UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM S-1 /A
(Amendment No. 1)
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
 
CANNASYS, INC.
(Exact name of registrant as specified in its charter)
 
Nevada
(State or other jurisdiction of incorporation or organization)
 
7389
(Primary Standard Industrial Classification Code Number)
 
88-0367706
(I.R.S. Employer Identification No.)
 
1350 17 th Street, Suite 150, Denver, CO  80202
Telephone (720) 420-1290
(Address, including zip code and telephone number, including area code, of registrant's principal executive offices)
 
Michael A. Tew, Chief Executive Officer
CannaSys, Inc.
1350 17 th Street, Suite 150, Denver, CO 80202
Telephone (720) 420-1290
(Name, address, including zip code and telephone number, including area code, of agent for service)
 
Copy to:
Terrell W. Smith
Kruse Landa Maycock & Ricks, LLC
136 East South Temple Street, Twenty-First Floor, Salt Lake City, Utah 84111
Telephone:  (801) 531-7090
 
From time to time after the effectiveness of this registration statement.
(Approximate date of commencement of proposed sale to the public)

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.

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 
 
 
CALCULATION OF REGISTRATION FEE
Title of Each Class of Securities to be Registered
Amount to be
Registered(1)(2)
Proposed Maximum
Offering Price per Unit(2)(3)
Proposed Maximum
Aggregate Offering Price
 
Amount of
Registration Fee
           
Common stock, $0.001 par value, registered in initial registration statement
3,187,015
$0.23 2
$737,794
 
$74.30
Common stock, $0.001 par value, registered in amendment no. 1 to registration statement 18,862,491 0.0032  
59,417
   
5.98
 Total  22,049,506    $798,804  
$80.44 

(1)
The shares of our common stock being registered hereunder are being registered for sale by the selling stockholder, as defined in the accompanying prospectus.
(2)
The initial filing of this registration statement registered the resale of 3,187,015 shares, which was approximately one-third of the number of shares held by nonaffiliates on the filing date. The number of shares held by nonaffiliates has increased to 66,148,517 shares, so the number of shares being registered has been increased to 22,049,506.  Pursuant to Rule 416, the securities being registered hereunder include such indeterminate number of additional securities as may be issuable to prevent dilution resulting from stock splits, stock dividends, or similar transactions.
(3)
Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(c) under the Securities Act of 1933, as amended, based on the average of the high and low trading prices $0.23 2 and $0.0032 per share for the issuer's common stock on January 28 and September 16 , 2016 , respectively , as reported on the OTCQB tier of the OTC Markets Group.


The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant files a further amendment that specifically states that this registration statement will thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement becomes effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine.


PRELIMINARY PROSPECTUS

Subject to Completion, Dated  September 21 , 2016
The information contained in this preliminary prospectus is not complete and may be changed. The selling stockholder may not sell these securities until the registration statement filed with the U.S. Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

CANNASYS, INC.
1,102,475 Shares of Common Stock


 
 
Preliminary Note to Preliminary Prospectus

As discussed below, a majority of the voting stock has approved a recapitalization of the company consisting of a 20-to-one reverse split and an increase of authorized capitalization to 2,000,000,000 shares of common stock and 5,000,000 shares of preferred stock, par value $0.001 (the "Recapitalization"), to become effective 20 days after mailing to all stockholders an information statement and meeting other regulatory requirements. We anticipate that the registration statement, of which this preliminary prospectus is a part, will not become effective until the above Recapitalization is effective. The mailing to stockholders was completed September 12, 2016. Therefore, all share and per-share amounts give effect to such Recapitalization, unless the context clearly indicates otherwise.

 
This prospectus relates to the offer and sale, from time to time, of up to 1,102,475 shares of the common stock of CannaSys, Inc., a Nevada corporation ("CannaSys"), that may be issued pursuant to the equity purchase agreement that we entered into with Kodiak Capital Group, LLC ("Kodiak Capital"), which we refer to in this prospectus as the "Purchase Agreement." Please refer to the sections of this prospectus entitled "The Equity Purchase Transactions" for a description of the Purchase Agreement and "Selling Stockholder" for additional information regarding the selling stockholder.
 
We are not selling any shares of common stock in this offering. We, therefore, will not receive any proceeds from the sale of the shares by the selling stockholder. We will, however, receive proceeds from the sale of securities pursuant to our exercise of the put right under the Purchase Agreement.

Kodiak Capital is an "underwriter" within the meaning of the Section 2(a) (11) of the Securities Act of 1933, as amended (the "Securities Act").

The selling stockholder may offer and sell from time to time common stock using this prospectus in transactions:
·
on the OTC Markets or otherwise;
·
at market prices, which may vary during the offering period, or at negotiated prices; and
·
in ordinary brokerage transactions, in block transactions, in privately negotiated transactions, or otherwise.
See "Plan of Distribution" for more information about how the selling stockholder may sell the shares of common stock being registered pursuant to the registration statement that includes this prospectus. The selling stockholder has informed us that it does not have any agreement or understanding, directly or indirectly, with any person to distribute the common stock.

The selling stockholder will receive all of the proceeds from the sale of the shares and will pay all underwriting discounts and selling commissions relating to the sale of the shares. We have agreed to pay the legal, accounting, printing, and other expenses related to the registration of the sale of the shares.

Our common stock is quoted on the OTCQB tier of the OTC Markets under the symbol "MJTK." On September 16, 2016, the last reported sale price of our common stock was $ 0.0032 .

An investment in our shares involves certain risks. We urge you to read the "Risk Factors" section beginning on page  7 and the remainder of this prospectus before making an investment decision.
 

Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is _______________, 2016.



Table of Contents

 
Page
   
Prospectus Summary
1
Risk Factors
6
Forward-Looking Statements
13
Emerging Growth Company 13
Price Range of Common Stock and Dividend Policy
14
Use of Proceeds
14
Capitalization
15
Dilution
16
Management's Discussion and Analysis of Financial Condition and Results of Operation
17
Business
23
Management
39
Certain Relationships and Related Transactions
42
Principal Stockholders
44
The Equity Purchase Transactions
45
Selling Stockholder
47
Plan of Distribution
48
Description of Capital Stock
50
Where You Can Find Additional Information
51
Legal Matters
51
Experts
52
Index to Financial Statements
F-1


You should rely only on the information contained or incorporated by reference in this prospectus. We have not authorized anyone to provide you with different information.

We have not authorized any underwriters, brokers, or dealers to make an offer of the securities in any jurisdiction where the offer is not permitted.

You should not assume that the information in this prospectus is accurate as of any date other than the date on the front of this prospectus.



PROSPECTUS SUMMARY

This prospectus summary contains an overview of the information from this prospectus, but may not contain all of the information that is important to you. This prospectus includes specific terms of the offering of our common stock, information about our business, and financial data. We encourage you to read this prospectus, including the "Risk Factors" section beginning on page 6, in its entirety before making an investing decision. You should read this prospectus together with additional information described below under the heading "Where You Can Find Additional Information." As used in this prospectus, the terms "we," "us," and "our" refer to CannaSys, Inc., a corporation organized under the laws of the state of Nevada and our predecessors and subsidiaries, unless the context indicates a different meaning.

CannaSys

We create, develop, and commercialize innovative solutions for the expanding medical and recreational cannabis community. Our solutions enhance customer service and provider efficiency, including customer loyalty software applications; create producer and retailer opportunities through the distribution of our own retail brands; and assist with marketing and branding for product companies. We do not grow, distribute, or sell cannabis or products containing cannabis .

We believe there is a trend toward legalizing medical and recreational use of cannabis. If and as additional states across the nation legalize medical or recreational use and develop regulatory schemes, we believe a commercial cannabis industry will be established. We seek to apply and exploit our knowledge and experience to introduce products for this emerging industry, which continues to encounter resistance from many traditional, integral service providers of loyalty programs, payment methods, wholesale supply, supply management and delivery, and similar items. We believe the resistance or reluctance of others to enter the cannabis industry provides, at least temporarily, a commercial opportunity for us.

Our products serve both medical and recreational growers, dispensers, and customers. Our product development and introduction are focused in Colorado, where both medical and recreational cannabis are permitted under a developing regulatory regime , as well as California , a rapidly evolving market that we believe presents an opportunity for our products . We are preparing for future expansion if and as cannabis for medical or recreational use becomes legalized and regulated in additional states that have ongoing public dialogue and regulatory or legislative consideration regarding legalization, such as Nevada, Oregon, the District of Columbia, and others. In the next 12 months, we are considering operating in only Colorado, Washington , California (medical only), and Oregon, since the Oregon voters approved legalization , with the Oregon Liquor Control Commission tasked with regulating sales of marijuana.
 
Recent Recapitalization

On September 12, 2016, we completed the mailing of our definitive information statement and annual report to all holders of record of our common stock, to notify them that on July 27 and August 30, 2016, our board of directors and the holders of our outstanding capital stock having a majority of the voting power, respectively, adopted resolutions to amend our articles of incorporation to: (i) reverse-split the outstanding common stock 20-to-one; and (ii) increase our authorized capital to 2,005,000,000 shares, consisting of: 2,000,000,000 shares of common stock and 5,000,000 shares of preferred stock (together, the "Recapitalization"). In addition, the stockholders voted to reelect Brandon C. Jennewine, Daniel J. Rogers, and Michael A. Tew as directors and to ratify the appointment of BF Borgers CPA PC as our independent registered public accounting firm. Under Rule 14c-2 under the Securities Exchange Act of 1934, as amended, these corporate actions did not become effective until after 20 days have passed after mailing the information statement to all stockholders and regulatory requirements were satisfied. Pursuant to these requirements, the Recapitalization became effective October [__], 2016.
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After giving effect to the Recapitalization, we have the authority to issue 2,000,000,000 shares of common stock, of which 3,403,176 shares were issued and outstanding and 230,000 shares were reserved for issuance upon exercise of outstanding warrants. We also had an aggregate of $526,966 in principal amount of convertible notes outstanding as of August 31, 2016, convertible into approximately 14.4 million shares of common stock, based on a closing trading price of $0.0032 per share and an assumed weighted average discount rate of 56.9% below the market price applicable to the convertible notes. These figures do not include approximately 1.0 million shares that could be issued at a discount of 30% below the market price as of that date under our Purchase Agreement with Kodiak Capital.

Historically our main source of funding has been through selling convertible debt and equity instruments, including convertible debentures and notes. We needed to increase our authorized shares of common stock to meet our obligations under our outstanding convertible notes, the Purchase Agreement, and new convertible notes and to provide capital for future funding of our operations.

Therefore, management determined to proceed with the Recapitalization in an effort to increase our available resources and to resolve defaults of our obligations under outstanding convertible promissory notes. The convertible notes provide generally that after 180 days from the issue date, the holders can convert the principal and accrued interest under the notes into shares of our common stock at conversion prices discounted to contemporaneous trading prices as set forth in the applicable transaction documents. In addition, the convertible note transactions require that we give our transfer agent irrevocable instructions to hold a number of authorized but unissued shares of our common stock in reserve for issuance for future conversion of the convertible promissory notes.

Prior to the Recapitalization, we were in default under our conversion obligations in our outstanding convertible notes for failing to have sufficient authorized but unissued shares of our common stock available for issuance upon conversion, and we have no cash with which to make payments on the notes. We received a default notice from Tangiers Investment Group, LLC, on July 5, 2016, for failure to provide sufficient share reserve. If we did not find a way to meet our obligations to our investors, the holders of our outstanding convertible notes could exercise their creditors' remedies and execute on all of our assets, take ownership of those assets, and leave nothing for our stockholders.

Material Products

Since inception, we have developed, refined, and introduced into the cannabis industry the following principal products:

·
BumpUp Rewards is an affiliate-based membership rewards loyalty program , based on Loyl.Me's Automated Cloud and Customer Relationship Management Platform , designed specifically for the cannabis industry that we license to customers for recurring fees.
 
·
BumpUp Rewards White-Label Applications   is an advanced version of our BumpUp Rewards application to incentivize product and corporate sales organizations through a proprietary points system that became available for download to consumers in both iOS and Android devices in beta format in March 2016 .

·
Citizen Toke is a text-message-based deals platform focused on user acquisition and customer engagement for both regulated cannabis retailers and branded products companies.
 
·
MHB, Inc. Branded Products   are products and opportunities developed for marketing with celebrity endorsements, including a branded line of vaporizer products with the endorsement of Ziggy Marley, a Jamaican reggae musician.

·
CannaLIMS   is a laboratory management information system product focused solely on the cannabis marketplace to assist cannabis laboratories in meeting multiple state and local level regulatory reporting requirements that we license for recurring fees. As of July 2016 we have deemphasized this product in favor of consumer-oriented technology and branding.
 
 
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To date, we have devoted our limited financial and management resources to developing the above product offerings and strategic relationships and have not generated significant revenues. During the first six months of 2016, our total revenue was $58,561. However, several of the products mentioned above were launched into the market during the second and third quarters of 2016 and, as a result, had not generated meaningful revenue prior to that time.
 
Strategic Relationships

To support marketing and delivery of our principal products as noted above and to access other products and services, we are expanding a network of strategic alliances within the industry to build an array of product and service offerings and to increase use of our distribution channels. Our active strategic relationships, most of which were only recently initiated and are yet to generate revenue , include the following:

·
Beta Killers LLC provides professional services related to technology, product, and software development; branding, marketing, and business development; products sales and growth; and customer relations. We engaged Beta Killers' chief executive officer as our adviser to deliver a more advanced version of Citizen Toke's software platform.

·
MHB, Inc. is cofounder of Mile High Consulting and Branding, Inc., a 51% CannaSys-owned joint venture to commercialize celebrity endorsements and product companies that wish to access the cannabis marketplace.
 
·
Green Capital Ventures, Inc . is the founder of Gridiron Cannabis Coalition in California, through which we intend to seek commercial partnerships to advance medicinal cannabis as a treatment for brain disease and bodily injuries resulting from playing professional sports.
 
·
National Concessions Group, Inc . provides   technology development and joint marketing for loyalty products focused on retail brands in the cannabis industry, such as O.PenVape's "O Rewards" loyalty application based on our BumpUp Rewards platform, which was launched in beta format in March 2016.

·
KiwiTech, LLC expands, supports, and further develops our software products and web and mobile applications.

·
Duby, LLC has developed a social media application focused on cannabis consumers, of which we own a small a minority interest. Duby has agreed to join forces with us to accelerate new user adoption for our latest product, Citizen Toke.

 
·
Loyl.Me, LLC contributed to the development of our BumpUp Rewards software, which is based on Loyl.Me's Automated Cloud and Customer Relationship Management Platform.
 
Business Strategy

As we completed the acquisition of Citizen Toke and sought funding to launch our integrated cannabis-industry product and service suite, we became limited by the fact that we had no authorized shares that were not outstanding or committed for issuance. In addition, we could not meet our obligations to the holders of our convertible debt. Unfortunately, these limitations precluded us from timely executing our business plan. However, with the recent completion of the Recapitalization, we hope to have the appropriate resources and capital strategy to effectuate our new product launches and growth opportunities.

Our primary business objectives are to generate stable revenues and cash flows through the development of vertically integrated distribution centers and to collect and monetize cannabis consumer data. We intend to accomplish these objectives by executing the following key strategies:
 
 
3

 
·
Develop and improve software . Develop, improve, and deliver more advanced versions of our software platform to the market .

·
Expand marketing relationships and customer loyalty platforms. Expand our marketing relationships to distribute our BumpUp Rewards loyalty platform as a service. We believe customer loyalty is just beginning to take shape in the cannabis industry as it becomes more competitive. Our software loyalty platform, BumpUp Rewards, is currently generating recurring revenues through its sales to retail dispensaries within the cannabis industry.

·
Expand our retail brand and market presence . Generate revenues and growth through our joint venture entity, Mile High Consulting and Branding, Inc., and explore other opportunities for strategic marketing and alliances , including online retail sales channels.
 
·
Distribute products into new states . Expand distribution of our core products and services into new regulated cannabis markets as the trend to legalize medicinal and recreational cannabis use continues.

·
Pursue growth . Pursue opportunities to expand our business by completing strategic acquisitions, establishing new strategic alliances with others, executing internally generated expansion projects, and increasing the use of our existing assets.

Our Address

Our principal executive offices are located at 1350 17 th Street, Suite 150, Denver, CO 80202, and our telephone number is (720) 420-1290.

The Offering

This prospectus relates to the offer and sale of up to 1,102,475 shares of our common stock by the selling stockholder.
 
Kodiak Capital, the selling stockholder under this prospectus, is offering for sale up to 1,102,475 shares of our common stock. On December 15, 2015, we entered into the Purchase Agreement with Kodiak Capital, pursuant to which it agreed to purchase from us up to $1 million in shares of our common stock from time to time until December 31, 2016. Also on December 15, 2015, we entered into a Registration Rights Agreement with Kodiak Capital, pursuant to which we have filed with the U.S. Securities and Exchange Commission (the "SEC") the registration statement that includes this prospectus to register for resale under the Securities Act the shares that may be issued to Kodiak Capital under the Purchase Agreement. In consideration for entering into the Purchase Agreement, we issued to Kodiak Capital a $50,000 commitment note that was payable on or before July 11, 2016 , and is convertible into shares of our common stock at the conversion price of 50% of the current market price (as defined in the commitment note).
 
We do not have the right to commence any sales to Kodiak Capital under the Purchase Agreement until the SEC has declared effective the registration statement of which this prospectus forms a part. Thereafter, we may, from time to time and at our sole discretion, direct Kodiak Capital to purchase shares of our common stock, but we would be unable to sell shares to it if that purchase would result in its beneficial ownership equaling more than 9.99% of our outstanding common stock. Except as described in this prospectus, there are no trading volume requirements or restrictions under the Purchase Agreement, and we will control the timing and amount of any of our sales of our common stock to Kodiak Capital. Under the Purchase Agreement, Kodiak Capital has agreed not to sell, or "short," the common stock in anticipation of a purchase from us. The purchase price of the shares that may be sold to Kodiak Capital under the Purchase Agreement will be equal to 70% of the lowest daily volume-weighted average price of the common stock for the five consecutive trading days immediately following our delivery of a put notice to Kodiak Capital to purchase the shares. We may at any time in our sole discretion terminate the Purchase Agreement without fee, penalty, or cost upon prior written notice. Kodiak Capital may not assign or transfer its rights and obligations under the Purchase Agreement.
 
4

 
The Purchase Agreement provides that we may sell up to $1 million in shares of our common stock to Kodiak Capital and 1,102,475 shares of our common stock are being offered under this prospectus. If all of the 1,102,475 shares offered by Kodiak Capital under this prospectus were sold , such shares would represent 24.5 % of the total number of shares of our common stock outstanding and 32.4 % of the total number of outstanding shares held by nonaffiliates as of the date of this Preliminary Prospectus . If we elect to issue and sell more than the 1,102,475 shares offered under this prospectus to Kodiak Capital, which we have the right, but not the obligation, to do, we must first register for resale under the Securities Act any such additional shares, which could cause additional substantial dilution to our stockholders. The number of shares ultimately offered for resale by Kodiak Capital is dependent upon the number of shares we sell to it under the Purchase Agreement , which in turn is a function of the market price for our common stock at the time of sale.
 
Issuances of our common stock in this offering will not affect the rights or privileges of our existing stockholders, except that the economic and voting interests of each of our existing stockholders will be diluted as a result of any such issuance. Although the number of shares of common stock that our existing stockholders own will not decrease, the shares owned by our existing stockholders will represent a smaller percentage of our total outstanding shares after any such issuance to Kodiak Capital.
 
Securities Offered

Common stock offered by the selling stockholder:
 
Up to 1,102,475 shares that we may sell to Kodiak Capital under the Purchase Agreement
     
Common stock outstanding before the offering:
 
3,403,176 shares
     
Common stock to be outstanding after giving effect to the total issuance of 1,102,475 shares to Kodiak Capital under the Purchase Agreement registered hereunder:
 
4,505,651 shares
     
Shares issuable upon exercise of outstanding options and warrants:
 
The total number of shares of our common stock outstanding before the offering and to be outstanding after giving effect to the total issuance of 1,102,475   shares to Kodiak Capital under the Purchase Agreement registered hereunder, excludes about 1.1 million   shares of common stock   issuable   on the exercise of outstanding warrants, the conversion of outstanding notes, and commitments to strategic partners , based on our common stock trading price immediately preceding the filing of this prospectus .
 
Use of proceeds:
 
We will not receive any proceeds from the sale of the shares of common stock by the selling stockholder in this offering. However, we may receive up to $1 million from sales of shares to Kodiak Capital under the Purchase Agreement. Any proceeds that we receive from sales to Kodiak Capital under the Purchase Agreement will be used to further develop our products, reduce current liabilities, and fund general corporate purposes. See "Use of Proceeds."
     
Risk factors:
 
This investment involves a high degree of risk. See "Risk Factors" for a discussion of factors you should consider carefully before making an investment decision.
     
OTC Markets (OTCQB) symbol:
 
MJTK

 
5

RISK FACTORS

An investment in our securities involves a high degree of risk. You should carefully consider the following risk factors, together with the other information about these risks contained in this prospectus, as well as the other information contained in this prospectus generally, before deciding to buy our securities. Any of the risks we describe below could adversely affect our business, financial condition, operating results, or prospects. The market prices for our securities could decline if one or more of these risks and uncertainties develop into actual events and you could lose all or part of your investment. Additional risks and uncertainties that we do not yet know of, or that we currently think are immaterial, may also impair our business operations. You should also refer to the other information contained in this prospectus, including our financial statements and the related notes.

Risks Related to our Business

We are dependent on our banking and merchant relationships.

We are dependent on the banking industry to support the financial functions of our products and services. Similarly, important components of our products and services depend on merchant accounts and relationships, which in turn depend on banking functions. Federal and federally insured state banks currently do not serve those who grow and sell cannabis products on the stated ground that growing and selling cannabis is illegal under federal law. We cannot assure that our strategies and techniques for designing our products and services , which do not include cannabis, will operate effectively and efficiently and not be adversely impacted by the continuing refusal of banks to serve those who grow and sell cannabis products . A change in banking regulations or a change in the position of the banking industry to permit banks to serve those who grow and sell cannabis products may increase competition for us, facilitate new entrants into the industry offering products or services similar to those that we offer, or otherwise adversely affect our results of operations.

We do not sell cannabis or products that contain cannabis, so we do not consider our company to be part of the cannabis industry that would be restricted from using federal and federally insured banks. However, because of "canna" in our name and the fact that our revenue is generated largely from companies licensed as operators in the cannabis industry, banks have and may continue to consider us to be part of the cannabis industry that is subject to banking restrictions. Recently a small number of community banks and credit unions in Colorado have started offering limited banking services to components of the cannabis industry in compliance with the FinCEN guidelines. Although we are perceived by some banks to be part of the regulated cannabis industry, our financial operations have not been hampered by banking restrictions. To date, we have not had to rely on cash transactions and have active banking services to receive payments and to pay vendors.

Although we do not grow or sell cannabis products, our general connection with the cannabis industry may hamper our efforts to do business or establish collaborative relationships with others that may fear disruption or increased regulatory scrutiny of their own activities.
 
We have recently established strategic alliances that we may be unable to integrate into a cohesive and effective business.

We have recently established several strategic alliances with other firms that we believe have developed, or have the potential to develop, complementary products and services. We have not yet had sufficient time or experience to integrate these components into a cohesive and effective business, and we may be unable to do so. Our efforts may be further complicated by additional relationships not now identified. We have now abandoned or deemphasized earlier strategic relationships and may determine to abandon or deemphasize one or more of the strategic relationships we now believe to be important; in which case, we may be unable to recover related costs previously incurred.

6


The conduct of third parties may jeopardize our business or legal compliance.

We cannot assure that our systems, protocols, and practices will prevent unauthorized or illegal activities by customers or retailers with whom or which we do business. Our success will depend on our ability to operate consistent with the regulatory and licensing requirements of each state in which we provide products and services, which in turn may depend on our ability to determine the residences of our customers, the licenses held by retailers with which we do business, and the compliance by our customers and retailers with the regulations applicable to them. We cannot assure that the conduct of third parties will not place our legal status or business in jeopardy and, therefore, expose us to legal sanctions and costs, which would adversely affect our results of operations.
 
Our proprietary data systems may be compromised by hackers.

BumpUp Rewards, Citizen Toke , CannaLIMS, and other products and services that we may develop in the future, will be based on proprietary software and customer-specific data that we protect by routine measures such as password protection, confidentiality and nondisclosure agreements with employees, and similar measures. Any unauthorized access to our software or data could materially disrupt our business and result in financial loss and damages to our business reputation.

Our operations would be adversely affected if we operate in states with undefined regulatory oversight or if regulations change.

We are exposed to regulatory uncertainties resulting from significant differences between the regulatory regimes of various states and uncertainties in states with undefined regulatory regimes. Regulations have only recently been adopted and are likely to change, perhaps becoming more restrictive, as states gather regulatory experience. There is little interpretative guidance or staff experience at state regulatory agencies to provide operating guidance. We conduct business exclusively in states that have enacted formal regulatory regimes and codified laws and ordinances in which licensed cannabis-related businesses are allowed to operate. However, we cannot assure that we, or our customers, will be able to ascertain or comply with all applicable requirements.

Because each state and local jurisdiction may have significant differences in its cannabis-related laws and regulations, we cannot assure that even with the advice of legal counsel familiar with the cannabis laws and regulatory program of a particular state, we will be able to comply with applicable laws and regulations.

Any change in the federal government's enforcement of current federal laws could cause significant financial damage to us. We expect that the disparity between federal and state cannabis legalization and regulation will continue. While we do not intend to harvest, distribute, or sell cannabis or products containing cannabis , we may be irreparably harmed by a change in enforcement by the federal or state governments.

Differences and uncertainties in various state and local laws and ordinances may adversely affect our ability to comply with the laws of each jurisdiction in which we may do business.

We cannot ensure that our systems, protocols, and practices will be timely updated and modified to ensure compliance with the various, diverse, and ever-changing laws and regulatory schemes of the various states and local principalities in which we intend to operate, and failure to do so would materially and adversely affect our financial results and business operations and reputation.

New laws and regulations may be passed that would outlaw our activities.

Due to the rapidly changing rules and regulations in various markets, it is possible that our activities could be prohibited in one or more markets or that federal guidelines could be issued that would have a material adverse effect on our strategy and offerings. In addition, it is possible that the U.S. Department of Justice will decide to pursue enforcement actions against producers, sellers, and any person providing ancillary services within the cannabis industry.
7

 
The apparent current growing public opinion in support of legalization may turn in support of criminalization.

While public polls continue to trend in support of legalization and decriminalization throughout the country, we cannot guarantee that this trend will continue and that the support will not wane among the public.
 
We are a development-stage company with limited revenues.

We are a development-stage company with limited revenue and do not expect to generate significant revenue unless and until our product portfolio, or part of it, is commercialized. We will need to raise additional capital to fund our operations, and we cannot assure that we will be successful in doing so.

We have received a going concern opinion from our auditors.

We have an accumulated deficit and have had negative cash flows from our operations. Accordingly, we have received a report from our independent auditors in connection with our audited financial statements that includes an explanatory paragraph describing their substantial doubt about our ability to continue as a going concern. This may negatively impact our ability to obtain additional funding or funding from external sources on terms attractive to us.

Our future success is largely dependent on our current management.

Our business was built by the vision, dedication, and expertise of our founders Brandon C. Jennewine and Daniel J. Rogers, and our chief executive officer, Michael A . Tew, is responsible for our day-to-day operations and creative development. Although as noted below, Messrs. Jennewine and Rogers resigned from their respective executive officer positions, they continue to serve on our board of directors and assist with our business operations as consultants . Our success is dependent upon the continued efforts of these people. If it became necessary to replace them, it is unlikely new management could be found that would have the same level of knowledge and dedication to our success. The loss of the services of these professionals, especially in the development of future proprietary software, patents, or applications, would adversely affect our business.

Our growth strategy may not be successful.

We intend to expand our operations and marketing base, in large part by establishing and expanding strategic alliances. Our operations are subject to all of the risks inherent in the growth of a new business enterprise, particularly one that operates in an emerging and highly competitive industry. The timing and related expenses of expansion may cause our revenues, if any, to fluctuate. The likelihood of our success must be considered in the light of the problems, expenses, difficulties, complications, and delays frequently encountered in connection with the growth of a business and the reliance on strategic alliances with others, including uncertainty as to implementation of our strategies and capabilities, market acceptance of our products and services, our operating and marketing methods, expenses, and competition. We may not be successful in our proposed expanded business activities.
 
We are an "emerging growth company" and as such, our disclosures may be less extensive than the information you receive from other public companies that are not emerging growth companies.

We qualify as an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from specified disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include:

·
being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced "Management's Discussion and Analysis of Financial Condition and Results of Operations" disclosure;

·
not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting;
 
8

 
 
·
reduced disclosure obligations regarding executive compensation; and

·
exemption from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
 
We are operating in developing markets, and our products may not be accepted in these markets.

We have conducted limited marketing activities to date. Thus, we have relatively little information on which to estimate our levels of sales, the amount of revenue we will generate, and our operating and other expenses. We cannot assure that we will be successful in our efforts to directly market our products or to develop markets in the manner we contemplate.

There are economic and general risks relating to our business.

The success of our activities is subject to risks inherent in business generally, including demand for products and services, general economic conditions, changes in taxes and tax laws, and changes in governmental regulations and policies.
 
Our industry is subject to rapid technological changes that, if we are unable to match or surpass, will adversely affect our competitive position.

Because of the rapid technological development that regularly occurs in the financial payment industry, we must continually devote substantial resources to developing and improving our technology and introducing new product offerings. These efforts and expenditures are necessary to establish market share and, ultimately, to generate revenues. If another company offers better products or technologies, a competitive position or market window opportunity may be lost, and therefore, our revenues or revenue potential may be adversely affected.

Our competitive position, business, and prospects will be impaired if our intellectual property rights do not provide us with the anticipated market protection.

We will rely on our proprietary intellectual property rights to support our competitive position and protect us from unauthorized use of our intellectual property. We believe that our intellectual property rights are valid, enforceable, and valuable. However, third parties may make claims of invalidity respecting our proprietary software and intellectual property, and such claims could give rise to material costs for defense and divert resources away from our other activities. Our proprietary intellectual property is not protected by patents. If we determine to seek and ultimately obtain patents and our patents or patent applications are shown not to be as broad as currently believed or are otherwise challenged such that some or all of the protection is lost, we may suffer adverse effects from the loss of competitive advantage and our ability to offer products and technologies. As a result, there would likely be an adverse impact on our business prospects.

We are subject to outside influences beyond our control, including new legislation, that could adversely affect our licensing and implementation activities and have an adverse impact on the execution of our business plan or associated intellectual properties.

Our licensing and implementation activities are subject to numerous risks from outside influences, including new legislation, regulations, and rules related to obtaining or enforcing patents. As an example, the legalization of the right to grow, harvest, and sell cannabis and cannabis-related products is recent, and it is uncertain as to how the industry that is developing around this new legislation will ultimately evolve. If our product offerings are not properly positioned for this developing industry, it could have an adverse impact on our future financial position and hinder our ability to execute our business plan.

9

 
Risks Related to our Common Stock

Any investment in our shares is considered to be a high-risk investment and is subject to restrictions on marketability because our common stock is considered a "penny stock."

Our common stock trades on the OTCQB securities market under the symbol "MJTK." The OTCQB is a decentralized market regulated by the Financial Industry Regulatory Authority in which securities are traded via an electronic quotation system that serves more than 3,000 companies, but provides significantly less liquidity than national market systems such as the NYSE MKT. On the OTCQB, securities are traded by a network of brokers or dealers that carry inventories of securities to facilitate the buy and sell orders of investors, rather than providing the order matchmaking service seen in specialist exchanges. OTCQB securities include national, regional, and foreign equity issues. Companies traded on the OTCQB must be current in their reports filed with the SEC and other regulatory authorities.
 
Our common stock is subject to Rules 15g-1 through 15g-9 under the Securities Exchange Act of 1934, as amended ("Exchange Act"), which imposes certain sales practice requirements on broker-dealers that sell our common stock to persons other than established customers and "accredited investors" (generally, individuals with a net worth in excess of $1,000,000 or annual incomes exceeding $200,000 (or $300,000 together with their spouses)). For transactions covered by this rule, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser's written consent to the transaction before the sale. This rule adversely affects the ability of broker-dealers to sell our common stock and the ability of our stockholders to sell their shares of common stock.
Additionally, our common stock is subject to the SEC regulations for "penny stock." Penny stock includes any equity security that is not listed on a national exchange and has a market price of less than $5.00 per share, subject to certain exceptions. The regulations require that before any nonexempt buy/sell transaction in a penny stock, a disclosure schedule set forth by the SEC relating to the penny stock market must be delivered to the purchaser of such penny stock. This disclosure must include the amount of commissions payable to both the broker-dealer and the registered representative and current price quotations for the common stock. The regulations also require that monthly statements disclosing recent price information for the penny stock and information of the limited market for penny stocks be sent to holders of penny stock. These requirements adversely affect the market liquidity of our common stock.

Our indemnification of our directors and officers may limit the rights of our stockholders.

While our board of directors and officers are generally accountable to our stockholders and us, the liability of our directors and officers to all parties is limited in certain respects under applicable state law and our articles of incorporation and bylaws, as in effect. Further, we have agreed or may agree to indemnify our directors and officers against liabilities not attributable to certain limited circumstances. This limitation of liability and indemnity may limit rights that our stockholders would otherwise have to seek redress against our directors and officers.
 
Stockholders may suffer substantial dilution related to issued stock options and warrants, convertible notes, and stock grants.

As of  August 31 , 2016, we had a number of agreements or obligations for the possible issuance of common stock that may result in dilution to investors. These include:

·
230 ,000 shares required for issuance upon the exercise of warrants; and

·
14.4 million shares required for issuance under our outstanding convertible notes .
 
The common stock to be issued on conversion of our convertible notes will be at discounts ranging from 30% to 55% to the lowest daily volume - weighted average price of our common stock for the number of consecutive trading days under the term of the respective debt instruments . Additionally, the sale, or even the possibility of the sale, of the shares of common stock underlying these commitments could have an adverse effect on the market price for our securities or on our ability to obtain future financing.

10

 
Additional issuances of stock options and warrants, convertible notes, and stock grants will cause additional substantial dilution to our stockholders.

Given our limited cash, liquidity, and revenues, it is likely that in the future, as in the past, we will issue additional warrants, stock grants, and convertible debt to finance our future business operations and acquisitions and strategic relationships. The issuance of additional shares of common stock, the exercise of warrants, and the conversion of debt to stock could cause additional dilution to our stockholders and could have further adverse effects on the market price for our securities or on our ability to obtain future financing.
 
Our shares of common stock are thinly traded, so stockholders may be unable to sell at or near ask prices or at all if they need to sell shares to raise money or otherwise desire to liquidate their shares.
 
Our common stock is traded in very low volumes, reflecting the fact that the number of persons interested in purchasing our common stock at or near ask prices at any given time may be relatively small or nonexistent. In addition to the adverse impact of our limited financial and management resources and our development stage, this situation may be attributable to a number of factors, including the fact that we are a small company that is relatively unknown to stock analysts, stock brokers, institutional investors, and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we become more seasoned and viable. As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or nonexistent, as compared to a seasoned issuer, which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We cannot assure stockholders that a broader or more active public trading market for our common shares will develop or be sustained or that current trading levels will be sustained. We cannot control or materially affect the trading market in our stock.
 
Even if we were to generate profits, w e do not currently intend to pay dividends on our common stock in the foreseeable future, and consequently, our stockholders' ability to achieve a return on their investment will depend on appreciation in the price of our common stock.
 
We have never generated a profit or declared or paid cash dividends on our common stock and do not anticipate paying any cash dividends to holders of our common stock in the foreseeable future even if we generate a profit. Consequently, our stockholders must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments. There is no guarantee that shares of our common stock will appreciate in value or even maintain the price at which our stockholders have purchased their shares.
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Our stockholders may not recoup all or any portion of their investment upon our dissolution.

In the event of a liquidation, dissolution, or winding-up of our company, whether voluntary or involuntary, our net remaining proceeds and/or assets, after paying all of our debts and liabilities, will be distributed to the holders of common stock on a pro-rata basis. We cannot assure that we will have available assets to pay to the holders of common stock any amounts upon such a liquidation, dissolution, or winding-up of our company. In this event, our stockholders could lose some or all of their investment.
 
Our relationship with MHB, Inc., may be difficult to manage, and conflicts of interest may arise under our joint venture company.

Through the stock exchange with MHB, Inc., we own 49% of the issued and outstanding shares of MHB stock, and MHB and its stockholders own 10,000,000 shares of our issued and outstanding shares. We have one seat on MHB's board of directors, and it has the right to nominate one director on our board. Although we own 51% of the new joint venture company, Mile High Consulting and Branding, Inc., and control its board of directors, under the stockholders agreement, distributions of revenue from a particular opportunity may vary depending on the nature of the opportunity, who brought to opportunity to the joint venture's attention, funding requirements for the opportunity, and other factors. In addition, the nature of each opportunity may give rise to conflicts of interest between the joint venture and its stockholders. In this relationship, it is imperative that the parties cooperate and work together for the benefit of each organization and their respective stockholders. Failure to do so could cause substantial harm to us and our stockholders.

The sale of our common stock to Kodiak Capital may cause dilution, and the sale of the shares of common stock acquired by Kodiak Capital, or the perception that such sales may occur, could cause the price of our common stock to fall.
 
On December 15, 2015, we entered into the Purchase Agreement with Kodiak Capital, pursuant to which it committed to purchase up to $1 million of our common stock. We may put shares pursuant to the Purchase Agreement to Kodiak Capital at our discretion, commencing after the SEC has declared effective the registration statement that includes this prospectus, until December 31, 2016. We generally have the right to control the timing and amount of any sales of our shares to Kodiak Capital, except that, pursuant to the terms of the Purchase Agreement, we would be unable to sell shares to Kodiak Capital if such purchase would result in its beneficial ownership equaling more than 9.99% of our outstanding common stock. We cannot assure that Kodiak Capital will comply with its covenant in the Purchase Agreement not to sell, or "short," in anticipation of the purchase of stock from us. After Kodiak Capital has acquired our shares, it may sell all, some, or none of those shares. Therefore, sales to Kodiak Capital by us could result in substantial dilution to the interests of other holders of our common stock. Additionally, the sale of a substantial number of shares of our common stock to Kodiak Capital, or the anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish.

In addition, the per-share purchase price for these shares will fluctuate based on the price of our common stock and will be equal to 70% of the lowest daily volume-weighted average price of our common stock for the five consecutive trading days immediately following our delivery of a put notice to Kodiak Capital to purchase the shares. Depending on market liquidity at the time, sales of these shares may cause the trading price of our common stock to fall.

Kodiak Capital will pay 30% less than the then-prevailing market price for our common stock.

We will sell   common stock to Kodiak Capital pursuant to the Purchase Agreement at a 30% discount to the lowest daily volume-weighted average price of the common stock for the five consecutive trading days immediately following our delivery of a put notice to Kodiak Capital to purchase the shares. Kodiak Capital has a financial incentive to sell our common stock immediately upon receiving the shares to realize the profit equal to the difference between the discounted price and the market price. If Kodiak Capital sells the shares, the price of our common stock could decrease. If our stock price decreases, Kodiak Capital may have a further incentive to sell the shares of our common stock that it holds. These sales may have a further impact on our stock price .
 
 
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FORWARD-LOOKING STATEMENTS

This prospectus contains statements about the future, sometimes referred to as "forward-looking" statements. Forward-looking statements are typically identified by the use of the words  "believe," "may," "could," "should," "expect," "anticipate," "estimate," "project," "propose," "plan," "intend," and similar words and expressions. Statements that describe our future strategic goals, plans, objectives, and predictions are also forward-looking statements. This prospectus contains forward-looking statements relating to our anticipated revenues, gross margin and operating results, future performance and operations, plans for future expansion, capital spending, sources of liquidity, and financing sources. This forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future, and accordingly, such results may differ from those expressed in any forward-looking statements made herein. These risks and uncertainties include those relating to our liquidity requirements, the continued growth of the software industry, the success of our product development, marketing and sales activities, vigorous competition in the software industry, dependence on existing management, leverage and debt service (including sensitivity to fluctuations in interest rates and the trading price of our common stock), domestic or global economic conditions, the inherent uncertainty and costs of prolonged arbitration or litigation, and changes in federal or state tax laws or the administration of such laws.
 
Any forward-looking statements, including those regarding our or our management's current beliefs, expectations, anticipations, estimations, projections, proposals, plans or intentions, are not guarantees of future performance or results or events and involve risks and uncertainties, such as those discussed in this prospectus.

The forward-looking statements are based on present circumstances and on our predictions respecting events that have not occurred, that may not occur, or that may occur with different consequences from those now assumed or anticipated. Actual events or results may differ materially from those discussed in the forward-looking statements as a result of various factors, including the risk factors discussed in this prospectus. These cautionary statements are intended to be applicable to all related forward-looking statements wherever they appear in this prospectus. Any forward-looking statements are made only as of the date of this prospectus, and we assume no obligation to update forward-looking statements to reflect subsequent events or circumstances.
 
EMERGING GROWTH COMPANY

We are an "emerging growth company" within the meaning of the federal securities laws. For as long as we are an emerging growth company, we will not be required to comply with the requirements that are applicable to other public companies that are not "emerging growth companies," including: not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act; being able to provide reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and the exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We intend to take advantage of these reporting exemptions until we are no longer an emerging growth company. For a description of the qualifications and other requirements applicable to emerging growth companies and certain elections that we have made due to our status as an emerging growth company, see Risk Factors— We are an "emerging growth company" and as such, our disclosures may be less extensive than the information you receive from other public companies that are not emerging growth companies .

13


PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The following table sets forth the range of low and high closing sale prices for our common stock for the each of the periods indicated as reported and summarized by the OTCQB:
 
   
As Reported
   
Pro Forma Adjusted to Give Retroactive Effect to 20:1 Reverse Split
 
   
Low
   
High
   
Low
   
High
 
2016:
                       
Third Quarter (to September 16, 2016)
 
$
0.003
   
$
0.016
   
$
0.06
   
$
0.32
 
Second Quarter  
   
0.005
     
0.35
     
0.10
     
7.00
 
First Quarter  
   
0.15
     
0.31
     
3.00
     
6.20
 
                                 
2015:
                               
Fourth Quarter  
   
0.26
     
0.40
     
5.20
     
8.00
 
Third Quarter  
   
0.23
     
0.40
     
4.60
     
8.00
 
Second Quarter  
   
1.00
     
1.65
     
20.00
     
33.00
 
First Quarter  
   
1.50
     
2.00
     
30.00
     
40.00
 
                                 
2014:
                               
Fourth Quarter  
   
2.00
     
6.00
     
40.00
     
120.00
 
Third Quarter  
   
1.50
     
8.50
     
30.00
     
170.00
 
Second Quarter  
   
1.08
     
1.09
     
21.60
     
21.80
 
First Quarter  
   
1.75
     
1.85
     
35.00
     
37.00
 

Immediately preceding the date of this prospectus , the closing price per share of our common stock on the OTCQB was $0. 0032 . As of September 16 , 2016, we had approximately 83 stockholders of record of our common stock and 3,403,176 shares of our common stock issued and outstanding.

Holders of shares of common stock are entitled to share pro rata in dividends and distributions respecting the common stock when, as, and if declared by the board of directors out of funds legally available therefor. We have not paid any dividends on our common stock and intend to retain earnings, if any, to finance the development and expansion of our business. Future dividend policy is subject to the discretion of the board of directors and will depend upon a number of factors, including future revenues, capital requirements, overall financial condition, and such other factors as our board of directors deems relevant.


USE OF PROCEEDS

This prospectus relates to shares of our common stock that may be offered and sold from time to time by the selling stockholder. We will not receive any proceeds upon the sale of shares by the selling stockholder in this offering. However, we may receive gross proceeds of up to $1 million under the Purchase Agreement with Kodiak Capital, assuming that we sell the full amount of our common stock that we have the right, but not the obligation, to sell to Kodiak Capital under this agreement. See "Plan of Distribution" on page 46 in this prospectus for more information.

We currently expect to use the net proceeds from the sale of shares to Kodiak Capital under the Purchase Agreement to further develop our products, reduce current liabilities, and fund other general corporate purposes. We will have broad discretion in determining how we will allocate the proceeds from any sales to Kodiak Capital.
Even if we sell $1 million in shares of our common stock to Kodiak Capital pursuant to the Purchase Agreement, we will need to obtain additional financing in the future in order to fully fund all of our planned activities. We may seek additional capital in the private and public equity or debt markets, pursue business development activities and business combinations to continue and expand our operations, respond to competitive pressures, develop new products and services, and to support new strategic partnerships. We are evaluating additional equity financing opportunities on an ongoing basis and may execute them when appropriate. However, we cannot assure that we can consummate such a transaction, or consummate a transaction at favorable pricing.
14



CAPITALIZATION

The following table sets forth our capitalization as of June 30, 2016, after giving effect to the 20-to-one reverse stock split and the automatic conversion of 1,515,000 shares of preferred stock to the same number of shares of common stock, but without giving effect to any changes subsequent to such date, and as adjusted to reflect the subsequent sale of 1,102,475   shares to the selling stockholder. This information should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this prospectus :
 
 
   
Before 20:1 Reverse Split and Conversion of Preferred Stock
   
After 20:1 Reverse Split and Conversion of Preferred Stock
   
After Offering
   
Percent
 
                         
Outstanding
                       
Preferred stock
   
1,515,000
                   
Common stock
   
66,548,517
                   
     
68,063,517
     
3,403,176
     
3,403,176
     
75.5
%
Sold in offering
   
-
     
-
     
1,102,475
     
24.5
%
     
68,063,517
     
3,403,176
     
4,505,651
     
100.0
%
                                 
                                 
Capitalization
                               
                                 
Par value
 
$
0.001
   
$
0.001
   
$
0.001
         
                                 
Stated capital
 
$
68,063.52
   
$
3,403.18
   
$
4,505.65
         
                                 
Additional paid in capital
   
7,788,149
     
7,852,809
     
7,886,280
         
Retained earnings
 
$
(7,466,226
)
 
$
(7,466,226
)
 
$
(7,466,226
)
       
   
$
389,987
   
$
389,987
   
$
424,560
         

 
The number of outstanding shares shown above excludes an aggregate of 4.2 million   shares that may be issued on the exercise of warrants and conversion of notes outstanding as of the date of this prospectus .

The sale of our common stock to Kodiak Capital at 70% of the lowest daily volume-weighted average price of our common stock for the five consecutive trading days immediately following our delivery of a put notice in accordance with the Purchase Agreement will substantially increase the number of shares we will have outstanding and correspondingly dilute the percentage interest in us of our existing stockholders, including persons purchasing common stock in this offering. The reduction in the percentage interest held by existing stockholders will be further reduced as a result of the conversion of an aggregate of $526,966 in outstanding promissory notes at a weighted average price equal to 56.9% of the trading price of our common stock at the time of conversion .

15


DILUTION

Our net tangible book value on June 30, 2016 , not adjusted to reflect any changes in our financial condition since that date, was $ 39,815 , or approximately $ 0. 012 per share , as adjusted to give effect to the Recapitalization and the related conversion of 1,515,000 shares of preferred stock to the same number of shares of common stock . "Net tangible book value " is total assets minus the sum of liabilities and intangible assets. "Net tangible book value per share" is net tangible book value divided by the total number of shares outstanding before the offering.

The following table illustrates the dilution, or the difference between the offering price per share, assuming an offering price of the closing trading price immediately preceding the date of this prospectus , and the adjusted net tangible book value per share as of June 30, 2016 , as adjusted to reflect the Recapitalization, the related conversion of 1,515,000 shares of preferred stock to the same number of shares of common stock, and the receipt of net proceeds from the sale of shares to Kodak Capital at a price equivalent to 70% of the price at which such shares are sold to the public as illustrated in this prospectus , but to no other events subsequent to June 30, 2016 :

Trading price on  the date immediately preceding the date of this prospectus                                                                                                                            
 
$0. 064
Net tangible book deficit per share as of  June 30, 2016                                                                                                                                   
$ 0.012
 
Benefit to existing stockholders attributable to sale of stock to Kodiak Capital
0.014
 
Pro forma net tangible book per share after the offering                                                                                                                                       
  $0.026
 
Dilution per share to purchasers in this offering                                                                                                                                       
 
$ 0.038

The sale of our common stock to Kodiak Capital at 70% of the lowest daily volume-weighted average in price of our common stock for the five consecutive trading days immediately following our delivery of a put notice in accordance with the Purchase Agreement will have a dilutive impact on our stockholders. This dilutive effect will be increased as a result of the conversion of an aggregate of $526,966 in outstanding promissory notes at a weighted average price equal to 56.9% of the trading price of our common stock at the time of conversion. As a result, in future periods our net loss per share could increase in future periods, the net tangible book value of our common stock could decrease, and the market price of our common stock could decline. In addition, the lower our stock price is at the time we exercise our put option, the more shares of our common stock we will have to issue to Kodiak Capital in order to drawdown pursuant to the Purchase Agreement. If our stock price decreases during the pricing period, then our existing stockholders would experience greater dilution.
16


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

Introduction

We create, develop, and commercialize innovative solutions for the expanding medical and recreational cannabis community. Our solutions enhance customer service and provider efficiency, including customer loyalty software applications; create producer and retailer opportunities through the distribution of our own retail brands; and assist with marketing and branding for product companies. We do not grow, distribute, or sell cannabis or products containing cannabis .

We began our cannabis industry activity with the organization of a predecessor privately held entity in late 2013 to create, develop, and commercialize innovative solutions to solve customer service and provider problems, create producer and retailer opportunities, build retail customer loyalty, and streamline the connections among the producer, seller, and consumer/patient segments for the growing medical and recreational cannabis community. Since organization, we have focused on raising capital, creating new products, building marketing and distribution capability and channels, and pursuing complementary strategic alliances and acquisitions.

In August 2014, Cannasys, Inc., then called Thermal Tennis, Inc., acquired our predecessor engaged in cannabis industry-related activities as noted above in a transaction recognized as a reverse acquisition of the company by the predecessor private company. This discussion relates to the financial statements of the privately held predecessor entity for all periods before the reverse acquisition.
 
Results of Operations for the Year Ended December 31, 2015 , Compared to the Year Ended December 31, 2014
Revenue and Costs of Goods Sold

Our revenue of $119,325 and $6,538 for the years ended December 31, 2015 and 2014, respectively, was not material. Our revenue has been generated through a combination of software development and consulting services related to custom-built software. We generate the majority of our revenue from custom software development related to CannaLIMS, ongoing recurring contracts for BumpUp Rewards, and custom development related to BumpUp Rewards white-label applications. As of December 31, 2015, we did not generate a material amount of revenue from our strategic relationships.
Our cost of goods sold of $47,823 and $12,006 for the years ended December 31, 2015 and 2014, respectively, was not material.
Although the net changes and percent changes for our revenues and our cost of goods sold for 2015 and 2014 are summarized above, these trends should not be viewed as a definitive indication of our future results.
Operating Expenses
Stock-based compensation expense was $904,125 and $1,012,500 for the years ended December 31, 2015 and 2014, respectively, representing a decrease of $108,375, or 10.7%, in 2015 .   Compensation expense in the current year is due to warrants issued to officers, consultants, and other service providers . Compensation expense in the prior year reflects stock-based bonus compensation.

Professional fees were $ 207,892 and $130,642 for the years ended December 31, 2015 and 2014, respectively, representing an increase of $77,250, or 59.1%, in 2015. The increase in 2015, as compared to 2014, can be largely attributed to an increase in legal fees.

Salary and wage expense was $491,223 and $274,057 for the years ended December 31, 2015 and 2014, respectively, representing an increase of $217,166, or 7.9%, in 2015. The increase in 2015, as compared to 2014, is due to an increased number of employees in the beginning of 2015.
17


General and administrative expense was $231,033 and $303,670 for the years ended December 31, 2015 and 2014, respectively, representing a decrease of $72,637, or 23.9%, in 2015. The decrease in 2015, as compared to 2014, can be attributed to a decrease in promotional activity and the use of subcontractors.

Other Income and Expense

For the year ended December 31, 2015 we had total other expense of $2,095,085, compared to $0 for the year ended December 31, 2014. For the year ended December 31, 2015, we recorded interest expense of $6,344 and an impairment loss on investment of $1,846,515. In addition, as a result of the convertible promissory note, we recorded interest expense on debt discount of $85,250 and a loss on the issuance of convertible debt of $152,866. We had none of these expenses in the prior year.

Net Loss

For the year ended December 31, 2015, we had a net loss of $3,857,856, as compared to a net loss of $1,726,337 in the prior year, an increase of $2,131,519. This increase is the direct result of the impairment and licensing expenses incurred as discussed above.

Results of Operations for the Three Months Ended June 30, 2016, Compared to the Three Months Ended June 30, 2015

Revenue and Costs of Goods Sold

Revenue was $22,489 and $18,491 for the three months ended June 30, 2016 and 2015, respectively, representing an increase of $3,998, or 21.6%, in the current period. Our revenue has been generated through a combination of software development and consulting services related to custom-built software. We generate the majority of our revenue from custom software development related to CannaLIMS, ongoing recurring contracts for BumpUp Rewards, and custom development related to BumpUp Rewards white-label applications.

Our cost of goods sold was $0 and $2,854 for the three months ended June 30, 2016 and 2015, respectively, a decrease of $2,854.
 
Operating Expenses

Stock-based compensation expense was $109,500 and $0 for the three months ended June 30, 2016 and 2015, respectively. Compensation expense in the current year is largely due to warrants issued to officers, consultants, and other service providers. There were no warrants granted in the prior period.

Professional fees were $112,241 and $18,839 for the three months ended June 30, 2016 and 2015, respectively, representing an increase of $93,402, or 496%, in the current period. The increase can be largely attributed to an increase in legal and audit fees .

Salary and wage expense was $ 45,177 and $110,770 for the three months ended June 30, 2016 and 2015, respectively, representing a decrease of $65,593, or 59.2%, in the current period. The decrease in the current period is due to a decrease in the number of employees .

General and administrative expense was $ 90,646 and $56,900 for the three months ended June 30, 2016 and 2015, respectively, representing an increase of $33,746, or 59.3%, in the current period. The increase in the current period can be attributed to an increase in consulting expense and the use of other subcontractors.

Other Income and Expense

For the three months ended June 30, 2016, we had total other expense of $810,218, compared to $251 for the three months ended June 30, 2015. For the three months ended June 30, 2016, we recorded interest expense of $8,630, amortization of debt discount of $323,349, and a loss on the issuance of convertible debt of $478,239. In the prior period, we recorded only $451 of interest expense.
 
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Net Loss
For the three months ended June 30, 2016, we had a net loss of $1,145,293, as compared to a net loss of $171,323 in the prior period. This increase is the direct result of stock-based compensation, interest expense for debt discount, and the loss on issuance of convertible debt, as discussed above .
Results of Operations for the Six Months Ended June 30, 2016, Compared to the Six Months Ended June 30, 2015
Revenue and Costs of Goods Sold
Revenue was $58,651 and $28,248 for the six months ended June 30, 2016 and 2015, respectively, representing an increase of $ 30, 403, or 107.6% , in the current period . Our revenue has been generated through a combination of software development and consulting services related to custom-built software. We generate the majority of our revenue from custom software development related to CannaLIMS, ongoing recurring contracts for BumpUp Rewards, and custom development related to BumpUp Rewards white-label applications .
Our cost of goods sold was $24,260 and $3,218 for the six months ended June 30, 2016 and 2015, respectively, an increase of $21,042.
Operating Expenses
Stock-based compensation expense was $485,467 and $0 for the six months ended June 30, 2016 and 2015, respectively. Compensation expense in the current year is largely due to warrants issued to officers, consultants, and other service providers. There were no warrants granted in the prior period .
Professional fees were $ 212,427 and $96,980 for the six months ended June 30, 2016 and 2015, respectively, representing an increase of $115,447, or 119%, in the current period. The increase can be largely attributed to an increase in legal and audit fees.
Salary and wage expense was $ 134,701 and $236,854 for the six months ended June 30, 2016 and 2015, respectively, representing a decrease of $ 102,153, or 75.8%, in the current period. The decrease in the current period is due to a decrease in the number of employees .
General and administrative expense was $ 130,021 and $104,191 for the six months ended June 30, 2016 and 2015, respectively, representing an increase of $25,830, or 24.7%, in the current period. The increase in the current period can be attributed to an increase in consulting expense and the use of other subcontractors .
Other Income and Expense
For the six months ended June 30, 2016, we had total other expense of $921,312 , compared to $ 678 for the six months ended June 30, 2015. For the six months ended June 30, 2016, we recorded interest expense of $16,455, amortization of debt discount of $415,849, and a loss on the issuance of convertible debt of $489,011. In the prior period, we recorded only $451 of interest expense.
Net Loss
For the six months ended June 30, 2016, we had a net loss of $1,849,540, as compared to a net loss of $413,673 in the prior period. This increase is the direct result of stock-based compensation, interest expense for debt discount, and the loss on issuance of convertible debt, as discussed above .
Liquidity and Capital Resources

During the six months ended June 30, 2016, we used cash of $ 217,666 in operating activities and received $217,500 from financing activities .
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Our current business expenses average approximately $ 30 ,000 per month, excluding capital expenditures specific to new product launches. We continue to focus on reducing our monthly business expenses through cost reductions and operational streamlining. Currently, we do not have enough cash on hand to sustain our business operations and, alongside expected revenue, we expect to access external capital resources in the near future. At the moment, we are seeing increased adoption across our business lines, but we cannot guarantee this will continue.

We anticipate also accessing the capital markets in order to fund future research and development, as well as expand product offerings to include future versions of products and possible acquisitions of ancillary products and services. We have budgeted $ 1 million for capital expenditures and other costs during the next 12 months, consisting of $200,000 for enhanced software development and marketing in the coming six months, $200,000 in overhead, $500 ,000 for debt retirement, $15,000 in remaining license fees under our license agreement with Loyl.Me, $ 85,000 for legal, audit and accounting expenses. We have budgeted $500,000 for debt retirement and, if necessary, to provide for refinancing or extensions of our existing debt, including principal and any interest due under the terms of our current financing agreements with our capital partners. We do plan to raise additional debt financing, although we cannot guarantee what structures our sources of financing may choose in the future, and there is no guarantee we will be able to secure additional funding. In addition, the vast majority of our debt is convertible into common stock, in which case we will not have to retire it; the investors are able to convert the debt into our shares. If we were to retire all of our outstanding debt, including the convertible promissory notes, and pay the maximum potential interest due, we would need to budget approximately $700,000. In addition to the remaining $15,000 in licensing fees owed to Loyl.Me, our licensing agreement also provides an 8% gross revenue royalty to Loyl.Me for our version of the Loyl.Me software platform for its use within the cannabis industry.

We anticipate that we will fund these costs from proceeds from projected revenues, as well as from the sale of common stock to Kodiak Capital under the Purchase Agreement and other potential sources. It is possible that additional external cash will be required during the next 12 months, particularly if we seek to develop new products, need to fund new strategic relationships, or enter new markets not now anticipated or if projected revenues are not realized.

Our efforts are focused on increasing revenue while we explore external funding alternatives as our current cash is insufficient to fund operations for the next 12 months. Although our independent auditors have expressed substantial doubt about our ability to continue as a going concern, we feel that our revenue potential is sufficient for our business to continue as a going concern. However, in order to expand our product offerings, we expect that we will require additional investments and revenue.

As we continue to develop new products and identify specific commercialization opportunities, we will focus on those product markets and opportunities for which we might be able to get external funding through joint venture agreements, strategic partnerships, or other direct investments.

Going Concern

Our interim unaudited financial statements have been prepared on the going concern basis, which assumes that adequate sources of financing will be obtained as required and that our assets will be realized and liabilities settled in the ordinary course of business. Accordingly, the interim unaudited financial statements do not include any adjustments related to the recoverability of assets and classification of assets and liabilities that might be necessary should we not be unable to continue as a going concern.

Off Balance Sheet Arrangements

As of June 30, 2016 , there were no off balance sheet arrangements.
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Critical Accounting Policies

We have identified the policies outlined below as critical to our business operations and an understanding of our results of operations. The list is not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. GAAP , with no need for management's judgment in their application. The impact and any associated risks related to these policies on our business operations is discussed throughout Management's Discussion and Analysis of Financial Condition and Results of Operations when such policies affect our reported and expected financial results. For a detailed discussion on the application of these and other accounting policies, see the notes to our December 31, 2015 , financial statements. Note that our preparation of the financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenue and expenses during the reporting period. We cannot assure that actual results will not differ from those estimates .

Stock-based Compensation

We account for equity-based transactions with nonemployees under the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 505-50, Equity-Based Payments to Non-Employees . ASC 505-50 establishes that equity-based payment transactions with non-employees shall be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The fair value of common stock issued for payments to nonemployees is measured at the market price on the date of grant. The fair value of equity instruments, other than common stock, is estimated using the Black-Scholes option valuation model. In general, we recognize the fair value of the equity instruments issued as deferred stock compensation and amortize the cost over the term of the contract.

We account for employee stock-based compensation in accordance with the guidance of ASC 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. The fair value of the equity instrument is charged directly to compensation expense and credited to additional paid-in capital over the period during which services are rendered .

Revenue Recognition

We follow ASC 605-10-S99-1 , Revenue Recognition , for revenue recognition. We will recognize revenue when it is realized or realizable and earned. We consider revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists; (ii) the product has been shipped or the services have been rendered to the customer; (iii) the sales price is fixed or determinable; and (iv) collectability is reasonably assured .

Income Taxes

We follow ASC 740-10-30 , Income Taxes-Initial Measurement , which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the fiscal year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the fiscal years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Statements of Income in the period that includes the enactment date .

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We adopted ASC 740-10-25, Income Taxes — Recognition . ASC 740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740-10-25, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. ASC 740-10-25 also provides guidance on derecognition, classification, interest and penalties on income taxes, and accounting in interim periods and requires increased disclosures. We had no material adjustments to our liabilities for unrecognized income tax benefits according to the provisions of ASC 740-10-25 .

Recently Issued Accounting Pronouncements
 
In September 2015, the FASB issued Accounting Standards Update ("ASU") No. 2015-16, Business Combinations (Topic 805) . Topic 805 requires that an acquirer retrospectively adjust provisional amounts recognized in a business combination during the measurement period. To simplify the accounting for adjustments made to provisional amounts, the amendments in the update require that the acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amount is determined. The acquirer is required to also record, in the same period's financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. In addition, an entity is required to present separately on the face of the income statement or disclose in the notes to the financial statements the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. ASU 2015-16 is effective for fiscal years beginning December 15, 2015. The adoption of ASU 2015-016 is not expected to have a material effect on our financial statements.

In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes . The new guidance requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. This update is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. We do not anticipate the adoption of this ASU will have a significant impact on our financial position, results of operations, or cash flows.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) . The guidance in ASU No. 2016-02 supersedes the lease recognition requirements in ASC 840, Leases (FAS 13). ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. We are currently evaluating the effect this standard will have on our financial statements.

We have implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and we do not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on our financial position or results of operations.

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BUSINESS

Overview

 
Since 2013, we have focused on developing and acquiring products and services that are attractive components of the ancillary services segment of the regulated cannabis industry. We do not grow or produce cannabis or products that contain cannabis. We sell value-add services that we believe enhance branding, marketing, and other key touch-points within the regulated cannabis industry.

The cannabis industry is rapidly changing, driven by favorable regulatory expansion at the state level, enhanced regulation around cultivation and testing, and maturation of marketing and branding efforts among both retailers and branded product companies. Our initial products, CannaCash, CannaTrade, ExchangeHemp, and CannaLIMS, either have been merged with our newly launched products or remain components of our product suite as we seek to introduce streamlined, more cost-effective, and high-margin technology and services into the changing marketplace.

Our initial consumer product, BumpUp Rewards, was introduced into the market as CannaCash in July 2014 and did not fully reach the market as BumpUp Rewards until July of 2015. Since that time, we have focused our efforts on selective market penetration for BumpUp Rewards in order to gain information on the consumer's purchasing habits and retailers' marketing needs.

In the last year, we have worked to acquire technology and branding assets that enhance our asset base while restructuring the overall business to streamline product and service integration and operations. The cannabis industry continues to encounter resistance from traditional loyalty marketers, branded consumer products companies, as well as traditional banking, all of which we believe present an opportunity for us.

Our products serve both medical and recreational growers, dispensers, and customers. Our product development and introduction is focused on Colorado, where both medical and recreational cannabis are permitted under a developing regulatory regime , as well as California, a rapidly evolving market that we believe presents an opportunity for our products . We are preparing for future expansion if and as cannabis for medical or recreational use becomes legalized and regulated in additional states that have ongoing public dialogue and regulatory or legislative consideration regarding legalization, such as Nevada, Oregon, the District of Columbia, and others. In the next 12 months, we are considering operating in only Colorado, Washington, California (medical only), and Oregon, since the Oregon voters approved legalization with the Oregon Liquor Control Commission tasked with regulating sales of marijuana
.

Our principal activities to date have been the following:

·
Raising Capital . We have been focused primarily on raising capital to finance our operations and software research and development.

·
Creating New Products . We have developed new software products, including BumpUp Rewards, CannaLIMS, a laboratory information management systems product , as well as BumpUp Rewards white-label. We recently acquired, and will continue to develop, Citizen Toke .

·
Marketing and Distribution . We have selectively marketed our core software products to the cannabis industry.

·
Strategic Relationships . We have focused on establishing complementary strategic relationships and selecting acquisitions in order to facilitate new and complementary product development and distribution.
 
The availability, functionality, and payment options of our products are tailored, based on state and local laws and regulations. Our software products are centrally hosted by us   and accessed by the client through web browsers and mobile applications .

 
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We believe legal compliance is important in this industry in which we serve directly regulated growers, distributors, retailers, and customers. We check the state licensure status of producers and retailers, regularly monitor disciplinary actions, and routinely update our compliance database. We will stop doing business with firms that are not properly licensed. Our operating systems integrate regulatory compliance and operational accounting. We have in place standard contracts with a verified legal signing authority for our counterparties, as well as end-user licensing agreements, with which to hold accountable the parties we approve to use either system.

Products

BumpUp Rewards

We developed BumpUp Rewards as an affiliate-based membership rewards loyalty program, based on Loyl.Me's Automated Cloud and Customer Relationship Management Platform, designed specifically for the cannabis industry. An early version of BumpUp Rewards was introduced into the market as CannaCash in July 2014. The BumpUp Rewards application is free for customers and an efficient use of marketing dollars for dispensaries and providers. The BumpUp Rewards application allows for strong social media ties and an electronic solution for providing gifts, points, and discounts to friends and family. BumpUp Rewards includes an internal control mechanism designed to enhance compliance with the regulatory requirements applicable to individual retail outlets and customers based on applicable state licensing information and customers' locations. BumpUp Rewards enables retailers to gain new customers through gifts, to retain customers through the affiliate and store-specific points program, and to tailor specials and free advertising via the BumpUp Rewards program to a growing customer marketplace. We license our customers to use this product and provide updates in consideration of the payment of monthly fees.

For retail establishments, BumpUp Rewards offers the ability to gain new customers through gifts, retain customers through the affiliate and store-specific points program, and tailor specials and free advertising via the BumpUp Rewards program to an increasingly significant customer marketplace.

BumpUp Rewards White-Label Applications

On December 22, 2015, we entered into a joint software development and marketing agreement with National Concessions Group, Inc., the organization responsible for marketing and branding a cannabis product brand called O.penVAPE. BumpUp Rewards white-label application, the product of this joint effort , is an advanced version of our BumpUp Rewards application intended to incentivize product and corporate sales organizations through a proprietary points system. O.PenVape's "O Rewards" loyalty application, based on our BumpUp Rewards platform, became available for download to consumers in both iOS and Android devices in beta format in March 2016 .
 
Citizen Toke

On August 10, 2016, we acquired Citizen Toke, a mobile, text-message-based deals platform focused on user acquisition and customer engagement for both regulated cannabis retailers and branded products companies, from Beta Killers LLC. Beta Killers LLC is an innovation laboratory that develops technologies to improve the ways consumers and businesses interact. Simultaneously, we agreed to provide $100,000 in cash to fund development of a more advanced version of Citizen Toke's software platform and engaged the Citizen Toke lead developer as an adviser. We are negotiating collaborative arrangements with partners to launch the Citizen Toke platform in Colorado and California. We are encouraged by initial feedback from customers, retailers, and branded products companies and plan to focus on launching the Citizen Toke application into the market.

MHB, Inc. Branded Products

MHB, Inc. branded products are products and opportunities developed with MHB, Inc. MHB is a licensing and distribution company focused on the regulated cannabis industry. MHB contracts with celebrity brands and organizations and creates licensing opportunities for us through this relationship. We currently have a number of product licensing and distribution opportunities in partnership with MHB and expect to expand that portfolio in the future. On May 6, 2016, we announced the collaboration of O.penVAPE with Ziggy Marley to launch a branded line of vaporizer products in association with MHB.
 
 
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CannaLIMS

CannaLIMS is a laboratory management information system product focused solely on the cannabis marketplace to assist cannabis laboratories in meeting multiple state and local level regulatory reporting requirements, which we update regularly. We license our CannaLIMS system to customers, who access the software through web browsers and mobile applications, for recurring license fees. We launched this product into the market and have secured recurring revenue clientele. However, to date, demand for CannaLIMS has been limited as many laboratories build and use their own software, so we have shelved its marketing and development for the time being .

Marketing

We strive to integrate our marketing and sales strategies in order to minimize our user acquisition costs for software products we license while maximizing the distribution of our branded products businesses. We plan to gain scale through the implementation of social media, search-engine optimization, and web-based marketing. We also have a strategic relationship and minority interest in Duby, LLC, a social media application focused on cannabis users. Duby and its management team have helped us in introducing and marketing our services to its customers as well as assisting with acquiring new customers .
 
Going forward , we plan to continue to broaden the products and services we offer through our established marketing channels. We market all of our products within regulatory constraints.

We cannot assure that we will be able to attain any of the above operational goals or that we will be able to obtain funding that may be required to support such level of operations.

Strategic Relationships
 
Beta Killers LLC

Beta Killers LLC provides professional services related to technology, product, and software development; branding, marketing, and business development; products sales and growth; and customer relations to us. We have committed $100,000 to Beta Killers to deliver a more advanced version of Citizen Toke's software platform. We have also engaged Beta Killers' chief executive officer and lead developer of Citizen Toke as our adviser. We are very encouraged by positive feedback from customers, retailers, and branded products companies and plan to focus our efforts on launching Citizen Toke into the market immediately.
 
MHB, Inc.

MHB, Inc., a Colorado corporation doing business as Mile High Brands, is a lifestyle branding agency focused on the regulated cannabis industry. Its clients include celebrities and product companies that wish to access the rapidly growing cannabis marketplace.

In November 2015, we closed an agreement to exchange 10 million shares of our common stock for 10 million shares of common stock of MHB, approximately 49% of its issued and outstanding common stock. During the first quarter of 2016, MHB distributed 7,776,561 shares of our common stock to its stockholders as a dividend while retaining the remaining 2,223,439 shares. We have one seat on MHB's board of directors, and it has the right to nominate one director on our board. MHB initially nominated David Wollins to serve on our board. Mr. Wollins resigned from the board on March 22, 2016, and MHB has not nominated another board member. Under the share exchange agreement, MHB agreed to share 10% of its gross revenues with us, paid on a quarterly basis in arrears. We expect to receive the first distribution of revenue from MHB in the fourth quarter of 2016.
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In May 2016, we entered into a Stockholders Agreement with MHB, Inc., as co-founders, to govern our new joint venture company, Mile High Consulting and Branding, Inc. Although we own 51% of the new joint venture company and control its board of directors, under the Stockholders Agreement, distributions of revenue from a particular opportunity may vary depending on the nature of the opportunity, who brought to opportunity to the joint venture's attention, funding requirements for the opportunity, and other factors. The joint venture will include new business initiatives as determined by both parties to commercialize celebrity endorsements and product companies that wish to access the cannabis marketplace. The first joint venture marketing launch relates to a pain relief transdermal patch marketed under the Gridiron Cannabis Coalition's name, "Gridline Cannabis." We are supporting this marketing effort with distribution partners and retailers throughout Colorado through our Citizen Toke software. Gridiron Cannabis will be introduced commercially within Colorado in the fourth quarter of 2016.

Green Capital Ventures, Inc.

On November 17, 2015, we entered into a joint marketing and distribution partnership in California with Green Capital Ventures, Inc. Green Capital is a holding company and consulting firm focused on launching and commercializing products with an altruistic objective. The principals of Green Capital founded the Gridiron Cannabis Coalition, an organization dedicated to the advancement of medicinal cannabis as a treatment for brain disease and bodily injuries resulting from playing professional sports. Together with Green Capital, we intend to seek commercial partnerships for Gridiron Cannabis Coalition and to support its marketing efforts, beginning in Colorado.

We are supporting the marketing effort to launch a pain relief transdermal patch marketed as "Gridline Cannabis" with distribution partners and retailers throughout Colorado through our Citizen Toke software. Gridiron Cannabis will be introduced commercially within Colorado in the fourth quarter of 2016 .

 
National Concessions Group, Inc.

On December 22, 2015, we entered into a technology development and joint marketing agreement with National Concessions Group, Inc., a cannabis marketing and distribution company whose products are marketed under the "O.penVAPE" brand. We are working with National Concessions Group to develop O.PenVape's "O Rewards" loyalty application based on our BumpUp Rewards platform. O Rewards, launched in beta format in March 2016 , is a loyalty product focused on retail brands in the cannabis industry . We will jointly market this application to other product manufacturers in the cannabis industry. This is our first market introduction of BumpUp Rewards white label. We also engaged National Concessions Group to assist us with marketing, public relations, and introductions to potential investors, including other efforts for both parties' mutual benefit , in consideration for the issuance by us of a warrant to purchase 300,000 shares of our restricted stock, with an exercise price of $0.05 per share, subject to an agreed vesting schedule .

KiwiTech, LLC

In December 2015, we entered into an agreement with KiwiTech, LLC, to expand, support, and further develop our software products and web and mobile applications. KiwiTech is a business incubator providing a combination of mobile technology development solutions and active investment into new technologies. Under the agreement, we engaged KiwiTech to perform not less than $250,000 in hourly labor charges for development work between January 1 and December 31, 2016. This minimum commitment will be paid 50% in cash and 50% through the issuance of warrants for the purchase of our common stock. On January 21, 2016, we issued to KiwiTech a warrant for the purchase of 312, 500 shares, at the exercise price of $0.40 per share, with an expiration date of December 31, 2025 .
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Duby, LLC

On December 10, 2015, we acquired a 1.083% interest in Duby, LLC, a social media application focused on cannabis consumers. As part of the acquisition, Duby agreed to assist in the promotion of our products and services on its platform. We purchased the interest in Duby as part of ongoing negotiations for the joint marketing and promotion of our respective products. On May 13, 2016, we announced that Duby had agreed to join forces with us to accelerate new user adoption for our latest product, Citizen Toke .

Loyl.Me, LLC

Pursuant to the terms of a licensing agreement with Loyl.Me, LLC, for its Automated Cloud and Customer Relationship Management Platform, dated February 12, 2015: (i) we owed a final cash installment of $15,000 to Loyl.Me as part of a base fee for the software license; (ii) we were required to remit to Loyl.Me 8% of our gross revenues generated from the licensing agreement; and (iii) we have the ability to use Loyl.Me's marketing software platform exclusively within the cannabis industry. To date, we have not had a meaningful demand for Loyl.Me's software, and as a result we have not made any payments under the royalty arrangement with Loyl.Me.

Other Relationships

In April 2015, we signed a definitive agreement with PhytaTech Labs for the first installation of our CannaLIMS software, a lab information management system targeted for cannabis testing facilities and laboratories. In conjunction with this agreement, we signed a joint software development agreement in partnership with PhytaTech Labs, a multi-jurisdictional lab operator. However , we deemphasized our development and marketing of this product as most laboratories develop their own internal laboratory information management system .

In April 2015, Rocky Mountain Hemp Association (also known as the National Hemp Association) selected our online service, ExchangeHemp, as its exclusive trading platform and marketplace. In September 2015, we launched ExchangeHemp in partnership with the National Hemp Association as part of an exclusive joint marketing agreement between our customers and National Hemp Association's member entities. Although we are excited about the opportunity although the venture has not been successful, and we have since deemphasized our ExchangeHemp business .

In May 2015, we signed an agreement for implementation of our BumpUp Rewards loyalty marketing platform on StrainData, a wholly owned subsidiary of CannLabs, Inc. To date, no business activity has been procured under this agreement. We continue to discuss new strategic relationships with CannLabs in order to expand on our existing relationship.
 
In September 2015, we entered into a letter of intent with Green Tree International, Inc ., the parent company of Amercanex, the American Cannabis Exchange, and the American Hemp Exchange , to sell our CannaTrade and ExchangeHemp trading platforms to Amercanex for a combination of cash and seats on the Amercanex exchange. The transaction was not consummated, and the letter of intent expired according to its terms. We have since deemphasized our CannaTrade and ExchangeHemp businesses.
 
Between December 2015 and March 31, 2016, we worked with LuvBuds, LLC, which marketed products such as branded logo t-shirts, mugs, and other accessories. We are no longer pursuing this relationship.

We continually review the commercial viability and opportunities that we believe are afforded by each of our strategic relationships and consider prospects for other relationships. Accordingly, we may change or terminate existing strategic relationships or enter into new relationships.
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Competition

The current market for cannabis-related technology is highly fragmented because of the new emergence of the industry, which is continuously evolving as states in addition to Colorado, Washington, California, and Oregon implement new laws allowing production and sale of medical or recreational cannabis. We believe the primary competition is currently store-specific loyalty programs, marketing outreach, and point-of-sale systems for the BumpUp Rewards product. However, there are few, if any, products in the marketplace that have the capability and reach of Citizen Toke leveraged together with Duby's user base .
 
Although cannabis is illegal under federal law, we believe there is popular demand for cannabis, and do not believe that prospective customers are generally deterred from doing business with a company because of fears of federal enforcement of laws prohibiting the sale or possession of medical or recreational cannabis. As demonstrated by the table of state cannabis regulations below, the number of states enacting safe access to cannabis laws continues to increase.

Government Regulations

We will operate only in states that have legalized various aspects of medical or recreational use of cannabis and that have established laws and regulations governing the operations of their respective licensees. We do not produce, transport, process, or sell cannabis or products containing cannabis , but only provide the cannabis-related industry with ancillary technology programs in accordance with applicable state laws .

Although we do not cultivate, process, possess, distribute, or sale cannabis or cannabis products, because our products and services are related to the cannabis industry , we and our products and services are possibly subject to a number of federal, state, and local laws, rules, and regulations directly and indirectly regulating the cannabis industry conduct through financial and other regulations, such as the anti-money laundering provisions of the Bank Secrecy Act (BSA) and provisions under the jurisdiction of the Federal Deposit Insurance Corporation (FDIC), the Financial Crimes Enforcement Network (FinCEN), and others .

Federally insured and regulated financial institutions face conflicting regulatory requirements that treat the cannabis industry as illegal under federal law even when it is permitted under some state laws. However,  32 states plus the District of Columbia allow medical cannabis, and the issue is further complicated with Washington and Colorado legalizing recreational use. Initially, when Colorado legalized and regulated medical and recreational cannabis, federally insured and regulated bodies and other financial institutions refused cannabis business source deposits and other business. Currently, given FinCEN's recent guidance released on February 14, 2014, financial institutions may provide services to cannabis-related businesses consistent with their BSA obligations. FinCEN's guidance is discussed in greater detail below.

U.S. Controlled Substances Act

The cannabis industry is regulated by the federal, state, and local governments. Regulation varies from state to state. Federally, cannabis is currently classified as a Schedule I controlled substance under the U.S. Controlled Substances Act, U.S.C. Section 811 (CSA), which generally means that Congress has determined that cannabis is a dangerous drug and that the cultivation, process, distribution, and sale of cannabis and cannabis products are serious crimes. The CSA does not distinguish between medical and recreational use of cannabis; all uses are prohibited. On the other hand, several states have legalized various aspects of cannabis process and distribution, although such activities are subject to stringent state licensing and regulations. In many states, a clear, continuing, unresolved conflict exists between federal and state laws. In addition to the complex web of federal and state regulations, in response to regulatory concerns, the banking and financial services industry has created stringent barriers to allowing cannabis producers and retailers to have normal banking relationships.
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The federal government formally opposes the use of medical and recreational cannabis. Although many states have chosen to enact rules and regulations permitting the use of medical cannabis for their citizens under a state-approved medical cannabis program, cannabis continues to be illegal under federal law. The state medical cannabis programs provide protection from state criminal prosecution for patients and primary caregivers who are qualified to participate in the program and are in compliance with the regulations governing the program, but provide no protection from federal prosecution for violation of the CSA.

State Regulation

In November 2012, Colorado residents voted in favor of Amendment 64, an initiative ballot measure that allowed for the "personal use and regulation of marijuana" in Colorado. The initiative, enacted as Article 18, Sec. 16 of the Colorado State Constitution and implemented on January 1, 2014, allows "recreational use" by adults age 21 and older and authorizes Colorado to regulate commercial cultivation, process, and sale of cannabis. Similarly, in November 2012, the residents of Washington voted in favor of Initiative 502, which allows for "recreational use" by adults age 21 and older and authorizes Washington to regulate commercial cultivation, process, and sale of cannabis.

Although Colorado and Washington have enacted voter-initiated measures to allow for the personal use of small amounts of cannabis by its citizens, both states are clear to remind their citizens that cannabis is currently illegal under federal law and classified as a Class I Controlled Substance.
 
As we are an ancillary services provider to the cannabis industry, we are not directly affected by government regulations. However, our clients may be. That being said, the State of Colorado Department of Revenue Enforcement Division State statute (C.R.S § 12-43.3-307; C.R.S. § 12-43.4-306) mandates that anyone working within Colorado's marijuana industries (medical or retail, including service providers) be licensed by the Marijuana Enforcement Division (MED) in order to ensure that they meet mandated statutory requirements. A registered and approved vendor within the state of Colorado obtains a MED Vendor badge, which ensures that the vendor has passed the MED background check and met the statutory criteria to work within Colorado's marijuana industries. We have obtained a license from MED for the products and services we provide and believe we are in material compliance with applicable regulations. As part of our business, we may from time to time visit our client or have nonpublic access to our clients' facilities. As a result, approval from the MED is an important part of our business.
 
There are several states with initiatives for state medical cannabis programs pending on the ballot for upcoming elections, while other states move forward through the legislative process. The following table reflects the current status of cannabis regulations:
 
State
Status
Details and Difference in Laws
     
CO (1)
Medical and recreational laws passed and in effect
Enacted a state-wide regulatory agency to govern medical and recreational businesses: Colorado Department of Revenue Marijuana Enforcement Division. Recreational law allows in-state residents age 21 and older to purchase up to 1 ounce of cannabis per day. Recreational law allows out-of-state residents age 21 and older to purchase up to 1/4 ounce of cannabis per transaction. Medical sales require patients to register with the Colorado Department of Public Health and Environment. Medical patients may purchase up to 2 ounces of cannabis per day.
 
WA (1)
Medical and recreational laws passed and in effect
Enacted a state-wide regulatory agency to govern medical and recreational businesses: Initiative 502 for access to recreational cannabis is governed by the Washington Liquor Control Board. Recreational law allows persons age 21 and older to possess 1 ounce of cannabis.  As of  July 1, 2016, all cannabis producers, processors, and retail stores must be licensed by the Washington Liquor Control Board. Licensed retail stores may apply for and get a medical cannabis endorsement for dual use sales.
 
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State
Status
Details and Difference in laws
     
OR (1)
Medical and recreational laws passed and in effect
Medical patients must register with the Oregon Health Authority. Medical cannabis dispensaries are regulated by the Oregon Health Authority. Patients are allowed to possess up to 24 ounces of cannabis. Measure 91, which passed in November 2014, allows recreational cannabis sales to be governed by the Oregon Liquor Control Commission, which will tax and regulate recreational cannabis similar to alcohol. The Oregon Medical Marijuana Program (OMMP) and the Medical Marijuana Dispensary Program are both administered by the Oregon Health Authority's Public Health Division. This also includes recreational sales that began in dispensaries on October 1, 2015.
 
NV (1)
Medical laws passed and in effect
Medical patients must register with the Nevada Division of Public and Behavioral Health. Applications to open medical cannabis dispensaries are currently being reviewed by the Nevada Division of Public and Behavioral Health. Patients are allowed to possess up to 2-1/2 ounces of cannabis. The Nevada Marijuana Legalization Initiative is scheduled for the state's November 8, 2016 ballot. The measure, upon approval, would legalize 1 ounce or less of cannabis for recreational use for persons 21 years or older. The initiative would tax cannabis sales and allocate tax revenue to education.
 
DC (1)
Medical and recreational laws passed and in effect
Medical patients must register with the District of Columbia Department of Health. Medical cannabis dispensaries are regulated by the District of Columbia Department of Health. Patients are allowed to possess up to 2 ounces of cannabis. Recreational cannabis was approved in the last election. Washington D.C. passed Initiative 71 in November 2014. Initiative 71 permits the use of up to 2 ounces of marijuana and the possession and cultivation of up to 3 marijuana plants. While Washington D.C. voters passed medical and adult use initiatives, the U.S. Congress has blocked the District from spending any resources to enact a law or regulated program .
 
AK (1)
Medical and recreational laws passed and in effect
Medical patients must register with the Alaska Division of Public Health. Medical cannabis dispensaries are currently not allowed. Patients are allowed to possess up to 1 ounce of cannabis. Ballot Measure 2, which will tax and regulate recreational cannabis similar to alcohol, was approved in November 2014 and became effective February 2015. The final set of rules adopted by the Marijuana Control Board under the governance of Alaska Department of Commerce are to be implemented in early 2016. On February 24, 2016, the Alaska Marijuana Control Board began accepting applications for marijuana business licenses .
 
IL (2)
Medical law passed 
Medical patients must register with the Illinois Department of Public Health. Medical cannabis dispensaries are regulated by the Illinois Department of Financial and Professional Regulation. Medical cannabis cultivation facilities are regulated by the Illinois Department of Agriculture. Patients are allowed to possess up to 2-1/2 ounces of cannabis. The sale of medical cannabis to qualifying patients and caregivers began in November 2015 at eight dispensaries located throughout the state.
 
 
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State
Status
Details and Difference in laws
 
AZ (2)
Medical laws passed and in effect
Medical patients must register with the Arizona Department of Health Services. Medical cannabis dispensaries are regulated by the Arizona Department of Health Services. Patients are allowed to possess up to 2-1/2 ounces of cannabis. The Arizona Marijuana Legalization Initiative  will appear on the November 2016 ballot. The measure would establish a Department of Marijuana Licenses and Control, which would be tasked with regulating the cultivation, manufacturing, testing, transportation, and sale of marijuana. Local governments would be empowered to regulate and limit marijuana businesses.
 
FL (2)
CBD-only medical law passed
Amendment 2 to legalize a full medical cannabis program did not pass on the November 2014 ballot. Currently, Florida has CBD-only specific law for qualifying conditions such as: cancer, muscle spasms, and seizures. State-qualified patients may possess cannabis strains containing 10% or more of CBD and no more than eight-tenths of 1% of THC. On March 25, 2016, the Governor signed House Bill 307 expanding Florida's medical marijuana law allowing terminally ill patients to access THC dominant marijuana. A new Amendment 2 will be on Florida's November 2016 ballot that would further expand the state's medical marijuana program .
 
CA (2)
Medical laws passed and in effect
Medical patients must register with the California Department of Public Health. There is no state regulatory agency overseeing medical cannabis dispensaries, but some cities regulate dispensaries locally. There is no specific possession limit in place. Proponents will attempt to place a full-legalization initiative on California's November 2016 ballot . California Proposition 64 will be on the November 2016 ballot to legalize adult-use marijuana sales and hemp under state law .
 
NY (2)
Medical laws passed
Medical patients will have to register with the New York State Department of Health. Medical cannabis dispensaries will be regulated by the New York State Department of Health. Patients are allowed to possess a 30-day supply of only extracts and concentrates from cannabis. The New York State Department of Health launched the state's Medical Marijuana Program on January 7, 2016. The program approved forms of medical cannabis available with a physician's certification at designated dispensaries across New York state and licensed operators within the state .
 
ME (3)
Medical laws passed and in effect
Medical patients must register with the Maine Department of Health and Human Services. Medical cannabis dispensaries are regulated by the Licensing and Regulatory Services under the Maine Department of Health and Human Services. Patients are allowed to possess 2-1/2 ounces of cannabis. The Main Marijuana Legalization ballot Question 1 will be on the November 2016 ballot to legalize adult-use recreational sales .
 
NH (3)
Medical laws passed and in effect
Medical patients will register with the New Hampshire Department of Health and Human Services. The New Hampshire Department of Health and Human Services will regulate and govern medical cannabis dispensaries. Patients will be allowed to possess up to 2 ounces of cannabis. On Monday, December 28, 2015, the New Hampshire Department of Health and Human Services began to issue Registry Identification Cards by mail to qualifying patients and designated caregivers whose applications have been approved.
 
 
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State
Status
Details and Difference in laws
 
VT (3)
Medical laws passed and in effect
Medical patients must register with the Vermont Department of Public Safety. Medical cannabis dispensaries are regulated by the Vermont Department of Public Safety. Patients are allowed to possess up to 2 ounces of cannabis.
 
MA (3)
Medical laws passed and in effect
Medical patients must register with the Massachusetts Department of Public Health. Medical cannabis dispensaries are operational and regulated by the Massachusetts Department of Public Health. Patients are allowed to possess a 60-day supply of cannabis. In November 2016, Massachusetts voters will decide on a ballot initiative to regulate marijuana like alcohol and create a retail marijuana program .
 
RI (3)
Medical laws passed and in effect
Medical patients must register with the Rhode Island Department of Health. Medical cannabis dispensaries are regulated by the Rhode Island Department of Health. Patients are allowed to possess 2-1/2 ounces of cannabis.
 
CT (3)
Medical laws passed and in effect
Medical patients must register with the Connecticut Department of Consumer Protection. Medical cannabis dispensaries are regulated by the Connecticut Department of Consumer Protection. Patients are allowed to possess a 30-day supply of cannabis.
 
NJ (3)
Medical laws passed and in effect
Medical patients must register with the New Jersey Department of Health. Medical cannabis dispensaries are regulated by the New Jersey Department of Health. Patients are allowed to purchase up to 2 ounces of cannabis per month.
 
DE (3)
Medical laws passed and in effect
Medical patients must register with the Delaware Division of Public Health. Medical cannabis dispensaries are regulated by the Delaware Health and Social Services. Patients are allowed to possess 6 ounces of cannabis.
 
MD (3)
Medical laws passed
Medical patients will have to register with the Maryland Department of Health and Mental Hygiene. Medical cannabis dispensaries will be regulated by the Maryland Department of Health and Mental Hygiene. Maryland's medical cannabis operations are regulated by the Maryland Medical Cannabis Commission. State regulations allow for 94 dispensaries, two per state Senate district, and 15 grow facilities .
 
MI (3)
Medical laws passed and in effect
Medical patients must register with the Michigan Department of Licensing and Regulatory Affairs. Medical cannabis dispensaries are not currently allowed, but a proposed bill would allow cities and localities to license and regulate them. Patients are allowed to possess up to 2-1/2 ounces of cannabis.
 
MN (3)
Medical law passed and in effect
Medical patients have to register with the Minnesota Department of Health. Medical cannabis dispensaries will be regulated by the Minnesota Department of Health. Patient possession limits are to be determined, but only nonsmokable forms of cannabis are allowed.
 
 
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State
Status
Details and Difference in laws
     
MT (3)
Medical law passed and in effect
Medical patients must register with the Montana Department of Public Health and Human Services. Medical cannabis dispensaries are currently not allowed, but legal actions are seeking to reopen them. Patients are allowed to possess up to 1 ounce of cannabis. The Medical Marijuana Initiative known as I-182 is on the state's November 2016 ballot. A "yes" vote would eliminate the current state requirement of a 3-patient to caregiver limit .
 
NM (3)
Medical laws passed and in effect
Medical patients must register with the New Mexico Department of Health. Medical cannabis dispensaries are regulated by the New Mexico Department of Health. Patients are allowed to possess up to 6 ounces of cannabis.
 
HI (3)
Medical laws passed and in effect
Medical patients must register with the Hawaii Department of Public Safety. Patients are allowed to possess up to 3 ounces of cannabis. The Hawaii Department of Health licenses and regulates the dispensary program and licensed dispensaries are expected to be operational by summer of 2016 .
 
NC (3)
SC (3)
CBD-only medical law passed and rulemaking is in progress
Rulemaking is in progress to regulate a CBD-only medical cannabis program in these states.
 
     
MS (3)
CBD-only medical law passed
This program does not provide reasonable access to CBD medicine for patients. Only institutions of higher learning are able to cultivate cannabis and process it to create CBD-only medication.
 
AL (5)
CBD-only medical law passed and rulemaking is in progress
This program is likely to be nonfunctional as it requires a cannabis prescription, which is federally illegal. This program also does not protect patients from arrest and prosecution.
 
TN (5)
CBD-only medical law passed
This law allows a CBD-only medical cannabis study to be conducted by universities only. This study will likely not get underway as universities will not risk losing federal funding.
 
KY (5)
CBD-only medical law passed
This law does not provide for a source for CBD extracts or production. This program is likely to be nonfunctional as it requires a cannabis prescription, which is federally illegal.
 
WI (3)
IA (3)
CBD-only medical cannabis law in effect
This law does not provide for reasonable access to CBD products for patients in these states.
 
MO (3)
CBD-only medical law passed
This law allows for cultivation and processing by state-licensed facilities. Only patients with intractable epilepsy would be allowed access to the CBD medication.
 
UT (5)
CBD-only medical law passed and in effect
It is unclear if patients will have reasonable access to CBD medication through colleges and universities allowed to study hemp.
 
PA (3)
Medical laws passed
In May 2016, Pennsylvania's Medical Marijuana Act went in to effect. The PA Department of Health has until November 17, 2016, to begin publishing regulations. The PA Department of Health will regulate 25 processors–growers and 50 dispensaries, which may have up to three locations each.
 
 
 
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State
Status
Details and Difference in laws
 
VA (5)
No functional medical laws in effect
Current medical cannabis law requires a prescription, which is not possible under federal law.
 
WV (3)
No medical laws in effect
There is support for future legislation to legalize medical cannabis.
 
GA (3)
CBD-only medical law passed and in effect
The state has passed a medical CBD law allowing for the use of cannabis extracts that are high in CBD and low in THC to treat severe, debilitating epileptic conditions.
 
IN (3)
LA (3)
ND (3)
SD (3)
WY (3)
 
No medical laws passed
There is little legislative support for medical cannabis in these states.
AR (3)
No medical laws passed
A November 2012 effort to pass a medical cannabis law garnered 48% of the vote. The Arkansas Medical Cannabis Act is on the November 2016 ballot, would allow for medical marijuana, and be regulated by the Arkansas Department of Health .
 
NE (3)
No medical laws passed
A medical cannabis law was proposed, but failed to make it through committee in 2014 , and again failed in 2016 .
 
KS (3)
No medical laws passed
Two medical cannabis laws were proposed, but failed to make it through committee in 2014.
 
OK (3)
CBD-only medical law passed and in effect
This law does not provide for reasonable access to CBD products for patients in these states. The current law allows for access to high CBD cannabis oil, but only for minors, and only if they have severe forms of epilepsy or other serious seizure conditions.
 
TX (3)
No medical laws passed
Governor Rick Perry has signaled his support of states' rights to legalize cannabis. In February 2015, Texas House Bill 2165 was introduced to legalize and regulate cannabis sales , however, the bill did not advance before the end of session .
 
ID (3)
No medical laws passed
There is little support for medical cannabis laws from the Idaho Legislature, but significant support among voters.
 
 
 
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OH (3)
No medical laws in effect
A medical cannabis amendment to the state's constitution will be voted on in November 2016. The amendment will establish a system through which patients with certain medical conditions can apply for a medical marijuana ID card that allows them to buy and possess marijuana. The state would license businesses to grow, process, test, distribute, and sell medical marijuana, and sales tax would be applied. License fees and tax revenues would pay for the program's administrative costs.
_______________

(1) We intend to do business in this state.
(2) We are considering doing business in this state.
(3) We are not considering doing business in this state.

 
Federal Efforts to Accommodate State Legislation

On February 14, 2014, FinCEN issued guidance under the BSA relating to FinCEN's and the FDIC's expectations regarding BSA compliance for cannabis-related businesses. The FinCEN guidance was issued in light of recent state initiatives to legalize certain cannabis-related activity and the related guidance by the U.S. Department of Justice ("DOJ") concerning cannabis-related enforcement priorities as outlined in the "Ogden Memo" (October 19, 2009) and the "Cole Memos" (August 29, 2013 and February 14, 2014). As discussed in more detail below, the Ogden Memo and Cole Memos identified the eight priorities for enforcing the CSA against cannabis-related conduct.

The Ogden Memo issued by the DOJ on October 19, 2009, provides clarification and guidance in states that have enacted laws authorizing the medical use of cannabis. The Ogden Memo states: "Rather than developing different guidelines for every possible variant of state and local law, this memorandum provides uniform guidance to focus federal investigations and prosecutions in these states on core federal enforcement priorities."

The memorandum also states that the prosecution of significant traffickers of illegal drugs, including cannabis, and the disruption of illegal drug manufacturing and trafficking networks continues to be a core priority in the department's efforts against narcotics and dangerous drugs, and the department's investigative and prosecutorial resources should be directed toward these objectives, and as a general matter, pursuit of these priorities should not focus federal resources in states on individuals whose actions are in clear and unambiguous compliance with existing state laws. However, prosecution of commercial enterprises that unlawfully market and sell cannabis for profit continues to be an enforcement priority of the department. The DOJ believes claims of compliance with state or local law may mask operations inconsistent with the terms, conditions, or purposes of those laws, and federal law enforcement should not be deterred by such assertions when otherwise pursuing the department's core enforcement priorities. The Ogden Memo then lists the eight priorities of enforcement set forth below. When any of the following characteristics are present, the conduct will not be in clear and unambiguous compliance with applicable state law and may indicate illegal drug trafficking activity of potential federal interest:

distribution to minors;

revenue from the sale of cannabis going to criminal enterprise, gangs, and cartels;

the diversion of cannabis from states where it is legal under state law in some form to other states;

state-authorized cannabis activity from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity;

violence and the use of firearms in the cultivation and distribution of cannabis;

drugged driving and the exacerbation of other adverse public health consequences associated with cannabis use;

the growing of cannabis on public lands and the attendant public safety and environmental dangers posed by cannabis production on public lands; and

·
cannabis possession or use on federal property.
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The first Cole Memo issued June 29, 2011, seeks to clarify and provide guidance in response to inquiries from state and local governments seeking guidance about the DOJ's position on the enforcement of the CSA in jurisdictions that have under consideration or implemented legislation that would sanction and regulate the commercial cultivation and distribution of cannabis. This Cole Memo reinforces the Ogden Memo that the DOJ's view "of the efficient use of limited federal resources" has not changed. However, this Cole Memo also makes it clear that the Ogden Memo was never intended to shield activities from federal enforcement action and prosecution, even when those activities purport to comply with state law. Persons who are in the business of cultivating, selling, or distributing cannabis, and those who knowingly facilitate such activities, are in violation of the CSA regardless of state law, and those engaged in transactions involving the proceeds of such an activity may also be in violation of federal money-laundering statutes and other federal financial laws. The second Cole Memo dated February 14, 2014, for the most part reiterates the government's position outlined in the first Cole Memo as well as tying in FinCEN's position as outlined in its guidance of the same date.

The FinCEN guidance clarifies how banks can offer services to cannabis-related businesses consistent with their BSA reporting obligations by filing suspicious activity reports (SARs) and provides three categories of SAR filings for cannabis-related business:  "marijuana limited," "marijuana priority," and "marijuana termination." If a financial institution provides financial services to a cannabis-related business that it reasonably believes, based on its customer due diligence review, does not implicate one of the Cole Memos priorities or violate state law, it should file a "marijuana limited" SAR. Since the eight priorities of the Cole Memos principally deal with the illegal cultivation and distribution of cannabis and we do not engage in these activities, we anticipate that financial institutions providing financial services to us will file, if deemed required, "marijuana limited" SARs relating to our activities. In addition to our compliance with state laws and regulations, we will seek to meet FinCEN's guidance to the extent that it indirectly affects our business, through our systems, procedures, and protocols to review customer licensing and identification procedures of customers and retail customers. Furthermore, we will, to the extent practicable as an ancillary technology company, not do business with companies that we believe may violate one or more of the eight priorities of the Cole Memos.

FinCEN guidance expanded on the "know your customer" guidelines and clarified how financial institutions can provide services to cannabis-related businesses consistent with their BSA obligations and stated:

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.

While we are not by definition considered a "financial institution," we do and will continue to follow the above protocols of knowing our customers, validating each cannabis-related business through our due diligence review of the vendor itself, as well as verifying each vender's current licensure with the respective state regulatory agency. This monitoring will be done at the onset of the business relationship as well as periodically throughout the business relationship.
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Our Compliance Strategy

We have established business and compliance protocols that we monitor regularly to assure compliance with state-specific laws and regulations. We submitted our business and compliance plan as part of our Colorado Department of Revenue Marijuana Enforcement Division Vendor Registration Application, and on September 2, 2014, were approved as a registered vendor by the state of Colorado.

We closely monitor evolving state and local laws, rules, and regulations and banking regulations. We design our products in accordance with state and local regulations and banking requirements. We seek to offer services only to companies that are professionally operated and properly licensed in accordance with state and local laws. Changes in such laws, rules, and regulations, or the recall of any state or local legislation, could have a material adverse effect on our business and financial condition.

We rely on the experience and knowledge of our two founders, Brandon C. Jennewine and Daniel J. Rogers, who have previously been owners of state-licensed cannabis-related businesses in Colorado and are familiar with Colorado's state laws and regulatory scheme and have working experience with regulatory personnel. We also retain regulatory legal counsel who focus their practice on cannabis law to assure current knowledge of and compliance with ongoing changes in rules and regulations. In addition, we have designed technological and administrative programs and protocols to assure ongoing compliance. For BumpUp Rewards and other products for retail customers, we document that the customers are age 21 or older. Our technology will be available only in states that have cannabis-related regulated businesses.

We rely on our technology infrastructure and due diligence reviews to assure our own compliance with state laws, as documented in our systems. We also rely on our systems and procedures to assure that we deal with properly licensed growers, processors, and retailers, and sell to only qualified buyers meeting identification requirements. We cannot assure that our interstate activities will not attract federal regulatory scrutiny as additional states formalize their safe access to cannabis laws and we expand our business on a state-by-state basis.

We are working only with retailers of medical or recreational sellers that are verified, through lists provided by state or local regulatory agencies, to be in good standing and allowed to conduct business in their respective states.

In Colorado and Washington, an individual is required to physically provide a valid, government-issued identification to verify he is age 21 or older to access a regulated store or retailer for either medical or recreational cannabis. The retail facility is required by state rules to have on its premises specific cameras that have resolution suitable to see the identification process to ensure that the retail-cannabis facility is validating the identification. The individual verification is repeated every time a person enters a facility, irrespective of whether the individual is personally known to the operator or has previously visited the dispensary. The cost of maintaining identification compliance is borne by the state-licensed retailer and is not our expense. Our costs of maintaining our compliance systems and protocols are considered a regular operating expense that is built into our product pricing.

Our internal compliance review of both our operating protocols and technology and the data collected are critical aspects of our compliance effort in providing technology products to only compliant operators and persons age 21 or older in states that have enacted some form of safe-access laws to cannabis. For example, we believe that cannabis-related businesses in Colorado will continue to be compliant in not selling cannabis products to underage persons–one of the Cole Memos' eight priorities.
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Possible Changes to Federal View

Although the DOJ has stated in the Ogden Memo and Cole Memos that it is not an efficient use of limited resources to direct federal law enforcement agencies to prosecute those lawfully abiding by state-designated laws allowing the use and distribution of medical cannabis, there is no guarantee that the DOJ's position will not change regarding the low-priority enforcement of federal laws, including the CSA, or that any future administration would not change this policy and decide to strongly enforce the federal laws.

In light of the 2005 U.S. Supreme Court ruling in Gonzales v. Raich, under the commerce clause of the constitution, Congress may pass laws to criminalize the production and use of home-grown cannabis even where states have approved its use for medicinal purposes, which leads to the conclusion that the CSA may preempt state laws relating to any cannabis-related activity. Any such change in the federal enforcement program of current federal laws could cause significant financial damage to our business. While we do not intend to harvest, distribute, or sell cannabis or products containing cannabis , we may be irreparably harmed by a change in enforcement by the federal or state governments .

Should the U.S. Supreme Court rule to invalidate safe access to cannabis laws in more than  32 states and the District of Columbia, our operations would be adversely affected. However, if this should occur, we will repurpose our technology to non-cannabis-related businesses. We could refocus our efforts to launch and commercialize ExchangeHemp in the industrial hemp industry, a non-cannabis-related business, and facilitate a trading platform for buyers and sellers of commercial hemp. We could also repurpose CannaTrade's technology to facilitate the matching of buyers and sellers of commercial equipment, such as industrial lighting and other equipment for agriculture. We could also repurpose our CannaLIMS software for the pharmaceutical industry, where LIMS software is prevalent. We believe the technology for BumpUp Rewards can be repurposed and used as a loyalty program for small businesses and region-specific businesses to strengthen and support local and small businesses by targeting and marketing to local consumers.

Proprietary Technology

Our BumpUp Rewards , Citizen Toke , and CannaLIMS products are based on proprietary software developed for us by our officers and third-party contractors. We do not believe that any of our current products, or currently foreseen future products, contain or will contain features that are patentable. Instead, we rely on a proprietary confidentiality and nondisclosure discipline to protect our products. However, if future proprietary software developed by our officers contains patentable features, we will apply for and obtain patent protection for our products.

Research and Development

We currently offer three technology products: BumpUp Rewards (as a stand-alone product and as a white-label product ), Citizen Toke , and CannaLIMS. We will remain focused on developing technologies for our industry, aimed at specific solutions for industry needs, including compliance with state and local regulation. We seek product and business opportunities in order to formulate and develop technology to meet diverse regulatory requirements across all of our markets. Furthermore, we regularly investigate processes for improving our technology products and identifying new technologies to serve the industry.
 
Through our internal research and development efforts and our relationships with industry operators and organizations, we will strive to provide evolving and effective technology solutions. Our plans for our research and development activities include developing technology products that are new to the industry, updating existing technologies to keep them current with the latest laws and regulations, and adapting existing technologies to enter new states that implement cannabis laws. Going forward, we intend to increase our spending and resources for technology research and development to the extent of our limited resources.

 
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Employees

As of September 16, 2016 , we employ only our chief executive officer . We will require additional employees in the future. There is intense competition for capable, experienced personnel, and we cannot assure that we will be able to obtain new qualified employees when required. Our relations with our employee is good .

Corporate History

We were formerly known as Thermal Tennis, Inc., a publicly held Nevada corporation. Thermal Tennis was formed as a Nevada corporation on August 25, 1999, committed to the growth of tennis through its tennis management system, which included creative ways to recruit new members into tennis lessons, the implementation of more effective tennis teaching methods, better use of tournaments to create public participation and involvement, and development of additional ways to create revenue for Thermal Tennis and the tennis facility being managed. From inception to March 2013, Thermal Tennis had managed the tennis operations at one athletic club and ran one summer tennis program at a high school. After cancellation of the contract at the athletic club in March 2013, Thermal Tennis continued to pursue its business activities in limited geographical areas.

On August 15, 2014, Thermal Tennis entered into an Agreement and Plan of Merger to combine its business and activities with CannaSys, Inc., a privately held Colorado corporation ("CannaSys-Colorado") focused on providing services to the cannabis industry (the "Merger"). Under the terms of the merger agreement, our wholly owned subsidiary formed to effectuate the Merger was merged with and into CannaSys-Colorado, the surviving entity, which then became our wholly owned subsidiary. By operation of the Merger, which was effective August 15, 2014, all of the CannaSys-Colorado outstanding common stock was converted into a total of 6,000,000 shares of our common stock, which constituted 57.70% of our total issued and outstanding common stock. Our stockholders before the merger retained an aggregate of 4,398,088 shares of common stock. At that time, we had no outstanding options or warrants to purchase shares of common stock.

In connection with the closing of the Merger and after meeting the requirements of the Exchange Act, Thermal Tennis changed its name to CannaSys, Inc. on November 12, 2014. We continue our operations through our wholly owned subsidiary with the same name.
 
MANAGEMENT

General

Our amended and restated articles of incorporation provide that the number of directors on our board shall not be less than one or more than nine. Our board currently consists of four directors. However, following the resignation in March 2016 of David H. Wollins, the designee of MHB, Inc., we have operated with three directors. MHB, Inc. has not exercised its right to designate a director to fill the vacancy resulting from Mr. Wollins' resignation . The term of office of each director expires at the next annual meeting of the stockholders and when his respective successor is elected and has qualified. In lieu of an annual meeting in 2016, the stockholders by majority written consent on August 30, 2016, reelected Brandon C. Jennewine, Daniel J. Rogers, and Michael A. Tew to our board of directors, each to serve until his successor is elected and qualified. It is anticipated that the next annual meeting of stockholders will be held in July 2017 . Our officers serve at the pleasure of the board of directors.
 
The following table sets forth the names and ages of our current directors and executive officers:

Name
Age
Director
    Since    
Position
       
Michael A. Tew
36
2015
Chief Executive Officer, Chief Financial Officer, Director
Brandon C. Jennewine
43
2014
Chairman
Daniel J. Rogers
42
2014
Director

39


Michael A. Tew

Michael A. Tew became our chief executive officer, chief financial officer, secretary, and a member of our board of directors effective July 1, 2015. Mr. Tew has over 14 years' experience in corporate finance, venture capital, business management, and capital markets. From 1999 until September 2003, Mr. Tew was an analyst and Vice President at Bear, Stearns & Co., Inc. In September 2003, Mr. Tew co-founded CapitalHQ, LLC, New York, New York, an advisory and consulting firm for high-level executives. In April 2008, Mr. Tew co-founded SPAC Research Partners, LLC, Palo Alto, CA, an advisory firm providing research and transaction support for special purpose acquisition companies. Mr. Tew managed the company through December 2009. From January 2008 to his current employment with us, Mr. Tew was founder and principal of Sand Hill, LLC, initially in San Francisco and then in New York, New York. Sand Hill is a consultancy advising family offices, private equity organizations, and entrepreneurs on value-creating transactions in private and public markets. In 1999 and 2000, Mr. Tew attended an independent, collaborative European business management program that included studies at Groupe HEC business school (Paris, France), Bocconi University (Milan, Italy), and Wirtschaftsuniverstat Wien (Vienna University of Economics and Business, Vienna, Austria). Mr. Tew graduated with a bachelor degree in finance and international business from New York University in 2001 and in 2014 obtained an executive MBA in finance and management from New York University.

Brandon Jennewine

Brandon Jennewine, with Daniel J. Rogers, founded our company in 2014. Effective July 1, 2015, Mr. Jennewine resigned as our chief executive officer and now serves as our chairman of our board of directors. He is currently working as an independent IT consultant in software architecture and development. Mr. Jennewine has over 20 years' experience as an architect and developer with leadership roles in technology companies. In July 2009, he co-founded with Daniel J. Rogers, Greenwerkz, LLC, later converted to Greenwerkz, Inc., a cannabis dispensary located in Denver, Colorado, having three retail locations and two production facilities. Mr. Jennewine helped orchestrate exist of the four Greenwerkz partners through a buyout by the sole remaining partner in February 2014, while simultaneously starting CannaSys-Colorado and managing, as chief executive officer, TK Health, LLC, an information technology consultancy based in Castle Rock, Colorado. TK Health, LLC, was formed in March 2010 to provide custom software programming for the e-healthcare and finance sectors. Prior to the cannabis business, he worked primarily in solutions in the e-prescribing, medical, and financial segments, acting as a software architect for SureScripts, LLC, an e-prescribing network based in Alexandria, Virginia, from July 2007 to February 2010, and as chief technology officer for Liver Research Institute, working under a grant from Roche Pharmaceuticals, from 2005 to 2006. Mr. Jennewine graduated with a bachelor of science in electrical engineering from Colorado State University .

Daniel J. Rogers

Daniel J. Rogers, an original founder of our company, now serves as a consultant and a member of our board of directors. Mr. Rogers has 12 years' banking experience with a specialization in business development risk management. Mr. Rogers currently serves as Chief Operating Officer for Chestnut Tree Hill Farm, a medical cannabis license holder in the state of Florida. Mr. Rogers began serving on the board of directors of Grow Condos, Inc., on October 21, 2014. Grow Condos, a publicly traded company, is a real estate purchaser, developer, and manager of specific-use industrial properties providing "condominium" style, turn-key grow facilities to support cannabis farmers. In July 2009, he co-founded with Brandon C. Jennewine, Greenwerkz, Inc., where he was chief financial officer and managing member. Until March 2014, Mr. Rogers also served as Chairman of the Banking/Finance Subcommittee for Medical Marijuana Industry Group, Denver, CO, a government relations organization, that he and Mr. Jennewine helped form in 2010. Mr. Rogers obtained his bachelor's degree in finance in 1997 from Fort Lewis College, Durango, Colorado, and later completed NationsBank / Bank of America's Management Associate Program, a six-month training program for corporate risk management. Mr. Rogers later served as a vice-president for Bank of America's Global Corporate & Investment Bank Commercial Real Estate Group located in Denver, Colorado, from 1998 to 2005, and later served as finance manager for Panattoni Development Company in Denver, Colorado, and Toronto, Ontario, Canada, from 2005 until February 2009.
40


Committees of the Board

We currently do not have nominating, compensation, or audit committees or committees performing similar functions nor do we have a written nominating, compensation, or audit committee charter. Our board of directors believes that it is not necessary to have these committees, at this time, because the directors can adequately perform the functions of such committees.

Executive Compensation

2015 Summary Compensation Table

The following table sets forth, for each of our last two completed fiscal years, the dollar value of all cash and noncash compensation earned by any person who was our principal executive officer during the preceding fiscal year, our two most highly compensated other executive officers who were serving in such capacities as of the end of the preceding fiscal year, and each of our two other highest compensated executive officers earning more than $100,000 during the last fiscal year ("Named Executive Officers "):
 
Name and Principal Position
Year
Ended
Dec. 31
Salary
($)
Bonus
($)
Stock
Award(s)
($)
Option
Awards
($)
Warrant Awards
Non
Equity
Incentive
Plan
Compen-
sation
Change in
Pension
Value and
Non-
Qualified
Deferred
Compen-
sation
Earnings
($)
All Other
Compen-
sation
($) (1)
Total ($)
(a)
(b)
(c)
(d)
(e)
(f)
 
(g)
(h)
(i)
(j)
Michael A. Tew (2)
2015
$70,000
--
--
--
$612,500
--
--
$4,012
$ 686,512
Chief Executive Officer
                   
Chief Financial Officer
                   
                     
Brandon C. Jennewine (3)
2015
$85,577
--
--
--
$175,000
--
--
$3,519
$ 264 ,096
Chief Operations Officer
2014
28,077
--
--
--
--
--
--
--
28,077
 
(1) Comprised of health insurance premiums.
(2) Mr. Tew became our chief executive officer on July 1, 2015.
(3) Mr. Jennewine was our chief executive officer from August 2014 to July 1, 2015.

Stock Option Plan

We have not adopted a stock option plan.
 
Employment Agreements

We have entered into employment letter agreements with the following employees:

·
Michael A. Tew –On July 10, 2015, we entered into a one-year employment agreement effective July 1, 2015, with Michael A. Tew, our chief executive officer, chief financial officer, and a director. Under the agreement, we pay Mr. Tew a base salary of $168,000 for the initial one-year term, plus a bonus as determined by our board of directors, and provide medical insurance benefits. On December 31, 2015, Mr. Tew's employment agreement was amended to cancel the stock grants that were issued under his employment agreement, and in exchange therefor, we granted to Mr. Tew warrants to purchase 3,000,000 shares of our common stock, of which a warrant to purchase 1,500,000 shares was immediately exercisable and a warrant to purchase 1,500,000 shares becomes exercisable quarterly in 250,000 increments over six quarters commencing March 31, 2016.
 
 
41

 

 
·
Brandon C. Jennewine –On July 10, 2015, we entered into a one-year employment agreement effective July 1, 2015, with our former chief executive officer, Brandon C. Jennewine, to become our chief technology officer and chief operations officer. Mr. Jennewine continues to serve as the chairman of our board of directors. Under the agreement, we pay Mr. Jennewine a base salary of $120,000 for the initial one-year term, plus a bonus as determined by our board of directors, and provide medical insurance benefits. On December 31, 2015, Mr. Jennewine's employment agreement was amended to cancel the stock grants that were issued under his employment agreement, and in exchange therefor, we granted to Mr. Jennewine a warrant to purchase 500,000 shares of our common stock. On March 22, 2016, Mr. Jennewine resigned as our chief technology officer, but continues to serve as chairman of our board of directors .

We reimburse employees for their out-of-pocket costs in connection with their activities on our behalf.

Director Compensation

We currently do not have compensation agreements with any of our directors who are not employees; however :

·
On December 24, 2015, we issued to David H. Wollins a warrant to purchase 150,000 shares of our common stock at $0.05 per share, vesting in equal amounts over four quarters, commencing March 31, 2016. Mr. Wollins is also a director of MHB, Inc. On March 22, 2016, Mr. Wollins resigned from our board of directors. Under our exchange agreement with MHB, it has the right to designate one member of our board.
 
·
On December 24, 2015, we issued to Daniel J. Rogers a warrant to purchase 250,000 shares of our common stock at $0.05 per share as director compensation .
 
 
 
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Unless otherwise indicated, the terms of the following transactions between related parties were not determined as a result of arm's-length negotiations.
 
During the year ended December 31, 2014, we received information technology consulting services from Tribal Knowledge Health LLC (TK Health). TK Health is owned by Brandon Jennewine, who served as our president, chief executive officer, and a director at the time of the services. We paid TK Health a total of $22,512 in 2014 for its information technology services.
 
As of December 31, 2014, we owed $1,320 for cash advances to the former president of our predecessor, Thermal Tennis. The advance was due on demand and non-interest-bearing. The advance was paid during the three months ended March 31, 2015.

Effective July 1, 2015, we hired Michael A. Tew as our new chief executive officer, secretary, and interim chief financial officer. Mr. Tew was also appointed to serve as a member of our board of directors.

Effective July 1, 2015, Brandon C. Jennewine resigned as our chief executive officer and was hired to serve as our chief technical officer and chief operations officer . He resigned from these positions on March 22, 2016 , and will continue to be the chairman of our board of directors.

Effective July 1, 2015, Daniel J. Rogers resigned as our chief financial officer, secretary, and treasurer. Mr. Rogers continues to serve on our board of directors.
 
42

 
On November 10 , 2015, we agreed to issue 10 million shares of our common stock for 10 million shares of MHB , Inc. common stock, equivalent to approximately 49% of its outstanding common stock after the transaction. In connection with the exchange David H. Wollins, a founding member of MHB , became a member of our board of directors and Michael A. Tew became a member of the board of directors of MHB. However, Mr. Wollins resigned from our board of directors on March 22, 2016. MHB has the right to designate another member to our board of directors .
 
Effective December 24, 2015, we cancelled the restricted stock grant previously issued to Daniel J. Rogers, and replaced it with a warrant to purchase 250,000 shares of our common stock.
 
Effective December 24, 2015, we issued to David H. Wollins a warrant to purchase 150,000 shares of our common stock, vesting in equal amounts in a four-quarter period.
 
Effective December 24, 2015, we entered into Amendment No. 1 to Employment Agreement of Michael A. Tew, our chief executive officer. The amendment terminated Mr. Tew's right to receive restricted stock unit grants and cancelled the stock grants previously issued to him. As a replacement, we issued to Mr. Tew a fully vested warrant to purchase 1,500,000 shares of our common stock. In addition, we issued to Mr. Tew a warrant to purchase 1,500,000 shares of our common stock vesting in equal amounts over a six-quarter period.

On December 31, 2015, we entered into Amendment No. 1 to Employment Agreement of Brandon Jennewine, our chief technical officer, effective December 24, 2015. The amendment terminated Mr. Jennewine's right to receive restricted stock unit grants and cancelled the stock grants previously issued to him. As a replacement, we issued to Mr. Jennewine a warrant to purchase 500,000 shares of our common stock.

On March 22, 2016, Brandon C. Jennewine resigned as chief technology officer, so his employment agreement with us terminated on that date. Mr. Jennewine remains on the board of directors.

On March 22, 2016, David H. Wollins resigned as a director, effective immediately upon acceptance by the board of directors.

Effective May 31, 2016, we entered into a Stockholders' Agreement with MHB, Inc., to restrict the transfer of the common stock of Mile High Consulting and Branding, Inc., by the stockholders and to provide for the management and governance of its business operations. We own 51% of the common stock and MHB owns 49% of the common stock of Mile High Consulting and Branding, Inc.

On July 27, 2016, we and F-Squared Enterprises, LLC, entered into a Share Exchange Agreement to exchange F-Squared's 1,515,000 shares of our common stock for 1,515,000 shares of our Series A Preferred Stock. Brandon C. Jennewine, our director, is the sole member of F-Squared Enterprises, LLC.

Given our small size and limited financial resources, we have not adopted formal policies and procedures for the review, approval, or ratification of transactions with our executive officers, directors, and significant stockholders. We intend to establish formal policies and procedures in the future, once we have sufficient resources and have appointed additional directors, so that such transactions will be subject to the review, approval, or ratification of our board of directors, or an appropriate committee thereof. Our directors will continue to approve any related-party transaction.
43

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information, as of September 16 , 2016 , respecting the beneficial ownership of our outstanding common stock by: (i) any holder of more than 5%; (ii) each of the Named Executive Officers and directors; and (iii) our directors and Named Executive Officers as a group, based on 3,403,176 shares of common stock outstanding , and after giving effect to the 20-to-1 reverse split of our common stock and the sale of all 1,102,475 shares of common stock in this offering . Except as otherwise indicated, each stockholder listed below has sole voting and investment power over the shares beneficially owned :

           
After
       
Before Offering
 
Offering
Name and Address
 
Nature of
 
Before
 
After
       
of Beneficial Owner (1)(2)
 
Ownership
 
Reverse Split
 
Reverse Split
 
Percent
 
Percent (3)
                     
Principal Stockholder:
                   
F-squared Enterprises, LLC/
 
Preferred Stock/ Common Stock
 
1,515,000
 
75,750
 
2.2%
 
2.2%
Brandon C. Jennewine (4)
 
Warrants
 
500,000
 
25,000
 
*
 
*
       
2,015,000
 
100,750
 
3.0
 
3.0
                     
Directors:
                   
Brandon C. Jennewine (4)
 
Preferred Stock/ Common Stock
 
1,515,000
 
75,750
 
2.2%
 
2.2%
   
Warrants
 
500,000
 
25,000
 
*
 
*
       
2,015,000
 
100,750
 
3.0
 
3.0
                     
Daniel J. Rogers
 
Common Stock
 
400,000
 
20,000
 
*
 
*
   
Warrants
 
250,000
 
12,500
 
*
 
*
       
650,000
 
32,500
 
1.0
 
1.0
                     
Michael A. Tew (5)
 
Warrants
 
3,000,000
 
150,000
 
4.4
 
3.3
                     
All Executive Officers
 
Preferred Stock
 
1,515,000
 
-
 
-
 
-
and Directors as a
 
Common Stock
 
400,000
 
95,750
 
2.8
 
*
Group (3 persons)
 
Warrants
 
3,750,000
 
187,500
 
5.5
 
4.2
       
5,665,000
 
283,250
 
8.3%
 
6.3%
______________________
*      Less than 1%.
(1) All ownership is direct unless otherwise indicated.
(2) Address for all stockholders is 1350 17th Street, Suite 150, Denver, CO 80202.
(3) Calculations of total percentages of ownership outstanding for each person or group assume the exercise of all derivative securities owned by the individual or group to which the percentage relates, pursuant to Rule 13d-3(d)(1)(i).
(4) These securities are beneficially owned by Brandon C. Jennewine, the sole owner of F-squared Enterprises, LLC. At the Recapitalization, the number of shares of preferred stock will be converted to the same number of shares of common stock.
( 5 ) Consists of warrants to purchase 3,000,000 shares, of which 1,500,000 became exercisable immediately and 1,500,000 become exercisable in six quarterly installments of 250,000 each, commencing March 31, 2016.
 
Beneficial ownership has been determined in accordance with Rule 13d-3 under the Exchange Act. Under this rule, certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire shares (for example, upon exercise of an option or warrant) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person, the amount of shares is deemed to include the amount of shares beneficially owned by such person by reason of such acquisition rights. As a result, the percentage of outstanding shares of any person as shown in the following table does not necessarily reflect the person's actual voting power at any particular date.

44


THE EQUITY PURCHASE TRANSACTION

General

On December 15, 2015, we entered into the Purchase Agreement and the Registration Rights Agreement with Kodiak Capital. Pursuant to the terms of the Purchase Agreement, Kodiak Capital has agreed to purchase from us up to $1 million in aggregate purchase price of our common stock from time to time, until December 31, 2016. Pursuant to the terms of the Registration Rights Agreement, we have filed with the SEC the registration statement that includes this prospectus to register for resale under the Securities Act the shares that we estimate may be issued to Kodiak Capital under the Purchase Agreement.

Purchase of Shares under the Purchase Agreement

We do not have the right to commence any sales to Kodiak Capital under the Purchase Agreement until the SEC has declared effective the registration statement of which this prospectus forms a part. Thereafter, we may, from time to time and at our sole discretion, direct, by delivery of a put notice, Kodiak Capital to purchase shares of our common stock. The purchase price per share will be equal to 70% of the lowest daily volume-weighted average price of the common stock for the five consecutive trading days immediately following our delivery of a put notice to Kodiak Capital to purchase the shares. There is no minimum amount that we may require Kodiak Capital to purchase at any one time. The closing of the sale of the shares will occur on the sixth trading day following our delivery of the put notice to Kodiak Capital to purchase the shares.

In consideration for entering into the Purchase Agreement, we issued to Kodiak Capital a commitment $50,000 promissory note payable on July 11, 2016. Kodiak is entitled any time after May 15, 2016, subject to the provisions of the note, to convert all or a portion of the principal of the commitment note into shares of our common stock at a conversion price equal to 50% of the current market price as defined in the commitment note.
 
We have agreed that we will not, without Kodiak Capital's prior written consent, enter into any other equity line of credit agreement that has terms and conditions substantially comparable to the Purchase Agreement during the commitment period of the Purchase Agreement.
 
Other than as set forth above, there are no trading volume requirements or restrictions under the Purchase Agreement, and we will control the timing and amount of any sales of our common stock to Kodiak Capital.

Conditions to Sales

Under the Purchase Agreement, the following conditions must be satisfied in order for us to sell shares of our common stock to Kodiak Capital:

·
The registration statement of which this prospectus forms a part, and any amendment or supplement thereto, must be effective for the sale by Kodiak Capital of the shares to be purchased by Kodiak Capital, and: (i) neither we nor Kodiak Capital has received notice that the SEC has issued or intends to issue a stop order respecting the registration statement or that the SEC otherwise has suspended or withdrawn the effectiveness of the registration statement, either temporarily or permanently, or intends or has threatened to do so; and (ii) there is no other suspension of the use or withdrawal of the effectiveness of the registration statement or this prospectus.

·
Our representations and warranties contained in the Purchase Agreement must be true and correct in all material respects (except for representations and warranties specifically made as of a particular date), except for any conditions that have temporarily caused any representations or warranties to be incorrect and which have been corrected with no continuing impairment to us or Kodiak Capital.

·
We have performed in all material respects all covenants, agreements, and conditions required by the Purchase Agreement to be performed, satisfied, or complied with by us.
45


·
No statute, rule, regulation, executive order, decree, ruling, or injunction has been enacted, entered, promulgated, or adopted by any court or governmental authority of competent jurisdiction that prohibits or directly and materially adversely affects any of the transactions contemplated by the Purchase Agreement, and no proceeding has been commenced that may have the effect of prohibiting or materially adversely affecting any of the transactions contemplated by the Purchase Agreement.

·
The trading of our common stock has not been suspended by the SEC, the principal trading market for our common stock, or the Financial Industry Regulatory Authority, Inc., and our common stock has been approved for listing or quotation on and has not been delisted from such principal market.

·
The number of shares of our common stock to be purchased by Kodiak Capital at a particular closing may not exceed the number of shares that, when aggregated with all other shares of common stock then beneficially owned by Kodiak Capital, would result in it owning more than 9.99% of all of our outstanding common stock.

·
We have no knowledge of any event more likely than not to have the effect of causing the registration statement of which this prospectus forms a part to be suspended or otherwise ineffective.

Our Termination Rights

We have the unconditional right, at any time, for any reason and without any payment or liability to us, to give notice to Kodiak Capital to terminate the Purchase Agreement.

No Short-Selling by Kodiak Capital

Kodiak Capital has agreed that neither it nor any of its respective affiliates shall engage in any direct or indirect short-selling of our common stock during any time before the termination of the Purchase Agreement.

Effect of Performance of the Purchase Agreement on Our Stockholders

All shares of common stock registered in this offering are expected to be freely tradable. It is anticipated that shares registered in this offering will be sold over a period commencing on the date that the registration statement, including this prospectus, becomes effective through December 31, 2016. The sale by Kodiak Capital of a significant amount of shares registered in this offering at any given time could cause the market price of our common stock to decline and to be highly volatile. Kodiak Capital may ultimately purchase all, some, or none of the shares of common stock not yet issued but registered in this offering. If we sell these shares to Kodiak Capital, it may sell all, some, or none of such shares. Therefore, sales to Kodiak Capital by us under the Purchase Agreement may result in substantial dilution to the interests of other stockholders. In addition, if we sell a substantial number of shares to Kodiak Capital under the Purchase Agreement, or if investors expect that we will do so, the actual sales of shares or the mere existence of our arrangement with Kodiak Capital may make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price at which we might otherwise wish to effect such sales. However, we have the right to control the timing and amount of any sales of our shares to Kodiak Capital, and the Purchase Agreement may be terminated by us at any time at our discretion without any cost to us.

Pursuant to the terms of the Purchase Agreement, we have the right, but not the obligation, to direct Kodiak Capital to purchase up to $1 million of our common stock. Depending on the price per share at which we sell our common stock to Kodiak Capital, we may be authorized to issue and sell to Kodiak Capital under the Purchase Agreement more shares of our common stock than are offered under this prospectus. If we choose to do so, we must first register for resale under the Securities Act any such additional shares, which could cause additional substantial dilution to our stockholders. The number of shares ultimately offered for resale by Kodiak Capital under this prospectus is dependent upon the number of shares we direct Kodiak Capital to purchase under the Purchase Agreement.
46


The following table sets forth the amount of proceeds we would receive from Kodiak Capital from the sale of 1,101,475 shares at varying purchase prices:
 
Assumed
Volume-
Weighted
Trading Price
Assumed
Average
Purchase Price
Per Share
Number of Registered
Shares to be Issued if
Full Purchase (1)
Additional Proceeds
from the Sale of
Registered Shares Under
the Purchase Agreement
$0.034
$0.024
1,102,475
$26,239
0.044
  0.031
1,102,475
33,956
0.054
  0.038
1,102,475
41,674
0.064
     0.045 (2)
1,102,475
49,391
0.074
 0.052
1,102,475
57,108
0.084
 0.059
1,102,475
64,826
0.094
 0.066
1,102,475
72,543

(1) Although the Purchase Agreement with Kodiak Capital provides that we may sell up to $1 million in our common stock in the aggregate, we are registering 1,102,475 shares for resale by Kodiak Capital under this prospectus, which may or may not cover all the shares we ultimately sell to Kodiak Capital under the Purchase Agreement, depending on the purchase price per share. As a result, we have included in this column only those shares that we are registering in this offering.
( 2) $0.045 is 70% of $0.0032, the closing price of the common stock on September 16, 2016, after giving effect to the Recapitalization.
 


SELLING STOCKHOLDER

This prospectus relates to the possible resale of up to 1,102,475 shares of common stock that may be issued to Kodiak Capital pursuant to the Purchase Agreement. We are filing the registration statement of which this prospectus forms a part pursuant to the provisions of the agreements executed in connection with the selling stockholder's agreement to purchase the shares.

Pursuant to the Registration Rights Agreement, which we entered into with Kodiak Capital on December 15, 2015, concurrently with our execution of the Purchase Agreement, we agreed to provide certain registration rights respecting sales by Kodiak Capital of the shares of our common stock that may be issued to it under the Purchase Agreement. See the description under the heading "The Equity Purchase Transactions" for more information about the Purchase Agreement.

The selling stockholder may, from time to time, offer and sell pursuant to this prospectus any or all of the shares that we have sold or may sell to it. The selling stockholder may sell some, all, or none of its shares. We do not know how long the selling stockholder will hold the shares before selling them, and we currently have no agreements, arrangements, or understandings with the selling stockholder regarding the sale of any of the shares.
 
The following table presents information regarding the selling stockholder and the shares that it may offer and sell from time to time under this prospectus. The table is prepared based on information supplied to us by the selling stockholder, and reflects its holdings as of  September 16 , 2016. Except as described herein, neither the selling stockholder nor any of its respective affiliates has held a position or office, or had any other material relationship, with us or any of our predecessors or affiliates. As used in this prospectus, the term "selling stockholder" includes the selling stockholder and any of its respective donees, pledgees, transferees, or other successors-in-interest selling shares received after the date of this prospectus from the selling stockholder as a gift, pledge, or other non-sale-related transfer. Beneficial ownership is determined in accordance with Rule 13d-3(d) promulgated by the SEC under the Exchange Act.
 
47

 
 
The percentage of shares beneficially owned before the offering is based on 3,403,176 shares of our common stock actually outstanding as of  September 16 , 2016:

Selling Stockholder
Shares Beneficially Owned Before this Offering
Percentage of Outstanding Shares Beneficially Owned Before this Offering (1)
Shares to be Sold in this Offering
Number Of Shares Beneficially Owned After this Offering
Percentage of Outstanding Shares Beneficially Owned After this Offering
Kodiak Capital Group, LLC (2)
--
*
1,102,475
--
*
__________________
* Less than 1%
(1) Based on 3,403,176 outstanding shares of our common stock as of September 16 , 2016. Although we may, at our discretion, elect to issue to Kodiak Capital up to an aggregate amount of $1 million in our common stock under the Purchase Agreement, such shares are not included in determining the percentage of shares beneficially owned before this offering.
(2) Ryan Hodson, Managing Director of Kodiak Capital, will have investment and voting control over the shares purchased by Kodiak Capital.


PLAN OF DISTRIBUTION

Kodiak Capital is an "underwriter," within the meaning of the Securities Act. The selling stockholder and any of its pledgees, donees, assignees, and successors-in-interest may, from time to time, sell any or all of their shares of common stock being offered under this prospectus on any stock exchange, market, or trading facility on which shares of our common stock are traded or in private transactions. These sales may be at fixed or negotiated prices. The selling stockholder may use any one or more of the following methods when disposing of shares:

·
ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

·
on the OTCQB;

·
block trades in which the broker-dealer will attempt to sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction;

·
purchases by a broker-dealer as principal and resales by the broker-dealer for its account;

·
an exchange distribution in accordance with the rules of the applicable exchange;

·
privately negotiated transactions;

·
through agreement between a broker-dealer and the selling stockholder to sell a specified number of shares at a stipulated price per share;
 
·
a combination of any of these methods of sale; and

·
any other method permitted pursuant to applicable law.

The shares may also be sold under Rule 144 under the Securities Act, if available, rather than under this prospectus. The selling stockholder has the sole and absolute discretion not to accept any purchase offer or make any sale of shares if it deems the purchase price to be unsatisfactory at any particular time.

After the effective date of the registration statement, Kodiak Capital has agreed not to engage in any direct or indirect short selling of our common stock during the term of the Purchase Agreement.

Broker-dealers engaged by selling stockholder may arrange for other broker-dealers to participate in sales. Broker-dealers may receive commissions or discounts from selling stockholder (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated, which commissions as to a particular broker or dealer may be in excess of customary commissions to the extent permitted by applicable law.
48


If sales of shares offered under this prospectus are made to broker-dealers as principals, we would be required to file a post-effective amendment to the registration statement of which this prospectus is a part. In the post-effective amendment, we would be required to disclose the names of any participating broker-dealers and the compensation arrangements relating to such sales.

Kodiak Capital is an "underwriter," within the meaning of Section 2(11) the Securities Act in connection with these sales. Commissions received by these broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Any broker-dealers or agents that are deemed to be underwriters may not sell shares offered under this prospectus unless and until we set forth the names of the underwriters and the material details of their underwriting arrangements in a supplement to this prospectus or, if required, in a replacement prospectus included in a post-effective amendment to the registration statement of which this prospectus is a part.

As used in this prospectus, "selling stockholder" includes donees, pledges, transferees, or other successors-in-interest that are selling shares they received after the date of this prospectus from the selling stockholder named in this prospectus as a gift, pledge, partnership distribution, or other non-sale-related transfer.

The selling stockholder and any other persons participating in the sale or distribution of the shares offered under this prospectus will be subject to applicable provisions of the Exchange Act and the rules and regulations under that act, including Regulation M. These provisions may restrict activities of and limit the timing of purchases and sales of any of the shares by the selling stockholder or any other person. Furthermore, under Regulation M, persons engaged in a distribution of securities are prohibited from simultaneously engaging in market making and other activities respecting those securities for a specified period of time before the commencement of such distributions, subject to specified exceptions or exemptions. All of these limitations may affect the marketability of the shares.

If any of the shares of common stock offered for sale pursuant to this prospectus are transferred other than pursuant to a sale under this prospectus, then subsequent holders could not use this prospectus until a post-effective amendment or prospectus supplement is filed naming such holders. We offer no assurance as to whether the selling stockholder will sell all or any portion of the shares offered under this prospectus.

We have agreed to pay all fees and expenses we incur incident to the registration of the shares being offered under this prospectus. However, each selling security holder and purchaser is responsible for paying any discounts, commissions, and similar selling expenses it incurs.
 
The selling stockholder and the issuer have agreed to indemnify one another against certain losses, damages, and liabilities arising in connection with this prospectus, including liabilities under the Securities Act. Under the securities laws of certain states, the shares of common stock may be sold in such states only through registered or licensed brokers or dealers. The selling stockholder has been advised to ensure that any brokers, dealers, or agents effecting transactions on its behalf are registered to sell securities in all 50 states. In addition, in certain states the shares of common stock may not be sold unless the shares have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with.

We will pay all the expenses incident to the registration, offering, and sale of the shares of common stock to the public hereunder other than commissions, fees, and discounts of brokers, dealers, and agents. We estimate that the expenses of the offering to be borne by us will be approximately $70,000. The estimated offering expenses consist of: an SEC registration fee of $ 80 , transfer agent/registrar of $2,000, accounting fees of $12,500, legal fees of $50,000, printing and miscellaneous expenses of $5, 420 . We will not receive any proceeds from the sale of any of the shares of common stock by the selling stockholder.
49


The selling stockholder should be aware that the anti-manipulation provisions of Regulation M under the Exchange Act will apply to purchases and sales of shares of common stock by the selling stockholder, and that there are restrictions on market-making activities by persons engaged in the distribution of the shares. Under Regulation M, the selling stockholder or its agents may not bid for, purchase, or attempt to induce any person to bid for or purchase, shares of our common stock while such selling stockholder is distributing shares covered by this prospectus. The selling stockholder has been advised that if a particular offer of common stock is to be made on terms constituting a material change from the information set forth above respecting this Plan of Distribution, then, to the extent required, a post-effective amendment to the accompanying registration statement must be filed with the SEC.

State Securities Restrictions on Resale

If selling stockholder wants to sell shares of our common stock under this registration statement in the United States, the selling stockholder will also need to comply with state securities laws with regard to secondary sales. All states offer a variety of exemptions from registration for secondary sales. Many states, for example, have an exemption for secondary trading of securities registered under Section 12(g) of the Exchange Act or for securities of issuers that publish continuous disclosure of financial and nonfinancial information in a recognized securities manual, such as Standard & Poor's. The broker for the selling stockholder will be able to advise the selling stockholder in which states our common stock is exempt from registration with that state for secondary sales.

Any person who purchases shares of our common stock from selling stockholder under this registration statement who then wants to sell such shares will also have to comply with state securities laws regarding secondary sales.

When the registration statement becomes effective, and the selling stockholder indicates in which states it desires to sell its shares, we will be able to identify whether it will need to register or will rely on an exemption therefrom.

 
DESCRIPTION OF CAPITAL STOCK

A majority of the voting stock has approved the Recapitalization, consisting of a 20-to-one reverse split and an increase of authorized capital . Our amended and restated articles of incorporation authorize us to issue 2,500 ,000,000 shares of capital stock, consisting of 2,000 ,000,000 shares of common stock, par value $0.001, and 5,000,000 shares of preferred stock, par value $0.001 .

Common Stock

The holders of common stock are entitled to one vote per share on each matter submitted to a vote at any meeting of stockholders . Shares of common stock do not carry cumulative voting rights and, therefore, a majority of the shares of outstanding common stock will be able to elect the entire board of directors and, if they do so, minority stockholders would not be able to elect any persons to the board of directors. Our bylaws provide that a majority of our issued and outstanding shares constitutes a quorum for stockholders ' meetings, except respecting certain matters for which a greater percentage quorum is required by statute or the bylaws .

Our stockholders have no preemptive rights to acquire additional shares of common stock or other securities. The common stock is not subject to redemption and carries no subscription or conversion rights. In the event of our liquidation, the shares of common stock are entitled to share equally in corporate assets after satisfaction of all liabilities.

Holders of common stock are entitled to receive such dividends as the board of directors may, from time to time, declare out of funds legally available for the payment of dividends. We seek growth and expansion of our business through the reinvestment of profits, if any, and do not anticipate that we will pay dividends in the foreseeable future.
50


Preferred Stock

Our amended and restated articles of incorporation authorize the issuance of 5,000,000 shares of preferred stock. The board of directors is empowered, without stockholder approval, to designate and issue additional series of preferred stock with dividend, liquidation, conversion, voting, or other rights or restrictions, including the right to issue convertible securities with no limitations on conversion, which could adversely affect the voting power or other rights of the holders of our common stock, substantially dilute a common stockholder's interest, and depress the price of our common stock.

Authority to Issue Stock

The board of directors has the authority to issue the authorized but unissued shares of common stock without action by the stockholders. The issuance of such shares would reduce the percentage ownership held by current stockholders .

 
WHERE YOU CAN FIND ADDITIONAL INFORMATION

We have filed with the SEC, Washington, D.C. 20549, under the Securities Act, a registration statement on Form S-1 relating to the shares offered hereby. This prospectus does not contain all of the information set forth in the registration statement and the exhibits and schedules thereto. For further information respecting our company and the shares offered by this prospectus, you should refer to the registration statement, including the exhibits and schedules thereto. You may inspect a copy of the registration statement without charge at the Public Reference Section of the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding registrants that file electronically with the SEC. The SEC's World Wide Web address is http://www.sec.gov.

Statements contained in this prospectus as to the contents of any contract or other document that we have filed as an exhibit to the registration statement are qualified in their entirety by reference to the exhibits for a complete statement of their terms and conditions.

The representations, warranties, and covenants made by us in any agreement that is filed as an exhibit to the registration statement of which this prospectus is a part were made solely for the benefit of the parties to such agreement, including, in some cases, for the purpose of allocating risk among the parties to such agreements, and should not be deemed to be a representation, warranty, or covenant to you. Moreover, such representations, warranties, or covenants were made as of an earlier date. Accordingly, such representations, warranties, and covenants should not be relied on as accurately representing the current state of our affairs.

We file periodic reports, proxy statements, and other information with the SEC in accordance with requirements of the Exchange Act. These periodic reports, proxy statements, and other information are available for inspection and copying at the regional offices, public reference facilities, and Internet site of the SEC referred to above. We make available through our website, free of charge, copies of these reports as soon as reasonably practicable after we electronically file or furnish them to the SEC. Our website is located at http://www.cannasys.com. You can also request copies of such documents, free of charge, by contacting us at (720) 420-1290 or sending an email to info@cannasys.com.

Information contained on our website is not a prospectus and does not constitute a part of this prospectus.


LEGAL MATTERS

Certain legal matters respecting the validity under Nevada law of the common stock to be sold by the selling stockholder have been passed upon for us by Kruse Landa Maycock & Ricks, LLC.

51


EXPERTS

The consolidated financial statements as of December 31, 2015 , and for the year ended December 31, 2015 , included in this Form S-1 have been so included in reliance upon the report of BF Borgers CPA, PC ("Borgers"), Lakewood, Colorado, an independent registered public accounting firm, given on the authority of said firm as an expert in auditing and accounting.
 
In connection with our most recent fiscal year audit and any subsequent interim period, there were no disagreements with Borgers or reportable events on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement, if not resolved to the satisfaction of Borgers , would have caused it to make reference to the subject matter of the disagreement in connection with its report. In connection with its audit of our 2015 financial statements, Borgers noted no matters involving the internal control structure and its operations that it considered to be material weaknesses.

The consolidated financial statements as of December 31, 2014 , and for the year in the period ended December 31, 2014 , included in this Form S-1 have been so included in reliance upon the report of HJ & Associates, LLC , an independent registered public accounting firm, given on the authority of said firm as an expert in auditing and accounting .
52

 
 

CANNASYS, INC.

 
INDEX TO FINANCIAL STATEMENTS
 
 
Page
   
Report of Independent Registered Public Accounting Firm
F-2
   
Report of Independent Registered Public Accounting Firm
F-3
   
Consolidated Balance Sheets as of December 31, 2015 and 2014
F-4
   
Consolidated Statements of Operations for the years ended December 31, 2015 and 2014
F-5
   
Consolidated Statements of Cash Flows for years ended December 31, 2015 and 2014
F-6
   
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended December 31, 2015 and 2014
F-7
   
Notes to the Consolidated Financial Statements
F-8
 
 
Page
   
Condensed Balance Sheets for the Six Months Ended June 30, 2016 and 2015
F-20
   
Condensed Statements of Operations for the Six Months Ended June 30, 2016 and 2015
F-21
   
Condensed Statements of Cash Flows for the Six Months Ended June 30, 2016 and 2015
F-22
   
Notes to the Condensed Financial Statements
F-23
 
 
 
F-1

Report of Independent Registered Public Accounting Firm
 

 
To the Board of Directors and Stockholders of CannaSys, Inc.:
 
We have audited the accompanying balance sheet of CannaSys, Inc. ("the Company") as of December 31, 2015 and the related statement of operations, stockholders' equity (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
 
We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
 
In our opinion, the financial statement referred to above present fairly, in all material respects, the financial position of CannaSys, Inc., as of December 31, 2015, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles in the United States of America.
 
The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the Company's internal control over financial reporting. Accordingly, we express no such opinion.
 
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company's significant operating losses raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
 
/s/ B F Borgers CPA PC
B F Borgers CPA PC
Lakewood, CO
April 11, 2016
F-2

 
Report of Independent Registered Public Accounting Firm
 
 
To the Board of Directors and Stockholders
CannaSys, Inc.
 
We have audited the accompanying consolidated balance sheet of CannaSys, Inc. and subsidiaries as of December 31, 2014 and the related consolidated statements of operations, stockholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of CannaSys, Inc. and subsidiaries as of December 31, 2014, and the results of their operations and their cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.
 
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has suffered recurring losses from operations and its total liabilities exceed its total assets. This raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters also are described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
 
/s/ HJ & Associates, LLC
HJ & Associates, LLC
Salt Lake City, UT
March 30, 2015
 
F-3

 
CANNASYS, INC.
Balance Sheets
 
 
   
December 31,
 
   
2015
   
2014
 
Assets
           
             
Current Assets:
           
Cash
 
$
7,720
   
$
525,720
 
Accounts receivable
   
4,550
     
2,224
 
Prepaid expenses and other assets
   
-
     
2,828
 
Total Current Assets
   
12,270
     
530,772
 
Property & equipment, net
   
5,178
     
7,987
 
Software license
   
255,000
     
25,000
 
Available for sale securities
   
32,500
     
-
 
Equity investment in MHB, Inc., net of impairment of $1,846,515
   
1,049,475
     
-
 
Deposit
   
-
     
12,502
 
Total Assets
 
$
1,354,423
   
$
576,261
 
                 
Liabilities and Stockholders' Equity
               
                 
Current Liabilities:
               
Accounts payable
 
$
123,676
   
$
21,133
 
Accrued expenses
   
51,274
     
54,070
 
Due to a related party
   
-
     
1,320
 
Notes payable
   
200,000
     
-
 
Convertible notes payable, net of discount of $122,084
   
152,966
     
-
 
Total Current Liabilities
   
527,916
     
76,523
 
                 
Total Liabilities
   
527,916
     
76,523
 
                 
Stockholders' Equity:
               
Preferred stock, $0.001 par value, 5,000,000 shares authorized,
               
no shares issued
   
-
     
-
 
Common stock, $0.001 par value, 75,000,000 shares
               
authorized, 21,176,045 and 11,043,755 shares issued and
               
outstanding, respectively
   
21,176
     
11,044
 
Additional paid-in capital
   
6,422,017
     
2,247,524
 
Accumulated deficit
   
(5,616,686
)
   
(1,758,830
)
Total Stockholders' Equity
   
826,507
     
499,738
 
                 
Total Liabilities and Stockholders' Equity
 
$
1,354,423
   
$
576,261
 
 
The accompanying notes are an integral part of these consolidated financial statements.
F-4

 
CANNASYS, INC.
Statements of Operations
 
       
   
For the Years Ended December 31,
 
   
2015
   
2014
 
Sales revenue
 
$
119,325
   
$
6,538
 
Cost of goods sold
   
47,823
     
12,006
 
Gross Margin
   
71,502
     
(5,468
)
                 
Operating Expenses:
               
Stock based compensation expense
   
904,125
     
1,012,500
 
Professional fees
   
207,892
     
130,642
 
Salary and wages expense
   
491,223
     
274,057
 
General and administrative
   
231,033
     
303,670
 
Total Operating Expenses
   
1,834,273
     
1,720,869
 
                 
Loss from Operations
   
(1,762,771
)
   
(1,726,337
)
                 
Other Expense:
               
Interest expense
   
(6,344
)
   
-
 
Interest expense – debt discount and loan financing fees
   
(85,250
)
   
-
 
Impairment loss on investment
   
(1,846,515
)
   
-
 
Loss on issuance of convertible debt
   
(152,966
)
   
-
 
Loss on investment
   
(4,010
)
   
-
 
  Total Other Expense
   
(2,095,085
)
   
-
 
                 
Loss before provision for income taxes
   
(3,857,856
)
   
(1,726,337
)
Provision for income taxes
   
-
     
-
 
                 
Net loss
 
$
(3,857,856
)
 
$
(1,726,337
)
                 
Basic and diluted loss per common share
 
$
(0.31
)
 
$
(0.24
)
                 
Weighted average number of common shares outstanding
   
12,563,717
     
7,282,387
 
 
The accompanying notes are an integral part of these consolidated financial statements.
F-5

 
CANNASYS, INC.
Statements Of Cash Flows
 
   
For the years ended December 31,
 
   
2015
   
2014
 
Cash flow from operating activities
           
Net loss
 
$
( 3,857,856
)
 
$
(1,726,337
)
Adjustments to reconcile net loss to net cash
               
used in operating activities:
               
Depreciation
   
2,810
     
416
 
Stock-based compensation
   
904,125
     
1,012,500
 
Amortization of debt discount
   
85,250
     
-
 
Impairment loss on investment
   
1,846,515
     
-
 
Loss on issuance of convertible debt
   
152,966
     
-
 
Loss on investment
   
4,010
     
-
 
Change in operating assets and liabilities:
               
Accounts receivable
   
(2,326
)
   
(2,224
)
Prepaids
   
2,828
     
(1,143
)
Other assets
   
12,502
     
(37,502
)
Related-party payable
   
(1,320
)
   
1,320
 
Accounts payable
   
102,542
     
25,414
 
Accrued expenses
   
(2,796
)
   
50,171
 
Net cash used in operating activities
   
(750,750
)
   
(677,385
)
                 
Cash flows (used in) provided by investing activities:
               
Purchase of property and equipment
   
-
     
(8,403
)
Purchase of software license
   
(121,750
)
   
-
 
Purchase of available for sale securities
   
(32,500
)
   
-
 
Cash acquired in merger with Thermal Tennis
   
-
     
35,719
 
Net cash (used in) provided by investing activities
   
(154,250
)
   
27,316
 
                 
Cash flows from financing activities:
               
Proceeds from the sales of common stock
   
-
     
1,087,400
 
Proceeds from notes payable
   
387,000
     
-
 
Net cash provided by financing activities
   
387,000
     
1,087,400
 
                 
Net increase (decrease) in cash
   
(518,000
)
   
437,331
 
Cash at beginning of the year
   
525,720
     
88,389
 
Cash at end of the year
 
$
7,720
   
$
525,720
 
                 
Supplemental Disclosures:
               
Interest paid
 
$
-
   
$
-
 
Income taxes paid
 
$
-
   
$
-
 
Supplemental disclosure of non-cash activities
               
Common stock issued for software license
 
$
108,250
   
$
-
 
Common stock issued for investment
 
$
2,900,000
   
$
-
 
Issuance of convertible notes payable
 
$
272,250
   
$
-
 
 
The accompanying notes are an integral part of these consolidated financial statements.
F-6

 
CANNASYS, INC.
Statements of Stockholders' Equity

   
Common Stock
                   
   
Shares
   
Amount
   
Additional Paid-in Capital
   
Accumulated Deficit
   
Total
 
                                         
Balance, December 31, 2013
   
3,960,000
    $
3,960
    $
106,028
    $
(32,493
)
  $
77,495
 
                                         
Issuance of common stock for cash
   
3,685,667
     
3,686
     
1,083,714
     
-
     
1,087,400
 
                                         
Issuance of common stock for compensation
   
675,000
     
675
     
1,011,825
     
-
     
1,012,500
 
                                         
Merger acquisition
   
2,723,088
     
2,723
     
45,957
     
-
     
48,680
 
                                         
Net loss for the year ended December 31, 2014
   
-
     
-
     
-
     
( 1,726,337
)
   
( 1,726,337
)
                                         
Balance, December 31, 2014
   
11,043,755
     
11,044
     
2,247,524
     
(1,758,830
)
   
499,738
 
                                         
Issuance of common stock for licensing
   
132,290
     
132
     
108,118
     
-
     
108,250
 
                                         
Issuance of common stock for investment
   
10,000,000
     
10,000
     
2,890,000
     
-
     
2,900,000
 
                                         
Issuance of warrants
   
-
     
-
     
904,125
     
-
     
904,125
 
                                         
Beneficial conversion feature on convertible debt
   
-
     
-
     
272,250
     
-
     
272,250
 
                                         
Net loss for the year ended December 31, 2015
   
-
     
-
     
-
     
(3,857,856
)
   
(3,857,856
)
                                         
Balance, December 31, 2015
   
21,176,045
   
$
21,176
   
$
6,422,017
   
$
(5,616,686
)
 
$
826,507
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
F-7

 
CANNASYS, INC. AND SUBSIDIARIES
Notes to the Financial Statements
December 31, 2015


NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS

Organization
We were organized as a Nevada corporation on August 25, 1999. On August 15, 2014, we entered into an Agreement and Plan of Merger to combine our business and activities with CannaSys, Inc., a privately held Colorado corporation focused on providing services to the cannabis industry ("CannaSys-Colorado"), into a single entity (the "Merger"). CannaSys-Colorado was originally formed on October 4, 2013, as a limited liability company, and converted to a corporation on June 26, 2014. Under the terms of the merger agreement, our wholly owned subsidiary formed to effectuate the Merger was merged with and into CannaSys-Colorado, the surviving entity, which then became our wholly owned subsidiary.

Due to the CannaSys-Colorado shareholders controlling us after the Merger, CannaSys-Colorado was considered the accounting acquirer. The transaction was therefore recognized as a reverse acquisition of us by CannaSys-Colorado. The accompanying condensed consolidated financial statements are those of CannaSys-Colorado for all periods prior to the Merger.

In connection with the closing of the Merger and after meeting the requirements of the Securities Exchange Act of 1934, as amended ("Exchange Act"), on November 12, 2014, we filed amended and restated articles of incorporation with the Nevada Secretary of State that: (i) changed our name to CannaSys, Inc.; (ii) increased our authorized capital stock to 80,000,000 shares, consisting of 75,000,000 shares of common stock and 5,000,000 shares of preferred stock; (iii) authorized 5,000,000 shares of preferred stock; and (iv) made other modernizing, nonmaterial changes to our articles of incorporation. Changing our corporate name to CannaSys, Inc. was a condition to the Merger transaction. The name change better reflects the nature of our principal business operations and it became effective in the OTC market on December 2, 2014, when FINRA announced the name change. We have also received a new CUSIP number and our trading symbol was changed to "MJTK."

Nature of Business
We provide technology services in the ancillary space of the cannabis industry. We are a technology company and we do not produce, sell, or handle in any manner cannabis products.

As the current cannabis industry grows and gains momentum around the country, technology needs for the industry have been largely underserved. Our focus on this niche element of the industry creates many efficient and profitable tools for both industry owners and consumers.

Our business consists of four products currently in the marketplace—BumpUp Rewards, BumpUp Rewards White Label, CannaLIMS, and MHB, Inc. Branded Products—that together serve the entire cannabis industry from grower-wholesaler to end-user.

We developed BumpUp Rewards as an affiliate-based membership rewards loyalty program designed specifically for the cannabis industry. An early version of BumpUp Rewards was introduced into the market as CannaCash in July 2014. The BumpUp Rewards application is free for customers and an efficient use of marketing dollars for dispensaries and providers. The BumpUp Rewards application allows for strong social media ties and an electronic solution for providing gifts, points, and discounts to friends and family. BumpUp Rewards includes an internal control mechanism designed to comply with the regulatory requirements applicable to individual retail outlets and customers based on applicable state licensing information and customers' locations.

For retail establishments, BumpUp Rewards offers the ability to gain new customers through gifts, retain customers through the affiliate and store-specific points program, and tailor specials and free advertising via the BumpUp Rewards program to an increasingly significant customer marketplace.
F-8


 
On December 22, 2015, we entered into a joint software development and marketing agreement with National Concessions Group, Inc., the organization responsible for marketing and branding a cannabis product brand called O.penVAPE. We are jointly developing and marketing an advanced, white-label version of our BumpUp Rewards application with functionality intended to incentivize product and corporate sales organizations through a proprietary points system. We are exploring the patentability of this product in collaboration with National Concessions Group.

CannaLIMS is a laboratory management information system product focused solely on the cannabis marketplace. Cannabis laboratories have multiple state and local level regulatory reporting requirements. We license our CannaLIMS system to customers, who access the software through web browsers and mobile applications, for recurring license fees. We have currently launched this product into the market and have secured new recurring revenue clientele. As with other software products we license, we are continuously making product improvements that we provide to existing users and new customers and are actively marketing in the laboratory sector of the industry.

On November 10, 2015, we acquired a 49% interest and a 10% gross revenue share in MHB, Inc., a Colorado corporation doing business as Mile High Brands. Mile High Brands is a licensing and distribution company doing business in the regulated cannabis industry. Under the share exchange agreement, we acquired 10,000,000 shares of Mile High Brands in exchange for 10,000,000 shares of our common stock. Mile High Brands contracts with celebrity brands and organizations and creates licensing opportunities for us through this relationship. We currently have a number of product licensing and distribution opportunities in partnership with Mile High Brands and expect to expand that portfolio in the future.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation
Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). The preparation of financial statements in conformity with U.S. GAAP 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 of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 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 be necessary should we be unable to continue as a going concern.

Management further acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control, and preventing and detecting fraud. Our system of internal accounting control is designed to assure, among other items, that: (1) recorded transactions are valid; (2) valid transactions are recorded; and (3) transactions are recorded in the proper period in a timely manner to produce financial statements that present fairly our financial condition, results of operations, and cash flows for the respective periods being presented.

Use of Estimates
The preparation of financial statements in accordance with U.S. GAAP permits management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. All intercompany transactions have been eliminated in consolidation.

Concentrations of Credit Risk
We maintain our cash in bank deposit accounts, the balances of which at times may exceed federally insured limits. We continually monitor our banking relationships and consequently have not experienced any losses in our accounts. We believe we are not exposed to any significant credit risk on cash.

Cash and Cash Equivalents
We maintain our cash balance at a financial institution located in Colorado. Accounts at this institution are insured by the Federal Deposit Insurance Corporation up to $250,000. As of December 31, 2015 and 2014, we had a cash balance of $7,720 and $525,720, respectively. We had an u ninsured balance of $275,750 at December 31, 2014. We have not experienced any losses in such accounts, and management believes it is not exposed to any significant credit risk on cash.
 
F-9


Accounts Receivable
Revenues that have been recognized but not yet received are recorded as accounts receivable. Losses on receivables will be recognized when it is more likely than not that a receivable will not be collected. An allowance for estimated uncollectible amounts will be recognized to reduce the amount of receivables to its net realizable value. The need for an allowance for uncollectible amounts is evaluated quarterly. We have not deemed it necessary to establish an allowance for doubtful accounts as of December 31, 2015 and 2014.

Reclassifications
Certain reclassifications have been made to the prior year financial information to conform to the presentation used in the financial statements for the year ended December 31, 2015.

Fair Value of Financial Instruments
We follow paragraph 825-10-50-10 of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB ASC to measure the fair value of our financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value U.S. GAAP and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, paragraph 820-10-35-37 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels of fair value hierarchy defined by paragraph 820-10-35-37 are described below:

Level 1: Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.

Level 2: Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.

Level 3: Pricing inputs that are generally observable inputs and not corroborated by market data.

The carrying amount of our financial assets and liabilities, such as cash, prepaid expenses, and accrued expenses, approximate their fair value because of the short maturity of those instruments. Our notes payable approximate the fair value of such instruments based upon management's best estimate of interest rates that would be available to us for similar financial arrangements at December 31, 2015.

Fixed Assets
Fixed assets are carried at the lower of cost or net realizable value. Normal maintenance and repairs are charged to expense as incurred. When assets are sold or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in operations. Depreciation is computed using the straight-line method over the estimated useful lives of the assets of three years.

Revenue Recognition
We follow paragraph ASC 605-10-S99-1 for revenue recognition. We will recognize revenue when it is realized or realizable and earned. We consider revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists; (ii) the product has been shipped or the services have been rendered to the customer; (iii) the sales price is fixed or determinable; and (iv) collectability is reasonably assured.

Earnings (Loss) per Common Share
Net income (loss) per common share is computed pursuant to paragraph ASC 260-10-45. Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock and potentially outstanding shares of common stock during the period. The weighted average number of common shares outstanding and potentially outstanding common shares assumes that we incorporated as of the beginning of the first period presented.
F-10


 
Our diluted loss per share is the same as the basic loss per share for the years ended December 31, 2015 and 2014, as the inclusion of any potential shares would have had an anti-dilutive effect due to our generating a loss.

Stock-based Compensation
We account for equity-based transactions with nonemployees under the provisions of ASC Topic No. 505-50, Equity-Based Payments to Non-Employees . ASC 505-50 establishes that equity-based payment transactions with nonemployees shall be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The fair value of common stock issued for payments to nonemployees is measured at the market price on the date of grant. The fair value of equity instruments, other than common stock, is estimated using the Black-Scholes option valuation model. In general, we recognize the fair value of the equity instruments issued as deferred stock compensation and amortize the cost over the term of the contract.

We account for employee stock-based compensation in accordance with the guidance of FASB ASC Topic No. 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. The fair value of the equity instrument is charged directly to compensation expense and credited to additional paid-in capital over the period during which services are rendered.

Valuation of Intangibles and Long-Lived Assets
We test intangibles and long-lived assets for recoverability when changes in circumstances indicate the carrying value may not be recoverable, for example, when there are material adverse changes in projected revenues or expenses, significant underperformance relative to historical or projected operating results, and significant negative industry or economic trends. We evaluate recoverability of an asset by comparing its carrying value to the future net undiscounted cash flows that we expect will be generated by the asset. If the comparison indicates that the carrying value of an asset is not recoverable, we recognize an impairment loss for the excess of carrying value over the estimated fair value.

Income Taxes
We follow paragraph 740-10-30 of the FASB ASC, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the fiscal year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the fiscal years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Statements of Income in the period that includes the enactment date.

We adopted paragraph 740-10-25 of the FASB ASC with regards to uncertainty income taxes. Paragraph 740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under paragraph 740-10-25, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Paragraph 740-10-25 also provides guidance on derecognition, classification, interest, penalties on income taxes, and accounting in interim periods and requires increased disclosures. We had no material adjustments to our liabilities for unrecognized income tax benefits according to the provisions of paragraph 740-10-25.
F-11


 
Recently Issued Accounting Pronouncements
In August 2014, the FASB issued Accounting Standards Update (ASU) 2014-15, Presentation of Financial Statements Going Concern (Subtopic 205-40) – Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern . Currently, there is no guidance in U.S. GAAP about management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern or to provide related footnote disclosures. The amendments in this update provide that guidance. In doing so, the amendments are intended to reduce diversity in the timing and content of footnote disclosures. The amendments require management to assess an entity's ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments: (1) provide a definition of the term substantial doubt ;   (2) require an evaluation every reporting period including interim periods; (3) provide principles for considering the mitigating effect of management's plans; (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management's plans; (5) require an express statement and other disclosures when substantial doubt is not alleviated; and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this update are effective for public and nonpublic entities for annual periods ending after December 15, 2016. Early adoption is permitted.

We have implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and we do not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on our financial position or results of operations.

NOTE 3 – GOING CONCERN

As reflected in the accompanying financial statements, we have an accumulated deficit of $ 5,616,686 at December 31, 2015, had a net loss of $ 3,857,856, and used net cash of $ 750,750 in operating activities for year ended December 31, 2015. This raises substantial doubt about our ability to continue as a going concern. The financial statements have been prepared assuming that we will continue as a going concern. 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 be necessary should we be unable to continue as a going concern.

While we are attempting to increase operations and revenues, our cash position may not be significant enough to support our daily operations. Management intends to raise additional funds by way of debt and equity financing. Management believes that the actions presently being taken to further implement our business plan and generate increased revenues provide the opportunity for us to continue as a going concern. While we believe in the viability of our strategy to generate increased revenues and in our ability to raise additional funds, there can be no assurances to that effect. Our ability to continue as a going concern is dependent upon our ability to further implement our business plan and generate increased revenues. The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

NOTE 4 – PROPERTY AND EQUIPMENT

Furniture, fixtures, and equipment, stated at cost, less accumulated depreciation consisted of the following at December 31:

 
 
2015
   
2014
 
Furniture, fixtures, and equipment
 
$
8,403
   
$
8,403
 
Less: accumulated depreciation
   
(3,225
)
   
(416
)
 Fixed assets, net
 
$
5,178
   
$
7,987
 

Depreciation Expense
Depreciation expense for the years ended December 31, 2015 and 2014, was $2,810 and $416, respectively.
F-12


 
NOTE 5 – SOFTWARE LICENSE

Effective February 12, 2015, we entered into an exclusive licensing agreement with Loyl.Me LLC, an established provider of automated marketing and customer relationship management software. The licensing agreement allows us the opportunity for perpetual and exclusive rights and ability to provide the cannabis community a convenient, cost-effective, and streamlined technology that is widely used in the non-cannabis industry. The technology is being branded as "BumpUp Rewards." The term of the agreement is perpetual; therefore, no amortization is being recognized. However, the value of the license will undergo an annual impairment test as required by ASC 350, Intangibles—Goodwill and Other . The agreement requires nine installment payments of $25,000 each to be paid with a combination of cash and stock and 8% of revenue from the use of the licensed technology. As of December 31, 2015, we have paid $255,000 in cash and stock towards the total cost of the license. A t December 31, 2015, we performed an impairment analysis and determined there had been no impairment to the value of the software license as recorded on the balance sheet.

NOTE 6 – AVAILABLE FOR SALE SECURITIES

On December 10, 2015, we acquired a 1.083% interest in Duby, LLC for $32,500. Duby is a social media application focused on cannabis consumers. As part of the acquisition, Duby plans to assist in the promotion of our products and services on its platform. We purchased the interest in Duby as part of ongoing negotiations for the joint marketing and promotion of our respective products. The purchase is being accounted for according to ASC 320, Debt and Equity Securities , as available-for-sale securities and has been recorded at cost. As Duby is not a public company with active trading by which the investment could be valued at December 31, 2015, we performed an impairment analysis and determined that as of December 31, 2015, there had been no impairment to the value of the purchased interest in Duby.

NOTE 7 – INVESTMENT IN MILE HIGH BRANDS

On November 10, 2015, we entered into an agreement to exchange 10 million shares of our common stock for 10 million shares of MHB, Inc., doing business as Mile High Brands ("Mile High Brands"). The shares were valued at $0.29 per share, the closing stock price on the date of grant, for a total of $2,900,000. Through this transaction, we acquired 49% of the issued and outstanding common shares of Mile High Brands. Mile High Brands is a lifestyle branding agency focused on the regulated cannabis industry. Its clients include celebrities and product companies that wish to access the rapidly growing cannabis marketplace. The purchase is being accounted for according to ASC 320, Debt and Equity Securities , under the equity method of accounting. A t December 31, 2015, we performed an impairment analysis of our investment in Mile High Brands. We utilized a perpetuity-based valuation model to determine a discounted cash flow and terminal value for Mile High Brands' business. Based on this analysis, it was determined that the value of the investment was impaired and that the current fair value is $1,049,475. We have recorded an impairment loss on investment of $1,846,515.

NOTE 8 – COMMITMENTS AND CONTINGENCIES

Operating Lease
We currently sublease office space in Denver, Colorado. We signed a month-to-month lease starting January 1, 2016. Current lease payments are based on number of desks being occupied not to exceed $1,500 per month. The sublease required a deposit of $1,500, which was paid on January 25, 2016.

NOTE 9 – RELATED-PARTY TRANSACTIONS

As of December 31, 2014, we owed $1,320 for cash advances to the former president of Thermal Tennis. The advance was due on demand and non-interest-bearing. The advance was paid in the nine months ended September 30, 2015.

Refer to Note 12 for warrants issued.
F-13


 
NOTE 10 – NOTES PAYABLE IN DEFAULT

During the year ended December 31, 2015, we executed unsecured promissory notes to two accredited investors for a total of $200,000 in a private placement of our securities. The notes accrue interest at 1% per annum and are due and payable on March 1, 2016. The notes were issued in reliance on the exemption from registration provided in Section 4(a)(2) of the Securities Act of 1933, as amended, for transactions not involving any public offering.

NOTE 11 – CONVERTIBLE NOTES PAYABLE

On October 14, 2015, we entered into a Securities Purchase Agreement with EMA Financial, LLC ("EMA"), and executed a 10% Convertible Note in favor of EMA in the principal amount of $28,000. EMA funded the note on October 19, 2015 (the "Closing Date") less $3,000 through an original issue discount for its due diligence and legal fees. The note is unsecured, accrues interest at 10% per annum, and is due and payable on October 14, 2016. The outstanding amount due on the note is convertible into restricted shares of our common stock at any time during the term of the note at EMA's sole discretion at the conversion price of the lower of: (i) the closing sale price of the common stock on the trading day on immediately preceding the Closing Date; and (ii) 50% of the lowest sale price for the common stock during the 25 consecutive trading days immediately preceding the conversion date. This note was amended effective November 30, 2015, increasing the interest rate to 12% and the principal due to $30,800. As of December 31, 2015, $30,800 of principal and $685 of accrued interest remain outstanding.

On November 18, 2015, we executed a 10% Convertible Promissory Note in favor of Tangiers Investment Group, LLC ("Tangiers"), in the total face value of $240,000. Tangiers funded the initial consideration of $60,000 under the note on November 18, 2015, less $10,000, which was retained by Tangiers through an original issue discount for due diligence and legal expenses related to the transaction. The note is unsecured, accrues interest at 10% per annum, and is due and payable on November 19, 2016. The outstanding amount due on the note is convertible into restricted shares of common stock after May 19, 2016, at Tangiers's sole discretion at the conversion price of 55% of the lowest sale price for the common stock during the 25 consecutive trading days immediately preceding the conversion date. As of December 31, 2015, $60,000 of principal and $723 of accrued interest remain outstanding.

On November 30, 2015, we executed a 12% Convertible Promissory Note in favor of Kodiak Capital Group, LLC ("Kodiak"), in the total face value of $50,000. Kodiak funded the initial consideration of $35,000 under the note on November 30, 2015, less $15,000, which was retained by Kodiak through an original issue discount for due diligence and legal expenses related to the transaction. The note is unsecured, accrues interest at 12% per annum, and is due and payable on December 1, 2016. The outstanding amount due on the note is immediately convertible into restricted shares of our common stock, at Kodiak's sole discretion, at the lower of the closing bid price on the principal market on the trading day preceding the note date or 50% of the lowest closing bid price for the common stock during the 30 consecutive trading days immediately preceding the conversion date, with some exceptions. As of December 31, 2015, $50,000 of principal and $526 of accrued interest remain outstanding.

On December 3, 2015, we entered into a Securities Purchase Agreement with Auctus Fund, LLC ("Auctus"), and executed a 10% Convertible Promissory Note in favor of Auctus, in the principal amount of $49,250. Auctus funded the consideration of $44,000 under the note on December 3, 2015, less $5,250, which was retained by Auctus through an original issue discount for due diligence and legal expenses related to the transaction. The note is unsecured, accrues interest at 10% per annum, and is due and payable on September 3, 2016. The outstanding amount due on the note is convertible into restricted shares of our common stock after December 3, 2015, at Auctus's sole discretion, at the conversion price of 55% of the lowest sale price for the common stock during the 25 consecutive trading days immediately preceding the conversion date. As of December 31, 2015, $49,250 of principal and $391 of accrued interest remain outstanding.
F-14


 
On December 15, 2015, we entered into the Equity Purchase Agreement with Kodiak (the "EPA") that provides the terms and conditions for Kodiak's purchase of up to $1,000,000 of our common stock. Pursuant to the EPA, we also entered into a Registration Rights Agreement and Convertible Promissory Note due July 15, 2016, in the principal amount of $50,000 that represents the commitment fee paid to Kodiak under the EPA. The convertible note may be converted into restricted shares of our common stock at any time after May 15, 2016, at a conversion price equal to 50% of the lowest closing bid price for the common stock for the 30 trading dates ending on the trading day immediately before the relevant conversion date. Under the Registration Rights Agreement, we were required to file an S-1 registration statement within 30 days of the closing date to register the shares of common stock to be purchased by Kodiak under the EPA. Kodiak extended the date for filing this registration statement until February 1, 2016. As of December 31, 2015, $50,000 of principal remain outstanding.

On December 16, 2015, we entered into a Securities Purchase Agreement with Adar Bays, LLC, relating to the issuance and sale of two 8% convertible notes in the aggregate principal amount of $70,000 (each in the principal amount of $35,000), both of which are convertible into shares of our common stock, upon the terms and subject to the limitations and conditions set forth in the notes. The first $35,000 was funded on December 10, 2015, less $2,000, which was retained by Adar through an original issue discount for due diligence and legal expenses related to the transaction. The note is unsecured, accrues interest at 8% per annum, and is due and payable on December 10, 2016. The outstanding amount due on the note is convertible into restricted shares of common stock after June 10, 2016, at Adar's sole discretion, at the conversion price of 50% of the lowest sale price for the common stock during the 25 consecutive trading days immediately preceding the conversion date. We have no obligation to have the second note funded. As of December 31, 2015, $35,000 of principal and $169 of accrued interest remain outstanding.

Note Holder
Issue Date
Maturity Date
 
Stated Interest Rate
   
Principal Balance Outstanding 12/31/2015
 
EMA Financial, LLC
10/14/2015
10/14/2016
   
10%
 
 
$
30,800
 
Tangiers Investment Group, LLC
11/18/2015
11/19/2016
   
10
     
60,000
 
Kodiak Capital
11/30/2015
12/01/2016
   
12
     
50,000
 
Auctus Fund, LLC
12/03/2015
09/03/2016
   
10
     
49,250
 
Adar Bays, LLC
12/10/2015
12/10/2016
   
8
     
35,000
 
Kodiak Capital
12/15/2015
07/15/2016
   
8
     
50,000
 
               
$
275,050
 

Note Holder
 
Initial Valuation
   
Current Remaining Debt Discount to Amortize over Five Remaining Months
   
Interest Expense Recognized for Immediately Convertible Notes and One Month of Amortization
   
Balance
12/31/2015
 
EMA Financial, LLC
 
$
30,800
   
$
-
   
$
30,800
   
$
30,800
 
Tangiers Investment Group, LLC
   
60,000
     
(45,000
)
   
15,000
     
15,000
 
Kodiak Capital
   
50,000
     
-
     
50,000
     
50,000
 
Auctus Fund, LLC
   
49,250
     
-
     
49,250
     
49,250
 
Adar Bays, LLC
   
35,000
     
(32,084
)
   
2,916
     
2,916
 
Kodiak Capital
   
50,000
     
(45,000
)
   
5,000
     
5,000
 
   
$
275,050
   
$
122,084
   
$
152,966
   
$
152,966
 

NOTE 12 – STOCK WARRANTS

The warrants issued by us are classified as equity. The fair value of the warrants calculated at the time of vesting was recorded as an increase to additional paid-in-capital.
F-15


 
Pursuant to the terms of a consulting agreement with National Concessions Group, Inc., we granted warrants to purchase 300,000 shares of common stock. The warrants vest equally over six quarters. As of December 31, 2015, 50,000 of the warrants have vested. The aggregate fair value of the vested warrants totaled $16,000 based on the Black-Scholes-Merton pricing model using the following estimates: exercise price of $0.05, stock price of $0.32, 0.8% risk free rate, 848.1% volatility, and expected life of the warrants of 1.4 years.

On December 24, 2015, we granted to Michael Tew, our chief executive officer, warrants to purchase 3,000,000 shares of common stock. As of December 31, 2015, 1,750,000 of the warrants have vested. The aggregate fair value of the vested warrants totaled $612,500 based on the Black-Scholes-Merton pricing model using the following estimates: exercise price of $0.05, stock price of $0.35, 1.33% risk free rate, 842% volatility, and expected life of the warrants of three years.

On December 24, 2015, we granted to Brandon Jennewine, our director, warrants to purchase 500,000 shares of common stock. The warrants were vested immediately upon grant. The aggregate fair value of the vested warrants totaled $175,000 based on the Black-Scholes-Merton pricing model using the following estimates: exercise price of $0.05, stock price of $0.35, 1.33% risk free rate, 842% volatility, and expected life of the warrants of three years.

On December 24, 2015, we granted to a consultant warrants to purchase 250,000 shares of common stock. The warrants were vested immediately upon grant. The aggregate fair value of the vested warrants totaled $87,500 based on the Black-Scholes-Merton pricing model using the following estimates: exercise price of $0.05, stock price of $0.35, 1.33% risk free rate, 842% volatility, and expected life of the warrants of three years.

On December 24, 2015, we granted to a director warrants to purchase 150,000 shares of common stock. As of December 31, 2015, 37,500 of the warrants have vested. The aggregate fair value of the vested warrants totaled $13,125 based on the Black-Scholes-Merton pricing model using the following estimates: exercise price of $0.05, stock price of $0.35, 1.33% risk free rate, 842% volatility, and expected life of the warrants of three years. On March 22, 2016, we accepted the resignation of the director resulting in the cancellation of the warrant for the remaining 112,500 shares.

   
Shares Available to Purchase with Warrants
   
Weighted
Average
Price
   
Weighted
Average
Fair Value
 
                   
Outstanding, December 31, 2014
   
-
   
$
-
   
$
-
 
                         
Issued
   
4,200,000
     
0.05
     
0.35
 
Exercised
   
-
     
-
     
-
 
Cancelled
   
(112,500
)
   
-
     
-
 
Expired
   
-
     
-
     
-
 
Outstanding, December 31, 2015
   
4,087,500
   
$
0.05
   
$
0.35
 
                         
Exercisable, December 31, 2015
   
4,087,500
   
$
0.05
   
$
0.35
 

 
Range of
Exercise Prices
   
Number Outstanding
12/31/2015
 
Weighted Average Remaining
Contractual Life
 
Weighted Average
Exercise Price
 
$
0.05
     
4,087,500
 
2.9 years
 
$
0.05
 

NOTE 13 – STOCKHOLDERS' EQUITY (DEFICIT)
 
During the year ended December 31, 2014, we sold 2,040,000 shares of common stock to B44 LLC for total cash proceeds of $200,000.

During the year ended December 31, 2014, we issued 675,000 shares of common stock for compensation of $1,012,500.
 
During the year ended December 31, 2014, we issued 1,000,000 shares of common stock for total cash proceeds of $500,000.
 
F-16


 
During the year ended December 31, 2014, we issued 645,667 shares of common stock for total cash proceeds of $387,400.

In connection with the Merger consummated on or about August 15, 2014, we issued a total of 6,000,000 unregistered shares of common stock to a total of 17 persons in exchange for 100% of the issued and outstanding shares of CannaSys-Colorado. Our shareholders prior to the merger retained an aggregate of 2,723,088 shares of common stock, eliminating 1,601,912 shares in consolidation. The Merger was consummated in order to raise capital for the Company to allow it to deliver its products to market.
 
On February 9, 2015, we authorized the issuance of 25,000 shares of common stock per the terms of the licensing agreement with Loyl.Me. The shares were valued at $2.00 per share, the closing stock price on the date of grant, for total non-cash stock compensation expense of $50,000.
 
On April 10, 2015, we authorized the issuance of 5,612 shares of common stock per the terms of the licensing agreement with Loyl.Me. The shares were valued at $1.47 per share, the closing stock price on the date of grant, for total non-cash stock compensation expense of $8,250.

On July 10, 2015, we authorized the issuance of 24,038 shares of common stock per the terms of the licensing agreement with Loyl.Me. The shares were valued at $1.04 per share, the closing stock price on the date of grant, for total non-cash stock compensation expense of $25,000.

On October 10, 2015, we authorized the issuance of 77,640 shares of common stock per the terms of the licensing agreement with Loyl.Me. The shares were valued at $0.322 per share, the closing stock price on the date of grant, for total non-cash stock compensation expense of $25,000.

On November 10, 2015, we entered into an agreement to exchange 10 million shares of our common stock for 10 million shares of MHB, Inc. Through this transaction, we acquired 49% of the issued and outstanding common shares of MHB, Inc. The shares were valued at $0.29 per share, the closing stock price on the date of grant, for a total of $2,900,000.

NOTE 14 – INCOME TAX

Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit 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.
 
F-17


Net deferred tax assets consist of the following components as of December 31:

 
 
2015
   
2014
 
Deferred Tax Assets:
           
NOL Carryover
 
$
1,493,600
   
$
188,900
 
Related-party accrual
   
-
     
500
 
Depreciation
   
300
     
1,500
 
Payroll accrual
   
6,000
     
-
 
Deferred tax liabilities:
               
Less valuation allowance
   
(1,499,900
)
   
(190,900
)
Net deferred tax assets
 
$
-
   
$
-
 
 
The income tax provision differs from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income from continuing operations for the period ended December 31, due to the following:

   
2015
   
2014
 
Book Income (loss)
 
$
(1,504,600
)
 
$
(583,800
)
Meals and entertainment
   
1,600
     
1,000
 
Depreciation
   
(300
)
   
(1,500
)
Other nondeductible expenses
   
77,900
     
394,900
 
Payroll accrual
   
6,000
         
Related party accruals
   
(500
)
   
500
 
Valuation allowance
   
1,419,900
     
188,900
 
   
$
-
   
$
-
 
 
At December 31, 2015, we had net operating loss carryforwards of approximately $2,072,000 that may be offset against future taxable income through the year 2035. No tax benefit has been reported in the December 31, 2015, financial statements since the potential tax benefit is offset by a valuation allowance of the same amount.
 
Previous to June 26, 2014, we were a limited liability company treated as a pass-through entity.

 
F-18


 
Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carryforwards for federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carryforwards may be limited as to use in future years.

NOTE 15 – SUBSEQUENT EVENTS

In accordance with FASB ASC 855-10, Subsequent Events ¸ we have analyzed our operations subsequent to December 31, 2015, through the date the financial statements were available to be issued, and have determined that we do not have any material subsequent events to disclose in these financial statements other than the following.

On February 8, 2016, we granted 25,000 shares of common stock in consideration for accounting services rendered.

Subsequent to December 31, 2015, we granted to Viridian Capital Advisors, LLC warrants to purchase 250,000 shares of common stock for consideration of consulting services provided.

On January 13, 2016, we executed a promissory note for $75,000 with B44, LLC. The note is unsecured, accrues interest at 1% per annum, and is due and payable on June 30, 2016. In connection with the execution of the promissory note, we also issued warrants to purchase 225,000 shares of our common stock.

On January 14, 2016, we converted an account payable to Colonial Stock Transfer Company, Inc., in the amount of $6,605 into a convertible promissory note. The convertible note is unsecured, accrues interest at 10% per annum, and is due and payable on January 14, 2017. The outstanding amount due on the note is immediately convertible into restricted shares of our common stock, at Colonial's sole discretion, at a conversion price equal to 55% of the lowest trade price for the common stock during the 25 consecutive trading days immediately preceding the conversion date.

On January 14, 2016, we granted 50,000 shares of common stock to Convurge, LLC, the successor-in-interest to Loyl.Me LLC, in connection with an amendment to the license agreement.

On January 24, 2016, pursuant to the terms of a consulting agreement, we issued a warrant to purchase 100,000 shares of our common stock to Consigliere Inc. The warrant is fully vested with an exercise price of $0.23 per share and expires January 23, 2017.

On January 21, 2016, we issued to KiwiTech, LLC, a warrant to purchase 312,500 shares of common stock at the exercise price of $0.40 per share, with an expiration date of December 31, 2025.
 
F-19

 
On March 18, 2016, we entered into a Securities Purchase Agreement ("SPA") with Kodiak Capital Group, LLC, and executed two 12% Convertible Redeemable Promissory Notes, each in the principal amount of $50,000. On March 18, 2016, Kodiak funded the first note for $35,000, less $15,000 in due diligence costs and attorney fees, which was retained by Kodiak. Under the terms of the SPA and the second note, the second note is initially paid for by Kodiak's issuance to us of an offsetting secured note for $50,000 (the "Buyer Note"). The terms of the second note do not become effective until Kodiak funds the Buyer Note, which funding is in our sole discretion. The first note and the second note (when funded by the offsetting Buyer Note) accrue interest at the rate of 12% per annum and mature on March 18, 2017. The outstanding amounts due under the notes are immediately convertible into restricted shares of our common stock after 180 days from the issue date, at Kodiak's sole discretion, at 50% of the lowest closing bid price for the common stock during the 30 consecutive trading days immediately preceding the conversion date, with some exceptions.
 
On March 31, 2016, we, LuvBuds, LLC ("LuvBuds"), Brett Harris ("Harris"), and Tag Distributing LLC, doing business as Consigliere Inc. ("Consigliere"), entered into an Agreement of Termination, Compromise, Settlement and Mutual Release of Claims to resolve, compromise, settle, and dispose of and any and all disputes and claims that exist or may exist among them. The agreement, among other things: (1) terminates the Asset Purchase Agreement of December 17, 2015, among us, LuvBuds, and Harris; (2) terminates the Consulting Agreement of January, 24, 2016, between us and Consigliere; (3) confirms retention by Harris of the stock grant for 300,000 shares of our common stock; (4) confirms retention by Harris of the warrant to purchase 100,000 shares of our common stock; (5) assigns the 70% membership interest in LuvBuds from us to Harris, with Harris assuming the obligations and duties related thereto; and (6) assigns the acquired assets in LuvBuds from us to Harris. Due to termination of the agreement, there was no financial impact during the year December 31, 2015.
F-20

 
CANNASYS, INC.
Condensed Balance Sheets
 
       
   
June 30,
2016
   
December 31,
2015
 
   
(unaudited)
       
Assets
           
             
Current Assets:
           
Cash
 
$
1,054
   
$
7,720
 
Accounts receivable
   
995
     
4,550
 
Total Current Assets
   
2,049
     
12,270
 
Property & equipment, net
   
3,766
     
5,178
 
Software license
   
255,000
     
255,000
 
Available for sale securities
   
32,500
     
32,500
 
Equity investment in MHB, Inc., net of impairment of $1,846,515
   
1,049,475
     
1,049,475
 
Deposit
   
1,500
     
-
 
Total Assets
 
$
1,344,290
   
$
1,354,423
 
                 
Liabilities and Stockholders' Equity
               
                 
Current Liabilities:
               
Accounts payable
 
$
237,076
   
$
123,676
 
Accrued expenses
   
133,092
     
51,274
 
Notes payable
   
186,717
     
200,000
 
Convertible notes payable, net of discount of $23,338 and $122,084, respectively
   
401,595
     
152,966
 
Total Current Liabilities
   
958,480
     
527,916
 
                 
Total Liabilities
   
958,480
     
527,916
 
                 
Stockholders' Equity:
               
Preferred stock, $0.001 par value, 5,000,000 shares authorized,
               
no shares issued
   
-
     
-
 
Common stock, $0.001 par value, 75,000,000 shares
               
authorized, 63,887,364 and 21,176,045 shares issued and
               
outstanding, respectively
   
63,887
     
21,176
 
Additional paid-in capital
   
7,788,149
     
6,422,017
 
Accumulated deficit
   
(7,466,226
)
   
(5,616,686
)
Total Stockholders' Equity
   
385,810
     
826,507
 
                 
Total Liabilities and Stockholders' Equity
 
$
1,344,290
   
$
1,354,423
 

The accompanying notes are an integral part of these condensed unaudited financial statements.
F-21

 
CANNASYS, INC.
Condensed Statements of Operations
(Unaudited)

   
For the Three Months Ended
June 30,
   
For the Six Months Ended
June 30,
 
   
2016
   
2015
   
2016
   
2015
 
Sales revenue
 
$
22,489
   
$
18,491
   
$
58,651
   
$
28,248
 
Cost of goods sold
   
-
     
2,854
     
24,260
     
3,218
 
Gross Margin
   
22,489
     
15,637
     
34,391
     
25,030
 
                                 
Operating Expenses:
                               
Stock based compensation expense
   
109,500
     
-
     
485,467
     
-
 
Professional fees
   
112,241
     
18,839
     
212,427
     
96,980
 
Salary and wage expense
   
45,177
     
110,770
     
134,701
     
236,854
 
General and administrative
   
90,646
     
56,900
     
130,021
     
104,191
 
Total Operating Expenses
   
357,564
     
186,509
     
962,616
     
438,025
 
                                 
Loss from Operations
   
(335,075
)
   
(170,872
)
   
(928,225
)
   
(412,995
)
                                 
Other expense:
                               
Interest expense
   
(8,630
)
   
(451
)
   
(16,455
)
   
(678
)
Interest expense – debt discount and loan financing fees
   
(323,349
)
   
-
     
(415,849
)
   
-
 
Loss on issuance of convertible debt
   
(478,239
)
   
-
     
(489,011
)
   
-
 
Total other expense
   
(810,218
)
   
(451
)
   
(921,315
)
   
(678
)
                                 
Loss before provision for income taxes
   
(1,145,293
)
   
(171,323
)
   
(1,849,540
)
   
(413,673
)
Provision for income taxes
   
-
     
-
     
-
     
-
 
                                 
Net loss
 
$
(1,145,293
)
 
$
(171,323
)
 
$
(1,849,540
)
 
$
(413,673
)
                                 
Basic and diluted loss per common share
 
$
(0.03
)
 
$
(0.02
)
 
$
(0.07
)
 
$
(0.04
)
                                 
Weighted average number of common shares outstanding
   
30,097,359
     
11,073,750
     
25,848,180
     
11,065,621
 
 
The accompanying notes are an integral part of these condensed unaudited financial statements.
F-22

 
CANNASYS, INC.
Condensed Statements of Cash Flows
(Unaudited)

   
For the Six Months Ended
June 30,
 
   
2016
   
2015
 
Cash flow from operating activities
           
Net loss
 
$
(1,849,540
)
 
$
(413,673
)
Adjustments to reconcile net loss to net cash
               
used in operating activities:
               
Depreciation
   
1,412
     
1,396
 
Stock-based compensation
   
485,468
     
-
 
Amortization of debt discount
   
415,849
     
-
 
Severance expense
   
33,717
     
-
 
Loss on issuance of convertible debt
   
489,011
     
-
 
Change in operating assets and liabilities:
               
Accounts receivable
   
3,555
     
(3,806
)
Prepaids
   
-
     
2,828
 
Other assets
   
(1,500
)
   
(66,750
)
Related-party payable
   
-
     
(1,320
)
Accounts payable
   
120,003
     
(15,318
)
Accrued expenses
   
84,359
     
(17,767
)
Net cash used in operating activities
   
(217,666
)
   
(514,410
)
                 
Cash flows provided by investing activities:
   
-
     
-
 
                 
Cash flows from financing activities:
               
Contributed capital
   
-
     
100,000
 
Proceeds from loans
   
217,500
     
-
 
Payments on loans
   
(6,500
)
   
-
 
Net cash provided by financing activities
   
211,000
     
100,000
 
                 
Net increase (decrease)in cash
   
(6,666
)
   
(414,410
)
Cash at beginning of the period
   
7,720
     
525,720
 
Cash at end of the period
 
$
1,054
   
$
111,310
 
                 
Supplemental Disclosures:
               
Interest paid
 
$
-
   
$
-
 
Income taxes paid
 
$
-
   
$
-
 
                 
Supplemental disclosure of noncash activities
               
Common stock issued for software license
 
$
-
   
$
58,250
 
Common stock issued for services
 
$
101,875
   
$
50,000
 
Issuance of convertible notes payable
 
$
753,114
   
$
-
 
 
The accompanying notes are an integral part of these condensed unaudited financial statements.
F-23

 
CANNASYS, INC.
Notes to the Condensed Financial Statements
June 30, 2016
(Unaudited)


NOTE1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

Organization
We were organized as a Nevada corporation on August 25, 1999. On August 15, 2014, we entered into an Agreement and Plan of Merger to combine our business and activities with CannaSys, Inc., a privately held Colorado corporation focused on providing services to the cannabis industry ("CannaSys-Colorado") (the "Merger"). CannaSys-Colorado was originally formed on October 4, 2013, as a limited liability company, and converted to a corporation on June 26, 2014. Under the terms of the merger agreement, our wholly owned subsidiary formed to effectuate the Merger was merged with and into CannaSys-Colorado, the surviving entity, which then became our wholly owned subsidiary.

Due to the CannaSys-Colorado shareholders controlling us after the Merger, CannaSys-Colorado was considered the accounting acquirer. The transaction was therefore recognized as a reverse acquisition of us by CannaSys-Colorado. The accompanying condensed financial statements are those of CannaSys-Colorado for all periods prior to the Merger.

In connection with the closing of the Merger and after meeting the requirements of the Securities Exchange Act of 1934, as amended ("Exchange Act"), on November 12, 2014, we filed amended and restated articles of incorporation with the Nevada Secretary of State that: (i) changed our name to CannaSys, Inc.; (ii) increased our authorized capital stock to 80,000,000 shares, consisting of 75,000,000 shares of common stock and 5,000,000 shares of preferred stock; (iii) authorized 5,000,000 shares of preferred stock; and (iv) made other modernizing, nonmaterial changes to our articles of incorporation. Changing our corporate name to CannaSys, Inc. was a condition to the Merger transaction. The name change better reflects the nature of our principal business operations and it became effective in the OTC market on December 2, 2014, when FINRA announced the name change. We have also received a new CUSIP number and our trading symbol was changed to "MJTK."

Nature of Business
We provide technology services in the ancillary space of the cannabis industry. We do not produce, sell, or handle in any manner cannabis products.

As the current cannabis industry grows and gains momentum around the country, technology needs for the industry have been largely underserved. Our focus on this niche element of the industry creates many efficient and profitable tools for both industry owners and consumers.

Our business consists of four products currently in the marketplace—BumpUp Rewards, BumpUp Rewards White Label, CannaLIMS, and MHB, Inc. Branded Products—that together serve the entire cannabis industry from grower-wholesaler to end-user.

We developed BumpUp Rewards as an affiliate-based membership rewards loyalty program designed specifically for the cannabis industry. An early version of BumpUp Rewards was introduced into the market as CannaCash in July 2014. The BumpUp Rewards application is free for customers and an efficient use of marketing dollars for dispensaries and providers. The BumpUp Rewards application allows for strong social media ties and an electronic solution for providing gifts, points, and discounts to friends and family. BumpUp Rewards includes an internal control mechanism designed to comply with the regulatory requirements applicable to individual retail outlets and customers based on applicable state licensing information and customers' locations.

For retail establishments, BumpUp Rewards offers the ability to gain new customers through gifts, retain customers through the affiliate and store-specific points program, and tailor specials and free advertising via the BumpUp Rewards program to an increasingly significant customer marketplace.
F-24


 
On December 22, 2015, we entered into a joint software development and marketing agreement with National Concessions Group, Inc., the organization responsible for marketing and branding a cannabis product brand called O.penVAPE. We are jointly developing and marketing an advanced, white-label version of our BumpUp Rewards application with functionality intended to incentivize product and corporate sales organizations through a proprietary points system. We are exploring the patentability of this product in collaboration with National Concessions Group.

The BumpUp Rewards white-label application, downloadable in both iOS and Android devices, became available for download to consumers in beta format in March 2016. The application provides many of the features of traditional loyalty programs, including the ability for both consumers and "budtenders" (retailer staff) to earn rewards based upon consumption.

On May 9, 2016, we entered into a letter of intent to acquire a new, innovative text-message-based marketing product called Citizen Toke from Beta Killers, LLC. Citizen Toke leverages unique and proprietary consumer data to develop direct to consumer marketing campaigns for both regulated cannabis retailers and branded products companies. On August 10, 2016, we consummated that transaction through the signing of a definitive asset purchase agreement and other documentation.

CannaLIMS is a laboratory management information system product focused solely on the cannabis marketplace. Cannabis laboratories have multiple state and local level regulatory reporting requirements. We license our CannaLIMS system to customers, who access the software through web browsers and mobile applications, for recurring license fees. We have currently launched this product into the market and have secured new recurring revenue clientele. As with other software products we license, we are continuously making product improvements that we provide to existing users and new customers and are actively marketing in the laboratory sector of the industry.

On November 10, 2015, we acquired a 49% interest and a 10% gross revenue share in MHB, Inc., a Colorado corporation doing business as Mile High Brands ("MHB"). MHB is a licensing and distribution company doing business in the regulated cannabis industry. Under the share exchange agreement, we acquired 10,000,000 shares of MHB in exchange for 10,000,000 shares of our common stock. MHB contracts with celebrity brands and organizations and creates licensing opportunities for us through this relationship. On May 6, 2016, we announced the collaboration of O.penVAPE with Ziggy Marley to launch a branded line of vaporizer products in association with MHB. We currently have a number of product licensing and distribution opportunities in partnership with MHB and expect to expand that portfolio in the future.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Unaudited Interim Financial Information
The accompanying unaudited interim condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). The preparation of financial statements in conformity with U.S. GAAP 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 of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These financial statements should be read in conjunction with the audited financial statements and footnotes included in our Annual Report on Form 10-K for the year ended December 31, 2015. The results of the six months ended June 30, 2016, are not necessarily indicative of the results to be expected for the full year ending December 31, 2016.

Management further acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control, and preventing and detecting fraud. Our system of internal accounting control is designed to assure, among other items, that: (1) recorded transactions are valid; (2) valid transactions are recorded; and (3) transactions are recorded in the proper period in a timely manner to produce financial statements that present fairly our financial condition, results of operations, and cash flows for the respective periods being presented.
F-25


 
Use of Estimates
The preparation of financial statements in accordance with U.S. GAAP permits management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition
We follow Financial Accounting Standards Board ("FASB") Accounting Standards Codification (" ASC") 605-10-S99-1, Revenue Recognition, for revenue recognition. We will recognize revenue when it is realized or realizable and earned. We consider revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists; (ii) the product has been shipped or the services have been rendered to the customer; (iii) the sales price is fixed or determinable; and (iv) collectability is reasonably assured.

Recently Issued Accounting Pronouncements
In September 2015, the FASB issued Accounting Standards Update ("ASU") No. 2015-16, Business Combinations (Topic 805). Topic 805 requires that an acquirer retrospectively adjust provisional amounts recognized in a business combination during the measurement period. To simplify the accounting for adjustments made to provisional amounts, the amendments in the update require that the acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amount is determined. The acquirer is required to also record, in the same period's financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. In addition, an entity is required to present separately on the face of the income statement or disclose in the notes to the financial statements the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. ASU 2015-16 is effective for fiscal years beginning December 15, 2015. The adoption of ASU 2015-016 is not expected to have a material effect on our financial statements.

In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes . The new guidance requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. This update is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. We do not anticipate the adoption of this ASU will have a significant impact on our financial position, results of operations, or cash flows.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) . The guidance in ASU No. 2016-02 supersedes the lease recognition requirements in ASC 840, Leases (FAS 13) . ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. We are currently evaluating the effect this standard will have on our financial statements.

We have reviewed all other recently issued, but not yet adopted, accounting standards in order to determine their effects, if any, on our results of operations, financial position, and cash flows. Based on that review, these pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and we do not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on our financial position or results of operations.

NOTE 3 – GOING CONCERN
 
As reflected in the accompanying financial statements, we have an accumulated deficit of $ 7,466,226 at June 30, 2016, had a net loss of $ 1,849,540, and used cash in operating activities of $ 217,666 . This raises substantial doubt about our ability to continue as a going concern. The financial statements have been prepared assuming that we will continue as a going concern. 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 be necessary should we be unable to continue as a going concern.
F-26


 
While we are attempting to increase operations and revenues, our cash position may not be significant enough to support our daily operations. Management intends to raise additional funds by way of debt and equity financing. Management believes that the actions presently being taken to further implement our business plan and generate increased revenues provide the opportunity for us to continue as a going concern. While we believe in the viability of our strategy to generate increased revenues and in our ability to raise additional funds, there can be no assurances to that effect. Our ability to continue as a going concern is dependent upon our ability to further implement our business plan and generate increased revenues. The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

NOTE 4 – PROPERTY AND EQUIPMENT

Furniture, fixtures, and equipment, stated at cost, less accumulated depreciation consisted of the following:

 
 
June 30, 2016
   
December 31, 2015
 
Furniture, fixtures, and equipment
 
$
8,403
   
$
8,403
 
Less: accumulated depreciation
   
(4,637
)
   
(3,225
)
 Fixed assets, net
 
$
3,766
   
$
5,178
 

Depreciation Expense
Depreciation expense for the six months ended June 30, 2016 and 2015, was $1,412 and $1,396, respectively.

NOTE 5 – SOFTWARE LICENSE

Effective February 12, 2015, we entered into an exclusive licensing agreement with Loyl.Me LLC, an established provider of automated marketing and customer relationship management software. The licensing agreement allows us the opportunity for perpetual and exclusive rights and ability to provide the cannabis community a convenient, cost-effective, and streamlined technology that is widely used in the non-cannabis industry. The technology is being branded as "BumpUp Rewards." The term of the agreement is perpetual; therefore, no amortization is being recognized. However, the value of the license will undergo an annual impairment test as required by ASC 350, Intangibles—Goodwill and Other . The agreement requires nine installment payments of $25,000 each to be paid with a combination of cash and stock and 8% of revenue from the use of the licensed technology. A t December 31, 2015, we performed an impairment analysis and determined there had been no impairment to the value of the software license as recorded on the balance sheet. As of June 30 , 2016, we have paid $255,000 in cash and stock towards the total cost of the license.

NOTE 6 – AVAILABLE-FOR-SALE SECURITIES

On December 10, 2015, we acquired a 1.083% interest in Duby, LLC for $32,500. Duby is a social media application focused on cannabis consumers. As part of the acquisition, Duby plans to assist in the promotion of our products and services on its platform. We purchased the interest in Duby as part of ongoing negotiations for the joint marketing and promotion of our respective products. The purchase is being accounted for according to ASC 320, Debt and Equity Securities , as available-for-sale securities and has been recorded at cost. As Duby is not a public company with active trading by which the investment could be valued at December 31, 2015, we performed an impairment analysis and determined that as of December 31, 2015, there had been no impairment to the value of the purchased interest in Duby.

NOTE 7 – INVESTMENT IN MHB

On November 10, 2015, we entered into an agreement to exchange 10 million shares of our common stock for 10 million shares of MHB, Inc., doing business as Mile High Brands ("MHB"). The shares were valued at $0.29 per share, the closing stock price on the date of grant, for a total of $2,900,000. Through this transaction, we acquired 49% of the issued and outstanding common shares of MHB. MHB is a lifestyle branding agency focused on the regulated cannabis industry. Its clients include celebrities and product companies that wish to access the rapidly growing cannabis marketplace. The purchase is being accounted for according to ASC 320, Debt and Equity Securities , under the equity method of accounting. A t December 31, 2015, we performed an impairment analysis of our investment in MHB. We utilized a perpetuity-based valuation model to determine a discounted cash flow and terminal value for MHB's business. Based on this analysis, it was determined that the value of the investment was impaired and that the current fair value is $1,049,475. We have recorded an impairment loss on investment of $1,846,515.
F-27


 
MHB was unable to provide us with the financial statements for the six months ended June 30 , 2016. The impact to our financial statements for the six months ended June 30 , 2016 would be immaterial. The financials will be updated as necessary for the third quarter.

NOTE 8 – COMMITMENTS AND CONTINGENCIES

Operating Lease
We currently sublease office space in Denver, Colorado. We signed a month-to-month lease starting January 1, 2016. Current lease payments are based on number of desks being occupied not to exceed $1,500 per month. The sublease required a deposit of $1,500, which was paid on January 25, 2016.

NOTE 9 – NOTE PAYABLE

On February 16, 2016, MHB advanced to us $7,500 to pay for certain operating expenses. The loan is unsecured, due on demand, and accrues interest at 10%.

Effective March 24, 2016, we issued a promissory note for $33,717 with a former employee pursuant to the terms of the employment separation agreement. The note is unsecured, non-interest-bearing, and repayable according to a specific schedule by September 19, 2016. As of June 30, 2016, the balance on this note is $27,217.

On April 27, 2016, we issued a promissory note for $27,000 with Jeff Holmes in conjunction with Mr. Holmes assignment of his note dated June 26, 2015, to Blackbridge Capital, LLC (Note 10). The note included a $25,000 cash payment and a $2,000 original issue discount. The note is unsecured, accrues interest at 1% per annum, and is due and payable on October 26, 2016. In connection with the execution of the promissory note, we also issued a warrant to purchase 100,000 shares of common stock (Note 12).

NOTE 10 – NOTES PAYABLE IN DEFAULT

During the year ended December 31, 2015, we issued four unsecured promissory notes to two accredited investors, B44, LLC and Jeff Holmes, for a total of $200,000 in a private placement of our securities. The notes accrue interest at 1% per annum and were due and payable on March 1, 2016. The notes were issued in reliance on the exemption from registration provided in Section 4(a)(2) of the Securities Act of 1933, as amended, for transactions not involving any public offering. On April 27, 2016, Jeff Holmes entered into a Note Purchase and Assignment Agreement whereby he assigned his full interest in one of the notes for $50,000 to Blackbridge Capital, LLC. On May 23, 2016, B44, LLC, entered into a Note Purchase and Assignment Agreement whereby it assigned its full interest in one of the notes for $50,000 to Kodiak Capital Group, LLC. On May 31, 2016 B44, LLC, entered into a Note Purchase and Assignment Agreement whereby it assigned its full interest in one of the notes for $50,000 to Black Forest Capital, LLC. As of June 30, 2016, one note for $50,000 remains in default.

On January 13, 2016, we issued a promissory note for $75,000 with B44, LLC. The note is unsecured, accrues interest at 1% per annum, and is due and payable on June 30, 2016. In connection with the execution of the promissory note, we also issued a warrant to purchase 225,000 shares of common stock. This note is currently in default.
F-28


 
NOTE 11 – CONVERTIBLE NOTES PAYABLE

The following is a summary of outstanding convertible promissory notes as of December 31, 2015:

Note Holder
Issue Date
Maturity Date
 
Stated Interest Rate
   
Principal Balance Outstanding 12/31/2015
 
EMA Financial, LLC
10/14/2015
10/14/2016
   
10
%
 
$
30,800
 
Tangiers Investment Group, LLC
11/18/2015
11/19/2016
   
10
%
   
60,000
 
Kodiak Capital Group, LLC
11/30/2015
12/01/2016
   
12
%
   
50,000
 
Auctus Fund, LLC
12/03/2015
09/03/2016
   
10
%
   
49,250
 
Adar Bays, LLC
12/10/2015
12/10/2016
   
8
%
   
35,000
 
Kodiak Capital Group, LLC
12/15/2015
07/15/2016
   
0
%
   
50,000
 
                 
275,050
 
Less debt discount
               
(122,084
)
               
$
152,966
 

The following is a summary of outstanding convertible promissory notes as of June 30, 2016:

Note Holder
Issue Date
Maturity Date
 
Stated Interest Rate
   
Principal Balance Outstanding 6/30/2016
 
EMA Financial, LLC
10/14/2015
10/14/2016
   
12
%
 
$
13,736
(1)  
Tangiers Investment Group, LLC
11/18/2015
11/19/2016
   
10
%
   
35,941
(2)  
Kodiak Capital Group, LLC
11/30/2015
12/01/2016
   
12
%
   
50,000
 
Auctus Fund, LLC
12/03/2015
09/03/2016
   
10
%
   
35,646
(3)  
Adar Bays, LLC
12/16/2015
12/16/2016
   
8
%
   
30,585
(4)  
Kodiak Capital Group, LLC
12/15/2015
07/15/2016
   
0
%
   
50,000
 
Colonial Stock Transfer
01/14/2016
01/14/2017
   
10
%
   
6,605
 
Kodiak Capital Group, LLC
03/18/2016
03/18/2017
   
12
%
   
50,000
 
Blackbridge Capital, LLC
04/27/2016
10/27/2016
   
1
%
   
4,500
(5)  
EMA Financial, LLC
05/05/2016
05/05/2017
   
12
%
   
53,500
 
Kodiak Capital Group, LLC
05/23/2016
08/30/2016
   
1
%
   
50,000
 
Black Forest Capital, LLC
05/31/2016
05/31/2017
   
8
%
   
30,000
 
Black Forest Capital, LLC
05/31/2016
05/31/2017
   
2
%
   
14,420
(6)  
                 
424,933
 
Less debt discount
               
(23,338
)
               
$
401,595
 
 
(1) Converted $19,564 of principal to common stock.
(2) Converted $24,059 of principal to common stock.
(3) Converted $13,604 of principal to common stock.
(4) Converted $4,415 of principal to common stock.
(5) Converted $45,500 of principal to common stock.
(6) Converted $35,580 of principal to common stock.

Accrued interest on the above notes was $12,378 and $6,210 as of June 30, 2016, and December 31, 2015, respectively.

Debt discount expense including original issue discounts for the three and six months ended June 30, 2016, was $323,349 and $415,849, respectively. Carrying value of all convertible notes, net of debt discounts, as of June 30, 2016, and December 31, 2015, is $401,595 and $152,966, respectively.

Based on the fair value of the embedded conversion options on the day of issuance, a loss of $478,239 and $489,011 for the three and six months ended June 30, 2016, was recorded in the statement of operations.
F-29


 
NOTE 12 – STOCK WARRANTS

The warrants issued by us are classified as equity. The fair value of the warrants calculated at the time of vesting was recorded as an increase to additional paid-in-capital.

On December 20, 2015, pursuant to the terms of a consulting agreement with National Concessions Group, Inc., we granted a warrant to purchase 300,000 shares of common stock. The warrant vests incrementally over six quarters. As of December 31, 2015, the warrant had vested for 50,000 shares, with an aggregate fair value of $16,000. As of June 30, 2016, the warrant vested for another 100,000 shares, with an aggregate fair value of $32,000. Aggregate fair value is based on the Black-Scholes-Merton pricing model using the following estimates: exercise price of $0.05, stock price of $0.32, 0.8% risk free rate, 848.1% volatility, and expected life of the warrant of 1.4 years.

On December 24, 2015, we granted to Michael Tew, our chief executive officer, a warrant to purchase 3,000,000 shares of common stock. As of December 31, 2015, the warrant had vested for 1,750,000 shares, with an aggregate fair value of $612,500. As of June 30, 2016, the warrant vested for another 500,000 shares, with an aggregate fair value of $175,000. The aggregate fair value is based on the Black-Scholes-Merton pricing model using the following estimates: exercise price of $0.05, stock price of $0.35, 1.33% risk free rate, 842% volatility, and expected life of the warrant of three years.

On December 24, 2015, we granted to Brandon Jennewine, our director, a warrant to purchase 500,000 shares of common stock. The warrant vested immediately upon grant. The aggregate fair value of the vested warrant totaled $175,000 based on the Black-Scholes-Merton pricing model using the following estimates: exercise price of $0.05, stock price of $0.35, 1.33% risk free rate, 842% volatility, and expected life of the warrant of three years.

On December 24, 2015, we granted to Daniel J. Rogers, our director, a warrant to purchase 250,000 shares of common stock. The warrant vested immediately upon grant. The aggregate fair value of the vested warrant totaled $87,500 based on the Black-Scholes-Merton pricing model using the following estimates: exercise price of $0.05, stock price of $0.35, 1.33% risk free rate, 842% volatility, and expected life of the warrant of three years.

On December 24, 2015, we granted to David Wollins, a former director, a warrant to purchase 150,000 shares of common stock. As of December 31, 2015, the warrant had vested for 37,500 shares. The aggregate fair value of the vested warrant totaled $13,125 based on the Black-Scholes-Merton pricing model using the following estimates: exercise price of $0.05, stock price of $0.35, 1.33% risk free rate, 842% volatility, and expected life of the warrant of three years. On March 22, 2016, we accepted the resignation of Mr. Wollins resulting in the cancellation of the warrant for the remaining 112,500 shares.

On January 13, 2016, pursuant to the terms of a promissory note with B44, LLC, we granted a warrant to purchase 225,000 shares of common stock. The warrant vested immediately upon grant. The aggregate fair value of the vested warrant totaled $69,750 based on the Black-Scholes-Merton pricing model using the following estimates: exercise price of $0.05, stock price of $0.31, 1.15% risk free rate, 600% volatility, and expected life of the warrant of three years. On February 10, 2016, B44 exercised its right to a cashless conversion of its warrant, for which it received 176,087 shares of common stock.

On January 24, 2016, pursuant to the terms of a consulting agreement, we granted a warrant to purchase 100,000 shares of common stock to Consigliere Inc. The warrant is fully vested with an exercise price of $0.23 per share and expires January 23, 2017. The aggregate fair value of the vested warrant totaled $28,967 based on the Black-Scholes-Merton pricing model using the following estimates: exercise price of $0.23, stock price of $0.29, 0.47% risk free rate, 638% volatility, and expected life of the warrant of one year.

On January 21, 2016, we granted to KiwiTech, LLC, a warrant to purchase 312,500 shares of common stock. The warrant vested immediately upon grant. The aggregate fair value of the vested warrant totaled $71,875 based on the Black-Scholes-Merton pricing model using the following estimates: exercise price of $0.40, stock price of $0.23, 2.02% risk free rate, 600% volatility, and expected life of the warrant of 10 years.
F-30


 
On April 28, 2016, pursuant to the terms of a promissory note with Jeff Holmes, we granted a warrant to purchase 100,000 shares of common stock. The warrant vested immediately upon grant. The aggregate fair value of the vested warrant totaled $27,000 based on the Black-Scholes-Merton pricing model using the following estimates: exercise price of $0.05, stock price of $0.27, 0.91% risk free rate, 1,177% volatility, and expected life of the warrant of 2.68 years.

   
Shares Available to Purchase with Warrants
   
Weighted
Average
Price
   
Weighted
Average
Fair Value
 
                   
Outstanding, December 31, 2014
   
4,200,000
   
$
0.05
   
$
0.35
 
                         
Issued
   
737,500
     
0.28
     
0.27
 
Exercised
   
(225,000
)
   
-
     
-
 
Cancelled
   
(112,500
)
   
-
     
-
 
Expired
   
-
     
-
     
-
 
Outstanding, June 30, 2016
   
4,600,000
   
$
0.08
   
$
0.34
 
                         
Exercisable, June 30, 2015
   
3,700,000
   
$
0.09
   
$
0.33
 

Range of Exercise Prices
   
Number Outstanding 6/30/2016
 
Weighted Average Remaining Contractual Life
 
Weighted Average Exercise Price
 
$
0.05 - $0.40
     
4,600,000
 
2.8 years
 
$
0.09
 

NOTE 13 – STOCKHOLDERS' EQUITY (DEFICIT)

On February 9, 2015, we authorized the issuance of 25,000 shares of common stock per the terms of the licensing agreement with Loyl.Me. The shares were valued at $2.00 per share, the closing stock price on the date of grant, for total noncash stock compensation expense of $50,000.

On April 10, 2015, we authorized the issuance of 5,612 shares of common stock per the terms of the licensing agreement with Loyl.Me. The shares were valued at $1.47 per share, the closing stock price on the date of grant, for total noncash stock compensation expense of $8,250.

On July 10, 2015, we authorized the issuance of 24,038 shares of common stock per the terms of the licensing agreement with Loyl.Me. The shares were valued at $1.04 per share, the closing stock price on the date of grant, for total noncash stock compensation expense of $25,000.

On October 10, 2015, we authorized the issuance of 77,640 shares of common stock per the terms of the licensing agreement with Loyl.Me. The shares were valued at $0.322 per share, the closing stock price on the date of grant, for total noncash stock compensation expense of $25,000.

On November 10, 2015, we entered into an agreement to exchange 10 million shares of our common stock for 10 million shares of MHB, Inc. Through this transaction, we acquired 49% of the issued and outstanding common shares of MHB, Inc. The shares were valued at $0.29 per share, the closing stock price on the date of grant, for a total of $2,900,000.

On January 14, 2016, we granted 50,000 shares of common stock to Convurge, LLC, the successor-in-interest to Loyl.Me LLC, in connection with an amendment to the license agreement. The shares were valued at $0.28 per share, the closing stock price on the date of grant, for a total noncash expense of $14,000.

On February 8, 2016, we granted 25,000 shares of common stock in consideration for accounting services rendered. The shares were valued at $0.25 per share, the closing stock price on the date of grant, for a total noncash expense of $6,250.
F-31


 
On February 11, 2016, we granted 62,500 shares of common stock in consideration for consulting services rendered. The shares were valued at $0.25 per share, the closing stock price on the date of grant, for a total noncash expense of $15,625.

On March 31, 2016, we, LuvBuds, LLC, Brett Harris, and Tag Distributing LLC, doing business as Consigliere Inc., entered into an Agreement of Termination, Compromise, Settlement and Mutual Release of Claims to resolve, compromise, settle, and dispose of and any and all disputes and claims that exist or may exist among the parties. Pursuant to the terms of the agreement, Mr. Harris retained the stock grant for 300,000 shares of common stock. The shares were valued at $0.22 per share, the closing stock price on the date of grant, for a total noncash expense of $66,000.

On May 23, 2016, we entered into Amendment No. 1 to 10% Convertible Promissory Note of CannaSys to amend the terms of the 10% Convertible Promissory Note of CannaSys, Inc. dated November 18, 2015 with Tangiers Investment Group, LLC. In consideration of Tangiers Investment Group's agreement not to submit a notice of conversion prior to June 10, 2016, we issued a stock grant of 100,000 restricted shares of common stock to Tangiers Investment Group. The shares were valued at $0.06 per share, the closing stock price on the date of grant, for a total noncash expense of $6,000.

The following table reflects the amounts of principal converted, and the corresponding number of shares issued, in connection with outstanding convertible promissory notes during the quarter ended June 30, 2016:

                   
Amount Converted
 
Date
 
Note Holder
 
Price
   
Shares Issued
   
Principal
   
Interest
 
4/29/2016
 
Blackbridge Capital
 
$
0.069
     
333,333
   
$
25,000.00
   
$
-
 
5/3/2016
 
EMA Financial LLC
   
0.075
     
70,000
     
5,250.00
     
-
 
5/19/2016
 
Blackbridge Capital, LLC
   
0.001
     
121,212
     
(1
)
   
-
 
5/27/2016
 
Blackbridge Capital, LLC
   
0.001
     
2,045,455
     
(1
)
   
-
 
5/27/2016
 
EMA Financial LLC
   
0.006
     
1,000,000
     
5,500.00
     
-
 
6/3/2016
 
Black Forest Capital. LLC
   
0.010
     
1,000,000
     
10,000.00
     
-
 
6/6/2016
 
Auctus Fund, LLLC
   
0.011
     
1,094,051
     
9,592.30
     
2,442.26
 
6/8/2016
 
Blackbridge Capital, LLC
   
0.004
     
2,000,000
     
10,000.00
     
-
 
6/8/2016
 
EMA Financial LLC
   
0.003
     
1,272,600
     
3,744.63
     
-
 
6/9/2016
 
EMA Financial LLC
   
0.002
     
1,486,592
     
2,861.69
     
-
 
6/9/2016
 
Tangiers Investment Group, LLC
   
0.004
     
2,701,299
     
10,400.00
     
-
 
6/10/2016
 
Auctus Fund
   
0.004
     
1,067,391
     
4,011.67
     
97.79
 
6/10/2016
 
Black Forest Capital. LLC
   
0.003
     
1,428,572
     
5,000.00
     
-
 
6/10/2016
 
Blackbridge Capital, LLC
   
0.003
     
2,857,143
     
10,000.00
     
-
 
6/13/2016
 
EMA Financial LLC
   
0.001
     
2,006,610
     
2,207.27
     
-
 
6/14/2016
 
Blackbridge Capital, LLC
   
0.001
     
1,636,364
     
(2
)
   
-
 
6/14/2016
 
Tangiers Investment Group, LLC
   
0.003
     
3,685,950
     
11,150.00
     
-
 
6/15/2016
 
Black Forest Capital. LLC
   
0.003
     
1,818,182
     
5,000.00
     
-
 
6/16/2016
 
Tangiers Investment Group, LLC
   
0.002
     
1,112,639
     
2,509.00
     
-
 
6/17/2016
 
Black Forest Capital. LLC
   
0.002
     
2,450,000
     
5,022.50
     
-
 
6/17/2016
 
Blackbridge Capital, LLC
   
0.001
     
2,020,906
     
(3
)
   
-
 
6/20/2016
 
Adar Bays LLC
   
0.002
     
2,153,846
     
4,415.39
     
-
 
6/20/2016
 
Blackbridge Capital, LLC
   
0.001
     
1,241,685
     
(2
)
   
--
 
6/21/2016
 
Black Forest Capital. LLC
   
0.002
     
2,450,000
     
5,022.50
         
6/22/2016
 
Black Forest Capital. LLC
   
0.002
     
2,700,000
     
5,535.00
     
-
 
6/27/2016
 
Blackbridge Capital, LLC
   
0.002
     
243,902
     
500.00
     
-
 
                 
41,997,732
   
$
142,721.95
   
$
2,540
 
(1) Additional shares issued for the April 29, 2016, conversion.
(2) Additional shares issued for the June 8, 2016, conversion.
(3) Additional shares issued for the June 10, 2016, conversion.
F-32


 
NOTE 14 – SUBSEQUENT EVENTS

In accordance with ASC 855-10, Subsequent Events ¸ we have analyzed our operations subsequent to December 31, 2015, through the date the financial statements were available to be issued, and have determined that we do not have any material subsequent events to disclose in these financial statements other than the following.

On July 8, 2016, Adar Bays, LLC converted $3,705 of principal due to it into 1,500,000 shares of common stock.

On July 15, 2016, Kodiak Capital Group LLC converted $3,717 of principal due to it into 3,163,353 shares of common stock.

On July 12, 2016, we entered into the First Amendment to 8% Convertible Redeemable Notes to amend the terms of the 8% Convertible Redeemable Notes dated December 16, 2015 (each in the amount of $35,000), with Adar Bays, LLC. The first note was funded on December 10, 2015. In consideration of Adar Bay's agreement to fund the second note, we agreed to fix the conversion price for both notes at $0.00205 per share. Adar Bays funded $20,000 of second note on July 12, 2016 (less $1,142 for fees), and agreed to fund the balance of the second note when we filed a preliminary information statement.

On July 20, 2016, we entered into a Securities Purchase Agreement with Auctus Fund, LLC and issued a Convertible Promissory Note payable to Auctus, in the principal amount of $45,750, against payment of that amount less $5,750 as reimbursement of lender's transaction costs . The note is unsecured, accrues interest at 10% per annum, and is due and payable on April 20, 2017.

On July 27, 2016, we entered into a Share Exchange Agreement with F-Squared Enterprises, LLC, to exchange its 1,515,000 shares of our common stock for 1,515,000 shares of our Series A Preferred Stock.

On July 29, 2016, we filed an Amendment to the Articles of Incorporation Designating Rights, Privileges, and Preferences of Series A Preferred Stock with the Nevada Secretary of State respecting 1,515,000 shares of Series A Preferred Stock. The Series A Preferred Stock ranks equal to our common stock respecting the payment of dividends and distribution of assets upon liquidation, dissolution, or winding up.

F-33

PART II
Information Not Required in Prospectus

Item 13. Other Expenses of Issuance and Distribution

The following table sets forth the estimated expenses payable by the Registrant in connection with the offering (excluding underwriting discounts and commissions):

Nature of Expense
Amount (1)
SEC registration fee                                                                                                                                           
$       80
Transfer agent's, and registrars' fees and expenses                                                                                                                                           
2,000
Accounting fees and expenses                                                                                                                                           
12,500
Legal fees and expenses                                                                                                                                           
50,000
Printing and engraving expenses                                                                                                                                           
2,000
Miscellaneous                                                                                                                                           
3, 420
Total                                                                                                                                   
$70,000
_______________
(1) All amounts except SEC registration fee are estimates.

Item 14. Indemnification of Directors and Officers

Section 78.7502 of the Nevada Revised Statures and "Article VII - Indemnification of Officers, Directors, and Others" of the Registrant's amended and restated articles of incorporation provide for indemnification of the Registrant's directors and officers in a variety of circumstances, which may include liabilities under the Securities Act of 1933, as amended.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons pursuant to the foregoing provisions, the Registrant has been informed that in the opinion of the SEC such indemnification is contrary to public policy as expressed in the Securities Act, and therefore, is unenforceable. See "Item 17. Undertakings."

Item 15. Recent Sales of Unregistered Securities

Sales by the Registrant, then named Thermal Tennis, Inc.

Thermal Tennis, Inc., did not issue any unregistered securities during the year ended December 31, 2013.
II-1


Effective July 1, 2014, Thermal Tennis, Inc., issued a total of 901,676 unregistered shares of common stock to a total of nine persons in exchange for cancellation of debt in the aggregate amount of $225,419.

On or about August 7, 2014, Thermal Tennis, Inc., issued a total of 100,000 unregistered shares of common stock to two persons for $25,000. These shares were issued in reliance on Rule 506 of Regulation D.

On or about August 7, 2014, Thermal Tennis, Inc., issued a total of 675,000 unregistered shares of common stock to a total of five persons as bonuses for services rendered. These shares were issued in reliance on Rule 506 of Regulation D.

On or about August 7, 2014, Thermal Tennis, Inc., issued a total of 45,412 unregistered shares of common stock to three persons for $22,706. These shares were issued in reliance on Rule 506 of Regulation D.

On or about August 7, 2014, Thermal Tennis, Inc., issued a total of 1,000,000 unregistered shares of common stock to a total of 20 persons for $500,000. These shares were issued in reliance on Rule 506 of Regulation D.
 
Sales by CannaSys, Inc., a Colorado corporation (later acquired by the Registrant in a reverse acquisition)

During the year ended December 31, 2013, CannaSys, Inc., a Colorado corporation, sold 3,960,000 shares of common stock for total cash proceeds of $109,988.

During the quarter ended March 31, 2014, CannaSys, Inc., a Colorado corporation, sold 1,020,000 shares of common stock to B44 LLC, for total cash proceeds of $100,000.

During the quarter ended June 30, 2014, CannaSys, Inc., a Colorado corporation, sold 1,020,000 shares of common stock to B44 LLC, for total cash proceeds of $100,000.

Acquisition by the Registrant of CannaSys, Inc., a Colorado corporation (the reverse merger)

In connection with the reverse merger consummated on or about August 15, 2014, Thermal Tennis, Inc., issued a total of 6,000,000 unregistered shares of common stock to a total of 17 persons in exchange for 100% of the issued and outstanding shares of CannaSys, Inc., a Colorado corporation.
II-2


Post-Merger Sales by the Registrant

On or about October 23, 2014, CannaSys, Inc., issued 436,667 unregistered shares of common stock to a total of 12 persons for $262,000. These shares were issued in reliance on Rule 506 of Regulation D.

From September 26 through December 19 2014, CannaSys, Inc., sold 645,667 unregistered shares of common stock to 14 accredited investors for $387,400 in a private placement of securities.

In connection with a License Agreement, on February 11, 2015, and April 27, 2015, CannaSys, Inc., issued 25,000 and 5,612 shares of common stock, respectively, to Loyl.Me, LLC.

On February 9, 2015, CannaSys, Inc., issued 25,000 shares of common stock to Loyl.Me, LLC, for total noncash stock compensation expense of $50,000.

On April 10, 2015, CannaSys, Inc., issued 5,612 shares of common stock to Loyl.Me, LLC, for total noncash stock compensation expense of $8,250.
 
On June 26, 2015, CannaSys, Inc., issued to B44 LLC, a promissory note for $50,000 due March 1, 2016. On March 24, 2016, B44, LLC, assigned its full interest in the note to Kodiak Capital Group, LLC, and CannaSys, Inc. issued an amended and restated note to Kodiak Capital. On May 23, 2016, CannaSys, Inc., canceled the amended and restated note and issued to Kodiak Capital a second amended and restated promissory note for $50,000 due August 30, 2016.

On June 26, 2015, CannaSys, Inc., issued to Jeff Holmes a promissory note for $50,000 due March 1, 2016. On April 27, 2016, Jeff Holmes entered into a Note Purchase and Assignment Agreement whereby he assigned his full interest in the note to Blackbridge Capital, LLC. On May 5, 2016, CannaSys issued an amended and restated unsecured promissory note to Blackbridge Capital.
 
On July 10, 2015, CannaSys, Inc., issued 24,038 shares of common stock to Loyl.Me, LLC, for total noncash stock compensation expense of $25,000.

On July 10, 2015, CannaSys, Inc., issued 125,000 shares of common stock to Michael Tew, which were returned for cancellation on December 31, 2015.

On July 10, 2015, CannaSys, Inc., issued 50,000 shares of common stock to Brandon Jennewine, which were returned for cancellation on December 31, 2015.

On July 10, 2015, CannaSys, Inc., issued 25,000 shares of common stock to Daniel J. Rogers, which were returned for cancellation on December 31, 2015.

On October 1, 2015, CannaSys, Inc., issued 200,000 shares of common stock for total noncash stock compensation expense of $58,000.

On October 10, 2015, CannaSys, Inc., issued 77,640 shares of common stock to Loyl.Me, LLC, for total noncash stock compensation expense of $25,000.

On October 14, 2015, CannaSys, Inc., entered into a Securities Purchase Agreement with EMA Financial, LLC, and issued a 10% convertible note in the principal amount of $28,000 , less $3,000 for its due diligence fees. On February 9, 2016, CannaSys amended the note to increase the interest rate to 12% and to conform the terms with the more favorable terms of recent financings. On April 27, 2016, CannaSys further amended the note to increase the principal to $33,300, which reflects an increase in the original issue discount, and amend the conversion price .

II-3

 

On November 10, 2015, CannaSys, Inc., entered into an agreement to exchange 10 million shares of its common stock for 10 million shares of MHB, Inc. Through this transaction, CannaSys acquired 49% of the issued and outstanding common shares of MHB, Inc. The shares were valued at $0.29 per share, the closing stock price on the date of grant, for a total of $2,900,000.
 
On November 11 2015, CannaSys, Inc., issued an incentive stock grant for 250,000 shares of common stock to Green Capital Ventures, Inc. in connection with the Marketing and Alliance Agreement with the shares vesting over 12 months in four equal quarterly installments.
 
On November 18, 2015, CannaSys, Inc., issued to Tangiers Investment Group, LLC, a 10% convertible promissory note in the total face value of $240,000. Tangiers funded the initial consideration of $60,000 less $10,000 for due diligence expenses. On May 23, 2016, CannaSys amended the note to change the conversion date and issued 100,000 shares of common stock to Tangiers .

On November 30, 2015, CannaSys, Inc., issued to Kodiak Capital Group, LLC, a 12% convertible promissory note in the amount of $50,000, less $15,000 retained for due diligence expenses .

On December 3, 2015, CannaSys, Inc., entered into a Securities Purchase Agreement with Auctus Fund, LLC, and issued a 10% convertible promissory note in the principal amount of $49,250, less $5,250 retained for due diligence expenses .

On December 15, 2015, CannaSys, Inc., entered into an Equity Purchase Agreement with Kodiak Capital Group, LLC, that provides the terms and conditions for Kodiak Capital's purchase of up to $1,000,000 in common stock.

On December 16, 2015, CannaSys, Inc., entered into a Securities Purchase Agreement with Adar Bays, LLC, relating to the issuance and sale of two 8% convertible notes in the aggregate principal amount of $70,000 (with the first note in the amount of $35,000 and the second note in the amount of $35,000), both of which are convertible into shares of common stock . On July 12, 2016, CannaSys amended the note to cap the conversion price for the notes at $0.00205 per share, and Adar Bays funded $20,000, less $1,142 for expenses, and on August 18, 2016, funded the remaining $15,000, less $858 .
II-4


 
 
On December 20, 2015, in connection with the Consulting Agreement with National Concessions Group, Inc., CannaSys, Inc., issued a warrant to purchase 300,000 shares of common stock.

On December 31, 2015, in connection with the amendment of Michael A. Tew's employment agreement, CannaSys, Inc., issued to Mr. Tew a warrant to purchase 1,500,000 shares of common stock. In addition, CannaSys, Inc., issued a warrant to purchase 1,500,000 shares of our common stock vesting in equal amounts over a six-quarter period commencing March 31, 2016.

On December 31, 2015, in connection with the amendment of Brandon C. Jennewine's employment agreement, CannaSys, Inc., issued to Mr. Jennewine a warrant to purchase 500,000 shares of common stock.

Effective December 24, 2015, CannaSys, Inc., issued to Daniel J. Rogers a warrant to purchase 250,000 shares of common stock.

Effective December 24, 2015, CannaSys, Inc., issued to David H. Wollins a warrant to purchase 150,000 shares of common stock, vesting in equal amounts in a four-quarter period commencing March 31, 2016. On March 22, 2016, CannaSys cancelled the warrant for the remaining 112,500 shares that were not vested.
 
On January 13, 2016, CannaSys, Inc., issued to B44, LLC , a promissory note for $75,000 and a warrant to purchase 225,000 shares of common stock.
II-5


On January 14, 2016, CannaSys, Inc., granted 50,000 shares of common stock to Convurge, LLC, the successor-in-interest to Loyl.Me LLC, for a total noncash expense of $14,000.

On January 14, 2016, CannaSys, Inc., issued to Colonial Stock Transfer Company, Inc., a 10% convertible promissory note for $6,605 for an account payable.

On January 21, 2016, CannaSys, Inc., issued to KiwiTech, LLC, a warrant to purchase 312,500 shares of common stock, at the exercise price of $0.40 per share, with an expiration date of December 31, 2025.

On January 24, 2016, CannaSys, Inc., issued to Consigliere, Inc ., a warrant to purchase 100,000 shares of common stock .

On February 8, 2016, CannaSys, Inc., granted 25,000 shares of common stock for accounting services rendered, for a total noncash expense of $6,250.

On February 11, 2016, CannaSys, Inc., granted 62,500 shares of common stock in consideration for consulting services rendered, for a total noncash expense of $15,625.

On March 18, 2016, CannaSys issued to Kodiak Capital Group, LLC, two 12% convertible redeemable promissory notes, each in the principal amount of $50,000 for an aggregate of $100,000. Kodiak Capital funded one note for $50,000, by paying $35,000 and retaining $15,000 for transaction costs, and the second note was funded by Kodiak Capital's issuance to CannaSys of an offsetting secured note for $50,000. On August 18, 2016, CannaSys and Kodiak Capital Group entered into an amendment to these transaction documents: (i) to reduce the principal amount of the above collateralized secured promissory note from $50,000 to $25,000; and (ii) to reduce the principal amount of the above 12% convertible redeemable promissory note from $50,000 to $25,000.

Effective March 24, 2016, CannaSys, Inc., issued a promissory note for $33,717 to a former employee pursuant to a separation agreement. The note is due September 19, 2016.
II-6

 

On March 31, 2016, we, LuvBuds, LLC, Brett Harris, and Tag Distributing LLC, doing business as Consigliere Inc., entered into an Agreement of Termination, Compromise, Settlement and Mutual Release of Claims to resolve, compromise, settle, and dispose of and any and all disputes and claims that exist or may exist among the parties. Pursuant to the terms of the agreement, Mr. Harris retained the stock grant for 300,000 shares of common stock. The shares were valued at $0.22 per share, the closing stock price on the date of grant, for a total noncash expense of $66,000 .

On April 27, 2016, CannaSys, Inc., issued to Jeff Holmes a promissory note for $27,000 and a warrant to purchase 100,000 shares of common stock.

On May 5, 2016, CannaSys, Inc., issued to EMA Financial, LLC, a 12% convertible note in the principal amount of $53,500, less $3,500 for transaction costs. The note matures May 5, 2017.

On May 31, 2016, CannaSys, Inc., issued to Black Forest Capital, LLC a convertible promissory note in the principal amount of $30,000, less $3,000 in transaction costs. The note is due May 30, 2017.

On July 20, 2016, CannaSys, Inc., issued to Auctus Fund, LLC, a convertible promissory note in the amount of $45,750, less $5,750 for transaction costs. The note is due on April 20, 2017.

On July 27, 2016, CannaSys, Inc., and F-Squared Enterprises, LLC, entered into a Share Exchange Agreement to exchange F-Squared's 1,515,000 shares of CannaSys common stock for 1,515,000 shares of CannaSys Series A Preferred Stock.

On August 10, 2016, pursuant to an Advisory Engagement Agreement, CannaSys, Inc., issued to Benjamin Tyson a grant of restricted stock for 250,000 shares of CannaSys common stock, to vest over 12 months in accordance with the schedule set forth in the stock grant.
II-7


The following table reflects the amounts of principal converted, and the corresponding number of shares issued, in connection with outstanding convertible promissory notes during the year to date ended August 25, 2016:
 

Date
Note Holder
           Price
Shares Issued
Amount Converted
04/29/2016
Blackbridge Capital
$
0.069
333,333
$
25,000.00
05/03/2016
EMA Financial LLC
 
0.075
70,000
 
5,250.00
05/19/2016
Blackbridge Capital, LLC
 
0.001
121,212
 
(1)
05/27/2016
Blackbridge Capital, LLC
 
0.001
2,045,455
 
(1)
05/27/2016
EMA Financial LLC
 
0.006
1,000,000
 
5,500.00
06/03/2016
Black Forest Capital. LLC
 
0.010
1,000,000
 
10,000.00
06/06/2016
Auctus Fund, LLC
 
0.011
1,094,051
 
12,034.30
06/08/2016
Blackbridge Capital, LLC
 
0.004
2,000,000
 
10,000.00
06/08/2016
EMA Financial LLC
 
0.003
1,272,600
 
3,744.63
06/09/2016
EMA Financial LLC
 
0.002
1,486,592
 
2,861.69
06/09/2016
Tangiers Investment Group, LLC
 
0.004
2,701,299
 
10,400.00
06/10/2016
Auctus Fund
 
0.004
1,067,391
 
4,109.67
06/10/2016
Black Forest Capital. LLC
 
0.003
1,428,572
 
5,000.00
06/10/2016
Blackbridge Capital, LLC
 
0.003
2,857,143
 
10,000.00
06/13/2016
EMA Financial LLC
 
0.001
2,006,610
 
2,207.27
06/14/2016
Blackbridge Capital, LLC
 
0.001
1,636,364
 
(2)
06/14/2016
Tangiers Investment Group, LLC
 
0.003
3,685,950
 
11,150.00
06/15/2016
Black Forest Capital. LLC
 
0.003
1,818,182
 
5,000.00
06/16/2016
Tangiers Investment Group, LLC
 
0.002
1,112,639
 
2,509.00
06/17/2016
Black Forest Capital. LLC
 
0.002
2,450,000
 
5,022.50
06/17/2016
Blackbridge Capital, LLC
 
0.001
2,020,906
 
(3)
06/20/2016
Adar Bays LLC
 
0.002
2,153,846
 
4,415.39
06/20/2016
Blackbridge Capital, LLC
 
0.001
1,241,685
 
(2)
06/21/2016
Black Forest Capital. LLC
 
0.002
2,450,000
 
5,022.50
06/22/2016
Black Forest Capital. LLC
 
0.002
2,700,000
 
5,535.00
06/27/2016
Blackbridge Capital, LLC
 
0.002
243,902
 
500.00
07/08/2016
Adar Bays LLC
   
1,500,000
 
3,075.00
07/15/2016
Kodiak Capital Group LLC
   
3,163,653
 
3,717.29
       
46,661,385
   
_______________
(1) Additional shares issued for the April 29, 2016, conversion.
(2) Additional shares issued for the June 8, 2016, conversion.
(3)  Additional shares issued for the June 10, 2016, conversion .

II-8

 

The securities represented by each of the transactions described above were issued in reliance on the exemption from registration provided in Section 4(a)(2) of the Securities Act of 1933, as amended, for transactions not involving any public offering. Each of the investors is either an "accredited investor" as defined in Rule 501(a) of Regulation D or a sophisticated investor able to bear the risks of the investment. Each investor confirmed the foregoing and acknowledged that the securities must be acquired and held for investment. All certificates evidencing the shares of common stock on conversion of the notes, issuances under the restricted stock grants, or upon the exercise of the warrants will bear a restrictive legend. No underwriter participated in the offer and sale of these securities, and no commission or other remuneration was paid or given directly or indirectly in connection therewith.

Item 16. Exhibits and Financial Statement Schedules

(a)              Exhibits:

Exhibit
Number*
 
 
Title of Document
 
 
Location
         
Item 2
 
Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession
   
2.01
 
Agreement and Plan of Merger
 
Incorporated by reference from the Current Report on Form 8-K/A filed August 28, 2014
         
Item 3
 
Articles of Incorporation and Bylaws
   
3.01
 
Amended and Restated Articles of Incorporation, filed November 12, 2014
 
Incorporated by reference from a Current Report on Form 8-K filed November 12, 2014
         
3.02
 
Bylaws
 
Incorporated by reference from the Registration Statement on Form S‑1 filed May 13, 2008
         
 3.03   Certificate of Designation  
Incorporated by reference from current report on Form 8-K filed August 2, 2016 
         
Item 4
 
Instruments Defining the Rights of Security Holders, including indentures
   
4.01
 
Specimen Common Stock Certificate of Registrant
 
Incorporated by reference from the Registration Statement on Form S‑1 filed May 13, 2008
         
Item 5
 
Opinion re Legality
   
5.01
 
Opinion of Kruse Landa Maycock & Ricks, LLC
 
This filing.
         
 
II-9

 
Exhibit
Number*
 
 
Title of Document
 
 
Location
         
  Item 10     Material Contracts    
         
10.05
 
License Agreement between Loyl.Me LLC and CannaSys, LLC dated February 9, 2015
 
Incorporated by reference from the Current Report on Form 8-K filed February 12, 2015
         
10.06
 
License Agreement between Loyl.Me LLC and CannaSys, LLC dated February 12, 2015
 
Incorporated by reference from the Current Report on Form 8-K filed February 12, 2015
         
10.08
 
Revised employment letter agreement of Dan Rogers dated January 30, 2015**
 
Incorporated by reference from the Annual Report on Form 10-K for the year ended December 31, 2014, filed March 30, 2015
         
10.09
 
Employment Agreement between CannaSys, Inc. and Michael A. Tew (executive), effective July 1, 2015**
 
Incorporated by reference from the Current Report on Form 8-K filed July 15, 2015
         
10.11
 
Grant of Restricted Stock between CannaSys, Inc. and Michael A. Tew, effective July 1, 2015**
 
Incorporated by reference from the Current Report on Form 8-K filed July 15, 2015
         
10.12
 
Grant of Restricted Stock between CannaSys, Inc. and Brandon C. Jennewine, effective July 1, 2015**
 
Incorporated by reference from the Current Report on Form 8-K filed July 15, 2015
         
10.13
 
Securities Purchase Agreement between CannaSys, LLC and EMA Financial, LLC dated October 14, 2015
 
Incorporated by reference from the Current Report on Form 8-K filed October 23, 2015
         
10.14
 
10% Convertible Note between CannaSys, Inc. and EMA Financial, LLC dated October 14, 2015
 
Incorporated by reference from the Current Report on Form 8-K filed October 23, 2015
 
 
II-10

 
Exhibit
Number*
 
 
Title of Document
 
 
Location
         
10.15
 
Share Exchange Agreement between MHB, Inc. and CannaSys, LLC, including Exhibit A-Gross Revenue Assignment, dated November 3, 2015
 
Incorporated by reference from the Current Report on Form 8-K/A filed November 17, 2015
         
10.16
 
Marketing and Alliance Agreement between Green Capital Ventures, Inc. and CannaSys, Inc., dated as of November 11, 2015, including exhibits
 
Incorporated by reference from the Current Report on Form 8-K filed November 23, 2015
         
10.17
 
10% Convertible Note between CannaSys, Inc. and Tangiers Investment Group, LLC, dated November 18, 2015
 
Incorporated by reference from the Current Report on Form 8-K filed November 24, 2015
         
10.18
 
10% Convertible Note between CannaSys, Inc. and Auctus Fund, LLC, dated December 3, 2015
 
Incorporated by reference from the Current Report on Form 8-K filed December 9, 2015
         
10.19
 
Securities Purchase Agreement between CannaSys, Inc. and Auctus Fund, LLC, dated December 3, 2015
 
Incorporated by reference from the Current Report on Form 8-K filed December 9, 2015
         
10.20
 
12% Convertible Note between CannaSys, Inc. and Kodiak Investment Group, LLC, dated November 30, 2015
 
Incorporated by reference from the Current Report on Form 8-K filed December 22, 2015
         
10.21
 
Equity Purchase Agreement between CannaSys, Inc. and Kodiak Investment Group, LLC, dated December 15, 2015
 
Incorporated by reference from the Current Report on Form 8-K filed December 22, 2015
         
10.22
 
Registration Rights Agreement between CannaSys, Inc. and Kodiak Investment Group, LLC, dated December 15, 2015
 
Incorporated by reference from the Current Report on Form 8-K filed December 22, 2015
         
10.23
 
Convertible Promissory Note due July 15, 2016
 
Incorporated by reference from the Current Report on Form 8-K filed December 22, 2015
         
10.24
 
Technology Services Agreement between CannaSys, Inc. and National Concessions Group, Inc., dated December 20, 2015, including exhibits
 
Incorporated by reference from the Current Report on Form 8-K filed December 23, 2015
         
10.25
 
Consulting Agreement between CannaSys, Inc. and National Concessions Group, Inc., dated December 20, 2015, including Warrant
 
Incorporated by reference from the Current Report on Form 8-K filed December 23, 2015
         
10.26
 
Asset Purchase Agreement between CannaSys, Inc. and Luvbuds, LLC, and Brett Harris, entered December 17, 2015
 
Incorporated by reference from the Registration Statement on Form S-1 filed February 2, 2016.
 
 
II-11

Exhibit
Number*
 
 
Title of Document
 
 
Location
         
10.27
 
Bill of Sale, Assignment, and Assumption Agreement between CannaSys, Inc. and Luvbuds, LLC, dated December 17, 2015
 
Incorporated by reference from the Registration Statement on Form S-1 filed February 2, 2016 .
         
10.28
 
Amendment No. 1 to Employment Agreement between CannaSys, Inc. and Michael A. Tew, effective December 24, 2015**
 
Incorporated by reference from the Current Report on Form 8-K filed January 6, 2016
         
10.29
 
Amendment No. 1 to Employment Agreement between CannaSys, Inc. and Brandon C. Jennewine, effective December 24, 2015**
 
Incorporated by reference from the Current Report on Form 8-K filed January 6, 2016
         
10.30
 
CannaSys, Inc. Warrant for the Purchase of 1,500,000 Shares of Common Stock, Par Value $0.001, issued to Michael A. Tew, effective December 24, 2015**
 
Incorporated by reference from the Current Report on Form 8-K filed January 6, 2016
         
10.31
 
CannaSys, Inc. Warrant for the Purchase of 1,500,000 Shares of Common Stock, Par Value $0.001, issued to Michael A. Tew, effective December 24, 2015**
 
Incorporated by reference from the Current Report on Form 8-K filed January 6, 2016
         
10.32
 
CannaSys, Inc. Warrant for the Purchase of 500,000 Shares of Common Stock, Par Value $0.001, issued to Brandon Jennewine, effective December 24, 2015**
 
Incorporated by reference from the Current Report on Form 8-K filed January 6, 2016
         
10.33
 
CannaSys, Inc. Warrant for the Purchase of 250,000 Shares of Common Stock, Par Value $0.001, issued to Daniel J. Rogers, effective December 24, 2015**
 
Incorporated by reference from the Current Report on Form 8-K filed January 6, 2016
         
10.34
 
CannaSys, Inc. Warrant for the Purchase of 150,000 Shares of Common Stock, Par Value $0.001, issued to David H. Wollins, effective December 24, 2015**
 
Incorporated by reference from the Current Report on Form 8-K filed January 6, 2016
 
10.35
 
Amendment to 10% Convertible Note and Securities Purchase Agreement dated February 9, 2016
 
Incorporated by reference from the Current Report on Form 8-K filed February 12, 2016
         
10.36
 
Securities Purchase Agreement between CannaSys, Inc., and Kodiak Capital Group, LLC, dated March 18, 2016, including exhibits
 
Incorporated by reference from the Current Report on Form 8-K filed March 25, 2016
         
10.37
 
Agreement of Termination, Compromise, Settlement and Mutual Release of Claims among CannaSys, Inc., Luvbuds, LLC, Brett Harris, and Tag Distributing LLC, doing business as Consigliere Inc. effective March 31, 2016
 
Incorporated by reference from the Current Report on Form 8-K filed April 5, 2016
         
10.38
 
Amendment No. 2 to Transaction Documents dated April 27, 2016
 
Incorporated by reference from the Current Report on Form 8-K filed April 27, 2016
         
10.39
 
Convertible Promissory Note for $50,000 to Blackbridge Capital, LLC, dated April 27, 2016
 
Incorporated by reference from the Current Report on Form 8-K filed May 11, 2016
 
 
II-12

 
         
10.40
 
Assignment and Assumption Agreement between Jeff Holmes and Blackbridge Capital, LLC, dated April 27, 2016
 
Incorporated by reference from the Current Report on Form 8-K filed May 11, 2016
         
10.41
 
Loan Agreement between Jeff Holmes and CannaSys, Inc. dated April 27, 2016, with exhibits
 
Incorporated by reference from the Current Report on Form 8-K filed May 11, 2016
         
10.42
 
Amendment No. 1 to 10% Convertible Promissory Note of CannaSys, dated May 23, 2016
 
Incorporated by reference from the Current Report on Form 8-K filed May 25, 2016
         
10.43
 
Grant of Restricted Stock to Tangiers Investment Group, LLC, dated May 23, 2016
 
Incorporated by reference from the Current Report on Form 8-K filed May 25, 2016
         
10.44
 
Second Amended and Restated Promissory Note for $50,000 to Kodiak Capital Group, LLC, issued May 23, 2016
 
Incorporated by reference from the Current Report on Form 8-K filed June 9, 2016
         
10.45
 
Amendment No. 1 to Transaction Documents among CannaSys, Inc., Kodiak Capital Group, LLC, and B44, LLC, fully executed on May 25, 2016
 
Incorporated by reference from the Current Report on Form 8-K filed June 9, 2016
         
10.46
 
Securities Purchase Agreement between CannaSys, Inc. and EMA Financial, LLC, dated May 5, 2016
 
Incorporated by reference from the Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, filed August 18, 2016
         
10.47
 
12% Convertible Note in the Principal Amount of $53,500, issued May 5, 2016, to EMA Financial, LLC
 
Incorporated by reference from the Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, filed August 18, 2016
         
10.48
 
Securities Purchase Agreement between CannaSys, Inc. and Black Forest Capital, LLC, dated May 31, 2016
 
Incorporated by reference from the Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, filed August 18, 2016
         
10.49
 
Convertible Promissory Note in the Amount of $30,000 Payable to Black Forest Capital, LLC
 
Incorporated by reference from the Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, filed August 18, 2016
         
10.50
 
Note Purchase and Assignment Agreement
 
Incorporated by reference from the Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, filed August 18, 2016
         
10.51
 
Replacement Convertible Promissory Note
 
Incorporated by reference from the Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, filed August 18, 2016
         
10.52
 
Stockholders' Agreement among Mile High Consulting and Branding, Inc., CannaSys, Inc., and MHB, Inc. d/b/a Mile High Brands effective May 31, 2016
 
Incorporated by reference from the Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, filed August 18, 2016
 
 
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10.53
 
First Amendment to 8% Convertible Redeemable Notes executed July 12, 2016
 
Incorporated by reference from current report on Form 8-K filed July 26, 2016
         
10.54
 
Securities Purchase Agreement between CannaSys, Inc. and Auctus Fund LLC, dated July 20, 2016
 
Incorporated by reference from current report on Form 8-K filed July 27, 2016
         
10.55
 
Convertible Promissory Note in the amount of $45,750 Payable to Auctus Fund, LLC
 
Incorporated by reference from current report on Form 8-K filed July 27, 2016
         
10.56
 
Share Exchange Agreement between CannaSys, Inc., and F-Squared Enterprises LLC, effective July 27, 2016
 
Incorporated by reference from current report on Form 8-K filed August 2, 2016
         
10.57
 
Asset Purchase Agreement, together with exhibits, between CannaSys, Inc. and Beta Killers LLC, dated August 10, 2016
 
Incorporated by reference from current report on Form 8-K filed August 16, 2016
         
10.58
 
Amendment No. 1 to Transaction Documents between CannaSys, Inc. and Kodiak Capital Group, LLC, dated August 18, 2016
 
Incorporated by reference from current report on Form 8-K filed August 24, 2016
 
         
Item 16
 
Letter re Change in Certifying Accountant
   
16.01
 
Letter from HJ & Associates to Securities and Exchange Commission regarding change in certifying accountant dated April 8, 2015
 
Incorporated by reference from the Current Report on Form 8-K filed April 8, 2015
         
Item 21
 
Subsidiaries of the Registrant
   
21.01
 
Schedule of Subsidiaries
 
Incorporated by reference from the Registration Statement on Form S-1 filed February 2, 2016.
         
Item 23
 
Consents of Experts and Counsel
   
23.01
 
Consent of BF Borgers CPA, PC
 
This filing.
         
23.02
 
Consent of HJ & Associates, LLC
 
This filing.
         
23.03
 
Consent of Kruse Landa Maycock & Ricks, LLC
 
Included in exhibit 5.01.
 
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Exhibit
Number*
 
 
Title of Document
 
 
Location
         
Item 24
 
Power of Attorney
   
24.01
 
Power of Attorney
 
See signature page to this filing.
         
Item 101
 
Interactive Data Files***
   
101.INS
 
XBRL Instance Document
 
This filing.
         
101.SCH
 
XBRL Taxonomy Extension Schema
 
This filing.
         
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase
 
This filing
         
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase
 
This filing.
         
101.LAB
 
XBRL Taxonomy Extension Label Linkbase
 
This filing.
         
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase
 
This filing.
_______________________
* All exhibits are numbered with the number preceding the decimal indicating the applicable SEC reference number in Item 601 and the number following the decimal indicating the sequence of the particular document. Omitted numbers in the sequence refer to documents previously filed as an exhibit.
** Identifies each management contract or compensatory plan or arrangement required to be filed as an exhibit, as required by Item 15(a)(3) of Form 10-K.
*** Users of this data are advised that, pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or Annual Report for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Exchange Act of 1934 and otherwise are not subject to liability.

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Item 17. Undertakings

The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

(i) to include any prospectus required by section 10(a)(3) of the Securities Act of 1933;

(ii) reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and

(iii) include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.
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(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

(4) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities:

The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;

(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

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SIGNATURES

Pursuant to the requirements of Securities Act of 1933, the registrant has duly caused this amendment no. 1 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Denver, Colorado, on the 21st day of September , 2016 .

 
CANNASYS, INC .
     
     
     
Dated:  September 21 , 2016
By:
/s/ Michael A. Tew
   
Michael A. Tew
   
Secretary , Chief Executive Officer , and Chief Accounting Officer

 

 
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