Cannabis Science Inc (fka CBIS)

[newmedman]

Quarterly Report (10-q)
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2015

or

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________to __________

Commission File Number: 001-28911


CANNABIS SCIENCE, INC.
(Exact name of registrant as specified in its charter)

Nevada
91-1869677

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)



6946 N Academy Blvd, Suite B #254 Colorado Springs, CO
80918

(Address of principal executive offices)
(Zip Code)


888-889-0888

(Registrant’s telephone number, including area code)



(Former name, former address and former fiscal year, if changed since last report)


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [X] Yes [ ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a not-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ] Accelerated filer [ ]

Non-accelerated filer [ ] Smaller reporting company [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). [ ] Yes [X] No

Number of common shares outstanding at November 20, 2015: 1,416,655,296
Number of common shares outstanding at September 30, 2015: 1,287,155,296
Number of Class A common shares outstanding at September 30, 2015: 0




CANNABIS SCIENCE, INC.
FORM 10-Q

For the Period Ended September 30, 2015

TABLE OF CONTENTS



Page
PART I FINANCIAL INFORMATION

Item 1.
Consolidated Financial Statements
3
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
5
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
8
Item 4.
Controls and Procedures
8

PART II OTHER INFORMATION


Item 1.
Legal Proceedings
9
Item 1A. Risk Factors
9
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
9
Item 3.
Defaults Upon Senior Securities
10
Item 4.
Mine Safety Disclosures.
10
Item 5.
Other Information
10
Item 6.
Exhibits and Certifications
11


2






PART I FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS



Index

Consolidated Balance SheetsF-1

Consolidated Statements of Operations and Other Comprehensive LossF-2

Consolidated Statements of Cash FlowsF-3

Notes to the Consolidated Financial StatementsF-4



3




CANNABIS SCIENCE, INC.

CONSOLIDATED BALANCE SHEEETS

September 30, 2015 and December 31, 2014





September 30,2015



December 31,





(unaudited)



2014





$



$

ASSETS
Current Assets
Cash 4,791 10,061
Inventory 18,476 -
Other receivables 3,072 8,670
Prepaid expenses and deposits 88,588 97,626
Loans receivable, related party 22,936 50,000
Total current assets 137,863 166,357

Deposits (Note 8) 971,500 971,500
Goodwill 280,141 -
Equity method investee (Note 9) 156,181 243,969
TOTAL ASSETS 1,545,685 1,381,826

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable 127,440 153,094
Accrued expenses, primary management fees (Note 5) 2,029,807 1,716,807
Dividends payable 473,527 -
Advances from related parties (Note 5) 756,993 203,892
Management bonuses 300,000 300,000
Notes payable to stockholders (Note 6) 1,466,513 1,581,486
Total current liabilities and total liabilities 5,154,280 3,955,279

Commitments (Note 10)

Stockholders' Deficit
Series A Preferred Stock, $0.001 par value, 1,000,000 shares
authorized, 1,000,000 shares issued and outstanding at September 30,2015 and December 31, 2014 1,000 1,000
Common stock, $.001 par value, 3,000,000,000 and 1,500,000,000 shares authorized as of September 30, 2015 and December 31, 2014; 1,287,155,296 issued and outstanding as of September 30,2015 and 1,032,123,906 at December 31, 2014 1,287,155 1,032,124
Common stock, Class A, $.001 par value, 100,000,000 shares
authorized, none issued and outstanding as of September 30, 2015 and December 31, 2014 - -
Prepaid consulting (5,476,985) (4,448,696)
Additional paid-in-capital, including 104,000,000 shares pending to be issued 125,519,240 110,256,424
Common stock receivable (615,000) -
Accumulated deficit (123,991,168) (109,393,306)
Cumulative exchange translation (100,248) (20,999)
Equity attributable to common shareholders (3,376,006) (2,573,453)
Non-controlling interest (232,589) -
Total stockholders' deficit (3,608,595) (2,573,453)
TOTAL LIABILTIES AND STOCKHOLDERS' DEFICIT 1,545,685 1,381,826

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


F-1




CANNABIS SCIENCE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2015 and 2014

(UNAUDITED)























For the three months



For the nine months





ended September 30,



ended September 30,





2015



2014



2015



2014





$



$



$



$

Revenue 4,150 - 4,150 1,031

Cost of Goods Sold 2,088 - 2,088 -

Operating Expenses
Investor relations (10,500) - - -
Professional Fees 22,424 29,277 626,132 71,622
Net loss on settlement of liabilites 770,000 - 4,488,076 2,116,500
Depreciation and Amortization - 16,122 - 54,373
Research and Development 68,552 11,847 381,772 11,847
General and administrative 2,967,024 597,077 8,710,982 4,845,803
Total operating expenses 3,817,500 654,323 14,206,962 7,100,145
Net Operating Loss (3,815,438) (654,323) (14,204,900) (7,099,114)

Other income (expense)
Interest expense, net (603) - (603) (65)
Impairment of goodwill - - (64,421) -
Debt refinance costs - - - (833,000)
Warrant expense - - - (97,894)
Unrealized gain (loss) on marketable common stock (79,500) (21,000) (87,000) (36,000)
Total other income (expense) (80,103) (21,000) (152,024) (966,959)
Net Loss (3,895,541) (675,323) (14,356,924) (8,066,073)
Less: Net loss attributable to non-controlling interest 177,621 - 232,589 -
Net loss attributable to common shareholders (3,717,920) (675,323) (14,124,335) (8,066,073)
Other Comprehensive Income
Foreign exchange translation adjustment (49,708) (16,690) (79,249) (17,641)
Total other comprehensive income (loss) (49,708) (16,690) (79,249) (17,641)
Comprehensive loss attributable to Cannabis Science, Inc. (3,767,628) (692,013) (14,203,584) (8,083,714)

Net loss per common share:
Basic and diluted $ (0.00) $ (0.00) $ (0.01) $ (0.01)

Weighted average number of common shares outstanding 1,285,416,166 836,783,906 1,213,795,570 778,287,313


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

F-2




CANNABIS SCIENCE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 and 2014

(UNAUDITED)

























September 30, 2015



September 30, 2014





$



$

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (14,356,924) (8,066,073)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization - 54,373
Stock issued for services 8,585,654 4,366,539
Stock issued for the extension of debt - 833,000
Warrant expense - 97,894
Foreign exchange adjustment (79,249) (17,641)
Loss on settlement of liabilities 4,488,076 2,116,500
Loss on marketable securities - 36,000
Equity investee, Endocan Corporation 87,788 -
Changes in operating assets and liabilities:
Accounts receivable 5,883 (8,351)
Inventory 1,937 -
Prepaid expenses and deposits 9,038 (23,684)
Accounts payable 570,893 (18,513)
Accrued expenses, including management fees 313,000 362,734
CASH FLOWS USED IN OPERATING ACTIVITES (373,904) (267,222)

CASH FLOWS FROM INVESTING ACTIVITIES
Advance receivable, related parties 33,615 -
Repayment of advances receivable, related parties (7,351) -
Cash acquired with EquiPharm 6,493 -
Loans receivable, related parties - (40,596)
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES 32,757 (40,596)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from advances from officer - 447
Proceeds from notes payable-stockholders 85,877 -
Repayments of notes payable-stockholders - (250,000)
Proceeds from sale of common stock 250,000 1,000,000
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES 335,877 750,447

NET INCREASE (DECREASE) IN CASH (5,270) 442,629
CASH, BEGINNING OF PERIOD 10,061 943
CASH, END OF PERIOD 4,791 443,572

SUPPLEMENTAL CASH FLOW INFORMATION:
Common stock issued for service 10,228,944 3,572,760
Common stock issued for settlement of debt 4,733,904 2,146,000
Common stock issued for extension of debt - 833,000
Common stock issued for acquisition of EquiPharm 305,000 -
Debt converted into common stock 245,828 29,500
Accounts payable and expenses paid through note payable, stockholder 130,854 13,500
Accounts payable and expenses paid through advances from related parties 466,106 -
Stock dividends payable 473,527 -


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

F-3




CANNABIS SCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2015

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Organization and General Description of Business

Cannabis Science, Inc. (“We” or “the Company”), was incorporated under the laws of the State of Colorado, on February 29, 1996, as Patriot Holdings, Inc. On August 26, 1999, the Company changed its name to National Healthcare Technology, Inc. On June 6, 2007, the Company changed its name from National Healthcare Technology, Inc., to Brighton Oil & Gas, Inc., and converted to a Nevada corporation. On March 25, 2008 the Company changed its name to Gulf Onshore, Inc. On April 7, 2009, the Company changed its name to Cannabis Science, Inc., and obtained a new CUSIP number. On May 7, 2009 the Company common shares commenced trading under the new stock symbol OTCBB: CBIS.

Cannabis Science, Inc. is at the forefront of medical marijuana research and development. The Company works with world authorities on phytocannabinoid science targeting critical illnesses, and adheres to scientific methodologies to develop, produce, and commercialize phytocannabinoid-based pharmaceutical products. In sum, we are dedicated to the creation of cannabis-based medicines, both with and without psychoactive properties, to treat disease and the symptoms of disease, as well as for general health maintenance.

On February 20, 2015, the Company closed on the acquisition of additional 30.1% interest in Michigan Green Technologies LLC (“MGT”), bringing the Company’s ownership position to 50.1% controlling interest. MGT is working on various Michigan initiatives with state government to legalize and commercialize medical cannabis business, as was done in Colorado, Washington State, and other U.S. states. The Company recognized $51,367 in goodwill related to the MGT acquisition.

On May 27, 2015, the Company entered into a collaborative drug development deal with IGX Bio and its GenePro®, a DNA-based immunotherapeutic that recently received FDA IND approval to enter into human trials. The companies intend to develop a joint protocol to demonstrate potential synergistic effects of their respective drug candidates in HIV, as well as potential new drug candidates. The collaboration between IGX Bio and the Company and will provide a scientific evaluation of GenePro® and CS-TATI-1 to demonstrate the enhanced potential of therapeutic vaccination and the anti-inflammatory effects of cannabinoids to deter disease progression in AIDS patients unable to control HIV replication.

On May 7, 2015 the Company announced the acquisition of Equi-Pharm LLC, a USA manufacturer and distributor of specialty horse and pet grooming and topical applications. The acquisition incorporates an extensive expansion plan for Equi-Pharm including "Large Animal" such as horses, cattle, sheep and the like and "Small Animal" or "Pets" include cats, dogs, pet snakes and the like for medical and cosmetic products.


B. Basis of Presentation

These consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States, and are expressed in U.S. dollars. The Company’s fiscal year end is December 31.

Interim Financial Reporting
While the information presented in the accompanying interim consolidated financial statements is unaudited, it includes all adjustments, which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented in accordance with generally accepted accounting principles in the United States of America ("GAAP"). These interim financial statements follow the same accounting policies and methods of application as used in the December 31, 2014 audited financial statements of the Company. All adjustments are of a normal, recurring nature. Interim financial statements and the notes thereto do not contain all of the disclosures normally found in year-end audited financial statements and these Notes to Financial Statements are abbreviated and contain only certain disclosures related to the nine month periods ended September 30, 2015 and 2014. It is suggested that these interim financial statements be read in conjunction with the Company’s audited financial statements and related notes for the year ended December 31, 2014 included in our Form 10-K, filed with the Securities Exchange Commission on April 21, 2015. Operating results for the nine months ended September 30, 2015 are not necessarily indicative of the results that can be expected for the year ending December 31, 2015.
For other accounting policies please refer to the Company’s Form 10-K with the SEC on file no. 000-28911 April 21, 2015.

The Company qualifies as an “emerging growth company” as defined in Section 101 of the Jumpstart our Business Startups Act (“JOBS Act”) as we do not have more than $1,000,000,000 in annual gross revenue and did not have such amount as of December 31, 2014, our last fiscal year. We are electing to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act.

F-4



Earnings (Loss) Per Share (EPS)

Basic earnings per common share are calculated by dividing net income or loss by the weighted average number of shares outstanding during the period. Diluted earnings per common share are calculated by adjusting outstanding shares, assuming conversion of all potentially dilutive stock options and warrants. The computation of diluted EPS does not assume conversion, exercise, or contingent issuance of shares that would have an anti-dilutive effect on earnings per common share. Anti-dilution results from an increase in earnings per share or reduction in loss per share from the inclusion of potentially dilutive shares in EPS calculations. Currently there are 1,700,000 stock options, which have been excluded from EPS that could potentially have a dilutive effect on EPS in the future. The table below sets forth the reconciliation for net loss and weighted average shares used for calculating basic and diluted earnings per share.


Three Months Ended September 30,



Nine Months Ended September 30,





2015



2014



2015



2014

Earnings (numerator)
Net loss $ (3,767,628) $ (692,013) $ (14,203,584) $ (8,083,714)
Stock dividends (473,527) - (473,527) -
Net loss available to common shareholders $ (4,241,155) $ (692,013) $ (14,677,111) $ (8,083,714)

Shares (denominator)
Weighted average common shares outstanding 1,285,416,166 836,783,906 1,213,795,570 778,287,313

Earnings (loss) per share
Basic and diluted $ (0.00) $ (0.00) $ (0.01) $ (0.01)


2. GOING CONCERN

The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate the continuation of the Company as a going concern. The Company reported an accumulated deficit of $123,991,168 and had a stockholders’ deficit of $3,608,595 at September 30, 2015.

In view of the matters described, there is substantial doubt as to the Company's ability to continue as a going concern without a significant infusion of capital. At September 30, 2015, the Company had insufficient operating revenues and cash flow to meet its financial obligations. There can be no assurance that management will be successful in implementing its plans. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The Company raised $250,000 through a private sale of common stock in the nine months ended September 30, 2015. Notwithstanding, we anticipate that we will have to raise additional capital to fund research and development and operations over the next 12 months. To the extent that we are required to raise additional funds to acquire research and growing facilities, and to cover costs of operations, we intend to do so through additional public or private offerings of debt or equity securities. There are no commitments or arrangements for other offerings in place, no guaranties that any such financings would be forthcoming, or as to the terms of any such financings. Any future financing may involve substantial dilution to existing investors. We had been relying on our common stock to pay third parties for services that has resulted substantial dilution to existing investors.

3. FAIR VALUE MEASUREMENTS AND DISCLOSURES

ASC Topic 820, Fair Value Measurement, establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

Effective January 1, 2015, the equity method investments in Endocan Corporation are measured using the more observable fair value. The decision to elect the fair value option, which is irrevocable once elected, is determined on an investment by investment basis and applied to an entire instrument. The net gains or losses on the equity investment in Endocan Corporation were recognized in unrealized gain (loss) on marketable common stock.

F-5


4. BUSINESS ACQUISITIONS

The Company completed the acquisition of Equi-Pharm, LLC (“Equi-Pharm”) on May 7, 2015 by acquiring all of the issued and outstanding stock of Equi-Pharm for the sum of $305,000. The acquisition was done through stock issuance.

The transaction has been accounted for using the acquisition method of accounting which requires that, among other things, assets acquired and liabilities assumed be recorded at their fair values as of the acquisition date. The Company has not finalized the determination of the fair values of the assets acquired and liabilities assumed and, therefore, the provisional amounts set forth are subject to adjustment when the valuations are completed. Under U.S. Generally Accepted Accounting Principles, companies have up to one year following an acquisition to finalize acquisition accounting.

The following details the preliminary fair value of the consideration transferred to effect the acquisition of Equi-Pharm:

Common stock of Cannabis Science, Inc. $ 305,000
Total fair value consideration $ 305,000
The following is a preliminary valuation of the net assets acquired by the Company in the acquisition, reconciled to the total fair value of the consideration transferred:

Cash $ 6,493
Accounts receivable 285
Inventory 20,413
Accounts payable (413)
Related party payable (1,919)
Book value of net assets acquired as of May 7, 2015 24,859
Fair value adjustment to:
Goodwill 280,141
Fair value of consideration transferred $305,000

5. RELATED PARTY TRANSACTIONS

At September 30, 2015, a total of $191,344 (December 31, 2014: $191,344) in loans payable was due to Bogat Family Trust, Raymond Dabney as trustee, and $0 to Raymond Dabney (December 31, 2013: $6,166). The loan amounts due are non-interest bearing, unsecured and have no specified terms of repayment. Raymond Dabney was appointed President/CEO signed a new management agreement on November 5, 2014.

At September 30, 2015, the Company owes $72,968 (2014: $0) to MJR B.V. which is owned and controlled by Mario Lap director and director and officer of EU subsidiaries. The loan is unsecured, non-interest bearing, and due upon demand.

On March 27, 2015, the Company’s CFO, Robert Kane, loaned Michigan Green Technologies LLC (“MGT”) $52,500 secured by a non-interest bearing promissory note due within 30 days of MGT liquidating shares in Cannabis Science, Inc. to repay the debt. The loan is unsecured, non-interest bearing, and due upon demand. As of February 20, 2015, the Company closed on its acquisition and now owns a majority 50.1% interest in MGT.

At September 30, 2015, the Company held 7,500,000 common shares with a fair market value of $70,500 in Endocan Corporation (“EC”) representing approximately 8.6% of the issued and outstanding shares of EC. The value of the shares at September 30, 2015 was determined to be $0.01 per share or $70,500 with the Company recording an unrealized loss of $87,000 for the nine months ended September 30, 2015 and an unrealized loss of $36,000 for the nine months ended September 30, 2014. Robert Kane, CFO and director is also the CFO and a director of EC and Chad S. Johnson, Esq., COO, general counsel and a director is also a director and general counsel for EC. Raymond C. Dabney is a controlling shareholder of both the Company and Endocan Corporation.