UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
| |
|
| [X] |
Quarterly Report pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934 |
| |
|
| |
For the quarterly
period ended September 30, 2014 |
| |
|
| [ ] |
Transition Report pursuant to 13 or 15(d)
of the Securities Exchange Act of 1934 |
| |
|
| |
For the transition
period from __________ to__________ |
| |
|
| |
Commission File Number:
333-178482 |
Cannabis-Rx,
Inc.
(Exact
name of registrant as specified in its charter)
| |
|
| Nevada |
30-0693512 |
| (State or other jurisdiction
of incorporation or organization) |
(IRS Employer Identification
No.) |
| |
7702
E Doubletree Ranch Rd. Ste 300
Scottsdale
AZ 88258 |
| (Address
of principal executive offices) |
| |
| 480.902.3399 |
| (Registrant’s
telephone number) |
________________________________________________________________ |
| (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
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). [X] Yes [
] No
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company.
| [
] Large accelerated filer |
[
] Accelerated filer |
| [
] Non-accelerated filer |
[X]
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 [X] No
State
the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 156,000,000
as of November 3, 2014
PART
I - FINANCIAL INFORMATION
Item
1. Financial Statements
Our
consolidated financial statements included in this Form 10-Q are as follows:
These
consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United
States of America for interim financial information and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included. Operating results for the interim period ended September 30,
2014 are not necessarily indicative of the results that can be expected for the full year.
CANNABIS-RX
INC.
(FORMERLY
LONGVIEW REAL ESTATE, INC.)
CONSOLIDATED
BALANCE SHEETS
(unaudited)
| |
September 30, | |
December 31, |
| | |
2014 | |
2013 |
| ASSETS | |
| | | |
| | |
| Current Assets | |
| | | |
| | |
| Cash | |
$ | 1,695,511 | | |
$ | 2,186,879 | |
| Due from Berkshire Homes, Inc. | |
| 195,943 | | |
| 87,849 | |
| Real estate inventory | |
| 13,963,582 | | |
| 5,800,091 | |
| Total Current Assets | |
| 15,855,036 | | |
| 8,074,819 | |
| Real estate held for investment | |
| 1,256,501 | | |
| — | |
| TOTAL ASSETS | |
$ | 17,111,537 | | |
$ | 8,074,819 | |
| LIABILITIES AND STOCKHOLDERS' DEFICIT | |
| | | |
| | |
| Current Liabilities | |
| | | |
| | |
| Accounts payable to related parties | |
$ | 18,589 | | |
$ | 10,420 | |
| Accounts payable and accrued expenses | |
| 58,476 | | |
| 35,868 | |
| Accrued interest | |
| 669,710 | | |
| 88,472 | |
| Security deposit | |
| 39,000 | | |
| | |
| Option to purchase deposit | |
| 100,000 | | |
| | |
| Promissory notes | |
| 4,250,000 | | |
| 4,200,000 | |
| Total Current Liabilities | |
| 5,135,775 | | |
| 4,334,760 | |
| Long term promissory notes | |
| 12,000,000 | | |
| 4,050,000 | |
| Total Liabilities | |
| 17,135,775 | | |
| 8,384,760 | |
| Stockholders’ Deficit | |
| | | |
| | |
| Preferred stock, par value $0.0001, 50,000,000 authorized and 2,000,000 and
0 shares issued and outstanding on September 30, 2014 and December 31, 2013, respectively | |
| 200 | | |
| — | |
| Common stock, par value $0.0001, 1,500,000,000 shares authorized
156,000,000 and 154,000,000 shares issued and outstanding on September 30, 2014 and December 31, 2013,
respectively | |
| 15,600 | | |
| 15,400 | |
| Additional paid-in capital | |
| 65,000 | | |
| 43,400 | |
| Share subscriptions receivable | |
| (20,000 | ) | |
| — | |
| Deficit accumulated during the development stage | |
| (85,038 | ) | |
| (368,741 | ) |
| Total Stockholders' Deficit | |
| (24,238 | ) | |
| (309,941 | ) |
| TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | |
| 17,111,537 | | |
| 8,074,819 | |
The
accompanying notes are an integral part of these unaudited financial statements.
CANNABIS-RX,
INC.
(FORMERLY
LONGVIEW REAL ESTATE, INC.)
CONSOLIDATED
STATEMENTS OF OPERATIONS
(unaudited)
| |
Three months ended September 30, 2014 | |
Three months ended September 30, 2013 | |
Nine months ended September 30, 2014 | |
Nine months ended September 30, 2013 |
| REVENUES | |
$ | 5,944,150 | | |
$ | — | | |
$ | 9,573,781 | | |
$ | — | |
| COST OF SALES | |
| 5,092,800 | | |
| — | | |
| 8,428,915 | | |
| — | |
| GROSS PROFIT | |
| 851,350 | | |
| — | | |
| 1,144,866 | | |
| — | |
| EXPENSES | |
| | | |
| | | |
| | | |
| | |
| Consulting fees | |
| — | | |
| — | | |
| 11,500 | | |
| 12,080 | |
| General and administrative | |
| 83,238 | | |
| 6,927 | | |
| 200,839 | | |
| 18,894 | |
| Professional fees | |
| 4,225 | | |
| 4,700 | | |
| 31,074 | | |
| 32,210 | |
| Management fees and expenses | |
| 54,664 | | |
| 12,500 | | |
| 109,190 | | |
| 40,500 | |
| TOTAL EXPENSES | |
| 142,127 | | |
| 24,127 | | |
| 352,603 | | |
| 103,684 | |
| INCOME (LOSS) FROM OPERATIONS | |
| 709,223 | | |
| (24,127 | ) | |
| 792,263 | | |
| (103,684 | ) |
| OTHER INCOME (EXPENSE) | |
| | | |
| | | |
| | | |
| | |
| Interest expense | |
| (208,000 | ) | |
| (15,083 | ) | |
| (580,438 | ) | |
| (25,507 | ) |
| Gain on settlement of loan receivable | |
| — | | |
| — | | |
| 71,878 | | |
| — | |
TOTAL
OTHER INCOME ( EXPENSE) | |
| (208,000 | ) | |
| (15,083 | ) | |
| (508,560 | ) | |
| (129,191 | ) |
| NET INCOME (LOSS) | |
$ | 501,223 | | |
$ | (39,210 | ) | |
$ | 283,703 | | |
$ | (129,191 | ) |
| NET INCOME (LOSS) PER SHARE: BASIC AND DILUTED | |
$ | (0.00 | ) | |
$ | (0.00 | ) | |
$ | (0.00 | ) | |
$ | (0.00 | ) |
| WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: BASIC AND DILUTED | |
| 156,000,000 | | |
| 154,000,000 | | |
| 155,800,000 | | |
| 175,274,275 | |
The
accompanying notes are an integral part of these unaudited financial statements.
CANNABIS-RX,
INC.
(FORMERLY
LONGVIEW REAL ESTATE, INC.)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(unaudited)
| |
Nine months ended
September 30, 2014 | |
Nine months ended
September 30, 2013 |
| CASH FLOWS FROM OPERATING ACTIVITIES | |
| | | |
| | |
| Net income (loss) | |
$ | 283,703 | | |
$ | (129,191 | ) |
Non-cash working capital items
| |
| | | |
| | |
| Adjustments to reconcile net loss to net cash
used in operating activities | |
| | | |
| | |
| Changes in assets and liabilities | |
| | | |
| | |
| Prepaid expenses | |
| | | |
| | |
| Inventory | |
| (8,163,491 | ) | |
| (437,680 | ) |
| Accounts payable - related party | |
| 8,169 | | |
| (29,333 | ) |
| Accounts payable and accrued expenses | |
| 603,846 | | |
| 6,167 | |
| Security deposit | |
| 39,000 | | |
| | |
| Option to purchase deposit | |
| 100,000 | | |
| | |
| Net cash used in operating activities | |
| (7,128,773 | ) | |
| (590,037 | ) |
| CASH FLOWS FROM INVESTING ACTIVITIES | |
| | | |
| | |
| Advances to Berkshire Homes, Inc. | |
| (108,094 | ) | |
| — | |
| Real estate purchased for rental | |
| (1,156,501 | ) | |
| — | |
| Net cash used in investing activities | |
| (1,364,595 | ) | |
| — | |
| CASH FLOWS FROM FINANCING ACTIVITIES | |
| | | |
| | |
| Proceeds from sale of stock | |
| 2,000 | | |
| — | |
| Proceeds from promissory notes | |
| 8,000,000 | | |
| 4,250,000 | |
| Net cash provided by financing activities | |
| 8,002,000 | | |
| 4,250,000 | |
| NET CHANGE IN CASH | |
| (491,368 | ) | |
| 3,659,963 | |
| CASH - BEGINNING OF PERIOD | |
| 2,186,879 | | |
| 2,685 | |
| CASH - END OF PERIOD | |
$ | 1,695,511 | | |
$ | 3,662,648 | |
| SUPPLEMENTAL CASH FLOW INFORMATION: | |
| | | |
| | |
| Cash
paid for interest | |
$ | — | | |
$ | — | |
| Cash paid for taxes | |
$ | — | | |
$ | — | |
| NON-CASH TRANSACTIONS: | |
| | | |
| | |
| Subscription receivable | |
$ | 20,000 | | |
$ | — | |
| Cancellation of common stock | |
$ | — | | |
$ | 3,300 | |
The
accompanying notes are an integral part of these unaudited financial statements.
CANNABIS-RX
INC.
(FORMERLY
LONGVIEW REAL ESTATE, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
1 - NATURE OF OPERATIONS AND CONTINUANCE OF BUSINESS
Organization
and Description of Business
Cannabis-RX
Inc. (the “Company”) was incorporated in Delaware on July 5, 2011. The business plan of the Company was to create
a marketing and promotion platform for a stretch and fitness apparatus. On July 3, 2013, the Company changed its business to acquiring,
improving and selling real property, and changed its name from L3 Corp. to Longview Real Estate, Inc. On January 30, 2014, the
Company changed its name to Cannabis-Rx Inc. with the Company’s real estate business expanding to include the regulated
cannabis industry by purchasing and selling real estate assets and leasing space and related facilities to licensed marijuana
growers and dispensary owners for their operations. In addition, the Company plans to expand its business to provide financing
and consulting services to the cannabis industry in addition to commercial real estate solutions.
The accompanying
unaudited interim financial statements of Cannabix-RX, Inc. (the “Company”) have been prepared in accordance with
accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission,
and should be read in conjunction with the Company’s audited 2013 annual financial statements and notes thereto filed on
Form 10-K with the SEC. In the opinion of management, all adjustments, consisting of normal reoccurring adjustments, necessary
for a fair presentation of financial position and the results of operations for the interim periods present have been reflected
herein. The results of operation for interim periods are not necessarily indicative of the results to be expected for the full
year. Notes to the financial statements, which would substantially duplicate the disclosure required in the Company’s fiscal
2013 financial statements have been omitted.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue
Recognition
The
Company recognizes revenues when delivery of goods or completion of services has occurred provided there is persuasive evidence
of an agreement, acceptance has been approved by its customers, the fee is fixed or determinable based on the completion of stated
terms and conditions, and collection of any related receivable is reasonably assured.
NOTE
3 – GOING CONCERN
These
consolidated financial statements have been prepared on a going concern basis which assumes the Company will be able to realize
its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company has incurred
losses since inception resulting in an accumulated deficit of $85,038 as of September 30, 2014. Further losses are anticipated
in the development of its business raising substantial doubt about the Company’s ability to continue as a going concern.
The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or
to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when
they come due. Management intends to finance operating costs over the next twelve months with loans and/or private placement of
common stock. These financial statements do not include any adjustments relating to the recoverability and classification of recorded
asset amounts, or amounts and classification of liabilities that might result from this uncertainty.
NOTE
4 – LOAN RECEIVABLE
On
March 17, 2014, the Company loaned $183,443 to a Canadian medical marijuana company in New Brunswick, Canada, licensed by Health
Canada under the Marijuana for Medical Purposes Regulation. On May 15, 2014, the Company received the proceeds on settlement of
the loan in the amount of $ 255,321. The additional proceeds of $ 71,878 has been recorded as other income on the statement of
operations.
NOTE
5 - REAL ESTATE INVENTORY
Inventories
are stated at the lower of cost of market using the first-in, first-out (FIFO) cost method of accounting. During the current interim
period, the Company paid $8,163,491 for real estate properties purchased for resale, net of property dispositions in the period.
NOTE
6 - REAL ESTATE HELD FOR RENTAL
Real
estate held for investment is recorded at cost and is amortized on a straightline basis over 39 years. As the building was
not available for rent and rental payments did not commence until October 2014, no depreciation has been recorded as
at September 30, 2014.
NOTE
7 - PROMISSORY NOTES
On
January 27, 2014 the Company issued a promissory note in the principal amount of $4,000,000 at the interest rate of 5% per annum
and due and payable twenty four months from the date of issuance, subject to acceleration in the event of default and may be prepaid
in whole or in part without penalty or premium.
On
February 19, 2014 the Company issued a promissory note in the principal amount of $4,000,000 at the interest rate of 5% per annum
and due and payable twenty four months from the date of issuance, subject to acceleration in the event of default and may be prepaid
in whole or in part without penalty or premium.
On
March 27, 2014 the Company entered into a secured lending agreement in the principal amount of $14,000,000 at the interest rate
of 5% per annum and due and payable twenty four months from the date of issuance, subject to acceleration in the event of default
and may be prepaid in whole or in part without penalty or premium. No funds have been received from this agreement as of
September 30, 2014.
Total
interest expense recorded on the notes for the quarter was $208,000 and $ 580,438 for the three months and nine months ended September
30, 2014.
NOTE
8 - COMMON STOCK
On
January 16, 2014, the Company issued 2,000,000 shares of Series A Preferred Stock to a related party for total proceeds of $20,000.
As the proceeds of the share issuance had not been received as of September 30, 2014 , the amount has been recorded as share
subscription receivable.
On
January 16, 2014, the Company issued 2,000,000 shares of common stock to a related party for total proceeds of $2,000.
NOTE
9 - RELATED PARTY TRANSACTIONS
During
the period, the Company incurred management fees of $54,526 to directors and officers of the Company. As of September 30, 2014,
the Company had a balance of $18,589 owed to a director and officer for management fees and expenses paid on behalf of the Company.
During
2013, the Company advanced $195,943 to Berkshire Homes, Inc., a public company with a common director and management. As of September
30, 2014, this balance remained owed by this related party.
The
balances owed to or by related parties are unsecured, non-interest bearing and repayable on demand.
NOTE
10 - SUBSEQUENT EVENTS
Except
as provided below, in accordance with ASC 855-10, the Company has analyzed its operations subsequent to September 30, 2014 to
the date these financial statements were issued, and has determined that it does not have any material subsequent events to
disclose.
During
the third quarter, the Company’s subsidiary purchased a property for investment purposes. This property was leased with
lease payments commencing October 1, 2014. It is a five year lease with two-five year options to extend. The monthly lease
payment in the first year is $18,416.67 with 3% annual increases in years four and five. The lease is triple net. The tenants
have an option to purchase the property and have deposited $100,000.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking
Statements
Certain
statements, other than purely historical information, including estimates, projections, statements relating to our business plans,
objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking
statements.” These forward-looking statements generally are identified by the words “believes,” “project,”
“expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,”
“may,” “will,” “would,” “will be,” “will continue,” “will likely
result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are
subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our
ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have
a material adverse effect on our operations and future prospects on a consolidated basis include, but are not limited to: changes
in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted
accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue
reliance should not be placed on such statements.
Company
Overview
We
were incorporated on July 5, 2011 in the State of Delaware. We are engaged in the business of acquiring a portfolio of distressed
properties in certain strategic areas at deep discounts, rehabilitating these properties and selling or leasing them for the quickest
and highest return possible. In conjunction with our real estate operations, in January 2014, we began focusing on catering to
the real estate needs of the regulated cannabis industry, in states and other locations where such business is licensed and permitted.
In this niche market, we plan to purchase real estate assets and lease growing space and related facilities to licensed marijuana
growers and dispensary owners for their operations.
Commercial
Real Estate Solutions
We
have been searching in Colorado, Washington, Florida, California, Michigan and Illinois for properties to acquire to cater to
the cannabis industry. Our goal is to purchase light industrial commercial buildings that are in the right zoned areas of the
cities and we usually seek between 10,000 and about 100,000 square feet.
In
order to attract cannabis-related tenants to lease our properties, we are willing to renovate these spaces based on the requirements
of the business, and incorporate these additional costs into their lease. For example, if it is a grow facility we will provide
significant electrical, HVAC, and security upgrades. Often these tenant improvements are the responsibility of the leasee. However,
we are willing to facilitate these improvements by offering to consult on the build-out of their facility and/or capital based
on the needs of the tenant, the term of the lease, and their business model.
In
the marijuana space, tenants typically pay a 30 – 40 percent premium to lease space to operate in, simply due to the nature
of the business. We plan to offer our space at a lesser premium to the usual 30 - 40 percent. Our targets are 20 - 30 percent.
In
Florida, we recently purchased a 9.23 acre property totaling 209,000 square feet in a trio of industrial buildings to house cannabis
operations. However, because the ballot measure did not receive 60% voter approval the measure failed. Regardless, we are confident
in our ability to maximize the value of the asset and will market the property for sale.
We
have also purchased properties in California and Illinois that we believe are well suited for a licensed grow facility and/or
distribution center.
To
date, we have raised $16,000,000 through the sale of unsecured promissory notes and we have access to an additional $14,000,000.
We continue to seek out the best financing opportunities in order to deploy funds into business operations that we believe best
suited in the cannabis industry, as well as continue to pursue our real estate activities.
At
present, we have acquired 55 properties for a total cost of $16,385,292. Of the 55 properties, 28 have been rehabilitated and sold
or are under contract for sale, 10 have been rehabilitated and are listed for sale, and one property is held
for investment purposes. The remaining 16 properties are in the process of rehabilitation. As of September 30, 2014, we now own
three classes of real estate: single family, multi-family and commercial, all of which are located in Florida, Illinois, California
and Washington. Some of these properties are held by us and some are held in our wholly-owned subsidiary, Praetorian Capital,
LLC, a Florida limited liability company formed on October 22, 2013.
Financing
and Consulting Services
We
also intend to expand our business in the next twelve months to provide financing and consulting services to the cannabis industry
in addition to our commercial real estate solutions. We plan to provide financing options with licensed or existing operators
within the marijuana industry that require start-up, operating or expansion capital. We recently invested in a licensed grow operation
that needed funding to finish construction on their facility in order to commence operations. We will also provide capital to
current and potential tenants of our buildings that require funding to refinance current debt, as long as they meet our underwriting
criteria. Additionally, we offer sale-and-leaseback financing arrangements with tenant purchase options. These types of financing
solutions provide flexibility for our tenants long-term, while capitalizing their operations.
Through
our network of real estate experts - legal, licensing, construction and growing - we plan to provide consulting services to our
tenants in the marijuana industry trying to navigate the real estate/zoning process and/or regulatory environment. We provide
counsel to help businesses set up their grow operations. Specifically, we can provide guidance/counsel regarding construction
management and grow design (electrical, HVAC, lighting, etc.). We are also looking into providing regulatory compliance consulting.
Results
of Operations for the three and nine months ended September 30, 2014 and 2013
Revenues
We
generated sales of $5,944,150 and $9,573,781 for the three and nine months ended September 30, 2014, respectively. We
achieved a gross profit of $851,350 and $1,144,866 for the three and nine months ended September 30, 2014, respectively. We
expect our revenues to climb in the final quarter of 2014 and into 2015 as we dispose of the properties that we have
previously acquired.
Operating
Expenses
Operating
expenses increased to $142,127 for the three months ended September 30, 2014 from $24,127 for the three months ended September
30, 2013. Our operating expenses for the three months ended September 30, 2014 consisted of management fees and expenses of $54,664,
professional fees of $4,225 and general and administrative expenses of $83,238. In comparison, our operating expenses for the
three months ended September 30, 2013 consisted of professional fees in the amount of $4,700, management fees and expenses of
$12,500, and general and administrative expenses of $6,927.
Operating
expenses increased to $352,603 for the nine months ended September 30, 2014 from $103,684 for the nine months ended September
30, 2013. Our operating expenses for the nine months ended September 30, 2014 consisted of management fees and expenses of $109,190,
consulting fees of $11,500, professional fees of $31,074 and general and administrative expenses of $200,839. In comparison, our
operating expenses for the nine months ended September 30, 2013 consisted of professional fees in the amount of $32,210, management
fees and expenses of $40,500, consulting fees of $12,080, and general and administrative expenses of $18,894.
We
anticipate our operating expenses will increase as we continue our business operations. The increase will be attributable to administrative
and operating costs associated with our new cannabis real estate related activities, the acquisition, renovation and sale of residential
properties and the professional fees associated with our reporting obligations under the Securities Exchange Act of 1934.
Other
Expenses
Interest
expenses increased to $208,000 and $580,438 for the three and nine months ended September 30, 2014, respectively, from $15,083
and $25,507 for the three and nine months ended September 30, 2013, respectively. The increase is attributable to the increase
in long-term promissory notes. We realized a one-time settlement for income of $71,878 in the nine months ended September 30,
2014. We do not expect to realize any additional other income for the foreseeable future.
Net
Income (Loss)
We
recognized net income of $501,223 for the three months ended September 30, 2014, compared to a net loss of $39,210 for the three
months ended September 30, 2013. We recognized net income of $283,703 for the nine months ended September 30, 2014, compared to
a net loss of $129,191 for the nine months ended September 30, 2013.
Liquidity
and Capital Resources
As
of September 30, 2014, we had total current assets of $15,855,036, consisting of cash of $1,695,511, a receivable from Berkshire
Homes, Inc. of $195,943 and our real property inventory of $13,963,582. We had current liabilities of $5,135,775 as of September
30, 2014. Accordingly, we had working capital of $10,719,261 as of September 30, 2014.
Operating
activities used $7,128,773 in cash for the nine months ended September 30, 2014, as compared with $590,037 used for the nine months
ended September 30, 2013. Our negative operating cash flow for September 30, 2014 was mainly a result of the increase in our real
property inventory.
Investing
activities used $1,364,595 in cash for the nine months ended September 30, 2014, as compared with $-0- used for the nine months
ended September 30, 2013. This is mainly attributable to purchase of a property held for investment.
Financing
activities for the nine months ended September 30, 2014 provided $8,002,000 in cash, as compared with cash flows provided by financing
activities of $4,250,000 for the nine months ended September 30, 2013. Our positive cash flow from financing activities for the
nine months ended September 30, 2014 was mainly the result of proceeds from the issuance of promissory notes.
We
have raised $16,000,000 through the sale of unsecured promissory notes and we have access to an additional $14,000,000. We continue
to seek out the best financing opportunities in order to deploy funds into business operations that we believe best suited in
the cannabis industry, as well as continue to pursue our real estate activities.
We
have enough available capital to operate our business for the next 12 months.
Going
Concern
The
accompanying financial statements have been prepared on a going concern basis which assumes we will be able to realize our assets
and discharge our liabilities in the normal course of business for the foreseeable future. We have incurred losses since inception
resulting in an accumulated deficit of $85,038 as of September 30, 2014 and further losses are anticipated in the development
of our business raising substantial doubt about our ability to continue as a going concern. The ability to continue as a going
concern is dependent upon generating profitable operations in the future and/or to obtain the necessary financing to meet our
obligations and repay our liabilities arising from normal business operations when they come due. Management anticipates financing
operating costs over the next twelve months with loans and/or private placement of common stock. These financial statements do
not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification
of liabilities that might result from this uncertainty.
Critical
Accounting Policies
In
December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management
Discussion and Analysis. The SEC indicated that a “critical accounting policy” is one which is both important to the
portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or
complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
We do not believe that any accounting policies currently fit this definition.
Recently
Issued Accounting Pronouncements
We
do not expect the adoption of recently issued accounting pronouncements to have a significant impact on our results of operations,
financial position or cash flow.
Off
Balance Sheet Arrangements
As
of September 30, 2014, there were no off balance sheet arrangements.
Item
3. Quantitative and Qualitative Disclosures About Market Risk
A
smaller reporting company is not required to provide the information required by this Item.
Item
4. Controls and Procedures
Disclosure
Controls and Procedures
We
conducted an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness
of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended, or the Exchange Act, as of September 30, 2014, to ensure that information required to be disclosed
by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the
time periods specified in the Securities Exchange Commission’s rules and forms, including to ensure that information required
to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to our management,
including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to
allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer and Chief Financial
Officer have concluded that as of September 30, 2014, our disclosure controls and procedures were not effective at the reasonable
assurance level due to the material weaknesses identified and described below.
Our
principal executive officers do not expect that our disclosure controls or internal controls will prevent all error and all fraud.
Although our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives and
our principal executive officers have determined that our disclosure controls and procedures are effective at doing so, a control
system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of
the system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company
have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented if there exists in an individual
a desire to do so. There can be no assurance that any design will succeed in achieving its stated goals under all potential future
conditions.
Remediation
Plan to Address the Material Weaknesses in Internal Control over Financial Reporting
A
material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there
is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or
detected on a timely basis. Management identified the following three material weaknesses that have caused management to conclude
that, as of September 30, 2014, our disclosure controls and procedures, and our internal control over financial reporting, were
not effective at the reasonable assurance level:
| • | We
do not have written documentation of our internal control policies and procedures. Written
documentation of key internal controls over financial reporting is a requirement of Section
404 of the Sarbanes-Oxley Act as of the period ending September 30, 2014. Management
evaluated the impact of our failure to have written documentation of our internal controls
and procedures on our assessment of our disclosure controls and procedures and has concluded
that the control deficiency that resulted represented a material weakness. |
| • | We
do not have sufficient segregation of duties within accounting functions, which is a
basic internal control. Due to our size and nature, segregation of all conflicting duties
may not always be possible and may not be economically feasible. However, to the extent
possible, the initiation of transactions, the custody of assets and the recording of
transactions should be performed by separate individuals. Management evaluated the impact
of our failure to have segregation of duties on our assessment of our disclosure controls
and procedures and has concluded that the control deficiency that resulted represented
a material weakness. |
| • | Effective
controls over the control environment were not maintained. Specifically, a formally adopted
written code of business conduct and ethics that governs our employees, officers, and
directors was not in place. Additionally, management has not developed and effectively
communicated to employees its accounting policies and procedures. This has resulted in
inconsistent practices. Further, our Board of Directors does not currently have any independent
members and no director qualifies as an audit committee financial expert as defined in
Item 407(d)(5)(ii) of Regulation S-K. Since these entity level programs have a pervasive
effect across the organization, management has determined that these circumstances constitute
a material weakness. |
To
address these material weaknesses, management performed additional analyses and other procedures to ensure that the financial
statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows
for the periods presented. Accordingly, we believe that the financial statements included in this report fairly present, in all
material respects, our financial condition, results of operations and cash flows for the periods presented.
To
remediate the material weakness in our documentation, evaluation and testing of internal controls we plan to engage a third-party
firm to assist us in remedying this material weakness once resources become available.
We
intend to remedy our material weakness with regard to insufficient segregation of duties by hiring additional employees in order
to segregate duties in a manner that establishes effective internal controls once resources become available.
Changes
in Internal Control over Financial Reporting
No
change in our system of internal control over financial reporting occurred during the period covered by this report, the period
ended September 30, 2014, that has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
PART
II – OTHER INFORMATION
Item
1. Legal Proceedings
We
are not a party to any pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers,
directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse
to us.
Item
1A:Risk Factors
A
smaller reporting company is not required to provide the information required by this Item.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item
3. Defaults upon Senior Securities
None
Item
4. Mine Safety Disclosures
N/A
Item
5. Other Information
None
Item
6. Exhibits
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
| |
|
| |
Cannabis-Rx,
Inc.
|
| Date: |
November
13, 2014
|
| By: |
/s/ Llorn
Kylo |
| |
Llorn Kylo |
| Title: |
President, Chief Executive Officer, and
Director |
CERTIFICATIONS
I, Llorn Kylo, certify that;
| 1. |
|
I have reviewed this quarterly report on Form 10-Q for the quarter ended September 30, 2014 of Cannabis-RX Inc. (the “registrant”); |
| 2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. |
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. |
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. |
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. |
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. |
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. |
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. |
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. |
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. |
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: November 13, 2014
/s/ Llorn Kylo
By: Llorn Kylo
Title: Chief Executive Officer
CERTIFICATIONS
I, Munjit Johal, certify that;
| 1. |
|
I have reviewed this quarterly report on Form 10-Q for the quarter ended September 30, 2014 of Cannabis-RX Inc. (the “registrant”); |
| 2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. |
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. |
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. |
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. |
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. |
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. |
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. |
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. |
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. |
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: November 13, 2014
/s/ Munjit Johal
By: Munjit Johal
Title: Chief Financial Officer
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
AND
CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF
2002
In connection with the quarterly
Report of Cannabis-RX Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2014 filed with
the Securities and Exchange Commission (the “Report”), I, Llorn Kylo, Chief Executive Officer of the Company, adn
I, Munjit Johal, Cheif Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
| 1. | The Report fully complies with the requirements of Section 13(a)
of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material
respects, the consolidated financial condition of the Company as of the dates presented and the consolidated result of operations
of the Company for the periods presented. |
| By: |
/s/ Llorn Kylo |
| Name: |
Llorn Kylo |
| Title: |
Principal Executive Officer and Director |
| Date: |
November 13, 2014 |
| By: |
/s/ Munjit Johal |
| Name: |
Munjit Johal |
| Title: |
Principal Financial Officer |
| Date: |
November 13, 2014 |
This certification has been furnished solely pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
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