Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐☐ No þ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes o☐ No þ☑
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or, an emerging growth company. See the definitions of “large"large accelerated filer,” “accelerated filer,”" "accelerated filer", "smaller reporting company", and “smaller reporting company”"emerging growth company", in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o☐ | | Accelerated filer o☐ | |
Non-accelerated filer o☐ | | Smaller reporting company þ☑ |
(Do not check if smaller reporting company) | | Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
The aggregate market value of the voting stock held by non-affiliates 3,305,450 shares of no par value Common Stock was $99,163$165,272 as of June 30, 2015.27, 2017. The stock price for computational purposes was $0.03$0.05 per share, based upon the fact that the final trade for the Registrant's Common Shares on the OTCQB on June 30, 201527, 2017 was at $0.03.$0.05. per share. The value is not intended to be a representation as to the value or worth of the Registrant's shares of Common Stock. The number of shares of non-affiliates of the Registrant has been calculated by subtracting shares held by persons affiliated with the Registrant from outstanding shares.
The number of shares outstanding of the Registrant's Common Stock as of the latest practicable date, March 30,, 2016 2018 was: 13,205,450 shares.
HOME TREASURE FINDERS, INC.
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 20152017
TABLE OF CONTENTS
PART I | Page |
| |
Item 1. Description of Business | 3 |
Item 2. Description of Property | 18 |
Item 3. Legal Proceedings | 18 |
Item 4. Mine Safety Disclosure | 18 |
| |
PART II | |
| |
Item 5. Market for Common Equity and Related Stockholder Matters | 18 |
Item 6. Selected Financial Data | 20 |
Item 7. Management’s Discussion and Analysis or Plan of Operation | 20 |
Item 8. Financial Statements | 25 |
Item 9. Changes In And Disagreements With Accountants And Accounting And Financial Disclosure | 26 |
Item 9A. Controls and Procedures | 26 |
Item 9B. Other Information | 27 |
| |
PART III | |
| |
Item 10. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act | 27 |
Item 11. Executive Compensation | 28 |
Item 12. Security Ownership of Certain Beneficial Owners and Management And Related Stockholder Matters | 30 |
Item 13. Certain Relationships and Related Transactions | 31 |
Item 14. Principal Accountant Fees and Services | 32 |
Item 15. Exhibits | 33 |
Part I.
ITEM 1. DESCRIPTION OF BUSINESS
We are a licensed and diversified, Colorado based real estate brokerage.brokerage, property investor and landlord.. We presently generate revenue from three sources:
| 1. | Rental revenue from our "Cannabis Zoned" warehouse property. |
| 2. | Commission revenue from the sale of third party owned real property. |
| 3. | Management revenue from real property managed for third party owners. |
To activate our business we borrowed money from our President, Corey Wiegand, completed several private placements as well as a management led IPO. OurAt December 31, 2017 our shares arewere quoted on the OTCQB under the symbol "HMTF."As of the date of this report our shares are quoted on Pink Current and our trading symbol remains "HMTF."
Company History
We organized under the laws of the State of Colorado on July 28, 2008.
History of Operations. In March of 2010, we began providing real estate agents with buyer leads and thereby obtaining referral commissions from subsequent sales. Colorado law provides that we must hold a real estate license to be paid such commissions. On February 13, 2012 the State of Colorado granted our founder, Corey Wiegand an "Employing Broker" license which satisfies regulatory requirements. As of December 31, 2015,2017, and the date of this report, commission revenue from real estate transactions form a significant part of our total revenue.
During 2013 we expanded our real estate activities to include property management and as of December 31, 20152017 and the date of this report, property management operations continue towe manage 115 rental units and generate net revenue from monthly management fees.
On March 3, 2014 we formed a wholly owned subsidiary, HMTF Cannabis Holdings, Inc., The purpose of our subsidiary is to acquire and generate income from real property suited to the legal cultivation of marijuana.
On September 15, 2014 we closed the purchase of our first property zoned for legal cannabis cultivation. Our Denver warehouse building is comprised of three units. The purchase was accomplishedAs of December 31, 2017 and the date of this report, revenue generated from this commercial property represents a significant portion of our total revenue.
We purchased our warehouse with a 1% down payment with the balance carried by the seller. On November 5 and December 1, 2014 we leased space within the building to several unrelated licensed growers. One grower completed construction work on his two units and subsequently we amended his lease to include the third unit which had been abandoned by the original lessee. The City of Denver has issued our tenant an occupancy permit providing for legal marijuana cultivation at all three units which comprise the entire building. Our tenant paid for improvements to bring the building into compliance with Building Codes of the City of Denver and rules promulgated by Colorado State Marijuana Enforcement Division. As of December 31, 2015 and the date of this report, revenue generated from this property is a significant portion of our total revenue. Further information regarding our cannabis warehouse venture and related financial performance and projections may be found on page 5 of this report and also in the MD&A section of this report.
As of December 31, 20152017 and the date of this report, we are seeking to lease or acquire additional properties zoned for cannabis zoned properties.cultivation. We are also considering purchase or lease of properties which we believe may be converted to "Cannabis clubs" where the public may one day legally consume cannabis under legislation and rules promulgated by the State of Colorado as well as various cities. For example, during November 2016 Denver voters passed Initiative 300. In connection with Initiative 300, Denver City Council will shortly finalize various rules under which clubs, bars or other similar entities open to the public may permit public consumption of cannabis on site. We believe this demonstrates that the laws of Colorado will continue to evolve rapidly in response to demand from Colorado residents who reside in rental units which often prohibit marijuana use on site. We believe there is also growing demand from out of state tourists who seek a safe legal place to socialize while consuming cannabis.
Finally, we continue to generate commission revenue by listing and selling real property. We also generate commissions on sales of property where we serve as 'buyer agent." We continue to expand the list of properties from which we generate management revenue.
We have recently entered discussions to expand operations by acquiring other real estate companies.
The address of our primary web site is www.hometreasurefinders.com. Additional web sites include:
www.HMTFrealty.com
www.HMTFmanagement.com
www.HMTFcannabisHoldings.com
Principal Services and their Markets
Home Treasure Finders, Inc. is a diversified, full service licensed real estate brokerage. We are client driven. We provide free investment seminars to the public and train our Licensed Real Estate Agents to assist their clients to understand and successfully compete in our three specialties:areas:
1. Real Estate Sales. Our mission is to help clients buy and sell properties under favorable terms. We train our Licensed Real Estate Agents to obtain listings which we market aggressively. We assist home buyers to locate and close the purchase of their "dream home". Our Licensed Real Estate Agents also advise clients seeking high returns from real estate investment. We locate and help our clients acquire suitable income property. We generate a commission on completed transactions.
2. Property Management. We collect rents in persononline each month from tenants living in the properties we manage. Our monthly management fees are deducted from rent. We pay the resulting net rent to property owners each month. We inspect each property monthly. We help owners arrange for routine maintenance and repairs as needed.
3. Commercial Real Estate for Cannabis. After completing due diligence to verify the legality of numerous activities in which we might participate we.
We have actively and aggressively invested our own funds to enter Colorado's unique and fast growing cannabis cultivation industry.
We presently own one cannabis cultivation warehouse in Denver Colorado and lease space within that project to aid licensed cannabis growers.grower. To date, this project has been successful in generating net revenue for our own account.
For additional information see pagespage 6 and 23 of this reportthe Management's Discussion and Analysis starting on page 20.
To generate revenueIn addition, we begin by purchasing industrial zonedare evaluating lease or acquisition of specific commercial real estate where we believe statesuitable to the hospitality industry. We anticipate legal consumption of marijuana at clubs and local law now permits, orsimilar facilities will rapidly become a reality in the future may permit, the legal cultivation of cannabis. Colorado.
We may own properties for our own investment account and as such are solely at financial risk in connection with our investments. We may invest our funds or alternately arrange to have tenants, at their expense improve and/or remodel properties to suit their needs. In the event we utilize funds loaned to us by third party groups, they may in some circumstances share certain risks.
We do not grow, distribute or sell cannabis We have no present plan to engage in such activities or obtain a license to do so, now, or in the future. However, we are presently the landlord to licensed tenant entities who domay directly engage in the cultivation, distribution and sale of cannabis. Accordingly, we exercise appropriate and reasonable care to screen our tenants and verifyinsist that our tenants maintain proper licenses and operate in compliance with the state and local rules.
We are uniquely positioned and experienced to assist clients and investor groups seeking to enter theopportunity in Colorado's rapidly evolving cannabis industry and . We may expand operations into other locations.states.
Marketing of our Services
Each of our three divisions has a unique marketing plan developed by our founder and CEO, Corey Wiegand.
1. Real Estate Sales. AsWe conduct free monthly seminars for existing and prospective clients. Our seminars include intensive training in property buying, selling and rental. We offer a choice of seminars as our clients include both first time purchasers as well as seasoned real estate investors.
Further, as an aid to listing and selling properties we insist that all our Licensed Real Estate Agents may elect to attend 12 two hour training seminars, weekly sales meetings, and participate in on the job mentoring as personally taught by Corey Wiegand. We train our agents to prospect for listings, obtain listing contracts, and convert the IVR ("integrated voice response") phone leads into "buy-side" contracts. The IVR leads are generated by our signs placed in front of listed properties. Our IVR system is fully functional. It incorporates call capture technology through which we provide our Licensed Real Estate Agents with real time access to leads.
Our sign riders are attached to normal real estate "for sale" signs located in front of a listed property. Our rider displays a 1-800-number and promises to provide listing specific information by a recorded message. As the caller listens to the property description, the caller's phone number is captured and sent via e-mail and text message to a Home Treasure Finders buyer agent. Our business plan provides that our buyer agent will endeavoorendeavor to immediately call back the potential buyer and begin a dialog designed to convert the "cold lead" to a signed offer to purchase a property.
When our buyer agent closes the related sale, Home Treasure Finders may be paid a portion of the total commission. This occurs on any sale involving the potential buyer who was introduced to the buyer agent by Home Treasure Finders and closing within one year of the original lead date. This feature of our business plan enables us to generate revenue even if the buyer eventually decides to purchase a property other than the one displaying our IVR sign
We may also provide videos for our listed properties featuring proprietary high definition "QuadCopter" military drone aerial video technology as seen at www.hmtfrealty.com/get-more . Click on the embedded YouTube video on this page for a sample.
2. Property Management. Home Treasure Finders, Inc. also operates a division that provides tenant finder leasing services, comprehensive property management services, financial, reporting and maintenance services to Denver, Colorado Springs and Greeley area landowners and investors. Our services are unique because we collect rent in person each month and offer monthly property condition reports. We help busy owners keep their property fully leased and in top condition. We presently have 115 properties under management.
3. Commercial Real Estate for Cannabis. HMTF Cannabis Holdings, Inc. is an aggressiveour commercial real estate investor, acquisition, rehabilitation, and leasing firm.subsidiary. We operate in the mosta rapidly expanding segment of the Colorado commercial real estate market.
We aremarket as Licensed Real Estate Agents. As such, we may enjoy strong strategic and operational advantages. We save our clients time and money through our personal contacts and our experience gained in making and operating zoned investments for our own account.
We can rapidly do specialized web based searches to locate zoned property. We can assist clients to negotiate favorable financing and leasing arrangements for cannabis zoned land, warehouses and other target properties.
We are client driven and market primarily by word of mouth. Much of the prime real estate that is usable for cannabis cultivation under state and local rulemaking is within a short drive from our office.
We can assist with acquisition of free-standing buildings, land parcels and green houses. We may assist client investment groups to build and retro-fit properties to meet the specific needs of qualified tenants and the rules promulgated by the State of Colorado Marijuana Enforcement Division.
We specialize in analysis of property cash flow. We prepare projections using our knowledge of comparable properties and various other techniques. We encourage clients to focus on acquiring prime properties under terms that make investment success most likely.
Competition
There are many real estate companies; however, management is aware of none that maintain operations to service all three of the diverse market segments in which we specialize.
Each of our divisions facesface significant competition. We are active in front range Colorado markets including Greeley, the Denver Metro area and Colorado Springs.
1. Real Estate Sales. The Denver Area Real Estate market is appreciating and there is a high level of competition with other brokerage firms.has experienced remarkable appreciation. We distinguish ourselves by providing a high level of training and mentoringservices to our brokers, and by providingsuch as IVR property signs plus aerial fly by video marketing and virtual tours, rather than still photos. Our strategic partnership with Visionary Aircraft Corporation allows our agents to receive a discounted rate for all listing video footage. Our 12 week training and mentoring program outlines a proven system for agents to succeed in establishing themselves as area specialists by actively prospecting door-to-door for new listings. We believe our competition does not provide effective training to convert leads to sales. In response to competition from discount brokers we allow experienced agents to park their license at our office for a small monthly desk fee. Thereafter, we generally collect an additional transaction fee for each sale they close.
2. Property Management. The Denver Metro population grew by more than 3% in 2013 and since then has continued to accelerate. As a result there is a shortage of affordable low cost residential rentals. As of December 31, 20152017 and the date of this report, all sixty-nine115 of the residential units we manage are fully occupied. We distinguish ourselves from the competition by offering video advertising of each rental if it becomes vacant. We arrange showings seven days per week. We tailor our management services to meet the unique needs of each of our clients.
3. Commercial Real Estate for Cannabis. We are an active participant in Colorado's fast growing cannabis industry. We have successfully acquired a vacant warehouse zoned for cannabis cultivation for our own account with a $10,000 down payment. Subsequently we leased the warehouse to licensed growers and we enjoy a positive cash flow from tenant rents.
Our leaseswarehouse lease now in place amountamounts to a 7.4%12.1% capitalization rate andrate. This assumes the property's estimated value of 1.1 million dollars. This figure is based on the offering price of comparable like properties that are being sold in Denver as of the date of this audit. As of the date of this report we have not obtained an appraisal to confirm this estimate. The annual cash flow from the property of $66,000 represents a 244% cash on cash return of $67,664 on anour initial investment of approximately $27,000 for a 249% Cash on Cash return annually.$27,000.
Further, we areas licensed commercial Licensed Real Estate Agents and as such we enjoy strong operational advantages and honed skills to rapidly locate favorable cannabis zoning, find vacant property and help clients negotiate favorable financing or leasing arrangements at target properties.
We market primarily by word of mouth because much of the prime real estate that is usable for cannabis cultivation under state and local rulemaking is within a short drive from our office. We have few true competitors who bring our diverse skill, experience, work ethic and enthusiasm to the bargaining table.
Home Treasure Finders now provides both leads and specialized training at no cost to buyer agents. Our Licensed Real Estate Agents are requested to sign our agreement to split gross commissions.commissions or agree to pay a monthly desk fee and transaction fee.
Intellectual Property
The sales training material developed by Corey Wiegand are considered "trade secrets," and are believed eligible for copyright protection. As of the date of this report no copyright has been filed.
We have entered Colorado's fastest growing industry, cannabis. We have developed a data base of cannabis regulation issues for our internal use. Where feasible we employ that data to assist our clients, potential tenants and investors. Our data base includes zoning and Cannabis use rules we believe to be currently in effect. It is updated by interviews with state, county and municipal officials on an as needed basis.
Governmental Regulation
During November of 2000 Colorado voters approved Amendment 20 to amend the State Constitution to provide for legalized use and possession of medical marijuana.
During October, 2009 the Obama Administration ended aggressive law enforcement against medical marijuana growers, patients and dispensaries.dispensaries by drafting a memo later called the Cole memo. In 2018, Jeff Sessions, the Attorney General under the current administration, rescinded this memo however, we do not know of any judicial actions with respect to federal enforcement of Marijuana laws at the state level.
During November 2012 Colorado voters approved Amendment 64 to the State Constitution to legalize the use, possession and sale of retail marijuana. Amendment 64 also provides for the Colorado General Assembly to enact an excise tax on wholesale marijuana sales, adopt further rules to govern cultivation, processing, retail sale and finally to give cities and counties the ability to locally opt out of retail marijuana.
On March 30, 2017, legislation was filed in the US House and Senate to end marijuana prohibition at the federal level and replace it with a system in which marijuana is regulated and taxed similar to alcohol. The proposed legislation would:
| 1. | Remove marijuana from the Controlled Substance Act |
| 2. | Create a federal regulatory process for states that choose to regulate the cultivation and sale of marijuana for adult use |
| 3. | Eliminate many of the collateral consequences of the federal tax code so that state legal marijuana businesses can take standard deductions on business expense. |
While we believe strong public support exists for adoption of these or similar measures, there is no assurance that federal laws will be changed accordingly. Recently. the Trump Administration and US Department of Justice have indicated that they are reversing course and may elect to activate more restrictive measures. Thereafter, governors of numerous states, including Colorado, where liberalized marijuana laws exist, have responded that they support a continuation of their respective liberalization policies and will oppose any inappropriate federal enforcement efforts that may be forthcoming. We are unclear as to how this conflict may resolve and what effect it may have on company real estate holdings and related revenue.
The following links may be of use to understand the details of existing Colorado Laws.Law:
http://new.livestream.com/accounts/4105485/CAR031314
http://www.colorado.gov/cs/Satellite/Rev-MMJ/CBON/1251581331216
Maintaining all licenses deemed necessary by governmental jurisdictions is expensive and time consuming. and could delay operations. An unfavorable outcome in connection with future government regulations, licensing and other risks is possible, however we are aware of no compliance problems as of December 31, 2015 and the date of this report.possible.
ENVIRONMENT
We believe that our operations comply in all material respects with applicable laws and regulations concerning the environment. While it is impossible to predict accurately the future costs associated with environmental compliance and potential remediation activities, compliance with environmental laws is not expected to require significant capital expenditures and is not expected to have, a material adverse effect on our planned revenue or competitive position.
PRODUCT LIABILITY
Our service exposesservices expose the Company to liability claims by real estate owners, potential buyers and others. The company maintains legally required liability insurance. Any claim not covered by our policy could have a material adverse effect on our financial condition.
OUR FACILITIES
We conduct general administration, real estate sales and property management from our leased office location in Denver Colorado.
Our office is located at 43184316 Tennyson Street, Denver CO 80212. This is a preferred storefront shopping location in the up and coming Highlands / Berkeley Neighborhood. We enjoy good visibility and walk-by exposure.exposure but are evaluating various options to relocate if the landlord at our present location proceeds with plans to demolish our unit and replace it with new construction.
Our warehouse is located at 4430 Garfield Street, Denver CO 80216, in an industrial neighborhood zoned for cannabis cultivation. Numerous warehouses utilized for cannabis cultivation are located in this industrial district of Denver.
SEASONALITY
Our business is materially affected by seasonal factors, including but not limited to:
| 1. | Changes in residential real estate inventory |
| 2. | Changes in buyer demand caused by the economy, holidays, Fall "back to school" or other special events |
| 3. | Unusual or severe weather |
| 4. | The seasonal nature of major construction projects in Colorado |
EMPLOYEES
As of the date of this report we have one full time employee, Corey Wiegand. Mr. Wiegand is, our founder and CEO. He is assisted by agents, licensed Licensed Real Estate Agents and professional consultants on an as needed basis.administrative assistant and various additional contract labor.
RISK FACTORS
This investment has a high degree of risk. Before you invest you should carefully consider the risks and uncertainties described below. If any of the following risks actually occur, our business, operating results and financial condition could be harmed and the value of our stock could go down. This means you could lose all or a part of your investment.
A footnote to ourOur Auditor's report states that there is substantial doubt that we will be able to continue as a going concern.
We have had substantial losses since inception and as of December 31, 20152017 and the date of this report we have minimal cash reserves. While we are beginning to generate increasing revenue and a positive cash flow, our ability to build significant cash reserves and continue as a going concern over the long term remains unproven. In the event that we are forced to reduce operations or seriously curtail our business, an investor will lose all money invested.
The business of our Cannabis Holdings Subsidiary is dependent on laws pertaining to the marijuana industry.
Continued development of the cannabis industry and a successful role in that industry for our Subsidiary, HMTF Cannabis Holdings, Inc. is dependent upon continued legislative authorization at the state level. While there may be ample public support for legislative action that favors our industry, numerous factors impact the legislative process.
As of JanuaryDecember 31, 20152017 and the date of this report, 21numerous states and the District of Columbia allow their citizens to use medical marijuana. Additionally, voters in the states of Colorado, Washington, Oregon, , Alaska, California, Nevada, Maine, Washington and the District of Columbia have approved ballot measures to legalize cannabis for "recreational" adult use.
During November of 2000 Colorado voters approved Amendment 20 to amend the State Constitution to provide for legalized use, possession and sale of medical marijuana.
During November 2012 Colorado voters approved Amendment 64 to the State Constitution to legalize the use, possession and sale of retail marijuana. Amendment 64 also provides for the Colorado General Assembly to enact an excise tax on wholesale marijuana sales, adopt further rules to govern cultivation, processing retail sale and finally to give cities and counties the ability to locally opt out of retail marijuana.
These state laws are in conflict with the federal Controlled Substances Act, which makes marijuana use and possession illegal on a national level.
The following links may be of use to understand the details of Colorado Laws.
http://new.livestream.com/accounts/4105485/CAR031314
http://www.colorado.gov/cs/Satellite/Rev-MMJ/CBON/1251581331216
During October, 2009 the Obama Administration ended aggressive law enforcement against medical marijuana patients and dispensaries. The Obama administration has effectively stated that it is not an efficient use of resources to prosecute those lawfully abiding by state designed laws allowing the use and distribution of marijuana.
However, there is no guarantee that the Trump administration will not change itsthis stated policy regarding low-priority enforcement of laws. Additionally, anylaws and the new administration that follows couldmay change this policy and decide to enforce the federal laws. Any such changesignificant tightening in the federal government's enforcement of current federal lawspolicies could cause significant financial damage to us and our shareholders.
Further, while we do not grow, harvest, distribute or sell cannabis, by leasing facilities to growers of cannabis, we could be deemed to be participating in marijuana cultivation, which remains illegal under federal law, and expose us to potential criminal liability, with additional risk that our properties could be subject to civil forfeiture proceedings.
Marijuana remains illegal under Federal Law
Marijuana is a schedule-1 controlled substance and is illegal under federalFederal law. Even in those states in which the use of marijuana has been legalized, its use remains a violation of federal law. Since federal law criminalizing the use of marijuana preempts state laws that legalize its use, strict enforcement of federal law regarding marijuana would likely result in our inability to proceed with the cannabis properties portion of our business plan.
A revision or reversal of the Federal policies which presently allow Colorado and various other states to pursue legalized marijuana would likely cause widespread financial difficulties to the cannabis business nationally.
The 2016 National elections could installinstalled a presidential administration having an intolerant policy toward Marijuana Legalization. If such a political reversal were to occur, the thriving legalized ColoradoColorado's Cannabis Industry could beis now at increased risk of vigorous enforcement of Federal Laws which prohibit Cannabis cultivation, sale and consumption.
On March 30, 2017, legislation was filed in the US House and Senate to end marijuana prohibition at the federal level and replace it with a system in which marijuana is regulated and taxed similar to alcohol. The proposed legislation would:
| 1. | Remove marijuana from the Controlled Substance Act |
| 2. | Create a federal regulatory process for states that choose to regulate the cultivation and sale of marijuana for adult use |
| 3. | Eliminate many of the collateral consequences of the federal tax code so that state legal marijuana businesses can take standard deductions on business expense. |
While we believe strong public support exists for adoption of these or similar measures, there is no assurance that federal laws will be changed accordingly.
The Marijuana Industry faces strong opposition.
It is believed by many that large well-funded businesses may have a strong economic opposition to the cannabis industry. We believe that the pharmaceutical industry clearly does not want to cede control of any product that could generate significant revenue. For example, we believe medical marijuana likely has adversely impacted the consumer market for the proposed "marijuana pill" which may sold by the mainstream pharmaceutical industry. Legalization of marijuana could 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. Inroads, if any, that the pharmaceutical industry makes toward halting the cannabis industry could have a detrimental impact on our proposed business.
Tenants of our Company owned Denver warehouse facility, and of any additional facilities of a similar nature which we may acquire in the future, may have difficulty accessing the services of banks which may make it difficult for them to operate.
Since the use of marijuana is illegal under federalFederal law, a compelling argument has been made in the past that banks cannot accept deposit funds from businesses involved with marijuana. We believe that this argument may someday be abandoned, but there is no assurance of this. Recently the State of Colorado has made efforts to organize Four CornersFourth Corner Credit Union which is intended to serve the banking needs of the Cannabis Industry in Colorado. On February 2, 2018 the Federal Reserve granted Colorado a conditional approval However, as of the date of this report this facility has not opened for business.business and given the attitudes of the new administration, may never open. There is no assurance that the environment for banking relationships will continue to progress favorably. In any case, inability to open conventional bank accounts may continue make it difficult for potential tenants of proposed facilitiesmarijuana connected businesses to operate.
PotentialDiscount Brokers are gaining a larger share of the revenues generated by real estate transactions. Competitors couldcan duplicate the business model of our Subsidiary, HMTF Cannabis Holdings. Inc.
While our subsidiary has acquired, improved and leased properties suitable to legal cultivation of cannabis, there is no aspect of our business model which is protected by patents, copyrights, trademarks or trade names. As a result, potential competitors will likely duplicate our business model.
A significant portion of our monthly cash flow derives from rental revenue derived from our warehouse, which may prove uncollectable.
We carefully vettvet prospective tenants, and we obtain their personal guarantees as to payment and performance under the lease terms.
In the event the cultivation business of one or more grower tenants fails, or for any reason our tenant fails to pay rent in a timely fashion and we do not receive the rent payments as such payments become due under lease terms, thereafter, if satisfactory payment arrangements as acceptable to us are not made, we may be forced to evict.
Under terms of the leases now in effect, if we do not receive rent payments as such payments become due and payable under lease terms, we may first utilize the sums we hold as tenant security deposits to collect the late rent payments with penalty. Under the terms of the leases in place, tenants then are required, within five days, to replace such security deposit sums such that the full tenant security deposit is restored. There is no assurance that such replacements of deposit sums will actually occur.
In any event, if tenants do not comply with lease terms, and no workable arrangement can be achieved, we may be forced to evict one or more tenants. This has occurred in the past and could occur again. Unfavorable developments of this nature could contribute to or cause us to fall behind on our obligations to make monthly mortgage payments as such payments become due.
During the past year we have experienced disagreements with our warehouse tenants. One tenant abandoned his unit and was evicted. The other tenant ultimately amended his lease to include the abandoned space but only after considerable argument over various lease terms had been settled. As of the date of this report, a single tenant is leasing our entire Garfield Street warehouse and that tenant has beengenerally remained current on lease payments for the past eight months.payments. As of December 31, 20152017 and the date of this report, we know of no further unresolved issues with our present tenant. However, unfavorable developments as experiencedtenant and are presently in the past could repeat and could cause usdiscussions to fall behind on our building mortgage payments.extend their lease under terms believed favorable to us; however, there is no assurance of a favorable outcome.
If we pursue an action for eviction, one or more tenants might cause physical damage to our real estate and/or fight an action for eviction, and/or refuse to vacate or otherwise undertake to block and/or slow our efforts to regain proper possession of our warehouse or to locate a suitable alternative tenant to re-lease our warehouse.
We believe that we have acted legally and in good faith with respect to our tenants.warehouse tenant. We further believe that our real estate is adequately insured. We plan to defend our property and related contractual rights to the fullest extent of the law. In the past we were assisted by counsel and with such assistance we acted to negotiate a suitable remedy to these various disputes. There is no present way to predict the final outcome of these issues.any new issues that may arise.
A tenant, present or former, may claim to have suffered damages and in connection with that belief, may elect to initiate and thereafter pursue one or more regulatory complaints or lawsuits against the Company, and/or its management and subsidiaries.
We believe we have acted properly in all of our dealings with tenants at our warehouse and properties we manage for third parties and otherwise. We have requested counsel to confirm the legality of our past and present agreements and actions and to advise us accordingly. In any case, we have prevailed in various prior matters of this nature and we plan to vigorously defend any suit or regulatory complaint brought against the Company, its employees or its subsidiaries.
The former tenant of our Garfield Street warehouse, evicted for failure to pay rent, has since intiated litigation in the nornal course of business activities claiming damages allegedly suffered prior to eviction. In connection with this matter, we believe that pending legal defense will be successful, that any and all future legal services, as required will be performed on our behalf by an attorney made available under our title insurance policy and that the entire cost of such defense will be paid by the company that issued our title insurance policy.agents.
We have a limited operating history.history and operate under a professional license held by management
Our ability to achieve consistent cash flow and profitability depends upon the continued service of Corey Wiegand. Mr. Wiegand is our primary source of commission revenue, and our CEO and our only management level executive. Mr. Wiegand holds an Employing Broker license issued by the State of Colorado. All of our Colorado based real estate brokerage and management revenue depend upon the present license held by Mr. Wiegand. In the event that the license held by Mr. Wiegand is censured or otherwise downgraded by an action of regulatory process, our business could be damaged. We believe that Mr. Wiegand has complied with all requirements to maintain an Employing Broker license.
During 2013 our revenues accelerated and we are no longer considered a development stage company. Our business plan provides that we will grow rapidly and ultimately deliver professional services to would be buyers through licensed Licensed Real Estate Agents acting as listing agents and buyer agents rather than primarily through commissions earned by our founder.
To actualize this goal, we plan to market our advanced sales techniques to established realtors that wish to earn more commissions from buyer transactions. We are working to recruit buyer agents to sign our master referral agreements, graduate from our workshops and respond to our IVR leads. As of the date of this report, we are training additional buyer agents.
Our real estate sales business plan provides that we will grow rapidly and ultimately deliver professional services to would be buyers through "buyer agents" rather than primarily through our founder. To actualize this goal, we plan to market our advanced sales techniques to established realtors that wish to earn more commissions from buyer transactions. We have leased office space where we plan to aggressively expand our professional staff.staff
We have activated our plan to recruit buyer agents to sign our master referral agreements, graduate from our workshops and respond to our IVR leads. As of the date of this report, in addition to Mr. Wiegand we have foursix active licensed Licensed Real Estate Agents and we are training anendeavoring to recruit and train additional two agents. All of our trainees are either presently licensed or enrolled in courses operated by third party realtor schools. All of our trainees pay their own expenses for the classes. We may elect to offer newly hired Licensed Real Estate Agents a bonus plan which awards shares of our common stock which vest over a one year period assuming productivity goals are achieved by each agent as expressedachieved. Further detail is outlined in the Broker Relationship Agreement signed by each new hire.
We may not be able to generate predictable and continuous revenue in the future. Further, there is no assurance that we will ever grow operations outside the Denver Metro area. While we own a cannabis qualified warehouse and lease it to licensed growers who are presently current on rent payments, the cash flow generated is from a new untested industry which is unique to Colorado and just a few other states and subject to rapid change. Cash flow that our warehouse presently generates may become erratic or cease.
We may incur significant operating losses in the future, due to the expansion of our operations or other factors. There is no assurance that we can expand under terms that permit profitable operations over the long term. Failure to generate sufficient revenue to pay expenses as they come due may make us unable to continue as a going concern and result in the failure of our company and the complete loss of any money invested to purchase our shares.
We may be unable to manage our growth or implement our expansion strategy.
Several years ago, Mr. Wiegand contributed his property management entity known as CW Properties and we have taken over operations. We currently manage sixty-nine115 rental units and as of December 31, 20152017 and the date of this report theyour management activities continue to generate net revenue from management fees. In the future we may undertake additional activities in property management as well as those in connection with our ongoing business plan or, alternatively we may elect to sell theour property management business.
As a public company, our expenses include, but are not limited to, annual audits, legal costs, SEC reporting costs, costs of a transfer agent and the costs associated with fees and compliance. Further, our management will need to invest significant time and energy to stay current with the public company responsibilities of our business and will therefore have diminished time available to apply to other tasks necessary to our survival and growth.
It is therefore possible that the financial and time burdens of operating as a public company will cause us to fail to achieve profitability. If we exhaust our funds, our business will fail and our investors will lose all money invested in our stock.
It is essential that we grow our business, achieve significant profits and maintain adequate cash flow in order to pay the cost of remaining public. If we fail to pay public company costs, as such costs are incurred; we could become delinquent in our reporting obligations and face the delisting of our shares.
It is essential that we grow our business, achieve significant profits and maintain adequate cash flow in order to pay the cost of remaining public.
We have recently expanded brokerage and property management. We now operate in Colorado Springs and Greeley.
The issuance of additional shares of our common stock may be necessary for the implementation of our growth strategy.
A limited private placement of restricted shares of our common stock was completed several years ago. Cash generated was used to acquire cannabis zoned real property, finance our new office space and provide working capital. Issuance of any additional securities pursuant to future fundraising activities undertaken may significantly dilute the ownership of existing shareholders and may reduce the price of our common stock.
Our subsidiary, HMTF Cannabis Holdings has acquired, improved and leased a Denver warehouse to a licensed third party grower. Our projectgrower, rent is current and the warehouse is showing positive cash flow, however thisflow.
However, activation of our warehouse project was accomplished primarily through an owner-carry purchase arrangement and funds invested by the tenant to improve the property.
To acquire additional properties suitable to the cultivations of cannabis may require sale of additional restricted shares in a private placement. Alternately, a debt financing could be utilized; however any debt financing will require payment of interest and may involve offering security interests in our planned properties and possibly issuing warrants to purchase our common stock. Future financings, if undertaken, could impose limitations on our operating flexibility and may involve the issuance of additional shares of our common stock, or warrants to purchase shares of common stock and may be dilutive to our existing shareholders.
While we have been able to acquire a warehouse in Denver Colorado with 99% owner finance, future acquisitions may require financial resources well in excess of our present balance sheet. Failure to successfully obtain additional funding would likely jeopardize our ability to expand our cannabis business and related operations.
Further, we need to raise money for working capital and to finance new opportunities presented by legalization of on-site consumption. To these ends, we may file a Memorandum with the Colorado Division of Securities to pursue an Intra-State Offering of additional shares of our common stock over the internet. There is no assurance that the Colorado Division of Securities will approve our offering or that any shares will be sold under the terms of our proposed offering.
As a full reporting public company, we have no access to Reg A Plus or Reg CF as a means to generate cash from the sale of our shares.
The loss of our current executive officer or key management personnel or inability to attract and retain the necessary personnel could have a material adverse effect upon our business, financial condition or results of operations
Our success is heavily dependent on the continued active participation of our current executive officer and sole director listed under "Management." Loss of the services of Corey Wiegand, or any significant negative development in connection with any professional license held by Mr. Wiegand would have a material adverse effect upon our business, financial condition or results of operations. Further, our success and achievement of our growth plans depend on our ability to recruit, hire, train and retain other highly qualified technical, professional, clerical, administrative and managerial personnel. Competition for qualified buyer agents among companies in the real estate industry is intense, and the loss of any of such persons, or an inability to attract, retain and motivate any additional highly skilled realtors required for the expansion or maintenance of our activities, could have a materially adverse effect on our future financial performance. Inability to attract and retain the necessary personnel, consultants and advisors could have a material adverse effect on our business, financial condition or results of operations.
We are controlled by our current officer and director.
Corey Wiegand, our sole director, who is our sole executive officer, beneficially owns approximately 50.7% of our outstanding shares of Common Stock. Mr. Wiegand consequently controls the election of our Board of Directors and the outcome of issues submitted to our stockholders.
Since we have only one director who serves as our president, chief executive officer, chief financial officer and secretary, decisions which affect the company will be made by only one individual. It is likely that conflicts of interest will arise in the day-to- day operations of our business. Such conflicts, if not properly resolved, could have a material negative impact on our business.
In the past, the Company has issued shares for cash and services at prices which were solely determined by Corey Wiegand. At that time, Mr. Wiegand made a determination of both the value of services exchanged for our shares, and, as well, the price per share used as compensation. Transactions of this nature were not made at arm's length and were made without input from a knowledgeable and non-interested third party. Future transactions of a like nature could dilute the percentage ownership of the company owned by a given investor. While the company believes its past transactions were appropriate, and plans to act in good faith in the future, an investor in our shares will have no ability to alter such transactions as they may occur in the future and, further, will not be consulted by the company in advance of any such transactions. An investor who is unwilling to endure such potential dilution should not purchase our shares.
We have limited financial resources to take advantage of advertising opportunities as they may arise.
The inability to pay for press releases, investor road shows or other media events intended to expose our shares to institutional investors, could adversely affect our ability to generate investor support for our common shares.
Our operating results will be subject to fluctuations and our stock price may decline significantly.
Our quarterly revenue and operating results from commissions, management fees and lease revenues, if any, will be difficult to predict from quarter to quarter. We derive relatively stable revenue from our property management operations. Nonetheless, it is possible that our net operating results in some quarters will fall below our expectations. Our quarterly operating results will be affected by a number of factors, including:
| • | | trends in the median home values in Colorado; |
| • | | the availability, pricing and timeliness of web advertising campaigns; |
| • | | the impact of seasonal variations in demand and/or revenue recognition linked to construction cycles and weather conditions and the retail price of signs, sign riders, telephone services, and Mentor Sales Workshops; |
| • | | timing, availability and changes in government incentive programs; |
| • | | unplanned additional expenses and/or shortfalls in anticipated rental income at our warehouse property; |
| • | | logistical costs; |
| • | | unpredictable volume and timing of buyer's agent sales; |
| • | | our ability to establish and expand listing agent relationships; |
| • | | the number of buyer agents that we are able to recruit; |
| • | | the timing of new technology announcements or introductions by our competitors and other developments in the competitive environment; |
| • | | increases or decreases in real estate appreciation rates due to changes in economic growth; |
| • | | travel costs and other factors causing the mentor training business to become more difficult; and |
| • | | changes in lending, inspection, appraisal and other factors that result in closing delays or cancellations. |
If revenue for a particular quarter is lower than we expect, we likely will be unable to proportionately reduce our operating expenses for that quarter, which would harm our operating results for that quarter. If we fail to meet investor expectations or our own future guidance, even by a small amount, our stock price could decline, perhaps substantially.
Existing real estate laws, regulations, land use codes and policies, the rules promulgated by the Department of Regulatory Agencies or the State of Colorado's Marijuana Enforcement authorities and changes to these regulations and policies may present technical, regulatory and economic barriers to our real estate operations, potential buyers and to our tenants at the Company's Garfield Street warehouse. warehouse or elsewhere.
The market for homes and other real estate is influenced by U.S. federal, state and local government regulations and policies concerning the real estate industry, as well as policies promulgated by local real estate boards. These regulations and policies often relate to realtor compensation, and pricing. In the U.S. and in a number of other countries, these regulations and policies are being modified and may continue to be modified. Investment in the real estate could be deterred by these regulations and policies, which could result in a significant reduction in the potential demand for various types of real property and for our services. For example, loss of favorable tax treatment, certain government buyer incentive programs, and or government subsidized or backed loan programs may result in loss of sales which would likely harm our financial performance.
The reduction or elimination of government and economic incentives could cause our revenue to decline.
Today, we believe consumer confidence is slowly recovering.high and trending upwards. However buyers are finding it very difficult to locate affordable properties and qualify for loans and the interest chargedloans. Interest on mortgages is rising. In the past federal, state and local government bodies in many states have provided incentives in the form of rebates, tax credits and other incentives to buyers that are willing to purchase real estate. For example, an eight thousand dollar first time home buyer tax credit was offered and thereafter the credit offering expired. Future government economic incentives, if any, could be reduced or eliminated altogether. Such home buyer incentives expire, decline over time, are limited in total funding or require renewal of authority. Reductions in, or eliminations or expirations of governmental incentives could result in decreased demand for our services.
Changes in tax laws or fiscal policies may decrease the return on investment for customers of our business which could decrease demand for our services and harm our business.
We anticipate that a portion of our future revenues will be derived from commissions in connection with the sale of single family residences to individual homebuyers. In deciding whether to purchase or to rent, prospective customers may evaluate their projected return on investment. Such projections are based on current and proposed federal, state and local laws, particularly tax legislation. Changes to these laws, including amendments to existing tax laws or the introduction of new tax laws, tax court rulings as well as changes in administrative guidelines, ordinances and similar rules and regulations could result in different tax assessments and may adversely effectaffect a homeowner's projected return on investment, which could have a material adverse effect on our business and results of operations.
Problems with service quality or individual buyer agent performance may include agent error, agent negligence or problems within the mentoring services we plan to provide. The result would likely be fewer customers, reduced revenue, unexpected expenses and loss of market share.
We are significantly reliant on the abilities and skills and Employing Broker license of Corey Wiegand andWiegand. other agents and assistants that act on our behalf. In the past, various clients who received services from our company or who lease our Garfield Street warehouse or leased the residential property we manage have filed complaints that allege poor performance, fraud or in some way challenge our performance. While we believe that these allegations are without merit and we vigorously defend the legality and appropriateness of our past actions, we may fall victim to regulatory actions or court rulings in connection with alleged agent errors, omissions or other issues.
The Realtors we plan to recruit may not deliver consistent and professional mentor and "buyer agent" services and thus our business plan may not gain market acceptance, which would prevent us from achieving sales and market share
The development of a successful market for our mentor services and lead generation techniques may be adversely affected by a number of factors:
● | failure to compete favorably against other services and techniques on the basis of cost, quality and performance; |
| |
● | failure to compete favorably against conventional sales agents and realtors and alternative lead-generation technologies, such as text and e-mail spamming on the basis of cost, quality and performance. |
If the services and techniques we offer fail to gain market acceptance, we will be unable to achieve significant sales and market share.
The real estate industry is rapidly evolving and highly competitive. A variety of competing lead generation technologies are in use or under development now that could result in lower buyer agent costs or higher conversion rates than those lead generation technologies selected by us. These development efforts may render obsolete the lead generation services we have to offer.
Existing telephone and web advertising regulations and changes to such regulations may present regulatory and economic barriers to our real estate lead generation activities.
Lead generation activity is heavily influenced by federal, state and local government regulations and policies concerning the tech based marketing industry, as well as internal policies and regulations promulgated by "national do not call lists." These regulations and policies often relate to public privacy. In the United States these regulations and policies are being modified and may continue to be modified. We anticipate that our lead generation channels and activity will be subject to oversight and regulation in accordance with national and local ordinances relating to privacy protection, and related matters. Any new government regulations or utility policies pertaining to our lead generation services may result in significant additional expenses to us and as a result, could cause a significant reduction in sales referrals and related commission revenue.
If our mentoring services are not suitable for widespread adoption, or a sufficient demand for trained buyer agents or leads does not develop, or takes longer to develop than we anticipate, we would be unable to achieve sales. sufficient revenue growth.
The market for residential real estate is rapidly evolving and its future is uncertain. IfWe have begun offering free seminars on real estate investing. These are proving useful to finding new clients; however, if real estate proves unsuitable for widespread ownership or if demand for our mentoringseminars and related services fails to develop sufficiently, we would be unable to achieve sales and market share. Many factors will influence our revenues:
The reduction in home loan availability could prevent us from achieving sales and market share.
The reduction or elimination of government lending incentives may adversely affect the growth of this market or result in increased price competition, which could prevent us from achieving sales and market share.
Today, over 70% of home loans are insured by the federal housing administration (FHA loans). These loans are popular because they have lower down payment requirements and lower credit score requirements. Should FHA raise their down payment or credit requirements the result could be reduced home purchases which would significantly harm our business.
We face intense competition from other real estate brokerages and other discount real estate mentoring companies. If we fail to compete effectively, we may be unable to increase our market share and sales.
Most of our competitors are substantially larger than we are, have longer operating histories and have substantially greater financial, technical, marketing and other resources than we do. We compete with a growing number of discount brokers. Our competitors' greater size in some cases provides them with competitive advantages with respect to marketing costs due to their ability to allocate fixed costs across a greater volume of marketing channels and purchase signs and services at lower prices. They also have far greater name recognition, an established network of past customers. In addition, many of our competitors have well-established relationships with current and potential home sellers. As a result, our competitors will be able to devote greater resources to prospecting, relationship development, and promotion and may be able to respond more quickly to evolving industry standards and changing customer requirements than we can.
A substantial number of our issued shares are, or are being made available for sale on the open market. The resale of these securities might adversely affect our stock price.
The sale of a substantial number of shares of our common stock, or the market's anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise obtain.
Availability of these shares for sale in the public market could also impair our ability to raise capital by selling equity securities.
There is presently a limited trading market for our shares. This is a recent development. An investment in our shares may be or become totally illiquid and any investor purchasing our shares may be unable to resell their shares. There can be no assurance that market interest in our shares will develop or continue. Therefore, investors who purchase our shares could lose their entire investment.
Even if significant trading activity involving our shares continues, the volume of trading may be small and on some days the volume may be zero. Our share price will likely be volatile and will likely fall rapidly should an investor attempt to liquidate a significant number of shares. These conditions are likely to persist and could prevent resale of our shares on desirable terms.
We are subject to corporate governance and internal control reporting requirements, and our costs related to compliance with, or our failure to comply with existing and future requirements, could adversely affect our business.
We face new corporate governance requirements under the Sarbanes-Oxley Act of 2002, as well as new rules and regulations subsequently adopted by the SEC and the Public Company Accounting Oversight Board. These laws, rules and regulations continue to evolve and may become increasingly stringent in the future. In particular, under new SEC rules we will be required to include management's report on internal controls as part of our annual report pursuant to Section 404 of the Sarbanes-Oxley Act. Furthermore, under the proposed rules, an attestation report on our internal controls from our independent registered public accounting firm will be required as part of our annual report. We are in the process of evaluating our control structure to help ensure that we will be able to comply with Section 404 of the Sarbanes-Oxley Act. The financial cost of compliance with these laws, rules and regulations is expected to be substantial. We cannot assure you that we will be able to fully comply with these laws, rules and regulations that address corporate governance, internal control reporting and similar matters. Failure to comply with these laws, rules and regulations could materially adversely affect our reputation, financial condition and the value of our securities.
The Company as well as its tenants must comply with all foreign, U.S. federal, state and local laws and regulations regarding licensing and insurance requirements. In addition, under some statutes and regulations, a government agency, or other parties, may seek recovery and response costs from an agent where warrantees have been made, even if the agent was not responsible for such a warrantee or is otherwise at fault. In the course of future business we may inadvertently refer business to an agent who does not comply with local laws and regulations. Any failure by us to shift responsibility onto that agent, and thus restrict our liability in connection with the incident, could subject us to potentially significant monetary damages and fines or suspensions in our business operations. In addition, if more stringent laws and regulations are adopted in the future, the costs of compliance with these new laws and regulations could be substantial. If
There are restrictions on the transferability of the securities.
Until registered for resale, investors must bear the economic risk of an investment in the Shares for an indefinite period of time. Rule 144 promulgated under the Securities Act ("Rule 144"), which provides for an exemption from the registration requirements under the Securities Act under certain conditions, requires, among other conditions, a six month holding period prior to the resale (in limited amounts) of securities acquired in a non-public offering without having to satisfy the registration requirements under the Securities Act. There can be no assurance that we will fulfill any reporting requirements in the future under the Exchange Act or disseminate to the public any current financial or other information concerning us.
If the Company uses its stock in acquisitions of other entities there may be substantial dilution at the time of a transaction.
The offering price of the common stock we sold under our prospectus, and more recently as a private placement of restricted shares of our common stock to raise working capital, was arbitrarily set. The price did not bear any relationship to our assets, book value, earnings or net worth and it is not an indication of actual value. You may also suffer additional dilution in the future from the sale of additional shares of common stock or other securities or if the Company's shares are issued to purchase other assets or to raise additional working capital.
The laws which govern merger transactions provide that since our sole director and officer owns over 50% of our outstanding shares, we may enter into a share exchange, reverse merger or other similar transaction with a private company in an unrelated business without the prior approval of unaffiliated shareholders.
The various securities laws applicable to our company provide that our management may elect to enter and consummate a transaction to enter new or additional businesses. In that event, our shareholders might receive only an information statement with certain disclosures as required by law and would likely not be in a position to approve or disapprove the transaction. Investors who are unwilling to accept the uncertainty of new management, a new business plan, likely dilution and all the numerous related uncertainties that may materialize in the event such a transaction is consummated should not purchase our shares.