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ADVANCED CANNABIS SOLUTIONS, INC. - 10-Q/A - Management's discussion and analysis of financial condition and results of operations

June 6, 2014

This discussion should be read in conjunction with the Condensed Consolidated Unaudited Financial Statements contained in this quarterly report and the Consolidated Financial Statements and related notes and Management's Discussion and Analysis of Financial Condition and Results of operations appearing in our Annual Report on Form 10-K for the inception date (June 5, 2013) to December 31, 2013. The results of operations for an interim period may not give a true indication of results for future interim periods or the year. In the following discussion, there does not appear a comparison for the three months ended March 31, 2014 with the three months ended March 31, 2013, as the Company was not incorporated until June 5, 2013.



Overview

Advanced Cannabis Solutions, Inc. ("ACS," "the Company", "we" or "us") is a Colorado corporation. We were incorporated in the State of Colorado on November 12, 1987 under the name Promap Corporation. Promap originally traded as an independent GIS and custom draft energy mapping company providing hard copy and digital format oil and gas production maps for the oil and gas industry in the United States and Canada. Prior to December, 2013 most of the Company's sales were to a company controlled by our chief executive officer. On August 14, 2013, Promap acquired 94% of the issued and outstanding share capital of ACS in exchange for 12,400,000 shares of its common stock (see note 4 Share Exchange Agreement in the attached financial statements for a more detailed explanation of the transaction). On November 9, 2013, we acquired the remaining 6% of the share capital of Advanced Cannabis Solutions, Inc. On October 1, 2013, we changed our name from Promap Corporation to Advanced Cannabis Solutions, Inc. The Company has completed a change in trading symbol to CANN (OTCBB).



On December 31, 2013, we sold our oil and gas mapping business to our former Chief Executive Officer in consideration for his agreement to assume all liabilities associated with the mapping business.

The acquisition of Advanced Cannabis Solutions, Inc. was accounted for as a reverse acquisition and recapitalization using accounting principles applicable to reverse acquisitions. Under this type of accounting ACS is considered to have acquired us. Consequently, ACS' financial results are disclosed for the period inception (June 5, 2013) through March 31, 2014, while our financial results have only been consolidated with those of ACS from August 14, 2013 forward. 24 -------------------------------------------------------------------------------- Since August 2013, our core activity has been to provide sophisticated services and solutions to the regulated cannabis industry throughout the United States by leasing growing space and related facilities to licensed marijuana growers and dispensary owners for their operations. Tenants will pay rent and other fees to us for the use of the properties, all in compliance with applicable local and state laws and regulations. Additionally, we plan to provide a variety of ancillary services to the marijuana industry. Our initial focus will be on opportunities within Colorado, which has allowed its citizens to use medical marijuana since 2000. Voters in Colorado recently approved a ballot measure in November 2013 to legalize marijuana for adult use. While we do not intend to grow, harvest, distribute or sell cannabis or any substances that violate United States law or the Controlled Substances Act, we may be irreparably harmed by a change in enforcement by the Federal or state governments. We have two wholly-owned subsidiaries: ACS Colorado Corp. and Advanced Cannabis Solutions Corporation. Unless otherwise indicated, all references to "us" include the operations of Advanced Cannabis Solutions, Inc., ACS Colorado Corp. and Advanced Cannabis Solutions Corporation.



During the quarter ending March 31, 2014, we:

- raised $1,605,000 in capital through a private placement offering,



- entered into a financing agreement with Full Circle Capital Corporation The

agreement provides that Full Circle Capital Corporation will initially provide

$7.5 million to us in the form of Senior Secured Convertible Notes, subject to

certain named conditions. We can borrow an additional $22.5 million with the

mutual agreement of Full Circle Capital Corporation and ourselves, and

- received cash proceeds of $400,000 from the sale of 1,000,000 series C

warrants to Full Circle Capital Corporation.

On March 27, 2014 the SEC issued a trading halt order on our stock, and issued a statement that they were investigating affiliated stockholders that may have made illegal sales of stock. The order was not directed at the management of the Company and is considered a private investigation. The stock began trading again on the OTC on April 10, 2014 Government Regulation



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

25 -------------------------------------------------------------------------------- As of June 3, 2014, 22 states and the District of Columbia allow its citizens to use Medical Marijuana. Additionally, voters in the states of Colorado and Washington approved ballot measures last November to legalize cannabis for adult use. The state laws are in conflict with the federal Controlled Substances Act, which makes marijuana use and possession illegal on a national level. The Obama administration has effectively stated that it is not an efficient use of resources to direct law federal law enforcement agencies to prosecute those lawfully abiding by state-designated laws allowing the use and distribution of medical marijuana



RESULTS OF OPERATION FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2014

As the Company was incorporated on June 5, 2013, no comparable results for the three month period ended March 31, 2013 are available for comparison and discussion.

Revenues

Revenues for three month period ending March 31, 2014 were $48,765. Tenant rental income related to a real estate leasing transaction for our property near Pueblo, Colorado was $28,765 and we recognized $20,000 from a consulting contract with a Canadian entity. .

Operating expense

Operating expenses for the three month period presented in these financial statements consisted of (1) general and administrative expenses of $54,476, primarily for corporate expenses including insurance premiums, travel and promotion, and website maintenance; (2) payroll and related expenses of $105,135 for staff salaries and employer share of health benefit premiums; (3) professional fees of $82,516, primarily legal and accounting and audit fees,(4) office expenses of $7,689 and (5) depreciation expense of $3,116.



Other Income and Expense

During the three months ended March 31, 2014 we incurred other expenses of $369,696. We amortized debt discount of $320,422 and accrued interest expense of $49,274 on our convertible notes payable.

Net loss

The net loss for the three month period ended March 31, 2014 was $573,863 due to the factors discussed above.

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LIQUIDITY AND CAPITAL RESOURCES

As at March 31, 2014, we had working capital of $1,901,533. However, the Company has incurred a loss since Inception (June 5, 2013) resulting in an accumulated deficit of $1,284,825 as of March 31, 2014 and further losses are anticipated in the development of its business. Accordingly, there is substantial doubt about the Company's ability to continue as a going concern. The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and, or, obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. There is no guarantee that the Company will be successful in achieving these objectives.



Operating activities

We used funds totaling $330,777 in operating activities during the three month period ended March 31, 2014. We incurred a loss of $573,863 of which $327,207 related to non-cash items. We used a further $84,121 in increases in accounts receivable, other receivables and prepayments and a reduction in accounts payable and accruals.



Investing activities

We used funds totaling $8,250 in investing activities during the three month period ended March 31, 2014. The funds were used in purchasing leasehold improvements with respect to our property in Pueblo County, Colorado.

Financing activities

During the three months ended March 31, 2014 we generated $1,796,457 from financing activities. We generated $1,412,400, net of debt issuance costs, from the issuance of convertible notes payable and $400,000 from the sale of 1,000,000 Series C warrants. We used $15,000 in the payment of deferred financing costs and $943 in principal repayments relating to our 81/2% convertible note payable.

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CONTRACTUAL OBLIGATIONS

The Company had the following contractual obligations as of March 31, 2014:

Amounts Due in Description Total 2014 2015 2016 2017 2018 Thereafter 12% Convertible notes issued December 27,2013 $ 530,000 - - - - 530,000 - 12% Convertible notes issued January 29, 2014 $ 1,350,000 - - - - 1,350,000 - Mortgage on Pueblo Building $ 169,057 15,067 20,089 20,089 20,089 95,723 Office Rental $ 82,600 19,000 26,700 29,400 7,500 - - Leasehold improvements $ 400,000 400,000 - - - - - PLAN OF OPERATIONS Since August 2013, our core activity has been to provide sophisticated services and solutions to the regulated cannabis industry throughout the United States by leasing growing space and related facilities to licensed marijuana growers and dispensary owners for their operations. Tenants will pay rent and other fees to us for the use of the properties, all in compliance with applicable local and state laws and regulations. Additionally, we plan to provide a variety of ancillary services to the marijuana industry. Our initial focus will be on opportunities within Colorado, which has allowed its citizens to use medical marijuana since 2000. Voters in Colorado recently approved a ballot measure in November 2013 to legalize marijuana for adult use. While we do not intend to grow, harvest, distribute or sell cannabis or any substances that violate United States law or the Controlled Substances Act, we may be irreparably harmed by a change in enforcement by the Federal or state governments. On January 21, 2014, we signed an agreement with Full Circle Capital Corporation (Full Circle), a closed-end investment company. The agreement provides that Full Circle will initially provide $7.5 million to us in the form of Senior Secured Convertible Notes, subject to certain named conditions. We can borrow an additional $22.5 million with the mutual agreement of Full Circle and ourselves.



At least 95% of any loan proceeds will be used to acquire properties which we will lease to licensed marijuana growers.

Full Circle will provide us with the initial $7.5 million when:

? Full Circle agrees on the location of property to be purchased;

? The specified property's appraised value is satisfactory to Full Circle;

? A Phase I environmental inspection is completed to the satisfaction of Full Circle; and

? We are able to provide a first priority lien on the property in favor of Full Circle.

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We can borrow an additional $22.5 million on terms acceptable to Full Circle and ourselves.

The six-year loan(s) will be secured by real estate acquired with the loan proceeds and will require interest-only payments at a rate of 12% a year, payable monthly.

The initial loan can, at any time, be converted into shares of our common stock at a conversion price of $5 per common share. It is contemplated that further advances will be convertible at 110% of the market price of our stock on the day of any advance, or the ten-day volume-weighted average price prior to the day of advance, whichever is lower.



The funding of the loan(s) is subject to the execution of additional documents between the parties.

Full Circle also purchased, for $500,000, warrants which allow Full Circle to purchase up to 1,000,000 shares of our common stock at any time on or prior to January 21, 2017 at a price of $5.50 per share. As part of the $500,000 proceeds from the warrant being issued to Full Circle Capital Corporation, $100,000 was retained by Full Circle Capital Corporation to cover legal and deal related expenses of future financing transactions. We have identified 4 properties that are currently under review for purchase and leaseback to licensed marijuana growers in Colorado. These projects include the purchase and leaseback of existing, currently operating facilities, as well as proposed new construction projects. These opportunities are in Denver and Pueblo counties, Colorado and can be purchased/constructed for amounts in the range of $750,000 to $5 million for each project. There can be no assurance that we will be able to complete any of these transactions,



OFF-BALANCE SHEET ARRANGEMENTS

The Company did not have any off-balance sheet arrangements (as that term is defined in Item 303 of Regulation S-K) that are reasonably likely to have a current or future material effect on our financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.


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Source: Edgar Glimpses


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