UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-K
(Mark
One)
☒ ANNUAL REPORT
UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended December 31, 2014
☐ TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from ______________ to ______________
Commission
File Number: 000-54915
CANADIAN
CANNABIS CORP.
(Exact
name of registrant as specified in its charter)
| Delaware |
|
45-3327444 |
(State
or other jurisdiction of
incorporation or organization) |
|
(I.R.S.
Employer
Identification No.) |
| |
|
|
100
Rutherford Road South
Brampton,
Ontario, Canada L6W 2J2 |
|
(866)
790-3324 |
| (Address
of principal executive offices) |
|
(Registrant’s
telephone number, including area code) |
Securities
registered pursuant to Section 12(b) of the Act: NONE
Securities
registered pursuant to Section 12(g) of the Act: NONE
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No
☒
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No
☒
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act
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 ☒
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate website, 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
☒
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Check
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. (Check one):
| Large
Accelerated Filer |
☐ |
Accelerated
Filer |
☐ |
| Non-accelerated
Filer |
☐ |
Smaller Reporting
Company |
☒ |
Indicate
by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
☒
The aggregate market value of the registrant's
voting and non-voting common stock held by non-affiliates of the registrant as of June 30, 2014, the last day of the registrant’s
most recently completed second fiscal quarter, was $55,358,688. This value was computed by reference to the price at which the
registrant’s common stock was last sold as of June 30, 2014 and excludes the market value of the registrant’s voting
and non-voting common stock beneficially owned by directors and executive officers of the registrant. These determinations and
the underlying assumptions should not be deemed to constitute an admission that all directors and executive officers are, in fact,
affiliates of the registrant, or that there are no other persons who may be deemed to be affiliates of our company. Further information
concerning shareholdings of our directors, executive officers and beneficial owners of more than 5% of the registrant’s
outstanding common stock is included in Part III, Item 12 of this Annual Report on Form 10-K.
As
of September 28, 2015, there were 31,455,499 shares of common stock, par value $0.000001, outstanding.
NO
DOCUMENTS INCORPORATED BY REFERENCE
CANADIAN
CANNABIS CORP.
FORM
10-K
For
the Year ended December 31st 2014
TABLE
OF CONTENTS
PART
I
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This
2014 Annual Report on Form 10-K, including the sections entitled “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and “Business,” contains “forward-looking statements” that
include information relating to future events, future financial performance, strategies, expectations, competitive environment,
regulation and availability of resources. These forward-looking statements include, without limitation, statements regarding:
proposed new products or services; our statements concerning litigation or other matters; statements concerning projections, predictions,
expectations, estimates or forecasts for our business, financial and operating results and future economic performance; statements
of management’s goals and objectives; trends affecting our financial condition, results of operations or future prospects;
our financing plans or growth strategies; and other similar expressions concerning matters that are not historical facts. Words
such as “may,” “will,” “should,” “could,” “would,” “predicts,”
“potential,” “continue,” “expects,” “anticipates,” “future,” “intends,”
“plans,” “believes” and “estimates,” and similar expressions, as well as statements in future
tense, identify forward-looking statements.
Forward-looking
statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications
of the times at, or by which, that performance or those results will be achieved. Forward-looking statements are based on information
available at the time they are made and/or management’s good faith belief as of that time with respect to future events,
and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed
in or suggested by the forward-looking statements. Important factors that could cause these differences include, but are not limited
to:
| ● | our
inability to raise additional funds to support operations and capital expenditures; |
| | | |
| ● | our
inability to achieve greater and broader market acceptance of our products and services
in existing and new market segments; |
| | | |
| ● | our
inability to achieve manufacturing and distribution of our products and scaling and delivery
of our services in efficient manners; |
| | | |
| ● | our
inability to successfully compete against existing and future competitors; |
| | | |
| ● | our
inability to manage and maintain the growth of our business; |
| | | |
| ● | our
inability to protect our intellectual property rights; and |
| | | |
| ● | other
factors discussed under the headings “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” and “Business.” |
Forward-looking
statements speak only as of the date they are made. You should not put undue reliance on any forward-looking statements. We assume
no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors
affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more
forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking
statements.
Unless
otherwise indicated or unless the context otherwise requires, all references in this Annual Report on Form 10-K to the “Company,”
“we,” “us,” “our” and similar expressions are references to Canadian Cannabis Corp. and its
consolidated subsidiaries.
Canadian
Cannabis Corp. is an early stage company incorporated in Delaware and formerly known as Gold Party Payday, Inc.
Gold
Party Payday, LLC was organized as a Limited Liability Company on August 16, 2011 under the laws of the State of California. Gold
Party Payday, Inc. was incorporated on September 19, 2011 under the laws of the state of Delaware for the sole purpose of acquiring
all of the outstanding membership units of Gold Party Payday, LLC and engaging in the business of Gold Party Payday, LLC. Prior
to the Merger transaction described more fully below in this Item 1, our business operations consisted of organizing events and
parties in which guests bring their unwanted jewelry, scrap gold and silver, coins and other gold and silver items to sell to
us at a discount, after which we resold the items to refineries. From inception to March 31, 2014 the Company recorded revenues
of $18,728 and incurred net losses of $80,073.
On
May 21, 2014, we closed a merger transaction (the “Merger”) with Canada Cannabis Corp., an Ontario (Canada) corporation
incorporated on January 20, 2014. Pursuant to the Merger, we acquired 100% of the issued and outstanding shares of common stock
of Canada Cannabis Corp. in exchange for the issuance of 1,016,503 shares of our common stock, par value $0.000001 and our wholly-owned
subsidiary formed for purposes of consummating the Merger, 2418146 Ontario Inc., amalgamated with Canada Cannabis Corp. The company
resulting from the amalgamation is our wholly-owned subsidiary and retains the Canada Cannabis Corp. name (“CCC”).
Also
on May 21, 2014 (the “Closing Date”), we closed a business transfer and indemnity agreement (the “Transfer Agreement”)
with Tatum L. Morita, who was our President, CEO, CFO, a director of the Company and our majority shareholder (holding 4,000,000
of 4,333,350 shares of our common stock immediately prior to the closing). Pursuant to the terms of the Transfer Agreement, Ms.
Morita (i) returned to the Company 4,000,000 shares of the Company’s common stock, (ii) agreed that outstanding loans made
by Ms. Morita to the Company in the aggregate amount of USD $7,100 are satisfied and paid in full, and (iii) agreed to indemnify
and hold harmless the Company and CCC with respect to all liabilities of the Company in existence, arising during, or relating
to the period prior to the Closing Date. Pursuant to the terms of the Transfer Agreement, the Company (i) transferred to Ms. Morita
the assets of the Company business, as in existence prior to the Closing Date, (ii) paid cash consideration to Ms. Morita in the
amount of USD $361,650, and (iii) agreed to, jointly and severally with CCC, indemnify and hold harmless Ms. Morita with respect
to all liabilities of the Company incurred after the Closing Date.
As
a result of the transactions effected by the Merger and the Transfer Agreement, (i) the business plan of the former Canada Cannabis
Corp., to market and manufacture medical marijuana products for sale in Canada, became the sole business of the Company’s
wholly-owned subsidiary, CCC, (ii) our sole business became investing in and supporting the business of CCC, and (iii) there was
a change of control whereby the former shareholders of the former Canada Cannabis Corp. obtained ownership of a controlling 75%
ownership interest in the Company. The merger completed is being accounted for as a reverse merger and recapitalization in which
Canada Cannabis Corp. is deemed to be the accounting acquirer. Consequently, the assets and liabilities and the operations that
will be reflected in the historical financial statements prior the merger will be those of Canada Cannabis Corp. and will be recorded
at the historical cost basis of Canada Cannabis Corp., and the consolidated financial statements subsequent to completion of the
merger include the assets and liabilities of the Company and Canada Cannabis Corp., and the operations of the combined Company
from the closing date of the merger. The Company did not recognize goodwill or any intangible assets in connection with the transaction.
The historical consolidated financial statements include the operations of the accounting acquirer for all periods presented.
The Company has retroactively restated the common shares outstanding and weighted average shares outstanding pursuant to 1) the
reverse merger share exchange ratio of 1:19.5 and 2) the special share dividend special share dividend of 19.5:1.
On
June 16, 2014 a majority of the shareholders of the Company by written consent authorized a special dividend, whereas each of
the shareholders of the common stock of the Company as of the close of business on June 30, 2014 would receive 19.5 shares for
every share of Company common stock owned. The dividend was approved by FINRA and became effective on October 3, 2014, after which
it was paid by the Company. The result of the special dividend was to increase the shares outstanding prior to the merger from
333,350 to 6,500,325 common shares.
On
July 16, 2014, we changed our name to Canadian Cannabis Corp. to more accurately reflect our current business operations. We also
changed our trading symbol from GPAY to CCAN, effective October 15, 2014, to reflect our name change.
| (b) |
Material
Transactions. |
During
the three months ended December 31, 2014, the Company sold 246,001 shares of its common stock for cash consideration of USD $3.00
per share, or approximately USD $738,000, the Company also sold 15,000 shares of its common stock for cash consideration of USD
$2.50 per share, or approximately USD $37,500 and the Company sold 2,500 shares of its common stock for cash consideration of
USD $2.00 per share, or approximately USD $5,000.
In
addition to the above, On November 10, 2014 the Company entered into Subscription Agreements (collectively, the “Subscription”)
with two accredited investors for a total of USD $300,000 whereby the Company issued an aggregate of 200,000 shares of our common
stock, 1.2 million warrants to purchase our common stock and committed to issue another 800,000 warrants to purchase our common
stock to the investors. Under the terms of the Subscription, each of the investors paid USD $150,000 and received 100,000 shares
of our common stock, 200,000 A Warrants to purchase common shares at $1.50 per share for a five year period, 400,000 B Warrants
to purchase common shares at $3.00 per share for a five year period and, upon the exercise of no less than 10,000 of the B Warrants,
the Company will issue to the investor 400,000 C Warrants to purchase common shares at $3.00 per share. Each of the warrants is
exercisable for a five year period from issuance. One of the investors who participated in this transaction was Richard Wachsberg,
who was subsequently appointed to our Board of Directors. The preceding description of the Subscription is incomplete and
qualified in its entirety by reference to the complete text of the form of the Subscription Agreement, which is attached hereto
as an Exhibit.
On
October 1, 2014, the Company issued a total of 750,000 shares of our common stock to three individuals pursuant to their employment
agreements. The fair market value of the stock at the time of the grants was $1.13 per share and a total of $847,500 was expensed
for the share issuance. The employment agreements provide for further issuances of common shares of 100,000 shares on each of
their first, second and third anniversaries and 50,000 shares on their fourth anniversary. The company has valued the total of
these issuances to these three individuals using the same $1.13 per share. The total incremental expense over the 5 years is $1,186,500.
The company is accruing for the related compensation over the vesting periods as they are earned and has recorded an accrued stock
payable and expense of $209,992 in 2014.
On
October 3, 2014 the Board of Directors approved the grant of 330,000 shares of our common stock to five individuals who are either
employees, contractors or directors as compensation for services provided to the Company during the start-up phase of the business.
The fair market value of the stock at the time of the grant was $1.13 per share and a total of USD $372,900 was expensed for the
share issuance.
On
October 30, 2014 the Company issued of 500,000 shares of our common stock for services provided to the Company during the start-up
phase of the business. The fair market value of the stock at the time of the grant was $3.00 per share and a total of USD $1,500,000
was expensed for the share issuance.
During the three months ended December 31,
2014, the Company issued an additional 301,239 shares of its common stock for services valued at USD $3.00 per share, or approximately
USD $903,717 which was expensed as professional fees.
On October 1, 2014
the Company issued 600,000 options to an employee to purchase shares of our common stock at $1.13 per share for a period of seven
years. 250,000 of the options vested immediately and 100,000 options vest each subsequent year for three years and 50,000 vest
after four years. On the date of the grant, the Company valued the options at USD $676,293 using the Black-Scholes option pricing
model with the following assumptions: expected life of the options of 7 years, expected volatility of 226.68%, risk-free rate
of 2.12% and no dividend yield. An expense of USD $329,852 was recognized based on the options that had vested during the year
ended December 31, 2014.
On October 1, 2014
the Company issued 50,000 options to another contract employee to purchase shares of our common stock at $1.13 per share for a
period of five years, all of which vested immediately. On the date of the grant, the Company valued the options at USD $55,890
using the Black-Scholes option pricing model with the following assumptions: expected life of the options of 5 years, expected
volatility of 226.68%, risk-free rate of 1.69% and no dividend yield. An expense of USD $55,890 was recognized based on the options
that had vested during the year ended December 31, 2014.
Brampton
Property-Related Transactions
On November 21, 2014 the Company and 2264793
Ontario Inc., an affiliated company that is consolidated as VIE (see Note 2 to the Financial Statements, Variable Interest Entities)
owned by several of our directors, officers, and shareholders (Benjamin Ward, John Esteireiro, Silvio Serrano, and Scott Keevil),
jointly issued a promissory note to Crimson Capital, LLC for CAD $600,000 (USD $515,940) to be used for various expenses related
to our Brampton property. The note bears a 54% per annum interest rate and matured on February 21, 2015, however the Company had
the ability to extend the note on a month-by-month basis. The loan was repaid in June 2015. Under a referral agreement signed
on November 1, 2014, Crimson Capital Investments, LLC was given 100,000 shares of our common stock as a fee for arranging the
financing. The fair market value of the stock at the time of the grant was USD $300,000.This value was used to determine a relative
fair market value to be ascribed between the loan and shares and resulted in $189,698 being recorded as a debt discount. The debt
discount is being amortized over the original term of the note, the Company recorded an expense of $86,880 in 2014. The preceding
descriptions of the promissory note and the referral agreement are incomplete and qualified in their entirety by reference to
the complete texts of the promissory note and the referral agreement, respectively, each of which is attached hereto as an Exhibit.
In
connection with the acquisition of the Brampton Property, the Company loaned to 2264793 Ontario Inc., an affiliated company that
is consolidated as a VIE (owned by several of our directors, officers, and shareholders: Benjamin Ward, John Esteireiro, Silvio
Serrano, and Scott Keevil), the amount of CAD $4,953,160 (approximately USD $4.3 million) to fund a portion of the down payment
on the Brampton Property (the “Down Payment Loan”). This Down Payment Loan is evidenced by a promissory note that
was prepared and dated December 31, 2014 made by 2264793 Ontario Inc. in favor of the Company in the amount of CAD $4,953,160
(approximately USD $4.3 million), bearing interest at a rate of 0%. The loan between 2264793 Ontario Inc. and the Company is eliminated
on Consolidation and as such, no imputed interest was calculated. The preceding description of the Down Payment Loan is incomplete
and qualified in its entirety by reference to the complete text of the Down Payment Loan promissory note, which is attached hereto
as an Exhibit.
Growlite
Investment
On March 31, 2014, CCC entered into an investment
agreement and loan agreement (collectively, the “Growlite Investment Agreement”) with 2393245 Ontario Inc. c.o.b.
Growlite Canada (“Growlite”) and Silvio Serrano (“Serrano”), the owner of 100% of Growlite at that time.
Mr. Serrano is a former Director and VP of the CCC. Pursuant to the terms of the Growlite Investment Agreement, CCC obtained a
45% ownership interest in Growlite in consideration of an equity cash investment in the amount of CAD $1,000,000 (approximately
USD $860,000). Additionally, the Company made a loan to Growlite in the amount of CAD $3,000,000 (approximately USD $2.6 million)
(the “Loan”) and has an additional receivable of CAD $160,000 (approximately USD $140,000).
Silvio Serrano is the primary beneficiary
of Growlite as he meets the power criterion by making all of the ongoing operating decisions for the company, is in control of
the bank account and is responsible for driving the company’s sales and marketing strategy. Mr. Serrano also meets the losses/benefits
criterion by having both the right to receive benefits and the obligation to absorb losses through his 55% ownership of the company.
Given these facts, CCC accounts for its Growlite though the equity method of accounting and does not consolidate Growlite in its
financial statements.
During the course of our audit for the fiscal
year ended December 31, 2014, we reviewed the unaudited financial statements of Growlite. During our review, we discovered that
the proceeds from the Loan were used by Growlite to make loans and advances to third parties and related parties (collectively,
the “Growlite-Made Advances”) for purposes other than to benefit the Growlite business (see Notes 5 and 10 of the
Notes to Consolidated Financial Statements in Item 8 below). While the Company believed that use of the Loan proceeds would be
limited to benefiting the Growlite business, the Growlite Investment Agreement did not contain any restrictions on the use of
proceeds. At this time, we cannot determine whether Growlite will be repaid the Growlite-Made Advances. Additionally, Growlite
has not made required quarterly interest payments on the Loan and is therefore in default of the Growlite Investment Agreement.
In
response to these findings, the Company renegotiated with Growlite to collateralize the Loan and in May 2015 entered into a Security
Agreement (the “Security Agreement”) by and between our subsidiary, Canada Cannabis Corp., and 2393245 Ontario Inc.
c.o.b. Growlite Canada, made effective as of March 31, 2014, the date of the Loan. Pursuant to the Security Agreement, we have
secured a portion of the Loan by obtaining from Growlite a general security interest over all of Growlite’s existing and
future property, including tangible and intangible property, equipment, inventory, receivables, accounts, and the proceeds of
all of the foregoing. Based on the Growlite financial statements, the Security Agreement secures approximately one-third of the
entire Loan amount. Subsequent to this analysis the Company was informed that a manufacturer’s defect has been identified
in Growlite’s most popular fixture that has resulted in the request for all customers to stop using the product. Given the
uncertainty of the value of the remaining inventory and the financial and reputational harm Growlite will incur, the Company has
determined that the collateral is likely worthless and provides very little security for the Loan and has thus chosen to write
down its investment to zero and fully provide for the loan and receivable due from Growlite. The preceding description of the
Security Agreement is incomplete and qualified in its entirety by reference to the complete text of the Security Agreement, which
is attached hereto as an Exhibit.
Pursuant
to the Company’s new business plan, we intend to operate under the Marijuana for Medical Purposes Regulation (the “MMPR”)
to manufacture and market medical marijuana products in Canada and internationally, as permitted by local laws. We recently changed
our business plan as a result of the Merger and have not yet commenced material operations accordingly. We are currently engaged
in various startup activities to establish the business in preparation for commencing full operations in the production and supply
of medical marijuana in accordance with our business plan following licensure by Health Canada, the Canadian government agency
charged with enforcing the MMPR.
On
April 3, 2014, we submitted to Health Canada an application to obtain our initial license to produce and supply medical marijuana
under the MMPR. At the request of Health Canada, we subsequently submitted several updates to the application to comply with several
rule changes made by Health Canada as the agency continues to develop the MMPR regulatory scheme. Representatives of the Company
have maintained ongoing engagement with Health Canada regulators in charge of licensing throughout the licensing process.
The
Company has completed the initial phases of licensure by satisfying the requirements to be licensed as a producer by Health Canada.
We have recently learned that all key personnel of the Company have successfully completed the security clearance stage and, as
of the date of this Annual Report, the Company has advanced to the review stage of the licensing process. During the review stage,
Health Canada will thoroughly review our application for verification of the information we provided. Additionally, our physical
security plans (pursuant to which we must build out our grow facility) will be assessed in detail to confirm that the plans meet
licensure requirement.
We
believe the advancement into the review stage is a significant achievement. We believe that, as of the date of this Annual Report,
very few other new license applicants have advanced to this stage of licensure review. While this advancement in the licensure
process does not guarantee that we will ultimately receive the producer license from Health Canada, we are confident that our
application and physical security plans satisfy the licensure requirements.
The Company currently maintains our corporate
offices in an approximately 312,000 square foot industrial building located in Brampton, Ontario (the “Brampton Property”),
approximately 23 kilometers (12 miles) from Pearson International Airport, within the Greater Toronto Area. We intend for the
Brampton Property to be our initial business operations base, housing our initial licensed grow and production facility. Accordingly,
we have taken possession of the Brampton Property and commenced phase one of renovations to prepare approximately 120,000 square
feet of the facility for such purposes. Title to the Brampton Property is currently held by a company that is owned by several
of our directors, officers, and shareholders. The medical marijuana regulatory environment in Canada is experiencing significant
uncertainty. Health Canada’s change removing the ready to build approval makes it very difficult and risky for
potential medical marijuana licensees to pass the final licensure stage. The Company continues to consider every avenue
of its business plan. Due to this continued regulatory uncertainty, particularly the changes and delays in medical marijuana
licensing process, the Company’s contingency plans may include entertaining the sale of the Brampton Property. If
such transaction were to occur, the Company would consider using proceeds from any such sale to continue pursuing other avenues
to achieve our business plan, including potential acquisitions of other medical marijuana licensees and pursuing alternative medical
marijuana products and technology, both in Canada and internationally, or another suitable property to replace the Brampton Property.
In addition to its core business, the Company
also owns a 45% interest in 2393245 Ontario Inc. c.o.b. Growlite Canada (“Growlite”). Growlite produces and distributes
a patented horticulture lighting system capable of providing substantial energy efficiencies compared to its competitors, as well
as replacement bulbs and other horticultural lighting accessories. The Company has recently learned that a manufacturer’s
defect in Growlite’s most popular fixture has caused substantial damage to the Growlite business. As a result, the Company
believes that Growlite will be unable to provide the expected benefits to the Company and has written off its investment, loan
and receivable from Growlite. Please see the subsection titled Growlite Investment located in Item 1.section (b) above for a full
discussion.
Due
to various circumstances, such as the unknown definitive completion date of renovations at the Brampton Property and the unknown
status of our medical marijuana production license application, we cannot currently determine with confidence when we expect to
commence operations.
Products
As
we are in the early stages of development and have not at this point in time commenced material operations, we have yet to develop
the specific products that we will offer. However, we intend to offer up to 15 different strains of dried marijuana, as well as
the constituents necessary to produce edible and elixir products for medicinal use. Each strain will likely differ in the concentration
of tetrahydrocannabinol (THC) and cannabidiol (CBD), the main cannabinoid constituents found in the marijuana plant with application
to medical use, present in each strain. Additionally, there may be variations to the presence and concentration of other cannabinoids
and related chemical constituents found in the marijuana plant. We intend to design these chemical variations between the strains
to provide a variety of products tailored to treatment protocols, as to the effectiveness with respect to certain medical conditions
and alteration of the adverse side effects of each strain, which is intended to address the needs of the broadest cross section
of potential authorized customers.
Market,
Opportunities and Competition
Since
2001, regulations adopted by Canada’s national healthcare department, Health Canada, have permitted the use of marijuana
to treat certain medical conditions. However, prior to the effectiveness of the MMPR in April 2014, a legal private commercial
market for medical marijuana in Canada did not exist. Instead, individuals with physician authorization to use medical marijuana
could either grow marijuana for their own use or obtain small amounts to fill their prescription through the lone producer contracted
by Health Canada. With the passage of the MMPR, all production and supply of medical marijuana must be conducted through a private
commercial enterprise licensed and regulated by Health Canada. The MMPR has, in effect, created a brand new legalized private,
commercial market for the production and sale of medical marijuana in Canada.
Under
the MMPR, licensed producers can distribute medical marijuana to individuals who (i) currently have an authorization to possess
issued by Health Canada, or (ii) obtain a valid medical document from a physician authorizing the use of marijuana for medical
purposes and register with and order from a licensed producer. The maximum amount that can be distributed to any one individual
at a time is approximately 5 ounces (150 grams).
Currently,
there are approximately 40,000 individuals who are qualified to purchase and use medical marijuana in Canada. Under the prior
regulatory scheme, only 13% of the authorized users obtained their medical marijuana from the producer contracted by Health Canada.
This leaves approximately 87% of the currently authorized users who are expected to change their supplier of medical marijuana
to a licensed producer under the MMPR, although this transition may be somewhat slowed by pending legal challenges in the Federal
courts of Canada regarding the requirement of private growers to destroy their existing plants. Currently, pricing of medical
marijuana ranges from CAD $5 to CAD $15 per gram. According to Health Canada, over the next decade the number of authorized users
is expected to increase to approximately 450,000 authorized users, with some estimating that the medical marijuana industry may
increase to a $1 billion dollar industry within that same time frame.
According
to Health Canada, there are currently at least 26 fully authorized licensed medical marijuana producers. It is unknown how many
producer license applications have been submitted to Health Canada and are currently being processed for approval. While there
has been no indication that Health Canada may limit the number of producer licenses it issues, we believe that responsible regulation
and licensing may prove a significant barrier to entry in the medical marijuana market for many due to the stringent requirements
of both initial licensure and ongoing operation.
In
addition, there is substantial startup cost associated with beginning a production operation. The comprehensive licensing process
may prove quite lengthy and expensive. Moreover, the acquisition and maintenance cost of equipment and grow space, as well as
the preparation of necessary operating procedures, product security and quality control design is significant. Furthermore, there
exists a significant length of time between commencement of material operations and revenue generation due to the production process.
With limited resources of capital available to the industry via debt financing from traditional sources, we believe the startup
costs create a formidable barrier to entry.
Because
the private commercial market for medical marijuana in Canada is in its infancy, the vast majority of all participants are new
to this market. In addition to the other licensed producers, we will also face competition from the illegal cannabis market. However,
we believe that, once licensed, we will be well positioned with respect to this growing market, mainly due to our status as a
public reporting company, current financing, our business plan, expected production capacity, and strategic business partnerships
within the industry.
Seasonality
Although
we are not yet engaged in material operations with respect to our new business plan, we do not expect that our business will be
seasonal.
Distribution
As
we are still in the startup stages and have not at this point in time commenced material operations, we have yet to develop methods
of distribution for our products.
Suppliers
We
anticipate that we will initially rely upon unrelated outside suppliers for marijuana plant tissue cultures to commence our grow
operations. We will likely also rely on unrelated outside suppliers to provide various grow related accessories, such as irrigation
systems, harvesting tools and drying and storage materials. As we are still in the development stages and have not at this point
in time commenced material operations, we have yet to identify our initial suppliers for the foregoing needs. Following commencement
of material operations, we may be able to satisfy at least a portion of our requirement for marijuana plant tissue cultures internally
from prior crops.
We
had anticipated that Growlite would be a strategic supplier providing our grow lights and related accessories. As a result of
Growlite’s current recall and the fact we are still in the early stages of development no arrangements are expected at this
time.
If
we were unable to identify suppliers or come to terms with any suppliers to satisfy our initial needs to commence operations,
our ability to develop our products may be adversely affected, and as such, we may be unable to meet our customer’s requirements.
This could result in significant loss of revenues and damage to our customer relationships, which could have a material adverse
effect on our business, results of operations, and financial condition.
Customers
We
expect that our customer base will initially consist primarily of authorized users throughout Canada, many of whom were authorized
users under the prior regulatory scheme and obtained their product through private growers who are no longer permitted to grow
marijuana. We anticipate that the initial customer market for the entire industry will consist of approximately 34,000 to 40,000
authorized users. The size of the customer market is expected to grow to approximately 450,000 authorized users in 10 years.
Employees
At
this time, we have 8 full time employees and 1 part time employee. Our employees, including our CEO, provide services pursuant
to employment contracts. Our remaining executives provide services pursuant to independent contractor agreements. Our CEO, President,
and Director, Mr. Benjamin Ward, dedicates 100% of his time to the Company. The Chair of our Advisory Board, Ms. Mariana Bracic,
our Vice President and Director, Mr. Peter Strang, and our Vice President of Finance, Mr. Jim Creamer, provide services to us
on an as-needed basis.
Research
and Development Expenditures
As
we have not yet received a License for production or commenced material operations, we have not engaged in nor incurred any research
or development expenditures since our inception.
Intellectual
Property
We
do not currently own any intellectual property in need of protection. If we identify intellectual property that is protectable,
we intend to seek such protection through the appropriate avenues, such as copyright or trademark protection, for the benefit
of our competitive advantage.
Government
Regulation and Standards
Canada
In
Canada, where we operate, the use of marijuana for medicinal purposes has been legal and regulated by Health Canada since the
passage of the Marijuana Medical Access Regulation (the “MMAR”) in 2001. Under the MMAR, patients with physician prescribed
authorization could obtain marijuana through Health Canada, grow privately for personal use or designate a third party for private
growth.
On
April 1, 2014, the MMAR was replaced by the MMPR (Marijuana for Medical Purposes Regulation). The MMPR treats marijuana similarly
to other narcotic pharmaceuticals used for medical purposes by establishing a regulated privatized industry for the controlled
production and commercial distribution of medical marijuana to authorized users in Canada. As of March 31, 2014, all production
licenses issued under the MMAR were to expire and existing marijuana plants possessed by private growers were to be destroyed
with the effectiveness of the MMPR. However, due to pending litigation on these issues in the Federal Courts of Canada, Health
Canada continues to honor the licenses issued under the MMAR until a decision is rendered in these cases.
Under
the MMPR, Health Canada will license entities to engage in medical marijuana production and distribution. Health Canada will also
formulate and enforce production and distribution standards for the licensed producers. Patients will continue to be prescribed
authorized use by a physician, and then authorized users will be required sign up with a licensed producer to obtain their prescribed
product. Because the MMPR is so new, it is difficult to accurately predict with confidence the ongoing costs of compliance and
developments in the law. Non-medicinal use of marijuana remains illegal in Canada.
United
States
As
of the date of this Annual Report, 23 states and the District of Columbia permit the use of medical marijuana and approximately
10 other states either permit the use or have officially sanctioned studies on the medical efficacy of Cannabidiol (CBD), an oil
extracted from the marijuana plant. Additionally, 4 states have passed laws permitting non-medicinal use of marijuana by adults.
However, marijuana remains a Schedule-I controlled substance, the use of which for any reason remains illegal under federal law.
Even in those states in which the use of marijuana has been legalized, its use remains a violation of federal laws.
Despite
the illegality of marijuana use under United States federal law, we have not discovered a legal basis under United States federal
law by which our wholly-owned Canadian subsidiary, Canada Cannabis Corp., is prohibited from producing or supplying marijuana
in compliance with Canadian law. Additionally, we do not believe there to be a legal basis for any action against the Company
by United States federal authorities for such activity. Furthermore, we do not believe there to be any basis under which federal
authorities may take action against our shareholders based on ownership of our stock and our business activities, although the
position of the Department of Justice (“DOJ”) on the subject and whether the DOJ will take any action based on such
a position, once formalized, remains unclear. However, because of the novelty of this issue and lack of available precedents,
we can neither predict how current and future federal authorities will interpret and enforce existing laws nor how laws adopted
in the future may affect our ability to carry on business and the status of investments in the Company.
Environmental
Laws
We
have not incurred and do not anticipate incurring any expenses associated with environmental laws. We have not yet and do not
currently expect to make significant capital expenditures in order to comply with applicable environmental laws and regulations.
We cannot predict with certainty our future capital expenditure requirements because of continually changing compliance standards
and environmental technology. We do not have insurance coverage for environmental liabilities and do not anticipate obtaining
such coverage in the future unless needed due to new or evolved business plans. We have budgeted CAD $250,000 (USD $214,975) to
perform soil remediation work at the Brampton facility although it is not currently a requirement to do so.
Reports
to Security Holders
We
will continue to be a reporting company and will comply with the requirements of the Exchange Act. We will file quarterly and
annual reports and other information with the SEC, and we will send a copy of our annual report together with audited consolidated
financial statements to each of our shareholders.
The
public may read and copy any materials the Company files with the SEC at the SEC's Public Reference Room at 100 F Street, N.E.,
Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. Additionally, the SEC maintains an Internet site that contains reports, proxy and information statements, and
other information regarding issuers that file electronically with the SEC, which can be found at http://www.sec.gov.
An
investment in our Company is highly speculative in nature and involves an extremely high degree of risk.
We
are an early stage company with a limited operating history and may never be able to effectuate our business plan or achieve sufficient
revenues or profitability; at this stage of our business, even with our good faith efforts, potential investors have a high probability
of losing their entire investment.
We
are subject to all of the risks inherent in a development stage company. In particular, potential investors should be aware that
we have not proven that we can:
| ● | raise
sufficient capital in the public and/or private markets; |
| | | |
| ● | have
access to a line of credit in the institutional lending marketplace for the expansion
of our business; |
| | | |
| ● | respond
effectively to competitive pressures; or |
| | | |
| ● | recruit
and build a management team to accomplish our business plan. |
Accordingly,
our prospects must be considered in light of the risks, expenses and difficulties frequently encountered in establishing a new
business, and our Company is a highly speculative venture involving significant financial risk.
The
Company was recently formed, has no operating history, and may never be profitable.
Since
the Company has not commenced material operations, it is difficult for potential investors to evaluate the Company’s business.
The Company will need to raise capital through private offerings, debt financing, or by other means to be able to fund its operations.
There can be no assurance that the Company will be profitable or that the stock of the Company will have any value.
We
have a limited track record that would provide a basis for assessing our ability to conduct successful business activities. We
may not be successful in carrying out our business objectives.
The
revenue and income potential of our proposed business and operations are unproven as a limited operating history makes it difficult
to evaluate the future prospects of our business. There is limited information at this time on which to base an assumption that
our business operations will prove to be successful or that we will ever be able to operate profitably. Accordingly, we have a
limited track record of successful business activities, strategic decision making by management, fund-raising ability, and other
factors that would allow an investor to assess the likelihood that we will be successful in marketing our services. As such, there
is a substantial risk that we will not be successful in generating sufficient operating revenues or in achieving profitable operations,
irrespective of competition.
The
time needed to obtain regulatory approvals and respond to changes in regulatory requirements could adversely affect our business.
Our
ability to commence full operations is subject to regulation by Health Canada and other governmental or public health agencies.
In particular, we are required to obtain a production license from Health Canada to cultivate our product and will continue to
be subject to strict governmental controls on the cultivation, harvesting, processing, labeling, distribution and marketing of
our products. In addition, in the jurisdictions where the use of our products is legal, we will likely be required to obtain approval
or registration with foreign governments or regulatory bodies before we can import and sell our products in foreign countries.
The
process of obtaining required approvals or clearances from governmental or public health agencies can involve lengthy and detailed
application processes, laboratory testing, sampling activities and other costly, time-consuming procedures. The submission of
an application to Health Canada or other regulatory authority for licensure or other regulatory approvals or compliance does not
guarantee that an approval or clearance to produce and supply our products will be received. Each authority may impose its own
requirements and delay or refuse to grant approval or clearance, even though a product has been approved by other authorities
within the same government or by the authorities of other governments.
Moreover,
the license approval process can be complex and lengthy. This time span increases our costs to obtain licensure prior to being
able to commence operations that may generate revenue and increases the risk that we will not succeed.
Because
regulation of the medical marijuana industry is quite new, the laws and regulations are broad in scope and subject to evolving
interpretations, which could require the Company to incur substantial costs associated with compliance or alter its business plan.
In addition, violations of these laws, or allegations of such violations, could disrupt the Company’s business and result
in a material adverse effect on its operations. Newly promulgated or changed regulations could also require us to undergo additional
licensure and regulatory compliance processes and procedures, or could make it impractical or impossible for us to produce or
market our products for certain uses in certain markets, or at all. The Company cannot predict the nature of any future laws,
regulations, interpretations or applications, nor can the Company determine what effect additional governmental regulations or
administrative policies and procedures, when and if promulgated, could have on its business.
The
regulations in some jurisdictions may restrict our ability to sell products in those jurisdictions. While we intend to work with
local legislators and regulators to remove or modify any applicable restrictions, there is no guarantee we will be successful
in these efforts.
The
Company may not be able to obtain additional licenses.
In
addition to its initial license from Health Canada, which has been applied for but not received, the Company’s business
plan calls for it to obtain additional production licenses through strategic acquisition. If the Company is unable to successfully
identify targets and close acquisitions to obtain those licenses, its potential for growth and profitability may be limited.
The
Company’s business is dependent on laws pertaining to the marijuana industry.
Continued
development of the marijuana industry is dependent upon continued legislative authorization of marijuana. While there may be ample
public support for legislative authorization, numerous factors impact the legislative process. Any one of these factors could
slow or halt use of marijuana in Canada or in other jurisdictions, which would negatively impact the Company’s proposed
business.
Additionally,
many U.S. state laws are in conflict with the federal Controlled Substances Act, which makes marijuana use and possession illegal
on a national level. While the Company does not intend to harvest, distribute or sell marijuana in the United States, it is unclear
whether regulatory authorities in the United States would object to the registration or public offering of securities in the United
States by the Company, to the status of the Company as a reporting company, or even to investors investing in or a United States-based
parent company owning a subsidiary that engages in marijuana production and supply pursuant to the laws and authorization of the
jurisdiction where the activity takes place. Any such objection or interference could delay indefinitely or increase substantially
the costs to access the United States equity markets.
The
marijuana industry faces strong opposition.
It
is believed by many that large well-funded businesses may have a strong economic opposition to the marijuana industry. The Company
believes that the pharmaceutical industry may seek to block competitive products. For example, medical marijuana will likely adversely
impact the existing market for the current “marijuana pill” sold by mainstream pharmaceutical companies. Further,
the medical marijuana industry could face a material threat from the pharmaceutical industry, should marijuana displace other
drugs or encroach upon the pharmaceutical industry’s 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 or impeding the marijuana industry could have a detrimental impact on the Company’s proposed business.
If
we are unable to obtain additional funding, our business operations will be harmed.
We
will require additional funds to operate our business and address all necessary infrastructure concerns. We anticipate that we
will require a minimum of $23,000,000 to fund our continued operations for the next twelve months and, more specifically, initiate
the cultivation process. The inability to raise the required capital will restrict our ability to grow and may reduce our ability
to continue to conduct business operations. If we are unable to obtain necessary financing, we will likely be required to curtail
our development plans which could cause the Company to become dormant. Any additional equity financing may involve substantial
dilution to our then existing shareholders.
There
is substantial doubt about our ability to continue as a going concern.
In
their audit report with regard to the financial statements of the Company as of December 31, 2014, our independent registered
public accountants have expressed an opinion that substantial doubt exists as to whether we can continue as a going concern. Because
we have limited cash resources, we believe that if we do not raise additional capital within the next 12 months, we may be required
to suspend or cease the implementation of our business plan. As such we may have to cease operations and our investors could lose
their entire investment. Accordingly, we may find it difficult or impossible to attract investors.
Adverse
capital and credit market conditions may significantly affect our ability to meet liquidity needs, access to capital and cost
of capital.
If
the condition of the credit and capital markets materially declines, we might not be able to obtain financing on terms we consider
acceptable, if at all. In addition, traditional debt financing resources have been reluctant to engage with and lend to participants
in the medical marijuana industry because of potential compliance issues for those parties caused by the continued criminalization
of marijuana in many jurisdictions. Moreover, disruptions, weakness and/or volatility in domestic and global financial markets
or economic conditions, generally, may increase the interest rates that lenders and commercial paper investors require us to pay
and adversely affect our ability to finance our capital expenditures, through borrowings or alternative capital sources, such
as other equity or debt offerings. Without sufficient liquidity, we will be forced to curtail our operations, and our business
will suffer. Additionally, once we commence material operations, such conditions may significantly reduce our profitability and
decrease our financial flexibility. Our results of operations, financial condition, cash flows and capital position could be materially
adversely affected by such factors. There can be no assurance that the Company will be able to obtain the capital needed to continue
operations.
Limited
access to the services of banks may adversely affect our ability to meet liquidity needs and function efficiently.
As
discussed above, the use of marijuana is illegal under United States federal law and the law of many other jurisdictions. Therefore,
there is a compelling argument that banks in these jurisdictions cannot accept for deposit funds from the medical marijuana industry
and therefore cannot do business with us. Because of these limitations, we may have trouble finding a bank willing to accept our
business. Banking regulators have provided minimal guidance to banks on the ability to conduct business with the medical marijuana
industry and many legislative efforts have been undertaken to further clarify and permit banks to provide services to and transact
business with the medical marijuana industry. To date, these legislative efforts have yet to succeed to clearly permitting banks
to engage in business transactions with the medical marijuana industry and there can be no assurance such legislation will prove
successful. In light of this, despite the guidance of some banking regulators, most banks remain hesitant to do business with
the medical marijuana industry in the absence of actual legislation, concerned that banking regulators of the applicable jurisdictions
may strictly enforce current prohibitions on banks handling funds generated from an activity that is illegal under federal law.
Our inability to open accounts and otherwise use the service of banks may make it difficult for us to access capital or credit
lines, meet our liquidity needs, and otherwise function efficiently and effectively as an operating business.
Our
ability to sell products could be adversely affected by competition from new and existing licensed medical marijuana producers
and by treatment or other non-marijuana based products which may be developed.
The
commercial medical marijuana industry is quite new in Canada and is highly competitive and rapidly changing. Some of our principal
competitors have already received a producer license from Health Canada, thus allowing them to commence cultivation of marijuana
plants. These competitors may be able to bring their medical marijuana to market before we are able to and establish themselves
as a supply source to authorized users. Additionally, as new strains of medical marijuana products enter the market, our products
may become obsolete or a competitor’s products may be more effective or more effectively marketed and sold than ours. If
we fail to establish, maintain and enhance a competitive position as a producer of high-quality medical marijuana effective at
treating our customer’s conditions and symptoms, our customers may decide to use products developed by competitors which
could result in a loss of revenues.
In
addition, the development and commercialization of products outside of the medical marijuana industry could adversely affect sales
of our product. For example, the development of safe and effective alternative pharmaceuticals or treatments regimens for the
diseases or conditions that our medical marijuana products are designed to alleviate or treat, could reduce, or eventually eliminate
the demand for our products and thereby result in a loss of revenues.
Our
research, development and commercialization efforts may not succeed or our competitors may develop and commercialize more effective
or successful diagnostic products.
In
order to remain competitive, we must regularly commit substantial resources to research and development and the commercialization
of new medical marijuana strains and products.
We
believe that the research and development process will generally take a significant amount of time from inception to commercial
product launch. This process is conducted in various stages. During each stage there is a substantial risk that we will not achieve
our goals on a timely basis, if at all, and we may have to abandon a product in which we have invested substantial amounts of
resources.
Successful
products require significant development and investment, including testing, to demonstrate their treatment effectiveness, cost-effectiveness
or other benefits prior to commercialization. In addition, regulatory approval may be required before products may be sold. Additional
development efforts on products requiring pre-approval may be required before any regulatory authority will review them. Regulatory
authorities may not approve these products for commercial sale. In addition, even if a product is developed and all applicable
regulatory approvals are obtained, there may be little or no market for the product. Accordingly, if we fail to develop commercially
successful products, or if competitors develop more effective products or a greater number of successful new products, customers
may decide to use products developed by our competitors. This would result in a loss of revenues and adversely affect our results
of operations, cash flows and business.
If
we lose our key personnel or are unable to attract and retain qualified personnel as necessary, our business could be harmed.
Our
success will depend to a large extent upon the contributions of our executive officers, management, and sales, marketing, operations,
horticultural and scientific staff. We may not be able to attract or retain qualified employees in the future due to the intense
competition for qualified personnel among medical marijuana businesses.
If
we are not able to attract and retain the necessary personnel to accomplish our business objectives, we may experience constraints
that will adversely affect our ability to effectively cultivate, harvest, process, sell and market our products, to meet the demands
of our customers in a timely fashion, or to support internal research and development programs. Although we believe we will be
successful in attracting and retaining qualified personnel, competition for experienced horticulturalists, scientists and other
personnel from numerous industries, companies and academic and other research institutions may limit our ability to do so on acceptable
terms.
We
may be held liable for injuries resulting from the use of our products.
We
may be held liable if any of our products is found to be the cause of, or a contributing factor in the cause of, injury of any
type or is found otherwise unsuitable during product testing, cultivation, harvesting, processing, marketing, sale or usage. Although
we intend to insure against such potential risks prior to implementation of the commercialization of our products, to the extent
that insuring against such risks is possible and economically feasible and efficient, in our determination, this insurance may
not fully cover potential liabilities. As we bring new products to market, we may need to increase such insurance coverage.
Efforts
to consolidate, restructure or participate in mergers and acquisitions could adversely affect our business.
We
may from time to time restructure and consolidate various aspects of our operations, or participate in strategic mergers or make
acquisitions in order to achieve cost savings and other efficiencies and grow our Company. We may be required to obtain Health
Canada approval or reapply for any licenses then issued to transfer certain operations to another location or consummate a merger
or acquisition. This transfer or consolidation of operations and the need to obtain Health Canada approval or reapply for existing
licenses could interfere with or delay our cultivation, harvesting, and processing activities and disrupt continued operations.
If the Company deems the associated risks as being too great, we may even forgo such opportunities and reassess alternative avenues
to reducing costs, maximizing efficiency, and/or growing the Company. Any delay in or disruption of operations, and in particular
cultivation, harvesting, and processing operations, could result in increased costs or could delay or prevent us from selling
certain products and thereby result in a loss of revenue.
Our
existing and future acquisitions or investments could disrupt our ongoing business, distract our management, increase our expenses
and adversely affect our business.
We
have already made significant strategic acquisitions and investments as a means to expand and diversify our business and we may
consider additional strategic acquisitions or investments as a way to expand our business in the future. These activities, and
their impact on our business, are subject to the following risk factors:
| ● | Such
acquisitions or investments may be subject to regulatory approval or the requirement
to reapply for existing licenses issued by Health Canada or other regulatory authorities; |
| | | |
| ● | Suitable
acquisitions or investments may not be found or consummated on terms that are satisfactory
to us; |
| | | |
| ● | We
may be unable to successfully integrate an acquired company’s personnel, assets,
management systems and technology into our business; |
| | | |
| ● | Acquisitions
and investments may require substantial expense and management time and could disrupt
our business; |
| | | |
| ● | An
acquisition and subsequent integration activities may require greater capital resources
than originally anticipated at the time of acquisition; |
| ● | An
acquisition or investment may result in the incurrence of unexpected expenses, the dilution
of our earnings or our existing stockholders’ percentage ownership, or potential
losses from undiscovered liabilities not covered by an indemnification from the seller(s)
of the acquired business; |
| | | |
| ● | An
acquisition may result in the loss of existing key personnel or customers or the loss
of the acquired company’s key personnel or customers; |
| | | |
| ● | The
value and benefits to be derived from an acquisition or investment could be adversely
affected by other factors, such as regulatory developments, general economic conditions,
increased competition, poor acquisition or investment structure, and lack of control
over the operations of the target or asset company; and |
| | | |
| ● | An
acquisition of or investment in a foreign business may involve additional risks, including
not being able to successfully assimilate differences in foreign business practices or
overcome language barriers. |
The
incurrence of one or more of the above or other factors may prevent us from achieving all or a significant part of the benefits
expected from an acquisition or investment. This may adversely affect our financial condition, results of operations and ability
to grow our business.
The
use of sole supply sources for critical components of our production process could adversely affect our business.
If
suppliers of certain products we utilize in our production process, such as marijuana tissue cultures, plant nutrients and indoor
lighting systems, are unable or unwilling to supply the required component, we would need to find another source for replacement
products for use in our production process. Identifying and negotiating with replacement suppliers and obtaining the replacement
supplies could require significant time to complete and may not occur at all. These events could either disrupt our ability to
cultivate, harvest, process and sell our products or completely prevent us from doing so. Either event would have a material adverse
effect on our results of operations, cash flows and business.
We
may depend upon strategic partners to provide processing supplies or assist in developing and commercializing some of our products.
Although
we intend to pursue some product opportunities independently, opportunities that require a significant level of investment for
development and commercialization may necessitate involving one or more strategic partners. In particular, our cultivation strategy
involves the use of efficient and effective indoor lighting systems, which we expected to be provided by our affiliate, Growlite
Canada. We will need to focus on identifying new suppliers for indoor lighting systems, which we expect may involve the use of
experimental lighting designs, as well as new, unproven lighting and other cultivation-related products which could have a material
adverse effect on the effectiveness of our cultivation and ability to produce a high quality product that generate sales and revenue
for the Company. In developing marijuana strains, the Company may engage corporate partners, universities, research laboratories,
competing licensees and others for a more expansive research and development network. We may be required to transfer material
rights to such strategic partners, licensees and others. While we expect that our future partners have and will have an economic
motivation to succeed in performing their contractual responsibilities, the amount and timing of resources to be devoted to these
activities will be controlled by others. Consequently, there can be no assurance that any revenues or profits will be derived
from such arrangements.
Our
success depends on our ability to protect our proprietary technology.
The
medical marijuana industry places considerable importance on the development of proprietary production processes and cultivation
modifications that produce marijuana strains and varieties and the ability to obtain patent, trademark, and trade secret protection,
as well as other intellectual property rights, for new strains, varieties, products and processes. Our success depends, in part,
on our ability to effectively protect our creations and maintain a strong intellectual property portfolio or obtain licenses to
patents for products and technologies.
As
appropriate, we intend to file patent applications and obtain patent protection for our proprietary processes and technology.
These patent applications and patents will cover, as applicable, cultivation, harvesting and processing methods, methods and formula
for developing new or hybrid marijuana strains or varieties, and apparatus relating to the cultivation, harvesting, or processing
of our products. We will also rely on trade secrets, know-how, and continuing technological advancements to protect our proprietary
processes and developments.
We
have entered, and will continue to enter, into confidentiality agreements with our employees, consultants, advisors and collaborators.
However, these parties may not honor these agreements and we may not be able to successfully protect our rights to unpatented
trade secrets and know-how. Others may independently develop substantially equivalent proprietary information and techniques or
otherwise gain access to our trade secrets and know-how or obtain protection of such information and developments before we are
able to do so.
We
may engage employees, consultants or advisors, including scientific and management personnel, who were previously employed by
or otherwise worked with competing companies. Although we intend to encourage and expect all of these parties to abide by any
confidentiality agreement with respect to a prior employer or work relationship, competing companies may allege trade secret violations
and similar claims against us.
We
may collaborate with universities and governmental research organizations which, as a result, may acquire part of the rights to
any developments or process information derived from collaboration with them. To facilitate efficient cultivation, harvesting
or processing or commercialized marijuana products, we may need to obtain licenses to patents or other proprietary rights from
other parties. Obtaining and maintaining such licenses may require the payment of substantial costs. In addition, if we are unable
to obtain these types of licenses, our product development and commercialization efforts may be delayed or precluded.
A
market for our products may not develop.
Our
future success will depend, in part, on the market acceptance, and the timing of such acceptance, of new marijuana strains and
varieties that we develop, cultivate and introduced in the future. To achieve market acceptance, we must make substantial marketing
efforts and spend significant funds to inform potential customers and the public of the perceived benefits of these products.
We currently have limited evidence on which to evaluate the market reaction to products that may be developed, and there can be
no assurance that any products will meet with market acceptance and fill the market need that is perceived to exist.
Because
new legislation, including the Sarbanes-Oxley Act of 2002, increases the cost of compliance with federal securities regulations
as well as the risks of liability to officers and directors, we may find it more difficult for us to retain or attract officers
and directors.
The
Sarbanes-Oxley Act of 2002 was enacted in response to public concerns regarding corporate accountability in connection with recent
accounting scandals. The stated goals of the Sarbanes-Oxley Act are to increase corporate responsibility, to provide for enhanced
penalties for accounting and auditing improprieties at publicly traded companies, and to protect investors by improving the accuracy
and reliability of corporate disclosures pursuant to the securities laws. The Sarbanes-Oxley Act generally applies to all companies
that file or are required to file periodic reports with the SEC, under the Securities Exchange Act of 1934. As a public company,
we will be required to comply with the Sarbanes-Oxley Act and it is costly to remain in compliance with the federal securities
regulations. Additionally, we may be unable to attract and retain qualified officers, directors and members of board committees
required to provide for our effective management as a result of Sarbanes-Oxley Act of 2002. The enactment of the Sarbanes-Oxley
Act of 2002 has resulted in a series of rules and regulations by the SEC that increase responsibilities and liabilities of directors
and executive officers. The perceived increased personal risk associated with these recent changes may make it more costly or
deter qualified individuals from accepting these roles. Significant costs incurred as a result of becoming a public company could
divert the use of finances from our operations resulting in our inability to achieve profitability.
There
is currently a limited trading market for our common stock, which will limit the ability of our stockholders to liquidate their
investment.
Only
a small percentage of our outstanding shares of our common stock is registered and freely transferrable, and there has been no
material market activity since inception of the Company. The rest of our outstanding shares of common stock cannot be offered,
sold, pledged or otherwise transferred unless subsequently registered pursuant to, or exempt from registration under, the Securities
Act of 1933, as amended (the “Securities Act”) and any other applicable federal or state securities laws or regulations.
These market conditions and restrictions will limit the ability of our stockholders to liquidate their investment.
Shares
of our common stock that have not been registered under the Securities Act of 1933, as amended, regardless of whether such shares
are restricted or unrestricted, are subject to resale restrictions imposed by Rule 144, including those set forth in Rule 144(i)
which apply to a former “shell company.” In addition, any shares of our common stock that are held by affiliates,
including any received in a registered offering, will be subject to the resale restrictions of Rule 144(i).
Pursuant
to Rule 144 of the Securities Act of 1933, as amended (“Rule 144”), a “shell company” is defined as a
company that has no or nominal operations; and, either no or nominal assets; assets consisting solely of cash and cash equivalents;
or assets consisting of any amount of cash and cash equivalents and nominal other assets. As such, we may be deemed a “shell
company” pursuant to Rule 144 prior to the transactions effected by the Merger Agreement and the Transfer Agreement, and
as such, sales of our securities pursuant to Rule 144 are not able to be made until a period of at least twelve months has elapsed
from the date on which our Current Report on Form 8-K is filed with the Commission reflecting our status as a non-“shell
company.” Therefore, any restricted securities we sell in the future or issue to consultants or employees, in consideration
for services rendered or for any other purpose will have no liquidity until and unless such securities are registered with the
Commission and/or until a year after the date of the filing of our Current Report on Form 8-K reflecting our status as a non-“shell
company” and we have otherwise complied with the other requirements of Rule 144. As a result, it may be harder for us to
fund our operations and pay our employees and consultants with our securities instead of cash. Furthermore, it will be harder
for us to raise funding through the sale of debt or equity securities unless we agree to register such securities with the Commission,
which could cause us to expend additional resources in the future. Our previous status as a “shell company” could
prevent us from raising additional funds, engaging employees and consultants, and using our securities to pay for any potential
acquisitions, which could cause the value of our securities, if any, to decline in value or become worthless. Lastly, any shares
held by affiliates, including shares received in any registered offering, will be subject to the resale restrictions of Rule 144(i).
We
may not qualify to meet listing standards to list our stock on an exchange.
The
SEC approved listing standards for companies using reverse acquisitions to list on an exchange may limit our ability to become
listed on an exchange. We would be considered a reverse acquisition company (i.e., an operating company that becomes an Exchange
Act reporting company by combining with a shell Exchange Act reporting company) that cannot apply to list on NYSE, NYSE Amex or
Nasdaq until our stock has traded for at least one year on the U.S. OTC market, a regulated foreign exchange or another U.S. national
securities market following the filing with the SEC or other regulatory authority of all required information about the merger,
including audited financial statements. We would be required to maintain a minimum $4 share price ($2 or $3 for Amex) for at least
thirty (30) of the sixty (60) trading days before our application and the exchange’s decision to list. We would be required
to have timely filed all required reports with the SEC (or other regulatory authority), including at least one annual report with
audited financials for a full fiscal year commencing after filing of the above information. Although there is an exception for
a firm underwritten IPO with proceeds of at least $40 million, we do not anticipate being in a position to conduct an IPO in the
foreseeable future. To the extent that we cannot qualify for a listing on an exchange, our ability to raise capital will be diminished.
We
may, in the future, issue additional common shares, which would reduce investors’ percent of ownership and may dilute our
share value.
Our
Articles of Incorporation authorize the issuance of 95,000,000 shares of common stock. The future issuance of common stock may
result in substantial dilution in the percentage of our common stock held by our then existing shareholders. We may value any
common stock issued in the future on an arbitrary basis. The issuance of common stock for future services or acquisitions or other
corporate actions may have the effect of diluting the value of the shares held by our investors, and might have an adverse effect
on any trading market for our common stock.
The
issuance of preferred stock could adversely affect the voting power or other rights of the holders of our common stock.
Our
Articles of Incorporation authorizes the issuance of up to 5,000,000 shares of preferred stock with designations, rights and preferences
determined from time to time by our directors. Accordingly, our directors are empowered, without stockholder approval, to issue
preferred stock with dividend, liquidation, conversion, voting, or other rights which could adversely affect the voting power
or other rights of the holders of the common stock. In the event of issuance, the preferred stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in control of the Company.
Our
common shares may be subject to the “Penny Stock” Rules of the SEC and the trading market in our securities is limited,
which makes transactions in our stock cumbersome and may reduce the value of an investment in our stock.
The
Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for
the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price
of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules
require:
| ● | that
a broker or dealer approve a person’s account for transactions in penny stocks;
and |
| | | |
| ● | the
broker or dealer receive from the investor a written agreement to the transaction, setting
forth the identity and quantity of the penny stock to be purchased. |
In
order to approve a person’s account for transactions in penny stocks, the broker or dealer must:
| ● | obtain
financial information and investment experience objectives of the person; and |
| | | |
| ● | make
a reasonable determination that the transactions in penny stocks are suitable for that
person and the person has sufficient knowledge and experience in financial matters to
be capable of evaluating the risks of transactions in penny stocks. |
The
broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission
relating to the penny stock market, which, in highlight form:
| ● | sets
forth the basis on which the broker or dealer made the suitability determination; and |
| | | |
| ● | that
the broker or dealer received a signed, written agreement from the investor prior to
the transaction. |
Generally,
brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make
it more difficult for investors to dispose of our common shares and cause a decline in the market value of our stock.
Disclosure
also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the
commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the
rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to
be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny
stocks.
Because
we do not presently intend to pay any cash dividends on our common stock, our stockholders will not be able to receive a return
on their shares unless they sell them.
For
the indefinite future, we intend to retain any future earnings to finance the development and expansion of our business. We do
not anticipate paying any cash dividends on our common stock in the foreseeable future. Unless we pay dividends, our stockholders
will not be able to receive a return on their shares unless they sell them.
You
should consider the United States federal income tax consequences of owning our securities.
There
are risks associated with the United States federal income tax consequences of owning our common stock. Because the tax consequences
of owning our common stock are complex and certain tax consequences may differ depending on the holder's particular tax circumstances,
each potential investor should consult with and rely on its own tax advisor about the tax consequences. In addition, there can
be no assurance that the United States federal income tax treatment currently applicable to owning our common stock will not be
modified by legislative, administrative, or judicial action that may have a retroactive effect. No representation or warranty
of any kind is made with respect to the acceptance by the Internal Revenue Service or any court of law regarding the treatment
of any item of income, deduction, gain, loss or credit by an investor on its tax return.
| Item 1B. |
UNRESOLVED STAFF COMMENTS |
None.
We do not currently lease or own any real
property. We currently maintain our corporate offices at 100 Rutherford Road South, Brampton, Ontario, Canada L6W 2J2. Under our
business plan, our initial grow facility is expected to be built out at this location. The medical marijuana regulatory environment
in Canada is experiencing significant uncertainty. Health Canada’s change removing the ready to build approval makes
it very difficult and risky for potential medical marijuana licensees to pass the final licensure stage. The Company continues
to consider every avenue of its business plan. Due to this continued regulatory uncertainty, particularly the changes
and delays in medical marijuana licensing process, the Company’s contingency plans may include entertaining the sale of
the Brampton Property. If such transaction were to occur, the Company would consider using proceeds from any such sale to
continue pursuing other avenues to achieve our business plan, including potential acquisitions of other medical marijuana licensees
and pursuing alternative medical marijuana products and technology, both in Canada and internationally, or another suitable property
to replace the Brampton Property.
This location is owned by an affiliate of
the Company that is consolidated as a Variable Interest Entity, 2264793 Ontario Inc. (which is discussed in Note 2 of the Financial
Statements, Variable Interest Entities), which is owned by several of our directors, officers, and shareholders: Benjamin Ward,
John Esteireiro, Silvio Serrano, and Scott Keevil. At this time, there is no rental cost to us to use the location as our offices.
However, the Company provided a portion of the down payment to purchase the Brampton Property in the amount of approximately $4.3
million in the form of a loan to 2264793 Ontario Inc. (which is discussed further in Item 7, below). Additionally, the Company
services the debt secured by the property in the monthly amount of approximately CAD $78,333 (approximately USD $71,000) before
offset from monthly rental payments form tenants of the Brampton Property. The Company expects to fund the cost of the renovations
at the Brampton Property to convert it for use as our corporate offices and grow facility in accordance with the physical security
plans submitted to Health Canada with our license application and pending approval by Health Canada. At this time, we expect renovation
expenses to be approximately $18,000,000. While some preparation for the renovation has occurred, with related expenditures by
the Company in the total amount of approximately USD $1.1 million as of December 31, 2014, the renovations are expected to begin
in earnest following satisfactory review and assessment of our physical security plans (pursuant to which we must build out our
grow facility) by Health Canada to confirm that the plans meet licensure requirement.
We
are not presently subject to competitive conditions for property and currently have no property to insure. We have no policy with
respect to investments in real estate or interests in real estate and no policy with respect to investments in real estate mortgages.
Further, we have no policy with respect to investments in securities of or interests in persons primarily engaged in real estate
activities.
| Item 3. |
LEGAL PROCEEDINGS |
There
are no legal proceedings that have occurred within the past five years concerning our directors, or control persons which involved
a criminal conviction, a criminal proceeding, an administrative or civil proceeding limiting one’s participation in the
securities or banking industries, or a finding of securities or commodities law violations.
| Item 4. |
MINE SAFETY DISCLOSURES |
Not
Applicable.
PART
II
| Item 5. |
MARKET FOR REGISTRANT’S COMMON
EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Market
Information
The
Company’s common stock initially qualified for quotation on the OTC Bulletin Board (OTCQB) as of April 3, 2013. Before we
effectuated the Merger on May 21, 2014 (as discussed herein in the Business Background Section under Item 1), we traded under
the name Gold Party Payday, Inc. and trade symbol “GPAY”. After the Merger and our change in name and business, the
Company changed out trading symbol “CCAN”. The Company’s common stock continues to be so qualified and trade
on the OTC Bulletin Board under the “CCAN” symbol.
Because
we have been operating under our new trade symbol for a short duration of time and have not commenced operations of our new business
nor have we generated revenue from the new business, there has been limited market activity up to this point in time (and not
market activity during 2014 until the third quarter). The following table sets forth, for the periods indicated, the high and
low bid information for our Common Stock as determined from sporadic quotations on the OTC Bulletin Board. The following quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
| Year Ended December
31, 2014 | |
High | | |
Low | |
| First Quarter | |
$ | 0.20 | | |
$ | 0.20 | |
| Second Quarter | |
$ | 3.00 | | |
$ | 0.20 | |
| Third Quarter | |
$ | 3.00 | | |
$ | 0.64 | |
| Fourth Quarter | |
$ | 10.00 | | |
$ | 1.13 | |
Security
Holders
As
of September 28, 2015, there were 31,455,499 common shares outstanding which were held by approximately 194 stockholders of record.
Dividends
Dividends,
if any, will be contingent upon our revenues and earnings, if any, capital requirements and financial conditions. The payment
of dividends, if any, will be within the discretion of our Board of Directors. We presently intend to retain all earnings, if
any, for use in our business operations and accordingly, our Board of Directors does not anticipate declaring any dividends prior
to a business combination.
Immediately
after the closing of the Merger Agreement and Transfer Agreement, our Board of Directors declared a special stock dividend which
was subsequently authorized by a majority of the shareholders of the Company by written consent on June 16, 2014. Pursuant to
the authorization, each of the shareholders of the common stock of the Company as of the close of business on September 30, 2014
received 19.5 shares for every share of Company common stock owned. The dividend was approved by FINRA and became effective on
October 3, 2014, after which it was paid by the Company.
Common
Stock
The
authorized capital stock of our Company consists of 95,000,000 shares of Common Stock, par value $0.000001 per share, of which
there are 31,455,499 outstanding as of September 28, 2015.
All
outstanding shares of Common Stock are of the same class and have equal rights and attributes. The holders of Common Stock are
entitled to one vote per share on all matters submitted to a vote of our stockholders. Our stockholders are entitled to share
equally in dividends, if any, as may be declared from time to time by our Board of Directors out of funds legally available. In
the event of liquidation, the holders of our Common Stock are entitled to share ratably in all assets remaining after payment
of all liabilities. Our stockholders do not have cumulative or preemptive rights.
Preferred
Stock
Our
Certificate of Incorporation authorizes the issuance of up to 5,000,000 shares of Preferred Stock, par value $0.000001 per share,
with designations, rights and preferences including rights to dividend, liquidation, conversion, voting, or other rights determined
from time to time by our Board of Directors, without shareholder approval. Up to this point in time, we have not designated or
issued any shares of Preferred Stock.
This
description of certain matters relating to our securities is a summary and is qualified in its entirety by the provisions of our
Articles of Incorporation and By-Laws, which have been included as an exhibit in previously filed reporting documents.
Recent
Sales of Unregistered Securities
Sales
of Common Stock
On November 10, 2014 the Company entered into
Subscription Agreements (collectively, the “Subscription”) with two accredited investors for a total of USD $300,000
whereby the Company issued an aggregate of 200,000 shares of our common stock, 1.2 million warrants to purchase our common stock
and committed to issue another 800,000 warrants to purchase our common stock to the investors. Under the terms of the Subscription,
each of the investors paid USD $150,000 and received 100,000 shares of our common stock, 200,000 A Warrants to purchase common
shares at $1.50 per share for a five year period, 400,000 B Warrants to purchase common shares at $3.00 per share for a five year
period and, upon the exercise of no less than 10,000 of the B Warrants, the Company will issue to the investor 400,000 C Warrants
to purchase common shares at $3.00 per share. Each of the warrants is exercisable for a five year period from issuance. One of
the investors who participated in this transaction was Richard Wachsberg, who was subsequently appointed to our Board of Directors.
During the three months ended December 31,
2014, the Company sold an additional 246,001 shares of its common stock for cash consideration of USD $3.00 per share, or approximately
USD $738,000, the Company also sold 15,000 shares of its common stock for cash consideration of USD $2.50 per share, or approximately
USD $37,500 and the Company sold 2,500 shares of its common stock for cash consideration of USD $2.00 per share, or approximately
USD $5,000.
Non-Cash
Issuance of Common Stock
On October 1, 2014, the Company issued a total
of 750,000 shares of our common stock to three individuals pursuant to their employment agreements. The fair market value of the
stock at the time of the grants was $1.13 per share and a total of $847,500 was expensed for the share issuance. The employment
agreements provide for further issuances of common shares of 100,000 shares on each of their first, second and third anniversaries
and 50,000 shares on their fourth anniversary. The company has valued the total of these issuances to these three individuals
using the same $1.13 per share. The total incremental expense over the 5 years is $1,186,500. The company is accruing for the
related compensation over the vesting periods as they are earned and has recorded an accrued stock payable and professional fee
expense of $209,992 in 2014.
On October 1, 2014 the Company issued 600,000
options to an employee to purchase shares of our common stock at $1.13 per share for a period of seven years. 250,000 of the options
vested immediately and 100,000 options vest each subsequent year for three years and 50,000 vest after four years. On the date
of the grant, the Company valued the options at USD $676,293 using the Black-Scholes option pricing model with the following assumptions:
expected life of the options of 7 years, expected volatility of 226.68%, risk-free rate of 2.12% and no dividend yield. An expense
of USD $329,852 was recognized based on the options that had vested during the year ended December 31, 2014.
On October 1, 2014
the Company issued 50,000 options to another contract employee to purchase shares of our common stock at $1.13 per share for a
period of five years, all of which vested immediately. On the date of the grant, the Company valued the options at USD $55,890
using the Black-Scholes option pricing model with the following assumptions: expected life of the options of 5 years, expected
volatility of 226.68%, risk-free rate of 1.69% and no dividend yield. An expense of USD $55,890 was recognized based on the options
that had vested during the year ended December 31, 2014.
On October 3, 2014 the Board of Directors
approved the grant of 330,000 shares of our common stock to five individuals who are either employees, contractors or directors
as compensation for services provided to the Company during the start-up phase of the business. The fair market value of the stock
at the time of the grant was $1.13 per share and a total of USD $372,900 was expensed as professional fees for the share issuance.
On October 30, 2014 the Company issued of
500,000 shares of our common stock for services provided to the Company during the start-up phase of the business. The fair market
value of the stock at the time of the grant was $3.00 per share and a total of USD $1,500,000 was expensed as professional fees
for the share issuance.
On November 21, 2014 the Company and 2264793
Ontario Inc., a consolidated VIE of the Company, jointly issued a promissory note to Crimson Capital, LLC for CAD $600,000 (USD
$515,940) to be used for various expenses related to our Brampton property. The note bears a 54% per annum interest rate and matured
on February 21, 2015, however the Company had the ability to extend the note on a month-by-month basis. The loan was repaid in
June 2015. Under an agreement signed on November 1, 2014, Crimson Capital Investments, LLC was given 100,000 shares of our common
stock as a fee for arranging the financing. The fair market value of the stock at the time of the grant was USD $300,000. This
value was used to determine a relative fair market value to be ascribed between the loan and shares and resulted in $189,698 being
recorded as a debt discount. The debt discount is being amortized over the original term of the note, the Company recorded an
expense of $86,880 during the fiscal year ending December 31, 2014.
In addition to the October and November transactions
above, during the three months ended December 31, 2014, the Company issued an additional 301,239 shares of its common stock for
services valued at USD $3.00 per share, or approximately USD $903,717 which was expensed as professional fees.
The
transactions described above and the shares of common stock involved were exempt from registration provided by Section 4(2) of
the Securities Act.
Historical Sales and Non-Cash Issuance
of Unregistered Securities
On January 20, 2014, the Company issued 16,471,163
shares of common stock to its founders for cash consideration of CAD $0.001 per share, for a total of approximately CAD $16,500
(USD $14,800).
Between January 21, 2014 and February 1, 2014,
the Company issued 404,976 shares of its common stock for cash consideration of CAD $1.00 per share, for a total of approximately
CAD $405,000 (USD $367,000).
Between February 2, 2014 and February 14,
2014, the Company issued an additional 223,509 shares of its common stock for cash consideration of CAD $2.00 per share, for a
total of approximately CAD $447,000 (USD $403,000).
On February 11, 2014, the Company issued 10,000
shares of its common stock for cash consideration of CAD $1.10 per share, for a total of approximately CAD $11,000 (USD $9,900).
In March 2014, the Company issued 150,000
shares of its common stock to TDM Financial for advisory services to be provided to the Company over a period of one year. Based
on the prevailing per share price of similar stock sold during this period, the compensatory stock was valued at CAD $1.00 per
share (USD $0.91 per share), for a total of approximately USD $137,160. The Company originally intended to amortize the expense
over the life of the however, the Company determined that the appropriate treatment was to recognize the full amount of the professional
fee expense because the services were completed and expensed the remaining amount during the year ended December 30, 2014.
In April 2014, the Company issued 15,000 shares
of its common stock to an individual for services provided. Based on the prevailing per share price of similar stock sold during
this period, the compensatory stock was valued at USD $3.00 per share, for a total of approximately USD $45,000, which was expensed
as professional fees at issuance.
In June 2014, the Company issued a
total of 250,000 shares of its common stock to an individual for services to be provided to the Company over a period of two years.
Based on the prevailing per share price of similar stock sold during this period, the compensatory stock was valued at USD $3.00
per share for a total of approximately USD $750,000. The Company originally intended to amortize the expense over the life of
the contract however, the Company determined that the appropriate treatment was to recognize the full amount of the professional
fee expense as the services were completed and expensed the remaining amount during the year ended December 30, 2014.
On June 16, 2014 a majority of the shareholders
of the Company by written consent authorized a special dividend, whereas each of the shareholders of the common stock of the Company
would receive 19.5 shares for every share of Company common stock owned. The Company filed a corporate action with FINRA on June
19, 2014 in relation to the declared stock dividend. The Company received the necessary approvals and FINRA announced the dividend
on October 6, 2014, with a pay date of October 3, 2014, to the holders of record of all the issued and outstanding shares of common
stock as of the close of business on September 30, 2014, in the amount of 19.5 shares of common stock per one (1) share of common
stock held.
Prior to June 30, 2014 the Company issued
an additional 1,968,386 shares of its common stock for cash consideration of USD $3.00 per share for a total of approximately
USD $6.1 million.
In addition to the April and June issuances
above, during the three months ended June 30, 2014, the Company issued 466,666 shares of its common stock for professional services
provided to the Company. The fair market value of the compensatory stock was valued at USD $3.00 per share, for a total of approximately
USD $1,400,000, which was expensed at issuance.
On July 4, 2014, the Company issued a promissory
note to Wildhaus Capital Schweiz AG, in the amount of USD $1,250,000 to formalize two loans made by Wildhaus Capital Schweiz AG.
On August 15, 2014, Wildhaus Capital Schweiz AG agreed to a convert USD $750,000 of the debt to equity for the 250,000 shares
of the Company’s common stock at a price of USD $3.00 per share, based on the prevailing per share price of similar stock
sold during this period. In September 2014, Wildhaus Capital Schweiz AG agreed to convert the remaining USD $500,000 of the debt
for an additional 166,667 shares of the Company’s common stock.
During the three months ended September 30,
2014, the Company sold an additional 382,400 shares of its common stock for cash consideration of USD $3.00 per share, or approximately
USD $1.15 million.
The transactions described above and the shares
of common stock involved were exempt from registration provided by Section 4(2) of the Securities Act.
| Item
6. |
SELECTED FINANCIAL DATA |
As
a smaller reporting company, we are not required to provide the information required by this item.
| Item 7. |
MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
In connection with the Transfer Agreement
(as discussed herein in the Business Background Section under Item 1), as of May 21, 2014, we divested all the assets related
to the former operations of the Company and discontinued those operations in favor of pursuing our new business plan. Additionally,
the Company’s Current Report on Form 8-K disclosing the transactions effected by the Merger and Transfer Agreement included
audited financial statements of Canada Cannabis Corp. from its period of inception (January 20, 2014) through March 31, 2014,
and unaudited pro-forma financial statements of the combined companies for the three months ended March 31, 2014. We believe the
inclusion of comparisons to periods during which the Company was under prior control and management and the business of the Company
was wholly different than the current business could be misleading given the complete transition of the Company’s management
and business plan, as well as the complete discontinuance of the prior business and divestiture of related assets. As such, the
discussion of our liquidity and capital resources and our results of operations does not contain such comparisons to prior periods
and is presented as if the Company was a new reporting company as of Canada Cannabis Corp.’s date of inception (January
20, 2014). These discussions of the Company’s liquidity and capital resources and results of operations should be read in
the context that the Company became a new reporting company as of January 20, 2014.
The merger completed is being accounted for
as a reverse merger and recapitalization in which Canada Cannabis Corp. is deemed to be the accounting acquirer. Consequently,
the assets and liabilities and the operations that will be reflected in the historical financial statements prior the merger will
be those of Canada Cannabis Corp. and will be recorded at the historical cost basis of Canada Cannabis Corp., and the consolidated
financial statements subsequent to completion of the merger include the assets and liabilities of the Company and Canada Cannabis
Corp., and the operations of the combined Company from the closing date of the merger. The Company did not recognize goodwill
or any intangible assets in connection with the transaction. The historical consolidated financial statements include the operations
of the accounting acquirer for all periods presented. The Company has retroactively restated the common shares outstanding and
weighted average shares outstanding pursuant to 1) the reverse merger share exchange ratio of 1:19.5 and 2) the subsequent special
share dividend of 19.5:1. On October 3, 2014 the Company’s common shares had a special share dividend of 19.5:1 for all
shareholders of record on that date and the Company has reflected that share dividend in the current share count.
Liquidity
and Capital Resources
We
are a startup phase company that has not commenced planned operations and are focused on developing our business in the Pharmaceutical
sector. Our principal business objectives for the next twelve (12) months will be to continue to develop our business plan and
continue efforts related to obtaining our medical marijuana production license. As we have recently changed our business plan
in connection with the Merger and have not commenced material operations, we have not earned any revenues from our new operations.
Our operations prior to the Merger resulted in the recognition of nominal revenue.
Net cash provided by (used in) operating
activities. During the period from inception (January 20, 2014)
ending December 31, 2014, net cash used in operating activities was $(3,072,095). The cash flow used in operating activities during
the period from inception (January 20, 2014) ending December 31, 2014 was primarily the result of net loss incurred during the
period after add back of noncash expenses related to common shares issued for services and an allowance and impairment charge
recorded against the Growlite loan, receivable and investment. (Please see Note 5 to the Financial Statements for a further discussion
of Growlite).
Net
cash provided by (used in) investing activities. During period from inception (January 20, 2014) ending December 31, 2014,
net cash used in investing activities was $(7,845,382). The cash flow used in investing activities during the period from inception
(January 20, 2014) ending December 31, 2014 was primarily the result of the acquisition of and investment in the Brampton Property
(approximately $4.7 million) and the loan and investment into Growlite (approximately $3.6 million)(Please see Note 5 to the Financial
Statements for a further discussion of Growlite).
Net
cash provided by (used in) financing activities. During the period from inception (January 20, 2014) ending December 31, 2014,
net cash provided by financing activities was $11,066,772. The cash flow provided by financing activities during the period from
inception (January 20, 2014) ending December 31, 2014 was primarily the result of proceeds received from the sale of common stock
and proceeds received from the note issued in connection with mortgage of the Brampton Property.
As
of December 31, 2014, we had cash on hand of $17,813 and current liabilities of $11,629,428. We have incurred a loss since inception
resulting in an accumulated deficit of $14,379,305) and further losses are anticipated as we continue to develop and implement
our business plan. We do not have sufficient capital to operate our business and will require additional funding to sustain operations
through December 2015.
In
connection with the acquisition of the Brampton Property by 2264793 Ontario Inc. in July of 2014, financing in the amount of
CAD $9,400,000 (approximately USD $8.1 million) (the “Loan”) was incurred by 2264793 Ontario Inc., an affiliated
company (owned by several of our directors, officers, and shareholders: Benjamin Ward, John Esteireiro, Silvio Serrano, and
Scott Keevil) holds title to the Brampton Property, which is secured primarily by mortgage on the Brampton Property. As the
Company will be the primary benefactor of the Brampton Property, the Company makes the monthly interest only payments on the
Loan in the amount of CAD $78,333 (approximately USD $71,000) each, which began on August 15, 2014. The monthly interest
payments on the Loan are partially offset with rental income from non-related parties in the amount of approximately CAD
$700,000 (approximately USD $634,000) per year from existing leases of areas of the Brampton Property not presently required
for our operations and the Company expects the collection of rental income to continue throughout 2015 in the same amounts.
As of December 31, 2014, the Company has expended amounts totaling CAD $391,665 in connection with the Loan on the Brampton
Property. The preceding description of the Loan is incomplete and qualified entirely by the Company’s Current Report on
Form 8-K filed with the Securities and Exchange Commission on July 11, 2014, in which a more detailed description with
respect to the Loan can be found.
Additionally,
in connection with the acquisition of the Brampton Property, the Company loaned to 2264793 Ontario Inc. the amount of CAD $4,953,160
(approximately USD $4.3 million) to fund a portion of the down payment on the Brampton Property (the “Down Payment Loan”).
This Down Payment Loan is evidence by a promissory note that was prepared and dated December 31, 2015 made by 2264793 Ontario
Inc. in favor of the Company in the amount of CAD $4,953,160 (approximately USD $4.3 million), bearing interest at a rate of 0%.The
loan between 2264793 Ontario Inc. and the Company is eliminated on Consolidation and as such, no imputed interest was calculated.
The preceding description of the Down Payment Loan is incomplete and qualified in its entirety by reference to the complete text
of the Down Payment Loan promissory note, which is attached hereto as an Exhibit.
As discussed above, the medical marijuana
regulatory environment in Canada is experiencing significant uncertainty. Health Canada’s change removing the ready
to build approval makes it very difficult and risky for potential medical marijuana licensees to pass the final licensure
stage. The Company continues to consider every avenue of its business plan. Due to this continued regulatory
uncertainty, particularly the changes and delays in medical marijuana licensing process, the Company’s contingency plans
may include entertaining the sale of the Brampton Property. If such transaction were to occur, the Company would consider
using proceeds from any such sale to continue pursuing other avenues to achieve our business plan, including potential acquisitions
of other medical marijuana licensees and pursuing alternative medical marijuana products and technology, both in Canada and internationally,
or another suitable property to replace the Brampton Property.
However, if the Company were to keep
the property and convert if for our business use as originally intended, we expect to fund the cost of such renovations. At this
time, we expect renovation expenditures to be approximately $18,000,000. Some preparation for the renovation have already occurred,
with related expenditures by the Company in the total amount of approximately USD $1.1 million for the fiscal year ending December
31, 2014. Substantial renovations, if any, would not be expected to begin in earnest until we receive satisfactory review and assessment
of our physical security plans (pursuant to which we must build out our grow facility) by Health Canada to confirm that the plans
meet licensure requirement.
The
Company’s ability to commence material operations in the production and sale of medical marijuana products and generate
revenue depends upon a number of variables out of our control, including the review and approval of our production license application,
successful build out of our grow facility in accordance with our physical security plans, and issuance of a production license
to the Company by Health Canada. As previously discussed, the Company has met the initial licensure requirements and has advanced
to the review stage of the licensure process. We are confident that our application and physical security plans satisfy the licensure
requirements. However, there can be no assurance as to the outcome of the Health Canada review or that Health Canada will approve
our license application and issue a production license to the Company, nor can we predict with any confidence when Health Canada
will complete the review stage, when we will be able to commence and complete build out of our grow facility, nor when Health
Canada will conduct its final inspections and make a final determination with respect to our license application.
The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
In the course of its start-up activities, we have sustained operating and cash flow losses and expect to incur an operating and
cash flow losses for 2014. The Company has generated a limited amount of revenue and has not achieved profitable operations or
positive cash flows from operations. These factors raise substantial doubt about our ability to continue as a going concern. We
will continue targeting sources of additional financing to provide continuation of our operations. There can be no assurance that
the Company will be able to continue to raise funds or that we will be able to achieve revenues sufficient to become profitable,
in which case we may be unable to meet our obligations and we may cease operations. The financial statements do not include any
adjustments that may result from the outcome of this uncertainty.
Results
of Operations
As
we are a company that has not commenced planned operations and are still in the startup phase, we are not yet engaged in material
operations generating revenue; therefore, we have little operations to report at this time. Our main focus has been on the development
of our new business plan. We have made no sales under our new business plan and all expenses from the date of the Merger through
the date of this Annual Report have related to the development of our new business plan, including the acquisition and renovation
of the Brampton Property and licensure efforts under the MMPR, and other expenses related to the daily operations of a public
company.
Period
from inception (January 20, 2014) to December 31, 2014
Rental
Income. Rental Income for the period from inception (January 20, 2014) ending December 31, 2014 was $292,843. The revenue
from rental income is primarily related to Brampton Property leases.
General
and Administrative Expenses. General and administrative expenses for the period from inception (January 20, 2014) ending December
31, 2014 were $3,154,585. The expenditure of funds for general and administrative expenses is primarily related to business startup
and development activities. Included is $443,958 for travel and entertainment and $143,487 for promotions. $1,057,492 was expensed
for shares issued and to be issued to 3 employees of the Company and $385,742 was expensed for options granted to 2 additional
employees. Operating costs related to the Brampton Property were $374,585.
Professional Fees.
Professional fees for the period from inception (January 20, 2014) ending December 31, 2014 were $4,768,168. Included is $4,226,647
of expense relating to shares issued. In addition, there is $449,368 for legal fees primarily related to startup, the merger transaction
and regulatory compliance.
Consulting Fees. Consulting fees for
the period from inception (January 20, 2014) ending December 31, 2014 were $2,916,866. Included is $1,171,170 in fees charged
by financial advisors. Consulting fees also includes $391,104 paid in relation to the Health Canada marijuana producer licensing
application and developing the Company’s business plan. Consulting includes $205,143 for individual hired to manage the
design and operations of the Brampton facility. It also includes a $750,000 charge for shares issued to an individual for services.
Loss on Impairment of Asset. The loss
on impairment relates to the write-down of the Investment $859,900 and Loan of $2,579,700 and Receivable $137,695 from Growlite.
The Company reviewed this investment for impairment and had made the determination that due to unfavorable changes in the market,
the Company would write the investment down to $800,000 which approximated the carrying value of Growlite’s inventory at
December 31, 2014. Subsequent to this analysis the Company was informed that a manufacturer’s defect has been identified
in Growlite’s most popular fixture that has resulted in the request for all customers to stop using the product. Given the
uncertainty of the value of the remaining inventory and the financial and reputational harm Growlite will incur, the Company has
written its investment to zero and fully provide a reserve against the loan and receivable due from Growlite (Please see Note
5 to the Financial Statements for a full discussion of Growlite).
Net
Income (loss). For the period from inception (January 20, 2014) ending December 31, 2014, we incurred a net loss of $(14,727,347).
The net loss was primarily a result of operating expenses without current revenue and the impairment charges relating to Growlite.
CAPITAL COMMITMENTS
While some preparation for the renovation
of the Brampton property has occurred, with related expenditures by the Company in the total amount of approximately USD $1.1
million as of December 31, 2014, the renovations are expected to begin in earnest following satisfactory review and assessment
of our physical security plans by Health Canada to confirm that the plans meet licensure requirement. At this time, we expect
renovation expenses to be approximately $18,000,000.
RELATED
PARTY TRANSACTIONS
Investment
in Growlite
As discussed in Note 5 to the financial statements,
on March 31, 2014, the Company has a 45% equity interest in Growlite Canada for CAD $1 million (approximately USD $900,000). Additionally,
the Company made a CAD $3 million (approximately USD $2.7 million) loan and has a CAD $160,000 (approximately USD$140,000) receivable.
The loan bears interest at 2% to be paid quarterly, while the entire principle amount and any remaining interest matures March
31, 2024. Prior to the equity investment and loan, Growlite Canada was wholly-owned by Silvio Serrano, who remains the owner of
55% of the ownership interest in Growlite Canada and is Growlite Canada’s President, CEO and sole director. At the time
of the transaction, Mr. Serrano held a 6.4% equity interest in the Company (which he currently holds) and served as a vice president
and director until he resigned in November 2014. During the year, Growlite advanced Mr. Serrano, his brother and a company controlled
by Mr. Serrano $1,635,705 CAD (approximately USD$1,480,000). In addition, during the year, CAD $810,000 (approximately USD $734,000)
was advanced by Growlite to NAC Construction Inc. an entity owned by Peter Strang, who is an officer and director of the Company
and owner of 6.4% of the Company’s common stock.
Legal
and Other Services
One of the five shareholders, Mariana
Bracic, who is a common law spouse of Ben Ward (the CEO and a director of the Company and owner of 6.4% of Company common stock),
disclosed in Note 5 as being under a Consulting and Professional services contract also provides legal and other services for
the Company. For the period from inception through December 31, 2014, this shareholder was paid, either as an individual or through
MBL Legal, an entity controlled by the individual, approximately CAD $125,000 (USD $113,225) for services rendered, which includes
the amounts paid under the disclosed contract.
Promissory Notes Made by the Company
At various times throughout the year ended
December 31, 2014, Benjamin Ward, the Company’s CEO and a director and owner of 6.4% of the Company’s common stock,
advanced amounts to the Company in the form of short-term loans to help the Company with operating capital as needed. On December
15, 2014 these notes, totaling CAD $334,869 (USD $287,953) were consolidated into a one-year interest free note. The note matures
December 15, 2015 but the Company may prepay the note upon receiving adequate funding.
At various times throughout the year ended
December 31, 2014, John Esteireiro advanced amounts to the Company in the form of short-term loans to help the Company with operating
capital as needed. On December 15, 2014 these notes, totaling CAD $1,150,000 (USD $988,885) were consolidated into a one-year
interest free note. The note matures December 15, 2015 but the Company may prepay the note upon receiving adequate funding. John
Esteireiro owns 6.4% of the Company’s common stock and served as a director and the COO of the Company until his resignation
on August 24, 2015.
At various times throughout the year ended
December 31, 2014, Silvio Serrano advanced amounts to the Company in the form of short-term loans to help the Company with operating
capital as needed (each of which is described in detail above). On December 15, 2014 these notes, totaling CAD $144,000 (USD $123,826)
were consolidated into a one-year interest free note. The note matures December 15, 2015 but the Company may prepay the note upon
receiving adequate funding. This promissory note remains outstanding as of the date of this Annual Report. Mr. Serrano owns 6.4%
of the Company’s common stock and served as a vice president and director until he resigned in November 2014.
At various times throughout the year
ended December 31, 2014, Benedetto Fuschino advanced amounts to the Company in the form of short-term loans to help the Company
with operating capital as needed. On December 15, 2014, these notes, totaling CAD $70,000 (USD $60,193), were consolidated into
a one-year interest free note. The note matures December 15, 2015, but the Company may prepay the note upon receiving adequate
funding.
At various times throughout the year
ended December 31, 2014, Midnight Capital and Scott Keevil advanced amounts to the Company in the form of short-term loans to help
the Company with operating capital as needed. On December 15, 2014, these notes, totaling CAD $89,658 (USD $77,097), were consolidated
into a one-year interest free note. The note matures December 15, 2015, but the Company may prepay the note upon receiving adequate
funding.
The imputed interest amount on the above noted loans totaled
CAD $33,505 (USD $28,810). A total of CAD $4,705 was expensed.
On
November 21, 2014 the Company and 2264793 Ontario Inc., a consolidated VIE of the Company, jointly issued a promissory note to
Crimson Capital, LLC for CAD $600,000 (USD $515,940) to be used for various expenses related to our Brampton property. The note
bears a 54% per annum interest rate and matured on February 21, 2015, however the Company had the ability to extend the note on
a month-by-month basis. The loan was repaid in June 2015. The total interest accrued to December 31, 2014 was CAD$35,507. Under
a referral agreement signed on November 1, 2014, Crimson Capital Investments, LLC was given 100,000 shares of our common shares
as a referral fee for arranging the financing. The fair market value at the time of grant was USD $300,000. This value was used
to determine a relative fair market value to be ascribed between the loan and shares and resulted in $124,689 being recorded as
a debt discount. The debt discount is being amortized over the original term of the note, the Company recorded an expense of $86,880
in 2014.
In connection with the acquisition
of the Brampton Property, the Company loaned to 2264793 Ontario Inc. the amount of CAD $4,259,222 (approximately USD $3,933,000)
to fund a portion of the down payment on the Brampton Property (the “Down Payment Loan”). This Down Payment Loan is
evidence by a promissory note that was prepared and dated December 31, 2015 made by 2264793 Ontario Inc. in favor of the Company
in the amount of CAD $4,259,222 (approximately USD $3,933,000), bearing interest at a rate of 0%.The loan between 2264793 Ontario
Inc. and the Company is eliminated on Consolidation and as such, no imputed interest was calculated. 2264793 Ontario Inc. is owned
by several of our directors, officers, and shareholders: Benjamin Ward, John Esteireiro, Silvio Serrano, and Scott Keevil. 2264793
Ontario Inc. is considered a VIE (please see Note 2 Variable Interest Entities and Principals of Consolidation for further discussion).
Ben
Ward, owner of 6.4% of the Company’s common stock and a director and the CEO of the Company, owns 25% of 2264793 Ontario
Inc. and serves as its Secretary. John Esteireiro, who owns 6.4% of the Company’s common stock and formerly served as a
director and the COO of the Company, owns 25% of 2264793 Ontario Inc. Silvio Serrano, who owns 6.4% of the Company’s common
stock and formerly served as a director and a vice-president of the Company, owns 25% of 2264793 Ontario Inc. Scott Keevil also
owns 25% of 2264793 Ontario Inc. and serves as its President & CEO. Mr. Keevil owns 4.1% of the Company’s common stock.
During
the year, the Company paid NAC Construction, a Company owned by Peter Strang, CAD $ 400,000 ($US 343,960) for work performed on
the Brampton property in its role as general contractor. In addition, the Company paid NAC Investments, also owned by Mr. Strang,
CAD $ 25,594 ($US 22,008) for consulting services. Mr. Strang owns 6.4% of the Company’s common stock and serves as a director
and a vice-president of the Company.
During the year, Scott Keevil incurred
expenses of CAD $ 92,690 ($US 79,704) on behalf of CCC. These monies were primarily expense reimbursements for travel, office
supplies and office rental space. At year end, the Company owed Mr. Keevil CAD $1,542 ($US 1,326). In addition, the Company paid
Midnight Capital Corp, a Company owned by Mr. Keevil a CAD $50,000 ($US 42,995) consulting fee. At year end, the Company owed
Midnight Capital CAD $88,116 ($75,771). Mr. Keevil owns 4.1% of the Company’s common stock and is a 25% of 2264793 Ontario
Inc. (a consolidated VIE of the Company) and serves as its President & CEO.
CRITICAL
ACCOUNTING POLICIES
Variable
Interest Entities
A
variable interest entity (“VIE”) is an entity that either (i) has insufficient equity to permit the entity to finance
its activities without additional subordinated financial support or (ii) has equity investors who lack the characteristics of
a controlling financial interest. The primary beneficiary of a VIE is the party with both the power to direct the activities of
the VIE that most significantly impact the VIE’s economic performance and the obligation to absorb the losses or the right
to receive benefits that could potentially be significant to the VIE. The Company performs ongoing reassessments of whether it
is the primary beneficiary of a VIE, which includes consideration of whether the Company has acquired or divested the power to
direct the most significant activities of the VIE through changes in governing documents or other circumstances. The Company also
reconsiders whether entities previously determined not to be VIEs have become VIEs, based on certain events, and therefore are
subject to the VIE consolidation framework.
The Company has assessed its investment in
Growlite Canada (see Note 5) and its relationship with 2264793 Ontario Inc. (see Note 11) with regard to whether it is the primary
beneficiary of these entities. The Company believes it is not the primary beneficiary of Growlite Canada, Silvio Serrano is the
primary beneficiary of Growlite as he meets the power criterion by making all of the ongoing operating decisions for the company,
is in control of the bank account and is responsible for driving the company’s sales and marketing strategy. Mr. Serrano
also meets the losses/benefits criterion by having both the right to receive benefits and the obligation to absorb losses through
his 55% ownership of the company. Given these facts CCC accounts for its Growlite though the equity method of accounting and does
not consolidate Growlite in its financial statements. The Company was not able to obtain reliable financial information from Growlite
and has now made the determination to write off all loans, receivables and investment. As such, no Growlite financial information
is presented.
The
Company believes that it is in fact the primary beneficiary of 2264793 Ontario, Inc. and accordingly, consolidates the entity
in its Consolidated Financial Statements. See “Principles of Consolidation”. It is owned by several of our directors,
officers, and shareholders: Benjamin Ward, John Esteireiro, Silvio Serrano, and Scott Keevil. 2264793 Ontario Inc. is managed
for the benefit of the CCC shareholders by CCC officers, directors and employees who make all of decisions relating to the building
and the financing thereof. CCC has invested in the building and pays the bills, loans and mortgage associated with the building,
it has the rights to receive the benefits and will absorb any losses and as such is considered to be a VIE and is consolidated
in these Financial Statements.
Principles
of Consolidation
The
accompanying consolidated financial statements include Canadian Cannabis Corp. (formerly, Gold Party Payday, Inc.) and Canada
Cannabis Corp., our wholly-owned subsidiary. All significant intercompany balances and transactions have been eliminated in consolidation.
The
Company also consolidates any variable interest entities (VIEs), of which it is the primary beneficiary, as defined. In accordance
with FIN 46(R), the Company believes that it meets the definition of the primary beneficiary for 2264793 Ontario Inc. and consolidates
the entity in its Consolidated Financial Statements. See “Variable Interest Entities”
Use
of Estimates
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
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. The Company bases its estimates and assumptions
on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs
and expenses that are not readily apparent from other sources. Actual results could differ from those estimates. Significant estimates
include assumptions for the Company’s valuation of stock compensation, warrants, options and the valuation of Growlite.
To the extent there are material differences between the estimates and the actual results, future results of operations will be
affected.
Income
tax
The
Company accounts for income taxes pursuant to ASC 740. Under ASC 740 deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary differences and operating loss carry forwards and deferred tax liabilities
are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets
and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities
are adjusted for the effects of changes in tax laws and rates on the date of enactment.
The
Company follows the provisions of ASC 740-10, “Accounting for Uncertain Income Tax Positions.” 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.
In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the
period during which, based on all available evidence, management believes 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
should be reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any
associated interest and penalties that would be payable to the taxing authorities upon examination.
Fair
Value Measurements
ASC
Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), provides a comprehensive framework for measuring fair
value and expands disclosures which are required about fair value measurements. Specifically, ASC 820 sets forth a definition
of fair value and establishes a hierarchy prioritizing the inputs to valuation techniques, giving the highest priority to quoted
prices in active markets for identical assets and liabilities and the lowest priority to unobservable value inputs. ASC 820 defines
the hierarchy as follows:
Level
1 - Quoted prices are available in active markets for identical assets or liabilities as of the reported date. The types of assets
and liabilities included in Level 1 are highly liquid and actively traded instruments with quoted prices, such as equities listed
on the New York Stock Exchange.
Level
2 - Pricing inputs are other than quoted prices in active markets, but are either directly or indirectly observable as of the
reported date. The types of assets and liabilities in Level 2 are typically either comparable to actively traded securities or
contracts, or priced with models using highly observable inputs.
Level
3 - Significant inputs to pricing that are unobservable as of the reporting date. The types of assets and liabilities included
in Level 3 are those with inputs requiring significant management judgment or estimation, such as complex and subjective models
and forecasts used to determine the fair value of financial transmission rights.
Our
financial instruments consist of cash, accounts payables, notes receivable, notes payable and accrued expenses. The carrying values
of cash, accounts payables, notes receivable, notes payable and accrued expenses approximate their fair value due to their short
maturities.
Long-Lived
Assets
In
accordance with ASC 350, the Company regularly reviews the carrying value of intangible and other long-lived assets for the existence
of facts or circumstances, both internally and externally, that suggest impairment. If impairment testing indicates a lack of
recoverability, an impairment loss is recognized by the Company if the carrying amount of a long-lived asset exceeds its fair
value. Through December 31, 2014, the Company recorded an impairment loss on its long-lived assets in the amount of $3,577,295.
See Note 5. There can be no assurances that demand for the Company’s products or services, which could result in a further
impairment of long-lived assets in the future.
Imputed
Interest on Related Party Non Interest Bearing Debt
In
accordance with ASC Subtopic 835-30, the Company expenses imputed interest on all related party non-interest bearing debt. The
imputed interest on each note is calculated by determining the difference between the face value of the note and the present value
of the note which is derived by using a discount rate equal to prevailing interest rates on similar debt issued. The imputed interest
amount is amortized and expensed over the term of each note.
Equity
Instruments Issued to Non-Employees for Acquiring Goods or Services
Issuances
of the Company's common stock or warrants for acquiring goods or services are measured at the fair value of the consideration
received or the fair value of the equity instruments issued, whichever is more reliably measurable. The measurement date for the
fair value of the equity instruments issued to consultants or vendors is determined at the earlier of (i) the date at which a
commitment for performance to earn the equity instruments is reached (a "performance commitment" which would include
a penalty considered to be of a magnitude that is a sufficiently large disincentive for nonperformance) or (ii) the date at which
performance is complete. Although situations may arise in which counter performance may be required over a period of time, the
equity award granted to the party performing the service is fully vested and non-forfeitable on the date of the agreement. As
a result, in this situation in which vesting periods do not exist as the instruments fully vested on the date of agreement, the
Company determines such date to be the measurement date and will record the estimated fair market value of the instruments granted
as a prepaid expense and amortize such amount to general and administrative expense in the accompanying statement of operations
over the contract period. (See note 13). When it is appropriate for the Company to recognize the cost of a transaction during
financial reporting periods prior to the measurement date, for purposes of recognition of costs during those periods, the equity
instrument is measured at the then-current fair values at each of those interim financial reporting dates.
Stock-Based
Compensation
FASB
ASC 718 establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods
or services, but primarily focuses on transactions whereby an entity obtains employee services for share-based payments. FASB
ASC 718 requires that the compensation cost relating to share-based payment transactions be recognized in the consolidated financial
statements. That cost will be measured based on the fair value of the equity or liability instruments issued. It also addresses
transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s
equity instruments or that may be settled by the issuance of those equity instruments.
The
Company’s accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services
follows the provisions of FASB ASC 505-50. The measurement date for the fair value of the equity instruments issued is
determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii)
the date at which the consultant or vendor’s performance is complete. In the case of equity instruments issued to consultants,
the fair value of the equity instrument is recognized over the term of the consulting agreement. Stock-based compensation related
to non-employees is accounted for based on the fair value of the related stock or options or the fair value of the services, whichever
is more readily determinable in accordance with FASB ASC 718.
Foreign
Currency Transactions and Translation
The
Company’s principal country of operations is Canada. The financial position and results of operations of the Company are
determined using the local currency, Canadian Dollars (“CAD”) as the functional currency. The results of operations
denominated in foreign currency are translated at the average rate of exchange during the reporting period.
Assets
and liabilities denominated in foreign currencies at the balance sheet date are translated at the exchange rates prevailing at
the balance sheet date. The results of operations are translated from CAD to US Dollar (“USD”) at the weighted average
rate of exchange during the reporting period. The registered equity capital denominated in the functional currency is translated
at the historical rate of exchange at the time of capital contribution. All translation adjustments resulting from the translation
of the financial statements into the USD reporting currency are dealt with as a component of accumulated other comprehensive income
(loss). Translation adjustments net of tax totaled USD $948,247 for the period from inception (January 20, 2014) through December
31, 2014 which is recorded in accumulated other comprehensive income on the balance sheet.
As
of December 31, 2014, the exchange rate was CAD .8599 per U.S. Dollar. The average exchange rate for the period from inception
(January 20, 2014) through December 31, 2014 was CAD .9058.
Comprehensive
Income (Loss)
Comprehensive
income (loss) is defined as all changes in stockholders' equity (deficit), exclusive of transactions with owners, such as capital
investments. Income includes net income or loss, changes in certain assets and liabilities that are reported directly in equity
such as translation adjustments on investments in foreign subsidiaries and unrealized gains (losses) on available-for-sale securities.
The Company had other comprehensive income of USD $948,247 and total comprehensive loss of USD $13,779,100 for the period from
inception (January 20, 2014) through December 31, 2014, respectively.
Recently
Issued Accounting Standards
In
June 2015, the FASB has issued ASU 2015-10, Technical Corrections and Improvements, which makes minor amendments to the
FASB Accounting Standards Codification. These amendments are related to differences between the original guidance and the codification
and are intended to provide clarification and reference corrections, as well as simplifying and adding minor improvements to the
guidance. The amendments to transition guidance are effective for fiscal years beginning after December 15, 2015; all other changes
are effective upon issuance of this ASU.
In
April 2015, the FASB issued ASU 2015-03 (ASC Subtopic 835-30), Interest-Imputation of Interest: Simplifying the Presentation
of Debt Issuance Costs. The amendments in this ASU require that debt issuance costs related to a recognized debt liability
be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. The amendments in this
ASU 2015-03 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. Early adoption
is permitted for financial statements that have not been previously issued. The adoption of this new guidance will not have a
material impact on the Company’s consolidated financial statements and disclosures
In February 2015, the Financial Accounting
Standards Board issued ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidations Analysis, which changes
the guidance for evaluating whether to consolidate certain legal entities. Specifically, the amendments modify the evaluation
of whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest
entities. Further, the amendments eliminate the presumption that a general partner should consolidate a limited partnership, as
well as affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee
arrangements and related party relationships. The updated guidance is effective for fiscal years, and interim periods within those
fiscal years beginning after December 15, 2015. Early adoption is permitted. Companies have an option of using either a full retrospective
or modified retrospective adoption approach. The Company is evaluating the effect that ASU 2015-02 will have on its consolidated
financial statements and related disclosures.
In
January 2015, the Financial Accounting Standards Board issued ASU 2015-01, Income Statement-Extraordinary and Unusual Items.
ASU 2015-01 eliminates the separate presentation of extraordinary items but does not change the requirement to disclose material
items that are unusual or infrequent in nature. Eliminating the concept of extraordinary items will allow the entity to no longer
have to assess whether a particular event or transaction is both unusual in nature and infrequent in occurrence. This should save
time and reduce costs for the entity and alleviate uncertainty for auditors and regulators. The amendments in this ASU 2015-01
are effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. Early adoption is permitted
for financial statements that have not been previously issued. The adoption of this new guidance will not have a material impact
on the Company’s consolidated financial statements and disclosures.
On
June 10, 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2014-10, Development Stage Entities
(Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities
Guidance in Topic 810, Consolidation (“ASU 2014-10”). ASU 2014-10 eliminates the requirement to present inception-to-date
information about income statement line items, cash flows, and equity transactions, and clarifies how entities should disclose
the risks and uncertainties related to their activities. ASU 2014-10 also eliminates an exception provided by development stage
entities in Consolidations (ASC Topic 810) for determining whether an entity is a variable interest entity on the basis of the
amount of investment equity that is at risk. The presentation and disclosure requirements in Topic 915 are no longer required
for interim and annual reporting periods beginning after December 15, 2014, however, early adoption is permitted. The Company
adopted the provisions of ASU 2014-10 for this quarterly report on Form 10-Q for the period ended September 30, 2014.
In August 2014, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-15, Presentation of Financial Statements
– Going Concern. The new standard required management of public and private companies to evaluate whether there is substantial
doubt about the entity’s ability to continue as a going concern and, if so, disclose that fact. Management will also be
required to evaluate and disclose whether its plans alleviate that doubt. The new standard is effective for annual periods ending
after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early adoption is permitted.
We do not expect the adoption of the ASU to have a significant impact on our consolidated financial statements.
In
May 2014, the “FASB” issued ASU 2014-09 Revenue from Contracts with Customers, which will supersede nearly all existing
revenue recognition guidance under U.S. GAAP. The standard’s core principle is that a company will recognize revenue when
it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects
to be entitled in exchange for those goods or services. We are carefully evaluating our existing revenue recognition practices
to determine whether any contracts in the scope of the guidance will be affected by the new requirements. The effects may include
identifying performance obligations in existing arrangements, determining the transaction price and allocating the transaction
price to each separate performance obligation. We will also establish practices to determine when a performance obligation has
been satisfied, and recognize revenue in accordance with the new requirements. The new standard is effective for us on January
1, 2017. Early adoption is not permitted. The standard allows for either “full retrospective” adoption, meaning the
standard is applied to all of the periods presented, or “modified retrospective” adoption, meaning the standard is
applied only to the most current period presented in the financial statements. We are currently evaluating the transition method
that will be elected.
We
have reviewed all recently issued, but not yet effective, accounting pronouncements and do not believe the future adoption of
any such pronouncements may be expected to cause a material impact on our financial condition or the results of our operations.
Off-Balance
Sheet Arrangements
We
have not entered into 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 and would be considered material to investors.
Inflation
We
do not believe that inflation has had in the past or will have in the future any significant negative impact on our operations.
| Item 7A. |
Quantitative
and Qualitative Disclosures About Market Risk. |
As
we are a smaller reporting company, we are not required to provide the information required by this item.
| Item 8. |
Consolidated
financial statements and supplementary data. |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
Board of Directors and Stockholders
Canadian Cannabis Corp.
We have audited the accompanying consolidated
balance sheet of Canadian Cannabis Corp., as of December 31, 2014, and the related consolidated statements of operations, comprehensive
loss, shareholders’ equity (deficiency), and cash flows for the period from January 20, 2014 (inception) through December
31, 2014. These consolidated financial statements are the responsibility of the entity’s management. Our responsibility is
to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the
standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. An
audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides
a reasonable basis for our opinion.
In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of Canadian Cannabis Corp. as of
December 31, 2014, and the results of its operations and its cash flows for the period from January 20, 2014 (inception) through
December 31, 2014, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements
have been prepared assuming that the entity will continue as a going concern. As discussed in Note 1 to the consolidated financial
statements, the entity has suffered significant losses from operations and negative cash from operations. As discussed in Note
5 to the consolidated financial statements, the entity has also incurred a significant impairment charge related to investments
and loans. These factors raise substantial doubt about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Hartley Moore Accountancy Corp.
Irvine, CA
October 1, 2015
Canadian
Cannabis Corp. and Subsidiaries
Consolidated
Balance Sheet
| | |
December 31, | |
| | |
2014 | |
| ASSETS | |
| |
| Current Assets | |
| |
| Cash | |
$ | 17,813 | |
| Accounts receivable | |
| 45,845 | |
| Prepaid expenses | |
| 201,677 | |
| Total Current Assets | |
| 265,335 | |
| | |
| | |
| Other Assets | |
| | |
| Notes receivable-Growlite, net of impairment of $2,579,700 (Note 5) | |
| - | |
| Notes receivable from related parties | |
| 33,480 | |
| Notes receivable from stockholders, net of impairment of $137,695 (Note 5) | |
| - | |
| Investment in Growlite, net of impairment of $859,900 (Note 5) | |
| - | |
| Buildings and equipment, net | |
| 14,737,960 | |
| Total Other Assets | |
| 14,771,440 | |
| Total Assets | |
$ | 15,036,775 | |
| | |
| | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| | |
| Current Liabilities | |
| | |
| Accounts payable and accrued liabilities | |
$ | 1,384,458 | |
| Accrued stock payable | |
| 209,992 | |
| Mortgage payable | |
| 8,083,060 | |
| Notes payable to stockholders, net of discount | |
| 1,951,918 | |
| Total Current Liabilities | |
| 11,629,428 | |
| Total Liabilities | |
| 11,629,428 | |
| | |
| | |
| Commitments and Contingencies (Note 6) | |
| | |
| | |
| | |
| Canadian Cannabis Stockholders’ Equity | |
| | |
| Preferred stock, $0.000001 par value; 5,000,000 shares
authorized; None issued and outstanding issued and outstanding | |
| - | |
| Common stock, $0.000001 par value; 95,000,000 shares authorized; 29,703,832
issued and outstanding | |
| 30 | |
| Additional paid-in-capital | |
| 17,186,417 | |
| Accumulated other comprehensive income | |
| 948,247 | |
| Accumulated deficit | |
| (14,379,305 | ) |
| Total Canadian Cannabis Corp. Stockholders’ Equity | |
| 3,755,389 | |
| Non-controlling interest in consolidated variable
interest entity | |
| (348,042 | ) |
| Total Shareholders’ Equity | |
| 3,407,347 | |
| Total Liabilities and Stockholders’ Equity | |
$ | 15,036,775 | |
See
accompanying notes to the consolidated financial statements.
Canadian
Cannabis Corp. and Subsidiaries,
Consolidated
Statement of Operations
For
the Period from Inception (January 20, 2014) through December 31, 2014
| | |
Inception | |
| | |
(January 20, 2104) | |
| | |
Through | |
| | |
December 31,
2014 | |
| REVENUE | |
| |
| Rental income | |
| 292,843 | |
| | |
| | |
| OPERATING EXPENSES | |
| | |
| Consulting fees | |
$ | 2,916,866 | |
| Professional fees | |
| 4,768,168 | |
| General and administrative | |
| 3,154,585 | |
| Total Operating Expenses | |
| 10,839,619 | |
| | |
| | |
| Loss from operations | |
| (10,546,776 | ) |
| | |
| | |
| OTHER INCOME (EXPENSE) | |
| | |
| Interest expense | |
| (473,032 | ) |
| Interest income | |
| 1,238 | |
| Loss on impairment of asset | |
| (3,577,295 | ) |
| Foreign currency gain (loss), net | |
| (131,482 | ) |
| Total Other Income (Expense) | |
| (4,180,571 | ) |
| Net loss applicable to common stockholders before allocation to non-controlling interest | |
| (14,727,347 | ) |
| Net loss attributable to non-controlling interest for consolidated variable
interest entity | |
| (348,042 | ) |
| Net loss applicable to Canadian Cannabis Corp. common stockholders | |
$ | (14,379,305 | ) |
| | |
| | |
Loss per share – Basic and Diluted
| |
$ | (0.58 | ) |
Weighted Average Number of Shares Outstanding – Basic and Diluted
| |
| 24,717,445 | |
See
accompanying notes to the consolidated financial statements.
Canadian
Cannabis Corp. and Subsidiaries
Consolidated
Statement of Comprehensive Loss
For
the Period from Inception (January 20, 2014) through December 31, 2014
| | |
Inception (January 20, 2014) through December 31,
2014 | |
| | |
| |
| NET LOSS | |
$ | (14,727,347 | ) |
| Foreign currency translation gain | |
| 948,247 | |
| TOTAL COMPREHENSIVE LOSS | |
$ | (13,779,100 | ) |
See
accompanying notes to the consolidated financial statements.
Canadian
Cannabis Corp. and Subsidiaries
Consolidated
Statement of Shareholders Equity
For
the Period from Inception (January 20, 2014) Through December 31, 2014
| | |
| | |
| | |
| | |
Accumulated | | |
| | |
| | |
| |
| | |
| | |
| | |
Additional | | |
other | | |
| | |
| | |
Total | |
| | |
Common
Stock | | |
Paid-in | | |
Comprehensive | | |
Non-controlling | | |
Accumulated | | |
Stockholders’ | |
| | |
Shares | | |
Amount | | |
Capital | | |
Loss | | |
Interest | | |
Deficit | | |
Equity | |
| Balance
at January 1, 2014 | |
| - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Recapitalization
in reverse merger transaction (Note 1) | |
| 6,500,325 | | |
| 6 | | |
| (6 | ) | |
| | | |
| | | |
| | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Common
stock issued for cash | |
| 19,923,935 | | |
| 20 | | |
| 9,114,854 | | |
| | | |
| | | |
| | | |
| 9,114,874 | |
| Common
stock issued on conversion of notes payable | |
| 416,667 | | |
| 1 | | |
| 1,249,999 | | |
| | | |
| | | |
| | | |
| 1,250,000 | |
| Common
stock issued in exchange for services | |
| 2,012,905 | | |
| 2 | | |
| 5,108,775 | | |
| | | |
| | | |
| | | |
| 5,108,777 | |
| Contributed
services | |
| - | | |
| - | | |
| 289,856 | | |
| | | |
| | | |
| | | |
| 289,856 | |
| Shares
issued in connection with notes payable | |
| 100,000 | | |
| - | | |
| 189,698 | | |
| | | |
| | | |
| | | |
| 189,698 | |
| Common
stock issued to employees | |
| 750,000 | | |
| 1 | | |
| 847,499 | | |
| | | |
| | | |
| | | |
| 847,500 | |
| Amortization
of compensation related to issuance of stock options | |
| - | | |
| - | | |
| 385,742 | | |
| | | |
| | | |
| | | |
| 385,742 | |
| Other
comprehensive income | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Foreign
currency translation gain | |
| | | |
| | | |
| | | |
| 948,247 | | |
| | | |
| | | |
| 948,247 | |
| Net
loss applicable to Canadian Cannabis Corp. | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (14,379,305 | ) | |
| (14,379,305 | ) |
| Non-controlling
interest for consolidated variable interest entity | |
| | | |
| | | |
| | | |
| | | |
| (348,042 | ) | |
| | | |
| (348,042 | ) |
| Balance
at December 31, 2014 | |
| 29,703,832 | | |
| 30 | | |
| 17,186,417 | | |
| 948,247 | | |
| (348,042 | ) | |
| (14,379,305 | ) | |
| 3,407,347 | |
See
accompanying notes to the consolidated financial statements
Canadian
Cannabis Corp. and Subsidiaries
Consolidated
Statement of Cash Flows
For
the Period from Inception (January 20, 2014) Through December 31, 2014
| | |
Inception | |
| | |
(January 20, 2014) | |
| | |
Through | |
| | |
December 31,
2014 | |
| Cash flows from operating activities: | |
| |
| Net loss including non-controlling interests | |
| (14,727,347 | ) |
| Adjustments to reconcile net loss to net cash (used in) operating activities: | |
| | |
| Depreciation | |
| 21,982 | |
| Loss on impairment of notes receivables and investment (note 5) | |
| 3,577,295 | |
| Stock issued for services | |
| 5,108,777 | |
| Stock issued to employees | |
| 847,500 | |
| Value of contributed services | |
| 289,856 | |
| Amortization of debt discount | |
| 86,880 | |
| Amortization of compensation for stock options | |
| 385,742 | |
| Change in operating assets and liabilities: | |
| | |
| Prepaid expenses | |
| (201,677 | ) |
| Accounts receivable | |
| (45,845 | ) |
| Accounts payable, accrued liabilities, and accrued
stock payable | |
| 1,584,742 | |
| Net cash (used in) operating activities | |
| (3,072,095 | ) |
| | |
| | |
| Cash flows from investing activities: | |
| | |
| Investment in Growlite | |
| (859,900 | ) |
| Loan to Growlite | |
| (2,579,700 | ) |
| Investment in building, equipment and construction in progress | |
| (4,372,302 | ) |
| Loan to related parties | |
| (33,480 | ) |
| Net cash (used in) investing activities | |
| (7,845,382 | ) |
| | |
| | |
| Cash flows from financing activities: | |
| | |
| Proceeds from sale of common stock | |
| 9,114,854 | |
| Proceeds from notes payable to shareholders | |
| 3,700,111 | |
| Repayment of notes payable to shareholders | |
| (1,748,193 | ) |
| Net cash provided by financing activities | |
| 11,066,772 | |
| Effect of exchange on cash and cash equivalents | |
| (131,482 | ) |
| Change in cash and cash equivalents | |
| 17,813 | |
| | |
| | |
| Cash and cash equivalents at beginning of period | |
$ | - | |
| Cash and cash equivalents at end of period | |
$ | 17,813 | |
| | |
| | |
| Supplemental disclosure of cash flow information: | |
| | |
| Interest paid | |
$ | 143,339 | |
| | |
| | |
| Noncash investing and financing activities: | |
| | |
| Portion of property paid through shareholder loans | |
$ | 905,800 | |
| Mortgage payable obtained to purchase building | |
$ | 8,514,520 | |
| Conversion of notes payable into common stock | |
$ | 1,209,575 | |
| Issuance of shares in connection with notes payable recorded as debt discount | |
$ | 189,698 | |
| Accrual of remediation cost to construction in progress | |
$ | 226,450 | |
See
accompanying notes to the consolidated financial statements.
Canadian
Cannabis Corp. and Subsidiaries
Notes
to Consolidated Financial Statements
For
The Period from Inception January 20, 2014 Through
December
31, 2014.
| 1. |
NATURE OF OPERATIONS, HISTORY AND PRESENTATION |
Nature
of Operations
Canadian
Cannabis Corp. (“CCC”, “the Company” “we” or “us”) was originally incorporated
on September 19, 2011 under the laws of the State of Delaware as Gold Party Payday, Inc. At that time, the Company’s business
operations consisted of organizing events and parties in which guests bring their unwanted jewelry, scrap gold and silver, coins
and other gold and silver items to sell to the Company at a discount, after which the Company resold the items to refineries.
Canada
Cannabis Corp. was incorporated in the Province of Ontario, Canada on January 20, 2014. Canada Cannabis Corp. is planning to cultivate
and distribute medical marijuana in Canada under regulations established by Health Canada, under a new Commercial Production License.
Canada Cannabis Corp.’s planned business is to cultivate Cannabis for medical marijuana purposes and distribute directly
to patients throughout Canada and export to international markets, where an existing framework and legislation exists for medical
marijuana.
Reverse
Merger
On
May 21, 2014, the Company consummated a merger agreement (the “Merger Agreement”) with 2418146 Ontario Inc., an Ontario
(Canada) corporation (“GPAY Sub”), which is our wholly-owned subsidiary formed for purposes of consummating the Merger
Agreement, and Canada Cannabis Corp. Pursuant to the terms of the Merger Agreement, Canada Cannabis Corp. and GPAY Sub executed
and filed Articles of Amalgamation pursuant to the Ontario Business Corporations Act to consummate the amalgamation. Pursuant
to the terms of the Merger Agreement, the company resulting from the amalgamation (“CCC-Sub”) is a wholly-owned subsidiary
of the Company and retains the Canada Cannabis Corp. name and business, and each of the predecessor companies ceased. Pursuant
to the Merger Agreement, the Company agreed to exchange the outstanding common stock of Canada Cannabis Corp. held by its Shareholders
for shares of common stock of the Company on a 1:19.5 basis. At the closing of the Merger Agreement, there were approximately
19,822,635 shares of Canada Cannabis Corp. common stock outstanding, which were exchanged for 1,016,503 new shares of the Company’s
common stock, par value of $0.000001 per share. At the closing of the agreement, Gold Party Payday, Inc. had 333,350 shares of
common stock issued outstanding and no preferred stock. After the effects of the merger transaction as discussed, there were 1,349,853
shares of common stock outstanding.
Also
on May 21, 2014 (the “Closing Date”), the Company closed a business transfer and indemnity agreement (the “Transfer
Agreement”) with Tatum L. Morita, who was our President, CEO, CFO, a director of the Company and our majority shareholder
(holding 4,000,000 of 4,333,350 shares of our common stock immediately prior to the closing). Pursuant to the terms of the Transfer
Agreement, Ms. Morita (i) returned to the Company 4,000,000 shares of the Company’s common stock, (ii) agreed that outstanding
loans made by Ms. Morita to the Company in the aggregate amount of USD $7,100 are satisfied and paid in full, and (iii) agreed
to indemnify and hold harmless the Company and CCC-Sub with respect to all liabilities of the Company in existence, arising during,
or relating to the period prior to the Closing Date. Pursuant to the terms of the Transfer Agreement, the Company (i) transferred
to Ms. Morita the assets of the Company business, as in existence prior to the Closing Date, (ii) paid cash consideration to Ms.
Morita in the amount of USD $361,650, and (iii) agreed to, jointly and severally with CCC-Sub, indemnify and hold harmless Ms.
Morita with respect to all liabilities of the Company incurred after the Closing Date.
As a result of the transactions effected by
the Merger Agreement and the Transfer Agreement, (i) the former business of Canada Cannabis Corp. is now the sole business of
the Company’s wholly-owned subsidiary of the same name, CCC-Sub, (ii) the Company’s sole business is now to invest
in and support the business of its subsidiary, CCC-Sub, and (iii) there was a change of control whereby the former shareholders
of Canada Cannabis Corp. obtained a controlling 75% ownership interest in the Company as of the date of the Merger Agreement.
The merger completed is being accounted for as a reverse merger and recapitalization in which Canada Cannabis Corp. is deemed
to be the accounting acquirer. Consequently, the assets and liabilities and the operations that will be reflected in the historical
financial statements prior the merger will be those of Canada Cannabis Corp. and will be recorded at the historical cost basis
of Canada Cannabis Corp., and the consolidated financial statements subsequent to completion of the merger include the assets
and liabilities of the Company and Canada Cannabis Corp., and the operations of the combined Company from the closing date of
the merger. The Company did not recognize goodwill or any intangible assets in connection with the transaction. The historical
consolidated financial statements include the operations of the accounting acquirer for all periods presented. The Company has
retroactively restated the common shares outstanding and weighted average shares outstanding pursuant to 1) the reverse merger
share exchange ratio of 1:19.5 and 2) the subsequent special share dividend of 19.5:1. On October 3, 2014 the Company’s
common shares had a special share dividend of 19.5:1 for all shareholders of record on that date and the Company has reflected
that split in the current share count.
Going
Concern and Basis of Presentation
The
accompanying financial statements have been prepared in accordance with generally accepted accounting principles in the United
States of America (“U.S. GAAP”) applicable to a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company incurred a net loss of USD $14,727,347 for the period
from inception (January 20, 2014) through December 31, 2014. The Company has not yet established a stable ongoing source of revenues
sufficient to cover its operating costs and allow it to continue as a going concern. The continuation of the Company as a going
concern is dependent upon the continued financial support from its shareholders, the ability of the Company to obtain necessary
financing to continue operations, and the attainment of profitable operations. The Company has total stockholders’ equity
of USD $3,407,055. The accompanying consolidated financial statements do not include any adjustments to reflect the recoverability
and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable
to continue as a going concern. The Company is hopeful that it will continue to raise capital to continue to execute its plan
of becoming a major Company in the Medical Marijuana market in Canada, but there is no assurance that this can be achieved.
| 2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
The
financial statements include the results of the Company from inception on January 20, 2014 through December 31, 2014. This summary
of significant accounting policies is presented to assist the reader in understanding and evaluating the Company’s financial
statements. The financial statements and notes are representations of the Company’s management, which is responsible for
their integrity and objectivity. These accounting policies conform to generally accepted accounting principles and have been consistently
applied in the preparation of the financial statements.
Variable
Interest Entities
A
variable interest entity (“VIE”) is an entity that either (i) has insufficient equity to permit the entity to finance
its activities without additional subordinated financial support or (ii) has equity investors who lack the characteristics of
a controlling financial interest. The primary beneficiary of a VIE is the party with both the power to direct the activities of
the VIE that most significantly impact the VIE’s economic performance and the obligation to absorb the losses or the right
to receive benefits that could potentially be significant to the VIE. The Company performs ongoing reassessments of whether it
is the primary beneficiary of a VIE, which includes consideration of whether the Company has acquired or divested the power to
direct the most significant activities of the VIE through changes in governing documents or other circumstances. The Company also
reconsiders whether entities previously determined not to be VIEs have become VIEs, based on certain events, and therefore are
subject to the VIE consolidation framework.
The
Company has assessed its investment in Growlite Canada (see Note 5) and its relationship with 2264793 Ontario Inc. (see Note 11)
with regard to whether it is the primary beneficiary of these entities. The Company believes it is not the primary beneficiary
of Growlite Canada, as Silvio Serrano is the primary beneficiary of Growlite as he meets the power criterion by making all of
the ongoing operating decisions for the company, is in control of the bank account and is responsible for driving the company’s
sales and marketing strategy. Mr. Serrano also meets the losses/benefits criterion by having both the right to receive benefits
and the obligation to absorb losses through his 55% ownership of the company. Given these facts CCC accounts for its Growlite
though the equity method of accounting and does not consolidate Growlite in its financial statements. The Company was not able
to obtain reliable financial information from Growlite and has now made the determination to write off all loans, receivables
and investment. As such, no Growlite financial information is presented.
The
Company believes that it is in fact the primary beneficiary of 2264793 Ontario, Inc. and accordingly, consolidates the entity
in its Consolidated Financial Statements. See “Principles of Consolidation”. It is owned by several of our directors,
officers, and shareholders: Benjamin Ward, John Esteireiro, Silvio Serrano, and Scott Keevil. 2264793 Ontario Inc. is managed
for the benefit of the CCC shareholders by CCC officers, directors and employees who make all of decisions relating to the building
and the financing thereof. CCC has invested in the building and pays the bills, loans and mortgage associated with the building,
it has the rights to receive the benefits and will absorb any losses and as such is considered to be a VIE and is consolidated
in these Financial Statements. The Summary Balance Sheet and Income Statement information for 2264793 Ontario Inc. which is included
in the accompanying Consolidated Financial Statements is as follows.
2264793
Ontario Inc. Balance Sheet
| | |
December 31, | |
| | |
2014 | |
| ASSETS | |
| |
| Current Assets | |
| |
| Cash | |
$ | 16,354 | |
| Total Current Assets | |
| 16,354 | |
| | |
| | |
| Other Assets | |
| | |
| Shareholder notes | |
| 32,676 | |
| Buildings and equipment, net | |
| 12,465,507 | |
| Total Other Assets | |
| 12,498,183 | |
| Total Assets | |
$ | 12,514,537 | |
| | |
| | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| | |
| Liabilities | |
| | |
| Accounts payable and accrued liabilities | |
$ | 223,961 | |
| Inter-company loans (eliminated in consolidation) | |
| 4,494,946 | |
| Customer Deposits | |
| 42,975 | |
| Mortgage | |
| 8,083,060 | |
| Total Liabilities | |
| 12,844,942 | |
| | |
| | |
| Commitments and Contingencies | |
| | |
| | |
| | |
| Stockholders’ Equity | |
| | |
| Common stock | |
| 1 | |
| Accumulated other comprehensive income | |
| 17,636 | |
| Accumulated deficit | |
| (348,042 | ) |
| Total Stockholders’ Equity (Deficit) | |
| (330,405 | ) |
| Total Liabilities and Stockholders’ Equity | |
$ | 12,514,537 | |
2264793
Ontario Inc. Income Statement
| | |
Inception | |
| | |
(January 20, 2014) | |
| | |
Through | |
| | |
December 31,
2014 | |
| REVENUE | |
| |
| Rental income | |
$ | 136,618 | |
| | |
| | |
| OPERATING EXPENSES | |
| | |
| General and administrative | |
| 139,358 | |
| Total Operating Expenses | |
| 139,358 | |
| | |
| | |
| Loss from operations | |
| (2,740 | ) |
| | |
| | |
| OTHER EXPENSE | |
| | |
| Interest expense | |
| (345,302 | ) |
| Total Other Expense | |
| (345,302 | ) |
| Net loss attributable to non-controlling interest for consolidated variable
interest entity | |
$ | (348,042 | ) |
Principles
of Consolidation
The
accompanying consolidated financial statements include Canadian Cannabis Corp. (formerly, Gold Party Payday, Inc.) and Canada
Cannabis Corp., our wholly-owned subsidiary. All significant intercompany balances and transactions have been eliminated in consolidation.
The Company also consolidates any variable
interest entities (VIEs), of which it is the primary beneficiary, as defined. In accordance with ASC 810-10-25, the Company believes
that it meets the definition of the primary beneficiary for 2264793 Ontario Inc. and consolidates the entity in its Consolidated
Financial Statements. The equity of the consolidated VIE has been segregated and disclosed as non-controlling interest. See “Variable
Interest Entities”
Accounting
Method
The
Company’s consolidated financial statements are prepared using the accrual basis of accounting in accordance with accounting
principles generally accepted in the United States of America.
Use of
Estimates
The
preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions
that affect 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. The Company bases its estimates
and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and
the accrual of costs and expenses that are not readily apparent from other sources. Actual results could differ from those estimates.
Significant estimates include assumptions for the Company’s valuation of stock compensation, warrants, options and the valuation
of Growlite. To the extent there are material differences between the estimates and the actual results, future results of operations
will be affected.
Property
and Equipment
Building
and land are stated at cost less accumulated depreciation. Depreciation is computed by the straight-line method over the estimated
useful lives of the relevant asset, generally 20 years.
Cash
and cash equivalents
The
Company considers all highly liquid investments with an original maturity of three months or less as cash equivalents. The Company
holds cash balances in both U.S. Dollars (USD) and Canadian Dollars (CAD) and places its cash equivalents with high credit quality
financial institutions. All amounts in as deposits are insured up to CAD $100,000 by the Canadian Deposit and Insurance Corporation
(CDIC), with Bank of Montreal (BMO) as a Member Institution. As of December 31, 2014 the Company’s cash balances held at
Canadian banks was approximately CAD $20,716(USD $17,813).
Prepaid
expenses
Prepaid
expenses were CAD $234,535, (USD $201,677) as of December 31, 2014. The prepaid expenses primarily reflect insurance premiums
that are being amortized over the life of the insurance policies.
Income
tax
The
Company accounts for income taxes pursuant to ASC 740. Under ASC 740 deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary differences and operating loss carry forwards and deferred tax liabilities
are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets
and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities
are adjusted for the effects of changes in tax laws and rates on the date of enactment.
The
Company follows the provisions of ASC 740-10, “Accounting for Uncertain Income Tax Positions.” 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.
In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the
period during which, based on all available evidence, management believes 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
should be reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any
associated interest and penalties that would be payable to the taxing authorities upon examination.
Fair
Value Measurements
ASC
Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), provides a comprehensive framework for measuring fair
value and expands disclosures which are required about fair value measurements. Specifically, ASC 820 sets forth a definition
of fair value and establishes a hierarchy prioritizing the inputs to valuation techniques, giving the highest priority to quoted
prices in active markets for identical assets and liabilities and the lowest priority to unobservable value inputs. ASC 820 defines
the hierarchy as follows:
Level–1 - Quoted prices are available
in active markets for identical assets or liabilities as of the reported date. The types of assets and liabilities included in
Level 1 are highly liquid and actively traded instruments with quoted prices, such as equities listed on the New York Stock Exchange.
Level–2
- Pricing inputs are other than quoted prices in active markets, but are either directly or indirectly observable as of the reported
date. The types of assets and liabilities in Level 2 are typically either comparable to actively traded securities or contracts,
or priced with models using highly observable inputs.
Level–3
- Significant inputs to pricing that are unobservable as of the reporting date. The types of assets and liabilities included in
Level 3 are those with inputs requiring significant management judgment or estimation, such as complex and subjective models and
forecasts used to determine the fair value of financial transmission rights.
Our
financial instruments consist of cash, accounts payables, notes receivable, notes payable and accrued expenses. The carrying values
of cash, accounts payables, notes receivable, notes payable and accrued expenses approximate their fair value due to their short
maturities.
Long-Lived
Assets
In
accordance with ASC 350, the Company regularly reviews the carrying value of intangible and other long-lived assets for the existence
of facts or circumstances, both internally and externally, that suggest impairment. If impairment testing indicates a lack of
recoverability, an impairment loss is recognized by the Company if the carrying amount of a long-lived asset exceeds its fair
value. Through December 31, 2014, the Company recorded an impairment loss on its long-lived assets relating to its investment,
loan and receivable from Growlite in the amount of $3,577,295. See Note 5. There can be no assurances of demand for the Company’s
products or services, which could result in a further impairment of long-lived assets in the future.
Imputed
Interest on Related Party Non Interest Bearing Debt
In
accordance with ASC Subtopic 835-30, the Company expenses imputed interest on all related party non-interest bearing debt. The
imputed interest on each note is calculated by determining the difference between the face value of the note and the present value
of the note which is derived by using a discount rate equal to prevailing interest rates on similar debt issued. The imputed interest
amount is amortized and expensed over the term of each note.
Equity
Instruments Issued to Non-Employees for Acquiring Goods or Services
Issuances
of the Company's common stock or warrants for acquiring goods or services are measured at the fair value of the consideration
received or the fair value of the equity instruments issued, whichever is more reliably measurable. The measurement date for the
fair value of the equity instruments issued to consultants or vendors is determined at the earlier of (i) the date at which a
commitment for performance to earn the equity instruments is reached (a "performance commitment" which would include
a penalty considered to be of a magnitude that is a sufficiently large disincentive for nonperformance) or (ii) the date at which
performance is complete. Although situations may arise in which counter performance may be required over a period of time, the
equity award granted to the party performing the service is fully vested and non-forfeitable on the date of the agreement. As
a result, in this situation in which vesting periods do not exist as the instruments fully vested on the date of agreement, the
Company determines such date to be the measurement date and will record the estimated fair market value of the instruments granted
as a prepaid expense and amortize such amount to general and administrative expense in the accompanying statement of operations
over the contract period. (See note 13). When it is appropriate for the Company to recognize the cost of a transaction during
financial reporting periods prior to the measurement date, for purposes of recognition of costs during those periods, the equity
instrument is measured at the then-current fair values at each of those interim financial reporting dates.
Stock-Based
Compensation
FASB
ASC 718 establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods
or services, but primarily focuses on transactions whereby an entity obtains employee services for share-based payments. FASB
ASC 718 requires that the compensation cost relating to share-based payment transactions be recognized in the consolidated financial
statements. That cost will be measured based on the fair value of the equity or liability instruments issued. It also addresses
transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s
equity instruments or that may be settled by the issuance of those equity instruments.
The
Company’s accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services
follows the provisions of FASB ASC 505-50. The measurement date for the fair value of the equity instruments issued is
determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii)
the date at which the consultant or vendor’s performance is complete. In the case of equity instruments issued to consultants,
the fair value of the equity instrument is recognized over the term of the consulting agreement. Stock-based compensation related
to non-employees is accounted for based on the fair value of the related stock or options or the fair value of the services, whichever
is more readily determinable in accordance with FASB ASC 718.
Revenue
recognition
Revenue
is expected to be recognized on an accrual basis as earned under contract terms. Revenue from real estate properties is recognized
during the period in which the premises are occupied and rent is due from tenants. Rental revenue is recognized on a straight-line
basis over the term of the lease
Advertising
costs
Advertising
costs are expensed as incurred. No advertising costs were incurred during the period from inception (January 20, 2014) through
December 31, 2014.
Foreign
Currency Transactions and Translation
The
Company’s principal country of operations is Canada. The financial position and results of operations of the Company are
determined using the local currency, Canadian Dollars (“CAD”) as the functional currency. The results of operations
denominated in foreign currency are translated at the average rate of exchange during the reporting period.
Assets and liabilities denominated in foreign
currencies at the balance sheet date are translated at the exchange rates prevailing at the balance sheet date. The results of
operations are translated from CAD to US Dollar (“USD”) at the weighted average rate of exchange during the reporting
period. The registered equity capital denominated in the functional currency is translated at the historical rate of exchange
at the time of capital contribution. All translation adjustments resulting from the translation of the financial statements into
the USD reporting currency are dealt with as a component of accumulated other comprehensive income (loss). Translation adjustments
net of tax totaled USD $948,247 for the period from inception (January 20, 2014) through December 31, 2014, which is recorded
in accumulated other comprehensive income on the balance sheet.
As
of December 31, 2014, the exchange rate was CAD .8599 per U.S. Dollar. The average exchange rate for the period from inception
(January 20, 2014) through December 31, 2014 was CAD .9058.
Comprehensive
Income (Loss)
Comprehensive
income (loss) is defined as all changes in stockholders' equity (deficit), exclusive of transactions with owners, such as capital
investments. Income includes net income or loss, changes in certain assets and liabilities that are reported directly in equity
such as translation adjustments on investments in foreign subsidiaries and unrealized gains (losses) on available-for-sale securities.
The Company had other comprehensive income of USD $948,247 and total comprehensive loss of USD $13,779,100 for the period from
inception (January 20, 2014) through December 31, 2014, respectively.
Loss
per share
The
Company computes net earnings (loss) per share in accordance with ASC 260, “Earnings per Share”. ASC 260 requires
presentation of both basic and diluted net earnings per share (“EPS”) on the face of the income statement. Basic EPS
is computed by dividing earnings (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. For the period
from inception (January 20, 2014) through December 31, 2014, there were 300,000 options and 400,000 warrants outstanding, but
due to the Net loss, no potentially dilutive common shares are calculated as outstanding during the period.
Business
Segments
The
Company expects to operate two reportable business segments - a planned Medical Marijuana Cultivation business and a planned Horticultural
Lighting Business.
Recently
Issued Accounting Standards
In
June 2015, the FASB has issued ASU 2015-10, Technical Corrections and Improvements, which makes minor amendments to the
FASB Accounting Standards Codification. These amendments are related to differences between the original guidance and the codification
and are intended to provide clarification and reference corrections, as well as simplifying and adding minor improvements to the
guidance. The amendments to transition guidance are effective for fiscal years beginning after December 15, 2015; all other changes
are effective upon issuance of this ASU.
In
April 2015, the FASB issued ASU 2015-03 (ASC Subtopic 835-30), Interest-Imputation of Interest: Simplifying the Presentation
of Debt Issuance Costs. The amendments in this ASU require that debt issuance costs related to a recognized debt liability
be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. The amendments in this
ASU 2015-03 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. Early adoption
is permitted for financial statements that have not been previously issued. The adoption of this new guidance will not have a
material impact on the Company's consolidated financial statements and disclosures.
In
February 2015, the Financial Accounting Standards Board issued ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidations
Analysis, which changes the guidance for evaluating whether to consolidate certain legal entities. Specifically, the amendments
modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities ("VIEs")
or voting interest entities. Further, the amendments eliminate the presumption that a general partner should consolidate a limited
partnership, as well as affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those
that have fee arrangements and related party relationships. The updated guidance is effective for fiscal years, and interim periods
within those fiscal years beginning after December 15, 2015. Early adoption is permitted. Companies have an option of using either
a full retrospective or modified retrospective adoption approach. The Company is evaluating the effect that ASU 2015-02 will have
on its consolidated financial statements and related disclosures.
In
January 2015, the Financial Accounting Standards Board issued ASU 2015-01, Income Statement-Extraordinary and Unusual Items.
ASU 2015-01 eliminates the separate presentation of extraordinary items but does not change the requirement to disclose material
items that are unusual or infrequent in nature. Eliminating the concept of extraordinary items will allow the entity to no longer
have to assess whether a particular event or transaction is both unusual in nature and infrequent in occurrence. This should save
time and reduce costs for the entity and alleviate uncertainty for auditors and regulators. The amendments in this ASU 2015-01
are effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. Early adoption is permitted
for financial statements that have not been previously issued. The adoption of this new guidance will not have a material impact
on the Company's consolidated financial statements and disclosures.
On
June 10, 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2014-10, Development Stage Entities
(Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities
Guidance in Topic 810, Consolidation (“ASU 2014-10”). ASU 2014-10 eliminates the requirement to present inception-to-date
information about income statement line items, cash flows, and equity transactions, and clarifies how entities should disclose
the risks and uncertainties related to their activities. ASU 2014-10 also eliminates an exception provided by development stage
entities in Consolidations (ASC Topic 810) for determining whether an entity is a variable interest entity on the basis of the
amount of investment equity that is at risk. The presentation and disclosure requirements in Topic 915 are no longer required
for interim and annual reporting periods beginning after December 15, 2014, however, early adoption is permitted. The Company
adopted the provisions of ASU 2014-10 for this quarterly report on Form 10-Q for the period ended September 30, 2014.
In
August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2014-15, Presentation of Financial Statements - Going Concern. The new standard required management of public and private companies
to evaluate whether there is substantial doubt about the entity’s ability to continue as a going concern and, if so, disclose
that fact. Management will also be required to evaluate and disclose whether its plans alleviate that doubt. The new standard
is effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December
15, 2016. Early adoption is permitted. We do not expect the adoption of the ASU to have a significant impact on our consolidated
financial statements.
In
May 2014, the “FASB” issued ASU 2014-09 Revenue from Contracts with Customers, which will supersede nearly all existing
revenue recognition guidance under U.S. GAAP. The standard’s core principle is that a company will recognize revenue when
it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects
to be entitled in exchange for those goods or services. We are carefully evaluating our existing revenue recognition practices
to determine whether any contracts in the scope of the guidance will be affected by the new requirements. The effects may include
identifying performance obligations in existing arrangements, determining the transaction price and allocating the transaction
price to each separate performance obligation. We will also establish practices to determine when a performance obligation has
been satisfied, and recognize revenue in accordance with the new requirements. The new standard is effective for us on January
1, 2017. Early adoption is not permitted. The standard allows for either “full retrospective” adoption, meaning the
standard is applied to all of the periods presented, or “modified retrospective” adoption, meaning the standard is
applied only to the most current period presented in the financial statements. We are currently evaluating the transition method
that will be elected.
We
have reviewed all recently issued, but not yet effective, accounting pronouncements and do not believe the future adoption of
any such pronouncements may be expected to cause a material impact on our financial condition or the results of our operations.
On
January 20, 2014, Canada Cannabis Corp. was formed and the following appointments were made:
| ● |
Benjamin
Ward was appointed as a director and the Principal Executive and Financial Officer of Canada Cannabis Corp.; |
| ● |
John
Esteireiro was appointed Chief Operating Officer of Canada Cannabis Corp.; and, |
| ● |
Peter
Strang was appointed as a director of Canada Cannabis Corp. |
In
connection with the merger of Canada Cannabis Corp. with the Company as effected by the Merger Agreement (see Note 1), the following
changes in management occurred:
| ● |
Tatum
Morita, a former officer and director of the Company resigned her positions as the Company’s President, CEO and CFO
effective May 20, 2014, and resigned her position as a director of the Company effective June 10, 2014; |
| ● |
Richard
J. Hitt, the former Secretary and director of the Company resigned his positions effective May 20, 2014; |
| ● |
Benjamin
Ward was appointed as a director and the President and CEO of the Company effective May 20, 2014; |
| ● |
John
Esteireiro was appointed as the COO of the Company effective May 20, 2014, and was appointed as a director of the Company
effective June 10, 2014; |
| ● |
Peter
Strang was appointed as a Vice-President of the Company effective May 20, 2014, and was appointed as a director of the Company
effective June 10, 2014; |
| ● |
Silvio
Serrano was appointed as a Vice-President of the Company effective May 20, 2014, and was appointed as a director of the Company
effective June 10, 2014 and resigned from all positions on November 19, 2014; |
| ● |
Dale
Rasmussen was appointed as a director of the Company effective June 10, 2014; |
Subsequent
and unrelated to the merger of Canada Cannabis Corp. with the Company, Richard Wachsberg was appointed as a director of the Company
effective January 13, 2015. On August 24, 2015 John Esteireiro resigned as COO and director of the Company.
Prepaid
expenses are summarized as follows (in USD):
| | |
December 31,
2014 | |
| Prepaid Insurance | |
| 195,441 | |
| Prepaid Other | |
| 6,236 | |
| | |
| 201,677 | |
| 5. |
INVESTMENT IN GROWLITE |
On
March 31, 2014, the Company acquired a 45% equity interest in Growlite Canada for CAD $1 million (approximately USD $900,000)
cash investment. Additionally, the Company made a CAD $3 million (approximately USD $2.7 million) loan for operating capital and
business expansion. The loan bears interest at 2% to be paid quarterly, while the entire principle amount and any remaining interest
matures March 31, 2024. See further discussion of this investment and loan in Note 10. The Company accounts for this investment
under the equity method of accounting, however management will continue to reevaluate the relationship every reporting period,
given changes in circumstances, to determine whether its investment represents a variable interest and whether the Company would
be considered the primary beneficiary. If this were deemed to be the case at any time, consolidation would be required. Under
the equity method of accounting, the Company records its investment at cost and at each reporting period is subsequently adjusted
to include the investor’s pro rata share of post-acquisition earnings or losses.
The Company has estimated that the investee
had a net loss of $40,168 for the nine months ended December 31, 2014, and utilizing the equity method would record a decrease
in the investment value. The Company has reviewed this investment for impairment and had made the determination that due to unfavorable
changes in the market, the Company would write the investment down to $800,000 which approximated the carrying value of Growlite’s
inventory at December 31, 2014. The Company had a security agreement and physical custody of the inventory in 2015. Subsequent
to this analysis the Company was informed that a manufacturer’s defect has been identified in Growlite’s most popular
fixture that has resulted in the request for all customers to stop using the product. Given the uncertainty of the value of the
remaining inventory and the financial and reputational harm Growlite will incur, the Company has written its investment to zero
and fully provide a reserve against the loan and receivable due from Growlite.
| 6. |
COMMITMENTS AND CONTINGENCIES |
Operating
Leases and Long term Contracts
The
Company previously rented temporary office space for its corporate needs. The Company entered into a month-to-month lease agreement
on January 20, 2014 to lease 1,100 square feet of office space located at 2368 Lakeshore Road West, Oakville, Ontario, Canada
L6L 1H5 for an annual rate of CAD $25,200, paid monthly. The Company paid approximately CAD $18,900 (USD $17,120) for the lease
of our corporate offices at this location for the twelve months ended December 31, 2014, respectively. The Company has
canceled this lease and the last rent payment was due September 30, 2014.
The Company had installed temporary office
trailers located at 100 Rutherford Road South, Brampton, Ontario, Canada L6W 2J2 for use during renovation of the building on
the same premises. There were two office trailers installed at the premises, each measuring 60’ x 12’, for a total
area of 1,440 square feet. The trailers were rented from Miller Trailers for a total cost of CAD $22,119 (approximately USD $20,035).
The trailers were removed in December 2014. The Company currently maintains our corporate offices in an industrial building located
in Brampton, Ontario which is owned by 2264793 Ontario Inc., an affiliated company that is consolidated as VIE (see Note 2 to the
Financial Statements, Variable Interest Entities). The Company does not pay any rent for this space.
Consulting
and Professional Services
The Company has entered into consulting and
professional services agreements with Ben Ward, CEO, John Esteireiro, Former COO, Silvio Serrano, Former VP, Mariana Bracic, Legal
Counsel and Peter Strang, VP who are also founding shareholders. Each contract has an indefinite term and requires payment of
CAD $10,000 per month, to be paid in advance of the month of service. The cumulative effect of these agreements is a CAD $50,000
(approximately USD $45,290) per month commitment for professional services. During the twelve months ended December 31, 2014,
these parties have agreed to waive a portion of the payments due under these contracts, in the cumulative amount of CAD $320,000
(approximately USD $289,856). These amounts have been recorded as contributed services for the twelve months ended December 31,
2014.
For
the period from inception (January 20, 2014) through December 31, 2014, the Company has recognized CAD $450,000 (USD $407,610)
of expense related to the above referenced consulting and professional services agreements, respectively, recorded within consulting
fees and professional fees in the accompanying statement of operations. The agreements have options for termination by either
party. Should the Company initiate the termination of one of these contracts, it may be required to pay the respective consultant
the equivalent of a year of service, or CAD $120,000 (approximately USD $108,696), upon termination.
Employment
Agreements
On
March 21, 2014, the Company entered into an employment agreement with Ben Ward, CEO. This agreement replaced the consulting agreement
discussed in the preceding paragraph, which had been entered into on January 21, 2014, which terminated with execution of the
employment agreement. Pursuant to the terms of the employment agreement, Mr. Ward continues in his role as CEO with a salary of
CAD $120,000 (approximately USD $108,696) per year, in addition to being eligible to earn achievement based bonuses. The Company
has agreed to indemnify Mr. Ward for all acts or decisions made by him in good faith while performing services for the Company.
The Company may terminate this agreement upon one year’s written notice, or by payment in lieu of notice of one year of
salary.
On September 8, 2014 the Company entered into
5 year employment agreements with Aubrey Bradley, Sheldon Aberman and Nathan Nienhaus employing them as officers of the Company.
The agreements provide for common shares to be issued in addition to performance bonuses. The Company may terminate the agreements
by payment in lieu of notice of two times their salary for the remainder of the contract plus earned bonuses. The agreements provide
for salary to be accrued at the rate of CAD $12,500 (approximately USD $11,300) for Mr. Bradley and Aberman until CCC receives
a License to Cultivate under the Health Canada MMPR at which point the accrued amounts are due and payable in 15 days. Mr. Nienhaus’s
agreement is CAD $14,000 (approximately USD $12,600) monthly. Concurrent with the License to Operate issued by Heath Canada there
is a salary increase to CAD $16,667 (approximately USD $15,100) for all three employees for the remainder of the Contract. All
three are eligible to earn achievement based bonuses and are all eligible to receive 600,000 shares over a 4 year period. The
Company has agreed to indemnify the employees for all acts or decisions made by them in good faith while performing services for
the Company.
Preferred
Stock
The
Company is authorized to issue 5,000,000 shares of preferred stock, par value $0.000001. No shares of preferred stock have been
issued or are outstanding, and no rights, privileges or preferences have been determined and designated by the board of directors.
Common
Stock
The
Company is authorized to issue 95,000,000 shares of common stock, par value $0.000001.
Common
Stock Sales
On
January 20, 2014, the Company issued 16,471,163 shares of common stock to its founders for cash consideration of CAD $0.001 per
share, for a total of approximately CAD $16,500 (USD $14,800).
Between
January 21, 2014 and February 1, 2014, the Company issued 404,976 shares of its common stock for cash consideration of CAD $1.00
per share, for a total of approximately CAD $405,000 (USD $367,000).
Between
February 2, 2014 and February 14, 2014, the Company issued an additional 223,509 shares of its common stock for cash consideration
of CAD $2.00 per share, for a total of approximately CAD $447,000 (USD $403,000).
On
February 11, 2014, the Company issued 10,000 shares of its common stock for cash consideration of CAD $1.10 per share, for a total
of approximately CAD $11,000 (USD $9,900).
Prior
to June 30, 2014 the Company issued an additional 1,968,386 shares of its common stock for cash consideration of USD $3.00 per
share for a total of approximately USD $6.1 million.
On
July 4, 2014, the Company issued a promissory note to Wildhaus Capital Schweiz AG, in the amount of USD $1,250,000 to formalize
two loans made by Wildhaus Capital Schweiz AG. On August 15, 2014, Wildhaus Capital Schweiz AG agreed to a convert USD $750,000
of the debt to equity for the 250,000 shares of the Company’s common stock at a price of USD $3.00 per share, based on the
prevailing per share price of similar stock sold during this period. In September 2014, Wildhaus Capital Schweiz AG agreed to
convert the remaining USD $500,000 of the debt for an additional 166,667 shares of the Company’s common stock.
During
the three months ended September 30, 2014, the Company sold an additional 382,400 shares of its common stock for cash consideration
of USD $3.00 per share, or approximately USD $1.15 million.
During
the three months ended December 31, 2014, the Company sold an additional 246,001 shares of its common stock for cash consideration
of USD $3.00 per share, or approximately USD $738,000, the Company also sold 15,000 shares of its common stock for cash consideration
of USD $2.50 per share, or approximately USD $37,500 and the Company sold 2,500 shares of its common stock for cash consideration
of USD $2.00 per share, or approximately USD $5,000.
In
addition to the above, On November 10, 2014 the Company entered into Subscription Agreements (collectively, the “Subscription”)
with two accredited investors for a total of USD $300,000 whereby the Company issued an aggregate of 200,000 shares of our common
stock, 1.2 million warrants to purchase our common stock and committed to issue another 800,000 warrants to purchase our common
stock to the investors. Under the terms of the Subscription, each of the investors paid USD $150,000 and received 100,000 shares
of our common stock, 200,000 A Warrants to purchase common shares at $1.50 per share for a five year period, 400,000 B Warrants
to purchase common shares at $3.00 per share for a five year period and, upon the exercise of no less than 10,000 of the B Warrants,
the Company will issue to the investor 400,000 C Warrants to purchase common shares at $3.00 per share. Each of the warrants is
exercisable for a five year period from issuance. One of the investors who participated in this transaction was Richard Wachsberg,
who was subsequently appointed to our Board of Directors.
Noncash
Equity Transactions
In March 2014, the Company issued 150,000
shares of its common stock to TDM Financial for advisory services to be provided to the Company over a period of one year. Based
on the prevailing per share price of similar stock sold during this period, the compensatory stock was valued at CAD $1.00 per
share (USD $0.91 per share), for a total of approximately USD $137,160. The Company originally intended to amortize the expense
over the life of the however, the Company determined that the appropriate treatment was to recognize the full amount of the professional
fee expense because the services were completed and expensed the remaining amount during the year ended December 30, 2014.
In April 2014, the Company issued 15,000
shares of its common stock to an individual for services provided. Based on the prevailing per share price of similar stock sold
during this period, the compensatory stock was valued at USD $3.00 per share, for a total of approximately USD $45,000, which
was expensed as professional fees at issuance.
In June 2014, the Company issued a
total of 250,000 shares of its common stock to an individual for services to be provided to the Company over a period of two years.
Based on the prevailing per share price of similar stock sold during this period, the compensatory stock was valued at USD $3.00
per share for a total of approximately USD $750,000. The Company originally intended to amortize the expense over the life of
the contract however, the Company determined that the appropriate treatment was to recognize the full amount of the professional
fee expense because the services were completed and expensed the remaining amount during the year ended December 30, 2014.
In addition to the April and June transactions
above, during the three months ended June 30, 2014, the Company issued 466,666 shares of its common stock for professional services
provided to the Company. The fair market value of the compensatory stock was valued at USD $3.00 per share, for a total of approximately
USD $1,400,000, which was expensed as professional fees at issuance.
On October 1, 2014, the Company issued
a total of 750,000 shares of our common stock to three individuals pursuant to their employment agreements. The fair market value
of the stock at the time of the grants was $1.13 per share and a total of $847,500 was expensed for the share issuance. The employment
agreements provide for further issuances of common shares of 100,000 shares on each of their first, second and third anniversaries
and 50,000 shares on their fourth anniversary. The company has valued the total of these issuances to these three individuals
using the same $1.13 per share. The total incremental expense over the 5 years is $1,186,500. The company is accruing for the
related compensation over the vesting periods as they are earned and has recorded an accrued stock payable and professional fee
expense of $209,992 in 2014.
On October 3, 2014 the Board of Directors
approved the grant of 330,000 shares of our common stock to five individuals who are either employees, contractors or directors
as compensation for services provided to the Company during the start-up phase of the business. The fair market value of the stock
at the time of the grant was $1.13 per share and a total of USD $372,900 was expensed as professional fees for the share issuance.
On October 30, 2014 the Company issued
of 500,000 shares of our common stock for services provided to the Company during the start-up phase of the business. The fair
market value of the stock at the time of the grant was $3.00 per share and a total of USD $1,500,000 was expensed as professional
fees for the share issuance.
On November 21, 2014 the Company and
2264793 Ontario Inc., a consolidated VIE of the Company, jointly issued a promissory note to Crimson Capital, LLC for CAD $600,000
(USD $515,940) to be used for various expenses related to our Brampton property. The note bears a 54% per annum interest rate
and matured on February 21, 2015, however the Company had the ability to extend the note on a month-by-month basis. The loan was
repaid in June 2015. Under a referral agreement signed on November 1, 2014, Crimson Capital Investments, LLC was given 100,000
shares of our common stock as a fee for arranging the financing. The fair market value of the stock at the time of the grant was
USD $300,000. This value was used to determine a relative fair market value to be ascribed between the loan and shares and resulted
in $189,698 being recorded as a debt discount. The debt discount is being amortized over the original term of the note, the Company
recorded an expense of $86,880 in 2014.
In addition to the October and November
transactions above, during the three months ended December 31, 2014, the Company issued an additional 301,239 shares of its common
stock for services valued at USD $3.00 per share, or approximately USD $903,717 which was expensed as professional fees.
Options:
On October
1, 2014 the Company issued 600,000 options to an employee to purchase shares of our common stock at $1.13 per share for
a period of seven years. 250,000 of the options vested immediately and 100,000 options vest each subsequent year for three
years and 50,000 vest after four years. On the date of the grant, the Company valued the options at USD $676,293 using the
Black-Scholes option pricing model with the following assumptions: expected life of the options of 7 years, expected volatility
of 226.68%, risk-free rate of 2.12% and no dividend yield. The expected volatility was estimated by calculating the standard
deviation of daily price changes in our stock from the date of the merger to the date of the grant and the seven year constant
maturity treasury rate on the date of the grant was used for the risk free rate. An expense of USD $329,852 was recognized based
on the options that had vested during the year ended December 31, 2014.
On October
1, 2014 the Company issued 50,000 options to an employee to purchase shares of our common stock at $1.13 per share for a period
of five years, all of which vested immediately. On the date of the grant, the Company valued the options at USD $55,890
using the Black-Scholes option pricing model with the following assumptions: expected life of the options of 5 years, expected
volatility of 226.68%, risk-free rate of 1.69% and no dividend yield. The expected volatility was estimated by calculating
the standard deviation of daily price changes in our stock from the date of the merger to the date of the grant and the five year
constant maturity treasury rate on the date of the grant was used for the risk free rate. An expense of USD $55,890 was recognized
based on the options that had vested during the year ended December 31, 2014.
A summary of the options issued
as of December 31, 2014 is as follows:
| December 31, 2014 |
| | |
Shares | | |
Weighted Average
Exercise Price | | |
Intrinsic Value | |
| Outstanding at beginning of period | |
| - | | |
$ | - | | |
$ | - | |
| Issued | |
| 650,000 | | |
$ | 1.13 | | |
$ | 734,500 | |
| Exercised | |
| - | | |
| - | | |
| - | |
| Forfeited | |
| - | | |
| - | | |
| - | |
| Expired | |
| - | | |
| - | | |
| - | |
| Outstanding at end of period | |
| 650,000 | | |
$ | 1.13 | | |
$ | 734,500 | |
| Exercisable at end of period | |
| 300,000 | | |
$ | 1.13 | | |
$ | 339,000 | |
| Options expected to vest | |
| 350,000
| | |
$ | 1.13
| | |
$ | 395,500 | |
| December 31, 2014 | |
| Number of Options | | |
Weighted Average
Remaining Life | | |
Weighted Average
Exercise Price | | |
Shares Exercisable | |
| | 650,000 | | |
| 6.60 | | |
$ | 1.13 | | |
| 300,000 | |
| | | | |
| | | |
| | | |
| | |
| | 650,000 | | |
| 6.60 | | |
$ | 1.13 | | |
| 300,000 | |
The remaining expense of the unvested
options anticipated to be amortized over the vesting schedule is $394,504
Warrants:
On November 10, 2014, the Company issued
an aggregate of 1.2 million warrants to purchase common stock and committed to issue another 800,000 warrants to purchase our
common stock. The investors received 200,000 A Warrants to purchase common shares at $1.50 per share for a five year period, 400,000
B Warrants to purchase common shares at $3.00 per share for a five year period and, upon the exercise of no less than 100,000
of the B Warrants, the Company will issue to the investor 400,000 C Warrants to purchase common shares at $3.00 per share. Each
of the warrants is exercisable for a five year period from issuance.
A
summary of the warrants issued as of December 31, 2014 is as follows:
| December 31, 2014 |
| | |
Shares | | |
Weighted
Average Exercise Price | | |
Intrinsic
Value | |
| Outstanding at beginning of period | |
| - | | |
$ | - | | |
| - | |
| Issued | |
| 2,000,000 | | |
$ | 2.70 | | |
$ | 5,400,000 | |
| Exercised | |
| - | | |
| - | | |
| - | |
| Forfeited | |
| - | | |
| - | | |
| - | |
| Expired | |
| - | | |
| - | | |
| - | |
| Outstanding at end of period | |
| 2,000,000 | | |
$ | 2.70 | | |
$ | 5,400,000 | |
| Exercisable at end of period | |
| 1,200,000 | | |
$ | 2.50 | | |
$ | 3,000,000 | |
| December 31, 2014 | |
| Number of Warrants | | |
Weighted Average
Remaining Life | | |
Weighted Average
Exercise Price | | |
Shares Exercisable | |
| | | |
| | |
| | |
| |
| | 2,000,000 | | |
| 4.83 | | |
$ | 2.70 | | |
| 1,200,000 | |
| | | | |
| | | |
| | | |
| | |
| | 2,000,000 | | |
| 4.83 | | |
$ | 2.70 | | |
| 1,200,000 | |
Total
Common Shares
On
June 16, 2014 a majority of the shareholders of the Company by written consent authorized a special dividend, whereas each of
the shareholders of the common stock of the Company would receive 19.5 shares for every share of Company common stock owned. The
Company filed a corporate action with FINRA on June 19, 2014 in relation to the declared stock dividend. The dividend is payable
on receipt of all necessary approvals, if any, to the holders of record of all the issued and outstanding shares of common stock
as of the close of business on September 30, 2014, in the amount of 19.5 shares of common stock per one (1) share of common stock
held.
The
dividend was approved by FINRA and became effective on October 3, 2014, as such, the effects of the dividend have been reflected
retroactively in the consolidated financial statements.
The
total shares issued and outstanding on December 31, 2014 were 29,703,832.
8.
INCOME TAXES
The
Company’s income tax provision differs from the amount resulting from the application of the Canadian statutory income tax
rate. A reconciliation of the combined Canadian federal and provincial income tax rates, as well as the United States federal
and state income tax rates, with the Company’s effective tax rate is as follows:
| | |
Period from January 20, 2014 (date of incorporation)
to December 31, 2014 | |
| | |
$ | | |
% | |
| Loss before income taxes | |
| (14,727,347 | ) | |
| | |
| Combined statutory rate | |
| 34.00 | % | |
| | |
| | |
| (5,007,298 | ) | |
| 34.00 | |
| | |
| | | |
| | |
| Permanent differences, non-deductible | |
| - | | |
| - | |
| Change in valuation allowance | |
| 5,007,298 | | |
| (34.0 | ) |
| Deferred income tax provision | |
| - | | |
| - | |
The
Company’s Canadian non-capital loss carry-forward and expiration date is as follows:
$4,413,000
– 2034
Deferred
income tax asset/(liability)
The
tax effects of temporary differences that give rise to significant portions of future tax assets or liabilities are as follows:
| | |
As of December 31,
2014 | |
| Temporary differences | |
$ | - | |
| Non-capital loss carry-forward and other | |
| 1,167,000 | |
| Less: Valuation allowance | |
| (1,167,000 | ) |
| | |
$ | - | |
At
December 31, 2014, the company recorded a 100% valuation allowance against the deferred income tax asset attributed to the non-capital
loss due to the uncertainty surrounding its ultimate realization.
| 9. |
EARNINGS (LOSS) PER SHARE |
FASB
ASC Topic 260, Earnings Per Share, requires a reconciliation of the numerator and denominator of the basic and diluted
earnings (loss) per share (EPS) computations.
Basic
earnings (loss) per share are computed by dividing net income (loss) available to common shareholders by the weighted-average
number of common shares outstanding during the period. Diluted earnings (loss) per share is computed similar to basic earnings
per share except that the denominator is increased to include the number of additional common shares that would have been outstanding
if the potential common shares had been issued and if the additional common shares were dilutive.
The
Company had 300,000 options and 400,000 warrants outstanding for the period from inception (January 20, 2014) through December
31, 2014, but due to the Net loss they are not included. Therefore, there was no difference in the basic and dilutive earnings
(loss) per share.
The
following table sets forth the computation of basic and diluted net income per share:
| | |
For the Period from Inception (January 20, 2014)
through December 31,
2014 | |
| | |
| |
| Net loss | |
$ | (14,727,347 | ) |
| | |
| | |
| Basic weighted average outstanding shares of common stock | |
| 24,717,445 | |
| Dilutive effect of common stock equivalents | |
| - | |
| Diluted weighted average common stock equivalents | |
| 24,619,799 | |
| | |
| | |
| Net loss per share of voting and nonvoting common stock Basic and Diluted | |
$ | (0.60 | ) |
| 10. |
RELATED PARTY TRANSACTIONS |
Investment
in Growlite
As discussed in Note 5, on March 31,
2014, the Company has a 45% equity interest in Growlite Canada for CAD $1 million (approximately USD $900,000). Additionally,
the Company made a CAD $3 million (approximately USD $2.7 million) loan and has a CAD $160,000 (approximately USD $140,000)
receivable. The loan bears interest at 2% to be paid quarterly, while the entire principle amount and any remaining interest
matures March 31, 2024. Prior to the equity investment and loan, Growlite Canada was wholly-owned by Silvio Serrano, who
remains the owner of 55% of the ownership interest in Growlite Canada and is Growlite Canada’s President, CEO and sole
director. At the time of the transaction, Mr. Serrano held a 6.4% equity interest in the Company (which he currently holds)
and served as a vice president and director until he resigned in November 2014. During the year, Growlite advanced Mr.
Serrano, his brother and a company controlled by Mr. Serrano $1,635,705 CAD (approximately USD $1,480,000). In addition,
during the year, CAD $810,000 (approximately USD $734,000) was advanced by Growlite to NAC Construction Inc. an entity owned
by Peter Strang who is an officer and director of the Company and owner of 6.4% of the Company’s common stock.
Legal
and Other Services
One of the five shareholders, Mariana
Bracic, who is a common law spouse of Ben Ward 9 the CEO and a director of the Company and owner of 6.4% of the
Company’s common stock, disclosed in Note 5 as being under a Consulting and Professional services contract also
provides legal and other services for the Company. For the period from inception through December 31, 2014, this shareholder
was paid, either as an individual or through MBL Legal, an entity controlled by the individual, approximately CAD $125,000
(USD $113,225) for services rendered, which includes the amounts paid under the disclosed contract.
Promissory Notes Made by the Company
At various times throughout the year ended
December 31, 2014, Benjamin Ward, the Company’s CEO and a director and owner of 6.4% of the Company’s common stock,
advanced amounts to the Company in the form of short-term loans to help the Company with operating capital as needed. On December
15, 2014 these notes, totaling CAD $334,869 (USD $287,953) were consolidated into a one-year interest free note. The note matures
December 15, 2015 but the Company may prepay the note upon receiving adequate funding.
At various times throughout the year ended
December 31, 2014, John Esteireiro advanced amounts to the Company in the form of short-term loans to help the Company with operating
capital as needed. On December 15, 2014 these notes, totaling CAD $1,150,000 (USD $988,885) were consolidated into a one-year
interest free note. The note matures December 15, 2015 but the Company may prepay the note upon receiving adequate funding. John
Esteireiro owns 6.4% of the Company’s common stock and served as a director and COO of the Company until his resignation
on August 24, 2015.
At
various times throughout the year ended December 31, 2014, Silvio Serrano advanced amounts to the Company in the form of short-term
loans to help the Company with operating capital as needed (each of which is described in detail above). On December 15, 2014
these notes, totaling CAD $144,000 (USD $123,826) were consolidated into a one-year interest free note. The note matures December
15, 2015 but the Company may prepay the note upon receiving adequate funding. This promissory note remains outstanding as of the
date of this Annual Report.
At various times throughout the year
ended December 31, 2014, Benedetto Fuschino advanced amounts to the Company in the form of short-term loans to help the Company
with operating capital as needed. On December 15, 2014, these notes, totaling CAD $70,000 (USD $60,193), were consolidated into
a one-year interest free note. The note matures December 15, 2015, but the Company may prepay the note upon receiving adequate
funding.
At various times throughout the year
ended December 31, 2014, Midnight Capital and Scott Keevil advanced amounts to the Company in the form of short-term loans to help
the Company with operating capital as needed. On December 15, 2014, these notes, totaling CAD $89,658 (USD $77,097), were consolidated
into a one-year interest free note. The note matures December 15, 2015, but the Company may prepay the note upon receiving adequate
funding.
The imputed interest amount on the above
noted loans totaled CAD $33,505 (USD $28,810). A total of CAD $4,705 was expensed.
On
July 4, 2014, the Company issued a promissory note to Wildhaus Capital Schweiz AG, in the amount of USD $1,250,000 to formalize
two loans made by Wildhaus Capital Schweiz AG in the amounts of USD $750,000 on June 9, 2014 and USD $500,000 on June 18, 2014,
payable upon sufficient capitalization of the company, bearing a ten percent (10%) annual interest rate. On September 30, 2014,
the Company reserved 250,000 shares of its common stock to be held as security for the first USD $750,000 loan advance. On August
15, 2014, Wildhaus Capital Schweiz AG agreed to convert USD $750,000 of the debt to equity for the 250,000 shares of the Company’s
common stock at a price of USD $3.00 per share, based on the prevailing per share price of similar stock sold during this period.
In September 2014, Wildhaus Capital Schweiz AG agreed to convert the remaining USD $500,000 of the debt for an additional 166,667
shares of the Company’s common stock in full satisfaction of the loan amount due under the note.
On
November 21, 2014 the Company and 2264793 Ontario Inc., a consolidated VIE of the Company, jointly issued a promissory note to
Crimson Capital, LLC for CAD $600,000 (USD $515,940) to be used for various expenses related to our Brampton property. The note
bears a 54% per annum interest rate and matured on February 21, 2015, however the Company had the ability to extend the note on
a month-by-month basis. The loan was repaid in June 2015. The total interest accrued to December 31, 2014 was CAD$35,507. Under
a referral agreement signed on November 1, 2014, Crimson Capital Investments, LLC was given 100,000 shares of our common shares
as a referral fee for arranging the financing. The fair market value at the time of grant was USD $300,000. This value was used
to determine a relative fair market value to be ascribed between the loan and shares and resulted in $124,689 being recorded as
a debt discount. The debt discount is being amortized over the original term of the note, the Company recorded an expense of $86,880
in 2014.
In
connection with the acquisition of the Brampton Property, the Company loaned to 2264793 Ontario Inc. the amount of CAD $4,259,222
(approximately USD $3,933,000) to fund a portion of the down payment on the Brampton Property (the “Down Payment Loan”).
This Down Payment Loan is evidence by a promissory note that was prepared and dated December 31, 2015 made by 2264793 Ontario
Inc. in favor of the Company in the amount of CAD $4,259,222 (approximately USD $3,933,000), bearing interest at a rate of 0%.The
loan between 2264793 Ontario Inc. and the Company is eliminated on Consolidation and as such, no imputed interest was calculated.
2264793 Ontario Inc. is owned by several of our directors, officers, and shareholders: Benjamin Ward, John Esteireiro, Silvio
Serrano, and Scott Keevil. 2264793 Ontario Inc. is considered a VIE (please see Note 2 Variable Interest Entities and Principals
of Consolidation for further discussion).
During
the year, the Company paid NAC Construction, a Company owned by Peter Strang, CAD $ 400,000 ($US 343,960) for work performed on
the Brampton property in its role as general contractor. In addition, the Company paid NAC Investments CAD $ 25,594 ($US 22,008)
for consulting services.
During
the year, Scott Keevil incurred expenses of CAD $ 92,690 ($US 79,704) on behalf of CCC. These monies were primarily expense reimbursements
for travel, office supplies and office rental space. At year end, the Company owed Mr. Keevil CAD $1,542 ($US 1,326). In addition,
the Company paid Midnight Capital Corp, a Company owned by Mr. Keevil a CAD $50,000 ($US 42,995) consulting fee. At year end,
the Company owed Midnight Capital CAD $88,116 ($75,771)
| 11. |
Property, Plant & Equipment |
Brampton
Property Acquisition Closing
On
July 4, 2014, 2264793 Ontario Inc., a consolidated VIE of the Company, closed on the purchase (the “Closing”) of real
property located at 98-102 Rutherford Road South, Brampton, Ontario (the “Brampton Property”) pursuant to that certain
Agreement of Purchase and Sale (the “Purchase Agreement”) entered into by and between the 2264793 Ontario Inc. and
I.L. Rosen Limited, Time Holdings Limited and Tanak Group Ltd. (collectively, the “Seller”) on April 1, 2014. 2264793
Ontario Inc. acquired the “Brampton Property” for a total consideration of CAD $14,270,730 (USD $13,390,226), which
includes the final adjusted purchase price of CAD $13,421,000 (USD $12,592,924) and land transfer taxes and related surcharges
totaling CAD $464,000 (USD $435,371). The Brampton Property includes an approximately 312,000 square foot industrial building
and is located approximately 23 kilometers (12 miles) from Pearson International Airport, within the Greater Toronto Area.
The
Company began renovations to the property during the third quarter. As of December 31, 2014, construction costs incurred are CAD
$1,321,003 (USD $1,135,930). These costs were capitalized as Construction in Progress on the Company’s balance sheet for
the period ended December 31, 2014.
The medical marijuana regulatory environment
in Canada is experiencing significant uncertainty. Health Canada’s change removing the ready to build approval makes
it very difficult and risky for potential medical marijuana licensees to pass the final licensure stage. The Company continues
to consider every avenue of its business plan. Due to this continued regulatory uncertainty, particularly the changes
and delays in medical marijuana licensing process, the Company’s contingency plans may include entertaining the sale of the
Brampton Property. If such transaction were to occur, the Company would consider using proceeds from any such sale to continue
pursuing other avenues to achieve our business plan, including potential acquisitions of other medical marijuana licensees and
pursuing alternative medical marijuana products and technology, both in Canada and internationally, or another suitable property
to replace the Brampton Property.
In
connection with the Closing, on July 4, 2014, 2264793 Ontario Inc., a consolidated VIE of the Company, entered into a Mortgage
(the “Mortgage”) with Rescom Capital, C&K Mortgage Services Inc. and The Bank of Nova Scotia Trust Company to
borrow a total of CAD $9.4 million (the “Loan”) (USD $8,083,060). The Loan is secured by a mortgage on the Brampton
Property, a corporate guaranty by the Company’s subsidiary Canada Cannabis Corp., as well as personal guaranties by Benjamin
Ward, John Esteireiro, Silvio Serrano and Douglass S. Keevil.
The
Loan accrues interest at ten percent (10%) per annum and was due in full on July 15, 2015. The Mortgage has not been extended;
the Company continues to pay the loan on the same terms on a monthly basis. The Company is required to make monthly interest only
payments in the approximate amount of CAD $78,333 (approximately USD $71,000). Approximately CAD $381,212 (approximately USD $345,302)
of interest was expensed during the twelve months ended December 31, 2014.
With
respect to the individual guarantors:
| ● |
Mr.
Ward owns approximately 6.4% of the Company’s common stock and is a Director, the CEO and President of the Company. |
| ● |
Mr.
Esteireiro owns approximately 6.4% of the Company’s common stock and was formerly a Director and the COO of the Company. |
| ● |
Mr.
Serrano owns approximately 6.4% of the Company’s common stock and is a Director and a Vice President of the Company. |
| ● |
Mr.
Keevil owns approximately 4.1% of the Company’s common stock. |
Additionally,
in connection with the acquisition of the Brampton Property, the Company loaned to 2264793 Ontario Inc. the amount of CAD $4,953,160
(approximately USD $4,259,222) to fund a portion of the down payment on the Brampton Property (the “Down Payment Loan”).
This Down Payment Loan is evidence by a promissory note prepared and dated December 31, 2015 made by 2264793 Ontario Inc. in favor
of the Company in the amount of CAD $4,953,160 (approximately USD $4,259,222), bearing interest at a rate of 0%.The loan between
2264793 Ontario Inc. and the Company is eliminated on Consolidation and as such, no imputed interest was calculated.
The
acquisition of the Brampton Property was also funded in part by personal loans made to the Company by certain related parties.
In connection with these loans, the Company issued the following short term promissory notes on July 4, 2014 (collectively, the
“Notes”):
| ● |
The
Company issued a promissory note to Benjamin Ward in consideration of additional funds advanced in the amount of CAD $318,000
(USD $273,448), with no interest, payable upon sufficient capitalization of the company and due in full sixty (60) days from
the date thereof. |
| ● |
The Company issued a promissory
note to Silvio Serrano in consideration of funds advanced in the amount of CAD $185,000
(USD $160,000), with no interest, payable upon sufficient capitalization of the company
and due in full sixty (60) days from the date thereof.
|
In
accordance with FIN 46(R), the Company believes that it meets the definition of the primary beneficiary for 2264793 Ontario Inc.
and consolidates the entity in its Consolidated Financial Statements. See Note 2 “Variable Interest Entities” and
“Principles of Consolidation.
On
December 31, 2014, the Company recorded a $250,000 CAD, ($214,975 USD) accrual for remediation and site cleanup of the Brampton
Property. This work will include excavation and disposal of impacted dirt, brick, garbage, waste, tires and chemicals.
To
the best of the Company’s knowledge and belief, no legal proceedings of merit are currently pending or threatened against
the Company.
The
Company completed a new second mortgage for CAD $2,300,000 in June 2015 for replacing the existing second and third mortgages.
The mortgage has a two year term and bears interest at 14%per annum.
During
the current fiscal year, the Company has issued 1,450,000 common shares for services and 301,667 shares for a total consideration
of $750,000.
The
Company borrowed CAD $100,000 on July 28, 2015. The loan bears interest at 10% and was due September 1, 2015. A loan fee of $20,000
was charged and as a result of the loan not being repaid, 50,000 shares are to be issued as a penalty.
| Item
9. |
changes
in and disagreements with accountants on accounting and financial disclosure. |
None.
| Item
9A. |
controls
and procedures. |
| (a)
|
Evaluation
of disclosure controls and procedures. |
We
maintain disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) that are designed to assure that information
required to be disclosed in our Exchange Act reports 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
management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions
regarding required disclosures. As required by Exchange Act Rule 13a-15(b), as of the end of the period covered by this report,
under the supervision and with the participation of our principal executive officer and principal financial officer, we evaluated
the effectiveness of our disclosure controls and procedures and concluded that our disclosure controls and procedures are ineffective
as of the date of filing this Form 10-K due to limited accounting and reporting personnel and a lack of expertise and segregation
of duties due to limited financial resources and the size of our Company. We will need to adopt additional disclosure controls
and procedures prior to commencement of material operations. Consistent therewith, on an on-going basis we will evaluate the adequacy
of our controls and procedures.
| (b)
|
Management’s
annual report on internal control over financial reporting. |
Management
is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in
Rules 13a-15 (f) and 15d- 15 (f) under the Exchange Act, for the Company.
Internal
control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that,
in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of its management
and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use
or disposition of our assets that could have a material effect on the financial statements.
Management
recognizes that there are inherent limitations in the effectiveness of any system of internal control, and accordingly, even effective
internal control can provide only reasonable assurance with respect to financial statement preparation and may not prevent or
detect material misstatements. In addition, effective internal control at a point in time may become ineffective in future periods
because of change in conditions or due to deterioration in the degree of compliance with our established policies and procedures.
A
material weakness is a significant deficiency, or combination of significant deficiencies, that result in there being a more than
remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.
Under
the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, management conducted an
evaluation of the effectiveness of our internal control over financial reporting, as of December 31, 2014, based on the framework
set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Based on its evaluation under this framework, management concluded that our internal controls over financial reporting
were ineffective as of December 31, 2014.
Management
assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2014 and identified
the following material weaknesses:
Lack
of Segregation of Duties. We have an inadequate number of personnel to properly implement control procedures.
Lack
of Disclosure Controls. There is a lack of disclosure controls to ensure adequate disclosures are made in our periodic filings.
Ineffective
Oversight of Audit Committee. The Audit Committee has not been created.
Lack
of Management Oversight. We have an inadequate oversight over our accounting process.
Inadequate
books and records. The Company needs to make changes in its policies and procedures to ensure adequate support is received
for all transactions.
Ineffective
Reconciliation Process. The Company needs to make changes in its policies and procedures to properly identify and reconcile
all transactions in its accounts.
Management
is committed to improving its internal controls. Management has hired a third party specialist to address shortfalls in staffing
and to assist the Company with accounting and finance responsibilities.
This
annual report does not include an attestation report of our registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to attestation by the our registered public accounting firm pursuant
to rules of the SEC that permit is the Company to provide only management’s report in the annual report.
| (c)
|
Changes
in internal control over financial reporting. |
There
were no changes in our internal control over financial reporting during the fiscal quarter covered by this report that has materially
affected, or is reasonably likely to materially affect, our internal control over financial reporting.
| Item
9B. |
other information. |
The
disclosure required by this item is included in paragraph (b) of Item 1 hereof, “Material Transactions” and is incorporated
herein by reference.
PART
III
| Item
10. |
directors,
executive officers, and corporate governance. |
Our
current executive officers and directors and their ages are as follows:
| Name |
|
Age |
|
Position |
| Benjamin Ward |
|
35 |
|
President, CEO,
Director |
| Peter Strang |
|
47 |
|
Vice President,
Director |
| Dale Rasmussen |
|
64 |
|
Director |
| Richard Wachsberg |
|
49 |
|
Director |
Set
forth below is information relating to the business experience of each of our directors and executive officers.
Benjamin
Ward
Benjamin Ward has served
as the President, CEO and Director of the Company and its predecessor, Canada Cannabis Corp., since the inception of the latter
on January 20, 2014. Mr. Ward is a management professional who has gained extensive experience in international development and
community development organizations over the course of his career. From June 2011 to January 2014, Mr. Ward served as President,
CEO and Director of Joshua Gold Resources Inc. (and previously served for a brief period as its CFO and Treasurer). Mr. Ward holds
a Bachelor’s Degree from Heritage Baptist College and Theological Seminary and a Master of Business Administration from
the Bradford University School of Management located in Bradford, England.
Peter
Strang
Peter
Strang has served as Vice President of Real Estate of the Company and its predecessor, Canada Cannabis Corp., since the inception
of the latter on January 20, 2014. Mr. Strang also served as a Director of CCC from its inception until May 14, 2014 and serves
as a Director of the Company since the effectiveness of his appointment on June 10, 2014. Previously, from March 2011 to June
2012, Mr. Strang served as a Director and consultant to Paymobile, Inc., a company providing mobile money transfer services. Mr.
Strang is the owner of NAC Investments Inc. and NAC Construction Inc.
Dale
Rasmussen
Dale Rasmussen was appointed
as a Director of the Company, effective June 10, 2014.He has more than 25 years of experience in the Energy and Alternative Energy
Industries. He is considered a leading authority in this area. During his career, Mr. Rasmussen has served on the Board of over
a dozen private and public companies (serving as the Chairman of three). Three companies that were co-founded by Mr. Rasmussen
reach market capitalization of over half a billion U.S. dollars each.
Mr.
Rasmussen is currently the Chairman of Digi Holdings. He is also a board member of West Mountain Gold, a publicly traded company,
and Greenwood Energy. Mr. Rasmussen severs as a consultant to several other growth companies either considering or on the path
to becoming publicly traded enterprises. Mr. Rasmussen served as the Chairman of the Board of Quantum Fuel System Technologies
Worldwide from 2002 to 2012, and served on its Board of Directors beginning in 2000. Mr. Rasmussen’s responsibilities with
Quantum included acquisitions, joint venture, strategic alliances and investor and shareholder relations. Mr. Rasmussen was a
founding member of the Board of Directors of Fisker Automotive and served as the Chairman of the Board since its formation in
November 2007 until February 2010. Fisker Automotive was co-founded by Quantum and Henrick Fisker and was awarded a $528.7 million
loan by the U.S. Department of Energy to develop and manufacture plug-in hybrid vehicles, including the Fisker Karma. Mr. Rasmussen
was the Senior Vice President and Secretary of IMPCO Technologies (now Fuel Systems Solutions) from 1989 through 2005, joining
the company in 1984 as Vice President of Finance and Administration and Corporate Secretary. IMPCO was the parent company of Quantum
Technologies prior to its spin-off in 2002. While at IMPCO, Mr. Rasmussen’s area of expertise was mergers and acquisitions,
strategic planning and investor relations. During his years at IMPCO, the company experiences a compound annual growth rate of
approximately 30 percent. Prior to joining IMPCO, Mr. Rasmussen was a commercial banker for twelve years at two banks where he
was responsible for managing the banks’ investment portfolio, branch and corporate development and served as the corporate
secretary. Mr. Rasmussen is a graduate of Western Washington University, where he received the award as marketing student of the
year. He is also a graduate of Pacific Coast Banking School, University of Washington.
Richard
Wachsberg
Richard
Wachsberg was appointed as a Director of the Company on January 12, 2015. Mr. Wachsberg is co-founder and Chairman of Apollo Health
and Beauty Care, the leading private label and control label personal care manufacturer in Canada with distribution throughout
North and South America, Mexico, Europe, and Asia. Apollo Health and Beauty Care has been awarded the distinction of being one
of Canada’s 50 Best Managed Companies from 2003 to 2014 and has earned 50 Best Managed Company Platinum status since 2010.
Additionally, he is actively involved in stewarding and supporting health care and primary care efforts in the Canadian health
care industry and is further invested in same through his charitable endeavors.
Directors
Our bylaws authorize no
less than one (1) Director. We currently have set the number of Directors at five (5) and have yet to fill a vacancy recently
created due to the resignation of former director John Esteireiro.
Term
of Office
Our
Directors are appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until
removed from office in accordance with our bylaws. Our officers are appointed by our Board of Directors and hold office until
removed by the Board.
Family
Relationships
There
are no family relationships between or among the directors, executive officers or persons nominated or chosen by us to become
directors or executive officers.
Significant
Employees
We
have no significant employees other than our officers.
Director
or Officer Involvement in Certain Legal Proceedings
During
the past five (5) years, none of the following occurred with respect to one of our present or former directors or executive officers:
(1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either
at the time of the bankruptcy or within two (2) years prior to that time; (2) any conviction in a criminal proceeding or being
subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to any order,
judgment or decree, not subsequently reversed, suspended or vacated, of any court of any competent jurisdiction, permanently or
temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking
activities; and (4) being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission
or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment
has not been reversed, suspended, or vacated.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Exchange Act requires a company’s directors, officers, and stockholders who beneficially own more than 10%
of any class of equity securities of the Company registered pursuant to Section 12 of the Exchange Act (collectively referred
to herein as the “Reporting Persons”), to file initial statements of beneficial ownership of securities and statements
of changes in beneficial ownership of securities with respect to the company’s equity securities with the SEC. All Reporting
Persons are required by SEC regulation to furnish us with copies of all reports that such Reporting Persons file with the SEC
pursuant to Section 16(a). Based solely on our review of the copies of such reports and upon written representations of the Reporting
Persons received by us, we believe that all Section 16(a) filing requirements applicable to such Reporting Persons have been met
for 2014, with the exception of the failure of each of Messrs. Ward, Esteireiro, Strang, and Rasmussen to timely file a Form 3
with respect to the appointment of each as a Director and, as applicable, an executive officer of the Company. As of the date
of filing of this Annual Report, the Company is in process of arranging for a Form 3 filing to reflect each of the aforementioned
appointments, which are expected to be filed on behalf of each respective party imminently.
Committee
of the Board of Directors
Our
board of directors has established three (3) standing committees: (1) the Compensation Committee, (2) the Audit Committee and
(3) the Nominating and Corporate Governance Committee. Each committee operates under a charter that has been approved by the board
of directors and which will be available upon request to us.
Audit
Committee
We plan to fill our Audit
Committee after the current board is expanded.
Our
Audit Committee will be authorized, among other duties and powers as provided for in its Charter, to:
| ● | provide
assistance to our board of directors in its oversight of the integrity of our accounting
and financial reporting processes and of the audits of our financial statements; |
| | | |
| ● | provide
assistance to our board of directors in its oversight of our compliance with legal and
regulatory requirements; |
| | | |
| ● | provide
assistance to our board of directors in its oversight of our outside auditor’s
independence and qualifications; |
| | | |
| ● | provide
assistance to the board of directors in its oversight of the performance of our internal
audit function and outside auditors; |
| | | |
| ● | directly
appoint, retain or terminate, compensate, and oversee and evaluate our outside auditors,
and to approve all audit engagement fees and terms; |
| | | |
| ● | prior
to the initial engagement of any public accounting firm to be our outside auditors, to
obtain and review a written report from such firm regarding all relationships between
such firm or its affiliates and the Company or persons in a financial reporting oversight
role at the Company; |
| | | |
| ● | pre-approve
and/or adopt policies governing audit committee pre-approval of, all audit services to
be provided by our outside auditor; |
| | | |
| ● | pre-approve
and/or adopt policies governing audit committee pre-approval of, all permitted non-audit
services and related fees to be provided by the outside auditors; |
| | | |
| ● | review
with management, our outside auditors and our internal auditors the adequacy of our internal
controls, including computerized information system controls and security; and |
| | | |
| ● | review
with management, our outside auditors and our internal auditors any related significant
finding and recommendations of the outside auditors and/or the internal auditors together
with management responses thereto. |
Compensation
Committee
We plan to fill a compensation
committee after the board is expanded. The compensation committee would review and approve our salary and benefits policies, including
compensation of executive officers. The compensation committee would also administer any future incentive compensation plans,
and recommend and approve grants of stock options, restricted stock and other awards under any such plan.
Nominating
and Corporate Governance Committee
We plan to fill a nominations
and governance committee after the board of directors is expanded. The purpose of the nominations and governance committee would
be to select, or recommend for our entire board’s selection, the individuals to stand for election as directors at the annual
meeting of stockholders and to oversee the selection and composition of committees of our board. The nominations and governance
committee’s duties would also include considering the adequacy of our corporate governance and overseeing and approving
management continuity planning processes.
Code
of Ethics
Our
Board of Directors has adopted a code of ethics that applies to our officers, directors and employees. The code of ethics remains
in effect following the Merger on May 21, 2014. A copy of our code of ethics will be provided without charge upon written request
to us by mail or on our website. Any amendments to or waivers to the application of our code of ethics must be made by our Board
of Directors and will be promptly disclosed on our website or in a current report on Form 8-K.
| Item
11. |
executive
compensation. |
We
reimburse our directors for expenses incurred in connection with attending board meetings but we did not pay our directors fees
or other cash compensation for services rendered as a director during the fiscal year 2014.
Our
executive officers are currently earning compensation. The following table sets forth information, with respect to the Company,
concerning all cash and non-cash compensation awarded to or earned by the named persons for services rendered in all capacities
during the noted periods. No other executive officer received total annual salary and bonus compensation in excess of $100,000.
Summary
Compensation Table
| Name
and Principal Position | |
Year
(1) | |
Salary
(2) | | |
Bonus | | |
Stock
Awards | | |
Option
Awards | | |
Non-Equity
Incentive Plan Compensation | | |
Non-Qualified
Deferred Compensation Earnings | | |
All
Other Compensation | | |
Total
(2) | |
| Benjamin Ward, CEO, President and Director | |
2014 | |
| 120,000 | | |
| -- | | |
| -- | | |
| -- | | |
| -- | | |
| -- | | |
| -- | | |
| 120,000 | |
| John Esteireiro, Former COO and Director (3) | |
2014 | |
| 120,000 | | |
| -- | | |
| -- | | |
| -- | | |
| -- | | |
| -- | | |
| -- | | |
| 120,000 | |
| Peter Strang, VP and Director | |
2014 | |
| 120,000 | | |
| -- | | |
| -- | | |
| -- | | |
| -- | | |
| -- | | |
| -- | | |
| 120,000 | |
| Silvio Serrano, Former VP and Director (4) | |
2014 | |
| 110,000 | | |
| -- | | |
| -- | | |
| -- | | |
| -- | | |
| -- | | |
| -- | | |
| 110,000 | |
| (1) | Our
predecessor, Canada Cannabis Corp., was not formed until January 20, 2014. Therefore,
no historical compensation numbers exist from prior years. |
| (2) | While
the Summary Compensation Table presents the compensation earned by each named executive
under their respective agreements during the calendar year 2014, the entire amount of
compensation reported was not paid to the named executives. Instead, each named executive
was paid only CAD $40,000 (approximately USD $32,000), representing the compensation
earned by that executive during the initial four (4) months of the Company. Each named
executive has waived all rights to all remaining unpaid compensation earned for services
rendered during the calendar year 2014, totaling an aggregate of approximately USD $414,000
in uncompensated contributed services. Salary and Total Compensation are expressed in
CAD (CAD $ 120,000 is approximately USD $95,000). |
| (3) | Mr.
Esteireiro resigned from his position as a director and vice president of the Company, effective August 24, 2015. |
| (4) | Mr.
Serrano resigned from his position as a director and vice president of the Company, effective
November 19, 2014. |
No
retirement, pension, profit sharing, stock option or insurance programs or other similar programs have been adopted by our Company
for the benefit of our employees.
Consulting
Agreements
Canada
Cannabis Corp. entered into Consulting Agreements with each of Benjamin Ward, John Esteireiro, Peter Strang, and Silvio Serrano
(the “Consulting Agreements”).Pursuant to the terms of the Consulting Agreements, each of the consultants will provide
certain services to the Company customary to that consultant’s position. Such services will be provided at the direction
of the Company’s CEO or, in the case of Benjamin Ward, at the direction of the Company Board of Directors.
Employment
Agreements
Canada
Cannabis Corp. entered into an Employment Agreement with Benjamin Ward (the “Employment Agreement”).The Employment
Agreement replaces the Consulting Agreement Mr. Ward previously entered into with the Company, which terminated with execution
of the Employment Agreement. Pursuant to the terms of the Employment Agreement, Mr. Ward continues in his role as CEO with a salary
of CAD $120,000 per year, in addition to being eligible to earn achievement based bonuses in the discretion of the Board of Directors.
The Company has agreed to indemnify Mr. Ward for all acts or decisions made by him in good faith while performing services for
the Company. The Company may terminate Mr. Ward’s employment for convenience upon one year’s written notice, or by
payment in lieu of notice of one year of salary. Additionally, Mr. Ward’s Employment Agreement includes customary confidentiality
and non-compete provisions.
On September 8,
2014 the Company entered into 5 year employment agreements with Aubrey Bradley, Sheldon Aberman and Nathan Nienhaus employing
them as officers of the Company. The agreements provide for common shares to be issued in addition to performance bonuses. The
Company may terminate the agreements by payment in lieu of notice of two times their salary for the remainder of the contract
plus earned bonuses. The agreements provide for salary to be accrued at the rate of CAD $12,500 (approximately USD $11,300) for
Mr. Bradley and Aberman until CCC receives a License to Cultivate under the Health Canada MMPR at which point the accrued amounts
are due and payable in 15 days. Mr. Nienhaus’s agreement is CAD $14,000 (approximately USD $12,600) monthly. Concurrent
with the License to Operate issued by Heath Canada there is a salary increase to CAD $16,667 (approximately USD $15,100) for all
three employees for the remainder of the Contract. All three are eligible to earn achievement based bonuses and are all eligible
to receive 600,000 shares over a 4 year period. The Company has agreed to indemnify the employees for all acts or decisions made
by them in good faith while performing services for the Company.
| Item
12. |
security
ownership of certain beneficial owners and management and related stockholder matters. |
The
following table lists, as of September 28, 2015, the number of shares of our common stock that are beneficially owned by (i) each
person or entity known to us to be the beneficial owner of more than 5% of the outstanding common stock; (ii) each officer and
director of our Company; and (iii) all officers and directors as a group. Information relating to beneficial ownership of common
stock by our principal shareholders and management is based upon information furnished by each person using “beneficial
ownership” concepts under the rules of the Securities and Exchange Commission. Under these rules, a person is deemed to
be a beneficial owner of a security if that person has or shares voting power, which includes the power to vote or direct the
voting of the security, or investment power, which includes the power to vote or direct the voting of the security. The person
is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within
60 days. Under the Securities and Exchange Commission rules, more than one person may be deemed to be a beneficial owner of the
same securities, and a person may be deemed to be a beneficial owner of securities as to which he or she may not have any pecuniary
beneficial interest. Except as noted below, each person has sole voting and investment power.
The
percentages below are calculated based on 31,455,499 shares of our common stock and issued and outstanding as of September 28,
2015.
| Name and Address of Beneficial Owner (1) | |
Amount of Common Stock Beneficially Owned | | |
Percentage of Common Stock Beneficially Owned | |
| | |
| | |
| |
| Benjamin Ward (2) | |
| 2,000,000 | | |
| 6.4 | % |
| John Esteireiro | |
| 2,000,000 | | |
| 6.4 | % |
| Peter Strang (2) | |
| 2,000,000 | | |
| 6.4 | % |
| Silvio Serrano | |
| 2,000,000 | | |
| 6.4 | % |
| Richard Wachsberg (3) | |
| 700,000
(4) | | |
| 2.2 | % |
| Dale Rasmussen (3) | |
| 200,000 | | |
| * | % |
| All executive officers and directors as a group (a total of 4 people) | |
| 4,900,000 | | |
| 15.6 | % |
| (1) | Unless
otherwise stated, the address for each beneficial owner is c/o Canadian Cannabis Corp.,
100 Rutherford Road South, Brampton, ON, Canada L6W 2J2. |
| (2) | The
person listed is an executive offer and director of the Company. |
| (3) | The
person listed is a director of the Company. |
| (4) | Includes
600,000 shares of common stock issuable upon the exercise of warrants currently exercisable.
Does not include 400,000 shares of common stock issuable upon the exercise of warrants,
the issuance of which remains subject to certain vesting conditions. |
| Item
13. |
certain
relationships and related transactions, director independence. |
Related
Party Transactions
Growlite
Investment
On March 31, 2014,
CCC entered into an investment agreement and loan agreement (collectively, the “Growlite Investment Agreement”) with
2393245 Ontario Inc. c.o.b. Growlite Canada (“Growlite”) and Silvio Serrano (“Serrano”), the owner of
100% of Growlite at that time. Mr. Serrano is a former Director and VP of the CCC. Pursuant to the terms of the Growlite Investment
Agreement, CCC obtained a 45% ownership interest in Growlite in consideration of an equity cash investment in the amount of CAD
$1,000,000 (approximately USD $900,000). Additionally, the Company made a loan to Growlite in the amount of CAD $3,000,000(approximately
USD $2.7 million) (the “Loan”) and has an additional receivable of CAD $160,000 (approximately USD $140,000).
Silvio
Serrano is the primary beneficiary of Growlite as he meets the power criterion by making all of the ongoing operating decisions
for the company, is in control of the bank account and is responsible for driving the company’s sales and marketing strategy.
Mr. Serrano also meets the losses/benefits criterion by having both the right to receive benefits and the obligation to absorb
losses through his 55% ownership of the company. Given these facts CCC accounts for its Growlite though the equity method of accounting
and does not consolidate Growlite in its financial statements.
During
the course of our audit for the fiscal year ended December 31, 2014, we reviewed the unaudited financial statements of Growlite.
During our review, we discovered that the proceeds from the Loan were used by Growlite to make loans and advances to third parties
and related parties (collectively, the “Growlite-Made Advances”) for purposes other than to benefit the Growlite business
(see Notes 5 and 10 of the Notes to Consolidated Financial Statements in Item 8 above). While the Company believed that use of
the Loan proceeds would be limited to benefiting the Growlite business, the Growlite Investment Agreement did not contain any
restrictions on the use of proceeds. At this time, we cannot determine whether Growlite will be repaid all or any portion of the
Growlite-Made Advances. Additionally Growlite has not made required quarterly interest payments on the Loan and is therefore in
default of the Growlite Investment Agreement.
In
response to these findings, the Company recently renegotiated with Growlite to collateralize the Loan by entering into a
Security Agreement (the “Security Agreement”) by and between our subsidiary, Canada Cannabis Corp., and 2393245
Ontario Inc. c.o.b. Growlite Canada, made effective as of March 31, 2014, the date of the Loan. Pursuant to the Security
Agreement, we have secured a portion of the Loan by obtaining from Growlite a general security interest over all of
Growlite’s existing and future property, including tangible and intangible property, equipment, inventory, receivables,
accounts, and the proceeds of all of the foregoing. Based on the Growlite financial statements, the Security Agreement
secured approximately one-third of the entire Loan amount. Subsequent to this analysis the Company was informed that a
manufacturer’s defect has been identified in Growlite’s most popular fixture that has resulted in the request for
all customers to stop using the product. Given the uncertainty of the value of the remaining inventory and the financial and
reputational harm Growlite will incur, the Company has determined that the collateral is likely worthless and provides very
little security for the Loan and has thus chosen to write down its investment to zero and fully provide for the loan and
receivable due from Growlite. The preceding description of the Security Agreement is incomplete and qualified in its entirety
by reference to the complete text of the Security Agreement, which is attached hereto as an Exhibit.
Silvio
Serrano is currently the owner of 55% of the ownership interest in Growlite and is Growlite’s President, CEO and sole director.
Mr. Serrano also holds 6.4% of the Company’s common stock and was a Vice President of the Company and a Director until his
resignation from both positions, effective November 19, 2014.
General
Operating Loans from Officers, Directors, and/or Shareholders
In
February 2014, John Esteireiro, a founding shareholder of Canada Cannabis Corp., advanced a short-term loan in the amount of $500,000
to Canada Cannabis Corp. to cover operational expenses. The loan was paid in full in March 2014, including interest paid in the
amount of approximately $2,000. Mr. Esteireiro owns 6.4% of the Company’s common stock and is a former Director and the
COO of the Company.
On
May 20, 2014, Benjamin Ward advanced a short-term loan in the amount of USD $228,111 to the Company to cover expenses related
to the Transfer Agreement. The loan is interest free and no formal terms were documented. However, the Company intends to repay
the loan upon receipt of adequate funds to do so. The outstanding balance of this loan was consolidated into a single note on
December 15, 2014, as further described below. Mr. Ward owns 6.4% of the Company’s common stock and is the CEO, President
and a Director of the Company.
On
June 26, 2014, the Company issued a promissory note to Mr. Esteireiro for funds advanced by Mr. Esteireiro to the Company as a
short term note in the amount of CAD $150,000 (USD $141,000) bearing a zero percent annual interest rate. The outstanding balance
of this loan was consolidated into a single note on December 15, 2014, as further described below. Mr. Esteireiro currently owns
6.4% of the Company’s common stock and is a former Chief Operating Officer and Director of the Company.
Brampton
Property-Related Transactions and Loans Involving Officers, Directors, and/or Shareholders
In
connection with various earnest money deposits made by the Company in relation to the acquisition of the Brampton Property, which
deposits were funded in part by personal loans made to the Company by certain related parties, the Company issued the following
promissory notes dated June 18, 2014:
| ● | The
Company issued a promissory note to Benjamin Ward in consideration of funds advanced
in the approximate amount of CAD $378,000 (approximately USD $354,000), interest free,
payable upon sufficient capitalization of the company and due in full sixty (60) days
from the date thereof. The outstanding balance of this loan was consolidated into a single
note on December 15, 2014, as further described below. Mr. Ward owns approximately 6.4%
of the Company’s common stock and is a Director, the CEO and President of the Company. |
| | | |
| ● | The
Company issued a promissory note to John Esteireiro in consideration of funds advanced
in the amount of CAD $1,050,000 (approximately USD $984,000), interest free, payable
upon sufficient capitalization of the company and due in full sixty (60) days from the
date thereof. The outstanding balance of this loan was consolidated into a single note
on December 15, 2014, as further described below. Mr. Esteireiro owns approximately 6.4%
of the Company’s common stock and is a former Director and COO of the Company. |
| | | |
| ● | The
Company issued a promissory note to Silvio Serrano in consideration of funds advanced
in the amount of CAD $75,000 (approximately USD $70,000), interest free, payable upon
sufficient capitalization of the company and due in full sixty (60) days from the date
thereof. The Company repaid the amount due under the note in full to Mr. Serrano on July
30, 2014 and the note was cancelled. Mr. Serrano owns approximately 6.4% of the Company’s
common stock and was a Vice President of the Company and a Director until his resignation
from both positions, effective November 19, 2014. |
In
connection with the acquisition of the Brampton Property in July of 2014, financing in the amount of CAD $9,400,000 (approximately
USD $8.1 million) (the “Loan”) was incurred by 2264793 Ontario Inc., an affiliated company that is consolidated as
a VIE (owned by several of our directors, officers, and shareholders: Benjamin Ward, John Esteireiro, Silvio Serrano, and Scott
Keevil) that holds title to the Brampton Property, which is secured primarily by mortgage on the Brampton Property. As the Company
will be the primary benefactor of the Brampton Property, the Company makes the monthly interest only payments on the Loan in the
amount of CAD $78,333 (approximately USD $73,000) each, which began on August 15, 2014. The monthly interest payments on the Loan
are partially offset with rental income in the amount of approximately CAD $700,000 (approximately USD $657,000) per year from
existing leases of areas of the Brampton Property not presently required for our operations. During the fiscal year ended December
31, 2014, the Company has expended amounts totaling CAD $522,917 in connection with the Loan on the Brampton Property. Mr. Ward
owns 6.4% of the Company’s common stock and is the CEO, President and a Director of the Company. Mr. Esteireiro owns 6.4%
of the Company’s common stock and is a former Director and COO of the Company. Mr. Serrano owns 6.4% of the Company’s
common stock, and was a Vice President of the Company and a Director until his resignation from both positions, effective November
19, 2014.
In
connection with the acquisition of the Brampton Property, which was funded in party by personal loans made to the Company, the
Company issued the following promissory notes dated July 4, 2014:
| ● | The
Company issued a promissory note to Benjamin Ward in consideration of funds advanced
in the amount of CAD $318,000 (approximately USD $298,000), with no interest, payable
upon sufficient capitalization of the company and due in full sixty (60) days from the
date thereof. The outstanding balance of this loan was consolidated into a single note
on December 15, 2014, as further described below. Mr. Ward owns approximately 6.4% of
the Company’s common stock and is a Director, the CEO and President of the Company. |
| | | |
| ● | The
Company issued a promissory note to Silvio Serrano in consideration of funds advanced
in the amount of CAD $144,000 (approximately USD $123,826), with no interest, payable
upon sufficient capitalization of the company and due in full sixty (60) days from the
date thereof. This promissory note remains outstanding as of the date of this Annual
Report. Mr. Serrano owns approximately 6.4% of the Company’s common stock and was
a Vice President of the Company and a Director until his resignation from both positions,
effective November 19, 2014. |
Additionally, in connection
with the acquisition of the Brampton Property, the Company loaned to 2264793 Ontario Inc. the amount of CAD $4,953,160.42 (approximately
USD $3,933,000) to fund a portion of the down payment on the Brampton Property (the “Down Payment Loan”). This Down
Payment Loan is evidence by a promissory note that was prepared and dated December 31, 2015 made by 2264793 Ontario Inc. in favor
of the Company in the amount of CAD $4,953,160.42 (approximately USD $3,933,000), bearing interest at a rate of 0%. The preceding
description of the Down Payment Loan is incomplete and qualified in its entirety by reference to the complete text of the Down
Payment Loan promissory note, which is attached hereto as an Exhibit.
On
July 4, 2014, the Company issued a promissory note to Benjamin Ward for additional funds advanced by Mr. Ward to the Company as
a short term note in the amount of CAD $214,000 (USD $196,000), payable upon sufficient capitalization of the company, bearing
a zero percent interest rate. The outstanding balance of this loan was consolidated into a single note on December 15, 2014, as
further described below. Mr. Ward owns approximately 6.4% of the Company’s common stock and is a Director, the CEO and President
of the Company. The preceding description of the promissory note is incomplete and qualified in its entirety by reference to the
complete text of the promissory note, which is attached hereto as an Exhibit.
On
November 21, 2014 the Company and 2264793 Ontario Inc., an affiliated company that is consolidated as a VIE (owned by several
of our directors, officers, and shareholders: Benjamin Ward, John Esteireiro, Silvio Serrano, and Scott Keevil), jointly issued
a promissory note to Crimson Capital, LLC for CAD $600,000 (USD $515,940) to be used for various expenses related to the Brampton
Property. The note bears a 54% per annum interest rate and matured on February 21, 2015, however the Company had the ability to
extend the note on a month-by-month basis. The loan was repaid in full in June 2015. Under a referral agreement signed on November
1, 2014, Crimson Capital Investments, LLC was paid 100,000 shares of our common stock as a referral fee for arranging the financing.
The fair market value at the time of grant was $300,000. This value was used to determine a relative fair market value to be ascribed
between the loan and shares and resulted in $189,698 being recorded as a debt discount. The debt discount is being amortized over
the original term of the note, the Company recorded an expense of $86,880 in 2014.
Ben Ward, owner of 6.4% of the Company’s
common stock and a director and the CEO of the Company, owns 25% of 2264793 Ontario Inc. and serves as its Secretary. John Esteireiro,
who owns 6.4% of the Company’s common stock and formerly served as a director and the COO of the Company, owns 25% of 2264793
Ontario Inc. Silvio Serrano, who owns 6.4% of the Company’s common stock and formerly served as a director and a vice-president
of the Company, owns 25% of 2264793 Ontario Inc. Scott Keevil also owns 25% of 2264793 Ontario Inc. and serves as its President
& CEO. Mr. Keevil owns 4.1% of the Company’s common stock.
Issuance
of Company Equity to Directors
On
November 10, 2014 the Company entered into a Subscription Agreement (the “Subscription Agreement”) with Richard Wachsberg.
Pursuant to the Subscription Agreement, Mr. Wachsberg paid a total purchase price of $150,000 in return for the Company issuing
100,000 shares of our common stock, 200,000 A Warrants to purchase common shares at $1.50 per share, 400,000 B Warrants to purchase
common shares at $3.00 per share and, upon the exercise of no less than 10,000 of the B Warrants, the Company will issue to the
investor 400,000 C Warrants to purchase common shares at $3.00 per share. Each of the warrants is exercisable for a five year
period from issuance. Mr. Wachsberg was subsequently appointed to our Board of Directors and remains a Director.
Consolidation
of Loans from Officers, Directors, and/or Shareholders
At
various times throughout the year ended December 31, 2014, Benjamin Ward advanced amounts to the company in the form of short-term
loans to help the company with operating capital as needed (each of which is described in detail above). On December 15, 2014
these notes, totaling CAD $334,869 (USD $287,953) were consolidated into a one-year interest free note. The note matures December
15, 2015 but the Company may prepay the note upon receiving adequate funding. This promissory note remains outstanding as of the
date of this Annual Report. Mr. Ward owns approximately 6.4% of the Company’s common stock and is a Director, the CEO and
President of the Company. The preceding description of the promissory note is incomplete and qualified in its entirety by reference
to the complete text of the promissory note, which is attached hereto as an Exhibit.
At
various times throughout the year ended December 31, 2014, John Esteireiro advanced amounts to the company in the form of short-term
loans to help the company with operating capital as needed (each of which is described in detail above). On December 15, 2014
these notes, totaling CAD $1,150,000 (USD $988,885) were consolidated into a one-year interest free note. The note matures December
15, 2015 but the Company may prepay the note upon receiving adequate funding. This promissory note remains outstanding as of the
date of this Annual Report. Mr. Esteireiro owns approximately 6.4% of the Company’s common stock and is a former Director
and COO of the Company. The preceding description of the promissory note is incomplete and qualified in its entirety by reference
to the complete text of the promissory note, which is attached hereto as an Exhibit.
At
various times throughout the year ended December 31, 2014, Silvio Serrano advanced amounts to the company in the form of short-term
loans to help the company with operating capital as needed (each of which is described in detail above). On December 15, 2014
these notes, totaling CAD $144,000 (USD $123,826) were consolidated into a one-year interest free note. The note matures December
15, 2015 but the Company may prepay the note upon receiving adequate funding. This promissory note remains outstanding as of the
date of this Annual Report.
Other
Transactions with Officers, Directors, and/or Shareholders
During the year, the Company
paid NAC Construction, a Company owned by Peter Strang, CAD $400,000 (USD $343,960) for work performed on the Brampton property
in its role as general contractor. In addition, the Company paid NAC Investments, also owned by Mr. Strang CAD $25,594 (USD $22.008)
for consulting services. Mr. Strang is a Vice President and Director of the Company and owns approximately 6.4% of the Company’s
common stock. Mr. Strang owns 6.4% of the Company’s common stock and serves as a director and a vice-president of the Company.
During the year, Scott
Keevil incurred expenses of CAD $92,690 (USD $79,704) on behalf of CCC. These monies were primarily expense reimbursements for
travel, office supplies and office rental space. At year end, the Company owed Mr. Keevil CAD $1,542 (USD $ 1,326). In addition,
the Company paid Midnight Capital Corp, a Company owned by Mr. Keevil a CAD $50,000 (USD $42,995) consulting fee. At year end,
the Company owed Midnight Capital CAD $88,116 (USD $75,771). Scott Keevil owns approximately 4.1% of the Company’s common
stock and is a 25% owner of 2264793 Ontario Inc. (a consolidated VIE of the Company) and serves as its President & CEO.
Except
as otherwise indicated herein, there have been no related party transactions, or any other transactions or relationships required
to be disclosed pursuant to Item 404 of Regulation S-K.
Director
Independence
While
we are not at this time required to have our board comprised of a majority of “independent directors” as we are not
subject to the listing requirements of any national securities exchange or association, two (2) members of our board of directors
(Dale Rasmussen and Richard Wachsberg) meet the definition of “independent” as promulgated by the rules and regulations
of the American Stock Exchange.
| Item
14. |
principal
accounting fees and services. |
As
discussed in Item 7 of Part II of this Annual Report, in connection with the Merger, the control and management of the Company
was wholly changed. Additionally, following the merger, the Company dismissed the accounts engaged by prior management, Li and
Company, PC (with which current management had no dealings) and appointed Hartley Moore Accountancy Corporation (“HMAC”),
effective July 7, 2014. As such, current management does not have access to records confirming any of the fees billed by Li and
Company, PC. Accordingly, the following table sets forth the aggregate fees billed to us by HMAC, the Company’s independent
registered public accounting firm during the fiscal years ended December 31, 2014 as if the Company was a new reporting company
as of Canada Cannabis Corp.’s date of inception (January 20, 2014):
| | |
2014 | |
| Audit Fees (1) | |
$ | 107,750 | |
| Audit Related Fees (2) | |
| | |
| Tax Fees (3) | |
| | |
| All Other Fees (4) | |
| | |
| Total Fees Paid to Auditor | |
$ | 107,750 | |
| (1) |
Audit
fees consist of fees billed for professional services rendered for the audit of the Company’s annual financial statements
and review of the interim consolidated financial statements included in quarterly reports and services in connection with
statutory and regulatory filings or engagements. |
| (2) |
Audit-Related
fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit
or review of the Company’s consolidated financial statements and are not reported under "Audit Fees". |
| (3) |
Tax fees
consist of fees billed for professional services rendered for tax compliance, tax advice and tax planning (domestic and international).
These services include assistance regarding federal, state and international tax compliance, acquisitions and international
tax planning. |
| (4) |
There were
no fees that were classified as All Other Fees as of the fiscal years ended December 31, 2013 and 2012. |
Under
the Sarbanes-Oxley Act of 2002, all audit and non-audit services performed by our independent accountants must now be approved
in advance by our Audit Committee to assure that such services do not impair the accountants’ independence from us. The
Audit Committee has adopted an Audit and Non-Audit Services Pre-Approval Policy (the “Policy”) which sets forth the
procedures and the conditions pursuant to which services to be performed by the independent accountants are to be pre-approved.
Pursuant to the Policy, certain services described in detail in the Policy may be pre-approved on an annual basis together with
pre-approved maximum fee levels for such services. The services eligible for annual pre-approval consist of services that would
be included under the categories of Audit Fees, Audit-Related Fees and Tax Fees in the above table as well as services for limited
review of actuarial reports and calculations. If not pre-approved on an annual basis, proposed services must otherwise be separately
approved prior to being performed by independent accountants. In addition, any services that receive annual pre-approval but exceed
the pre-approved maximum fee level also will require separate approval by the entire Board acting as our Audit Committee prior
to being performed. The Audit Committee, may delegate authority to pre-approve audit and non-audit services to any member, but
may not delegate such authority to management. The tax services represent $0, or 0% of the total for audit related fees, tax fees
and all other fees paid during the fiscal year ending December 31, 2014.
PART
IV
| Item
15. |
exhibits,
financial statements, and schedules. |
| (a) | 1. | The
information required by this item is included in Item 8 of Part II of this Annual Report. |
|
| | | |
|
| | 2. | The
information required by this item is included in Item 8 of Part II of this Annual Report. |
|
| | | |
|
| | 3. | INDEX
TO EXHIBITS |
|
| Exhibit |
|
Description |
| |
|
|
| *2.1 |
|
Merger
Agreement, by and among the Company, 2418146 Ontario Inc. and Canada Cannabis Corp., entered into on May 14, 2014 |
| |
|
|
| *2.2 |
|
Business
Transfer and Indemnity Agreement by and between the Company and Tatum L, Morita, entered into on May 14, 2014 |
| |
|
|
| *2.3 |
|
Articles
of Amalgamation |
| |
|
|
| *3.1 |
|
Certificate
of Incorporation, as amended July 16, 2014 |
| |
|
|
| *3.2 |
|
By-laws |
| |
|
|
| 10.1 |
|
Form
of Subscription Agreement by and among Canadian Cannabis Corp. and various accredited investors dated November 10, 2014 |
| |
|
|
| 10.2 |
|
Promissory
Note, by and among 2264793 Ontario Inc., Canadian Cannabis Corp. and Crimson Capital, LLC, entered into on November 21,
2014 |
| |
|
|
| 10.3 |
|
Referral
Agreement, by and between Canadian Cannabis Corp. and Crimson Capital Investments, LLC, entered into on November 1, 2014 |
| |
|
|
| 10.4 |
|
Promissory
Note, by and between 2264793 Ontario Inc. and Canadian Cannabis Corp., entered into on December 31, 2014 |
| |
|
|
| 10.5 |
|
Security
Agreement, by and between Canada Cannabis Corp. and 2393245 Ontario Inc. c.o.b. Growlite Canada, made effective as of March
31, 2014 |
| |
|
|
| *10.6 |
|
Agreement
of Purchase and Sale, by and among Canada Cannabis Corp., I.L. Rosen Limited, Time Holdings Limited and Tanak Group Ltd.,
entered into on April 1, 2014 |
| |
|
|
| *10.7 |
|
Extension
Letter, by and among Canada Cannabis Corp., I.L. Rosen Limited, Time Holdings Limited and Tanak Group Ltd., entered into on
May 16, 2014 |
| |
|
|
| *10.8 |
|
Mortgage,
by and among 2264793 Ontario Inc., Rescom Capital, C&K Mortgage Services Inc. and The Bank of Nova Scotia Trust Company,
entered into on July 4, 2014 |
| *10.9 |
|
Consulting
Agreement, in the form entered into by and between Canada Cannabis Corp. and each of Benjamin Ward, John Esteireiro, Peter
Strang, and Silvio Serrano, each dated January 21, 2014 |
| |
|
|
| *10.10 |
|
Employment
Agreement, entered into by and between Canada Cannabis Corp. and Benjamin Ward, dated March 21, 2014 |
| |
|
|
| *10.11 |
|
Acquisition
Agreement, by and among Canada Cannabis Corp., 2393245 Ontario Inc. c.o.b. Growlite Canada and Silvio Serrano, entered into
on March 31, 2014 |
| |
|
|
| *10.12 |
|
Loan
Agreement, by and between Canada Cannabis Corp. and 2393245 Ontario Inc. c.o.b. Growlite Canada, entered into on March 31,
2014 |
| |
|
|
| *10.13 |
|
Promissory
Note, by and between Canadian Cannabis Corp. and Benjamin Ward, entered into on June 18, 2014 |
| |
|
|
| *10.14 |
|
Promissory
Note, by and between Canadian Cannabis Corp. and John Esteireiro, entered into on June 18, 2014 |
| |
|
|
| *10.15 |
|
Promissory
Note, by and between Canadian Cannabis Corp. and Silvio Serrano, entered into on June 18, 2014 |
| |
|
|
| *10.16 |
|
Promissory
Note, by and between Canadian Cannabis Corp. and John Esteireiro, entered into on June 26, 2014 |
| |
|
|
| *10.17 |
|
Promissory
Note, by and between Canadian Cannabis Corp. and Wildhaus Capital Schweiz AG, entered into on July 4, 2014 |
| |
|
|
| *10.18 |
|
Promissory
Note, by and between Canadian Cannabis Corp. and Benjamin Ward in the principal amount of CAD $318,000, entered into on July
4, 2014 |
| |
|
|
| *10.19 |
|
Promissory
Note, by and between Canadian Cannabis Corp. and Silvio Serrano, entered into on July 4, 2014 |
| |
|
|
| 10.20 |
|
Promissory Note, by and between Canadian Cannabis
Corp. and Benjamin Ward in the principal amount of CAD $334,869, entered into on December 15, 2014 |
| |
|
|
| 10.21 |
|
Promissory
Note, by and between Canadian Cannabis Corp. and John Esteireiro in the principal amount of CAD $1,150,000, entered into on
December 15, 2014 |
| |
|
|
| 10.22 |
|
Promissory Note, by and between Canadian Cannabis Corp. and Silvio Serrano in the principal amount of CAD $144,000, entered into on December 15, 2014 |
| |
|
|
| 10.23 |
|
Promissory Note, by and between Canadian Cannabis Corp. and Benedetto Fuschino in the principal amount of CAD
$70,000, entered into on December 15, 2014 |
| |
|
|
| 10.24 |
|
Promissory Note, by and between Canadian Cannabis Corp. and Scott Keevil in the principal amount of CAD $89,658,
entered into on December 15, 2014
|
| |
|
|
| †31.1 |
|
Certification
of our Principal Executive Officer and Principal Financial Officer pursuant to Rule 13(a)-14(a)/15d-14(a) of the Securities
Exchange Act of 1934, as amended |
| |
|
|
| ‡32.1 |
|
Certification
of our 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 Extension Schema Document |
| |
|
|
| 101.CAL |
|
XBRL
Taxonomy Extension Calculation Linkbase Document |
| |
|
|
| 101.DEF |
|
XBRL
Taxonomy Extension Definition Linkbase Document |
| |
|
|
| 101.LAB |
|
XBRL
Taxonomy Extension Label Linkbase Document |
| |
|
|
| 101.PRE |
|
XBRL
Taxonomy Extension Presentation Linkbase Document |
| * |
Included
in previously filed reporting documents. |
| † |
Filed
herewith |
| ‡ |
Furnished
herewith |
| (b) | Exhibits.
See Index to Exhibits, which is incorporated by reference in this Item. The Exhibits
listed in the accompanying Index to Exhibits are filed or incorporated by reference as
part of this annual report. |
SIGNATURES
Pursuant to the requirements
of Section 13 or 15(d) 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, on October 2, 2015.
| Canadian
Cannabis Corp. |
|
| |
|
|
| By: |
/s/
Benjamin Ward |
|
| |
Benjamin Ward |
|
| |
Chief Executive
Officer (Principal Executive Officer, Principal Financial Officer, and
Chief Accounting Officer), President and Director |
|
Pursuant to the requirements
of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant
and in the capacities indicated on October 2, 2015.
| SIGNATURE |
|
TITLE |
| |
|
|
| /s/
Benjamin Ward |
|
Chief Executive
Officer (Principal Executive Officer, Principal Financial Officer, |
| Benjamin
Ward |
|
and Principal
Accounting Officer), President and Director |
| |
|
|
| /s/
Peter Strang |
|
Vice President
and Director |
| Peter
Strang |
|
|
| |
|
|
| /s/
Dale Rasmussen |
|
Director |
| Dale
Rasmussen |
|
|
49
Exhibit
10.1
COVER
SHEET WITH SUBSCRIPTION INSTRUCTIONS
Enclosed
herewith are the documents necessary to subscribe for 100,000 shares of common stock (the "Shares") of CANADIAN
CANNABIS CORP., a corporation organized under the laws of Delaware (the "Corporation") and 1,000,000 warrant
shares for the purchase of an additional 1,000,000 Shares of the Corporation (the "Warrants"; the Warrants and
the Shares are collectively referred to as the "Securities"). The Securities are being offered to qualified investors.
Set forth herein are instructions for the execution of the enclosed documents.
Each
person considering subscribing for Securities should review the following instructions:
| ● | Subscription
Agreement: Two copies of the Subscription Agreement must be completed, executed and
delivered to the Corporation at the address set forth below. If your subscription is
accepted, the Corporation will execute both copies of the Subscription Agreement and
return one copy to you for your records. |
| ● | Payment:
Concurrently with the delivery of the executed Subscription Agreement to the Corporation,payment
for the Securities subscribed shall be tendered by cashier's check to the Corporation
the address set forth below or by wire transfer pursuant to wiring instructions set forth
below. |
| ● | Acceptance
or Rejection of Subscription: The Corporation shall have the right to accept or reject
any subscription, in whole or in part. An acknowledgment of the Corporation's acceptance
of your subscription for the Securities subscribed for will be returned to you promptly
after acceptance. |
All
documents and any checks should be made out to and forwarded to:
CANADIAN
CANNABIS CORP.
100
RUTHERFORD ROAD SOUTH
BRAMPTON
ON L6W 2J2 CANADA
Attn:
BENJAMIN WARD, CEO
SUBSCRIPTION
AGREEMENT
THE
SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE OR ANY OTHER JURISDICTION.
THERE ARE FURTHER RESTRICTIONS ON THE TRANSFERABILITY OF THE SECURITIES DESCRIBED HEREIN.
THE
PURCHASE OF THE SECURITIES INVOLVES A HIGH DEGREE OF RISK AND SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN BEAR THE RISK OF THE
LOSS OF THEIR ENTIRE INVESTMENT.
CANADIAN
CANNABIS CORP.
100
RUTHERFORD ROAD SOUTH
BRAMPTON
ON L6W 2J2 CANADA
Ladies
and Gentlemen:
The
undersigned wishes to subscribe to:
(i)
One Hundred Thousand (100,000) shares of the common stock, par value $0.00000l
(the "Shares") of the Canadian Cannabis Corp. (the "Corporation");
(ii) Two
Hundred Thousand (200,000) warrant shares for the purchase of an additional Two Hundred Thousand (200,000) Shares (the "A
Warrants"); and
(iii) Four
Hundred Thousand warrant shares for the purchase of up to an additional Four Hundred Thousand (400,000) Shares (the "B
Warrants"). Additionally, upon exercise of the B Warrants, the Company shall issue up to an additional Four Hundred Thousand
(400,000) warrant shares (the "C Warrants").
The
Shares, the A Warrants, the B Warrants and the C Warrants are collectively referred to as the "Securities")pursuant
to that Warrant Forms attached hereto as Exhibits A, B and C.
The
undersigned understands that the offering is being made without registration of the Securities under the Securities Act of 1933,
as amended (the "Securities Act"), or any securities law of any state of the United States, Canada or of any
other jurisdiction, and is being made only to "accredited investors" (as defined in Rule 501 of Regulation D under the
Securities Act).
2.
Subscription. Subject to the terms and conditions
hereof, the undersigned hereby irrevocably subscribes for the Securities set forth in Appendix A hereto for the aggregate purchase
price set forth in Appendix A, which is payable as described in Section 4 hereof. The undersigned acknowledges that the
Securities will be subject to restrictions on transfer as set forth in this subscription agreement (the "Subscription
Agreement").
3.
Acceptance of Subscription and Issuance of Securities. It is understood and agreed that the Corporation shall have the
sole right, at its complete discretion, to accept or reject this subscription, in whole or in part, for any reason and that the
same shall be deemed to be accepted by the Corporation only when it is signed by a duly authorized officer of the Corporation
and delivered to the undersigned. Subscriptions need not be accepted in the order received, and the Securities may be allocated
among subscribers. Notwithstanding anything in this Subscription Agreement to the contrary, the Corporation shall have no obligation
to issue any of the Securities to any person who is a resident of a jurisdiction in which the issuance of Securities to such person
would constitute a violation of the securities, "blue sky" or other similar laws of such jurisdiction (collectively
referred to as the "State Securities Laws").
4.
Payment for Securities. Payment for the Securities shall be tendered by undersigned concurrently with this Subscription
Agreement to the Company by cashier's check or by wire transfer of immediately available funds in the amount as set forth in Appendix
A hereto. The Corporation shall deliver certificates representing the Securities to the undersigned bearing an appropriate legend
referring to the fact that the Securities were sold in reliance upon an exemption from registration under the Securities Act.
5.
Representations and Warranties of the Corporation. The Corporation represents and warrants that:
(a) The
Corporation is duly formed and validly existing under the laws of the State of Delaware, with full power and authority to conduct
its business as it is currently being conducted and to own its assets; and has secured any other authorizations, approvals, permits
and orders required by law for the conduct by the Corporation of its business as it is currently being conducted.
(b) The
Securities have been duly authorized and, when issued, delivered and paid for in the manner set forth in this Subscription Agreement,
will be validly issued, fully paid and nonassessable.
6.
Representations and Warranties of the Undersigned. The undersigned hereby represents and warrants to and covenants with
the Corporation that:
(a) General.
(i) The
undersigned has all requisite authority (and in the case of an individual, the capacity) to purchase the Securities, enter into
this Subscription Agreement and to perform all the obligations required to be performed by the undersigned hereunder, and such
purchase will not contravene any law, rule or regulation binding on the undersigned or any investment guideline or restriction
applicable to the undersigned.
(ii) The
undersigned is a resident of the state set forth on the signature page hereto and is not acquiring the Securities as a nominee
or agent or otherwise for any other person.
(iii) The
undersigned will comply with all applicable laws and regulations in effect in any jurisdiction in which the undersigned purchases
or sells Securities and obtain any consent, approval or permission required for such purchases or sales under the laws and regulations
of any jurisdiction to which the undersigned is subject or in which the undersigned makes such purchases or sales, and the Corporation
shall have no responsibility therefor.
(b)
Information Concerning the Corporation.
(i)
The undersigned understands and accepts that the purchase of the Securities involves various risks,
including the risks outlined in this Subscription Agreement. The undersigned represents that it is able to bear any loss associated
with an investment in the Securities.
(ii) The
undersigned confirms that it is not relying on any communication (written or oral) of the Corporation or any of its affiliates,
as investment advice or as a recommendation to purchase the Securities. It is understood that information and explanations related
to the terms and conditions of the Securities provided by the Corporation or any of its affiliates shall not be considered investment
advice or a recommendation to purchase the Securities, and that neither the Corporation nor any of its affiliates is acting or
has acted as an advisor to the undersigned in deciding to invest in the Securities. The undersigned acknowledges that neither
the Corporation nor any of its affiliates has made any representation regarding the proper characterization of the Securities
for purposes of determining the undersigned's authority to invest in the Securities.
(iii) The
undersigned is familiar with the business and financial condition and operations of the Corporation. The undersigned has had access
to such information concerning the Corporation and the Securities as it deems necessary to enable it to make an informed investment
decision concerning the purchase of the Securities.
(iv) The
undersigned understands that, unless the undersigned notifies the Corporation in writing to the contrary prior to acceptance of
this Subscription Agreement, each of the undersigned's representations and warranties contained in this Subscription Agreement
will be deemed to have been reaffirmed and confirmed as of the date the Subscription is accepted by the Corporation, taking into
account all information received by the undersigned.
(v) The
undersigned acknowledges that the Corporation has the right in its sole and absolute discretion to abandon this private placement
at any time prior to the completion of the offering. This Subscription Agreement shall thereafter have no force or effect and
the Corporation shall return the previously paid subscription price of the Securities, without interest thereon, to the undersigned.
(vi) The
undersigned understands that no federal or state agency has passed upon the merits or risks of an investment in the Securities
or made any finding or determination concerning the fairness or advisability of this investment.
(c)
Non-reliance.
(i)
The undersigned represents that it is not relying on (and will not at any time rely on) any communication
(written or oral) of the Corporation, as investment advice or as a recommendation to purchase the Securities, it being understood
that information and explanations related to the terms and conditions of the Securities and the other transaction documents shall
not be considered investment advice or a recommendation to purchase the Securities.
(ii)
The undersigned confirms that the Corporation has not (A) given any guarantee or representation as to the potential success, return,
effect or benefit (either legal, regulatory, tax, financial, accounting or otherwise) of an investment in the Securities or (B)
made any representation to the undersigned regarding the legality of an investment in the Securities under applicable legalinvestment
or similar laws or regulations. In deciding to purchase the Securities, the undersigned is not relying on the advice or recommendations
of the Corporation and the undersigned has made its own independent decision that the investment in the Securities is suitable
and appropriate for the undersigned.
(d)
Status of Undersigned.
(i)
The undersigned has such knowledge, skill and experience in business, financial and investment matters
that the undersigned is capable of evaluating the merits and risks of an investment in the Securities. With the assistance of
the undersigned's own professional advisors, to the extent that the undersigned has deemed appropriate, the undersigned has made
its own legal, tax, accounting and financial evaluation of the merits and risks of an investment in the Securities and the consequences
of this Subscription Agreement. The undersigned has considered the suitability of the Securities as an investment in light of
its own circumstances and financial condition and the undersigned is able to bear the risks associated with an investment in the
Securities and its authority to invest in the Securities.
(ii)
The undersigned is an "accredited
investor" as defined in Rule 501(a) under the Securities Actand as defined in NI 45-106 and was not created or used solely
to purchase or hold securities as an accredited investor as described in paragraph (m) of the definition of "accredited investor"
in NI 45-106. The undersigned has completed the accredited investor questionnaires attached hereto as Appendix B. The undersigned
agrees to furnish any additional information requested by the Corporation or any of its affiliates to assure compliance with applicable
U.S. federal and state securities laws and Canadian federal and provincial securities laws in connection with the purchase and
sale of the Securities.
(e)
Restrictions on Transfer or Sale of Securities. As applies to the Purchaser:
(i)
The undersigned is acquiring the
Securities solely for the undersigned's own beneficial account, for investment purposes, and not with a view to, or for resale
in connection with, any distribution of the Securities. The undersigned understands that the Securities have not been registered
under the Securities Act or any State Securities Laws by reason of specific exemptions under the provisions thereof which depend
in part upon the investment intent of the undersigned and of the other representations made by the undersigned in this Subscription
Agreement. The undersigned understands that the Corporation is relying upon the representations and agreements contained in this
Subscription Agreement (and any supplemental information) for the purpose of determining whether this transaction meets the requirements
for such exemptions.
(ii)
The undersigned understands that the Securities are "restricted securities" under applicable federal securities laws
and that the Securities Act and the rules of the U.S. Securities and Exchange Commission (the "Commission") provide
in substance that the undersigned may dispose of the Securities only pursuant to an effective registration statement under the
Securities Act or an exemption therefrom, and the undersigned understands that the Corporation has no obligation or intention
to register any of the Securities, or to take action so as to
permit sales pursuant to the Securities Act (including Rule 144 thereunder). Accordingly, the undersigned understands that under
the Commission's rules, the undersigned may dispose of the Securities principally only in "private placements" which
are exempt from registration under the Securities Act, in which event the transferee will acquire "restricted securities"
subject to the same limitations as in the hands of the undersigned. Consequently, the undersigned understands that the undersigned
must bear the economic risks of the investment in the Securities for an indefinite period of time.
(iii) The
undersigned agrees: (A) that the undersigned will not sell, assign, pledge, give, transfer or otherwise dispose of the Securities
or any interest therein, or make any offer or attempt to do any of the foregoing, except pursuant to a registration of the Securities
under the Securities Act and all applicable State Securities Laws, or in a transaction which is exempt from the registration provisions
of the Securities Act and all applicable State Securities Laws; (B) that the certificates representing the Securities will bear
a legend making reference to the foregoing restrictions; and (C) that the Corporation and its affiliates shall not be required
to give effect to any purported transfer of such Securities except upon compliance with the foregoing restrictions.
(iv) The
undersigned acknowledges that neither the Corporation nor any other person offered to sell the Securities to it by means of any
form of general solicitation or advertising, including but not limited to: (A) any advertisement, article, notice or other communication
published in any newspaper, magazine or similar media or broadcast over television or radio or (B) any seminar or meeting whose
attendees were invited by any general solicitation or general advertising.
7. Conditions
to Obligations of the Corporation. The obligations of the Corporation to sell the Securities are subject to the satisfaction
at or prior to the issuance of the Securities of the following conditions precedent: the representations and warranties of the
undersigned contained in Section 6 hereof shall be true and correct in all respects.
8.
Obligations Irrevocable. The obligations of the undersigned shall be irrevocable.
9.
Legend. The certificates representing the Securities sold pursuant to this Subscription Agreement
will be imprinted with a legend in substantially the following form:
"THE
SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. THE SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT (1) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OR (2) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ALL APPLICABLE STATE SECURITIES LAWS AND THE SECURITIES LAWS
OF OTHER JURISDICTIONS, AND IN THE CASE OF A TRANSACTION EXEMPT FROM REGISTRATION, UNLESS THE CORPORATION HAS RECEIVED AN OPINION
OF COUNSEL REASONABLY SATISFACTORY TO IT THAT SUCH TRANSACTION DOES NOT REQUIRE REGISTRATION UNDER THE SECURITIES ACT AND SUCH
OTHER APPLICABLE LAWS."
10.
Waiver, Amendment. Neither this Subscription Agreement nor any provisions hereof shall be
modified, changed, discharged or terminated except by an instrument in writing, signed by the party against whom any waiver, change,
discharge or termination is sought.
11.
Assignability. Neither this Subscription Agreement nor any right, remedy, obligation or liability
arising hereunder or by reason hereof shall be assignable by either the Corporation or the undersigned without the prior written
consent of the other party.
12.
Waiver of Jury Trial. THE UNDERSIGNED IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY
WITH RESPECT TO ANY LEGAL PROCEEDING ARISING OUT OF THE TRANSACTIONS CONTEMPLATED BY THIS SUBSCRIPTION AGREEMENT.
13.
Submission to Jurisdiction. With respect to any suit, action or proceeding relating to any
offers, purchases or sales of the Securities by the undersigned ("Proceedings"), the undersigned irrevocably
submits to the jurisdiction of the federal or state courts located in the Borough of Manhattan in New York City, which submission
shall be exclusive unless none of such courts has lawful jurisdiction over such Proceedings.
14.
Governing Law. This Subscription Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
15.
Section and Other Headings. The section and other headings contained in this Subscription
Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Subscription Agreement.
16.
Counterparts.
This Subscription Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall
be deemed to be an original and all of which together shall be deemed to be one and the same agreement.
17.
Notices. All notices and other communications provided for herein shall be in writing and
shall be deemed to have been duly given if delivered personally or sent by registered or certified mail, return receipt requested,
postage prepaid to the following addresses (or such other address as either party shall have specified by notice in writing to
the other):
| Ifto the
Corporation: |
Canadian
Cannabis Corp. |
| |
100
Rutherford Road South
Brampton ON L6W2J2 Canada |
| |
E-mail: sfrisch@cdncannabis.com
Attention: Comptroller |
| with
a copy to: |
Thrasher
Liss& Smith LLC |
| |
Five
Concourse Parkway, NE, Suite 2600
Atlanta, Georgia 30328 USA |
| |
Facsimile:
(404) 760-0225
E-mail:
gthrasher@tlslaw.com
Attention: H. Grady Thrasher, IV, Esq. |
| |
|
| Ifto
the Purchaser: |
Richard
Wachsberg, at the address set forth on the signature page. |
18.
Binding Effect. The provisions of this Subscription Agreement shall be binding upon and accrue
to the benefit of the parties hereto and their respective heirs, legal representatives, successors and assigns.
19.
Survival. All representations, warranties and covenants contained in this Subscription Agreement
shall survive (i) the acceptance of the subscription by the Corporation and the issuance of the Securities by the Corporation,
(ii) changes in the transactions, documents and instruments which are not material or which are to the benefit of the undersigned
and (iii) the death or disability of the undersigned.
20.
Notification of Changes. The undersigned hereby covenants and agrees to notify the Corporation
upon the occurrence of any event prior to the issuance of the Securities by the Corporation pursuant to this Subscription Agreement
which would cause any representation, warranty, or covenant of the undersigned contained in this Subscription Agreement to be
false or incorrect.
21.
Severability. If any term or provision of this Agreement is invalid, illegal or unenforceable
in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement
or invalidate or render unenforceable such term or provision in any other jurisdiction.
[SIGNATURE
PAGE FOLLOWS]
(Signature
Page for Subscription Agreement)
IN
WITNESS WHEREOF, the undersigned has executed this Subscription
Agreement this 10th day of November, 2014.
| PURCHASER: |
|
| |
|
|
| By: |
/s/ Richard Wachsberg |
|
| |
Richard Wachsberg |
|
Following
information to be completed by all Subscribers:
| Address: |
|
Aggregate Subscription Amount: |
|
1 Apollo Place |
|
|
Toronto, M3J 0H2 |
US $150,000 |
| Tel: |
416 758-3712 |
|
| Email: |
Richard@Apollocorp.com |
|
The
offer to purchase Securities as set forth above is confirmed and accepted by the Corporation as to 100,000 shares of common stock
and the A Warrants, B Warrants and C Warrants.
| |
CANADIAN CANNABIS CORP. |
| |
| |
| |
By: | /s/
Benjamin Ward |
| |
| Benjamin
Ward, President |
APPENDIX
A
CONSIDERATION
TO BE DELIVERED
| Securities to Be Acquired |
|
Aggregate Purchase Price to be Paid |
| |
|
|
| 100,000 shares of common stock and the A |
|
US$150,000 |
| Warrants, B Warrants and C Warrants |
|
|
A-1
CERTIFICATE
OF
CANADIAN INVESTOR
In
addition to the covenants, representations and warranties contained in the Subscription Agreement, to which this Appendix B -
Certificate of Canadian Investor is attached, the undersigned (the "Purchaser") covenants, represents and warrants to
the Corporation that the Purchaser either (i) qualifies under Category 1 - Accredited Investor as an "accredited investor"
as defined in NI-45-106 and has checked the appropriate box below, or (ii) qualifies under Category 2 - Minimum $150,000 Investment
and has checked the appropriate box below.
| _______ |
(a) |
a
Canadian financial institution, or a Schedule III bank; |
| _______ | (b) | the
Business Development Bank of Canada incorporated under the
Business Development Bank of Canada Act (Canada); |
| _______ | (c) | a
subsidiary of any person referred to in paragraphs (a) or (b), if the person owns all
of the voting securities of the subsidiary, except the voting securities required by
law to be owned by directors of that subsidiary; |
| _______ | (d) | a
person registered under the securities legislation of a jurisdiction of Canada as an
adviser or dealer, other than a person registered solely as a limited market dealer under
one or both of the Securities Act (Ontario) or the Securities Act (Newfoundland
and Labrador); |
| _______ | (e) | an
individual registered or formerly registered under the securities legislation of a jurisdiction
of Canada as a representative of a person referred to in paragraph (d); |
| _______ | (f) | the
Government of Canada or a jurisdiction of Canada, or any crown corporation, agency or
wholly owned entity of the Government of Canada or a jurisdiction of Canada; |
| _______ | (g) | a
municipality, public board or commission in Canada or a metropolitan community, school
board, the Comite de gestion de la taxescolaire de l’ile de Montreal or an inter
municipal management board in Quebec; |
| _______ | (h) | a
national, federal, state, provincial, territorial or municipal government of or in any
foreign jurisdiction, or an agency of that government; |
| _______ | (i) | a
pension fund that is regulated by either the Office of the Superintendent of Financial
Institutions (Canada) or a pension commission or similar regulatory authority of a jurisdiction
of Canada; |
| _______ |
(j) |
an
individual who, either alone or with a spouse, beneficially owns, directly or indirectly, financial assets having an aggregate
realizable value that before taxes, but net of any related liabilities, exceeds $1,000,000; |
| _______ |
(k) |
an
individual whose net income before taxes exceeded $200,000 in each of the two most recent calendar years or whose net income
before taxes combined with that of a spouse exceeded $300,000 in each of the two most recent calendar years and who, in either
case, reasonably expects
to exceed that net income level reasonably expects to exceed that net income level in the current calendar year;in the current
calendar year; |
| _______ |
(l) |
an individual who, either
alone or with a spouse, has net assets of at least $5,000,000; |
| _______ |
(m) |
a
person, other than an individual or investment fund, that has net assets of at least $5,000,000 as shown on its most recently
prepared financial statements; |
| _______ | (n) | an
investment fund that distributes or has distributed its securities only to: |
|
(i) |
a person that is or, .was
an accredited investor at the time of the distribution;· |
| (ii) | a
person that acquires or acquired securities in the circumstances referred to in sections
2.10 of NI 45-106 [Minimum amount investment], or 2.19 of NI 45-106 [Additional
investment in investmentfunds ], or |
| (iii) | a
person described in paragraph (i) or (ii) that acquires or acquired securities under
section 2.18 of NI 45-106 [Investment fund reinvestment]; |
| _______ |
(o) |
an
investment fund that distributes or has distributed securities under a prospectus in a jurisdiction of Canada for which the
regulator, or, in Quebec, the securities regulatory authority has issued a receipt; |
| _______ | (p) | a
trust company or trust corporation registered or authorized to carry on business under
the Trust and Loan Companies Act (Canada) or under comparable legislation in a
jurisdiction of Canada or a foreign jurisdiction, acting on behalf of a fully managed
account managed by the trust company or trust corporation, as the case may be; |
| _______ | (q) | a
person acting on behalf of a fully managed account managed by that person, if that person: |
| (i) | is
registered or authorized to carry on business as an adviser or the equivalent under the
securities legislation of a jurisdiction of Canada or a foreign jurisdiction, and |
| (ii) | in
Ontario, is purchasing a security that is not a security of an investment fund; |
| _______ | (r) | a
registered charity under the Income Tax Act (Canada) that, in regard to the trade,
has obtained advice from an eligibility adviser or an adviser registered under the securities
legislation of the jurisdiction of the registered charity to give advice on the securities
being traded; |
| _______ | (s) | an
entity organized in a foreign jurisdiction that is analogous to any of the entities referred
to in paragraphs (a) to (d) or paragraph (i) in form and function; |
| _______ | (t) | a
person in respect of which all of the owners of interests, direct, indirect or beneficial,
except the voting securities required by law to be owned by directors, are persons that
are accredited investors; |
| _______ | (u) | an
investment fund that is advised by a person registered as an adviser or a person that
is exempt from registration as an adviser; |
| _______ | (v) | a
person that is recognized or designated by the securities regulatory authority or, except
in Ontario and Quebec, the regulator as: |
| (i) | an
accredited investor, or |
| (ii) | an
exempt purchaser in Alberta or British Columbia; |
| 2 | Minimum
$150,000 Investment |
| |
(a) |
Purchasing securities having an
acquisition cost of not less than $150,000 paid in cash and was not created or used solely to purchase securities in reliance
on the exemption from the dealer registration requirement or prospectus requirement available under section 2.10 of NI 45-106; |
See
related definitions and signature block beginning on following page.
Definitions:
"Canadian
financial institution" means
| (a) | an
association governed by the Cooperative Credit Associations Act (Canada) or a central
cooperative credit society for which an order has been made under section 473(1) of that
Act, or |
| (b) | a
bank, loan corporation, trust company, trust corporation, insurance company, treasury
branch, credit union caissepopulaire, financial services cooperative, or league that,
in each case, is authorized by an enactment of Canada or a jurisdiction of Canada to
carry on business in Canada or a jurisdiction of Canada; |
"EVCC"
means an employee venture capital corporation that does not have a restricted constitution, and is registered under Part 2
of the Employee Investment Act (British Columbia), R.S.B.C. 1996 c. 112, and whose business objective is making multiple investments;
"financial
assets" means
| (c) | a
contract of insurance, a deposit or an evidence of a deposit that is not a security for
the purposes of securities legislation; |
"fully
managed account" means an account of a client for which a person makes the investment decisions if that person has full
discretion to trade in securities for the account without requiring the client's express consent to a transaction;
"investment
fund" means a mutual fund or a non-redeemable investment fund, and, for greater certainty in British Columbia, includes
an EVCC and a VCC;
"person"
includes
| (c) | a
partnership, trust, fund and an association, syndicate, organization or other organized
group of persons, whether incorporated or not, and |
| (d) | an
individual or other person in that person's capacity as a trustee, executor, administrator
or personal or other legal representative; |
"related
liabilities" means
| (a) | liabilities
incurred or assumed for the purpose of financing the acquisition or ownership of financial
assets, or |
| (b) | liabilities
that are secured by financial assets; |
"Schedule
III bank" means an authorized foreign bank named in Schedule III of the Bank
Act (Canada);
"spouse"
means, an individual who,
| (a) | is
married to another individual and is not living separate and apart within the meaning
of the Divorce Act (Canada), from the other individual, or |
| (b) | is
living with another individual in a marriage-like relationship, including a marriage-like
relationship between individuals of the same gender; or |
| (c) | in
Alberta, is an individual referred to in paragraph (a) or (b), or is an adult interdependent
partner within the meaning of the Adult Interdependent Relationships Act (Alberta); |
"subsidiary"
means in issuer that is controlled directly or indirectly by another issuer and includes a subsidiary of that subsidiary;
"VCC"
means a venture capital corporation registered under Part I of the Small Business Venture Capital Act (British Columbia),
R.S.B.C. 1996 c. 429, whose business objective is making multiple investments.
The
representations, warranties, statements and certification made in this Certificate are true and accurate as of the date of this
Certificate and will be true and accurate as of the date set forth below. If any such representation, warranty, statement or certification
becomes untrue or inaccurate prior to the date set forth below, the undersigned Purchaser shall give the Corporation immediate
written notice thereof.
The
Purchaser acknowledges that the Corporation will be relying on this Certificate in connection with the Subscription Agreement.
The
statements made on this certificate are true.
EXECUTED by the
Purchaser at this 10th day of November, 2014.
| /s/ Richard Wachsberg |
|
| Signature |
|
| |
|
| Richard Wachsberg |
|
| Print name |
|
| |
|
| Daxiaco Canada |
|
| Jurisdiction of Residence |
|
EXHIBIT
A
WARRANT
FORM
Attached.
THIS WARRANT AND THE COMMON SHARES ISSUABLE
UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT AND THE COMMON
SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO CANADIAN CANABIS CORP. THAT
SUCH REGISTRATION IS NOT REQUIRED.
| |
Right
to Purchase 200,000 shares of Common Stock of Canadian Cannabis Corp. (subject to adjustment as provided herein) |
COMMON STOCK PURCHASE WARRANT
| No. 2014-10A |
Issue Date as of: November 10, 2014 |
| |
|
Canadian Cannabis Corp.,
a corporation organized under the laws of the State of Delaware (the “Company”), hereby certifies that, for value
received, Richard Wachsberg (the “Holder”), is entitled, subject to the terms set forth below, to purchase from the
Company at any time after the issue date until 5:00 p.m., E.S.T on the fifth (5th) anniversary after the issue date (the “Expiration
Date”), 200,000 fully paid and non-assessable shares of Common Stock at $1.50 per share amount (the “Exercise Price,”
subject to any adjustment herein). The number and character of such shares of Common Stock and the exercise price are subject
to adjustment as provided herein. This Warrant may be represented by one or more certificates (each a “Warrant Certificate”),
each of which shall be deemed to incorporate by reference, be subject to and be governed by the terms of this Warrant.
As used herein
the following terms, unless the context otherwise requires, have the following respective meanings:
| (a) | The
term “Average Trading Price” means, as of any particular date: (a) the volume
weighted average of the closing sales prices of the Common Stock for such day on all
domestic securities exchanges on which the Common Stock may at the time be listed; (b)
if there have been no sales of the Common Stock on any such exchange on any such day,
the average of the highest bid and lowest asked prices for the Common Stock on all such
exchanges at the end of such day; (c) if on any such day the Common Stock is not listed
on a domestic securities exchange, the closing sales price of the Common Stock as quoted
on the OTC Bulletin Board, the Pink OTC Markets or similar quotation system or association
for such day; or (d) if there have been no sales of the Common Stock on the OTC Bulletin
Board, the Pink OTC Markets or similar quotation system or association on such day, the
average of the highest bid and lowest asked prices for the Common Stock quoted on the
OTC Bulletin Board, the Pink OTC Markets or similar quotation system or association at
the end of such day; in each case, averaged over twenty (20) consecutive Business Days
ending on the Business Day immediately prior to the day as of which "Average Trading
Price" is being determined; provided, that if the Common Stock is listed on any
domestic securities exchange, the term "Business Day" as used in this sentence
means Business Days on which such exchange is open for trading. If at any time the Common
Stock is not listed on any domestic securities exchange or quoted on the OTC Bulletin
Board, the Pink OTC Markets or similar quotation system or association, the "Average
Trading Price" of the Common Stock shall be the fair market value per share as determined
jointly by the Board and the Holder. |
| (b) | The
term “Company” shall include Canadian Cannabis Corp. and any corporation
which shall succeed or assume the obligations of Canadian Cannabis Corp. hereunder. |
| (c) | The
term “Common Stock” includes (a) the Company’s Common Stock, $
0.000001 par value per share, and (b) any other securities into which or for which any
of the securities described in (a) may be converted or exchanged pursuant to a plan
of recapitalization, reorganization, merger, sale of assets or otherwise. The term “other
securities” refers to any stock (other than Common Stock) and other securities
of the Company or any other person (corporate or otherwise) which the holder of the Warrant
at any time shall be entitled to receive, or shall have received, on the exercise of
the Warrant, in lieu of or in addition to Common Stock, or which at any time shall be
issuable or shall have been issued in exchange for or in replacement of Common Stock
or Other Securities pursuant to Section 4 or otherwise. |
| (d) | The
term “Exercise Date” means the date upon which the Company receives actual
notice of the Holder’s exercise of some or all of this Warrant and payment
of the Exercise Price in cash or immediately available funds. If the notice of exercise
and the payment are received on different days, the Exercise Date shall be the latter
date. |
| (e) | The
term “Warrant” means this Common Stock Purchase Warrant. |
1.
Exercise of Warrant.
1.1.
Number of Shares Issuable upon Exercise. Subject to the terms and conditions hereof,
from and after the issue date through and including the Expiration Date, the Holder hereof shall be entitled to receive, upon
full exercise of this Warrant, Two Hundred Thousand (200,000) shares of Common Stock of the Company.
1.2.
Full Exercise. This Warrant may be exercised in full by the Holder hereof by delivery
of an original or facsimile copy of the form of subscription attached as Exhibit A hereto (the “Subscription Form”)
duly executed by such Holder and surrender of the original Warrant Certificate within four (4) days of exercise, to the Company
at its principal office, accompanied by payment, in cash, wire transfer or by certified or official bank check payable to the
order of the Company, in the amount obtained by multiplying the number of shares of Common Stock for which this Warrant is then
exercisable by the Exercise Price.
1.3.
Partial Exercise. This Warrant may be exercised in part (but not for a fractional
share) by surrender of one or more Warrant certificates in the manner and at the place provided in subsection 1.2 except
that the amount payable by the Holder on such partial exercise shall be the amount obtained by multiplying (a) the number
of whole shares of Common Stock designated by the Holder in the Subscription Form by (b) the Exercise Price. On any such
partial exercise, the Company, at its expense, will forthwith issue and deliver to or upon the order of the Holder hereof a new
Warrant of like tenor, in the name of the Holder hereof or as such Holder (upon payment by such Holder of any applicable transfer
taxes) may request, the whole number of shares of Common Stock for which such Warrant may still be exercised.
1.4.
Company Acknowledgment. The Company will, at the time of the exercise of the Warrant,
upon the request of the Holder hereof acknowledge in writing its continuing obligation to afford to such Holder any rights to
which such Holder shall continue to be entitled after such exercise in accordance with the provisions of this Warrant. If the
Holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to
such Holder any such rights.
1.5.
Delivery of Stock Certificates, etc. on Exercise. The Company agrees that the shares
of Common Stock purchased upon exercise of this Warrant shall be deemed to be issued to the Holder hereof as the record owner
of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for
such shares as aforesaid. As soon as practicable after the exercise of this Warrant in full or in part, and in any event within
three (3) business days thereafter, the Company at its expense (including the payment by it of any applicable issue taxes) will
cause to be issued in the name of and delivered to the Holder hereof, or as such Holder (upon payment by such Holder of any applicable
transfer taxes) may direct in compliance with applicable securities laws, a certificate or certificates for the number of duly
and validly issued, fully paid and nonassessable shares of Common Stock (or Other Securities) to which such Holder shall be entitled
on such exercise.
1.6.
Agreement to Comply with the Securities Act; Legend.
The Holder, by acceptance of this Warrant, agrees to comply in all respects with the restrictive
legend requirements set forth on the face of this Warrant and further agrees that such Holder shall not offer, sell or otherwise
dispose of this Warrant, any related Warrant Certificate, or any Common Stock to be issued upon exercise hereof except under circumstances
that will not result in a violation of the Securities Act of 1933, as amended. This Warrant, related Warrant Certificates, and
all Common Stock issued upon exercise of this Warrant (unless registered under the Securities Act) shall be stamped or imprinted
with a legend in substantially the following form:
“The
securities represented by this Warrant have not been registered under the Securities Act of 1933, as amended (the “Securities
Act”), or under the provisions of any state securities laws, but have been acquired by the registered holder hereof for
purposes of investment and in reliance on statutory exemptions under the Securities Act and under all applicable state securities
laws (including, without limitation, those of the State of Delaware). The securities may not be sold, pledged, transferred or
assigned except pursuant to an effective registration statement under the Securities Act and under applicable state securities
laws, or in a transaction which is exempt from registration under the provisions of the Securities Act and under provisions of
applicable state securities laws; and in the case of an exemption, only if the Company has received an opinion of counsel that
such transaction does not require registration of the securities, which opinion and which counsel shall be satisfactory to the
Company in its sole discretion.”
2.
Adjustment for Reorganization, Consolidation, Merger, etc.
2.1.
Reorganization, Consolidation, Merger, etc. In case at any time or from time to time,
the Company shall (a) effect a reorganization, (b) consolidate with or merge into any other person or (c) transfer
all or substantially all of its properties or assets to any other person under any plan or arrangement contemplating the dissolution
of the Company, then, in each such case, as a condition to the consummation of such a transaction, proper and adequate provision
shall be made by the Company whereby the Holder of this Warrant, on the exercise hereof as provided in Section 1, at any
time after the consummation of such reorganization, consolidation or merger or the effective date of such dissolution, as the
case may be, shall receive, in lieu of the Common Stock (or Other Securities) issuable on such exercise prior to such consummation
or such effective date, the stock and other securities and property (including cash) to which such Holder would have been entitled
upon such consummation or in connection with such dissolution, as the case may be, if such Holder had so exercised this Warrant,
immediately prior thereto, all subject to further adjustment thereafter as provided in Section 3.
2.2.
Dissolution. In the event of any dissolution of the Company following the transfer
of all or substantially all of its properties or assets, the Company, prior to such dissolution, shall at its expense deliver
or cause to be delivered the stock and other securities and property (including cash, where applicable) receivable in accordance
with Section 2.1 by the Holder of the Warrants upon their exercise after the effective date of such dissolution pursuant to this
Section 2 to a bank or trust company (a “Trustee”), as trustee for the Holder of the Warrants.
2.3.
Continuation of Terms. Upon any reorganization, consolidation, merger or transfer
(and any dissolution following any transfer) referred to in this Section 2, this Warrant shall continue in full force and
effect and the terms hereof shall be applicable to the Other Securities and property receivable on the exercise of this Warrant
after the consummation of such reorganization, consolidation or merger or the effective date of dissolution following any such
transfer, as the case may be, and shall be binding upon the issuer of any Other Securities, including, in the case of any such
transfer, the person acquiring all or substantially all of the properties or assets of the Company, whether or not such person
shall have expressly assumed the terms of this Warrant as provided in Section 3. In the event this Warrant does not continue
in full force and effect after the consummation of a transaction described in Section 2.2, then only in such event will the
Company’s securities and property (including cash, where applicable) receivable by the Holder of the Warrants be delivered
to the Trustee as contemplated by Section 2.2.
3.
Extraordinary Events Regarding Common Stock. In the event that the Company shall (a) issue
additional shares of the Common Stock as a dividend or other distribution on outstanding Common Stock, (b) subdivide its
outstanding shares of Common Stock, or (c) combine its outstanding shares of the Common Stock into a smaller number of shares
of the Common Stock, then, in each such event, the Average Trading Price shall, simultaneously with the happening of such event,
be adjusted by multiplying the then Average Trading Price by a fraction, the numerator of which shall be the number of shares
of Common Stock outstanding immediately prior to such event and the denominator of which shall be the number of shares of Common
Stock outstanding immediately after such event, and the product so obtained shall thereafter be the Average Trading Price then
in effect. The Average Trading Price, as so adjusted, shall be readjusted in the same manner upon the happening of any successive
event or events described herein in this Section 3. The number of shares of Common Stock that the Holder of this Warrant
shall thereafter, on the exercise hereof as provided in Section 1, be entitled to receive shall be adjusted to a number determined
by multiplying the number of shares of Common Stock that would otherwise (but for the provisions of this Section 3) be issuable
on such exercise by a fraction of which (a) the numerator is the Average Trading Price that would otherwise (but for the
provisions of this Section 3) be in effect, and (b) the denominator is the Average Trading Price in effect on the date
of such exercise.
4.
Certificate as to Adjustments. In each case of any adjustment or readjustment in the
shares of Common Stock (or Other Securities) issuable on the exercise of the Warrants, the Company at its expense will promptly
cause its Chief Financial Officer or other appropriate designee to compute such adjustment or readjustment in accordance with
the terms of the Warrant and prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based, including a statement of (a) the consideration received or receivable
by the Company for any additional shares of Common Stock (or Other Securities) issued or sold or deemed to have been issued or
sold, (b) the number of shares of Common Stock (or Other Securities) outstanding or deemed to be outstanding, and (c) the
Exercise and the number of shares of Common Stock to be received upon exercise of this Warrant, in effect immediately prior to
such adjustment or readjustment and as adjusted or readjusted as provided in this Warrant. The Company will forthwith mail a copy
of each such certificate to the Holder of the Warrant.
5.
Reservation of Stock, etc. Issuable on Exercise of Warrant; Financial Statements.
The Company will at all times reserve and keep available, solely for issuance and delivery on the exercise of the Warrants, all
shares of Common Stock (or Other Securities) from time to time issuable on the exercise of the Warrant. This Warrant entitles
the Holder hereof to receive copies of all financial and other information distributed or required to be distributed to the holders
of the Company’s Common Stock.
6.
Assignment; Exchange of Warrant. Subject to compliance with applicable securities
laws, this Warrant, and the rights evidenced hereby, may be transferred by any registered holder hereof (a “Transferor”).
On the surrender for exchange of this Warrant, with the Transferor’s endorsement in the form of Exhibit B attached
hereto (the “Transferor Endorsement Form”) and together with an opinion of counsel reasonably satisfactory to the
Company that the transfer of this Warrant will be in compliance with applicable securities laws, the Company at its expense, twice,
only, but with payment by the Transferor of any applicable transfer taxes, will issue and deliver to or on the order of the Transferor
thereof a new Warrant or Warrants of like tenor, in the name of the Transferor and/or the transferee(s) specified in such Transferor
Endorsement Form (each a “Transferee”), calling in the aggregate on the face or faces thereof for the number of shares
of Common Stock called for on the face or faces of the Warrant so surrendered by the Transferor. No such transfers shall result
in a public distribution of the Warrant.
7.
Replacement of Warrant. On receipt of evidence reasonably satisfactory to the Company
of the loss, theft, destruction or mutilation of this Warrant or any Warrant Certificate, and, in the case of any such loss, theft
or destruction of this Warrant or any Warrant Certificate, on delivery of an indemnity agreement or security reasonably satisfactory
in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of this Warrant or any
Warrant Certificate, the Company at its expense, twice only, will execute and deliver, in lieu thereof, a new Warrant of like
tenor.
8.
Transfer on the Company’s Books. Until this Warrant is transferred on the books
of the Company, the Company may treat the registered holder hereof as the absolute owner hereof for all purposes, notwithstanding
any notice to the contrary.
9.
Notices. All notices, demands, requests, consents, approvals, and other communications
required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier
service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to
such other address as such party shall have specified most recently by written notice. Any notice or other communication required
or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation
generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during
normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other
than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following
the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur or (c) upon actual reciept after deposited in the mail if delivered pursuant to subsection (ii) above.
The addresses for such communications shall be: (i) if to the Company to: Canadian Cannabis Corp., 100 Rutherford Road, S Brampton,
Ontario, Canada, Attn: Benjamin Ward (ii) if to the Holder, to Richard Wachsberg, __________________________________.
10.
Agreement Not a Contract of Employment or Other Relationship. This Warrant is not
a contract of employment or other relationship, and if Holder acts as a consultant (or employee) or any other relationship of
the Holder with the Company or any of its subsidiaries or affiliates shall not be affected in any way by this Warrant except as
specifically provided herein. The execution of this Warrant shall not be construed as conferring any legal rights upon the Holder
for the continuation of any relationship with the Company or any of its subsidiaries or affiliates, nor shall it interfere with
the right of the Company or any of its subsidiaries or affiliates to treat the Holder without regard to the effect which such
treatment might have upon him as a Holder.
11.
Waiver of Jury Trial. Each
party acknowledges and agrees that any controversy which may arise under this Warrant is likely to involve complicated and difficult
issues and, therefore, each such party irrevocably and unconditionally waives any right it may have to a trial by jury in respect
of any legal action arising out of or relating to this Warrant or the transactions contemplated hereby.
12. No
Strict Construction. This Warrant shall be construed without regard to any presumption or rule requiring construction
or interpretation against the party drafting an instrument or causing any instrument to be drafted.
13. Miscellaneous.
This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination is sought. This Warrant shall be construed and
enforced in accordance with and governed by the laws of Delaware, USA. The headings in this Warrant are for purposes of reference
only, and shall not limit or otherwise affect any of the terms hereof. The invalidity or unenforceability of any provision hereof
shall in no way affect the validity or enforceability of any other provision.
SIGNATURE PAGE FOLLOWS
IN WITNESS WHEREOF,
the Company has executed this Warrant as of the date first written above.
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CANADIAN CANNABIS CORP. |
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By: |
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Benjamin Ward, President
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Exhibit A
FORM OF SUBSCRIPTION
(to be signed only on exercise of Warrant)
To: Canadian Cannabis Corp.
The undersigned, pursuant to the provisions
set forth in the attached Warrant (No.____), hereby irrevocably elects to purchase:
________ shares of the Common Stock covered
by such Warrant;
The undersigned herewith makes payment of
the full amount for such shares at the Exercise Price per share provided for in such Warrant. Such payment takes the form of:
$__________ in lawful money of the United
States; and
The
undersigned requests that the certificates for such shares be issued in the name of, and delivered to _____________________________________________________
whose address is ________________________________________________________________________________________________
Number of Shares of Common Stock Beneficially
Owned on the date of exercise: ____________________
The undersigned represents and warrants that
all offers and sales by the undersigned of the securities issuable upon exercise of the within Warrant shall be made pursuant
to registration of the Common Stock under the Securities Act of 1933, as amended (the “Securities Act”), or pursuant
to an exemption from registration under the Securities Act.
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Dated:___________________ |
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(Signature
must conform to name of holder as specified on the face of the Warrant)
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(Address) |
Exhibit B
FORM OF TRANSFEROR ENDORSEMENT
(To be signed only on transfer of Warrant)
For value received,
the undersigned hereby sells, assigns, and transfers unto the person(s) named below under the heading “Transferees”
the right represented by the within Warrant to purchase the percentage and number of shares of Common Stock of Canadian Cannabis
Corp. to which the within Warrant relates specified under the headings “Percentage Transferred” and “Number
Transferred,” respectively, opposite the name(s) of such person(s) and appoints each such person Attorney to transfer its
respective right on the books of Canadian Cannabis Corp. with full power of substitution in the premises.
| Transferees |
Percentage
Transferred |
Number
Transferred |
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| Dated: ______________, ___________ |
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(Signature
must conform to name of holder as specified on the face of the warrant) |
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| Signed in the presence of: |
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| (Name) |
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(address) |
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| ACCEPTED AND AGREED: |
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| [TRANSFEREE] |
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| (Name) |
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(address) |
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THIS WARRANT AND THE COMMON SHARES ISSUABLE
UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT AND THE COMMON
SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO CANADIAN CANABIS CORP. THAT
SUCH REGISTRATION IS NOT REQUIRED.
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Right
to Purchase 400,000 shares of Common Stock of Canadian Cannabis Corp. (subject to adjustment as provided herein) |
COMMON STOCK PURCHASE WARRANT
| No. 2014-10B |
Issue Date as of: November 10, 2014 |
| |
|
Canadian Cannabis Corp.,
a corporation organized under the laws of the State of Delaware (the “Company”), hereby certifies that, for value
received, Richard Wachsberg (the “Holder”), is entitled, subject to the terms set forth below, to purchase from the
Company at any time after the issue date until 5:00 p.m., E.S.T on the fifth (5th) anniversary after the issue date
(the “Expiration Date”), 400,000 fully paid and non-assessable shares of Common Stock at a per share amount equal
to the Calculated Price (as defined herein) and 400,000 additional warrants pursuant to the warrant agreement attached hereto
as Exhibit C (the “C Warrants”). The number and character of such shares of Common Stock and the Calculated Price
are subject to adjustment as provided herein. This Warrant may be represented by one or more certificates (each a “Warrant
Certificate”), each of which shall be deemed to incorporate by reference, be subject to and be governed by the terms of
this Warrant.
As used herein
the following terms, unless the context otherwise requires, have the following respective meanings:
| (a) | The
term “Average Trading Price” means, as of any particular date: (a) the volume
weighted average of the closing sales prices of the Common Stock for such day on all
domestic securities exchanges on which the Common Stock may at the time be listed; (b)
if there have been no sales of the Common Stock on any such exchange on any such day,
the average of the highest bid and lowest asked prices for the Common Stock on all such
exchanges at the end of such day; (c) if on any such day the Common Stock is not listed
on a domestic securities exchange, the closing sales price of the Common Stock as quoted
on the OTC Bulletin Board, the Pink OTC Markets or similar quotation system or association
for such day; or (d) if there have been no sales of the Common Stock on the OTC Bulletin
Board, the Pink OTC Markets or similar quotation system or association on such day, the
average of the highest bid and lowest asked prices for the Common Stock quoted on the
OTC Bulletin Board, the Pink OTC Markets or similar quotation system or association at
the end of such day; in each case, averaged over twenty (20) consecutive Business Days
ending on the Business Day immediately prior to the day as of which "Average Trading
Price" is being determined; provided, that if the Common Stock is listed on any
domestic securities exchange, the term "Business Day" as used in this sentence
means Business Days on which such exchange is open for trading. If at any time the Common
Stock is not listed on any domestic securities exchange or quoted on the OTC Bulletin
Board, the Pink OTC Markets or similar quotation system or association, the "Average
Trading Price" of the Common Stock shall be the fair market value per share as determined
jointly by the Board and the Holder. |
| (b) | The
term “Calculated Price” means 100% of Average Trading Price on the Exercise
Date. |
| (c) | The
term “Company” shall include Canadian Cannabis Corp. and any corporation
which shall succeed or assume the obligations of Canadian Cannabis Corp. hereunder. |
| (d) | The
term “Common Stock” includes (a) the Company’s Common Stock, $
0.000001 par value per share, and (b) any other securities into which or for which any
of the securities described in (a) may be converted or exchanged pursuant to a plan
of recapitalization, reorganization, merger, sale of assets or otherwise. The term “other
securities” refers to any stock (other than Common Stock) and other securities
of the Company or any other person (corporate or otherwise) which the holder of the Warrant
at any time shall be entitled to receive, or shall have received, on the exercise of
the Warrant, in lieu of or in addition to Common Stock, or which at any time shall be
issuable or shall have been issued in exchange for or in replacement of Common Stock
or Other Securities pursuant to Section 4 or otherwise. |
| (e) | The
term “Exercise Date” means the date upon which the Company receives actual
notice of the Holder’s exercise of some or all of this Warrant and payment
of the Calculated Price in cash or immediately available funds. If the notice of exercise
and the payment are received on different days, the Exercise Date shall be the latter
date. |
| (f) | The
term “Warrant” means this Common Stock Purchase Warrant. |
1.
Exercise of Warrant.
1.1.
Number of Shares Issuable upon Exercise. Subject to the terms and conditions hereof,
from and after the issue date through and including the Expiration Date, the Holder hereof shall be entitled to receive, upon
full exercise of this Warrant, Eight Hundred Thousand (800,000) shares of Common Stock of the Company.
1.2.
Full Exercise. This Warrant may be exercised in full by the Holder hereof by delivery
of an original or facsimile copy of the form of subscription attached as Exhibit A hereto (the “Subscription Form”)
duly executed by such Holder and surrender of the original Warrant Certificate within four (4) days of exercise, to the Company
at its principal office, accompanied by payment, in cash, wire transfer or by certified or official bank check payable to the
order of the Company, in the amount obtained by multiplying the number of shares of Common Stock for which this Warrant is then
exercisable by the Calculated Price then in effect.
On any such
full exercise, the Company, at its expense, will forthwith issue and deliver to or upon the order of the Holder hereof a C Warrant
in the form of Exhibit C permitting the Holder to purchase the same number of Shares as the number of Shares exercised at a price
equal to the Calculated Price used in such full exercise.
1.3.
Partial Exercise. This Warrant may be exercised in part (but for not less than 10,000
shares) by surrender of one or more Warrant certificates in the manner and at the place provided in subsection 1.2 except
that the amount payable by the Holder on such partial exercise shall be the amount obtained by multiplying (a) the number
of whole shares of Common Stock designated by the Holder in the Subscription Form by (b) the Calculated Price then in effect.
On any such partial exercise, the Company, at its expense, will forthwith issue and deliver to or upon the order of the Holder
hereof
(a)
a new Warrant of like tenor, in the name of the Holder hereof or as such Holder (upon payment
by such Holder of any applicable transfer taxes) may request, the whole number of shares of Common Stock for which such Warrant
may still be exercised; and
(b)
a C Warrant in the form of Exhibit C permitting the Holder to purchase the same number of
Shares as the number of Shares partially exercised at a price equal to the Calculated Price used in such partial exercise.
1.4.
Company Acknowledgment. The Company will, at the time of the exercise of the Warrant,
upon the request of the Holder hereof acknowledge in writing its continuing obligation to afford to such Holder any rights to
which such Holder shall continue to be entitled after such exercise in accordance with the provisions of this Warrant. If the
Holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to
such Holder any such rights.
1.5.
Delivery of Stock Certificates, etc. on Exercise. The Company agrees that the shares
of Common Stock purchased upon exercise of this Warrant shall be deemed to be issued to the Holder hereof as the record owner
of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for
such shares as aforesaid. As soon as practicable after the exercise of this Warrant in full or in part, and in any event within
three (3) business days thereafter, the Company at its expense (including the payment by it of any applicable issue taxes) will
cause to be issued in the name of and delivered to the Holder hereof, or as such Holder (upon payment by such Holder of any applicable
transfer taxes) may direct in compliance with applicable securities laws, a certificate or certificates for the number of duly
and validly issued, fully paid and nonassessable shares of Common Stock (or Other Securities) to which such Holder shall be entitled
on such exercise.
1.6.
Agreement to Comply with the Securities Act; Legend.
The Holder, by acceptance of this Warrant, agrees to comply in all respects with the restrictive
legend requirements set forth on the face of this Warrant and further agrees that such Holder shall not offer, sell or otherwise
dispose of this Warrant, any related Warrant Certificate, or any Common Stock to be issued upon exercise hereof except under circumstances
that will not result in a violation of the Securities Act of 1933, as amended. This Warrant, related Warrant Certificates, and
all Common Stock issued upon exercise of this Warrant (unless registered under the Securities Act) shall be stamped or imprinted
with a legend in substantially the following form:
“The
securities represented by this Warrant have not been registered under the Securities Act of 1933, as amended (the “Securities
Act”), or under the provisions of any state securities laws, but have been acquired by the registered holder hereof for
purposes of investment and in reliance on statutory exemptions under the Securities Act and under all applicable state securities
laws (including, without limitation, those of the State of Delaware). The securities may not be sold, pledged, transferred or
assigned except pursuant to an effective registration statement under the Securities Act and under applicable state securities
laws, or in a transaction which is exempt from registration under the provisions of the Securities Act and under provisions of
applicable state securities laws; and in the case of an exemption, only if the Company has received an opinion of counsel that
such transaction does not require registration of the securities, which opinion and which counsel shall be satisfactory to the
Company in its sole discretion.”
2.
Adjustment for Reorganization, Consolidation, Merger, etc.
2.1.
Reorganization, Consolidation, Merger, etc. In case at any time or from time to time,
the Company shall (a) effect a reorganization, (b) consolidate with or merge into any other person or (c) transfer
all or substantially all of its properties or assets to any other person under any plan or arrangement contemplating the dissolution
of the Company, then, in each such case, as a condition to the consummation of such a transaction, proper and adequate provision
shall be made by the Company whereby the Holder of this Warrant, on the exercise hereof as provided in Section 1, at any
time after the consummation of such reorganization, consolidation or merger or the effective date of such dissolution, as the
case may be, shall receive, in lieu of the Common Stock (or Other Securities) issuable on such exercise prior to such consummation
or such effective date, the stock and other securities and property (including cash) to which such Holder would have been entitled
upon such consummation or in connection with such dissolution, as the case may be, if such Holder had so exercised this Warrant,
immediately prior thereto, all subject to further adjustment thereafter as provided in Section 3.
2.2.
Dissolution. In the event of any dissolution of the Company following the transfer
of all or substantially all of its properties or assets, the Company, prior to such dissolution, shall at its expense deliver
or cause to be delivered the stock and other securities and property (including cash, where applicable) receivable in accordance
with Section 2.1 by the Holder of the Warrants upon their exercise after the effective date of such dissolution pursuant to this
Section 2 to a bank or trust company (a “Trustee”), as trustee for the Holder of the Warrants.
2.3.
Continuation of Terms. Upon any reorganization, consolidation, merger or transfer
(and any dissolution following any transfer) referred to in this Section 2, this Warrant shall continue in full force and
effect and the terms hereof shall be applicable to the Other Securities and property receivable on the exercise of this Warrant
after the consummation of such reorganization, consolidation or merger or the effective date of dissolution following any such
transfer, as the case may be, and shall be binding upon the issuer of any Other Securities, including, in the case of any such
transfer, the person acquiring all or substantially all of the properties or assets of the Company, whether or not such person
shall have expressly assumed the terms of this Warrant as provided in Section 3. In the event this Warrant does not continue
in full force and effect after the consummation of a transaction described in Section 2.2, then only in such event will the
Company’s securities and property (including cash, where applicable) receivable by the Holder of the Warrants be delivered
to the Trustee as contemplated by Section 2.2.
3.
Extraordinary Events Regarding Common Stock. In the event that the Company shall (a) issue
additional shares of the Common Stock as a dividend or other distribution on outstanding Common Stock, (b) subdivide its
outstanding shares of Common Stock, or (c) combine its outstanding shares of the Common Stock into a smaller number of shares
of the Common Stock, then, in each such event, the Average Trading Price shall, simultaneously with the happening of such event,
be adjusted by multiplying the then Average Trading Price by a fraction, the numerator of which shall be the number of shares
of Common Stock outstanding immediately prior to such event and the denominator of which shall be the number of shares of Common
Stock outstanding immediately after such event, and the product so obtained shall thereafter be the Average Trading Price then
in effect. The Average Trading Price, as so adjusted, shall be readjusted in the same manner upon the happening of any successive
event or events described herein in this Section 3. The number of shares of Common Stock that the Holder of this Warrant
shall thereafter, on the exercise hereof as provided in Section 1, be entitled to receive shall be adjusted to a number determined
by multiplying the number of shares of Common Stock that would otherwise (but for the provisions of this Section 3) be issuable
on such exercise by a fraction of which (a) the numerator is the Average Trading Price that would otherwise (but for the
provisions of this Section 3) be in effect, and (b) the denominator is the Average Trading Price in effect on the date
of such exercise.
4.
Certificate as to Adjustments. In each case of any adjustment or readjustment in the
shares of Common Stock (or Other Securities) issuable on the exercise of the Warrants, the Company at its expense will promptly
cause its Chief Financial Officer or other appropriate designee to compute such adjustment or readjustment in accordance with
the terms of the Warrant and prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based, including a statement of (a) the consideration received or receivable
by the Company for any additional shares of Common Stock (or Other Securities) issued or sold or deemed to have been issued or
sold, (b) the number of shares of Common Stock (or Other Securities) outstanding or deemed to be outstanding, and (c) the
Calculated Price and the number of shares of Common Stock to be received upon exercise of this Warrant, in effect immediately
prior to such adjustment or readjustment and as adjusted or readjusted as provided in this Warrant. The Company will forthwith
mail a copy of each such certificate to the Holder of the Warrant.
5.
Reservation of Stock, etc. Issuable on Exercise of Warrant; Financial Statements.
The Company will at all times reserve and keep available, solely for issuance and delivery on the exercise of the Warrants, all
shares of Common Stock (or Other Securities) from time to time issuable on the exercise of the Warrant. This Warrant entitles
the Holder hereof to receive copies of all financial and other information distributed or required to be distributed to the holders
of the Company’s Common Stock.
6.
Assignment; Exchange of Warrant. Subject to compliance with applicable securities
laws, this Warrant, and the rights evidenced hereby, may be transferred by any registered holder hereof (a “Transferor”).
On the surrender for exchange of this Warrant, with the Transferor’s endorsement in the form of Exhibit B attached
hereto (the “Transferor Endorsement Form”) and together with an opinion of counsel reasonably satisfactory to the
Company that the transfer of this Warrant will be in compliance with applicable securities laws, the Company at its expense, twice,
only, but with payment by the Transferor of any applicable transfer taxes, will issue and deliver to or on the order of the Transferor
thereof a new Warrant or Warrants of like tenor, in the name of the Transferor and/or the transferee(s) specified in such Transferor
Endorsement Form (each a “Transferee”), calling in the aggregate on the face or faces thereof for the number of shares
of Common Stock called for on the face or faces of the Warrant so surrendered by the Transferor. No such transfers shall result
in a public distribution of the Warrant.
7.
Replacement of Warrant. On receipt of evidence reasonably satisfactory to the Company
of the loss, theft, destruction or mutilation of this Warrant or any Warrant Certificate, and, in the case of any such loss, theft
or destruction of this Warrant or any Warrant Certificate, on delivery of an indemnity agreement or security reasonably satisfactory
in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of this Warrant or any
Warrant Certificate, the Company at its expense, twice only, will execute and deliver, in lieu thereof, a new Warrant of like
tenor.
8.
Transfer on the Company’s Books. Until this Warrant is transferred on the books
of the Company, the Company may treat the registered holder hereof as the absolute owner hereof for all purposes, notwithstanding
any notice to the contrary.
9.
Notices. All notices, demands, requests, consents, approvals, and other communications
required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier
service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to
such other address as such party shall have specified most recently by written notice. Any notice or other communication required
or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation
generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during
normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other
than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following
the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur or (c) upon actual reciept after deposited in the mail if delivered pursuant to subsection (ii) above.
The addresses for such communications shall be: (i) if to the Company to: Canadian Cannabis Corp., 100 Rutherford Road, S Brampton,
Ontario, Canada, Attn: Benjamin Ward (ii) if to the Holder, to Richard Wachsberg, __________________________________.
10.
Agreement Not a Contract of Employment or Other Relationship. This Warrant is not
a contract of employment or other relationship, and if Holder acts as a consultant (or employee) or any other relationship of
the Holder with the Company or any of its subsidiaries or affiliates shall not be affected in any way by this Warrant except as
specifically provided herein. The execution of this Warrant shall not be construed as conferring any legal rights upon the Holder
for the continuation of any relationship with the Company or any of its subsidiaries or affiliates, nor shall it interfere with
the right of the Company or any of its subsidiaries or affiliates to treat the Holder without regard to the effect which such
treatment might have upon him as a Holder.
11.
Waiver of Jury Trial. Each
party acknowledges and agrees that any controversy which may arise under this Warrant is likely to involve complicated and difficult
issues and, therefore, each such party irrevocably and unconditionally waives any right it may have to a trial by jury in respect
of any legal action arising out of or relating to this Warrant or the transactions contemplated hereby.
12. No
Strict Construction. This Warrant shall be construed without regard to any presumption or rule requiring construction
or interpretation against the party drafting an instrument or causing any instrument to be drafted.
13. Miscellaneous.
This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination is sought. This Warrant shall be construed and
enforced in accordance with and governed by the laws of Delaware, USA. The headings in this Warrant are for purposes of reference
only, and shall not limit or otherwise affect any of the terms hereof. The invalidity or unenforceability of any provision hereof
shall in no way affect the validity or enforceability of any other provision.
SIGNATURE PAGE FOLLOWS
IN WITNESS WHEREOF,
the Company has executed this Warrant as of the date first written above.
| |
CANADIAN CANNABIS CORP. |
| |
|
| |
By: |
|
| |
|
Benjamin Ward, President
|
Exhibit A
FORM OF SUBSCRIPTION
(to be signed only on exercise of Warrant)
To: Canadian Cannabis Corp.
The undersigned, pursuant to the provisions
set forth in the attached Warrant (No.____), hereby irrevocably elects to purchase:
________ shares of the Common Stock covered
by such Warrant;
The undersigned herewith makes payment of
the full Calculated Price for such shares at the Calculated Price per share provided for in such Warrant. Such payment takes the
form of:
$__________ in lawful money of the United
States; and
The
undersigned requests that the certificates for such shares be issued in the name of, and delivered to _____________________________________________________
whose address is ________________________________________________________________________________________________
Number of Shares of Common Stock Beneficially
Owned on the date of exercise: ____________________
The undersigned represents and warrants that
all offers and sales by the undersigned of the securities issuable upon exercise of the within Warrant shall be made pursuant
to registration of the Common Stock under the Securities Act of 1933, as amended (the “Securities Act”), or pursuant
to an exemption from registration under the Securities Act.
| |
|
|
Dated:___________________ |
|
(Signature
must conform to name of holder as specified on the face of the Warrant)
|
| |
|
|
| |
|
|
| |
|
(Address) |
Exhibit B
FORM OF TRANSFEROR ENDORSEMENT
(To be signed only on transfer of Warrant)
For value received,
the undersigned hereby sells, assigns, and transfers unto the person(s) named below under the heading “Transferees”
the right represented by the within Warrant to purchase the percentage and number of shares of Common Stock of Canadian Cannabis
Corp. to which the within Warrant relates specified under the headings “Percentage Transferred” and “Number
Transferred,” respectively, opposite the name(s) of such person(s) and appoints each such person Attorney to transfer its
respective right on the books of Canadian Cannabis Corp. with full power of substitution in the premises.
| Transferees |
Percentage
Transferred |
Number
Transferred |
| |
|
|
| |
|
|
| |
|
|
| Dated: ______________, ___________ |
|
(Signature
must conform to name of holder as specified on the face of the warrant) |
| |
|
|
| |
|
|
| |
|
|
| Signed in the presence of: |
|
|
| |
|
|
| |
|
|
| (Name) |
|
(address) |
| |
|
|
| |
|
|
| ACCEPTED AND AGREED: |
|
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| [TRANSFEREE] |
|
|
| |
|
|
| |
|
|
| (Name) |
|
(address) |
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|
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|
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Exhibit C
FORM OF C WARRANT
(To be issued only on the full or partial
exercise of Warrant)
Exhibit 10.1.4
THIS WARRANT AND THE COMMON SHARES ISSUABLE
UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT AND THE COMMON
SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO CANADIAN CANABIS CORP. THAT
SUCH REGISTRATION IS NOT REQUIRED.
| |
Right
to Purchase 400,000 shares of Common Stock of Canadian Cannabis Corp. (subject to adjustment as provided herein) |
COMMON STOCK PURCHASE WARRANT
| No.
2014-10C |
Issue
Date as of: |
Canadian Cannabis Corp.,
a corporation organized under the laws of the State of Delaware (the “Company”), hereby certifies that, for value
received, Richard Wachsberg (the “Holder”), is entitled, subject to the terms set forth below, to purchase from the
Company at any time after the issue date until 5:00 p.m., E.S.T on the fifth (5th) anniversary after the issue date
(the “Expiration Date”), 400,000 fully paid and non-assessable shares of Common Stock
at $3.00 per share (the “Exercise Price,” subject to any adjustment herein ). The number and character of such
shares of Common Stock and the Exercise Price are subject to adjustment as provided herein. This Warrant may be represented by
one or more certificates (each a “Warrant Certificate”), each of which shall be deemed to incorporate by reference,
be subject to and be governed by the terms of this Warrant.
As used herein
the following terms, unless the context otherwise requires, have the following respective meanings:
| (a) | The term “Exercise Price”
has the meaning set forth in the first paragraph. |
| (b) | The term “Company” shall
include Canadian Cannabis Corp. and any corporation which shall succeed or assume the
obligations of Canadian Cannabis Corp. hereunder. |
| (c) | The term “Common Stock”
includes (a) the Company’s Common Stock, $ 0.000001 par value per share, and
(b) any other securities into which or for which any of the securities described in (a) may
be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger,
sale of assets or otherwise. The term “other securities” refers to any stock
(other than Common Stock) and other securities of the Company or any other person (corporate
or otherwise) which the holder of the Warrant at any time shall be entitled to receive,
or shall have received, on the exercise of the Warrant, in lieu of or in addition to
Common Stock, or which at any time shall be issuable or shall have been issued in exchange
for or in replacement of Common Stock or Other Securities pursuant to Section 4
or otherwise. |
| (d) | The term “Exercise Date”
means the date upon which the Company receives actual notice of the Holder’s exercise
of some or all of this Warrant and payment of the Exercise Price in cash or immediately
available funds. If the notice of exercise and the payment are received on different
days, the Exercise Date shall be the latter date. |
| (e) | The term “Warrant” means
this Common Stock Purchase Warrant. |
1.
Exercise of Warrant.
1.1.
Number of Shares Issuable upon Exercise. Subject to the terms and conditions hereof, from and after the issue date
through and including the Expiration Date, the Holder hereof shall be entitled to receive, upon full exercise of this Warrant,
Four Hundred Thousand (400,000) shares of Common Stock of the Company.
1.2.
Full Exercise. This Warrant may be exercised in full by the Holder hereof by delivery of an original or facsimile
copy of the form of subscription attached as Exhibit A hereto (the “Subscription Form”) duly executed by such
Holder and surrender of the original Warrant Certificate within four (4) days of exercise, to the Company at its principal office,
accompanied by payment, in cash, wire transfer or by certified or official bank check payable to the order of the Company, in
the amount obtained by multiplying the number of shares of Common Stock for which this Warrant is then exercisable by the Exercise
Price.
1.3.
Partial Exercise. This Warrant may be exercised in part (but for not less than 10,000 shares) by surrender of one
or more Warrant certificates in the manner and at the place provided in subsection 1.2 except that the amount payable by
the Holder on such partial exercise shall be the amount obtained by multiplying (a) the number of whole shares of Common
Stock designated by the Holder in the Subscription Form by (b) the Exercise Price. On any such partial exercise, the Company,
at its expense, will forthwith issue and deliver to or upon the order of the Holder hereof a new Warrant of like tenor, in the
name of the Holder hereof or as such Holder (upon payment by such Holder of any applicable transfer taxes) may request, the whole
number of shares of Common Stock for which such Warrant may still be exercised; and
1.4.
Company Acknowledgment. The Company will, at the time of the exercise of the Warrant, upon the request of the Holder
hereof acknowledge in writing its continuing obligation to afford to such Holder any rights to which such Holder shall continue
to be entitled after such exercise in accordance with the provisions of this Warrant. If the Holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company to afford to such Holder any such rights.
1.5.
Delivery of Stock Certificates, etc. on Exercise. The Company agrees that the shares of Common Stock purchased upon
exercise of this Warrant shall be deemed to be issued to the Holder hereof as the record owner of such shares as of the close
of business on the date on which this Warrant shall have been surrendered and payment made for such shares as aforesaid. As soon
as practicable after the exercise of this Warrant in full or in part, and in any event within three (3) business days thereafter,
the Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued in the name of
and delivered to the Holder hereof, or as such Holder (upon payment by such Holder of any applicable transfer taxes) may direct
in compliance with applicable securities laws, a certificate or certificates for the number of duly and validly issued, fully
paid and nonassessable shares of Common Stock (or Other Securities) to which such Holder shall be entitled on such exercise.
1.6.
Agreement to Comply with the Securities Act; Legend. The
Holder, by acceptance of this Warrant, agrees to comply in all respects with the restrictive legend requirements set forth on
the face of this Warrant and further agrees that such Holder shall not offer, sell or otherwise dispose of this Warrant, any related
Warrant Certificate, or any Common Stock to be issued upon exercise hereof except under circumstances that will not result in
a violation of the Securities Act of 1933, as amended. This Warrant, related Warrant Certificates, and all Common Stock issued
upon exercise of this Warrant (unless registered under the Securities Act) shall be stamped or imprinted with a legend in substantially
the following form:
“The
securities represented by this Warrant have not been registered under the Securities Act of 1933, as amended (the “Securities
Act”), or under the provisions of any state securities laws, but have been acquired by the registered holder hereof for
purposes of investment and in reliance on statutory exemptions under the Securities Act and under all applicable state securities
laws (including, without limitation, those of the State of Delaware). The securities may not be sold, pledged, transferred or
assigned except pursuant to an effective registration statement under the Securities Act and under applicable state securities
laws, or in a transaction which is exempt from registration under the provisions of the Securities Act and under provisions of
applicable state securities laws; and in the case of an exemption, only if the Company has received an opinion of counsel that
such transaction does not require registration of the securities, which opinion and which counsel shall be satisfactory to the
Company in its sole discretion.”
2.
Adjustment for Reorganization, Consolidation, Merger, etc.
2.1.
Reorganization, Consolidation, Merger, etc. In case at any time or from time to time, the Company shall (a) effect
a reorganization, (b) consolidate with or merge into any other person or (c) transfer all or substantially all of its
properties or assets to any other person under any plan or arrangement contemplating the dissolution of the Company, then, in
each such case, as a condition to the consummation of such a transaction, proper and adequate provision shall be made by the Company
whereby the Holder of this Warrant, on the exercise hereof as provided in Section 1, at any time after the consummation of
such reorganization, consolidation or merger or the effective date of such dissolution, as the case may be, shall receive, in
lieu of the Common Stock (or Other Securities) issuable on such exercise prior to such consummation or such effective date, the
stock and other securities and property (including cash) to which such Holder would have been entitled upon such consummation
or in connection with such dissolution, as the case may be, if such Holder had so exercised this Warrant, immediately prior thereto,
all subject to further adjustment thereafter as provided in Section 3.
2.2.
Dissolution. In the event of any dissolution of the Company following the transfer of all or substantially all of
its properties or assets, the Company, prior to such dissolution, shall at its expense deliver or cause to be delivered the stock
and other securities and property (including cash, where applicable) receivable in accordance with Section 2.1 by the Holder of
the Warrants upon their exercise after the effective date of such dissolution pursuant to this Section 2 to a bank or trust
company (a “Trustee”), as trustee for the Holder of the Warrants.
2.3.
Continuation of Terms. Upon any reorganization, consolidation, merger or transfer (and any dissolution following
any transfer) referred to in this Section 2, this Warrant shall continue in full force and effect and the terms hereof shall
be applicable to the Other Securities and property receivable on the exercise of this Warrant after the consummation of such reorganization,
consolidation or merger or the effective date of dissolution following any such transfer, as the case may be, and shall be binding
upon the issuer of any Other Securities, including, in the case of any such transfer, the person acquiring all or substantially
all of the properties or assets of the Company, whether or not such person shall have expressly assumed the terms of this Warrant
as provided in Section 3. In the event this Warrant does not continue in full force and effect after the consummation of
a transaction described in Section 2.2, then only in such event will the Company’s securities and property (including
cash, where applicable) receivable by the Holder of the Warrants be delivered to the Trustee as contemplated by Section 2.2.
3.
Extraordinary Events Regarding Common Stock. In the event that the Company shall (a) issue additional shares
of the Common Stock as a dividend or other distribution on outstanding Common Stock, (b) subdivide its outstanding shares
of Common Stock, or (c) combine its outstanding shares of the Common Stock into a smaller number of shares of the Common
Stock, then, in each such event, the Exercise Price shall, simultaneously with the happening of such event, be adjusted by multiplying
the then Exercise Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately
prior to such event and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such
event, and the product so obtained shall thereafter be the Exercise Price then in effect. The Exercise Price, as so adjusted,
shall be readjusted in the same manner upon the happening of any successive event or events described herein in this Section 3.
The number of shares of Common Stock that the Holder of this Warrant shall thereafter, on the exercise hereof as provided in Section 1,
be entitled to receive shall be adjusted to a number determined by multiplying the number of shares of Common Stock that would
otherwise (but for the provisions of this Section 3) be issuable on such exercise by a fraction of which (a) the numerator
is the Exercise Price that would otherwise (but for the provisions of this Section 3) be in effect, and (b) the denominator
is the Exercise Price in effect on the date of such exercise.
4.
Certificate as to Adjustments. In each case of any adjustment or readjustment in the shares of Common Stock (or
Other Securities) issuable on the exercise of the Warrants, the Company at its expense will promptly cause its Chief Financial
Officer or other appropriate designee to compute such adjustment or readjustment in accordance with the terms of the Warrant and
prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment
or readjustment is based, including a statement of (a) the consideration received or receivable by the Company for any additional
shares of Common Stock (or Other Securities) issued or sold or deemed to have been issued or sold, (b) the number of shares
of Common Stock (or Other Securities) outstanding or deemed to be outstanding, and (c) the Exercise Price and the number
of shares of Common Stock to be received upon exercise of this Warrant, in effect immediately prior to such adjustment or readjustment
and as adjusted or readjusted as provided in this Warrant. The Company will forthwith mail a copy of each such certificate to
the Holder of the Warrant.
5.
Reservation of Stock, etc. Issuable on Exercise of Warrant; Financial Statements. The Company will at all times
reserve and keep available, solely for issuance and delivery on the exercise of the Warrants, all shares of Common Stock (or Other
Securities) from time to time issuable on the exercise of the Warrant. This Warrant entitles the Holder hereof to receive copies
of all financial and other information distributed or required to be distributed to the holders of the Company’s Common
Stock.
6.
Assignment; Exchange of Warrant. Subject to compliance with applicable securities laws, this Warrant, and the rights
evidenced hereby, may be transferred by any registered holder hereof (a “Transferor”). On the surrender for exchange
of this Warrant, with the Transferor’s endorsement in the form of Exhibit B attached hereto (the “Transferor
Endorsement Form”) and together with an opinion of counsel reasonably satisfactory to the Company that the transfer of this
Warrant will be in compliance with applicable securities laws, the Company at its expense, twice, only, but with payment by the
Transferor of any applicable transfer taxes, will issue and deliver to or on the order of the Transferor thereof a new Warrant
or Warrants of like tenor, in the name of the Transferor and/or the transferee(s) specified in such Transferor Endorsement Form
(each a “Transferee”), calling in the aggregate on the face or faces thereof for the number of shares of Common Stock
called for on the face or faces of the Warrant so surrendered by the Transferor. No such transfers shall result in a public distribution
of the Warrant.
7.
Replacement of Warrant. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of this Warrant or any Warrant Certificate, and, in the case of any such loss, theft or destruction of this Warrant
or any Warrant Certificate, on delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the
Company or, in the case of any such mutilation, on surrender and cancellation of this Warrant or any Warrant Certificate, the
Company at its expense, twice only, will execute and deliver, in lieu thereof, a new Warrant of like tenor.
8.
Transfer on the Company’s Books. Until this Warrant is transferred on the books of the Company, the Company
may treat the registered holder hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary.
9.
Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder
shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered
or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid,
or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party
shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder
shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting
facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where
such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during
normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by
express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first
occur or (c) upon actual reciept after deposited in the mail if delivered pursuant to subsection (ii) above. The addresses for
such communications shall be: (i) if to the Company to: Canadian Cannabis Corp., 100 Rutherford Road, S Brampton, Ontario, Canada,
Attn: Benjamin Ward (ii) if to the Holder, to Richard Wachsberg, 1 Apollo Place, Toronto,
ON M3H 0A2.
10.
Agreement Not a Contract of Employment or Other Relationship. This Warrant is not a contract of employment or other relationship,
and if Holder acts as a consultant (or employee) or any other relationship of the Holder with the Company or any of its subsidiaries
or affiliates shall not be affected in any way by this Warrant except as specifically provided herein. The execution of this Warrant
shall not be construed as conferring any legal rights upon the Holder for the continuation of any relationship with the Company
or any of its subsidiaries or affiliates, nor shall it interfere with the right of the Company or any of its subsidiaries or affiliates
to treat the Holder without regard to the effect which such treatment might have upon him as a Holder.
11.
Waiver of Jury Trial. Each party acknowledges and agrees that any controversy
which may arise under this Warrant is likely to involve complicated and difficult issues and, therefore, each such party irrevocably
and unconditionally waives any right it may have to a trial by jury in respect of any legal action arising out of or relating
to this Warrant or the transactions contemplated hereby.
12. No
Strict Construction. This Warrant shall be construed without regard to any presumption or rule requiring construction
or interpretation against the party drafting an instrument or causing any instrument to be drafted.
13. Miscellaneous.
This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination is sought. This Warrant shall be construed and
enforced in accordance with and governed by the laws of Delaware, USA. The headings in this Warrant are for purposes of reference
only, and shall not limit or otherwise affect any of the terms hereof. The invalidity or unenforceability of any provision hereof
shall in no way affect the validity or enforceability of any other provision.
SIGNATURE PAGE FOLLOWS.
IN WITNESS WHEREOF,
the Company has executed this Warrant as of the date first written above.
| |
CANADIAN CANNABIS CORP. |
| |
|
| |
By: |
|
| |
|
Benjamin Ward, President |
Exhibit A
FORM OF SUBSCRIPTION
(to be signed only on exercise of Warrant)
To: Canadian Cannabis Corp.
The undersigned, pursuant to the provisions
set forth in the attached Warrant (No.____), hereby irrevocably elects to purchase:
________ shares of the Common Stock covered
by such Warrant;
The undersigned herewith makes payment of
the full Exercise Price for such shares at the Exercise Price per share provided for in such Warrant. Such payment takes the form
of:
$__________ in lawful money of the United
States; and
The undersigned requests that the certificates
for such shares be issued in the name of, and delivered to _____________________________________________________ whose address
is _______________________________________________________________________________________________
Number of Shares of Common Stock Beneficially
Owned on the date of exercise: ____________________
The undersigned represents and warrants that
all offers and sales by the undersigned of the securities issuable upon exercise of the within Warrant shall be made pursuant
to registration of the Common Stock under the Securities Act of 1933, as amended (the “Securities Act”), or pursuant
to an exemption from registration under the Securities Act.
Dated:___________________ |
|
| |
(Signature must conform to name of holder as specified on the face of the
Warrant) |
| |
|
| |
|
| |
|
| |
(Address) |
Exhibit B
FORM OF TRANSFEROR ENDORSEMENT
(To be signed only on transfer of Warrant)
For value received,
the undersigned hereby sells, assigns, and transfers unto the person(s) named below under the heading “Transferees”
the right represented by the within Warrant to purchase the percentage and number of shares of Common Stock of Canadian Cannabis
Corp. to which the within Warrant relates specified under the headings “Percentage Transferred” and “Number
Transferred,” respectively, opposite the name(s) of such person(s) and appoints each such person Attorney to transfer its
respective right on the books of Canadian Cannabis Corp. with full power of substitution in the premises.
| Transferees |
Percentage
Transferred |
Number
Transferred |
| |
|
|
| |
|
|
| |
|
|
Dated: ______________, ___________ |
|
|
|
|
(Signature must conform to name of holder as specified on the face of the
warrant) |
| |
|
|
| Signed in the presence of: |
|
|
| |
|
|
| |
|
|
| (Name) |
|
|
| |
|
(address) |
| |
|
|
| |
|
|
| ACCEPTED AND AGREED: |
|
|
| [TRANSFEREE] |
|
|
| |
|
(address) |
| |
|
|
| |
|
|
| (Name) |
|
|
Exhibit
10.2
THIS
LOAN AGREEMENT dated as of the 21st day of November, 2014,
B
E T W E E N :
CANADIAN
CANNABIS CORP. and CANADA CANNABIS CORP. (collectively, the “Borrower”)
and
CRIMSON
CAPITAL, LLC (the “Lender”)
and
2264793
ONTARIO INC. (“2264793”)
RECITALS:
| A. | The
Borrower wishes to borrow monies from the Lender in the principal sum of $600,000 in
lawful money of Canada. |
NOW
THEREFORE the parties agree as follows:
| (a) | The
Lender shall, on the terms and conditions of this Agreement, lend monies to the Borrower
in the amount of $600,000 in lawful money of Canada (the “Loan”). |
| (a) | Subject
to this Section, the Borrower shall repay the entire principal sum on February 21, 2015
(the “Maturity Date”). |
| | | |
| (b) | Subject
to this Section, the Borrower shall pay interest on the entire outstanding principal
advanced from time to time under the Loan, to be paid on the Maturity Date, at a rate
which is equal to fifty four per cent (54%) per annum, both before and after maturity
and both before and after default, if any, together with interest on overdue interest
at the rate set out above. In the event that the rate of interest hereunder is considered
a “criminal rates of interest” pursuant to the Criminal Code (Canada), then
the interest rate shall be deemed to be the highest rate permitted by law. The entire
Loan shall be deemed advanced on the date hereof notwithstanding the payments to be made
after the date hereof under 2(d)(iv) below. |
| (c) | After
a period of 2 months from the date hereof the Borrower shall have the privilege, when
not in default in any of its obligations contained in this Agreement, without premium
or penalty, of prepaying all or any part of the moneys advanced pursuant to the Loan.
Before the date that is 2 months from the date hereof the Borrower may still prepay the
Loan provided that the Borrower pays a penalty so that the total interest paid is equal
to two months interest. |
| | | |
| (d) | The
proceeds of the Loan shall be disbursed by the Lender as follows: |
| (i) | the
Lender will pay the Borrower’s insurance company [insert] the sum of $116,923.67 |
| | | |
| (ii) | the
Lender will pay the Borrower’s gas bill of $45,481.50 |
| | | |
| (iii) | the
Lender will pay the tax bill for the Property in the amount of $27,205.59 |
| | | |
| (iv) | the
Lender will make the payments due in November, December and January under the First Mortgage,
each in the amount of $104,788 |
| | | |
| (v) | the
Lender will deduct the amount of $30,000 from the Loan to cover the Lender’s costs
which shall include the Lender’s legal fees |
| | | |
| (vi) | the
Lender will advance the balance in the sum of $66,025.24 to the Borrower |
| (e) | The
Borrower shall have the option to extend the term of the Loan on a month by month basis
for an additional period until July 1, 2015 (an “Extension”) subject
to the following: |
| (i) | for
each month (or part of a month) Extension the Borrower provides at least 15 days prior
written notice, |
| | | |
| (ii) | the
Lender has yet to trigger the Option to Purchase (as described in Section 8); and |
| | | |
| (iii) | no
Event of Default has occurred. |
| (f) | The
Borrower agrees that the term of the Loan shall not be extended past July 1, 2015. |
As
a continuing collateral security for the payment of all advances made under the Loan and interest and all other moneys payable
pursuant to this Agreement the Borrower and guarantors shall execute and deliver to the Lender the following, all in form and
content satisfactory to the Lender:
| (a) | an
unlimited guarantee from each of 2264793 and Benjamin A. Ward; |
| (b) | a
second in priority mortgage from 2264793 of the property municipally known as 98-102
Rutherford Rd., S., Brampton, ON and legally described as PIN 14032-0123 (LT), PT LT
4 CON 2 E.H.S. CHINGUACOUSY PTS 1 TO 4, 43R17742; T/W BR48239 ; S/T BR51139; TOGETHER
WITH AN EASEMENT AS IN VS121670; CITY OF
BRAMPTON (the “Property”); and |
| (c) | such
other security as reasonably requested by the Lender or its lawyers. |
| 4. | Representations
and Warranties of the Borrower |
Each
of the Borrower and 2264793 represents and warrants to the Lender that:
| (a) | It
is a corporation legally incorporated, duly organized and validly existing, in good standing
under the laws of the jurisdiction of its incorporation and is qualified to carry on
its business in all jurisdictions where the nature of its business or the character of
its properties make such qualification necessary. |
| | | |
| (b) | The
borrowing of money and the execution, delivery and performance of this Agreement and
the security set forth in Section 3 are within their corporate powers and capacities
and have been duly authorized by proper corporate proceedings. |
| | | |
| (c) | There
are no actions, suits or proceedings pending or to the knowledge of the Borrower and
2264793 threatened against or adversely affecting the Borrower in any court or before
or by any federal, provincial, municipal or other governmental department, commission,
board, bureau or agency, Canadian or foreign, which might materially affect the financial
condition of the Borrower or 2264793 or the title to its property or assets. |
| | | |
| (d) | The
execution and delivery of this Agreement, the consummation of the transactions contemplated
by this Agreement, the execution and delivery to the Lender of the security set forth
in Section 3, and the compliance with the covenants, terms, provisions and conditions
of this Agreement will not conflict with or result in a breach of any of the terms or
provisions of the constating documents or by-laws of the Borrower and 2264793, or any
resolution of the directors or shareholders of the Borrower and 2264793, any laws of
Canada, or the Province of Ontario, or any agreement or instrument to which it is now
a party. |
| | | |
| (e) | This
Agreement and all other deeds, documents or instruments to be delivered pursuant to this
Agreement will, when executed and delivered, constitute valid and binding obligations
of the Borrower and/or 264793 enforceable against it in accordance with their respective
terms, except as may be limited by other deeds, documents or instruments delivered pursuant
to this Agreement, or by applicable bankruptcy, reorganization, insolvency, moratorium
and other laws affecting the enforcement of creditors' rights. |
| (f) | The
borrowing of money under this Agreement and the execution and delivery of this Agreement
do not require the consent or approval of, or registration of any other party. |
| | | |
| (g) | All
balance sheets, earnings statements and other financial data, which have been or shall
be furnished to the Lender to induce the Lender to enter into this Agreement or otherwise
in connection with this Agreement have been or will be prepared in accordance with generally
accepted accounting principles and do or will fairly present the financial condition
and the results of the operations, and all other information, certificates, schedules,
reports and other papers and data furnished to the Lender are or will be at the time
they are so furnished, accurate and complete in all material respects. |
| | | |
| (h) | The
Property is not in violation of any zoning, building, health, fire, traffic, environmental,
wetlands, coastal or other rules, regulations, ordinances, statutes and requirements
applicable thereto, and there are no outstanding work orders. |
| | | |
| (i) | No
hazardous material is now, or was formerly, used, stored, generated, manufactured, installed,
disposed of or otherwise present at or about the Property or any property adjacent to
the Property (except for cleaning and other products currently used in connection with
the routine maintenance or repair of the Property in full compliance with all federal,
provincial and local environmental laws (“Environmental Laws”)). |
| | | |
| (j) | All
permits, licenses, approvals and filings required by Environmental Laws have been obtained,
and the use, operation and condition of the Property do not, and did not previously,
violate any Environmental Laws. |
| | | |
| (k) | No
civil, criminal or administrative action, suit, claim, hearing, investigation or proceeding
has been brought or been threatened, nor have any settlements been reached by or with
any parties or any liens imposed in connection with the Property concerning hazardous
materials or Environmental Laws. |
| | | |
| (l) | It
has paid when due and in full all employee pensions and benefits payable by it, including
without limitation Workers’ Compensation Board premiums, Employer Health Tax premiums,
Canada Pension Plan contributions and Employment Insurance Commission premiums, and has
remitted when required and in full all source deductions for income tax, Canada Pension
Plan contributions and Employment Insurance Commission premiums of its employees and
all goods and services tax and retail sales tax paid and received by it. |
| (m) | All
realty taxes due have been paid in full. There are no pending or, to the Borrowers' best
knowledge, proposed, special or other assessments for public improvements or otherwise
affecting the Property, nor are there any contemplated improvements to the Property that
may result in such special or other assessments. |
| | | |
| (n) | As
of the date hereof, the only tenants of the Property are Trans Connect Logistics Inc.,
Butcher Industrial Finishings Inc., C & J Paving Ltd. and Pattison Outdoor Advertising
LP (by its general partner, Pattison Outdoor Advertising Ltd). All such leases are in
good standing with no defaults thereunder. |
| | | |
| (o) | All
tenants of the Property deal at arm’s length with the Borrower and 2264793 and
neither the Borrower nor 2264793 Ontario Inc., nor any of their respective agents or
affiliates have any written or unwritten lease or sublease in connection with the Property. |
| | | |
| (p) | No
tenant of the Property or any other party has an option to purchase all or any portion
of the Property. |
Each
of the Borrower and 2264793 covenants with the Lender that so long as any amounts advanced under the Loan together with interest
remain outstanding:
| (a) | It
will deliver financial statements and any other financial information or reports upon
request by the Lender. |
| | | |
| (b) | It
will permit any person designated by the Lender in writing to visit and inspect the Property,
corporate books and financial records and to discuss the affairs, finances and accounts
of the Borrower and 2264793 at all reasonable times and as often as the Lender may reasonably
request. |
| | | |
| (c) | It
will insure and keep insured all of its property with extended coverage against loss
or damage by fire, theft, collision or other insurance hazards commonly insured against
to the full insurable value. All insurance shall be maintained with an insurer or insurers
as may be approved by the Lender. The loss under all insurance will be payable to lenders
in order of priority and each policy will contain a mortgage clause providing for a minimum
of 15 days’ notice to the Lender of cancellation or lapse. |
| (d) | It
will give the Lender prompt written notice of any material adverse change in its business
or of any material loss, destruction or damage of or to any of its property. |
| | | |
| (e) | It
will pay or reimburse the Lender for all costs, charges and expenses (including legal
fees) of or incurred by the Lender in connection with this Agreement or any security
taken in pursuance of this Agreement, including all costs, charges and expenses in connection
with the recovery or enforcement of payment of moneys advanced under the Loan, together
with interest. |
| | | |
| (f) | It
will maintain at all times proper records and books of account and make true and correct
entries in the records of all dealings and transactions relating to its business. |
| | | |
| (g) | It
will do, observe and perform all of its obligations and all matters and things necessary
or expedient to be done, observed or performed under any law or regulation of Canada,
the Province of Ontario, or any other province where its assets may be located, or any
municipality, for the purpose of creating and maintaining the security provided for in
this Agreement. |
| | | |
| (h) | It
will give the Lender written notice of any event of default immediately on the occurrence
of such an event. |
| | | |
| (i) | It
will give the Lender written notice of the occurrence of any material litigation, proceeding
or dispute affecting the Borrower and will provide to the Lender all reasonable information
requested by the Lender concerning the status of the litigation, proceeding or dispute. |
| | | |
| (j) | If
the Borrower or 2264793 receives additional financing or funding, including but not limited
to from a loan or line of credit then such funds shall be used to prepay the Loan. |
Each
of the Borrower and 2264793 covenants with the Lender that it will not, without the prior written consent of the Lender:
| (a) | Redeem,
purchase or otherwise acquire, either directly or indirectly any of its shares, or declare
or pay any dividend on any of its shares of whatever class, or in any other manner make
payments to its shareholders except for usual remuneration or reimbursement in respect
of employment. |
| | | |
| (b) | Lend
money to, invest in, or become contingently liable by guarantee or otherwise for the
obligations of, any person, firm or body corporate. |
| (c) | Consolidate,
amalgamate or merge with any other corporation or acquire the shares or assets of any
corporation, firm or partnership, or sell, lease or transfer or otherwise dispose of
all or a substantial part of its assets. |
| | | |
| (d) | Enter
into any partnership, joint venture or similar agreement or arrangement with any other
person, firm or corporation. |
| | | |
| (e) | Create,
suffer or permit to exist any mortgage, pledge, lien, charge, assignment by way of security,
hypothecation, security interest, security agreement, trust or arrangement having the
effect of security, any type of preferential arrangement or other encumbrance of any
kind whether or not similar to the foregoing to exist on or with respect to its assets,
except those that already exist as of the date hereof. |
| | | |
| (f) | Enter
into any offer to lease, agreement to lease, lease, sublease, renewal of lease or sublease
in connection with the Property, including any parking agreements and storage space leases. |
The
principal advanced under the Loan and all interest payable together with all of the moneys payable pursuant to this Agreement
shall, at the option of the Lender, become immediately due and payable and any security held by the Lender for the payment thereof
shall, at the option of the Lender, become immediately enforceable and the Lender may exercise its rights under Section 8 herein,
in each and every of the following events (each an “Event of Default”):
| (a) | If
the Borrower defaults in the repayment of any instalment of principal or interest under
the Loan when it becomes due and payable. |
| | | |
| (b) | If
the Borrower fails to perform or observe any of the covenants contained in this Agreement
or in any of the security delivered pursuant to this Agreement and any failure shall
not be remedied within 10 days following notice being given to the Borrower. |
| | | |
| (c) | If
any representation, warranty, certificate, statement or report made in connection with
this Agreement or in connection with advances under the Loan is false or erroneous in
any material respect. |
| | | |
| (d) | If
any indebtedness of the Borrower or 2264793 for liabilities other than to the Lender
becomes due prior to the stated maturity date, unless and to the extent that the same
shall be contested in good faith and by appropriate proceedings. |
| (e) | If
the Borrower becomes insolvent or bankrupt or subject to the provisions of the Bankruptcy
and Insolvency Act (Canada), or goes into liquidation, either voluntarily or under
an order of a court of competent jurisdiction, or makes a general assignment for the
benefit of its creditors or otherwise acknowledges itself insolvent. |
| | | |
| (f) | If
the Borrower removes from the Province of Ontario or sells any material part of its undertaking,
property and assets. |
| | | |
| (g) | If
the Borrower abandons all or any part of its undertaking and property and assets or ceases
or threatens to cease to carry on its business, or threatens to commit any act of bankruptcy. |
| | | |
| (h) | If
any execution, sequestration, extent, or any other process of any court becomes enforceable
against the Borrower or if a distress or analogous process is levied on the property
and assets of the Borrower, and the execution, sequestration, extent, distress or process,
remains unsatisfied for a period as would permit the property or a part of it to be sold. |
| | | |
| (i) | If
there is a default under the first mortgage loan registered against the Property as Instrument
No. PR2560468, and transferred pursuant to Instrument No. PR2566032 (the “First
Mortgage”). |
| (a) | Upon
the occurrence of an Event of Default or upon the extension of the term of the Loan pursuant
to any Extension described in Section 2(e), the Lender, shall have the immediate right
to purchase the Property from 2264793 for the sum of $9,400,000 CDN (the “Option
to Purchase”). |
| | | |
| (b) | The
Lender and 2264793 will enter into a form of purchase agreement for the Option to Purchase
by December 5, 2014. Failure to agree to the form of purchase agreement by December 5,
2014 will be considered a Event of Default under this Agreement. |
| | | |
| (c) | If
the Lender chooses to exercise the Option to Purchase then the Lender shall deliver written
notice to the Borrower and upon delivery of such notice the purchase agreement shall
be released from escrow and become immediately effective. |
| (a) | The
Borrower covenants that it will execute or cause to be made, done or executed, all further
and lawful acts, deeds, things, devices, conveyances and assurances whatsoever for effecting
the purposes and intent of this Agreement as counsel for the Lender shall reasonably
advise or request. |
| | | |
| (b) | The
Lender may from time to time appropriate any moneys received by it from the Borrower
or from the proceeds of security given by the Borrower in or towards payment of the liabilities
intended to be secured, as it in its sole discretion may see fit and the Borrower shall
not have the right to require any other appropriation, and it is agreed that the taking
of a judgment or judgments or any other action or dealing whatsoever by the Lender with
respect to the securitites shall not operate as a merger of any debt owing by the Borrower
to the Lender or any part. |
| | | |
| (c) | Notice
to be given shall be in writing and be delivered by courier to the following addresses
(effective on the date of delivery): |
| (i) | As
to the Borrower or 2264793: |
| | | |
| (ii) | As
to the Lender: |
489
South Riverview Drive, Totowa, New Jersey 07512
Attention: Joseph R. Prestifilippo
with
a copy to:
Gardiner Roberts LLP
40
King Street West, Suite 3100
Toronto, ON M5H 3Y2
Attention: David Epstein
or
any other addresses as the parties from time to time may notify the other.
| (d) | This
Agreement and all other agreements, security and documents to be delivered in connection
with this Agreement shall be governed by and construed in accordance with the applicable
laws of the Province of Ontario and of Canada. |
| | | |
| (e) | This
Agreement shall be binding on and enure to the benefit of the Borrower, the Lender and
their respective successors and assigns, except that the Borrower shall not, without
the prior written consent of the Lender, assign any rights or obligations with respect
to this Agreement. The Lender may transfer, assign or grant participation in its rights
and obligations with respect to this Agreement. |
| (f) | Any
provision of this Agreement which is or becomes prohibited or unenforceable in any jurisdiction
shall not invalidate or impair the remaining provisions of this Agreement which shall
be deemed severable from the prohibited or unenforceable provision and any prohibition
or unenforceability in any jurisdiction shall not invalidate or render unenforceable
that provision in any other jurisdiction. |
| | | |
| (g) | No
amendment supplement or waiver of any provision of this Agreement or any other agreements
provided for or contemplated, nor any consent to any departure by the Borrower, shall
in any event be effective unless it shall be in writing and signed by the Lender and
then the waiver or consent shall be effective only in the specific instance for the specific
purpose for which it has been given. |
| | | |
| (h) | No
waiver or act or omission of the Lender shall extend to or be taken in any manner whatsoever
to affect any subsequent event of default or breach by the Borrower of any provision
of this Agreement or the results or the rights resulting from it. |
| | | |
| (i) | Time
shall be of the essence of this Agreement. |
| | | |
| (j) | This
Agreement shall remain in full force and effect until the payment and performance in
full of all of the Borrower's obligations under this Agreement. |
| | | |
| (k) | This
Agreement constitutes the entire agreement among the parties and cancels and supersedes
any prior agreements, undertakings, declarations or representations, written or verbal
in respect of it. |
[SIGNATURE
PAGES FOLLOWS]
IN
WITNESS OF WHICH the
parties
have caused this
Agreement
to be
executed
by their
respective
officers
duly
authorized.
| |
CANADIAN
CANNABIS CORP. |
| |
|
|
| |
Per: |
/s/
John Esteireiro |
| |
Name: |
John
Esteireiro |
| |
Title: |
Chief
Operating Officer |
| |
|
|
| |
Per: |
/s/
Benjamin Ward |
| |
Name: |
Benjamin
Ward |
| |
Title: |
President
& CEO |
| |
|
|
| |
I/We
have authority to
bind the Corporation |
| |
|
| |
CANADIAN CANNABIS CORP. |
| |
|
|
| |
Per: |
/s/
John Esteireiro |
| |
Name: |
John
Esteireiro |
| |
Title: |
Chief
Operating Officer |
| |
|
|
| |
Per: |
/s/
Benjamin Ward |
| |
Name: |
Benjamin
Ward |
| |
Title: |
President
& CEO |
| |
|
|
| |
I/We
have authority to
bind the Corporation |
| |
|
| |
2264793 ONTARIO INC. |
| |
|
|
| |
Per: |
/s/
Scott Keevil |
| |
Name: |
Scott
Keevil |
| |
Title: |
|
| |
|
|
| |
Per: |
/s/
Benjamin Ward |
| |
Name: |
Benjamin
Ward |
| |
Title: |
Secretary |
| |
|
|
| |
I/We
have authority to bind the Corporation |
SIGNATURE
PAGE TO LOAN AGREEMENT
| |
|
| |
CRIMSON
CAPITAL, LLC |
| |
|
|
| |
Per: |
/s/
Stephen R. Malley |
| |
Name: |
Stephen
R. Malley |
| |
Title: |
Managing
Member |
| |
|
|
| |
Per: |
|
| |
Name: |
|
| |
Title: |
|
| |
|
|
| |
I/We
have authority to bind the Corporation |
SIGNATURE
PAGE TO LOAN AGREEMENT
S-2
Exhibit 10.3
REFERRAL
FEE AGREEMENT
This
Referral Fee Agreement, dated as of November 1, 2014 (the "Agreement"), is entered into by and between Canadian
Cannabis Corp., a Delaware corporation having its principal place of business at 100 Rutherford Road South, Brampton , Ontario
L6W 212 ("Company"), and Crimson Capital Investments, LLC, a Corporation having its principal place of business
at 489 Riverview Drive, Totowa, NJ 07512 ("Finder", and together with Company, the "Parties",
and each, a "Party").
WHEREAS,
Company is in the startup phase of its business seeking a second mortgage on commercial property owned by the Company ("Investments")
from individuals or institutions; and
WHEREAS,
Company desires to engage Finder to introduce to Company any potential investor or lender leads who make an Investment ("Investors"),
and Finder desires to accept such engagement.
NOW,
THEREFORE, in consideration of the premises set forth above and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Parties agree as follows:
1. Engagement.
(a) Company hereby engages Finder, and Finder hereby accepts such engagement, to act as Company's
non-exclusive finder with respect to Investors to make Investments during the Term, solely in accordance with the terms and conditions
of this Agreement. Company may in its sole discretion engage any other person or company to also find Investors.
Finder
shall introduce Company to Investors, and perform such other responsibilities as reasonably directed by Company, including forwarding
investment literature, but shall not be required to participate in any meetings or negotiations nor have authority to offer or
sell Investments to any Investor.
(b) The
prices, terms and conditions under which Company shall agree to mortgage shall be determined by Company in its sole discretion.
Company shall have the authority to control all discussions and negotiations regarding any proposed or actual offering or sale
of Investments. Nothing in this Agreement shall obligate Company to consummate any transaction with any Investor. Company may
terminate any negotiations or discussions at any time and has the right not to proceed without any liability or obligation to
pay compensation to Finder under Section 2 or otherwise.
(c) Finder shall defend, indemnify and hold harmless Company, and any of its directors, officers or shareholders, against any and
all losses, damages, liabilities, deficiencies, claims, actions, judgments, settlements, interest, awards, penalties, fines, costs,
or expenses of whatever kind, including reasonable attorney fees, fees and the costs of enforcing any right to indemnification
under this Agreement, incurred by Company, arising out or resulting from any claim of a third party related to its obligations
under this Agreement.
2. Compensation.
In consideration for the services rendered by Finder hereunder, Company shall pay to Finder a ("Finder's Fee")
on the completion of a $600,000 Second Mortgage. A Finder's Fee in the amount of 100,000 common shares of the Company will be
paid.
3. Independent
Contractor. Finder is an independent contractor of Company, and this Agreement shall not be construed to create any association,
partnership, joint venture, employee or agency relationship between Finder and Company for any purpose. Finder has no authority
(and shall not hold itself out as having authority) to bind Company and Finder shall not make any agreements or representations
on Company's behalf without Company's prior written consent. Without limiting the above, Finder will not be eligible to participate
in any vacation, group medical or life insurance, disability, profit sharing or retirement benefits or any other fringe benefits
or benefit plans offered by Company to its employees, and Company will not be responsible for withholding or paying any income,
payroll, Social Security or other federal, state or local taxes, making any insurance contributions, including unemployment or
disability, or obtaining worker's compensation insurance on Finder's behalf. Finder shall be responsible for, and shall indemnify
Company against, all such taxes or contributions, including penalties and interest. Any persons employed or engaged by Finder
in connection with the performance of Finder's obligations hereunder shall be Finder's employees or contractors and Finder shall
be fully responsible for them and indemnify Company against any claims made by or on behalf of any such employees or contractors.
4. Confidentiality.
All non-public, confidential or proprietary information of Company, including, but not limited to, specifications, samples, patterns,
designs, plans, drawings, documents, data, business operations, customer lists, pricing, discounts or rebates, disclosed by Company
to Finder, whether disclosed orally or disclosed or accessed in written, electronic or other form or media, and whether or not
marked, designated or otherwise identified as "confidential," in connection with this Agreement, as well as the terms
and conditions and the existence of this Agreement is confidential, solely for the use of performing this Agreement and may not
be disclosed or copied unless authorized by Company in writing. Upon Company's request, Finder shall promptly return all documents
and other materials received from Company. Company shall be entitled to injunctive relief for any violation of this Section
4. This section shall not apply to information that is: (a) in the public domain; (b) known to the Finder at the time
of disclosure; or (c) rightfully obtained by the Finder on a non-confidential basis from a third party.
5. Term
and Termination.
(a) The
term of this Agreement commences on the date of this Agreement and continues for a period of two months, unless and until earlier
terminated as provided under this Agreement (the "Term").
(b) In
addition to any remedies that may be provided in this Agreement, either Party may terminate this Agreement with immediate effect
upon Notice to the other party, if the other party: (i) fails to pay any amount when due under this Agreement; (ii) has not otherwise
performed or complied with any of the terms of this Agreement, in whole or in part; or (iii) becomes insolvent, files a petition
for bankruptcy or commences or has commenced against it proceedings relating to bankruptcy, receivership, reorganization or assignment
for the benefit of creditors.
6. Miscellaneous.
(a) All
notices, requests, consents, claims, demands, waivers, summons and other legal process, and other similar types of communications
hereunder (each, a "Notice") must be in writing and addressed to the relevant Party at the address set forth on the
first page of this Agreement (or to such other address that may be designated by the receiving Party from time to time in accordance
with this Section 6(a)). All Notices must be delivered by personal delivery, nationally recognized overnight courier (with
all fees pre-paid), or certified or registered mail (in each case, return receipt requested, postage prepaid). A Notice is effective
only (i) upon receipt by the receiving Party and (ii) if the Party giving the Notice has complied with the requirements of this
Section 6(a).
(b) This
Agreement and all matters arising out of or relating to this Agreement are governed by, and construed in accordance with, the
laws of the State of Delaware, without regard to the conflict of laws provisions of such State. Any legal suit, action or proceeding
arising out of or relating to this Agreement must be instituted in the federal courts of the United States of America or the courts
of the State of Delaware, in each case located in the City of Wilmington and County of New Castle, and each Party irrevocably
submits to the exclusive jurisdiction of such courts in any such suit, action or proceeding. Service of process, summons, notice
or other document by certified mail in accordance with Section 6(a) will be effective service of process for any suit,
action or other proceeding brought in any such court.
(c) This
Agreement, and each of the terms and provisions hereof, may only be amended, modified, waived or supplemented by an agreement
in writing signed by each Party.
(d) Finder
shall not assign, transfer, delegate or subcontract any of its rights or obligations under this Agreement without the prior
written consent of Company. Any purported assignment or delegation in violation of this Section shall be null and void.
Company may at any time assign, transfer or subcontract any or all of its rights or obligations under this Agreement without
Finder's prior written consent. This Agreement will inure to the benefit of and be binding upon each of the Parties and each
of their respective permitted successors and permitted assigns.
(e) This Agreement may be executed in counterparts,
each of which is deemed an original, but all of which together constitutes one and the same agreement. Delivery of an executed
counterpart of this Agreement electronically or by facsimile shall be effective as delivery of an original executed counterpart
of this Agreement.
(f) If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality
or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such
term or provision in any other jurisdiction.
(g) This Agreement constitutes the sole and entire agreement of the Parties with respect to the subject
matter contained herein, and supersedes all prior and contemporaneous understandings, agreements, representations and warranties,
both written and oral, with respect to such subject matter.
(h) The parties do not confer any rights or remedies upon any person other than the Parties and their
respective successors and permitted assigns.
EXECUTED
AND DELIVERED by the Parties as of the date first written above.
| |
Canadian Cannabis Corp. |
| |
|
|
| |
By |
/s/ Ben Ward |
| |
Name: |
Ben Ward |
| |
Title: |
CEO |
| |
|
|
| |
Crimson Capital Investments, LLC |
| |
|
|
| |
By |
/s/ Joseph Prestifilippo |
| |
Name: |
Joseph Prestifilippo |
| |
Title: |
Managing Member |
4
Exhibit 10.4
PROMISSORY
NOTE
| $CDN
4,953,160.42 |
DATE:
December 31, 2014 |
DUE
DATE: On or before December 31, 2015 unless otherwise extended by the parties.
FOR
VALUE RECEIVED, 2264793 ONTARIO INC. promises to pay to CANADIAN CANNABIS CORP., the sum of $CDN
4,953,160.42, together with interest at 0% per annum on the outstanding balance of the principal sum owing.
The
undersigned hereby expressly waives presentment for payment, protest, notice of protest, demand for payment and notice of non-payment.
Notice given to, or security taken from or release of any security or composition or arrangement entered into with any party hereto
shall not prejudice the rights of the holder to proceed against any other party.
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2264793
ONTARIO INC. |
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|
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By: |
/s/
Benjamin Ward |
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|
Benjamin
Ward, Secretary |
Exhibit
10.5
SECURITY
AGREEMENT
This Security
Agreement (the “Agreement”) is made and effective March 31, 2014,
| BETWEEN: |
Canada
Cannabis Corp. (the "Secured Party"), a corporation organized and existing under the laws of the Province of
Ontario, with its head office located at: |
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|
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100
Rutherford Rd. South
Brampton,
Ontario L6W 3J5 |
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| AND: |
2393245
Ontario Inc. c.o.b. Growlite Canada (the "Debtor"), a corporation organized and existing under the laws of the
Province of Ontario, with its head office located at: |
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|
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155
Caster Avenue
Woodbridge,
Ontario L4L 5Y8 |
For
value received, the undersigned Debtor, promises to pay to the order of Canada Cannabis Corp., together with any other holder
of this Loan (“Secured Party”), 3,000,000, with interest at the rate of 2% per annum. Payment shall be made in successive
equal quarterly installments of 15,000. Each such Installment is payable on the 1stday of each quarter, commencing on July 1,
2014.
Recitals
WHEREAS,
the Secured Party has extended to the Debtor a certain loan as evidenced by a certain loan agreement, in the original principal
amount equal to 3,000,000 dated on even date herewith (the "Loan"); and
WHEREAS,
the Debtor wishes to grant a first priority security interest in and to all of the Debtor’s tangible and intangible personal
property pursuant to the terms hereof;
NOW,
THEREFORE, for and in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, and intending to be legally bound hereby, the parties hereto covenant and agree as follows:
The following
terms shall have the meanings herein specified unless the context otherwise requires. Such definitions shall be equally applicable
to the singular and plural forms of the terms defined:
"Contracts"
shall mean all contracts between the Debtor and one or more additional parties.
"Contract
Rights" shall mean all rights of the Debtor (including, without limitation, all rights to payment) under each Contract.
"Copyrights"
shall mean any Canadian copyright to which the Debtor now or hereafter has title, as well as any application for a Canadian
copyright hereafter made by the Debtor.
"Equipment"
shall mean any "equipment," now or hereafter owned by Debtor and, in any event, shall include, but shall not be
limited to, all machinery, equipment, furnishings, fixtures and vehicles now or hereafter owned by the Debtor and any and all
additions, substitutions and replacements of, any of the foregoing, wherever located, together with all attachments, components,
parts, equipment and accessories installed thereon or affixed thereto.
"General
Intangibles" shall have the meaning assigned that term under Canadian Law as in effect on the date hereof in the Province
of Ontario.
"Goods"
shall have the meaning assigned that term under Canadian Law as in effect on the date hereof in the Province of Ontario.
"Inventory"
shall mean all raw materials, work in process, and finished inventory of the Debtor of every type or description and all documents
of title covering such inventory, and shall specifically include all "inventory" as such term is defined in Canadian
Law as in effect on the date hereof in the Province of Ontario, now or hereafter owned by the Debtor.
"Marks"
shall mean any trademarks and service marks now held or hereafter acquired by the Debtor, which are registered in the Canadian
Patent and Trademark Office, as well as any unregistered marks used by the Debtor in the Canadian and trade dress, including logos
and/or designs, in connection with which any of these registered or unregistered marks are used.
"Obligations"
shall mean: (i) all indebtedness, obligations and liabilities (including, without limitation, guarantees and other contingent
liabilities) of the Debtor to the Secured Party, including but not limited to the Loan; (ii) any and all sums advanced by the
Secured Party in order to preserve the Collateral or preserve its security interest in the Collateral; and (iii) in the event
of any proceeding for the collection or enforcement of any indebtedness, obligations or liabilities of the Debtor referred to
in clause (i), after an Event of Default shall have occurred and be continuing, the reasonable expenses of retaking, holding,
preparing for sale or lease, selling or otherwise disposing or realizing on the Collateral, or of any exercise by the Collateral
Agent of its rights hereunder, together with reasonable attorneys' fees and court costs.
"Patents"
shall mean any Canadian patent to which the Debtor now or hereafter has title, as well as any application for a Canadian patent
now or hereafter made by Debtor.
"Proceeds"
shall have the meaning assigned that term under Canadian Law as in effect in the Province of Ontario on the date hereof or
under other relevant law and, in any event, shall include, but not be limited to, (i) any and all proceeds of any insurance, indemnity,
warranty or guaranty payable to the Secured Party or the Debtor from time to time with respect to any of the Collateral, (ii)
any and all payments (in any form whatsoever) made or due and payable to the Debtor from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any governmental authority and (iii)
any and all other amounts from time to time paid or payable under or in connection with any of the Collateral.
"Receivables"
shall mean any "account" as such term is defined in Canadian Law as in effect on the date hereof in the Province
of Ontario, now or hereafter owned by Debtor and, in any event, shall include, but shall not be limited to, all of the Debtor's
rights to payment for goods sold or leased or services performed by the Debtor, whether now in existence or arising from time
to time hereafter, including, without limitation, rights evidenced by an account, Loan, contract, security agreement, or other
evidence of indebtedness or security, together with (i) all security pledged, assigned, hypothecated or granted to or held by
the Debtor to secure the foregoing; (ii) all of the Debtor's right, title and interest in and to any goods, the sale of which
gave rise thereto; (iii) all guarantees, endorsements and indemnifications on, or of, any of the foregoing; (iv) all powers of
attorney for the execution of any evidence of indebtedness or security or other writing in connection therewith; (v) all books,
records, ledger cards and invoices relating thereto; (vi) all evidences of the filing of financing statements and other statements
and the registration of other instruments in connection therewith and amendments thereto, notices to other creditors or secured
parties, and certificates from filing or other registration officers; (vii) all credit information, reports and memoranda relating
thereto and (viii) all other writings related in any way to the foregoing.
| 1. |
2. |
GRANT OF SECURITY
INTEREST |
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A. |
A. The Debtor does hereby grant to the Secured Party a continuing security interest of first priority in all of the right, title
and interest of the Debtor in, to and under all of the following property whether now existing or hereafter created or arising: |
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i. |
i. All of the right, title and interest of the Debtor in, to and under all of the tangible and intangible property owned or possessed
by the Debtor, including but not limited to the following, whether now existing or hereafter from time to time acquired: (a)
each and every Receivable from services rendered by the Debtor or any business owned or operated by the Debtor; (b) all Contracts
related to any business activities of the Debtor and any business owned by the Debtor, together with all Contract Rights arising
thereunder; (c) all Inventory; (d) all Equipment; (e) all Marks, together with the registrations and right to all renewals
thereof, and the goodwill of the business of the Debtor symbolized by the Marks; (f) all Patents and Copyrights created at
or used by the Debtor; (g) all computer programs of the Debtor and all intellectual property rights therein and all other
proprietary information of the Debtor, including, but not limited to, trade secrets; (h) all other Goods, General Intangibles,
Chattel paper, Documents and Instruments of the Debtor; and (i) all Proceeds, accessions and products of any and all of the
foregoing; (all of the above, collectively, the "Collateral"). |
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i. |
ii. The security interest of the Creditor under this Agreement extends to all Collateral of the kind described in preceding
clause (a) which the Debtor may acquire at any time during the continuation of this Agreement. |
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A. |
B.
The Debtor hereby constitutes and appoints the Secured Party its true and lawful attorney, irrevocably, with full power after
the occurrence of an Event of Default (in the name of the Debtor or otherwise) to act, require, demand, receive, compound
and give acquittance for any and all monies and claims for monies due or to become due to the Debtor under or arising out
of the Collateral, to endorse any checks or other instruments or orders in connection therewith and to file any claims or
take any action or institute any proceedings which the Secured Party may deem to be necessary or advisable in the premises,
which appointment as attorney is coupled with an interest. |
| 1. |
3. |
DEBTOR’S
REPRESENTATIONS, WARRANTIES AND COVENANTS |
The Debtor
represents and warrants to, and covenants with, the Secured Party, which representations, warranties and covenants shall survive
execution and delivery of this Agreement, as follows:
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A. |
A.
All filings, registrations and recordings necessary or appropriate to create, preserve, protect and perfect the security interest
granted by the Debtor to the Secured Party hereby in respect of the Collateral have been accomplished and the security interest
granted to the Secured Party pursuant to this Agreement in and to the Collateral constitutes a valid and enforceable perfected
security interest therein superior and prior to the rights of all other Persons therein and subject to no other Liens and
is entitled to all the rights, priorities and benefits afforded by Canadian law or other relevant law as enacted in any relevant
jurisdiction to perfected security interests. The Secured Party is, and as to Collateral acquired by it from time to time
after the date hereof the Secured Party will be, the owner of all Collateral free from any Lien or other right, title or interest
of any, and the Debtor shall defend the Collateral against all claims and demands of all Persons at any time claiming the
same or any interest therein adverse to the Secured Party. There is no financing statement covering or purporting to cover
any interest of any kind in the, and so long as the Obligations remain unpaid, the Debtor will not execute or authorize to
be filed in any public office any financing statement (or similar statement or instrument of registration under the law of
any jurisdiction) or statements relating to the Collateral, except financing statements filed or to be filed in respect of
and covering the security interests granted hereby by the Debtor. |
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A. |
B.
The Debtor has full right, power and authority to execute and deliver this Security Agreement and to grant the security interest
in the Collateral as provided herein. |
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A. |
C.
The execution, delivery and performance of this Security Agreement has been duly authorized by all necessary corporate action.
This Security Agreement has been duly executed and delivered by the Debtor and constitutes the legal, valid and binding obligation
of the Debtor enforceable against the Debtor in accordance with its terms, except as may be limited by bankruptcy, reorganization,
insolvency, moratorium, or other similar laws from time to time in effect affecting creditor's rights generally and by principles
governing the availability of equitable remedies, and the grant of the security interest in the Collateral existing on the
date hereof constitutes, and, as to subsequently acquired Collateral, will constitute, a valid and perfected first and prior
security interest, superior to the rights of any other person, in and to the Collateral. |
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A. |
D.
All Assets held on the date hereof by the Debtor are located at the address first set forth above and shall not be removed
from such location. The Debtor agrees that all Inventory and Equipment now held or subsequently acquired by it shall be kept
at such address or at the Secured Parties address. |
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A. |
E.
This Agreement is made with full recourse to the Debtor and pursuant to and upon all the warranties, representations, covenants
and agreements on the part of the Debtor contained herein. |
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A. |
F.
The Debtor will keep and maintain at its own cost and expense satisfactory and complete records of its Receivables and Contracts,
including, but not limited to, the originals of all documentation (including each Contract) with respect thereto, records
of all payments received, all credits granted thereon, all merchandise returned and all other dealings therewith, and following
default hereunder, the Debtor will make the same available to the Secured Party for inspection, at the Debtor's own cost and
expense, at any and all reasonable times upon demand. |
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A. |
G.
Upon the occurrence of an Event of Default and if the Secured Party so directs, the Debtor agrees (i) to cause all payments
on account of the Receivables and Contracts to be made directly to such account as Secured Party shall request and (ii) that
the Secured Party may, at its option, directly notify the obligors with respect to any Receivables and/or under any Contracts
to make payments with respect thereto as provided in preceding clause (i). Without notice to or assent by the Debtor, the
Secured Party may apply any or all amounts then in, or thereafter deposited in any account designated by Secured Party. The
costs and expenses (including, without limitation, attorneys' fees) of collection, whether incurred by the Debtor or the Secured
Party, shall be borne by the Debtor. |
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A. |
H.
Debtor shall not rescind or cancel any indebtedness evidenced by any Receivable or under any Contract, or modify any term
thereof or make any adjustment with respect thereto, or extend or renew the same, or compromise or settle any dispute, claim,
suit or legal proceeding relating thereto, or sell any Receivable or Contract, or interest therein. The Debtor will duly fulfill
all obligations on its part to be fulfilled under or in connection with the Receivables and Contracts and will do nothing
to impair the rights of the Secured Party in the Receivables or Contracts. |
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A. |
I.
Debtor will promptly pay when due all taxes and assessments upon the Collateral or for its own use and operation or upon this
Security Agreement or upon the Loans evidencing the Obligations. |
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A. |
J.
Other than in the ordinary course of Debtor’s business, Debtor shall not sell, transfer, lease, or otherwise dispose
of any of the Collateral or any interest therein, or offer to do so, without the prior written consent of the Secured Party. |
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A. |
K.
The Debtor will do nothing to impair the rights of the Secured Party in the Collateral. The Debtor will at all times keep
its Inventory and Equipment insured in favor of the Secured Party, at its own expense, to the Secured Party's reasonable satisfaction
against fire, theft and all other risks to which such Collateral may be subject; all policies or certificates with respect
to such insurance shall be endorsed to the Secured Party's satisfaction for the benefit of the Secured Party (including, without
limitation, by naming the Secured Party as loss payee) and deposited with the Secured Party. If the Debtor shall fail to insure
such Inventory and Equipment to the Secured Party's reasonable satisfaction, or if the Debtor shall fail to so endorse and
deposit all policies or certificates with respect thereto, the Collateral Agent shall have the right (but shall be under no
obligation) to procure such insurance and the Debtor agrees to reimburse the Secured Party for all costs and expenses of procuring
such insurance. The Secured Party may apply any proceeds of such insurance when received by it toward the payment of any of
the Obligations to the extent the same shall then be due. The Debtor assumes all liability and responsibility in connection
with the Collateral acquired by it and the liability of the Debtor to pay its Obligations shall in no way be affected or diminished
by reason of the fact that such Collateral may be lost, destroyed, stolen, damaged or for any reason whatsoever unavailable
to the Debtor. |
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A. |
L.
The Debtor agrees to assign and deliver to the Secured Party such financing statements, in form acceptable to the Secured
Party, as the Secured Party may from time to time reasonably request or as are necessary or desirable in the opinion of the
Secured Party to establish and maintain a valid, enforceable, first priority security interest in the Collateral as provided
herein and the other rights and security contemplated herein, all in accordance with Canadian Law as enacted in any and all
relevant jurisdictions or any other relevant law. The Debtor will pay any applicable filing fees and related expenses. The
Debtor authorizes the Secured Party to file any such financing statements without the signature of the Debtor. The Debtor
hereby constitutes and appoints the Secured Party its attorney in fact for the purpose of carrying out the provisions of this
Security Agreement and taking any action and executing any instrument which the Secured Party may deem necessary or advisable
to accomplish the purposes hereof, which appointment is irrevocable and coupled with an interest. |
The Debtor
agrees that, if any Event of Default shall have occurred and be continuing, then and in every such case, subject to any mandatory
requirements of applicable law then in effect, the Collateral Agent, in addition to any rights now or hereafter existing under
applicable law, shall have all rights as a secured creditor under Canadian Law in all relevant jurisdictions and may:
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A. |
A.
Declare all Obligations secured hereunder, or any of them (notwithstanding any provision thereof), to be immediately due and
payable without demand or notice. |
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A. |
B.
Personally, or by agents or attorneys, immediately retake possession of the Collateral or any part thereof, from the Debtor
or any other Person who then has possession of any part thereof with or without notice or process of law, and for that purpose
may enter upon the Debtor's premises where any of the Collateral is located and remove the same and use in connection with
such removal any and all services, supplies, aids and other facilities of the Debtor; |
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A. |
C.
Instruct the obligor or obligors on any agreement, instrument or other obligation (including, without limitation, the Receivables)
constituting the Collateral to make any payment required by the terms of such instrument or agreement directly to the Secured
Party; |
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A. |
D.
Sell, assign or otherwise liquidate, or direct the Debtor to sell, assign or otherwise liquidate, any or all of the Collateral
or any part thereof, and take possession of the proceeds of any such sale or liquidation; and |
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A. |
E.
Take possession of the Collateral or any part thereof, by directing the Debtor in writing to deliver the same to the Secured
Party at any place or places designated by the Secured Party, in which event the Debtor shall at its own expense: (i) forthwith
cause the same to be moved to the place or places so designated by the Secured Party and there delivered to the Secured Party,
(ii) store and keep any Collateral so delivered to the Secured Party at such place or places pending further action by the
Secured Party as provided herein, and (iii) while the Collateral shall be so stored and kept, provide such guards and maintenance
services as shall be necessary to protect the same and to preserve and maintain them in good condition; it being understood
that the Debtor's obligation so to deliver the Collateral is of the essence of this Agreement and that, accordingly, upon
application to a court having jurisdiction, the Collateral Agent shall be entitled to a decree requiring specific performance
by the Debtor of said obligation. |
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A. |
F.
Any Collateral repossessed by the Secured Party under or pursuant hereto, and any other Collateral whether or not so repossessed
by the Secured Party, may be sold, assigned, leased or otherwise disposed of under one or more contracts or as an entirety,
and without the necessity of gathering at the place of sale the property to be sold, and in general in such manner, at such
time or times, at such place or places and on such terms as the Secured Party may, in compliance with any mandatory requirements
of applicable law, determine to be commercially reasonable. Any of the Collateral may be sold, leased or otherwise disposed
of, in the condition in which the same existed when taken by the Secured Party or after any overhaul or repair which the Secured
Party shall determine to be commercially reasonable. |
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A. |
G.
Except as otherwise provided in this Agreement, THE DEBTOR HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, NOTICE
AND JUDICIAL HEARING IN CONNECTION WITH THE SECURED PARTY'S TAKING POSSESSION OR THE SECURED PARTY'S DISPOSITION OF ANY OF
THE COLLATERAL, INCLUDING, WITHOUT LIMITATION, ANY AND ALL PRIOR NOTICE AND HEARING FOR ANY PREJUDGMENT REMEDY OR REMEDIES,
and the Debtor hereby further waives, to the extent permitted by law: All damages occasioned by such taking of possession
except any damages which are the direct result of the Secured Party's gross negligence or willful misconduct; All other requirements
as to the time, place and terms of sale or other requirements with respect to the enforcement of the Secured Party's rights
hereunder; and All rights of redemption, appraisement, valuation, stay, extension or moratorium now or hereafter in force
under any applicable law in order to prevent or delay the enforcement of this Agreement or the absolute sale of the Collateral
or any portion thereof, and the Debtor, for itself and all who may claim under it, insofar as it or they now or hereafter
lawfully may, hereby waives the benefit of all such laws. Any sale of, or the grant of options to purchase, or any other realization
upon, any Collateral shall operate to divest all right, title, interest, claim and demand, either at law or in equity, of
the Debtor therein and thereto, and shall be a perpetual bar both at law and in equity against the Debtor and against any
and all Persons claiming or attempting to claim the Collateral so sold, optioned or realized upon, or any part thereof, from,
through and under the Debtor. |
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A. |
H.
Charge Debtor with all expenses of retaking, holding, preparing for sale, selling, collecting, filing applicable actions,
including but not limited to attorney fees and costs. |
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A. |
I.
The proceeds of any Collateral obtained or disposed of pursuant hereto shall be applied as follows: |
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i. |
i.
To the payment of any and all expenses and fees (including, without limitation, reasonable attorneys' fees) incurred by the
Secured Party in obtaining, taking possession of, removing, insuring, repairing, storing and disposing of Collateral and any
and all amounts incurred by the Secured Party in connection therewith; |
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i. |
ii.
Next, any surplus then remaining to the payment of the Obligations in the following order of priority: (a) all interest accrued
and unpaid; (b) the principal amount owing on the Loans; (c) the fees than owing to the Agent; and (d) all other Obligations
then owing; and |
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i. |
iii.
If the Total Commitment is then terminated and no other Obligation is outstanding, any surplus then remaining shall be paid
to the Debtor, subject, however, to the rights of the holder of any then existing Lien of which the Secured Party has actual
notice (without investigation); it being understood that the Debtor shall remain liable to the extent of any deficiency between
the amount of the proceeds of the Collateral and the aggregate amount of the sums referred to in this Article 4. |
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A. |
J.
No failure or delay on the part of the Secured Party or any holder of any Loan in exercising any right, power or privilege
hereunder and no course of dealing between the Debtor and the Secured Party or the holder of any Obligation shall operate
as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, power or privilege hereunder. The rights, powers and remedies
herein expressly provided are cumulative and not exclusive of any rights, powers or remedies which the Secured Party or the
holder of any Obligation would otherwise have. No notice to or demand on the Debtor in any case shall entitle the Debtor to
any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Secured
Party or the holder of any Obligation to any other or further action in any circumstances without notice or demand. |
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A. |
K.
In case the Secured Party shall have instituted any proceeding to enforce any right, power or remedy under this Agreement
by foreclosure, sale, entry or otherwise, and such proceeding shall have been discontinued or abandoned for any reason or
shall have been determined adversely to the Secured Party, then and in every such case the Debtor, the Secured Party and each
holder of any of the Obligations shall be restored to their former positions and rights hereunder with respect to the Collateral
subject to the security interest created under this Agreement, and all rights, remedies and powers of the Secured Party shall
continue as if no such proceeding had been instituted. |
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A. |
A.
The Debtor agrees to indemnify, reimburse and hold the Secured Party, the holder of any Loan, and their respective officers,
directors, employees, representatives and agents (hereinafter in this Section referred to individually as "Indemnitee"
and collectively as "Indemnitees") harmless from any and all liabilities, obligations, losses, damages, penalties,
claims, actions, judgments, suits, costs, expenses or disbursements (including, without limitation, reasonable attorneys'
fees and expenses) of whatsoever kind or nature which may be imposed on, asserted against or incurred by any of the Indemnities
in any way relating to or arising out of this Agreement or the documents executed in connection herewith and therewith or
in any other way connected with the administration of the transactions contemplated hereby and thereby or the enforcement
of any of the terms of or the preservation of any rights under any thereof, or in any way relating to or arising out of the
manufacture, ownership, ordering, purchase, delivery, control, acceptance, lease, financing, possession, operation, condition,
sale, return or other disposition or use of the Collateral, the violation of the laws of any country, province or other governmental
body or unit, any tort (including, without limitation, claims arising or imposed under the doctrine of strict liability, or
for or on account of injury to or the death of any Person, or for property damage) or any contract claim; provided, however,
that no Indemnitee shall be indemnified pursuant to this Section for expenses to the extent caused by the gross negligence
or willful misconduct of such Indemnitee. The Debtor agrees that upon written notice by any Indemnitee of any assertion that
could give rise to an expense, the Debtor shall assume full responsibility for the defense thereof. Each Indemnitee agrees
to use its best efforts to promptly notify the Debtor of any such assertion of which such Indemnitee has knowledge. |
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A. |
B.
Without limiting the application of this Article 5, the Debtor agrees to pay, or reimburse the Secured Party for (if the Secured
Party shall have incurred fees, costs or expenses because the Debtor shall have failed to comply with its obligations under
this Agreement), any and all fees, costs and expenses of whatever kind or nature incurred in connection with the creation,
preservation or protection of the Secured Party's Liens on, and security interest in, the Collateral, including, without limitation,
all fees and taxes in connection with the recording or filing of instruments and documents in public offices, payment or discharge
of any taxes or Liens upon or in respect of the Collateral, premiums for insurance with respect to the Collateral and all
other fees, costs and expenses in connection with protecting, maintaining or preserving the Collateral and the Secured Party's
interest therein, whether through judicial proceedings or otherwise, or in defending or prosecuting any actions, suits or
proceedings arising out of or relating to the Collateral. |
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A. |
C.
Without limiting the application of this Article 5, the Debtor agrees to pay, indemnify and hold each Indemnitee harmless
from and against any expenses which such Indemnitee may suffer, expend or incur in consequence of or growing out of any misrepresentation
by the Debtor in this Agreement or in any statement or writing contemplated by or made or delivered pursuant to or in connection
with this Agreement. |
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|
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A. |
D.
If and to the extent that the obligations of the Debtor under this Article 5 are unenforceable for any reason, Debtor hereby
agrees to make the maximum contribution to the payment and satisfaction of such obligations which is permissible under applicable
law. |
Any notice
or demand upon any party shall be in writing and shall be deemed to have been received when personally delivered or when mailed
through the Canadian Postal Service, postage prepaid, return receipt requested, or when shipped by private express carrier, shipment
charges prepaid, to the party to whom delivery shall be made at the addresses mentioned above.
No delay
on the part of the Secured Party in exercising any of its rights, remedies, powers and privileges hereunder or under applicable
law or partial or single exercise thereof, shall constitute a waiver thereof. None of the terms and conditions of this Security
Agreement may be changed, waived, modified or varied in any manner whatsoever unless in writing duly signed by the Debtor and
the Secured Party.
The rights,
powers and remedies of the Secured Party herein provided are cumulative and not exclusive of any rights, powers or remedies which
the Secured Party would otherwise have. The Debtor shall indemnify the Secured Party and save harmless the Secured Party from
and against any liability, cost (including reasonable attorneys' fees) or damage which it may incur in connection with this Security
Agreement and the security interest granted hereby, including, without limitation, any such liability, cost or damage it may incur
in connection with the exercise, performance or preservation of any of its rights, powers and remedies set forth herein or otherwise
available under law (except for any liability, cost or damage arising from the Secured Party's gross negligence or willful misconduct).
This Security
Agreement shall be binding upon the Debtor and its successors and assigns and shall inure to the benefit of the Secured Party
and its successors and assigns, provided, however, the Debtor may not, without the prior written consent of the Secured Party,
assign any of its rights or obligations hereunder to any person or entity. All agreements, representations and warranties made
herein by the Debtor shall survive the execution and delivery of this Security Agreement.
This Security
Agreement is a continuing one and all liabilities to which it applies or may apply under the terms hereof shall be conclusively
presumed to have been created in reliance hereon.
This Security
Agreement and the rights and obligations of the parties hereunder shall be construed in accordance with and be governed by the
laws of Canada in the Province of Ontario. This Security Agreement is intended to take effect as a sealed instrument.
IN WITNESS
WHEREOF, the parties hereto have caused this Security Agreement to be executed and delivered as of the date first above written.
| Canada
Cannabis Corp. |
|
2393245
Ontario Inc. c.o.b. Growlite Canada |
| |
|
|
| /s/
Ben Ward |
|
/s/
Silvio Serrano |
| Authorized
Signature |
|
Authorized
Signature |
| |
|
|
| Ben
Ward President & CEO |
|
Silvio
Serrano President |
| Print
Name and Title |
|
Print
Name and Title |
9
Exhibit
10.20
PROMISSORY
NOTE
| $334,869.00
CAD |
Dec
15, 2014 |
FOR
VALUE RECEIVED, the undersigned, Canadian Cannabis Corp., a corporation organized under the laws of the Province of
Ontario, located at 100 Rutherford Road South Brampton, ON, Canada (the “Maker”), promises to pay to the order of
Benjamin A Ward, a Province of Ontario Resident, located at 15 Belvedere Road, Oakville, ON Canada (hereinafter referred
to as “Payee”; Payee, and any successor holder(s) hereof from time to time, being hereinafter referred to as “Holder”),
at such place as Holder may designate to Maker in writing from time to time, the principal sum of THREE HUNDERED THIRTY FOUR
THOUSAND EIGHT HUNDRED SIXTY NINE and NO/100 CANADIAN DOLLARS (CAD $334,869.00),
together with interest thereon, at the rate hereinafter set forth, in lawful money of Canada, which shall at the time of payment
be legal tender in payment of all debts and dues, public and private, such principal and interest to be paid in the following
manner, to-wit:
1. Interest;
Payments; Maturity. Interest shall accrue at the rate of 0 percent (0%) (the “Applicable Rate”) and shall compound
annually. Interest and principal shall be paid upon the occurrence of certain events, as follows:
| (a) | Upon
sufficient capitalization of the Company. |
This
Note shall mature, if not sooner paid in full, and all principal and accrued interest shall be due and paid in full in a balloon
payment on the date that is one hundred twenty (120) days after the date of this agreement as set forth above.
2. Prepayment.
This Note may be prepaid in whole or in part at any time without penalty. Any partial prepayment shall be applied first to interest
and the remaining balance of such payment, if any, to principal.
3. Usury
Laws. If for any circumstances whatsoever fulfillment of any provision of this Note at the time performance of such provision
shall be due, shall involve transcending the limit of validity presently prescribed by any applicable usury statute or any other
applicable law, with regard to obligations of like character and amount, then, ipso facto, the obligation to be fulfilled shall
be reduced to the limit of such validity, so that in no event shall any exaction be possible under this Note or under any other
instrument evidencing or securing the indebtedness evidenced hereby, that is in excess of the current limit of such validity,
but such obligation shall be fulfilled to the limit of such validity.
4. Events
of Default. Each of the following shall be deemed to constitute an “Event of Default” hereunder:
| (a) | Failure
to Pay. The nonpayment when due of any interest or principal as provided in this
Note if any such nonpayment shall not be cured within ten (10) days of the date when
due; |
| (b) | Voluntary
Bankruptcy or Insolvency Proceedings. Maker shall (i) apply for or consent to
the appointment of a receiver, trustee, liquidator or custodian of itself or of all or
a substantial part of its property, or voluntarily terminate operations, (ii) make a
general assignment for the benefit of any of its creditors, (iii) be dissolved or liquidated
in full or in part, (iv) commence a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or consent to any such relief
or to the appointment of or taking possession of its property by any official in an involuntary
case or other proceeding commenced against it, (v) admit in writing its inability to
pay debts as the debts become due, or (vi) take any action for the purpose of effecting
any of the foregoing; or |
| (c) | Involuntary
Bankruptcy or Insolvency Proceedings. Proceedings for the appointment of a receiver,
trustee, liquidator or custodian of the Maker of all or a substantial part of the property
thereof, or an involuntary case or other proceedings seeking liquidation, reorganization
or other relief with respect to the Maker or the debts thereof under any bankruptcy,
insolvency or other similar law now or hereafter in effect shall be commenced and an
order for relief entered, or such case or proceeding shall not be dismissed or discharged
within 20 days of commencement. |
5. Remedies.
Upon the occurrence of an Event of Default, at the option and upon the written declaration of the Holder (or automatically without
such declaration if an Event of Default set forth in Section 4(c) occurs), and without demand or notice of any kind, the principal
indebtedness evidenced hereby, together with all unpaid interest accrued thereon, shall at once become due and payable and may
be collected forthwith, regardless of the stipulated date of maturity.
6. Default
Interest. Interest shall accrue on the outstanding principal balance of this Note from the date of any Event of Default hereunder
and for so long as such Event of Default continues, regardless of whether or not there has been an acceleration of the indebtedness
evidenced hereby as set forth herein, at the rate which is the lower of the highest applicable rate permitted by law or sixteen
percent (16.0%) per annum in excess of the Applicable Rate at the time of such Event of Default. All such interest shall be paid
at the time of and as a condition precedent to the curing of any such Event of Default should Holder, at its sole option, allow
such Event of Default to be cured. In the event this Note, or any part thereof, is collected by or through an attorney-at-law,
Maker agrees to pay all costs of collection including reasonable attorney's fees.
7. Time
is of the Essence. Time is of the essence with respect to all of Maker’s obligations and agreements under this Note.
8. Delay;
Waiver. Presentment for payment, demand, protest and notice of demand, notice of dishonor and notice of nonpayment and all
other notices not expressly set forth are hereby waived by Maker. No failure to accelerate the debt evidenced hereby by reason
of default hereunder, acceptance of a past due installment, or indulgences granted from time to time shall be construed (i) as
a novation of this Note or as a restatement of the indebtedness evidenced hereby or as a waiver of such right of acceleration
or of the right of Holder thereafter to insist upon strict compliance with the terms of this Note, or (ii) to prevent the exercise
of such right of acceleration or any other right granted hereunder or by applicable law; and Maker hereby expressly waives the
benefit of any statute or rule of law or equity now provided, or which may hereafter be provided, which would produce a result
contrary to or in conflict with the foregoing. No extension of the time for the payment of this Note or any installment due hereunder,
made by agreement with any person now or hereafter liable for the payment of this Note shall operate to release, discharge, modify,
change or affect the original liability of Maker under this Note, either in whole or in part unless Holder agrees otherwise in
writing. This Note may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement
of any waiver, change, modification or discharge is sought.
Maker
hereby waives and renounces for itself, its heirs, successors and assigns, all rights to the benefits of any statute of limitations
any moratorium, reinstatement, marshaling, forbearance, valuation, stay, extension, redemption, appraisement and exemption now
provided, or which may hereafter be provided, by the Constitution and laws of the United States of America and of any state thereof,
against the enforcement and collection of the obligations evidenced by this Note. Maker hereby transfers, conveys and assigns
to Holder a sufficient amount of such homestead or exemption as may be set apart in bankruptcy, to pay this Note in full, with
all costs of collection, and does hereby direct any trustee in bankruptcy having possession of such homestead or exemption to
deliver to Holder a sufficient amount of property or money set apart as exempt to pay the indebtedness evidenced hereby, or any
renewal thereof, and does hereby appoint Holder the attorney-in-fact for Maker to claim any and all homestead exemptions allowed
by Law.
9. Notices.
Except as otherwise specified herein, all notices and other communications under this Note shall be in writing and shall be deemed
to have been given if personally delivered or if sent by registered or certified United States mail, return receipt requested,
postage prepaid, addressed to (i) Holder at the address set forth in the preamble of this Note, Attn: Joao (John) Esteireiro,
or (ii) Maker at the address set forth in the preamble of this Note, Attn: Benjamin Ward, President & CEO, with a copy, which
shall not constitute notice, to H. Grady Thrasher IV, 5 Concourse Parkway, Suite 2600, Atlanta, Georgia 30328. Either party may
designate any other address to which notices shall be sent by giving notice of the address to the other party in the same manner
as provided therein.
10. Miscellaneous.
This Note is intended as a contract under and shall be construed and enforceable in accordance with the laws of the State of Delaware.
As used herein, the terms “Maker”, “Payee” and “Holder” shall be deemed to include their respective
heirs, successors, legal representatives and assigns, as the case may be, whether by voluntary action of the parties or involuntary
by operation of law.
[Signatures
on next page.]
IN
WITNESS WHEREOF, Maker has executed this Note under seal on the date first above written.
MAKER:
Canadian
Cannabis Corp.
| By: |
/S/
Benjamin Ward |
|
| |
Benjamin Ward,
President & CEO |
|
| |
|
|
| Attest: |
|
|
| |
|
|
| Name: |
|
|
| |
|
|
| Title: |
|
|
Page 4
of 4.
Exhibit 10.21
PROMISSORY
NOTE
| $1,150,000 CAD |
Dec 15, 2014 |
FOR
VALUE RECEIVED, the undersigned, Canadian Cannabis Corp., a corporation organized under the laws of the Province of
Ontario, located at 100 Rutherford Road South Brampton, ON, Canada (the “Maker”), promises to pay to the order of
Joao Esteireiro, a Province of Ontario Resident, located at 209 Forest Hill Road, Toronto ON M6C 2H1 Canada (hereinafter
referred to as “Payee”; Payee, and any successor holder(s) hereof from time to time, being hereinafter referred to
as “Holder”), at such place as Holder may designate to Maker in writing from time to time, the principal sum of ONE
MILLION, ONE HUNDRED FIFTY THOUSAND and NO/100 CANADIAN DOLLARS (CAD $1,150,000), together with interest thereon, at the rate
hereinafter set forth, in lawful money of Canada, which shall at the time of payment be legal tender in payment of all debts and
dues, public and private, such principal and interest to be paid in the following manner, to-wit:
1. Interest;
Payments; Maturity. Interest shall accrue at the rate of 0 percent (0%) (the “Applicable Rate”) and shall compound
annually. Interest and principal shall be paid upon the occurrence of certain events, as follows:
| |
(a) |
Upon sufficient capitalization of the Company. |
This
Note shall mature, if not sooner paid in full, and all principal and accrued interest shall be due and paid in full in a balloon
payment on the date that is onehundredtwenty (120) days after the date of this agreement as set forth above.
2. Prepayment.
This Note may be prepaid in whole or in part at any time without penalty. Any partial prepayment shall be applied first to interest
and the remaining balance of such payment, if any, to principal.
3. Usury
Laws. If for any circumstances whatsoever fulfillment of any provision of this Note at the time performance of such provision
shall be due, shall involve transcending the limit of validity presently prescribed by any applicable usury statute or any other
applicable law, with regard to obligations of like character and amount, then, ipso facto, the obligation to be fulfilled shall
be reduced to the limit of such validity, so that in no event shall any exaction be possible under this Note or under any other
instrument evidencing or securing the indebtedness evidenced hereby, that is in excess of the current limit of such validity,
but such obligation shall be fulfilled to the limit of such validity.
4. Events
of Default. Each of the following shall be deemed to constitute an “Event of Default” hereunder:
| |
(a) |
Failure
to Pay. The nonpayment when due of any interest or principal as provided in this Note if any such nonpayment shall
not be cured within ten (10) days of the date when due; |
| |
(b) |
Voluntary
Bankruptcy or Insolvency Proceedings. Maker shall (i) apply for or consent to the appointment of a receiver, trustee,
liquidator or custodian of itself or of all or a substantial part of its property, or voluntarily terminate operations, (ii)
make a general assignment for the benefit of any of its creditors, (iii) be dissolved or liquidated in full or in part, (iv)
commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or
its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or consent to any such relief or
to the appointment of or taking possession of its property by any official in an involuntary case or other proceeding commenced
against it, (v) admit in writing its inability to pay debts as the debts become due, or (vi) take any action for the purpose
of effecting any of the foregoing; or |
| |
(c) |
Involuntary
Bankruptcy or Insolvency Proceedings. Proceedings for the appointment of a receiver, trustee, liquidator or custodian
of the Maker of all or a substantial part of the property thereof, or an involuntary case or other proceedings seeking liquidation,
reorganization or other relief with respect to the Maker or the debts thereof under any bankruptcy, insolvency or other similar
law now or hereafter in effect shall be commenced and an order for relief entered, or such case or proceeding shall not be
dismissed or discharged within 20 days of commencement. |
5. Remedies.
Upon the occurrence of an Event of Default, at the option and upon the written declaration of the Holder (or automatically without
such declaration if an Event of Default set forth in Section 4(c) occurs), and without demand or notice of any kind, the principal
indebtedness evidenced hereby, together with all unpaid interest accrued thereon, shall at once become due and payable and may
be collected forthwith, regardless of the stipulated date of maturity.
6. Default
Interest. Interest shall accrue on the outstanding principal balance of this Note from the date of any Event of Default hereunder
and for so long as such Event of Default continues, regardless of whether or not there has been an acceleration of the indebtedness
evidenced hereby as set forth herein, at the rate which is the lower of the highest applicable rate permitted by law or sixteen
percent (16.0%) per annum in excess of the Applicable Rate at the time of such Event of Default. All such interest shall be paid
at the time of and as a condition precedent to the curing of any such Event of Default should Holder, at its sole option, allow
such Event of Default to be cured. In the event this Note, or any part thereof, is collected by or through an attorney-at-law,
Maker agrees to pay all costs of collection including reasonable attorney's fees.
7. Time
is of the Essence. Time is of the essence with respect to all of Maker’s obligations and agreements under this Note.
8. Delay;
Waiver. Presentment for payment, demand, protest and notice of demand, notice of dishonor and notice of nonpayment and all
other notices not expressly set forth are hereby waived by Maker. No failure to accelerate the debt evidenced hereby by reason
of default hereunder, acceptance of a past due installment, or indulgences granted from time to time shall be construed (i) as
a novation of this Note or as a restatement of the indebtedness evidenced hereby or as a waiver of such right of acceleration
or of the right of Holder thereafter to insist upon strict compliance with the terms of this Note, or (ii) to prevent the exercise
of such right of acceleration or any other right granted hereunder or by applicable law; and Maker hereby expressly waives the
benefit of any statute or rule of law or equity now provided, or which may hereafter be provided, which would produce a result
contrary to or in conflict with the foregoing. No extension of the time for the payment of this Note or any installment due hereunder,
made by agreement with any person now or hereafter liable for the payment of this Note shall operate to release, discharge, modify,
change or affect the original liability of Maker under this Note, either in whole or in part unless Holder agrees otherwise in
writing. This Note may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement
of any waiver, change, modification or discharge is sought.
Maker
hereby waives and renounces for itself, its heirs, successors and assigns, all rights to the benefits of any statute of limitations
any moratorium, reinstatement, marshaling, forbearance, valuation, stay, extension, redemption, appraisement and exemption now
provided, or which may hereafter be provided, by the Constitution and laws of the United States of America and of any state thereof,
against the enforcement and collection of the obligations evidenced by this Note. Maker hereby transfers, conveys and assigns
to Holder a sufficient amount of such homestead or exemption as may be set apart in bankruptcy, to pay this Note in full, with
all costs of collection, and does hereby direct any trustee in bankruptcy having possession of such homestead or exemption to
deliver to Holder a sufficient amount of property or money set apart as exempt to pay the indebtedness evidenced hereby, or any
renewal thereof, and does hereby appoint Holder the attorney-in-fact for Maker to claim any and all homestead exemptions allowed
by Law.
9. Notices.
Except as otherwise specified herein, all notices and other communications under this Note shall be in writing and shall be deemed
to have been given if personally delivered or if sent by registered or certified United States mail, return receipt requested,
postage prepaid, addressed to (i) Holder at the address set forth in the preamble of this Note, Attn: Joao (John) Esteireiro,
or (ii) Maker at the address set forth in the preamble of this Note, Attn: Benjamin Ward, President & CEO, with a copy, which
shall not constitute notice, to H. Grady Thrasher IV, 5 Concourse Parkway, Suite 2600, Atlanta, Georgia 30328. Either party may
designate any other address to which notices shall be sent by giving notice of the address to the other party in the same manner
as provided therein.
10. Miscellaneous.
This Note is intended as a contract under and shall be construed and enforceable in accordance with the laws of the State of Delaware.
As used herein, the terms “Maker”, “Payee” and “Holder” shall be deemed to include their respective
heirs, successors, legal representatives and assigns, as the case may be, whether by voluntary action of the parties or involuntary
by operation of law.
[Signatures
on next page.]
IN
WITNESS WHEREOF, Maker has executed this Note under seal on the date first above written.
| |
MAKER: |
| |
|
| |
Canadian Cannabis Corp. |
| |
|
|
| |
By: |
/S/ Benjamin Ward |
| |
|
Benjamin Ward, President & CEO |
| |
|
|
| |
Attest: |
|
| |
|
|
| |
Name: |
|
| |
|
|
| |
Title: |
|
Page
4 of 4.
Exhibit
10.22
PROMISSORY
NOTE
| $144,000.00
CAD |
Dec
15, 2014 |
FOR VALUE RECEIVED,
the undersigned, Canadian Cannabis Corp., a corporation organized under the laws of the Province of Ontario, located at
100 Rutherford Road South Brampton, ON, Canada (the “Maker”), promises to pay to the order of Silvio Serrano,
a Province of Ontario Resident, located in Bradford Ontario Canada (hereinafter referred to as “Payee”; Payee, and
any successor holder(s) hereof from time to time, being hereinafter referred to as “Holder”), at such place as Holder
may designate to Maker in writing from time to time, the principal sum of ONE HUNDRED FORTY FOUR THOUSAND and 00/100
CANADIAN DOLLARS (CAD $144,000.00), together with interest thereon, at the rate hereinafter set forth, in lawful money of Canada,
which shall at the time of payment be legal tender in payment of all debts and dues, public and private, such principal and interest
to be paid in the following manner, to-wit:
1. Interest;
Payments; Maturity. Interest shall accrue at the rate of 0 percent (0%) (the “Applicable Rate”) and shall compound
annually. Interest and principal shall be paid upon the occurrence of certain events, as follows:
| (a) | Upon
sufficient capitalization of the Company. |
This
Note shall mature, if not sooner paid in full, and all principal and accrued interest shall be due and paid in full in a balloon
payment on the date that is sixty (60) days after the date of this agreement as set forth above.
2. Prepayment.
This Note may be prepaid in whole or in part at any time without penalty. Any partial prepayment shall be applied first to interest
and the remaining balance of such payment, if any, to principal.
3. Usury
Laws. If for any circumstances whatsoever fulfillment of any provision of this Note at the time performance of such provision
shall be due, shall involve transcending the limit of validity presently prescribed by any applicable usury statute or any other
applicable law, with regard to obligations of like character and amount, then, ipso facto, the obligation to be fulfilled shall
be reduced to the limit of such validity, so that in no event shall any exaction be possible under this Note or under any other
instrument evidencing or securing the indebtedness evidenced hereby, that is in excess of the current limit of such validity,
but such obligation shall be fulfilled to the limit of such validity.
4. Events
of Default. Each of the following shall be deemed to constitute an “Event of Default” hereunder:
| (a) | Failure
to Pay. The nonpayment when due of any interest or principal as provided in this
Note if any such nonpayment shall not be cured within ten (10) days of the date when
due; |
| (b) | Voluntary
Bankruptcy or Insolvency Proceedings. Maker shall (i) apply for or consent to
the appointment of a receiver, trustee, liquidator or custodian of itself or of all or
a substantial part of its property, or voluntarily terminate operations, (ii) make a
general assignment for the benefit of any of its creditors, (iii) be dissolved or liquidated
in full or in part, (iv) commence a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or consent to any such relief
or to the appointment of or taking possession of its property by any official in an involuntary
case or other proceeding commenced against it, (v) admit in writing its inability to
pay debts as the debts become due, or (vi) take any action for the purpose of effecting
any of the foregoing; or |
| (c) | Involuntary
Bankruptcy or Insolvency Proceedings. Proceedings for the appointment of a receiver,
trustee, liquidator or custodian of the Maker of all or a substantial part of the property
thereof, or an involuntary case or other proceedings seeking liquidation, reorganization
or other relief with respect to the Maker or the debts thereof under any bankruptcy,
insolvency or other similar law now or hereafter in effect shall be commenced and an
order for relief entered, or such case or proceeding shall not be dismissed or discharged
within 20 days of commencement. |
5. Remedies.
Upon the occurrence of an Event of Default, at the option and upon the written declaration of the Holder (or automatically without
such declaration if an Event of Default set forth in Section 4(c) occurs), and without demand or notice of any kind, the principal
indebtedness evidenced hereby, together with all unpaid interest accrued thereon, shall at once become due and payable and may
be collected forthwith, regardless of the stipulated date of maturity.
6. Default
Interest. Interest shall accrue on the outstanding principal balance of this Note from the date of any Event of Default hereunder
and for so long as such Event of Default continues, regardless of whether or not there has been an acceleration of the indebtedness
evidenced hereby as set forth herein, at the rate which is the lower of the highest applicable rate permitted by law or sixteen
percent (16.0%) per annum in excess of the Applicable Rate at the time of such Event of Default. All such interest shall be paid
at the time of and as a condition precedent to the curing of any such Event of Default should Holder, at its sole option, allow
such Event of Default to be cured. In the event this Note, or any part thereof, is collected by or through an attorney-at-law,
Maker agrees to pay all costs of collection including reasonable attorney's fees.
7. Time
is of the Essence. Time is of the essence with respect to all of Maker’s obligations and agreements under this Note.
8. Delay;
Waiver. Presentment for payment, demand, protest and notice of demand, notice of dishonor and notice of nonpayment and all
other notices not expressly set forth are hereby waived by Maker. No failure to accelerate the debt evidenced hereby by reason
of default hereunder, acceptance of a past due installment, or indulgences granted from time to time shall be construed (i) as
a novation of this Note or as a restatement of the indebtedness evidenced hereby or as a waiver of such right of acceleration
or of the right of Holder thereafter to insist upon strict compliance with the terms of this Note, or (ii) to prevent the exercise
of such right of acceleration or any other right granted hereunder or by applicable law; and Maker hereby expressly waives the
benefit of any statute or rule of law or equity now provided, or which may hereafter be provided, which would produce a result
contrary to or in conflict with the foregoing. No extension of the time for the payment of this Note or any installment due hereunder,
made by agreement with any person now or hereafter liable for the payment of this Note shall operate to release, discharge, modify,
change or affect the original liability of Maker under this Note, either in whole or in part unless Holder agrees otherwise in
writing. This Note may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement
of any waiver, change, modification or discharge is sought.
Maker
hereby waives and renounces for itself, its heirs, successors and assigns, all rights to the benefits of any statute of limitations
any moratorium, reinstatement, marshaling, forbearance, valuation, stay, extension, redemption, appraisement and exemption now
provided, or which may hereafter be provided, by the Constitution and laws of the United States of America and of any state thereof,
against the enforcement and collection of the obligations evidenced by this Note. Maker hereby transfers, conveys and assigns
to Holder a sufficient amount of such homestead or exemption as may be set apart in bankruptcy, to pay this Note in full, with
all costs of collection, and does hereby direct any trustee in bankruptcy having possession of such homestead or exemption to
deliver to Holder a sufficient amount of property or money set apart as exempt to pay the indebtedness evidenced hereby, or any
renewal thereof, and does hereby appoint Holder the attorney-in-fact for Maker to claim any and all homestead exemptions allowed
by Law.
9. Notices.
Except as otherwise specified herein, all notices and other communications under this Note shall be in writing and shall be deemed
to have been given if personally delivered or if sent by registered or certified United States mail, return receipt requested,
postage prepaid, addressed to (i) Holder at the address set forth in the preamble of this Note, Attn: Joao (John) Esteireiro,
or (ii) Maker at the address set forth in the preamble of this Note, Attn: Benjamin Ward, President & CEO, with a copy, which
shall not constitute notice, to H. Grady Thrasher IV, 5 Concourse Parkway, Suite 2600, Atlanta, Georgia 30328. Either party may
designate any other address to which notices shall be sent by giving notice of the address to the other party in the same manner
as provided therein.
10. Miscellaneous.
This Note is intended as a contract under and shall be construed and enforceable in accordance with the laws of the State of Delaware.
As used herein, the terms “Maker”, “Payee” and “Holder” shall be deemed to include their respective
heirs, successors, legal representatives and assigns, as the case may be, whether by voluntary action of the parties or involuntary
by operation of law.
[Signatures
on next page.]
IN
WITNESS WHEREOF, Maker has executed this Note under seal on the date first above written.
MAKER:
Canadian
Cannabis Corp.
| By: |
/S/
Benjamin Ward |
|
| |
Benjamin
Ward, President & CEO |
|
| |
|
|
| Attest: |
|
|
| |
|
|
| Name: |
|
|
| |
|
|
| Title: |
|
|
Page 4
of 4.
Exhibit
10.23
PROMISSORY
NOTE
FOR VALUE RECEIVED,
the undersigned, Canadian Cannabis Corp., a corporation organized under the laws of the Province of Ontario, located at
100 Rutherford Road South Brampton, ON, Canada (the “Maker”), promises to pay to the order of Ben Fuschino, a Province
of Ontario Resident, located at 883 Isabel ST., Woodstock, ON, N4S 2A7, (hereinafter referred to as “Payee”; Payee,
and any successor holder(s) hereof from time to time, being hereinafter referred to as “Holder”), at such place as
Holder may designate to Maker in writing from time to time, the principal sum of SEVENTY THOUSAND and NO/100 CANADIAN DOLLARS
(CAD $70,000), together with interest thereon, at the rate hereinafter set forth, in lawful money of Canada, which shall at
the time of payment be legal tender in payment of all debts and dues, public and private, such principal and interest to be paid
in the following manner, to-wit:
1. Interest;
Payments; Maturity. Interest shall accrue at the rate of 0 percent (0%) (the “Applicable Rate”) and shall compound
annually. Interest and principal shall be paid upon the occurrence of certain events, as follows:
| (a) | Upon
sufficient capitalization of the Company. |
This
Note shall mature, if not sooner paid in full, and all principal and accrued interest shall be due and paid in full in a balloon
payment on the date that is sixty (60) days after the date of this agreement as set forth above.
2. Prepayment.
This Note may be prepaid in whole or in part at any time without penalty. Any partial prepayment shall be applied first to interest
and the remaining balance of such payment, if any, to principal.
3. Usury
Laws. If for any circumstances whatsoever fulfillment of any provision of this Note at the time performance of such provision
shall be due, shall involve transcending the limit of validity presently prescribed by any applicable usury statute or any other
applicable law, with regard to obligations of like character and amount, then, ipso facto, the obligation to be fulfilled shall
be reduced to the limit of such validity, so that in no event shall any exaction be possible under this Note or under any other
instrument evidencing or securing the indebtedness evidenced hereby, that is in excess of the current limit of such validity,
but such obligation shall be fulfilled to the limit of such validity.
4. Events
of Default. Each of the following shall be deemed to constitute an “Event of Default” hereunder:
| (a) | Failure
to Pay. The nonpayment when due of any interest or principal as provided in this
Note if any such nonpayment shall not be cured within ten (10) days of the date when
due; |
| (b) | Voluntary
Bankruptcy or Insolvency Proceedings. Maker shall (i) apply for or consent to
the appointment of a receiver, trustee, liquidator or custodian of itself or of all or
a substantial part of its property, or voluntarily terminate operations, (ii) make a
general assignment for the benefit of any of its creditors, (iii) be dissolved or liquidated
in full or in part, (iv) commence a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or consent to any such relief
or to the appointment of or taking possession of its property by any official in an involuntary
case or other proceeding commenced against it, (v) admit in writing its inability to
pay debts as the debts become due, or (vi) take any action for the purpose of effecting
any of the foregoing; or |
| (c) | Involuntary
Bankruptcy or Insolvency Proceedings. Proceedings for the appointment of a receiver,
trustee, liquidator or custodian of the Maker of all or a substantial part of the property
thereof, or an involuntary case or other proceedings seeking liquidation, reorganization
or other relief with respect to the Maker or the debts thereof under any bankruptcy,
insolvency or other similar law now or hereafter in effect shall be commenced and an
order for relief entered, or such case or proceeding shall not be dismissed or discharged
within 20 days of commencement. |
5. Remedies.
Upon the occurrence of an Event of Default, at the option and upon the written declaration of the Holder (or automatically without
such declaration if an Event of Default set forth in Section 4(c) occurs), and without demand or notice of any kind, the principal
indebtedness evidenced hereby, together with all unpaid interest accrued thereon, shall at once become due and payable and may
be collected forthwith, regardless of the stipulated date of maturity.
6. Default
Interest. Interest shall accrue on the outstanding principal balance of this Note from the date of any Event of Default hereunder
and for so long as such Event of Default continues, regardless of whether or not there has been an acceleration of the indebtedness
evidenced hereby as set forth herein, at the rate which is the lower of the highest applicable rate permitted by law or sixteen
percent (16.0%) per annum in excess of the Applicable Rate at the time of such Event of Default. All such interest shall be paid
at the time of and as a condition precedent to the curing of any such Event of Default should Holder, at its sole option, allow
such Event of Default to be cured. In the event this Note, or any part thereof, is collected by or through an attorney-at-law,
Maker agrees to pay all costs of collection including reasonable attorney's fees.
7. Time
is of the Essence. Time is of the essence with respect to all of Maker’s obligations and agreements under this Note.
8. Delay;
Waiver. Presentment for payment, demand, protest and notice of demand, notice of dishonor and notice of nonpayment and all
other notices not expressly set forth are hereby waived by Maker. No failure to accelerate the debt evidenced hereby by reason
of default hereunder, acceptance of a past due installment, or indulgences granted from time to time shall be construed (i) as
a novation of this Note or as a restatement of the indebtedness evidenced hereby or as a waiver of such right of acceleration
or of the right of Holder thereafter to insist upon strict compliance with the terms of this Note, or (ii) to prevent the exercise
of such right of acceleration or any other right granted hereunder or by applicable law; and Maker hereby expressly waives the
benefit of any statute or rule of law or equity now provided, or which may hereafter be provided, which would produce a result
contrary to or in conflict with the foregoing. No extension of the time for the payment of this Note or any installment due hereunder,
made by agreement with any person now or hereafter liable for the payment of this Note shall operate to release, discharge, modify,
change or affect the original liability of Maker under this Note, either in whole or in part unless Holder agrees otherwise in
writing. This Note may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement
of any waiver, change, modification or discharge is sought.
Maker
hereby waives and renounces for itself, its heirs, successors and assigns, all rights to the benefits of any statute of limitations
any moratorium, reinstatement, marshaling, forbearance, valuation, stay, extension, redemption, appraisement and exemption now
provided, or which may hereafter be provided, by the Constitution and laws of the United States of America and of any state thereof,
against the enforcement and collection of the obligations evidenced by this Note. Maker hereby transfers, conveys and assigns
to Holder a sufficient amount of such homestead or exemption as may be set apart in bankruptcy, to pay this Note in full, with
all costs of collection, and does hereby direct any trustee in bankruptcy having possession of such homestead or exemption to
deliver to Holder a sufficient amount of property or money set apart as exempt to pay the indebtedness evidenced hereby, or any
renewal thereof, and does hereby appoint Holder the attorney-in-fact for Maker to claim any and all homestead exemptions allowed
by Law.
9. Notices.
Except as otherwise specified herein, all notices and other communications under this Note shall be in writing and shall be deemed
to have been given if personally delivered or if sent by registered or certified United States mail, return receipt requested,
postage prepaid, addressed to (i) Holder at the address set forth in the preamble of this Note, Attn: Joao (John) Esteireiro,
or (ii) Maker at the address set forth in the preamble of this Note, Attn: Benjamin Ward, President & CEO, with a copy, which
shall not constitute notice, to H. Grady Thrasher IV, 5 Concourse Parkway, Suite 2600, Atlanta, Georgia 30328. Either party may
designate any other address to which notices shall be sent by giving notice of the address to the other party in the same manner
as provided therein.
10. Miscellaneous.
This Note is intended as a contract under and shall be construed and enforceable in accordance with the laws of the State of Delaware.
As used herein, the terms “Maker”, “Payee” and “Holder” shall be deemed to include their respective
heirs, successors, legal representatives and assigns, as the case may be, whether by voluntary action of the parties or involuntary
by operation of law.
[Signatures
on next page.]
IN
WITNESS WHEREOF, Maker has executed this Note under seal on the date first above written.
MAKER:
Canadian
Cannabis Corp.
| By: |
/S/
Benjamin Ward |
|
| |
Benjamin
Ward, President & CEO |
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| Attest: |
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| Name: |
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| Title: |
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Page 4
of 4.
Exhibit
10.24
PROMISSORY
NOTE
FOR
VALUE RECEIVED, the undersigned, Canadian Cannabis Corp., a corporation organized under the laws of the Province of
Ontario, located at 100 Rutherford Road South Brampton, ON, Canada (the “Maker”), promises to pay to the order of
Scott Keevil, a Province of Ontario Resident, located at 3073 Seneca Drive, Oakville, ON, (hereinafter referred to as “Payee”;
Payee, and any successor holder(s) hereof from time to time, being hereinafter referred to as “Holder”), at such place
as Holder may designate to Maker in writing from time to time, the principal sum of EIGHTY NINE THOUSAND SIX HUNDRED FIFTY
EIGHT and NO/100 CANADIAN DOLLARS (CAD $89,658), together with interest thereon, at the rate hereinafter set forth, in lawful
money of Canada, which shall at the time of payment be legal tender in payment of all debts and dues, public and private, such
principal and interest to be paid in the following manner, to-wit:
1. Interest;
Payments; Maturity. Interest shall accrue at the rate of 0 percent (0%) (the “Applicable Rate”) and shall compound
annually. Interest and principal shall be paid upon the occurrence of certain events, as follows:
| (a) | Upon
sufficient capitalization of the Company. |
This
Note shall mature, if not sooner paid in full, and all principal and accrued interest shall be due and paid in full in a balloon
payment on the date that is sixty (60) days after the date of this agreement as set forth above.
2. Prepayment.
This Note may be prepaid in whole or in part at any time without penalty. Any partial prepayment shall be applied first to interest
and the remaining balance of such payment, if any, to principal.
3. Usury
Laws. If for any circumstances whatsoever fulfillment of any provision of this Note at the time performance of such provision
shall be due, shall involve transcending the limit of validity presently prescribed by any applicable usury statute or any other
applicable law, with regard to obligations of like character and amount, then, ipso facto, the obligation to be fulfilled shall
be reduced to the limit of such validity, so that in no event shall any exaction be possible under this Note or under any other
instrument evidencing or securing the indebtedness evidenced hereby, that is in excess of the current limit of such validity,
but such obligation shall be fulfilled to the limit of such validity.
4. Events
of Default. Each of the following shall be deemed to constitute an “Event of Default” hereunder:
| (a) | Failure
to Pay. The nonpayment when due of any interest or principal as provided in this
Note if any such nonpayment shall not be cured within ten (10) days of the date when
due; |
| (b) | Voluntary
Bankruptcy or Insolvency Proceedings. Maker shall (i) apply for or consent to
the appointment of a receiver, trustee, liquidator or custodian of itself or of all or
a substantial part of its property, or voluntarily terminate operations, (ii) make a
general assignment for the benefit of any of its creditors, (iii) be dissolved or liquidated
in full or in part, (iv) commence a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or consent to any such relief
or to the appointment of or taking possession of its property by any official in an involuntary
case or other proceeding commenced against it, (v) admit in writing its inability to
pay debts as the debts become due, or (vi) take any action for the purpose of effecting
any of the foregoing; or |
| (c) | Involuntary
Bankruptcy or Insolvency Proceedings. Proceedings for the appointment of a receiver,
trustee, liquidator or custodian of the Maker of all or a substantial part of the property
thereof, or an involuntary case or other proceedings seeking liquidation, reorganization
or other relief with respect to the Maker or the debts thereof under any bankruptcy,
insolvency or other similar law now or hereafter in effect shall be commenced and an
order for relief entered, or such case or proceeding shall not be dismissed or discharged
within 20 days of commencement. |
5. Remedies.
Upon the occurrence of an Event of Default, at the option and upon the written declaration of the Holder (or automatically without
such declaration if an Event of Default set forth in Section 4(c) occurs), and without demand or notice of any kind, the principal
indebtedness evidenced hereby, together with all unpaid interest accrued thereon, shall at once become due and payable and may
be collected forthwith, regardless of the stipulated date of maturity.
6. Default
Interest. Interest shall accrue on the outstanding principal balance of this Note from the date of any Event of Default hereunder
and for so long as such Event of Default continues, regardless of whether or not there has been an acceleration of the indebtedness
evidenced hereby as set forth herein, at the rate which is the lower of the highest applicable rate permitted by law or sixteen
percent (16.0%) per annum in excess of the Applicable Rate at the time of such Event of Default. All such interest shall be paid
at the time of and as a condition precedent to the curing of any such Event of Default should Holder, at its sole option, allow
such Event of Default to be cured. In the event this Note, or any part thereof, is collected by or through an attorney-at-law,
Maker agrees to pay all costs of collection including reasonable attorney's fees.
7. Time
is of the Essence. Time is of the essence with respect to all of Maker’s obligations and agreements under this Note.
8. Delay;
Waiver. Presentment for payment, demand, protest and notice of demand, notice of dishonor and notice of nonpayment and all
other notices not expressly set forth are hereby waived by Maker. No failure to accelerate the debt evidenced hereby by reason
of default hereunder, acceptance of a past due installment, or indulgences granted from time to time shall be construed (i) as
a novation of this Note or as a restatement of the indebtedness evidenced hereby or as a waiver of such right of acceleration
or of the right of Holder thereafter to insist upon strict compliance with the terms of this Note, or (ii) to prevent the exercise
of such right of acceleration or any other right granted hereunder or by applicable law; and Maker hereby expressly waives the
benefit of any statute or rule of law or equity now provided, or which may hereafter be provided, which would produce a result
contrary to or in conflict with the foregoing. No extension of the time for the payment of this Note or any installment due hereunder,
made by agreement with any person now or hereafter liable for the payment of this Note shall operate to release, discharge, modify,
change or affect the original liability of Maker under this Note, either in whole or in part unless Holder agrees otherwise in
writing. This Note may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement
of any waiver, change, modification or discharge is sought.
Maker
hereby waives and renounces for itself, its heirs, successors and assigns, all rights to the benefits of any statute of limitations
any moratorium, reinstatement, marshaling, forbearance, valuation, stay, extension, redemption, appraisement and exemption now
provided, or which may hereafter be provided, by the Constitution and laws of the United States of America and of any state thereof,
against the enforcement and collection of the obligations evidenced by this Note. Maker hereby transfers, conveys and assigns
to Holder a sufficient amount of such homestead or exemption as may be set apart in bankruptcy, to pay this Note in full, with
all costs of collection, and does hereby direct any trustee in bankruptcy having possession of such homestead or exemption to
deliver to Holder a sufficient amount of property or money set apart as exempt to pay the indebtedness evidenced hereby, or any
renewal thereof, and does hereby appoint Holder the attorney-in-fact for Maker to claim any and all homestead exemptions allowed
by Law.
9. Notices.
Except as otherwise specified herein, all notices and other communications under this Note shall be in writing and shall be deemed
to have been given if personally delivered or if sent by registered or certified United States mail, return receipt requested,
postage prepaid, addressed to (i) Holder at the address set forth in the preamble of this Note, Attn: Joao (John) Esteireiro,
or (ii) Maker at the address set forth in the preamble of this Note, Attn: Benjamin Ward, President & CEO, with a copy, which
shall not constitute notice, to H. Grady Thrasher IV, 5 Concourse Parkway, Suite 2600, Atlanta, Georgia 30328. Either party may
designate any other address to which notices shall be sent by giving notice of the address to the other party in the same manner
as provided therein.
10. Miscellaneous.
This Note is intended as a contract under and shall be construed and enforceable in accordance with the laws of the State of Delaware.
As used herein, the terms “Maker”, “Payee” and “Holder” shall be deemed to include their respective
heirs, successors, legal representatives and assigns, as the case may be, whether by voluntary action of the parties or involuntary
by operation of law.
[Signatures
on next page.]
IN
WITNESS WHEREOF, Maker has executed this Note under seal on the date first above written.
MAKER:
Canadian
Cannabis Corp.
| By: |
/S/
Benjamin Ward |
|
| |
Benjamin
Ward, President & CEO |
|
| |
|
|
| Attest: |
|
|
| |
|
|
| Name: |
|
|
| |
|
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| Title: |
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Page 4
of 4.
Exhibit 31.1
CERTIFICATION
I, Benjamin Ward, certify that:
| 1. |
I have reviewed this Annual Report on Form 10-K of Canadian Cannabis Corp.; |
| 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 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(s) and I are responsible for 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 small business issuer 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; |
| |
(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 such 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 annual 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(s) 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 the 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: October 2, 2015 |
/s/ Benjamin Ward |
| |
Benjamin Ward |
| |
Chief Executive Officer
(Principal Executive Officer & Principal Financial Officer)
and President |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT
OF 2002
In connection with the
Annual Report of Canadian Cannabis Corp. (the “Company”) on Form 10-K for the fiscal year ended December 31, 2014,
as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Benjamin Ward, hereby certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
| |
(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| |
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the date and for the periods expressed in the Report. |
| /s/ Benjamin Ward |
| Benjamin Ward |
Chief Executive Officer
(Principal Executive Officer & Principal Financial Officer)
and President |
| |
| October 2, 2015 |
The foregoing certification
is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure
document.