UNITED STATES
SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, D.C.
20549
FORM 10-K
| [X] |
ANNUAL REPORT UNDER SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
|
|
For the fiscal year
ended December 31, 2014 |
|
|
| [ ] |
TRANSITION REPORT UNDER SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT |
|
|
|
For the transition
period from _________ to ________ |
|
|
|
Commission file number:
333-178482 |
| Cannabis-Rx,
Inc. |
(Exact name of registrant
as specified in its charter)
|
| Delaware |
30-0693512 |
| (State or other jurisdiction
of incorporation or organization) |
(I.R.S. Employer Identification
No.) |
|
|
7702
E Doubletree Ranch Rd. Ste 300
Scottsdale
AZ |
85258 |
| (Address of principal
executive offices) |
(Zip Code) |
Registrant’s telephone
number: 480.902.3399 |
|
Securities
registered under Section 12(b) of the Exchange Act
|
| Title
of each class |
Name of
each exchange on which registered |
| None |
not
applicable |
|
Securities
registered under Section 12(g) of the Exchange Act:
|
| Title of each class |
|
| None |
|
Indicate by
check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by
check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [X] No
[ ]
Indicate by
checkmark 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 [ ] No [X]
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 [X] No
[ ]
Indicate by
check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
Indicate by
check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act.
Large accelerated
filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [X]
Indicate by
check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
State the aggregate market value
of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity
was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s
most recently completed second fiscal quarter. Not available.
Indicate the number of shares outstanding
of each of the registrant’s classes of common stock, as of the latest practicable date. 156,000,000 as of June 30, 2015
TABLE OF
CONTENTS
PART
I
Item 1. Business
Company
Overview
We
were incorporated on July 5, 2011 in the State of Delaware. We are engaged in the business of acquiring a portfolio of distressed
properties in certain strategic areas at deep discounts, rehabilitating these properties and selling or leasing them for the quickest
and highest return possible. In conjunction with these real estate operations, in January 2014, we began catering to the real
estate needs of the regulated cannabis industry, in states and other locations where such business is licensed and permitted.
In this niche market, we plan to purchase real estate assets and lease growing space and related facilities to licensed marijuana
growers and dispensary owners for their operations.
To
date, we have raised $16,250,000 through the sale of unsecured promissory notes. We continue to seek out the best financing opportunities
in order to deploy funds into our business operations that we believe best suited to the real estate industry, as well as pursue
real estate opportunities in the cannabis industry.
Real
Estate Activities
A
weakened economy, a record number of foreclosures, and rising unemployment claims in certain geographic areas created “the
perfect storm” for both the real estate market and to the economy at large. We saw this maelstrom as a prime opportunity
to acquire, renovate, and resell or rent properties. We purchased distressed properties, performed renovations on these properties
to increase their value, livability, and attractiveness, and then sell the properties or keep them for value as rental properties.
To date we have primarily sold the properties. While the job market and the economy has improved and, currently, interest rates
remain at or near historical lows, there is still a large inventory of distressed properties in certain regions of the country.
We believe that there continues to be opportunities to acquire such properties that possess hidden value.
From January 2014 to the date of this filing,
we have acquired 68 properties for a total cost of $22,450,652. Of the 68 properties, 48 have been rehabilitated and sold or are
under contract for sale, 6 have been rehabilitated and are listed for sale, and 0 properties are held for investment purposes.
The remaining 14 properties are in the process of rehabilitation, except for 0 properties that we hold for investment. To date,
we now own three classes of real estate: single family, multi-family and commercial, all of which are located in Florida, Illinois,
California, Ohio, Michigan, Colorado and Washington. Some of these properties are held by us and some are held in our wholly-owned
subsidiary, Praetorian Capital, LLC, a Florida limited liability company formed on October 22, 2013.
With
all our projects we hope to immediately crystallize our gain by listing and selling the properties upon completion of the rehabilitation.
We will, however, reassess all properties at the time of completion and if there is an opportunity to earn a larger return by
holding the property long-term and leasing it as opposed to immediately liquidating the asset we would exercise that option. We
would also evaluate adding a leveraged facility in order to maximize the return.
Our
plan is to use monies invested in our company to purchase and/or develop further residential properties in the various US
markets that, while presently struggling, have historically demonstrated strong growth and positive general economic
conditions. We have a network of “in market partners” that consists of brokers, developers, builders, lenders,
banks and other industry contacts to identify and acquire real estate assets that have the potential for significant return
on investment. Every asset acquisition will be negotiated and analyzed by our management team and those we work with to
assist with the selection, purchase, rehabilitation and resale of all assets. Asset selection will be based on several
factors such as:
| 1. | The
acquisition price compared to properties that are similar in nature and location; |
| 2. | The
likelihood of increase in potential value within the next one to five years; |
| 3. | The
ability to generate income through leasing all or a portion of the asset; |
| 4. | The
ability to successfully market and sell the asset in six months to one year; |
| 5. | The
degree to which the asset is located in a favorable area with growth potential; and |
| 6. | The
quality of workmanship condition of the asset (for improved buildings). |
In
negotiating and analyzing each project, our management team will prepare pro forma financial analysis, gather and review ownership
information, comparable properties, income information, and general market analysis. Management will then determine if the property
should be purchased and any conditions of the purchase. For those properties that management deems worthwhile, we will then attempt
to negotiate favorable purchase terms and conditions.
We
will be responsible for maintaining and rehabilitating assets owned by the company. These responsibilities include the following:
| 1. | Paying
property taxes, Special Improvement District (SID) fees, and other fees or taxes; |
| 2. | Maintaining
appropriate insurance coverage; |
| 3. | Hiring
qualified property management professionals to manage income producing assets. Any such
property management arrangements will be paid from income generated from the asset; |
| 4. | Managing
with consultants, engineers, developers and general contractors for any properties that
require additional development; and |
| 5. | Securing
and guaranteeing (if necessary) any loans required for the property. |
When
we determine that an opportunity exists to sell assets owned that we own, we will be responsible for managing the marketing and
sale of the property. This may include the following:
| 1. | Hiring
qualified real estate broker to list the property for sale and to find a buyer; |
| 2. | Determine
the appropriate sales price; |
| 3. | Negotiate
sales terms with potential buyers; and |
| 4. | Oversee
the closing of escrow and disbursement of sale proceeds. |
Typically,
if a 17% or greater return on investment can be achieved, the home will be liquidated. However, if greater profit can be realized
by holding the property we will lease it to a tenant. To date, we have liquidated assets and have only held one properties for
rental income. Both strategies are effective at maximizing returns. The short-term strategy can provide high returns and quick
turnover, while the long-term leasing strategy can provide strong capitalization rates and appreciation potential, so long as
the United States housing market normalizes back to pre-2007 pricing.
We
are currently active in both foreclosure/trustee auctions and regular private party sales. Our goal at the foreclosure auction
is to buy assets below their current market value, usually aiming for a 20-30% discount.
We work with our in-market partners who
provide daily updates on properties as well as current market conditions through the use of analytics specific to each region.
We feel that in today’s real estate market it’s crucial to stay out in front of the market whenever possible. This
strategic advantage is crucial to our success in each market because it allows us to be selective in targeting specific assets
and each area. Furthermore, we go the extra mile on each property scrutinizing all things related to the property, area and the
market that could impact our success so that we mitigate the risk of loss or a low return.
Cannabis
Real Estate Solutions
We
have been searching in Colorado, Washington, Florida and California or properties to acquire suited to the cannabis industry.
We will continue to evaluate and consider the purchase of industrial commercial buildings that are in the designated zoned areas
of municipalities. To date, after extensive due diligence, we have acquired only two properties suited for cannabis use. Furthermore,
the final use of these properties is not limited to the cannabis industry.
In
order to attract cannabis-related tenants to lease our properties, we are willing to renovate these spaces based on the requirements
of the business, and incorporate these additional costs into their lease. For example, if it is a grow facility we will provide
significant electrical, HVAC, and security upgrades. Often these tenant improvements are the responsibility of the leasee. Additionally,
we are willing to facilitate these improvements by offering to consult on the build-out of their facility and/or capital based
on the needs of the tenant, the term of the lease, and their business model. However, after our due diligence certain projects
were not pursed inasmuch as they failed to meet our underwriting standards.
In
the marijuana space, tenants typically pay a 30 – 40 percent premium to lease space to operate in, simply due to the nature
of the business. We plan to offer our space at a lesser premium to the usual 30 - 40 percent. Our targets are 20 - 30 percent.
In
Florida, we purchased and rehabilitated a 9.23 acre property totaling 209,000 square feet in a trio of industrial buildings to
house cannabis operations. However, because the ballot measure did not receive 60% voter approval the measure failed. Regardless,
we are confident in our ability to maximize the value of the asset and will market the property for sale.
Financing
and Consulting Services
While
we continue to be willing to consider and provide financing and consulting services to the cannabis industry, in addition to our
commercial real estate solutions, we have not undertaken such proposals based on our due diligence. We will continue to entertain
financing options with licensed or existing operators within the marijuana industry that require start-up, operating or expansion
capital. As previously indicated, we have invested in two building designated to be used in the cannabis industry. We will also
consider providing capital to current and potential tenants of our buildings that require funding to refinance current debt, as
long as they meet our underwriting criteria. Additionally, we offer sale-and-leaseback financing arrangements with tenant purchase
options. These types of financing solutions provide flexibility for our tenants long-term, while capitalizing their operations.
Through
our network of real estate experts - legal, licensing, construction and growing - we plan to provide consulting services to our
tenants in the marijuana industry trying to navigate the real estate/zoning process and/or regulatory environment. We provide
counsel to help businesses set up their grow operations. Specifically, we can provide guidance/counsel regarding construction
management and grow design (electrical, HVAC, lighting, etc.). We are also looking into providing regulatory compliance consulting.
Legal
Considerations in Cannabis Related Activities
The
Cole Memo
We
intend to conduct rigorous due diligence to verify the legality of all activities that we engage in. We realize that there is
a discrepancy between the laws in some states, which permit the distribution and sale of medical and recreational marijuana, from
federal law that prohibits any such activities. The Controlled Substances Act (“CSA”) makes it illegal under federal
law to manufacture, distribute, or dispense marijuana. Many states impose and enforce similar prohibitions. Notwithstanding the
federal ban, 23 states and the District of Columbia have legalized certain marijuana-related activity. These 21 states include:
Alaska, Arizona, Michigan, Oregon, Arizona, Hawaii, Montana, Rhode Island, California, Illinois, Nevada, Vermont, Colorado, Maine,
New Hampshire, Washington, Connecticut, Maryland, New Jersey, Delaware, Massachusetts, Minnesota, New Mexico and New York.
In
light of these developments, U.S. Department of Justice Deputy Attorney General James M. Cole issued a memorandum (the “Cole
Memo”) to all United States Attorneys providing updated guidance to federal prosecutors concerning marijuana enforcement
under the CSA. The Cole Memo guidance applies to all of DOJ’s federal enforcement activity, including civil enforcement
and criminal investigations and prosecutions, concerning marijuana in all states.
The
Cole Memo reiterates Congress’s determination that marijuana is a dangerous drug and that the illegal distribution and sale
of marijuana is a serious crime that provides a significant source of revenue to large-scale criminal enterprises, gangs, and
cartels. The Cole Memo notes that DOJ is committed to enforcement of the CSA consistent with those determinations. It also notes
that DOJ is committed to using its investigative and prosecutorial resources to address the most significant threats in the most
effective, consistent, and rational way. In furtherance of those objectives, the Cole Memo provides guidance to DOJ attorneys
and law enforcement to focus their enforcement resources on persons or organizations whose conduct interferes with any one or
more of the following important priorities (the “Cole Memo priorities”):
| § | Preventing
the distribution of marijuana to minors; |
| § | Preventing
revenue from the sale of marijuana from going to criminal enterprises, gangs, and cartels; |
| § | Preventing
the diversion of marijuana from states where it is legal under state law in some form
to other states; |
| § | Preventing
state-authorized marijuana activity from being used as a cover or pretext for the trafficking
of other illegal drugs or other illegal activity; |
| § | Preventing
violence and the use of firearms in the cultivation and distribution of marijuana; |
| § | Preventing
drugged driving and the exacerbation of other adverse public health consequences associated
with marijuana use; |
| § | Preventing
the growing of marijuana on public lands and the attendant public safety and environmental
dangers posed by marijuana production on public lands; and |
| § | Preventing
marijuana possession or use on federal property. |
Deputy
Attorney General Cole is issuing supplemental guidance directing that prosecutors also consider these enforcement priorities with
respect to federal money laundering, unlicensed money transmitter, and BSA offenses predicated on marijuana-related violations
of the CSA.
FinCEN
The
Financial Crimes Enforcement Network (“FinCEN”) provided guidance on February 14, 2014 about how financial institutions
can provide services to marijuana-related businesses consistent with their Bank Secrecy Act (“BSA”) obligations. For
purposes of the FinCEN guidelines, a “financial institution” includes any person doing business in one or more of
the following capacities:
| § | bank
(except bank credit card systems); |
| § | broker
or dealer in securities; |
| § | money
services business; |
| § | a
person subject to supervision by any state or federal bank supervisory authority. |
In
general, the decision to open, close, or refuse any particular account or relationship should be made by each financial institution
based on a number of factors specific to that institution. These factors may include its particular business objectives, an evaluation
of the risks associated with offering a particular product or service, and its capacity to manage those risks effectively. Thorough
customer due diligence is a critical aspect of making this assessment.
In
assessing the risk of providing services to a marijuana-related business, a financial institution should conduct customer due
diligence that includes: (i) verifying with the appropriate state authorities whether the business is duly licensed and registered;
(ii) reviewing the license application (and related documentation) submitted by the business for obtaining a state license to
operate its marijuana-related business; (iii) requesting from state licensing and enforcement authorities available information
about the business and related parties; (iv) developing an understanding of the normal and expected activity for the business,
including the types of products to be sold and the type of customers to be served (e.g., medical versus recreational customers);
(v) ongoing monitoring of publicly available sources for adverse information about the business and related parties; (vi) ongoing
monitoring for suspicious activity, including for any of the red flags described in this guidance; and (vii) refreshing information
obtained as part of customer due diligence on a periodic basis and commensurate with the risk. With respect to information regarding
state licensure obtained in connection with such customer due diligence, a financial institution may reasonably rely on the accuracy
of information provided by state licensing authorities, where states make such information available.
As
part of its customer due diligence, a financial institution should consider whether a marijuana-related business implicates one
of the Cole Memo priorities or violates state law. This is a particularly important factor for a financial institution to consider
when assessing the risk of providing financial services to a marijuana-related business. Considering this factor also enables
the financial institution to provide information in BSA reports pertinent to law enforcement’s priorities. A financial institution
that decides to provide financial services to a marijuana-related business would be required to file suspicious activity reports.
While
we believe we do not qualify as a financial institution in the United States, we cannot be certain that we do not fall under the
scope of the FinCEN guidelines. As such, as we engage in financing activities, we intend to adhere to the guidance of FinCEN in
conducting and monitoring our financial transactions. Because this area of the law is uncertain but expected to evolve rapidly,
we believe that following FinCEN’s guidelines will help us best operate in a prudent, reasonable and acceptable manner.
There is no assurance, however, that our activities will not violate some aspect of the CSA. If we are found to violate the federal
statute or any other in connection with our activities, our company could face serious criminal and civil sanctions. Moreover,
since the use of marijuana is illegal under federal law, we may have difficulty acquiring or maintaining bank accounts and insurance
and our shareholders may find it difficult to deposit their stock with brokerage firms.
Local
Laws
Local
laws at the city, county and municipal level add an additional layer of complexity to legalized marijuana. Despite a state’s
having adopted legislation legalizing marijuana, cities, counties and municipalities, within the state seem to have the ability
to otherwise restrict marijuana activities, including but not limited to cultivation, retail or consumption.
Zoning
sets forth the approved use of land in any given city, county or municipality. Zoning is set by local governments and may otherwise
be restricted by state laws, for example, under certain state laws a seller of liquor may not be allowed to operate within 1,000
feet of a school. There are and or will be similar restrictions imposed on marijuana operators, which will restrict how and where
marijuana operations can be located and the manner and size of which they can grow and operate. Additionally, zoning is subject
to change, properties can be re-zoned and a given zoning may be withdrawn. How properties are zoned will have a direct impact
on our business operations.
Competition
We
believe that the current market for properties that meet our investment objectives is extremely competitive and many of our competitors
have greater resources than we do. We compete with numerous other entities engaged in real estate investment activities, including
individuals, corporations, banks and insurance company investment accounts, other REITs, real estate limited partnerships, the
U.S. Government and other entities, to acquire, manage and sell real estate properties and real estate related assets. Many of
our expected competitors enjoy significant competitive advantages that result from, among other things, a lower cost of capital
and enhanced operating efficiencies. In addition, the number of entities and the amount of funds competing for suitable investments
may increase.
Compliance
with Federal, State and Local Environmental Law
Under
various federal, state and local environmental laws, ordinances and regulations, a current or previous real property owner or
operator may be liable for the cost of removing or remediating hazardous or toxic substances on, under or in such property. These
costs could be substantial. Such laws often impose liability whether or not the owner or operator knew of, or was responsible
for, the presence of such hazardous or toxic substances. Environmental laws also may impose restrictions on the manner in which
property may be used or businesses may be operated, and these restrictions may require substantial expenditures or prevent us
from entering into leases with prospective tenants that may be impacted by such laws. Environmental laws provide for sanctions
for noncompliance and may be enforced by government agencies or, in certain circumstances, by private parties. Certain environmental
laws and common law principles could be used to impose liability for the release of and exposure to hazardous substances, including
asbestos-containing materials. Third parties may seek recovery from real property owners or operators for personal injury or property
damage associated with exposure to released hazardous substances. The cost of defending against claims of liability, of complying
with environmental regulatory requirements, of remediating any contaminated property, or of paying person injury claims could
significantly affect our operating results and financial condition.
Employees
We have two
employees. Mr. Llorn Kylo is our CEO and Mr. Munjit Johal is our CFO. If business is successful and we experience rapid growth,
we may be required to hire new personnel to improve, implement and administer our operational, management, financial and accounting
systems.
Item 1A.
Risk Factors.
This investment
has a high degree of risk. Before you invest you should carefully consider the risks and uncertainties described below. If any
of the following risks actually occur, our business, operating results and financial condition could be harmed and the value of
our stock could go down. This means you could lose all or a part of your investment.
Because
we have no operating history in the cannabis industry, we may not succeed.
While
our CEO, Llorn Kylo, has experience in real estate transactions, we have no specific operating history or experience in procuring,
building out or leasing real estate for agricultural purposes, specifically marijuana grow facilities, or with respect to any
other activity in the cannabis industry. Moreover, we are subject to all risks inherent in a developing a new business enterprise.
Our likelihood of success must be considered in light of the problems, expenses, difficulties, complications, and delays frequently
encountered in connection with establishing a new business and the competitive and regulatory environment in which we operate.
For example, the medical marijuana industry is new and may not succeed, particularly should the federal government change course
and decide to prosecute those dealing in medical marijuana. If that happens there may not be an adequate market for our properties
or other activities we propose to engage in.
You should further
consider, among other factors, our prospects for success in light of the risks and uncertainties encountered by companies that,
like us, are in their early stages. For example, unanticipated expenses, delays and or complications with build outs, zoning issues,
legal disputes with neighbors, local governments, communities and or tenants. We may not successfully address these risks and
uncertainties or successfully implement our operating strategies. If we fail to do so, it could materially harm our business to
the point of having to cease operations and could impair the value of our common stock to the point investors may lose their entire
investment.
Because
we may be unable to identify and or successfully acquire properties which are suitable for our business, our financial condition
may be negatively affected.
Our business
plan involves the identification and the successful acquisition of properties which are zoned for marijuana businesses, including
grow and retail. The properties we acquire will be leased to licensed marijuana operators. Local governments must approve and
adopt zoning ordinances for marijuana facilities and retail dispensaries. A lack of properly zoned real estate may reduce our
prospects and limit our opportunity for growth and or increase the cost at which suitable properties are available to us. Conversely
a surplus of real estate zoned for marijuana establishments may reduce demand and prices we are able to charge for properties
we may have previously acquired.
Because
our business is dependent upon continued market acceptance by consumers, any negative trends will adversely affect our business
operations.
We are substantially
dependent on continued market acceptance and proliferation of consumers of medical marijuana. We believe that as marijuana becomes
more accepted the stigma associated with marijuana use will diminish and as a result consumer demand will continue to grow. And
while we believe that the market and opportunity in the marijuana space continues to grow, we cannot predict the future growth
rate and size of the market. Any negative outlook on the marijuana industry will adversely affect our business operations.
In addition,
it is believed by many that large well-funded businesses may have a strong economic opposition to the cannabis industry. We believe
that the pharmaceutical industry clearly does not want to cede control of any product that could generate significant revenue.
For example, medical marijuana will likely adversely impact the existing market for the current “marijuana pill” sold
by the mainstream pharmaceutical industry, should marijuana displace other drugs or encroach upon the pharmaceutical industry’s
products. The pharmaceutical industry is well funded with a strong and experienced lobby that eclipses the funding of the medical
marijuana movement. Any inroads the pharmaceutical could make in halting the impending cannabis industry could have a detrimental
impact on our proposed business.
The
price we pay for acquisitions of real property will be based on our projections of market demand, as well as on market factors,
and our return on our investment may be lower than expected if any of our projections are inaccurate.
The price we
pay for real property investments and the terms of our debt investments will be based on our projections of market demand, the
costs of any renovation of a property, borrower expertise and other factors. In addition, as the real estate market continues
to strengthen with the improvement of the U.S. economy, we will face increased competition, which may drive up prices for real
estate assets, result in less available distressed properties and make acquisitions less favorable to us. If any of our projections
are inaccurate or we ascribe a higher value to assets and their value subsequently drops or fails to rise because of market factors,
returns on our investment may be lower than expected and could experience losses.
An
increase in mortgage interest rates or the unavailability of mortgage financing may reduce consumer demand for our properties.
Virtually all
purchasers of our properties finance their acquisitions through lenders providing mortgage financing. A substantial increase in
mortgage interest rates or unavailability of mortgage financing would adversely affect the ability of prospective homebuyers to
obtain the financing they would need in order to purchase our properties, as well as adversely affect the ability of prospective
upgrading homebuyers to sell their current homes. The availability of mortgage financing and mortgage interest rates are affected
by market forces beyond our control. If mortgage financing becomes less available, demand for our properties could decline. A
reduction in demand could also have an adverse effect on the pricing of our properties because we and our competitors may reduce
prices in an effort to better compete for home buyers. Price reductions could result in a decline in our revenues and in our margins.
Because
we buy, sell and lease property, we will be subject to general real estate risks.
We
will be subject to risks generally incident to the ownership of real estate, including: (a) changes in general economic or local
conditions; (b) changes in supply of, or demand for, similar or competing properties in the area; (c) bankruptcies, financial
difficulties or defaults by tenants or other parties; (d) increases in operating costs, such as taxes and insurance; (e) the inability
to achieve full stabilized occupancy at rental rates adequate to produce targeted returns; (f) periods of high interest rates
and tight money supply; (g) excess supply of rental properties in the market area; (h) liability for uninsured losses resulting
from natural disasters or other perils; (i) liability for environmental hazards; and (j) changes in tax, real estate, environmental,
zoning or other laws or regulations. For these and other reasons, no assurance can be given that we will be profitable and one
or more of these risks could be detrimental to our business.
Because
our business model depends upon the availability of private financing, any change in our ability to raise money will adversely
affect our financial condition.
Our
ability to acquire, operate and sell properties, engage in the business activities that we have planned and achieve positive financial
performance depends, in large measure, on our ability to obtain financing in amounts and on terms that are favorable. The capital
markets in the United States have recently undergone a turbulent period in which lending was severely restricted. Although there
appears to be signs that financial institutions are resuming lending, the market has not yet returned to its pre-2008 state. Obtaining
favorable financing in the current environment remains challenging. In the event the lender or any other is unable to finance
our business, we will not be able to implement our business plan and our financial performance could be adversely affected.
Because
we will compete with others for suitable properties, competition will result in higher costs that could materially affect our
financial condition.
We
will experience competition for real estate investments from individuals, corporations and other entities engaged in real estate
investment activities, many of whom have greater financial resources than us. Competition for investments may have the effect
of increasing costs and reducing returns to our investors.
Because
marijuana is illegal under federal law, we could be subject to criminal and civil sanctions for engaging in activities that violate
those laws.
The
U.S. Government classifies marijuana as a schedule-I controlled substance. As a result, marijuana is an illegal substance under
federal law. Even in those jurisdictions in which the use of medical marijuana has been legalized at the state level, its prescription
is a violation of federal law. The United States Supreme Court has ruled in United States v. Oakland Cannabis Buyers' Coop.
and Gonzales v. Raich that it is the federal government that has the right to regulate and criminalize cannabis, even for
medical purposes. Therefore, federal law criminalizing the use of marijuana pre-empts state laws that legalizes its use for medicinal
purposes.
As
of May 31, 2015, 23 states and the District of Columbia allow its citizens to engage in some types of marijuana related activities.
Four states 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 law federal law enforcement agencies to prosecute those lawfully abiding by
state-designated laws allowing the use and distribution of medical marijuana. However, there is no guarantee that the administration
will not change its stated policy regarding the low-priority enforcement of federal laws. Additionally, any new administration
that follows could change this policy and decide to enforce the federal laws strongly. Any such change in the federal government's
enforcement of current federal laws could cause significant financial damage to us and our shareholders.
Should
such a change occur, our business operations would be affected. If our marijuana tenants are forced to shut their operations,
we would need to seek to replace those tenants with non-marijuana tenants, who would likely expect to pay lower rents. Moreover
if the marijuana industry were forced to shut down at once, it would result in a high amount of vacancies at once and create a
surplus of supply, driving leases and property values lower. Additionally, we would realize an economic loss on any and all improvements
made to the properties that were specific to the marijuana industry and we would likely lose any and all investments in the US
market that were marijuana related.
Further,
and while we do not intend to harvest, cultivate, possess, distribute or sell cannabis, by leasing facilities and financing growers
of medicinal marijuana, we could be deemed to be participating in marijuana cultivation or aiding and abetting, which remains
illegal under federal law, and exposes us to potential criminal liability, with the additional risk that our properties could
be subject to civil forfeiture proceedings. Moreover, since the use of marijuana is illegal under federal law, we may have difficulty
acquiring or maintaining bank accounts and insurance and our shareholders may find it difficult to deposit their stock with brokerage
firms.
Laws
and regulations affecting the regulated marijuana industry are constantly changing, which could detrimentally affect our proposed
operations, and we cannot predict the impact that future regulations may have on us.
Local, state
and federal medical marijuana laws and regulations are broad in scope and subject to evolving interpretations, which could require
us to incur substantial costs associated with compliance or alter our business plan. In addition, violations of these laws, or
allegations of such violations, could disrupt our business and result in a material adverse effect on its operations. In addition,
it is possible that regulations may be enacted in the future that will be directly applicable to our proposed business. We cannot
predict the nature of any future laws, regulations, interpretations or applications, nor can we determine what effect additional
governmental regulations or administrative policies and procedures, when and if promulgated, could have on our business.
FDA
regulation of marijuana and the possible registration of facilities where medical marijuana is grown could negatively affect the
cannabis industry which would directly affect our financial condition.
Should the federal
government legalize marijuana for medical use, it is possible that the U.S. Food and Drug Administration (FDA) would seek to regulate
it under the Food, Drug and Cosmetics Act of 1938. Additionally, the FDA may issue rules and regulations including cGMPs (certified
good manufacturing practices) related to the growth, cultivation, harvesting and processing of medical marijuana. Clinical trials
may be needed to verify efficacy and safety. It is also possible that the FDA would require that facilities where medical marijuana
is grown be registered with the FDA and comply with certain federally prescribed regulations. In the event that some or all of
these regulations are imposed, we do not know what the impact would be on the medical marijuana industry, what costs, requirements
and possible prohibitions may be enforced. If we or our tenants are unable to comply with the regulations and or registration
as prescribed by the FDA, we and or our tenants may be unable to continue to operate their and our business in its current form
or at all.
Our
clients and our company may have difficulty accessing the service of banks, which may make it difficult to contract for real estate
needs.
On
February 14, 2014, The U.S. government issued rules allowing banks to legally provide financial services to state-licensed marijuana
businesses. A memorandum issued by the Justice Department to federal prosecutors re-iterated guidance previously given, this time
to the financial industry that banks can do business with legal marijuana businesses and “may not” be prosecuted.
The Treasury Department's Financial Crimes Enforcement Network (FinCEN) issued guidelines to banks that “it is possible
to provide financial services"” to state-licensed marijuana businesses and still be in compliance with federal anti-money
laundering laws. The guidance falls short of the explicit legal authorization that banking industry officials had pushed the government
to provide and to date it is not clear what if any banks have relied on the guidance and taken on legal marijuana companies as
clients. The aforementioned policy may be administration dependent and a change in presidential administrations may cause a policy
reversal and retraction of current policies, wherein legal marijuana businesses may not have access to the banking industry. We
could be subject to sanctions if we are found to be a financial institution and not in harmony with FinCET guidelines. Also, the
inability of potential clients in our target market to open accounts and otherwise use the service of banks may make it difficult
for them to contract with us.
Because
there may be restrictions on the transfer and further encumbrance of our properties, there may be negative consequences that will
affect our financial condition.
The
terms of our drawdown agreement allow properties that we acquire to be collateral to secure the loans we receive. We may be prohibited
from transferring or further encumbering the properties or any interest in our properties except with a lender’s prior consent.
The loans may provide that upon violation of these restrictions, a lender may declare the entire amount of the loan to be immediately
due and payable. If we are unable to obtain replacement financing or otherwise fail to immediately repay the loans in full, the
lender may invoke its remedies under the loan, including proceeding with a foreclosure sale that could result in our losing our
entire interest in the properties subject to the loans.
Because
we are liable for hazardous substances on our properties, environmental liabilities are possible and can be costly.
Federal,
state and local laws impose liability on a landowner for releases or the otherwise improper presence on the premises of hazardous
substances. This liability is without regard to fault for, or knowledge of, the presence of such substances. A landowner may be
held liable for hazardous materials brought onto a property before it acquired title and for hazardous materials that are not
discovered until after it sells the property. Similar liability may occur under applicable state law. Sellers of properties may
make only limited representations as to the absence of hazardous substances. If any hazardous materials are found within our properties
in violation of law at any time, we may be liable for all cleanup costs, fines, penalties and other costs. This potential liability
will continue after we sell the properties and may apply to hazardous materials present within the properties before we acquire
the properties. If losses arise from hazardous substance contamination which cannot be recovered from a responsible party, the
financial viability of the properties may be adversely affected. It is possible that we will purchase properties with known or
unknown environmental problems which may require material expenditures for remediation.
Because
we may not be adequately insured, we could experience significant liability for uninsured events.
While
we intend to carry comprehensive insurance on our properties, including fire, liability and extended coverage insurance, there
are certain risks that may be uninsurable or not insurable on terms that management believes to be economical. For example, management
may not obtain insurance against floods, terrorism, mold-related claims, or earthquake insurance. If such an event occurs to,
or causes the damage or destruction of, a property, we could suffer financial losses.
If
we are found non-compliance with the Americans with Disabilities Act, we will be subject to significant liabilities.
If
any of our properties are not in compliance with the Americans with Disabilities Act of 1990, as amended (the “ADA”),
we may be required to pay for any required improvements. Under the ADA, public accommodations must meet certain federal requirements
related to access and use by disabled persons. The ADA requirements could require significant expenditures and could result in
the imposition of fines or an award of damages to private litigants. We cannot assure that ADA violations do not or will not exist
at any of our properties.
If
we are unable to manage growth, our operations could be adversely affected.
Our
progress is expected to require the full utilization of our management, financial and other resources. Our ability to manage growth
effectively will depend on our ability to improve and expand operations, including our financial and management information systems,
and to recruit, train and manage personnel. There can be no absolute assurance that management will be able to manage growth effectively.
If
we do not properly manage the growth of our business, we may experience significant strains on our management and operations and
disruptions in our business. Various risks arise when companies and industries grow quickly. If our business or industry grows
too quickly, our ability to conduct business in a timely and efficient manner could be challenged. We may also experience delays
in the turnover of properties and with activities on the cannabis side of our business.. Our failure to properly manage the growth
that we or our industry might experience could negatively impact our ability to execute on our operating plan and, accordingly,
could have an adverse impact on our business, our cash flow and results of operations, and our reputation with our current or
potential customers.
Because
our majority shareholder owns an aggregate of 94% of our outstanding common stock, investors may find that corporate decisions
influenced by this shareholder are inconsistent with the best interests of other shareholders.
Miramar
Investors Inc., our majority shareholder, owns approximately 94% of the outstanding shares of our common stock. Accordingly, it
will have an overwhelming influence in determining the outcome of all corporate transactions or other matters, including mergers,
consolidations and the sale of all or substantially all of our assets, and also the power to prevent or cause a change in control.
While we have no current plans with regard to any merger, consolidation or sale of substantially all of our assets, the interests
of this shareholder may still differ from the interests of the other shareholders.
We
are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging
growth companies will make our common stock less attractive to investors.
We
are an “emerging growth company,” as defined in the Jumpstart our Business Startups Act of 2012, and we may take advantage
of certain exemptions from various reporting requirements that are applicable to other public companies, including, but not limited
to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure
obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements
of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not
previously approved. We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions.
If some investors find our common stock less attractive as a result, there may be a less active trading market for our common
stock and our stock price may be more volatile.
Under
the Jumpstart Our Business Startups Act, “emerging growth companies” can delay adopting new or revised accounting
standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves to
this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting
standards as other public companies that are not “emerging growth companies.”
Because
we are subject to additional regulatory compliance matters as a result of being a public company, which compliance includes Section
404 of the Sarbanes-Oxley Act of 2002, and our management has limited experience managing a public company, the failure to comply
with these regulatory matters could harm our business.
Our
management and outside professionals will need to devote a substantial amount of time to new compliance initiatives and to meeting
the obligations that are associated with being a public company. Llorn Kylo, our Chief Executive Officer and Director, has little
experience running a public company. For now, he will rely heavily on legal counsel and accounting professionals to help with
our future SEC reporting requirements. This will likely divert needed capital resources away from the objectives of implementing
our business plan. These expenses could be more costly that we are able to bear and could result in us not being able to successfully
implement our business plan.
We
expect rules and regulations such as the Sarbanes-Oxley Act of 2002 will increase our legal and finance compliance costs and make
some activities more time-consuming than in the past. We may need to hire a number of additional employees with public accounting
and disclosure experience in order to meet our ongoing obligations as a public company.
As
a smaller reporting company, our management will be required to provide a report on the effectiveness of our internal controls
over financial reporting, but will not be required to provide an auditor’s attestation regarding such report. Section 404
compliance efforts may divert internal resources and will take a significant amount of time and effort to complete. We may not
be able to successfully complete the procedures and certification of Section 404 by the time we will be required to do so. If
we fail to do so, or if in the future our management determines that our internal controls over financial reporting are not effective,
we could be subject to sanctions or investigations by the SEC or other regulatory authorities. Furthermore, investor perceptions
of our company may suffer, and this could cause a decline in the market price of our stock. Furthermore, whether or not we comply
with Section 404, any failure of our internal controls could have a material adverse effect on our stated results of operations
and harm our reputation. If we are unable to implement necessary procedures or changes effectively or efficiently,
it could harm our operations, financial reporting or financial results.
We
rely on key members of management, the loss of whose services could adversely affect our success and development.
Our
success depends to a certain degree upon certain key members of the management. These individuals are a significant factor in
our growth and ability to meet our business objectives. In particular, our success is highly dependent upon the efforts of Llorn
Kylo, our Chief Executive Officer and Director, and Munjit Johal, our Chief Financial Officer, the loss of either could slow the
growth of our business, or it may cease to operate at all, which may result in the total loss of an investor's investment.
Because
our Certificate of Incorporation and Bylaws and Delaware law limit the liability of our officers, directors, and others, shareholders
may have no recourse for acts performed in good faith.
Under
our Certificate of Incorporation, Bylaws, and Delaware law, each of our officers, directors, employees, attorneys, accountants
and agents are not liable to us or the shareholders for any acts they perform in good faith, or for any non-action or failure
to act, except for acts of fraud, willful misconduct or gross negligence. Our articles and bylaws provide that we will indemnify
each of our officers, directors, employees, attorneys, accountants and agents from any claim, loss, cost, damage liability and
expense by reason of any act undertaken or omitted to be undertaken by them, unless the act performed or omitted to be performed
constitutes fraud, willful misconduct or gross negligence.
New
legislation, including the Sarbanes-Oxley Act of 2002, may make it more difficult for us to retain or attract officers and directors.
The
Sarbanes-Oxley Act of 2002 was enacted in response to public concerns regarding corporate accountability in connection with recent
accounting scandals. The stated goals of the Sarbanes-Oxley Act are to increase corporate responsibility, to provide for enhanced
penalties for accounting and auditing improprieties at publicly traded companies, and to protect investors by improving the accuracy
and reliability of corporate disclosures pursuant to the securities laws. The Sarbanes-Oxley Act generally applies to all companies
that file or are required to file periodic reports with the SEC, under the Securities Exchange Act of 1934.
The
enactment of the Sarbanes-Oxley Act of 2002 has resulted in a series of rules and regulations by the SEC that increase responsibilities
and liabilities of directors and executive officers. The perceived increased personal risk associated with these recent changes
may deter qualified individuals from accepting these roles. As a result, it may be more difficult for us to attract and retain
qualified persons to serve on our board of directors or as executive officers. We continue to evaluate and monitor developments
with respect to these rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such
costs.
Our
common stock is currently deemed a "penny stock," which makes it more difficult for our investors to sell their shares.
Our
common stock is subject to the "penny stock" rules adopted under Section 15(g) of the Exchange Act. The penny stock
rules generally apply to companies whose common stock is not listed on the Nasdaq Stock Market or other national securities exchange
and trades at less than $4.00 per share, other than companies that have had average revenue of at least $6,000,000 for the last
three years or that have tangible net worth (i.e., total assets less intangible assets and liabilities) of at least $5,000,000
($2,000,000 if the company has been operating for three or more years). These rules require, among other things, that brokers
who trade penny stock to persons other than "established customers" complete certain documentation, make suitability
inquiries of investors and provide investors with certain information concerning trading in the security, including a risk disclosure
document and quote information under certain circumstances. Many brokers have decided not to trade penny stocks because of the
requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities
is limited. If we remain subject to the penny stock rules for any significant period, it could have an adverse effect on the market,
if any, for our common stock. If our common stock is subject to the penny stock rules, investors will find it more difficult to
dispose of our common stock.
Volatility
in our common stock price may subject us to securities litigation.
The
market for our common stock is characterized by significant price volatility when compared to seasoned issuers, and we expect
that our share price will continue to be more volatile than a seasoned issuer for the indefinite future. In the past, plaintiffs
have often initiated securities class action litigation against a company following periods of volatility in the market price
of its securities. We may, in the future, be the target of similar litigation. Securities litigation could result in substantial
costs and liabilities to us and could divert our management's attention and resources from managing our operations and business.
We
have never paid dividends on our common stock and we do not expect to pay any cash dividends in the foreseeable future.
We
have never paid dividends on our common stock and we intend to retain our future earnings, if any, in order to reinvest in the
development and growth of our business and, therefore, do not intend to pay dividends on our common stock for the foreseeable
future. Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our financial
condition, results of operations, capital requirements, and such other factors as our board of directors deems relevant. Accordingly,
investors may need to sell their shares of our common stock to realize a return on their investment, and they may not be able
to sell such shares at or above the price paid for them.
Our
board could issue "blank check" preferred stock without stockholder approval with the effect of diluting existing stockholders
and impairing their voting rights, and provisions in our charter documents could discourage a takeover that stockholders may consider
favorable.
Our
certificate of incorporation authorize the issuance of up to 20,000,000 shares of "blank check" preferred stock with
designations, rights and preferences as may be determined from time to time by our board of directors. Our board is empowered,
without stockholder approval, to issue a series of preferred stock with dividend, liquidation, conversion, voting or other rights
which could dilute the interest of, or impair the voting power of, our common stockholders. The issuance of a series of preferred
stock could be used as a method of discouraging, delaying or preventing a change in control. For example, our board of directors
issued preferred stock with super voting rights. This action could impede the success of any attempt to effect a change in control
of our company.
Because
there is no established market four our stock and our common stock is not listed on a stock exchange, stockholders may not be
able to resell their shares at or above the price paid for them.
There
is not established market for our common stock. Our common stock trades on the OTC market under ticker symbol CANA. Stocks which
trade on the OTC markets tend to be illiquid and volatile and could be subject to significant fluctuations due to changes in sentiment
in the market regarding our operations or business prospects, among other factors. Further, our common stock is not listed on
a stock exchange, nor do we currently intend to list the common stock on a stock exchange. There are no assurances that an active
public market for our common stock will develop. Therefore, stockholders may not be able to sell their shares at or above the
price they paid for them.
Among
the factors that could affect our stock price are:
| § | industry
trends and the business success of our vendors; |
| § | actual
or anticipated fluctuations in our quarterly financial and operating results and operating
results that vary from the expectations of our management or of securities analysts and
investors; |
| § | our
failure to meet the expectations of the investment community and changes in investment
community recommendations or estimates of our future operating results; |
| § | announcements
of strategic developments, acquisitions, dispositions, financings, product developments
and other materials events by us or our competitors; |
| § | regulatory
and legislative developments; |
| § | general
market conditions; |
| § | other
domestic and international macroeconomic factors unrelated to our performance; and |
| § | additions
or departures of key personnel. |
Requirements
associated with being a reporting public company will require significant company resources and management attention.
We
are a voluntary filer under the Securities Exchange Act of 1934, as a result of having filed a Registration Statement on Form
S-1, pursuant to section 15(d) of the Securities Exchange Act of 1934. As a voluntary filer we intend to continue to file periodic
reports to maintain current information with the SEC on Forms 10-Q, 10-K and 8-K as prescribed by the rules and Regulations of
the Securities Exchange Act of 1934. We work with independent legal, accounting and financial advisors to ensure adequate disclosure
and control systems to manage our growth and our obligations as a company that files reports with the SEC. These areas include
corporate governance, internal control, internal audit, disclosure controls and procedures and financial reporting and accounting
systems. However, we cannot assure you that these and other measures we may take will be sufficient to allow us to satisfy our
obligations as an SEC reporting company on a timely basis.
In
addition, compliance with reporting and other requirements applicable to SEC reporting companies will create additional costs
for us. It will require the time and attention of management and will require the hiring of additional personnel and legal, audit
and other professionals. We cannot predict or estimate the amount of the additional costs we may incur, the timing of such costs
or the impact that our management's attention to these matters will have on our business.
Item 2. Properties
Our
principal executive offices are located at 7702 E Doubletree Ranch Rd. Ste 300 Scottsdale, AZ 85258. Effective April 1, 2014,
we entered into a one year lease at $1,925 per month.
A description
of our properties is contained in Item 1. Business of this annual report on Form 10-K.
Item 3. Legal
Proceedings
We are not a party to any pending
legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial
holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.
Item 4. Mine Safety Disclosures
N/A
PART II
Item 5. Market
for Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock
is quoted under the symbol “CANA” on the OTCQB operated by OTC Markets Group, Inc. Only a limited market exists
for our securities. There is no assurance that a regular trading market will develop, or if developed, that it will be sustained.
Therefore, a shareholder may be unable to resell his securities in our company.
The following
tables set forth the range of high and low prices for our common stock for the each of the periods indicated as reported by the
OTCQB. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent
actual transactions.
| Fiscal Year Ending
December 31, 2014 |
| Quarter Ended |
|
High $ |
|
Low $ |
| December 31, 2014 |
|
0.26 |
|
0.13 |
| September 30, 2014 |
|
0.39 |
|
0.20 |
| June 30, 2014 |
|
1.06 |
|
0.29 |
| March 31, 2014 |
|
12.00 |
|
0.20 |
Fiscal
Year Ending December 31, 2013 |
| Quarter Ended |
|
High $ |
|
Low $ |
| December 31, 2013 |
|
1.65 |
|
0.91 |
| September 30, 2013 |
|
1.80 |
|
0.88 |
| June 30, 2013 |
|
1.91 |
|
1.12 |
| March 31, 2013 |
|
1.42 |
|
0.96 |
On April 2,
2015, the last sales price per share of our common stock was $0.26.
Penny Stock
The SEC has
adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally
equity securities with a market price of less than $5.00, other than securities registered on certain national securities exchanges
or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities
is provided by the exchange or system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock,
to deliver a standardized risk disclosure document prepared by the SEC, that: (a) contains a description of the nature and level
of risk in the market for penny stocks in both public offerings and secondary trading; (b) contains a description of the broker's
or dealer's duties to the customer and of the rights and remedies available to the customer with respect to a violation of such
duties or other requirements of the securities laws; (c) contains a brief, clear, narrative description of a dealer market, including
bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; (d) contains a toll-free
telephone number for inquiries on disciplinary actions; (e) defines significant terms in the disclosure document or in the conduct
of trading in penny stocks; and (f) contains such other information and is in such form, including language, type size and format,
as the SEC shall require by rule or regulation.
The broker-dealer
also must provide, prior to effecting any transaction in a penny stock, the customer with (a) bid and offer quotations for the
penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which
such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock;
and (d) a monthly account statement showing the market value of each penny stock held in the customer's account.
In addition,
the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer
must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's
written acknowledgment of the receipt of a risk disclosure statement, a written agreement as to transactions involving penny stocks,
and a signed and dated copy of a written suitability statement.
These disclosure
requirements may have the effect of reducing the trading activity for our common stock. Therefore, stockholders may have difficulty
selling our securities.
Holders of
Our Common Stock
As of February
27, 2015, we had 156,000,000 shares of our common stock issued and outstanding, held by eleven (11) shareholders of record, with
others holding shares in street name.
Dividends
There are no
restrictions in our articles of incorporation or bylaws that prevent us from declaring dividends. The Nevada Revised Statutes,
however, do prohibit us from declaring dividends where after giving effect to the distribution of the dividend:
1.
we would not be able to pay our debts as they become due in the usual course of business, or;
2.
our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights
of shareholders who have preferential rights superior to those receiving the distribution.
We have not
declared any dividends and we do not plan to declare any dividends in the foreseeable future.
Recent Sales
of Unregistered Securities
On
January 16, 2014, we issued a total of two million (2,000,000) shares of our newly designated Series A Preferred Stock to Miramar
Investors Inc. for agreed upon consideration of $20,000. As the proceeds of the share issuance had not been received as of December
31, 2014, the amount has been recorded as share subscription receivable.
Under
the Certificate of Designation, holders of Series A Preferred Stock will participate on an equal basis per-share with holders
of our common stock in any distribution upon winding up, dissolution, or liquidation. Holders of Series A Preferred Stock are
entitled to vote together with the holders of our common stock on all matters submitted to shareholders at a rate of two hundred
(200) votes for each share held.
On
January 16, 2014, we issued our officer and director, Llorn Kylo, two million (2,000,000) shares of our common stock for total
proceeds of $2,000.
These
securities were issued pursuant to Section 4(2) of the Securities Act and/or Rule 506 promulgated thereunder. The holders represented
their intention to acquire the securities for investment only and not with a view towards distribution. The investors were given
adequate information about us to make an informed investment decision. We did not engage in any general solicitation or advertising.
We directed our transfer agent to issue the stock certificates with the appropriate restrictive legend affixed to the restricted
stock.
Securities
Authorized for Issuance under Equity Compensation Plans
We do not have
any equity compensation plans.
Item
6. Selected Financial Data
A smaller reporting
company is not required to provide the information required by this Item.
Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking
Statements
Certain statements,
other than purely historical information, including estimates, projections, statements relating to our business plans, objectives,
and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements”
within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,”
“project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,”
“plan,” “may,” “will,” “would,” “will be,” “will continue,”
“will likely result,” and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor
provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including
this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations
and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking
statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors
which could have a material adverse affect on our operations and future prospects on a consolidated basis include, but are not
limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition,
and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly
any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning
our business, including additional factors that could materially affect our financial results, is included herein and in our other
filings with the SEC.
Revenues
We generated
revenues of $10,725,752 for the year ended December 31, 2014 consisting primarily of property sales in the amount of $10,645,457,
as compared with no revenues for the same period ended December 31, 2013. Our cost of sales totaled $9,925,988 for the year ended
December 31, 2014. Our costs of sales includes: purchase price, rental expenses, rehabilitation, escrow, closing costs, and commissions.
We achieved a gross profit of $799,764 for the year ended December 31, 2014, which represented a 7.5% margin.
Operating
Expenses
Operating
expenses increased by $340,473 to $506,816 for the year ended December 31, 2014 from $166,343 for the year ended December 31,
2013. Our operating expenses for the year ended December 31, 2014 mainly consisted of general and administrative expenses of $172,034,
management fees and expenses of $136,168, marketing and public relations costs of $79,389 and professional fees of $99,306. In
comparison, our operating expenses for the year ended December 31, 2013 mainly consisted of professional fees in the amount of
$69,919, management fees and expenses of $59,250 and general and administrative expenses of $25,094.
We
anticipate our operating expenses will increase as we continue to expand our operations. The increase will be attributable to
administrative and operating costs associated with the management associated with the increase in the acquisition, renovation
and sale of residential properties and our continued reporting obligations with the Securities and Exchange Commission.
Interest
Expenses
We incurred
interest expenses of $789,682 for the year ended December 31, 2014, as compared with $89,271 for the year ended December 31, 2013.
Also, in 2014, we realized a gain on the settlement of a loan of $70,878. We do not expect the reoccurrence of this income in
2015.
We do, however,
expect that interest expenses will increase as we plan to take on more debt to finance our property acquisitions resulting in
higher interest expenses.
Net Loss
We incurred
a net loss of $426,649 for the year ended December 31, 2014, compared to a net loss of $255,614 for the year ended December 31,
2013.
Liquidity
and Capital Resources
As
of December 31, 2014, we had total assets of $16,622,526 consisting mostly of cash and our real property inventory. We had current
liabilities of $17,357,116 as of December 31, 2014.
Operating
activities used $7,747,061 in cash for the year ended December 31, 2014, as compared with $5,977,957 used for the year ended December
31, 2013. Our negative operating cash flow for December 31, 2014 was mainly a result of the increase in our real property inventory.
Investing
activities used $1,343,288 in cash for the year ended December 31, 2014, as compared with $87,849 used for the year ended December
31, 2013. Our negative investing cash flow for December 31, 2014 was mainly a result of advances to Berkshire Homes, Inc.
Financing
activities for year ended December 31, 2014 generated $8,002,000 in cash, as compared with cash flows provided by financing activities
of $8,250,000 for the year ended December 31, 2013. Our positive cash flow from financing activities for the year ended December
31, 2014 was mostly the result of our ability to raise debt financing.
To
date, we have raised $16, 250,000 through the sale of unsecured promissory notes. We continue to seek out the best financing opportunities
in order to deploy funds into business operations that we believe best suited in the cannabis industry, as well as continue to
pursue our real estate activities.
As
of December 31, 2014, we had $1,098,530 in cash. With the cash on hand, we have sufficient cash to operate our business at the
current level for the next twelve months. Our plan, however, is to acquire more properties, and to do this, we intend to fund
our expansion through debt and/or equity financing arrangements. We do not have any formal commitments or arrangements for the
sales of stock or the advancement or loan of funds at this time. There can be no assurance that such additional financing will
be available to us on acceptable terms, or at all.
Critical
Accounting Policies
In December
2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management Discussion
and Analysis. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal
of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments,
often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
Our critical
accounting policies are set forth in Note 2 to the financial statements.
Recently
Issued Accounting Pronouncements
We do not expect
the adoption of recently issued accounting pronouncements to have a significant impact on our results of operations, financial
position or cash flow.
Off Balance
Sheet Arrangements
As of December
31, 2014, there were no off balance sheet arrangements.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
A smaller reporting
company is not required to provide the information required by this Item.
Item 8. Financial
Statements and Supplementary Data
Index to Financial
Statements Required by Article 8 of Regulation S-X:
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Cannabis-RX Inc.
Scottsale, Arizona
We have audited the accompanying balance sheet of Cannabis-RX
Inc. and its subsidiary (collectively, the“Company”) as of December 31, 2014 and 2013, and the related consolidated
statement of operations, stockholders’ deficit, and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards
of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required
to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration
of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of Cannabis-RX Inc. and its subsidiary as of December 31, 2014
and 2013, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles
generally accepted in the United States of America.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note 4 to the financial statements, The Company has
suffered recurring loss from operations and has a working capital deficit. These factors raise substantial doubt about the Company’s
ability to continue as a going concern. Management’s plans in regard to this matter also are described in Note 4. The financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ MaloneBailey, LLP
www.malonebailey.com
Houston, Texas
July 22, 2015
CANNABIS-RX INC.
CONSOLIDATED BALANCE SHEETS
| |
December 31, 2014 | |
December 31, 2013 |
| ASSETS |
| | | |
| | |
| Real Estate Inventory |
| | | |
| | |
| Properties held for sale |
$ | 7,335,148 | | |
$ | 5,800,091 | |
| Properties under development |
| 6,741,130 | | |
| | |
| Real Estate Inventory |
| 14,076,278 | | |
| 5,800,091 | |
| Properties held for investment |
| | | |
| | |
| Buildings, net |
| 672,465 | | |
| — | |
| Land |
| 593,285 | | |
| — | |
| Properties held for investment, net |
| 1,265,750 | | |
| — | |
| Cash |
| 1,098,530 | | |
| 2,186,879 | |
| Due from Berkshire Homes, Inc. – related party |
| 156,968 | | |
| 87,849 | |
| Prepaid
Expense |
| 25,000 | | |
| — | |
| TOTAL ASSETS |
$ | 16,622,526 | | |
$ | 8,074,819 | |
| |
| | | |
| | |
| LIABILITIES AND STOCKHOLDERS' DEFICIT |
| | | |
| | |
| Accounts payable to related parties |
$ | 10,420 | | |
$ | 10,420 | |
| Accounts payable and accrued expenses |
| 72,991 | | |
| 35,868 | |
| Accrued interest |
| 884,705 | | |
| 88,472 | |
| Security deposit |
| 39,000 | | |
| — | |
| Option to purchase deposit |
| 100,000 | | |
| — | |
| Promissory notes |
| 16,250,000 | | |
| 8,250,000 | |
| Total Liabilities |
| 17,357,116 | | |
| 8,384,760 | |
| |
| | | |
| | |
| Stockholders’ Deficit |
| | | |
| | |
| Preferred stock, par value $0.0001, 50,000,000 authorized and 2,000,000 and 0 shares issued and outstanding on December 31, 2014 and December 31, 2013, respectively |
| 200 | | |
| — | |
| Common stock, par value $0.0001, 1,500,000,000 shares authorized 156,000,000 and 154,000,000 shares issued and outstanding on December 31, 2014 and December 31, 2013, respectively |
| 15,600 | | |
| 15,400 | |
| Additional paid-in capital |
| 65,000 | | |
| 43,400 | |
| Share subscriptions receivable |
| (20,000 | ) | |
| — | |
| Accumulated Deficit |
| (795,390 | ) | |
| (368,741 | ) |
| Total Stockholders' Deficit |
| (734,590 | ) | |
| (309,941 | ) |
| TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT |
| 16,622,526 | | |
| 8,074,819 | |
The accompanying notes are an integral
part of these consolidated financial statements.
CANNABIS-RX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
| |
Year ended
December 31, 2014 | |
Year ended
December 31, 2013 |
| |
| |
|
| REVENUES |
$ | 10,645,457 | | |
$ | — | |
| OTHER |
| 25,045 | | |
| | |
| RENTAL INCOME |
| 55,250 | | |
| — | |
| TOTAL REVENUES |
| 10,725,752 | | |
| | |
| |
| | | |
| | |
| COST OF SALES |
| 9,925,988 | | |
| — | |
| |
| | | |
| | |
| GROSS PROFIT |
| 799,764 | | |
| — | |
| |
| | | |
| | |
| EXPENSES |
| | | |
| | |
| Depreciation |
| 8,419 | | |
| — | |
| Consulting fees |
| 11,500 | | |
| 12,080 | |
| General and administrative |
| 172,034 | | |
| 25,094 | |
| Marketing and public relations |
| 79,389 | | |
| — | |
| Professional fees |
| 99,306 | | |
| 69,919 | |
| Management fees and expenses |
| 136,168 | | |
| 59,250 | |
| TOTAL EXPENSES |
| 506,816 | | |
| 166,343 | |
| |
| | | |
| | |
| INCOME FROM OPERATIONS |
| 292,948 | | |
| (166,343 | ) |
| |
| | | |
| | |
| OTHER INCOME (EXPENSE) |
| | | |
| | |
| Interest expense |
| (789,682 | ) | |
| (89,271 | ) |
| Gain on settlement of loan receivable |
| 70,878 | | |
| — | |
| Property rental expense |
| (793 | ) | |
| — | |
TOTAL OTHER INCOME ( EXPENSE) |
| (719,597 | ) | |
| (89,271 | ) |
| |
| | | |
| | |
| NET LOSS |
$ | (426,649 | ) | |
$ | (255,614 | ) |
| |
| | | |
| | |
| NET LOSS PER SHARE: BASIC AND DILUTED |
$ | (0.00 | ) | |
$ | (0.00 | ) |
| |
| | | |
| | |
| WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: BASIC AND DILUTED |
| 155,856,154 | | |
| 185,291,233 | |
The
accompanying notes are an integral part of these consolidated financial statements.
CANNABIS-RX ,
INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’
EQUITY (DEFICIT)
| |
Preferred Stock | |
Subscription | |
Common Stock | |
Additional
Paid-in | |
Deficit | |
|
| |
Shares | |
Amount | |
Receivable | |
Shares | |
Amount | |
Capital | |
Accumulated | |
Total |
| Balance at inception |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| | | |
| — | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Common stock issued cash |
| — | | |
| — | | |
| — | | |
| 157,300,000 | | |
| 15,730 | | |
| (1,430 | ) | |
| — | | |
| 14,300 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net loss |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (3,737 | ) | |
| (3,737 | ) |
| Balance as of December 31, 2011 |
| — | | |
| — | | |
| — | | |
| 157,300,000 | | |
| 15,730 | | |
| (1,430 | ) | |
| (,3737 | ) | |
| 10,563 | |
| Common stock issued cash |
| — | | |
| — | | |
| — | | |
| 29,700,000 | | |
| 2,970 | | |
| 41,530 | | |
| — | | |
| 44,500 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net loss |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (109,390 | ) | |
| (109,390 | ) |
| Balance as of December 31, 2012 |
| — | | |
| — | | |
| — | | |
| 187,000,000 | | |
| 18,700 | | |
| 40,100 | | |
| (113,127 | ) | |
| (54,327 | ) |
| Common stock cancelled |
| — | | |
| — | | |
| — | | |
| (33,000,000 | ) | |
| (3,300 | ) | |
| 3,300 | | |
| — | | |
| — | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Net loss |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (255,614 | ) | |
| (255,614 | ) |
| Balance as of December 31, 2013 |
| — | | |
| — | | |
| — | | |
| 154,000,000 | | |
| 15,400 | | |
| 43,400 | | |
| (368,741 | ) | |
| (309,941 | ) |
| Common stock issued for cash |
| — | | |
| — | | |
| — | | |
| 2,000,000 | | |
| 200 | | |
| 1,800 | | |
| — | | |
| 2,000 | |
| Preferred shares issued |
| 2,000,000 | | |
| 200 | | |
| (20,000 | ) | |
| | | |
| | | |
| 19,800 | | |
| — | | |
| — | |
| Net loss |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (426,649 | ) | |
| (426,649 | ) |
| Balance as of December 31, 2014 |
| 2,000,000 | | |
| 200 | | |
| (20,000 | ) | |
| 156,000,000 | | |
| 15,600 | | |
| 65,000 | | |
| (795,390 | ) | |
| (734,590 | ) |
The accompanying notes are an integral
part of these consolidated financial statements.
CANNABIS-RX,
INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| |
Year ended
December 31,
2014 | |
Year
ended
December 31, 2013 |
| |
| |
|
| CASH FLOWS FROM OPERATING ACTIVITIES |
| | | |
| | |
| Net loss |
$ | (426,649 | ) | |
$ | (255,614 | ) |
| Adjustments to reconcile net loss
to net cash used in operating activities |
| | | |
| | |
| Depreciation |
| 8,419 | | |
| — | |
| Changes in assets and liabilities |
| | | |
| | |
| Properties |
| (8,276,187 | ) | |
| (5,800,091 | ) |
| Accounts payable - related party |
| — | | |
| (20,002 | ) |
| Accounts payable and accrued expenses |
| 833,356 | | |
| 97,750 | |
| Option to purchase deposit |
| 100,000 | | |
| — | |
| Prepaid expense |
| (25,000 | ) | |
| — | |
| Security deposit |
| 39,000 | | |
| — | |
| Net cash used in operating activities |
| (7,747,061 | ) | |
| (5,977,957 | ) |
| |
| | | |
| | |
| CASH FLOWS FROM INVESTING ACTIVITIES |
| | | |
| | |
| Advances to Berkshire Homes, Inc. |
| (69,119 | ) | |
| (87,849 | ) |
| Purchase of property held for investment |
| (1,274,169 | ) | |
| — | |
| Net cash used in investing activities |
| (1,343,288 | ) | |
| (87,849 | ) |
| |
| | | |
| | |
| CASH FLOWS FROM FINANCING ACTIVITIES |
| | | |
| | |
| Proceeds from sale of stock |
| 2,000 | | |
| — | |
| Proceeds from promissory notes |
| 8,000,000 | | |
| 8,250,000 | |
| Net cash provided by financing activities |
| 8,002,000 | | |
| 8,250,000 | |
| |
| | | |
| | |
| NET CHANGE IN CASH |
| (1,088,349 | ) | |
| 2,184,194 | |
| CASH - BEGINNING OF PERIOD |
| 2,186,879 | | |
| 2,685 | |
| CASH - END OF PERIOD |
$ | 1,098,530 | | |
$ | 2,186,879 | |
| |
| | | |
| | |
| SUPPLEMENTAL CASH FLOW INFORMATION: |
| | | |
| | |
| Cash paid for interest |
$ | — | | |
$ | — | |
| Cash paid for taxes |
$ | — | | |
$ | — | |
| |
| | | |
| | |
| NON-CASH TRANSACTIONS: |
| | | |
| | |
| Subscription receivable |
$ | 20,000 | | |
$ | — | |
| Cancellation of common stocks |
$ | — | | |
$ | 3,300 | |
The accompanying notes are an integral
part of these consolidated financial statements.
CANNABIS-RX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS AND
CONTINUANCE OF BUSINESS
Organization and Description of Business
Cannabis-RX Inc. (the “Company”)
was incorporated in Delaware on July 5, 2011. The business plan of the Company was to create a marketing and promotion platform
for a stretch and fitness apparatus. On July 3, 2013, the Company changed its business to acquiring, improving and selling real
property, and changed its name from L3 Corp. to Longview Real Estate, Inc. On January 30, 2014, the Company changed its name to
Cannabis-Rx Inc. with the Company’s real estate business expanding to include the regulated cannabis industry by purchasing
and selling real estate assets and leasing space and related facilities to licensed marijuana growers and dispensary owners for
their operations. In addition, the Company plans to expand its business to provide financing and consulting services to the cannabis
industry in addition to commercial real estate solutions.
NOTE
2- SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements have been prepared
in accordance with accounting principles generally accepted in the United States of America. Certain prior period amounts have
been reclassified to conform to current period presentation.
Principles of Consolidation
The consolidated financial statements
include the financial information of Cannabis-RX, Inc. and its wholly owned subsidiary, Praetorian Capital, LLC. All significant
inter-company accounts and transactions have been eliminated.
Use of Estimates
The preparation of financial statements
in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date the financial statements
and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The Company’s financial instruments
consist of cash and cash equivalents, prepaid expenses, accounts payable, and accrued expenses, and due to related parties. The
carrying amount of these financial instruments approximates fair value due to either length of maturity or interest rates that
approximate prevailing market rates unless otherwise disclosed in these financial statements.
Cash and Cash Equivalents
The Company considers all highly liquid
investments with maturities of three months or less to be cash equivalents. At December 31, 2014, the Company had $1,098,530 (2013
- $2,186,879) of unrestricted cash to be used for future business operations.
The Company maintains its cash in bank
deposit accounts, the balances of which at times may exceed federally insured limits. The Company continually monitors its banking
relationships and consequently has not experienced any losses in such accounts. The Company believes it is not exposed to any significant
credit risk on cash and cash equivalents.
Stock-Based Compensation
The Company accounts for employee stock-based
compensation in accordance with the guidance of FASB ASC Topic 718, Compensation – Stock Compensation which requires
all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements
based on their fair values.
Income Taxes
Income taxes are computed using the
asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based
on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently
enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence,
are not expected to be realized. It is the Company’s policy to classify interest and penalties on income taxes as interest
expense or penalties expense. As of December 31, 2014, there have been no interest or penalties incurred on income taxes.
Capital assets
Properties held for rental are recorded
at cost and depreciated over their estimated useful lives on a straight line basis over a 39 year period.
Revenue Recognition
The Company recognizes revenues from
property sales on the date when all terms and conditions have been completed and payment has been received, and title has been
transferred to the purchaser.
Rental revenue, net of any concessions,
is recognized on a straight-line basis over the term of the lease, which is not materially different than if it were recorded when
due from tenants and recognized monthly as it is earned.
Basic Income (Loss) Per Share
Basic income (loss) per share is calculated
by dividing the Company’s net loss applicable to common shareholders by the weighted average number of common shares during
the period. Diluted earnings per share is calculated by dividing the Company’s net income available to common shareholders
by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding
is the basic weighted number of shares adjusted for any potentially dilutive debt or equity.
Properties
Transactions in which properties for
resale are purchased that are not subject to an existing lease are treated as asset acquisitions and, as such, are recorded at
their purchase price, including acquisition fees. Inventory of property held for restoration and resale are valued at the lower
of cost and net realizable value. Properties that are acquired either subject to an existing lease or as part of a portfolio level
transaction are treated as a business combination under ASC 805, Business Combinations, and, as such, are recorded at fair
value, allocated to land, building and the existing lease, if applicable, based upon their relative fair values at the date of
acquisition, with acquisition fees and other costs expensed as incurred. Fair value is determined in accordance with ASC 820, Fair
Value Measurements and Disclosures, primarily based on unobservable data inputs. In making estimates of fair values for purposes
of allocating the purchase price of individually acquired properties subject to an existing lease, the Company utilizes its own
market knowledge and published market data. In this regard, the Company also utilizes information obtained from county tax assessment
records to assist in the determination of the fair value of the land and building
The value of acquired lease-related
intangibles is estimated based upon the costs we would have incurred to lease the property under similar terms. Such costs are
capitalized and amortized over the remaining life of the lease. Acquired leases are generally short-term in nature (less than one
year).
Properties held for sale
Properties are classified as held for
sale when they meet the applicable GAAP criteria, including, but not limited to, the availability of the home for immediate sale
in its present condition, the existence of an active program to locate a buyer and the probable sale of the home within one year.
Properties classified as held for sale are reported at the lower of their carrying value or estimated fair value less costs to
sell, and are presented separately in properties held for sale within the consolidated balance sheets.
Leasing Costs
Direct and incremental costs incurred
to lease properties are capitalized and amortized over the term of the leases, which generally have a term of one year.
Recent Accounting Pronouncements
The Company does not expect the adoption
of recently issued accounting pronouncements to have a significant impact on the Company’s results of operations, financial
position or cash flows.
NOTE 3 – RENT REVENUES
The rental property is rented under
a non-cancelable lease agreements with a term of five years with two options for additional five year periods. Future minimum rental
revenues under leases existing on the properties as of December 31, 2014 were as follows:
| 2018 | 195,382 |
| | Total | 1,086,012 |
The lease is triple net. The tenants
have an option to purchase the property and have deposited $100,000.
NOTE 4 – GOING CONCERN
These consolidated financial statements
have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities
in the normal course of business for the foreseeable future. The Company has incurred losses since inception resulting in an accumulated
deficit of $795,390 as of December 31, 2014. Further losses are anticipated in the development of its business raising substantial
doubt about the Company’s ability to continue as a going concern. The ability to continue as a going concern is dependent
upon the Company generating profitable operations in the future and/or to obtain the necessary financing to meet its obligations
and repay its liabilities arising from normal business operations when they come due. Management intends to finance operating costs
over the next twelve months with loans and/or private placement of common stock. These financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities
that might result from this uncertainty.
NOTE 5 – LOAN RECEIVABLE
On March 17, 2014, the Company loaned
$183,443 to a Canadian medical marijuana company in New Brunswick, Canada, licensed by Health Canada under the Marijuana for Medical
Purposes Regulation. On May 15, 2014, the Company received the proceeds on settlement of the loan in the amount of $255, 321.
The additional proceeds of $70,878 has been recorded as other income on the statement of operations.
NOTE 6 - PROMISSORY NOTES
On
February 26, 2013 the Company borrowed $150,000 under 2 notes at 18% interest per annum. The promissory notes are
unsecured and mature 24 months from their issuances.
On
September 16, 2013 the Company borrowed $4,100,000 under 2 notes at 5% interest per annum. The promissory notes are unsecured
and mature twenty-four months from their issuances.
On
December 10, 2013 the Company borrowed $4,000,000 under a notes at 5% interest per annum. The promissory note is unsecured
and mature twenty-four months from its issuance.
On
January 27, 2014 the Company issued a promissory note in the principal amount of $4,000,000 at the interest rate of 5% per annum
and due and payable twenty four months from the date of issuance, subject to acceleration in the event of default and may be prepaid
in whole or in part without penalty or premium.
On February 19, 2014 the Company issued
a promissory note in the principal amount of $4,000,000 at the interest rate of 5% per annum and due and payable twenty four months
from the date of issuance, subject to acceleration in the event of default and may be prepaid in whole or in part without penalty
or premium.
On
March 27, 2014 the Company entered into a secured lending agreement in the principal amount of $14,000,000 at the interest rate
of 5% per annum and due and payable twenty four months from the date of issuance, subject to acceleration in the event of default
and may be prepaid in whole or in part without penalty or premium. No
funds have been received from this agreement as of December 31, 2014 and the Company will not take any down any funds
in the future.
Total interest expense recorded on the
notes for the years ended December 31, 2014 and 2013 was $789,682 and $ 89,271 respectively.
NOTE 7 - EQUITY
On January 16, 2014, the Company issued
2,000,000 shares of Series A Preferred Stock to a related party for total proceeds of $20,000. As the proceeds of the share issuance
had not been received as of December 31, 2014, the amount has been recorded as share subscription receivable.
On January 16, 2014, the Company issued
2,000,000 shares of common stock to a related party for total proceeds of $2,000.
NOTE 8 - RELATED PARTY TRANSACTIONS
During the period,
the Company incurred marketing expenses of $79,389 (2013- $nil) to a company controlled by a spouse of a director. During the
period, the Company incurred management fees of $136,169 (2013 - $59,250) to directors and officers of the Company. As
of December 31, 2014, the Company had a balance of $10,420 owed to a director and officer for management fees and expenses
paid on behalf of the Company.
During 2013 and 2014, the
Company advanced $87,849 and $69,119, respectively, to Berkshire Homes, Inc., a public company with a common director and
management. As of December 31, 2014, this balance of $156,968 remained owed by this related party.
The balances owed to or by related parties
are unsecured, non-interest bearing and repayable on demand.
NOTE 9 – ACQUISITION
On June
27, 2014, the Company acquired a 100% ownership interest in a property located in Aurora, Colorado at an auction for a price of
$1,250,000 and $24,169 in closing costs and lease commissions for a total of $1,274,169. The property is a 2.72 acre parcel of
land with a 22,572 square foot building. There were no leases
when the property was acquired. However, On August 1, 2014, the property was leased with rental payments beginning October 1, 2014.
The lease is triple net, and the tenant is responsible for all tenant improvements. The monthly rent is $18,416.67 and will adjust
by 3% in years four (4) and five (5) of the lease. The lease has a term of five (5) years. The following table summarizes the preliminary
estimated fair values of the assets and liabilities acquired as part of the Aurora purchase:
| Land |
$ | 593,285 | |
| Buildings |
| 680,884 | |
| Estimated fair value of assets and liabilities acquired |
$ | 1,274,169 | |
Item 9. Changes In and Disagreements
with Accountants on Accounting and Financial Disclosure
No events occurred
requiring disclosure under Item 304 of Regulation S-K during the fiscal year ending November 30, 2014.
Item 9A.
Controls and Procedures
(a) Disclosure Controls and
Procedures
We conducted
an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended, or the Exchange Act, as of December 31, 2014, to ensure that information required to be disclosed
by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the
time periods specified in the Securities Exchange Commission’s rules and forms, including to ensure that information required
to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to our management,
including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to
allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer and Chief Financial
Officer have concluded that as of December 31, 2014, our disclosure controls and procedures were not effective at the reasonable
assurance level due to the material weaknesses identified and described in Item 9A(b).
Our principal
executive officers do not expect that our disclosure controls or internal controls will prevent all error and all fraud. Although
our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives and our principal
executive officers have determined that our disclosure controls and procedures are effective at doing so, a control system, no
matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the system
are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of
controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been
detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns
can occur because of simple error or mistake. Additionally, controls can be circumvented if there exists in an individual a desire
to do so. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
(b) Management Report on Internal
Control Over Financial Reporting
Our management
is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial
reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act, as amended, as a process designed
by, or under the supervision of, our principal executive and principal financial officer and effected by our board of directors,
management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted accounting principles in the United States
and includes those policies and procedures that:
| § | Pertain
to the maintenance of records that in reasonable detail accurately and fairly reflect
our transactions and any disposition of our assets; |
| § | Provide
reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles,
and that our receipts and expenditures are being made only in accordance with authorizations
of our management and directors; and |
| § | Provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of our assets that could have a material effect on the financial statements. |
Because of its
inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
A material weakness
is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable
possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a
timely basis. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2014.
In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control-Integrated Framework. Based on this assessment, Management identified the following
two material weaknesses that have caused management to conclude that, as of December 31, 2014, our disclosure controls and procedures,
and our internal control over financial reporting, were not effective at the reasonable assurance level:
1. We
do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls
over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act as of the year ending December 31, 2014. Management
evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of
our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.
2.
We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size
and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to
the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed
by separate individuals. Management evaluated the impact of our failure to have segregation of duties on our assessment of our
disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.
3.
Effective controls over the control environment were not maintained. Specifically, a formally adopted written code of business
conduct and ethics that governs our employees, officers, and directors was not in place. Additionally, management has not developed
and effectively communicated to employees its accounting policies and procedures. This has resulted in inconsistent practices.
Further, our Board of Directors does not currently have any independent members and no director qualifies as an audit committee
financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K. Since these entity level programs have a pervasive effect
across the organization, management has determined that these circumstances constitute a material weakness.
(c) Remediation
of Material Weaknesses
To address these
material weaknesses, management performed additional analyses and other procedures to ensure that the financial statements included
herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods
presented. Accordingly, we believe that the financial statements included in this report fairly present, in all material respects,
our financial condition, results of operations and cash flows for the periods presented.
To remediate
the material weakness in our documentation, evaluation and testing of internal controls we plan to engage a third-party firm to
assist us in remedying this material weakness once resources become available.
We intend to
remedy our material weakness with regard to insufficient segregation of duties by hiring additional employees in order to segregate
duties in a manner that establishes effective internal controls once resources become available.
This annual
report does not include an attestation report of our registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to an exemption
for non-accelerated filers set forth in Section 989G of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
(d) Changes
in Internal Control over Financial Reporting
No change in
our system of internal control over financial reporting occurred during the period covered by this report, the fiscal year ended
December 31, 2014, that has materially affected, or is reasonably likely to materially affect, our internal control over financial
reporting.
Item 9B.
Other Information
None
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
The following
table contains information with respect to our current executive officers and directors:
Name |
Age |
Principal
Positions With Us |
| Llorn Kylo |
40 |
President, Chief Executive Officer and
Director |
| Munjit Johal |
59 |
Chief Financial Officer and Treasurer |
Llorn
Kylo, 40, was the owner of Kylo Homes, which developed, owned and managed a portfolio of residential properties for sale
and rent from 2009 to June 2012. From 2002 to 2009, Mr. Kylo was the owner and Chief Executive Officer of Form 1 Land, Inc., a
real estate development company and the President and a Director of Flex Resources Co., Ltd from January 2007 to September 2008.
Mr. Kylo was chosen to be a director of the Company based on his real estate industry and construction management experience.
Mr. Kylo holds a Bachelor of Commerce Degree from Royal Roads University.
Munjit
Johal, age 59, is a director and Chief Financial Officer of Wisdom Home, Inc. (formerly SearchCore Inc.) since October
20, 2006. Additionally, Mr. Johal serves as the Controller of High Tower Capital, Inc., where he has served since January 2007.
Prior to that, Mr. Johal has served as a financial officer of various companies including Pacific Heritage Bank as Executive Vice
President. From 1981 to 1987 Mr. Johal was a Senior Analytical Manager for Officer of Thrift Supervision, Department of the Treasury
(formerly Federal Home Loan Bank Board, the 11th District). Mr. Johal oversaw a staff responsible for, among other things, monitoring
banking activities and enforcement actions for lending institutions and holding companies. Mr. Johal’s skill set at researching,
reviewing, analyzing, managing and overseeing entities from a financial prospective provides valuable direction and guidance as
it relates to our reporting procedures. Mr. Johal’s regulatory experience and other prior experience with public companies
and banks as a compliance officer, in additional to being a CFO, is beneficial to the company with respect to internal controls,
disclosures and complying with necessary regulatory requirements.
In total, Mr.
Johal has over 30 years of broad experience in banking, accounting, finance and management in the private and public sector. Mr.
Johal earned his MBA from the University of San Francisco in 1980. He received his BS degree in History from the University of
California, Los Angeles, in 1978
Term of Office
Our directors
are appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until removed from
office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the
board.
Family Relationships
There are no
family relationships between or among the directors, executive officers or persons nominated or chosen by us to become directors
or executive officers.
Involvement
in Certain Legal Proceedings
During the past
ten years, none of the following occurred with respect to a present or former director, executive officer, or employee: (1) any
bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at
the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject
to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to any order, judgment
or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily
enjoining, barring, suspending or otherwise limiting his or her involvement in any type of business, securities or banking activities;
and (4) being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodities Futures Trading Commission
to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.
Committees
of the Board
Our company
currently does not have nominating, compensation or audit committees or committees performing similar functions nor does our company
have a written nominating, compensation or audit committee charter. Our directors believe that it is not necessary to have such
committees, at this time, because the functions of such committees can be adequately performed by the board of directors.
Our company
does not have any defined policy or procedural requirements for shareholders to submit recommendations or nominations for directors.
The board of directors believes that, given the stage of our development, a specific nominating policy would be premature and
of little assistance until our business operations develop to a more advanced level. Our company does not currently have any specific
or minimum criteria for the election of nominees to the board of directors and we do not have any specific process or procedure
for evaluating such nominees. The board of directors will assess all candidates, whether submitted by management or shareholders,
and make recommendations for election or appointment.
A shareholder
who wishes to communicate with our board of directors may do so by directing a written request addressed to our CEO and director,
Llorn Kylo, at the address appearing on the first page of this annual report.
Code of Ethics
We have not
adopted a Code of Ethics that applies our principal executive officer, principal financial officer, principal accounting officer
or controller, or persons performing similar functions.
Item 11.
Executive Compensation
The table below
summarizes all compensation awarded to, earned by, or paid to our officers for all services rendered in all capacities to us for
our fiscal years ended December 31, 2014 and 2013.
SUMMARY
COMPENSATION TABLE |
| Name
and principal position |
Year |
Salary
($) |
Bonus
($) |
Stock
Awards
($) |
Option
Awards
($) |
Non-Equity
Incentive
Plan
Compensation
($) |
Nonqualified
Deferred
Compensation
Earnings
($) |
All Other
Compensation
($) |
Total
($) |
Llorn Kylo
Chief Executive Officer,
Principal Executive Officer and Director |
2014
2013 |
75,000
25,000 |
25,000
- |
-
- |
-
- |
-
- |
-
- |
-
- |
100,000
25,000 |
Munjit Johal
Chief Financial Officer |
2014
2013 |
21,000(1)
n/a |
-
n/a |
-
n/a |
-
n/a |
-
n/a |
-
n/a |
-
n/a |
21,000
n/a |
| (1) | Mr.
Johal is compensated $3,500 per month. He has received payments from April 1, 2014 through
September 30, 2014 for a total of $21,000. The remaining $10,500 is unpaid and deferred. |
Narrative
Disclosure to the Summary Compensation Table
We have not entered into any employment
agreement or consulting agreement with our executive officers. There are no arrangements or plans in which we provide pension,
retirement or similar benefits for executive officers.
Our decision to compensate officers
depends on the availability of our cash resources with respect to the need for cash to further our business purposes.
Stock Option Grants
We have not
granted any stock options to the executive officers or directors since our inception.
Outstanding
Equity Awards at Fiscal Year-End
The table below
summarizes all unexercised options, stock that has not vested, and equity incentive plan awards for each named executive officer
as of December 31, 2014.
| OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END |
| OPTION
AWARDS |
STOCK
AWARDS |
Name |
Number
of
Securities
Underlying
Unexercised
Options (#)
Exercisable |
Number
of
Securities
Underlying
Unexercised
Options (#)
Unexercisable |
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#) |
Option
Exercise
Price
($) |
Option
Expiration
Date |
Number
of
Shares
or Units
of
Stock That
Have
Not
Vested
(#) |
Market
Value
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
($) |
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights
That Have
Not
Vested
(#) |
Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have Not Vested
(#) |
| Llorn
Kylo |
- |
- |
- |
- |
- |
- |
- |
- |
- |
| Munjit
Johal |
- |
- |
- |
- |
- |
- |
- |
- |
- |
Director Compensation
We do not pay any compensation to
our directors at this time. However, we reserve the right to compensate our directors in the future with cash, stock, options,
or some combination of the above.
Item
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following
table sets forth, as of June 8, 2015, certain information as to shares of our voting stock owned by (i) each person known by us
to beneficially own more than 5% of our outstanding voting stock, (ii) each of our directors, and (iii) all of our executive officers
and directors as a group.
Unless otherwise
indicated below, to our knowledge, all persons listed below have sole voting and investment power with respect to their shares
of voting stock, except to the extent authority is shared by spouses under applicable law. Unless otherwise indicated below, each
entity or person listed below maintains an address of 7702 E Doubletree Ranch Rd. Ste 300 Scottsdale, AZ 85258.
The number of
shares beneficially owned by each stockholder is determined under rules promulgated by the SEC. The information is not necessarily
indicative of beneficial ownership for any other purpose. Under these rules, beneficial ownership includes any shares as to which
the individual or entity has sole or shared voting or investment power and any shares as to which the individual or entity has
the right to acquire beneficial ownership within 60 days through the exercise of any stock option, warrant or other right.
The inclusion in the following table of those shares, however, does not constitute an admission that the named stockholder is
a direct or indirect beneficial owner.
| |
|
Common
Stock |
|
|
Series
A
Preferred Stock |
|
|
| Name
and Address of Beneficial Owner |
|
Number
of Shares
Owned (1) |
|
|
Percent
of Class (2) |
|
|
Number
of Shares Owned (1) |
|
|
Percent
of Class (3) |
|
|
| Llorn Kylo |
|
|
2,000,000 |
|
|
|
*% |
|
|
|
- |
|
|
|
-% |
|
|
| Munjit Johal |
|
|
- |
|
|
|
-% |
|
|
|
- |
|
|
|
-% |
|
|
| All Directors and Executive Officers as
a Group (1 person) |
|
|
2,000,000 |
|
|
|
*% |
|
|
|
- |
|
|
|
-% |
|
|
| 5% Holders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Miramar Investors Inc.
Gutenbergstrasse 10, PO Box
2090
Zurich, Switzerland 8002 |
|
|
124,300,000 |
|
|
|
80% |
|
|
|
2,000,000 |
|
|
|
100% |
|
|
*
Less than 1%
| (1) | Unless
otherwise indicated, each person or entity named in the table has sole voting power and
investment power (or shares that power with that person’s spouse) with respect
to all shares of voting stock listed as owned by that person or entity. |
| (2) | Pursuant
to Rules 13d-3 and 13d-5 of the Exchange Act, beneficial ownership includes any shares
as to which a shareholder has sole or shared voting power or investment power, and also
any shares which the shareholder has the right to acquire within 60 days, including upon
exercise of common shares purchase options or warrants. The percent of class is based
on 1,572,000 voting shares as of January 23, 2015. |
| (3) | The
percent of class is based on 156,000,000 shares of common stock outstanding and 2,000,000
shares of Series A Preferred Stock outstanding as of June 8, 2015. |
Item 13. Certain Relationships and
Related Transactions, and Director Independence
Other than the
transactions described below and under the heading “Executive Compensation” (or with respect to which such information
is omitted in accordance with SEC regulations), since December 1, 2012 there have not been, and there is not currently proposed,
any transaction or series of similar transactions to which we were or will be a participant in which the amount involved exceeded
or will exceed $120,000, and in which any director, executive officer, holder of 5% or more of any class of our capital stock
or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest.
During
2013 and 2014, we incurred management fees of $31,250 and $54,526, respectively, to Llorn Kylo, our CEO and director. As of December
31, 2014, we had a balance of $18,589 owed to him for management fees and expenses paid on our behalf.
During 2013,
we advanced $195,943 to Berkshire Homes, Inc., a public company with a common director. As of December 31, 2014, this balance
remained owed by this related party.
On January 16,
2014, we issued a total of two million (2,000,000) shares of our newly designated Series A Preferred Stock to Miramar Investors
Inc. for agreed upon consideration of $20,000. As the proceeds of the share issuance had not been received as of December 31,
2014, the amount has been recorded as share subscription receivable. The Series A Preferred Stock entitles the holder to vote
together with the holders of our common stock on all matters submitted to shareholders at a rate of two hundred (200) votes for
each share held.
Item 14. Principal Accounting
Fees and Services
Below is the table of Audit Fees
billed by our auditors in connection with the audits of the Company’s annual financial statements for the years ended:
Financial Statements for the
Year Ended December 31 |
|
Audit Services |
|
Audit Related Fees |
|
Tax Fees |
|
Other Fees |
|
2013 |
|
|
$13,050 |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
2014 |
|
|
$41,050 |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
PART IV
Item 15. Exhibits, Financial Statements
Schedules
| (a) |
Financial Statements and Schedules |
The following
financial statements and schedules listed below are included in this Form 10-K.
Financial Statements
(See Item 8)
- Incorporated by reference to the Form
8-K filed on July 8, 2013.
- Incorporated by reference to the Form
8-K filed on February 5, 2014.
- Incorporated by reference to the Form
S-1 filed on December 14, 2011.
SIGNATURES
Pursuant to
the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Cannabis-Rx,
Inc.
By: /s/
Llorn Kylo
Llorn Kylo
President,
Chief Executive Officer, Principal Executive Officer and Director
July 22,
2015
By: /s/
Munjit Johal
Munjit Johal
Chief Financial
Officer, Principal Financial Officer and
Principal Accounting Officer
July 22,
2015
Pursuant to
the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
By: /s/
Llorn Kylo
Llorn Kylo
President,
Chief Executive Officer, Principal Executive Officer and Director
July 22,
2015
CERTIFICATIONS
I, Llorn Kylo, certify that;
| 1. |
|
I have reviewed this annual report on Form 10-K for the year ended December 31, 2014 of Cannabis-RX Inc. (the “registrant”); |
| 2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. |
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. |
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. |
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. |
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. |
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. |
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. |
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. |
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. |
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: July 22, 2015
/s/ Llorn Kylo
By: Llorn Kylo
Title: Chief Executive Officer
CERTIFICATIONS
I, Munjit Johal, certify that;
| 1. |
|
I
have reviewed this annual report on Form 10-K for the year ended December 31, 2014 of Cannabis-RX Inc. (the
“registrant”); |
| 2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. |
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. |
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. |
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. |
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. |
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. |
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. |
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. |
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. |
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: July 22, 2015
/s/ Munjit Johal
By: Munjit Johal
Title: Chief Financial Officer
CERTIFICATION OF 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
In connection with the annual Report of Cannabis-RX
Inc. (the “Company”) on Form 10-K for the year ended December 31, 2014 filed with the Securities and Exchange Commission
(the “Report”), I, Llorn Kylo, Chief Executive Officer of the Company, and I, Munjit Johal, Chief Financial Officer
of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:
| 1. | The Report fully complies with the requirements of Section 13(a)
of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material
respects, the consolidated financial condition of the Company as of the dates presented and the consolidated result of operations
of the Company for the periods presented. |
| By: |
/s/ Llorn Kylo |
| Name: |
Llorn Kylo |
| Title: |
Principal Executive Officer and Director |
| Date: |
July 22, 2015 |
| By: |
/s/ Munjit Johal |
| Name: |
Munjit Johal |
| Title: |
Principal Financial Officer |
| Date: |
July 22, 2015 |
This certification has been furnished solely pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
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