The accompanying notes are
an integral part of these consolidated financial statements.
The accompanying notes are
an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(UNAUDITED)
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 OTC Pink: 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.
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.
Interim Financial Reporting
While the information presented in the accompanying
interim consolidated financial statements is unaudited, it includes all adjustments, which are in the opinion of management, necessary
to present fairly the financial position, results of operations and cash flows for the interim periods presented in accordance
with general accepted accounting principles in the United States of America (“GAAP”). These interim financial statements
follow the same accounting policies and methods of application as used in the December 31, 2016 audited financial statements of
Cannabis Science, Inc. (the “Company”). All adjustments are of a normal, recurring nature. Interim financial statements
and the notes thereto do not contain all of the disclosures normally found in the year-end audited financial statements and these
Notes to Financial Statements are abbreviated and contain only certain disclosures related to the three-month periods ended March
31, 2017 and 2016. It is suggested that these interim financial statements be read in conjunction with the Company’s audited
financial statements and related notes for the year ended December 31, 2016 included in our Form 10-K filed with the SEC on file
no. 000-28911 161631274 April 17, 2017. Operating results for the three months ended March 31, 2017 are not necessarily indicative
of the results that can be expected for the year ending December 31, 2017.
The following subsidiaries and controlling interests
are included with the consolidated financial statements of the Company for the three months ended March 31, 2017:
In 2012, the Company formed Cannabis
Science Europe GmbH (“CSE”) in which the Company own 90% 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. The Company has reignited the CSE by appointing Mr. Alfredo Dupetit on September
19, 2015 as president and chief executive officer of CSE. As recent as January 7, 2016, the Federal Health Ministry in Germany
has presented “Cannabis as medicine”, a detailed draft bill that aims to modify the Drug Law and relax the strict measures
that regulate the consumption of medical cannabis and, above all, become the main vehicle for everything relating to the plant
and its medical users in the country. The Company has reinstated the development of cannabis products in February 2016 for
medicinal uses in Germany.
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, MJR BV and Cannabis Agency
BV, all are 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 1,200,000 shares of common stock
with a fair market value of $60,000 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 they 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 started the operation of distributing of existing and new line of products.
On February 2, 2017, the Cannabis Science
GmbH, a subsidiary 90% owned by the Company and 10% owned by Dupetit Natural Products GmbH, has entered a Share Purchase Agreement
with Jinvator BioMed GmbH (Jinvator), a German corporation, for 74.9% of the total issued and outstanding shares of Jinvator for
three hundred thousand Euros (€ 300,000) which has a US dollar equivalent of $320,430. Jinvator developed a prototype called
nanoGold-Test which is based on nano-particle technology for the detection of HIV in the early stage of infection. Patent has been
submitted and pending for approval. The acquisition is pending on verification of key information.
On March 27, 2017, the Company entered an agreement to acquire
the Assets of AFA Research and Development, a California sole proprietorship of Aja Fonseca Arnold in the research and development
of products based on cannabinoid (CBD) and Tetrahydrocannabinol (THC) for patient care. As consideration for acquiring the Assets,
which consist of brands, pending trademarks, trade-names, designs, medicinal products and formulations, client base, computer hardware
and software, intellectual properties, inventory, equipment, supplies, supplier’s information and contacts, contracted rights,
properties, patents, and distribution rights for a total sum of $750,000. The completion of assets acquisition is pending on verification
of material information. In addition, the Company engaged Aja Fonseca Arnold under a 5-year management agreement to continue the
research and development of medicinal cannabis products for patient care with various ailments.
For other accounting policies please refer to the Company’s
Form 10-K with the SEC on file no. 000-28911 161631274 April 17, 2017.
The Company qualifies as an “emerging growth company”
as defined in Section 101 of the Jumpstart our Business Startups Act (“JOBS Act”) as we do not have more than $1,000,000,000
in annual gross revenue and did not have such amount as of December 31, 2016, our last fiscal year. We are electing to use the
extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act.
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 $142,163,656 and had a stockholders’ deficit of $2,428,571
as of March 31, 2017.
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 March 31, 2017,
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 in 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).
4. RELATED PARTY TRANSACTIONS
At March 31, 2017, a total of $104,200 (December 31, 2016:
$14,200) in Accrued Management Fees Payable was due to the Company’s CEO/Director, Raymond C. Dabney.
At March 31, 2017, a total Prepaid management fees of $45,000
(December 31, 2016: Prepaid $52,500) advanced to the Company’s Director, Mario Lap.
At March 31, 2017, a total of $15,000 (December 31, 2016:
Prepaid $30,000) in Accrued Management Fees Payable was due to the Company’s COO/Director, Robert Kane.
At March 31, 2017, a total of $52,500 (December 31, 2016:
$52,500) in loans payable was due to the Company’s CFO, Robert Kane, through his company, R Kane Holding Inc., secured by
a non-interest bearing promissory note due within 30 days of Michigan Green Technologies (50.1% controlled by the Company) liquidating
shares in Cannabis Science, Inc. to repay the debt.
At March 31, 2017, the Company owes $11,871 (December 31,
2016: $11,871) to Crown Baus Capital Corp., which advanced a total of $11,871 for payment of the Company’s expenses in July,
August and September of 2015 with no interest and no security. Crown Baus Capital Corp. is a company controlled by Raymond C. Dabney.
As of March 31, 2017, the Company owes $101,882 (December
31, 2016: $101,882) in loan payable to a stockholder, Interstate 101 that is non-interest bearing and due on demand with no security.
The loan originated between April 1, 2015 and August 19, 2016 for various expenses of the Company.
At March 31, 2017, the Company owes $3,165 (December 31,
2016: $3,165) in loan payable to Castor Management Services, a shareholder of the Company, with no interest and no security and
is due on demand. The loan originated on August 14, 2015 for expenses of the Company.
At March 31, 2017, a total of $191,344 (December 31, 2016:
$191,344) in loans payable was due to Bogat Family Trust, of which Raymond Dabney the Company’s Director and President/CEO
as trustee.
At March 31, 2017, $99,463 (December 31, 2016: $93,885) was
due to MJR BV, owned by Mario Lap director and director and officer of EU subsidiaries.
At March 31, 2017, $447 (December 31, 2016: $447) was due
to Robert Melamede, former CEO.
At March 31, 2017, a total of $52,160
(December 31, 2016: $23,378) in loans payable was due to Drue Young, a shareholder of the Company, with no interest and no security
and is due on demand. The loan originated from January 11, 2016 to March 31, 2017 for expenses of the Company.
At March 31, 2017, a total of $20,502
(December 31, 2016: $20,502) in loans payable was due to Intrinsic Venture Corp., a shareholder of the Company, with no interest
and no security and is due on demand. The loan originated from April 22, 2011 to December 31, 2014.
At March 31, 2017, the Company held 7,500,000 common shares
in the OmniCanna Health Solutions, Inc. (prior to April 24, 2014, the name was Endocan Corporation) (OTCBB: ENDO) (“OmniCanna”)
representing approximately 2.89% of the issued and outstanding shares of OmniCanna, of which 5,000,000 common shares were acquired
at a fair market value of $150,000 or $0.03 per share 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 OmniCanna 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 OmniCanna under an Asset Purchase Agreement. The value of the shares
at March 31, 2017 was determined to be $0.032 per share or $240,000 with the Company recording unrealized gain under the Equity
Investee rules for the three months ended March 31, 2017 and the value of the shares at December 31, 2016 was determined to be
$0.025 per share or $187,500.
Convertible Notes Payable to Royalty Management Services
Corp., a company owned by a family member of Mr. Raymond C. Dabney, CEO/Director of the Company, entered into a management agreement
with the Company on September 15, 2015 for accounting services, websites development and maintenance, office management, management
and payments for travel, promotion and entertainments, shareholders communications and payment services totaled $860,790 and $860,790
at March 31, 2017 and December 31, 2016 respectively. See Note 5.
On November 5, 2014, the Company transitioned
to equity method investee account for the OmniCanna shares pursuant to ASC 323 recording $247,500 as the fair value of the shares
to its equity method investee account. On December 31, 2016, the Company recorded an impairment on the equity method investee
account of $114,000 in relation to the shares. Robert Kane, CFO and director of the Company is also the CFO and a director
of OmniCanna. Chad S. Johnson, Esq., COO, general counsel and a director is also a director and general counsel for Omnicanna.
Raymond Dabney, CEO has 10.78% equity interest in Omniccanna Health Solutions, Inc. as of March 31, 2017.
For the Three months ended March 31, 2017, the following
related party stock-based compensation was recorded:
|
|
|
|
|
Related Party
|
|
Position
|
|
|
Amount
|
|
Alfredo Bernardi Dupetit
|
|
President & CEO of Cannabis Science Europe GmbH
|
|
$
|
415,000
|
|
|
|
|
|
$
|
415,000
|
|
1
Including compensation to entities beneficially
owned/control by the related parties
See Note 6 -Equity Transactions for details of stock issuances
to director and officers for services rendered.
Mario Lap, a director of the Company and director and officer
of 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, MLS Lap BV and Cannabis Agency 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 soon at which time Mario Lap under fiduciary duty
will transfer all business operating activities, agreements, and assets to the Company.
Alfredo Dupetit-Bernardi, International Product Development
and President & CEO of Cannabis Science Europe GmbH, is conducting product development through the purchase of cannabis products
from his personal company, Dupetit Natural Products GmbH.
On August 10, 2016, a total of $975,407 in Management Fees
Payable accumulated from February 2012 to June 30, 2016 was converted into a two-year Convertible Promissory Note to Raymond C.
Dabney, CEO/Director of the Company. At the election of the note holder, it can be converted into common stocks of the Company
at the par value of $0.001 a share. The Company has fully recognized the conversion discounts of the Note as prepaid interest to
the maximum amount of $975,407 in accordance with ASC 470-20-30-8 and amortize it over the life of the Note. The Company has partially
reduced $250,000 as result of a Debt Settlement Agreement dated August 10, 2016 by issuance of 250,000,000 Rule 144 restricted
common stock at $0.001 a share. In addition, the Company paid $55,000 in expenses for Mr. Dabney in 2016. The balance of the Convertible
Promissory Note as of March 31, 2017 was $670,407 (December 31, 2016: $670,407).
Notes payable to Embella Holdings Ltd. totaled $1,108,896
and $1,108,896 at March 31, 2017 and December 31, 2016, respectively. As of March 31, 2017, the Company is in default on
the promissory notes due and is negotiating with the debtor to extend the date. See Note 5.
Notes payable to Intrinsic Capital Corp. totaled $231,260
and $231,260 at March 31, 2017 and December 31, 2016, respectively. See Note 5.
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, with Raymond Dabney
as 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 March 31, 2017, a total of $1,590,715 (December 31,
2016: $1,506,745) of notes payable are due mostly to stockholders that are non-interest bearing and are due 12 months from the
date of issue and loan origination beginning on January 31, 2012 through December 31, 2016. $1,340,156 of the Promissory notes
were in default on March 31, 2017. As of March 31, 2017, a total of $1,531,197 convertible promissory notes (December 31, 2016:
$1,531,197) are convertible to common stock of the Company. All promissory notes are unsecured.
Notes payable to Embella Holdings Ltd that are non-interest
bearing totaled $1,108,896 and $1,108,896 at March 31, 2017 and December 31, 2016, respectively. As of March 31, 2017, 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. that are non-interest
bearing totaled $231,260 and $231,260 at March 31, 2017 and December 31, 2016, respectively. As of March 31, 2017, the Company
is in default on the promissory notes due and is negotiating with the debtor to extend the date.
On August 10, 2016, a total of $975,407
in Management Fees Payable accumulated from February 2012 to June 30, 2016 was converted into a two-year Convertible Promissory
Note to Raymond C. Dabney, CEO/Director of the Company. At the election of the note holder, it can be converted into common stocks
of the Company at the par value of $0.001 a share. The Company has fully recognized the conversion discounts of the Note as prepaid
interest to the maximum amount of $975,407 in accordance with ASC 470-20-30-8 and will amortize it over the life of the Note. The
Company has partially reduced $250,000 as result of a Debt Settlement Agreement dated August 10, 2016 by issuance of 250,000,000
Rule 144 restricted common stock at $0.001 a share. In addition, the Company paid $55,000 in expenses for Mr. Dabney in 2016. The
balance of the Convertible Promissory Note as of March 31, 2017 was $670,407 (December 31, 2016: $670,407). In the three months
ended March 31, 2017, the Company recorded $83,970 as interest for the amortization, conversion and payment.
On October 1, 2016, a total of $710,790 in Accounts Payable
for management fees accumulated from January 2016 to October 1, 2016 was converted into a one-year Convertible Promissory Note
to Royalty Management Services Corp. At the election of the note holder, it can be converted into common stocks of the Company
at the par value of $0.001 a share or other mutually agreed upon price. The Company has not
recognized the conversion discounts of the Note due to the
uncertainty of the price in accordance with ASC 470-20-25. The balance of the Convertible Promissory Note as of March 31, 2017
was $710,790 (December 31, 2016: $710,790).
On December 31, 2016, $150,000 in Accounts Payable for management
fees accumulated from November 1, 2016 to December 31, 2016 was converted into a one-year Convertible Promissory Note to Royalty
Management Services Corp. At the election of the note holder, it can be converted into common stocks of the Company at the par
value of $0.001 a share or other mutually agreed upon price. The company has not recognized the conversion discounts of the Note
due to the uncertainty of the price in accordance with ASC 470-20-25. The balance of the Convertible Promissory Note as of March
31, 2017 was $150,000 (December 31, 2016: $150,000).
6. 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 2,443,355,296 and
2,350,355,296 issued and outstanding as of March 31, 2017 and December 31, 2016, respectively. The current authorized common stock
of 3,000,000,000 shares will not be sufficient if and when the debt holders of convertible promissory notes elect to convert the
debts into common shares. The Company intends to file for an increase in the number shares in authorized common stock once the
required updated financial reportings have been filed with the Securities Exchange Commission
.
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 March 31, 2017 and December 31, 2016.
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 March 31, 2017
and December 31, 2016.
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 three months ended March 31, 2017, the Company
issued 58,000,000 common stock for services under various executive and consulting agreements as follows:
On February 16, 2017, the Company issued
5,000,000 shares of R144 restricted common stock to a consultant with a fair market value of $350,000 for legal and general consulting
services under a consulting agreement dated January 13, 2017.
On February 16, 2017, the Company issued
10,000,000 shares S-8 registered free-trading common stock to a consultant with a fair market value of $700,000 for legal and general
consulting services pursuant to a consulting agreement dated January 13, 2017.
On March 2, 2017, the Company issued 3,000,000 shares of
R144 restricted common stock to a consultant with a fair market value of $271,500 for consulting services pursuant to a two-year
consulting agreement.
On March 7, 2017, the Company issued 15,000,000 shares S-8
registered free trading common stock under the 2016 Equity Award Plan B with a fair market value of $1,270,500 for consulting services
under a consulting agreement dated March 7, 2017.
On March 13, 2017, the Company issued 10,000,000 shares S-8
registered free trading common stock under the 2016 Equity Award Plan B with a fair market value of $883,000 for consulting services
pursuant to a consulting agreement dated July 6 2016.
On March 13, 2017, the Company issued 15,000,000 shares S-8
registered free trading common stock under the 2016 Equity Award Plan B with a fair market value of $1,324,500 for consulting services
pursuant to a consulting agreement dated April 29, 2015.
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 500,000 common shares at thirty-five cents ($0.35) per share; and
|
|
(iii)
|
the option to purchase 100,000 common shares at twenty cents ($0.20) per share;
|
|
(iv)
|
the option to purchase 1,000,000 common shares at fifty cents ($0.50) per share.
|
On January 13, 2017, the Company issued
10,000,000 shares S-8 registered free-trading common stock under an Option Agreement of 2016 Equity Award Plan B with exercise
price at $0.05 and a fair market value of $700,000 to a consultant pursuant to a consulting agreement.
On January 24, 2017, the Company issued
10,000,000 shares S-8 registered free-trading common stock under an Option Agreement of 2016 Equity Award Plan B with exercise
price at $0.04 and a fair market value of $815,000 to Alfredo Dupetit-Bernardi, President/CEO of Cannabis Science Europe GmbH.
On March 27, 2017, the Company issued 15,000,000 shares S-8
registered free-trading common stock under the 2016 Equity Award Plan B with exercise price at $0.075 and a fair market value of
$1,140,000 to a consultant pursuant to a five-year consulting agreement.
A summary of the status of the Company’s option grants
as of March 31, 2017 and the changes during the period then ended is presented below:
|
|
Shares
|
|
Weighted-Average
Exercise Price
|
|
Outstanding December 31, 2016
|
|
|
|
11,700,000
|
|
|
$
|
0.0690
|
|
|
Granted
|
|
|
|
35,000,000
|
|
|
$
|
0.0606
|
|
|
Exercised
|
|
|
|
35,000,000
|
|
|
$
|
0.0606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding March 31, 2017
|
|
|
|
11,700,000
|
|
|
$
|
0.0680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at March 31, 2017
|
|
|
|
11,700,000
|
|
|
$
|
0.0680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,700,000 shares of these options at an exercise price of
$0.415 a share, do not expire and continuing indefinitely for the duration of existing management agreement and services thereunder
with Robert Kane. The weighted average fair value at date of grant for options during year ended March 31, 2017 was estimated using
the Black-Scholes option valuation model with the following:
|
|
|
|
|
Average expected life in years for outstanding options
|
|
|
1.56
|
|
|
|
Years
|
|
Average risk-free interest rate
|
|
|
2.50
|
|
|
|
%
|
|
Average volatility
|
|
|
130.98
|
|
|
|
%
|
|
Dividend yield
|
|
|
0
|
|
|
|
%
|
|
7. EQUIPMENT AND GREENHOUSE
|
|
|
|
Accumulated
|
|
March 31, 2017
|
|
Dec. 31, 2016
|
|
|
Cost
|
|
Depletion
|
|
Net Book Value
|
|
Net Book Value
|
|
Computer
|
|
|
$
|
6,482
|
|
|
|
5,779
|
|
|
|
703
|
|
|
|
0
|
|
|
Software
|
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
14,482
|
|
|
|
13,779
|
|
|
|
703
|
|
|
|
0
|
|
|
Greenhouse
|
|
|
$
|
330,026
|
|
|
|
—
|
|
|
$
|
330,026
|
|
|
$
|
0
|
|
|
Total
|
|
|
$
|
344,508
|
|
|
$
|
13,779
|
|
|
$
|
330,729
|
|
|
$
|
0
|
|
8. PROPERTY FARMING RIGHTS
On March 24, 2016, the Company entered a 15 years Joint Venture
Agreement with the Ft. McDermitt Allotment land Allotees, which is on the Ft. McDermitt Tribal Reservation, Raymond C. Dabney
University, American Education Consulting Group and Cannabis Science, Inc. for a total of ten (10), one (1) acre parcels of land.
The project is designed to benefit both the Ft. McDermitt Tribe and Members, and Allotment Allottees. Cannabis Science made two
initial payments of $50,000 for farming rights and initial development of two one (1) acre parcels of land located in Fort
McDermitt Tribal Reservation in the State of Nevada, USA. Each one (1) acre parcel of land is specifically designated for
placement no more than twelve (12) three (3,000) square foot greenhouses for the production of Cannabis and all Cannabis related
products. All harvested products are to be delivered and sold to qualified licensed distribution centers. The Company
is to share 40% of the Adjusted Gross Income after deduction of related operating expenses and cost to build the green houses.
On October
24, 2016, the Company entered an Exclusive Master Facilitator Agreement with Members of Winnemucca Tribal Allotment, Free Spirit
Organics, LLC,
American Education Consulting Group
and Raymond C. Dabney University to provide
general support with developing, cultivating and processing of Cannabis/Hemp on 320 Acres of leased land in Humboldt County, Nevada.
The Company’s share is 40% of net profit derived from the sale and distribution of Cannabis/Hemp products grown and manufactured
on these lands. Under the agreement, the Company will be provided one (1) acre of land for research and development with placement
of no more than 36,000 square feet of greenhouses used for cultivation and research of Cannabis/Hemp. The term of this Exclusive
Master Agreement is five (5) years and up to twenty-five (25) years.
On November 12, 2016, the Company entered
an Exclusive Master Facilitator Agreement with the Members of Washoe Tribal Allotments in Douglas County, Nevada, together with
Free Spirit Organics, LLC, American Education Consulting Group and Raymond C. Dabney University to provide general support with
developing, cultivating and processing Cannabis/Hemp with Free Spirit Organics, LLC on Lot 20, one (1) acre parcel of leased land
located in the allotment cc183, a portion of the SE ¼ of section 15, township 11 North, Range 21, East Mount Diablo Meridian,
Douglas County of Nevada. The Company’s share is 20% on all initial non-refundable deposits from external investor, and 10%
of net profit derived from the sale and distribution of Cannabis/Hemp products grown and manufactured on the land. Under the agreement,
the Company will be provided one (1) acre of land for research and development with placement of no more than 36,000 square feet
of greenhouses used for cultivation and research of Cannabis/Hemp. The term of this Exclusive Master Agreement is twenty-five (25)
years renewable every five (5) years.
On December 18, 2016, the Company enter
six (6) Exclusive Master Facilitator Agreement for cultivation of Medical Marijuana/Hemp with the Members of Washoe Tribal Allotments
in Douglas County, Nevada, together with Free Spirit Organics, LLC, American Education Consulting Group and Raymond C. Dabney University
to provide general support with developing, cultivating and processing Cannabis/Hemp with Free Spirit Organics, LLC on 13 one (1)
acre parcel of leased land, Lot 1, 2, 3, 4, 5, 7, 8, 9, 10, 11, 12, 13 and 14, located in the allotment cc183, a portion of the
SE ¼ of section 15, township 11 North, Range 21, East Mount Diablo Meridian, Douglas County of Nevada. The Family Allotment
will receive $40,000 per acre Good Faith Non-Refundable Deposit per development site. The Company’s share is 20% on all initial
non-refundable deposits from external investor, and 10% of net profit derived from the sale and distribution of Cannabis/Hemp products
grown and manufactured on the land. Under the agreement, the Company will be provided one (1) acre of land for research and development
with placement of no more than 36,000 square feet of greenhouses used for cultivation and research of Cannabis/Hemp. The term of
this Exclusive Master Agreement is twenty-five (25) years renewable every five (5) years.
On December 21, 2016, the Company enter
two (2) Exclusive Master Facilitator Agreement for cultivation of Medical Marijuana/Hemp with the Members of Washoe Tribal Allotments
in Douglas County, Nevada, together with Free Spirit Organics, LLC, American Education Consulting Group and Raymond C. Dabney University
to provide general support with developing, cultivating and processing Cannabis/Hemp with Free Spirit Organics, LLC on two (2)
one (1) acre parcel of leased land, Lot 6 and 21, located in the allotment cc183, a portion of the SE ¼ of section 15, township
11 North, Range 21, East Mount Diablo Meridian, Douglas County of Nevada. The Family Allotment will receive $40,000 per acre Good
Faith Non-Refundable Deposit per development site. The Company’s share is 20% on all initial non-refundable deposits from
external investor, and 10% of net profit derived from the sale and distribution of Cannabis/Hemp products grown and manufactured
on the land. Under the agreement, the Company will be provided one (1) acre of land for research and development with placement
of no more than 36,000 square feet of greenhouses used for cultivation and research of Cannabis/Hemp. The term of this Exclusive
Master Agreement is twenty-five (25) years renewable every five (5) years.
|
|
|
|
Accumulated
|
|
March 31, 2017
|
|
Dec. 31, 2016
|
|
|
Cost
|
|
Depletion
|
|
Net Book Value
|
|
Net Book Value
|
Property Farming Rights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fort McDermit Allottees Land
|
|
$
|
50,000
|
|
|
$
|
3,056
|
|
|
$
|
46,944
|
|
|
$
|
47,778
|
|
Washoe Tribal Allotment Lands
|
|
|
640,000
|
|
|
|
7,452
|
|
|
|
632,548
|
|
|
|
638,948
|
|
|
|
|
690,000
|
|
|
$
|
10,508
|
|
|
|
679,492
|
|
|
|
686,726
|
|
Operating capital for Washoe Lands
|
|
$
|
60,000
|
|
|
|
|
|
|
$
|
60,000
|
|
|
$
|
—
|
|
Operating capital for Winnemucca Lands
|
|
|
65,000
|
|
|
|
—
|
|
|
|
65,000
|
|
|
|
65,000
|
|
|
|
$
|
125,000
|
|
|
$
|
—
|
|
|
|
125,000
|
|
|
|
65,000
|
|
Total
|
|
$
|
815,000
|
|
|
$
|
10,508
|
|
|
$
|
804,492
|
|
|
$
|
751,726
|
|
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,
5 years for equipment and laboratory equipment and 3 years for automobile.
All property farm rights are amortized
over the term of each respective agreements.
9. 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 10.78% equity interest in OmniCanna since June 2013. Benjamin Tam, CFO and
director and Robert Kane, COO and director of the Company are also the CFO and director and COO and director of Omnicanna. Therefore,
the Company was deemed to have significant influence and control of OmniCanna Health Solutions, Inc.
On November 5, 2014, the Company recorded
$247,500 in marketable securities and $85,277 (based on currency converted as of March 31, 2017) in loans to OmniCanna and to its
equity method investee account in accordance with ASC 323. An unrealized gain on the equity method account of $52,500 was
recognized for the three months ended March 31, 2017 in addition to a unrealized gain on the equity method investee account of
$144,000 was recognized for the year ended December 31, 2016 in the value of Omnicanna marketable securities.
10. GOODWILL and INTANGIBLE ASSETS
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
Intellectual assets, primarily intellectual property
|
|
$
|
660,299
|
|
|
$
|
660,299
|
|
Goodwill
|
|
|
170,688
|
|
|
|
170,688
|
|
Less: accumulated amortization
|
|
|
(499,049
|
)
|
|
|
(488,299
|
)
|
Less: Impairment of Goodwill
|
|
|
(170,689
|
)
|
|
|
(170,689
|
)
|
Total intangible assets, net
|
|
$
|
161,250
|
|
|
$
|
172,000
|
|
|
|
|
|
|
|
|
|
|
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 both intellectual assets and Goodwill).
11. PREPAID EXPENSES AND DEPOSITS HELD WITH RMS
On October 1, 2016, the Company entered a Paying Agent Agreement
with Royalty Management Services Corp. (RMS) for holding funds and making payment for expenses and commitments of the Company.
The Company has entered a Management Agreement with RMS since September 15 2016 for management, investors’ and shareholders’
communications, website development, database management, accounting and management of all activities such as travel and conference.
All the expenses related to the services for the Company are included as part of the management fees.
|
March 31, 2017
|
December 31, 2016
|
Prepaid consulting expenses
|
|
$
|
138,000
|
|
|
$
|
141,750
|
|
Prepaid Legal fees
|
|
|
90,000
|
|
|
|
90,000
|
|
Prepaid rent
|
|
|
244
|
|
|
|
244
|
|
Prepaid management fees
|
|
|
47,500
|
|
|
|
|
|
Deposits held with RMS
|
|
|
—
|
|
|
|
576,520
|
|
Total Prepaid expenses and Deposits held with RMS
|
|
$
|
275,744
|
|
|
$
|
808,514
|
|
12. COMMITMENTS
The Company has lease commitments for its European operations
under private companies, MLS Lap B.V. and MJR B.V. owned and controlled by Mario Lap, director of the Company and director and
officer of EU subsidiaries. Negotiations are ongoing in regards to preparing finalized agreements between the Company and Mr. Lap’s
companies.
13. SUBSEQUENT EVENTS
On April 18, 2017, the Company
issued 10,000,000 shares S-8 registered free-trading common stock under an Option Agreement of 2016 Equity Award Plan B with exercise
price at $0.02 and a fair market value of $829,000 to Chief Medical Officer, Dr. Allen Herman.
On April 27, 2017, the Company entered
a five-year Research Collaboration Agreement with DFCI for a research project to develop and investigate the use of Cannabinolds
to cure various forms of cancer and investigate synergies with radiotherapy and immunotherapy. In consideration for this agreement
and performance of the research, the Company is obligated to pay DFCI a total of $1,834,062 over the life of the agreement with
$159,287 due at signing and $418,683 to be paid at each anniversary of the agreement for the next four years.
On May 8, 2017, the Company issued 7,000,000
shares of R144 restricted common stock with a fair market value of $469,000 pursuant to a one-year consulting agreement.
On May 10, 2017, the Company paid
€60,000 to the principal shareholder of Jinvator BioMed GmbH (Jinvator) as deposit for the purchase of the 74.9 % equity
interest in Jinvator.
On May 17, 2017, the Company issued
1,500,000 shares of R144 restricted common stock with a fair market value of $93,600 pursuant to a one-year consulting agreement.
On May 18, 2017, the Company entered
an Exclusive Master Facilitator Agreement with Winnemucca Tribal MBS of Nevada, Free Spirit Organics, LLC (FSO), American Education
Consulting Group, Raymond C. Dabney University (RCDU), American States University and Royalty Management Services Corp. (RMS) to
lease and develop 250 Acres of land located in Holt, California for 15 years. As a master facilitator, the Company will provide
general support with developing, cultivating and processing Industrial Hemp for RCDU and FSO on the property. Pursuant to the agreement,
the Company and RMS are responsible for a $400,000 non-refundable deposit and the development and operations on the property on
50-50 basis. Additionally, the Company will share 40% of net profit as investor with RMS and retain 5% of net profit as master
facilitator.
On May 31, 2017, $375,000 in Accounts Payable for management
fees accumulated from January 1, 2017 to May 31, 2017 was settled by issuance of a one-year Convertible Promissory Note to Royalty
Management Services Corp. At the election of the note holder, it can be converted into common stock of the Company at the par value
of $0.001 a share or other mutually agreed upon price. The Company has fully recognized the conversion discount of the Note as
prepaid interest to the maximum amount of $375,000 in accordance with ASC 470-20-30-8 and amortize it over the life of the Note.