NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A.
Organization and General Description of Business
Cannabis
Science, Inc. (“We” or “the Company”), was incorporated under the laws of the State of Colorado,
on February 29, 1996, as Patriot Holdings, Inc. On August 26, 1999, the Company changed its name to National Healthcare
Technology, Inc. On June 6, 2007, the Company changed its name from National Healthcare Technology, Inc., to Brighton Oil &
Gas, Inc., and converted to a Nevada corporation. On March 25, 2008 the Company changed its name to Gulf Onshore, Inc.
On April 6, 2009, the Company changed its name to Cannabis Science, Inc., and obtained a new CUSIP number.
On
May 7, 2009 the Company common shares commenced trading under the new stock symbol OTC Pink: CBIS.
Cannabis
Science, Inc. is at the forefront of medical marijuana research and development. The Company works with world authorities
on phytocannabinoid science targeting critical illnesses, and adheres to scientific methodologies to develop, produce, and commercialize
phytocannabinoid-based pharmaceutical products. In sum, we are dedicated to the creation of cannabis-based medicines, both
with and without psychoactive properties, to treat disease and the symptoms of disease, as well as for general health maintenance. The
Company formed two operating subsidiaries Cannabis Science BV and Cannabis Science International Holding BV in The Netherlands
on May 10
th
and May 6
th
, 2013, respectively, to pursue business opportunities in Europe and worldwide.
There are currently minimal operations in the subsidiaries. Agreements and business disclosures are in process.
On
November 15, 2013, the Company submitted a patent application N2010968 in Europe entitled "Composition for the Treatment
of Neurobehavioral Disorders." The subject of the patent is development of cannabinoid-based formulations to treat
a variety of neurobehavioral disorders, such as attention deficit hyperactivity disorder (ADHD), anxiety, and sleep disorders.
B.
Basis of Presentation
These
consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted
in the United States, and are expressed in U.S. dollars. The Company’s fiscal year end is December 31.
The
operating results of GGECO University, Inc. (“GGECO”), acquired on February 9, 2012, for the period February 10, 2012
through December 31, 2013 were consolidated with the consolidated financial statements of the Company for the year ended December
31, 2014 and 2013. The s-type corporation of GGECO was dissolved in 2012 and all operations combined into the Company. An
independent valuation firm determined the intangibles acquired in GGECO to be $192,119 consisting of $150,000 for educational
materials, $20,000 for the trade name, and $22,119 for the workforce. The total purchase price of $450,132, including acquired
net liabilities, audit and valuation costs was recorded. Full impairment of GGECO was recognized and all goodwill was written
off at December 31, 2014.
The
operating results of Cannabis Consulting, Inc. (“CCI”), acquired on March 21, 2012, for the period March 21, 2012
through December 31, 2012 and January 1, 2013 through December 31, 2013 were consolidated with the consolidated financial statements
of the Company. The s-type corporation of CCI was dissolved in 2012 and all operations combined into the Company’s.
The Company has allocated $125,000 of the purchase price to intangibles based on an internal valuation in addition to $22,000
of goodwill. Full impairment of CCI was recognized and all goodwill was written off at December 31, 2014.
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. For the year ended December 31, 2013, CSE had minimal expenditures
in the normal course of winding up the entity subsequent to the disposal 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 based on the German
government proposing changes in the Drug Law which will relax the strict measures that regulate the consumption of medical cannabis
and development of cannabis products for medicinal uses.
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 and MJR BV, both 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 additional shares 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 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 start the operation of distributing of existing and new
line of products.
C.
Use of Estimates
The
preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates. Estimates and assumptions are reviewed
periodically and the effects of revisions are reflected in the consolidated financial statements in the period they are determined.
D.
Basic and Diluted Net Income (Loss) Per Share
Under
ASC 260, "Earnings Per Share" ("EPS"), the Company provides for the calculation of basic and diluted earnings
per share. Basic EPS includes no dilution and is computed by dividing income or loss available to common shareholders by
the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution of
securities that could share in the earnings or losses of the entity. For the years ended December 31, 2016 and 2015, basic
and diluted loss per share are the same since the calculation of diluted per share amounts would result in an anti-dilutive calculation.
E.
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.
F.
Long-Lived Assets
Under
ASC Topic 360, “Property, Plant, and Equipment”, the Company is required to periodically evaluate the carrying value
of long-lived assets to be held and used. ASC Topic 360 requires impairment losses to be recorded on long-lived assets used
in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets
are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying
amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined
in a similar manner, except that fair market values are reduced for the cost of disposal.
G.
Inventory
Inventories
are stated at the lower of cost or market, using the average cost method. Cost includes materials related to the purchase and
production of inventories. We regularly review inventory quantities on hand, future purchase commitments with our suppliers, and
the estimated utility of our inventory. If our review indicates a reduction in utility below carrying value, we reduce our inventory
to a new cost basis through a charge to cost of revenue.
H.
Fair Value Measurements
Under
ASC Topic 820, Fair Value Measurement, the Company discloses the estimated fair values of financial instruments. The carrying
amounts reported in the balance sheet for current assets and current liabilities qualifying as financial instruments are a reasonable
estimate of fair value.
In
accordance with the reporting requirements of ASC Topic 825, Financial Instruments, the Company calculates the fair value of its
assets and liabilities which qualify as financial instruments under this standard and includes this additional information in
the notes to the consolidated financial statements when the fair value is different than the carrying value of those financial
instruments (see Note 3). The estimated fair value of other current assets and current liabilities approximate their carrying
amounts due to the relatively short maturity of these instruments. None of these instruments are held for trading purposes.
I.
Goodwill and Intangible Assets
Under
ASC Topic 350 “Intangibles-Goodwill and Other”, goodwill is not amortized to expense, but rather that it is assessed
or tested for impairment at least annually. Impairment write-downs are charged to results of operations in the period in which
the impairment is determined. The Company identified impairment on its outstanding goodwill from its most recent testing, which
was performed as of December 31, 2016. If certain events occur which might indicate goodwill has been impaired, the goodwill
is tested for impairment when such events occur. Other acquired intangible assets with finite lives, such as customer lists, are
required to be amortized over the estimated lives. These intangibles are generally amortized using the straight line method over
estimated useful lives of five years.
The
Company tests the carrying value of goodwill and indefinite life intangible assets for impairment at least once a year and more
frequently if an event or circumstance indicates the asset may be impaired. An impairment loss is recognized if the amount of
the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair
value less selling expenses or its value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels
for which there are separately identifiable cash inflows (cash generating units).
The
Company is adopting ASU update number 2012-02—Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived
Intangible Assets for Impairment whereby the Company will first assess qualitative factors to determine whether the existence
of events and circumstances indicates that it is more likely than not that an indefinite-lived intangible asset is impaired. If,
after assessing the totality of events and circumstances, we conclude that it is not more than likely than not that the indefinite-lived
intangible asset is impaired, then we are not required to take further action. If the Company concludes otherwise, then
we will determine the fair value of the indefinite-lived intangible asset and perform the required quantitative impairment test
by comparing the fair value with the carrying amount.
The
Company recorded $170,689 impairment loss on goodwill for the year ended December 31, 2016 and $0 for the year ended December
31, 2015.
J.
Research and Development Expenses
Under
ASC Topic 730 “Research and Development”, costs are expensed as incurred. These expenses include the costs of our
proprietary R&D efforts, as well as costs incurred in connection with certain licensing arrangements. Before a compound receives
regulatory approval, we record upfront and milestone payments made by us to third parties under licensing arrangements as expense.
Upfront payments are recorded when incurred, and milestone payments are recorded when the specific milestone has been achieved.
Once a compound receives regulatory approval, any milestone payments will be recorded as Identifiable intangible assets, less
accumulated amortization and, unless the asset is determined to have an indefinite life, amortization of the payments will be
on a straight-line basis over the remaining agreement term or the expected product life cycle, whichever is shorter. No
identifiable intangible assets have been recorded as of December 31, 2016.
K.
Income Taxes
Under
ASC Topic 740, “Income Taxes”, the Company is required to account for its income taxes through the establishment of
a deferred tax asset or liability for the recognition of future deductible or taxable amounts and operating loss and tax credit
carry forwards. Deferred tax expense or benefit is recognized as a result of timing differences between the recognition
of assets and liabilities for book and tax purposes during the year.
Deferred
tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Deferred tax assets are recognized for deductible temporary
differences and operating loss, and tax credit carry forwards. A valuation allowance is established to reduce that deferred
tax asset if it is "more likely than not" that the related tax benefits will not be realized.
Unfiled
Federal Tax Returns
The
Company estimates that the amount of penalties, if any, will not have a material effect on the results of operations, cash flows
or financial position. No provisions have been made in the financial statements for such penalties, if any.
The
Company is working with its accountants to prepare and file overdue federal tax returns for 2008 through 2016, which are anticipated
to be completed and filed in fiscal 2017.
L.
Marketable Securities
Under
ASC Topic 210; Regulation S-X “Marketable Securities”, the Company is required to measure all marketable securities
at their carrying value while recognizing unrealized gains and losses as of the reporting date.
M.
Stock-Based Compensation
Under ASC
Topic 718, “Compensation-Stock Compensation”, the Company is required to measure all employee share-based payments,
including grants of employee stock options, using a fair-value-based method and the recording of such expense in the statements
of operations.
N.
Revenue Recognition
Revenue
is recognized at the time the educational materials or online seminars are provided and billed to the customer and substantially
all related obligations of the Company have been performed. License fees and joint-venture profit sharing when evidenced
by executed agreements, and other fees are recognized when earned and collection is reasonably assured.
O.
Recent Accounting Pronouncements
During
the year ended December 31, 2016 and through April 13, 2017, there were several new accounting pronouncements issued by the FASB.
Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe the
adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s financial statements.
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 $138,137,771
and had a stockholders’ deficit of $1,786,836 at December 31, 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 December 31, 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.
RESTATEMENT AND RECLASSIFICATION
Restatement
of Financial Statements for the year ended December 31, 2016
The Company is restating its financial statements for the
year ended December 31, 2016 (the “2016 Financial Statements”) to correct various account balances, and the restatement
corrects financial statement errors that arose from the Company’s oversight to account for payments made by Royalty Management
Services Corp. (“RMS”) on its behalf. The errors occurred during the last quarter of 2016 and first four months of
2017 and their effect is summarized below.
The
restatements are being made in accordance with ASC 250, “Accounting Changes and Error Corrections.” The disclosure
provision of ASC 250 requires a company that corrects an error to disclose that its previously issued financial statements have
been restated, a description of the nature of the error, the effect of the correction on each financial statement line item and
any per share amount affected for each prior period presented, and the cumulative effect on retained earnings (deficit) in the
statement of financial position as of the beginning of each period presented.
The
effects of the adjustments on the Company’s previously issued 2016 Financial Statements are summarized as follows:
Selected
Consolidated Balance Sheets Information as of December 31, 2016
|
|
Previously
Reported
|
|
Increase
(Decrease)
|
|
Restated
|
Other receivables
|
|
|
36,000
|
|
|
|
1
|
|
|
|
36,001
|
|
Prepaid expenses and deposits held with RMS
|
|
|
231,994
|
|
|
|
576,520
|
|
|
|
808,514
|
|
Property Farming Rights
|
|
|
47,778
|
|
|
|
703,948
|
|
|
|
751,726
|
|
Accounts payable
|
|
|
404,664
|
|
|
|
451,605
|
|
|
|
856,269
|
|
Notes payable
|
|
|
—
|
|
|
|
177,698
|
|
|
|
177,698
|
|
Additional paid-in capital
|
|
|
136,102,730
|
|
|
|
860,790
|
|
|
|
136,963,520
|
|
Accumulated deficit
|
|
|
(137,929,021
|
)
|
|
|
(208,750
|
)
|
|
|
(138,137,771
|
)
|
Cumulative exchange translation
|
|
|
(10,621
|
)
|
|
|
(874
|
)
|
|
|
(11,495
|
)
|
Selected
Consolidated Statements of Operations and Comprehensive Income (Loss)
|
|
Previously
Reported
|
|
Increase
(Decrease)
|
|
Restated
|
General and administrative
|
|
|
7,026,897
|
|
|
|
31,052
|
|
|
|
7,057,949
|
|
Interest expense, net
|
|
|
472,612
|
|
|
|
177,698
|
|
|
|
650,310
|
|
Net Loss
|
|
|
(9,990,302
|
)
|
|
|
(208,750
|
)
|
|
|
(10,199,052
|
)
|
Net Loss attributable to common shareholders
|
|
|
(9,911,889
|
)
|
|
|
(208,750
|
)
|
|
|
(10,120,639
|
)
|
Foreign exchange translation adjustment
|
|
|
7,875
|
|
|
|
(874
|
)
|
|
|
7,001
|
|
Net Comprehensive Loss
|
|
|
(9,904,014
|
)
|
|
|
(209,624
|
)
|
|
|
(10,113,638
|
)
|
Basic and diluted net loss per common share
|
|
|
0.00
|
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
Selected
Consolidated Statement of Cash Flows for the year ended December 31, 2016
|
|
Previously
Reported
|
|
Increase
(Decrease)
|
|
Restated
|
Net loss
|
|
|
(9,990,302
|
)
|
|
|
(208,750
|
)
|
|
|
(10,199,052
|
)
|
Depreciation and Amortization
|
|
|
45,222
|
|
|
|
1,052
|
|
|
|
46,274
|
|
Interest on debt conversion
|
|
|
471,589
|
|
|
|
177,698
|
|
|
|
649,287
|
|
Foreign exchange translation adjustment
|
|
|
7,865
|
|
|
|
(874
|
)
|
|
|
7,001
|
|
Prepaid expenses and deposits held with RMS
|
|
|
14,756
|
|
|
|
576,521
|
|
|
|
(561,765
|
)
|
Property farming rights
|
|
|
(50,000
|
)
|
|
|
(675,000
|
)
|
|
|
(725,000
|
)
|
Accounts payable
|
|
|
(174,474
|
)
|
|
|
1,315,210
|
|
|
|
1,140,736
|
|
Advances from related parties
|
|
|
37,516
|
|
|
|
(40,331
|
)
|
|
|
(2,815
|
)
|
CASH FLOWS USED IN OPERATING ACTIVITIES
|
|
|
(1,626,583
|
)
|
|
|
(6,661
|
)
|
|
|
(1,683,244
|
)
|
Proceeds from advance receivable, related parties
|
|
|
—
|
|
|
|
(12,484
|
)
|
|
|
(12,484
|
)
|
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES
|
|
|
(50,000
|
)
|
|
|
(12,484
|
)
|
|
|
(12,484
|
)
|
Repayment of notes payable to stockholders
|
|
|
(55,000
|
)
|
|
|
19,145
|
|
|
|
(35,855
|
)
|
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
|
|
|
1,947,500
|
|
|
|
19,145
|
|
|
|
1,966,645
|
|
Accounts payable settled through note payable
|
|
|
975,407
|
|
|
|
860,790
|
|
|
|
1,836,197
|
|
The restatement relates to unrecorded
management fees due to RMS and payments made by RMS on behalf of the Company. The following is a description of the transactions
underlying the restatements:
|
1.
|
The
Company’s issued a $710,790 and a $150,000 convertible promissory note to RMS,
on October 1, 2016 and December 31, 2016, respectively, for unpaid management fees under
a contract with RMS.
|
|
2.
|
RMS
made payments and incurred obligations on behalf of the Company which were reimbursable
to RMS and represented obligations of the Company. These payments and obligations, not
previously recognized are as follows:
|
|
·
|
Four
payments to consultants for services totaling $30,000 that should have been recognized
in operating expenses
|
|
·
|
Three
payments for accounts payable totaling $23,476
|
|
·
|
Nine
payments totaling $185,000 to property owners of Washoe Tribal Allotments in Douglas
County, Nevada, representing partial payment of Property Farming Rights totaling $640,000
and covering 16 Acres at a rate of $40,000 per acre. The balance owing to the Washoe
Tribal members of $455,000 should have been included in accounts payable
|
|
·
|
Three
payments totaling $65,000 to the Family Tribal Allotments of the Winnemucca Tribe of
Humbolt County, Nevada for cultivation working capital related to 320 acres of land that
should have been included in accounts payable
|
The convertible promissory notes shown
in 1 above are convertible to the common shares of the Company at $0.001 a share within one-year or other mutually agreed upon
price. These notes should have been recorded based on the maximum capped amount on the $860,790 face value of the promissory notes
as per ASC 470-20-25, as additional paid-in capital with recognition of a like amount of prepaid interest discount offset against
the note balance.
Recognition of the convertible promissory notes required
the recording the amortization of the related discount of $177,698 for the three months ended December 31, 2016 as interest expense
and recognition of the property license fees required the recording the related amortization of $1,052 from the date of the agreements.
The net result is an increase of General and Administrative
expenses of $31,052, an increase of Depreciation and Amortization of $1,052, an increase of Interest Expense of $177,698 for a
total increase in the Net Loss of $208,750. The total impact on the balance sheet was a $576,521 in Receivables, a $703,948 net
increase in Property Farming Rights, a $451,605 net increase in Accounts Payable, a $177,698 net increase in Notes Payable, a
$860,790 increase in Additional Paid-in Capital, a $208,750 increase in Accumulated Deficits, and a $874 increase in Cumulative
exchange translation from the 10-K filed on April 17, 2017.
In addition to the restatement of financial information
discussed above, the Statement of Cash Flows required reclassification of both years of 2016 and 2015 to present effect of exchange
rate changes on cash on its own section.
4.
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). The three levels of the fair value hierarchy under ASC
Topic 820 are described as follows:
Level
1
Inputs
to the valuation methodology are unadjusted quoted prices for identical assets or liabilities that the Company can access at the
measurement date.
Level
2
Inputs
to the valuation methodology are inputs other than quoted prices included in Level 1 that are observable for the asset or liability,
either directly or indirectly. If the asset or liability has a specified (contractual) term, the Level 2 input must be observable
for substantially the full term of the asset or liability.
Level
3
Inputs
to the valuation methodology are unobservable inputs for the asset or liability.
The
asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input
that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs
and minimize the use of unobservable inputs.
Following
is a description of the valuation methodologies used for the Company’s liabilities measured at fair value. There have
been no changes in the methodologies used at December 31, 2016.
Equity
method investment:
Trading securities valued at the closing price of Endocan Corporation shares held by the Company at year
end.
The
preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective
of future fair values. Furthermore, although the Company believes its valuation methods are appropriate and consistent with other
market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments
could result in a different fair value measurement at the reporting date. The following tables set forth by level, within
the fair value hierarchy, the Company’s liabilities at fair value as of December 31, 2016 and 2015.
|
December 31, 2015
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Equity method investment
|
|
|
43,500
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
43,500
|
|
Total assets as of December 31, 2015
|
|
|
43,500
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
43,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
Level 1
|
|
|
|
Level 2
|
|
|
|
Level 3
|
|
|
|
Total
|
|
Equity method investment
|
|
|
187,500
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
187,500
|
|
Total assets as of December 31, 2016
|
|
|
187,500
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
187,500
|
|
5.
RELATED PARTY TRANSACTIONS
At
December 31, 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
December 31, 2016, a total of $101,882 (December 31, 2015: $61,902) in loans payable was due to Interstate 101, a shareholder
of the Company, with no interest and no security. The loan originated between April 1, 2015 and August 19, 2016 for various expenses
of the Company.
At
December 31 2016, total of $3,165 (December 31, 2015: $3,165) in loans payable was due to Castor Management Services, a shareholder
of the Company, with no interest and no security and is due on demand. The loan originated on August 14, 2015 for expenses of
the Company.
At
December 31, 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.
At
December 31, 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
December 31, 2016, $93,885 (December 31, 2015: $66,847) was due to MJR BV, owned by Mario Lap director and director and officer
of EU subsidiaries.
At
December 31, 2016, $447 (December 31, 2015: $447) was due to Robert Melamede, former CEO.
At
December 31, 2016, a total of $23,377 (December 31, 2015: $0) in loans payable was due to Drue Young, a shareholder of the Company,
with no interest and no security and is due on demand. The loan originated from January 11, 2016 to December 31, 2016 for expenses
of the Company.
At
December 31, 2016, a total of $20,502 (December 31, 2015: $20,502) in loans payable was due to Intrinsic Venture Corp., a shareholder
of the Company, with no interest and no security and is due on demand. The loan originated from April 22, 2011 to December 31,
2014.
At
December 31, 2016, the Company held 7,500,000 common shares in Omnicanna Health Solutions, Inc. (formerly 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 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 December 31, 2016 and December 31, 2015 was determined to be $0.025 and $0.0058 per share or
$187,500 and $43,500 respectively.
On
November 5, 2014, the Company transitioned to equity method investee account for the Omnicanna shares pursuant to ASC 323 recording
$247,500 as the fair value of the shares to its equity method investee account. On December 31, 2016, the Company recorded
unrealized gain of $144,000 on the equity method investee account and an impairment of $114,000 for the year ended December 31,
2015 in relation to the shares. Benjamin Tam, CFO and director of the Company and Robert Kane, COO and director of the Company
are also the CFO and director and COO and director of Omnicanna. Raymond Dabney, CEO has 10.78% equity interest in Omniccanna
Health Solutions, Inc. as of December 31, 2016.
For
the year ended December 31, 2016, the following related party stock-based compensation was recorded:
|
|
|
|
|
|
|
Related Party
|
|
Position
|
|
2016
|
|
2015
|
Raymond Dabney
1
|
|
President & CEO
|
|
$
|
193,842
|
|
|
$
|
171,741
|
|
Dr. Dorothy Bray
|
|
Former CEO
|
|
|
—
|
|
|
|
765,303
|
|
Benjamin Tam
|
|
CFO and Secretary
|
|
|
113,000
|
|
|
|
—
|
|
Dr. Richard Cowan
|
|
Former CFO
|
|
|
—
|
|
|
|
922,500
|
|
Robert Kane
|
|
COO
|
|
|
245,380
|
|
|
|
1,135,060
|
|
Dr. Allen Herman
|
|
Chief Medical Officer
|
|
|
70,500
|
|
|
|
271,250
|
|
Dr. Roscoe M. Moore, Jr
|
|
Chair of Scientific Advisory Board
|
|
|
260,000
|
|
|
|
415,000
|
|
Mario Lap
|
|
Director
|
|
|
215,380
|
|
|
|
—
|
|
Alfredo Dupetit-Bernardi.
|
|
President & CEO of CBIS Europe GmbH
|
|
|
51,000
|
|
|
|
—
|
|
Chad S. Johnson, Esq.
|
|
Former COO and General Counsel to Sept. 14, 2016
|
|
|
215,380
|
|
|
|
773,422
|
|
|
|
|
|
$
|
1,364,482
|
|
|
$
|
4,454,276
|
|
1
Including compensation to entities beneficially owned/control by the related parties
Raymond
Dabney, CEO is a controlling shareholder and Chad S. Johnson, COO/General Legal Counsel 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 8 -Equity Transactions for details of stock issuances to director and officers for services.
Mario
Lap, a director of the Company and director and officer 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 and MLS Lap 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 in fiscal 2016 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 Intrinsic Venture Corp. (“IVC”) totaled $0 and $0 at December 31, 2016 and 2015, respectively. On
July 1, 2014, IVC assigned a total of $251,371 promissory notes payable by the Company to Intrinsic Capital Corp. On October
1, 2014, IVC assigned a total of $420,000 promissory notes payable by the Company to Intrinsic Capital Corp. On November
1, 2014, IVC assigned a total of $1,108,896 promissory notes to Embella Holdings Ltd. Notes payable to Embella Holdings
Ltd. totaled $1,108,896 and $1,108,896 at December 31, 2016 and 2015, respectively. As of December 31, 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 December 31, 2016 and 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.
6. NOTES PAYABLE
As
of December 31, 2016, a total of $1,506,745 (December 31, 2015: $1,406,513) of notes payable are due to stockholders that are
non-interest bearing and are due 12 or 24 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 as of December 31, 2016. All promissory notes are unsecured.
On
February 7, 2016, the Company 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.
Notes
payable to Embella Holdings Ltd. totaled $1,108,896 and $1,108,896 at December 31, 2016 and December 31, 2015, respectively. As
of December 31, 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 December 31, 2016 and December 31, 2015, respectively. As
of December 31, 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 two-year Convertible Promissory Note to Raymond C. Dabney, CEO/Director of the Company. At the election of the note holder,
it can be converted into common stocks of the Company at the par value of $0.001 a share. The Company has fully recognized the
conversion discounts of the Note as prepaid interest to the maximum amount of $975,407 in accordance with ASC 470-20-30-8 and
amortize it over the life of the Note. The Company has partially reduced $250,000 as result of a Debt Settlement Agreement dated
August 10, 2016 by issuance of 250,000,000 Rule 144 restricted common stock at $0.001 a share. In addition, the Company paid $55,000
in expenses for Mr. Dabney in 2016. The balance of the Promissory Note as of December 31, 2016 was $670,407 (December 31, 2015:
$0). In 2016, the Company recorded $471,589 as interest for the amortization, conversion and payment.
On
October 1, 2016, a total of $710,790 in Accounts Payable for management fees accumulated from January 2016 to October 1, 2016
was settled by issuance of a one-year Convertible Promissory Note to Royalty Management Services Corp. At the election of the
note holder, it can be converted into common stocks of the Company at the par value of $0.001 a share or other mutually agreed
upon price. The Company has fully recognized the conversion discounts of the Note as prepaid interest to the maximum amount of
$710,790 in accordance with ASC 470-20-30-8 and amortize it over the life of the Note. In 2016, the Company recorded $177,698
as interest for amortization of the debt discount.
On
December 31, 2016, $150,000 in Accounts Payable for management fees accumulated from November 1, 2016 to December 31, 2016 was
settled by issuance of a one-year Convertible Promissory Note to Royalty Management Services Corp. At the election of the note
holder, it can be converted into common stocks of the Company at the par value of $0.001 a share or other mutually agreed upon
price. The Company has fully recognized the conversion discounts of the Note as prepaid interest to the maximum amount of $150,000
in accordance with ASC 470-20-30-8 and amortize it over the life of the Note. The Company has not recorded any interest for amortization
of the debt discount.
7.
INCOME TAXES
Deferred
income taxes are reported using the liability method. Deferred tax assets are recognized for deductible temporary differences
and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will
not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment. Current year and accumulated deferred tax benefit at the effective Federal income tax rate of 34% is
$30,061,431 (in addition to the pre-acquisition annual limitation carry-forward discussed in the following paragraph), and a valuation
allowance has been set up for the full amount because of the unlikelihood that the accumulated deferred tax benefit will be realized
in the future.
At
December 31, 2016 and 2015, the Company had available federal and state net operating loss (NOL) carryforwards amounting to approximately
$88,100,000 and $78,500,000, respectively, that are available to offset future federal and state taxable income and that
expire in various periods through 2035 for federal tax purposes and 2020 for state tax purposes. No benefit has been
recorded for the loss carryforwards, and utilization in future years may be limited under Sections 382 and 383 of the Internal
Revenue Code if significant ownership changes have occurred or from future tax legislation changes.
The
following table sets forth the significant components of the net deferred tax assets for operations in the US as of December 31,
2016 and 2015.
|
|
2016
|
|
2015
|
Deferred tax assets:
|
|
|
|
|
NOL expense (benefit)
|
|
$
|
(30,061,431
|
)
|
|
$
|
(26,699,209
|
)
|
Add: timing difference on unrealized losses
|
|
|
(38,208
|
)
|
|
|
|
|
Total NOL expense (benefit)
|
|
|
(30,099,639
|
)
|
|
|
(26,699,209
|
)
|
Less: valuation allowance
|
|
|
30,099,639
|
|
|
|
26,699,209
|
|
Net deferred tax assets
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
A
reconciliation of income tax expense at the statutory federal rate of 34% to income tax expense at the Company's effective tax
rate for the years ended December 31, 2016 and 2015 is as follows:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
2015
|
|
|
Income tax expense (benefit) at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
statutory federal rate
|
|
$
|
(3,362,222
|
)
|
|
|
34
|
%
|
|
$
|
(6,331,250
|
)
|
|
|
34
|
%
|
Increase in valuation allowance
|
|
|
3,362,222
|
|
|
|
-34
|
%
|
|
|
6,331,250
|
|
|
|
-34
|
%
|
Income tax expense (benefit) at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company's effective tax rate
|
|
$
|
—
|
|
|
|
0
|
%
|
|
$
|
—
|
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.
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 2,350,355,296 and 1,581,855,296 issued and outstanding as of December 31, 2016 and 2015,
respectively. The current authorized common stock of 3,000,000,000 shares will not be sufficient if and when the debt holders of convertible
promissory notes elect to convert the debts into common shares. The Company intends to file for an increase in the number shares
in authorized common stock once the required updated financial reportings have been filed with Securities Exchange Commission
.
The
Company is also authorized to issue 100,000,000 shares of common stock, Class A with a par value of $0.001 per share. These
shares have 10 votes per share. There were 0 issued and outstanding as of December 31, 2016 and 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 December 31, 2016 and 2015.
On
February 9, 2012, the Company established a 2012 Equity Compensation Plan that authorizes the Company to issue up to 50,000,000
common shares to staff or consultants for services to or on behalf of the Company. The Company filed a Registration Statement
Form S-8 with the U.S. Securities and Exchange Commission on February 14, 2012, file no. 333-179501, to register the shares covered
under the plan. As of December 31, 2016, the Company has issued 47,250,000 common shares as compensation under the plan
to various executives and consultants of the Company.
On
April 28, 2014, the Company filed a Form S-8 (file no. 333-195510) registering 6,500,000 common shares under a 2014 Stock Compensation
Plan A. As of December 31, 2016, the Company has issued 6,000,000 common shares as compensation under the plan to various
executives and consultants of the Company.
On
July 25, 2014, Bogat Family Trust, Raymond Dabney trustee, representing a majority of Series A preferred stockholders, signed
a shareholder 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 resolution or amendment.
On
September 22, 2014, the Company filed a Certificate of Amendment with the Nevada Secretary of State to increase its common authorized
from 850,000,000 to 1,500,000,000 shares. The number of authorized shares of common stock increased from 850,000,000 to
1,500,000,000.
On
October 10, 2014, the Company filed a Form S-8 (file no. 333-199251) registering 6,500,000 common shares under a 2014 Stock Compensation
Plan B. As of December 31, 2016, the Company has issued 6,000,000 common shares as compensation under the plan to various
executives and consultants of the Company.
On
December 5, 2014, the Company filed a Form S-8 (file no. 333-200747) registering 50,000,000 common shares under a 2014 Stock Compensation
Plan C. As of December 31, 2014, the Company has issued 39,960,310 common shares as compensation under the plan to various
executives and consultants of the Company.
On
March 25, 2015, the Company filed a Form S-8 (file no. 333-202982) registering 50,000,000 common shares under a 2015 Stock Compensation
Plan. As of December 31, 2016, the Company has issued 46,448,000 common shares as compensation under the plan to various executives
and consultants of the Company.
On
August 18, 2015, the Company filed a Form S-8 (file no. 333-206443) registering 50,000,000 common shares and 100,000,000 incentive
stock options or Non-Statutory Stock Options under a 2015 Equity Award Plan. As of December 31, 2016, the Company has issued 48,000,000
common shares as compensation and has issued 2,500,000 Incentive Stock Options exercisable at $0.04 a share and 97,500,000 Non-Statutory
Stock Options exercisable at $0.01 a share under the plan to various consultants and managements of the Company and 97,500,000
Non-Statutory Stock Options have been exercised at $0.01 a share.
During
the year ended December 31, 2016, the Company issued the following common stock:
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 fiscal year ended December 31, 2016, the Company issued stock pursuant to consulting agreements with several parties 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 $69,000 for bonus and services under July 4, 2016 Consulting Management 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, 2015 Executive 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.
On
October 9, 2016, the Company entered a Consulting Agreement with a Consultant to issue 1,000,000 shares of R144 restricted common
stock with a fair market value of $19,900 for services under the Consulting Agreement. The shares were issued on January 19 2017.
On
October 21, 2016, the Company entered a Consulting Agreement with a Consultant to issue 15,000,000 of S-8 registered free trading
common stock under 2016 Equity Award Plan B with a fair market value of $855,000 for services under the Consulting Agreement.
The shares were issued on January 27, 2017.
During
the year ended December 31, 2016, the Company issued stock pursuant to debt settlement agreements as follows:
On
February 7, 2016, the Company entered 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.
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.
The
aforementioned shares for the settlement of debts were issued without legend under an exemption under Rule 144(b)(1) of the
Act. Over six 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.
During
the year ended December 31, 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 year ended December 31, 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.
During
the year ended December 31 2016, the Company cancelled 15,500,000 common stock for purchase of a property as follow:
At
the year ended December 31, 2016, the Company terminated the Amended Agreement dated January 11, 2016 with Apothecary Genetics
Investments to purchase a property by issuing 15,500,000 shares of R144 restricted common stock with a fair market value of $181,350.
The shares are held in escrow by the Company’s attorney and are to be returned to treasury and transfer agency for cancellation.
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
January 20, 2016, the Company issued 10,000,000 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 $117,000 to a consultant under a consultant
agreement.
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
March 22, 2016, the Company issued 5,000,000 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 $75,500 to a consultant under management agreement.
On
February 26, 2016. the Company approved and registered under File No. 333-209786 with Securities Exchange Commission maximum 150,000,000
common stock option (whether Incentive Stock Options or Non-Statutory Stock Options) at an exercise price of $0.01 per share under
the Company’s 2016 Equity Award Plan and entered 11 Non-Statutory Stock Option Agreements with certain consultants from
February 22, 2016 to May 13 2016 for a total of 146,500,000 common shares as follow:
On
February 24, 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 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 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 13, 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 13, 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 13, 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 13, 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
September 27, 2016. the Company approved and registered under File No. 333-213833 with Securities Exchange Commission maximum
250,000,000 common stock option (whether Incentive Stock Options or Non-Statutory Stock Options) at prices to be set by Compensation
Committee under the Company’s 2016 Equity Award Plan B and entered 11 Incentive and Non-Statutory Stock Option Agreements
with certain consultants from July 4, 2016 to October 21, 2016 for a total of 117,000,000 common shares as follow:
On
July 6, 2016, the Company entered an Incentive Stock Option Agreement with a management 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 $145,000. The
shares were exercised on July 6, 2016 and issued on January 19, 2017.
On
September 27, 2016, the Company entered a Non-Statutory Stock 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 a Non-Statutory Stock 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 Incentive Stock 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 a Non-Statutory Stock 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 a Non-Statutory Stock 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 Incentive Stock 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 Incentive Stock 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 a Non-Statutory Stock 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
October 3 2016, the Company entered a Non-Statutory Stock Option Agreement with a consultant under 2016 Equity Award Plan B at
exercise price of $0.01 to issue 30,000,000 shares of S-8 registered free-trading common stock with a fair market value of $291,000.
The shares were exercised on October 3, 2016 and the Company issued 15,000,000 shares on November 9, 2016 and cancelled the balance
of 15,000,000 shares.
On
October 4, 2016, the Company entered an Option Agreement with a consultant under 2016 Equity Award Plan B at exercise price of
$0.01 to issue 2,000,000 shares of S-8 registered free-trading common stock with a fair market value of $42,000. The shares were
exercised on October 4, 2016 and issued on November 9, 2016.
A
summary of the status of the Company’s option grants as of December 31, 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
|
|
|
|
302,000,000
|
|
|
$
|
0.010
|
|
|
Exercised
|
|
|
|
292,000,000
|
|
|
$
|
0.010
|
|
|
Expired
|
|
|
|
2,500,000
|
|
|
$
|
0.040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding December 31, 2016
|
|
|
|
11,700,000
|
|
|
$
|
0.066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2016
|
|
|
|
11,700,000
|
|
|
$
|
0.066
|
|
1,700,00
shares of these options at an exercise price of $0.17 a share do no expire and continuing indefinitely for the duration of existing
management agreement and services thereunder with Robert Kane, 5,000,000 shares at an exercise price of $0.01 a share will expire
on July 3, 2017, 5,000,000 shares at an exercise price of $0.01 a share will expire on September 27, 2017 and 2,500,000 shares
at an exercise price of $0.04 a share expired on March 25, 2016.
The
weighted average fair value at date of grant for options during year ended December 31, 2016 was estimated using the Black-Scholes
option valuation model with the following:
Average expected life in years
|
|
|
2
|
|
Average risk-free interest rate
|
|
|
2.50
|
%
|
Average volatility
|
|
|
90
|
%
|
Dividend yield
|
|
|
0
|
%
|
9.
EQUIPMENT
|
|
|
|
|
|
Net Book Value
|
|
|
|
Cost
|
|
|
|
Accumulated Depreciation
|
|
|
|
December 31, 2016
|
|
|
|
December 31, 2015
|
|
Equipment
|
|
$
|
3,000
|
|
|
$
|
3,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Laboratory equipment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Software
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
—
|
|
|
|
—
|
|
Computers
|
|
|
5,716
|
|
|
|
5,716
|
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
13,716
|
|
|
$
|
13,716
|
|
|
$
|
—
|
|
|
$
|
—
|
|
All
equipment is stated at cost. Maintenance and repairs are charged to expense as incurred and the cost of renewals and betterments
are capitalized. Depreciation is computed using the straight-line method over the estimated lives of the related assets,
2 years for computer, 2 years for software, and 5 years for equipment and laboratory equipment.
10.
PROPERTY FARMING RIGHTS
On
March 24, 2016, the Company entered a 15 years Joint Venture Agreement with the Ft. McDermitt Allotment land Allotees, which
is on the Ft. McDermitt Tribal Reservation, Raymond C. Dabney University, American Education Consulting Group and Cannabis Science,
Inc. for a total of ten (10), one (1) acre parcels of land. The project is designed to benefit both the Ft. McDermitt Tribe and
Members, and Allotment Allottees. Cannabis Science made two initial payments of $50,000 for 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.
On
October 24, 2016, the Company entered an Exclusive Master Facilitator Agreement with Members of Winnemucca Tribal Allotment, Free
Spirit Organics, LLC, American Education Consulting Group and Raymond C. Dabney University to provide general support with developing,
cultivating and processing of Cannabis/Hemp on 320 Acres of leased land in Humboldt County, Nevada. The Company’s share
is 40% of net profit derived from the sale and distribution of Cannabis/Hemp products grown and manufactured on these lands. Under
the agreement, the Company will be provided one (1) acre of land for research and development with placement of no more than 36,000
square feet of greenhouses used for cultivation and research of Cannabis/Hemp. The term of this Exclusive Master Agreement is
five (5) years and up to twenty-five (25) years.
On
November 12, 2016, the Company entered an Exclusive Master Facilitator Agreement with the Members of Washoe Tribal Allotments
in Douglas County, Nevada, together with Free Spirit Organics, LLC, American Education Consulting Group and Raymond C. Dabney
University to provide general support with developing, cultivating and processing Cannabis/Hemp with Free Spirit Organics, LLC
on Lot 20, one (1) acre parcel of leased land located in the allotment cc183, a portion of the SE ¼ of section 15, township
11 North, Range 21, East Mount Diablo Meridian, Douglas County of Nevada. The Company’s share is 20% on all initial non-refundable
deposits from external investor, and 10% of net profit derived from the sale and distribution of Cannabis/Hemp products grown
and manufactured on the land. Under the agreement, the Company will be provided one (1) acre of land for research and development
with placement of no more than 36,000 square feet of greenhouses used for cultivation and research of Cannabis/Hemp. The term
of this Exclusive Master Agreement is twenty-five (25) years renewable every five (5) years.
On
December 18, 2016, the Company enter six (6) Exclusive Master Facilitator Agreement for cultivation of Medical Marijuana/Hemp
with the Members of Washoe Tribal Allotments in Douglas County, Nevada, together with Free Spirit Organics, LLC, American Education
Consulting Group and Raymond C. Dabney University to provide general support with developing, cultivating and processing Cannabis/Hemp
with Free Spirit Organics, LLC on 13 one (1) acre parcel of leased land, Lot 1, 2, 3, 4, 5, 7, 8, 9, 10, 11, 12, 13 and 14, located
in the allotment cc183, a portion of the SE ¼ of section 15, township 11 North, Range 21, East Mount Diablo Meridian, Douglas
County of Nevada. The Family Allotment will receive $40,000 per acre Good Faith Non-Refundable Deposit per development site. The
Company’s share is 20% on all initial non-refundable deposits from external investor, and 10% of net profit derived from
the sale and distribution of Cannabis/Hemp products grown and manufactured on the land. Under the agreement, the Company will
be provided one (1) acre of land for research and development with placement of no more than 36,000 square feet of greenhouses
used for cultivation and research of Cannabis/Hemp. The term of this Exclusive Master Agreement is twenty-five (25) years renewable
every five (5) years.
On
December 21, 2016, the Company enter two (2) Exclusive Master Facilitator Agreement for cultivation of Medical Marijuana/Hemp
with the Members of Washoe Tribal Allotments in Douglas County, Nevada, together with Free Spirit Organics, LLC, American Education
Consulting Group and Raymond C. Dabney University to provide general support with developing, cultivating and processing Cannabis/Hemp
with Free Spirit Organics, LLC on two (2) one (1) acre parcel of leased land, Lot 6 and 21, located in the allotment cc183, a
portion of the SE ¼ of section 15, township 11 North, Range 21, East Mount Diablo Meridian, Douglas County of Nevada. The
Family Allotment will receive $40,000 per acre Good Faith Non-Refundable Deposit per development site. The Company’s share
is 20% on all initial non-refundable deposits from external investor, and 10% of net profit derived from the sale and distribution
of Cannabis/Hemp products grown and manufactured on the land. Under the agreement, the Company will be provided one (1) acre of
land for research and development with placement of no more than 36,000 square feet of greenhouses used for cultivation and research
of Cannabis/Hemp. The term of this Exclusive Master Agreement is twenty-five (25) years renewable every five (5) years.
Property Farming Rights
|
|
Cost
|
|
Accumulated Depletion
|
|
2016 Net Book Value
|
|
2015 Net Book Value
|
Fort McDermit Allottees Land
|
|
$
|
50,000
|
|
|
$
|
2,222
|
|
|
$
|
47,778
|
|
|
$
|
—
|
|
Washoe Tribal Allotment Lands
|
|
|
640,000
|
|
|
|
1,052
|
|
|
|
638,948
|
|
|
|
—
|
|
Total
|
|
|
690,000
|
|
|
|
3,274
|
|
|
|
686,726
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating capital for Winnemucca Lands
|
|
$
|
65,000
|
|
|
|
|
|
|
$
|
65,000
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
751,726
|
|
|
|
|
|
11.
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 shareholder
of Omnicanna Health Solutions, Inc. (“Omnicanna”) since June 2013 in addition to three other board of directors of
the Company and Omnicanna are the same. Therefore, the Company was deemed to have significant influence and control of Omnicanna.
The Company has elected to use the fair value valuation on the Equity Investee.
On
November 5, 2014, the Company recorded $247,500 in marketable securities and $85,427 (based on currency converted as of December
31, 2016) in loans to Omnicanna to its equity method investee account in accordance with ASC 323. An unrealized gain on
the equity method account of $144,000 was recognized for the year ended December 31, 2016 in addition to an impairment on the
equity method investee account of $114,000 was recognized for the year ended December 31, 2015 due to the non-temporary decline
in the value of Omnicanna marketable securities.
12.
INTANGIBLE ASSETS
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
Intellectual assets, primarily intellectual property
|
|
$
|
660,299
|
|
|
$
|
660,299
|
|
Goodwill
|
|
|
170,688
|
|
|
|
170,688
|
|
Less: Accumulated amortization
|
|
|
(488,299
|
)
|
|
|
(445,299
|
)
|
Less: Impairment of Goodwill
|
|
|
(170,689
|
)
|
|
|
0
|
|
Total intangible assets, net
|
|
$
|
172,000
|
|
|
$
|
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 intellectual assets).
13.
PREPAID EXPENSES AND DEPOSITS HELD WITH RMS
On
October 1, 2016, the Company entered a Paying Agent Agreement with Royalty Management Services Corp. (RMS) for holding funds and
making payment for expenses and commitments of the Company. The Company has entered a Management Agreement with RMS since September
15 2016 for management, investors’ and shareholders’ communications, website development, database management, accounting
and management of all activities such as travel and conference. All the expenses related to the services for the Company are included
as part of the management fees.
Prepaid consulting expenses
|
|
$
|
141,750
|
|
|
$
|
156,750
|
|
Prepaid Legal fees
|
|
|
90,000
|
|
|
|
—
|
|
Prepaid rent
|
|
|
244
|
|
|
|
—
|
|
Deposits held with RMS
|
|
|
576,520
|
|
|
|
—
|
|
Total Prepaid expenses and Deposits held with RMS
|
|
$
|
808,514
|
|
|
$
|
156,750
|
|
14.
DEPOSITS
On
November 20, 2014, the Company signed an amendment to the license agreement with Apothecary Genetics Investments LLC (“Apothecary”).
Pursuant to the amendment, the Company is acquiring all property, building, and equipment of Apothecary. The Company issued
14,500,000 R144 common stock to Apothecary with a market value of $971,500. On January 11, 2016, the Company signed a second amendment
to the license agreement with Apothecary. Pursuant to the second amendment, the Company issued 15,500,000 shares of R144 restricted
common stock with a fair market value of $181,350 to purchase a property located in northern California and wrote off the deposit
of $971,500 as the research and development with Apothecary was unsuccessful. At the year ended December 31, 2016, the Company
terminated the Amended Agreement dated January 11, 2016 due to refusal by Apothecary at end of July 2016 to transfer the northern
California property to the Company unless the Company pay additional cash or shares to them. The shares in escrow are to be returned
to treasury and transfer agency for cancellation.
15.
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.
16.
SUBSEQUENT EVENTS
Subsequent
to the year ended December 31, 2016, the following transactions occurred:
On
January 3, 2017, the Company entered a Research Collaboration Agreement with Dana-Farber Cancer Institute, Inc. of Boston Massachusetts
(DFCI) for a research project to develop and investigate the use of Cannabinolds to cure various caner, and investigate synergies
with radiotherapy and immunotherapy. In consideration for this Agreement and performance of the Research, the Company has paid
$201,656 to DFCI.
On
January 13, 2017, the Company entered a two-year consulting agreement to issued 10,000,000 shares of S-8 registered free-trading
common stock with a fair market value of $700,000, and 10,000,000 options with a fair market value of $700,000 to purchase S-8
registered free-trading common stock with an exercise price of $0.05 under the 2016 Equity Award Plan B, plus 5,000,000 shares
of R144 restricted common stock with a fair market value of 350,000. All the shares and share options were exercised and issued
on February 16, 2017.
On
January 24, 2017, the Company issued 10,000,000 shares S-8 registered free-trading common stock under an Option Agreement of 2016
Equity Award Plan B with exercise price at $0.04 and a fair market value of $815,000 to Alfredo Dupetit-Bernardi, President/CEO
of Cannabis Science Europe GmbH.
On
February 2, 2017, the Cannabis Science GmbH, a subsidiary 90% owned by the Company and 10% owned by Dupetit Natural Products
GmbH, has entered a Share Purchase Agreement with Jinvator BioMed GmbH (Jinvator), a German corporation, for 74.9% of the
total issued and outstanding shares of Jinvator for three hundred thousand Euros (€ 300,000) which has a US dollar
equivalent of $320,430 as intellectual properties. The Company has paid €60,000 on May 10, 2017 to the principal
shareholder of Jinvator and the acquisition is pending on verifications of key information.
On
March 2, 2017, the Company issued 3,000,000 shares of R144 restricted common stock to a consultant with a fair market value of
$271,500 for consulting services pursuant to a two-year consulting agreement.
On
March 7, 2017, the Company issued 15,000,000 shares S-8 registered free trading common stock under the 2016 Equity Award Plan
B with a fair market value of $1,270,500 for consulting services pursuant to a one-year consulting agreement.
On
March 13, 2017, the Company issued 10,000,000 shares S-8 registered free trading common stock under the 2016 Equity Award Plan
B with a fair market value of $883,000 for consulting services pursuant to a consulting agreement dated July 6 2016.
On
March 13, 2017, the Company issued 15,000,000 shares S-8 registered free trading common stock under the 2016 Equity Award Plan
B with a fair market value of $1,324,500 for consulting services pursuant to a consulting agreement dated April 29, 2015.
On
March 27, 2017, the Company issued 15,000,000 shares S-8 registered free-trading common stock under the 2016 Equity Award Plan
B with exercise price at $0.075 and a fair market value of $1,140,000 to a consultant pursuant to a five-year consulting agreement.
On
March 27, 2017, the Company entered an Asset Purchase Agreement with AFA Research and Development (ARD) and Aja Fonseca Arnold
(AJA) to purchase all the assets, technology, intellectual property, titles, and interest in ARD for $750,000. ARD and AJA shall
assume all liabilities and obligations of their assets. AJA has entered a five-year management agreement with the Company to exclusively
manage and operate all tasks related to product development/creation and patient programs of the Company. The Agreement has been
completed on March 27, 2017.
On
April 18, 2017, the Company issued 10,000,000 shares S-8 registered free-trading common stock under an Option Agreement of 2016
Equity Award Plan B with exercise price at $0.02 and a fair market value of $829,000 to Chief Medical Officer, Dr. Allen Herman.
On
April 27, 2017, the Company entered a five-year Research Collaboration Agreement with DFCI for a research project to develop and
investigate the use of Cannabinolds to cure various forms of cancer and investigate synergies with radiotherapy and immunotherapy.
In consideration for this agreement and performance of the research, the Company is obligated to pay DFCI a total of $1,834,062
over the life of the agreement with $159,287 due at signing and $418,683 to be paid at each anniversary of the agreement for the
next four years.
On
May 8, 2017, the Company issued 7,000,000 shares of R144 restricted common stock with a fair market value of $469,000 pursuant
to a one-year consulting agreement.
On
May 17, 2017, the Company issued 1,500,000 shares of R144 restricted common stock with a fair market value of $93,600 pursuant
to a one-year consulting agreement.
On
May 18, 2017, the Company entered an Exclusive Master Facilitator Agreement with Winnemucca Tribal MBS of Nevada, Free Spirit
Organics, LLC (FSO), American Education Consulting Group, Raymond C. Dabney University (RCDU), American States University and
Royalty Management Services Corp. (RMS) to lease and develop 250 Acres of land located in Holt, California for 15 years. As a
master facilitator, the Company will provide general support with developing, cultivating and processing Industrial Hemp for RCDU
and FSO on the property. Pursuant to the agreement, the Company and RMS are responsible for a $400,000 non-refundable deposit
and the development and operations on the property on 50-50 basis. Additionally, the Company will share 40% of net profit as investor
with RMS and retain 5% of net profit as master facilitator.
On
May 31, 2017, $375,000 in Accounts Payable for management fees accumulated from January 1, 2017 to May 31, 2017 was settled by
issuance of a one-year Convertible Promissory Note to Royalty Management Services Corp. At the election of the note holder, it
can be converted into common stock of the Company at the par value of $0.001 a share or other mutually agreed upon price. The
Company has fully recognized the conversion discount of the Note as prepaid interest to the maximum amount of $375,000 in accordance
with ASC 470-20-30-8 and amortize it over the life of the Note.