NOTES TO CONDENSED CONDOLIDATED FINANCIAL STATEMENTS
1.
NATURE OF OPERATIONS, HISTORY AND PRESENTATION:
Nature of Operations
Advanced Cannabis Solutions, Inc. (f/k/a Promap Corporation) (“the Company” “we” or “us”) was incorporated in the State of Colorado on November 12, 1987. The Company is an independent GIS and custom draft energy mapping company for the oil and gas industry in the United States and Canada. The Company provides hard copy and digital format oil and gas production maps which cover various geologic basins in numerous areas including: Denver Basin, Powder River Basin, Michigan Basin, Williston Basin, Arkoma Basin, Illinois Basin, Cincinnati Arch, Uintah - Piceance Basins and The Nevada Basin. The Company also provides maps of the North American Coal Basin and Coal Bed Methane Activity and North American Devonian - Mississippian Shale Map with detailed pipeline locations.
On August 14, 2013, the Company acquired 94% of the issued and outstanding share capital of Advanced Cannabis Solutions (“ACS”) (“the Share Exchange Agreement”), a development-stage company, planning to provide real estate leasing services to the regulated cannabis industry throughout the United States. While the Company will continue to provide energy mapping services on an ongoing basis as a non core activity, it is planned that the combined companies will focus on ACS’ business plan as its core activity and operate under the name Advanced Cannabis Solutions, Inc. The Company has completed a change in trading symbol to CANN (OTCBB) and has completed its official name change.
The Share Exchange Agreement has been accounted for as a reverse acquisition and recapitalization using accounting principles applicable to reverse acquisition. Under reverse acquisition accounting, ACS, the legal acquiree, is treated as the accounting acquirer of the Company. Consequently, ACS’ financial results are disclosed for all periods presented, while the Company’s financial results have only been consolidated with those of the existing ACS business from August 14, 2013 onward. All outstanding shares have been restated to reflect the effect of the Agreement.
ACS was incorporated in the State of Colorado on June 5, 2013. As a development-stage company, ACS plans to provide real estate leasing services to the regulated cannabis industry throughout the United States by purchasing real estate assets and leasing growing space and related facilities to licensed marijuana growers and dispensary owners for their operations. In addition, ACS plans to provide a variety of ancillary services to the industry, including the development of a proprietary line of grow mediums and plant nutrient lines, product tracking technology, and comprehensive consulting services to current and future cannabis entrepreneurs.
Our initial focus will be on opportunities within Colorado, which has allowed its citizens to use medical marijuana since 2000. Voters in Colorado approved a ballot measure in November 2012 to legalize marijuana for adult use. Starting Jan 1, 2014, adult Colorado citizens and visiting adults will be able to purchase marijuana without any medical licenses. Several studies have predicted that the retail cannabis market in Colorado will increase from $200 million annually to over $900 million after the new law takes effect. While the national regulated cannabis market is estimated to be $1.5 billion annually, many experts expect it to reach $30 billion by 2018 as additional states approve cannabis use for its citizens.
ACS will not grow, harvest, distribute or sell cannabis or any substances that violate United States law or the Controlled Substances Act, nor does it intend to do so in the future.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the results of ACS for all periods presented and for the Company from August 14, 2013 onwards. All intercompany balances and transactions have been eliminated in consolidation.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In our opinion the financial statements include all adjustments (consisting of normal recurring accruals) necessary to make the financial statements not misleading. Operating results for the three months ended September 30, 2013, are not necessarily indicative of the results of operations for a full year.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
The Company considers all highly liquid investments with an original maturity of three months or less as cash equivalents.
Accounts receivable
The Company reviews accounts receivable periodically for collectability and establishes an allowance for doubtful accounts and records bad debt expense when deemed necessary.
Property and equipment
Property and equipment are recorded at cost and depreciated under accelerated or straight line methods over each item's estimated useful life.
We review our property and equipment for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable.
Maintenance and repairs of property and equipment are charged to operations. Major improvements are capitalized. Upon retirement, sale or other disposition of property and equipment, the cost and accumulated depreciation are eliminated from the accounts and any gain or loss is included in operations.
Income tax
The Company accounts for income taxes pursuant to ASC 740. Under ASC 740 deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Financial Instruments
The estimated fair values for financial instruments were determined at discrete points in time based on relevant market information. These estimates involved uncertainties and could not be determined with precision. The carrying amounts of accounts receivable, accounts payable and accrued liabilities approximated their fair value because of the short-term maturities of these instruments.
Fair Value Measurements
ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), provides a comprehensive framework for measuring fair value and expands disclosures which are required about fair value measurements. Specifically, ASC 820 sets forth a definition of fair value and establishes a hierarchy prioritizing the inputs to valuation techniques, giving the highest priority to quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable value inputs. ASC 820 defines the hierarchy as follows:
Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reported date. The types of assets and liabilities included in Level 1 are highly liquid and actively traded instruments with quoted prices, such as equities listed on the New York Stock Exchange.
Level 2 – Pricing inputs are other than quoted prices in active markets, but are either directly or indirectly observable as of the reported date. The types of assets and liabilities in Level 2 are typically either comparable to actively traded securities or contracts, or priced with models using highly observable inputs.
Level 3 – Significant inputs to pricing that are unobservable as of the reporting date. The types of assets and liabilities included in Level 3 are those with inputs requiring significant management judgment or estimation, such as complex and subjective models and forecasts used to determine the fair value of financial transmission rights.
Our financial instruments consist of cash, accounts receivable, accounts payables and accrued expenses. The carrying values of cash, accounts receivable, accounts payables and accrued expenses approximate their fair value due to their short maturities.
Long-Lived Assets
In accordance with ASC 350, the Company regularly reviews the carrying value of intangible and other long-lived assets for the existence of facts or circumstances, both internally and externally, that suggest impairment. If impairment testing indicates a lack of recoverability, an impairment loss is recognized by the Company if the carrying amount of a long-lived asset exceeds its fair value.
Revenue recognition
Revenue is recognized on an accrual basis as earned under contract terms. Specifically, revenue from product sales is recognized subsequent to a customer ordering a product at an agreed upon price, delivery has occurred, and collectability is reasonably assured
Advertising costs
Advertising costs are expensed as incurred. No advertising costs were incurred during the three month periods ended September 30, 2013.
Comprehensive Income (Loss)
Comprehensive income is defined as all changes in stockholders' equity (deficit), exclusive of transactions with owners, such as capital investments. Comprehensive income includes net income or loss, changes in certain assets and liabilities that are reported directly in equity such as translation adjustments on investments in foreign subsidiaries and unrealized gains (losses) on available-for-sale securities. From our Inception there have been no differences between our comprehensive loss and net loss.
Net income (loss) per share
The net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of shares of common outstanding. Warrants, stock options, and common stock issuable upon the conversion of the Company's preferred stock (if any), are not included in the computation if the effect would be anti-dilutive and would increase the earnings or decrease loss per share.
Business Segments
The Company operates two reportable business segments – a petroleum mapping business and a real estate leasing business.
Recently Issued Accounting Standards
We have reviewed all recently issued, but not yet effective, accounting pronouncements and do not believe the future adoption of any such pronouncements may be expected to cause a material impact on our financial condition or the results of our operations.
3. SHARE EXCHANGE AGREEMENT
On August 14, 2013, pursuant to a Share Exchange Agreement (the “The Share Exchange Agreement”), Promap Corporation (the “Company”) acquired approximately 94% of the outstanding common stock of Advanced Cannabis Solutions, Inc. (“ACS”) in exchange for 12,400,000 shares of the Company’s common stock.
In connection with the Share Exchange Agreement:
●
|
the Company purchased 8,000,000 shares of its outstanding common stock from a former officer of the Company for $100,000. These shares were then cancelled and returned to the status of authorized but unissued shares;
|
●
|
Robert Frichtel was appointed as a director and the Principal Executive and Financial Officer of the Company;
|
●
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Roberto Lopesino was appointed Vice President of the Company; and
|
●
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Steven Tedesco and Robert Carrington, Jr., resigned as officers and directors of the Company.
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As a result of the acquisition, ACS is the Company’s 94% owned subsidiary and the former shareholders of ACS own approximately 88% of the Company’s common stock. The Company plans to acquire the remaining outstanding shares of ACS at a later date (see Note 8 Subsequent Events below).
The Agreement has been accounted for as a reverse acquisition and recapitalization using accounting principles applicable to reverse acquisition. Under reverse acquisition accounting, ACS, the legal acquiree, is treated as the accounting acquirer of the Company. Consequently, ACS financial results are disclosed for all periods presented, while the Company’s financial results have only been consolidated with those of the existing ACS business from August 14, 2013 onward. All outstanding shares have been restated to reflect the effect of the Agreement.
The following table summarizes the estimated fair values of the Company’s assets acquired and liabilities assumed by the existing ACS business as on August 14, 2013:
Cash
|
|
$
|
1,238
|
|
Accounts receivable
|
|
|
15,096
|
|
Accounts payable
|
|
|
(18,040
|
)
|
The fair value of the Company’s net liabilities at the August 14, 2013 recapitalization
|
|
|
|
|
|
|
$
|
(1,706
|
)
|
4.
COMMITMENTS AND CONTINGENCIES:
Operating Leases and Long term Contracts
The Company rents office space for its corporate needs. The Company entered into a month-to-month lease agreement in July 2013 to lease 2,000 square feet for an annual rate of $12,000, paid monthly. The Company paid $3,000 for the lease of our corporate offices for the period ended September 30, 2013.
Legal
To the best of the Company’s knowledge and belief, no legal proceedings are currently pending or threatened.
5.
STOCK HOLDERS’ EQUITY:
Preferred Stock
The Company is authorized to issue 5,000,000 shares of preferred stock, with no par value. No shares of preferred stock have been issued or are outstanding, and no rights, privileges or preferences have been determined and designated by the board of directors.
Common Stock
The Company is authorized to issue 100,000,000 shares of no-par value common stock.
On June 30, 2013, the Company issued 12,400,000 shares of common stock to its founders for cash consideration of $0.001 per share.
Between July 11, 2013 and August 8, 2013, the Company issued 707,000 shares of its common stock for cash consideration of $1.00 per share.
On August 14, 2013, following the reverse merger of ACS with the Company, existing shareholders of the Company owned 9,724,200 shares of its common shares However, 8,000,000 of these shares were then immediately purchased by the Company for cash consideration of $100,000 and cancelled.
Between August 14, 2013 and September 19 2013, the Company issued a further 266,000 shares of its common stock for cash consideration of $1.00 per share.
At September 30, 2013, the Company had 15,097,200 shares of its common stock issued and outstanding.
6.
INCOME TAXES
The Company accounts for income taxes in accordance with FASB ASC 740 “Income Taxes”. Deferred income taxes reflect the net effect of (a) temporary difference between carrying amounts of assets and liabilities for financial purposes and the amounts used for income tax reporting purposes, and (b) net operating loss carry-forwards. No net provision for refundable Federal income tax has been made in the accompanying statement of loss because no recoverable taxes were paid previously. Similarly, no deferred tax asset attributable to the net operating loss carry-forward has been recognized, as it is not deemed likely to be realized.
The provision for refundable federal income tax consists of the following for the periods ending:
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|
Three months ended September 30, 2013
|
|
Federal income tax benefit attributed to:
|
|
|
|
Net operating loss
|
|
$
|
160,485
|
|
Valuation
|
|
|
(160,485
|
)
|
Net benefit
|
|
$
|
-
|
|
The cumulative tax effect at the expected rate of 34% of significant items comprising our net deferred tax amount is as follows:
|
|
Inception
(June 5, 2013)
|
|
|
|
to September 30, 2013
|
|
Deferred tax attributed:
|
|
|
|
Net operating loss carryover
|
|
$
|
160,484
|
|
Less: change in valuation allowance
|
|
|
(160,484
|
)
|
Net deferred tax asset
|
|
$
|
-
|
|
At September 30, 2013 the Company had an unused net operating loss carry-forward approximating $472,016 that is available to offset future taxable income; the loss carry-forward will expire in 2033.
7.
BUSINESS SEGMENT REPORTING
The Company operates two reportable business segments in Denver, Colorado and Colorado Springs, Colorado, as defined by ASC Topic 280:
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●
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Petroleum mapping business – sale of map products for gas and oil exploration.
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|
●
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Real estate leasing business – leasing of commercial real estate to cannabis operators.
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The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 2 above). The Company had no inter-segment sales for the periods presented. Summarized financial information concerning the Company’s reportable segments is shown as below:
|
Inception
(June 5, 2013) and the Three months ended
September 30, 2013
Mapping Business
|
|
|
Inception
(June 5, 2013) and the Three months ended
September 30, 2013
Real Estate Business
|
|
|
Inception
(June 5, 2013) and the Three months ended
September 30, 2013
Total
|
|
|
Revenues, net
|
$
|
455
|
|
|
$
|
--
|
|
|
$
|
455
|
|
Cost of revenues
|
|
(183
|
)
|
|
|
--
|
|
|
|
(183
|
)
|
Gross profit
|
|
272
|
|
|
|
--
|
|
|
|
272
|
|
Net loss
|
|
(8,957
|
)
|
|
|
(463,059
|
)
|
|
|
(472,016
|
)
|
Total assets
|
$
|
10,160
|
|
|
$
|
463,394
|
|
|
$
|
473,554
|
|
Expenditure for long-lived assets
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
8. SUBSEQUENT EVENTS
On October 28, 2013, the Company issued 770,000 shares of its common stock to acquire the remaining 6% of ACS’ issued and outstanding share capital. Consequently effective that date, ACS became a 100% owned subsidiary of the Company.
The Company has evaluated all subsequent events through the date these financial statements were issued. Other than those set out above, there have been no subsequent events after September 30, 2013, for which disclosure is required.
ACS Sept 2013 10-Q Fin Statements 12-12-13