See accompanying notes to the unaudited consolidated financial statements
FUTURELAND, CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2015
NOTE 1: NATURE OF OPERATIONS, BASIS OF PRESENTATION, RECAPITALIZATION AND GOING CONCERN
Nature of Operations
FutureLand Properties LLC. was originally formed as a wholly-owned subsidiary of FutureWorld Corp. On October 6, 2014 FutureWorld entered into a Contribution Agreement with FutureLand, a wholly-owned subsidiary of the Company. In accordance with this agreement, FutureLand, in return for contribution of intellectual property, cash, and web development services by the Company, has exchanged 40,000,000 shares of its common stock representing 100% of the shares outstanding. On March, 10th, FutureLand Properties LLC did a merger agreement with Aegea Inc. (FutureLand Corp), ensuing FutureLand Properties LLC to become Aegea Inc. (FutureLand Corp) wholly owned subsidiary. The agreement resulted in the FutureLand Properties LLC's shareholders (FutureWorld Corp) to be issued 27,845,280 shares of Aegea Inc. (FutureLand Corp). This will result in FutureLand Corp's shares being held for investment on FutureWorld's balance sheet.
FutureLand Corp. operates its presented business through its subsidiary, FutureLand Properties, is an agricultural land lease company catering to the industrial hemp, legal medical marijuana and recreational cannabis market. Future Land was started to capitalize upon the distinct separation of the cultivation grows from the dispensaries, specifically with respect to Colorado. In the State of Colorado, which has become the quintessential poster-child for what the industry may look like for the rest of America, at least temporarily, as other states determine what exact direction they will choose to go, there are residency laws that must be adhered to. For instance, in order to get a license to grow or profit from cannabis in Colorado you must be a 2 year resident. The laws are very specific; anyone who is not a 2 year resident cannot profit from the sale of the cannabis flower or infused products. Because of this mandate, Future Land Corp must be a land owner and leaser in order to effectively participate in the cannabis grow industry, which we believe is essential in order to gain a competitive advantage. We also must own the structures on the land to control the lease and our future position in the industry.
The business model is simple; offer growers the opportunity to grow. We have the land and then we find a growers requiring assist in funding and obtaining their license and grow facility. Next, we arrange for additional operational items needed, including but not limited to, complete build-outs provided from our associated company, HempTech Corp, in order to capture additional revenue.
Recapitalizations and reverse stock split
In May 2015, the Company changed its name to FutureLand, Corp. and effected a 1 for 400 reverse stock split of the Company's common stock. All share and per share data in the accompanying consolidated financial statements and footnotes have been retroactively restated to reflect the reverse stock split.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned inactive subsidiaries, FutureLand Properties, LLC. All inter-company balances and transactions have been eliminated in consolidation.
FUTURELAND, CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2015
Basis for Presentation for Interim Financial Statements
These unaudited consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") in accordance with the rules and regulations of the U.S. Securities and Exchange Commission ("SEC") for interim financial information. Accordingly, they do not include all of the information and footnotes required by "GAAP" for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The accounting policies and procedures used in the preparation of these unaudited consolidated financial statements have been derived from the audited consolidated financial statements of the Company for the period December 31, 2014. The consolidated balance sheet as of September 31, 2015 was also derived from those audited consolidated financial statements. The results of operations for the three months ended September 31, 2015 are not necessarily indicative of the results to be expected for the year. The Company retroactively applied its name change and recapitalization per the share exchange agreement for all periods presented in the accompanying unaudited consolidated financial statements.
Income Taxes
The Company has adopted FASB ASC 740-10, Accounting for Income Taxes, which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually from differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
Net Earnings (Loss) per Share
The Company computes net earnings (loss) per share in accordance with ASC 260-10, "Earnings per Share." ASC 260-10 requires presentation of both basic and diluted earnings per share ("EPS") on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period. Diluted EPS excludes all dilutive potential common shares if their effect is anti-dilutive. At December 31, 2014, we excluded 1,000 shares of Series B Preferred Stock convertible into 1,000 shares of common stock.
Going Concern
As reflected in the accompanying unaudited consolidated financial statements, the Company had a net loss and net cash used in operations of $1,985,451 and $ 148,898 respectively, for the three months ended September 31, 2015 and a working capital deficit, stockholders' deficit, and deficit accumulated during the development stage of $148,898, $1,985,451, and $1,985,451, respectively, at September 31, 2015 and is in the development stage with no revenues. These matters raise substantial doubt about the Company's ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company's ability to further implement its business plan including leasing more land or facilities, raise additional capital, and generate revenues. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
FUTURELAND, CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2015
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments with maturities of three months or less at the time of purchase.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant assumptions and estimates relate to the valuation of equity issued for services, valuation of equity associated with convertible debt, the valuation of derivative liabilities, and the valuation of deferred tax assets. Actual results could differ from these estimates.
Fair Value Measurements and Fair Value of Financial Instruments
The Company adopted ASC Topic 820, Fair Value Measurements. ASC Topic 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1: Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
Level 2: Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.
Level 3: Inputs are unobservable inputs which reflect the reporting entity's own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.
The estimated fair value of certain financial instruments, including all current liabilities are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.
Stock-based Compensation
ASC 718, "Compensation-Stock Compensation" requires recognition in the financial statements of the cost of employee services received in exchange for an award of equity instruments over the period the employee is required to perform the services in exchange for the award (presumptively the vesting period). We measure the cost of employee services received in exchange for an award based on the grant-date fair value of the award.
FUTURELAND, CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2015
We account for non-employee share-based awards based upon ASC 505-50, "Equity-Based Payments to Non-Employees." ASC 505-50 requires the costs of goods and services received in exchange for an award of equity instruments to be recognized using the fair value of the goods and services or the fair value of the equity award, whichever is more reliably measurable. The fair value of the equity award is determined on the measurement date, which is the earlier of the date that a performance commitment is reached or the date that performance is complete. Generally, our awards do not entail performance commitments. When an award vests over time such that performance occurs over multiple reporting periods, we estimate the fair value of the award as of the end of each reporting period and recognize an appropriate portion of the cost based on the fair value on that date. When the award vests, we adjust the cost previously recognized so that the cost ultimately recognized is equivalent to the fair value on the vesting date, which is presumed to be the date performance is complete.
Derivative Liability
We evaluate convertible instruments, options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under ASC Topic 815, "Derivatives and Hedging." The result of this accounting treatment is that the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income (expense). Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815 are reclassified to liabilities at the fair value of the instrument on the reclassification date.
Research and Development
In accordance with ASC 730-10, expenditures for research and development are expenses when incurred and are included in operating expenses. The Company recognized research and development costs of $0 for the three months ended September 31, 2015.
Recent Accounting Pronouncements
Accounting standards which were not effective until after December 31, 2014 are not expected to have a material impact on the Company's consolidated financial position or results of operations.
NOTE 3: CONCENTRATIONS
Concentrations of Credit Risk
The Company maintains accounts with financial institutions. All cash in checking accounts is non-interest bearing and is fully insured by the Federal Deposit Insurance Corporation (FDIC). At times, cash balances in money market accounts may exceed the maximum coverage provided by the FDIC on insured depositor accounts. The Company believes it mitigates its risk by depositing its cash and cash equivalents with major financial institutions. There were no cash deposits in excess of FDIC insurance at September 31, 2015.
FUTURELAND, CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2015
NOTE 4: STOCKHOLDERS' DEFICIT
Preferred Stock
On October 4, 2014 and April 10, 2015, the Company filed a Certificate of Designations under its Amended and Restated Articles of Incorporation (the "Certificate of Designations") with the State of Colorado to (a) designate 200,000 shares of its previously authorized Preferred Stock as Series A Convertible Preferred Stock and (b) designate 3,000 shares of its previously authorized Preferred Stock as Series B Preferred Stock including 1,000 shares that were previously issued on October 4, 2014. On June 9th, 2015, previously issued 1,000 shares on October 4, 2014 were cancelled. The Certificate of Designations and their filing were approved by the board of directors of the Company on September 30, 2014 without shareholder approval as provided for in the Company's articles of incorporation and under Colorado law.
Description of Series A Convertible Preferred Stock
The 200,000 shares of Series A Convertible Preferred Stock have the following the designations, rights and preferences:
| · | the stated value of each share is $500, |
| · | the holder of the shares will be entitled to vote, on a one-for-one basis, with the holders of our common stock on all corporate matter on which common shareholder are entitled to vote, |
| · | the shares pay quarterly dividends in arrears at the rate of 4% per annum based on the stated value of each share, |
| · | each share is convertible into shares of our common stock at a conversion price of $2,000.00 per share, subject to adjustment, at any time upon : (I) the seventh anniversary of the original issue date of Series A Preferred Stock or (ii) the date the beneficial holder qualifies as a Permanent U.S. resident, whichever occurs earliest, |
| · | the shares are redeemable by us under certain conditions, and |
| · | the conversion price of the Series A Convertible Preferred stock is subject to proportional adjustment in the event of stock splits, stock dividends and similar corporate events. |
Description of Series B Convertible Preferred Stock
The 2,000 shares of Series B Convertible Preferred Stock have the following the designations, rights and preferences:
| · | The Company is not permitted to pay or declare dividends or other distributions to the holders of the Series B Preferred Stock, whether in liquidation or otherwise, |
| · | the holder of the shares will be entitled to vote, on a one million-for-one basis, with the holders of our common stock on all corporate matter on which common shareholders are entitled to vote, and |
| · | each share is convertible into one share of our common stock. |
On April 10, 2015, the Company issued 2,000 shares of its Series B Preferred Stock to certain related party officers and directors valued at $2,150 based on the common stock quoted trading value of $2.15 (post-reverse stock split) at the grant date and a one to one conversion rate of the Series B shares into common stock. The certificate of designation does not provide for any adjustment to the quantity or conversion terms of the Series B convertible preferred stock resulting from stock splits or other recapitalization of common stock of the Company. Therefore, all amounts discussed above reflect pre-reverse stock split amounts.
FUTURELAND, CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2015
Common Stock
Of the authorized common stock, 28,144,092 shares are outstanding as of immediately after the closing of the Acquisition and after giving effect to the shares to be issued to the former FutureLand shareholders as a result of the Acquisition. The holders of our common stock are entitled to receive dividends from our funds legally available therefor only when, as and if declared by our Board, and are entitled to share ratably in all of our assets available for distribution to holders of our common stock upon the liquidation, dissolution or winding-up of our affairs. Holders of our common stock do not have any preemptive, subscription, redemption or conversion rights. Holders of our common stock are entitled to one vote per share on all matters which they are entitled to vote upon at meetings of stockholders or upon actions taken by written consent pursuant to Colorado corporate law. The holders of our common stock do not have cumulative voting rights, which mean that the holders of a plurality of the outstanding shares can elect all of our directors. All of the shares of our common stock currently issued and outstanding are fully-paid and non-assessable. No dividends have been paid to holders of our common stock since our incorporation, and no cash dividends are anticipated to be declared or paid in the reasonably foreseeable future.
Pursuant to the Acquisition Agreement, upon consummation of the Acquisition, AEGEA assumed all of FutureLand's options and warrants issued and outstanding immediately prior to the Acquisition. Prior to and as a condition to the closing of the Acquisition, each then-current AEGEA stockholder agreed to surrender certain shares of common stock held by such holder to AEGEA and the then-current AEGEA stockholders will retain or be issued additional shares to be an aggregate of 4.9% of common stock. Therefore, following the Acquisition, FWDG designated holders now hold 27,845,280 shares of AEGEA common stock which is approximately 98.93% of the Company Common Stock outstanding. The percentage ownership by FWDG designated holders will drop to around 94% of common shares after the issuance of the 4.9% new issuance of common shares to the AEGEA stockholders.
NOTE 5: SUBSEQUENT EVENTS
In connection with a convertible note dated August 13, 2014 in the amount of $58,000 (see Note 6), on May 29, 2015 the Company received a notice of default from the Lender. In connection with the notice of default, the Company failed to file its annual report on Form 10-K by the due date (the "10-K Default") and the Company failed to pay its required installment payment due on April 13, 2015 (the "Payment Default") and has not paid all remaining outstanding principal and interest balances due prior to May 13, 2015 (the "Maturity Default"). Pursuant to the default terms in the agreement, the Lender has elected to increase the outstanding balance by applying the Default Effect (the "Default Effect") and accelerate the outstanding balance. The Default Effect for Major Defaults is equal to the outstanding balance multiplied by 115%. The 10-K Default is a Major Default and the Default Effect is equal to $7,585 ($50,565 x 15%). The Payment Default is a Major Default and the Default Effect is equal to $8,791 ($58,609 x 15%). The Maturity Default is a Major Default and the Default Effect is equal to $10,296 ($68,641 x 15%). The debt agreement also provides that the Default Effect may be applied for up to three Major Defaults and three Minor Defaults. The Lender hereby demanded that the outstanding balance of principal, interest and Default Effect aggregating $79,755 be paid to Lender no later than June 3, 2015.
As of August 19, 2015, the Company and the lender has agreed on a payment process including cash and limited number of stock. The Company agreed to pay the lender 16,000 shares of FL common stock and $12K per month for 4 month. The Company has already issued the stock and has made the three payment of $12k.
The Company signed a Convertible note to Iconic Holdings LLC on October 5th, 2015. Total Face Value of the Note is $ 165,000, initial consideration is $ 50,000 and initial OID is $ 5,000. Interest at 10% and initial principal sum of $ 55,000 are due October 5th, 2016. Convertible at 40% of market. The company is not required to pay any unfunded portion of this note.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Note Regarding Forward-Looking Information and Factors That May Affect Future Results
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Securities and Exchange Commission encourages companies to disclose forward-looking information so that investors can better understand a company's future prospects and make informed investment decisions. This Quarterly Report on Form 10-Q and other written and oral statements that we make from time to time contain such forward-looking statements that set out anticipated results based on management's plans and assumptions regarding future events or performance. We have tried, wherever possible, to identify such statements by using words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," "will" and similar expressions in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions, future performance or results of current and anticipated sales efforts, expenses, the outcome of contingencies, such as legal proceedings, and financial results. A list of factors that could cause our actual results of operations and financial condition to differ materially is set forth below:
| | ● | Our limited operating history, ability to achieve profitability and history of losses. |
| | ● | Our need for significant additional capital to fund our business plan. |
| | ● | Our ability to respond to changes in consumer preferences. |
| | ● | Our dependence on a limited number of personnel and third parties who develop, operate and maintain our proposed resort community and sports memorabilia business. |
| | ● | Our ability to respond to changes in consumer preferences. |
| | ● | Economic conditions, particularly in the United States, that have an adverse effect on the leisure industry. |
| | ● | The ability of our stockholders to sell their common stock may be limited because we are listed on the OTCQB Tier of the OTC Markets and do not meet the criteria to list our securities on an exchange such as The NASDAQ Stock Market. |
| | ● | The effects on our stock price as a result of sales of our common stock by existing shareholders pursuant to Rule 144. |
We caution that the factors described herein and other factors could cause our actual results of operations and financial condition to differ materially from those expressed in any forward-looking statements we make and that investors should not place undue reliance on any such forward-looking statements. Further, any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. New factors emerge from time to time, and it is not possible for us to predict all of such factors. Further, we cannot assess the impact of each such factor on our results of operations or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
Our History
FutureLand, CORP. (formerly known as AEGEA, Inc.) ("we", "us", the "Company") was incorporated in Colorado on November 29, 2007 under the name Forever Valuable Collectibles, Inc. We changed our name effective July 1, 2014 in connection with our July 22, 2014 acquisition of AEGEA, LLC which is in the planning stages of developing an international community and mega-resort destination in the heart of South Florida called AEGEA. Prior to the acquisition of AEGEA, LLC, we were been engaged in the business of buying and reselling commemorative professional and college sports memorabilia.
On March 10, 2015, an Exchange Agreement was entered (the "Agreement"), by and among certain shareholders and debt holders of the Company, representing the majority of the outstanding shares of the Company ("the AEGA Holders"), and FutureWorld, Corp. (hereafter referred to as "FWDG"), a Delaware Corporation which is the owner of the wholly owned subsidiary, FutureLand Properties, LLC, (hereafter referred to as "FLP"), a Colorado Limited Liability Corporation. Additionally, on June 1, 2015, FWDG, as sole member of FLP resolved that effective with the Exchange Agreement dated March 10, 2015, FWDG sold all rights, title and ownership of FLP to the Company, including all member units, assets, intellectual property, contracts, leases, and real property which includes 200 acres in La Vita, Colorado.
In connection with the Exchange Agreement, the Company issued an aggregate of 27,845,280 shares of its common stock to FWDG and or its assignee. FWDG and the AEGA Holders entered into the purchase and exchange agreement where the AEGA Holders agreed to deliver to FutureWorld their shareholdings in the Company in exchange for certain actions, including AEGEA Holders resignation as directors and officers of the Company and the simultaneous appointment of two directors as designated by FLP. In return for the AEGEA Holders shares of the Company, in combination with certain debt forgiveness totaling $100,000 by the AEGEA Holders, the AEGA Holders shall receive, an amount of shares to be equal to 4.9% of the outstanding shares of the Company calculated after the reverse stock split which became effective on May 1, 2015. Such shares as held by the AEGA Holders which are surrendered in return for the new exchange shares to be issued, shall be cancelled in such exchange and returned to treasury. Such exchange shares when issued shall contain certain anti-dilutive rights whereby the AEGEA Holders shall receive additional shares for a period of one year from the date of issuance in order to retain 4.9% of the outstanding shares of the Company, issuable within ten days of the end of each fiscal quarter following such initial issuance. Pursuant to the Agreement, all assets of the Company, including all intellectual property, contractual rights, business plans, architectural works, property rights, and other valuable matters, shall be sold to the AEGA Holders, into a new private entity formed at their direction, control and benefit, in settlement for another $100,000 in debt due to AEGEA Holders by the Company and certain liabilities will be assumed by the new private entity.
In May 2015, the Company changed its name to FutureLand Corp. and effected a 1 for 400 reverse stock split of the Company's common stock. This transaction is expected to be accounted for as a reverse recapitalization of FLP with the business of FLP being the continuing business since the member of FLP will have voting and management control of the combined entity.
As of the date of this report, certain required actions have been taken by the parties such as change in management and the issuance of 27,845,280 common shares as discussed above and such Exchange Agreement is binding on the parties with closing subject to the completion of remaining actions. Upon closing and the contemplated cancellation of all outstanding shares of Series B convertible preferred stock, this transaction is expected to be accounted for as a reverse recapitalization of FLP with the business of FLP being the continuing business since the member of FLP will have voting and management control of the combined entity.
FutureLand's Business
FutureLand Corp. was originally formed as a wholly-owned subsidiary of FutureWorld Corp. On October 6, 2014 FutureWorld entered into a Contribution Agreement with FutureLand Corp., a wholly-owned subsidiary of the Company. In accordance with this agreement, FutureLand Corp., in return for contribution of intellectual property, cash, and web development services by the Company, has exchanged 40,000,000 shares of its common stock representing 100% of the shares outstanding. This will result in FutureLand Corp. shares being held for investment on FutureWorld's balance sheet.
FutureLand Corp. operates its presented business through its subsidiary, FutureLand Holdings, is an agricultural company catering to the industrial hemp, legal medical marijuana and recreational cannabis market. Future Land was started to capitalize upon the distinct separation of the cultivation grows from the dispensaries, specifically with respect to Colorado. In the State of Colorado, which has become the quintessential poster-child for what the industry may look like for the rest of America, at least temporarily, as other states determine what exact direction they will choose to go, there are residency laws that must be adhered to. For instance, in order to get a license to grow or profit from cannabis in Colorado you must be a 2 year resident. The laws are very specific; anyone who is not a 2 year resident cannot profit from the sale of the cannabis flower or infused products. Because of this mandate, Future Land Corp must be a land owner and leaser in order to effectively participate in the cannabis grow industry, which we believe is essential in order to gain a competitive advantage. We also must own the structures on the land to control the lease and our future position in the industry.
The business model is simple; offer growers the opportunity to grow. We have the land and then we find a growers requiring assist in funding and obtaining their license and grow facility. Next, we arrange for additional operational items needed, including but not limited to, complete build-outs provided from our associated company, HempTech Corp, in order to capture additional revenue.
Solving the Problem of Land to Grow Cannabis
A complete and current market survey was conducted for the Colorado State Department of Revenue which estimated usage in Colorado to be up to 346,000 lbs. per annum for residents and visitors combined.
At December 1, 2014 the Colorado market was currently being serviced by 92 licensed growers which have led to continued shortages in the supply chain.
There are three main customer groups: pharmaceutical and research laboratories, dispensaries, and recreational outlets. The customer segments are sufficiently distinct to be able to target each one differently. The industry has been undergoing consolidation for several years now. We believe will be able to serve the industry by leveraging the competitive edge of healthy, potent plants on a consistent supply basis.
FL's Land and its Operations in Walsenburg, Colorado
On, October 30th, 2014 Future Land closed on 239.96 Acres in La Vita, Colorado in Huerfano County for $60,000. The property has increased in value ten times since then. At such time, FL went into overdrive to secure a cannabis grower to execute their business plan of leasing the land, the structures, the technologies and provide maintenance contracts associated with the grow. Integral to our strategy was to provide the financing for the entire grow operation so as to establish a position by which to harness a competitive advantage in striking the right kind of lease in conjunction with Colorado State laws that would allow FL to make above average returns. FL will have units that are leased out to growers – that have licenses (we will fund the application). 90% of all growing will be done in Grow Houses.
Medical and Recreational - FL will initially focus on Leasing to Recreational Growers due to Demand
FL will also fund its own grow facilities that will be JV's with local growers (See Grow Houses sections). This will be done in various states as the market opens up allowing publicly traded companies to do so. Presently there are 4 legal states plus the District of Columbia open for retail/recreational cannabis: Alaska, Colorado, Washington, Oregon and Washington D.C. In the next years, it is likely that several more states will also legalize recreational use of cannabis.
Overview of FL's Land Lease Terms
FL will lend to the Lessees initial Licensing Costs (out of first proceeds)
Funding for licenses (lend money for the license)
Application assistance
Included in Lessees Monthly Rent:
Road Infrastructure to Grow house
Building the Grow Houses (FL will own buildings)
Equipment
Access to water (will buy from FL)
Technology – through Hemp Tech Corp.
Security
Lighting
Hydroponic Systems – without soil growing
Office
Drying Room
Hoop Houses – temporary
Water tanks
Propane tanks
Generator
Additional costs to Lessee (Not included in Monthly Rent)
Staffing & Master Grower
Seeds
Buy nutrients for plants (i.e., Miracle grow-like nutrients)
Electricity
Buying water from FL
FL's Current Land Divided into Lots for Lessees and FL Funded Grow Houses
FL's Goals – 3 Lessors with 24 Units & 3 FL funded Grow Houses with 24 Units
Our five year goal is to continue to expand operations in and around the existing operations. Our initial operations are designed with expansion in mind through re-investment. We have chosen facilities, at the expense of initial profits, with this "room for expansion" without significant capital outlay, in mind. This expansion can be achieved through either additional licensed crop growth, i.e. multiple crops, or additional crop rotation through faster maturing crops. We will use the profits from our grow cycles to fund new growth, expand employment and develop the infrastructure in both the medicinal and recreational fields.
We have identified four keys factors that will be instrumental to our success.
1) The first key factor is the implementation of strict financial controls. By having the proper controls, production efficiency and accountability will be maximized.
2) The second key factor will be the "never ending pursuit of perfection"; similar to the wine industry, bouquet, flavor and strength are key elements to production.
3) The third key factor is the recognition and implementation of the philosophy that 100% regulatory compliance and customer satisfaction is required to ensure a profitable business.
4) The fourth key is consistency, consistency of supply, consistency of product. In an industry currently plagued by product shortages (some dispensaries have had to close their doors due to lack of product) and erratic quality, consistency will ensure continued sales.
Land Lease and Grow Competitors
There are 92 MED Licensed Retail Marijuana Product Manufacturers in Colorado as of December 1, 2014. (See attached "MED Licensed Retail Marijuana Product Manufacturers as of December 1, 2014"). As mentioned previously, this limited number of Product Manufacturers has led to shortages of supply for many Retail Dispensaries.
Grow Licensing
There are 92 MED Licensed Retail Marijuana Product Manufacturers in Colorado as of December 1, 2014. (See attached "MED Licensed Retail Marijuana Product Manufacturers as of December 1, 2014"). As mentioned previously, this limited number of Product Manufacturers has led to shortages of supply for many Retail Dispensaries.
Grow Licensing
Licensing, both State and Local is a precursor to all production. Initial application will be for Type 1 License which allows for the production of 3,600 plants. It is envisaged that as the need requires and future production facilities become available, further applications will be made for Type 2 licensing (6,000 plants) and Type 3 licensing (10,000 plants). Production levels are directly contingent on space availability and set-up costs. Further details relating to set-up costs and operating expenses can be found in the appendices to this document.
Production Level Analysis
Attached as an appendix is a Production Level Financial Analysis which is predicated on the following:
on average, 1 crop per quarter (13 week grow, harvest, dry and deliver);
deep water under current systems yield on average 8 ounces a plant (final yields may be higher);
additional Seeds / Clones purchased in 2nd through 4th quarters to access/blend different strains;
Federal Income Tax is calculated by the application of Section 280E of the Income Tax
Assessment Act which disallows (amongst other items) items that are not directly attributable to the growth of the product. Therefore, in general, items such as excise duty, rent, advertising, depreciation, legal fees, wages, utilities, and security services that form part of the General and Administrative Expenses of the corporation, on a Federal level, are not allowed as a deduction from income. Legal actions are currently in play to repeal this section of the act in relation to Legalized Marijuana operations. Should such actions be successful it would have the effect of reducing the Federal Income Tax Expense by the following:
3,600 Plants $ 307,926
3,200 Plants $ 274,198
2,800 Plants $ 240,471
2,400 Plants $ 206,744
2,000 Plants $ 173,022
Further analysis schedules provide details of the cost / equipment requirement involved in the set-up and operating of an individual crop cycle. Concurrent cycles, subject to licensing constraints, can be approximated by doubling the Supplies, Lighting Equipment, Utilities Analyses and adding additional accounting, sales, growing, harvesting and packaging employees.
Security of the Land and its Products
FL will make use of the relationship it has with HempTech Corp. to provide a state of the art security system. HempTech Corp has the SPIDer (Secure Perimeter Intrusion Detection Network) line of products to meet the needs of security and intrusion detection in the indoor and outdoor cannabis grow industry.
The SPIDer Intrusion Detection network is a multifaceted product family which provides near real-time detection of intruders for either a remote inside facility or large open air agricultural facilities. This technology is derived from the Infrax SPIDer Intrusion detection networks designed for electrical substations and remote facilities in the electric energy business. Product examples include but not limited to; active fence systems, HD infrared and color camera networked via radio systems, motion detectors, microwave security systems and intelligent LED lighting systems. Infrax Systems Inc. will design specific packages to support applications ranging from small indoor facilities to large outdoor agriculture facilities covering hundreds of acres. The SPIDer systems consist of 3 levels of detection to identify intruders and threats in areas that are restricted.
The first level utilizes an electronically charged coaxial cable, FlexPS, woven into your chain link fencing. Excessive fence movement will set off an alarm through your network notification system that someone is attempting to enter your facility. This is a very cost effective means to secure your site to meet security requirements for your company. A Microwave Protection system, MPS* product is also available to protect gates and open fields where appropriate fencing is unavailable.
The second level consists of a microwave intrusion monitoring system μltrawave which creates a secure corridor of detection within the restricted area. When activated, this system will detect any movement within the defined corridor. Intrusion detection becomes extremely reliable by combining the fence system with the corridor intrusion detection thus eliminating nuisance alarms at the perimeter such as objects hitting a fence.
The third level is a multi-level detection and verification network that uses both level one and level two systems to rapidly identify a potential intruder and provide you information for a rapid decision. Full motion light and inferred cameras are also integrated into the system. These cameras can be directed by the response of the intrusion detection network. This level of integration requires CaNNaLytiX software to fully integrate all the components.
Results of Operations
The following comparative analysis on results of operations was based primarily on the comparative financial statements, footnotes and related information for the periods identified below and should be read in conjunction with the financial statements and the notes to those statements that are included elsewhere in this report. The results discussed below are for the three and nine months ended September 31, 2015 and 2014. For comparative purposes, we are comparing the three and nine months ended September 31, 2015 to the three and months ended March 31, 2014. The following discussion should be read in conjunction with the Company's consolidated financial statements and the related notes included in this report.
Revenue. We generated deferred revenue of $0 for the three ended September 31, 2015.
Total Operating Expenses. For the three months ended September 31, 2015, total operating expenses amounted to $54,216. General and administrative expenses and research and development expenses decreased by an aggregate of $2,616 for the three months ended September 31, 2015.
Total Other Expenses. For the three months ended September 31, 2015, total other expenses increased by $1,133,270 as compared to the same period in 2014.
Net Loss. For the nine months ended September 31, 2015, net loss amounted to $1,187,486, or $0 per common share (basic and diluted), respectively.
Liquidity and Capital Resources
Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. The Company had a working capital deficit of $100,223 of cash as of September 31, 2015 and a working capital deficit of $797,473 of cash as of September 31, 2014. As a result, the Company's current cash position is not sufficient to fund its cash requirements during the next twelve months, including operations and capital expenditures.
Net cash used in operating activities was $88,647 for the nine months ended September 31, 2015.
Net cash provided by investing activities during the three months ended September 31, 2015 was $148,898.
Net cash used in financing activities during the nine months ended September 31, 2015, was $148,898. Cash used in financing activities were primarily a result of repayment of short term loans - related party, offset by proceeds from a short-term loan payable - related party.
Cash Requirements
The Company's future capital requirements will depend on numerous factors, including the extent it continues development of its planned resort community and its ability to control costs. The Company will be reliant upon shareholder loans, private placements or public offerings of debt and equity to fund its resort development plans.
The Company does not currently have any contractual restrictions on its ability to incur debt and, accordingly the Company could incur significant amounts of indebtedness to finance operations. Any such indebtedness could contain covenants which would restrict the Company's operations.
Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Going Concern
As reflected in the unaudited consolidated financial statements of the Company included in this report, the Company reported a net loss and net cash used in operating activities of $1,187,486 and $148,898, respectively, for the three and nine months ended September 31, 2015, has a working capital deficit, and deficit accumulated during the development stage of $1,989,007, and $67,659, respectively, and is in the development stage with no revenues. These matters raise substantial doubt about the Company's ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company's ability to further implement its business plan, raise additional capital, and generate revenues. The unaudited consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Critical Accounting Policies
We have identified the following policies below as critical to our business and results of operations. Our reported results are impacted by the application of the following accounting policies, certain of which require management to make subjective or complex judgments. These judgments involve making estimates about the effect of matters that are inherently uncertain and may significantly impact quarterly or annual results of operations. For all of these policies, management cautions that future events rarely develop exactly as expected, and the best estimates routinely require adjustment. Specific risks associated with these critical accounting policies are described in the following paragraphs.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Stock-based Compensation
ASC 718, "Compensation-Stock Compensation" requires recognition in the financial statements of the cost of employee services received in exchange for an award of equity instruments over the period the employee is required to perform the services in exchange for the award (presumptively the vesting period). We measure the cost of employee services received in exchange for an award based on the grant-date fair value of the award. We account for non-employee share-based awards based upon ASC 505-50, "Equity-Based Payments to Non-Employees." ASC 505-50 requires the costs of goods and services received in exchange for an award of equity instruments to be recognized using the fair value of the goods and services or the fair value of the equity award, whichever is more reliably measurable. The fair value of the equity award is determined on the measurement date, which is the earlier of the date that a performance commitment is reached or the date that performance is complete. Generally, our awards do not entail performance commitments. When an award vests over time such that performance occurs over multiple reporting periods, we estimate the fair value of the award as of the end of each reporting period and recognize an appropriate portion of the cost based on the fair value on that date. When the award vests, we adjust the cost previously recognized so that the cost ultimately recognized is equivalent to the fair value on the vesting date, which is presumed to be the date performance is complete.
Derivative Liability
We evaluate our convertible instruments, options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under ASC Topic 815, "Derivatives and Hedging." The result of this accounting treatment is that the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income (expense). Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815 are reclassified to liabilities at the fair value of the instrument on the reclassification date.
Revenue Recognition Policy
We recognize revenue when collected. Anticipated future operating revenue will represent revenue upon leasing more land to licensed cultivators and collect such lease revenue.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
This item is not applicable to smaller reporting companies.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act") that are designed to ensure that information required to be disclosed by us in reports that we file under the Exchange Act is recorded, processed, summarized and reported as specified in the SEC's rules and forms and that such information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer, or CEO, and our Chief Financial Officer, CFO, to allow timely decisions regarding required disclosure. Management, with the participation of our CEO and CFO, performed an evaluation of the effectiveness of our disclosure controls and procedures as of September 31, 2014. Based on that evaluation, our management, including our CEO and CFO, concluded that our disclosure controls and procedures were not effective as of September 31, 2015. We have identified the following material weaknesses as of September 31, 2015:
1. Management does not have procedures implemented to identify the proper application of generally accepted accounting principles related to debt instruments issued.
2. Management has not implemented procedures to identify and properly monitor the identification of liabilities that required to be accrued at the end of a reporting period.
Remediation of Material Weakness in Internal Control
We believe the following actions we have taken and are taking will be sufficient to remediate the material weaknesses described above:
| · | Management has begun the development and implementation of policies and procedures for reviewing and monitoring the application of generally accepted accounting principles related to debt instruments issued. |
| · | Management has begun the development and implementation of policies and procedures which include use of a checklist that will be monitored and reviewed on a periodic basis to identify and record liabilities on a timely basis as they occur to make sure they are recorded accurately. The procedures will include a search for unrecorded liabilities on a quarterly basis. Management currently monitors liabilities by checking them against the accounts payable register to make sure they are legitimate and recorded properly. |
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| · | We recently retained an accounting consulting firm to ensure our financial statements contain all necessary adjustments to conform to U.S. GAAP and assist us with the implementation of the above remediation measures. |
Management believes the actions described above will remediate the material weaknesses we have identified and strengthen our internal control over financial reporting. We expect the material weaknesses will be remediated by December 31, 2015.
Our management, including our Chief Executive Officer and our Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.
Changes in Internal Control
There were no changes identified in connection with our internal control over financial reporting during the three months ended September 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
We are not presently a party to any material litigation, nor to the knowledge of management is any litigation threatened against us that may materially affect us.
ITEM 1A. RISK FACTORS.
Not applicable to smaller reporting companies.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
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| 31.1* | | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer | |
| 31.2* | | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer | |
| 32.1* | | Section 1350 Certifications | |
| 101.INS* | | XBRL Instance Document | |
| 101.SCH* | | XBRL Taxonomy Extension Schema | |
| 101.CAL* | | XBRL Taxonomy Extension Calculation | |
| 101.DEF* | | XBRL Taxonomy Extension Definition | |
| 101.LAB* | | XBRL Taxonomy Extension Labels | |
| 101.PRE* | | XBRL Taxonomy Extension Presentation Linkbase | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on
| Date: November 20, 2015 | FutureLand Corp. |
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| | By: | /s/ Cameron Cox |
| | | Cameron Cox, Chief Executive Officer and Acting Chief Financial Officer (Principal Executive Officer) |
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