NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017
(UNAUDITED)
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A.
Organization and General Description of Business
Cannabis
Science, Inc. (“We” or “the Company”), was incorporated under the laws of the State of Colorado,
on February 29, 1996, as Patriot Holdings, Inc. On August 26, 1999, the Company changed its name to National Healthcare
Technology, Inc. On June 6, 2007, the Company changed its name from National Healthcare Technology, Inc., to Brighton Oil &
Gas, Inc., and converted to a Nevada corporation. On March 25, 2008 the Company changed its name to Gulf Onshore, Inc.
On April 6, 2009, the Company changed its name to Cannabis Science, Inc., and obtained a new CUSIP number.
On
May 7, 2009 the Company common shares commenced trading under the new stock symbol OTC Pink: CBIS.
Cannabis
Science, Inc. is at the forefront of medical marijuana research and development. The Company works with world authorities
on phytocannabinoid science targeting critical illnesses, and adheres to scientific methodologies to develop, produce, and commercialize
phytocannabinoid-based pharmaceutical products. In sum, we are dedicated to the creation of cannabis-based medicines, both
with and without psychoactive properties, to treat disease and the symptoms of disease, as well as for general health maintenance. The
Company formed two operating subsidiaries Cannabis Science BV and Cannabis Science International Holding BV in The Netherlands
on May 10
th
and May 6
th
, 2013, respectively, to pursue business opportunities in Europe and worldwide.
There are currently minimal operations in the subsidiaries. Agreements and business disclosures are in process.
On
November 15, 2013, the Company submitted a patent application N2010968 in Europe entitled "Composition for the
Treatment of Neuro behavioral Disorders." The subject of the patent is development of cannabinoid-based
formulations to treat a variety of neuro behavioral disorders, such as attention deficit hyperactivity disorder (ADHD),
anxiety, and sleep disorders.
B.
Basis of Presentation
These
consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted
in the United States, and are expressed in U.S. dollars. The Company’s fiscal year end is December 31.
Interim
Financial Reporting
While
the information presented in the accompanying interim consolidated financial statements is unaudited, it includes all
adjustments, which are in the opinion of management, necessary to present fairly the financial position, results of
operations and cash flows for the interim periods presented in accordance with general accepted accounting principles in the
United States of America (“GAAP”). These interim financial statements follow the same accounting policies and
methods of application as used in the December 31, 2016 audited financial statements of Cannabis Science, Inc. (the
“Company”). All adjustments are of a normal, recurring nature. Interim financial statements and the notes thereto
do not contain all of the disclosures normally found in the year-end audited financial statements and these Notes to
Financial Statements are abbreviated and contain only certain disclosures related to the nine-month periods ended September
30, 2017 and 2016. It is suggested that these interim financial statements be read in conjunction with the Company’s
audited financial statements and related notes for the year ended December 31, 2016 included in our Form 10-K/A filed with
the SEC on file no. 000-28911 171022778 August 11, 2017. Operating results for the nine months ended September 30, 2017 are
not necessarily indicative of the results that can be expected for the year ending December 31, 2017.
The
following subsidiaries and controlling interests are included with the consolidated financial statements of the Company for the
nine months ended September 30, 2017:
In
2012, the Company formed Cannabis Science Europe GmbH (“CSE”) in which the Company own 90% to operate joint-venture
operations with Dupetit Natural Products Ltd. The JV asset was sold to Endocan Corporation (formerly X-Change Corporation)
on December 12, 2012. No operations had commenced at the time of sale of the JV asset. The Company has reignited the CSE
by appointing Mr. Alfredo Dupetit on September 19, 2015 as president and chief executive officer of CSE. As recent as January
7, 2016, the Federal Health Ministry in Germany has presented “Cannabis as medicine”, a detailed draft bill that aims
to modify the Drug Law and relax the strict measures that regulate the consumption of medical cannabis and, above all, become
the main vehicle for everything relating to the plant and its medical users in the country. The Company has reinstated the
development of cannabis products in February 2016 for medicinal uses in Germany.
On
May 6, 2013, the Company formed Cannabis Science International Holdings B.V. and on May 10, 2013, the Company formed Cannabis
Science B.V. for the purpose of wholly-owned operating subsidiaries for the Company’s European and world-wide operations.
The Company has commenced some operating activities with cultivation in Spain and product development in 2014. Mario
Lap, director of the Company and director and officer of Cannabis Science B.V. manages the day-to-day operations through his private
companies MLS BV, MJR BV and Cannabis Agency BV, all are Netherlands registered companies.
On
August 6, 2014, the Company signed a proposal letter with Michigan Green Technologies, LLC (“MGT”) to acquire an additional
30.1% equity in MGT and completed the transaction with the principals of MGT under the proposal letter on February 20, 2015 to
effectively increase the Company’s equity ownership to 50.1%. As consideration for acquiring the additional 30.1%
equity, the Company issued 1,200,000 shares of common stock with a fair market value of $60,000 to the principals and shareholders
of MGT.
On
May 6, 2015, the Company announced the Assets acquisition of Equi-Pharm LLC, a USA manufacturer and distributor of specialty horse
and pet grooming and topical applications. The acquisition incorporates an extensive expansion plan for Equi-Pharm including "Large
Animal" such as horses, cattle, sheep and the like and "Small Animal" or "Pets" include cats, dogs, pet
snakes and the like for medical and cosmetic products. As consideration for acquiring the Assets, which consist of Inventory,
Trademark and brand names, and goodwill, the Company issued ten million (10,000,000) shares to the shareholders of Equi-Pharm
and they agreed to change its company name. The acquisition was completed on November 16, 2015 and the Company has formed a new
wholly owned subsidiary called Equi-Pharm LLC. in the state of Tennessee and started the operation of distributing of existing
and new line of products.
On
February 2, 2017, the Cannabis Science GmbH, a subsidiary 90% owned by the Company and 10% owned by Dupetit Natural Products GmbH,
has entered a Share Purchase Agreement with JinvatorBioMed GmbH (Jinvator), a German corporation, for 74.9% of the total issued
and outstanding shares of Jinvator for three hundred thousand Euros (€ 300,000) which has a US dollar equivalent of $320,430.
Jinvator developed a prototype called nanoGold-Test which is based on nano-particle technology for the detection of HIV in the
early stage of infection. Patent has been submitted and pending for approval.The acquisition is pending on verification of key
information.
On
May 10, 2017, the Company paid €60,000, which has a US dollar equivalent of $65,214, to the principal shareholder of JinvatorBioMed
GmbH (Jinvator) as deposit for the purchase of the 74.9% equity interest in Jinvator.
On
March 27, 2017, the Company entered an agreement to acquire the Assets of AFA Research and Development, a California sole proprietorship
of Aja Fonseca Arnold in the research and development of products based on cannabinoid (CBD) and Tetrahydrocannabinol (THC) for
patient care. As consideration for acquiring the Assets, which consist of brands, pending trademarks, trade-names, designs, medicinal
products and formulations, client base, computer hardware and software, intellectual properties, inventory, equipment, supplies,
supplier’s information and contacts, contracted rights, properties, patents, and distribution rights for a total sum of
$750,000. The completion of assets acquisition is pending on verification of material information. In addition, the Company engaged
Aja Fonseca Arnold under a 5-year management agreement to continue the research and development of medicinal cannabis products
for patient care with various ailments.
For
other accounting policies please refer to the Company’s 10-K/A filed with the SEC on file no. 000-28911 171022778 August
11, 2017.
The
Company qualifies as an “emerging growth company” as defined in Section 101 of the Jumpstart our Business Startups
Act (“JOBS Act”) as we do not have more than $1,000,000,000 in annual gross revenue and did not have such amount as
of December 31, 2016, our last fiscal year. We are electing to use the extended transition period for complying with new or revised
accounting standards under Section 102(b)(1) of the JOBS Act.
2.
GOING CONCERN
The
accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting
principles, which contemplate the continuation of the Company as a going concern. The Company reported an accumulated
deficit of $148,335,348 and had a stockholders’ deficit of $3,156,584 as of September 30, 2017.
In
view of the matters described, there is substantial doubt as to the Company's ability to continue as a going concern without a
significant infusion of capital. At September 30, 2017, the Company had insufficient operating revenues and cash flow to
meet its financial obligations. There can be no assurance that management will be successful in implementing its plans.
The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
We
anticipate that we will have to raise additional capital to fund operations over the next 12 months. To the extent that
we are required to raise additional funds to acquire research and growing facilities, and to cover costs of operations, we intend
to do so through additional public or private offerings of debt or equity securities. There are no commitment or arrangements
for other offerings in place, no guaranties that any such financings would be forthcoming, or as to the terms of
any such financings.
Any
future financing may involve substantial dilution to existing investors. We had been relying on our common stock to pay
third parties for services which has resulted in substantial dilution to existing investors.
3.
FAIR VALUE MEASUREMENTS AND DISCLOSURES
ASC
Topic 820,
Fair Value Measurement
, establishes a framework for measuring fair value. That framework provides a fair value
hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority
to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority
to unobservable inputs (Level 3 measurements).
4.
RELATED PARTY TRANSACTIONS
At
September 30, 2017, a total of $229,180 (December 31, 2016: $14,200) in Accrued Management Fees Payable was due to the Company’s
CEO/Director, Raymond C. Dabney.
At
September 30, 2017, a total Prepaid management fees of $30,000 (December 31, 2016: Prepaid $52,500) advanced to the Company’s
Director, Mario Lap.
At
September 30, 2017, a total of $105,000 (December 31, 2016: Prepaid $30,000) in Accrued Management Fees Payable was due to the
Company’s COO/Director, Robert Kane.
At
September 30, 2017, a total of $52,000 (December 31, 2016: $52,500) in loans payable was due to the Company’s CFO, Robert
Kane, through his company, R Kane Holding Inc., secured by a non-interest bearing promissory note due within 30 days of Michigan
Green Technologies (50.1% controlled by the Company) liquidating shares in Cannabis Science, Inc. to repay the debt.
At
September 30, 2017, the Company owes $11,871 (December 31, 2016: $11,871) to Crown Baus Capital Corp., which advanced a total
of $11,871 for payment of the Company’s expenses in July, August and September of 2015 with no interest and no security.
Crown Baus Capital Corp. is a company controlled by Raymond C. Dabney.
As
of September 30, 2017, the Company owes $101,882 (December 31, 2016: $101,882) in loan payable to a stockholder, Interstate 101
that is non-interest bearing and due on demand with no security. The loan originated between April 1, 2015 and August 19, 2016
for various expenses of the Company.
At September 30, 2017, the Company owes $3,165 (December 31,
2016: $3,165) in loan payable to Castor Management Services, a shareholder of the Company, with no interest and no security
and is due on demand. The loan originated on August 14, 2015 for expenses of the Company.
At
September 30, 2017, a total of $191,344 (December 31, 2016: $191,344) in loans payable was due to Bogat Family Trust, of which
Raymond Dabney the Company’s Director and President/CEO as trustee.
At
September 30, 2017, $106,186 (December 31, 2016: $93,885) was due to MJR BV, owned by Mario Lap director and director and officer
of EU subsidiaries.
At
September 30, 2017, $447 (December 31, 2016: $447) was due to Robert Melamede, former CEO.
At
September 30, 2017, a total of $95,909 (December 31, 2016: $23,378) in loans payable was due to Drue Young, a shareholder of the
Company, with no interest and no security and is due on demand. The loan originated from January 11, 2016 to September 30, 2017
for expenses of the Company.
At
September 30, 2017, a total of $20,502 (December 31, 2016: $20,502) in loans payable was due to Intrinsic Venture Corp., a shareholder
of the Company, with no interest and no security and is due on demand. The loan originated from April 22, 2011 to December 31,
2014.
At
September 30, 2017, the Company held 7,500,000 common shares in the OmniCanna Health Solutions, Inc. (prior to April 24,
2014, the name was Endocan Corporation) (OTCBB: ENDO) (“OmniCanna”) representing approximately 2.89% of the
issued and outstanding shares of OmniCanna, of which 5,000,000 common shares were acquired at a fair market value of $150,000
or $0.03 per share on December 12, 2012 and 2,500,000 common shares were acquired at a fair market value of $262,250 or
$0.1049 per share on February 8, 2013. The 5,000,000 common shares were received as consideration for the sale of its
rights and interest in the Dupetit Natural Products GmbH joint-venture operating agreement to OmniCanna under an Asset
Purchase Agreement and the 2,500,000 common shares were received as consideration for the sale of its rights and interest in
the Maliseet joint-venture operating agreement to OmniCanna under an Asset Purchase Agreement. The value of the shares
at September 30, 2017 was determined to be $0.0155 per share or $116,250 with the Company recording unrealized loss under the
Equity Investee rules for the nine months ended September 30, 2017 and the value of the shares at December 31, 2016 was
determined to be $0.025 per share or $187,500.
Convertible
Notes Payable to Royalty Management Services Corp., a company owned by a family member of Mr. Raymond C. Dabney, CEO/Director
of the Company, entered into a management agreement with the Company on September 15, 2015 for accounting services, websites development
and maintenance, office management, management and payments for travel, promotion and entertainments, shareholders communications
and payment services totaled $797,518 and $860,790 at September 30, 2017 and December 31, 2016 respectively. See Note 5.
On
July 2, 2017, the Company donated $40,000 to Constituency For Africa, a charitable organization found in United States for the
people in Africa, of which Mr. Raymond C. Dabney is a Board member.
On
November 5, 2014, the Company transitioned to equity method investee accounting for the OmniCanna shares pursuant to ASC 323 recording
$247,500 as the fair value of the shares to its equity method investee account. On December 31, 2016, the Company recorded
an impairment on the equity method investee account of $144,000 in relation to the shares. Robert Kane, COO and director
of the Company is also the COO and a director of OmniCanna. Benjamin Tam, CFO, and a director is also
a director and CFO of Omnicanna. Raymond Dabney, CEO has 10.78% equity interest in Omniccanna Health Solutions,
Inc. as of September 30, 2017.
For
the nine months ended September 30, 2017, the following related party stock-based compensation was recorded:
Related Party
|
|
Position
|
|
Amount
|
Alfredo Bernardi Dupetit
|
|
President & CEO of Cannabis Science Europe GmbH
|
|
$
|
415,000
|
|
Dr. Allen Herman
|
|
Chief Medical Officer
|
|
|
595,000
|
|
|
|
|
|
$
|
1,010,000
|
|
1
Including compensation to entities beneficially owned/control by the related parties
See
Note 6 -Equity Transactions for details of stock issuances to director and officers for services rendered.
Mario
Lap, a director of the Company and director and officer of its European subsidiaries, is conducting various business activities
of the Company in Spain under his personal name and/or his personal holding companies MJR BV, MLS Lap BV and Cannabis Agency BV
until such time as the Company is able to establish a Spanish subsidiary to conduct its own business operations and activities,
including but not limited to: operating lease for farms, asset purchases, office and equipment, personnel employment and other
business and operating activities as may be required from time-to-time. The Company anticipates having the Spanish subsidiary
setup soon at which time Mario Lap under fiduciary duty will transfer all business operating activities, agreements, and assets
to the Company.
Alfredo
Dupetit-Bernardi, International Product Development and President & CEO of Cannabis Science Europe GmbH, is conducting product
development through the purchase of cannabis products from his personal company, Dupetit Natural Products GmbH.
On
August 10, 2016, a total of $975,407 in Management Fees Payable accumulated from February 2012 to September 30, 2016 was converted
into a two-year Convertible Promissory Note to Raymond C. Dabney, CEO/Director of the Company. At the election of the note holder,
it can be converted into common stocks of the Company at the par value of $0.001 a share. The Company has fully recognized the
conversion discounts of the Note as prepaid interest to the maximum amount of $975,407 in accordance with ASC 470-20-30-8 and
amortize it over the life of the Note. The Company has partially reduced $250,000 as result of a Debt Settlement Agreement dated
August 10, 2016 by issuance of 250,000,000 Rule 144 restricted common stock at $0.001 a share. In addition, the Company paid $55,000
in expenses for Mr. Dabney in 2016. The balance of the Convertible Promissory Note as of September 30, 2017 was $670,407 (December
31, 2016: $670,407).
Notes
payable to Embella Holdings Ltd. totaled $1,108,896 and $1,108,896 at September 30, 2017 and December 31, 2016, respectively.
As of September 30, 2017, the Company is in default on the promissory notes due and is negotiating with the debtor to extend
the date. See Note 5.
Notes
payable to Intrinsic Capital Corp. totaled $231,260 and $231,260 at September 30, 2017 and December 31, 2016, respectively. See
Note 5.
Between
January 1, 2015 to March 7, 2015, R. Kane Holding Inc., a company owned by Mr. Robert Kane, director and CFO, had advanced $52,500
into Michigan Green Technologies, LLC, which is 50.1% controlled by the Company as Loan Payable to R. Kane Holding Inc.
On
July 25, 2014, Bogat Family Trust, with Raymond Dabney as trustee, representing a majority of Series A preferred stockholders,
signed a resolution to approve an amendment to the certificate of designation preferences and rights for Series A preferred shares.
Pursuant to the amendment filed with the Nevada Secretary of State, the voting rights of Series A preferred stockholders was changed
from 1,000 votes per share to 67% of the total vote on all shareholder matters. No common stockholders voted on this amendment.
5.
NOTES PAYABLE
As
of September 30, 2017, a total of $1,758,655 (December 31, 2016: $1,506,745) of notes payable are due mostly to stockholders
that are non-interest bearing and are due 12 months from the date of issue and loan origination beginning on January 31, 2012
through December 31, 2016. $1,340,156 of the Promissory notes were in default on September 30, 2017. As of September 30,
2017, a total of $1,467,925 convertible promissory notes (December 31, 2016: $1,531,197) are convertible to common stock of
the Company. All promissory notes are unsecured.
Notes
payable to Embella Holdings Ltd that are non-interest bearing totaled $1,108,896 and $1,108,896 at September 30, 2017 and December
31, 2016, respectively. As of September 30, 2017, the Company is in default on the promissory notes due and is negotiating
with the debtor to extend the date. The note payable is classified with notes payable to stockholders.
Notes
payable to Intrinsic Capital Corp. that are non-interest bearing totaled $231,260 and $231,260 at September 30, 2017 and December
31, 2016, respectively. As of September 30, 2017, the Company is in default on the promissory notes due and is negotiating with
the debtor to extend the date. The note payable is classified with notes payable to stockholders.
On
August 10, 2016, a total of $975,407 in Management Fees Payable accumulated from February 2012 to June 30, 2016 was converted
into a two-year Convertible Promissory Note to Raymond C. Dabney, CEO/Director of the Company. At the election of the note holder,
it can be converted into common stocks of the Company at the par value of $0.001 a share. The Company has fully recognized the
conversion discounts of the Note as prepaid interest to the maximum amount of $975,407 in accordance with ASC 470-20-30-8 and
will amortize it over the life of the Note. The Company has partially reduced $250,000 as result of a Debt Settlement Agreement
dated August 10, 2016 by issuance of 250,000,000 Rule 144 restricted common stock at $0.001 a share. In addition, the Company
paid $55,000 in expenses for Mr. Dabney in 2016. The balance of the Convertible Promissory Note as of September 30, 2017 was $670,407
(December 31, 2016: $670,407). In the nine months ended September 30, 2017, the Company recorded $251,910 as interest for the
amortization, conversion and payment. The note payable is classified with notes payable to stockholders.
On
October 1, 2016, a total of $710,790 in Accounts Payable for management fees accumulated from January 2016 to October 1, 2016
was converted into a one-year Convertible Promissory Note to Royalty Management Services Corp., a related party. At
the election of the note holder, it can be converted into common stocks of the Company at the par value of $0.001 a share
or other mutually agreed upon price. The Company has not recognized the conversion discounts of the Note due to the
uncertainty of the price in accordance with ASC 470-20-25. The Company paid $438,272 during the period from July 2, 2017 to
September 30, 2017 to Royalty Management Services Corp., a related party. The balance of the Convertible Promissory Note as
of September 30, 2017 was $272,518 (December 31, 2016: $710,790). In the nine months ended September 30, 2017 the Company
recorded $533,092 as interest for the amortization, conversion and payment.
On
December 31, 2016, $150,000 in Accounts Payable for management fees accumulated from November 1, 2016 to December 31, 2016 was
converted into a one-year Convertible Promissory Note to Royalty Management Services Corp., a related party. At the election of
the note holder, it can be converted into common stocks of the Company at the par value of $0.001 a share or other mutually agreed
upon price. The company has not recognized the conversion discounts of the Note due to the uncertainty of the price in accordance
with ASC 470-20-25. The balance of the Convertible Promissory Note as of September 30, 2017 was $150,000 (December 31, 2016: $150,000).
In the nine months ended September 30, 2017 the Company recorded $112,500 as interest for the amortization, conversion and payment.
On
May 31, 2017, $375,000 in Accounts Payable for management fees accumulated from January 1, 2017 to May 31, 2017 was converted
into a one-year Convertible Promissory Note to Royalty Management Services Corp., a related party. At the election of the note
holder, it can be converted into common stocks of the Company at the par value of $0.001 a share or other mutually agreed upon
price. The company has not recognized the conversion discounts of the Note due to the uncertainty of the price in accordance with
ASC 470-20-25. The balance of the Convertible Promissory Note as of September 30, 2017 was $375,000 (December 31, 2016: $0). In
the nine months ended September 30, 2017 the Company recorded $125,000 as interest for the amortization, conversion and payment.
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 2,521,005,296 and 2,350,355,296 issued and outstanding as of September 30, 2017 and December
31, 2016, respectively. The current authorized common stock of 3,000,000,000 shares will not be sufficient if and when the debt
holders of convertible promissory notes elect to convert the debts into common shares. The Company intends to file for an increase
in the number shares in authorized common stock once the required updated financial reporting have been filed with the Securities
Exchange Commission
.
The
Company is also authorized to issue 100,000,000 shares of common stock, Class A with a par value of $0.001 per share. These
shares have 10 votes per share. There were 0 issued and outstanding as of September 30, 2017 and December 31, 2016.
The
Company is also authorized to issue 1,000,000 shares of preferred stock. These shares have full voting rights of 67% on
all shareholder matters pursuant to amended certificate of designation filed with the Nevada Secretary of State. There were
1,000,000 issued and outstanding as of September 30, 2017 and December 31, 2016.
As
set out below, we have issued securities in exchange for services, properties and for debt, using exemptions available under the
Securities Act of 1933.
During
the nine months ended September 30, 2017, the Company issued 121,500,000 shares of common stock and cancelled 10,850,000 pending
to be issued shares of common stock for services under various executive and consulting agreements as follows:
On
February 16, 2017, the Company issued 5,000,000 shares of R144 restricted common stock to a consultant with a fair market value
of $350,000 for legal and general consulting services under a consulting agreement dated January 13, 2017.
On
February 16, 2017, the Company issued 10,000,000 shares S-8 registered free-trading common stock to a consultant with a fair market
value of $700,000 for legal and general consulting services pursuant to a consulting agreement dated January 13, 2017.
On
March 2, 2017, the Company issued 3,000,000 shares of R144 restricted common stock to a consultant with a fair market value of
$271,500 for consulting services pursuant to a two-year consulting agreement.
On
March 7, 2017, the Company issued 15,000,000 shares S-8 registered free trading common stock under the 2016 Equity Award Plan
B with a fair market value of $1,270,500 for consulting services under a consulting agreement dated March 7, 2017.
On
March 13, 2017, the Company issued 10,000,000 shares S-8 registered free trading common stock under the 2016 Equity Award Plan
B with a fair market value of $883,000 for consulting services pursuant to a consulting agreement dated July 6 2016.
On
March 13, 2017, the Company issued 15,000,000 shares S-8 registered free trading common stock under the 2016 Equity Award Plan
B with a fair market value of $1,324,500 for consulting services pursuant to a consulting agreement dated April 29, 2015.
On
May 5, 2017, the Company issued 7,000,000 shares of R144 restricted common stock to a consultant with a fair market value of $469,000
for consulting services pursuant to a one year consulting agreement.
On
May 17, 2017, the Company issued 1,500,000 shares of R144 restricted common stock to a consultant with a fair market value of
$93,600 for consulting services pursuant to a three-month Marketing agreement.
On
August 10, 2017, the Company issued 25,000,000 shares S-8 registered free trading common stock under the 2016 Equity Award Plan
B with a fair market value of $1,062,500 for consulting services pursuant to a two-year consulting agreement.
On
August 31, 2017, the Company issued 30,000,000 shares S-8 registered free trading common stock under the 2016 Equity Award Plan
B with a fair market value of $1,392,000 for bonus to a consultant pursuant to a two-year consulting agreement dated August 10,
2017.
On
September 30, 2017, the Company cancelled 3,500,000 shares of R144 restricted common stock, which were pending to be issued since
2015 to two consultants shares with a total fair market value of $107,750 based on the date of the Consultant Agreements, for
non-performance of services.
On
September 30, 2017, the company cancelled 7,350,000 shares S-8 registered free trading common stock, which were pending to be
issued from 2014 to 2016 with a total fair market value of $371,695 based on the date of the Consultant Agreement, for non-performance
of services.
Stock
Options
:
The
following options were issued to the Company’s V.P of investor relations, CFO and Director for services under a September
16, 2011 agreement:
|
(i)
|
the
option to purchase 100,000 common shares at ten cents ($0.10) per share;
|
|
(ii)
|
the
option to purchase 500,000 common shares at thirty-five cents ($0.35) per share; and
|
|
(iii)
|
the
option to purchase 100,000 common shares at twenty cents ($0.20) per share;
|
|
(iv)
|
the
option to purchase 1,000,000 common shares at fifty cents ($0.50) per share.
|
On
January 13, 2017, the Company issued 10,000,000 shares S-8 registered free-trading common stock under an Option Agreement of 2016
Equity Award Plan B with exercise price at $0.05 and a fair market value of $700,000 to a consultant pursuant to a consulting
agreement.
On
January 24, 2017, the Company issued 10,000,000 shares S-8 registered free-trading common stock under an Option Agreement of 2016
Equity Award Plan B with exercise price at $0.04 and a fair market value of $815,000 to Alfredo Dupetit-Bernardi, President/CEO
of Cannabis Science Europe GmbH.
On
March 27, 2017, the Company issued 15,000,000 shares S-8 registered free-trading common stock under the 2016 Equity Award Plan
B with exercise price at $0.075 and a fair market value of $1,140,000 to a consultant pursuant to a five-year consulting agreement.
On September 29 2017, by mutual agreement, the Company and the Consultant agreed to cancel the 15,000,000 shares issued and these
shares are to be returned to treasury for cancellation.
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
August 2, 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 $0.015 and a fair market value of $465,000 to a consultant pursuant to a consulting
agreement.
On
August 10, 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 $425,000 to a consultant pursuant to a consulting
agreement.
On
August 10, 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 $0.03 and a fair market value of $425,000 to a consultant pursuant to a consulting
agreement.
A
summary of the status of the Company’s option grants as of September 30, 2017 and the changes during the period then ended
is presented below:
|
|
Shares
|
|
Weighted-Average
Exercise Price
|
Outstanding December 31, 2016
|
|
|
11,700,000
|
|
|
$
|
0.069
|
|
Granted
|
|
|
75,000,000
|
|
|
$
|
0.064
|
|
Exercised
|
|
|
75,000,000
|
|
|
$
|
0.064
|
|
Expired
|
|
|
10,000,000
|
|
|
$
|
0.010
|
|
Outstanding September 30, 2017
|
|
|
1,700,000
|
|
|
$
|
0.041
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at September 30, 2017
|
|
|
1,700,000
|
|
|
$
|
0.041
|
|
Shares issued under option agreement to be returned and cancelled
|
|
|
15,000,000
|
|
|
$
|
0.075
|
|
1,700,000
shares of these options at an average exercise price of $0.41 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, 2017 was estimated using the Black-Scholes option valuation model with
the following:
Average expected life in years for outstanding options
|
|
|
2
|
|
|
|
Years
|
|
Average risk-free interest rate
|
|
|
2.50
|
|
|
|
%
|
|
Average volatility
|
|
|
137.2697
|
|
|
|
%
|
|
Dividend yield
|
|
|
0
|
|
|
|
%
|
|
7.
EQUIPMENT AND GREENHOUSE
|
|
|
|
Accumulated
|
|
September 30, 2017
|
|
December 31, 2016
|
|
|
Cost
|
|
Depletion
|
|
Net Book Value
|
|
Net Book Value
|
Computer
|
|
|
$
|
6,482
|
|
|
$
|
5,971
|
|
|
$
|
511
|
|
|
$
|
0
|
|
Software
|
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
11,482
|
|
|
|
10,971
|
|
|
|
511
|
|
|
|
0
|
|
Greenhouse
|
|
|
$
|
330,026
|
|
|
$
|
9,167
|
|
|
$
|
320,859
|
|
|
$
|
0
|
|
Total
|
|
|
$
|
341,508
|
|
|
$
|
20,138
|
|
|
$
|
321,370
|
|
|
$
|
0
|
|
8.
PROPERTY FARMING RIGHTS
On
March 24, 2016, the Company entered a 15 years Joint Venture Agreement with the Ft. McDermitt Allotment land Allotees, which
is on the Ft. McDermitt Tribal Reservation, Raymond C. Dabney University, American Education Consulting Group and Cannabis Science,
Inc. for a total of ten (10), one (1) acre parcels of land. The project is designed to benefit both the Ft. McDermitt Tribe and
Members, and Allotment Allottees. Cannabis Science made two initial payments of $50,000 for farming rights and initial development
of two one (1) acre parcels of land located in Fort McDermitt Tribal Reservation in the State of Nevada, USA. Each one (1)
acre parcel of land is specifically designated for placement no more than twelve (12) three (3,000) square foot greenhouses for
the production of Cannabis and all Cannabis related products. All harvested products are to be delivered and sold to qualified licensed
distribution centers. The Company is to share 40% of the Adjusted Gross Income after deduction of related operating expenses and
cost to build the green houses.
On
October 24, 2016, the Company entered an Exclusive Master Facilitator Agreement with Members of Winnemucca Tribal Allotment, Free
Spirit Organics, LLC, American Education Consulting Group and Raymond C. Dabney University to provide general support with developing,
cultivating and processing of Cannabis/Hemp on 320 Acres of leased land in Humboldt County, Nevada. The Company’s share
is 40% of net profit derived from the sale and distribution of Cannabis/Hemp products grown and manufactured on these lands. Under
the agreement, the Company will be provided one (1) acre of land for research and development with placement of no more than 36,000
square feet of greenhouses used for cultivation and research of Cannabis/Hemp. The term of this Exclusive Master Agreement is
five (5) years and up to twenty-five (25) years.
On
November 12, 2016, the Company entered an Exclusive Master Facilitator Agreement with the Members of Washoe Tribal Allotments
in Douglas County, Nevada, together with Free Spirit Organics, LLC, American Education Consulting Group and Raymond C. Dabney
University to provide general support with developing, cultivating and processing Cannabis/Hemp with Free Spirit Organics, LLC
on Lot 20, one (1) acre parcel of leased land located in the allotment cc183, a portion of the SE ¼ of section 15, township
11 North, Range 21, East Mount Diablo Meridian, Douglas County of Nevada. The Company’s share is 20% on all initial non-refundable
deposits from external investor, and 10% of net profit derived from the sale and distribution of Cannabis/Hemp products grown
and manufactured on the land. Under the agreement, the Company will be provided one (1) acre of land for research and development
with placement of no more than 36,000 square feet of greenhouses used for cultivation and research of Cannabis/Hemp. The term
of this Exclusive Master Agreement is twenty-five (25) years renewable every five (5) years.
On
December 18, 2016, the Company enter six (9) 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.
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.The Company wrote off the operating capital in the amount of $212,000
for Winnemucca Lands inclusive of HRM Farm due to the illegal seizure of cultivated industrial hemp by San Joaquin County and
Department of Enforcement Agency (DEA) on October 9, 2017. The Company has filed a suit against the San Joaquin County and DEA
on October 27, 2017.
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
|
|
Cost
|
|
Accumulated
Depletion
|
|
Net Book Value
|
|
Net Book Value
|
Property Farming Rights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fort McDermit Allottees Land
|
|
$
|
50,000
|
|
|
$
|
4,723
|
|
|
$
|
45,277
|
|
|
$
|
47,778
|
|
Washoe Tribal Allotment Lands
|
|
|
640,000
|
|
|
|
20,252
|
|
|
|
619,748
|
|
|
|
638,948
|
|
Winnemucca Tribal MBS Lands
|
|
|
200,000
|
|
|
|
4,904
|
|
|
|
195,096
|
|
|
|
0
|
|
|
|
|
890,000
|
|
|
$
|
29,879
|
|
|
|
860,121
|
|
|
|
686,726
|
|
Operating capital for Washoe Lands
|
|
$
|
85,000
|
|
|
|
—
|
|
|
$
|
85,000
|
|
|
$
|
—
|
|
Total
|
|
$
|
975,000
|
|
|
$
|
29,879
|
|
|
$
|
945,121
|
|
|
$
|
686,726
|
|
All
equipment is stated at cost. Maintenance and repairs are charged to expense as incurred and the cost of renewals and betterments
are capitalized. Depreciation is computed using the straight-line method over the estimated lives of the related assets,
2 years for computer, 2 years for software, 5 years for equipment and laboratory equipment and 3 years for automobile.
All
property farm rights are amortized over the term of each respective agreements.
9.
EQUITY METHOD INVESTEE
On
November 5, 2014, the Company accounted for its investment and loans in OmniCanna Health Solutions, Inc. (formerly Endocan Corporation)
using the equity method pursuant to ASC 323 – Investments – Equity Method and Joint Ventures. In accordance
with ASC 323, when the Company does not have a controlling financial interest in an entity but exerts significant influence over
the entity’s operating and financial policies, the Company accounts for its investment in accordance with the equity method
of accounting. This generally applies to cases in which the Company owns a voting or economic interest of between 20 and 50 percent.
The
accounting using the equity method is in conjunction with appointment of Raymond Dabney as CEO and director of the Company on
November 5, 2014, in addition to Mr. Dabney being a controlling shareholder of the Company since September 2009 and a 10.78% equity
interest in OmniCanna since June 2013. Benjamin Tam, CFO and director and Robert Kane, COO and director of the Company are also
the CFO and director and COO and director of Omnicanna. Therefore, the Company was deemed to have significant influence
and control of OmniCanna Health Solutions, Inc.
On
November 5, 2014, the Company recorded $247,500 in marketable securities and $85,277 (based on currency converted as of September
30, 2017) in loans to OmniCanna and to its equity method investee account in accordance with ASC 323. An unrealized loss
on the equity method account of $71,250 was recognized for the nine months ended September 30, 2017 in addition to a unrealized
gain on the equity method investee account of $144,000 was recognized for the year ended December 31, 2016 in the value of Omnicanna
marketable securities.
10.
GOODWILL and INTANGIBLE ASSETS
|
|
September 30, 2017
|
|
December 31, 2016
|
Intellectual assets, primarily intellectual property
|
|
$
|
660,299
|
|
|
$
|
660,299
|
|
Goodwill
|
|
|
170,688
|
|
|
|
170,688
|
|
Less: accumulated amortization
|
|
|
(520,549
|
)
|
|
|
(488,299
|
)
|
Less: Impairment of Goodwill
|
|
|
(170,688
|
)
|
|
|
(170,688
|
)
|
Total intangible assets, net
|
|
$
|
139,750
|
|
|
$
|
172,000
|
|
Intangible
assets are stated at fair value on the date of purchase less accumulated amortization. Amortization is computed using the straight-line
method over the estimated lives of the related assets (5 years for both intellectual assets and Goodwill).
11.
PREPAID EXPENSES AND DEPOSITS HELD WITH RMS
On
October 1, 2016, the Company entered a Paying Agent Agreement with Royalty Management Services Corp. (RMS) for holding funds and
making payment for expenses and commitments of the Company. The Company has entered a Management Agreement with RMS since September
15, 2016 for management, investors’ and shareholders’ communications, website development, database management, accounting
and management of all activities such as travel and conference. All the expenses related to the services for the Company are included
as part of the management fees.
|
|
September 30, 2017
|
|
December 31, 2016
|
Prepaid consulting expenses
|
|
$
|
130,500
|
|
|
$
|
141,750
|
|
Prepaid Legal fees
|
|
|
—
|
|
|
|
90,000
|
|
Prepaid rent
|
|
|
244
|
|
|
|
244
|
|
Prepaid management fees
|
|
|
30,000
|
|
|
|
—
|
|
Deposits held with RMS
|
|
|
42,490
|
|
|
|
576,520
|
|
Deposit for acquisition of Jinvator
|
|
|
65,214
|
|
|
|
—
|
|
Total Prepaid expenses and Deposits held with RMS
|
|
$
|
268,448
|
|
|
$
|
808,514
|
|
12.
COMMITMENTS
The
Company has lease commitments for its European operations under private companies, MLS Lap B.V. and MJR B.V. owned and controlled
by Mario Lap, director of the Company and director and officer of EU subsidiaries. Negotiations are ongoing in regards to preparing
finalized agreements between the Company and Mr. Lap’s companies.
13.
SUBSEQUENT EVENTS
On
October 17, 2017, the Company issued 20,000,000 shares S-8 registered free-trading common stock under an Option Agreement of 2016
Equity Award Plan B with exercise price at $0.025 and a fair market value of $610,000 to a consultant.
On
October 27, 2017, the Company filed a suit against San Joaquin County and DEA for illegal seizure of cultivated industrial hemp
crops from HRM Farm in Winnemucca Tribal Land for return of the seized properties.