UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended: March 31, 2015

or

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

For the transition period from __________ to ___________

Commission File Number: 001-28911

CANNABIS SCIENCE, INC.

 (Exact name of registrant as specified in its charter)

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

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

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

Large accelerated filer   [  ]      Accelerated filer   [  ]

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

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

Number of common shares outstanding at July 27, 2015: 1,282,155,296

Number of common shares outstanding at March 31, 2015: 1,179,207,296

Number of Class A common shares outstanding at July 27, 2015: 0

CANNABIS SCIENCE, INC.

FORM 10-Q

For the Period Ended March 31, 2015

TABLE OF CONTENTS

PART 1 FINANCIAL INFORMATION.

ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS

CANNABIS SCIENCE, INC.

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

F-1

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

F-2

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

F-3

CANNABIS SCIENCE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2015

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Organization and General Description of Business

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

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

The Company formed two operating subsidiaries Cannabis Science BV and Cannabis Science International Holding BV in The Netherlands on May 10^th and May 6^th, 2013, respectively, to pursue business opportunities in Europe and worldwide.  There are currently minimal operations in the subsidiaries.  Mario Lap, director of the Company and director and officer of the EU subsidiaries operates and manages the subsidiaries.  Currently, Mario Lap is developing the Company’s business and operations in Netherlands and Spain along with products for commercial release.

On November 15, 2013, the Company submitted a patent application N2010968 in Europe entitled "Composition for the Treatment of Neurobehavioral Disorders."  The subject of the patent is development of cannabinoid-based formulations to treat a variety of neurobehavioral disorders, such as attention deficit hyperactivity disorder (ADHD), anxiety, and sleep disorders.  

On November 20, 2014, the Company signed an amendment to the license agreement with Apothecary Genetics Investments LLC.  Pursuant to the amendment, the Company is acquiring all property, building, and equipment of Apothecary.  The Company anticipates closing the purchase in fiscal 2015 once all assets are identified with supported fair market values and the transfer of land title is completed.

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

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

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B.  Basis of Presentation

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

Interim Financial Reporting

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

The following subsidiaries and controlling interests are included with the consolidated financial statements of the Company for the three months ended March 31, 2015:

On May 6, 2013, the Company formed Cannabis Science International Holdings B.V. and on May 10, 2013, the Company formed Cannabis Science B.V. for the purpose of wholly-owned operating subsidiaries for the Company’s European and world-wide operations.  Minimal business and operating activities have commenced in the subsidiaries as of March 31, 2015.

On August 6, 2014, the Company signed a proposal letter with Michigan Green Technologies, LLC (“MGT”) to acquire an additional 30.1% equity in MGT that would increase the Company’s equity ownership to 50.1%.  As consideration for acquiring the additional 30.1% equity, the Company agreed to issue shares to the principals and shareholders of MGT.  

On February 20, 2015, the Company formalized the August 6, 2014 proposal letter and closed on the acquisition of MGT.  As consideration for the additional 30.1% equity in MGT, increasing the Company’s ownership to a 50.1% controlling interest, the Company issued 1,200,000 shares of common stock with a fair market value of $60,000 to shareholders of MGT for services rendered pursuant to two-year consulting agreements.  The Company closed on the acquisition of MGT on February 20, 2015.  

On March 3, 2015, the Company entered into a 10-year management agreement with John Dalaly, principal of MGT, and issued 12,500,000 shares of common stock with a fair market value of $625,000 for services to be rendered related to the MGT business and operations.  

For other accounting policies please refer to the Company’s Form 10-K with the SEC on file no. 000-28911 April 21, 2015.

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

2.  GOING CONCERN

The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate the continuation of the Company as a going concern.  The Company reported an accumulated deficit of $113,734,775 and had a stockholders’ deficit of $2,452,177 at March 31, 2015.

In view of the matters described, there is substantial doubt as to the Company's ability to continue as a going concern without a significant infusion of capital.  At March 31, 2015, the Company had insufficient operating revenues and cash flow to meet its financial obligations.  There can be no assurance that management will be successful in implementing its plans.  The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The Company raised $250,000 through a private sale of common stock in the three months ended March 31, 2015.  Notwithstanding, we anticipate that we will have to raise additional capital to fund research and development and operations over the next 12 months.  To the extent that we are required to raise additional funds to acquire research and growing facilities, and to cover costs of operations, we intend to do so through additional public or private offerings of debt or equity securities.  There are no commitments or arrangements for  other  offerings  in  place,  no  guaranties  that  any  such financings would be forthcoming,  or as to the terms of any such financings.  Any future financing may involve substantial dilution to existing investors.  We had been relying on our common stock to pay third parties for services that has resulted substantial dilution to existing investors.

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3.  FAIR VALUE MEASUREMENTS AND DISCLOSURES

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

4.  RELATED PARTY TRANSACTIONS

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

At March 31, 2015, the Company owes $10,741 (2014: $0) to MJR B.V. which is owned and controlled by Mario Lap director and director and officer of EU subsidiaries.  The loan is unsecured, non-interest bearing, and due upon demand.

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

At March 31, 2015, the Company held 7,500,000 common shares with a fair market value of $108,750 in OmniCanna Health Solutions, Inc. (formerly Endocan Corporation) (“OHS”) representing approximately 8.6% of the issued and outstanding shares of OHS.  The value of the shares at March 31, 2015 was determined to be $0.0145 per share or $108,750 with the Company recording an unrealized loss of $48,750 for the three months ended March 31, 2015 and an unrealized gain of $314,250 for the three months ended March 31, 2014.  Robert Kane, CFO and director is also the CFO and a director of OHS and Chad S. Johnson, Esq., COO, general counsel and a director is also a director and general counsel for OHS.  Raymond C. Dabney is a controlling shareholder of both the Company and OHS.

For the three months ended March 31, 2015, the following related party management fees and stock-based compensation was recorded:

¹Including compensation to entities beneficially owned/control by the related parties

See Note 6-Equity Transactions for details of stock issuances to director and officers for services rendered.

Raymond Dabney, CEO is a controlling shareholder and Chad S. Johnson, COO/General Legal Counsel of ImmunoClin Corporation (OTC: IMCL), respectively.  ImmunoClin performs laboratory services and pharmaceutical development for the Company through its wholly-owned subsidiary ImmunoClin Limited that operates a laboratory at the London Biosciences Centre.

Mario Lap, a director of the Company and director and officer its European subsidiaries, is conducting various business activities of the Company in Spain under his personal name and/or his personal holding company MLS Lap BV until such time as the Company is able to establish a Spanish subsidiary to conduct its own business operations and activities, including but not limited to: operating lease for farms, asset purchases, office and equipment, personnel employment and other business and operating activities as may be required from time-to-time.  The Company anticipates having its Spanish subsidiaries setup by the end of fiscal 2015.

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5.  NOTES PAYABLE

As at March 31, 2015, a total of $1,400,658 (December 31, 2014: $1,581,486) of notes payable are due to stockholders that are non-interest bearing and are due 12 months from the date of issue and loan origination beginning on May 30, 2012 through February 7, 2015.    

$150,000 in non-interest bearing unsecured promissory notes are due to Richard Cowan, former director and CFO of the Company.  On January 15, 2015, the Company entered into a debt settlement agreement and issued 15,000,000 shares of common stock, subsequent to the quarter ended March 31, 2015, on April 7, 2015 to settle the $150,000 owing to Mr. Cowan.

As of March 31, 2015, the Company is default on $1,380,156 in promissory notes due and is negotiating with the debtors to extend the due dates and/or settle the debt.

6.  EQUITY TRANSACTIONS

The Company is authorized to issue 1,500,000,000 shares of common stock with a par value of $0.001 per share.  These shares have full voting rights.  There were 1,179,207,296 shares issued and outstanding as of March 31, 2015.

The Company is also authorized to issue 100,000,000 shares of common stock, Class A with a par value of $0.001 per share.  These shares have 10 votes per share.  There were 0 shares issued and outstanding as of March 31, 2015.

The Company is also authorized to issue 1,000,000 shares of Series A preferred stock, with a par value of $0.001 per share.  These shares have full voting rights of 1,000 votes per share.  There were 1,000,000 shares issued and outstanding as of March 31, 2015.

During the three months ended March 31, 2015, the Company issued 101,255,310 shares of common stock for services under various executive and consulting agreements.

On January 15, 2015, the Company issued 15,000,000 shares of Rule 144 restricted common stock with a fair market value of $997,500 for settlement of $150,000 in liabilities for loss on settlement of $847,500.

On February 20, 2015, the Company issued 30,828,080 common shares for settlement of $30,828 of stockholder debt with Intrinsic Capital Corp., for a loss on settlement of $1,510,576, from the stockholder notes payable originating on July 23, 2013 ($18,328), August 15, 2013 ($1,250), August 30, 2013 ($1,250), and September 9, 2013 ($10,000).

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

Stock Options:

The following options were issued to Robert Kane, CFO and Director for services rendered under a September 16, 2011 agreement:

(i)

the option to purchase 100,000 common shares at ten cents ($0.10) per share;

(ii)

the option to purchase 100,000 common shares at ten cents ($0.20) per share;

(iii)

the option to purchase 500,000 common shares at ten cents ($0.35) per share; and

(iv)

the option to purchase 1,000,000 common shares at ten cents ($0.50) per share.

A summary of the status of the Company’s option grants as of March 31, 2015 and the changes during the period then ended is presented below:

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These options expire on the date of termination of the management agreement and services thereunder with Robert Kane. The weighted average fair value at date of grant for options during three months ended March 31, 2015 was estimated using the Black-Scholes option valuation model with the following:

7.  DEPOSITS

On February 9, 2012, the Company signed a license agreement with Apothecary to produce several Cannabis Science Brand Formulations for the California medical cannabis market. As well, Apothecary will provide research and development facilities with full circle operations including a California laboratory facility for internal research and development, along with 16 unique genetic strains specifically generated and maintained by a cancer survivor who recognizes the importance of proper growth and breeding in addition to investing $250,000 in research and development in the first 24 months.  

Apothecary failed to meet several contract provisions including investing $250,000 in R&D, setting up a laboratory facility, and reporting and remitting license fees owing to the Company.  On November 20, 2014, the Company signed an amendment to the license agreement.  Pursuant to the amendment, the Company is acquiring all property, building, and equipment of Apothecary in exchange for 14,500,000 Rule 144 restricted stock with a fair market value of $971,500.  Per the amendment, the Company also agreed to provide Apothecary with a minimum of $150,000 and maximum of $300,000 of working capital each calendar quarter commencing December 31, 2014.  The Company recorded an equivalent deposit for the year ended December 31, 2014 until the acquisition of assets closes, which is anticipated during fiscal 2015 once all assets are identified with supported fair market values and the transfer of land title is completed.  No additional working capital has been paid beyond December 31, 2014.

8.  EQUITY METHOD INVESTEE

On November 5, 2014, the Company accounted for its investment and loans in OmniCanna Health Solutions, Inc. (formerly Endocan Corporation) using the equity method pursuant to ASC 323 – Investments – Equity Method and Joint Ventures.  In accordance with ASC 323, when the Company does not have a controlling financial interest in an entity but exerts significant influence over the entity’s operating and financial policies, the Company accounts for its investment in accordance with the equity method of accounting. This generally applies to cases in which the Company owns a voting or economic interest of between 20 and 50 percent.

The accounting using the equity method is in conjunction with appointment of Raymond Dabney as CEO and director of the Company on November 5, 2014, in addition to Mr. Dabney being a controlling shareholder of the Company since September 2009 and a controlling shareholder of Endocan Corporation since June 2013.  Therefore, the Company was deemed to have significant influence and control of Endocan Corporation.

On November 5, 2014, the Company recorded $247,500 in marketable securities and $86,469 in loans to OHS to its equity method investee account in accordance with ASC 323.  

An impairment of $48,750 in the equity method investee account was recognized for the three months ended March 31, 2015 and an impairment of $90,000 was recognized for the year ended December 31, 2014 due to the non-temporary decline in the value of OHS marketable securities.

9.  COMMITMENTS

The Company has lease commitments for its European operations under private companies MLS Lap B.V. and MJR B.V. owned and controlled by Mario Lap, director and director and officer of EU subsidiaries.  Negotiations are ongoing in regards to preparing finalized agreements between the Company and Mr. Lap’s companies.

10.  SUBSEQUENT EVENTS

On April 20, 2015, the Company entered into an agreement with American Education Lawyers Group LLC and agreed to issued 5,000,000 shares of Rule 144 restricted common stock as a one-time retainer to cover legal services in regards to Cannabis Science endeavors in California.

On April 29, 2015, the Company issued 40,000,000 shares of common stock pursuant to a debt settlement agreement with Intrinsic Capital Corp. to settle $40,000 in debt owing under December 31, 2013 note payable.   The Company recognized a loss on settlement of debt of $1,360,000 under the agreement.

On May 4, 2015, the Company issued a total of 52,948,000 common shares to executives and various consultants pursuant to existing contracts.

On May 21, 2015, Cannabis Science, Inc. (the “Company”), entered into a Joint Development Agreement (the “Agreement”) with IGXBio, Inc., a Delaware corporation (“IGX”).  Pursuant to the Agreement the Company and IGX will jointly develop and conduct a clinical protocol for an anti-inflammatory utilizing cannabinoids and GenePro®, a DNA based immunotherapy with a FDA IND number.  Each company will retain ownership of their respective intellectual property and equally own any new products or drugs derived from the Agreement.  The term of the Agreement is initially for 4 years with an automatic renewal provision.  On June 3, 2015, the Company issued 5 million Rule 144 restricted common shares to IGX pursuant to the Agreement and swill hare 50/50 in any new products developed under the Agreement.

Common shares reconciliation table:

Issued and outstanding as of March 31, 2015…                                         1,179,207,296

Pending and subsequent event issuances…                                                   102,948,000

Unissued and outstanding as of July 27, 2015…                                         1,282,155,296

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PART I

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

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

The Company received a letter from Charles Murphy and Robert Sfire regarding their filing a case against John Dalaly, Michigan Green Technologies, and the Company.  While proper service to the Company is in question, the filing is for default on payment to be received for fees due to the settlement of a case Mr. Murphy and Mr. Sfire previously brought against John Dalaly.  Michigan Green Technologies and the Company are co-signers on the settlement note.  The Company expects that the issue will be resolved within the next 90 days with the full payment of the settlement fees.

ITEM 1A.  RISK FACTORS

Not applicable.

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