PART I - FINANCIAL INFORMATION

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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The accompanying notes are an integral part of these unaudited consolidated financial statements.

MJ BIOTECH, INC.

Notes to the Unaudited Consolidated Financial Statements

1. Nature of Operations and Continuance of Business

The financial statements included herein have been prepared by MJ Biotech, Inc. (formerly Michael James Enterprises, Inc.) (the “ Company”) in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (the “ SEC”). We suggest that these interim financial statements be read in conjunction with the audited financial statements and notes thereto included in our Form 10-K for the year ended December 31, 2017, as filed with the SEC. We believe that all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein and that the disclosures made are adequate to make the information not misleading. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for the most recent fiscal year as reported in Form 10-K have been omitted.

We were a Company focused on developing intellectual property. Since the beginning of the third quarter of 2017, we had changed our focus toward Nutraceuticals. With this change in focus we entered into a “Binding Letter of Agreement” on July 26, 2017 to acquire ZEN HERO, Inc. d/b/a Zen’s Tea House “Zen”.  The business of Zen is a formulator of organic teas and herbs (“Nutraceuticals”) for sale to the public and other businesses. As of October 23, 2018, the Company is no longer pursuing the acquisition of Zen Hero, Inc.

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distribution, characteristics, and quality of products and services; and

other consumer protection laws.

Legislation has also been introduced in the U.S. Congress and some state legislatures that is designed to regulate spyware, which does not have a precise definition, but which is often defined as software installed on consumers' computers without their informed consent and designed to gather and, in some cases, disseminate information about those consumers, including personally identifiable information. We do not expect to rely on spyware for any purpose, and it will not be part of our product offerings, but the definition of spyware or proposed legislation relating to spyware may be broadly defined or interpreted to include legitimate ad-serving software, including toolbar offerings and other downloadable software currently provided by our product offerings. Currently, legislation has focused on providing Internet users with notification of and the ability to consent or decline the installation of such software, but there can be no guarantee that future legislation will not provide more burdensome standards by which software can be downloaded onto consumers' computers. We expect that all downloadable software that we will distribute will require an express consent of the consumer and will provide consumers with an easy mechanism to delete the software once downloaded. However, if future legislation is adopted that makes the consent, notice, or uninstall procedures more onerous, we may have to develop new technology or methods to provide our services or discontinue those services in some jurisdictions or altogether. There is no guarantee we will be able to develop this new technology at all or in a timely fashion or on commercially reasonable terms. The adoption of any additional laws or regulations, application of existing laws to the Internet generally or our industry, or any governmental investigation or litigation related to the Internet generally, our industry, or our services may decrease the growth of the Internet or other online services.

Federal regulation and enforcement may adversely affect the implementation of medical and recreational marijuana laws and regulations may negatively impact our revenues and profits.   Currently, there are 29 states plus the District of Columbia that have laws and/or regulations that recognize, in one form or another, legitimate medical and/or recreational uses for cannabis and consumer use of cannabis. Many other states are considering similar legislation. Conversely, under the Controlled Substance Act (the “CSA”), the policies and regulations of the Federal government and its agencies are that cannabis has no medical benefit and a range of activities including cultivation and the personal use of cannabis is prohibited. Unless and until Congress amends the CSA with respect to  marijuana products, as to the timing or scope of any such potential amendments there can be no assurance, there is a risk that federal authorities may enforce current federal law, and we may be deemed to be possession of  marijuana in violation of federal law with respect to any inventory or business operations or we may be deemed to be facilitating the selling or distribution, or aiding and abetting the selling or distribution, of drug paraphernalia in violation of federal law. Active enforcement of the current federal regulatory position on cannabis may thus indirectly and adversely affect our revenues and profits. The risk of strict enforcement of the CSA in light of Congressional activity, judicial holdings and stated federal policy remains uncertain.

The U.S. Supreme Court declined to hear a case brought by San Diego County, California that sought to establish federal preemption over state medical marijuana laws. The preemption claim was rejected by every court that reviewed the case. The California 4th District Court of Appeals wrote in its unanimous ruling, “Congress does not have the authority to compel the states to direct their law enforcement personnel to enforce federal laws.” However, in another case, the U.S. Supreme Court held that, as long as the CSA contains prohibitions against marijuana, under the Commerce Clause of the United States Constitution, the United States may criminalize the production and use of homegrown cannabis even where states approve its use for medical purposes.

In an effort to provide guidance to federal law enforcement, the Department of Justice (the “DOJ”) has issued Guidance Regarding Marijuana Enforcement to all United States Attorneys in a memorandum from Deputy Attorney General David Ogden on October 19, 2009, in a memorandum from Deputy Attorney General James Cole on June 29, 2011 and in a memorandum from Deputy Attorney General James Cole on August 29, 2013. Each memorandum provides that the DOJ is committed to the enforcement of the CSA, but, the DOJ is also committed to using its limited investigative and prosecutorial resources to address the most significant threats in the most effective, consistent and rational way.

The August 29, 2013 memorandum provides updated guidance to federal prosecutors concerning marijuana enforcement in light of state laws legalizing medical and recreational marijuana possession in small amounts.

The memorandum sets forth certain enforcement priorities that are important to the federal government:

 Distribution of marijuana to children; 

 Revenue from the sale of marijuana going to criminals; 

 Diversion of medical marijuana from states where it is legal to states where it is not; 

 Using state authorized marijuana activity as a pretext of other illegal drug activity; 

 Preventing violence in the cultivation and distribution of marijuana; 

 Preventing drugged driving; 

 Growing marijuana on federal property; and 

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 Preventing possession or use of marijuana on federal property. 

The DOJ has not historically devoted resources to prosecuting individuals whose conduct is limited to possession of small amounts of marijuana for use on private property but has relied on state and local law enforcement to address marijuana activity. In the event the DOJ reverses its stated policy and begins strict enforcement of the CSA in states that have laws legalizing medical marijuana and recreational marijuana in small amounts, there may be a direct and adverse impact to our business and our revenue and profits.

Variations in state and local regulation and enforcement in states that have legalized medical cannabis that may restrict marijuana-related activities, including activities related to medical cannabis may negatively impact our revenues and profits.   Individual state laws do not always conform to the federal standard or to other states laws. A number of states have decriminalized marijuana to varying degrees, other states have created exemptions specifically for medical cannabis, and several have both decriminalization and medical laws. Nine states have legalized the recreational use of cannabis. Variations exist among states that have legalized, decriminalized or created medical marijuana exemptions. For example, Alaska and Colorado have limits on the number of marijuana plants that can be homegrown. In most states, the cultivation of marijuana for personal use continues to be prohibited except for those states that allow small-scale cultivation by the individual in possession of medical marijuana needing care or that person’s caregiver. Active enforcement of state laws that prohibit personal cultivation of marijuana may indirectly and adversely affect our business and our revenue and profits.

Marijuana remains illegal under Federal law.   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 law. Since federal law criminalizing the use of marijuana preempts state laws that legalize its use, strict enforcement of federal law regarding marijuana would likely result in our inability to proceed with our business plan.

Laws and regulations affecting the marijuana industry are constantly changing, which could detrimentally affect our proposed operations.   Local, state and federal medical marijuana laws and regulations are broad in scope and subject to evolving interpretations, which could require us to incur substantial costs associated with compliance or alter certain aspects of our business plan. In addition, violations of these laws, or allegations of such violations, could disrupt certain aspects of our business plan and result in a material adverse effect on certain aspects of our planned operations. In addition, it is possible that regulations may be enacted in the future that will be directly applicable to certain aspects of our proposed businesses. We cannot predict the nature of any future laws, regulations, interpretations or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on our business.

Intellectual property

We rely on a combination of copyright, trademark and trade secret laws and restrictions on disclosure to protect our intellectual property rights. Our success will depend on the protection of the proprietary aspects of our technology as well as our ability to operate without infringing on the proprietary rights of others. We expect to also enter into proprietary information and confidentiality agreements with our employees, consultants and commercial partners and control access to, and distribution of, our product formulations and other proprietary information.

Employees

As of September 30, 2018, we have 2 full time employees, and Company operations are being conducted at our corporate offices located in Cheyenne Wyoming at 109 East 17 ^th Street, Suite 80 Cheyenne, WY.

Our History

We were organized under the laws of the State of Delaware on December 30, 2010 under the name Spicy Gourmet International, Inc. as part of the implementation of the Chapter 11 plan of reorganization of Spicy Gourmet Organics, Inc. ("SGO"), a California corporation. SGO was incorporated in the State of California in 2006 and was formed to import specialty, organic spices from South Asia and sell them in the United States. SGO was undercapitalized and sales of its spice products were slow to develop, possibly due to the recession in the 2007-2008-time period. As a result, SGO lacked sufficient cash flow to meet its current obligations and on October 1, 2010 SGO filed a voluntary petition for bankruptcy under Chapter 11 in the U.S. Bankruptcy Court for the Central District of California. SGO's plan of reorganization was confirmed by the Court on November 19, 2010.

The plan of reorganization provided for the acquisition by SGO of a new, unrelated, retail business and the spin-off of all of the various elements of SGO's spice business to four different entities. The plan of reorganization called for the spin-off of SGO's manufacturing business to our company, the incorporation of our company, and the distribution of shares of our common stock to the bankruptcy creditors. The plan required us to issue 1,180,000 shares of our common stock and distribute these to SGO's general unsecured creditors,

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to its administrative creditors, and to its shareholders. The shares were distributed pursuant to Section 1145 of the U.S. Bankruptcy Code.

The Court also ordered the distribution of warrants to all administrative creditors of SGO, with these creditors to receive five warrants exercisable into shares of our common stock for each $0.05 of SGO's administrative debt which they held. All warrants were exercisable at any time prior to November 19, 2017.  No Warrants were exercised prior to their expiration.

On October 20, 2012, we acquired from James M. Palladino, then an unrelated third party, the URL domain name and websites of bullsnbears.com for $150,000. Following this asset purchase we were no longer considered a “shell company.” On October 23, 2012, our former officers and directors resigned and certain of the then officers and directors were appointed, with the balance of our directors being newly appointed in December 2012.

In November 2012 we changed our name to BullsnBears.com, Inc. Effective December 11, 2015, we changed our name to Michael James Enterprises, Inc., and entered into an Agreement for Plan of Merger and Reorganization between the Company and Michael James Enterprises, Inc., a Nevada corporation.  

Prior to that, effective December 11, 2015, the Company filed an Amendment to the Company’s Articles of Incorporation changing the Company’s name to “Michael James Enterprises Inc.” and filed with FINRA for a new stock ticker symbol “MJTV”.

On December 31, 2015, the Company formed a new wholly-owned company, BullsnBears Holdings, LLC., for the purpose of holding the Company ’ s intellectual property assets.  As contractually agreed to, the Company's wholly-owned subsidiary, BullsnBears, Holdings LLC. was spun off in its entirety including all of the assets and liabilities of the subsidiary including certain liabilities of the parent company that were incurred by the previous management including BullsnBears Holdings, LLC. Intellectual Property assets, including its websites, URL’s, and proprietary software, were transferred through a share dividend to MJTV shareholders of record as of the close of business on December 28, 2016, with one share of BullsnBears Holdings, LLC.  Common Stock distributed for each one share of MJTV Common Stock owned as of the record date.  Distribution of the shares took place on December 28, 2016.

On August 4, 2016, the company’s Board of Directors approved an asset purchase agreement with RP Capital Group, Ltd. to acquire all rights and title to the studies and intellectual property to a dronabinol based treatment for sleep apnea. This acquisition substituted the contemplated acquisition of Michael James Enterprise, Inc., a Nevada corporation acquisition that did not move forward as the acne-based product it was bringing to market had experienced several significant setbacks and the Board of Directors has determined that the proposed agreement was not in the best interest of the Company and its shareholders.

Since August of 2016 the Company created the alchemy of essential oils called LUNA to help a person relax and hopefully achieve better sleep. Additionally, the Company’s then CEO, James M. Farinella, designed a creative noninvasive delivery system for an active ingredient which was assigned to the company by the then CEO in exchange for 2,350,000 Preferred B shares. This product VOLUPTAS, now patent pending with a filing for a trademark on the Name VOLUPTAS.

On December 28, 2016 the Company's wholly-owned subsidiary, BullsnBears Holdings, Inc., (BNBI) was spun off spun-off through a share dividend to BNBI shareholders of record as of the close of business, with one share of BullsnBears Holdings Common Stock distributed for each one share of MJTV Common Stock owned as of the record date. Distribution of the shares is the responsibility of BullsnBears Holdings, Inc. and will take place upon the effectiveness of a Registration Statement filed with the U.S. Securities and Exchange Commission.

On April 12, 2017, the Company changes its name to MJ Biotech, Inc. to better represent the new direction of the Company. MJ Biotech has also changed its state of incorporation to the state of Wyoming. The change of domicile took place on August 25, 2017.

On July 26, 2017, the Company entered into a “Binding Letter of Agreement” for the acquisition of ZEN HERO, Inc. d/b/a Zen’s Tea House. The business of ZEN HERO is a formulator of Organic Teas for sale to the public and other businesses. The transaction was anticipated to close within ninety (90) days of the execution of the Binding Letter of Agreement.  The proposed purchase price is a combination of cash ($750,000) and stock. $400,000 is payable on closing with the balance to be paid based on performance milestones. Zen Hero is a company that sells its own line of medicinal teas. Based on Un-Audited financial statements, Zen Hero generates more than $100,000 per month in sales and is profitable. The acquisition has not closed as of the date of this Report.  As of October 23, 2018, this Binding Letter of Agreement for the proposed acquisition of Zen Hero, Inc., is terminated.

On May 28, 2018, Fernando Lopez resigned as the Chief Operating Officer and Director, of MJ Biotech, Inc. Mr. Lopez' resignation was due to personal reasons and did not reflect any concerns and/or disagreements relating to MJ Biotech, Inc., its operations, policies or practices.  Mr. Lopez will return all company stock issued to him during the tenure of his association with MJ Biotech, Inc.

During the Quarter ended June 30, 2018 the Company issued Shares for services 4,875,000 valued at $24,400.

During the Quarter ended June 30, 2018 the Company sold 231,200 Preferred B shares for $15,000.

During the Quarter ended June 30, 2018 the Company issued Shares 500 Preferred B shares for services valued at $1,000.

During the Quarter ended September 30, 2018 No Common or Preferred Shares were issued

Going Concern

The Company's financial statements are prepared using Generally Accepted Accounting Principles applicable to a going concern          that contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company has recently accumulated significant losses and has negative working capital. All of these items raise substantial doubt about its ability to continue as a going concern. Management's plans with respect to alleviating the adverse financial conditions that caused management to express substantial doubt about the Company's ability to continue as a going concern are as follows:

- Level 1:  Quoted prices in active markets for identical assets or liabilities.

- Level 2:  Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.

- Level 3:  Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The carrying amounts of the Company’s financial instruments as of September 30, 2018, reflect:

Cash:   Level 1   Measurement based on bank reporting. 

     Level 2   Loans from Officers and related parties 

  Level 2   Based on promissory notes. 

      Level 3 Derivative Liabilities. 

Income Taxes

Federal Income taxes are not currently due since we have had losses since inception.

On December 22, 2017 H.R. 1, originally known as the Tax Cuts and Jobs Act, (the “Tax Act”) was enacted.  Among the significant changes to the U.S. Internal Revenue Code, the Tax Act lowers the U.S. federal corporate income tax rate (“Federal Tax Rate”) from 35% to 21% effective January 1, 2018.  The Company will compute its income tax expense for the years ended December 31, 2017 and 2016 using a Federal Tax Rate of 21%.

Income taxes are provided based upon the liability method of accounting pursuant to ASC 740-10-25  Income Taxes – Recognition.   Under this approach, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end.  A valuation allowance is recorded against deferred tax assets if management does not believe the Company has met the “more likely than not” standard required by ASC 740-10-25-5.

Deferred income tax amounts reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax reporting purposes.

As of June 30, 2018, we had a net operating loss carry-forward of approximately $(15,290,494) and a deferred tax asset of approximately $3,211,004 using the statutory rate of 21%. The deferred tax asset may be recognized in future periods, not to exceed 20 years.  However, due to the uncertainty of future events we have booked valuation allowance of $(3,211,004).  FASB ASC 740 prescribes recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FASB ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.  As of September 30, 2018, the Company had not taken any tax positions that would require disclosure under FASB ASC 740.

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Although Management believes that its estimates are reasonable, no assurance can be given that the final tax outcome of these matters will not be different than that which is reflected in our tax provisions. Ultimately, the actual tax benefits to be realized will be based upon future taxable earnings levels, which are very difficult to predict.

No provision was made for federal income tax, since the Company had an overall net operating loss and has accumulated net operating loss carryforwards.

No income tax expense has been realized as a result of operations and no income tax penalties and/or interest have been accrued related to uncertain tax positions.  The Company files income tax returns in the U.S. federal jurisdiction and in the State of California.  These filings are subject to a three-year statute of limitations.  The Company’s evaluation of income tax positions included the years ended December 15 through 2017 could be subject to agency examinations.  No filings are currently under examination.  No adjustments have been made to reduce the estimated income tax benefit at fiscal year-end or at the quarterly reporting dates.  Any valuations relating to these income tax provisions will comply with U.S. generally accepted accounting principles.

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Derivative Liabilities

Certain of the Company’s convertible notes payable described in Note 3contain conversion features that qualify for embedded derivative classification. The Company accounts for the embedded derivative features in its convertible debentures in accordance FASB ASC 815-10- Derivatives and Hedging, which requires a periodic valuation of their fair value and a corresponding recognition of liabilities associated with such derivatives. The recognition of derivative liabilities related to the issuance of the convertible debt is applied first to the proceeds of such issuance as a debt discount, at the date of issuance, and the excess of derivative liabilities over the proceeds is recognized as a “Loss on Derivative Liability” in other expense. The fair value of these liabilities will be re-measured at the end of every reporting period and the change in fair value will be reported in the statement of operations as a gain or loss on derivative financial instruments.

New Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases, which is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018 with early adoption permitted. Under Accounting Standards Update 2016-02, lessees will be required to recognize for all leases at the commencement date a lease liability, which is a lessee’s obligation to make lease payments arising from a lease measured on a discounted basis, and a right-to-use asset, which is an asset that represents the lessee’s right to use or control the use of a specified asset for the lease term.  The Company is currently evaluating the effect that the new guidance will have on its financial statements and related disclosures.

In May 2017, the FASB amended authoritative guidance on modifications related to stock compensation, codified in ASC 718, Compensation - Stock Compensation. The amendments provide guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting. The guidance is effective for the Company as of the first quarter of its fiscal year ending December 31, 2019. The Company does not believe the update will have a material impact on its financial statements.

The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on the Company’s financial statements or its financial position or results of operations.

NOTE 2 - RELATED PARTY TRANSACTIONS

Management Services

As of September 30, 2018, the company owes Integrated Capital Partners, Inc. (Nevada) $70,596 in expenses paid for the Company. The Company’s former CEO (James Farinella) is the controlling shareholder of Integrated Capital Partners, Inc. (Nevada).

In February 2017 the Company’s then CEO, James Farinella, assigned his rights to the Voluptas provisional patents that he owns and all intellectual property rights to Voluptas for 2,350,000 preferred B shares of the Company. On May 10, 2017 the provisional patent was updated and re-filed increasing the protection covering more than 10 delivery methods. Mr. Farinella surrendered 120,000 Preferred B shares to pay off loans owed to three trust accounts and those trust accounts were issued 40,000 preferred C shares each. James Farinella now owns 2,890,000 preferred B shares of the Company. James Farinella also retired 8,425,000 common shares and now owns no common shares of the Company. As of September 30, 2018, the company owes the former CEO (James Farinella) of the Company $15,434 in expenses paid for the Company.

In February 2017 the Company’s Chief Operating Officer, Gina Morreale, was issued 240,000 Preferred B shares. The Company agreed to issue these shares to Miss Morreale in 2016 for her joining the Company as an Officer and Director. Subsequently, Gina Morreale resigned as an officer and director of the Company and relinquished the 240,000 preferred B shares.

Formation of New Subsidiary

On June 4, 2018 the Company formed a new wholly-owned corporation MJ Syndicated, Inc. a Florida corporation, based out of Florida whose activities will be incorporated in the Company’s Quarterly and Annual reports

NOTE 3 - CONVERTIBLE PROMISSORY NOTES PAYABLE

On February 4, 2016, the Company entered into a $121,000 10% Convertible Promissory Note with Tangiers Investment Group, LLC, a non-affiliate.  The term is for one year, with an original issuance discount of $11,000 for due diligence and legal costs.  The Note is convertible at the option of the Holder into Common Stock of the Company at a conversion price which shall be equal to 50% of the

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lowest trading price of the Company’s Common Stock during the 20 trading days prior to the election to convert. See Note 4 for discussion of the derivative liability.

On March 23, 2016, the Company entered into a $60,500 10% Convertible Promissory Note with Vista Capital Investments, LLC. a non-affiliate.  The term is for two years, with an original issuance discount of $5,500 for due diligence and legal costs.  The Note is convertible at the option of the Holder into Common Stock of the Company at a conversion price which shall be equal to 55% of the lowest trading price of the Company’s Common Stock during the 20 trading days prior to the election to convert. See Note 4 for discussion of the derivative liability. In connection with the note payable the Company is obligated to issue 200,000 shares of common stock that was valued at $120,000. Out of the full consideration $55,000 was recorded as debt discount and the remaining $65,000 was included in interest expense.

On March 24, 2016, the Company entered into a $60,500 10% Convertible Promissory Note with Tangiers Investment Group, LLC, a non-affiliate.  The term is for one year, with an original issuance discount of $5,500 for due diligence and legal costs.  The Note is convertible at the option of the Holder into Common Stock of the Company at a conversion price which shall be equal to 55% of the lowest trading price of the Company’s Common Stock during the 20 trading days prior to the election to convert. See Note 4 for discussion of the derivative liability.

On December 5, 2016, the Company entered into a $79,000 10% Convertible Promissory Note with GHS Investments, LLC, a non-affiliate.  The term is for eight months, with an original issuance discount of $9,000 for due diligence and legal costs.  The Note is convertible at the option of the Holder into Common Stock of the Company at a conversion price which shall be equal to the lower of $.09 or 55% of the lowest trading price of the Company’s Common Stock during the 20 trading days prior to the election to convert. See Note 4 for discussion of the derivative liability.

On December 16, 2016, the Company entered into a $63,250 12% Convertible Promissory Note with Auctus Fund, LLC, a non-affiliate.  The term is for nine months, with an original issuance discount of $8,250 for due diligence and legal costs.  The Note is convertible at the option of the Holder into Common Stock of the Company at a conversion price which shall be equal to the lower of $.09 or 50% of the lowest trading price of the Company’s Common Stock during the 25 trading days prior to the election to convert. See Note 4 for discussion of the derivative liability.

On January 5, 2017, the Company entered into a $53,000 8% Convertible Promissory Note with Power Up Lending Group, LTD, a non-affiliate.  The term of the Note is for 9 months, with an original issuance discount of $3,000 for due diligence and legal costs.  The Note is convertible after 180days into Common Stock of the Company at a conversion price which shall be equal to 55% of the average of the three lowest trading prices of the Company’s Common Stock during the 10 trading days prior to the election to convert. See Note 4 for discussion of the derivative liability.  Power Up Lending Group, LTD has declared the Company in default of its obligations under the Note.

On March 7, 2017, the Company entered into a $25,000 12% Convertible Promissory Note with Vista Capital Investments, LLC, a non-affiliate.  The term of the Note is for two years, with an original issuance discount of $5,000 for due diligence and legal costs.  The Note is convertible at the option of the Holder into Common Stock of the Company at a conversion price which shall be equal to 50% of the lowest trading price of the Company’s Common Stock during the 25 trading days prior to the election to convert. See Note 4 for discussion of the derivative liability.

On March 7, 2017, the Company entered into a $5,000,000 equity line with Tangier Investment Group, LLC which will require a registration statement to be filed. The Company no longer intends to move forward on the equity line.  As part of the Equity line the Company entered into a commitment note for $29,000 with no interest.  The Note is convertible at the option of the Holder into Common Stock of the Company at a conversion price, which shall be equal to 50% of the lowest trading price of the Company’s Common Stock during the 25 trading days prior to the election to convert. See Note 4 for discussion of the derivative liability.

On March 13, 2017 the Company entered into a $43,000 8% Convertible Promissory Note with PowerUp Lending Group, LTD, a non-affiliate. The term of the Note is for 9 months, with an original issuance discount of $3,000 for due diligence and legal costs.  The Note is convertible after 180 days into Common Stock of the Company at a conversion price which shall be equal to 55% of the average of the three lowest trading prices of the Company’s Common Stock during the 10 trading days prior to the election to convert. See Note 4 for discussion of the derivative liability.  Power Up Lending Group, LTD has declared the Company in default of its obligations under the Note.

On January 17, 2017 Vista Capital Investments, LLC converted $10,000 of its $60,500 note dated March 23, 2016 at a conversion price of $0.01925 for 519,481 shares.

On January 24, 2017 Tangiers Investment Group, LLC converted $19,943.00 of its $121,000 note dated February 4, 2016 at a conversion price of $0.0175 for 1,139,600 shares.

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On January 30, 2017 Vista Capital converted $14,500 of its $60,500 note dated March 23, 2016 at a conversion price of $0.01375 for 1,054,545 shares.

On February 22, 2017 Tangiers Investment Group, LLC converted $10,119.00 of its $121,000 note dated February 4, 2016 at a conversion price of $0.0061 for 1,658,852 shares.

On March 3, 2017 Vista Capital Investments, LLC converted $5,637.50 of its $60,500 note dated March 23, 2016 at a conversion price of $0.00451 for 1,250,000 shares.

On March 9, 2017 GHS Investments, LLC converted $4,100.00 of its $66,500 note it acquired from Tangiers Investment Group, LLC dated March 24, 2016 at a conversion price of $0.0041 for 1,000,000 shares.

On March 17, 2017 Collier Investments, LLC converted $7,995.00 of its $75,000 note it acquired from Tangiers Investment Group, LLC dated February 4, 2016 at a conversion price of $0.00410 for 1,950,000 shares.

On April 7, 2017 GHS Investments, LLC. converted $3,300.00 of its note originally owned by Tangiers Investment Group, LLC dated March 24, 2016 at a conversion price of $0.0033 for 1,000,000 common shares. On May 2, 2017 the Company entered into a Securities Purchase Agreement with GPL Ventures LLC the agreement allows the Company to draw down up to $10,000,000 over the term of the agreement with a maximum drawdown of $125,000 at one time.

On May 16, 2017 the Company entered into a $200,000 8% Convertible Promissory Note with Tri-Bridge Ventures LLC, a non-affiliate. The term of the Note is for 9 months. The Note is convertible at the option of the Holder into Common Stock of the Company at a conversion price which, shall be equal to 50% of the lowest trading price of the Company’s Common Stock during the 20 trading days prior to the election to convert. Tri-Bridge Ventures, LLC will fund $100,000 of the $200,000 Convertible Promissory Note Upon the filing of the Company’s 2016 year-end audited financial statements on Form 10K and the 2017 first quarter results on Form 10Q. Tri-Bridge Ventures, LLC will have the right to fund the remaining balance at any time during the term of the Note. This transaction never closed, and the agreement was terminated

On May 16, 2017, the Company entered into a $10,000,000 equity line with GPL Ventures, LLC, which will require a registration statement to be filed. As part of the Equity line the Company entered into a commitment note for $100,000. The term of the Note is for 6 months.  The Note is convertible at the option of the Holder into Common Stock of the Company at a conversion price, which shall be equal to 80% of the lowest trading price of the Company’s Common Stock during the 20 trading days prior to the election to convert. The company no longer plans on moving forward with GPL Ventures, LLC on the equity line.

On May 24, 2017 the Company entered into a $10,000 12% Convertible Promissory Note with PowerUp Lending Group, LTD, a non-affiliate. The term of the Note is for 9 months, with an original issuance discount of $3,000 for due diligence and legal costs.  The Note is convertible at the option of the Holder into Common Stock of the Company at a conversion price which shall be equal to 58% of the average of the three lowest trading prices of the Company’s Common Stock during the 10 trading days prior to the election to convert. Power Up Lending Group, LTD has declared the Company in default of its obligations under the Note.

On July 6, 2017 Power Up Lending Group LTD. converted $1,070.00 of its $53,000 note dated January 5, 2017 at a conversion price of $0.00092 for 1,163,043 common shares.

On July 21, 2017 Power Up Lending Group LTD. converted $795.00 of its $53,000 note dated January 5, 2017 at a conversion price of $0.00068 for 1,169,118 common shares.

On July 27, 2017 Power Up Lending Group LTD. converted $890.00 of its $53,000 note dated January 5, 2017 at a conversion price of $0.00064 for 1,390,625 common shares.

On August 2, 2017 Power Up Lending Group LTD. converted $770.00 of its $53,000 note dated January 5, 2017 at a conversion price of $0.00055 for 1,400,000 common shares.

On August 9, 2017 Power Up Lending Group LTD. converted $770.00 of its $53,000 note dated January 5, 2017 at a conversion price of $0.00055 for 1,400,000 common shares.

In September 2017, the Company entered two Promissory Notes for $5,000 each with an unrelated private party.  The Notes bear interest at the rate of 4% per annum and are due on January 30, 2018.

On January 22, 2018 GHS Investments, LLC. converted $717.20 of its note originally owned by Tangiers Investment Group, LLC dated March 24, 2016 at a conversion price of $0.00044 for 1,630,000 common shares.

On March 6, 2018 Power Up Lending Group LTD. converted $1,790.00 of its $53,000 note dated January 5, 2017 at a conversion price of $0.0011 for 1,627,273 common shares.

On March 21, 2018 Power Up Lending Group LTD. converted $1,610 of its $53,000 note dated January 5, 2017 at a conversion price of $0.00099 for 1,626,262 common shares.

On March 23, 2018 Auctus Fund LLC. converted $191 of its $63,250 note dated December 16, 2016 at a conversion price of $0.000117 for 1,631,800 common shares.

During the Quarter ended March 2018, the Company entered into three nonconvertible Promissory Notes for $10,000, $5,000 and $3,000 with unrelated private parties.  The Notes bear interest at the rate of 4% per annum and are due in June and September 2018.

On April 3, 2018 Power up Lending Group LTD converted $2,440 of its $53,000 note dated January 5, 2017 at a conversion price of $.0012 for 2,033,333 common shares.

On April 9, 2018 GHS Investments converted $1,012 of its note originally owned by Tangiers Investment Group, LLC dated March 24, 2016 at a conversion price of $0.00044 for 2,300,000 common shares.

During the Quarter ended June 30, 2018 the Company issued Shares for services 4,875,000 valued at $24,400 and no shares were issued in the quarter ended September 30, 2018

NOTE 4 – DERIVATIVE LIABILITY

The Company issued financial instruments in the form of convertible notes with embedded conversion features.  The convertible notes payable has conversion rates which are indexed to the market value of the Company’s common stock price.

Price protection clauses of the conversion features of the convertible notes (see Note 3) triggered derivative accounting under GAAP.

During the nine months ending September 30, 2018, no convertible notes were issued.

The following table represents the Company’s derivative liability activity for the embedded conversion features discussed above:

NOTE 5 - COMMON STOCK AND COMMON STOCK WARRANTS

Common Stock Warrants

In December 2010, the Company issued a total of 5,000,000 Common Stock Purchase Warrants. Pursuant to an extension approved by the Board of Directors in June 2015, all Warrants were exercisable at any time prior to November 19, 2017.

Common Stock

On January 17, 2017 Vista Capital Investments, LLC converted $10,000 of its $60,500 note dated March 23, 2016 at a conversion price of $0.01925 for 519,481 shares.

On January 24, 2017 Tangiers Investment Group, LLC converted $19,943 of its $121,000 note dated February 4, 2016 at a conversion price of $0.0175 for 1,139,600 shares.

On January 30, 2017 Vista Capital converted $14,500 of its $60,500 note dated March 23, 2016 at a conversion price of $0.01375 for 1,054,545 shares.

On February 22, 2017 Tangiers Investment Group, LLC converted $10,119 of its $121,000 note dated February 4, 2016 at a conversion price of $0.0061 for 1,658,852 shares.

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On March 3, 2017 Vista Capital Investments, LLC converted $5,637.50 of its $60,500 note dated March 23, 2016 at a conversion price of $0.00451 for 1,250,000 shares.

On March 9, 2017 GHS Investments, LLC converted $4,100 of its $66,500 note it acquired from Tangiers Investment Group, LLC dated March 24, 2016 at a conversion price of $0.0041 for 1,000,000 shares.

On March 17, 2017 Collier Investments, LLC converted $7,995 of its $75,000 note it acquired from Tangiers Investment Group, LLC dated February 4, 2016 at a conversion price of $0.00410 for 1,950,000 shares.

On April 7, 2017 GHS Investments, LLC. converted $3,300 of its note originally owned by Tangiers Investment Group, LLC dated March 24, 2016 at a conversion price of $0.0033 for 1,000,000 common shares.

On July 6, 2017 Power Up Lending Group LTD. converted $1,070 of its $53,000 note dated January 5, 2017 at a conversion price of

$0.00092 for 1,163,043 common shares.

On July 21, 2017 Power Up Lending Group LTD. converted $795 of its $53,000 note dated January 5, 2017 at a conversion price of

$0.00068 for 1,169,118 common shares.

On August 9, 2017 Power Up Lending Group LTD. converted $765 of its $53,000 note dated January 5, 2017 at a conversion price of $0.00055 for 1,390,625 common shares.

On August 2, 2017 Power Up Lending Group LTD. converted $770 of its $53,000 note dated January 5, 2017 at a conversion price of $0.00055 for 1,400,000 common shares.

On August 9, 2017 Power Up Lending Group LTD. converted $770 of its $53,000 note dated January 5, 2017 at a conversion price of $0.00055 for 1,400,000 common shares.

On January 2, 2018 Power Up Lending Group LTD. converted $855 of its $53,000 note dated January 5, 2017 at a conversion price of $0 061 for 1,401,639 common shares.

On March 21, 2018 Power Up Lending Group LTD. converted $1,610 of its $53,000 note dated January 5, 2017 at a conversion price of $0.00099 for 1,626,262 common shares.

On April 3, 2018 Power up Lending Group LTD converted $2,440 of its $53,000 note dated January 5, 2017 at a conversion price of $.0012 for 2,033,333 common shares.

As of December 31, 2015, the Company had issued 4,000 Shares of Preferred Stock, designated as “ Cumulative Preference ‘ A’”, at a price of $1.25 per Share. The Shares bear an annual coupon of 5%, and are convertible into Shares of Common Stock of the Company at any time commencing one (1) year from the date of issuance at a conversion price of $1.25 per Share

In April, 2015, the Corporation authorized the issuance of up to 10,000,000 shares of Preferred Stock to be designated “ Series B Preferred Stock ” , having a conversion right at the option of the holder beginning one year from the date of issuance, and which shall be convertible into Shares of Common stock at a Conversion Price equal to the closing market Bid price of the Corporation ’ s Common Stock on the trading date immediately preceding the date of conversion, in accordance with the Certificate of Designation attached hereto and made a part hereof.  In addition, the holder of each Share of Series B Stock shall have the equivalent voting rights of two (2) Shares of Common Stock.  The Preferred B shares certificate of Designation was changed as described below.

In August of 2016 the company changed the Certificate of Designation for the Preferred B shares giving the holder 1,000 common votes for every preferred B share held with a conversion right of 100 common shares for every preferred B share held.  Preferred B shares were issued in the second quarter 2017, following the effectiveness of the Information Statement as filed by the Company on Form 14C. Currently this change gives approximately 77% voting control to the two former Board of Directors (if they vote together).

On August 4, 2016 the company issued 660,000 shares of preferred series B shares to RP Capital. Each preferred series B is convertible into 100 shares of the company’s common stock, for research and development services.

In February 2017 the Company’s CEO, James Farinella, assigned his rights to the Voluptas provisional patents that he owns and all intellectual property rights to Voluptas for 2,350,000 preferred B shares of the Company. On May 10, 2017 the provisional patent was updated and refilled increasing the protection covering more than 10 delivery methods. In February 2017 the Company’s Chief Executive Officer, James M. Farinella, was issued 660,000 Preferred B shares. The Company agreed to issue these shares to Mr. Farinella in 2016 for him joining the Company as an Officer and Director. Mr. Farinella surrendered 120,000 Preferred B shares to pay of loans owed to three trust accounts and those trust accounts were issued 40,000 preferred C shares each. At the end of June 30, 2018 Mr. Farinella owned 2,254,200 Shares of Preferred B shares.

In February 2017 the Company’s Chief Operating Officer, Gina Morreale, was issued 240,000 Preferred B shares. The Company agreed to issue these shares to Miss Morreale in 2016 for her joining the Company as an Officer and Director. Subsequently, Gina Morreale resigned as an officer and director of the Company and relinquished the 240,000 preferred B shares.

In August of 2016 the Company also created a Certificate of Designation for a preferred C class as an investment class of stock that carries no voting rights and converts into 100 shares of common for every preferred C share owned.  Additionally, these shares only allow the holder to convert into common and own no more than 9.9% of the outstanding at any point in time. There are 160,000 Preferred C shares issued and outstanding as of June 30, 2018.

During the quarter ended June 30, 2018, the Company sold 231,700 shares of Preferred B shares valued at $15,000 and issued 500 Preferred B shares valued at $1,000.

As of the end of quarter ended June 30,2018 the Company had 4,000 Preferred A shares, 3,617,700 Preferred B shares and 160,000 Preferred C shares totaling 3,781,700 Preferred shares.  All issued and outstanding Preferred shares have a par value $.0001 per shares.

During the quarter ended June 30, 2018, the Company sold 231,700 shares of Preferred B shares valued at $15,000 and issued 500 Preferred B shares valued at $1,000.

As of the end of quarter ended June 30,2018 the Company had 4,000 Preferred A shares, 3,781,700 Preferred B shares and 160,000 Preferred C shares totaling 3,945,700 Preferred shares.  All issued and outstanding Preferred shares have a par value $.0001 per shares.

During the Quarter ended September 30, 2018 the Company issued no Shares.

NOTE 7– COMMITMENTS AND CONTINGENCIES

On September 1, 2015, the Company received notice of an Administrative Complaint filed by the State of Florida Office of Financial Regulation (OFR) concerning certain private placement investments received by the Company during the period from 2011 to 2013 and the applicability of the registration exemption provisions of the Florida Statutes to said investments.  The Company vigorously disputes the legal basis for this Administrative Complaint as it relates to the Company.  Written submissions were presented to the OFR and the OFR designated hearing offer has rendered a recommendation that the Company should be fined in the amount of $980,000. The Company had reached a settlement with the OFR in the amount of $25,000.  The Company was unable to pay the settlement amount and on July 3, 2017 an Order was entered against the Company, and in favor of the ORF, in the full amount sought of $980,000.  As of the date of this Report, no Judgment has been entered. When the company has the resources available it will contact the OFR to try to resurrect the prior settlement.

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On June 27, 2017 an assignor to the Company’s former auditors (Friedman LLP) filed Suit against the Company in Superior Court of the State of New Jersey, Camden County, for $13,390 in alleged open invoices.  Despite not being properly served the Plaintiff moved for, and received, a default Judgment in the full amount sought.  It is the intention of the Company to move to vacate the Judgment for lack of proper service and based on the Company’s meritorious defenses that: (i) Friedman failed to provide the audit services for which it billed; and more than $5,000 of the amount sought related to services related to another entity.

On November 21, 2017 Power Up Lending Group, LTD. filed a Complaint in the United States District Court for the Eastern District of New York alleging the Company has defaulted on three convertible promissory notes in the aggregate amount of $155,000.  It is the Company’s position that it has not yet been properly served with the Summons and Complaint.  As of the date of this report, not default or Judgment has been entered. The Company hopes to be able to reach a settlement with Power Up when the Company’s financial condition permits.

MANAGEMENT’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

FORWARD-LOOKING STATEMENTS

This Management’ s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains forward-looking statements that involve known and unknown risks, significant uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed, or implied, by those forward-looking statements.  You can identify forward-looking statements by the use of the words may, will, should, could, expects, plans, anticipates, believes, estimates, predicts, intends, potential, proposed, or continue or the negative of those terms.  These statements are only predictions. In evaluating these statements, you should consider various factors which may cause our actual results to differ materially from any forward-looking statements.  Although we believe that the exceptions reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.  Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements.  We undertake no obligation to revise or update publicly any forward-looking statements for any reason.

RESULTS OF OPERATIONS

Working Capital

Cash Flows

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Balance Sheet

obligations, we may be unable to continue as a going concern.  In that event, investors could lose their entire investment in our company.

Cash Flows from Operating Activities

During the nine months ended September 30, 2018, the Company used $(33,306) of net cash from operating activities compared with $(157,317) during the nine months ended September 30, 2017. This was mainly due to the change in Derivative Liability in 2018. 

Cash Flows from Financing Activities

During the nine months ended September 30, 2018, the Company received $33,224 cash flow from financing activities compared to $130,550 of cash flow from financing activities during the nine months ended September 30, 2017. This was mainly due to the higher proceeds from notes payable in 2017.  

Off-Balance Sheet Arrangements

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 (the “Exchange Act” ) and are not required to provide the information under this item.

ITEM 4.

CONTROLS AND PROCEDURES.

Evaluation of disclosure controls and procedures

to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes of accounting principles generally accepted in the United States.

None.