0001553350-18-000580.txt : 20180517 0001553350-18-000580.hdr.sgml : 20180517 20180516205601 ACCESSION NUMBER: 0001553350-18-000580 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 89 FILED AS OF DATE: 20180517 DATE AS OF CHANGE: 20180516 FILER: COMPANY DATA: COMPANY CONFORMED NAME: United Cannabis Corp CENTRAL INDEX KEY: 0001436161 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 261391338 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-223101 FILM NUMBER: 18841540 BUSINESS ADDRESS: STREET 1: 301 COMMERCIAL RD. STREET 2: UNIT D CITY: GOLDEN STATE: CO ZIP: 80401 BUSINESS PHONE: 844-278-2420 MAIL ADDRESS: STREET 1: 301 COMMERCIAL RD. STREET 2: UNIT D CITY: GOLDEN STATE: CO ZIP: 80401 FORMER COMPANY: FORMER CONFORMED NAME: MySkin, Inc. DATE OF NAME CHANGE: 20080528 S-1/A 1 cnab_s1.htm REGISTRATION STATEMENT Registration Statement

 



 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM S-1

Amendment No. 4


Registration Statement Under

THE SECURITIES ACT OF 1933


UNITED CANNABIS CORPORATION

 (Exact name of registrant as specified in charter)


Colorado

 

8742

 

46-5221947

(State or other jurisdiction

 

(Primary Standard Classi-

 

(IRS Employer

of incorporation)

 

fication Code Number)

 

I.D. Number)


United Cannabis Corporation

301 Commercial Rd., Unit D

Golden, CO. 80401

(303) 386-7104

(Address and telephone number of principal executive offices)


301 Commercial Rd., Unit D

Golden, CO. 80401

 (Address of principal place of business or intended principal place of business)


Earnest Blackmon

301 Commercial Rd., Unit D

Golden, CO. 80401

(303) 386-7104

(Name, address and telephone number of agent for service)


Copies of all communications, including all communications sent

to the agent for service, should be sent to:


William T. Hart, Esq.

Hart & Hart, LLC

1624 Washington Street

Denver, Colorado  80203

303-839-0061


As soon as practicable after the effective date of this Registration Statement

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:


If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box:  þ


If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨


If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨


If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act.  


Large accelerated filer   ¨

Accelerated filer   ¨

Non-accelerated filer     ¨

Smaller reporting company  þ

(Do not check if a smaller reporting company)

Emerging growth company  ¨


If an emerging growth company, indicate by checkmark if the registrant has not elected to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ¨

 

 




 







CALCULATION OF REGISTRATION FEE


Title of each

    

 

 

Proposed

 

Proposed

 

 

Class of

 

 

 

Maximum

 

Maximum

 

 

Securities

 

Securities

 

Offering

 

Aggregate

 

Amount of

to be

 

to be

 

Price Per

 

Offering

 

Registration

Registered

 

Registered

 

Share (1)

 

Price

 

Fee

 

 

 

 

 

 

 

 

 

Common stock (2)

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 $10,000,000

 

$1,245.00


(1) Offering price computed in accordance with Rule 457(o).

(2) Represents shares issuable to Tangiers Global, LLC under an Investment Agreement.


Pursuant to Rule 416, this Registration Statement includes such indeterminate number of additional securities as may be required for issuance upon the exercise of the warrants as a result of any adjustment in the number of securities issuable by reason of stock splits or similar capital reorganizations.

      

The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of l933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.








 



PROSPECTUS


UNITED CANNABIS CORPORATION


Common Stock


This prospectus may be used only in connection with sales of up to 9,000,000 shares of our common stock by Tangiers Global, LLC. Tangiers will sell shares of common stock purchased from us under an Investment Agreement. In connection with the sale of these shares, Tangiers will be an “underwriter” as that term is defined in the Securities Act of 1933.


The number of shares to be sold by Tangiers in this offering will vary from time-to-time and will depend upon the number of shares purchased from us pursuant to the terms of the Investment Agreement. However, 9,000,000 shares of common stock is the maximum number of shares which we may sell to Tangiers. See the section of this prospectus captioned “Investment Agreement” for more information.


Our common stock is quoted on the over-the-counter market under the symbol "CNAB". On May 15, 2018 the closing price for one share of our common stock was $0.94.


Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.


These securities are speculative and involve a high degree of risk. For a description of certain important factors that should be considered by prospective investors, see "Risk Factors" beginning on page 5 of this prospectus.

















The date of this prospectus is May __, 2018






 






 


PROSPECTUS SUMMARY


THIS SUMMARY IS QUALIFIED BY THE MORE DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS.


We own intellectual property relating to the legalized growth, production, manufacture, marketing, management, utilization and distribution of medical and recreational marijuana and marijuana infused products.


Our primary goal is to advance the use of phytocannabinoids therapeutics in medicine through research, product development and education. We are dedicated to improving the lives of patients. We provide the intellectual property, patent-pending technology, trusted brands, clinical data, technical training, sales tools and methodologies necessary to assist our clients businesses for success. Our ACT Now Program utilizes our patent-pending Prana Bio Nutrient Medicinals with a HIPPAA compliant electronic health record (“EHR”) software that enables physicians to create comprehensive sequencing charts specific to their patients’ medical aliments. The ACT Now EHR software allows for global monitoring, patient management, and effective cannabinoid therapy protocols.


Our Prana Bio Nutrient Medicinal products are designed to help supplement deficiencies related to the endocannabinoid system including pain, neuropathy, arthritis, MS, IBS, autism, seizures, eczema, sleep, anxiety, head trauma, opioid dependency and clinical endocannabinoid deficiencies. The endocannabinoid system is a signaling system within the human body that utilizes hundreds of receptors to help maintain homeostasis between the central nervous system and the immune system.


Our executive offices are located at 301 Commercial Road, Unit D, Golden, CO 80401, and our telephone number is (303) 386-7104.


Securities Offered:


In order to provide a possible source of funding for our operations, we have entered into an Investment Agreement with Tangiers Global, LLC


Under the Investment Agreement, Tangiers has agreed to provide us with up to $10,000,000 of funding during the period ending on the date which is three years after the date of this prospectus. During this period, we may sell shares of our common stock to Tangiers, and Tangiers will be obligated to purchase the shares. These shares may be offered for sale from time to time by means of this prospectus by or for the account of Tangiers.


The minimum amount we can raise at any one time is $5,000, and the maximum amount we can raise at any one time is $1,000,000. We are under no obligation to sell any shares under the Investment Agreement.


The number of shares to be sold by Tangiers in this offering will vary from time-to-time and will depend upon the number of shares purchased from us pursuant to the terms of the Investment Agreement.  However, 9,000,000 shares of common stock, which represents approximately 14.7% of our outstanding shares as of April 24, 2018, is the maximum number of shares which we may sell to Tangiers.  See the section of this prospectus captioned “Investment Agreement” for more information.


Based upon the market price of our common stock for the five trading days prior to May 15, 2018, and the terms of the Investment Agreement, the sale of these 9,000,000 shares would result in net proceeds to us of approximately $9,100,000.


As of May 15, 2018, we had 64,229,926 outstanding shares of common stock. The number of outstanding shares does not give effect to shares which may be issued pursuant to the Investment Agreement or upon the exercise of options or warrants


We will not receive any proceeds from the sale of the shares by Tangiers. However, we will receive proceeds from any sale of common stock to Tangiers under the Investment Agreement. We expect to use substantially all the net proceeds for our operations.


Risk Factors:    


The purchase of the securities offered by this prospectus involves a high degree of risk. Risk factors include our history of losses and need for additional capital. See the "Risk Factors" section of this prospectus for additional Risk Factors.

      

Trading Symbol:   CNAB



1



 


Forward-Looking Statements


This prospectus contains or incorporates by reference "forward-looking statements," as that term is used in federal securities laws, concerning our financial condition, results of operations and business. These statements include, among others:


·

statements concerning the benefits that we expect will result from our business activities; and

·

statements of our expectations, beliefs, future plans and strategies, anticipated developments and other matters that are not historical facts.


You can find many of these statements by looking for words such as "believes," "expects," "anticipates," "estimates" or similar expressions used in this prospectus.


These forward-looking statements are subject to numerous assumptions, risks and uncertainties that may cause our actual results to be materially different from any future results expressed or implied in those statements. Because the statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied. We caution you not to put undue reliance on these statements, which speak only as of the date of this prospectus. Further, the information contained in this prospectus, or incorporated herein by reference, is a statement of our present intention and is based on present facts and assumptions, and may change at any time.




2



 


RISK FACTORS


Investors should be aware that this offering involves certain risks, including those described below, which could adversely affect the value of our common stock. We do not make, nor have we authorized any other person to make, any representation about the future market value of our common stock. In addition to the other information contained in this prospectus, the following factors should be considered carefully in evaluating an investment in our securities.


We have a limited operating history, and may never be profitable. Since we have only limited operations and have an unproven business plan, it is difficult for potential investors to evaluate our business. There can be no assurance that we will be profitable or that the securities which may be sold in this offering will have any value.


We need additional capital. We need additional capital to fund our operations. We do not know what the terms of any future capital raising may be but any future sale of our equity securities will dilute the ownership of existing stockholders and could be at prices substantially below the market price of our common stock. Our failure to obtain the capital which we require may result in the slower implementation of our business plan.


Our proposed business is dependent on laws pertaining to the marijuana industryContinued development of the marijuana industry is dependent upon continued legislative authorization of marijuana at the state level. Any number of factors could slow or halt progress in this area. Further, progress for the industry, while encouraging, is not assured. While there may be ample public support for legislative action, numerous factors impact the legislative process. Any one of these factors could slow or halt use of marijuana, which would negatively impact our proposed business.


As of January 31, 2018, 29 states and the District of Columbia allow its citizens to use medical marijuana. Voters in the states of Colorado, Washington, Alaska, Oregon and the District of Columbia have approved ballot measures to legalize cannabis for adult use. The state laws are in conflict with the federal Controlled Substances Act, which makes marijuana use and possession illegal on a national level. The Obama administration has effectively stated that it is not an efficient use of resources to direct law federal law enforcement agencies to prosecute those lawfully abiding by state-designated laws allowing the use and distribution of medical marijuana. However, there is no guarantee that the administration will not change its stated policy regarding the low-priority enforcement of federal laws. Additionally, any new administration that follows could change this policy and decide to enforce the federal laws strongly. Any such change in the federal government’s enforcement of current federal laws could cause significant financial damage to us and our shareholders.


Further, and while we do not intend to harvest, distribute or sell cannabis, if we lease buildings to growers of marijuana we could be deemed to be participating in marijuana cultivation, which remains illegal under federal law, and exposes us to potential criminal liability, with the additional risk that our properties could be subject to civil forfeiture proceedings.


The marijuana industry faces strong opposition. It is believed by many that large well-funded businesses may have a strong economic opposition to the marijuana industry. We believe that the pharmaceutical industry clearly does not want to cede control of any product that could generate significant revenue. For example, medical marijuana will likely adversely impact the existing market for the current “marijuana pill” sold by mainstream pharmaceutical companies. Further, the medical marijuana industry could face a material threat from the pharmaceutical industry, should marijuana displace other drugs or encroach upon the pharmaceutical industry’s products. The pharmaceutical industry is well funded with a strong and experienced lobby that eclipses the funding of the medical marijuana movement. Any inroads the pharmaceutical industry could make in halting or impeding the marijuana industry could have a detrimental impact on our proposed business.


Marijuana remains illegal under Federal law. Marijuana is a schedule-I controlled substance and is illegal under federal law. Even in those states in which the use of marijuana has been legalized, its use remains a violation of federal law. Since federal law criminalizing the use of marijuana preempts state laws that legalize its use, strict enforcement of federal law regarding marijuana would likely result in our inability to proceed with our business plan.


The previous administration under President Obama had effectively stated that it was not an efficient use of resources to direct federal law enforcement agencies to prosecute those lawfully abiding by state-designated laws allowing the use and distribution of medical cannabis. In this regard, the prior DOJ Deputy Attorney General of the Obama administration issued a memorandum (the “Cole Memo”) to all United States Attorneys providing updated guidance to federal prosecutors concerning cannabis enforcement under the Controlled Substances Act.  The Cole Memo noted that the Department of Justice is committed to using its investigative and prosecutorial resources to address the most significant threats in the most effective, consistent, and rational way.




3



 


On January 4, 2018, the U.S. Attorney General Jeff Sessions issued the Sessions Memo stating that the Cole Memo was rescinded effectively immediately. In particular, Mr. Sessions stated that “prosecutors should follow the well-established principles that govern all federal prosecutions,” which require “federal prosecutors deciding which cases to prosecute to weigh all relevant considerations, including federal law enforcement priorities set by the Attorney General, the seriousness of the crime, the deterrent effect of criminal prosecution, and the cumulative impact of particular crimes on the community.” Mr. Sessions went on to state in the memorandum that “previous nationwide guidance specific to marijuana is unnecessary and is rescinded, effective immediately.”


It is unclear at this time whether the Sessions Memo indicates that the Trump administration will strongly enforce the federal laws applicable to cannabis or what types of activities will be targeted for enforcement.  While we do not currently harvest, distribute or sell cannabis, we may be irreparably harmed by a change in enforcement policies of the federal government depending on the nature of such change.


See the “Business – Government Regulation” section of this prospectus for more information.


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


Potential competitors could duplicate our business model. There is no aspect of our business which is protected by patents, copyrights, trademarks, or trade names. As a result, potential competitors could duplicate our business model with little effort.


We are dependent on our management team and the loss of any of these individuals would harm our business. Our future success depends largely upon the management experience, skill, and contacts of our officers and directors. The loss of the services of either of these officers, whether as a result of death, disability or otherwise, may have a material adverse effect upon our business.


The applicability of "penny stock rules" to broker-dealer sales of our common stock may have a negative effect on the liquidity and market price of our common stock. Trading in our shares is subject to the "penny stock rules" adopted pursuant to Rule 15g-9 of the Exchange Act, which apply to companies that are not listed on an exchange and whose common stock trades at less than $5.00 per share or which have a tangible net worth of less than $5,000,000, or $2,000,000 if they have been operating for three or more years. The penny stock rules impose additional sales practice requirements on broker-dealers which sell such securities to persons other than established customers and institutional accredited investors. For transactions covered by this rule, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser's written consent to the transaction prior to sale. Consequently, the penny stock rules may affect the ability of broker-dealers to sell shares of common stock and may affect the ability of shareholders to sell their shares in the secondary market, as compliance with such rules may delay and/or preclude certain trading transactions. The rules could also have an adverse effect on the market price of our common stock.


These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for our common stock. Many brokers may be unwilling to engage in transactions in our common stock because of the added disclosure requirements, thereby making it more difficult for shareholders to dispose of their shares. You may also find it difficult to obtain accurate information about, and/or quotations as to the price of our common stock.


We may issue shares of preferred stock that would have a liquidation preference to our common stockOur articles of incorporation currently authorize the issuance of 10,000,000 shares of our preferred stock. The board has the power to issue shares without shareholder approval, and such shares can be issued with such rights, preferences, and limitations as may be determined by our board of directors. The rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of any holders of preferred stock that may be issued in the future. We presently have no commitments or contracts to issue any shares of preferred stock. Authorized and unissued preferred stock could delay, discourage, hinder or preclude an unsolicited acquisition of our company, could make it less likely that shareholders receive a premium for their shares as a result of any such attempt, and could adversely affect the market prices of, and the voting and other rights, of the holders of outstanding shares of our common stock.



4



 



The market price of our common stock may decline due to the Investment Agreement. An unknown number of shares of common stock, which may be sold by means of this prospectus, are issuable under an Investment Agreement to Tangiers Global, LLC. As we sell shares of our common stock to Tangiers under the Investment Agreement, and Tangiers sells the common stock to third parties, the price of our common stock may decrease due to the additional shares in the market. The more shares that are issued under the Investment Agreement, the more our then outstanding shares will be diluted and the more our stock price may decrease. Any decline in the price of our common stock may encourage short sales, which could place further downward pressure on the price of our common stock. Short selling is a practice of selling shares which are not owned by a seller with the expectation that the market price of the shares will decline in value after the sale. See “Investment Agreement” for more information concerning the Investment Agreement.




5



 


MARKET FOR OUR COMMON STOCK


Market Information

 

Our common stock is quoted on the OTC Markets Group, Inc.’s OTCBB tier under the symbol “CNAB.” The following is a summary of the high and low sales prices of our common stock for the periods indicated, as reported by the OTC Markets Group, Inc. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions.

 

 

 

High

 

Low

Year ended December 31, 2016

 

 

 

 

First Quarter

 

$0.79

 

$0.17

Second Quarter

 

$0.48

 

$0.15

Third Quarter

 

$0.42

 

$0.16

Fourth Quarter

 

$3.35

 

$0.43

 

  

                

    

                

Year ended December 31, 2017

 

 

 

 

First Quarter

 

$2.40

 

$1.33

Second Quarter

 

$1.59

 

$0.56

Third Quarter

 

$1.15

 

$0.73

Fourth Quarter

 

$2.02

 

$0.56

 

 

 

 

 

Fiscal year ended December 31, 2018

 

 

 

 

First Quarter

 

$2.09

 

$0.98


On May 15, 2018, the closing price of our common stock was $0.94.


Stockholders


As of May 15, 2018, we had 57 shareholders of record and 64,229,926 outstanding shares of common stock.

 

Dividends


We have not declared or paid any cash dividends on our capital stock in our history as a public company. We currently intend to retain all future earnings to finance our business and do not anticipate paying cash or other dividends on our common stock in the foreseeable future.

 



6



 


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS


Certain statements set forth below under this caption constitute forward-looking statements. See “Forward-Looking Statements” in the Prospectus Summary.


You should read the following discussion and analysis of financial condition and results of operations in conjunction with the consolidated financial statements and related notes appearing elsewhere in this Prospectus.


Overview


We were originally formed as a California corporation under the name MySkin, Inc. on November 15, 2007. MySkin was engaged in the business of providing management services to a medical spa in Los Angeles, California which provided various advanced skin care services until March 31, 2014, when this business was sold to the prior President of the Company.


Following this sale, we changed our focus to providing products, services and intellectual property to the cannabis industry.


Results of Operations

 

Year Ended December 31, 2017


Material changes in line items in our Statement of Operations for the year ended December 31, 2017, as compared to the same period last year, are discussed below:


Item

 

Increase (I)

or

Decrease (D)

 

Reason

Revenues

 

D

 

Decline caused for the most part by a changeover in the production process utilized by our affiliated licensee, which resulted in a shortage of finished product and a decline in royalties received from our licensee during the second half of 2017.

 

 

 

 

 

Gross profit, as a % of revenue

 

I

 

Increased because deferred license fee revenue during 2017, which has no associated cost of revenues, was a much higher percentage of total revenues as compared to 2016.

 

 

 

 

 

Operating expenses

 

I

 

Greater amounts were spent on (i) marketing, advertising and new business development, (ii) research and development and (iii) legal, accounting, consulting and public reporting. Additionally, share-based compensation of $3,770,279 was incurred during the year ended December 31, 2017, which included options granted to officers and directors that were fair valued at $2,660,159, while share-based compensation for the same period last year was $814,000. Research and development increased $270,844 over 2016 due to the costs associated with perfecting our extraction process for CBD from hemp plants.

 

 

 

 

 

Non-Operating expenses

 

I

 

Our other non-operating expense was $1,015,446 and $3,086,982 for the years ended December 31, 2017 and 2016, respectively. The decrease in other non-operating expenses is due for the most part to (i) $1,870,665 of losses on derivative liabilities in 2016 that were not incurred in 2017, (ii) a decrease of $356,903 in interest expense in 2017 compared to 2016, (iii) a decrease in the amortization of debt discount in the amount of $267,658 in 2017, and (iv) an increase of $582,881 from losses due to discounts experienced in the issuance of common stock in and (v) cash and the value of shares of our common stock (collectively $122,139) paid to settle a dispute with a former employee.



7



 


March 31, 2018


Material changes in line items in our Statement of Operations for the three months ended March 31, 2018, as compared to the same period last year, are discussed below:


Item

 

Increase (I)

or

Decrease (D)

 

Reason

 

 

 

 

 

Revenues

 

I

 

Increase occurred as the result of an additional licensing agreement put in place during the three months ended March 31, 2018 that was not in place for the same period last year.

 

 

 

 

 

Gross profit, as a % of revenue

 

I

 

Increased because license fees have no applicable cost of goods sold.

 

 

 

 

 

Operating expenses

 

I

 

Greater amounts were spent on (i) research and development, (ii) legal, accounting, consulting and public reporting, and (iii) General and administrative expenses. Share-based compensation of $5,488,982 was incurred during the three months ended March 31, 2018, which included options granted to officers and directors that were fair valued at $5,324,754, while share-based compensation for the same period last year was $0.  Research and development increased $191,518 over 2017 due to the costs incurred in developing our pilot extraction facility and program.

 

 

 

 

 

Non-Operating expenses

 

I

 

Our other non-operating expense was $564,559 and $296,376 for the three months ended March 31, 2018 and 2017, respectively. The increase in other non-operating expenses is due to $556,061 from losses due to discounts experienced in the issuance of common stock compared to $0 during this period in 2017. Such increase was reduced by the fact that we did not incur any loss on the extinguishment of debt or the repurchase of warrants during the three months ended March 31, 2018.


The factors that will most significantly affect future operating results will be:


·

State by state regulatory changes with respect to marijuana in the United States; and

·

Rescheduling of marijuana by the federal government.


Other than the foregoing we do not know of any trends, events or uncertainties that have had, or are reasonably expected to have, a material impact on our revenues or expenses.


Capital Resources and Liquidity


During the year ended December 31, 2017, we incurred losses of $5,907,512 and used cash in operating activities of $1,878,276 respectively, compared to $3,854,004 of losses and $274,670 of cash used in our operating activities for the year ended December 31, 2017. At December 31, 2017 and 2016, we had a working capital deficit of $288,438 and $393,182, respectively, and an accumulated deficit of $15,269,845 at December 31, 2017. Our ability to continue as a going concern is dependent upon our ability to generate profitable operations in the future and, or, obtaining the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due. There is no assurance that these events will be satisfactorily completed.


Net cash used in operating activities for the years ended December 31, 2017 and 2016, was $1,878,276 (and $274,670, respectively. This increase in cash used in operating activities was primarily due to the negative impact in our operating cash flows resulting from an increase in general and administrative expenses during the twelve months ended December 31, 2017 as compared to the same period in 2016.




8



 


Net cash used in investing activities for the years ended December 31, 2017 and 2016 was $508,261 and $0.0, respectively. This increase was due for the most part to payments made for construction in process at our cultivation and extractions facilities in the amount of $621,731, reduced by $363,134 of cash acquired in the acquisition of Prana Therapeutics, Inc. The increase was also do to the purchase of intangible assets in the amount of $197,164 during the year ended December 31, 2017.


Net cash provided by financing activities for the years ended December 31, 2017 and 2016 was $3,099,563 and $268,871, respectively. The increase was primarily due to the increase of $2,682,751 in proceeds from the issuance of common stock under our equity financing line, and the increase in proceeds from notes payable to and advances from officers and directors in the amount of $254,943 during the year ended December 31, 2017.


Our material sources and (uses) of cash during the three months ended March 30, 2018 and 2017 were:


 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

Cash used in operations

 

$

(1,651,026

)

 

$

(124,879

)

Proceeds from issuance of common stock – equity financing line

 

 

1,380,831

 

 

 

 

Acquisition of equipment for and improvements to cultivation facilities, laboratories and leasehold improvements

 

 

(463,414

)

 

 

(130,541

)

Purchase of intangible assets

 

 

(50,443

)

 

 

 

Advances from officers and directors

 

 

80,196

 

 

 

178,383

 

Sale of common stock

 

 

57,083

 

 

 

 

Payments on installment loan

 

 

(13,910

)

 

 

 


Future minimum amounts the Company is required to pay under the terms of its operating leases are as shown below:


 

 

2018

 

 

2019

 

 

2020

 

 

2021

 

 

2022

 

Cultivation and extraction facility in Weldona, Colorado

 

$

90,000

 

 

$

90,000

 

 

$

90,000

 

 

$

90,000

 

 

$

45,000

 

Administrative offices and extraction and testing laboratory in Golden, Colorado

 

 

41,207

 

 

 

44,397

 

 

 

15,197

 

 

 

 

 

 

 

Cultivation and extraction facility in Jamaica

 

 

1

 

 

 

1

 

 

 

1

 

 

 

1

 

 

 

1

 

 

 

$

131,208

 

 

$

134,398

 

 

$

105,198

 

 

$

90,001

 

 

$

45,001

 


The future minimum payments required under the terms of our material contractual obligations are as shown below:


 

 

2018

 

 

2019

 

 

2020

 

 

2021

 

 

2022

 

Operating leases

 

$

131,208

 

 

$

134,398

 

 

$

105,198

 

 

$

90,001

 

 

$

45,001

 

Research laboratory at the University of Florida School of Medicine

 

 

303,544

 

 

 

 

 

 

 

 

 

 

 

 

 

Clinical trials at the West Indies School of Medicine

 

 

101,182

 

 

 

102,364

 

 

 

 

 

 

 

 

 

 

 

 

$

535,934

 

 

$

236,762

 

 

$

105,198

 

 

$

90,001

 

 

$

45,001

 


We may also incur significant sales, marketing, research and development expenses during the next twelve months, and we expect to spend approximately (i) $2,000,000 on expanding our production capacity in Jamaica through advances to our 50% owned subsidiary, Cannibinoid Research & Development, Limited, (ii) $500,000 on pursing licensing and patent applications for products developed and licensed to our recently acquired 95% owned subsidiary, Prana Therapeutics, Inc., and (iii) $500,000 on solidifying agreements with potential licensees who might be utilizing or want to utilize our patented formulations and processes.


We must obtain additional financing to continue our operations. We may not be able to obtain additional funding on terms that are favorable to us or at all. We may not be able to obtain sufficient funding to continue our operations, or if we do receive funding, to generate adequate revenues in the future or to operate profitably in the future. These conditions raise substantial doubt about our ability to continue as a going concern.




9



 


Other than as disclosed above, we do not know of any:


·

trends, demands, commitments, events or uncertainties that will result in, or that are reasonable likely to result in, our liquidity increasing or decreasing in any material way; or

·

any significant changes in our expected sources and uses of cash.


Off-Balance Sheet Arrangements

 

None.


Significant Accounting Policies


See Note 2 to the December 31, 2017 financial statements included as part of this prospectus for a description of our significant accounting policies.


Recent Accounting Pronouncements


From time to time, the FASB or other standards setting bodies issue new accounting pronouncements. Updates to the FASB ASCs are communicated through issuance of an Accounting Standards Update (“ASU”). Unless otherwise discussed, we believe that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on our consolidated financial statements upon adoption.


To understand the impact of recently issued guidance, whether adopted or to be adopted, please review the information provided in Note 2 to the financial statements included as part of this prospectus.




10



 


BUSINESS


Background


United Cannabis Corporation (‘we” “our”, “us”, “UCANN”, or “the Company”) a Colorado corporation, was originally formed as a California corporation under the name MySkin, Inc. on November 15, 2007. MySkin was engaged in the business of providing management services to a medical spa in Los Angeles, California which provided various advanced skin care services until March 31, 2014, when this business was sold to the prior President of the Company.


In early 2014 we decided to exit the medical spa management business and change our focus to providing products, services and intellectual property to the cannabis industry.


On March 26, 2014, we entered into a License Agreement with Earnest Blackmon, Tony Verzura and Chad Ruby pursuant to which Messrs. Blackmon, Verzura and Ruby licensed certain intellectual property to us in exchange for 38,690,000 shares of our common stock.



The intellectual property we licensed includes know-how relating to the design and buildout of cultivation facilities, growing/cultivation systems, seed-to-sale protocols and procedures, products, access to a genetic catalogue including over 150 different strains, an advanced (non-psychoactive) cannabinoid sequencing therapy program utilizing patent-pending Prana Bio Nutrient Medicinals called the A.C.T. Now Program (“ACT Now” or “ACT Now Program”), security, regulatory compliance, and other methods and processes which relate to the cannabis industry.


In May, 2014 we changed our corporate domicile from California to Colorado and changed our name to United Cannabis Corporation.


We own intellectual property relating to the legalized growth, production, manufacture, marketing, management, utilization and distribution of medical and recreational marijuana and marijuana infused products. We are focused on creating unique therapeutics for a wide range of diseases that can be utilized by patients globally.  Our products are subject to all existing marijuana  laws in the United States and foreign countries.


Our primary goal is to advance the use of phytocannabinoids therapeutics in medicine through research, product development and education. We are dedicated to improving the lives of patients. We provide the intellectual property, patented technology, trusted brands, clinical data, technical training, sales tools and methodologies necessary to assist our clients’ businesses for success. Our ACT Now Program utilizes our patented Prana Bio Nutrient Medicinals with a HIPPAA compliant electronic health record (“EHR”) software that enables physicians to create comprehensive sequencing charts specific to their patients’ medical aliments. The ACT Now EHR software allows for global monitoring, patient management, and effective cannabinoid therapy protocols.


Our Prana Bio Nutrient Medicinal products are designed to help supplement deficiencies related to the endocannabinoid system including pain, neuropathy, arthritis, MS, IBS, autism, seizures, eczema, sleep, anxiety, head trauma, opioid dependency and clinical endocannabinoid deficiencies. The endocannabinoid system is a signaling system within the human body that utilizes hundreds of receptors to help maintain homeostasis between the central nervous system and the immune system.


Our Prana Aromatherapy Transdermal Roll-on line uses a proprietary blend of essential oils infused with cannabinoids designed to provide targeted and large surface relief with combinations of aromatherapy. The transdermal is a part of the complete patented Prana Bio Nutrient Medicinals line, which is offered in 5 categories (P1, P2, P3, P4, P5), with three delivery methods (sublingual, capsules, topical). Dosages range from 1mg to 50mg, are available in both raw and activated formulations, and paired with specific cannabis derived terpene profiles.


Our short term plan involves licensing the technology associated with our products to companies which are licensed to grow and sell medical marijuana in states where medical marijuana is legal.


Our long term plan is to perform clinical trials on the most promising products in our product line that are currently being manufactured in California. We intend to perform our phase I clinical trials at the West Indies University in Jamaica. We will fund the initial clinical trials by licensing our Prana product line to manufacturers in all legal territories in the United States and with revenue received for providing technical, financial and licensing consulting services. After our phase 1 clinical trials are complete, we plan on partnering with companies that have expertise in global pharmaceutical distribution and research for phase II and III clinical trials in the United States.



11



 


Prana Therapeutics


In furtherance of our long-term plan, on July 14, 2017, we acquired 95% of the voting interests of Prana Therapeutics, Inc. (“Prana”),  in consideration for the issuance of 5,730,000 shares of our shares of common stock. The acquisition of Prana broadens our foundation in plant-based drug development. Prana is a biotech company focused on developing targeted therapeutics for prevention of the negative side effects of chemotherapy, management of rheumatoid arthritis and treatment of brain cancer.


Similar to the use of the compounds found in the cannabis plant to create our Prana Bio Medicinal products, Prana identifies novel combinations of botanical compounds to address unmet medical needs. Prana’s principal drug, Epidiferphane™, is a leading example of how combinatorial targeting can be used to address complex and difficult-to-treat diseases.


Prana was founded by Drs. Brent Reynolds, a professor in the Department of Neurosurgery at the University of Florida, College of Medicine and Dennis Steindler, a professor of Medical Research in the Department of Neurosurgery at the University of Florida, College of Medicine, as well as, Dr. Loic Deleyrolle, a research assistant at McKnight Brain Institute at the University Florida; and, Prana’s business model is based on technology developed there. Drs. Reynolds and Steindler have filed on behalf of the University of Florida Research Foundation, Inc. (“University of Florida”) patents related to the composition of matter and use claims on this technology in the United States and internationally. Prana owns the exclusive, world-wide license to the technology through a licensing agreement with the University of Florida. Both Drs. Reynolds and Deleyrolle will continue as part time employees of Prana, while also serving as professors and performing research at the University of Florida. Dr. Steindler will not have any future affiliation with Prana, and Prana will be operated as a stand-alone, majority owned subsidiary of the Company.


We purchased Prana based upon our belief in the potential of Epidiferphane™ to help with the negative side effects of chemotherapy, inflammation and brain tumors;


The Negative Side Effects Of Chemotherapy


An estimated 650,000 patients undergo chemotherapy each year, in the US alone, at a cost of approximately $12 billion. There are several protocols to minimize the side effects associated with chemotherapy, there is currently no protocol that prevents these symptoms. Preclinical data have shown Epidiferphane to be effective in preventing Anemia (low red blood cells), Neutropenia (low white blood cells), attenuating Chemotherapy Induced Peripheral Neuropathy, and protecting the endogenous neural stem cell population that is associated with Chemofog (memory problems). At least one of these conditions are experienced by 90% of patients going through chemotherapy.


Inflammatory Disease


Approximately 150 million patients suffer from inflammation and pain associated with arthritis and back-centric conditions, spending in excess of $30 billion on treatments, many of which have significant side effects. Epidiferphane™ in combination with nutritional ketosis reduces levels of cytokines that contribute to inflammatory diseases and in a small cohort of patients has been reported to reduce pain, morning stiffness and improve sleep.


Brain Tumors


There are approximately 80,000 new brain cancer diagnoses in the US each year; Glioblastoma, the most common type, has a survival diagnosis of approximately 12 months. In pre-clinical rodent testing, Epidiferphane™, in conjunction with a nutritional ketosis, has been shown to double the mean life expectancy, increase the effectiveness of chemotherapy, and sensitize chemotherapy resistant tumors to standard of care drugs.


Industrial Hemp Plant


In December 2017 we leased an industrial building in Colorado where we will construct a state-of-the-art industrial hemp processing plant where we provide contract manufacturing for farmers working under the 2014 Federal Farm Bill and Colorado’s Department of Agriculture's Industrial Hemp Program. The multi-function facility will include extraction, purification, testing and processing equipment, as well as packaging, fulfillment, and secure storage capabilities.




12



 


Our manufacturing services will enable farmers to convert harvested industrial hemp plants into a range of products, including simple extracts, capsules and sublingual drops, and have them packaged for resale. The processing plant will also have the capability to process raw hemp seed through cold press extraction. Valuable fibrous bi-products generated through processing will also be collected for sale to a wide range of consumer product industries.


Colorado-grown hemp accounts for more than half of U.S. domestic hemp production, according to the Colorado Department of Agriculture. The Denver Post reported farms around in Colorado are expected to harvest up to 9,000 acres of hemp in 2017, compared with just 200 acres in 2014.


We lease the industrial building through September 30, 2018 for $7,500 per month.  The plant became fully operational on March 6, 2018.


Harborside Health Association


On January 24, 2018 we entered into a non-exclusive licensing agreement with an affiliate of Harborside Health Association LLC.


The license provided Harborside with the rights to our technology which will enable Harborside to manufacture and distribute its proprietary line of products.  In consideration for the license, Harborside will pay us the greater of:


·

5% of the gross price paid by Harborside for the manufacture of the products; or

·

2.5% of the wholesale price received by Harborside from the sale of the products.


For purposes of the agreement, the wholesale price for any product means the gross price obtained by a distributor licensed by Harborside from the sale of any products in an arm’s length transaction with another distributor or retailer, excluding cannabis tax payments for remittance to taxing authorities; and, for non-arm’s length sales, the average price which could have been obtained in an arm’s length transaction.


The technology licensed to Harborside covers our patented methods of extracting, preparing and using cannabis. The agreement has a term of three years.


Cannibinoid Research & Development Company Limited (“CRD”)


In August 2014, we acquired 50% of the capital stock of CRD. In August 2014, we agreed to fund the operations of CRD on terms mutually agreed upon by us and CRD. As of the date of this prospectus, CRD had ten employees and had applied to the Jamaican government for a license to conduct research on the benefits of cannabis which will be grown by CRD in Jamaica.


In March 2018 Jamaica’s University of the West Indies’ Ethics Committee approved our proposal to conduct clinical trials on our Prana Bio Nutrient Medicinals P1 Capsules for the treatment of chronic pain.


The study will be conducted in conjunction with CRD at the Centre For Cannabis Research at the University Of West Indies, Mona Campus, in Jamaica.


The Phase I study which will involve twelve patients, is expected to take 12 months and cost approximately $204,000.


Lasco Manufacturing Limited


On December 12, 2017 we entered into an agreement with Lasco Manufacturing Limited whereby we gave Lasco the right to manufacture and sell some of our products. The agreement is for a five year terms and covers Jamaica and most English speaking countries in the Carribean.  The licensed products and the fees to be paid to us are:


Products

Fees


Prana Medicinal Hemp Capsules

$550 per gallon of concentrate

Prana Medicinal Hemp Sublinguals

$737 per gallon of concentrate

Prana Roll-On Hemp

(1)

CBD Water

(1)

Prana Bolt Balm

(1)


(1)

15% of the gross sales price of these products.



13



 


Advesa


We have licensed our Prana products to Advesa, Inc. (“Advesa”), which is wholly owned by Tony Verzura, an officer, director and principal shareholder. Advesa has an exclusive right for five years to sell our Prana products in certain cities in California. In consideration for the exclusive license, Advesa is obligated to pay us a royalty on all Prana products sold by Advesa equal to the sale price of the Prana products, minus the cost of goods sold (computed without regard to depreciation, amortization, other non-cash items or allocation of overhead, general and administrative expenses or similar items). In addition, Advesa pays us a management fee of five percent of all Advesa gross revenue, minus the Prana royalty payable to us with respect to the sales of our Prana products.


ACT Now Program


One of our primary goals is to advance the use of cannabinoids in medicine through research, product development and education. Our intellectual property includes our ACT Now Program which is a comprehensive full spectrum cannabinoid therapy guide that utilizes the entire cannabis plant by controlling specific cannabinoid ratios, accurate dosing and multiple non-invasive delivery methods. Our ACT Now Program offers a wide range of affordable patient driven programs with limitless combinations of cannabinoid-based products and nutritional recommendations to assist patients suffering from chronic pain, opiate dependency, inflammation, glaucoma, PTSD, neuropathy, multiple sclerosis, fibromyalgia, Crohn’s, IBS, seizures, epilepsy, paralysis, autoimmune, autism, tumors, HIV/AIDS and many types of cancer.


We own certain proprietary formulations, processes and other intellectual property which can be used to produce our Prana Bio Nutrient Medicinals in connection with our ACT Now Program. These products, which are made with unique combinations of pharmaceutically active cannabinoids, provide a comprehensive solution designed to enable physicians and patients to design, implement and monitor effective therapy protocols.


Competition


Currently, we are primarily engaged in the business of providing consulting and advisory services and licensing our intellectual property to businesses or persons who are already in the marijuana business or who desire to enter the business. There are a large number of other public and private companies which compete with us in this area. These competitors include MedBox, Inc., Advanced Cannabis Solutions, Inc., Growlife, Inc., Terra Tech Corp., American Cannabis Company, Americann, Inc. and Monarch America, Inc. (formerly Cannabis Kinetics, Inc.). We believe that our principal competitive advantages are the reputations and experience of our principals in the industry.


The recent growth in the industry, has attracted many businesses trying to enter the market. Some of our competitors have greater capital resources and facilities which may enable them to compete more effectively in this market. Due to this competition, there is no assurance that we will not encounter difficulties in generating revenues. If we are unable to successfully compete with existing companies and new entrants to the market, this will have a negative impact on our business and financial condition.


Government Regulation

 

Marijuana is a Schedule-I controlled substance and is illegal under federal law. Even in those states in which the use of marijuana has been legalized, its use remains a violation of federal law.

 

A Schedule I controlled substance is defined as a substance that has no currently accepted medical use in the United States, a lack of safety for use under medical supervision and a high potential for abuse. The Department of Justice defines Schedule 1 controlled substances as “the most dangerous drugs of all the drug schedules with potentially severe psychological or physical dependence.” If the federal government decides to enforce the Controlled Substances Act in Colorado with respect to marijuana, persons that are charged with distributing, possessing with intent to distribute, or growing marijuana could be subject to fines and terms of imprisonment, the maximum being life imprisonment and a $50 million fine.

 

As of May 15, 2018, 30 states and the District of Columbia allowed their citizens to use Medical Marijuana. Additionally, voters in the states of Colorado, Washington, Alaska, Oregon and the District of Columbia approved ballot measures to legalize cannabis for recreational use by adults. The state laws are in conflict with the federal Controlled Substances Act, which makes marijuana use and possession illegal on a national level.




14



 


The previous administration under President Obama had effectively stated that it was not an efficient use of resources to direct federal law enforcement agencies to prosecute those lawfully abiding by state-designated laws allowing the use and distribution of medical cannabis. In this regard, the prior DOJ Deputy Attorney General of the Obama administration issued a memorandum (the “Cole Memo”) to all United States Attorneys providing updated guidance to federal prosecutors concerning cannabis enforcement under the CSA.


The Cole Memo noted that the Department of Justice is committed to using its investigative and prosecutorial resources to address the most significant threats in the most effective, consistent, and rational way. In furtherance of those objectives, the Cole Memo provided guidance to Department of Justice attorneys and law enforcement to focus their enforcement resources on persons or organizations whose conduct interferes with any one or more of the following in preventing:


·

the distribution of cannabis to minors;

·

revenue from the sale of cannabis from going to criminal enterprises, gangs and cartels;

·

the diversion of cannabis from states where it is legal under state law in some for to other states;

·

state-authorized cannabis activity from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity;

·

violence and the use of firearms in the cultivation and distribution of cannabis;

·

drugged driving and the exacerbation of other adverse public health consequences associated with cannabis use;

·

the growing of cannabis on public lands and the attendant public safety and environmental dangers posed by cannabis production on public lands; and

·

cannabis possession or use on federal property.


On January 4, 2018, the U.S. Attorney General Jeff Sessions issued the Sessions Memo stating that the Cole Memo was rescinded effectively immediately. In particular, Mr. Sessions stated that “prosecutors should follow the well-established principles that govern all federal prosecutions,” which require “federal prosecutors deciding which cases to prosecute to weigh all relevant considerations, including federal law enforcement priorities set by the Attorney General, the seriousness of the crime, the deterrent effect of criminal prosecution, and the cumulative impact of particular crimes on the community.” Mr. Sessions went on to state in the memorandum that “previous nationwide guidance specific to marijuana is unnecessary and is rescinded, effective immediately.”


It is unclear at this time whether the Sessions Memo indicates that the Trump administration will strongly enforce the federal laws applicable to cannabis or what types of activities will be targeted for enforcement.


However, on March 31, 2018 President Trump signed a $1.3 trillion budget bill that includes a provision that prevents the Justice Department, including the Drug Enforcement Administration, from using funds to arrest or prosecute patients, caregivers and businesses that are acting in compliance with state medical marijuana laws.  This provision, known as the Rohrabacher-Blumenauer Amendment, prohibits the Justice Department from using federal funds to interfere with state medical marijuana programs.


Compliance with federal, state, and local laws and regulations has not had, and is not expected to have, an adverse effect on our capital expenditures, competitive position, financial condition, or results of operations.


Intellectual Property


Our intellectual property includes our management’s knowledge and know-how relating to the legalized growth, production, manufacture, marketing, management, utilization and distribution of medical and recreational marijuana and marijuana infused products. It also includes a genetic catalogue including over 150 different strains of marijuana, and an advanced cannabinoid therapy program called “A.C.T. Now.”




15



 


On August 15, 2017, the United States Patent and Trademark Office issued to us US Patent #9730911  granting exclusive rights to our proprietary formulations based on compounds extracted from cannabis plant materials; more specifically the composition of matter pertaining to the use of phytocannabinoids, cannabinoids, and specific terpene profiles in liquid form. This composition of matter Patent provides protection for our proprietary formulations. The Patent protects the use of suspending both phytocannabinoids and cannabinoids with specific combinations of cannabis derived terpenes in liquid forms with an array of delivery methods including capsule, sublingual, topical, oral, suppository, and vaporization. Cannabinoids referenced in the application include ratios of tetrahydrocannabinolic acid (THCa), cannabidiolic acid (CBDa), tetrahydrocannabinol (THC), cannabinol (CBN), cannabidiol (CBD), cannabichromenic acid (CBCa), and cannabichromene (CBC).


Employees


As of May 15, 2018, we had nine employees. There is no union representation of our employees, and we have never experienced an involuntary work stoppage. We believe that our continued success depends, in part, on our ability to attract and retain qualified personnel. We consider our relations with our employees to be good.


Effect of Environmental Laws


We are subject to federal, state, and local environmental laws and regulations, as well as the environmental laws and regulations of the foreign federal and local jurisdictions in which we have operations. We believe we are in material compliance with all such laws and regulations.


Website Access


Our website address is www.unitedcannabis.us. We make available, free of charge on our website, our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to these reports as soon as reasonably practicable after filing such reports with, or furnishing them to, the Securities and Exchange Commission (“SEC”). Such reports are also available at www.sec.gov. Information contained on our website is not incorporated by reference in, or otherwise part of, this prospectus or any of our other filings with the SEC.


Offices


Effective August 1, 2017, we leased approximately 9,990 square feet of commercial space in Golden, Colorado  where our administrative offices and hemp laboratory are located. The term of the lease expires on July 31, 2020. Basic rent is $3,302, $3,500 and $3,800 per month for the years ending July 31, 2018, 2019 and 2020, respectively.  We are also responsible for the payment of all utilities for this space.




16



 


MANAGEMENT


Our executive officers and directors are listed below. Directors are generally elected at our annual shareholders’ meeting and hold office until the next annual shareholders’ meeting, or until their successors are elected and qualified. Our executive officers are elected by our directors and serve at the board’s discretion.

 

Name

 

Age

 

Positions

 

 

 

 

 

Earnest Blackmon

 

45

 

CEO, President, principal financial and accounting officer and director

Chad Ruby

 

42

 

Chief Operating Officer, Secretary, Treasurer and director

Tony Verzura

 

39

 

Vice President, Chief Technical Officer and director

John Walsh

 

72

 

Treasurer and Principal Financial Officer

Dr. Brent Reynolds

 

55

 

Chief Research Officer


The following is a brief summary of the background of each officer and director including their principal occupation during the five preceding years. Neither of these persons is a financial expert as that term is defined by the SEC. All directors will serve until their successors are elected and qualified or until they are removed.


Earnest Blackmon has been a director since April 2014. He was elected President in March 2014 and was elected CEO and principal financial officer in June 2014. Mr. Blackmon has been the President and owner of Blue River Inc., which is engaged in creating and retailing aroma therapy products since February 2015. He has served as the master grower and Chief Technical Officer/Member of RiverRock LLC, which is engaged in growing and selling medical and recreational marijuana from November of 2009 to July 2015. He served as the Chief Operating Officer/Owner of Sweet Lawn and Landscaping in Tampa, Florida from January of 2004 to June of 2008 and from July 2008 until October 2009 he consulted with several collectives in California on their cultivation methods. Mr. Blackmon attended John’s Hopkins University from 1991 to 1992. We believe that his twenty years of experience in the commercial horticulture industry and more specifically in growing marijuana and his six years in the cannabis industry enable him to make valuable contributions to our board of directors.


Chad Ruby has been a director since April 2014. He was elected Chief Operating Officer in March 2014 and was elected Secretary and Treasurer in August 2014. He has been a portfolio manager, real estate broker and appraiser for the last 15 years. He started with Hudson Appraisals, Inc. in 2002 and became a partner and Chief Operating Officer in February of 2005, and he resigned as Chief Operating Officer in June of 2008. Mr. Ruby was employed by NRT REO Experts, LLC, Orlando, Florida, as a portfolio manager from June of 2008 until April 2014. During 2013 and 2014 he was a part-time consultant for RiverRock LLC, which is engaged in growing and selling medical and recreational marijuana. Mr. Ruby graduated from the University of Central Florida in 2010 with a B.S. in Finance. We believe that Mr. Ruby’s thirteen years of real estate and business experience combined with his college degree in finance and his consulting experience with RiverRock LLC qualify him to serve as a member of our board of directors.


Tony Verzura has been a director since April 2014. He was elected Vice President and Chief Technical Officer in March 2014. Mr. Verzura has been the Vice President and owner of Blue River Inc., which is engaged in creating and retailing aroma therapy products since February 2015. He has served as the patient care facilitator and Chief Operating Officer for RiverRock LLC, which is engaged in growing and selling medical and recreational marijuana in Denver, Colorado, from November of 2009 to July 2015. Mr. Verzura attended Florida International University from 1999 to 2003. We believe that Mr. Verzura’s six years of experience as Chief Operating Officer of RiverRock LLC enables him to make valuable contributions to our board of directors.


John Walsh has been our Treasurer and Principal Financial Officer since August 2017. Mr. Walsh is a former partner of the international accounting firm of Touche Ross & CO. (now Deloitte Touche Tohmatsu Limited), and has over 40 years of experience in the accounting and financial services industry, including reporting requirements and GAAP oversight for publicly registered companies. Subsequent to his professional association with Deloitte, he has provided independent consulting services to such companies as AT&T Broadband (now Comcast), the Casualty Insurance Division of CNA Financial, the Construction Division of Lafarge North America, and Crown Media (the Hallmark cable and movie channel). At Crown Media, Mr. Walsh served as its interim Chief Financial Officer for a three-year period. Prior to joining us as a consultant in February 2016, he served as a GAAP consultant (January 2014 to November 2016) to a public company that provided cultivation facility leasing and fulfilment services to licensed holders of retail and medical marijuana outlets in the state of Colorado.




17



 


Brent A. Reynolds, Ph.D., has been our Chief Research Officer since July 2017. Dr. Reynolds attended the University of Calgary, where he received his M.Sc. and Ph.D. in 1989 and 1994, respectively. While working on his Ph.D. thesis Reynolds co-discovered the existence of stem cells in the adult mammalian brain, a finding that overcame a century old dogma that the mature brain did not have the capacity to repair itself. After graduating, Reynolds co-founded the first neural stem cell company, NeuroSpheres, Ltd., where he was a director and vice president of research. Here he developed a strong patent portfolio in the neural stem cell field, developing and protecting protocols related to the application of stem cell technology in brain repair. Today, these patents and technology have been licensed to numerous biotechnology companies that are testing the efficacy in over half a dozen clinical trials for diseases such as spinal cord injury, stroke, ALS and pediatric disorders.  After a brief hiatus, where Reynolds studied and practiced Traditional Chinese Medicine, he returned to industry working with StemCell Technologies in Vancouver, Canada. In 2004, Reynolds returned to academic science as a professor at the Queensland Brain Institute at the University of Queensland in Australia where he continued refining the application of neural stem cells for repairing the damaged brain.  In 2008, Reynolds was recruited to the department of Neurosurgery at the University of Florida and has focused his efforts on studying aggressive pediatric and adult brain cancer and developing novel translational approaches to combat this lethal disease. Working with a multidisciplinary group of scientists, the team is taking the unique approach that cancer can be managed as a chronic disease by applying the principles that have been used in ecology to manage wildlife and pest populations. Based on the lessons learned over the past 80 years by ecologists, the team is focused on using multimodal low toxicity therapeutics to enforce a stable tumor population that exists below a threshold that has any harmful effects.  Dr. Reynolds has more than 60 publications, including papers in Science, Cell and Nature, with several manuscripts receiving over 1,000 citations. In addition, he is an inventor on 18 granted US patents.  Dr. Reynolds is currently a professor in the department of neurosurgery at UF; adjunct professor at the University of New South Wales, Sydney, Australia; an honorary professor at the Queensland Brain Institute, Australia; and program director for StepAhead, Australia. NIH, NHMRC and numerous foundations have funded his lab.  Since January 22, 2012 Dr. Reynolds has been the Chief Executive Officer of Prana Therapeutics, Inc., a company we acquired in July 2017.


None of the directors are independent directors as that term is defined in Section 803 of the NYSE MKT Company Guide.


Employment Agreements

 

We currently do not have any employment agreements with any of our directors or executive officers.


Audit Committee and Audit Committee Financial Expert


We do not currently have an audit committee or a committee performing similar functions. Our board as a whole participates in the review of financial statements and disclosure. We also do not have an audit committee financial expert.


Compensation Committee Interlocks and Insider Participation


None of our executive officers served as a member of the compensation committee or as a director of another entity one of whose executive officers served on our compensation committee or as one of our directors.


Code of Ethics

 

We have adopted a code of ethics that applies to our principal executive officers, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of our code of ethics may be obtained free of charge by contacting us.




18



 


Executive Compensation

 

The following Summary Compensation Table sets forth for fiscal 2017 and 2016, the compensation awarded to, paid to, or earned by our executive officers.


Name and Principal Position

 

Year

 

 

Salary

($)

 

 

Option Awards

($)

 

 

All other

Compensation

($)

 

 

Total

($)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ernie Blackmon

 

2017

 

 

250,000

 

 

   274,750

 

 

--

 

 

   520,750

 

CEO, President

 

2016

 

 

--

 

 

   208,811

 

 

--

 

 

   280,811

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chad Ruby

 

2017

 

 

250,000

 

 

1,618,750

 

 

--

 

 

1,868,750

 

Chief Operating Officer, Secretary, Treasurer

 

2016

 

 

  70,798

 

 

   194,890

 

 

--

 

 

   265,686

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tony Verzura

 

2017

 

 

250,000

 

 

   274,570

 

 

--

 

 

   348,750

 

Vice President, Chief Technical Officer

 

2016

 

 

  52,000

 

 

   280,890

 

 

--

 

 

   260,811

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

John Walsh

 

2017

 

 

  74,000

 

 

   274,500

 

 

--

 

 

   348,750

 

Principal Financial and Accounting Officer

 

2016

 

 

--

 

 

--

 

 

--

 

 

--

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Brent Reynolds

 

2017

 

 

  60,000

 

 

     12,000

 

 

--

 

 

     72,000

 

Chief Research Officer

 

2016

 

 

--

 

 

--

 

 

--

 

 

--

 


The following shows the amounts we expect to pay to our officers during the twelve months ending December 31, 2018, and the amount of time these persons expect to devote to our business.


 

 

Projected

 

% of time to be

Name

 

Compensation

 

devoted to our business

 

 

 

 

 

Ernie Blackmon

 

$250,000

 

100%

Chad Ruby

 

$250,000

 

100%

Tony Verzura

 

$250,000

 

100%

John Walsh

 

$250,000

 

100%

Brent Reynolds

 

$120,000

 

  40%


On January 3, 2016, Messrs. Blackmon and Verzura each agreed to forego $70,000 of 2015 salary in lieu of 350,000 stock options each under the Equity Incentive Plan and Mr. Ruby agreed to forego $56,000 of 2015 salary in lieu of 280,000 stock options under the Equity Incentive Plan. The options were granted on January 15, 2016, were fully vested at the time of grant and gave the option holder the right to purchase shares of our common stock at $0.20 per share during the ten year term.


Stock Incentive Plans


We have three Stock Incentive Plans.  The terms and conditions of any stock issued and the terms and conditions of any options granted, including the price of the shares of common stock issuable on the exercise of options, are governed by the provisions of the Plans and any agreements with the Plan participants.


On January 23, 2018 we adopted our 2018 Stock Incentive Plan. On February 2, 2018 we granted options to the persons shown below pursuant to this plan.


Name

 

 

 

 

 

 

 

Shares issuable

Upon Exercise

of Option

 

 

Option

Exercise Price

 

 

Expiration

Date

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnest Blackmon

 

 

 

 

 

 

 

1,000,000

 

 

$1.08

 

 

2/2/2028

 

Chadwick Ruby

 

 

 

 

 

 

 

3,250,000

 

 

$1.08

 

 

2/2/2028

 

Tony Verzura

 

 

 

 

 

 

 

   750,000

 

 

$1.08

 

 

2/2/2028

 

John Walsh

 

 

 

 

 

 

 

1,000,000

 

 

$1.08

 

 

2/2/2028

 



19



 





The following lists, as of May 15, 2018 the options and shares granted pursuant to the Stock Incentive Plans.  Each option represents the right to purchase one share of our common stock.


Name of Plan

 

Total

Shares

Reserved

Under Plan

 

 

Shares

Reserved for

Outstanding

Options

 

 

Shares

Options

Exercised

 

 

Remaining

Issued as

Stock Bonus

 

 

Options/Shares

Under Plan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2014 Stock Incentive Plan  

 

  4,000,000

 

 

 2,680,000

 

 

 1,000,000

 

 

 --

 

 

    320,000

 

2017 Stock Incentive Plan

 

  6,000,000

 

 

 3,957,500

 

 

 --

 

 

 --

 

 

 2,042,500

 

2018 Stock Incentive Plan

 

12,000,000

 

 

 6,000,000

 

 

 --

 

 

 600,000

 

 

 5,400,000

 


Pursuant to the Plans, awards may be in the form of Incentive Stock Options, Non-Qualified Stock Options, or Stock Bonuses.


Incentive Stock Options


All of our employees of the Company are eligible to be granted Incentive Stock Options pursuant to the Plans as may be determined by our Board of Directors which administers the Plans.


Options granted pursuant to the Plans terminate at such time as may be specified when the option is granted.


The total fair market value of the shares of common stock (determined at the time of the grant of the option) for which any employee may be granted options which are first exercisable in any calendar year may not exceed $100,000.


In the discretion of the Board of Directors, options granted pursuant to the Plans may include installment exercise terms for any option such that the option becomes fully exercisable in a series of cumulating portions.  The Board of Directors may also accelerate the date upon which any option (or any part of any option) is first exercisable.  However, no option, or any portion thereof may be exercisable until one year following the date of grant.  In no event shall an option granted to an employee then owning more than l0% of our common stock be exercisable by its terms after the expiration of five years from the date of grant, nor shall any other option granted pursuant to the Plans be exercisable by its terms after the expiration of ten years from the date of grant.


Non-Qualified Stock Options


Our employees, directors and officers, and consultants or advisors are eligible to be granted Non-Qualified Stock Options pursuant to the Plans as may be determined by our Board of Directors which administers the Plans, provided however that bona fide services must be rendered by such consultants or advisors and such services must not be in connection with a capital-raising transaction or promoting our common stock.


Options granted pursuant to the Plans terminate at such time as may be specified when the option is granted.


In the discretion of the Board of Directors options granted pursuant to the Plans may include installment exercise terms for any option such that the option becomes fully exercisable in a series of cumulating portions.  The Board of Directors may also accelerate the date upon which any option (or any part of any option) is first exercisable.  In no event shall an option be exercisable by its terms after the expiration of ten years from the date of grant.


Stock Bonuses


Our employees, directors and officers, and consultants or advisors are eligible to receive a grant of our shares, provided however that bona fide services must be rendered by such consultants or advisors and such services must not be in connection with a capital-raising transaction or promoting our common stock.  The grant of the shares rests entirely with our Board of Directors which administer the Plans. It is also left to the Board of Directors to decide the type of vesting and transfer restrictions which will be placed on the shares.





20



 


Outstanding Equity Awards

 

Outstanding equity awards as of December 31, 2017 are as follows: 


Name

 

 

 

 

 

Number of securities underlying unexercised options

 

Option exercise price
($)

 

Option expiration date

 

 

 

 

 

 

 

 

 

 

 

 

 

Ernie Blackmon

 

 

 

 

 

     

200,000

     

 

$0.70  

 

1/06/2025

 

Ernie Blackmon

 

 

 

 

 

 

50,000

 

 

$0.20  

 

1/09/2026

 

Ernie Blackmon

 

 

 

 

 

 

100,000

 

 

$0.56  

 

5/30/2027

 

Ernie Blackmon

 

 

 

 

 

 

250,000

 

 

$0.875

 

12/08/2027

 

 

 

 

 

 

 

 

600,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chad Ruby

 

 

 

 

 

 

200,000

 

 

$0.70  

 

1/06/2025

 

Chad Ruby

 

 

 

 

 

 

980,000

 

 

$0.20  

 

1/09/2026

 

Chad Ruby

 

 

 

 

 

 

2,600,000

 

 

$0.56  

 

5/30/2027

 

Chad Ruby

 

 

 

 

 

 

250,000

 

 

$0.875

 

12/08/2027

 

 

 

 

 

 

 

 

4,030,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tony Verzura

 

 

 

 

 

 

200,000

 

 

$0.70  

 

1/06/2025

 

Tony Verzura

 

 

 

 

 

 

1,050,000

 

 

$0.20  

 

1/09/2026

 

Tony Verzura

 

 

 

 

 

 

100,000

 

 

$0.56  

 

5/30/2027

 

Tony Verzura

 

 

 

 

 

 

250,000

 

 

$0.875

 

12/08/2027

 

 

 

 

 

 

 

 

1,600,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

John Walsh

 

 

 

 

 

 

100,000

 

 

$0.56  

 

5/30/2027

 

John Walsh

 

 

 

 

 

 

250,000

 

 

$0.875

 

12/08/2027

 

 

 

 

 

 

 

 

350,000

 

 

 

 

 

 


John Walsh also holds warrants to purchase 641,000 shares of our common stock. The warrants are exercisable at prices between $0.19 and $1.25 and expire at various dates prior to April 30, 2022.


Securities Authorized for Issuance under Stock Incentive Plans

 

The following table shows information with respect to each Stock Incentive Plan under which our common stock is authorized for issuance as of December 31, 2017:


Plan Category

 

Number of Securities

to be Issued

upon Exercise of

Outstanding Options

 

Weighted-Average

Exercise Price of

Outstanding Options,

Warrants, and Rights

 

Number of Securities

Remaining Available for

Future Issuance Under

Equity Compensation Plans

 

    

 

 

 

 

 

Equity Incentive Plan

 

3,680,000

 

$0.31

 

320,000

2017 Stock Incentive Plan

 

3,957,500

 

$0.65

 

2,042,500


Employee Pension, Profit Sharing or other Retirement Plans


We do not have a defined benefit, pension plan, profit sharing or other retirement plan, although we may adopt one or more of such plans in the future.




21



 


Compensation of Directors


During the fiscal year ended December 31, 2017 we did not compensate our directors for acting as such.


Transactions with Related Parties

 

On April 6, 2016, we borrowed $25,000 from Ernest Blackmon and $25,000 from Tony Verzura and used the proceeds to repay principal and interest applicable on our $102,000 convertible promissory note dated October 12, 2015, to JSJ Investments Inc. The loans, together with interest at 12% per year, are payable on demand. We may prepay the loans at any time. Our agreements with Mr. Blackman and Mr. Verzura require that the amount we must repay each of them is $28,570.


During the years ended December 31, 2017 and 2016, Mr. Blackmon, Mr. Verzura and Mr. Ruby, paid obligations and expenses on behalf of us with their personal funds. These payments have been recorded in our consolidated balance sheets as a component of Notes payable to and advances from officers and directors.


We have licensed our Prana products to Advesa, Inc. (“Advesa”), which is wholly owned by Tony Verzura, an officer, director and principal shareholder. Advesa has an exclusive right for five years to sell our Prana products in certain cities in California. In consideration for the exclusive license, Advesa is obligated to pay us a royalty on all Prana products sold by Advesa equal to the sale price of the Prana products, minus the cost of goods sold (computed without regard to depreciation, amortization, other non-cash items or allocation of overhead, general and administrative expenses or similar items). In addition, Advesa pays us a management fee of five percent of all Advesa gross revenue, minus the Prana royalty payable to us with respect to the sales of our Prana products.




22



 


PRINCIPAL SHAREHOLDERS


The following table shows the ownership of our common stock and Series A preferred shares as of the date of this prospectus, by (i) each person whom we know beneficially owns more than 5% of the outstanding shares of our common stock or preferred shares; (ii) each of our executive officers; (iii) each of our directors; and (iv) all of our executive officers and directors as a group. Unless otherwise indicated, to our knowledge each of the stockholders listed below has sole voting and investment power over the shares beneficially owned. Unless otherwise specified, the address of each of the persons set forth below is in care of UCANN at 301 Commercial Road, Unit D, Golden, CO 80401.


 

 

Number of Shares

 

Percentage

Name

 

Owned

 

of Class

 

 

 

 

 

 

Ernie Blackmon

    

22,079,493

(1)

 

35.1%

Chad Ruby

 

7,863,772

(2)

 

11.0%

Tony Verzura

 

15,479,177

(3)

 

23.2%

John Walsh

 

2,066,000

(4)

 

  3.1%

Brent Reynolds

 

2,350,000

 

 

  3.7%

 

 

 

 

 

 

All executive officers and directors as a group (five persons)

 

47,723,442

 

 

76.1%


(1)

Includes 600,000 shares underlying currently exercisable stock options held by Mr. Blackmon.

(2)

Includes 7,280,000 shares underlying currently exercisable stock options held by Mr. Ruby. 

(3)

Includes 2,350,000 shares underlying currently exercisable stock options held by Mr. Verzura.

(4)

Includes 1,991,000 shares underlying currently exercisable stock options and warrants held by Mr. Walsh.


Series A Preferred Stock


 

 

Series A

 

Percentage

Name

 

Preferred Shares

 

of Class

 

 

 

 

 

 

Ernie Blackmon

 

1,000

 

 

50%

Chad Ruby

 

500

 

 

25%

Tony Verzura

 

500

 

 

25%


Each preferred share is entitled to 15,000 votes on all matters submitted to the vote of our shareholders, is entitled to an annual dividend of $0.05 per share when, as, and if declared by our directors, and is convertible at any time, at the option of the holder of the preferred shares, into one share of our common stock.




23



 


INVESTMENT AGREEMENT

 

On January 19, 2018, we entered into an Investment Agreement with Tangiers in order to establish a possible source of funding for our operations.

 

Under the Investment Agreement Tangiers has agreed to provide us with up to $10,000,000 of funding during the period ending three years from the date of this prospectus.


From time to time during the period ending three years after the date of this prospectus, we may, in our sole discretion, deliver a Put Notice to Tangiers. The Put Notice will specify the number of shares of common stock which we intend to sell to Tangiers on a closing date.


The closing of the purchase by Tangiers of the shares specified in the Put Notice will occur on the date which is no earlier than five and no later than seven Trading Days following the date Tangiers receives the Put Notice. On the closing date we will sell to Tangiers the shares specified in the Put Notice, and Tangiers will pay us an amount equal to the Purchase Price multiplied by the number of shares specified in the Put Notice.


The maximum amount that we will be entitled to sell to Tangiers with respect to any applicable Put Notice will be equal to 100% of the average of the daily trading volume of our common stock for the ten consecutive Trading Days immediately prior to the delivery of the Put Notice, so long as the dollar value of the shares we sell is at least $5,000 and does not exceed $1,000,000 as calculated by multiplying the number of shares specified in the Put Notice by the VWAP. We may not submit a Put Notice until after the closing of the sale of the shares specified in any previous Put Notice or earlier than the eighth Trading Day immediately following the delivery of any Put Notice.


The number of shares to be sold by Tangiers in this offering will vary from time-to-time and will depend upon the number of shares purchased from us pursuant to the terms of the Investment Agreement.  However, 9,000,000 shares of common stock is the maximum number of shares which we may sell to Tangiers.


For purposes of the foregoing:


Purchase Price means 85% of the average of the two lowest daily volume weighted average prices of the Company’s common stock during the five consecutive Trading Days including and immediately following the delivery of a Put Notice provided, however, an additional 10% will be added to the discount of each Put if (i) we are not DWAC eligible and (ii) an additional 15% will be added to the discount of each Put if we are under a Depository Trust Company “chill” status on the date Tangiers receives the Put Notice.


Trading Day means any day on which the Principal Market for our common stock is open for trading.


Principal Market means the NYSE MKT, the Nasdaq Capital Market, the OTC Bulletin Board or the OTC Markets Group, whichever is the principal market on which our common stock is traded.

 

VWAP means a price determined by the daily volume weighted average price of our common stock on the Principal Market as reported by (i) Bloomberg Financial L.P. or (ii) Stock Charts/Quote Media for the ten consecutive Trading Days immediately prior to the date of the delivery of a Put Notice.


Using the formula contained in the Investment Agreement, if we had delivered a Put Notice on April 19, 2018 specifying that we wanted to sell 200,000 shares of our common stock, we would have received $181,130 from the sale of these shares.


The number of shares to be sold by Tangiers in this offering will vary from time-to-time and will depend upon the number of shares purchased from us pursuant to the terms of the Investment Agreement.


We are under no obligation to sell any shares under the equity line of credit and we may terminate the Investment Agreement upon 15 days’ notice to Tangiers.


We will not receive any proceeds from the sale of the shares by Tangiers. Tangiers may resell the shares it acquires by means of this prospectus from time to time in the public market. We are paying the costs of registering the shares offered by Tangiers. Tangiers will pay all other costs of the sale of the shares which it may purchase from us. During the past three years neither Tangiers nor its controlling persons had any relationship with us, or our officers or directors.



24



 


The shares of common stock owned, or which may be acquired by Tangiers, may be offered and sold by means of this prospectus from time to time as market conditions permit in the over-the-counter market, or otherwise, at prices and terms then prevailing or at prices related to the then-current market price, or in negotiated transactions. These shares may be sold by one or more of the following methods, without limitation:


·

a block trade in which a broker or dealer so engaged will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

·

purchases by a broker or dealer as principal and resale by such broker or dealer for its account pursuant to this prospectus;

·

ordinary brokerage transactions and transactions in which the broker solicits purchasers; and

·

face-to-face transactions between sellers and purchasers without a broker/dealer.


In competing sales, brokers or dealers engaged by Tangiers may arrange for other brokers or dealers to participate. These brokers or dealers may receive commissions or discounts from Tangiers in amounts to be negotiated.

 

Tangiers is an “underwriter” and any broker/dealers who act in connection with the sale of the shares by means of this prospectus may be deemed to be “underwriters” within the meaning of the Securities Acts of 1933, and any commissions received by them and profit on any resale of the shares as principal might be deemed to be underwriting discounts and commissions under the Securities Act. We haves agreed to indemnify Tangiers against certain liabilities, including liabilities under the Securities Act as underwriters or otherwise.

 

We have advised Tangiers that it and any securities broker/dealers or others who may be deemed to be statutory underwriters will be subject to the prospectus delivery requirements under the Securities Act of 1933. We have also advised Tangiers that, in the event of a “distribution” of its shares, Tangiers, any “affiliated purchasers”, and any broker/dealer or other person who participates in such distribution, may be subject to Rule 102 of Regulation M under the Securities Exchange Act of 1934 until their participation in that distribution is completed. Rule 102 makes it unlawful for any person who is participating in a distribution to bid for or purchase stock of the same class as is the subject of the distribution. A “distribution” is defined in Regulation M as an offering of securities “that is distinguished from ordinary trading transactions by the magnitude of the offering and the presence of special selling efforts and selling methods”. We have also advised Tangiers that Regulation M prohibits any “stabilizing bid” or “stabilizing purchase” for the purpose of pegging, fixing or stabilizing the price of the common stock in connection with this offering.


We granted registration rights to Tangiers to enable it to sell the common stock it may acquire under the Investment Agreement. Notwithstanding these registration rights, we have no obligation:


·

to assist or cooperate with Tangiers in the offering or disposition of their shares; or

·

to obtain a commitment from an underwriter relative to the sale of any the shares.


Tangiers is entitled to customary indemnification from us for any losses or liabilities it suffers based upon material misstatements or omissions from the registration statement or this prospectus, except as they relate to information Tangiers supplied to us for inclusion in the registration statement and prospectus.


We will prepare and file amendments and supplements to this prospectus as may be necessary in order to keep this prospectus effective as long as Tangiers holds shares of our common stock or until these shares can be sold under an appropriate exemption from registration. We have agreed to bear the expenses of registering the shares, but not the expenses associated with selling the shares, such as broker discounts and commissions.


As the date of this prospectus Tangiers did not own any shares of our common stock. During the course of this offering Tangiers may acquire up to 9,000,000 shares of our common stock. As of May 15, 2018 Tangiers did not own any shares of our common stock.  It is not known how many shares of our common stock Tangiers will own after this offering.  Justin Ederle is the controlling person of Tangiers.


Tangiers’ obligations under the equity line are not transferable.


In December 2016 we entered into a separate equity line credit agreement with Tangiers. The agreement, which provides us with funding of up to $10,000,000, operates essentially the same as the equity line agreement described above. As of May 15, 2018, we had received approximately $4,600,000 from the sale of 5,000,000 shares of our common stock to Tangiers.




25



 


DESCRIPTION OF SECURITIES


Common Stock


We are authorized to issue 100,000,000 shares of common stock. Holders of our common stock are each entitled to cast one vote for each share held of record on all matters presented to the shareholders. Cumulative voting is not allowed; hence, the holders of a majority of our outstanding common shares can elect all directors.


Holders of our common stock are entitled to receive such dividends as may be declared by our Board of Directors out of funds legally available and, in the event of liquidation, to share pro rata in any distribution of our assets after payment of liabilities. Our Board of Directors is not obligated to declare a dividend. It is not anticipated that dividends will be paid in the foreseeable future.


Holders of our common stock do not have preemptive rights to subscribe to additional shares if issued. There are no conversion, redemption, sinking fund or similar provisions regarding the common stock. All outstanding shares of common stock are fully paid and non-assessable.


Preferred Stock


We are authorized to issue 10,000,000 shares of preferred stock. Shares of preferred stock may be issued from time to time in one or more series as may be determined by our Board of Directors. The voting powers and preferences, the relative rights of each such series and the qualifications, limitations and restrictions of each series will be established by the Board of Directors. Our directors may issue preferred stock with multiple votes per share and dividend rights which would have priority over any dividends paid with respect to the holders of our common stock. The issuance of preferred stock with these rights may make the removal of management difficult even if the removal would be considered beneficial to shareholders generally, and will have the effect of limiting shareholder participation in transactions such as mergers or tender offers if these transactions are not favored by our management. As of the date of this prospectus, we had not issued any shares of preferred stock.


Warrants and Options


Information concerning our outstanding warrants and options is shown below:


 


Shares Issuable

 

 

 

 

 


Upon Exercise

 

 

 

 

 


of Warrant

 

Exercise

 

 

Holder


or Option

 

Price

 

Expiration Date

 

 

 

 

 

 

 

Officers and Directors


(1)

 

(1)

 

(1)

Slainte Ventures


783,112

 

$0.18

 

11/30/21


(1)

See “Management – Outstanding Equity Awards” for information concerning options held by our officers and directors.


Transfer Agent


Direct Transfer, LLC

500 Perimeter Park Dr., Suite D

Morrisville, NC  27560

(919) 744-2722




26



 


LEGAL PROCEEDINGS


We are not involved in any legal proceedings and we do not know of any legal proceedings which are threatened or contemplated. 


INDEMNIFICATION


Our Bylaws authorize indemnification of a director, officer, employee or agent against expenses incurred by him in connection with any action, suit, or proceeding to which he is named a party by reason of his having acted or served in such capacity, except for liabilities arising from his own misconduct or negligence in performance of his duty. In addition, even a director, officer, employee, or agent found liable for misconduct or negligence in the performance of his duty may obtain such indemnification if, in view of all the circumstances in the case, a court of competent jurisdiction determines such person is fairly and reasonably entitled to indemnification. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers, or controlling persons pursuant to these provisions, we have been informed that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is therefore unenforceable.


AVAILABLE INFORMATION


We have filed with the Securities and Exchange Commission a Registration Statement on Form S-1 (together with all amendments and exhibits) under the Securities Act of 1933, as amended, with respect to the securities offered by this prospectus. This prospectus does not contain all of the information in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Securities and Exchange Commission. For further information, reference is made to the Registration Statement which may be read and copied at the Commission’s Public Reference Room.


We are subject to the requirements of the Securities Exchange Act of l934 and are required to file reports and other information with the Securities and Exchange Commission. Copies of any such reports and other information (which includes our financial statements) filed by us can be read and copied at the Commission's Public Reference Room.


The public may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. The Public Reference Room is located at 100 F. Street, N.E., Washington, D.C. 20549.


Our Registration Statement and all reports and other information we file with the Securities and Exchange Commission are available at www.sec.gov, the website of the Securities and Exchange Commission.






27



 


UNITED CANNABIS CORPORATION


TABLE OF CONTENTS


Audited Financial Statements

Years Ended December 31, 2017 and 2016


 

 

Page

 

 

 

 

 

Report of Independent Registered Public Accounting Firm

 

F-2

 

 

 

 

 

Consolidated Balance Sheets

 

F-3

 

 

 

 

 

Consolidated Statements of Operations

 

F-4

 

 

 

 

 

Consolidated Statements of Stockholders' (Deficit) Equity

 

F-5

 

 

 

 

 

Consolidated Statements of Cash Flows

 

F-6

 

 

 

 

 

Notes to Consolidated Financial Statements

 

F-8

 


Unaudited Financial Statements

Period Ended March 31, 2018


 

 

Page

 

 

 

 

 

Consolidated Balance Sheets

 

F-28

 

 

 

 

 

Consolidated Statements of Operations

 

F-29

 

 

 

 

 

Consolidated Statements of Cash Flows

 

F-30

 

 

 

 

 

Notes to Consolidated Financial Statements

 

F-31

 






F-1



 


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the shareholders and the board of directors of United Cannabis Corporation:


Opinion on the Financial Statements


We have audited the accompanying consolidated balance sheets of United Cannabis Corporation and its subsidiaries (the "Company") as of December 31, 2017 and 2016, the related consolidated statements of operations, stockholders’ (deficit) equity, and cash flows for the years then ended, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.


Going concern uncertainty


The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in note 3 to the financial statements, the Company incurred recurring losses from operations, has net current liabilities and an accumulated deficit that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.


Basis for Opinion


These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.


We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.


Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.



/s/ B F Borgers CPA PC


We have served as the Company’s auditor since 2016.


Lakewood, Colorado

March 28, 2018 

 




F-2



 


UNITED CANNABIS CORPORATION

CONSOLIDATED BALANCE SHEETS


 

 

December 31,

 

 

 

2017

 

 

2016

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

825,645

 

 

$

112,621

 

Inventory

 

 

43,200

 

 

 

 

Other current assets

 

 

23,028

 

 

 

 

Accounts receivable, net

 

 

 

 

 

24,484

 

Due from related parties

 

 

 

 

 

26,775

 

Total current assets

 

 

891,873

 

 

 

163,880

 

 

 

 

 

 

 

 

 

 

Construction in process – extraction facilities

 

 

832,697

 

 

 

 

Cultivation facility and laboratory equipment and office furniture and fixtures, net of accumulated  amortization and depreciation of $39,385 and $0.0 at December 31, 2017 and December 31, 2016, respectively

 

 

199,821

 

 

 

 

Granted patents, net of accumulated amortization of $2,679 and $0.0 for December 31, 2017 and 2016, respectively

 

 

139,638

 

 

 

 

Intangible assets

 

 

170,519

 

 

 

32,273

 

Equity method investments

 

 

 

 

 

88,000

 

Goodwill

 

 

4,838,603

 

 

 

 

Total assets

 

$

7,073,151

 

 

$

284,153

 

 

 

 

 

 

 

 

 

 

LIABILITIES & STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

371,711

 

 

$

25,048

 

Accrued expenses

 

 

10,184

 

 

 

55,264

 

Installment loan payable

 

 

46,667

 

 

 

 

Current portion of deferred revenue

 

 

180,000

 

 

 

180,000

 

Accrued wages payable to officers, directors and employees

 

 

310,401

 

 

 

113,703

 

Notes payable to and advances from officers and directors

 

 

261,348

 

 

 

57,500

 

Convertible notes payable, net of a $34,543 debt discount

 

 

 

 

 

125,547

 

Total current liabilities

 

 

1,180,311

 

 

 

557,062

 

Long term liabilities:

 

 

 

 

 

 

 

 

Deferred revenue, net of current portion

 

 

23,750

 

 

 

203,750

 

Total liabilities

 

 

1,204,061

 

 

 

760,812

 

COMMITMENTS AND CONTINGENCIES – Note 19

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

Preferred stock, 10,000,000 shares authorized; 2,000 Series A shares and none outstanding at December 31, 2017 and December 31, 2016, respectively

 

 

2,200

 

 

 

 

Common stock, 100,000,000 shares authorized; 62,862,066 and 50,650,994 outstanding at December 31, 2017 and December 31, 2016, respectively

 

 

21,186,888

 

 

 

8,885,674

 

Accumulated deficit

 

 

(15,269,845

)

 

 

(9,362,333

)

Total equity (deficit) attributable to stockholders of the Company

 

 

5,919,243

 

 

 

(476,659

)

Non-controlling interest (deficit)

 

 

(50,153

)

 

 

 

Total stockholders’ equity (deficit)

 

 

5,869,090

 

 

 

(476,659

)

Total liabilities and stockholders' equity

 

$

7,073,151

 

 

$

284,153

 




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




F-3



 


UNITED CANNABIS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS


 

 

December 31,

 

 

 

2017

 

 

2016

 

Revenues:

 

 

 

 

 

 

Revenues, non-affiliates

 

$

180,000

 

 

$

695,095

 

Revenues, affiliate

 

 

182,323

 

 

 

20,000

 

Total revenues

 

 

362,323

 

 

 

715,095

 

Cost of revenues:

 

 

 

 

 

 

 

 

Cost of revenues, non-affiliate

 

 

 

 

 

335,571

 

Cost of revenues, affiliate

 

 

134,795

 

 

 

7,500

 

Total cost of revenues

 

 

134,795

 

 

 

343,071

 

Gross profit

 

 

227,528

 

 

 

372,024

 

Operating expenses:

 

 

 

 

 

 

 

 

Marketing, advertising and new business development

 

 

142,094

 

 

 

68,007

 

Research and development

 

 

293,968

 

 

 

23,124

 

Legal, accounting, consulting and public reporting

 

 

878,257

 

 

 

643,913

 

General and administrative

 

 

4,101,367

 

 

 

404,002

 

Total operating expenses

 

 

5,415,686

 

 

 

1,139,046

 

Loss from operations

 

 

(5,188,158

)

 

 

(767,022

)

Other income (expense):

 

 

 

 

 

 

 

 

Other income and expenses

 

 

 

 

 

184,875

 

Loss on derivative liabilities

 

 

 

 

 

(1,894,258

)

Interest expense

 

 

(61,534

)

 

 

(418,437

)

Amortization of debt discount

 

 

 

 

 

(267,258

)

Loss on extinguishment of debt and repurchase of warrants

 

 

(248,892

)

 

 

(691,904

)

Loss on settlement of dispute

 

 

(122,139

)

 

 

 

Loss on issuance of common stock

 

 

(582,881

)

 

 

 

Loss before taxes on income

 

 

(6,203,604

)

 

 

(3,854,004

)

Provision for taxes on income

 

 

 

 

 

 

Net Loss

 

 

(6,203,604

)

 

 

(3,854,004

)

Loss attributable to non-controlling interests

 

 

296,092

 

 

 

 

Net Loss attributable to common shareholders

 

$

(5,907,512

)

 

$

(3,854,004

)

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per share:

 

$

(0.11

)

 

$

(0.08

)

 

 

 

 

 

 

 

 

 

Basic and diluted weighted-average common shares outstanding:

 

 

54,261,197

 

 

 

46,722,407

 

 








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






F-4



 


UNITED CANNABIS CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-

 

 

 

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Accumulated

 

 

Controlling

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Deficit

 

 

Interests

 

 

Total

 

December 31, 2015

 

 

 

 

$

 

 

 

44,988,501

 

 

$

3,039,448

 

 

$

(5,508,329

)

 

$

 

 

$

(2,468,881

)

Options issued to officers and directors for accrued wages

 

 

 

 

 

 

 

 

 

 

 

612,512

 

 

 

 

 

 

 

 

 

612,512

 

Warrants issued for services

 

 

 

 

 

 

 

 

 

 

 

319,419

 

 

 

 

 

 

 

 

 

319,419

 

Shares issued for compensation

 

 

 

 

 

 

 

 

565,576

 

 

 

271,097

 

 

 

 

 

 

 

 

 

271,097

 

Shares issued for payables and accrued expenses

 

 

 

 

 

 

 

 

509,549

 

 

 

223,484

 

 

 

 

 

 

 

 

 

223,484

 

Conversion of note to Tangiers

 

 

 

 

 

 

 

 

284,3698

 

 

 

473,966

 

 

 

 

 

 

 

 

 

473,966

 

Conversion of notes payable

 

 

 

 

 

 

 

 

1,638,731

 

 

 

3,845,748

 

 

 

 

 

 

 

 

 

3,845,748

 

Share buy-back with exercise of put option

 

 

 

 

 

 

 

 

104,939

 

 

 

100,000

 

 

 

 

 

 

 

 

 

100,000

 

Net Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,854,004

)

 

 

 

 

 

(3,854,004

)

December 31, 2016

 

 

 

 

 

 

 

 

50,650,994

 

 

 

8,885,674

 

 

 

(9,362,333

)

 

 

 

 

 

(476,659

)

Issuance of preferred stock

 

 

2,000

 

 

 

2,200

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,200

 

Consolidation of Cannabinoid Research & Development Limited as a 50% variable interest entity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(18,872

)

 

 

(18,872

)

Shares issued for payables and accrued expenses

 

 

 

 

 

 

 

 

66,000

 

 

 

93,002

 

 

 

 

 

 

 

 

 

93,002

 

Conversion of note

 

 

 

 

 

 

 

 

379,100

 

 

 

381,576

 

 

 

 

 

 

 

 

 

381,576

 

Shares issued for advisory board services

 

 

 

 

 

 

 

 

111,173

 

 

 

113,336

 

 

 

 

 

 

 

 

 

113,336

 

Shares issued for professional and consulting services

 

 

 

 

 

 

 

 

239,700

 

 

 

249,833

 

 

 

 

 

 

 

 

 

249,833

 

Options and warrants issued to officers and directors

 

 

 

 

 

 

 

 

 

 

 

2,660,159

 

 

 

 

 

 

 

 

 

2,660,159

 

Shares issued as compensation

 

 

 

 

 

 

 

 

163,534

 

 

 

170,233

 

 

 

 

 

 

 

 

 

170,233

 

Shares issued in settlement of disputes

 

 

 

 

 

 

 

 

100,000

 

 

 

102,139

 

 

 

 

 

 

 

 

 

102,139

 

Sale of common stock

 

 

 

 

 

 

 

 

271,136

 

 

 

208,982

 

 

 

 

 

 

 

 

 

208,982

 

Shares issued upon draws under our equity line of credit

 

 

 

 

 

 

 

 

3,714,238

 

 

 

3,228,954

 

 

 

 

 

 

 

 

 

3,228,954

 

Shares issued to acquire Prana Therapeutics, Inc.

 

 

 

 

 

 

 

 

5,730,000

 

 

 

4,870,500

 

 

 

 

 

 

264,811

 

 

 

5,135,311

 

Exercise of options and warrants

 

 

 

 

 

 

 

 

1,436,191

 

 

 

222,500

 

 

 

 

 

 

 

 

 

222,500

 

Net Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,907,512

)

 

 

 

 

 

(5,907,512

)

Non-Controlling Interests – Cannabinoid Research & Development Limited.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(291,918

)

 

 

(291,918)

 

Non-Controlling Interest – Prana Therapeutics, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,174

)

 

 

(4,174

)

December 31, 2017

 

 

2,000

 

 

$

2,200

 

 

 

62,862,066

 

 

$

21,186,888

 

 

$

(15,269,845

)

 

$

(50,153

)

 

$

5,869,090

 


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






F-5



 


UNITED CANNABIS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS


 

 

Year Ended December 31,

 

 

 

2017

 

 

2016

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(6,203,604

)

 

$

(3,854,004

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Increase (decrease) in provision for losses on accounts receivable

 

 

 

 

 

(4,619

)

Amortization of debt discount

 

 

30,453

 

 

 

267,258

 

Depreciation and amortization

 

 

40,161

 

 

 

 

Amortization of deferred financing costs

 

 

 

 

 

32,400

 

Loan origination discount

 

 

 

 

 

15,500

 

Share-based compensation, net

 

 

3,286,565

 

 

 

622,450

 

Discount on issuance of shares of common stock

 

 

582,881

 

 

 

 

Loss on settlement of dispute

 

 

122,139

 

 

 

 

Loss on revaluation of derivative liabilities

 

 

 

 

 

1,894,258

 

Loss on extinguishment of debt and repurchase of warrants

 

 

248,892

 

 

 

691,904

 

Loss on non-marketable equity securities

 

 

 

 

 

15,125

 

Abandonment of consulting project and resultant recognition of deferred revenue

 

 

 

 

 

(200,000

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

24,484

 

 

 

33,570

 

Other current assets

 

 

(23,028

)

 

 

 

Due from related party

 

 

26,775

)

 

 

(18,491

)

Inventory

 

 

(43,200

)

 

 

 

Prepaid expenses

 

 

 

 

 

56,341

 

Accounts payable and accrued expenses

 

 

(81,876

)

 

 

239,935

 

Deferred revenue

 

 

(180,000

)

 

 

(180,000

)

Accrued wages payable to officers and directors

 

 

213,698

 

 

 

42,695

 

Notes payable to and advances from officers and directors

 

 

77,384

 

 

 

71,008

 

Net cash used in operating activities

 

 

(1,878,276

)

 

 

(274,670

)

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

 

Cash acquired upon acquisition of subsidiary

 

 

363,134

 

 

 

 

Improvements to cultivation and extraction facilities and purchase of equipment

 

 

(621,731

)

 

 

 

Purchase of intangible assets

 

 

(197,164

)

 

 

 

Return of deposit

 

 

(32,500

)

 

 

 

Cash portion of settlement of dispute

 

 

(20,000

)

 

 

 

Net cash provided by (used in) investing activities

 

 

(508,261

)

 

 

 

 

 

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock – equity financing line

 

 

2,682,750

 

 

 

 

Proceeds from notes payable to and advances from officers and directors

 

 

254,942

 

 

 

50,000

 

Net proceeds from issuance of convertible debt and warrants

 

 

 

 

 

316,478

 

Repayment of convertible debt and notes payable

 

 

(31,000

)

 

 

(242,607

)

Proceeds from issuance of common shares and exercise of warrants

 

 

192,869

 

 

 

145,000

 

Net cash provided by (used in) financing activities

 

 

3,099,561

 

 

 

268,871

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash

 

 

713,024

 

 

 

(5,799

)

Cash, beginning of period

 

 

112,621

 

 

 

118,420

 

Cash, end of period

 

$

825,645

 

 

$

112,621

 



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



F-6



 


UNITED CANNABIS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS


 

 

Years Ended December 31,

 

 

 

2017

 

 

2016

 

Supplemental schedule of cash flow information:

 

 

 

 

 

 

Cash paid for interest

 

$

 

 

$

8,165

 

Cash paid for income taxes

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Common shares issued in the acquisition of Prana Therapeutics, Inc.

 

$

4,870,500

 

 

$

 

Issuance of stock options in exchange for accrued wages payable to officers and directors

 

$

 

 

$

612,512

 

Common stock issued upon exercise of cashless warrants

 

$

350,000

 

 

$

700,000

 

Reduction of convertible notes payable due to the conversion by Tangiers Investment Group

 

$

 

 

$

220,000

 

Issuance of common stock upon conversion of debt and loss on extinguishment of debt

 

$

381,576

 

 

$

473,965

 

Reduction of three convertible notes payable due to the conversion by Slainte Ventures

 

$

 

 

$

206,978

 

Issuance of common stock upon conversion of Slainte Ventures note payable

 

$

 

 

$

218,038

 

Reduction of note payable due to the conversion by Slainte Ventures

 

$

 

 

$

600,000

 

Issuance of common stock upon conversion of Slainte Ventures note payable

 

$

 

 

$

3,845,748

 

Reduction of notes payable in exchange for 1,100,000 shares of common stock of WeedMD

 

$

 

 

$

175,000

 

Acquisition of equipment from related party

 

$

99,200

 

 

$

 

Warrants cancelled

 

$

 

 

$

(3,000,000

)






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






F-7



UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 


NOTE 1 –BUSINESS ORGANIZATION AND NATURE OF OPERATIONS


United Cannabis Corporation ("we", "our", "us", "UCANN", or “the Company”) a Colorado corporation, was originally formed as a California corporation under the name MySkin, Inc. on November 15, 2007. MySkin was engaged in the business of providing management services to a medical spa in Los Angeles, California which provided various advanced skin care services until March 31, 2014, when this business was sold to the prior President of the Company.


In early 2014 we decided to exit the medical spa management business and change our focus to providing products, services and intellectual property to the cannabis industry.


On March 26, 2014, we entered into a License Agreement with Earnest Blackmon, Tony Verzura and Chad Ruby pursuant to which Messrs. Blackmon, Verzura and Ruby licensed certain intellectual property to us in exchange for a total of 38,690,000 shares of our common stock.


In connection with this transaction:


·

Messrs. Blackmon, Verzura and Ruby licensed to us all of their knowledge and know-how relating to the design and buildout of cultivation facilities, growing/cultivation systems, seed-to-sale protocols and procedures, products, a genetic catalogue including over 150 different strains, an advanced (non-psychoactive) cannabinoid therapy program called "A.C.T. Now", security, regulatory compliance, and other methods and processes which relate to the cannabis industry.

 

 

·

The territory for this license is the entire world and the license runs in perpetuity. There are no royalty payments under the License Agreement.

 

 

·

Messrs. Blackmon, Verzura and Ruby were appointed to our board of directors effective April 7, 2014.

 

 

·

Mr. Blackmon was elected as our President, Mr. Ruby was elected as Chief Operating Officer and Mr. Verzura was elected as Vice President.

 

 

·

A total of 41,690,000 previously outstanding shares of common stock were cancelled resulting in a total of 43,620,000 shares of common stock outstanding on March 26, 2014.


UCANN was formed as a Colorado corporation on March 25, 2014, and on May 2, 2014, MySkin, Inc. merged into UCANN, a wholly-owned subsidiary of MySkin, Inc., for the purpose of changing domicile from California to Colorado and changing the corporation's name to United Cannabis Corporation.


On March 31, 2014, we sold all right, title and interest in the tangible and intangible assets, trademarks, customer lists, intellectual property and rights, which we owned and were related to our advanced skin care business since we entered into a new business and no longer had any use for these assets. The assets were sold to MySkin Services, Inc. (“MTA”), a business partly owned by Marichelle Stoppenhagen, our former officer and director, in exchange for the $15,000 payable which we owed to Ms. Stoppenhagen and/or MTA.  In addition, MTA assumed all costs associated with these assets starting on March 31, 2014.


On July 14, 2017, we completed the acquisition of Prana Therapeutics, Inc. (“Prana”) in a one-for-one exchange of 5,730,000 shares of common stock of the Company for 5,730,000 of common stock of Prana. The purchase price had a fair market value of $5,070,500, based upon the closing price of $0.85 per share on the OTC QB exchange on July 14, 2017, including the cost to purchase 400,000 shares of Prana common stock for $200,000. Prana is a polymolecular botanical drug development company focused on developing targeted therapeutics for prevention of the negative side effects of chemotherapy, management of rheumatoid arthritis and treatment of brain cancer. Management elected to purchase Prana, because of the successful indication of the effectiveness of their Epidiferphane™ chemical formulation in the treatment of (i) the negative side effects of chemotherapy, (ii) inflammation and pain associated with arthritis and back-centric pain, (iii) sleep disorder, and (iv) the potential shrinkage of brain tumors.


Government Regulation - Marijuana is a Schedule-I controlled substance and is illegal under federal law. Even in those states in which the use of marijuana has been legalized, its use remains a violation of federal laws.




F-8



UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 


As of December 31, 2017, 29 states and the District of Columbia allow their citizens to use medical marijuana, and voters in the states of California, Colorado, Washington, Nevada, Oregon, Alaska, Maine, Massachusetts, Vermont and the District of Columbia have approved ballot measures to legalize cannabis for adult recreational use.  The state laws are in conflict with the federal Controlled Substances Act, which makes marijuana use and possession illegal on a national level. The former Obama administration had effectively stated that it was not an efficient use of resources to direct federal law enforcement agencies to prosecute those lawfully abiding by state-designated laws allowing the use and distribution of medical and recreational marijuana under what colloquially became known as the “Cole memo”.  However, on January 4, 2018, Attorney General Jeffery Sessions rescinded the “Cole memo,” and issued a new memo in its place that reaffirms the Department of Justice’s stance of potentially prosecuting violators of federal marijuana laws.  If current administration elects to vigorously enforce federal laws, such enforcement may cause significant financial damage to us.


NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


Principles of Consolidation – Our consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries UCANN California Corporation, UC Colorado Corporation and UC Oregon Corporation, the ninety-five percent (95%) owned subsidiary Prana Therapeutics, Inc. (“Prana”), and the fifty percent (50%) owned subsidiary Cannabinoid Research & Development Company Limited (“CRD”). All intercompany accounts and transactions have been eliminated. Our consolidated financial statements are stated in United States dollars and have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). At March 31, 2017, we concluded that we had established a variable interest entity relationship with CRD, because we are the primary beneficiary, in accordance with GAAP. As a result, we elected to consolidate the assets and liabilities of CRD in our consolidated balance sheet at March 31, 2017. Prana was purchased on July 14, 2017, and their assets and liabilities are included in the consolidated balance sheets at December 31, 2017, and their results of operations are included in the consolidated financial statements for the period of June 30, 2017, which is the nearest quarter end to the purchase date, through December 31, 2017.


Use of Estimates - The preparation of our consolidated financial statements in conformity with U.S. GAAP requires us to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of our consolidated financial statements and the reported amounts of revenues and expenses during the periods presented.


We make our estimate of the ultimate outcome for these items based on historical trends and other information available when our consolidated financial statements are prepared. We recognize changes in estimates in accordance with the accounting rules for the estimate, which is typically in the period when new information becomes available. We believe that our significant estimates, assumptions and judgments are reasonable, based upon information available at the time they were made. Our actual results could differ from these estimates, making it possible that a change in these estimates could occur in the near term.

 

Fair Value of Financial Instruments - Our financial instruments consist principally of cash and cash equivalents, accounts receivable, non-marketable equity securities, accounts payable, notes payable and other current assets and liabilities. We value our financial assets and liabilities using fair value measurements. Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are categorized based on whether the inputs are observable in the market and the degree that the inputs are observable. The categorization of financial instruments within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The hierarchy is prioritized into three levels (with Level 3 being the lowest) defined as follows:


Level 1: Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.


Level 2: Observable inputs other than prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated with observable market data.


Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs.



F-9



UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 


The carrying amount of our cash and cash equivalents, accounts receivable, accounts payable, and other current assets and liabilities in our consolidated financial statements approximates fair value because of the short-term nature of the instruments. Investments in non-marketable equity securities are carried at cost less other-than-temporary impairments. The carrying amount of our notes payable and convertible debt at December 31, 2016, approximates their fair values based on our incremental borrowing rates.


There have been no changes in Level 1, Level 2, and Level 3 categorizations and no changes in valuation techniques for these assets or liabilities for the years ended December 31, 2017 and 2016.


Cash and Cash Equivalents - We consider investments with original maturities of 90 days or less to be cash equivalents. Because of current banking regulations, marijuana centric entities are not afforded normal banking privileges, and thus, we have not able to consistently have access to the federal banking system. Thus, at the beginning of 2016, the Company entered into an agreement with our Chief Executive Officer to hold cash funds in his personal bank account, on an as-need basis, in trust for the Company. Under the terms of our trust agreement with our Chief Executive Officer, he agreed to hold our cash in his personal bank account, and to make payments of our funds only for our business purposes, and to allow daily access to the bank account for ongoing oversight of his fiduciary responsibility to the Company. Additionally, the trust agreement requires that the Chief Executive Officer make copies available to our accounting staff of all transactions applicable to our operations, on a weekly, or as requested basis.  At December 31, 2017 and 2016 there is cash deposits in the personal bank accounts of the Chief Executive Officer held in trust for us in the amount of $0.0 and $4,158, respectively.


Accounts Receivable – Our accounts receivable consists primarily of trade accounts arising in the normal course of business. No interest is charged on past due accounts. Accounts for which no payments have been received after 30 days are considered delinquent and customary collection efforts are initiated. Accounts receivable are carried at original invoice amount less a reserve made for doubtful accounts based on a review of all outstanding amounts on a monthly basis. We determine our allowance for doubtful accounts by regularly evaluating individual customer receivables and considering the customer’s financial condition and credit history, and current economic conditions.


Our allowance for doubtful accounts was $0.00 and $30,000 as of December 31, 2017 and 2016, respectively. We recorded bad debt expense, included in general and administrative expenses, of $0.00 and $82,831 during the years ended December 31, 2017 and 2016, respectively.

 

Prepaid Expenses - Prepaid expenses are primarily comprised of advance payments made to third parties for independent contractors’ services or other general expenses. Prepaid services and general expenses are amortized over the applicable periods which approximate the life of the contract or service period.


Inventory – Inventory is stated at the lower of cost or net realizable value. Cost is determined based upon the cost to acquire the raw materials, plus internal labor and other costs incurred to produce finished goods inventory. The cost of inventory is principally determined using the last-in first-out method. We periodically review the value of our inventory and provide a write-down of inventory based on our assessment of the market conditions. Write-downs are charged to cost of goods sold in the applicable reporting period; there have been no such write-downs during the years ended December 31, 2017 and 2016.




F-10



UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 


Property and Equipment – Our property and equipment, which is classified for reporting purposes in our consolidated balance sheets as construction in process – extraction facilities and cultivation facility and laboratory equipment, is recorded at cost. Maintenance and repairs are expensed as incurred. Depreciation is computed using the straight-line method over estimated useful lives of three to five years, and amortization is computed using the straight-line method over the life of the applicable lease. At the time of retirement or other disposition of property and equipment, the cost and accumulated depreciation are removed from our accounts and any resulting gain or loss is reflected in our consolidated statements of operations.


 

 

December 31,

 

 

 

2017

 

 

2018

 

Conduction in process - extraction facilities

 

 

 

 

 

 

Weldona, Colorado extraction facility:

 

 

 

 

 

 

Equipment

 

$

647,947

 

 

$

 

Leasehold improvements

 

 

 

 

 

 

Jamaica cultivation and extraction facility:

 

 

 

 

 

 

 

 

Leasehold improvements - laboratory

 

 

75,000

 

 

 

 

Leasehold improvements - cultivation

 

 

109,750

 

 

 

 

 

 

$

832,697

 

 

$

 

Cultivation facility and laboratory equipment and Office furniture and fixtures

 

 

 

 

 

 

 

 

Golden, Colorado hemp laboratory - equipment

 

$

34,651

 

 

 

 

Golden, Colorado administrative offices:

 

 

 

 

 

 

 

 

Furniture and fixtures

 

 

21,668

 

 

 

 

Leasehold improvements

 

 

2,000

 

 

 

 

Transportation equipment

 

 

81,667

 

 

 

 

Remote laboratory equipment

 

 

99,220

 

 

 

 

 

 

 

239,206

 

 

 

 

Accumulated amortization and depreciation

 

 

(39,385

)

 

 

 

 

 

$

199,821

 

 

$

 


Granted Patents – Our patent was granted by the United States Patent and Trademark Office on August 15, 2017. The patent covers the extraction of pharmaceutically active components from cannabis plant materials, for incorporation into medicines. The cost of the patents is being amortized on the straight-line method over a 15-year period.


Intangible Assets – Our intangible assets, consisting of applications for trademarks, design mark and provisional patents, are recorded at cost, and once approved, will be amortized using the straight-line method over an estimated useful life of 10 to 15 years.


Long-Lived Assets Impairment Assessment – Our intangible assets and other long-lived assets are subject to an impairment test if there is an indicator of impairment. The carrying value and ultimate realization of these assets is dependent upon our estimates of future earnings and benefits that we expect to generate from their use. If our expectations of future results and cash flows are significantly diminished, intangible assets and other long-lived assets may be impaired and the resulting charge to operations may be material. When we determine that the carrying value of intangibles or other long-lived assets may not be recoverable based upon the existence of one or more indicators of impairment, we use the projected undiscounted cash flow method to determine whether an impairment exists, and then measure the impairment using discounted cash flows.


We have not recorded any impairment charges related to long-lived assets as of December 31, 2017 or December 31, 2016.


Equity Method Investments – Our investments in entities representing ownership of at least 20% but not more than 50%, where we exercise significant influence, are accounted for under the equity method of accounting, and are included in our financial statements as a component of the consolidated financials. All intercompany accounts are eliminated upon consolidation, and we recognize the minority interests’ share in the income and losses of the less than 100% percent owned subsidiary in the period incurred.




F-11



UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 


Goodwill Our goodwill, which consists of our interest in a ninety-five percent owned subsidiary, Prana Therapeutics, Inc. (“Prana”) and a fifty percent owned subsidiary, Cannabinoid Research & Development Company Limited (“CRD”), is not amortized, but is evaluated for impairment annually, or when indicators of a potential impairment are present. The annual evaluation for impairment of goodwill is based on valuation models that incorporate assumptions and internal projections of expected future cash ows and operating plans. We believe such assumptions are also comparable to those that would be used by other marketplace participants. Our total goodwill of $4,838,602 consists of $4,731,729 for Prana and $106,873 for CRD at December 31, 2017. See Note 7 – Purchase of Prana Therapeutics, Inc.


Purchase Price Allocation The acquisition method of accounting is based on ASC Subtopic 805-10, “Business Combinations,” and uses the fair value concepts defined in ASC Subtopic 820-10, “Fair Value Measurements and Disclosures”. The price for the purchase of Prana Therapeutics, Inc., was allocated to the net tangible and intangible assets based upon their fair values as of the acquisition date, July 14, 2017. The allocation of the purchase price of $5,070,500 was based upon a valuation and the estimates and assumptions are subject to change within the measurement period. The excess of the purchase price over the fair values of the net tangible assets and intangible assets was recorded as goodwill in the amount of $4,731,729 and is generally driven by our expectations of our ability to commercialize the several drugs invented by Prana Therapeutics, Inc. See Note 7 – Purchase of Prana Therapeutics, Inc.


Deferred Revenue - We defer revenue for which product or service has not yet been delivered or is subject to refund until such time that we and our customer jointly determine that the product or service has been delivered or no refund will be required.


Revenue Recognition - We recognize revenue in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605, Revenue Recognition, which requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on our management's judgments regarding the fixed nature of the selling prices of the products and services delivered and the collectability of those amounts.


Revenue for services with a payment in the form of stock, warrants or other financial assets is recognized when the services are performed. The value of revenue paid for with warrants is measured using the Black-Scholes-Merton pricing model. Revenue from product sales, including delivery fees, is recognized when an order has been obtained, the price is fixed and determinable, the product is shipped, title has transferred, and collectability is reasonably assured.


Reimbursable expenses, including those relating to travel, other out-of-pocket expenses and any third-party costs, are included as a component of revenues. Typically, an equivalent amount of reimbursable expenses is included in cost of revenues. Reimbursable expenses related to time and materials and fixed-fee engagements are recognized as revenue in the period in which the expense is incurred and collectability is reasonably assured. Taxes collected from customers and remitted to governmental authorities are presented in our consolidated statement of operations on a net basis.


Revenue Recognition – Affiliate We have licensed our Prana products to Advesa, Inc. (“Advesa”), which is 100% owned by one of our major shareholders. Advesa has an exclusive right for five (5) consecutive one (1) year periods to sell our Prana products in certain cities in the state of California. In consideration for the exclusive license granted to Advesa under the agreement, Advesa is obligated to pay us a royalty on all Prana products sold by Advesa equal to the sale price of the Prana products, minus the cost of goods sold (computed without regard to depreciation, amortization, other non-cash items or allocation of overhead, general and administrative expenses or similar items) (the “Prana Royalty”). In addition, Advesa pays us a management fee of five percent (5%) of all Advesa gross revenue minus the Prana Royalty. We recognize revenue on all Prana sales consistent with the criteria described above for all sales in accordance with ASC 605, Revenue Recognition.


Cost of Revenues – Our policy is to recognize cost of revenues in the same manner as, and in conjunction with, revenue recognition. Our cost of revenues includes the costs directly attributable to revenue recognized and includes expenses related to the production, packaging and labeling of our Prana medicinals products and personnel-related costs, fees for third-party services, travel and other consulting costs related to our advisory services.




F-12



UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 


Research and Development Expenses - Research and development (“R&D”) costs are charged to expense as incurred. Our R&D expenses include, but are not limited to, consulting service fees and materials and supplies used in the development of our proprietary products and services.


General and Administrative Expenses - General and administrative expenses consist primarily of personnel-related costs, fees for professional and consulting services, travel costs, rent, bad debt expense, general corporate costs, and other costs of administration such as human resources, finance and administrative roles.


Stock-Based Compensation – We periodically issue shares of our common stock to non-employees in non-capital raising transactions for fees and services. We account for stock issued to non-employees in accordance with ASC 505, Equity, whereas the value of the stock compensation is based upon the measurement date as determined at either (a) the date at which a performance commitment is reached, or (b) at the date at which the necessary performance to earn the equity instruments is complete.


We account for stock option grants issued and vesting to employees based on ASC 718, Compensation – Stock Compensation, whereas the award is measured at its fair value at the date of grant and is amortized ratably over the vesting period. Accounting for stock-based compensation to employees requires the measurement and recognition of compensation expense for all share-based payment awards made to employees based on estimated fair values. We estimate the fair value of all stock option awards on the date of grant using the Black-Scholes-Merton pricing model, which is affected by our stock price, as well as assumptions regarding a number of complex and subjective variables. These variables include our expected stock price volatility over the term of the awards, actual and projected employee option exercise behaviors, risk free interest rates and expected dividends. We also estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from our estimates.


Income Taxes - Income taxes are recorded using the asset and liability method. Under the asset and liability method, tax assets and liabilities are recognized for the tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using the enacted tax rates expected to apply when the asset is realized, or the liability settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that enactment occurs. To the extent that we do not consider it more likely than not that a future tax asset will be recovered, we will provide a valuation allowance against the excess.

 

We follow the provisions of ASC 740, Income Taxes. As a result of the ASC 740, we make a comprehensive review of our portfolio of tax positions in accordance with recognition standards established by ASC 740. As a result of the implementation of ASC 740, we recognized no material adjustments to liabilities or stockholders’ deficit.


When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in our consolidated financial statements in the period during which, based on all available evidence, we believe it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

 

Interest and penalties associated with unrecognized tax benefits, if any, are classified as interest expense and penalties and are included in selling, general and administrative expenses in our consolidated statements of operations.


On December 22, 2017, the U.S. Tax Cuts and Jobs Act was enacted. U.S. tax reform introduced many changes, including lowering the U.S. corporate tax rate to 21 percent, changes in incentives, provisions to prevent U.S. base erosion and significant changes in the taxation of international income, including provisions which allow for the repatriation of foreign earnings without U.S. tax. The enactment of U.S. tax reform had no impact on our income taxes for the year ended year-ended December 31, 2017.



F-13



UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 


Commitments and Contingencies - Certain conditions may exist as of the date our consolidated financial statements are issued, which may result in a loss but which will only be resolved when one or more future events occur or fail to occur.  We assess such contingent liabilities, and such assessment inherently involves an exercise of judgment.  In assessing loss contingencies related to legal proceedings that are pending against us or unasserted claims that may result in such proceedings, we evaluate the perceived merits of the legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.


If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in our consolidated financial statements.  If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.


Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed.


Net Loss Per Share - We compute net loss per share in accordance with ASC 260, Earnings per Share. Under the provisions of ASC 260, basic net loss per share includes no dilution and is computed by dividing the net loss available to common stockholders for the period by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share takes into consideration shares of common stock outstanding (computed under basic net loss per share) and potentially dilutive securities that are not anti-dilutive.


Potentially dilutive securities outlined in the table below have been excluded from the computation of diluted net loss per share, because the effect of their inclusion would have been anti-dilutive.


 

 

Years Ended December 31,

 

 

 

2017

 

 

2016

 

Warrants to purchase common stock

 

 

674,336

 

 

 

666,667

 

Cashless warrants exercisable and not converted to common stock

 

 

534,689

 

 

 

844,689

 

Stock options

 

 

6,637,500

 

 

 

3,680,000

 

Total potentially dilutive securities

 

 

7,846,525

 

 

 

5,191,356

 


Other Comprehensive Income (Loss) – We report as other comprehensive income (loss) those revenues, gains and losses not included in the determination of net income.  During the years ended December 31, 2017 and 2016, we did not have any gains and losses resulting from activities or transactions that resulted in other comprehensive income or loss.

 

Segment Reporting – Our Company operates as one segment.


Concentration of Credit Risk - Financial instruments that potentially subject us to credit risk consist of cash. We maintain our cash with high credit quality financial institutions; at times, such balances with any one financial institution may not be insured by the FDIC.

 

The following tables show significant concentrations in our revenues and accounts receivable for the periods indicated:


Percentage of Revenue:


 

 

Years Ended December 31,

 

 

 

2017

 

 

2016

 

Customer A

 

 

98

%

 

 

95

%

Customer B

 

 

2

%

 

 

3

%

Customer C

 

 

%

 

 

2

%

 

 

 

 

 

 

 

 

 




F-14



UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 


Percentage of Accounts Receivable:


 

 

Years Ended December 31,

 

 

 

2017

 

 

2016

 

Customer D

 

 

%

 

 

75

%

Customer E

 

 

%

 

 

25

%

Customer F

 

%

 

 

%


Recently Issued Accounting Pronouncements – From time to time, the FASB or other standards setting bodies issue new accounting pronouncements. Updates to the FASB ASCs are communicated through issuance of an Accounting Standards Update ("ASU"). Unless otherwise discussed, we believe that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on our condensed consolidated financial statements upon adoption.


In May 2014 the FASB issued guidance on revenue from contracts with customers, which implements a five-step process of how an entity should recognize revenue in order to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance will be effective at the beginning of fiscal year 2018, and early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. We implemented this accounting treatment beginning January 1, 2018.


In February 2016, the FASB issued guidance on leases which requires entities to recognize right-of-use assets and lease liabilities on the balance sheet for the rights and obligations created by all leases, including operating leases, with terms of more than 12 months. The new guidance also requires additional disclosures on the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative information. The new guidance will be effective for us at the beginning of fiscal year 2019. Early adoption is permitted. We are in the process of evaluating the impact the adoption of this guidance will have on our consolidated financial statements and related disclosures.


NOTE 3 – GOING CONCERN


Our consolidated financial statements have been prepared on a going concern basis which assumes we will be able to realize our assets and discharge our liabilities in the normal course of business for the foreseeable future. During the year ended December 31, 2017, we incurred losses of $5,907,512 and used cash of $1,878,276 in our operating activities. As at December 31, 2017, we had a working capital deficit of $288,439 and an accumulated deficit of $15,269,845. Our ability to continue as a going concern is dependent upon our ability to generate profitable operations in the future and, or, obtaining the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due. There is no assurance that these events will be satisfactorily completed.


NOTE 4 – RECEIVABLE FROM RELATED PARTY


On April 20, 2015, we advanced Cannabinoid Research & Development, Limited (“CRD”) $5,000 and included this amount in due from related parties. At March 31, 2017, we concluded that we had established a variable interest entity relationship with CRD, because we are the primary beneficiary, in accordance with GAAP. As a result, we elected to consolidate the assets and liabilities of CRD in our consolidated balance sheet at March 31, 2017. Thus, at September 30, 2017, the $5,000 advance to CRD is eliminated upon the consolidation of the assets and liabilities of CRD for financial statement reporting purposes.


In the normal course of business, we make non-interest-bearing advances to Advesa, Inc. (“Advesa’), which is 100% owned by one of our officers and directors. Such advances are used by Advesa to purchase equipment and to cover the cost of their operations. Additionally, during the year ended December 31, 2017, we purchased certain laboratory equipment from Advesa at an amount equal to their cost of the equipment.




F-15



UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 


Amounts due from related parties consist of:


 

December 31,

 

2017

 

 

2016

Advesa, Inc.

$

 

 

$

21,775

Cannabinoid Research & Development, Limited

 

 

 

 

5,000

 

$

 

 

$

26,775


NOTE 5 – OPERATING LEASES


Administrative Offices and Hemp Laboratory – Golden, Colorado


Effective August 1, 2017, we entered into a triple net lease of approximately 9,882 square feet of commercial space in Golden, Colorado in which our administrative offices and hemp laboratory are located. The term of the lease expires on July 31, 2020 and has no option for renewal. Basic rent is $3,302, $3,500 and $3,800 per month through, July 31, 2018, 2019 and 2020, respectively, plus we are responsible for all utilities. It is our intent presently, to renew the lease annual throughout the term of the lease.


Extraction and Cultivation Facility – Golden Colorado


Effective October 1, 2017, we entered into a triple net lease of approximately 40,000 square feet of industrial space located on five (5) acres of land in Weldona, Colorado that we us as our hemp extraction facility and hemp cultivation center. The term of the lease expires on September 31, 2018, with an annual option to renew the lease on an annual basis, that expires on September 30, 2022. The rent is $7,500 per month throughout the term of the lease, plus we are responsible for all utilities.


Extraction and Cultivation Facility - Jamaica


Our fifty percent (50%) owned subsidiary Cannabinoid Research & Development Company Limited (“CRD”) leases approximately 28 acres of land upon which their cultivation and extraction facility is located near Kingston, Jamaica. The land is leased for $1 per year from the father of one of the directors and members of CRD.


Future minimum payments for these leases are:


For the twelve Months Ending December 31,

2018

 

2019

 

2020

 

2021

 

2022

$130,613

 

$133,499

 

$116,597

 

$90,000

 

$67,500


NOTE 6 - INVENTORY


Inventory is stated at the lower of cost or market. Cost is determined based upon the cost to acquire the raw materials, plus internal labor and other costs incurred to produce finished goods inventory. The cost of inventory is principally determined using the last-in first-out method. We periodically review the value of our inventory and provide a write-down of inventory based on our assessment of the market conditions. Any write-down is charged to cost of goods sold. At December 31, 2017, and 2016, our inventory was, as follows:


 

 

December 31,

 

 

 

2017

 

 

2016

 

Raw materials

 

$

15,000

 

 

$

 

Work-in-process

 

 

 

 

 

 

Finished goods

 

 

28,200

 

 

 

 

 

 

$

43,200

 

 

$

 




F-16



UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 


NOTE 7 – PURCHASE OF PRANA THERAPUETICS, INC.


On June 8, 2017, we entered into an agreement to purchase 400,000 shares of Prana Therapeutics, Inc. (“Prana”), in a private offering of their common shares, for a total consideration of $200,000 (“Subscription Agreement’). In accordance with the terms of the Subscription Agreement, we paid Prana $50,000, upon execution of the Subscription Agreement, and committed to remit $50,000 to Prana on September 30, 2017, December 31, 2017 and March 31, 2018, respectively. Subsequently, on July 14, 2017, we completed the acquisition of Prana in a one-for-one exchange of 5,730,000 shares of our common stock for 5,730,000 shares of common stock of Prana. The purchase price had a fair market value of $5,070,500, based upon the closing price of $0.85 per share of our common stock on the OTC QB exchange on July 14, 2017, including the cost to purchase 400,000 shares of Prana for $200,000.


The purchase price for Prana was allocated to the net tangible and intangible assets based upon their fair values as of the acquisition date. The excess of the purchase price over the fair values of the net tangible assets and intangible assets was recorded as goodwill and is generally driven by management’s expectations and ability to realize synergies and achieve strategic growth.


Upon completion of an acquisition audit subsequent to the acquisition of Prana, it was determined that the net assets acquired as of July 14, 2017 were approximately $71,873 more than was reported in the Form 10-Q for the three and nine months ended September 30, 2017. As a result, the allocation of the purchase price, net assets and patent amounts has been restated as of December 31, 2017 compared to September 30, 2017, as follows:


 

 

December 31,
2017

 

 

Reallocation
of
Purchase
Price

 

 

September 30,
2017

 

Patents

 

$

52,596

 

 

$

 

 

$

52,596

 

Net assets

 

 

522,761

 

 

 

71,873

 

 

 

450,888

 

Goodwill

 

 

4,495,143

 

 

 

(71,873

 

 

4,567,016

 

Total

 

$

5,070,500

 

 

$

 

 

$

5,070,500

 


NOTE 8 – GRANTED PATENT


On August 15, 2017, the United States Patent and Trademark Office issued to the Company US Patent #9730911 (the “Patent”) granting exclusive rights to its proprietary formulations based on compounds extracted from cannabis plant materials; more specifically the composition of matter pertaining to the use of phytocannabinoids, cannabinoids, and specific terpene profiles in liquid form. This composition of matter Patent provides protection for our proprietary formulations. The Patent protects the use of suspending both phytocannabinoids and cannabinoids with specific combinations of cannabis derived terpenes in liquid forms with an array of delivery methods including capsule, sublingual, topical, oral, suppository, and vaporization. Cannabinoids referenced in the application include ratios of tetrahydrocannabinolic acid (THCa), cannabidiolic acid (CBDa), tetrahydrocannabinol (THC), cannabinol (CBN), cannabidiol (CBD), cannabichromenic acid (CBCa), and cannabichromene (CBC). At August 15, 2017, we classified the costs associated with research, legal fees, application costs incurred in the process of being granted the Patent on our consolidated balance sheet in the amount of $142,317, and we began amortizing such cost of the Patent on a straight-line basis over a 15-year period. Amortization expense of the Patent is $2,679 and $0.00 for the year ended December 31, 2017 and 2016, respectively, and accumulated amortization is $2,679 and $0.00 at December 31, 2017 and 2016, respectively.


NOTE 9 – INTANGIBLE ASSETS


Our intangible assets are comprised of the costs incurred in pursuing provisional patent applications and applications for design mark and trademarks, which have presently not been approved or issued. The costs associated with our intangible assets are amortized on a straight-line basis over estimated useful lives of 15 years for patents and 10 years for design marks and trademarks, once the applications are approved. Costs associated with applications that are not approved will be expensed in the period that the application is rejected or abandoned.




F-17



UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 


NOTE 10 – EQUITY METHOD INVESTMENTS


On August 15, 2014, we acquired a 50% interest in Cannabinoid Research & Development Company Limited (“CRD”), a Jamaican company, in exchange 40,000 shares of our common stock valued at $88,000 based on the previous day’s closing price of our stock. We also committed to provide expertise on design-build, genetics, cultivation, production, processing, productizing, labeling, packaging, marketing, branding and distribution of products, as well as use of our intellectual property in the operations of CRD. We accounted for this $88,000 as an equity method investment on our condensed consolidated balance sheets at December 31, 2016.


At March 31, 2017, it was concluded that we had established a variable interest entity relationship with CRD, because we are the primary beneficiary, in accordance with GAAP. As a result, we elected to consolidate the assets and liabilities of CRD in our consolidated balance sheet at March 31, 2017.


NOTE 11 – ACCRUED EXPENSES


Our accrued expenses consist of:


 

 

December 31,

 

 

 

2017

 

 

2016

 

Accrued consulting fees

 

$

 

 

$

45,000

 

Accrued wages and related expenses

 

 

10,184

 

 

 

 

Accrued interest expense

 

 

 

 

 

10,264

 

Total accrued expenses

 

$

10,184

 

 

$

55,264

 


On May 6, 2014, we entered into a consultancy agreement with two third party consultants that had a nine-month term, which could be renewed and/or extended by mutual agreement. The agreement provided for a $50,000 payment at signing, which has been paid, and for three more $50,000 payments (a total of $200,000) and the issuance of 100,000 shares of our common stock upon the achievement of certain goals, as set forth in appendix II of the agreement. During the year ended December 31, 2014 we recognized $160,000 of expense applicable to this agreement. At December 31, 2015, the project was approximately 80% complete and $110,000 is included in accrued expenses on our consolidated balance sheet at that date. On December 7, 2016, upon mutual agreement, the consultancy agreement was deemed to be abandoned, because the project was not completed. In turn, one of the consultants, Dr. Brent Reynolds, has been performing other services for the Company during the year ended December 31, 2016, and has agreed to join our Board of Advisors. Dr Reynolds is currently a professor in the Department of Neurosurgery at the University of Florida, College of Medicine, where his lab focuses on the application of natural products for treating diseases and dysfunction of the nervous system. In recognition of his services to the Company during the year ended December 31, 2016, and as an inducement to join our Board of Advisors, he was issued 100,000 shares of our common stock for such services, and the fair market value of these shares in the amount of $163,783 was charged to common stock on the consolidated balance sheet at December 31, 2016, and the residual amount of $53,783 was recognized as a loss on the extinguishment of a debt in our consolidated statement of operations.


NOTE 12 – INSTALMENT LOAN PAYABLE


Instalment loan payable consists of a 48-month instalment loan incurred in connection with the purchase of a truck that is used at our extraction facility.  The outstanding balance on the instalment loan is $46,667 and $0.0 at December 31, 2017 and 2016, respectively. The terms of the installment loan specify monthly payments of $972, however, we are making payments of $7,778 per month in order to pay the loan off in a six-month period. As a result of our intentions to pay the loan off in six months, the entire balance of the instalment loan has been classified as a current liability.




F-18



UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 


NOTE 13 – DEFERRED REVENUE


Our deferred revenue consists of:


 

 

December 31,

 

 

 

2017

 

 

2016

 

Deferred revenue – WeedMD

 

$

203,750

 

 

$

383,750

 

Less – current portion

 

 

(180,000

)

 

 

(180,000

)

Deferred revenue, net of current portion

 

$

23,750

 

 

$

203,750

 


On June 9, 2014, we received 1,187,500 common shares and 3,000,000 warrants to purchase common shares of WMD in exchange for future consulting services and use of our intellectual property. We recorded the $893,750 fair value of these securities as deferred revenue and we recognized $150,000 of this amount as revenue during the period July 1, 2014 through December 31, 2014, based upon our initial three-year estimate of the service period involved. Based on recent discussions with WMD, we now expect to deliver the remaining consulting services and use of our intellectual property to WMD on a relatively consistent monthly basis during the four-year period January 1, 2015 through December 31, 2018. Accordingly, we are now recognizing $15,000 of deferred revenue per month. We recognized $180,000 of revenue applicable to this arrangement, in each of the years ended December 31, 2017 and 2016. At December 31, 2017, we expect to recognize $180,000 of the remaining $203,750 WMD deferred revenue during the next twelve months and accordingly, we have classified the $180,000 as a current liability on our consolidated balance sheets.


On December 28, 2014, we entered into a royalty and consulting services agreement with FoxBarry Farms, LLC (“FoxBarry”) whereby we received a $200,000 prepaid royalty payment from FoxBarry. At the time, we planned to recognize deferred royalty revenue based on actual applicable sales as defined in the agreement. In August 2015, we discontinued providing consulting services to FoxBarry, as our initial project with FoxBarry was abandoned due to operational issues. However, FoxBarry appears to no longer be in existence, and since all of our conditions pursuant to the agreement have been satisfied, we elected to recognize the $200,000 of deferred income during the year ended December 31, 2016, as other income.


NOTE 14 – CONVERTIBLE NOTES PAYABLE


During the year ended December 31, 2016, we issued convertible promissory notes to unaffiliated third parties, the proceeds of which used for general working capital purposes. The debt discounts and deferred financing costs on the convertible promissory notes are amortized on a straight-line basis, which approximates the effective interest rate method, over the term of the note, and this amortization is included in interest expense in our consolidated statements of operations.


The following table summarizes our convertible promissory notes outstanding as of December 31, 2017 and 2016:


 

 

 

 

 

 

Maturity

 

Interest

 

Base

 

December 31,

 

Issue Date

 

Holder

 

Security

 

Date

 

Rate

 

Conversion Rate

 

2017

 

 

2016

 

12/28/2016

 

Tangiers Investment Group

 

Unsecured

 

7/8/2017

 

 

10

%

$1.00 through maturity; 55% of lowest closing price thereafter

 

$





 

 

$

35,000

 

8/10/2016

 

JSJ Investments

 

Unsecured

 

5/10/2017

 

 

12

%

$0.20 during first 180 days; 45% of lowest closing price thereafter

 

 

 

 

 

125,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

160,000

 

 

 

 

 

 

 

 

 

 

 

 

Less unamortized discount

 

 

 

 

 

(34,453

)

 

 

 

 

 

 

 

 

 

 

 

      

 

$

 

 

$

125,547

 




F-19



UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 


The convertible notes, including accrued interest payable, may be converted into shares of our common stock at the Conversion Price, in whole, or in part, at various times, after the date of issuance, at the option of the holder (the “Conversion Feature”), as defined by the terms of the convertible note.


The Conversion Price is equal to the Base Conversion Rate specified in the table above multiplied by the Variable Conversion Rate (“VCR”) which is equal to the average of the number of lowest trading prices or closing bid prices of our common stock (specified in the table above) during the ten-trading day period prior to the date of conversion divided by the closing price of our common stock on the day of conversion.


If these conversion rates result in a beneficial conversion feature (“BCF”), the BCF is recorded as an unamortized convertible debt discount, which is required to be valued and amortized to interest expense over the term of the Note. We amortize our convertible debt discount on a straight-line basis, which approximates the effective interest rate method, and this amortization is included in amortization of debt discount in our consolidated statements of operations. If a convertible note is repaid, any remaining unamortized deferred financing costs and unamortized debt discount are expensed on the date of repayment.


If a convertible note is convertible into an unlimited number of unregistered, restricted common shares, it is classified as having an unlimited shares feature (“Unlimited Shares Feature”). The difference between the closing price of our common stock and the VCR is referred to as the Variable Conversion Rate Differential (“VCRD”). If, both the Unlimited Shares Feature and the VCRD meet the definition of an embedded derivative, then together they create a compound embedded derivative liability or, hereafter, simply a “derivative liability.”


In accordance with U.S. GAAP, our derivative liabilities are recorded at fair value on the date of issuance and subsequently remeasured to fair value each reporting period with any change in fair value being recognized as gain (loss) on derivative liabilities in our consolidated statement of operations. See Note 9.


Similarly, accrued interest payable applicable to the convertible notes is convertible into shares of our common stock, without limit, at the same Conversion Price. The fair value of the derivative liabilities applicable to accrued interest payable is measured and recognized at each reporting date as derivative liabilities with a corresponding charge to interest expense.  As noted above, all derivative liabilities are re-measured in subsequent reporting periods with any change in fair value being included in gain (loss) on derivative liabilities.


During the years ended December 31, 2017 and 2016 we recognized $0.00 and $34,415 of amortization of deferred financing costs, respectively. This amount is included in interest expense in our consolidated statements of operations.


We recognized $30,543 and $35,719 of interest expense applicable to our convertible notes during the years ended December 31, 2017 and 2016, respectively. As of December 31, 2017, and 2016, $0.00 and $5,876, respectively, of this interest is accrued within accrued expenses on our consolidated balance sheets.


2015 Convertible Notes


At various times during the year ended December 31, 2015, the Company issued convertible promissory notes (the "2015 Notes") in the aggregate principal balance of $381,000. The 2015 Notes, including accrued interest payable, may be converted into shares of our common stock at the Conversion Price, as defined below, in whole, or in part, at any time beginning 180 days after the date of issuance, at the option of the holder. The 2015 Notes also contain prepayment options whereby we may, during the first 180 days that each note is outstanding, prepay the note by paying prepayment premiums ranging from 10% to 40% of the principal then outstanding depending on the date of prepayment.


In general, per the terms of our 2015 Notes, the note holders may not make any conversions that would result in the note holder holding more than 9.99% of our issued and outstanding common stock at any one time.


Should we default on a conversion or repayment of a convertible note, the note, accrued interest and default penalties and fees are immediately due and payable. The minimum default penalty amount ranges from 25% to 50% (or more, under certain circumstances) times the then outstanding principal and unpaid interest.




F-20



UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 


During the year ended December 31, 2016, two of these notes in the aggregate principal balance of $161,000 were repaid. The $220,000 note dated December 9, 2015 from Tangiers Investment Group, LLC was converted in full into a total of 2,843,698 shares of the Company's common stock at various dates during the year ended December 31, 2016.


Slainte Convertible Notes


On March 30, 2016, we borrowed $81,978, from Slainte Ventures and used the proceeds to repay principal and accrued interest applicable to our $59,000 convertible promissory note dated October 6, 2015, to Vis Vires Group, Inc. On April 6, 2016, we borrowed an additional $75,000 from Slainte Ventures and used the proceeds, along with $52,500 of advances to the Company by officers and directors of the Company, to repay principal and accrued interest applicable to our $102,000 convertible promissory note, dated October 12, 2015, to JSJ Investments, Inc. On July 5, 2016, we borrowed $50,000 from Slainte Ventures and used the proceeds for working capital purposes. These loans, together with interest at 12% per year, are payable on December 30, 2016. We can prepay the loans at any time. If the loans are repaid on or before September 30, 2016, the principal amount which is being repaid will increase by 10%. If the loans are repaid after September 30, 2016, the principal amount which is being repaid will increase by 15%. The amount of the principal increase may be paid with shares of our common stock. The number of shares to be issued for such purpose will be determined by dividing the average closing price of our common stock (which in no case can be greater than $0.45) for the ten trading days preceding the prepayment date. The original principal of the loan was not convertible prior to maturity. If the loans were not paid when due, then at any time between the maturity date and January 10, 2017, Slainte may convert the outstanding principal and interest on the loan into shares of our common stock. The number of shares to be issued on conversion was to be determined by dividing the average closing price of our common stock (which in no case can be greater than $0.45) for the ten trading days preceding the conversion date by the outstanding principal and interest on the loan on the conversion date.


The notes were not paid prior to the maturity date of December 30, 2016. As a result, the notes became convertible effective December 31, 2016. Derivative liabilities in the aggregate amount of $557,000 were recorded upon these notes becoming convertible. The notes along with their accrued interest were converted into 497,296 shares of the Company's common stock on December 31, 2016, and the value of the derivative liabilities were extinguished to common stock.


JSJ Convertible Note


On August 10, 2016, we borrowed $125,000 from JSJ Investments and used the proceeds for working capital purposes. The loan, together with interest at 12% per year, is payable on May 10, 2017. We can prepay the loan at any time. If the loan is repaid on or before October 16, the principal amount which is being repaid will increase by 25%. If the loan is repaid on or before October 16, 2016 through February 12, 2016, the principal amount which is being repaid will increase by 30%. Thereafter, the note may be repaid only upon written consent from JSJ, and the principal amount that is being repaid will increase by 30%. At any time after the date of the note, JSJ is entitled to convert all of the outstanding and unpaid principal in to shares of our common stock. Until February 12, 2017, the conversion price is $0.20 per share, and thereafter, the conversion price will be at a 45% discount to the lowest closing price of our common stock for the ten trading days preceding the conversion date. JSJ may not make any conversions that would result in the note holder holding more than 4.99% of our issued and outstanding common stock at any one time. If the notes are held through February 12, 2017, derivative accounting will apply upon the change to a variable conversion price. This convertible note was paid in full on February 9, 2017.


Tangiers Convertible Note


In connection with our equity line agreement, the Company issued a promissory note to Tangiers for the principal sum of $35,000 as a commitment fee for the equity line. The note bears interest at 10% per year, is unsecured, and is due and payable on July 8, 2017. At the option of Tangiers, all or any part of the unpaid principal amount of the note may be converted into shares of the Company's common stock. The number of shares to be issued on any conversion will be determined by dividing the principal amount of the note to be converted by $1.00. If the note is not repaid or converted prior to maturity, the conversion price will change to 55% of the lowest closing bid price during the 20 days preceding the conversion date. If the note is held past maturity, derivative accounting will apply upon the change to a variable conversion price. This note was paid off on May 19, 2017.




F-21



UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 


NOTE 15 – NOTES PAYABLE TO AND ADVANCES FROM OFFICERS AND DIRECTORS


Notes payable to and advance from officers and directors consisted of the following, at December 31, 2017 and 2016:


 

 

December 31,

 

 

 

2017

 

 

2016

 

Note payable to Earnie Blackmon, an officer and director

 

$

246,458

 

 

$

28,750

 

Note payable to Tony Verzura, an officer and director

 

 

14,889

 

 

 

28,750

 

 

 

$

261,347

 

 

$

57,500

 


On April 6, 2016, we borrowed $25,000 from Ernest Blackmon and $25,000 from Tony Verzura and used the proceeds to repay principal and interest applicable on our $102,000 convertible promissory note dated October 12, 2015, to JSJ Investments Inc. The loans, together with interest at 12% per year, are payable on December 30, 2016. We may prepay the loans at any time. If the loans are repaid on or before September 30, 2016, the principal amount, which is being repaid, will increase by 10%. If the loans are repaid after September 30, 2016, the principal amount, which is being repaid will increase by 15%. As of December 31, 2016, the loans were not repaid, when they were due, per the terms of the notes, and thus, the principal balance of the notes was increased to $57,500 in the aggregate, with the addition to the principal balance charged to interest expense.


During the years ended December 31, 2017 and 2016, Messrs. Blackmon, Verzura and Ruby, who are officers and directors of the Company, paid obligations and expenses on behalf of the Company, from their own individual, personal funds. Such payments have been recorded in the consolidated balance sheets as a component of Notes payable to and advances from officers and directors.


NOTE 16 – STOCKHOLDERS’ EQUITY (DEFICIT)

 

Preferred Stock


On July 18, 2017, the Board of Directors adopted a resolution creating a series of Preferred Shares, no par value per share, designated as the Series A Preferred Shares. We subsequently issued 2,000 shares of our Series A preferred stock for $2,200 to of our officers and directors.


Warrants:

 

The following table summarizes our share warrants outstanding as of December 31, 2017 and 2016:

 

 

 

Year Ended December 31,

 

 

 

2017

 

 

2016

 

 

 

Number of

Shares

 

 

Weighted

Average

Exercise

Price

 

 

Number of

Shares

 

 

Weighted

Average

Exercise

Price

 

Warrants outstanding, beginning of period

 

 

1,551,356

 

 

$

0.18

 

 

$

3,000,000

 

 

$

12.00

 

Warrants issued to consultants

 

 

132,669

 

 

 

 

 

 

666,667

 

 

 

0.18

 

Cashless warrants issued upon conversion of Slainte note

 

 

 

 

 

 

 

 

1,584,689

 

 

 

 

Warrants exercised

 

 

(475,000

)

 

 

 

 

 

(700,000

)

 

 

 

Expired

 

 

 

 

 

 

 

 

(3,000,000

)

 

 

 

Warrants outstanding, end of period

 

 

1,209,025

 

 

$

0.21

 

 

 

1,551,356

 

 

$

0.18

 

Warrants exercisable, end of period

 

 

1,209,025

 

 

$

0.21

 

 

 

1,551,356

 

 

$

0.18

 


The weighted-average remaining contractual life for warrants outstanding and exercisable at December 31, 2017, is 3.0 years, and the aggregate intrinsic value of warrants outstanding and exercisable at December 31, 2017 is $0.




F-22



UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 


666,667 and 83,333 warrants issued during the years ended December 31, 2017 and 2016, respectively, were valued utilizing the Black Scholes option pricing model and the following range of assumptions on the date of valuation:


Stock price

 

$

0.16 - $2.18

 

Exercise price

 

$

0.18

 

Risk free interest rate

 

 

1.01% - 1.37

%

Expected term (years)

 

 

5

 

Expected volatility

 

 

322% - 504

%

Expected dividends

 

 

0

%


Stock Options


On January 9, 2015, we awarded 200,000 stock options to each of Messrs. Blackmon, Verzura and Ruby under our 2014 Stock Incentive Plan. The options were fully vested at the time of grant and give the option holder the right to purchase shares of our common stock at $0.70 per share during the ten-year term of the option.


We calculated the fair value of each option to be approximately $0.70 per option utilizing the Black Scholes option pricing model and the following assumptions on the date of valuation:


Stock price

 

$

0.70

 

Exercise price

 

$

0.70

 

Risk free interest rate

 

 

1.98

%

Expected term (years)

 

 

10.0

 

Expected volatility

 

 

173

%

Expected dividends

 

 

0

%


At December 31, 2014, the fair value of these 600,000 options totaling $417,664 was included in accrued expenses on our consolidated balance sheets. On January 9, 2015, the option grant date, we increased common stock and decreased accrued expenses by this amount to account for the issuance of the 600,000 options on that date.


On January 12, 2016, we awarded 1,050,000 stock options to each of Messrs. Blackmon, Verzura and 980,000 stock options to Mr. Ruby under our 2014 Stock Incentive Plan. The options were fully vested at the time of grant and give the option holder the right to purchase shares of our common stock at $0.20 per share during the ten year term of the option.


We calculated the fair value of each option to be approximately $0.20 per option utilizing the Black Scholes option pricing model and the following assumptions on the date of valuation:


Stock price

 

$

0.20

 

Exercise price

 

$

0.20

 

Risk free interest rate

 

 

1.98

%

Expected term (years)

 

 

10.0

 

Expected volatility

 

 

173

%

Expected dividends

 

 

0

%


At December 31, 2015 the fair value of these 3,080,000 options totaling $612,512, which was included in accrued expenses on our consolidated balance sheets, and on January 15, 2016, the option grant date, we increased common stock and decreased accrued expenses by this amount to account for the issuance of these options on that date.




F-23



UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 


The following table summarizes our stock options outstanding as of both December 31, 2017 and 2016, respectively:


 

 

Number of
Shares

 

 

Weighted
Average
Remaining
Life (Years)

 

 

Weighted
Average
Exercise
Price

 

Stock options outstanding at December 31, 2015

 

 

600,000

 

 

 

9.8

 

 

$

0.70

 

Issued

 

 

3,080,000

 

 

 

10.0

 

 

$

0.20

 

Exercised

 

 

 

 

 

 

 

 

 

Expired

 

 

 

 

 

 

 

 

 

Stock options outstanding at December 31, 2016

 

 

3,680,000

 

 

 

8.9

 

 

$

0.28

 

Issued

 

 

3,957,500

 

 

 

 

 

 

 

 

 

Exercised

 

 

(1,000,000

)

 

 

 

 

 

 

 

 

Expired

 

 

 

 

 

 

 

 

 

 

 

Stock options exercisable at December 31, 2017

 

 

6,637,500

 

 

 

8.7

 

 

$

0.57

 


The weighted-average remaining contractual life for stock options outstanding and exercisable at December 31, 2017, is 8.7 years, and the aggregate intrinsic value of options outstanding and exercisable at December 31, 2017 is $0.


NOTE 17 – SHARE-BASED COMPENSATION


Share-based Compensation


We recognize share-based compensation expense in cost of revenues, sales and marketing expenses, R&D expenses, general and administrative expenses, and other income and expenses, based on the fair value of common shares issued for services. In addition, we accrue share-based compensation expense for estimated share-based awards earned during the years ended December 31, 2017 and 2016, under our 2014 Equity Incentive Plan and our 2017 Equity Incentive Plan. Share-based compensation expense for the years ended December 31, 2017 and 2016 is, as follows:


 

 

December 31,

 

 

 

2017

 

 

2016

 

Warrants issued for consulting and other services

 

$

249,835

 

 

$

319,419

 

Common stock issued for accounts payable and accrued expenses

 

 

93,002

 

 

 

223,484

 

Common stock issued for services

 

 

 

 

 

271,097

 

Common stock issued for advisory board fees

 

 

113,336

 

 

 

 

Common stock issued as compensation to employees

 

 

170,233

 

 

 

 

Stock options issued to officers and directors

 

 

2,660,159

 

 

 

 

 

 

$

3,286,565

 

 

$

814,000

 


NOTE 18 – INCOME TAXES


The Internal Revenue Code (“IRC”) allows net operating losses (“NOL's”) to be carried forward and applied against future profits for a period of twenty years. The change of ownership following our merger with MySkin may limit our ability to utilize these NOLs under the terms of IRC Section 381.


We did not provide any current or deferred federal income tax provision or benefit for any of the periods presented in our consolidated financial statements because we have experienced losses since our inception. When it is more likely than not, that a tax asset cannot be realized through future income, we must record an allowance against any potential future tax benefit. We provided a full valuation allowance against our net deferred tax assets, consisting of net operating loss carry forwards, because we determined that it is more likely than not that we will not earn income sufficient to realize the deferred tax assets during the carry forward periods.




F-24



UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 


We have not taken a tax position that, if challenged, would have a material effect on our consolidated financial statements for the years ended December 31, 2017 and 2016, as defined under ASC 740. We did not recognize any adjustment to our liability for uncertain tax positions and therefore did not record any adjustment to the beginning balance of our accumulated deficit on our consolidated balance sheets.


Our provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before provision for income taxes. The sources and tax effects of the differences for the periods presented are as follows:


 

 

Years Ended December 31,

 

 

 

2017

 

 

2016

 

Statutory U.S. federal tax rate

 

 

39

%

 

 

39

%

Effect of increase in valuation allowance

 

 

(39

%)

 

 

(39

%)

 

 

 

%

 

 

%


Changes in our cumulative net deferred tax assets consist of the following:


 

 

December 31,

 

 

 

2017

 

 

2016

 

Net loss carry-forward

 

$

4,923,492

 

 

$

3,648,316

 

Valuation allowance

 

 

(4,923,492

)

 

 

(3,648,316

)

 

 

$

 

 

$

 


A reconciliation of our income taxes computed at the statutory rate is as follows:


 

 

Years Ended December 31,

 

 

 

2017

 

 

2016

 

Tax benefit at statutory rate

 

$

2,023,555

 

 

$

1,500,068

 

Valuation allowance

 

 

(2,023,555

)

 

 

(1,500,068

)

 

 

$

 

 

$

 


NOTE 19 – COMMITMENTS AND CONTINGENCIES


Contractual Obligations and Commercial Commitments


Consulting Agreement for GAAP Reporting Services


On February 20, 2016, we entered into a consulting agreement with a third party that has a twelve-month term, and which can be extended by mutual agreement. The agreement provides for the issuance of a five (5) year warrant to the consultant, upon the execution of the agreement, to purchase 250,000 shares of our common stock at a price of $0.18 per share, plus the payment of $7,500 on the first day of each month, beginning March 1, 2016, coupled with the monthly issuance of five (5) year warrants to purchase our common stock in a number of shares determined by dividing $7,500 by $0.18 per share. These warrants are exercisable at a price of $0.18 per share. During the years ended December 31, 2017 and 2016, we recognized in our consolidated statements of operations expenses in the total amount of $156,630 and $394,215, respectively, related to this contract, as follows:


 

 

December 31,

 

 

 

2017

 

 

2016

 

Cash paid to consultant

 

$

30,000

 

 

$

15,000

 

Fair value of shares of common stock issued to consultant

 

 

27,297

 

 

 

62,781

 

Fair value of warrants issued to consultant

 

 

99,333

 

 

 

319,419

 

 

 

$

156,630

 

 

$

397,200

 




F-25



UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 


Financing Commitment


On December 28, 2016, we entered into an equity line of credit agreement with Tangiers Global, LLC (“Tangiers”). Under the equity line agreement, Tangiers has agreed to provide the Company with up to $10,000,000 of funding through the purchase of shares of the Company’s common stock. During the term of the agreement, the Company may deliver a put notice to Tangiers, which will specify the number of shares which the Company will sell to Tangiers. The minimum amount the Company can draw down at any one time is $5,000, and the maximum amount the Company can draw down at any one time is $350,000 as determined by the formula contained in the equity line agreement.


A closing will occur on the date which is no earlier than five trading days following, and no later than seven trading days following, the applicable put notice. On each closing date, the Company will sell, and Tangiers will purchase, the shares of the Company’s common stock specified in the put notice. The amount to be paid by Tangiers on a particular closing date will be determined by multiplying the purchase price by the number of shares specified in the put notice. The purchase price is 85% of the average of the two lowest trading prices of the Company’s common stock during the pricing period applicable to the put notice. The pricing period, with respect to a particular put notice, is five consecutive trading days including, and immediately following, the delivery of a put notice to Tangiers. The Company may submit a put notice once every ten trading days provided the closing of the previous transaction has taken place. The Company is under no obligation to submit any put notices.


The equity line agreement has a term of 36 months, which will begin on the effective date of the registration statement, which the Company has agreed to file with the Securities and Exchange Commission so that the shares of common stock to be sold to Tangiers may be sold in the public market. The Company issued a promissory note to Tangiers for the principal sum of $35,000 as a commitment fee for the equity line. The note bears interest at 10% per year, is unsecured, and is due and payable on July 8, 2017. The note is recorded on our consolidated balance sheet at December 31, 2016 in the amount of $35,000, net of a discount of $34,453. At the option of Tangiers, all or any part of the unpaid principal amount of the note may be converted into shares of the Company’s common stock. The number of shares to be issued on any conversion will be determined by dividing the principal amount of the note to be converted by $1.00.


Clinical Trial Agreement


Under the terms of an agreement dated November 11, 2017, we committed to cover the costs to perform clinical trials with The University of the West Indies through the Topical Metabolism Research Unit of the Caribbean Institute for Health Research located in Kingston, Jamaica, initially scheduled as follows:


·

An instalment of $50,000 upon both the approval of specific protocol by the Ethics Committee of the Institutional Review Board of the Ministry of Health, Jamaica, and the execution of the clinical trial agreement,

·

An instalment of $51,182 upon the enrollment of the 12th patient,

·

An instalment of $51,182 after all twelve patients go through the washout period determined in the specific protocol and return for a second dose, and

·

An instalment of $51,182 upon completion of the clinical trial.


Additionally, we have agreed to reimburse The University of the West Indies for care and treatment of adverse reactions or injury sustained by a patient, as a direct result of the clinical trial.


Research Laboratory


Under the terms of a research agreement entered into in October 2017 with the University of Florida Trustees (“UFT”), we committed to pay UFT $151,772, upon the execution of the research agreement, and $75,886 in each of the months of February 2018 and June 2018, for a total commitment of $303,544.  




F-26



UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 


Executive Office Lease


Effective August 1, 2018, we signed a thirty-six-month lease of approximately 6,683 square feet of commercial office space in Golden, Colorado that we use as our executive offices. The lease expires on July 31, 2020 and requires the payment of monthly base rental rates of $3,302 through July 31, 2018, $3,000 through July 31, 2019 and $3,799 through July 31, 2020. As additional rent, we are required to pay for an allocation of common area costs and expenses, plus all utilities.


Weldona Facility Lease


Effective October 1, 2017, we entered into a lease of approximately 40,000 square feet of industrial space in Weldona, Colorado that we us as our hemp extraction facility and hemp cultivation center. The term of the lease expires on October 31, 2018, with an annual option to renew that expires on September 30, 2022. The rent is $7,500 per month throughout the term of the lease, plus we are responsible for all utilities.


Legal Proceedings


There have been no material developments in legal proceedings in which we are involved during the year ended December 31, 2017.


NOTE 20 – SUBSEQUENT EVENTS


In accordance with ASC 855-10 we have analyzed the Company’s operations subsequent to December 31, 2017 to the date these consolidated financial statements were issued, and has determined that, other that as disclosed above, we do not have any material subsequent events to disclose in these consolidated financial statements.





F-27



 


UNITED CANNABIS CORPORATION

CONSOLIDATED BALANCE SHEETS


 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

 

(Unaudited)

 

 

(Audited)

 

 

  

                       

  

  

                       

  

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

164,961

 

 

$

825,645

 

Accounts receivable, net

 

 

34,513

 

 

 

 

Inventory

 

 

137,141

 

 

 

43,200

 

Due from related parties

 

 

14,961

 

 

 

 

Other current assets

 

 

18,216

 

 

 

23,028

 

Total current assets

 

 

369,792

 

 

 

891,873

 

Construction in progress

 

 

110,699

 

 

 

832,697

 

Cultivation facility, laboratory equipment and office furniture and fixtures, and leasehold improvements net of accumulated amortization and depreciation of $91,524 and $39,385 at March 31, 2018 and December 31, 2017, respectively

 

 

1,333,065

 

 

 

199,821

 

Granted patents, net of accumulated amortization of $4,458 and $2,679 for March 31, 2018, and December 31, 2017, respectively

 

 

137,859

 

 

 

139,638

 

Intangible assets

 

 

220,962

 

 

 

170,519

 

Goodwill

 

 

4,838,603

 

 

 

4,838,603

 

Total assets

 

$

7,010,980

 

 

$

7,073,151

 

 

 

 

 

 

 

 

 

 

LIABILITIES & STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

177,021

 

 

$

371,711

 

Accrued expenses

 

 

9,209

 

 

 

10,184

 

Installment loan payable

 

 

32,757

 

 

 

46,667

 

Current portion of deferred revenue

 

 

158,750

 

 

 

180,000

 

Accrued wages payable to officers, directors and employees

 

 

201,664

 

 

 

310,401

 

Notes payable to and advances from officers and directors

 

 

341,544

 

 

 

261,348

 

Total current liabilities

 

 

920,945

 

 

 

1,180,311

 

Long term liabilities:

 

 

 

 

 

 

 

 

Deferred revenue, net of current portion

 

 

 

 

 

23,750

 

Total liabilities

 

 

920,945

 

 

 

1,204,061

 

COMMITMENTS AND CONTINGENCIES – Note 19

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Preferred stock, 10,000,000 shares authorized; 2,000 Series A shares outstanding at March 31, 2018 and December 31, 2017, respectively

 

 

2,200

 

 

 

2,200

 

Common stock, 100,000,000 shares authorized; 64,229,926 and 62,862,066 outstanding as of March 31, 2018 and December 31, 2017, respectively

 

 

28,669,844

 

 

 

21,186,888

 

Accumulated deficit

 

 

(22,476,406

)

 

 

(15,269,845

)

Total equity (deficit) attributable to stockholders of the Company

 

 

6,195,638

 

 

 

5,919,243

 

Non-controlling interest (deficit)

 

 

(105,603

)

 

 

(50,153

)

Total stockholders’ equity

 

 

6,090,035

 

 

 

5,869,090

 

Total liabilities and stockholders’ equity

 

 

7,010,980

 

 

 

7,073,151

 



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



F-28



 


UNITED CANNABIS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


 

 

Three Months Ended

March 31,

 

 

 

2018

 

2017

 

Revenues:

  

                       

  

  

                       

  

Product sales

 

$

164,212

 

 

$

144,677

 

Licensing fees

 

 

45,000

 

 

 

45,000

 

Licensing fees - affiliate

 

 

57,064

 

 

 

 

Total revenues

 

 

266,276

 

 

 

189,677

 

Cost of revenues:

 

 

 

 

 

 

 

 

Cost of revenues

 

 

(118,942

)

 

 

(121,051

)

Gross profit

 

 

147,334

 

 

 

68,626

 

Operating expenses:

 

 

 

 

 

 

 

 

Marketing, advertising and new business development

 

 

17,311

 

 

 

53,392

 

Research and development

 

 

236,678

 

 

 

45,160

 

Legal, accounting, consulting and public reporting

 

 

263,246

 

 

 

240,814

 

General and administrative

 

 

6,327,550

 

 

 

248,860

 

Total operating expenses

 

 

6,844,785

 

 

 

588,226

 

Loss from operations

 

 

(6,697,451

)

 

 

(519,600

)

Other income (expense):

 

 

 

 

 

 

 

 

Interest expense

 

 

(8,498

)

 

 

(28,809

)

Loss on extinguishment of debt and repurchase of warrants

 

 

 

 

 

(267,567

)

Loss on settlement of dispute

 

 

 

 

 

 

Loss on issuance of common stock

 

 

(556,061

)

 

 

 

Loss before taxes on income

 

 

(7,262,010

)

 

 

(815,976

)

Provision for taxes on income

 

 

 

 

 

 

Net Loss

 

 

(7,262,010

)

 

 

(815,976

)

Loss attributable to non-controlling interests

 

 

55,450

 

 

 

 

Net Loss attributable to common shareholders

 

$

(7,206,560

)

 

$

(815,976

)

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per share:

 

$

(0.11

)

 

$

(0.02

)

 

 

 

 

 

 

 

 

 

Basic and diluted weighted-average common shares outstanding:

 

 

63,829,443

 

 

 

50,971,862

 











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





F-29



 


UNITED CANNABIS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


 

 

Three Months Ended

March 31,

 

 

 

2018

 

 

2017

 

Operating activities:

 

 

 

 

 

 

Net loss

 

$

(7,262,010

)

 

$

(815,976

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Amortization of debt discount

 

 

 

 

 

16,406

 

Non-cash interest expense

 

 

 

 

 

9,694

 

Depreciation and amortization

 

 

53,946

 

 

 

3,239

 

Share-based compensation

 

 

5,488,982

 

 

 

211,967

 

Loss on issuance of common stock

 

 

556,061

 

 

 

 

Loss on extinguishment of debt and repurchase of warrants

 

 

 

 

 

267,559

 

Increase in net assets in connection with acquisition of fifty percent owned subsidiary

 

 

 

 

 

(22,666

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(34,513

)

 

 

(33,150

)

Due from related parties

 

 

(14,961

)

 

 

 

Inventory

 

 

(93,941

)

 

 

 

Prepaid expenses

 

 

 

 

 

5,000

 

Other current assets

 

 

4,811

 

 

 

 

Accounts payable and accrued expenses

 

 

(195,663

)

 

 

101,564

 

Deferred revenue

 

 

(45,000

)

 

 

(45,000

)

Accrued wages payable to officers, directors and employees

 

 

(108,738

)

 

 

191,563

 

Net cash used in operating activities

 

 

(1,651,026

)

 

 

(109,800

)

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

 

Purchase of equipment for and improvements to cultivation facility

 

 

(463,414

)

 

 

(130,541

)

Purchase of intangible assets

 

 

(50,443

)

 

 

 

Cash in acquisition of fifty percent owned subsidiary

 

 

 

 

 

(15,079)

 

Net cash used in investing activities

 

 

(513,857

)

 

 

(145,620

)

 

 

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock – equity financing line

 

 

1,380,831

 

 

 

 

Proceeds from advances from officers and directors

 

 

80,195

 

 

 

178,383

 

Proceeds from sale of common stock

 

 

57,083

 

 

 

 

Payments on installment loan

 

 

(13,910

)

 

 

 

Net cash provided by financing activities

 

 

1,504,199

 

 

 

178,383

 

 

 

 

 

 

 

 

 

 

Net decrease in cash

 

 

(660,684

)

 

 

(77,037

)

Cash, beginning of period

 

 

825,645

 

 

 

112,621

 

Cash, end of period

 

$

164,961

 

 

$

35,584

 

 

 

 

 

 

 

 

 

 

Supplemental schedule of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

 

 

$

 

Cash paid for income taxes

 

$

 

 

$

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Conversion of convertible note payable to noteholder

 

$

 

 

$

125,000

 

Conversion of advances from officers and directors to notes payable to officers and directors

 

$

 

 

$

246 681

 



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




F-30



 


UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 –BUSINESS ORGANIZATION AND NATURE OF OPERATIONS


United Cannabis Corporation ("we", "our", "us", "UCANN", or “the Company”) a Colorado corporation, was originally formed as a California corporation under the name MySkin, Inc. on November 15, 2007. MySkin was engaged in the business of providing management services to a medical spa in Los Angeles, California which provided various advanced skin care services until March 31, 2014, when this business was sold to the prior President of the Company.


In early 2014 we decided to exit the medical spa management business and change our focus to providing products, services and intellectual property to the cannabis industry.


On March 26, 2014, we entered into a License Agreement with Earnest Blackmon, Tony Verzura and Chad Ruby pursuant to which Messrs. Blackmon, Verzura and Ruby licensed certain intellectual property to us in exchange for a total of 38,690,000 shares of our common stock.


In connection with this transaction:


·

Messrs. Blackmon, Verzura and Ruby licensed to us all of their knowledge and know-how relating to the design and buildout of cultivation facilities, growing/cultivation systems, seed-to-sale protocols and procedures, products, a genetic catalogue including over 150 different strains, an advanced (non-psychoactive) cannabinoid therapy program called "A.C.T. Now", security, regulatory compliance, and other methods and processes which relate to the cannabis industry.

 

 

·

The territory for this license is the entire world and the license runs in perpetuity. There are no royalty payments under the License Agreement.

 

 

·

Messrs. Blackmon, Verzura and Ruby were appointed to our board of directors effective April 7, 2014.

 

 

·

Mr. Blackmon was elected as our President, Mr. Ruby was elected as Chief Operating Officer and Mr. Verzura was elected as Vice President.

 

 

·

A total of 41,690,000 previously outstanding shares of common stock were cancelled resulting in a total of 43,620,000 shares of common stock outstanding on March 26, 2014.


UCANN was formed as a Colorado corporation on March 25, 2014, and on May 2, 2014, MySkin, Inc. merged into UCANN, a wholly-owned subsidiary of MySkin, Inc., for the purpose of changing domicile from California to Colorado and changing the corporation's name to United Cannabis Corporation.


On March 31, 2014, we sold all right, title and interest in the tangible and intangible assets, trademarks, customer lists, intellectual property and rights, which we owned and were related to our advanced skin care business since we entered into a new business and no longer had any use for these assets. The assets were sold to MySkin Services, Inc. (“MTA”), a business partly owned by Marichelle Stoppenhagen, our former officer and director, in exchange for the $15,000 payable which we owed to Ms. Stoppenhagen and/or MTA.  In addition, MTA assumed all costs associated with these assets starting on March 31, 2014.


On July 14, 2017, we completed the acquisition of Prana Therapeutics, Inc. (“Prana”) in a one-for-one exchange of 5,730,000 shares of common stock of the Company for 5,730,000 of common stock of Prana. The purchase price had a fair market value of $5,070,500, based upon the closing price of $0.85 per share on the OTC QB exchange on July 14, 2017, including the cost to purchase 400,000 shares of Prana common stock for $200,000. Prana is a polymolecular botanical drug development company focused on developing targeted therapeutics for prevention of the negative side effects of chemotherapy, management of rheumatoid arthritis and treatment of brain cancer. Management elected to purchase Prana, because of the successful indication of the effectiveness of their Epidiferphane™ chemical formulation in the treatment of (i) the negative side effects of chemotherapy, (ii) inflammation and pain associated with arthritis and back-centric pain, (iii) sleep disorder, and (iv) the potential shrinkage of brain tumors.


Government Regulation - Marijuana is a Schedule-I controlled substance and is illegal under federal law. Even in those states in which the use of marijuana has been legalized, its use remains a violation of federal laws.




F-31



UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 


As of March 31, 2018, 30 states and the District of Columbia allow their citizens to use medical marijuana, and voters in the states of California, Colorado, Washington, Nevada, Oregon, Alaska, Maine, Massachusetts, Vermont and the District of Columbia have approved ballot measures to legalize cannabis for adult recreational use.  The state laws are in conflict with the federal Controlled Substances Act, which makes marijuana use and possession illegal on a national level. The former Obama administration had effectively stated that it was not an efficient use of resources to direct federal law enforcement agencies to prosecute those lawfully abiding by state-designated laws allowing the use and distribution of medical and recreational marijuana under what colloquially became known as the “Cole memo”.  However, on January 4, 2018, Attorney General Jeffery Sessions rescinded the “Cole memo,” and issued a new memo in its place that reaffirms the Department of Justice’s stance of potentially prosecuting violators of federal marijuana laws.  On April 13, 2018, President Trump pledged to support federalism-based legislation regarding marijuana and promised not to pursue federal prosecution despite the Attorney General’s actions.  It appears that the current administration will not elect to vigorously enforce federal laws, but such future enforcement may cause significant financial damage to us.


NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


Principles of Consolidation – Our consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries UCANN California Corporation, UC Colorado Corporation and UC Oregon Corporation, the ninety-five percent (95%) owned subsidiary Prana Therapeutics, Inc. (“Prana”), and the fifty percent (50%) owned subsidiary Cannabinoid Research & Development Company Limited (“CRD”). All intercompany accounts and transactions have been eliminated. Our consolidated financial statements are stated in United States dollars and have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). At March 31, 2017, we concluded that we had established a variable interest entity relationship with CRD, because we are the primary beneficiary, in accordance with GAAP. As a result, we elected to consolidate the assets and liabilities of CRD in our consolidated balance sheet at March 31, 2017. Prana was purchased on July 14, 2017, and their assets and liabilities are included in the consolidated balance sheets at December 31, 2017, and their results of operations are included in the consolidated financial statements for the period of June 30, 2017, which is the nearest quarter end to the purchase date, through December 31, 2017.


Use of Estimates - The preparation of our consolidated financial statements in conformity with U.S. GAAP requires us to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of our consolidated financial statements and the reported amounts of revenues and expenses during the periods presented.


We make our estimate of the ultimate outcome for these items based on historical trends and other information available when our consolidated financial statements are prepared. We recognize changes in estimates in accordance with the accounting rules for the estimate, which is typically in the period when new information becomes available. We believe that our significant estimates, assumptions and judgments are reasonable, based upon information available at the time they were made. Our actual results could differ from these estimates, making it possible that a change in these estimates could occur in the near term.

 

Fair Value of Financial Instruments - Our financial instruments consist principally of cash and cash equivalents, accounts receivable, non-marketable equity securities, accounts payable, notes payable and other current assets and liabilities. We value our financial assets and liabilities using fair value measurements. Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are categorized based on whether the inputs are observable in the market and the degree that the inputs are observable. The categorization of financial instruments within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The hierarchy is prioritized into three levels (with Level 3 being the lowest) defined as follows:


Level 1: Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.


Level 2: Observable inputs other than prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated with observable market data.




F-32



UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 


Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs.


The carrying amount of our cash and cash equivalents, accounts receivable, accounts payable, and other current assets and liabilities in our consolidated financial statements approximates fair value because of the short-term nature of the instruments. Investments in non-marketable equity securities are carried at cost less other-than-temporary impairments. The carrying amount of our notes payable and convertible debt at March 31, 2018, approximates their fair values based on our incremental borrowing rates.


There have been no changes in Level 1, Level 2, and Level 3 categorizations and no changes in valuation techniques for these assets or liabilities for the three-month period ended March 31, 2018 and the year ended December 31, 2017.


Cash and Cash Equivalents - We consider investments with original maturities of 90 days or less to be cash equivalents.


Accounts Receivable, Net – Our accounts receivable consists primarily of trade accounts arising in the normal course of business. No interest is charged on past due accounts. Accounts for which no payments have been received after 30 days are considered delinquent and customary collection efforts are initiated. Accounts receivable are carried at original invoice amount less a reserve made for doubtful accounts based on a review of all outstanding amounts on a monthly basis. We determine our allowance for doubtful accounts by regularly evaluating individual customer receivables and considering the customer’s financial condition and credit history, and current economic conditions. We recorded no bad debt expense during the three-month period ended March 31, 2018 and 2017, respectively, and we have no allowance for doubtful accounts as of March 31, 2018, and as of December 31, 2017,

 

Prepaid Expenses - Prepaid expenses are primarily comprised of advance payments made to third parties for independent contractors’ services or other general expenses. Prepaid services and general expenses are amortized over the applicable periods which approximate the life of the contract or service period.


Inventory – Inventory is stated at the lower of cost or net realizable value. Cost is determined based upon the cost to acquire the raw materials, plus internal labor and other costs incurred to produce finished goods inventory. The cost of inventory is principally determined using the last-in first-out method. We periodically review the value of our inventory and provide a write-down of inventory based on our assessment of the market conditions. Write-downs are charged to cost of goods sold in the applicable reporting period; there have been no such write-downs during the three-month period ended March 31, 2018 and 2017.




F-33



UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 


Property and Equipment – Our property and equipment, which is classified for reporting purposes in our consolidated balance sheets as construction in process – extraction facilities and cultivation facility and laboratory equipment, is recorded at cost. Maintenance and repairs are expensed as incurred. Depreciation is computed using the straight-line method over estimated useful lives of three to five years, and amortization is computed using the straight-line method over the life of the applicable lease. At the time of retirement or other disposition of property and equipment, the cost and accumulated depreciation are removed from our accounts and any resulting gain or loss is reflected in our consolidated statements of operations.


 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Construction in process - extraction facilities

  

 

 

 

 

  

Weldona, Colorado extraction facility:

 

 

 

 

 

 

Equipment

 

$

 

 

$

647,947

 

Jamaica cultivation and extraction facility:

 

 

 

 

 

 

 

 

Leasehold improvements - laboratory

 

 

 

 

 

75,000

 

Leasehold improvements - cultivation

 

 

110,699

 

 

 

109,750

 

 

 

$

110,699

 

 

$

832,697

 

Extraction facility and laboratory equipment, and office furniture and fixtures

 

 

 

 

 

 

 

 

Equipment and machinery at Weldona extraction facility

 

$

1,154,909

 

 

 

 

Golden, Colorado hemp laboratory - equipment

 

 

39,944

 

 

 

34,651

 

Golden, Colorado administrative offices:

 

 

 

 

 

 

 

 

Furniture and fixtures

 

 

46,849

 

 

 

21,668

 

Leasehold improvements

 

 

2,000

 

 

 

2,000

 

Transportation equipment

 

 

81,667

 

 

 

81,667

 

Remote laboratory equipment

 

 

99,220

 

 

 

99,220

 

 

 

 

1,424,589

 

 

 

239,206

 

Accumulated amortization and depreciation

 

 

(91,524

)

 

 

(39,385

)

 

 

$

1,333,065

 

 

$

199,821

 


Granted Patents – Our patent was granted by the United States Patent and Trademark Office on August 15, 2017. The patent covers the extraction of pharmaceutically active components from cannabis plant materials, for incorporation into medicines. The cost of the patents is being amortized on the straight-line method over a 15-year period.


Intangible Assets – Our intangible assets, consisting of applications for trademarks, design mark and provisional patents, are recorded at cost, and once approved, will be amortized using the straight-line method over an estimated useful life of 10 to 15 years.


Long-Lived Assets Impairment Assessment – Our intangible assets and other long-lived assets are subject to an impairment test if there is an indicator of impairment. The carrying value and ultimate realization of these assets is dependent upon our estimates of future earnings and benefits that we expect to generate from their use. If our expectations of future results and cash flows are significantly diminished, intangible assets and other long-lived assets may be impaired and the resulting charge to operations may be material. When we determine that the carrying value of intangibles or other long-lived assets may not be recoverable based upon the existence of one or more indicators of impairment, we use the projected undiscounted cash flow method to determine whether an impairment exists, and then measure the impairment using discounted cash flows.


We have not recorded any impairment charges related to long-lived assets as of March 31, 2018 or December 31, 2017.


Equity Method Investments – Our investments in entities representing ownership of at least 20% but not more than 50%, where we exercise significant influence, are accounted for under the equity method of accounting, and are included in our financial statements as a component of the consolidated financials. All intercompany accounts are eliminated upon consolidation, and we recognize the minority interests’ share in the income and losses of the less than 100% percent owned subsidiary in the period incurred.




F-34



UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 


Goodwill Our goodwill, which consists of our interest in a ninety-five percent owned subsidiary, Prana Therapeutics, Inc. (“Prana”) and a fifty percent owned subsidiary, Cannabinoid Research & Development Company Limited (“CRD”), is not amortized, but is evaluated for impairment annually, or when indicators of a potential impairment are present. The annual evaluation for impairment of goodwill is based on valuation models that incorporate assumptions and internal projections of expected future cash ows and operating plans. We believe such assumptions are also comparable to those that would be used by other marketplace participants. Our total goodwill of $4,838,602 consists of $4,731,729 for Prana and $106,873 for CRD at March 31, 2018. See Note 7 – Purchase of Prana Therapeutics, Inc.


Purchase Price Allocation The acquisition method of accounting is based on ASC Subtopic 805-10, “Business Combinations,” and uses the fair value concepts defined in ASC Subtopic 820-10, “Fair Value Measurements and Disclosures”. The price for the purchase of Prana Therapeutics, Inc., was allocated to the net tangible and intangible assets based upon their fair values as of the acquisition date, July 14, 2017. The allocation of the purchase price of $5,070,500 was based upon a valuation and the estimates and assumptions are subject to change within the measurement period. The excess of the purchase price over the fair values of the net tangible assets and intangible assets was recorded as goodwill in the amount of $4,731,729 and is generally driven by our expectations of our ability to commercialize the several drugs invented by Prana Therapeutics, Inc. See Note 7 – Purchase of Prana Therapeutics, Inc.


Deferred Revenue - We defer revenue for which product or service has not yet been delivered or is subject to refund until such time that we and our customer jointly determine that the product or service has been delivered or no refund will be required.


Revenue Recognition - We recognize revenue in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, which requires that five basic steps be followed to recognize revenue: (1) a legally enforceable contract that meets criterial standards as to composition and substance is identified; (2) performance obligations relating to provision of goods or services to the customer are identified; (3) the transaction price, with consideration given to any variable, noncash, or other relevant consideration, is determined; (4) the transaction price is allocated to the performance obligations; and (5) revenue is recognized when control of goods or services is transferred to the customer with consideration given to whether that control happens over time or not. Determination of criteria (3) and (4) are based on our management's judgments regarding the fixed nature of the selling prices of the products and services delivered and the collectability of those amounts.  There was no material impact to our revenue recognition process because of the implementation of FASB ASC 606 as of March 31, 2018.


Revenue for services with a payment in the form of stock, warrants or other financial assets is recognized when the services are performed. The value of revenue paid for with warrants is measured using the Black-Scholes-Merton pricing model. Revenue from product sales, including delivery fees, is recognized when an order has been obtained, the price is fixed and determinable, the product is shipped, title has transferred, and collectability is reasonably assured.


Reimbursable expenses, including those relating to travel, other out-of-pocket expenses and any third-party costs, are included as a component of revenues. Typically, an equivalent amount of reimbursable expenses is included in cost of revenues. Reimbursable expenses related to time and materials and fixed-fee engagements are recognized as revenue in the period in which the expense is incurred and collectability is reasonably assured. Taxes collected from customers and remitted to governmental authorities are presented in our consolidated statement of operations on a net basis.


Revenue Recognition – Affiliate We have licensed our Prana products to Advesa, Inc. (“Advesa”), which is controlled by one of our major shareholders. Advesa has an exclusive right for five (5) consecutive one (1) year periods to sell our Prana products in certain cities in the state of California. In consideration for the exclusive license granted to Advesa under the agreement, Advesa is obligated to pay us a royalty on all Prana products sold by Advesa equal to the sale price of the Prana products, minus the cost of goods sold (computed without regard to depreciation, amortization, other non-cash items or allocation of overhead, general and administrative expenses or similar items) (the “Prana Royalty”). In addition, Advesa pays us a management fee of five percent (5%) of all Advesa gross revenue minus the Prana Royalty. We recognize revenue on all Prana sales consistent with the criteria described above for all sales in accordance with ASC 606, Revenue from Contracts with Customers.




F-35



UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 


Cost of Revenues – Our policy is to recognize cost of revenues in the same manner as, and in conjunction with, revenue recognition. Our cost of revenues includes the costs directly attributable to revenue recognized and includes expenses related to the production, packaging and labeling of our Prana medicinal products and personnel-related costs, fees for third-party services, travel and other consulting costs related to our advisory services.


Research and Development Expenses - Research and development (“R&D”) costs are charged to expense as incurred. Our R&D expenses include, but are not limited to, consulting service fees and materials and supplies used in the development of our proprietary products and services.


General and Administrative Expenses - General and administrative expenses consist primarily of personnel-related costs, fees for professional and consulting services, travel costs, rent, bad debt expense, general corporate costs, and other costs of administration such as human resources, finance and administrative roles.


Stock-Based Compensation – We periodically issue shares of our common stock to non-employees in non-capital raising transactions for fees and services. We account for stock issued to non-employees in accordance with ASC 505, Equity, whereas the value of the stock compensation is based upon the measurement date as determined at either (a) the date at which a performance commitment is reached, or (b) at the date at which the necessary performance to earn the equity instruments is complete.


We account for stock option grants issued and vesting to employees based on ASC 718, Compensation – Stock Compensation, whereas the award is measured at its fair value at the date of grant and is amortized ratably over the vesting period. Accounting for stock-based compensation to employees requires the measurement and recognition of compensation expense for all share-based payment awards made to employees based on estimated fair values. We estimate the fair value of all stock option awards on the date of grant using the Black-Scholes-Merton pricing model, which is affected by our stock price, as well as assumptions regarding a number of complex and subjective variables. These variables include our expected stock price volatility over the term of the awards, actual and projected employee option exercise behaviors, risk free interest rates and expected dividends. We also estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from our estimates.


Income Taxes - Income taxes are recorded using the asset and liability method. Under the asset and liability method, tax assets and liabilities are recognized for the tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using the enacted tax rates expected to apply when the asset is realized, or the liability settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that enactment occurs. To the extent that we do not consider it more likely than not that a future tax asset will be recovered, we will provide a valuation allowance against the excess.

 

We follow the provisions of ASC 740, Income Taxes. Because of the ASC 740, we make a comprehensive review of our portfolio of tax positions in accordance with recognition standards established by ASC 740. As a result of the implementation of ASC 740, we recognized no material adjustments to liabilities or stockholders’ deficit.


When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in our consolidated financial statements in the period during which, based on all available evidence, we believe it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

 

Interest and penalties associated with unrecognized tax benefits, if any, are classified as interest expense and penalties and are included in selling, general and administrative expenses in our consolidated statements of operations.




F-36



UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 


On December 22, 2017, the U.S. Tax Cuts and Jobs Act was enacted. U.S. tax reform introduced many changes, including lowering the U.S. corporate tax rate to 21 percent, changes in incentives, provisions to prevent U.S. base erosion and significant changes in the taxation of international income, including provisions which allow for the repatriation of foreign earnings without U.S. tax. The enactment of U.S. tax reform had no impact on our income taxes for the year ended year-ended December 31, 2017.


Commitments and Contingencies - Certain conditions may exist as of the date our consolidated financial statements are issued, which may result in a loss but which will only be resolved when one or more future events occur or fail to occur.  We assess such contingent liabilities, and such assessment inherently involves an exercise of judgment.  In assessing loss contingencies related to legal proceedings that are pending against us or unasserted claims that may result in such proceedings, we evaluate the perceived merits of the legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.


If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in our consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.


Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed.


Net Loss Per Share - We compute net loss per share in accordance with ASC 260, Earnings per Share. Under the provisions of ASC 260, basic net loss per share includes no dilution and is computed by dividing the net loss available to common stockholders for the period by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share takes into consideration shares of common stock outstanding (computed under basic net loss per share) and potentially dilutive securities that are not anti-dilutive.


Potentially dilutive securities outlined in the table below have been excluded from the computation of diluted net loss per share, because the effect of their inclusion would have been anti-dilutive.


 

 

Three Months Ended

 March 31,

 

 

 

2018

 

 

2017

 

Warrants to purchase common stock

 

 

1,234,027

 

 

 

1,541,112

 

Stock options, exercisable

 

 

11,705,000

 

 

 

3,680,000

 

Total potentially dilutive securities

 

 

12,939,027

 

 

 

5,221,112

 


Other Comprehensive Income (Loss) – We report as other comprehensive income (loss) those revenues, gains and losses not included in the determination of net income.  During the three months ended March 31, 2018 and the year ended December 31, 2017, we did not have any gains and losses resulting from activities or transactions that resulted in other comprehensive income or loss.

 

Segment Reporting – Our Company operates as one segment.


Concentration of Credit Risk - Financial instruments that potentially subject us to credit risk consist of cash. We maintain our cash with high credit quality financial institutions; at times, such balances with any one financial institution may not be insured by the FDIC.


The following tables show significant concentrations in our revenues and accounts receivable for the periods indicated:




F-37



UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 


Percentage of Revenue:


 

 

Three Months Ended

March 31,

 

 

 

2018

 

 

2017

 

Customer A

 

62%

 

 

98%

 

Customer B

 

21%

 

 

2%

 

Customer C

 

17%

 

 

—%

 


Percentage of Accounts Receivable:


 

 

As of

March 31,

 

 

 

2018

 

 

2017

 

Customer C

 

100%

 

 

93%

 

Customer D

 

—%

 

 

7%

 

Customer E

 

—%

 

 

—%

 


Recently Issued Accounting Pronouncements – From time to time, the FASB or other standards setting bodies issue new accounting pronouncements. Updates to the FASB ASCs are communicated through issuance of an Accounting Standards Update ("ASU"). Unless otherwise discussed, we believe that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on our condensed consolidated financial statements upon adoption.


In February 2016, the FASB issued guidance on leases which requires entities to recognize right-of-use assets and lease liabilities on the balance sheet for the rights and obligations created by all leases, including operating leases, with terms of more than 12 months. The new guidance also requires additional disclosures on the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative information. The new guidance will be effective for us at the beginning of fiscal year 2019. Early adoption is permitted. We are in the process of evaluating the impact the adoption of this guidance will have on our consolidated financial statements and related disclosures.


Reclassification - Certain reclassifications have been made to the prior period amounts to conform to the current period's presentation.


NOTE 3 – GOING CONCERN


Our consolidated financial statements have been prepared on a going concern basis which assumes we will be able to realize our assets and discharge our liabilities in the normal course of business for the foreseeable future. During the three-months ended March 31, 2018, we incurred losses of $7,206,500 and used cash of $1,651,026 in our operating activities. As at March 31, 2018, we had a working capital deficit of $511,153 and an accumulated deficit of $22,476,406. Our ability to continue as a going concern is dependent upon our ability to generate profitable operations in the future and, or, obtaining the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due. There is no assurance that these events will be satisfactorily completed.


NOTE 4 – RECEIVABLE FROM RELATED PARTY


In the normal course of business, we make non-interest-bearing advances to Advesa, Inc. (“Advesa’), which is controlled by one of our officers and directors. Such advances are used by Advesa to purchase equipment and to cover the cost of their operations. Additionally, during the year ended December 31, 2017, we purchased certain laboratory equipment from Advesa at an amount equal to their cost of the equipment. Related party amounts due from Advesa were $14,861 and $0.0 at March 31, 2018 and December 31, 2017.




F-38



UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 


NOTE 5 – OPERATING LEASES


Administrative Offices and Hemp Laboratory – Golden, Colorado


Effective August 1, 2017, we entered into a triple net lease of approximately 9,882 square feet of commercial space in Golden, Colorado in which our administrative offices and hemp laboratory are located. The term of the lease expires on July 31, 2020 and has no option for renewal. Basic rent is $3,302, $3,500 and $3,800 per month through, July 31, 2018, 2019 and 2020, respectively, plus we are responsible for all utilities. It is our intent presently, to renew the lease annual throughout the term of the lease.


Extraction and Cultivation Facility – Weldona, Colorado


Effective October 1, 2017, we entered into a triple net lease of approximately 40,000 square feet of industrial space located on five (5) acres of land in Weldona, Colorado that we us as our hemp extraction facility and hemp cultivation center. The term of the lease expires on September 31, 2018, with an annual option to renew the lease on an annual basis, that expires on September 30, 2022. The rent is $7,500 per month throughout the term of the lease, plus we are responsible for all utilities.


Extraction and Cultivation Facility - Jamaica


Our fifty percent (50%) owned subsidiary Cannabinoid Research & Development Company Limited (“CRD”) leases approximately 28 acres of land upon which their cultivation and extraction facility is located near Kingston, Jamaica. The land is leased for $1 per year from the father of one of the directors and members of CRD.


Future minimum payments for these leases are:


For the twelve Months Ending March 31,

2019

 

2020

 

2021

 

2021

 

2022

$131,208

 

$134,398

 

$105,198

 

$90,001

 

$45,001


NOTE 6 - INVENTORY


Inventory is stated at the lower of cost or net realizable value. Cost is determined based upon the cost to acquire the raw materials, plus internal labor and other costs incurred to produce finished goods inventory. The cost of inventory is principally determined using the last-in first-out method. We periodically review the value of our inventory and provide a write-down of inventory based on our assessment of the market conditions. Any write-down is charged to cost of goods sold. At ended March 31, 2018 and December 31, 2017, our inventory is, as follows:


 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Raw materials

 

$

38,376

 

 

$

15,000

 

Work-in-process

 

 

57,565

 

 

 

 

Finished goods

 

 

41,200

 

 

 

28,200

 

 

 

$

137,141

 

 

$

43,200

 


NOTE 7 – PURCHASE OF PRANA THERAPUETICS, INC.


On June 8, 2017, we entered into an agreement to purchase 400,000 shares of Prana Therapeutics, Inc. (“Prana”), in a private offering of their common shares, for a total consideration of $200,000 (“Subscription Agreement’). In accordance with the terms of the Subscription Agreement, we paid Prana $50,000, upon execution of the Subscription Agreement, and committed to remit $50,000 to Prana on September 30, 2017, December 31, 2017 and March 31, 2018, respectively. Subsequently, on July 14, 2017, we completed the acquisition of Prana in a one-for-one exchange of 5,730,000 shares of our common stock for 5,730,000 shares of common stock of Prana. The purchase price had a fair market value of $5,070,500, based upon the closing price of $0.85 per share of our common stock on the OTC QB exchange on July 14, 2017, including the cost to purchase 400,000 shares of Prana for $200,000.




F-39



UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 


The purchase price for Prana was allocated to the net tangible and intangible assets based upon their fair values as of the acquisition date. The excess of the purchase price over the fair values of the net tangible assets and intangible assets was recorded as goodwill and is generally driven by management’s expectations and ability to realize synergies and achieve strategic growth. The allocation of the purchase price was, as follows:


 

 

March 31,
2018

 

Patents

 

$

52,596

 

Net assets

 

 

522,761

 

Goodwill

 

 

4,495,143

 

Total

 

$

5,070,500

 


NOTE 8 – GRANTED PATENT


On August 15, 2017, the United States Patent and Trademark Office issued to the Company US Patent #9730911 (the “Patent”) granting exclusive rights to its proprietary composition of matter in liquid formulations, based on compounds extracted from cannabis plant materials; more specifically the composition of matter pertaining to the use of phytocannabinoids, cannabinoids, and specific terpene profiles in liquid form. This composition of matter Patent provides protection for our proprietary formulations. The Patent protects the use of suspending both phytocannabinoids and cannabinoids with specific combinations of cannabis derived terpenes in liquid forms with an array of delivery methods including capsule, sublingual, topical, oral, suppository, and vaporization. Cannabinoids referenced in the application include ratios of tetrahydrocannabinolic acid (THCa), cannabidiolic acid (CBDa), tetrahydrocannabinol (THC), cannabinol (CBN), cannabidiol (CBD), cannabichromenic acid (CBCa), and cannabichromene (CBC). At August 15, 2017, we classified the costs associated with research, legal fees, application costs incurred in the process of being granted the Patent on our consolidated balance sheet in the amount of $142,317, and we began amortizing such cost of the Patent on a straight-line basis over a 15-year period. Amortization expense of the Patent is $4,458 and $0.0 for the three-month period ended March 31, 2018 and 2017, respectively and accumulated amortization is $4,458 and $2,679 at March 31, 2018 and December 31, 2017, respectively.


NOTE 9 – INTANGIBLE ASSETS


Our intangible assets are comprised of the costs incurred in pursuing provisional patent applications and applications for design mark and trademarks, which have presently not been approved or issued. The costs associated with our intangible assets are amortized on a straight-line basis over estimated useful lives of 15 years for patents and 10 years for design marks and trademarks once the applications are approved. Costs associated with applications that are not approved will be expensed in the period that the application is rejected or abandoned.


NOTE 10 – INSTALLMENT LOAN PAYABLE


Installment loan payable consists of a 48-month installment loan incurred in connection with the purchase of a truck that is used at our extraction facility.  The outstanding balance on the installment loan was $32,757 and $46,667 at March 31, 2018, and December 31, 2017, respectively. The terms of the installment loan specify monthly payments of $955, however, we are making payments of $6,955 per month to pay the loan off in a six-month period. As a result of our intentions to pay the loan off in six months, the entire balance of the installment loan has been classified as a current liability.


NOTE 11 – DEFERRED REVENUE


Our deferred revenue consists of:


 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Deferred revenue – WeedMD

 

$

158,750

 

 

$

203,750

 

Less – current portion

 

 

(158,750

)

 

 

(180,000

)

Deferred revenue, net of current portion

 

$

 

 

$

23,750

 




F-40



UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 


On June 9, 2014, we received 1,187,500 common shares and 3,000,000 warrants to purchase common shares of WMD in exchange for future consulting services and use of our intellectual property. We recorded the $893,750 fair value of these securities as deferred revenue and we recognized $150,000 of this amount as revenue during the period July 1, 2014 through December 31, 2014, based upon our initial three-year estimate of the service period involved. Based on recent discussions with WMD, we now expect to deliver the remaining consulting services and use of our intellectual property to WMD on a relatively consistent monthly basis during the four-year period January 1, 2015 through December 31, 2018. Accordingly, we are now recognizing $15,000 of deferred revenue per month. We recognized $45,000 and $180,000 of revenue applicable to this arrangement in the three months ended March 31, 2018 and the year ended December 31, 2017, respectively.  At March 31, 2018, we expect to recognize $158,750 of the remaining $158,750 WMD deferred revenue during the next twelve months and accordingly, we have classified the $158,750 as a current liability on our consolidated balance sheets.


NOTE 12 – CONVERTIBLE NOTE PAYABLE


We do not have any convertible notes payable as of March 31, 2018 and December 31, 2017.


On August 10, 2016, we borrowed $125,000 and used the proceeds for working capital purposes. The loan, together with interest at 12% per year, was payable on May 10, 2017. We could prepay the loan at any time. If the loan was repaid on or before October 16, the principal amount which was being repaid would increase by 25%. If the loan was repaid on or before October 16, 2016 through February 12, 2016, the principal amount which was being repaid would increase by 30%. Thereafter, the note could be repaid only upon written consent from the noteholder, and the principal amount that was being repaid would increase by 30%. At any time after the date of the note, the noteholder was entitled to convert all of the outstanding and unpaid principal in to shares of our common stock. Until February 12, 2017, the conversion price was $0.20 per share, and thereafter, the conversion price was at a 45% discount to the lowest closing price of our common stock for the ten trading days preceding the conversion date. The noteholder could not make any conversions that would result in the note holder holding more than 4.99% of our issued and outstanding common stock at any one time. If the note had been held through February 12, 2017, derivative accounting would have applied upon the change to a variable conversion price. This convertible note was paid in full on February 9, 2017.


NOTE 13 – NOTES PAYABLE TO AND ADVANCES FROM OFFICERS AND DIRECTORS


Notes payable to and advance from officers and directors consisted of the following:


 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Note payable to Earnie Blackmon, an officer and director

 

$

332,760

 

 

$

246,458

 

Note payable to Tony Verzura, an officer and director

 

 

15,844

 

 

 

14,889

 

 

 

$

348,604

 

 

$

261,347

 


On April 6, 2016, we borrowed $25,000 from Ernest Blackmon and $25,000 from Tony Verzura and used the proceeds to repay principal and interest applicable on our $102,000 convertible promissory note dated October 12, 2015, to JSJ Investments Inc. The loans, together with interest at 12% per year, are payable on December 30, 2016. We may prepay the loans at any time. If the loans are repaid on or before September 30, 2016, the principal amount, which is being repaid, will increase by 10%. If the loans are repaid after September 30, 2016, the principal amount, which is being repaid will increase by 15%. As of December 31, 2016, the loans were not repaid, when they were due, per the terms of the notes, and thus, the principal balance of the notes was increased to $57,500 in the aggregate, with the addition to the principal balance charged to interest expense.


During the three months ended March 31, 2018 and the year ended December 31, 2017 Messrs. Blackmon, Verzura and Ruby, who are officers and directors of the Company, paid obligations and expenses on behalf of the Company, from their own individual, personal funds. Such payments have been recorded in the consolidated balance sheets as a component of Notes payable to and advances from officers and directors.




F-41



UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 


NOTE 14 – STOCKHOLDERS’ EQUITY

 

Preferred Stock


On July 18, 2017, the Board of Directors adopted a resolution creating a series of Preferred Shares, no par value per share, designated as the Series A Preferred Shares. We subsequently issued 2,000 shares of our Series A preferred stock for $2,200 to of our officers and directors.


Warrants:

 

The following table summarizes our share warrants outstanding as of March 31, 2018 and December 31, 2017:


 

 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

 

Number of

Shares

 

 

Weighted

Average

Exercise

Price

 

 

Number of

Shares

 

 

Weighted

Average

Exercise

Price

 

Warrants outstanding, beginning of period

 

 

1,209,025

 

 

$

0.21

 

 

$

1,551,356

 

 

$

0.18

 

Warrants issued to consultants

 

 

25,002

 

 

 

 

 

 

 

132,669

 

 

 

 

 

Warrants exercised

 

 

 

 

 

 

 

 

 

(475,000

)

 

 

 

 

Warrants outstanding, end of period

 

 

1,234,027

 

 

$

0.27

 

 

 

1,209,025

 

 

$

0.21

 

Warrants exercisable, end of period

 

 

1,234,027

 

 

$

0.27

 

 

 

1,209,025

 

 

$

0.21

 


The weighted-average remaining contractual life for warrants outstanding and exercisable at March 31, 2018, is 3.6 years, and the aggregate intrinsic value of warrants outstanding and exercisable at March 31, 2018 is $0.


666,667 warrants issued during the years ended December 31, 2017 were valued utilizing the Black Scholes option pricing model and the following range of assumptions on the date of valuation:


Stock price

 

$

0.16 - $2.18

 

Exercise price

 

$

0.18

 

Risk free interest rate

 

 

1.01% - 1.37

%

Expected term (years)

 

 

5

 

Expected volatility

 

 

322% - 504

%

Expected dividends

 

 

0

%


Stock Options


On February 28, 2018, we awarded 6,000,000 stock options to various employees under our 2017 Stock Incentive Plan. Of these options, 5,125,000 were fully vested at the time of grant with the remaining 875,000 vesting quarterly through December 31, 2019. The awarded options give the option holder the right to purchase shares of our common stock at $1.08 per share during the ten-year term of the option.


We calculated the fair value of each option to be approximately $0.91 per option utilizing the Black Scholes option pricing model and the following range of assumptions on the date of valuation:


Stock price

 

$

1.05

 

Exercise price

 

$

1.08

 

Risk free interest rate

 

 

2.8

%

Expected term (years)

 

 

5-10

 

Expected volatility

 

 

197

%

Expected dividends

 

 

0

%




F-42



UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 


The total grant-date fair value of these options was approximately $6,146,000. Stock-based compensation expense related to these stock options included in general and administrative expenses for the three months ended March 31, 2018 was approximately $5,324,754.


The following table summarizes our stock options outstanding as of both March 31, 2018 and December 31, 2017, respectively:


 

 

Number of
Shares

 

 

Weighted
Average
Remaining
Life (Years)

 

 

Weighted
Average
Exercise
Price

 

Stock options outstanding at January 1, 2017

 

 

3,680,000

 

 

 

8.9

 

 

$

0.28

 

Issued

 

 

3,957,500

 

 

 

 

 

 

 

 

 

Exercised

 

 

(1,000,000

 

 

 

 

 

 

 

 

Expired

 

 

 

 

 

 

 

 

 

 

 

Stock options outstanding at December 31, 2017

 

 

6,637,500

 

 

 

8.7

 

 

$

0.57

 

Stock options exercisable at December 31. 2017

 

 

6,580,000

 

 

 

8.7

 

 

 

0.57

 

Stock options outstanding at December 31, 2017

 

 

6,637,500

 

 

 

 

 

 

 

 

 

Issued

 

 

6,000,000

 

 

 

9.9

 

 

 

1.08

 

Exercised

 

 

 

 

 

 

 

 

 

 

 

Expired

 

 

 

 

 

 

 

 

 

 

 

Stock options outstanding at March 31, 2017

 

 

12,637,500

 

 

 

9.2

 

 

 

0.78

 

Stock options exercisable at March 31, 2018

 

 

11,705,000

 

 

 

9.2

 

 

$

0.78

 


The weighted-average remaining contractual life for stock options outstanding and exercisable at March 31, 2018 is 9.2 years, and the aggregate intrinsic value of options outstanding and exercisable at March 31, 2018 is $0.78.


NOTE 15 – SHARE-BASED COMPENSATION


Share-based Compensation


We recognize share-based compensation expense in cost of revenues, sales and marketing expenses, research and development expenses, general and administrative expenses, and other income and expenses, based on the fair value of common shares issued for services. In addition, we accrue share-based compensation expense for estimated share-based awards earned during the three months ended March 31, 2018 and 2017, under our 2014 Equity Incentive Plan and our 2017 Equity Incentive Plan. Share-based compensation expense for the three months ended Mach 31, 2018 and 2017 is, as follows:


 

 

Three Months Ended

 March 31

 

 

 

2018

 

 

2017

 

Warrants issued for consulting and other services

 

$

 

 

$

91,333

 

Common stock issued for accounts payable and accrued expenses

 

 

 

 

 

43,376

 

Common stock issued for services

 

 

65,885

 

 

 

120,616

 

Common stock issued for advisory board fees

 

 

56,043

 

 

 

 

Common stock issued as compensation to employees

 

 

42,300

 

 

 

 

Stock options issued to officers and directors

 

 

5,324,754

 

 

 

 

 

 

$

5,488,982

 

 

$

255,325

 


The stock options issued to officers and directors were issued under the 2018 Stock Incentive Plan, and such shares were fully vested at the date of grant.




F-43



UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 


NOTE 16 – COMMITMENTS AND CONTINGENCIES


Contractual Obligations and Commercial Commitments


Financing Commitment


On January 19, 2018, we entered into an equity line of credit agreement with Tangiers Global, LLC (“Tangiers”). Under the equity line agreement, Tangiers has agreed to provide the Company with up to $10,000,000 of funding through the purchase of shares of the Company’s common stock. During the term of the agreement, the Company may deliver a put notice to Tangiers, which will specify the number of shares which the Company will sell to Tangiers. The maximum amount that the Company shall be entitled to put to Tangiers per any applicable put notice is that number of shares of our common stock up to or equal to 400% of the average of the daily trading volume of our common stock for the eight consecutive trading days immediately prior to the date of the applicable put notice. The minimum amount the Company can draw down at any one time is $5,000, and the maximum amount the Company can draw down at any one time is $1,000,000, as determined by multiplying the put amount by the average daily volume weighted average prices of our common stock for the ten (10) trading days immediately prior to the applicable put notice.


A closing will occur on the date which is no earlier than five (5) trading days following, and no later than seven (7) trading days following, the applicable put notice. On each closing date, the Company will sell, and Tangiers will purchase, the shares of the Company’s common stock specified in the put notice. The amount to be paid by Tangiers on a particular closing date will be determined by multiplying the purchase price by the number of shares specified in the put notice. The purchase price is 85% of the average the two lowest volume weighted average trading prices of the Company’s common stock during the pricing period applicable to the put notice. The pricing period, with respect to a particular put notice, is five consecutive trading days including, and immediately following, the delivery of a put notice to Tangiers. The Company may submit a put notice once every eight trading days, provided the closing of the previous transaction has taken place. The Company is under no obligation to submit any put notices.


The Company has filed a Registration Statement with the Securities and Exchange Commission so that the shares of common stock to be sold to Tangiers may be sold in the public market. The equity line agreement will become effective on the date the Registration Statement is declared effective by the Securities and Exchange Commission.


Clinical Trial Agreement


Under the terms of an agreement dated November 11, 2017, we committed to cover the costs to perform clinical trials with The University of the West Indies through the Topical Metabolism Research Unit of the Caribbean Institute for Health Research located in Kingston, Jamaica, initially scheduled as follows:


·

An instalment of $50,000 upon both the approval of specific protocol by the Ethics Committee of the Institutional Review Board of the Ministry of Health, Jamaica, and the execution of the clinical trial agreement,

·

An instalment of $51,182 upon the enrollment of the 12th patient,

·

An instalment of $51,182 after all twelve patients go through the washout period determined in the specific protocol and return for a second dose, and

·

An instalment of $51,182 upon completion of the clinical trial.


Additionally, we have agreed to reimburse The University of the West Indies for care and treatment of adverse reactions or injury sustained by a patient, as a direct result of the clinical trial.


Research Laboratory


Under the terms of a research agreement entered into in October 2017 with the University of Florida Trustees (“UFT”), we committed to pay UFT $151,772, upon the execution of the research agreement, and $75,886 in each of the months of February 2018 and June 2018, for a total commitment of $303,544.




F-44



UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 


Executive Office Lease


Effective August 1, 2018, we signed a thirty-six-month lease of approximately 6,683 square feet of commercial office space in Golden, Colorado that we use as our executive offices. The lease expires on July 31, 2020 and requires the payment of monthly base rental rates of $3,302 through July 31, 2018, $3,000 through July 31, 2019 and $3,799 through July 31, 2020. As additional rent, we are required to pay for an allocation of common area costs and expenses, plus all utilities.


Weldona Facility Lease


Effective October 1, 2017, we entered into a lease of approximately 40,000 square feet of industrial space in Weldona, Colorado that we us as our hemp extraction facility and hemp cultivation center. The term of the lease expires on October 31, 2018, with an annual option to renew that expires on September 30, 2022. The rent is $7,500 per month throughout the term of the lease, plus we are responsible for all utilities.


Legal Proceedings


There have been no material developments in legal proceedings in which we are involved as of March 31, 2018.


NOTE 17 – SUBSEQUENT EVENTS


On April 2, 2018, we entered into a 5%, unsecured promissory note (“Note”) in the principal amount of $600,000 that is due six months from the date of the loan. Proceeds from under the terms of the Note in the amount $570,000 were used by the Company to acquire additional equipment for our new extraction facility and for working capital purposes


In accordance with ASC 855-10 we have analyzed the Company’s operations subsequent to March 31, 2018 to the date these consolidated financial statements were issued, and have determined that, other than as disclosed above, we do not have any material subsequent events to disclose in these consolidated financial statements.






F-45



 


TABLE OF CONTENTS


 

Page

PROSPECTUS SUMMARY

1

RISK FACTORS

3

MARKET FOR OUR COMMON STOCK

6

MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION

7

BUSINESS

11

MANAGEMENT

17

PRINCIPAL SHAREHOLDERS

23

INVESTMENT AGREEMENT

24

DESCRIPTION OF SECURITIES

26

LEGAL PROCEEDINGS

27

INDEMNIFICATION

27

AVAILABLE INFORMATION

27

FINANCIAL STATEMENTS

F-1



No dealer, salesperson or other person has been authorized to give any information or to make any representation not contained in this prospectus, and if given or made, such information or representations must not be relied upon as having been authorized by United Cannabis Corporation.  This prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any of the securities offered in any jurisdiction to any person to whom it is unlawful to make an offer by means of this prospectus.


























 


PART II

Information Not Required in Prospectus


Item 13.   Other Expenses of Issuance and Distribution.


The following table shows the costs and expenses payable by the Company in connection with this registration statement.  


SEC Filing Fee

$

1,245

 

Blue Sky Fees and Expenses

 

1,000

 

Legal Fes and Expenses

 

30,000

 

Accounting Fees and Expenses

 

5,000

 

Miscellaneous Expenses

 

2,755

 

TOTAL

$

40,000

 


All expenses other than the SEC filing fee are estimated.


Item 14.   Indemnification of Officers and Directors


The Colorado Business Corporation Act provides that the Company may indemnify any and all of its officers, directors, employees or agents or former officers, directors, employees or agents, against expenses actually and necessarily incurred by them, in connection with the defense of any legal proceeding or threatened legal proceeding, except as to matters in which such persons shall be determined to not have acted in good faith and in the Company’s best interest.


Item 15.   Recent Sales of Unregistered Securities.


On September 25, 2017 we sold 34,560 shares of common stock for $25,000 to a private investor.


On November 11, 2017 we sold 84,034 shares of common stock for $50,000 to a private investor.


On December 11, 2017 we sold 105,042 shares of common stock for $50,000 to a private investor.


Common Stock Issued For Services


During the past three years we issued 307,500 shares of our common stock to five persons for services, valued at approximately $226,215, provided to us.


Item 16.   Exhibits and Financial Statement Schedules


The following exhibits are filed with this Registration Statement:


Exhibit

 

Description

2

 

Plan of Merger dated April 10, 2014 (1)

3.1

 

Articles of Incorporation (2)

3.2

 

Bylaws (3)

4.1

 

Warrant issued to Sláinte Ventures, LLC (9)

4.2

 

2017 Stock Incentive Plan (10)

4.3

 

2018 Stock Incentive Plan (11)

5

 

Opinion of Counsel (15)

10.1

 

License Agreement with Earnest Blackmon, Tony Verzura and Chad Ruby dated March 26, 2014 (4)

10.2

 

Asset Assignment and Purchase Agreement dated March 31, 2014 (5)

10.3

 

(Reserved)

10.5

 

Promissory Note, dated April 6, 2016, payable to Earnest Blackmon (6)

10.6

 

Promissory Note, dated April 6, 2016, payable to Tony Verzura (7)

10.7

 

Agreement with Cannibinoid Research and Development Company Limited (12)

10.12

 

2016 Investment Agreements with Tangiers Global, LLC (13)

10.13

 

Licensing Agreement – Advesa (14)

10.14

 

2018 Investment Agreement with Tangiers Global, LLC (14)

10.15

 

License Agreement (Harborside) (14)



II-1



 





10.16

 

Licensing Agreement (Lasco) (14)

21

 

Subsidiaries (8)

23.1

 

Consent of Attorneys (15)

23.2*

 

Consent of Accountants

101.INS*

 

XBRL Taxonomy Extension Instance Document

101.SCH*

 

XBRL Taxonomy Extension Schema Document

101.CAL*

 

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*

 

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*

 

XBRL Taxonomy Extension Label Linkbase Document

101.PRE*

 

XBRL Taxonomy Extension Presentation Linkbase Document

———————

*

Filed herewith.

(1)

Incorporated by reference to Appendix A of the Registrant’s Definitive Schedule 14C dated April 11, 2014, filed on April 11, 2014.

(2)

Incorporated by reference to Exhibit 3.4 to the Registrant’s 10-K report filed on April 15, 2015.

(3)

Incorporated by reference to Exhibit 3.5 to the Registrant’s Form 10-K filed on April 15, 2015.

(4)

Incorporated by reference to Exhibit 10 to the Registrant’s Form 8-K filed on March 28, 2014.  

(5)

Incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed on April 3, 2014.

(6)

Incorporated by reference to Exhibit 10.6 to the Registrant’s Form 8-K filed on April 13, 2016.

(7)

Incorporated by reference to Exhibit 10.7 to the Registrant’s Form 8-K filed on April 13, 2016.

(8)

Incorporated by reference to Exhibit 21.1 filed with the Registrant’s 10-K report for the year ended December 31, 2014.

(9)

Incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8-K filed on March 24, 2016.

(10)

Incorporated by reference to Exhibit 4(c) filed with the Registrant’s S-8 Registration Statement (file number 333-219134).

(11)

Incorporated by reference to Exhibit 4(b) filed with the Registrant’s S-8 Registration Statement (file number 333-222997).

(12)

Incorporated by reference to Exhibit 10.7 filed with the Registrant’s S-1 Registration Statement (file 333-216222).

(13)

Incorporated by reference to Exhibit 10.12 filed with the Registrant’s S-1 Registration Statement (file 333-216222).

(14)

Filed with initial Registration Statement.

(15)

Filed with Amendment No. 3 to the Registration Statement.


Item 17.

   Undertakings


The undersigned registrant hereby undertakes:


(1)

To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:


(i)

To include any prospectus required by Section l0 (a)(3) of the Securities Act:


(ii)

To reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement.  Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and


(iii)

To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.


(2)

That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.




II-2



 


(3)

To remove from registration by means of a post-effective amendment any of the securities that remain unsold at the termination of the offering.


Insofar as indemnification for liabilities arising under the Securities Act of l933 (the “Act”) may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable.  In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.


(4)

That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:


(i)

If the registrant is relying on Rule 430B:


(A)

Each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and


(B)

Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus.  As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.  Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date; or


(ii)

If the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness.  Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.


(6)

That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities:


The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:


(i)

Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;


(ii)

Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;


(iii)

 The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and


(iv)

Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.




II-3



 



SIGNATURES


Pursuant to the requirements of the Securities Act of l933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the Denver, Colorado on the 16th day of May, 2018.


 

UNITED CANNABIS CORPORATION

 

 

 

 

By:

/s/ Earnest Blackmon

 

 

Earnest Blackmon, Principal Executive

 

 

    Officer




In accordance with the requirements of the Securities Act of l933, this registration statement has been signed by the following persons in the capacities and on the dates indicated:



/s/ Earnest Blackmon

 

 

 

 

Earnest Blackmon

 

Principal Executive Officer and Director

 

May 16, 2018

 

 

 

 

 

/s/ Chadwick Ruby

 

 

 

 

Chadwick Ruby

 

Director

 

May 16, 2018

 

 

 

 

 

/s/ Tony Verzura

 

 

 

 

Tony Verzura

 

Director

 

May 16, 2018

 

 

 

 

 

/s/ John Walsh

 

 

 

 

John Walsh

 

Principal Financial and Accounting Officer

 

May 16, 2018











II-4


EX-23.2 2 cnab_ex23z2.htm CONSENT OF ACCOUNTANTS Consent of Independent Registered Public Accounting Firm

 


EXHIBIT 23.2






CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



The Board of Directors of
United Cannabis Corporation



We consent to the use in this amended Registration Statement on Form S-1 of our report of independent registered public accounting firm dated March 28, 2018 on the balance sheet of United Cannabis Corporation as of December 31, 2017 and 2016, and the related statements of operations, stockholders’ equity (deficit) and cash flows for the two years ended December 31, 2017.



/s/ BF Borgers, CPA PC


BF Borgers, CPA PC


May 16, 2018

Lakewood, Colorado







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MySkin was engaged in the business of providing management services to a medical spa in Los Angeles, California which provided various advanced skin care services until March 31, 2014, when this business was sold to the prior President of the Company.</p> <p style="line-height: 11pt; margin: 0px; text-align: justify"><br /></p> <p style="line-height: 11pt; margin: 0px; text-align: justify">In early 2014 we decided to exit the medical spa management business and change our focus to providing products, services and intellectual property to the cannabis industry.</p> <p style="line-height: 11pt; margin: 0px; text-align: justify"><br /></p> <p style="line-height: 11pt; margin: 0px; text-align: justify">On March 26, 2014, we entered into a License Agreement with Earnest Blackmon, Tony Verzura and Chad Ruby pursuant to which Messrs. Blackmon, Verzura and Ruby licensed certain intellectual property to us in exchange for a total of 38,690,000 shares of our common stock.</p> <p style="line-height: 11pt; margin: 0px; text-align: justify"><br /></p> <p style="line-height: 11pt; margin: 0px; text-align: justify">In connection with this transaction:</p> <p style="line-height: 11pt; margin: 0px; text-align: justify"><br /></p> <table cellpadding="0" cellspacing="0" style="margin-top: 0px; font-size: 10pt; width: 100%"><tr style="height: 0px; font-size: 0"><td style="width: 22px" /><td /></tr> <tr><td style="margin-top: 0px; vertical-align: top; width: 22px"><p style="line-height: 11pt; margin: 0px; font-family: Symbol; text-align: justify">&#183;</p> </td><td style="margin-top: 0px; vertical-align: top"><p style="line-height: 11pt; margin: 0px; text-align: justify">Messrs. 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The patent covers the extraction of pharmaceutically active components from cannabis plant materials, for incorporation into medicines. The cost of the patents is being amortized on the straight-line method over a 15-year period.</p> <p style="margin: 0px"><br /></p> <p style="margin: 0px; text-align: justify"><b><i>Intangible Assets &#150; </i></b>Our intangible assets, consisting of applications for trademarks, design mark and provisional patents, are recorded at cost, and once approved, will be amortized using the straight-line method over an estimated useful life of 10 to 15 years.</p> <p style="margin: 0px"><br /></p> <p style="margin: 0px; text-align: justify"><b><i>Long-Lived Assets Impairment Assessment</i></b> &#150; Our intangible assets and other long-lived assets are subject to an impairment test if there is an indicator of impairment. 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The allocation of the purchase price of $5,070,500 was based upon a valuation and the estimates and assumptions are subject to change within the measurement period. The excess of the purchase price over the fair values of the net tangible assets and intangible assets was recorded as goodwill in the amount of $4,731,729 and is generally driven by our expectations of our ability to commercialize the several drugs invented by Prana Therapeutics, Inc. 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Determination of criteria (3) and (4) are based on our management's judgments regarding the fixed nature of the selling prices of the products and services delivered and the collectability of those amounts. &#160;There was no material impact to our revenue recognition process because of the implementation of FASB ASC 606 as of March 31, 2018.</p> <p style="margin: 0px"><br /></p> <p style="margin: 0px; text-align: justify">Revenue for services with a payment in the form of stock, warrants or other financial assets is recognized when the services are performed. The value of revenue paid for with warrants is measured using the Black-Scholes-Merton pricing model. 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The patent covers the extraction of pharmaceutically active components from cannabis plant materials, for incorporation into medicines. The cost of the patents is being amortized on the straight-line method over a 15-year period.</p> <p style="margin: 0px"><br /></p> <p style="margin: 0px; text-align: justify"><b><i>Intangible Assets &#150; </i></b>Our intangible assets, consisting of applications for trademarks, design mark and provisional patents, are recorded at cost, and once approved, will be amortized using the straight-line method over an estimated useful life of 10 to 15 years.</p> <p style="margin: 0px"><br /></p> <p style="margin: 0px; text-align: justify"><b><i>Long-Lived Assets Impairment Assessment</i></b> &#150; Our intangible assets and other long-lived assets are subject to an impairment test if there is an indicator of impairment. 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The allocation of the purchase price of $5,070,500 was based upon a valuation and the estimates and assumptions are subject to change within the measurement period. The excess of the purchase price over the fair values of the net tangible assets and intangible assets was recorded as goodwill in the amount of $4,731,729 and is generally driven by our expectations of our ability to commercialize the several drugs invented by Prana Therapeutics, Inc. 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Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. 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The term of the lease expires on July 31, 2020 and has no option for renewal. Basic rent is $3,302, $3,500 and $3,800 per month through, July 31, 2018, 2019 and 2020, respectively, plus we are responsible for all utilities. It is our intent presently, to renew the lease annual throughout the term of the lease. </p> <p style="margin: 0px; text-align: justify"><br /></p> <p style="margin: 0px; text-align: justify"><b><i>Extraction and Cultivation Facility &#150; Weldona, Colorado</i></b></p> <p style="line-height: 11pt; margin: 0px; text-align: justify"><br /></p> <p style="line-height: 11pt; margin: 0px; text-align: justify">Effective October 1, 2017, we entered into a triple net lease of approximately 40,000 square feet of industrial space located on five (5) acres of land in Weldona, Colorado that we us as our hemp extraction facility and hemp cultivation center. The term of the lease expires on September 31, 2018, with an annual option to renew the lease on an annual basis, that expires on September 30, 2022. The rent is $7,500 per month throughout the term of the lease, <a name="Hlk508704336"></a>plus we are responsible for all utilities.</p> <p style="line-height: 11pt; margin: 0px; text-align: justify"><br /></p> <p style="line-height: 11pt; margin: 0px; text-align: justify"><b><i>Extraction and Cultivation Facility - Jamaica</i></b></p> <p style="line-height: 11pt; margin: 0px; text-align: justify"><br /></p> <p style="line-height: 11pt; margin: 0px; text-align: justify">Our fifty percent (50%) owned subsidiary Cannabinoid Research &#38; Development Company Limited (&#147;CRD&#148;) leases approximately 28 acres of land upon which their cultivation and extraction facility is located near Kingston, Jamaica. The land is leased for $1 per year from the father of one of the directors and members of CRD.</p> <p style="line-height: 11pt; margin: 0px; text-align: justify"><br /></p> <p style="line-height: 11pt; margin: 0px">Future minimum payments for these leases are:</p> <p style="line-height: 11pt; margin: 0px"><br /></p> <table cellpadding="0" cellspacing="0" align="center" style="margin-top: 0px; font-size: 10pt"><tr style="height: 0px; font-size: 0"><td style="width: 87.2px"></td><td style="width: 22px"></td><td style="width: 83.6px"></td><td style="width: 19.2px"></td><td style="width: 97.93px"></td><td style="width: 18.93px"></td><td style="width: 85.13px"></td><td style="width: 18px"></td><td style="width: 83.26px"></td></tr> <tr><td colspan="9" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 515.26px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>For the twelve Months Ending March 31, </b></p> </td></tr> <tr><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 87.2px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>2019</b></p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 22px"><p style="margin: 0px; padding: 0px; font-size: 8pt">&#160;</p></td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 83.6px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>2020</b></p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 19.2px"><p style="margin: 0px; padding: 0px; font-size: 8pt">&#160;</p></td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 97.93px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>2021</b></p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 18.93px"><p style="margin: 0px; padding: 0px; font-size: 8pt">&#160;</p></td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 85.13px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>2021</b></p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 18px"><p style="margin: 0px; padding: 0px; font-size: 8pt">&#160;</p></td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 83.26px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>2022</b></p> </td></tr> <tr><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 87.2px"><p style="margin: 0px; text-align: center">$131,208</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 22px"><p style="margin: 0px; padding: 0px">&#160;</p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 83.6px"><p style="margin: 0px; text-align: center">$134,398</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 19.2px"><p style="margin: 0px; padding: 0px">&#160;</p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 97.93px"><p style="margin: 0px; text-align: center">$105,198</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 18.93px"><p style="margin: 0px; padding: 0px">&#160;</p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 85.13px"><p style="margin: 0px; text-align: center">$90,001</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 18px"><p style="margin: 0px; padding: 0px">&#160;</p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 83.26px"><p style="margin: 0px; text-align: center">$45,001</p> </td></tr> </table> <p style="margin: 0px; text-align: justify"><b>NOTE 5 &#150; OPERATING LEASES</b></p> <p style="margin: 0px; text-align: justify"><br /></p> <p style="margin: 0px; text-align: justify"><b><i>Administrative Offices and Hemp Laboratory &#150; Golden, Colorado</i></b></p> <p style="margin: 0px; text-align: justify"><br /></p> <p style="margin: 0px; text-align: justify">Effective August 1, 2017, we entered into a triple net lease of approximately 9,882 square feet of commercial space in Golden, Colorado in which our administrative offices and hemp laboratory are located. The term of the lease expires on July 31, 2020 and has no option for renewal. Basic rent is $3,302, $3,500 and $3,800 per month through, July 31, 2018, 2019 and 2020, respectively, plus we are responsible for all utilities. It is our intent presently, to renew the lease annual throughout the term of the lease.</p> <p style="margin: 0px; text-align: justify"><br /></p> <p style="margin: 0px; text-align: justify"><b><i>Extraction and Cultivation Facility &#150; Golden Colorado</i></b></p> <p style="margin: 0px; text-align: justify"><br /></p> <p style="margin: 0px; text-align: justify">Effective October 1, 2017, we entered into a triple net lease of approximately 40,000 square feet of industrial space located on five (5) acres of land in Weldona, Colorado that we us as our hemp extraction facility and hemp cultivation center. The term of the lease expires on September 31, 2018, with an annual option to renew the lease on an annual basis, that expires on September 30, 2022. The rent is $7,500 per month throughout the term of the lease, plus we are responsible for all utilities.</p> <p style="margin: 0px; text-align: justify"><br /></p> <p style="margin: 0px; text-align: justify"><b><i>Extraction and Cultivation Facility - Jamaica</i></b></p> <p style="margin: 0px; text-align: justify"><br /></p> <p style="margin: 0px; text-align: justify">Our fifty percent (50%) owned subsidiary Cannabinoid Research &#38; Development Company Limited (&#147;CRD&#148;) leases approximately 28 acres of land upon which their cultivation and extraction facility is located near Kingston, Jamaica. The land is leased for $1 per year from the father of one of the directors and members of CRD.</p> <p style="margin: 0px; text-align: justify"><br /></p> <p style="margin: 0px">Future minimum payments for these leases are:</p> <p style="margin: 0px"><br /></p> <table cellpadding="0" cellspacing="0" align="center" style="margin-top: 0px; font-size: 10pt"><tr style="height: 0px; font-size: 0"><td style="width: 87.2px" /><td style="width: 22px" /><td style="width: 83.6px" /><td style="width: 19.2px" /><td style="width: 97.93px" /><td style="width: 18.93px" /><td style="width: 85.13px" /><td style="width: 18px" /><td style="width: 83.26px" /></tr> <tr><td colspan="9" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 515.26px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>For the twelve Months Ending December 31, </b></p> </td></tr> <tr><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 87.2px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>2018</b></p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 22px"><p style="margin: 0px; padding: 0px; font-size: 8pt">&#160;</p></td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 83.6px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>2019</b></p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 19.2px"><p style="margin: 0px; padding: 0px; font-size: 8pt">&#160;</p></td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 97.93px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>2020</b></p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 18.93px"><p style="margin: 0px; padding: 0px; font-size: 8pt">&#160;</p></td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 85.13px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>2021</b></p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 18px"><p style="margin: 0px; padding: 0px; font-size: 8pt">&#160;</p></td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 83.26px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>2022</b></p> </td></tr> <tr><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 87.2px"><p style="margin: 0px; text-align: center">$130,613</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 22px"><p style="margin: 0px; padding: 0px">&#160;</p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 83.6px"><p style="margin: 0px; text-align: center">$133,499</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 19.2px"><p style="margin: 0px; padding: 0px">&#160;</p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 97.93px"><p style="margin: 0px; text-align: center">$116,597</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 18.93px"><p style="margin: 0px; padding: 0px">&#160;</p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 85.13px"><p style="margin: 0px; text-align: center">$90,000</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 18px"><p style="margin: 0px; padding: 0px">&#160;</p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 83.26px"><p style="margin: 0px; text-align: center">$67,500</p> </td></tr> </table> <p style="line-height: 11pt; margin: 0px; text-align: justify"></p> <p style="line-height: 11pt; margin: 0px; text-align: justify"><b>NOTE 6 - INVENTORY</b></p> <p style="line-height: 11pt; margin: 0px; text-align: justify"><br /></p> <p style="line-height: 11pt; margin: 0px; text-align: justify">Inventory is stated at the lower of cost or net realizable value. Cost is determined based upon the cost to acquire the raw materials, plus internal labor and other costs incurred to produce finished goods inventory. The cost of inventory is principally determined using the last-in first-out method. We periodically review the value of our inventory and provide a write-down of inventory based on our assessment of the market conditions. Any write-down is charged to cost of goods sold. 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padding: 0px; font-size: 8pt">&#160;</p></td><td style="margin-top: 0px; vertical-align: bottom; width: 20.93px"><p style="margin: 0px; padding: 0px; font-size: 8pt">&#160;</p></td><td colspan="2" style="margin-top: 0px; vertical-align: bottom; width: 81.73px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>December 31,</b></p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.46px"><p style="margin: 0px; padding: 0px; font-size: 8pt">&#160;</p></td></tr> <tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px; font-size: 8pt"><b>&#160;</b></p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.86px"><p style="margin: 0px; font-size: 8pt"><b>&#160;</b></p> </td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 75px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>2018</b></p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px; font-size: 8pt"><b>&#160;</b></p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 20.93px"><p style="margin: 0px; font-size: 8pt"><b>&#160;</b></p> </td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 81.73px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>2017</b></p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.46px"><p style="margin: 0px; font-size: 8pt"><b>&#160;</b></p> </td></tr> <tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Raw materials</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.86px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.86px"><p style="margin: 0px">$</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 68.13px"><p style="margin: 0px; text-align: right">38,376</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 20.93px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">$</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 75px"><p style="margin: 0px; text-align: right">15,000</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.46px"><p style="margin: 0px">&#160;</p> </td></tr> <tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px">Work-in-process</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.86px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.86px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 68.13px"><p style="margin: 0px; text-align: right">57,565</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 20.93px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 75px"><p style="margin: 0px; text-align: right">&#151;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.46px"><p style="margin: 0px">&#160;</p> </td></tr> <tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Finished goods</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.86px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; 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font-size: 8pt"><b>&#160;</b></p> </td></tr> <tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px; font-size: 8pt"><b>&#160;</b></p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px; font-size: 8pt"><b>&#160;</b></p> </td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 73.93px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>2017</b></p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px; font-size: 8pt"><b>&#160;</b></p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px; font-size: 8pt"><b>&#160;</b></p> </td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 73.93px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>2016</b></p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px; 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background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">$</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; border-bottom: #000000 3px double; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">43,200</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">$</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; border-bottom: #000000 3px double; 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more specifically the composition of matter pertaining to the use of phytocannabinoids, cannabinoids, and specific terpene profiles in liquid form. This composition of matter Patent provides protection for our proprietary formulations. The Patent protects the use of suspending both phytocannabinoids and cannabinoids with specific combinations of cannabis derived terpenes in liquid forms with an array of delivery methods including capsule, sublingual, topical, oral, suppository, and vaporization. Cannabinoids referenced in the application include ratios of tetrahydrocannabinolic acid (THCa), cannabidiolic acid (CBDa), tetrahydrocannabinol (THC), cannabinol (CBN), cannabidiol (CBD), cannabichromenic acid (CBCa), and cannabichromene (CBC). At August 15, 2017, we classified the costs associated with research, legal fees, application costs incurred in the process of being granted the Patent on our consolidated balance sheet in the amount of $142,317, and we began amortizing such cost of the Patent on a straight-line basis over a 15-year period. Amortization expense of the Patent is $4,458 and $0.0 for the three-month period ended March 31, 2018 and 2017, respectively and accumulated amortization is $4,458 and $2,679 at March 31, 2018 and December 31, 2017, respectively.</p> <p style="margin: 0px; text-align: justify"><b>NOTE 8 &#150; GRANTED PATENT</b></p> <p style="margin: 0px; text-align: justify"><br /></p> <p style="margin: 0px; text-align: justify">On August 15, 2017, the United States Patent and Trademark Office issued to the Company US Patent #9730911 (the &#147;Patent&#148;) granting exclusive rights to its proprietary formulations based on compounds extracted from cannabis plant materials; more specifically the composition of matter pertaining to the use of phytocannabinoids, cannabinoids, and specific terpene profiles in liquid form. This composition of matter Patent provides protection for our proprietary formulations. The Patent protects the use of suspending both phytocannabinoids and cannabinoids with specific combinations of cannabis derived terpenes in liquid forms with an array of delivery methods including capsule, sublingual, topical, oral, suppository, and vaporization. Cannabinoids referenced in the application include ratios of tetrahydrocannabinolic acid (THCa), cannabidiolic acid (CBDa), tetrahydrocannabinol (THC), cannabinol (CBN), cannabidiol (CBD), cannabichromenic acid (CBCa), and cannabichromene (CBC). At August 15, 2017, we classified the costs associated with research, legal fees, application costs incurred in the process of being granted the Patent on our consolidated balance sheet in the amount of $142,317, and we began amortizing such cost of the Patent on a straight-line basis over a 15-year period. Amortization expense of the Patent is $2,679 and $0.00 for the year ended December 31, 2017 and 2016, respectively, and accumulated amortization is $2,679 and $0.00 at December 31, 2017 and 2016, respectively.</p> <p style="margin: 0px; text-align: justify"><br /></p> <p style="margin: 0px; text-align: justify"><font style="background-color: #FFFFFF"><b>NOTE 9 &#150; INTANGIBLE ASSETS</b></font></p> <p style="margin: 0px"><br /></p> <p style="margin: 0px; text-align: justify">Our intangible assets are comprised of the costs incurred in pursuing provisional patent applications and applications for design mark and trademarks, which have presently not been approved or issued. The costs associated with our intangible assets are amortized on a straight-line basis over estimated useful lives of 15 years for patents and 10 years for design marks and trademarks once the applications are approved. 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width: 67.8px"><p style="margin: 0px; text-align: right">&#151;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 6.86px"><p style="margin: 0px; padding: 0px">&#160;</p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.86px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.86px"><p style="margin: 0px">$</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 73.66px"><p style="margin: 0px; text-align: right">23,750</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 4.46px"><p style="margin: 0px">&#160;</p> </td></tr> </table> <p style="line-height: 8pt; margin: 0px"><br /></p> <p style="margin: 0px; text-align: justify"><font style="background-color: #FFFFFF">On June 9, 2014, we received 1,187,500 common shares and 3,000,000 warrants to purchase common shares of WMD in exchange for future consulting services and use of our intellectual property. We recorded the $893,750 fair value of these securities as deferred revenue and we recognized $150,000 of this amount as revenue during the period July 1, 2014 through December 31, 2014, based upon our initial three-year estimate of the service period involved. Based on recent discussions with WMD, we now expect to deliver the remaining consulting services and use of our intellectual property to WMD on a relatively consistent monthly basis during the four-year period January 1, 2015 through December 31, 2018. Accordingly, we are now recognizing $15,000 of deferred revenue per month. We recognized $45,000 and $180,000 of revenue applicable to this arrangement in the three months ended March 31, 2018 and the year ended December 31, 2017, respectively. &#160;At March 31, 2018, we expect to recognize $158,750 of the remaining $158,750 WMD deferred revenue during the next twelve months and accordingly, we have classified the $158,750 as a current liability on our consolidated balance sheets.</font></p> <p style="margin: 0px; text-align: justify"><b>NOTE 13 &#150; DEFERRED REVENUE</b></p> <p style="line-height: 8pt; margin: 0px"><br /></p> <p style="margin: 0px"><font style="background-color: #FFFFFF">Our deferred revenue consists of:</font></p> <p style="line-height: 8pt; margin: 0px"><br /></p> <table cellpadding="0" cellspacing="0" style="margin-top: 0px; font-size: 10pt; width: 100%"><tr style="height: 0px; font-size: 0"><td /><td style="width: 6.73px" /><td style="width: 6.73px" /><td style="width: 67.2px" /><td style="width: 6.73px" /><td style="width: 6.73px" /><td style="width: 6.73px" /><td style="width: 67.2px" /><td style="width: 6.73px" /></tr> <tr><td style="margin-top: 0px; vertical-align: top"><p style="margin: 0px; padding-left: 8px; text-indent: -8px; font-size: 8pt">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px; font-size: 8pt">&#160;</p> </td><td colspan="6" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: top; width: 161.33px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>December 31,</b></p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px; font-size: 8pt">&#160;</p> </td></tr> <tr><td style="margin-top: 0px; vertical-align: top"><p style="margin: 0px; padding-left: 8px; text-indent: -8px; font-size: 8pt">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px; font-size: 8pt">&#160;</p> </td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: top; width: 73.93px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>2017</b></p> </td><td style="margin-top: 0px; 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At December 31, 2017, we expect to recognize $180,000 of the remaining $203,750 WMD deferred revenue during the next twelve months and accordingly, we have classified the $180,000 as a current liability on our consolidated balance sheets.</font></p> <p style="line-height: 8pt; margin: 0px"><br /></p> <p style="margin: 0px; text-align: justify">On December 28, 2014, we entered into a royalty and consulting services agreement with FoxBarry Farms, LLC (&#147;FoxBarry&#148;) whereby we received a $200,000 prepaid royalty payment from FoxBarry. At the time, we planned to recognize deferred royalty revenue based on actual applicable sales as defined in the agreement. In August 2015, we discontinued providing consulting services to FoxBarry, as our initial project with FoxBarry was abandoned due to operational issues. 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If the loan was repaid on or before October 16, 2016 through February 12, 2016, the principal amount which was being repaid would increase by 30%. Thereafter, the note could be repaid only upon written consent from the noteholder, and the principal amount that was being repaid would increase by 30%. At any time after the date of the note, the noteholder was entitled to convert all of the outstanding and unpaid principal in to shares of our common stock. Until February 12, 2017, the conversion price was $0.20 per share, and thereafter, the conversion price was at a 45% discount to the lowest closing price of our common stock for the ten trading days preceding the conversion date. The noteholder could not make any conversions that would result in the note holder holding more than 4.99% of our issued and outstanding common stock at any one time. If the note had been held through February 12, 2017, derivative accounting would have applied upon the change to a variable conversion price. 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On April 6, 2016, we borrowed an additional $75,000 from Slainte Ventures and used the proceeds, along with $52,500 of advances to the Company by officers and directors of the Company, to repay principal and accrued interest applicable to our $102,000 convertible promissory note, dated October 12, 2015, to JSJ Investments, Inc. On July 5, 2016, we borrowed $50,000 from Slainte Ventures and used the proceeds for working capital purposes. These loans, together with interest at 12% per year, are payable on December 30, 2016.&#160;We can prepay the loans at any time. If the loans are repaid on or before September 30, 2016, the principal amount which is being repaid will increase by 10%. If the loans are repaid after September 30, 2016, the principal amount which is being repaid will increase by 15%. The amount of the principal increase may be paid with shares of our common stock. The number of shares to be issued for such purpose will be determined by dividing the average closing price of our common stock (which in no case can be greater than $0.45) for the ten trading days preceding the prepayment date. The original principal of the loan was not convertible prior to maturity. If the loans were not paid when due, then at any time between the maturity date and January 10, 2017, Slainte may convert the outstanding principal and interest on the loan into shares of our common stock. The number of shares to be issued on conversion was to be determined by dividing the average closing price of our common stock (which in no case can be greater than $0.45) for the ten trading days preceding the conversion date by the outstanding principal and interest on the loan on the conversion date.</p> <p style="margin: 0px"><br /></p> <p style="margin: 0px; text-align: justify">The notes were not paid prior to the maturity date of December 30, 2016. 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text-indent: -8px">Warrants issued to consultants</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">25,002</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px; padding: 0px">&#160;</p></td><td style="margin-top: 0px; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; padding: 0px">&#160;</p></td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">132,669</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px; padding: 0px">&#160;</p></td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; padding: 0px">&#160;</p></td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px; padding: 0px">&#160;</p></td></tr> <tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px; padding-left: 8px; text-indent: -8px">Warrants exercised</p> </td><td style="margin-top: 0px; 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vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">(475,000</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">)</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; padding: 0px">&#160;</p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px; padding: 0px">&#160;</p></td></tr> <tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px; padding-left: 8px; text-indent: -8px">Warrants outstanding, end of period</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; border-top: #000000 1px solid; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; border-top: #000000 1px solid; border-bottom: #000000 3px double; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">1,234,027</p> </td><td style="margin-top: 0px; border-top: #FFFFFF 1px solid; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">$</p> </td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">0.27</p> </td><td style="margin-top: 0px; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; border-top: #000000 1px solid; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; border-top: #000000 1px solid; border-bottom: #000000 3px double; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">1,209,025</p> </td><td style="margin-top: 0px; border-top: #FFFFFF 1px solid; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 6.73px"><p style="margin: 0px; padding: 0px">&#160;</p></td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">$</p> </td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">0.21</p> </td><td style="margin-top: 0px; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 6.73px"><p style="margin: 0px; padding: 0px">&#160;</p></td></tr> <tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px; padding-left: 8px; text-indent: -8px">Warrants exercisable, end of period</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; 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background-color: #CCFFCC; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">1,209,025</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 6.73px"><p style="margin: 0px; padding: 0px">&#160;</p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #000000 3px double; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">$</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">0.21</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 6.73px"><p style="margin: 0px; padding: 0px">&#160;</p></td></tr> </table> <p style="margin: 0px"><br /></p> <p style="margin: 0px; text-align: justify">The weighted-average remaining contractual life for warrants outstanding and exercisable at March 31, 2018, is 3.6 years, and the aggregate intrinsic value of warrants outstanding and exercisable at March 31, 2018 is $0.</p> <p style="line-height: 8pt; margin: 0px"><br /></p> <p style="margin: 0px; text-align: justify">666,667 warrants issued during the years ended December 31, 2017 were valued utilizing the Black Scholes option pricing model and the following range of assumptions on the date of valuation:</p> <p style="line-height: 8pt; margin: 0px"><br /></p> <table cellpadding="0" cellspacing="0" style="margin-top: 0px; font-size: 10pt; width: 100%"><tr style="height: 0px; font-size: 0"><td /><td style="width: 6.73px" /><td style="width: 6.73px" /><td style="width: 73.4px" /><td style="width: 11.13px" /></tr> <tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Stock price</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">$</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 73.4px"><p style="margin: 0px; text-align: right">0.16 - $2.18</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 11.13px"><p style="margin: 0px">&#160;</p> </td></tr> <tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px">Exercise price</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">$</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 73.4px"><p style="margin: 0px; text-align: right">0.18</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 11.13px"><p style="margin: 0px">&#160;</p> </td></tr> <tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Risk free interest rate</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 73.4px"><p style="margin: 0px; text-align: right">1.01% - 1.37</p> </td><td style="margin-top: 0px; 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text-align: justify"><br /></p> <p style="line-height: 11pt; margin: 0px; text-align: justify">On February 28, 2018, we awarded 6,000,000 stock options to various employees under our 2017 Stock Incentive Plan. Of these options, 5,125,000 were fully vested at the time of grant with the remaining 875,000 vesting quarterly through December 31, 2019. The awarded options give the option holder the right to purchase shares of our common stock at $1.08 per share during the ten-year term of the option.</p> <p style="line-height: 10pt; margin: 0px; text-align: justify"><br /></p> <p style="line-height: 11pt; margin: 0px; text-align: justify">We calculated the fair value of each option to be approximately $0.91 per option utilizing the Black Scholes option pricing model and the following range of assumptions on the date of valuation:</p> <p style="line-height: 10pt; margin: 0px"><br /></p> <table cellpadding="0" cellspacing="0" style="margin-top: 0px; font-size: 10pt; width: 100%"><tr style="height: 0px; font-size: 0"><td /><td style="width: 3.6px" /><td style="width: 12.93px" /><td style="width: 32.26px" /><td style="width: 11.93px" /></tr> <tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="line-height: 11pt; margin: 0px">Stock price</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 3.6px"><p style="line-height: 11pt; margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 12.93px"><p style="line-height: 11pt; margin: 0px">$</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 32.26px"><p style="line-height: 11pt; margin: 0px; text-align: right">1.05</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 11.93px"><p style="line-height: 11pt; margin: 0px">&#160;</p> </td></tr> <tr><td style="margin-top: 0px; vertical-align: bottom"><p style="line-height: 11pt; margin: 0px">Exercise price</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 3.6px"><p style="line-height: 11pt; margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 12.93px"><p style="line-height: 11pt; margin: 0px">$</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 32.26px"><p style="line-height: 11pt; margin: 0px; text-align: right">1.08</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 11.93px"><p style="line-height: 11pt; margin: 0px">&#160;</p> </td></tr> <tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="line-height: 11pt; margin: 0px">Risk free interest rate</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 3.6px"><p style="line-height: 11pt; margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 12.93px"><p style="line-height: 11pt; margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 32.26px"><p style="line-height: 11pt; margin: 0px; text-align: right">2.8</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 11.93px"><p style="line-height: 11pt; margin: 0px">%</p> </td></tr> <tr><td style="margin-top: 0px; vertical-align: bottom"><p style="line-height: 11pt; margin: 0px">Expected term (years)</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 3.6px"><p style="line-height: 11pt; margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 12.93px"><p style="line-height: 11pt; margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 32.26px"><p style="line-height: 11pt; margin: 0px; text-align: right">5-10</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 11.93px"><p style="line-height: 11pt; margin: 0px">&#160;</p> </td></tr> <tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="line-height: 11pt; margin: 0px">Expected volatility</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 3.6px"><p style="line-height: 11pt; margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 12.93px"><p style="line-height: 11pt; margin: 0px">&#160;</p> </td><td style="margin-top: 0px; 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margin: 0px; text-align: justify">The total grant-date fair value of these options was approximately $6,146,000. 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background-color: #FFFFFF; vertical-align: bottom; width: 73.4px"><p style="margin: 0px; text-align: right">0</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 11.13px"><p style="margin: 0px">%</p> </td></tr> </table> <p style="line-height: 8pt; margin: 0px"><br /></p> <p style="margin: 0px; text-align: justify"><b><i>Stock Options</i></b></p> <p style="margin: 0px; text-align: justify"><br /></p> <p style="margin: 0px; text-align: justify">On January 9, 2015, we awarded 200,000 stock options to each of Messrs. 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text-align: justify"><br /></p> <p style="margin: 0px; text-align: justify">The following table summarizes our stock options outstanding as of both December 31, 2017 and 2016, respectively:</p> <p style="margin: 0px; text-align: justify"><br /></p> <table cellpadding="0" cellspacing="0" style="margin-top: 0px; font-size: 10pt; width: 100%"><tr style="height: 0px; font-size: 0"><td /><td style="width: 6.66px" /><td style="width: 6.73px" /><td style="width: 67.2px" /><td style="width: 6.73px" /><td style="width: 6.73px" /><td style="width: 6.73px" /><td style="width: 67.2px" /><td style="width: 6.73px" /><td style="width: 6.73px" /><td style="width: 6.73px" /><td style="width: 67.2px" /><td style="width: 6.73px" /></tr> <tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px; font-size: 8pt">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.66px"><p style="margin: 0px; font-size: 8pt">&#160;</p> </td><td colspan="2" style="margin-top: 0px; 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vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">9.8</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">$</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">0.70</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td></tr> <tr><td style="margin-top: 0px; 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text-align: right">10.0</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">$</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">0.20</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td></tr> <tr><td style="margin-top: 0px; background-color: #CCFFCC"><p style="margin: 0px">Exercised</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.66px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; 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Proceeds from under the terms of the Note in the amount $570,000 were used by the Company to acquire additional equipment for our new extraction facility and for working capital purposes</p> <p style="margin: 0px; text-align: justify"><br /></p> <p style="margin: 0px; text-align: justify">In accordance with ASC 855-10 we have analyzed the Company&#146;s operations subsequent to March 31, 2018 to the date these consolidated financial statements were issued, and have determined that, other than as disclosed above, we do not have any material subsequent events to disclose in these consolidated financial statements.</p> <p style="margin: 0px; text-align: justify"><b>NOTE 20 &#150; SUBSEQUENT EVENTS</b></p> <p style="margin: 0px"><br /></p> <p style="margin: 0px; text-align: justify"><b><i>JSJ Convertible Note</i></b></p> <p style="margin: 0px"><br /></p> <p style="margin: 0px; text-align: justify">In accordance with ASC 855-10 we have analyzed the Company&#146;s operations subsequent to December 31, 2017 to the date these consolidated financial statements were issued, and has determined that, other that as disclosed above, we do not have any material subsequent events to disclose in these consolidated financial statements.</p> <p style="margin: 0px; text-align: justify"><b><i>Principles of Consolidation</i></b> &#150; Our consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries UCANN California Corporation, UC Colorado Corporation and UC Oregon Corporation, the ninety-five percent (95%) owned subsidiary Prana Therapeutics, Inc. (&#147;Prana&#148;), and the fifty percent (50%) owned subsidiary Cannabinoid Research &#38; Development Company Limited (&#147;CRD&#148;). All intercompany accounts and transactions have been eliminated. Our consolidated financial statements are stated in United States dollars and have been prepared in accordance with accounting principles generally accepted in the United States (&#147;U.S.&#160;GAAP&#148;). At March 31, 2017, we concluded that we had established a variable interest entity relationship with CRD, because we are the primary beneficiary, in accordance with GAAP. As a result, we elected to consolidate the assets and liabilities of CRD in our consolidated balance sheet at March 31, 2017. Prana was purchased on July 14, 2017, and their assets and liabilities are included in the consolidated balance sheets at December 31, 2017, and their results of operations are included in the consolidated financial statements for the period of June 30, 2017, which is the nearest quarter end to the purchase date, through December 31, 2017.</p> <p style="margin: 0px; text-align: justify"><b><i>Principles of Consolidation</i></b> &#150; Our consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries UCANN California Corporation, UC Colorado Corporation and UC Oregon Corporation, the ninety-five percent (95%) owned subsidiary Prana Therapeutics, Inc. (&#147;Prana&#148;), and the fifty percent (50%) owned subsidiary Cannabinoid Research &#38; Development Company Limited (&#147;CRD&#148;). All intercompany accounts and transactions have been eliminated. Our consolidated financial statements are stated in United States dollars and have been prepared in accordance with accounting principles generally accepted in the United States (&#147;U.S.&#160;GAAP&#148;). At March 31, 2017, we concluded that we had established a variable interest entity relationship with CRD, because we are the primary beneficiary, in accordance with GAAP. As a result, we elected to consolidate the assets and liabilities of CRD in our consolidated balance sheet at March 31, 2017. Prana was purchased on July 14, 2017, and their assets and liabilities are included in the consolidated balance sheets at December 31, 2017, and their results of operations are included in the consolidated financial statements for the period of June 30, 2017, which is the nearest quarter end to the purchase date, through December 31, 2017.</p> <p style="margin: 0px; text-align: justify"><b><i>Use of Estimates</i></b> - The preparation of our consolidated financial statements in conformity with U.S. GAAP requires us to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of our consolidated financial statements and the reported amounts of revenues and expenses during the periods presented.</p> <p style="margin: 0px"><br /></p> <p style="margin: 0px; text-align: justify">We make our estimate of the ultimate outcome for these items based on historical trends and other information available when our consolidated financial statements are prepared. We recognize changes in estimates in accordance with the accounting rules for the estimate, which is typically in the period when new information becomes available. We believe that our significant estimates, assumptions and judgments are reasonable, based upon information available at the time they were made. Our actual results could differ from these estimates, making it possible that a change in these estimates could occur in the near term.</p> <p style="margin: 0px; text-align: justify"><b><i>Use of Estimates</i></b> - The preparation of our consolidated financial statements in conformity with U.S. GAAP requires us to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of our consolidated financial statements and the reported amounts of revenues and expenses during the periods presented.</p> <p style="margin: 0px"><br /></p> <p style="margin: 0px; text-align: justify">We make our estimate of the ultimate outcome for these items based on historical trends and other information available when our consolidated financial statements are prepared. We recognize changes in estimates in accordance with the accounting rules for the estimate, which is typically in the period when new information becomes available. We believe that our significant estimates, assumptions and judgments are reasonable, based upon information available at the time they were made. Our actual results could differ from these estimates, making it possible that a change in these estimates could occur in the near term.</p> <p style="margin: 0px; text-align: justify"><b><i>Fair Value of Financial Instruments&#160;</i></b>- Our financial instruments consist principally of cash and cash equivalents, accounts receivable, non-marketable equity securities, accounts payable, notes payable and other current assets and liabilities. We value our financial assets and liabilities using fair value measurements. Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are categorized based on whether the inputs are observable in the market and the degree that the inputs are observable. The categorization of financial instruments within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The hierarchy is prioritized into three levels (with Level 3 being the lowest) defined as follows:</p> <p style="margin: 0px"><br /></p> <p style="margin: 0px; text-align: justify"><i>Level 1</i>:&#160;Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.</p> <p style="margin: 0px; text-align: justify"><br /></p> <p style="margin: 0px; text-align: justify"><i>Level 2</i>:&#160;Observable inputs other than prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated with observable market data.</p> <p style="margin: 0px; text-align: justify"><br /></p> <p style="margin: 0px; text-align: justify"><i>Level 3</i>:&#160;Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs.</p> <p style="margin: 0px; text-align: justify"><br /></p> <p style="margin: 0px; text-align: justify">The carrying amount of our cash and cash equivalents, accounts receivable, accounts payable, and other current assets and liabilities in our consolidated financial statements approximates fair value because of the short-term nature of the instruments. Investments in non-marketable equity securities are carried at cost less other-than-temporary impairments. The carrying amount of our notes payable and convertible debt at March 31, 2018, approximates their fair values based on our incremental borrowing rates.</p> <p style="margin: 0px"><br /></p> <p style="margin: 0px; text-align: justify">There have been no changes in Level 1, Level 2, and Level 3 categorizations and no changes in valuation techniques for these assets or liabilities for the three-month period ended March 31, 2018 and the year ended December 31, 2017. </p> <p style="margin: 0px; text-align: justify"><b><i>Fair Value of Financial Instruments&#160;</i></b>- Our financial instruments consist principally of cash and cash equivalents, accounts receivable, non-marketable equity securities, accounts payable, notes payable and other current assets and liabilities. We value our financial assets and liabilities using fair value measurements. Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are categorized based on whether the inputs are observable in the market and the degree that the inputs are observable. The categorization of financial instruments within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The hierarchy is prioritized into three levels (with Level 3 being the lowest) defined as follows:</p> <p style="margin: 0px"><br /></p> <p style="margin: 0px; text-align: justify"><i>Level 1</i>:&#160;Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.</p> <p style="margin: 0px; text-align: justify"><br /></p> <p style="margin: 0px; text-align: justify"><i>Level 2</i>:&#160;Observable inputs other than prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated with observable market data.</p> <p style="margin: 0px; text-align: justify"><br /></p> <p style="margin: 0px; text-align: justify"><i>Level 3</i>:&#160;Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs.</p> <p style="margin: 0px"><br /></p> <p style="margin: 0px; text-align: justify">The carrying amount of our cash and cash equivalents, accounts receivable, accounts payable, and other current assets and liabilities in our consolidated financial statements approximates fair value because of the short-term nature of the instruments. Investments in non-marketable equity securities are carried at cost less other-than-temporary impairments. The carrying amount of our notes payable and convertible debt at December 31, 2016, approximates their fair values based on our incremental borrowing rates.</p> <p style="margin: 0px"><br /></p> <p style="margin: 0px; text-align: justify">There have been no changes in Level 1, Level 2, and Level 3 categorizations and no changes in valuation techniques for these assets or liabilities for the years ended December 31, 2017 and 2016. </p> <p style="margin: 0px; text-align: justify"><b><i>Cash and Cash Equivalents</i></b> - We consider investments with original maturities of 90 days or less to be cash equivalents. </p> <p style="margin: 0px; text-align: justify"><b><i>Cash and Cash Equivalents</i></b> - We consider investments with original maturities of 90 days or less to be cash equivalents. Because of current banking regulations, marijuana centric entities are not afforded normal banking privileges, and thus, we have not able to consistently have access to the federal banking system. Thus, at the beginning of 2016, the Company entered into an agreement with our Chief Executive Officer to hold cash funds in his personal bank account, on an as-need basis, in trust for the Company. Under the terms of our trust agreement with our Chief Executive Officer, he agreed to hold our cash in his personal bank account, and to make payments of our funds only for our business purposes, and to allow daily access to the bank account for ongoing oversight of his fiduciary responsibility to the Company. Additionally, the trust agreement requires that the Chief Executive Officer make copies available to our accounting staff of all transactions applicable to our operations, on a weekly, or as requested basis.&#160; At December 31, 2017 and 2016 there is cash deposits in the personal bank accounts of the Chief Executive Officer held in trust for us in the amount of $0.0 and $4,158, respectively.</p> <p style="margin: 0px; text-align: justify"><b><i>Accounts Receivable, Net</i></b>&#160;&#150; Our accounts receivable consists primarily of trade accounts arising in the normal course of business. No interest is charged on past due accounts. Accounts for which no payments have been received after 30 days are considered delinquent and customary collection efforts are initiated. Accounts receivable are carried at original invoice amount less a reserve made for doubtful accounts based on a review of all outstanding amounts on a monthly basis. We determine our allowance for doubtful accounts by regularly evaluating individual customer receivables and considering the customer&#146;s financial condition and credit history, and current economic conditions. We recorded no bad debt expense during the three-month period ended March 31, 2018 and 2017, respectively, and we have no allowance for doubtful accounts as of March 31, 2018, and as of December 31, 2017,</p> <p style="margin: 0px; text-align: justify"><b><i>Accounts Receivable</i></b>&#160;&#150; Our accounts receivable consists primarily of trade accounts arising in the normal course of business. No interest is charged on past due accounts. Accounts for which no payments have been received after 30 days are considered delinquent and customary collection efforts are initiated. Accounts receivable are carried at original invoice amount less a reserve made for doubtful accounts based on a review of all outstanding amounts on a monthly basis. 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border-bottom: #000000 3px double; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">$</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; border-bottom: #000000 3px double; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">&#151;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td></tr> </table> <p style="margin: 0px; text-align: justify"><b><i>Granted Patents &#150; </i></b>Our patent was granted by the United States Patent and Trademark Office on August 15, 2017. The patent covers the extraction of pharmaceutically active components from cannabis plant materials, for incorporation into medicines. The cost of the patents is being amortized on the straight-line method over a 15-year period.</p> <p style="margin: 0px; text-align: justify"><b><i>Granted Patents &#150; </i></b>Our patent was granted by the United States Patent and Trademark Office on August 15, 2017. The patent covers the extraction of pharmaceutically active components from cannabis plant materials, for incorporation into medicines. The cost of the patents is being amortized on the straight-line method over a 15-year period.</p> <p style="margin: 0px; text-align: justify"><b><i>Intangible Assets &#150; </i></b>Our intangible assets, consisting of applications for trademarks, design mark and provisional patents, are recorded at cost, and once approved, will be amortized using the straight-line method over an estimated useful life of 10 to 15 years.</p> <p style="margin: 0px; text-align: justify"><b><i>Intangible Assets &#150; </i></b>Our intangible assets, consisting of applications for trademarks, design mark and provisional patents, are recorded at cost, and once approved, will be amortized using the straight-line method over an estimated useful life of 10 to 15 years.</p> <p style="margin: 0px"></p> <p style="margin: 0px; text-align: justify"><b><i>Long-Lived Assets Impairment Assessment</i></b> &#150; Our intangible assets and other long-lived assets are subject to an impairment test if there is an indicator of impairment. The carrying value and ultimate realization of these assets is dependent upon our estimates of future earnings and benefits that we expect to generate from their use. If our expectations of future results and cash flows are significantly diminished, intangible assets and other long-lived assets may be impaired and the resulting charge to operations may be material. When we determine that the carrying value of intangibles or other long-lived assets may not be recoverable based upon the existence of one or more indicators of impairment, we use the projected undiscounted cash flow method to determine whether an impairment exists, and then measure the impairment using discounted cash flows.</p> <p style="margin: 0px"><br /></p> <p style="margin: 0px; text-align: justify">We have not recorded any impairment charges related to long-lived assets as of March 31, 2018 or December 31, 2017.</p> <p style="margin: 0px; text-align: justify"><b><i>Long-Lived Assets Impairment Assessment</i></b> &#150; Our intangible assets and other long-lived assets are subject to an impairment test if there is an indicator of impairment. The carrying value and ultimate realization of these assets is dependent upon our estimates of future earnings and benefits that we expect to generate from their use. If our expectations of future results and cash flows are significantly diminished, intangible assets and other long-lived assets may be impaired and the resulting charge to operations may be material. When we determine that the carrying value of intangibles or other long-lived assets may not be recoverable based upon the existence of one or more indicators of impairment, we use the projected undiscounted cash flow method to determine whether an impairment exists, and then measure the impairment using discounted cash flows.</p> <p style="margin: 0px"><br /></p> <p style="margin: 0px; text-align: justify">We have not recorded any impairment charges related to long-lived assets as of December 31, 2017 or December 31, 2016.</p> <p style="margin: 0px; text-align: justify"><b><i>Equity Method Investments </i></b>&#150; Our investments in entities representing ownership of at least 20% but not more than 50%, where we exercise significant influence, are accounted for under the equity method of accounting, and are included in our financial statements as a component of the consolidated financials. All intercompany accounts are eliminated upon consolidation, and we recognize the minority interests&#146; share in the income and losses of the less than 100% percent owned subsidiary in the period incurred. </p> <p style="margin: 0px; text-align: justify"><b><i>Equity Method Investments </i></b>&#150; Our investments in entities representing ownership of at least 20% but not more than 50%, where we exercise significant influence, are accounted for under the equity method of accounting, and are included in our financial statements as a component of the consolidated financials. All intercompany accounts are eliminated upon consolidation, and we recognize the minority interests&#146; share in the income and losses of the less than 100% percent owned subsidiary in the period incurred. </p> <p style="margin: 0px; text-align: justify"><b><i>Goodwill </i></b>&#150;<b><i> </i></b>Our goodwill, which consists of our interest in a ninety-five percent owned subsidiary, Prana Therapeutics, Inc. (&#147;Prana&#148;) and a fifty percent owned subsidiary, Cannabinoid Research &#38; Development Company Limited (&#147;CRD&#148;), is not amortized, but is evaluated for impairment annually, or when indicators of a potential impairment are present. The annual evaluation for impairment of goodwill is based on valuation models that incorporate assumptions and internal projections of expected future cash flows and operating plans. We believe such assumptions are also comparable to those that would be used by other marketplace participants. Our total goodwill of $4,838,602 consists of $4,731,729 for Prana and $106,873 for CRD at March 31, 2018. See Note 7 &#150; Purchase of Prana Therapeutics, Inc.</p> <p style="margin: 0px; text-align: justify"><b><i>Goodwill </i></b>&#150;<b><i> </i></b>Our goodwill, which consists of our interest in a ninety-five percent owned subsidiary, Prana Therapeutics, Inc. (&#147;Prana&#148;) and a fifty percent owned subsidiary, Cannabinoid Research &#38; Development Company Limited (&#147;CRD&#148;), is not amortized, but is evaluated for impairment annually, or when indicators of a potential impairment are present. The annual evaluation for impairment of goodwill is based on valuation models that incorporate assumptions and internal projections of expected future cash flows and operating plans. We believe such assumptions are also comparable to those that would be used by other marketplace participants. Our total goodwill of $4,838,602 consists of $4,731,729 for Prana and $106,873 for CRD at December 31, 2017. See Note 7 &#150; Purchase of Prana Therapeutics, Inc.</p> <p style="margin: 0px; text-align: justify"><b><i>Purchase Price Allocation </i></b>&#150;<b><i> </i></b>The acquisition method of accounting is based on ASC Subtopic 805-10, &#147;<i>Business Combinations</i>,&#148; and uses the fair value concepts defined in ASC Subtopic 820-10, &#147;<i>Fair Value Measurements and Disclosures</i>&#148;. The price for the purchase of Prana Therapeutics, Inc., was allocated to the net tangible and intangible assets based upon their fair values as of the acquisition date, July 14, 2017. The allocation of the purchase price of $5,070,500 was based upon a valuation and the estimates and assumptions are subject to change within the measurement period. The excess of the purchase price over the fair values of the net tangible assets and intangible assets was recorded as goodwill in the amount of $4,731,729 and is generally driven by our expectations of our ability to commercialize the several drugs invented by Prana Therapeutics, Inc. See Note 7 &#150; Purchase of Prana Therapeutics, Inc.</p> <p style="margin: 0px; text-align: justify"><b><i>Purchase Price Allocation </i></b>&#150;<b><i> </i></b>The acquisition method of accounting is based on ASC Subtopic 805-10, &#147;<i>Business Combinations</i>,&#148; and uses the fair value concepts defined in ASC Subtopic 820-10, &#147;<i>Fair Value Measurements and Disclosures</i>&#148;. The price for the purchase of Prana Therapeutics, Inc., was allocated to the net tangible and intangible assets based upon their fair values as of the acquisition date, July 14, 2017. The allocation of the purchase price of $5,070,500 was based upon a valuation and the estimates and assumptions are subject to change within the measurement period. The excess of the purchase price over the fair values of the net tangible assets and intangible assets was recorded as goodwill in the amount of $4,731,729 and is generally driven by our expectations of our ability to commercialize the several drugs invented by Prana Therapeutics, Inc. See Note 7 &#150; Purchase of Prana Therapeutics, Inc.</p> <p style="margin: 0px; text-align: justify"><b><i>Deferred Revenue</i></b> - We defer revenue for which product or service has not yet been delivered or is subject to refund until such time that we and our customer jointly determine that the product or service has been delivered or no refund will be required.</p> <p style="margin: 0px; text-align: justify"><b><i>Deferred Revenue</i></b> - We defer revenue for which product or service has not yet been delivered or is subject to refund until such time that we and our customer jointly determine that the product or service has been delivered or no refund will be required.</p> <p style="margin: 0px; text-align: justify"><b>Revenue Recognition - </b>We recognize revenue in accordance with the Financial Accounting Standards Board (&#147;FASB&#148;) Accounting Standards Codification (&#147;ASC&#148;) 606, <i>Revenue from Contracts with Customers</i>, which requires that five basic steps be followed to recognize revenue: (1) a legally enforceable contract that meets criterial standards as to composition and substance is identified; (2) performance obligations relating to provision of goods or services to the customer are identified; (3) the transaction price, with consideration given to any variable, noncash, or other relevant consideration, is determined; (4) the transaction price is allocated to the performance obligations; and (5) revenue is recognized when control of goods or services is transferred to the customer with consideration given to whether that control happens <b><i>over time</i></b> or not. Determination of criteria (3) and (4) are based on our management's judgments regarding the fixed nature of the selling prices of the products and services delivered and the collectability of those amounts. &#160;There was no material impact to our revenue recognition process because of the implementation of FASB ASC 606 as of March 31, 2018.</p> <p style="margin: 0px"><br /></p> <p style="margin: 0px; text-align: justify">Revenue for services with a payment in the form of stock, warrants or other financial assets is recognized when the services are performed. The value of revenue paid for with warrants is measured using the Black-Scholes-Merton pricing model. Revenue from product sales, including delivery fees, is recognized when an order has been obtained, the price is fixed and determinable, the product is shipped, title has transferred, and collectability is reasonably assured.</p> <p style="margin: 0px"><br /></p> <p style="margin: 0px; text-align: justify">Reimbursable expenses, including those relating to travel, other out-of-pocket expenses and any third-party costs, are included as a component of revenues. Typically, an equivalent amount of reimbursable expenses is included in cost of revenues. Reimbursable expenses related to time and materials and fixed-fee engagements are recognized as revenue in the period in which the expense is incurred and collectability is reasonably assured. Taxes collected from customers and remitted to governmental authorities are presented in our consolidated statement of operations on a net basis.</p> <p style="margin: 0px"><br /></p> <p style="margin: 0px; text-align: justify"><b><i>Revenue Recognition &#150; Affiliate</i> &#150;</b> We have licensed our<i> Prana</i> products to Advesa, Inc. (&#147;Advesa&#148;), which is controlled by one of our major shareholders. Advesa has an exclusive right for five (5) consecutive one (1) year periods to sell our Prana products in certain cities in the state of California. In consideration for the exclusive license granted to Advesa under the agreement, Advesa is obligated to pay us a royalty on all <i>Prana </i>products sold by Advesa equal to the sale price of the <i>Prana </i>products, minus the cost of goods sold (computed without regard to depreciation, amortization, other non-cash items or allocation of overhead, general and administrative expenses or similar items) (the &#147;<i>Prana </i>Royalty&#148;). In addition, Advesa pays us a management fee of five percent (5%) of all Advesa gross revenue minus the <i>Prana </i>Royalty. We recognize revenue on all <i>Prana</i> sales consistent with the criteria described above for all sales in accordance with ASC 606, <i>Revenue from Contracts with Customers.</i></p> <p style="margin: 0px; text-align: justify"><b><i>Revenue Recognition - </i></b>We recognize revenue in accordance with the Financial Accounting Standards Board (&#147;FASB&#148;) Accounting Standards Codification (&#147;ASC&#148;) 605, <i>Revenue Recognition</i>, which requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on our management's judgments regarding the fixed nature of the selling prices of the products and services delivered and the collectability of those amounts.</p> <p style="margin: 0px"><br /></p> <p style="margin: 0px; text-align: justify">Revenue for services with a payment in the form of stock, warrants or other financial assets is recognized when the services are performed. The value of revenue paid for with warrants is measured using the Black-Scholes-Merton pricing model. Revenue from product sales, including delivery fees, is recognized when an order has been obtained, the price is fixed and determinable, the product is shipped, title has transferred, and collectability is reasonably assured.</p> <p style="margin: 0px"><br /></p> <p style="margin: 0px; text-align: justify">Reimbursable expenses, including those relating to travel, other out-of-pocket expenses and any third-party costs, are included as a component of revenues. Typically, an equivalent amount of reimbursable expenses is included in cost of revenues. Reimbursable expenses related to time and materials and fixed-fee engagements are recognized as revenue in the period in which the expense is incurred and collectability is reasonably assured. Taxes collected from customers and remitted to governmental authorities are presented in our consolidated statement of operations on a net basis.</p> <p style="margin: 0px"><br /></p> <p style="margin: 0px; text-align: justify"><b><i>Revenue Recognition &#150; Affiliate</i> &#150;</b> We have licensed our<i> Prana</i> products to Advesa, Inc. (&#147;Advesa&#148;), which is 100% owned by one of our major shareholders. Advesa has an exclusive right for five (5) consecutive one (1) year periods to sell our Prana products in certain cities in the state of California. In consideration for the exclusive license granted to Advesa under the agreement, Advesa is obligated to pay us a royalty on all <i>Prana </i>products sold by Advesa equal to the sale price of the <i>Prana </i>products, minus the cost of goods sold (computed without regard to depreciation, amortization, other non-cash items or allocation of overhead, general and administrative expenses or similar items) (the &#147;<i>Prana </i>Royalty&#148;). In addition, Advesa pays us a management fee of five percent (5%) of all Advesa gross revenue minus the <i>Prana </i>Royalty. We recognize revenue on all <i>Prana</i> sales consistent with the criteria described above for all sales in accordance with ASC 605, <i>Revenue Recognition.</i></p> <p style="margin: 0px; text-align: justify"></p> <p style="margin: 0px; text-align: justify"><b><i>Cost of Revenues </i></b>&#150; Our policy is to recognize cost of revenues in the same manner as, and in conjunction with, revenue recognition. Our cost of revenues includes the costs directly attributable to revenue recognized and includes expenses related to the production, packaging and labeling of our Prana medicinal products and personnel-related costs, fees for third-party services, travel and other consulting costs related to our advisory services.</p> <p style="margin: 0px; text-align: justify"><b><i>Cost of Revenues </i></b>&#150; Our policy is to recognize cost of revenues in the same manner as, and in conjunction with, revenue recognition. Our cost of revenues includes the costs directly attributable to revenue recognized and includes expenses related to the production, packaging and labeling of our Prana medicinals products and personnel-related costs, fees for third-party services, travel and other consulting costs related to our advisory services.</p> <p style="margin: 0px"><br /></p> <p style="margin: 0px"></p> <p style="margin: 0px; text-align: justify"><b><i>Research and Development Expenses - </i></b>Research and development (&#147;R&#38;D&#148;) costs are charged to expense as incurred. Our R&#38;D expenses include, but are not limited to, consulting service fees and materials and supplies used in the development of our proprietary products and services.</p> <p style="margin: 0px; text-align: justify"><b><i>Research and Development Expenses - </i></b>Research and development (&#147;R&#38;D&#148;) costs are charged to expense as incurred. Our R&#38;D expenses include, but are not limited to, consulting service fees and materials and supplies used in the development of our proprietary products and services.</p> <p style="margin: 0px; text-align: justify"><b><i>General and Administrative Expenses -</i></b> General and administrative expenses consist primarily of personnel-related costs, fees for professional and consulting services, travel costs, rent, bad debt expense, general corporate costs, and other costs of administration such as human resources, finance and administrative roles.</p> <p style="margin: 0px; text-align: justify"><b><i>General and Administrative Expenses -</i></b> General and administrative expenses consist primarily of personnel-related costs, fees for professional and consulting services, travel costs, rent, bad debt expense, general corporate costs, and other costs of administration such as human resources, finance and administrative roles.</p> <p style="margin: 0px; text-align: justify"><b><i>Stock-Based Compensation</i></b> &#150; We periodically issue shares of our common stock to non-employees in non-capital raising transactions for fees and services. We account for stock issued to non-employees in accordance with ASC 505, <i>Equity</i>, whereas the value of the stock compensation is based upon the measurement date as determined at either (a) the date at which a performance commitment is reached, or (b) at the date at which the necessary performance to earn the equity instruments is complete.</p> <p style="margin: 0px; text-align: justify"><br /></p> <p style="margin: 0px; text-align: justify">We account for stock option grants issued and vesting to employees based on ASC 718, <i>Compensation &#150; Stock Compensation</i>, whereas the award is measured at its fair value at the date of grant and is amortized ratably over the vesting period. Accounting for stock-based compensation to employees requires the measurement and recognition of compensation expense for all share-based payment awards made to employees based on estimated fair values. We estimate the fair value of all stock option awards on the date of grant using the Black-Scholes-Merton pricing model, which is affected by our stock price, as well as assumptions regarding a number of complex and subjective variables. These variables include our expected stock price volatility over the term of the awards, actual and projected employee option exercise behaviors, risk free interest rates and expected dividends. We also estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from our estimates. </p> <p style="margin: 0px; text-align: justify"><b><i>Stock-Based Compensation</i></b> &#150; We periodically issue shares of our common stock to non-employees in non-capital raising transactions for fees and services. We account for stock issued to non-employees in accordance with ASC 505, <i>Equity</i>, whereas the value of the stock compensation is based upon the measurement date as determined at either (a) the date at which a performance commitment is reached, or (b) at the date at which the necessary performance to earn the equity instruments is complete.</p> <p style="margin: 0px; text-align: justify"><br /></p> <p style="margin: 0px; text-align: justify">We account for stock option grants issued and vesting to employees based on ASC 718, <i>Compensation &#150; Stock Compensation</i>, whereas the award is measured at its fair value at the date of grant and is amortized ratably over the vesting period. Accounting for stock-based compensation to employees requires the measurement and recognition of compensation expense for all share-based payment awards made to employees based on estimated fair values. We estimate the fair value of all stock option awards on the date of grant using the Black-Scholes-Merton pricing model, which is affected by our stock price, as well as assumptions regarding a number of complex and subjective variables. These variables include our expected stock price volatility over the term of the awards, actual and projected employee option exercise behaviors, risk free interest rates and expected dividends. We also estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from our estimates. </p> <p style="margin: 0px"></p> <p style="margin: 0px; text-align: justify"><b><i>Income Taxes</i></b> - Income taxes are recorded using the asset and liability method. Under the asset and liability method, tax assets and liabilities are recognized for the tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using the enacted tax rates expected to apply when the asset is realized, or the liability settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that enactment occurs. To the extent that we do not consider it more likely than not that a future tax asset will be recovered, we will provide a valuation allowance against the excess.</p> <p style="margin: 0px; text-align: justify">&#160;</p> <p style="margin: 0px; text-align: justify">We follow the provisions of ASC 740, <i>Income Taxes</i>. Because of the ASC 740, we make a comprehensive review of our portfolio of tax positions in accordance with recognition standards established by ASC 740. As a result of the implementation of ASC 740, we recognized no material adjustments to liabilities or stockholders&#146; deficit.</p> <p style="margin: 0px"><br /></p> <p style="margin: 0px; text-align: justify">When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in our consolidated financial statements in the period during which, based on all available evidence, we believe it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.</p> <p style="margin: 0px; text-align: justify">&#160;</p> <p style="margin: 0px; text-align: justify">Interest and penalties associated with unrecognized tax benefits, if any, are classified as interest expense and penalties and are included in selling, general and administrative expenses in our consolidated statements of operations.</p> <p style="margin: 0px"><br /></p> <p style="margin: 0px; text-align: justify"><font style="background-color: #FFFFFF">On December&#160;22, 2017, the U.S. Tax Cuts and Jobs Act was enacted. U.S. tax reform introduced many changes, including lowering the U.S. corporate tax rate to 21 percent, changes in incentives, provisions to prevent U.S. base erosion and significant changes in the taxation of international income, including provisions which allow for the repatriation of foreign earnings without U.S. tax. The enactment of U.S. tax reform had no impact on our income taxes for the year ended year-ended December&#160;31, 2017. </font></p> <p style="margin: 0px; text-align: justify"><b><i>Income Taxes</i></b> - Income taxes are recorded using the asset and liability method. Under the asset and liability method, tax assets and liabilities are recognized for the tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using the enacted tax rates expected to apply when the asset is realized, or the liability settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that enactment occurs. To the extent that we do not consider it more likely than not that a future tax asset will be recovered, we will provide a valuation allowance against the excess.</p> <p style="margin: 0px; text-align: justify">&#160;</p> <p style="margin: 0px; text-align: justify">We follow the provisions of ASC 740, <i>Income Taxes</i>. As a result of the ASC 740, we make a comprehensive review of our portfolio of tax positions in accordance with recognition standards established by ASC 740. 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Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. 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padding-left: 8px; text-indent: -8px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 4.66px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 4.66px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 65.2px"><p style="margin: 0px; text-align: right">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 14.26px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 4.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 4.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 65.33px"><p style="margin: 0px; text-align: right">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 13.06px"><p style="margin: 0px">&#160;</p> </td></tr> </table> <p style="margin: 0px"><br /></p> <p style="margin: 0px"><b>Percentage of Accounts Receivable:</b></p> <p style="margin: 0px"><br /></p> <table cellpadding="0" cellspacing="0" style="margin-top: 0px; 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padding: 0px">&#160;</p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 97.93px"><p style="margin: 0px; text-align: center">$116,597</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 18.93px"><p style="margin: 0px; padding: 0px">&#160;</p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 85.13px"><p style="margin: 0px; text-align: center">$90,000</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 18px"><p style="margin: 0px; padding: 0px">&#160;</p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 83.26px"><p style="margin: 0px; text-align: center">$67,500</p></td></tr></table> <p style="margin: 0px">Amounts due from related parties consist of:</p> <p style="margin: 0px; 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background-color: #CCFFCC; border-top: #000000 1px solid; vertical-align: bottom; width: 7px"><p style="margin: 0px">$</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #000000 1px solid; vertical-align: bottom; width: 68.13px"><p style="margin: 0px; text-align: right">21,775</p> </td></tr> <tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px">Cannabinoid Research &#38; Development, Limited</p> </td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 7px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 68.53px"><p style="margin: 0px; text-align: right">&#151;</p> </td><td style="margin-top: 0px; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 7px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 7px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; 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background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">$</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">&#151;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 7.8px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">$</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">52,596</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.33px"><p style="margin: 0px">&#160;</p> </td></tr> <tr><td style="margin-top: 0px; background-color: #FFFFFF"><p style="margin: 0px; text-align: justify">Net assets</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.53px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 67.06px"><p style="margin: 0px; text-align: right">522,761</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.6px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.6px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">71,873</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 7.8px"><p style="margin: 0px; padding: 0px">&#160;</p></td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">450,888</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.33px"><p style="margin: 0px">&#160;</p> </td></tr> <tr><td style="margin-top: 0px; background-color: #CCFFCC"><p style="margin: 0px; text-align: justify">Goodwill</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.53px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 67.06px"><p style="margin: 0px; text-align: right">4,495,143</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 6.6px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.6px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">(71,873</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 7.8px"><p style="margin: 0px">)&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">4,567,016</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 6.33px"><p style="margin: 0px">&#160;</p> </td></tr> <tr><td style="margin-top: 0px; background-color: #FFFFFF"><p style="margin: 0px; padding-left: 24px; text-indent: -8px">Total</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.53px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">$</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; border-bottom: #000000 3px double; vertical-align: bottom; width: 67.06px"><p style="margin: 0px; text-align: right">5,070,500</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 6.6px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.6px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">$</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; border-bottom: #000000 3px double; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">&#151;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 7.8px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">$</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; border-bottom: #000000 3px double; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">5,070,500</p> </td></tr></table> <p style="margin: 0px"><font style="background-color: #FFFFFF">Our deferred revenue consists of:</font></p> <p style="margin: 0px"><br /></p> <table cellpadding="0" cellspacing="0" style="margin-top: 0px; font-size: 10pt; width: 100%"><tr style="height: 0px; font-size: 0"><td /><td style="width: 6.8px" /><td style="width: 6.93px" /><td style="width: 67.8px" /><td style="width: 6.86px" /><td style="width: 6.86px" /><td style="width: 6.86px" /><td style="width: 73.66px" /><td style="width: 4.46px" /></tr> <tr><td style="margin-top: 0px; vertical-align: top"><p style="margin: 0px; padding: 0px">&#160;</p></td><td style="margin-top: 0px; vertical-align: bottom; width: 6.8px"><p style="margin: 0px; padding: 0px">&#160;</p></td><td colspan="2" style="margin-top: 0px; vertical-align: top; width: 74.73px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>March 31,</b></p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.86px"><p style="margin: 0px; padding: 0px; font-size: 8pt">&#160;</p></td><td style="margin-top: 0px; vertical-align: bottom; width: 6.86px"><p style="margin: 0px; padding: 0px; font-size: 8pt">&#160;</p></td><td colspan="2" style="margin-top: 0px; vertical-align: top; width: 80.53px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>December 31,</b></p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 4.46px"><p style="margin: 0px; padding: 0px; font-size: 8pt">&#160;</p></td></tr> <tr><td style="margin-top: 0px; vertical-align: top"><p style="margin: 0px; padding-left: 8px; text-indent: -8px; font-size: 8pt">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.8px"><p style="margin: 0px; font-size: 8pt">&#160;</p> </td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: top; width: 74.73px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>2018</b></p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.86px"><p style="margin: 0px; font-size: 8pt">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.86px"><p style="margin: 0px; font-size: 8pt">&#160;</p> </td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: top; width: 80.53px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>2017</b></p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 4.46px"><p style="margin: 0px; font-size: 8pt">&#160;</p> </td></tr> <tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: top"><p style="margin: 0px; padding-left: 8px; text-indent: -8px">Deferred revenue &#150; WeedMD</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.8px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.93px"><p style="margin: 0px">$</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 67.8px"><p style="margin: 0px; text-align: right">158,750</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.86px"><p style="margin: 0px; padding: 0px">&#160;</p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.86px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.86px"><p style="margin: 0px">$</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 73.66px"><p style="margin: 0px; text-align: right">203,750</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 4.46px"><p style="margin: 0px">&#160;</p> </td></tr> <tr><td style="margin-top: 0px; vertical-align: top"><p style="margin: 0px; padding-left: 8px; text-indent: -8px">Less &#150; current portion</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.8px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 6.93px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 67.8px"><p style="margin: 0px; text-align: right">(158,750</p> </td><td style="margin-top: 0px; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 6.86px"><p style="margin: 0px">)</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.86px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 6.86px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 73.66px"><p style="margin: 0px; text-align: right">(180,000</p> </td><td style="margin-top: 0px; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 4.46px"><p style="margin: 0px">)</p> </td></tr> <tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: top"><p style="margin: 0px; padding-left: 8px; text-indent: -8px">Deferred revenue, net of current portion</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.8px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.93px"><p style="margin: 0px">$</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 67.8px"><p style="margin: 0px; text-align: right">&#151;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 6.86px"><p style="margin: 0px; padding: 0px">&#160;</p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.86px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.86px"><p style="margin: 0px">$</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 73.66px"><p style="margin: 0px; text-align: right">23,750</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 4.46px"><p style="margin: 0px">&#160;</p> </td></tr> </table> <p style="margin: 0px"><font style="background-color: #FFFFFF">Our deferred revenue consists of:</font></p> <p style="line-height: 8pt; margin: 0px"><br /></p> <table cellpadding="0" cellspacing="0" style="margin-top: 0px; font-size: 10pt; width: 100%"><tr style="height: 0px; font-size: 0"><td /><td style="width: 6.73px" /><td style="width: 6.73px" /><td style="width: 67.2px" /><td style="width: 6.73px" /><td style="width: 6.73px" /><td style="width: 6.73px" /><td style="width: 67.2px" /><td style="width: 6.73px" /></tr> <tr><td style="margin-top: 0px; vertical-align: top"><p style="margin: 0px; padding-left: 8px; text-indent: -8px; font-size: 8pt">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px; font-size: 8pt">&#160;</p> </td><td colspan="6" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: top; width: 161.33px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>December 31,</b></p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px; font-size: 8pt">&#160;</p> </td></tr> <tr><td style="margin-top: 0px; vertical-align: top"><p style="margin: 0px; padding-left: 8px; text-indent: -8px; font-size: 8pt">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px; font-size: 8pt">&#160;</p> </td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: top; width: 73.93px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>2017</b></p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px; font-size: 8pt">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px; font-size: 8pt">&#160;</p> </td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: top; width: 73.93px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>2016</b></p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px; font-size: 8pt">&#160;</p> </td></tr> <tr><td style="margin-top: 0px; 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vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">383,750</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td></tr> <tr><td style="margin-top: 0px; vertical-align: top"><p style="margin: 0px; padding-left: 8px; text-indent: -8px">Less &#150; current portion</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">(180,000</p> </td><td style="margin-top: 0px; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">)</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">(180,000</p> </td><td style="margin-top: 0px; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">)</p> </td></tr> <tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: top"><p style="margin: 0px; padding-left: 8px; text-indent: -8px">Deferred revenue, net of current portion</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">$</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">23,750</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 6.73px"><p style="margin: 0px; padding: 0px">&#160;</p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">$</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">203,750</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td></tr> </table> <p style="margin: 0px; text-align: justify"><font style="background-color: #FFFFFF">Our accrued expenses consist of:</font></p> <p style="margin: 0px; text-align: justify"><br /></p> <table cellpadding="0" cellspacing="0" style="margin-top: 0px; font-size: 10pt; width: 100%"><tr style="height: 0px; font-size: 0"><td /><td style="width: 6.73px" /><td style="width: 6.73px" /><td style="width: 67.2px" /><td style="width: 6.73px" /><td style="width: 6.73px" /><td style="width: 6.73px" /><td style="width: 67.2px" /><td style="width: 6.73px" /></tr> <tr><td style="margin-top: 0px; vertical-align: top"><p style="margin: 0px; padding-left: 8px; text-indent: -8px; font-size: 8pt">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px; font-size: 8pt">&#160;</p> </td><td colspan="6" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 161.33px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>December 31,</b></p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px; font-size: 8pt">&#160;</p> </td></tr> <tr><td style="margin-top: 0px; vertical-align: top"><p style="margin: 0px; padding-left: 8px; text-indent: -8px; font-size: 8pt">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px; font-size: 8pt">&#160;</p> </td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 73.93px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>2017</b></p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px; font-size: 8pt">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px; font-size: 8pt">&#160;</p> </td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 73.93px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>2016</b></p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px; font-size: 8pt">&#160;</p> </td></tr> <tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: top"><p style="margin: 0px; padding-left: 8px; text-indent: -8px">Accrued consulting fees</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">$</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">&#151;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">$</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">45,000</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td></tr> <tr><td style="margin-top: 0px; vertical-align: top"><p style="margin: 0px; padding-left: 8px; text-indent: -8px">Accrued wages and related expenses</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">10,184</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">&#151;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td></tr> <tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: top"><p style="margin: 0px; padding-left: 8px; text-indent: -8px">Accrued interest expense</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">&#151;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">10,264</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td></tr> <tr><td style="margin-top: 0px; vertical-align: top"><p style="margin: 0px; padding-left: 8px; text-indent: -8px">Total accrued expenses</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; border-top: #000000 1px solid; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">$</p> </td><td style="margin-top: 0px; border-top: #000000 1px solid; border-bottom: #000000 3px double; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">10,184</p> </td><td style="margin-top: 0px; border-top: #FFFFFF 1px solid; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; border-top: #000000 1px solid; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">$</p> </td><td style="margin-top: 0px; border-top: #000000 1px solid; border-bottom: #000000 3px double; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">55,264</p> </td><td style="margin-top: 0px; border-top: #FFFFFF 1px solid; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td></tr> </table> <p style="margin: 0px; text-align: justify">The following table summarizes our convertible promissory notes outstanding as of December 31, 2017 and 2016:</p> <p style="line-height: 8pt; 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padding: 0px">&#160;</p></td><td style="margin-top: 0px; vertical-align: bottom; width: 6.13px"><p style="margin: 0px; padding: 0px">&#160;</p></td><td style="margin-top: 0px; vertical-align: bottom; width: 81.4px"><p style="margin: 0px; padding: 0px">&#160;</p></td><td style="margin-top: 0px; vertical-align: bottom; width: 6.13px"><p style="margin: 0px; padding: 0px">&#160;</p></td><td style="margin-top: 0px; vertical-align: bottom; width: 81.46px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Maturity</b></p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.2px"><p style="margin: 0px; padding: 0px; font-size: 8pt">&#160;</p></td><td colspan="2" style="margin-top: 0px; vertical-align: bottom; width: 72.86px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Interest</b></p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 11.13px"><p style="margin: 0px; padding: 0px; font-size: 8pt">&#160;</p></td><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Base</b></p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.33px"><p style="margin: 0px; padding: 0px; font-size: 8pt">&#160;</p></td><td colspan="6" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 145.33px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>December 31,</b></p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 4.46px"><p style="margin: 0px; padding: 0px; font-size: 8pt">&#160;</p></td></tr> <tr><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 81.4px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Issue Date</b></p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.13px"><p style="margin: 0px; padding: 0px; font-size: 8pt">&#160;</p></td><td style="margin-top: 0px; vertical-align: bottom; width: 81.4px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Holder</b></p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.13px"><p style="margin: 0px; padding: 0px; font-size: 8pt">&#160;</p></td><td style="margin-top: 0px; vertical-align: bottom; width: 81.4px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Security</b></p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.13px"><p style="margin: 0px; padding: 0px; font-size: 8pt">&#160;</p></td><td style="margin-top: 0px; vertical-align: bottom; width: 81.46px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Date</b></p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.2px"><p style="margin: 0px; padding: 0px; font-size: 8pt">&#160;</p></td><td colspan="2" style="margin-top: 0px; vertical-align: bottom; width: 72.86px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Rate</b></p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 11.13px"><p style="margin: 0px; padding: 0px; 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text-align: center">5/10/2017</p> </td><td style="margin-top: 0px; vertical-align: top; width: 6.2px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: top; width: 6.2px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: top; width: 66.66px"><p style="margin: 0px; text-align: right">12</p> </td><td style="margin-top: 0px; vertical-align: top; width: 11.13px"><p style="margin: 0px">%</p> </td><td style="margin-top: 0px; vertical-align: top"><p style="margin: 0px; text-align: center">$0.20 during first 180 days; 45% of lowest closing price thereafter</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.33px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 66.4px"><p style="margin: 0px; text-align: right">&#151;</p> </td><td style="margin-top: 0px; vertical-align: bottom; 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vertical-align: bottom; width: 6.86px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #000000 1px solid; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.86px"><p style="margin: 0px">$</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #000000 1px solid; border-bottom: #000000 3px double; vertical-align: bottom; width: 56.86px"><p style="margin: 0px; text-align: right">57,500</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #FFFFFF 1px solid; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 6.86px"><p style="margin: 0px">&#160;</p> </td></tr> </table> <p style="line-height: 11pt; margin: 0px; text-align: justify">We calculated the fair value of each option to be approximately $0.91 per option utilizing the Black Scholes option pricing model and the following range of assumptions on the date of valuation:</p> <p style="line-height: 10pt; margin: 0px"><br /></p> <table cellpadding="0" cellspacing="0" style="margin-top: 0px; font-size: 10pt; width: 100%"><tr style="height: 0px; font-size: 0"><td /><td style="width: 3.6px" /><td style="width: 12.93px" /><td style="width: 32.26px" /><td style="width: 11.93px" /></tr> <tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="line-height: 11pt; margin: 0px">Stock price</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 3.6px"><p style="line-height: 11pt; margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 12.93px"><p style="line-height: 11pt; margin: 0px">$</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 32.26px"><p style="line-height: 11pt; margin: 0px; text-align: right">1.05</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 11.93px"><p style="line-height: 11pt; margin: 0px">&#160;</p> </td></tr> <tr><td style="margin-top: 0px; vertical-align: bottom"><p style="line-height: 11pt; margin: 0px">Exercise price</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 3.6px"><p style="line-height: 11pt; margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 12.93px"><p style="line-height: 11pt; margin: 0px">$</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 32.26px"><p style="line-height: 11pt; margin: 0px; text-align: right">1.08</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 11.93px"><p style="line-height: 11pt; margin: 0px">&#160;</p> </td></tr> <tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="line-height: 11pt; margin: 0px">Risk free interest rate</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 3.6px"><p style="line-height: 11pt; margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 12.93px"><p style="line-height: 11pt; margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 32.26px"><p style="line-height: 11pt; margin: 0px; text-align: right">2.8</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 11.93px"><p style="line-height: 11pt; margin: 0px">%</p> </td></tr> <tr><td style="margin-top: 0px; vertical-align: bottom"><p style="line-height: 11pt; margin: 0px">Expected term (years)</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 3.6px"><p style="line-height: 11pt; margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 12.93px"><p style="line-height: 11pt; margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 32.26px"><p style="line-height: 11pt; margin: 0px; text-align: right">5-10</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 11.93px"><p style="line-height: 11pt; margin: 0px">&#160;</p> </td></tr> <tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="line-height: 11pt; margin: 0px">Expected volatility</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 3.6px"><p style="line-height: 11pt; margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 12.93px"><p style="line-height: 11pt; margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 32.26px"><p style="line-height: 11pt; margin: 0px; text-align: right">197</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 11.93px"><p style="line-height: 11pt; margin: 0px">%</p> </td></tr> <tr><td style="margin-top: 0px; vertical-align: bottom"><p style="line-height: 11pt; margin: 0px">Expected dividends</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 3.6px"><p style="line-height: 11pt; margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 12.93px"><p style="line-height: 11pt; margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 32.26px"><p style="line-height: 11pt; margin: 0px; text-align: right">0</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 11.93px"><p style="line-height: 11pt; margin: 0px">%</p> </td></tr> </table> <p style="line-height: 8pt; margin: 0px"></p> <table cellpadding="0" cellspacing="0" style="margin-top: 0px; font-size: 10pt; width: 100%"><tr style="height: 0px; font-size: 0"><td /><td style="width: 6.73px" /><td style="width: 6.73px" /><td style="width: 73.4px" /><td style="width: 11.13px" /></tr> <tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Stock price</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">$</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 73.4px"><p style="margin: 0px; text-align: right">0.16 - $2.18</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 11.13px"><p style="margin: 0px">&#160;</p> </td></tr> <tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px">Exercise price</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">$</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 73.4px"><p style="margin: 0px; text-align: right">0.18</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 11.13px"><p style="margin: 0px">&#160;</p> </td></tr> <tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Risk free interest rate</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 73.4px"><p style="margin: 0px; text-align: right">1.01% - 1.37</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 11.13px"><p style="margin: 0px">%</p> </td></tr> <tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px">Expected term (years)</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 73.4px"><p style="margin: 0px; text-align: right">5</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 11.13px"><p style="margin: 0px">&#160;</p> </td></tr> <tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Expected volatility</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 73.4px"><p style="margin: 0px; text-align: right">322% - 504</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 11.13px"><p style="margin: 0px">%</p> </td></tr> <tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px">Expected dividends</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 73.4px"><p style="margin: 0px; text-align: right">0</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 11.13px"><p style="margin: 0px">%</p> </td></tr> </table> <p style="margin: 0px; text-align: justify">We calculated the fair value of each option to be approximately $0.70 per option utilizing the Black Scholes option pricing model and the following assumptions on the date of valuation:</p> <p style="margin: 0px"><br /></p> <table cellpadding="0" cellspacing="0" style="margin-top: 0px; font-size: 10pt; width: 100%"><tr style="height: 0px; font-size: 0"><td /><td style="width: 6.73px" /><td style="width: 6.73px" /><td style="width: 73.4px" /><td style="width: 11.13px" /></tr> <tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Stock price</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">$</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 73.4px"><p style="margin: 0px; text-align: right">0.70</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 11.13px"><p style="margin: 0px">&#160;</p> </td></tr> <tr><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom"><p style="margin: 0px">Exercise price</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">$</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 73.4px"><p style="margin: 0px; text-align: right">0.70</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 11.13px"><p style="margin: 0px">&#160;</p> </td></tr> <tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Risk free interest rate</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 73.4px"><p style="margin: 0px; text-align: right">1.98</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 11.13px"><p style="margin: 0px">%</p> </td></tr> <tr><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom"><p style="margin: 0px">Expected term (years)</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 73.4px"><p style="margin: 0px; text-align: right">10.0</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 11.13px"><p style="margin: 0px">&#160;</p> </td></tr> <tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Expected volatility</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 73.4px"><p style="margin: 0px; text-align: right">173</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 11.13px"><p style="margin: 0px">%</p> </td></tr> <tr><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom"><p style="margin: 0px">Expected dividends</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 73.4px"><p style="margin: 0px; text-align: right">0</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 11.13px"><p style="margin: 0px">%</p> </td></tr> </table> <p style="margin: 0px; text-align: justify"></p> <p style="line-height: 8pt; margin: 0px"><br /></p> <table cellpadding="0" cellspacing="0" style="margin-top: 0px; font-size: 10pt; width: 100%"><tr style="height: 0px; font-size: 0"><td style="width: 6.73px" /><td style="width: 6.73px" /><td style="width: 73.4px" /><td style="width: 11.13px" /></tr> <tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Stock price</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">$</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 73.4px"><p style="margin: 0px; text-align: right">0.16 - $2.18</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 11.13px"><p style="margin: 0px">&#160;</p> </td></tr> <tr><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom"><p style="margin: 0px">Exercise price</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">$</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 73.4px"><p style="margin: 0px; text-align: right">0.18</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 11.13px"><p style="margin: 0px">&#160;</p> </td></tr> <tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Risk free interest rate</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 73.4px"><p style="margin: 0px; text-align: right">1.01% - 1.37</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 11.13px"><p style="margin: 0px">%</p> </td></tr> <tr><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom"><p style="margin: 0px">Expected term (years)</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 73.4px"><p style="margin: 0px; text-align: right">5</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 11.13px"><p style="margin: 0px">&#160;</p> </td></tr> <tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Expected volatility</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 73.4px"><p style="margin: 0px; text-align: right">322% - 504</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 11.13px"><p style="margin: 0px">%</p> </td></tr> <tr><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom"><p style="margin: 0px">Expected dividends</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 73.4px"><p style="margin: 0px; text-align: right">0</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 11.13px"><p style="margin: 0px">%</p> </td></tr> </table> <p style="margin: 0px; text-align: justify">We calculated the fair value of each option to be approximately $0.20 per option utilizing the Black Scholes option pricing model and the following assumptions on the date of valuation:</p> <p style="margin: 0px; text-align: justify"><br /></p> <table cellpadding="0" cellspacing="0" style="margin-top: 0px; font-size: 10pt; width: 100%"><tr style="height: 0px; font-size: 0"><td /><td style="width: 6.73px" /><td style="width: 6.73px" /><td style="width: 73.4px" /><td style="width: 11.13px" /></tr> <tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Stock price</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">$</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 73.4px"><p style="margin: 0px; text-align: right">0.20</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 11.13px"><p style="margin: 0px">&#160;</p> </td></tr> <tr><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom"><p style="margin: 0px">Exercise price</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">$</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 73.4px"><p style="margin: 0px; text-align: right">0.20</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 11.13px"><p style="margin: 0px">&#160;</p> </td></tr> <tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Risk free interest rate</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 73.4px"><p style="margin: 0px; text-align: right">1.98</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 11.13px"><p style="margin: 0px">%</p> </td></tr> <tr><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom"><p style="margin: 0px">Expected term (years)</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 73.4px"><p style="margin: 0px; text-align: right">10.0</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 11.13px"><p style="margin: 0px">&#160;</p> </td></tr> <tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Expected volatility</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 73.4px"><p style="margin: 0px; text-align: right">173</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; 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margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="line-height: 11pt; margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 67.2px"><p style="line-height: 11pt; margin: 0px; text-align: right">&#151;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px; padding: 0px">&#160;</p></td></tr> <tr><td style="margin-top: 0px; background-color: #CCFFCC"><p style="line-height: 11pt; margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="line-height: 11pt; margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #000000 1px solid; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.73px"><p style="line-height: 11pt; margin: 0px">$</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #000000 1px solid; border-bottom: #000000 3px double; 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Shares issued to acquire Prana Therapeutics, Inc., shares Exercise of options and warrants Exercise of options and warrants, shares Non-Controlling Interests - Cannabinoid Research & Development Limited. Non-Controlling Interests - Cannabinoid Research & Development Limited., shares Non-Controlling Interest - Prana Therapeutics, Inc. 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Issuance of stock options in exchange for accrued wages payable to officers and directors Common stock issued upon exercise of cashless warrants Reduction of convertible notes payable due to the conversion by Tangiers Investment Group Issuance of common stock upon conversion of debt and loss on extinguishment of debt Reduction of three convertible notes payable due to the conversion by Slainte Ventures Issuance of common stock upon conversion of Slainte Ventures note payable Reduction of note payable due to the conversion by Slainte Ventures Issuance of common stock upon conversion of Slainte Ventures note payable Reduction of notes payable in exchange for 1,100,000 shares of common stock of WeedMD Notes payable in exchange for shares of common stock Organization, Consolidation and Presentation of Financial Statements [Abstract] BUSINESS ORGANIZATION AND NATURE OF OPERATIONS Accounting Policies [Abstract] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES GOING CONCERN [Abstract] GOING CONCERN Receivables [Abstract] RECEIVABLE FROM RELATED PARTY Leases [Abstract] OPERATING LEASES Inventory Disclosure [Abstract] INVENTORY Business Combinations [Abstract] PUCHASE OF PRANA THERAPUETICS, INC. 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Net loss carry forward Valuation allowance Net deferred tax assets Reconciliation of income taxes computed at statutory rate Tax benefit at statutory rate Valuation allowance Income tax expense (benefit) Long-term Purchase Commitment [Table] Long-term Purchase Commitment [Line Items] Agreement, term Warrant term Initial payment Shares issued for agreement Common stock, price per share Expenses recognized Accrued expenses Cash payment obligations Total commitment Costs recognized Line of Credit agreement Minimum amount draw down at one time Percentage of number of common shares Maximum amount draw down at one time Percentage of trading price Commitment fee Bear Note interest per year Note payable Net discount Debt conversion price Payment made for clinical trial agreement Total commitment upon execution of research agreement Commitment owed in February 2018 Commitment owed in June 2018 Total commitment amount owed Lease term Lease Space Lease Expires Monthly rental rates 2018 2019 2020 Professional fees Fair value of shares of common stock issued to consultant Fair value of warrants issued to consultant Total contract expenses Subsequent Event [Table] Subsequent Event [Line Items] Debt instrument face amount Debt interest rate Proceeds from debt Net carrying amount after accumulated amortization as of the balance sheet date of the costs pertaining to the exclusive legal rights granted to the owner of the patent to exploit an invention or a process for a period of time specified by law. Such costs may have been expended to directly apply and receive patent rights, or to acquire such rights. Convertible notes payable, debt discount. Represents the amount of revenue from product sales during the reporting period. Revenue earned during the period relating to consideration received from another party for the right to use, but not own, certain of the entity's intangible assets. Licensing arrangements include, but are not limited to, rights to use a patent, copyright, technology, manufacturing process, software or trademark. Licensing fees are generally, but not always, fixed as to amount and not dependent upon the revenue generated by the licensing party. An entity may receive licensing fees for licenses that also generate royalty payments to the entity. Represents the amount of revenue from licensing fees from affiliates during the reporting period. Represents the amount of revenue from non-affiliates during the reporting period. Represents the amount of revenue from the entity that is affiliated with the reporting entity by means of direct or indirect ownership. Costs associated with revenues arising from an entity that is an non-affiliate of the reporting entity. Amortization of debt discount. Loss on settlement of dispute. Gain loss on issuance of common stock. Value of shares of preferred stock issued attributable to transactions. Number of shares of stock issued attributable to transactions classified as preferred stock. Consolidation of Cannabinoid Research &amp; Development Limited as a 50% variable interest entity. Consolidation of Cannabinoid Research &amp; Development Limited as a 50% variable interest entity, shares. The fair value of intangible asset costs included in accounts payable in noncash investing or financing activities. Shares issued for repurchase of warrant. Shares issued for repurchase of warrant, shares. Cancellation of warrant. Cancellation of warrant, shares. Shares issued for professional and consulting services. Shares issued for professional and consulting services, shares Shares issued in settlement of disputes. Shares issued in settlement of disputes, shares. Shares issued upon draws under our equity line of credit. Shares issued upon draws under our equity line of credit, shares. Exercise of options and warrants. Exercise of options and warrants, shares. Non-Controlling Interests - Cannabinoid Research &amp; Development Limited., value. Non-Controlling Interests - Cannabinoid Research &amp; Development Limited., shares Non-Controlling Interest - Prana Therapeutics, Inc.. Non-Controlling Interest &#8211; Prana Therapeutics, Inc., shares. The fair value of issuance of convertible note payable for debt issuance costs in noncash investing and financing activities. Loss on extinguishment of debt and repurchase of warrants. Increase in net assets in connection with acquisition of fifty percent owned subsidiary. Loss on settlement of dispute. Abandonment of FoxBarry consulting project and resultant recognition of deferred revenue. Cash portion of settlement of dispute. Common shares issued in the acquisition of Prana Therapeutics, Inc. Issuance of stock options in exchange for accrued wages payable to officers and directors. Common stock issued upon exercise of cashless warrants. The value of convertible notes retired (or transferred to another entity) in noncash investing or financing transactions. Issuance of common stock upon conversion of debt and loss on extinguishment of debt. The fair value of common stock for services in noncash financing activities. Issuance of common stock for prepaid professional fees. The value of common stock issued for conversion of notes payable in noncash financing activities. Reduction of notes payable in exchange for shares of common stock of WeedMD. Sale of common stock. Going Concern Abstract. The entire disclosure for patents. Entire disclosure for prepaid expenses and other current assets. The entire disclosure about loan payables. The entire disclosure for accrued liabilities at the end of the reporting period. Convertible Notes Payable Disclosure [TextBlock] The entire disclosure for notes payable, related parties. Reclassification of Prior Balances. Prepaid Expenses [Text Block] Disclosure of accounting policy for patents. Sales and marketing expenses text block. Tabular disclosure of the significant assumptions used to estimate the fair value of notes payable. Represents the tabular disclosure of unamortized debt discount applicable to the initial borrowing under debt instruments. Represents the tabular disclosure of unamortized debt discount applicable to the noncurrent portion of debt instruments. Represents the tabular disclosure of change in convertible debt instruments during the period. Notes payable to and advance from officers and directors Table Text Block. Represents information pertaining to 2014 Stock Incentive Plan. Common stock issued for warrant outstanding member. Tabular disclosure of the reconciliation using percentage of the reported amount of income tax expense attributable to continuing operations for the year to the amount of income tax expense that would result from applying domestic federal statutory tax rates to pretax income from continuing operations. Tabular disclosure of the reconciliation using dollar amounts of the reported amount of income tax expense attributable to continuing operations for the year to the amount of income tax expense that would result from applying domestic federal statutory tax rates to pretax income from continuing operations. Summary of Consolidated statements of operations expense Prana Therapeutics [Member] Subscription agreement [Member] Amount of payable owed to former officer and director exchanged for assets sold. Total number of common shares previously outstanding, cancelled during period Number of shares of common stock received in exchange for providing future services. PTI [Member] Represents information pertaining to Cannabinoid Research &amp;amp;amp;amp;amp;amp;amp; Development Company Limited ("CRD"), the Jamaican entity. Bad debt expense, included in general and administrative expenses. Colorado Extraction Facility [Member] Leasehold Improvements - Cultivation [Member] Jamaica Cultivation and Extraction Facility [Member] Leasehold Improvements - Laboratory [Member] Golden, Colorado Hemp Laboratory - Equipment [Member] Remote Laboratory Equipment [Member] Equipment and machinery at Weldona extraction facility [Member] Cash less warrants Not Converted To Common Stock [Member] Represents information pertaining to Customer A. Represents information pertaining to Customer B. Represents information pertaining to Customer C. Represents information pertaining to Customer D. Represents information pertaining to Customer E. Represents information pertaining to Customer F. Current assets minus current liabilities. Advesa [Member] Represents information pertaining to Blue River Inc., a related party of the entity. Hemp Laboratory - Golden, Colorado [Member] Lease amount from father of directors and members. Operating lease. Reallocation of Purchase Price[Member] Amount of research and legal fees costs capitalized. Represents information pertaining to design marks and trademarks. The transferred percentage of ownership of common stock or equity participation in the investee accounted for under the equity method of accounting. Initial term of consultancy agreement, in PnYnMnDTnHnMnS' format, for example, 'P1Y5M13D' represents the reported fact of one year, five months, and thirteen days. Amount of initial payment due at signing of the consultancy agreement. Amount of each of the three additional payments pending upon the achievement of certain goals per consultancy agreement. Total amount of the payments per consultancy agreement. Stock issued pending upon achievement of certain goals per consultancy agreement. Project Percentage Of Completion. Installment loan monthly payment. Monthly payments being made to pay off loan in six months. Pay loan off in six month period. WeedMD RX Inc. ("WMD") [Member] Number of warrants received in exchange for providing future services. Represents the fair value of shares of common stock and warrants received in exchange for providing future services. Represents the amount of previously reported deferred or unearned revenue that was recognized per month as revenue during the period. SlainteVentures, LLC [Member] JSJ Investments [Member] Jsj investments inc member. 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Represents the reduction in conversion factor if at any time the average of the three lowest closing bid prices in the specified trading days immediately preceding any date of measurement is below specified price. Represents the percentage of amount required to be payable in cash under debt instrument. Represents the amount of initial borrowing under debt instrument. Represents the number of tranches in which debt instruments can be converted. Represents the tranche amount of debt instrument to be converted. Represents the tranche amount of debt instrument which is conversion eligible. Represents the tranche amount of debt instrument which will be conversion eligible if and when corresponding Investor Notes will be repaid to the reporting entity. Represents the fair value of the first Warrant issued recorded as debt discount under initial borrowing. Represents the portion of fair value of initial borrowing conversion feature recorded as debt discount under initial borrowing. Represents the fair value of the warrants issued which are recorded as debt discount attributable to current portion of debt. Debt discount conversion feature. Aggregate net gain (loss) on origination of derivative instruments recognized in earnings during the period. Represents the aggregate amount of debt discount that was originally recognized at the issuance of the instrument that has yet to be amortized as of balance sheet date under initial borrowing. Represents the amount of noncash expense included in interest expense to amortize debt discount and premium associated with the initial borrowing of debt instruments. Represents the amount of debt discount that was originally recognized at the issuance of the instrument that has yet to be amortized as of balance sheet date under initial borrowing. Represents the amount of remaining borrowing under debt instrument. Represents the amount of debt discount that was originally recognized at the issuance of the instrument that has yet to be amortized as of balance sheet date under remaining borrowing. Represents the fair value of the Warrant issued recorded as debt discount under remaining borrowing. Represents the aggregate amount of debt discount that was originally recognized at the issuance of the instrument that has yet to be amortized as of balance sheet date under remaining borrowing. Represents the fair value of the warrants issued which are recorded as debt discount attributable to noncurrent portion of debt. Represents the amount of noncash expense included in interest expense to amortize debt discount and premium associated noncurrent portion of debt instruments. Represents the amount of debt discount attributable to noncurrent portion of debt that was originally recognized at the issuance of the instrument that has yet to be amortized as of balance sheet date. Represents the fair value of the warrants issued which are recorded as debt discount. Represents the fair value of the conversion feature applicable to accrued interest under debt instrument. Represents the number of warrants repurchased and cancelled during the period. Prepayment premiums. Holding rate of issued and outstanding common stock. Minimum default penalty amount, rate. Additional interest payable. Interest income recognized. Number of Common shares converted. Average closing price of common stock. Accured interest converted in common stock. Conversions rate on issue and outstandng common stock. Prinicipal amount convered by number of shares. Percentage of principal amount increase if company paid anytime. Jsl Investments Inc [Member] Earnie Blackmon [Member] Tony verzura member. Accrued wages payable to officers and directors [Member] Ernest blackmon member. Principal balance increase. Officer and Director [Member] Aggregate intrinsic value of warrants outstanding and exercisable. Class of warrants or rights number of shares rollForward. Cashless issued upon conversion of Slainte note. Represents the number of warrants exercisable. Represents the weighted average remaining contractual term of warrants outstanding. Represents the weighted average remaining contractual term of warrants issued during the period. Represents the weighted average remaining contractual term of warrants exercised during the period. Represents the weighted average remaining contractual term of warrants repurchased and cancelled during the period. Represents the weighted average remaining contractual term of warrants expired during the period. Represents the weighted average remaining contractual term of warrants exercisable. Class of warrants or rights weighted average exercise price rollforward. Represents the weighted average exercise price of warrants outstanding. Represents the weighted average exercise price of warrants issued during the period. Represents the weighted average exercise price of warrants exercised during the period. Represents the weighted average exercise price of warrants repurchased and cancelled during the period. Represents the weighted average exercise price of warrants expired during the period. Represents the weighted average exercise price of warrants exercisable. Stock options Issued. 2014 stock incentive plan member. Vesting through December 31, 2019 [Member] Ruby member. Awarded stock options. Fair value of options. Aggregate intrinsic value of options outstanding and exercisable. Share-based compensation expense for stock options issued to officers and directors. Share-based compensation expense for warrants issued for consulting and other services. Share-based compensation expense for common stock issued for accounts payable and accrued expenses. Share-based compensation expense accrual of shares to be issued for services. Share-based compensation expense for common stock issued for services. Common stock issued upon conversion of debt and loss on extinguishment of debt. Share-based compensation expense for common stock issued for advisory board fees. Share-based compensation expense for common stock issued as compensation to employees. The gross amount of noncash, equity-based employee remuneration, before deductions for amounts included in other line items in the financial statements. Consulting Agreement [Member] Consultancy Agreement [Member] Tangiers Global, LLC [Member] Clinical Trial Agreement [Member] Installment One [Member] Installment Two [Member] Installment Three [Member] Installment Four [Member] Executive Office Lease [Member] Weldona Facility Lease [Member] Initial term of consultancy agreement, in PnYnMnDTnHnMnS' format, for example, 'P1Y5M13D' represents the reported fact of one year, five months, and thirteen days. Amount of initial payment due at signing of the agreement. Shares Issued For [Agreement] Expenses recognized. Represents the amount of accrued expenses under consultancy agreement as of balance sheet date. Represents the amount of cash payment obligation under consultancy agreement as of balance sheet date. Long-term Purchase Commitment, Costs Recognized. Minimum amount draw down at one time. Percentage of number of common shares. Maximum amount draw down at one time. 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Outstanding, Weighted Average Exercise Price Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price Share-based Compensation Arrangements by Share-based Payment Award, Options, Exercises in Period, Weighted Average Exercise Price Share-based Compensation Arrangements by Share-based Payment Award, Options, Expirations in Period, Weighted Average Exercise Price Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Exercise Price ShareBasedCompensationGross Effective Income Tax Rate Reconciliation, Percent Deferred Tax Assets, Valuation Allowance Deferred Tax Assets, Net of Valuation Allowance Consultancy Agreement Accrued Expenses [Default Label] Costs recognized [Default Label] Operating Leases, Future Minimum Payments, Due in Two Years Operating Leases, Future Minimum Payments, Due in Three Years Cost of Goods and Services Sold EX-101.PRE 8 cnab-20180331_pre.xml XBRL PRESENTATION FILE XML 9 R1.htm IDEA: XBRL DOCUMENT v3.8.0.1
Document and Entity Information
3 Months Ended
Mar. 31, 2018
Document And Entity Information  
Entity Registrant Name United Cannabis Corp
Entity Central Index Key 0001436161
Document Type S-1/A
Document Period End Date Mar. 31, 2018
Amendment Flag true
Amendment Description

Updated Financials

Current Fiscal Year End Date --12-31
Is Entity's Reporting Status Current Yes
Entity Filer Category Smaller Reporting Company
XML 10 R2.htm IDEA: XBRL DOCUMENT v3.8.0.1
CONSOLIDATED BALANCE SHEETS - USD ($)
Mar. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Current assets:      
Cash and cash equivalents $ 164,961 $ 825,645 $ 112,621
Inventory 137,141 43,200
Other current assets 18,216 23,028
Accounts receivable, net 34,513 24,484
Due from related parties 14,961 26,775
Total current assets 369,792 891,873 163,880
Construction in process - extraction facilities 110,699 832,697
Cultivation facility and laboratory equipment and office furniture and fixtures, net of accumulated amortization and depreciation of $39,385 and $0.0 at December 31, 2017 and December 31, 2016, respectively 1,333,065 199,821
Granted patents, net of accumulated amortization of $2,679 and $0.0 for December 31, 2017 and 2016, respectively 137,859 139,638
Intangible assets 220,962 170,519 32,273
Equity method investments   88,000
Goodwill 4,838,603 4,838,603
Total assets 7,010,980 7,073,151 284,153
Current liabilities:      
Accounts payable 177,021 371,711 25,048
Accrued expenses 9,209 10,184 55,264
Installment loan payable 32,757 46,667
Current portion of deferred revenue 158,750 180,000 180,000
Accrued wages payable to officers, directors and employees 201,664 310,401 113,703
Notes payable to and advances from officers and directors 341,544 261,348 57,500
Convertible notes payable, net of a $34,543 debt discount   125,547
Total current liabilities 920,945 1,180,311 557,062
Long term liabilities:      
Deferred revenue, net of current portion 23,750 203,750
Total liabilities 920,945 1,204,061 760,812
COMMITMENTS AND CONTINGENCIES - Note 19
STOCKHOLDERS' EQUITY (DEFICIT)      
Preferred stock, 10,000,000 shares authorized; 2,000 Series A shares and none outstanding at December 31, 2017 and December 31, 2016, respectively 2,200 2,200
Common stock, 100,000,000 shares authorized; 62,862,066 and 50,650,994 outstanding at December 31, 2017 and December 31, 2016, respectively 28,669,844 21,186,888 8,885,674
Accumulated deficit (22,476,406) (15,269,845) (9,362,333)
Total equity (deficit) attributable to stockholders of the Company 6,195,638 5,919,243 (476,659)
Non-controlling interest (deficit) (105,603) (50,153)
Total stockholders' equity (deficit) 6,090,035 5,869,090 (476,659)
Total liabilities and stockholders' equity $ 7,010,980 $ 7,073,151 $ 284,153
XML 11 R3.htm IDEA: XBRL DOCUMENT v3.8.0.1
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)
Mar. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Accumulated depreciation $ 91,524 $ 39,385 $ 0
Accumulated amortization $ 4,458 $ 2,679 0
Convertible notes payable, debt discount     $ 34,543
Preferred stock, shares authorized 10,000,000 10,000,000 10,000,000
Preferred stock, shares outstanding   0 0
Common stock, shares authorized 100,000,000 100,000,000 100,000,000
Common stock, shares issued   62,862,066 50,650,994
Common stock, shares outstanding 64,229,926 62,862,066 50,650,994
Series A Preferred Stock [Member]      
Preferred stock, shares issued 2,000 2,000  
Preferred stock, shares outstanding 2,000 2,000  
XML 12 R4.htm IDEA: XBRL DOCUMENT v3.8.0.1
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($)
3 Months Ended 12 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Dec. 31, 2017
Dec. 31, 2016
Revenues:        
Product sales $ 164,212 $ 144,677    
Licensing fees 45,000 45,000    
Licensing fees - affiliate 57,064    
Revenues, non-affiliates     $ 180,000 $ 695,095
Revenues, affiliate     182,323 20,000
Total revenues 266,276 189,677 362,323 715,095
Cost of revenues:        
Cost of revenues (118,942) (121,051) (335,571)
Cost of revenues, affiliate     134,795 7,500
Total cost of revenues     134,795 343,071
Gross profit 147,334 68,626 227,528 372,024
Operating expenses:        
Marketing, advertising and new business development 17,311 53,392 142,094 68,007
Research and development 236,678 45,160 293,968 23,124
Legal, accounting, consulting and public reporting 263,246 240,814 878,257 643,913
General and administrative 6,327,550 248,860 4,101,367 404,002
Total operating expenses 6,844,785 588,226 5,415,686 1,139,046
Loss from operations (6,697,451) (519,600) (5,188,158) (767,022)
Other income (expense):        
Other income and expenses     184,875
Loss on derivative liabilities     (1,894,258)
Interest expense (8,498) (28,809) (61,534) (418,437)
Amortization of debt discount     (267,258)
Loss on extinguishment of debt and repurchase of warrants (267,567) (248,892) (691,904)
Loss on settlement of dispute (122,139)
Loss on issuance of common stock (556,061) (582,881)
Loss before taxes on income (7,262,010) (815,976) (6,203,604) (3,854,004)
Provision for taxes on income
Net Loss (7,262,010) (815,976) (6,203,604) (3,854,004)
Loss attributable to non-controlling interests 55,450 296,092
Net Loss attributable to common shareholders $ (7,206,560) $ (815,976) $ (5,907,512) $ (3,854,004)
Basic and diluted net loss per share: $ (0.11) $ (0.02) $ (0.11) $ (0.08)
Basic and diluted weighted-average common shares outstanding: 63,829,443 50,971,862 54,261,197 46,722,407
XML 13 R5.htm IDEA: XBRL DOCUMENT v3.8.0.1
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY - USD ($)
Preferred Stock [Member]
Common Stock [Member]
Accumulated Deficit [Member]
Non-Controlling Interest [Member]
Total
Beginning balance at Dec. 31, 2015 $ 3,039,448 $ (5,508,329) $ (2,468,881)
Beginning balance, shares at Dec. 31, 2015 44,988,501      
Options issued to officers and directors for accrued wages $ 612,512 612,512
Warrants issued for services 319,419 319,419
Stock options issued for compensation $ 271,097 271,097
Stock options issued for compensation, shares 565,576      
Shares issued for payables and accrued expenses $ 223,484 223,484
Shares issued for payables and accrued expenses, shares 509,549      
Conversion of note to Tangiers $ 473,966 473,966
Conversion of note to Tangiers, shares 2,843,698      
Conversion of notes payable $ 3,845,748   3,845,748
Conversion of notes payable, shares 1,638,731      
Share buy-back with exercise of put option $ 100,000 100,000
Share buy-back with exercise of put option, shares 104,939      
Shares issued for advisory board services        
Shares issued in settlement of disputes        
Net loss (3,854,004) (3,854,004)
Ending balance at Dec. 31, 2016 $ 8,885,674 (9,362,333) (476,659)
Ending balance, shares at Dec. 31, 2016 50,650,994      
Issuance of preferred stock $ 2,200 2,200
Issuance of preferred stock, shares 2,000        
Consolidation of Cannabinoid Research & Development Limited as a 50% variable interest entity (18,872) (18,872)
Consolidation of Cannabinoid Research & Development Limited as a 50% variable interest entity, shares        
Options issued to officers and directors for accrued wages 2,660,159 2,660,159
Warrants issued for services         249,835
Stock options issued for compensation $ 170,233 170,233
Stock options issued for compensation, shares 163,534      
Shares issued for payables and accrued expenses $ 93,002 93,002
Shares issued for payables and accrued expenses, shares 66,000      
Conversion of notes payable $ 381,576 381,576
Conversion of notes payable, shares 379,100      
Shares issued for advisory board services $ 113,336 113,336
Shares issued for advisory board services, shares 111,173      
Shares issued for professional and consulting services $ 249,833 249,833
Shares issued for professional and consulting services, shares 239,700      
Shares issued in settlement of disputes $ 102,139 102,139
Shares issued in settlement of disputes, shares 100,000      
Sale of common stock $ 208,982 208,982
Sale of common stock, shares 271,136      
Shares issued upon draws under our equity line of credit $ 3,228,954 3,228,954
Shares issued upon draws under our equity line of credit, shares 3,714,238      
Shares issued to acquire Prana Therapeutics, Inc. $ 4,870,500 264,811 5,135,311
Shares issued to acquire Prana Therapeutics, Inc., shares 5,730,000      
Exercise of options and warrants $ 222,500 222,500
Exercise of options and warrants, shares 1,436,191      
Non-Controlling Interests - Cannabinoid Research & Development Limited. (291,918) (291,918)
Non-Controlling Interests - Cannabinoid Research & Development Limited., shares        
Non-Controlling Interest - Prana Therapeutics, Inc. (4,174) (4,174)
Non-Controlling Interest - Prana Therapeutics, Inc., shares        
Net loss (5,907,512) (5,907,512)
Ending balance at Dec. 31, 2017 $ 2,200 $ 21,186,888 $ (15,269,845) $ (50,153) 5,869,090
Ending balance, shares at Dec. 31, 2017 2,000 62,862,066      
Net loss         (7,206,560)
Ending balance at Mar. 31, 2018         $ 6,090,035
XML 14 R6.htm IDEA: XBRL DOCUMENT v3.8.0.1
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)
3 Months Ended 12 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Dec. 31, 2017
Dec. 31, 2016
Operating activities:        
Net loss $ (7,262,010) $ (815,976) $ (6,203,604) $ (3,854,004)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:        
Increase (decrease) in provision for losses on accounts receivable     (4,619)
Amortization of debt discount 16,406 30,453 267,258
Non-cash interest expense 9,694    
Depreciation and amortization 53,946 3,239 40,161
Amortization of deferred financing costs     32,400
Loan origination discount     15,500
Share-based compensation 5,488,982 211,967 3,286,565 622,450
Loss on issuance of common stock 556,061 582,881
Loss on extinguishment of debt and repurchase of warrants 267,559    
Increase in net assets in connection with acquisition of fifty percent owned subsidiary (22,666)    
Discount on issuance of shares of common stock     582,881
Loss on settlement of dispute     122,139
Loss on revaluation of derivative liabilities     1,894,258
Loss on extinguishment of debt and repurchase of warrants 267,567 248,892 691,904
Loss on non-marketable equity securities     15,125
Abandonment of consulting project and resultant recognition of deferred revenue     (200,000)
Changes in operating assets and liabilities:        
Accounts receivable (34,513) (33,150) 24,484 33,570
Due from related parties (14,961) 26,775 (18,491)
Inventory (93,941) (43,200)
Prepaid expenses 5,000 56,341
Other current assets 4,811 (23,028)
Accounts payable and accrued expenses (195,663) 101,564 (81,876) 239,935
Deferred revenue (45,000) (45,000) (180,000) (180,000)
Accrued wages payable to officers, directors and employees (108,738) 191,563    
Accrued wages payable to officers and directors     213,698 42,695
Notes payable to and advances from officers and directors     77,384 71,008
Net cash used in operating activities (1,651,026) (109,800) (1,878,276) (274,670)
Investing activities:        
Cash acquired upon acquisition of subsidiary     363,134
Purchase of equipment for and improvements to cultivation facility (463,414) (130,541) (621,731)
Purchase of intangible assets (50,443) (197,164)
Return of deposit     (32,500)
Cash portion of settlement of dispute     (20,000)
Cash in acquisition of fifty percent owned subsidiary (15,079)    
Net cash used in investing activities (513,857) (145,620) (508,261)
Financing activities:        
Proceeds from issuance of common stock - equity financing line 1,380,831    
Proceeds from notes payable to and advances from officers and directors     254,942 50,000
Net proceeds from issuance of convertible debt and warrants     316,478
Proceeds from advances from officers and directors 80,195 178,383    
Proceeds from sale of common stock 57,083 2,682,750
Payments on installment loan (13,910)    
Repayment of convertible debt and notes payable     (31,000) (242,607)
Proceeds from issuance of common shares and exercise of warrants     192,869 145,000
Net cash provided by financing activities 1,504,199 178,383 3,099,561 268,871
Net decrease in cash (660,684) (77,037) 713,024 (5,799)
Cash, beginning of period 825,645 112,621 112,621 118,420
Cash, end of period 164,961 35,584 825,645 112,621
Supplemental schedule of cash flow information:        
Cash paid for interest 8,165
Cash paid for income taxes
Supplemental disclosure of non-cash investing and financing activities:        
Conversion of convertible note payable to noteholder 125,000    
Conversion of advances from officers and directors to notes payable to officers and directors $ 246,681    
Common shares issued in the acquisition of Prana Therapeutics, Inc.     4,870,500
Issuance of stock options in exchange for accrued wages payable to officers and directors     612,512
Common stock issued upon exercise of cashless warrants     350,000 700,000
Reduction of convertible notes payable due to the conversion by Tangiers Investment Group     220,000
Issuance of common stock upon conversion of debt and loss on extinguishment of debt     381,576 473,965
Reduction of three convertible notes payable due to the conversion by Slainte Ventures     206,978
Issuance of common stock upon conversion of Slainte Ventures note payable     218,038
Reduction of note payable due to the conversion by Slainte Ventures     600,000
Issuance of common stock upon conversion of Slainte Ventures note payable     3,845,748
Reduction of notes payable in exchange for 1,100,000 shares of common stock of WeedMD     $ 175,000
XML 15 R7.htm IDEA: XBRL DOCUMENT v3.8.0.1
CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical)
12 Months Ended
Dec. 31, 2017
shares
Statement of Cash Flows [Abstract]  
Notes payable in exchange for shares of common stock 1,100,000
XML 16 R8.htm IDEA: XBRL DOCUMENT v3.8.0.1
BUSINESS ORGANIZATION AND NATURE OF OPERATIONS
3 Months Ended 12 Months Ended
Mar. 31, 2018
Dec. 31, 2017
Organization, Consolidation and Presentation of Financial Statements [Abstract]    
BUSINESS ORGANIZATION AND NATURE OF OPERATIONS

NOTE 1 –BUSINESS ORGANIZATION AND NATURE OF OPERATIONS


United Cannabis Corporation ("we", "our", "us", "UCANN", or “the Company”) a Colorado corporation, was originally formed as a California corporation under the name MySkin, Inc. on November 15, 2007. MySkin was engaged in the business of providing management services to a medical spa in Los Angeles, California which provided various advanced skin care services until March 31, 2014, when this business was sold to the prior President of the Company.


In early 2014 we decided to exit the medical spa management business and change our focus to providing products, services and intellectual property to the cannabis industry.


On March 26, 2014, we entered into a License Agreement with Earnest Blackmon, Tony Verzura and Chad Ruby pursuant to which Messrs. Blackmon, Verzura and Ruby licensed certain intellectual property to us in exchange for a total of 38,690,000 shares of our common stock.


In connection with this transaction:


·

Messrs. Blackmon, Verzura and Ruby licensed to us all of their knowledge and know-how relating to the design and buildout of cultivation facilities, growing/cultivation systems, seed-to-sale protocols and procedures, products, a genetic catalogue including over 150 different strains, an advanced (non-psychoactive) cannabinoid therapy program called "A.C.T. Now", security, regulatory compliance, and other methods and processes which relate to the cannabis industry.

 

 

·

The territory for this license is the entire world and the license runs in perpetuity. There are no royalty payments under the License Agreement.

 

 

·

Messrs. Blackmon, Verzura and Ruby were appointed to our board of directors effective April 7, 2014.

 

 

·

Mr. Blackmon was elected as our President, Mr. Ruby was elected as Chief Operating Officer and Mr. Verzura was elected as Vice President.

 

 

·

A total of 41,690,000 previously outstanding shares of common stock were cancelled resulting in a total of 43,620,000 shares of common stock outstanding on March 26, 2014.


UCANN was formed as a Colorado corporation on March 25, 2014, and on May 2, 2014, MySkin, Inc. merged into UCANN, a wholly-owned subsidiary of MySkin, Inc., for the purpose of changing domicile from California to Colorado and changing the corporation's name to United Cannabis Corporation.


On March 31, 2014, we sold all right, title and interest in the tangible and intangible assets, trademarks, customer lists, intellectual property and rights, which we owned and were related to our advanced skin care business since we entered into a new business and no longer had any use for these assets. The assets were sold to MySkin Services, Inc. (“MTA”), a business partly owned by Marichelle Stoppenhagen, our former officer and director, in exchange for the $15,000 payable which we owed to Ms. Stoppenhagen and/or MTA.  In addition, MTA assumed all costs associated with these assets starting on March 31, 2014.


On July 14, 2017, we completed the acquisition of Prana Therapeutics, Inc. (“Prana”) in a one-for-one exchange of 5,730,000 shares of common stock of the Company for 5,730,000 of common stock of Prana. The purchase price had a fair market value of $5,070,500, based upon the closing price of $0.85 per share on the OTC QB exchange on July 14, 2017, including the cost to purchase 400,000 shares of Prana common stock for $200,000. Prana is a polymolecular botanical drug development company focused on developing targeted therapeutics for prevention of the negative side effects of chemotherapy, management of rheumatoid arthritis and treatment of brain cancer. Management elected to purchase Prana, because of the successful indication of the effectiveness of their Epidiferphane™ chemical formulation in the treatment of (i) the negative side effects of chemotherapy, (ii) inflammation and pain associated with arthritis and back-centric pain, (iii) sleep disorder, and (iv) the potential shrinkage of brain tumors.


Government Regulation - Marijuana is a Schedule-I controlled substance and is illegal under federal law. Even in those states in which the use of marijuana has been legalized, its use remains a violation of federal laws.


As of March 31, 2018, 30 states and the District of Columbia allow their citizens to use medical marijuana, and voters in the states of California, Colorado, Washington, Nevada, Oregon, Alaska, Maine, Massachusetts, Vermont and the District of Columbia have approved ballot measures to legalize cannabis for adult recreational use.  The state laws are in conflict with the federal Controlled Substances Act, which makes marijuana use and possession illegal on a national level. The former Obama administration had effectively stated that it was not an efficient use of resources to direct federal law enforcement agencies to prosecute those lawfully abiding by state-designated laws allowing the use and distribution of medical and recreational marijuana under what colloquially became known as the “Cole memo”.  However, on January 4, 2018, Attorney General Jeffery Sessions rescinded the “Cole memo,” and issued a new memo in its place that reaffirms the Department of Justice’s stance of potentially prosecuting violators of federal marijuana laws.  On April 13, 2018, President Trump pledged to support federalism-based legislation regarding marijuana and promised not to pursue federal prosecution despite the Attorney General’s actions.  It appears that the current administration will not elect to vigorously enforce federal laws, but such future enforcement may cause significant financial damage to us.

NOTE 1 –BUSINESS ORGANIZATION AND NATURE OF OPERATIONS


United Cannabis Corporation ("we", "our", "us", "UCANN", or “the Company”) a Colorado corporation, was originally formed as a California corporation under the name MySkin, Inc. on November 15, 2007. MySkin was engaged in the business of providing management services to a medical spa in Los Angeles, California which provided various advanced skin care services until March 31, 2014, when this business was sold to the prior President of the Company.


In early 2014 we decided to exit the medical spa management business and change our focus to providing products, services and intellectual property to the cannabis industry.


On March 26, 2014, we entered into a License Agreement with Earnest Blackmon, Tony Verzura and Chad Ruby pursuant to which Messrs. Blackmon, Verzura and Ruby licensed certain intellectual property to us in exchange for a total of 38,690,000 shares of our common stock.


In connection with this transaction:


·

Messrs. Blackmon, Verzura and Ruby licensed to us all of their knowledge and know-how relating to the design and buildout of cultivation facilities, growing/cultivation systems, seed-to-sale protocols and procedures, products, a genetic catalogue including over 150 different strains, an advanced (non-psychoactive) cannabinoid therapy program called "A.C.T. Now", security, regulatory compliance, and other methods and processes which relate to the cannabis industry.

 

 

·

The territory for this license is the entire world and the license runs in perpetuity. There are no royalty payments under the License Agreement.

 

 

·

Messrs. Blackmon, Verzura and Ruby were appointed to our board of directors effective April 7, 2014.

 

 

·

Mr. Blackmon was elected as our President, Mr. Ruby was elected as Chief Operating Officer and Mr. Verzura was elected as Vice President.

 

 

·

A total of 41,690,000 previously outstanding shares of common stock were cancelled resulting in a total of 43,620,000 shares of common stock outstanding on March 26, 2014.


UCANN was formed as a Colorado corporation on March 25, 2014, and on May 2, 2014, MySkin, Inc. merged into UCANN, a wholly-owned subsidiary of MySkin, Inc., for the purpose of changing domicile from California to Colorado and changing the corporation's name to United Cannabis Corporation.


On March 31, 2014, we sold all right, title and interest in the tangible and intangible assets, trademarks, customer lists, intellectual property and rights, which we owned and were related to our advanced skin care business since we entered into a new business and no longer had any use for these assets. The assets were sold to MySkin Services, Inc. (“MTA”), a business partly owned by Marichelle Stoppenhagen, our former officer and director, in exchange for the $15,000 payable which we owed to Ms. Stoppenhagen and/or MTA.  In addition, MTA assumed all costs associated with these assets starting on March 31, 2014.


On July 14, 2017, we completed the acquisition of Prana Therapeutics, Inc. (“Prana”) in a one-for-one exchange of 5,730,000 shares of common stock of the Company for 5,730,000 of common stock of Prana. The purchase price had a fair market value of $5,070,500, based upon the closing price of $0.85 per share on the OTC QB exchange on July 14, 2017, including the cost to purchase 400,000 shares of Prana common stock for $200,000. Prana is a polymolecular botanical drug development company focused on developing targeted therapeutics for prevention of the negative side effects of chemotherapy, management of rheumatoid arthritis and treatment of brain cancer. Management elected to purchase Prana, because of the successful indication of the effectiveness of their Epidiferphane™ chemical formulation in the treatment of (i) the negative side effects of chemotherapy, (ii) inflammation and pain associated with arthritis and back-centric pain, (iii) sleep disorder, and (iv) the potential shrinkage of brain tumors.


Government Regulation - Marijuana is a Schedule-I controlled substance and is illegal under federal law. Even in those states in which the use of marijuana has been legalized, its use remains a violation of federal laws.


As of December 31, 2017, 30 states and the District of Columbia allow their citizens to use medical marijuana, and voters in the states of California, Colorado, Washington, Nevada, Oregon, Alaska, Maine, Massachusetts, Vermont and the District of Columbia have approved ballot measures to legalize cannabis for adult recreational use.  The state laws are in conflict with the federal Controlled Substances Act, which makes marijuana use and possession illegal on a national level. The former Obama administration had effectively stated that it was not an efficient use of resources to direct federal law enforcement agencies to prosecute those lawfully abiding by state-designated laws allowing the use and distribution of medical and recreational marijuana under what colloquially became known as the “Cole memo”.  However, on January 4, 2018, Attorney General Jeffery Sessions rescinded the “Cole memo,” and issued a new memo in its place that reaffirms the Department of Justice’s stance of potentially prosecuting violators of federal marijuana laws.  If current administration elects to vigorously enforce federal laws, such enforcement may cause significant financial damage to us.


XML 17 R9.htm IDEA: XBRL DOCUMENT v3.8.0.1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
3 Months Ended 12 Months Ended
Mar. 31, 2018
Dec. 31, 2017
Accounting Policies [Abstract]    
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


Principles of Consolidation – Our consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries UCANN California Corporation, UC Colorado Corporation and UC Oregon Corporation, the ninety-five percent (95%) owned subsidiary Prana Therapeutics, Inc. (“Prana”), and the fifty percent (50%) owned subsidiary Cannabinoid Research & Development Company Limited (“CRD”). All intercompany accounts and transactions have been eliminated. Our consolidated financial statements are stated in United States dollars and have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). At March 31, 2017, we concluded that we had established a variable interest entity relationship with CRD, because we are the primary beneficiary, in accordance with GAAP. As a result, we elected to consolidate the assets and liabilities of CRD in our consolidated balance sheet at March 31, 2017. Prana was purchased on July 14, 2017, and their assets and liabilities are included in the consolidated balance sheets at December 31, 2017, and their results of operations are included in the consolidated financial statements for the period of June 30, 2017, which is the nearest quarter end to the purchase date, through December 31, 2017.


Use of Estimates - The preparation of our consolidated financial statements in conformity with U.S. GAAP requires us to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of our consolidated financial statements and the reported amounts of revenues and expenses during the periods presented.


We make our estimate of the ultimate outcome for these items based on historical trends and other information available when our consolidated financial statements are prepared. We recognize changes in estimates in accordance with the accounting rules for the estimate, which is typically in the period when new information becomes available. We believe that our significant estimates, assumptions and judgments are reasonable, based upon information available at the time they were made. Our actual results could differ from these estimates, making it possible that a change in these estimates could occur in the near term.

 

Fair Value of Financial Instruments - Our financial instruments consist principally of cash and cash equivalents, accounts receivable, non-marketable equity securities, accounts payable, notes payable and other current assets and liabilities. We value our financial assets and liabilities using fair value measurements. Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are categorized based on whether the inputs are observable in the market and the degree that the inputs are observable. The categorization of financial instruments within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The hierarchy is prioritized into three levels (with Level 3 being the lowest) defined as follows:


Level 1: Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.


Level 2: Observable inputs other than prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated with observable market data.


Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs.


The carrying amount of our cash and cash equivalents, accounts receivable, accounts payable, and other current assets and liabilities in our consolidated financial statements approximates fair value because of the short-term nature of the instruments. Investments in non-marketable equity securities are carried at cost less other-than-temporary impairments. The carrying amount of our notes payable and convertible debt at March 31, 2018, approximates their fair values based on our incremental borrowing rates.


There have been no changes in Level 1, Level 2, and Level 3 categorizations and no changes in valuation techniques for these assets or liabilities for the three-month period ended March 31, 2018 and the year ended December 31, 2017.


Cash and Cash Equivalents - We consider investments with original maturities of 90 days or less to be cash equivalents.


Accounts Receivable, Net – Our accounts receivable consists primarily of trade accounts arising in the normal course of business. No interest is charged on past due accounts. Accounts for which no payments have been received after 30 days are considered delinquent and customary collection efforts are initiated. Accounts receivable are carried at original invoice amount less a reserve made for doubtful accounts based on a review of all outstanding amounts on a monthly basis. We determine our allowance for doubtful accounts by regularly evaluating individual customer receivables and considering the customer’s financial condition and credit history, and current economic conditions. We recorded no bad debt expense during the three-month period ended March 31, 2018 and 2017, respectively, and we have no allowance for doubtful accounts as of March 31, 2018, and as of December 31, 2017,

 

Prepaid Expenses - Prepaid expenses are primarily comprised of advance payments made to third parties for independent contractors’ services or other general expenses. Prepaid services and general expenses are amortized over the applicable periods which approximate the life of the contract or service period.


Inventory – Inventory is stated at the lower of cost or net realizable value. Cost is determined based upon the cost to acquire the raw materials, plus internal labor and other costs incurred to produce finished goods inventory. The cost of inventory is principally determined using the last-in first-out method. We periodically review the value of our inventory and provide a write-down of inventory based on our assessment of the market conditions. Write-downs are charged to cost of goods sold in the applicable reporting period; there have been no such write-downs during the three-month period ended March 31, 2018 and 2017.


Property and Equipment – Our property and equipment, which is classified for reporting purposes in our consolidated balance sheets as construction in process – extraction facilities and cultivation facility and laboratory equipment, is recorded at cost. Maintenance and repairs are expensed as incurred. Depreciation is computed using the straight-line method over estimated useful lives of three to five years, and amortization is computed using the straight-line method over the life of the applicable lease. At the time of retirement or other disposition of property and equipment, the cost and accumulated depreciation are removed from our accounts and any resulting gain or loss is reflected in our consolidated statements of operations.


 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Construction in process - extraction facilities

  

 

 

 

 

  

Weldona, Colorado extraction facility:

 

 

 

 

 

 

Equipment

 

$

 

 

$

647,947

 

Jamaica cultivation and extraction facility:

 

 

 

 

 

 

 

 

Leasehold improvements - laboratory

 

 

 

 

 

75,000

 

Leasehold improvements - cultivation

 

 

110,699

 

 

 

109,750

 

 

 

$

110,699

 

 

$

832,697

 

Extraction facility and laboratory equipment, and office furniture and fixtures

 

 

 

 

 

 

 

 

Equipment and machinery at Weldona extraction facility

 

$

1,154,909

 

 

 

 

Golden, Colorado hemp laboratory - equipment

 

 

39,944

 

 

 

34,651

 

Golden, Colorado administrative offices:

 

 

 

 

 

 

 

 

Furniture and fixtures

 

 

46,849

 

 

 

21,668

 

Leasehold improvements

 

 

2,000

 

 

 

2,000

 

Transportation equipment

 

 

81,667

 

 

 

81,667

 

Remote laboratory equipment

 

 

99,220

 

 

 

99,220

 

 

 

 

1,424,589

 

 

 

239,206

 

Accumulated amortization and depreciation

 

 

(91,524

)

 

 

(39,385

)

 

 

$

1,333,065

 

 

$

199,821

 


Granted Patents – Our patent was granted by the United States Patent and Trademark Office on August 15, 2017. The patent covers the extraction of pharmaceutically active components from cannabis plant materials, for incorporation into medicines. The cost of the patents is being amortized on the straight-line method over a 15-year period.


Intangible Assets – Our intangible assets, consisting of applications for trademarks, design mark and provisional patents, are recorded at cost, and once approved, will be amortized using the straight-line method over an estimated useful life of 10 to 15 years.


Long-Lived Assets Impairment Assessment – Our intangible assets and other long-lived assets are subject to an impairment test if there is an indicator of impairment. The carrying value and ultimate realization of these assets is dependent upon our estimates of future earnings and benefits that we expect to generate from their use. If our expectations of future results and cash flows are significantly diminished, intangible assets and other long-lived assets may be impaired and the resulting charge to operations may be material. When we determine that the carrying value of intangibles or other long-lived assets may not be recoverable based upon the existence of one or more indicators of impairment, we use the projected undiscounted cash flow method to determine whether an impairment exists, and then measure the impairment using discounted cash flows.


We have not recorded any impairment charges related to long-lived assets as of March 31, 2018 or December 31, 2017.


Equity Method Investments – Our investments in entities representing ownership of at least 20% but not more than 50%, where we exercise significant influence, are accounted for under the equity method of accounting, and are included in our financial statements as a component of the consolidated financials. All intercompany accounts are eliminated upon consolidation, and we recognize the minority interests’ share in the income and losses of the less than 100% percent owned subsidiary in the period incurred.


Goodwill Our goodwill, which consists of our interest in a ninety-five percent owned subsidiary, Prana Therapeutics, Inc. (“Prana”) and a fifty percent owned subsidiary, Cannabinoid Research & Development Company Limited (“CRD”), is not amortized, but is evaluated for impairment annually, or when indicators of a potential impairment are present. The annual evaluation for impairment of goodwill is based on valuation models that incorporate assumptions and internal projections of expected future cash flows and operating plans. We believe such assumptions are also comparable to those that would be used by other marketplace participants. Our total goodwill of $4,838,602 consists of $4,731,729 for Prana and $106,873 for CRD at March 31, 2018. See Note 7 – Purchase of Prana Therapeutics, Inc.


Purchase Price Allocation The acquisition method of accounting is based on ASC Subtopic 805-10, “Business Combinations,” and uses the fair value concepts defined in ASC Subtopic 820-10, “Fair Value Measurements and Disclosures”. The price for the purchase of Prana Therapeutics, Inc., was allocated to the net tangible and intangible assets based upon their fair values as of the acquisition date, July 14, 2017. The allocation of the purchase price of $5,070,500 was based upon a valuation and the estimates and assumptions are subject to change within the measurement period. The excess of the purchase price over the fair values of the net tangible assets and intangible assets was recorded as goodwill in the amount of $4,731,729 and is generally driven by our expectations of our ability to commercialize the several drugs invented by Prana Therapeutics, Inc. See Note 7 – Purchase of Prana Therapeutics, Inc.


Deferred Revenue - We defer revenue for which product or service has not yet been delivered or is subject to refund until such time that we and our customer jointly determine that the product or service has been delivered or no refund will be required.


Revenue Recognition - We recognize revenue in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, which requires that five basic steps be followed to recognize revenue: (1) a legally enforceable contract that meets criterial standards as to composition and substance is identified; (2) performance obligations relating to provision of goods or services to the customer are identified; (3) the transaction price, with consideration given to any variable, noncash, or other relevant consideration, is determined; (4) the transaction price is allocated to the performance obligations; and (5) revenue is recognized when control of goods or services is transferred to the customer with consideration given to whether that control happens over time or not. Determination of criteria (3) and (4) are based on our management's judgments regarding the fixed nature of the selling prices of the products and services delivered and the collectability of those amounts.  There was no material impact to our revenue recognition process because of the implementation of FASB ASC 606 as of March 31, 2018.


Revenue for services with a payment in the form of stock, warrants or other financial assets is recognized when the services are performed. The value of revenue paid for with warrants is measured using the Black-Scholes-Merton pricing model. Revenue from product sales, including delivery fees, is recognized when an order has been obtained, the price is fixed and determinable, the product is shipped, title has transferred, and collectability is reasonably assured.


Reimbursable expenses, including those relating to travel, other out-of-pocket expenses and any third-party costs, are included as a component of revenues. Typically, an equivalent amount of reimbursable expenses is included in cost of revenues. Reimbursable expenses related to time and materials and fixed-fee engagements are recognized as revenue in the period in which the expense is incurred and collectability is reasonably assured. Taxes collected from customers and remitted to governmental authorities are presented in our consolidated statement of operations on a net basis.


Revenue Recognition – Affiliate We have licensed our Prana products to Advesa, Inc. (“Advesa”), which is controlled by one of our major shareholders. Advesa has an exclusive right for five (5) consecutive one (1) year periods to sell our Prana products in certain cities in the state of California. In consideration for the exclusive license granted to Advesa under the agreement, Advesa is obligated to pay us a royalty on all Prana products sold by Advesa equal to the sale price of the Prana products, minus the cost of goods sold (computed without regard to depreciation, amortization, other non-cash items or allocation of overhead, general and administrative expenses or similar items) (the “Prana Royalty”). In addition, Advesa pays us a management fee of five percent (5%) of all Advesa gross revenue minus the Prana Royalty. We recognize revenue on all Prana sales consistent with the criteria described above for all sales in accordance with ASC 606, Revenue from Contracts with Customers.


Cost of Revenues – Our policy is to recognize cost of revenues in the same manner as, and in conjunction with, revenue recognition. Our cost of revenues includes the costs directly attributable to revenue recognized and includes expenses related to the production, packaging and labeling of our Prana medicinal products and personnel-related costs, fees for third-party services, travel and other consulting costs related to our advisory services.


Research and Development Expenses - Research and development (“R&D”) costs are charged to expense as incurred. Our R&D expenses include, but are not limited to, consulting service fees and materials and supplies used in the development of our proprietary products and services.


General and Administrative Expenses - General and administrative expenses consist primarily of personnel-related costs, fees for professional and consulting services, travel costs, rent, bad debt expense, general corporate costs, and other costs of administration such as human resources, finance and administrative roles.


Stock-Based Compensation – We periodically issue shares of our common stock to non-employees in non-capital raising transactions for fees and services. We account for stock issued to non-employees in accordance with ASC 505, Equity, whereas the value of the stock compensation is based upon the measurement date as determined at either (a) the date at which a performance commitment is reached, or (b) at the date at which the necessary performance to earn the equity instruments is complete.


We account for stock option grants issued and vesting to employees based on ASC 718, Compensation – Stock Compensation, whereas the award is measured at its fair value at the date of grant and is amortized ratably over the vesting period. Accounting for stock-based compensation to employees requires the measurement and recognition of compensation expense for all share-based payment awards made to employees based on estimated fair values. We estimate the fair value of all stock option awards on the date of grant using the Black-Scholes-Merton pricing model, which is affected by our stock price, as well as assumptions regarding a number of complex and subjective variables. These variables include our expected stock price volatility over the term of the awards, actual and projected employee option exercise behaviors, risk free interest rates and expected dividends. We also estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from our estimates.


Income Taxes - Income taxes are recorded using the asset and liability method. Under the asset and liability method, tax assets and liabilities are recognized for the tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using the enacted tax rates expected to apply when the asset is realized, or the liability settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that enactment occurs. To the extent that we do not consider it more likely than not that a future tax asset will be recovered, we will provide a valuation allowance against the excess.

 

We follow the provisions of ASC 740, Income Taxes. Because of the ASC 740, we make a comprehensive review of our portfolio of tax positions in accordance with recognition standards established by ASC 740. As a result of the implementation of ASC 740, we recognized no material adjustments to liabilities or stockholders’ deficit.


When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in our consolidated financial statements in the period during which, based on all available evidence, we believe it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

 

Interest and penalties associated with unrecognized tax benefits, if any, are classified as interest expense and penalties and are included in selling, general and administrative expenses in our consolidated statements of operations.


On December 22, 2017, the U.S. Tax Cuts and Jobs Act was enacted. U.S. tax reform introduced many changes, including lowering the U.S. corporate tax rate to 21 percent, changes in incentives, provisions to prevent U.S. base erosion and significant changes in the taxation of international income, including provisions which allow for the repatriation of foreign earnings without U.S. tax. The enactment of U.S. tax reform had no impact on our income taxes for the year ended year-ended December 31, 2017.


Commitments and Contingencies - Certain conditions may exist as of the date our consolidated financial statements are issued, which may result in a loss but which will only be resolved when one or more future events occur or fail to occur.  We assess such contingent liabilities, and such assessment inherently involves an exercise of judgment.  In assessing loss contingencies related to legal proceedings that are pending against us or unasserted claims that may result in such proceedings, we evaluate the perceived merits of the legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.


If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in our consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.


Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed.


Net Loss Per Share - We compute net loss per share in accordance with ASC 260, Earnings per Share. Under the provisions of ASC 260, basic net loss per share includes no dilution and is computed by dividing the net loss available to common stockholders for the period by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share takes into consideration shares of common stock outstanding (computed under basic net loss per share) and potentially dilutive securities that are not anti-dilutive.


Potentially dilutive securities outlined in the table below have been excluded from the computation of diluted net loss per share, because the effect of their inclusion would have been anti-dilutive.


 

 

Three Months Ended

 March 31,

 

 

 

2018

 

 

2017

 

Warrants to purchase common stock

 

 

1,234,027

 

 

 

1,541,112

 

Stock options, exercisable

 

 

11,705,000

 

 

 

3,680,000

 

Total potentially dilutive securities

 

 

12,939,027

 

 

 

5,221,112

 


Other Comprehensive Income (Loss) – We report as other comprehensive income (loss) those revenues, gains and losses not included in the determination of net income.  During the three months ended March 31, 2018 and the year ended December 31, 2017, we did not have any gains and losses resulting from activities or transactions that resulted in other comprehensive income or loss.

 

Segment Reporting – Our Company operates as one segment.


Concentration of Credit Risk - Financial instruments that potentially subject us to credit risk consist of cash. We maintain our cash with high credit quality financial institutions; at times, such balances with any one financial institution may not be insured by the FDIC.

 

The following tables show significant concentrations in our revenues and accounts receivable for the periods indicated:


Percentage of Revenue:


 

 

Three Months Ended

March 31,

 

 

 

2018

 

 

2017

 

Customer A

 

62%

 

 

98%

 

Customer B

 

21%

 

 

2%

 

Customer C

 

17%

 

 

—%

 


Percentage of Accounts Receivable:


 

 

As of

March 31,

 

 

 

2018

 

 

2017

 

Customer C

 

100%

 

 

93%

 

Customer D

 

—%

 

 

7%

 

Customer E

 

—%

 

 

—%

 


Recently Issued Accounting Pronouncements – From time to time, the FASB or other standards setting bodies issue new accounting pronouncements. Updates to the FASB ASCs are communicated through issuance of an Accounting Standards Update ("ASU"). Unless otherwise discussed, we believe that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on our condensed consolidated financial statements upon adoption.


In February 2016, the FASB issued guidance on leases which requires entities to recognize right-of-use assets and lease liabilities on the balance sheet for the rights and obligations created by all leases, including operating leases, with terms of more than 12 months. The new guidance also requires additional disclosures on the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative information. The new guidance will be effective for us at the beginning of fiscal year 2019. Early adoption is permitted. We are in the process of evaluating the impact the adoption of this guidance will have on our consolidated financial statements and related disclosures.


Reclassification - Certain reclassifications have been made to the prior period amounts to conform to the current period's presentation.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


Principles of Consolidation – Our consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries UCANN California Corporation, UC Colorado Corporation and UC Oregon Corporation, the ninety-five percent (95%) owned subsidiary Prana Therapeutics, Inc. (“Prana”), and the fifty percent (50%) owned subsidiary Cannabinoid Research & Development Company Limited (“CRD”). All intercompany accounts and transactions have been eliminated. Our consolidated financial statements are stated in United States dollars and have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). At March 31, 2017, we concluded that we had established a variable interest entity relationship with CRD, because we are the primary beneficiary, in accordance with GAAP. As a result, we elected to consolidate the assets and liabilities of CRD in our consolidated balance sheet at March 31, 2017. Prana was purchased on July 14, 2017, and their assets and liabilities are included in the consolidated balance sheets at December 31, 2017, and their results of operations are included in the consolidated financial statements for the period of June 30, 2017, which is the nearest quarter end to the purchase date, through December 31, 2017.


Use of Estimates - The preparation of our consolidated financial statements in conformity with U.S. GAAP requires us to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of our consolidated financial statements and the reported amounts of revenues and expenses during the periods presented.


We make our estimate of the ultimate outcome for these items based on historical trends and other information available when our consolidated financial statements are prepared. We recognize changes in estimates in accordance with the accounting rules for the estimate, which is typically in the period when new information becomes available. We believe that our significant estimates, assumptions and judgments are reasonable, based upon information available at the time they were made. Our actual results could differ from these estimates, making it possible that a change in these estimates could occur in the near term.

 

Fair Value of Financial Instruments - Our financial instruments consist principally of cash and cash equivalents, accounts receivable, non-marketable equity securities, accounts payable, notes payable and other current assets and liabilities. We value our financial assets and liabilities using fair value measurements. Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are categorized based on whether the inputs are observable in the market and the degree that the inputs are observable. The categorization of financial instruments within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The hierarchy is prioritized into three levels (with Level 3 being the lowest) defined as follows:


Level 1: Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.


Level 2: Observable inputs other than prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated with observable market data.


Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs.


The carrying amount of our cash and cash equivalents, accounts receivable, accounts payable, and other current assets and liabilities in our consolidated financial statements approximates fair value because of the short-term nature of the instruments. Investments in non-marketable equity securities are carried at cost less other-than-temporary impairments. The carrying amount of our notes payable and convertible debt at December 31, 2016, approximates their fair values based on our incremental borrowing rates.


There have been no changes in Level 1, Level 2, and Level 3 categorizations and no changes in valuation techniques for these assets or liabilities for the years ended December 31, 2017 and 2016.


Cash and Cash Equivalents - We consider investments with original maturities of 90 days or less to be cash equivalents. Because of current banking regulations, marijuana centric entities are not afforded normal banking privileges, and thus, we have not able to consistently have access to the federal banking system. Thus, at the beginning of 2016, the Company entered into an agreement with our Chief Executive Officer to hold cash funds in his personal bank account, on an as-need basis, in trust for the Company. Under the terms of our trust agreement with our Chief Executive Officer, he agreed to hold our cash in his personal bank account, and to make payments of our funds only for our business purposes, and to allow daily access to the bank account for ongoing oversight of his fiduciary responsibility to the Company. Additionally, the trust agreement requires that the Chief Executive Officer make copies available to our accounting staff of all transactions applicable to our operations, on a weekly, or as requested basis.  At December 31, 2017 and 2016 there is cash deposits in the personal bank accounts of the Chief Executive Officer held in trust for us in the amount of $0.0 and $4,158, respectively.


Accounts Receivable – Our accounts receivable consists primarily of trade accounts arising in the normal course of business. No interest is charged on past due accounts. Accounts for which no payments have been received after 30 days are considered delinquent and customary collection efforts are initiated. Accounts receivable are carried at original invoice amount less a reserve made for doubtful accounts based on a review of all outstanding amounts on a monthly basis. We determine our allowance for doubtful accounts by regularly evaluating individual customer receivables and considering the customer’s financial condition and credit history, and current economic conditions.


Our allowance for doubtful accounts was $0.00 and $30,000 as of December 31, 2017 and 2016, respectively. We recorded bad debt expense, included in general and administrative expenses, of $0.00 and $82,831 during the years ended December 31, 2017 and 2016, respectively.

 

Prepaid Expenses - Prepaid expenses are primarily comprised of advance payments made to third parties for independent contractors’ services or other general expenses. Prepaid services and general expenses are amortized over the applicable periods which approximate the life of the contract or service period.


Inventory – Inventory is stated at the lower of cost or net realizable value. Cost is determined based upon the cost to acquire the raw materials, plus internal labor and other costs incurred to produce finished goods inventory. The cost of inventory is principally determined using the last-in first-out method. We periodically review the value of our inventory and provide a write-down of inventory based on our assessment of the market conditions. Write-downs are charged to cost of goods sold in the applicable reporting period; there have been no such write-downs during the years ended December 31, 2017 and 2016.


Property and Equipment – Our property and equipment, which is classified for reporting purposes in our consolidated balance sheets as construction in process – extraction facilities and cultivation facility and laboratory equipment, is recorded at cost. Maintenance and repairs are expensed as incurred. Depreciation is computed using the straight-line method over estimated useful lives of three to five years, and amortization is computed using the straight-line method over the life of the applicable lease. At the time of retirement or other disposition of property and equipment, the cost and accumulated depreciation are removed from our accounts and any resulting gain or loss is reflected in our consolidated statements of operations.


 

 

December 31,

 

 

 

2017

 

 

2018

 

Conduction in process - extraction facilities

 

 

 

 

 

 

Weldona, Colorado extraction facility:

 

 

 

 

 

 

Equipment

 

$

647,947

 

 

$

 

Leasehold improvements

 

 

 

 

 

 

Jamaica cultivation and extraction facility:

 

 

 

 

 

 

 

 

Leasehold improvements - laboratory

 

 

75,000

 

 

 

 

Leasehold improvements - cultivation

 

 

109,750

 

 

 

 

 

 

$

832,697

 

 

$

 

Cultivation facility and laboratory equipment and Office furniture and fixtures

 

 

 

 

 

 

 

 

Golden, Colorado hemp laboratory - equipment

 

$

34,651

 

 

 

 

Golden, Colorado administrative offices:

 

 

 

 

 

 

 

 

Furniture and fixtures

 

 

21,668

 

 

 

 

Leasehold improvements

 

 

2,000

 

 

 

 

Transportation equipment

 

 

81,667

 

 

 

 

Remote laboratory equipment

 

 

99,220

 

 

 

 

 

 

 

239,206

 

 

 

 

Accumulated amortization and depreciation

 

 

(39,385

)

 

 

 

 

 

$

199,821

 

 

$

 


Granted Patents – Our patent was granted by the United States Patent and Trademark Office on August 15, 2017. The patent covers the extraction of pharmaceutically active components from cannabis plant materials, for incorporation into medicines. The cost of the patents is being amortized on the straight-line method over a 15-year period.


Intangible Assets – Our intangible assets, consisting of applications for trademarks, design mark and provisional patents, are recorded at cost, and once approved, will be amortized using the straight-line method over an estimated useful life of 10 to 15 years.


Long-Lived Assets Impairment Assessment – Our intangible assets and other long-lived assets are subject to an impairment test if there is an indicator of impairment. The carrying value and ultimate realization of these assets is dependent upon our estimates of future earnings and benefits that we expect to generate from their use. If our expectations of future results and cash flows are significantly diminished, intangible assets and other long-lived assets may be impaired and the resulting charge to operations may be material. When we determine that the carrying value of intangibles or other long-lived assets may not be recoverable based upon the existence of one or more indicators of impairment, we use the projected undiscounted cash flow method to determine whether an impairment exists, and then measure the impairment using discounted cash flows.


We have not recorded any impairment charges related to long-lived assets as of December 31, 2017 or December 31, 2016.


Equity Method Investments – Our investments in entities representing ownership of at least 20% but not more than 50%, where we exercise significant influence, are accounted for under the equity method of accounting, and are included in our financial statements as a component of the consolidated financials. All intercompany accounts are eliminated upon consolidation, and we recognize the minority interests’ share in the income and losses of the less than 100% percent owned subsidiary in the period incurred.


Goodwill Our goodwill, which consists of our interest in a ninety-five percent owned subsidiary, Prana Therapeutics, Inc. (“Prana”) and a fifty percent owned subsidiary, Cannabinoid Research & Development Company Limited (“CRD”), is not amortized, but is evaluated for impairment annually, or when indicators of a potential impairment are present. The annual evaluation for impairment of goodwill is based on valuation models that incorporate assumptions and internal projections of expected future cash flows and operating plans. We believe such assumptions are also comparable to those that would be used by other marketplace participants. Our total goodwill of $4,838,602 consists of $4,731,729 for Prana and $106,873 for CRD at December 31, 2017. See Note 7 – Purchase of Prana Therapeutics, Inc.


Purchase Price Allocation The acquisition method of accounting is based on ASC Subtopic 805-10, “Business Combinations,” and uses the fair value concepts defined in ASC Subtopic 820-10, “Fair Value Measurements and Disclosures”. The price for the purchase of Prana Therapeutics, Inc., was allocated to the net tangible and intangible assets based upon their fair values as of the acquisition date, July 14, 2017. The allocation of the purchase price of $5,070,500 was based upon a valuation and the estimates and assumptions are subject to change within the measurement period. The excess of the purchase price over the fair values of the net tangible assets and intangible assets was recorded as goodwill in the amount of $4,731,729 and is generally driven by our expectations of our ability to commercialize the several drugs invented by Prana Therapeutics, Inc. See Note 7 – Purchase of Prana Therapeutics, Inc.


Deferred Revenue - We defer revenue for which product or service has not yet been delivered or is subject to refund until such time that we and our customer jointly determine that the product or service has been delivered or no refund will be required.


Revenue Recognition - We recognize revenue in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605, Revenue Recognition, which requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on our management's judgments regarding the fixed nature of the selling prices of the products and services delivered and the collectability of those amounts.


Revenue for services with a payment in the form of stock, warrants or other financial assets is recognized when the services are performed. The value of revenue paid for with warrants is measured using the Black-Scholes-Merton pricing model. Revenue from product sales, including delivery fees, is recognized when an order has been obtained, the price is fixed and determinable, the product is shipped, title has transferred, and collectability is reasonably assured.


Reimbursable expenses, including those relating to travel, other out-of-pocket expenses and any third-party costs, are included as a component of revenues. Typically, an equivalent amount of reimbursable expenses is included in cost of revenues. Reimbursable expenses related to time and materials and fixed-fee engagements are recognized as revenue in the period in which the expense is incurred and collectability is reasonably assured. Taxes collected from customers and remitted to governmental authorities are presented in our consolidated statement of operations on a net basis.


Revenue Recognition – Affiliate We have licensed our Prana products to Advesa, Inc. (“Advesa”), which is 100% owned by one of our major shareholders. Advesa has an exclusive right for five (5) consecutive one (1) year periods to sell our Prana products in certain cities in the state of California. In consideration for the exclusive license granted to Advesa under the agreement, Advesa is obligated to pay us a royalty on all Prana products sold by Advesa equal to the sale price of the Prana products, minus the cost of goods sold (computed without regard to depreciation, amortization, other non-cash items or allocation of overhead, general and administrative expenses or similar items) (the “Prana Royalty”). In addition, Advesa pays us a management fee of five percent (5%) of all Advesa gross revenue minus the Prana Royalty. We recognize revenue on all Prana sales consistent with the criteria described above for all sales in accordance with ASC 605, Revenue Recognition.


Cost of Revenues – Our policy is to recognize cost of revenues in the same manner as, and in conjunction with, revenue recognition. Our cost of revenues includes the costs directly attributable to revenue recognized and includes expenses related to the production, packaging and labeling of our Prana medicinals products and personnel-related costs, fees for third-party services, travel and other consulting costs related to our advisory services.


Research and Development Expenses - Research and development (“R&D”) costs are charged to expense as incurred. Our R&D expenses include, but are not limited to, consulting service fees and materials and supplies used in the development of our proprietary products and services.


General and Administrative Expenses - General and administrative expenses consist primarily of personnel-related costs, fees for professional and consulting services, travel costs, rent, bad debt expense, general corporate costs, and other costs of administration such as human resources, finance and administrative roles.


Stock-Based Compensation – We periodically issue shares of our common stock to non-employees in non-capital raising transactions for fees and services. We account for stock issued to non-employees in accordance with ASC 505, Equity, whereas the value of the stock compensation is based upon the measurement date as determined at either (a) the date at which a performance commitment is reached, or (b) at the date at which the necessary performance to earn the equity instruments is complete.


We account for stock option grants issued and vesting to employees based on ASC 718, Compensation – Stock Compensation, whereas the award is measured at its fair value at the date of grant and is amortized ratably over the vesting period. Accounting for stock-based compensation to employees requires the measurement and recognition of compensation expense for all share-based payment awards made to employees based on estimated fair values. We estimate the fair value of all stock option awards on the date of grant using the Black-Scholes-Merton pricing model, which is affected by our stock price, as well as assumptions regarding a number of complex and subjective variables. These variables include our expected stock price volatility over the term of the awards, actual and projected employee option exercise behaviors, risk free interest rates and expected dividends. We also estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from our estimates.


Income Taxes - Income taxes are recorded using the asset and liability method. Under the asset and liability method, tax assets and liabilities are recognized for the tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using the enacted tax rates expected to apply when the asset is realized, or the liability settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that enactment occurs. To the extent that we do not consider it more likely than not that a future tax asset will be recovered, we will provide a valuation allowance against the excess.

 

We follow the provisions of ASC 740, Income Taxes. As a result of the ASC 740, we make a comprehensive review of our portfolio of tax positions in accordance with recognition standards established by ASC 740. As a result of the implementation of ASC 740, we recognized no material adjustments to liabilities or stockholders’ deficit.


When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in our consolidated financial statements in the period during which, based on all available evidence, we believe it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

 

Interest and penalties associated with unrecognized tax benefits, if any, are classified as interest expense and penalties and are included in selling, general and administrative expenses in our consolidated statements of operations.


On December 22, 2017, the U.S. Tax Cuts and Jobs Act was enacted. U.S. tax reform introduced many changes, including lowering the U.S. corporate tax rate to 21 percent, changes in incentives, provisions to prevent U.S. base erosion and significant changes in the taxation of international income, including provisions which allow for the repatriation of foreign earnings without U.S. tax. The enactment of U.S. tax reform had no impact on our income taxes for the year ended year-ended December 31, 2017.



Commitments and Contingencies - Certain conditions may exist as of the date our consolidated financial statements are issued, which may result in a loss but which will only be resolved when one or more future events occur or fail to occur.  We assess such contingent liabilities, and such assessment inherently involves an exercise of judgment.  In assessing loss contingencies related to legal proceedings that are pending against us or unasserted claims that may result in such proceedings, we evaluate the perceived merits of the legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.


If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in our consolidated financial statements.  If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.


Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed.


Net Loss Per Share - We compute net loss per share in accordance with ASC 260, Earnings per Share. Under the provisions of ASC 260, basic net loss per share includes no dilution and is computed by dividing the net loss available to common stockholders for the period by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share takes into consideration shares of common stock outstanding (computed under basic net loss per share) and potentially dilutive securities that are not anti-dilutive.


Potentially dilutive securities outlined in the table below have been excluded from the computation of diluted net loss per share, because the effect of their inclusion would have been anti-dilutive.


 

 

Years Ended December 31,

 

 

 

2017

 

 

2016

 

Warrants to purchase common stock

 

 

674,336

 

 

 

666,667

 

Cashless warrants exercisable and not converted to common stock

 

 

534,689

 

 

 

844,689

 

Stock options

 

 

6,637,500

 

 

 

3,680,000

 

Total potentially dilutive securities

 

 

7,846,525

 

 

 

5,191,356

 


Other Comprehensive Income (Loss) – We report as other comprehensive income (loss) those revenues, gains and losses not included in the determination of net income.  During the years ended December 31, 2017 and 2016, we did not have any gains and losses resulting from activities or transactions that resulted in other comprehensive income or loss.

 

Segment Reporting – Our Company operates as one segment.


Concentration of Credit Risk - Financial instruments that potentially subject us to credit risk consist of cash. We maintain our cash with high credit quality financial institutions; at times, such balances with any one financial institution may not be insured by the FDIC.

 

The following tables show significant concentrations in our revenues and accounts receivable for the periods indicated:


Percentage of Revenue:


 

 

Years Ended December 31,

 

 

 

2017

 

 

2016

 

Customer A

 

 

98

%

 

 

95

%

Customer B

 

 

2

%

 

 

3

%

Customer C

 

 

%

 

 

2

%

 

 

 

 

 

 

 

 

 


Percentage of Accounts Receivable:


 

 

Years Ended December 31,

 

 

 

2017

 

 

2016

 

Customer D

 

 

%

 

 

75

%

Customer E

 

 

%

 

 

25

%

Customer F

 

100

%

 

 

%


Recently Issued Accounting Pronouncements – From time to time, the FASB or other standards setting bodies issue new accounting pronouncements. Updates to the FASB ASCs are communicated through issuance of an Accounting Standards Update ("ASU"). Unless otherwise discussed, we believe that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on our condensed consolidated financial statements upon adoption.


In May 2014 the FASB issued guidance on revenue from contracts with customers, which implements a five-step process of how an entity should recognize revenue in order to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance will be effective at the beginning of fiscal year 2018, and early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. We implemented this accounting treatment beginning January 1, 2018.


In February 2016, the FASB issued guidance on leases which requires entities to recognize right-of-use assets and lease liabilities on the balance sheet for the rights and obligations created by all leases, including operating leases, with terms of more than 12 months. The new guidance also requires additional disclosures on the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative information. The new guidance will be effective for us at the beginning of fiscal year 2019. Early adoption is permitted. We are in the process of evaluating the impact the adoption of this guidance will have on our consolidated financial statements and related disclosures.


XML 18 R10.htm IDEA: XBRL DOCUMENT v3.8.0.1
GOING CONCERN
3 Months Ended 12 Months Ended
Mar. 31, 2018
Dec. 31, 2017
GOING CONCERN [Abstract]    
GOING CONCERN

NOTE 3 – GOING CONCERN


Our consolidated financial statements have been prepared on a going concern basis which assumes we will be able to realize our assets and discharge our liabilities in the normal course of business for the foreseeable future. During the three-months ended March 31, 2018, we incurred losses of $7,206,500 and used cash of $1,651,026 in our operating activities. As at March 31, 2018, we had a working capital deficit of $511,153 and an accumulated deficit of $22,476,406. Our ability to continue as a going concern is dependent upon our ability to generate profitable operations in the future and, or, obtaining the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due. There is no assurance that these events will be satisfactorily completed.

NOTE 3 – GOING CONCERN


Our consolidated financial statements have been prepared on a going concern basis which assumes we will be able to realize our assets and discharge our liabilities in the normal course of business for the foreseeable future. During the year ended December 31, 2017, we incurred losses of $5,907,512 and used cash of $1,878,276 in our operating activities. As at December 31, 2017, we had a working capital deficit of $288,439 and an accumulated deficit of $15,269,845. Our ability to continue as a going concern is dependent upon our ability to generate profitable operations in the future and, or, obtaining the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due. There is no assurance that these events will be satisfactorily completed.


XML 19 R11.htm IDEA: XBRL DOCUMENT v3.8.0.1
RECEIVABLE FROM RELATED PARTY
3 Months Ended 12 Months Ended
Mar. 31, 2018
Dec. 31, 2017
Receivables [Abstract]    
RECEIVABLE FROM RELATED PARTY

NOTE 4 – RECEIVABLE FROM RELATED PARTY


In the normal course of business, we make non-interest-bearing advances to Advesa, Inc. (“Advesa’), which is controlled by one of our officers and directors. Such advances are used by Advesa to purchase equipment and to cover the cost of their operations. Additionally, during the year ended December 31, 2017, we purchased certain laboratory equipment from Advesa at an amount equal to their cost of the equipment. Related party amounts due from Advesa were $14,861 and $0.0 at March 31, 2018 and December 31, 2017.

NOTE 4 – RECEIVABLE FROM RELATED PARTY


On April 20, 2015, we advanced Cannabinoid Research & Development, Limited (“CRD”) $5,000 and included this amount in due from related parties. At March 31, 2017, we concluded that we had established a variable interest entity relationship with CRD, because we are the primary beneficiary, in accordance with GAAP. As a result, we elected to consolidate the assets and liabilities of CRD in our consolidated balance sheet at March 31, 2017. Thus, at September 30, 2017, the $5,000 advance to CRD is eliminated upon the consolidation of the assets and liabilities of CRD for financial statement reporting purposes.


In the normal course of business, we make non-interest-bearing advances to Advesa, Inc. (“Advesa’), which is 100% owned by one of our officers and directors. Such advances are used by Advesa to purchase equipment and to cover the cost of their operations. Additionally, during the year ended December 31, 2017, we purchased certain laboratory equipment from Advesa at an amount equal to their cost of the equipment.


Amounts due from related parties consist of:


 

December 31,

 

2017

 

 

2016

Advesa, Inc.

$

 

 

$

21,775

Cannabinoid Research & Development, Limited

 

 

 

 

5,000

 

$

 

 

$

26,775

XML 20 R12.htm IDEA: XBRL DOCUMENT v3.8.0.1
OPERATING LEASES
3 Months Ended 12 Months Ended
Mar. 31, 2018
Dec. 31, 2017
Leases [Abstract]    
OPERATING LEASES

NOTE 5 – OPERATING LEASES


Administrative Offices and Hemp Laboratory – Golden, Colorado


Effective August 1, 2017, we entered into a triple net lease of approximately 9,882 square feet of commercial space in Golden, Colorado in which our administrative offices and hemp laboratory are located. The term of the lease expires on July 31, 2020 and has no option for renewal. Basic rent is $3,302, $3,500 and $3,800 per month through, July 31, 2018, 2019 and 2020, respectively, plus we are responsible for all utilities. It is our intent presently, to renew the lease annual throughout the term of the lease.


Extraction and Cultivation Facility – Weldona, Colorado


Effective October 1, 2017, we entered into a triple net lease of approximately 40,000 square feet of industrial space located on five (5) acres of land in Weldona, Colorado that we us as our hemp extraction facility and hemp cultivation center. The term of the lease expires on September 31, 2018, with an annual option to renew the lease on an annual basis, that expires on September 30, 2022. The rent is $7,500 per month throughout the term of the lease, plus we are responsible for all utilities.


Extraction and Cultivation Facility - Jamaica


Our fifty percent (50%) owned subsidiary Cannabinoid Research & Development Company Limited (“CRD”) leases approximately 28 acres of land upon which their cultivation and extraction facility is located near Kingston, Jamaica. The land is leased for $1 per year from the father of one of the directors and members of CRD.


Future minimum payments for these leases are:


For the twelve Months Ending March 31,

2019

 

2020

 

2021

 

2021

 

2022

$131,208

 

$134,398

 

$105,198

 

$90,001

 

$45,001

NOTE 5 – OPERATING LEASES


Administrative Offices and Hemp Laboratory – Golden, Colorado


Effective August 1, 2017, we entered into a triple net lease of approximately 9,882 square feet of commercial space in Golden, Colorado in which our administrative offices and hemp laboratory are located. The term of the lease expires on July 31, 2020 and has no option for renewal. Basic rent is $3,302, $3,500 and $3,800 per month through, July 31, 2018, 2019 and 2020, respectively, plus we are responsible for all utilities. It is our intent presently, to renew the lease annual throughout the term of the lease.


Extraction and Cultivation Facility – Golden Colorado


Effective October 1, 2017, we entered into a triple net lease of approximately 40,000 square feet of industrial space located on five (5) acres of land in Weldona, Colorado that we us as our hemp extraction facility and hemp cultivation center. The term of the lease expires on September 31, 2018, with an annual option to renew the lease on an annual basis, that expires on September 30, 2022. The rent is $7,500 per month throughout the term of the lease, plus we are responsible for all utilities.


Extraction and Cultivation Facility - Jamaica


Our fifty percent (50%) owned subsidiary Cannabinoid Research & Development Company Limited (“CRD”) leases approximately 28 acres of land upon which their cultivation and extraction facility is located near Kingston, Jamaica. The land is leased for $1 per year from the father of one of the directors and members of CRD.


Future minimum payments for these leases are:


For the twelve Months Ending December 31,

2018

 

2019

 

2020

 

2021

 

2022

$130,613

 

$133,499

 

$116,597

 

$90,000

 

$67,500

XML 21 R13.htm IDEA: XBRL DOCUMENT v3.8.0.1
INVENTORY
3 Months Ended 12 Months Ended
Mar. 31, 2018
Dec. 31, 2017
Inventory Disclosure [Abstract]    
INVENTORY

NOTE 6 - INVENTORY


Inventory is stated at the lower of cost or net realizable value. Cost is determined based upon the cost to acquire the raw materials, plus internal labor and other costs incurred to produce finished goods inventory. The cost of inventory is principally determined using the last-in first-out method. We periodically review the value of our inventory and provide a write-down of inventory based on our assessment of the market conditions. Any write-down is charged to cost of goods sold. At ended March 31, 2018 and December 31, 2017, our inventory is, as follows:


 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Raw materials

 

$

38,376

 

 

$

15,000

 

Work-in-process

 

 

57,565

 

 

 

 

Finished goods

 

 

41,200

 

 

 

28,200

 

 

 

$

137,141

 

 

$

43,200

 

NOTE 6 - INVENTORY


Inventory is stated at the lower of cost or market. Cost is determined based upon the cost to acquire the raw materials, plus internal labor and other costs incurred to produce finished goods inventory. The cost of inventory is principally determined using the last-in first-out method. We periodically review the value of our inventory and provide a write-down of inventory based on our assessment of the market conditions. Any write-down is charged to cost of goods sold. At December 31, 2017, and 2016, our inventory was, as follows:


 

 

December 31,

 

 

 

2017

 

 

2016

 

Raw materials

 

$

15,000

 

 

$

 

Work-in-process

 

 

 

 

 

 

Finished goods

 

 

28,200

 

 

 

 

 

 

$

43,200

 

 

$

 

XML 22 R14.htm IDEA: XBRL DOCUMENT v3.8.0.1
PURCHASE OF PRANA THERAPUETICS, INC.
3 Months Ended 12 Months Ended
Mar. 31, 2018
Dec. 31, 2017
Business Combinations [Abstract]    
PUCHASE OF PRANA THERAPUETICS, INC.

NOTE 7 – PURCHASE OF PRANA THERAPUETICS, INC.


On June 8, 2017, we entered into an agreement to purchase 400,000 shares of Prana Therapeutics, Inc. (“Prana”), in a private offering of their common shares, for a total consideration of $200,000 (“Subscription Agreement’). In accordance with the terms of the Subscription Agreement, we paid Prana $50,000, upon execution of the Subscription Agreement, and committed to remit $50,000 to Prana on September 30, 2017, December 31, 2017 and March 31, 2018, respectively. Subsequently, on July 14, 2017, we completed the acquisition of Prana in a one-for-one exchange of 5,730,000 shares of our common stock for 5,730,000 shares of common stock of Prana. The purchase price had a fair market value of $5,070,500, based upon the closing price of $0.85 per share of our common stock on the OTC QB exchange on July 14, 2017, including the cost to purchase 400,000 shares of Prana for $200,000.


The purchase price for Prana was allocated to the net tangible and intangible assets based upon their fair values as of the acquisition date. The excess of the purchase price over the fair values of the net tangible assets and intangible assets was recorded as goodwill and is generally driven by management’s expectations and ability to realize synergies and achieve strategic growth. The allocation of the purchase price was, as follows:


 

 

March 31,
2018

 

Patents

 

$

52,596

 

Net assets

 

 

522,761

 

Goodwill

 

 

4,495,143

 

Total

 

$

5,070,500

 

NOTE 7 – PURCHASE OF PRANA THERAPUETICS, INC.


On June 8, 2017, we entered into an agreement to purchase 400,000 shares of Prana Therapeutics, Inc. (“Prana”), in a private offering of their common shares, for a total consideration of $200,000 (“Subscription Agreement’). In accordance with the terms of the Subscription Agreement, we paid Prana $50,000, upon execution of the Subscription Agreement, and committed to remit $50,000 to Prana on September 30, 2017, December 31, 2017 and March 31, 2018, respectively. Subsequently, on July 14, 2017, we completed the acquisition of Prana in a one-for-one exchange of 5,730,000 shares of our common stock for 5,730,000 shares of common stock of Prana. The purchase price had a fair market value of $5,070,500, based upon the closing price of $0.85 per share of our common stock on the OTC QB exchange on July 14, 2017, including the cost to purchase 400,000 shares of Prana for $200,000.


The purchase price for Prana was allocated to the net tangible and intangible assets based upon their fair values as of the acquisition date. The excess of the purchase price over the fair values of the net tangible assets and intangible assets was recorded as goodwill and is generally driven by management’s expectations and ability to realize synergies and achieve strategic growth.


Upon completion of an acquisition audit subsequent to the acquisition of Prana, it was determined that the net assets acquired as of July 14, 2017 were approximately $71,873 more than was reported in the Form 10-Q for the three and nine months ended September 30, 2017. As a result, the allocation of the purchase price, net assets and patent amounts has been restated as of December 31, 2017 compared to September 30, 2017, as follows:


 

 

December 31,
2017

 

 

Reallocation
of
Purchase
Price

 

 

September 30,
2017

 

Patents

 

$

52,596

 

 

$

 

 

$

52,596

 

Net assets

 

 

522,761

 

 

 

71,873

 

 

 

450,888

 

Goodwill

 

 

4,495,143

 

 

 

(71,873

 

 

4,567,016

 

Total

 

$

5,070,500

 

 

$

 

 

$

5,070,500

XML 23 R15.htm IDEA: XBRL DOCUMENT v3.8.0.1
GRANTED PATENT
3 Months Ended 12 Months Ended
Mar. 31, 2018
Dec. 31, 2017
Granted Patent [Abstract]    
GRANTED PATENT

NOTE 8 – GRANTED PATENT


On August 15, 2017, the United States Patent and Trademark Office issued to the Company US Patent #9730911 (the “Patent”) granting exclusive rights to its proprietary composition of matter in liquid formulations, based on compounds extracted from cannabis plant materials; more specifically the composition of matter pertaining to the use of phytocannabinoids, cannabinoids, and specific terpene profiles in liquid form. This composition of matter Patent provides protection for our proprietary formulations. The Patent protects the use of suspending both phytocannabinoids and cannabinoids with specific combinations of cannabis derived terpenes in liquid forms with an array of delivery methods including capsule, sublingual, topical, oral, suppository, and vaporization. Cannabinoids referenced in the application include ratios of tetrahydrocannabinolic acid (THCa), cannabidiolic acid (CBDa), tetrahydrocannabinol (THC), cannabinol (CBN), cannabidiol (CBD), cannabichromenic acid (CBCa), and cannabichromene (CBC). At August 15, 2017, we classified the costs associated with research, legal fees, application costs incurred in the process of being granted the Patent on our consolidated balance sheet in the amount of $142,317, and we began amortizing such cost of the Patent on a straight-line basis over a 15-year period. Amortization expense of the Patent is $4,458 and $0.0 for the three-month period ended March 31, 2018 and 2017, respectively and accumulated amortization is $4,458 and $2,679 at March 31, 2018 and December 31, 2017, respectively.

NOTE 8 – GRANTED PATENT


On August 15, 2017, the United States Patent and Trademark Office issued to the Company US Patent #9730911 (the “Patent”) granting exclusive rights to its proprietary formulations based on compounds extracted from cannabis plant materials; more specifically the composition of matter pertaining to the use of phytocannabinoids, cannabinoids, and specific terpene profiles in liquid form. This composition of matter Patent provides protection for our proprietary formulations. The Patent protects the use of suspending both phytocannabinoids and cannabinoids with specific combinations of cannabis derived terpenes in liquid forms with an array of delivery methods including capsule, sublingual, topical, oral, suppository, and vaporization. Cannabinoids referenced in the application include ratios of tetrahydrocannabinolic acid (THCa), cannabidiolic acid (CBDa), tetrahydrocannabinol (THC), cannabinol (CBN), cannabidiol (CBD), cannabichromenic acid (CBCa), and cannabichromene (CBC). At August 15, 2017, we classified the costs associated with research, legal fees, application costs incurred in the process of being granted the Patent on our consolidated balance sheet in the amount of $142,317, and we began amortizing such cost of the Patent on a straight-line basis over a 15-year period. Amortization expense of the Patent is $2,679 and $0.00 for the year ended December 31, 2017 and 2016, respectively, and accumulated amortization is $2,679 and $0.00 at December 31, 2017 and 2016, respectively.


XML 24 R16.htm IDEA: XBRL DOCUMENT v3.8.0.1
INTANGIBLE ASSETS
3 Months Ended 12 Months Ended
Mar. 31, 2018
Dec. 31, 2017
Goodwill and Intangible Assets Disclosure [Abstract]    
INTANGIBLES

NOTE 9 – INTANGIBLE ASSETS


Our intangible assets are comprised of the costs incurred in pursuing provisional patent applications and applications for design mark and trademarks, which have presently not been approved or issued. The costs associated with our intangible assets are amortized on a straight-line basis over estimated useful lives of 15 years for patents and 10 years for design marks and trademarks once the applications are approved. Costs associated with applications that are not approved will be expensed in the period that the application is rejected or abandoned.

NOTE 9 – INTANGIBLE ASSETS


Our intangible assets are comprised of the costs incurred in pursuing provisional patent applications and applications for design mark and trademarks, which have presently not been approved or issued. The costs associated with our intangible assets are amortized on a straight-line basis over estimated useful lives of 15 years for patents and 10 years for design marks and trademarks, once the applications are approved. Costs associated with applications that are not approved will be expensed in the period that the application is rejected or abandoned.

XML 25 R17.htm IDEA: XBRL DOCUMENT v3.8.0.1
EQUITY METHOD INVESTMENTS
12 Months Ended
Dec. 31, 2017
Equity Method Investments and Joint Ventures [Abstract]  
EQUITY METHOD INVESTMENTS

NOTE 10 – EQUITY METHOD INVESTMENTS


On August 15, 2014, we acquired a 50% interest in Cannabinoid Research & Development Company Limited (“CRD”), a Jamaican company, in exchange 40,000 shares of our common stock valued at $88,000 based on the previous day’s closing price of our stock. We also committed to provide expertise on design-build, genetics, cultivation, production, processing, productizing, labeling, packaging, marketing, branding and distribution of products, as well as use of our intellectual property in the operations of CRD. We accounted for this $88,000 as an equity method investment on our condensed consolidated balance sheets at December 31, 2016.


At March 31, 2017, it was concluded that we had established a variable interest entity relationship with CRD, because we are the primary beneficiary, in accordance with GAAP. As a result, we elected to consolidate the assets and liabilities of CRD in our consolidated balance sheet at March 31, 2017.

XML 26 R18.htm IDEA: XBRL DOCUMENT v3.8.0.1
ACCRUED EXPENSES
12 Months Ended
Dec. 31, 2017
Accrued Liabilities, Current [Abstract]  
ACCRUED EXPENSES

NOTE  11 – ACCRUED EXPENSES


Our accrued expenses consist of:


 

 

December 31,

 

 

 

2017

 

 

2016

 

Accrued consulting fees

 

$

 

 

$

45,000

 

Accrued wages and related expenses

 

 

10,184

 

 

 

 

Accrued interest expense

 

 

 

 

 

10,264

 

Total accrued expenses

 

$

10,184

 

 

$

55,264

 


On May 6, 2014, we entered into a consultancy agreement with two third party consultants that had a nine-month term, which could be renewed and/or extended by mutual agreement. The agreement provided for a $50,000 payment at signing, which has been paid, and for three more $50,000 payments (a total of $200,000) and the issuance of 100,000 shares of our common stock upon the achievement of certain goals, as set forth in appendix II of the agreement. During the year ended December 31, 2014 we recognized $160,000 of expense applicable to this agreement. At December 31, 2015, the project was approximately 80% complete and $110,000 is included in accrued expenses on our consolidated balance sheet at that date. On December 7, 2016, upon mutual agreement, the consultancy agreement was deemed to be abandoned, because the project was not completed. In turn, one of the consultants, Dr. Brent Reynolds, has been performing other services for the Company during the year ended December 31, 2016, and has agreed to join our Board of Advisors. Dr Reynolds is currently a professor in the Department of Neurosurgery at the University of Florida, College of Medicine, where his lab focuses on the application of natural products for treating diseases and dysfunction of the nervous system. In recognition of his services to the Company during the year ended December 31, 2016, and as an inducement to join our Board of Advisors, he was issued 100,000 shares of our common stock for such services, and the fair market value of these shares in the amount of $163,783 was charged to common stock on the consolidated balance sheet at December 31, 2016, and the residual amount of $53,783 was recognized as a loss on the extinguishment of a debt in our consolidated statement of operations.

XML 27 R19.htm IDEA: XBRL DOCUMENT v3.8.0.1
INSTALLMENT LOAN PAYABLE
3 Months Ended 12 Months Ended
Mar. 31, 2018
Dec. 31, 2017
Installment Loan Payable    
INSTALLMENT LOAN PAYABLE

NOTE 10 – INSTALLMENT LOAN PAYABLE


Installment loan payable consists of a 48-month installment loan incurred in connection with the purchase of a truck that is used at our extraction facility.  The outstanding balance on the installment loan was $32,757 and $46,667 at March 31, 2018, and December 31, 2017, respectively. The terms of the installment loan specify monthly payments of $955, however, we are making payments of $6,955 per month to pay the loan off in a six-month period. As a result of our intentions to pay the loan off in six months, the entire balance of the installment loan has been classified as a current liability.

NOTE 12 – INSTALMENT LOAN PAYABLE


Instalment loan payable consists of a 48-month instalment loan incurred in connection with the purchase of a truck that is used at our extraction facility.  The outstanding balance on the instalment loan is $46,667 and $0.0 at December 31, 2017 and 2016, respectively. The terms of the installment loan specify monthly payments of $972, however, we are making payments of $7,778 per month in order to pay the loan off in a six-month period. As a result of our intentions to pay the loan off in six months, the entire balance of the instalment loan has been classified as a current liability.

XML 28 R20.htm IDEA: XBRL DOCUMENT v3.8.0.1
DEFERRED REVENUE
3 Months Ended 12 Months Ended
Mar. 31, 2018
Dec. 31, 2017
Deferred Revenue Disclosure [Abstract]    
DEFERRED REVENUE

NOTE 11 – DEFERRED REVENUE


Our deferred revenue consists of:


 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Deferred revenue – WeedMD

 

$

158,750

 

 

$

203,750

 

Less – current portion

 

 

(158,750

)

 

 

(180,000

)

Deferred revenue, net of current portion

 

$

 

 

$

23,750

 


On June 9, 2014, we received 1,187,500 common shares and 3,000,000 warrants to purchase common shares of WMD in exchange for future consulting services and use of our intellectual property. We recorded the $893,750 fair value of these securities as deferred revenue and we recognized $150,000 of this amount as revenue during the period July 1, 2014 through December 31, 2014, based upon our initial three-year estimate of the service period involved. Based on recent discussions with WMD, we now expect to deliver the remaining consulting services and use of our intellectual property to WMD on a relatively consistent monthly basis during the four-year period January 1, 2015 through December 31, 2018. Accordingly, we are now recognizing $15,000 of deferred revenue per month. We recognized $45,000 and $180,000 of revenue applicable to this arrangement in the three months ended March 31, 2018 and the year ended December 31, 2017, respectively.  At March 31, 2018, we expect to recognize $158,750 of the remaining $158,750 WMD deferred revenue during the next twelve months and accordingly, we have classified the $158,750 as a current liability on our consolidated balance sheets.

NOTE 13 – DEFERRED REVENUE


Our deferred revenue consists of:


 

 

December 31,

 

 

 

2017

 

 

2016

 

Deferred revenue – WeedMD

 

$

203,750

 

 

$

383,750

 

Less – current portion

 

 

(180,000

)

 

 

(180,000

)

Deferred revenue, net of current portion

 

$

23,750

 

 

$

203,750

 


On June 9, 2014, we received 1,187,500 common shares and 3,000,000 warrants to purchase common shares of WMD in exchange for future consulting services and use of our intellectual property. We recorded the $893,750 fair value of these securities as deferred revenue and we recognized $150,000 of this amount as revenue during the period July 1, 2014 through December 31, 2014, based upon our initial three-year estimate of the service period involved. Based on recent discussions with WMD, we now expect to deliver the remaining consulting services and use of our intellectual property to WMD on a relatively consistent monthly basis during the four-year period January 1, 2015 through December 31, 2018. Accordingly, we are now recognizing $15,000 of deferred revenue per month. We recognized $180,000 of revenue applicable to this arrangement, in each of the years ended December 31, 2017 and 2016. At December 31, 2017, we expect to recognize $180,000 of the remaining $203,750 WMD deferred revenue during the next twelve months and accordingly, we have classified the $180,000 as a current liability on our consolidated balance sheets.


On December 28, 2014, we entered into a royalty and consulting services agreement with FoxBarry Farms, LLC (“FoxBarry”) whereby we received a $200,000 prepaid royalty payment from FoxBarry. At the time, we planned to recognize deferred royalty revenue based on actual applicable sales as defined in the agreement. In August 2015, we discontinued providing consulting services to FoxBarry, as our initial project with FoxBarry was abandoned due to operational issues. However, FoxBarry appears to no longer be in existence, and since all of our conditions pursuant to the agreement have been satisfied, we elected to recognize the $200,000 of deferred income during the year ended December 31, 2016, as other income.

XML 29 R21.htm IDEA: XBRL DOCUMENT v3.8.0.1
CONVERTIBLE NOTE PAYABLE
3 Months Ended 12 Months Ended
Mar. 31, 2018
Dec. 31, 2017
CONVERTIBLE NOTE PAYABLE [Abstract]    
CONVERTIBLE NOTE PAYABLE

NOTE 12 – CONVERTIBLE NOTE PAYABLE


We do not have any convertible notes payable as of March 31, 2018 and December 31, 2017.


On August 10, 2016, we borrowed $125,000 and used the proceeds for working capital purposes. The loan, together with interest at 12% per year, was payable on May 10, 2017. We could prepay the loan at any time. If the loan was repaid on or before October 16, the principal amount which was being repaid would increase by 25%. If the loan was repaid on or before October 16, 2016 through February 12, 2016, the principal amount which was being repaid would increase by 30%. Thereafter, the note could be repaid only upon written consent from the noteholder, and the principal amount that was being repaid would increase by 30%. At any time after the date of the note, the noteholder was entitled to convert all of the outstanding and unpaid principal in to shares of our common stock. Until February 12, 2017, the conversion price was $0.20 per share, and thereafter, the conversion price was at a 45% discount to the lowest closing price of our common stock for the ten trading days preceding the conversion date. The noteholder could not make any conversions that would result in the note holder holding more than 4.99% of our issued and outstanding common stock at any one time. If the note had been held through February 12, 2017, derivative accounting would have applied upon the change to a variable conversion price. This convertible note was paid in full on February 9, 2017.

NOTE 14 – CONVERTIBLE NOTES PAYABLE


During the year ended December 31, 2016, we issued convertible promissory notes to unaffiliated third parties, the proceeds of which used for general working capital purposes. The debt discounts and deferred financing costs on the convertible promissory notes are amortized on a straight-line basis, which approximates the effective interest rate method, over the term of the note, and this amortization is included in interest expense in our consolidated statements of operations.


The following table summarizes our convertible promissory notes outstanding as of December 31, 2017 and 2016:


 

 

 

 

 

 

Maturity

 

Interest

 

Base

 

December 31,

 

Issue Date

 

Holder

 

Security

 

Date

 

Rate

 

Conversion Rate

 

2017

 

 

2016

 

12/28/2016

 

Tangiers Investment Group

 

Unsecured

 

7/8/2017

 

 

10

%

$1.00 through maturity; 55% of lowest closing price thereafter

 

$





 

 

$

35,000

 

8/10/2016

 

JSJ Investments

 

Unsecured

 

5/10/2017

 

 

12

%

$0.20 during first 180 days; 45% of lowest closing price thereafter

 

 

 

 

 

125,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

160,000

 

 

 

 

 

 

 

 

 

 

 

 

Less unamortized discount

 

 

 

 

 

(34,453

)

 

 

 

 

 

 

 

 

 

 

 

      

 

$

 

 

$

125,547

 


The convertible notes, including accrued interest payable, may be converted into shares of our common stock at the Conversion Price, in whole, or in part, at various times, after the date of issuance, at the option of the holder (the “Conversion Feature”), as defined by the terms of the convertible note.


The Conversion Price is equal to the Base Conversion Rate specified in the table above multiplied by the Variable Conversion Rate (“VCR”) which is equal to the average of the number of lowest trading prices or closing bid prices of our common stock (specified in the table above) during the ten-trading day period prior to the date of conversion divided by the closing price of our common stock on the day of conversion.


If these conversion rates result in a beneficial conversion feature (“BCF”), the BCF is recorded as an unamortized convertible debt discount, which is required to be valued and amortized to interest expense over the term of the Note. We amortize our convertible debt discount on a straight-line basis, which approximates the effective interest rate method, and this amortization is included in amortization of debt discount in our consolidated statements of operations. If a convertible note is repaid, any remaining unamortized deferred financing costs and unamortized debt discount are expensed on the date of repayment.


If a convertible note is convertible into an unlimited number of unregistered, restricted common shares, it is classified as having an unlimited shares feature (“Unlimited Shares Feature”). The difference between the closing price of our common stock and the VCR is referred to as the Variable Conversion Rate Differential (“VCRD”). If, both the Unlimited Shares Feature and the VCRD meet the definition of an embedded derivative, then together they create a compound embedded derivative liability or, hereafter, simply a “derivative liability.”


In accordance with U.S. GAAP, our derivative liabilities are recorded at fair value on the date of issuance and subsequently remeasured to fair value each reporting period with any change in fair value being recognized as gain (loss) on derivative liabilities in our consolidated statement of operations. See Note 9.


Similarly, accrued interest payable applicable to the convertible notes is convertible into shares of our common stock, without limit, at the same Conversion Price. The fair value of the derivative liabilities applicable to accrued interest payable is measured and recognized at each reporting date as derivative liabilities with a corresponding charge to interest expense.  As noted above, all derivative liabilities are re-measured in subsequent reporting periods with any change in fair value being included in gain (loss) on derivative liabilities.


During the years ended December 31, 2017 and 2016 we recognized $0.00 and $34,415 of amortization of deferred financing costs, respectively. This amount is included in interest expense in our consolidated statements of operations.


We recognized $30,543 and $35,719 of interest expense applicable to our convertible notes during the years ended December 31, 2017 and 2016, respectively. As of December 31, 2017, and 2016, $0.00 and $5,876, respectively, of this interest is accrued within accrued expenses on our consolidated balance sheets.


2015 Convertible Notes


At various times during the year ended December 31, 2015, the Company issued convertible promissory notes (the "2015 Notes") in the aggregate principal balance of $381,000. The 2015 Notes, including accrued interest payable, may be converted into shares of our common stock at the Conversion Price, as defined below, in whole, or in part, at any time beginning 180 days after the date of issuance, at the option of the holder. The 2015 Notes also contain prepayment options whereby we may, during the first 180 days that each note is outstanding, prepay the note by paying prepayment premiums ranging from 10% to 40% of the principal then outstanding depending on the date of prepayment.


In general, per the terms of our 2015 Notes, the note holders may not make any conversions that would result in the note holder holding more than 9.99% of our issued and outstanding common stock at any one time.


Should we default on a conversion or repayment of a convertible note, the note, accrued interest and default penalties and fees are immediately due and payable. The minimum default penalty amount ranges from 25% to 50% (or more, under certain circumstances) times the then outstanding principal and unpaid interest.


During the year ended December 31, 2016, two of these notes in the aggregate principal balance of $161,000 were repaid. The $220,000 note dated December 9, 2015 from Tangiers Investment Group, LLC was converted in full into a total of 2,843,698 shares of the Company's common stock at various dates during the year ended December 31, 2016.


Slainte Convertible Notes


On March 30, 2016, we borrowed $81,978, from Slainte Ventures and used the proceeds to repay principal and accrued interest applicable to our $59,000 convertible promissory note dated October 6, 2015, to Vis Vires Group, Inc. On April 6, 2016, we borrowed an additional $75,000 from Slainte Ventures and used the proceeds, along with $52,500 of advances to the Company by officers and directors of the Company, to repay principal and accrued interest applicable to our $102,000 convertible promissory note, dated October 12, 2015, to JSJ Investments, Inc. On July 5, 2016, we borrowed $50,000 from Slainte Ventures and used the proceeds for working capital purposes. These loans, together with interest at 12% per year, are payable on December 30, 2016. We can prepay the loans at any time. If the loans are repaid on or before September 30, 2016, the principal amount which is being repaid will increase by 10%. If the loans are repaid after September 30, 2016, the principal amount which is being repaid will increase by 15%. The amount of the principal increase may be paid with shares of our common stock. The number of shares to be issued for such purpose will be determined by dividing the average closing price of our common stock (which in no case can be greater than $0.45) for the ten trading days preceding the prepayment date. The original principal of the loan was not convertible prior to maturity. If the loans were not paid when due, then at any time between the maturity date and January 10, 2017, Slainte may convert the outstanding principal and interest on the loan into shares of our common stock. The number of shares to be issued on conversion was to be determined by dividing the average closing price of our common stock (which in no case can be greater than $0.45) for the ten trading days preceding the conversion date by the outstanding principal and interest on the loan on the conversion date.


The notes were not paid prior to the maturity date of December 30, 2016. As a result, the notes became convertible effective December 31, 2016. Derivative liabilities in the aggregate amount of $557,000 were recorded upon these notes becoming convertible. The notes along with their accrued interest were converted into 497,296 shares of the Company's common stock on December 31, 2016, and the value of the derivative liabilities were extinguished to common stock.


JSJ Convertible Note


On August 10, 2016, we borrowed $125,000 from JSJ Investments and used the proceeds for working capital purposes. The loan, together with interest at 12% per year, is payable on May 10, 2017. We can prepay the loan at any time. If the loan is repaid on or before October 16, the principal amount which is being repaid will increase by 25%. If the loan is repaid on or before October 16, 2016 through February 12, 2016, the principal amount which is being repaid will increase by 30%. Thereafter, the note may be repaid only upon written consent from JSJ, and the principal amount that is being repaid will increase by 30%. At any time after the date of the note, JSJ is entitled to convert all of the outstanding and unpaid principal in to shares of our common stock. Until February 12, 2017, the conversion price is $0.20 per share, and thereafter, the conversion price will be at a 45% discount to the lowest closing price of our common stock for the ten trading days preceding the conversion date. JSJ may not make any conversions that would result in the note holder holding more than 4.99% of our issued and outstanding common stock at any one time. If the notes are held through February 12, 2017, derivative accounting will apply upon the change to a variable conversion price. This convertible note was paid in full on February 9, 2017.


Tangiers Convertible Note


In connection with our equity line agreement, the Company issued a promissory note to Tangiers for the principal sum of $35,000 as a commitment fee for the equity line. The note bears interest at 10% per year, is unsecured, and is due and payable on July 8, 2017. At the option of Tangiers, all or any part of the unpaid principal amount of the note may be converted into shares of the Company's common stock. The number of shares to be issued on any conversion will be determined by dividing the principal amount of the note to be converted by $1.00. If the note is not repaid or converted prior to maturity, the conversion price will change to 55% of the lowest closing bid price during the 20 days preceding the conversion date. If the note is held past maturity, derivative accounting will apply upon the change to a variable conversion price. This note was paid off on May 19, 2017.

XML 30 R22.htm IDEA: XBRL DOCUMENT v3.8.0.1
NOTES PAYABLE TO AND ADVANCES FROM OFFICERS AND DIRECTORS
3 Months Ended 12 Months Ended
Mar. 31, 2018
Dec. 31, 2017
NOTES PAYABLE, RELATED PARTIES [Abstract]    
NOTES PAYABLE TO AND ADVANCES FROM OFFICERS AND DIRECTORS

NOTE 13 – NOTES PAYABLE TO AND ADVANCES FROM OFFICERS AND DIRECTORS


Notes payable to and advance from officers and directors consisted of the following:


 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Note payable to Earnie Blackmon, an officer and director

 

$

332,760

 

 

$

246,458

 

Note payable to Tony Verzura, an officer and director

 

 

15,844

 

 

 

14,889

 

 

 

$

348,604

 

 

$

261,347

 


On April 6, 2016, we borrowed $25,000 from Ernest Blackmon and $25,000 from Tony Verzura and used the proceeds to repay principal and interest applicable on our $102,000 convertible promissory note dated October 12, 2015, to JSJ Investments Inc. The loans, together with interest at 12% per year, are payable on December 30, 2016. We may prepay the loans at any time. If the loans are repaid on or before September 30, 2016, the principal amount, which is being repaid, will increase by 10%. If the loans are repaid after September 30, 2016, the principal amount, which is being repaid will increase by 15%. As of December 31, 2016, the loans were not repaid, when they were due, per the terms of the notes, and thus, the principal balance of the notes was increased to $57,500 in the aggregate, with the addition to the principal balance charged to interest expense.


During the three months ended March 31, 2018 and the year ended December 31, 2017 Messrs. Blackmon, Verzura and Ruby, who are officers and directors of the Company, paid obligations and expenses on behalf of the Company, from their own individual, personal funds. Such payments have been recorded in the consolidated balance sheets as a component of Notes payable to and advances from officers and directors.

NOTE 15 – NOTES PAYABLE TO AND ADVANCES FROM OFFICERS AND DIRECTORS


Notes payable to and advance from officers and directors consisted of the following, at December 31, 2017 and 2016:


 

 

December 31,

 

 

 

2017

 

 

2016

 

Note payable to Earnie Blackmon, an officer and director

 

$

246,458

 

 

$

28,750

 

Note payable to Tony Verzura, an officer and director

 

 

14,889

 

 

 

28,750

 

 

 

$

261,347

 

 

$

57,500

 


On April 6, 2016, we borrowed $25,000 from Ernest Blackmon and $25,000 from Tony Verzura and used the proceeds to repay principal and interest applicable on our $102,000 convertible promissory note dated October 12, 2015, to JSJ Investments Inc. The loans, together with interest at 12% per year, are payable on December 30, 2016. We may prepay the loans at any time. If the loans are repaid on or before September 30, 2016, the principal amount, which is being repaid, will increase by 10%. If the loans are repaid after September 30, 2016, the principal amount, which is being repaid will increase by 15%. As of December 31, 2016, the loans were not repaid, when they were due, per the terms of the notes, and thus, the principal balance of the notes was increased to $57,500 in the aggregate, with the addition to the principal balance charged to interest expense.


During the years ended December 31, 2017 and 2016, Messrs. Blackmon, Verzura and Ruby, who are officers and directors of the Company, paid obligations and expenses on behalf of the Company, from their own individual, personal funds.  Such payments have been recorded in the consolidated balance sheets as a component of Notes payable to and advances from officers and directors.

XML 31 R23.htm IDEA: XBRL DOCUMENT v3.8.0.1
STOCKHOLDERS' EQUITY
3 Months Ended 12 Months Ended
Mar. 31, 2018
Dec. 31, 2017
Stockholders' Equity Note [Abstract]    
STOCKHOLDERS' EQUITY

NOTE 14 – STOCKHOLDERS’ EQUITY

 

Preferred Stock


On July 18, 2017, the Board of Directors adopted a resolution creating a series of Preferred Shares, no par value per share, designated as the Series A Preferred Shares. We subsequently issued 2,000 shares of our Series A preferred stock for $2,200 to of our officers and directors.


Warrants:

 

The following table summarizes our share warrants outstanding as of March 31, 2018 and December 31, 2017:


 

 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

 

Number of

Shares

 

 

Weighted

Average

Exercise

Price

 

 

Number of

Shares

 

 

Weighted

Average

Exercise

Price

 

Warrants outstanding, beginning of period

 

 

1,209,025

 

 

$

0.21

 

 

$

1,551,356

 

 

$

0.18

 

Warrants issued to consultants

 

 

25,002

 

 

 

 

 

 

 

132,669

 

 

 

 

 

Warrants exercised

 

 

 

 

 

 

 

 

 

(475,000

)

 

 

 

 

Warrants outstanding, end of period

 

 

1,234,027

 

 

$

0.27

 

 

 

1,209,025

 

 

$

0.21

 

Warrants exercisable, end of period

 

 

1,234,027

 

 

$

0.27

 

 

 

1,209,025

 

 

$

0.21

 


The weighted-average remaining contractual life for warrants outstanding and exercisable at March 31, 2018, is 3.6 years, and the aggregate intrinsic value of warrants outstanding and exercisable at March 31, 2018 is $0.


666,667 warrants issued during the years ended December 31, 2017 were valued utilizing the Black Scholes option pricing model and the following range of assumptions on the date of valuation:


Stock price

 

$

0.16 - $2.18

 

Exercise price

 

$

0.18

 

Risk free interest rate

 

 

1.01% - 1.37

%

Expected term (years)

 

 

5

 

Expected volatility

 

 

322% - 504

%

Expected dividends

 

 

0

%


Stock Options


On February 28, 2018, we awarded 6,000,000 stock options to various employees under our 2017 Stock Incentive Plan. Of these options, 5,125,000 were fully vested at the time of grant with the remaining 875,000 vesting quarterly through December 31, 2019. The awarded options give the option holder the right to purchase shares of our common stock at $1.08 per share during the ten-year term of the option.


We calculated the fair value of each option to be approximately $0.91 per option utilizing the Black Scholes option pricing model and the following range of assumptions on the date of valuation:


Stock price

 

$

1.05

 

Exercise price

 

$

1.08

 

Risk free interest rate

 

 

2.8

%

Expected term (years)

 

 

5-10

 

Expected volatility

 

 

197

%

Expected dividends

 

 

0

%


The total grant-date fair value of these options was approximately $6,146,000. Stock-based compensation expense related to these stock options included in general and administrative expenses for the three months ended March 31, 2018 was approximately $5,324,754.


The following table summarizes our stock options outstanding as of both March 31, 2018 and December 31, 2017, respectively:


 

 

Number of
Shares

 

 

Weighted
Average
Remaining
Life (Years)

 

 

Weighted
Average
Exercise
Price

 

Stock options outstanding at January 1, 2017

 

 

3,680,000

 

 

 

8.9

 

 

$

0.28

 

Issued

 

 

3,957,500

 

 

 

 

 

 

 

 

 

Exercised

 

 

(1,000,000

 

 

 

 

 

 

 

 

Expired

 

 

 

 

 

 

 

 

 

 

 

Stock options outstanding at December 31, 2017

 

 

6,637,500

 

 

 

8.7

 

 

$

0.57

 

Stock options exercisable at December 31. 2017

 

 

6,580,000

 

 

 

8.7

 

 

 

0.57

 

Stock options outstanding at December 31, 2017

 

 

6,637,500

 

 

 

 

 

 

 

 

 

Issued

 

 

6,000,000

 

 

 

9.9

 

 

 

1.08

 

Exercised

 

 

 

 

 

 

 

 

 

 

 

Expired

 

 

 

 

 

 

 

 

 

 

 

Stock options outstanding at March 31, 2017

 

 

12,637,500

 

 

 

9.2

 

 

 

0.78

 

Stock options exercisable at March 31, 2018

 

 

11,705,000

 

 

 

9.2

 

 

$

0.78

 


The weighted-average remaining contractual life for stock options outstanding and exercisable at March 31, 2018 is 9.2 years, and the aggregate intrinsic value of options outstanding and exercisable at March 31, 2018 is $0.78.

NOTE 16 – STOCKHOLDERS’ EQUITY (DEFICIT)

 

Preferred Stock


On July 18, 2017, the Board of Directors adopted a resolution creating a series of Preferred Shares, no par value per share, designated as the Series A Preferred Shares. We subsequently issued 2,000 shares of our Series A preferred stock for $2,200 to of our officers and directors.


Warrants:

 

The following table summarizes our share warrants outstanding as of December 31, 2017 and 2016:

 

 

 

Year Ended December 31,

 

 

 

2017

 

 

2016

 

 

 

Number of

Shares

 

 

Weighted

Average

Exercise

Price

 

 

Number of

Shares

 

 

Weighted

Average

Exercise

Price

 

Warrants outstanding, beginning of period

 

 

1,551,356

 

 

$

0.18

 

 

$

3,000,000

 

 

$

12.00

 

Warrants issued to consultants

 

 

132,669

 

 

 

 

 

 

666,667

 

 

 

0.18

 

Cashless warrants issued upon conversion of Slainte note

 

 

 

 

 

 

 

 

1,584,689

 

 

 

 

Warrants exercised

 

 

(475,000

)

 

 

 

 

 

(700,000

)

 

 

 

Expired

 

 

 

 

 

 

 

 

(3,000,000

)

 

 

 

Warrants outstanding, end of period

 

 

1,209,025

 

 

$

0.21

 

 

 

1,551,356

 

 

$

0.18

 

Warrants exercisable, end of period

 

 

1,209,025

 

 

$

0.21

 

 

 

1,551,356

 

 

$

0.18

 


The weighted-average remaining contractual life for warrants outstanding and exercisable at December 31, 2017, is 3.0 years, and the aggregate intrinsic value of warrants outstanding and exercisable at December 31, 2017 is $0.


666,667 and 83,333 warrants issued during the years ended December 31, 2017 and 2016, respectively, were valued utilizing the Black Scholes option pricing model and the following range of assumptions on the date of valuation:


Stock price

 

$

0.16 - $2.18

 

Exercise price

 

$

0.18

 

Risk free interest rate

 

 

1.01% - 1.37

%

Expected term (years)

 

 

5

 

Expected volatility

 

 

322% - 504

%

Expected dividends

 

 

0

%


Stock Options


On January 9, 2015, we awarded 200,000 stock options to each of Messrs. Blackmon, Verzura and Ruby under our 2014 Stock Incentive Plan. The options were fully vested at the time of grant and give the option holder the right to purchase shares of our common stock at $0.70 per share during the ten-year term of the option.


We calculated the fair value of each option to be approximately $0.70 per option utilizing the Black Scholes option pricing model and the following assumptions on the date of valuation:


Stock price

 

$

0.70

 

Exercise price

 

$

0.70

 

Risk free interest rate

 

 

1.98

%

Expected term (years)

 

 

10.0

 

Expected volatility

 

 

173

%

Expected dividends

 

 

0

%


At December 31, 2014, the fair value of these 600,000 options totaling $417,664 was included in accrued expenses on our consolidated balance sheets. On January 9, 2015, the option grant date, we increased common stock and decreased accrued expenses by this amount to account for the issuance of the 600,000 options on that date.


On January 12, 2016, we awarded 1,050,000 stock options to each of Messrs. Blackmon, Verzura and 980,000 stock options to Mr. Ruby under our 2014 Stock Incentive Plan. The options were fully vested at the time of grant and give the option holder the right to purchase shares of our common stock at $0.20 per share during the ten year term of the option.


We calculated the fair value of each option to be approximately $0.20 per option utilizing the Black Scholes option pricing model and the following assumptions on the date of valuation:


Stock price

 

$

0.20

 

Exercise price

 

$

0.20

 

Risk free interest rate

 

 

1.98

%

Expected term (years)

 

 

10.0

 

Expected volatility

 

 

173

%

Expected dividends

 

 

0

%


At December 31, 2015 the fair value of these 3,080,000 options totaling $612,512, which was included in accrued expenses on our consolidated balance sheets, and on January 15, 2016, the option grant date, we increased common stock and decreased accrued expenses by this amount to account for the issuance of these options on that date.


The following table summarizes our stock options outstanding as of both December 31, 2017 and 2016, respectively:


 

 

Number of
Shares

 

 

Weighted
Average
Remaining
Life (Years)

 

 

Weighted
Average
Exercise
Price

 

Stock options outstanding at December 31, 2015

 

 

600,000

 

 

 

9.8

 

 

$

0.70

 

Issued

 

 

3,080,000

 

 

 

10.0

 

 

$

0.20

 

Exercised

 

 

 

 

 

 

 

 

 

Expired

 

 

 

 

 

 

 

 

 

Stock options outstanding at December 31, 2016

 

 

3,680,000

 

 

 

8.9

 

 

$

0.28

 

Issued

 

 

3,957,500

 

 

 

 

 

 

 

 

 

Exercised

 

 

(1,000,000

)

 

 

 

 

 

 

 

 

Expired

 

 

 

 

 

 

 

 

 

 

 

Stock options exercisable at December 31, 2017

 

 

6,637,500

 

 

 

8.7

 

 

$

0.57

 


The weighted-average remaining contractual life for stock options outstanding and exercisable at December 31, 2017, is 8.7 years, and the aggregate intrinsic value of options outstanding and exercisable at December 31, 2017 is $0.

XML 32 R24.htm IDEA: XBRL DOCUMENT v3.8.0.1
SHARE-BASED COMPENSATION
3 Months Ended 12 Months Ended
Mar. 31, 2018
Dec. 31, 2017
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]    
SHARE-BASED COMPENSATION

NOTE 15 – SHARE-BASED COMPENSATION


Share-based Compensation


We recognize share-based compensation expense in cost of revenues, sales and marketing expenses, research and development expenses, general and administrative expenses, and other income and expenses, based on the fair value of common shares issued for services. In addition, we accrue share-based compensation expense for estimated share-based awards earned during the three months ended March 31, 2018 and 2017, under our 2014 Equity Incentive Plan and our 2017 Equity Incentive Plan. Share-based compensation expense for the three months ended Mach 31, 2018 and 2017 is, as follows:


 

 

Three Months Ended

 March 31

 

 

 

2018

 

 

2017

 

Warrants issued for consulting and other services

 

$

 

 

$

91,333

 

Common stock issued for accounts payable and accrued expenses

 

 

 

 

 

43,376

 

Common stock issued for services

 

 

65,885

 

 

 

120,616

 

Common stock issued for advisory board fees

 

 

56,043

 

 

 

 

Common stock issued as compensation to employees

 

 

42,300

 

 

 

 

Stock options issued to officers and directors

 

 

5,324,754

 

 

 

 

 

 

$

5,488,982

 

 

$

255,325

 


The stock options issued to officers and directors were issued under the 2018 Stock Incentive Plan, and such shares were fully vested at the date of grant.

NOTE 17 – SHARE-BASED COMPENSATION


Share-based Compensation


We recognize share-based compensation expense in cost of revenues, sales and marketing expenses, R&D expenses, general and administrative expenses, and other income and expenses, based on the fair value of common shares issued for services. In addition, we accrue share-based compensation expense for estimated share-based awards earned during the years ended December 31, 2017 and 2016, under our 2014 Equity Incentive Plan and our 2017 Equity Incentive Plan. Share-based compensation expense for the years ended December 31, 2017 and 2016 is, as follows:


 

 

December 31,

 

 

 

2017

 

 

2016

 

Warrants issued for consulting and other services

 

$

249,835

 

 

$

319,419

 

Common stock issued for accounts payable and accrued expenses

 

 

93,002

 

 

 

223,484

 

Common stock issued for services

 

 

 

 

 

271,097

 

Common stock issued for advisory board fees

 

 

113,336

 

 

 

 

Common stock issued as compensation to employees

 

 

170,233

 

 

 

 

Stock options issued to officers and directors

 

 

2,660,159

 

 

 

 

 

 

$

3,286,565

 

 

$

814,000

 

XML 33 R25.htm IDEA: XBRL DOCUMENT v3.8.0.1
INCOME TAXES
12 Months Ended
Dec. 31, 2017
Income Tax Disclosure [Abstract]  
INCOME TAXES

NOTE 18 – INCOME TAXES


The Internal Revenue Code (“IRC”) allows net operating losses (“NOL's”) to be carried forward and applied against future profits for a period of twenty years. The change of ownership following our merger with MySkin may limit our ability to utilize these NOLs under the terms of IRC Section 381.


We did not provide any current or deferred federal income tax provision or benefit for any of the periods presented in our consolidated financial statements because we have experienced losses since our inception. When it is more likely than not, that a tax asset cannot be realized through future income, we must record an allowance against any potential future tax benefit. We provided a full valuation allowance against our net deferred tax assets, consisting of net operating loss carry forwards, because we determined that it is more likely than not that we will not earn income sufficient to realize the deferred tax assets during the carry forward periods.


We have not taken a tax position that, if challenged, would have a material effect on our consolidated financial statements for the years ended December 31, 2017 and 2016, as defined under ASC 740. We did not recognize any adjustment to our liability for uncertain tax positions and therefore did not record any adjustment to the beginning balance of our accumulated deficit on our consolidated balance sheets.


Our provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before provision for income taxes. The sources and tax effects of the differences for the periods presented are as follows:


 

 

Years Ended December 31,

 

 

 

2017

 

 

2016

 

Statutory U.S. federal tax rate

 

 

39

%

 

 

39

%

Effect of increase in valuation allowance

 

 

(39

%)

 

 

(39

%)

 

 

 

%

 

 

%


Changes in our cumulative net deferred tax assets consist of the following:


 

 

December 31,

 

 

 

2017

 

 

2016

 

Net loss carry-forward

 

$

4,923,492

 

 

$

3,648,316

 

Valuation allowance

 

 

(4,923,492

)

 

 

(3,648,316

)

 

 

$

 

 

$

 


A reconciliation of our income taxes computed at the statutory rate is as follows:


 

 

Years Ended December 31,

 

 

 

2017

 

 

2016

 

Tax benefit at statutory rate

 

$

2,023,555

 

 

$

1,500,068

 

Valuation allowance

 

 

(2,023,555

)

 

 

(1,500,068

)

 

 

$

 

 

$

 

XML 34 R26.htm IDEA: XBRL DOCUMENT v3.8.0.1
COMMITMENTS AND CONTINGENCIES
3 Months Ended 12 Months Ended
Mar. 31, 2018
Dec. 31, 2017
Commitments and Contingencies Disclosure [Abstract]    
COMMITMENTS AND CONTINGENCIES

NOTE 16 – COMMITMENTS AND CONTINGENCIES


Contractual Obligations and Commercial Commitments


Financing Commitment


On January 19, 2018, we entered into an equity line of credit agreement with Tangiers Global, LLC (“Tangiers”). Under the equity line agreement, Tangiers has agreed to provide the Company with up to $10,000,000 of funding through the purchase of shares of the Company’s common stock. During the term of the agreement, the Company may deliver a put notice to Tangiers, which will specify the number of shares which the Company will sell to Tangiers. The maximum amount that the Company shall be entitled to put to Tangiers per any applicable put notice is that number of shares of our common stock up to or equal to 400% of the average of the daily trading volume of our common stock for the eight consecutive trading days immediately prior to the date of the applicable put notice. The minimum amount the Company can draw down at any one time is $5,000, and the maximum amount the Company can draw down at any one time is $1,000,000, as determined by multiplying the put amount by the average daily volume weighted average prices of our common stock for the ten (10) trading days immediately prior to the applicable put notice.


A closing will occur on the date which is no earlier than five (5) trading days following, and no later than seven (7) trading days following, the applicable put notice. On each closing date, the Company will sell, and Tangiers will purchase, the shares of the Company’s common stock specified in the put notice. The amount to be paid by Tangiers on a particular closing date will be determined by multiplying the purchase price by the number of shares specified in the put notice. The purchase price is 85% of the average the two lowest volume weighted average trading prices of the Company’s common stock during the pricing period applicable to the put notice. The pricing period, with respect to a particular put notice, is five consecutive trading days including, and immediately following, the delivery of a put notice to Tangiers. The Company may submit a put notice once every eight trading days, provided the closing of the previous transaction has taken place. The Company is under no obligation to submit any put notices.


The Company has filed a Registration Statement with the Securities and Exchange Commission so that the shares of common stock to be sold to Tangiers may be sold in the public market. The equity line agreement will become effective on the date the Registration Statement is declared effective by the Securities and Exchange Commission.  


Clinical Trial Agreement


Under the terms of an agreement dated November 11, 2017, we committed to cover the costs to perform clinical trials with The University of the West Indies through the Topical Metabolism Research Unit of the Caribbean Institute for Health Research located in Kingston, Jamaica, initially scheduled as follows:


·

An instalment of $50,000 upon both the approval of specific protocol by the Ethics Committee of the Institutional Review Board of the Ministry of Health, Jamaica, and the execution of the clinical trial agreement,

·

An instalment of $51,182 upon the enrollment of the 12th patient,

·

An instalment of $51,182 after all twelve patients go through the washout period determined in the specific protocol and return for a second dose, and

·

An instalment of $51,182 upon completion of the clinical trial.


Additionally, we have agreed to reimburse The University of the West Indies for care and treatment of adverse reactions or injury sustained by a patient, as a direct result of the clinical trial.


Research Laboratory


Under the terms of a research agreement entered into in October 2017 with the University of Florida Trustees (“UFT”), we committed to pay UFT $151,772, upon the execution of the research agreement, and $75,886 in each of the months of February 2018 and June 2018, for a total commitment of $303,544.


Executive Office Lease


Effective August 1, 2018, we signed a thirty-six-month lease of approximately 6,683 square feet of commercial office space in Golden, Colorado that we use as our executive offices. The lease expires on July 31, 2020 and requires the payment of monthly base rental rates of $3,302 through July 31, 2018, $3,000 through July 31, 2019 and $3,799 through July 31, 2020. As additional rent, we are required to pay for an allocation of common area costs and expenses, plus all utilities.


Weldona Facility Lease


Effective October 1, 2017, we entered into a lease of approximately 40,000 square feet of industrial space in Weldona, Colorado that we us as our hemp extraction facility and hemp cultivation center. The term of the lease expires on October 31, 2018, with an annual option to renew that expires on September 30, 2022. The rent is $7,500 per month throughout the term of the lease, plus we are responsible for all utilities.


Legal Proceedings


There have been no material developments in legal proceedings in which we are involved as of March 31, 2018.

NOTE 19 – COMMITMENTS AND CONTINGENCIES


Contractual Obligations and Commercial Commitments


Consulting Agreement for GAAP Reporting Services


On February 20, 2016, we entered into a consulting agreement with a third party that has a twelve-month term, and which can be extended by mutual agreement. The agreement provides for the issuance of a five (5) year warrant to the consultant, upon the execution of the agreement, to purchase 250,000 shares of our common stock at a price of $0.18 per share, plus the payment of $7,500 on the first day of each month, beginning March 1, 2016, coupled with the monthly issuance of five (5) year warrants to purchase our common stock in a number of shares determined by dividing $7,500 by $0.18 per share. These warrants are exercisable at a price of $0.18 per share. During the years ended December 31, 2017 and 2016, we recognized in our consolidated statements of operations expenses in the total amount of $156,630 and $394,215, respectively, related to this contract, as follows:


 

 

December 31,

 

 

 

2017

 

 

2016

 

Cash paid to consultant

 

$

30,000

 

 

$

15,000

 

Fair value of shares of common stock issued to consultant

 

 

27,297

 

 

 

62,781

 

Fair value of warrants issued to consultant

 

 

99,333

 

 

 

319,419

 

 

 

$

156,630

 

 

$

397,200

 


Financing Commitment


On December 28, 2016, we entered into an equity line of credit agreement with Tangiers Global, LLC (“Tangiers”). Under the equity line agreement, Tangiers has agreed to provide the Company with up to $10,000,000 of funding through the purchase of shares of the Company’s common stock. During the term of the agreement, the Company may deliver a put notice to Tangiers, which will specify the number of shares which the Company will sell to Tangiers. The minimum amount the Company can draw down at any one time is $5,000, and the maximum amount the Company can draw down at any one time is $350,000 as determined by the formula contained in the equity line agreement.


A closing will occur on the date which is no earlier than five trading days following, and no later than seven trading days following, the applicable put notice. On each closing date, the Company will sell, and Tangiers will purchase, the shares of the Company’s common stock specified in the put notice. The amount to be paid by Tangiers on a particular closing date will be determined by multiplying the purchase price by the number of shares specified in the put notice. The purchase price is 85% of the average of the two lowest trading prices of the Company’s common stock during the pricing period applicable to the put notice. The pricing period, with respect to a particular put notice, is five consecutive trading days including, and immediately following, the delivery of a put notice to Tangiers. The Company may submit a put notice once every ten trading days provided the closing of the previous transaction has taken place. The Company is under no obligation to submit any put notices.


The equity line agreement has a term of 36 months, which will begin on the effective date of the registration statement, which the Company has agreed to file with the Securities and Exchange Commission so that the shares of common stock to be sold to Tangiers may be sold in the public market. The Company issued a promissory note to Tangiers for the principal sum of $35,000 as a commitment fee for the equity line. The note bears interest at 10% per year, is unsecured, and is due and payable on July 8, 2017. The note is recorded on our consolidated balance sheet at December 31, 2016 in the amount of $35,000, net of a discount of $34,453. At the option of Tangiers, all or any part of the unpaid principal amount of the note may be converted into shares of the Company’s common stock. The number of shares to be issued on any conversion will be determined by dividing the principal amount of the note to be converted by $1.00.


Clinical Trial Agreement


Under the terms of an agreement dated November 11, 2017, we committed to cover the costs to perform clinical trials with The University of the West Indies through the Topical Metabolism Research Unit of the Caribbean Institute for Health Research located in Kingston, Jamaica, initially scheduled as follows:


·

An instalment of $50,000 upon both the approval of specific protocol by the Ethics Committee of the Institutional Review Board of the Ministry of Health, Jamaica, and the execution of the clinical trial agreement,

·

An instalment of $51,182 upon the enrollment of the 12th patient,

·

An instalment of $51,182 after all twelve patients go through the washout period determined in the specific protocol and return for a second dose, and

·

An instalment of $51,182 upon completion of the clinical trial.


Additionally, we have agreed to reimburse The University of the West Indies for care and treatment of adverse reactions or injury sustained by a patient, as a direct result of the clinical trial.


Research Laboratory


Under the terms of a research agreement entered into in October 2017 with the University of Florida Trustees (“UFT”), we committed to pay UFT $151,772, upon the execution of the research agreement, and $75,886 in each of the months of February 2018 and June 2018, for a total commitment of $303,544.  


Executive Office Lease


Effective August 1, 2018, we signed a thirty-six-month lease of approximately 6,683 square feet of commercial office space in Golden, Colorado that we use as our executive offices. The lease expires on July 31, 2020 and requires the payment of monthly base rental rates of $3,302 through July 31, 2018, $3,000 through July 31, 2019 and $3,799 through July 31, 2020. As additional rent, we are required to pay for an allocation of common area costs and expenses, plus all utilities.


Weldona Facility Lease


Effective October 1, 2017, we entered into a lease of approximately 40,000 square feet of industrial space in Weldona, Colorado that we us as our hemp extraction facility and hemp cultivation center. The term of the lease expires on October 31, 2018, with an annual option to renew that expires on September 30, 2022. The rent is $7,500 per month throughout the term of the lease, plus we are responsible for all utilities.


Legal Proceedings


There have been no material developments in legal proceedings in which we are involved during the year ended December 31, 2017.

XML 35 R27.htm IDEA: XBRL DOCUMENT v3.8.0.1
SUBSEQUENT EVENTS
3 Months Ended 12 Months Ended
Mar. 31, 2018
Dec. 31, 2017
Subsequent Events [Abstract]    
SUBSEQUENT EVENTS

NOTE 17 – SUBSEQUENT EVENTS


On April 2, 2018, we entered into a 5%, unsecured promissory note (“Note”) in the principal amount of $600,000 that is due six months from the date of the loan. Proceeds from under the terms of the Note in the amount $570,000 were used by the Company to acquire additional equipment for our new extraction facility and for working capital purposes


In accordance with ASC 855-10 we have analyzed the Company’s operations subsequent to March 31, 2018 to the date these consolidated financial statements were issued, and have determined that, other than as disclosed above, we do not have any material subsequent events to disclose in these consolidated financial statements.

NOTE 20 – SUBSEQUENT EVENTS


JSJ Convertible Note


In accordance with ASC 855-10 we have analyzed the Company’s operations subsequent to December 31, 2017 to the date these consolidated financial statements were issued, and has determined that, other that as disclosed above, we do not have any material subsequent events to disclose in these consolidated financial statements.

XML 36 R28.htm IDEA: XBRL DOCUMENT v3.8.0.1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)
3 Months Ended 12 Months Ended
Mar. 31, 2018
Dec. 31, 2017
Accounting Policies [Abstract]    
Principles of Consolidation

Principles of Consolidation – Our consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries UCANN California Corporation, UC Colorado Corporation and UC Oregon Corporation, the ninety-five percent (95%) owned subsidiary Prana Therapeutics, Inc. (“Prana”), and the fifty percent (50%) owned subsidiary Cannabinoid Research & Development Company Limited (“CRD”). All intercompany accounts and transactions have been eliminated. Our consolidated financial statements are stated in United States dollars and have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). At March 31, 2017, we concluded that we had established a variable interest entity relationship with CRD, because we are the primary beneficiary, in accordance with GAAP. As a result, we elected to consolidate the assets and liabilities of CRD in our consolidated balance sheet at March 31, 2017. Prana was purchased on July 14, 2017, and their assets and liabilities are included in the consolidated balance sheets at December 31, 2017, and their results of operations are included in the consolidated financial statements for the period of June 30, 2017, which is the nearest quarter end to the purchase date, through December 31, 2017.

Principles of Consolidation – Our consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries UCANN California Corporation, UC Colorado Corporation and UC Oregon Corporation, the ninety-five percent (95%) owned subsidiary Prana Therapeutics, Inc. (“Prana”), and the fifty percent (50%) owned subsidiary Cannabinoid Research & Development Company Limited (“CRD”). All intercompany accounts and transactions have been eliminated. Our consolidated financial statements are stated in United States dollars and have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). At March 31, 2017, we concluded that we had established a variable interest entity relationship with CRD, because we are the primary beneficiary, in accordance with GAAP. As a result, we elected to consolidate the assets and liabilities of CRD in our consolidated balance sheet at March 31, 2017. Prana was purchased on July 14, 2017, and their assets and liabilities are included in the consolidated balance sheets at December 31, 2017, and their results of operations are included in the consolidated financial statements for the period of June 30, 2017, which is the nearest quarter end to the purchase date, through December 31, 2017.

Use of Estimates

Use of Estimates - The preparation of our consolidated financial statements in conformity with U.S. GAAP requires us to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of our consolidated financial statements and the reported amounts of revenues and expenses during the periods presented.


We make our estimate of the ultimate outcome for these items based on historical trends and other information available when our consolidated financial statements are prepared. We recognize changes in estimates in accordance with the accounting rules for the estimate, which is typically in the period when new information becomes available. We believe that our significant estimates, assumptions and judgments are reasonable, based upon information available at the time they were made. Our actual results could differ from these estimates, making it possible that a change in these estimates could occur in the near term.

Use of Estimates - The preparation of our consolidated financial statements in conformity with U.S. GAAP requires us to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of our consolidated financial statements and the reported amounts of revenues and expenses during the periods presented.


We make our estimate of the ultimate outcome for these items based on historical trends and other information available when our consolidated financial statements are prepared. We recognize changes in estimates in accordance with the accounting rules for the estimate, which is typically in the period when new information becomes available. We believe that our significant estimates, assumptions and judgments are reasonable, based upon information available at the time they were made. Our actual results could differ from these estimates, making it possible that a change in these estimates could occur in the near term.

Fair Value of Financial Instruments

Fair Value of Financial Instruments - Our financial instruments consist principally of cash and cash equivalents, accounts receivable, non-marketable equity securities, accounts payable, notes payable and other current assets and liabilities. We value our financial assets and liabilities using fair value measurements. Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are categorized based on whether the inputs are observable in the market and the degree that the inputs are observable. The categorization of financial instruments within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The hierarchy is prioritized into three levels (with Level 3 being the lowest) defined as follows:


Level 1: Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.


Level 2: Observable inputs other than prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated with observable market data.


Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs.


The carrying amount of our cash and cash equivalents, accounts receivable, accounts payable, and other current assets and liabilities in our consolidated financial statements approximates fair value because of the short-term nature of the instruments. Investments in non-marketable equity securities are carried at cost less other-than-temporary impairments. The carrying amount of our notes payable and convertible debt at March 31, 2018, approximates their fair values based on our incremental borrowing rates.


There have been no changes in Level 1, Level 2, and Level 3 categorizations and no changes in valuation techniques for these assets or liabilities for the three-month period ended March 31, 2018 and the year ended December 31, 2017.

Fair Value of Financial Instruments - Our financial instruments consist principally of cash and cash equivalents, accounts receivable, non-marketable equity securities, accounts payable, notes payable and other current assets and liabilities. We value our financial assets and liabilities using fair value measurements. Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are categorized based on whether the inputs are observable in the market and the degree that the inputs are observable. The categorization of financial instruments within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The hierarchy is prioritized into three levels (with Level 3 being the lowest) defined as follows:


Level 1: Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.


Level 2: Observable inputs other than prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated with observable market data.


Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs.


The carrying amount of our cash and cash equivalents, accounts receivable, accounts payable, and other current assets and liabilities in our consolidated financial statements approximates fair value because of the short-term nature of the instruments. Investments in non-marketable equity securities are carried at cost less other-than-temporary impairments. The carrying amount of our notes payable and convertible debt at December 31, 2016, approximates their fair values based on our incremental borrowing rates.


There have been no changes in Level 1, Level 2, and Level 3 categorizations and no changes in valuation techniques for these assets or liabilities for the years ended December 31, 2017 and 2016.

Cash and Cash Equivalents

Cash and Cash Equivalents - We consider investments with original maturities of 90 days or less to be cash equivalents.

Cash and Cash Equivalents - We consider investments with original maturities of 90 days or less to be cash equivalents. Because of current banking regulations, marijuana centric entities are not afforded normal banking privileges, and thus, we have not able to consistently have access to the federal banking system. Thus, at the beginning of 2016, the Company entered into an agreement with our Chief Executive Officer to hold cash funds in his personal bank account, on an as-need basis, in trust for the Company. Under the terms of our trust agreement with our Chief Executive Officer, he agreed to hold our cash in his personal bank account, and to make payments of our funds only for our business purposes, and to allow daily access to the bank account for ongoing oversight of his fiduciary responsibility to the Company. Additionally, the trust agreement requires that the Chief Executive Officer make copies available to our accounting staff of all transactions applicable to our operations, on a weekly, or as requested basis.  At December 31, 2017 and 2016 there is cash deposits in the personal bank accounts of the Chief Executive Officer held in trust for us in the amount of $0.0 and $4,158, respectively.

Accounts Receivable, Net

Accounts Receivable, Net – Our accounts receivable consists primarily of trade accounts arising in the normal course of business. No interest is charged on past due accounts. Accounts for which no payments have been received after 30 days are considered delinquent and customary collection efforts are initiated. Accounts receivable are carried at original invoice amount less a reserve made for doubtful accounts based on a review of all outstanding amounts on a monthly basis. We determine our allowance for doubtful accounts by regularly evaluating individual customer receivables and considering the customer’s financial condition and credit history, and current economic conditions. We recorded no bad debt expense during the three-month period ended March 31, 2018 and 2017, respectively, and we have no allowance for doubtful accounts as of March 31, 2018, and as of December 31, 2017,

Accounts Receivable – Our accounts receivable consists primarily of trade accounts arising in the normal course of business. No interest is charged on past due accounts. Accounts for which no payments have been received after 30 days are considered delinquent and customary collection efforts are initiated. Accounts receivable are carried at original invoice amount less a reserve made for doubtful accounts based on a review of all outstanding amounts on a monthly basis. We determine our allowance for doubtful accounts by regularly evaluating individual customer receivables and considering the customer’s financial condition and credit history, and current economic conditions.


Our allowance for doubtful accounts was $0.00 and $30,000 as of December 31, 2017 and 2016, respectively. We recorded bad debt expense, included in general and administrative expenses, of $0.00 and $82,831 during the years ended December 31, 2017 and 2016, respectively.

Prepaid Expenses

Prepaid Expenses - Prepaid expenses are primarily comprised of advance payments made to third parties for independent contractors’ services or other general expenses. Prepaid services and general expenses are amortized over the applicable periods which approximate the life of the contract or service period.

Prepaid Expenses - Prepaid expenses are primarily comprised of advance payments made to third parties for independent contractors’ services or other general expenses. Prepaid services and general expenses are amortized over the applicable periods which approximate the life of the contract or service period.

Inventory

Inventory – Inventory is stated at the lower of cost or net realizable value. Cost is determined based upon the cost to acquire the raw materials, plus internal labor and other costs incurred to produce finished goods inventory. The cost of inventory is principally determined using the last-in first-out method. We periodically review the value of our inventory and provide a write-down of inventory based on our assessment of the market conditions. Write-downs are charged to cost of goods sold in the applicable reporting period; there have been no such write-downs during the three-month period ended March 31, 2018 and 2017.

Inventory – Inventory is stated at the lower of cost or net realizable value. Cost is determined based upon the cost to acquire the raw materials, plus internal labor and other costs incurred to produce finished goods inventory. The cost of inventory is principally determined using the last-in first-out method. We periodically review the value of our inventory and provide a write-down of inventory based on our assessment of the market conditions. Write-downs are charged to cost of goods sold in the applicable reporting period; there have been no such write-downs during the years ended December 31, 2017 and 2016.

Property and Equipment

Property and Equipment – Our property and equipment, which is classified for reporting purposes in our consolidated balance sheets as construction in process – extraction facilities and cultivation facility and laboratory equipment, is recorded at cost. Maintenance and repairs are expensed as incurred. Depreciation is computed using the straight-line method over estimated useful lives of three to five years, and amortization is computed using the straight-line method over the life of the applicable lease. At the time of retirement or other disposition of property and equipment, the cost and accumulated depreciation are removed from our accounts and any resulting gain or loss is reflected in our consolidated statements of operations.


 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Construction in process - extraction facilities

  

 

 

 

 

  

Weldona, Colorado extraction facility:

 

 

 

 

 

 

Equipment

 

$

 

 

$

647,947

 

Jamaica cultivation and extraction facility:

 

 

 

 

 

 

 

 

Leasehold improvements - laboratory

 

 

 

 

 

75,000

 

Leasehold improvements - cultivation

 

 

110,699

 

 

 

109,750

 

 

 

$

110,699

 

 

$

832,697

 

Extraction facility and laboratory equipment, and office furniture and fixtures

 

 

 

 

 

 

 

 

Equipment and machinery at Weldona extraction facility

 

$

1,154,909

 

 

 

 

Golden, Colorado hemp laboratory - equipment

 

 

39,944

 

 

 

34,651

 

Golden, Colorado administrative offices:

 

 

 

 

 

 

 

 

Furniture and fixtures

 

 

46,849

 

 

 

21,668

 

Leasehold improvements

 

 

2,000

 

 

 

2,000

 

Transportation equipment

 

 

81,667

 

 

 

81,667

 

Remote laboratory equipment

 

 

99,220

 

 

 

99,220

 

 

 

 

1,424,589

 

 

 

239,206

 

Accumulated amortization and depreciation

 

 

(91,524

)

 

 

(39,385

)

 

 

$

1,333,065

 

 

$

199,821

 

Property and Equipment – Our property and equipment, which is classified for reporting purposes in our consolidated balance sheets as construction in process – extraction facilities and cultivation facility and laboratory equipment, is recorded at cost. Maintenance and repairs are expensed as incurred. Depreciation is computed using the straight-line method over estimated useful lives of three to five years, and amortization is computed using the straight-line method over the life of the applicable lease. At the time of retirement or other disposition of property and equipment, the cost and accumulated depreciation are removed from our accounts and any resulting gain or loss is reflected in our consolidated statements of operations.


 

 

December 31,

 

 

 

2017

 

 

2018

 

Conduction in process - extraction facilities

 

 

 

 

 

 

Weldona, Colorado extraction facility:

 

 

 

 

 

 

Equipment

 

$

647,947

 

 

$

 

Leasehold improvements

 

 

 

 

 

 

Jamaica cultivation and extraction facility:

 

 

 

 

 

 

 

 

Leasehold improvements - laboratory

 

 

75,000

 

 

 

 

Leasehold improvements - cultivation

 

 

109,750

 

 

 

 

 

 

$

832,697

 

 

$

 

Cultivation facility and laboratory equipment and Office furniture and fixtures

 

 

 

 

 

 

 

 

Golden, Colorado hemp laboratory - equipment

 

$

34,651

 

 

 

 

Golden, Colorado administrative offices:

 

 

 

 

 

 

 

 

Furniture and fixtures

 

 

21,668

 

 

 

 

Leasehold improvements

 

 

2,000

 

 

 

 

Transportation equipment

 

 

81,667

 

 

 

 

Remote laboratory equipment

 

 

99,220

 

 

 

 

 

 

 

239,206

 

 

 

 

Accumulated amortization and depreciation

 

 

(39,385

)

 

 

 

 

 

$

199,821

 

 

$

 

Granted Patents

Granted Patents – Our patent was granted by the United States Patent and Trademark Office on August 15, 2017. The patent covers the extraction of pharmaceutically active components from cannabis plant materials, for incorporation into medicines. The cost of the patents is being amortized on the straight-line method over a 15-year period.

Granted Patents – Our patent was granted by the United States Patent and Trademark Office on August 15, 2017. The patent covers the extraction of pharmaceutically active components from cannabis plant materials, for incorporation into medicines. The cost of the patents is being amortized on the straight-line method over a 15-year period.

Intangible Assets

Intangible Assets – Our intangible assets, consisting of applications for trademarks, design mark and provisional patents, are recorded at cost, and once approved, will be amortized using the straight-line method over an estimated useful life of 10 to 15 years.

Intangible Assets – Our intangible assets, consisting of applications for trademarks, design mark and provisional patents, are recorded at cost, and once approved, will be amortized using the straight-line method over an estimated useful life of 10 to 15 years.

Long-Lived Assets Impairment Assessment

Long-Lived Assets Impairment Assessment – Our intangible assets and other long-lived assets are subject to an impairment test if there is an indicator of impairment. The carrying value and ultimate realization of these assets is dependent upon our estimates of future earnings and benefits that we expect to generate from their use. If our expectations of future results and cash flows are significantly diminished, intangible assets and other long-lived assets may be impaired and the resulting charge to operations may be material. When we determine that the carrying value of intangibles or other long-lived assets may not be recoverable based upon the existence of one or more indicators of impairment, we use the projected undiscounted cash flow method to determine whether an impairment exists, and then measure the impairment using discounted cash flows.


We have not recorded any impairment charges related to long-lived assets as of March 31, 2018 or December 31, 2017.

Long-Lived Assets Impairment Assessment – Our intangible assets and other long-lived assets are subject to an impairment test if there is an indicator of impairment. The carrying value and ultimate realization of these assets is dependent upon our estimates of future earnings and benefits that we expect to generate from their use. If our expectations of future results and cash flows are significantly diminished, intangible assets and other long-lived assets may be impaired and the resulting charge to operations may be material. When we determine that the carrying value of intangibles or other long-lived assets may not be recoverable based upon the existence of one or more indicators of impairment, we use the projected undiscounted cash flow method to determine whether an impairment exists, and then measure the impairment using discounted cash flows.


We have not recorded any impairment charges related to long-lived assets as of December 31, 2017 or December 31, 2016.

Equity Method Investments

Equity Method Investments – Our investments in entities representing ownership of at least 20% but not more than 50%, where we exercise significant influence, are accounted for under the equity method of accounting, and are included in our financial statements as a component of the consolidated financials. All intercompany accounts are eliminated upon consolidation, and we recognize the minority interests’ share in the income and losses of the less than 100% percent owned subsidiary in the period incurred.

Equity Method Investments – Our investments in entities representing ownership of at least 20% but not more than 50%, where we exercise significant influence, are accounted for under the equity method of accounting, and are included in our financial statements as a component of the consolidated financials. All intercompany accounts are eliminated upon consolidation, and we recognize the minority interests’ share in the income and losses of the less than 100% percent owned subsidiary in the period incurred.

Goodwill

Goodwill Our goodwill, which consists of our interest in a ninety-five percent owned subsidiary, Prana Therapeutics, Inc. (“Prana”) and a fifty percent owned subsidiary, Cannabinoid Research & Development Company Limited (“CRD”), is not amortized, but is evaluated for impairment annually, or when indicators of a potential impairment are present. The annual evaluation for impairment of goodwill is based on valuation models that incorporate assumptions and internal projections of expected future cash flows and operating plans. We believe such assumptions are also comparable to those that would be used by other marketplace participants. Our total goodwill of $4,838,602 consists of $4,731,729 for Prana and $106,873 for CRD at March 31, 2018. See Note 7 – Purchase of Prana Therapeutics, Inc.

Goodwill Our goodwill, which consists of our interest in a ninety-five percent owned subsidiary, Prana Therapeutics, Inc. (“Prana”) and a fifty percent owned subsidiary, Cannabinoid Research & Development Company Limited (“CRD”), is not amortized, but is evaluated for impairment annually, or when indicators of a potential impairment are present. The annual evaluation for impairment of goodwill is based on valuation models that incorporate assumptions and internal projections of expected future cash flows and operating plans. We believe such assumptions are also comparable to those that would be used by other marketplace participants. Our total goodwill of $4,838,602 consists of $4,731,729 for Prana and $106,873 for CRD at December 31, 2017. See Note 7 – Purchase of Prana Therapeutics, Inc.

Purchase Price Allocation

Purchase Price Allocation The acquisition method of accounting is based on ASC Subtopic 805-10, “Business Combinations,” and uses the fair value concepts defined in ASC Subtopic 820-10, “Fair Value Measurements and Disclosures”. The price for the purchase of Prana Therapeutics, Inc., was allocated to the net tangible and intangible assets based upon their fair values as of the acquisition date, July 14, 2017. The allocation of the purchase price of $5,070,500 was based upon a valuation and the estimates and assumptions are subject to change within the measurement period. The excess of the purchase price over the fair values of the net tangible assets and intangible assets was recorded as goodwill in the amount of $4,731,729 and is generally driven by our expectations of our ability to commercialize the several drugs invented by Prana Therapeutics, Inc. See Note 7 – Purchase of Prana Therapeutics, Inc.

Purchase Price Allocation The acquisition method of accounting is based on ASC Subtopic 805-10, “Business Combinations,” and uses the fair value concepts defined in ASC Subtopic 820-10, “Fair Value Measurements and Disclosures”. The price for the purchase of Prana Therapeutics, Inc., was allocated to the net tangible and intangible assets based upon their fair values as of the acquisition date, July 14, 2017. The allocation of the purchase price of $5,070,500 was based upon a valuation and the estimates and assumptions are subject to change within the measurement period. The excess of the purchase price over the fair values of the net tangible assets and intangible assets was recorded as goodwill in the amount of $4,731,729 and is generally driven by our expectations of our ability to commercialize the several drugs invented by Prana Therapeutics, Inc. See Note 7 – Purchase of Prana Therapeutics, Inc.

Deferred Revenue

Deferred Revenue - We defer revenue for which product or service has not yet been delivered or is subject to refund until such time that we and our customer jointly determine that the product or service has been delivered or no refund will be required.

Deferred Revenue - We defer revenue for which product or service has not yet been delivered or is subject to refund until such time that we and our customer jointly determine that the product or service has been delivered or no refund will be required.

Revenue Recognition

Revenue Recognition - We recognize revenue in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, which requires that five basic steps be followed to recognize revenue: (1) a legally enforceable contract that meets criterial standards as to composition and substance is identified; (2) performance obligations relating to provision of goods or services to the customer are identified; (3) the transaction price, with consideration given to any variable, noncash, or other relevant consideration, is determined; (4) the transaction price is allocated to the performance obligations; and (5) revenue is recognized when control of goods or services is transferred to the customer with consideration given to whether that control happens over time or not. Determination of criteria (3) and (4) are based on our management's judgments regarding the fixed nature of the selling prices of the products and services delivered and the collectability of those amounts.  There was no material impact to our revenue recognition process because of the implementation of FASB ASC 606 as of March 31, 2018.


Revenue for services with a payment in the form of stock, warrants or other financial assets is recognized when the services are performed. The value of revenue paid for with warrants is measured using the Black-Scholes-Merton pricing model. Revenue from product sales, including delivery fees, is recognized when an order has been obtained, the price is fixed and determinable, the product is shipped, title has transferred, and collectability is reasonably assured.


Reimbursable expenses, including those relating to travel, other out-of-pocket expenses and any third-party costs, are included as a component of revenues. Typically, an equivalent amount of reimbursable expenses is included in cost of revenues. Reimbursable expenses related to time and materials and fixed-fee engagements are recognized as revenue in the period in which the expense is incurred and collectability is reasonably assured. Taxes collected from customers and remitted to governmental authorities are presented in our consolidated statement of operations on a net basis.


Revenue Recognition – Affiliate We have licensed our Prana products to Advesa, Inc. (“Advesa”), which is controlled by one of our major shareholders. Advesa has an exclusive right for five (5) consecutive one (1) year periods to sell our Prana products in certain cities in the state of California. In consideration for the exclusive license granted to Advesa under the agreement, Advesa is obligated to pay us a royalty on all Prana products sold by Advesa equal to the sale price of the Prana products, minus the cost of goods sold (computed without regard to depreciation, amortization, other non-cash items or allocation of overhead, general and administrative expenses or similar items) (the “Prana Royalty”). In addition, Advesa pays us a management fee of five percent (5%) of all Advesa gross revenue minus the Prana Royalty. We recognize revenue on all Prana sales consistent with the criteria described above for all sales in accordance with ASC 606, Revenue from Contracts with Customers.

Revenue Recognition - We recognize revenue in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605, Revenue Recognition, which requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on our management's judgments regarding the fixed nature of the selling prices of the products and services delivered and the collectability of those amounts.


Revenue for services with a payment in the form of stock, warrants or other financial assets is recognized when the services are performed. The value of revenue paid for with warrants is measured using the Black-Scholes-Merton pricing model. Revenue from product sales, including delivery fees, is recognized when an order has been obtained, the price is fixed and determinable, the product is shipped, title has transferred, and collectability is reasonably assured.


Reimbursable expenses, including those relating to travel, other out-of-pocket expenses and any third-party costs, are included as a component of revenues. Typically, an equivalent amount of reimbursable expenses is included in cost of revenues. Reimbursable expenses related to time and materials and fixed-fee engagements are recognized as revenue in the period in which the expense is incurred and collectability is reasonably assured. Taxes collected from customers and remitted to governmental authorities are presented in our consolidated statement of operations on a net basis.


Revenue Recognition – Affiliate We have licensed our Prana products to Advesa, Inc. (“Advesa”), which is 100% owned by one of our major shareholders. Advesa has an exclusive right for five (5) consecutive one (1) year periods to sell our Prana products in certain cities in the state of California. In consideration for the exclusive license granted to Advesa under the agreement, Advesa is obligated to pay us a royalty on all Prana products sold by Advesa equal to the sale price of the Prana products, minus the cost of goods sold (computed without regard to depreciation, amortization, other non-cash items or allocation of overhead, general and administrative expenses or similar items) (the “Prana Royalty”). In addition, Advesa pays us a management fee of five percent (5%) of all Advesa gross revenue minus the Prana Royalty. We recognize revenue on all Prana sales consistent with the criteria described above for all sales in accordance with ASC 605, Revenue Recognition.

Cost of Revenues

Cost of Revenues – Our policy is to recognize cost of revenues in the same manner as, and in conjunction with, revenue recognition. Our cost of revenues includes the costs directly attributable to revenue recognized and includes expenses related to the production, packaging and labeling of our Prana medicinal products and personnel-related costs, fees for third-party services, travel and other consulting costs related to our advisory services.

Cost of Revenues – Our policy is to recognize cost of revenues in the same manner as, and in conjunction with, revenue recognition. Our cost of revenues includes the costs directly attributable to revenue recognized and includes expenses related to the production, packaging and labeling of our Prana medicinals products and personnel-related costs, fees for third-party services, travel and other consulting costs related to our advisory services.


Research and Development Expenses

Research and Development Expenses - Research and development (“R&D”) costs are charged to expense as incurred. Our R&D expenses include, but are not limited to, consulting service fees and materials and supplies used in the development of our proprietary products and services.

Research and Development Expenses - Research and development (“R&D”) costs are charged to expense as incurred. Our R&D expenses include, but are not limited to, consulting service fees and materials and supplies used in the development of our proprietary products and services.

General and Administrative Expenses

General and Administrative Expenses - General and administrative expenses consist primarily of personnel-related costs, fees for professional and consulting services, travel costs, rent, bad debt expense, general corporate costs, and other costs of administration such as human resources, finance and administrative roles.

General and Administrative Expenses - General and administrative expenses consist primarily of personnel-related costs, fees for professional and consulting services, travel costs, rent, bad debt expense, general corporate costs, and other costs of administration such as human resources, finance and administrative roles.

Stock-Based Compensation

Stock-Based Compensation – We periodically issue shares of our common stock to non-employees in non-capital raising transactions for fees and services. We account for stock issued to non-employees in accordance with ASC 505, Equity, whereas the value of the stock compensation is based upon the measurement date as determined at either (a) the date at which a performance commitment is reached, or (b) at the date at which the necessary performance to earn the equity instruments is complete.


We account for stock option grants issued and vesting to employees based on ASC 718, Compensation – Stock Compensation, whereas the award is measured at its fair value at the date of grant and is amortized ratably over the vesting period. Accounting for stock-based compensation to employees requires the measurement and recognition of compensation expense for all share-based payment awards made to employees based on estimated fair values. We estimate the fair value of all stock option awards on the date of grant using the Black-Scholes-Merton pricing model, which is affected by our stock price, as well as assumptions regarding a number of complex and subjective variables. These variables include our expected stock price volatility over the term of the awards, actual and projected employee option exercise behaviors, risk free interest rates and expected dividends. We also estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from our estimates.

Stock-Based Compensation – We periodically issue shares of our common stock to non-employees in non-capital raising transactions for fees and services. We account for stock issued to non-employees in accordance with ASC 505, Equity, whereas the value of the stock compensation is based upon the measurement date as determined at either (a) the date at which a performance commitment is reached, or (b) at the date at which the necessary performance to earn the equity instruments is complete.


We account for stock option grants issued and vesting to employees based on ASC 718, Compensation – Stock Compensation, whereas the award is measured at its fair value at the date of grant and is amortized ratably over the vesting period. Accounting for stock-based compensation to employees requires the measurement and recognition of compensation expense for all share-based payment awards made to employees based on estimated fair values. We estimate the fair value of all stock option awards on the date of grant using the Black-Scholes-Merton pricing model, which is affected by our stock price, as well as assumptions regarding a number of complex and subjective variables. These variables include our expected stock price volatility over the term of the awards, actual and projected employee option exercise behaviors, risk free interest rates and expected dividends. We also estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from our estimates.

Income Taxes

Income Taxes - Income taxes are recorded using the asset and liability method. Under the asset and liability method, tax assets and liabilities are recognized for the tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using the enacted tax rates expected to apply when the asset is realized, or the liability settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that enactment occurs. To the extent that we do not consider it more likely than not that a future tax asset will be recovered, we will provide a valuation allowance against the excess.

 

We follow the provisions of ASC 740, Income Taxes. Because of the ASC 740, we make a comprehensive review of our portfolio of tax positions in accordance with recognition standards established by ASC 740. As a result of the implementation of ASC 740, we recognized no material adjustments to liabilities or stockholders’ deficit.


When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in our consolidated financial statements in the period during which, based on all available evidence, we believe it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

 

Interest and penalties associated with unrecognized tax benefits, if any, are classified as interest expense and penalties and are included in selling, general and administrative expenses in our consolidated statements of operations.


On December 22, 2017, the U.S. Tax Cuts and Jobs Act was enacted. U.S. tax reform introduced many changes, including lowering the U.S. corporate tax rate to 21 percent, changes in incentives, provisions to prevent U.S. base erosion and significant changes in the taxation of international income, including provisions which allow for the repatriation of foreign earnings without U.S. tax. The enactment of U.S. tax reform had no impact on our income taxes for the year ended year-ended December 31, 2017.

Income Taxes - Income taxes are recorded using the asset and liability method. Under the asset and liability method, tax assets and liabilities are recognized for the tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using the enacted tax rates expected to apply when the asset is realized, or the liability settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that enactment occurs. To the extent that we do not consider it more likely than not that a future tax asset will be recovered, we will provide a valuation allowance against the excess.

 

We follow the provisions of ASC 740, Income Taxes. As a result of the ASC 740, we make a comprehensive review of our portfolio of tax positions in accordance with recognition standards established by ASC 740. As a result of the implementation of ASC 740, we recognized no material adjustments to liabilities or stockholders’ deficit.


When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in our consolidated financial statements in the period during which, based on all available evidence, we believe it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

 

Interest and penalties associated with unrecognized tax benefits, if any, are classified as interest expense and penalties and are included in selling, general and administrative expenses in our consolidated statements of operations.


On December 22, 2017, the U.S. Tax Cuts and Jobs Act was enacted. U.S. tax reform introduced many changes, including lowering the U.S. corporate tax rate to 21 percent, changes in incentives, provisions to prevent U.S. base erosion and significant changes in the taxation of international income, including provisions which allow for the repatriation of foreign earnings without U.S. tax. The enactment of U.S. tax reform had no impact on our income taxes for the year ended year-ended December 31, 2017.

Commitments and Contingencies

Commitments and Contingencies - Certain conditions may exist as of the date our consolidated financial statements are issued, which may result in a loss but which will only be resolved when one or more future events occur or fail to occur.  We assess such contingent liabilities, and such assessment inherently involves an exercise of judgment.  In assessing loss contingencies related to legal proceedings that are pending against us or unasserted claims that may result in such proceedings, we evaluate the perceived merits of the legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.


If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in our consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.


Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed.

Commitments and Contingencies - Certain conditions may exist as of the date our consolidated financial statements are issued, which may result in a loss but which will only be resolved when one or more future events occur or fail to occur.  We assess such contingent liabilities, and such assessment inherently involves an exercise of judgment.  In assessing loss contingencies related to legal proceedings that are pending against us or unasserted claims that may result in such proceedings, we evaluate the perceived merits of the legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.


If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in our consolidated financial statements.  If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.


Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed.

Net Loss Per Share

Net Loss Per Share - We compute net loss per share in accordance with ASC 260, Earnings per Share. Under the provisions of ASC 260, basic net loss per share includes no dilution and is computed by dividing the net loss available to common stockholders for the period by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share takes into consideration shares of common stock outstanding (computed under basic net loss per share) and potentially dilutive securities that are not anti-dilutive.


Potentially dilutive securities outlined in the table below have been excluded from the computation of diluted net loss per share, because the effect of their inclusion would have been anti-dilutive.


 

 

Three Months Ended

 March 31,

 

 

 

2018

 

 

2017

 

Warrants to purchase common stock

 

 

1,234,027

 

 

 

1,541,112

 

Stock options, exercisable

 

 

11,705,000

 

 

 

3,680,000

 

Total potentially dilutive securities

 

 

12,939,027

 

 

 

5,221,112

 

Net Loss Per Share - We compute net loss per share in accordance with ASC 260, Earnings per Share. Under the provisions of ASC 260, basic net loss per share includes no dilution and is computed by dividing the net loss available to common stockholders for the period by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share takes into consideration shares of common stock outstanding (computed under basic net loss per share) and potentially dilutive securities that are not anti-dilutive.


Potentially dilutive securities outlined in the table below have been excluded from the computation of diluted net loss per share, because the effect of their inclusion would have been anti-dilutive.


 

 

Years Ended December 31,

 

 

 

2017

 

 

2016

 

Warrants to purchase common stock

 

 

674,336

 

 

 

666,667

 

Cashless warrants exercisable and not converted to common stock

 

 

534,689

 

 

 

844,689

 

Stock options

 

 

6,637,500

 

 

 

3,680,000

 

Total potentially dilutive securities

 

 

7,846,525

 

 

 

5,191,356

 

Other Comprehensive Income (Loss)

Other Comprehensive Income (Loss) – We report as other comprehensive income (loss) those revenues, gains and losses not included in the determination of net income.  During the three months ended March 31, 2018 and the year ended December 31, 2017, we did not have any gains and losses resulting from activities or transactions that resulted in other comprehensive income or loss.

Other Comprehensive Income (Loss) – We report as other comprehensive income (loss) those revenues, gains and losses not included in the determination of net income.  During the years ended December 31, 2017 and 2016, we did not have any gains and losses resulting from activities or transactions that resulted in other comprehensive income or loss.

Segment Reporting

Segment Reporting – Our Company operates as one segment.

Segment Reporting – Our Company operates as one segment.

Concentration of Credit Risk

Concentration of Credit Risk - Financial instruments that potentially subject us to credit risk consist of cash. We maintain our cash with high credit quality financial institutions; at times, such balances with any one financial institution may not be insured by the FDIC.

 

The following tables show significant concentrations in our revenues and accounts receivable for the periods indicated:


Percentage of Revenue:


 

 

Three Months Ended

March 31,

 

 

 

2018

 

 

2017

 

Customer A

 

62%

 

 

98%

 

Customer B

 

21%

 

 

2%

 

Customer C

 

17%

 

 

—%

 


Percentage of Accounts Receivable:


 

 

As of

March 31,

 

 

 

2018

 

 

2017

 

Customer C

 

100%

 

 

93%

 

Customer D

 

—%

 

 

7%

 

Customer E

 

—%

 

 

—%

 

Concentration of Credit Risk - Financial instruments that potentially subject us to credit risk consist of cash. We maintain our cash with high credit quality financial institutions; at times, such balances with any one financial institution may not be insured by the FDIC.

 

The following tables show significant concentrations in our revenues and accounts receivable for the periods indicated:


Percentage of Revenue:


 

 

Years Ended December 31,

 

 

 

2017

 

 

2016

 

Customer A

 

 

98

%

 

 

95

%

Customer B

 

 

2

%

 

 

3

%

Customer C

 

 

%

 

 

2

%

 

 

 

 

 

 

 

 

 


Percentage of Accounts Receivable:


 

 

Years Ended December 31,

 

 

 

2017

 

 

2016

 

Customer D

 

 

%

 

 

75

%

Customer E

 

 

%

 

 

25

%

Customer F

 

100

%

 

 

%

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements – From time to time, the FASB or other standards setting bodies issue new accounting pronouncements. Updates to the FASB ASCs are communicated through issuance of an Accounting Standards Update ("ASU"). Unless otherwise discussed, we believe that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on our condensed consolidated financial statements upon adoption.


In February 2016, the FASB issued guidance on leases which requires entities to recognize right-of-use assets and lease liabilities on the balance sheet for the rights and obligations created by all leases, including operating leases, with terms of more than 12 months. The new guidance also requires additional disclosures on the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative information. The new guidance will be effective for us at the beginning of fiscal year 2019. Early adoption is permitted. We are in the process of evaluating the impact the adoption of this guidance will have on our consolidated financial statements and related disclosures.

Recently Issued Accounting Pronouncements – From time to time, the FASB or other standards setting bodies issue new accounting pronouncements. Updates to the FASB ASCs are communicated through issuance of an Accounting Standards Update ("ASU"). Unless otherwise discussed, we believe that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on our condensed consolidated financial statements upon adoption.


In May 2014 the FASB issued guidance on revenue from contracts with customers, which implements a five-step process of how an entity should recognize revenue in order to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance will be effective at the beginning of fiscal year 2018, and early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. We implemented this accounting treatment beginning January 1, 2018.


In February 2016, the FASB issued guidance on leases which requires entities to recognize right-of-use assets and lease liabilities on the balance sheet for the rights and obligations created by all leases, including operating leases, with terms of more than 12 months. The new guidance also requires additional disclosures on the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative information. The new guidance will be effective for us at the beginning of fiscal year 2019. Early adoption is permitted. We are in the process of evaluating the impact the adoption of this guidance will have on our consolidated financial statements and related disclosures.

Reclassification

Reclassification - Certain reclassifications have been made to the prior period amounts to conform to the current period's presentation.

 
XML 37 R29.htm IDEA: XBRL DOCUMENT v3.8.0.1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)
3 Months Ended 12 Months Ended
Mar. 31, 2018
Dec. 31, 2017
Accounting Policies [Abstract]    
Schedule of Property and Equipment

 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Construction in process - extraction facilities

  

 

 

 

 

  

Weldona, Colorado extraction facility:

 

 

 

 

 

 

Equipment

 

$

 

 

$

647,947

 

Jamaica cultivation and extraction facility:

 

 

 

 

 

 

 

 

Leasehold improvements - laboratory

 

 

 

 

 

75,000

 

Leasehold improvements - cultivation

 

 

110,699

 

 

 

109,750

 

 

 

$

110,699

 

 

$

832,697

 

Extraction facility and laboratory equipment, and office furniture and fixtures

 

 

 

 

 

 

 

 

Equipment and machinery at Weldona extraction facility

 

$

1,154,909

 

 

 

 

Golden, Colorado hemp laboratory - equipment

 

 

39,944

 

 

 

34,651

 

Golden, Colorado administrative offices:

 

 

 

 

 

 

 

 

Furniture and fixtures

 

 

46,849

 

 

 

21,668

 

Leasehold improvements

 

 

2,000

 

 

 

2,000

 

Transportation equipment

 

 

81,667

 

 

 

81,667

 

Remote laboratory equipment

 

 

99,220

 

 

 

99,220

 

 

 

 

1,424,589

 

 

 

239,206

 

Accumulated amortization and depreciation

 

 

(91,524

)

 

 

(39,385

)

 

 

$

1,333,065

 

 

$

199,821

 

 

 

December 31,

 

 

 

2017

 

 

2018

 

Conduction in process - extraction facilities

 

 

 

 

 

 

Weldona, Colorado extraction facility:

 

 

 

 

 

 

Equipment

 

$

647,947

 

 

$

 

Leasehold improvements

 

 

 

 

 

 

Jamaica cultivation and extraction facility:

 

 

 

 

 

 

 

 

Leasehold improvements - laboratory

 

 

75,000

 

 

 

 

Leasehold improvements - cultivation

 

 

109,750

 

 

 

 

 

 

$

832,697

 

 

$

 

Cultivation facility and laboratory equipment and Office furniture and fixtures

 

 

 

 

 

 

 

 

Golden, Colorado hemp laboratory - equipment

 

$

34,651

 

 

 

 

Golden, Colorado administrative offices:

 

 

 

 

 

 

 

 

Furniture and fixtures

 

 

21,668

 

 

 

 

Leasehold improvements

 

 

2,000

 

 

 

 

Transportation equipment

 

 

81,667

 

 

 

 

Remote laboratory equipment

 

 

99,220

 

 

 

 

 

 

 

239,206

 

 

 

 

Accumulated amortization and depreciation

 

 

(39,385

)

 

 

 

 

 

$

199,821

 

 

$

 

Schedule of potentially dilutive securities that have been excluded from the computation of diluted net loss per share, because the effect of their inclusion would have been anti-dilutive

Potentially dilutive securities outlined in the table below have been excluded from the computation of diluted net loss per share, because the effect of their inclusion would have been anti-dilutive.


 

 

Three Months Ended

 March 31,

 

 

 

2018

 

 

2017

 

Warrants to purchase common stock

 

 

1,234,027

 

 

 

1,541,112

 

Stock options, exercisable

 

 

11,705,000

 

 

 

3,680,000

 

Total potentially dilutive securities

 

 

12,939,027

 

 

 

5,221,112

 

Potentially dilutive securities outlined in the table below have been excluded from the computation of diluted net loss per share, because the effect of their inclusion would have been anti-dilutive.


 

 

Years Ended December 31,

 

 

 

2017

 

 

2016

 

Warrants to purchase common stock

 

 

674,336

 

 

 

666,667

 

Cashless warrants exercisable and not converted to common stock

 

 

534,689

 

 

 

844,689

 

Stock options

 

 

6,637,500

 

 

 

3,680,000

 

Total potentially dilutive securities

 

 

7,846,525

 

 

 

5,191,356

 

Schedule of significant concentrations in revenues and accounts receivable

The following tables show significant concentrations in our revenues and accounts receivable for the periods indicated:


Percentage of Revenue:


 

 

Three Months Ended

March 31,

 

 

 

2018

 

 

2017

 

Customer A

 

62%

 

 

98%

 

Customer B

 

21%

 

 

2%

 

Customer C

 

17%

 

 

—%

 


Percentage of Accounts Receivable:


 

 

As of

March 31,

 

 

 

2018

 

 

2017

 

Customer C

 

100%

 

 

93%

 

Customer D

 

—%

 

 

7%

 

Customer E

 

—%

 

 

—%

 

Percentage of Revenue:


 

 

Years Ended December 31,

 

 

 

2017

 

 

2016

 

Customer A

 

 

98

%

 

 

95

%

Customer B

 

 

2

%

 

 

3

%

Customer C

 

 

%

 

 

2

%

 

 

 

 

 

 

 

 

 


Percentage of Accounts Receivable:


 

 

Years Ended December 31,

 

 

 

2017

 

 

2016

 

Customer D

 

 

%

 

 

75

%

Customer E

 

 

%

 

 

25

%

Customer F

 

100

%

 

 

%

XML 38 R30.htm IDEA: XBRL DOCUMENT v3.8.0.1
RECEIVABLE FROM RELATED PARTY (Tables)
12 Months Ended
Dec. 31, 2017
Receivable From Related Party Tables  
Schedule of Amounts Due From Related Parties

Amounts due from related parties consist of:


 

December 31,

 

2017

 

 

2016

Advesa, Inc.

$

 

 

$

21,775

Cannabinoid Research & Development, Limited

 

 

 

 

5,000

 

$

 

 

$

26,775

XML 39 R31.htm IDEA: XBRL DOCUMENT v3.8.0.1
OPERATING LEASES (Tables)
3 Months Ended 12 Months Ended
Mar. 31, 2018
Dec. 31, 2017
Leases [Abstract]    
Schedule of Operating Leases

Future minimum payments for these leases are:


For the twelve Months Ending March 31,

2019

 

2020

 

2021

 

2021

 

2022

$131,208

 

$134,398

 

$105,198

 

$90,001

 

$45,001

Future minimum payments for these leases are:


For the twelve Months Ending December 31,

2018

 

2019

 

2020

 

2021

 

2022

$130,613

 

$133,499

 

$116,597

 

$90,000

 

$67,500

XML 40 R32.htm IDEA: XBRL DOCUMENT v3.8.0.1
INVENTORY (Tables)
3 Months Ended 12 Months Ended
Mar. 31, 2018
Dec. 31, 2017
Inventory Disclosure [Abstract]    
Schedule of Inventory

We periodically review the value of our inventory and provide a write-down of inventory based on our assessment of the market conditions. Any write-down is charged to cost of goods sold. At ended March 31, 2018 and December 31, 2017, our inventory is, as follows:


 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Raw materials

 

$

38,376

 

 

$

15,000

 

Work-in-process

 

 

57,565

 

 

 

 

Finished goods

 

 

41,200

 

 

 

28,200

 

 

 

$

137,141

 

 

$

43,200

At December 31, 2017, and 2016, our inventory was, as follows:


 

 

December 31,

 

 

 

2017

 

 

2016

 

Raw materials

 

$

15,000

 

 

$

 

Work-in-process

 

 

 

 

 

 

Finished goods

 

 

28,200

 

 

 

 

 

 

$

43,200

 

 

$

XML 41 R33.htm IDEA: XBRL DOCUMENT v3.8.0.1
PURCHASE OF PRANA THERAPUETICS, INC. (Tables)
3 Months Ended 12 Months Ended
Mar. 31, 2018
Dec. 31, 2017
Business Combinations [Abstract]    
Schedule of allocation of purchase price

The purchase price for Prana was allocated to the net tangible and intangible assets based upon their fair values as of the acquisition date. The excess of the purchase price over the fair values of the net tangible assets and intangible assets was recorded as goodwill and is generally driven by management’s expectations and ability to realize synergies and achieve strategic growth. The allocation of the purchase price was, as follows:


 

 

March 31,
2018

 

Patents

 

$

52,596

 

Net assets

 

 

522,761

 

Goodwill

 

 

4,495,143

 

Total

 

$

5,070,500

 

Upon completion of an acquisition audit subsequent to the acquisition of Prana, it was determined that the net assets acquired as of July 14, 2017 were approximately $71,873 more than was reported in the Form 10-Q for the three and nine months ended September 30, 2017. As a result, the allocation of the purchase price, net assets and patent amounts has been restated as of December 31, 2017 compared to September 30, 2017, as follows:


 

 

December 31,
2017

 

 

Reallocation
of
Purchase
Price

 

 

September 30,
2017

 

Patents

 

$

52,596

 

 

$

 

 

$

52,596

 

Net assets

 

 

522,761

 

 

 

71,873

 

 

 

450,888

 

Goodwill

 

 

4,495,143

 

 

 

(71,873

 

 

4,567,016

 

Total

 

$

5,070,500

 

 

$

 

 

$

5,070,500

XML 42 R34.htm IDEA: XBRL DOCUMENT v3.8.0.1
ACCRUED EXPENSES (Tables)
12 Months Ended
Dec. 31, 2017
Accrued Liabilities, Current [Abstract]  
Schedule of accrued expenses

Our accrued expenses consist of:


 

 

December 31,

 

 

 

2017

 

 

2016

 

Accrued consulting fees

 

$

 

 

$

45,000

 

Accrued wages and related expenses

 

 

10,184

 

 

 

 

Accrued interest expense

 

 

 

 

 

10,264

 

Total accrued expenses

 

$

10,184

 

 

$

55,264

 

XML 43 R35.htm IDEA: XBRL DOCUMENT v3.8.0.1
DEFERRED REVENUE (Tables)
3 Months Ended 12 Months Ended
Mar. 31, 2018
Dec. 31, 2017
Deferred Revenue Disclosure [Abstract]    
Schedule of deferred revenue

Our deferred revenue consists of:


 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Deferred revenue – WeedMD

 

$

158,750

 

 

$

203,750

 

Less – current portion

 

 

(158,750

)

 

 

(180,000

)

Deferred revenue, net of current portion

 

$

 

 

$

23,750

 

Our deferred revenue consists of:


 

 

December 31,

 

 

 

2017

 

 

2016

 

Deferred revenue – WeedMD

 

$

203,750

 

 

$

383,750

 

Less – current portion

 

 

(180,000

)

 

 

(180,000

)

Deferred revenue, net of current portion

 

$

23,750

 

 

$

203,750

 

XML 44 R36.htm IDEA: XBRL DOCUMENT v3.8.0.1
CONVERTIBLE NOTE PAYABLE (Tables)
12 Months Ended
Dec. 31, 2017
CONVERTIBLE NOTE PAYABLE [Abstract]  
Schedule of convertible promissory notes

The following table summarizes our convertible promissory notes outstanding as of December 31, 2017 and 2016:


 

 

 

 

 

 

Maturity

 

Interest

 

Base

 

December 31,

 

Issue Date

 

Holder

 

Security

 

Date

 

Rate

 

Conversion Rate

 

2017

 

 

2016

 

12/28/2016

 

Tangiers Investment Group

 

Unsecured

 

7/8/2017

 

 

10

%

$1.00 through maturity; 55% of lowest closing price thereafter

 

$





 

 

$

35,000

 

8/10/2016

 

JSJ Investments

 

Unsecured

 

5/10/2017

 

 

12

%

$0.20 during first 180 days; 45% of lowest closing price thereafter

 

 

 

 

 

125,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

160,000

 

 

 

 

 

 

 

 

 

 

 

 

Less unamortized discount

 

 

 

 

 

(34,453

)

 

 

 

 

 

 

 

 

 

 

 

      

 

$

 

 

$

125,547

 

XML 45 R37.htm IDEA: XBRL DOCUMENT v3.8.0.1
NOTES PAYABLE TO AND ADVANCES FROM OFFICERS AND DIRECTORS (Tables) (USD $)
3 Months Ended 12 Months Ended
Mar. 31, 2018
Dec. 31, 2017
Notes Payable To And Advances From Officers And Directors Tables Usd    
Notes payable to and advance from officers and directors

Notes payable to and advance from officers and directors consisted of the following:


 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Note payable to Earnie Blackmon, an officer and director

 

$

332,760

 

 

$

246,458

 

Note payable to Tony Verzura, an officer and director

 

 

15,844

 

 

 

14,889

 

 

 

$

348,604

 

 

$

261,347

 

Notes payable to and advance from officers and directors consisted of the following, at December 31, 2017 and 2016:


 

 

December 31,

 

 

 

2017

 

 

2016

 

Note payable to Earnie Blackmon, an officer and director

 

$

246,458

 

 

$

28,750

 

Note payable to Tony Verzura, an officer and director

 

 

14,889

 

 

 

28,750

 

 

 

$

261,347

 

 

$

57,500

 

XML 46 R38.htm IDEA: XBRL DOCUMENT v3.8.0.1
STOCKHOLDERS' EQUITY (Tables)
3 Months Ended 12 Months Ended
Mar. 31, 2018
Dec. 31, 2017
Summary of stock options outstanding

The following table summarizes our stock options outstanding as of both March 31, 2018 and December 31, 2017, respectively:


 

 

Number of
Shares

 

 

Weighted
Average
Remaining
Life (Years)

 

 

Weighted
Average
Exercise
Price

 

Stock options outstanding at January 1, 2017

 

 

3,680,000

 

 

 

8.9

 

 

$

0.28

 

Issued

 

 

3,957,500

 

 

 

 

 

 

 

 

 

Exercised

 

 

(1,000,000

 

 

 

 

 

 

 

 

Expired

 

 

 

 

 

 

 

 

 

 

 

Stock options outstanding at December 31, 2017

 

 

6,637,500

 

 

 

8.7

 

 

$

0.57

 

Stock options exercisable at December 31. 2017

 

 

6,580,000

 

 

 

8.7

 

 

 

0.57

 

Stock options outstanding at December 31, 2017

 

 

6,637,500

 

 

 

 

 

 

 

 

 

Issued

 

 

6,000,000

 

 

 

9.9

 

 

 

1.08

 

Exercised

 

 

 

 

 

 

 

 

 

 

 

Expired

 

 

 

 

 

 

 

 

 

 

 

Stock options outstanding at March 31, 2017

 

 

12,637,500

 

 

 

9.2

 

 

 

0.78

 

Stock options exercisable at March 31, 2018

 

 

11,705,000

 

 

 

9.2

 

 

$

0.78

 

The following table summarizes our stock options outstanding as of both December 31, 2017 and 2016, respectively:


 

 

Number of
Shares

 

 

Weighted
Average
Remaining
Life (Years)

 

 

Weighted
Average
Exercise
Price

 

Stock options outstanding at December 31, 2015

 

 

600,000

 

 

 

9.8

 

 

$

0.70

 

Issued

 

 

3,080,000

 

 

 

10.0

 

 

$

0.20

 

Exercised

 

 

 

 

 

 

 

 

 

Expired

 

 

 

 

 

 

 

 

 

Stock options outstanding at December 31, 2016

 

 

3,680,000

 

 

 

8.9

 

 

$

0.28

 

Issued

 

 

3,957,500

 

 

 

 

 

 

 

 

 

Exercised

 

 

(1,000,000

)

 

 

 

 

 

 

 

 

Expired

 

 

 

 

 

 

 

 

 

 

 

Stock options exercisable at December 31, 2017

 

 

6,637,500

 

 

 

8.7

 

 

$

0.57

 

Stock Options [Member]    
Schedule of assumptions used for valuation utilizing the Black Scholes option pricing model for fair value

We calculated the fair value of each option to be approximately $0.91 per option utilizing the Black Scholes option pricing model and the following range of assumptions on the date of valuation:


Stock price

 

$

1.05

 

Exercise price

 

$

1.08

 

Risk free interest rate

 

 

2.8

%

Expected term (years)

 

 

5-10

 

Expected volatility

 

 

197

%

Expected dividends

 

 

0

%

We calculated the fair value of each option to be approximately $0.70 per option utilizing the Black Scholes option pricing model and the following assumptions on the date of valuation:


Stock price

 

$

0.70

 

Exercise price

 

$

0.70

 

Risk free interest rate

 

 

1.98

%

Expected term (years)

 

 

10.0

 

Expected volatility

 

 

173

%

Expected dividends

 

 

0

%

Stock Incentive Plan 2014 [Member] | Stock Options [Member]    
Schedule of assumptions used for valuation utilizing the Black Scholes option pricing model for fair value  

We calculated the fair value of each option to be approximately $0.20 per option utilizing the Black Scholes option pricing model and the following assumptions on the date of valuation:


Stock price

 

$

0.20

 

Exercise price

 

$

0.20

 

Risk free interest rate

 

 

1.98

%

Expected term (years)

 

 

10.0

 

Expected volatility

 

 

173

%

Expected dividends

 

 

0

%

Warrants [Member]    
Schedule of assumptions used for valuation utilizing the Black Scholes option pricing model for fair value

Stock price

 

$

0.16 - $2.18

 

Exercise price

 

$

0.18

 

Risk free interest rate

 

 

1.01% - 1.37

%

Expected term (years)

 

 

5

 

Expected volatility

 

 

322% - 504

%

Expected dividends

 

 

0

%


Stock price

 

$

0.16 - $2.18

 

Exercise price

 

$

0.18

 

Risk free interest rate

 

 

1.01% - 1.37

%

Expected term (years)

 

 

5

 

Expected volatility

 

 

322% - 504

%

Expected dividends

 

 

0

%

Summary of share warrants outstanding

The following table summarizes our share warrants outstanding as of March 31, 2018 and December 31, 2017:


 

 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

 

Number of

Shares

 

 

Weighted

Average

Exercise

Price

 

 

Number of

Shares

 

 

Weighted

Average

Exercise

Price

 

Warrants outstanding, beginning of period

 

 

1,209,025

 

 

$

0.21

 

 

$

1,551,356

 

 

$

0.18

 

Warrants issued to consultants

 

 

25,002

 

 

 

 

 

 

 

132,669

 

 

 

 

 

Warrants exercised

 

 

 

 

 

 

 

 

 

(475,000

)

 

 

 

 

Warrants outstanding, end of period

 

 

1,234,027

 

 

$

0.27

 

 

 

1,209,025

 

 

$

0.21

 

Warrants exercisable, end of period

 

 

1,234,027

 

 

$

0.27

 

 

 

1,209,025

 

 

$

0.21

 

The following table summarizes our share warrants outstanding as of December 31, 2017 and 2016:

 

 

 

Year Ended December 31,

 

 

 

2017

 

 

2016

 

 

 

Number of

Shares

 

 

Weighted

Average

Exercise

Price

 

 

Number of

Shares

 

 

Weighted

Average

Exercise

Price

 

Warrants outstanding, beginning of period

 

 

1,551,356

 

 

$

0.18

 

 

$

3,000,000

 

 

$

12.00

 

Warrants issued to consultants

 

 

132,669

 

 

 

 

 

 

666,667

 

 

 

0.18

 

Cashless warrants issued upon conversion of Slainte note

 

 

 

 

 

 

 

 

1,584,689

 

 

 

 

Warrants exercised

 

 

(475,000

)

 

 

 

 

 

(700,000

)

 

 

 

Expired

 

 

 

 

 

 

 

 

(3,000,000

)

 

 

 

Warrants outstanding, end of period

 

 

1,209,025

 

 

$

0.21

 

 

 

1,551,356

 

 

$

0.18

 

Warrants exercisable, end of period

 

 

1,209,025

 

 

$

0.21

 

 

 

1,551,356

 

 

$

0.18

 

XML 47 R39.htm IDEA: XBRL DOCUMENT v3.8.0.1
SHARE-BASED COMPENSATION (Tables)
3 Months Ended 12 Months Ended
Mar. 31, 2018
Dec. 31, 2017
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]    
Schedule of share-based compensation expense

Share-based compensation expense for the three months ended Mach 31, 2018 and 2017 is, as follows:


 

 

Three Months Ended

 March 31

 

 

 

2018

 

 

2017

 

Warrants issued for consulting and other services

 

$

 

 

$

91,333

 

Common stock issued for accounts payable and accrued expenses

 

 

 

 

 

43,376

 

Common stock issued for services

 

 

65,885

 

 

 

120,616

 

Common stock issued for advisory board fees

 

 

56,043

 

 

 

 

Common stock issued as compensation to employees

 

 

42,300

 

 

 

 

Stock options issued to officers and directors

 

 

5,324,754

 

 

 

 

 

 

$

5,488,982

 

 

$

255,325

 

Share-based compensation expense for the years ended December 31, 2017 and 2016 is, as follows:


 

 

December 31,

 

 

 

2017

 

 

2016

 

Warrants issued for consulting and other services

 

$

249,835

 

 

$

319,419

 

Common stock issued for accounts payable and accrued expenses

 

 

93,002

 

 

 

223,484

 

Common stock issued for services

 

 

 

 

 

271,097

 

Common stock issued for advisory board fees

 

 

113,336

 

 

 

 

Common stock issued as compensation to employees

 

 

170,233

 

 

 

 

Stock options issued to officers and directors

 

 

2,660,159

 

 

 

 

 

 

$

3,286,565

 

 

$

814,000

 

XML 48 R40.htm IDEA: XBRL DOCUMENT v3.8.0.1
INCOME TAXES (Tables)
12 Months Ended
Dec. 31, 2017
Income Tax Disclosure [Abstract]  
Schedule of sources and tax effects of the differences for the periods

The sources and tax effects of the differences for the periods presented are as follows:


 

 

Years Ended December 31,

 

 

 

2017

 

 

2016

 

Statutory U.S. federal tax rate

 

 

39

%

 

 

39

%

Effect of increase in valuation allowance

 

 

(39

%)

 

 

(39

%)

 

 

 

%

 

 

%

Schedule of changes in cumulative net deferred tax assets

Changes in our cumulative net deferred tax assets consist of the following:


 

 

December 31,

 

 

 

2017

 

 

2016

 

Net loss carry-forward

 

$

4,923,492

 

 

$

3,648,316

 

Valuation allowance

 

 

(4,923,492

)

 

 

(3,648,316

)

 

 

$

 

 

$

 

Schedule of reconciliation of income taxes computed at the statutory rate

A reconciliation of our income taxes computed at the statutory rate is as follows:


 

 

Years Ended December 31,

 

 

 

2017

 

 

2016

 

Tax benefit at statutory rate

 

$

2,023,555

 

 

$

1,500,068

 

Valuation allowance

 

 

(2,023,555

)

 

 

(1,500,068

)

 

 

$

 

 

$

 

XML 49 R41.htm IDEA: XBRL DOCUMENT v3.8.0.1
COMMITMENTS AND CONTINGENCIES (Tables)
12 Months Ended
Dec. 31, 2017
Commitments And Contingencies Tables  
Summary of Consolidated statements of operations expense

During the years ended December 31, 2017 and 2016, we recognized in our consolidated statements of operations expenses in the total amount of $156,630 and $394,215, respectively, related to this contract, as follows:


 

 

December 31,

 

 

 

2017

 

 

2016

 

Cash paid to consultant

 

$

30,000

 

 

$

15,000

 

Fair value of shares of common stock issued to consultant

 

 

27,297

 

 

 

62,781

 

Fair value of warrants issued to consultant

 

 

99,333

 

 

 

319,419

 

 

 

$

156,630

 

 

$

397,200

 

XML 50 R42.htm IDEA: XBRL DOCUMENT v3.8.0.1
BUSINESS ORGANIZATION AND NATURE OF OPERATIONS (Details) - USD ($)
1 Months Ended
Jul. 14, 2017
Mar. 31, 2014
Mar. 31, 2018
Dec. 31, 2017
Sep. 30, 2017
Dec. 31, 2016
Mar. 26, 2014
Amount of payable owed to former officer and director, exchanged for assets sold   $ 15,000          
Number of common shares issued in exchange for certain intellectual property   38,690,000          
Total number of common shares previously outstanding, cancelled during period             41,690,000
Common stock, shares outstanding     64,229,926 62,862,066   50,650,994 43,620,000
Prana [Member]              
Common shares received in exchange for future consulting services and use of our intellectual property 5,730,000            
Fair market value of common stock $ 5,070,500            
Closing price per share $ 0.85            
Prana [Member] | Subscription Agreement [Member]              
Shares of investment owned 400,000            
Investments in non-marketable equity securities $ 200,000   $ 50,000 $ 50,000 $ 50,000    
XML 51 R43.htm IDEA: XBRL DOCUMENT v3.8.0.1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Narrative) (Details)
3 Months Ended 12 Months Ended
Mar. 31, 2018
USD ($)
Item
Mar. 31, 2017
USD ($)
Dec. 31, 2017
USD ($)
Item
Dec. 31, 2016
USD ($)
Sep. 30, 2017
USD ($)
Property, Plant and Equipment [Line Items]          
Number of operating segment | Item 1   1    
Allowance for doubtful accounts $ 0   $ 0 $ 30,000  
Bad debt expense, included in general and administrative expenses 0 $ 0 0 82,831  
Goodwill 4,838,603   4,838,603  
Purchase Price Allocation 5,070,500   5,070,500    
Excess of purchase price over fair values of net tangible assets and intangible assets recorded as goodwill $ 4,731,729   4,731,729    
Chief Executive Officer [Member]          
Property, Plant and Equipment [Line Items]          
Cash equivalents     $ 0 $ 4,158  
Minimum [Member]          
Property, Plant and Equipment [Line Items]          
Estimated useful lives 3 years   3 years    
Estimated useful life 10 years   10 years    
Equity Method Investments, Percentage 50.00%   20.00%    
Maximum [Member]          
Property, Plant and Equipment [Line Items]          
Estimated useful lives 5 years   5 years    
Estimated useful life 15 years   15 years    
Equity Method Investments, Percentage 20.00%   50.00%    
Patents [Member]          
Property, Plant and Equipment [Line Items]          
Estimated useful life 15 years   15 years    
PTI [Member]          
Property, Plant and Equipment [Line Items]          
Equity Method Investments, Percentage 95.00%   95.00%    
Goodwill $ 4,495,143   $ 4,495,143   $ 4,567,016
Purchase Price Allocation $ 5,070,500   $ 5,070,500   $ 5,070,500
CRD [Member]          
Property, Plant and Equipment [Line Items]          
Equity Method Investments, Percentage 50.00%   50.00%    
Goodwill $ 106,873   $ 106,873    
XML 52 R44.htm IDEA: XBRL DOCUMENT v3.8.0.1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Schedule of Property and Equipment) (Details) - USD ($)
Dec. 31, 2018
Mar. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Property, Plant and Equipment [Line Items]        
Construction in process - extraction facilities   $ 110,699 $ 832,697
Extraction facility and laboratory equipment, and office furniture and fixtures   1,424,589 239,206  
Accumulated amortization and depreciation   (91,524) (39,385) 0
Cultivation facility and laboratory equipment and Office furniture and fixtures   1,333,065 199,821
Equipment [Member] | Colorado Extraction Facility [Member]        
Property, Plant and Equipment [Line Items]        
Construction in process - extraction facilities   647,947  
Equipment [Member] | Colorado Extraction Facility [Member] | Subsequent Event [Member]        
Property, Plant and Equipment [Line Items]        
Construction in process - extraction facilities      
Leasehold Improvements [Member] | Colorado Extraction Facility [Member]        
Property, Plant and Equipment [Line Items]        
Construction in process - extraction facilities      
Extraction facility and laboratory equipment, and office furniture and fixtures   2,000 2,000  
Leasehold Improvements [Member] | Colorado Extraction Facility [Member] | Subsequent Event [Member]        
Property, Plant and Equipment [Line Items]        
Construction in process - extraction facilities      
Leasehold Improvements - Cultivation [Member] | Jamaica Cultivation and Extraction Facility [Member]        
Property, Plant and Equipment [Line Items]        
Construction in process - extraction facilities   110,699 109,750  
Leasehold Improvements - Cultivation [Member] | Jamaica Cultivation and Extraction Facility [Member] | Subsequent Event [Member]        
Property, Plant and Equipment [Line Items]        
Construction in process - extraction facilities      
Leasehold Improvements - Laboratory [Member] | Jamaica Cultivation and Extraction Facility [Member]        
Property, Plant and Equipment [Line Items]        
Construction in process - extraction facilities   75,000  
Golden, Colorado Hemp Laboratory - Equipment [Member]        
Property, Plant and Equipment [Line Items]        
Extraction facility and laboratory equipment, and office furniture and fixtures   39,944 34,651  
Golden, Colorado Hemp Laboratory - Equipment [Member] | Subsequent Event [Member]        
Property, Plant and Equipment [Line Items]        
Extraction facility and laboratory equipment, and office furniture and fixtures      
Furniture and Fixtures [Member] | Colorado Extraction Facility [Member]        
Property, Plant and Equipment [Line Items]        
Extraction facility and laboratory equipment, and office furniture and fixtures   46,849 21,668  
Furniture and Fixtures [Member] | Colorado Extraction Facility [Member] | Subsequent Event [Member]        
Property, Plant and Equipment [Line Items]        
Extraction facility and laboratory equipment, and office furniture and fixtures      
Transportation Equipment [Member] | Colorado Extraction Facility [Member]        
Property, Plant and Equipment [Line Items]        
Extraction facility and laboratory equipment, and office furniture and fixtures   81,667 81,667  
Transportation Equipment [Member] | Colorado Extraction Facility [Member] | Subsequent Event [Member]        
Property, Plant and Equipment [Line Items]        
Extraction facility and laboratory equipment, and office furniture and fixtures      
Remote Laboratory Equipment [Member] | Colorado Extraction Facility [Member]        
Property, Plant and Equipment [Line Items]        
Extraction facility and laboratory equipment, and office furniture and fixtures   99,220 99,220  
Remote Laboratory Equipment [Member] | Colorado Extraction Facility [Member] | Subsequent Event [Member]        
Property, Plant and Equipment [Line Items]        
Extraction facility and laboratory equipment, and office furniture and fixtures      
Equipment and machinery at Weldona extraction facility [Member]        
Property, Plant and Equipment [Line Items]        
Extraction facility and laboratory equipment, and office furniture and fixtures   $ 1,154,909  
XML 53 R45.htm IDEA: XBRL DOCUMENT v3.8.0.1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Schedule of anti-dilutive securities) (Details) - shares
3 Months Ended 12 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Dec. 31, 2017
Dec. 31, 2016
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]        
Antidilutive securities excluded from computation of diluted net loss per share 12,939,027 5,221,112 7,846,525 5,191,356
Stock Options [Member]        
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]        
Antidilutive securities excluded from computation of diluted net loss per share 1,234,027 1,541,112 6,637,500 3,680,000
Warrant [Member]        
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]        
Antidilutive securities excluded from computation of diluted net loss per share 11,705,000 3,680,000 674,336 666,667
Cashless warrants not converted to common stock [Member]        
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]        
Antidilutive securities excluded from computation of diluted net loss per share     534,689 844,689
XML 54 R46.htm IDEA: XBRL DOCUMENT v3.8.0.1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Schedule of concentration of credit risk) (Details)
3 Months Ended 12 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Dec. 31, 2017
Dec. 31, 2016
Revenue [Member] | Customer A [Member]        
Concentration Risk [Line Items]        
Concentration risk percentage 62.00% 98.00% 98.00% 95.00%
Revenue [Member] | Customer B [Member]        
Concentration Risk [Line Items]        
Concentration risk percentage 21.00% 2.00% 2.00% 3.00%
Revenue [Member] | Customer C [Member]        
Concentration Risk [Line Items]        
Concentration risk percentage 17.00% 2.00%
Accounts Receivable [Member] | Customer C [Member]        
Concentration Risk [Line Items]        
Concentration risk percentage 100.00% 93.00%    
Accounts Receivable [Member] | Customer D [Member]        
Concentration Risk [Line Items]        
Concentration risk percentage 7.00% 75.00%
Accounts Receivable [Member] | Customer E [Member]        
Concentration Risk [Line Items]        
Concentration risk percentage 25.00%
Accounts Receivable [Member] | Customer F [Member]        
Concentration Risk [Line Items]        
Concentration risk percentage    
XML 55 R47.htm IDEA: XBRL DOCUMENT v3.8.0.1
GOING CONCERN (Details) - USD ($)
3 Months Ended 12 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Dec. 31, 2017
Dec. 31, 2016
GOING CONCERN [Abstract]        
Net loss $ 7,206,560 $ 815,976 $ 5,907,512 $ 3,854,004
Net cash used in operating activities 1,651,026 $ 109,800 1,878,276 274,670
Working capital deficit 511,153   288,439  
Accumulated deficit $ 22,476,406   $ 15,269,845 $ 9,362,333
XML 56 R48.htm IDEA: XBRL DOCUMENT v3.8.0.1
RECEIVABLE FROM RELATED PARTY (Schedule of Amounts Due from Related Parties) (Details) - USD ($)
Mar. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Apr. 30, 2015
Related Party Transaction [Line Items]        
Due from related parties $ 14,961 $ 26,775  
Advesa [Member]        
Related Party Transaction [Line Items]        
Due from related parties $ 14,861 0 21,755  
CRD [Member]        
Related Party Transaction [Line Items]        
Due from related parties   $ 5,000 $ 5,000
XML 57 R49.htm IDEA: XBRL DOCUMENT v3.8.0.1
OPERATING LEASES (Narrative) (Details)
3 Months Ended 12 Months Ended
Oct. 01, 2017
ft²
Aug. 01, 2017
ft²
Mar. 31, 2018
USD ($)
a
Dec. 31, 2020
USD ($)
Dec. 31, 2019
USD ($)
Dec. 31, 2018
USD ($)
Dec. 31, 2017
USD ($)
a
CRD [Member]              
Operating Leased Assets [Line Items]              
Equity Method Investments, Percentage     50.00%       50.00%
Lease amount from father of directors and members     $ 1       $ 1
Hemp Laboratory - Golden, Colorado [Member]              
Operating Leased Assets [Line Items]              
Area of lease | ft²   9,882          
Maturity date   Jul. 31, 2020          
Hemp Laboratory - Golden, Colorado [Member] | Subsequent Event [Member]              
Operating Leased Assets [Line Items]              
Basic rent per month       $ 3,800 $ 3,500 $ 3,302  
Colorado Extraction Facility [Member]              
Operating Leased Assets [Line Items]              
Area of lease | ft² 40,000            
Maturity date Sep. 30, 2018            
Basic rent per month     $ 7,500     $ 7,500  
Jamaica Cultivation and Extraction Facility [Member]              
Operating Leased Assets [Line Items]              
Area of lease | a     28       28
XML 58 R50.htm IDEA: XBRL DOCUMENT v3.8.0.1
OPERATING LEASES (Schedule of Future Minimum Payament) (Details) - USD ($)
Mar. 31, 2018
Dec. 31, 2017
Leases [Abstract]    
2019 $ 131,208 $ 130,613
2020 134,398 133,499
2021 105,198 116,597
2021 90,001 90,000
2022 $ 45,001 $ 67,500
XML 59 R51.htm IDEA: XBRL DOCUMENT v3.8.0.1
INVENTORY (Details) - USD ($)
Mar. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Inventory Disclosure [Abstract]      
Raw materials $ 38,376 $ 15,000
Work-in-process 57,565
Finished goods 41,200 28,200
Inventory $ 137,141 $ 43,200
XML 60 R52.htm IDEA: XBRL DOCUMENT v3.8.0.1
PURCHASE OF PRANA THERAPUETICS, INC. (Narrative) (Details) - Prana [Member] - USD ($)
Jul. 14, 2017
Mar. 31, 2018
Dec. 31, 2017
Sep. 30, 2017
Business Acquisition [Line Items]        
Common shares received in exchange for future consulting services and use of our intellectual property 5,730,000      
Fair market value of common stock $ 5,070,500      
Closing price per share $ 0.85      
Shares issued in acquisition 400,000      
Shares issued in acquisition, value $ 200,000      
Net assets acquired       $ 164,713
Subscription Agreement [Member]        
Business Acquisition [Line Items]        
Shares of investment owned 400,000      
Investments in non-marketable equity securities $ 200,000 $ 50,000 $ 50,000 $ 50,000
Subscription Agreement [Member] | Subsequent Event [Member]        
Business Acquisition [Line Items]        
Investments in non-marketable equity securities   $ 50,000    
XML 61 R53.htm IDEA: XBRL DOCUMENT v3.8.0.1
PURCHASE OF PRANA THERAPUETICS, INC. (Schedule of Purchase Price Allocation) (Details) - USD ($)
Mar. 31, 2018
Dec. 31, 2017
Sep. 30, 2017
Dec. 31, 2016
Business Acquisition [Line Items]        
Goodwill $ 4,838,603 $ 4,838,603  
Purchase Price Allocation 5,070,500 5,070,500    
PTI [Member]        
Business Acquisition [Line Items]        
Patents 52,596 52,596 $ 52,596  
Net assets 522,761 522,761 450,888  
Goodwill 4,495,143 4,495,143 4,567,016  
Purchase Price Allocation $ 5,070,500 5,070,500 $ 5,070,500  
Reallocation of Purchase Price[Member]        
Business Acquisition [Line Items]        
Patents      
Net assets   71,873    
Goodwill   (71,873)    
Purchase Price Allocation      
XML 62 R54.htm IDEA: XBRL DOCUMENT v3.8.0.1
GRANTED PATENT (Details) - USD ($)
3 Months Ended 12 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Dec. 31, 2017
Dec. 31, 2016
Aug. 15, 2017
Finite-Lived Intangible Assets [Line Items]          
Accumulated amortization $ 4,458   $ 2,679 $ 0  
Patents [Member]          
Finite-Lived Intangible Assets [Line Items]          
Estimated useful live 15 years   15 years    
Amortization expense $ 4,458 $ 0 $ 2,679 0  
Accumulated amortization $ 4,458   $ 2,679 $ 0  
Research, legal fees         $ 142,317
XML 63 R55.htm IDEA: XBRL DOCUMENT v3.8.0.1
INTANGIBLES (Details)
3 Months Ended 12 Months Ended
Mar. 31, 2018
Dec. 31, 2017
Patents [Member]    
Finite-Lived Intangible Assets [Line Items]    
Estimated useful life 15 years 15 years
Design Marks and Trademarks [Member]    
Finite-Lived Intangible Assets [Line Items]    
Estimated useful life 10 years 10 years
XML 64 R56.htm IDEA: XBRL DOCUMENT v3.8.0.1
EQUITY METHOD INVESTMENTS (Narrative) (Details) - USD ($)
Aug. 15, 2014
Dec. 31, 2017
Dec. 31, 2016
Schedule of Equity Method Investments [Line Items]      
Equity method investments   $ 88,000
CRD [Member]      
Schedule of Equity Method Investments [Line Items]      
Interest acquired (as a percentage) 50.00%    
Equity method investments $ 88,000    
Shares of common stock issuable for acquisition of interest 40,000    
XML 65 R57.htm IDEA: XBRL DOCUMENT v3.8.0.1
ACCRUED EXPENSES (Details) - USD ($)
Mar. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Accrued Liabilities, Current [Abstract]      
Accrued consulting fees   $ 45,000
Accrued wages and related expenses   10,184
Accrued interest expense   10,264
Total accrued expenses $ 9,209 $ 10,184 $ 55,264
XML 66 R58.htm IDEA: XBRL DOCUMENT v3.8.0.1
ACCRUED EXPENSES (Narrative) (Details) - USD ($)
3 Months Ended 12 Months Ended
May 06, 2014
Mar. 31, 2018
Mar. 31, 2017
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2014
Dec. 31, 2015
Accrued expenses   $ 9,209   $ 10,184 $ 55,264    
Loss on extinguishment of debt   $ 267,567 $ 248,892 $ 691,904    
Research and Development Arrangement [Member]              
Consultancy agreement, term 9 months            
Consultancy agreement, initial payment $ 50,000            
Consultancy agreement, additional payments 50,000            
Consultancy agreement, total payments $ 200,000            
Shares issued for consultancy agreement 100,000       100,000    
Costs recognized           $ 160,000  
Accrued expenses             $ 110,000
Percentage of completion             80.00%
Fair value of shares         $ 163,783    
Loss on extinguishment of debt         $ 53,783    
XML 67 R59.htm IDEA: XBRL DOCUMENT v3.8.0.1
INSTALLMENT LOAN PAYABLE (Details) - USD ($)
3 Months Ended 12 Months Ended
Mar. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Installment Loan Payable Details      
Installment loan payable $ 32,757 $ 46,667
Installment loan monthly payment 955 972  
Monthly payments being made to pay off loan in six months $ 6,955    
Pay loan off in six month period   $ 7,778  
XML 68 R60.htm IDEA: XBRL DOCUMENT v3.8.0.1
DEFERRED REVENUE (Narrative) (Details) - WeedMD RX Inc. (''WMD'') [Member] - USD ($)
3 Months Ended 6 Months Ended 9 Months Ended 12 Months Ended
Jun. 09, 2014
Mar. 31, 2018
Dec. 31, 2014
Sep. 30, 2016
Dec. 31, 2017
Deferred Revenue Arrangement [Line Items]          
Common shares received in exchange for future consulting services and use of our intellectual property 1,187,500        
Warrants received in exchange for future consulting services and use of our intellectual property 3,000,000        
Fair value of securities recorded as deferred revenue $ 893,750        
Deferred revenue recognized per month   $ 15,000      
Total deferred revenue recognized   $ 45,000 $ 150,000 $ 158,750 $ 180,000
XML 69 R61.htm IDEA: XBRL DOCUMENT v3.8.0.1
DEFERRED REVENUE (Schedule of deferred revenue) (Details) - USD ($)
Mar. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Deferred Revenue Arrangement [Line Items]      
Less - current portion $ 158,750 $ 180,000 $ 180,000
Deferred revenue, net of current portion 23,750 $ 203,750
WeedMD RX Inc. (''WMD'') [Member]      
Deferred Revenue Arrangement [Line Items]      
Deferred revenue $ 158,750 $ 203,750  
XML 70 R62.htm IDEA: XBRL DOCUMENT v3.8.0.1
CONVERTIBLE NOTE PAYABLE (Narrative) (Details) - USD ($)
1 Months Ended 8 Months Ended 12 Months Ended
Aug. 10, 2016
Jul. 05, 2016
Apr. 06, 2016
Mar. 31, 2016
Mar. 30, 2016
Oct. 16, 2016
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Debt Instrument [Line Items]                  
Net cash proceeds received from initial borrowing             $ 316,478  
Loss on origination of derivative liability             (1,894,258)  
Components of convertible debt, net                  
Proceeds from debt, net             254,942 50,000  
Advances from officers and directors             77,384 71,008  
2015 Convertible Notes [Member]                  
Debt Instrument [Line Items]                  
Number of trading days immediately preceding the applicable conversion                 180 days
Components of convertible debt, net                  
Holding rate of issued and outstanding common stock                 9.99%
2015 Convertible Notes [Member] | Minimum [Member]                  
Components of convertible debt, net                  
Prepayment premiums                 10.00%
Minimum default penalty amount, rate                 25.00%
2015 Convertible Notes [Member] | Maximum [Member]                  
Components of convertible debt, net                  
Prepayment premiums                 40.00%
Minimum default penalty amount, rate                 50.00%
2016 Convertible Notes [Member]                  
Components of convertible debt, net                  
Interest expense             30,543 35,719  
Aggregate fair value of the derivative liabilities               $ 557,000  
Accured interest converted in common stock               497,296  
Convertible Notes Payable [Member]                  
Debt Instrument [Line Items]                  
Debt instrument, interest rate 12.00%                
Expiration date May 10, 2017                
Components of convertible debt, net                  
Proceeds from debt, net $ 125,000                
Average closing price of common stock $ 0.20                
Conversions rate on issue and outstandng common stock 4.99%                
Percentage of principal amount increase if company paid anytime 25.00%         25.00%      
Convertible Notes Payable [Member] | Thereafter October 16, 2016 [Member]                  
Components of convertible debt, net                  
Percentage of principal amount increase if company paid anytime           30.00%      
Debt Instrument Fair Value of Warrants Issued Recorded as Unamortized Discount                  
Debt Instrument [Line Items]                  
Debt instrument, interest rate 12.00%                
Net cash proceeds received from initial borrowing $ 125,000                
Typenex Co Investment Llc [Member] | Convertible Note [Member]                  
Debt Instrument [Line Items]                  
Debt instrument initial borrowing                 $ 381,000
Components of convertible debt, net                  
Accrued interest payable             $ 0 $ 5,876  
Tangiers Investment Group, LLC [Member] | Convertible Note [Member]                  
Components of convertible debt, net                  
Number of Common shares converted               2,843,698  
JSJ Investments [Member]                  
Debt Instrument [Line Items]                  
Debt instrument, interest rate 12.00%                
Components of convertible debt, net                  
Proceeds from debt, net $ 125,000                
Average closing price of common stock $ 0.20                
Conversions rate on issue and outstandng common stock 4.99%                
Tangiers Convertible Note [Member]                  
Debt Instrument [Line Items]                  
Debt instrument, interest rate               10.00%  
Expiration date               Jul. 08, 2017  
Components of convertible debt, net                  
Proceeds from debt, net               $ 35,000  
SlainteVentures, LLC [Member]                  
Debt Instrument [Line Items]                  
Debt instrument, interest rate   12.00%              
Components of convertible debt, net                  
Accrued interest payable     $ 102,000            
Proceeds from debt, net   $ 50,000 75,000   $ 81,978        
Advances from officers and directors     $ 52,500            
SlainteVentures, LLC [Member] | Vis Vires Group, Inc. [Member]                  
Components of convertible debt, net                  
Minimum default penalty amount, rate               15.00%  
Repayment of principal and accrued interest       $ 59,000          
Average closing price of common stock               $ 0.45  
XML 71 R63.htm IDEA: XBRL DOCUMENT v3.8.0.1
CONVERTIBLE NOTES PAYABLE (Schedule of summarizes our convertible promissory notes issued) (Details) - USD ($)
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 30, 2016
Maturity Date Jul. 08, 2017    
Total principal outstanding $ 160,000  
Less unamortized discount (34,453)  
Total of outstanding amount 125,547  
Tangiers Investment Group, LLC [Member] | 2016 Convertible Notes [Member]      
Issue Date Dec. 28, 2016    
Holder Tangiers Investment Group    
Security Unsecured    
Maturity Date Jul. 08, 2017    
Interest Rate 10.00%    
Base Conversion Rate

1.00 through maturity; 55% of lowest closing price thereafter

   
Total principal outstanding 35,000  
JSJ Investments Inc. [Member]      
Interest Rate     12.00%
JSJ Investments Inc. [Member] | 2016 Convertible Notes [Member]      
Issue Date Aug. 10, 2016    
Holder JSJ Investments    
Security Unsecured    
Maturity Date May 10, 2017    
Interest Rate 12.00%    
Base Conversion Rate

$0.20 during first 180 days; 45% of lowest closing price thereafter

   
Total principal outstanding $ 125,000  
XML 72 R64.htm IDEA: XBRL DOCUMENT v3.8.0.1
NOTES PAYABLE TO AND ADVANCES FROM OFFICERS AND DIRECTORS (Narrative) (Details) - USD ($)
3 Months Ended
Mar. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Dec. 30, 2016
Apr. 06, 2016
Oct. 12, 2015
Related Party Transaction [Line Items]            
Principal balance increase       $ 57,500    
Debt repayment terms If the loans are repaid on or before September 30, 2016, the principal amount, which is being repaid, will increase by 10%. If the loans are repaid after September 30, 2016, the principal amount, which is being repaid will increase by 15%.          
Earnie Blackmon [Member] | Notes Payable Other Payables [Member]            
Related Party Transaction [Line Items]            
Convertible note payable, related party $ 332,760 $ 246,458 $ 28,750      
Tony Verzura [Member]            
Related Party Transaction [Line Items]            
Debt instrument, face amount         $ 25,000  
Tony Verzura [Member] | Notes Payable Other Payables [Member]            
Related Party Transaction [Line Items]            
Convertible note payable, related party 15,844 14,889 28,750      
Accrued wages payable to officers and directors [Member] | Notes Payable Other Payables [Member]            
Related Party Transaction [Line Items]            
Convertible note payable, related party $ 348,604 $ 261,347 $ 57,500      
Ernest Blackmon [Member]            
Related Party Transaction [Line Items]            
Debt instrument, face amount         $ 25,000  
JSJ Investments Inc. [Member]            
Related Party Transaction [Line Items]            
Convertible note payable, related party           $ 102,000
JSJ Investments Inc. [Member]            
Related Party Transaction [Line Items]            
Debt instrument, interest rate       12.00%    
XML 73 R65.htm IDEA: XBRL DOCUMENT v3.8.0.1
STOCKHOLDERS' EQUITY (Narrative) (Details) - USD ($)
1 Months Ended 3 Months Ended 12 Months Ended
Jul. 18, 2017
Mar. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Class of Stock [Line Items]        
Proceeds from shares issued     $ 208,982  
Aggregate intrinsic value of warrants outstanding and exercisable   $ 0 $ 0  
Warrant issued   25,002 132,669 666,667
Warrants [Member]        
Class of Stock [Line Items]        
Warrant issued     666,667 83,333
Weighted-average remaining contractual life for stock options outstanding and exercisable   3 years 7 months 6 days    
Preferred Class A [Member] | Officer and Director [Member]        
Class of Stock [Line Items]        
Share issued 2,000      
Proceeds from shares issued $ 2,200      
XML 74 R66.htm IDEA: XBRL DOCUMENT v3.8.0.1
STOCKHOLDERS' EQUITY (Common Stock Issued For Services, Warrants) (Details) - $ / shares
3 Months Ended 12 Months Ended
Mar. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Number of Shares      
Warrants outstanding, beginning of period 1,209,025 1,551,356 3,000,000
Warrants issued to consultants 25,002 132,669 666,667
Cashless issued upon conversion of Slainte note   1,584,689
Warrants exercised (475,000) (700,000)
Expired (in shares)   (3,000,000)
Warrants outstanding, end of period 1,234,027 1,209,025 1,551,356
Warrants exercisable, end of period 1,234,027 1,209,025 1,551,356
Weighted Average Remaining Life (years)      
Warrants exercisable at the end of the period   3 years  
Weighted Average Exercise Price      
Warrants outstanding, beginning of period (in dollars per share) $ 0.21 $ 0.18 $ 12.00
Warrants issued to consultants (in dollars per share)   0.18
Warrants Exercised (in dollars per share)  
Repurchased and cancelled (in dollars per share)  
Expired (in dollars per share)  
Warrants outstanding, end of period (in dollars per share) 0.27 0.21 0.18
Warrants exercisable, end of period (in dollars per share) $ 0.27 $ 0.21 $ 0.18
XML 75 R67.htm IDEA: XBRL DOCUMENT v3.8.0.1
STOCKHOLDERS' EQUITY (Schedule of Assumptions on Date of Valuation Utilizing for Fair Value of Warrants) (Details) - $ / shares
1 Months Ended 3 Months Ended 12 Months Ended
Jan. 12, 2016
Jan. 09, 2015
Feb. 28, 2018
Mar. 31, 2018
Dec. 31, 2017
Warrants [Member]          
Class of Stock [Line Items]          
Exercise price (in dollars per share)       $ 0.18  
Expected term (years)       5 years  
Expected dividends (as a percent)       0.00%  
Warrants [Member] | Minimum [Member]          
Class of Stock [Line Items]          
Stock price (in dollars per share)       $ 0.16 $ 0.16
Risk free interest rate (as a percent)       1.01% 1.01%
Expected term (years)         5 years
Expected volatility (as a percent)       322.00% 322.00%
Warrants [Member] | Maximum [Member]          
Class of Stock [Line Items]          
Stock price (in dollars per share)       $ 2.18 $ 2.18
Risk free interest rate (as a percent)       1.37% 1.37%
Expected volatility (as a percent)       504.00% 504.00%
Stock Options [Member]          
Class of Stock [Line Items]          
Stock price (in dollars per share) $ 0.20 $ 0.70 $ 1.05    
Exercise price (in dollars per share) $ 0.20 $ 0.70 $ 1.08    
Risk free interest rate (as a percent) 1.98% 1.98% 2.80%    
Expected term (years) 10 years 10 years      
Expected volatility (as a percent) 173.00% 173.00% 197.00%    
Expected dividends (as a percent) 0.00% 0.00% 0.00%    
Stock Options [Member] | Minimum [Member]          
Class of Stock [Line Items]          
Expected term (years)     5 years    
Stock Options [Member] | Maximum [Member]          
Class of Stock [Line Items]          
Expected term (years)     10 years    
XML 76 R68.htm IDEA: XBRL DOCUMENT v3.8.0.1
STOCKHOLDERS' EQUITY (Schedule of stock option activity) (Details) - Stock Options [Member] - $ / shares
3 Months Ended 12 Months Ended
Mar. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Number of Shares        
Stock options outstanding, beginning of period 6,637,500 3,680,000 600,000
Issued 6,000,000 3,957,500 3,080,000  
Exercised (1,000,000)  
Expired  
Stock options outstanding, end of period 12,637,500 6,637,500 3,680,000 600,000
Stock options outstanding, end of period 11,705,000 6,580,000    
Weighted Average Exercise Price        
Stock options outstanding, beginning of period $ 0.57 $ 0.28 $ 0.70  
Issued 1.08   0.20  
Exercised      
Expired      
Stock options outstanding, end of period 0.78 0.57 $ 0.28 $ 0.70
Stock options exercisable, end of period $ 0.78 $ 0.57    
Weighted Average Remaining Life (Years)        
Stock options outstanding, beginning of period 9 years 2 months 12 days 8 years 8 months 12 days 8 years 10 months 25 days 9 years 9 months 18 days
Stock options Issued, end of period 9 years 10 months 25 days   10 years  
Stock options exercisable, end of period 9 years 2 months 12 days 8 years 8 months 12 days    
XML 77 R69.htm IDEA: XBRL DOCUMENT v3.8.0.1
STOCKHOLDERS' EQUITY (Stock Option Activity) (Narrative) (Details) - USD ($)
3 Months Ended 12 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Dec. 31, 2017
Dec. 31, 2016
Feb. 28, 2018
Jan. 12, 2016
Dec. 31, 2015
Jan. 12, 2015
Jan. 09, 2015
Dec. 31, 2014
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                    
Stock options compensation $ 5,324,754 $ 2,660,159            
Stock Options [Member]                    
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                    
Awarded stock options           $ 1,050,000        
Stock options 12,637,500   6,637,500 3,680,000     600,000    
Fair value of options 6,146,000         612,512       417,664
Weighted-average remaining contractual life for stock options outstanding and exercisable 9 years 2 months 12 days   8 years 8 months 12 days              
Aggregate intrinsic value of options outstanding and exercisable $ 1   $ 0              
Option vested 5,125,000                  
Stock options compensation $ 5,324,754                  
Stock Options [Member] | Vesting through December 31, 2019 [Member]                    
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                    
Option vested 875,000                  
2017 Stock Incentive Plan [Member]                    
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                    
Awarded stock options         $ 6,000,000       $ 200,000  
2017 Stock Incentive Plan [Member] | Mr. Ruby [Member]                    
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                    
Awarded stock options               $ 980,000    
Common stock, per share value               $ 0.20    
XML 78 R70.htm IDEA: XBRL DOCUMENT v3.8.0.1
SHARE-BASED COMPENSATION (Details) - USD ($)
3 Months Ended 12 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Dec. 31, 2017
Dec. 31, 2016
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]        
Warrants issued for consulting and other services $ 91,333 $ 249,835 $ 319,419
Common stock issued for accounts payable and accrued expenses 43,376 93,002 223,484
Warrants issued for accrual of share-based awards to officers and directors     271,097
Common stock issued for services 65,885 120,616    
Common stock issued for advisory board fees 56,043 113,336
Common stock issued as compensation to employees 42,300 170,233
Stock options issued to officers and directors 5,324,754 2,660,159
Share-based compensation $ 5,488,982 $ 255,325 $ 3,286,565 $ 814,000
XML 79 R71.htm IDEA: XBRL DOCUMENT v3.8.0.1
INCOME TAXES (Schedule of Sources and Tax Effects of Differences for Periods) (Details)
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Sources and tax effects of the differences    
Statutory U.S. federal tax rate 39.00% 39.00%
Effect of increase in valuation allowance (39.00%) (39.00%)
XML 80 R72.htm IDEA: XBRL DOCUMENT v3.8.0.1
INCOME TAXES (Schedule of Changes in Cumulative Net Deferred Tax Assets) (Details) - USD ($)
Dec. 31, 2017
Dec. 31, 2016
Net deferred tax assets    
Net loss carry forward $ 4,923,492 $ 3,648,316
Valuation allowance (4,923,492) (3,648,316)
Net deferred tax assets
XML 81 R73.htm IDEA: XBRL DOCUMENT v3.8.0.1
INCOME TAXES (Schedule of Reconciliation of Income Taxes Computed at Statutory Rate) (Details) - USD ($)
3 Months Ended 12 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Dec. 31, 2017
Dec. 31, 2016
Reconciliation of income taxes computed at statutory rate        
Tax benefit at statutory rate     $ 2,023,555 $ 1,500,068
Valuation allowance     (2,023,555) (1,500,068)
Income tax expense (benefit)
XML 82 R74.htm IDEA: XBRL DOCUMENT v3.8.0.1
COMMITMENTS AND CONTINGENCIES (Narrative) (Details)
1 Months Ended 3 Months Ended 12 Months Ended
Feb. 20, 2016
USD ($)
$ / shares
shares
Mar. 31, 2018
USD ($)
ft²
Mar. 31, 2017
USD ($)
Dec. 31, 2020
USD ($)
Dec. 31, 2019
USD ($)
Dec. 31, 2017
USD ($)
ft²
Dec. 31, 2016
USD ($)
Jan. 19, 2018
USD ($)
Oct. 31, 2017
USD ($)
Dec. 28, 2016
USD ($)
Long-term Purchase Commitment [Line Items]                    
Research and development   $ 236,678 $ 45,160     $ 293,968 $ 23,124      
Minimum amount draw down at one time   $ 5,000       5,000        
Percentage of number of common shares   400.00%                
Maximum amount draw down at one time   $ 1,000,000       $ 350,000        
Percentage of trading price   85.00%       85.00%        
Commitment fee           $ 35,000        
Bear Note interest per year           10.00%        
Maturity Date           Jul. 08, 2017        
Note payable           $ 34,453        
Net discount           34,453      
Executive Office Lease [Member]                    
Long-term Purchase Commitment [Line Items]                    
Lease term   36 months       36 months        
Lease Space | ft²   6,683       6,683        
Lease Expires   Jul. 31, 2020       Jul. 31, 2020        
Monthly rental rates   $ 3,302       $ 3,302        
Executive Office Lease [Member] | Subsequent Event [Member]                    
Long-term Purchase Commitment [Line Items]                    
Monthly rental rates       $ 3,799 $ 3,000          
Weldona Facility Lease [Member]                    
Long-term Purchase Commitment [Line Items]                    
Lease Space | ft²   40,000       40,000        
Lease Expires   Sep. 30, 2022       Sep. 30, 2022        
Monthly rental rates   $ 7,500       $ 7,500        
Prana [Member]                    
Long-term Purchase Commitment [Line Items]                    
Total commitment upon execution of research agreement                 $ 151,772  
Commitment owed in February 2018                 75,886  
Commitment owed in June 2018                 75,886  
Total commitment amount owed                 $ 303,544  
Tangiers Global, LLC [Member]                    
Long-term Purchase Commitment [Line Items]                    
Line of Credit agreement               $ 10,000,000   $ 10,000,000
Clinical Trial Agreement [Member] | Installment One [Member]                    
Long-term Purchase Commitment [Line Items]                    
Payment made for clinical trial agreement   50,000       50,000        
Clinical Trial Agreement [Member] | Installment Two [Member]                    
Long-term Purchase Commitment [Line Items]                    
Payment made for clinical trial agreement   51,182       51,182        
Clinical Trial Agreement [Member] | Installment Three [Member]                    
Long-term Purchase Commitment [Line Items]                    
Payment made for clinical trial agreement   51,182       51,182        
Clinical Trial Agreement [Member] | Installment Four [Member]                    
Long-term Purchase Commitment [Line Items]                    
Payment made for clinical trial agreement   $ 51,182       51,182        
Consulting Agreement [Member]                    
Long-term Purchase Commitment [Line Items]                    
Agreement, term 12 months                  
Warrant term 5 years                  
Initial payment $ 7,500                  
Shares issued for agreement | shares 250,000                  
Common stock, price per share | $ / shares $ 0.18                  
Consultancy Agreement [Member]                    
Long-term Purchase Commitment [Line Items]                    
Expenses recognized           $ 156,630 $ 394,215      
XML 83 R75.htm IDEA: XBRL DOCUMENT v3.8.0.1
COMMITMENTS AND CONTINGENCIES (Summary of Consolidated statements of operations expense) (Details) - Consultant [Member] - USD ($)
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Professional fees $ 30,000 $ 15,000
Fair value of shares of common stock issued to consultant 27,297 62,781
Fair value of warrants issued to consultant 99,333 319,419
Total contract expenses $ 156,630 $ 397,200
XML 84 R76.htm IDEA: XBRL DOCUMENT v3.8.0.1
SUBSEQUENT EVENTS (Details) - Subsequent Event [Member] - Unsecured Promissory Note [Member]
1 Months Ended
Apr. 30, 2018
USD ($)
Subsequent Event [Line Items]  
Debt instrument face amount $ 600,000
Debt interest rate 5.00%
Proceeds from debt $ 570,000
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