FORWARD LOOKING STATEMENT NOTICE
Statements made in this Form 10-Q that are not historical or current facts are
"forward-looking statements" made pursuant to the safe harbor provisions of
Section 27A of the Securities Act of 1933 (the "Act") and Section 21E of the
Securities Exchange Act of 1934. These statements often can be identified by the
use of terms such as "may," "will," "expect," "believe," "anticipate,"
"estimate," "approximate" or "continue," or the negative thereof. We intend that
such forward-looking statements be subject to the safe harbors for such
statements. We wish to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. Any
forward-looking statements represent management's best judgment as to what may
occur in the future. However, forward-looking statements are subject to risks,
uncertainties and important factors beyond our control that could cause actual
results and events to differ materially from historical results of operations
and events and those presently anticipated or projected. We disclaim any
obligation subsequently to revise any forward-looking statements to reflect
events or circumstances after the date of such statement or to reflect the
occurrence of anticipated or unanticipated events.
Financial information contained in this quarterly report and in our unaudited
interim financial statements is stated in United States dollars and are prepared
in accordance with United States generally accepted accounting principles.
GENERAL
We were incorporated in the State of Nevada on August 17, 2016 under the name
Zartex, Inc. On December 6, 2018, we changed our name to Cannis, Inc. From
inception until November 14, 2018, the Company's principal business consisted of
software development.
Effective November 14, 2018, a change of control occurred with respect to
Zartex, Inc. ("Company"). Pursuant to a Securities Purchase Agreement entered
into by and among the Company, Mr. Aleksandr Zausaev ("Seller") and Mr. Eu Boon
Ching ("Buyer"), Buyer acquired from Seller 5,000,000 shares of common stock of
Company. In addition, pursuant to a separate Stock Purchase Agreement by and
among Mr. Ching, as buyer, and certain other shareholders of the Company, Mr.
Ching acquired an additional 1,335,000 shares of common stock of the Company.
The total number of shares of common stock acquired by Mr. Ching is 6,335,000,
and all such shares now held by Mr. Ching are "restricted" and/or "control"
securities.
On the closing of the above transaction, Mr. Zausaev, the then sole officer and
director of the Company, resigned in all officer and director capacities from
the Company and Mr. Ching was appointed the sole officer of the Company (Chief
Executive Officer, Chief Financial Officer, Secretary and Treasurer) and a sole
Director of the Company. At closing, the Company assigned all of its assets to
Mr. Zausaev in exchange for certain considerations including his cancellation
and waiver of all outstanding liabilities of the Company in favor of the former
sole officer and director.
Effective immediately at closing, the Company permanently ceased its previous
operating activities of software development. Consequently, the Company is now a
shell company seeking to merge with another entity with experienced management
and opportunities for growth in return for shares of our common stock to create
value for our shareholders.
On December 6, 2018, the Company amended its Articles of Incorporation with the
Nevada Secretary of State to effect the name change of the Company to Cannis,
Inc.
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Acquisition of Cannisapp
On August 5, 2019 (the "Closing Date"), we closed a share exchange under a Share
Exchange Agreement (the "Stock Exchange Agreement"), with Cannisapp. Sdn. Bhd, a
Malaysian company ("Cannisapp") and Mr. Ching, its sole stockholder, who is our
majority shareholder and officer and director. Mr. Ching held 100% of the issued
and outstanding stock of Cannisapp. Pursuant to the Stock Exchange Agreement and
upon the closing of the Share Exchange, in exchange for all of the issued and
outstanding capital stock of Cannisapp, we issued to Mr. Ching an aggregate
amount of 1,482,492,800 shares of our common stock and 8,500,000 shares of Class
A Preferred Stock, $0.001 par value, which has 100 for 1 voting rights per
share. As a result of the Share Exchange, Mr. Ching remains the controlling
shareholder of the Company, owning a total of 99.99% of our outstanding common
stock and 100% of our outstanding Class A Preferred Stock. The Share Exchange
was accounted for under the business combination under common control of
accounting. As a result of the Share Exchange, we ceased to be a "shell
company."
We conduct our operations through our consolidated subsidiary, Cannisapp. The
subsidiary was incorporated under the corporation laws in Malaysia on April 2,
2018 under the name Antara Rimbun Sdn Bhd. It affected a name changed to Nimpmos
Sdn Bhd on July 5, 2018, and then to Cannisapp Sdn. Bhd. on September 12, 2018.
Cannisapp has two distinct, business segments. One is developing proprietary
mobile applications and the other is acting as an offline sales distributor for
nutritional supplements manufactured by third parties. We began selling
nutritional supplements in September 2018. We commenced the development of our
mobile applications operating on Android and iOS operating systems in June 2018.
Our offices are located at Level 11-2, Tower 4, Puchong Financial Corporate
Centre (PFCC), Jalan Puteri 1/2, Bandar Puteri,47100 Purchhong, Selangor,
Malaysia and our website is www.cannis.app.
On April 24, 2019, the Company amended its Articles of Incorporation by filing a
Certificate of Amendment with the Nevada Secretary of State which (i) increased
the authorized shares of its common stock, $0.001 par value, from 75,000,000 to
1,500,000,000 shares, and (ii) created a class of preferred stock, $0.001 par
value, called the Class A Preferred Stock in the amount of 10,000,000 authorized
shares, with each share of Class A Preferred Stock having 100 votes to be cast
with respect to any and all matters presented to shareholders for a vote whether
at a meeting of shareholders or by written consent. Apart from the voting rights
stated in the preceding sentence, the Class A Preferred Stock shall have no
other rights, privileges or preferences.
Translation of amounts from the local currency of Cannisapp (Malaysian Ringett
"MYR") into US$1 has been made at the following exchange rates for the
respective years:
As of and for As of and for
quarter ended quarter ended
November 30, November 30,
2019 2018
Period-end MYR: US$1 exchange rate 4.1773 4.1802
Period average MYR: US$1 exchange rate 4.1756 4.1597
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RESULTS OF OPERATIONS
THREE MONTHS PERIOD ENDED NOVEMBER 30, 2019 COMPARED TO THE THREE MONTHS PERIOD
ENDED NOVEMBER 30, 2018
The following table sets forth key components of the Company's results of
operations for the three months ended November 30, 2019 compared to the three
months ended November 30, 2018. The discussion following the table addresses
these results.
For the Three Months Ended
November 30,
2019 2018
Net revenues $ 370,567 $ 310,081
Cost of revenues 263,968 259,871
Gross margin 106,599 50,210
Operating expenses:
Selling expenses 191 208,868
General and administrative 868,522 271,320
Total operating expenses 868,713 480,188
Loss from operations (762,114 ) (429,978 )
Other income/(loss)
Other income 12 35,701
Total other income(loss) 12 35,701
Operating loss before income taxes (762,102 ) (394,277 )
Provision for income taxes - -
Net loss (762,102 ) (394,277 )
Other comprehensive income (loss)
Net loss (762,102 ) (394,277 )
Foreign currency translation adjustment (58,951 ) 24,073
Total comprehensive income $ (821,053 ) $ (370,204 )
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Revenues. During the three months ended November 30, 2019, we had revenue of
$370,567, which were derived entirely from offline sales of nutritional
supplements. For the same period last year, we had revenues of $310,081 also
from sales of nutritional supplements. We act as a distributor for two different
manufacturers and we began selling these supplements in September 2018. The
increase in revenues for the current quarterly period is due to product
expansion into new markets coupled with the impact of the Christmas season.
We began developing our proprietary mobile applications in June 2018. We have
not generated revenues from these applications for the quarters ended November
30, 2019 and 2018. We intend to integrate our offline sales with our mobile
applications platform as part of our marketing strategy. We expect to generate
sale of our mobile applications beginning in November 2020.
Cost of Revenue. For the three months ended November 30, 2019, we had cost of
revenue of $263,968 compared with $259,871 in cost of revenue for the same
period last year. The slight increase for the current period correlates to the
increase in sales for the same period. Cost of revenue represents our costs for
the nutritional supplements sold.
Operating expenses. Operating expenses consist of selling, general and
administrative expenses, and research and development expense.
For the quarter ended November 30, 2019, we had selling, general and
administrative expenses of $868,713 compared with selling, general and
administrative expenses of $480,188 for the quarter ended November 30, 2018,
representing an 81% increase from the prior period.
Selling expenses include marketing and advertising costs related to the
operations and development of Cannisapp. These expenses were $191 and $208,868
for the quarters ended November 30, 2019 and 2018, respectively. The significant
decrease for the current period was due to a reduction of our the advertising
expenditures for the current period. During the current quarter, we ceased our
advertising for all of the business.
General and administrative expenses mainly consist of salaries and related
employee benefits, office expenses, professional service fees, depreciation
expenses, rent, and related costs. These expenses were $868,522 and $271,320 for
the quarter ended November 30, 2019 and 2018, respectively, representing an
increase of $597,202. The significant increase for the current period was due to
the fixed assets written-off of $537,484 for the three months ended November 30,
2019.
We did not incur any research and development expenses for three months ended
November 30, 2019 and 2018.
Loss from Operations. For the quarter ended November 30, 2019, we had loss from
operations of $762,114 compared with loss from operations of $429,978 for the
quarter ended November 30, 2018 for the reasons discussed above.
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Total Comprehensive Loss. For the quarter ended November 30, 2019, we had loss
from foreign currency translation adjustment in the amount of $58,952 which
resulted in a comprehensive loss of $821,053 for the 2019 quarterly period. For
the quarter ended November 30, 2018, we had gain from foreign currency
translation adjustment in the amount of $24,073 which resulted in a
comprehensive loss of $370,204 for the 2018 quarterly period. Foreign currency
translation adjustments reflects the fluctuations in the two currencies (USD and
MYR).
LIQUIDITY AND CAPITAL RESOURCES
Working Capital Deficit. As of November 30, 2019, the Company had working
capital deficit of $5,606,322, compared to a working capital deficit of
$5,354,942 as of August 31, 2019. The increase in working capital deficit is a
result of a slight increase in accounts payable and a slight increase in related
party payables as of November 30, 2019.
Cash Flows.
The following is a summary of the Company's cash flows from operating, investing
and financing activities for the quarter ended November 30, 2019 and 2018,
respectively:
Quarter
ended Quarter ended
November 30, November 30,
2019 2018
Net cash used in operating activities $ (355,470 ) $ (597,552 )
Net cash used in investing activities - (115,168 )
Net cash provided by financing activities 342,050 1,235,045
Net change in cash and cash equivalents $ (13,420 ) $ 522,325
Operating Activities. Net cash used in operating activities was $355,470 for the
quarter ended November 30, 2019 consisting mainly of a net loss of $762,102
fixed asset written-off of $537,484, and customer deposits of $167,304. This
compares with net cash used in operating activities of $597,552 for the quarter
ended November 30, 2018 consisting mainly of a net loss of $394,277 and accounts
payable of $162,723. The increase was primarily the result of the significant
increase in operating expenses of Cannisapp, partly offset by the increase in
account payable.
Investing Activities. Net cash used in investing activities was $nil for the
quarter ended November 30, 2019, compared to net cash from investing activities
of $115,168 for ended quarter ended November 30, 2018. Net cash used in
investing activities solely reflect purchase or disposal of fixed assets and
intangible assets, such as computer, office equipment and leasehold improvement.
Financing Activities. Net cash provided by financing activities was $342,050 for
the quarter ended November 30, 2019 compared to $1,235,045 for the quarter ended
November 30, 2018. All of the cash inflow was advances from our related party.
We continue to rely on advances from our majority shareholder to fund our
operations.
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Going Concern
The financial statements have been prepared "assuming that we will continue as a
going concern," which contemplates that we will realize our assets and satisfy
our liabilities and commitments in the ordinary course of business.
Our monthly expenses are estimated to be $95,500 per month. The estimated
monthly allocations are as follows:
- office rental at $8,000
- employee accommodations at $2,500
- salaries at $40,000
- other overheads, including legal and professional fees, travel expenses,
maintenance and marketing cost at $45,000
The Company has not yet established an ongoing source of revenues and cash flows
sufficient to cover the operating costs and allow it to continue as a going
concern. The Company has an accumulated deficit of $5,716,280 as of November 30,
2019. These factors among others raise substantial doubt about the ability to
continue as a going concern for a reasonable period of time.
In order to continue as a going concern, the Company will need, among other
things, additional capital resources. Management's plan is to obtain such
resources by obtaining capital from management and significant shareholders
sufficient to meet its minimal operating expenses and seeking third party equity
and/or debt financing. However, management cannot provide any assurances that
the Company will be successful in accomplishing any of its plans. These
financial statements do not include any adjustments related to the
recoverability and classification of assets or the amounts and classification of
liabilities that might be necessary should the Company be unable to continue as
a going concern.
upon acceptable terms, or at all. If adequate funds are not available or are not
available on acceptable terms, we may not be able to take advantage of
prospective new business endeavors or opportunities, which could significantly
and materially restrict our business operations.
OFF-BALANCE SHEET ARANGEMENTS
As of the date of this Quarterly Report, we do not have any off-balance sheet
arrangements that have or are reasonably likely to have a current or future
effect on our financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital
resources that are material to investors.
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ZARTEX INC 
