The accompanying notes are
an integral part of these consolidated financial statements.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2016
(UNAUDITED)
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A.
Organization and General Description of Business
Cannabis
Science, Inc. (“We” or “the Company”), was incorporated under the laws of the State of Colorado,
on February 29, 1996, as Patriot Holdings, Inc. On August 26, 1999, the Company changed its name to National Healthcare
Technology, Inc. On June 6, 2007, the Company changed its name from National Healthcare Technology, Inc., to Brighton Oil &
Gas, Inc., and converted to a Nevada corporation. On March 25, 2008 the Company changed its name to Gulf Onshore, Inc.
On April 6, 2009, the Company changed its name to Cannabis Science, Inc., and obtained a new CUSIP number.
On
May 7, 2009 the Company common shares commenced trading under the new stock symbol OTCBB: CBIS.
Cannabis
Science, Inc. is at the forefront of medical marijuana research and development. The Company works with world authorities
on phytocannabinoid science targeting critical illnesses, and adheres to scientific methodologies to develop, produce, and commercialize
phytocannabinoid-based pharmaceutical products. In sum, we are dedicated to the creation of cannabis-based medicines, both
with and without psychoactive properties, to treat disease and the symptoms of disease, as well as for general health maintenance. The
Company formed two operating subsidiaries Cannabis Science BV and Cannabis Science International Holding BV in The Netherlands
on May 10
th
and May 6
th
, 2013, respectively, to pursue business opportunities in Europe and worldwide. There
are currently minimal operations in the subsidiaries. Agreements and business disclosures are in process.
On
November 15, 2013, the Company submitted a patent application N2010968 in Europe entitled "Composition for the Treatment
of Neurobehavioral Disorders." The subject of the patent is development of cannabinoid-based formulations to treat
a variety of neurobehavioral disorders, such as attention deficit hyperactivity disorder (ADHD), anxiety, and sleep disorders.
On
November 20, 2014, the Company signed an amendment to the license agreement with Apothecary Genetics Investments LLC. Pursuant
to the amendment, the Company was to acquire all property, building, and equipment of Apothecary. The Company signed a second
amendment on January 11, 2016 which superseded both License Agreement and November 20, 2014 Amendment by the issuance of additional
15,500,000 shares of Rule 144 restricted common stock for a property located in Northern California. The 14,500,000 shares of
Rule 144 restrict common stock, valued at $971,500 as deposit, issued in November of 2014 were for compensation of research and
development on the Northern California property. The Company wrote off the deposit as Research and Development expenses for the
period ended September 30, 2016. In the month of July 2016, Apothecary Genetics Investments, LLC breached the amended agreement
by refusing to transfer the Northern California property to the Company and demanded additional paymentfor the property. The Company
declined to pay additional funds for the property and put the project on hold.All the 15,500,000 Rule 144 restricted common shares
are held in escrow until further decision by the management of the Company.
B.
Basis of Presentation
These
consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted
in the United States, and are expressed in U.S. dollars. The Company’s fiscal year end is December 31.
Interim
Financial Reporting
While
the information presented in the accompanying interim consolidated financial statements is unaudited, it includes all adjustments,
which are in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows
for the interim periods presented in accordance with general accepted accounting principles in the United States of America (“GAAP”).
These interim financial statements follow the same accounting policies and methods of application as used in the December 31,
2015 audited financial statements of Cannabis Science, Inc. (the “Company”). All adjustments are of a normal, recurring
nature. Interim financial statements and the notes thereto do not contain all of the disclosures normally found in the year-end
audited financial statements and these Notes to Financial Statements are abbreviated and contain only certain disclosures related
to the nine month periods ended September 30, 2016 and 2015. It is suggested that these interim financial statements be read in
conjunction with the Company’s audited financial statements and related notes for the year ended December 31, 2015 included
in our Form 10-K filed with the SEC on file no. 000-28911 161631274 May 9, 2016. Operating results for the nine months ended September
30, 2016 are not necessarily indicative of the results that can be expected for the year ending December 31, 2016.
The
following subsidiaries and controlling interests are included with the consolidated financial statements of the Company for the
nine months ended September 30, 2016:
In
2012, the Company formed Cannabis Science Europe GmbH (“CSE”) to operate joint-venture operations with Dupetit Natural
Products Ltd. The JV asset was sold to Endocan Corporation (formerly X-Change Corporation) on December 12, 2012. No
operations had commenced at the time of sale of the JV asset. The Company has reignited the CSE by appointing Mr. Alfredo Dupetit
on September 19, 2015 as president and chief executive officer of CSE. As recent as January 7, 2016, the Federal Health Ministry
in Germany has presented “Cannabis as medicine”, a detailed draft bill that aims to modify the Drug Law and relax
the strict measures that regulate the consumption of medical cannabis and, above all, become the main vehicle for everything relating
to the plant and its medical users in the country. The Company has reinstated the development of cannabis products in February
2016 for medicinal uses in Germany.
On
May 6, 2013, the Company formed Cannabis Science International Holdings B.V. and on May 10, 2013, the Company formed Cannabis
Science B.V. for the purpose of wholly-owned operating subsidiaries for the Company’s European and world-wide operations.
The Company has commenced some operating activities with cultivation in Spain and product development in 2014. Mario
Lap, director of the Company and director and officer of Cannabis Science B.V. manages the day-to-day operations through his private
companies MLS BV, MJR BV and Cannabis Agency BV, all are Netherlands registered companies.
On
August 6, 2014, the Company signed a proposal letter with Michigan Green Technologies, LLC (“MGT”) to acquire an additional
30.1% equity in MGT and completed the transaction with the principals of MGT under the proposal letter on February 20, 2015 to
effectively increase the Company’s equity ownership to 50.1%. As consideration for acquiring the additional 30.1%
equity, the Company issued 1,200,000 shares of common stock with a fair market value of $60,000 to the principals and shareholders
of MGT.
On
May 6, 2015 the Company announced the Assets acquisition of Equi-Pharm LLC, a USA manufacturer and distributor of specialty horse
and pet grooming and topical applications. The acquisition incorporates an extensive expansion plan for Equi-Pharm including "Large
Animal" such as horses, cattle, sheep and the like and "Small Animal" or "Pets" include cats, dogs, pet
snakes and the like for medical and cosmetic products. As consideration for acquiring the Assets, which consist of Inventory,
Trademark and brand names, and goodwill, the Company issued ten million (10,000,000) shares to the shareholders of Equi-Pharm
and they agreed to change its company name. The acquisition was completed on November 16, 2015 and the Company has formed a new
wholly owned subsidiary called Equi-Pharm LLC. in the state of Tennessee and started the operation of distributing of existing
and new line of products.
For
other accounting policies please refer to the Company’s Form 10-K with the SEC on file no. 000-28911 161631274 May 9, 2016.
The
Company qualifies as an “emerging growth company” as defined in Section 101 of the Jumpstart our Business Startups
Act (“JOBS Act”) as we do not have more than $1,000,000,000 in annual gross revenue and did not have such amount as
of December 31, 2015, our last fiscal year. We are electing to use the extended transition period for complying with new or revised
accounting standards under Section 102(b)(1) of the JOBS Act.
2.
GOING CONCERN
The
accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles,
which contemplate the continuation of the Company as a going concern. The Company reported an accumulated deficit of $139,971,991and
had a stockholders’ deficit of $4,344,643 as of September 30, 2016.
In
view of the matters described, there is substantial doubt as to the Company's ability to continue as a going concern without a
significant infusion of capital. At September 30, 2016, the Company had insufficient operating revenues and cash flow to
meet its financial obligations. There can be no assurance that management will be successful in implementing its plans.
The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
We
anticipate that we will have to raise additional capital to fund operations over the next 12 months. To the extent that
we are required to raise additional funds to acquire research and growing facilities, and to cover costs of operations, we intend
to do so through additional public or private offerings of debt or equity securities. There are no commitment or arrangements
for other offerings in place, no guaranties that any such financings would be forthcoming, or as to the terms of
any such financings.
Any
future financing may involve substantial dilution to existing investors. We had been relying on our common stock to pay
third parties for services which has resulted in substantial dilution to existing investors.
3.
FAIR VALUE MEASUREMENTS AND DISCLOSURES
ASC
Topic 820,
Fair Value Measurement
, establishes a framework for measuring fair value. That framework provides a fair value
hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority
to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority
to unobservable inputs (Level 3 measurements).
4.
RELATED PARTY TRANSACTIONS
At
September 30, 2016, a total of $59,200 (December 31, 2015: $816,945) in Accrued Management Fees Payable was due to the Company’s
CEO/Director, Raymond C. Dabney. On August 10, 2016, a total of $975,407 in Management Fees Payable accumulated from February
2012 to June 30, 2016 was converted into a Promissory Note to Raymond C. Dabney, CEO/Director of the Company. The Company has
partially reduced $250,000 as result of a Debt Settlement Agreement dated August 10, 2016 by issuance of 250,000,000 Rule 144
restricted common stock at $0.001 a share with a loss on settlement of debt in the amount of $3,550,000. The balance of the Promissory
Note as of September 30, 2016 was $725,407 (December 31, 2015: $0).
At
September 30, 2016, a total of $90,000 (December 31, 2015: Prepaid $45,000) in Accrued Management Fees Payable was due to the
Company’s former COO/Director, Chad Johnson.
At
September 30, 2016, a total of $75,000 (December 31, 2015: $52,500) in Accrued Management Fees Payable was due to the Company’s
Director, Mario Lap.
At
September 30, 2016, a total of $60,000 (December 31, 2015: Prepaid $45,000) in Accrued Management Fees Payable was due to the
Company’s COO/Director, Robert Kane.
At
September 30, 2016, a total of $52,500 (December 31, 2015: $52,500) in loans payable was due to the Company’s CFO, Robert
Kane, through his company, R Kane Holding Inc., secured by a non-interest bearing promissory note due within 30 days of Michigan
Green Technologies (50.1% controlled by the Company) liquidating shares in Cannabis Science, Inc. to repay the debt.
At
September 30, 2016, the Company owes $11,871 (December 31, 2015: $0) to Crown Baus Capital Corp., which advanced a total of $11,871
for payment of the Company’s expenses in July, August and September of 2015 with no interest and no security. Crown Baus
Capital Corp. is a company controlled by Raymond C. Dabney.
As
of September 30, 2016, the Company owes $101,882 (December 31, 2015: $61,902) in loan payable to a stockholder, Interstate 101
that is non-interest bearing and due on demand with no security. The loan originated between April 1, 2015 and August 19, 2016
for various expenses of the Company.
At
September 30, 2016, the Company owes $3,165 (December 31, 2015: $3,165) in loan payable toCastor Management Services, a shareholder
of the Company, with no interest and no security and is due on demand. The loan originated on August 14, 2015 for expenses of
the Company.
At
September 30, 2016, a total of $191,344 (December 31, 2015: $191,344) in loans payable was due to Bogat Family Trust, Raymond
Dabney the Company’s Director and President/CEO as trustee.
At
September 30, 2016, $86,964 (December 31, 2015: $66,847) was due to MJR BV, owned by Mario Lap director and director and officer
of EU subsidiaries.
At
September 30, 2016, $447 (December 31, 2015: $447) was due to Robert Melamede, former CEO.
At
September 30, 2016, the Company held 7,500,000 common shares in the OmniCanna Health Solutions, Inc. (prior to April 24, 2014,
the name was Endocan Corporation) (OTCBB: ENDO) (“OmniCanna”) representing approximately 2.89% of the issued and outstanding
shares of OmniCanna, of which 5,000,000 common shares were acquired at a fair market value of $150,000 or $0.03 per share on December
12, 2012 and 2,500,000 common shares were acquired at a fair market value of $262,250 or $0.1049 per share on February 8, 2013.
The 5,000,000 common shares were received as consideration for the sale of its rights and interest in the Dupetit Natural
Products GmbH joint-venture operating agreement to OmniCanna under an Asset Purchase Agreement and the 2,500,000 common shares
were received as consideration for the sale of its rights and interest in the Maliseet joint-venture operating agreement to OmniCanna
under an Asset Purchase Agreement. The value of the shares at September 30, 2016was determined to be $0.0089per share or
$66,750 with the Company not recording any unrealized gainunder the Equity Investee rules for the nine months ended September
30, 2016and the value of the shares at December 31, 2015 was determined to be $0.0058 per share or $43,500.
On
November 5, 2014, the Company transitioned to equity method investee account for the OmniCanna shares pursuant to ASC 323 recording
$247,500 as the fair value of the shares to its equity method investee account. On December 31, 2015, the Company recorded
an impairment on the equity method investee account of $114,000 in relation to the shares. Robert Kane, CFO and director
of the Company is also the CFO and a director of OmniCanna. Chad S. Johnson, Esq., COO, general counsel and a director is also
a director and general counsel for Omni. Raymond Dabney, CEO is the controlling shareholder of OmniCanna Health Solutions,
Inc.
For
the Nine months ended September 30, 2016, the following related party stock-based compensation was recorded:
Related Party
|
|
Position
|
|
Amount
|
Raymond Dabney
1
|
|
CEO, President and Director
|
|
$
|
193,842
|
|
Dr. Allen Herman
|
|
Chief Medical Officer
|
|
|
25,500
|
|
Dr. Roscoe M. Moore, Jr
|
|
Chair of Scientific Advisory Board
|
|
|
302,000
|
|
Robert Kane
|
|
Director, COO from Sept. 14, 2016; CFO to Sept. 14, 2016
|
|
|
245,380
|
|
Chad S. Johnson, Esq.
1
|
|
Former COO, General Counsel and Director to Sept. 14, 2016
|
|
|
215,380
|
|
Mario Lap
1
|
|
Director
|
|
|
215,380
|
|
Benjamin Tam
|
|
CFO, Secretary and Director from Sept. 14, 2016
|
|
|
113,000
|
|
Alfredo Bernardi Dupetit
|
|
President & CEO of Cannabis Science Europe GmbH
|
|
|
51,000
|
|
|
|
|
|
$
|
1,361,482
|
|
1
Including compensation to entities beneficially owned/control by the related parties
Raymond
Dabney, CEO and Director is a controlling shareholder of the Company and Chad S. Johnson, former COO/General Legal Counsel/Director
of the Company till September 14, 2016 and COO/General Legal Counsel/Director of ImmunoClin Corporation (OTC: IMCL), respectively.
ImmunoClin performs laboratory services, research and pharmaceutical development for the Company through its wholly-owned
subsidiary ImmunoClin Limited that operates a laboratory at the London Biosciences Centre.
See
Note 6 -Equity Transactions for details of stock issuances to director and officers for services rendered.
Mario
Lap, a director of the Company and director and officer of its European subsidiaries, is conducting various business activities
of the Company in Spain under his personal name and/or his personal holding companies MJR BV, MLS Lap BV and Cannabis Agency BV
until such time as the Company is able to establish a Spanish subsidiary to conduct its own business operations and activities,
including but not limited to: operating lease for farms, asset purchases, office and equipment, personnel employment and other
business and operating activities as may be required from time-to-time. The Company anticipates having the Spanish subsidiary
setup soon at which time Mario Lap under fiduciary duty will transfer all business operating activities, agreements, and assets
to the Company.
Alfredo
Dupetit-Bernardi, International Product Development and President & CEO of Cannabis Science Europe GmbH, is conducting product
development through the purchase of cannabis products from his personal company, Dupetit Natural Products GmbH.
Notes
payable to Embella Holdings Ltd. totaled $1,108,896 and $1,108,896 at September 30, 2016 and December 31, 2015, respectively.
As of September 30, 2016, the Company is in default on the promissory notes due and is negotiating with the debtor to extend
the date. See Note 5.
Notes
payable to Intrinsic Capital Corp. totaled $231,260 and $231,260 at September 30, 2016 and December 31, 2015, respectively. See
Note 5.
Between
January 1, 2015 to March 7, 2015, R. Kane Holding Inc., a company owned by Mr. Robert Kane, director and CFO, had advanced $52,500
into Michigan Green Technologies, LLC, which is 50.1% controlled by the Company as Loan Payable to R. Kane Holding Inc.
On
July 25, 2014, Bogat Family Trust, Raymond Dabney trustee, representing a majority of Series A preferred stockholders, signed
a resolution to approve an amendment to the certificate of designation preferences and rights for Series A preferred shares. Pursuant
to the amendment filed with the Nevada Secretary of State, the voting rights of Series A preferred stockholders was changed from
1,000 votes per share to 67% of the total vote on all shareholder matters. No common stockholders voted on this amendment.
5. NOTES PAYABLE
As
of September 30, 2016, a total of $2,065,563 (December 31, 2015: $1,406,513) of notes payable are due to stockholders that are
non-interest bearing and are due 12 months from the date of issue and loan origination beginning on January 31, 2012 through June
30, 2016. $1,340,156 of the Promissory notes were in default on September 30, 2016. All promissory notes are unsecured.
Notes
payable to Embella Holdings Ltd. totaled $1,108,896 and $1,108,896 at September 30, 2016 and December 31, 2015, respectively.
As of September 30, 2016, the Company is in default on the promissory notes due and is negotiating with the debtor to extend
the date.
Notes
payable to Intrinsic Capital Corp. totaled $231,260 and $231,260 at September 30, 2016 and December 31, 2015, respectively. As
of September 30, 2016, the Company is in default on the promissory notes due and is negotiating with the debtor to extend the
date.
On
August 10, 2016, a total of $975,407 in Management Fees Payable accumulated from February 2012 to June 30, 2016 was converted
into a Promissory Note to Raymond C. Dabney, CEO/Director of the Company. The Company has partially reduced $250,000 as result
of a Debt Settlement Agreement dated August 10, 2016 by issuance of 250,000,000 Rule 144 restricted common stock at $0.001 a share
with a loss on settlement of debt in the amount of $3,550,000. The balance of the Promissory Note as of September 30, 2016 was
$725,407 (December 31, 2015: $0).
As
of February 7, 2016, the Company has settled the balance of $45,855 promissory note owed to Stacey R. Lewis since March 21,
2015 and issued 45,000,000 shares of common stock pursuant to a debt settlement agreement with a fair market value of
$634,500.
6.
EQUITY TRANSACTIONS
The
Company is authorized to issue 3,000,000,000 shares of common stock with a par value of $0.001 per share. These shares have
full voting rights. There were 2,327,855,296 and 1,581,855,296 issued and outstanding as of September 30, 2016 and December
31, 2015, respectively.
The
Company is also authorized to issue 100,000,000 shares of common stock, Class A with a par value of $0.001 per share. These
shares have 10 votes per share. There were 0 issued and outstanding as of September 30, 2016 and December 31, 2015.
The
Company is also authorized to issue 1,000,000 shares of preferred stock. These shares have full voting rights of 67% on
all shareholder matters pursuant to amended certificate of designation filed with the Nevada Secretary of State. There were
1,000,000 issued and outstanding as of September 30, 2016 and December 31, 2015.
As
set out below, we have issued securities in exchange for services, properties and for debt, using exemptions available under the
Securities Act of 1933.
During
the nine months ended September 30, 2016, the Company issued 153,000,000 common stock for services under various executive and
consulting agreements as follows:
On
February 1, 2016, the Company entered a management agreement with a consulting firm and agreed to issue 15,000,000 shares of R144
restricted common stock with a fair market value of $180,000 for investor relation services. The shares were issued on April 7,
2016.
On
March 8, 2016, the Company issued 18,000,000 shares R144 restricted common stock to Raymond Dabney, CEO of the Company with a
fair market value of $193,842 for bonus under November 5, 2014 management agreement.
On
March 8, 2016, the Company issued 20,000,000 shares R144 restricted common stock to MLS Lap BV, a company controlled a director
of the Company with a fair market value of $215,380 for bonus under June 24, 2013 management agreement.
On
March 8, 2016, the Company issued 20,000,000 shares R144 restricted common stock to Chad Johnson, former COO/General Council till
September 14, 2016 with a fair market value of $215,380 for bonus and services under November 25, 2014 agreement.
On
March 8, 2016, the Company issued 20,000,000 shares R144 restricted common stock to Robert Kane, COO/director of the Company with
a fair market value of $215,380 for bonus and services under January 20, 2015 agreement.
On
March 22, 2016, the Company issued 10,000,000 shares of S-8 registered free-trading common stock under Scientific Advisory Board
Agreement of the 2016 Equity Plan with a fair market value of $151,000.
On
May 16, 2016, the Company issued 5,000,000 shares R144 restricted common stock and 2,500,000 shares of S-8 registered free-trading
common stock under an Application Development and Consulting Management Agreement of the 2015 Equity Award Plan with a fair market
value of $86,250.
On
May 16, 2016, the Company issued 10,000,000 shares R144 restricted common stock under an International Government Affairs Board
Member Agreement with a fair market value of $151,000.
On
July 26, 2016, the Company issued 7,500,000 shares of S-8 registered free-trading common stock to a consultant with a fair market
value of $90,000 for bonus and services under October 21, 2015 agreement.
On
July 26, 2016, the Company issued 5,000,000 shares of S-8 registered free-trading common stock to a consultant with a fair market
value of $60,000 for bonus and services under March 16, 2015 agreement.
On
July 26, 2016, the Company issued 5,000,000 shares of S-8 registered free-trading common stock to a consultant with a fair market
value of $60,000 for bonus and services under September 18, 2015 agreement.
On
July 26, 2016, the Company issued 5,000,000 shares of S-8 registered free-trading common stock to a consultant with a fair market
value of $60,000 for bonus and services under July 6, 2016 International Property Development Consulting Agreement.
On
July 26, 2016, the Company issued 2,500,000 shares of S-8 registered free-trading common stock to Robert Kane, COO/director of
the Company with a fair market value of $30,000 for Management Fees under January 20, 2015Executive Management Agreement.
On
August 3, 2016, the Company issued 2,500,000 shares of S-8 registered free-trading common stock to a consultant with a fair market
value of $38,500 for services under August 3, 2016 Consulting Agreement.
On
September 14, 2016, the Company issued 5,000,000 shares of R144 restricted common stock to Benjamin Tam, CFO/Secretary/Director
of the Company with a fair market value of $70,000 for services under September 14, 2016 Executive Management Agreement.
During
the nine months ended September 30, 2016, the Company issued stock pursuant to debt settlement agreements as follows:
On
February 7, 2016, the Company entered into a partial debt settlement agreement with Stacey R. Lewis to retire $45,855 of the $75,044
in promissory notes originated on March 21, 2015 and issued 45,000,000 shares of common stock to partially settle the debt for
a loss on settlement of $588,645.
The
aforementioned shares for the settlement of debts were issued without legend under an exemption under Rule 144(b)(1) of the Act.
Over nine months has passed since the debts accrued on the books of the Company; the Seller is not now, and during the three-month
period preceding the transaction has not been considered an “affiliate” of the Company. Furthermore, pursuant
to Rule 144(d)(1)(i) the Company is, and has been for a period of at least 90 days immediately before the proposed sale, subject
to the reporting requirements of section 13 or 15(d) of the Securities and Exchange Act of 1934, and the proposed resale of the
Shares in addition to the Company not being considered a shell company under Rule 144(i)(1). All relating shares were issued to
settle the debts.
On
August 10, 2016, the Company entered into a partial debt settlement agreement with Raymond C. Dabney, President/CEO/Director of
the Company, to retire $250,000 of the $975,407 in promissory notes originated on August 9, 2016 as result of unpaid management
fees and bonuses from February 9, 2012 to June 30, 2016 with no interest, and issued 250,000,000 Rule 144 restricted common shares
of the Company at a deemed price of $0.001 per share as partial payment of the promissory note to settle the debt for a loss on
settlement of $3,550,000.
During
the nine months ended September 30, 2016, the Company issued stock pursuant to amendment to a property license agreement as follow:
On
January 11, 2016, the Company issued 15,500,000 shares of R144 restricted common stock to Apothecary Genetics Investments with
a fair market value of $181,350 for amendment to a property license agreement on February 9, 2012.
During
the nine months ended September 30, 2016, the Company issued 7,500,000 common stock for legal retainer services under consulting
agreement as follows:
On
August 3, 2016, the Company issued 7,500,000 shares of S-8 registered free-trading common stock to a legal advisor as retainer
with a fair market value of $90,000 for legal services under July 22, 2016 Consulting Agreement.
Stock
Options
:
The
following options were issued to the Company’s V.P of investor relations, CFO and Director for services under a September
16, 2011 agreement:
|
(i)
|
the
option to purchase 100,000 common shares at ten cents ($0.10) per share;
|
|
(ii)
|
the
option to purchase 100,000 common shares at twenty cents ($0.20) per share;
|
|
(iii)
|
the
option to purchase 500,000 common shares at thirty-five cents ($0.35) per share; and
|
|
(iv)
|
the
option to purchase 1,000,000 common shares at fifty cents ($0.50) per share.
|
On
February 22, 2016, the Company issued 7,000,000 shares S-8 registered free-trading common stock exercised under Option Agreement
of the 2015 Equity Award Plan with exercise price at $0.01 and a fair market value of $86,100 to a consultant under management
agreement for a total Stock Option of 25,000,000 common shares with fair market value of $307,500.
On
February 22, 2016, the Company issued 6,500,000 shares S-8 registered free-trading common stock exercised under Option Agreement
of 2015 Equity Award Plan with exercise price at $0.01 and a fair market value of $79,950 to a consultant under management agreement
for a total Stock Option of 25,000,000 common shares with fair market value of $307,500.
On
February 29, 2016, the Company issued 25,000,000 shares S-8 registered free--trading common stock under Option Agreement of 2016
Equity Award Plan with exercise price at $0.01 and a fair market value of $300,000 to a consultant under management agreement.
On
March 22, 2016, the Company issued 15,000,000 shares of S-8 registered free-trading common stock under Option Agreement of 2015
Equity Plan with exercise price at $0.01 and a fair market value of $226,500 to a consultant under management agreement.
On
March 22, 2016, the Company issued 5,000,000 shares of S-8 registered free-trading common stock under Option Agreement of 2016
Equity Plan with exercise price at $0.01 and a fair market value of $75,500 to a consultant under management agreement.
On
March 22, 2016, the Company issued 10,000,000 shares of S-8 registered free-trading common stock under Option Agreement of 2016
Equity Plan with exercise price at $0.01 and a fair market value of $151,000 to a consultant under management agreement.
On
March 22, 2016, the Company issued 15,000,000 shares of S-8 registered free-trading common stock under Option Agreement of 2016
Equity Plan with exercise price at $0.01 and a fair market value of $226,500 to a consultant under management agreement.
On
March 22, 2016, the Company issued 10,000,000 shares of S-8 registered free-trading common stock under Scientific Advisory Board
Agreement of the 2016 Equity Plan with a fair market value of $151,000.
On
March 22, 2016, the Company issued 5,000,000 shares of S-8 registered free-trading common stock under Option Agreement of 2016
Equity Award Plan with exercise price at $0.01 and a fair market value of $75,500.
On
May 10, 2016, the Company issued 18,000,000 shares of S-8 registered free-trading common stock for balance of shares exercised
under an Option Agreement dated February 22, 2016 under 2016 Equity Award Plan with exercise price at $0.01 and a fair market
value of $221,400 to a consultant under management agreement for a total Stock Option of 25,000,000 common shares with fair market
value of $307,500.
On
May 10, 2016, the Company issued 18,500,000 shares of S-8 registered free-trading common stock for balance of shares exercised
under an Option Agreement dated February 22, 2016 under 2016 Equity Award Plan with exercise price at $0.01 and a fair market
value of $227,550 to a consultant under management agreement for a total Stock Option of 25,000,000 common shares with fair market
value of $307,500.
On
May 16, 2016, the Company issued 5,000,000 shares of S-8 registered free-trading common stock under Option Agreement of 2016 Equity
Award Plan with exercise price at $0.01 and a fair market value of $75,500 to a consultant under management agreement.
On
May 16, 2016, the Company issued 10,000,00 shares of S-8 registered free-trading common stock under Option Agreement of 2016 Equity
Award Plan with exercise price at $0.01 and a fair market value of $151,000 to Alfredo Bernardi Dupetit, President & CEO of
Cannabis Science Europe GmbH.
On
May 16, 2016, the Company issued 15,000,000 shares of S-8 registered free-trading common stock under Option Agreement of 2016
Equity Award Plan with exercise price at $0.01 and a fair market value of $264,000 to a consultant under management agreement.
On
May 16, 2016, the Company issued 10,000,000 shares of S-8 registered free-trading common stock under Option Agreement of 2016
Equity Award Plan with exercise price at $0.01 and a fair market value of $176,000 to a consultant under management agreement.
On
July 26, 2016, the Company issued 5,000,000 shares of S-8 registered free-trading common stock under Option Agreement of 2016
Equity Award Plan with exercise price at $0.01 and a fair market value of $76,500 to a consultant under July 4, 2016 management
agreement.
On
September 27, 2016, the Company entered an Option Agreement with Benjamin Tam, CFO/Secretary/Director of the Company under 2016
Equity Award Plan B at exercise price of $0.01 to issue 10,000,000 shares of S-8 registered free-trading common stock with a fair
market value of $143,000. The shares were exercised on September 27, 2016 and issued on October 7, 2016.
On
September 27, 2016, the Company entered an Option Agreement with a consultant under 2016 Equity Award Plan B at exercise price
of $0.01 to issue 15,000,000 shares of S-8 registered free-trading common stock with a fair market value of $214,500. The shares
were exercised on September 27, 2016 and issued on October 7, 2016.
On
September 27, 2016, the Company entered an Option Agreement with a consultant under 2016 Equity Award Plan B at exercise price
of $0.01 to issue 10,000,000 shares of S-8 registered free-trading common stock with a fair market value of $143,000. The shares
were exercised on September 27, 2016 and issued on October 7, 2016.
On
September 27, 2016, the Company entered an Option Agreement with a consultant under 2016 Equity Award Plan B at exercise price
of $0.01 to issue 15,000,000 shares of S-8 registered free-trading common stock with a fair market value of $214,500. The shares
were exercised on September 27, 2016 and issued on October 7, 2016.
On
September 27, 2016, the Company entered an Option Agreement with a consultant under 2016 Equity Award Plan B at exercise price
of $0.01 to issue 10,000,000 shares of S-8 registered free-trading common stock with a fair market value of $143,000. The shares
were exercised on September 27, 2016 and issued on October 7, 2016.
On
September 27, 2016, the Company entered an Option Agreement with a consultant under 2016 Equity Award Plan B at exercise price
of $0.01 to issue 10,000,000 shares of S-8 registered free-trading common stock with a fair market value of $143,000. The shares
were exercised on September 27, 2016 and issued on October 7, 2016.
On
September 27, 2016, the Company entered an Option Agreement with a consultant under 2016 Equity Award Plan B at exercise price
of $0.01 to issue 10,000,000 shares of S-8 registered free-trading common stock with a fair market value of $143,000. The shares
were exercised on September 27, 2016 and issued on October 7, 2016.
On
September 27, 2016, the Company entered an Option Agreement with a consultant for International Property Development under 2016
Equity Award Plan B at exercise price of $0.01 to issue 10,000,000 shares of S-8 registered free-trading common stock with a fair
market value of $143,000. The shares were exercised on September 27, 2016 and issued on October 25, 2016.
On
September 27, 2016, the Company entered an Option Agreement with a consultant for International Government Affairs under 2016
Equity Award Plan B at exercise price of $0.01 to issue 5,000,000 shares of S-8 registered free-trading common stock with a fair
market value of $71,500. The shares were exercised on September 27, 2016 and have not been issued.
A
summary of the status of the Company’s option grants as of September 30, 2016 and the changes during the period then ended
is presented below:
|
|
Shares
|
|
Weighted-Average
Exercise Price
|
Outstanding December 31, 2015
|
|
|
|
4,200,000
|
|
|
$
|
0.195
|
|
Granted
|
|
|
|
275,000,000
|
|
|
$
|
0.010
|
|
Exercised
|
|
|
|
275,000,000
|
|
|
$
|
0.010
|
|
Expired
|
|
|
|
2,500,000
|
|
|
$
|
0.040
|
|
Outstanding September 30, 2016
|
|
|
|
1,700,000
|
|
|
$
|
0.41
|
|
Options exercisable at September 30, 2016
|
|
|
|
1,700,000
|
|
|
$
|
0.41
|
|
1,700,00
shares of these options at an exercise price of $0.415 a share, do not expire and continuing indefinitely for the duration of
existing management agreement and services thereunder with Robert Kane. The weighted average fair value at date of grant for options
during year ended September 30, 2016 was estimated using the Black-Scholes option valuation model with the following:
Average expected life in years for options with no expiry
|
|
unlimited Years
|
Average risk-free interest rate
|
|
|
2.00
|
%
|
Average volatility
|
|
|
90
|
%
|
Dividend yield
|
|
|
0
|
%
|
7.
PROPERTY FARMING LICENSE
On
March 24, 2016, the Company entered a 15 years Joint Venture License Agreement with the Ft. McDermitt Allotment land Allotees,
which is on the Ft. McDermitt Tribal Reservation, Raymond C. Dabney University, American Education Consulting Group and Cannabis
Science, Inc. for a total of ten (10), one (1) acre parcels of land. The project is designed to benefit both the Ft. McDermitt
Tribe and Members, and Allotment Allottees. Cannabis Science made two initial payments of $50,000 for licensing and initial
development of two one (1) acre parcels of land located in Fort McDermitt Tribal Reservation in the State of Nevada, USA.
Each one (1) acre parcel of land is specifically designated for placement no more than twelve (12) three (3,000) square foot greenhouses
for the production of Cannabis and all Cannabis related products. All harvested products are to be delivered and sold to
qualified licensed distribution centers. The Company is to share 40% of the Adjusted Gross Income after deduction of related
operating expenses and cost to build the green houses.
8.
DEPOSITS
On
February 9, 2012, the Company signed a license agreement with Apothecary to produce several Cannabis Science Brand Formulations
for the California medical cannabis market. As well, Apothecary will provide research and development facilities with full circle
operations including a California laboratory facility for internal research and development, along with 16 unique genetic strains
specifically generated and maintained by a cancer survivor who recognizes the importance of proper growth and breeding in addition
to investing $250,000 in research and development in the first 24 months. Apothecary failed to meet several contract provisions
including investing $250,000 in R&D, setting up a laboratory facility, and reporting and remitting license fees owing to the
Company. On November 20, 2014, the Company signed an amendment to the license agreement. Pursuant to the amendment,
the Company was to acquire all property, building, and equipment of Apothecary in exchange for 14,500,000 Rule 144 restricted
stock with a fair market value of $971,500 which was spent mostly in research and development for cannabis growth on the Northern
California property. The Company wrote off the deposit as Loss on investment for the period ended September 30, 2016.
On
January 11 2016, the Company signed a second amendment to the license agreement and issued 15,500,000 shares of Rule 144 restricted
stock, held in escrow by the Company’s attorney, with a fair market value of $181,350, until the title has been transferred
to the company. Pursuant to the second amendment the Company waives prior Royalties owed under any Section of any previous Agreements,
and Apothecary shall make business introductions in Jamaica for the Company to work with government licensed growers, laboratories,
doctors, and any other mutually agreeable business introductions. Apothecary will immediately sign and transfer ownership of the
Northern California Property to the Company and repay and discharge a lien on the property within 12 months signing the second
amendment.
The
Company recorded an equivalent deposit of $181,350 for the ninemonths ended September 30, 2016 until the acquisition of assets
closes, which was anticipated in July of 2016. In the month of July 2016, Apothecary Genetics Investments, LLC breached the amended
agreement by refusing to transfer the Northern California property to the Company and demanded additional payment for the property.
The Company declined to pay additional funds for the property and put the project on hold. All the 15,500,000 Rule 144 restricted
common shares are held in escrow until further decision by the management of the Company.
9.
EQUITY METHOD INVESTEE
On
November 5, 2014, the Company accounted for its investment and loans in OmniCanna Health Solutions, Inc. (formerly Endocan Corporation)
using the equity method pursuant to ASC 323 – Investments – Equity Method and Joint Ventures. In accordance
with ASC 323, when the Company does not have a controlling financial interest in an entity but exerts significant influence over
the entity’s operating and financial policies, the Company accounts for its investment in accordance with the equity method
of accounting. This generally applies to cases in which the Company owns a voting or economic interest of between 20 and 50 percent.
The
accounting using the equity method is in conjunction with appointment of Raymond Dabney as CEO and director of the Company on
November 5, 2014, in addition to Mr. Dabney being a controlling shareholder of the Company since September 2009 and a controlling
shareholder of OmniCanna Health Solutions, Inc. since June 2013. Therefore, the Company was deemed to have significant influence
and control of OmniCanna Health Solutions, Inc.
On
November 5, 2014, the Company recorded $247,500 in marketable securities and $85,631 (based on currency converted as of September
30, 2016) in loans to OmniCanna Health Solutions, Inc. (hereinafter referred as “OHS”) to its equity method investee
account in accordance with ASC 323.
An
impairment on the equity method investee account of $48,750 was recognized for the nine months ended September 30, 2015 due to
the fluctuation in the value of OHS’s marketable securities.
10.
GOODWILL and INTANGIBLE ASSETS
|
|
September 30, 2016
|
|
December 31, 2015
|
Intellectual assets, primarily intellectual property and goodwill
|
|
$
|
830,988
|
|
|
$
|
830,988
|
|
Less: accumulated amortization
|
|
|
(503,152
|
)
|
|
|
(445,299
|
)
|
Total intangible assets, net
|
|
$
|
327,836
|
|
|
$
|
385,689
|
|
Intangible
assets are stated at fair value on the date of purchase less accumulated amortization. Amortization is computed using the straight-line
method over the estimated lives of the related assets (5 years for both intellectual assets and Goodwill).
11.
COMMITMENTS
The
Company has lease commitments for its European operations under private companies, MLS Lap B.V. and MJR B.V. owned and controlled
by Mario Lap, director of the Company and director and officer of EU subsidiaries. Negotiations are ongoing in regards to preparing
finalized agreements between the Company and Mr. Lap’s companies.
12.
SUBSEQUENT EVENTS
On
October 9, 2016, the Company entered a Consulting Management Agreement for services and to issue 1,000,000 shares of Rule 144
restrict common stock with a fair market value of $21,500.
On
October 24, 2016, the Company entered an Exclusive Master Facilitator Agreement with Members of Winnemucca Tribal Allotment, Free
Spirit Organics, LLC, American Education Consulting Group and Raymond C. Dabney University to provide general support with developing,
cultivating and processing of Cannabis/Hemp on 320 Acres of leased land in Humboldt County, Nevada. The Company’s share
is 40% of net profit derived from the sale and distribution of Cannabis/Hemp products grown and manufactured on these lands. Under
the agreement, the Company will be provided one (1) acre of land for research and development with placement of no more than 36,000
square feet of greenhouses used for cultivation and research of Cannabis/Hemp. The term of this Exclusive Master Agreement is
five (5) years and up to twenty-five (25) years.
PART
I
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This
Interim Report on Form 10-Q contains forward-looking statements that have been made pursuant to the provisions of Section 27A
of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and the Private Securities Litigation
Reform Act of 1995 and concern matters that involve risks and uncertainties that could cause actual results to differ materially
from historical results or from those projected in the forward-looking statements. Discussions containing forward-looking
statements may be found in the material set forth under “Business,” “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” and in other sections of this Form 10-Q. Words such as “may,”
“will,” “should,” “could,” “expect,” “plan,” “anticipate,”
“believe,” “estimate,” “predict,” “potential,” “continue” or similar
words are intended to identify forward-looking statements, although not all forward-looking statements contain these words. Although
we believe that our opinions and expectations reflected in the forward-looking statements are reasonable as of the date of this
Report, we cannot guarantee future results, levels of activity, performance or achievements, and our actual results may differ
substantially from the views and expectations set forth in this Interim Report on Form 10-Q. We expressly disclaim
any intent or obligation to update any forward-looking statements after the date hereof to conform such statements to actual results
or to changes in our opinions or expectations.
Readers
should carefully review and consider the various disclosures made by us in this Report, set forth in detail in Part I, under
the heading “Risk Factors,” as well as those additional risks described in other documents we file from time to time
with the Securities and Exchange Commission, which attempt to advise interested parties of the risks, uncertainties, and other
factors that affect our business. We undertake no obligation to publicly release the results of any revisions to any forward-looking
statements to reflect anticipated or unanticipated events or circumstances occurring after the date of such statements.