Form 10-K for CANNABIS SCIENCE, INC.
21-Apr-2015
Annual Report
Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. The Company’s actual results could differ materially from those set forth on the forward looking statements as a result of the risks set forth in the Company’s filings with the Securities and Exchange Commission, general economic conditions, and changes in the assumptions used in making such forward looking statements.
General
The Company is committed to research and development of cannabis based medicines (“Products”) and intends to pursue Independent New Drug certification, possibly under the Orphan Drug Act, for such treatments but faces two significant challenges in accomplishing this business objective, namely financing and government regulation.
The Company is undercapitalized, and will be reliant on outside financing from sales of securities or issuance of debt instruments. Management expects many traditional lenders will be reluctant to provide the Company with capital in light of its financial condition and the nature of its expected business; so that any financing activities will likely be expensive and result in dilution to stockholders of the Company. In this regard, it should be noted that the Asset Acquisition Agreement among Cannex, the Company and K & D Equity Investments, Inc. contains non-dilution provisions that provided additional shares to K & D in the event our shares are sold privately for less than $1.00 per share. The Company can make no representation that financing for its business will be available, regardless of cost.
Furthermore, although cannabis has been used for medicinal purposes for over 5,000 years, there is a significant prejudice against development of smoked cannabis medical products amongst the medical and law enforcement communities.
In spite of recent statements by the current administration that indicate a softening of these views, marijuana is still classified as a Class 1 controlled substance. The Company can provide no assurances that it can develop and market its intended product, or how long government approval, if obtained, will take.
Recent Developments
Cannabis Science has added several experts to its scientific advisor board and other offices to enable it to progress towards FDA trials and similar efforts in other countries with its three key drugs under development, namely CS-TATI-1 targeting both newly diagnosed and treatment-experienced patients with drug-resistant HIV strains, as well as those intolerant of currently available therapies, CS-S/BCC-1 targeting basal and squamous cell carcinomas, and a proprietary cannabis-based therapy for neurological conditions that was patented in 2013.
The Company established wholly owned subsidiaries in The Netherlands with an office in Haarlem, The Netherlands, to expand operations in Europe, including to enhance opportunities for studies and governmental approvals on an international basis.
The Company is laying a solid foundation for entrance into the FDA and other government regulatory agencies for developing medicines for cancer, autism, Influenza, PTSD and other ailments.
The Company’s goal is the development of governmentally approved pharmaceuticals, including the aforementioned CS-TATI1, CS-S/BCC-1, and proprietary, patented neurological therapy currently under study or development.
The Company faces not only the challenges of other business at an early stage of development, but special problems arising from the nature of its own business. Notwithstanding, stockholders and prospective stockholders should recognize that any investment in our Company is risky and speculative, and could result in a total loss.
Results of Operations
Limited Revenues
During the fiscal year ended December 31, 2014 we generated license revenues of $0 and educational and consulting revenue of $1,031 compared to $76,938 in license revenue and $5,606 in educational and consulting revenues for the year ended December 31, 2013. As of December 31, 2014, we had an accumulated deficit of $109,393,306. At this time, our ability to generate any significant revenues continues to be uncertain. There is substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustment that might result from the outcome of this uncertainty.
Net Loss
Our net loss increased from $5,934,301 for the fiscal year ended December 31, 2013 to $16,884,764 for the fiscal year ended December 31, 2014 representing an increase of $10,950,463. For the fiscal year ended December 31, 2014, our net loss per share was $0.02, compared to a net loss per share of $0.01 per share for the fiscal year ended December 31, 2013.
Expenses
Total operating expenses increased from $5,753,137 for the fiscal year ended December 31, 2013 to $15,887,336 for the fiscal year ended December 31, 2014 representing an increase of $10,134,199.
Bad debt expense decreased from $143,062 for the fiscal year ended December 31, 2013 resulting from a provision for uncollected license fees to $0 for 2014.
Our professional fees decreased $24,219 to $90,048 for the fiscal year ended December 31, 2014 compared to $114,267 for the fiscal year ended December 31, 2013. This decrease was due to reduced legal services under agreements and other legal associated with increase securities filing activity and business ventures.
The loss on settlement of liabilities increased from $2,305,650 for the year ended December 31, 2013 to $5,357,447 in 2014. This increase was due to increased settlement of liabilities through stock and resulting losses on the settlements. Our general and administrative expenses increased by $6,816,407 from $3,213,496 for the fiscal year ended December 31, 2013 to $10,029,903 for fiscal year ended December 31, 2014. The increase in general and administrative expenses was mainly due to an increase in management and consulting fees relating to stock issued pursuant to agreements with management and consultants of the Company. Other general and administrative expenses consist of advertising, office supplies, transfer agent costs, travel expenses, rent, communication expenses (cellular, internet, fax, and telephone), office maintenance, courier and postage costs and office equipment.
Liquidity and Capital Resources
As of December 31, 2014, our current assets totaled $410,326 which was comprised of $10,061 in cash and cash equivalents, $8,670 in other receivables, $136,469 in accounts receivable-related party, $,97,626 in prepaid expenses, and $157,500 in marketable securities. As of December 31, 2014, we had $971,500 in deposits and total assets of $1,381,826. As of December 31, 2014 we had a working capital deficit of $3,544,953.
Our net loss of $16,884,764 for the year ended December 31, 2014 was mostly funded by private placements of stock and debt financing. We expect to incur substantial losses over the next two years. During the fiscal year ended December 31, 2014 our cash position increased by $9,118.
During the year ended December 31, 2014, we received net cash of $562,548 from financing activities compared to $446,595 for the same period in 2013. We used net cash of $493,276 in operating activities for the fiscal year ended December 31, 2014 compared to $432,467 for the same period in 2013. And we used net cash of $60,154 in investing activities compared for the fiscal year ended December 31, 2014 compared to using net cash of $36,745 for the same period in 2013.
On March 8, 2014, the Company issued a private placement offering for 4,000,000 units at $0.25 per unit. Each unit is comprised of one share of common stock and one non-transferable warrant with each one warrant to purchase one share of the Company’s common stock at an exercise price of $0.50. The warrants shall expire 2 years from the date of issuance of the warrant certificate (collectively “Offered Units”). Gross proceeds of $1,000,000 under the private placement offering were received by the Company. The weighted-average fair value of warrants and related warrant expense was estimated to be $97,894 for the year ended December 31, 2014 using the Black-Scholes option valuation model.
On March 31, 2014, the Company entered into a Debt Extension Agreement with Intrinsic Venture Corp. (“IVC”), to avoid default on approximately $1.8 million in promissory notes due, to extend due dates to March 31, 2015. The Company agreed to issue 5,000,000 rule 144 restricted shares of common stock with a fair market value of $0.1666 per share or $833,000 as consideration for the extensions on the aforementioned promissory notes. On July 1 and October 1, 2014, IVC assigned $251,751 and $420,000 in promissory notes to Intrinsic Capital Corp. (“ICC”), respectively. On November 1, 2014, IVC assigned a total of $1,108,896 promissory notes to Embella Holdings Ltd. (“EHL”). As of April 1, 2015, the Company is in default on the promissory notes due and is negotiating with the debtor to extend the due dates and/or settle the debt. IVC, ICC, and EHL are all under common ownership.
The Company is currently not in good short-term financial standing. We anticipate that we may only generate any limited revenues in the near future and we will not have enough positive internal operating cash flow until we can generate substantial revenues, which may take the next two years to fully realize. There is no assurance we will achieve profitable operations. We have historically financed our operations primarily by cash flows generated from the sale of our equity securities and through cash infusions from officers and outside investors in exchange for debt and/or common stock.
Business Development
Our business and product development will follow two parallel paths. We will create cannabis pharmaceuticals with and without psychoactive properties. Both of these lines will have numerous proven health benefits for treating autism, blood pressure, cancer and cancer side effects, along with other illnesses, including for general health maintenance.
We are positioned to pursue the development of phytocannabinoid-based pharmaceutical grade products. The endocannabinoid system normally regulates blood pressure through its capacity to dilate blood vessels and reduce adrenergic stimuli. Additionally, there is a developing body of evidence that shows both the tumor killing properties of endo- and phyto- cannabinoids, and their ability to inhibit metastasis in a variety of cancers.
The Company is working to navigate the regulatory framework for its phytocannabinoid science towards developing cannabis-based therapeutics that will holistically promote health by restoring biochemical balance. By adhering to underlying scientific principles, the Company will manipulate all-pervasive phytocannabinoid processes to target a variety of disparate illnesses.
Cannabis Science is also positioning to explore insights that indicate an intrinsic link between novel cancer and HIV technologies and the cannabinoid system; with the goal of demonstrating that our pharmaceuticals will enhance biochemical markers that are indicative of a successful HIV therapy based on recent paradigm breaking discoveries.
The Company is currently focused on FDA approval of its first medical cannabis product targeted for veterans. Many veterans are already using herbal cannabis to self-medicate to relieve the symptoms of PTSD. Consequently, there is a clear need for standardized, FDA approved, oral cannabis products which can, and should be, provided to veterans and others who can benefit from its use.
Medical cannabis has far fewer and milder side effects than most currently prescribed pharmaceutical products do. We are working hard to have one or more products ready for FDA clinical trials as soon as possible.
On February 9, 2012, the Company signed a license agreement with Apothecary to produce several Cannabis Science Brand Formulations for the California medical cannabis market. As well, Apothecary will provide research and development facilities with full circle operations including a California laboratory facility for internal research and development, along with 16 unique genetic strains specifically generated and maintained by a cancer survivor who recognizes the importance of proper growth and breeding in addition to investing $250,000 in research and development in the first 24 months. Apothecary failed to meet several contract provisions including investing $250,000 in R&D, setting up a laboratory facility, and reporting and remitting license fees owing to the Company. On November 20, 2014, the Company signed an amendment to the license agreement. Pursuant to the amendment, the Company is acquiring all property, building, and equipment of Apothecary in exchange for 14,500,000 Rule 144 restricted stock with a fair market value of $971,500. The Company recorded an equivalent deposit for the year ended December 31, 2014 until the acquisition of assets closes, which is anticipated during fiscal 2015 once all assets are identified with supported fair market values and the transfer of land title is completed.
On February 9, 2012, the Company acquired GGECO University, Inc. (“GGECO”), an online video-based medical cannabis education system, offering courses dealing with medical cannabis law, the benefits of medical marijuana, cooking, horticulture, and bud tending. Following the university’s name change to Cannabis Science University, the Company hopes to use this platform to educate the general public, patients, and even those who have already been involved in the medical cannabis industry on the medical benefits of cannabis, how it is grown, how to use it safely, and the many applications or ways to administer the medication. In consideration of this agreement, the Company issued 25,000,000 common shares to the principals of GGECO.
On March 21, 2012, the Company acquired Cannabis Consulting Inc. (“CCI Group”), which consists of a group of businesses operated by Robert J. Kane, including:
all contracted rights, properties, patents, trademarks, and distribution rights and agreements pertaining to Cannabis Consulting Inc., Robert Kane Partners, Kaneabis Consulting, Kaneabis Fund, Kaneabis Report, and Kaneabis Radio. In conjunction with the acquisitions, Robert Kane was promoted to V.P. of Investor Relations for the Company. Consideration paid for the CCI Group was 1,000,000 common shares with a fair market value of $147,000 issued to the principal, Mr. Robert Kane.
On February 13, 2014, the Company entered into a partnership agreement with Michigan Green Technologies, LLC. Under the agreement, the Company participates in 20% of all net profit of the operating entity. In addition, the Company is working with its partner to active lobbying for the legalization of hemp and cannabis in Michigan which will lead to additional business opportunities for the Company through its partnership.
The Company anticipates having to raise additional capital to fund operations over the next 12 months. To the extent that it is required to raise additional funds to acquire properties, and to cover costs of operations, the Company intends to do so through additional public or private offerings of debt or equity securities.
As of December 31, 2014, the Company had four directors/executives under management services contracts.
MAPH Enterprises, LLC | (305) 414-0128 | 1501 Venera Ave, Coral Gables, FL 33146 | new@marijuanastocks.com
