UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

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FORM 10-Q

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Cannabis Sativa, Inc.

 (Exact(Exact name of registrant as specified in its charter)

450 Hillside Dr. #A224, Mesquite, Nevada 89027

(Address of Principal Executive Office) (Zip Code)

(702) 762-3123

(Registrant's telephone number, including area code)

N/A

(Former name, former address, and former fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

☒ Yes☐ No

Indicate by check mark whether the registrant has submitted electronically 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-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).☒ Yes☐ No

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐ Yes☒ No 

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐ Yes ☒ No 

The number of shares of the issuer's Common Stock outstanding as of June 24, 2019,November 10, 2020, is 24,341,154.27,147,515.

PART I—FINANCIAL INFORMATION

Item 1.  Financial Statements.

Attached after signature page.

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

Certain statements in this Report constitute “forward-looking statements.” Such forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. Factors that might cause such a difference include, among others, uncertainties relating to general economic and business conditions; industry trends; changes in demand for our products and services; uncertainties relating to customer plans and commitments and the timing of orders received from customers; announcements or changes in our pricing policies or that of our competitors; unanticipated delays in the development, market acceptance or installation of our products and services; changes in government regulations; availability of management and other key personnel; availability, terms, and deployment of capital; relationships with third-party equipment suppliers; and worldwide political stability and economic growth. The words “believe,” “expect,” “anticipate,” “intend” and “plan” and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made.

Results of Operations

Three Months Ended March 31,September 30, 2020 compared with the Three Months Ended March 31,September 30, 2019

Revenue forThe Company operates two business segments: PrestoCorp, Inc. (“PrestoCorp”), a telehealth business, and GK Manufacturing and Packaging, Inc. (“GKMP”), a contract manufacturing business.  The results of PrestoCorp and GKMP are consolidated in the three-month periods ended March 31, 2020 and 2019 was $493,140 and $100,282, respectively. CostCompany’s financial statements. Discussion of revenues forresults of operations includes the three-month periods ended March 31, 2020 and 2019 was $187,335 and $45,609, respectively. Gross profit for the three-month periods ended March 31, 2020 and 2019 was $305,805 and $54,673, respectively.  The fluctuation in these numbers is primarily the result of significant increases in patient visits due to expanded market coverageconsolidated results and the generally increasing acceptance of telehealth platformsbusiness segment results in the age of the Covid-19 pandemic.following sections.

Revenues from our PrestoCorp subsidiary grew 392%1% in the three months ended March 31,September 30, 2020 compared to the three months ended March 31,September 30, 2019.  This large increaseRevenues in revenue is the resultthird quarter of expanded market area,2019 increased advertising which drove and in increase in patient visitsdue to our online platform, and a general increase in consumer awarenessthe expansion of the PrestoDoctor brand. The Company now operatestelehealth platform into Oklahoma.  After the initial influx of customers in the statesnew market, the customer visits returned to the pre-expansion levels.  In addition, in 2020, the Company saw significant increases in business in the first and second quarters due to the COVID -19 pandemic as customers across our markets hurried to get their medical marijuana cards prior to an expected shut down.  This had the effect of California, Nevada, New York, Oklahoma, Missouri,depressing revenues in the third quarter ended September 30, 2020.  These factors combined to generate higher than expected sales in the third quarter of 2019 and Pennsylvania.lower than expected sales in the third quarter of 2020.  Management expects that customer traffic will normalize in the fourth quarter of 2020. Revenues in the current quarter also reflect the start-up operations of GKMP.

Margins decreased in the three months ended September 30, 2020 compared to the same period in 2019. The Company is currently exploring expansion opportunities in four additional states, including Illinois, Ohio, Virginia, and Massachusetts.decrease was due to the establishment of a contract manufacturing division with a different margin structure than the telehealth business.  See discussion under Business Segments, below.   

Net operating loss for the three-month period ended March 31,September 30, 2020 was $672,775$664,908 compared to net loss of $737,815$453,046 for the three-month period ended March 31,September 30, 2019.  The decreaseincrease in net operating loss resulted primarily from an increase in revenue from PrestoCorp and a corresponding 7% improvement in the gross profit as a percent of sales.operating expenses relating to GKMP operations.

Total operating expenses were $978,580$896,005 for the three-month period ended March 31,September 30, 2020 and $737,815$730,183 for the three-month period ended March 31,September 30, 2019.  The increase in total operating costs was largely attributable to increased personnel, the addition of GKMP, and increases in activity brought on by the significant increase in revenue and patient load.load at PrestoDoctor. The Company also significantly reduced its depreciation and amortization expense as a result ofdue to impairment of amortizable intangible assets taken in the year ended December 31, 2019. Management expects that operating costs will continue to increase as revenues rise, but the increases in operating costs are expected to rise at a slower rate than revenue due to expected efficiencies of scale.

Business Segment Results.

PrestoCorp revenues declined in the third quarter of 2020 compared to the same period in 2019.  As noted above, the decrease was the result of a revenue spike in the third quarter of 2019 when the Company expanded its market into Oklahoma and a decrease in revenues in the third quarter of 2020 due to a rush for medical marijuana cards brought on by the COVID – 19 pandemic in the first and second quarters of the current year. Margins were consistent with prior periods at 62% of revenue.  

Management expects to see incremental growth in the coming periods as additional markets are opened and the acceptance of telehealth continues to grow due to the pandemic.

GKMP did not operate in the three months ended September 30, 2019.  Results of operations for the contract manufacturing business reflect the start-up nature of this segment and the impact of the pandemic on prospective customers and their willingness to commit to contract manufacturing efforts when there is substantial uncertainty surrounding the long-term effect of the pandemic.  GKMP operated with a negative gross profit in the quarter ended September 30, 2020.  This was primarily due to high labor costs incurred during the start-up phase of operations.

Nine Months Ended September 30, 2020 compared with the Nine Months Ended September 30, 2019

Revenues, cost of revenues and gross profit for the nine-month periods ended September 30, 2020 and 2019 are included in the above table.  The fluctuation in these numbers is primarily the result of significant increases in patient visits due to expanded market coverage and the generally increasing acceptance of telehealth platforms in the age of the Covid-19 pandemic.

Revenues grew 137% in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.  Of this increase, approximately 95% was attributable to PrestoDoctor and 5% from our start-up operations in GKMP. This large increase in revenue in PrestoDoctor is the result of expanded market area, increased advertising which drove an increase in patient visits to our online platform, and a general increase in consumer awareness of the PrestoDoctor brand. The Company also benefited from the increased acceptance of telehealth due to the pandemic. The Company now operates in the states of California, Nevada, New York, Oklahoma, Missouri, and Pennsylvania and recently opened in Illinois. The Company is currently exploring expansion opportunities in additional states, including Ohio, Virginia, and Massachusetts.

Net operating loss for the nine-month period ended September 30, 2020 was $1,796,029 compared to a net loss of $1,729,662 for the nine-month period ended September 30, 2019.  The increase in net operating loss resulted primarily from an increase in operating costs relating to the start-up operations of GKMP.

Total operating expenses were $2,771,743 for the nine-month period ended September 30, 2020 and $2,142,497 for the nine-month period ended September 30, 2019.  The increase in total operating costs was largely attributable to increased personnel, the addition of GKMP, and increases in activity brought on by the significant increase in revenue and patient load. The Company also significantly reduced its depreciation and amortization expense due to impairment of amortizable intangible assets taken in the year ended December 31, 2019. Management expects that operating costs will continue to increase as revenues rise, but the increases in operating costs are expected to rise at a slower rate than revenue due to expected efficiencies of scale and improved efficiencies in GKMP as it moves beyond the start-up phase.

Business Segment Results

For the nine months ended September 30, 2020, PrestoCorp revenues increased by 127% and cost of sales decreased by 3% resulting in a 62% gross profit for the nine months compared the same period in 2019.  These improvements were the result of higher traffic due to brand awareness, additional marketing efforts, and the positive impact on telehealth due to the pandemic.

GKMP did not operate in 2019.  For the nine months ended September 30, 2020, GKMP was in the start-up phase. Revenue and operating efficiencies were impacted by the economic uncertainties brought on by the pandemic, the learning curve required for the labor force to become familiar with the manufacturing equipment, the cost of moving into a new facility, and the need to build a backlog of customer orders to streamline the production process. The start-up phase has taken longer than expected, primarily due to the pandemic. Management expects these negative factors to lessen in the coming periods.  Management is currently focused on building its customer base and product line.

Liquidity and Capital Resources

Net cash used in operating activities for the three-monthnine-month period ended March 31,September 30, 2020, was $94,609.$65,721. During the same period, our cash increased by $9,024.$97,599.  The Company generated $65,500$145,500 in the quarternine months from advances from related parties, $25,000 from the sale of common stock, and applied a $50,000 advance balance as partial consideration for the acquisition of assets by GK Manufacturing and Packaging, Inc., a newly formed contract manufacturing entity that is owned 51% beby the Company.  We also reported $592,075stock-based compensation of $1,555,208 during the nine-month period from issuance of common and preferred stock as compensation for services performed by officers, directors, and contractors. On March 31,September 30, 2020, our cash position was approximately $345,000, primarily derived from our PrestoCorp operations.  We have$433,706. The Company has agreed to provide additional funding obligations totaling approximately $310,000$30,000 for GK Manufacturing in the coming months.months to further assist with start-up expenses. Given expectedthe level of operations in our secondthird quarter, we expect that additional funds will be required. Management is currently evaluating several fund-raising alternatives including private placement of equity securities, a secondary public offering, and various debt instruments. In addition, key members of management have indicated a willingness to provide additional operating capital from time to time.  Based on all of these considerations, we believe we will have sufficient capital to operate the business for the next twelve months.

The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business.  We incurred a net loss of $616,407$1,807,249 and $722,759,$1,850,088, respectively, for the three-monthnine-month periods ended March 31,September 30, 2020, and 2019, and had an accumulated deficit of $75,471,544$76,250,184 as of March 31,September 30, 2020.  These factors raise substantial doubt about the Company’s ability to continue as a going concern.  The Company may seekis currently seeking to raise money for working capital purposes through a public offering of its equity capital or through a private placement of equity capital and is evaluating other opportunities to raise capital from a public offering or the sale of convertible debt.  It will be important for the Company to be successful in its efforts to raise capital in this manner if it is going to be able to further its business plan in an aggressive manner.  Raising capital in this manner will cause dilution to current shareholders.

COVID-19

In March 2020, COVID-19 washas been declared a pandemic by the World Health Organization and the Centers for Disease Control and Prevention. Its rapid spread around the world and throughout the United States prompted many countries, including the United States, to institute restrictions on travel, public gatherings, and certain business operations. These restrictions significantly disrupted economic activity in the United States and Worldwide. To date, the disruption did not materially impact the Company’s financial statements. However, if the severity of the economic disruptions increase as the duration of the COVID-19 pandemic continues, the negative financial impact due to reduced demand could be significantly greater in future periods than in the first quarter.

The effects of the continued outbreak of COVID-19 and related government responses could also include extended disruptions to supply chains and capital markets, reduced labor availability and a prolonged reduction in economic activity. These effects could have a variety of adverse impacts toon the Company, including our ability to operate our facilities. To date, there have been no material adverse impacts to the Registrants’ operations due to COVID-19.

In addition, the economic disruptions caused by COVID-19 could also adversely impact the impairment risks for certain long-lived assets, equity method investments and goodwill. Management evaluated these impairment considerations and determined that no such impairments occurred through the date of this report.

Off Balance Sheet Arrangements

None

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

Not required.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

Conclusions of Management Regarding Effectiveness of Disclosure Controls and Procedures

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

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

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting during the quarter ended March 31,September 30, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1.  Legal Proceedings.

We are not a party to any material legal proceedings, and, to the best of our knowledge, no such legal proceedings have been threatened against us.

Item 1A.  Risk Factors

Not required. However, the Company filed an 8-K on May 14, 2020 to take advantage of an extension of time to file its quarterly report on Form 10-Q for the quarter ended March 31, 2020 due to the COVID-19 pandemic.  As a condition of the extension of time to file the annual report, the Company agreed to include the following Risk Factor in this Report.

The occurrence of the COVID-19 pandemic may negatively affect our operations depending on the severity and longevity of the pandemic.

The COVID-19 pandemic is currently impacting countries, communities, supply chains, and markets. The global financial markets have also been severely impacted. The response to the pandemic has so far been focused on social distancing, travel bans, and quarantines in an effort to slow the spread of the disease. This may limit or restrict access to customers, facilities, inventory supplies, personnel, and advisors.  Government agencies and regulatory bodies are also impacted. All of these impacts are being felt by the Company now and they may have a significant and lasting effect on our businesses and on our efforts to expand our business through acquisitions and similar transactions. The impacts may also affect our ability to comply with regulatory requirements, including making timely filings with the Securities and Exchange Commission. Depending on the longevity and severity of the COVID-19 pandemic, our business, customers, and shareholders may experience significant negative impacts.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

During the fiscal quarter ended March 31,September 30, 2020, the board of directors issued 603,548199,289 shares of unregistered common stock and 312,50067,312 shares of unregistered preferred stock to eight personsseven persons/entities in exchange for services rendered to the Company (including stock payable as of December 31, 2019).Company. These unregistered shares were in addition to an aggregate of 1,333,070448,048 common shares that were registered for resale on Form S-8.  The unregistered shares were valued at the closing price of the shares in the OTCQB Market on the dates of issuance. In addition, the Companyshares became issuable. The company also issued 100,00050,000 shares of common stock upon acquisition of assets for GK Manufacturing and Packaging, Inc.to three individuals pursuant to their investment in a private offering. The issuances of the unregistered shares were exempt from the registration requirements of Section 5 of the Securities Act of 1933 pursuant to Section 4(2) of the Act since the recipients of the shares were persons closely associated with the Company andand/or the issuance of the shares did not involve any public offering.

Item 3.  Defaults Upon Senior Securities.

None.

Item 4.  Mine Safety Disclosures.

Not applicable.

Item 5.  Other Information.

None.

Item 6.  Exhibits.

The following documents are included as exhibits to this report:

(a) Exhibits

(1) Incorporated by reference to Exhibits 3.01 and 3.02 of the Company's Registration Statement on Form 10 filed January 28, 2009.

(2) XBRL information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934, and is not subject to liability under those sections, is not part of any registration statement or prospectus to which it relates and is not incorporated or deemed to be incorporated by reference into any registration statement, prospectus or other document.   

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Cannabis Sativa, Inc. 

Date:  June 29,November 16, 2020

CANNABIS SATIVA, INC.

Contents

FS - 1

CANNABIS SATIVA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED

FS - 2

CANNABIS SATIVA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED

FS - 3

CANNABIS SATIVA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 - UNAUDITED

FS - 4