GENERAL CANNABIS CORP - FORM 10-Q/A

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EXCEL - IDEA: XBRL DOCUMENT - GENERAL CANNABIS CORP	Financial_Report.xls
EX-32 - CERTIFICATION - GENERAL CANNABIS CORP	acs_ex32.htm
EX-31.2 - CERTIFICATION - GENERAL CANNABIS CORP	acs_ex312.htm
EX-31.1 - CERTIFICATION - GENERAL CANNABIS CORP	acs_ex311.htm

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Amendment No. 2

(Mark One)

þ	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for quarter period ended March 31, 2014.

o	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from __________ to __________.

Commission file number: 000-54457

ADVANCED CANNABIS SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)

Colorado		20-8096131
(State of incorporation)		(IRS Employer Identification No.)

4445 Northpark Drive, Suite 102

Colorado Springs, CO 80907

(Address of principal executive offices) (Zip Code)

Promap Corporation

6855 South Havana Street, Suite 400

Centennial, CO 80112

Former Name, Address and Fiscal Year End if Changed Since Last Report

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. þ Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þ Yes o No

Indicate by check mark whether the registrant is a large 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 o Accelerated filer o

Non-accelerated filer o Smaller reporting company þ

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

At June 6, 2014, there were 13,438,933 issued and outstanding shares of the Company’s common stock.

EXPLANATORY NOTE

This Amendment No. 2 to the quarterly report on Form 10Q of Advanced Cannabis Solutions, Inc. for the three months ended March 31, 2014 filed with the Securities and Exchange Commission (the “SEC”) on June 6, 2014 is being filed as the previous Form 10Q for the three months ended March 31, 2014 filed on May 19, 2014 contained certain errors and omissions and had been filed before our auditors had completed their review. This Amendment No. 2 to the quarterly report on Form 10Q of Advanced Cannabis Solutions, Inc. for the three months ended March 31, 2014 reflects adjustments made to Item 1. Financial Statements to properly calculate the debt discount on the issuance of convertible notes payable issued during the period, remove certain non-cash items incorrectly included in the statements of cash flows, and amend incorrect or inadequate disclosure relating to discontinued operations, deferred financing costs, warrant issuances and other matters. We have further updated Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 4. Controls and Procedures.

FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, Financial Statements and Notes to Financial Statements contain forward-looking statements that discuss, among other things, future expectations and projections regarding future developments, operations and financial conditions. All forward-looking statements are based on management’s existing beliefs about present and future events outside of management’s control and on assumptions that may prove to be incorrect. If any underlying assumptions prove incorrect, our actual results may vary materially from those anticipated, estimated, projected or intended.

ADVANCED CANNABIS SOLUTIONS, INC.

FORM 10-Q

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION		Page

Item 1.	Financial Statements	3

	Condensed consolidated balance sheets	3
	Condensed consolidated statements of operations	4
	Condensed consolidated statements of cash flows	5
	Condensed statements of stockholders’ equity	6
	Notes to unaudited condensed consolidated financial statements	7-23

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	24-29

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	29

Item 4.	Controls and Procedures	29-32

PART II. OTHER INFORMATION		33

Item 1.	Legal Proceedings	33

Item 1A.	Risk Factors	33

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33

Item 3.	Defaults Upon Senior Securities	34

Item 4.	Mine Safety Disclosures	34

Item 5.	Other Information	34

Item 6.	Exhibits	34

	Signatures	35

ADVANCED CANNABIS SOLUTIONS, INC.

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31, 2014			December 31, 2013
	(unaudited)			(audited)
ASSETS

Current Assets
Cash	$	1,884,866		$	427,436
Accounts receivable (net of allowance for doubtful accounts)		47,454			1,595
Prepaid expenses		7,953			649
Total current assets		1,940,273			429,680

Property and equipment, net		457,887			452,753
Other receivables		19,765			-
Other assets, deferred financing costs		115,000			-
Total Assets	$	2,532,925		$	882,433

LIABILITIES & SHAREHOLDERS' EQUITY

Current Liabilities
Accounts payable and accrued expenses	$	32,813		$	42,341
Accrued interest expense, notes payable		-			871
Convertible notes payable– current portion		5,927			5,356
Total current liabilities		38,740			48,568

Long Term Liabilities
Convertible notes payable (net of debt discount)		402,595			339,481
Tenant deposits		1,250			1,250
Total long term liabilities		403,845			340,731

Total Liabilities		442,585			389,299
Commitments and Contingencies
Stockholders' Equity
Preferred stock, no par value; 5,000,000 share authorized; no shares issued and outstanding at March 31, 2014 and December 31, 2013		-			-
Common Stock, no par value; 100,000,000 shares authorized; 13,438,933 shares and 15,137,200 shares issued and outstanding on March 31, 2014 and December 31, 2013, respectively		3,375,165			1,204,096
Deficit accumulated during development stage		(1,284,825	)		(710,962	)
Total Stockholders' Equity		2,090,340			493,134

Total Liabilities & Stockholders' Equity	$	2,532,925		$	882,433

See Accompanying Notes to Condensed Consolidated Unaudited Financial Statements

ADVANCED CANNABIS SOLUTIONS. INC.

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

				From Inception
	Three Months Ended			(June 5, 2013) to
	March 31, 2014			March 31, 2014
	(unaudited)			(unaudited)
Revenues
Tenant rentals	$	28,765		$	28,765
Consulting fees		20,000			20,000
Total revenues		48,765			48,765

Operating expenses:
General and administrative		54,476			107,741
Payroll and related		105,135			213,723
Professional fees		82,516			473,648
Office expense		7,689			15,958
Loss on expired option to acquire real estate		-			150,000
Depreciation		3,116			3,116
Total operating expenses		252,932			964,186

Operating income (loss) from continuing operations		(204,167	)		(915,421	)

Other income (expense):

Amortization of debt discount		(320,422	)		(321,216	)
Interest expense		(49,274	)		(50,0145	)
Total other income (expense)		(369,696	)		(371,361	)

Income (loss) from continuing operations		(573,863	)		(1,286,782	)

Income from discontinued operations		-			1,957

Net income (loss)	$	(573,863	)	$	(1,284,825	)

Net loss per share-basic and diluted	$	(0.04	)

Weighted average number of common shares outstanding –basic and fully diluted		13,484,422

See Accompanying Notes to Condensed Consolidated Unaudited Financial Statements

ADVANCED CANNABIS SOLUTIONS. INC.

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months Ended March 31, 2014			From Inception (June 5, 2013) to March 31, 2014
	(unaudited)			(unaudited)
Cash Flows Provided By (Used In) Operating Activities:
Net income (loss)	$	(573,863	)	$	(1,284,825	)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Loss on expired option to acquire property		-			150,000
Depreciation		3,116			3,116
Amortization of debt discount		320,422			321,216
Issuance of stock to pay interest expense		3,669			3,669
Issuance of stock compensation		-			40,000
Changes in operating assets and liabilities
(Increase ) / decrease in accounts receivable		(45,859	)		(48,103	)
(Increase ) / decrease in other receivable		(19,765	)		(19,765	)
(Increase)/ decrease in prepaid		(7,304	)		(7,304	)
Increase / (decrease) in accounts payable and accrued expenses		(11,193	)		32,019
Net cash provided by (used in) operating activities – continuing operations		(330,777	)		(809,977	)
Net cash provided by (used in) operating activities – discontinued operations		-			(9,871	)
Net cash provided by (used in) operating activities:		(330,777	)		(819,848	)

Cash Flows Provided By (Used In) Investing Activities:
Purchase of property and equipment		(8,250	)		(291,003	)
Purchase of option to acquire real estate		-			(150,000	)
Net cash provided by (used for) investing Activities		(8,250	)		(441,003	)

Cash Flows Provided By (Used In) Financing Activities:
Purchase and cancellation of shares of common stock		-			(100,000	)
Sales of common stock for cash consideration		-			985,400
Proceeds from purchase of warrants		400,000			400,000
Principal repayment on convertible notes payable		(943	)		(943	)
Proceeds from issuance of convertible notes payable, net of cash expenses		1,412,400			1,876,260
(Increase)/decrease in deferred financing costs		(15,000	)		(15,000	)
Net cash provided by (used for) financing Activities		1,796,457			3,145,717

Net Increase (Decrease) In Cash		1,457,430			1,884,866

Cash At The Beginning Of The Period		427,436			0

Cash At The End Of The Period	$	1,884,866		$	1,884,866

SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid for interest	$	46,476		$	46,476
Cash paid for income tax	$	0		$	0
Supplemental Disclosure on non-cash financing activities:
Net liabilities acquired on recapitalization	$	-		$	10,663
Cancellation of shares of stock	$	-		$	100,000
Issuance of common shares for services	$	-		$	40,000
Net assets transferred on disposal-mapping division	$	-		$	452
Purchase of property with mortgage	$	-		$	170,000
Convertible notes payable settled in stock	$	255,000		$	255,000
Interest on convertible notes payable settled in stock	$	3,669		$	3,669

See Accompanying Notes to Condensed Consolidated Unaudited Financial Statements.

ADVANCED CANABIS SOLUTIONS. INC.

( A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE PERIOD FROM INCEPTION (JUNE 5, 2013) TO MARCH 31, 2014

	Common Stock
	Shares			Amount			Deficit Accumulated During Development Stage			Total Shareholders’ Equity

Balance, June 30, 2013 (audited)		-		$	-		$	-		$	-
Common stock issued for cash at $0.0001 per share, June 30, 2013		12,400,000			12,400			-			12,400
Common stock issued for cash at $1.00 per share, July 11-August 8, 2013		707,000			707,000			-			707,000
Recapitalization on August 14, 2013		9,724,200			(10,663	)		-			(10,663	)
Purchase and cancellation of shares of common stock on August 14, 2013		(8,000,000	)		(100,000	)		-			(100,000	)
Common stock issued for cash at $1.00 per share, August 14 through September 19, 2013		266,000			266,000			-			266,000
Common stock issued for services on December 9, 2013		40,000			40,000			-			40,000
Discount on convertible notes issued December 27, 2013		-			289,811			-			289,811
Loss on sale of mapping business to related party		-			(452	)		-			(452	)
Net loss for the year ended December 31, 2013		-			-			(710,962	)		(710,962	)
Balance, December 31 , 2013 (audited)		15,137,200			1,204,096			(710,962	)		493,134

Re- acquired common shares on January 5, 2014		(1,750,000	)		-			-			-
Warrants sold to Full Circle January, 2014 in financing transaction		-			500,000			-			500,000
Discount on convertible notes issued January 29, 2014		-			1,131,525			-			1,131,525
Warrants issued as commission for sale of convertible notes payable		-			280,875			-			280,875
Issuance of common shares in settlement of convertible notes payable of $255,000 and accrued interest of $3,669		51,733			258,669			-			258,669
Net loss for three months ended March 31, 2014		-			-			(573,863	)		(573,863	)
Balance March 31, 2014 (unaudited)		13,438,933		$	3,375,165		$	(1,284,825	)	$	2,090,340

See Accompanying Notes to Condensed Consolidated Unaudited Financial Statements.

ADVANCED CANNABIS SOLUTIONS, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONDOLIDATED UNAUDITED FINANCIAL STATEMENTS

FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2014 AND THE PERIOD FROM JUNE 5, 2013 (INCEPTION) TO MARCH 31, 2014

1. NATURE OF OPERATIONS, HISTORY AND PRESENTATION

Nature of Operations

Advanced Cannabis Solutions, Inc. (“ACS”) was incorporated in the State of Colorado on June 5, 2013 (“Inception”). ACS plans to provide real estate leasing services to the regulated cannabis industry throughout the United States by purchasing real estate assets and leasing growing space and related facilities to licensed marijuana growers and dispensary owners for their operations. In addition, ACS plans to provide a variety of ancillary services to the industry, including the development of a proprietary line of grow mediums and plant nutrient lines, product tracking technology, and comprehensive consulting services to current and future cannabis entrepreneurs.

ACS’ initial focus will be on opportunities within Colorado, which has allowed its citizens to use medical marijuana since 2000. Voters in Colorado approved a ballot measure in November 2013 to legalize marijuana for adult use. Starting Jan 1, 2014, adult Colorado citizens and visiting adults are able to purchase certain quantities of marijuana without any medical licenses. Several studies have predicted that the retail cannabis market in Colorado will increase from $200 million annually to over $900 million after the new law takes effect. While the national regulated cannabis market is estimated to be $1.5 billion annually, many experts expect it to reach $30 billion by 2018 as additional states approve cannabis use for its citizens.

While ACS does not grow, harvest, distribute or sell cannabis or any substances that violate United States law or the Controlled Substances Act, nor does it intend to do so in the future, we may be irreparably harmed by a change in enforcement by the Federal or state governments.

Reverse merger

Promap Corporation (“Promap”, “the Company” “we” or”us”) was incorporated in the State of Colorado on November 12, 1987. The Company was an independent GIS and custom draft energy mapping company for the oil and gas industry in the United States and Canada.

On August 14, 2013, the Company acquired 94% of the issued and outstanding share capital of Advanced Cannabis Solutions, Inc. (“ACS”) (“the Share Exchange Agreement”), a development-stage company, planning to provide real estate leasing services to the regulated cannabis industry throughout the United States. On November 9, 2013, we acquired the remaining 6% of the share capital of Advanced Cannabis Solutions, Inc. It was planned that the ongoing Company operations would focus on ACS’ business plan as its core activity and operate under the name Advanced Cannabis Solutions, Inc. (“ACS”). The Company has completed a change in trading symbol to CANN (OTCBB) and has completed its official name change. In December, 2013 the previous oil and gas mapping operations of Promap, as described above, were sold to the former Chief Executive Officer of Promap.

The Share Exchange Agreement has been accounted for as a reverse acquisition and recapitalization using accounting principles applicable to reverse acquisition. Under reverse acquisition accounting, ACS, the legal acquired entity, is treated as the accounting acquirer of the Company. Consequently, ACS’ financial results are disclosed for all periods presented, while the Company’s financial results have only been consolidated with those of the existing ACS business from August 14, 2013 onward. All outstanding shares have been restated to reflect the effect of the Agreement.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the results of Advanced Cannabis Solutions, Inc. (“ACS’) and its two wholly owned subsidiary companies, ACS Colorado Corp. and Advanced Cannabis Solutions Corporation, from the dates of their incorporation and for Promap Corporation from August 14, 2013 onwards. All intercompany balances and transactions have been eliminated in consolidation.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements and should be read in conjunction with the audited consolidated financial statements and related footnotes included in the Company’s Annual Report on Form 10-K for the Inception to Date period ended December 31, 2013 (the “2013 Annual Report”), as amended, filed with the Commission on April 29, 2014. It is management’s opinion, however, that all material adjustments (consisting of normal recurring adjustments), have been made which are necessary for a fair financial statements presentation. The financial statements include all adjustments (consisting of normal recurring accruals) necessary to make the financial statements not misleading as required by Regulation S-X, Rule 10-01. Operating results for the three months ended March 31, 2014 are not necessarily indicative of the results of operations for the year ended December 31, 2014.

Development Stage Operations

The Company is a development stage company in accordance with Financial Accounting Standards Codification (“ASC”) 915 "Development Stage Entities". Among the disclosures required as a development stage company are that our financial statements are identified as those of a development stage company, and that the statements of operations, changes in stockholders' equity and cash flows disclose activity since the date of our Inception (June 5, 2013) as a development stage company.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions about future events that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities and the related notes at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less as cash equivalents. All cash is maintained with major financial institutions in the United States. Deposits may exceed the amount of insurance provided on such deposits.

Accounts Receivable

The Company reviews accounts receivable periodically for collectability and establishes an allowance for doubtful accounts and records bad debt expense when deemed necessary. Accounts receivable are primarily contract-based billings to tenants. No provision for doubt accounts had been made at March 31, 2014.

Other Receivables

The Company recognizes tenant rentals on a straight-line basis over the reasonably assured lease term. The Company's tenant rental agreements provide for scheduled monthly rentals to vary during the lease term. Tenant rentals that have been earned on straight line basis over the reasonably assured lease term but which have not been invoiced as yet under the terms of the tenant lease are recognized as other receivables. Tenant rental income that has been earned on a straight line basis but that will not be invoiced to tenants under the terms of the tenant rental agreement within twelve months of the balance sheet date have been classified in long term assets as other receivables. Tenant rental income earned but not invoiced at March 31, 2014 totaled $19,765.

Property and Equipment

Property and equipment are recorded at cost and depreciated under straight line methods over each item's estimated useful life.

We review our property and equipment for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable.

Maintenance and repairs of property and equipment are charged to operations as incurred. Major improvements are capitalized. Upon retirement, sale or other disposition of property and equipment, the cost and accumulated depreciation are eliminated from the accounts and any gain or loss is included in operations.

Other Assets – Deferred Financing Costs

Costs with respect to the issue of common stock, warrants, stock options or debt instruments by the Company are initially deferred and ultimately offset against the proceeds from such equity transactions or amortized as debt discount over the term of any debt funding if successful or expensed if the proposed equity or debt transaction is unsuccessful.

As of March 31, 2014 we had recognized $115,000 of deferred financing costs. On January 10, 2014 the Company paid $15,000 to Full Circle Capital Corporation as a deposit for deal related expenses related to future financing transactions. On January 21, 2014 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 out of the total consideration of $500,000 to cover legal and deal related expenses of future financing transactions.

Long-Lived Assets

In accordance with ASC 350, the Company regularly reviews the carrying value of intangible and other long-lived assets for the existence of facts or circumstances, both internally and externally, that suggest impairment. If impairment testing indicates a lack of recoverability, an impairment loss is recognized by the Company if the carrying amount of a long-lived asset exceeds its fair value.

Common Stock Purchase Warrants

The Company accounts for common stock purchase warrants in accordance with ASC Topic 815, “Accounting for Derivative Instruments and Hedging Activities”. As is consistent with its accounting for stock compensation and embedded derivative instruments, the Company’s cost for warrants is estimated at the grant date based on each warrant’s fair-value as calculated by the Black-Scholes option-pricing model value method for valuing the impact of the expense associated with these warrants.

Revenue recognition

Revenue is recognized on an accrual basis as earned under contract terms. Specifically, revenue from leasing operations is recognized based upon the payment terms within lease contracts, and collectability is reasonably assured.

The Company recognizes tenant rentals on a straight-line basis over the reasonably assured lease term. The Company's tenant rental agreements provide for scheduled rent scheduled monthly rentals to vary during the lease term. Tenant rentals that have been earned on straight line basis over the reasonably assured lease term but which have not been invoiced as yet under the terms of the tenant lease are recognized as other receivables. Tenant rental income that has been earned on a straight line basis but that will not be invoiced to tenants under the terms of the tenant rental agreement within twelve months of the balance sheet date have been classified in long term assets as other receivables.

Advertising costs

Advertising costs are expensed as incurred. No advertising costs were incurred during the three month period ended March 31, 2014.

Income tax

The Company accounts for income taxes pursuant to ASC 740. Under ASC 740 deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carry forwards 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.

Comprehensive Income (Loss)

Comprehensive income is defined as all changes in stockholders' equity (deficit), exclusive of transactions with owners, such as capital investments. Comprehensive income includes net income or loss, changes in certain assets and liabilities that are reported directly in equity such as translation adjustments on investments in foreign subsidiaries and unrealized gains (losses) on available-for-sale securities. From our Inception there have been no differences between our comprehensive loss and net loss.

Net income (loss) per share

The net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of shares of common outstanding in accordance with FASB ASC 260, “Earnings Per Share.” Dilutive earnings or loss per share is computed using the weighted average common shares and diluted potential common shares outstanding. Warrants and common stock issuable upon the conversion of the Company's convertible notes payable have not included in the computation as the effect would be anti-dilutive and would decrease the loss per share at the Company has incurred losses in all periods since Inception.

Fair Value Measurements

ASC Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”), provides a comprehensive framework for measuring fair value and expands disclosures which are required about fair value measurements. Specifically, ASC 820 sets forth a definition of fair value and establishes a hierarchy prioritizing the inputs to valuation techniques, giving the highest priority to quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable value inputs. ASC 820 defines the hierarchy as follows:

Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reported date. The types of assets and liabilities included in Level 1 are highly liquid and actively traded instruments with quoted prices, such as equities listed on the New York Stock Exchange.

Level 2 – Pricing inputs are other than quoted prices in active markets, but are either directly or indirectly observable as of the reported date. The types of assets and liabilities in Level 2 are typically either comparable to actively traded securities or contracts, or priced with models using highly observable inputs.

Level 3 – Significant inputs to pricing that are unobservable as of the reporting date. The types of assets and liabilities included in Level 3 are those with inputs requiring significant management judgment or estimation, such as complex and subjective models and forecasts used to determine the fair value of financial transmission rights.

Our financial instruments consist of cash, accounts receivable, other receivables, prepaid expenses, deferred financing costs, accounts payables and accrued expenses, notes payable and tenant deposits. The carrying values of these financial instruments approximate their fair value due to their short maturities.

Business Segments

Following the sale of its oil and gas mapping operations effective December 31, 2013, during the quarter ended March 31, 2014, the Company operated one reportable business segment – its real estate leasing business.

Recently Issued Accounting Standards

We have reviewed all recently issued, but not yet effective, accounting pronouncements and do not believe the future adoption of any such pronouncements may be expected to cause a material impact on our financial statements.

Reclassifications

Certain reclassifications have been made to the prior period financial statements to conform to the 2014 presentation. The reclassifications had no effect on net loss, total assets, or total stockholders’ equity.

3. GOING CONCERN

The financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future.

The Company has incurred 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.

4. SHARE EXCHANGE AGREEMENT

On August 14, 2013, pursuant to a Share Exchange Agreement (the “The Share Exchange Agreement”), Promap Corporation (the “Predecessor Company” or “Promap”) acquired approximately 94% of the outstanding common stock of Advanced Cannabis Solutions, Inc. (“ACS”) in exchange for 12,400,000 shares of the Company’s common stock.

In connection with the Share Exchange Agreement:

●	Promap purchased 8,000,000 shares of its outstanding common stock from a former officer of the Company for $100,000. These shares were then cancelled and returned to the status of authorized but unissued shares;

●	Robert Frichtel was appointed as a director and the Principal Executive and Financial Officer of the Company;

●	Roberto Lopesino was appointed Vice President of the Company; and

●	Steven Tedesco and Robert Carrington, Jr., resigned as officers and directors of Pronap.

As a result of the acquisition, ACS is Promap’s 94% owned subsidiary and the former shareholders of ACS own approximately 88% of Promap’s common stock. On November 9, 2013, Promap acquired the remaining 6% of the share capital of Advanced Cannabis Solutions, Inc.

The Agreement has been accounted for as a reverse acquisition and recapitalization using accounting principles applicable to reverse acquisition. Under reverse acquisition accounting, ACS, the legal acquired entity, is treated as the accounting acquirer of the Predecessor Company. Consequently, ACS’ financial results are disclosed for all periods presented, while the Company’s financial results have only been consolidated with those of the existing ACS business from August 14, 2013 onward. All outstanding shares have been restated to reflect the effect of the Agreement.

The following table summarizes the estimated fair values of Promap’s assets acquired and liabilities assumed by the existing ASC business as on August 14, 2013:

Cash	$	1,790
Accounts receivable		8,370
Accounts payable		(20,823	)
The fair value of Promap’s net liabilities at the August 14, 2013 recapitalization	$	(10,663	)

5. DISCONTINUED OPERATIONS

Prior to December 31, 2013, the Company provided hard copy and digital format oil and gas production maps for the oil and gas industry. On December 31, 2013, the Company sold its oil and gas mapping business to its former Chief Executive Officer in consideration for his agreement to assume all liabilities associated with the mapping business. At the time of the transfer, the mapping business had assets of $2,729 and liabilities of $2,277. The Company recognized a loss on the transfer of $452 which was charged to equity.

The components of the discontinued operations are as follows:

	June 5, 2013 (Inception) to March 31, 2014
Revenues	$	455
Cost of services		183
Gross profit		272
Operating expenses (credits)	$
General administrative		(1,685	)
Total operating expenses (credits)		(1,685	)
Net income		1,957

The credit to general administrative expenses arose due the write back of a provision for doubtful debts recorded in a prior period.

6. ACCOUNTS RECEIVABLE

Accounts receivable consist of:

	March 31, 2014		December 31, 2013

Contract based rent amounts invoiced to tenant	$	-	$	-
Contract based costs re-billed to tenant for facility improvements		47,454		1,595
	$	47,454	$	1,595

7. PROPERTY AND EQUIPMENT

On December 31, 2013 the Company purchased a property in Pueblo County, Colorado for $450,000. The property, which is located in a suburb of Pueblo, consists of approximately three acres of undeveloped land, a 5,000 square foot steel building, and a parking lot. The purchase price was allocated $12,340 for land and $437,660 for buildings and related equipment.

The purchase price was paid for cash of $280,000 and a promissory note in the principal of $170,000. The note bears interest at 8.5% interest per annum and is payable in monthly installments, including principal and interest, in the amount of $1,674. All unpaid principal and interest is due December 31, 2018. The promissory note is convertible at any time on or before the maturity date at $5 per common share

The property is zoned for growing marijuana and is leased to a licensed medical marijuana grower through December 31, 2022 on a triple net lease basis. The Company has agreed with the tenant to begin construction of a light deprivation greenhouse on the property at a cost not to exceed $400,000, with construction scheduled to begin in the second quarter of 2014.

The Company incurred $8,250 in leasehold improvements on the property during the three months ended March 31, 12014.

Depreciation on the Pueblo building facility began effective January 1, 2014. Depreciation is calculated on a straight line basis over 30 years. The depreciation expense of the three months ended March 31, 2014 was $3,116.

The following table summarizes Property and Equipment and Related Accumulated Depreciation :

	March 31, 2014			December 31, 2013
	(unaudited)			(audited)

Land	$	12,340		$	12,340
Buildings and Equipment		448,663			440,413
		461,003			452,753
Less: Accumulated Depreciation		(3,116	)		-
Property and Equipment, net	$	457,887		$	452,753

8. OTHER RECIVABLES

The Company recognizes tenant rentals on a straight-line basis over the reasonably assured lease term. The Company's tenant rental agreements provide for scheduled rent increases during the lease term. Tenant rentals that have been earned on straight line basis over the reasonably assured lease term but which have not been invoiced as yet under the terms of the tenant lease are recognized as other receivables. Tenant rental income that has been earned on a straight line basis but that will not be invoiced to tenants under the terms of the tenant rental agreement within twelve months of the balance sheet date have been classified in long term assets as other receivables. Tenant rental income earned but not invoiced at March 31, 2014 totaled $19,765.

9. OTHER ASSETS – DEFERRED FINANCING COSTS

10. CONVERTIBLE NOTES PAYABLE

12% Convertible notes

December 2013 Issuance

The Company issued $530,000 in convertible notes on December 27, 2013. These notes have an interest rate of 12%, payable quarterly, and mature on October 31, 2018. They are convertible at any time on or before the maturity date at $5 per common share. After November 1, 2015, the Company can force conversion of these notes if the trading stock price has exceeded $10 for 20 consecutive trading days. The loan issuance costs and the value of the convertible feature totaling $278,853 will be amortized over the life of the notes from December 27, 2013 through October 31, 2018 on a straight line basis that approximates the effective interest method.

January 2014 Issuance

On January 29, 2014, the Company issued a further $1,605,000 in convertible notes to a group of accredited investors. These notes have an interest rate of 12%, paid quarterly, and mature on October 31, 2018. They are convertible at any time on or before the maturity date at $5 per common share. The Company can force conversion of these notes if the trading stock price has exceeded $10 per share for 20 consecutive trading days. The Company paid cash commission of $160,500 and other debt issuance costs of $32,100 to the registered broker dealer who placed the issue. The Company further issued 32,100 warrants to the broker dealer as additional compensation with an exercise of $5 and an intrinsic value of $280,875. The intrinsic value of the convertible feature was $2,808,750, but the total debt discount on the issuance is limited to $1,605,000, the principal balance of the convertible notes issued. The loan issuance costs and the value of the convertible feature, limited to a total of $1,605,000, will be amortized over the life of the notes from January 29, 2014 through October 31, 2018 on a straight line basis that approximates the effective interest method.

Conversion of Notes Payable

On March 31, 2014, four note holders converted their loan notes with principal balances totaling $255,000 and accrued interest of $3,669 into 51,733 shares of the Company’s common stock at a conversion price of $5 per share. The unamortized debt discount relating these convertible notes payable was amortized in full at the date of the conversion.

8 1/2% Convertible Note Payable

The Company executed a mortgage on their Pueblo West property in the amount of $170,000 at 8 1/2% on December 31, 2013, amortizable over 15 years with a maturity date of December 31, 2018. The note is convertible at any time on or before the maturity date at $5 per common share. The value of the convertible feature, calculated at $77,104, was recognized as a debt discount and will be amortized over the life of the note from December 31, 2013 through December 31, 2018 on a straight line basis that approximates the effective interest method.

During the three months ended March 31, 2014 we repaid principal balances of $943 in respect of this convertible note.

Convertible notes payable:

	Principal			Debt			Accrued
	Balance			Discount			Interest			Total
Balance at December 31, 2013	$	700,000		$	(355,163	)	$	871		$	345,708

Issued in the period		1,605,000			(1,605,000	)		-			-

Converted into shares of common stock		(255,000	)		-			(3,669	)		(258,669	)

Amortization of debt discount		-			320,422			-			340,422

Payment of loan principal		(943	)		-			-			(943	)

Interest accrued during period		-			-			49,274			49,274

Interest paid during period		-			-			(46,476	)		(46,476	)

Balance at March 31, 2014		2,049,057			(1,640,535	)		-			408,522

Less: Current portion		(5,927	) (1)		-			-			(5,927	)
Long-term debt	$	2,043,130		$	(1,640,535	)	$	-		$	402,595

(1) The current portion represents the principal balance payable on the 81/2% convertible note payable in the twelve months following the balance sheet date.

11. COMMITMENTS AND CONTINGENCIES:

Long term financing commitment

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.

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. 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.

Operating Leases

The Company rents office space for its corporate needs. The Company entered into a month-to-month lease agreement in July 2013 to lease 2,000 square feet for an annual rate of $12,000, paid monthly. This lease was terminated effective April 1, 2014. The Company entered into a new three-year lease agreement effective April 4, 2014 for its corporate offices. The facility leased is 3,000 square feet with total payments due of $82,600 through March 31, 2017.

We paid $3,000 for the lease of our corporate offices for the quarter ended March 31, 2014.

Leasehold Improvements

We also agreed with the tenant of the property we purchased in Pueblo County, Colorado on December 31, 2013 to begin construction of an 8,000 sq. ft. light deprivation greenhouse on the property at a cost not to exceed $400,000. Construction is to begin no later than June 25, 2014. Depending on the availability of capital, we may construct up to five additional greenhouses on this property.

Legal

To the best of the Company’s knowledge and belief, no legal proceedings are currently pending or threatened.

12. STOCKHOLDERS’ EQUITY:

Preferred Stock

The Company is authorized to issue 5,000,000 shares of preferred stock, with no par value. No shares of preferred stock have been issued or are outstanding, and no rights, privileges or preferences have been determined and designated by the board of directors.

Common Stock

The Company is authorized to issue 100,000,000 shares of no-par value common stock.

On June 30, 2013, the Company issued 12,400,000 shares of common stock to its founders for cash consideration of $0.001 per share.

Between July 11, 2013 and August 8, 2013, the Company issued 707,000 shares of its common stock and 707,000 Series A Warrants for cash consideration of $1.00 per share. Each Series A warrants entitles the holder to purchase one share of our common stock at a price of $10.00 per share. The Series A Warrants expire on the earlier of August 1, 2016, or twenty days following written notification from us that our common stock had a closing bid price at or above $12.00 for any ten consecutive trading days. This condition has been met as of April 30, 2014; however, the Company has chosen not to force this conversion feature at this time.

On August 14, 2013, following the reverse merger of ACS with the Company, existing shareholders of the Company owned 9,724,200 shares of its common shares However, 8,000,000 of these shares were then immediately purchased by the Company for cash consideration of $100,000 and cancelled.

Between August 14, 2013 and September 19 2013, the Company issued a further 266,000 shares and 266,000 Series A Warrants of its common stock for cash consideration of $1.00 per share. The Series A Warrants expire on the earlier of August 1, 2016, or twenty days following written notification from us that our common stock had a closing bid price at or above $12.00 for any ten consecutive trading days. This condition has been met as of April 30, 2014; however, the Company has chosen not to force this conversion feature at this time.

On December 9, 2013 the Company issued 40,000 shares of stock in return for professional services.

On January 5, 2014 the Company re-acquired 1,750,000 shares of our common stock for no consideration from existing common stockholders. The re-acquired shares were returned to our authorized but unissued share account. The $1,750 gain on the return of these shares of common stock has been charged to shareholders’ equity.

At March 31, 2014, the Company had 13,438,933 shares of its common stock issued and outstanding.

Warrants

Series A warrants

As at March 31, 2014, there were 973,000 Series A warrants issued and outstanding.

Series B Warrants

On December 27, 2013, the Company issued 53 series B warrants, convertible to 10,600 shares of our common stock, to a broker dealer as compensation for placement of convertible notes payable totaling $530,000. Each Series B warrant allows holder to purchase 200 shares of our common stock at an exercise price of $5.00 per share at any time on or before October 31, 2018. The value of these warrants, calculated as $21,271, has been recognized as part of the debt discount related to this note issuance and will be amortized over the life of the notes from December 27, 2013 through October 31, 2018 on a straight line basis that approximates the effective interest method.

On January 29, 2014, the Company issued 106.5 series B warrants, convertible to 32,100 shares of our common stock, to a broker dealer as compensation for placement of convertible notes payable totaling $1,605,000. Each Series B warrant allows holder to purchase 200 shares of our common stock at an exercise price of $5.00 per share at any time on or before October 31, 2018. The intrinsic value of these warrants, calculated as $280,875, has been recognized as part of the debt discount related to this note issuance and will be amortized over the life of the notes from January 29, 2014through October 31, 2018 on a straight line basis that approximates the effective interest method.

As at March 31, 2014, there were 213.5 Series B warrants issued and outstanding in respect of 42,700 shares of our common stock.

Series C Warrants

On January 21, 2014, Full Circle Capital Corporation 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.

As at March 31, 2014, there were 1,000,000 Series C warrants issued and outstanding.

The following table summarizes information about warrants outstanding March 31, 2014:

					Weighted Average Life of
			Warrants		Outstanding Warrants in
	Exercise Price		Outstanding		Months		Date of Expiration
Series A Warrants	$	10.00		973,000		28	7/31/2016
Series B Warrants		5.00		42,700		56	10/31/2018
Series C Warrants		5.50		1,000,000		34	1/21/2017
	$	7.77		2,015,700		32

Summary of Shares of Common Stock and Warrants Issued and Outstanding

	Common Stock			Warrants
Balance at June 5, 2013 (Inception)		-			-
Issued for cash proceeds of $985,400 – Series A warrants		13,373,000			973,000
Issued as part of share exchange agreement		9,724,200			-
Terminated as part of share exchange agreement		(8,000,000	)		-
Issued as compensation under a consulting agreement		40,000			-
Warrants issued to placement agent – Series B Warrants		-			10,600
Balance at December 31, 2013		15,137,200			983,600
Re-acquired shares of common stock		(1,750,000)			-
Warrants issued to Full Circle for $500,000 consideration – Series C Warrants		-			1,000,000
Warrants issued to placement agent – Series B Warrants		-			32,100
Issued in settlement of $255,000 convertible notes payable and accrued interest of $3,669		51,733			-
Balance at March 31, 2014		13,438,933			2,015,700

13. INCOME TAXES

The Company accounts for income taxes in accordance with FASB ASC 740 “Income Taxes”. Deferred income taxes reflect the net effect of (a) temporary difference between carrying amounts of assets and liabilities for financial purposes and the amounts used for income tax reporting purposes, and (b) net operating loss carry-forwards. No net provision for refundable Federal income tax has been made in the accompanying statement of loss because no recoverable taxes were paid previously. If there were any unrecognized tax benefit, the Company would recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.

No provision was made for income taxes for the period March 31, 2014. The Company, from the date of inception, has incurred net operating losses for tax purposes of approximately $1,284,825. The net operating loss carry-forward may be used to reduce taxable income through the year 2033.

There was no significant difference between reportable income tax and statutory income tax. A 100% valuation allowance has been established against the deferred tax asset, as the utilization of the loss carry-forwards cannot be reasonably assured. A reconciliation between the income taxes computed in the United States is as follows:

	March 31,
	2014

Deferred tax asset	$	436,841
Valuation allowance		(436,841	)
	$	-

US federal income tax rate		34.00	%
Valuation allowance		(34.00	)%
Provision for income tax		0.00	%

14. RELATED PARTY TRANSACTIONS

On June 30, 2013 ACS sold 1,000,000 shares of its common stock to Robert Frichtel and 1,150,000 shares of its common stock to Roberto Lopesino at a price of $0.001 per share. On June 30, 2013 ACS also sold 10,250,000 shares of its common stock to an unaffiliated group of private investors at a price of $0.001 per share. On August 14, 2013, the shareholders of ACS exchanged 12,400,000 shares of their ACS for 12,400,000 shares of our common stock.

Subsequently, one unaffiliated person which received 2,000,000 shares in August 2013 transferred 100,000 shares to Christopher Taylor and 150,000 to another non-affiliated shareholder. The remaining 1,750,000 shares held by this person were returned to treasury and cancelled on January 14, 2014.

During the period from June 5th, 2013 to December 31, 2013 and the period from January 1, 2014 to March 31, 2014, sales of $8,362 and $0 respectively, were made to Admiral Bay Resources and Running Foxes Petroleum, Inc., companies controlled by Steven Tedesco, our Chief Executive Officer at that time. During the two period June 5th, 2013 to December 31, 2013 and the period from January 1, 2014 to March 31, 2014, we we paid employees of Atoka Colabs, LLC, $762 and $0 respectively, for producing the maps we sold. Atoka is also controlled by Mr. Tedesco. Both the revenue and employees expenses are classified as discontinued operations in the attached financial statements.

15. SUBSEQUENT EVENTS

On April, 10, 2014 trading in our commons stock recommenced on the OTC having been suspended on March 27, 2014 by the SEC.

On April 21, 2014 the Company entered into a lease agreement as a tenant with a third party landlord to lease warehouse space for general corporate purposes for a period effective April 21, 2014 through April 30, 2017. The total payments called for during the lease period are $38,965 for rent payments. The lease is considered a “gross lease” and payments include estimated charges for property taxes, property insurance, and common area maintenance. The Company will be responsible for utilities under the terms of the agreement.

On May 12, 2014 the Company filed amendment number 1 to form S-1 registering up to 3,415,700 shares of its common stock which are issuable upon exercise of outstanding warrants or conversion of notes payable.

On May 15, 2014 the Company filed a form 10Q in respect of the three months ended March 31, 2014.On May 20, 2014 the Company filed is form 8k disclosing that the form 10Q filed in in respect of the three months ended March 31, 2014 had been filed without the consent of its independent public accountant who had not completed their review of the interim consolidated financial statements included in the quarterly report on Form 10-Q using professional standards and procedures conducted for such reviews, as established by generally accepted auditing standards. .

In accordance with ASC 855, Subsequent Events, the Company has evaluated events that occurred subsequent to the balance sheet date through May __, 2014, the date of available issuance of these audited financial statements. The Company determined that other than as disclosed above, there were no material reportable subsequent events to be disclosed.

PART I

Item 2. Management's discussion and analysis of financial condition and results of operations

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.

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.

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.

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.

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.

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

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.