Table of Contents

UNITED STATES

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

For the quarterly period ended February 29, 2020

OR

o    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ______ to ______.

 

Commission File Number: 000-52403

___________________________________________________

 

CANNABICS PHARMACEUTICALS INC.

(Exact name of registrant as specified in its charter)

___________________________________________________

 

Nevada     46-5644005

(State or other jurisdiction of

incorporation or organization)

    (IRS Employer Identification No.)
       

#3 Bethesda Metro Center, Suite 700

Bethesda, MD

    20814
(Address of principal executive offices)     (Zip Code)

 

(877) 424-2429

(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 every Interactive Data File required to be submitted 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 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company," and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer  o Accelerated filer  o
Non-accelerated filer  x Smaller reporting company  x
  Emerging growth company   o

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

 

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

 

As of April 12, 2020, the registrant had 135,035,441 shares of its Common Stock, $0.0001 par value, outstanding.

 

When used in this quarterly report, the terms “Cannabics,” “the Company,” “we,” “our,” and “us” refer to Cannabics Pharmaceuticals Inc. and its wholly-owned subsidiary, G.R.I.N Ultra Ltd.

 

 

 

     

 

 

CANNABICS PHARMACEUTICALS INC.

FORM 10-Q

FEBRUARY 29, 2020

 

INDEX

 

Cautionary Note Regarding Forward-Looking Statements 3
   
PART I – FINANCIAL INFORMATION 4
     
Item 1. Consolidated Financial Statements 4
  Consolidated Balance Sheets as of February 29, 2020 (unaudited) and August 31, 2019 5
  Consolidated Statements of Operations for the Three and Six Months Ended February 29, 2020 and February 28, 2019 (unaudited) 6
  Consolidated Statements of Stockholder’s Equity for the Three and Six Months Ended February 29, 2020 and February 28, 2019 (unaudited) 7
  Consolidated Statements of Cash Flows for the Six Months Ended February 28, 2020 and February 28, 2019 (unaudited) 9
  Notes to Consolidated Financial Statements (unaudited) 10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 12
Item 3 Quantitative and Qualitative Disclosures About Market Risk 16
Item 4. Controls and Procedures 16
     
PART II – OTHER INFORMATION 18
     
Item 1. Legal Proceeding 18
Item 2 Recent Sale of Unregistered Securities 18
Item 6. Exhibits 18
     
SIGNATURE   19

 

 

 

 

 

  2  

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Certain information set forth in this Quarterly Report on Form 10-Q, including in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere herein may address or relate to future events and expectations and as such constitutes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Statements which are not historical reflect our current expectations and projections about our future results, performance, liquidity, financial condition, prospects and opportunities and are based upon information currently available to us and our management and their interpretation of what is believed to be significant factors affecting our business, including many assumptions regarding future events. Such forward-looking statements include statements regarding, among other things:

 

  · the size and growth of the potential markets for our products and the ability to serve those markets;
     
  · our expectations regarding our expenses and revenue, the sufficiency of our cash resources and needs for additional financing;
     
  · the rate and degree of market acceptance of any of our products;
     
  · our expectations regarding competition;
     
  · our anticipated growth strategies;
     
  · our ability to attract or retain key personnel;
     
  · our ability to establish and maintain development partnerships;
     
  · regulatory developments in the U.S. and foreign countries, especially those related to change in, and enforcement of, cannabis laws;
     
  · our ability to obtain and maintain intellectual property protection for our products; and
     
  · the anticipated trends and challenges in our business and the market in which we operate.

 

Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “should,” “would,” “could,” “scheduled,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “seek,” or “project” or the negative of these words or other variations on these words or comparable terminology. Actual results, performance, liquidity, financial condition and results of operations, prospects and opportunities could differ materially and perhaps substantially from those expressed in, or implied by, these forward-looking statements as a result of various risks, uncertainties and other factors. These statements may be found under the section of our Annual Report on Form 10-K for the year ended August 31, 2019 (filed on November 29, 2019) entitled “Risk Factors” as well as in our other public filings.

 

In light of these risks and uncertainties, and especially given the start-up nature of our business, there can be no assurance that the forward-looking statements contained herein will in fact occur. Readers should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.

 

 

 

 

 

 

  3  

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

 

REPORT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of Cannabics Pharmaceuticals Inc.

 

We have reviewed the accompanying balance sheets of Cannabics Pharmaceuticals Inc. as of February 29, 2020, and the related interim statements of operations, changes in stockholders' equity and cash flows for the three months and six months periods ended February 29, 2020 and 2019. These interim condensed financial statements are the responsibility of the Company's management.

 

We conducted our review in accordance with standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

 

Based on our review, we are not aware of any material modifications that should be made to the accompanying interim financial information for it to be in conformity with U.S. generally accepted accounting principles.

 

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the balance sheet of Cannabics Pharmaceuticals Inc. as of August 31, 2019, and the related statements of operations, stockholders' equity, and cash flows for the year then ended and in our report dated November 29, 2019, we expressed an unqualified opinion, with an explanatory note on going concern, on those financial statements. In our opinion, the information set forth in the accompanying balance sheet as of August 31, 2019, is fairly stated, in all material respects, in relation lo the balance sheet from which it has been derived.

 

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As more fully described in Note 1, the Company has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ Weinstein International. C.P.A.

 

Tel Aviv, Israel

April 7, 2020

 

 

 

Tel: +972-3-776-3777                 Fax:+972-3-776-3881               │               Email: i@dwacc.com                Web: www.dwacc.com

 

  4  

 

 

CANNABICS PHARMACEUTICALS INC.

Consolidated Balance Sheets

 

 

    February 29,     August 31,  
    2020     2019  
ASSETS                
                 
Current assets:                
Cash and cash equivalents   $ 586,972     $ 265,982  
Prepaid expenses and other receivables     199,079       284,496  
Held for trading Investments     1,515,769       3,256,456  
Current royalties           500,000  
Total current assets     2,301,820       4,306,934  
                 
Available for sale Investment     356,087       6,010,946  
Long term royalties           3,863,000  
                 
Equipment, net     913,226       1,002,286  
                 
Total assets   $ 3,571,133     $ 15,183,166  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
                 
Current liabilities:                
Accounts payable and accrued liabilities   $ 195,997     $ 215,229  
Due to a related party     223,645       223,645  
Total current liabilities     419,642       438,874  
                 
Stockholders' equity (deficit):                
Preferred stock, $.0001 par value, 5,000,000 shares authorized, no shares issued and outstanding                
Common stock, $.0001 par value, 900,000,000 shares authorized, 135,035,441 and 134,498,775 shares issued and outstanding at February 29, 2020 and August 31, 2019 respectively     13,504       13,450  
Additional paid-in capital     15,372,316       15,300,250  
issuance of warrants     2,784,387       2,784,387  
Other comprehensive income     (2,844,846 )     2,810,013  
Accumulated deficit     (12,173,869 )     (6,163,807 )
Total stockholders' equity (deficit)     3,151,492       14,744,292  
                 
Total liabilities and stockholders' equity   $ 3,571,134     $ 15,183,166  

 

See accompanying notes to consolidated financial statements.

 

 

 

  5  

 

 

CANNABICS PHARMACEUTICALS INC.

Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

 

  For the Three Months Ended     For the Six Months Ended  
  February 29,     February 28,     February 29,     February 28,  
    2020     2019     2020     2019  
Net revenue   $ 1,310     $ 2,320     $ 3,064     $ 5,625  
                                 
Operating expenses:                                
Research and development expense     444,416       428,044       910,449       732,227  
General and administrative expenses     423,262       470,323       774,839       817,735  
                                 
Total operating expenses     867,678       898,367       1,685,288       1,549,962  
                                 
Loss from operations     (866,368 )     (896,047 )     (1,682,224 )     (1,544,337 )
                                 
Other income                                
                                 
Financial (Loss) Income     (1,497 )     4,625,713       (4,327,837 )     4,618,028  
                                 
Net (loss) income     (867,865 )     3,729,666       (6,010,061 )     3,073,691  
                                 
Profit from available for sale assets     (2,104,046 )     4,884,357       (2,844,846 )     4,884,357  
Total comprehensive (income) loss   $ (2,971,911 )   $ 8,614,023     $ (8,854,906 )   $ 7,958,048  
                                 
Net loss per share - basic and diluted:   $ (0.003 )   $ 0.065     $ (0.046 )   $ 0.065  
                                 
Weighted average number of shares outstanding - Basic and Diluted      134,742,951         120,531,021         134,607,237         120,500,953   

 

 

See accompanying notes to consolidated financial statements.

 

 

 

 

  6  

 

 

CANNABICS PHARMACEUTICALS INC.

Consolidated Statements of Stockholder’s Equity

(Unaudited)

 

 

For the six months ended February 29, 2020

 

    Common stock     Additional paid in           Unrealized gain (loss) on available-for-sale financial     Accumulated    

Total stockholders’ equity

 
    Shares     Amount     capital     Warrants     gain     deficit     (deficit)  
                                           
Balance, August 31, 2019     134,498,775     $ 13,450     $ 15,300,250     $ 2,784,387     $ 2,810,013     $ (6,163,807 )   $ 14,744,292  
                                                         
Treasury stock     (30,000 )             (30,000 )                             (30,000 )
                                                         
Issuance of common stock for services, net.     566,666       54       102,066                           102,120  
                                                         
Expiration of warrants                       0                      
                                                         
Other comprehensive loss                             (5,654,859 )           (5,654,859 )
                                                         
Net loss                                   (6,010,061 )     (6,010,061 )
                                                         
Balance, February 29, 2020     135,035,441     $ 13,504     $ 15,372,316     $ 2,784,387     $ (2,844,846 )   $ (12,173,868 )   $ 3,151,492  

 

 

For the three months ended February 29, 2020

 

 

    Common stock     Additional paid in           Unrealized gain (loss) on available-for-sale financial     Accumulated    

Total stockholders’ equity

 
    Shares     Amount     capital     Warrants     gain     deficit     (deficit)  
                                           
Balance, November 30, 2019     134,498,775     $ 13,450     $ 15,270,250     $ 2,784,387     $ (700,800 )   $ (11,306,002 )   $ 6,061,284  
                                                         
Issuance of common stock for services, net.     536,666       54       102,066                           102,120  
                                                         
Expiration of warrants                                            
                                                         
Other comprehensive loss                             (2,144,046 )           (2,144,046 )
                                                         
Net loss                                     (867,866 )     (867,866 )
                                                         
Balance, February 29, 2020     135,035,441     $ 13,504     $ 15,372,316     $ 2,784,387     $ (2,844,846 )   $ (12,173,868 )   $ 3,151,492  

 

 

 

  7  

 

 

CANNABICS PHARMACEUTICALS INC.

Consolidated Statements of Stockholder’s Equity (continued)

(Unaudited)

 

 

For the six months ended February 28, 2019

 

    Common stock     Additional paid-in           Unrealized gain (loss) on available-for-sale financial     Accumulated    

Total

stockholders' equity

 
    Shares     Amount     capital     Warrants     gain     deficit     (deficit)  
                                           
Balance, August 31, 2018     121,575,388     $ 12,158     $ 9,840,420     $ 89,722     $     $ (7,296,777 )   $ 2,645,523  
                                                         
Issuance of shares of common stock for cash.     346,667       34       215,841                               215,875  
                                                         
Issuance of common stock for services, net.     10,272,776       1,027       4,363,137       2,784,387                     7,148,551  
                                                         
Expiration of warrants                 89,722       (89,722 )                      
                                                         
Other comprehensive income                             4,884,357             4,884,357  
                                                         
Net profit                                     3,073,691       3,073,691  
                                                         
Balance, February 28, 2019     132,194,831     $ 13,219     $ 14,509,120     $ 2,784,387     $ 4,884,357     $ (4,223,086 )   $ 17,967,997  

 

 

For the six months ended February 28, 2019

 

    Common stock     Additional paid-in           Unrealized gain (loss) on available-for-sale financial     Accumulated    

Total

stockholders' equity

 
    Shares     Amount     capital     Warrants     gain     deficit     (deficit)  
                                                         
Balance, November 30, 2018     131,833,165     $ 13,185     $ 14,225,814     $ 2,784,387     $     $ (7,952,753 )   $ 9,070,633  
                                                         
Issuance of shares of common stock for cash.     361,666       34       215,841                             215,875  
                                                         
Issuance of common stock for services, net.                 67,465                           67,465  
                                                         
Other comprehensive income                             4,884,357             4,884,357  
                                                         
Net Profit                                   3,729,667       3,729,667  
                                                         
Balance, February 28, 2019     132,194,831     $ 13,219     $ 14,509,120     $ 2,784,387     $ 4,884,357     $ (4,223,086 )   $ 17,967,997  

 

See accompanying notes to consolidated financial statements.

 

 

 

  8  

 

 

CANNABICS PHARMACEUTICALS INC.

Consolidated Statements of Cash Flows

(Unaudited)

 

  For the year Ended  
  February 29,     February 28,  
    2020     2019  
Cash flows from operating activities:                
Net Income (Loss)   $ (6,010,061 )   $ 3,073,691  
Adjustments required to reconcile net loss to net cash used in operating activities:                
Depreciation     103,960       96,430  
Royalties receivables valuation     4,363,000        
Stock issued for services     72,120       215,875  
Profit from held for trading investments     (80,521 )     (4,582,000 )
Changes in operating assets and liabilities:                
Accounts Receivable and pre paid expenses     85,417       (47,269 )
Accounts payable and accrued liabilities     (19,232 )     (163,202 )
Net cash used in operating activities     (1,485,317 )     (1,406,474 )
                 
Cash flows from investing activities:                
Available for sale investments           (1,920,000 )
Held for trading Investments     1,821,207        
Acquisition of equipment     (14,900 )     (116,571 )
Net cash from (used) in investing activities     1,806,307       (2,036,571 )
                 
Cash flows from financing activities:                
Proceeds from sale of common stock           7,294,266  
Costs of raising capital           (76,989 )
Net cash provided by financing activities           7,217,277  
                 
Net increase (Decrease) in cash     320,990       3,774,232  
Cash and cash equivalents at beginning of the Period     265,982       1,393,608  
Cash and cash equivalents at end of the Period   $ 586,972     $ 5,167,840  

 

See accompanying notes to consolidated financial statements.

 

 

 

  9  

 

 

CANNABICS PHARMACEUTICALS INC.

Notes to Consolidated Financial Statements

(Unaudited)

 

 

Note 1–Nature of Business, Presentation and Going Concern

 

Organization

 

Cannabics Pharmaceuticals Inc. (the “Company”), was incorporated in the State of Nevada, on September 15, 2004, under the name of Thrust Energy Corp.

 

On April 25, 2014, the Company experienced a change in control. Cannabics, Inc. (“Cannabics”) acquired a majority of the issued and outstanding common stock of the Company in accordance with stock purchase agreements.  On the closing date, April 25, 2014, pursuant to the terms of the Stock Purchase Agreement, Cannabics purchased 41,000,000 shares of the Company’s outstanding restricted common stock for $198,000, representing 51%.

 

On May 21, 2014, the Company changed its name, via merger in the state of Nevada, to Cannabics Pharmaceuticals Inc. The Company’s principle offices are in Bethesda, Maryland. The Company changed its course of business to laboratory research and development.

 

On June 3, 2014, the Company’s Board of Directors declared a two-to-one forward stock split of all outstanding shares of common stock. The stock split was approved by FINRA on June 25, 2014.

 

On August 25, 2014, the Company organized G.R.I.N. Ultra Ltd. (“GRIN”), an Israeli corporation, as a wholly-owned subsidiary. GRIN will provide research and development activities for the Company’s products in Israel.

 

On July 24, 2017, the Company announced its establishment of a genetics laboratory to develop diagnostic tools based on human genome, tumor genetics and specific cannabinoids.

 

Basis of Presentation

 

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial statement presentation and in accordance with Form 10-Q. Accordingly, they do not include all of the information and footnotes required in annual financial statements. In the opinion of management, the unaudited financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position and results of operations and cash flows. The results of operations presented are not necessarily indicative of the results to be expected for any other interim period or for the entire year.

 

These unaudited financial statements should be read in conjunction with our August 31, 2019 annual financial statements included in our Form 10-K, filed with the U.S. Securities and Exchange Commission (“SEC”) on November 29, 2019.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company and GRIN. All significant inter-company balances and transactions have been eliminated in consolidation.

 

Going Concern

 

The accompanying unaudited financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. While the Company has incurred a net loss of $6,010,061 for the six months ended February 29, 2020, it has incurred cumulative losses since inception of $12,173,869. These conditions raise substantial doubt about the ability of the Company to continue as a going concern.

 

 

 

  10  

 

 

The ability of the Company to continue as a going concern is dependent upon its abilities to generate revenues, to continue to raise investment capital, and develop and implement its business plan. No assurance can be given that the Company will be successful in these efforts.

 

Research and Development Costs

 

The Company accounts for research and development costs in accordance with Accounting Standards Codification 730 “Research and Development” (“ASC 730”). ASC 730 requires that research and development costs be charged to expense when incurred. Research and development costs charged to expense were $910,449 and $732,227 for the six months ended February 29, 2020 and 2019, respectively.

 

Reclassifications

 

Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported losses, total assets, or stockholders’ equity as previously reported.

 

Note 2 – Related Party Transactions

 

During the six months ending February 28, 2020, the Company paid $232,413 in salaries, including socials benefits, to two directors, compared to $258,800 for the six months ending February 28, 2019.

 

The Company had a balance outstanding at February 28, 2020 and at February 28, 2019 of $223,645, payable to Cannabics, Inc. The advance is due on demand and bears no interest.

 

Note 3 – Stockholders’ Equity (Deficit)

 

Authorized Shares

 

The Company is authorized to issue up to 900,000,000 shares of common stock, par value $0.0001 per share. Each outstanding share of common stock entitles the holder to one vote per share on all matters submitted to a stockholder vote. All shares of common stock are non-assessable and non-cumulative, with no pre-emptive rights.

 

Note 4 – Commitments and Contingencies

 

The company leases its office in Tel Aviv. In May, 2019, the Company extended its lease agreement for an additional twelve-month extension which expires on April 1st, 2021. The monthly lease is $1,390.00.

 

Effective June 1, 2018, the Company entered into a 36-month car lease for one of its executive officers.

 

As security for its obligation under a property lease agreement, car lease and credit cards, the Company’s subsidiary provided a bank guarantee in the amount of $51,000.

 

Note 5 – Subsequent Events

 

On December 5th, 2019, the Company announced the appointment of Dr. Yaakov Waksman as Head of Cannabidiol Research.

 

On February 11th, 2020, the Company announced its collaboration with RCKMC to develop cannabis strains targeting Gastrointestinal cancers.

 

On February 25th, 2020, the Company announced its partnership with NewCanna on research on indigenous landraces.

 

The Company has evaluated subsequent events through the date the financial statements were issued and filed with the SEC and has determined that there are no other such events that warrant disclosure or recognition in the financial statements.

 

 

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Company Overview

 

We are a pioneer in the constellation of cannabis cancer and diagnostics. Personalization of cannabinoid-based treatments is our main scope, addressing the rapidly growing yet unmet need of cancer patients who are prescribed with cannabis. The multifactorial benefits of cannabis create an arising need that may unravel a new attitude to cancer treatment and prevention. The palliative aspects of cannabis such as reducing pain and nausea, propel the market to create over-the-counter and pharmaceutical grade cannabis products to cancer patients. With minor side effects and no toxicity, the only barrier to millions of cancer patients is worldwide regulation. The legalization of cannabis worldwide is being generated both by medical and financial processes exposing and legitimizing cannabis consumption as a medical treatment. The number of cancer patients, caregivers and doctors that are exposed to cannabis is growing rapidly as new countries i.e. Germany, Canada, Australia and others adopt new regulations and introduce natural cannabis products to the health system. Since the palliative properties of cannabis as pain and nausea reduction are widely accepted by physicians, along with a growing body of clinical proof, and patient advocating these benefits; we believe that in next decade a large percentage of cancer patients worldwide will be treated with cannabis in varied medications both pharmaceutical and as a nutraceutical. It is already scientifically proven that cannabinoids impact cell cycle though partially known biological mechanisms and impact many aspects of human biology and health. This unique situation in which a highly active compound (i.e. THC, CBD) consumed by large portions of the population creates an unmet need to decipher the biological and clinical prospects of these compounds. Cannabics’ vision is to build a platform of data from which medications can be formulated, patients diagnosed and treated in a personalized manner. Our goal is to seek novel technologies in cancer medicine and assimilate them into cannabinoid medicine. The results we have gained in performing invitro studies and clinical studies are part of a growing holistic prospect of the treatment of cancer and other indications with cannabis.

 

We have recently published a scientific paper on the results our first clinical study on our SR capsules as a treatment for CACS in advanced cancer patients and leveraged our R&D lab to develop new formulations. As pioneers in this mission, we hope and believe that the database we create and the knowledge we gain will serve many cancer patients who are medicated with cannabis and will lead to better and more predictable therapy outcomes. The still confining U.S. regulation creates an advantage for Cannabics which is specifically licensed to conduct such research and clinical studies by the Israeli Ministry of Health.

 

Cancer and Cannabinoids

 

Natural products have served as vital resources for cancer therapy (e.g.,Vinca alkaloids, paclitaxel, etc., which are used as conventional chemotherapeutic agents) and are also sources for novel drugs. Natural products from plants therefore represent an excellent resource for targeted therapies, as phytochemicals and herbal mixtures multiple targets at the same time. Furthermore, the problem of drug resistance may be approached by integrating phytochemicals and phyto-therapy into academic western medicine through derivation and integration of data and as adjunct to conventional treatments. The integration of phytochemicals and phyto-therapy into cancer medicine represents a valuable asset to chemically synthesized chemicals and therapeutic antibodies. Cannabinoids are excellent candidates for this approach. Cannabinoids are a class of over 60compounds derived from the plant cannabis sativa, as well as the synthetic or endogenous versions of these compounds. Cannabinoids show specific cytotoxicity against tumor cells, while protecting healthy tissue from apoptosis. These effects are exerted through cannabinoid receptors CB1 and CB2 in mammals and through non-receptor signaling pathways. Recent studies suggest that cannabinoids contribute to maintaining balance in cell proliferation and that targeting the endo-cannabinoid system can affect growth of several different types of cancer, including gliomas, breast, colon, prostate, and hepatocellular carcinoma.

 

Personalized Cancer Treatments

Despite significant progress in cancer diagnostics and development of novel therapeutic regimens, successful treatment of advanced forms of cancer is still a challenge and may require personalized therapeutic approaches. Our government licensed Israeli facility operates a unique research and development laboratory which combines high throughput screening (HTS) capabilities with the most advanced data tools. The HTS platform allows us to test vast number of compounds on cancerous cell lines and fresh biopsy tissues to record and measure the therapeutics effects of these compounds. Our advantage is in the specialized library which is composed of a collection of cannabis extracts and pure natural and synthetic cannabinoids. The library will also include a costumed cannabinoid matrix, to assess the possible interaction of combination therapy.

 

 

 

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Advances in understanding many of the fundamental mechanisms of cancer progression have led to the development of molecular targeted therapies. While molecular targeted therapeutics continue to improve the outcome for cancer patients, tumor heterogeneity among patients, as well as intra-tumor heterogeneity, limits the efficacy of these drugs to specific patient subtypes, as well as contributing to relapse. Furthermore, Intra-tumor heterogeneity is caused by genomic instability in cancer cells, resulting in the selection of resistant clones, thus limits efficiency of cancer treatment. Hence, there is an actual medical need for a more personalized approach toward drug development and diagnosis that considers the diversity of cancer patients, as well as the complex milieu of tumor cells within a single patient.

 

Drug Sensitivity tests – a functional assay

 

Cannabics cutting edge functional platform is matching the correct cannabis formulation to the patients’ cancer, aiming to improve survival, quality of life and to prevent cross indication between cannabis and conventional therapy.

 

Cannabics’ technology represents the next step in personalized cannabinoid-based cancer medicine, moving prediction capabilities beyond genomics and into the science of biological response on living patient cells.

 

Cannabics’ high throughput screening (“HTS”) capabilities enables the screening of many compounds on cancerous cell lines and biopsies and measure the biological effects of these compounds. Our advantage is in the specialized library which is composed of a collection of cannabis extracts, pure and synthetic cannabinoids, conventional chemotherapies and the matrix of all combinations of these varieties.

 

Our lab is equipped with a collection of state-of-the-art instruments to enable miniaturization and automation of a variety of biological assays. The automated system is comprised of:

 

  1. High Content Screening Platform, which is an automated cellular imaging and analysis platform designed for quantitative microscopy.

 

  2. Flow cytometry, which enables multi-parametric single cell analysis.

 

  3. Automated workstation, for liquid handling for dispensing accurate and reproducible volumes of liquids and compounds.

 

  4. Multimode microplate reader, designed for fast measurements of numerous biological reactions/processes.

 

The integration of these instruments is enabled via a robotic arm, which allows a continuous process which utilizes all instruments.

 

Readouts generated from these instruments provide us with insights to the effect of our cannabinoid library on parameters such as, proliferation inhibition, apoptosis induction, angiogenesis prevention and toxicity on cancerous cells.

 

These experiments will produce multiplexed data composed of images of cells, cell specific markers and the extent/signal of the biological response. The biological response will be measured using different concentration of cannabinoids and their combinations, thus determining the most effective cannabinoid treatment for a specific cancer type.

 

SR Capsules

 

We have developed a proprietary capsule as a treatment to improve cancer related cachexia/anorexia syndrome (“CACS”) in advanced cancer patients. The main purpose in the treatment of patients with advanced cancer and CACS is to gain weight and improve quality of life (“QoL”). We believe that QoL in patients with CACS is inversely related to reduced appetite and weight-loss. Our clinical study was led by Professor Gil Bar-Sela, the Deputy Director of the Division of Oncology at Rambam Health Care Campus, Head of the Palliative and Supportive Oncology Unit, and Head of the service for melanoma and sarcoma patients. The main endpoints of the treatment of patients with advanced cancer and CACS are weight gain and QoL. The study was fully registered with the US NIH under "Cannabics Capsules as Treatment to Improve Cancer Related CACS in Advanced Cancer Patients", Identifier NCT02359123, and may be found at https://clinicaltrials.gov/ct2/show/NCT02359123. The results of this study were published by Dr. Bar-Sela in Sage Journals under “Integrative Cancer Therapies” on October 9th, 2019, and may be seen here - https://journals.sagepub.com/doi/full/10.1177/1534735419881498

 

 

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Results of Operations

 

For the Three Months Ended February 28, 2020 and 2019

 

Revenues

 

We received $1,310 from licensing agreements in the form of royalties during the three months ended February 29, 2020 compared to $2,320 for the three months ended February 28, 2019. The reason for the increase in revenues is due to an increase in capsule sales.

 

Operating Expenses

 

For the three months ended February 29, 2020 our total operating expenses were $867,678 compared to $1,685,288 for the three months ended February 28, 2019, resulting in a decrease of $817,610. The decrease is attributable to a total decrease of $351,576 in general administration, and sales and marketing expenses and a decrease of $466,034 in research and development expenses.

 

We realized financial loss of $1,497 for the three months ended February 29, 2020, compared to incurring financial gain of $4,625,713 for the three months ended February 28, 2019. The decrease in financial expense was mainly attributable to a valuation of a financial asset, consisting of the Company’s shares held in Seedo, in the total amount of $4,363,000 and exchange differences in total of $21,791 off set by a capital gain of $21,442. As a result, the net profit was $867,866 for the three months ended February 28, 2020, compared to a net income of $3,729,666 for the three months ended February 28, 2019.

 

Net Loss

 

Net loss was $867,866 compared to net income $3,729,666 for the three months ended February 28, 2020, for the reasons explained above.

 

For the Six Months Ended February 28, 2020 and 2019

 

Revenues

 

We received $3,064 from licensing agreements in the form of royalties during the six months ended February 29, 2020 compared to $5,625 the six months ended February 28, 2019. The reason for the increase in revenues is due to an increase in capsule sales.

 

Operating Expenses

 

 

For the six months ended February 29, 2020 our total operating expenses were $1,685,288 compared to $1,549,962 for the six months ended February 28, 2019, resulting in an increase of $135,326. The increase is attributable to a total decrease of $42,896 in general administration, and sales and marketing expenses and partially offset by an increase of $178,222 in research and development expenses.

 

We realized financial loss of $4,327,837 for the six months ended February 29, 2020, compared to financial income of $4,618,028 for the six months ended February 28, 2019. The decrease in financial income was mainly attributable to a valuation of a financial asset, consisting of the Company’s shares held in Seedo, in the total amount of $4,363,000 and exchange differences in total of $40,466 set off by a capital gain of $80,521. As a result, the net loss was $6,010,061 for the six months ended February 29, 2020, compared to a net income of $3,073,691 for the three months ended February 28, 2019.

 

Net loss

 

Net loss was $6,010,061 compare to net income of $3,073,691 for the six months ended February 29, 2020 and February 28, 2019, for the reasons explained above.

 

 

 

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Other comprehensive profit

 

We incurred another comprehensive loss of $2,884,846 for the six months ended February 29, 2020. The loss was mainly attributable to a valuation of a financial asset, consisting of the Company’s shares held in Seedo and Wize Pharma, in the total amount of $2,884,846 As a result; the total comprehensive lost was $8,614,023 for the six months ended February 28, 2020.

 

Liquidity and Capital Resources

 

Overview

 

As of February 29, 2020, we had $586,972 in cash compared to $265,982 on August 31, 2019. We expect to incur a minimum of $1,000,000 in expenses during the next twelve months of operations. We estimate that these expenses will be comprised primarily of general expenses including overhead, legal and accounting fees, research and development expenses, and fees payable to outside medical centers for clinical studies.

 

Liquidity and Capital Resources during the Six Months Ended February 29, 2020 compared to the Six Months Ended February 28, 2019

 

We used cash in operations of $1,404,877 for the six months ended February 29, 2020 compared to cash used in operations of $1,406,474 for the six months ended February 28, 2019. The negative cash flow from operating activities for the six months ended February 28, 2020 is primarily attributable to the Company's net loss from operations of $6,010,061, offset by depreciation of $103,960, a decrease in accounts payables and accrued liabilities of $19,232, a decrease of $85,417 in account receivables and prepaid expenses and an increase in changes in fair value of a financial asset, consisting of the Company’s shares held in Seedo, of $4,363,000 , capital gain of $80,521 and stock issued for services in a total of $72,120,.

 

We had cash flow from investing activities of $1,806,307 during the six months ended February 29, 2020, compared to cash flow used in investing of $2,306,571 for the six months ended February 28, 2019. The reason for the increase in cash flow from investing activities is due to the Company’s Realization of some of held for trade investments in in total of $1,806,307 and its purchase of fixed assets in the aggregate amount of $14,900.

 

We will have to raise funds to pay for our expenses. We may have to borrow money from shareholders, issue equity or enter into a strategic arrangement with a third party. There can be no assurance that additional capital will be available to us. We currently have no arrangements or understandings with any person to obtain funds through bank loans, lines of credit or any other sources. Since we have no such arrangements or plans currently in effect, our inability to raise funds for our operations will have a severe negative impact on our ability to remain a viable company.

 

Going Concern

 

Due to the uncertainty of our ability to meet our current operating and capital expenses, our independent auditors included an explanatory paragraph in their report on the audited financial statements for the year ended August 31, 2019 regarding concerns about our ability to continue as a going concern. Our financial statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.

 

Our unaudited financial statements have been prepared on a going concern basis, which assumes the realization of assets and settlement of liabilities in the normal course of business. Our ability to continue as a going concern is dependent upon our ability to generate profitable operations in the future and/or to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they become due. The outcome of these matters cannot be predicted with any certainty at this time and raise substantial doubt that we will be able to continue as a going concern. Our unaudited financial statements do not include any adjustments to the amount and classification of assets and liabilities that may be necessary should we be unable to continue as a going concern.

 

There is no assurance that our operations will be profitable. Our continued existence and plans for future growth depend on our ability to obtain the additional capital necessary to operate either through the generation of revenue or the issuance of additional debt or equity.

 

 

 

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Off-Balance Sheet Arrangements

 

We currently have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

 

Critical Accounting Policies

   

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Such estimates and assumptions affect the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experiences and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions and conditions. We continue to monitor significant estimates made during the preparation of our financial statements. On an ongoing basis, we evaluate estimates and assumptions based upon historical experience and various other factors and circumstances. We believe our estimates and assumptions are reasonable in the circumstances; however, actual results may differ from these estimates under different future conditions.

 

See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 2, “Summary of Significant Accounting Policies” in our audited consolidated financial statements for the year ended August 31, 2019, included in our Annual Report on Form 10-K as filed on November 29, 2019, for a discussion of our critical accounting policies and estimates.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

The disclosure required under this item is not required to be reported by smaller reporting companies; as such term is defined by Item 503(e) of Regulation S-K.

 

Item 4. Controls and Procedures.

 

  (a) Evaluation of Disclosure Controls and Procedures

 

In connection with the preparation of this Quarterly Report on Form 10-Q, an evaluation was carried out by our management, with the participation of our principal executive officer and the principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”)) as of February 28, 2020. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to management, including the chief executive officer and the chief financial officer, to allow timely decisions regarding required disclosures.

 

Based on that evaluation, our management concluded, as of the end of the period covered by this report, that our disclosure controls and procedures were not effective in recording, processing, summarizing, and reporting information required to be disclosed, within the time periods specified in the SEC's rules and forms, and that such information was accumulated and communicated to management, including the principal executive officer and the principal financial officer, to allow timely decisions regarding required disclosures.

 

  (b) Changes in Internal Control over Financial Reporting

 

There were no other changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

 

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  (c) Limitations on the Effectiveness of Internal Controls

 

Readers are cautioned that our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our control have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any control design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

  

 

 

  17  

 

 

PART II- OTHER INFORMATION

 

Item 1. Legal Proceedings

 

On March 8th, 2020, the Company joined Cannabics Inc., our largest shareholder and affiliate in a suit against Seach Sarid Ltd., Seach Medical Group Ltd. and Shay Sarid in Tel Aviv, Israel. This suit was brought by the Company as it believes the defendants pursued certain business arrangements which rightfully inured to the Company. Said litigation is ongoing and the Company shall vigorously protect and pursue what it believes to be the rights of the Company and its shareholders.

 

Item 1A. Risk Factors

 

We are a smaller reporting company as defined in Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

 

Item 2. Recent Sale of Unregistered Securities

 

During the Quarter ending February 29, 2020, the Company issued a total of 616,666 common shares to three consultants pursuant to their consulting agreements with the company.

 

Item 6. Exhibits

 

Exhibit 31.1* Certification by the Principal Executive Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)).
   
Exhibit 31.2* Certification by the Principal Financial Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)).
   
Exhibit 32.1** Certification by the Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
Exhibit 32.2** Certification by the Principal Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
101.INS*** XBRL Instance Document
   
101.SCH*** XBRL Taxonomy Extension Schema Document
   
101.CAL*** XBRL Taxonomy Extension Calculation Linkbase Document
   
101.DEF*** XBRL Taxonomy Extension Definition Linkbase Document
   
101.LAB*** XBRL Taxonomy Extension Label Linkbase Document
   
101.PRE*** XBRL Taxonomy Extension Presentation Linkbase Document

______________________________

* Filed herewith.
   
** Furnished herewith.
   
*** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

 

 

  18  

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

  Cannabics Pharmaceuticals Inc.
     
Date: April 13, 2020 By: /s/ Eyal Barad
    Eyal Barad
  Title:

Chief Executive Officer

(Principal Executive Officer)

     
     
Date: April 13, 2020 By: /s/ Uri Ben Or
    Uri Ben Or
  Title:

Chief Financial Officer

(Principal Financial Officer)

 

 

 

 

 

 

  19  

 

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