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.
On May 22 2020, Cannisapp changed its name to Richmore International Sdn Bhd.
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
six months ended six months ended
February 29, February 28,
2020 2019
Period-end MYR: US$1 exchange rate 4.2152 4.0671
Period average MYR: US$1 exchange rate 4.1513 4.0787
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RESULTS OF OPERATIONS
SIX MONTHS PERIOD ENDED FEBRUARY 29, 2020 COMPARED TO THE SIX MONTHS PERIOD
ENDED FEBRUARY 28, 2019
The following table sets forth key components of the Company's results of
operations for the six months ended February 29, 2020 compared to the six months
ended February 28, 2019. The discussion following the table addresses these
results.
Six months Six months
ended ended
February 29, February 28, $ %
2020 2019 Change Change
Revenue $ 374,825 $ 1,146,683 (771,858 ) -67 %
Cost of revenue 267,535 749,299 (481,764 ) -64 %
Gross margin 107,290 397,384 (290,094 ) -73 %
Operating expenses
Selling, General and
administrative 1,032,256 2,116,483 (1,084,227 ) -51 %
Total operating expenses 1,032,256 2,116,483
Loss from operations (924,966 ) (1,719,099 ) 794,133 -46 %
Interest income 12 303
Gain from extinguishment of
related party debt - 35,236 (35,236 ) -100 %
Other income (loss) - 1,015 (1,015 ) -100 %
Net loss $ (924,954 ) $ (1,682,545 ) 757,591 -45 %
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Revenues. During the six months ended February 29, 2020, we had revenue of
$374,825, which were derived entirely from offline sales of nutritional
supplements. For the same period last year, we had revenues of $1,146,683 also
from sales of nutritional supplements. We act as a distributor for two different
manufacturers and we began selling these supplements in September 2018. In early
December 2019, we determined to suspend the offline sales of nutritional
supplements. The significant decrease in revenues for the current six month
period is due to the suspension of the nutritional supplement sales.
On March 18, 2020, in response to the Covid 19 pandemic, the Malaysian
government had declared Movement Control Order ("Order") for the entire nation
which restricted movement except for those people who were working for essential
services. The gradual relaxation of the restrictions of the Order is expected to
commence during July 2020. Due to the impact of Covid 19 and the Order, we can
not predict when we will be able to re-commence operations or our ability to
continue our operations.
We began developing our proprietary mobile applications in June 2018 and we
continued developing these mobile apps during the six month period. We have not
generated revenues from these applications for the quarters ended February 29,
2020 and February 28, 2019.
Cost of Revenue. For the six months ended February 29, 2020, we had cost of
revenue of $267,535 compared with $749,299 in cost of revenue for the same
period last year. The significant decrease for the current period correlates to
the decrease in sales for the same period. Cost of revenue represents our costs
for the nutritional supplements sold.
Operating expenses. For the six months ended February 29, 2020, we had selling,
general and administrative expenses of $1,032,256 compared with selling, general
and administrative expenses of $2,116,483 for the two quarters ended February
28, 2019, representing an 51% decrease from the prior period.
Selling, general and administrative expenses mainly consist of salaries and
related employee benefits, office expenses, professional service fees,
depreciation expenses, rent, and related costs. The significant decrease was due
to the decrease in staff salaries, office expense and consulting expenses, among
others. For example, the staff salaries decreased from $221,722 for the six
months ended February 28, 2019 to $114,467 for the six months ended February 29,
2020.
Loss from Operations. For the six months ended February 29, 2020, we had loss
from operations of $924,966 compared with loss from operations of $1,719,099 for
the six months ended February 28, 2019 for the reasons discussed above.
Net Loss. For the six months ended February 29, 2020, we had gross profit in the
amount of $107,290 and total operating expense in the amount of $1,032,256,
which resulted in a net loss of $924,954. For the two quarters ended February
28, 2019, we had gross profit in the amount of $397,384 and total operating
expense in the amount of $2,116,483, which resulted in a net loss of $1,682,545.
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THREE MONTHS PERIOD ENDED FEBRUARY 29, 2020 COMPARED TO THE THREE MONTHS PERIOD
ENDED FEBRUARY 28, 2019
The following table sets forth key components of the Company's results of
operations for the three months ended February 29, 2020 compared to the three
months ended February 28, 2019. The discussion following the table addresses
these results.
Three months Three months
ended ended
February 29, February 28, $ %
2020 2019 Change Change
Revenue $ 4,258 $ 836,602 (832,344 ) -99 %
Cost of revenue 3,567 489,428 (485,861 ) -99 %
Gross margin 691 347,174 (346,483 ) -100 %
Operating expenses
Selling, General and
administrative 163,543 1,636,295 (1,472,752 ) -90 %
Total operating expenses 163,543 1,636,295
Loss from operations (162,852 ) (1,289,121 ) 1,126,269 -87 %
Other income (loss) (12 ) 550 (562 ) -102 %
Net loss $ (162,864 ) $ (1,288,571 ) 1,125,707 -87 %
Revenues. During the three months ended February 29, 2020, we had revenue of
$4,258, which were derived entirely from offline sales of nutritional
supplements. For the same period last year, we had revenues of $836,602 also
from sales of nutritional supplements. We act as a distributor for two different
manufacturers and we began selling these supplements in September 2018. In early
December 2019, we determined to suspend the offline sales of nutritional
supplements. The significant decrease in revenues for the current three month
period is due to the suspension of the nutritional supplement sales.
On March 18, 2020, in response to the Covid 19 pandemic, the Malaysian
government had declared Movement Control Order ("Order") for the entire nation
which restricted movement except for those people who were working for essential
services. The gradual relaxation of the restrictions of the Order is expected to
commence during July 2020. Due to the impact of Covid 19 and the Order, we can
not predict when we will be able to re-commence operations or our ability to
continue our operations.
We began developing our proprietary mobile applications in June 2018 and we
continued developing these mobile apps during the three month period. We have
not generated revenues from these applications for the quarter ended February
29, 2020 and February 28, 2019.
Cost of Revenue. For the three months ended February 29, 2020, we had cost of
revenue of $3,567 compared with $489,428 in cost of revenue for the same period
last year. The significant decrease in cost of revenue for the current period
correlates to the decrease in sales for the same period. Cost of revenue
represents our costs for the nutritional supplements sold.
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Operating expenses. For the quarter ended February 29, 2020, we had selling,
general and administrative expenses of $163,543 compared with selling, general
and administrative expenses of $1,636,295 for the quarter ended February 28,
2019, representing an 90% decrease from the prior period.
Selling, general and administrative expenses mainly consist of salaries and
related employee benefits, office expenses, professional service fees,
depreciation expenses, rent, and related costs. The significant decrease was due
to the decrease in staff salaries, office expense, and consulting expense etc.
Loss from Operations. For the quarter ended February 29, 2020, we had loss from
operations of $162,852 compared with loss from operations of $1,289,121 for the
quarter ended February 28, 2019 for the reasons discussed above.
Net Loss. For the quarter ended February 29, 2020, we had gross loss in the
amount of $691 and total operating expense in the amount of $163,543, which
resulted in a net loss of $162,864. For the quarter ended February 28, 2019, we
had gross profit in the amount of $347,174 and total operating expense in the
amount of $1,636,295, which resulted in a net loss of $1,288,571.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital Deficit. As of February 29, 2020, the Company had working
capital deficit of $5,704,841, 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 other payable and a slight increase in related
party payables as of February 29, 2020.
Cash Flows.
The following is a summary of the Company's cash flows from operating, investing
and financing activities for the two quarters ended February 29, 2020 and
February 28, 2019, respectively:
Six months Six months
ended ended
February 29, February 28,
2020 2019
Net cash used in operating activities $ (491,873 ) $ (1,481,859
Net cash used in investing activities
(16,348 ) -
Net cash provided by financing activities 419,554 1,709,661
Net change in cash and cash equivalents $ (88,657 ) $ 227,802
Operating Activities. Net cash used in operating activities was $491,873 for the
six months ended February 29, 2020 consisting mainly of a net loss of $924,954
fixed asset written-off of $554,904, and customer deposits of $168,284. This
compares with net cash used in operating activities of $1,481,859 for the six
months ended February 28, 2019 consisting mainly of a net loss of $1,682,545 and
accounts payable of $292,878. The decrease in net cash outflow was primarily the
result of the decrease in net loss, partly offset by the increase in write-off
of fixed assets.
Investing Activities. Net cash used in investing activities was $16,348 for the
six months ended February 29, 2020, compared to net cash used in investing
activities of $0 for the six months ended February 28, 2019. Net cash used in
investing activities solely reflect purchase of intangible assets.
Financing Activities. Net cash provided by financing activities was $419,554 for
the six months ended February 29, 2020 compared to $1,709,661 for the six months
ended February 28, 2019. All of the cash inflow was advances from our related
party for the six months ended February 29, 2020. 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, and
• 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 $5,879,132 as of February 29,
2020. 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.
Existing working capital, further advances by related party and debt
instruments, and anticipated cash flow are expected to be adequate to fund our
operations over the next twelve months. We have no lines of credit or other bank
financing arrangements. Generally, we have financed operations to date through
the proceeds of the private placement of equity and debt instruments. Additional
financing may not be available 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 
