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 Company’s 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 Company’s.
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 has reignited the
CSE by appointing Mr. Alfredo Dupetit on September 19 2015 as president and chief executive officer of CSE based on the German
government proposing changes in the Drug Law which will relax the strict measures that regulate the consumption of medical cannabis
and development of cannabis products for medicinal uses.
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 Company’s 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 Company’s 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 asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s 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 2012-02—Intangibles—Goodwill 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 Company’s 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 liability’s 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 Company’s 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 Company’s 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
|
|
|
$
|
429,189
|
|
4.
RELATED PARTY TRANSACTIONS
On
March 27, 2015, the Company’s 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 Company’s
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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 R144 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 R144 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 R144 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 Company’s 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 Company’s
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 Company’s 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 OmniCanna Health Solutions, Inc. (formerly 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 entity’s 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 R144 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 R144 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 R144 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 R144 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 R144 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
|