UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

  

FORM 10-K

  

þ

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

 

For the fiscal year ended December 31, 2014

 

or

 

¨

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

 

For the transition period from ____________ to ____________

 

Commission File Number: 000-54582

 

United Cannabis Corporation

(Exact name of registrant as specified in its charter)

 

Colorado

46-5221947

(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification Number)


1600 Broadway, Suite 1600, Denver, Colorado 80202

(Address of principal executive offices)(Zip code)

 

(303) 386-7104

(Registrant’s telephone number, including area code)


Securities registered pursuant to Section 12(b) of the Act - None

 

Securities registered pursuant to Section 12(g) of the Act - Common Stock, no par value


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  ¨   No  þ

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.  Yes  ¨   No  þ

 

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

 

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

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (check one):


Large accelerated filer ¨

Accelerated filer ¨

Non-accelerated filer ¨

Smaller reporting company þ

 

 

(Do not check if a smaller
reporting company)

 

 

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

 

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter:


As of June 30, 2014, based on the last reported closing price of $2.43 for the Company’s common stock on the OTC Bulletin Board interdealer quotation system on that date, the aggregate market value of the approximately 3,620,000 shares held by non-affiliates was $8,796,600.


The number of shares outstanding of the registrant’s common stock, as of April 14, 2015, is 44,711,000.


List hereunder the following documents if incorporated by reference and the Part of the Form 10-K ( e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933.  The listed documents should be clearly described for identification purposes:


None.

 

 




 


Table of Contents to Annual Report on Form 10-K

For the Fiscal Year Ended December 31, 2014

 

 

 

Page Number

 

 

 

 

PART I

 

 

 

 

ITEM 1.

BUSINESS

1

ITEM 1A.

RISK FACTORS

6

ITEM 1B.

UNRESOLVED STAFF COMMENTS

6

ITEM 2.

PROPERTIES

6

ITEM 3.

LEGAL PROCEEDINGS

6

ITEM 4.

MINE SAFETY DISCLOSURES

6

 

 

 

 

PART II

 

 

 

 

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

7

ITEM 6.

SELECTED FINANCIAL DATA

8

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

8

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

12

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

12

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

12

ITEM 9A.

CONTROLS AND PROCEDURES

12

ITEM 9B.

OTHER INFORMATION

13

 

 

 

 

PART III

 

 

 

 

 

 

 

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

14

ITEM 11.

EXECUTIVE COMPENSATION

16

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

18

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

19

ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

19

 

 

 

 

PART IV

 

 

 

 

ITEM 15.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

20







 


PART I

 

FORWARD-LOOKING STATEMENTS

 

This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The forward-looking statements are only predictions and provide our current expectations or forecasts of future events and financial performance and may be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,” “expects,” “plans,” “intends,” “may,” “will” or “should” or, in each case, their negative, or other variations or comparable terminology, though the absence of these words does not necessarily mean that a statement is not forward-looking. Forward-looking statements include all matters that are not historical facts and include, without limitation statements concerning: our business strategy, outlook, objectives, future milestones, plans, intentions, goals, and future financial condition, including the period of time for which our existing resources will enable us to fund our operations.

 

We intend that all forward-looking statements be subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to many risks and uncertainties that could cause actual results to differ materially from any future results expressed or implied by the forward-looking statements. We caution you therefore against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance.


The forward-looking statements contained in this Report or the documents incorporated by reference herein speak only of their respective dates. Factors or events that could cause our actual results to differ may emerge from time to time and it is not possible for us to predict them all. Except to the extent required by applicable laws, rules or regulations, we do not undertake any obligation to publicly update any forward-looking statements or to publicly announce revisions to any of the forward-looking statements, whether as a result of new information, future events or otherwise.


ITEM 1.

BUSINESS .


Background


United Cannabis Corporation ("we", "our", "us", "UCANN", or “the Company”) a Colorado corporation, was originally formed as a California corporation under the name MySkin, Inc. on November 15, 2007. MySkin was engaged in the business of providing management services to a medical spa in Los Angeles, California which provided various advanced skin care services until March 31, 2014, when this business was sold to the prior President of the Company.


In early 2014 we decided to exit the medical spa management business and change our focus to providing products, services and intellectual property to the cannabis industry.


On March 26, 2014, we entered into a License Agreement with Earnest Blackmon, Tony Verzura and Chad Ruby pursuant to which Messrs. Blackmon, Verzura and Ruby licensed certain intellectual property to us in exchange for a total of 38,690,000 shares of our common stock.


In connection with this transaction:


·

Messrs. Blackmon, Verzura and Ruby licensed to us all of their knowledge and know-how relating to the design and buildout of cultivation facilities, growing/cultivation systems, seed-to-sale protocols and procedures, products, access to a genetic catalogue including over 150 different strains, an advanced (non-psychoactive) cannabinoid sequencing therapy program utilizing patent-pending Prana Bio Nutrient Medicinals called the A.C.T. Now Program (“ACT Now” or “ACT Now Program”), security, regulatory compliance, and other methods and processes which relate to the cannabis industry.

 

 

·

The territory for this license is the entire world and the license runs in perpetuity. There are no royalty payments under the License Agreement.

 

 

·

Messrs. Blackmon, Verzura and Ruby were appointed to our board of directors effective April 7, 2014.

 

 

·

Mr. Blackmon was elected as our President, Mr. Ruby was elected as Chief Operating Officer and Mr. Verzura was elected as Vice President.

 

 

·

A total of 41,690,000 previously outstanding shares of common stock were cancelled resulting in a total of 43,620,000 shares of common stock outstanding on March 26, 2014.




1



 


UCANN was formed as a Colorado corporation on March 25, 2014, and on May 2, 2014, MySkin, Inc. merged into UCANN, a wholly-owned subsidiary of MySkin, Inc., for the purpose of changing domicile from California to Colorado and changing the corporation's name to United Cannabis Corporation.


Business Overview


We own distinct intellectual property relating to the legalized growth, production, manufacture, marketing, management, utilization and distribution of medical and recreational marijuana and marijuana infused products.  In our first year of operating in the marijuana industry we have entered into three significant agreements with partners outside of Colorado where we have agreed to provide intellectual property and consulting services and in which we have received an equity interest.  These businesses are located in Nevada, Jamaica, and Canada and the three agreements are described below.  We also have formalized strategic relationships with four other businesses in the marijuana industry and a description of these relationships is set forth below.


Our primary goal is to advance the use of phytocannabinoid therapeutics in medicine through research, product development and education. We are dedicated to improving the lives of patients. We provide the intellectual property, patent-pending technology, trusted brands, clinical data, technical training, sales tools and methodologies necessary to assist our clients businesses for success.  Our ACT Now Program utilizes our patent-pending Prana Bio Nutrient Medicinals with a HIPPAA compliant electronic health record (“EHR”) software that enables physicians to create comprehensive sequencing charts specific to their patients’ medical aliments. The ACT Now EHR software allows for global monitoring, patient management, and effective cannabinoid therapy protocols.


Medical marijuana businesses where we provide intellectual property or consulting services and in which we hold an equity interest


Lone Mountain Partners (Nevada)


On July 18, 2014, we formed a wholly-owned subsidiary, UC Nevada L.L.C. (“UC Nevada”) for the purpose of serving as a holding company to own an equity interest in a medical marijuana business in Nevada.  On August 14, 2014, Lone Mountain Partners, LLC (“Lone Mountain”) was formed for the purpose of acquiring the necessary licenses for, and to own and operate medical marijuana cultivation, production and /or dispensary businesses in North Las Vegas, Nevada and other jurisdictions in Nevada, as determined in the future.  We own a 25% interest in Lone Mountain through our subsidiary UC Nevada.  


On November 3, 2014, Lone Mountain was awarded a provisional certificate for a medical marijuana production establishment and a medical marijuana cultivation establishment in North Las Vegas by the State of Nevada Division of Public and Behavioral Health.  Final approval of these certificates will occur once Lone Mountain has completed several steps including providing a business license and certificate of occupancy or a special use permit from the City of North Las Vegas, providing documentation regarding successful inspections issued for fire, building, health and air quality and successful pre-opening inspection findings done by the Division.  Lone Mountain is in the process of preparing the plans for submission to the City of North Las Vegas to obtain a business license and a building permit. There can be no assurance that Lone Mountain will receive the final certificates from the Division.


A local real estate owner is one of the other equity owners in Lone Mountain and the owner is providing a 22 acre parcel in North Las Vegas with an existing 30,000 square foot warehouse and a 10,000 square foot office space for a 40% equity position.


CRD (Jamaica)


On August 25, 2014, we entered into an agreement with the six shareholders of a Jamaican company, Cannabinoid Research & Development Company Limited (“CRD”), to purchase 50% of their ownership interest in CRD in anticipation of the expected passage of pending legislation to decriminalize marijuana for medical purposes.  We acquired our interest in CRD in order to further our goal of advancing the use of cannabis in medical therapies through biomedical and pharmaceutical research and development efforts in Jamaica.  




2



 


On February 24, 2015, Jamaica’s House of Representatives passed an amendment to Jamaica’s Dangerous Drugs Act (“Act”), decriminalizing small amounts of marijuana and instituting a licensing agency to establish and regulate a domestic medical marijuana industry.  These changes to the Act will facilitate ganja (cannabis) use for therapeutic purposes, as prescribed by a registered practitioner, or for scientific research conducted by an accredited tertiary institution or otherwise approved by the Scientific Research Council of Jamaica (“SRC”).  SRC is a public sector agency tasked with fostering scientific research and promoting its application within Jamaica.


Since the summer of 2014 we have been having discussions with the SRC, the University of the West Indies (“UWI”), which is located in Jamaica, and the other shareholders of CRD about a partnership in which we would establish a branded genetic database; conduct product analysis and preclinical studies of our Prana Bio Nutrient Medicinals product line; and collaborate with UWI and have access to its staff and facilities, including its School of Medical Sciences, Clinical Trial Centre and eight associated hospitals. We entered into a Memorandum of Understanding (“MOU”) with the SRC in September 2014 and a Letter of Intent (“LOI”) with UWI in November 2014 along those lines but the contracts have not yet been finalized.  In the MOU with SRC, UCANN and CRD agree to use SRC for all medicinal ganja product testing and for integrated research programs in collaboration with UWI, and UCANN and CRD agreed to provide the medicinal ganja live plant and dried plant products for the testing and research.  The LOI with UWI provides that the central objective of the collaboration is to develop and perform clinical testing of phyto-therapeutic and medicinal ganja plant to develop nutraceuticals and pharmaceuticals and/or other plant-based products.


The first phase of this project will consist of importing our library of genetics to utilize the plant tissue culture bank which SRC has already established for the Caribbean.  SRC is expected to have permits issued by the Ministry of Industry, Investment and Commerce which will allow these genetics to be imported to Jamaica.  SRC is expected to conduct the preclinical safety trials on our Prana products to provide formal scientific data to support the empirical evidence that our products are safe for human consumption. This data can then be used to further support the provisional patent applications we filed in October 2014 in addition to helping us prepare the protocol documentation necessary to commence clinical trials.


The second phase will be working with UWI.  UWI will be focused on cultivating our genetics in a campus greenhouse where they plan to map, study and publish genetic variations.  They are also expected to utilize the data from preclinical rodent safety trials performed at SRC to perform clinical trials on humans for specific ailments.


The third phase will include developing our cultivation and distribution channels.  This cannot begin until Jamaica finalizes their rules and regulations with regards to granting licenses to cultivate, process, and import/export medical cannabis products.

 

CRD intends to create a “Ganja Cooperative” which will provide local farmers with access to established Jamaican bred genetics, job training and cultivation methodologies in order to generate standardized cannabis resin products to locally create our Prana Bio Nutrient Medicinal products for global distribution.


WeedMD (Canada)


On May 28, 2014, we signed a binding letter agreement with WeedMD RX Inc. (“WeedMD”), a private Canadian corporation, regarding the establishment of a strategic partnership with respect to growing, producing and selling medical marijuana in Canada.  WeedMD is a medical marijuana company which has secured pre-license approval from Health Canada to produce and distribute 2,500 kg of medical marijuana from its 25,000 square foot facility in Aylmer, Ontario.  In the letter agreement, we granted to WeedMD a royalty free license to use all of our intellectual property including our knowledge and know-how relating to the design and buildout of cultivation facilities, our catalogue of different strains of marijuana, our ACT Now Program, our growing expertise and other methods and processes which relate to the medical cannabis industry.  WeedMD plans to use our intellectual property and our consulting services in connection with their project in Aylmer and any other projects in Canada.  They have received the security approval from Health Canada for the Aylmer project and they are moving toward obtaining a cultivation license.


In consideration for the license to use our intellectual property and our consulting services, WeedMD issued us 1,187,500 shares of its common stock which represents approximately 3.6% of their shares outstanding and WeedMD issued to us warrants to purchase 3 million shares of common stock at an exercise price of CAD $.50 per share, however, these warrants expired on December 9, 2014.




3



 


Formalized relationships with others in the medical marijuana industry


We work closely with many other individuals and businesses in the medical marijuana industry and following is a summary of some of the key relationships which have been formalized with an agreement, letter of intent or memorandum of understanding.


FoxBarry Farms


On December 28, 2014, we entered into a consulting and licensing agreement with FoxBarry Farms, LLC (“FoxBarry”) pursuant to which FoxBarry was designated as the exclusive licensee and distributor of branded medical marijuana products in the State of California.


Under the agreement we will assist FoxBarry in coordinating programs with at least three different federally recognized Native American tribes on their reservations in California.  We will provide a variety of consulting services to FoxBarry-managed operations, including cultivation, harvesting, processing and sales of medical marijuana and medical marijuana infused products and FoxBarry has pledged $30 million to establish the initial three sites.  We have also provided FoxBarry with an exclusive license to manufacture, market, distribute and sell branded marijuana, marijuana-infused products, other authorized products and services resulting from our proprietary formulations, processes, and other intellectual property throughout the State of California.  This includes branded products and services from our partnerships with DNA Genetics, Emotek and T.H.E. Melts.


FoxBarry provides a variety of economic development opportunities to its Native American business partners.  Working directly with its tribal partners, FoxBarry provides funding and management expertise in turnkey business enterprises that work within the constructs of the law and ordinances of the tribes.


On December 11, 2014, the Department of Justice announced that Native American tribes can grow or sell marijuana on their lands as long as they comply with the federal conditions laid out for states that have legalized medical marijuana and medical marijuana infused products.


FoxBarry is in the process of finalizing plans to build a 90,000 sq. ft. greenhouse facility and 20,000 sq. ft. processing laboratory in North California. FoxBarry has plans to construct two additional facilities in central and southern California with separate Native American partners.


Jason Emo and Emotek


Jason Emo, located in Denver, Colorado, has created the first Colorado state approved hydrocarbon extraction machine.  Jason Emo produces hydrocarbon extraction machines for commercial production and he has also developed premium brands of cannabis products including Live Resin, Live Resin Shatter, Live Terp Resin, and CBD-Rich Food Grade Oil.  


On June 20, 2014, we entered into a Production and Placement Agreement with Emotek LLC (“Emotek”) an entity controlled by Jason Emo, in which we agreed to help Emotek find licensed and permitted facilities with access to raw cannabis materials whereby Emotek could produce and distribute their products.  We also agreed to help build Emotek’s brands and promote the use of Emotek equipment.  In return, Emotek agreed to pay us ongoing licensing and consulting fees.


DNA Genetics


DNA Holding, LLC, (dba DNA Genetics) (“DNA”) headquartered in Amsterdam, is a company that possesses the capabilities, technical knowledge and owns or controls proprietary processes for creating certain products and strains from various parts of the cannabis plant, and also owns or controls the trademark “DNA Genetics,” the brand “Reserva Pravda” and other proprietary information and intellectual property.  


On October 17, 2014, we signed a Licensing and Exclusive Distribution Agreement with DNA which gives us the right to serve as the exclusive marketing agent and agent for the production and distribution of DNA products in Colorado.  We will seek to procure contracts on behalf of DNA with cannabis retail locations and/or producers and distributors for the production, distribution and sale of DNA products through their designated retail locations and/or producers and distributors in exchange for licensing and consulting fees from DNA.




4



 


T.H.E. Melts


T.H.E. Melts (“The Melts”) located in Denver, Colorado possesses the capabilities, technical knowledge and provides the proprietary process for creating the “Ice Water Extraction Techniques” products from various parts of the cannabis plant.


On June 18, 2014, we entered into a Production and Placement Agreement with The Melts appointing us on an exclusive basis to promote The Melts’ products including Full Melt Bubble Hash, Full Melt Bubble Hash Fruit Leather edibles, and Full Melt Resin Hash.  We agreed to use our best efforts to promote the sale and use of The Melts’ products through our contacts in Colorado.  We also agreed to seek retail locations for production of The Melts’ products and to help procure contracts for The Melts for the distribution and sale of their products through their designated and separately contracted retail locations and/or distributors.  In consideration for these services, The Melts agreed to pay us licensing and consulting fees.


ACT Now Program


One of our primary goals is to advance the use of cannabinoids in medicine through research, product development and education.  Our intellectual property includes our ACT Now Program which is a comprehensive full spectrum cannabinoid therapy guide that utilizes the entire cannabis plant by controlling specific cannabinoid ratios, accurate dosing and multiple non-invasive delivery methods.  Our ACT Now Program offers a wide range of affordable patient driven programs with limitless combinations of cannabinoid-based products and nutritional recommendations to assist patients suffering from chronic pain, opiate dependency, inflammation, glaucoma, PTSD, neuropathy, multiple sclerosis, fibromyalgia, Crohn’s, IBS, seizures, epilepsy, paralysis, autoimmune, autism, tumors, HIV/AIDS and many types of cancer.


We own certain proprietary formulations, processes and other intellectual property which can be used to produce our Prana Bio Nutrient Medicinals in connection with our ACT Now Program.  These products, which are made with unique combinations of pharmaceutically active cannabinoids, provide a comprehensive solution designed to enable physicians and patients to design, implement and monitor effective therapy protocols.


Competition


Currently, we are primarily engaged in the business of providing consulting and advisory services and licensing our intellectual property to businesses or persons who are already in the marijuana business or who desire to enter the business.  There are a large number of other public and private companies which compete with us in this area.  These competitors include MedBox, Inc., Advanced Cannabis Solutions, Inc., Growlife, Inc., Terra Tech Corp., American Cannabis Company, Americann, Inc. and Monarch America, Inc. (formerly Cannabis Kinetics, Inc.).  We believe that our principal competitive advantages are the reputations and experience of our principals in the industry.


The recent growth in the industry, particularly in Colorado, has attracted many businesses trying to enter the market.  Some of our competitors have greater capital resources and facilities which may enable them to compete more effectively in this market.  Due to this competition, there is no assurance that we will not encounter difficulties in generating revenues.  If we are unable to successfully compete with existing companies and new entrants to the market, this will have a negative impact on our business and financial condition.


Intellectual Property


Our intellectual property includes our management’s knowledge and know-how relating to the legalized growth, production, manufacture, marketing, management, utilization and distribution of medical and recreational marijuana and marijuana infused products.  It also includes a genetic catalogue including over 150 different strains of marijuana, and an advanced (non-psychoactive) cannabinoid therapy program called “A.C.T. Now.”


We have also filed for two provisional patents related to the unique combinations of pharmaceutically active cannabinoids used to treat disorders of the nervous system, immune system and cancer with the U.S. Patent and Trademark office.


Employees


As of December 31, 2014, we had a total of five employees. There is no union representation of our employees, and we have never experienced an involuntary work stoppage. We believe that our continued success depends, in part, on our ability to attract and retain qualified personnel. We consider our relations with our employees to be good.




5



 


Effect of Environmental Laws


We are subject to federal, state, and local environmental laws and regulations, as well as the environmental laws and regulations of the foreign federal and local jurisdictions in which we have operations. We believe we are in material compliance with all such laws and regulations.


Compliance with federal, state, and local laws and regulations has not had, and is not expected to have, an adverse effect on our capital expenditures, competitive position, financial condition, or results of operations.


Website Access


Our website address is www.unitedcannabis.us. We make available, free of charge on our website, our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to these reports as soon as reasonably practicable after filing such reports with, or furnishing them to, the Securities and Exchange Commission (“SEC”). Such reports are also available at www.sec.gov. Information contained on our website is not incorporated by reference in, or otherwise part of, this Annual Report on Form 10-K or any of our other filings with the SEC.


ITEM 1A.

RISK FACTORS .

 

As a smaller reporting company we are not required to provide the information required by this Item 1A.


ITEM 1B.

UNRESOLVED STAFF COMMENTS .

 

None.

 

ITEM 2.

PROPERTIES .

 

In May 2014 we entered into a month-to-month office lease agreement at 1600 Broadway, Suite 1600, Denver, Colorado 80202 with a lease payment of $269 per month. Our phone number is (303) 386-7104. We believe that this space will be sufficient for our initial needs, although as funding and revenues become available, and our operations grow, we anticipate finding other office space as needed.


ITEM 3.

LEGAL PROCEEDINGS .

 

We are not aware of any pending or threatened legal actions to which we are a party or of which our property is the subject that would, if determined adversely to us, have a material adverse effect on our business and operations.


We have from time to time been involved in disputes and proceedings arising in the ordinary course of business. In addition, as a public company, we are also potentially susceptible to litigation, such as claims asserting violations of securities laws. Any such claims, with or without merit, if not resolved, could be time-consuming and result in costly litigation. There can be no assurance that an adverse result in any future proceeding would not have a potentially material adverse effect on our business, results of operations or financial condition.

 

ITEM 4.

MINE SAFETY DISCLOSURES .

 

Not applicable.




6



 


PART II

 

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES .

 

Market Information

 

Our common stock is quoted on the OTC Markets Group, Inc.’s OTCQB tier under the symbol “CNAB.” The following is a summary of the high and low closing bid prices of our common stock for the periods indicated, as reported by the OTC Markets Group, Inc. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions.

 

 

 

High

 

 

Low

 

Year ended December 31, 2013

    

 

 

 

 

 

 

  

First Quarter

 

$

N/A

 

 

$

N/A

 

Second Quarter

 

$

N/A

 

 

$

N/A

 

Third Quarter

 

$

N/A

 

 

$

N/A

 

Fourth Quarter

 

$

0.69

 

 

$

0.28

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 2014

 

 

 

 

 

 

 

 

First Quarter

 

$

10.00

 

 

$

0.05

 

Second Quarter

 

$

11.45

 

 

$

0.75

 

Third Quarter

 

$

4.25

 

 

$

0.85

 

Fourth Quarter

 

$

1.06

 

 

$

0.36

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 2015

 

 

 

 

 

 

 

 

First Quarter

 

$

2.00

 

 

$

0.56

 


The share prices above reflect our four-for-one stock split effective March 21, 2014.


On March 31, 2015, the closing bid price on the OTC Markets Group, Inc.’s OTCQB tier for our common stock was $0.60.


Stockholders


As of March 31, 2015, we had approximately 64 shareholders of record and 44,711,000 shares of common stock outstanding.

 

Dividends


We have not declared or paid any cash dividends on our capital stock in our history as a public company. We currently intend to retain all future earnings to finance our business and do not anticipate paying cash or other dividends on our common stock in the foreseeable future.

 

Transfer Agent


Our transfer agent is Issuer Direct Corporation located at 500 Perimeter Park Drive, Morrisville, NC 27560 Tel: 919-481-4000.


Purchases of Equity Securities by the Issuer and Affiliated Purchasers


None.


Recent Sales of Unregistered Equity Securities


During the three months ended December 31, 2014, we issued a total of 220,000 shares of our common stock to six consultants and one consulting firm for consulting services and product distribution license fees valued at a total of $109,100 based on the closing price of our common stock on the day before the issuance of the shares was approved by our board of directors.




7



 


In connection with the above stock sales, we did not pay any underwriting discounts or commissions. None of the sales of securities described or referred to above was registered under the Securities Act of 1933, as amended (the “Securities Act”). We had or one of our affiliates had a prior business relationship with each of the purchasers, and no general solicitation or advertising was used in connection with the sales. In making the sales without registration under the Securities Act, we relied upon the exemption from registration contained in Section 4(2) of the Securities Act.

 

ITEM 6. 

SELECTED FINANCIAL DATA .

 

Not applicable.

 

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS .

 

Certain statements set forth below under this caption constitute forward-looking statements. See “Forward-Looking Statements” preceding Item 1 of this Annual Report on Form 10-K for additional factors relating to such statements .


You should read the following discussion and analysis of financial condition and results of operations in conjunction with the consolidated financial statements and related notes appearing elsewhere in this Report.


Overview


United Cannabis Corporation ("we", "our", "us", "UCANN", or “the Company”) a Colorado corporation, was originally formed as a California corporation under the name MySkin, Inc. on November 15, 2007. MySkin was engaged in the business of providing management services to a medical spa in Los Angeles, California which provided various advanced skin care services until March 31, 2014, when this business was sold to the prior President of the Company.


In early 2014 we decided to exit the medical spa management business and change our focus to providing products, services and intellectual property to the cannabis industry.


UCANN was formed as a Colorado corporation on March 25, 2014, and on May 2, 2014, MySkin, Inc. merged into UCANN, a wholly-owned subsidiary of MySkin, Inc., for the purpose of changing domicile from California to Colorado and changing the corporation's name to United Cannabis Corporation.


We own distinct intellectual property relating to the legalized growth, production, manufacture, marketing, management, utilization and distribution of medical and recreational marijuana and marijuana infused products.  In our first year of operating in the marijuana industry we have entered into three significant agreements with partners outside of Colorado where we have agreed to provide intellectual property and consulting services and in which we have received an equity interest.  These businesses are located in Nevada, Jamaica and Canada.  We also have formalized strategic relationships with four other businesses located in Colorado and California in the marijuana industry and we provide consulting services, product placement services and licenses to our intellectual property in exchange for consulting and licensing fees.


Our primary goal is to advance the use of cannabinoids in medicine through research, product development and education.  We are dedicated to improving the lives of patients through the creation of products using only the highest quality genetics, purest extractions and most effective protocols possible.  Our ACT Now Program and patent-pending Prana Bio Nutrient Medicinals provide a comprehensive solution, designed to enable physicians and patients to design, implement and monitor effective cannabinoid therapy protocols.


Results of Operations

 

The Year Ended December 31, 2014 Compared to the Year Ended December 31, 2013


Revenues and Cost of Revenues


Revenues and cost of revenues were $186,557 and $7,031, respectively, during the year ended December 31, 2014, as compared to $0 during the year ended December 31, 2013, as we began our new business in 2014. Our revenues were comprised of our recognition of $150,000 of deferred consulting revenues relating to our investment in WeedMD’s non-marketable equity securities and $36,557 of licensing fees, product sales, other consulting fees and reimbursable expenses.




8



 


Our costs of revenues, $7,031, consisted of  $1,000 of share-based compensation expense and costs totaling $6,031 for materials and supplies related to our products, direct costs associated with our license fees, and costs and reimbursable expenses associated with other consulting revenue and reimbursable expenses revenue.


Sales and Marketing Expenses


Sales and marketing expenses were $101,962 and $0 for the years ended December 31, 2014 and 2013, respectively. The increase in sales and marking expenses was due to the new business we entered into after our change in control. Our sales and marketing expenses were mainly comprised of third party consulting fees during the year ended December 31, 2014, and also include $9,200 of non-cash share-based compensation expense related to one service provider.


Research and Development Expenses


Research and development expenses (“R&D”) were $182,606 and $0 for the years ended December 31, 2014 and 2013, respectively. The increase in R&D was due to the new business we entered into after our change in control. Our R&D expenses during the year ended December 31, 2014, were mainly comprised of costs associated with a third party consultancy agreement.


General and Administrative Expenses


General and administrative expenses (“G&A”) were $1,709,040 and $33,661 for the years ended December 31, 2014 and 2013, respectively. The increase in general and administrative expenses was due to the new business we entered into after our change in control.


For the year ended December 31, 2014, our G&A consisted of $556,253 of wages and related expenses, $323,247 of professional fees, $175,000 of business development expense, $541,485 of non-cash share-based compensation expense and $113,055 of travel and office related expense.


During the year ended December 31, 2014, we incurred wages and related expenses applicable to our executive team beginning in March 2014 and the addition of two employees during the year.  Professional fees were mainly comprised of $183,099 of legal fees during the year ended December 31, 2014, and also included fees for audit, accounting, investor relations, lobbying, investment banking and other consultants. During the year ended December 31, 2014, $123,821 of our share-based compensation expense related to shares issued to six service providers for investor relation, public relation, accounting, information technology and other services. In addition, we recorded $417,664 of share-based compensation expense applicable to 600,000 stock options granted to three executives on January 9, 2015, for services provided in 2014. We expect our G&A expenses to increase as our business expands in future periods.


Other Nonoperating Expense, net


Our other nonoperating expense, net totaled $595,390, net, during the year ended December 31, 2014, as compared to $0 during the year ended December 31, 2013. During this period, interest income of $37,837 and gain on revaluation of derivative liability of $6,099 was offset by the following: our $300,000 loss on non-marketable equity securities related to the expiration of our WeedMD warrants, interest expense of $131,479, amortization of debt discount of $161,402, loss on origination of derivative liability of $12,810 and loss on extinguishment of our debt to Typenex totaling $33,635.


Discontinued Operations


On March 31, 2014, we sold all right, title and interest in the tangible and intangible assets, trademarks, customer lists, intellectual property and rights, which we owned and were related to our advanced skin care business. The assets were sold to MySkin Services, Inc. (“MTA”), a business partly owned by Ms. Stoppenhagen in exchange for a $15,000 payable we owed to Ms. Stoppenhagen and/or MTA.  In addition, MTA assumed all costs associated with these assets starting on March 31, 2014.  




9



 


The following details our income (loss) from discontinued operations:


 

 

Years Ended December 31,

 

 

 

2014

 

 

2013

 

 

 

 

 

 

 

 

Revenues

 

$

20,684

 

 

$

105,662

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

63,872

 

 

 

57,146

 

Depreciation

 

 

 

 

 

18,019

 

Loss on disposal of assets

 

 

15,704

 

 

 

 

Total operating expenses

 

 

79,576

 

 

 

75,165

 

 

 

 

 

 

 

 

 

 

Income (loss) from discontinued operations, before income taxes

 

 

(58,892

)

 

 

30,496

 

Provision for income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from discontinued operations, net of income taxes

 

$

(58,892

)

 

$

30,496

 


Liquidity and Capital Resources


Our consolidated financial statements have been prepared on a going concern basis which assumes we will be able to realize our assets and discharge our liabilities in the normal course of business for the foreseeable future. During the year ended December 31, 2014, we incurred losses of $2,468,364 and used cash of $1,189,057 in our operating activities. As at December 31, 2014, we had a working capital deficit of $1,304,209 and an accumulated deficit of $2,624,967.  Our ability to continue as a going concern is dependent upon our ability to generate profitable operations in the future and, or, obtaining the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due. There is no assurance that these events will be satisfactorily completed.

 

Net cash used in operating activities for the years ended December 31, 2014 and 2013, was $1,189,057 and $25,816, respectively. This increase was primarily due to the expenses incurred in connection with our new business as a result of our change in control in March of 2014.

 

Net cash used in investing activities for the years ended December 31, 2014 and 2013, was $52,309 and $18,215, respectively. This increase was mainly due to a $50,000 equity method investment completed during the current period compared to fixed asset purchases totaling $18,215 in the year ended December 31, 2013.


Net cash provided by financing activities for the years ended December 31, 2014 and 2013, was $1,530,305 and $0, respectively. The increase was due to $900,000 from the sale of our common stock, $761,500 of borrowings under our notes payable and $225,000 of borrowings under our convertible note payable. These amounts were offset by a $356,195 cash settlement related to our convertible note payable. During the year ended December 31, 2013, we both received and repaid $50,000 under our note payable related party.


During the next 12 months, we anticipate that we will incur a minimum of $1 million of general and administrative expenses in order to execute our current business plans. We also plan to incur significant sales, marketing, research and development expenses during the next 12 months. We must obtain additional financing to continue our operations. We may not be able to obtain additional funding on terms that are favorable to us or at all. We may not be able to obtain sufficient funding to continue our operations, or if we do receive funding, to generate adequate revenues in the future or to operate profitably in the future. These conditions raise substantial doubt about our ability to continue as a going concern.


Off-Balance Sheet Arrangements

 

We have not entered into any off-balance sheet arrangements.




10



 


Critical Accounting Estimates


The preparation of consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires us to make judgments, assumptions, and estimates that affect the amounts reported. Note 2 - Summary of Significant Accounting Policies of our consolidated financial statements describes the significant accounting policies used in the preparation of our consolidated financial statements. The accounting positions described below are significantly affected by critical accounting estimates. Such accounting positions require significant judgments, assumptions, and estimates to be used in the preparation of our consolidated financial statements, actual results could differ materially from the amounts reported based on variability in factors affecting these statements.


Investments in Non-Marketable Equity Securities – Our investments in non-marketable equity securities are carried at cost, less write-down-for-impairments, and are adjusted for impairment based on methodologies, including the valuation achieved in the most recent private placement by an investee, an assessment of the impact of general private equity market conditions, and discounted projected future cash flows. 


Long-Lived Assets – Our intangible assets and other long-lived assets are subject to an impairment test if there is an indicator of impairment. The carrying value and ultimate realization of these assets is dependent upon our estimates of future earnings and benefits that we expect to generate from their use. If our expectations of future results and cash flows are significantly diminished, intangible assets and other long-lived assets may be impaired and the resulting charge to operations may be material. When we determine that the carrying value of intangibles or other long-lived assets may not be recoverable based upon the existence of one or more indicators of impairment, we use the projected undiscounted cash flow method to determine whether an impairment exists, and then measure the impairment using discounted cash flows.


Deferred Revenue - We defer revenue for which product or service has not yet been delivered or is subject to refund until such time that we and our customer jointly determine that the product or service has been delivered or no refund will be required.


Revenue Recognition - We recognize revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605, Revenue Recognition , which requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on our management's judgments regarding the fixed nature of the selling prices of the products and services delivered and the collectability of those amounts.


Revenue for services with a payment in form of stock, warrants or other financial assets is recognized when the services are performed. The value of revenue is measured using the Black-Scholes model for warrants.


Cost of Revenues - Our cost of revenues consists primarily of costs associated with the production and delivery of our products and services. These include expenses related to the production and labeling of our Prana medicinals products and consulting expense related to our advisory services.


Stock-Based Compensation - We periodically issue shares of our common stock to non-employees in non-capital raising transactions for fees and services. We account for stock issued to non-employees in accordance with ASC 505, Equity , whereas the value of the stock compensation is based upon the measurement date as determined at either (a) the date at which a performance commitment is reached, or (b) at the date at which the necessary performance to earn the equity instruments is complete.

 

Income Taxes - Income taxes are recorded using the asset and liability method. Under the asset and liability method, tax assets and liabilities are recognized for the tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using the enacted tax rates expected to apply when the asset is realized or the liability settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that enactment occurs. To the extent that we do not consider it more likely than not that a future tax asset will be recovered, we will provide a valuation allowance against the excess.




11



 


Recent Accounting Pronouncements


From time to time, the FASB or other standards setting bodies issue new accounting pronouncements. Updates to the FASB ASCs are communicated through issuance of an Accounting Standards Update (“ASU”). Unless otherwise discussed, we believe that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on our consolidated financial statements upon adoption.


To understand the impact of recently issued guidance, whether adopted or to be adopted, please review the information provided in Note 2 - Summary of Significant Accounting Policies to our consolidated financial statements included in Item 8 of this Report.


ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK .

 

Not applicable.

 

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA .


See the consolidated financial statements and accompanying notes included with this Report.


ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE .

 

On September July 22, 2014,  the board of directors dismissed Anton & Chia, LLP (“Anton”) as our independent registered public accounting firm and we appointed Cutler & Co., LLC (“Cutler”) as our new independent registered public accounting firm.


There were no disagreements with either Anton or Cutler in respect of accounting and financial disclosure.


ITEM 9A.

CONTROLS AND PROCEDURES.


Disclosure Controls and Procedures


Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports filed or submitted under the Securities Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC rules and forms, and that such information is accumulated and communicated to management, including our CEO and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. Our management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding management's control objectives.


Our management, with the participation of our CEO, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Annual Report. Based upon this evaluation, our CEO concluded that our disclosure controls and procedures were not effective as of December 31, 2014, because of the identification of a material weakness in our internal control over financial reporting which is described below. We intend to continue to review and document our disclosure controls and procedures, including our internal controls over financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.


Management’s Report on Internal Control Over Financial Reporting


Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Rule 13a-15(f). Our internal control over financial reporting is a process designed to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with U.S. GAAP.




12



 


Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with  U.S. GAAP and our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our consolidated financial statements.


Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2014. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in their Internal Control-Integrated Framework . Based on this evaluation, our management concluded that that our internal control over financial reporting was not effective as of December 31, 2014.


Our CEO concluded we have a material weakness due to: (i) lack of a functioning audit committee due to a lack of a majority of independent members and a lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (ii) inadequate segregation of duties consistent with control objectives; and (iii) ineffective controls over period end financial disclosure and reporting processes. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.


While we strive to segregate duties as much as practicable, there is an insufficient volume of transactions at this point in time to justify additional full time staff. We believe that this is typical in many start-up companies. We may not be able to fully remediate our material weaknesses until we increase our operations at which time we would expect to hire more staff and consider increasing the number of directors on our board. We will continue to monitor and assess the costs and benefits of additional staffing. We have increased services and related staffing through our business and financial consulting contractor to remedy existing internal control and disclosure control deficiencies.


While we have not yet remediated these material weaknesses, we will continue our remediation efforts during fiscal 2015.


Notwithstanding the identified material weaknesses, our management believes the consolidated financial statements included in this Annual Report on Form 10-K fairly represent in all material respects our financial condition, results of operations and cash flows at and for the periods presented in accordance with U.S. GAAP.


This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to the SEC rules that permit us to provide only management's report in this Annual Report.


Changes in Internal Control Over Financial Reporting


There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2014, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


Limitations on Controls and Procedures


Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding controls. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

ITEM 9B.

OTHER INFORMATION .

 

None.



13



 


PART III

 

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE .

 

Our executive officers and directors are listed below. Directors are generally elected at our annual shareholders’ meeting and hold office until the next annual shareholders’ meeting, or until their successors are elected and qualified.  Our executive officers are elected by our directors and serve at the board’s discretion.

 

Name

 

Age

 

Positions

Earnest Blackmon

 

43

 

CEO, President, principal financial officer and director

Chad Ruby

 

39

 

Chief Operating Officer, Secretary, Treasurer and director

Tony Verzura

 

37

 

Vice President and director


The following is a brief summary of the background of each officer and director including their principal occupation during the five preceding years. Neither of these persons is a financial expert as that term is defined by the SEC. All directors will serve until their successors are elected and qualified or until they are removed.


Earnest Blackmon , age 43, has been involved in commercial horticulture and landscaping for the last 10 years.  He has served as the master grower and Chief Technical Officer/Member of RiverRock LLC a company engaged in growing and selling medical and recreational marijuana in Denver, Colorado, from November of 2009 to the present. He served as the Chief Operating Officer/Owner of Sweet Lawn and Landscaping in Tampa, Florida from January of 2004 to June of 2008 and from July 2008 until October 2009 he consulted with several collectives in California on their cultivation methods.  Mr. Blackmon attended John’s Hopkins University from 1991 to 1992.  We believe that his 20 years of experience in the commercial horticulture industry and more specifically in growing marijuana and his 5 years in the marijuana industry enable him to make valuable contributions to our board of directors.


Chad Ruby , age 39, has been a portfolio manager, real estate broker and appraiser for the last 10 years.  He started with Hudson Appraisals, Inc. in 2002 and became a partner and Chief Operating Officer in February of 2005, and he resigned as Chief Operating Officer in June of 2008.  Mr. Ruby was employed by NRT REO Experts, LLC, Orlando, Florida, as a portfolio manager from June of 2008 until April 2014.  During 2013 and 2014 he has also been consulting part-time for RiverRock LLC, a company engaged in growing and selling medical and recreational marijuana in Denver, Colorado.  Mr. Ruby graduated from the University of Central Florida in 2010 with a B.S. in Finance.  We believe that Mr. Ruby’s 10 years of real estate and business experience combined with his college degree in finance and his consulting experience with RiverRock LLC qualify him to serve as a member of our board of directors.


Tony Verzura , age 37, has been in construction and managing patient care facilities for the last 10 years.  He has served as the patient care facilitator and Chief Operating Officer for RiverRock LLC, a company engaged in growing and selling medical and recreational marijuana in Denver, Colorado, from November of 2009 to the present. He worked as an independent contractor from January of 2004 to June of 2009.  Mr. Verzura attended Florida International University from 1999 to 2003.  We believe that Mr. Verzura’s 5 years of experience as Chief Operating Officer of RiverRock LLC enables him to make valuable contributions to our board of directors.


None of the directors are independent directors as that term is defined in Section 803 of the NYSE MKT Company Guide.


Employment Agreements

 

We currently do not have any employment agreements with any of our directors or executive officers.


Significant Employees


None.


Family Relationships

 

None.




14



 


Involvement in Certain Legal Proceedings

 

To our knowledge, our directors and executive officers have not been involved in any of the following events during the past ten years:

 

 

·

Any bankruptcy petition filed by or against such person or any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;

 

 

 

 

·

Any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);

 

 

 

 

·

Being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from or otherwise limiting his involvement in any type of business, securities or banking activities or to be associated with any person practicing in banking or securities activities;

 

 

 

 

·

Being found by a court of competent jurisdiction in a civil action, the SEC or the Commodity Futures Trading Commission to have violated a Federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;

 

 

 

 

·

Being subject of, or a party to, any Federal or state judicial or administrative order, judgment decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of any Federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

 

 

 

 

·

Being subject of or party to any sanction or order, not subsequently reversed, suspended, or vacated, of any self-regulatory organization, any registered entity or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.


Section 16(a) Beneficial Ownership Reporting Compliance.

 

Section 16(a) of the Securities Exchange Act of 1934 requires that our executive officers and directors, and persons who own more than ten percent of a registered class of our equity securities, file reports of ownership and changes in ownership with the SEC. Executive officers, directors and greater-than-ten percent stockholders are required by SEC regulations to furnish us with all Section 16(a) forms they file. Based solely on our review of the copies of the forms received by us and written representations from certain reporting persons that they have complied with the relevant filing requirements, we believe that, during the year ended December 31, 2014, all of our executive officers, directors and greater-than-ten percent stockholders complied with all Section 16(a) filing requirements.

 

Code of Ethics

 

We have adopted a code of ethics that applies to our principal executive officers, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of our code of ethics may be obtained free of charge by contacting us at the address or telephone number listed on the cover page hereof.


Stockholder Communications


Our board has determined not to adopt a formal methodology for communications from stockholders on the belief that any communication would be brought to the board’s attention by each of our executive officers.


Audit Committee and Audit Committee Financial Expert

 

We do not currently have an audit committee or a committee performing similar functions. Our board as a whole participates in the review of financial statements and disclosure. We also do not have an audit committee financial expert.





15



 


ITEM 11.

EXECUTIVE COMPENSATION .

 

Summary Compensation Table

 

As a smaller reporting company, we are required to disclose for fiscal years 2014 and 2013 the executive compensation of our “Named Executive Officers,” which consist of the following individuals: (i) any individual serving as our principal executive officer or acting in a similar capacity; (ii) our two other most highly compensated executive officers serving as executive officers at the end of the most recently completed fiscal year; and (iii) any additional individuals for whom disclosure would have been provided but for the fact the individual was not serving as an executive officer at the end of our most recently completed fiscal year.

 

During fiscal 2013 no compensation was accrued by or paid to any such Named Executive Officers.

 

The following Summary Compensation Table sets forth for fiscal 2014 and 2013, the compensation awarded to, paid to, or earned by our Named Executive Officers.

 

Name and Principal Position

 

Year

 

Salary

($)

 

 

Option Awards

($) (6)

 

 

All other

Compensation

($)

 

 

Total

($)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ernie Blackmon

 

2014

 

 

97,486

 

 

 

139,221

 

 

 

38,076

 

 

 

274,783

 

CEO, President, principal financial officer and Director (1)

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tony Verzura

 

2014

 

 

96,350

 

 

 

139,221

 

 

 

31,742

 

 

 

267,313

 

Vice President and Director (2)

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chad Ruby

 

2014

 

 

97,877

 

 

 

139,221

 

 

 

28,954

 

 

 

266,052

 

Chief Operating Officer, Secretary, Treasurer and Director (3)

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Paul Enright

 

2014

 

 

61,950

 

 

 

 

 

 

35,838

 

 

 

97,788

 

Former CEO, President, CFO, Secretary, Treasurer and Director (4)

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marichelle Stoppenhagen

 

2014

 

 

 

 

 

 

 

 

15,000

 

 

 

15,000

 

Former CEO, President, CFO, Secretary, Treasurer and Director (5)

 

2013

 

 

22,500

 

 

 

 

 

 

 

 

 

22,500

 

———————

(1)  

Mr. Blackmon was elected as our President on March 26, 2014, he was elected as our CEO on June 24, 2014, and he has served as our principal financial officer since June 24, 2014. Mr. Blackmon was appointed as a Director effective April 7, 2014.


Mr. Blackmon’s salary for the period May 16, 2014 through December 31, 2014, was $97,486 and during fiscal 2014 he earned stock option awards with a grant date fair value of $139,221 as more fully described in footnote (6). Mr. Blackmon also received $38,076 for services that he provided as an independent contractor during the period March 1, 2014 through May 15, 2014.


(2)  

Mr. Verzura was elected as our Vice President and Chief Technical Officer on March 26, 2014, and was appointed as a Director effective April 7, 2014.


Mr. Verzura’s salary for the period May 16, 2014 through December 31, 2014, was $96,350 and during fiscal 2014 he earned stock option awards with a grant date fair value of $139,221 as more fully described in footnote (6). Mr. Verzura also received $31,742 for services that he provided as an independent contractor during the period March 1, 2014 through May 15, 2014.




16



 



(3)  

Mr. Ruby was elected as our Chief Operating Officer on March 26, 2014, he was elected Secretary and Treasurer on August 15, 2014, and he was appointed as a Director on April 7, 2014.


Mr. Ruby’s salary for the period May 16, 2014 through December 31, 2014, was $97,877 and during fiscal 2014 he earned stock option awards with a grant date fair value of $139,221 as more fully described in footnote (6). Mr. Ruby also received $28,954 for services that he provided as an independent contractor during the period March 1, 2014 through May 15, 2014.


(4)

Mr. Enright was elected as our CEO, President, CFO, Secretary and Treasurer and as a Director on February 27, 2014.  On March 26, 2014, Mr. Enright resigned as President. On June 24, 2014, Mr. Enright resigned as CEO and CFO and was elected as our Vice President of Development and Corporate Relations. On August 15, 2014, Mr. Enright resigned as a Director, Vice President of Development and Corporate Relations, Secretary and Treasurer and on October 31, 2014, Mr. Enright left UCANN as an employee.


Mr. Enright’s salary for the period May 16, 2014 through October 31, 2014, was $61,950 and during fiscal 2014 he also received $35,838 for services that he provided as an independent contractor during the period March 1, 2014 through May 15, 2014.

 

(5)

Ms. Stoppenhagen served as our CEO, President, CFO, Secretary and Treasurer until she resigned from these positions on February 27, 2014, and served as a Director until she resigned from this position effective March 10, 2014.


Ms. Stoppenhagen earned $15,000 as an independent contractor during the period January 1, 2014 through February 27, 2014, and she earned a salary of $22,500 during fiscal 2013.

  

(6)

On November 20, 2014, our board of directors approved our 2014 Stock Incentive Plan (the “Plan”). The Plan provides officers, directors, selected employees and outside consultants an opportunity to acquire or increase a direct ownership interest in our operations and future success.


During fiscal 2014, Messrs. Blackmon, Verzura and Ruby each earned 200,000 stock options under the Plan. The options were granted on January 9, 2015, were fully vested at the time of grant and gave the option holder the right to purchase shares of our common stock at $0.70 per share during the ten year term of the option subject to shareholder approval of the Plan. As more fully described in Footnote 22 to our consolidated financial statements included in Item 8 of this Report, we recognized the grant date fair value of approximately $0.70 per share as share-based compensation expense in fiscal 2014.


Outstanding Equity Awards

 

We had no outstanding equity awards as of the fiscal years ended December 31, 2014 or 2013.

 

Employment Contracts, Termination of Employment, Change-in-Control Arrangements

 

As of the date hereof, we have not entered into any employment agreements with any of our Named Executive Officers. 


Employee Pension, Profit Sharing or other Retirement Plans


We do not have a defined benefit, pension plan, profit sharing or other retirement plan, although we may adopt one or more of such plans in the future.


Compensation of Directors


During the fiscal year ended December 31, 2014, we did not compensate our directors for acting as such.




17



 


Risk Assessment in Compensation Programs

 

Beginning in fiscal year 2014 we changed our focus to providing products and services to the cannabis industry and we began paying compensation to our new employees, including executive and non-executive officers. Due to the size and scope of our business, and the amount of compensation involved, we do not have any employee compensation policies and programs to review to determine whether our policies and programs create risks that are reasonably likely to have a material adverse effect on us. 


ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS .

 

The following table shows the beneficial ownership of our common stock as of March 31, 2015, by (i) each person whom we know beneficially owns more than 5% of the outstanding shares of our common stock; (ii) each of our executive officers; (iii) each of our directors; and (iv) all of our executive officers and directors as a group.  Unless otherwise indicated, to our knowledge each of the stockholders listed below has sole voting and investment power over the shares beneficially owned. Unless otherwise specified, the address of each of the persons set forth below is in care of UCANN at 1600 Broadway, Suite 1600, Denver, Colorado 80202.


The percentage of class beneficially owned is based on 44,711,000 shares of common stock issued and outstanding as of March 31, 2015. Beneficial ownership has been determined in accordance with Rule 13d-3 under the Exchange Act. Pursuant to the rules of the SEC, shares of common stock which an individual or group has a right to acquire within 60 days pursuant to the exercise of options or warrants or the conversion of convertible securities are deemed to be outstanding for the purpose of computing the percentage ownership of such individual or group, but are not deemed to be beneficially owned and outstanding for the purpose of computing the percentage ownership of any other person shown in the table.

 

Name

 

Number of

Shares

Beneficially

Owned

 

 

Percentage

of Class

 

Ernie Blackmon

 

 

  22,628,000 (1)

 

 

 

49.9

%

Chad Ruby

 

 

    1,510,000 (2)

 

 

 

3.3

%

Tony Verzura

 

 

  15,152,000 (3)

 

 

 

33.4

%

All executive officers and directors as a group (three persons)

 

 

  39,290,000 (1) (2)(3)

 

 

 

86.7

%

———————

(1)

Includes 200,000 shares underlying currently exercisable stock options held by Mr. Blackmon, assuming shareholder approval of the 2014 Incentive Plan. 

(2)

Includes 200,000 shares underlying currently exercisable stock options held by Mr. Ruby, assuming shareholder approval of the 2014 Incentive Plan. 

(3)

Includes 200,000 shares underlying currently exercisable stock options held by Mr. Verzura, assuming shareholder approval of the 2014 Incentive Plan. 


Securities Authorized for Issuance under Equity Compensation Plans

 

The following table shows information with respect to each equity compensation plan under which our common stock is authorized for issuance as of December 31, 2014:

 

Equity Compensation Plan Information


Plan Category

Number of Securities

to be Issued

upon Exercise of

Outstanding Options

Weighted-Average

Exercise Price of

Outstanding Options,

Warrants, and Rights

Number of Securities

Remaining Available for

Future Issuance Under

Equity Compensation Plans

 

 

 

 

Equity compensation plans approved by security holders

 

 

 

 

Equity compensation plans not approved by security holders

4,000,000 (1)

———————

(1)

On November 20, 2014, our board of directors approved our 2014 Stock Incentive Plan as more fully described in the notes to our consolidated financial statements included in Item 8 of this Report.

 



18



 


ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, DIRECTOR INDEPENDENCE .


Transactions with Officers and Directors

 

Other than the transactions described below, since January 1, 2013, there has not been, nor is there currently proposed, any transaction or series of similar transactions to which we were or will be a party:

 

 

·

in which the amount involved exceeds the lesser of $120,000 or one percent of the average of our total assets at year end for the last two completed fiscal years; and

 

·

in which any director, executive officer, stockholder who beneficially owns 5% or more of our common stock or any member of their immediate family had or will have a direct or indirect material interest.

 

Messrs. Blackmon and Verzura have made loans to or equity investments in RiverRock LLC, a Colorado company which is licensed by the Colorado Department of Revenue to operate a dispensary, to manufacture marijuana infused products and to operate a cultivation facility.  We had sales of non-marijuana products to this entity in an amount less than $15,000 during 2014.  Messrs. Blackmon and Verzura are currently in the process of divesting those interests.  As Messrs. Blackmon and Verzura may have significant influence on management or operating polices of the customer, we have classified sales to this customer as revenues, affiliate, in our consolidated statements of operations and accounts receivable from this customer as due from related parties on our consolidated balance sheets.

 

In December 2011, we entered into a Revolving Promissory Note (the “Note”) with Ms. Stoppenhagen, our president at the time. Under the terms of the Note, Ms. Stoppenhagen agreed to advance us, from time to time, amounts up to an aggregate of $100,000 until December 31, 2013.  All advances were to be paid on or before December 31, 2013, and interest was to accrue from the date of any advances on any principal amount withdrawn, and on accrued and unpaid interest thereon, at the rate of six percent (6%) per annum, compounded annually. As of December 31, 2014 and 2013, there was zero owed under the note. During the year ended December 31, 2013, we borrowed and repaid $50,000 under this arrangement.


ITEM 14. 

PRINCIPAL ACCOUNTING FEES AND SERVICES .

 

During the fiscal year ending December 31, 2013, Anton & Chia LLP ("Anton") was our independent registered public accounting firm and remained so through July 22, 2014. On July 22, 2014, we dismissed Anton and engaged the services of Cutler & Co., LLC as our independent registered public accounting firm.


The following table sets forth fees billed to us by our independent registered public accounting firms during the fiscal years ended December 31, 2014 and December 31, 2013.

 

Anton

 

2014

 

 

2013

 

Audit Fees

 

$

16,980

 

 

$

4,500

 

Audit-Related Fees

 

$

 

 

$

 

Tax Fees

 

$

 

 

$

 

All Other Fees

 

$

 

 

$

 

 

Cutler & Co., LLC

 

2014

 

 

2013

 

Audit Fees

 

$

3,000

 

 

$

 

Audit-Related Fees

 

$

 

 

$

 

Tax Fees

 

$

 

 

$

 

All Other Fees

 

$

 

 

$

 

 

Audit fees represent amounts invoiced for professional services rendered for the audit of our annual financial statements and the reviews of the financial statements included in our Form 10-Q Reports.


Policy on Audit Committee Pre-Approval of Audit and Permissible Non-audit Services of Independent Auditors

 

We do not have an audit committee to oversee the external audit process, which includes approving engagement letters, estimated fees and solely pre-approving all permitted audit and non-audit work performed by our principal accountant. Our entire board of directors oversees this process and has pre-approved all fees for audit and non-audit work performed.





19



 


PART IV

 

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES .

 

(A) Documents filed as part of this Annual Report on Form 10-K are as follows:


1. Financial Statements:


Reports of Cutler & Co., LLC

Consolidated Financial Statements:

Balance Sheets at December 31, 2014 and 2013

Statements of Operations for each of the two years in the period ended December 31, 2014

Statements of Stockholders’ (Deficit) Equity for each of the two years in the period ended December 31, 2014

Statements of Cash Flows for each of the two years in the period ended December 31, 2014

Notes to Consolidated Financial Statements


2. Financial Statement Schedules for each of the two years in the period ended December 31, 2014


NOTE:   All schedules have been omitted because they are either not required or the information is included in the financial statements and notes thereto.


(B) Exhibits:


Exhibit

 

Description

3.1

 

Articles of Incorporation of Registrant (California) dated November 15, 2007. (1)

3.2

 

Bylaws of Registrant (California). (1)

3.3

 

Audit Committee Charter dated May 27, 2008. (1)

3.4

 

Articles of Incorporation of Registrant (Colorado) dated March 25, 2014 (filed electronically herewith).

3.5

 

Bylaws of Registrant (Colorado) dated March 27, 2014 (filed electronically herewith).

4.1

 

Secured Convertible Promissory Note dated August 13, 2014, issued to Typenex Co-Investment, LLC. (7)

4.2

 

Warrant #1 to Purchase Shares of Common Stock dated August 13, 2014, issued to Typenex Co-Investment, LLC. (7)

10.1

 

Facilities and Management Services Agreement dated March 1, 2009. (1)

10.2

 

Revolving Promissory Note and Security Agreement with Marichelle Stoppenhagen dated December 28, 2011. (1)

10.3

 

Convertible Note in favor of NYX Capital Advisors, Inc. Dated September 30, 2013. (2)

10.4

 

License Agreement with Earnest Blackmon, Tony Verzura and Chad Ruby dated March 26, 2014. (3)

10.5

 

Asset Assignment and Purchase Agreement dated March 31, 2014. (4)

10.6

 

Plan of Merger dated April 10, 2014. (5)

10.7

 

Consultancy Agreement on Products Related to Neural Stem Cells dated May 6, 2014. (6)

10.8

 

Securities Purchase Agreement, dated as of August 13, 2014, by and between Typenex Co-Investment, LLC and United Cannabis Corporation. (7)

10.9

 

Security Agreement, dated as of August 13, 2014, by and between Typenex Co-Investment, LLC and United Cannabis Corporation. (7)

10.10

 

Investor Note #1 dated August 13, 2014. (7)

10.11

 

Promissory Note, dated December 18, 2014, made by United Cannabis Corporation and payable to Sláinte Ventures, LLC. (8)

10.12

 

Royalty and Consulting Services Agreement between United Cannabis Corporation and FoxBarry Farms, LLC dated December 28, 2014. (9)

14.1

 

Code of Ethics, dated May 27, 2008. (1)

21.1

 

Subsidiaries of United Cannabis Corporation (filed electronically herewith).

31

 

Certification of the Chief Executive Officer and Principal Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32

 

Certification of the Chief Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted 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 Presentation Linkbase Document



20



 


Attached as Exhibit 101 to this report are the following materials from United Cannabis Corporation’s Annual Report on Form 10-K for the year ended December 31, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Stockholders’ Equity, (iv) the Consolidated Statements of Cash Flows, and (v) the Notes to the Consolidated Financial Statements.

———————

(1)

Incorporated by reference to the Registrant’s Registration Statement on Form 10 filed on January 17, 2012.  

(2)

Incorporated by reference to the Registrant’s Form 10-Q filed on November 13, 2013.

(3)

Incorporated by reference to the Registrant’s Form 8-K dated March 26, 2014, filed March 28, 2014.

(4)

Incorporated by reference to the Registrant’s Form 8-K dated March 31, 2014, filed April 3, 2014.

(5)

Incorporated by reference to Appendix A of the Registrant’s Definitive Schedule 14C dated April 11, 2014, filed on April 11, 2014.

(6)

Incorporated by reference to the Registrant’s Form 8-K dated May 2, 2014, filed May 8, 2014.

(7)

Incorporated by reference to the Registrant’s Form 8-K dated August 13, 2014, filed August 19, 2014.

(8)

Incorporated by reference to the Registrant’s Form 8-K dated December 22, 2014, filed January 6, 2015.

(9)

Incorporated by reference to the Registrant’s Form 8-K dated December 28, 2014, filed January 7, 2015.



21



 


SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.


 

UNITED CANNABIS CORPORATION

 

 

 

Date: April 15, 2015

By:

/s/ Earnest Blackmon

 

 

Earnest Blackmon

 

 

Chief Executive Officer and Principal Financial Officer

 

 

 



Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature

 

Title

 

Date

 

 

 

 

 

/s/ Earnest Blackmon

Earnest Blackmon

 

President, Principal Financial Officer and Director

 

April 15, 2015

 

 

 

 

 

/s/ Chadwick Ruby

Chadwick Ruby

 

Chief Operating Officer, Secretary,  Treasurer and Director

 

April 15, 2015

 

 

 

 

 

/s/ Tony Verzura

Tony Verzura

 

Vice President, Chief Technology Officer and Director

 

April 15, 2015











22



 


UNITED CANNABIS CORPORATION

Audited Financial Statements


TABLE OF CONTENTS


 

 

Page

 

 

 

 

 

Reports of Independent Registered Public Accounting Firms

 

F-2

 

 

 

 

 

Consolidated Balance Sheets

 

F-4

 

 

 

 

 

Consolidated Statements of Operations

 

F-5

 

 

 

 

 

Consolidated Statements of Stockholders' (Deficit) Equity

 

F-6

 

 

 

 

 

Consolidated Statements of Cash Flows

 

F-7

 

 

 

 

 

Notes to Consolidated Financial Statements

 

F-9

 






F-1



 



[UCC_10K001.JPG]


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Board of Directors

United Cannabis Corporation

Denver, Colorado


We have audited the accompanying consolidated balance sheet of United Cannabis Corporation (formerly MySkin, Inc.) and subsidiary company (collectively the “Company”) as of December 31, 2014, and the related consolidated statement of operations, changes in stockholders’ (deficit)/ equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The financial statements of the Company for the year ended December 31, 2013, were audited by other auditors whose report dated February 18, 2014, expressed an unqualified opinion on those statements. Our opinion, in so far as it relates to the year ended through December 31, 2013, is based solely on the report of the other auditors.


We conducted our audit in accordance the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.


In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of United Cannabis Corporation (formerly MySkin, Inc.) and subsidiary company as of December 31, 2014, and the related statement of operations and cash flows for the for the years then ended in conformity with accounting principles generally accepted in the United States of America.


The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements the Company has suffered losses from operations and currently does not have sufficient available funding to fully implement its business plan. These factors raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.


[UCC_10K002.JPG]


Wheat Ridge, Colorado

April 15, 2015




9605 West 49 th Ave, Suite 200 Wheat Ridge, Colorado 80033 ~ Phone 303-968-3281 ~ Fax 303-456-7488 ~ www.cutlercpas.com




F-2



 


[UCC_10K003.JPG]

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

The Board of Directors and Stockholders of

MySkin, Inc.:

 

 

We have audited the accompanying balance sheets of MySkin, Inc. (the “Company”) as of December 31, 2013, and the related statement of operations, changes in stockholders’ equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that we considered appropriate under the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of MySkin, Inc. as of December 31, 2013 and the results of its operations and cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has experienced recurring operating losses and negative cash flow since inception and has financed its working capital requirements through the issuance of notes payable, common stock and advances from related parties. These conditions, among others, raise substantial doubt about the Company’s ability to continue as a going concern. Management's plans concerning these matters are also described in Note 3 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

 

/s/ Anton & Chia, LLP

 

 

Newport Beach, California

February 18, 2014





F-3



 


UNITED CANNABIS CORPORATION

CONSOLIDATED BALANCE SHEETS


 

 

December 31,

 

 

 

2014

 

 

2013

 

ASSETS

  

                         

  

  

                         

  

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

321,353

 

 

$

32,414

 

Accounts receivable

 

 

6,245

 

 

 

 

Due from related parties

 

 

44,012

 

 

 

8,862

 

Prepaid expenses

 

 

177,400

 

 

 

 

Assets of discontinued operations

 

 

 

 

 

17,616

 

Total current assets

 

 

549,010

 

 

 

58,892

 

 

 

 

 

 

 

 

 

 

Intangible assets

 

 

18,210

 

 

 

 

Investments in non-marketable equity securities

 

 

593,750

 

 

 

 

Equity method investments

 

 

138,000

 

 

 

 

Total assets

 

$

1,298,970

 

 

$

58,892

 

 

 

 

 

 

 

 

 

 

LIABILITIES & STOCKHOLDERS' (DEFICIT) EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

27,424

 

 

$

 

Accrued expenses

 

 

550,795

 

 

 

 

Current portion of deferred revenue

 

 

500,000

 

 

 

 

Notes payable

 

 

775,000

 

 

 

 

Convertible note payable, related party

 

 

 

 

 

50,000

 

Total current liabilities

 

 

1,853,219

 

 

 

50,000

 

 

 

 

 

 

 

 

 

 

Long term liabilities:

 

 

 

 

 

 

 

 

Deferred revenue, net of current portion

 

 

443,750

 

 

 

 

Total liabilities

 

 

2,296,969

 

 

 

50,000

 

 

 

 

 

 

 

 

 

 

Stockholders' (deficit) equity:

 

 

 

 

 

 

 

 

Preferred stock, no par value; 10,000,000 shares authorized; none issued and outstanding

 

 

 

 

 

 

Common stock, no par value; 100,000,000 shares authorized; 44,020,000 and 6,020,000 shares issued and outstanding, respectively

 

 

1,538,968

 

 

 

165,495

 

Common stock outstanding, not yet issued; 40,000 shares

 

 

88,000

 

 

 

 

Accumulated deficit

 

 

(2,624,967

)

 

 

(156,603

)

Total stockholders' (deficit) equity

 

 

(997,999

)

 

 

8,892

 

Total liabilities and stockholders' (deficit) equity

 

$

1,298,970

 

 

$

58,892

 





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


F-4



 


UNITED CANNABIS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

Years Ended December 31,

 

 

 

2014

 

 

2013

 

Revenues:

 

 

 

 

 

 

 

 

Revenues, non-affiliates

 

$

171,957

 

 

$

 

Revenues, affiliate

 

 

14,600

 

 

 

 

Total revenues

 

 

186,557

 

 

 

 

Cost of revenues

 

 

7,031

 

 

 

 

Gross profit

 

 

179,526

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

Sales and marketing

 

 

101,962

 

 

 

 

Research and development

 

 

182,606

 

 

 

 

General and administrative

 

 

1,709,040

 

 

 

33,661

 

Total operating expenses

 

 

1,993,608

 

 

 

33,661

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(1,814,082

)

 

 

(33,661

)

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

Interest income

 

 

37,837

 

 

 

 

Gain on derivative liability

 

 

6,099

 

 

 

 

Loss on origination of derivative liability

 

 

(12,810

)

 

 

 

Interest expense

 

 

(131,479

)

 

 

 

Amortization of debt discount

 

 

(161,402

)

 

 

 

Loss on extinguishment of debt and repurchase of warrants

 

 

(33,635

)

 

 

 

Loss on investment in non-marketable equity securities

 

 

(300,000

)

 

 

 

Total other income (expense)

 

 

(595,390

)

 

 

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations

 

 

(2,409,472

)

 

 

(33,661

)

 

 

 

 

 

 

 

 

 

Net income (loss) from discontinued operations

 

 

(58,892

)

 

 

30,496

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(2,468,364

)

 

$

(3,165

)

 

 

 

 

 

 

 

 

 

Net income (loss) per share:

 

 

 

 

 

 

 

 

Net loss per share from continuing operations:

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.06

)

 

$

(0.01

)

 

 

 

 

 

 

 

 

 

Net income (loss) per share from discontinued operations:

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.00

)*

 

$

0.01

 

 

 

 

 

 

 

 

 

 

Net loss per common share:

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.06

)

 

$

(0.00

)*

 

 

 

 

 

 

 

 

 

Basic and diluted weighted-average common shares outstanding:

 

 

38,256,438

 

 

 

6,020,000

 





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


F-5



 


UNITED CANNABIS CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY


 

 

Common Stock

 

 

Accumulated

 

 

 

 

 

 

 

Shares

 

Amount

 

 

Deficit

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2012

 

6,020,000

 

$

165,495

 

 

$

(153,348

)

 

$

12,057

 

Net loss

 

 

 

 

 

 

(3,165

)

 

 

(3,165

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2013

 

6,020,000

 

 

165,495

 

 

 

(156,603

)

 

 

8,892

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued for conversion of debt

 

40,000,000

 

 

50,000

 

 

 

 

 

 

50,000

 

Shares cancelled

 

(41,690,000

)

 

 

 

 

 

 

 

 

Shares issued for license agreement

 

38,690,000

 

 

 

 

 

 

 

 

 

Shares and warrants issued for cash

 

600,000

 

 

900,000

 

 

 

 

 

 

900,000

 

Warrants issued with convertible debt

 

 

 

694,525

 

 

 

 

 

 

694,525

 

Shares issued for services

 

400,000

 

 

305,100

 

 

 

 

 

 

305,100

 

Purchase and cancellation of warrants

 

 

 

(576,152

)

 

 

 

 

 

(576,152

)

Shares not yet issued for equity method investments

 

40,000

 

 

88,000

 

 

 

 

 

 

88,000

 

Net loss

 

 

 

 

 

 

(2,468,364

)

 

 

(2,468,364

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2014

 

44,060,000

 

$

1,626,968

 

 

$

(2,624,967

)

 

$

(997,999

)





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


F-6



 


UNITED CANNABIS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS


 

 

Years Ended December 31,

 

 

 

2014

 

 

2013

 

Operating activities:

  

                         

  

  

                         

  

Net loss

 

$

(2,468,364

)

 

$

(3,165

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Depreciation - assets of discontinued operations

 

 

 

 

 

18,019

 

Loss on sale of assets of discontinued operations

 

 

15,704

 

 

 

 

Management fees and reimbursement of expenses, related parties, net, of discontinued operations

 

 

 

 

 

(3,465

)

Amortization of debt discount

 

 

161,402

 

 

 

 

Non-cash interest expense

 

 

15,320

 

 

 

 

Notes payable issued for debt issuance costs

 

 

46,000

 

 

 

 

Loss on origination of derivative liability

 

 

12,810

 

 

 

 

Share-based compensation

 

 

551,685

 

 

 

 

Value of non-marketable equity securities recognized as revenue

 

 

(150,000

)

 

 

 

Gain on revaluation of derivative liability

 

 

(6,099

)

 

 

 

Loss on non-marketable equity securities

 

 

300,000

 

 

 

 

Loss on extinguishment of debt and repurchase of warrants

 

 

33,635

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(6,245

)

 

 

 

Due from related party

 

 

(33,238

)

 

 

 

Inventory

 

 

 

 

 

(3,026

)

Prepaid expenses

 

 

(6,321

)

 

 

 

Accounts payable and accrued expenses

 

 

144,654

 

 

 

(34,179

)

Deferred revenue

 

 

200,000

 

 

 

 

Net cash provided by (used in) operating activities

 

 

(1,189,057

)

 

 

(25,816

)

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

 

Purchase of intangible assets

 

 

(2,309

)

 

 

 

Purchase of equity method investments

 

 

(50,000

)

 

 

 

Purchase of equipment related to discontinued operations

 

 

 

 

 

(18,215

)

Net cash provided by (used in) investing activities

 

 

(52,309

)

 

 

(18,215

)

 

 

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

 

 

Net proceeds from issuance of notes payable

 

 

761,500

 

 

 

 

Net proceeds from issuance of convertible debt and warrants

 

 

225,000

 

 

 

 

Repayment of convertible debt and repurchase of warrants

 

 

(356,195

)

 

 

 

 

Proceeds from convertible note payable, related party

 

 

 

 

 

50,000

 

Repayment of notes payable, related party

 

 

 

 

 

(50,000

)

Proceeds from issuance of common shares and warrants

 

 

900,000

 

 

 

 

Net cash provided by (used in) financing activities

 

 

1,530,305

 

 

 

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash

 

 

288,939

 

 

 

(44,031

)

 

 

 

 

 

 

 

 

 

Cash, beginning of period

 

 

32,414

 

 

 

76,445

 

 

 

 

 

 

 

 

 

 

Cash, end of period

 

$

321,353

 

 

$

32,414

 




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


F-7



 


UNITED CANNABIS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS


 

 

Years Ended December 31,

 

 

 

2014

 

 

2013

 

Supplemental schedule of cash flow information:

  

                         

  

  

                         

  

Cash paid for interest

 

$

 

 

$

 

Cash paid for income taxes

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Intangible asset costs included in accounts payable

 

$

15,901

 

 

$

 

Non-marketable equity securities received as consideration for future services

 

$

893,750

 

 

$

 

Equity method investments received for commitment to issue common stock

 

$

88,000

 

 

$

 

Issuance of common stock for services

 

$

83,600

 

 

$

 

Issuance of common stock for prepaid professional fees

 

$

221,500

 

 

$

 

Issuance of note payable for debt issuance costs

 

$

13,500

 

 

$

 

Issuance of convertible note payable for debt issuance costs

 

$

32,500

 

 

$

 

Warrants issued for debt discount

 

$

694,525

 

 

$

 

Warrants cancelled

 

$

576,152

 

 

$

 

Debt conversion feature issued for debt discount

 

$

151,937

 

 

$

 

Conversion of note payable, related party, into common stock

 

$

50,000

 

 

$

 





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


F-8



 


UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 –BUSINESS ORGANIZATION AND NATURE OF OPERATIONS


On March 19, 2014, we effected a four-for-one stock  split of our outstanding shares of common stock. All references to shares of our common stock in our consolidated financial statements refer to the number of shares of common stock after giving effect to the stock split (unless otherwise indicated).


Background and Current Operations


United Cannabis Corporation ("we", "our", "us", "UCANN", or “the Company”) a Colorado corporation, was originally formed as a California corporation under the name MySkin, Inc. on November 15, 2007. MySkin was engaged in the business of providing management services to a medical spa in Los Angeles, California which provided various advanced skin care services until March 31, 2014, when this business was sold to the prior President of the Company.


In early 2014 we decided to exit the medical spa management business and change our focus to providing products, services and intellectual property to the cannabis industry.


On March 26, 2014, we entered into a License Agreement with Earnest Blackmon, Tony Verzura and Chad Ruby pursuant to which Messrs. Blackmon, Verzura and Ruby licensed certain intellectual property to us in exchange for a total of 38,690,000 shares of our common stock.


In connection with this transaction:

 

 

·

Messrs. Blackmon, Verzura and Ruby licensed to us all of their knowledge and know-how relating to the design and buildout of cultivation facilities, growing/cultivation systems, seed-to-sale protocols and procedures, products, a genetic catalogue including over 150 different strains, an advanced (non-psychoactive) cannabinoid therapy program called "A.C.T. Now", security, regulatory compliance, and other methods and processes which relate to the cannabis industry.

 

 

·

The territory for this license is the entire world and the license runs in perpetuity. There are no royalty payments under the License Agreement.

 

 

·

Messrs. Blackmon, Verzura and Ruby were appointed to our board of directors effective April 7, 2014.

 

 

·

Mr. Blackmon was elected as our President, Mr. Ruby was elected as Chief Operating Officer and Mr. Verzura was elected as Vice President.

 

 

·

A total of 41,690,000 previously outstanding shares of common stock were cancelled resulting in a total of 43,620,000 shares of common stock outstanding on March 26, 2014.


UCANN was formed as a Colorado corporation on March 25, 2014, and on May 2, 2014, MySkin, Inc. merged into UCANN, a wholly-owned subsidiary of MySkin, Inc., for the purpose of changing domicile from California to Colorado and changing the corporation's name to United Cannabis Corporation.


On March 31, 2014, we sold all right, title and interest in the tangible and intangible assets, trademarks, customer lists, intellectual property and rights, which we owned and were related to our advanced skin care business since we have entered into a new business and no longer have any use for these assets. The assets were sold to MySkin Services, Inc. (“MTA”), a business partly owned by Marichelle Stoppenhagen, our former officer and director, in exchange for the $15,000 payable which we owed to Ms. Stoppenhagen and/or MTA.  In addition, MTA assumed all costs associated with these assets starting on March 31, 2014.


Government Regulation - Marijuana is a Schedule-I controlled substance and is illegal under federal law. Even in those states in which the use of marijuana has been legalized, its use remains a violation of federal laws.





F-9



UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 


As of March 31, 2015, 23 states and the District of Columbia allow their citizens to use medical marijuana, and voters in the states of Colorado, Washington, Oregon, Alaska and the District of Columbia approved ballot measures to legalize cannabis for adult recreational use.  The state laws are in conflict with the federal Controlled Substances Act, which makes marijuana use and possession illegal on a national level. The Obama administration has effectively stated that it is not an efficient use of resources to direct federal law enforcement agencies to prosecute those lawfully abiding by state-designated laws allowing the use and distribution of medical and recreational marijuana. However, there is no guarantee that the current administration will not change its stated policy regarding the low-priority enforcement of federal laws, or that any future administration would not change this policy and decide to enforce the federal laws vigorously.  Any such change in the federal government’s enforcement of current federal laws could cause significant financial damage to us.  

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


Principles of Consolidation - Our consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiary UC Nevada L.L.C. All intercompany accounts and transactions have been eliminated. Our consolidated financial statements are stated in United States dollars and have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).


Use of Estimates - The preparation of our consolidated financial statements in conformity with U.S. GAAP requires us to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of our consolidated financial statements and the reported amounts of revenues expenses during the periods presented.


We make our estimate of the ultimate outcome for these items based on historical trends and other information available when our consolidated financial statements are prepared. We recognize changes in estimates in accordance with the accounting rules for the estimate, which is typically in the period when new information becomes available. We believe that our significant estimates, assumptions and judgments are reasonable, based upon information available at the time they were made. Our actual results could differ from these estimates, making it possible that a change in these estimates could occur in the near term.


Financial Instruments – We have adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 825,  Financial Instruments , which requires disclosures of information about the fair value of certain financial instruments for which it is practicable to estimate that value. For purposes of this disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation.

 

The carrying amounts of our short-term financial instruments, including accounts receivable, prepaid expenses, accounts payable, accrued expenses and deferred revenue approximates fair value due to the relatively short period to maturity for these instruments. Investments in non-marketable equity securities are carried at cost. The carrying amount of our notes payable at December 31, 2014, approximates their fair values based on our incremental borrowing rates.


Cash and Cash Equivalents - We consider investments with original maturities of 90 days or less to be cash equivalents. We do not have cash equivalents as of December 31, 2014 and 2013.


Accounts Receivable  – Our accounts receivable consists primarily of trade accounts arising in the normal course of business. No interest is charged on past due accounts. Accounts for which no payments have been received after 30 days are considered delinquent and customary collection efforts are initiated. Accounts receivable are carried at original invoice amount less a reserve made for doubtful accounts based on a review of all outstanding amounts on a monthly basis.

 

We determine our allowance for doubtful accounts by regularly evaluating individual customer receivables and considering the customer’s financial condition and credit history, and current economic conditions. Based on our analysis, no allowance for doubtful accounts was necessary as of December 31, 2014 and 2013.

 

Inventory - Inventory is valued at the lower of cost or market. Cost is determined using standard costs, which approximates the first-in, first-out method.

 



F-10



UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 


Property and Equipment –Our property and equipment are recorded at cost. Maintenance and repairs are expensed as incurred. Depreciation is computed using the straight-line method over an estimated useful life of three to five years. Assets acquired under capital leases are depreciated over the lesser of the useful life of the asset or the lease term. At the time of retirement or other disposition of property and equipment, the cost and accumulated depreciation are removed from our accounts and any resulting gain or loss is reflected in our consolidated statements of operations.


Intangible Assets – Our intangible assets, consisting of trademark, design mark and provisional patent applications are recorded at cost, and once approved, are amortized using the straight-line method over an estimated useful life of 10 to 20 years.


Investments in Non-Marketable Equity Securities – Our investments in non-marketable equity securities are carried at cost, less write-down-for-impairments, and are adjusted for impairment based on methodologies, including the valuation achieved in the most recent private placement by the investee, an assessment of the impact of general private equity market conditions, and discounted projected future cash flows.  Investments in non-marketable equity securities that expire in less than 12 months, for example stock options or warrants, are classified as current assets; otherwise, we classify investments in non-marketable equity securities as other noncurrent assets.


Long-Lived Assets – Our intangible assets and other long-lived assets are subject to an impairment test if there is an indicator of impairment. The carrying value and ultimate realization of these assets is dependent upon our estimates of future earnings and benefits that we expect to generate from their use. If our expectations of future results and cash flows are significantly diminished, intangible assets and other long-lived assets may be impaired and the resulting charge to operations may be material. When we determine that the carrying value of intangibles or other long-lived assets may not be recoverable based upon the existence of one or more indicators of impairment, we use the projected undiscounted cash flow method to determine whether an impairment exists, and then measure the impairment using discounted cash flows.


Equity Method Investments – Our investments in entities representing ownership of at least 20% but less than 50%, where we exercise significant influence, are accounted for under the equity method.


Deferred Revenue - We defer revenue for which product or service has not yet been delivered or is subject to refund until such time that we and our customer jointly determine that the product or service has been delivered or no refund will be required.


Revenue Recognition - We recognize revenue in accordance with ASC 605, Revenue Recognition , which requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on our management's judgments regarding the fixed nature of the selling prices of the products and services delivered and the collectability of those amounts.


Revenue for services with a payment in form of stock, warrants or other financial assets is recognized when the services are performed. The value of revenue is measured using the Black-Scholes model for warrants.


Cost of Revenues - Our cost of revenues consists primarily of costs associated with the production and delivery of our products and services. These include expenses related to the production, packaging and labeling of our Prana medicinals products and consulting expense related to our advisory services.


Advertising Costs - All advertising costs are expensed as incurred.

 

Research and Development Expenses - Research and development (“R&D”) costs are charged to expense as incurred. Our R&D costs include, but are not limited to, consulting service fees and materials and supplies used in the development of our proprietary products and services.


Selling, General and Administrative Expenses - Selling, general and administrative expenses consist primarily of personnel-related costs, rent, corporate costs, fees for professional and consulting services, advertising costs, and other costs of administration such as marketing, human resources, finance and administrative roles.




F-11



UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 


Stock-Based Compensation - We periodically issue shares of our common stock to non-employees in non-capital raising transactions for fees and services. We account for stock issued to non-employees in accordance with ASC 505, Equity , whereas the value of the stock compensation is based upon the measurement date as determined at either (a) the date at which a performance commitment is reached, or (b) at the date at which the necessary performance to earn the equity instruments is complete.


We account for stock option grants issued and vesting to employees based on ASC 718, Compensation – Stock Compensation , whereas the award is measured at its fair value at the date of grant and is amortized ratably over the vesting period. Accounting for stock-based compensation to employees requires the measurement and recognition of compensation expense for all share-based payment awards made to employees based on estimated fair values. We estimate the fair value of all stock option awards on the date of grant using the Black-Scholes-Merton pricing model, which is affected by our stock price, as well as assumptions regarding a number of complex and subjective variables. These variables include our expected stock price volatility over the term of the awards, actual and projected employee option exercise behaviors, risk free interest rates and expected dividends. We also estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from our estimates.


Income Taxes - Income taxes are recorded using the asset and liability method. Under the asset and liability method, tax assets and liabilities are recognized for the tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using the enacted tax rates expected to apply when the asset is realized or the liability settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that enactment occurs. To the extent that we do not consider it more likely than not that a future tax asset will be recovered, we will provide a valuation allowance against the excess.

 

We follow the provisions of ASC 740, Income Taxes . As a result of the ASC 740, we make a comprehensive review of our portfolio of tax positions in accordance with recognition standards established by ASC 740. As a result of the implementation of ASC 740, we recognized no material adjustments to liabilities or stockholders’ (deficit) equity.


When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in our consolidated financial statements in the period during which, based on all available evidence, we believe it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

 

Interest and penalties associated with unrecognized tax benefits, if any, are classified as interest expense and penalties and are included in selling, general and administrative expenses in our consolidated statements of operations.


Commitments and Contingencies - Certain conditions may exist as of the date our consolidated financial statements are issued, which may result in a loss but which will only be resolved when one or more future events occur or fail to occur.  We assess such contingent liabilities, and such assessment inherently involves an exercise of judgment.  In assessing loss contingencies related to legal proceedings that are pending against us or unasserted claims that may result in such proceedings, we evaluate the perceived merits of the legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.


If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in our consolidated financial statements.  If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.




F-12



UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 


Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed.


Net Income (Loss) Per Share - We compute net income (loss) per share in accordance with ASC 260, Earnings per Share . Under the provisions of ASC 260, basic net income (loss) per share includes no dilution and is computed by dividing the net income (loss) available to common stockholders for the period by the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per share takes into consideration shares of common stock outstanding (computed under basic net income (loss) per share) and potentially dilutive securities that are not anti-dilutive.


Potentially dilutive securities outlined in the table below have been excluded from the computation of diluted net loss per share, because the effect of their inclusion would have been anti-dilutive.


 

 

Years Ended December 31,

 

 

 

2014

 

 

2013

 

Warrants to purchase common stock

 

 

3,170,044

 

 

 

 


Other Comprehensive Income (Loss) – We report as other comprehensive income (loss) those revenues, gains and losses not included in the determination of net income.  During the years ended December 31, 2014 and 2013, we did not have any gains and losses resulting from activities or transactions that resulted in comprehensive income or loss.

 

Segment Reporting – UCANN operates as one segment.


Concentration of Credit Risk - Financial instruments that potentially subject us to credit risk consist of cash. We maintain our cash with high credit quality financial institutions; at times, such balances with any one financial institution may not be insured by the FDIC.

 

The following tables show significant concentrations in our revenues and accounts receivable for the periods indicated:


Percentage of Revenue:


 

 

Years Ended December 31,

 

 

 

2014

 

 

2013

 

Customer A

 

 

80

%

 

 

%


Percentage of Accounts Receivable:


 

 

Years Ended December 31,

 

 

 

2014

 

 

2013

 

Customer B

 

 

46

%

 

 

%

Customer C

 

 

33

%

 

 

%

Customer D

 

 

21

%

 

 

%


Recently Issued Accounting Pronouncements - From time to time, the FASB or other standards setting bodies issue new accounting pronouncements. Updates to the FASB ASCs are communicated through issuance of an Accounting Standards Update ("ASU"). Unless otherwise discussed, we believe that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on our consolidated financial statements upon adoption.


In May 2014 the FASB issued guidance on revenue from contracts with customers, which implements a five step process of how an entity should recognize revenue in order to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance will be effective at the beginning of fiscal year 2018, and early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. We are currently evaluating the impact that the adoption will have on our consolidated financial statements and related disclosures. We have not yet selected a transition method nor have we determined the effect of the standard on our ongoing reporting.




F-13



UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 


NOTE 3 – GOING CONCERN


Our consolidated financial statements have been prepared on a going concern basis which assumes we will be able to realize our assets and discharge our liabilities in the normal course of business for the foreseeable future. During the year ended December 31, 2014, we incurred losses of $2,468,364 and used cash of $1,189,057 in our operating activities. As at December 31, 2014, we had a working capital deficit of $1,304,209 and an accumulated deficit of $2,624,967.  Our ability to continue as a going concern is dependent upon our ability to generate profitable operations in the future and, or, obtaining the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due. There is no assurance that these events will be satisfactorily completed.


NOTE 4 – INVESTMENTS IN NON-MARKETABLE EQUITY SECURITIES


On June 9, 2014, we received 1,187,500 common shares and 3,000,000 warrants to purchase common shares of WeedMD RX Inc. (“WMD”), a private Canadian company in the cannabis industry, in exchange for future consulting services and use of our intellectual property. The shares represented a 4.29% equity investment in WMD at the time of the investment and we do not have significant influence over the investee. We recorded our investment in these non-marketable equity securities at estimated cost, based on our estimate of the fair value of the securities on the date of the transaction.


The WMD common shares were recorded at $0.50 per share based on WMD’s most recent sale of their common shares prior to the date of the transaction (CAD $0.50). The $593,750 cost assigned is classified as investment in non-marketable equity securities on our consolidated balance sheets.


The warrants entitled us to purchase WMD shares for CAD $0.50 each for a period of six months from the date the warrant was issued.


The WMD warrants were recorded at $0.10 per warrant utilizing the Black Scholes option pricing model and the following assumptions on the date of valuation:


Risk free interest rate

 

 

0.60

%

Expected term (years)

 

 

0.5

 

Expected volatility

 

 

70

%

Expected dividends

 

 

0

%


On December 9, 2014, the 3,000,000 WMD warrants expired unexercised and we recorded a $300,000 loss on investment in non-marketable equity securities in our consolidated statements of operations.


NOTE 5 – PREPAID EXPENSES


Our prepaid expenses consist of:


 

 

December 31,

 

 

 

2014

 

 

2013

 

Prepaid investor relations services

 

$

121,500

 

 

$

 

Other prepaid services and fees

 

 

55,900

 

 

 

 

 

 

$

177,400

 

 

$

 


NOTE 6 – EQUIPMENT

 

Our equipment, included in assets of discontinued operations on our consolidated balance sheets, consists of:


 

 

December 31,

 

 

 

2014

 

 

2013

 

Equipment

 

$

 

 

$

131,584

 

Less accumulated depreciation

 

 

 

 

 

(113,968

)

 

 

$

 

 

$

17,616

 



F-14



UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 


NOTE 7 – INTANGIBLES


Our intangible assets are comprised of a provisional patent application and applications for a design mark and trademarks. Our intangible assets will be amortized on a straight-line basis over estimated useful lives of 20 years for patents and 10 years for design marks and trademarks once the applications are approved. Costs associated with applications that are not approved will be expensed in the period that the application is rejected or abandoned.


NOTE 8 – EQUITY METHOD INVESTMENTS


Our equity method investments consist of:


 

 

December 31,

 

 

 

2014

 

 

2013

 

Lone Mountain Partners, LLC – 25% interest

 

$

50,000

 

 

$

 

Cannabinoid Research & Development Company Limited – 50%

 

 

88,000

 

 

 

 

Total equity method investments

 

$

138,000

 

 

$

 


On August 14, 2014, we acquired a 25% membership interest in Lone Mountain Partners, LLC, (“Lone Mountain”) for $50,000 and a commitment to provide future services, including, but not limited to, assisting with the application to obtain licenses to operate a medical marijuana entity in Nevada and to provide  standard operating procedures, security protocols, extract processing and equipment design, cultivation and processing center management, staffing and assistance with ongoing management of Lone Mountain. As of December 31, 2014, Lone Mountain did not have any operations or operating activities. We accounted for our $50,000 cash contribution as an equity method investment on our consolidated balance sheets.


On August 15, 2014, we acquired a 50% interest in Cannabinoid Research & Development Company Limited (“CRD”), a Jamaican company, in exchange 40,000 shares of our common stock valued at $88,000 based on the previous day’s closing price of our stock. We also committed to provide expertise on design-build, genetics, cultivation, production, processing, productizing, labeling, packaging, marketing, branding and distribution of products, as well as use of our intellectual property in the operations of CRD. As of December 31, 2014, CRD did not have any operations or operating activities. We accounted for this $88,000 as an equity method investment on our consolidated balance sheets. As we have not yet issued the 40,000 shares, the $88,000 is classified as common stock not yet issued on our consolidated balance sheets.


NOTE 9 – NOTES RECEIVABLE AND INTEREST INCOME


Notes Receivable


On August 13, 2014, in conjunction with the $1,657,500 Typenex Co-Investment, LLC (“Typenex”) convertible promissory note more fully described in Note 14 below, we received five, unsecured, $250,000 Investor Notes bearing interest at 8% per annum, totaling $1,250,000 that were scheduled to mature with respect to principal and interest on September 13, 2016. On December 29, 2014, we settled the amounts owing under the convertible promissory note and the amounts owed to us under the Investor Notes as more fully described in Note 14 below.


Interest Income


During the year ended December 31, 2014, we recognized $37,807 of interest income applicable to these Investor Notes.




F-15



UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 


NOTE 10 – ACCRUED EXPENSES


Our accrued expenses consist of:


 

 

December 31,

 

 

 

2014

 

 

2013

 

Accrued consulting fees

 

$

110,000

 

 

$

 

Accrued wages and related

 

 

433,963

 

 

 

 

Accrued interest expense

 

 

6,832

 

 

 

 

Total accrued expenses

 

$

550,795

 

 

$

 


NOTE 11 – FAIR VALUE MEASUREMENTS AND DERIVATIVE LIABILITY


We have adopted the guidance of ASC 820, Fair Value Measurement , which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:


Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.


Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.


Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.


We valued our derivative liability related to embedded conversion features applicable to our initial borrowing of $282,500 under the Typenex convertible note payable (see Note 14 below) and accrued interest payable of $28,473 thereon in accordance with the Level 3 guidelines. For the year ended December 31, 2014, the following table reconciles the beginning and ending balances for our financial instruments that are carried at fair value measured on a recurring basis:


Derivative liability as of December 31, 2013

 

$

 

Additions to derivative liability for convertible debt conversion feature recorded as debt discount

 

 

151,937

 

Additions to derivative liability for interest payable conversion feature recorded as interest expense

 

 

15,320

 

Gain on revaluation of derivative liability during the year

 

 

(6,099

)

Settlement of derivative liability on December 29, 2014

 

 

(161,158

)

Derivative liability as of December 31, 2014

 

$

 


The fair values of embedded conversion features issued with our convertible debt and accrued interest payable were estimated using the Black-Scholes option pricing model. The key inputs to this valuation model during the year ended December 31, 2014, were as follows:


Risk-free interest rate

0.43% – 0.72%

Dividend yield

Volatility

146% – 172%

Expected life in years

1.72 – 2.09

Exercise price

$3.00


We did not have any financial instruments carried at fair value measured on a recurring basis as of December 31, 2013, and all liabilities incurred and carried at fair value on a recurring basis during 2014 were settled as of December 31, 2014.




F-16



UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 


NOTE 12 – DEFERRED REVENUE


Our deferred revenue consists of:


 

 

December 31,

 

 

 

2014

 

 

2013

 

Deferred revenue – WeedMD

 

$

743,750

 

 

$

 

Deferred revenue - FoxBarry

 

 

200,000

 

 

 

 

 

Less – current portion

 

 

(500,000

)

 

 

 

Deferred revenue, net of current portion

 

$

443,750

 

 

$

 


As described in Note 4 above, on June 9, 2014, we received 1,187,500 common shares and 3,000,000 warrants to purchase common shares of WMD in exchange for future consulting services and use of our intellectual property. We recorded the $893,750 fair value of these securities as deferred revenue and, based on discussions with WMD, we expect to deliver consulting services and use of our intellectual property to WMD on a consistent monthly basis during a three year period beginning June 1, 2014. Accordingly, we began recognizing $25,000 of deferred revenue per month totaling $150,000 during the year ended December 31, 2014. At December 31, 2014, we expect to recognize $300,000 of the remaining $743,750 WMD deferred revenue during the next twelve months and accordingly, we have classified the $300,000 as a current liability on our consolidated balance sheets.


On December 28, 2014, we entered into a royalty and consulting services agreement with FoxBarry Farms, LLC (“FoxBarry”) whereby we received a $200,000 prepaid royalty payment from FoxBarry. We will recognize deferred royalty revenue based on actual applicable sales as defined in the agreement. During the year ended December 31, 2014, we did not recognize any deferred revenue related to this agreement. We have classified the $200,000 as a current liability on our consolidated balance sheets as we expect to recognize this amount during the next twelve months.


NOTE 13 – NOTES PAYABLE  


Our notes payable consist of:


 

 

December 31,

 

 

 

2014

 

 

2013

 

Note payable - WeedMD

 

$

175,000

 

 

$

 

Note payable – unrelated third party

 

 

600,000

 

 

 

 

Total notes payable

 

$

775,000

 

 

$

 


On July 7, 2014, we issued a $175,000, unsecured, demand promissory note bearing interest at 5% to WeedMD for cash used in our business development activities. Interest expense during the year ended December 31, 2014, applicable to this note was $4,267 and accrued interest payable in that amount is included in accrued expenses on our consolidated balance sheets.


On December 18, 2014, we issued a $600,000 unsecured promissory note bearing interest at 12% to an unrelated third party. The principal and accrued interest are due on the earlier of December 17, 2015, or  upon the closing of certain capital raising transactions as described in the note. The default rate of interest under the note is 18%. Debt issuance costs of $13,500 were immediately recognized as interest expense as we expect to close on a capital raising transaction in early 2015.  Interest expense during the year ended December 31, 2014, applicable to this note was $2,565 and accrued interest payable in that amount is included in accrued expenses on our consolidated balance sheets.


NOTE 14 – CONVERTIBLE NOTE PAYABLE


On August 13, 2014, we entered into a Securities Purchase Agreement with Typenex Co-Investment, LLC ("Typenex"), for the sale of a 10% convertible promissory note (the “Note”) in the principal amount of $1,657,500 (the “Closing Amount”) convertible into shares of our common stock. The Note had an original issue discount (“OID”) of $150,000. Typenex retained $7,500 of the Closing Amount for due diligence and legal bills related to the transaction and paid $25,000 on our behalf to a third party for brokerage fees (together, the “Fees”). The financing closed on August 13, 2014 (the “Closing Date”). The Note was secured by all of our assets.



F-17



UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 


The Note’s interest rate was 10% per annum. All interest and principal was required to be paid twenty-five months after the date of the first borrowing under the Note (the “Maturity Date”). The outstanding balance on the Note was convertible into our common stock, at Typenex’s option, at $3.00 per share (the “Optional Conversion”).


The Note also contained repayment requirements beginning six months after the first borrowing under the Note. The repayment requirements gave us the option of making periodic repayments in cash or with shares of our common stock at a price discounted to market in accordance with the terms of the Note.


In addition, we issued to Typenex warrants (the “Warrants”) to purchase 997,692 shares of our common stock, subject to adjustment in the event of a cashless exercise, as defined in the Warrant. Warrants for 170,044 shares were immediately exercisable with the remainder only becoming exercisable, in five tranches, if and when the Investor Notes (see Note 9 above) are paid. The Warrants are exercisable at $3.00 per share (the “Exercise Price”) until August 31, 2017, on a cash or cashless basis. If we, at any time while the Warrants are outstanding, sell or issue our common stock or securities convertible into or exercisable for shares of our common stock, including common stock issued under the Note, at an effective price per share less than the Exercise Price, then, subject to a few exceptions set forth in the Warrant, the Exercise Price will be reduced to such lower price provided that the number of shares of common stock issuable under the Warrant may not exceed a number of shares equal to three times the number of shares of common stock issuable under the Warrants as of the Closing Date.


On August 15, 2014, we received net cash proceeds from our initial borrowing under the Note of $225,000 as follows: total initial borrowing of $282,500 less the $32,500 of Fees and OID applicable to the initial borrowing of $25,000. We expensed the Fees immediately as interest expense as the initial borrowing and all subsequent tranches were immediately convertible into our common stock by the lender.


With regards to our $282,500 initial borrowing, on August 15, 2014, we recorded the $25,000 of OID plus the $118,373 fair value of the first Warrant issued, plus $139,127 of the $151,937 fair value of the initial borrowing conversion feature, or, in total, $282,500, as debt discount and recorded the excess, $12,810, as loss on origination of derivative liability in our consolidated statements of operations. We were amortizing the $282,500 debt discount associated with the initial borrowing on a straight line basis, which approximates the effective interest method, over the nine month repayment term of the initial borrowing.

 

With regards to the remaining $1,375,000 owed under the Note, we recorded the remaining $125,000 of OID as debt discount. We were amortizing the $125,000 debt discount on a straight line basis, which approximates the effective interest method, over the twenty-five month term of the Note. We also recorded the $576,152 fair value of the Warrants for the purchase of 827,648 of our shares of common stock as debt discount. Debt discount amortization relating to these warrants would be recognized on a straight line basis over the term of each future borrowing under the Note.


On December 29, 2014, we paid off the Note and accrued interest thereon and we repurchased and cancelled Warrants for the purchase of 827,648 of our shares of common stock held by Typenex. Principal and interest owed to us under the Investor Notes were offset against the principal and interest we owed to Typenex by us under the Note and we paid Typenex $381,714 in cash. We removed the assets and liabilities, including the derivative liability related to the Note and interest payable conversion features, from our consolidated balance sheets and reduced our common stock balance by the amount previously assigned to the Warrants underlying 827,648 shares of our common stock and recorded a loss on extinguishment of debt as follows:


Convertible note payable

 

 

 

 

 

$

1,657,500

 

Less: unamortized discount

 

 

 

 

 

 

(822,250

)

Accrued interest payable

 

 

 

 

 

 

63,326

 

Derivative liability

 

 

 

 

 

 

161,158

 

Warrants repurchased

 

 

 

 

 

 

576,152

 

Less: investor notes receivable

 

 

 

 

 

 

(1,250,000

)

Less: accrued interest receivable

 

 

 

 

 

 

(37,807

)

Less: cash paid

 

 

 

 

 

 

(381,714

)

Loss on extinguishment of debt

 

 

 

 

 

$

33,635

 




F-18



UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 


During the year ended December 31, 2014, we recognized $161,402 of debt discount amortization and interest expense totaling $63,326 applicable to this Note.


The fair value of the conversion feature applicable to accrued interest was $15,320 and this amount was recorded as interest expense and an increase to our derivative liability in our consolidated financial statements.


NOTE 15 – NOTES PAYABLE, RELATED PARTIES

 

In December 2011, we entered into a Revolving Promissory Note (the “Revolving Note”) with Ms. Stoppenhagen, our former President and director. Under the terms of the Revolving Note, Ms. Stoppenhagen agreed to advance us, from time to time and at our request, amounts up to an aggregate of $100,000 until December 31, 2013, with all advances to be paid on or before December 31, 2013, and interest accruing from the date of any advances on any principal amount withdrawn, and on unpaid interest thereon, at the rate of six percent (6%) per annum, compounded annually. As of December 31, 2014 and 2013, nothing was owed under the Revolving Note.


On September 30, 2013, we issued a Convertible Note (the "Convertible Note") for $50,000 to NYX Capital Advisors, Inc. (“NYX”), an entity owned by Ms. Stoppenhagen’s husband, in connection with $50,000 cash paid by NYX.  The Convertible Note bears no interest and was convertible at any time, at the option of the holder, into 10,000,000 shares of our common stock at $0.005 per share.  The Convertible Note was converted into our common shares on February 24, 2014.


NOTE 16 – STOCKHOLDERS’ (DEFICIT) EQUITY

 

Change of control


On February 27, 2014, NYX and Mr. Paul Enright, our former President, entered into a Stock Purchase Agreement, pursuant to which NYX sold to Mr. Enright an aggregate of 40,000,000 shares of our common stock, representing approximately 87% of our issued and outstanding shares as of that date.


On March 26, 2014, we cancelled 41,690,000 previously outstanding shares of our common stock and issued 38,690,000 shares to Messrs. Blackmon, Ruby and Verzura, representing approximately 89% of our issued and outstanding shares as of that date.


Stock split


On March 21, 2014, we effected a four-for-one stock split of our common stock in the form of a stock dividend of three shares of common stock for each share of common stock outstanding to stockholders of record on March 19, 2014.


Equity offering


On March 26, 2014, we sold 600,000 Units for a total amount of $900,000 to 45 accredited investors. Each Unit consisted of one share of our common stock, two A Warrants and three B Warrants. Each A Warrant entitles the holder to purchase one share of our common stock at a price of $7.50 per share during the two year period commencing April 1, 2014, and the A Warrants are callable once our common stock has traded at a price of at least $15.00 for 20 consecutive trading days.  Each B Warrant entitles the holder to purchase one share of our common stock at a price of $15.00 per share during the three year period commencing April 1, 2014, and the B Warrants are callable once our common stock has traded at a price of at least $22.00 for 20 consecutive trading days.  


Change in Authorized Share Capital


Effective May 2, 2014, we increased the authorized number of our preferred shares from five million to ten million and the authorized number of our common shares from 50 million to 100 million. At the same time we also changed the par value of both our preferred and common stock from $0.001 per share to no par value per share.




F-19



UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 


Common Stock Issued For Services


On August 14, 2014, we issued 10,000 shares of common stock valued at $9,200, based on the previous trading day’s closing price, as consideration for marketing services. The $9,200 was recorded as share-based compensation expense and is included in included in sales and marketing expense in our consolidated statements of operations.


On August 15, 2014, we issued 20,000 shares of common stock valued at $24,800, based on the previous trading day’s closing price, as consideration for consulting services. The $24,800 was recorded as share-based compensation expense and is included in included in general and administrative expenses in our consolidated statements of operations.


On August 25, 2014, we committed to issued 40,000 shares of common stock valued at $88,000, based on the previous trading day’s closing price, as consideration for a 50% ownership interest in CRD. The $88,000 is included in included in equity method investments on our consolidated balance sheets. The $88,000 of common stock is included in common stock yet to be issued on our consolidated balance sheets.


On September 17, 2014, we issued 150,000 shares of common stock valued at $162,000, based on the previous trading day’s closing price, as consideration for prepaid investor relations services. The $162,000 is being amortized on a straight-line basis over the 12 month term of the investor relations service agreement. During the year ended December 31, 2014, we recorded $40,500 of amortization as share-based compensation expense and included this in general and administrative expenses in our consolidated statements of operations. The remaining $121,500 as at December 31, 2014, is included in prepaid expenses on our consolidated balance sheets.

 

On October 17, 2014, we issued 100,000 shares of common stock valued at $40,000, based on the previous trading day’s closing price, as consideration for prepaid product distribution fees. The $40,000 is being amortized on a straight-line basis over the ten year term of the licensing and distribution agreement. During the year ended December 31, 2014, we recorded $1,000 of amortization as share-based compensation expense and included this in cost of revenues in our consolidated statements of operations. The remaining $39,000 as at December 31, 2014, is included in prepaid expenses on our consolidated balance sheets.


On October 24, 2014, we issued 20,000 shares of common stock valued at $24,000, based on the previous trading day’s closing price, as consideration for consulting services. The $24,000 was recorded as share-based compensation expense and is included in included in general and administrative expenses in our consolidated statements of operations.


On December 1, 2014, we issued 30,000 shares of common stock valued at $19,500, based on the previous trading day’s closing price, as consideration for prepaid accounting fees. The $19,500 is being recognized as share-based compensation expense as services are rendered. During the year ended December 31, 2014, we recorded $8,921 of share-based compensation expense and included this in general and administrative expenses in our consolidated statements of operations. The remaining $10,579 as at December 31, 2014, is included in prepaid expenses on our consolidated balance sheets.


On December 30, 2014, we issued 20,000 shares of common stock valued at $13,800, based on the previous trading day’s closing price, as consideration for consulting services. The $13,800 was recorded as share-based compensation expense and is included in included in general and administrative expenses in our consolidated statements of operations.




F-20



UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 


Warrants:

 

The following table summarizes our share warrants outstanding as of December 31, 2014 and 2013:

 

 

 

Year Ended December 31, 2014

 

 

 

Number of

Shares

 

 

Weighted

Average

Remaining

Life (years)

 

 

Weighted

Average

Exercise

Price

 

Warrants outstanding, beginning of period

 

 

 

 

 

 

 

$

 

Issued

 

 

3,997,692

 

 

 

 

 

 

9.75

 

Exercised

 

 

 

 

 

 

 

 

 

Repurchased and cancelled

 

 

(827,648

)

 

 

 

 

 

3.00

 

Expired

 

 

 

 

 

 

 

 

 

Warrants outstanding, end of period

 

 

3,170,044

 

 

 

1.3

 

 

$

11.52

 

Warrants exercisable, December 31, 2014

 

 

3,170,044

 

 

 

1.3

 

 

$

11.52

 


As described in Note 14 above, on August 13, 2014, we issued Typenex warrants to purchase 997,692 of our common shares and recorded the $694,525 fair value of these warrants as an increase to common stock on our consolidated balance sheets. On December 29, 2014, we repurchased 827,648 of these warrants, cancelled them and recorded a $576,152 decrease in common stock.  


The warrants were recorded at approximately $0.70 per warrant utilizing the Black Scholes option pricing model and the following assumptions on the date of valuation:


Stock price

 

$

1.03

 

Exercise price

 

$

3.00

 

Risk free interest rate

 

 

0.88

%

Expected term (years)

 

 

3.05

 

Expected volatility

 

 

146

%

Expected dividends

 

 

0

%


2004 Equity Incentive Plan


On November 20, 2014, our board of directors approved our 2014 Stock Incentive Plan (the “Plan”). The Plan provides officers, directors, selected employees and outside consultants an opportunity to acquire or increase a direct ownership interest in our operations and future success. Our board of directors currently administers the Plan and makes all decisions concerning which officers, directors, employees and other persons are granted awards, how many to grant to each recipient, when awards are granted, the terms and conditions applicable to awards, how the Plan should be interpreted, whether to amend or terminate the Plan and whether to delegate administration of the Plan to a committee. A maximum of 4,000,000 common shares are subject to the Plan. The Plan provides for the grant of stock options, stock awards, restricted stock units and stock appreciation rights. Stock options may be non-qualified stock options or incentive stock options except that stock options granted to outside directors, consultants or advisers providing services to us shall in all cases be non-qualified stock options. The Plan will terminate on November 20, 2024, unless the administrator terminates the Plan earlier. As of December 31, 2014, 4,000,000 common shares were available for issue under the Plan.

 



F-21



UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 


NOTE 17 –COMMITMENTS AND CONTINGENCIES


Contractual Obligations and Commercial Commitments


On May 6, 2014, we entered into a consultancy agreement with two third party consultants that has a six month term which can be renewed and/or extended by mutual agreement; currently, the renewal of the agreement is under negotiations. The agreement provides for a $50,000 payment at signing, which has been paid, and for three more $50,000 payments and the issuance of 100,000 shares of our common stock upon the achievement of certain goals as set forth in appendix II of the agreement. During the year ended December 31, 2014, we recognized $160,000 of the $200,000 cash payment obligations as research and development expenses in our consolidated statements of operations. At December 31, 2014, $110,000 is included in accrued expenses on our consolidated balance sheet. The value of the 100,000 shares will be recognized upon achievement of the goals, currently anticipated to be during 2015.


Legal Proceedings


We were not subject to any legal proceedings during the three and nine months ended December 31, 2014, and, to the best of our knowledge, no legal proceedings are pending or threatened.


NOTE 18 – INCOME TAXES


The Internal Revenue Code (“IRC”) allows net operating losses (“NOL's”) to be carried forward and applied against future profits for a period of twenty years. The change of ownership following our merger with MySkin may limit our ability to utilize these NOLs under the terms of IRC Section 381.

We did not provide any current or deferred federal income tax provision or benefit for any of the periods presented in our consolidated financial statements because we have experienced losses since our inception. When it is more likely than not, that a tax asset cannot be realized through future income, we must record an allowance against any potential future ta x benefit. We provided a full valuation allowance against our net deferred tax assets, consisting of net operating loss carry forwards, because we determined that it is more likely than not that we will not earn income sufficient to realize the deferred tax assets during the carry forward periods.

We have not taken a tax position that, if challenged, would have a material effect on our consolidated financial statements for the years ended December 31, 2014 and 2013, as defined under ASC 740. We did not recognize any adjustment to our liability for uncertain tax position and therefore did not record any adjustment to the beginning balance of our accumulated deficit on our consolidated balance sheets.

Our provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before provision for income taxes. The sources and tax effects of the differences for the periods presented are as follows:

 

 

Years Ended December 31,

 

 

 

2014

 

 

2013

 

Income tax provision at the federal statutory rate

 

39% 

 

 

39% 

 

Effect of operating losses

 

(39%)

 

 

(39%)

 

 

 

—%

 

 

—%

 


Changes in our cumulative net deferred tax assets consist of the following:


 

 

December 31,

 

 

 

2014

 

 

2013

 

Net loss carry forward

 

$

2,207,303

 

 

$

156,603

 

Valuation allowance

 

 

(2,207,303

)

 

 

(11,301,282

)

 

 

$

 

 

$

 




F-22



UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 


A reconciliation of our income taxes computed at the statutory rate is as follows:


 

 

Years Ended December 31,

 

 

 

2014

 

 

2013

 

Tax at statutory rate

 

$

799,773

 

 

$

1,234

 

Valuation allowance

 

 

(799,773

)

 

 

(1,234

)

 

 

$

 

 

$

 


NOTE 20 –RELATED PARTY TRANSACTIONS


Messrs. Blackmon and Verzura have made loans to or equity investments in one of our customers and are currently in the process of divesting those interests. As Messrs. Blackmon and Verzura may have significant influence on management or operating polices of the customer, we have classified sales to this customer as revenues, affiliate, in our consolidated statements of operations and accounts receivable from this customer as due from related parties on our consolidated balance sheets.


During the year ended December 31, 2014, we made certain payments on behalf of Lone Mountain during the organizational phase of this venture and have classified these payments as due from related parties on our consolidated balance sheets.


Amounts due from related parties consist of:


 

 

December 31,

 

 

 

2014

 

 

2013

 

Affiliated customer

 

$

3,112

 

 

$

 

Lone Mountain

 

 

40,900

 

 

 

 

Due from MTA

 

 

 

 

 

8,862

 

Total due from related parties

 

$

44,012

 

 

$

8,862

 


NOTE 21 –DISCONTINUED OPERATIONS


On March 31, 2014, we sold all right, title and interest in the tangible and intangible assets, trademarks, customer lists, intellectual property and rights, which we owned and were related to the advanced skin care business. The assets were sold to MySkin Services, Inc. (“MTA”), a business partly owned by Ms. Stoppenhagen in exchange for a $15,000 payable we owed to Ms. Stoppenhagen and/or MTA.  In addition, MTA assumed all costs associated with these assets starting on March 31, 2014.  See Note 1 for further detail on our change in operations.


The following details our loss from discontinued operations:


 

 

Years Ended December 31,

 

 

 

2014

 

 

2013

 

Revenues

 

$

20,684

 

 

$

105,662

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

63,872

 

 

 

57,146

 

Depreciation

 

 

 

 

 

18,019

 

Loss on disposal of assets

 

 

15,704

 

 

 

 

Total operating expenses

 

 

79,576

 

 

 

75,165

 

 

 

 

 

 

 

 

 

 

Income (loss) from discontinued operations, before income taxes

 

 

(58,892

)

 

 

30,496

 

Provision for income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from discontinued operations, net of income taxes

 

$

(58,892

)

 

$

30,496

 




F-23



UNITED CANNABIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 


Our assets held for sale consist of the following and are included in assets of discontinued operations on our consolidated balance sheets:


 

 

December 31,

 

 

 

2014

 

 

2013

 

Equipment

 

$

 

 

$

17,616

 


NOTE 22 – SUBSEQUENT EVENTS


On January 9, 2015, we awarded 200,000 stock options to each of Messrs. Blackmon, Verzura and Ruby under our 2014 Stock Incentive Plan. The options were fully vested at the time of grant and gave the option holder the right to purchase shares of our common stock at $0.70 per share during the ten year term of the option.


We calculated the fair value of each option to be approximately $0.70 per option utilizing the Black Scholes option pricing model and the following assumptions on the date of valuation:


Stock price

 

$

0.70

 

Exercise price

 

$

0.70

 

Risk free interest rate

 

 

1.98

%

Expected term (years)

 

 

10.0

 

Expected volatility

 

 

173

%

Expected dividends

 

 

0

%


On February 10, 2015, we issued 621,000 shares of our common stock valued at $987,390 based on the previous day’s closing price, to Typenex in exchange for the remaining outstanding Warrant to purchase 170,044 of our common shares.


On March 2, 2015, we issued 30,000 shares of our common stock valued at $42,600 based on the previous day’s closing price, in exchange for services.


In accordance with ASC 855-10 we have analyzed its operations subsequent to December 31, 2014, to the date these consolidated financial statements were issued, and has determined that, other that as disclosed above, we do not have any material subsequent events to disclose in these consolidated financial statements.












F-24





Document must be filed electronically.

Paper documents are not accepted.

Fees & forms are subject to change.

For more information or to print copies

of filed documents, visit www.sos.state.co.us.

E-FILED

Colorado Secretary of State

Date and Time:  03/25/2014 01:29 PM

ID Number:  20141195196


Document number:  20141195196

Amount Paid:  $50.00


ABOVE SPACE FOR OFFICE USE ONLY                           



Articles of Incorporation for a Profit Corporation

filed pursuant to § 7-102-101 and § 7-102-102 of the Colorado Revised Statutes (C.R.S.)


1.

The domestic entity name for the corporation is:


United Cannabis Corporation                                                     


(Caution:  The use of certain terms or abbreviations are restricted by law.  Read instructions for more information.)


2.

The principal office of the corporation’s initial principal office is


Street address

10235 Woodrose Lane                                                               

                                      (Street number and name)


Highlands Ranch                         CO          80129                     

                      (City)                                 (State)       (Zip/Postal Code)


                                                               United States               

         (Province – if applicable)                             (Country)


Mailing address

                                                                                                  

(leave blank if same as street address)

                   (Street number and name or Post Office Box information)


                                                                                                  

                      (City)                                 (State)       (Zip/Postal Code)


3.

The registered agent name and registered agent address of the corporation’s initial registered agent are


Name

  (if an individual)

Sawyer                         Jon                                                         

                 (Last)                   (First)             (Middle)           (Suffix)


Or


  (if an entity)

                                                                                                  

(Caution:  Do not provide both an individual and an entity name.)


Street address

303 East 17th Ave.                                                                   

                                      (Street number and name)

Suite 800                                                                                  


Denver                                      CO          80203                      

                      (City)                                 (State)       (Zip/Postal Code)


Mailing address

                                                                                                  

(leave blank if same as street address)

                   (Street number and name or Post Office Box information)


                                                   CO                                         

                      (City)                                 (State)       (Zip/Postal Code)




ARTINC_PC                                                                                           Page 1 of 3                                                              Rev. 8/5/2013




(The following statement is adopted by marking the box.)

x  The person appointed as registered agent above has consented to being so appointed.


4.

The true name and mailing address of the incorporator are


Name

  (if an individual)

Sawyer                         Jon                                                   

                 (Last)                   (First)             (Middle)           (Suffix)


Or


  (if an entity)

                                                                                                  

(Caution:  Do not provide both an individual and an entity name.)


Street address

303 East 17th Ave.                                                                  

                                      (Street number and name)

Suite 800                                                                                 


Denver                                      CO          80203                    

                      (City)                                 (State)       (Zip/Postal Code)


                                                                United States           

         (Province – if applicable)                             (Country)


(If the following statement applies, adopt the statement by marking the box and include an attachment)


o

The corporation has one or more additional incorporators and the name and mailing address of each

additional incorporator are stated in an attachment.


5.

The classes of shares and number of shares of each class that the corporation is authorized to issue are as follows:


¡

The corporation is authorized to issue _________ common shares that shall have unlimited voting

rights and are entitled to receive the net assets of the corporation upon dissolution.


¤

Information regarding shares as required by section 7-106-101, C.R.S., is included in an

attachment.


6.

(If the following statement applies, adopt the statement by marking the box and include an attachment.)

x

This document contains additional information as provided by law.


7.

(Caution:  Leave blank if the document does not have a delayed effective date.  Stating a delayed effective date has

significant legal consequences.  Read instructions before entering a date.)


(If the following statement applies, adopt the statement by entering a date and, if applicable, time using the required format)

The delayed effective date and, if applicable, time of this document is/are:  _________________________________

                                                               (mm/dd/yyy hour minute am/pm)


Notice:

Causing this document to be delivered to the Secretary of State for filing shall constitute the affirmation or acknowledgment of each individual causing such delivery, under penalties of perjury, that the document is the individual’s act and deed, or that the individual in good faith believes that the document is the act and deed of the person on whose behalf the individual is causing the document to be delivered for filing, taken in conformity with the requirements of part 3 of article 90 of title 7, C.R.S., the constituent documents, and the organic statutes, and that the individual in good faith believes that the facts stated in the document are true and the document complies with the requirements of that Part, the constituent documents, and the organic statutes.


This perjury notice applies to each individual who causes this document to be delivered to the Secretary of State, whether or not such individual is named in the document as one who has caused it to be delivered.




ARTINC_PC                                                                                           Page 2 of 3                                                              Rev. 8/5/2013




8.

The true name and mailing address of the individual causing the document to be delivered for filing are


 

Sawyer                         Jon                                                      

                 (Last)                   (First)             (Middle)           (Suffix)


303 East 17th Ave.                                                                  

                                      (Street number and name)


Suite 800                                                                                 



Denver                                      CO          80203                    

                      (City)                                 (State)       (Zip/Postal Code)


                                                              United States            

         (Province – if applicable)                             (Country)


(If the following statement applies, adopt the statement by marking the box and include an attachment.)

o

This document contains the true name and mailing address of one or more additional individuals

causing the document to be delivered for filing.



Disclaimer:

This form/cover sheet, and any related instructions, are not intended to provide legal, business or tax advice, and are furnished without representation or warranty.  While this form/cover sheet is believed to satisfy minimum legal requirements as of its revision date, compliance with applicable law, as the same may be amended from time to time, remains the responsibility of the user of this form/cover sheet.  Questions should be addressed to the user’s legal, business or tax advisor(s).













ARTINC_PC                                                                                           Page 3 of 3                                                              Rev. 8/5/2013





ARTICLES OF INCORPORATION


OF


UNITED CANNABIS CORPORATION


KNOW ALL MEN BY THESE PRESENTS:  That the undersigned Corporation, pursuant to the provisions of the Colorado Business Corporation Act, does hereby adopt these Articles of Incorpora­tion.


ARTICLE I

Name


The name of the Corporation shall be “United Cannabis Corporation.”


ARTICLE II

Authorized Shares


Section 1:   Number . The aggregate number of shares which the Corporation shall have authority to issue is One Hundred Million (100,000,000) shares of common stock of one class, all with no par value and Ten Million (10,000,000) shares of preferred stock, all with no par value, to have such classes and preferences as the Board of Directors may determine from time to time.


Section 2: Dividends . Dividends in cash, property or shares of the Corporation may be paid upon the stock, as and when declared by the Board of Directors, out of funds of the Corporation to the extent and in the manner permitted by law.


ARTICLE III

Preemptive Rights


The holders of the capital stock of this Corporation shall not have the preemptive right to acquire additional unissued shares or treasury shares of the capital stock of this Corporation, or securities convertible into shares of capital stock.


ARTICLE IV

Cumulative Voting


Cumulative voting of shares of stock of the Corporation shall not be allowed or authorized in the election of the Board of Directors of the Corporation.


ARTICLE V

Provisions for Regulation of the

Internal Corporate Affairs


The following provisions are inserted for the management of the business and for the regulation of the internal affairs of the Corporation, and the same are in furtherance of and not in limitation or exclusion of the powers conferred by law.


Section 1: Bylaws . The Board of Directors shall have the power to adopt, alter, amend or repeal, from time to time, such Bylaws as it deems proper for the management of the affairs of the Corporation, according to these Articles and to the extent permitted by the Colorado Business Corporation Act.


Section 2: Executive Committee . The Bylaws may provide for designation by the Board of Directors of an Executive Committee and one or more other committees, the personnel and authority of which and the other provisions relating to which shall be as may be set forth in the Bylaws.


Section 3: Place of Meetings . Both Stockholders' and Directors' meetings may be held either within or without the State of Colorado, as may be provided in the Bylaws.


Section 4: Compensation to Directors . The Board of Directors is authorized to make provisions for reasonable compensation to its members for their services as Directors. Any Director of the Corporation may also serve the Corporation in any other capacity and receive compensation therefor in any form.




1




Section 5: Conflicts of Interest . No transaction of the Corporation with any other person, firm or corporation, or in which this Corporation is interested, shall be affected or invalidated solely by: (a) the fact that any one or more of the Directors or Officers of this Corporation is interested in or is a director, or officer of another corporation; or (b) the fact that any Director or Officer, individually or jointly with others, may be a party to or may be interested in any such contract or transaction.


Section 6: Registered Owner of Stock . The Corporation shall be entitled to treat the registered holder of any shares of the Corporation as the owner thereof for all purposes, including all rights deriving from such shares, on the part of any other person, including, but not limited to, .a purchaser, assignee or transferee of such shares or rights deriving from such shares, unless and until such purchaser, assignee, transferee or other person becomes the registered holder of such shares, whether or not the Corporation shall have either actual or constructive notice of the interest of such purchaser, assignee, transferee or other person. The purchaser, assignee or transferee of any of the shares of the Corporation shall not be entitled to: (a) receive notice of the meetings of the Shareholders; (b) vote at such meetings; (c) examine a list of the Shareholders; (d) be paid dividends or other sums payable to Shareholders, or (e) own, enjoy or exercise any other property or rights deriving from such shares against the Corporation, until such purchaser, assignee or transferee has become the registered holder of such shares.


Section 7: Conduct of Business . The Corporation may conduct part or all of its business, not only in the State of Colorado, but also in every other state of the United States and the District of Columbia, and in any territory, district and possession of the United States, and in any foreign country, and the Corporation may qualify to do business in any of such locations and appoint an agent for service of process therein. The Corporation may hold, purchase, mortgage, lease and convey real and personal property in any of such locations. Part or all of the business of the Corporation may be carried on beyond the limits of the State of Colorado, and the Corporation may have one or more offices out of the State of Colorado.


Section 8: Action of the Shareholders .  To the fullest extent now or hereafter permitted by the Colorado Business Corporation Act, the vote or consent of a majority of the issued and outstanding shares of the Corporation entitled to vote on such matter shall be sufficient to approve any matter requiring shareholder action, including, but not limited to, the right from time to time, to amend, alter or repeal, or add any provisions to, the Corporation’s Articles of Incorporation.  Shareholders holding shares having not less than the minimum number of votes that would be necessary to authorize or take an action at a meeting at which all of the shares entitled to vote thereon were present and voted, may consent, in lieu of a meeting, to such action in writing in accordance with the procedures of the Colorado Business Corporation Act, as then currently in place from time to time.


Section 9: Quorum For Voting . A quorum of Shareholders for any matter to come before any meeting of Shareholders of the Corporation shall consist of not less than one-third of the issued and outstanding shares entitled to vote on the matter, except where a greater number is specifically required by the provisions of the Colorado Business Corporation Act, as then currently in place from time to time.


Section 10: Restrictions on Stock . The Directors shall have the right, from time to time, to impose restrictions or to enter into agreements on behalf of the Corporation imposing restrictions on the transfer of all or a portion of the Corporation's shares, provided that no restrictions shall be imposed on the transfer of shares outstanding at the time the restrictions are adopted unless the holder of such shares consents to the restrictions.


Section 11: Limitation of Liability of Directors . A director of the Corporation shall not be personally liable to the Corporation or to its shareholders for damages for breach of fiduciary duty as a director of the Corporation or to its shareholders for damages otherwise existing for (i) any breach of the director's duty of loyalty to the Corporation or to its shareholders; (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law; (iii) acts specified in Section 7-108-403 of the Colorado Business Corporation Act; or (iv) any transaction from which the director directly or indirectly derived any improper personal benefit. If the Colorado Business Corporation Act is hereafter amended to eliminate or limit further the liability of a director, then, in addition to the elimination and limitation of liability provided by the foregoing, the liability of each director shall be eliminated or limited to the fullest extent permitted under the provisions of the Colorado Business Corporation Act as so amended. Any repeal or modification of the indemnification provided in these Articles shall not adversely affect any right or protection of a director of the Corporation under these Articles, as in effect immediately prior to such repeal or modification, with respect to any liability that would have accrued, but for this limitation of liability, prior to such repeal or modification.


Section 12: Indemnification . The Corporation shall indemnify, to the fullest extent permitted by applicable law in effect from time to time, any person, and the estate and personal representative of any such person, against all liability and expense (including, but not limited to, attorneys' fees) incurred by reason of the fact that he is or was a director or officer of the Corporation, he is or was serving at the request of the Corporation as a director, officer, partner, trustee,



2




employee, fiduciary, or agent of, or in any similar managerial or fiduciary position of, another domestic or foreign corporation or other individual or entity or of an employee benefit plan. The Corporation shall also indemnify any person who is serving or has served the Corporation as director, officer, employee, fiduciary, or agent, and that person's estate and personal representative, to the extent and in the manner provided in any bylaw, resolution of the shareholders or directors, contract, or otherwise, so long as such provision is legally permissible.


ARTICLE VI

Principal Office


The address of the principal office of the Corporation is: 10235 Woodrose Lane, Highlands Ranch, Colorado 80129. The principal office of the Corporation may be relocated to such other place or places from time to time as may be determined by the Board of Directors.


ARTICLE VII

Registered Office and Registered Agent


The address of the registered office of the Corporation is 303 East 17 th Avenue, Suite 800, Denver, Colorado 80203, and the name of the registered agent at such address is Jon D. Sawyer.





3





EXHIBIT 3.5












BYLAWS


OF


UNITED CANNABIS CORPORATION


(a Colorado corporation)
















TABLE OF CONTENTS


 

Page

 

 

ARTICLE I – OFFICES

5

 

 

1.1

Business Office

5

1.2

Registered Office

5

 

 

ARTICLE II - SHARES AND TRANSFER THEREOF

5

 

 

2.1

Regulation

5

2.2

Certificates for Shares

5

2.3

Cancellation of Certificates

5

2.4

Lost, Stolen or Destroyed Certificates

6

2.5

Transfer of Shares

6

2.6

Transfer Agent

6

2.7

Close of Transfer Book and Record Date

6

 

 

ARTICLE III - SHAREHOLDERS AND MEETINGS THEREOF

7

 

 

3.1

Shareholders of Record

7

3.2

Meetings

7

3.3

Annual Meetings

7

3.4

Special Meetings

7

3.5

Notice

8

3.6

Meeting of all Shareholders

8

3.7

Voting Record

8

3.8

Quorum

8

3.9

Manner of Acting

9

3.10

Proxies

9

3.11

Voting of Shares

9

3.12

Voting of Shares by Certain Holders

9

3.13

Informal Action by Shareholders

9

3.14

Voting by Ballot

10

3.15

Cumulative Voting

10

 

 

ARTICLE IV - DIRECTORS, POWERS AND MEETINGS

10

 

 

4.1

Board of Directors

10

4.2

Regular Meetings

10

4.3

Special Meetings

10

4.4

Notice

10

4.5

Participation by Electronic Means

11

4.6

Quorum and Manner of Acting

11



















2






4.7

Organization

11

4.8

Presumption of Assent

11

4.9

Informal Action by Directors

11

4.10

Vacancies

11

4.11

Compensation

12

4.12

Removal of Directors

12

4.13

Resignations

12

4.14

General Powers

12

 

 

ARTICLE V – OFFICERS

12

 

 

5.1

Term and Compensation

12

5.2

Powers

13

5.3

Compensation

14

5.4

Delegation of Duties

14

5.5

Bonds

14

5.6

Removal

14

 

 

ARTICLE VI – FINANCE

14

 

 

6.1

Reserve

14

6.2

Banking

14

 

 

ARTICLE VII – DIVIDENDS

15

 

 

ARTICLE VIII - CONTRACTS, LOANS AND CHECKS

15

 

 

8.1

Execution of Contracts

15

8.2

Loans

15

8.3

Checks

15

 

 

ARTICLE IX – INDEMNIFICATION

15

 

 

9.1

Directors

15

9.2

Officers and Others

15

9.3

Insurance

16

9.4

Definition of "Director"

16

9.5

Non-Exclusivity of Rights

16

 

 

ARTICLE X - FISCAL YEAR

16

 

 

ARTICLE XI - CORPORATE SEAL

16

 

 

ARTICLE XII – AMENDMENTS

17



















3






ARTICLE XIII - EXECUTIVE COMMITTEE

17

 

 

13.1

Appointment

17

13.2

Authority

17

13.3

Tenure and Qualifications

17

13.4

Meetings

17

13.5

Quorum

17

13.6

Informal Action by Executive Committee

18

13.7

Vacancies

18

13.8

Resignations and Removal

18

13.9

Procedure

18

 

 

ARTICLE XIV - EMERGENCY BYLAWS

18

 

 

CERTIFICATE

19





4





ARTICLE I

OFFICES


1.1

Business Office .  The principal office shall be 10235 Woodrose Lane, Highlands Ranch, CO  80129.  Other offices and places of business may be established from time to time by resolution of the Board of Directors or as the busi­ness of the corporation may require.


1.2

Registered Office .  The registered office of the corpora­tion, required by the Colorado Business Corporation Act to be maintained in the State of Colorado, may be, but need not be, identical with the principal office in the State of Colorado, and the address of the registered office may be changed from time to time by the Board of Directors.


ARTICLE II

SHARES AND TRANSFER THEREOF


2.1

Regulation .  The Board of Directors may make such rules and regulations as it may deem appropriate concerning the issuance, transfer and registration of certificates for shares of the corporation, including the appointment of transfer agents and registrars.


2.2

Certificates for Shares .  Certificates represent­ing shares of the corporation shall be consecutively numbered for each class of shares, or series thereof, as they are issued, shall be impressed with the corporate seal or a facsimile thereof, and shall be signed by the Chairman or Vice Chairman of the Board of Directors or by the Presi­dent or a Vice-President and by the Treasurer or an Assist­ant Treasurer or by the Secretary or an Assistant Secretary; provided that any or all of the signatures may be facsimiles if the certificate is countersigned by a transfer agent, or registered by a registrar, other than the corpora­tion itself or its employee.  Each certificate shall state the name of the corporation, the fact that the corporation is organized or incorporated under the laws of the State of Colorado, the name of the person to whom issued, the date of issue, the class (or series of any class), the number of shares repre­sented thereby and the par value of the shares represented thereby or a statement that such shares are without par value.  A statement of the designations, prefer­ences, quali­fications, limitations, restrictions and special or relative rights of the shares of each class shall be set forth in full or summarized on the face or back of the cer­tificates which the corporation shall issue, or in lieu thereof, the certificate may set forth that such a statement or summary will be furnished to any shareholder upon request without charge.  Each certificate shall be otherwise in such form as may be prescribed by the Board of Directors and as shall conform to the rules of any stock exchange on which the shares may be listed.  The corporation shall not issue cer­tificates representing fractional shares and shall not be obligated to make any transfers creating a fractional in­terest in a share of stock.  The corporation may issue scrip in lieu of any fractional shares, such scrip to have terms and conditions specified by the Board of Directors.


2.3

Cancellation of Certificates .  All certificates sur­rendered to the corporation for transfer shall be can­celled and no new certificates shall be issued in lieu thereof until the former certificate for a like number of shares shall have been surrendered and cancelled, except as herein provided with respect to lost, stolen or destroyed certificates.




5





2.4

Lost, Stolen or Destroyed Certificates .  Any shareholder claiming that his certificate for shares is lost, stolen or destroyed may make an affidavit or affirma­tion of the fact and lodge the same with the Secretary of the corpora­tion, accompanied by a signed application for a new certifi­cate.  Thereupon, and upon the giving of a satis­factory bond of indemnity to the corporation not exceeding an amount double the value of the shares as represented by such certificate (the necessity for such bond and the amount required to be determined by the President and Treasurer of the corporation), a new certificate may be issued of the same tenor and representing the same number, class and series of shares as were represented by the certificate al­leged to be lost, stolen or destroyed.


2.5

Transfer of Shares .  Subject to the terms of any shareholder agreement relating to the transfer of shares or other transfer restrictions contained in the Articles of Incorporation or authorized therein, shares of the corpora­tion shall be trans­ferable on the books of the corporation by the holder thereof in person or by his duly authorized attorney, upon the surrender and cancella­tion of a certifi­cate or certificates for a like number of shares.  Upon presentation and surrender of a certificate for shares prop­erly endorsed and payment of all taxes therefor, the trans­feree shall be entitled to a new certificate or certificates in lieu thereof.  As against the corporation, a transfer of shares can be made only on the books of the corporation and in the manner hereinabove provided, and the corporation shall be entitled to treat the holder of record of any share as the owner thereof and shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person, whether or not it shall have ex­press or other notice thereof, save as expressly provided by the statutes of the State of Colorado.


2.6

Transfer Agent .  Unless otherwise specified by the Board of Directors by resolution, the Secretary of the cor­poration shall act as transfer agent of the certificates representing the shares of stock of the corporation.  He shall maintain a stock transfer book, the stubs in which shall set forth among other things, the names and addresses of the holders of all issued shares of the corporation, the number of shares held by each, the certificate numbers representing such shares, the date of issue of the certifi­cates represent­ing such shares, and whether or not such shares originate from original issue or from transfer.  Sub­ject to Section 3.7, the names and addresses of the share­holders as they appear on the stubs of the stock transfer book shall be conclusive evidence as to who are the share­holders of record and as such entitled to receive notice of the meetings of shareholders; to vote at such meetings; to examine the list of the shareholders entitled to vote at meetings; to receive dividends; and to own, enjoy and exer­cise any other property or rights deriving from such shares against the corporation.  Each shareholder shall be respon­sible for notifying the Secretary in writing of any change in his name or address and failure so to do will relieve the corporation, its directors, officers and agents, from li­ability for failure to direct notices or other docu­ments, or pay over or transfer dividends or other property or rights, to a name or address other than the name and address appear­ing on the stub of the stock transfer book.


2.7

Close of Transfer Book and Record Date .  For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders, or any adjourn­ment thereof, or entitled to receive payment of any dividend, or in order to make a deter­mination of shareholders for any other proper purpose, the Board of Directors may provide that the stock transfer books shall be closed for a stated period, but not to exceed, in any case, fifty days.  If the stock



6





transfer books shall be closed for the purpose of determining shareholders entitled to notice of, or to vote at a meeting of shareholders, such books shall be closed for at least ten days immediately preceding such meeting.  In lieu of closing the stock transfer books, the Board of Di­rectors may fix in advance a date as the record date for any such determination of share­holders, such date in any case to be not more than fifty days and, in case of a meeting of shareholders, not less than ten days prior to the date on which the particular action requiring such deter­mination of shareholders is to be taken.  If the stock transfer books are not closed and no record date is fixed for the deter­mination of shareholders entitled to notice of or to vote at a meeting of shareholders, or shareholders entitled to re­ceive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such deter­mination of sharehold­ers.  When a determina­tion of share­holders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof.


ARTICLE III

SHAREHOLDERS AND MEETINGS THEREOF


3.1

Shareholders of Record .  Only shareholders of record on the books of the corporation shall be entitled to be treated by the corporation as holders in fact of the shares standing in their respective names, and the corpora­tion shall not be bound to recognize any equitable or other claim to, or interest in, any shares on the part of any other person, firm or corporation, whether or not it shall have express or other notice thereof, except as expressly provided by the laws of Colorado.


3.2

Meetings .  Meetings of shareholders shall be held at the principal office of the corporation, or at such other place as specified from time to time by the Board of Di­rectors.  If the Board of Directors shall specify another location such change in location shall be recorded on the notice calling such meeting.


3.3

Annual Meeting .  In the absence of a resolution of the Board of Directors providing otherwise, the annual meet­ing of share­holders of the corporation for the election of directors, and for the transaction of such other business as may prop­erly come before the meeting, shall be held at such time as may be determined by Board of Directors by resolution in conformance with Colorado law.  If the election of Direc­tors shall not be held on the day so designated for any annual meeting of the shareholders, the Board of Directors shall cause the elec­tion to be held at a special meeting of the shareholders as soon thereafter as may be con­venient.


3.4

Special Meetings .  Special meetings of share­holders, for any purpose or pur­poses, unless otherwise pre­scribed by statute, may be called by the President, the Board of Direc­tors, the holders of not less than one-tenth of all the shares entitled to vote at the meeting, or legal counsel of the corporation as last designated by resolution of the Board of Directors.


3.5

Notice .  Written notice stating the place, day and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered unless otherwise prescribed by statute not less than ten days nor more than sixty days before the date of the meeting, either personally or by mail, by or at the di­rection of the President, the Secretary, or the



7





officer or person calling the meeting to each shareholder of record entitled to vote at such meeting; except that, if the authorized shares are to be increased, at least thirty days' notice shall be given.  Notice to share­holders of record, if mailed, shall be deemed given as to any shareholder of record, when deposited in the United States mail, addressed to the shareholder at his address as it appears on the stock transfer books of the corporation, with postage thereon prepaid, but if three successive letters mailed to the last-known address of any shareholder of record are returned as undeliverable, no further notices to such shareholder shall be necessary, until another ad­dress for such share­holder is made known to the corporation.


3.6

Meeting of All Shareholders .  If all of the share­holders shall meet at any time and place, either within or without the State of Colorado, and consent to the holding of a meeting at such time and place, such meeting shall be valid without call or notice, and at such meeting any cor­porate action may be taken.


3.7

Voting Record .  The officer or agent having charge of the stock transfer books for shares of the corporation shall make, at least ten days before such meeting of share­holders, a complete record of the shareholders entitled to vote at each meeting of share­holders or any adjournment thereof, arranged in alphabetical order, with the address and the number of shares held by each.  The record, for a period of ten days prior to such meeting, shall be kept on file either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held, whether within or without the State of Colorado, and shall be sub­ject to inspection by any share­holder for any purpose ger­mane to the meeting at any time during usual business hours.  Such record shall be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder for any purpose germane to the meeting during the whole time of the meeting for the pur­poses thereof.  The original stock trans­fer books shall be the prima facie evidence as to who are the shareholders entitled to examine the record or transfer books or to vote at any meeting of shareholders.


3.8

Quorum .  A majority of the outstanding shares of the corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at any meeting of share­holders, except as otherwise provided by the Colorado Bus­iness Corporation Act and the Articles of Incor­poration.  In the absence of a quorum at any such meeting, a majority of the shares so represented may adjourn the meeting from time to time for a period not to exceed sixty days without further notice.  At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed.  The shareholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum.


3.9

Manner of Acting .  If a quorum is present, the affirma­tive vote of the majority of the shares represented at the meeting and entitled to vote on the subject matter shall be the act of the shareholders, unless the vote of a greater proportion or number or voting by classes is other­wise required by statute or by the Articles of Incorporation or these Bylaws.




8





3.10

Proxies .  At all meetings of shareholders a shareholder may vote in person or by proxy executed in writ­ing by the share­holder or by his duly authorized attorney-in-fact.  Such proxy shall be filed with the Secretary of the corporation before or at the time of the meeting.  No proxy shall be valid after three years from the date of its execu­tion, unless otherwise provided in the proxy.


3.11

Voting of Shares .  Unless otherwise provided by these Bylaws or the Articles of Incorporation, each out­standing share entitled to vote shall be entitled to one vote upon each matter submitted to a vote at a meeting of shareholders, and each fractional share shall be entitled to a corresponding fractional vote on each such matter.


3.12

Voting of Shares by Certain Holders .  Shares standing in the name of another corporation may be voted by such officer, agent or proxy as the bylaws of such corpora­tion may prescribe, or, in the absence of such provision, as the Board of Directors of such other corporation may deter­mine.  Shares standing in the name of a deceased person, a minor ward or an incompetent person, may be voted by his administrator, executor, court appointed guardian or con­servator, either in person or by proxy without a transfer of such shares into the name of such administrator, executor, court appointed guardian or conservator.  Shares standing in the name of a trustee may be voted by him, either in person or by proxy, but no trustee shall be entitled to vote shares held by him without a transfer of such shares into his name.  Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his name if authority so to do be contained in an appropriate order of the court by which such receiver was appointed.


A shareholder whose shares are pledged shall be en­titled to vote such shares until the shares have been trans­ferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so trans­ferred.  Neither shares of its own stock belonging to this corporation, nor shares of its own stock held by it in a fiduciary capacity, nor shares of its own stock held by another corporation if the majority of shares entitled to vote for the election of directors of such corporation is held by this corporation may be voted, directly or in­directly, at any meeting and shall not be counted in deter­mining the total number of outstanding shares at any given time.  Redeemable shares which have been called for redemp­tion shall not be entitled to vote on any matter and shall not be deemed outstanding shares on and after the date on which written notice of redemption has been mailed to share­holders and a sum sufficient to redeem such shares has been irrevocably deposited or set aside to pay the redemption price to the holders of the shares upon surrender of certifi­cates there­for.


3.13

Informal Action by Shareholders .  Any action required or permitted to be taken at a meeting of the shareholders may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by shareholders holding not less than the minimum number of votes that would be necessary to authorize or take an action at a meeting at which all of the shares entitled to vote thereon were present and voted.


3.14

Voting by Ballot .  Voting on any question or in any election may be by voice vote unless the presiding of­ficer shall order or any shareholder shall demand that vot­ing be by ballot.




9





3.15

Cumulative Voting .  No shareholder shall be per­mitted to cumulate his votes by giving one candidate as many votes as the number of such directors multiplied by the num­ber of his shares shall equal, or by distributing such votes on the same principal among any number of candidates.


ARTICLE IV

DIRECTORS, POWERS AND MEETINGS


4.1

Board of Directors .  The business and affairs of the corporation shall be managed by a board of not less than one (1) nor more than seven (7) directors.  Directors need not be share­holders of the corporation or residents of the State of Colorado and who shall be elected at the annual meeting of shareholders or some adjournment thereof.  Directors shall hold office until the next suc­ceeding annual meeting of shareholders and until their suc­cessors shall have been elected and shall qualify.  The Board of Directors may increase or decrease, to not less than one (1) nor more than three (3), the number of directors by resolu­tion.


4.2

Regular Meetings .  A regular, annual meeting of the Board of Directors shall be held at the same place as, and immediately after, the annual meeting of shareholders, and no notice shall be required in connection therewith.  The annual meeting of the Board of Directors shall be for the purpose of electing officers and the transaction of such other business as may come before the meeting.  The Board of Directors may provide, by resolu­tion, the time and place, either within or without the State of Colorado, for the holding of additional regular meetings without other notice than such resolution.


4.3

Special Meetings .  Special meetings of the Board of Directors may be called by or at the request of the President or any two directors if there are two or more directors of the Corporation.  The person or persons authorized to call special meetings of the Board of Di­rectors may fix any place, either within or without the State of Colorado, as the place for holding any special meeting of the Board of Direc­tors called by them.


4.4

Notice .  Written notice of any special meeting of directors shall be given as follows:


(a)

By mail to each director at his business ad­dress at least three days prior to the meeting; or


(b)

By personal delivery or e-mail at least twenty-four hours prior to the meeting to the business ad­dress of each director, or in the event such notice is given on a Saturday, Sunday or holiday, to the residence address or e-mail address of each director.  If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, so ad­dressed, with postage thereon prepaid.  If notice be given by e-mail, such notice shall be deemed to be delivered when the e-mail is sent.  Any director may waive notice of any meeting.  The atten­dance of a director at any meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the trans­action of any business because the meeting is not lawfully called or convened.  Neither the business to be transacted at, nor the purpose of, any regular or



10





special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting.


4.5

Participation by Electronic Means .  Except as may be otherwise provided by the Articles of Incorporation or Bylaws, members of the Board of Directors or any committee designated by such Board may participate in a meeting of the Board or committee by means of conference telephone or similar communica­tions equipment by which all persons par­ticipating in the meeting can hear each other at the same time.  Such participation shall constitute presence in per­son at the meeting.


4.6

Quorum and Manner of Acting .  A quorum at all meetings of the Board of Directors shall consist of a majority of the number of directors then holding office, but a smaller number may adjourn from time to time without further notice, until a quorum is secured.  The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Di­rectors, unless the act of a greater number is required by the laws of the State of Colorado or by the Articles of In­corpora­tion or these Bylaws.


4.7

Organization .  The Board of Directors shall elect a chairman to preside at each meeting of the Board of Di­rectors.  The Board of Directors shall elect a Secretary to record the discus­sions and resolutions of each meeting.


4.8

Presumption of Assent .  A director of the corpora­tion who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as the Secretary of the meeting before the adjournment thereof or shall forward such dissent by regis­tered mail to the Secretary of the corporation immediately after the adjournment of the meeting.  Such right to dissent shall not apply to a director who voted in favor of such action.


4.9

Informal Action By Directors .  Any action required or permitted to be taken by the Board of Directors, or a committee thereof, at a meeting may be taken without a meet­ing if a consent in writing, setting forth the action so taken, shall be signed by all the directors or all the com­mittee members entitled to vote with respect to the subject matter thereof.


4.10

Vacancies .  Any vacancy occurring in the Board of Directors may be filled by the affirmative vote of a majority of the remaining directors though less than a quorum of the Board of Directors.  A director elected to fill a vacancy shall be elected for the unexpired term of his predecessor in office, and shall hold such office until his successor is duly elected and shall qualify.  Any di­rectorship to be filled by reason of an increase in the num­ber of directors shall be filled by the affirmative vote of a majority of the directors then in office or by an election at an annual meeting, or at a special meeting of share­holders called for that purpose.  A director chosen to fill a position resulting from an increase in the number of di­rectors shall hold office only until the next election of directors by the shareholders.




11





4.11

Compensation .  By resolution of the Board of Di­rectors and irrespective of any personal interest of any of the members, each director may be paid his expenses, if any, of attendance at each meeting of the Board of Directors, and may be paid a stated salary as director or a fixed sum for attendance at each meeting of the Board of Directors or both.  No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor.


4.12

Removal of Directors .  Any director or directors of the corporation may be removed at any time, with or with­out cause, in the manner provided in the Colorado Busines­s Corporation Act.


4.13

Resignations .  A director of the corporation may resign at any time by giving written notice to the Board of Directors, President or Secretary of the corporation.  The resignation shall take effect upon the date of receipt of such notice, or at any later period of time specified there­in.  The acceptance of such resignation shall not be neces­sary to make it effective, unless the resignation requires it to be effective as such.


4.14

General Powers .  The business and affairs of the corporation shall be managed by the Board of Directors which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the Articles of Incorporation or by these Bylaws directed or required to be exercised or done by the shareholders.  The directors shall pass upon any and all bills or claims of officers for salaries or other compensation and, if deemed advisable, shall contract with officers, employees, di­rectors, attorneys, ac­countants, and other persons to render services to the corporation.


ARTICLE V

OFFICERS


5.1

Term and Compensation .  The elective officers of the corporation shall consist of at least a President, a Secretary and a Treasurer, each of whom shall be eighteen years or older and who shall be elected by the Board of Directors at its first meeting of the Board held after each annual meeting of the shareholders.  Unless removed in accordance with procedures established by law and these Bylaws, the said officers shall serve until the next succeeding annual meeting of the Board of Directors and until their respective successors are elected and shall qualify.  Any number of offices may be held by the same person at the same time.  The Board may elect or appoint such other officers and agents as it may deem advisable, who shall hold office during the pleasure of the Board.


5.2

Powers .  The officers of the corporation shall exercise and perform the respective powers, duties and func­tions as are stated below, and as may be assigned to them by the Board of Directors.


(a)

The President shall be the chief executive officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direc­tion and control of the business and officers of the cor­poration.  He shall preside, when present, at all meetings of the



12





shareholders and of the Board of Directors unless a different chairman of such meetings is elected by the Board of Directors.


(b)

In the absence or disability of the President, the Vice-President or Vice-Presidents, if any, in order of their rank as fixed by the Board of Directors, and if not ranked, the Vice-Presidents in the order designated by the Board of Directors, shall perform all the duties of the President, and when so acting shall have all the powers of, and be subject to all the restrictions on the President.  Each Vice-President shall have such other powers and perform such other duties as may from time to time be assigned to him by the President or the Board of Directors.


(c)

The Secretary shall prepare and maintain accurate minutes of all meetings of the shareholders and the Board of Directors unless a different Secretary of such meetings is elected by the Board of Directors.  He shall keep, or cause to be kept a record of the shareholders of the corporation and shall be responsible for the giving of notice of meetings of the shareholders or the Board of Directors.  The Secretary shall prepare and maintain any and all other records and information required to be kept by the corporation under Section 7-116-101 of the Colorado Business Corporation Act.  The Secretary shall have the responsibility for authenticating records of the corporation.  The Secretary shall be custodian of the records and of the seal of the corpora­tion and shall attest the affixing of the seal of the cor­poration when so authorized.  The Secretary or Assistant Secretary shall sign all stock certificates, as described in Section 2.2 hereof.  The Secretary shall perform all duties commonly incident to his office and such other duties as may from time to time be assigned to him by the President or the Board of Directors.


(d)

An Assistant Secretary may, at the request of the Secre­tary, or in the absence or disability of the Secre­tary, perform all of the duties of the Secretary.  He shall perform such other duties as may be assigned to him by the President or by the Secretary.


(e)

The Treasurer, subject to the order of the Board of Directors, shall have the care and custody of the money, funds, valuable papers and documents of the corpora­tion.  He shall keep accurate books of accounts of the cor­poration's transactions, which shall be the property of the corporation, and shall render financial reports and state­ments of condition of the corporation when so requested by the Board of Directors or President.  The Treasurer shall perform all duties commonly incident to his office and such other duties as may from time to time be assigned to him by the President or the Board of Directors.  In the absence or disability of the President and Vice-President or Vice-Presidents, the Treasurer shall perform the duties of the President.


(f)

An Assistant Treasurer may, at the request of the Treas­urer, or in the absence or disability of the Trea­surer, perform all of the duties of the Treasurer.  He shall perform such other duties as may be assigned to him by the President or by the Treasurer.


5.3

Compensation .  All officers of the corporation may receive salaries or other compensation if so ordered and fixed by the Board of Directors.  The Board of Directors shall have authority to fix salaries in advance for stated periods or render the same retroactive as the Board may deem advisable.




13





5.4

Delegation of Duties .  In the event of absence or inability of any officer to act, the Board of Directors may delegate the powers or duties of such officer to any other officer, director or person whom it may select.


5.5

Bonds .  If the Board of Directors by resolution shall so require, any officer or agent of the corporation shall give bond to the corporation in such amount and with such surety as the Board of Directors may deem sufficient, conditioned upon the faithful perfor­mance of their respec­tive duties and offices.


5.6

Removal .  Any officer or agent may be removed by the Board of Directors or by the executive committee, if any, whenever in its judgment the best interest of the cor­poration will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed.  Election or appointment of an officer or agent shall not, of itself, create contract rights.


ARTICLE VI

FINANCE


6.1

Reserve Funds .  The Board of Directors, in its uncontrolled discretion, may set aside from time to time, out of the net profits or earned surplus of the corporation, such sum or sums as it deems expedient as a reserve fund to meet contingencies, for equalizing dividends, for maintain­ing any property of the corporation, and for any other purpose.


6.2

Banking .  The moneys of the corporation shall be deposited in the name of the corporation in such bank or banks or trust company or trust companies, as the Board of Directors shall designate, and may be drawn out only on checks signed in the name of the corporation by such person or persons as the Board of Directors, by appropriate resolu­tion, may direct.  Notes and commercial paper, when author­ized by the Board, shall be signed in the name of the cor­poration by such officer or officers or agent or agents as shall thereunto be authorized from time to time.


ARTICLE VII

DIVIDENDS


Subject to the provisions of the Articles of Incorpora­tion and the laws of the State of Colorado, the Board of Directors may declare dividends whenever, and in such amounts, as in the Board's opinion the condition of the af­fairs of the corporation shall render such advisable.




14





ARTICLE VIII

CONTRACTS, LOANS AND CHECKS


8.1

Execution of Contracts .  Except as otherwise pro­vided by statute or by these Bylaws, the Board of Directors may authorize any officer or agent of the corporation to enter into any contract, or execute and deliver any instru­ment in the name of, and on behalf of the corporation.  Such authority may he general or confined to specific instances and, unless so authorized, no officer, agent or employee shall have any power to bind the corporation for any pur­pose, except as may be necessary to enable the corporation to carry on its normal and ordinary course of business.


8.2

Loans .  No loans shall be contracted on behalf of the corporation and no negotiable paper shall be issued in its name unless authorized by the Board of Directors.  When so authorized, any officer or agent of the corporation may effect loans and advances at any time for the corporation from any bank, trust company or institution, firm, corpora­tion or individual.  An agent so authorized may make and deliver promissory notes or other evidence of indebtedness of the corporation and may mortgage, pledge, hypothecate or transfer any real or personal property held by the corpora­tion as security for the payment of such loans.  Such authority, in the Board of Directors' discretion, may be general or confined to specific instances.


8.3

Checks .  Checks, notes, drafts and demands for money or other evidence of indebtedness issued in the name of the corpora­tion shall be signed by such person or persons as designated by the Board of Directors and in the manner the Board of Directors prescribes.


ARTICLE IX

INDEMNIFICATION


9.1

Directors .  The Corporation shall indemnify directors of the Corporation in their capacities as directors pursuant to the procedures set forth in, and to the fullest extent authorized by, Colorado law as the same exists or may hereafter be amended.  The right to indemnification provided herein shall be a contract right and shall include the right to be paid by the Corporation in accordance with Colorado law for expenses incurred in advance of any proceeding's final disposition.


9.2

Officers and Others .  The Corporation may indemnify and advance expenses to officers, employees, fiduciaries and agents of the Corporation as it deems appropriate and as permitted by Colorado law.  No such indemnification shall be made without the prior approval of the Board of Directors and the determination by the Board of Directors that such indemnification is permissible, except pursuant to a contract approved by the Board of Directors.


9.3

Insurance .   The Corporation may purchase and maintain insurance for itself and on behalf of any person who is or was a director, officer, employee, fiduciary or agent of the Corporation or who, while a director, officer, employee, fiduciary or agent of the Corporation, is or was serving at the request of the Corporation as a director, officer, partner, trustee, employee, fiduciary, or agent of another foreign or domestic corporation or of any partnership, joint venture, trust, other enterprise, other person, or employee benefit plan against any liability asserted against or



15





incurred by him in any such capacity or arising from his status as such, whether or not the Corporation would have the power to indemnify him against such liability.


9.4

Definition of "Director."  The term "director" for purposes of this Article means an individual who is or was a director of the Corporation or an individual who, while a director of the Corporation, is or was serving at the Corporation's request as a director, officer, partner, trustee, employee, fiduciary, or agent of another foreign or domestic corporation or of any partnership, joint venture, trust, other enterprise, other person, or employee benefit plan.  A director shall be considered to be serving an employee benefit plan at the Corporation's request if his duties to the Corporation also impose duties on, or otherwise involve services by, him to the plan or to participants in or beneficiaries of the plan.  The term "director" includes, unless the context otherwise requires, the estate or personal representative of a director.


9.5

Non-Exclusivity of Rights .  The foregoing rights of indemnification and insurance shall not be exclusive of, or in any manner limit, other rights to which any director may be entitled as a matter of law, or to the extent not prohibited by law, by a contract approved by the Board of Directors.


ARTICLE X

FISCAL YEAR


The fiscal year of the corporation shall be the year adopted by resolution of the Board of Directors.


ARTICLE XI

CORPORATE SEAL


The Board of Directors shall provide a corporate seal which shall be circular in form and shall have inscribed thereon the name of the corporation and the state of in­corporation and the words "CORPORATE SEAL".


ARTICLE XII

AMENDMENTS


These Bylaws may be altered, amended or repealed and new Bylaws may be adopted by a majority of the Directors present at any meeting of the Board of Directors of the cor­poration at which a quorum is present to the extent permitted by the Colorado Business Corporation Act.


ARTICLE XIII

EXECUTIVE COMMITTEE


13.1

Appointment .  The Board of Directors by resolu­tion adopted by a majority of the full Board, may designate two or more of its members to constitute an executive com­mittee.  The designa­tion of such committee and the delega­tion thereto of authority shall not operate to relieve the Board of Directors, or any member thereof, of any respon­sibility imposed by law.



16






13.2

Authority .  The executive committee, when the Board of Directors is not in session shall have and may exercise all of the authority of the Board of Directors except to the extent, if any, that such authority shall be limited by the resolution appointing the executive committee and except also that the executive committee shall not have the authority of the Board of Directors in reference to amending the Articles of Incorporation, adopting a plan of merger or consolidation, recommending to the shareholders the sale, lease or other disposition of all or substantially all of the property and assets of the corporation otherwise than in the usual and regular course of its business, recom­mending to the shareholders a voluntary dissolution of the corporation or a revocation thereof, or amending the Bylaws of the corporation.


13.3

Tenure and Qualifications .  Each member of the executive committee shall hold office until the next regular annual meeting of the Board of Directors following his designa­tion.


13.4

Meetings .  Regular meetings of the executive committee may be held without notice at such time and places as the executive committee may fix from time to time by resolu­tion.  Special meetings of the executive committee may be called by any member thereof upon not less than one day's notice stating the place, date and hour of the meeting, which notice may be written or oral, and if mailed, shall be deemed to be delivered when deposited in the United States mail addressed to the member of the executive committee at his business address.  Any member of the executive committee may waive notice of any meeting and no notice of any meeting need be given to any member thereof who attends in person.  The notice of a meeting of the executive committee need not state the business proposed to be transacted at the meeting.


13.5

Quorum .  A majority of the members of the execu­tive committee shall constitute a quorum for the transaction of business at any meeting thereof, and action of the execu­tive committee must be authorized by the affirmative vote of a majority of the members present at a meeting at which a quorum is present.


13.6

Informal Action by Executive Committee .  Any action required or permitted to be taken by the executive committee at a meeting may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the members of the committee entitled to vote with respect to the subject matter thereof.


13.7

Vacancies .  Any vacancy in the executive com­mittee may be filled by a resolution adopted by a majority of the full Board of Directors.


13.8

Resignations and Removal .  Any member of the executive committee may be removed at any time with or with­out cause by resolution adopted by a majority of the full Board of Directors.  Any member of the executive committee may resign from the executive committee at any time by giv­ing written notice to the President or Secretary of the cor­poration, and unless otherwise specified therein, the accep­tance of such resignation shall not be necessary to make it effective.


13.9

Procedure .  The executive committee shall elect a presiding officer from its members and may fix its own rules of procedure which shall not be inconsistent with these Bylaws.  It shall



17





keep regular minutes of its proceedings and report the same to the Board of Directors for its in­formation at the meeting thereof held next after the pro­ceedings shall have been taken.


ARTICLE XIV

EMERGENCY BYLAWS


The Emergency Bylaws provided for in this Article shall be operative during any emergency in the conduct of the busi­ness of the corporation resulting from an attack on the United States or any nuclear or atomic disaster, notwith­standing any different provision in the preceding articles of the Bylaws or in the Articles of Incorporation of the corporation or in the Colorado Business Corporation Act.  To the extent not inconsistent with the provi­sions of this Article, the Bylaws provided in the preceding articles shall remain in effect during such emergency and upon its termination the Emergency Bylaws shall cease to be operative.


During any such emergency:


(a)

A meeting of the Board of Directors may be called by any officer or director of the corporation.  Notice of the time and place of the meeting shall be given by the person calling the meeting to such of the directors as it may be feasible to reach by any available means of communication.  Such notice shall be given at such time in advance of the meeting as circumstances permit in the judg­ment of the person calling the meeting.


(b)

At any such meeting of the Board of Directors, a quorum shall consist of the number of directors in atten­dance at such meeting.


(c)

The Board of Directors, either before or dur­ing any such emergency, may, effective in the emergency, change the principal office or designate several alternative principal offices or regional offices, or authorize the of­ficers so to do.


(d)

The Board of Directors, either before or dur­ing any such emergency, may provide, and from time to time modify, lines of succession in the event that during such an emergency any or all officers or agents of the corporation shall for any reason be rendered incapable of discharging their duties.


(e)

No officer, director or employee acting in accor­dance with these Emergency Bylaws shall be liable ex­cept for willful miscon­duct.


(f)

These Emergency Bylaws shall be subject to repeal or change by further action of the Board of Directors or by action of the shareholders, but no such repeal or change shall modify the provisions of the next preceding paragraph with regard to action taken prior to the time of such repeal or change.  Any amendment of these Emergency Bylaws may make any further or different provision that may be practical and necessary for the circumstances of the emergency.




18





CERTIFICATE


I hereby certify that the foregoing Bylaws constitute the Bylaws of UNITED CANNABIS CORPORATION, adopted by the Board of Directors of the corporation as of March 27, 2014.




/s/ Paul Enright

Paul Enright, Chief Executive Officer




19


EXHIBIT 21.1

SUBSIDIARIES OF THE REGISTRANT

Name

 

Jurisdiction of Incorporation or Organization

UC Nevada L.L.C.

 

Nevada

UC Colorado Corporation

 

Colorado

 

 

 






EXHIBIT 31


UNITED CANNABIS CORPORATION


Certification of the Chief Executive Officer and Principal Financial Officer Pursuant to

Securities Exchange Act Rules 13a-14(a) and 15d-14


I, Earnest Blackmon, certify that:


1. I have reviewed this annual report on Form 10-K of United Cannabis Corporation;


2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4. As the registrant’s Principal Executive Officer and Principal Financial Officer, I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and I have:

 

 

a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;

b.

Designed such internal control over financial reporting, or caused such internal control to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.  I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

 

a.

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and 

b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


 

 

 

 

 

April 15, 2015

/s/ Earnest Blackmon

 

 

Earnest Blackmon

CEO and Principal Financial Officer




EXHIBIT 32


UNITED CANNABIS CORPORATION


Certification of the Chief Executive Officer and Principal Financial Officer Pursuant to

18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


 

 In connection with the accompanying annual report on Form 10-K of United Cannabis Corporation (the “Company”) for the year ended December 31, 2014 (the “Report”), I, Earnest Blackmon, Chief Executive Officer and Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:


(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 


April 15, 2015


 

/s/ Earnest Blackmon

Earnest Blackmon

CEO and Principal Financial Officer