Attached files
| file | filename |
|---|---|
| EXCEL - IDEA: XBRL DOCUMENT - MEDICAN ENTERPRISES, INC. | Financial_Report.xls |
| EX-31.1 - EXHIBIT 31.1 - MEDICAN ENTERPRISES, INC. | ex311.htm |
| EX-32.01 - EXHIBIT 32.01 - MEDICAN ENTERPRISES, INC. | ex321.htm |
| EX-31.2 - EXHIBIT 31.2 - MEDICAN ENTERPRISES, INC. | ex312.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, 2015
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 000-53408
MEDICAN ENTERPRISES, INC.
(Exact Name of Registrant as Specified in Its Charter)
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Nevada
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87-0474017
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|
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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3440 East Russell Road
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||
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Las Vegas, NV
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89120
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|
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(Address of principal executive offices)
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(Zip Code)
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(800) 416-8802
(Registrant’s 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 mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer [ ]
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Accelerated filer [ ]
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Non-accelerated filer [ ]
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Smaller reporting company [X]
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Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
The number of shares of Common Stock, $0.01 par value, outstanding on May 20, 2015 was 134,799,661.
1
MEDICAN ENTERPRISES, INC.
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MEDICAN ENTERPRISES, INC.
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MARCH 31, 2015 AND DECEMBER 31, 2014
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(Unaudited)
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March 31, 2015
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December 31, 2014
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|||||||
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(Unaudited)
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||||||||
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ASSETS
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||||||||
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Current asset:
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||||||||
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Cash
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$
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9,398
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$
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79,624
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||||
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Prepaid deposit
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64,250
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33,000
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||||||
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Total current assets
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73,648
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112,624
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||||||
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Total assets
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$
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73,648
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$
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112,624
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||||
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LIABILITIES AND STOCKHOLDERS’ DEFICIT
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||||||||
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Current liabilities:
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||||||||
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Accounts payable
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$
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1,964,988
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$
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1,954,488
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||||
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Convertible notes payable (net of discount of $654,438)
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7,603,402
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5,749,937
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||||||
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Promissory note
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166,605
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176,057
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||||||
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Stock issuance liability
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2,822
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145,578
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||||||
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Total current liabilities
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9,737,817
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8,026,060
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||||||
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Derivative liability
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104,369,996
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389,397
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||||||
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Total liabilities
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114,107,813
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8,415,457
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||||||
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Stockholders’ Deficit:
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||||||||
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Preferred stock – 5,000,000 shares authorized, $.01 par value; 0 shares issued and outstanding
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-
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-
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||||||
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Common stock – 1,000,000,000 shares authorized, $.01 par value; 47,214,231 shares issued and outstanding as of March 31, 2015 and 4,876,926 as of December 31, 2014 (1)
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450,627
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48,769
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||||||
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Additional paid-in capital
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51,754,687
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49,224,550
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||||||
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Accumulated deficit
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(166,239,479
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)
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(57,576,152
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)
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||||
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Total stockholders' deficit
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(114,034,165
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)
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(8,302,833
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)
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||||
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Total liabilities and stockholders' deficit
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$
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73,648
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$
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112,624
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||||
(1) All common stock amounts and per share amounts in these financial statements reflect the 1-for-10 reverse stock split of the issued and outstanding shares of common stock of the Company, effective April 20, 2015, including retroactive adjustment of common shares amounts. See note 3.
See accompanying notes to unaudited condensed consolidated financial statements.
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MEDICAN ENTERPRISES, INC.
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||||||||
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
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||||||||
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FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014
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||||||||
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(Unaudited)
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||||||||
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Three Months Ended March 31, 2015
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Three Months Ended March 31, 2014
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|||||||
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REVENUE
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$
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-
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$
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-
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||||
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OPERATING EXPENSES
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||||||||
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Professional Services
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||||||||
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Consulting
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1,714,757
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5,889,272
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||||||
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Legal
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47,573
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1,072,000
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||||||
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Management
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13,939
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14,750,000
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||||||
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Consulting and media relations
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-
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8,250,000
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||||||
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Stock Compensation
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1,244,797
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68,400
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||||||
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Selling, General & Administrative
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2,450,988
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365,435
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||||||
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Total Operating Expenses
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5,472,054
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30,395,107
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||||||
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Loss From Operations
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(5,472,054
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)
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(30,395,107
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)
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||||
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OTHER INCOME (EXPENSE):
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||||||||
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Loss on revaluation of derivative liability
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(100,812,140
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)
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-
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|||||
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Loss on excess derivative liability over note principal
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(2,388,055
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)
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-
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|||||
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NET LOSS
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$
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(108,672,249
|
)
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$
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(30,395,107
|
)
|
||
|
Currency translation adjustment
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8,922
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(568
|
)
|
|||||
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COMPREHENSIVE LOSS
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$
|
(108,663,327
|
)
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$
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(30,395,675
|
)
|
||
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NET LOSS PER BASIC AND DILUTED SHARES
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$
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(6.58
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)
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$
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(10.43
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)
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||
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WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
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16,504,091
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2,913,591
|
||||||
See accompanying notes to unaudited condensed consolidated financial statements.
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MEDICAN ENTERPRISES, INC.
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||||||||
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CONSOLIDATED STATEMENTS OF CASH FLOWS
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||||||||
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FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014
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||||||||
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(Unaudited)
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||||||||
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Three Months Ended March 31, 2015
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Three Months Ended March 31, 2014
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|||||||
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Operating Activities:
|
||||||||
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Comprehensive loss
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$
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(108,663,327
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)
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$
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(30,395,675
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)
|
||
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Adjustments to reconcile net loss to net cash used in operating activities:
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||||||||
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Warrants issued as compensation
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1,244,257
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422,695
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||||||
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Stock compensation expenses
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540
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68,400
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||||||
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Loss on revaluation of derivative liabilities
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100,812,140
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-
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||||||
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Convertible debt issued on consulting fees
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1,000,000
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-
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||||||
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Loss on excess of derivative liability over note principal
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2,388,055
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-
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||||||
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Interest and accretion
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2,392,373
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-
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||||||
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Stock issued for services:
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||||||||
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Consulting
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468,000
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5,090,300
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||||||
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Management
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-
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14,750,000
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||||||
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Legal
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9,015
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1,072,000
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||||||
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Consulting and media relations
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-
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8,250,000
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||||||
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Change in operating assets and liabilities:
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||||||||
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Other receivables
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-
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(294,500
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)
|
|||||
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Accounts payable
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10,500
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565,780
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||||||
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Payables to related parties
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-
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133,330
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||||||
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Prepaid expense
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(31,250
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)
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-
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|||||
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Net cash used in operating activities:
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(369,697
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)
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(337,670
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)
|
||||
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Financing Activities:
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||||||||
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Convertible notes
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314,839
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-
|
||||||
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Subscription agreements
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-
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567,425
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||||||
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Net cash provided by financing activities:
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314,839
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567,425
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||||||
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Net change in cash in period
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(54,858
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)
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229,755
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|||||
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Effect of foreign exchange
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(15,368
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)
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-
|
|||||
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Cash, beginning of period
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79,624
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-
|
||||||
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Cash, end of period
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$
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9,398
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$
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229,755
|
||||
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Supplemental Disclosure of Cash Flow Information
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||||||||
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Cash paid for interest
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$
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-
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$
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-
|
||||
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Cash paid for taxes
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$
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-
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$
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-
|
||||
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Capital stock issued to settle related party debt
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$
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-
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$
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43,904
|
||||
See accompanying notes to unaudited condensed consolidated financial statements.
MEDICAN ENTERPRISES, INC.
MARCH 31, 2015
NOTE 1 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization
Medican Enterprises, Inc. (“the Company”) was incorporated in Nevada in October, 1988, under the name Extant Investments, Inc. In 1991, the Company merged with and changed its name to Sentinel Scientific, Inc. From 1991 to 1993, the Company was involved with research and development of biomedical technologies, but ceased active operations due to lack of operating capital. In August, 1993, the Company merged with A.F.C. Entertainment, Inc. (“A.F.C.”), a Barbados corporation, which was involved with the foreign film industry. In December, 1993, the Company purchased all of the shares of Film Optical Investments Limited, a corporation organized in the Province of Ontario, Canada (“Film Opticals”) in exchange for 120,000 of its common shares. With the acquisition of Film Opticals, the Company had been engaged in the business of providing a full range of motion picture printing services and creative titles, credits and optical effects for features, commercials, theatrical and television programs. The foreign film library, acquired with the merger of A.F.C., remained intact, but funding constraints curtailed the Company’s ability to develop and market this business. Because of these constraints, the board of directors elected on December 8, 2004, to sell Film Opticals. The Company is currently considering new business opportunities for its planned principal operations. On August 6, 2013, The Company changed its name to Medican Enterprises, Inc.
We are a bio-pharmaceutical company focused on pursuing business opportunities in the growing medical and recreational marijuana sector. Through its subsidiaries, the Company is seeking to invest in businesses associated with the growing, marketing, research and development, training, distribution and retail sale of medical and recreational marijuana, both in the United States and Canada. As of the date of this report, the Company has not commenced the actual the production and sale of medical marijuana but is seeking to lay the foundation to commence this business or related business in the marijuana sector.
We currently have five subsidiaries through which we operate our business.
Medican Systems Inc. is a corporation incorporated under the laws of the Territory of the Yukon under incorporation number 535642 on December 30, 2013. The authorized share structure is an unlimited number of common shares without par value, with 100 common shares issued to our company, making Medican Systems our direct wholly-owned subsidiary. The primary focus of Medican Systems is to function as a holding company for Canadian based investments, joint ventures and opportunities.
Medican (Delta) Systems, Inc. (“Medican Delta”) is a corporation incorporated under the laws of the Province of British Columbia under incorporation number BC0989867 on December 31, 2013 and is a subsidiary of Medican Systems. The authorized share structure is an unlimited number of common shares without par value, with 100 common shares issued to Medican Systems. The primary focus of Medican Delta is to pursue opportunities in the medical marijuana industry in and around the city of Delta in British Columbia, Canada.
Canaleaf Systems, Inc. (“CanaLeaf”) is a corporation incorporated under laws of Canada under the Canada Business Corporation Act under incorporation number 883348-6 on March 25, 2014 and is also a subsidiary of Medican Systems. The authorized share structure is an unlimited number of common shares. CanaLeaf is our operating subsidiary focused on business opportunities in Canada.
Medican (US) Systems, Inc. (“Medican US”) is a corporation incorporated under laws of Nevada on September 26, 2014 and is also a subsidiary of Medican Systems. Medican US is our operating subsidiary focused on business opportunities in the United States.
Medican Nations, LLC (“Medican Nations”) is a corporation incorporated under the laws of Nevada on February 6, 2015 and is also a subsidiary of Medican Systems. Medican Nations will be focused on building strategic partnerships with Indian communities in the United States and Canada to create and build business solutions within the indoor gardening and marijuana industries.
The unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles. The unaudited consolidated financial statements of the Company include the accounts of Medican Enterprises, Inc. and its wholly-owned subsidiaries. All significant intercompany transactions have been eliminated. The following summarizes the more significant of such policies:
(b) Statement of Cash Flows
For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.
(c) Income Taxes
The Company applies the provisions of Financial Accounting Standards Board Accounting Standard Codification (“ASC”) 740 Income Taxes. The Standard requires an asset and liability approach for financial accounting and reporting for income taxes, and the recognition of deferred tax assets and liabilities for the temporary differences between the financial reporting basis and tax basis of the Company’s assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. Due to a loss from inception, the Company has no outstanding tax liability. At this time the Company has no deferred taxes arising from temporary differences between income for financial reporting and income tax purposes.
The Company classifies tax-related penalties and net interest on income taxes as income tax expense. As of March 31, 2015, no income tax expense had been incurred or accrued.
(d) Fair Value Measurements and Financial Instruments
ASC Topic 820 defines fair value, establishes a framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of fair value measurement and enhances disclosure requirements for fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
Level 1 - Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 - Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 - Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The carrying value of cash, accounts receivable, investment in a related party, accounts payables, accrued expenses, due to related party, notes payable, and convertible notes approximates their fair values due to their short-term maturities.
(e) Foreign currency fluctuations and inflationary pressures may have a negative impact on our financial condition and results of operations.
Our operations in Canada, subject us to foreign currency fluctuations and inflationary pressures which may adversely affect our financial position and results of operations. Since we report our results of operations and financial condition in U.S. dollars, fluctuations in foreign currencies relative to the U.S. dollar may impact our financial results. We do not currently have a hedging program to address foreign currency fluctuations. Any steps taken by us to address foreign currency fluctuations may not eliminate all adverse effects.
(f) Net Loss Per Common Share
Basic loss per common share is based on the weighted-average number of shares outstanding. Diluted income or loss per share is computed using weighted average number of common shares plus dilutive common share equivalents outstanding during the period using the treasury stock method. There are no common stock equivalents outstanding, thus, basic and diluted income or loss per share calculations are the same. All per share calculations reflect the effects of the reverse stock split effected in April 2015.
(g) Impairment of Long-Lived Assets
The Company reviews long-lived assets, at least annually, to determine if impairment has occurred and whether the economic benefit of the asset (fair value for assets to be used and fair value less disposal costs for assets to be disposed of) is expected to be less than the carrying value. Triggering events, which signal further analysis, consist of a significant decrease in the asset’s market value, a substantial change in the use of an asset, a significant physical change in the asset, a significant change in the legal or business climate that could affect the asset, an accumulation of costs significantly in excess of the amount originally expected to acquire or construct the asset, or a history of losses that imply continued losses associated with assets used to generate revenue. The Company has no long-lived assets as of March 31, 2015.
(h) Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with U. S. generally accepted accounting principles (“US GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
(i) Revenue Recognition
The Company shall recognize revenues in accordance with the Securities & Exchange Commission Staff Accounting Bulletin (SAB) number 104, “Revenue Recognition.” SAB 104 clarifies application of U.S. generally accepted accounting principles to revenue transactions. Accordingly the Company shall recognize revenues when earned which shall be as products or services are delivered to customers. The Company shall also record accounts receivable for revenue earned but not yet collected. An allowance for bad debts shall be provided based on estimated losses. For revenue received in advance of service the Company shall record a current liability as deferred revenue until the earnings process is complete.
(j) Impact of New Accounting Standards
The Company has reviewed all recently issued, but not yet adopted, accounting standards in order to determine their effects, if any, on its results of operation, financial position or cash flows. Based on that review, the Company believes that none of these pronouncements will have a significant effect on its consolidated financial statements.
|
(k) Derivative financial instruments
|
The Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations. For stock-based derivative financial instruments, the Company uses a weighted average Black-Scholes-Merton option pricing model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.
(l) Stock Based Compensation
Shares were issued to various directors as compensation for services rendered. During the three months ended March 31, 2015, 9,000 common shares were issued at a value of $540.
During the year ended December 31, 2014, the Company issued 323,000 warrants in connection with the share issuances and subscriptions that occurred during the period. The fair value of these warrants was determined to be $6,643,981. All warrants have a term that extends from the date of issuance through June 30, 2015. Accrual of expenses related to these warrants during the three months ended March 31, 2015 amounted to $1,244,257. During the year ended December 31, 2014, the Company also granted 29,783 warrants in connection with convertible note financing and recorded a derivative liability and corresponding debt discount on the convertible note financing in the amount of $195,927. At March 31, 2015, the fair value of the derivative liability had decreased to $0.
NOTE 2 LIQUIDITY/GOING CONCERN
The Company has an accumulated deficit of $166,239,479 as of March 31, 2015, and has had negative cash flows from operating activities through March 31, 2015 as well as very limited cash resources as of March 31, 2015. The loss was primarily due to consulting and legal fees and stock compensation relating to warrants issued in the prior year. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Management plans to continue to seek to build the foundations of its medical and recreational marijuana businesses, but it may be unable to do for a number of reasons, including the inability to reach final agreements with its partners and the inability to raise sufficient funds to commence and operate its business.
NOTE 3 EQUITY
On February 16, 2015, the Company filed with the State of Nevada a Certificate of Amendment to its Articles of Incorporation increasing the authorized amount of shares of common stock to 1,000,000,000 shares, par value $0.01 per shares. The Company is also authorized, according to the Definitive Information Statement dated January 26, 2015, to enact a reverse split in an amount up to 1:10 according to the Board of Director’s discretion. Subsequent to March 31, 2015, the Company effected the 1 for 10 reverse stock split.
During the three months ended March 31, 2015, the Company:
i. Issued 9,000 common shares valued at $540 to officers and employees and recorded stock compensation expense at the market value of shares at the date of issuance.
ii. Issued to various consultants 10,850,000 common shares valued at $468,000, as payment for consulting services. Shares were valued as of their respective issuance dates throughout the period.
iii. Issued 150,251 common shares valued at $9,015 as payment for legal services. Shares were valued as of their respective issuance dates throughout the period.
iv. Issued 28,937,557 common shares valued at $603,978 pursuant to conversion of convertible notes outstanding. Shares were valued as of their respective issuance dates throughout the period.
During the year ended December 31, 2014, the Company issued 323,000 warrants issued in connection with the share issuances and subscriptions that occurred during the period. The fair value of these warrants was determined to be $6,643,981, which is calculated using the Black-Scholes method and the following assumptions: volatility 120-128%, risk-free rate 0.2%-0.3%, 0% dividends. All warrants have a term that extends from the date of issuance through June 30, 2015. As at March 31, 2015, accrual of expenses related to these warrants during the year amounted to $5,399,724.
A summary of the warrants issued as of March 31, 2015 is as follows:
|
Number
|
Weighted Average Exercise Price
|
|||||||
|
Outstanding at December 31, 2014
|
512,774
|
$
|
-
|
|||||
|
Issued
|
-
|
7.00
|
||||||
|
Exercised
|
-
|
-
|
||||||
|
Outstanding and exercisable at March 31, 2015
|
512,774
|
$
|
7.00
|
|||||
NOTE 4 CASH AND CASH EQUIVALENT
As of March 31, 2015, total cash balances amounted to $9,398. Of this amount, $4,060 is held in a bank account denominated in Canadian dollars. Because the reporting company reports all balances in US Dollars, transactions over the course of the period which were denominated in Canadian dollars were adjusted as of March 31, 2015 to reflect their value in US Dollars. The effect of this is a foreign currency translation adjustment of $8,922 on the Statement of Operations.
NOTE 5 NOTES PAYABLE
(a) $115,000 March 31, 2014 LG Capital/Adar Bays Convertible Notes
On March 31, 2014, the Company issued two convertible notes in the principal amounts of $57,500 each. The notes mature on March 31, 2015, are 8% per annum convertible notes and each includes a 5% original issue discount such that the total proceeds to the Company from issuance of the two notes is $115,000 and the purchase price for each note is $55,000. At the option of the holder after 180 days, all or any amount of the principal of the note then outstanding may be converted into shares of the Company’s common stock. The conversion price for each share is 70% of the average of the 3 lowest closing bid prices for twenty prior trading days. Interest shall be paid by the Company in common stock.
During the year ending December 31, 2014, the Company recorded a derivative liability of $84,506 from the variable conversion pricing of the convertible note and recorded accretion expense of $84,506 relating to the derivative liability from variable conversion pricing. At December 31, 2014, the derivative liability from variable conversion pricing was revalued and the Company recorded a gain on revaluation of $56,295 during the year ended December 31, 2014, resulting in an ending derivative liability balance of $28,211.
During the year ended December 31, 2014, the debtors elected to convert $65,321 in convertible debt principal and interest into 118,929 shares of common stock with an aggregate fair value of $91,960, representing the fair value of the derivative liabilities and the amortized cost of convertible debt settled was included as additional paid-in capital. During the year ended December 31, 2014, the Company recorded a loss of $26,639 on the excess of fair value of stock issued over the converted principal amount. As at December 31, 2014, the stock has not been issued, and the conversion value of $65,321 has been recorded to stock issuance liability. During the period ending March 31, 2015, the stock was issued and the stock issuance liability, except for $2,822 was reversed.
During the three months ended March 31, 2015, the debtors elected to convert $21,909 in convertible debt principal and interest into 350,733 shares of common stock with an aggregate fair value of $24,988, representing the fair value of the derivative liabilities and the amortized cost of convertible debt settled was included as additional paid-in capital. During the three months ended March 31, 2015, the Company reduced the value of derivative liabilities by $15,885 pursuant to conversion of this convertible debt.
At March 31, 2015, the convertible note principal and interest balances are $27,975.
The back-end notes entered into on March 31, 2014, with face values of $57,500 each was funded and the Company received the funds on October 22, 2014 and December 11, 2014. The Company issued two convertible notes in the principal amounts of $57,500 each. The note matured on March 31, 2015, are 8% per annum convertible notes and each includes a 5% original issue discount such that the total proceeds to the Company from issuance of the note is $55,000 and the purchase price for each note is $55,000. The back-end notes were also amended such that the conversion price for each share is 65% of the lowest closing bid price for twenty prior trading days. At the option of the holder after 180 days, all or any amount of the principal of the note then outstanding may be converted into shares of the Company’s common stock. Interest shall be paid by the Company in common stock.
During the three months ended March 31, 2015, the debtors elected to convert $50,786 of convertible debt principal and interest into 2,199,991 shares of common stock with an aggregate fair value of $150,613 which is the market trading price at date of conversion. During the three months ended March 31, 2015, the Company reduced the value of derivative liabilities by $35,161 pursuant to conversion of this convertible debt.
During the year ended December 31, 2014, the Company recorded a derivative liability of $80,028 from the variable conversion pricing of the convertible note and recorded accretion expense of $14,543 relating to the derivative liability from variable conversion pricing. During the three months ended March 31, 2015, the Company recorded accretion expense of $49,762 relating to the derivative liability from variable conversion pricing. At March 31, 2015, the derivative liability from variable conversion pricing was revalued and the Company recorded a loss on revaluation of $875,867 during the three months ended March 31, 2015, resulting in an ending derivative liability balance of $884,916.
At March 31, 2015, the back-end convertible note principal and interest balances are $56,929.
(b) $100,000 May 8, 2014 JSJ Investments Convertible Note
On May 8, 2014, the Company issued a 12% convertible note in exchange for cash received of $100,000. The Company must pay 12% interest per annum on the unpaid principal balance, and the principal balance was due on November 8, 2014. Upon maturity date, the note has a cash redemption premium of 130% of the principal amount. The note may be converted to stock at a conversion price equal to 45% discount to the average of the three lowest trades on the previous ten trading days to the date of conversion.
During the year ending December 31, 2014, the Company recorded a derivative liability of $129,359 from the variable conversion pricing of the convertible note and recorded accretion expense of $129,359 relating to the derivative liability from variable conversion pricing. As the amount of derivative liability was in excess of the principal amount of the note, the Company recorded a charge on the statement of operations of $29,359 for the year ending December 31, 2014. At December 31, 2014, the derivative liability from variable conversion pricing was revalued and the Company recorded a gain on revaluation of $128,978, during the year ended December 31, 2014, resulting in an ending derivative liability balance of $381. At March 31, 2015, as the note is fully converted, the derivative liability from variable conversion pricing was written off and the Company recorded a gain on revaluation of $381 during the three months ended March 31, 2015.
During the three months ended December 31, 2014, the debtor elected to convert $50,000 in convertible debt principal into 56,806 shares of common stock with an aggregate fair value of $96,571, representing the fair value of the derivative liabilities and the amortized cost of convertible debt settled was included as additional paid-in capital. During the year ended December 31, 2014, the Company recorded a loss of $46,571 on the excess of fair value of stock issued over the converted principal amount.
During the three months ended March 31, 2015, the debtor elected to convert the remaining principal and interest balance of $57,803 into 1,710,805 shares of common stock with an aggregate fair value of $123,782, representing the fair value of the derivative liabilities and the amortized cost of convertible debt settled was included as additional paid-in capital. During the three months ended March 31, 2015, the Company reduced the value of derivative liabilities by $69,641 pursuant to conversion of this convertible debt.
(c) $1,105,000 June 4, 2014 Typenex Convertible Note
On June 4, 2014, the Company issued a 10% secured convertible promissory note in the principal amount of $1,105,000. The Company must pay 10% interest per annum on the unpaid principal balance which is due November 4, 2015. The purchase price for the note is $1,000,000, computed as $1,105,000 original principal balance, less the original issue discount (“OID”) of $100,000, less the transaction cost of $5,000. On the closing date, the investor shall pay the purchase price to the Company by delivering the following at closing:
|
|
i)
|
The initial cash purchase price of $170,000 and $15,000 of the OID (received)
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|
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ii)
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Secured investor note #1 in the principal amount of $85,000 and $8,500 of the OID (received)
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iii)
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Secured investor note #2 in the principal amount of $85,000 and $8,500 of the OID
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|
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iv)
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Secured investor note #3 in the principal amount of $85,000 and $8,500 of the OID
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|
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v)
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Secured investor note #4 in the principal amount of $85,000 and $8,500 of the OID
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vi)
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Investor note #5 in the principal amount of $85,000 and $8,500 of the OID
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|
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vii)
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Investor note #6 in the principal amount of $85,000 and $8,500 of the OID
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viii)
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Investor note #7 in the principal amount of $85,000 and $8,500 of the OID
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|
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ix)
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Investor note #8 in the principal amount of $85,000 and $8,500 of the OID
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|
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x)
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Investor note #9 in the principal amount of $85,000 and $8,500 of the OID
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|
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xi)
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Investor note #10 in the principal amount of $85,000 and $8,500 of the OID
|
The conversion price for each lender conversion shall be $16.50. Lender has the right at any time after the purchase price date to convert all or any part of the outstanding balance into shares of common stock. During the year ended December 31, 2014, the Company received the first tranche of $170,000 less transaction cost. During the three months ended March 31, 2015, the Company received the second tranche of $93,500 less OID.
As the conversion price at the date of issuance of the first tranche of the note was less than the Company’s market trading price of $20.40 on June 4, 2014, the Company recorded a beneficial conversion feature of $41,212 against additional paid-in capital and recorded accretion expense of $16,453 for the year ended December 31, 2014.
At December 31, 2014, the Company was in default of the loan and the principal amount of the loan was increased by $37,434, and interest on the loans increased to 18%. On January 7, 2015, the Company agreed to a forbearance and increased the principal balance by $12,740 to $200,000. During the three months ended March 31, 2015, the debtor assigned $200,000 of principal to RDW Capital. In February 2015, the principal balance increased by $27,764 due to an instalment and conversion true-up as agreed upon with the debtor.
From its assigned convertible note, RDW Capital fully converted $75,000 of the $200,000 principal balance into 6,221,023 shares of common stock with an aggregate fair value of $318,141, representing the fair value of the derivative liabilities and the amortized cost of convertible debt settled was included as additional paid-in capital. During the three months ended March 31, 2015, the Company recorded a loss of $243,141 on the excess of fair value of stock issued over the converted principal amount.
During the three months ended December 31, 2014, the debtor elected to convert $30,000 in convertible debt principal into 80,717 shares of common stock with an aggregate fair value of $64,573, representing the fair value of the derivative liabilities and the amortized cost of convertible debt settled was included as additional paid-in capital. During the year ended December 31, 2014, the Company recorded a loss of $34,573 on the excess of fair value of stock issued over the converted principal amount.
During the three months ended March 31, 2015, the debtor elected to convert $49,625 in convertible debt principal into 3,493,828 shares of common stock with an aggregate fair value of $118,148, representing the fair value of the derivative liabilities and the amortized cost of convertible debt settled was included as additional paid-in capital. During the three months ended March 31, 2015, the Company recorded a loss of $68,523 on the excess of fair value of stock issued over the converted principal amount.
At March 31, 2015, the convertible note principal and interest balance, including assigned amounts, is $214,333.
(d) $1,500,000 June 25, 2014 Himmil Convertible Note
On June 25, 2014, the Company entered into a Securities Purchase Agreement (the “Agreement”) with a single accredited investor (the “Investor”) in a private placement pursuant to which the Investor purchased a 5% Convertible Note with a face amount of $1,500,000 for a purchase price of $1,000,000 (the “Note”). The Note bears interest at a rate of 5% per annum and is payable one year after the date of the issuance. The Company may pay interest due either in cash or, at its option, through freely tradable stock. The Note will be convertible at the option of the Investor at any time into shares of the Company’s common stock at a conversion price equal to the less of (i) $19 and (ii) 70% (60% in the event of default) of the average of the two lowest volume-weighted-average-price of the Common Stock during the 12 consecutive trading days immediately preceding the applicable conversion date. All or part of the then remaining principal amount of the Note may be prepaid at any time at a price equal to 125% of the sum of the remaining principal amount of the Note to be prepaid plus all accrued and unpaid interest thereon. The principal amount of the Note will be reduced by $500,000 if the shares of Common Stock underlying the Note are registered for public resale pursuant to an effective registration statement by August 24, 2014. As at December 31, 2014, the carrying amount of this Convertible Note is $852,024, net of a $500,000 original issuer discount.
At September 1, 2014, due to the issuance of a separate convertible note which violates the Agreement, the interest rate on the Convertible Note increased from 5% to 18%.
In connection with the Agreement, the Investor received a warrant to purchase 29,783 shares of common stock, exercisable for a period of 5 years from the date of issuance at exercise price of $21.50, subject to adjustment. If a registration statement is not effective for the resale by the Holder of all of the Warrant Shares, the Investor may exercise the warrant on a “cashless” basis. The conversion price of the Note and the exercise price of the Warrant are subject to “full ratchet” anti-dilution adjustment for subsequent lower price issuances by the Company, as well as customary adjustments provisions for stock splits, stock dividends, recapitalizations and the like. During the year ended December 31, 2014, the Company recorded $195,927 as a derivative liability on the issuance of these warrants. At December 31, 2014, the derivative liability from the issuance of warrants was revalued, resulting in a gain on revaluation of derivative liability of $195,927. During the year ended December 31, 2014, the Company recorded accretion expense of $101,453 on the derivative liability of these warrants.
The Company recorded a derivative liability of $1,164,745 from the variable conversion pricing of the convertible note and recorded accretion expense of $603,114 relating to the derivative liability from variable conversion pricing during the year ended December 31, 2014. As the amount of derivative liability was in excess of the principal amount of the note, the Company recorded a charge on the profit and loss of $360,672 for the year ending December 31, 2014. At December 31, 2014, the derivative liability from variable conversion pricing was revalued and the Company recorded a gain on revaluation of $1,099,709. At March 31, 2015, the derivative liability from variable conversion pricing was revalued and the Company recorded a loss on revaluation of $40,779,268, resulting in a derivative liability balance of $41,040,476.
During the three months ended March 31, 2015, the debtor elected to convert $348,854 in convertible debt principal into 14,961,173 shares of common stock with an aggregate fair value of $810,544 which is the market trading price at respective dates of conversion. During the three months ended March 31, 2015, the Company reduced the value of derivative liabilities by $342,760 pursuant to conversion of this convertible debt.
At March 31, 2015, the convertible note principal and interest balance is $1,415,288.
(e) $83,500 September 1, 2014 KBM Worldwide Convertible Note
On September 1, 2014, the Company issued a convertible note in the principal amount of $83,500. The note matures on June 1, 2015 and bears 8% interest per annum. At the option of the holder after 180 days, all or any amount of the principal of the note then outstanding may be converted into shares of the Company’s common stock. The conversion price for each share is 58% of the average of the 3 lowest closing bid prices for ten prior trading days.
The Company recorded a derivative liability of $85,871 from the variable conversion pricing of the convertible note and recorded accretion expense of $39,211 relating to the derivative liability from variable conversion pricing during the year ended December 31, 2014. As the amount of derivative liability was in excess of the principal amount of the note, the Company recorded a charge on the profit and loss of $4,967 for the year ended December 31, 2014. At December 31, 2014, the derivative liability from variable conversion pricing was revalued and the Company recorded a gain on revaluation of $76,440 during the year ended December 31, 2014, resulting in an ending derivative liability balance of $9,431.
During the three months ended March 31, 2015, the Company recorded accretion expense of $27,159 relating to the derivative liability from variable conversion pricing. At March 31, 2015, the derivative liability from variable conversion pricing was revalued and the Company recorded a loss on revaluation of $2,498,543 during the three months ended March 31, 2015, resulting in an ending derivative liability balance of $2,507,974. At March 31, 2015, the convertible note principal and interest balance is $87,362.
(f) $82,688 September 12, 2014 LG Capital Convertible Note
On September 12, 2014, the Company issued a convertible note in the principal amount of $82,688. The note matures on September 12, 2015 and bears 8% interest per annum. The note contains a 5% original issue discount such that the purchase price is $78,750. At the option of the holder after 180 days, all or any amount of the principal of the note then outstanding may be converted into shares of the Company’s common stock. The conversion price for each share is 70% of the average of the 3 lowest closing bid prices for twenty prior trading days. Interest shall be payable in common stock.
The Company recorded a derivative liability of $68,933 from the variable conversion pricing of the convertible note and recorded accretion expense of $21,175 relating to the derivative liability from variable conversion pricing during the year ended December 31, 2014. At December 31, 2014, the derivative liability from variable conversion pricing was revalued and the Company recorded a gain on revaluation of $59,964 during the year ended December 31, 2014, resulting in an ending derivative liability balance of $8,969.
During the three months ended March 31, 2015, the Company recorded accretion expense of $15,988 relating to the derivative liability from variable conversion pricing. At March 31, 2015, the derivative liability from variable conversion pricing was revalued and the Company recorded a loss on revaluation of $2,389,219 during the three months ended March 31, 2015, resulting in an ending derivative liability balance of $2,398,187. At March 31, 2015, the convertible note principal and interest balance is $86,185.
(g) $4,450,000 October 1, 2014 Convertible Notes
On October 1, 2014, the Company issued convertible notes to various debtors in the principal amount of $4,450,000 in consideration of consulting expenses from the debtors. The note matures on April 1, 2015 and bears 10% interest per annum. At the option of the holder after 180 days, all or any amount of the principal of the note then outstanding may be converted into shares of the Company’s common stock. The conversion price for each share is 50% of the average of the lowest closing bid price for twenty prior trading days. Interest shall be payable in common stock. At March 31, 2015, the convertible note principal and interest balance is $4,670,671.
(h) $200,000 CDN October 1, 2014 Demand Promissory Note
On October 1, 2014, the Company received CDN $200,000 (US $171,323) pursuant to a demand promissory note agreement. The note bears interest at 12% per annum, calculated yearly and is due and payable in full on demand. Interest is due and payable annually on the first day of January of each year and must be paid no later than September 30, 2015.
(i) $75,000 November 25, 2014 Tangiers Convertible Note
On November 25, 2014, the Company issued a convertible note in the principal amount of $220,000. The initial amount received by the Company was $75,000, with an additional $7,500 of the financing retained by the debtor through an original issuer discount. The debtor has the option to finance additional amounts up to the balance of $220,000 until May 25, 2015. The note matures on November 25, 2015 and bears 10% interest per annum. The note contains a 5% original issue discount such that the purchase price is $78,750. At the option of the holder, all or any amount of the principal of the note then outstanding may be converted into shares of the Company’s common stock. The conversion price for each share is 58% of the lowest closing bid prices for ten prior trading days.
The Company recorded a derivative liability of $78,148 from the variable conversion pricing of the convertible note and recorded accretion expense of $4,926 relating to the derivative liability from variable conversion pricing during the year ended December 31, 2014. As the amount of derivative liability was in excess of the principal amount of the note, the Company recorded a charge on the statement of operations of $14,596 for the year ending December 31, 2014. At December 31, 2014, the derivative liability from variable conversion pricing was revalued and the Company recorded a gain on revaluation of $52,651 during the year ended December 31, 2014, resulting in an ending derivative liability balance of $25,497.
During the three months ended March 31, 2015, the Company recorded accretion expense of $19,858 relating to the derivative liability from variable conversion pricing. At March 31, 2015, the derivative liability from variable conversion pricing was revalued and the Company recorded a loss on revaluation of $2,149,831 during the three months ended March 31, 2015, resulting in an ending derivative liability balance of $2,175,328. At March 31, 2015, the convertible note principal and interest balance is $84,966.
(j) $43,000 November 26, 2014 KBM Worldwide Convertible Note
On November 26, 2014, the Company issued a convertible note in the principal amount of $43,000. The note matures on August 28, 2015 and bears 8% interest per annum. At the option of the holder, beginning May 13, 2015, all or any amount of the principal of the note then outstanding may be converted into shares of the Company’s common stock. The conversion price for each share is 42% of the lowest three closing bid prices for ten prior trading days.
The Company recorded a derivative liability of $61,303 from the variable conversion pricing of the convertible note and recorded accretion expense of $2,173 relating to the derivative liability from variable conversion pricing during the year ended December 31, 2014. As the amount of derivative liability was in excess of the principal amount of the note, the Company recorded a charge on the statement of operations of $26,621 for the year ending December 31, 2014. At December 31, 2014, the derivative liability from variable conversion pricing was revalued and the Company recorded a gain on revaluation of $37,487 during the year ended December 31, 2014, resulting in an ending derivative liability balance of $23,816.
During the three months ended March 31, 2015, the Company recorded accretion expense of $25,692 relating to the derivative liability from variable conversion pricing. At March 31, 2015, the derivative liability from variable conversion pricing was revalued and the Company recorded a loss on revaluation of $1,223,302 during the three months ended March 31, 2015, resulting in an ending derivative liability balance of $1,247,118. At March 31, 2015, the convertible note principal and interest balance is $44,178.
(k) $1,000,000 January 1, 2015 Convertible Notes
On January 1, 2015, the Company issued convertible notes to various lenders in the principal amounts of $1,000,000. The notes mature on July 1, 2015 and bears 10% interest per annum. At the option of the holders, all or any amount of the principal of the notes then outstanding may be converted into shares of the Company’s common stock. The conversion price for each share is 50% of the lowest closing bid price for twenty prior trading days.
The Company recorded a derivative liability of $3,203,760 from the variable conversion pricing of the convertible notes and recorded accretion expense of $1,575,329 relating to the derivative liability from variable conversion pricing during the three months ended March 31, 2015. As the amount of derivative liability was in excess of the principal amount of the notes, the Company recorded a charge on the statement of operations of $2,203,760 for the period ending March 31, 2015. At March 31, 2015, the derivative liability from variable conversion pricing was revalued and the Company recorded a loss on revaluation of $37,797,649 during the three months ended March 31, 2015, resulting in an ending derivative liability balance of $41,001,409. At March 31, 2015, the convertible notes principal and interest balance is $1,024,384.
(l) $54,000 January 14, 2015 KBM Worldwide Convertible Note
On January 14, 2015, the Company issued a convertible note in the principal amount of $54,000 to KBM Worldwide. The note matures on October 16, 2015 and bears 8% interest per annum. At the option of the holder, all or any amount of the principal of the note then outstanding may be converted into shares of the Company’s common stock. The conversion price for each share is 58% of the lowest three closing bid prices for ten prior trading days.
The Company recorded a derivative liability of $39,493 from the variable conversion pricing of the convertible note and recorded accretion expense of $10,914 relating to the derivative liability from variable conversion pricing during the three months ended March 31, 2015. At March 31, 2015, the derivative liability from variable conversion pricing was revalued and the Company recorded a loss on revaluation of $1,861,835 during the three months ended March 31, 2015, resulting in an ending derivative liability balance of $1,901,328. At March 31, 2015, the convertible note principal and interest balance is $60,221.
(m) $100,000 January 16, 2015 RDW Capital Convertible Note
On January 16, 2015, the Company issued a convertible note in the principal amount of $100,000 to RDW Capital. The holder will pay $45,000 upon execution (received) and $45,000 once the 14C is effective. The note matures on July 16, 2015 and bears 10% interest per annum. At the option of the holder, all or any amount of the principal of the note then outstanding may be converted into shares of the Company’s common stock. The conversion price for each share is 35% of the lowest twenty closing bid prices for ten prior trading days.
The Company recorded a derivative liability of $214,990 from the variable conversion pricing of the convertible note and recorded accretion expense of $87,897 relating to the derivative liability from variable conversion pricing during the three months ended March 31, 2015. As the amount of derivative liability was in excess of the principal amount of the note, the Company recorded a charge on the statement of operations of $124,990 for the period ending March 31, 2015. At March 31, 2015, the derivative liability from variable conversion pricing was revalued and the Company recorded a loss on revaluation of $5,685,165 during the three months ended March 31, 2015, resulting in an ending derivative liability balance of $5,900,155. At March 31, 2015, the convertible note principal and interest balance is $101,767.
(n) $66,000 January 30, 2015 Black Mountain Convertible Note
On January 30, 2015, the Company issued a convertible note in the principal amount of $66,000 to Black Mountain Equities, Inc. The note bears an original issue discount of $6,000. The note matures on January 30, 2016 and bears 10% interest per annum. At the option of the holder, all or any amount of the principal of the note then outstanding may be converted into shares of the Company’s common stock. The conversion price for each share is the lesser of $0.30 or 60% of the lowest three closing bid prices for twenty prior trading days.
The Company recorded a derivative liability of $126,995 from the variable conversion pricing of the convertible note and recorded accretion expense of $20,876 relating to the derivative liability from variable conversion pricing during the three months ended March 31, 2015. As the amount of derivative liability was in excess of the principal amount of the note, the Company recorded a charge on the statement of operations of $66,995 for the period ending March 31, 2015. At March 31, 2015, the derivative liability from variable conversion pricing was revalued and the Company recorded a gain on revaluation of $2,117,254 during the three months ended March 31, 2015, resulting in an ending derivative liability balance of $2,244,249. At March 31, 2015, the convertible note principal and interest balance is $67,085.
(o) $22,500 February 19, 2015 RDW Convertible Note
On February 19, 2015, the Company entered into a 10% convertible debenture with RDW Capital, LLC (“RDW”) in the principal amount of $25,000 (the "RDW Note"). The financing on the initial amount closed on March 23, 2015.
The principal due under the RDW Note bears interest at the rate of 10% per annum. Upon an event of default, the outstanding balance shall immediately be due in cash and shall incur a late fee of $1,000 per day. The principal and interest underlying the RDW Note is convertible at any time into common stock, at RDW’s option, and will be equal to 35% of the lowest trading price of the Company’s common stock during the twenty consecutive trading days prior to the date on which RDW (or the then-holder of the RDW) elects to convert all or part of the RDW Note. In connection therewith, the Company agreed to reserve from its authorized and unissued shares at least the number of shares that may be issuable upon conversion of the note once the Company has increased its authorized shares. The Company may prepay any portion of the principal amount at 130% of such amount along with any accrued interest of the RDW Note at any time upon seven days’ written notice to RDW.
The Company recorded a derivative liability of $46,669 from the variable conversion pricing of the convertible note and recorded accretion expense of $10,314 relating to the derivative liability from variable conversion pricing during the three months ended March 31, 2015. As the amount of derivative liability was in excess of the principal amount of the note, the Company recorded a charge on the statement of operations of $21,669 for the period ending March 31, 2015. At March 31, 2015, the derivative liability from variable conversion pricing was revalued and the Company recorded a loss on revaluation of $1,428,382 during the three months ended March 31, 2015, resulting in an ending derivative liability balance of $1,475,051. At March 31, 2015, the convertible note principal and interest balance is $25,274.
(p) $43,000 March 12, 2015 Vis Vires Convertible Note
On March 12, 2015, the Company entered into an 8% convertible promissory note with Vis Vires, Inc. (“Vis Vires”) in the principal amount of $43,000 (the "Vis Vires Note"). The financing on the initial amount closed on March 18, 2015.
The principal due under the Vis Vires Note bears interest at the rate of 8% per annum. Upon an event of default, the outstanding balance shall immediately increase to 150% of the outstanding balance immediately prior to the event of default. The principal and interest underlying the Vis Vires Note is convertible at any time into common stock, at Vis Vires’s option, and will be equal to 58% of the average of the lowest three trading price of the Company’s common stock during the ten consecutive trading days prior to the date on which Vis Vires (or the then-holder of the Vis Vires) elects to convert all or part of the Vis Vires Note. In connection therewith, the Company agreed to reserve from its authorized and unissued shares at least the number of shares that may be issuable upon conversion of the note once the Company has increased its authorized shares. The Company may prepay any portion of the principal amount at between 115% and 145% of such amount along with any accrued interest of the Vis Vires Note at any time upon seven days’ written notice to Vis Vires.
The carrying value of convertible debentures are as follows:
|
Three months ending March 31, 2015
|
||||
|
Balance of convertible debentures, December 31, 2014
|
$
|
5,749,937
|
||
|
Proceeds from new convertible debt tranches
|
1,306,170
|
|||
|
Original issue discount
|
(69,272)
|
|||
|
Derivative liability of variable conversion price
|
(3,631,907)
|
|||
|
Reserve defaults
|
77,940
|
|||
|
Excess of derivative liability of conversion price over principal amount
|
2,388,055
|
|||
|
Interest accrued on principal
|
206,848
|
|||
|
Accretion of derivative liability of conversion price
|
2,179,608
|
|||
|
Conversion of convertible debt
|
(603,978
|
)
|
||
|
Balance of convertible debentures, end of year
|
$
|
7,603,402
|
||
The fair value of derivative liabilities are as follows:
|
Three months ending March 31, 2015
|
||||
|
Fair value of derivative liabilities, December 31, 2014
|
$
|
389,397
|
||
|
Fair value of derivative liability at inception of new tranches
|
3,631,906
|
|||
|
Reduction of derivative liability upon conversion
|
(463,448)
|
|||
|
Loss of revaluation of derivative liability
|
100,812,140
|
|||
|
Fair value of derivative liabilities, March 31, 2015
|
$
|
104,369,996
|
||
NOTE 6 SUBSCRIPTION AGREEMENT
Under the Amendment to the Subscription Agreement that was entered into on April 29, 2014, the Company agreed to acquire a 51% interest in International Herbs Medical Marijuana Ltd. (“IHMML”), a company that is applying to obtain licensed producer status from Health Canada. On July 25, 2014, the Company and CanaLeaf entered into a non-binding letter of intent with Zenabis Limited Partnership (“Zenabis”) and IHMML. In September 2014, the Company announced that due to structuring and regulatory issues, the prospects for consummating this restructuring are uncertain and that although the Company will continue to monitor this situation, the Company was turning to focus on other potential opportunities. As such, no assurances can be given that the transactions described in such non-binding letter of intent will be effectuated, and the Company is focusing on other operational activities at this time.
NOTE 7 PROPERTY
On December 2, 2014, the Company signed an agreement to acquire a 67,000 square foot facility in Phoenix, Arizona which the company plans to lease as a marijuana growing and warehouse facility to licensed growers. The industrial building sits on 2.55 acres of industrial zoned land. The anticipated final purchase price for the property is $2,340,310 and a closing is planned during the first half of 2015 pending, among other closing conditions, a variance to zone the building for the cultivation of marijuana. The acquisition of this property will launch Medican’s real estate and leasing services business under which the company would lease real estate that is outfitted with turnkey solutions for legally compliant growing facilities to licensed growers.
On January 20, 2015, the Company entered into a purchase agreement to acquire a 7,200 square foot retail and commercial property in Phoenix, Arizona. The property is currently leased through August 2018 to an Arizona state licensed medical marijuana dispensary. Per the purchase agreement, the lease agreement will be assigned to Medican. The rental amount of the current lease is in excess of $200,000 annually, triple net. The lease provides for two five-year tenant renewal options. The lease rate increases at 3 percent per year or CPI, whichever is greater. Total purchase price for the property is $2,250,000, which Medican expects to pay through a combination of mortgage debt and an $850,000 convertible promissory note secured by the property. The property’s value has been appraised at $2,385,000 and was substantiated by an independent appraiser, Kalinowski & Associates. As per the Amendment No. 2 to the original agreement, the closing for the purchase of this property was expected to occur on or before March 31, 2015. The company continues to negotiate with the vendors of the properties with a view to obtaining extensions and completing the transactions.
NOTE 8 SUBSEQUENT EVENTS
On May 6, 2015, the Company closed on its acquisition of TWYNS, a company that provides branding services for enterprises in the Cannabidiol (CBD) business. The transaction is valued at approximately $1,000,000, all in stock.
Cautionary Note Regarding Forward–Looking Statements
This quarterly report contains forward-looking statements within the meaning of the federal securities laws. These include statements about our expectations, beliefs, intentions or strategies for the future, which we indicate by words or phrases such as "anticipate", "expect", "intend", "plan", "will", “seeking,” "we believe", "the Company believes", "management believes" and similar language. The forward-looking statements are based on the current expectations of the Company and are subject to certain risks, uncertainties and assumptions, including those set forth in the discussion under "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this report. The actual results may differ materially from results anticipated in these forward-looking statements. We base the forward-looking statements on information currently available to us, and we assume no obligation to update them.
Investors are also advised to refer to the information in our filings with the Securities and Exchange Commission, specifically Forms 10-K, 10-Q and 8-K, in which we discuss in more detail various important factors that could cause actual results to differ from expected or historic results. It is not possible to foresee or identify all such factors. As such, investors should not consider any list of such factors to be an exhaustive statement of all risks and uncertainties or potentially inaccurate assumptions.
Except as otherwise indicated by the context, references in this Form 10-Q to “we”, “us”, “our”, “ the Registrant ”, “our Company” or “the Company” refer to Medican Enterprises, Inc., a Nevada corporation. Unless the context otherwise requires, all references to (i) “U.S. dollar”, “$” and “USD” are to United States dollars; (ii) “Canadian dollar” or “CAD” are to Canadian dollars, (iii) “Securities Act” are to the Securities Act of 1933, as amended; and (iv) “Exchange Act” are to the Securities Exchange Act of 1934, as amended.
Plan of Operation
Our plan of operation for the next 12 months is to continue to seek to acquire or establish joint ventures with businesses in the medical and recreational marijuana sector. To that end, we announced two proposed real estate acquisitions in Arizona that would represent our initial entry into the U.S. market. In December 2014, we signed an agreement to acquire a 67,000 square foot facility in Phoenix, Arizona. The Company plans to lease it as a marijuana growing and warehouse facility to licensed growers. In January 2015, Medican entered into a purchase agreement to acquire a 7,200 square foot retail and commercial property in Phoenix, Arizona. The property is currently leased through August 2018 to an Arizona state licensed medical marijuana dispensary. We are actively seeking similar and other business opportunities in the marijuana sector, including operating businesses such as Future Harvest and TWYNS and the possibility of acquiring real estate which we can then lease to licensed growers in jurisdictions where such activities are permissible.
Based on the current plans and objectives, we will have significant foreseeable cash requirements related to the establishment of our business, including the acquisition of companies and relates costs. Additionally, we will have expenses that related to maintaining our Company’s good standing or the payment of expenses associated with legal fees, accounting fees, outstanding debt and other general operating expenses. No assurances can be given that we will be able to fund our business or establish our operations, which could cause us to reevaluate our business strategy in its entirety and could lead to the failure of our business.
Additionally we will have expenses that will relate to maintaining our Company’s good standing or the payment of expenses associated with legal fees, accounting fees, and other general operating expenses.
Critical Accounting Policies and Estimates
Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States ("US GAAP"). US GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expenses amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to US GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.
Recent Accounting Pronouncements
The Company does not expect that the adoption of any recent accounting pronouncements will have any material impact on its financial statements.
Results of Operations
Three Months Ended March 31, 2015 Compared to Three Months Ended March 31, 2014
Selling, General and Administrative expenses were $2,450,988 for the March 31, 2015 period, compared to $365,435 for the March 31, 2014 period. This change in selling, general and administrative expenses for the three months ended March 31, 2015 was primarily due to accretion expense of $2,179,608 in relation to the outstanding convertible notes. The Company had a net loss of $108,672,249 for the March 31, 2015 period compared to a net loss of $30,395,107 for the March 31, 2014 period. The increase in net loss for the period ending March 31, 2015 is primarily due to the loss on revaluation of derivative liability on variable conversion pricing of convertible debt. In the weeks leading up to the period end date, the Company’s market stock prices were low relative to the period end market price. This change in stock price led to a higher than typical value of derivative liabilities since the calculated conversion prices at period end were low. The value of derivative liabilities were higher than usual, leading to a significant charge of $100,812,140 to the statement of operations.
We issued 110,092,510 common shares pursuant to directors’ compensation, consulting and legal services, valued at $477,555 during the three months ended March 31, 2015. In the three months ended March 31, 2014, we issued 1,070,000 shares as payment for consulting, management and legal services, valued at $29,162,300.
Liquidity and Capital Requirements
On March 31, 2015, we had $9,398 in cash, as compared to $229,755 cash or cash equivalents on hand on March 31, 2014. During the period ending March 31, 2015, the Company received $314,839 in convertible debt proceeds (2014 - $0). During the three months ending March 31, 2014, the Company received gross proceeds of $1,055,735 pursuant to private placement.
Off-Balance Sheet Arrangements
None.
This item is not applicable as we are currently considered a smaller reporting company.
Our management, with the participation of our principal executive and our principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by the quarterly report were effective such that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
Changes in Internal Control Over Financial Reporting
There have been no changes in internal control over financial reporting.
From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.
No material change since the filing of the 10-K on April 15, 2014 for the year ended December 31, 2014.
These shares were issued pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended pursuant to Section 4(2) of the Act and/or Rule 506 of Regulation D promulgated thereunder since, among other things, the transactions did not involve a public offering.
|
Name
|
Service
|
Date
|
Number of Shares Issued
|
Certificate Number
|
|
BCB Capital LLC
|
Consulting
|
February 13, 2015
|
30,000
|
937
|
|
Brunson, Chandler & Jones, PLLC
|
Legal
|
February 24, 2015
|
15,025
|
939
|
|
Chardan Capital Markets LLC
|
Consulting
|
February 24, 2015
|
50,000
|
945
|
|
Demitri Downing
|
Consulting
|
February 24, 2015
|
20,000
|
942
|
|
Eagle Eye Capital Inc
|
Consulting
|
February 24, 2015
|
60,000
|
938
|
|
Seraphim Holding LLC
|
Consulting
|
February 24, 2015
|
10,000
|
946
|
|
Tim Donald
|
Consulting
|
March 6, 2015
|
60,000
|
971
|
|
Green Grow LLC
|
Consulting
|
March 6, 2015
|
250,000
|
968
|
|
Wayne Hansen
|
Consulting
|
March 6, 2015
|
30,000
|
965
|
|
Jade Mercantile Ltd
|
Consulting
|
March 6, 2015
|
250,000
|
969
|
|
John Lorencz
|
Consulting
|
March 6, 2015
|
50,000
|
967
|
|
Drew Milburn
|
Consulting
|
March 6, 2015
|
90,000
|
972
|
|
Ken Pamplin
|
Consulting
|
March 6, 2015
|
5,000
|
970
|
|
Norman James Payton
|
Consulting
|
March 6, 2015
|
150,000
|
966
|
|
Kenneth Williams
|
Consulting
|
March 6, 2015
|
30,000
|
964
|
None.
Not applicable.
None.
|
Exhibit Number
|
Description
|
|
|
31.1
|
Certification of Chief Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
31.2
|
Certification of Chief Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
32.01
|
Certification of Chief Executive Officer and Chief Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
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.
|
MEDICAN ENTERPRISES, INC.
|
|
|
Date: May 20, 2015
|
By: / S/ Kenneth Williams
Chief Executive Officer and Director
|
|
Date: May 20, 2015
|
By: / S/ Wayne Hansen
Wayne Hansen
Chief Financial Officer and Director
|
18