Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
¨
No
þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes
¨
No
þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
þ
No
¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post files). Yes
þ
No
¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (check one):
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
¨
No
þ
As of June 30, 2016, the market value of shares held by non-affiliates was approximately $1,365,000.
List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (
e.g.,
Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933. The listed documents should be clearly described for identification purposes:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 –BUSINESS ORGANIZATION AND NATURE OF OPERATIONS
On March 19, 2014, we effected a four-for-one stock split of our outstanding shares of common stock. All references to shares of our common stock in our consolidated financial statements refer to the number of shares of common stock after giving effect to the stock split (unless otherwise indicated).
Background and Current Operations
United Cannabis Corporation ("we", "our", "us", or "UCANN") a Colorado corporation, was originally formed as a California corporation under the name MySkin, Inc. (“MySkin”) on November 15, 2007. MySkin was engaged in the business of providing management services to a medical spa in Los Angeles, California which provided various advanced skin care services until March 31, 2014, when this business was sold.
In early 2014, we decided to exit the medical spa management business and change our focus to providing products, services and intellectual property licenses to the cannabis industry.
On March 26, 2014, we entered into a License Agreement with Earnest Blackmon, Tony Verzura and Chad Ruby pursuant to which Messrs. Blackmon, Verzura and Ruby licensed certain intellectual property to us in exchange for a total of 38,690,000 shares of our common stock.
In connection with this transaction:
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·
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Messrs. Blackmon, Verzura and Ruby licensed to us all of their knowledge and know-how relating to the design and buildout of cultivation facilities, growing/cultivation systems, seed-to-sale protocols and procedures, products, a genetic catalogue including over 150 different strains, an advanced cannabinoid therapy program called "A.C.T. Now", security, regulatory compliance, and other methods and processes which relate to the cannabis industry.
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·
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The territory for this license is the entire world and the license runs in perpetuity. There are no royalty payments under the License Agreement.
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Messrs. Blackmon, Verzura and Ruby were appointed to our board of directors effective April 7, 2014.
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Mr. Blackmon was elected as our President, Mr. Ruby was elected as Chief Operating Officer and Mr. Verzura was elected as Vice President.
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A total of 41,690,000 previously outstanding shares of common stock were cancelled resulting in a total of 43,620,000 shares of common stock outstanding on March 26, 2014.
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UCANN was formed as a Colorado corporation on March 25, 2014, and on May 2, 2014, MySkin merged into UCANN, a wholly-owned subsidiary of MySkin, for the purpose of changing domicile from California to Colorado and changing the corporation's name to United Cannabis Corporation.
On March 31, 2014, we sold all right, title and interest in the tangible and intangible assets, trademarks, customer lists, intellectual property and rights, which we owned and were related to our advanced skin care business since we have entered into a new business and we no longer have any use for these assets. The assets were sold to MySkin Services, Inc. (“MTA”), a business partly owned by Marichelle Stoppenhagen, our former officer and director, in exchange for the $15,000 payable which we owed to Ms. Stoppenhagen and/or MTA. In addition, MTA assumed all costs associated with these assets starting on March 31, 2014.
Government Regulation
- Marijuana is a Schedule-I controlled substance and is illegal under federal law. Even in those states in which the use of marijuana has been legalized, its use remains a violation of federal laws.
F-9
UNITED CANNABIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2016, 28 states and the District of Columbia allow their citizens to use medical marijuana, and four states and the District of Columbia have legalized marijuana for recreational use. The state laws are in conflict with the federal Controlled Substances Act, which makes marijuana use and possession illegal on a national level. The Obama administration has effectively stated that it is not an efficient use of resources to direct federal law enforcement agencies to prosecute those lawfully abiding by state-designated laws allowing the use and distribution of medical and recreational marijuana. However, there is no guarantee that the current administration will not change its stated policy regarding the low-priority enforcement of federal laws, or that any future administration would not change this policy and decide to enforce the federal laws vigorously. Any such change in the federal government’s enforcement of current federal laws could cause significant financial damage to us.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
– Our consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries UC Nevada L.L.C., UC Colorado Corporation and UCANN California Corporation. All intercompany accounts and transactions have been eliminated. Our consolidated financial statements are stated in United States dollars and have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).
Use of Estimates
- The preparation of our consolidated financial statements in conformity with U.S. GAAP requires us to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of our consolidated financial statements and the reported amounts of revenues and expenses during the periods presented.
We make our estimate of the ultimate outcome for these items based on historical trends and other information available when our consolidated financial statements are prepared. We recognize changes in estimates in accordance with the accounting rules for the estimate, which is typically in the period when new information becomes available. We believe that our significant estimates, assumptions and judgments are reasonable, based upon information available at the time they were made. Our actual results could differ from these estimates, making it possible that a change in these estimates could occur in the near term.
Fair Value of Financial Instruments
- Our financial instruments consist principally of cash and cash equivalents, accounts receivable, non-marketable equity securities, accounts payable, notes payable and other current assets and liabilities. We value our financial assets and liabilities using fair value measurements. Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are categorized based on whether the inputs are observable in the market and the degree that the inputs are observable. The categorization of financial instruments within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The hierarchy is prioritized into three levels (with Level 3 being the lowest) defined as follows:
Level 1
: Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.
Level 2
: Observable inputs other than prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated with observable market data.
Level 3
: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs.
The carrying amount of our cash and cash equivalents, accounts receivable, accounts payable, and other current assets and liabilities in our consolidated financial statements approximates fair value because of the short-term nature of the instruments. Investments in non-marketable equity securities are carried at cost less other-than-temporary impairments. The carrying amount of our notes payable and convertible debt at December 31, 2016, approximates their fair values based on our incremental borrowing rates.
There have been no changes in Level 1, Level 2, and Level 3 categorizations and no changes in valuation techniques for these assets or liabilities for the years ended December 31, 2016 and 2015.
F-10
UNITED CANNABIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash and Cash Equivalents
- We consider investments with original maturities of 90 days or less to be cash equivalents. Because of current banking regulations, marijuana centric entities are not afforded normal banking privileges, and thus, we have not able to consistently have access to the federal banking system. Thus, at the beginning of 2016, the Company entered into an agreement with our Chief Executive Officer to hold cash funds in his personal bank account, on an as-need basis, in trust for the Company. Under the terms of our trust agreement with our Chief Executive Officer, he agreed to hold our cash in his personal bank account, and to make payments of our funds only for our business purposes, and to allow daily access to the bank account for ongoing oversight of his fiduciary responsibility to the Company. Additionally, the trust agreement requires that the Chief Executive Officer make copies available to our accounting staff of all transactions applicable to our operations, on a weekly, or as requested basis. At December 31, 2016 and 2015 there is cash deposits in the personal bank accounts of the Chief Executive Officer held in trust for us in the amount of $4,158 and $0, respectively.
Accounts Receivable
– Our accounts receivable consists primarily of trade accounts arising in the normal course of business. No interest is charged on past due accounts. Accounts for which no payments have been received after 30 days are considered delinquent and customary collection efforts are initiated. Accounts receivable are carried at original invoice amount less a reserve made for doubtful accounts based on a review of all outstanding amounts on a monthly basis. We determine our allowance for doubtful accounts by regularly evaluating individual customer receivables and considering the customer’s financial condition and credit history, and current economic conditions.
Our allowance for doubtful accounts was $30,000 and $4,340 as of December 31, 2016 and 2015, respectively. We recorded bad debt expense, included in general and administrative expenses, of $82,831 and $24,185 during the years ended December 31, 2016 and 2015, respectively.
Prepaid Expenses -
Prepaid expenses are primarily comprised of advance payments made to third parties for independent contractors’ services or other general expenses. Prepaid services and general expenses are amortized over the applicable periods which approximate the life of the contract or service period.
Property and Equipment
– Our property and equipment are recorded at cost. Maintenance and repairs are expensed as incurred. Depreciation is computed using the straight-line method over estimated useful lives of three to five years. Assets acquired under capital leases are depreciated over the lesser of the useful life of the asset or the lease term. At the time of retirement or other disposition of property and equipment, the cost and accumulated depreciation are removed from our accounts and any resulting gain or loss is reflected in our consolidated statements of operations.
Intangible Assets –
Our intangible assets, consisting of applications for trademarks, design mark and provisional patents are recorded at cost, and once approved, will be amortized using the straight-line method over an estimated useful life of 10 to 20 years.
Investments in Non-Marketable Equity Securities
– Our investments in non-marketable equity securities are carried at cost, less write-down-for-impairments, if any. Impairments are based on methodologies, including the valuation achieved in the most recent private placement by the investee, an assessment of the impact of industry and general private equity market conditions, and discounted projected future cash flows. Investments in non-marketable equity securities that expire in less than 12 months, for example stock options or warrants, are classified as current assets; otherwise, we classify investments in non-marketable equity securities as other noncurrent assets.
Long-Lived Assets
– Our intangible assets and other long-lived assets are subject to an impairment test if there is an indicator of impairment. The carrying value and ultimate realization of these assets is dependent upon our estimates of future earnings and benefits that we expect to generate from their use. If our expectations of future results and cash flows are significantly diminished, intangible assets and other long-lived assets may be impaired and the resulting charge to operations may be material. When we determine that the carrying value of intangibles or other long-lived assets may not be recoverable based upon the existence of one or more indicators of impairment, we use the projected undiscounted cash flow method to determine whether an impairment exists, and then measure the impairment using discounted cash flows.
We have not recorded any impairment charges related to long-lived assets as of December 31, 2016 or December 31, 2015.
Equity Method Investments
– Our investments in entities representing ownership of at least 20% but not more than 50%, where we exercise significant influence, are accounted for under the equity method.
F-11
UNITED CANNABIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred Revenue
- We defer revenue for which product or service has not yet been delivered or is subject to refund until such time that we and our customer jointly determine that the product or service has been delivered or no refund will be required.
Revenue Recognition -
We recognize revenue in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605,
Revenue Recognition
, which requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on our management's judgments regarding the fixed nature of the selling prices of the products and services delivered and the collectability of those amounts.
Revenue for services with a payment in the form of stock, warrants or other financial assets is recognized when the services are performed. The value of revenue paid for with warrants is measured using the Black-Scholes-Merton pricing model. Revenue from product sales, including delivery fees, is recognized when an order has been obtained, the price is fixed and determinable, the product is shipped, title has transferred and collectability is reasonably assured.
Reimbursable expenses, including those relating to travel, other out-of-pocket expenses and any third-party costs, are included as a component of revenues. Typically, an equivalent amount of reimbursable expenses are included in cost of revenues. Reimbursable expenses related to time and materials and fixed-fee engagements are recognized as revenue in the period in which the expense is incurred and collectability is reasonably assured. Taxes collected from customers and remitted to governmental authorities are presented in our consolidated statement of operations on a net basis.
Cost of Revenues
– Our policy is to recognize cost of revenues in the same manner as, and in conjunction with, revenue recognition. Our cost of revenues includes the costs directly attributable to revenue recognized and includes expenses related to the production, packaging and labeling of our Prana medicinals products and personnel-related costs, fees for third-party services, travel and other consulting costs related to our advisory services.
Research and Development Expenses -
Research and development (“R&D”) costs are charged to expense as incurred. Our R&D expenses include, but are not limited to, consulting service fees and materials and supplies used in the development of our proprietary products and services.
Sales and Marketing Expenses –
Sales and marketing expenses consist primarily of fees for professional and consulting services, promotional events and advertising costs.
General and Administrative Expenses -
General and administrative expenses consist primarily of personnel-related costs, fees for professional and consulting services, travel costs, rent, bad debt expense, general corporate costs, and other costs of administration such as human resources, finance and administrative roles.
Share-Based Compensation
- We periodically issue shares of our common stock to non-employees in non-capital raising transactions for fees and services. We account for stock issued to non-employees in accordance with ASC 505,
Equity
, whereas the value of the stock compensation is based upon the measurement date as determined at either (a) the date at which a performance commitment is reached, or (b) at the date at which the necessary performance to earn the equity instruments is complete.
We account for stock option grants issued and vesting to employees based on ASC 718,
Compensation – Stock Compensation
, whereas the award is measured at its fair value at the date of grant and is amortized ratably over the vesting period. Accounting for share-based compensation to employees requires the measurement and recognition of compensation expense for all share-based payment awards made to employees based on estimated fair values. We estimate the fair value of all stock option awards on the date of grant using the Black-Scholes-Merton pricing model, which is affected by our stock price, as well as assumptions regarding a number of complex and subjective variables. These variables include our expected stock price volatility over the term of the awards, actual and projected employee option exercise behaviors, risk free interest rates and expected dividends. We also estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from our estimates
F-12
UNITED CANNABIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income Taxes
- Income taxes are recorded using the asset and liability method. Under the asset and liability method, tax assets and liabilities are recognized for the tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using the enacted tax rates expected to apply when the asset is realized or the liability settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that enactment occurs. To the extent that we do not consider it more likely than not that a future tax asset will be recovered, we will provide a valuation allowance against the excess.
We follow the provisions of ASC 740,
Income Taxes
. As a result of the ASC 740, we make a comprehensive review of our portfolio of tax positions in accordance with recognition standards established by ASC 740. As a result of the implementation of ASC 740, we recognized no material adjustments to liabilities or stockholders’ deficit.
When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in our consolidated financial statements in the period during which, based on all available evidence, we believe it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.
Interest and penalties associated with unrecognized tax benefits, if any, are classified as interest expense and penalties and are included in selling, general and administrative expenses in our consolidated statements of operations.
Commitments and Contingencies
- Certain conditions may exist as of the date our consolidated financial statements are issued, which may result in a loss but which will only be resolved when one or more future events occur or fail to occur. We assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against us or unasserted claims that may result in such proceedings, we evaluate the perceived merits of the legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in our consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed.
Net Loss Per Share
- We compute net loss per share in accordance with ASC 260,
Earnings per Share
. Under the provisions of ASC 260, basic net loss per share includes no dilution and is computed by dividing the net loss available to common stockholders for the period by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share takes into consideration shares of common stock outstanding (computed under basic net loss per share) and potentially dilutive securities that are not anti-dilutive.
F-13
UNITED CANNABIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Potentially dilutive securities outlined in the table below have been excluded from the computation of diluted net loss per share, because the effect of their inclusion would have been anti-dilutive.
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Years Ended December 31,
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2016
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2015
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Warrants to purchase common stock
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666,667
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3,000,000
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Cashless warrants not converted to common stock
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783,112
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—
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Stock options
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3,680,000
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600,000
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Total potentially dilutive securities
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5,129,779
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3,600,000
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Other Comprehensive Income (Loss)
– We report as other comprehensive income (loss) those revenues, gains and losses not included in the determination of net income. During the years ended December 31, 2016 and 2015, we did not have any gains and losses resulting from activities or transactions that resulted in other comprehensive income or loss.
Segment Reporting –
UCANN operates as one segment.
Concentration of Credit Risk
- Financial instruments that potentially subject us to credit risk consist of cash. We maintain our cash with high credit quality financial institutions; at times, such balances with any one financial institution may not be insured by the FDIC.
The following tables show significant concentrations in our revenues and accounts receivable for the periods indicated:
Percentage of Revenue:
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Years Ended December 31,
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2016
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2015
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Customer A
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95
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%
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36
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%
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Customer B
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3
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%
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32
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%
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Customer C
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2
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%
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18
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%
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Percentage of Accounts Receivable:
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Years Ended December 31,
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2016
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2015
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Customer D
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75
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%
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56
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%
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Customer E
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25
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%
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41
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%
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Customer F
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%
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1
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%
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Recently Issued Accounting Pronouncements
- From time to time, the FASB or other standards setting bodies issue new accounting pronouncements. Updates to the FASB ASCs are communicated through issuance of an Accounting Standards Update ("ASU"). Unless otherwise discussed, we believe that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on our consolidated financial statements upon adoption.
In May 2014, the FASB issued guidance on revenue from contracts with customers, which implements a five step process of how an entity should recognize revenue in order to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance will be effective for us at the beginning of fiscal year 2018, and early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. We are currently evaluating the impact that the adoption will have on our consolidated financial statements and related disclosures. We have not yet selected a transition method nor have we determined the effect of the standard on our ongoing reporting.
F-14
UNITED CANNABIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In August 2014, the FASB issued guidance on disclosure of uncertainties about an entity's ability to continue as a going concern. This guidance requires management to perform interim and annual assessments of an entity's ability to continue as a going concern within one year of the date the financial statements are issued and provides guidance on determining when and how to disclose going concern uncertainties in the financial statements. Certain disclosures will be required if conditions give rise to substantial doubt about an entity's ability to continue as a going concern. The guidance is effective for us at the beginning of fiscal year 2017, with early adoption permitted. We do not expect that the adoption of this standard will have a material effect on our consolidated financial statements.
In November 2015, the FASB issued guidance requiring entities to present deferred tax assets and liabilities as noncurrent in a classified balance sheet instead of separating into current and noncurrent amounts. This guidance is effective for us at the beginning of fiscal year 2017, on a prospective or retrospective basis, and thus, we will implement such guidance beginning in 2017.
In February 2016, the FASB issued guidance on leases which requires entities to recognize right-of-use assets and lease liabilities on the balance sheet for the rights and obligations created by all leases, including operating leases, with terms of more than 12 months. The new guidance also requires additional disclosures on the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative information. The new guidance will be effective for us at the beginning of fiscal year 2019. Early adoption is permitted. We are in the process of evaluating the impact the adoption of this guidance will have on our consolidated financial statements and related disclosures.
NOTE 3 – GOING CONCERN
Our consolidated financial statements have been prepared on a going concern basis which assumes we will be able to realize our assets and discharge our liabilities in the normal course of business for the foreseeable future. During the year ended December 31, 2016, we incurred losses of $3,854,004 and used cash of $274,670 in our operating activities. As at December 31, 2016, we had a working capital deficit of $393,182 and an accumulated deficit of $9,362,333. Our ability to continue as a going concern is dependent upon our ability to generate profitable operations in the future and, or, obtaining the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due. There is no assurance that these events will be satisfactorily completed.
NOTE 4 – INVESTMENTS IN NON-MARKETABLE EQUITY SECURITIES
On June 9, 2014, we received 1,187,500 common shares and 3,000,000 warrants to purchase common shares of WeedMD RX Inc. (“WMD”), a private Canadian company in the cannabis industry, in exchange for future consulting services and use of our intellectual property. The shares represented a 4.29% equity investment in WMD at the time of the investment and we did not have significant influence over the investee. We recorded our investment in these non-marketable equity securities at estimated cost, based on our estimate of the fair value of the securities on the date of the transaction. The 3,000,000 WMD warrants expired unexercised in December 2014.
The WMD common shares were recorded at $0.50 per share, or $593,750 in total, taking into consideration WMD’s most recent sale of their common shares prior to the date of the transaction (CAD $0.50). In December 2015, we determined that WMD’s lack of operating activities during 2015 resulted in a significant adverse effect on our carrying value of these securities (an impairment indicator) and accordingly, we recorded an other-than-temporary impairment charge of $388,475 and included this amount in loss on investments in non-marketable securities in our consolidated statements of operations. The remaining balance, $205,275, or $0.17 per share, was determined based on the consideration we received in our subsequent sale of 1,100,000 WMD shares in March 2016, and this amount is classified as investment in non-marketable equity securities on our consolidated balance sheets.
On March 24, 2016, an unrelated third party agreed to assume all of our obligations, including accrued and unpaid interest, pursuant to the terms of a $175,000 note payable we owed to WeedMD, in consideration for the transfer by us of 1,100,000 shares of the common stock of WMD to the unrelated third party. WMD consented to the assumption of the loan by the unrelated third party, and released us from any further liability with respect to the loan. After the exchange of the 1,100,000 shares of common stock of WMD to the unrelated third party, we own 87,500 shares of common stock of WMD, and reduced our investment in none-marketable equity securities to $15, 125. Because of the difficulty in validating a fair market value for our investment in WMD, we elected to write-off such carrying value as a charge to other income and expenses in our consolidated statements of operations in the amount of $15,125, in the year ended December 31, 2016.
F-15
UNITED CANNABIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 – PREPAID EPENSES
Our prepaid expenses consist of:
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December 31,
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2016
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2015
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Prepaid investor relations services
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$
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—
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$
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1,667
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Prepaid licensing fees
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—
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35,000
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Other prepaid services and fees
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—
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19,674
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$
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—
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$
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56,341
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NOTE 6 – INTANGIBLES
Our intangible assets are comprised of provisional patent applications and applications for a design mark and trademarks. Our intangible assets will be amortized on a straight-line basis over estimated useful lives of 20 years for patents and 10 years for design marks and trademarks once the applications are approved. Costs associated with applications that are not approved will be expensed in the period that the application is rejected or abandoned.
NOTE 7 – EQUITY METHOD INVESTMENTS
On August 15, 2014, we acquired a 50% interest in Cannabinoid Research & Development Company Limited (“CRD”), a Jamaican company, in exchange for 40,000 shares of our common stock valued at $88,000 based on the previous day’s closing price of our stock. We also committed to provide expertise on design-build, genetics, cultivation, production, processing, productizing, labeling, packaging, marketing, branding and distribution of products, as well as use of our intellectual property in the operations of CRD. During the year ended December 31, 2016, CRD had minimal operating activities. However, in November 2016, the Jamaican government accepted applications from CRD for a Tier 1 Cultivar license and a Research and Development license. Predicated upon the potential approval of the license applications from the Jamaican government, CRD entered to an agreement with the Caribbean Institute of Medical Research in January 2017, for collaboration in the use of medical cannabis therapies through biomedical research and development for the nutraceutical industry. We accounted for this $88,000 as an equity method investment on our consolidated balance sheets.
On January 19, 2017, the Company and CRD signed a letter of intent (the “LOI”) with the Caribbean Institute of Medical Research (“CARIMER”) to collaborate on advancing clinical research on medical cannabis. CARIMER is the Jamaican-based division of MPR Development Group, a full service global Clinical Research and Development Organization (“CRO”). CARIMER also serves as the research arm of several medical facilities and hospitals in the Caribbean and collaborates with health institutions to support health care research projects around the world. According to the terms of the LOI, during the next two months the parties will work to finalize the clinical trial and financial terms.
NOTE 8 – ACCRUED EXPENSES
Our accrued expenses consist of:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Accrued consulting fees
|
|
$
|
45,000
|
|
|
$
|
110,000
|
|
|
Accrued wages and related expenses
|
|
|
—
|
|
|
|
629,780
|
|
|
Accrued interest expense
|
|
|
10,264
|
|
|
|
101,185
|
|
|
Accrued other expenses
|
|
|
—
|
|
|
|
87,568
|
|
|
Total accrued expenses
|
|
$
|
55,264
|
|
|
$
|
928,533
|
|
F-16
UNITED CANNABIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On May 6, 2014, we entered into a consultancy agreement with two third party consultants that had a nine month term, which could be renewed and/or extended by mutual agreement. The agreement provided for a $50,000 payment at signing, which has been paid, and for three more $50,000 payments (a total of $200,000) and the issuance of 100,000 shares of our common stock upon the achievement of certain goals, as set forth in appendix II of the agreement. During the year ended December 31, 2014 we recognized $160,000 of expense applicable to this agreement. At December 31, 2015, the project was approximately 80% complete and $110,000 is included in accrued expenses on our consolidated balance sheet at that date. On December 7, 2016, upon mutual agreement, the consultancy agreement was deemed to be abandoned, because the project was not completed. In turn, one of the consultants, Dr. Brent Reynolds, has been performing other services for the Company during the year ended December 31, 2016, and has agreed to join our Board of Advisors. Dr Reynolds is currently a professor in the Department of Neurosurgery at the University of Florida, College of Medicine, where his lab focuses on the application of natural products for treating diseases and dysfunction of the nervous system. In recognition of his services to the Company during the year ended December 31, 2016, and as an inducement to join our Board of Advisors, he was issued 100,000 shares of our common stock for such services, and the fair market value of these shares in the amount of $163,783 was charged to common stock on the consolidated balance sheet at December 31, 2016, and the residual amount of $53,783 was recognized as a loss on the extinguishment of a debt in our consolidated statement of operations.
NOTE 9– FAIR VALUE MEASUREMENTS AND DERIVATIVE LIABILITIES
The following table provides the liabilities carried at fair value measured on a recurring basis as of December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
$
|
—
|
|
$
|
—
|
|
$
|
383,581
|
|
$
|
383,581
|
|
We did not have any liabilities carried at fair value measured on a recurring basis as of December 31, 2016.
Derivative Liabilities
We valued our derivative liabilities related to warrants and embedded conversion features applicable to our borrowings under our convertible notes payable (see Notes 10 and 11 below) and accrued interest payable thereon in accordance with fair value measurement guidelines. For the years ended December 31, 2016 and 2015, the following table reconciles the beginning and ending balances for our financial instruments that are carried at fair value measured on a recurring basis:
|
|
|
|
|
|
Derivative liabilities as of December 31, 2014
|
|
$
|
—
|
|
|
Additions to derivative liabilities for convertible debt conversion features and interest
|
|
|
359,988
|
|
|
Loss on revaluation of derivative liabilities during the year
|
|
|
23,593
|
|
|
Derivative liabilities as of December 31, 2015
|
|
|
383,581
|
|
|
Additions to derivative liabilities for convertible debt conversion features
|
|
|
557,000
|
|
|
Additions for modifications of note payable to Sláinte Ventures
|
|
|
686,612
|
|
|
Reductions due to conversions or repayments of convertible debt
|
|
|
(3,317,986
|
)
|
|
Loss on revaluation of derivative liabilities during the year
|
|
|
1,690,793
|
|
|
Derivative liabilities as of December 31, 2016
|
|
$
|
—
|
|
The estimated fair value of the derivative liabilities related to our convertible notes payable was measured as the aggregate estimated fair value of each component of the compound embedded derivative liabilities (see Note 11 and 12 below), based on Level 2 and Level 3 inputs, using a binomial lattice pricing model. Changes in the fair value of the compound embedded derivative liability at each reporting date are included in gain/ (loss) on derivative liabilities in our consolidated statement of operations.
F-17
UNITED CANNABIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 – DEFERRED REVENUE
Our deferred revenue consists of:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Deferred revenue – WeedMD
|
|
$
|
383,750
|
|
|
$
|
563,750
|
|
|
Deferred revenue - FoxBarry
|
|
|
—
|
|
|
|
200,000
|
|
|
|
|
|
383,750
|
|
|
|
763,750
|
|
|
Less – current portion
|
|
|
(180,000
|
)
|
|
|
(380,000
|
)
|
|
Deferred revenue, net of current portion
|
|
$
|
203,750
|
|
|
$
|
383,750
|
|
As described in Note 4 above, on June 9, 2014, we received 1,187,500 common shares and 3,000,000 warrants to purchase common shares of WMD in exchange for future consulting services and use of our intellectual property. We recorded the $893,750 fair value of these securities as deferred revenue and we recognized $150,000 of this amount as revenue during the period July 1, 2014 through December 31, 2014, based upon our initial three year estimate of the service period involved. Based on recent discussions with WMD, we now expect to deliver the remaining consulting services and use of our intellectual property to WMD on a relatively consistent monthly basis during the four year period January 1, 2015 through December 31, 2018. Accordingly, we are now recognizing $15,000 of deferred revenue per month. We recognized $180,000 of revenue applicable to this arrangement, in each of the years ended December 31, 2016 and 2015. At December 31, 2016, we expect to recognize $180,000 of the remaining $383,750 WMD deferred revenue during the next twelve months and accordingly, we have classified the $180,000 as a current liability on our consolidated balance sheets.
On December 28, 2014, we entered into a royalty and consulting services agreement with FoxBarry Farms, LLC (“FoxBarry”) whereby we received a $200,000 prepaid royalty payment from FoxBarry. At the time, we planned to recognize deferred royalty revenue based on actual applicable sales as defined in the agreement. During the years ended December 31, 2015 and 2014, we did not recognize any deferred revenue related to this agreement. In August 2015, we discontinued providing consulting services to FoxBarry, as our initial project with FoxBarry was abandoned due to operational issues. However, FoxBarry appears to no longer be in existence, and since all of our conditions pursuant to the agreement have been satisfied, we elected to recognize the $200,000 of deferred income during the year ended December 31, 2016, as other income.
NOTE 11 – NOTES PAYABLE
Our notes payable consist of:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Note payable - WeedMD
|
|
$
|
—
|
|
|
$
|
175,000
|
|
|
Note payable – Slainte
|
|
|
—
|
|
|
|
600,000
|
|
|
Total notes payable
|
|
$
|
—
|
|
|
$
|
775,000
|
|
On July 7, 2014, we issued a $175,000, unsecured, demand promissory note bearing interest at 5% to WeedMD for cash used in our business development activities. On March 24, 2016, an unrelated third party agreed to assume all of our obligations, including accrued and unpaid interest, pursuant to the terms of a $175,000 note payable we owed to WeedMD, in consideration for the transfer by us of 1,100,000 shares of the common stock of WMD to the unrelated third party. WMD consented to the assumption of the loan by the unrelated third party, and released us from any further liability with respect to the loan.
On December 18, 2014, we issued a $600,000 unsecured promissory note (the “Slainte Note”) bearing interest at 12% to Slainte Ventures, LLC (“Slainte”). The principal and accrued interest were due on the earlier of December 17, 2015, or upon the closing of certain capital raising transactions as described in the note. The default rate of interest under the note is 18%. Debt issuance costs of $13,500 were immediately recognized as interest expense as, at the time, we expected to close on a capital raising transaction in early 2015.
F-18
UNITED CANNABIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On October 6, 2015, we borrowed funds from a third party and did not apply the borrowed funds to the Slainte Note resulting in a default under the terms of the note, and thus, we received a default waiver from Slainte.
On March 18, 2016, we entered into an agreement with Slainte whereby Slainte waived default, amended the terms and extended the maturity date of the Slainte Note until December 17, 2016, and agreed to accept a warrant in lieu of interest due on the loan. The warrant allows Slainte to purchase 416,667 shares of our common stock; plus that number of shares of our common stock equal in number to (i) the product of the then-applicable interest rate under the Slainte Note and the amount of principal outstanding on the Note, calculated on a daily basis and paid for actual days elapsed, during the period beginning on December 18, 2015, and ending on the date on which the Note is paid in full, divided by (ii) $0.18; plus that number of shares of our common stock equal in number to (i) the product of 0.02 and the sum of the amount of principal and interest outstanding on the Note on the first day of each calendar month, beginning with February 1, 2016, divided by (ii) $0.18. The warrant is exercisable at a price of $0.18 per share, subject to adjustment in the event of stock splits, the sale of our shares of common stock at a price below $0.18 per share or the sale of equity securities with a conversion price of less than $0.18 per share.
On November 14, 2016, the Slainte Note was again amended to extend the maturity date to December 30, 2017 and to allow the note to be converted into shares of the Company's common stock. The number of shares to be issued upon conversion of the note will be determined by dividing the dollar amount of the principal to be converted by 70% of the average closing price of the Company's common stock for the ten business days immediately preceding the date of the conversion. The warrant can be exercised at any time during the five year period following the full repayment of the loan; the exercise price can be paid in cash or through a cashless exercise feature; and the warrant grants certain registration rights to Slainte applicable to all shares of our common stock owned or controlled by Slainte, including shares issued upon exercise of the warrant. In addition, Slainte granted us a put option, exercisable upon repayment of the loan prior to December 17, 2016, that requires Slainte to purchase from us, for $100,000, that number of shares of our common stock equal in number to (i) $100,000 divided by (ii) the product of 80% and the average price of our common stock for the 30 trading days immediately prior to the date the put option is exercised.
Due to the fair value of the warrants issued and conversion feature added in connection with the amended note agreements, the modifications were considered substantial (i.e. greater than 10% of the carrying value of the debt). As a result, an extinguishment of debt was deemed to have occurred, resulting in the recognition of extinguishment losses totaling $674,666.
Following the amendment in November 2016, Slainte converted the entire principal amount of the note into 594,540 shares of the Company's common stock. Slainte also exercised the warrants through the cashless exercise feature resulting in the issuance of 1,330,007 shares of the Company's common stock. He also purchased 104,939 shares of the Company's common stock for $100,000 in connection with the Company's exercise of the put option.
Prior to their exercise in November 2016, these warrants and conversion feature were accounted for as a liability under ASC 815. The Company assessed the fair value of the warrants and conversion feature upon issuance and conversion and at each reporting period based on the Black-Scholes pricing model. See below for the range of variables used in assessing the fair value during the year ended December 31, 2016.
|
|
|
|
|
|
Warrants
December 31,
2016
|
|
Conversion Feature
December 31,
2016
|
|
Expected life (years)
|
4.29 - 5.0
|
|
1.09 - 1.13
|
|
Risk-free interest rate
|
1.01% - 1.90%
|
|
0.78% - 0.79%
|
|
Expected volatility
|
214% - 227%
|
|
200% - 203%
|
In connection with these warrants, the Company recognized a loss on the change in fair value of warrant liability of $1,616,215 during the year ended December 31, 2016. In connection with the conversion feature, the Company recognized a loss on the change in fair value of derivative liability of $13,947.
F-19
UNITED CANNABIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Expected volatility is based primarily on historical volatility. Historical volatility was computed using weekly pricing observations for recent periods that correspond to the expected life of the warrants or conversion feature. The Company believes this method produces an estimate that is representative of our expectations of future volatility over the expected term of these warrants or conversion feature. The expected life is based on the remaining term of the warrants or conversion feature. The risk-free interest rate is based on U.S. Treasury securities rates.
On March 24, 2016, an unrelated third party agreed to assume all of our obligations, including accrued and unpaid interest, pursuant to the terms of a $175,000 note payable we owed to WeedMD, in consideration for the transfer by us of 1,100,000 shares of the common stock of WMD to the unrelated third party. WMD consented to the assumption of the loan by the unrelated third party, and released us from any further liability with respect to the loan.
NOTE 12 – CONVERTIBLE NOTES PAYABLE
From time to time during the year ended December 31, 2016 and 2015, we issued convertible promissory notes to unaffiliated third parties. The net proceeds from these transactions are used for general working capital purposes. The debt discounts and deferred financing costs on the convertible promissory notes are amortized on a straight-line basis, which approximates the effective interest rate method, over the term of the note, and this amortization is included in interest expense in our consolidated statements of operations.
The following table summarizes our convertible promissory notes outstanding as of December 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity
|
|
Interest
|
|
Base
|
|
December 31,
|
|
|
Issue Date
|
|
Holder
|
|
Security
|
|
Date
|
|
Rate
|
|
Conversion Rate
|
|
2016
|
|
|
2015
|
|
|
12/28/2016
|
|
Tangiers Investment Group
|
|
Unsecured
|
|
7/8/2017
|
|
|
10
|
%
|
$1.00 through maturity; 55% of lowest closing price thereafter
|
|
$
|
35,000
|
|
|
$
|
—
|
|
|
8/10/2016
|
|
JSJ Investments
|
|
Unsecured
|
|
5/10/2017
|
|
|
12
|
%
|
$0.20 during first 180 days; 45% of lowest closing price thereafter
|
|
|
125,000
|
|
|
|
—
|
|
|
10/6/2015
|
|
Vis Vires Group
|
|
Unsecured
|
|
6/30/2016
|
|
|
8
|
%
|
58% of three lowest closing bids
|
|
|
—
|
|
|
|
59,000
|
|
|
10/12/2015
|
|
JSJ Investments
|
|
Unsecured
|
|
7/8/2016
|
|
|
12
|
%
|
55% of five lowest trades
|
|
|
—
|
|
|
|
102,000
|
|
|
12/9/2015
|
|
Tangiers Investment Group
|
|
Secured
|
|
12/8/2016
|
|
|
10
|
%
|
55% of three lowest closing bids
|
|
|
—
|
|
|
|
220,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160,000
|
|
|
|
381,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less unamortized discount
|
|
|
(34,453
|
)
|
|
|
(272,793
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
125,547
|
|
|
$
|
108,207
|
|
The convertible notes, including accrued interest payable, may be converted into shares of our common stock at the Conversion Price, in whole, or in part, at various times, after the date of issuance, at the option of the holder (the “Conversion Feature”), as defined by the terms of the convertible note.
The Conversion Price is equal to the Base Conversion Rate specified in the table above multiplied by the Variable Conversion Rate (“VCR”) which is equal to the average of the number of lowest trading prices or closing bid prices of our common stock (specified in the table above) during the ten trading day period prior to the date of conversion divided by the closing price of our common stock on the day of conversion.
F-20
UNITED CANNABIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
If these conversion rates results in a beneficial conversion feature (“BCF”), the BCF is recorded as an unamortized convertible debt discount, which is required to be valued and amortized to interest expense over the term of the Note. We amortize our convertible debt discount on a straight-line basis, which approximates the effective interest rate method, and this amortization is included in amortization of debt discount in our consolidated statements of operations. If a convertible note is repaid, any remaining unamortized deferred financing costs and unamortized debt discount are expensed on the date of repayment.
If a convertible notes is convertible into an unlimited number of unregistered, restricted common shares, it is classified as having an unlimited shares feature (“Unlimited Shares Feature”). The difference between the closing price of our common stock and the VCR is referred to as the Variable Conversion Rate Differential (“VCRD”). If, both the Unlimited Shares Feature and the VCRD meet the definition of an embedded derivative, then together they create a compound embedded derivative liability or, hereafter, simply a “derivative liability.”
In accordance with U.S. GAAP, our derivative liabilities are recorded at fair value on the date of issuance and subsequently remeasured to fair value each reporting period with any change in fair value being recognized as gain (loss) on derivative liabilities in our consolidated statement of operations. See Note 9.
Similarly, accrued interest payable applicable to the convertible notes is convertible into shares of our common stock, without limit, at the same Conversion Price. The fair value of the derivative liabilities applicable to accrued interest payable is measured and recognized at each reporting date as derivative liabilities with a corresponding charge to interest expense. As noted above, all derivative liabilities are re-measured in subsequent reporting periods with any change in fair value being included in gain (loss) on derivative liabilities.
During the years ended December 31, 2016 and 2015, we recorded deferred financing fees of $0 and $41,100, respectively, in connection with the issuance of our convertible notes and we recognized $32,400 and $8,700 of amortization of deferred financing costs during the year ended December 31, 2016 and 2015, respectively. This amount is included in interest expense in our consolidated statements of operations.
The aggregate fair value of the derivative liabilities applicable to our convertible notes on the dates of issuance was $557,000 and $355,293 for convertible notes issued during the years ended December 31, 2016 and 2015, respectively, and was recorded as derivative liabilities on our consolidated balance sheets. The related BCF debt discount was recorded as a reduction to our convertible notes payable on our consolidated balance sheets. During the years ended December 31, 2016 and 2015, we recognized $267,258 and $82,500, respectively, of amortization related to the convertible notes and recorded this amount as amortization of debt discount in our consolidated statements of operations.
We recognized $35,719 and $5,121 of interest expense applicable to our convertible notes during the years ended December 31, 2016 and 2015, respectively. As of December 31, 2016 and 2015, $5,876 and $5,121, respectively, of this interest is accrued within accrued expenses on our consolidated balance sheets.
2015 Convertible Notes
At various times during the year ended December 31, 2015, the Company issued convertible promissory notes (the "2015 Notes") in the aggregate principal balance of $381,000. The 2015 Notes, including accrued interest payable, may be converted into shares of our common stock at the Conversion Price, as defined below, in whole, or in part, at any time beginning 180 days after the date of issuance, at the option of the holder. The 2015 Notes also contain prepayment options whereby we may, during the first 180 days that each note is outstanding, prepay the note by paying prepayment premiums ranging from 10% to 40% of the principal then outstanding depending on the date of prepayment.
In general, per the terms of our 2015 Notes, the note holders may not make any conversions that would result in the note holder holding more than 9.99% of our issued and outstanding common stock at any one time.
Should we default on a conversion or repayment of a convertible note, the note, accrued interest and default penalties and fees are immediately due and payable. The minimum default penalty amount ranges from 25% to 50% (or more, under certain circumstances) times the then outstanding principal and unpaid interest.
F-21
UNITED CANNABIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the year ended December 31, 2016, two of these notes in the aggregate principal balance of $161,000 were repaid. The $220,000 note dated December 9, 2015 from Tangiers Investment Group, LLC was converted in full into a total of 2,843,698 shares of the Company's common stock at various dates during the year ended December 31, 2016.
Slainte Convertible Notes
On March 30, 2016, we borrowed $81,978, from Slainte Ventures and used the proceeds to repay principal and accrued interest applicable to our $59,000 convertible promissory note dated October 6, 2015, to Vis Vires Group, Inc. On April 6, 2016, we borrowed an additional $75,000 from Slainte Ventures and used the proceeds, along with $52,500 of advances to the Company by officers and directors of the Company, to repay principal and accrued interest applicable to our $102,000 convertible promissory note, dated October 12, 2015, to JSJ Investments, Inc. On July 5, 2016, we borrowed $50,000 from Slainte Ventures and used the proceeds for working capital purposes. These loans, together with interest at 12% per year, are payable on December 30, 2016. We can prepay the loans at any time. If the loans are repaid on or before September 30, 2016, the principal amount which is being repaid will increase by 10%. If the loans are repaid after September 30, 2016, the principal amount which is being repaid will increase by 15%. The amount of the principal increase may be paid with shares of our common stock. The number of shares to be issued for such purpose will be determined by dividing the average closing price of our common stock (which in no case can be greater than $0.45) for the ten trading days preceding the prepayment date. The original principal of the loan was not convertible prior to maturity. If the loans were not paid when due, then at any time between the maturity date and January 10, 2017, Slainte may convert the outstanding principal and interest on the loan into shares of our common stock. The number of shares to be issued on conversion was to be determined by dividing the average closing price of our common stock (which in no case can be greater than $0.45) for the ten trading days preceding the conversion date by the outstanding principal and interest on the loan on the conversion date.
The notes were not paid prior to the maturity date of December 30, 2016. As a result, the notes became convertible effective December 31, 2016. Derivative liabilities in the aggregate amount of $557,000 were recorded upon these notes becoming convertible. The notes along with their accrued interest were converted into 497,296 shares of the Company's common stock on December 31, 2016, and the value of the derivative liabilities were extinguished to common stock.
JSJ Convertible Note
On August 10, 2016, we borrowed $125,000 from JSJ Investments and used the proceeds for working capital purposes. The loan, together with interest at 12% per year, is payable on May 10, 2017. We can prepay the loan at any time. If the loan is repaid on or before October 16, the principal amount which is being repaid will increase by 25%. If the loan is repaid on or before October 16, 2016 through February 12, 2016, the principal amount which is being repaid will increase by 30%. Thereafter, the note may be repaid only upon written consent from JSJ, and the principal amount that is being repaid will increase by 30%. At any time after the date of the note, JSJ is entitled to convert all of the outstanding and unpaid principal in to shares of our common stock. Until February 12, 2017, the conversion price is $0.20 per share, and thereafter, the conversion price will be at a 45% discount to the lowest closing price of our common stock for the ten trading days preceding the conversion date. JSJ may not make any conversions that would result in the note holder holding more than 4.99% of our issued and outstanding common stock at any one time. If the notes are held through February 12, 2017, derivative accounting will apply upon the change to a variable conversion price. This convertible note was paid in full on February 9, 2017, as more fully described in Note 19 – Subsequent Events.
Tangiers Convertible Note
In connection with an equity line agreement discussed in Note 20, the Company issued a promissory note to Tangiers for the principal sum of $35,000 as a commitment fee for the equity line. The note bears interest at 10% per year, is unsecured, and is due and payable on July 8, 2017. At the option of Tangiers, all or any part of the unpaid principal amount of the note may be converted into shares of the Company's common stock. The number of shares to be issued on any conversion will be determined by dividing the principal amount of the note to be converted by $1.00. If the note is not repaid or converted prior to maturity, the conversion price will change to 55% of the lowest closing bid price during the 20 days preceding the conversion date. If the note is held past maturity, derivative accounting will apply upon the change to a variable conversion price.
F-22
UNITED CANNABIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 – NOTES PAYABLE TO AND ADVANCES FROM OFFICERS AND DIRECTORS
Notes payable to and advance from officers and directors consisted of the following, at December 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Note payable to Earnie Blackmon, an officer and director
|
|
$
|
28,750
|
|
|
$
|
—
|
|
|
Note payable to Tony Verzura, an officer and director
|
|
|
28,750
|
|
|
|
—
|
|
|
Advances from officers and directors
|
|
|
71,008
|
|
|
|
—
|
|
|
Accrued wages payable to officers and directors
|
|
|
42,695
|
|
|
|
612,512
|
|
|
|
|
$
|
171,203
|
|
|
$
|
612,512
|
|
On April 6, 2016, we borrowed $25,000 from Ernest Blackmon and $25,000 from Tony Verzura and used the proceeds to repay principal and interest applicable on our $102,000 convertible promissory note dated October 12, 2015, to JSJ Investments Inc. The loans, together with interest at 12% per year, are payable on December 30, 2016. We may prepay the loans at any time. If the loans are repaid on or before September 30, 2016, the principal amount, which is being repaid, will increase by 10%. If the loans are repaid after September 30, 2016, the principal amount, which is being repaid will increase by 15%. As of December 31, 2016, the loans were not repaid, when they were due, per the terms of the notes, and thus, the principal balance of the notes was increased to $57,500 in the aggregate, with the addition to the principal balance charged to interest expense.
During the year ended December 31, 2016, Messrs. Blackmon, Verzura and Ruby, who are officers and directors of the Company, paid obligations and expenses on behalf of the Company, from their own individual, personal funds. Such payments have been recorded in the consolidated balance sheets as a component of Notes payable to and advances from officers and directors.
NOTE 14 – STOCKHOLDERS’ DEFICIT
2014 Stock Split
On March 21, 2014, we effected a four-for-one stock split of our common stock in the form of a stock dividend of three shares of common stock for each share of common stock outstanding to stockholders of record on March 19, 2014.
2014 Equity Offering
On March 26, 2014, we sold 600,000 Units for a total amount of $900,000 to 45 accredited investors. Each Unit consisted of one share of our common stock, two A Warrants and three B Warrants. Each A Warrant entitles the holder to purchase one share of our common stock at a price of $7.50 per share during the two year period commencing April 1, 2014. The A Warrants are callable once our common stock has traded at a price of at least $15.00 for 20 consecutive trading days. Each B Warrant entitles the holder to purchase one share of our common stock at a price of $15.00 per share during the three year period commencing April 1, 2014. The B Warrants are callable once our common stock has traded at a price of at least $22.00 for 20 consecutive trading days.
2014 Change in Authorized Share Capital
Effective May 2, 2014, we increased the authorized number of our preferred shares from five million to ten million and the authorized number of our common shares from 50 million to 100 million. At the same time we also changed the par value of both our preferred and common stock from $0.001 per share to no par value per share.
Common Stock Issued For Warrant Outstanding
On February 10, 2015, we issued 621,000 shares of our common stock, valued at $987,390 based on the previous day’s closing price, to Typenex in exchange for the return of Typenex Warrant #1 that we issued to Typenex on August 13, 2014, as part of a financing arrangement with Typenex.
F-23
UNITED CANNABIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On February 10, 2015, we calculated the fair value of Typenex Warrant #1 to be $218,788, or approximately $1.29 per underlying share, utilizing the Black Scholes option pricing model and the following assumptions on the date of valuation:
|
|
|
|
|
|
Stock price
|
|
$
|
1.59
|
|
|
Exercise price
|
|
$
|
3.00
|
|
|
Risk free interest rate
|
|
|
1.05
|
%
|
|
Expected term (years)
|
|
|
2.6
|
|
|
Expected volatility
|
|
|
183
|
%
|
|
Expected dividends
|
|
|
0
|
%
|
Typenex Warrant #1 gave Typenex the right to purchase 170,044 shares of our common stock on the issuance date and provided for adjustments to the number of shares underlying the warrant upon occurrence of certain events including subsequent sales of our common stock. Our repurchase of Typenex Warrant #1 resulted in Typenex forgoing its potential right to receive shares in excess of the original 170,044 shares underlying the warrant on the issuance date. On February 10, 2015, we recorded the $987,390 fair value of the common shares issued as an increase to common stock and the $218,788 fair value of Typenex Warrant #1 reacquired and cancelled as a decrease to common stock and the difference, $768,602, as a loss on extinguishment of debt and repurchase of warrants in our consolidated statements of operations.
Warrants:
The following table summarizes our share warrants outstanding as of December 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2016
|
|
2015
|
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Warrants outstanding, beginning of period
|
|
|
3,000,000
|
|
|
$
|
12.00
|
|
3,170,044
|
|
|
$
|
11.52
|
|
|
Warrants issued to consultant
|
|
|
666,667
|
|
|
|
0.18
|
|
—
|
|
|
|
—
|
|
|
Cashless issued upon conversion of Slainte note
|
|
|
1,746,674
|
|
|
|
—
|
|
|
|
|
|
|
|
|
Warrants exercised
|
|
|
(963,562
|
)
|
|
|
—
|
|
—
|
|
|
|
—
|
|
|
Repurchased and cancelled
|
|
|
—
|
|
|
|
|
|
(170,044
|
)
|
|
|
3.00
|
|
|
Expired
|
|
|
(3,000,000
|
)
|
|
|
—
|
|
—
|
|
|
|
—
|
|
|
Warrants outstanding, end of period
|
|
|
1,449,779
|
|
|
$
|
0.180
|
|
3,000,000
|
|
|
$
|
12.00
|
|
|
Warrants exercisable, end of period
|
|
|
1,449,779
|
|
|
$
|
0.180
|
|
3,000,000
|
|
|
$
|
12.00
|
|
The weighted-average remaining contractual life for warrants outstanding and exercisable at December 31, 2016, is 4.5 years, and the aggregate intrinsic value of warrants outstanding and exercisable at December 31, 2016 is $0.
The warrants issued during the year ended December 31, 2016 were valued utilizing the Black Scholes option pricing model and the following range of assumptions on the date of valuation:
|
|
|
|
|
|
Stock price
|
|
|
|
$0.16 - $2.18
|
|
Exercise price
|
|
|
|
$0.18
|
|
Risk free interest rate
|
|
|
|
1.01% - 1.37%
|
|
Expected term (years)
|
|
|
|
5
|
|
Expected volatility
|
|
|
|
322% - 504%
|
|
Expected dividends
|
|
|
|
0%
|
|
|
|
|
|
|
F-24
UNITED CANNABIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2014 Equity Incentive Plan
On November 20, 2014, our board of directors approved our 2014 Stock Incentive Plan (the “Plan”) and the Plan became effective on November 19, 2015. The Plan provides officers, directors, selected employees and outside consultants an opportunity to acquire or increase a direct ownership interest in our operations and future success. Our board of directors currently administers the Plan and makes all decisions concerning which officers, directors, employees and other persons are granted awards, how many to grant to each recipient, when awards are granted, the terms and conditions applicable to awards, how the Plan should be interpreted, whether to amend or terminate the Plan and whether to delegate administration of the Plan to a committee. A maximum of 4,000,000 common shares are subject to the Plan. The Plan provides for the grant of stock options, stock awards, restricted stock units and stock appreciation rights. Stock options may be non-qualified stock options or incentive stock options except that stock options granted to outside directors, consultants or advisers providing services to us shall in all cases be non-qualified stock options. The Plan will terminate on November 20, 2024, unless the administrator terminates the Plan earlier. As of December 31, 2015, 3,400,000 common shares were available for issue under the Plan.
Stock Options
On January 9, 2015, we awarded 200,000 stock options to each of Messrs. Blackmon, Verzura and Ruby under our 2014 Stock Incentive Plan. The options were fully vested at the time of grant and give the option holder the right to purchase shares of our common stock at $0.70 per share during the ten year term of the option.
We calculated the fair value of each option to be approximately $0.70 per option utilizing the Black Scholes option pricing model and the following assumptions on the date of valuation:
|
|
|
|
|
|
Stock price
|
|
$
|
0.70
|
|
|
Exercise price
|
|
$
|
0.70
|
|
|
Risk free interest rate
|
|
|
1.98
|
%
|
|
Expected term (years)
|
|
|
10.0
|
|
|
Expected volatility
|
|
|
173
|
%
|
|
Expected dividends
|
|
|
0
|
%
|
At December 31, 2014, the fair value of these 600,000 options totaling $417,664 was included in accrued expenses on our consolidated balance sheets. On January 9, 2015, the option grant date, we increased common stock and decreased accrued expenses by this amount to account for the issuance of the 600,000 options on that date.
On January 12, 2016, we awarded 1,050,000 stock options to each of Messrs. Blackmon, Verzura and 980,000 stock options to Mr. Ruby under our 2014 Stock Incentive Plan. The options were fully vested at the time of grant and give the option holder the right to purchase shares of our common stock at $0.20 per share during the ten year term of the option.
We calculated the fair value of each option to be approximately $0.20 per option utilizing the Black Scholes option pricing model and the following assumptions on the date of valuation:
|
|
|
|
|
|
|
|
|
|
|
|
Stock price
|
|
$
|
0.20
|
|
|
Exercise price
|
|
$
|
0.20
|
|
|
Risk free interest rate
|
|
|
1.98
|
%
|
|
Expected term (years)
|
|
|
10.0
|
|
|
Expected volatility
|
|
|
173
|
%
|
|
Expected dividends
|
|
|
0
|
%
|
At December 31, 2015 the fair value of these 3,080,000 options totaling $612,512, which was included in accrued expenses on our consolidated balance sheets, and on January 15, 2016, the option grant date, we increased common stock and decreased accrued expenses by this amount to account for the issuance of these options on that date.
F-25
UNITED CANNABIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes our stock options outstanding as of both December 31, 2016 and 2015, respectively:
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted
Average
Remaining
Life (Years)
|
|
Weighted
Average
Exercise
Price
|
|
Stock options outstanding at December 31, 2014
|
—
|
|
|
|
—
|
|
Issued
|
600,000
|
|
9.8
|
|
$0.70
|
|
Exercised
|
—
|
|
—
|
|
—
|
|
Expired
|
—
|
|
—
|
|
—
|
|
Stock options outstanding at December 31, 2015
|
600,000
|
|
9.8
|
|
$0.70
|
|
Stock options exercisable at December 31, 2015
|
600,000
|
|
|
|
$0.70
|
|
|
|
|
|
|
|
|
Stock options outstanding at December 31, 2015
|
600,000
|
|
9.8
|
|
|
|
Issued
|
3,080,000
|
|
10.0
|
|
$0.20
|
|
Exercised
|
—
|
|
—
|
|
—
|
|
Expired
|
—
|
|
—
|
|
—
|
|
Stock options outstanding at December 31, 2016
|
3,680,000
|
|
8.9
|
|
$0.28
|
|
Stock options exercisable at December 31, 2016
|
3,680,000
|
|
8.9
|
|
$0.28
|
The weighted-average remaining contractual life for stock options outstanding and exercisable at December 31, 2016, is 8.9 years, and the aggregate intrinsic value of options outstanding and exercisable at December 31, 2016 is $0.
NOTE 15 – SHARE-BASED COMPENSATION
Share-based Compensation
We recognize share-based compensation expense in cost of revenues, sales and marketing expenses, R&D expenses and general and administrative expenses based on the fair value of common shares issued for services. In addition, we accrue share-based compensation expense for estimated share-based awards earned during the years ended December 31, 2016 and 2015, under our 2014 Equity Incentive Plan. Share-based compensation expense for the years ended December 31, 2016 and 2015 is, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Warrants issued for consulting services
|
|
$
|
319,419
|
|
|
$
|
47,880
|
|
|
Warrants issued for accrual of share-based awards to officers and directors
|
|
|
—
|
|
|
|
612,512
|
|
|
Common stock issued for accounts payable and accrued expenses
|
|
|
223,484
|
|
|
|
—
|
|
|
Common stock issued for services
|
|
|
271,097
|
|
|
|
67,500
|
|
|
Amortization of common stock issued for prepaid services
|
|
|
—
|
|
|
|
302,789
|
|
|
|
|
$
|
814,000
|
|
|
$
|
1,030,681
|
|
Of the $814,000 of share-based compensation, $191,550 was reported as a reduction of accounts payable and accrued expenses pertaining to amounts owed as of the beginning of the year ended December 31, 2016, and $31,934 was recognized as a loss on the extinguishment of debt during the year ended December 31, 2016.
NOTE 16 – INCOME TAXES
The Internal Revenue Code (“IRC”) allows net operating losses (“NOL's”) to be carried forward and applied against future profits for a period of twenty years. The change of ownership following our merger with MySkin may limit our ability to utilize these NOLs under the terms of IRC Section 381.
F-26
UNITED CANNABIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We did not provide any current or deferred federal income tax provision or benefit for any of the periods presented in our consolidated financial statements because we have experienced losses since our inception. When it is more likely than not, that a tax asset cannot be realized through future income, we must record an allowance against any potential future tax benefit. We provided a full valuation allowance against our net deferred tax assets, consisting of net operating loss carry forwards, because we determined that it is more likely than not that we will not earn income sufficient to realize the deferred tax assets during the carry forward periods.
We have not taken a tax position that, if challenged, would have a material effect on our consolidated financial statements for the years ended December 31, 2016 and 2015, as defined under ASC 740. We did not recognize any adjustment to our liability for uncertain tax positions and therefore did not record any adjustment to the beginning balance of our accumulated deficit on our consolidated balance sheets.
Our provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before provision for income taxes. The sources and tax effects of the differences for the periods presented are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Statutory U.S. federal tax rate
|
|
|
39
|
%
|
|
|
39
|
%
|
|
Effect of increase in valuation allowance
|
|
|
(39
|
%)
|
|
|
(39
|
%)
|
|
|
|
|
—
|
%
|
|
|
—
|
%
|
Changes in our cumulative net deferred tax assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Net loss carry forward
|
|
$
|
3,648,316
|
|
|
$
|
2,148,248
|
|
|
Valuation allowance
|
|
|
(3,648,316
|
)
|
|
|
(2,148,248
|
)
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
A reconciliation of our income taxes computed at the statutory rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Tax benefit at statutory rate
|
|
$
|
1,500,068
|
|
|
$
|
1,124,511
|
|
|
Valuation allowance
|
|
|
(1,500,068
|
)
|
|
|
(1,124,511
|
)
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
NOTE 17 – RELATED PARTY TRANSACTIONS
Affiliate Customer
During 2010, Messrs. Blackmon and Verzura, who are officers and directors of our Company, made loans to, or equity investments in, one of our customers. Effective June 30, 2015, Messrs. Blackmon and Verzura completely divested themselves of those interests. As Messrs. Blackmon and Verzura may have had significant influence on management or operating polices of the customer until June 30, 2015, we classified professional fees in the amount of $4,425 to this customer as revenues - affiliate, in our consolidated statements of operations and accounts receivable from this customer, as due from related parties on our consolidated balance sheets.
Lone Mountain
During the year ended December 31, 2014, we made certain payments on behalf of Lone Mountain during the organizational phase of this venture and we classified these payments as due from related parties on our consolidated balance sheets. As further described in Note 6 above, during the first half of 2015, we expensed our $40,900 advance to Lone Mountain and included this amount in equity in net loss of unconsolidated affiliate in our consolidated statements of operations.
F-27
UNITED CANNABIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CRD
On April 20, 2015, we advanced CRD $5,000 and included this amount in due from related parties.
Blue River Inc.
In February 2015, Messrs. Blackmon and Verzura, who are officers and directors of our Company, formed Blue River Inc. (“Blue River”), a Colorado corporation in the cannabis industry that plans to manufacture and wholesale medicinal and recreational cannabis including our Prana medicinals products. On January 1, 2016, our wholly owned subsidiary, UCANN California Corporation (“UCANN CA”), entered into a five year consulting and intellectual property licensing arrangement with Blue River whereby UCANN CA will provide consulting services to Blue River at hourly rates and a non-exclusive license to our intellectual property for $5,000 per month. The arrangement can be terminated by either party by written agreement. During the year ended December 31, 2015, we advanced Blue River $3,284 and included this amount in due from related parties. For the year ended December 31, 2016 and 2015, we recognized consulting fee revenue in the amounts of $71,680 and $4,425, respectively, which amounts are included as Revenue, affiliate in our consolidated statements of operations. At December 31, 2016 and 2015, we owed Blue River $4,293 and $0, respectively, in trade payables and included this amount in accounts payable.
Advesa Corporation
Advesa Corporation (“Advesa”), a California corporation, was formed in September 2016, and is 100% owned by Mr. Verzura. The Company entered into a memo of understanding in November 2016, under which we provide consulting services to Advesa, and Advesa assists our largest customer, who is located in California, produce our Prana biomedical line of products under a licensing agreement with that California customer. During the year ended December 31, 2016 we advanced Advesa approximately $20,499 and included this amount in Due from related parties in our consolidated balance sheet.
Amounts due from related parties consist of:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Blue River
|
|
$
|
—
|
|
|
$
|
3,284
|
|
|
Advesa
|
|
|
21,755
|
|
|
|
—
|
|
|
CRD
|
|
|
5,000
|
|
|
|
5,000
|
|
|
Total due from related parties
|
|
$
|
26,755
|
|
|
$
|
8,284
|
|
NOTE 18 – COMMITMENTS AND CONTINGENCIES
Contractual Obligations and Commercial Commitments
Consulting Agreement for GAAP Reporting Services
On February 20, 2016, we entered into a consulting agreement with a third party that has a twelve month term, and which can be extended by mutual agreement. The agreement provides for the issuance of a five (5) year warrant to the consultant, upon the execution of the agreement, to purchase 250,000 shares of our common stock at a price of $0.18 per share, plus the payment of $7,500 on the first day of each month, beginning March 1, 2016, coupled with the monthly issuance of five (5) year warrants to purchase our common stock in an amount of shares determined by dividing $7,500 by $0.18 per share. These warrants are exercisable at a price of $0.18 per share. During the year ended 31, 2016, we recognized in our consolidated statements of operations expenses in the total amount of $394,215 related to this contract, as follows:
|
|
|
|
|
|
|
|
Year Ended
December 31,
2016
|
|
|
Cash paid to consultant
|
|
$
|
15,000
|
|
|
Shares of common stock issued to consultant
|
|
|
62,781
|
|
|
Fair value of warrants issued to consultant
|
|
|
319,419
|
|
|
|
|
$
|
397,200
|
|
F-28
UNITED CANNABIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Financing Commitment
On December 28, 2016, we entered into an equity line of credit agreement with Tangiers Global, LLC (“Tangiers”). Under the equity line agreement, Tangiers has agreed to provide the Company with up to $10,000,000 of funding through the purchase of shares of the Company’s common stock. During the term of the agreement, the Company may deliver a put notice to Tangiers, which will specify the number of shares which the Company will sell to Tangiers. The minimum amount the Company can draw down at any one time is $5,000, and the maximum amount the Company can draw down at any one time is $350,000 as determined by the formula contained in the equity line agreement.
A closing will occur on the date which is no earlier than five trading days following, and no later than seven trading days following, the applicable put notice. On each closing date, the Company will sell, and Tangiers will purchase, the shares of the Company’s common stock specified in the put notice. The amount to be paid by Tangiers on a particular closing date will be determined by multiplying the purchase price by the number of shares specified in the put notice. The purchase price is 85% of the average of the two lowest trading prices of the Company’s common stock during the pricing period applicable to the put notice. The pricing period, with respect to a particular put notice, is five consecutive trading days including, and immediately following, the delivery of a put notice to Tangiers. The Company may submit a put notice once every ten trading days provided the closing of the previous transaction has taken place. The Company is under no obligation to submit any put notices.
The equity line agreement has a term of 36 months, which will begin on the effective date of the registration statement, which the Company has agreed to file with the Securities and Exchange Commission so that the shares of common stock to be sold to Tangiers may be sold in the public market. The Company issued a promissory note to Tangiers for the principal sum of $35,000 as a commitment fee for the equity line. The note bears interest at 10% per year, is unsecured, and is due and payable on July 8, 2017. The note is recorded on our consolidated balance sheet at December 31, 2016 in the amount of $35,000, net of a discount of $34,453. At the option of Tangiers, all or any part of the unpaid principal amount of the note may be converted into shares of the Company’s common stock. The number of shares to be issued on any conversion will be determined by dividing the principal amount of the note to be converted by $1.00.
Legal Proceedings
There have been no material developments in legal proceedings in which we are involved during the year ended December 31, 2016.
NOTE 19 – SUBSEQUENT EVENTS
JSJ Convertible Note
On August 10, 2016, we borrowed $125,000 from JSJ Investments and used the proceeds for working capital purposes. The note, together with interest at 12% per year, was due and payable on May 10, 2017. We could prepay the loan at any time, and if we were to repay the note on or before October 16, 2016 through February 12, 2016, the principal amount which was being repaid would increase by 30%. On February 13, 2017, the note was repaid in the form of the issuance of 379,100 shares of our common stock to JSJ Investments.
In accordance with ASC 855-10 we have analyzed its operations subsequent to December 31, 2016, to the date these consolidated financial statements were issued, and has determined that, other that as disclosed above, we do not have any material subsequent events to disclose in these consolidated financial statements.
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UNITED CANNABIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS