Nevada
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91-1869677
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(State
or other jurisdiction of incorporation or organization)
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(IRS
Employer Identification No.)
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Large
Accelerated Filer [ ]
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Accelerated
Filer [ ]
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||
Non-Accelerated
Filer [ ].
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Smaller
Reporting Company [X]
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PART I FINANCIAL STATEMENTS
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Item
1
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Financial
Statements
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3
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Item
2
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Management's
Discussion and Analysis or Plan of Operation
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17
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PART II OTHER INFORMATION
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Item
1
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Legal
Proceedings
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20
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Item
2
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Changes
in Securities
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20
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Item
3
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Default
upon Senior Securities
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20
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Item
4
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Submission
of Matters to a Vote of Security Holders
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20
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Item
5
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Other
Information
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20
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Item
6
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Exhibits
and Reports on Form 8-K
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20
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CANNABIS
SCIENCE, INC.
(A
Development Stage Company)
Consolidated
Balance Sheets
|
March
31,
2009
(Unaudited)
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December
31,
2008
(Audited)
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|||||||
Assets
|
||||||||
Current
Assets:
|
||||||||
Cash
|
$ | 849 | $ | 580 | ||||
- | ||||||||
Total
Current Assets
|
849 | 580 | ||||||
Fixed
assets:
|
||||||||
Equipment
|
3,000 | 2,000 | ||||||
Less:
Accumulated Depreciation
|
(533 | ) | (433 | ) | ||||
Total
Fixed Assets
|
2,467 | 1,567 | ||||||
Other
Assets:
|
||||||||
Goodwill
(Note 11)
|
524,000 | - | ||||||
- | ||||||||
Total
Other Assets
|
524,000 | - | ||||||
Total
Assets
|
$ | 527,316 | $ | 2,147 | ||||
Liabilities
and Shareholders’ Equity/(Deficit)
|
||||||||
Current
Liabilities:
|
||||||||
Accounts
Payable
|
$ | 339,166 | $ | 359,179 | ||||
Accrued
Expenses
|
41,914 | 45,415 | ||||||
Accrued
Interest Payable to Affiliate
|
156,005 | 136,346 | ||||||
Loan
Payable to Affiliate
|
814,742 | 814,742 | ||||||
Line-of-Credit
to Affiliate
|
45,438 | (3,031 | ) | |||||
Total Liabilities (All
Current)
|
1,397,265 | 1,352,651 | ||||||
Commitments and Contigencies (Note 8) | - | - | ||||||
Shareholders’
Equity/(Deficit):
|
||||||||
Common
Stock, $.001 par value, 30,000,000 shares
authorized,
14,687,279 and 12,597,279 shares issued
and
outstanding respectively
|
14,687 | 12,597 | ||||||
Additional
Paid in Capital
|
48,671,693 | 48,148,783 | ||||||
Accumulated
Deficit
|
(49,556,329 | ) | (49,511,884 | ) | ||||
Total
Shareholders’ Equity/(Deficit)
|
(869,949 | ) | (1,350,504 | ) | ||||
Total
Liabilities and Shareholder’ Equity/(Deficit)
|
$ | 527,316 | $ | 2,147 |
CANNABIS
SCIENCE, INC.
(A
Development Stage Company)
Consolidated
Statements of Operations
For
the Three Ended March 31, 2009 and 2008
And
the Period from January 27, 2005 (inception) to March 31,
2009
(Unaudited)
|
Three
Months Ended
|
Period
from January
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|||||||||||
March
31,
2009
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March
31,
2008
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January
27, 2005 (inception) to March 31, 2009
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||||||||||
OIL
& GAS OPERATIONS:
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||||||||||||
Oil
& Gas Revenues
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$ | 0 | $ | 46,689 | $ | 459,652 | ||||||
Lease
Operating Expenses
|
0 | 13,884 | 230,164 | |||||||||
Gross
Profit
|
0 | 32,805 | 229,488 | |||||||||
OTHER
EXPENSES:
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||||||||||||
Professional
Fees
|
24,123 | 52,116 | 31,215,085 | |||||||||
Technology
License Royalties
|
0 | 0 | 160,417 | |||||||||
Impairment
of Oil & Gas Leases
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0 | 0 | 7,486,000 | |||||||||
Net
Gain on Settlement of
Liabilities
|
0 | (6,285,651 | ) | (5,935,451 | ) | |||||||
General
and Administrative
|
663 | 67,847 | 15,789,018 | |||||||||
Total
Operating Expenses
|
24,786 | (6,165,688 | ) | 48,715,069 | ||||||||
OPERATING
INCOME (LOSS)
|
(24,786 | ) | 6,198,493 | (48,485,581 | ) | |||||||
Other
Income (Expense):
|
||||||||||||
Other
Income
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0 | 0 | 1,439 | |||||||||
Beneficial
Conversion Feature
|
0 | 0 | (1,098,992 | ) | ||||||||
Gain
on Settlement of Debt
|
0 | 0 | 117,950 | |||||||||
Interest
Expense
|
(19,659 | ) | 0 | (91,145 | ) | |||||||
Total
Other Income (Expense)
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(19,659 | ) | 0 | (1,070,748 | ) | |||||||
NET
INCOME (LOSS)
|
$ | (44,445 | ) | $ | 6,198,493 | $ | (49,556,329 | ) | ||||
Basic
and Diluted Earnings per Share
|
$ | (0.00 | ) | $ | 4.67 | |||||||
Basic
and Diluted Earnings per Share
|
$ | (0.00 | ) | $ | 4.61 | |||||||
Weighted
Average Shares Outstanding: Basic
|
14,687,261 | 1,327,261 | ||||||||||
Weighted
Average Shares Outstanding: Diluted
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NA
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1,345,261 |
CANNABIS
SCIENCE, INC.
(A
Development Stage Company)
Consolidated
Statements of Shareholders' Equity
For
the Three Months Ended March 31, 2009 and 2008
and
the Period from January 27, 2005 (inception) to March 31,
2009
(Unaudited)
|
Additional
|
Deficit
Accumulated
|
|||||||||||||||||||||||
Common
Stock
|
Paid-in
|
Prepaid
|
During
The
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|||||||||||||||||||||
Shares
|
Par
|
Capital
|
Consulting
|
Development
Stage
|
Totals
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|||||||||||||||||||
Balance
at January 27, 2005 (inception)
|
0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | |||||||||||||
Founder’s
Stock Issued
|
83,800 | 84 | (84 | ) | - | - | 0 | |||||||||||||||||
Shares
Issued for Debt
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8,000 | 8 | 399,992 | - | - | 400,000 | ||||||||||||||||||
Shares
issued for License Agreement
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86,188 | 86 | (86 | ) | - | - | 0 | |||||||||||||||||
Effect
of Reverse Merger
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13,840 | 14 | (200,014 | ) | - | - | (200,000 | ) | ||||||||||||||||
Divestiture
of Subsidiary to Related Party
|
- | - | 544,340 | - | 544,340 | |||||||||||||||||||
Net
loss
|
(807,600 | ) | (807,600 | ) | ||||||||||||||||||||
Balance
at December 31, 2005
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191,828 | 192 | 744,148 | - | (807,600 | ) | (63,260 | ) | ||||||||||||||||
Shares
Issued for Employment
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45,500 | 45 | 8,487,455 | - | - | 8,487,500 | ||||||||||||||||||
Shares
Issued for Services
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171,080 | 171 | 28,798,329 | (7,633,750 | ) | - | 21,164,750 | |||||||||||||||||
Shares
Issued for Lease Agreement
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6,770 | 7 | 406,193 | - | (350,200 | ) | 56,000 | |||||||||||||||||
Net
loss
|
(36,906,584 | ) | (36,906,584 | ) | ||||||||||||||||||||
Balance
at December 31, 2006
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415,178 | $ | 415 | $ | 38,436,125 | $ | (7,633,750 | ) | $ | (38,064,384 | ) | $ | (7,261,594 | ) | ||||||||||
Shares
Issued For Services
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63,021 | 63 | 528,285 | (387,500 | ) | - | 140,848 | |||||||||||||||||
Shares
Issued for Debt Conversion
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350,000 | 350 | 349,650 | - | - | 350,000 | ||||||||||||||||||
Amortization
of Beneficial Conversion Feature
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0 | 0 | 1,066,657 | - | - | 1,066,657 | ||||||||||||||||||
Amortization
of shares issued for services
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0 | 0 | 0 | 8,021,250 | - | 8,021,250 | ||||||||||||||||||
Shares
Issued for Properties
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500,000 | 500 | 4,999,500 | - | - | 5,000,000 | ||||||||||||||||||
Net
loss
|
(15,007,117 | ) | (15,007,117 | ) | ||||||||||||||||||||
Balance
at December 31, 2007
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1,328,198 | 1,328 | 45,380,217 | - | (53,071,501 | ) | (7,689,956 | ) | ||||||||||||||||
Amortization
of Beneficial Conversion Feature
|
0 | 0 | 32,335 | 32,335 | ||||||||||||||||||||
Cancellation
and Amortization of Shares
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(919 | ) | (1 | ) | 1 | 0 | ||||||||||||||||||
Issuance
of Shares for Cash
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10,000 | 10 | 19,990 | 20,000 | ||||||||||||||||||||
Shares
Issued for Debt Conversion
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990,000 | 990 | 98,010 | 99,000 | ||||||||||||||||||||
Purchase
of Subsidiary with Stock
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10,000,000 | 10,000 | 2,490,000 | 2,500,000 | ||||||||||||||||||||
Issuance
of Stock for Services
|
270,000 | 270 | 128,230 | 128,500 | ||||||||||||||||||||
Net
Income
|
3,559,617 | 3,559,617 | ||||||||||||||||||||||
Balance
at December 31, 2008
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12,597,279 | $ | 12,597 | $ | 48,148,783 | $ | - | $ | (49,511,884 | ) | $ | (1,350,504 | ) | |||||||||||
Issuance
of Shares for Assets
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2,100,000 | 2,100 | 522,900 | 525,000 | ||||||||||||||||||||
Cancellation
of Stock Previously Issued
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(10,000 | ) | (10 | ) | 10 | |||||||||||||||||||
Net
Loss
|
(44,445 | ) | (44,445 | ) | ||||||||||||||||||||
Balance
at March 31, 2009
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14,687,279 | $ | 14,687 | $ | 48,671,693 | $ | - | $ | (49,556,329 | ) | $ | (869,949 | ) |
CANNABIS
SCIENCE, INC.
(A
Development Stage Company)
Consolidated
Statements of Cash Flows
For
the Three Month Periods Ended March 31, 2009 and 2008
And
the Cumulative Period from January 27, 2005 (inception) to March 31,
2009
(Unaudited)
|
Three
Months Ended March 31, 2009
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Three
Months Ended March 31, 2008
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Period
from January 27, 2005 (inception) to March 31, 2009
|
||||||||||
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||||||
Net
Income (Loss)
|
$ | (44,445 | ) | $ | 6,198,493 | $ | (49,556,329 | ) | ||||
Adjustments
to reconcile net income (loss) to cash from (used
in)
operating activities:
|
||||||||||||
Depreciation
and Depletion
|
100 | 100 | 6,282 | |||||||||
Impairment
on Oil Lease Investments
|
0 | 0 | 7,486,000 | |||||||||
Write-off
of oil & gas properties
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0 | 0 | 100,000 | |||||||||
Stock
Issued for Services
|
0 | 0 | 29,442,8118 | |||||||||
Amortization
of Prepaid Consulting Fees
|
0 | 0 | 8,021,250 | |||||||||
Amortization
of Beneficial Conversion Feature
|
0 | 0 | 1,098,992 | |||||||||
Loss
on disposition of subsidiary
|
97,0505 | |||||||||||
Change
in assets and liabilities:
|
||||||||||||
(Decrease)
in Shares to be Issued
|
0 | (5,000,000 | ) | 0 | ||||||||
(Increase)
in Accounts Receivable
|
0 | 11,675 | 0 | 0 0 | ||||||||
(Increase)
Decrease in Other Assets
|
0 | (3,269 | ) 0 | 3,110 | ||||||||
Increase
in Accrued Interest Payable to Affiliates
|
19,659 | 17,872 0 | 967,716 | |||||||||
Increase
(Decrease) in Accounts Payable
|
(20,013 | ) | 32,467 | 339,166 | ||||||||
Increase
in Line-of-Credit to Affiliate
|
48,469 | 0 0 | 45,438 | |||||||||
Increase
(Decrease) in Accrued Expenses
|
(3,501 | ) | (1,306,151 | ) | 41,914 | |||||||
CASH
FLOWS PROVDED BY (USED IN) OPERATING ACTIVITIES
|
269 | (48,813 | ) | (1,906,000 | ) | |||||||
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||||||||
Purchase
of oil & gas lease
|
0 | (30,000 | ) | |||||||||
Purchase
of plant, property & equipment
|
0 | 0 | (42,890 | ) | ||||||||
CASH
FLOWS USED IN INVESTING ACTIVITIES
|
0 | 0 | (72,890 | ) | ||||||||
CASH
FLOWS FROM FINANCING ACTIVITIES
|
||||||||||||
Proceeds
from Convertible Note – Related Party
|
0 | 23,060 | 951,342 | |||||||||
Proceeds
from sale of common stock
|
0 | 0 | 20,000 | |||||||||
Loan
Payable to Affiliates
|
0 | 23,060 | 1,008,997 | |||||||||
CASH
FLOWS PROVIDED BY FINANCING ACTIVITIES
|
0 | 46,120 | 1,980,339 | |||||||||
NET
INCREASE (DECREASE) IN CASH
|
269 | (2,693 | ) | 849 | ||||||||
Cash,
beginning of period
|
580 | 4,769 | 0 | |||||||||
Cash,
end of period
|
$ | 849 | $ | 2,076 | $ | 849 | ||||||
SUPPLEMENTAL
CASH FLOW INFORMATION
|
||||||||||||
Issuance
of common stock for services
|
$ | 0 | $ | 0 | $ | 9,502,629 | ||||||
Issuance
of common stock for assets
|
$ | 525,000 | $ | 0 | $ | 525,000 | ||||||
Related
Party note payable
|
$ | 0 | $ | 0 | $ | 250,000 | ||||||
Net
liabilities assumed with recapitalization
|
$ | 0 | $ | 0 | $ | 200,000 | ||||||
Divestiture
of subsidiary to related party
|
$ | 0 | $ | 0 | $ | 200,000 | ||||||
Issuance
of common stock for debt
|
$ | 0 | $ | 0 | $ | 1,100,000 | ||||||
Issuance
of common stock for oil & gas leases
|
$ | 0 | $ | 0 | $ | 907,200 |
CANNABIS
SCIENCE, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2009
|
NOTE 2 – GOING
CONCERN
|
March 31,
2009
|
Dec
31, 2008
|
|||||||
Equipment
|
$ | 3,000 | $ | 2,000 | ||||
Less:
Accumulated Depreciation
|
( 533 | ) | ( 433 | ) | ||||
Total
Fixed Assets
|
$ | 2,467 | $ | 1,567 |
March
31, 2009
|
December
31, 2008
|
|||||||
Net
operating loss carry forward
|
$ | 49,556,329 | $ | 49,511,884 | ||||
Total
deferred tax assets
|
16,445,147 | 16,440,389 | ||||||
Less:
valuation allowance
|
(16,445,147 | ) | (16,440,389 | ) | ||||
Net
deferred tax assets
|
$ | - | $ | - |
|
A.
|
Issuance
of Common Stock
|
|
B.
|
Warrants
|
Outstanding
Warrants
|
Exercisable
Warrants
|
||||||
Range
of Exercise Price
|
Number
|
Average
Remaining Contractual Life
|
Average
Intrinsic Value
|
Number
|
|||
$67.00
|
18,000
|
0.25
|
-
|
18,000
|
2009
|
||
Expected
volatility
|
80.0%
|
|
Expected
life in years
|
5
years
|
|
Risk
free interest rate
|
5.07%
|
|
Dividend
yield
|
0%
|
|
C.
|
Employee
Options
|
A.
|
Legal
|
B.
|
Operating
Leases
|
C.
|
Liabilities
|
|
·
|
The
attorney represented a former related party when it was in negotiations to
acquire the Company in 2005. The Company’s position is that
this is not its liability as it did not contract the attorney and will
pursue a legal opinion in 2009 to reverse the
liability.
|
|
·
|
The
former directors were awarded severance agreements in June 2006 shortly
before resigning from the Company. The severance and other fees
totaled $81,250 for each director for a total of $162,500. The
severance was not immediately paid and there has been no correspondence
concerning payment since they resigned. The states statute of
limitations expires in June 2010 and the Company, at that time, will
accordingly adjust the liabilities to $0 if no demand is
received.
|
|
·
|
There
is $30,000 balance to a former related party that has not been
resolved. This liability was incurred in 2005 and there has
been no correspondence with the vendor since the signing of the contract
and unless the vendor contacts the Company, we will accordingly adjust the
liability to $0 in compliance with the state statutes of limitations of
four years, in October of 2009.
|
|
·
|
There
is $12,175 to a former consultant that is unresolved. This
liability was incurred in 2005 and there has been no correspondence with
the vendor since the liability was incurred. In the event the
vendor does not contact the Company, we will accordingly adjust the
liability to $0 in compliance with the state statutes of limitations of
four years, in December of 2009.
|
|
·
|
There
is approximately $28,000 of other smaller and aged payables that the
Company will also write-off in future periods using the applicable stature
of limitations as a guide.
|
|
·
|
Reliance
upon independent financial reporting consultants for review of critical
accounting areas and disclosures and material non-standard
transaction.
|
|
·
|
Lack
of sufficient accounting staff which results in a lack of segregation of
duties necessary for a good system of internal
control.
|
(a)
|
One
Form 8-K was filed during the three month period ended March 31,
2009.
|
|
a.
|
On
1/29/09 announcing the resignation of E. Moore and M. Smith as officers
and directors.
|
(b)
|
Exhibits
|