Item 1. Financial Statements
CANNABICS PHARMACEUTICALS INC.
Consolidated Balance Sheets
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November 30,
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August 31,
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2018
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2018
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ASSETS
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( Unaudited )
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( Audited )
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Current assets:
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Cash and cash equivalents
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$
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6,579,908
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$
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1,393,608
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Prepaid expenses and other receivables
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158,260
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|
|
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227,244
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Current royalties
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|
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500,000
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|
|
|
–
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Total current assets
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7,238,168
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1,620,852
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|
|
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|
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Investment in Eroll Grow Tech Ltd.
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1,022,513
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589,722
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Long term royalties
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218,486
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–
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Equipment, net
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1,004,206
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974,331
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Total assets
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$
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9,483,374
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$
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3,184,905
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current liabilities:
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Accounts payable and accrued liabilities
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$
|
189,094
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$
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315,737
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Due to a related party
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223,645
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223,645
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Total current liabilities
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412,739
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539,382
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Stockholders' equity (deficit):
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Preferred stock, $.0001 par value, 5,000,000 shares authorized, no shares
issued and outstanding.
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–
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–
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Common stock, $.0001 par value, 900,000,000 shares
authorized, 131,833,165 and 121,575,388 shares issued and outstanding at November 30, 2018 and August 31, 2018
respectively
|
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13,185
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|
|
|
12,158
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Additional paid-in capital
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14,225,814
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9,840,420
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Issuance of warrants
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2,784,388
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89,722
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Accumulated deficit
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(7,952,753
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)
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(7,296,777
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)
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Total stockholders' equity (deficit)
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9,070,635
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2,645,523
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Total liabilities and stockholders' equity
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$
|
9,483,374
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|
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$
|
3,184,905
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See accompanying notes to consolidated
financial statements.
CANNABICS PHARMACEUTICALS INC.
Consolidated Statements of Operations
and Comprehensive Loss
(Unaudited)
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For the Three months Ended
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November 30,
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November 30,
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2018
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2017
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|
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Net revenue
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$
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3,305
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$
|
1,758
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|
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|
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Gross profit
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3,305
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1,758
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Operating expenses:
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Research and development expense
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304,183
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212,308
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Sales and marketing expenses
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61,615
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137,033
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General and administrative expenses
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285,797
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189,368
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Total operating expenses
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651,595
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538,709
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Loss from operations
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(648,290
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)
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(536,951
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)
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Other income (loss)
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Financial loss
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(7,685
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)
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(553
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)
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Net loss
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$
|
(655,975
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)
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$
|
(537,504
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)
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Net loss per share - basic and diluted:
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$
|
(0.005
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)
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$
|
(0.004
|
)
|
|
|
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|
|
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Weighted average number of shares outstanding - basic and diluted
|
|
|
123,065,008
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|
|
|
119,564,840
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|
See accompanying notes to consolidated financial
statements.
CANNABICS PHARMACEUTICALS INC.
Consolidated
Statements of Cash Flows
(Unaudited)
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For the Three months Ended
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November 30,
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November 30,
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2018
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2017
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Cash flows from operating activities:
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|
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Net Loss
|
|
$
|
(655,975
|
)
|
|
$
|
(537,504
|
)
|
|
Adjustments required to reconcile net loss to net cash used in operating activities:
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|
|
|
|
|
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Depreciation
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46,500
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|
|
|
5,140
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|
|
Interest on loans
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|
|
–
|
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|
59
|
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Stock issued for services
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|
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–
|
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20,800
|
|
|
Change in fair value of derivative liability
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–
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|
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|
(5
|
)
|
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Changes in operating assets and liabilities:
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|
|
|
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|
|
|
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Accounts receivable and pre paid expenses
|
|
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68,984
|
|
|
|
95,959
|
|
|
Accounts payable and accrued liabilities
|
|
|
(126,644
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)
|
|
|
(37,423
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)
|
|
Net cash used in operating activities
|
|
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(667,135
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)
|
|
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(452,974
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)
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Cash flows from investing activities:
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Investment
|
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|
(1,220,000
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)
|
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|
–
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Acquisition of equipment
|
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|
(76,376
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)
|
|
|
(4,470
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)
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|
Net cash used in investing activities
|
|
|
(1,296,376
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)
|
|
|
(4,470
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)
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Cash flows from financing activities:
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|
|
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Repayment of loan
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|
–
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(22,000
|
)
|
|
Proceeds from sale of common stock
|
|
|
7,226,800
|
|
|
|
–
|
|
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Costs of raising capital
|
|
|
(76,989
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)
|
|
|
–
|
|
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Net cash provided by (used in)
financing activities
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|
|
7,149,811
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|
|
|
(22,000
|
)
|
|
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|
|
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Net increase (Decrease) in cash
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5,186,300
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|
(479,444
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)
|
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Cash and cash equivalents at beginning of period
|
|
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1,393,608
|
|
|
|
3,367,694
|
|
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Cash and cash equivalents at end of the period
|
|
$
|
6,579,908
|
|
|
$
|
2,888,250
|
|
See accompanying notes to consolidated financial
statements.
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 May 21, 2014, the Company
changed its name, via merger in the state of Nevada, to Cannabics Pharmaceuticals Inc., at which time its course of business became
pharmaceutical development.
On July 31, 2014, the Company filed its
exclusive patent application with the U.S. Patent & Trademark Office (“USPTO”), which covers the proprietary technology
developed by its team of experts in the field of cannabinoid long-acting lipid based formulations. This patent is the basis for
the Company’s “CANNABICS SR” technology, which consists of the intellectual property (“IP”) for standardized
and long-acting medical cannabis capsules, designed for patients suffering from diverse indications. Simultaneously the patent
was filed with the Patent Cooperation Treaty (“PCT”) division of the Israeli Patent Office (ILPO) in order to provide
international IP protection.
On August 25, 2014, the Company organized
G.R.I.N. Ultra Ltd. (“GRIN”), an Israeli corporation, as a wholly-owned subsidiary. GRIN provides research and development
activities in Israel.
On February 24, 2016, the Company filed
a new patent application for the Company’s slow release (“SR”) medical capsules with the USPTO.
On
March 22, 2016, the Company announced the start of a regulated clinical study for cancer patients in Israel under the auspices
of the Rambam Medical Center and the Israeli Ministry of Health. This clinical study involves patients with advanced cancer and
cancer anorexia cachexia syndrome (CACS), and the endpoints examined are weight gain appetite, quality of life and a marker for
anti-cancer activity. Quality of life in patients with CACS is directly related to loss of appetite and weight loss. This study
examines the influence of the Company’s SR Capsules on both of these common effects of cancer and cancer treatment. Secondary
outcome measures are improvement in appetite, reduction in TNF
-alpha
level, safety assessment for early psychiatric side-effects, quality of life and evaluation of muscle strength. While this study
is taking place in Israel, it is fully registered with the U.S. National Institute of Health under
"Cannabics Capsules
as Treatment to Improve Cancer Related CACS in Advanced Cancer Patients,"
Identifier NCT02359123.
On June 6, 2016, the Company filed a PCT
application with the USPTO entitled a "System and Method for High Throughput Screening of Cancer Cells." The Company
has developed a proprietary, High Throughput Screening (“HTS”) system which is designed to generate mega-data of specific
cannabinoids and cannabinoid formulations with antitumor properties. In this proprietary process, biopsies and live cancer cells
lines are treated,
in vitro
, with innumerous combinations of cannabinoids and the resulting antitumor effects are screened,
categorized and actually visually displayed.
On December 1, 2016, the Company announced
the results from its cancer HTS system research, which indicate that specific ratios of cannabinoids led to apoptosis in MDA-MB-231
breast cancer cell viability.
On January 3, 2017, the Company announced
the development of its 5mg tetrahydrocannabinol (“THC”) capsule intended for naïve patients who have not tried
cannabis in the past. The Company’s 5mg THC capsule is currently being evaluated by the Company in its clinical study of
palliative treatment, which is conducted by the Oncology Department at the Rambam Medical Center in northern Israel and under strict
regulations of the Israeli Ministry of Health, by whom the Company has been licensed since 2014.
On June 30, 2017, the Company announced
positive results from its necrosis screening of Circulating Tumor Cells (“CTC”) from colon, breast, and prostate cancer
patients treated with specific cannabinoids, adding to its data base of personalized anti-tumor treatment.
On July 12, 2017, the Company announced
its formal execution of a Testing & Diagnostics Services Agreement with SIMFO GmbH, a renown German research laboratory, which
is collaborative in nature. Pursuant to the agreement, the Company is the exclusive global provider of SIMFO’s CTC diagnostics
to cancer patients treated with natural cannabinoids. SIMFO GmbH will obtain the CTC count as well as drug sensitivity tests from
treated patients according to the specific cannabinoids which the Company shall request.
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.
The Company enlisted Dr. Moran Grinberg as its Vice President of R&D to lead the genetic research. Dr. Grinberg has a Ph.D.
in Virology & M.Sc. in clinical pharmacology with managerial experience in executing pharmacological research.
On
August 28, 2017, the Company announced it received a positive preliminary international patentability report from the PCT division
of the ILPO
regarding its patent application relating to
personalized screening of necrotic cancer cells through an HTS, finding all claims “innovative and inventive.”
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, 2018 annual financial statements included in our Form 10-K, filed with the U.S. Securities
and Exchange Commission (“SEC”) on November 29, 2018.
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. The Company has incurred a net loss of $655,977 for the three months ended November 30, 2018, and
has incurred cumulative losses since inception of $7,952,753. These conditions raise substantial doubt about the ability of the
Company to continue as a going concern.
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 $304,183 and $212,308 for the three months ended November 30, 2018 and 2017, 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 three months ending November
30, 2018, the Company paid $130,000 in salaries, including socials benefits, to two directors, compared to $125,000 for the three
months ending November 30, 2017.
The
Company had a balance outstanding at November 30, 2018 of $223,645 compared to $224,298 at November 30, 2017, 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
Effective January 4, 2017, the Company
entered into a six-month operating lease for its research and development activities in Tel Aviv, Israel, with a six months extension
option. On May 22, 2017, the Company exercised the lease option for an additional six months. In November 2017 and May 2018, respectively,
the Company extended the lease agreement for additional six month periods. In November 2018, the Company extended the lease agreement
for an additional twelve month period.
Effective February 1, 2018, the Company
entered into a 24-month operating lease for its lab activities in Rehovot, Israel, with a 24 months extension option.
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
$58,000.
Note 5 – Subsequent Events
As disclosed pursuant to a Current Report
on Form 8-K filed with the SEC on August 14, 2018, the Company executed a Convertible Loan Agreement (the “Convertible Loan
Agreement”) with Eroll Grow Tech Ltd. (doing business as Seedo) (“Seedo”), a private Israeli corporation, pursuant
to which the Company agreed to invest up to $2,000,000 in Seedo. The Company funded an aggregate of $1,000,000 of such amount
on August 13, 2018 and September 26, 2018. On November 6, 2018, the Company funded $300,000 to Seedo and on December 10, 2018,
the Company funded $700,000, thus fulfilling its obligations pursuant to the Convertible Loan Agreement.
On December 11, 2018, the Company announced
it had begun the accreditation process for its International Organization for Standardization (“ISO”) application for
its diagnostics platform towards commercialization. ISO 15189:2012 is the international standard for quality management and competence
for medical laboratories by regulators and accrediting bodies.
On December 26, 2018, the Company announced
its new provisional patent application for personalized cannabimetic compositions modeling and production. The patent covers the
Company's technology which enables the transfer of data from its proprietary personalization platform of cannabis strains and cancer
to medical cannabis businesses worldwide and overcome the limitations of exporting and importing cannabinoid compounds due to current
regulations.
On December 7, 2018, the Company issued
90,000 shares of its common stock to a consultant for services. The fair value was determined based on the current market price
per share on the date of issuance at a price of $0.39.
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.
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 finished our first clinical study and leveraged our R&D lab to perform
i
n vitro
tests
and develop new formulations. As pioneers in this mission, we hope and believe that the database we create and the knowledge we
gain will serve any cancer patient who is administered cannabis and will lead to better and more predictable 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 act multi-specifically, i.e. they attack 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 60 compounds 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
Medicine
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 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 many compounds on cancerous cell lines and
tissues 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.
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.
Personalized medicine refers to customization
of treatment on the individual patient level, while precision medicine is a contemporary term that describes the utilization of
molecular diagnostics to classify disease, and where possible, delivery of select treatment based on causal genetic variants. Current
day molecular characterization of disease using next generation sequencing enables a sensitive and specific diagnosis established
by genotype. Correlating essential genotype with disease-modifying genes, environmental influences, and individual polymorphisms
may help explain variations in phenotype.
Precision cancer medicine relies on the
possibility to match, in daily medical practice, detailed genomic profiles of a patient's disease with a portfolio of drugs targeted
against tumor-specific alterations. Clinical blockade of oncogenes is effective but only transiently; an approach to monitor clonal
evolution in patients and develop therapies that also evolve over time may result in improved therapeutic control and survival
outcomes.
We are currently in a process
of commercializing a diagnostic test which is based on liquid biopsies of patients suffering from epithelial cancers.
Our proprietary test fuses
two separate aspects which in fact complement each other:
1. Cell Count
- The test uses
Circulating Tumor Cells
(“CTC”) technology that marks and counts
cancer cells from the blood sample. This test is a marker for cancer progression and treatment efficacy. It could be implemented
as a follow up of disease progression while the patient is treated with cannabis. We hypothesize that the accumulated data will
eventually be a predictor for actual treatment outcome.
2. Cannabinoid Sensitivity
Test. – This test counts number of live and dead cancer cells after been exposed to cannabinoid compounds such as THC or
CBD and their combinations. As in the CTC count, after gaining multiple data sets and merging them with the expanding database;
the test could better predict treatment outcome.
By providing personalized
patient data, doctors will make better informed decisions about the cannabinoid treatment encompassing prioritized active compounds,
dosages, treatment regime and follow up. These tests could be taken on a weekly/monthly basis, thus enabling treatment alteration
due to cancer progression and biology. We have designed our own proprietary “big data” system specifically tailored
for this, and these results will be submitted through a patient oriented, highly secure system.
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 is 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
.
Business Update
As disclosed pursuant to a Current Report
on Form 8-K filed with the SEC on August 14, 2018, we executed the Convertible Loan Agreement with Seedo, pursuant to which we
agreed to invest up to $2,000,000 in Seedo. We funded $1,000,000 of such amount in August 13, 2018 and September 26, 2018. On
November 6, 2018, we funded $300,000 to Seedo and on December 10, 2018, we funded $700,000, thus fulfilling its obligations pursuant
to the Convertible Loan Agreement.
On December 11, 2018, we announced it had
begun the accreditation process for its International Organization for Standardization (“ISO”) Application for its
Diagnostics Platform towards commercialization. ISO 15189:2012 is the international standard for quality management and competence
for medical laboratories by regulators and accrediting bodies.
On December 26, 2018, we announced its
new provisional patent application for personalized cannabimetic compositions modeling and production. The patent covers our technology
which enables the transfer of data from its proprietary personalization platform of cannabis strains and cancer to medical cannabis
businesses worldwide and overcome the limitations of exporting and importing cannabinoid compounds due to current regulations.
Results of Operations
For the Three Months Ended November 30, 2018 and 2017
Revenues
We
received $3,305 from licensing agreements in the form of royalties
during
the three months ended November 30, 2018 compared to $1,758 for the three months ended November 30, 2017. The reason for the increase
in revenues is due to an increase in capsule sales.
Operating Expenses
For the three months ended November 30,
2018 our total operating expenses were $651,595 compared to $538,709 for the three months ended November 30, 2017 resulting in
an increase of $112,886. The increase is attributable to increase of $91,875 in research and development expenses and a total increase
of $21,011 in general administration, and sales and marketing expenses.
We incurred a financial expense of $7,685
for the three months ended November 30, 2018, compared to financial expense of $553 for the three months ended November 30, 2017.
The increase in financial expense was mainly attributable to currency exchange differences. As a result, the net loss was $655,975
for the three months ended November 30, 2018 compared to $537,504 for the three months ended November 30, 2017.
Net loss
Net loss increased by $118,471 or 22.2%,
to $655,975 for the three months ended November 30, 2018, compared to a net loss of $537,504 for the three months ended November
30, 2017.
Liquidity and Capital Resources
Overview
As of November 30, 2018, we had $6,579,908
in cash compared to $2,888,250 on November 30, 2017. 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 Three Months Ended November 30, 2018 compared to the Three Months Ended November 30, 2017
We used cash in operations of $667,137
for the three months ended November 30, 2018 compared to cash used in operations of $452,974 for the three months ended November
30, 2017. The negative cash flow from operating activities for the three months ended November 30, 2018 is primarily attributable
to the Company's net loss from operations of $655,977, offset by depreciation of $46,500, an increase in accounts payables and
accrued liabilities of $126,644, a decrease of $68,984 in account receivables and prepaid expenses and a decrease in fair value
of derivative liability of $5.
We had cash flow from investing activities
of $1,296,374 during the three months ended November 30, 2018, compared to $4,470 cash flow from investing activities for the
three months ended November 30, 2017. The reason for the increase in cash flow from investing activities is primarily due to the
purchase of fixed assets in an the aggregate amount of $76,374, and funds invested in Seedo, pursuant to the Convertible Loan
Agreement, in the aggregate amount of $1,220,000.
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, 2018 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.
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, 2018, included in our Annual Report on Form 10-K
as filed on November 29, 2018, for a discussion of our critical accounting policies and estimates.