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. The U.S. patent application was later abandoned and no national phase entries were made for the PCT
application.
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 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
slow release (“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 May 4, 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 February 23, 2017, a PCT application
was filed with the Israel Patent Office entitled “entitled “Cannabinoid Compositions, Methods of Manufacture and Use
Thereof” relating to the CANNABICS SR technology for treatment of CACS claiming priority from the previously filed US Provisional
and Israeli patent applications.
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.”
On September 25, 2017, the Company
announced its filing of “National Phase Applications” for its proprietary system and method of High Throughput Screening
(HTS) of cancer cells. The proprietary technology patented relates to novel means of personalizing cannabis-based treatments of
cancer utilizing high throughput screening of biopsies and cell lines treated with pure or crude extracts. The applications were
filed in China, Japan, Canada, India, the U.S., Israel, Australia, Europe, Brazil, Mexico, South Africa and Hong Kong. Patents
were granted in Israel and South Africa and the remaining applications are still pending.
On November 8, 2017, the Company announced its Patent Application
with the USPTO for “
Cannabinoid Modulation for the Microbiome
.” This pioneering patent is based on profiling
and modulating patient-derived microbiota, securing the ongoing proprietary data on the use of cannabinoid products for adjusting
the varied microbial populations which live on and in the body, making personalized medicine much more specific. A utility patent
application claiming priority from the aforementioned provisional application was filed with the USPTO the following year.
On November 13, 2017, Eyal Barad was
named as a 3
rd
Director and COO, as noted in the Current Report on Form 8-K of that date.
On November 13, 2017, the Company announced that it had dismissed
its previous Auditor and had engaged Weinstein & Co, as disclosed in the 8-K of that date.
On December 14, 2017, GRIN Ultra Ltd., the R&D subsidiary
of Cannabics Pharmaceuticals Inc., (“the Company”) executed a Sales, Support & Maintenance Agreement with Rhenium
Equipment for Research Labs Ltd. (“Rhenium”), a premier Israeli Research & Diagnostic equipment supplier for acquisition
of custom designed and fully automated CTC (Circulating Tumor Cells) and HTS (High Through Output Screening) machines, including
a service agreement for the next two years to service said equipment. The total cost of said agreement was $747,689.00, which was
paid in full to Rhenium.
On January 2, 2018, a PCT application was
filed with the Israeli Patent Office titled “Method For Sensitivity Testing Of Cannabinoids On Patient-Derived Tumor Biopsies
and CTCs.” The patent application is directed the Company’s technology related to a method for selecting a personalized
cannabinoid-based therapy for cancer patients by utilizing the Company’s proprietary HTS of cannabinoid-based analytes on
circulating tumor cells isolated from the patient. The PCT application is expected to enter the national phase by March 4, 2020.
On January 3, 2018, D-Beta One EQ, Ltd executed 500,000 option
rights pursuant to the Subscription Agreement between the Companies of May 8th, 2017. Under the terms of the Agreement, D-Beta
One EQ, Ltd. was granted warrants to purchase up to 1,500,000 shares of the Company’s common stock for $2.00 per share, which
is exercisable until May 7, 2018. D-Beta One EQ, Ltd. exercised their option to purchase an additional 500,000 shares of common
stock at $2.00. per share for a net investment of $1,000,000.00.
On February 20, 2018, the Company hired Yasha Borstein as Chief
Data Officer for implementation of industry compliance and analytic application of its proprietary data methods relating to diagnostic
procedures for screening cancer.
On February 21, 2018, the Company’s Dr. Moran Grinberg,
VP of R&D was Key Note Speaker at a conference in Tel Aviv. Her session was entitled “Bringing Personalized cannabinoid-based
medicine to the World.”
On March 29, 2018, the Company announced positive preliminary
results from its pre-clinical study and anti-tumor effects of cannabinoids on cancerous tumor cells. The results validated the
Company’s understanding that certain cannabinoid compounds have various apoptotic effects upon cancer cells of both breast
cancer and prostate cancer.
On April 18, 2018, the Company announced its receipt of Notice
of Allowance from the Israeli Patent Office to its patent application relating to its proprietary methodology of screening cancer
cells.
On April 30, 2018, the Company entered
into a Standby Equity Distribution Agreement (the “SEDA”) with YAII PN, Ltd., ("YAII PN Ltd.”). The SEDA
with YAII PN enables the selling of up to $10,000,000 of our common stock at the Company’s request any time during the 36
months following the date of the agreement entered on May 8, 2018, as noted in the 8K filed the same day.
On May 5, 2018, the Company announced its collaboration with
Life Source Partners’ CEO Dr. Muriel Zohar, Ph.D., MBA, to optimize its proprietary technology applications. Dr. Zohar holds
a doctoral degree from the Weizmann Institute of Science and completed her postdoctoral training in Molecular Oncology at the National
Institute of Health (U.S.) as a distinguished Intramural Research Training Award fellow.
On May 22, 2018 the Company announced its hiring of two new
scientists to further develop its diagnostic cancer screening tests. Dr. Haleli Sharir, Ph.D. as principal scientist, and Dr. Nir
Kfir, Ph.D. as senior scientist. Both scientists are engaged in creating and supporting the Company’s data-discovery process
relating to cancer, blood cells and cannabinoids.
On July 3, 2018, the Company announced the conclusion of its
Clinical Trial on Cannabics SR 5mg for Cancer Anorexia Cachexia Syndrome (CACS). On October 14, 2018, the Company Presented the
results of its Clinical Trial at the International Medical Cannabis Conference in Tel Aviv. The results were presented by Dr. Gil
Bar-Sela, 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.
On August 10, 2018, the Company entered into a $2 Million-dollar
Convertible Loan Agreement with Eroll Grow Tech Ltd., a private Israel corporation. Pursuant to the Agreement, the Company invested
$500,000 immediately, to be followed by a 2
nd
tranche of $500,000 and a final tranche of $1,000,000. Said $1,000,000
is convertible into shares of Seedo Corp. at the Company’s option, as disclosed in the Current Report on Form 8-K filed with
the SEC on August 14, 2018.
On August 14, 2018, the Company
announced a Partnership with Eroll Grow Tech Ltd. (“Seedo Corp.”), which has developed the first mass produced high
tech, remote controlled device for raising medical cannabis, as noted on the press release of that date.
On August 28, 2018, the Company announced
that it appointed Dr. Estery Giloz-Ran to its Advisory Board. Dr. Estery Giloz-Ran is a PhD and CPA and worked as head of grants
capital investment at Intel, Israel, and served as Director on several Nasdaq companies, as noted on the press release of that
date.
On September 24, 2018, the Company announced that it had
entered into a Securities Purchase Agreement with certain investors relating to the issuance and sale of 10,000,000 shares of
the Company’s common stock and warrants to purchase up to 5,000,000 shares of the Company’s common stock, in a registered
Direct Offering, recognizing gross proceeds of approximately $7,500,000. Alliance Global Partners served as the placement agent.
The securities were offered and sold pursuant to a prospectus, dated April 21, 2017, and a prospectus supplement, dated September
24, 2018, in connection with a takedown from the Company's effective shelf registration statement on Form S-3, File No. 333-216845,
as noted in the 424(b)(5) Prospectus Supplement filed with the SEC on September 26, 2018, and the Current Report on Form 8-K filed
on September 27, 2018.
On October 25, 2018, the Company announced it was granted its
patent for its core technology by the South Africa Patent Office. Following the patent's approval in Israel in September, 2018.
This patent encompasses the systems and methods required to produce data on the interaction between different cannabinoids and
cancer cells. This technology enables screening the effects of a multitude of compounds derived from the cannabis plant on cancer
cell lines and biopsies. The technology will facilitate the development of more accurate cannabinoid compounds designated for specific
cancers and specific genetic profile of patients, and at the same time will serve as a source for supportive data for cannabinoid-based
treatments.
On December 1, 2018, the Company announced that it started the
accreditation process in accordance with ISO 15189:2012 for its drug screening and diagnostics laboratory, which it expects to
receive by the end of next year. ISO is the accepted "International Organization for Standardization", and ISO 15189:2012
is the international standard for quality management and competence for Medical Laboratories by regulators and accrediting bodies.
This accreditation demonstrates to the marketplace and to regulators that the medical laboratory has met the highest scientific
standards for accreditation and compliance. The Company plans to leverage its state-of-the-art high throughput screening platform
utilizing cannabis extracts on human cancer cells and recommend the optimal cannabinoid treatment for each patient based on their
own biopsies and personalized clinical data.
On January 8, 2019, the Company converted a $1 million convertible
loan to Seedo Corp. into 770,170 common shares of Seedo Corp. Said conversion was pursuant to the Loan Agreement between the Companies
of August 10, 2018, and disclosed in the Company’s Current Report on Form 8-K filed with the SEC of August 14, 2018.
On February 7, 2019, the Company announced that it entered into
an agreement with Wize Pharma, Inc. (ticker symbol WIZP), a clinical-stage biopharmaceutical company focused on the treatment of
ophthalmic disorders which has distribution rights of known medical formulae related to eye diseases. The two companies have agreed
to research, develop, and administer cannabinoid formulations to treat ophthalmic disorder indications with the end goal of identifying
a potential FDA route for ophthalmic therapy containing cannabinoids.
On February 19, 2019, the Company announced that it submitted
a protocol for the Helsinki Committee to conduct a nationwide study which will apply Cannabics' high throughput screening platform
to analyze the anti-tumor properties of cannabinoid compounds and chemotherapies on fresh biopsies. If the proposed study is approved,
Cannabics will be able to obtain, upon patients' consent, a live biopsy and blood sample and perform drug sensitivity and drug
resistance tests. This protocol is part of Cannabics' ongoing mission to commercialize its personalized diagnostics and apply its
technology to Cannabinoids and chemotherapy, which in turn will provide doctors and their patients supportive data for more informed
treatment decisions.
On May 31, 2019, the Company transferred
58,824 of the shares it held in Seedo Corp. to YA PN Ltd. Said transfer was in fulfillment of the Company’s obligations
to YA PN Ltd. pursuant to the Standby Equity Distribution Agreement (the “SEDA”), dated April 30, 2018, by which the
Company was obligated to pay $150,000 on the one year anniversary of the SEDA. The number of shares transferred was derived from
the $2.55 closing bid price of Seedo Corp. as of May 21, 2019, and therefore equal in value to the amount owed per the SEDA.
Recent Developments
On April 17, 2019, the Company announced that it obtained approval
for a nationwide Israeli multisite clinical study on the antitumor properties of cannabinoid compounds on primary cancer biopsies.
The apoptotic/cytotoxic effects of a multitude of cannabinoid extracts will be evaluated via Cannabics' high throughput screening
platform. The screening of the antitumor properties of cannabinoids on cancer cell lines produces data on groups of patients, while
the primary biopsy samples provide insights on the individual level and may better predict the clinical outcome, thereby improving
preclinical development of proprietary antitumor compounds.
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 (the “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. While the Company has incurred a net profit of $2,562,242 for the nine months ended May 31, 2019,
it has incurred cumulative losses since inception of $4,770,535. 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 expenses were $1,065,986 and $581,065 for the nine months ended May 31, 2019 and 2018, 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 nine months ending May 31, 2019,
the Company paid $394,514 in salaries, including socials benefits, to two directors, compared to $510,800 paid to three directors
for the nine months ending May 31, 2018.
The Company had a balance outstanding at
May 31, 2019 and at May 31, 2018 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
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 nine 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
On April 17, 2019, the Company announced
approval from the Israeli Health Ministry for a nationwide multi-site clinical study on the antitumor properties of cannabinoid
compounds on primary cancer biopsies.
On June 21, 2019, the Company announced
the appointment of two independent directors to its Board of Directors, as noted in the Company’s 8-K filed with the SEC
on June 25, 2019. Each director was granted 125,000 shares and options to purchase up to 125,000 at $0.30, with a term of one
year.
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.