The accompanying notes are an integral part of
these consolidated financial statements.
The accompanying notes are an integral part of
these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial
statements.
The accompanying notes are an integral part of
these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Organization and General Description of Business
Cannabis Science, Inc. (We or the Company), was incorporated
under the laws of the State of Colorado, on February 29, 1996, as Patriot Holdings, Inc. On August 26, 1999, the Company
changed its name to National Healthcare Technology, Inc. On June 6, 2007, the Company changed its name from National Healthcare
Technology, Inc., to Brighton Oil & Gas, Inc., and converted to a Nevada corporation. On March 25, 2008 the Company
changed its name to Gulf Onshore, Inc. On April 6, 2009, the Company changed its name to Cannabis Science, Inc., and obtained
a new CUSIP number.
On May 7, 2009 the Company common shares commenced trading under the new stock symbol OTCBB:
CBIS.
Cannabis Science, Inc. is at the forefront of medical marijuana research and development.
The Company works with world authorities on phytocannabinoid science targeting critical illnesses, and adheres to scientific
methodologies to develop, produce, and commercialize phytocannabinoid-based pharmaceutical products. In sum, we are dedicated
to the creation of cannabis-based medicines, both with and without psychoactive properties, to treat disease and the symptoms of
disease, as well as for general health maintenance. The Company formed two operating subsidiaries Cannabis Science BV
and Cannabis Science International Holding BV in The Netherlands on May 10
th
and May 6
th
, 2013, respectively,
to pursue business opportunities in Europe and worldwide. There are currently minimal operations in the subsidiaries. Agreements
and business disclosures are in process.
On November 15, 2013, the Company submitted a patent application N2010968 in Europe entitled
"Composition for the Treatment of Neurobehavioral Disorders." The subject of the patent is development of cannabinoid-based
formulations to treat a variety of neurobehavioral disorders, such as attention deficit hyperactivity disorder (ADHD), anxiety,
and sleep disorders.
On November 20, 2014, the Company signed an amendment to the license agreement with Apothecary
Genetics Investments LLC. Pursuant to the amendment, the Company is acquiring all property, building, and equipment of Apothecary.
The Company anticipated closing the purchase in fiscal 2015 once all assets are identified with supported fair market values
and the transfer of land title is completed.
B. Basis of Presentation
These consolidated financial statements and related notes are presented in accordance with
accounting principles generally accepted in the United States, and are expressed in U.S. dollars. The Companys fiscal
year end is December 31.
The operating results of GGECO University, Inc. (GGECO),
acquired on February 9, 2012, for the period February 10, 2012 through December 31, 2013 were consolidated with the consolidated
financial statements of the Company for the year ended December 31, 2014 and 2013. The s-type corporation of GGECO was dissolved
in 2012 and all operations combined into the Company. An independent valuation firm determined the intangibles acquired in
GGECO to be $192,119 consisting of $150,000 for educational materials, $20,000 for the trade name, and $22,119 for the workforce.
The total purchase price of $450,132, including acquired net liabilities, audit and valuation costs was recorded. Full
impairment of GGECO was recognized and all goodwill was written off at December 31, 2014.
The operating results of Cannabis Consulting, Inc. (CCI),
acquired on March 21, 2012, for the period March 21, 2012 through December 31, 2012 and January 1, 2013 through December 31, 2013
were consolidated with the consolidated financial statements of the Company. The s-type corporation of CCI was dissolved
in 2012 and all operations combined into the Companys. The Company has allocated $125,000 of the purchase price to
intangibles based on an internal valuation in addition to $22,000 of goodwill. Full impairment of CCI was recognized and
all goodwill was written off at December 31, 2014.
In 2012, the Company formed Cannabis Science Europe GmbH (CSE)
to operate joint-venture operations with dupetit Natural Products Ltd. The JV asset was sold to Endocan Corporation (formerly
X-Change Corporation) on December 12, 2012. No operations had commenced at the time of sale of the JV asset. For the
year ended December 31, 2013, CSE had minimal expenditures in the normal course of winding up the entity subsequent to the disposal
of the JV asset. The Company is in the process of dissolving CSE.
On May 6, 2013, the Company formed Cannabis Science International
Holdings B.V. and on May 10, 2013, the Company formed Cannabis Science B.V. for the purpose of wholly-owned operating subsidiaries
for the Companys European and world-wide operations. The Company has commenced some operating activities with cultivation
in Spain and product development in 2014. Mario Lap, director of the Company and director and officer of Cannabis Science
B.V. manages the day-to-day operations through his private companies MLS BV and MJR BV, both Netherlands registered companies.
On August 6, 2014, the Company signed a proposal letter with Michigan
Green Technologies, LLC (MGT) to acquire an additional 30.1% equity in MGT and completed the transaction with the principals
of MGT under the proposal letter on February 20, 2015 to effectively increase the Companys equity ownership to 50.1%. As
consideration for acquiring the additional 30.1% equity, the Company issued additional shares to the principals and shareholders
of MGT.
On May 6, 2015 the Company announced the Assets acquisition of Equi-Pharm
LLC, a USA manufacturer and distributor of specialty horse and pet grooming and topical applications. The acquisition incorporates
an extensive expansion plan for Equi-Pharm including "Large Animal" such as horses, cattle, sheep and the like and "Small Animal"
or "Pets" include cats, dogs, pet snakes and the like for medical and cosmetic products. As consideration for acquiring the Assets,
which consist of Inventory, Trademark and brand names, and goodwill, the Company issued ten million (10,000,000) shares to the
shareholders of Equi-Pharm and agreed to change its company name. The acquisition was completed on November 16, 2015 and the Company
has formed a new wholly owned subsidiary called Equi-Pharm LLC. In the state of Tennessee and start the operation of distributing
of existing and new line of products.
C. Use of Estimates
The preparation of consolidated financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates and
assumptions are reviewed periodically and the effects of revisions are reflected in the consolidated financial statements in the
period they are determined.
D. Basic and Diluted Net Income (Loss) Per Share
Under ASC 260, "Earnings Per Share" ("EPS"), the Company provides for the calculation of
basic and diluted earnings per share. Basic EPS includes no dilution and is computed by dividing income or loss available
to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution of securities that could share in the earnings or losses of the entity. For the years ended December 31,
2015 and 2014, basic and diluted loss per share are the same since the calculation of diluted per share amounts would result in
an anti-dilutive calculation.
E. Cash and Cash Equivalents
The Company considers all highly liquid instruments with maturity of three months or less
at the time of issuance to be cash equivalents.
F. Long-Lived Assets
Under ASC Topic 360, Property, Plant, and Equipment, the Company is required
to periodically evaluate the carrying value of long-lived assets to be held and used. ASC Topic 360 requires impairment losses
to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets carrying amounts. In that event, a loss is recognized
based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived
assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal.
G. Inventory
Inventories are stated at the lower of cost or market, using the average cost method. Cost
includes materials related to the purchase and production of inventories. We regularly review inventory quantities on hand, future
purchase commitments with our suppliers, and the estimated utility of our inventory. If our review indicates a reduction in utility
below carrying value, we reduce our inventory to a new cost basis through a charge to cost of revenue.
H. Fair Value Measurements
Under ASC Topic 820, Fair Value Measurements, the Company discloses the estimated fair values
of financial instruments. The carrying amounts reported in the balance sheet for current assets and current liabilities qualifying
as financial instruments are a reasonable estimate of fair value.
In accordance with the reporting requirements of ASC Topic 825, Financial Instruments, the
Company calculates the fair value of its assets and liabilities which qualify as financial instruments under this standard and
includes this additional information in the notes to the consolidated financial statements when the fair value is different than
the carrying value of those financial instruments (see Note 4). The estimated fair value of other current assets and current
liabilities approximate their carrying amounts due to the relatively short maturity of these instruments. None of these instruments
are held for trading purposes.
I. Goodwill and Intangible Assets
Under ASC Topic 350 Intangibles-Goodwill and Other, goodwill is not amortized
to expense, but rather that it is assessed or tested for impairment at least annually. Impairment write-downs are charged to results
of operations in the period in which the impairment is determined. The Company did not identify any impairment on its outstanding
goodwill from its most recent testing, which was performed as of December 31, 2015. If certain events occur which might indicate
goodwill has been impaired, the goodwill is tested for impairment when such events occur. Other acquired intangible assets with
finite lives, such as customer lists, are required to be amortized over the estimated lives. These intangibles are generally amortized
using the straight line method over estimated useful lives of five years. The Company determined no impairment on goodwill
for the year ended December 31, 2015.
The Company tests the carrying value of goodwill and indefinite life intangible assets for
impairment at least once a year and more frequently if an event or circumstance indicates the asset may be impaired. An impairment
loss is recognized if the amount of the assets carrying amount exceeds its recoverable amount. The recoverable amount is
the higher of an assets fair value less selling expenses or its value in use. For the purposes of assessing impairment, assets
are grouped at the lowest levels for which there are separately identifiable cash inflows (cash generating units).
The Company is adopting ASU update number 2012-02IntangiblesGoodwill and Other
(Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment whereby the Company will first assess qualitative factors
to determine whether the existence of events and circumstances indicates that it is more likely than not that an indefinite-lived
intangible asset is impaired. If, after assessing the totality of events and circumstances, we conclude that it is not more
than likely than not that the indefinite-lived intangible asset is impaired, then we are not required to take further action. If
the Company concludes otherwise, then we will determine the fair value of the indefinite-lived intangible asset and perform the
required quantitative impairment test by comparing the fair value with the carrying amount.
The Company recorded no impairment loss on goodwill for the year ended December 31, 2015
and recorded an impairment loss on goodwill of $66,274 for the year ended December 31, 2014 that was included in operating expenses
and resulting net operating loss.
J. Research and Development Expenses
Under ASC Topic 730 Research and Development, costs are expensed as incurred.
These expenses include the costs of our proprietary R&D efforts, as well as costs incurred in connection with certain licensing
arrangements. Before a compound receives regulatory approval, we record upfront and milestone payments made by us to third parties
under licensing arrangements as expense. Upfront payments are recorded when incurred, and milestone payments are recorded when
the specific milestone has been achieved. Once a compound receives regulatory approval, any milestone payments will be recorded
as Identifiable intangible assets, less accumulated amortization and, unless the asset is determined to have an indefinite life,
amortization of the payments will be on a straight-line basis over the remaining agreement term or the expected product life cycle,
whichever is shorter. No identifiable intangible assets have been recorded as of December 31, 2015.
K. Income Taxes
Under ASC Topic 740, Income Taxes, the Company is required to account for its
income taxes through the establishment of a deferred tax asset or liability for the recognition of future deductible or taxable
amounts and operating loss and tax credit carry forwards. Deferred tax expense or benefit is recognized as a result of timing
differences between the recognition of assets and liabilities for book and tax purposes during the year.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
Deferred tax assets are recognized for deductible temporary differences and operating loss, and tax credit carry forwards.
A valuation allowance is established to reduce that deferred tax asset if it is "more likely than not" that the related tax
benefits will not be realized.
Unfiled Federal Tax Returns
The Company estimates that the amount of penalties, if any, will not have a material effect
on the results of operations, cash flows or financial position. No provisions have been made in the financial statements
for such penalties, if any.
The Company is working with its accountants to prepare and file
overdue federal tax returns for 2008 through 2015, which are anticipated to be completed and filed in fiscal 2016.
L. Marketable Securities
Under ASC Topic 210; Regulation S-X Marketable Securities, the Company is required
to measure all marketable securities at their carrying value while recognizing unrealized gains and losses as of the reporting
date.
M. Stock-Based Compensation
Under ASC Topic 718, Compensation-Stock Compensation, the Company is required
to measure all employee share-based payments, including grants of employee stock options, using a fair-value-based method and the
recording of such expense in the statements of operations.
N. Revenue Recognition
Revenue is recognized at the time the educational materials or online seminars are provided
and billed to the customer and substantially all related obligations of the Company have been performed. License fees and
joint-venture profit sharing when evidenced by executed agreements, and other fees are recognized when earned and collection is
reasonably assured.
O. Recent Accounting Pronouncements
During the year ended December 31, 2015 and through April 11, 2016, there were several new
accounting pronouncements issued by the FASB. Each of these pronouncements, as applicable, has been or will be adopted by the Company.
Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact
on the Companys financial statements.
2. GOING CONCERN
The accompanying consolidated financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate the continuation of the Company as a going concern. The Company
reported an accumulated deficit of $128,017,132 and had a stockholders deficit of $2,614,487 at December 31, 2015.
In view of the matters described, there is substantial doubt as to the Company's ability
to continue as a going concern without a significant infusion of capital. At December 31, 2015, the Company had insufficient
operating revenues and cash flow to meet its financial obligations. There can be no assurance that management will be successful
in implementing its plans. The consolidated financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
We anticipate that we will have to raise additional capital to fund operations over the next
12 months. To the extent that we are required to raise additional funds to acquire research and growing facilities, and to
cover costs of operations, we intend to do so through additional public or private offerings of debt or equity securities. There
are no commitment or arrangements for other offerings in place, no guaranties that any such financings would
be forthcoming, or as to the terms of any such financings.
Any future financing may involve substantial dilution to existing investors. We had
been relying on our common stock to pay third parties for services which has resulted substantial dilution to existing investors.
3. FAIR VALUE MEASUREMENTS AND DISCLOSURES
ASC Topic 820,
Fair Value Measurement
, establishes a framework
for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used
to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets
or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of
the fair value hierarchy under ASC Topic 820 are described as follows:
Level 1
Inputs to the valuation methodology are unadjusted quoted prices for
identical assets or liabilities that the Company can access at the measurement date.
Level 2
Inputs to the valuation methodology are inputs other than quoted prices
included in Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has
a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
Level 3
Inputs to the valuation methodology are unobservable inputs for the
asset or liability.
The asset or liabilitys fair value measurement level within the
fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation
techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
Following is a description of the valuation methodologies used for the
Companys liabilities measured at fair value. There have been no changes in the methodologies used at December 31, 2015.
Investment in marketable securities:
Trading securities valued
at the closing price of Endocan Corporation shares held by the Company at year end.
Intangibles from Licensing of Purpose Haze Properties and assets
acquisition of Equi-Pharm:
Valued at replacement cost. The replacement cost is determined as the cost of replacing the
asset with similar value, rights and conditions.
The preceding methods described may produce a fair value calculation
that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the Company believes
its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions
to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting
date. The following tables set forth by level, within the fair value hierarchy, the Companys liabilities at fair value
as of December 31, 2015 and 2014.
|
|
December 31, 2014
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Investment in trading securities
|
|
$
|
157,500
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
157,500
|
|
Intangibles from acquisitions, GGECO and CCI,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net of accumulated amortization
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total assets as of December 31, 2014
|
|
$
|
157,500
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
157,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
Level 1
|
|
|
|
Level 2
|
|
|
|
Level 3
|
|
|
|
Total
|
|
Investment in trading securities
|
|
$
|
43,500
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
43,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles from acquisitions Equi-Pharm and License from Purpose Haze net of accumulated amortization
|
|
|
—
|
|
|
|
—
|
|
|
|
385,689
|
|
|
|
385,689
|
|
Total assets as of December 31, 2015
|
|
$
|
43,500
|
|
|
$
|
—
|
|
|
$
|
385,689
|
|
|
$
|
429189
|
|
4. RELATED PARTY TRANSACTIONS
On March 27, 2015, the Companys CFO, Robert Kane, through his company, R Kane Holding
Inc., loaned Michigan Green Technologies LLC $52,500 secured by a non-interest bearing promissory note due within 30 days of MGT
liquidating shares in Cannabis Science, Inc. to repay the debt.
As of February 20, 2015, the Company closed on its acquisition and now owns a majority 50.1%
interest in MGT.
On July 31, 2015 and August 1, 2015, R Kane Holding Inc. advanced a total of $6,000 to Dean
Law Trust for payment of the Companys expenses. Loan Payable to R Kane Holding Inc., a company controlled by Mr. Robert
Kane, director and CFO totaled $58,500 and $0 at December 31, 2015 and 2014 respectively.
From October 1, 2015 to December 31, 2015, Interstate 101, a shareholder of the Company,
advanced $61,902.15 to the Company with no interest and no security.
On October 1, 2015, Castor Management Services, a shareholder of the Company, advanced $3,164.72
to the Company with no interest and no security.
At December 31, 2015, a total of $191,344 (December 31, 2014: $191,344) in loans payable
was due to Bogat Family Trust, Raymond Dabney the Companys Director and President/CEO as trustee.
At December 31, 2015, $66,847 (December 31, 2014: $12,101) was due to MJR BV, owned by Mario
Lap director and director and officer of EU subsidiaries.
At December 31, 2015, $447 (December 31, 2014: $447) was due to Robert Melamede, former CEO.
At December 31, 2015, the Company held 7,500,000 common shares in the Endocan Corporation
(formerly X-Change Corporation) (OTCBB: ENDO) (Endocan) representing approximately 8.6% of the issued and outstanding
shares of Endocan, of which 5,000,000 common shares were acquired at a fair market value of $150,000 or $0.03 on December 12, 2012
and 2,500,000 common shares were acquired at a fair market value of $262,250 or $0.1049 per share on February 8, 2013. The
5,000,000 common shares were received as consideration for the sale of its rights and interest in the dupetit Natural Products
GmbH joint-venture operating agreement to Endocan under an Asset Purchase Agreement and the 2,500,000 common shares were received
as consideration for the sale of its rights and interest in the Maliseet joint-venture operating agreement to Endocan under an
Asset Purchase Agreement. The value of the shares at December 31, 2015 and December 31, 2014 was determined to be $0.0058
and $0.021 per share or $43,500 and $157,500 respectively. The Company recorded an unrealized gain of $22,500 for the year ended
December 31, 2014 when transitioned to equity method investee account.
On November 5, 2014, the Company transitioned to equity method investee account for the Endocan
shares pursuant to ASC 323 recording $247,500 as the fair value of the shares to its equity method investee account. On December
31, 2015, the Company recorded an impairment on the equity method investee account of $114,000 and an impairment of $90,000 for
the year ended December 31, 2014 in relation to the shares. Robert Kane, CFO and director of the Company is also the CFO
and a director of Endocan. Chad S. Johnson, Esq., COO, general counsel and a director is also a director and general counsel for
Endocan. Raymond Dabney, CEO is the controlling shareholder of Endocan Corporation.
For the year ended December 31, 2015, the following related party stock-based compensation
was recorded:
|
|
|
Related Party
|
Position
|
Amount
|
Raymond Dabney
1
|
CEO
|
$ 171,741
|
Dr. Dorothy Bray
|
Former CEO
|
765,303
|
Dr. Richard Cowan
|
Former CFO
|
922,500
|
Dr. Allen Herman
|
Chief Medical Officer
|
271,250
|
Dr. Roscoe M. Moore, Jr
|
Chair of Scientific Advisory Board
|
415,000
|
Robert Kane
|
CFO
|
1,135,060
|
Chad S. Johnson, Esq.
|
COO and General Counsel
|
773,422
|
Mario Lap
|
Director
|
0
|
|
|
$4,454,276
|
1
Including compensation to entities beneficially owned/control by the related
parties
On January 29, 2015, the Company paid from Chae Law Trust $120,000 to Old West Entertainment
Corp. as instructed by Mr. Raymond Dabney CEO, as payment of management fees owing to Mr. Dabney.
On April 8, 2015, the Company paid from Chae Law Trust $21,500 to Old West Entertainment
Corp. as instructed by Mr. Raymond Dabney, CEO as payment of management fees owing to Mr. Dabney.
On October 13, 2015, Mr. Andrew Pitsicalis, has paid $50,000 for exercise of his stock option
under the August 26, 2015 Non-Statutory Option Agreement and was instructed by Mr. Raymond Dabney, CEO to pay to Old West Entertainment
Corp. as payment of management fees owing to Mr. Dabney by the Company.
Raymond Dabney, CEO is a controlling shareholder and Chad S. Johnson, COO/General Legal Counsel
of ImmunoClin Corporation (OTC: IMCL), respectively. ImmunoClin performs laboratory services, research and pharmaceutical
development for the Company through its wholly-owned subsidiary ImmunoClin Limited that operates a laboratory at the London Biosciences
Centre.
See Note 8 -Equity Transactions for details of stock issuances to director and officers for
services.
Mario Lap, a director of the Company and director and officer its European subsidiaries,
is conducting various business activities of the Company in Spain under his personal name and/or his personal holding companies
MJR BV and MLS Lap BV until such time as the Company is able to establish a Spanish subsidiary to conduct its own business operations
and activities, including but not limited to: operating lease for farms, asset purchases, office and equipment, personnel employment
and other business and operating activities as may be required from time-to-time. The Company anticipates having the Spanish
subsidiary setup in fiscal 2015 at which time Mario Lap under fiduciary duty will transfer all business operating activities, agreements,
and assets to the Company.
Notes payable to Intrinsic Venture Corp. totaled $0 and $0 at December 31, 2015 and 2014,
respectively. On July 1, 2014, IVC assigned a total of $251,371 promissory notes payable by the Company to Intrinsic Capital
Corp. On October 1, 2014, IVC assigned a total of $420,000 promissory notes payable by the Company to Intrinsic Capital Corp.
On November 1, 2014, IVC assigned a total of $1,108,896 promissory notes to Embella Holdings Ltd. Notes payable to
Embella Holdings Ltd. totaled $1,108,896 and $1,108,896 at December 31, 2015 and 2014, respectively. As of December 31, 2015,
the Company is in default on the promissory notes due and is negotiating with the debtor to extend the date.
Notes payable to Intrinsic Capital Corp. totaled $231,260 and $302,088 at December 31, 2015
and 2014, respectively. See Note 6.
Notes payable to Richard Cowan, former director and CFO totaled $0 and $150,000 at December
31, 2015 and 2014, respectively. See Note 6.
Between January 1, 2015 to March 7, 2015, R. Kane Holding Inc., a company owned by Mr. Robert
Kane, director and CFO, had advanced $52,500 into Michigan Green Technologies, LLC, which is 50.1% controlled by the Company as
Loan Payable to R. Kane Holding Inc.
On July 25, 2014, Bogat Family Trust, Raymond Dabney trustee, representing a majority of
Series A preferred stockholders, signed a resolution to approve an amendment to the certificate of designation preferences and
rights for Series A preferred shares. Pursuant to the amendment filed with the Nevada Secretary of State, the voting rights
of Series A preferred stockholders was changed from 1,000 votes per share to 67% of the total vote on all shareholder matters.
No common stockholders voted on this amendment.
5. NOTES PAYABLE
As of December 31, 2015, a total of $1,406,513 (December 31, 2014: $1,581,486) of notes payable
are due to stockholders that are non-interest bearing and are due 12 months from the date of issue and loan origination beginning
on July 23, 2014 through December 31, 2015. Promissory notes totaling $1,360,658 were in default on December 31, 2015. All
promissory notes are unsecured.
$150,000 in promissory notes were due to Richard
Cowan, former director and CFO of the Company. On January 15, 2015, the Company entered into a debt settlement agreement
and issued 15,000,000 shares of common stock on March 12, 2015 to settle the debt owed to Cowan. All promissory notes are
unsecured.
$130,855 in promissory notes was due to Stacey
R. Lewis, stockholder of the Company. On August 20, 2015, the Company entered into a partial debt settlement agreement to retire
$25,000 of the amount and issued 25,000,000 shares of common stock to partially settle the debt owed to Lewis. On October
22, 2015, the Company entered into a partial debt settlement agreement to retire $30,000 of the amount and issued 30,000,000 shares
of common stock to partially settle the debt owed to Lewis. On November 13, 2015, the Company entered into another partial
debt settlement agreement to retire $30,000 of the amount and issued 30,000,000 shares of common stock to partially settle the
debt owed to Lewis. All promissory notes are unsecured.
On February 20, 2015, the Company issued 30,828,080
shares of common stock pursuant to a debt settlement agreement with Intrinsic Capital Corp. to settle $30,828 in debt owing under
December 31, 2013 note payable.
On April 29, 2015, the Company issued 40,000,000
shares of common stock pursuant to a debt settlement agreement with Intrinsic Capital Corp. to settle $40,000 in debt owing under
December 31, 2013 note payable.
Between April 1, 2015 and December 31, 2015, Interstate 101 advanced $61,902 to the Company
to pay for various expenses of the Company.
On August 14, 2015, Castor Management Services advanced $3,165 to the Company to pay for
expenses of the Company.
As of April 11, 2016, the Company has settled the balance of $45,855 promissory notes owed
to Stacey R. Lewis on February 7, 2016 and issued 45,000,000 shares of common stock pursuant to a debt settlement agreement. The
Company is in default on the promissory notes due and is negotiating with the debtors to extend the due dates and/or settle the
debt.
6. INCOME TAXES
Deferred income taxes are reported using the liability method. Deferred tax assets
are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred
tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion
or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects
of changes in tax laws and rates on the date of enactment. Current year and accumulated deferred tax benefit at the effective
Federal income tax rate of 34% is $20,367,959 (in addition to the pre-acquisition annual limitation carry-forward discussed in
the following paragraph), and a valuation allowance has been set up for the full amount because of the unlikelihood that the accumulated
deferred tax benefit will be realized in the future.
At December 31, 2015 and 2014, the Company had available federal and state net operating
loss (NOL) carryforwards amounting to approximately $78,500,000 and $59,900,000, respectively, that are available to offset
future federal and state taxable income and that expire in various periods through 2035 for federal tax purposes and 2020 for state
tax purposes. No benefit has been recorded for the loss carryforwards, and utilization in future years may be limited
under Sections 382 and 383 of the Internal Revenue Code if significant ownership changes have occurred or from future tax
legislation changes.
The following table sets forth the significant components of the net deferred tax assets
for operations in the US as of December 31, 2015 and 2014.
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
2014
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
NOL expense (benefit)
|
|
$
|
(26,699,209)
|
|
|
$
|
(20,367,959)
|
|
Less: valuation allowance
|
|
|
26,699,209
|
|
|
|
20,367,959
|
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
A reconciliation of income tax expense at the statutory federal rate of 34% to income tax
expense at the Company's effective tax rate for the years ended December 31, 2015 and 2014 is as follows:
|
|
|
|
|
|
|
|
|
2015
|
|
|
2014
|
|
Income tax expense (benefit) at
|
|
|
|
|
|
|
statutory federal rate
|
$
|
(6,331,250)
|
34%
|
$
|
(5,747,959)
|
34%
|
State income taxes
|
|
|
|
|
|
|
NOL limitation (Note 3)
|
|
|
|
|
|
|
Increase (decrease) in valuation allowance
|
|
6,331,250
|
-34%
|
|
5,747,959
|
-34%
|
Income tax expense (benefit) at
|
|
|
|
|
|
|
Company's effective tax rate
|
$
|
-
|
0%
|
$
|
-
|
0%
|
|
|
|
|
|
|
|
7. EQUITY TRANSACTIONS
The Company is authorized to issue 3,000,000,000 shares of common stock with a par value
of $0.001 per share. These shares have full voting rights. There were 1,581,855,296 and 1,032,123,906 issued and outstanding
as of December 31, 2015 and 2014, respectively.
The Company is also authorized to issue 100,000,000 shares of common stock, Class A with
a par value of $0.001 per share. These shares have 10 votes per share. There were 0 issued and outstanding as of December
31, 2015 and 2014.
The Company is also authorized to issue 1,000,000 shares of preferred stock. These
shares have full voting rights of 67% on all shareholder matters pursuant to amended certificate of designation filed with the
Nevada Secretary of State. There were 1,000,000 issued and outstanding as of December 31, 2015 and 2014.
On February 9, 2012, the Company established a 2012 Equity Compensation Plan that authorizes
the Company to issue up to 50,000,000 common shares to staff or consultants for services to or on behalf of the Company. The
Company filed a Registration Statement Form S-8 with the U.S. Securities and Exchange Commission on February 14, 2012, file no.
333-179501, to register the shares covered under the plan. As of December 31, 2014, the Company has issued 47,250,000 common
shares as compensation under the plan to various executives and consultants of the Company.
On April 28, 2014, the Company filed a Form S-8 (file no. 333-195510) registering 6,500,000
common shares under a 2014 Stock Compensation Plan A. As of December 31, 2014, the Company has issued 6,000,000 common shares
as compensation under the plan to various executives and consultants of the Company.
On July 25, 2014, Bogat Family Trust, Raymond Dabney trustee, representing a majority of
Series A preferred stockholders, signed a shareholder resolution to approve an amendment to the certificate of designation preferences
and rights for Series A preferred shares. Pursuant to the amendment filed with the Nevada Secretary of State, the voting
rights of Series A preferred stockholders was changed from 1,000 votes per share to 67% of the total vote on all shareholder matters.
No common stockholders voted on this resolution or amendment.
On September 22, 2014, the Company filed a Certificate of Amendment with the Nevada Secretary
of State to increase its authorized from 951,000,000 to 1,601,000,000 shares. The number of authorized shares of common stock
increased from 850,000,000 to 1,500,000,000.
On October 10, 2014, the Company filed a Form S-8 (file no. 333-199251) registering 6,500,000
common shares under a 2014 Stock Compensation Plan B. As of December 31, 2014, the Company has issued 6,000,000 common shares
as compensation under the plan to various executives and consultants of the Company.
On December 5, 2014, the Company filed a Form S-8 (file no. 333-200747) registering 50,000,000
common shares under a 2014 Stock Compensation Plan C. As of December 31, 2014, the Company has issued 39,960,310 common shares
as compensation under the plan to various executives and consultants of the Company.
On March 25, 2015, the Company filed a Form S-8 (file no. 333-202982) registering 50,000,000
common shares under a 2015 Stock Compensation Plan. As of December 31, 2015, the Company has issued 46,448,000 common shares as
compensation under the plan to various executives and consultants of the Company.
On August 18, 2015, the Company filed a Form S-8 (file no. 333-206443) registering 50,000,000
common shares and 100,000,000 incentive stock options or Non-Statutory Stock Options under a 2015 Equity Award Plan. As of December
31, 2015, the Company has issued 47,000,000 common shares as compensation and has issued 2,500,000 Incentive Stock Options exercisable
at $0.04 a share and 76,500,000 Non-Statutory Stock Options exercisable at $0.01 a share under the plan to various consultants
and managements of the Company and 76,500,000 Non-Statutory Stock Options have been exercised at $0.01 a share.
During the year ended December 31, 2015, the Company issued the following common stock:
During the fiscal year ended December 31, 2015, we sold the following shares in an unregistered
offering:
On January 20, 2015, the Company issued a private placement offering to an accredited investor
for 10,000,000 common shares at $0.025 per share. Gross proceeds of $250,000 under the private placement offering were received
by the Company.
As set out below, we have issued securities in exchange for services, properties and for
debt, using exemptions available under the Securities Act of 1933.
During the year ended December 31, 2015, the Company issued stock pursuant to consulting
agreements with several parties as follows:
On January 1, 2015, the Company issued 5,000,000 Rule 144 restricted shares of common stock
with a fair market value of $275,500 to Chad S. Johnson, COO/General Legal Counsel for services under a November 25, 2014 management
agreement.
On January 1, 2015, the Company entered into an agreement and issued 545,000 shares of S-8
registered free-trading common stock with a fair market value of $30,029.50 to a consultant for services.
On January 15, 2015, the Company entered into an agreement and issued 15,000,000 shares of
Rule 144 restricted common stock with a fair market value of $922,500 to Richard Cowan, former CFO for services.
On January 15, 2015, the Company issued 15,000,000 shares of Rule 144 restricted common stock
with a fair market value of $922,500 for settlement of $150,000 in liabilities. Loss on the settlement was $772,500.
On January 18, 2015, Mario Lap, the Companys director and director and officer of EU
subsidiaries, loaned $4,031 to Cannabis Science BV a wholly-owned subsidiary of the Company.
On January 20, 2015, the Company entered into an agreement and issued 5,000,000 shares of
Rule 144 restricted common stock with a fair market of $322,500 and 8,240,310 shares of S8 registered free-trading common stock
with a fair market value of $525,671 to Robert Kane, CFO for services.
On January 27, 2015, the Company issued 4,318,000 shares S-8 registered free-trading common
stock with a fair market value of $237,922 to Chad S. Johnson, COO/General Council for services under November 25, 2014 agreement.
On January 29, 2015, the Company paid $120,000 in cash to Old West Entertainment Corp. as
instructed by Raymond Dabney, CEO, as payment of management fees owing to Mr. Dabney.
On January 31, 2015, the Company issued 2,726,000 shares of S-8 registered common stock with
a fair market value of $150,203 to Dr. Dorothy Bray, former CEO, for services under November 5, 2014 agreement.
On January 31, 2015, the Company issued 2,726,000 shares of S-8 registered common stock with
a fair market value of $150,203 to Raymond Dabney, CEO, for services under November 5, 2014 agreement.
On February 20, 2015, the Company entered into an agreement and issued 300,000 shares of
Rule 144 restricted common stock with a fair market value of $15,300 to each of four consultants to services in conjunction with
the MGT acquisition.
On March 3, 2015, the Company entered into an agreement and issued 5,000,000 shares of S-8
registered free-trading common stock and 7,500,000 shares of Rule 144 restricted common stock with a fair market value of $625,000
to John Dalaly, President of MGT for services in conjunction with the MGT acquisition.
On March 16, 2015, the Company entered into two agreements and issued 2,500,000 shares of
Rule 144 restricted common stock and 2,500,000 shares of S8 registered common stock with a fair market value of $255,000 to each
of the two consultants.
On March 16, 2015, the Company entered into an agreement and issued 5,000,000 shares of Rule
144 restricted common stock and 2,500,000 shares of S8 registered common stock with a fair market value of $382,500 to a consultant
for services.
On March 16, 2015, the Company entered into an agreement and effectively issued 1,000,000
shares of S-8 registered free-trading common stock with a fair market value of $51,000 to a consultant for services.
On March 26, 2015, the Company entered into an agreement and effectively issued 5,000,000
shares of S-8 registered free-trading common stock with a fair market value of $222,500 to a consultant for legal advisory services
for European operations.
On March 26, 2015, the Company entered into an agreement and effectively issued 3,000,000
shares of S-8 registered free-trading common stock with a fair market value of $133,500 to a consultant for services.
On March 26, 2015, the Company entered into an agreement and effectively issued 2,500,000
shares of Rule 144 restricted common stock with a fair market value of $111,250 in addition to 2,500,000 stock options exercisable
at $0.04 per share to a consultant for investor relations services.
On March 26 2015, the Company entered into an agreement and effectively
issued 5,000,000 shares of Rule 144 restricted common stock with a fair market value of $222,800 to a legal consultant in Europe
for the Companys wholly owned subsidiary.
On April 20, 2015, the Company entered into an agreement with an American
legal group for legal services to be provided and effectively issued 5,000,000 shares of Rule 144 restricted common stock with
a fair market value of $168,000 as retainer for services to be rendered.
On April 29, 2015, the Company issued 40,000,000 common shares for settlement
of $40,000 of stockholder debt with Intrinsic Capital Corp., for a loss on settlement of $1,360,000, from the stockholder notes
payable originating on December 31, 2013.
On April 30, 2015, the Company issued 10,000,000 shares S-8 registered free-trading common
stock with a fair market value of $350,000 to Robert Kane, CFO/Director under January 20, 2015 agreement.
On April 30, 2015, the Company issued 1,500,000 shares S-8 registered free-trading common
stock with a fair market value of $56,500 and 1,000,000 shares of Rule 144 restricted common stock with a fair market value of
$35,000 to a consultant under January 10, 2014 agreement.
On April 30, 2015, the Company issued 5,000,000 shares of Rule 144 restricted common stock
with a fair value of $222,800 to a legal firm for an engagement agreed on March 26, 2015 for the Companys European legal
requirements.
On April 30, 2015, the Company issued 3,500,000 shares S-8 registered free-trading common
stock with a fair market value of $169,050 to a consulting firm under March 9, 2015 Research Service Agreement.
On April 30, 2015, the Company issued 5,000,000 shares of S-8 registered common stock with
a fair market value of $175,000 to Dr. Dorothy Bray, former CEO, for services under November 5, 2014 agreement.
On April 30 2015, the Company issued 10,000,000 shares of S-8 registered free-trading common
stock with a fair market value of $350,000 to Chad S. Johnson, COO/General Legal Counsel for services under a November 25, 2014
management agreement.
On April 30, 2015, the Company issued 2,500,000 shares of S-8 registered free-trading common
stock with a fair market value of $95,000 to a consultant under April 24, 2015 Management Agreement.
On April 30, 2015, the Company issued 5,000,000 shares of S-8 registered free-trading common
stock with a fair market value of $175,000 to a consultant under April 29, 2015 Consulting Agreement.
On April 30, 2015, the Company issued 3,500,000 shares of S-8 registered free-trading common
stock with a fair market value of $122,500 to John Dalaly, President of Michigan Green Technologies, LLC for management services
under March 3, 2015 Management Agreement.
On April 30, 2015, the Company issued 948,000 shares of S-8 registered free-trading common
stock with a fair market value of $33,180 to a consultant for services under November 19, 2014 Consulting Agreement.
On May 21, 2015, the Company issued 5,000,000 shares of Rule 144 restricted common stock
with a fair market value of $148,000 to IGX Bio, Inc. pursuant to the joint development agreement with the Company.
On July 1, 2015, the Company issued 1,500,000 shares of S-8 registered
free-trading common stock with a fair value of $30,750 to a consultant under November 20, 2014 Management Agreement.
On July 7, 2015, the Company entered into a Non-Exclusive Commercial
Licensing and Franchise Option Agreement with Purple Haze Properties LLC and agreed to issue 10,000,000 shares of Rule 144 restricted
common stock with a fair value of $205,000. These shares were issued on January 26, 2016.
On July 14, 2015, the Company entered a management agreement with
a consultant and agreed to issue 1,000,000 shares of Rule 144 restricted common stock with a fair value of $20,500.
On July 16, 2015, the Company issued 10,000,000 shares of Rule 144
restricted common stock for the Assets Purchases from Equi-Pharm. The agreement was not completed until November 16, 2015 and the
market value of $200,000 on November 16, 2015 was used.
On August 18, 2015, the Company entered a consulting agreement with
a consultant and agreed to issue 2,500,000 shares of Rule 144 restricted common stock and 2,500,000 shares of S-8 registered free
trading common stock with a fair market value of $174,500.
On August 20, 2015, the Company issued 25,000,000 common shares for settlement of $25,000
on part of the $55,0810 stockholder debt with Stacey Lewis, for a loss on settlement of $770,000, from the stockholder notes payable
originating on February 18, 2015.
On September 1, 2015, the Company issued 5,000,000
shares of S-8 registered free-trading common stock with a fair market value of $175,000 to an officer of the Companys wholly
owned subsidiary in Europe under September 1, 2015 management agreement.
On September 2, 2015, the Company approved
dividend paid in the form of common stocks and warrants. The fair value of the dividends was $473,527. In March 2016, the Financial
Industry Regulatory Authority (FINRA) has refused the approval of the dividend and the dividends was not recorded as of December
31, 2015.
On October 13, 2015, the Company issued 5,000,000
shares of S-8 registered free-trading common stock with a fair market value on November 16, 2015 of $140,000 to the Chief Operating
Officer of Equi-Pharm, LLC for management of the Companys wholly owned subsidiary, Equi-Pharm, LLC. Incorporated on November
16, 2015.
On October 13, 2015, the Company issued 1,500,000
shares of S-8 registered free-trading common stock with a fair market value of $42,000 to John Dalaly, President of MGT for services
under March 3, 2015 Management Agreement.
On November 1, 2015, the Company issued 7,500,000
shares of Rule 144 restricted common stock for investor relation services with a fair market value of $172,500 under a consulting
agreement.
On November 5, 2015, the Company was to issue
2,000,000 shares of Rule 144 restricted common stock to Mr. Raymond Dabney under November 5, 2014 management agreement. This
shares were issued on March 8, 2015 with a fair market value of $21,538.
On December 2, 2015, the Company issued 1,000,000
shares of Rule 144 restricted common stock for a 3 months consulting service with a fair market value of $17,500 under a service
agreement.
On December 3, 2015, the Company issued 26,000,000
shares of S-8 registered free-trading common stock with a fair market value of $452,400 to Dr. Dorothy Bray, former CEO, for services
under November 5, 2014 agreement.
On December 3, 2015, the Company issued 10,500,000
shares of Rule 144 restricted common stock with a fair market value of $182,700 to BHD Holdings BV, a company controlled by Dr.
Dorothy Bray, former CEO, for services under November 5, 2014 agreement.
On December 3, 2015, the Company issued 12,000,000
shares of S-8 registered free-trading common stock with a fair market value of $208,800 to Dr. Khadija Benlhassan for consulting
services under November 25, 2014 agreement.
On December 3, 2015, the Company issued 8,000,000
shares of Rule 144 restricted common stock with a fair market value of $139,200 to KBLH BV for consulting services under November
25, 2014 agreement.
On December 3, 2015, the Company issued 7,500,000
shares of Rule 144 restricted common stock with a fair market value of $130,500 to John Dalaly, President of MGT for services under
March 3, 2015 Management Agreement.
On December 9, 2015, the Company issued 20,000,000
shares of Rule 144 restricted common stock with a fair market value of $326,000 to Immunoclin Limited, a company indirectly controlled
by Mr. Raymond Dabney, CEO of the Company through Castor Management Services, Inc. with Dr. Dorothy Bray, for research and development
services under December 9, 2015 agreement.
On December 30, 2015, the Company cancelled
and void 300,000 shares of Rule 144 restricted common stock issued on February 20, 2015 with a fair market value of $15,300 to
a consultant who returned the shares and resigned from the services due to conflict of interest with the Michigan Green Technologies,
LLC.
During the year ended December 31, 2015, the Company issued stock pursuant to debt settlement
agreements as follows:
On January 15, 2015, the Company entered into
a debt settlement agreement and issued 15,000,000 shares of common stock on March 12, 2015 to Richard Cowan, former director and
CFO, to settle $150,000 in promissory notes originating on November 6, 2013 for a loss on settlement of $772,500.
On February 20, 2015, the Company issued 30,828,080 common shares for settlement of $30,828
of stockholder debt with Intrinsic Capital Corp., for a loss on settlement of $1,510,576, from the stockholder notes payable originating
on July 23, 2013 ($18,328), August 15, 2013 ($1,250), August 30, 2013 ($1,250), and September 9, 2013 ($10,000).
On April 29, 2015, the Company issued 40,000,000
shares of common stock pursuant to a debt settlement agreement with Intrinsic Capital Corp. to settle $40,000 in debt owing under
December 31, 2013 note payable for a loss on settlement of $1,360,000.
On August 20, 2015, the Company entered into
a partial debt settlement agreement with Stacey R. Lewis, a stockholder of the Company, to retire $25,000 of the $55,810 in promissory
notes originated on February 18, 2015 and issued 25,000,000 shares of common stock to partially settle the debt for a loss on settlement
of $770,000.
On October 22, 2015, the Company entered into
a partial debt settlement agreement with Stacey R. Lewis to retire $30,000 of the $55,810 in promissory notes originated on February
18, 2015 and issued 30,000,000 shares of common stock to partially settle the debt for a loss on settlement of $723,000.
On November 13, 2015, the Company entered into
a partial debt settlement agreement with Stacey R. Lewis to retire $30,000 of the $75,044 in promissory notes originated on March
21, 2015 and issued 30,000,000 shares of common stock to partially settle the debt for a loss on settlement of $564,000.
The aforementioned shares for the settlement of debts were issued without legend under an
exemption under Rule 144(b)(1) of the Act. Over six months has passed since the debts accrued on the books of the Company;
the Seller is not now, and during the three month period preceding the transaction has not been considered an affiliate
of the Company. Furthermore, pursuant to Rule 144(d)(1)(i) the Company is, and has been for a period of at least 90 days
immediately before the proposed sale, subject to the reporting requirements of section 13 or 15(d) of the Securities and Exchange
Act of 1934, and the proposed resale of the Shares in addition to the Company not being considered a shell company under Rule 144(i)(1).
All relating shares were issued to settle the debts.
Stock Options:
The following options were issued to the Companys V.P of investor relations, CFO and
Director for services under a September 16, 2011 agreement:
(i) the option to purchase 100,000 common
shares at ten cents ($0.10) per share;
(ii) the option to purchase 100,000 common
shares at twenty cents ($0.20) per share;
(iii) the option to purchase 500,000 common
shares at thirty-five cents ($0.35) per share; and
(iv) the option to purchase 1,000,000 common
shares at fifty cents ($0.50) per share.
On August 16, 2015 the Company approved and registered 100,000,000 common stock option at
an exercise price of $0.01 under the Companys 2015 Equity Award Plan and entered into 10 Non-Statutory Stock Option Agreements
with certain consultants on August 26, 2015 for 60,000,000 common shares, and on September 22, 2015 for 1,500,000 common shares
with one consultant, and on December 4, 2015 for 15,000,000 with two consultants for a total of 76,500,000 common shares.
A summary of the status of the Companys option grants as of
December 31, 2015 and the changes during the period then ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted-Average
Exercise Price
|
Outstanding December 31, 2014
|
|
|
1,700,000
|
|
|
$
|
0.410
|
Granted
|
|
|
79,000,000
|
|
|
$
|
0.011
|
Exercised
|
|
|
76,500,000
|
|
|
$
|
0.010
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding December 31, 2015
|
|
|
4,200,000
|
|
|
$
|
0.195
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2015
|
|
|
4,200,000
|
|
|
$
|
0.195
|
|
|
|
|
|
|
|
|
1,700,00 shares of these options at an exercise price of $0.17 a
share do no expire and continuing indefinitely for the duration of existing management agreement and services thereunder with Robert
Kane and 2,500,000 shares at an exercise price of $0.04 a share expires on March 25, 2016. The weighted average fair value at date
of grant for options during year ended December 31, 2015 was estimated using the Black-Scholes option valuation model with the
following:
|
|
|
|
|
|
|
|
|
|
Average expected life in years
|
|
|
2
|
|
Average risk-free interest rate
|
|
|
2.00
|
%
|
Average volatility
|
|
|
75
|
%
|
Dividend yield
|
|
|
0
|
%
|
8. EQUIPMENT
|
|
|
|
|
|
|
|
Net Book Value
|
|
|
Cost
|
|
Accumulated Depreciation
|
|
December 31, 2015
|
|
December 31, 2014
|
Equipment
|
|
$
|
3,000
|
|
|
$
|
3,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Laboratory equipment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Software
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
—
|
|
|
|
—
|
|
Computers
|
|
|
5,716
|
|
|
|
5,716
|
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
13,716
|
|
|
$
|
13,716
|
|
|
$
|
—
|
|
|
$
|
—
|
|
All equipment is stated at cost. Maintenance and repairs are charged to expense as
incurred and the cost of renewals and betterments are capitalized. Depreciation is computed using the straight-line method
over the estimated lives of the related assets, 2 years for computer, 2 years for software, and 5 years for equipment and laboratory
equipment.
9. DEPOSITS
On February 9, 2012, the Company signed a license agreement with Apothecary to produce several
Cannabis Science Brand Formulations for the California medical cannabis market. As well, Apothecary will provide research and development
facilities with full circle operations including a California laboratory facility for internal research and development, along
with 16 unique genetic strains specifically generated and maintained by a cancer survivor who recognizes the importance of proper
growth and breeding in addition to investing $250,000 in research and development in the first 24 months. Apothecary failed
to meet several contract provisions including investing $250,000 in R&D, setting up a laboratory facility, and reporting and
remitting license fees owing to the Company. On November 20, 2014, the Company signed an amendment to the license agreement.
Pursuant to the amendment, the Company is acquiring all property, building, and equipment of Apothecary in exchange for 14,500,000
Rule 144 restricted stock with a fair market value of $971,500. The Company recorded an equivalent deposit for the year ended
December 31, 2015 until the acquisition of assets closes, which is anticipated during fiscal 2016 once all assets are identified
with supported fair market values and the transfer of land title is completed.
10. EQUITY METHOD INVESTEE
On November 5, 2014, the Company accounted for its investment and loans in Endocan Corporation
using the equity method pursuant to ASC 323 Investments Equity Method and Joint Ventures. In accordance with
ASC 323, when the Company does not have a controlling financial interest in an entity but exerts significant influence over the
entitys operating and financial policies, the Company accounts for its investment in accordance with the equity method of
accounting. This generally applies to cases in which the Company owns a voting or economic interest of between 20 and 50 percent.
The accounting using the equity method is in conjunction with appointment of Raymond Dabney
as CEO and director of the Company on November 5, 2014, in addition to Mr. Dabney being a controlling shareholder of the Company
since September 2009 and a controlling shareholder of Endocan Corporation since June 2013. Therefore, the Company was deemed
to have significant influence and control of Endocan Corporation.
On November 5, 2014, the Company recorded $247,500 in marketable securities and $85,427 (based
on currency converted as of December 31, 2015) in loans to Endocan Corporation to its equity method investee account in accordance
with ASC 323. An impairment on the equity method investee account of $114,000 was recognized for the year ended December
31, 2015 in addition to an impairment of $90,000 for the year ended December 31, 2014 due to the non-temporary decline in the value
of Endocan marketable securities.
11. INTANGIBLE ASSETS
|
|
December 31, 2015
|
|
December 31, 2014
|
Intellectual assets, primarily intellectual property and goodwill
|
|
$
|
830,988
|
|
|
$
|
445,299
|
|
Less accumulated amortization
|
|
|
(445,299
|
)
|
|
|
(445,299
|
)
|
Total intangible assets, net
|
|
$
|
385,689
|
|
|
$
|
—
|
|
Intangible assets are stated at fair value on the date of purchase less accumulated amortization.
Amortization is computed using the straight-line method over the estimated lives of the related assets (5 years for intellectual
assets).
The Company determined impairment, no amortization at December 31, 2015 and fully amortized
all intangibles at December 31, 2014.
12. SUBSEQUENT EVENTS
Subsequent to the year ended December 31, 2015, the following transactions occurred:
On January 11, 2016, the Company issued 15,500,000 shares of Rule 144 restricted common stock
to Apothecary Genetics Investments with a fair market value of $181,350 for amendment to a property license agreement on February
9, 2012.
On January 20, 2016, the Company issued 10,000,000 shares S-8 registered free-trading common
stock under Option Agreement of 2015 Equity Award Plan with exercise price at $0.01 and a fair market value of $117,000 to a consultant.
On February 7, 2016, the Company entered into
a partial debt settlement agreement with Stacey R. Lewis to retire $45,000 of the $75,044 in promissory notes originated on March
21, 2015 and issued 45,000,000 shares of common stock to partially settle the debt for a loss on settlement of $589,500.
On February 22, 2016, the Company issued 7,000,000
shares S-8 registered free-trading common stock under Option Agreement of 2015 Equity Award Plan with exercise price at $0.01 and
a fair market value of $86,100 to a consultant under management agreement.
On February 22, 2016, the Company issued 6,500,000
shares S-8 registered free-trading common stock under Option Agreement of 2016 Equity Award Plan with exercise price at $0.01 and
a fair market value of $79,950 to a consultant under management agreement.
On February 24, 2016, the Company issued 25,000,000
shares S-8 registered free--trading common stock under Option Agreement of 2016 Equity Award Plan with exercise price at $0.01
and a fair market value of $300,000 to a consultant under management agreement.
On March 8, 2016, the Company issued 18,000,000
shares Rule 144 restricted common stock to Raymond Dabney, CEO of the Company with a fair market value of $193,842 for bonus under
November 5, 2014 management agreement.
On March 8, 2016, the Company issued 20,000,000
shares Rule 144 restricted common stock to MLS Lap BV, a company controlled a director of the Company with a fair market value
of $215,380 for bonus under June 24, 2013 management agreement.
On March 8, 2016, the Company issued 20,000,000
shares Rule 144 restricted common stock to Chad Johnson, COO/General Council with a fair market value of $215,380 for bonus and
services under November 25, 2014 agreement.
On March 8, 2016, the Company issued 20,000,000
shares Rule 144Rule 144 restricted common stock to Robert Kane, CFO/director of the Company with a fair market value of $215,380
for bonus and services under January 20, 2015 agreement.
On March 22, 2016, the Company issued 15,000,000
shares of S-8 registered free-trading common stock under Option Agreement of 2015 Equity Plan with exercise price at $0.01 and
a fair market value of $226,500 to a consultant under management agreement.
On March 22, 2016, the Company issued 5,000,000
shares of S-8 registered free-trading common stock under Option Agreement of 2016 Equity Plan with exercise price at $0.01 and
a fair market value of $75,500 to a consultant under management agreement.
On March 22, 2016, the Company issued 10,000,000
shares of S-8 registered free-trading common stock under Option Agreement of 2016 Equity Plan with exercise price at $0.01 and
a fair market value of $151,000 to a consultant under management agreement.
On March 22, 2016, the Company issued 15,000,000
shares of S-8 registered free-trading common stock under Option Agreement of 2016 Equity Plan with exercise price at $0.01 and
a fair market value of $226,500 to a consultant under management agreement.
On March 22, 2016, the Company issued 10,000,000
shares of S-8 registered free-trading common stock under Scientific Advisory Board Agreement of the 2016 Equity Plan with a fair
market value of $151,000.
Common shares reconciliation table:
|
|
Issued and outstanding as of December 31, 2015
|
1,581,855,296
|
Pending to be issued shares include in 2014 and 2015 balances
|
(8,350,000)
|
Shares voided but not removed from Securities Transfer Corp.
|
300,000
|
Subsequent event issuances
|
242,000,000
|
Unissued and outstanding as of April 11, 2016
|
1,815,805,296
|