STOCKHOLDERS' DEFICIT

9 Months Ended

Sep. 30, 2015

Stockholders' Equity Note [Abstract]

STOCKHOLDERS' DEFICIT

Derivative Liability - Warrants

In accordance with Financial Accounting Standards Board (“FASB”) ASC 815, Derivatives and Hedging, the embedded conversion option in the Convertible Note, as well as the Warrants issued by the Company, are required to be accounted for as derivative instrument liabilities. Such liabilities are initially and continuously carried at fair value with changes in their fair value reported in income in each reporting period. Accounting for the conversion option in the Convertible Note and for the Warrants as derivative instruments is required because both the Convertible Note and the Warrants have down-round anti-dilution protection, or ratchet exercise prices, whereby the conversion or exercise price is reduced if the Company subsequently issues common stock, convertible securities or stock options or stock warrants at a lower price or with a lower exercise or conversion price. Such a provision is inconsistent with the “fixed for fixed” nature of an equity option and therefore the instruments do not meet one of the required tests for equity classification. In addition, because the Convertible Note and the Warrants are denominated in a currency (U.S. dollars) that is different from the Company’s functional currency (Canadian dollars), they do not meet the test of being indexed only to the Company’s common stock. When one or more instruments are accounted for as derivative liabilities at fair value, the proceeds received are first allocated to the initial fair value of those derivative instruments, with any remaining proceeds allocated to the initial carrying value of the Convertible Note, which is accounted for at amortized cost. Interest is accrued on the initial carrying value of the Convertible Note at whatever effective interest rate is required in order to equate the present value of the expected future cash flows associated with the Convertible Note with their initial carrying value. Stated interest on the Note (10% per annum) is not accrued separately but is included in the effective interest rate on the Convertible Note.

The fair value of the embedded conversion option in the Note and the fair value of the Warrants have been calculated using the call option value output from a binomial Lattice model. A binomial Lattice model assumes that the price of the stock that underlies an option follows a probability distribution in which the underlying event only has one of two possible outcomes - the market price of the stock can either go up or go down in the future.

The Lattice valuation model takes into account all of the assumptions that market participants would likely consider in negotiating the transfer of the embedded conversion option and the Warrants, namely, stock price, exercise price, time to expiration, volatility, risk-free rate and dividends.

The Company between November 26, 2014 and December 31, 2014, repaid the entire convertible note balance of $277,500 thus extinguishing the note. Upon the initial recording of the convertible note and warrants associated with the convertible note, a derivative liability was recorded as the convertible note and warrant each contained embedded derivatives as determined under ASC 815. Since the warrants associated with the convertible note has been exercised there is no outstanding liability as of September 30, 2015. The Company recognized a loss on the fair value of the derivative liabilities of $60,193 during the nine months ended September 30, 2015.  Prior to the exercise of warrants, the derivative liability balance was $257,233.  The balance at September 30, 2015 was $0.

Preferred Stock

The Company was established on June 2, 2006 with 10,000,000 shares of preferred stock authorized with a par value of $0.001. The Company has not issued any preferred stock.

Common Stock

The Company was established on June 2, 2006 with 100,000,000 shares of common stock authorized with a par value of $0.001. On December 8, 2011, the Company amended the authorized stock to 150,000,000 shares. On March 17, 2014, the Company amended the authorized stock to 500,000,000 shares.

In 2014, the Company issued:

During November and December 2014, 14,310,000 private placement shares were issued to investors for an amount totaling $715,500 ($0.05 per share).

On January 10, 2014, the Company issued 1,000,000 common shares in connection with an asset purchase valued at $340,000.

50,000 shares of common stock upon the exercise of 50,000 stock options by a Director of the Company, at an exercise price of $0.25, for total proceeds of $12,500.

400,000 shares were issued for services rendered evaluated at an amount of $121,500.

Also, 4,250,000 shares previously issued to directors or administrators were cancelled.

In 2015, the Company issued:

On January 20, 2015 150,000,000 shares were issued in the acquisition of Breathe which was accounted for as reverse merger.

On March 31, 2015 the Company issued 2,666,667 shares for $100,000 in an investment into Tauriga Sciences, Inc (“TAUG”). The Company entered into a commercialization/license agreement with TAUG to jointly develop a new line of business involving CBD oil cartridges in on March 31, 2015. The Company received from TAUG 10,869,565 shares of TAUG common stock (with a value of $100,000) in exchange for their shares (reflected as an investment).

On May 10, 2015 the Company issued a supplier 750,000 shares of common stock at a value of $22,500 for the payment of inventory ($0.03 per share) and 300,000 shares of common stock valued at $9,000 ($0.03 per share) to a former noteholder ("Iconic") as part of an Assignment and Assumption Agreement dated May 7, 2015.

Under the first tranche of a July 2, 2015 securities purchase agreement whereby $240,000 was committed for purchase of common stock and warrants.  Cash was received associated with this offering was $233,500, with $6,500 credited to the purchaser for legal fees.  Under the second tranche of this agreement the amount to be funded will be $200,000. Second tranche closing date was to be a trading date no later than five (5) Business Days following the effective date of the Registration Statement. on which all of the transaction documents have been executed and delivered by the applicable parties thereto, and all conditions precedent to (i) the Purchasers’ obligations to pay the Subscription Amount for the Second Tranche and (ii) the Company’s obligations.  The Company filed Form S-1 “Registration Statement Under the Securities Act of 1933” (“S1”) on August 17, 2015.   On October 2, 2015 the Company pursuant to Rule 477 promulgated under the Securities Act of 1933, as amended (the “Securities Act”) submitted a request for withdrawal of the previously file S-1.  The Company may, in its sole discretion, to terminate and cancel the second tranche upon written notice to the purchasers, and any funds paid the company by any purchaser in connection with the second tranche shall be returned immediately to such purchase or without interest.

Under this agreement, the Company was obligated to issued 4,000,000 common shares of its stock at $0.06 per share subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the common stock that occur after the date of agreement.  Final purchase price is subject to adjustment based on the closing price of the common stock on first adjustment date that is six (6) months immediately following the closing date (or if such date is not a trading day, the trading day immediately preceding such six (6) month period).  Final purchase price is also subject to adjustment based on the second adjustment date based on the closing price of the common stock on thirty (30) days following the first adjustment date (or if such date is not a trading day, the Trading Day immediately preceding such date).

Under the agreement, at any time while warrants are outstanding, if the Company sold or grants any option to purchase, or sell or any common stock or common stock equivalents, at an effective price per share less than the exercise price then in effect but greater than $0.10 (price adjusted) will be considered a “dilutive issuance” and the holder of the warrant will be entitled to receive shares of common stock at an effective price per share that is less than the exercise price. 

Cashless warrants registered in the name of such purchaser to purchase up to a number of shares of common stock equal to 100% of such purchaser shares for the first tranche, with an exercise price equal to $0.20, subject to adjustments whereby the Company may issue without further consideration.  In the event that the first adjusted price is higher than the per-share purchase price but lower than $.08 cents per share, 10% of the aggregate number of shares issued or issuable or 15% if equal to or lower than the per-share price.  The Company must file Form S-1 with the SEC under terms of this agreement.

Under this agreement, the Company reserved 25 million shares of common stock to provide for the issuance of common shares, the adjustment shares and warrant shares.  In the event that the company’s stock falls below $0.04 per share for three consecutive training days the Company will immediately add an additional 15 million shares to this reserve. In the event that the stock falls below $.02 per share the three consecutive trading days the Company will immediately add an additional 20 million shares of the reserve.

On August 25, 2015, the Company consented to an assignment agreement whereby the assignor received $265,000 cash in exchange for the transfer of rights pursuant to the securities purchase agreement dated July 2, 2015.  As part of this agreement, the Company directly paid to assignee $180,000 in exchange for the assignee waiving all rights under the original agreement related to price adjustments, second tranche issuance and warrants.

On September 8, 2015 the cashless warrants to purchase 690,625 common shares were exercised to convert to 7,541,511 common shares based on a price reset to equal the conversion price associated with the debt agreements from the stated strike price of $0.75. The price reset which resulted in the conversion to 7,541,511 common shares based on the the difference between the current market value (market price of $0.25 multiplied by exercise shares of 690,625) and the exercise price ($0.0375) multiplied by number of exercise shares (690,625.) This number is then divided by the adjusted price of the common stock ($0.01946.)

During the nine months ended September 30, 2015 the Company issued 26,983,998 shares for cash through private placement in the amount of $1,047,270 (average per sale price of $0.039 per share.)

For the nine months ended September 30, 2015, the Company issued 71,858,817 shares of common stock for consulting services rendered and to be rendered accrued as of September 30, 2015 in the amount of $5,547,305 including the cost of 6,500,000 shares to be issued. ($0.077 per share) including an agreement with Maxim Group LLC ("Maxim") to provide general financial advisory and investment banking services in exchange for 2.5% of the then issued and outstanding stock at the date of execution. The number of shares of common stock issued and outstanding at the time of this agreement was 276,352,667. At that date 2.5% of the issued and outstanding common stock equaled 6,908,817 shares. The Company, on May 18, 2015 canceled shares in the amount of 3,150,000 shares due to services never provided at a value of $157,500 ($0.05 per share).

For the nine months ended September 30, 2015, noteholders converted interest and principal in the amount of $324,385 in exchange 10,574,284 common shares (average conversion price of $0.031 per share.)

For the nine months ended September 30, 2015, the Company issued 1,850,000 common shares of stock to noteholders as commitment and assignment shares and recorded as debt financing cost at a value of $150,450 (average price $0.081.)

As of September 30, 2015, the Company has 372,311,277 shares of common stock issued and outstanding.  As of September 30, 2015 the Company had a liability for stock of $15,000 for stock to be issued as conversion shares under the note settlement agreement of the March 13, 2015 8% convertible note.  Share are to be issued in three issuances of 500,000 each not to have a value less than $5,000 each.  Issuances are scheduled November 1, 2015; December 1, 2015 and January 1, 2015. The Company also has stock issuable under a distribution agreement in the amount of five million common shares which had a value of $37,500 ($0.0075 per share.) The November 1, 2015 issuance as of filing date of this report but the Company is still in good standing with the former noteholder under this contract.

On September 30, 2015 the Company initiated payments in the amount of $180,000 to buy back price adjustment rights, warrants and additional issuance rights transferred to assignee under original stock purchase agreement dated July 2, 2015. The Company has the 4,000,000 share stock certificate in its possession pending the stock reissuance to a new certificate.

Authorized Reserved Shares

Under terms of several of the Company’s convertible notes it were required at all times to authorize and reserve four and in some cases five times the number of shares that are actually issuable upon full conversion of said notes (based on the conversion price of the notes in effect from time to time.)  The noteholders waived the requirement of the reserve shares above and beyond what was needed to convert through the maturity date, not withstanding the initial reserve amount. The Company is required to make proper provisions so that there after there shall be a sufficient number of shares of common stock authorized and reserved, free from preemptive rights.  The Company is further obligated to make any changes to its capital structure which would change the number shares of common stock into which said notes shall be convertible at the then current conversion price. For purposes of this analysis the Company calculates needed reserves based on the last trading day for the period ending September 30, 2015. Based on this calculation, the Company has sufficient authorized common shares to convert all convertible notes, and exercise all outstanding warrants from the unissued common shares as of September 30, 2015, and as of the date of this filing.

Stock Options

On August 12, 2013, the Company approved and enacted the 2013 Stock Incentive Plan (the “Plan”). Under the 2013 Stock Incentive Plan, the Company may grant options or share awards to its full-time employees, executive officers, directors and consultants up to a maximum of 8,000,000 common shares. Under the Plan, the exercise price of each option has been established at $0.25. Stock options vest as stipulated in the stock option agreement and their maximum term is 8 years.

The following table summarizes information about the Company’s stock options:

	September 30, 2015					December 31, 2014
	Number of Options		Weighted Average exercisable Price			Number of Options			Weighted Average exercisable Price
Options outstanding, beginning of period		200,000	$	0.25			1,283,000		$	0.25
Granted		-		-			-			-
Exercised		-		-			(50,000	)		(0.25	)
Forfeited		-		-			(1,033,000	)		(0.25	)
Expired		200,000	$	0.25			-			-
Options outstanding, end of period		-			-		200,000			0.25

There were no stock options issued in 2015 or 2014 by the Company. The latest options issued in 2013 were determined using the Black-Scholes option–pricing model using the following weighted-average assumptions:

Risk-free interest rate		0.32	%
Dividend yield		-
Volatility		152.50	%
Expected life in years	2 years
Exercise price	$	0.25

Stock options-based compensation expense included in the consolidated statements of operations for the nine and three months ended September 30, 2015 and 2014 were $0.

Warrants

Cashless warrants under a July 14, 2015 stock purchase agreement totaling 4,000,000 at an exercise price of $0.20 per share and were scheduled to proportionately adjust such that the aggregate Exercise Price of this Warrant remain unchanged if the Company at any time while this Warrant is active pays a stock dividend or otherwise makes a distribution or distributions on shares of its common stock or any other equity or equity equivalent securities payable in shares of common stock; subdivides outstanding shares of common stock into a larger number of shares, combines (including by way of reverse stock split) outstanding shares of common stock into a smaller number of shares or issues by reclassification of shares of the common stock any shares of capital stock of the Company.

Under the agreement, at any time while warrants are outstanding, if the Company sells or grants any option to purchase, or sell or any common stock or common stock equivalents, at an effective price per share less than the exercise price then in effect but greater than $0.10 (price adjusted) will be considered a “dilutive issuance” and the holder of the warrant will be entitled to receive shares of common stock at an effective price per share that is less than the exercise price.

Cashless warrants registered in the name of such purchaser to purchase up to a number of shares of common stock equal to 100% of such purchaser shares for the first tranche, with an exercise price equal to $0.20, subject to adjustments whereby the Company may issue without further consideration.  In the event that the first adjusted price is higher than the per-share purchase price but lower than $.08 cents per share, 10% of the aggregate number of shares issued or issuable or 15% if equal to or lower than the per-share price.  The Company filed Form S-1 with the SEC under terms of this agreement on August 17, 2015.  On October 15, 2015, the Company filed a request for withdrawal of Form S-1 previously filed.   Pursuant to Rule 477 promulgated under the Securities Act of 1933, as amended (the “Securities Act”), the Company requested that the Securities and Exchange Commission consent to the withdrawal, effective as of the date hereof or at the earliest practicable date hereafter.

On August 25, 2015, the Company consented to an assignment agreement whereby the assignor received $265,000 cash in exchange for the transfer of rights pursuant to the securities purchase agreement dated July 2, 2015.  As part of this agreement, the Company directly paid to assignee $180,000 in exchange for the cancellation of associated rights of possession of warrants, price adjustments, additional stock issuance under original contract.

The following table summarizes the Company’s share warrants outstanding as of September 30, 2015 and December 31, 2014:

	September 30, 2015							December 31, 2014
	Number of warrants			Weighted average remaining life (years)		Weighted average exercise price		Number of warrants		Weighted average remaining life (years)		Weighted average exercise price
Warrants outstanding, beginning of year		1,540,625			1.5	$	0.66		600,000		2	$	0.71
Granted		-							940,625		1.6		0.63
		-
Exercised		(690,625	)		-				-		-
Expired		(250,000	)		-		-		-		-		-
Warrants outstanding, end of period		600,000			.3	$	0.71		1,540,625		1.5	$	0.66

The following table summarizes the ranges of exercise prices of outstanding warrants as of September 30, 2015.

September 30, 2015
Warrants Outstanding
		Weighted average		Weighted average
Number of options		remaining life (years)		exercise price
	100,000		0.3		0.50
	500,000		0.3		0.75
	600,000		.3	$	0.71