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EX-32 - EXHIBIT 32 - MEDIJANE HOLDINGS INC.medijane10q2q15ex32.htm
EX-31 - EXHIBIT 31 - MEDIJANE HOLDINGS INC.medijane10q2q15ex31.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 August 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)


 

 

 

 

 

 

2770 Arapahoe Road, Suite 132, PMB 150

Lafayette Co

 

80026-8016

(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 January 15, 2016: 24,512.



1




MEDIJANE HOLDINGS INC.

FORM 10-Q

For the quarterly period ended August 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

 

24

Item 3.  Quantitative and Qualitative Disclosure

  About Market Risk

 

28

Item 4.  Controls and Procedures

 

28


PART II – OTHER INFORMATION

 

 

 

 

 

 

Item 1.  Legal Proceedings

 

29

Item 1A.  Risk Factors

 

29

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

 

29

Item 3.  Defaults upon Senior Securities

 

29

Item 4.  Mine Safety Disclosures

 

29

Item 5.  Other Information

 

29

Item 6.  Exhibits

 

29

 

 

 

SIGNATURES

 

30





2



Item 1.  Financial Statements


MEDIJANE HOLDINGS, INC.

Consolidated Balance Sheets


 

 

 

 

 

 

August 31,

 2015

 $

  February 28,

 2015

 $

 

 

Unaudited

Restated

ASSETS

 

 

 

 

 

 

 

Cash

 

$            473

$       9,400

Accounts receivable

 

-

2,300

Notes receivable, related party

 

249,215

258,122

Inventory

 

1,194,107

1,211,340

Prepaid expense

 

41,663

141,664

 

 

 

 

Total Current Assets

 

1,485,458

1,622,826

 

 

 

 

License agreement, net of amortization

 

6,741,667

7,166,667

Distribution agreement, net of amortization

 

146,200

154,800

Security deposit

 

--

1,250

 

 

 

 

Total Assets

 

8,373,325

8,945,543

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

359,070

252,536

Due to related parties

 

161,250

50,000

Convertible notes payable, net

 

167,537

194,748

Convertible notes payable, Cannavest

 

1,282,658

1,222,027

Derivative liability, Typenex Note

 

143,335

169,868

 

 

 

 

Current Liabilities

 

2,113,850

1,889,179

 

 

 

 

 

 

 

 

Total Liabilities

 

2,113,85

1,889,179


 Commitments and Contingencies -

 

-


STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

Common Stock

        Authorized: 1,000,000,000 common shares, par value of $0.001 per share, Issued and outstanding: 45,889 and 36,133 common shares, respectively

 

 

 

 

 

 

 

45

36

Additional paid-in capital

 

19,958,041

19,904,049

 

 

 

 

Accumulated deficit

 

(13,698,611)

(12,847,721)

 

 

 

 

Total Stockholders’ Equity (Deficit)

 

6,259,475

7,056,364

 

 

 

 

Total Liabilities and Stockholders’ Equity

 

$8,373,325

$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

 

For the six months ended

August  31,

 

August 31,

 

 

2015

2014

 

2015 (restated)

2014

 

 Revenues

$     17,830

$     2,780

 

$    20,265

$     2,780

 

Cost of sales

10,692

1,550

 

11,590

1,550

 

Gross Profit

7,138

1,230

 

8,675

1,230

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

Amortization expense

216,799

-

 

433,600

-

 

Product development expense

-

-

 

-

15,000

 

Sales and marketing expenses

6,306

56,435

 

24,345

147,922

 

Operations expense

26,265

81,205

 

64,310

100,237

 

General and administrative

50,187

49,218

 

99,041

59,031

 

Professional fees

86,089

89,937

 

171,975

171,729

 

Lease operating expenses

-

7,500

 

7,500

15,000

 

 

 

 

 

 

 

 

Total operating expenses

385,646

284,295

 

800,771

508,919

 

 

 

 

 

 

 

 

Loss before other expenses

(378,508)

(283,065)

 

(792,096)

(507,689)

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

Interest Income

980

-

 

2,093

-

 

Interest Expense

(41,024)

(3,290)

 

(82,205)

(3,290)

 

Debt issue costs

(2,607)

(554,413)

 

(5,216)

(554,413)

 

Gain on derivative liability

11,752

-

 

26,533

-

 

Gain on discontinued operations

-

-

 

-

722

 

 

 

 

 

 

 

 

Total other expense

(30,899)

(557,703)

 

(58,795)

(556,981)

 

 

 

 

 

 

 

 

Loss Before Taxes

(409,407)

(840,768)

 

(850,891)

(1,064,670)

 

 

 

 

 

 

 

 

Provision for Income Taxes

-

-

 

-

-

 

 

 

 

 

 

 

 

Net Loss

$   (409,407)

$  (840,768)

 

$  (850,891)

$   (1,064,670)

 

 

 

 

 

 

 

 

Basic and diluted loss per common share

 

 

 

 

 

 

  Income (loss) from continuing operations

$         (9.47)

  $    (107.80)

 

$     (20.67)

$     (148.28)

 

  Income (loss) from discontinued  operations

-

0.00

 

-

0.00

 

Basic and diluted loss per common share

$        (9.47)

     $    (107.80)

 

$     (20.67)

$     (148.28)

 

 

 

 

 

 

 

 

Weighted average shares outstanding – basic and diluted

43,229

7,800

 

41,166

7,180

 


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



4



MEDIJANE HOLDINGS, INC.

Consolidated Statements of Cash Flows

(Unaudited)



 

For the six months ended

August 31,

2015

2014

 

 

Operating Activities

 

 

 

 

 

Net loss

$   (850,891)

$ (1,064,670)

Gain from discontinued operations

-

(722)

 

 

 

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

 

 

 

 

 

Amortization

433,600

-

Non-cash cost of impairment of license agreement

-

-

Non-cash amortization of discount on convertible notes payable

-

554,413

Non-cash gain on derivative on convertible notes payable

(26,533)

-

Non-cash stock option compensation

100,001

-

Debt issuance costs

-

20,000

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

1,207

-

Inventory

17,233

(17,338)

Prepaid expense and deposits

0

(202,750)

Accounts payable and accruals

193,956

164,411

Net changes in operating assets and liabilities - discontinued operations

-

 

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

(131,427)

(548,656)

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

-

302

Net Cash Flow from operating activities                              

(131,427)

(548,354)

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

-

135,000

Proceeds from Bridge financing

 

100,000

Due to related parties

112,500

13,270

Proceeds from issuance of common shares

-

375,925

Net changes in financing activities – discontinued operations

-

-

Net Cash Provided By Financing Activities - continuing operations

112,500

624,195

Net Cash Provided By Financing Activities - discontinued operations

-

-

 

 

 

Increase (Decrease) in Cash - continuing operations

(8,927)

75,841

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

$        473

  $     81,945

 

 

 

 (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

54,000

-



(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.


On January 5, 2015, the Company underwent a change in control following the issuance of 276,000,000 common shares to Phoenix Bio Pharmaceuticals Corporation pursuant to a license agreement.  On November 4, 2015, these shares were exchanged for 2,000,000 Series B Preferred Shares.


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.


The Company follows the accounting guidance outlined in the Financial Accounting Standards Board Codification guidelines. The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted principles for interim financial information and with the items under Regulation S-K required by the instructions to Form 10-Q.  They may not include all information and footnotes required by United States generally accepted accounting principles for complete financial statements.  However, except as disclosed herein, there have been no material changes in the information disclosed in the notes to the financial statements for the year ended February 28, 2015 included in the Company’s Annual Report on Form 10-K\A filed with the Securities and Exchange Commission on August 28, 2015.  The interim unaudited financial statements presented herein should be read in conjunction with those financial statements included in the Form 10-K.  In the opinion of Management, all adjustments considered necessary for a fair presentation, which unless otherwise disclosed herein, consisting primarily of normal recurring adjustments, have been made. Operating results for three and six months ended August 31, 2015 are not necessarily indicative of the results that may be expected for the year ending February 29, 2016


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.  




7



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.


On March 17, 2014, MediHoldings, Inc. (“MediHoldings”), a Colorado corporation, was formed as a wholly-owned subsidiary of the Company.  On June 27, 2014, MediSales (CA), Inc. (“MediSales”), a California corporation, was formed as a wholly-owned subsidiary of the Company.


Stock Split – On October 21, 2015, the Company's Board of Directors declared a One for 10,000 reverse stock split on its common stock as of a record date of October 22, 2015. The effect of the stock split decreased the number of shares of common stock outstanding from 501,242,594 to 50,125. All common share and per common share data in these financial statements and related notes hereto have been retroactively adjusted to account for the effect of the stock split for all periods presented. The total number of authorized common shares and the par value thereof was not changed by the split.


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.


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 August 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 and August 31, 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.  



8




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.


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 of August 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.




9



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. 

 

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.




10



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


Recent Accounting Pronouncements - The Company is reviewing the effects of following recent updates.  The Company has no expectation that any of these items will have a material effect upon the financial statements.


·

Update 2015-16—Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments

·

Update 2015-15—Interest—Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements—Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting  (SEC Update)

·

Update 2015-14—Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date

·

Update 2015-11—Inventory (Topic 330): Simplifying the Measurement of Inventory


·

Update 2015-08—Business Combinations (Topic 805): Pushdown Accounting—Amendments to SEC Paragraphs Pursuant to Staff Accounting Bulletin No. 115  (SEC Update)

·

Update No. 2015-03—Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs 

·

Update No. 2015-02—Consolidation (Topic 810): Amendments to the Consolidation Analysis.


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


1.

Inventory


At August 31, 2015 and February 28, 2015, the Inventory consisted of Raw materials of $1,184,005 and $1,200,000, respectively, and finished goods of $10,101 and $11,340, respectively. Inventories are valued at the lower of cost or fair market value less any allowances for obsolescence. 

 

2.

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 and six months ended August 31, 2015, the Company recorded amortization expense related to the license agreement totaling $212,500 and $425,500, respectively.


3.

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 2,600 (26,000,000 pre-split) shares of common stock to Phoenix Bio Pharm, valued at $13,000,000 based on a discounted cash flow model and the fair



11



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 and six months ended August 31, 2015, the Company recorded amortization expense related to the license agreement totaling $162,500 and $325,000, respectively.


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 25,000 (250,000,000 pre-split) restricted common shares at $16.00 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 and six months ended August 31, 2015, the Company recorded amortization expense related to the license agreement totaling $50,000 and $100,000, respectively.


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 (27,600) (276,000,000 pre-split) 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.  On August 14, 2015, the 27,600 (276,000,000 pre-split) common shares were returned to the Company.  On November 4, 2015, the Company issued the 2,000,000 Series B Preferred Shares to Phoenix Bio Pharm described above.  


4.

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 20 (200,000 pre-split) 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.  During the three and six months ended August 31, 2015, the Company amortization expense related to this distribution agreement of $4,300 and $8,600, respectively.




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5.

CannaVest, Inc.


On December 23, 2014, the Company entered into a convertible promissory note for $1,200,000 with CannaVest Corp (the “CannaVest Note”).  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.  


During the quarter ended August 31, 2015, the Company defaulted on the CannaVest 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. During the three and six months ended August 31, 2015, the Company has recorded interest expense of $34,915 and $65,161, respectively.


Warrant Agreement


In connection with the convertible promissory note dated December 23, 2014, the Company subsequently issued warrants to purchase 2,000 (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 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.


6.

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, (the “Sublease”).   In March 2014, the Company paid a security deposit of $1,250 related to the Sublease.   During six months ended August 31, 2015, the Company recorded rent expense payable to Kronos totaling $7,500. In June 2015, the Sublease was cancelled.  The Company offset the security deposit of $1,250 against amounts owed to Kronos for Advisory Service Fees.  The Company has no further obligation under the Sublease.


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 August 31, 2015, expenses related to the Advisory Services totaled $60,000.




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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 2,600 (26,000,000 pre-split) 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 and six months ended August 31, 2015, the Company recorded amortization expense related to the license agreement totaling $162,500 and $325,000, respectively.


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 25,000 (250,000,000 pre-split) restricted common shares at $16.00 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 and six months ended August 31, 2015, the Company recorded amortization expense related to the license agreement totaling $50,000 and $100,000, respectively.


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 (27,600) (276,000,000 pre-split) 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.  On August 14, 2015, the 27,600 (276,000,000 pre-split) common shares were returned to the Company.  On November 4, 2015, the Company issued the 2,000,000 Series B Preferred Shares to Phoenix Bio Pharm described above.  


Related Party Loan:  Between March 1, 2014 and August 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.




14



Product Development - Between March 1, 2014 and August 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 six months ended August 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 August 2015, the Company has received principal payments totaling $36,425 including cash payments of $28,500, and expense offset $7,925.  As of August 31, 2015, accrued interest on this loan is $4,780.  As of August 31, 2015, the outstanding balance due the Company on this related party loan is $53,355.


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 August 31, 2015, the Company has accrued a related party payable to Mr. Humer of $72,000.


7.

Preferred Stock


On September 22, 2015, the Company amended and restated its Articles of Incorporation to create and authorize four (4) classes of preferred stock.  The Company has authorized Series A, Series B, Series C and Series D Preferred Stock (the “Preferred Stock”).  


Series A Preferred Stock:

Series A preferred shares have a par value of $0.0001, and are convertible into common shares at $1.00 per common share.  Series A preferred shares rank senior to common stock with respect to the right to participate in distributions or payments in the event of liquidation, dissolution, or winding up of the Company.  Holders of Series A preferred shares are entitled to a preferred return equal to the purchase price paid for such Series A preferred shares.  Series A preferred shares do not have any voting rights.




15



Holders of Series A preferred shares are not entitled to preemptive rights to purchase stock in future stock offerings of the Company.  Holders of Series A preferred shares have the right to register their unregistered stock when either the Company or another investor initiates a registration of the Company’s securities, and they have the right of co-sale.  Holders of Series A preferred shareholders are not required to sell all of their Series A preferred shares on the same terms or conditions of a co-sale by a majority shareholder.  There is no right of first refusal for Series A preferred shares.


Series B Preferred Stock:

Series B preferred shares have a par value of $0.0001, and are convertible into common shares at a rate of 100 common shares per preferred share.  Series B preferred shares are entitled to cast 500 votes for each preferred share owned.  Series B preferred shares are senior to common shares with respect to the right to participate in distributions or payments in the event of any liquidation, dissolution, or winding up of the Company, and holders of Series B preferred shares are entitled to receive a preferred return equal to the purchase price paid for such Series B preferred stock.


Holders of Series B preferred shares are entitled to preemptive rights to purchase stock in future offerings, and have the right to register their unregistered stock when either the Company or another investor initiates a registration of the Company’s securities.  Holders do not have the right of co-sale, and are not required to sell all of their Series B preferred shares on the same terms or conditions of a co-sale by a majority shareholder.  If any Series B preferred shareholder wishes to sell, transfer or otherwise dispose of any or all of their Series B preferred shares, the other Series B preferred shareholders shall not have a prior right to buy such Series B preferred shares.


Series C Preferred Stock:

Series C preferred shares have a par value of $0.0001, and are convertible into common shares at a rate of $1.00 per common share.  Series C preferred shares are not entitled to any voting rights, unless such vote is to modify rights, preferences, privileges and restrictions granted to and imposed on Series C preferred shares.  Series C preferred shares are senior to common shares and Series B preferred shares with respect to the right to participate in distributions or payments in the event of any liquidation, dissolution, or winding up of the Company, and holders of Series C preferred shares are entitled to receive a preferred return equal to the purchase price paid for such Series C preferred, which is deemed to be $600,000. If the closing price per share of the Company’s common shares is less than $1.00 for a period of five consecutive trading days, the YP Holdings will have the one-time right, exercisable at its discretion, to require that the conversion price of the shares become equal to 75% of the average closing bid price per shares for the five consecutive trading days immediately preceding the date that YP Holdings notifies the Company that it wishes to convert some or all of its Series C preferred shares into common shares.  The reset shall not be available if the proceeds of the sale of converted common shares equals or exceeds $750,000.  Should proceeds of the sale of converted common shares equal or exceed $1,000,000, any unconverted Series C preferred shares shall be returned to the Company for retirement.  Converted common shares are subject to a leak-out agreement, and no more than 50,000 common shares may be sold by YP Holdings in any one month.


Holders of Series C preferred shares are entitled to receive a preferred return equal to 10% of the gross cash sales income received in the ordinary course of business.  Holders are not entitled to preemptive rights to purchase shares in future offerings of the Company.


Holders of Series C preferred shares have the right to register their unregistered shares when either the Company or another investor initiates a registration of the Company’s securities.  Holders have the rights of co-sale, and are not required to sell all of their Series C preferred shares on the same terms or conditions of a co-sale by a majority shareholder.  If any Series C preferred shareholder wishes to sell, transfer, or otherwise dispose of any or all of their Series C preferred shares, other Series C preferred shareholders shall not have a prior right to buy such shares.




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Series D Preferred Stock

Series D preferred shares have a par value of $0.0001, and are convertible into common shares at a conversion rate of $1.00 per common share.  Series D preferred shares rank senior to common shares and the Series B preferred shares.  In the event of any liquidation, dissolution, or winding up of the Company, holders of Series D preferred shares shall be entitled to receive a preferred return equal to the purchase price paid for such Series D preferred shares after payment of the preferred returns relating to the Series A and C preferred shares.  Series D preferred shares are not entitled to voting rights.


Holders of Series D preferred shares shall be entitled to receive a preferred return equal to 10% of the Gross Cash Sales Income received in the ordinary course of business.  Upon issue of the dividend, the value of such shares shall be deemed to be retired.  Holders of Series D preferred shares are not entitled to preemptive rights to purchase stock in future offerings of the Company.  Holders of Series D preferred shares have the right to register their unregistered stock when either the Company or another investor initiates a registration of the Company’s securities.  Holders of Series D preferred shares have the right of co-sale, but they are not required to sell all of their Series D preferred shares on the same terms or conditions of a co-sale by a majority shareholder.



8.

Common Stock


The Company has authorized 1,000,000,000 shares of its common stock, $0.001 par value, post-split.  On August 31, 2015, there were 45,889 (458,892,294 pre-split) shares of common stock issued and outstanding 31,154 (311,540,534 pre-split) 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 October 21, 2015, the Company effectuated a 1 for 10,000 reverse split on its common stock as of a record date of October 22, 2015.  As a result, the 501,242,594 outstanding shares as of the record date were reversed to 50,125 shares. All common share and per common share data in these financial statements and related notes hereto have been retroactively adjusted to account for the effect of the stock split for all periods presented. The total number of authorized common shares and par value was not changed for the split.


On February 27, 2014, the Company issued 500 (5,000,000 pre-split) shares to its Chief Executive Officer, who agreed to retire the 500 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 20 (200,000 pre-split) 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 2,600 (26,000,000 pre-split) 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 25,000 (250,000,000 pre-split) 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 44 (440,300 pre-split) shares of its restricted common stock to accredited investors for consideration for proceeds of $375,925.  


On December 9, 2014, the Company issued 500 (5,000,000 pre-split) 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.




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On December 16, 2014, the Company issued 667 (6,666,667 pre-split) 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 1,002 (10,020,000 pre-split) 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.


Between March 1, 2015 and August 31, 2015, the Company issued 9,756 (97,560,000 pre-split) shares of common stock to Typenex from the conversion of a total principal amount of $54,000 under a Convertible Notes Agreement and 3,157 (31,575,175 pre-split) shares of Common Stock to Typenex related to true-up notices received from the noteholder, as discussed in Note 13 below.


On August 14, 2015, Phoenix Bio Pharm returned 27,600 (276,000,000 pre-split) shares of common stock to the Company to hold in safe keeping for an exchange into 2,000,000 shares of preferred stock.  As of August 31, 2015, the 27,600 (276,000,000 pre-split) shares of common stock were considered outstanding.


9.

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 1,000 (10,000,000  pre-split) 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 500 (5,000,000 pre-split) common shares of the Company at $3,400 ($0.34 pre-split) per common share valued at $551,363.   Immediately upon the grant of the option, options to purchase 250 (2,500,000 pre-split) common shares vested.  The option to purchase the remaining 250 (2,500,000 pre-split) 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 250 (2,500,000 pre-split) were cancelled upon resignation by the holder.  The remaining 250 (2,500,000 pre-split) vested options are exercisable until February 17, 2016.  


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


Options Outstanding and Exercisable

 

 

Options Outstanding

Options Exercisable

 

Range of Exercise Prices

Number

Price

Life

Number

Price

Life

 

 

 

 

 

 

 

 

 

$3,400

250

$ 3,400

.5

250

$3,400

0.5

 

 

   250

 

 

   250

 

 



10.

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



18



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.  


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.




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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.


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 5,092 (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.  During the quarter ended August 31, 2015, the Company re-evaluated the Notice of Default and determined that it had previously recorded a beneficial conversion feature incorrectly.  The Company has computed a Derivative liability effective December 2014 and has corrected its statements as of February 28, 2015 to reflect this accounting treatment (see Note ).  As of August 31, 2014 and February 28, 2015, the Derivative Liability on the Typenex Note was $143,335 and $169,868, respectively.


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.




20



Notice of Conversion – Between March 1, 2015 and August 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

March 2, 2015

$14,000

$0.071788

1,005

-

1,005

March 31, 2015

-

-

-

2,204

2,204

May 14, 2015

$15,000

$0.203395

2,098

953

3,051

August 10, 2015

$25,000

$0.139860

3,496

-

3,496

Total

$54,000

 

6,599

3,157

9,756


*Market Price as defined by the Typenex Note

All shares and Market Price in the above table are stated to reflect the 10,000 to 1 reverse stock split.


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


 

August 31,
2015

 

February 28, 2015

Outstanding principal balance on Typenex Note:

$

77,500

 

$

131,500

Unamortized original issue discount

 

(7,650)

 

 

(12,870)

Accrued interest

 

97,687

 

 

76,118

Net Convertible Notes Payable

$

167,537

 

$

194,748



11.

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.


12.

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 issued 667 (6,666,667 pre-split) common shares and 1,333 (13,333,334 pre-split) 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.




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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.


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 53 (533,333 pre-split) 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.


13.

Corrections to Prior Financials As Filed


Due to a change in auditors and a subsequent review of the accounting treatment surrounding the Typenex Notes, there were corrections of expenses related to the Derivative Liability and Beneficial Conversion Feature recorded on the Typenex Notes for the year ended February 28, 2015 and the three months ended May 31, 2015. The table below for the shows the effects on Net loss, earnings per share, and accumulated deficit for each of the periods.


Period

Net Loss

Earnings Per Share

Accumulated Deficit

Year Ended February 28, 2015

205,522

(0.00)

205,522

Three months ended May 31, 2015

(66,515)

(0.00)

(66,515)




22



14.

Subsequent Events


On September 22, 2015, the Company amended and restated its Articles of Incorporation to create and issue several series of preferred stock.  The Company has authorized 2,000,000 shares of each series of Preferred Stock, $0.0001 par value.


On September 24, 2015, the Cannavest presented a Conversion Notice (the “Notice”) to the Company whereby they requested conversion of $42,350.30 in principal on the Cannavest Note at a Conversion Price of $0.001 per share.  On October 15th, 2015, the Company issued 4,236 (42,350,300 pre-split) shares of common stock to CannaVest pursuant to the Notice.


On October 21, 2015, the Company effectuated a 1 for 10,000 reverse split on its common stock as of a record date of October 22, 2015.  As a result, the 501,242,594 outstanding shares as of the record date were reversed to 50,125 shares. All common share and per common share data in these financial statements and related notes hereto have been retroactively adjusted to account for the effect of the stock split for all periods presented. The total number of authorized common shares was not changed by the split.


On November 4, 2015, the Company cancelled 27,600 (27,600,000 pre-split) shares of common stock held by Phoenix Bio Pharm and issued 2,000,000 shares of Series B Preferred Stock.


In November 2015, the Company issued 1,987 of shares of common stock related to an adjustment made to one of the Company's stockholders by the Depository Trust Company in connection with the 10,000 to 1 reverse split. The Company will account for this share issuance at par value.


On October 26, 2015, the registrant dismissed DKM Certified Public Accountants as their registered independent public accountant.  On October 26, 2015, the registrant engaged Fruci & Associates II, PLLC (“Fruci”) as its new registered independent public accountant.




23



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 entered into an exchange agreement with Phoenix Bio Pharm where the 27,600 (276,000,000 pre-split) representing all of the existing common shares held by Phoenix Bio Pharm 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.  On August 14, 2015, the 27,600 (276,000,000 pre-split) common shares were returned to the Company.  On November 4, 2015, the Company cancelled the 27,600 common shares and issued the 2,000,000 Series B Preferred Shares to Phoenix Bio Pharm described above.  


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 and six months ended August 31, 2015 represent results of the new business.  The results of operations for the comparable period have been recorded as discontinued operations.




24



Revenues for the three months ended August 31, 2015 and 2014 were $17,830 and $2,780, respectively.  Cost of Sales for the three months ended August 31, 2015 and 2014 were $10,692 and $1,550, respectively.    Revenues for the six months ended August 31, 2015 and 2014 were $20,265 and $2,780, respectively.  Cost of Sales for the six months ended August 31, 2015 and 2014 were $11,590 and $1,550, respectively.  Revenues and the related expenses for the three and six months ended August 31, 2015 and 2014 were primarily from the sale of CBD products.


Amortization expense for the three months ended August 31, 2015 and 2014 were $216,799 and $Nil, respectively.  Amortization expense for the six months ended August 31, 2105 were $433,600 and $Nil, respectively.  Amortization expense represents amortization expense related to the Company’s licensing and distribution agreements.


Product development expense during the six months ended August 31, 2014 was $15,000.  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 August 31, 2015 and 2014 were $6,306 and $56,435, respectively. Sales and marketing expense for the six months ended August 31, 2015 and 2014 were $24,345 and $147,922, 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 August 31, 2015 and 2014 were $26,265 and $81,205, respectively.  Operations expense for the six months ended August 31, 2015 and 2014 were $64,310 and $100,237, respectively. The decrease in operating expenses during the 2015 period are due to the activities to grow the selling and operational business during 2014.  During the 2015 period, operations expenses represent continued efforts to support the Company’s selling organization.


General and administrative expenses for the three months ended August 31, 2015 and 2014 were $50,187 and $49,218, respectively. General and administrative expenses for the six months ended August 31, 2015 and 2014 were $99,041 and $59,031, respectively.  General and administrative expenses generally include costs for running the Company’s administrative office.


Professional fees for the three months ended August 31, 2015 and 2014 were $86,089 and $89,937, respectively.  Professional fees for the six months ended August 31, 2015 and 2014 were $171,975 and $171,729, respectively.  Professional fees consist of cost of financing, legal, accounting, consulting and advisory services.  Included in professional fees during the six months ended August 31, 2015 are $100,000 of non-cash expense related to consulting fees paid in stock.


Lease operating expenses for the three months ended August 31, 2015 and 2014 were $Nil and $7,500, respectively.  Lease operating expenses for the six months ended August 31, 2015 and 2014 were $7,500 and $15,000, respectively.  


Other income and expense for the three months ended August 31, 2015 and 2014 were net expense of $30,899 and $557,703, respectively.  Other income and expense for the six months ended August 31, 2015 and 2014 were net expense of $58,795 and $556,981.  The decrease in other income and expense in the 2015 periods from the 2014 periods are due to non-cash expenses related to the issuance of warrants on convertible securities during the 2014 periods totaling $554,413.


Net loss for the three months ended August 31, 2015and 2014 were $409,407 and $840,768.  Net loss for the six months ended August 31, 2015 and 2014 were $850,891 and $1,064,670, respectively.


Net gain from discontinued operations for the six months ended August 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.




25



Liquidity and Capital Resources

At August 31, 2015, the Company had a cash balance of $473 compared with $9,400 at February 28, 2015.  The decrease in cash during the six months ended August 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.


Cash flow from Operating Activities.  During the six months ended August 31, 2015, the Company incurred a net loss of $850,891.  We had the following adjustments to reconcile net loss to net cash used in operating activities: an increase of $433,600 due to amortization, a non-cash gain of $26,533 due to the adjustment of the derivative liability on the convertible promissory notes, and an increase of $100,001 due to non-cash stock option compensation.  We had the following changes in operating assets and liabilities: an increase of $1,207 due to accounts receivable, an increase of $17,233 due to inventory, and an increase of $193,956 due to accounts payable and accruals.  As a result, we had net cash used for operating activities of $131,427 for the six months ended August 31, 2015.


For the six months ended August 31, 2014, the Company incurred a net loss of $1,064,670, and a loss from discontinued operations of $722.  We had the following changes in operating assets and liabilities: an increase of $554,413 related to the non-cash accounting for the cost of warrants issued with convertible financing; an increase of $20,000 related non-cash stock debt issuance costs of $20,000; a decrease of $17,338 for inventory, a decrease due to prepaid expense and deposits of $202,750 and an increase of $164,411 due to accounts payable and accruals.  As a result, we had net cash used for operation activities due to current operations of $548,646 and net cash provided by operating activities due to discontinued operations of $302 for the six months ended August 31, 2014.


Cash flow from Investing Activities.  During the six months ended August 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 six months ended August 31, 2014.


Cash flow from Financing Activities.  During the six months ended August 31, 2015, the Company recorded a net amount of $112,500 from financing activities related to the Company’s amounts due to related parties.


During the six months ended August 31, 2014, the Company received $135,000 in proceeds from convertible promissory notes, $100,000 from a bridge financing, $13,270 due to related parties and received $375,925 as proceeds from the issuance of common shares.  As a result, we had net cash provided by financing activities due to continuing operations of $624,195 for the six months ended August 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.




26



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.


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.




27



Recent Accounting Pronouncements

The Company is reviewing the effects of following recent updates.  The Company has no expectation that any of these items will have a material effect upon the financial statements.


·

Update 2015-16—Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments

·

Update 2015-15—Interest—Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements—Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting  (SEC Update)

·

Update 2015-14—Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date

·

Update 2015-11—Inventory (Topic 330): Simplifying the Measurement of Inventory


·

Update 2015-08—Business Combinations (Topic 805): Pushdown Accounting—Amendments to SEC Paragraphs Pursuant to Staff Accounting Bulletin No. 115  (SEC Update)

·

Update No. 2015-03—Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs 

·

Update No. 2015-02—Consolidation (Topic 810): Amendments to the Consolidation Analysis.


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 August 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.


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 August 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 August 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.



28




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



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

Between March 1, 2015 and August 31, 2015, the Company issued 9,756 (97,560,000 pre-split) shares of common stock to Typenex from the conversion of a total principal amount of $54,000 under a Convertible Notes Agreement and 3,157 (31,575,175 pre-split) shares of Common Stock to Typenex related to true-up notices received from the noteholder, as discussed in Note 13 below.


On August 14, 2015, Phoenix Bio Pharm returned 27,600 (276,000,000 pre-split) shares of common stock to the Company to hold in safe keeping for an exchange into 2,000,000 shares of preferred stock.  As of August 31, 2015, the 27,600 (276,000,000 pre-split) shares of common stock were considered outstanding.


On September 24, 2015, Cannavest presented a Conversion Notice (the “Notice”) to the Company whereby they requested conversion of $42,350.30 in principal on the Cannavest Note at a Conversion Price of $0.001 per share.  On October 15th, 2015, the Company issued 4,236 (42,350,300 pre-split) shares of common stock to CannaVest pursuant to the Notice.


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:  January 15, 2016


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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