Item
1. Financial
Statements
PHOENIX
LIFE SCIENCES INTERNATIONAL LIMITED
Consolidated Balance Sheets
|
|
November
30,
2016
$
|
|
|
February
29,
2016
$
|
|
|
|
|
Unaudited
|
|
|
|
Audited
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
1,380
|
|
|
|
7,591
|
|
Notes
receivable, related party
|
|
|
235,752
|
|
|
|
249,352
|
|
Total
Current Assets
|
|
|
237,132
|
|
|
|
256,943
|
|
Security
deposit
|
|
|
—
|
|
|
|
—
|
|
Total
Assets
|
|
|
237,132
|
|
|
|
256,943
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
|
503,835
|
|
|
|
512,642
|
|
Due
to related parties
|
|
|
277,219
|
|
|
|
267,219
|
|
Current
Liabilities
|
|
|
781,054
|
|
|
|
779,861
|
|
Convertible
notes payable, net
|
|
|
314,728
|
|
|
|
193,306
|
|
Derivative
liability, Typenex Note
|
|
|
251,740
|
|
|
|
397,512
|
|
Total
Liabilities
|
|
|
1,347,522
|
|
|
|
1,370,679
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
Authorized: 990,000,000 common shares, par value of $0.001 per share Issued and outstanding: 31,067 and 25,845
common shares, respectively
|
|
|
31
|
|
|
|
26
|
|
Issued
and outstanding Preferred shares
|
|
|
|
|
|
|
|
|
Series
B – 2,000,000
|
|
|
200
|
|
|
|
200
|
|
Series
C – 995,600 and 998,000 respectively
|
|
|
100
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
Additional
paid-in capital
|
|
|
17,710,842
|
|
|
|
17,704,977
|
|
|
|
|
|
|
|
|
|
|
Accumulated
deficit during the development stage
|
|
|
(18,821,563
|
)
|
|
|
(18,819,039
|
)
|
Total
Stockholders’ Equity (Deficit)
|
|
|
(1,110,390
|
)
|
|
|
(1,113,736
|
)
|
Total
Liabilities and Stockholders’ Equity
|
|
|
237,132
|
|
|
|
256,943
|
|
(The
accompanying notes are an integral part of these financial statements)
PHOENIX
LIFE SCIENCES INTERNATIONAL LIMITED
Consolidated Statements of
Operations - Unaudited
|
|
Three
Months Ended
|
|
|
Nine
Months
Ended
|
|
|
|
Nov.
30, 2016
|
|
|
Nov.
30, 2015
|
|
|
Nov.
30, 2016
|
|
|
Nov.
30, 2015
|
|
Income
Statement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
18,410
|
|
Cost
of Sales
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,933
|
|
Gross
Profit
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,477
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Product
development expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
100,000
|
|
Sales
and marketing expenses
|
|
|
—
|
|
|
|
200
|
|
|
|
—
|
|
|
|
14,953
|
|
Operations
expense
|
|
|
—
|
|
|
|
1,304
|
|
|
|
—
|
|
|
|
3,049
|
|
General
and administrative
|
|
|
527
|
|
|
|
1,147
|
|
|
|
3,781
|
|
|
|
31,615
|
|
Professional
fees
|
|
|
17,000
|
|
|
|
93,508
|
|
|
|
17,330
|
|
|
|
311,220
|
|
Lease
operating expenses
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,500
|
|
Total
operating expenses
|
|
|
17,527
|
|
|
|
96,159
|
|
|
|
21,111
|
|
|
|
468,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before other expenses
|
|
|
(17,527
|
)
|
|
|
(96,159
|
)
|
|
|
(21,111
|
)
|
|
|
(455,860
|
)
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Income
|
|
|
—
|
|
|
|
969
|
|
|
|
—
|
|
|
|
3,062
|
|
Interest
Expense
|
|
|
(17,020
|
)
|
|
|
(45,868
|
)
|
|
|
(118,986
|
)
|
|
|
(132,008
|
)
|
Debt
issue costs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(7,830
|
)
|
Discount
Amortization
|
|
|
—
|
|
|
|
(10,804
|
)
|
|
|
(2,435
|
)
|
|
|
(56,953
|
)
|
Gain
(loss) on derivative liability
|
|
|
(13,925
|
)
|
|
|
(8,194
|
)
|
|
|
140,008
|
|
|
|
86,343
|
|
Total
other income (expense)
|
|
|
(30,945
|
)
|
|
|
(63,897
|
)
|
|
|
18,587
|
|
|
|
(107,386
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
profit (loss)
|
|
|
(48,472
|
)
|
|
|
(160,056
|
)
|
|
|
(2,524
|
)
|
|
|
(563,246
|
)
|
Basic
and diluted loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
|
(1.58
|
)
|
|
|
(0.00
|
)
|
|
|
(0.09
|
)
|
|
|
(0.00
|
)
|
Basic
and diluted loss per common share
|
|
$
|
(1.58
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.00
|
)
|
Weighted average shares
outstanding -
basic and diluted
|
|
|
30,602
|
|
|
|
258,030,222
|
|
|
|
28,999
|
|
|
|
364,290,048
|
|
(The
accompanying notes are an integral part of these financial statements)
PHOENIX
LIFE SCIENCES INTERNATIONAL LIMITED
Consolidated
Statements of Cash Flows
(Unaudited)
|
|
Nine
Months Ended
|
|
|
|
|
Nov.
30, 2016
|
|
|
|
Nov.
30, 2015
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(2,524
|
)
|
|
$
|
(563,246
|
)
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations
|
|
|
—
|
|
|
|
—
|
|
Adjustments
to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Non-cash
amortization of discount on convertible notes payable
|
|
|
2,435
|
|
|
|
54,000
|
|
Non-cash
interest expense on convertible notes payable
|
|
|
118,986
|
|
|
|
—
|
|
Debt
issuance costs
|
|
|
5,870
|
|
|
|
10,828
|
|
Non-cash
loss (gain) on derivative liability
|
|
|
(145,772
|
)
|
|
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
—
|
|
|
|
2,300
|
|
Deposit
|
|
|
—
|
|
|
|
1,250
|
|
Prepaid
expense and deposits
|
|
|
—
|
|
|
|
141,664
|
|
Accounts
payable and accruals
|
|
|
1,194
|
|
|
|
169,538
|
|
Net
Cash provided by (used for) operating activities
|
|
|
(19,811
|
)
|
|
|
(183,666
|
)
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related
party notes receivable
|
|
|
13,600
|
|
|
|
8,770
|
|
|
|
|
|
|
|
|
|
|
Net
Cash provided by (used in) Investing Activities - continuing operations
|
|
|
13,600
|
|
|
|
8,770
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from notes payable
|
|
|
—
|
|
|
|
42,350
|
|
Due
to related parties
|
|
|
—
|
|
|
|
125,571
|
|
Proceeds
from issuance of common shares
|
|
|
—
|
|
|
|
—
|
|
Net
Cash Provided By Financing Activities - continuing operations
|
|
|
—
|
|
|
|
167,921
|
|
|
|
|
|
|
|
|
|
|
Increase
(Decrease) in Cash - continuing operations
|
|
|
(6,211
|
)
|
|
|
(6,975
|
)
|
Cash
- Beginning of Period - continuing operations
|
|
|
7,591
|
|
|
|
9,400
|
|
Cash
- Beginning of Period - discontinued operations
|
|
|
—
|
|
|
|
—
|
|
Cash
- End of Period - continuing operations
|
|
$
|
1,380
|
|
|
$
|
2,425
|
|
Cash
- End of Period - discontinued operations
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
|
—
|
|
|
|
—
|
|
Income
tax paid
|
|
|
15,788
|
|
|
|
—
|
|
Non-cash
issuance of stock for consulting agreements
|
|
|
—
|
|
|
|
|
|
Non-cash
issuance of stock for license agreement, related party
|
|
|
—
|
|
|
|
—
|
|
Non-cash
issuance of stock for distribution agreement
|
|
|
—
|
|
|
|
—
|
|
Non-cash
issuance of stock for conversion of debt
|
|
|
5,870
|
|
|
|
54,000
|
|
(The accompanying notes are
an integral part of these financial statements)
|
1.
|
Nature
of Operations and Continuance of Business
|
The
company was incorporated in the State of Nevada on April 21, 2009 under the name Mokita Exploration, Ltd. (the “Company”).
On February 27, 2014, there was a change of control of the Company. On February 28, 2014, our board of directors and a majority
of holders of the Company’s voting securities approved a change of name of the Company to MediJane Holdings Inc. A Certificate
of Amendment to effect the change of name was filed and became effective with the Nevada Secretary of State on March 4, 2014.
A Certificate of Correction was subsequently filed with the Nevada Secretary of State on March 6, 2014 to correct a spelling error
in the Company’s new name. These amendments have been reviewed by FINRA and were approved for filing with an effective date
of March 12, 2014. The name change became effective with the Over-the-Counter Bulletin Board at the opening of trading on March
12, 2014 under our new ticker symbol “MJMD”.
On
March 8, 2017 the Company filed an Amendment to its Articles of Incorporation (the “Amendment”) with the Secretary
of State of Nevada. As a result of the Amendment, the Company changed its name with the State of Nevada from MediJane Holdings,
Inc. to Stem Bioscience, Inc.
In
May 2018 the Company again changed its name to Phoenix Life Sciences International Limited. A Certificate of Amendment to effect
the change of name was filed and became effective with the Nevada Secretary of State on May 31, 2018. The name change was accepted
by FINRA and became effective with the Over-the-Counter Bulletin Board on November 2, 2018 with the trading symbol “PLSI”.
On
February 27, 2014, after the change of control, the Company became a sales and distribution company focused on cannabinoid infused
products for the treatment of medical conditions.
On
January 5, 2015, the Company underwent a change in control following the issuance of 276,000,000 common shares to Phoenix Bio
Pharmaceuticals Corporation pursuant to a license agreement. On November 4, 2015, these shares were exchanged for 2,000,000 Series
B Preferred Shares.
The
business was then changed to only focus on Cannabidiol (CBD) products. CBD is a non-psychotropic cannabinoid that is not restricted
as part of the U.S. Controlled Substances Act (CSA), as defined under the 2014 U.S Farming Bill to be derivatives of the Industrial
Hemp plant that contains less than 0.3% tetrahydrocannabinol (THC). The company will contract out the manufacturing of the products.
Phoenix Bio Pharmaceuticals Corporation and other groups may manufacture our products under our license agreement.
The
Company follows the accounting guidance outlines in the Financial Accounting Standards Board Codification guidelines. The accompanying
unaudited interim consolidated financial statements have been prepared in accordance with generally accepted principles for interim
financial information and with the items under Regulation S-K required by the instructions to Form 10-Q. They may not include
all information and footnotes required by United States generally accepted accounting principles for complete financial statements.
However, except as disclosed here in, there have been no material change in the information disclosed in the notes to the financial
statements for the year ended February 28, 2016 included in the Company’s annual report on Form 10-K filed with the Securities
and Exchange Commission on March 13, 2019. The interim unaudited financial statements presented herein should be read in conjunction
with those financial statements included in the Form 10-K. In the opinion of Management, all adjustments considered necessary
for a fair presentation, which unless otherwise disclosed herein, consistent with normal re-occurring adjustments, have been made.
Operating results for nine months ended November 30, re not necessarily indicative results that may be expected for the year ended
February 29, 2016.
Going
Concern
These
financial statements have been prepared on a going concern basis, which implies that the Company will continue to realize its
assets and discharge its liabilities in the normal course of business. The Company’s total operating expenditure plan for
the following twelve months will require significant cash resources to meet the goals of its business plan. The continuation of
the Company as a going concern is dependent upon the continued financial support from its management, and its ability to identify
future investment opportunities and obtain the necessary debt or equity financing, and generating profitable operations from the
Company’s future operations. These factors raise substantial doubt regarding the Company’s ability to continue as
a going concern. These financial statements do not include any adjustments to the recoverability and classification of recorded
asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
|
2.
|
Summary
of Significant Accounting Policies
|
Basis
of Presentation –
The financial statements of the Company have been prepared in accordance with accounting principles generally
accepted in the United States (“US GAAP”) and are expressed in U.S. dollars. The Company’s fiscal year end is
February 28 or 29.
Basis
of Consolidation
– The consolidated financial statements include the accounts of Phoenix Life Sciences International
Limited. All significant intercompany balances and transactions have been eliminated in consolidation.
Stock
Split
-on October 21, 2015 the Company’s Board of Directors declared a 1 for 10,000 reverse stock split on its common
stock as of a record date of October 22, 2015. The effect of the stock split decreased the number of shares of common stock outstanding
from 501,242,594 to 50,125. All common share and per common share data in these financial statements and related notes here to
have been retroactively adjusted to account for the effect of the stock split for all periods presented. The total number of authorized
common shares on the par value thereof was not changed by the split.
Use
of Estimates –
The preparation of financial statements in conformity with US GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company
regularly evaluates estimates and assumptions related to the deferred income tax asset valuation allowances. The Company bases
its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable
under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities
and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the
Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between
the estimates and the actual results, future results of operations will be affected.
A
significant item that requires management’s estimates and assumptions is the valuation of intangible assets, valuation allowances
for income tax, valuation of derivatives instruments and accrued liabilities, among others. Although management believes these
estimates are reasonable, actual results could differ from these estimates.
Cash
and cash equivalents –
The Company considers all highly liquid instruments with a maturity of three months or less at the
time of issuance to be cash equivalents. At November 30, 2016 and February 28, 2016, the Company did not hold any cash equivalents.
Accounts
receivable
– Accounts receivable consists of trade accounts arising in the normal course of business. No interest is charged
on past due accounts. Accounts receivable are carried at the original invoice amount less a reserve for doubtful receivables based
on a review of all outstanding amounts on a monthly basis.
Basic
and Diluted Net Loss per Share –
The Company computes net loss per share in accordance with ASC 260,
Earnings per Share
.
ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement.
Basic EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of shares
outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during
the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted
EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise
of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. At February
28, 2016 and November 30, 2016, the Company had no outstanding stock options outstanding, At November 30, 2016 and 2015, the Company
had did not have potentially dilutive shares outstanding.
Financial
Instruments –
Pursuant to ASC 820,
Fair Value Measurements and Disclosures
, an entity is required to maximize the use
of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy
based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s
categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
Level
1 –
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level
2 –
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the
asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets
or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations
in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level
3 –
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are
significant to the measurement of the fair value of the assets or liabilities.
The
Company’s financial instruments consist principally of cash, accounts receivable, accounts payable and accrued liabilities,
amounts due to related parties, and convertible debenture. Pursuant to ASC 820, the fair value of our financial instruments are
determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. We believe
that the recorded values of all of our other financial instruments approximate their current fair values because of their nature
and respective maturity dates or durations.
Derivative
Financial Instruments –
The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign
currency risks.
The
Company reviews the terms of the common stock, warrants and convertible debt it issues to determine whether there are embedded
derivative instruments, including embedded conversion options, which are required to be bifurcated and accounted for separately
as derivative financial instruments. In circumstances where the host instrument contains more than one embedded derivative instrument,
including the conversion option, that is required to be bifurcated, the bifurcated derivative instruments are accounted for as
a single, compound derivative instrument.
Bifurcated
embedded derivatives are initially recorded at fair value and are then revalued at each reporting date with changes in the fair
value reported as non-operating income or expense. The Company uses a Black-Scholes model for valuation of the derivative. When
the equity or convertible debt instruments contain embedded derivative instruments that are to be bifurcated and accounted for
as liabilities, the total proceeds received are first allocated to the fair value of all the bifurcated derivative instruments.
The remaining proceeds, if any, are then allocated to the host instruments themselves, usually resulting in those instruments
being recorded at a discount from their face value.
The
discount from the face value of the convertible debt, together with the stated interest on the instrument, is amortized over the
life of the instrument through periodic charges to interest expense, using the effective interest method.
Derivative
instrument liabilities are classified in the balance sheet as current or non-current based on whether net cash settlement of the
derivative instrument could be required within the 12 months of the balance sheet date.
Comprehensive
Loss –
ASC 220,
Comprehensive Income
, establishes standards for the reporting and display of comprehensive loss and
its components in the financial statements. As at November 30, 2014 and 2013, the Company has no items that represent a comprehensive
loss and, therefore, has not included a schedule of comprehensive loss in the financial statements.
Stock-based
Compensation –
The Company records stock-based compensation in accordance with ASC 718,
Compensation – Stock Based
Compensation
and ASC 505-50 –
Equity-Based Payments to Non-Employees
. All transactions in which goods or services are
the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration
received or the fair value of the equity instrument issued, whichever is more reliably measurable.
The
fair value of each share based payment is estimated on the measurement date using the Black-Scholes model with the following assumptions,
which are determined at the beginning of each year and utilized in all calculations for that year:
Risk-Free
Interest Rate.
We utilized the U.S. Treasury yield curve in effect at the time of grant with a term consistent with the expected
term of our awards.
Expected
Volatility.
We calculate the expected volatility based on a volatility index of peer companies as we did not have sufficient
historical market information to estimate the volatility of our own stock.
Dividend
Yield.
We have not declared a dividend on its common stock since its inception and have no intentions of declaring a dividend
in the foreseeable future and therefore used a dividend yield of zero.
Expected
Term.
The expected term of options granted represents the period of time that options are expected to be outstanding. We estimated
the expected term of stock options by using the simplified method. For warrants, the expected term represents the actual term
of the warrant.
Forfeitures.
Estimates of option forfeitures are based on our experience. We will adjust our estimate of forfeitures over the requisite
service period based on the extent to which actual forfeitures differ, or are expected to differ, from such estimates. Changes
in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of change and will also impact
the amount of compensation expense to be recognized in future periods.
Revenue
Recognition –
The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin Topic 13 when persuasive
evidence of an arrangement exists and delivery has occurred, provided the sale is fixed or determinable and collection is probable.
The Company assesses whether the sale is fixed and determinable based on the payment terms associated with the transaction. If
a sale is based upon a variable such as acceptance by the customer, the Company accounts for the sale as not being fixed and determinable.
In these cases, the Company defers revenue and recognizes it when it becomes due and payable.
The
Company assesses the probability of collection based on a number of factors, including past transaction history with the customer
and the current financial condition of the customer. If the Company determines that collection of a fee is not reasonably assured,
revenue is deferred until the time collection becomes reasonably assured. Significant management judgment and estimates must be
made and used in connection with the revenue recognized in any accounting period. Material differences may result in the amount
and timing of our revenue for any period if our management made different judgments or utilized different estimates.
Shipping
and Handling costs
— shipping and handling costs are included in cost of sales
in the Statements of Operations.
Recent
Accounting Pronouncements –
The recent accounting pronouncements did not have any material impact on the financial statements
unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have
been issued that might have a material impact on its financial position or results of operations.
Reclassifications
–
Certain amounts in the prior period financial statements have been reclassified to conform with the current period presentation.
These reclassifications had no effect on previously reported losses, total assets or stockholders equity.
|
3.
|
Variable
Interest Entity
|
The
Company follows the guidelines in FASB Codification of ASC 810 “
Consolidation”
which indicates “a legal
entity that is deemed to be a business need not be evaluated by a reporting entity to determine if the legal entity is a Variable
Interest Entity (“VIE”)” unless any one of four conditions exist:
|
-
|
The reporting entity, its related parties, or
both participated significantly in the design or redesign of the legal entity;
|
|
-
|
The legal entity is designed so that substantially
all of its activities involve or are conducted on behalf of the reporting entity and its related parties;
|
|
-
|
The reporting entity and its related parties
provide more than half of the total of the equity, subordinated debt, and other forms of subordinated financial support to
the legal entity; or
|
|
-
|
The activities of the legal entity are primarily
related to the securitizations or other forms of asset-backed financings or single-lessee leasing arrangements.
|
A
VIE is an entity that either (a) has insufficient equity to permit the entity to finance its activities without additional subordinated
financial support or (b) has equity investors who lack the characteristics of a controlling financial interest. A VIE is consolidated
by its primary beneficiary. The primary beneficiary has both the power to direct the activities that most significantly impact
the entity’s economic performance and the obligation to absorb losses or the right to receive benefits from the entity that
could potentially be significant to the VIE. If we determine that we have operating power and the obligation to absorb losses
or receive benefits, we consolidate the VIE as the primary beneficiary, and if not, we do not consolidate. The Company has not
identified any VIEs as of November 30, 2016.
Effective
September 1, 2014, the Company changed its method of computing amortization from a sales percentage method to the straight-line
method for the intangible assets. An assessment of useful life and / or discounted cash flow of the intangible asset is made and
where the value is overstated the value is impaired.
The
deferred tax assets or liabilities represent the future tax benefits or cost of those differences. The Company’s principal
deferred tax items arise from net operating losses. Net operating losses approximate $18,800,000 which expire in the years 2030
through 2036. The net operating loss results in a deferred tax asset of $2,820,000. As future earnings are uncertain, the Company
has provided a valuation allowance for the entire amount of the deferred tax asset.
The
Company is required to evaluate the tax positions taken in the course of preparing its tax returns to determine whether tax positions
are “more likely than not” of being sustained by the applicable tax authority “More likely than not” is
defined as greater than a 50% chance. The Company is delinquent on nearly all of its tax filings. As a result, there are presently
no uncertain tax position and no reserves for uncertain tax positions.
The
Company has no unrecognized tax benefits at February 28, 2016. The Company’s income tax returns are subject to examination
by federal and state tax authorities. Due to the failure to file its tax returns, all prior tax years are open to examination.
The Company recognizes interest and penalties associated with uncertain tax positions as part of the income tax provision and
would include accrued interest and penalties with the related tax liability in the balance sheet. There were no interest and penalties
paid or accrued during the years ended February 28, 2016.
|
6.
|
CV
Sciences, Inc. FKA CannaVest Corp.
|
On
December 23, 2014, the Company entered into a convertible promissory note for $1,200,000 with CannaVest Corp. The note represents
$1,200,000 worth of raw material inventory to be obtained from CannaVest Corp. to use in the Company’s cannabidiol product
formulations. The note accrues simple interest at a rate of 10% per annum and is due and payable in six months from the date of
issue. The note cannot be prepaid. At any time, the outstanding principal amount of this note and all accrued but unpaid interest
under this note can be converted into common shares at a price equal to the lesser of $0.02 per common share, the closing sale
price, or the average of the lowest closing sale prices of the Company’s common shares during the five trading day period
immediately preceding the date of such determination.
Should
the Company default on this convertible promissory note, all outstanding obligations payable by the Company are immediately due
and payable. In addition, CannaVest Corp. may exercise any other right, power or remedy permitted by law. Further, upon even of
default, all unpaid obligations under this note shall bear interest at the rate of 12% per annum.
Warrant
Agreement
In
connection with the convertible promissory note dated December 23, 2014, the Company subsequently issued warrants to purchase
20,000,000 common shares at an exercise price of $0.02 per common share to Kisha Spendthrift Trust, an affiliate of CannaVest
Corp. These warrants were issued on January 6, 2015. In exchange for these warrants, the Company shall have access to the technical
and management staff of CannaVest Corp. for the development of products to be manufactured from cannabidiol sourced from CannaVest
Corp.
On
or about January 25, 2016, the Company entered into an Amendment No. 1 to the Convertible Promissory Note executed by and between
the Company and CV Sciences, Inc (FKA Cannavest Corp. and referred to herein as “CVS”) dated December 23, 2014 (the
“Note”), whereby the company and CVS agreed to terminate the Note upon the Company’s return of five containers
of raw hemp oil to CVS. As of February 28, 2017 all remaining product had been returned to CVS, as the inventory did not meet
quality standards and was returned for a reduction of the note balance.
It
was determined that the remaining inventory should be written off as at February 29, 2016.
On
March 17, 2014, MediHoldings, Inc. (“MediHoldings”), a Colorado corporation, was formed as a wholly-owned subsidiary
of the Company.
On
June 27, 2014, MediSales (CA), Inc. (“MediSales”), a California corporation, was formed as a wholly-owned subsidiary
of the Company.
Both
these subsidiaries as at November 30, 2016 had not traded and were inactive.
|
8.
|
Related
Party Transactions
|
Martin
Tindall
Mr.
Martin Tindall, assists the Company with business development activities through the Advisory Services Agreement with Kronos as
discussed below. Mr. Tindal serves as the CEO of Kronos. Additionally, Mr. Tindal has provided new product development services
through a New Product Development Agreement with Phoenix Pharms Capital Corporation, as discussed below. Mr. Tindall services
as CFO and a Director of Phoenix Pharms Capital Corporation. Mr. Tindall also serves as a director of Phoenix Bio Pharmaceuticals
Inc.
Kronos
International Investments Ltd. (“Kronos”)
Sublease
Agreement:
Effective March 1, 2014, the Company entered into a Sublease Agreement with Kronos for a four (4) year term. Kronos’s
CEO, Martin Tindall also provides advisory services to the Company. The monthly sublease rent is $2,500 per month. During the
year ended February 29, 2016, the Company paid Kronos $7,500 in rent expense, and had previously paid security deposit of $1,250.
In June 2015, the sublease was cancelled and the security deposit of $1,250 was offset against amounts owed to Kronos for advisory
service fees. No payments were made to Kronos for the period March 1, 2016 and November 30, 2016.
Advisory
Services
: Effective March 1, 2014, the Company engaged Kronos to provide Advisory Services for a monthly retainer fee of $10,000
per month. The advisory services include and are not limited to accounting and corporate compliance, business development and
strategic planning services, corporate advisory and operational oversight. Between March 1, 2014 and February 28, 2015, expenses
related to the Advisory Services totaled $62,500. For the year March 1, 2015 to February 29, 2016, expenses related to the Advisory
Services, provided by the CEO of Kronos, Martin Tindall with respect to business development of cannabidiol products that the
Company intends to market, were $120,000. There were no payments made for the period March 1, 2016 and November, 2016.
Phoenix
Pharms Capital Corporation (“Phoenix Pharms”)
Related
Party Loan
: On September 18, 2014, the Company advanced Phoenix Pharms a total of $85,000 as a short term loan. As of November
30, 2016, the outstanding balance due the Company on this related party loan is $39,892.
Russell
Stone: Mr. Russell Stone, the Company’s Chief Executive Officer, holds approximately 14% of the outstanding common shares
of Phoenix Pharms Capital Corporation indirectly through a trust.
Lewis
“Spike” Humer
:
Mr.
Humer, a director of the Company, serves as CEO and a director of Phoenix Bio Pharmaceuticals and CEO and a director of Phoenix
Pharms Capital Corporation. As of August 2014, the Company began paying Mr. Humer a consulting fee of $1,500 per week. As of February
28, 2015, the Company has paid Mr. Humer $19,000 and has accrued a related party payable to Mr. Humer of $27,000. During the year
from March 1, 2015 to February 29, 2016, a further $81,000 was accrued to Mr. Humer. There were no further accruals from March
1, 2016 to November 30, 2016.
On
September 22, 2015, the Company amended and restated its Articles of Incorporation to create and authorize four (4) classes of
preferred stock. The Company has authorized Series A, Series B, Series C and Series D Preferred Stock (the “Preferred Stock”).
Series
A Preferred Stock:
Series
A preferred shares have a par value of $0.0001, and are convertible into common shares at $1.00 per common share. Series A preferred
shares rank senior to common stock with respect to the right to participate in distributions or payments in the event of liquidation,
dissolution, or winding up of the Company. Holders of Series A preferred shares are entitled to a preferred return equal to the
purchase price paid for such Series A preferred shares. Series A preferred shares do not have any voting rights.
Holders
of Series A preferred shares are not entitled to preemptive rights to purchase stock in future stock offerings of the Company.
Holders of Series A preferred shares have the right to register their unregistered stock when either the Company or another investor
initiates a registration of the Company’s securities, and they have the right of co-sale. Holders of Series A preferred
shareholders are not required to sell all of their Series A preferred shares on the same terms or conditions of a co-sale by a
majority shareholder. There is no right of first refusal for Series A preferred shares.
Series
B Preferred Stock:
Series
B preferred shares have a par value of $0.0001, and are convertible into common shares at a rate of 100 common shares per preferred
share. Series B preferred shares are entitled to cast 500 votes for each preferred share owned. Series B preferred shares are
senior to common shares with respect to the right to participate in distributions or payments in the event of any liquidation,
dissolution, or winding up of the Company, and holders of Series B preferred shares are entitled to receive a preferred return
equal to the purchase price paid for such Series B preferred stock.
Holders
of Series B preferred shares are entitled to preemptive rights to purchase stock in future offerings, and have the right to register
their unregistered stock when either the Company or another investor initiates a registration of the Company’s securities.
Holders do not have the right of co-sale, and are not required to sell all of their Series B preferred shares on the same terms
or conditions of a co-sale by a majority shareholder. If any Series B preferred shareholder wishes to sell, transfer or otherwise
dispose of any or all of their Series B preferred shares, the other Series B preferred shareholders shall not have a prior right
to buy such Series B preferred shares.
Series
C Preferred Stock:
Series
C preferred shares have a par value of $0.0001, and are convertible into common shares at a rate of $1.00 per common share. Series
C preferred shares are not entitled to any voting rights, unless such vote is to modify rights, preferences, privileges and restrictions
granted to and imposed on Series C preferred shares. Series C preferred shares are senior to common shares and Series B preferred
shares with respect to the right to participate in distributions or payments in the event of any liquidation, dissolution, or
winding up of the Company, and holders of Series C preferred shares are entitled to receive a preferred return equal to the purchase
price paid for such Series C preferred, which is deemed to be $600,000. If the closing price per share of the Company’s
common shares is less than $1.00 for a period of five consecutive trading days, the YP Holdings will have the one-time right,
exercisable at its discretion, to require that the conversion price of the shares become equal to 75% of the average closing bid
price per shares for the five consecutive trading days immediately preceding the date that YP Holdings notifies the Company that
it wishes to convert some or all of its Series C preferred shares into common shares. The reset shall not be available if the
proceeds of the sale of converted common shares equals or exceeds $750,000. Should proceeds of the sale of converted common shares
equal or exceed $1,000,000, any unconverted Series C preferred shares shall be returned to the Company for retirement. Converted
common shares are subject to a leak-out agreement, and no more than 50,000 common shares may be sold by YP Holdings in any one
month.
Holders
of Series C preferred shares are entitled to receive a preferred return equal to 10% of the gross cash sales income received in
the ordinary course of business. Holders are not entitled to preemptive rights to purchase shares in future offerings of the Company.
Holders
of Series C preferred shares have the right to register their unregistered shares when either the Company or another investor
initiates a registration of the Company’s securities. Holders have the rights of co-sale, and are not required to sell all
of their Series C preferred shares on the same terms or conditions of a co-sale by a majority shareholder. If any Series C preferred
shareholder wishes to sell, transfer, or otherwise dispose of any or all of their Series C preferred shares, other Series C preferred
shareholders shall not have a prior right to buy such shares.
Series
D Preferred Stock
Series
D preferred shares have a par value of $0.0001, and are convertible into common shares at a conversion rate of $1.00 per common
share. Series D preferred shares rank senior to common shares and the Series B preferred shares. In the event of any liquidation,
dissolution, or winding up of the Company, holders of Series D preferred shares shall be entitled to receive a preferred return
equal to the purchase price paid for such Series D preferred shares after payment of the preferred returns relating to the Series
A and C preferred shares. Series D preferred shares are not entitled to voting rights.
Holders
of Series D preferred shares shall be entitled to receive a preferred return equal to 10% of the Gross Cash Sales Income received
in the ordinary course of business. Upon issue of the dividend, the value of such shares shall be deemed to be retired. Holders
of Series D preferred shares are not entitled to preemptive rights to purchase stock in future offerings of the Company. Holders
of Series D preferred shares have the right to register their unregistered stock when either the Company or another investor initiates
a registration of the Company’s securities. Holders of Series D preferred shares have the right of co-sale, but they are
not required to sell all of their Series D preferred shares on the same terms or conditions of a co-sale by a majority shareholder.
As
at February 28, 2016, Phoenix Bio Pharmaceuticals Corporation had been issued 2,000,000 Series B Preferred Shares. YP Holdings,
LLC had been issued 1,000,000 Series C Preferred Shares. but had converted 2,000 into common shares and therefore owned 998,000
Series C Preferred Shares.
On
March 4, 2016, YP Holdings, LLC converted 2,400 series C preferred stock to 2,400 shares of common stock.
As at November 30, 2016, Phoenix Bio Pharmaceuticals
Corporation held 2,000,000 Series B Preferred Shares. YP Holdings, LLC had been issued 1,000,000 Series C Preferred Shares. but
had converted 4,400 into common shares and therefore held 995,600 Series C Preferred Shares.
The Company has authorized 990,000,000 shares
of its common stock, $0.001 par value. On February 29, 2016 there were 25,845 shares of common stock on issue.
On March 4, 2016, YP Holdings, LLC converted
2,400 series C preferred stock to 2,400 shares of common stock.
On September 15, 2016, Typenex Co-Investment,
LLC exercised part of their warrant and were issued 2,822 shares of common stock.
As at November 30, 2016, there were 31,067
shares of common stock issued and outstanding.
As at November 30, 2016 and February 29, 2016
there were no common stock options on issue.
|
12.
|
Convertible Promissory Note
|
On June 24, 2014, the Company entered into
a securities purchase agreement with Typenex Co-Investment, LLC, a Utah limited liability company. Under this agreement, the Company
has issued a secured convertible promissory note in the original principal amount of $1,105,000, deliverable in eleven tranches
(the “Typenex Note”). On the closing date, Typenex delivered the initial cash purchase price of $150,000, plus any
interest, costs, fees or charges accrued under the Typenex Note, including the original issue discount of $20,000. The outstanding
principal and accrued and unpaid interest on the Typenex Note is convertible at any time into shares of common stock at a conversion
price of $1.00, subject to adjustment as described below (the “Lender Conversion Price”). As of June 24, 2014, the
Company evaluated the Beneficial Conversion Feature under this note and determined as of June 24, 2014, there was no beneficial
conversion feature as the Lender Conversion Price exceeded the fair market value of the Company’s common stock.
As of November 30, 2014, the company has received
net proceeds of $135,000 related to this convertible promissory note, representing $150,000 less financing costs of $15,000. During
the nine months ended November 30, 2014 the Company has recorded interest expense of $7,725, and amortization expense of $554,413
related to the amortization of the original issue discount and the full-value of the warrant discussed below ($552,500).
Each subsequent tranche will be in the amount
of $85,000, plus any interest, costs, fees or charges accrued thereon under the terms of the Typenex Note, including the original
issuer discount of $8,500. Each tranche will be accompanied by its own secured investor note (the “Investor Notes”).
The Company has agreed to pay $5,000 to cover Typenex’s legal fees, accounting costs, due diligence, monitoring and other
transaction costs in connection with the purchase and sale of the Typenex Note. All loans received bear an interest rate of 10%
per annum. The loan is due 23 months after the initial cash purchase price is delivered to the Company. Typenex has pledged a 40%
membership interest in Typenex Medical, LLC to secure its obligations under all of the Typenex Notes.
A warrant to purchase shares of the Company
has been issued to Typenex as of June 24, 2014. This warrant grants Typenex the ability to purchase a number of fully paid and
non-assessable shares of the Company’s stock, par value $0.001, equal to $552,500 divided by the market price. This warrant
is issued pursuant to the terms of the securities purchase agreement as described above.
Provided there is an outstanding balance,
the Company will pay an installment amount equal to $61,388.89 plus any accrued and unpaid interest on the installment due date,
which is six months after the initial loan disbursement. This installment amount is the maximum that must be paid on any given
installment due date, and is limited by the amounts owed. This amount can be converted at the lesser of either the lender conversion
price or at 70% of the average of the three lowest closing bid prices in the 20 trading days immediately preceding the applicable
conversion. Should the average trading price be less than $0.35 during any such period, then the conversion factor will be reduced
to 65% for all future conversion, additionally the conversion price will be reduced by 5% if the Company’s common stock is
not available for DWAC. Should the Company decide to prepay this amount, there is a prepayment premium equal to 125% of the outstanding
balance of the Typenex Note. Should the prepayment premium not be paid within 2 days of the prepayment notice, the Company forfeits
its right to prepay the Typenex Note.
Under this agreement, Typenex has the right
at any time after the purchase price date until the outstanding balance has been paid in full to convert any or all of the outstanding
balance into shares of the Company’s common stock under the following formula: the number of shares issued equals the amount
being converted divided by $1. These shares must be delivered to Typenex within three trading days of the conversion notice being
given to the Company. Should any shares be sold to Typenex or any third party at a value that is less than the effective lender
conversion price, then the lender conversion price will be reduced to equal such lower issuance price. The effective lender conversion
price will also be adjusted as needed upon any forward or reverse split of the Company’s shares. Should the Company fail
to deliver the shares in a timely manner, a late fee of the greater of $500 per day and 2% of the applicable lender conversion
share value rounded to the nearest multiple of $100 will be assed for each day after the third that the Company is late (though
not exceeding 200% of the applicable lender conversion share value.
In the event of a default, the Typenex Note
may be accelerated by Typenex by providing written notice to the Company. The outstanding balance is immediately due and payable
at the greater of the outstanding balance divided by the installment conversion price, or the default effect, which is calculated
by multiplying the conversion eligible outstanding balance by 15% for each major default or 5% for each minor default and then
adding the resulting product to the outstanding balance as of the date of default. In addition, an interest rate of the lesser
of 22% per annum (or the maximum rate permitted under law) will be applied to the outstanding balance. Typenex is prohibited from
owning more than 4.99% of the Company’s outstanding shares, unless the market capitalization of the Company’s common
stock is less than $10,000,000, in which case Typenex is prohibited from owning more than 9.99% of the Company’s outstanding
shares.
On a date that is 23 trading days from each
date that the Company delivers conversion shares to Typenex, there is a true-up date in which the Company will deliver additional
shares if the installment conversion price on that date is less than the installment conversion price used in the applicable installment
notice. These additional shares will be equal to the difference between the number of shares that would be delivered to Typenex
at the time of the true-up date and the amount originally delivered.
Notice of Default
– on January
9, 2015, the Company received a Notice of Default from Typenex under the Convertible Promissory Note described in Note 12 above.
In the letter, the noteholder described two major defaults where the Company failed to meet its obligations under the Typenex Note.
The first default was triggered on December 16, 2014 related to a request from the noteholder to increase the number of shares
reserved for issuance under the Typenex Note on the books of the Company’s transfer agent. The second default was triggered
on December 27, 2014, when the Company failed to make its first installment payment of $61,888.89 according to the terms of the
Typenex Note. Each default triggered a penalty of 115% of the then outstanding principal and accrued and unpaid interest and triggers
the interest rate to 22%. As of January 9, 2015, the outstanding principal, accrued interest and accrued penalties on the Typenex
Note was $239,483.61. On January 23, 2015, the Company satisfied its first default by instructing its transfer agent to reserve
a total of 50,925,000 shares of common stock covering the potential conversion of the original principal value of the Typenex Note
($1,100,000) plus common shares issuable upon the exercise of warrants underlying the Typenex Note. On February 12, 2015, the Company
received a notice from Typenex waiving the penalties on the December 16, 2014 default and waived $26,755.16 of penalties imposed
on December 16, 2014. Under the terms of the Typenex Note, the Lenders Conversion Price will reset to 60% of the average of the
three lowest closing bid prices of the Company’s common stock in the 20 days prior to conversion. As of December 16, 2014,
the Company has re-evaluated the beneficial conversion feature under the Typenex Note and has recorded a liability for the beneficial
conversion feature totaling $230,392. This discount will be amortized over the remaining life of the Typenex Note.
On February 3, 2015, the Company exercised
its borrower offset right under the Typenex Note. Through this offset right, the Company is entitled to deduct and offset any amount
owing by Typenex under the initial securities purchase agreement dated June 24, 2014 from any amount owed by the Company under
the note. The combined balance of the secured investor notes and the investor notes as of the January 28, 2015 offset date was
$890,800. In addition, the note balance prior to the offset included $85,000 of unearned original issue discounts.
In conjunction with the Company’s
exercise of its offset right, the Company and Typenex each hereby acknowledge that the secured investor notes and the investor
notes were offset against the Company balances owed under the note as of the offset date, and as a result thereof, each of the
secured investor notes and the investor notes is deemed to have been paid in full and are now cancelled and terminated and the
Company balance owed under the note has been reduced to $218,028.47 as of the offset date. Additionally, the Company specifically
acknowledges that Typenex has no further obligations under any of the secured investor notes and investor notes.
Further, the Company acknowledges that
the investor pledge agreement, dated June 24, 2014, and all security interests granted thereunder with respect to the collateral
(as defined in the investor pledge agreement) have terminated and all such security interests shall be deemed released.
Notice of Conversion
– Between
March 1, 2016 and November 30, 2016 the Company has received a conversion notices from its noteholder on the Typenex Note to convert
principal on the Typenex Warrant into shares of the Company’s Common Stock at a market price as defined by the Typenex Note.
The table below lists the conversion activity and the shares of common stock issued pursuant to each conversion:
Date of Notice
|
|
|
Principal
|
|
|
Market Price*
|
|
|
Conversion
Shares
|
|
|
True Up
Shares
|
|
|
Total Shares
Issued
|
|
September 15, 2016
|
|
|
|
5,870
|
|
|
|
|
|
|
|
2,822
|
|
|
|
—
|
|
|
|
2,822
|
|
|
13.
|
Securities Purchase Agreement
|
On September 17, 2014, the Company entered
into a securities purchase agreement with YP Holdings, LLC. YP Holdings, LLC has no material relationship with the Company other
than with respect to this agreement.
Under this agreement, the purchasers will
be purchasing units of one common share and two warrants to purchase common shares for $0.09 per unit, for a total of $600,000.
The common shares have a par value of $0.001 per share. The warrants are exercisable for five years from the date of issuance and
shall have an initial exercise price equal to $0.20. As a result of this agreement, the Company will issue 667 (6,666,667 pre-split)
common shares and 1,333 (13,333,334 pre-split) warrants to the purchasers. On August 29, 2014 and September 17, 2014, the Company
received gross proceeds of $100,000 and $500,000, respectively and has recorded financing fees of $18,000 and $52,000, related
to this agreement. The Company has valued these warrants using the Black Scholes option pricing model and has recorded expense
related to the issuance of these warrants totaling $552,500 during the year ended February 28, 2015.
The warrants can be exercised by paying the
price for shares as stipulated by the warrant, or through cashless exercise, through which the purchaser will be issued a number
of shares equal to the number of warrant shares applied to the subject exercise multiplied by the current market price on the date
of conversion minus the exercise price on that date. This total is then divided by the current market price on the date of conversion.
The cashless exercise may only be exercised after six months have passed from the original issuance of the warrants.
The purchaser has waived the clause prohibiting
conversion of warrants into common shares if that would result in the purchaser owning in excess of 4.99% of the outstanding shares.
A second clause prohibits the conversion of warrants if the purchaser owns in excess of 9.99% of the outstanding common shares.
This clause can be waived by the purchaser providing notice of waiver.
The Company has agreed to pay a flat $20,000
to YP Holdings, LLC to reimburse them for the fees and expenses incurred by it in connection with its due diligence review of the
Company and the preparation, negotiation, executive, delivery and performance of the agreement.
The two parties also entered into a registration
rights agreement. Under this agreement, the Company will prepare and file a registration statement on Form S-1 in order to register
all shares issued under the securities purchase agreement. The Company will keep the registration statement continuously effective
for a period of two years following the effective date of the registration statement. The Company will pay all reasonable fees
and expenses incurred with respect to this agreement. Unless previously agreed to in writing, the Company may not register any
shares other than those intended to be sold under this agreement.
Should the Company fail to comply with the
registration rights agreement, the Company agrees to pay liquidated damages to YP Holdings, LLC equal to 3% of the purchase price
of the common shares paid by the purchaser for the first 30 day period, and 2% of such purchase price for each subsequent 30 day
period. These payments are payable upon demand in cash.
Pursuant to the registration rights agreement,
the Company agreed to several lock-up agreements between itself and four shareholders of the Company: Phoenix Bio Pharmaceuticals
Corporation, Ronald Lusk, Lewis Humer, and Caduceus Industries LLC. Under these agreements, each shareholder has agreed that they
will not offer, pledge, sell, contract to sell, grant any options for sale or transfer, distribute or dispose of, directly or indirectly,
any shares of the Company for a 90 day period following the date that the registration statement is declared effective.
Additionally, on September 16, 2014, the Company
issued warrants to purchase 53 (533,333 pre-split) common shares to consultants for services rendered. The warrants expire five
years from the date of issuance and are exercisable for $0.20 per share. The Company has valued these warrants using the Black
Scholes option pricing model and has recorded expense related to the issuance of these warrants totaling $104,578 during the quarter
ended November 30, 2014.
Change of Name
: On March 8, 2017, the
Company filed an Amendment to its Articles of Incorporation (the “Amendment”) with the Secretary of State of Nevada.
As a result of the Amendment, the Company has changed its name with the State of Nevada from MediJane Holdings, Inc. to Stem Bioscience,
Inc.
Change of Name
: On May 31, 2018, the
Company filed an Amendment to its Articles of Incorporation (the “Amendment”) with the Secretary of State of Nevada.
As a result of the Amendment, the Company has changed its name with the State of Nevada from Stem Bioscience, Inc. to Phoenix Life
Science International Limited. On November 2, 2018 the symbol changed from MJMD to PLSI.
Merger
: Pursuant to the Agreement and
Plan of Merger, dated as of September 18, 2018 as (The “Merger Plan” by and between Phoenix Life Sciences International
Limited, a Nevada Corporation (the “Company”) and Phoenix Life Sciences International Limited, a Canadian Corporation
(“PLSI CA”), the Company completed its merger with PLSI CA, with the Company as the surviving entity.
Consolidation of Activities
: On September
18, 2018, the Company’s Board of Directors announced the finalized consolidation activities of Phoenix Life Sciences International
Limited with Stem Biosciences, Inc., Blue Dragon Ventures, and the MediJane Brand, and that the Company’s common stock would
trade publicly under the symbol MJMD, subsequently on November 2, 2018 this changed to PLSI.
Cancellation of Pref B Shares
: On September
21, 2018, the Company announced it had obtained consent from the holder, Phoenix Bio Pharmaceuticals Corporation for the cancellation
of 2,000,000 Preferred Series B shares in the Company in connection with the restructure of the Company and merger with Phoenix
Life Sciences International Limited, a Canadian Corporation.
Resignation of Director
: On September
22, 2018, the Company’s Board of Directors accepted the resignation of Russell Stone from his position as a Director.
Convertible Note retired
: On or about
June 24, 2014, the Company entered into a Convertible Promissory Note with a face value of $1,105,000 (the “Note”)
by and between the Company and Typenex Co-Investment, LLC (“Typenex”). On or about April 19, 2018, the Phoenix Life
Sciences International Ltd, a Canadian Corporation (“PLSI CA”) acquired the entirety of the Notes outstanding principal
and interest balance from Typenex. Upon the completion of the merger, that Note was conveyed to the Company.
Cancellation of Warrants
: On September
22, 2018, the Company’s Board of Directors resolved to deem the acquired Notes principal balance satisfied, and to terminate
the Note and any and all rights and obligations arising thereunder, including without limitation the cancellation of all Warrants
issued to Typenex under the Note.
Issuance of Common Stock
: On September
24, 2018, the Company issued 30,502,375 shares of common stock bearing the restricted legend without registration (the “Issued
Shares”). Of these, 29,802,375 shares were issued in reliance on Rule 802 under the Securities Act in a 1:1 share exchange
related to the merger of PLSI CA and the company as described above, and 700,000 shares were issued as compensation for services
rendered in reliance of Section 4(a)(2) of the Securities Act. All of the Issued Shares were issued in private transactions, and
the company received no proceeds from the Issued Shares.
Appointment of Directors
: On October
3, 2018, the following persons were appointed to the Board of the Company, Stephen Cornford, Martin Tindall as Chief Executive
Officer, Janelle Marsden as Managing Director and Geoffrey Boynton as Chief Financial Officer. Lewis “Spike” Humer
stepped down from his executive role but remains a Director.
Issuance of Stock for Services
: On
October 03, 2018, the Company agreed to issue 48,000 shares of restricted common stock to KHAOS Media Group as compensation for
services rendered in reliance of Section 4(a)(2) of the Securities Act for services previously rendered and invoiced between March
and December 2014.
Change of Symbol
: On November 2, 2018,
FINRA confirmed the name change and change of symbol to “PLSI”.
Retirement of Preferred Stock
: On November
9, 2018, the Company announced that 2,000,000 Series C Preferred Stock had been cancelled and all convertible debt had been retired.
There was no outstanding preferred stock on issue as at this day.
Issuance of Common Stock
: On December
4, 2018, the Company issued 229,600 common shares as part of settlement agreements.
Issuance of Common Stock
: On December
17, 2018, the Company issued 675,028 common shares which included 191,668 common shares as part of settlement agreements and 483,360
common shares issued as compensation for services rendered in reliance of Section 4(a)(2) of the Securities Act.
Issuance of Common Stock
: On January
11, 2019, the Company issued 500,600 common shares to YP Holding, LLC. as part of a settlement agreement.
Issuance of Common Stock
: On January
15, 2019 the Company issued 54,580 common shares which included 53,500 common shares as part of settlement agreements and 1,080
common shares issued as compensation for services rendered in reliance of Section 4(a)(2) of the Securities Act.
Appointment of a Director
: On February
20, 2019 the Board of the Company appointed Michael Gobel, who has long and distinguished career in corporate finance in Australia,
as a non-executive Director.
Issuance of Common Stock
: On February
26, 2019 the Company issued 315,928 common share which included 5,460 common shares as part of settlement agreements, 126,750 common
shares issued as compensation for services rendered in reliance of Section 4(a)(2) of the Securities Act and 183,718 for cash consideration.
Issuance of Common Stock
: On
April 2, 2019 the Company issued 151,216 common share for cash consideration.
Consolidation of Activities
: Phoenix
Life Sciences International Limited (Canada) and Phoenix Life Sciences International Limited (Nevada) commenced the consolidation
of business in 2018. During that time, affiliates of the Company provided certain working capital and covering of costs related
to the consolidation. Subsequently the Company has entered into subscription agreements with certain affiliates and key non-affiliate
investors to provide a total of approximately USD $2.1million of financing. Shares of common stock issued for this total financing
represent approximately 800,000. The key non-affiliate investor who had previously entered into a subscription agreement to purchase
USD $20 million of shares at $10 per share with Phoenix Life Sciences International Limited Canada has entered into an agreement
to exchange the subscription for warrants to purchase Company common stock at a price of $10, with the purchases to be completed
by December 31, 2019.
Consolidation of Activities
: Further,
as part of the merger and consolidation, Phoenix Life Sciences International Limited (Canada) and Phoenix Life Sciences International
Limited (Nevada) entered into settlement agreements with former investors, employees and contractors whereby their debt, shares
held in entities subject of the consolidation, or outstanding amounts were settled in exchange for a full release of claims and
the Company issuing approximately eight (8) million shares and the assumption of approximately $2 million of settlements payable.
The purpose of the consolidation, in addition to providing the deemed necessary relationships and contracts for the Company to
execute on its strategy, was to settle any potential claim or liability to ensure that the Company was not subject to any claims
by former investors, employees and contractors.
Item 2. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
Overview
The Company was incorporated in the State
of Nevada on April 21, 2009, under the name Mokita.
Exploration, Ltd. On February 5, 2010, the
Company filed a Certificate of Amendment to the Articles of Incorporation changing our name to Mokita, Inc. On February 27, 2014,
there was a change of control of the Company. On February 28, 2014, our board of directors and a majority of holders of the Company’s
voting securities approved a change of name of the Company to MediJane Holdings Inc. A Certificate of Amendment to effect the change
of name was filed and became effective with the Nevada Secretary of State on March 4, 2014. A Certificate of Correction was subsequently
filed with the Nevada Secretary of State on March 6, 2014 to correct a spelling error in the Company’s new name. These amendments
have been reviewed by FINRA and were approved for filing with an effective date of March 10, 2014. The name change became effective
with the Over-the-Counter Bulletin Board at the opening of trading on March 10, 2014 under our new ticker symbol “MJMD”.
On March 8, 2017, the Company filed an Amendment
to its Articles of Incorporation (the “Amendment”) with the Secretary of State of Nevada. As a result of the Amendment,
the Company has changed its name with the State of Nevada from MediJane Holdings, Inc. to Stem Bioscience, Inc.
Subsequently, on May 31, 2018, the Company
filed an Amendment to its Articles of Incorporation (the “Amendment”) with the Secretary of State of Nevada. As a result
of the Amendment, the Company has changed its name with the State of Nevada from Stem Bioscience, Inc. to Phoenix Life Science
International Limited. The name change became effective with the Over-the-Counter Bulletin Board on November 2, 2018 with the symbol
changing to “PLSI”.
After the change of control on February 27,
2014, the Company became a medical delivery systems company with a pharmaceutical approach to cannabinoid treatment of various
illnesses with medical cannabis.
Recent Developments
With the merger by and between Phoenix Life
Sciences International Limited, a Nevada Corporation (the “Company”) and Phoenix Life Sciences International Limited,
a Canadian Corporation (“PLSI CA”), whereby the Company completed its merger with PLSI CA on September 18, 2018, with
the Company as the surviving entity, the Company will continue to pursue a pharmaceutical approach to cannabinoid treatment of
various illnesses with medical cannabis.
On October 10, 2018, the Company announced
it had received approval from the Vanuatu Investment Promotion Authority (VIPA) to establish operations in the Republic of Vanuatu
and manufacture botanical pharmaceutical products.
Consolidated Results of Operations
The results of operations for the three and
nine months ended November 30, 2016 represent results of the business as a medical cannabis sales and distribution company.
Revenues for the three months ended November
30, 2016 and 2015 were $0. Revenues for the nine months ended November 30, 2016 and 2015 were $0 and $18,410. Revenues and related
expenses were primarily from sale of CBD products. Reduced financial resources impacted sales.
Cost of sales for the three months ended November
30, 2016 and 2015 were $0. Cost of Sales for the nine months ended November 30, 2016 and 2015 were $0 and $5,933 respectively.
Product development expense for the three
ended November 30, 2016 and 2015 were $0. Product development expenses for the nine months ended November 30, 2016 and 2015 were
$0 and $100,000 respectively. Product development expenses in the 2015 period represent payments to Phoenix Bio Pharm for the product
development of branded products of the Company.
Sales and marketing expenses for the three
months ended November 30, 2016 and 2015 were $0 and $200, respectively. Sales and marketing expenses for the nine months ended
November 30, 2016 and 2015 were $0 and $14,953, respectively. Sales and marketing expenses have been curtailed due to the lack
of funds.
Operations expenses for the three months ended
November 30, 2016 and 2015 were $0 and $1,304, respectively. Operations expenses for the nine months ended November 30, 2016 and
2015 were $0 and $3,049, respectively. The decrease in operating expenses during the 2016 period are due to reduced activities
due to limited funded.
General and administrative expenses for the
three months ended November 30, 2016 and 2015 were $527 and $1,147, respectively. General and administrative expenses for the nine
months ended November 30, 2016 and 2015 were $3,781 and $31,615. General and administrative expenses generally include costs for
running the Company’s administrative office. Costs have been pruned back this year.
Professional fees for the three months ended
November 30, 2016 and 2015 were $17,000 and $93,503, respectively. Professional fees for the nine months ended November 30, 2016
and 2015 were $17,330 and $311,220, respectively. Professional fees consist of cost of financing, legal, accounting, consulting
and advisory services. Reduced activity due to limited financial resources has curtailed employment of some professionals.
Lease operating expenses for the three months
ended November 30, 2016 and 2015 were $0. Lease operating expenses for the nine months ended November 30, 2016 and 2015 were $0
and $7,500, respectively.
Other income and expenses for the three months
ended November 30, 2016 and 2015 were net expense of $30,945 and $63,897, respectively. Other income and expense for the nine months
ended November 30, 2016 and 2015 were a net income of $18,587 and a net expense $107,386, respectively. The decrease in other income
and expenses in the 2016 periods from the 2015 periods are due to reduced non-cash expenses related to interest on notes.
Net loss for the three months ended November
30, 2016 and 2015 were $48,472 and $160,056, respectively. Net loss for the nine months ended November 30, 2016 and 2015 were $2,524
and $563,246, respectively. Reduced activity has cut the losses this year.
Liquidity and Capital Resources
At November 30, 2016, the Company had a cash
balance of $1,380 compared with $7,591 at February 28, 2016. The decrease in cash was cash used for operating expenses as described
above.
Cash flow from Operating Activities
.
During the nine months ended November 30, 2016, the Company used $19,811 in cash for operating activities for its current operations.
Cash flow from Investing Activities
.
During the nine months ended November 30, 2016, the Company received $13,600 for investing activities. Cash Flows from investing
activities in the period ended November 30, 2016 represents repayment of some of the Company’s loan with its affiliate Phoenix
Pharms Capital Corporation.
Cash flow from Financing Activities
.
During the nine months ended November 30, 2016, the Company received $0 from financing activities.
Going Concern
We have not attained profitable operations
and are dependent upon the commencement of the sale of our products and obtaining financing to increase the production and development
of our products. For these reasons, our auditors stated in their report on our audited financial statements that they have substantial
doubt that we will be able to continue as a going concern without further financing.
Future Financings
We will continue to rely on equity sales of
our common shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution
to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for
debt or other financing to fund planned acquisitions and exploration activities.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements
that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
Critical Accounting Policies
Our financial statements and accompanying
notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
periods.
We regularly evaluate the accounting policies
and estimates that we use to prepare our financial statements. A complete summary of these policies is included in the notes to
our financial statements. In general, management’s estimates are based on historical experience, on information from third
party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual
results could differ from those estimates made by management.
Use of Estimates. The preparation of financial
statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related
to the deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical
experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis
for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily
apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s
estimates. To the extent there are material differences between the estimates and the actual results, future results of operations
will be affected.
Stock-based Compensation. The Company records
stock-based compensation in accordance with ASC 718,
Compensation – Stock Based Compensation
and ASC 505-50 -
Equity-Based
Payments to Non-Employees
. All transactions in which goods or services are the consideration received for the issuance of equity
instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument
issued, whichever is more reliably measurable.
Revenue Recognition. The Company recognizes
revenue in accordance with SEC Staff Accounting Bulletin Topic 13 when persuasive evidence of an arrangement exists and delivery
has occurred, provided the fee is fixed or determinable and collection is probable. The Company assesses whether the fee is fixed
and determinable based on the payment terms associated with the transaction. If a fee is based upon a variable such as acceptance
by the customer, the Company accounts for the fee as not being fixed and determinable. In these cases, the Company defers revenue
and recognizes it when it becomes due and payable. Up-front engagement fees are recorded as deferred revenue and amortized to income
on a straight-line basis over the term of the agreement, although the fee is due and payable at the time the agreement is signed
or upon annual renewal. Payments related to substantive, performance-based milestones in an agreement are recognized as revenue
upon the achievement of the milestones as specified in the underlying agreement when they represent the culmination of the earnings
process.
The Company assesses the probability of collection
based on a number of factors, including past transaction history with the customer and the current financial condition of the customer.
If the Company determines that collection of a fee is not reasonably assured, revenue is deferred until the time collection becomes
reasonably assured. Significant management judgment and estimates must be made and used in connection with the revenue recognized
in any accounting period. Material differences may result in the amount and timing of our revenue for any period if our management
made different judgments or utilized different estimates.
Recent Accounting Pronouncements
The recent accounting pronouncements did not
have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are
any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results
of operations.
Contractual Obligations
As a “smaller reporting company”,
we are not required to provide tabular disclosure obligations.