U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x |
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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For the quarterly period ended September 30, 2014. |
o |
Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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For the transition period from _________ to _________ |
Commission File Number
333-173215
CannaVEST Corp.
(Exact name of registrant as specified in
its charter)
DELAWARE |
80-0944970 |
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
2688 South Rainbow Boulevard, Suite B
Las Vegas, Nevada 89146
(Address of principal executive offices,
Zip Code)
866-290-2157
(Registrant’s telephone number, including
area code)
Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes x
No o
Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act.
Large accelerated filer o |
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Accelerated filer o |
Non-accelerated filer o (Do not check if a smaller reporting company) |
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Smaller reporting company x |
Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes o
No x
Indicate the number of
shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of November 14,
2014, the issuer had 33,419,166 shares of issued and outstanding common stock, par value $0.0001.
TABLE OF CONTENTS
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Page |
PART I FINANCIAL INFORMATION |
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Item 1. Financial Statements |
3 |
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Condensed Consolidated Balance Sheets as of September 30, 2014 (unaudited) and December 31, 2013 (audited) |
3 |
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Condensed Consolidated Statements of Operations (unaudited) for the Three and Nine Months Ended September 30, 2014 and 2013 |
4 |
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Condensed Consolidated Statement of Changes in Stockholders’ Equity (unaudited) for the Nine Months Ended September 30, 2014 |
5 |
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Condensed Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended September 30, 2014 and 2013 |
6 |
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Notes to Condensed Consolidated Financial Statements (unaudited) |
7 |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
15 |
Item 3. Quantitative And Qualitative Disclosures About Market Risk |
20 |
Item 4. Controls and Procedures |
20 |
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PART II OTHER INFORMATION |
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Item 1. Legal Proceedings |
21 |
Item 1A. Risk Factors |
22 |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
22 |
Item 3. Defaults Upon Senior Securities |
22 |
Item 4. Mine Safety Disclosures |
22 |
Item 5. Other Information |
22 |
Item 6. Exhibits |
22 |
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SIGNATURES |
23 |
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements
CANNAVEST CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| |
September 30, 2014 | | |
December 31, 2013 | |
| |
(unaudited) | | |
(audited) | |
Assets | |
| | | |
| | |
Current assets | |
| | | |
| | |
Cash | |
$ | 4,784,539 | | |
$ | 2,243,670 | |
Accounts receivable (net) | |
| 650,785 | | |
| 1,430,202 | |
Note receivable, current portion (Note 5) | |
| 303,032 | | |
| – | |
Prepaid inventory | |
| 5,576,641 | | |
| 1,734,831 | |
Inventory (Note 3) | |
| 5,605,167 | | |
| 2,473,322 | |
Prepaid expenses and other current assets | |
| 216,250 | | |
| 174,317 | |
Total current assets | |
| 17,136,414 | | |
| 8,056,342 | |
| |
| | | |
| | |
Property & equipment (net) | |
| 491,707 | | |
| 214,128 | |
Intangibles (net) (Note 4) | |
| 2,740,000 | | |
| 3,356,500 | |
Goodwill | |
| 1,855,512 | | |
| 1,855,512 | |
Accounts receivable, net of current portion | |
| – | | |
| 310,300 | |
Note receivable- Dixie Botanicals (Note 5) | |
| 105,875 | | |
| – | |
Investment in KannaLife Sciences (Note 5) | |
| – | | |
| 439,246 | |
Total assets | |
$ | 22,329,508 | | |
$ | 14,232,028 | |
| |
| | | |
| | |
Liabilities and stockholders’ equity | |
| | | |
| | |
Current liabilities | |
| | | |
| | |
Accounts payable | |
$ | 268,843 | | |
$ | 24,622 | |
Accrued expenses | |
| 149,348 | | |
| 222,703 | |
Common stock to be issued (Note 6) | |
| – | | |
| 175,000 | |
Amount due to related party | |
| – | | |
| 300 | |
Total current liabilities | |
| 418,191 | | |
| 422,625 | |
| |
| | | |
| | |
Non-current liabilities | |
| | | |
| | |
Line of credit - Roen Ventures, LLC, net of debt discount (Note 5) | |
| – | | |
| 5,502,595 | |
Total liabilities | |
| 418,191 | | |
| 5,925,220 | |
| |
| | | |
| | |
Commitments and contingencies (Note 7) | |
| | | |
| | |
| |
| | | |
| | |
Stockholders’ equity (Note 6) | |
| | | |
| | |
Preferred stock, par value $0.0001; 10,000,000 shares authorized; no shares issued or outstanding | |
| – | | |
| – | |
Common stock, par value $0.0001; 190,000,000 shares authorized; 33,119,166 and 15,580,000 shares issued and outstanding as of September 30, 2014 and December 31, 2013, respectively | |
| 3,311 | | |
| 1,558 | |
Additional paid-in capital | |
| 16,912,534 | | |
| 10,749,662 | |
Retained earnings (accumulated deficit) | |
| 4,995,472 | | |
| (2,444,412 | ) |
Total stockholders’ equity | |
| 21,911,317 | | |
| 8,306,808 | |
Total liabilities and stockholders’ equity | |
$ | 22,329,508 | | |
$ | 14,232,028 | |
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
CANNAVEST CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
| |
Three Months Ended | | |
Nine Months Ended | |
| |
September 30, | | |
September 30, | |
| |
2014 | | |
2013 | | |
2014 | | |
2013 | |
Product sales | |
$ | 1,859,961 | | |
$ | 163,662 | | |
$ | 7,497,616 | | |
$ | 1,353,720 | |
Cost of goods sold | |
| 737,542 | | |
| 48,551 | | |
| 2,968,515 | | |
| 270,293 | |
Gross profit | |
| 1,122,419 | | |
| 115,111 | | |
| 4,529,101 | | |
| 1,083,427 | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
Selling, general and administrative | |
| 1,350,639 | | |
| 653,872 | | |
| 3,782,428 | | |
| 1,267,266 | |
Research and development | |
| 262,065 | | |
| 137,496 | | |
| 569,587 | | |
| 137,496 | |
Total operating expenses | |
| 1,612,704 | | |
| 791,368 | | |
| 4,352,015 | | |
| 1,404,762 | |
Operating income (loss) | |
| (490,285 | ) | |
| (676,257 | ) | |
| 177,086 | | |
| (321,335 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other income (expenses): | |
| | | |
| | | |
| | | |
| | |
Interest income (expense), net | |
| 8,156 | | |
| (134,504 | ) | |
| (597,956 | ) | |
| (155,027 | ) |
Allocated loss on equity investment | |
| – | | |
| – | | |
| (38,552 | ) | |
| – | |
Gain on sale of equity investment (Notes 2 and 5) | |
| – | | |
| – | | |
| 7,899,306 | | |
| – | |
Income (loss) before income taxes | |
| (482,129 | ) | |
| (810,761 | ) | |
| 7,439,884 | | |
| (476,362 | ) |
Provision for income taxes | |
| – | | |
| – | | |
| – | | |
| – | |
| |
| | | |
| | | |
| | | |
| | |
NET INCOME (LOSS) | |
$ | (482,129 | ) | |
$ | (810,761 | ) | |
$ | 7,439,884 | | |
$ | (476,362 | ) |
Earnings (loss) per share | |
$ | (0.01 | ) | |
$ | (0.08 | ) | |
$ | 0.24 | | |
$ | (0.05 | ) |
Weighted average number of - shares basic & diluted | |
| 33,116,675 | | |
| 10,010,055 | | |
| 30,961,675 | | |
| 8,841,117 | |
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
CANNAVEST CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS’ EQUITY
For the nine months ended September 30, 2014
Unaudited
| |
| | |
| | |
Retained | | |
| |
| |
| | |
Additional | | |
Earnings | | |
| |
| |
Common Stock | | |
Paid-In | | |
(Accumulated | | |
| |
| |
Shares | | |
Amount | | |
Capital | | |
Deficit) | | |
Total | |
Balance, December 31, 2013 (audited) | |
| 15,580,000 | | |
$ | 1,558 | | |
$ | 10,749,662 | | |
$ | (2,444,412 | ) | |
$ | 8,306,808 | |
Shares issued for cash (net of expenses) (Note 6) | |
| 8,031,666 | | |
| 803 | | |
| 8,421,697 | | |
| – | | |
| 8,422,500 | |
Shares issued for conversion of note from Roen | |
| | | |
| | | |
| | | |
| | | |
| – | |
Ventures, LLC (Note 5) | |
| 10,000,000 | | |
| 1,000 | | |
| 5,999,000 | | |
| – | | |
| 6,000,000 | |
Shares issued pursuant to employment agreement | |
| 7,500 | | |
| – | | |
| 42,125 | | |
| – | | |
| 42,125 | |
Shares received in exchange for sale of equity investment (Notes 2 and 5) | |
| (500,000 | ) | |
| (50 | ) | |
| (8,299,950 | ) | |
| – | | |
| (8,300,000 | ) |
Net income | |
| – | | |
| – | | |
| – | | |
| 7,439,884 | | |
| 7,439,884 | |
Balance, September 30, 2014 (unaudited) | |
| 33,119,166 | | |
$ | 3,311 | | |
$ | 16,912,534 | | |
$ | 4,995,472 | | |
$ | 21,911,317 | |
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
CANNAVEST CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
| |
For the nine months ended | |
| |
September 30, 2014 | | |
September 30, 2013 | |
OPERATING ACTIVITIES | |
| | | |
| | |
Net income (loss) | |
$ | 7,439,884 | | |
$ | (476,362 | ) |
Adjustment to reconcile net income (loss) to net cash
flows used in operating activities: | |
| | | |
| | |
Depreciation and amortization | |
| 686,671 | | |
| 551,427 | |
Amortization of debt discount | |
| 589,474 | | |
| 67,095 | |
Loss on equity investment | |
| 38,552 | | |
| – | |
Gain on sale of equity investment | |
| (7,899,306 | ) | |
| – | |
Stock issued pursuant to employment agreement | |
| 42,125 | | |
| – | |
Bad debt expense | |
| (300,000 | ) | |
| – | |
Change in operating assets and liabilities: | |
| | | |
| | |
Prepaid expenses and other current assets | |
| (41,933 | ) | |
| – | |
Prepaid inventory | |
| (3,841,810 | ) | |
| 66,164 | |
Inventory | |
| (3,131,845 | ) | |
| (2,048,942 | ) |
Accounts receivable | |
| 789,717 | | |
| (1,265,295 | ) |
Accounts payable and accrued expenses | |
| 170,866 | | |
| 211,514 | |
Net cash used in operating activities | |
| (5,457,605 | ) | |
| (2,894,399 | ) |
| |
| | | |
| | |
INVESTING ACTIVITIES | |
| | | |
| | |
Cash received on acquisition | |
| – | | |
| 50,775 | |
Purchase of equipment | |
| (347,750 | ) | |
| (201,199 | ) |
Cash paid on PhytoSPHERE Agreement | |
| – | | |
| (950,000 | ) |
Investment in Kannalife Sciences | |
| – | | |
| (650,000 | ) |
Repayment of principal on note receivable | |
| 191,093 | | |
| – | |
Net cash flows used in investing activities | |
| (156,657 | ) | |
| (1,750,424 | ) |
| |
| | | |
| | |
FINANCING ACTIVITIES | |
| | | |
| | |
Common stock issued for cash | |
| 8,247,500 | | |
| – | |
Proceeds from (payment of) loan from Roen Ventures | |
| (92,069 | ) | |
| 4,780,500 | |
Repayment of loan from related party | |
| (300 | ) | |
| (200 | ) |
Proceeds from equipment loan, net of repayment | |
| – | | |
| 30,000 | |
Net cash flows from financing activities | |
| 8,155,131 | | |
| 4,810,300 | |
| |
| | | |
| | |
Net increase in cash | |
| 2,540,869 | | |
| 165,477 | |
Cash, beginning of period | |
| 2,243,670 | | |
| 431 | |
Cash, end of period | |
$ | 4,784,539 | | |
$ | 165,908 | |
| |
| | | |
| | |
| |
| | | |
| | |
Supplemental disclosures for non-cash transactions | |
| | | |
| | |
Value of debt discount | |
$ | – | | |
$ | 637,400 | |
Accounts receivable assumed from acquisition | |
| – | | |
| 396,438 | |
Inventory assumed from acquisition | |
| – | | |
| 345,477 | |
Prepaid inventory assumed from acquisition | |
| – | | |
| 1,260,510 | |
Property and equipment assumed from acquisition | |
| – | | |
| 1,288 | |
Goodwill | |
| – | | |
| 1,855,512 | |
Intangible assets acquired from acquisition | |
| – | | |
| 4,110,000 | |
Amount due to PhytoSPHERE | |
| – | | |
| (1,314,878 | ) |
Common shares issued for PhytoSPHERE acquisition | |
| – | | |
| (5,755,122 | ) |
Conversion of line of credit - Roen Ventures, LLC to common stock | |
| 6,000,000 | | |
| – | |
Conversion of accounts receivable to note receivable | |
| (600,000 | ) | |
| – | |
Common stock to be issued | |
| (175,000 | ) | |
| – | |
Common stock received in exchange for sale of investment | |
| 8,300,000 | | |
| – | |
| |
| | | |
| | |
Supplemental cash flow disclosures: | |
| | | |
| | |
Interest paid | |
$ | 187,453 | | |
$ | – | |
Taxes paid | |
| 56,170 | | |
| – | |
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
CANNAVEST CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
1. ORGANIZATION AND BUSINESS
CannaVEST Corp. (formerly Foreclosure
Solutions, Inc.) (the “Company”, “we” or “us”) is in the business of developing, producing,
marketing and selling end consumer products to the nutraceutical industry containing the hemp plant extract, Cannabidiol (“CBD”),
and reselling to third parties raw product acquired by us pursuant to our supply relationships in Europe. We seek to take advantage
of an emerging worldwide trend to re-energize the production of industrial hemp and to foster its many uses for consumers. CBD
is derived from hemp stalk and seed.
We were incorporated on December
9, 2010, in the state of Texas, to provide information on pre-foreclosure and foreclosed residential properties to homebuyers and
real estate professionals on its website. However, the Company was not able to secure financing for this business plan and on November
16, 2012, the shareholders owning 6,979,900 of the outstanding shares of the Company’s common stock sold their shares in
private transactions to four buyers. Commensurate with this transaction the former officer and director of the Company resigned
and control of the Company changed. In addition, the Company’s business offices moved from Dallas, Texas to Las Vegas, Nevada.
On January 29, 2013, the Company amended its Certificate of Formation to change its name to CannaVEST Corp. and on March 14, 2013,
the Company increased the size of its board of directors and elected three directors. On July 26, 2013 the Company reincorporated
in the state of Delaware.
On December 31, 2012, the Company
entered into an Agreement for Purchase and Sale of Assets (the “PhytoSPHERE Agreement”) with PhytoSPHERE Systems, LLC
(“PhytoSPHERE”) whereby upon the closing of the transaction contemplated by the PhytoSPHERE Agreement, the Company
acquired certain assets of PhytoSPHERE (the “Transaction”). The closing of the Transaction occurred on January 29,
2013. Throughout the year ended December 31, 2013, the Company issued 5,825,000 shares of common stock and paid cash in the amount
of $950,000 as payment for the assets acquired in the Transaction.
Description of our Subsidiaries
- The Company owns 100% of the issued and outstanding membership interests of three subsidiaries: US Hemp Oil, LLC (“US Hemp
Oil”), CannaVest Laboratories, LLC (formerly, PhytoSPHERE Systems, LLC) (“CannaVest Laboratories”) and Plus CBD,
LLC (formerly, Global Hemp Source, LLC) (“Plus CBD”).
US Hemp Oil provides farming, procurement,
processing, marketing and distribution services of bulk wholesale hemp seed. In addition, US Hemp Oil is involved with industry
advocacy, creating greater public awareness and media exposure for the nutritional profile of hemp seeds and the environmental
benefits of growing industrial hemp. CannaVEST Laboratories provides processing technology and product development of hemp-based
pharmaceutical and nutraceutical products. Plus CBD is the operating entity for Company sales and expense of CBD oil and end consumer
products.
2. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
- The accompanying unaudited condensed consolidated interim financial statements include the accounts of the Company and its wholly-owned
subsidiaries. The statements have been prepared in conformity with accounting principles generally accepted in the United States
of America (“GAAP”). All references to GAAP are in accordance with the Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) and the Hierarchy of Generally Accepted Accounting Principles. All intercompany
accounts and transactions have been eliminated in consolidation.
The unaudited condensed consolidated
interim financial statements have been prepared by the Company pursuant to the rules and regulations of the U.S. Securities and
Exchange Commission (the “SEC”). The information furnished herein reflects all adjustments (consisting of normal recurring
accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective
periods. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with
GAAP have been omitted pursuant to such rules and regulations. These unaudited condensed consolidated financial statements should
be read in conjunction with the audited financial statements and notes for the year ended December 31, 2013, filed with the SEC
on the Company’s Annual Report on Form 10-K filed on March 28, 2014. The results for the three and nine months ended September
30, 2014, are not necessarily indicative of the results to be expected for the full year ending December 31, 2014.
Use of Estimates -
The Company’s condensed consolidated financial statements have been prepared in accordance with GAAP. The preparation of
these condensed consolidated financial statements requires us to make significant estimates and judgments that affect the reported
amounts of assets, liabilities, revenues, expenses and related disclosures of contingent assets and liabilities. We evaluate our
estimates, including those related to contingencies, on an ongoing basis. We base our estimates on historical experience and on
various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or conditions. Significant estimates include the valuation of intangible
assets, the amortization lives of intangible assets and the allowance for doubtful accounts. It is at least reasonably possible
that a change in the estimates will occur in the near term.
Reportable Segment
- The Company’s internal reporting is organized into three channels: CBD products, laboratory services and hemp farming activities.
These channels qualify as individual operating segments and are aggregated and viewed as one reportable segment due to their similar
economic characteristics, products, production, distribution processes and regulatory environment.
Investments - The Company
held a 24.97% interest in KannaLife Sciences, Inc. (“KannaLife”), a phyto-medical company specializing in the research
and development of pharmacological products derived from plants. This investment was accounted for under the equity method of accounting.
The Company’s financial results for the nine months ended September 30, 2014 include a loss of $38,552 representing its share
of KannaLife’s net loss for the period.
On June 2, 2014, the Company sold
its 24.97% interest in KannaLife to PhytoSPHERE in exchange for 500,000 shares of the Company’s common stock held by PhytoSPHERE,
an affiliate of KannaLife (see Note 5).
Cash and Cash Equivalents
- For purposes of the statements of cash flows, the Company considers amounts held by financial institutions and short-term investments
with an original maturity of three months or less when purchased to be cash and cash equivalents. At September 30, 2014 and December
31, 2013, the Company had no cash equivalents.
Concentration of Credit Risk
- As of September 30, 2014, the Federal Deposit Insurance Corporation (“FDIC”) provided insurance coverage of up to
$250,000 per depositor per bank. The Company has not experienced any losses in such accounts and does not believe that the Company
is exposed to significant risks from excess deposits.
Accounts Receivable
- Accounts receivable consists of trade accounts arising in the normal course of business. No interest is charged on past due accounts.
Accounts for which no payments have been received after 30 days are considered delinquent and customary collection efforts are
initiated. Accounts receivable are carried at original invoice amount less a reserve made for doubtful receivables based on a review
of all outstanding amounts on a monthly basis.
Management determines the allowance
for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition
and credit history, and current economic conditions. There was an allowance for doubtful accounts of $100,000 at September 30,
2014 and $400,000 at December 31, 2013.
Revenue Recognition
- The Company recognizes revenue in accordance with the ASC Topic 605, Revenue Recognition, which requires persuasive evidence
of an arrangement, delivery of a product or service, a fixed or determinable price and assurance of collection within a reasonable
period of time. The Company records revenue when goods are delivered to customers and the rights of ownership have transferred
from the Company to the customer.
Inventory - Inventory
is stated at lower of cost or market, with cost being determined on average cost basis. There was no reserve for inventory as of
September 30, 2014 or December 31, 2013.
Amounts paid to suppliers for inventory
not received is classified as prepaid inventory. Once received, the cost of inventory received is reclassified to inventory.
Property & Equipment
- Equipment is stated at cost less accumulated depreciation. Cost represents the purchase price of the asset and other costs incurred
to bring the asset into its existing use. Depreciation is provided on a straight-line basis over the assets’ estimated useful
lives ranging from three to five years. Maintenance or repairs are charged to expense as incurred. Upon sale or disposition, the
historically-recorded asset cost and accumulated depreciation are removed from the accounts and the net amount less proceeds from
disposal is charged or credited to other income / expense.
Research & Development
Expense - Research and development costs are charged to expense as incurred and include, but are not limited to, employee
salaries and benefits, cost of inventory used in product development, consulting service fees, the cost of renting and maintaining
our laboratory facility and depreciation of laboratory equipment.
Fair Value of Financial Instruments
- In accordance with ASC Topic 825, Financial Instruments, the Company calculates the fair value of its assets and liabilities
which qualify as financial instruments and includes this additional information in the notes to its financial statements when the
fair value is different than the carrying value of those financial instruments. The estimated fair value of the Company’s
current assets and current liabilities approximates their carrying amount due to their readily available nature and short maturity.
Goodwill and Intangible Assets
- The Company evaluates the carrying value of goodwill during the fourth quarter of each year and between annual evaluations if
events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying
amount. Such circumstances could include, but are not limited to (1) a significant adverse change in legal factors or in business
climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator. When evaluating whether goodwill
is impaired, the Company compares the fair value of the reporting unit to which the goodwill is assigned to the reporting unit’s
carrying amount, including goodwill. The fair value of the reporting unit is estimated using a combination of the income, or discounted
cash flows, approach and the market approach, which utilizes comparable companies’ data. If the carrying amount of a reporting
unit exceeds its fair value, then the amount of the impairment loss must be measured. The impairment loss would be calculated by
comparing the implied fair value of reporting unit goodwill to its carrying amount. In calculating the implied fair value of reporting
unit goodwill, the fair value of the reporting unit is allocated to all of the other assets and liabilities of that unit based
on their fair values. The excess of the fair value of a reporting unit over the amount assigned to its other assets and liabilities
is the implied fair value of goodwill.
We make critical assumptions and
estimates in completing impairment assessments of goodwill and other intangible assets. Our cash flow projections look several
years into the future and include assumptions on variables such as future sales and operating margin growth rates, economic conditions,
market competition, inflation and discount rates.
We amortize the cost of other intangible
assets over their estimated useful lives, which range up to five years, unless such lives are deemed indefinite. Intangible assets
with indefinite lives are tested in the fourth quarter of each fiscal year for impairment, or more often if indicators warrant.
Earnings (Loss) per Share
- The Company calculates earning or loss per share (“EPS”) in accordance with ASC Topic 260, Earnings per Share,
which requires the computation and disclosure of two EPS amounts, basic and diluted. Basic EPS is computed based on the weighted
average number of shares of common stock outstanding during the period. Diluted EPS is computed based on the weighted average number
of shares of common stock outstanding plus all potentially dilutive shares of common stock outstanding during the period. The Company
had no dilutive shares outstanding at September 30, 2014 and 2013.
Income Taxes - Income
taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which the related temporary differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized when the rate change is enacted. Valuation allowances are recorded
to reduce deferred tax assets to the amount that will more likely than not be realized. In accordance with ASC Topic 740, Income
Taxes, the Company recognizes the effect of uncertain income tax positions only if the positions are more likely than not of
being sustained in an audit, based on the technical merits of the position. Recognized uncertain income tax positions are measured
at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in
the period in which those changes in judgment occur.
The provision for income taxes differs
from the expected tax by applying income before taxes at the applicable rate as the sale of KannaLife was deemed to have a gain
for income tax purposes of $0.
Recent Issued and Newly Adopted
Accounting Pronouncements - In February 2013, the FASB issued Accounting Standards Update No. 2013-04, Liabilities (Topic
405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed
at the Reporting Date (“ASU No. 2013-04”). The amendments in ASU No. 2013-04 provide
guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements
for which the total amount of the obligation within the scope of ASU No. 2013-04 is fixed at the reporting date, except for obligations
addressed within existing guidance in GAAP. The guidance requires an entity to measure those obligations as the sum of the amount
the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting
entity expects to pay on behalf of its co-obligors. The guidance in ASU No. 2013-04 also requires an entity to disclose the nature
and amount of the obligation as well as other information about those obligations. The amendment in this standard is effective
retrospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. We are evaluating
the effect, if any, adoption of ASU No. 2013-04 will have on our condensed consolidated financial statements.
In May 2014, the FASB issued Accounting
Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which completes
the joint effort by the FASB and the International Accounting Standards Board to improve financial reporting by creating common
revenue recognition guidance for GAAP and the International Financial Reporting Standards. ASU 2014-09 will become effective for
the Company beginning January 1, 2017 and early adoption is not permitted. The Company is currently evaluating the potential impact
of ASU 2014-09 on our condensed consolidated financial statements.
Other recent accounting pronouncements
issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the
SEC did not, or are not believed by management to have a material impact on the Company’s present or future financial statements.
3. INVENTORY
Inventory is comprised of the following:
| |
September 30, 2014 | | |
December 31, 2013 | |
Raw materials | |
$ | 3,128,091 | | |
$ | 1,867,751 | |
Work in process | |
| 1,532,418 | | |
| 470,442 | |
Finished goods | |
| 944,658 | | |
| 135,129 | |
| |
$ | 5,605,167 | | |
$ | 2,473,322 | |
4. INTANGIBLE ASSETS
Intangible assets consisted of the following at September
30, 2014:
Description | |
Original Fair Market Value | | |
Accumulated Amortization | | |
Net | |
Vendor relationships | |
$ | 1,170,000 | | |
$ | 390,000 | | |
$ | 780,000 | |
Trade name | |
| 230,000 | | |
| 76,667 | | |
| 153,333 | |
Noncompete agreement | |
| 2,710,000 | | |
| 903,333 | | |
| 1,806,667 | |
| |
$ | 4,110,000 | | |
$ | 1,370,000 | | |
$ | 2,740,000 | |
Intangible assets consisted of the following at December
31, 2013:
Description | |
Original Fair Market Value | | |
Accumulated Amortization | | |
Net | |
Vendor relationships | |
$ | 1,170,000 | | |
$ | 214,500 | | |
$ | 955,500 | |
Trade name | |
| 230,000 | | |
| 42,167 | | |
| 187,833 | |
Noncompete agreement | |
| 2,710,000 | | |
| 496,833 | | |
| 2,213,167 | |
| |
$ | 4,110,000 | | |
$ | 753,500 | | |
$ | 3,356,500 | |
Amortization expense for the three
months ended September 30, 2014 and 2013 was $205,500 and $205,500, respectively, and $616,500 and $548,000, respectively, for
the nine months ended September 30, 2014 and 2013.
5. RELATED PARTY TRANSACTIONS
On March 1, 2013, the Company issued
a Promissory Note (the “Note”) to Roen Ventures, LLC, a Nevada limited liability company (“Roen Ventures”),
in exchange for loans provided and to be provided in the future in an amount of up to $2,000,000, subsequently increased to $6,000,000.
As of December 31, 2013, the principal balance of the Note was $6,092,069. On January 27, 2014, the Company converted $6,000,000
of the Note balance into 10,000,000 shares of common stock of the Company pursuant to the terms of the Note, as amended. On January
28, 2014, the Company repaid Roen Ventures accrued interest on the Note in the amount of $187,453 and principal under the Note
in the amount of $92,069.
The Company had determined that the
conversion feature of the Note was considered a beneficial conversion feature and determined its value on July 25, 2013, the date
of the amendment increasing the principal amount of the Note to $6,000,000, to be $800,000. The Company calculated the beneficial
conversion feature at its intrinsic value. Accordingly, the beneficial conversion feature was accounted for as a debt discount
to the Note and was to be amortized using the effective interest method as interest expense over the remaining life of the Note
or upon conversion, if sooner. Upon conversion of the Note, the remaining balance of the debt discount totaling $589,474 was amortized
to interest expense in the accompanying condensed consolidated financial statements.
At September 30, 2014 and December
31, 2013, the Company’s accounts receivable totaling $650,785 and $1,430,202, respectively, of which 25% and 100%, respectively,
were from subsidiary companies of Medical Marijuana, Inc. (“MJNA”), a stockholder of the Company. For the three and
nine months ended September 30, 2014, the Company recognized revenues of $1,859,961 and $7,497,616, respectively, of which approximately
2% and 70%, respectively, related to sales to affiliated companies of MJNA.
On January 10, 2014, MJNA agreed
to assume $725,000 of the Company’s accounts receivable from Red Dice Holdings, LLC and write-off $11,496 of such accounts
receivable. MJNA paid the Company $125,000 on January 17, 2014 towards this balance. The remaining $600,000 is subject to a Secured
Promissory Note (the “Note Receivable”) issued by MJNA to the Company, whereby MJNA will make monthly payments to the
Company, including interest at 7% per annum, over a two-year period. This note is secured by shares of common stock of the Company
owned indirectly by MJNA through MJNA’s subsidiary, PhytoSPHERE, valued at two times the principal amount of the note based
on the five-day average closing price of the Company’s common stock at the time of determination. Such determination shall
occur every 60 days, at which time the number of shares pledged shall be increased or decreased, accordingly. At September 30,
2014, $303,032 of the Note Receivable was classified as a current asset and $105,875 of the Note Receivable was classified as a
non-current asset.
On June 2, 2014, the Company sold
its 24.97% equity investment in KannaLife to PhytoSPHERE in exchange for 500,000 shares of Company common stock held by PhytoSPHERE,
an affiliate of KannaLife. Accordingly, the Company recognized a gain on sale of equity investment of $7,899,306 based on the number
of shares of Company common stock received at the closing trading price of Company common stock on June 2, 2014 of $16.60 per share.
6. STOCKHOLDERS’ EQUITY
Common Stock - The
Company is authorized to issue up to 190,000,000 shares of common stock (par value $0.0001). As of September 30, 2014 and December
31, 2013, the Company had 33,119,166 and 15,580,000 shares of common stock issued and outstanding, respectively. During the three
months ended September 30, 2014, the Company issued 2,500 pursuant to an employment agreement. During the nine months ended September
30, 2014, the Company issued 8,039,166 shares of its common stock, of which 7,500 shares related to an employment agreement and
8,031,666 were pursuant to a private placement offering. The Company had received payment of $175,000 toward the purchase of these
shares at December 31, 2013. In addition, 10,000,000 shares of the Company’s common stock were issued for a debt conversion
(Note 5).
Preferred Stock - The
Company is authorized to issue up to 10,000,000 shares of $.0001 par value preferred stock with designations, rights and preferences
to be determined from time to time by the Board of Directors of the Company. Each such series or class shall have voting powers,
if any, and such preferences and/or other special rights, with such qualifications, limitations or restrictions of such preferences
and/or rights as shall be stated in the resolution or resolutions providing for the issuance of such series or class of shares
of preferred stock.
Options/Warrants -
On July 23, 2014, the Company’s stockholders approved the Company’s Amended and Restated 2013 Equity Incentive Plan
(the “Plan”) which reserves 10,000,000 shares of the Company’s common stock for issuance under the Plan. As of
September 30, 2014 and December 31, 2013, there were no outstanding options or warrants for the purchase of the Company’s
common stock.
7. COMMITMENTS AND CONTINGENCIES
Commitments
The Company leases certain office
space pursuant to a month-to-month lease agreement dated April 1, 2013, which provides for a monthly rent of $1,500. The landlord
is a limited liability company of which a former director of the Company is the sole member.
On August 13, 2013, the Company entered
into a lease for approximately 2,400 square feet laboratory space in San Diego, California. The monthly base rent was approximately
$4,200 per month for a term of 12 months. On April 1, 2014, the Company entered into an amendment to the lease for laboratory space,
which increased the amount of laboratory space under the lease and extended the term of the lease for one additional year through
August 2015. This amendment increased the amount of lab space under lease to 3,276 and added storage space for an additional 887
square feet. The monthly base rent under the lease was increased to approximately $6,320 per month.
On March 27, 2014, the Company entered
into a lease for 5,325 square feet of office space in San Diego, California for a term of 39 months. The monthly base rent under
the lease is approximately $12,250, subject to an increase of 3% annually. The lease allows for rent abatement allowing one month
free rent following each 12 month period of paid rent during the term of the lease. The lease commenced on May 7, 2014, the date
the Company took possession of the new space.
The Company is a party to a contract
for the growth and processing of 2,600 kilograms of product currently being delivered and scheduled to be delivered through August
31, 2015. The total amount left to be paid under this contract is approximately $6.9 million through October 2015. The Company
is party to a second purchasing contract to provide up to 1 million kilograms of raw product to the Company. There is approximately
$3.1 million remaining to be paid under this second contract. We have contractual rights for the growth and processing of hemp
oil for delivery through October 2018 under both of these contracts. We anticipate the cost under both contracts will remain consistent
with current year prices.
Contingencies
On
March 8, 2008, Far West Industries (“Far West”) sued Michael J. Mona, Jr., President and Chief Executive Officer of
the Company and others for damages resulting from fraud arising out of a land transaction in California (the “California
Action”). On February 23, 2012, a judgment was entered in the California Action in favor of Far West against Mr. Mona and
others in the amount of $17,777,562. On October 18, 2012, the judgment in the California Action was domesticated in Nevada and
enforcement proceedings commenced including, but not limited to an examination of Mr. Mona as a judgment debtor, and garnishments
of various accounts belonging to Mr. Mona. During the period, Mr. Mona loaned $3,000,000 to Roen Ventures, which was subsequently
loaned to the Company. The suit alleges that the loan transactions were intended to prejudice creditors like Far West by concealing
and wasting assets that would otherwise be available to satisfy the judgment that Far West has against Mr. Mona. Pursuant to a
Second Amendment Complaint filed by Far West Industries on February 20, 2014, the Company was added as a defendant to the suit.
On March 17, 2014, the Company was served with a complaint from Far West Industries. In summary, Far West alleges that the Company
is in possession of funds as a result of an allegedly fraudulent transfer between Mr. Mona, Roen Ventures, LLC, and the Company.
On May 13, 2014, a motion to dismiss filed by the Company was granted and thus, the Company will no longer be a defendant in the
lawsuit. Although Far West’s counsel thereafter filed a Third Amended Complaint which improperly sought to re-name
the Company as a defendant, on October 16, 2014, Far West filed a dismissal of the Company after the Company threatened to bring
a motion for sanctions for violating the Court order of May 13, 2014. Accordingly, the Company has been formally dismissed
from the action.
On
April 23, 2014, Tanya Sallustro filed a purported class action complaint (the “Complaint”) in the Southern District
of New York (the “Court”) alleging securities fraud and related claims against the Company and certain of its officers
and directors and seeking compensatory damages including litigation costs. Ms. Sallustro alleges that between March 18-31,
2014, she purchased 325 shares of the Company’s common stock for a total investment of $15,791.00. The Complaint refers
to Current Reports on Form 8-K and Current Reports on Form 8-K/A filings made by the Company on April 3, 2014 and April 14, 2014,
in which the Company amended previously disclosed sales (sales originally stated at $1,275,000 were restated to $1,082,375 - reduction
of $192,625) and restated goodwill as $1,855,512 (previously reported at net zero). Additionally, the Complaint states after
the filing of the Company’s Current Report on Form 8-K on April 3, 2014 and the following press release, the Company’s
stock price “fell $7.30 per share, or more than 20%, to close at $25.30 per share.” Subsequent to the filing
of the Complaint, six different individuals have filed a motion asking to be designated the lead plaintiff in the litigation.
The Court scheduled a hearing on August 14, 2014 to consider the motions for designation as lead plaintiff. The other individuals
seeking lead plaintiff designation are: Wayne Chesner; Anamaria Schelling; Mark Williams; Otilda LaMont; Jane Ish and Steve
Schuck. After a hearing held on August 14, 2014, the Court took the matter under submission. As of November 3,
2014, the Court has not issued a ruling appointing a lead plaintiff. Accordingly, the Company has not yet answered the Complaint,
but management intends to vigorously defend the allegations. An estimate of the possible loss cannot be made at this time.
On August
11, 2014, we terminated the Non-Exclusive License and Distribution Agreement with HempMeds PX, LLC (the “HempMeds Agreement”).
On or about August 13, 2014, HempMeds PX, LLC (“HempMeds”) demanded arbitration against us and recommended that the
parties engage Private Trials in Las Vegas, Nevada to conduct the arbitration, denying that HempMeds was in breach of the HempMeds
Agreement. On August 22, 2014, HempMeds filed a complaint in the Eighth Judicial District, Clark County, Nevada (the “Nevada
Complaint”) against us for breach of the HempMeds Agreement, unjust enrichment, and interference with prospective business
advantage, claiming that it had satisfied all of its obligations under the HempMeds Agreement and that we breached that agreement
by terminating it without just cause. Concurrently, HempMeds filed a Motion for Preliminary Injunction, asking the Court
to reinstate the HempMeds Agreement, namely the provision that identified HempMeds as the exclusive on-line seller of certain products
of the Company. The court denied HempMeds’ motion on October 3, 2014. We have not yet answered the Nevada Complaint
because the parties have agreed to arbitration and are attempting to resolve the issue of where the arbitration will be held.
We deny HempMeds’ claims and intend to vigorously defend the allegations and file appropriate counter-claims. Since
the action was recently filed and no discovery has been conducted, an estimate of the possible loss or recovery cannot be made
at this time.
On
September 11, 2014, we filed a complaint for trademark infringement against Kannaway, LLC, General Hemp, LLC and HDDC Holdings,
LLC in the United States District Court, Southern District of California, Case No. 14-cv-2160-CAB-BLM, asserting that defendants
have infringed our Cannabis Beauty Defined trademarks. Defendants filed a Motion to Dismiss some of our claims, asserting
that we have failed to allege sufficient facts to support those claims. The Court is scheduled to hear the motion on December
19, 2014. Management intends to oppose the motion and to vigorously prosecute this complaint. Since the action was
recently filed and no discovery has been conducted, an estimate of the possible recovery cannot be made at this time.
8. SUBSEQUENT EVENTS
On October 1, 2014, various employees
and consultants of the Company were granted 2,450,000 common stock options with vesting periods ranging from 2-4 years. Also on
October 1, 2014, members of the board of directors and an officer of the Company received direct common stock grants totaling of
300,000 shares.
Item 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
The following information
specifies certain forward-looking statements of the management of CannaVEST Corp. (the “Company”, “we”
or “us”). Forward-looking statements are statements that estimate the likelihood of occurrence of future events and
are not based on historical fact. Forward-looking statements may be identified by the use of forward-looking terminology, such
as “may”, “shall”, “could”, “expect”, “estimate”, “anticipate”,
“predict”, “probable”, “possible”, “should”, “continue”, or similar
terms, variations of those terms or the negative of those terms. The forward-looking statements specified in the following information
have been compiled by our management on the basis of assumptions made by management and considered by management to be reasonable.
Our future operating results, however, are impossible to predict, and no representation, guaranty, or warranty is to be inferred
from those forward-looking statements.
Forward-looking statements
include, but are not limited to, the following:
|
· |
Statements relating to our future business and financial performance; |
|
· |
The anticipated launch of our products; and |
|
· |
Other material future developments that you may take into consideration. |
You are cautioned not
to place undue reliance on these forward-looking statements. The assumptions used for purposes of the forward-looking statements
represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry,
and other circumstances. As a result, the identification and interpretation of data and other information and their use in developing
and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the extent that the assumed
events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is
expressed on the achievability of those forward-looking statements. We cannot guaranty that any of the assumptions relating to
the forward-looking statements specified in the following information are accurate, and we assume no obligation to update any such
forward-looking statement.
The following information should be read in conjunction with the information contained in the unaudited Condensed Consolidated
Financial Statements included within this Quarterly Report on Form 10-Q for the period ended September 30, 2014 (this “Report”),
and the Notes thereto, which form an integral part of this Report.
Executive Summary of Our Business
We are in the business of developing, producing,
marketing and selling end consumer products to the nutraceutical industry containing the hemp plant extract, Cannabidiol (“CBD”),
and reselling to third parties raw product acquired by us pursuant to our supply relationships in Europe. We seek to take advantage
of an emerging worldwide trend to re-energize the production of industrial hemp and to foster its many uses for consumers. CBD
is derived from hemp stalk and seed.
Our operations initially consisted of supplying
our raw product to third parties, however in the third quarter of 2013, we launched our first consumer products, which included
tinctures and capsules under our Cibadex brand, and beauty products under our Cibaderm brand. During 2014, we launched PlusCBD™,
our new brand that includes: oil, CBD powder, water soluble CBD, various dietary supplements and beauty products. We expect to
continue to add new products to our PlusCBD™ portfolio to enhance our line of CBD and hemp-related consumer products.
In order to accomplish our business plan, we
will continue to make refinements to our current products and continue the development of additional products. We have implemented
marketing and sales programs designed to establish brand awareness and consumer acceptance of our products and will continue to
increase our efforts in this area. To date, we received working capital of $6,000,000 pursuant to a promissory note (the “Note”)
issued by the Company to Roen Ventures, LLC (“Roen Ventures”). During the nine-month period ended September 30, 2014,
Roen Ventures converted the Note into 10,000,000 shares of the Company’s common stock, as discussed in Note 5 of the Notes
to our Condensed Consolidated Financial Statements included herewith. An additional $8,422,500 of new capital was raised during
the first and second quarters of 2014 through the issuance of shares of Company common stock through a private placement offering.
Since inception, we have achieved approximately $9.6 million in revenue through product sales.
We expect to realize revenue to fund our working
capital needs through the sale of raw and finished products to third parties. However, we cannot be assured that our working capital
needs to develop, launch, market and sell our products will be met through the sale of raw and finished products to third parties.
If not, we may not be able to maintain profitable operations. If we are unable to maintain profitable operations sufficient to
fund our business, we would need to raise additional capital through either the issuance of equity, acquisition of debt or sale
of a segment of our operations in the future. In the event we are unable to maintain profitable operations or raise sufficient
additional capital, our ability to continue as a going concern would be in jeopardy and investors could lose all of their investment
in the Company.
Plan of Operations
Our Planned Operating Segments
We plan to diversify our business primarily
into four operating segments:
|
· |
Securing and supplying raw hemp product for sale to third parties; |
|
· |
Developing, producing, marketing and selling consumer products to the nutraceutical and beauty product industries containing CBD; |
|
· |
Establishing farming operations centered on the growth of industrial hemp; and |
|
· |
Investing in companies in our industry. |
Investment Selection
We are committed to a value-oriented investment
philosophy that seeks to minimize the risk of capital loss without foregoing potential capital appreciation. We are developing
criteria that we believe are important in identifying and investing in prospective acquisition or financing targets. These criteria
provide general guidelines for our investment and acquisition decisions.
Results of Operations
The following discussion of our results of
operations should be read in conjunction with our condensed consolidated financial statements included herewith. This discussion
should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion
reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best
present assessment of our management.
Results for the three and nine months ended
September 30, 2014 and 2013
Revenues, Cost of Goods Sold and Gross Profit
For the three months ended September 30, 2014,
the Company realized revenues of $1,859,961 and resulting gross profit of $1,122,419 related to the sale of consumer products primarily
through our distribution of new customers. The Company realized revenues of $163,662 and gross profit of $115,111 for the three
months ended September 30, 2013. The increase in revenues is due to increased sales of both consumer products and oil sales during
2014. During 2013, the Company sold oil and consumer products to affiliated companies, however the general market for the Company’s
products and oil was not yet established. Increased sales for the three months ended September 30, 2014, was attributable to increased
demand for our oil and consumer products. The increase in gross profit is a result of increased sales volume and a different pricing
structure for products sold during the three months ended September 30, 2014, compared with the three months ended September 30,
2013.
For the nine months ended September 30, 2014,
the Company realized revenues of $7,497,616 and resulting gross profit of $4,529,101 related to the sale of consumer products primarily
through our distribution of new customers. The Company realized revenues of $1,353,720 and gross profit of $1,083,427 for the nine
months ended September 30, 2013. The increase in revenues is due to increased sales of both consumer products and oil sales during
2014. During 2013, the Company sold oil and consumer products to affiliated companies, however the general market for the Company’s
products and oil was not yet established. Increased sales for the nine months ended September 30, 2014 was attributable to increased
demand for our oil and consumer products. The increase in gross profit is a result of increased sales volume and a different pricing
structure for products sold during the nine months ended September 30, 2014 compared with the nine months ended September 30, 2013.
Selling, General and Administrative Expenses
- For the three months ended September 30, 2014, the Company incurred selling, general and administrative (the “SG&A”)
expenses in the amount of $1,350,639 compared with $653,872 for the three months ended September 30, 2013. This increase is related
to the continued growth of Company operations, increase in our headcount, marketing and legal expense. Our legal expenses have
increased due to various matters that we are vigorously defending. The SG&A expenses include $205,500 and $205,500 of amortization
expense of vendor relationships and non-compete agreements acquired through the Agreement for Purchase and Sale of Assets (the
“PhytoSPHERE Agreement”) entered into by the Company with PhytoSPHERE Systems, LLC (“PhytoSPHERE”) for
the three months ended September 30, 2014 and 2013, respectively.
For the nine months ended September 30, 2014,
the Company incurred SG&A expenses in the amount of $3,782,428 compared with $1,267,266 for the nine months ended September
30, 2013. This increase is related to the continued growth of Company operations, increase in our headcount, marketing and legal
costs. Our legal fees have increased due to various matters that we are vigorously defending. The SG&A expenses include $616,500
and $548,000 of amortization expense of vendor relationships and non-compete agreements acquired through the PhytoSPHERE Agreement
entered into by the Company with PhytoSPHERE for the nine months ended September 30, 2014 and 2013, respectively.
Research and Development Expenses
- For the three and nine months ended September 30, 2014, the Company incurred research and development expenses of $262,065
and $569,587, respectively. The Company incurred research and development expenses in the amount of $137,496 for both the three
or nine months ended September 30, 2013. These expenses are related to the cost of process development, rental of our laboratory
facility, payroll expenses, laboratory supplies, product development and testing, and outsourced research personnel for the period.
Interest income/expense - For
the three months ended September 30, 2014, the Company recognized interest income of $8,156. For the nine months ended September
30, 2014, the Company recognized interest expense of $597,956. This included interest accrued under the Roen Ventures Note in the
amount of $25,870, amortization of the debt discount on the Note in the amount of $42,105 up until the date the Note was converted
to shares of the Company’s common stock, and $589,474 representing the amortization of the remaining debt discount at the
date of conversion. The Company nets any interest recorded in accounts receivable and cash balances with interest expense as typically
these amounts are not material.
Gain/Loss on Equity Investment -
For the nine months ended September 30, 2014, the Company recognized a loss of $38,552, representing its pro rata share (24.97%)
of the loss of KannaLife Sciences, Inc. (“KannaLife”) for the period. The Company did not recognize any gain or loss
from investment for the nine months ended September 30, 2013, as the Company did not own a sufficient amount of KannaLife stock
to require recognition of any gain or loss for the period.
On June 2, 2014, the Company sold its 24.97%
equity investment in Kannalife to PhytoSPHERE in exchange for 500,000 shares of Company common stock held by PhytoSPHERE, an affiliate
of KannaLife. Accordingly, the Company recognized a gain on sale of equity investment of $7,899,306 based on the number of shares
of Company common stock received at the closing trading price of Company common stock on June 2, 2014 of $16.60 per share.
Income Taxes - The provision for income taxes differs
from the expected tax by applying the income before taxes at the applicable rate as the sale of KannaLife was deemed to have a
gain for income tax purposes of $0.
Liquidity and Capital Resources - A summary of our
changes in cash flow for the nine months ended September 30, 2014 and 2013 is provided below:
| |
For the Nine Months Ended | |
| |
September 30, | |
| |
2014 | | |
2013 | |
Net cash flows provided by (used in): | |
| | | |
| | |
Operating activities | |
$ | (5,457,605 | ) | |
$ | (2,894,399 | ) |
Investing activities | |
| (156,657 | ) | |
| (1,750,424 | ) |
Financing activities | |
| 8,155,131 | | |
| 4,810,300 | |
Net increase (decrease) in cash | |
| 2,540,869 | | |
| 165,477 | |
Cash, beginning of period | |
| 2,243,670 | | |
| 431 | |
Cash, end of period | |
$ | 4,784,539 | | |
$ | 165,908 | |
Cash requirements and liquidity needs are primarily funded through
our cash flow from operations and our ability to obtain proceeds from selling Company stock.
Net cash provided by or used in operating activities
includes net income adjusted for non-cash expenses such as depreciation and amortization, loss on equity investment, gain on sale
of equity investment and stock-based compensation. Operating assets and liabilities primarily include balances related to funding
of inventory purchases and customer accounts receivable. Operating assets and liabilities that arise from the funding of inventory
purchases and customer accounts receivable can fluctuate significantly from day to day and period to period depending on the timing
of inventory purchases and customer behavior.
Net cash used in operating activities for the
nine months ended September 30, 2014 and 2013 totaled $5,457,605 and $2,894,399, respectively. The change in cash flows between
periods primarily reflects increased prepayments for inventory, purchases of inventory and accounts receivable fluctuation. Cash
used for prepayments of inventory and inventory purchases was approximately $6,973,655 for the nine months ended September 30,
2014 compared to $1,982,778 for the nine months ended September 30, 2013. Cash provided by accounts receivable collection was $789,717
for the nine months ended September 30, 2014 compared to $1,265,295 used to fund accounts receivable for the nine months ended
September 30, 2013. During the three months ended September 30, 2014, collection of accounts receivable was greater than anticipated
resulting in a $300,000 reduction of our allowance for doubtful accounts with a corresponding adjustment (credit) to bad debt expense
of $300,000. Cash provided by accounts payable and accrued expenses was $170,866 for the nine months ended September 30, 2014 and
$211,514 for the nine months ended September 30, 2013. Unamortized debt discount of $589,474 was expensed during the nine months
ended September 30, 2014. Additionally, in June 2014, the Company sold its 24.97% equity investment in Kannalife to PhytoSPHERE
in exchange for 500,000 shares of Company common stock held by PhytoSPHERE, an affiliate of KannaLife. Accordingly, the Company
recognized a gain on sale of equity investment of $7,899,306 based on the number of shares of Company common stock received at
the closing trading price of Company common stock on June 2, 2014 of $16.60 per share. This was a non-cash transaction and accordingly
is an adjustment to cash used in operating activities for the nine months ended September 30, 2014.
Net cash used in investing activities for the
nine months ended September 30, 2014 and 2013 totaled $156,657 and $1,750,424, respectively. The net cash used in investing activity
for the nine months ended September 30, 2014 consisted of $347,750 of property and equipment purchases and $191,093 of principal
repayments on note receivable. The net cash used in investing activity for the nine months ended September 30, 2013 consisted primarily
of cash paid for the PhytoSPHERE Agreement totaling $950,000 and the investment in KannaLife totaling $650,000.
Net cash provided by financing activities for
the nine months ended September 30, 2014 and 2013 totaled $8,155,131 and $4,810,300, respectively. Cash flows provided by financing
activities in 2014 primarily include $8,247,500 in proceeds from the sale of common stock. Cash flows provided by financing activities
in 2013 primarily include proceeds of $4,780,500 from the Roen Ventures, LLC loan.
Our common stock currently trades on the OTCBB
under the symbol “CANV.”
We have generated revenues since our inception
and have sold and shipped raw product to third parties for which we have achieved revenues totaling approximately $9.6 million.
Our revenues are currently sufficient to pay our operating expenses, however, we are unsure if we can maintain a level of revenues
sufficient to cover our operating expenses, which would affect our ability to continue as a going concern and make us dependent
upon our ability to obtain the necessary financing to meet our obligations and repay our current and future liabilities when they
become due until such time, if ever, that we are able to generate sufficient revenues to attain profitable operations. If we are
unable to maintain profitable operations or obtain the financing necessary to support our operations, we may be unable to continue
as a going concern. In that event, we may be forced to cease operations and our stockholders could lose their entire investment
in the Company.
Off-Balance Sheet Arrangements
The Company has two supply agreements in place
with European farmers to supply raw material in future years. These arrangements are critical to company operations since the worldwide
supply of raw hemp is currently limited.
The first contract is for the growth and processing
of 2,600 kilograms of product currently being delivered and scheduled to be delivered through August 31, 2015. The total amount
left to be paid under this contract is approximately $6.9 million through October 2015. The second contract provides up to 1 million
kilograms of raw product to the Company. There is approximately $3.1 million remaining to be paid under this second contract. We
have contractual rights for the growth and processing of hemp oil for delivery through October 2018 under both of these contracts.
We anticipate the cost under both contracts will remain consistent with current year prices.
Critical Accounting Policies
In the notes to our consolidated financial
statements and in “Item 7 – Management Discussion and Analysis of Financial Condition and Results of Operations”
included in our 2013 Annual Report on Form 10-K, we have disclosed those accounting policies that we consider to be significant
in determining our results of operation and financial condition. There have been no material changes to those policies that we
consider to be significant since the filing of our 2013 Annual Report on Form 10-K. The accounting principles used in preparing
our unaudited condensed consolidated financial statements conform in all material respects to Generally Accepted Accounting Principles.
Recent Issued and Newly Adopted Accounting
Pronouncements - In February 2013, the FASB issued Accounting Standards Update No. 2013-04, Liabilities (Topic 405):
Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the
Reporting Date (“ASU No. 2013-04”). The amendments in ASU 2013-04 provide guidance for the recognition, measurement,
and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation
within the scope of ASU No. 2013-04 is fixed at the reporting date, except for obligations addressed within existing guidance in
GAAP. The guidance requires an entity to measure those obligations as the sum of the amount the reporting entity agreed to pay
on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of
its co-obligors. The guidance in ASU No. 2013-04 also requires an entity to disclose the nature and amount of the obligation as
well as other information about those obligations. The amendment in this standard is effective retrospectively for fiscal years,
and interim periods within those years, beginning after December 15, 2013. We are evaluating the effect, if any, adoption of ASU
No. 2013-04 will have on our condensed consolidated financial statements.
In May 2014, the FASB issued Accounting Standards
Update 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which completes the
joint effort by the FASB and the International Accounting Standards Board to improve financial reporting by creating common revenue
recognition guidance for GAAP and the International Financial Reporting Standards. ASU 2014-09 will become effective for the Company
beginning January 1, 2017 and early adoption is not permitted. The Company is currently evaluating the potential impact of ASU
2014-09 on its condensed consolidated financial statements.
Other recent accounting pronouncements issued
by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the SEC did
not, or are not believed by management to have a material impact on the Company’s present or future financial statements.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Not applicable to a “smaller reporting
company” as defined in Item 10(f)(1) of Regulation S-K.
Item 4. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
Our management, which is comprised of one person
holding the office of principal executive officer and one person holding the office of principal financial officer, evaluated the
effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e)
and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end
of the period covered by this report (the “Evaluation Date”). Based on such evaluation, our management concluded that
our disclosure controls and procedures were not effective, at a reasonable assurance level, as of the Evaluation Date, to ensure
that information required to be disclosed in reports that we file or submit under that Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the SEC rules and forms and to ensure that information required to be disclosed
in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management in a manner that
allows timely decisions regarding required disclosures.
An evaluation was performed under the supervision
and with the participation of the Company’s management of the effectiveness of the design and operation of the Company’s
procedures and internal control over financial reporting as of September 30, 2014. In making this assessment, the Company used
the framework established in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on that evaluation, the Company’s management concluded that the Company’s
internal controls over financial reporting were not effective in that there was a material weakness as of September 30, 2014.
A material weakness is a deficiency or combination
of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement
of the annual or interim financial statements will not be prevented or detected on a timely basis by the Company’s internal
controls.
The Company’s management has identified
a material weakness in the effectiveness of internal control over financial reporting related to a shortage of resources in the
accounting department required to assure appropriate segregation of duties with employees having appropriate accounting qualifications
related to the Company’s unique industry accounting and disclosure rules.
Management is aware that there is a lack of
proper internal controls related to the inventory purchase cycle. Specifically, there is a lack of control functions and segregation
of duties involved with purchasing and receiving inventory. This constitutes a deficiency in internal controls. The Company is
in the process of implementing proper controls and adding additional employees to the process to improve the segregation of duties.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL
REPORTING
There was no change in our internal control
over financial reporting identified in connection with our evaluation that occurred during our the fiscal quarter ended September
30, 2014, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1: LEGAL PROCEEDINGS
On
March 8, 2008, Far West Industries (“Far West”) sued Michael J. Mona, Jr., President and Chief Executive Officer of
the Company and others for damages resulting from fraud arising out of a land transaction in California (the “California
Action”). On February 23, 2012, a judgment was entered in the California Action in favor of Far West against Mr. Mona and
others in the amount of $17,777,562. On October 18, 2012, the judgment in the California Action was domesticated in Nevada and
enforcement proceedings commenced including, but not limited to an examination of Mr. Mona as a judgment debtor, and garnishments
of various accounts belonging to Mr. Mona. During the period, Mr. Mona loaned $3,000,000 to Roen Ventures, which was subsequently
loaned to the Company. The suit alleges that the loan transactions were intended to prejudice creditors like Far West by concealing
and wasting assets that would otherwise be available to satisfy the judgment that Far West has against Mr. Mona. Pursuant to a
Second Amendment Complaint filed by Far West Industries on February 20, 2014, the Company was added as a defendant to the suit.
On March 17, 2014, the Company was served with a complaint from Far West Industries. In summary, Far West alleges that the Company
is in possession of funds as a result of an allegedly fraudulent transfer between Mr. Mona, Roen Ventures, LLC, and the Company.
On May 13, 2014, a motion to dismiss filed by the Company was granted and thus, the Company will no longer be a defendant in the
lawsuit. Although Far West’s counsel thereafter filed a Third Amended Complaint which improperly sought to re-name
the Company as a defendant, on October 16, 2014, Far West filed a dismissal of the Company after the Company threatened to bring
a motion for sanctions for violating the Court order of May 13, 2014. Accordingly, the Company has been formally dismissed
from the action.
On
April 23, 2014, Tanya Sallustro filed a purported class action complaint (the “Complaint”) in the Southern District
of New York (the “Court”) alleging securities fraud and related claims against the Company and certain of its officers
and directors and seeking compensatory damages including litigation costs. Ms. Sallustro alleges that between March 18-31,
2014, she purchased 325 shares of the Company’s common stock for a total investment of $15,791.00. The Complaint refers
to Current Reports on Form 8-K and Current Reports on Form 8-K/A filings made by the Company on April 3, 2014 and April 14, 2014,
in which the Company amended previously disclosed sales (sales originally stated at $1,275,000 were restated to $1,082,375 - reduction
of $192,625) and restated goodwill as $1,855,512 (previously reported at net zero). Additionally, the Complaint states after
the filing of the Company’s Current Report on Form 8-K on April 3, 2014 and the following press release, the Company’s
stock price “fell $7.30 per share, or more than 20%, to close at $25.30 per share.” Subsequent to the filing
of the Complaint, six different individuals have filed a motion asking to be designated the lead plaintiff in the litigation.
The Court scheduled a hearing on August 14, 2014 to consider the motions for designation as lead plaintiff. The other individuals
seeking lead plaintiff designation are: Wayne Chesner; Anamaria Schelling; Mark Williams; Otilda LaMont; Jane Ish and Steve
Schuck. After a hearing held on August 14, 2014, the Court took the matter under submission. As of November 3,
2014, the Court has not issued a ruling appointing a lead plaintiff. Accordingly, the Company has not yet answered the Complaint
but management intends to vigorously defend the allegations.
On August 11, 2014,
we terminated the Non-Exclusive License and Distribution Agreement with HempMeds PX, LLC (the “HempMeds Agreement”).
On or about August 13, 2014, HempMeds PX, LLC (“HempMeds”) demanded arbitration against us and recommended that the
parties engage Private Trials in Las Vegas, Nevada to conduct the arbitration, denying that HempMeds was in breach of the HempMeds
Agreement. On August 22, 2014, HempMeds filed a complaint in the Eighth Judicial District, Clark County, Nevada (the “Nevada
Complaint”) against us for breach of the HempMeds Agreement, unjust enrichment, and interference with prospective business
advantage, claiming that it had satisfied all of its obligations under the HempMeds Agreement and that we breached that agreement
by terminating it without just cause. Concurrently, HempMeds filed a Motion for Preliminary Injunction, asking the Court
to reinstate the HempMeds Agreement, namely the provision that identified HempMeds as the exclusive on-line seller of certain products
of the Company. The court denied HempMeds’ motion on October 3, 2014. We have not yet answered the Nevada Complaint
because the parties have agreed to arbitration and are attempting to resolve the issue of where the arbitration will be held.
We deny HempMeds’ claims and intend to vigorously defend the allegations and file appropriate counter-claims. Since
the action was recently filed and no discovery has been conducted, an estimate of the possible loss or recovery cannot be made
at this time.
On September 11,
2014, we filed a complaint for trademark infringement against Kannaway, LLC, General Hemp, LLC and HDDC Holdings, LLC in the United
States District Court, Southern District of California, Case No. 14-cv-2160-CAB-BLM, asserting that defendants have infringed on
our Cannabis Beauty Defined trademarks. Defendants filed a Motion to Dismiss some of our claims, asserting that we have failed
to allege sufficient facts to support those claims. The Court is scheduled to hear the motion on December 19, 2014.
Management intends to oppose the motion and to vigorously prosecute this complaint. Since the action was recently filed and
no discovery has been conducted, an estimate of the possible recovery cannot be made at this time.
Item 1A: RISK FACTORS
Not required for “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:
Exhibit No. |
|
Description of Exhibit |
2.1(1) |
|
Agreement and Plan of Merger, dated as of July 25, 2013, by and between CannaVEST Corp., a Texas corporation, and CannaVEST Corp., a Delaware corporation. |
3.1(1) |
|
Certificate of Incorporation of CannaVEST Corp., as filed on January 26, 2013. |
3.2(1) |
|
Bylaws of CannaVEST Corp., dated as of January 26, 2013. |
4.1(2) |
|
CannaVEST Corp. Specimen Stock Certificate. |
10.1(2) |
|
CannaVEST Corp. Amended and Restated 2013 Equity Incentive Plan. |
31.1* |
|
Certification of the Chief Executive Officer pursuant to Section
302(a) of the Sarbanes-Oxley Act of 2002.
|
31.2* |
|
Certification of the Chief Financial Officer pursuant to Section
302(a) of the Sarbanes-Oxley Act of 2002.
|
32.1* |
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
32.2* |
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
101 INS* |
|
XBRL Instance Document |
101 SCH* |
|
XBRL Schema Document |
101 CAL* |
|
XBRL Calculation Linkbase Document |
101 LAB* |
|
XBRL Labels Linkbase Document |
101 PRE* |
|
XBRL Presentation Linkbase Document |
101 DEF* |
|
XBRL Definition Linkbase Document |
* Filed herewith.
(1) |
Incorporated by reference from an exhibit to our Current Report on Form 10-Q filed on August 13, 2013. |
(2) |
Incorporated by reference from an exhibit to our Current Report on Form 8-K filed on July 29, 2014. |
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.
|
CANNAVEST CORP. |
|
|
|
November 14, 2014 |
By: |
/s/ Michael J. Mona, Jr. |
|
|
Michael Mona, Jr.
(President and Chief Executive Officer) |
|
|
|
|
By: |
/s/ Joseph D. Dowling |
|
|
Joseph Dowling
(Chief Financial Officer) |
|
|
|
EXHIBIT 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO
SECURITIES EXCHANGE ACT RULES 13a-14(a) AND
15(d)-14(a), AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF
2002
I, Michael J. Mona, Jr., President and Chief Executive Officer of
CannaVEST Corp. (the “Company”) certify that:
1. I have reviewed this quarterly report on
Form 10-Q of the Company;
2. Based on my knowledge, this report does
not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements,
and other financial information included in this report, fairly present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying
officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
|
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. The registrant’s other certifying
officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
|
|
Dated: November 14, 2014 |
By: |
/s/ Michael J. Mona, Jr. |
|
|
Michael J. Mona, Jr.
President and Chief Executive Officer
(Principal Executive Officer) |
EXHIBIT 31.2
CERTIFICATION OF PRINCIPAL
FINANCIAL OFFICER PURSUANT TO
SECURITIES EXCHANGE ACT RULES 13a-14(a) AND
15(d)-14(a), AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF
2002
I, Joseph D. Dowling, Chief Financial Officer
of CannaVEST Corp. (the “Company”) certify that:
1. I have reviewed this quarterly report on
Form 10-Q of the Company;
2. Based on my knowledge, this report does
not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements,
and other financial information included in this report, fairly present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying
officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
|
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. The registrant’s other certifying
officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
|
|
Dated: November 14, 2014 |
By: |
/s/ Joseph D. Dowling |
|
|
Joseph D. Dowling
Chief Financial Officer (Principal Financial Officer) |
EXHIBIT 32.1
CERTIFICATION OF PRINCIPAL
EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of
CannaVEST Corp. (the “Registrant”) on Form 10-Q for the nine months ended September 30, 2014 (the “Report”),
I, Michael J. Mona, Jr., President and Chief Executive Officer of the Registrant, do hereby certify, pursuant to 18 U.S.C. §1350,
as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1) the Report, as filed with the Securities
and Exchange Commission, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
(2) the information contained in the Report
fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
|
|
Dated: November 14, 2014 |
By: |
/s/ Michael J. Mona, Jr. |
|
|
Michael J. Mona, Jr.
President and Chief Executive Officer
(Principal Executive Officer) |
EXHIBIT 32.2
CERTIFICATION OF PRINCIPAL
FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of
CannaVEST Corp. (the “Registrant”) on Form 10-Q for the nine months ended September 30, 2014 (the “Report”),
I, Joseph D. Dowling, Chief Financial Officer of the Registrant, do hereby certify, pursuant to 18 U.S.C. §1350, as adopted
pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1) the Report, as filed with the Securities
and Exchange Commission, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
(2) the information contained in the Report
fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
|
|
Dated: November 14, 2014 |
By: |
/s/ Joseph D. Dowling |
|
|
|
Joseph D. Dowling
Chief Financial Officer (Principal Financial Officer) |
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