of 10% per annum, payable at maturity. The noteholder has 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 a fixed conversion price of $0.02 per share, subject to adjustment. As a result of the beneficial conversion price, upon issuance, the Company recognized debt discount of $30,000, which is being amortized to interest expense over the term of the note. As of May 31, 2020, the carrying value of the note was $3,796, net of debt discount of $26,204 and accrued interest was $255.

Upon the issuance of the convertible promissory notes with variable conversion prices, the Company determined that the features associated with the embedded conversion option embedded in the debentures should be accounted for at fair value, as a derivative liability, as the Company cannot determine if a sufficient number of shares would be available to settle all potential future conversion transactions.

At the issuance date of the convertible notes payable, the Company estimated the fair value of the embedded derivatives of $1,038,111 using the Black-Scholes Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 389.94% to 398.53%, (3) risk-free interest rate of 0.16% to 1.60%, (4) expected life of one to three years and (5) estimated fair value of the Company’s common stock of $0.17 to $1.07 per share.

On May 31, 2020, the Company estimated the fair value of the embedded derivatives of $2,189,684 using the Black-Scholes Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 395.12%, (3) risk-free interest rate of 0.16% to 0.17%, (4) expected life of 0.57 to 1.75 years, and (5) estimated fair value of the Company’s common stock of $0.55 per share.

MCTC HOLDINGS,CANNABIS GLOBAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2019

(Unaudited)May 31, 2020

 (Unaudited)

Note 9. Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets at AugustMay 31, 20192020 and NovemberAugust 30, 2019, are as follows: 

The net increase in the valuation allowance for deferred tax assets was $172,819$968,397 for the threenine months ended November 30, 2019.May 31, 2020. The Company evaluates its valuation allowance on an annual basis based on projected future operations. When circumstances change and this causes a change in management’s judgment about the realizability of deferred tax assets, the impact of the change on the valuation allowance is reflected in current operations.

For federal income tax purposes, the Company has net U.S. operating loss carry forwards at November 30, 2019May 31, 2020 available to offset future federal taxable income, if any, of $1,127,601$4,597,902 which will fully expire by the fiscal year ended AugustMay 31, 2039.2040.  Accordingly, there is no current tax expense for the threenine months ended November 30, 2019.May 31, 2020. In addition, the Company has research and development tax credit carry forwards of $1,923 at November 30, 2019,May 31, 2020, which are available to offset federal income taxes and fully expire by November 30, 2039.

May 31, 2040.

The utilization of the tax net operating loss carry forwards may be limited due to ownership changes that have occurred as a result of sales of common stock.

The effects of state income taxes were insignificant for the threenine months ended November 30, 2019May 31, 2020 and November 30, 2018.May 31, 2019. 

CANNABIS GLOBAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2020

(Unaudited)

Note 10 –10. Convertible NoteNotes Payable

On November 6, 2019, the Company issued a convertible promissory note in the principal amount of $20,000 along with 26,667 three-year warrants exercisable at $3.50 per share in exchange for proceeds of $20,000. The note matures May 6, 2020 and bears interest at the rate of 7% per annum, payable at maturity. Commencing thirty (30) days following the issuance date, the noteholder 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 a conversion price equal to the lower of (i) $0.75 per share; or (ii) 80% of the average of the previous twenty (20) trading day closing prices of the Company’s common stock, subject to adjustment. As a result of the issuance of the warrants as well as the beneficial conversion feature, upon issuance, the Company recognized total debt discount of $20,000, which is being amortized to interest expense over the term of the note. 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. At maturity, on May 6, 2020, the Company entered into a settlement agreement with the noteholder whereby the Company paid the entire principal balance of $20,000 and accrued interest of $712 in cash and the warrants were canceled. There was no gain or loss recognized for the settlement.

During the three months 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. As of November 30, 2019,May 31, 2020, the carrying value of the notes was $91,894, net of debt discount of $164,606 and accrued interest was $9,215.

On March 19, 2020, the Company issued a convertible promissory note, payable in tranches, having an aggregate principal amount of $150,000, aggregate original issue discount (OID) of $15,000, and an aggregate of 468,750 three-year warrants exercisable at $0.48/share. The notes mature one year from the respective issuance date of each tranche and bear interest at the rate of 10% per annum, payable at maturity. Commencing immediately following the issuances, the noteholder 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 a variable conversion price equal to the lower of 60% of the lowest closing trade price of the Company’s common stock, subject to adjustment, during the 25 trading days prior to: (i) the issuance date; or (ii) the conversion date. On March 19, 2020, the first tranche of $50,000, less OID of $5,000, was received, resulting in net proceeds to the Company of $45,000, and the Company issued 156,250 three-year warrants exercisable at $0.48 per share. On May 4, 2020, the second tranche of $25,000, less OID of $2,500, was received, resulting in net proceeds to the Company of $22,500, and the Company issued 78,125 three-year warrants exercisable at $0.48 per share. As a result of the OID and the variable conversion price, upon issuance, the Company recognized total debt discount of $75,000, which is being amortized to interest expense over the respective term of the tranches. 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. As of May 31, 2020, the carrying value of the note was $2,637,$11,849, net of debt discount of $17,363.$63,151 and accrued interest was $1,185.

MCTC HOLDINGS,Related Parties

During the three months ended February 29, 2020, the Company issued two convertible promissory notes having an aggregate principal amount of $133,101 in exchange for accrued expenses owed to related parties, of which $79,333 is payable to the Company’s Chief Executive Officer and $53,768 is payable to the Company’s Chief Financial Officer (Robert L. Hymers III). The notes mature two years from the respective issuance date and bear interest at the rate of 10% per annum, payable at maturity. 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 a variable conversion price of 50% of the average of the previous twenty (20) trading day closing 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 $133,101, which is being amortized to interest expense over the term of the notes. On May 22, 2020, the Chief Executive Officer converted $79,333 in principal and $2,608 of accrued interest into 694,902 shares of common stock to be issued having a fair value of $232,792. The conversion resulted in the elimination of $70,313 of remaining debt discount, the elimination of $231,632 of derivative liabilities, and a $10,468 gain on conversion that resulted from a related party and was therefore included in Additional paid-in capital. As of May 31, 2020, the carrying value of the note to the former Chief Financial Officer (see below) was $9,023, net of debt discount of $44,745 and accrued interest was $1,782.

On April 30, 2020, the Company entered into a settlement agreement with its Chief Financial Officer (Robert L. Hymers III, hereinafter referred to as the “CFO”) whereby the CFO resigned and the Company issued a promissory note for $30,000, which represented the remaining amount owed to the CFO for services rendered. The note matures December 31, 2020 and bears interest at the rate of 10% per annum, payable at maturity. The noteholder has 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 a fixed conversion price of $0.02 per share, subject to adjustment. As a result of the beneficial conversion price, upon issuance, the Company recognized debt discount of $30,000, which is being amortized to interest expense over the term of the note. As of May 31, 2020, the carrying value of the note was $3,796, net of debt discount of $26,204 and accrued interest was $255.

Upon the issuance of the convertible promissory notes with variable conversion prices, the Company determined that the features associated with the embedded conversion option embedded in the debentures should be accounted for at fair value, as a derivative liability, as the Company cannot determine if a sufficient number of shares would be available to settle all potential future conversion transactions.

At the issuance date of the convertible notes payable, the Company estimated the fair value of the embedded derivatives of $1,038,111 using the Black-Scholes Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 389.94% to 398.53%, (3) risk-free interest rate of 0.16% to 1.60%, and (4) expected life of one to three years.

On May 31, 2020, the Company estimated the fair value of the embedded derivatives of $2,189,684 using the Black-Scholes Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 395.12%, (3) risk-free interest rate of 0.16% to 0.17%, and (4) expected life of 0.57 to 1.75 years.

CANNABIS GLOBAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2020

November 30, 2019(Unaudited)

(Unaudited)

Note 11. Derivative Liability and Far Value Measurement

NOTE 11 – DERIVATIVE LIABILITY AND FAIR VALUE MEASUREMENTS

Upon the issuance of certain convertible notes payable, the Company determined that the features associated with the embedded conversion option embedded in the notes payabledebentures should be accounted for at fair value, as a derivative liability, as the Company cannot determine if a sufficient number of shares would be available to settle all potential future conversion transactions.

At the issuance date of the convertible notenotes payable, the Company estimated the fair value of the embedded derivatives of $28,521$1,038,111 using the Black-Scholes Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 389.94% to 398.53%, (3) weighted average risk-free interest rate of 0.16% to 1.60%, and (4) expected life of one to three years and (5) estimated fair value of the Company’s common stock of $1.07 per share.years.

On November 30, 2019,May 31, 2020, the Company estimated the fair value of the embedded derivativederivatives of $16,018$2,189,684 using the Black-Scholes Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 394.12%395.12%, (3) weighted average risk-free interest rate of 1.61%0.16% to 0.17%, and (4) expected life of 2.94 years, and (5) estimated fair value of the Company’s common stock of $0.55 per share.0.57 to 1.75 years.

The Company adopted the provisions of ASC 825-10, Financial Instruments (“ASC 825-10”). ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of inputs that may be used to measure fair value:

MCTC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2019

(Unaudited)

All items required to be recorded or measured on a recurring basis are based upon Level 3 inputs.

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed and is determined based on the lowest level input that is significant to the fair value measurement.

The Company recognizes its derivative liabilities as Level 3 and values its derivatives using the methods discussed below. While the Company believes that its valuation methods are appropriate and consistent with other market participants, it recognizes that the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The primary assumptions that would significantly affect the fair values using the methods discussed are that of volatility and market price of the underlying common stock of the Company.

As of November 30, 2019,May 31, 2020, the Company did not have any derivative instruments that were designated as hedges.

Items recorded or measured at fair value on a recurring basis in the accompanying financial statements consisted of the following items as of November 30, 2019May 31, 2020 and August 31, 2019:

MCTC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2019

(Unaudited)

The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities for the threenine months ended November 30, 2019:May 31, 2020:

Fluctuations in the Company’s stock price are a primary driver for the changes in the derivative valuations during each reporting period. As the stock price increases for each of the related derivative instruments, the value to the holder of the instrument generally increases, therefore increasing the liability on the Company’s balance sheet. Additionally, stock price volatility is one of the significant unobservable inputs used in the fair value measurement of each of the Company’s derivative instruments. The simulated fair value of these liabilities is sensitive to changes in the Company’s expected volatility. Increases in expected volatility would generally result in higher fair value measurement. A 10% change in pricing inputs and changes in volatilities and correlation factors would not result in a material change in our Level 3 fair value.

CANNABIS GLOBAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2020

(Unaudited)

Note 12.13. Subsequent Events

On DecemberJune 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, 2019,2020, the Company’s boardBoard of directors by unanimous written consent causedDirectors extended the authorizationExecutive Employment Agreement for the Company’s CEO and CFO, Arman Tabatabaei for a term of ten million (10,000,000) shares of preferred stock, par value $0.0001 per share,one (1) additional year. Under the terms of the Company ("Preferred Stock") in one or more series, and expressly authorizedextension, Mr. Tabatabaei’s monthly salary was increased to $6,500. A copy of the unanimous resolution of the Board of Directors ofis included as an exhibit.

On June 29, 2020, we sold 289,301 common shares registering in the direct offering under its From S-1 made effective by the SEC June 16, 2019, to an accredited investor in exchange for $50,000. The agreements are included as exhibits.

On June 15, 2020, the Company (the "Board"and Lelantos Biotech, Inc., a Wyoming corporation (“Lelantos”), subjectentered into a modification agreement respecting a February 12, 2020 material definitive agreement between the parties, a copy of which is included as an exhibit.

The February 12, 2020 material definitive agreement required the Company to limitations prescribed by law, to provide, out of the unissuedissue 400,000 shares of Preferred Stock,its common stock to Lelantos, and separately, an aggregate of $500,000 in the form of notes payable as follows: $225,000 to Ma Helen M. Am Is, Inc., a Wyoming corporation (“Helen M.”); $50,000 to East West Pharma Group, Inc., a Wyoming corporation (“East West”); and $225,000 to New Horizons Laboratory Services, Inc., a Wyoming corporation (“New Horizons”),  in exchange for series of Preferred Stock,all right, title and with respect to each such series, to establishinterest in trade secrets, intellectual property rights, and fix the number ofresearch and development owned by Lelantos. The notes matured on May 31, 2020.

On May 20, 2020, we issued 1,100,000 common 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.

 Additionally, the Board of Directors authorized the designation of eight million (8,000,000) preferred shares as “Series A Preferred Stock” and resolved to issue the Series A Preferred Stocka Pinnacle Consulting Services Inc. for consulting service provided to the directors of the corporation pro rata.Company. The Series A Preferred Stockagreement is not convertible into any other form of Securities, including common shares, of the Company. Holders of Series A Preferred Stock shall be entitled to fifty (50) votes for every Share of Series A Preferred Stock beneficially owned as of the record date for any shareholder vote or written consent.attached hereto. A copy of the Certificate of Designationagreement is attached as an exhibit hereto. These shares were registered in the S-1 that was filed on June 5, 2020 and was declared effective by the Commission on June 22, 2020.

On December 2, 2019, the Company signed an agreement to sell 260,000 registeredMay 20, 2020, we issued 1,000,000 common shares to an accredited investor. On November 26, 2019,a Tabular Investments LLC for consulting service provided to the Company received $65,000 in advanceCompany. A copy of the signing agreement. The $65,000 was booked as a Stock Subscription Receivable. The underlying shares were issued during December of 2019 and will be reflected in the quarterly financial reporting period ending February 2020. See Note 7 to Financial Statements. The stock purchase agreement is attached hereto. Five Hundred Thousand shares (500,000) were registered in the S-1 that was filed on June 5, 2020 and was declared effective by the Commission on June 22, 2020.

On May 30, 2020, the Company, New Horizons and Helen M. entered into forbearance agreements concerning their respective notes payable. The forbearance agreements resulted in new notes amending the maturity dates to November 15, 2020 and the interest rates were increased to 9%.

On May 31, 2020, the Company and East West agreed to cancel the $50,000 note. All principal and interest were forgiven. The Company did not incur any penalty or other costs associated with the cancellation of the East West note.

On June 15, 2020, the Company, Lelantos, New Horizons Helen M. entered into a modification agreement which resulted in the cancellation of all outstanding notes, as amended, and the obligation to issue 400,000 shares to Lelantos under the acquisition agreement.

The Company agreed, in exchange for its acquisition of Lelantos’ intellectual properties, trade secrets and provision patent filings, to pay a $500,000 purchase price by the issuance of a promissory note.

On June 5, 2020, we filed Form S-1 registration for the resale of up to 4,473,940 shares from certain selling holders and for the sale 3,775,163 newly issued common stock as part of a primary offering from the Company. The S-1 registration was declared effective by the Commission on June 22, 2020.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

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, 2019,May 31, 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 “MCTC” refer to “MCTCCannabis Global, Inc, formerly known as MCTC Holdings, Inc.”.

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 MD&Adisclosure 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

Our principal executive office is located at 520 S Grand Avenue, Suite 320, Los Angeles, California 90071. Our telephone number is (310) 986-4929 and our website is accessible atwww.cannabisglobalinc.com. Unless expressly noted, none of the information on our website is part of this filing or any filing supplement.

Our shares of Common Stock are quoted on the OTC Markets Pink Tier, operated by OTC Markets Group, Inc. As of the filing date, the Company’s shares trade under the symbol MCTC. On September 30, 2019 there wasA FINRA corporate action is pending to change the Company’s name to Cannabis Global, Inc., acquire a one for 15 stock split.new trading symbol and change its domicile. As of the date of this filing, the Company’s corporate action is pending with FINRA.

We are a fully operational research and development company focused on cannabinoid research.

On February 16, 2020, the Company acquired Lelantos Biotech, Inc., which was involved in various aspects of research and development, intellectual property rights and trade secrets related to cannabinoid delivery systems, had no liabilities and no other business operations. The Company believes the acquisition of Lelantos will advanced its programs in the areas of cannabinoid delivery systems and product development based on technologies relating to these areas.

Our Research and Development

Our aim is to create and commercialize engineered technologies to deliver hemp extracts and cannabinoids to the human body. Additionally, we plan to develop consumer products, based on these and other technologies.

Our R&Dresearch and development programs included the following;following:

It is theThe 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.

To achieve this goal, our research and development efforts are primarily focused on these areas:on: 1) polymeric cannabinoid nanoparticles,nanoparticles; 2) polymeric cannabinoid nanofibers,nanofibers; 3) devices for the delivery of cannabinoids and other active ingredients andingredients; 4) unique formulations of hemp extracts and cannabinoids utilizing d-α-Tocopheryl Polyethylene Glycol 1000 Succinate (TPGS), a water soluble form of vitamin E, for oral and dermal delivery. delivery; and, 5) development of unique nanoparticles and nanofibers is rare cannabinoids, such as THC-V and CBN.

As is commonplace in the pharmaceutical, biotechnology and active ingredient delivery development markets, the Company makes use of a contract research organization (CRO) model in order to conduct certain aspects of its research and development programs. This CRO driven program includes an outside research team that has been retained by the Company to conduct development programs relative to the Company’s inventions in the areas of novel nanoparticle and nanofibers. The Company and its CRO partner are making use of new developed manufactured cannabinoids, which are supplied by third parties involved in such production of these types of cannabinoids. Thus far, research has been focused in the areas of Cannabidiol (CBD), THC-V and CBN, but the Company believes the developed manufacturing techniques could apply to a wide variety of other cannabinoids.

The Company plans to continue suchits research efforts in order to develop technologies, methods of manufacturing and products that are novel and to possibly protect such technologies, methods of manufacturing and products via U.S. and international patents and trademarks, and other forms of intellectual property protection.

Provisional Patent Filings

The Company has begun to filefiled for intellectual propertyprovisional patent protection for several of its developed technologies and products.

These include:

● Provisional Under United States patent law, a provisional application is a legal document filed in the United States Patent Filing - Sub-micron and micro-sized particles combining cannabinoids and d-α-tocopheryl polyethylene glycol 1000 succinate (TPGS) produced viaTrademark Office, that establishes an electrosprayed apparatus.early filing date, but does not mature into an issued patent unless the applicant files a regular non-provisional patent application within one year. The Company plans to make decisions on such new applications prior to the one-year timeframe for each of the provisional filings. There are no assurances the Company will file any patent applications or, if filed, be granted any patent protection under U.S. law or statute.

● Provisional Patent Filing - Edible cannabinoid delivery and packaging technology enhanced with solid polymeric nanoparticles and d-α-tocopheryl polyethylene glycol 1000 (TPGS) succinate containing nanoparticles produced via an electrosprayed apparatus.These provisional patent filings include:

● Provisional Patent Filing - Edible, 4D printed thermal, moisture or environmental induced shape-changing device for delivery of cannabinoids or other active ingredients to beverages or foods.

● Provision Patent - Nanoparticles and nanofibers of cannabinoids.

● Provision Patent Filing - Powdered formations of cannabinoids.

Additional, the Company has sought to protects its brands names via trademark applications as follows:

● Trade Mark – Hemp You Can Feel™

● Trade Mark – Gummies You Can Feel™

The Company received notice of allowance for its trademark application for Gummies You Can Feel™. The trademark number is U.S. Trademark SN 88590925: GUMMIES YOU CAN FEEL: Docket/Reference No. MCTC-201.

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. A copy of the joint venture agreement is included as an exhibit.

Hemp You Can Feel™ Coffee Pods

In 2020 we developed our first to market Hemp You Can Feel™ coffee pods that are typically used in single serving coffee machines. The product packaging is compostable. The product combines organically sourced beans with lab certified CBD infused with organic inulin from vegetable and honey from organic farms. The Company uses a unique hemp extract infusion process providing superior taste and availability of the extracts to the body. The infusion process does not use chemicals, surfactants, or artificial processes.

Employees

As of November 30, 2019,May 31, 2020, we had one employee, who is our CEO.chief executive officer and chief financial officer. The Company also relies on the services of multiple contractors and service providers whothat perform various R&D, operational and financial related services for the organization.

Results of Operations

For the Three months Ended November 30,May 31, 2020 and May 31, 2019 and November 30, 2018

The Company began recognizingProduct revenues from business operations during the quarterly financial period ending November 30, 2019. Product revenuessales of our Hemp You Can Feel™ coffee pods for the quarterly financial period ending November 30, 2019,May 31, 2020, were $5,003$19,750 compared to zero$0 reported during the quarterly financial period ending November 30, 2018.February 29, 2019. The increase was attributable to the Company receiving orders from a new customer. Consulting Revenues forbeginning of Hemp You Can Feel™ coffee pods shipments to customers.

During the quarterly financial period ending November 30, 2019, were $5,000, whichMay 31, 2020, cost of goods sold was associated with a Related Party, Edward Manolos. Mr. Manolos is a Related Party by way of his position as a director of the Company and due to his partial ownership of the contracted consulting organization to which services have been offered.

Total Revenues for the quarterly financial period ending November 30, 2019, were $10,003$16,788 compared to zero revenues$0 for the year earlier period. The increase was a resultattributable to the beginning of aproduct shipments of Hemp You Can Feel™ coffee pods to customers and the goods purchased to fill these initial customer order and a Related Party consulting contract.

Duringorders. Gross margins during the financial period ending November 30, 2019, cost of goods sold was $2,900 compared to zeroMay 31, 2020 were $2,962.00 versus $0 for the yearsyear earlier period. The increase was attributable to revenue being reported during the Company receiving orders from new customers.period ending May 31, 2020.

Accounts receivable rosewere $10,003 for the period ending May 31, 2020 compared to $10,003 for the period ending November 30, 2019, asFebruary 29, 2020. The balances were a result of the Company signing an initial order for products and due to an increase in consulting revenues.revenues during the quarter ending November 30, 2019. Of this $10,003 accounts receivable, $5,000 is a Related Party transaction. During the quarterly financial period ending November 30, 2019, the Company book $5,000 in consulting revenue associated with a Related Party, Edward Manolos. Mr. Manolos is a Related Party by way of his position as a director of the Company and due to his partial ownership of the contracted consulting organization to which services have been offered.

During the financial period ending November 30, 2019,May 31, 2020, the Company began to incurincreased operating expense as it organized the production of new products. Advertising expense during the period was $1,423$80,705 and consulting services were $35,883.$631,950. Professional fees and General and Administrative Fees were $148,955$355,692 and $187,521,$170,303, respectively. Total operating expenses were $373,793.$1,238,650. For the period ending November 30, 2018,May 31, 2019, the Company incurred only $17,283$5,825 in operating expenses. The increase in operating expenses for the period ending 20192020 versus 20182019 was attributable to the ongoing reorganization of the business, the hiring of consultants and preparation to acceptfor an increasing number of customer orders for new products developed.

Interest expenses for the financial period ending November 30, 2019May 31, 2020 were $31,250$283,818 compared to $2,522$2,644 for the financial period ending November 30, 2018.May 31, 2019. The decrease was attributable to notes sold during the 2019.increased funding obtain to finance product development and infrastructure in anticipation of increased customer orders and shipments.

During the financial period ending November 30, 2019,May 31, 2020, net loss was $385,437$2,748,569 compared to $17,283net profit of $1,531 for the financial period ending November 30, 2018.May 31, 2019. The increase inthe relative net loss compared to a profit was attributable mainly to increased spending associated with the reorganization of the business, expenses relating to hiring consultants and general costs associated with the design of new product in preparation of customer orders.orders, and increased interest expenses. The net loss financial period ending November 30, 2019,May 31, 2020, results in a loss per share of $0.02,$0.22, compared to a negligible gain per share ($0.00) during the same period one year ago.

For the Nine Months Ended May 31, 2020 and May 31, 2019

Product revenues for the nine-month period ending May 31, 2020, were $24,753 compared to $0 reported during the nine-month period ending May 31, 2019. The increase was attributable to the Company beginning to ship products to customers during the nine-month period ending May 31, 2020, whereas no products were shipped during the nine-month period ending May 31, 2019. During the nine-month period ending May 31, 2020, there was also $5,000 in consulting revenues compared to $0 in consulting revenues during the nine-month period ending May 31, 2019.

During the nine-month period ending May 31, 2020, cost of goods sold was $19,688 compared to $0 for the nine-month period ending May 31, 2019. The increase was attributable to the beginning of product shipments to customers and the goods purchased to fill these customer orders. Gross profit for the nine-month period ending May 31, 2020 was $10,065 versus $0 for the year earlier period. The increase was attributable to revenue being reported during the period ending May 31, 2020.

For the nine-month period ending May 31, 2020, compared to the nine-month period ending May 31, 2019, the Company increased operating expense as it organized the production of new products. Advertising expense during the nine-month period ending May 2020 was $96,399, consulting services was $735,495, professional fees was $637,806, and general and administrative fees was $553,658, compared to $0, $0, $15,354, and $9,914 for the expense items during the nine-month period ending May 31, 2019, respectively. The increase in operating expenses for the nine-month period ending May 31, 2020 versus the nine-month period ending May 31, 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 nine-month period ending May 31, 2020 were $836,901 compared to $7,827 for the nine-month period ending May 31, 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 nine-month period ending May 31, 2020, net loss was $3,896,202 compared to a new loss of $23,095 for the nine-month period ending May 31, 2019. The increase in the net loss was primarily attributable to higher levels of operating expenses and interest expenses as the Company reorganized its product lines and began to market new products to customers. The net loss financial nine-month period ending May 31, 2020, resulted in a loss per share of $0.03, compared to a negligible loss per share ($0.00) during the same period one year ago period.ago.

Liquidity and Capital Resources

As of the end of the quarterly financial period ending November 30, 2019,May 31, 2020, we had an accumulated deficit of $1,513,038$5,023,803 and cash and cash equivalents of $64,702.

In January 2014,$84,866. Consequently, we are dependent on raising additional equity and/or debt to meet our ongoing operating expenses. There is no assurance that we will be able to raise the necessary equity and/or debt that we will need to fund our ongoing operating expenses. As a result of these, among other factors, we received funding by issuing a $70,000 note payable to a shareholder. The $70,000 note payable was due on January 9, 2016 and has not been repaid as offrom our registered independent public accountants in their report for the date of this filing and is thus in default as of May 31, 2019. As of Mayfinancial statements for the years ended August 31, 2019 $70,000 remained outstanding.

Our primary internal sources of liquidity were provided by proceeds from the sale of unregistered common shares and warrants of the Company2018, an explanatory paragraph stating that there is substantial doubt about our ability to continue as follows:a going concern.

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. As of the date of this filing, these shares have not yet been issued to the purchaser.

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. As of the date of this filing, these shares have not yet been issued to the purchaser.

On August 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 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. As of the date of this filing, these shares have not yet been issued to the purchaser.

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 August 26, 2019, we filed Form S-1 registration for the resale of up to 13,156,667 shares from certain selling holders and for the sale 20,000,000 newly issued common stock as part of a primary offering from the Company. These shares amounts are indicated based on pre-split basis not taking into account the 1 for 15 stock split occurring on August 30, 2019. On a post-split basis these share amounts are adjusted to 877,112 for sales from certain selling shareholders and 1,333,333 newly issued common stock as part of a primary offering from the Company. The S-1 registration was declared effective by the Commission on September 16, 2019.

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 November 11, 2019, we sold 83,333 common shares registered in the direct offering under its From S-1 made effective by the SEC on September 16, 2019, to an accredited investor in exchange for $25,000.

On November 25, 2019, we sold 120,000 common shares registered in the direct offering under its From S-1 made effective by the SEC on September 16, 2019, to an accredited investor in exchange for $50,000.

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.

On December 2, 2019, the Company signed an agreement to sell 260,000 registered common shares to an accredited investor. On November 26, 2019, the Company received $65,000 in advance of the signing agreement. The $65,000 was booked as a Stock Subscription Receivable. The underlying shares were issued during December of 2019 and will be reflected in the quarterly financial reporting period ending May 2020.

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.

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 April 23, 2020, we sold 375,000 common shares registered in the direct offering under its From S-1 made effective by the SEC on September 16, 2019, to an accredited investor in exchange for $25,000. 

On May 20, 2020, we sold 495,000 common shares registered in the direct offering under its From S-1 made effective by the SEC on September 16, 2019, to an accredited investor in exchange for $75,000. 

On May 21, 2020, we sold 352,941 common shares registering in the direct offering under its From S-1 made effective by the SEC on September 16, 2020, to an accredited investor in exchange for $60,000.

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.

We plan to use the proceeds from sales of the primary offering to partially finance our business operations. We also intend to utilize cash on hand, loans and other forms of financing such as the sale of additional equity and debt securities and other credit facilities to conduct our ongoing business, and to also conduct strategic business development and implementation of our business plans generally. We are not intending to use any off-balance sheet financing arrangements.

Other Contractual Obligations

Our Company entered into a one yearone-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, 2020, the Company 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. 

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.

Item 3. Quantitative & Qualitative Disclosures About Market Risk

We are a smaller reporting Company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Management is responsible for establishing and maintaining adequate disclosure controls and procedures that are designed to ensure that information required to be disclosed by the Company in its Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely and reliable financial reporting and the preparation of financial statements in accordance with accounting principles generally accepted in the United States of America.

As of the quarter ended November 30, 2019,May 31, 2020, our principal executive officer and principal financial officer completed an assessment of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e), to determine the existence of any material weaknesses or significant deficiencies under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the registrant'sCompany's financial reporting.

Based on that evaluation, we concluded that our disclosure controls and procedures over financial reporting were not effective as of November 30, 2019.May 31, 2020.

Changes in Internal Controls over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended November 30, 2019May 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION