Item 1. Financial Statements
Our consolidated financial statements
included in this Form 10-Q are as follows:
|
F-1
|
Consolidated Balance Sheets as of March 31, 2014 and December 31, 2013 (unaudited);
|
|
F-2
|
Consolidated Statements of Operations for the three months ended March 31, 2014 and 2013, and period from July 5, 2011 (Inception) to March 31, 2014 (unaudited);
|
|
F-3
|
Consolidated Statements of Cash Flows for the three months ended March 31, 2014 and 2013, and period from July 5, 2011 (Inception) to March 31, 2014 (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 March 31, 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)
|
|
March 31, 2014
|
|
December 31, 2013
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash
|
$
|
3,519,599
|
|
|
$
|
2,186,879
|
|
|
Due from Berkshire Homes, Inc.
|
|
87,849
|
|
|
|
87,849
|
|
|
Real estate inventory
|
|
12,452,782
|
|
|
|
5,800,091
|
|
|
Total Current Assets
|
|
16,060,230
|
|
|
|
8,074,819
|
|
|
Loan receivable
|
|
183,443
|
|
|
|
—
|
|
|
TOTAL ASSETS
|
$
|
16,243,673
|
|
|
$
|
8,074,819
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable to related parties
|
$
|
10,420
|
|
|
$
|
10,420
|
|
|
Accounts payable and accrued expenses
|
|
407,390
|
|
|
|
124,340
|
|
|
Promissory notes
|
|
8,200,000
|
|
|
|
4,200,000
|
|
|
Total Current Liabilities
|
|
8,617,810
|
|
|
|
4,334,760
|
|
|
|
|
|
|
|
|
|
|
|
Long term promissory notes
|
|
8,050,000
|
|
|
|
4,050,000
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
16,667,810
|
|
|
|
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 March 31, 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 March 31, 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
|
|
(484,937
|
)
|
|
|
(368,741
|
)
|
|
Total Stockholders' Deficit
|
|
(424,137
|
)
|
|
|
(309,941
|
)
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
16,243,673
|
|
|
|
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
March 31, 2014
|
|
Three months ended
March 31, 2013
|
|
Sales
|
$
|
853,500
|
|
|
$
|
—
|
|
|
Cost of sales
|
|
762,333
|
|
|
|
—
|
|
|
Gross profit
|
|
91,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
General and administrative
|
|
9,860
|
|
|
|
4,263
|
|
|
Professional fees
|
|
8,294
|
|
|
|
22,310
|
|
|
Management fees
|
|
18,750
|
|
|
|
21,000
|
|
|
Consulting fees
|
|
11,500
|
|
|
|
12,080
|
|
|
Travel
|
|
—
|
|
|
|
5,191
|
|
|
Total operating expenses
|
|
48,404
|
|
|
|
64,844
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
42,763
|
|
|
|
(64,844
|
)
|
|
Interest expense
|
|
(158,959
|
)
|
|
|
(3,674
|
)
|
|
Net Loss
|
$
|
(116,196
|
)
|
|
$
|
(68,518
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and diluted
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares of common stock outstanding
|
|
155,644,444
|
|
|
|
187,000,000
|
|
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)
|
|
Three months ended
March 31, 2014
|
|
Three months ended
March 31, 2013
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
(116,196
|
)
|
|
$
|
(68,518
|
)
|
|
Adjustments to reconcile net loss to net cash
|
|
|
|
|
|
|
|
|
used in operating activities
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities
|
|
|
|
|
|
|
|
|
Inventory
|
|
(6,652,691
|
)
|
|
|
—
|
|
|
Accounts payable - related party
|
|
—
|
|
|
|
(18,231
|
)
|
|
Accounts payable and accrued expenses
|
|
283,050
|
|
|
|
738
|
|
|
Net cash used in operating activities
|
|
(6,485,837
|
)
|
|
|
(86,011
|
)
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Loan receivable
|
|
(183,443
|
)
|
|
|
—
|
|
|
Net cash used in investing activities
|
|
(183,443
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
1,332,720
|
|
|
|
63,989
|
|
|
|
|
|
|
|
|
|
|
|
CASH - BEGINNING OF PERIOD
|
|
2,186,879
|
|
|
|
2,685
|
|
|
|
|
|
|
|
|
|
|
|
CASH - END OF PERIOD
|
$
|
3,519,599
|
|
|
$
|
66,674
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
$
|
—
|
|
|
$
|
—
|
|
|
Cash paid for taxes
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
NON-CASH TRANSACTIONS:
|
|
|
|
|
|
|
|
|
Subscription receivable
|
$
|
20,000
|
|
|
$
|
—
|
|
|
Cancellation of common stock
|
$
|
—
|
|
|
$
|
—
|
|
The accompanying notes are an integral part
of these unaudited financial statements.
CANNABIS-RX INC.
(FORMERLY LONGVIEW REAL ESTATE, INC.)
(A DEVELOPMENT STAGE COMPANY)
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 $484,937 as of March 31, 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’s wholly
owned subsidiary, Cannabis RX Funding, LLC, loaned $183,443 to Organigram, Inc. a medical marijuana company in New Brunswick, Canada,
licensed by Health Canada under the Marijuana for Medical Purposes Regulation.
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 $12,452,782
for real estate properties purchased for resale.
NOTE 6 - PROMISSORY NOTES
During
2013, the Company borrowed $150,000 under 2 notes at 18% interest per annum.
During
2013, the Company borrowed $8,100,000 under 3 notes at 5% interest per annum. The promissory notes are unsecured and mature twenty-four
months from their issuances.
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 March 31, 2014.
Total interest expense recorded on the notes
for the quarter was $158,959.
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 March 31, 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 $18,750 to the sole director and officer of the Company. As of March 31, 2014, the Company had a balance of $10,420 owed
to this related party 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 March 31, 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
On May 14, 2014, the Company settled a dispute in connection with
a loan in the principal amount of $183,443 to Organigram, Inc. Under the terms of the settlement, Organigram, Inc. paid the Company
a total of $273,443 and the parties agreed to a mutual release of all claims.
Aside from the foregoing, in accordance with ASC 855-10, the Company
has analyzed its operations subsequent to March 31, 2014 to the date these financial statements were issued, and has determined
that it does not have any material subsequent events to disclose.
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.
During 2013 and through March 31, 2014, we have acquired
37 properties for a total cost of $11,094,641. Six of the 37 properties have been rehabilitated and sold or are under contract
for sale. Five of the 37 properties have been rehabilitated and are listed for sale. The remaining 26 properties are in the process
of rehabilitation. As of March 31, 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.
Results of Operations for the three months ended March 31, 2014 and 2013
Revenues
We generated sales of $853,500 for the three months ended
March 31, 2014, our first quarter to post revenues. We achieved a gross profit of $91,167 for the three months ended March 31,
2014. We expect our revenues to climb in 2014 as we dispose of the properties that we have previously acquired.
Operating Expenses
Operating expenses decreased to $48,404 for the three months
ended March 31, 2014 from $64,844 for the three months ended March 31, 2013. Our operating expenses for the three months ended
March 31, 2014 consisted of management fees of $18,750, consulting fees of $11,500, professional fees of $8,294 and general and
administrative expenses of $9,860. In comparison, our operating expenses for the three months ended March 31, 2013 consisted of
professional fees in the amount of $22,310, management fees of $21,000, consulting fees of $12,080, travel expenses of $5,191 and
general and administrative expenses of $4,263.
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.
Interest Expenses
Interest expenses increased to $158,959 for the three months
ended March 31, 2014 from $3,674 for the three months ended March 31, 2013. The increase is attributable to the increase in long-term
promissory notes.
Net Loss
We incurred a net loss of $116,196 for the three months ended
March 31, 2014, compared to a net loss of $68,518 for the three months ended March 31, 2013. We have experienced an accumulated
net loss of $484,937 from our inception to March 31, 2014.
Liquidity and Capital Resources
As of March 31, 2014, we had total current assets of $16,060,230,
consisting of cash, a receivable from Berkshire Homes, Inc. and our real property inventory. We had current liabilities of $8,617,810
as of March 31, 2014. Accordingly, we had working capital of $7,442,420 as of March 31, 2014.
Operating activities used $6,485,837 in cash for the three
months ended March 31, 2014, as compared with $86,011used for the three months ended March 31, 2013. Our negative operating cash
flow for March 31, 2014 was mainly a result of the increase in our real property inventory along with our net loss for the period.
Financing activities for the three months ended March 31,
2014 generated $8,002,000 in cash, as compared with cash flows provided by financing activities of $150,000 for the three months
ended March 31, 2013. Our positive cash flow from financing activities for the three months ended March 31, 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 $484,937
as of March 31, 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 March 31, 2014, there were no off balance sheet arrangements.
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 March 31, 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 March 31,
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 March 31, 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 March 31, 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 March 31, 2014, that has materially affected, or
is reasonably likely to materially affect, our internal control over financial reporting.