CNBX Pharmaceuticals Inc. - Quarter Report: 2019 February (Form 10-Q)

Table of Contents

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 February 28, 2019

OR

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: 000-52403

___________________________________________________

CANNABICS PHARMACEUTICALS INC.

(Exact name of registrant as specified in its charter)

___________________________________________________

(877) 424-2429

 (Registrant’s telephone number, including area code)

_____________________________________________________

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 every Interactive Data File required to be submitted 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 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, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company," and “emerging growth company” in Rule 12b-2 of the Exchange Act:

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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

As of April 12, 2019, the registrant had 134,458,775 shares of its Common Stock, $0.0001 par value, outstanding.

When used in this quarterly report, the terms “Cannabics,” “the Company,” “we,” “our,” and “us” refer to Cannabics Pharmaceuticals Inc. and its wholly-owned subsidiary, G.R.I.N Ultra Ltd.

CANNABICS PHARMACEUTICALS INC.

FORM 10-Q

FEBRUARY 28, 2019

INDEX

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain information set forth in this Quarterly Report on Form 10-Q, including in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere herein may address or relate to future events and expectations and as such constitutes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Statements which are not historical reflect our current expectations and projections about our future results, performance, liquidity, financial condition, prospects and opportunities and are based upon information currently available to us and our management and their interpretation of what is believed to be significant factors affecting our business, including many assumptions regarding future events. Such forward-looking statements include statements regarding, among other things:

Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “should,” “would,” “could,” “scheduled,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “seek,” or “project” or the negative of these words or other variations on these words or comparable terminology. Actual results, performance, liquidity, financial condition and results of operations, prospects and opportunities could differ materially and perhaps substantially from those expressed in, or implied by, these forward-looking statements as a result of various risks, uncertainties and other factors. These statements may be found under the section of our Annual Report on Form 10-K for the year ended August 31, 2018 (filed on November 29, 2018) entitled “Risk Factors” as well as in our other public filings.

In light of these risks and uncertainties, and especially given the start-up nature of our business, there can be no assurance that the forward-looking statements contained herein will in fact occur. Readers should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

CANNABICS PHARMACEUTICALS INC.

Consolidated Balance Sheets

See accompanying notes to consolidated financial statements.

CANNABICS PHARMACEUTICALS INC.

Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

See accompanying notes to consolidated financial statements.

CANNABICS PHARMACEUTICALS INC.

Consolidated Statements of Cash Flows

(Unaudited)

See accompanying notes to consolidated financial statements.

CANNABICS PHARMACEUTICALS INC.

Notes to Consolidated Financial Statements

(Unaudited)

Note 1–Nature of Business, Presentation and Going Concern

Organization

Cannabics Pharmaceuticals Inc. (the “Company”), was incorporated in the State of Nevada, on September 15, 2004, under the name of Thrust Energy Corp. On May 21, 2014, the Company changed its name, via merger in the state of Nevada, to Cannabics Pharmaceuticals Inc., at which time its course of business became pharmaceutical development.

On July 31, 2014, the Company filed its exclusive patent application with the U.S. Patent & Trademark Office (“USPTO”), which covers the proprietary technology developed by its team of experts in the field of cannabinoid long-acting lipid based formulations. This patent is the basis for the Company’s “CANNABICS SR” technology, which consists of the intellectual property (“IP”) for standardized and long-acting medical cannabis capsules, designed for patients suffering from diverse indications. Simultaneously the patent was filed with the Patent Cooperation Treaty (“PCT”) division of the Israeli Patent Office (ILPO) in order to provide international IP protection.

On August 25, 2014, the Company organized G.R.I.N. Ultra Ltd. (“GRIN”), an Israeli corporation, as a wholly-owned subsidiary. GRIN provides research and development activities in Israel.

On February 24, 2016, the Company filed a new patent application for the Company’s slow release (“SR”) medical capsules with the USPTO.

On March 22, 2016, the Company announced the start of a regulated clinical study for cancer patients in Israel under the auspices of the Rambam Medical Center and the Israeli Ministry of Health. This clinical study involves patients with advanced cancer and cancer anorexia cachexia syndrome (CACS), and the endpoints examined are weight gain appetite, quality of life and a marker for anti-cancer activity. Quality of life in patients with CACS is directly related to loss of appetite and weight loss. This study examines the influence of the Company’s SR Capsules on both of these common effects of cancer and cancer treatment. Secondary outcome measures are improvement in appetite, reduction in TNF-alpha level, safety assessment for early psychiatric side-effects, quality of life and evaluation of muscle strength. While this study is taking place in Israel, it is fully registered with the U.S. National Institute of Health under "Cannabics Capsules as Treatment to Improve Cancer Related CACS in Advanced Cancer Patients," Identifier NCT02359123.

On June 6, 2016, the Company filed a PCT application with the USPTO entitled a "System and Method for High Throughput Screening of Cancer Cells." The Company has developed a proprietary, High Throughput Screening (“HTS”) system which is designed to generate mega-data of specific cannabinoids and cannabinoid formulations with antitumor properties. In this proprietary process, biopsies and live cancer cells lines are treated, in vitro, with innumerous combinations of cannabinoids and the resulting antitumor effects are screened, categorized and actually visually displayed.

On December 1, 2016, the Company announced the results from its cancer HTS system research, which indicate that specific ratios of cannabinoids led to apoptosis in MDA-MB-231 breast cancer cell viability.

On January 3, 2017, the Company announced the development of its 5mg tetrahydrocannabinol (“THC”) capsule intended for naïve patients who have not tried cannabis in the past. The Company’s 5mg THC capsule is currently being evaluated by the Company in its clinical study of palliative treatment, which is conducted by the Oncology Department at the Rambam Medical Center in northern Israel and under strict regulations of the Israeli Ministry of Health, by whom the Company has been licensed since 2014.

On June 30, 2017, the Company announced positive results from its necrosis screening of Circulating Tumor Cells (“CTC”) from colon, breast, and prostate cancer patients treated with specific cannabinoids, adding to its data base of personalized anti-tumor treatment.

On July 12, 2017, the Company announced its formal execution of a Testing & Diagnostics Services Agreement with SIMFO GmbH, a renown German research laboratory, which is collaborative in nature. Pursuant to the agreement, the Company is the exclusive global provider of SIMFO’s CTC diagnostics to cancer patients treated with natural cannabinoids. SIMFO GmbH will obtain the CTC count as well as drug sensitivity tests from treated patients according to the specific cannabinoids which the Company shall request.

On July 24, 2017, the Company announced its establishment of a genetics laboratory to develop diagnostic tools based on human genome, tumor genetics and specific cannabinoids. The Company enlisted Dr. Moran Grinberg as its Vice President of R&D to lead the genetic research. Dr. Grinberg has a Ph.D. in Virology & M.Sc. in clinical pharmacology with managerial experience in executing pharmacological research.

On August 28, 2017, the Company announced it received a positive preliminary international patentability report from the PCT division of the ILPO regarding its patent application relating to personalized screening of necrotic cancer cells through an HTS, finding all claims “innovative and inventive.”

Basis of Presentation

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial statement presentation and in accordance with Form 10-Q. Accordingly, they do not include all of the information and footnotes required in annual financial statements. In the opinion of management, the unaudited financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position and results of operations and cash flows. The results of operations presented are not necessarily indicative of the results to be expected for any other interim period or for the entire year.

These unaudited financial statements should be read in conjunction with our August 31, 2018 annual financial statements included in our Form 10-K, filed with the U.S. Securities and Exchange Commission (“SEC”) on November 29, 2018.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and GRIN. All significant inter-company balances and transactions have been eliminated in consolidation.

Going Concern

The accompanying unaudited financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. While the Company has incurred a net profit of $3,073,691 for the six months ended February 28, 2019, it has incurred cumulative losses since inception of $4,223,086. These conditions raise substantial doubt about the ability of the Company to continue as a going concern.

The ability of the Company to continue as a going concern is dependent upon its abilities to generate revenues, to continue to raise investment capital, and develop and implement its business plan. No assurance can be given that the Company will be successful in these efforts.

Research and Development Costs

The Company accounts for research and development costs in accordance with Accounting Standards Codification 730 “Research and Development” (“ASC 730”). ASC 730 requires that research and development costs be charged to expense when incurred. Research and development costs charged to expense were $732,227 and $317,551 for the six months ended February 28, 2019 and 2018, respectively.

Reclassifications

Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported losses, total assets, or stockholders’ equity as previously reported.

Note 2 – Related Party Transactions

During the six months ending February 28, 2019, the Company paid $258,800 in salaries, including socials benefits, to two directors, compared to $236,560 for the six months ending February 28, 2018.

The Company had a balance outstanding at February 28, 2019 and at February 28, 2018 of $223,645, payable to Cannabics, Inc. The advance is due on demand and bears no interest.  

Note 3 – Stockholders’ Equity (Deficit)

Authorized Shares

The Company is authorized to issue up to 900,000,000 shares of common stock, par value $0.0001 per share. Each outstanding share of common stock entitles the holder to one vote per share on all matters submitted to a stockholder vote. All shares of common stock are non-assessable and non-cumulative, with no pre-emptive rights.

Note 4 – Commitments and Contingencies

Effective January 4, 2017, the Company entered into a six-month operating lease for its research and development activities in Tel Aviv, Israel, with a six months extension option. On May 22, 2017, the Company exercised the lease option for an additional six months. In November 2017 and May 2018, respectively, the Company extended the lease agreement for additional six month periods. In November 2018, the Company extended the lease agreement for an additional twelve month period.

Effective February 1, 2018, the Company entered into a 24-month operating lease for its lab activities in Rehovot, Israel, with a 24 months extension option.

Effective June 1, 2018, the Company entered into a 36-month car lease for one of its executive officers.

As security for its obligation under a property lease agreement, car lease and credit cards, the Company’s subsidiary provided a bank guarantee in the amount of $58,000.

Note 5 – Subsequent Events

On February 7, 2019, the Company executed a Joint Venture Agreement with Wize Pharma, Inc. (“Wize Pharma”), pursuant to which the parties agreed to form a joint venture entity in Israel to jointly research, develop and administer cannabinoid formulations to treat ophthalmic conditions. In connection with the Joint Venture Agreement, Wize Pharma issued the Company 900,000 shares of common stock of Wize Pharma and the Company issued Wize Pharma 2,263,944 shares of its common stock to Wize Pharma Inc.

The Company has evaluated subsequent events through the date the financial statements were issued and filed with the SEC and has determined that there are no other such events that warrant disclosure or recognition in the financial statements.

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Company Overview

We are a pioneer in the constellation of cannabis cancer and diagnostics. Personalization of cannabinoid-based treatments is our main scope, addressing the rapidly growing yet unmet need of cancer patients who are prescribed with cannabis. The multifactorial benefits of cannabis create an arising need that may unravel a new attitude to cancer treatment and prevention. The palliative aspects of cannabis such as reducing pain and nausea, propel the market to create over-the-counter and pharmaceutical grade cannabis products to cancer patients. With minor side effects and no toxicity, the only barrier to millions of cancer patients is worldwide regulation. The legalization of cannabis worldwide is being generated both by medical and financial processes exposing and legitimizing cannabis consumption as a medical treatment. The number of cancer patients, caregivers and doctors that are exposed to cannabis is growing rapidly as new countries i.e. Germany, Canada, Australia and others adopt new regulations and introduce natural cannabis products to the health system. Since the palliative properties of cannabis as pain and nausea reduction are widely accepted by physicians, along with a growing body of clinical proof, and patient advocating these benefits; we believe that in next decade a large percentage of cancer patients worldwide will be treated with cannabis in varied medications both pharmaceutical and as a nutraceutical. It is already scientifically proven that cannabinoids impact cell cycle though partially known biological mechanisms and impact many aspects of human biology and health. This unique situation in which a highly active compound (i.e. THC, CBD) consumed by large portions of the population creates an unmet need to decipher the biological and clinical prospects of these compounds. Cannabics’ vision is to build a platform of data from which medications can be formulated, patients diagnosed and treated in a personalized manner. Our goal is to seek novel technologies in cancer medicine and assimilate them into cannabinoid medicine. The results we have gained in performing invitro studies and clinical studies are part of a growing holistic prospect of the treatment of cancer and other indications with cannabis. We have recently finished our first clinical study and leveraged our R&D lab to perform in vitro tests and develop new formulations. As pioneers in this mission, we hope and believe that the database we create and the knowledge we gain will serve any cancer patient who is administered cannabis and will lead to better and more predictable outcomes. The still confining U.S. regulation creates an advantage for Cannabics which is specifically licensed to conduct such research and clinical studies by the Israeli Ministry of Health.

Cancer and Cannabinoids

Natural products have served as vital resources for cancer therapy (e.g.,Vinca alkaloids, paclitaxel, etc., which are used as conventional chemotherapeutic agents) and are also sources for novel drugs. Natural products from plants therefore represent an excellent resource for targeted therapies, as phytochemicals and herbal mixtures act multi-specifically, i.e. they attack multiple targets at the same time. Furthermore, the problem of drug resistance may be approached by integrating phytochemicals and phyto-therapy into academic western medicine through derivation and integration of data and as adjunct to conventional treatments. The integration of phytochemicals and phyto-therapy into cancer medicine represents a valuable asset to chemically synthesized chemicals and therapeutic antibodies. Cannabinoids are excellent candidates for this approach. Cannabinoids are a class of over 60 compounds derived from the plant cannabis sativa, as well as the synthetic or endogenous versions of these compounds. Cannabinoids show specific cytotoxicity against tumor cells, while protecting healthy tissue from apoptosis. These effects are exerted through cannabinoid receptors CB1 and CB2 in mammals and through non-receptor signaling pathways. Recent studies suggest that cannabinoids contribute to maintaining balance in cell proliferation and that targeting the endo-cannabinoid system can affect growth of several different types of cancer, including gliomas, breast, colon, prostate, and hepatocellular carcinoma.

Personalized Medicine

Despite significant progress in cancer diagnostics and development of novel therapeutic regimens, successful treatment of advanced forms of cancer is still a challenge and may require personalized therapeutic approaches. Our licensed Israeli facility operates a unique research and development laboratory which combines high throughput screening (“HTS”) capabilities with the most advanced data tools. The HTS platform allows us to test many compounds on cancerous cell lines and tissues and measure the therapeutics effects of these compounds. Our advantage is in the specialized library which is composed of a collection of cannabis extracts and pure natural and synthetic cannabinoids. The library will also include a costumed cannabinoid matrix, to assess the possible interaction of combination therapy.

Our lab is equipped with a collection of state of the art instruments to enable miniaturization and automation of a variety of biological assays. The automated system is comprised of:

The integration of these instruments is enabled via a robotic arm, which allows a continuous process which utilizes all instruments.

Readouts generated from these instruments provide us with insights to the effect of our cannabinoid library on parameters such as, proliferation inhibition, apoptosis induction, angiogenesis prevention and toxicity on cancerous cells.

These experiments will produce multiplexed data composed of images of cells, cell specific markers and the extent/signal of the biological response. The biological response will be measured using different concentration of cannabinoids and their combinations, thus determining the most effective cannabinoid treatment for a specific cancer type.

Personalized medicine refers to customization of treatment on the individual patient level, while precision medicine is a contemporary term that describes the utilization of molecular diagnostics to classify disease, and where possible, delivery of select treatment based on causal genetic variants. Current day molecular characterization of disease using next generation sequencing enables a sensitive and specific diagnosis established by genotype. Correlating essential genotype with disease-modifying genes, environmental influences, and individual polymorphisms may help explain variations in phenotype.

Precision cancer medicine relies on the possibility to match, in daily medical practice, detailed genomic profiles of a patient's disease with a portfolio of drugs targeted against tumor-specific alterations. Clinical blockade of oncogenes is effective but only transiently; an approach to monitor clonal evolution in patients and develop therapies that also evolve over time may result in improved therapeutic control and survival outcomes.

We are currently in a process of commercializing a diagnostic test which is based on liquid biopsies of patients suffering from epithelial cancers.

Our proprietary test fuses two separate aspects which in fact complement each other:

1. Cell Count - The test uses Circulating Tumor Cells (“CTC”) technology that marks and counts cancer cells from the blood sample. This test is a marker for cancer progression and treatment efficacy. It could be implemented as a follow up of disease progression while the patient is treated with cannabis. We hypothesize that the accumulated data will eventually be a predictor for actual treatment outcome.

2. Cannabinoid Sensitivity Test. – This test counts number of live and dead cancer cells after been exposed to cannabinoid compounds such as THC or CBD and their combinations. As in the CTC count, after gaining multiple data sets and merging them with the expanding database; the test could better predict treatment outcome.

By providing personalized patient data, doctors will make better informed decisions about the cannabinoid treatment encompassing prioritized active compounds, dosages, treatment regime and follow up. These tests could be taken on a weekly/monthly basis, thus enabling treatment alteration due to cancer progression and biology. We have designed our own proprietary “big data” system specifically tailored for this, and these results will be submitted through a patient oriented, highly secure system.

We have developed a proprietary capsule as a treatment to improve cancer related cachexia/anorexia syndrome (“CACS”) in advanced cancer patients. The main purpose in the treatment of patients with advanced cancer and CACS is to gain weight and improve quality of life (“QoL”). We believe that QoL in patients with CACS is inversely related to reduced appetite and weight-loss.

Our clinical study was led by Professor Gil Bar-Sela, the Deputy Director of the Division of Oncology at Rambam Health Care Campus, Head of the Palliative and Supportive Oncology Unit, and Head of the service for melanoma and sarcoma patients. The main endpoints of the treatment of patients with advanced cancer and CACS are weight gain and QoL. The study is fully registered with the US NIH under "Cannabics Capsules as Treatment to Improve Cancer Related CACS in Advanced Cancer Patients", Identifier NCT02359123, and may be found at https://clinicaltrials.gov/ct2/show/NCT02359123 .

Business Update

On February 4, 2019, the Company converted a portion of its outstanding convertible loan issued to Seedo Corp. pursuant to which the Company was issued an aggregate of 2,810,170 common shares of Seedo Corp.

On February 7, 2019, the Company executed a Joint Venture Agreement with Wize Pharma, pursuant to which the parties agreed to form a joint venture entity in Israel to jointly research, develop and administer cannabinoid formulations to treat ophthalmic conditions. In connection with the Joint Venture Agreement, Wize Pharma issued the Company 900,000 shares of common stock of Wize Pharma and the Company issued Wize Pharma 2,263,944 shares of its common stock to Wize Pharma Inc.

Results of Operations

For the Three Months Ended February 28, 2019 and 2018

Revenues

We received $2,320 from licensing agreements in the form of royalties during the three months ended February 28, 2019 compared to $1,931 for the three months ended February 28, 2018. The reason for the increase in revenues is due to an increase in capsule sales.

Operating Expenses

For the three months ended February 28, 2019 our total operating expenses were $898,366 compared to $1,703,377 for the three months ended February 28, 2018, resulting in an decrease of $805,010. The decrease is attributable to a total decrease of $1,127,811 in general administration, and sales and marketing expenses and partially offset by an increase of $322,801 in research and development expenses.

We realized financial income of $4,625,713 for the three months ended February 28, 2019, compared to incurring financial expense of $66,379 for the three months ended February 28, 2018. The decrease in financial expense was mainly attributable to a valuation of a financial asset, consisting of the Company’s shares held in Seedo, in the total amount of $4,582,000 and exchange differences in total of $36,562. As a result, the net profit was $3,729,666 for the three months ended February 28, 2019, compared to a net loss of $1,635,068 for the three months ended February 28, 2018.

Net profit

Net profit was $3,729,666 compared to net loss $1,635,068 for the three months ended February 28, 2019, for the reasons explained above.

Other comprehensive profit

We realized other comprehensive income of $4,884,357 for the three months ended February 28, 2019. The income was mainly attributable to a valuation of a financial asset, consisting of the Company’s shares held in Seedo, in the total amount of $4,884,357 As a result, the total comprehensive profit was $8,614,023 for the three months ended February 28, 2019.

For the Six Months Ended February 28, 2019 and 2018

Revenues

We received $5,625 from licensing agreements in the form of royalties during the six months ended February 28, 2019 compared to $3,689 the six months ended February 28, 2018. The reason for the increase in revenues is due to an increase in capsule sales.

Operating Expenses

For the six months ended February 28, 2019 our total operating expenses were $1,549,961 compared to $2,242,086 for the six months ended February 28, 2018, resulting in a decrease of $692,125. The decrease is attributable to an a total decrease of $1,106,800 in general administration, and sales and marketing expenses and partially offset by an increase of $414,676 in research and development expenses.

We realized financial income of $4,618,028 for the six months ended February 28, 2019, compared to financial income of $65,826 for the six months ended February 28, 2018. The increase in financial income was mainly attributable to a valuation of a financial asset, consisting of the Company’s shares held in Seedo, in the total amount of $4,582,000 and exchange differences in total of $36,562. As a result, the net profit was $3,073,691 for the six months ended February 28, 2019, compared to a net loss of $2,172,572 for the three months ended February 28, 2018.

Net loss

Net profit was $3,073,691 compare to net loss $2,172,572 for the six months ended February 28, 2019, for the reasons explained above.

Other comprehensive profit

We incurred an other comprehensive income of $4,884,357 for the six months ended February 28, 2019. The income was mainly attributable to a valuation of a financial asset, consisting of the Company’s shares held in Seedo, in the total amount of $4,884,357 As a result; the total comprehensive profit was $7,598,048 for the six months ended February 28, 2019.

Liquidity and Capital Resources

Overview

As of February 28, 2019, we had $5,167,840 in cash compared to $1,393,608 on August 31, 2018. We expect to incur a minimum of $1,000,000 in expenses during the next twelve months of operations. We estimate that these expenses will be comprised primarily of general expenses including overhead, legal and accounting fees, research and development expenses, and fees payable to outside medical centers for clinical studies.

Liquidity and Capital Resources during the Six Months Ended February 28, 2019 compared to the Six Months Ended February 28, 2018

We used cash in operations of $1,406,474 for the six months ended February 28, 2019 compared to cash used in operations of $887,571 for the six months ended February 28, 2018. The negative cash flow from operating activities for the six months ended February 28, 2019 is primarily attributable to the Company's net profit from operations of $3,073,691, offset by depreciation of $96,430, a decrease in accounts payables and accrued liabilities of $163,202, an increase of $47,269 in account receivables and prepaid expenses and an increase in changes in fair value of a financial asset, consisting of the Company’s shares held in Seedo, of $4,582,000 and stock issued for services in a total of $215,875.

We had cash flow used in investing activities of $2,036,571 during the six months ended February 28, 2019, compared to $643,872 cash flow from investing activities for the six months ended February 28, 2018. The reason for the increase in cash flow from investing activities is due to the Company’s investment in Seedo in total of $1,920,000 and its purchase of fixed assets in the aggregate amount of $116,571.

We will have to raise funds to pay for our expenses. We may have to borrow money from shareholders, issue equity or enter into a strategic arrangement with a third party. There can be no assurance that additional capital will be available to us. We currently have no arrangements or understandings with any person to obtain funds through bank loans, lines of credit or any other sources. Since we have no such arrangements or plans currently in effect, our inability to raise funds for our operations will have a severe negative impact on our ability to remain a viable company.

Going Concern

Due to the uncertainty of our ability to meet our current operating and capital expenses, our independent auditors included an explanatory paragraph in their report on the audited financial statements for the year ended August 31, 2018 regarding concerns about our ability to continue as a going concern. Our financial statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.

Our unaudited financial statements have been prepared on a going concern basis, which assumes the realization of assets and settlement of liabilities in the normal course of business. Our ability to continue as a going concern is dependent upon our ability to generate profitable operations in the future and/or to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they become due. The outcome of these matters cannot be predicted with any certainty at this time and raise substantial doubt that we will be able to continue as a going concern. Our unaudited financial statements do not include any adjustments to the amount and classification of assets and liabilities that may be necessary should we be unable to continue as a going concern.

There is no assurance that our operations will be profitable. Our continued existence and plans for future growth depend on our ability to obtain the additional capital necessary to operate either through the generation of revenue or the issuance of additional debt or equity.

Off-Balance Sheet Arrangements

We currently have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Such estimates and assumptions affect the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experiences and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions and conditions. We continue to monitor significant estimates made during the preparation of our financial statements. On an ongoing basis, we evaluate estimates and assumptions based upon historical experience and various other factors and circumstances. We believe our estimates and assumptions are reasonable in the circumstances; however, actual results may differ from these estimates under different future conditions.

See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 2, “Summary of Significant Accounting Policies” in our audited consolidated financial statements for the year ended August 31, 2018, included in our Annual Report on Form 10-K as filed on November 29, 2018, for a discussion of our critical accounting policies and estimates.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The disclosure required under this item is not required to be reported by smaller reporting companies; as such term is defined by Item 503(e) of Regulation S-K.

Item 4. Controls and Procedures.

In connection with the preparation of this Quarterly Report on Form 10-Q, an evaluation was carried out by our management, with the participation of our principal executive officer and the principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”)) as of February 28, 2019. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to management, including the chief executive officer and the chief financial officer, to allow timely decisions regarding required disclosures.

Based on that evaluation, our management concluded, as of the end of the period covered by this report, that our disclosure controls and procedures were not effective in recording, processing, summarizing, and reporting information required to be disclosed, within the time periods specified in the SEC's rules and forms, and that such information was accumulated and communicated to management, including the principal executive officer and the principal financial officer, to allow timely decisions regarding required disclosures.

There were no other changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Readers are cautioned that our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. 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 our control have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any control design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

PART II - OTHER INFORMATION

Item 6. Exhibits

______________________________

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.