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EX-31.1 - EX31_1 - Praetorian Property, Inc.ex31_1.htm

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 June 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).  [  ] Yes [X] 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 August 8, 2014

 

 

  

TABLE OF CONTENTS
    Page

 

PART I – FINANCIAL INFORMATION

 

Item 1: Financial Statements  3
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations  4
Item 3: Quantitative and Qualitative Disclosures About Market Risk  6
Item 4: Controls and Procedures  6

 

PART II – OTHER INFORMATION

 

Item 1: Legal Proceedings  7
Item 1A: Risk Factors  7
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds  7
Item 3: Defaults Upon Senior Securities  7
Item 4: Mine Safety Disclosures  7
Item 5: Other Information  7
Item 6: Exhibits  7

  

2

 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

 

Our consolidated financial statements included in this Form 10-Q are as follows:

 

F-1 Consolidated Balance Sheets as of June 30, 2014 and December 31, 2013 (unaudited);
F-2 Consolidated Statements of Operations for the three and six months ended June 30, 2014 and 2013 (unaudited);
F-3 Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013 (unaudited); and
F-4 Notes to Consolidated Financial Statements.

 

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 June 30, 2014 are not necessarily indicative of the results that can be expected for the full year.

 

3

 

CANNABIS-RX INC.

(FORMERLY LONGVIEW REAL ESTATE, INC.)

CONSOLIDATED BALANCE SHEETS

(unaudited)

 

  June 30,  December 31,
   2014  2013
ASSETS          
Current Assets          
  Cash  $121,893   $2,186,879 
  Due from Berkshire Homes, Inc.   87,849    87,849 
  Real estate inventory   16,023,557    5,800,091 
Total Current Assets   16,233,299    8,074,819 
TOTAL ASSETS  $16,233,299   $8,074,819 
LIABILITIES AND STOCKHOLDERS' DEFICIT          
Current Liabilities          
  Accounts payable to related parties  $11,981   $10,420 
  Accounts payable and accrued expenses   35,869    35,868 
  Accrued interest   460,910    88,472 
  Promissory notes   8,200,000    4,200,000 
Total Current Liabilities   8,708,760    4,334,760 
Long term promissory notes   8,050,000    4,050,000 
Total Liabilities   16,758,760    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 June 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  June 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   (586,261)   (368,741)
Total Stockholders' Deficit   (525,461)   (309,941)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT   16,233,299    8,074,819 

 

The accompanying notes are an integral part of these unaudited financial statements.

 

F-1

 


CANNABIS-RX, INC.

(FORMERLY LONGVIEW REAL ESTATE, INC.)

CONSOLIDATED STATEMENTS OF OPERATIONS

 (unaudited)

 

  Three months ended
June 30, 2014
  Three months ended
June 30, 2013
  Six months ended
June 30, 2014
  Six months ended
June 30, 2013
REVENUES  $2,776,131   $—     $3,629,631   $—   
COST OF SALES   2,573,782    —      3,336,115    —   
GROSS PROFIT   202,349    —      293,516    —   
EXPENSES                    
Consulting fees   —      —      11,500    12,080 
General and administrative   107,741    2,513    117,601    11,967 
Professional fees   18,555    5,200    26,849    27,510 
Management fees and expenses   35,776    7,000    54,526    28,000 
TOTAL EXPENSES   162,072    14,713    210,476    79,557 
INCOME (LOSS) FROM OPERATIONS   40,277    (14,713)   83,040    (79,557)
OTHER INCOME (EXPENSE)                    
   Interest expense   (213,479)   (6,750)   (372,438)   (10,424)
   Gain on settlement of loan receivable   71,878    —      71,878    —   

TOTAL OTHER INCOME ( EXPENSE)

   (141,601)   (6,750)   (300,560)   (10,424)
NET LOSS  $(101,324)  $(21,463)  $(217,520)  $(89,891)
NET 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    185,186,813    138,444,444    186,088,398 

 

The accompanying notes are an integral part of these unaudited financial statements.

  

F-2

 

 CANNABIS-RX, INC.

(FORMERLY LONGVIEW REAL ESTATE, INC.)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

  Six months ended
June 30, 2014
  Six months ended
June 30, 2013
CASH FLOWS FROM OPERATING ACTIVITIES          
Net loss  $(217,520)  $(89,981)
   Adjustments to reconcile net loss to net cash used in operating activities          
Gain on loan receivable   (71,878)     
  Changes in assets and liabilities          
Prepaid expenses      (2,500)
Inventory   (10,223,466)   —   
Accounts payable - related party   1,561    (30,422)
Accounts payable and accrued expenses   372,439    (9,716)
Net cash used in operating activities   (10,138,864)   (132,619)
CASH FLOWS FROM INVESTING ACTIVITIES          
Loan receivable    (183,443)     
Proceeds from loan receivable settlement   255,321      
Net cash used in investing activities   71,878    —   
CASH FLOWS FROM FINANCING ACTIVITIES          
    Proceeds from sale of stock   2,000    —   
    Proceeds from promissory notes   8,000,000    150,000 
Net cash provided by financing activities   8,002,000    150,000 
NET CHANGE IN CASH   (2,064,986)   17,381 
CASH - BEGINNING OF PERIOD   2,186,879    2,685 
CASH - END OF PERIOD  $121,893   $20,066 
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.

 

F-3


 

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 $586,261 as of June 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 $10,223,466 for real estate properties purchased for resale, net of property dispositions in the period.

 

F-4

  

NOTE 6 - 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 June 30, 2014.

 

Total interest expense recorded on the notes for the quarter was $213,479 and $ 372,438 for the three months and six months ended June 30, 2014.

  

NOTE 7 - 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 June 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 8 - RELATED PARTY TRANSACTIONS

 

During the period, the Company incurred management fees of $54,526 to directors and officers of the Company. As of June 30, 2014, the Company had a balance of $11,981 owed to a director and officer for management fees and expenses paid on behalf of the Company.

 

During 2013, the Company advanced $87,849 to Berkshire Homes, Inc., a public company with a common director and management. As of June 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 9 - SUBSEQUENT EVENTS

 

In accordance with ASC 855-10, the Company has analyzed its operations subsequent to June 30, 2014 to the date these financial statements were issued, and has determined that it does not have any material subsequent events to disclose. 

 

F-5

 

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 have accumulated an inventory of real property assets but has not generated revenues from our business operations. Our original business plan was to develop an “L-3” stretching apparatus to be used by gym enthusiasts for their exercise activities.

 

On July 3, 2013, we changed our name to Longview Real Estate, Inc. in connection with the pursuit of a new business plan. We are now 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.

 

On January 30, 2014, we changed our name to Cannabis-Rx, Inc. Accordingly, in additional to acquiring and selling/leasing real estate assets, we have decided to expand our business and cater 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.

 

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. The extent of our pursuit into this new line of business is still under consideration, and we are considering services including regulatory compliance and license application. We believe there is a significant amount of business in this space and we have changed our name to better reflect our business direction.

 

We have raised $16,000,000 through the sale of unsecured promissory notes and we recently signed a secured drawdown agreement providing us access to an additional $14,000,000. We intend to deploy these 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 51 properties for a total cost of $16,285,190. 22 of the 51 properties have been sold or are under contract for sale; 9 of the 51 properties have been rehabilitated and are listed for sale; the remaining 19 properties are in the process of rehabilitation. We have 1 remaining property that is held for investment purposes and is currently being rented out. Currently we now own three classes of real estate: single family, multi-family and commercial, all of which are located in Florida, Illinois, California, Washington and Colorado. 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. 

 

Results of Operations for the three months ended June 30, 2014 and 2013

 

Revenues

 

We generated sales of $2,776,131 and $3,629,631 the three and six months ended June 30, 2014, respectively. We achieved a gross profit of $202,349 and $293,516 for the three and six months ended June 30, 2014, respectively. We expect our revenues to climb in the second half of 2014 as we dispose of the properties that we have previously acquired.

 

Operating Expenses

 

Operating expenses increased to $162,072 for the three months ended June 30, 2014 from $14,713 for the three months ended June 30, 2013. Our operating expenses for the three months ended June 30, 2014 consisted of management fees and expenses of $35,776, professional fees of $18,555 and general and administrative expenses of $107,741. In comparison, our operating expenses for the three months ended June 30, 2013 consisted of professional fees in the amount of $5,200, management fees and expenses of $7,000, and general and administrative expenses of $2,513.

 

Operating expenses increased to $210,476 for the six months ended June 30, 2014 from $79,557 for the six months ended June 30, 2013. Our operating expenses for the six months ended June 30, 2014 consisted of management fees and expenses of $54,526, consulting fees of $11,500, professional fees of $26,849 and general and administrative expenses of $117,601. In comparison, our operating expenses for the six months ended June 30, 2013 consisted of professional fees in the amount of $27,510, management fees and expenses of $28,000, consulting fees of $12,080, and general and administrative expenses of $11,967.

 

We anticipate our operating expenses will increase as we undertake our plan of operations. The increase will be attributable to administrative and operating costs associated with our new cannabis 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.

 

4

 

Other Expenses

 

Interest expenses increased to $213,479 and $372,438 for the three and six months ended June 30, 2014, respectively, from $6,750 and $10,424 for the three and six months ended June 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 three months ended June 30, 2014. We do not expect to realize any additional other income for the foreseeable future.

 

Net Loss

 

We incurred a net loss of $101,324 for the three months ended June 30, 2014, compared to a net loss of $21,463 for the three months ended June 30, 2013. We incurred a net loss of $217,520 for the six months ended June 30, 2014, compared to a net loss of $89,891 for the six months ended June 30, 2013.

 

Liquidity and Capital Resources

 

As of June 30, 2014, we had total current assets of $16,233,299, consisting of cash of $121,893, a receivable from Berkshire Homes, Inc. of $87,849 and our real property inventory of $16,023,557. We had current liabilities of $8,708,760 as of June 30, 2014. Accordingly, we had working capital of $7,524,539 as of June 30, 2014.

 

Operating activities used $10,138,864 in cash for the six months ended June 30, 2014, as compared with $132,619 used for the six months ended June 30, 2013. Our negative operating cash flow for June 30, 2014 was mainly a result of the increase in our real property inventory along with our net loss for the period.

 

Investing activities provided $71,878 for the month ended June 30, 2014, compared with $0 for the six months ended June 30, 2013. This was attributable to a loan receivable and settlement.

 

Financing activities for the six months ended June 30, 2014 generated $8,002,000 in cash, as compared with cash flows provided by financing activities of $150,000 for the six months ended June 30, 2013. Our positive cash flow from financing activities for the six months ended June 30, 2014 was 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 recently signed a secured drawdown agreement providing us access to an additional $14,000,000. We intend to deploy these 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 $586,261 as of June 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 June 30, 2014, there were no off balance sheet arrangements.

 

5

 

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 June 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 June 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 June 30, 2014, our disclosure controls and procedures, and our internal control over financial reporting, were not effective at the reasonable assurance level:

 

1.     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 June 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.

 

2.     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.

 

3.     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 June 30, 2014, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

6

 

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

 

Exhibit Number

Description of Exhibit 

31.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 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
101** The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 formatted in Extensible Business Reporting Language (XBRL).

 

**Provided herewith

 

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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:

August 14, 2014

 

By: /s/ Llorn Kylo
  Llorn Kylo
Title: President, Chief Executive Officer, and Director

 

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