Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - CANNABIS SCIENCE, INC.Financial_Report.xls
EX-32.2 - EXHIBIT 32.2 - CANNABIS SCIENCE, INC.exhibit322.htm
EX-31.2 - EXHIBIT 31.2 - CANNABIS SCIENCE, INC.exhibit312.htm
EX-32.1 - EXHIBIT 32.1 - CANNABIS SCIENCE, INC.exhibit321.htm
EX-31.1 - EXHIBIT 31.1 - CANNABIS SCIENCE, INC.exhibit311.htm

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 March 31, 2012.


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

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

organization)

 

 

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

(Address of principal executive offices,

including zip code)


888-889-0888

(Registrants telephone number, including area code)


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.

Yes (X)   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).  Yes (X)   No (  )


Indicate by check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  (X)



 

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 (  )   No (X)


At May 21, 2012, the Company had outstanding of 602,170,573 shares of Common Stock, $0.001 par value per share.

 

 

                
             



CANNABIS SCIENCE, INC.

FORM 10-Q

For the Period Ended March 31, 2012

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

4

Item 3.    Quantitative and Qualitative Disclosures about Market Risk

8

Item 4.     Controls and Procedures

9

 

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.    Submission of Matters to a Vote of Security Holders

10

Item 5.    Other Information

10

Item 6.    Exhibits and Certifications

10

 

 

2


                
             








PART 1 FINANCIAL INFORMATION.

 

ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS

 

CANNABIS SCIENCE, INC.

 

 

Page No.

Consolidated Balance Sheets as at March 31, 2012 and December 31, 2011

F-1

Consolidated Statements of Operations for the three months ended March 31, 2012 and 2011 and for the period January 27, 2005 (Inception) to March 31, 2012

F-2

Consolidated Statements of Shareholders’ Equity/(Deficit) for the Period from January 27, 2005 (inception) to March 31, 2012

F-3

Consolidated Statements of Cash Flows for the three months ended March 31, 2012 and 2011 and for the period January 27, 2005 (Inception) to March 31, 2012

F-5

Notes to Consolidated Financial Statements

F-6

3


                
             

 

 

 

 

 

 

CANNABIS SCIENCE, INC.

(A Development Stage Company)

Consolidated Balance Sheets

March 31, 2012 and December 31, 2011

 

 

March 31,

 

 

 

 

2012

 

December 31,

 

 

(unaudited)

$

 

 2011

$

ASSETS 

 

 

 

 

Current Assets 

 

 

 

 

Cash 

 

2,444

 

 2,197 

Accounts receivable, related party

 

25,000

 

-

Prepaid expenses and deposits

 

-

 

                3,128   

Loans receivable, related party

 

11,750

 

-

Total current assets 

 

39,194

 

5,325 

 

 

 

 

 

Deposits

 

-

 

6,666

Computer and Equipment, net of accumulated 

 

 

 

 

  depreciation of $3,753 and $2,839

 

2,031

 

967 

 

 

 

 

 

Intangibles, CCI Group acquisition (Note 1)

 

90,000

 

-

Intangibles, GGECO acquisition (Note 1)

 

959,686

 

-

Intangibles, net of accumulated depreciation

 

 

 

 

  of $83,699 and $62,551

 

42,301

 

47,588 

TOTAL ASSETS 

 

1,131,998

 

60,546 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT 

 

 

 

 

Current Liabilities 

 

 

 

 

Accounts payable 

 

345,656

  

476,590 

Accrued expenses 

 

2,254,018

 

1,163,126 

Advances from related parties (Note 3)

 

171,703

 

156,818 

Management bonuses

 

300,000

 

300,000

Notes payable to stockholders

 

272,890

 

194,413

Total current liabilities and total liabilities 

 

3,344,175

 

2,290,947 

 

 

 

 

 

Stockholders’ Deficit

 

 

 

 

Preferred stock, $0.001 par value 

 

 

 

 

  Authorized 1,000,000 shares 

 

 

 

 

  Issued and outstanding, 999,999 shares 

 

 

 

 

  respectively 

 

1,000 

 

1,000 

Common stock, $0.001 par value 

 

 

 

 

  Authorized 250,000,000 shares 

 

 

 

 

  Issued and outstanding, 384,670,574 shares and 

 

 

 

 

  305,420, respectively 

 

384,671

 

305,421 

Prepaid consulting

 

(364,046

)

(379,156)

Additional paid-in capital 

 

75,771,014

 

68,379,003 

Accumulated deficit 

 

(78,004,816

)

(70,536,669)

Total stockholders' deficit 

 

(2,212,177

)

(2,230,401)

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT 

 

1,131,998

 

60,546 

  

 

 

 

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

 

 

 

F-1


                
             



 

CANNABIS SCIENCE, INC.

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011

AND THE CUMULATIVE PERIOD FROM JANUARY 27, 2005 (INCEPTION) TO MARCH 31, 2012

(UNAUDITED)

For the three months ended
March 31,

 

Period from Janaury 27, 2005 (inception)
to March 31,

 

 

2012

2011

 

2012

 

 

$

$

 

$

Revenue 

 

116,135

11,290 

206,242 

 

 

 

 

 

 

Operating Expenses 

 

 

 

 

 

Investor relations

 

15,750

-

 

1,234,559 

Professional fees 

 

193,563

11,380

 

32,936,492 

Technology license royalties 

 

-

-

 

160,417 

Impairment of oil and gas well lease 

 

-

-

 

5,089,811 

Net loss (gain) on settlement of liabilities 

 

6,061,100

1,487,100

 

10,796,587

Depreciation and Amortization 

 

5,437

5,437

 

87,019 

General and administrative 

 

1,307,881

1,296,609

 

24,265,820 

Total operating expenses 

 

7,583,731

2,800,526

 

74,597,705 

Net Operating Profit (Loss)

 

(7,467,596

(2,789,236

)

(74,391,463)

 

 

 

 

 

 

Other income (expense)

 

-

-

 

66,021 

Interest expense, net 

 

(550

(542

)

(154,512)

Beneficial conversion feature 

 

-

-

 

(1,098,992)

Net Income (Loss) Before Income Taxes 

 

(7,468,147

(2,789,778

)

(75,578,947)

Income tax provision 

 

-

-

 

(2,035,065)

Income tax benefit 

 

-

-

 

1,210,270 

Net tax 

 

-

-

 

(824,795)

 

 

 

 

 

 

Net Income (Loss) From Continuing 

 

 

 

 

 

Operations 

 

(7,468,147

(2,789,778

)

(76,403,742)

Discontinued operations 

 

-

-

 

(2,425,868)

Income tax benefit 

 

-

-

 

824,795 

Net Loss 

 

(7,467,147

(2,789,778

)

(78,004,816)

 

 

 

 

 

 

Net loss per common share 

 

 

 

 

 

- Basic and diluted 

 

$          (0.02

$           (0.02

)

 

 

 

 

 

 

 

Weighted average number of 

 

 

 

 

 

common shares outstanding 

 

363,527,717

112,961,685

 

 

 

 

 

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

 

F-2

                
             


 

CANNABIS SCIENCE, INC.

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY/(DEFICIT)

FOR THE PERIOD FROM JANUARY 27, 2005 (inception) to MARCH 31, 2012

(Unaudited)

 

 

 

 

 

Additional

 

 

 

 

Preferred

Common

Paid-in

Prepaid

Accum.

 

 

Shares

Par

Shares

Par

Capital

Consulting

Deficit

Total

 

 

$

 

$

$

$

$

$

Bal, Jan 27, 2005 

 -

-

 

Founder's stock issued 

 

 

83,800 

84 

(84)

 

 

Stock issued for debt 

 

 

8,000 

399,992 

 

 

400,000 

Shares issued for 

 

 

 

 

 

 

 

 

license agreement 

 

 

86,188 

86 

(86)

 

 

Effect of reverse merger 

 

 

13,840 

14 

(200,014)

 

 

(200,000)

Divestiture of subsidiary 

 

 

 

 

 

 

 

 

to related party 

 

 

544,340 

 

 

544,340 

Net loss for the period 

 

 

 

 

 

 

(807,600)

(807,600)

Bal, Dec 31, 2005 

191,828 

192 

744,148 

(807,600)

(63,260)

Shares issued for 

 

 

 

 

 

 

 

 

employment 

 

 

45,500 

45 

8,487,455 

 

 

8,487,500 

Shares issued for 

 

 

 

 

 

 

 

 

service 

 

 

171,080 

171 

28,798,329 

(7,633,750)

 

21,164,750 

Shares issued for 

 

 

 

 

 

 

 

 

lease agreement 

 

 

6,770 

406,193 

 

(350,200)

56,000 

Net loss for the year 

 

 

 

 

 

 

(36,906,584)

(36,906,584)

Bal, Dec 31, 2006 

415,178 

415 

38,436,125 

(7,633,750)

(38,064,384)

(7,261,594)

Shares issued for 

 

 

 

 

 

 

 

 

service 

 

 

63,020 

63 

528,285 

(387,500)

 

140,848 

Shares issued for 

 

 

 

 

 

 

 

 

debt 

 

 

350,000 

350 

349,650 

 

 

350,000 

Amortization of 

 

 

 

 

 

 

 

 

beneficial conversion 

 

 

 

 

 

 

 

 

feature 

 

 

 

 

1,066,657 

 

 

1,066,657 

Amortization of shares 

 

 

 

 

 

 

 

 

issued for services 

 

 

 

 

 

8,021,250 

 

8,021,250 

Shares issued for 

 

 

 

 

 

 

 

 

properties 

 

 

500,000 

500 

4,999,500 

 

 

5,000,000 

Net loss for the year 

 

 

 

 

 

 

(15,007,117)

( 15,007,117)

Bal, Dec 31, 2007 

1,328,198 

1,328 

45,380,217 

(53,071,501)

(7,689,956)


  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

Preferred

Common

Paid-in

Prepaid

Accum.

 

 

Shares

Par

Shares

Par

Capital

Consulting

Deficit

Total

 

 

$

 

$

$

$

$

$

Bal, Dec 31, 2007 

 -

1,328,198 

1,328 

45,380,217 

(53,071,501)

(7,689,956)

Amortization of 

 

 

 

 

 

 

 

 

beneficial conversion 

 

 

 

 

 

 

 

 

feature 

 

 

 

 

32,335 

 

 

32,335 

Cancellation and 

 

 

 

 

 

 

 

 

amortization of shares 

 

 

(919)

(1)

 

 

Shares issued for cash 

 

 

10,000 

10 

19,990 

 

 

20,000 

Shares issued for debt 

 

 

990,000 

990 

98,010 

 

 

99,000 

Shares issued for 

 

 

 

 

 

 

 

 

acquisition 

 

 

10,000,000 

10,000 

2,490,000 

 

 

2,500,000 

Shares issued for 

 

 

 

 

 

 

 

 

service 

 

 

270,000 

270 

128,230 

 

 

128,500 

Net profit for the year 

 

 

 

 

 

 

3,559,617 

3,559,617 

Bal, Dec 31, 2008 

12,597,279 

12,597 

48,148,783 

(49,511,884)

(1,350,504)

Shares issued for cash 

 

 

2,522,495 

2,523 

197,552 

 

 

200,075 

Shares issued for 

 

 

 

 

 

 

 

 

service 

 

 

8,855,000 

8,855 

2,507,195 

 

 

2,516,050 

Cancellation of shares 

 

 

(10,000)

(10)

10 

 

 

Shares issued for debt 

 

 

3,680,000 

3,680 

2,020,320 

 

 

2,024,000 

Shares issued for 

 

 

 

 

 

 

 

 

service 

999,999 

1,000 

 

 

 

 

 

1,000 

Shares issued for 

 

 

 

 

 

 

 

 

assets 

 

 

2,100,000 

2,100 

123,900 

 

 

126,000 

Net loss for the year 

 

 

 

 

 

 

(4,532,061)

(4,532,061)

Bal, Dec 31, 2009 

999,999 

1,000 

29,744,774 

29,745 

52,997,760 

(54,043,945)

(1,015,440)

Common stock issued for cash

-

-

1,245,800 

1,246 

137,540 

 

-

138,786 

Common stock issued for services

-

-

26,680,000 

26,680 

3,670,978 

( 3,530,808)

-

166,850 

Common stock issued for acquisition write-off

-

-

350,000

350

36,150

-

-

36,500

Common stock issued for debt 

-

-

42,750,000 

42,750

5,249,600

-

-

5,292,350 

Amortization of shares issued for services

-

-

-

-

-

2,208,178

-

  

2,208,178

Common shares pending cancelation

-

-

400,000 

400 

(400) 

 

-

Net loss for the period 

-

-

 -

 -

 -

 -

(8,153,680)

(8,153,680)

Bal, Dec 31, 2010

999,999 

1,000 

101,170,574 

101,171

62,091,628

(1,322,630)

(62,197,625)

(1,326,456)

Common stock issued for services

-

-

37,250,000

36,850

1,157,575

(1,146,700)

-

47,725

Common stock issued for debt 

-

-

167,400,000 

167,400

5,129,800

 -

-

5,297,200 

Amortization of shares issued for services

-

-

-

-

-

2,090,174

-

  

2,090,174

Net loss for the period 

-

-

 -

 -

 -

 -

(8,339,044)

(8,339,044)

Bal, Dec 31, 2011

999,999 

1,000 

305,820,574 

305,421

68,379,003

(379,156)

(70,536,669)

(2,230,401)

Common stock issued for services

-

-

4,250,000

4,250

281,225

(252,725)

-

32,750

Common stock issued for debt 

-

-

75,000,000

75,000

6,061,100

-

-

6,136,100 

Amortization of shares issued for services

-

-

-

-

-

267,835

-

  

267,835

Common stock pending issuance for acquisitions CCI Group and GGECO

-

-

-

-

1,049,686

-

-

1,049,686

Net loss for the period 

-

-

 -

 -

 -

 -

(7,468,147)

(7,468,147)

Bal, Mar 31, 2012

999,999 

1,000 

384,670,574 

134,071

75,771,014

(364,046)

(78,004,816)

(2,212,177)

  

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

 

 

 

F-3

                
             

 

 

                

             

 

 

 

 

 

 

 

CANNABIS SCIENCE, INC.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

 

 

 

Period from

 

 

 

 

 

 

January 27,

 

 

 

 

 

 

2005

 

 

For the three months

 

(inception) to

 

 

ended March 31,

 

March 31,

 

 

2012

 

2011

 

2012

 

 

$

 

$

 

$

CASH FLOWS FROM OPERATING ACTIVITIES: 

 

 

 

 

 

 

Net loss 

 

(7,468,147

)

(2,789,778

)

(78,004,816)

Less: 

 

 

 

 

 

 

Net (income) loss from discontinued operations 

 

-

 

-

 

(1,601,073)

Total net loss 

 

(7,468,147

)

(2,789,778

)

(76,403,742)

Adjustments to reconcile net loss to net 

 

 

 

 

 

 

cash used in operating activities: 

 

 

 

 

 

 

Depreciation

 

150

 

150

 

16,897

Amortization

 

5,287

 

5,287

 

9,554,142

Impairment on oil lease investments 

 

-

 

-

 

5,076,667

Stock issued for services 

 

300,585

 

1,009,202

 

37,236,168

Gifts from stockholders

 

(50,000

)

-

 

(50,000)

Loss (gain) on settlement of liabilities

 

(41,135

)

-

 

(41,135)

Loss (gain) on settlement of debt 

 

6,061,100

 

1,487,100

 

17,432,088

Loss (gain) on acquisition write-off

 

-

 

-

 

36,500

Changes in operating assets and liabilities: 

 

 

 

 

 

 

Accounts receivable 

 

(25,000

)

-

 

(27,087)

Loans receivable

 

(11,750

)

-

 

(11,750)

Prepaid expenses and deposits

 

9,794

 

14,881

 

-

Inventory 

 

-

 

-

 

(29,102)

Accounts payable 

 

(55,726

)

22,896

 

1,709,561

Deferred license revenue

 

-

 

(11,290

)

-

Accrued expenses 

 

1,132,027

 

207,500

 

1,541,098

Due to related parties 

 

-

 

-

 

66,500

Accrued interest payable to affiliate 

 

-

 

-

 

214,892

CASH FLOWS USED IN OPERATING ACTIVITIES 

 

 

 

 

 

 

FROM CONTINUING OPERATIONS 

 

(142,815

)

(54,052

)

(3,678,303)

CASH FLOWS PROVIDED BY OPERATING

 

 

 

 

 

 

ACTIVITIES FROM DISCONTINUED OPERATIONS

 

-

 

-

 

898,927

NET CASH USED IN OPERATING ACTIVITIES 

 

(142,815

)

(54,052

)

(2,779,376)

CASH FLOWS FROM INVESTING ACTIVITIES 

 

 

 

 

 

 

Purchase of oil & gas leases 

 

-

 

-

 

(30,000)

Purchase of property, plant & equipment 

 

-

 

-

 

(43,522)

CASH FLOWS USED IN INVESTING ACTIVITIES 

 

-

 

-

 

(73,522)

CASH FLOWS FROM FINANCING ACTIVITIES 

 

 

 

 

 

 

Proceeds from convertible note-related party 

 

-

 

-

 

951,342

Proceeds from advances from officer

 

-

 

-

 

94,50

Repayments on advances from officer

 

-

 

-

 

(74,000)

Proceeds from notes payable-stockholders

 

143,062

 

32,500

 

362,237

Repayments on notes payable-stockholders

 

-

 

-

 

(691)

Advances from related parties 

 

-

 

30,823

 

1,163,093

Proceeds from sale of common stock 

 

-

 

-

 

358,861

CASH FLOWS PROVIDED BY FINANCING ACTIVITIES 

 

143,062

 

63,323

 

2,855,342

NET INCREASE IN CASH 

 

247

 

9,271

 

2,444

CASH, BEGINNING OF PERIOD 

 

2,197

 

1,190

 

-

CASH, END OF PERIOD 

 

2,444

 

10,461

 

2,444

 

 

 

 

 

 

 

SUPPLEMENTAL CASH FLOW INFORMATION:

 

 

 

 

 

 

Common stock issued for services 

 

32,750

 

7,409,133

 

7,441,883 

Net liabilities assumed with recapitalization

 

-

 

200,000

 

200,000

Divestiture of subsidiaary to related party

 

-

 

794,340

 

794,340

Common stock issued for settlement of debt

 

6,061,100

 

13,762,550

 

19,823,650

Debt converted into common stock

 

75,000

 

677,391

 

752,391

Common stock issued for acquiring oil & gas leases

 

-

 

7,906,200

 

7,906,200

Common stock issued for assets

 

-

 

126,000

 

126,000

Preferred stock isued for services

 

-

 

1,000

 

1,000

Common stock for loss on acquisition write-off

 

-

 

36,500

 

36,500

Accounts payable paid through note payable, stockholder

 

10,415

 

112,829

 

123,244

Accounts payable paid by related parties

 

13,884

 

40,083

 

53,967

Accounts payable paid through stockholder gift

 

50,000

 

-

 

50,000

 

 

 

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

 

 

 

F-4



                
             


CANNABIS SCIENCE, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012


1.  SUMMARY OF SIGNIFICICANT 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.  


In July 2005, the Company acquired Es3, Inc., a Nevada Corporation ("Es3"), pursuant to the terms of an Exchange Agreement (the "Exchange Agreement") by and among the Company, Crown Partners, Inc., a Nevada corporation ("Crown Partners"), Es3, and certain stockholders of Es3 (the "Es3 Stockholders").  Under the terms of the Exchange Agreement, the Company acquired all of the outstanding capital stock of Es3 in exchange for the issuance of 191,828 shares of the Company's common stock (adjusted for splits) to the Es3 Stockholders, Crown Partners and certain consultants.  The transactions effected by the Exchange Agreement were accounted for as a reverse merger, and recapitalization.  In addition, the Company changed its accounting year-end from September 30 to December 31, which was Es3's accounting year-end.  The Company then commenced business manufacturing and marketing products under the name Special Stone Surfaces.  The Company sold its shares in Es3 in October 2005, and thereafter conducted no substantial business until 2006.

On April 3, 2006, the Company acquired a group of oil and gas leases in Oklahoma in exchange for issuance of common stock and commenced the business of oil and gas exploration and production, mineral lease purchasing and all activities associated with acquiring, operating and maintaining the assets of such operations.  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.  The Company acquired additional oil and gas leases during 2007, all for issuance of common stock; in October 2007, the Company acquired leases from K & D Equity Investments, Inc., a Texas corporation in a transaction that effected a change of control, with K & D acquiring a majority stake in the Company.  The Company also entered into a Line of Credit Agreement with South Beach Live, Inc., a Florida corporation, to provide it with working capital of up to $100,000 on a revolving credit line.  The Agreement permitted South Beach the right to repayment on demand, or to convert amounts owed for shares.

On March 25, 2008, the Company changed its name to Gulf Onshore, Inc.  On June 6, 2008, the Company entered into an Asset Acquisition Agreement with K & D to acquire additional leases (the Leases) in exchange for common stock and a Stock Purchase Agreement (SPA) with South Beach Live, Inc., a Florida corporation, to purchase 100% of the common shares of Curado Energy Resources, Inc., a Texas corporation (Curado).  Curado is registered with the Texas Railroad Commission as an oil and gas well operator, and is the operator for the Leases.  The Company acquired the Leases through Curado, in exchange for shares issued to K & D.  The Company issued South Beach a promissory note for $250,000, payable in 1 year at 10% interest, which was guaranteed by Curado.  The Company consolidated the operations of Curado commencing in 3Q 2008.



F-6

                
             



In August 2008, the Company granted South Beach a security interest in its Curado shares and the Curado assets, in exchange for concessions from South Beach regarding further cash advances and future stock conversions.  This transaction was contemplated and further consummated by the Company due to declining oil prices throughout 3Q 2008 and increased operating costs, which made continued oil and gas operations on the Leases unprofitable.  The Company was also continually drawing down on its Line of Credit Agreement with South Beach that created unsustainable working capital pressure.  

On October 6, 2008, in the face of further oil price declines and general economic conditions, the Company and South Beach entered into an Accord and Satisfaction Agreement under which the Company surrendered its interest in the Putnam M oil and gas lease in Throckmorton Co., Texas in exchange for a complete release on the Promissory Note and Line of Credit.  In addition, the Company waived any claim on the shares of Curado common stock that secured the Promissory Note or the assets of Curado.  South Beach then made claim against Curado under the guarantee agreement and then exercised its rights under the collateral agreement.  As a result, the Companys 4Q 2008, consolidated financial statements reflected the disposition of Curado and its assets, and furthermore that the Company has, once again, become a Development Stage Company seeking a new business partner or acquisition.  A Form 8-K reflecting this transaction was timely filed. 


On March 30, 2009, the Company entered into an agreement with Cannex Therapeutics, LLC, (Cannex) a California limited liability company, and its principal, medical cannabis pioneer and entrepreneur Steven W. Kubby, to acquire all of their interest in certain assets used to conduct a cannabis research and development business.  The asset purchase agreement includes all of Cannex and Kubbys intellectual property rights, formulas, patents, trademarks, client base, hardware and software, including the website www.phytiva.com.  The Company and its largest stockholder, K & D Equities, Inc., exchanged a total of 10,600,000 shares of common stock for the assets of Cannex; the Company issued 2,100,000 shares to Cannex, and K & D transferred 8,500,000 shares to Cannex and others.  A Form 8-K reflecting this transaction was timely filed. 

As part of the Agreement, on April 1, 2009, the Company appointed Mr. Kubby as President and CEO, Richard Cowan as Director and CFO, and Robert Melamede Ph. D., as Director and Chief Science Officer.  Each of them was also appointed as a director.  All of the Companys current directors then resigned.  On April 7, 2009, the Company changed its name to Cannabis Science, Inc., and obtained a new CUSIP number.  Its shares now trade under the symbol CBIS.OB.  A Form 8-K was timely filed, with a copy of the Asset Acquisition Agreement and Board Resolution ratifying the Agreement provided as exhibits thereto.

On May 7, 2009 the Company common shares commenced trading under the new stock symbol OTCBB: CBIS.


On May 8, 2009, the Company signed a Share Purchase Agreement to acquire Rockbrook, Inc., a Colorado medical cannabis dispensary.  Due to regulatory changes that prevented a non-Colorado resident from owning a dispensary within the state, the Company signed a mutual termination agreement with Rockbrook on July 27, 2010 to retroactively cancel the acquisition.


On April 27, 2011, the Company was advised by the principal of Rockbrook, Inc. that the current licensing agreement was no longer in effect and that a new license agreement would be signed once new terms could be agreed upon.  Despite this notification from Rockbrook, Inc., a legally signed license agreement is still in effect between the Company and Rockbrook.  As of March 31, 2012, the Company is re-assessing the license agreement with Rockbrook and how to move forward in a cohesive arrangement with the other license agreements and acquisitions the Company is working on.

On February 9, 2012, the Company signed a license agreement with Apothecary Genetics Investments LLC. 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.  The Company earned a $25,000 license fee under the agreement for the period ended March 31, 2012.

In consideration of this agreement, on January 1, 2012, the Company entered into a 25 year management agreement with Dr. Mohammad Afaneh to act Chief Operating Officer of Cannabis Science, Inc.  Dr. Afaneh received 28,500,000 common shares valued at $299,250 under this agreement.  In addition, on February 10, 2012, Dr. Afaneh signed a management bonus agreement where he received 5,000,000 common shares valued at $185,000 as a signing bonus for entering into his management agreement.  In addition, on January 1, 2012, the Company entered into a 25 year management agreement with Bret Bogue to act as Director of Horticulture and head of research and development.  Mr. Bogue received 28,500,000 common shares valued at $299,250 under this agreement. In addition, on February 10, 2012, Mr. Bogue signed a management bonus agreement where he received 5,000,000 common shares valued at  $185,000 as a signing bonus for entering into his management agreement. These common shares were issued on April 24, 2012.

 

F-7


                
             

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 with a fair market value of $935,000 to the principals of GGECO and assumed net liabilities of $24,686. The preliminary valuation of GGECO acquisition totaling $984,686 has been allocated to intangibles as at March 31, 2012.. These common shares were issued on April 24, 2012.

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 to be issued to the principal, Mr. Robert Kane with a fair market value of $90,000, in addition to 250,000 free-trading common shares for services rendered with a fair market value of $22,500. The preliminary valuation of the CCI Group acquisition totaling $90,000 has been allocated to intangibles as at March 31, 2012.

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.  Cannabis Science Inc. has also launched its new website www.cannabisscience.com reflecting its new name.

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 US dollars.  The Company’s fiscal year end is December 31.

 

The operating results of GGECO University, Inc. (“GGECO”), acquired on February 9, 2012, for the period February 10, 2012 through March 31, 2012 were deemed immaterial and not consolidated with the consolidated financial statements of the Company for the three months ended March 31, 2012.  The Company will consolidate the results of GGECO once they are deemed material and/or the valuation and allocation of the $984,686 purchase price has been completed by an independent valuator, which is anticipated on or before September 30, 2012.  The deemed value of shares issued for the acquisition of GGECO have been included in intangibles as of March 31, 2012.

 

The operating results of Cannabis Consulting, Inc. (“CCI”), acquired on March 21, 2012, for the period March 21, 2012 through March 31, 2012 were determined to have no business activities and therefore not consolidated with the consolidated financial statements of the Company for the three months ended March 31, 2012.  The Company will consolidate the results of CCI once they are deemed material and an allocation of the $90,000 purchase price has been completed, which is anticipated on or before June 30, 2012. The deemed value of shares issued for the acquisition of the CCI Group have been included in intangibles as of March 31, 2012.

 

C.  Interim Financial Statements

 

These interim unaudited consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s financial position, results of operations and cash flows for the periods shown.  The results of operations for such periods are not necessarily indicative of the results expected for a full year or for any future period.

 

D.  Use of Estimates

 

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.  Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the consolidated financial statements in the period they are determined.


E.  Basic and Diluted Net Income (Loss) Per Share


Under ASC 260, "Earnings Per Share" ("EPS"), the Company provides for the calculation of basic and diluted earnings per share.  Basic EPS includes no dilution and is computed by dividing income or loss available to common shareholders by the weighted average number of common shares outstanding for the period.  Diluted EPS reflects the potential dilution of securities that could share in the earnings or losses of the entity.  For the periods January 1, 2012 to March 31, 2012 and from inception through March 31, 2012, basic and diluted loss per share are the same since the calculation of diluted per share amounts would result in an anti-dilutive calculation.

 

F.  Cash and Cash Equivalents


The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.


G. Long-Lived Assets & Impairment on Oil Lease Investments


Under ASC Topic 360, Property, Plant, and Equipment, the Company is required to periodically evaluate the carrying value of long-lived assets to be held and used.  ASC Topic 360 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets carrying amounts.  In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets.  Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal.


F-8

                
             


H. Fair Value Measurements


Under ASC Topic 820, the Company discloses the estimated fair values of financial instruments.  The carrying amounts reported in the balance sheet for current assets and current liabilities qualifying as financial instruments are a reasonable estimate of fair value.


In accordance with the reporting requirements of ASC Topic 825, Financial Instruments, the Company calculates the fair value of its assets and liabilities which qualify as financial instruments under this standard and includes this additional information in the notes to the consolidated financial statements when the fair value is different than the carrying value of those financial instruments.  The estimated fair value of current assets and current liabilities approximate their carrying amounts due to the relatively short maturity of these instruments.  None of these instruments are held for trading purposes.  


I. Technology License and Royalties


The Company's former principal business activity focused on oil and gas exploration.  We have divested ourselves of all oil and gas properties and are investigating other business opportunities.  We have no technology licenses or rights to any royalties for formerly owned oil and gas properties  


The Company is entitled to an annual license fee of $25,000 for the first year, $50,000 for the second year, $75,000 for the third year, $100,000 for the fourth year and $150,000 for the fifth and successive years, in addition to royalty license fees for 50% of all revenues, receipts, monies and the fair market value of any securities directly or indirectly received by Rockbrook, Inc. as a result of and pursuant to the license agreement entered into with the Company on July 30, 2010.  As of March 31, 2012, the Company is re-assessing the license agreement with Rockbrook and how to move forward in a cohesive arrangement with the other license agreements and acquisitions the Company is working on.


J. Stock-Based Compensation


Under  ASC Topic 718, Compensation-Stock Compensation, the Company is required to measure  all employee share-based payments, including grants of employee stock options, using a fair-value-based method and the recording of such expense in the statements of operations.  The Company has adopted ASC Topic 718 (SFAS 123R) as of January 1, 2006 and recognizes stock-based compensation expense using the modified prospective method.  


L.  Basic and Diluted Net Earnings (loss) per Share


Under ASC Topic 260, "Earnings Per Share" ("EPS"), the Company provides for the calculation of basic and diluted earnings per share.  Basic EPS includes no dilution and is computed by dividing income or loss available to common stockholders by the weighted average number of common shares outstanding for the period.  Diluted EPS reflects the potential dilution of securities that could share in the earnings or losses of the entity.  For the periods January 1, 2010 to December 31, 2011, basic and diluted loss per share are the same since the calculation of diluted per share amounts would result in an anti-dilutive calculation.


M.  Development Stage Enterprise


The Company is currently in the development stage as defined under the provisions of ASC Topic 915-10.  In October 2008, the Company divested itself of its operating company, Curado Energy Resources, Inc.  Beginning with the fiscal fourth quarter of 2008 the Company again became a development stage company.  The Company is working on developing its medical cannabis business, which will be comprised of cannabinoid medicines approved through the FDA along with non-psychotropic medicines for the naturopathy market.

 

 

 

F-9

                
             


N. Recent Accounting Pronouncements


During the year ended December 31, 2011 and through May 21, 2012, there were several new accounting pronouncements issued by the FASB the most recent of which was update no. 2011-12 – Comprehensive Income: Deferral of the Effective date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.  Each of these pronouncements, as applicable, has been or will be adopted by the Company.  Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s consolidated financial statements.


O. Reclassifications


For comparative purposes, certain prior period consolidated financial statements have been reclassified to conform with report classifications of the current year



2.  GOING CONCERN

 

The accompanying consolidated financial statementshave 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 $78,004,816 and had a stockholder’s deficit of $2,212,177 at March 31, 2012.

 

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 March 31, 2012, the Company had minimal operations.  There can be no assurance that management will be successful in implementing its plans.  The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

We anticipate that we will have to raise additional capital to fund operations over the next 12 months.  To the extent that we are required to raise additional funds to acquire research and growing facilities, and to cover costs of operations, we intend to do so through additional public or private offerings of debt or equity securities.  There are no  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 which has resulted substantial dilution to existing investors.



3.  RELATED PARTY TRANSACTIONS


As at March 31, 2012, a total of $171,703 (December 31, 2011: $156,818) was due to Bogat Family Trust.  The amounts due are non-interest bearing, unsecured and have no specified terms of repayment.  This related party also performs management services to the Company under a Management Consulting Agreement signed on February 9, 2012.

 

On February 9, 2012, three management personnel signed five year management consulting agreements and each received consideration of a 5,000,000 free-trading common shares bonus and 36,833,333 144-restricted common shares in the Company, for a combined fair market value of $1,526.917 each.

 

For the three months ended March 31, 2012, $115,482 in management fees and $562,500 in bonuses were expensed in relation to the aforementioned management consulting and bonus agreements, respectively.



4.  NOTES PAYABLE


As at March 31, 2012, a total of $272,890 (December 31, 2011: $194,413) of notes payable are due to stockholders.  A total of $155 (December 31, 2011: $9) is due to a stockholder under a convertible note that is non-interest bearing and has no specified terms of repayment.  $272,735 (December 31, 2011: $194,404) is due to a stockholder under promissory notes that are non-interested bearing and are due 12 months from the date of issue and loan origination beginning on June 29, 2012 through March 28, 2013.  This stockholder, to whom the promissory notes are due, also performs business and accounting services for the Company on a month-to-month basis.


5.  EQUITY TRANSACTIONS


The Company is authorized to issue 850,000,000 shares of common stock with a par value of $.001 per share.  These shares have full voting rights.  There were 384,670,574 issued and outstanding as of March 31, 2012.


The Company is also authorized to issue 100,000,000 shares of common stock, Class A with a par value of $.001 per share.  These shares have 10 votes per share.  There were 0 issued and outstanding as of March 31, 2012.


The Company is also authorized to issue 1,000,000 shares of preferred stock.  These shares have full voting rights of 1,000 votes per share.  There were 999,999 issued and outstanding as of March 31, 2012.


On February 9, 2012, the Company established a 2012 Equity Compensation Plan that authorizes the Company to issue up to 50,000,000 common shares to staff or consultants for services to or on behalf of the Company.  The Company filed a Registration Statement Form S-8 with the U.S. Securities and Exchange Commission on February 14, 2012, file no. 333-179501, to register the shares covered under the plan.


During the three-months ended March 31, 2012, the Company issued the following common stock:


On January 13, 2012, the Company issued 1,000,000 common shares for settlement of $1,000 of stockholder debt, for a loss on settlement of $28,500, assigned from the stockholder note payable originating on June 25, 2011 and owing at December 31, 2011.


On January 20, 2012, the Company issued 46,500,000 common shares for settlement of $46,500 of stockholder debt, for a loss on settlement of $2,613,300, assigned from the stockholder notes payable originating on March 2, March 29, April 2, June 30, and July 1, 2011 and owing at December 31, 2011.


On February 24, 2012, the Company issued 3,000,000 common shares from the Companys 2012 Equity Compensation Plan to a consultant for services rendered with a deemed fair value of $246,000, or $0.082 per share based on the closing price of the Companys stock on February 23, 2012.


On March 20, 2012, the Company issued 28,500,000 common shares for settlement of $28,500 of stockholder debt, for a loss on settlement of $3,262,500, assigned from the stockholder notes payable originating on August 16, 2010, September 14, 2010, September 17, 2010, October 7, 2010 and June 30, 2011 and owing at December 31, 2011.


On March 22, 2012, the Company issued 250,000 common shares with a fair market value of $12,500 to a member of the Companys scientific advisory board for services rendered.



 

F-10

 

                
             

 

6.  EQUIPMENT

Accumulated

Cost

Depreciation

NBV Mar 31

Equipment

$ 3,000        

$ 2,183

$  817

Computers

1,570

1,570

-

$ 4,570

$ 3,753

$  817


Computers and equipment are stated at cost.  Maintenance and repairs are charged to expense as incurred and the cost of renewals and betterments are capitalized.  Depreciation is computed using the straight-line method over the estimated lives of the related assets, 2 years for computer and 5 years for equipment.



7. INTANGIBLE ASSETS


Intellectual assets, primarily intellectual property                 $ 126,000

Less accumulated amortization

        83,699

   $   42,301

       

   

Intangible assets are stated at fair value on the date of purchase less accumulated amortization. Amortization is computed using the straight-line method over the estimated lives of the related assets (5 years for intellectual assets).                   



9.  SUBSEQUENT EVENTS


On April 17, 2012, the Company entered into management agreements with two consultants.  Under the agreements the consultants will earn a total of 3,250,000 common shares with a fair market value of $448,500 for services rendered. In addition, the consultants will earn a bonus of 1,250,000 common shares with a fair market value of $172,500 upon completion of the first milestone under the agreements. These shares have not been issued as of May 21, 2012.


On April 24, 2012, the Company issued 28,500,000 common shares with a fair market value of $299,250 to a consultant under a 25-year management agreement for services to be rendered to the Company, which was entered into on January 1, 2012.


On April 24, 2012, the Company issued 28,500,000 common shares with a fair market value of $299,250 to a consultant under a 25-year management agreement for services to be rendered to the Company, which was entered into on January 1, 2012.


On April 24, 2012, the Company issued 25,000,000 common shares with a fair market value of $935,000 to the principals of GGECO University, Inc. under a share purchase agreement.


On April 24, 2012, the Company issued 110,499,999 common shares with a fair market value of $4,143,750 to three management consultants for services rendered under 5-year consulting agreements entered into on February 9, 2012.  


On April 24, 2012, the Company issued 15,000,000 common shares from the Companys 2012 Equity Compensation Plan with a fair market value of $562,500 to three management consultants for services rendered under management bonus agreements entered into on February 9, 2012.


On April 24, 2012, the Company issued 10,000,000 common shares from the Companys 2012 Equity Compensation Plan with a fair market value of $370,000 to two management consultants for services rendered under signing bonus agreements entered into on February 10, 2012.


All applicable expenses relating to the aforementioned share issuances under the agreements originating prior to the three months ended March 31, 2012 were accrued for the quarter; totaling $120,825 in management fees and $920,500 in management bonuses.


Common shares reconciliation table:

Issued and outstanding as of March 31, 2012…                                      384,670,574

Subsequent events issuances…                                                                217,499,999

Issued and outstanding as of May 21, 2012…                                         602,170,573

 

 


F-11

                
             



PART I


This Interim Report on Form 10-Q contains forward-looking statements that have been made pursuant to the provisions of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and the Private Securities Litigation Reform Act of 1995 and concern matters that involve risks and uncertainties that could cause actual results to differ materially from historical results or from those projected in the forward-looking statements.  Discussions containing forward-looking statements may be found in the material set forth under Business, Managements Discussion and Analysis of Financial Condition and Results of Operations and in other sections of this Form 10-Q. Words such as may, will, should, could, expect, plan, anticipate, believe, estimate, predict, potential, continue or similar words are intended to identify forward-looking statements, although not all forward-looking statements contain these words. Although we believe that our opinions and expectations reflected in the forward-looking statements are reasonable as of the date of this Report, we cannot guarantee future results, levels of activity, performance or achievements, and our actual results may differ substantially from the views and expectations set forth in this Interim Report on Form 10-Q.  We expressly disclaim any intent or obligation to update any forward-looking statements after the date hereof to conform such statements to actual results or to changes in our opinions or expectations.


Readers should carefully review and consider the various disclosures made by us in this Report, set forth in detail in Part I, under the heading Risk Factors, as well as those additional risks described in other documents we file from time to time with the Securities and Exchange Commission, which attempt to advise interested parties of the risks, uncertainties, and other factors that affect our business.  We undertake no obligation to publicly release the results of any revisions to any forward-looking statements to reflect anticipated or unanticipated events or circumstances occurring after the date of such statements.


ITEM 2.  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


This section of this report includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance.  Forward-looking statements are often identified by words like: believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events.  You should not place undue certainty on these forward-looking statements, which apply only as of the date of this report.  These forward-looking states are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or our predictions.


Overview of the Companys Business


Cannabis Science, Inc. (formerly Gulf Onshore, 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., and commenced a business plan to develop Magkelate, a patented intravenous drug developed to re-establish normal electrolyte balance in ischemic tissue and certain other patents for medical instruments and medical instrument technology.  On January 14, 2000, the Company filed its Form 10SB12G.  In 2002, the Company ceased its medical technology business following the death of Magkelates inventor.  The Company conducted no substantial business until 2005.

 

 

 

4

                
             

 

In July 2005, the Company acquired Es3, Inc., a Nevada Corporation ("Es3"), pursuant to the terms of an Exchange Agreement (the "Exchange Agreement") by and among the Company, Crown Partners, Inc., a Nevada corporation ("Crown Partners"), Es3, and certain stockholders of Es3 (the "Es3 Stockholders"). Under the terms of the Exchange Agreement, the Company acquired all of the outstanding capital stock of Es3 in exchange for the issuance of 191,828 shares of the Company's common stock (adjusted for splits) to the Es3 Stockholders, Crown Partners and certain consultants.  The transactions effected by the Exchange Agreement were accounted for as a reverse merger, and recapitalization.  In addition, the Company changed its accounting year-end from March 31 to December 31, which was Es3's accounting year-end.  The Company then commenced business manufacturing and marketing products under the name Special Stone Surfaces.  The Company sold its shares in Es3 in October 2005, and thereafter conducted no substantial business until 2006.


On April 3, 2006, the Company acquired a group of oil and gas leases in Oklahoma in exchange for issuance of common stock and commenced the business of oil and gas exploration and production, mineral lease purchasing and all activities associated with acquiring, operating and maintaining the assets of such operations.  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.  The Company acquired additional oil and gas leases during 2007, all for issuance of common stock; in October 2007, the Company acquired leases from K & D Equity Investments, Inc., a Texas corporation in a transaction that effected a change of control, with K & D acquiring a majority stake in the Company.  The Company also entered into a Line of Credit Agreement with South Beach Live, Inc., a Florida corporation, to provide it with working capital of up to $100,000 on a revolving credit line.  The Agreement permitted South Beach the right to repayment on demand, or to convert amounts owed for shares.


On March 25, 2008 the Company changed its name to Gulf Onshore, Inc.  On June 6, 2008, the Company entered into an Asset Acquisition Agreement with K & D to acquire additional leases (the Leases) in exchange for common stock and a Stock Purchase Agreement (SPA) with South Beach Live, Inc., a Florida corporation, to purchase 100% of the common shares of Curado Energy Resources, Inc., a Texas corporation (Curado).  Curado is registered with the Texas Railroad Commission as an oil and gas well operator, and is the operator for the Leases.  The Company acquired the Leases into Curado, in exchange for shares issued to K & D.  The Company issued South Beach a promissory note for $250,000, payable in 1 year at 10% interest, which was guaranteed by Curado.  The Company consolidated the operations of Curado commencing in 3Q 2008.


In August 2008, the Company granted South Beach a security interest in its Curado shares and the Curado assets, in exchange for concessions from South Beach regarding further cash advances and future stock conversions. This transaction was contemplated and further consummated by the Company due to declining oil prices throughout 3Q 2008 and increased operating costs, which made continued oil and gas operations on the Leases unprofitable.  The Company was also continually drawing down on its Line of Credit Agreement with South Beach that created unsustainable working capital pressure.

 

 

 

5

                
             

On October 6, 2008, in the face of further oil price declines and general economic conditions, the Company and South Beach entered into an Accord and Satisfaction Agreement under which the Company surrendered its interest in the Putnam M oil and gas lease in Throckmorton Co., Texas in exchange for a complete release on the Promissory Note and Line of Credit.  In addition, the Company waived any claim on the shares of Curado common stock that secured the Promissory Note or the assets of Curado.  South Beach then made claim against Curado under the guarantee agreement and then exercised its rights under the collateral agreement.  As a result, the Companys 4Q 2008, financial statements reflected the foreclosure of Curado and its assets, and furthermore that the Company has, once again, become a Development Stage Company seeking a new business partner or acquisition.  A Form 8-K reflecting this transaction was timely filed.

 

On March 30, 2009, the Company entered into an agreement with Cannex Therapeutics, LLC, (Cannex) a California limited liability company, and its principal, medical cannabis pioneer and entrepreneur Steven W. Kubby, to acquire all of their interest in certain assets used to conduct a cannabis research and development business.  The asset purchase agreement includes all of Cannexs and Kubbys intellectual property rights, formulas, patents, trademarks, client base, hardware and software, including the website www.phytiva.com.  The Company and its largest shareholder, K & D Equities, Inc., exchanged a total of 10,600,000 shares of common stock for the assets of Cannex; the Company issued 2,100,000 shares to Cannex, and K & D transferred 8,500,000 shares to Cannex and others.  A Form 8-K reflecting this transaction was timely filed.  Please see Note 6 to the consolidated financial statements.


As part of the Agreement, on April 1, 2009, the Company appointed Mr. Kubby as President and CEO, Richard Cowan as Director and CFO, and Robert Melamede Ph. D., as Director and Chief Science Officer.  Each of them was also appointed as a director.  All of the Companys current directors then resigned.  On April 7, 2010, the Company changed its name to Cannabis Science, Inc., and obtained a new CUSIP number.  Its shares now trade under the symbol CBIS.OB.  A Form 8-K was timely filed, with a copy of the Asset Acquisition Agreement and Board Resolution ratifying the Agreement provided as exhibits thereto.


On April 7, 2009, the Company changed its name to Cannabis Science, Inc., reflecting its new business mission: Cannabis Science, Inc. is at the forefront of medical marijuana research and development.  The Company works with world authorities on phytocannabinoid science targeting critical illnesses, and adheres to scientific methodologies to develop, produce, and commercialize phytocannabinoid-based pharmaceutical products.  In sum, we are dedicated to the creation of cannabis-based medicines, both with and without psychoactive properties, to treat disease and the symptoms of disease, as well as for general health maintenance.  The Company obtained a new CUSIP number as well.  Cannabis Science Inc. has also launched its new website www.cannabisscience.com reflecting its new name.


On May 7, 2009, the Company common shares commenced trading under the new stock symbol OTCBB: CBIS.


6

                
             

On May 8, 2009, the Company signed a Share Purchase Agreement to acquire Rockbrook, Inc., a Colorado medical cannabis dispensary.  Due to regulatory changes that prevented a non-Colorado resident from owning a dispensary within the state, the Company signed a mutual termination agreement with Rockbrook on July 27, 2010 to retroactively cancel the acquisition.


On April 27, 2011, the Company was advised by the principal of Rockbrook, Inc. that the current licensing agreement was no longer in effect and that a new license agreement would be signed once new terms could be agreed upon.  Despite this notification from Rockbrook, Inc., a legally signed license agreement is still in effect between the Company and Rockbrook.  As of March 31, 2012, the Company is re-assessing the license agreement with Rockbrook and how to move forward in a cohesive arrangement with the other license agreements and acquisitions the Company is working on.

On February 9, 2012, the Company signed a license agreement with Apothecary Genetics Investments LLC. 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.  The Company earned a $25,000 license fee under the agreement for the period ended March 31, 2012.

In consideration of this agreement, on January 1, 2012, the Company entered into a 25 year management agreement with Dr. Mohammad Afaneh to act Chief Operating Officer of Cannabis Science, Inc.  Dr. Afaneh received 28,500,000 common shares valued at $299,250 under this agreement.  In addition, on February 10, 2012, Dr. Afaneh signed a management bonus agreement where he received 5,000,000 common shares valued at $185,000 as a signing bonus for entering into his management agreement.  In addition, on January 1, 2012, the Company entered into a 25 year management agreement with Bret Bogue to act as Director of Horticulture and head of research and development.  Mr. Bogue received 28,500,000 common shares valued at $299,250 under this agreement. In addition, on February 10, 2012, Mr. Bogue signed a management bonus agreement where he received 5,000,000 common shares valued at $185,000 as a signing bonus for entering into his management agreement. These common shares were issued on April 24, 2012.

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 with a fair market value of $935,000 to the principals of GGECO and assumed net liabilities of $24,686. The preliminary valuation of GGECO acquisition totaling $984,686 has been allocated to intangibles as at March 31, 2012.. These common shares were issued on April 24, 2012.

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 to be issued to the principal, Mr. Robert Kane with a fair market value of $90,000, in addition to 250,000 free-trading common shares for services rendered with a fair market value of $22,500. The preliminary valuation of the CCI Group acquisition totaling $90,000 has been allocated to intangibles as at March 31, 2012. These shares have not been issued.


Liquidity


The Company has a working capital deficit of $3,304,981 as of March 31, 2012 compared to a working capital deficit of $2,285,622 for the year ended December 31, 2011.  There are insufficient liquid assets to meet current liabilities or sustain operations through 2012 and beyond and the Company must raise additional capital to cover the working capital deficit.  Management is working on plans to raise additional capital through private placements and lending facilities.  The Company currently is relying on continuing loans from stockholders to meet its obligations and sustain operations.


The Company has promissory note payment commitments of $272,890 due to stockholders over the next 12 months beginning on June 29, 2012 through March 28, 2013.


Contractual Obligations


None.



Capital Resources


The Company has capital resource requirements for supplies, laboratory and scientific equipment of approximately $625,000 over the next 12 months.  These capital disbursements are dependent on managements successful raising of capital through private placements and lending facilities.


7

                
             


Results of Operations


The Company had license revenues of $25,000 for the quarter ended March 31, 2012 compared to $11,290 for the comparative prior year quarter.  This increase resulted from the Companys license agreement with Apothecary Genetics Investments LLC signed on February 9, 2012 and the associated recognition of license fees owed for the first quarter of fiscal 2012 for the licensing of its products.


The Company recognized miscellaneous revenue of $91,135 resulting from a gain on settlement of a liabilities of $41,135 and a $50,000 gift from a stockholder for a third-party lease payout.


Net loss on settlement of debt increased by $4,574,000 to $6,061,100 for the three months ended March 31, 2012 compared to $1,487,100 for the three months ended March 31, 2011.  This increase is due to the Company settling debt through at decreased settlement prices and the associated higher market value of shares issued for settlement.


General and administrative expenses increased by $11,272 to $1,307,881 for the three months ended March 31, 2012 compared to $1,296,609 for the three months ended March 31, 2011.  This increase is due to stock compensation expense pursuant to new management consulting and bonus agreements signed on January 1, 2012 through February 10, 2012.


The Company is in the development stage as defined in ASC 915.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

8

                
             


ITEM 4.  CONTROLS AND PROCEDURES


Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report, have concluded that, based on the evaluation of these controls and procedures, that our disclosure controls and procedures were not effective.


There were no changes in our internal controls or in other factors during the period covered by this report that have materially affected, or are likely to materially affect the Companys internal controls over financial reporting.



PART II OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS

Management of the Company is currently consulting with legal counsel and intends to proceed with legal action against Montana Pain Management and its principal shareholder for breach of a Non-Disclosure/Non-Circumvention Agreement that was entered into on June 11, 2010.  

 

ITEM 1A.  RISK FACTORS



Not applicable.

 

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


During the three months ended March 31, 2012, we have issued securities using exemptions available under the Securities Act of 1933:


As set out below, we have issued securities in exchange for services, properties and for debt:


On January 13, 2012, the Company issued 1,000,000 common shares for settlement of $1,000 of stockholder debt, for a loss on settlement of $28,500, assigned from the stockholder note payable originating on June 25, 2011 and owing at December 31, 2011.


On January 20, 2012, the Company issued 46,500,000 common shares for settlement of $46,500 of stockholder debt, for a loss on settlement of $2,613,300, assigned from the stockholder notes payable originating on March 2, March 29, April 2, June 30, and July 1, 2011 and owing at December 31, 2011.


On March 20, 2012, the Company issued 28,500,000 common shares for settlement of $28,500 of stockholder debt, for a loss on settlement of $3,262,500, assigned from the stockholder notes payable originating on August 16, 2010, September 14, 2010, September 17, 2010, October 7, 2010 and June 30, 2011 and owing at December 31, 2011.


On March 22, 2012, the Company issued 250,000 common shares with a fair market value of $12,500 to a member of the Companys scientific advisory board for services rendered. 



9

                
             


ITEM 3.  DEFAULTS UPON SENIOR SECURITIES


None.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS


None.


ITEM 5.  OTHER INFORMATION


None.


ITEM 6.  EXHIBITS

 


31.1 Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.

31.2 Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.

32.1 Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.

32.2 Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.

EX-101.INS          XBRL INSTANCE DOCUMENT
 
EX-101.SCH         XBRL TAXONOMY EXTENSION SCHEMA
 
EX-101.CAL         XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
 
EX-101.LAB         XBRL TAXONOMY EXTENSION LABEL LINKBASE
 
EX-101.PRE          XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE
 
EX-101.DEF         XBRL TAXONOMY EXTENSION DEFINITION LINKBASE

 

 

SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


CANNABIS SCIENCE, INC.





 

Date: May 21, 2012                              

/s/ Dr. Robert Melamede                                   
Dr. Robert Melamede
President and Chief Executive Officer

                                                                                                                                                                                                                                                             
               
Date May 21, 2012

/s/ Richard Cowan                        
Dr. Richard Cowan 
Chief Financial Officer

 









10