Aquarius Cannabis Inc. /NV/ - FORM 10-Q

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EX-32.1 - CERTIFICATION - Aquarius Cannabis Inc. /NV/	aqua_ex32z1.htm
EX-31.1 - CERTIFICATION - Aquarius Cannabis Inc. /NV/	aqua_ex31z1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


	þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2016


	¨	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: 000-55330

AQUARIUS CANNABIS, INC.

(Exact name of registrant as specified in its charter)


Nevada		47-1273086
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Metro Office Park, 7 Calle 1, Ste. 204, Guaynabo, Puerto Rico		00968
(Address of principal executive offices)		(Zip Code)

(888) 317-0460

(Registrant’s telephone number, including area code)

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 such filing requirements for the past 90 days. Yes ¨ No þ

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

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 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 ¨ (Do not check if a smaller reporting company) 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). Yes ¨ No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock: As of June 29, 2016, there were 29,596,833 shares, $0.0001 par value per share, of common stock outstanding.

AQUARIUS CANNABIS, INC.

Quarterly Report on Form 10-Q for the

Period Ended March 31, 2016

TABLE OF CONTENTS


PART I — FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Control and Procedures	26

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3.	Defaults Upon Senior Securities	27
Item 4.	Mine Safety Disclosures	27
Item 5.	Other Information	27
Item 6.	Exhibits	27

SIGNATURES		28

CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q (this “Report”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “predict,” “project,” “forecast,” “potential,” “continue” negatives thereof or similar expressions. Forward-looking statements speak only as of the date they are made, are based on various underlying assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements.

We cannot predict all of the risks and uncertainties. Accordingly, such information should not be regarded as representations that the results or conditions described in such statements or that our objectives and plans will be achieved and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements. These forward-looking statements are found at various places throughout this Report and include information concerning possible or assumed future results of our operations, including statements about potential acquisition or merger targets; business strategies; future cash flows; financing plans; plans and objectives of management, any other statements regarding future acquisitions, future cash needs, future operations, business plans and future financial results, and any other statements that are not historical facts.

These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Report. All subsequent written and oral forward-looking statements concerning other matters addressed in this Report and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Report.

Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.

CERTAIN TERMS USED IN THIS REPORT

When this Report uses the words “we,” “us,” “our,” “Aquarius,” and the “Company,” they refer to Aquarius Cannabis, Inc. “SEC” refers to the Securities and Exchange Commission.

Item 1. Financial Statements (Unaudited)

Aquarius Cannabis, Inc.

Index to Financial Statements

March 31, 2016 and 2015


	Page
	Number

Balance Sheets as of March 31, 2016 and 2015 (Unaudited)	2

Statements of Operations for the three months ended March 31, 2016 and 2015 (Unaudited)	3

Statements of Cash Flows for the three months ended March 31, 2016 and 2015 (Unaudited)	4

Notes to Financial Statements (Unaudited)	5

AQUARIUS CANNABIS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS


	March 31,			December 31,
	2016			2015
ASSETS
Current assets:
Cash and cash equivalents	$	41,963		$	105,833
Accounts receivable, related party		—			10,313
Inventory		—			—
Prepaid expenses and deposits		13,927			9,589
Prepaid expenses, related parties		—			—
Total current assets		55,890			125,735

Fixed assets, net of accumulated depreciation of $5,004 and $4,134 respectively		12,402			13,272

Total assets	$	68,292		$	139,007

LIABILITIES AND STOCKHOLDERS'DEFICIT
Current liabilities:
Accounts payable	$	57,207		$	82,213
Accrued liabilities		55,462			16,872
Accrued interest - convertible notes payable		190,066			157,625
Deferred revenue		5,000			5,000.00
Due to related parties		20,703			16,725
Line of credit, net of debt discount		582,695			388,172
Notes payable		50,000			50,000
Notes payable, related party		200,000			200,000
Convertible note payable		28,000			28,000
Total current liabilities		1,189,133			944,607

Long term liabilities:
Convertible notes payable, net of debt discount		983,861			981,795
Convertible notes payable, related party		50,000			50,000
Total liabilities		2,222,994			1,976,402

Stockholders’ deficit
Preferred Stock, par value $0.0001; authorized shares 20,000,000; issued and outstanding shares 2,000,000 and 2,000,000, respectively		200			200
Preferred Stock - Series B, par value $0.0001; authorized shares 200,000; issued and outstanding shares 200,000 and 0, respectively		20			20.00
Common Stock, par value $0.0001; authorized shares 200,000,000; issued and outstanding shares 27,269,436 and 26,739,002, respectively		2,728			2,675
Additional paid in capital		3,246,066			2,783,979
Less: stock subscriptions receivable		—			0
Accumulated deficit		(5,403,716	)		(4,624,269	)
Total stockholders’ deficit		(2,154,702	)		(1,837,395	)

Total liabilities and stockholders’ deficit	$	68,292		$	139,007

The accompanying footnotes are an integral part of these condensed consolidated unaudited financial statements

AQUARIUS CANNABIS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


	Three Months Ended
	March 31,
	2016			2015

Revenues - related party	$	—		$	—
Cost of goods sold		—			—
Gross Profit		—			—

Operating expenses:
Sales and marketing		61,903			52,414
Research and development		23,405			15,552
General and administrative		606,199			153,866
General and administrative, related parties		23,556			76,810
Total operating expenses		715,063			298,642

Operating loss		(715,063	)		(298,642	)

Other income (expense):
Interest income		—			82
Interest expense		(55,798	)		(26,650	)
Interest expense, related party		(1,997	)		(1,000	)
Amortization of debt discount		(6,589	)		(2,043	)
Other income		—			5,020
Total other income (expense)		(64,384	)		(24,591	)

Net loss	$	(779,447	)	$	(323,233	)

Net Income (loss) per common share: Basic and diluted	$	(0.03	)	$	(0.02	)

Weighted-average common shares outstanding: Basic and diluted		27,001,222			21,044,896

The accompanying footnotes are an integral part of these condensed consolidated unaudited financial statements

AQUARIUS CANNABIS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	March 31,
	2016			2015
Operating activities:

Net loss	$	(779,447	)	$	(323,233	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of debt discount, convertible notes		6,589			2,043
Equity-based compensation expense		462,140			72,265
Convertible notes payable issued for services		—			18,000
Depreciation		870			871
Changes in operating assets and liabilities:
Increase in Accounts receivable - related party		10,313			—
Increase in Prepaid expenses and deposits		(4,338	)		(7,317	)
Decrease in Prepaid expenses, related parties		—			1,500
Increase / (Decrease) in Accounts payable and accrued expenses		(25,006	)		41,060
Increase in Accrued liabilities		59,293			—
Increase in Accrued interest notes payable		32,441			—
Due to related parties		(16,725	)		24,475
Net cash (used in) operating activities		(253,870	)		(170,336	)

Investing activities:
Cash acquired in reverse capitalization		—			(15,000	)
Net cash used in investing activities		—			(15,000	)

Financing activities:
Proceeds from line of credit		190,000			—
Proceeds from issuance of convertible notes payable		—			100,000
Net cash provided by financing activities		190,000			100,000

Net (decrease) increase in cash		(63,870	)		(85,336	)

Cash and cash equivalents, beginning of period		105,833			100,355

Cash and cash equivalents, end of period	$	41,963		$	15,019

Supplemental disclosure of cash flow information
Cash paid for:
Interest	$	—		$	—
Taxes	$	—		$	—

Supplemental disclosure of non-cash financing activities:
Convertible note payable issued for services	$	—		$	18,000
Equity interest issued for services	$	0		$	72,265

The accompanying footnotes are an integral part of these condensed consolidated unaudited financial statements

AQUARIUS CANNABIS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015

Note 1 – Nature of Operations

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in The United States of America and the rules and regulations of the Securities and Exchange Commission for interim financial information. Accordingly, they do not include all of the information necessary for a comprehensive presentation of financial position and results of operations. The interim results for the period ended March 31, 2016 are not necessarily indicative of results for the full fiscal year. 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.

Aquarius Cannabis Inc. ("we", "our", "us" or "Aquarius") was formed on July 3, 2014, under the laws of the State of Nevada, for the purpose of acquiring Aquarius Holdings LLC ("Aquarius Colorado"), a Colorado limited liability company, through an exchange of shares of our common and preferred stock to acquire 100% of the membership interests of Aquarius Colorado (“the Exchange”). It was our intention that, subsequent to completion of the Exchange, we would continue with the process of filing a Form S-1 Registration Statement with the Securities and Exchange Commission and achieve a listing for our common shares on the OTC Bulletin Board ("OTCBB") interdealer quotation system. Aquarius Colorado is a limited liability company organized on October 20, 2011 under the laws of the State of Colorado. The Exchange of our common and preferred shares for the acquisition of 100% of the membership interests of Aquarius Colorado was completed on December 1, 2014.

Pursuant to the Exchange, we issued 18,000,000 shares of our common stock and 2,000,000 shares of our preferred stock, both with a par value of $0.0001 per share, resulting in former members of Aquarius Colorado owning 90% of our outstanding common shares and 100% of our outstanding preferred shares. This reverse merger was accounted for as a reverse capitalization with Aquarius Colorado, the legally acquired entity, being treated as the acquirer of Aquarius for accounting and financial reporting purposes. Consequently, the accompanying condensed consolidated unaudited financial statements reflect the operations of Aquarius Colorado since Inception (October 20, 2011) and for Aquarius from the effective date of the Exchange (December 1, 2014). The issuance of shares pursuant to the Exchange has been retroactively presented in the footnotes to these condensed consolidated unaudited financial statements to reflect the common stock, preferred stock and additional paid in capital that was issued to members of Aquarius Colorado at the time of the Exchange.

Our principal business is the development, marketing and licensing of cannabis brands and to provide a variety of ancillary services, including production processes, components and consulting services to the cannabis industry. We are currently conducting research and development activities and preliminary marketing activities to develop and license proprietary production processes and new cannabis brands.

We have only recently begun operations and we rely upon borrowings and the issuance of our common shares for cash to fund our operations as we have only generated nominal revenue to date. Our business is subject to significant risks and uncertainties, including failure to secure additional funding necessary to complete the development of our products and services and to bring our products and services to market.

We do not grow, harvest, distribute or sell cannabis or any substances that violate United States law or the Controlled Substances Act, nor do we intend to do so in the future.

Note 2 – Going Concern

Our consolidated financial statements have been prepared on a going concern basis which assumes that we will be able to realize our assets and discharge our liabilities in the normal course of business. Asset realization values may be significantly different from carrying values as shown in our consolidated financial statements and do not give effect to adjustments that would be necessary to the carrying values of assets and liabilities should we be unable to continue as a going concern. Since the inception (October 20, 2011) of the Company through December 31, 2015, we have incurred losses and we expect to incur further losses in the development of our business, all of which casts substantial doubt about our ability to continue as a going concern.

Our ability to continue as a going concern depends on our ability to generate future profits and/or to obtain the necessary financing to meet our obligations arising from normal business operations when they come due. We anticipate that additional funding will be in the form of loans and equity financing from the sale of our common stock. We may also seek to obtain loans from our current investors. Currently, there are no arrangements in place for equity funding or new loans. There is no assurance that this series of events will be satisfactorily completed.

Note 3 – Summary of Significant Accounting Policies

Basis of Presentation

Our financial statements are stated in United States dollars and have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). The Company fiscal year end is December 31.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of expenses during the period presented.

We make our estimate of the ultimate outcome for these items based on historical trends and other information available when the financial statements are prepared. Changes in estimates are recognized in accordance with the accounting rules for the estimate, which is typically in the period when new information becomes available. We believe that our significant estimates, assumptions and judgments are reasonable, based upon information available at the time they were made. Actual results could differ from these estimates, making it possible that a change in these estimates could occur in the near term.

Development Stage Company

We are a development stage company as defined under the then current Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 915, "Development-Stage Entities". Additional disclosures required as a development stage company are that our financial statements be identified as those of a development stage company, and that the statements of operations, changes in stockholder’s deficit and cash flows disclosed activity since the date of our inception (October 11, 2011). Effective June 10, 2014, the FASB changed its regulations with respect to development stage entities and these additional disclosures are no longer required for annual reporting periods beginning after December 15, 2015, with the option for entities to early adopt these new provisions. Consequently, these additional disclosures are not included in our financial statements.

Reclassification

Certain reclassifications have been made to the prior year’s data to conform to current year presentation. These reclassifications had no effect on net income (loss).

Principles of Consolidation and Reverse Capitalization

As previously disclosed, effective December 1, 2014, we exchanged a total of 18,000,000 shares of our common stock and 2,000,000 shares of our preferred stock in exchange for the acquisition of 100% of the membership interests in Aquarius Colorado. Although we were the legal acquirer, the transaction has been accounted for as a reverse merger with Aquarius Colorado in the form of a reverse capitalization, whereby Aquarius Colorado becomes the accounting acquirer. Accordingly, the accompanying condensed consolidated unaudited financial statements reflect the results of Aquarius Colorado since Inception (October 20, 2011) and of Aquarius from the effective date of the Exchange (December 1, 2014). All costs associated with the reverse merger transaction were expensed as incurred.

Fair Value of Financial Instruments

We value our financial assets and liabilities using fair value measurements. Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The carrying amount of cash and cash equivalents, note receivable, prepaid expenses and deposits, accounts payable, amounts due from and to related parties, note payable and note payable, related party approximates fair value because of the short-term nature of these financial instruments. The carrying amount of our convertible notes payable at March 31, 2016 and December 31, 2015, approximates their fair value based on our incremental borrowing rates.

Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

Level 3-Inputs are unobservable inputs which reflect the reporting entity's own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

The Company did not identify any assets or liabilities that are required to be presented on the balance sheets at fair value in accordance with ASC Topic 820.

Due to the short-term nature of all financial assets and liabilities, their carrying value approximates their fair value as of the balance sheet date.

Cash and Cash Equivalents

We consider all amounts on deposit with financial institutions and highly liquid investments with an original maturity of three months or less to be cash equivalents.

Notes Receivable and Allowance for Doubtful Accounts

We provide an allowance for doubtful accounts when collection of an account or note receivable is considered doubtful, and receivables are written off against the allowance when deemed uncollectible. Inherent in the assessment of the allowance for doubtful accounts are certain judgments and estimates regarding, among other factors, the customer’s access to capital, the customer’s willingness or ability to pay, general economic and market conditions, the ongoing relationship with the customer and uncertainties related to the resolution of disputed matters. As of March 31, 2016 and December 31, 2015, we had no allowances on current receivables.

Inventories

The Company’s inventories consist entirely of purchased finished goods. Inventories are stated at lower of cost or market. Cost is determined on the first-in, first-out basis.

Fixed Assets

Our fixed assets represent equipment stated at cost and are depreciated using the straight-line method over the estimated useful life of the assets, ranging from three to ten years. During the years ended December 31, 2015 and there were no purchases of fixed assets. During the year ended December 31, 2014 we purchased $17,407 of equipment. We incurred depreciation expense of $870 and $871, for the three months ended March 31, 2016 and 2015, respectively.

Impairment of Long-Lived Assets

When applicable, we continually monitor events and changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable. When such events or changes in circumstances are present, we assess the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future cash flows is less than the carrying amount of those assets, we recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell.

Revenue Recognition

We recognize revenue in accordance with ASC 605, "Revenue Recognition" which requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management's judgments regarding the fixed nature of the selling prices of the products and services delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments will be provided for in the same period the related sales are recorded. We defer any revenue for which the product or service has not been delivered or is subject to refund until such time that we and the customer jointly determine that the product or service has been delivered or no refund will be required. As of March 31, 2016 and December 31, 2015, the Company has recorded deferred revenue of $5,000, recognition of the revenue is contingent on the grow operation on which we consulted getting to harvest and ultimately to market which is anticipated to be completed by June 30, 2016. During the years ended December 31, 2015 the Company generated revenue from the sale of products to an entity controlled by a shareholder and brother to Mr. Lawyer.

Advertising Expense

Advertising is expensed as incurred. We incurred $24,983 and $0 of advertising expense during the three months ended March 31, 2016 and 2015, respectively.

Research and Development Expense

Research and development ("R&D") costs are charged to expense as incurred. Our R&D costs include, but are not limited to, consulting service fees and materials and supplies used in the development of our proprietary brands and processes. We incurred R&D expense during the three months ended March 31, 2016 and 2015 of $23,405 and $15,552, respectively.

Embedded Conversion Features

The Company evaluates embedded conversion features within convertible debt under ASC 815 "Derivatives and Hedging" to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 "Debt with Conversion and Other Options" for consideration of any beneficial conversion features.

Income Taxes

From its inception on October 20, 2011, through the effective date of the Exchange on December 1, 2014, Aquarius Holdings LLC was a limited liability company treated as a partnership for federal and state income tax purposes and all its income tax liabilities and, or, benefits were passed through to its members. As such, it did not recognize federal or state income taxes in the accompanying financial statements for the period from its inception on October 20, 2011 to December 1, 2014. Any uncertain tax position taken by its members did not result in an uncertain tax position of Aquarius Holdings LLC.

Aquarius Cannabis Inc. was a taxable entity from its incorporation on July 3, 2014 and Aquarius Holdings LLC became a taxable entity from the effective date of the Exchange on December 1, 2014. Accordingly, Federal and State income taxes are recognized in the accompanying financial statements for Aquarius Cannabis, Inc. from July 3, 2014 and for Aquarius Holdings LLC from December 1, 2014.

Income taxes are recorded using the asset and liability method. Under the asset and liability method, tax assets and liabilities are recognized for the tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using the enacted tax rates expected to apply when the asset is realized or the liability settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that enactment occurs. To the extent that we do not consider it more likely than not that a future tax asset will be recovered, we will provide a valuation allowance against the excess.

We follow the provisions of ASC 740, "Income Taxes". As a result of ASC 740, we make a comprehensive review of our portfolio of tax positions in accordance with recognition standards established by ASC 740. When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, we believe it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

Interest associated with unrecognized tax benefits are classified as interest expense and penalties are classified in selling, general and administrative expenses in the statements of income.

Net Income (Loss) Per Share

We compute net income (loss) per share in accordance with ASC 260, "Earnings per Share." Under the provisions of ASC 260, basic net income (loss) per share includes no dilution and is computed by dividing the net income (loss) available to common stockholders for the period by the weighted average number of shares of common stock outstanding during the period. Diluted income (loss) per share takes into consideration shares of common stock outstanding (computed under basic net income (loss) per share) and potentially dilutive securities that are not anti-dilutive.

During the three months ended March 31, 2016 and 2015, there were potentially dilutive warrants and convertible debt instruments issued and outstanding. However, these potentially dilutive securities were excluded from the calculation of our loss per share as we incurred losses in all periods presented and their inclusion would have been anti-dilutive.

New Accounting Standards

From time to time, the FASB or other standards setting bodies issue new accounting pronouncements. Updates to the FASB ASCs are communicated through issuance of an Accounting Standards Update ("ASU"). Unless otherwise discussed, we believe that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on our financial statements upon adoption.

Note 4 – Notes Receivable

Effective February 25, 2015, we issued a $15,000 unsecured promissory note to Kyle Schuck, an outside contractor. The promissory note bore interest at 10.25% per annum and was to be paid in eight monthly payments of $2,000, beginning on June 28, 2015 and continuing until January 28, 2016. On July 29, 2015, the promissory note was repaid in full and the interest was forgiven.

Note 5 – Line of Credit


	March 31, 2016			December 31, 2015
Draws	$	590,000			400,000
Less: unamortized debt discount		(7,305	)		(11,828	)
Balance	$	582,695		$	388,172

On June 22, 2015, we entered into an unsecured credit facility with an existing investor (“Lender”), which provided up to $750,000 in debt financing with all outstanding principal and accrued interest due on June 21, 2016 unless extended by mutual consent. The agreement calls for a 24% annual interest rate on the outstanding principal balance with accrued interest payable monthly and is limited to monthly draws of $100,000 unless otherwise approved by the Lender. The agreement states that within 120 days of the execution of the agreement, we will issue 200,000 shares of preferred stock valued at $20 ($.0001 per share) and 100,000 warrants to purchase common stock at $0.40 per share, those warrants expiring one year from the date our shares of common stock begins publicly trading on any public exchange. The warrants were valued using the Black-Scholes Option Pricing Model with the following assumptions: dividend yield of 0%, annual volatility of 157%, risk free interest rate of .87%, and expected life of 1 year with a fair value of $18,119. As of March 31, 2016 and December 31, 2015 we have drawn down $590,000 and $400,000 on the credit facility and amortized $10,752 and $6,229, respectively of the debt discount.

Note 6 – Notes Payable

Our notes payable consists of the following:


	March 31, 2016		December 31, 2015
Note payable	$	50,000	$	50,000
Note payable, related party	$	200,000	$	200,000

Note Payable

Effective June 21, 2012, we issued a $50,000 unsecured demand promissory note to Daniel Hagel, one of our shareholders. The promissory note bears interest at 2% per annum, to be paid annually, beginning on June 21, 2015. As further consideration for making this loan, on June 21, 2012, we issued 2,723,346 common shares and 302,594 preferred shares, as of that date, to Mr. Hagel. The promissory note was recorded in our financial statements at its face value of $50,000. The $50,000 cash proceeds received from Mr. Hagel were allocated between the respective common, preferred shares and the promissory note based on their relative fair values, as determined by us, as of the date of the note (June 21, 2012). The fair value of common shares and promissory note were determined to be $50,000 and $0, respectively. Accordingly, the $50,000 cash proceeds were allocated in their entirety to the common shares and a corresponding $50,000 debt discount was recognized. Since the promissory note is due upon demand, the entire $50,000 debt discount was immediately amortized to interest expense in 2012 as an additional cost of this borrowing.

On March 1, 2013, new investors were issued 6,808,320 common shares and 756,480 preferred shares which resulted in dilution of Mr. Hagel’s pro-rata interest in us and consequently, as a shareholder holding less than 10% shareholder interest, as of that date, Mr. Hagel was no longer considered to be a related party for financial reporting purposes. Accordingly, the $50,000 note payable was reclassified from note payable, related party to note payable as of that date.

During the three months ended March 31, 2016 and 2015, we incurred interest expense on the above note payable of $250, and $250, respectively.

As at March 31, 2016 and December 31, 2015, accrued interest payable on the above note payable is $3,777 and $3,527, respectively, and is included in accrued liabilities on our balance sheets.

Note Payable, Related Party

Effective March 11, 2013, we issued a $200,000 unsecured demand promissory note to Ernest Rudyak, one of our directors. The promissory note bears interest at 2% per annum, to be paid annually. As further consideration for making this loan, on March 1, 2013, we issued 5,446,656 common shares and 605,184 preferred shares to Mr. Rudyak. The promissory note was recorded in our financial statements at its face value of $200,000. The $200,000 cash proceeds received from Mr. Rudyak were allocated between the commons shares, preferred shares and the promissory note based on relative fair values, as determined by us, as of the date of the note (March 11, 2013). The fair value of the common shares and promissory note were determined to be $200,000 and $0, respectively. Accordingly, the $200,000 cash proceeds were allocated in their entirety to the common shares and a corresponding $200,000 debt discount was recognized. Since the promissory note is due upon demand, the entire $200,000 debt discount was immediately amortized to interest expense in 2013 as an additional cost of this borrowing.

During the three months ended March 31, 2016 and 2015, we incurred interest expense on the above note payable of $1,000 and $1,000, respectively. At March 31, 2016 and December 31, 2015, accrued interest payable on the above note payable was $12,219 and $11,219, respectively, and is included in due to related parties on our balance sheets.

Note 7 – Convertible Notes Payable

Our convertible notes payable consist of the following:


	March 31, 2016			December 31, 2015

Convertible notes payable, short term
Convertible note payable – MSMN18	$	18,000		$	18,000
Convertible note payable – MSMN10		10,000			10,000

Convertible notes payable, short term, total	$	28,000		$	28,000

Convertible notes payable, long term
Convertible note payable - Blackbridge	$	250,000		$	250,000
Convertible notes payable – 12% Notes		325,000			325,000
Convertible notes payable – 8% Notes		395,000			395,000
Convertible note payable – 8% Notes, related party		50,000			50,000
Convertible note payable - KCSA		15,000			15,000
Convertible notes payable, long term, total		1,035,000			1,035,000
Less: convertible note payable, related party		(50,000	)		(50,000	)
Less: unamortized debt discount		(1,139	)		(3,205	)
Convertible notes payable, long term, net of debt discount, total	$	983,861		$	981,795

On May 1, 2014, we entered into a consulting agreement with Blackbridge Capital, LLC, ("Blackbridge") to provide business advisory services, including introductions to prospective transaction parties in exchange for a $250,000 two-year unsecured convertible promissory note (the "Blackbridge Note") dated May 1, 2014, accruing interest at 12% per annum due upon maturity of the note. The Blackbridge Note is convertible by the holder into common stock, if or when, our shares of common stock become listed on the OTCBB, at a conversion price equal to 50% of the average of the three lowest daily trading prices for our common stock during the 60 day trading period ending on the last trading day prior to the conversion date. We have not assigned any value to the Blackbridge Note's conversion feature as our common stock is not publicly quoted and therefore the Note is not currently convertible. We will record the estimated value of such conversion feature, if or when, our common stock becomes publicly quoted.

The Company believes that Blackbridge did not provide the services bargained for under the consulting agreement, and we are currently being advised by legal counsel with respect to our rights and remedies.

During the period from May 15, 2014, through June 2, 2014, we sold six convertible two-year convertible promissory notes (the "12% Notes") for total proceeds of $325,000. The 12% Notes are unsecured and accrue interest at 12% and interest is due upon maturity of the note. The 12% Notes are convertible by the holder into common stock, if or when, our shares of common stock become listed on the OTCBB, at a conversion price equal to 50% of the average of the three lowest daily trading prices for common stock during the 60 day trading period ending on the last trading day prior to the conversion date. We have not assigned any value to the 12% Notes' conversion feature as our common stock is not publicly quoted and therefore the 12% Notes are not currently convertible. We will record the estimated value of such conversion feature, if or when, our common stock becomes publicly quoted. In conjunction with the sale of the 12% notes, we issued each note holder 0.918 common shares and 0.102 preferred shares for every dollar of convertible note sold which resulted in a total of 298,350 common shares and 33,150 preferred shares being issued to holders of the 12% notes. The value of the shares issued totaled $16,575 which was recorded as a debt discount.

During the period from July 23, 2014, through December 31, 2014, we sold 22 two-year convertible promissory notes (the "8% Notes") for total proceeds of $445,000. The 8% Notes are unsecured and accrue interest at 8% and interest is due upon maturity of the note. The 8% Notes are convertible by the holder into shares of our common stock, if or when, our shares of common stock become listed on the OTCBB, beginning on the 40^th trading day after the shares are listed, at a conversion price equal to the higher of (a) $0.20 per share, or (b) 60% of the average of the five lowest daily closing prices for common stock during the 20 day trading period ending on the last trading day prior to the conversion date. The 8% Notes can be redeemed by us at any time by paying the principal amount owed plus a 35% premium. We have not assigned any value to the 8% Notes' conversion feature as our common stock is not publicly quoted and therefore the 8% Notes are not currently convertible. We will record the estimated value of such conversion feature, if or when, our common stock becomes publicly quoted.

On December 19, 2014, we entered into a consulting agreement with KCSA Strategic Communications, ("KCSA") to provide marketing services, in exchange for a $15,000 two-year unsecured convertible promissory note (the "KCSA Note") dated December 19, 2014, accruing interest at 8% per annum due upon maturity of the note. The KCSA Note is convertible by the holder into shares of our common stock, if or when, our shares of common stock become listed on the OTCBB, at the higher of (1) $0.20 or (2) a forty (40%) percent discount to the average of the five (5) lowest closing prices for the twenty days preceding the conversion. We have not assigned any value to the KCSA Note's conversion feature as our common stock is not publicly quoted and therefore the KCSA Note is not currently convertible. We will record the estimated value of such conversion feature, if or when, our common stock becomes publicly quoted.

On March 1, 2015, we entered into a services agreement with My Social Marketing Network, LLC, ("MSMN") to provide internet marketing services, in exchange for a $18,000 one-year unsecured convertible promissory note (the "MSMN18 Note"), accruing interest at 8% per annum due upon maturity of the note. The MSMN18 Note is convertible by the holder into shares of our common stock at any time following forty (40) days from the date our shares of common stock become listed on the OTCBB, at the higher of (1) $0.20 or (2) a forty (40%) percent discount to the average of the five (5) lowest closing prices for the twenty days preceding the conversion. We have not assigned any value to the MSMN18 Note's conversion feature as our common stock is not publicly quoted and therefore the MSMN18 Note is not currently convertible. We will record the estimated value of such conversion feature, if or when, our common stock becomes publicly quoted.

On July 23, 2015, we entered into a services agreement with My Social Marketing Network, LLC, ("MSMN") to provide internet marketing services, in exchange for a $10,000 one-year unsecured convertible promissory note (the "MSMN18 Note"), accruing interest at 8% per annum due upon maturity of the note. The MSMN18 Note is convertible by the holder into shares of our common stock at any time following forty (40) days from the date our shares of common stock become listed on the OTCBB, at the higher of (1) $0.20 or (2) a forty (40%) percent discount to the average of the five (5) lowest closing prices for the twenty days preceding the conversion. We have not assigned any value to the MSMN18 Note's conversion feature as our common stock is not publicly quoted and therefore the MSMN18 Note is not currently convertible. We will record the estimated value of such conversion feature, if or when, our common stock becomes publicly quoted.

During the three months ended March 31, 2016 and 2015 we incurred interest expense applicable to our convertible notes payable of $26,936 and $26,650 respectively. As at March 31, 2016 and December 31, 2015, accrued interest payable was $190,066 and $157,624, respectively, and this amount is included in accrued liabilities on our balance sheets.

Amortization of Debt Discount, Convertible Notes

During the three months ended March 31, 2016 and 2015, we incurred amortization of debt discount expense, on the 12% Notes of $6,589 and $2,043, respectively.

Note 8 – Commitments and Contingencies

Contractual Obligations and Commercial Commitments

We have independent contractor agreements which expire at various times through December 2015. Such agreements, which have been revised from time to time, provide for minimum salary levels, share-based compensation and commissions as well as for incentive bonuses that are payable if specified management goals are attained. Commission agreements include a commitment to pay one of our independent contractors a 60% commission, payable in our common shares, on all California portfolio brand revenue generated during the first year of California sales.

Legal Proceedings

We were not subject to any legal proceedings as of March 31, 2016 and December 31, 2015, and, to the best of our knowledge, no legal proceedings are pending or threatened.

Note 9 – Stockholders' Deficit

Preferred Stock

We are authorized to issue 20,000,000 shares of preferred stock with a par value of $0.0001 per share.

Each share of preferred stock shall have one hundred (100) votes per share for all purposes. Our preferred stock does not provide preemptive, subscription, liquidation or conversion rights and there are no redemption or sinking fund provisions or rights. The preferred stock can be redeemed by us at any time with no consideration provided. Our preferred stockholders are not entitled to cumulative voting for election of our Board. Of the 20,000,000 shares of preferred stock the company is authorized to issue, we have issued 2,000,000 shares designated as Series A Preferred and 200,000 shares designated as Series B Preferred. Both Series A and Series B carry the same shareholder rights as outlined above.

On July 6, 2015, we entered into a new unsecured credit facility with an existing related party (“Lender”), which provided up to $750,000 in debt financing with all outstanding principal and accrued interest due on June 21, 2016 unless extended by mutual consent. The agreement calls for a 24% annual interest rate on the outstanding principal balance with accrued interest payable monthly and is limited to monthly draws of $100,000 unless otherwise approved by the Lender. The agreement states that within 120 days of the execution of the agreement, we will issue 200,000 shares of series B preferred stock and 100,000 warrants to purchase common stock at $0.40 per share, those warrants expiring one year from the date our shares of common stock begins publicly trading on any public exchange. As of March 31, 2016 and December 31, 2015 we received $590,000 and $400,000.

Common Stock

We are authorized to issue 200,000,000 shares of common stock with a par value of $0.0001 per share.

Each share of common stock shall have one (1) vote per share for all purposes. Our common stock does not provide preemptive, subscription or conversion rights and there are no redemption or sinking fund provisions or rights. Our common stockholders are not entitled to cumulative voting for election of our Board.

Common and Preferred Stock Issued and Outstanding

As at March 31, 2016 and December 31, 2015, there were a total of 27,269,436 and 26,737,902 shares of common stock and 2,200,000 preferred shares issued and outstanding.

On January 2, 2015, we issued 464,525 common shares to contractors for services valued at $36,094 which were provided between August and December 2014. These shares had been disclosed as Common Stock earned, but not yet issued as of December 31, 2014.

On February 23, 2015, we sold 1,000,000 shares of common stock to a new investor. The investment includes warrants to purchase up to 1,000,000 shares of common stock at an exercise price of $0.40 per share, those warrants expiring one year from the first day that the common stock is traded on the OTCQB marketplace. The investment also includes warrants to purchase up to 1,000,000 shares of common stock at an exercise price of $0.50 per share, those warrants expiring two years from the first day that the common stock is traded on the OTCQB marketplace. The investment totaled $250,000 of which $100,000 was received on February 24, 2015 and the balance of $150,000 was received on April 2, 2015.

On March 25, 2015, we sold 2,000,000 shares of common stock to an existing investor which included warrants to purchase up to 750,000 shares of common stock at an exercise price of $0.40 per share, those warrants expiring one year from the first day that the common stock is traded on any exchange, warrants to purchase up to 1,250,000 shares of common stock at an exercise price of $0.40 per share, those warrants expiring one year one year from the date of purchase, and warrants to purchase up to 2,000,000 shares of common stock at an exercise price of $0.50 per share, those warrants expiring two years from the first day that the common stock is traded on any exchange. The investment is to be paid in installments of $62,500 per month between April and November 2015 for a total investment of $500,000. As of December 31, 2015, all 2,000,000 of these common shares are recorded as issued and outstanding and all owed had been received.

On April 1, 2015, we issued 621,040 shares of common stock, valued at $0.11 per share, based on the most recent cash sale of common stock, which was earned by contractors during the three months ended March 31, 2015.

On April 27, 2015, we sold 225,000 shares of common stock at a price of $0.33 per share to a new investor which included warrants to purchase up to 225,000 shares of common stock at an exercise price of $0.75 per share, those warrants expiring 18 months from the first day that the common stock is traded on any exchange. The investment totaled $75,000 which was received in its entirety on May 11, 2015.

On May 1, 2015, we issued 129,732 shares of common stock, valued at $0.208 per share, based on the most recent cash sale of common stock, for services provided by contractors in April 2015.

On June 30, 2015, we issued 234,765 shares of common stock, valued at $0.208 per share, based on the most recent cash sale of common stock, for services provided by contractors in May and June 2015.

On July 14, 2015, we sold 100,000 shares of common stock to a new investor which included 100,000 warrants to purchase up to an additional 100,000 shares of common stock at an exercise price of $0.80 per share, those warrants expiring two years from the first day that the common stock is traded on the OTCQB marketplace. The investment totaled $50,000 which was received by us on July 20, 2015.

On July 15, 2015, we agreed to issue a total of 1,000,000 shares of common stock, valued at $0.302 per share, based on the most recent cash sale of common stock to several Employees of the Company. All 1,000,000 shares were issued on September 3, 2015.

On September 28, 2015, the Company agreed to issue 50,000 shares of common stock valued at $0.302 per share, based on the most recent cash sale of common stock to an individual in consideration for the termination of the joint venture agreement first entered into on April 23, 2015.

On September 30, 2015, we agreed to issue a total of 496,240 shares of common stock, valued at $0.302 per share, based on the most recent cash sale of common stock to several Employees and consultants of the Company. All 496,240 shares were issued on October 23, 2015.

As at September 30, 2015, there were a total of 26,378,802 shares of common stock, 2,000,000 shares of preferred stock and 200,000 shares of preferred stock series B issued and outstanding.

As of December 31, 2015 agreed to issue 360,200 common shares to several contractors and employees of the company for services provided to us valued at $0.302 per share, based on the most recent cash sale of common stock.

During the three months ended March 31, 2016 the Company agreed to issue 530,434 common shares to several contractors and employees of the company for services provided to us valued at $0.302 per share, based on the most recent cash sale of common stock.

Warrants Issued

On June 22, 2015, we entered into a new unsecured credit facility with an existing investor (“Lender”), which provided up to $750,000 in debt financing with all outstanding principal and accrued interest due on June 21, 2016 unless extended by mutual consent. The agreement calls for a 24% annual interest rate on the outstanding principal balance with accrued interest payable monthly and is limited to monthly draws of $100,000 unless otherwise approved by the Lender. The agreement states that within 120 days of the execution of the agreement, we will issue 200,000 shares of preferred stock valued at $20 ($.0001 per share) and 100,000 warrants to purchase common stock at $0.40 per share, those warrants expiring one year from the date our shares of common stock begins publicly trading on any public exchange. The warrants were valued using the Black-Scholes Option Pricing Model with the following assumptions: dividend yield of 0%, annual volatility of 157%, risk free interest rate of .87%, and expected life of 1.41 years with a fair value of $18,119. As of March 31, 2016 and December 31, 2015 we have drawn down $590,000 and $400,000, respectively on the credit facility.

On July 14, 2015, we sold 100,000 shares of common stock to a new investor which included 100,000 warrants to purchase up to 100,000 shares of common stock at an exercise price of $0.80 per share, those warrants expiring two years from the first day that the common stock is traded on the OTCQB marketplace. The investment totaled $50,000 which was received by us on July 20, 2015.

On September 30, 2015, the Company agreed to issue 60,913 warrants to several contractors as compensation for services. The warrants will expire 24 months from the start of trading and have an exercise price of $0.30. The warrants were valued using the Black-Scholes Option Pricing Model with the following assumptions: dividend yield of 0%, annual volatility of 157%, risk free interest rate of .87%, and expected life of 2.41 years with a fair value of $14,342.

On December 1, 2015 the Company entered into an agreement with an independent contractor for financial consulting services. The term of the agreement is one year and continues for additional one (1) year periods unless the Company gives Contractor not less than three (3) months’ prior written notice of non-renewal. The Company agreed to pay to the Contractor $7,500 per month in advance for his services (whether solely as an independent contractor or as an independent contractor and Chairman of the Board and/or Acting CFO). Beginning on the first day of the first calendar quarter following the Company’s receipt of at least $500,000 in gross proceeds from the sale of its equity securities to one or more third parties, the Company will pay the Contractor $22,500 per quarter in advance. The Company also agreed to issue to the Contractor 26,000 common shares of the Company per month. The Contractor may elect to receive, at his sole election, in lieu of the Shares, Non-Qualified Stock Options to acquire Shares of the Company with an exercise price equal to the FMV of Shares on the date of issuance and a term of 7 years from the date of issuance. The Company agreed to issue the Contractor, an aggregate of 3,500,000 warrants with a standard “cashless” exercise feature, to vest based upon the schedule below, with the caveat that no additional warrants shall vest to Consultant after a termination (a) by the Company for Cause, as defined herein, or (b) by the Consultant without Cause:

2,000,000 warrants shall vest upon the Effective Date;

ii.

An additional 375,000 warrants shall vest after 3 months of service beginning on the Effective Date;

iii.

An additional 375,000 warrants shall vest after 6 months of service beginning on the Effective Date;

iv.

An additional 375,000 warrants shall vest after 9 months of service beginning on the Effective Date; and

An additional 375,000 warrants shall vest after 12 months of service beginning on the Effective Date.

The Warrants will have an exercise price of $0.077 and will expire seven (7) years from the date of issuance. Should the Contractor terminate this Agreement without Cause or be terminated by the Company with Cause prior to end of the Term of this Agreement, (a) Contractor shall forfeit the Warrants for any period noted above which has not yet commenced; and (b) for any period which has commenced, then the Contractor shall retain the warrants for the days that have elapsed within the period prior to the effective date of the termination, and shall forfeit the warrants not yet vested on the termination date, on a pro rata basis of 4,167 warrants vesting for each day of the period noted above which have elapsed prior to termination. The Contractor further agreed that he could only exercise warrants that have vested based upon the above. The warrants were valued using the Black-Scholes Option Pricing Model with the following assumptions: dividend yield of 0%, annual volatility of 157%, risk free interest rate of 1.19%, and expected life of 7 years with a fair value of $603,540 at December 31, 2015. For the three months ended March 31, 2016 the Company expensed $276,622 for the vested portion of stock options.

On February 18, 2016, Aquarius Cannabis Inc. (“Aquarius”) entered into a binding Memorandum of Understanding (the “Agreement”) with Flying Eagle Advisors, LLC (“Flying Eagle”), a Native American-owned cannabis management consulting and financing company, to be the distribution, branding, and cultivation consulting partner of a series of cannabis cultivation facilities owned by Native American tribes in the United States.

Aquarius will be responsible for coordinating legal distribution, consulting on legal structuring and integrating the facilities into the state systems, developing the branding and marketing for all the products cultivated at the facilities, and ensuring that cultivation processes meet the rigorous brand-standards Aquarius has for its branded marijuana. Aquarius will own all the brands of the marijuana grown and distributed from these facilities.

Aquarius will earn 9.77% of the gross wholesale sales of products grown in the facility, once sold by an Aquarius-licensed distribution partner. Aquarius will earn 5% of gross revenue earned by the vertically integrated cultivation and manufacturing operation, and will receive per pound cultivation consulting fees based on the level of success the clients have growing its brands.

In addition to Flying Eagle, the binding agreement was signed by Grower’s Supply, LLC, a greenhouse design/build firm. Grower’s Supply, LLC will be responsible for the design, build, staffing, and day-to-day operational management of the facilities.

The Agreement is conditioned upon Flying Eagle raising sufficient capital to engage the Native American tribes.

Aquarius has agreed to issue Flying Eagle 100,000 warrants upon execution of this Agreement, and further equity incentives based upon certain milestones.

As of March 31, 2016, the Company expensed the 100,000 warrants owed upon the execution of the memo of understanding. The warrants will expire 24 months from the start of trading and have an exercise price of $0.15. The warrants were valued using the Black-Scholes Option Pricing Model with the following assumptions: dividend yield of 0%, annual volatility of 155%, risk free interest rate of .71%, and expected life of 2 years with a fair value of $24,573.

The following tables summarize our share warrants outstanding as of March 31, 2016 and December 31, 2015:


	Year Ended December 31, 2015
	Number of Shares		Weighted Average Remaining Life (years)		Weighted Average Exercise Price
Warrants outstanding, December 31, 2014		—		—	$	—
Issued		8,485,913		2.5		0.37
Exercised		—		—		—
Cancelled		—		—		—
Expired		—		—		—
Warrants outstanding, December 31, 2015		8,485,913		2.5	$	0.47
Issued		475,000		5.7		0.23
Exercised		—		—		—
Cancelled		—		—		—
Expired		—		—		—
Warrants outstanding, March 31, 2016		8,960,913		2.48	$	0.36
Warrants exercisable, March 31, 2016		3,350,000		4.1	$	0.15

The following table summarizes information about warrants outstanding at March 31, 2016:


Exercise Price	Warrants Outstanding		Weighted Average Life of Outstanding Warrants In Years

$0.08		2,375,000		6.7
$0.15		100,000		1.9
$0.30		60,913		1.8
$0.40		3,100,000		.6
$0.50		3,000,000		1.3
$0.75		225,000		.6
$0.80		100,000		1.8
Balance March 31, 2016		8,960,913		2.5

Note 10 - Related Party Transactions

Management Fees – Related Parties

In addition to the related party transactions described in Note 5 Notes Payable and Note 6 Convertible Notes Payable to these condensed consolidated unaudited financial statements; we incurred management fees and equity-based compensation expense included in general and administrative expense, to (a) Mr. Grede, Aquarius’ Executive Vice President, and an entity controlled by Mr. Grede, The Aspen Alliance ("TAA"), and (b) Mr. Lawyer, Aquarius’ Chief Executive Officer and an entity controlled by Mr. Lawyer, TAG, as follows:


	During The Three Months Ended March 31,
	2016		2015
Management fees – Mr. Grede and TAA	$	—	$	12,000
Management fees – Mr. Lawyer and TAG		—		41,500
	$	—	$	53,500

Interest Expense and Interest Payments – Related Party


	During The Three Months Ended March 31,
	2016		2015
Interest expense – Mr. Rudyak	$	1,000	$	1,000

Due to Related Parties

Accounts payable and accrued interest payable owed to related parties are included in due to related parties in our balance sheets as follows:


	March 31, 2016		December 31, 2015
Accrued interest payable - Mr. Rudyak	$	12,220	$	11,220
Accrued interest - convertible notes		8,503		5,505
Due to related parties – total	$	20,703	$	16,725

Notes Payable – Related Parties

As described in Note 6 Notes Payable to these condensed consolidated unaudited financial statements, on March 11, 2013, we borrowed $200,000 from Mr. Rudyak and our note payable, related party balance was $200,000 on each of March 31, 2016 and December 31, 2015.

There were no borrowings or repayments to related parties as of March 31, 2016 and December 31, 2015.

Note 11 – Share-based Compensation

Share-based Compensation Expense

Equity-based compensation expense is included in our statements of operations for the three month ended March 31, 2016 and 2015 as follows:


	For the Three Months Ended March 31,
	2016		2015
Research and development expense	$	724	$	1,665
General and administrative expense		437,860		48,955
General and administrative expense, related party		23,556		21,645
	$	462,140	$	72,265

Note 12 – Income Taxes

From its inception on October 20, 2011 through the effective date of the Exchange on December 1, 2014, Aquarius Holdings LLC was a limited liability company treated as a partnership for federal and state income tax purposes and all its income tax liabilities and, or, benefits were passed through to its members. As such, it did not recognize federal or state income taxes in the accompanying financial statements for the period its inception on October 20, 2011 to December 1, 2014. Any uncertain tax position taken by its members did not result in an uncertain tax position of Aquarius Holdings LLC.

In accordance with the Aquarius Holdings LLC’s Membership Agreement, to the extent possible without impairing its ability to continue to conduct its business and activities, and in order to permit its members to pay taxes on the taxable income of Aquarius Holdings LLC, Aquarius Holdings LLC was required to make distributions to its members in amounts equal to the estimated tax liability of the members computed as if the members paid income tax at the highest marginal federal and state rate applicable to an individual resident of Colorado, in the event that taxable income is generated for the members. There was no taxable income and therefore no distributions for the period from October 20, 2011 to December 1, 2014.

Aquarius Cannabis Inc. was a taxable entity from its incorporation on July 3, 2014 and Aquarius Holdings LLC became a taxable entity from the effective date of the Exchange on December 1, 2014. Accordingly, Federal and State income taxes are recognized the accompanying financial statements for Aquarius Cannabis Inc. from July 3, 2014 and for Aquarius Holdings LLC from December 1, 2014.

The Company’s accounting for deferred taxes involves the evaluation of a number of factors concerning the realizability of the Company’s net deferred tax assets. The Company primarily considered such factors as the Company’s history of operating losses, the nature of the Company’s deferred tax assets and the timing, likelihood and amount, if any, of future taxable income during the periods in which those temporary differences and carryforwards become deductible.

Note 13 - Subsequent Events

As of May 9, 2016, a holder of a $50,000 convertible note at 12% agreed to amend the original terms of the convertible note. The amendment creates a $0.125 conversion price floor, extends the maturity date from May 19, 2016 to November 17, 2017, limits to a maximum of $25,000 for conversions within a thirty (30) day period, limits the maximum sale on converted shares to 20% of previous thirty (30) day average daily share trade volume for share prices under $0.40, and allows a $0.20 conversion price during first 120 days of trading, subject to the maximum conversion and sale conditions listed above.

As of May 15, 2016 holders of $225,000 of convertible notes elected to convert their note balances and accrued interest of $53,424 into common stock at a conversion price of $0.125 per share. The Company has agreed to issue a total of 2,227,397 shares of common stock. As of June 22, 2016, the 2,227,397 shares of common stock were issued to the noteholders.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of the results of operations and financial condition for the three months ended March 31, 2016 and 2015 and should be read in conjunction with our financial statements, and the notes to those financial statements that are included elsewhere in this Report.

Overview

We were incorporated on July 3, 2014, under the laws of the state of Nevada. We acquired Aquarius Holdings LLC, a Colorado limited liability company ("Aquarius Colorado"), on December 1, 2014, via a share exchange agreement with Aquarius Colorado's members (the "Share Exchange"). In exchange for all of the membership interests of the members of Aquarius Colorado, we gave them shares of Common Stock and Aquarius Colorado became our wholly-owned subsidiary. Aquarius Colorado was formed on October 20, 2011.

Business

We are a U.S.-based branding, packaging and consulting company in the medical and recreational marijuana industries. We are focused on building long-term consumer loyalty to exceptional, consistent, and pesticide-free marijuana products that are marketed and sold under our Aquarius Cannabis brands.

We anticipate that we will profit from contracts with growers in California and other states and will increase the number of our contracts resulting in increased revenues. We expect to form long-standing, mutually beneficial relationships with licensees of our brands by providing consistent and reliable products and services resulting in increased profitability for licensees. Once our brands gain traction, we believe our easily scalable model can be employed to license additional facilities and grow our brands.

To accomplish this, we contracted with Michael Leigh, a top-tier grower, and Hollister Keene, a horticulture specialist, to develop the growing methods and environmental designs to systemize the production process as part of the Aquarius Cannabis brands platform. Our proprietary growing methods and environmental designs outline a specific process with approved materials for all steps of the cultivation process that provide the backbone for consistent marijuana. We will license our growing methods and environmental designs and hire top-tier experts in marijuana growing and horticultural production to provide producers, who license our Aquarius Cannabis brands, access to on-site consulting to meet the quality and consistency standards we set in their marijuana flowers. Our consultants will advise growers at every step of the way to ensure their success including: site planning, site set-up, and crop scheduling, as well as guidance and troubleshooting during production, harvest, curing, and packaging. We will help producers by lowering growing costs, increasing wholesale revenue, and decreasing the effort put into sales of their products.

We intend to fill the noticeable void in the medical and recreational marijuana industries of producers and brands able to provide consistent products. Because we own the Aquarius Cannabis brands, we are responsible to the end consumer for ensuring that each and every Aquarius Cannabis branded product is produced, packaged, and labeled consistently. Delivering on the brand promises of quality and consistency is how we add value to the end consumer.

Since Aquarius Cannabis Inc.’s inception, our operations have been limited to raising capital resources and developing our flagship production process that allows for commercially viable, pesticide-free production of marijuana. Aquarius Cannabis Inc. is currently in search of medical and recreational growers with the intention of negotiating flagship production partnerships in California and Colorado and searching for growers interested in micro-branding.

We believe we are an early mover in a developing industry. We believe we have the necessary experience and expertise in our industry, a clear plan to capitalize on current market opportunities, and that we are well positioned to become a market leader in this nascent industry.

On April 30, 2015, we entered into a binding agreement with a Texas based investment group, Sedo Cresco, LLC, to develop a lawful medical marijuana growing operation in California. Under the agreement, Aquarius will receive 35% of net revenues from the operation. Sedo Cresco has paid Aquarius Cannabis Inc. a non-refundable $5,000 deposit against future revenues due to Aquarius under the agreement. The project harvested its first crop in Q2 2016. The perpetual harvest cultivation model, once at full capacity, will produce 60+ pounds per month and generate $30,000+ per month in consulting revenue Aquarius. We are working with local government authorities to develop county cultivation regulations compliant under California’s new MMRSA regulation, and issue a commercial license for the facility.

On May 20, 2015, Aquarius Cannabis Inc. has launched its first marijuana brand, Golden GatewayTM, in California. Golden Gateway products are lab tested for quality, consistency, and safety - all products must pass microbial and pesticide tests - to ensure they meet the Aquarius Cannabis standard.

Golden Gateway products are processed and distributed by medical marijuana collectives within the State of California and in strict compliance with the Compassionate Use Act and the Medical Marijuana Program Act, California Health & Safety Code Sections 11362.5, et seq.

In February 2016, Aquarius signed a joint venture agreement with Native American-owned Flying Eagle Advisors to pursue cultivation and branding contracts with Native American tribes. The first client, a California and Nevada based tribe, signed initial agreements in March 2016 for the first 1-acre facility. Aquarius is responsible for coordinating the cultivation, branding, and distribution of a 1-acre greenhouse facility on the tribe’s land in California. The facility is expected to harvest 900+ pounds per month beginning in Q2 2017, and generate over $300,000 per month in consulting fees to Aquarius from around $2,000,000 per month in gross wholesale revenue.

On December 18, 2015, the Company established Aquarius PR LLC, a wholly owned Puerto Rico subsidiary of the Company.

At the date hereof, we have minimal cash at hand. We require additional capital to implement our business and fund our operations.

Business and Plan of Operations

Because we own the Aquarius Cannabis brands, we are responsible to the end consumer for ensuring that each and every Aquarius Cannabis branded product is produced, packaged, and labeled consistently.

Delivering on the brand promises of quality and consistency is how we add value to the end consumer. Aquarius Cannabis will ensure quality and consistency by providing an equipment list, material list, schedules and environmental requirements for all steps of the cultivation process. Producers will gain access to on-site consulting from top-tier experts that we plan to employ, in marijuana growing and horticultural production to ensure all growers that license our Aquarius Cannabis brands are able to meet the quality and consistency standards we set in their marijuana flowers. Our consultants will advise growers at every step of the way to ensure their success including: site planning, site set-up, and crop scheduling, as well as guidance and troubleshooting during production, harvest, curing, testing, and packaging.

The way that we will deliver on our promises to the end consumer is by working directly with growers, intermediaries, and retailers to ensure consistency throughout the entire supply chain. To accomplish this, we contracted a top-tier grower and horticulture specialist to develop the growing methods and environmental designs to systemize the production process as part of the Aquarius Cannabis brands platform. Our proprietary growing methods and environmental designs outline a specific process with approved materials for all steps of the cultivation process that provide the backbone for consistent marijuana. We will help producers by lowering growing costs, increasing wholesale revenue, and decreasing the effort put into sales of their products.

We will take responsibility for marketing on behalf of growers at both the wholesale and retail level. We will coordinate all necessary legal contracts between these outlets and our growers. We will monitor inventory so consumers know where they can find our products in real time. We plan to communicate inventory needs to growers so they are able to meet those needs before stores run out of supply. Lastly, we will be responsible for driving retail demand from marijuana consumers through our B2C marketing.

Growers are the primary financial beneficiary of all of these efforts because of lower growing costs, increased wholesale revenue, and decreased effort put into sales of their products. We will earn licensing fees, royalties, consulting fees and packaging revenue from the production and distribution of Aquarius Cannabis branded products in exchange for the use of our brands, processes, other intellectual property and consulting services.

Business Model

We plan to generate revenue through consulting, licensing, royalties, and packaging fees paid by marijuana producers and distributors licensed under the Aquarius Cannabis brands.

We will generate consulting and packaging fees by providing visually appealing and strongly branded materials that medical marijuana and recreational marijuana producers and distributors will use to package medical marijuana and recreational products in our brand portfolio. The medical marijuana and recreational marijuana products will be packaged both at wholesale scale and for the end-consumer.

We plan to generate revenues through our consulting services to medical and recreational cannabis producers. We will provide varying degrees of assistance to different growers, but services will include helping producers increase the quality and efficiency of their growing process, as well as helping them effectively market and build their brands. These services are vital to ensure that all producers partnering with us maintain the consistent high quality we believe that consumers will come to expect from our Aquarius Cannabis brands.

The common denominator in our sales contracts from state to state is that we will always sell business consulting services that include intellectual property licensing. However, the actual form of our fee schedules with a legal marijuana grower depends entirely on the specific laws and regulations governing production in that state. We believe that our model can be adapted to any current state model, based on over 100 of hours of legal advice from multiple business and criminal lawyers across multiple states.

Marketing Plan

We anticipate that marketing will be a significant part of our overall business strategy, since marketing is needed to build awareness of our products and services. Marketing Aquarius Cannabis includes enrolling growers into brand-licensing agreements, and building and strengthening consumer loyalty to our family of marijuana product brands.

Our sales and business development teams will lead campaigns to enroll growers and dispensaries in legal marijuana markets. Currently we are focused on California.

We plan to contract a marketing and advertising services firm to assist with consumer marketing campaigns. Marketing efforts for Aquarius Cannabis branded marijuana products will include: high quality consumer packaging, in-store displays and advertising, promotions, and digital and experiential marketing.

Intellectual Property

Our growing methods and environmental designs are proprietary because we have developed a system of marijuana production that implements a specific combination of genetics, materials, process, and environment. We will protect our proprietary property by requiring the producer to sign a licensing and non-disclosure agreements.

Legal limitations include the fact that intellectual property, specifically federal trademarks, for cannabis are not granted at this time, as cannabis is a Schedule 1 drug. Federal courts are unlikely to hear IP litigation cases, which poses limitations on our ability to protect our IP.

We have applied for and have been granted 8 provisional, “Intend To Use” trademarks for the brand name Aquarius by the USPTO. We have applied for and have been granted 3 “Intend To Use” trademarks for Golden Gateway with the USPTO.

Results of Operations

The following compares Aquarius’s operations for the three months ended March 31, 2016 to the same period at March 31, 2015.

Revenues

We are still in our development stage and did not generate any revenues during the three months ended March 31, 2016 and 2015, respectively.

General and Administrative Expenses

General and administrative expenses were incurred in the amount of $606,109 and $153,866 for the three months ended March 31, 2016 and 2015, respectively. The increase in expenses as compared to the same period in the prior period was primarily due to expenses associated consisted of professional fees related to fundraising and preparation for the registration of shares for public trade, ongoing fundraising activities, and services provided by outside contractors in assisting the company with ongoing brand development, marketing activities, and development of grower relationship during the 2016 period.

Research and Development Expenses

Research and development expenses were incurred in the amount of $23,405 and $15,552 during the three months ended March 31, 2016 and 2015, respectively. The increase was primarily due to expense in the development of our brands and proprietary processes during the 2016 period.

Interest Expense

During the three months ended March 31, 2016, interest expense increased to $55,798 as compared to $26,650 at March 31, 2015. The increase was due to increased borrowings associated with the Companies line of credit.

Net Loss

Net loss for the three months ended March 31, 2016 was $779,447 as compared to a net loss of $323,233 for the three month period ended March 31, 2015. The increase in net loss was due to expenses associated with stock options, warrants and common stock to consultants and employees of $462,140 for the three months ended March 31, 2016 compared to $125,765 for the three months ended March 31, 2015 an increase of $336,375. As we did not generate any revenues during the three months ended March 31, 2016, our net loss equaled our operating expenses.

Liquidity and Capital Resources

As at March 31, 2016, the Company has a working capital deficit of $1,133,243, a net loss of $779,447 and has not earned any revenues to cover its operating costs. The Company intends to fund future operations through equity financing arrangements, which may be insufficient to fund its capital expenditures, working capital and other cash requirements for the year ending December 31, 2016.

The ability of the Company to realize its business plan is dependent upon, among other things, obtaining additional financing to continue operations, and development of its business plan. In response to these problems, management intends to raise additional funds through public or private placement offerings.

These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Critical Accounting Policies and Estimates

The Company believes that the following critical policies affect the Company’s more significant judgments and estimates used in preparation of the Company’s financial statements.

The Company prepares its financial statements in conformity with generally accepted accounting principles in the United States of America. These principals require 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. Management believes that these estimates are reasonable and have been discussed with the Company’s board of directors; however, actual results could differ from those estimates.

The Company issues restricted stock to consultants for various services and employees for compensation. Cost for these transactions are measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is measurable more reliably measurable. The value of the common stock is measured at the earlier of: (i) the date at which a firm commitment for performance by the counterparty to earn the equity instruments is reached or (ii) the date at which the counterparty’s performance is complete.

The Company issues options and warrants to consultants, directors, and officers as compensation for services. These options and warrants are valued using the Black-Scholes model, which focuses on the current stock price and the volatility of moves to predict the likelihood of future stock moves. This method of valuation is typically used to accurately price stock options and warrants based on the price of the underlying stock.

Long-lived assets such as property, equipment and identifiable intangibles are reviewed for impairment whenever facts and circumstances indicate that the carrying value may not be recoverable. When required impairment losses on assets to be held and used are recognized based on the fair value of the asset. The fair value is determined based on estimates of future cash flows, market value of similar assets, if available, or independent appraisals, if required. If the carrying amount of the long-lived asset is not recoverable from its undiscounted cash flows, an impairment loss is recognized for the difference between the carrying amount and fair value of the asset. When fair values are not available, the Company estimates fair value using the expected future cash flows discounted at a rate commensurate with the risk associated with the recovery of the assets. The Company did not recognize any impairment losses for any periods presented.

Fair value estimates used in preparation of the financial statements are based upon certain market assumptions and pertinent information available to management. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash, accounts payable and due to related parties. Fair values were assumed to approximate carrying values for these financial instruments since they are short-term in nature and their carrying amounts approximate fair values or they are receivable or payable on demand.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. The Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial position or results of operations upon adoption.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Smaller reporting companies are not required to provide the information required by this item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company’s principal executive officer and principal financial officer conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this Report. Based on this evaluation, the Company’s principal executive officer and principal financial officer concluded that, as of April 30, 2016, the Company’s disclosure controls and procedures were not effective due to the material weaknesses identified in Item 9A of the Company’s Annual Report on Form 10-K filed with the SEC on October 26, 2015.

Changes in Internal Control over Financial Reporting

There have been no changes in the Company’s internal controls over financial reporting identified in connection with the evaluation required by paragraph (d) of Securities Exchange Act Rule 13a-15 or Rule 15d-15 that occurred in the three months ended March 31, 2016 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II— OTHER INFORMATION

Item 1. Legal Proceedings.

We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

Item 1A. Risk Factors.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

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

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits


Exhibit Number		Exhibit Title

31.1		Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Schema
101.CAL		XBRL Taxonomy Calculation Linkbase
101.DEF		XBRL Taxonomy Definition Linkbase
101.LAB		XBRL Taxonomy Label Linkbase
101.PRE		XBRL Taxonomy Presentation Linkbase

* In accordance with SEC Release 33-8238, Exhibit 32.1 are being furnished and not filed.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	AQUARIUS CANNABIS, INC.

Date: June 30, 2016	By:	/s/ Michael Davis Lawyer
		Name: Michael Davis Lawyer
		Title: Chief Executive Officer, Chief Financial Officer
		(Principal Executive Officer and Principal Financial Officer)

Aquarius Cannabis Inc. /NV/ - FORM 10-Q - June 30, 2016

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