United Cannabis Corp - FORM 10-Q

Attached files

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EX-32 - CERTIFICATION - United Cannabis Corp	cnab_ex32z1.htm
EX-31.2 - CERTIFICATION - United Cannabis Corp	cnab_ex31z2.htm
EX-31 - CERTIFICATION - United Cannabis Corp	cnab_ex31z1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2017

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

For the transition period from _______________________to__________________________

Commission File Number: 000-54582

UNITED CANNABIS CORPORATION

(Exact name of Registrant as specified in its charter)


Colorado		46-5221947
(State or other jurisdiction of incorporation or formation)		(I.R.S. 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)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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 such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer ¨	Smaller reporting company þ
(Do not check if a smaller reporting company)	Emerging growth company ¨

If an emerging growth company, indicate by checkmark if the registrant has not elected to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ¨

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

As of May 15, 2017, the registrant had 51,333,590 shares of common stock outstanding.

UNITED CANNABIS CORPORATION

TABLE OF CONTENTS


		Page No.
PART I	FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS:
	Consolidated Balance Sheets	1
	Consolidated Statements of Operations	2
	Consolidated Statements of Cash Flows	3
	Notes to Consolidated Financial Statements	5
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	23
ITEM 4.	CONTROLS AND PROCEDURES	25

PART II	OTHER INFORMATION

ITEM 6	EXHIBITS	26
	SIGNATURES	27

PART 1. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

UNITED CANNABIS CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	March 31,			December 31,
	2017			2016

ASSETS
Current assets:
Cash and cash equivalents	$	35,584		$	112,621
Accounts receivable, net		57,634			24,484
Due from related parties		22,224			26,775
Total current assets		115,442			163,880

Outdoor cultivation facility		90,596			—
Laboratory equipment, net of accumulated depreciation of $3,239 and $0.0 at March 31, 2017 and December 31, 2016, respectively		36,706			—
Intangible assets		32,273			32,273
Equity method investments		—			88,000
Goodwill		106,873			—
Total assets	$	381,890		$	284,153

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable	$	92,062		$	25,048
Accrued expenses		55,000			50,875
Current portion of deferred revenue		180,000			180,000
Notes payable to, advances from and accrued wages of officers and directors		553,425			175,592
Convertible notes payable, net of $18,047 and $34,543 debt discount, respectively		16,953			125,547
Total current liabilities		897,440			557,062

Long term liabilities:
Deferred revenue, net of current portion		158,750			203,750
Total liabilities		1,056,190			760,812

Stockholders' deficit:
Preferred stock, no par value; 10,000,000 shares authorized; none issued and outstanding		—			—
Common stock, no par value; 100,000,000 shares authorized; 51,139,870 and 50,650,994 shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively		9,522,882			8,885,674
Accumulated deficit		(10,178,310	)		(9,362,333	)
Total deficit attributable to stockholders' of the Company		(655,428	)		(476,659	)
Non-controlling interests in fifty percent owned subsidiary		(18,872	)		—
Total deficit		(674,300	)		(476,659	)
Total liabilities and stockholders' deficit	$	381,890		$	284,153

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

UNITED CANNABIS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended March 31,
	2017			2016

Revenues	$	189,677		$	245,390
Cost of revenues:		(121,051	)		(100,023	)
Gross profit		68,626			145,367
Operating expenses:
Marketing, advertising and new business development		53,392			48,692
Research and development		45,160			—
Legal, accounting, consulting and public reporting		240,814			101,511
General and administrative		248,860			57,967
Total operating expenses		588,226			208,170
Loss from operations		(519,600	)		(62,803	)
Other income (expense):
Loss on derivative liabilities		—			(155,156	)
Amortization of debt discount		—			(179,620	)
Loss on extinguishment of debt		(267,567	)		(84,139	)
Interest expense		(28,809	)		(56,581	)
Loss before provision for taxes		(815,976	)		(538,299	)
Provision for taxes on income		—			—
Net Loss	$	(815,976	)	$	(538,299	)

Basic and diluted net loss per share:	$	(0.02	)	$	(0.01	)

Basic and diluted weighted-average common shares outstanding:		50,971,862			44,988,500

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

UNITED CANNABIS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three Months Ended March 31,
	2017			2016
Operating activities:
Net loss	$	(815,976	)	$	(538,299	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Increase (decrease) in provision for losses on accounts receivable		—			—
Amortization of debt discount to interest expense		16,406			179,620
Amortization of deferred financing costs		—			20,828
Non-cash interest expense		9,694			—
Depreciation		3,239			—
Share-based compensation, net		211,967			46,382
Deferred revenue in the form of non-marketable equity securities recognized as revenue		(45,000	)		(45,000	)
Loss on revaluation of derivative liabilities		—			63,152
Loss on extinguishment of debt and repurchase of warrants		267,559			84,139
Accrued wages payable to offices and directors		191,563			—
Increase in net assets in connection with acquisition of fifty percent owned subsidiary		(22,666	)		—
Loss on issue of warrants to cure debt default		—			92,003
Changes in operating assets and liabilities:
Accounts receivable		(33,150	)		(32,871	)
Due from related parties		5,000			—
Prepaid expenses		—			56,341
Accounts payable and accrued expenses		101,564			(1,417	)
Net cash used in operating activities		(109,800	)		(75,122	)

Investing activities:
Purchase of equipment for and improvements to cultivation facility		(90,596	)		—
Cash in acquisition of fifty percent owned subsidiary		(15,079	)		—
Purchase of laboratory equipment, gross		(39,945	)		—
Net cash used in investing activities		(145,620	)		—

Financing activities:
Proceeds from advances from officers and directors		178,383			—
Net proceeds from issuance of convertible debt and warrants		—			81,978
Repayment of convertible debt and notes payable		—			(81,978	)
Payments on notes payable		—			(15,000	)
Net cash provided by (used in) financing activities		178,383			(15,000	)

Net decrease in cash		(77,037	)		(90,122	)
Cash, beginning of period		112,621			118,420
Cash, end of period	$	35,584		$	28,298

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

UNITED CANNABIS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three Months Ended March 31,
	2017		2016
Supplemental schedule of cash flow information:
Cash paid for interest	$	—	$	—
Cash paid for income taxes	$	—	$	—

Supplemental disclosure of non-cash investing and financing activities:
Conversion of convertible note payable to JSJ Investments	$	125,000	$	—
Conversion of advances from officers and directors to notes payable to officers and directors	$	246,681	$	—
Issuance of stock options in exchange for accrued wages payable to officers and directors	$	—	$	612,512
Reduction of notes payable in exchange for 1,100,000 shares of common stock of WeedMD	$	—	$	175,000
Conversion of accounts payable to notes payable	$	—	$	30,000

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

UNITED CANNABIS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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", or "UCANN") a Colorado corporation, was originally formed as a California corporation under the name MySkin, Inc. (“MySkin”) 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.

In early 2014, we decided to exit the medical spa management business and change our focus to providing products, services and intellectual property licenses 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 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 merged into UCANN, a wholly-owned subsidiary of MySkin, 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 we 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.

As of March 31, 2017, 28 states and the District of Columbia allow their citizens to use medical marijuana, and four states and the District of Columbia have legalized marijuana for 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.

UNITED CANNABIS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation - We prepared these condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”). The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information in accordance with Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In our opinion, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. Operating results for the three month periods ended March 31, 2017 and 2016 are not necessarily indicative of the results for the full year. While we believe that the disclosures presented herein are adequate and not misleading, these interim financial statements should be read in conjunction with the audited financial statements and the footnotes thereto contained in our annual report on Form 10-K for the year ended December 31, 2016.

Reclassification of Prior Balances – Certain prior year balance sheet amounts have been reclassified to conform to the current year presentation. These amounts had no effect on the reported results of operations.

Principles of Consolidation – Our consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries UCANN California Corporation, UC Colorado Corporation and UC Oregon Corporation, an the fifty percent owned subsidiary Cannabis Research & Development Company Limited (“CRD”). 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”). At March 31, 2017, we concluded that we had established a variable interest entity relationship with CRD, because we are the primary beneficiary, in accordance with GAAP. As a result, we elected to consolidate the assets and liabilities of CRD in our consolidated balance sheet at March 31, 2017.

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 and 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.

Fair Value of Financial Instruments - Our financial instruments consist principally of cash and cash equivalents, accounts receivable, non-marketable equity securities, accounts payable, notes payable and other current assets and liabilities. We value our financial assets and liabilities using fair value measurements. Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are categorized based on whether the inputs are observable in the market and the degree that the inputs are observable. The categorization of financial instruments within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The hierarchy is prioritized into three levels (with Level 3 being the lowest) defined as follows:

Level 1: Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.

Level 2: Observable inputs other than prices included in Level 1, such as 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; or other inputs that are observable or can be corroborated with observable market data.

Level 3: Unobservable inputs that are supported by little or no market activity, and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs.

UNITED CANNABIS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The carrying amount of our cash and cash equivalents, accounts receivable, accounts payable, and other current assets and liabilities in our consolidated financial statements approximates fair value because of the short-term nature of the instruments. Investments in non-marketable equity securities are carried at cost less other-than-temporary impairments. The carrying amount of our notes payable and convertible debt at March 31, 2017, approximates their fair values based on our incremental borrowing rates.

There have been no changes in Level 1, Level 2, and Level 3 categorizations and no changes in valuation techniques for these assets or liabilities for the three months March 31, 2017 and the year ended December 31, 2016.

Cash and Cash Equivalents - We consider investments with original maturities of 90 days or less to be cash equivalents. Because of current banking regulations, marijuana centric entities are not afforded normal banking privileges, and thus, we have not been able to consistently have access to the federal banking system. Thus, at the beginning of 2016, the Company entered into an agreement with our Chief Executive Officer to hold cash funds in his personal bank account, on an as-need basis, in trust for the Company. Under the terms of our trust agreement with our Chief Executive Officer, he agreed to hold our cash in his personal bank account, and to make payments of our funds only for our business purposes, and to allow daily access to the bank account for ongoing oversight of his fiduciary responsibility to the Company. Additionally, the trust agreement requires that the Chief Executive Officer make copies available to our accounting staff of all transactions applicable to our operations, on a weekly, or as requested basis. There is cash deposits in the personal bank accounts of the Chief Executive Officer held in trust for us in the amount of $4,158 at March 31, 2017 and at December 31, 2016.

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.

Our allowance for doubtful accounts was $0.0 and $30,000 at March 31, 2017 and December 31, 2016, respectively. We recorded no bad debt expense, during the three months ended March 31, 2017 and 2016, respectively.

Prepaid Expenses - Prepaid expenses are primarily comprised of advance payments made to third parties for independent contractors’ services or other general expenses. Prepaid services and general expenses are amortized over the applicable periods which approximate the life of the contract or service period.

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 estimated useful lives 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 applications for trademarks, design mark and provisional patents are recorded at cost, and once approved, will be amortized using the straight-line method over an estimated useful life of 10 to 20 years.

Goodwill - Our goodwill, which consists of our interest in a fifty percent owned subsidiary, Caribbean Research & Development Company Limited, is not amortized, but is evaluated for impairment annually, or when indicators of a potential impairment are present. The annual evaluation for impairment of goodwill is based on valuation models that incorporate assumptions and internal projections of expected future cash ﬂows and operating plans. We believe such assumptions are also comparable to those that would be used by other marketplace participants.

Investments in Non-Marketable Equity Securities – Our investments in non-marketable equity securities are carried at cost, less write-down-for-impairments, if any. Impairments are based on methodologies, including the valuation achieved in the most recent private placement by the investee, an assessment of the impact of industry and 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.

UNITED CANNABIS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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. We have not recorded any impairment charges related to long-lived assets as of March 31, 2017 and December 31, 2016.

Equity Method Investments – Our investments in entities representing ownership of at least 20% but not more than 50%, where we exercise significant influence, are accounted for under the equity method of accounting, and are included in our financial statements as a component of the consolidated financials. All intercompany accounts are eliminated upon consolidation, and we recognize the minority interests’ share in the income and losses of the less than 100% percent owned subsidiary in the period incurred.

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 the 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 the form of stock, warrants or other financial assets is recognized when the services are performed. The value of revenue paid for with warrants is measured using the Black-Scholes-Merton pricing model. Revenue from product sales, including delivery fees, is recognized when an order has been obtained, the price is fixed and determinable, the product is shipped, title has transferred and collectability is reasonably assured.

Reimbursable expenses, including those relating to travel, other out-of-pocket expenses and any third-party costs, are included as a component of revenues. Typically, an equivalent amount of reimbursable expenses are included in cost of revenues. Reimbursable expenses related to time and materials and fixed-fee engagements are recognized as revenue in the period in which the expense is incurred and collectability is reasonably assured. Taxes collected from customers and remitted to governmental authorities are presented in our consolidated statement of operations on a net basis.

Cost of Revenues – Our policy is to recognize cost of revenues in the same manner as, and in conjunction with, revenue recognition. Our cost of revenues includes the costs directly attributable to revenue recognized and includes expenses related to the production, packaging and labeling of our Prana medicinals products and personnel-related costs, fees for third-party services, travel and other consulting costs related to our advisory services.

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

Sales and Marketing Expenses – Sales and marketing expenses consist primarily of fees for professional and consulting services, promotional events and advertising costs.

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

UNITED CANNABIS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Share-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 share-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 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.

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.

UNITED CANNABIS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

Net Loss Per Share - We compute net loss per share in accordance with ASC 260, Earnings per Share. Under the provisions of ASC 260, basic net loss per share includes no dilution and is computed by dividing the net loss available to common stockholders for the period by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share takes into consideration shares of common stock outstanding (computed under basic net 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.


	Three Months Ended March 31,
	2017		2016
Warrants to purchase common stock		758,000		708,334
Cashless warrants not converted to common stock		783,112		—
Stock options		3,680,000		3,680,000
Total potentially dilutive securities		5,221,112		4,388,334

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 three months ended March 31, 2017 and the year ended December 31, 2016, we did not have any gains and losses resulting from activities or transactions that resulted in other 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. Because of current banking regulations, marijuana centric entities are not always afforded normal banking privileges, and thus, we have not been able to consistently have access to the federal banking system. Thus, at the beginning of 2016, the Company entered into an agreement with our Chief Executive Officer to hold cash funds in his personal bank account, on an as-need basis, in trust for the Company. Under the terms of our trust agreement with our Chief Executive Officer, he agreed to hold our cash in his personal bank account, and to make payments of our funds only for our business purposes, and to allow daily access to the bank account for ongoing oversight of his fiduciary responsibility to the Company. However, from time-to-time we have to hold in our possession un-deposited cash, which may subject us to theft or misuse.

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

Percentage of Revenue:


	Three Months Ended March 31,
	2017			2016
Customer A		92	%		92	%
Customer B		8	%		8	%

Percentage of Accounts Receivable:


	Three Months Ended March 31,
	2017			2016
Customer C		93	%		56	%
Customer D		7	%		41	%
Customer E		—	%		1	%

UNITED CANNABIS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 for us 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.

In February 2016, the FASB issued guidance on leases which requires entities to recognize right-of-use assets and lease liabilities on the balance sheet for the rights and obligations created by all leases, including operating leases, with terms of more than 12 months. The new guidance also requires additional disclosures on the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative information. The new guidance will be effective for us at the beginning of fiscal year 2019. Early adoption is permitted. We are in the process of evaluating the impact the adoption of this guidance will have on our consolidated financial statements and related disclosures.

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 three months ended March 31, 2017, we incurred a net loss of $815,976, and used cash of $109,800 in our operating activities. At March 31, 2017, we had a working capital deficit of $781,998, and an accumulated deficit of $10,216,055. 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 did 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 3,000,000 WMD warrants expired unexercised in December 2014.

The WMD common shares were recorded at $0.50 per share, or $593,750 in total, taking into consideration WMD’s most recent sale of their common shares prior to the date of the transaction (CAD $0.50). In December 2015, we determined that WMD’s lack of operating activities during 2015 resulted in a significant adverse effect on our carrying value of these securities (an impairment indicator) and accordingly, we recorded an “other-than-temporary impairment charge” of $388,475 and included this amount in loss on investments in non-marketable securities in our consolidated statements of operations. The remaining balance, $205,275, or $0.17 per share, was determined based on the consideration we received in our subsequent sale of 1,100,000 WMD shares in March 2016, and this amount is classified as investment in non-marketable equity securities on our consolidated balance sheets.

On March 24, 2016, an unrelated third party agreed to assume all of our obligations, including accrued and unpaid interest, pursuant to the terms of a $175,000 note payable we owed to WeedMD, in consideration for the transfer by us of 1,100,000 shares of the common stock of WMD to the unrelated third party. WMD consented to the assumption of the loan by the unrelated third party, and released us from any further liability with respect to the loan. After the exchange of the 1,100,000 shares of common stock of WMD to the unrelated third party, we own 87,500 shares of common stock of WMD, and reduced our investment in none-marketable equity securities to $15,125. Because of the difficulty in validating a fair market value for our investment in WMD, we elected to write-off such carrying value as a charge to other income and expenses in our consolidated statements of operations in the amount of $15,125, in the year ended December 31, 2016.

UNITED CANNABIS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5 – INTANGIBLES

Our intangible assets are comprised of provisional patent applications 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 6 – ACCRUED EXPENSES

Our accrued expenses consist of:


	March 31, 2017		December 31, 2016
Accrued consulting fees	$	55,000	$	45,000
Accrued interest expense		—		5,875
	$	55,000	$	50,875

On May 6, 2014, we entered into a consultancy agreement with two third party consultants that had a nine month term, which could be renewed and/or extended by mutual agreement. The agreement provided for a $50,000 payment at signing, which has been paid, and for three more $50,000 payments (a total of $200,000) 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 expense applicable to this agreement. At December 31, 2015, the project was approximately 80% complete and $110,000 is included in accrued expenses on our consolidated balance sheet at that date. On December 7, 2016, upon mutual agreement, the consultancy agreement was deemed to be abandoned, because the project was not completed. In turn, one of the consultants, Dr. Brent Reynolds, has been performing other services for the Company during the year ended December 31, 2016, and has agreed to join our Board of Advisors. Dr Reynolds is currently a professor in the Department of Neurosurgery at the University of Florida, College of Medicine, where his lab focuses on the application of natural products for treating diseases and dysfunction of the nervous system. In recognition of his services to the Company during the year ended December 31, 2016, and as an inducement to join our Board of Advisors, he was issued 100,000 shares of our common stock for such services, and the fair market value of these shares in the amount of $163,783 was charged to common stock on the consolidated balance sheet at December 31, 2016, and the residual amount of $53,783 was recognized as a loss on the extinguishment of a debt in our consolidated statement of operations.

NOTE 7 – FAIR VALUE MEASUREMENTS AND DERIVATIVE LIABILITIES

We did not have any liabilities carried at fair value measured on a recurring basis as of March 31, 2017 or at December 31, 2016.

Derivative Liabilities

We valued our derivative liabilities related to warrants and embedded conversion features applicable to our borrowings under our convertible notes payable (see Notes 10 and 11 below) and accrued interest payable thereon in accordance with fair value measurement guidelines. For the three months ended March 31, 2017 and the year ended December 31, 2016, 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 liabilities as of December 31, 2015	$	383,581
Additions to derivative liabilities for convertible debt conversion features		557,000
Additions for modifications of note payable to Sláinte Ventures		686,612
Reductions due to conversions or repayments of convertible debt		(3,317,986	)
Loss on revaluation of derivative liabilities during the year		1,690,793
Derivative liabilities as of December 31, 2016		—
Changes to derivative liabilities		—
Derivative liabilities at March 31, 2017	$	—

UNITED CANNABIS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The estimated fair value of the derivative liabilities related to our convertible notes payable was measured as the aggregate estimated fair value of each component of the compound embedded derivative liabilities (see Note 11 and 12 below), based on Level 2 and Level 3 inputs, using a binomial lattice pricing model. Changes in the fair value of the compound embedded derivative liability at each reporting date are included in gain/ (loss) on derivative liabilities in our consolidated statement of operations.

NOTE 8 – DEFERRED REVENUE

Our deferred revenue consists of:


	March 31, 2017			December 31, 2016
Deferred revenue - WeedMD	$	338,750		$	383,750
Current portion		(180,000	)		(180,000	)
Deferred revenue, net of current portion	$	158,750		$	203,750

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 we recognized $150,000 of this amount as revenue during the period July 1, 2014 through December 31, 2014, based upon our initial three year estimate of the service period involved. Based on recent discussions with WMD, we now expect to deliver the remaining consulting services and use of our intellectual property to WMD on a relatively consistent monthly basis during the four year period January 1, 2015 through December 31, 2018. Accordingly, we are now recognizing $15,000 of deferred revenue per month. We recognized $45,000 and $180,000 of revenue applicable to this arrangement for the three months ended March 31, 2017 and the year ended December 31, 2016, respectively. At March 31, 2017, we expect to recognize $180,000 of the remaining $338,750 WMD deferred revenue during the next twelve months and accordingly, we have classified the $180,000 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. At the time, we planned to recognize deferred royalty revenue based on actual applicable sales as defined in the agreement. During the years ended December 31, 2015 and 2014, we did not recognize any deferred revenue related to this agreement. In August 2015, we discontinued providing consulting services to FoxBarry, as our initial project with FoxBarry was abandoned due to operational issues. However, FoxBarry appears to no longer be in existence, and since all of our conditions pursuant to the agreement have been satisfied, we elected to recognize the $200,000 of deferred income during the year ended December 31, 2016, as other income.

NOTE 9 – NOTES PAYABLE

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. On March 24, 2016, an unrelated third party agreed to assume all of our obligations, including accrued and unpaid interest, pursuant to the terms of a $175,000 note payable we owed to WeedMD, in consideration for the transfer by us of 1,100,000 shares of the common stock of WMD to the unrelated third party. WMD consented to the assumption of the loan by the unrelated third party, and released us from any further liability with respect to the loan.

On December 18, 2014, we issued a $600,000 unsecured promissory note (the “Slainte Note”) bearing interest at 12% to Slainte Ventures, LLC (“Slainte”). The principal and accrued interest were 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, at the time, we expected to close on a capital raising transaction in early 2015.

On October 6, 2015, we borrowed funds from a third party and did not apply the borrowed funds to the Slainte Note resulting in a default under the terms of the note, and thus, we received a default waiver from Slainte.

UNITED CANNABIS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

On March 18, 2016, we entered into an agreement with Slainte whereby Slainte waived default, amended the terms and extended the maturity date of the Slainte Note until December 17, 2016, and agreed to accept a warrant in lieu of interest due on the loan. The warrant allows Slainte to purchase 416,667 shares of our common stock; plus that number of shares of our common stock equal in number to (i) the product of the then-applicable interest rate under the Slainte Note and the amount of principal outstanding on the Note, calculated on a daily basis and paid for actual days elapsed, during the period beginning on December 18, 2015, and ending on the date on which the Note is paid in full, divided by (ii) $0.18; plus that number of shares of our common stock equal in number to (i) the product of 0.02 and the sum of the amount of principal and interest outstanding on the Note on the first day of each calendar month, beginning with February 1, 2016, divided by (ii) $0.18. The warrant is exercisable at a price of $0.18 per share, subject to adjustment in the event of stock splits, the sale of our shares of common stock at a price below $0.18 per share or the sale of equity securities with a conversion price of less than $0.18 per share.

On November 14, 2016, the Slainte Note was again amended to extend the maturity date to December 30, 2017 and to allow the note to be converted into shares of the Company's common stock. The number of shares to be issued upon conversion of the note will be determined by dividing the dollar amount of the principal to be converted by 70% of the average closing price of the Company's common stock for the ten business days immediately preceding the date of the conversion. The warrant can be exercised at any time during the five year period following the full repayment of the loan; the exercise price can be paid in cash or through a cashless exercise feature; and the warrant grants certain registration rights to Slainte applicable to all shares of our common stock owned or controlled by Slainte, including shares issued upon exercise of the warrant. In addition, Slainte granted us a put option, exercisable upon repayment of the loan prior to December 17, 2016, that requires Slainte to purchase from us, for $100,000, that number of shares of our common stock equal in number to (i) $100,000 divided by (ii) the product of 80% and the average price of our common stock for the 30 trading days immediately prior to the date the put option is exercised.

Due to the fair value of the warrants issued and conversion feature added in connection with the amended note agreements, the modifications were considered substantial (i.e. greater than 10% of the carrying value of the debt). As a result, an extinguishment of debt was deemed to have occurred, resulting in the recognition of extinguishment losses totaling $674,666.

Following the amendment in November 2016, Slainte converted the entire principal amount of the note into 594,540 shares of the Company's common stock. Slainte also exercised the warrants through the cashless exercise feature resulting in the issuance of 1,330,007 shares of the Company's common stock. Slainte also purchased 104,939 shares of the Company's common stock for $100,000 in connection with the Company's exercise of the put option.

Prior to their exercise in November 2016, these warrants and conversion feature were accounted for as a liability under ASC 815. The Company assessed the fair value of the warrants and conversion feature upon issuance and conversion and at each reporting period based on the Black-Scholes pricing model. The range of variables used in assessing the fair value during the year ended December 31, 2016, are as follows:


	Warrants March 31, 2017	Conversion Feature March 31, 2017	Warrants December 31, 2016	Conversion Feature December 31, 2016
Expected life (years)	—	—	4.29 - 5.0	1.09 - 1.13
Risk-free interest rate	—	—	1.01% - 1.90%	0.78% - 0.79%
Expected volatility	—	—	214% - 227%	200% - 203%

In connection with these warrants, the Company recognized a loss on the change in fair value of warrant liability of $1,616,215, during the year ended December 31, 2016. In connection with the conversion feature, the Company recognized a loss on the change in fair value of derivative liability of $13,947.

Expected volatility is based primarily on historical volatility. Historical volatility was computed using weekly pricing observations for recent periods that correspond to the expected life of the warrants or conversion feature. The Company believes this method produces an estimate that is representative of our expectations of future volatility over the expected term of these warrants or conversion feature. The expected life is based on the remaining term of the warrants or conversion feature. The risk-free interest rate is based on U.S. Treasury securities rates.

UNITED CANNABIS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 10 – CONVERTIBLE NOTES PAYABLE

During the year ended December 31, 2016, we issued convertible promissory notes to unaffiliated third parties. The net proceeds from these transactions were used for general working capital purposes. The debt discounts and deferred financing costs on the convertible promissory notes are amortized on a straight-line basis, which approximates the effective interest rate method, over the term of the note, and this amortization is included in interest expense in our consolidated statements of operations.

The following table summarizes our convertible promissory notes outstanding as of March 31, 2017 and December 31, 2016:


Issue Date	Holder	Security	Maturity Date		Interest Rate	Base Conversion Rate	March 31, 2017			December 31, 2016

12/28/16	Tangiers Investment Group	Unsecured	7/08/17		10%	$1.00 through maturity; 55% of lowest closing price thereafter	$	35,000		$	5,000

8/10/16	JSJ Investments	Unsecured	5/10/17		12%	$0.20 during first 180 days; 45% of lowest closing price thereafter		—			125,000
				Less unamortized Discount				(18,047	)		(34,453	)
							$	16,953		$	125,547

The convertible notes, including accrued interest payable, may be converted into shares of our common stock at the Conversion Price, in whole, or in part, at various times, after the date of issuance, at the option of the holder (the “Conversion Feature”), as defined by the terms of the convertible note.

The Conversion Price is equal to the Base Conversion Rate specified in the table above multiplied by the Variable Conversion Rate (“VCR”) which is equal to the average of the number of lowest trading prices or closing bid prices of our common stock (specified in the table above) during the ten trading day period prior to the date of conversion divided by the closing price of our common stock on the day of conversion.

If these conversion rates results in a beneficial conversion feature (“BCF”), the BCF is recorded as an unamortized convertible debt discount, which is required to be valued and amortized to interest expense over the term of the Note. We amortize our convertible debt discount on a straight-line basis, which approximates the effective interest rate method, and this amortization is included in amortization of debt discount in our consolidated statements of operations. If a convertible note is repaid, any remaining unamortized deferred financing costs and unamortized debt discount are expensed on the date of repayment.

If a convertible notes is convertible into an unlimited number of unregistered, restricted common shares, it is classified as having an unlimited shares feature (“Unlimited Shares Feature”). The difference between the closing price of our common stock and the VCR is referred to as the Variable Conversion Rate Differential (“VCRD”). If, both the Unlimited Shares Feature and the VCRD meet the definition of an embedded derivative, then together they create a compound embedded derivative liability or, hereafter, simply a “derivative liability.”

In accordance with U.S. GAAP, our derivative liabilities are recorded at fair value on the date of issuance and subsequently remeasured to fair value each reporting period with any change in fair value being recognized as gain (loss) on derivative liabilities in our consolidated statement of operations. See Note 8.

UNITED CANNABIS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Similarly, accrued interest payable applicable to the convertible notes is convertible into shares of our common stock, without limit, at the same Conversion Price. The fair value of the derivative liabilities applicable to accrued interest payable is measured and recognized at each reporting date as derivative liabilities with a corresponding charge to interest expense. As noted above, all derivative liabilities are re-measured in subsequent reporting periods with any change in fair value being included in gain (loss) on derivative liabilities.

During the three months ended March 31, 2017 and year ended December 31, 2016 we recognized $0.0 and $32,400 amortization of deferred financing costs, respectively. This amount is included in interest expense in our consolidated statements of operations.

The aggregate fair value of the derivative liabilities applicable to our convertible notes on the dates of issuance was $557,000 for the convertible notes issued during the year ended December 31, 2016, and was recorded as derivative liabilities on our consolidated balance sheets. The related BCF debt discount was recorded as a reduction to our convertible notes payable on our consolidated balance sheets. During the three months ended March 31, 2017 and the year ended December 31, 2016 we recognized $0.0 and $267,258, respectively, of amortization related to the convertible notes and recorded this amount as amortization of debt discount in our consolidated statements of operations.

We recognized $18,214 and $35,719 of interest expense applicable to our convertible notes during the three months ended March 31, 2017 and the year ended December 31, 2016, respectively. Interest expense applicable to our convertible notes during the three months ended March 31, 2017 and the year ended December 31, 2016 included $16,406 and $547, respectively, of straight-line accretion of our debt discount.

2015 Convertible Notes

At various times during the year ended December 31, 2015, the Company issued convertible promissory notes (the "2015 Notes") in the aggregate principal balance of $381,000. The 2015 Notes, including accrued interest payable, may be converted into shares of our common stock at the Conversion Price, as defined below, in whole, or in part, at any time beginning 180 days after the date of issuance, at the option of the holder. The 2015 Notes also contain prepayment options whereby we may, during the first 180 days that each note is outstanding, prepay the note by paying prepayment premiums ranging from 10% to 40% of the principal then outstanding depending on the date of prepayment.

Should we default on a conversion or repayment of a convertible note, the note, accrued interest and default penalties and fees are immediately due and payable. The minimum default penalty amount ranges from 25% to 50% (or more, under certain circumstances) times the then outstanding principal and unpaid interest. During the year ended December 31, 2016, two of these notes in the aggregate principal balance of $161,000 were repaid. The $220,000 note dated December 9, 2015 from Tangiers Investment Group, LLC was converted in full into a total of 2,843,698 shares of the Company's common stock at various dates during the year ended December 31, 2016.

Slainte Convertible Notes

On March 30, 2016, we borrowed $81,978, from Slainte Ventures and used the proceeds to repay principal and accrued interest applicable to our $59,000 convertible promissory note dated October 6, 2015, to Vis Vires Group, Inc. On April 6, 2016, we borrowed an additional $75,000 from Slainte Ventures and used the proceeds, along with $52,500 of advances to the Company by officers and directors of the Company, to repay principal and accrued interest applicable to our $102,000 convertible promissory note, dated October 12, 2015, to JSJ Investments, Inc. On July 5, 2016, we borrowed $50,000 from Slainte Ventures and used the proceeds for working capital purposes. These loans, together with interest at 12% per year, are payable on December 30, 2016. We can prepay the loans at any time. If the loans are repaid on or before September 30, 2016, the principal amount which is being repaid will increase by 10%. If the loans are repaid after September 30, 2016, the principal amount which is being repaid will increase by 15%. The amount of the principal increase may be paid with shares of our common stock. The number of shares to be issued for such purpose will be determined by dividing the average closing price of our common stock (which in no case can be greater than $0.45) for the ten trading days preceding the prepayment date. The original principal of the loan was not convertible prior to maturity. If the loans were not paid when due, then at any time between the maturity date and January 10, 2017, Slainte may convert the outstanding principal and interest on the loan into shares of our common stock. The number of shares to be issued on conversion was to be determined by dividing the average closing price of our common stock (which in no case can be greater than $0.45) for the ten trading days preceding the conversion date by the outstanding principal and interest on the loan on the conversion date.

UNITED CANNABIS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The notes were not paid prior to the maturity date of December 30, 2016. As a result, the notes became convertible effective December 31, 2016. Derivative liabilities in the aggregate amount of $557,000 were recorded upon these notes becoming convertible. The notes, along with their accrued interest, were converted into 497,296 shares of the Company's common stock on December 31, 2016, and the value of the derivative liabilities were extinguished to common stock.

JSJ Convertible Note

On August 10, 2016, we borrowed $125,000 from JSJ Investments and used the proceeds for working capital purposes. The loan, together with interest at 12% per year, is payable on May 10, 2017. We can prepay the loan at any time. If the loan is repaid on or before October 16, the principal amount which is being repaid will increase by 25%. If the loan is repaid on or before October 16, 2016 through February 12, 2016, the principal amount which is being repaid will increase by 30%. Thereafter, the note may be repaid only upon written consent from JSJ, and the principal amount that is being repaid will increase by 30%. At any time after the date of the note, JSJ is entitled to convert all of the outstanding and unpaid principal in to shares of our common stock. Until February 12, 2017, the conversion price is $0.20 per share, and thereafter, the conversion price will be at a 45% discount to the lowest closing price of our common stock for the ten trading days preceding the conversion date. JSJ may not make any conversions that would result in the note holder holding more than 4.99% of our issued and outstanding common stock at any one time. If the notes are held through February 12, 2017, derivative accounting will apply upon the change to a variable conversion price. The note, along with the accrued interest, was converted into 379,100 shares of the Company's common stock on February 9, 2017.

Tangiers Convertible Note

In connection with an equity line agreement discussed in Note 19, the Company issued a promissory note to Tangiers for the principal sum of $35,000 as a commitment fee for the equity line. The note bears interest at 10% per year, is unsecured, and is due and payable on July 8, 2017. At the option of Tangiers, all or any part of the unpaid principal amount of the note may be converted into shares of the Company's common stock. The number of shares to be issued on any conversion will be determined by dividing the principal amount of the note to be converted by $1.00. If the note is not repaid or converted prior to maturity, the conversion price will change to 55% of the lowest closing bid price during the 20 days preceding the conversion date. If the note is held past maturity, derivative accounting will apply upon the change to a variable conversion price.

NOTE 11 – NOTES PAYABLE TO, ADVANCES FROM AND ACCRUED WAGES PAYABLE

TO OFFICERS AND DIRECTORS

Notes payable to and advance from officers and directors consisted of the following, at March 31, 2017 and December 31, 2016:


	March 31, 2017		December 31, 2016
Note payable to Earnie Blackmon, an officer and director	$	246,321	$	28,750
Note payable to Tony Verzura, an officer and director		51,087		28,750
Note payable to Chad Ruby, an officer and director		6,783		—
Accrued interest payable on notes payable to officers and directors		14,987		4,390
Advances to officers and directors		—		71,007
Accrued wages payable to officers and directors		234,250		42,695
	$	553,425	$	175,592

On April 6, 2016, we borrowed $25,000 from Ernest Blackmon and $25,000 from Tony Verzura and used the proceeds to repay principal and interest applicable on our $102,000 convertible promissory note dated October 12, 2015, to JSJ Investments Inc. The loans, together with interest at 12% per year, were payable on December 30, 2016. We could have prepaid the loans at any time. If the loans were repaid on or before September 30, 2016, the principal amount, which was being repaid, would increase by 10%. If the loans were repaid after September 30, 2016, the principal amount, which could have been repaid would have increased by 15%. As of December 31, 2016, the loans were not repaid, when they were due, per the terms of the notes, and thus, the principal balance of the notes was increased to $57,500 in the aggregate, with the addition to the principal balance charged to interest expense.

UNITED CANNABIS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

During the latter part of the year ended December 31, 2016, and continuing into the three month period ended March 31, 2017, Messrs. Blackmon, Verzura and Ruby, who are officers and directors of the Company, sold a portion of the shares of common stock they owned in the Company. They in turn used a substantial portion of the net after tax proceeds received from the sale of such shares to advance the Company $178,383 and $71,007, during the three months ended March 31, 2017 and the year ended December 31, 2016. Such funds were utilized by the Company to pay obligations and expenses, and were used to make advances in the amount of $135,971 to our equity method investment in an unconsolidated subsidiary, Caribbean Research & Development Company, Ltd, in Jamaica. Total advances of $246,691 were converted to unsecured demand notes, with interest only, at a rate of 12.5% per annum. The notes payable, plus accrued interest in the amount of $14,984, have been recorded in the consolidated balance sheet as a component of notes payable to, advances from and accrued wages for officers and directors.

In addition, the Company has recorded wages, plus applicable payroll taxes, payable to Messrs. Blackmon, Verzura and Ruby in the total amount of $234,250 for the three months ended March 31, 2015, which have been recorded in the consolidated balance sheet as a component of notes payable to and advances from officers and directors.

NOTE 12 – STOCKHOLDERS’ DEFICIT

2014 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.

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. 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. The B Warrants are callable once our common stock has traded at a price of at least $22.00 for 20 consecutive trading days.

2014 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.

Warrants:

The following table summarizes our share warrants outstanding as of March 31, 2017 and December 31, 2016:


	March 31, 2017				December 31, 2016
	Number of Shares		Weighted Average Exercise Price		Number of Shares			Weighted Average Exercise Price
Warrants outstanding, beginning of period		1,449,779	$	0.18		3,000,000		$	12.00
Warrants issued to consultant		83,333		0.18		666,667			0.18
Warrants issued to consultant		8,000		1.25		—			—
Cashless issued upon conversion of Slainte note		—		—		1,746,674			—
Warrants exercised		—		—		(963,562	)		—
Expired		—		—		(3,000,000	)		—
Warrants outstanding, end of period		1,541,112	$	0.19		1,449,779		$	0.18
Warrants exercisable, end of period		1,541,112	$	0.19		1,449,779		$	0.18

UNITED CANNABIS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The weighted-average remaining contractual life for warrants outstanding and exercisable at March 31, 2017, is 4.29 years, and the aggregate intrinsic value of warrants outstanding and exercisable at March 31, 2017 is $0.

The warrants issued during the three months ended March 31, 2017 and the year ended December 31, 2016 were valued utilizing the Black Scholes option pricing model and the following range of assumptions on the date of valuation:


Stock price				$0.16 - $2.18
Exercise price				$0.18
Risk free interest rate				1.01% - 1.37%
Expected term (years)				5
Expected volatility				322% - 504%
Expected dividends				0%

2014 Equity Incentive Plan

On November 20, 2014, our board of directors approved our 2014 Stock Incentive Plan (the “Plan”) and the Plan became effective on November 19, 2015. 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 March 31, 2017, 3,400,000 common shares were available for issue under the Plan.

Stock Options

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 give 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	%

At December 31, 2014, the fair value of these 600,000 options totaling $417,664 was included in accrued expenses on our consolidated balance sheets. On January 9, 2015, the option grant date, we increased common stock and decreased accrued expenses by this amount to account for the issuance of the 600,000 options on that date.

On January 12, 2016, we awarded 1,050,000 stock options to each of Messrs. Blackmon, Verzura and 980,000 stock options to Mr. Ruby under our 2014 Stock Incentive Plan. The options were fully vested at the time of grant and give the option holder the right to purchase shares of our common stock at $0.20 per share during the ten year term of the option.

UNITED CANNABIS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

We calculated the fair value of each option to be approximately $0.20 per option utilizing the Black Scholes option pricing model and the following assumptions on the date of valuation:


Stock price	$0.20
Exercise price	$0.20
Risk free interest rate	1.98	%
Expected term (years)	10.0
Expected volatility	173	%
Expected dividends	0	%

At December 31, 2015, the fair value of these 3,080,000 options totaling $612,512, which was included in accrued expenses on our consolidated balance sheets, and on January 15, 2016, the option grant date, we increased common stock and decreased accrued expenses by this amount to account for the issuance of these options on that date.

The following table summarizes our stock options outstanding as of March 31, 2017 and December 31, 2016:


	Number of Shares		Weighted Average Remaining Life (Years)		Weighted Average Exercise Price
Stock options outstanding at December 31, 2015		600,000		9.8	$	0.70
Issued		3,080,000		10.0	$	0.20
Exercised		—		—		—
Expired		—		—		—
Stock options outstanding at December 31, 2016		3,680,000		8.9	$	0.28
Stock options exercisable at December 31, 2016		3,600,000		8.9	$	0.28

Stock options outstanding at December 31, 2016		3,680,000		8.9	$	0.28
Issued		—		—		—
Exercised		—		—		—
Expired		—		—		—
Stock options outstanding at March 31, 2017		3,680,000		8.6	$	0.28
Stock options exercisable at March 31, 2017		3,680,000		8.6	$	0.28

The weighted-average remaining contractual life for stock options outstanding and exercisable at March 31, 2017, is 8.6 years, and the aggregate intrinsic value of options outstanding and exercisable at March 31, 2017is $0.

NOTE 13 – SHARE-BASED COMPENSATION

Share-based Compensation

We recognize share-based compensation expense in cost of revenues, sales and marketing expenses, R&D expenses and general and administrative expenses based on the fair value of common shares issued for services. In addition, we accrue share-based compensation expense for estimated share-based awards earned during the three months ended March 31, 2017 and the year ended December 31, 2016, respectively, under our 2014 Equity Incentive Plan. Share-based compensation expense for the three months ended March 31, 2017 and March 31, 2016 is, as follows:


	Three Months Ended March 31,
	2017		2016
Warrants issued for consulting services	$	91,333	$	46,382
Common stock issued for accounts payable and accrued expenses		43,676		—
Common stock issued for services		50,673		—
Common stock accrued for issuance as payment for services, not yet issued.		69,943		—
	$	255,625	$	46,382

UNITED CANNABIS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Of the $255,634 of share-based compensation for the three months ended March 31, 2017, $25,000 was reported as a reduction of accounts payable and accrued expenses pertaining to amounts owed at the beginning of the period and $18,667 was recognized as a loss on the extinguishment of debt during the three months ended March 31, 2017. Of the $814,000 of share-based compensation for the year ended December 31, 2016, $191,550 was reported as a reduction of accounts payable and accrued expenses pertaining to amounts owed as of the beginning of the year ended December 31, 2016, and $31,934 was recognized as a loss on the extinguishment of debt during the year ended December 31, 2016.

NOTE 14 – RELATED PARTY TRANSACTIONS

Blue River Inc.

In February 2015, Messrs. Blackmon and Verzura, who are officers and directors of our Company, formed Blue River Inc. (“Blue River”), a Colorado corporation that is a branding and marketing company that deals with the essential oils of cannabis and substitute products. On January 1, 2016, our wholly owned subsidiary, UCANN California Corporation (“UCANN CA”), entered into a five year consulting and intellectual property licensing arrangement with Blue River whereby UCANN CA will provide consulting services to Blue River at hourly rates and a non-exclusive license to our intellectual property for $5,000 per month. The arrangement can be terminated by either party by written agreement. For the three months ended March 31, 2017 and 2016, we did not recognized any consulting fee revenue under the terms of the consulting agreement. At March 31, 2017 and December 31, 2016, we owed Blue River $2,733 and $4,293, respectively, and included these amount in accounts payable in our consolidated balance sheets.

Advesa Corporation

Advesa Corporation (“Advesa”), a California corporation, was formed in September 2016, and is 100% owned by Mr. Verzura. The Company entered into a memo of understanding in November 2016, under which we provide consulting services to Advesa, and Advesa assists our largest customer, who is located in California, produce our Prana biomedical line of products under a licensing agreement with that California customer. During the three months ended March 31, 2017 and the year ended December 31, 2016, we advanced Advesa approximately $450 and $20,499, respectively, and included these amount in due from related parties in our consolidated balance sheets.

Amounts due to and from related parties consist of:


	March 31, 2017			December 31, 2016
Blue River – reported on the balance sheet in accounts payable	$	(2,733	)	$	(4,293	)
Advesa – reported on the balance sheet in due from related parties		22,224			21,755
Total	$	19,491		$	17,462

NOTE 15 – COMMITMENTS AND CONTINGENCIES

Contractual Obligations and Commercial Commitments

Legal Proceedings

There have been no material developments in legal proceedings in which we are involved, as of the date of the issuance of these financial statements.

UNITED CANNABIS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 16 – SUBSEQUENT EVENTS

Financing Agreement

On December 28, 2016, we entered into an equity line of credit agreement with Tangiers Global, LLC (“Tangiers”). Under the equity line agreement, Tangiers has agreed to provide the Company with up to $10,000,000 of funding through the purchase of shares of the Company’s common stock. During the term of the agreement, the Company may deliver a put notice to Tangiers, which will specify the number of shares which the Company will sell to Tangiers. The minimum amount the Company can draw down at any one time is $5,000, and the maximum amount the Company can draw down at any one time is $350,000 as determined by the formula contained in the equity line agreement.

A closing will occur on the date which is no earlier than five trading days following, and no later than seven trading days following, the applicable put notice. On each closing date, the Company will sell, and Tangiers will purchase, the shares of the Company’s common stock specified in the put notice. The amount to be paid by Tangiers on a particular closing date will be determined by multiplying the purchase price by the number of shares specified in the put notice. The purchase price is 85% of the average of the two lowest trading prices of the Company’s common stock during the pricing period applicable to the put notice. The pricing period, with respect to a particular put notice, is five consecutive trading days including, and immediately following, the delivery of a put notice to Tangiers. The Company may submit a put notice once every ten trading days provided the closing of the previous transaction has taken place. The Company is under no obligation to submit any put notices.

The equity line agreement has a term of 36 months, which will begin on the effective date of the registration statement, which the Company has agreed to file with the Securities and Exchange Commission so that the shares of common stock to be sold to Tangiers may be sold in the public market. The Company issued a promissory note to Tangiers for the principal sum of $35,000 as a commitment fee for the equity line. The note bears interest at 10% per year, is unsecured, and is due and payable on July 8, 2017. The note is recorded on our consolidated balance sheet at March 31, 2017 in the amount of $35,000, net of a discount of $16,953. At the option of Tangiers, all or any part of the unpaid principal amount of the note may be converted into shares of the Company’s common stock. The number of shares to be issued on any conversion will be determined by dividing the principal amount of the note to be converted by $1.00.

On April 27, 2017, the Securities and Exchange Commission declared the S-1 effective that we filed in conjunction with the equity line of credit agreement, and we subsequently delivered two (2) put notices to Tangiers. In response to the put notices, we received $186,998, and issued 226,639 shares of our common stock to Tangiers, on May 4, 2017, and we are scheduled to receive approximately $363,500, and issue approximately 353,000 shares of our common stock to Tangiers, on May 18, 2017, depending on the pricing of our common stock, under the terms of the equity line of credit agreement.

ITEM 2.

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

We were originally formed on November 15, 2007 as a California corporation under the name MySkin, Inc. 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 former President of the Company.

In early 2014 we decided to exit the medical spa management business and change our focus to creating unique products which can be used to treat a wide range of diseases that can be used by patients globally. Our products are subject to all existing cannabis laws in the United States.

We own intellectual property relating to the legalized growth, production, manufacture, marketing, management, utilization and distribution of medical and recreational cannabis and cannabis infused products. We have entered into what we believe are significant agreements with partners outside of Colorado, where we have agreed to provide intellectual property and consulting services. We also have formalized strategic relationships with four other businesses in the cannabis industry.

Our primary goal is to advance the use of phytocannabinoids 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.

Our Prana Bio Nutrient Medicinal products are designed to help supplement deficiencies related to the endocannabinoid system including pain, neuropathy, arthritis, MS, IBS, autism, seizures, eczema, sleep, anxiety, head trauma, opioid dependency and clinical endocannabinoid deficiencies. The endocannabinoid system is a signaling system within the human body that utilizes hundreds of receptors to help maintain homeostasis between the central nervous system and the immune system.

Our Prana Aromatherapy Transdermal Roll-on line uses a proprietary blend of essential oils infused with cannabinoids designed to provide targeted and large surface relief with combinations of aromatherapy. The transdermal is a part of the complete patent-pending Prana Bio Nutrient Medicinals line, which is offered in 5 categories (P1, P2, P3, P4, P5), with three delivery methods (sublingual, capsules, topical). Dosages range from 1mg to 50mg, are available in both raw and activated formulations, and paired with specific cannabis derived terpene profiles.

Our short term plan involves licensing the technology associated with our products to companies which are licensed to grow and sell medical cannabis in states where medical cannabis is legal. As of September 30, 2016 we had signed license agreements with two companies.

Our long term plan is to perform clinical trials on the most promising products in our product line that are currently being manufactured by a licensee in California. We presently intend to perform our phase I clinical trials at the West Indies University in Jamaica. We will fund the initial clinical trials by drawing down funds from our $10,000,000 equity line of credit, licensing our Prana product line to manufacturers in all legal territories in the United States, and with revenue received for providing technical, financial and licensing consulting services. After our phase 1 clinical trials are complete, we plan on partnering with companies that have expertise in global pharmaceutical distribution and research for phase II and III clinical trials in the United States.

Results of Operations

Material changes in line items in our Statement of Operations for the three months ended March 31, 2017, as compared to the same period last year, are discussed below:


	Increase (I) or
Item	Decrease (D)	Reason

Revenues	D	A decrease in licensing fees due to a decrease in the amount of our licensed products sold by our licensees.
Gross profit, as a % of revenue	D	Gross profit, as a percentage of revenue, decreased due to higher labor costs and increases in raw material costs, which are components in determining the net amount of our licensing fees.
Marketing, advertising and new business development	I	Slight increase due to slightly greater costs incurred during the three months ended March 31, 2017.
Research and development	I	Increased due to the acquisition of raw materials, labor costs associated with extraction, and the production costs of ingredients for potentially new lines of products to be licensed to customers.
Legal, accounting , consulting and public reporting	I	Increased due, for the most part, to additional legal, audit and accounting fees for the filing with the Securities and Exchange Commission of a Form S-1 to register shares associated with our equity line of credit from Tangiers Global incurred during the three months ended March 31, 2017, as compared to the same period last year.
General and Administrative expenses	I	Increased due to increased salaries for officers and directors, and additional costs associated with implementing an Advisory Board during the three months ended March 31, 2017.

The factors that will most significantly affect future operating results will be:


	·	Regulatory changes in different territories in the United States.
	·	Political party influence and what party(s) will gain control of the United States.
	·	Rescheduling of cannabis by the DEA or congress.

Capital Resources and Liquidity

Our material sources and (uses) of cash during the three months ended March 31, 2017 and 2016 were:


	2017			2016
Cash used in operations	$	(109,800	)	$	(75,122	)
Acquisition of equipment for and improvements to cultivation facility		(90,596	)		—
Acquisition of laboratory equipment		(39,944	)		—
Advances from officers and directors		173,383			—
Loan Payments		—			(15,000	)

General

Other than the repayment of our notes and convertible notes, we presently have no material capital commitments for the twelve months ending March 31, 2018.

Other than as disclosed above, we do not know of any:


	·	trends, demands, commitments, events or uncertainties that will result in, or that are reasonable likely to result in, our liquidity increasing or decreasing in any material way; or
	·	any significant changes in our expected sources and uses of cash.

During the next twelve months, we anticipate that we will incur approximately $832,000 of sales, marketing, research and development, clinical trial, legal, accounting, consulting and public reporting, and general and administrative expenses. We will rely, for the most part, on proceeds from the sale of our common stock to Tangiers Global under terms of our equity line of credit, and continued licensing fees to fund our research and development, clinical trials, legal, accounting, consulting and public reporting, and general operations for the next twelve months. However, we may have to obtain additional funding to fully fund our business plans over the next twelve months. We may not be able to obtain additional funding in addition to our equity line of credit on terms that are favorable to us, or at all, and thus might not have sufficient funding to continue our operations, or if we do receive funding, to generate adequate revenues in the future or to operate profitably. These conditions raise substantial doubt about our ability to continue as a going concern.

Off-Balance Sheet Arrangements

None.

Significant Accounting Policies

See Note 2 to the financial statements included as part of this report for a description of our significant accounting policies.

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 to the financial statements included as part of this Report.

ITEM 4.

CONTROLS AND PROCEDURES.

An evaluation was carried out under the supervision and with the participation of our management, including our Principal Executive and Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report on Form 10-Q. Disclosure controls and procedures are procedures designed with the objective of ensuring that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, such as this Form 10-Q, is recorded, processed, summarized and reported, within the time period specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and is communicated to our management, including our Principal Executive Officer and Principal Financial Officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on that evaluation, our management concluded that, as of March 31, 2017 our disclosure controls and procedures were effective.

Change in Internal Control over Financial Reporting

Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles in the United States. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.

There were no changes in our internal control over financial reporting that occurred during the fiscal quarter covered by this report that materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 6.

EXHIBITS.


Exhibits

31.1		Certification of Chief Executive Officer pursuant to Security Exchange Act Rule 13a-14 and 15d-14.

31.2		Certification of Chief Financial Officer pursuant to Security Exchange Act Rule 13a-14 and 15d-14.

32.1		Certification of the Company’s Chief Executive Officer and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101		XBRL Exhibits

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	UNITED CANNABIS CORPORATION

May 15, 2017	By:	/s/ Earnest Blackmon
		Earnest Blackmon
		Principal Executive and Financial Officer

United Cannabis Corp - FORM 10-Q - May 15, 2017

Attached files

United Cannabis Corp Reports