UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 2014
[ ] Transition report under Section 13 or 15(d) of the Exchange
Act
For the transition period from ______________to ______________
Commission File Number: 333-1416686
VERDE SCIENCE, INC.
fka Rango Energy, Inc.
(Exact name of
Registrant as specified in its charter)
Nevada |
20-8387017 |
(State or other jurisdiction |
(I.R.S.Employer |
of incorporation or organization) |
Identification No.) |
|
|
400 S. ZAng Blvd. Suite 812 |
|
Dallas, Texas 75208, USA |
Telephone: 888-224-6039 |
(Address of principal executive offices) |
(Registrant's telephone number, |
|
including area code) |
________________________________________________________
Former Name, Address and Fiscal Year, If Changed Since Last
Report
Check whether the issuer: (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 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 [X] No [ ]
We had a total of 130,938,543 shares of common stock issued and
outstanding at September 8, 2014
Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).
Yes [
] No [X]
Transitional Small Business Disclosure Format: Yes
[ ] No [X]
1
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The interim financial statements included herein are unaudited
but reflect, in management's opinion, all adjustments, consisting only of normal
recurring adjustments that are necessary for a fair presentation of our
financial position and the results of our operations for the interim periods
presented. Because of the nature of our business, the results of operations for
the quarterly period and the six months ended June 30, 2014 are not necessarily
indicative of the results that may be expected for the full fiscal year.
2
VERDE SCIENCE, INC. |
(fka Rango Energy, Inc.) |
INTERIM BALANCE SHEETS |
|
|
June 30, 2014 |
|
|
December 31, 2013 |
|
|
|
(unaudited) |
|
|
|
|
ASSETS |
|
|
|
|
|
|
Cash |
$ |
- |
|
$ |
203 |
|
Total Assets |
$ |
- |
|
$ |
203 |
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
Accounts payable
current operations |
$ |
324,133 |
|
$ |
220,400 |
|
Bank overdraft |
|
44 |
|
|
- |
|
Related party accounts payable |
|
170,246 |
|
|
35,560 |
|
Notes payable related
party |
|
190,702 |
|
|
251,793 |
|
|
|
|
|
|
|
|
Total Current Liabilities |
|
685,125 |
|
|
507,753 |
|
|
|
|
|
|
|
|
Total Liabilities |
|
685,125 |
|
|
507,753 |
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
Common Stock, authorized
150,000,000 shares
$0.001 par value, (125,938,543
and 102,588,543(
issued and outstanding as
of June 30,
2014 and December 31,
2013 respectively) |
|
125,939 |
|
|
102,589 |
|
Additional Paid in Capital |
|
5,745,859 |
|
|
3,790,462 |
|
Accumulated
comprehensive income |
|
2,803 |
|
|
2,803 |
|
Deficit |
|
(6,559,726 |
) |
|
(4,403,404 |
) |
Total Stockholders'
Deficit |
|
(685,125 |
) |
|
(507,550 |
) |
|
|
|
|
|
|
|
Total Liabilities and
Stockholders' Deficit |
$ |
- |
|
$ |
203 |
|
The Accompanying notes are integral part of these financial
statements.
3
VERDE SCIENCE, INC. |
(fka Rango Energy, Inc.) |
STATEMENTS OF OPERATIONS |
(unaudited) |
|
|
Three Months
Ended |
|
|
Six Months
Ended |
|
|
|
June 30, |
|
|
June 30 |
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
|
|
|
|
|
- |
|
|
|
|
|
- |
|
REVENUES |
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues |
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
Accounting and
Professional Fees |
|
14,248 |
|
|
55,506 |
|
|
36,263 |
|
|
61,006 |
|
Consulting Fees |
|
1,184,617 |
|
|
390,000 |
|
|
1,621,404 |
|
|
390,000 |
|
Office and
Administration |
|
10,397 |
|
|
21,763 |
|
|
16,126 |
|
|
24,145 |
|
Total Expenses |
|
1,209,260 |
|
|
467,269 |
|
|
1,673,793 |
|
|
475,151 |
|
NET INCOME (LOSS) FROM
OPERATIONS |
|
(1,209,260 |
) |
|
(467,269 |
) |
|
(1,673,793 |
) |
|
(475,151 |
) |
Other Income and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income
(Expense) |
|
(9,059 |
) |
|
(1,379 |
) |
|
(17,529 |
) |
|
(2,714 |
) |
Total Other Income and Expenses
|
|
(9,059 |
) |
|
(1,379 |
) |
|
(17,529 |
) |
|
(2,714 |
) |
NET INCOME (LOSS) FROM
CONTINUING OPERATIONS |
|
(1,218,321 |
) |
|
(468,648 |
) |
|
(1,691,322 |
) |
|
(477,865 |
) |
Gain (Loss) on Discontinued
Operations |
|
- |
|
|
117,021 |
|
|
(465,000 |
) |
|
139,980 |
|
NET INCOME (LOSS) |
|
(1,218,321 |
) |
|
(351,627 |
) |
|
(2,156,322 |
) |
|
(337,885 |
) |
Total Comprehensive income
(loss) |
$ |
(1,218,321 |
) |
$ |
(351,627 |
) |
$ |
(2,156,322 |
) |
$ |
(337,885 |
) |
Basic and diluted loss
per share |
|
|
|
|
|
|
|
|
|
|
|
|
- Continued Operations
|
$ |
(0.01 |
) |
$ |
(0.00 |
) |
$ |
(0.02 |
) |
$ |
(0.00 |
) |
-
Discontinued Operations |
$ |
(0.00 |
) |
$ |
0.00 |
|
$ |
(0.00 |
) |
$ |
0.00 |
|
Basic and diluted loss per
share |
$ |
(0.01 |
) |
$ |
(0.00 |
) |
$ |
(0.02 |
) |
$ |
(0.00 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average # of
shares outstanding |
|
110,158,821 |
|
|
101,088,543 |
|
|
106,661,886 |
|
|
101,088,543 |
|
|
The Accompanying notes are integral part of these financial
statements.
4
VERDE SCIENCE, INC. |
(fka Rango Energy, Inc.) |
STATEMENTS OF CASH FLOW |
(unaudited) |
|
|
Six Months
Ended June 30, |
|
|
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net income (loss) for the period |
$ |
(2,156,322 |
) |
$ |
(337,885 |
) |
Adjustment for non-cash
expenses |
|
|
|
|
|
|
Payment of services with shares
|
|
391,801 |
|
|
390,000 |
|
Option expense
|
|
1,101,575 |
|
|
- |
|
Imputed interest -
related party |
|
17,174 |
|
|
2,714 |
|
Gain on
sale of oil leases |
|
- |
|
|
(128,255 |
) |
Change in: |
|
|
|
|
|
|
Accounts Receivable |
|
- |
|
|
21,574 |
|
Accounts payable
related party |
|
61,146 |
|
|
- |
|
Accounts payable |
|
103,776 |
|
|
43,529 |
|
Cash used in operating
activities |
|
(480,850 |
) |
|
(8,323 |
) |
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
Purchase of mineral
claims |
|
- |
|
|
(244,229 |
) |
Cash used in Investing
Activities |
|
- |
|
|
(244,229 |
) |
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
Capital stock issued
|
|
468,200 |
|
|
- |
|
Loan payable related party |
|
13,804 |
|
|
18,383 |
|
Principal payments on
related party debt |
|
(1,357 |
) |
|
- |
|
Cash from Financing Activities
|
|
480,647 |
|
|
18,383 |
|
|
|
|
|
|
|
|
INCREASE (DECREASE) IN CASH FOR PERIOD
|
|
(203 |
) |
|
(234,169 |
) |
Cash, beginning of period |
|
203 |
|
|
234,169 |
|
Cash, end of period |
$ |
- |
|
$ |
- |
|
|
|
|
|
|
|
|
Cash paid for interest |
$ |
- |
|
$ |
- |
|
Cash paid for income tax |
$ |
- |
|
$ |
- |
|
NON-CASH ACTIVITIES |
|
|
|
|
|
|
Cashless exercise of stock
options |
$ |
12,600 |
|
$ |
- |
|
Shares issued for stock payable |
$ |
- |
|
$ |
390,000 |
|
The Accompanying notes are integral part of these financial
statements.
5
VERDE SCIENCE, INC. |
(fka Rango Energy, Inc.) |
NOTES TO THE INTERIM FINANCIAL STATEMENTS |
June 30, 2014 |
(Stated in US Dollars) |
|
(Unaudited) |
NOTE 1. DESCRIPTION OF BUSINESS
DESCRIPTION OF BUSINESS AND HISTORY Verde Science, Inc..
(hereinafter referred to as the "Company") was incorporated on January 31, 2007
by filing Articles of Incorporation under the Nevada Secretary of State. The
Company was formed to engage in the exploration of resource properties.
On May 27, 2013, the Company entered into a Drilling Participation Agreement on 12,000 acres on 3 separate oil fields in Central and Southern California. On June 12, 2014, the Company sold its oil and natural gas properties in the ArkLaTex region. On December 16, 2013 the Company cancelled its Drilling and Participation Agreement, See NOTE 3.
On May 7, 2014 the Company changed its name from Rango Energy,
Inc. to Verde Science, Inc. The Company is currently seeking opportunities to
participate in the growing marijuana business in the United States.
Consequently, the Company has discontinued its oil and gas operations as of
April 1, 2014.
GOING CONCERN - The accompanying financial statements have been
prepared assuming that the Company will continue as a going concern, which
contemplates the realization of assets and the liquidation of liabilities in the
normal course of business. However, the Company has accumulated a loss and is
new. This raises substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments that
might result from this uncertainty.
As shown in the accompanying financial statements, the Company
has incurred an accumulated loss of $6,559,726 for the period from January 31,
2007 (inception) to June 30, 2014 and has generated revenues in discontinued
operations of $744,939 over the same period. The future of the Company is
dependent upon its ability to obtain financing and upon future profitable
operations from the development of acquisitions. Management has plans to seek
additional capital through a private placement and public offering of its common
stock. The financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts of and
classification of liabilities that might be necessary in the event the Company
cannot continue in existence.
The accompanying financial statements have been prepared by the
Company without audit. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
financial position, results of operations, and cash flows at June 30, 2014, and
for all periods presented herein, have been made.
Certain information and footnote disclosures normally included
in financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed or
omitted. It is suggested that these condensed financial statements be read in
conjunction with the financial statements and notes thereto included in the
Company's December 31, 2013 audited financial statements. The results of
operations for the period ended June 30, 2014 is not necessarily indicative of
the operating results for the full year.
6
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION -These financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States, and are expressed in U.S. dollars. The Companys fiscal year-end is December
31.
USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENT - The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents. As at June 30, 2014 and December 31, 2013, the Company had no cash equivalents.
BENEFICIAL CONVERSION FEATURES OF DEBENTURES AND CONVERTIBLE NOTE PAYABLE - In accordance with FASB ASC 470-20, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios, we recognize the
advantageous value of conversion rights attached to convertible debt. Such rights give the debt holder the ability to convert his debt into common stock at a price per share that is less than the trading price to the public on the day the loan is
made to us. The beneficial value is calculated as the intrinsic value (the market price of the stock at the commitment date in excess of the conversion rate) of the beneficial conversion feature of the debentures and related accruing interest, and
is recorded as a discount to the related debt and an addition to additional paid in capital. The discount is amortized over the remaining outstanding period of related debt using the interest method.
COMPREHENSIVE LOSS - ASC 220, Comprehensive Income, establishes standards for the reporting and display of comprehensive loss and its components in the financial statements. As of June 30, 2014 and December 31, 2012, the Company has no items
that represent comprehensive loss and, therefore, has not included a schedule of comprehensive loss in the financial statements.
STOCK BASED COMPENSATION - ASC 718, Stock-based compensation, establishes standards for the reporting and display of stock based compensation in the financial statements. During the six months ended June 30, 2014, the Company issued 4,897,500
shares to consultants valued at $391,801. In addition the Company issued 12,600,000 shares through the exercise of cashless options valued at $1,101,575.
BASIC AND DILUTED NET LOSS PER SHARE - The Company computes net loss per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of both basic and diluted earnings per share (EPS) on the face of the income
statement. Basic EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares
outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be
purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. As at June 30, 2014, the Company had no potentially dilutive shares.
FINANCIAL INSTRUMENTS - Pursuant to ASC 820, Fair Value Measurements and Disclosures and ASC 825, Financial Instruments, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair
value. ASC 820 and 825 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instruments categorization within the fair value hierarchy is based
upon the lowest level of input that is significant to the fair value measurement. ASC 820 and 825 prioritizes the inputs into three levels that may be used to measure fair value:
7
Level 1
Level 1 applies to assets or liabilities for
which there are quoted prices in active markets for identical assets or
liabilities.
Level 2
Level 2 applies to assets or liabilities for
which there are inputs other than quoted prices that are observable for the
asset or liability such as quoted prices for similar assets or liabilities in
active markets; quoted prices for identical assets or liabilities in markets
with insufficient volume or infrequent transactions (less active markets); or
model-derived valuations in which significant inputs are observable or can be
derived principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or liabilities for
which there are unobservable inputs to the valuation methodology that are
significant to the measurement of the fair value of the assets or liabilities.
The Companys financial instruments consist principally of
cash, accounts payable, accrued liabilities, and amounts due to related parties.
Pursuant to ASC 820 and 825, the fair value of our cash is determined based on
Level 1 inputs, which consist of quoted prices in active markets for identical
assets. We believe that the recorded values of all of our other financial
instruments approximate their current fair values because of their nature and
respective maturity dates or durations.
The following schedule summarizes the valuation of financial
instruments at fair value on a recurring basis in the balance sheets as of June
30, 2014 and December 31, 2012:
|
|
Fair
Value Measurement at June 30, 2014 |
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Retirement Obligations
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
|
|
Fair Value
Measurement at December 31, 2013 |
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Retirement Obligations
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
There were no transfers of financial assets or liabilities
between Level 1 and Level 2 inputs for the quarter ended June 30, 2014 and the
year ended December 31, 2013.
INCOME TAXES - Potential benefits of income tax losses are not
recognized in the accounts until realization is more likely than not. The
Company has adopted ASC 740 Accounting for Income Taxes as of its inception.
Pursuant to ASC 740, the Company is required to compute tax asset benefits for
net operating losses carried forward. The potential benefits of net operating
losses have not been recognized in this financial statement because the Company
cannot be assured it is more likely than not it will utilize the net operating
losses carried forward in future years.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In June 2014, the Financial Accounting Standards Board issued
Accounting Standards Update No. 2014-10, which eliminated certain financial
reporting requirements of companies previously identified as Development Stage
Entities (Topic 915). The amendments in this ASU simplify accounting guidance
by removing all incremental financial reporting requirements for development
stage entities. The amendments also reduce data maintenance and, for those
entities subject to audit, audit costs by eliminating the requirement for
development stage entities to present inception-to-date information in the
statements of income, cash flows, and shareholder equity. Early application of each of the amendments is permitted for any annual reporting period or interim period for which the entitys financial statements have not yet been issued (public business
entities) or made available for issuance (other entities). Upon adoption, entities will no longer present or disclose any information required by Topic 915. The Company has adopted this standard.
8
In May 2014, FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers. The revenue recognition standard affects all entities that have contracts with customers, except for certain items. The new revenue
recognition standard eliminates the transaction-and industry-specific revenue recognition guidance under current GAAP and replaces it with a principle-based approach for determining revenue recognition. Public entities are required to adopt the
revenue recognition standard for reporting periods beginning after December 15, 2016, and interim and annual reporting periods thereafter. Early adoption is not permitted for public entities. The Company has reviewed the applicable ASU and has not,
at the current time, quantified the effects of this pronouncement, however it believes that there will be no material effect on the consolidated financial statements.
In June 2014, FASB issued Accounting Standards Update (ASU) No. 2014-12 Compensation Stock Compensation (Topic 718), Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the
Requisite Service Period. A performance target in a share-based payment that affects vesting and that could be achieved after the requisite service period should be accounted for as a performance condition under Accounting Standards Codification
(ASC) 718, Compensation Stock Compensation. As a result, the target is not reflected in the estimation of the awards grant date fair value. Compensation cost would be recognized over the required service period, if it is probable that
the performance condition will be achieved. The guidance is effective for annual periods beginning after 15 December 2015 and interim periods within those annual periods. Early adoption is permitted. Management has reviewed the ASU and believes that
they currently account for these awards in a manner consistent with the new guidance, therefore there is no anticipation of any effect to the consolidated financial statements.
We have reviewed the FASB issued Accounting Standards Update (ASU) accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. The Company has carefully
considered the new pronouncements that alter previous generally accepted accounting principles and does not believe that any new or modified principles will have a material impact on the corporations reported financial position or operations
in the near term. The applicability of any standard is subject to the formal review of our financial management and certain standards are under consideration.
NOTE 3. DISCONTINUED OPERATIONS
The Company is discontinuing its activities in the oil and gas industry and focusing its activities on the marijuana consulting industry. In discontinuing its oil and gas operations, the Company incurred a $465,000 loss on discontinued operations as of June 30, 2014. Historically the company value of the oil and gas properties that the company owned were expensed in accordance with Generally Accepted Accounting Principles for the industry. The Company does not have proven reserves confirmed with a geological study and will only be able to capitalize properties once reserves have been proven. The following is a summary of the properties which the Company discontinued.
Innex Drilling and Participation Agreement
On December 16, 2013, the Company entered into a Participation Agreement with Innex California Inc. and General Crude Oil Company (together referred to as Innex JV) for the following projects (1) The Kettleman Dome Project
(KDEP); (2) the Kettlemen Middle Dome McAdams (KMDM), (3) East Elk Hills (EEH), (4) South Tapo Canyon (STC); (5) Eel River; (6) the Oklahoma (OK), (7) the Kettledome Middledome Shallow (KMDS and (8) the West Side
Joint Venture (USJV) . Under the terms of this Innex JV, the Company has the
right to earn a 50% working interest in each well in which the Company funds. In
order to maintain Innex JV, the Company must fund one well in each of the
aforementioned projects or risk losing the right to fund. The Company must also
fund Innex JV general and administrative costs of $40,000 per month.
9
The first quarter budget was approximately $5.77 million. The
budget was delivered to the Company on March 1, 2014. Under the terms of the
Innex JV, the Company was to fund the Innex JV the budget requirements by March
15, 2014. During the quarter the Company made lease payments totalling $465,000
to the Innex JV. However, the Company could not meet the terms of the budget
requirement and on April 1, 2014 the Company announced that it was divesting
itself of the Innex JV.
Hangtown Drilling and Participation Agreement
On May 27, 2013, the Company entered into a Drilling and
Participation Agreement with Hangtown Energy, Inc. (Hangtown). Hangtown owns
approximately 12,000 acres of oil and gas rights located in three separate oil
field in South and Central California. Under this Agreement, the Company will
provide 100% of the development costs for an initial program of 2 wells per
project area, and will receive 100% of the production cash flow until payback is
achieved. After payback, the Company's working interest will revert to 75% for
the life of the 6 wells. Further to the initial development program the Company
and Hangtown Energy will continue to develop the Project areas equally and
jointly to maximize production at each site.
On May 31, 2013, the Company entered into a Financial
Participation Agreement with Capistrano Capital, LLC (Capistrano), whereby
Capistrano funded the $1,160,000 to Hangtown, plus agreed to fund up to an
additional $6,500,000 for drilling costs of the KMD17-18 well. As of December
31, 2013, Capistrano had funded Hangtown $2,250,000. Capistrano was to earn a
net resource interest of 1 % for the lesser of 10 years or the life of the
KMD17-18 well, and earn 135% of payments made to Hangtown for the drilling and
completion of the well from the cash flow from the well. These amounts were to
be repaid annually over the next three years commencing with 1/3rd after 1 year
of production, 1/3rd after 2 years of production, and 1/3rd after three years of
production. Should the cash flows from the wells fail to meet the repayment
commitments, the amount of any amounts due were to be carried forward to future
years for repayment from cash flows from the well. Should the cash flow from the
well fail to repay Capistrano the full amount of its advances to Hangtown,
Capistrano has no recourse for the this shortfall from the Company. Should the
KMD17-18 well be plugged and abandoned, Capistrano can elect to participate in a
replacement well. If Capistrano chooses to participate, it will be given 72
hours to decide upon notice being received from the Company. Should Capistrano
elect to participate, the same terms and conditions as per the KMD 17-18 well
shall apply except that the costs of the KMD 17-18 well will be costs of the
replacement well. As the Well was not completed, no assets were recorded by the
Company.
At any time after the completion of KMD 17-18, the Company had
the right, but not the obligation, to convert the capital it has contributed to
Hangtown into equity of Hangtown at the greater of either $3.75 per share or the
most recent per share valuation which Hangtown has accepted and received capital
for. If the Company converts its interest into equity of Hangtown, the Company
shall not have any rights or interest in the KMD 17-18 well or any additional
wells as the Drilling and Participation Agreement will effectively terminate.
On December 16, 2013 the Company cancelled its Drilling and Participation Agreement with Hangtown.
First Pacific Oil and Gas Ltd. Joint Venture
On May 24, 2012, the Company entered into a Farm-Out Agreement
with First Pacific Oil and Gas Ltd. (First Pacific). Under this Agreement
First Pacific has acquired the right to earn 50% of the Companys working
interest in its existing 12 hydrocarbon wells located in Southern Arkansas.
Under this Agreement First Pacific has paid the Company $250,000; and will pay
$800,000 on or before June 30, 2014. The Company retains a 50% working interest.
First Pacific will earn its working interest upon improvements of the existing
hydrocarbon wells being completed with the final $800,000 investment. The
$250,000 received was recorded as Deferred Gain as of December 31, 2012. On June
12, 2013, the Company returned the balance of the trust funds held on behalf of First Pacific as
First Pacific informed the Company that it will not be completing the $800,000
financing. Consequently, the Company returned the $232,500 held by its lawyers
to First Pacific, and wrote down the $250,000 Deferred Gain. This resulted in a
net gain of $17,500 on the sale of its oil leases. In addition, the Company paid
the operator an additional $11,729 for disposal fees related to the lease; total
cash paid as a result of the sale is $244,229. Due to the sale of the leases,
the Asset Retirement Obligation balance of $122,484 as also removed from the
books. The net effect of the transaction resulted in a gain on the sale of
leases of $128,255.
10
Arkansas Lease
On October 24, 2009 the Company signed a letter agreement to
acquire eleven producible deep oil wells north of Hosston, Louisiana, and in
Southern Arkansas for $385,000. Seven of these wells are in production. The
deepest of these wells produce from the Smackover formation at 7800 feet. Four
other wells are capable of production after work over operation has been
completed. Also included with the agreement are three disposal wells.
On June 12, 2013, the Company sold these properties under an
Asset Transfer and Liability Assumption Agreement for $10 to a non-related
party. The sale resulted in a gain of $110,755.
NOTE 4. RELATED PARTY
The advances are payable to shareholders of $ 226,785 and $ 214,338 as of June 30, 2014 and December 31, 2013, respectively. The advances are unsecured and have no terms of repayment. Imputed interest at 15% has been calculated and equaled $ 16,505 for the six months ended June 30, 2014 ($2,714 for the six months ended June 30, 2013).
During 2008, a related party incurred $4,157 of expenses on
behalf of the Company. There are no repayment terms or interest. As of June 30
2014, the Company imputed interest at 15% resulting in an interest expense of
$312.
As of December 31, 2010, the Company advanced from a related
party $815 for expenses. There are no repayment terms or interest. As of June
30, 2014, the Company imputed interest at 15% resulting in an interest expense
of $61.
On December 14, 2011, Donny Fitzgerald, the Company’s president advanced the Company $2,500. There are no repayment terms or interest. As of June 30, 2014, the Company imputed interest at 15% resulting in an interest expense of $ 188. In addition, during the same period Company received an advance from a related party $1,445 for expenses. There are no repayment terms or interest. As of June 30, 2014, the Company imputed interest at 15% resulting in an interest expense of $108.
11
NOTE 5. COMMON STOCK
On June 5, 2013, the Company entered into an Investor Relations
Consulting Agreement with MZHCI LLC for twelve months. The Agreement calls for
monthly payments of $2,000 which will be accrued until the Company is cash flow
positive, at which time monthly payments will increase to $7,000. As of March
31, 2014, the Company as accrued a balance of $18,000 included in account
payable. The Company has issued 750,000 shares. Given the market price of $0.33
as of June 5, 2013, the Company has valued the shares at $247,500 based on the
fair market value on closing on date of grant. Due to the shares being issued
the Company has expensed this value.
On June 7, 2013, the Company entered into an Investor Relations
Consulting Agreement with San Diego Torrey Hills Capital, Inc. for nine months.
The Company has issued 750,000 shares. Given the market price of $0.355 as of
June 7, 2013, the Company has valued the shares at $266,250 based on fair market
value on closing on date of grant. Due to the shares being issued the Company
has expensed this value.
On January 17, 2014 the Company entered into a Private
Placement Agreement to issue up to 10,000,000 shares of Common Stock at $0.08
per share. The Company has received $468,200 by way of subscription agreements.
The 5,852,500 shares were issued on May 23, 2014.
On April 17, 2014, the Company extended an Investor Relations Consulting Agreement with San Diego Torrey Hills Capital, Inc. for an additional nine months. The Company has issued 750,000 shares. Given the market price of $0.08 as April 17, 2014, the Company has valued the shares at $52,500 based on fair market value of the closing price on the date of grant. Due to the shares being issued the Company has expensed this value.
On April 1, 2014 the Company issued 350,000 shares as
settlement for services provided. The market value of the shares issued at $0.08
per share was approximately the invoiced amount of the services of $28,000.
On June 9, 2014 the Company issued 1,250,000 shares as
settlement for services provided. The market value of the shares issued at $0.08
per share was approximately the invoiced amount of the services of $100,000.
On June 15, 2014 the Company issued 297,500 shares as
settlement for services provided. The market value of the shares issued at $0.08
per share was approximately the invoiced amount of the services of $23,800.
On June 17, 2014 the Company issued 2,250,000 shares as
settlement for services provided. The market value of the shares issued at $0.08
per share was approximately the invoiced amount of the services of $180,000.
NOTE 7. OPTIONS
On February 28, 2014 the Company issued 1,000,000 options to a
consultant. The options have an exercise price of $0.04 per share and have a
life of ten years. The options were fully vested and expensed on the date of
grant. The Company valued these options using the Black-Scholes option pricing
model totaling $104,997 under the following assumptions: $0.11 stock price, 10
years to maturity, 365% volatility, 1.51% risk free rate. During the same
period, the consultant exercised on a cashless basis and received 1,000,000
shares of common stock.
On February 28, 2014 the Company issued 2,250,000 options to a
consultant. The options have an exercise price of $0.04 per share and have a
life of ten years. The options were fully vested and expensed on the date of
grant. The Company valued these options using the Black-Scholes option pricing
model totaling $241,869 under the following assumptions: $0.11 stock price, 10
years to maturity, 365% volatility, 1.51% risk free rate. During the same period, the consultant
exercised on a cashless basis and received 2,250,000 shares of common stock.
12
On February 28, 2014 the Company issued 250,000 options to a
consultant. The options have an exercise price of $0.04 per share and have a
life of ten years. The options were fully vested and expensed on the date of
grant. The Company valued these options using the Black-Scholes option pricing
model totaling $26,874 under the following assumptions: $0.11 stock price, 10
years to maturity, 365% volatility, 1.51% risk free rate. During the same
period, the consultant exercised on a cashless basis and received 250,000 shares
of common stock.
On April 17, 2014 the Company issued 1,900,000 options to a
consultant. The options have an exercise price of $0.04 per share and have a
life of ten years. The options were fully vested and expensed on the date of
grant. The Company valued these options using the Black-Scholes option pricing
model totaling $151,965 under the following assumptions: $0.08 stock price, 10
years to maturity, 320% volatility, 1.75% risk free rate. During the same
period, the consultant exercised on a cashless basis and received 1,900,000
shares of common stock.
On April 17, 2014 the Company issued 2,200,000 options to a
consultant. The options have an exercise price of $0.04 per share and have a
life of ten years. The options were fully vested and expensed on the date of
grant. The Company valued these options using the Black-Scholes option pricing
model totaling $175,960 under the following assumptions: $0.08 stock price, 10
years to maturity, 320% volatility, 1.75% risk free rate. During the same
period, the consultant exercised on a cashless basis and received 2,200,000
shares of common stock.
On June 20, 2014, 2014 the Company issued 5,000,000 options to
a consultant. The options have an exercise price of $0.04 per share and have a
life of ten years. The options were fully vested and expensed on the date of
grant. The Company valued these options using the Black-Scholes option pricing
model totaling $399,909 under the following assumptions: $0.04 stock price, 10
years to maturity, 320% volatility, 1.75% risk free rate. During the same
period, the consultant exercised on a cashless basis and received 5,000,000
shares of common stock.
NOTE 8. SUBSEQUENT EVENTS
On July 15, 2014 the Company issued 1,500,000 options to a
consultant. The options have an exercise price of $0.04 per share and have a
life of ten years. The options were fully vested and expensed on the date of
grant. During the same
period, the consultant exercised on a cashless basis and received 1,500,000
shares of common stock.
On July 21, 2014 the Company issued 2,000,000 options to a
consultant. The options have an exercise price of $0.04 per share and have a
life of ten years. The options were fully vested and expensed on the date of
grant. During the same
period, the consultant exercised on a cashless basis and received 2,000,000
shares of common stock.
On July 21, 2014, 2014 the Company issued 1,500,000 options to
a consultant. The options have an exercise price of $0.04 per share and have a
life of ten years. The options were fully vested and expensed on the date of
grant. During the same
period, the consultant exercised on a cashless basis and received 1,500,000
shares of common stock.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
FORWARD-LOOKING STATEMENTS
The information set forth in this section contains certain
"forward-looking statements," including, among other things, (i) expected
changes in our revenues and profitability, (ii) prospective business
opportunities, and (iii) our strategy for financing our business.
Forward-looking statements are statements other than historical information or
statements of current condition. Some forward-looking statements may be
identified by use of terms such as "believes," "anticipates," "intends," or
"expects." These forward-looking statements relate to our plans, objectives and
expectations for future operations. Although we believe that our expectations
with respect to the forward-looking statements are based upon reasonable
assumptions within the bounds of our knowledge of our business and operations,
in light of the risks and uncertainties inherent in all future projections, the
inclusion of forward-looking statements in this report should not be regarded as
a representation by us or any other person that our objectives or plans will be
achieved.
PLAN OF OPERATION CONTINUING OPERATIONS
Company changed its business as of April 1, 2014 to the marijuana consulting business from the oil and gas business. During the quarter ended March 31, 2014, the Company made lease payments totalling $465,000 to the Innex JV (see Note 3). The $465,000 lease payment has been reclassified as Loss from Discontinued Operations. Consequently the Company’s loss from Continuing Operations was for the six months ended June 30, 2014 (YTD14) was $1,691,322 as compared to the loss from operations for the six months ended June 30, 2013 (YTD13) was $477,865. The increase in loss of $1,216,171 was the result of Increased Consulting fees of $1, 231,404 in YTD14.
The Company’s loss from Continuing Operations was for the three months ended June 30, 2014 (Q2-14) was $1,218,321 as compared to the loss from operations for the three months ended June 30, 2013 (Q2-13) was $468, 648. The increase in loss of $749,673 was the result of increased Consulting fees of $796,617 in Q2-14.
On May 7, 2014, the Company shifted its business to the
business of giving consulting advice to the fledging marijuana industry. To this
end the Company has been conducting due diligence on several acquisition
targets.
As we are in the process of changing businesses a number of the
risks of the new business are discussed as follows:
Because we have no operating history in the cannabis
industry, we may not succeed.
While our CEO, Harp Sangha, has experience in real estate
transactions and in the public markets, we have no specific operating history or
experience in procuring, building out or leasing real estate for agricultural
purposes, specifically marijuana grow facilities, or with respect to any other
activity in the cannabis industry. Moreover, we are subject to all risks
inherent in a developing a new business enterprise. Our likelihood of success
must be considered in light of the problems, expenses, difficulties,
complications, and delays frequently encountered in connection with establishing
a new business and the competitive and regulatory environment in which we
operate. For example, the medical marijuana industry is new and may not succeed,
particularly should the federal government change course and decide to prosecute
those dealing in medical marijuana. If that happens there may not be an adequate
market for our properties or other activities we propose to engage in.
You should further consider, among other factors, our prospects
for success in light of the risks and uncertainties encountered by companies
that, like us, are in their early stages. For example, unanticipated expenses,
delays and or complications with build outs, zoning issues, legal disputes with
neighbors, local governments, communities and or tenants. We may not
successfully address these risks and uncertainties or successfully implement our
operating strategies. If we fail to do so, it could materially harm our business
to the point of having to cease operations and could impair the
value of our common stock to the point investors may lose their entire
investment.
14
Because we may be unable to identify and/or successfully
acquire properties which are suitable for our business, our financial condition
may be negatively affected.
Our business plan involves the identification and
the successful acquisition of properties which are zoned for marijuana
businesses, including grow and retail. The properties we acquire will be leased
to licensed marijuana operators. Local governments must approve and adopt zoning
ordinances for marijuana facilities and retail dispensaries. A lack of properly
zoned real estate may reduce our prospects and limit our opportunity for growth
and/or increase the cost at which suitable properties are available to us.
Conversely a surplus of real estate zoned for marijuana establishments may
reduce demand and prices we are able to charge for properties we may have
previously acquired.
Because our business is dependent upon continued market
acceptance by consumers, any negative trends will adversely affect our business
operations.
We are substantially dependent on continued
market acceptance and proliferation of consumers of medical marijuana. We
believe that as marijuana becomes more accepted the stigma associated with
marijuana use will diminish and as a result consumer demand will continue to
grow. And while we believe that the market and opportunity in the marijuana
space continues to grow, we cannot predict the future growth rate and size of
the market. Any negative outlook on the marijuana industry will adversely affect
our business operations.
In addition, it is believed by many that large well-funded
businesses may have a strong economic opposition to the cannabis industry. We
believe that the pharmaceutical industry clearly does not want to cede control
of any product that could generate significant revenue. For example, medical
marijuana will likely adversely impact the existing market for the current
marijuana pill sold by the mainstream pharmaceutical industry, should
marijuana displace other drugs or encroach upon the pharmaceutical industrys
products. The pharmaceutical industry is well funded with a strong and
experienced lobby that eclipses the funding of the medical marijuana movement.
Any inroads the pharmaceutical industry could make in halting the impending cannabis
industry could have a detrimental impact on our proposed business.
Because marijuana is illegal under federal law, we could
be subject to criminal and civil sanctions for engaging in activities that
violate those laws.
The U.S. Government classifies marijuana as a schedule-I
controlled substance. As a result, marijuana is an illegal substance under
federal law. Even in those jurisdictions in which the use of medical marijuana
has been legalized at the state level, its prescription is a violation of
federal law. The United States Supreme Court has ruled in United States v.
Oakland Cannabis Buyers' Coop. and Gonzales v. Raich that it is the
federal government that has the right to regulate and criminalize cannabis, even
for medical purposes. Therefore, federal law criminalizing the use of marijuana
pre-empts state laws that legalizes its use for medicinal purposes.
As of January 31, 2014, 21 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. However, there is no guarantee that the
administration will not change its stated policy regarding the low-priority
enforcement of federal laws. Additionally, any new administration that follows
could change this policy and decide to enforce the federal laws strongly. Any
such change in the federal government's enforcement of current federal laws could cause
significant financial damage to us and our shareholders.
15
Should such a change occur, our business operations would be
affected. If our marijuana tenants are forced to shut their operations, we would
need to seek to replace those tenants with non-marijuana tenants, who would
likely expect to pay lower rents. Moreover if the marijuana industry were forced
to shut down at once, it would result in a high amount of vacancies at once and
create a surplus of supply, driving leases and property values lower.
Additionally, we would realize an economic loss on any and all improvements made
to the properties that were specific to the marijuana industry and we would
likely lose any and all investments in the US market that were marijuana
related.
Further, and while we do not intend to harvest, cultivate,
possess, distribute or sell cannabis, by leasing facilities and financing
growers of medicinal marijuana, we could be deemed to be participating in
marijuana cultivation or aiding and abetting, which remains illegal under
federal law, and exposes us to potential criminal liability, with the additional
risk that our properties could be subject to civil forfeiture proceedings.
Moreover, since the use of marijuana is illegal under federal law, we may have
difficulty acquiring or maintaining bank accounts and insurance and our
shareholders may find it difficult to deposit their stock with brokerage firms.
Laws and regulations affecting the regulated marijuana
industry are constantly changing, which could detrimentally affect our proposed
operations, and we cannot predict the impact that future regulations may have on
us.
Local, state and federal medical marijuana laws and regulations
are broad in scope and subject to evolving interpretations, which could require
us to incur substantial costs associated with compliance or alter our business
plan. In addition, violations of these laws, or allegations of such violations,
could disrupt our business and result in a material adverse effect on its
operations. In addition, it is possible that regulations may be enacted in the
future that will be directly applicable to our proposed business. We cannot
predict the nature of any future laws, regulations, interpretations or
applications, nor can we determine what effect additional governmental
regulations or administrative policies and procedures, when and if promulgated,
could have on our business.
FDA regulation of marijuana and the possible registration
of facilities where medical marijuana is grown could negatively affect the
cannabis industry which would directly affect our financial condition.
Should the federal government legalize marijuana for medical
use, it is possible that the U.S. Food and Drug Administration (FDA) would seek
to regulate it under the Food, Drug and Cosmetics Act of 1938. Additionally, the
FDA may issue rules and regulations including cGMPs (certified good
manufacturing practices) related to the growth, cultivation, harvesting and
processing of medical marijuana. Clinical trials may be needed to verify
efficacy and safety. It is also possible that the FDA would require that
facilities where medical marijuana is grown be registered with the FDA and
comply with certain federally prescribed regulations. In the event that some or
all of these regulations are imposed, we do not know what the impact would be on
the medical marijuana industry, what costs, requirements and possible
prohibitions may be enforced. If we or our tenants are unable to comply with the
regulations and/or registration as prescribed by the FDA, we and or our tenants
may be unable to continue to operate their and our business in its current form
or at all.
Our clients and our company may have difficulty accessing
the service of banks, which may make it difficult to contract for real estate
needs.
On February 14, 2014, The U.S. government issued rules allowing
banks to legally provide financial services to state-licensed marijuana
businesses. A memorandum issued by the Justice Department to federal prosecutors
re-iterated guidance previously given, this time to the financial industry that
banks can do business with legal marijuana businesses and may not be
prosecuted. The Treasury Department's Financial Crimes Enforcement Network (FinCEN) issued guidelines to banks that it is possible to provide financial services" to state-licensed marijuana businesses and still be in compliance with federal anti-money laundering laws. The
guidance falls short of the explicit legal authorization that banking industry officials had pushed the government to provide and to date it is not clear what if any banks have relied on the guidance and taken on legal marijuana companies as
clients. The aforementioned policy may be administration dependent and a change in presidential administrations may cause a policy reversal and retraction of current policies, wherein legal marijuana businesses may not have access to the banking
industry. We could be subject to sanctions if we are found to be a financial institution and not in harmony with FinCET guidelines. Also, the inability of potential clients in our target market to open accounts and otherwise use the service of banks
may make it difficult for them to contract with us.
16
Because we buy, sell and lease property, we will be subject to general real estate risks.
We will be subject to risks generally incident to the ownership of real estate, including: (a) changes in general economic or local conditions; (b) changes in supply of, or demand for, similar or competing properties in the area; (c) bankruptcies,
financial difficulties or defaults by tenants or other parties; (d) increases in operating costs, such as taxes and insurance; (e) the inability to achieve full stabilized occupancy at rental rates adequate to produce targeted returns; (f) periods
of high interest rates and tight money supply; (g) excess supply of rental properties in the market area; (h) liability for uninsured losses resulting from natural disasters or other perils; (i) liability for environmental hazards; and (j) changes
in tax, real estate, environmental, zoning or other laws or regulations. For these and other reasons, no assurance can be given that we will be profitable.
Because our business model depends upon the availability of private financing, any change in our ability to raise money will adversely affect our financial condition.
Our ability to acquire, operate and sell properties, engage in the business activities that we have planned and achieve positive financial performance depends, in large measure, on our ability to obtain financing in amounts and on terms that are
favorable. The capital markets in the United States have recently undergone a turbulent period in which lending was severely restricted. Although there appears to be signs that financial institutions are resuming lending, the market has not yet
returned to its pre-2008 state. Obtaining favorable financing in the current environment remains challenging. We recently entered into a drawdown agreement for $14 million. In the event the lender is unable to finance on our drawdowns, we will
not be able to implement our business plan and our financial performance could be adversely affected.
Because we will compete with others for suitable properties, competition will result in higher costs that could materially affect our financial condition.
We will experience competition for real estate investments from individuals, corporations and other entities engaged in real estate investment activities, many of whom have greater financial resources than us. Competition for investments may have
the effect of increasing costs and reducing returns to our investors.
Because there may be restrictions on the transfer and further encumbrance of our properties, there may be negative consequences that will affect our financial condition.
The terms of our drawdown agreement allow properties that we acquire to be collateral to secure the loans we receive. We may be prohibited from transferring or further encumbering the properties or any interest in our properties except with a
lenders prior consent. The loans may provide that upon violation of these restrictions, a lender may declare the entire amount of the loan to be immediately due and payable. If we are unable to obtain replacement financing or otherwise fail to
immediately repay the loans in full, the lender may invoke its remedies under the loan, including proceeding with a foreclosure sale that could result in our losing our entire interest in the properties subject to the loans.
17
Because we are liable for hazardous substances on our properties, environmental liabilities are possible and can be costly.
Federal, state and local laws impose liability on a landowner
for releases or the otherwise improper presence on the premises of hazardous
substances. This liability is without regard to fault for, or knowledge of, the
presence of such substances. A landowner may be held liable for hazardous
materials brought onto a property before it acquired title and for hazardous
materials that are not discovered until after it sells the property. Similar
liability may occur under applicable state law. Sellers of properties may make
only limited representations as to the absence of hazardous substances. If any
hazardous materials are found within our properties in violation of law at any
time, we may be liable for all cleanup costs, fines, penalties and other costs.
This potential liability will continue after we sell the properties and may
apply to hazardous materials present within the properties before we acquire the
properties. If losses arise from hazardous substance contamination which cannot
be recovered from a responsible party, the financial viability of the properties
may be adversely affected. It is possible that we will purchase properties with
known or unknown environmental problems which may require material expenditures
for remediation.
Because we may not be adequately insured, we could
experience significant liability for uninsured events.
While we intend to carry comprehensive insurance on our
properties, including fire, liability and extended coverage insurance, there are
certain risks that may be uninsurable or not insurable on terms that management
believes to be economical. For example, management may not obtain insurance
against floods, terrorism, mold-related claims, or earthquake insurance. If such
an event occurs to, or causes the damage or destruction of, a property, we could
suffer financial losses.
If we are found non-compliance with the Americans with
Disabilities Act, we will be subject to significant liabilities.
If any of our properties are not in compliance with the
Americans with Disabilities Act of 1990, as amended (the ADA), we may be
required to pay for any required improvements. Under the ADA, public
accommodations must meet certain federal requirements related to access and use
by disabled persons. The ADA requirements could require significant expenditures
and could result in the imposition of fines or an award of damages to private
litigants. We cannot assure that ADA violations do not or will not exist at any
of our properties.
The following table provides selected financial data about our company for the six month ended June 30, 2014 and December 31, 2014
Balance Sheet Data |
|
June 30, 2014 |
|
|
December 31, 2014 |
|
Cash |
$ |
- |
|
$ |
203 |
|
Liabilities |
$ |
685,125 |
|
$ |
507,753 |
|
Stockholders' Deficit
|
$ |
(685,125 |
)
|
$ |
(507,550 |
)
|
LIQUIDITY AND CAPITAL RESOURCES
Our cash balance at June 30, 2014 was $Nil with outstanding
liabilities of $685,125. Management believes our current cash balance will be
unable to sustain operations for the next 12 months. We will be forced to raise
additional funds by issuing new debt or equity securities or otherwise. If we
fail to raise sufficient capital when needed, we will not be able to complete
our business plan. We are a development stage company and have generated no
revenue to date.
PLAN OF OPERATION
Our cash balance is $Nil as of June 30, 2014. We believe our
cash balance is insufficient to fund our levels of operations for the next
twelve months. As a result we will be forced to raise additional funds by
issuing new debt or equity securities or otherwise. If we fail to raise
sufficient capital when needed, we will not be able to complete our business
plan. We are a development stage company and have generated no revenue to date.
18
This means that there is substantial doubt that we can continue
as an on-going business for the next twelve months unless we obtain additional
capital to pay our bills. This is because we have generated minimal revenues to
date. There is no assurance we will ever achieve profitability.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements that have or
are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that is
material to investors.
CRITICAL ACCOUNTING POLICIES
In June 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-10, which eliminated certain financial reporting requirements of companies previously identified as “Development Stage Entities” (Topic 915). The amendments in this ASU simplify accounting guidance by removing all incremental financial reporting requirements for development stage entities. The amendments also reduce data maintenance and, for those entities subject to audit, audit costs by eliminating the requirement for development stage entities to present inception-to-date information in the statements of income, cash flows, and shareholder equity. Early application of each of the amendments is permitted for any annual reporting period or interim period for which the entity’s financial statements have not yet been issued (public business entities) or made available for issuance (other entities). Upon adoption, entities will no longer present or disclose any information required by Topic 915. The Company has adopted this standard.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are
designed to ensure that information required to be disclosed in our reports
filed under the Securities Exchange Act of 1934 , as amended, is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms, and that such information
is accumulated and communicated to our management, including our president (also
our principal executive officer) and our secretary, treasurer and chief
financial officer (also our principal financial and accounting officer) to allow
for timely decisions regarding required disclosure.
As of June 30, 2014, we carried out an evaluation, under the
supervision and with the participation of our president (also our principal
executive officer), and our chief financial officer (also our principal
financial and accounting officer) of the effectiveness of the design and
operation of our disclosure controls and procedures. Based on the foregoing, our
President and Chief Financial Officer concluded that our disclosure controls and
procedures were not effective in providing reasonable assurance in the
reliability of our corporate reporting as of the end of the period covered by
this Quarterly Report due to certain deficiencies that existed in the design or
operation of our internal controls over financial reporting as disclosed below
and that may be considered to be material weaknesses.
CHANGES IN INTERNAL CONTROLS.
There was no change in our internal controls or in other
factors that could affect these controls during our last fiscal quarter that has
materially affected, or is reasonably likely to materially affect our internal
control over financial reporting.
PART II. OTHER INFORMATION ITEM 1. LEGAL
PROCEEDINGS
We are not a party to any material legal proceedings and to our
knowledge, no such proceedings are threatened or contemplated.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. REMOVED AND RESERVED
19
ITEM 5. OTHER INFORMATION
On April 1, 2014 our Chief Financial Officer and Director
Hermander Rai resigned, consequently Mr. Hapreet Sanga, the Companys President,
took over the Chief Financial Officer position as well.
On May 14, 214 Louis Bobadilla III was appointed as a director
of the Company. After beginning his career with at J.P. Morgan Chase on the
Latin America Bond Desk as an analyst, Mr. Bobadilla launched several successful
startup companies in multiple industries. He is the founder (2006) and manager
of Sherman Oaks Holistic Oasis, a fully compliant medical marijuana collective
that has successfully navigated all regulatory processes and operates in Los
Angeles County. He was the managing partner and co-founder of Orange County
Glass Works, LLC in 2002. Mr. Bobadilla also established and grew 'Pure Glass'
as one of the premier smoking accessory brands in the U.S.
Mr. Bobadilla is a graduate of the London School of Economics
and is an experienced entrepreneur with a proven track record of identifying
business opportunities in nascent industries and developing and executing;
initial funding, strategic planning, team building, and marketing strategies
toward rapid growth in revenue and market share. Mr. Bobadilla is joining Verde
Science as part of the Company's plans to enter into the Medical Marijuana
Cultivation Design, Engineer, Build and Management Consulting Business. The
Company will be providing more details on this business model in the next few
days.
20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
|
|
Exhibit
Number |
Description of Exhibit |
|
|
3.1 |
Articles of Incorporation
Filed by Form SB-1 on March 30, 2007 |
|
|
3.2 |
Bylaws - Filed by Form SB-1
on March 30, 2007 |
|
|
10.1 |
Lease Acquisition Agreement
between the Company and Fredco LLC filed on August 26, 2009, and has been
incorporated herein by reference. |
|
|
10-2 |
Lease Acquisition Agreement
filed on September 9, 2009 and has been incorporated herein by reference.
|
|
|
10-3 |
Drilling and Participation
Agreement filed on May 27, 2014 and has been incorporated herein by
reference. |
|
|
10-4 |
Farmout and Acquisition
Agreement filed on May 17, 2012 and has been incorporated herein by
reference. |
|
|
10.5 |
Drilling and Participation
Agreement filed on May 27, 2014 and has been incorporated herein by
reference. |
|
|
10.6 |
Consulting Agreement filed on
June 7, 2014 and has been incorporated herein by reference. |
|
|
10.7 |
Asset Transfer and Liability
and Assumption Agreement filed on June 12, 2014 and has been incorporated
herein by reference. |
|
|
10.8 |
Consulting Agreement filed on
July 15, 2014 and has been incorporated herein by reference. |
|
|
10.9 |
Financial Participation
Agreement filed on August 6, 2014 and has been incorporated herein by
reference. |
|
|
31.1 |
Certification by Chief Executive Officer and Chief
Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the
Exchange Act, promulgated pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002, filed herewith |
|
|
32.1 |
Certification by Chief Executive Officer and Chief
Financial Officer, required by Rule 13a-14(b) or Rule 15d-14(b) of the
Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United
States Cod of the Sarbanes-Oxley Act of 2002 filed herewith. |
|
|
33.0 |
XBRT Report |
21
SIGNATURES
In accordance with the requirements of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: September 8, 2014
Signature |
Title |
Date |
|
|
|
|
|
|
By: /s/Harpreet Sangha |
Chief Executive Officer, Chief |
September 8, 2014 |
Harpreet Sangha |
Financial Officer and Director |
|
22
EXHIBIT 31.1
CERTIFICATION
I, Harpreet Sangha, Chief Executive Officer and Chief Financial
Officer certify that: 1. I have reviewed this report on Form 10-Q of VERDE
SCIENCE, INC.;
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the consolidated financial
statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this
report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
a. designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b. designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles; and
c. evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report, based on our evaluation; and
d. disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in the case
of an quarterly report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a. all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's internal
control over financial reporting.
Date: September 8, 2014 |
By: /s/ Harpreet Sangha |
|
|
Harpreet Sangha |
|
Chief Executive Officer, Chief Financial Officer |
|
and Director |
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER OF
VERDE
SCIENCE, INC. FORM 10-Q FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2014
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Harpreet Sangha, am the Chief Executive Officer and Chief
Financial Officer of VERDE SCIENCE, INC., a Nevada corporation (the "Company").
I am delivering this certificate in connection with the Quarterly Report on Form
10-Q of the Company for the six month period ended June 30, 2014 and filed with
the Securities and Exchange Commission ("Quarterly Report").
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, I hereby certify that, to the
best of my knowledge, the Quarterly Report fully complies with the requirements
of Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934 and
that the information contained in the Quarterly Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
Date: September 8, 2014 |
By: /s/ Harpreet Sangha |
|
|
Harpreet Sangha |
|
Chief Executive Officer, Chief Financial Officer |
|
and Director |
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