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EX-32 - EXHIBIT 32 - MEDIJANE HOLDINGS INC.medijane10q1q15ex32.htm
EX-31 - EXHIBIT 31 - MEDIJANE HOLDINGS INC.medijane10q1q15ex31.htm

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q


[x]     Quarterly Report Pursuant to Section 13 or 15(d) Securities Exchange Act of 1934 for Quarterly Period Ended May 31, 2015


-OR-


[ ]     Transition Report Pursuant to Section 13 or 15(d) of the Securities And Exchange Act of 1934 for the transaction period from _________ to________


Commission File Number  - 333-167275


MediJane Holdings Inc.

 (Exact name of registrant as specified in its charter)


 

 

 

 

 

 

Nevada

 

46-0525378

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification Number)


 

 

 

 

 

 

2011 Ken Pratt Boulevard, Suite 300

Longmont, CO

 

80501

(Address of principal executive offices)

 

(Zip Code)


(720) 442-7242

 (Registrant's telephone number, including area code)


Indicate by check mark whether the issuer (1) 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 (section 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-accelerate filer, or a small reporting company as defined by Rule 12b-2 of the Exchange Act):


 

 

 

Large accelerated filer        [  ]

 

Non-accelerated filer             [  ]

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 Exchange Act).  Yes  [ ]      No [x]


The number of outstanding shares of the registrant's common stock on August 7, 2015: 423,927,259.



1




MEDIJANE HOLDINGS INC.

FORM 10-Q

For the quarterly period ended May 31, 2015

INDEX


PART 1 – FINANCIAL INFORMATION

 

 

 

 

 

 

 

 

Page

Item 1.  Financial Statements (Unaudited)

 

3

Item 2.  Management's Discussion and Analysis of

  Financial Condition and Results of Operations

 

21

Item 3.  Quantitative and Qualitative Disclosure

  About Market Risk

 

24

Item 4.  Controls and Procedures

 

24


PART II – OTHER INFORMATION

 

 

 

 

 

 

Item 1.  Legal Proceedings

 

26

Item 1A.  Risk Factors

 

26

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

 

26

Item 3.  Defaults upon Senior Securities

 

26

Item 4.  Mine Safety Disclosures

 

26

Item 5.  Other Information

 

26

Item 6.  Exhibits

 

26

 

 

 

SIGNATURES

 

27


Forward Looking Statements.  

This quarterly report on Form 10-Q contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors”, that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.


Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.


Our financial statements are stated in United States Dollars ($) and are prepared in accordance with United States Generally Accepted Accounting Principles.


In this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States Dollars and all references to “common shares” refer to the common shares in our capital stock.


Except as otherwise indicated by the context, references in this report to “we”, “us” “our” and “the Company” are references to MediJane Holdings, Inc.




2



Item 1.  Financial Statements


MEDIJANE HOLDINGS, INC.

Consolidated Balance Sheets


 

 

 

 

 

 

May 31,

 2015

 $

  February 28,

 2015

 $

 

 

Unaudited

Audited

ASSETS

 

 

 

 

 

 

 

Cash

 

5,445

9,400

Accounts receivable

 

-

2,300

Notes receivable, related party

 

248,235

258,122

Inventory

 

1,205,519

1,211,340

Prepaid expense

 

91,664

141,664

 

 

 

 

Total Current Assets

 

1,550,863

1,622,826

 

 

 

 

License agreement, net of amortization

 

6,954,167

7,166,667

Distribution agreement, net of amortization

 

150,500

154,800

Security deposit

 

1,250

1,250

 

 

 

 

Total Assets

 

8,656,780

8,945,543

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

316,246

252,536

Due to related parties

 

110,000

50,000

 

 

 

 

Current Liabilities

 

426,246

302,536

 

 

 

 

Convertible notes payable, net

 

112,394

76,117

Convertible notes payable, Cannavest

 

1,252,274

1,222,027

Asset retirement obligation

 

-

-

 

 

 

 

Total Liabilities

 

1,790,914

1,600,680

 

 

 

 

STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

Common Stock

Authorized: 1,000,000,000 common shares, par value of $0.001 per share, Issued and outstanding: 423,927,259 and 361,322,812 common shares, respectively

 

 

 

 

 

 

 

423,928

361,323

 

 

 

 

Additional paid-in capital

 

19,592,134

19,625,738

 

 

 

 

Accumulated deficit during the development stage

 

(13,150,196)

(12,642,198)

 

 

 

 

Total Stockholders’ Equity (Deficit)

 

6,865,866

7,344,863

 

 

 

 

Total Liabilities and Stockholders’ Equity

 

8,656,780

8,945,543

 

 

 

 

(The accompanying notes are an integral part of these financial statements)




3



MEDIJANE HOLDINGS, INC.

Consolidated Statements of Operations

(Unaudited)

 

For the three months ended

 

May .31,

 

2015

2014

 

$

$

Revenues

2,435

-

Cost of sales

898

-

Gross Profit

1,537

-

 

 

 

Operating expenses

 

 

Amortization expense

216,800

-

Product development expense

-

15,000

Sales and marketing expenses

18,039

91,487

Operations expense

38,045

19,032

General and administrative

48,854

9,813

Professional fees

85,886

81,792

Lease operating expenses

7,500

7,500

 

 

 

Total operating expenses

415,124

224,624

 

 

 

Loss before other expenses

(413,587)

(224,624)

 

 

 

Other income (expense)

 

 

Interest Income

1,113

-

Interest Expense

(41,181)

-

Loss on impairment of license agreement

-

 

Discount Amortization

(54,343)

-

Gain (loss) on discontinued operations

-

722

 

 

 

Total other expense

(94,411)

722

 

 

 

Net loss

(507,998)

(223,902)

 

 

 

Basic and diluted loss per common share

 

 

  Income (loss) from continuing operations

(0.00)

(0.00)

  Income (loss) from discontinued  operations

-

0.00

Basic and diluted loss per common share

(0.00)

(0.00)

 

 

 

Weighted average shares outstanding – basic and diluted

391,408,944

63,000,000


(The accompanying notes are an integral part of these financial statements)



4



MEDIJANE HOLDINGS, INC.

Consolidated Statements of Cash Flows

(Unaudited)


 

For the three months ended

May 31,

2015

2014

$

$

Operating Activities

 

 

 

 

 

Net loss

(507,998)

(233,902)

Loss from discontinued operations

-

(722)

 

 

 

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

Amortization

216,800

-

Non-cash cost of impairment of license agreement

-

-

Non-cash amortization of discount on convertible notes payable

54,343

-

Non-cash stock option compensation

50,000

-

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

2,187

-

Inventory

5,821

-

Prepaid expense and deposits

-

(153,750)

Accounts payable and accruals

104,892

53,541

Net changes in operating assets and liabilities - discontinued operations

-

 

Net Cash provided by(used for) operating activities - current operations

(73,955)

(324,833)

Net Cash provided by(used for) operating activities - discontinued operations

-

302

 

 

 

Investing Activities

 

 

Related party notes receivable

10,000

-

Net Cash Used In Investing Activities - continuing operations

10,000

-

Net Cash Used In Investing Activities  - discontinued operations

-

-

 

 

 

Financing Activities

 

 

Proceeds from notes payable

-

-

Due to related parties

60,000

20,933

Proceeds from issuance of common shares

-

300,925

Net changes in financing activities – discontinued operations

-

-

Net Cash Provided By Financing Activities - continuing operations

60,000

321,858

Net Cash Provided By Financing Activities - discontinued operations

-

-

 

 

 

Increase (Decrease) in Cash - continuing operations

(3,955)

(2,673)

Increase (Decrease) in Cash - discontinued operations

-

-

 

 

 

Cash – Beginning of Period - continuing operations

9,400

6,104

Cash – Beginning of Period - discontinued operations

-

-

 

 

 

Cash – End of Period – continuing operations

5,445

-

Cash – End of Period – discontinued operations

-

3,431

 

 

 

 (The accompanying notes are an integral part of these financial statements)




5




MEDIJANE HOLDINGS, INC.

Consolidated Statements of Cash Flows


(Continued from previous page)


Supplemental disclosures

 

 

Interest paid

-

-

Income tax paid

-

-

Non-cash issuance of stock for license agreement, related party

 

1,300,000

Non-cash issuance of stock for distribution agreement

 

172,000

Non-cash issuance of stock for conversion of debt

29,000

-



(The accompanying notes are an integral part of these financial statements)



6



MEDIJANE HOLDINGS, INC.

Notes to the Unaudited Consolidated Financial Statements



1.

Nature of Operations and Continuance of Business


The company was incorporated in the State of Nevada on April 21, 2009 under the name Mokita Exploration, Ltd. (the “Company”).  On February 27, 2014, there was a change of control of the Company.  On February 28, 2014, our board of directors and a majority of holders of the Company’s voting securities approved a change of name of the Company to MediJane Holdings Inc.  A Certificate of Amendment to effect the change of name was filed and became effective with the Nevada Secretary of State on March 4, 2014.  A Certificate of Correction was subsequently filed with the Nevada Secretary of State on March 6, 2014 to correct a spelling error in the Company’s new name.  These amendments have been reviewed by FINRA and were approved for filing with an effective date of March 12, 2014.  The name change became effective with the Over-the-Counter Bulletin Board at the opening of trading on March 12, 2014 under our new ticker symbol "MJMD".


On February 27, 2014, after the change of control, the Company became a sales and distribution company focused on cannabinoid infused products for the treatment of medical conditions.


As of July 8, 2015, we have changed our business to only focus on Cannabidiol (CBD) products.  CBD is a non-psychotropic cannabinoid that is not restricted as part of the U.S. Controlled Substance Act (CSA), as defined under the 2014 U.S. Farming Bill to be derivatives of the Industrial Hemp plant that contain less than 0.3% tetra-hydro-cannabinol (THC).  We will contract out the manufacturing of the products. Phoenix Bio Pharmaceuticals Corporation and other groups may manufacture our products under our license agreement.


Going Concern


These financial statements have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company’s total operating expenditure plan for the following twelve months will require significant cash resources to meet the goals of its business plan.  The continuation of the Company as a going concern is dependent upon the continued financial support from its management, and its ability to identify future investment opportunities and obtain the necessary debt or equity financing, and generating profitable operations from the Company’s future operations. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern.  These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.  


2.

Summary of Significant Accounting Policies


Basis of Presentation - The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) and are expressed in U.S. dollars.  The Company’s fiscal year end is February 28


Basis of Consolidation – The consolidated financial statements include the accounts of Medi Holdings, Inc. and its wholly-owned subsidiaries.  All significant intercompany balances and transactions have been eliminated in consolidation.


Use of Estimates - The preparation of financial statements in conformity with 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. The Company regularly evaluates estimates and assumptions related to the deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the



7



carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.


A significant item that requires management's estimates and assumptions is valuation of intangible assets, valuation allowances for income taxes, valuation of derivatives instruments and accrued liabilities, among others. Although management believes these estimates are reasonable, actual results could differ from these estimates.


Cash and cash equivalents - The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents. At May 31, 2015 and February 28, 2015, the Company did not hold any cash equivalents.


Accounts receivable - Accounts receivable consists of trade accounts arising in the normal course of business.  No interest is charged on past due accounts.  Accounts receivable are carried at the original invoice amount less a reserve for doubtful receivables based on a review of all outstanding amounts on a monthly basis.


Basic and Diluted Net Loss per Share - The Company computes net loss per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti dilutive.  At February 28, 2015, the Company had outstanding stock options outstanding, the Company does not deem these options to be dilutive as the exercise price exceeds the current fair market value of the Company’s common stock.  At May 31, 2015 and 2014, the Company had did not have potentially dilutive shares outstanding.


Financial Instruments - Pursuant to ASC 820, Fair Value Measurements and Disclosures, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:


Level 1 - Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.


Level 2 - Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.


Level 3 - Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.


The Company’s financial instruments consist principally of cash, accounts receivable, accounts payable and accrued liabilities, amounts due to related parties, and convertible debenture. Pursuant to ASC 820, the fair value of our cash is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. We believe that the recorded values of all of our other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.




8



Derivative Financial Instruments - The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks.


The Company reviews the terms of the common stock, warrants and convertible debt it issues to determine whether there are embedded derivative instruments, including embedded conversion options, which are required to be bifurcated and accounted for separately as derivative financial instruments. In circumstances where the host instrument contains more than one embedded derivative instrument, including the conversion option, that is required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.


Bifurcated embedded derivatives are initially recorded at fair value and are then revalued at each reporting date with changes in the fair value reported as non-operating income or expense. The Company uses a Black-Scholes model for valuation of the derivative. When the equity or convertible debt instruments contain embedded derivative instruments that are to be bifurcated and accounted for as liabilities, the total proceeds received are first allocated to the fair value of all the bifurcated derivative instruments. The remaining proceeds, if any, are then allocated to the host instruments themselves, usually resulting in those instruments being recorded at a discount from their face value.


The discount from the face value of the convertible debt, together with the stated interest on the instrument, is amortized over the life of the instrument through periodic charges to interest expense, using the effective interest method.


Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether net cash settlement of the derivative instrument could be required within the 12 months of the balance sheet date.


Comprehensive Loss - ASC 220, Comprehensive Income, establishes standards for the reporting and display of comprehensive loss and its components in the financial statements. As at May 31, 2015 and 2014, the Company has no items that represent a comprehensive loss and, therefore, has not included a schedule of comprehensive loss in the financial statements.


Stock-based Compensation - The Company records stock-based compensation in accordance with ASC 718, Compensation – Stock Based Compensation and ASC 505-50 - Equity-Based Payments to Non-Employees. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.


We account for share-based payments granted to non-employees in accordance with ASC Topic 505, “Equity Based Payments to Non-Employees.” The Company determines the fair value of the stock-based payment as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.  If the fair value of the equity instruments issued is used, it is measured using the stock price and other measurement assumptions as of the earlier of either (1) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached, or (2) the date at which the counterparty’s performance is complete.

 

The fair value of each share based payment is estimated on the measurement date using the Black-Scholes model with the following assumptions, which are determined at the beginning of each year and utilized in all calculations for that year:


Risk-Free Interest Rate. We utilized the U.S. Treasury yield curve in effect at the time of grant with a term consistent with the expected term of our awards.  


Expected Volatility. We calculate the expected volatility based on a volatility index of peer companies as we did not have sufficient historical market information to estimate the volatility of our own stock. 

 



9



Dividend Yield. We have not declared a dividend on its common stock since its inception and have no intentions of declaring a dividend in the foreseeable future and therefore used a dividend yield of zero.

 

Expected Term. The expected term of options granted represents the period of time that options are expected to be outstanding.  We estimated the expected term of stock options by using the simplified method.  For warrants, the expected term represents the actual term of the warrant.


Forfeitures. Estimates of option forfeitures are based on our experience. We will adjust our estimate of forfeitures over the requisite service period based on the extent to which actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of change and will also impact the amount of compensation expense to be recognized in future periods.


Revenue Recognition – The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin Topic 13 when persuasive evidence of an arrangement exists and delivery has occurred, provided the fee is fixed or determinable and collection is probable. The Company assesses whether the fee is fixed and determinable based on the payment terms associated with the transaction. If a fee is based upon a variable such as acceptance by the customer, the Company accounts for the fee as not being fixed and determinable. In these cases, the Company defers revenue and recognizes it when it becomes due and payable. Up-front engagement fees are recorded as deferred revenue and amortized to income on a straight-line basis over the term of the agreement, although the fee is due and payable at the time the agreement is signed or upon annual renewal. Payments related to substantive, performance-based milestones in an agreement are recognized as revenue upon the achievement of the milestones as specified in the underlying agreement when they represent the culmination of the earnings process.


The Company assesses the probability of collection based on a number of factors, including past transaction history with the customer and the current financial condition of the customer. If the Company determines that collection of a fee is not reasonably assured, revenue is deferred until the time collection becomes reasonably assured. Significant management judgment and estimates must be made and used in connection with the revenue recognized in any accounting period. Material differences may result in the amount and timing of our revenue for any period if our management made different judgments or utilized different estimates.


Shipping and Handling costs— shipping and handling costs are included in cost of sales in the Statements of Operations.


Recent Accounting Pronouncements - The recent accounting pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations


Reclassifications - Certain amounts in the prior period financial statements have been reclassified to conform with the current period presentation. These reclassifications had no effect on previously reported losses, total assets or stockholders equity.


3.

Variable Interest Entity


The Company follows the guidelines in FASB Codification of ASC 810Consolidation”which indicates "a legal entity that is deemed to be a business need not be evaluated by a reporting entity to determine if the legal entity is a Variable Interest Entity (“VIE")” unless any one of four conditions exist: 

 

-

The reporting entity, its related parties, or both participated significantly in the design or redesign of the legal entity;

-

The legal entity is designed so that substantially all of its activities involve or are conducted on behalf of the reporting entity and its related parties;

-

The reporting entity and its related parties provide more than half of the total of the equity, subordinated debt, and other forms of subordinated financial support to the legal entity; or

-

The activities of the legal entity are primarily related to the securitizations or other forms of asset-backed financings or single-lessee leasing arrangements.

 



10




 A VIE is an entity that either (a) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support or (b) has equity investors who lack the characteristics of a controlling financial interest. A VIE is consolidated by its primary beneficiary. The primary beneficiary has both the power to direct the activities that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the VIE. If we determine that we have operating power and the obligation to absorb losses or receive benefits, we consolidate the VIE as the primary beneficiary, and if not, we do not consolidate. The Company has not identified any VIEs as of May 31, 2015.


Due to the application of the FASB codification it is management’s opinion that the Company is a VIE under the control of Phoenix Bio Pharmaceuticals and its shared related parties.  This is primarily due to the fact that the design of the Company was significantly participated in by related parties of Phoenix Bio Pharmaceuticals and because Phoenix Bio Pharmaceuticals is exclusively dependent upon the Company for the use, sale, and distribution of its products.

 

4.

Intangible Assets


Effective September 1, 2014, the Company changed its method of computing amortization from a sales percentage method to the straight-line method for the intangible assets. Based on Statement of Financial Accounting Standards , “Accounting Changes and Error Corrections” FASB ASC 250, the Company determined that the change in depreciation method from an sales percentage method to a straight-line method is a change in accounting estimate affected by a change in accounting principle. Per FASB ASC 250, a change in accounting estimate affected by a change in accounting principle is to be applied prospectively. The change is considered preferable because the straight-line method will more accurately reflect the pattern of usage and the expected benefits of such assets and provide greater consistency with the depreciation methods used by other companies in the Company's industry. The net book value of intangible assets acquired prior to September 1, 2014 with useful lives remaining will be depreciated using the straight-line method prospectively. During the three months ended May 31, 2015, the Company recorded amortization expense related to the license agreement totaling $216,800.


5.

License Agreement - Phoenix Bio Pharmaceuticals, Inc.


On March 14, 2014, the Company entered into a License Agreement with Phoenix Bio Pharmaceuticals Corporation (“Phoenix Bio Pharm”) where Phoenix Bio Pharm has granted exclusive rights to the Company for North America to exploit all presently owned and after-acquired intellectual property rights and know-how of Phoenix Bio Pharm for certain medical cannabinoid products and delivery systems for the treatment and management of illnesses.  The term of the License Agreement is Ten (10) years.  In consideration of the acquired license, the Company issued 26,000,000 shares of common stock to Phoenix Bio Pharm, valued at $13,000,000 based on a discounted cash flow model and the fair value of the assets acquired in the license agreement.  The Company will amortize the cost of the License Agreement over the ten year life.  As of February 28, 2015, the Company has recorded $1,300,000 of amortization expenses related to this License Agreement.  As of February 28, 2015, the Company has evaluated the value of the license agreement and has recorded an impairment loss in the amount of $6,500,000 reducing the book value of the license agreement to $6,500,000.   During the three months ended May 31, 2015, the Company recorded amortization expense related to the license agreement totaling $162,500.


On January 5, 2015, the Company entered into an additional license agreement with Phoenix Bio Pharmaceuticals Corporation to expand the territories covered under its original license agreement dated March 14, 2014.  Under the terms of the additional license agreement, the Company acquired the marketing rights to distribute products developed by Phoenix Bio Pharmaceuticals Corporation in Australia and New Zealand for ten years.  In exchange for the license, the Company has issued 250,000,000 restricted common shares at $0.016 per common share, for an aggregate value of $4,000,000.  This amount represents 33% over the market value on the date of execution of the license agreement.  The Company will begin to amortize the value of the license agreement upon the first sale in one of the two countries covered by the license, and will continue to amortize over the life of the license agreement.  On February 28, 2015, the Company evaluated the value of the license agreement and recorded an impairment loss in the amount of $2,000,000 reducing the book value of the license to $2,000,000.  During the three months ended May 31, 2015, the Company recorded amortization expense related to the license agreement totaling $50,000.



11




On July 8, 2015, the Company agreed to enter into a new licensing agreement with Phoenix Bio Pharmaceuticals Corporation. This new agreement shall replace the previous licensing agreements. The new licensing agreement shall be a non-exclusive, CBD only licensing agreement with Phoenix Bio Pharmaceuticals Corporation.  This license agreement operates for a twenty (20) year period.  Phoenix Bio Pharm has granted to the Company a license for the territory of North America, Australia and New Zealand to exploit all presently owned and after-acquired intellectual property rights and know-how of Phoenix Bio Pharm related to CBD based cannabinoid products and delivery systems for the treatment and management of illnesses.  Products falling under the license will include the following CBD products: transdermal patches, orally administered extracts, concentrated extracts for vaporizers and inhalers, sublingual and buccal dispensing products and extraction technology, suppository delivery systems, salves, creams, gels, lotions, and liquid extracts, and any products or active ingredients sourced through Phoenix Bio Pharm affiliates or third party suppliers or licensors.  The Company will also have the right to sublicense the rights acquired pursuant to the license agreement and to use and develop copyrighted materials of Phoenix Bio Pharm for marketing and distribution purposes.  


In addition to the new license agreement, on July 8, 2015 the Company has authorized an exchange agreement with Phoenix Bio Pharm where all existing common shares held by Phoenix Bio Pharm (276,000,000) are exchanged for 2,000,000 Series B Preferred Shares, par value $0.0001.  These preferred shares are entitled to 500 votes for each share held, and are convertible into 100 common shares at any time at the discretion of the holder.  


6.

Distribution Agreement – Go Kush, Inc.


On May 13, 2014, the Company entered into a distribution agreement with GoKush.com (www.gokush.com) that is part of a not-for-profit California Cooperative Corporation that is dedicated to providing safe and legal access to medical marijuana for patients throughout California.  Pursuant to the Agreement, amongst other things, GoKush agreed to become the online ordering platform for the ordering and re-stock of the Company’s products in California for a ten (10) year term and the Company has issued GoKush 200,000 shares of the Company’s restricted common stock valued at $172,000.  The Company will amortize the cost of the Distribution Agreement over the ten year life beginning October 2014 when on-line sales of product commenced.  As of February 28, 2015, the Company has recorded $17,200 of amortization expense related to this distribution agreement.  As of May 31, 2015, the Company recorded $4,300 of amortization expense related to this distribution agreement.


7.

CannaVest, Inc.


On December 23, 2014, the Company entered into a convertible promissory note for $1,200,000 with CannaVest Corp.  The note represents $1,200,000 worth of raw material inventory to be obtained from CannaVest Corp. to use in the Company’s cannabidiol product formulations.  The note accrues simple interest at a rate of 10% per annum and is due and payable in six months from the date of issue.  The note cannot be prepaid.  At any time, the outstanding principal amount of this note and all accrued but unpaid interest under this note can be converted into common shares at a price equal to the lesser of $0.02 per common share, the closing sale price, or the average of the lowest closing sale prices of the Company’s common shares during the five trading day period immediately preceding the date of such determination.  


Should the Company default on this convertible promissory note, all outstanding obligations payable by the Company are immediately due and payable.  In addition, CannaVest Corp. may exercise any other right, power or remedy permitted by law.  Further, upon even of default, all unpaid obligations under this note shall bear interest at the rate of 12% per annum.


Warrant Agreement


In connection with the convertible promissory note dated December 23, 2014, the Company subsequently issued warrants to purchase 20,000,000 common shares at an exercise price of $0.02 per common share to Kisha Spendthrift Trust, an affiliate of CannaVest Corp.  These warrants were issued on January 6, 2015.  In exchange for these warrants, the Company shall have access to the technical and management



12



staff of CannaVest Corp. for the development of products to be manufactured from cannabidiol sourced from CannaVest Corp.  The Company has valued these warrants using the black scholes option pricing model at $197,663 and recorded the expense related to the warrants as stock based compensation.


8.

MediHoldings, Inc.


On March 17, 2014, MediHoldings, Inc. (“MediHoldings”), a Colorado corporation, was formed as a wholly-owned subsidiary of the Company.


9.

MediSales (CA), Inc.

On June 27, 2014, MediSales (CA), Inc. (“MediSales”), a California corporation, was formed as a wholly-owned subsidiary of the Company.


10.

Related Party Transactions


Martin Tindall


Mr. Martin Tindall, assists the Company with business development activities through the Advisory Services Agreement with Kronos as discussed below.  Mr. Tindall serves as an Executive Director of Kronos.  Mr. Tindall serves as Interim CEO and a Director of Phoenix Pharms Capital Corporation.  Mr. Tindall also serves as a director of Phoenix Bio Pharmaceuticals Corporation.


Kronos International Investments Ltd. (“Kronos”)


Sublease Agreement:  Effective March 1, 2014, the Company entered into a Sublease Agreement with Kronos International Investments, Ltd for a four (4) year term.  The monthly sublease rent is $2,500 per month.  In March 2014, the Company paid a security deposit of $1,250 related to the sublease.   During three months ended May 31, 2015, the Company recorded rent expense payable to Kronos totaling $7,500.


Advisory Services: Effective March 1, 2014, the Company engaged Kronos to provide Advisory Services for a monthly retainer fee of $10,000 per month.  The advisory services include and are not limited to accounting and corporate compliance, business development and strategic planning services, corporate advisory and operational oversight.   During the year ended February 28, 2015, the Company recorded expenses related to the Advisory Services totaling $120,000.  Between March 1, 2015 and May 31, 2015, expenses related to the Advisory Services totaled $30,000.


Phoenix Bio Pharmaceuticals, Inc. (“Phoenix Bio Pharm”)


License Agreement:  On March 14, 2014, the Company entered into a License Agreement with Phoenix Bio Pharm where it has granted exclusive rights to the Company for North America to exploit all presently owned and after-acquired intellectual property rights and know-how of Phoenix Bio Pharm for certain medical cannabinoid products and delivery systems for the treatment and management of illnesses.  The term of the License Agreement is Ten (10) years.  In consideration of the acquired license, the Company issued 26,000,000 shares of common stock to Phoenix Bio Pharm, valued at $13,000,000 based on a discounted cash flow model and the fair value of the assets acquired in the license agreement. The Company will amortize the cost of the License Agreement over the ten year life.  As of February 28, 2015, the Company has recorded $1,300,000 of amortization expense related to this agreement. As of February 28, 2015, the Company has evaluated the value of the license agreement and has recorded an impairment loss in the amount of $6,500,000 reducing the book value of the license agreement to $6,500,000.  During the three months ended May 31, 2015, the Company recorded amortization expense related to the license agreement totaling $162,500.


On January 5, 2015, the Company entered into an additional license agreement with Phoenix Bio Pharmaceuticals Corporation to expand the territories covered under its original license agreement dated March 14, 2014.  Under the terms of the additional license agreement, the Company acquired the marketing rights to distribute products developed by Phoenix Bio Pharmaceuticals Corporation in Australia and New Zealand for ten years.  In exchange for the license, the Company has issued 250,000,000 restricted common



13



shares at $0.016 per common share, for an aggregate value of $4,000,000.  This amount represents 33% over the market value on the date of execution of the license agreement.  The Company will begin to amortize the value of the license agreement upon the first sale in one of the two countries covered by the license, and will continue to amortize over the life of the license agreement.  On February 28, 2015, the Company has evaluated the value of the license agreement and has recorded an impairment loss in the amount of $2,000,000 reducing the book value of the license to $2,000,000.    During the three months ended May 31, 2015, the Company recorded amortization expense related to the license agreement totaling $50,000.


On July 8, 2015, the Company agreed to enter into a new licensing agreement with Phoenix Bio Pharmaceuticals Corporation. This new agreement shall replace the previous licensing agreements. The new licensing agreement shall be a non-exclusive, CBD only licensing agreement with Phoenix Bio Pharmaceuticals Corporation.  This license agreement operates for a twenty (20) year period.  Phoenix Bio Pharm has granted to the Company a license for the territory of North America, Australia and New Zealand to exploit all presently owned and after-acquired intellectual property rights and know-how of Phoenix Bio Pharm related to CBD based cannabinoid products and delivery systems for the treatment and management of illnesses.  Products falling under the license will include the following CBD products: transdermal patches, orally administered extracts, concentrated extracts for vaporizers and inhalers, sublingual and buccal dispensing products and extraction technology, suppository delivery systems, salves, creams, gels, lotions, and liquid extracts, and any products or active ingredients sourced through Phoenix Bio Pharm affiliates or third party suppliers or licensors.  The Company will also have the right to sublicense the rights acquired pursuant to the license agreement and to use and develop copyrighted materials of Phoenix Bio Pharm for marketing and distribution purposes.  


In addition to the new license agreement, on July 8, 2015 the Company has authorized an exchange agreement with Phoenix Bio Pharm where all existing common shares held by Phoenix Bio Pharm (276,000,000) are exchanged for 2,000,000 Series B Preferred Shares, par value $0.0001.  These preferred shares are entitled to 500 votes for each share held, and are convertible into 100 common shares at any time at the discretion of the holder.  


Related Party Loan:  Between March 1, 2014 and May 31, 2015, the Company has advanced Phoenix Bio Pharm in the form of a loan in the amount of $195,860. These transactions were originally recorded as prepayment on inventory and have subsequently been reclassified as loans.


Product Development - Between March 1, 2014 and May 31, 2015, the Company has recorded product development expenses paid to Phoenix Bio Pharm totaling $15,000.


Phoenix Pharms Capital Corporation (“Phoenix Pharms”)


Loan Funding:  From time to time, Phoenix Pharms has loaned the Company short term loans to cover its working capital needs.  Between March 1, 2014 and February 28, 2015, Phoenix Pharms advanced the Company $10,029.  The loan was paid in full during the year ended February 28, 2015, and the Company has no further obligation under this loan.


Expense pass-through:  From time to time, the Company and Phoenix Pharms share pro-rata in certain expenses for shared resources, typically for shared travel and consulting services.  During the year ended February 28, 2015, Phoenix Pharms invoiced pass through expenses to the Company totaling $30,421.   At February 28, 2015, the Company has applied the outstanding balance of $10,525 of pass through expenses against the related party loan as discussed below.  During the three months ended March 31, 2015, there were no expenses for shared resources between the Company and Phonenix Pharms.


Related Party Loan:  On September 18, 2014, the Company advanced Phoenix Pharms a total of $85,000 as a short term loan.  The loan bears a simple interest rate of 8% and was due and payable on November 30, 2014.  As of May 2015, the Company has received principal payments totaling $36,425 including cash payments of $28,500, and expense offset $7,925.  As of May 31, 2015, accrued interest on this loan is $3,800.  As of May 31, 2015, the outstanding balance due the Company on this related party loan is $52,375




14



New Product Development Agreement:  On October 23, 2014, the Company entered into a New Product Development Agreement (the “NPD Agreement”) with Phoenix Pharms for use of Phoenix Pharms’ expertise in identifying new product business development opportunities related to expanding the Company’s product offerings.  The NPD Agreement was for a period of four months at $16,000 per month.  As of February 28, 2015, the Company had paid $64,000 towards the NPD Agreement and has no further obligations under the NPD Agreement.


Russell Stone:  Mr. Russell Stone, the Company’s Chief Operating Officer, holds less than 5% of the outstanding common shares of Phoenix Pharms Capital Corporation indirectly through a trust.


Lewis “Spike” Humer:


Mr. Humer is the interim Chief Executive Officer and a director of the Company. Mr. Humer is a director of Phoenix Pharms Capital Corporation and Phoenix Bio Pharmaceuticals Corporation. Previously, Mr. Humer served as CEO of Phoenix Bio Pharmaceuticals and CEO of Phoenix Pharms Capital Corporation. As of August 2014, the Company began paying Mr. Humer a consulting fee of $1,500 per week.  As of May 31, 2015, the Company has accrued a related party payable to Mr. Humer of $49,500.


11.

Common Stock


The Company has authorized 1,000,000,000 shares of its common stock, $0.001 par value.  On February 28, 2015, there were 361,322,812 shares of common stock issued and outstanding 53,000,000 shares of common stock reserved for issuance.  Effective August 23, 2013, the Company filed a Certificate of Change with the Nevada Secretary of State to give effect to a forward split of our authorized, issued and outstanding shares of common stock on a 10 new for 1 old basis and, consequently, an increase to our authorized share capital from 100,000,000 to 1,000,000,000 common shares, with a par value of $0.001 per share.


On February 27, 2014, the Company issued 5,000,000 shares to its Chief Executive Officer, who agreed to retire the 5,000,000 common shares and return them to the unissued, authorized common shares of the Company in exchange for a stock option.


On March 13, 2014, the Company issued 200,000 shares of its restricted common stock to GoKush, Inc. as described in Note 5.  On July 1, 2014, these restricted shares were issued.


On March 14, 2014, the Company issued 26,000,000 shares of its restricted common stock to Phoenix Bio Pharm as described in Note 5. On July 1, 2014, these restricted shares were issued.


On January 23, 2015, the Company issued 250,000,000 shares of its restricted common stock to Phoenix Bio Pharm as described in Note 5.


During the year ended February 28, 2015, the Company sold 440,330 shares of its restricted common stock to accredited investors for consideration for proceeds of $375,925.  


On December 9, 2014, the Company issued 5,000,000 shares of its common stock as compensation under two consulting agreements, each for one-year of marketing services. The Company values the issuance of shares at $119,666, which will be amortized over the twelve months beginning November 2014 to October 2015.


On December 16, 2014, the Company issued 6,666,667 shares of its common stock to YP Holdings for $600,000 under a Securities Purchase Agreement as discussed below.


During the year ended February 28, 2015, the Company issued 10,015,845 shares of common stock to Typenex from the conversion of a total principal amount of $38,500 under a Convertible Notes Agreement as discussed in Note 13 below.




15



Between March 1, 2015 and May 31, 2015, the Company issued 40,559,441 shares of common stock to Typenex from the conversion of a total principal amount of $29,000 under a Convertible Notes Agreement and 22,045,006 shares of Common Stock to Typenex related to true-up notices received from the noteholder, as discussed in Note 13 below.



12.

Common Stock Options


2014 Stock Awards Plan:  Effective June 4, 2014, the Board of Directors adopted the 2014 Stock Awards Plan (the “Plan”) under which the Company is authorized to grant employees, directors, and consultants (“Participant”) incentive and non-qualified stock options.  Pursuant to the Plan, the Company is authorized to grant an aggregate of 10,000,000 stock options to purchase common stock of the Company.  The stock option price and vesting terms are determined by the Board of Directors or Compensation Committee (the “Committee”), and evidenced by a stock option agreement extended to the Participant.  The options granted generally terminate five years from the date of issuance.


Effective February 27, 2014, the Company’s former CEO and Director was granted incentive stock options to purchase 5,000,000 common shares of the Company at $0.34 per common share valued at $551,363.   Immediately upon the grant of the option, options to purchase 2,500,000 common shares vested.  The option to purchase the remaining 2,500,000 common shares shall vest in equal amounts over the next three years ending February 27, 2017.  As of February 18, 2015, the unvested options totaling 2,500,000 were cancelled upon resignation by the holder.  The remaining 2,500,000 vested options are exercisable until February 17, 2016.


The following table describes stock options outstanding and exercisable at May 31, 2015:


Options Outstanding and Exercisable

 

 

Options Outstanding

Options Exercisable

 

Range of Exercise Prices

Number

Price

Life

Number

Price

Life

 

 

 

 

 

 

 

 

 

$0.34

   2,500,000

$ 0.34

5

   2,500,000

$0.34

0.88

 

 

   5,000,000

 

 

   2,500,000

 

 



13.

Convertible Promissory Note


On June 24, 2014, the Company entered into a securities purchase agreement with Typenex Co-Investment, LLC, a Utah limited liability company.  Under this agreement, the Company has issued a secured convertible promissory note in the original principal amount of $1,105,000, deliverable in eleven tranches (the “Typenex Note”).  On the closing date, Typenex delivered the initial cash purchase price of $150,000, plus any interest, costs, fees or charges accrued under the Typenex Note, including the original issue discount of $20,000.  The outstanding principal and accrued and unpaid interest on the Typenex Note is convertible at any time into shares of common stock at a conversion price of $1.00, subject to adjustment as described below (the “Lender Conversion Price”).  As of June 24, 2014, the Company evaluated the Beneficial Conversion Feature under this note and determined as of June 24, 2014, there was no beneficial conversion feature as the Lender Conversion Price exceeded the fair market value of the Company’s common stock.


As of November 30, 2014, the company has received net proceeds of $135,000 related to this convertible promissory note, representing $150,000 less financing costs of $15,000.  




16



Each subsequent tranche will be in the amount of $85,000, plus any interest, costs, fees or charges accrued thereon under the terms of the Typenex Note, including the original issuer discount of $8,500.  Each tranche will be accompanied by its own secured investor note (the “Investor Notes”).  The Company has agreed to pay $5,000 to cover Typenex’s legal fees, accounting costs, due diligence, monitoring and other transaction costs in connection with the purchase and sale of the Typenex Note.  All loans received bear an interest rate of 10% per annum.  The loan is due 23 months after the initial cash purchase price is delivered to the Company.  Typenex has pledged a 40% membership interest in Typenex Medical, LLC to secure its obligations under all of the Typenex Notes.


A warrant to purchase shares of the Company has been issued to Typenex as of June 24, 2014.  This warrant grants Typenex the ability to purchase a number of fully paid and non-assessable shares of the Company’s stock, par value $0.001, equal to $552,500 divided by the market price.  This warrant is issued pursuant to the terms of the securities purchase agreement as described above.


Provided there is an outstanding balance, the Company will pay an installment amount equal to $61,389 plus any accrued and unpaid interest on the installment due date, which is six months after the initial loan disbursement.  This installment amount is the maximum that must be paid on any given installment due date, and is limited by the amounts owed.  This amount can be converted at the lesser of either the lender conversion price or at 70% of the average of the three lowest closing bid prices in the 20 trading days immediately preceding the applicable conversion.  Should the average trading price be less than $0.35 during any such period, then the conversion factor will be reduced to 65% for all future conversion, additionally the conversion price will be reduced by 5% if the Company’s common stock is not available for DWAC.  Should the Company decide to prepay this amount, there is a prepayment premium equal to 125% of the outstanding balance of the Typenex Note.  Should the prepayment premium not be paid within 2 days of the prepayment notice, the Company forfeits its right to prepay the Typenex Note.


Under this agreement, Typenex has the right at any time after the purchase price date until the outstanding balance has been paid in full to convert any or all of the outstanding balance into shares of the Company’s common stock under the following formula: the number of shares issued equals the amount being converted divided by $1.  These shares must be delivered to Typenex within three trading days of the conversion notice being given to the Company.  Should any shares be sold to Typenex or any third party at a value that is less than the effective lender conversion price, then the lender conversion price will be reduced to equal such lower issuance price.  The effective lender conversion price will also be adjusted as needed upon any forward or reverse split of the Company’s shares.  Should the Company fail to deliver the shares in a timely manner, a late fee of the greater of $500 per day and 2% of the applicable lender conversion share value rounded to the nearest multiple of $100 will be assed for each day after the third that the Company is late (though not exceeding 200% of the applicable lender conversion share value.


In the event of a default, the Typenex Note may be accelerated by Typenex by providing written notice to the Company.  The outstanding balance is immediately due and payable at the greater of the outstanding balance divided by the installment conversion price, or the default effect, which is calculated by multiplying the conversion eligible outstanding balance by 15% for each major default or 5% for each minor default and then adding the resulting product to the outstanding balance as of the date of default.  In addition, an interest rate of the lesser of 22% per annum (or the maximum rate permitted under law) will be applied to the outstanding balance.  Typenex is prohibited from owning more than 4.99% of the Company’s outstanding shares, unless the market capitalization of the Company’s common stock is less than $10,000,000, in which case Typenex is prohibited from owning more than 9.99% of the Company’s outstanding shares.


On a date that is 23 trading days from each date that the Company delivers conversion shares to Typenex, there is a true-up date in which the Company will deliver additional shares if the installment conversion price on that date is less than the installment conversion price used in the applicable installment notice.  These additional shares will be equal to the difference between the number of shares that would be delivered to Typenex at the time of the true-up date and the amount originally delivered.\




17



Notice of Default – on January 9, 2015, the Company received a Notice of Default from Typenex under the Convertible Promissory Note described in Note 12 above.  In the letter, the noteholder described two major defaults where the Company failed to meet its obligations under the Typenex Note.  The first default was triggered on December 16, 2014 related to a request from the noteholder to increase the number of shares reserved for issuance under the Typenex Note on the books of the Company’s transfer agent.  The second default was triggered on December 27, 2014, when the Company failed to make its first installment payment of $61,888.89 according to the terms of the Typenex Note.  Each default triggered a penalty of 115% of the then outstanding principal and accrued and unpaid interest and triggers the interest rate to 22%. As of January 9, 2015, the outstanding principal, accrued interest and accrued penalties on the Typenex Note was $239,483.61.  On January 23, 2015, the Company satisfied its first default by instructing its transfer agent to reserve a total of 50,925,000 shares of common stock covering the potential conversion of the original principal value of the Typenex Note ($1,100,000) plus common shares issuable upon the exercise of warrants underlying the Typenex Note.  On February 12, 2015, the Company received a notice from Typenex waiving the penalties on the December 16, 2014 default and waived $26,755.16 of penalies imposed on December 16, 2014.  Under the terms of the Typenex Note, the Lenders Conversion Price will reset to 60% of the average of the three lowest closing bid prices of the Company’s common stock in the 20 days prior to conversion.  As of December 16, 2014, the Company has re-evaluated the beneficial conversion feature under the Typenex Note and has recorded a liability for the beneficial conversion feature totaling $230,392.  This discount will be amortized over the remaining life of the Typenex Note.


On February 3, 2015, the Company exercised its borrower offset right under the Typenex Note.  Through this offset right, the Company is entitled to deduct and offset any amount owing by Typenex under the initial securities purchase agreement dated June 24, 2014 from any amount owed by the Company under the note.  The combined balance of the secured investor notes and the investor notes as of the January 28, 2015 offset date was $890,800.  In addition, the note balance prior to the offset included $85,000 of unearned original issue discounts.


In conjunction with the Company’s exercise of its offset right, the Company and Typenex each hereby acknowledge that the secured investor notes and the investor notes were offset against the Company balances owed under the note as of the offset date, and as a result thereof, each of the secured investor notes and the investor notes is deemed to have been paid in full and are now cancelled and terminated and the Company balance owed under the note has been reduced to $218,028 as of the offset date.  Additionally, the Company specifically acknowledges that Typenex has no further obligations under any of the secured investor notes and investor notes.


Further, the Company acknowledges that the investor pledge agreement, dated June 24, 2014, and all security interests granted thereunder with respect to the collateral (as defined in the investor pledge agreement have terminated and all such security interests shall be deemed released.


Notice of Conversion – Between January 15, 2015 and May 31, 2015 the Company has received conversion notices from its noteholder on the Typenex Note to convert principal on the Typenex Note into shares of the Company’s Common Stock at a market price as defined by the Typenex Note.  The table below lists the conversion activity and the shares of common stock issued pursuant to each conversion:



Date of Notice


Principal

Market Price*

Conversion Shares

True Up Shares

Total Shares Issued

January 15, 2015

$20,000

$0.00712

2,808,989

-

2,808,989

February 5, 2015

$18,500

$0.00257

7,206,856

-

7,206,856

 

 

 

 

 

 

March 2, 2015

$14,000

$0.001393

10,050,257

-

10,050,251

March 31, 2015

-

-

-

22,045,006

22,045,006

May 14, 2015

$15,000

$0.000715

20,979,021

9,530,169

30,509,109

Total

$67,500

 

66,945,123

31,575,175

98,502,298


*Market Price as defined by the Typenex Note




18




At May 31, 2015 and February 28, 2015, convertible notes payable included the following:


 

May 31,
2015

 

February 28, 2015

Outstanding principal balance on Typenex Note:

$

102,500

 

$

131,500

Unamortized beneficial conversion feature

 

(71,900)

 

 

(123,633)

Unamortized original issue discount

 

(5,257)

 

 

(7,867)

Accrued interest

 

(87,051)

 

 

76,117

Net Convertible Notes Payable

$

112,394

 

$

76,117



14.

Promissory Note


On August 29, 2014, the company entered into a Promissory Note with YP Holdings, LLC for gross proceeds $100,000 as an advance towards the Securities Purchase Agreement dated September 17, 2014 described in Note 13 (the “YP Note”).  The YP Note matures in 60-days and bears interest of 12% per annum.  During the nine months ended November 30, 2014, the Company recorded $18,000 in financing fees related to the YP Note.  On September 17, 2014, the YP Note converted to equity in connection with the Securities Purchase Agreement dated September 17, 2014 as discussed below.  The Company has no further obligation under the YP Note.


15.

Securities Purchase Agreement


On September 17, 2014, the Company entered into a securities purchase agreement with YP Holdings, LLC.  YP Holdings, LLC has no material relationship with the Company other than with respect to this agreement.


Under this agreement, the purchasers will be purchasing units of one common share and two warrants to purchase common shares for $0.09 per unit, for a total of $600,000.  The common shares have a par value of $0.001 per share.  The warrants are exercisable for five years from the date of issuance and shall have an initial exercise price equal to $0.20.  As a result of this agreement, the Company will issue 6,666,667 common shares and 13,333,334 warrants to the purchasers.  On August 29, 2014 and September 17, 2014,

the Company received gross proceeds of $100,000 and $500,000, respectively and has recorded financing fees of $18,000 and $52,000, related to this agreement.  The Company has valued these warrants using the Black Scholes option pricing model and has recorded expense related to the issuance of these warrants totaling $552,500 during the year ended February 28, 2015.


The warrants can be exercised by paying the price for shares as stipulated by the warrant, or through cashless exercise, through which the purchaser will be issued a number of shares equal to the number of warrant shares applied to the subject exercise multiplied by the current market price on the date of conversion minus the exercise price on that date.  This total is then divided by the current market price on the date of conversion.  The cashless exercise may only be exercised after six months have passed from the original issuance of the warrants.


The purchaser has waived the clause prohibiting conversion of warrants into common shares if that would result in the purchaser owning in excess of 4.99% of the outstanding shares.  A second clause prohibits the conversion of warrants if the purchaser owns in excess of 9.99% of the outstanding common shares.  This clause can be waived by the purchaser providing notice of waiver.


The Company has agreed to pay a flat $20,000 to YP Holdings, LLC to reimburse them for the fees and expenses incurred by it in connection with its due diligence review of the Company and the preparation, negotiation, executive, delivery and performance of the agreement.




19



The two parties also entered into a registration rights agreement.  Under this agreement, the Company will prepare and file a registration statement on Form S-1 in order to register all shares issued under the securities purchase agreement.  The Company will keep the registration statement continuously effective for a period of two years following the effective date of the registration statement.  The Company will pay all reasonable fees and expenses incurred with respect to this agreement.  Unless previously agreed to in writing, the Company may not register any shares other than those intended to be sold under this agreement.


Should the Company fail to comply with the registration rights agreement, the Company agrees to pay liquidated damages to YP Holdings, LLC equal to 3% of the purchase price of the common shares paid by the purchaser for the first 30 day period, and 2% of such purchase price for each subsequent 30 day period.  These payments are payable upon demand in cash.


Pursuant to the registration rights agreement, the Company agreed to several lock-up agreements between itself and four shareholders of the Company: Phoenix Bio Pharmaceuticals Corporation, Ronald Lusk, Lewis Humer, and Caduceus Industries LLC.  Under these agreements, each shareholder has agreed that they will not offer, pledge, sell, contract to sell, grant any options for sale or transfer, distribute or dispose of, directly or indirectly, any shares of the Company for a 90 day period following the date that the registration statement is declared effective.


Additionally, on September 16, 2014, the Company issued warrants to purchase 533,333 common shares to consultants for services rendered.  The warrants expire five years from the date of issuance and are exercisable for $0.20 per share.  The Company has valued these warrants using the Black Scholes option pricing model and has recorded expense related to the issuance of these warrants totaling $104,578 during the year ended February 28, 2015.


16.

Subsequent Events


Appointment of Officers:  On July 8, 2015, Mr. Lewis Humer was appointed as Interim Chief Executive Officer of the Company, and Mr. Russell Stone was appointed as Interim Chief Financial Officer of the Company.


License Agreement:  On July 8, 2015, the Company agreed to enter into a new licensing agreement with Phoenix Bio Pharmaceuticals Corporation. This new agreement shall replace the previous licensing agreements. The new licensing agreement shall be a non-exclusive, CBD only licensing agreement with Phoenix Bio Pharmaceuticals Corporation.  This license agreement operates for a twenty (20) year period.  Phoenix Bio Pharm has granted to the Company a license for the territory of North America, Australia and New Zealand to exploit all presently owned and after-acquired intellectual property rights and know-how of Phoenix Bio Pharm related to CBD based cannabinoid products and delivery systems for the treatment and management of illnesses.  Products falling under the license will include the following CBD products: transdermal patches, orally administered extracts, concentrated extracts for vaporizers and inhalers, sublingual and buccal dispensing products and extraction technology, suppository delivery systems, salves, creams, gels, lotions, and liquid extracts, and any products or active ingredients sourced through Phoenix Bio Pharm affiliates or third party suppliers or licensors.  The Company will also have the right to sublicense the rights acquired pursuant to the license agreement and to use and develop copyrighted materials of Phoenix Bio Pharm for marketing and distribution purposes.

 

In addition to the new license agreement, on July 8, 2015 the Company has authorized into an exchange agreement with Phoenix Bio Pharm where all existing common shares held by Phoenix Bio Pharm (276,000,000) are exchanged for 2,000,000 Series B Preferred Shares, par value $0.0001.  These preferred shares are entitled to 500 votes for each share held, and are convertible into 100 common shares at any time at the discretion of the holder.  




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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.


Overview

The Company was incorporated in the State of Nevada on April 21, 2009, under the name Mokita Exploration, Ltd.  On February 5, 2010, the Company filed a Certificate of Amendment to the Articles of Incorporation changing our name to Mokita, Inc.  On February 27, 2014, there was a change of control of the Company.  On February 28, 2014, our board of directors and a majority of holders of the Company’s voting securities approved a change of name of the Company to MediJane Holdings Inc.  A Certificate of Amendment to effect the change of name was filed and became effective with the Nevada Secretary of State on March 4, 2014.  A Certificate of Correction was subsequently filed with the Nevada Secretary of State on March 6, 2014 to correct a spelling error in the Company’s new name.  These amendments have been reviewed by FINRA and were approved for filing with an effective date of March 10, 2014.  The name change became effective with the Over-the-Counter Bulletin Board at the opening of trading on March 10, 2014 under our new ticker symbol "MJMD".


After the change of control on February 27, 2014, the Company became a medical delivery systems company with a pharmaceutical approach to cannabinoid treatment of various illnesses with medical marijuana, currently being launched in Colorado and California.  As of July 8, 2015, we have changed our business to only focus on Cannabidiol (CBD) products.  CBD is a non-psychotropic cannabinoid that is not restricted as part of the U.S. Controlled Substance Act (CSA).  CBD is defined under the 2014 U.S. Farming Bill to be derivatives of the Industrial Hemp plant that contain less than 0.3% tetra-hydro-cannabinol (THC).  We will contract out the manufacturing of the products. Phoenix Bio Pharmaceuticals Corporation and other groups may manufacture our products under our license agreement.


Recent Developments


On July 8, 2015, the Company agreed to enter into a new licensing agreement with Phoenix Bio Pharmaceuticals Corporation. This new agreement shall replace the previous licensing agreements. The new licensing agreement shall be a non-exclusive, CBD only licensing agreement with Phoenix Bio Pharmaceuticals Corporation.  This license agreement operates for a twenty (20) year period.  Phoenix Bio Pharm has granted to the Company a license for the territory of North America, Australia and New Zealand to exploit all presently owned and after-acquired intellectual property rights and know-how of Phoenix Bio Pharm related to CBD based cannabinoid products and delivery systems for the treatment and management of illnesses.  Products falling under the license will include the following CBD products: transdermal patches, orally administered extracts, concentrated extracts for vaporizers and inhalers, sublingual and buccal dispensing products and extraction technology, suppository delivery systems, salves, creams, gels, lotions, and liquid extracts, and any products or active ingredients sourced through Phoenix Bio Pharm affiliates or third party suppliers or licensors.  The Company will also have the right to sublicense the rights acquired pursuant to the license agreement and to use and develop copyrighted materials of Phoenix Bio Pharm for marketing and distribution purposes.  


In addition to the new license agreement, on July 8, 2015 the Company has authorized into an exchange agreement with Phoenix Bio Pharm where all existing common shares held by Phoenix Bio Pharm (276,000,000) are exchanged for 2,000,000 Series B Preferred Shares, par value $0.0001.  These preferred shares are entitled to 500 votes for each share held, and are convertible into 100 common shares at any time at the discretion of the holder.  


Consolidated Results of Operations


On March 1, 2014, the Company discontinued its previous operations as an oil and gas enterprise to pursue its new operations as a medical marijuana sales and distribution company.  The results of operations for the three months ended May 31, 2015 represent results of the new business.  The results of operations for the comparable period have been recorded as discontinued operations.


Revenues for the three months ended May 31, 2015 and 2014 were $2,435 and $Nil, respectively.  Cost of Sales for the three months ended May 31, 2015 and 2014 were $898 and $Nil, respectively.  Revenues and related expenses are primarily from the sale of CBD products.  We had a gross profit of $1,537 for the three months ended May 31, 2015 and $Nil for the three months ended May 31, 2014.



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Amortization expense for the three months ended May 31, 2015 and 2014 were $216,800 and $Nil, respectively.  Amortization expense represents amortization expense related to the Company’s licensing and distribution agreements.


Product development expense three months ended May 31, 2015 and 2014 were $Nil and $15,000, respectively.  Product development expenses in the 2014 period represent payments to Phoenix Bio Pharm for the product development of branded products of the Company.


Sales and marketing expenses for the three months ended May 31, 2015 and 2014 were $18,039 and $91,487, respectively.  The decrease in Sales and Marketing expenses in the 2015 period are due primarily to activity in the 2014 period to grow the Company’s sales organization.  During the 2015 period, sales and marketing expenses represent continued efforts to promote the Company’s products.


Operations expenses for the three months ended May 31, 2015 and 2014 were $38,045 and $19,032, respectively. The increase in operations expense in the 2015 period are primarily due to full time effort by Mr. Stone.


General and administrative expenses for the three months ended May 31, 2015 and 2014 were $48,854 and $9,813, respectively. General and administrative expenses generally include costs for running the Company’s administrative office.


Professional fees for the year ended three months ended May 31, 2015 and 2014 were $85,886 and $81,792, respectively.  Professional fees consist of cost of financing, legal, accounting, consulting and advisory services.  Included in professional fees during the three months ended May 31, 2015 are $50,000 of non-cash expense related to consulting fees paid in stock.


Lease operating expenses for the three months ended May 31, 2015 and 2014 totaled $7,500.


Other income and expense for the three months ended May 31, 2015 and 2014 were net expense of $94,411 and $722, respectively.  Other expense during the three months ended May 31, 2015 include non-cash interest expense for the amortization of discounts on notes payable totaling $54,343, interest income of $1,113, and interest expense of $41,181.


Net loss for the three months ended May 31, 2015 and 2014 were $507,998 and $223,902, respectively.


Net gain from discontinued operations for the three months ended May 31, 2014 was $722.


We have not attained profitable operations and are dependent upon the commencement of the sale of our products and obtaining financing to increase the production and development of our products.  For these reasons, our auditors stated in their report on our audited financial statements that they have substantial doubt that we will be able to continue as a going concern without further financing.


Liquidity and Capital Resources

At May 31, 2015, the Company had a cash balance of $5,445 compared with $9,400 at February 28, 2015.  The decrease in cash during the three months ended May 31, 2015 is attributable to cash used for operating expenses.


We believe that our cash on hand may not be sufficient for continued operations and may have to seek out additional funding to meet our inventory and operational needs.  We are currently seeking financing opportunities in the form of equity and/or debt financing to support our operational goals.




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Cash flow from Operating Activities.  During the three months ended May 31, 2015, the Company incurred a net loss of $507,998.  We had the following adjustments to reconcile net loss to net cash used in operating activities: an increase of $216,800 due to amortization, an increase of $54,343 due to non-cash amortization of discount on convertible notes payable, and an increase of $50,000 due to non-cash stock option compensation.  We had the following changes in operating assets and liabilities: an increase of $2,187 due to accounts receivable, an increase of $5,821 due to inventory, and an increase of $104,892 due to accounts payable and accruals.  As a result, we had net cash used for operating activities of $73,955 for the three months ended May 31, 2015.


For the three months ended May 31, 2014, the Company incurred a net loss of $233,902, and a loss from discontinued operations of $722.  We had the following changes in operating assets and liabilities: a decrease of $153,750 due to prepaid expense and deposits and an increase of $53,541 due to accounts payable and accruals.  As a result, we had net cash used for operation activities due to current operations of $324,833 and net cash provided by operating activities due to discontinued operations of $302 for the three months ended May 31, 2014.


Cash flow from Investing Activities.  During the three months ended May 31, 2015, the Company received $10,000 from investing activities, representing payments on its related party loan to Phoenix Pharms Capital.  We did not pursue any investing activities during the three months ended May 31, 2014.


Cash flow from Financing Activities.  During the three months ended May 31, 2015, the Company recorded a net amount of $60,000 from financing activities related to the Company’s amounts due to related parties increasing by $60,000 during the three months ended May 31, 2015.


During the three months ended May 31, 2014, the Company received $20,933 due to related parties and received $300,925 as proceeds from the issuance of common shares.  As a result, we had net cash provided by financing activities due to continuing operations of $321,858 for the three months ended May 31, 2014.


Going Concern

We have not attained profitable operations and are dependent upon the commencement of the sale of our products and obtaining financing to increase the production and development of our products.  For these reasons, our auditors stated in their report on our audited financial statements that they have substantial doubt that we will be able to continue as a going concern without further financing.


Future Financings

We will continue to rely on equity sales of our common shares in order to continue to fund our business operations.  Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund planned acquisitions and exploration activities.


Off-Balance Sheet Arrangements

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.


Critical Accounting Policies

Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.


We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. A complete summary of these policies is included in the notes to our financial statements. In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.



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Use of Estimates.  The preparation of financial statements in conformity with 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.  The Company regularly evaluates estimates and assumptions related to the deferred income tax asset valuation allowances.  The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.


Stock-based Compensation.   The Company records stock-based compensation in accordance with ASC 718, Compensation – Stock Based Compensation and ASC 505-50 - Equity-Based Payments to Non-Employees. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.


Revenue Recognition.   The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin Topic 13 when persuasive evidence of an arrangement exists and delivery has occurred, provided the fee is fixed or determinable and collection is probable. The Company assesses whether the fee is fixed and determinable based on the payment terms associated with the transaction. If a fee is based upon a variable such as acceptance by the customer, the Company accounts for the fee as not being fixed and determinable. In these cases, the Company defers revenue and recognizes it when it becomes due and payable. Up-front engagement fees are recorded as deferred revenue and amortized to income on a straight-line basis over the term of the agreement, although the fee is due and payable at the time the agreement is signed or upon annual renewal. Payments related to substantive, performance-based milestones in an agreement are recognized as revenue upon the achievement of the milestones as specified in the underlying agreement when they represent the culmination of the earnings process.


The Company assesses the probability of collection based on a number of factors, including past transaction history with the customer and the current financial condition of the customer.  If the Company determines that collection of a fee is not reasonably assured, revenue is deferred until the time collection becomes reasonably assured. Significant management judgment and estimates must be made and used in connection with the revenue recognized in any accounting period.  Material differences may result in the amount and timing of our revenue for any period if our management made different judgments or utilized different estimates.


Recent Accounting Pronouncements

The recent accounting pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.


Contractual Obligations

As a “smaller reporting company”, we are not required to provide tabular disclosure obligations.


Item 3.  Quantitative and Qualitative Disclosures About Market Risk


Not applicable for smaller reporting companies.


Item 4.  Controls and Procedures


During the period ended May 31, 2015, there were no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.




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Evaluation of Disclosure Controls and Procedures


Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of May 31, 2015.  We do not have sufficient segregation of duties within accounting functions, which is a basic internal control.  Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible.  However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals.  Based on this evaluation, our chief executive officer and chief financial officer have concluded such controls and procedures to be not effective as of May 31, 2015 to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms and to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.


Remediation Plan


We will aggressively recruit experienced professionals to ensure that we include all necessary disclosures in our filings with the Securities and Exchange Commission. Although we believe that this corrective step will enable management to conclude that the internal controls over our financial reporting are effective when the staff is trained, we cannot assure you these steps will be sufficient. We may be required to expend additional resources to identify, assess and correct any additional weaknesses in internal control.


We are unable to remedy our controls related to the inadequate segregation of duties until we receive financing to hire additional employees.





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PART II – OTHER INFORMATION


Item 1.   Legal Proceedings

None


Item 1A.  Risk Factors  

Not applicable for smaller reporting companies


Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds

None


Item 3.   Defaults Upon Senior Securities.

None


Item 4.   Mine Safety Disclosures

Not Applicable


Item 5.   Other Information

None


Item 6.   Exhibits


Exhibit 31* - Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32* - Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS**   XBRL Instance Document

101.SCH**   XBRL Taxonomy Extension Schema Document

101.CAL**   XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF**    XBRL Taxonomy Extension Definition Linkbase Document

101.LAB**   XBRL Taxonomy Extension Label Linkbase Document

101.PRE**   XBRL Taxonomy Extension Presentation Linkbase Document

*  Filed herewith

**XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.





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SIGNATURES


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


Dated: August 7, 2015


MediJane Holdings Inc.


By:


/s/ Lewis “Spike” Humer

Lewis “Spike” Humer

Interim Chief Executive Officer


/s/Russell Stone

Russell Stone

Interim Chief Financial Officer





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