10-K/A: Cannabis Suisse Corp. Files Amended 10-K After Lease Accounting Error

Cannabis Suisse Corp. has filed an amended annual report to correct a lease accounting error, restating its financial statements for the fiscal year ended May 31, 2024.

Summary

• Cannabis Suisse Corp. has amended its annual report on Form 10-K for the fiscal year ended May 31, 2024, to restate its financial statements due to an error in recording the present value of a lease.
• The lease term for one of the properties was incorrectly recorded as three years instead of five years.
• The company's primary business is now the rental of commercial office and industrial space, with no involvement in the cannabis industry since June 2022.
• For the year ended May 31, 2024, the company generated $30,000 in rental revenue with a cost of sales of $30,067, resulting in a gross profit of -$67.
• Operating expenses for the year were $256,870, including professional fees of $77,940, depreciation of $4,244, and general and administrative expenses of $174,686.
• The company reported a net loss of $1,186,613 for the year ended May 31, 2024, compared to a net loss of $351,547 in the previous year.
• As of May 31, 2024, the company had cash of $28,562 and a working capital deficit of $184,547.
• The company received a going concern opinion from its auditors, indicating substantial doubt about its ability to continue as an ongoing business without additional capital.
• The company's CEO holds a majority of the voting stock and convertible promissory notes that could convert into 85,539,731 shares of common stock as of May 31, 2024.
• The company's stock is considered a penny stock, which makes it more difficult to obtain capital and may result in wider spreads and increased price volatility.

Sentiment

Score: 2

Explanation: The document reveals significant financial challenges, including a large net loss, a going concern opinion, and material weaknesses in internal controls. The company's reliance on related party transactions and its penny stock status further contribute to a negative outlook.

Positives

• The company has transitioned away from the cannabis industry and is now focused on real estate rentals.
• The company generated $30,000 in rental revenue for the year ended May 31, 2024, an increase from $10,000 in the previous year.
• The company has a lease agreement in place with a third party for a portion of its property.
• The company has a small amount of cash on hand, $28,562 as of May 31, 2024.

Negatives

• The company has a significant net loss of $1,186,613 for the year ended May 31, 2024.
• The company has a working capital deficit of $184,547 as of May 31, 2024.
• The company received a going concern opinion from its auditors, indicating substantial doubt about its ability to continue as an ongoing business.
• The company has limited operations and no employees, relying on its CEO as a part-time consultant.
• The company's stock is considered a penny stock, which may limit trading and capital raising opportunities.
• The company has significant other expenses of $(929,676) due to a loss on settlement of debt.
• The company has material weaknesses in its internal controls over financial reporting.

Risks

• The company's limited operations and lack of operating funds raise substantial doubt about its ability to continue as a going concern.
• The company is dependent on additional capital to fund operating expenses.
• The company's CEO holds a majority of the voting stock, giving him significant control over the company.
• The company's stock is a penny stock, which may limit trading and capital raising opportunities.
• The company has material weaknesses in its internal controls over financial reporting.
• The company has significant debt obligations, including convertible notes payable.
• The company's reliance on related party transactions with its CEO presents a potential conflict of interest.

Future Outlook

The company anticipates that it will be dependent, for the near future, on additional investment capital to fund operating expenses and intends to position itself to raise additional funds through the capital markets and will rely on related party funding in the meantime.

Management Comments

• The company's CEO, Scott McAlister, has been involved in commercial real estate development for the last fifteen years.
• Management acknowledges the material weaknesses in internal controls and the need for additional capital to continue as a going concern.

Industry Context

The company's transition from the cannabis industry to real estate rentals reflects a shift in business strategy. The real estate rental market is competitive, and the company's success will depend on its ability to manage its properties effectively and attract tenants.

Comparison to Industry Standards

• The company's financial performance is significantly below industry standards for real estate companies, particularly in terms of profitability and cash flow.
• The company's reliance on related party transactions and its going concern status are not typical of established real estate businesses.
• The company's lack of employees and reliance on a single part-time consultant is unusual for a company with real estate holdings.
• The company's penny stock status and limited trading volume make it difficult to compare to larger, more established real estate companies.
• The company's internal control weaknesses are a significant concern and would not be acceptable for larger, more mature companies.

Corporate Governance

Related Party Transactions

• The company leases properties from companies controlled by its CEO.
• The company has issued convertible notes to companies controlled by its CEO.
• The company's CEO has advanced funds to the company and received repayments.
• The company's CEO holds a majority of the voting stock and convertible promissory notes.

Stakeholder Impact

• Shareholders face significant risk due to the company's financial challenges and going concern status.
• Employees are not directly impacted as the company has no employees.
• Customers (tenants) may be impacted by the company's financial instability.
• Suppliers and creditors face increased risk due to the company's financial difficulties.
• The company's reliance on related party transactions may raise concerns about fairness and transparency.

Next Steps

• The company needs to raise additional capital to continue as a going concern.
• The company needs to improve its internal controls over financial reporting.
• The company needs to develop a sustainable business model that generates sufficient revenue to cover its operating costs.
• The company needs to address its significant debt obligations.

Key Dates

Keywords

real estate, rental income, lease, convertible notes, penny stock, going concern, financial statements, restatement, related party transactions, internal controls