UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q /A
(Amendment No. 2 )
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2014
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: 333-155318
(Exact name of registrant as specified in its charter)
Delaware
|
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20-4168979
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(State or other jurisdiction of
|
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(IRS Employer
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incorporation or organization)
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Identification No.)
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3888 E. Mexico Avenue
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Denver, CO 80210
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(Address of principal executive offices) (Zip Code)
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(303) 309-0105
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(Registrant’s telephone number, including area code)
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SpeedSport Branding, Inc., 111 Sunrise Center Drive, Thomasville, NC 27360
|
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
|
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Large accelerated filer
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o
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Accelerated filer
|
o
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Non-accelerated filer
|
o
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Smaller reporting company
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x
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(Do not check if a smaller reporting company)
|
|
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES o NO x
Indicate
the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 65,439,704
shares of common stock outstanding at August 14, 2014.
EXPLANATORY NOTE
The purpose of this Amendment No. 2 (the “Amendment”) to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2014, filed with the Securities and Exchange Commission on August 14, 2014 (the “Original Filing”), is to respond to comments received from the Securities and Exchange Commission (the “Commission”) relative to its financial statements for the period ended June 30, 2014 and its Management Discussion and Analysis of Financial Condition and Results of Operations as a result of the Commission’s review of the Original Filing and to reclassify certain prepaid expenses to contra-equity and interest expense in cost of sales to interest expense .
No changes have been made to the Original Filing other than to add the information as described above. This Amendment should be read in conjunction with the Original Filing. This Amendment speaks as of the date of the Original Filing, does not reflect events that may have occurred after the date of the Original Filing and does not modify or update in any way the disclosures made in the Original Filing, except as required to reflect the revisions discussed above.
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Page
No.
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3
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21
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26
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26
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27
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27
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27
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27
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27
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27
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28
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CannLabs, Inc. and Subsidiaries
Consolidated Balance Sheets
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June 30, 2014
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December 31, 2013
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(Unaudited)
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(Audited)
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ASSETS
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(Restated)
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(Restated)
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CURRENT ASSETS
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Cash
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$ |
277,619 |
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$ |
54,394 |
|
Accounts Receivable
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|
80,262 |
|
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|
- |
|
Prepaid expenses
|
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|
4,089 |
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4,089 |
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Due from stockholders
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|
- |
|
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13,970 |
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TOTAL CURRENT ASSETS
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|
361,970 |
|
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72,453 |
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PROPERTY AND EQUIPMENT
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Equipment
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134,393 |
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47,799 |
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Furniture and fixtures
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|
13,261 |
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|
- |
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Leasehold Improvements
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161,886 |
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32,906 |
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Assets under capital lease
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|
727,784 |
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|
99,173 |
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1,037,324 |
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179,878 |
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Less: accumulated depreciation
|
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|
91,875 |
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|
32,737 |
|
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|
945,449 |
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147,141 |
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OTHER ASSETS
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|
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|
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Deposit
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12,088 |
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|
3,507 |
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|
12,088 |
|
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|
3,507 |
|
|
|
|
|
|
|
|
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|
TOTAL ASSETS
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|
$ |
1,319,507 |
|
|
$ |
223,101 |
|
|
|
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|
|
|
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|
|
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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CURRENT LIABILITIES
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Accounts payable and accrued expenses
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$ |
364,649 |
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$ |
14,923 |
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Deferred revenue
|
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|
50,253 |
|
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|
3,448 |
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Obligations under capital leases
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|
189,997 |
|
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32,305 |
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Notes payable - stockholders
|
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|
158,800 |
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|
100,000 |
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|
|
|
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TOTAL CURRENT LIABILITIES
|
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|
763,699 |
|
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|
150,676 |
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|
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|
|
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LONG-TERM LIABILITIES
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Obligations under capital leases, net of current portion
|
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393,817 |
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43,523 |
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COMMITMENTS AND CONTINGENCIES
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STOCKHOLDERS’ EQUITY
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Convertible preferred stock, $.001 par value, 10,000,000 shares authorized, 500,000 issued and outstanding at June 30, 2014
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500 |
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- |
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Common
stock, $.001 par value; 200,000,000 shares authorized, 65,539,704 shares issued and outstanding at June 30,
2014 and 100,000,000 shares authorized and 54,000,000 issued and outstanding
at December 31, 2013
|
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65,540 |
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54,000 |
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Additional paid in capital
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671,096 |
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(53,800 |
) |
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Deferred compensation
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(132,257 |
) |
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|
- |
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Accumulated deficit
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(141,873 |
) |
|
|
- |
|
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STOCKHOLDERS’ EQUITY BEFORE NON CONTROLLING INTEREST
|
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463,006 |
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|
200 |
|
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|
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Non controlling interest in variable interest entity
|
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(301,015 |
) |
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|
28,702 |
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TOTAL COMPANY STOCKHOLDERS’ EQUITY
|
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161,991 |
|
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|
28,902 |
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TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
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$ |
1,319,507 |
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$ |
223,101 |
|
See accompanying notes to the consolidated financial statements.
CannLabs, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Three Months and Six Months Ended June 30, 2014 and 2013
(Unaudited)
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For the Three
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For the Three
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For the Six
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For the Six
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Months Ended
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Months Ended
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Months Ended
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Months Ended
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June 30,
|
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June 30,
|
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June 30,
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June 30,
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2014
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2013
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2014
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2013
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(Restated)
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(Restated)
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REVENUES
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$ |
270,220 |
|
|
$ |
47,000 |
|
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$ |
382,493 |
|
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$ |
90,092 |
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COST OF REVENUES
|
|
|
136,267 |
|
|
|
24,324 |
|
|
|
191,800 |
|
|
|
41,895 |
|
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GROSS PROFIT
|
|
|
133,953 |
|
|
|
22,676 |
|
|
|
190,693 |
|
|
|
48,197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
229,367 |
|
|
|
12,686 |
|
|
|
316,153 |
|
|
|
28,028 |
|
Payroll
|
|
|
135,622 |
|
|
|
13,782 |
|
|
|
173,303 |
|
|
|
25,103 |
|
Sales and Marketing
|
|
|
130,304 |
|
|
|
1,626 |
|
|
|
159,684 |
|
|
|
1,883 |
|
Total operating expenses
|
|
|
495,293 |
|
|
|
28,094 |
|
|
|
649,140 |
|
|
|
55,014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE OTHER EXPENSE
|
|
|
(361,340 |
) |
|
|
(5,418 |
) |
|
|
(458,447 |
) |
|
|
(6,817 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
9 |
|
|
|
- |
|
|
|
9 |
|
|
|
- |
|
Interest expense
|
|
|
(6,913 |
) |
|
|
(390 |
) |
|
|
(11,913 |
) |
|
|
(884 |
) |
Total other expenses
|
|
|
(6,904 |
) |
|
|
(390 |
) |
|
|
(11,904 |
) |
|
|
(884 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
|
(368,244 |
) |
|
|
(5,808 |
) |
|
|
(470,351 |
) |
|
|
(7,701 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS ATTRIBUTABLE TO THE NONCONTROLLING INTEREST
|
|
|
179,780 |
|
|
|
5,808 |
|
|
|
329,717 |
|
|
|
7,701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACCRUED PREFERRED DIVIDENDS
|
|
|
(1,973 |
) |
|
|
- |
|
|
|
(1,973 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
|
|
$ |
(190,437 |
) |
|
$ |
- |
|
|
$ |
(142,607 |
) |
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC AND DILUTED NET LOSS PER COMMON SHARE
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
|
|
|
56,307,941 |
|
|
|
54,000,000 |
|
|
|
55,153,970 |
|
|
|
54,000,000 |
|
See accompanying notes to the consolidated financial statements.
CannLabs, Inc. and Subsidiaries
Consolidated Statement of Changes in Stockholders’ Equity (Restated)
For the Six Months Ended June 30, 2014
|
|
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|
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|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
Preferred
Stock
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Paid in
|
|
|
Deferred
|
|
|
Accumulated
|
|
|
Non Controlling
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Compensation
|
|
|
Deficit
|
|
|
Interest
|
|
|
Total
|
|
Balance December 31, 2013 (Audited)
|
|
|
- |
|
|
$ |
- |
|
|
|
54,000,000 |
|
|
$ |
200 |
|
|
|
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
28,702 |
|
|
$ |
28,902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recapitalization
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
53,800 |
|
|
|
- |
|
|
|
- |
|
|
|
(53,800 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted balance, December 31, 2013
|
|
|
- |
|
|
|
- |
|
|
|
54,000,000 |
|
|
|
54,000 |
|
|
|
- |
|
|
|
- |
|
|
|
(53,800 |
) |
|
|
- |
|
|
|
- |
|
|
|
28,702 |
|
|
|
28,902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructive distribution of “S” corporation earnings and contribution of capital
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(734 |
) |
|
|
- |
|
|
|
734 |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of treasury stock, at cost
|
|
|
- |
|
|
|
- |
|
|
|
(3,855,600 |
) |
|
|
- |
|
|
|
3,855,600 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of note payable stockholder into common stock
|
|
|
- |
|
|
|
- |
|
|
|
3,855,600 |
|
|
|
- |
|
|
|
(3,855,600 |
) |
|
|
- |
|
|
|
100,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
100,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued upon merger
|
|
|
- |
|
|
|
- |
|
|
|
6,244,704 |
|
|
|
6,245 |
|
|
|
- |
|
|
|
- |
|
|
|
(6,245 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for services
|
|
|
- |
|
|
|
- |
|
|
|
5,295,000 |
|
|
|
5,295 |
|
|
|
- |
|
|
|
- |
|
|
|
132,375 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
137,670 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of convertible preferred stock
|
|
|
500,000 |
|
|
|
500 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
499,500 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(132,257 |
) |
|
|
- |
|
|
|
- |
|
|
|
(132,257 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued preferred dividends
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,973 |
) |
|
|
- |
|
|
|
(1,973 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(140,634 |
) |
|
|
(329,717 |
) |
|
|
(470,351 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2014 (Unaudited)
|
|
|
500,000 |
|
|
$ |
500 |
|
|
|
65,539,704 |
|
|
$ |
65,540 |
|
|
|
- |
|
|
$ |
- |
|
|
$ |
671,096 |
|
|
$ |
(132,257 |
) |
|
$ |
(141,873 |
) |
|
$ |
(301,015 |
) |
|
$ |
161,991 |
|
See accompanying notes to the consolidated financial statements.
CannLabs, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2014
(Unaudited)
(Restated)
|
|
|
|
|
|
|
|
|
For the Six
|
|
|
For the Six
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net loss
|
|
$ |
(470,351 |
) |
|
$ |
(7,701 |
) |
Adjustments to reconcile net loss to net cash
used in operating activities
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
59,138 |
|
|
|
6,416 |
|
Officer compensation from conversion of loan receivable, stockholder
|
|
|
13,770 |
|
|
|
- |
|
Deferred compensation
|
|
|
5,413 |
|
|
|
- |
|
Increase in assets
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(80,262 |
) |
|
|
8,420 |
|
Deposits
|
|
|
(8,581 |
) |
|
|
- |
|
Increase in liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
347,753 |
|
|
|
2,235 |
|
Deferred revenue
|
|
|
46,805 |
|
|
|
13,818 |
|
|
|
|
|
|
|
|
|
|
Net
cash (used in) provided by operating activities
|
|
|
(86,315 |
) |
|
|
23,188 |
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Due from stockholders
|
|
|
200 |
|
|
|
- |
|
Purchase of equipment
|
|
|
(228,836 |
) |
|
|
(1,800 |
) |
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(228,636 |
) |
|
|
(1,800 |
) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Issuance of convertible preferred stock
|
|
|
500,000 |
|
|
|
- |
|
Repayments of notes payable - stockholders
|
|
|
- |
|
|
|
(19,750 |
) |
Repayments of obligations under capital leases
|
|
|
(120,624 |
) |
|
|
(5,140 |
) |
Proceeds from note payable - stockholders
|
|
|
158,800 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) financing activities
|
|
|
538,176 |
|
|
|
(24,890 |
) |
|
|
|
|
|
|
|
|
|
NET
INCREASE (DECREASE) IN CASH
|
|
|
223,225 |
|
|
|
(3,502 |
) |
|
|
|
|
|
|
|
|
|
CASH - BEGINNING OF YEAR
|
|
|
54,394 |
|
|
|
8,111 |
|
|
|
|
|
|
|
|
|
|
CASH - END OF PERIOD
|
|
$ |
277,619 |
|
|
$ |
4,609 |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$ |
11,140 |
|
|
$ |
494 |
|
|
|
|
|
|
|
|
|
|
Obligations under capital leases for assets under capital leases
|
|
$ |
628,611 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
Conversion of notes payable into common stock
|
|
$ |
100,000 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
Prepaid stock for services included in additional paid in capital
|
|
$ |
137,670 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
Constructive distribution of “S” corporation earnings and contribution of capital
|
|
$ |
734 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
Common stock issued upon merger
|
|
$ |
6,245 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
Accrued dividends
|
|
$ |
1,973 |
|
|
$ |
- |
|
See accompanying notes to the consolidated financial statements.
CannLabs, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of the Business
On June 12, 2014, CannLabs, Inc. (the “Company”), formerly Speedsport Branding, Inc., entered into an Agreement of Merger and Plan of Reorganization (the “Merger Agreement”) with Carbon Bond Holdings, Inc. (“Carbon Bond”) and CLB Acquisition Corp., the Company’s newly-formed wholly-owned subsidiary (“Acquisition Sub”). Upon the closing of the transaction contemplated under the Merger Agreement (“Merger”), Acquisition Sub merged into and with Carbon Bond, and Carbon Bond, as the surviving corporation, became a wholly-owned subsidiary of the Company.
Pursuant to the terms and conditions of the Merger Agreement, (i) each share of Carbon Bond common stock issued and outstanding immediately prior to the closing of the Merger was exchanged for the right to receive one share of the Company’s common stock. Accordingly, an aggregate of 59,295,000 shares of the Company’s common stock were issued to the holders of Carbon Bond’s common stock.
Under accounting principles generally accepted in the United States, the share exchange is considered to be a capital transaction in substance, rather than a business combination. That is, the share exchange is equivalent to the issuance of stock by the Company for the net monetary assets of Carbon Bond, accompanied by a recapitalization, and is accounted for as a change in capital structure. Accordingly, the accounting for the share exchange will be identical to that resulting from a reverse acquisition, except no goodwill will be recorded. Under reverse takeover accounting, the post reverse acquisition comparative historical financial statements of the legal acquirer, the Company, are those of the legal acquiree Carbon Bond, which are considered to be the accounting acquirer.
Carbon Bond, a Colorado “S” Corporation was formed on October 21, 2013 for the purpose of providing administrative services and licensing proprietary software for CannLabs, Inc. a privately held “S” Corporation (“CannLabs Colorado”), which is a stand-alone cannabis testing laboratory in Denver, Colorado . Both Carbon Bond and CannLabs Colorado are commonly managed. Carbon Bond had no operations until January 1, 2014.
CannLabs, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
On
January 1, 2014, Carbon Bond entered into an asset transfer agreement with CannLabs Colorado, whereby Carbon Bond acquired all
of the assets and liabilities of CannLabs Colorado, except for the Retail Marijuana Conditional License. Since
Carbon Bond and CannLabs Colorado are commonly managed, the assets and liabilities were transferred at their carrying amounts
in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
805. In accordance with FASB ASC 250-10-45-21, since Carbon Bond and CannLabs Colorado are commonly managed, the financial
statements were retrospectively consolidated for all periods presented. The following table summarizes CannLabs Colorado’s
assets and liabilities transferred as of January 1, 201 2 :
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
Cash
|
|
$
|
19,258
|
|
Accounts receivable |
|
|
600 |
|
Prepaid expenses
|
|
|
1,993
|
|
Fixed assets, net
|
|
|
36,587
|
|
Deposit
|
|
|
1,425
|
|
Total assets
|
|
$
|
59,863
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
4,583
|
|
Obligations under capital leases
|
|
|
29,665
|
|
Total liabilites
|
|
$
|
34,248
|
|
|
|
|
|
|
Net assets
|
|
$
|
25,615
|
|
Less: Consideration
|
|
|
-
|
|
|
|
|
|
|
Non controlling interest - variable interest entity
|
|
$
|
25,615
|
|
On April 1, 2014, Carbon Bond formally entered into an administrative services and software licensing agreement with CannLabs Colorado with an effective date of January 1, 2014. The administrative services agreement requires CannLabs Colorado to pay a monthly fee consisting of certain expenses paid by Carbon Bond for the prior month plus 15%. The software licensing agreement requires CannLabs Colorado to pay a monthly fee of $10,000 to Carbon Bond for the use of certain software.
CannLabs – Connecticut, Inc. (“CannLabs – CT”) was formed on May 15, 2014 as a Nevada corporation for the purpose of licensing a laboratory in Connecticut, and is owned by two of the majority stockholders of CannLabs, Inc. On July 31, 2014, Carbon Bond formally entered into an administrative services and software licensing agreement with CannLabs - CT with an effective date of May 15, 2014. The administrative services agreement requires CannLabs - CT to pay a monthly fee consisting of certain expenses paid by Carbon Bond for the prior month plus 15%. The software licensing agreement requires CannLabs - CT to pay a monthly fee of $10,000 to Carbon Bond for the use of certain software, once CannLabs – CT begins generating revenue.
CannLabs – Nevada, INC. (“CannLabs – NV”) was formed on May 15, 2014 as a Nevada corporation for the purpose of licensing a laboratory in Nevada, and is owned by two of the stockholders of CannLabs, Inc. On July 31, 2014, Carbon Bond formally entered into an administrative services and software licensing agreement with CannLabs - NV with an effective date of May 15, 2014. The administrative services agreement requires CannLabs - NV to pay a monthly fee consisting of certain expenses paid by Carbon Bond for the prior month plus 15%. The software licensing agreement requires CannLabs - NV to pay a monthly fee of $10,000 to Carbon Bond for the use of certain software, once CannLabs – NV begins generating revenue.
According to the requirements of FASB ASC 810 Consolidation, Carbon Bond has evaluated its relationship with CannLabs Colorado, CannLabs – CT, and CannLabs - NV, and has concluded that, CannLabs Colorado, CannLabs – CT and CannLabs – NV are variable interest entities (“VIEs”) for accounting purposes. As a result of the contractual arrangements, which enable Carbon Bond to manage CannLabs Colorado, CannLabs – CT and CannLabs – NV (collectively, the “VIEs”), Carbon Bond is the primary beneficiary of the VIEs. Accordingly, Carbon Bond adopted the provisions of FASB ASC 810 and consolidate s the VIEs , reflecting the results of the combined entities as of June 30, 2014 and for the three and six months ended June 30, 2014 and 2013, as if the asset transfer agreement entered into with CannLabs Colorado happened retroactively at the earliest period presented.
CannLabs, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
As
Carbon Bond is the primary beneficiary of the VIEs, the assets and liabilities and revenues and expenses of the VIEs have been
included in the accompanying consolidated financial statements. As of June 30, 2014 and for the three and six months
then ended, the VIEs had assets of $80,262, liabilities of $ 381,276 , revenues of $270,220 and $356,283, and net losses
of $ 179,780 and $ 329,717 . As of June 30, 2013 and for the three and six months then ended, the
VIEs had assets of $50,225, liabilities of $36,699, revenues of $47,000 and $90,092, and net losses of $5,808 and $7,701. The
liabilities as of June 30, 2014 include balances due to Ca rbon Bond . These intercompany paya bles
and transactions are eliminated upon consolidation of the VIEs with CannLabs, Inc.
Basis of Presentation
The accompanying consolidated financial statements of CannLabs, Inc and its VIEs (collectively the “Company”), have been prepared in accordance with generally accepted accounting principles in the United States of America. All intercompany transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make 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 and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Comprehensive Income
The Company follows FASB ASC 220 in reporting comprehensive income. Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income. The Company has no items of other comprehensive income (loss), therefore comprehensive income (loss) is equal to net income (loss).
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash, accounts receivable, accounts payable and accrued expenses and notes payable - stockholders. The carrying value of cash, accounts receivable, accounts payable and accrued expenses and notes payable - stockholders approximate fair value, because of their short maturity.
C oncentration of Credit Risk Involving Cash
The Company may have deposits with a financial institution which at times exceed Federal Depository Insurance (“FDIC”) coverage. The Company has not experienced any losses from maintaining cash accounts in excess of federally insured limits.
CannLabs, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Accounts Receivable
Trade accounts receivable are reported at the amount management expects to collect from outstanding balances. Differences between the amount due and the amount management expects to collect are reported in the results of operations in the period in which those differences are determined, with an offsetting entry to a valuation allowance for trade accounts receivable. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to trade accounts receivable.
The normal credit terms extended to customers are 30 days. The Company reviews all receivables that exceed terms and establishes an allowance for doubtful accounts, if necessary, based on management’s assessment of the collectability of trade and other receivables. A considerable amount of judgment is required in assessing the amount of the allowance. The Company considers the historical level of credit losses, makes judgments about the credit worthiness of each customer based on ongoing credit evaluations and monitors current economic trends that might impact the level of credit losses in the future.
As of June 30, 2014, allowances for doubtful accounts were $0. Allowances charged for doubtful accounts amounted to $0 for the three and six months ended June 30, 2014 and 2013 .
Property and Equipment
Property
and equipment is stated at cost. Depreciation is computed using the straight-line method over the estimated useful
lives of the assets from three to seven years except for leasehold improvements and assets under capital leases which are
depreciated over the remaining lease term. Maintenance and repairs of property are charged to operations, and major
improvements are capitalized. Upon retirement, sale, or other disposition of property and equipment, the costs and
accumulated depreciation are eliminated from the accounts, and any resulting gain or loss is included in
operations. Depreciation of property and equipment was $43,042 and $59,138 for the three and six months ended June
30, 2014 and $3,253 and $6,416 for the three and six months ended June 30, 2013. Depreciation included
in cost of sales for the three and six months ended June 30, 2014 was $$41,699 and $57,368, and $3,128 and $6,167 for the
three and six months ended June 30, 2013.
Long-Lived Assets
The Company evaluates the recoverability of its long-lived assets in accordance with FASB ASC 360 “Property, Plant, and Equipment.” The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets are measured by a comparison of the carrying amount of an asset to future cash flows expected to be generated by the asset, undiscounted and without interest or independent appraisals. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value asset.
In May 2014, a piece of equipment with carrying value of approximately $31,475 as of June 30, 2014, was taken out of service due to better technology being obtained. Management has determined that they will attempt to sell the equipment through advertising in the used equipment marketplace and that the fair value approximates the carrying value. The equipment will be sold when an appropriate buyer has been located, which is expected to occur within one year.
CannLabs, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition
In
accordance with Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 104,
Revenue Recognition (Codified in FASB ASC 605), t he Company will recognize revenue when (i) persuasive evidence
of a customer or distributor arrangement exists or acceptance occurs, (ii) a retailer, distributor or wholesaler receives the
goods or services, (iii) the price is fixed or determinable, and (iv) collectability of the sales revenues is reasonably assured.
Subject to these criteria, the Company will generally recognize revenue from laboratory tests in three ways. For samples
presented without a bulk or twelve month contract, revenue is recognized upon completion of the testing. Customers
with bulk contracts have three months to use a predetermined number of tests. Revenue is recognized for these contracts
on a pro rata basis, based on the number of tests used versus the number of tests allowed. Twelve month contracts require
prepayment monthly for the succeeding month. Revenue is recognized based on the monthly payment required for the month
in which the tests are performed. Because tests may not be carried over to subsequent months, the monthly revenue is
recognized in full in the appropriate month.
Revenue from c onsulting and research and development agreements is generally recognized on a straight line basis over the term of the agreement . When the agreements contain more than one deliverable, the Company allocates revenue to separate elements under the agreement based on relative selling prices in accordance with FASB ASC 605-25.
Income Taxes
Effective April 19, 2010, CannLabs Colorado elected, by unanimous consent of its stockholders, to be taxed under the provisions of Subchapter “S” of the Internal Revenue Code. Effective October 21, 2013, Carbon Bond elected, by unanimous consent of its stockholders, to be taxed under the provisions of Subchapter “S” of the Internal Revenue Code. A majority of the states where Carbon Bond is conducting business also recognize Subchapter “S” status for income tax purposes. Carbon Bond does not pay federal and state income taxes on its taxable income. Instead, the stockholders are liable for individual federal and state income taxes on their respective shares of Carbon Bond’s taxable income or have included their respective shares of Carbon Bond’s net operating loss in their individual income tax returns.
CannLabs, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
On May 27, 2014, Carbon Bond elected by unanimous consent of its stockholders to be treated as a “C” corporation under the Internal Revenue Code. As of May 27, 2014, Carbon Bond had an accumulated deficit of $734. In accordance with Staff Accounting Bulletin (“SAB”) Topic 4:B the accumulated deficit of the “S” corporation is treated as a constructive distribution of the “S” corporation earnings and a subsequent contribution of capital, therefore, the accumulated deficit of $734 was reclassified to additional paid in capital.
The Company follows FASB Accounting Standards Update (“ASU”) No. 2009-06, Income Taxes (Topic 740): Implementation Guidance on Accounting for Uncertainty in Income Taxes and Disclosure Amendments for Nonpublic Entities Taxes. FASB ASC 740 prescribes guidance for the financial statement recognition, measurement, and disclosure of uncertain tax positions. Tax positions must meet a more-likely-than-not recognition threshold.
As of January 1, 2014, the Company had no unrecognized tax benefits and accordingly, the Company did not recognize interest or penalties during 2014 related to unrecognized tax benefits. There has been no change in unrecognized tax benefits during the three and six months ended June 30, 2014 and 2013 , and there was no accrual for uncertain tax positions as of June 30, 2014. Tax years from 2010 through 2013 remain subject to examination by major tax jurisdictions.
Segment Information
The Company is organized and operates as one operating segment. In accordance with FASB ASC 280, “Segment Reporting,” the chief operating decision-maker has been identified as the Chief Executive Officer, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company subject to Board approval. Since the Company operates in one segment and provides one group of similar services, all financial segment and service line information required by FASB ASC 280 can be found in the consolidated financial statements.
Research and Development Costs
In accordance with FASB ASC 730, research and development costs are expensed when incurred. Research and development expenses for the three and six months ended June 30, 2014 were $534 and $534 and $0 for the three and six months ended June 30, 2013.
Advertising Expenses
Advertising expenses, which include general advertising, printed materials and trade shows are expensed as incurred. Advertising expenses for the three and six months ended June 30, 2014 were $10,716 and $15,822 and $590 and $1,145 for the three and six months ended June 30, 2013.
Recently Adopted Accounting Pronouncements
As of June 30, 2014 and for the six months then ended, there were no recently adopted accounting pronouncements that had a material effect on the Company’s financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
As of June, 30 2014, there were no recently issued accounting standards not yet adopted which would have a material effect on the Company’s financial statements.
CannLabs, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 2 – RESTATEMENT
The Company corrected errors for the three and six months ended June 30, 2014, relative to its classification of income and losses between the variable interest entities and the Company. In addition, the Company also corrected an error relative to the classification of the accumulated deficit of Carbon Bond as an “S” corporation prior to electing to become a “C” corporation. In accordance with Staff Accounting Bulletin (“SAB”) Topic 4:B the accumulated deficit of the “S” corporation is treated as a constructive distribution of the “S” corporation earnings and a subsequent contribution of capital, therefore, the accumulated deficit of $734 was reclassified to additional paid in capital.
The Company also reclassified deferred compensation in the amount of $132,257 from prepaid expenses to the contra equity account deferred compensation.
The Company accrued dividends on its preferred stock of $1,973 for the three and six months ended June 30, 2014 as well.
The following are tables and descriptions of the corrections by line item as of June 30, 2014 and for the three and six months then ended.
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2014
|
|
|
Correction
|
|
|
June
30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(As
Originally
|
|
|
|
|
|
(Restated)
|
|
|
|
Reported) |
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$ |
277,619 |
|
|
$ |
- |
|
|
$ |
277,619 |
|
Accounts receivable
|
|
$ |
80,262 |
|
|
|
|
|
|
|
80,262 |
|
Prepaid expenses
|
|
|
64,957 |
|
|
|
(60,868 |
) |
|
|
4,089 |
|
Due from stockholders
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL CURRENT ASSETS
|
|
|
422,838 |
|
|
|
(60,868 |
) |
|
|
361,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
71,389 |
|
|
|
(71,389 |
) |
|
|
- |
|
Deposit
|
|
|
12,088 |
|
|
|
- |
|
|
|
12,088 |
|
|
|
|
83,477 |
|
|
|
(71,389 |
) |
|
|
12,088 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$ |
1,451,764 |
|
|
$ |
(132,257 |
) |
|
$ |
1,319,507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$ |
362,676 |
|
|
$ |
1,973 |
|
|
$ |
364,649 |
|
Deferred revenue
|
|
|
50,253 |
|
|
|
- |
|
|
|
50,253 |
|
Obligations under capital leases
|
|
|
189,997 |
|
|
|
- |
|
|
|
189,997 |
|
Notes payable - stockholders
|
|
|
158,800 |
|
|
|
- |
|
|
|
158,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL CURRENT LIABILITIES
|
|
|
761,726 |
|
|
|
1,973 |
|
|
|
763,699 |
|
STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible preferred stock, $.001 par value, 10,000,000 shares authorized, 500,000 issued and outstanding at June 30, 2014
|
|
|
500 |
|
|
|
- |
|
|
|
500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock $.001 par value; 200,000,000 shares authorized, 65,539,704 shares issued and outstanding at June 30, 2014
|
|
|
65,540 |
|
|
|
- |
|
|
|
65,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid in capital
|
|
|
671,830 |
|
|
|
(734 |
) |
|
|
671,096 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation
|
|
|
- |
|
|
|
(132,257 |
) |
|
|
(132,257 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
|
(441,649 |
) |
|
|
299,776 |
|
|
|
(141,873 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY BEFORE NON CONTROLLING INTEREST
|
|
|
296,221 |
|
|
|
166,785 |
|
|
|
463,006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non controlling interest in variable interest entity
|
|
|
- |
|
|
|
(301,015 |
) |
|
|
(301,015 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL COMPANY STOCKHOLDERS’ EQUITY
|
|
|
296,221 |
|
|
|
(134,230 |
) |
|
|
161,991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$ |
1,451,764 |
|
|
|
(132,257 |
) |
|
$ |
1,319,507 |
|
CannLabs, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 2 – RESTATEMENT (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Three
|
|
|
|
|
For
the Three
|
|
For
the Six
|
|
|
|
|
For
the Six
|
|
|
Months
Ended
|
|
|
|
|
Months
Ended
|
|
Months
Ended
|
|
|
|
|
Months
Ended
|
|
|
June
30,
|
|
|
|
|
June
30,
|
|
June
30,
|
|
|
|
|
June
30,
|
|
|
2014
|
|
Correction
|
|
2014
|
|
2014
|
|
Correction
|
|
2014
|
|
|
(As Originally |
|
|
|
|
|
(Restated)
|
|
|
(As Originally
|
|
|
|
|
|
(Restated)
|
|
|
|
Reported)
|
|
|
|
|
|
|
|
|
Reported)
|
|
|
|
|
|
|
|
NET LOSS
|
|
|
(368,244 |
) |
|
$ |
- |
|
|
$ |
(368,244 |
) |
|
|
(470,351 |
) |
|
$ |
- |
|
|
$ |
(470,351 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS ATTRIBUTABLE TO THE NONCONTROLLING INTEREST
|
|
|
- |
|
|
|
179,780 |
|
|
|
179,780 |
|
|
|
28,702 |
|
|
|
301,015 |
|
|
|
329,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACCRUED PREFERRED DIVIDENDS
|
|
|
- |
|
|
|
(1,973 |
) |
|
|
(1,973 |
) |
|
|
- |
|
|
|
(1,973 |
) |
|
|
(1,973 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
|
|
$ |
(368,244 |
) |
|
$ |
177,807 |
|
|
$ |
(190,437 |
) |
|
$ |
(441,649 |
) |
|
$ |
(301,015 |
) |
|
$ |
(142,607 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC AND DILUTED NET LOSS PER COMMON SHARE
|
|
$ |
(0.01 |
) |
|
|
|
|
|
$ |
(0.00 |
) |
|
$ |
(0.01 |
) |
|
|
|
|
|
$ |
(0.00 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
|
|
|
56,307,941 |
|
|
|
- |
|
|
|
56,307,941 |
|
|
|
55,153,970 |
|
|
|
- |
|
|
|
55,153,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
|
|
Common
|
|
Treasury |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Stock
|
|
Stock
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
Number of
|
|
|
|
|
Number of |
|
|
|
|
Paid in
|
|
Deferred
|
|
Accumulated
|
|
Non Controlling
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Compensation
|
|
Deficit
|
|
Interest
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2014 (Unaudited) (As originally reported)
|
|
500,000 |
|
|
$ |
500 |
|
|
|
65,539,704 |
|
|
$ |
65,540 |
|
|
- |
|
|
$ |
- |
|
|
$ |
671,830 |
|
|
$ |
- |
|
|
$ |
(441,649 |
) |
|
$ |
- |
|
|
$ |
296,221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Correction of allocation loss between VIE and Company
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
301,015 |
|
|
|
(301,015 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Correction of constructive distribution of “S” corporation earnings and contribution of capital
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
- |
|
|
|
- |
|
|
|
(734 |
) |
|
|
- |
|
|
|
734 |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(132,257 |
) |
|
|
- |
|
|
|
- |
|
|
|
(132,257 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued preferred dividends
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,973 |
) |
|
|
- |
|
|
|
(1,973 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2014 (Unaudited) (Restated)
|
|
500,000 |
|
|
$ |
500 |
|
|
|
65,539,704 |
|
|
$ |
65,540 |
|
|
-
|
|
|
$ |
- |
|
|
$ |
671,096 |
|
|
$ |
(132,257 |
) |
|
$ |
(141,873 |
) |
|
$ |
(301,015 |
) |
|
$ |
161,991 |
|
CannLabs, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 2 – RESTATEMENT (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
For the Six
|
|
|
|
|
|
For the Six
|
|
|
|
Months Ended
|
|
|
|
|
|
Months Ended
|
|
|
|
June 30,
|
|
|
|
|
|
June 30,
|
|
|
|
2014
|
|
|
Correction
|
|
|
2014
|
|
|
|
(As originally
|
|
|
|
|
|
(Restated)
|
|
|
|
Reported)
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(470,351 |
) |
|
$ |
- |
|
|
$ |
(470,351 |
) |
Adjustments to reconcile net loss to net cash used in operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
59,138 |
|
|
|
|
|
|
|
59,138 |
|
Officer compensation from conversion of loan receivable, stockholder
|
|
|
13,770 |
|
|
|
|
|
|
|
13,770 |
|
Deferred compensation
|
|
|
- |
|
|
|
5,413 |
|
|
|
5,413 |
|
Increase in assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(80,262 |
) |
|
|
|
|
|
|
(80,262 |
) |
Prepaid expenses
|
|
|
5,413 |
|
|
|
(5,413 |
) |
|
|
- |
|
Deposits
|
|
|
(8,581 |
) |
|
|
|
|
|
|
(8,581 |
) |
Increase in liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
347,753 |
|
|
|
|
|
|
|
347,753 |
|
Deferred revenue
|
|
|
46,805 |
|
|
|
|
|
|
|
46,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(86,315 |
) |
|
|
- |
|
|
|
(86,315 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Due from stockholders
|
|
|
200 |
|
|
|
|
|
|
|
200 |
|
Purchase of equipment
|
|
|
(228,836 |
) |
|
|
|
|
|
|
(228,836 |
) |
Cash acquired from Variable Interest Entity
|
|
|
54,394 |
|
|
|
(54,394 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(174,242 |
) |
|
|
(54,394 |
) |
|
|
(228,636 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH
|
|
|
277,619 |
|
|
|
(54,394 |
) |
|
|
223,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH - BEGINNING OF YEAR
|
|
|
- |
|
|
|
54,394 |
|
|
|
54,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH - END OF PERIOD
|
|
$ |
277,619 |
|
|
$ |
- |
|
|
$ |
277,619 |
|
CannLabs, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 3 – CAPITAL LEASES
The Company leases various laboratory equipment under capital leases. The economic substance of the leases are that the Company is financing the acquisition of the assets through leases, and accordingly, they are recorded on the Company’s books as assets and liabilities.
The following is an analysis of the leased assets included in property and equipment at June 30, 2014:
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
|
|
|
|
|
|
Machinery and equipment
|
|
$ |
727,784 |
|
|
$ |
99,173 |
|
|
|
|
|
|
|
Less: Accumulated depreciation
|
|
|
62,085 |
|
|
|
24,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
665,699 |
|
|
$ |
74,767 |
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
Three Months |
|
|
Six Months |
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended |
|
|
Ended |
|
|
|
June 30, 2014
|
|
|
June 30, 2014
|
|
|
June 30, 2013 |
|
|
June 30, 2013 |
|
Depreciation Expense
|
|
$
|
27,321
|
|
|
$
|
37,679
|
|
|
$ |
2,598
|
|
|
$ |
5,196
|
|
The following is a schedule of future minimum payments required under the lease together with their present values as of June 30, 2014:
|
|
|
|
June 30, 2014
|
|
|
|
|
|
|
|
|
|
2014
|
|
$
|
119,386
|
|
|
|
2015
|
|
|
230,797
|
|
|
|
2016
|
|
|
228,715
|
|
|
|
2017
|
|
|
86,643
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
|
|
665,541
|
|
|
|
|
|
|
|
|
Total amount representing interest
|
|
|
|
|
81,727
|
|
|
|
|
|
|
|
|
Present value of minimum lease payments
|
|
$
|
583,814
|
|
CannLabs, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 4 – NOTES PAYABLE – STOCKHOLDERS
In January 2014, Carbon Bond assumed a note payable for $100,000 to one stockholder. The note bears interest at 10% per annum, is unsecured, and has no formal repayment terms.
In January 2014, the Company issued notes payable in the total amount of $58,800 to two stockholders. The notes are non-interest bearing, are unsecured, and have no formal repayment terms.
In March 2014, the Company issued a note payable for $100,000 to a stockholder. The note bears interest at 10% and has no formal repayment terms. On June 10, 2014, the note payable –stockholder was converted into 71.4 shares of the Carbon Bond’s common stock. Upon the stock split 54,000 to 1 these shares were converted into 3,855,600 shares (See NOTE 6 ).
NOTE 5 – CONVERTIBLE PREFERRED STOCK
Upon the closing of the Merger, the Company, pursuant to a Securities Purchase Agreement (the “Securities Purchase Agreement”) issued to an accredited investor 500,000 shares of the Company’s 8% Series A Convertible Preferred Stock (the “Series A Preferred Shares”) at an original issue price of $1.00 per share (the “Original Issue Price”) and warrants to purchase 20,000,000 shares of the Company’s common stock (the “Warrants”) for an aggregate purchase price of $500,000. The shares of common stock underlying the Series A Preferred Shares and Warrants are subject to a registration rights agreement (the “Registration Rights Agreement”) under which the Company is obligated to seek registration of such shares within 60 days of the closing of the private placement, however, there are no penalties under the Registration Rights Agreement unless the Registration Statement is not effective within 120 days of the closing of the private placement.
Since management believes that it is remote that Company will not register such shares within 120 days of the closing of the private placement, the Company has not accrued any penalties as of June 30, 2014 in accordance with FASB ASC 450.
In
accordance with FASB ASC 480 and 815, the Series A Preferred Shares have been classified as permanent equity and were valued
at $500,000 at June 12, 2014. Since the Series A Preferred Shares have been classified as equity, the embedded
conversion option would be clearly and closely related to it and would not need to be bifurcated in accordance with FASB ASC 815. The
Warrants associated with the Series A Preferred Shares were also classified as equity, in accordance with FASB ASC 480-10-25. Therefore
it is not necessary to bifurcate the Warrants from the Series A Preferred Shares.
The Series A Preferred Shares have a preference in liquidation equal to one times the Original Issue Price, plus all accrued and unpaid dividends on each share of Series A Preferred Stock to be paid out of assets available for distribution prior to holders of common stock and thereafter, the Company will then distribute the remaining assets to holders of common stock, other junior preferred shares (if any) and the Series A Preferred Shares on an as-if-converted-basis. The Series A Preferred Shares shall vote together with the Common Stock on an as-converted basis, and not as a separate class.
The holders of Series A Preferred Shares will, at any time, be entitled to convert each Series A Preferred Share into shares of common stock at a conversion price of $0.01664 per share. The Series A Preferred Shares contain provisions that protect their holders against dilution by adjustment of the purchase price in certain events such as stock dividends, stock splits and other similar events.
As of June 30, 2014, the value of the cumulative 8% dividends was $1,973, which was accrued. The Series A Preferred Shares cumulative dividend will be paid when and if declared by the Board of Directors and in preference to payment of any dividends on the common stock.
CannLabs, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 6 – STOCKHOLDERS’ EQUITY
On June 10, 2014, two majority shareholders surrendered 3,855,600 ( 35.7 pre-split) shares each of Carbon Bond common stock, which was recorded as Treasury Stock at no cost.
On June 10, 2014, Carbon Bond converted a $100,000 note payable into 71.4 shares of Carbon Bond common stock which were issued from Treasury Stock. Upon the stock split of 54,000 to 1 these shares were converted into 3,855,600 shares (See NOTE 4 ).
On June 10, 2014, Carbon Bond effected a 54,000 to 1 stock split. As a result of the stock split, the outstanding shares of common stock issued and outstanding increased from 1,000 shares to 54,000,000 shares. Concurrent with the stock split, Carbon Bond increased its authorized number of common shares from 1,000 to 100,000,000. As a result all of the shares of common stock were retroactively adjusted.
On
June 10, 2014, Carbon Bond issued 5,295,000 shares to directors, board members, officers, employees, and
consultants. The shares were valued at $137,670, fair value, were recorded as a contra-equity account , and
are being expensed over the vesting terms for directors, board members, officers and employees and over the term of the
contract for consultants. These shares will vest between June 10, 2014 and June 12, 2017.
NOTE 7 – STOCK OPTIONS AND WARRANTS
The Board of Directors (“Board”) of the Company adopted an Equity Incentive Plan (“2014 Plan”) effective June 12, 2014. Under the 2014 Plan, the Company is authorized to grant options to purchase up to 4,000,000 shares of the Company’s common stock to any officer, other employee, or director of, or any consultant or other independent contractor who provides services to the Company. The 2014 Plan is intended to permit stock options granted to qualify as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended (“Incentive Stock Options”). All options granted under the 2014 Plan, which are not intended to qualify as Incentive Stock Options are deemed to be non-qualified options (Non-Statutory Stock Options”). As of June 30, 2014, no options to purchase shares of common stock have been issued under the 2014 Plan.
CannLabs, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 7 – STOCK OPTIONS AND WARRANTS (Continued)
The 2014 Plan is administered by the Board or its compensation committee, which determines the persons to whom awards will be granted, the number of awards to be granted, and the specific terms of each grant, including the vesting thereof, subject to the terms of the 2014 Plan.
In connection with Incentive Stock Options, the exercise price of each option may not be less than 100% of the fair market value of the common stock on the date of the grant (or 110% of the fair market value in the case of a grantee holding more than 10% of the outstanding stock of the Company).
The following table summarizes the activities for warrants issued for the six months ended June 30, 2014:
|
|
|
|
|
Weighted
|
|
|
|
Number of
|
|
|
Average
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
Balance as of December 31, 2013
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
20,000,000
|
|
|
|
0.15
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2014
|
|
|
20,000,000
|
|
|
$
|
0.15
|
|
|
|
|
|
|
|
|
|
|
Exercisable, at June 30 2014
|
|
|
20,000,000
|
|
|
$
|
0.15
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Remaining Life,
|
|
|
|
|
|
|
|
|
Exercisable , June 30, 2014 (years)
|
|
|
5.0
|
|
|
|
|
|
NOTE 8 - OPERATING LEASES
For the three and six months ended June 30, 2014, total rent expense under leases amounted to $5,625 and $8,775. For the three and six months ended June 30, 2013, total rent expense under leases amounted to $2,135 and $5,351. At June 30, 2014, the Company was obligated under various non-cancelable operating lease arrangements for property as follows:
|
|
June 30,
2014 |
|
2014
|
|
$ |
11,850 |
|
2015
|
|
|
24,300 |
|
2016
|
|
|
25,500 |
|
2017
|
|
|
13,050 |
|
|
|
|
|
|
|
|
$ |
74,700 |
|
CannLabs, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 9 – SUBSEQUENT EVENTS
On July 14, 2014, two officers of the Company surrendered 1,500,000 shares each to the Company , which were recorded as treasury stock at no cost .
On
July 14, 2014, the Company appointed a new Chief Executive Officer and entered into a three year employment agreement with the
individual. As part of his employment agreement, the Company issued 3,000,000 shares of the Company’s
common stock, which vest 50% on January 1, 2016 and quarterly over the remaining initial three year term. The stock
is valued at $ 6,000,000 , fair value, expensed over the vesting term , and the prepaid portion is reflected as a contra-equity
account .
On July 21, 2014, an employee ceased employment with the Company and forfeited 100,000 shares of unvested common stock and $2,600 was removed from the contra-equity account and $72 of expense was reversed .
On July 28, 2014, the Company issued 200,000 stock options to an employee, which will be valued using the Black-Scholes Option Pricing Model and will be expensed over the vesting term.
Upon the closing of the Merger, the Company entered into a Note Purchase Agreement with an accredited investor (the “Note Purchase Agreement”), pursuant to which the investor agreed to purchase up to $750,000 of senior secured promissory notes (the “Senior Secured Notes”) in a series of three closings to occur on August 15, 2014, September 15, 2014 and October 15, 2014. On July 28, 2014, the Company issued a senior secured promissory note in the amount of $250,000, in accordance with the Note Purchase Agreement, which bears interest at 8% per annum. In connection with the Note Purchase Agreement, the Company also entered into a Security Agreement and an Intellectual Property Security Agreement. In addition, the subsidiary of the Company, Carbon Bond entered into a Subsidiary Guarantee in favor of the Buyer, which provides the accredited investor with an additional security interest.
On August 1, 2014, the Company entered into a sixty four month lease for a property in Hartford, Connecticut. The lease requires annual rental of $61,233, which increases annually.
Cautionary Statements Regarding Forward-Looking Statements
This
report contains “forward-looking statements” which include information relating to future events, future financial
performance, strategies, expectations, competitive environment and regulation. All statements other than statements
of historical facts included or incorporated by reference in this quarterly report on Form 10-Q, including without limitation,
statements regarding our future financial position, business strategy, budgets, projected revenues, projected costs and plans
and objectives of management for future operations, are forward-looking statements. In addition, forward-looking statements
generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expects,”
“intends,” “plans,” “projects,” “estimates,” “anticipates,” or “believes”
or the negative thereof or any variation thereon or similar terminology or expressions.
We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are not guarantees and are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially from our expectations include, but are not limited to: our ability to raise additional capital, the absence of any operating history, our ability to attract and retain qualified personnel, our dependence on third party contractors who we cannot control, our ability to develop and introduce a new service to the market in a timely manner, market acceptance of our services, our limited experience in a relatively new industry, the ability to successfully develop and generate business, rapid technological change in relevant markets, unexpected network interruptions or security breaches, changes in demand for current and future intellectual property rights, legislative, regulatory and competitive developments, intense competition, general economic conditions, as well as other factors set forth under the caption “Risk Factors” in this quarterly report on Form 10-Q and in our Report on Form 8-K/A filed with the Securities and Exchange Commission on August 14, 2014.
All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the foregoing. Except as required by law, we assume no duty to update or revise our forward-looking statements.
Overview
The Company was incorporated as a Nevada corporation on January 10, 2006 for the purpose of designing and modifying motorsport racecars for its own use, providing race consulting services to other race teams and competing in organized racing events. On June 12, 2014, the Company’s wholly-owned subsidiary Carbon Bond Holdings, Inc. (“Carbon Bond”) merged into the Company and the Company changed its name from “Speedsport Branding, Inc.” to “CannLabs, Inc.”
Carbon
Bond was formed as a Colorado limited liability company on October 21, 2013 and subsequently elected to be treated as a subchapter
“S” corporation. Carbon Bond was converted into a Colorado corporation on May 27, 2014. CannLabs, Inc., a Colorado
corporation (“CannLabs Colorado”), was formed on April 19, 2010. CannLabs Colorado is a stand-alone cannabis testing
laboratory and the first state certified lab in the country. Under Colorado law, the holders of licenses for marijuana related
businesses must be residents of the State of Colorado, or all of the owners of an entity must be Colorado residents. Accordingly,
the license for CannLabs Colorado is held by CannLabs Colorado whose owners are our Founder and President, Genifer Murray, and
our Chief Technology Officer and Chief Information Officer , Steve Kilts, both of whom are Colorado residents. Carbon
Bond maintains the Software WorkFlow System and Customer Portal that is utilized by CannLabs Colorado in the operation of the
lab. Carbon Bond also provides certain administrative services for CannLabs Colorado, including but not limited to, accounting,
personnel, billing and recordkeeping through an Administrative Services Agreement. Although the Company is prohibited from owning
CannLabs Colorado directly, it derives revenue in the form of licensing fees and administrative fees under the License Agreement
and the Administrative Services Agreement, which are fees not tied to revenue or net income. In the future, the Company may open
labs in other states which it owns directly if permitted by local regulations or may operate under a similar structure to CannLabs
Colorado.
It is our mission to create a safe cannabis industry by providing the leading cloud-based solution for testing, consulting and analytics. With laboratories as the core business, we expect to expand our services to include consulting, web-based applications, education and other facets of the cannabis industry that we expect to evolve as this industry continues to mature. We are developing a strategic plan to create a presence in the various states as they begin to legalize marijuana for medical and/or recreational usage. We currently service CannLabs Colorado in Denver, Colorado and have announced plans to expand into Connecticut.
Strategic Outlook
As the cannabis industry expands across the country, regulations regarding the testing of cannabis are also evolving. We believe that there will be a strong demand for qualified laboratories to perform the testing. Additionally, we believe that the producers of cannabis and cannabis products will be seeking assistance to provide them with solutions in order to be able to meet expected state mandated requirements. We also feel that the consumers will want to know what products are safe and meet their requirements for dosage and other factors. We believe that state authorities will also be seeking guidance on how to develop testing processes that will nurture the industry, while keeping it safe.
We believe that we are positioned as the leading solutions provider with intellectual property, proprietary cloud-based analytics and scientific methods to serve the cannabis industry. This comprehensive data program, exclusive to all of our clients, offers distinct advantages to growers, dispensaries and edible makers. It not only offers fast, consistent and accurate test results but also provides comparable industry research and information which can be used to make business decisions affecting product outcomes, quality and safety.
We have been at the forefront of educating the public and advising government sources. As more states legalize marijuana for various uses, we expect our position in the market to continue to grow. In addition, we facilitate quality assurance information to the public by providing a resource map on the customer’s website. This tool allows consumers to recognize and easily locate facilities that stock products both tested and certified by CannLabs Colorado.
Our software development team seeks to leverage technology to improve the efficiency of laboratory and scientific processes, deliver business intelligence to the cannabis retail space, and to connect consumers and patients with dispensaries that carry CannLabs’ certified products.
We have developed a proprietary laboratory and analytics platform that optimizes laboratory processes through instrument integration, data validation, and the real time delivery of certified test results. The laboratory and analytics platform also provides our customers with cloud based access to their test results, detailed reporting, and analytics. Continued development on the laboratory and analytics platform will focus on providing technology to improve the efficiency of laboratory processes and to deliver new analytical tools to our customers.
We intend to develop a mobile application and web platform to connect consumers and patients with dispensaries and other cannabis retailers. The mobile application and web platform will allow consumers and patients to search for CannLabs’ certified products that meet their needs. The mobile application and website will allow consumers and patients to find products that have a desired cannabinoid profile, consumption method, or strain. The mobile and web platform will be geographically aware so that a consumer or patient can be connected with nearby dispensaries that carry the desired product. The mobile application and website will utilize data delivered via Application Program Interfaces (“APIs”) exposed by the CannLabs’ laboratory and analytics platform. Utilizing the data generated by the CannLabs’ laboratory and analytics platform gives us a unique ability to connect cannabis consumers and retailers.
Results of Operations
Three Months Ended June 30, 2014 and 2013
The following discussion analyzes our results of operations for the three months ended June 30, 2014 and 2013 . The following information should be considered together with our financial statements for such periods and the accompanying notes thereto.
Revenue/Net Loss
During the three months ended June 30, 2014, we generated revenues of $270,220 an increase of $223,220 from $47,000 for the three months ended June 30, 2103 . The increase in revenue resulted from mandated testing requirements in Colorado, beginning May 1, 2014. We incurred a net loss of $368,244 for the three months ended June 30, 2014 compared to net loss of $5,808 for the three months ended June 30, 2013, an increase of $362,436 .
Cost of Revenues
For the three months ended June 30, 2014, cost of revenues was $ 136,267, compared to $24,324 for the three months ended June 30, 2013, an increase of $111,943 . This was a result of additional labor and supplies needed to support the increase in revenue.
General and Administrative
We
incurred general and administrative expenses of $ 229,367 for the three months ended June 30, 2014 an increase of
$216,681 from $12,686 for the three months ended June 30, 2013 . The primary expenses were related to
professional fees and subcontracting, as well as costs to build the business infrastructure.
Payroll
For the three months ended June 30, 2014, payroll expense other than those payroll expen s es not included in cost of revenues and sales and marketing was $135,622 compared to $13,782 for the three months ended June 30, 2013, an increase of $121,840 . These costs relate to hiring additional administrative staff to support the increase in revenue.
Sales and Marketing
We
incurred sales and marketing expenses of $130,304 for the three months ended June 30, 2014 an increase of $128,678 from $1,626
for the three months ended June 30, 2013 . The majority of these costs relate to the development of the website
to draw customers to our website and costs for trade shows.
Interest
expense
For the three months ended June 30, 2014, interest expense was $ 6,913 compared to $390 for the three months ended June 30, 2013, an increase of $6,523 . This was a result of the loans issued by two shareholders to sustain the company’s operations.
Six
Months Ended June 30, 2014 and 2013
The following discussion analyzes our results of operations for the six months ended June 30, 2014 and 2013 . The following information should be considered together with our financial statements for such periods and the accompanying notes thereto.
Revenue/Net Loss
During the six months ended June 30, 2014, we generated revenues of $382,493 an increase of $292,401 from $90,092 for the six months ended June 30, 2013. The increase in revenue resulted from mandated testing requirements in Colorado, beginning May 1, 2014. We incurred a net loss of $470,351 for the six months ended June 30, 2014 compared to net loss of $7,701 for the six months ended June 30, 2013, an increase of $462,650.
Cost of Revenues
For the six months ended June 30, 2014, cost of revenues was $191,800, compared to $41,895 for the three months ended June 30, 2013, an increase of $149,905. This was a result of additional labor and supplies needed to support the increase in revenue.
General and Administrative
We
incurred general and administrative expenses of $316,153 for the six months ended June 30, 2014 an increase of $288,125
from $28,028 for the six months ended June 30, 2013. The primary expenses were related to professional fees
and subcontracting, as well as costs to build the business infrastructure.
Payroll
For the six months ended June 30, 2014, payroll expense other than those payroll expenses not included in cost of revenues and sales and marketing was $173,303 compared to $25,103 for the six months ended June 30, 2013, an increase of $148,200. These costs related to hiring additional administrative staff to support the increase in revenue.
Sales and Marketing
We
incurred sales and marketing expenses of $159,684 for the six months ended June 30, 2014 an increase of $157,801 from $1,883
for the six months ended June 30, 2013. The majority of these costs relate to the development of the website to
draw customers to our website and the costs of trade shows.
Interest expense
For the six months ended June 30, 2014, interest expense was $11,913 compared to $884 for the six months ended June 30, 2013, an increase of $11,029. This was a result of the loans issued by two shareholders to sustain the company’s operations.
Cash Flows
Cash used for operating activities during
the six months ended June 30, 2014 was $86,315 compared to cash provided by operating activities of $23,188 for the same period
in 2013, an increase in cash used of $109,503 . This resulted from the net loss of $470,351 offset by increases in accounts payable
and deferred revenue.
Cash used in investing activities during the six months ended June 30, 2014 was $ 228,636, an
increase of $226,836 from $1,800 for the six months ended June 30, 2013 . During the six months ended June 30, 2014, the
Company was continuing to expand its laboratory to meet the new regulatory testing requirements.
During the six months ended June 30, 2014, cash provided by financing activities was $538,176 , compared to cash used in financing activities of $24,890 for the six months ended June 30, 2013, an increase in cash provided by financing activities of $563,066 . This resulted from the issuance of stockholders notes payable to fund the Company’s ongoing operations as well as the issuance of convertible preferred stock.
Liquidity and Capital
Resources
As
of August 14, 2014, we had cash resources of approximately $70,000. Our revenues have continued to increase, however,
we have financed our operations through private offerings of debt and equity securities. We do not currently maintain
a line of credit or term loan with any commercial bank . We have financed certain equipment through
capital leases .
Since our inception, we have focused on developing and implementing our business plan. We believe that our existing cash resources will be sufficient to sustain our operations during the next twelve months. However, we currently need to generate sufficient revenues to support our cost structure to enable us to pay ongoing costs and expenses as they are incurred, finance the continued development of our business, and execute the business plan. If we cannot generate sufficient revenue to fund our business plan, we intend to raise such financing through the sale of debt and/or equity securities. The issuance of additional equity would result in dilution to existing shareholders. If we are unable to obtain additional funds when they are needed or if such funds cannot be obtained on terms acceptable to us, we will be unable to execute upon the business plan or pay costs and expenses as they are incurred, which would have a material, adverse effect on our business, financial condition and results of operations.
Even
if we are successful in generating sufficient revenue or in raising sufficient capital in order to complete our business
plan, our ability to continue in business as a viable going concern can only be achieved when our revenues reach a level
that sustains our business operations. As of August 14, 2014, we raised $500,000 through a private placement, $408,800 through
the issuance of notes payable and are to receive an additional $250,000 on September 15, 2014 and October 15, 2015. There can
be no assurance that we will raise sufficient proceeds, or any proceeds, for us to implement fully our proposed business plan
to establish laboratories in states nationwide. Moreover there can be no assurance that even if we achieve our goals,
that we will generate revenues sufficient to fund our operations. In either such situation, we may not be able to continue
our operations and our business might fail.
Contractual Obligations
At
June 30, 2014, the Company was obligated under various contractual arrangements for property as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than
|
|
|
One to
|
|
|
Three to
|
|
|
|
|
|
|
1 Year
|
|
|
Three Years
|
|
|
Five Years
|
|
|
Total
|
|
Maturities of Notes Payable
|
|
$
|
158,800
|
|
|
$
|
-
|
|
|
|
|
|
|
$
|
158,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Leases
|
|
|
189,997
|
|
|
|
393,817
|
|
|
|
|
|
|
|
583,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
|
11,850
|
|
|
|
62,850
|
|
|
|
-
|
|
|
|
74,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase Obligations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
360,647
|
|
|
$
|
456,667
|
|
|
$
|
-
|
|
|
$
|
817,314
|
|
Critical Accounting Policies
Our financial statements are impacted by the accounting policies used and the estimates and assumptions made by management during their preparation. A complete summary of these policies is included in Note 1 of the Notes to Consolidated Financial Statements included elsewhere herein. We have identified below the accounting policies that are of particular importance in the presentation of our financial position, results of operations and cash flows and which require the application of significant judgment by management.
Revenue Recognition
In
accordance with Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 104,
Revenue Recognition (Codified in FASB ASC 605), t he Company will recognize revenue when (i) persuasive evidence
of a customer or distributor arrangement exists or acceptance occurs, (ii) a retailer, distributor or wholesaler receives the
goods or services, (iii) the price is fixed or determinable, and (iv) collectability of the sales revenues is reasonably assured.
Subject to these criteria, the Company will generally recognize revenue from laboratory tests in three ways. For samples
presented without a bulk or twelve month contract, revenue is recognized upon completion of the testing. Customers
with bulk contracts have three months to use a predetermined number of tests. Revenue is recognized for these contracts
on a pro rata basis, based on the number of tests used versus the number of tests allowed. Twelve month contracts require
prepayment monthly for the succeeding month. Revenue is recognized based on the monthly payment required for the month
in which the tests are performed. Because tests may not be carried over to subsequent months, the monthly revenue is
recognized in full in the appropriate month.
Revenue from consulting and research and development agreements is generally recognized on a straight line basis over the term of the agreement. When the agreements contain more than one deliverable, the Company allocates revenue to separate elements under the agreement based on relative selling prices in accordance with FASB ASC 605-25.
Recently Issued Accounting Pronouncements
Recently issued accounting pronouncements are discussed in Note 1 of the Notes to Financial Statements contained elsewhere in this report.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
As of June 30, 2014, we carried out the evaluation of the effectiveness of our disclosure controls and procedures required by Rule 13a-15(e) under the Exchange Act under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2014, our disclosure controls and procedures were not effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure , because of the material weakness described below .
A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements would not be prevented or detected. A material weakness in the Company’s internal controls exists in that there is limited segregation of duties amongst the Company’s employees with respect to the Company’s preparation and review of the Company’s financial statements. This material weakness is a result of the Company’s limited number of personnel in the financial reporting department. This material weakness may affect management’s ability to effectively review and analyze elements of the financial statement closing process and prepare financial statements in accordance with U.S. GAAP.
There has been no change in our internal control over financial reporting identified in connection with this evaluation that occurred during our fiscal quarter ended June 30, 2014 that has materially affected or is likely to materially affect, our internal control over financial reporting.
ITEM 1. LEGAL PROCEEDINGS.
|
The Company is not a party to any pending legal proceeding nor is its property subject to any pending legal proceeding that is not in the ordinary course of business or otherwise material to the financial condition of its business. Further, to the knowledge of management, no director or executive is party to any action in which any has an interest adverse to us.
Not applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
|
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
|
None.
ITEM 4. MINE SAFETY DISCLOSURES.
|
Not Applicable.
ITEM 5. OTHER INFORMATION.
|
None.
|
|
|
10.1
|
|
Form of Administrative Services Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2014 filed with the SEC on August 14, 2014)
|
|
|
|
10.2
|
|
Form of Technology License Agreement (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2014 filed with the SEC on August 14, 2014)
|
|
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
32.1
|
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
32.2
|
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
101.INS
|
|
XBRL Instance Document
|
|
|
|
101.SCH
|
|
XBRL 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
|
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
CANNLABS, INC.
|
|
|
|
Date:
|
November 18 , 2014
|
By:
|
/s/ Scott A. McPherson
|
|
|
Scott A. McPherson
|
|
|
Chief Financial Officer
|
CERTIFICATION
I, Mark C. Mirken, certify that:
|
1.
|
I
have reviewed this quarterly report on Form 10-Q /A of CannLabs, Inc.;
|
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
(c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
(d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
|
By:
|
/s/ Mark C. Mirken
|
|
|
Mark C. Mirken
|
|
|
Chief Executive Officer
|
CERTIFICATION
I, Scott A. McPherson, certify that:
|
1.
|
I
have reviewed this quarterly report on Form 10-Q /A of CannLabs, Inc.;
|
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
(c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
(d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
|
By:
|
/s/ Scott A. McPherson
|
|
|
Scott A. McPherson
|
|
|
Chief Financial Officer
|
CERTIFICATION OF
CHIEF EXECUTIVE OFFICER
OF CANNLABS, INC.
PURSUANT TO 18 U.S.C. SECTION 1350
In
connection with the Quarterly Report on Form 10-Q /A of CannLabs, Inc. (the “Company”) for the period ended
June 30, 2014, as filed with the Securities and Exchange Commission (the “Report”), I, Mark C. Mirken, Chief Executive
Officer of the Company, do hereby certify, pursuant to 18 U.S.C. Section 1350, that:
|
(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
|
|
/s/ Mark C. Mirken
|
|
|
|
Mark C. Mirken
|
|
|
|
Chief Executive Officer
|
|
CERTIFICATION OF
CHIEF FINANCIAL OFFICER
OF CANNLABS, INC.
PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the Quarterly Report
on Form 10-Q /A of CannLabs, Inc. (the “Company”) for the period ended June 30, 2014, as filed with the Securities
and Exchange Commission (the “Report”), I, Scott A. McPherson, Chief Financial Officer of the Company, do hereby certify,
pursuant to 18 U.S.C. Section 1350, that:
|
(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
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