UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
þ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended November 30, 2017
☐ TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
For the transition period from _________ to _________
Commission File Number: 000-52044
GALA PHARMACEUTICAL INC.
(Name of Small Business Issuer in its charter)
| Nevada | 42-1771014 |
| (state or other jurisdiction of incorporation or organization) | (I.R.S. Employer I.D. No.) |
2780 South Jones Blvd. #3725
Las Vegas, Nevada 89146
(Address of principal executive offices)
(775) 321-8238
Issuer’s telephone number
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock, $0.001 par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No þ
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 þ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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. (Check one)
Large accelerated filer ☐ Accelerated filer☐ Non-accelerated filer ☐ Smaller reporting company þ
Emerging growth company ☐
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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes ☐ No þ
Aggregate market value of the voting and non-voting stock of the registrant held by non-affiliates of the registrant as of the last business day of the registrant’s most recently completed fiscal quarter: $1,994,486
As of April 3, 2018 the registrant’s outstanding stock consisted of 47,635,145 common shares.
GALA GLOBAL INC.
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Item 1. Description of Business
General
Gala Pharmaceutical Inc. (the “Company”) was incorporated in the State of Nevada on March 10, 2010. The Company was originally formed to provide garment tailoring and alteration services.
The Company then expanded into the Hemp and Cannabidiol (“CBD”) industry. The expansion focused on the development, research, and commercialization of products derived from the Hemp and Cannabis Plant. At the time GALA was also seeking acquisition candidates in this area of interest in the nutraceutical and pharmaceutical industries. The Company also plans to enter into the medical marijuana cultivation industry as approved in the United States and Canada to build legalized cultivation operations.
Gala Pharmaceutical Inc. has hired industry-leading experts in the field of Genomics that improves crop yields by utilizing advanced breeding and molecular technologies. The company will use proprietary equipment and techniques to ensure the genetic fingerprint of each plant is identical and is cultivated in a controlled environment significantly reducing the variability of each plants yield. In addition, the company will be able to provide pharmaceutical expertise to its customers for manufacturing and production. It is anticipated that Gala Pharmaceuticals Inc., will provide oversight for the development of fully cGMP production of Active Pharmaceutical Ingredients (API) for use in forecasted clinical trials supporting the safety and efficacy of the various plant extracts.
The Company’s services include the development of cannabinoid based health and wellness products; the development of medical grade compounds; the licensing of proprietary testing, genetics, labeling and packaging, tracking, production, and standardization methods for the medicinal herb industry.
Research and Development
We have not spent any amounts on research and development activities during the years ended November 30, 2017 or 2016. We anticipate that we will not incur any expenses on research and development over the next 12 months. Our planned expenditures on our operations or a business combination are summarized under the section of this annual report entitled “Management’s Discussion and Analysis of Financial Position and Results of Operations”.
Employees and Employment Agreements
At present, we have a CEO and a Chief Scientific Officer who devote their full time to our business. We presently do not have pension, health, annuity, insurance, stock options, profit sharing or similar benefit plans; however, we may adopt such plans in the future. There are presently no personal benefits available to any officers, directors or employees.
Not applicable to smaller reporting companies.
Item 1B. Unresolved Staff Comments
Not applicable to smaller reporting companies.
Item 2. Description of Property
We do not currently own any property or real estate of any kind. Our office and mailing address is located at 18881 Von Karman Avenue #1440, Irvine, California 92612. Our lease is month-to-month.
As of January 19, 2018, the relationship with the recently appointed Chief Operation Officer, was ended along with the related consulting agreement. Litigation is possible from this event. Please reference the Form 8-K that was filed with the SEC on February 1, 2018.
Item 4. Mine Safety Disclosures
Not applicable to our Company.
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Item 5. Market for Common Equity, Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities
Market Information
Our shares of common stock are listed on the Over the Counter Bulletin Board under the symbol GALA. Set forth below are high and low bid prices for our common stock for each quarterly period in the two most recent fiscal years. Such quotations reflect inter-dealer prices, without retail mark-up, markdown or commissions and may not necessarily represent actual transactions in the common stock.
| Period | High | Low | ||||||
| Fiscal 2017 | ||||||||
| First Quarter ended February 28, 2017 | $ | 1.50 | $ | 0.30 | ||||
| Second Quarter ended May 31, 2017 | $ | 0.54 | $ | 0.22 | ||||
| Third Quarter ended August 31, 2017 | $ | 1.02 | $ | 0.22 | ||||
| Fourth Quarter ended November 30, 2017 | $ | 0.90 | $ | 0.20 | ||||
| Fiscal 2016 | ||||||||
| First Quarter ended February 29, 2016 | $ | 3.00 | $ | 1.00 | ||||
| Second Quarter ended May 31, 2016 | $ | 2.00 | $ | 1.00 | ||||
| Third Quarter ended August 31, 2016 | $ | 1.00 | $ | 0.00 | ||||
| Fourth Quarter ended November 30, 2016 | $ | 2.00 | $ | 0.00 | ||||
Number of Holders
As of November 30, 2017, the 35,701,561 issued and outstanding shares of common stock were held by a total of 76 shareholders of record.
Dividends
No cash dividends were paid on our shares of common stock during the fiscal years ended November 30, 2017 and 2016. We have not paid any cash dividends since our inception and do not foresee declaring any dividends on our common stock in the foreseeable future.
Recent Sales of Unregistered Securities
Stock transactions for the year ended November 30, 2017:
| (a) | On January 30, 2017, the Company effected a share consolidation on a 100 old shares for 1 new share basis. The share consolidation has been applied retroactively to the earliest period presented. | |
| (b) | On March 22, 2017, the Company issued 490,742 common shares with a fair value of $176,667 to settle outstanding debt of $88,333 owed to a significant shareholder of the Company. The transaction resulted in a loss on settlement of debt of $88,334, which was recorded in the consolidated statement of operations. | |
| (c) | On March 22, 2017, the Company issued 1,387,970 common shares with a fair value of $499,670 to settle outstanding debt of $249,835 owed to a company controlled by a significant shareholder of the Company. The transaction resulted in a loss on settlement of debt of $249,835, which was recorded in the consolidated statement of operations. | |
| (d) | On March 30, 2017, the Company issued 10,000,000 common shares with a fair value of $200,000 to a significant shareholder of the Company for compensation services for a period of twelve months from the date of issuance. As at November 30, 2017, deferred compensation of $65,205 has been recorded in deferred compensation and $134,795 has been expensed. |
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| (e) | On March 30, 2017, the Company issued 10,000,000 common shares with a fair value of $200,000 to a significant shareholder of the Company for compensation services for a period of twelve months from the date of issuance. As at November 30, 2017, deferred compensation of $65,205 has been recorded and $134,795 has been expensed. | |
| (f) | On March 30, 2017, the Company issued 1,500,000 common shares with a fair value of $30,000 to the Chief Financial Officer of the Company for compensation services for a period of twelve months from the date of issuance. As at November 30, 2017, deferred compensation of $9,171 has been recorded and $20,219 has been expensed. | |
| (g) | On March 30, 2017, the Company issued 1,500,000 common shares with a fair value of $30,000 to a director of the Company for compensation services for a period of twelve months from the date of issuance. As at November 30, 2017, deferred compensation of $9,781 has been recorded and $20,219 has been expensed. | |
| (h) | On July 6, 2017, the Company issued 1,500,000 common shares at $0.08 per common share pursuant to private placement for proceeds of $120,000. Finders fees of $12,000 were paid related to this transaction which reduced additional paid in capital by the same amount. | |
| (i) | On June 12, 2017, the Company issued 2,000,000 common shares for consulting services over a twelve month period with a fair value of $40,000. As of November 30, 2017 prepaid expense for these shares is $21,175. | |
| (j) | On June 13, 2017, the Company issued 1,500,000 common shares with a fair value of $30,000 to the former Chief Operating Officer of the Company for compensation services for a period of twelve months from the date of issuance. As at November 30, 2017, deferred compensation of $15,881 has been recorded and $14,119 has been expensed. | |
| (k) | On July 21, 2017, the Company issued 553,625 common shares with a fair value of $166,088 to settle outstanding promissory notes and accrued interest of $44,666 resulting in a loss on settlement of debt of $121,422, including 128,750 common shares with a fair value of $38,625 to settle outstanding promissory notes and accrued interest of $10,254 resulting in a loss on settlement of debt of $28,371 to a related party. | |
| (l) | On September 1, 2017, the Company issued 1,500,000 common shares with a fair value of $30,000 for consulting services. | |
| (m) | On October 1, 2017, the Company issued 1,500,000 common shares with a fair value of $30,000 for consulting services. | |
| (n) | On October 20, 2017, the Company issued 250,000 common shares at $0.10 per share for proceeds of $25,000. | |
| (o) | On October 23, 2017, the Company issued 400,000 common shares to settle the outstanding share purchase warrants which were issued as part of the issuance of the convertible debenture. | |
| (p) | On November 9, 2017, the Company issued 250,000 common shares at $0.10 per share for proceeds of $25,000. | |
| (q) | At November 30, 2017, the Company had 3,000,000 common shares issuable for consulting services with a fair value of $300,000, of which $25,000 was recorded as consulting expense. |
Stock transactions for the year ended November 30, 2016:
| (r) | On December 23, 2015, the Company issued 12,500 shares of common stock with a fair value of $25,000 to a consultant pursuant to a consulting agreement dated May 1, 2015. |
| (s) | On December 23, 2015, the Company issued 25,000 shares of common stock with a fair value of $39,063 to the Chief Financial Officer and director of the Company pursuant to the agreement dated September 1, 2015. 12,500 shares were issued for the consultant’s services as a director, and 12,500 shares for services as the Company’s Chief Financial Officer. |
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| (t) | On December 23, 2015, the Company issued 12,500 of shares of common stock with a fair value of $21,250 to the former Chief Executive Officer of the Company for the consultant’s services as a director pursuant to the consulting agreement dated September 1, 2015. |
| (u) | On December 23, 2015, the Company issued 6,250 of shares of common stock with a fair value of $10,625 to the former Chief Executive Officer of the Company for services as the Company’s Chief Executive Officer pursuant to the consulting agreement dated June 29, 2015. |
| (v) | On December 23, 2015, the Company issued 12,500 of shares of common stock with a fair value of $17,500 to a consultant pursuant to a consulting agreement dated December 14, 2015. |
| (w) | On January 27, 2016, the Company issued 500,000 shares of preferred stock to significant shareholders to settle debt of $72,620. Each preferred share is entitled to receive dividends when and if declared by the Company’s board of directors, has 500 to 1 voting power and liquidation rights in the amount of the shares; par value in accordance with the Company’s certificate of designation. Of the 500,000 shares issued, 166,666 shares were issued to a significant shareholder to settle outstanding payables to a significant shareholder of $24,167, and the remaining 333,334 shares are issued to another significant shareholder to settle debts of $42,638, $5,009, and $806 described at Note 4 for a total of $48,453 in outstanding principal and accrued interest. |
Purchase of our Equity Securities by Officers and Directors
None.
Other Stockholder Matters
None
Item 6. Selected Financial Data
Not applicable to smaller reporting companies.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis in conjunction with our financial statements, including the notes thereto, included in this Report. Some of the information contained in this Report may contain forward-looking statements within the meaning of Section 27A of the Securities Exchange Act of 1933, as amended (the “Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This information may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements which involve assumptions and describe our future plans, strategies and expectations, are generally identifiable by the use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project” or the negative of these words or other variations on these words or comparable terminology. These forward-looking statements are based on assumptions that may be incorrect, and there can be no assurance that the projections included in these forward-looking statements will come to pass. Our actual results could differ materially from those expressed or implied by the forward looking statements as a result of various factors. We undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.
Our independent registered public accountants have stated in their report (included in Item 8. Financial Statements) that our significant operating losses and working capital deficit raise substantial doubt about our ability to continue as a going concern. We incurred net losses of $1,981,856 and $170,176, respectively, for the fiscal years ended November 30, 2017 and 2016. We will be required to raise substantial capital to fund our capital expenditures, working capital, and other cash requirements since our current cash assets are exhausted and we have generated no revenues to date to sustain our operations. We will need to seek other financing to complete our business plans. The successful outcome of future financing activities cannot be determined at this time and there are no assurances that, if achieved, we will have sufficient funds to execute our intended business plan or generate positive operational results.
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In addition to our current deficit, we expect to incur additional losses during the foreseeable future. Until we are able to successfully execute our business plan. Consequently, we will require substantial additional capital to continue our development and marketing activities. There is no assurance that we will be able to obtain additional financing through private placements and/or public offerings necessary to support our working capital requirements. To the extent that funds generated from any private placements and/or public offerings are insufficient, we will have to raise additional working capital through other sources, such as bank loans and/or financings. No assurance can be given that additional financing will be available, or if available, will be on acceptable terms.
We are incurring increased costs as a result of being a publicly-traded company. As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002, as well as new rules subsequently implemented by the Securities and Exchange Commission, have required changes in corporate governance practices of public companies. These new rules and regulations have increased our legal and financial compliance costs and have made some activities more time-consuming and costly. For example, as a result of becoming a public company, we have created additional board committees and have adopted policies regarding internal controls and disclosure controls and procedures. In addition, we have incurred additional costs associated with our public company reporting requirements. In addition, these new rules and regulations have made it more difficult and more expensive for us to obtain director and officer liability insurance, which we currently cannot afford to do. As a result of the new rules, it may become more difficult for us to attract and retain qualified persons to serve on our Board of Directors or as executive officers. We cannot predict or estimate the amount of additional costs we may incur as a result of being a public company or the timing of such costs.
RESULTS OF OPERATIONS
Operating Revenues
During the fiscal years ended November 30, 2017 and 2016, the Company did not recognize any revenues.
Operating Expenses
Operating expenses for the year ended November 30, 2017 were $798,284 compared with $168,432 for the year ended November 30, 2016. A summary of the operating expenses are as follows:
Analysis of Operating Expenses
| November 30, | November 30, | Variance | ||||||||||||||
| Operating Expense | 2017 | 2016 | $ | % | ||||||||||||
| Consulting fees | $ | 132,944 | $ | 17,500 | $ | 115,444 | 1984.2% | |||||||||
| Consulting fees - related party | $ | 364,733 | $ | 26,354 | $ | 338,379 | 404.5% | |||||||||
| Depreciation | $ | 5,389 | – | $ | 5,389 | N/A | ||||||||||
| General and administrative | $ | 89,740 | $ | 50,028 | $ | 39,712 | 79.4% | |||||||||
| General and administrative - related party | $ | 187,393 | $ | 36,000 | $ | 151,393 | 420.5% | |||||||||
| Rent | $ | 18,085 | $ | 38,550 | ($ | 20,465 | ) | (53.1 | )% | |||||||
| $ | 798,284 | $ | 168,432 | $ | 629,852 | 374.0% | ||||||||||
Overall, the increase in operating expenses was due to an increase in overall day-to-day activities as the Company moved towards its new line of business. This resulted in the issuance of 24,500,000 common shares with a fair value of $490,000 for consulting services to both third parties and related parties, of which $165,853 has been deferred into fiscal 2018. In the prior year, the Company incurred $43,854 of consulting fees.
The Company also saw an increase in general and administrative costs to both third parties and related parties. This included legal expenses incurred to a director of the Company totaling $177,294 and an increase in professional fees relating to legal and transfer agents costs related to the issuance of common shares and issuance of a convertible debenture, and an increase in accounting and audit fees for an increase in the complexity and magnitude of transactions involved in the Company’s operations in fiscal 2017 compared to prior year.
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The Company had a decrease in rent expense as the Company moved head offices to a location that was more cost effective. The Company also commenced depreciation of its fixed assets during fiscal 2017 recording depreciation costs of $5,389. The Company’s fixed asset is comprised of equipment and is amortized on a straight-line basis over its expected useful life of three to five years.
Net Loss
Net loss for the year ended November 30, 2017 was $1,981,856 or a loss per share of $0.09 compared with a net loss of $170,176 or loss per share of $0.12 for the year ended November 30, 2016. In addition to operating expenses, the Company recorded a loss on the change in fair value of derivative liabilities of $277,578 related to the change in fair value of the beneficial conversion feature of the convertible debenture that was issued during the year. The Company also recorded interest and accretion expense of $393,107 related to the convertible debenture, a loss on settlement of debt of $459,590 related mainly to the conversion of third party and related party debts with the issuance of common shares, and a loss of $53,297 for costs incurred related to a proposed acquisition during fiscal 2017 that never finalized. During the year ended November 30, 2016, the Company had interest expense of $1,744 related to accrued interest on loans payable.
Liquidity and Capital Resources
As of November 30, 2017, the Company had a working capital deficit of $951,880 and an accumulated deficit of $3,218,569. The continuation of the Company as a going concern is dependent upon the continued financial support from its management, its ability to obtain the necessary debt or equity financing, and generate profitable operations from the Company’s planned future operations. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Working Capital
| November 30, 2017 $ | November 30, 2016 $ | |||||||
| Current Assets | 61,916 | 13,082 | ||||||
| Current Liabilities | 1,013,796 | 461,190 | ||||||
| Working Capital (Deficit) | (951,880 | ) | (448,108 | ) | ||||
As at November 30, 2017, the Company had current assets of $61,916 and current liabilities of $1,013,796 compared with current assets of $13,082 and current liabilities of $461,190 at November 30, 2016. The increase in the working capital deficit was due mainly to the issuance of a convertible debenture with a face value of $280,000, and included a default penalty of $73,629, that included the recognition of a derivative liability of $453,005 at November 30, 2017. The overall impact of the convertible debenture and derivative liability increased the working capital deficit by $806,634. The increase was offset by a decrease in the amounts due to related parties of $235,532 and loans payable of $33,000 as the Company converted a number of loans payable and related party debts with the issuance of common shares and with an increase in prepaid expenses of $51,908.
Cash Flows
| Year ended November 30, 2017 $ | Year ended November 30, 2016 $ | |||||||
| Cash Flows from (used in) Operating Activities | (323,695 | ) | (70,503 | ) | ||||
| Cash Flows from (used in) Investing Activities | (124,746 | ) | – | |||||
| Cash Flows from (used in) Financing Activities | 445,367 | 79,540 | ||||||
| Net Increase (decrease) in Cash During Period | (3,074 | ) | 10,841 | |||||
Cash flow from Operating Activities
During the year ended November 30, 2017, the Company used $323,695 of cash for operating activities compared to $70,503 during the year ended November 30, 2016. The increase in the use of cash for operating activities was due to an overall increase in operations and cash flows received from financing activities that gave the Company more flexibility to incur more day-to-day operating costs.
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Cash flow from Investing Activities
During the year ended November 30, 2017, the Company used $124,746 for investing activities which included $20,000 for a loan issued to a related party, which is unsecured, non-interest bearing, and due on demand, and $104,746 for the purchase of equipment, which has been capitalized and is being depreciated on a straight-line basis over three to five years.
Cash flow from Financing Activities
During the year ended November 30, 2017, the Company received $445,367 of cash from financing activities compared to $79,540 during the year ended November 30, 2016. The Company received $250,000 (after accounting for original issuance discount of $30,000) from the issuance of a convertible debenture, $170,000 from the issuance of common shares less finder’s fees paid of $12,000, $28,867 from advances from related parties, and $8,500 in related party loans payable. During the year ended November 30, 2016, the Company received $75,000 from the issuance of a loan payable and share subscriptions of $10,000.
Off-Balance Sheet Arrangements
We have no 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.
Subsequent Events
| (a) | On January 1, 2018, the Company entered into a consulting agreement with a non-related party for consulting services. Pursuant to the agreement, the consultant will receive compensation of $5,000 per month for services rendered. In addition, the consultant will receive $2,500 per every new location the consultant manages. The Company may terminate the agreement upon providing 10 days of written notice to the consultant. |
| (b) | On January 29, 2018, the Company completed a settlement and mutual release agreement with CEG Inc. whereby the proposed acquisition of CEG Inc. was cancelled. As part of the settlement and mutual release agreement, the former Chief Executive Officer of the Company will return 5,650,000 common shares of the Company and the Company will return the rights to the intellectual property that was previously held by CEG Inc., and give machinery that was previously paid by the Company to CEG Inc. The Company incurred $53,297 of expenses relating to the proposed acquisition, which has been recorded for the year ended November 30, 2017. |
| (c) | Subsequent to November 30, 2017 there were 9,500,000 shares issued for consulting services and 2,433,555 shares issued for conversion of debt. |
Going Concern
We have not attained profitable operations and are dependent upon obtaining financing to pursue any extensive activities. For these reasons, our auditors stated in their report on our audited financial statements that they have substantial doubt that we will be able to continue as a going concern without further financing.
Future Financings
We will continue to rely on equity sales of our common shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund planned acquisitions and activities.
Critical Accounting Policies
Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
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We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. A complete summary of these policies is included in note (1) of the notes to our financial statements. In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes for the reporting period. Significant areas requiring the use of management estimates relate to the valuation of its mineral leases and claims and our ability to obtain final government permission to complete the project.
Stock-Based Compensation
The Company records stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation, using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued.
Recently Issued Accounting Pronouncements
We have reviewed all the recently issued, but not yet effective, accounting pronouncements and we do not believe any of these pronouncements will have a material impact on the Company other than those relating to Development Stage Entities as discussed below in our financial statements
Contractual Obligations
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
Not applicable to smaller reporting companies.
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GALA PHARMACEUTICAL INC.
(formerly Gala Global Inc.)
Consolidated Financial Statements
For the Years Ended November 30, 2017 and 2016
| 9 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Directors and Stockholders of
Gala Global, Inc. (now known as Gala Pharmaceutical, Inc.)
Las Vegas, NV
We have audited the accompanying consolidated balance sheet of Gala Global, Inc. (now known as Gala Pharmaceutical, Inc.) as of November 30, 2016 and the related consolidated statements of operations, changes in stockholders’ deficit and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Gala Global, Inc. (now known as Gala Pharmaceutical, Inc.) as of November 30, 2016 and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered continuing losses and has yet established a reliable, consistent and proven source of revenue to meet its operating costs on an ongoing basis and currently does not have sufficient available funding to fully implement its business plan. These factors raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Pritchett, Siler & Hardy, P.C.
Pritchett, Siler & Hardy, P.C.
Salt Lake City, Utah
March 9, 2017
| F-1 |
To the Board of Directors and
Stockholders of Gala Pharmaceutical, Inc. (formerly Gala Global, Inc.)
Opinion on the Financial Statements
We have audited the accompanying balance sheet of Gala Pharmaceutical, Inc. (formerly Gala Global, Inc.) (the Company) as of November 30, 2017, and the related statement of operations, stockholders’ deficit, and cash flows for the year ended November 30, 2017, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of November 30, 2017, and the results of its operations and its cash flows for the year ended November 30, 2017, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Consideration of the Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 1 to the financial statements, the Company has recurring losses, negative working capital and negative cash flows from operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. If the Company is unable to obtain financing, there could be a material adverse effect on the Company.
/s/ Haynie & Company
Haynie & Company
We have served as the Company’s auditor since 2017.
Salt Lake City, Utah
April 5, 2018
| F-2 |
GALA PHARMACEUTICAL INC.
(formerly Gala Global Inc.)
November 30, 2017 | November 30, 2016 $ | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | 7,767 | 10,841 | ||||||
| Inventory | 2,241 | 2,241 | ||||||
| Prepaid expenses | 41,908 | – | ||||||
| Prepaid expenses – related parties | 10,000 | – | ||||||
| Total current assets | 61,916 | 13,082 | ||||||
| Equipment, net of accumulated depreciation | 46,060 | – | ||||||
| Total assets | 107,976 | 13,082 | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | 34,556 | 20,052 | ||||||
| Accounts payable and accrued liabilities – related party | 61,475 | 94,039 | ||||||
| Due to related parties | 48,367 | 249,835 | ||||||
| Loans payable | 42,000 | 75,000 | ||||||
| Loans payable - related parties | 20,764 | 22,264 | ||||||
| Convertible note | 353,629 | – | ||||||
| Derivative liabilities | 453,005 | – | ||||||
| Total liabilities | 1,013,796 | 461,190 | ||||||
| Commitments and Contingencies | ||||||||
| STOCKHOLDERS’ DEFICIT | ||||||||
| Preferred stock Authorized: 10,000,000 shares with a par value of $0.001 per share Issued and outstanding: 500,000 and 500,000 shares, respectively | 500 | 500 | ||||||
| Common stock Authorized: 500,000,000 shares with a par value of $0.001 per share Issued and outstanding: 35,701,561 and 1,369,224 shares, respectively | 35,702 | 1,369 | ||||||
| Additional paid-in capital | 2,417,400 | 786,736 | ||||||
| Common stock issuable | 25,000 | – | ||||||
| Deferred compensation – related party | (165,853 | ) | – | |||||
| Accumulated deficit | (3,218,569 | ) | (1,236,713 | ) | ||||
| Total stockholders’ deficit | (905,820 | ) | (448,108 | ) | ||||
| Total liabilities and stockholders’ deficit | 107,976 | 13,082 | ||||||
(The accompanying notes are an integral part of these consolidated financial statements)
| F-3 |
GALA PHARMACEUTICAL INC.
(formerly Gala Global Inc.)
Consolidated Statements of Operations
Year ended November 30, 2017 | Year ended November 30, 2016 | |||||||
| Operating expenses | ||||||||
| Consulting fees | 132,944 | 17,500 | ||||||
| Consulting fees – related party | 364,733 | 26,354 | ||||||
| Depreciation | 5,389 | – | ||||||
| General and administrative | 89,740 | 50,028 | ||||||
| General and administrative – related party | 187,393 | 36,000 | ||||||
| Rent | 18,085 | 38,550 | ||||||
| Total operating expense | 798,284 | 168,432 | ||||||
| Loss before other expense | (798,284 | ) | (168,432 | ) | ||||
| Other expense | ||||||||
| Change in fair value of derivative liabilities | (277,578 | ) | – | |||||
| Interest expense | (393,107 | ) | (1,744 | ) | ||||
| Loss on settlement of debt | (93,050 | ) | – | |||||
| Loss on settlement of debt – related party | (366,540 | ) | – | |||||
| Loss on dissolution of proposed acquisition | (53,297 | ) | – | |||||
| Total other expense | (1,183,572 | ) | (1,744 | ) | ||||
| Net loss | (1,981,856 | ) | (170,176 | ) | ||||
| Net loss per share, basic and diluted | (0.09 | ) | (0.12 | ) | ||||
| Weighted average common shares outstanding | 21,250,299 | 1,369,224 | ||||||
(The accompanying notes are an integral part of these consolidated financial statements)
| F-4 |
GALA PHARMACEUTICAL INC.
(formerly Gala Global Inc.)
Consolidated Statements of Changes in Stockholders’ Deficit
| Preferred stock | Common stock | Additional paid-in | Common Stock | Deferred | Accumulated | |||||||||||||||||||||||||||||||
| Shares | Par Value | Shares | Par value | capital | Issuable | Compensation | deficit | Total | ||||||||||||||||||||||||||||
| # | $ | # | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Balance, November 30, 2015 | – | – | 1,300,474 | 1,300 | 601,248 | – | – | (1,066,537 | ) | (463,989 | ) | |||||||||||||||||||||||||
| Shares issued for consulting services – related party | – | – | 43,750 | 44 | 70,893 | – | – | – | 70,937 | |||||||||||||||||||||||||||
| Shares issued for consulting services | – | – | 25,000 | 25 | 42,475 | – | – | – | 42,500 | |||||||||||||||||||||||||||
| Shares issued for conversion of debt | 500,000 | 500 | – | – | 72,120 | – | – | – | 72,620 | |||||||||||||||||||||||||||
| Net loss for the year | – | – | – | – | – | – | – | (170,176 | ) | (170,176 | ) | |||||||||||||||||||||||||
| Balance, November 30, 2016 | 500,000 | 500 | 1,369,224 | 1,369 | 786,736 | – | – | (1,236,713 | ) | (448,108 | ) | |||||||||||||||||||||||||
| Shares issued for cash | – | – | 2,000,000 | 2,000 | 168,000 | – | – | – | 170,000 | |||||||||||||||||||||||||||
| Shares issued for deferred compensation– related party | – | – | 24,500,000 | 24,500 | 465,500 | – | – | – | 490,000 | |||||||||||||||||||||||||||
| Shares issued for consulting services - prepaid | – | – | 5,000,000 | 5,000 | 38,000 | – | – | – | 40,000 | |||||||||||||||||||||||||||
| Shares issued for consulting services | – | – | 3,000,000 | 3,000 | 57,000 | – | – | 60,000 | ||||||||||||||||||||||||||||
| Shares issued for settlement of debt | – | – | 424,875 | 425 | 127,037 | – | – | – | 127,462 | |||||||||||||||||||||||||||
| Shares issued for settlement of debt – related party | – | – | 2,007,452 | 2,008 | 712,954 | – | – | – | 714,962 | |||||||||||||||||||||||||||
| Shares issued from exercise of warrants | – | – | 400,000 | 400 | (400 | ) | – | – | – | – | ||||||||||||||||||||||||||
| Shares issuable for consulting services | – | – | – | – | – | 25,000 | – | – | 25,000 | |||||||||||||||||||||||||||
| Deferred compensation | – | – | – | – | – | – | (165,853 | ) | – | (165,853 | ) | |||||||||||||||||||||||||
| Fair value of warrants granted | – | – | – | – | 74,573 | – | – | – | 74,573 | |||||||||||||||||||||||||||
| Finders’ fees | – | – | – | – | (12,000 | ) | – | – | – | (12,000 | ) | |||||||||||||||||||||||||
| Net loss for the year | – | – | – | – | – | – | – | (1,981,856 | ) | (1,981,856 | ) | |||||||||||||||||||||||||
| Balance, November 30, 2017 | 500,000 | 500 | 35,701,561 | 35,702 | 2,417,400 | 25,000 | (165,853 | ) | (3,218,569 | ) | (905,820 | ) | ||||||||||||||||||||||||
(The accompanying notes are an integral part of these consolidated financial statements)
| F-5 |
GALA PHARMACEUTICAL INC.
(formerly Gala Global Inc.)
Consolidated Statements of Cash Flows
| Year Ended November 30, 2017 $ | Year Ended November 30, 2016 $ | |||||||
| Operating activities | ||||||||
| Net loss for the year | (1,981,856 | ) | (170,166 | ) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Amortization of discount on convertible note | 250,000 | – | ||||||
| Amortization of debt issuance costs | 30,000 | – | ||||||
| Change in fair value of derivative liability | 277,578 | – | ||||||
| Amortization of deferred compensation | 324,147 | – | ||||||
| Common shares issued for services | 60,000 | – | ||||||
| Common shares issuable for services | 25,000 | – | ||||||
| Depreciation | 5,389 | – | ||||||
| Loss on uncollectibility of loan receivable | 20,000 | – | ||||||
| Loss on dissolution of proposed acquisition | 53,297 | – | ||||||
| Loss on settlement of related party debt | 366,540 | 2,064 | ||||||
| Loss on settlement of debt | 93,050 | – | ||||||
| Penalty interest on default of convertible note | 73,629 | – | ||||||
| Stock-based compensation | – | 17,500 | ||||||
| Stock-based compensation - related party | – | 26,354 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Inventory | – | 460 | ||||||
| Prepaid expenses | (1,908 | ) | – | |||||
| Prepaid expenses – related party | (10,000 | ) | – | |||||
| Accounts payable and accrued liabilities | 35,417 | 17,002 | ||||||
| Accounts payable and accrued liabilities – related party | 56,022 | 36,293 | ||||||
| Net cash used in operating activities | (323,695 | ) | (70,503 | ) | ||||
| Investing activities | ||||||||
| Loan issued to related party | (20,000 | ) | – | |||||
| Purchase of equipment | (104,746 | ) | – | |||||
| – | ||||||||
| Net cash used in investing activities | (124,746 | ) | – | |||||
| Financing activities | ||||||||
| Proceeds from related party operating advances | 28,867 | 640 | ||||||
| Repayments of related party operating advances | – | (6,100 | ) | |||||
| Proceeds from convertible note | 250,000 | – | ||||||
| Proceeds from issuance of common shares | 170,000 | – | ||||||
| Payment of finder’s fee | (12,000 | ) | – | |||||
| Proceeds from shares to be issued | – | 10,000 | ||||||
| Proceeds from loan payable – related party | 8,500 | – | ||||||
| Proceeds from loan payable | – | 75,000 | ||||||
| Net cash provided by financing activities | 445,367 | 79,540 | ||||||
| Increase (decrease) in cash | (3,074 | ) | 9,037 | |||||
| Cash, beginning of period | 10,841 | 1,804 | ||||||
| Cash, end of period | 7,767 | 10,841 | ||||||
Supplemental disclosures (Note 11)
(The accompanying notes are an integral part of these consolidated financial statements)
| F-6 |
GALA PHARMACEUTICAL INC.
(formerly Gala Global Inc.)
Notes to the Consolidated Financial Statements
Years ended November 30, 2017 and 2016
| 1. | Organization and Nature of Operations |
Gala Pharmaceutical Inc. (formerly Gala Global Inc.) (the “Company” or “GPI”) was incorporated in the State of Nevada on March 10, 2010. The Company provides Testing or Analytical Chemistry tools for chemical, plant, soil, and liquid composition analysis. GPI provides analysis of compositional traits for hemp and cannabis products (cannabinoid, terpenes, pesticides, residual solvents and microbial). The analysis is being done at certified labs with persistent results.
The Company also provides genetic “fingerprinting” and “sequencing” of various crop species. This fingerprinting allows for storing genetic fingerprint information into a proprietary database. Customers can access genetic fingerprint data which can be used for predictive breeding applications and for protecting intellectual property (IP). Additionally, the Company can develop new genetics by using state of the art breeding technology and provides tissue culture and cloning services. These clones are guaranteed to be disease free, chemical free and healthy and robust.
Additionally, the Company provides consulting on testing and manufacturing lab designs and standard operating procedures. The Company provides services to customers for building turnkey labs, drug formulations and troubleshooting. It has highly qualified professionals to bring productivity and efficiency within your current resources.
Going Concern
These consolidated financial statements have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities in the normal course of business. As at November 30, 2017, the Company has a working capital deficit of $951,880 and an accumulated deficit of $3,218,569. The continuation of the Company as a going concern is dependent upon the continued financial support from its management, and its ability to identify future investment opportunities and obtain the necessary debt or equity financing, and generating profitable operations from the Company’s future operations. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
| 2. | Summary of Significant Accounting Policies |
| (a) | Basis of Presentation |
These consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) and are expressed in U.S. dollars. The Company’s fiscal year end is November 30.
| (b) | Principles of Consolidation |
These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries: Cannabis Ventures Inc (USA), Cannabis Ventures Inc (Canada), and CBD Life, Inc. All inter-company transactions and balances have been eliminated on consolidation.
| (c) | Use of Estimates |
The preparation of consolidated financial statements in conformity with US GAAP requires preparation of financial statements in conformity with US GAAP requires management to make 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 and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the valuation of inventory, valuation of derivative liability and share-based compensation, and deferred income tax asset valuation allowances.
| F-7 |
GALA PHARMACEUTICAL INC.
(formerly Gala Global Inc.)
Notes to the Consolidated Financial Statements
Years ended November 30, 2017 and 2016
| 2. | Summary of Significant Accounting Policies (continued) |
| (c) | Use of Estimates (continued) | |
| The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. | ||
| (d) | Inventory | |
| Inventory is comprised of Vape Mods purchased for resale, and is recorded at the lower of cost or net realizable value on a first-in first-out basis. The Company establishes inventory reserves for estimated obsolete or unsaleable inventory equal to the difference between the cost of inventory and the estimated realizable value based upon assumptions about future market conditions. | ||
| (e) | Cash and Cash Equivalents | |
| The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents. As of November 30, 2017 and 2016, there were no cash equivalents. | ||
| (f) | Financial Instruments | |
| The Company’s financial instruments consist principally of cash, accounts payable and accrued liabilities, loans payable to related parties, loans payable, and amounts due to related party. The recorded values of all these financial instruments approximate their current fair values because of the short term nature of these financial instruments. | ||
| (g) | Income Taxes | |
| The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, Accounting for Income Taxes. Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred taxes will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. On December 22, 2017, the Tax Cuts and Jobs Act was enacted which reduced the corporate statutory tax rate from 34% to 21% commencing on January 1, 2018. The Company has used an effective tax rate of 34%. | ||
| (h) | Property and Equipment | |
| Property and equipment are stated at cost, and is presented net of accumulated depreciation. Depreciation is computed for financial reporting purposes using the straight-line method over the estimated useful lives of the assets. Repairs and maintenance that do not extend the useful life of property and equipment are charged to expense as incurred. When property and equipment are retired or otherwise disposed of, the asset and its accumulated depreciation are removed, and the resulting profit or loss is reflected in income. | ||
| The estimated service lives of property and equipment are principally as follows: |
| Computers and equipment | 3-5 years |
| Furniture & Fixtures | 5-10 years |
| F-8 |
GALA PHARMACEUTICAL INC.
(formerly Gala Global Inc.)
Notes to the Consolidated Financial Statements
Years ended November 30, 2017 and 2016
| 2. | Summary of Significant Accounting Policies (continued) |
| (i) | Fair Value of Financial Instruments | |
| The Company complies with the accounting guidance under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 820-10, Fair Value Measurements, as well as certain related FASB staff positions. This guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact business and considers assumptions that marketplace participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. | ||
| The guidance also establishes a fair value hierarchy for measurements of fair value as follows: | ||
| Level 1 — quoted market prices in active markets for identical assets or liabilities. | ||
| Level 2 — inputs other than Level I that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. | ||
| Level 3 — unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. | ||
| As of November 30, 2017, the Company had the following assets and liabilities measured at fair value on a recurring basis. |
| Total $ | Level 1 $ | Level 2 $ | Level 3 $ | |||||||||||||
| Derivative Liability | 453,005 | – | – | 453,005 | ||||||||||||
| (j) | Revenue Recognition | |
| The Company earns revenue from the sale of Vape Mods, which are modified electronic cigarettes and vape pens. Revenue will be recognized only when the price is fixed and determinable, persuasive evidence of an arrangement exists, the service has been provided, and collectability is assured. The Company is not exposed to any credit risks as amounts are prepaid prior to performance of services. | ||
| (k) | Stock-based Compensation | |
| The Company records stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued. | ||
| (l) | Deferred Compensation | |
| Deferred compensation is comprised of the fair value of common shares issued to officers and directors of the Company for which services have not been rendered. As services are rendered, the amounts in deferred compensation are expensed as incurred in the consolidated statements of operations. As at November 30, 2017, the Company recorded $165,853 (2016 - $nil) of deferred compensation. |
| F-9 |
GALA PHARMACEUTICAL INC.
(formerly Gala Global Inc.)
Notes to the Consolidated Financial Statements
Years ended November 30, 2017 and 2016
| 2. | Summary of Significant Accounting Policies (continued) |
| (m) | Foreign Currency Translation | |
| The Company’s functional and reporting currency is the U.S. dollar. Monetary assets and liabilities of integrated operations and other monetary assets and liabilities denominated in foreign currencies are translated to U.S. dollars at exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are translated at historical rates. Revenues and expenses are translated at average rates for the period, except for amortization, which is translated on the same basis as the related asset. The resulting exchange gains or losses are recognized in the statements of operations. | ||
| (n) | Basic and Diluted Net Loss per Share | |
| The Company computes net income (loss) per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. All effects of the reverse stock split discussed at Note 9(d) has been applied retroactively to calculations of basic and diluted net loss per share for periods presented. As at November 30, 2017, the Company had 2,659,468 (2016 – nil) potentially issuable shares from an outstanding convertible note, which are anti-dilutive. | ||
| (o) | Derivative Liability | |
| From time to time, the Company may issue equity instruments that may contain an embedded derivative instrument which may result in a derivative liability. A derivative liability exists on the date the equity instrument is issued when there is a contingent exercise provision. The derivative liability is recorded at its fair value calculated by using an option pricing model such as a multi-nominal lattice model. The fair value of the derivative liability is then calculated on each balance sheet date with the corresponding gains and losses recorded in the consolidated statement of operations | ||
| (p) | Beneficial Conversion Features | |
| From time to time, the Company may issue convertible notes that may contain an embedded beneficial conversion feature. A beneficial conversion feature exists on the date a convertible note is issued when the fair value of the underlying common stock to which the note is convertible into is in excess of the remaining unallocated proceeds of the note after first considering the allocation of a portion of the note proceeds to the fair value of the warrants, if related warrants have been granted. The intrinsic value of the beneficial conversion feature is recorded as a debt discount with a corresponding amount to additional paid in capital. The debt discount is amortized to interest expense over the life of the note using the effective interest method. | ||
| (q) | Recent Accounting Pronouncements | |
| The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations. |
| 3. | Deferred Compensation |
Deferred compensation is comprised of common shares issued to officers and directors of the Company for compensation services. During the year ended November 30, 2017, the Company issued 24,500,000 common shares with a fair value of $490,000 for compensation of which $324,147 was expensed during the period and the remaining $165,853 was recorded as deferred compensation within shareholders’ equity.
| F-10 |
GALA PHARMACEUTICAL INC.
(formerly Gala Global Inc.)
Notes to the Consolidated Financial Statements
Years ended November 30, 2017 and 2016
| 4. | Equipment |
| Cost $ | Accumulated amortization $ | November 30, 2017 $ | November 30, 2016 $ | |||||||||||||||
| Machinery | 52,869 | 6,809 | 46,060 | – | ||||||||||||||
During the year ended November 30, 2017, the Company recorded $5,389 (2016 - $nil) of depreciation expense.
| 5. | Convertible Debenture |
On May 15, 2017, the Company entered into a promissory note agreement with a non-related party for proceeds of $280,000, net of an original issuance discount and legal fees of $30,000 which were capitalized and amortized over the period of the convertible debenture. The promissory note is unsecured, bears interest at 10% per annum, and is due on November 30, 2017. The promissory note is convertible into common shares at the lesser of: (a) $0.35; or (b) 65% of the average of the three lowest volume weighted average price of the Company’s common shares in the 20 days preceding the notice of conversion limited by a conversion floor price of $0.05 per share.
The embedded conversion option qualifies for derivative accounting under ASC 815-15, Derivatives and Hedging. The fair value of the derivative liability resulted in a full discount of the $250,000 based on the net proceeds received from promissory note. The carrying value of the convertible debenture was accreted over the term of the convertible debenture up to the face value of $280,000. The note is in default and now has a default interest rate of 22%. On November 30, 2017, a default penalty of $73,629 was applied as the Company defaulted on the convertible debenture. As at November 30, 2017, the carrying value of the convertible debenture was $353,629 and the unamortized discount on the convertible debenture was $nil.
| 6. | Derivative Liability |
The Company records the fair value of the conversion price of the convertible debentures, as disclosed in Note 5, in accordance with ASC 815, Derivatives and Hedging. The fair value of the derivative liability is revalued on each balance sheet date or upon conversion of the underlying convertible debenture into equity with corresponding gains and losses recorded in the consolidated statement of operations. The fair value of the derivative as of May 15, 2017 was $305,957 calculated using the binomial option pricing model. At inception, there was a debt discount related to the conversion feature of $175,427 and a loss on the derivative of $130,530. During the year ended November 30, 2017, the Company recorded a loss on the change in fair value of the derivative liability of $277,578 (2016 - $nil). As at November 30, 2017, the Company had a derivative liability of $453,005 (2016 - $nil).
| Balance, November 30, 2016 | $ | – | ||
| Conversion feature at inception | 175,427 | |||
| Loss at inception | 130,530 | |||
| Change in fair value | 147,048 | |||
| Balance, November 30, 2017 | $ | 453,005 |
The following inputs and assumptions were used to value the convertible debentures outstanding during the year ended November 30, 2017:
| Expected Volatility | Risk-free Interest Rate | Expected Dividend Yield | Expected Life (in years) | |||||||||||||
| May 15, 2017 convertible debenture: | ||||||||||||||||
| As at May 15, 2017 (date of issuance) | 288% | 1.02% | 0% | 0.5 | ||||||||||||
| As at November 30, 2017 (mark-to-market) | 338% | 1.27% | 0% | 0.3 | ||||||||||||
| F-11 |
GALA PHARMACEUTICAL INC.
(formerly Gala Global Inc.)
Notes to the Consolidated Financial Statements
Years ended November 30, 2017 and 2016
| 7. | Related Party Transactions |
| a) | As at November 30, 2017, the Company owed $48,367 (2016 - $249,835) to a company controlled by a significant shareholder of the Company to fund payment of operating expenditures. During the year ended November 30, 2017, the Company settled $249,835 of related party debt with the issuance of 1,387,970 common shares. Refer to Note 9(c). The remaining amount owed is unsecured, non-interest bearing, and due on demand. |
| b) | As at November 30, 2017, the Company owed $17,000 (2016 - $nil) to the former Chief Executive Officer of the Company for compensation and consulting services, which has been recorded in accounts payable and accrued liabilities – related parties. The amounts owing are unsecured, non-interest bearing, and due on demand. |
| c) | As at November 30, 2017, the Company owed $25,000 (2016 - $79,333) to a significant shareholder of the Company, which has been recorded in accounts payable and accrued liabilities - related parties. The amount owed is unsecured, non-interest bearing, and due on demand. During the year ended November 30, 2017, the Company incurred $177,295 (2016 - $36,000) of consulting expense relating to services provided to the Company. In August 2017, the Company settled $88,333 of related party debt with the issuance of 490,742 common shares. |
| d) | As at November 30, 2017, the Company owed $5,625 (2016 - $5,625) to an officer of the Company, which has been recorded in accounts payable and accrued liabilities – related parties. The amount owing is unsecured, non-interest bearing, and due on demand. |
| e) | As at November 30, 2017, the Company owed $18,500 (November 30, 2016 - $10,000) to a company controlled by a significant shareholder of the Company. The amount owed is unsecured, non-interest bearing, and due on demand. |
| f) | As at November 30, 2017, the Company owed $2,064 (2016 - $2,064) to a significant shareholder of the Company. The amount is unsecured, bears interest at 3% per annum, and due 180 days from the date of issuance. As at November 30, 2017, accrued interest of $82 (November 30, 2016 - $15) has been included in accounts payable and accrued liabilities, related parties. |
| g) | As at November 30, 2017, the Company owed $12,500 (2016 -$ nil) to the Chief Operating Officer of the Company for consulting services, which has been recorded in accounts payable and accrued liabilities – related parties. The amounts owing are unsecured, non-interest bearing, and due on demand. |
| h) | As at November 30, 2017, the Company owed $1,195 (2016 - $nil) to the Chief Executive Officer of the Company for services, which has been recorded in accounts payable and accrued liabilities – related parties. The amounts owing are unsecured, non-interest bearing, and due on demand. |
| i) | As at November 30, 2017, the Company owed $nil (2016 - $10,000) to the spouse of a former significant shareholder of the Company for a note issued on September 21, 2016. Under the terms of the note, the amount due was unsecured, bore interest at 3% per annum, and was due 180 days from the date of issuance. In July 2017, the Company issued 128,750 common shares with a fair value of $38,625 to settle $10,000 of principal balance and $254 of accrued interest. |
| F-12 |
GALA PHARMACEUTICAL INC.
(formerly Gala Global Inc.)
Notes to the Consolidated Financial Statements
Years ended November 30, 2017 and 2016
| 7. | Related Party Transactions (continued) |
| j) | On May 8, 2017, the Company entered into an agreement whereby the Company agreed to acquire 80% of the issued and outstanding common stock of Controlled Environment Genomics Inc ("CEG Inc"), in exchange for a new series of the Company’s preferred shares, and issue 5,000,000 restricted common shares in exchange for CEG's intellectual property. In the event that CEG, Inc. becomes its own public entity, the executive shall receive 51% ownership of the new entity, and the Company will retain the remaining 49%. As at November 30, 2017, the agreement to acquire the common stock of CEG Inc. was cancelled and costs of $53,297 relating to the proposed acquisition was expensed as incurred. |
| k) | During the year ended November 30, 2017, the Company issued 24,500,000 common shares with a fair value of $490,000 to officers and directors of the Company as compensation for services for a period of one year. As at November 30, 2017, the Company recorded $165,853 as deferred compensation within shareholders’ equity. During the year ended November 30, 2017, the Company recorded $324,147 (2016 - $nil) of share based compensation expense. |
| l) | During the year ended November 30, 2017, the Company loaned $20,000 (2016- $nil) to a company controlled by the former Chief Executive Officer of the Company for day-to-day expenses. The amount owing is unsecured, non-interest bearing, and due on demand. As at November 30, 2017, the Company recorded an impairment charge of $20,000 due to the unlikelihood of collecting outstanding amounts owed to the Company. |
| 8. | Loans Payable |
| a) | On December 29, 2015, the Company issued a $20,000 promissory note to an unrelated party. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and was due 180 days from the date of issuance and was considered to be in default. On July 21, 2017, the Company issued 965,625 common shares with a fair value of $77,250 to settle outstanding principal amount of $20,000 and accrued interest of $966 resulting in a loss on settlement of debt of $56,284. |
| b) | On April 19, 2016, the Company issued a $3,000 promissory note to an unrelated party. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and was due 180 days from the date of issuance and was considered to be in default. On July 21, 2017, the Company issued 37,500 common shares with a fair value of $11,587 to settle outstanding principal amount of $3,000 and accrued interest of $116 resulting in a loss on settlement of debt of $8,471. |
| c) | On April 22, 2016, the Company issued a $22,000 promissory note to an unrelated party. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and was due 180 days from the date of issuance and is now considered in default. As at November 30, 2017, the outstanding balance of the promissory note was $22,000 (2016 - $22,000) and accrued interest of $1,093 (2016 - $409) was recorded in accounts payable and accrued liabilities. |
| d) | On June 3, 2016, the Company issued a $20,000 promissory note to an unrelated party. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and was due 180 days from the date of issuance and considered in default. As at November 30, 2017, the outstanding balance of the promissory note was $20,000 (2016 - $20,000) and accrued interest of $901 (2016 - $282) was recorded in accounts payable and accrued liabilities. |
| e) | On June 23, 2016, the Company issued a $10,000 promissory note to an unrelated party. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and was due 180 days from the date of issuance and was considered in default. On July 21, 2017, the Company issued 125,000 common shares with a fair value of $38,625 to settle outstanding principal amount of $10,000 and accrued interest of $331 resulting in a loss on settlement of debt of $28,294. |
| F-13 |
GALA PHARMACEUTICAL INC.
(formerly Gala Global Inc.)
Notes to the Consolidated Financial Statements
Years ended November 30, 2017 and 2016
| 9. | Common Shares |
Stock transactions for the year ended November 30, 2017:
| (a) | On January 30, 2017, the Company effected a share consolidation on a 100 old shares for 1 new share basis. The share consolidation has been applied retroactively to the earliest period presented. | |
| (b) | On March 22, 2017, the Company issued 490,742 common shares with a fair value of $176,667 to settle outstanding debt of $88,333 owed to a significant shareholder of the Company. The transaction resulted in a loss on settlement of debt of $88,334, which was recorded in the consolidated statement of operations. | |
| (c) | On March 22, 2017, the Company issued 1,387,970 common shares with a fair value of $499,670 to settle outstanding debt of $249,835 owed to a company controlled by a significant shareholder of the Company. The transaction resulted in a loss on settlement of debt of $249,835, which was recorded in the consolidated statement of operations. | |
| (d) | On March 30, 2017, the Company issued 10,000,000 common shares with a fair value of $200,000 to a significant shareholder of the Company for compensation services for a period of twelve months from the date of issuance. As at November 30, 2017, deferred compensation of $65,205 has been recorded in deferred compensation and $134,795 has been expensed. | |
| (e) | On March 30, 2017, the Company issued 10,000,000 common shares with a fair value of $200,000 to a significant shareholder of the Company for compensation services for a period of twelve months from the date of issuance. As at November 30, 2017, deferred compensation of $65,205 has been recorded and $134,795 has been expensed.. | |
| (f) | On March 30, 2017, the Company issued 1,500,000 common shares with a fair value of $30,000 to the Chief Financial Officer of the Company for compensation services for a period of twelve months from the date of issuance. As at November 30, 2017, deferred compensation of $9,171 has been recorded and $20,219 has been expensed. | |
| (g) | On March 30, 2017, the Company issued 1,500,000 common shares with a fair value of $30,000 to a director of the Company for compensation services for a period of twelve months from the date of issuance. As at November 30, 2017, deferred compensation of $9,781 has been recorded and $20,219 has been expensed. | |
| (h) | On July 6, 2017, the Company issued 1,500,000 common shares at $0.08 per common share pursuant to private placement for proceeds of $120,000. Finder’s fees of $12,000 were paid related to this transaction which reduced additional paid in capital by the same amount. | |
| (i) | On June 12, 2017, the Company issued 2,000,000 common shares for consulting services over a twelve month period with a fair value of $40,000. As of November 30, 2017 prepaid expense for these shares is $21,175. | |
| (j) | On June 13, 2017, the Company issued 1,500,000 common shares with a fair value of $30,000 to the former Chief Operating Officer of the Company for compensation services for a period of twelve months from the date of issuance. As at November 30, 2017, deferred compensation of $15,881 has been recorded and $14,119 has been expensed. | |
| (k) | On July 21, 2017, the Company issued 553,625 common shares with a fair value of $166,088 to settle outstanding promissory notes and accrued interest of $44,666 resulting in a loss on settlement of debt of $121,422, including 128,750 common shares with a fair value of $38,625 to settle outstanding promissory notes and accrued interest of $10,254 resulting in a loss on settlement of debt of $28,371 to a related party. |
| F-14 |
GALA PHARMACEUTICAL INC.
(formerly Gala Global Inc.)
Notes to the Consolidated Financial Statements
Years ended November 30, 2017 and 2016
| 9. | Common Shares (continued) |
| (l) | On September 1, 2017, the Company issued 1,500,000 common shares with a fair value of $30,000 for consulting services. | |
| (m) | On October 1, 2017, the Company issued 1,500,000 common shares with a fair value of $30,000 for consulting services. | |
| (n) | On October 20, 2017, the Company issued 250,000 common shares at $0.10 per share for proceeds of $25,000. | |
| (o) | On October 23, 2017, the Company issued 400,000 common shares to settle the outstanding share purchase warrants which were issued as part of the issuance of the convertible debenture. | |
| (p) | On November 9, 2017, the Company issued 250,000 common shares at $0.10 per share for proceeds of $25,000. | |
| (q) | At November 30, 2017, the Company had 3,000,000 common shares issuable for consulting services with a fair value of $300,000, of which $25,000 was recorded as consulting expense. | |
| Stock transactions for the year ended November 30, 2016: | ||
| (r) | On December 23, 2015, the Company issued 12,500 shares of common stock with a fair value of $25,000 to a consultant pursuant to a consulting agreement dated May 1, 2015. | |
| (s) | On December 23, 2015, the Company issued 25,000 shares of common stock with a fair value of $39,063 to the Chief Financial Officer and director of the Company pursuant to the agreement dated September 1, 2015. 12,500 shares were issued for the consultant’s services as a director, and 12,500 shares for services as the Company’s Chief Financial Officer. | |
| (t) | On December 23, 2015, the Company issued 12,500 of shares of common stock with a fair value of $21,250 to the former Chief Executive Officer of the Company for the consultant’s services as a director pursuant to the consulting agreement dated September 1, 2015. | |
| (u) | On December 23, 2015, the Company issued 6,250 of shares of common stock with a fair value of $10,625 to the former Chief Executive Officer of the Company for services as the Company’s Chief Executive Officer pursuant to the consulting agreement dated June 29, 2015. | |
| F-15 |
GALA PHARMACEUTICAL INC.
(formerly Gala Global Inc.)
Notes to the Consolidated Financial Statements
Years ended November 30, 2017 and 2016
| 9. | Common Shares (continued) |
| (v) | On December 23, 2015, the Company issued 12,500 of shares of common stock with a fair value of $17,500 to a consultant pursuant to a consulting agreement dated December 14, 2015. |
Preferred Shares
On January 27, 2016, the Company issued 500,000 shares of preferred stock to significant shareholders to settle debt of $72,620. Each preferred share is entitled to receive dividends when and if declared by the Company’s board of directors, has 500 to 1 voting power and liquidation rights in the amount of the shares; par value in accordance with the Company’s certificate of designation. Of the 500,000 shares issued, 166,666 shares were issued to a significant shareholder to settle outstanding payables to a significant shareholder of $24,167, and the remaining 333,334 shares are issued to another significant shareholder to settle debts of $42,638, $5,009, and $806 described at Note 4 for a total of $48,453 in outstanding principal and accrued interest.
| 10. | Share Purchase Warrants |
On May 15, 2017, the Company issued 486,783 share purchase warrants with an exercise price of $0.09 per share for a period of five years in conjunction with the issuance of convertible debt. The fair value of the share purchase warrants was $105,396, calculated using the binomial option pricing model assuming no expected dividends, volatility of 199%, expected life of 5 years, and a risk free rate of 1.05%. The allocated relative fair value of the warrants was $74,573. The fair value of the share purchase warrants were recorded in the consolidated statement of operations as debt discount. In October 2017, the Company issued 400,000 common shares as a settlement and return of the outstanding share purchase warrants by the convertible note holder.
On October 23, 2017, the share purchase warrants were cancelled and replaced with the issuance of 400,000 common shares. Refer to Note 9(o).
| Number of warrants | Weighted average exercise price $ | ||||||||
| Balance, November 30, 2015 and 2016 | – | – | |||||||
| Issued | 486,783 | 0.09 | |||||||
| Cancelled | (486,783 | ) | 0.09 | ||||||
| Balance, November 30, 2017 | – | – | |||||||
| F-16 |
GALA PHARMACEUTICAL INC.
(formerly Gala Global Inc.)
Notes to the Consolidated Financial Statements
Years ended November 30, 2017 and 2016
| 11. | Supplemental Disclosures |
| Year ended November 30, 2017 $ | Year ended November 30, | |||||||
| Non-cash investing and financing activities: | ||||||||
| Common shares issued for deferred compensation | 490,000 | – | ||||||
| Common shares issued for settlement of related party debt | 714,962 | – | ||||||
| Common shares issued to settle third party debt | 127,462 | – | ||||||
| Common shares issued to settle outstanding payables | – | 25,000 | ||||||
| Expenses paid by related parties that increased related party debt | 19,500 | 2,064 | ||||||
| Preferred shares issued to settle related party payables | – | 24,167 | ||||||
| Preferred shares issued to settle related party debt | – | 48,453 | ||||||
| Shares issued for prepaid expenses | 40,000 | – | ||||||
| Warrants issued with debt | 74,573 | – | ||||||
| Exercise of warrants | 400 | – | ||||||
| Original issue discount | 25,000 | – | ||||||
| Debt issuance costs | 5,000 | – | ||||||
| Debt conversion feature | 175,427 | – | ||||||
| Supplemental disclosures: | ||||||||
| Interest paid | – | – | ||||||
| Income tax paid | – | – | ||||||
| 12. | Income Taxes |
As at November 30, 2017, the Company has $1,294,000 of net operating losses carried forward to offset taxable income in future years through fiscal 2036. No tax benefit has been reported during the years ended November 30, 2017 and 2016 as the potential tax benefit is offset by a valuation allowance as there is uncertainty as to whether the Company can be profitable in the future to utilize tax losses. Net operating loss carryforwards for federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur in the future, net operating losses carryfoward may be limited as to use in future years.
| 2017 $ | 2016 $ | |||||||
| Net loss before taxes | (1,981,856 | ) | (170,176 | ) | ||||
| Statutory rate | 34% | 34% | ||||||
| Computed expected tax recovery | (673,800 | ) | (57,900 | ) | ||||
| Permanent differences and other | 490,000 | (68,100 | ) | |||||
| Change in valuation allowance | 183,800 | 126,000 | ||||||
| Income tax provision | – | – | ||||||
| F-17 |
GALA PHARMACEUTICAL INC.
(formerly Gala Global Inc.)
Notes to the Consolidated Financial Statements
Years ended November 30, 2017 and 2016
| 12. | Income Taxes (continued) |
The significant components of deferred income tax assets and liabilities at November 30, 2017 and 2016 are as follows:
| 2017 $ | 2016 $ | |||||||
| Deferred tax assets: | ||||||||
| Net operating losses carried forward | 439,900 | 281,180 | ||||||
| Accrued interest | 5,900 | 500 | ||||||
| Related party payables | 20,900 | 32,000 | ||||||
| Deferred tax liabilities: | ||||||||
| Accumulated depreciation above book value | (3,300 | ) | – | |||||
| Deferred income tax assets | 463,400 | 313,700 | ||||||
| Valuation allowance | (463,400 | ) | (313,700 | ) | ||||
| Net deferred income tax asset | – | – | ||||||
|
13. | Subsequent Events |
| (a) | On December 26, 2017, the Company received $75,000 in a promissory note from a company controlled by a shareholder of the Company. The amounts are unsecured, non-interest bearing, and due on demand. |
| (b) | On January 1, 2018, the Company entered into a consulting agreement with a non-related party for consulting services. Pursuant to the agreement, the consultant will receive compensation of $5,000 per month for services rendered. In addition, the consultant will receive $2,500 per every new location the consultant manages. The Company may terminate the agreement upon providing 10 days of written notice to the consultant. |
| (c) | On January 29, 2018, the Company completed a settlement and mutual release agreement with CEG Inc. whereby the proposed acquisition of CEG Inc. was cancelled. As part of the settlement and mutual release agreement, the former Chief Executive Officer of the Company will return 5,650,000 common shares of the Company and the Company will return the rights to the intellectual property that was previously held by CEG Inc., and give machinery that was previously paid by the Company to CEG Inc. The Company incurred $53,297 of expenses relating to the proposed acquisition, which has been recorded for the year ended November 30, 2017. |
| (d) | Subsequent to November 30, 2017 there were 9,500,000 shares issued for consulting services and 2,433,555 shares issued for conversion of debt. |
| F-18 |
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None
Item 9A. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. Our Chief Executive Officer and Principal Financial Officer, after evaluating the effectiveness of our "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Annual Report on Form 10-K (the "Evaluation Date"), concluded that as of the Evaluation Date, our disclosure controls and procedures were not effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms.
(b) Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting during our most recent fiscal quarter that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Internal Controls
Disclosure controls and procedures, no matter how well designed and implemented, can provide only reasonable assurance of achieving an entity's disclosure objectives. The likelihood of achieving such objectives is affected by limitations inherent in disclosure controls and procedures. These include the fact that human judgment in decision-making can be faulty and that breakdowns in internal control can occur because of human failures such as simple errors or mistakes or intentional circumvention of the established process.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the Securities Exchange Act of 1934 Rule 13a-15(f). Our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission ("2013 COSO Framework").
A material weakness is a deficiency or 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.
Our management concluded we have a material weakness due to lack of segregation of duties and accounting for complex debt and equity transactions. Our size has prevented us from being able to employ sufficient resources to enable us to have an adequate level of supervision and segregation of duties within our internal control system. There is mainly one person involved in processing of transactions. Therefore, it is difficult to effectively segregate accounting duties. We have hired an additional administrative person and retained an outside professional firm to assist in the separation of duties on an ongoing basis. The use of the outside firm has proven successful in assisting in the separation of duties. During the year the Company had several audit adjustments related to accounting for complex debt and equity that were deemed material. Management did not have sufficient experience to review these complex debt and equity transactions. As such, we believe this deficiency to have been a material weakness.
| 10 |
However, additional people are not needed to do the administrative work therefore segregation of duties will continue to be an ongoing weakness.
Based on this evaluation and because of the material weaknesses, management has concluded that our internal control over financial reporting was not effective as of November 30, 2017.
This annual report does not include an attestation report of the Company's independent registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's independent registered public accounting firm pursuant to rules of the SEC that permit the company to provide only management's report on internal control in this annual report.
None.
| 11 |
Item 10. Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange Act
Directors, Executive Officers and Key Employees
The following table sets forth certain information regarding our directors, executive officers and key employees as of November 30, 2017 and as of the date of the filing of this report:
| Name and Address | Age | Position(s) Held |
| Maqsood Rehman | 41 | CEO |
| Romina Martinez | 27 | Director |
| Allison Hess | 27 | Secretary, Treasurer, and Director |
Background of Directors and Executive Officers
Dr. Maqsood Rehman, is currently CEO of Gala Pharmaceutical, Inc., (“GLPH”) where he was the CEO since June 2017. Prior to GLPH, Dr. Rehman was the Global Soybean Breeding Leader for Dow Agrosciences at Indianapolis, Indiana for six years. Previously, he worked as a soybean breeder for Monsanto Company at Oxford, Indiana for five years. Dr. Rehman has Masters and PhD degrees in Plant Science from University of Idaho, U.S.A. and Post Doctorate from University of Missouri-Columbia, Missouri. Dr. Rehman also has a diversified scientific background with training, and 10 plus years of practical experience in plant breeding, quantitative and molecular genetics and cytogenetics and project management. Dr. Rehman’s experience ranges from providing leadership to the breeding organization to developing breeding strategies and budgets needed to accomplish breeding goals. He fills in the gaps by bringing key stakeholders together and aligns breeding goals with global commercial needs through effective communication. Dr. Rehman is also an expert at developing teams and providing effective and transparent communication process to achieve deliverables.
Allison Hess, is currently a Board member and officer of Gala Pharmaceutical, Inc. Ms. Hess, for the past two years is also the President of Hssy Inc., an international business finance and operations consulting firm based out of San Diego, CA. Prior to Hssy Inc., Ms. Hess worked in the legal field for more than seven years having been with two local firms from 2010 up to 2014. She is knowledgeable with regard to all levels of the courts from local Small Claims actions to federal district Court matters and is experienced in a number of commercial practice areas including corporate finance, real estate, licensing and contracts. She has helped numerous companies with their creation of a new business and the issues that arise therefrom such as public relations, government permitting and legislation, interacting with suppliers and vendors, and the public company markets. For the last several years Ms. Hess' efforts have been focused on the legal medicinal and recreational cannabis and Industrial Hemp markets.
Romina Martinez is currently a Board member of Gala Pharmaceutical, Inc. Ms. Martinez for the past two years is also the Vice President of Hssy Inc., an international business finance and operations consulting firm based out of San Diego, CA. She has a well-rounded commercial outlook to solving legal issues practically and is an expert at advising on new areas of law or changes to the law. Prior to Hssy Inc., Romina Martinez worked in the legal field for more than five years having been with several San Diego firms from 2011 up to 2016. For the last several years, Romina Martinez has established work with the legal medicinal and recreational cannabis and Industrial Hemp markets. She is experienced in regards to many levels of the courts including family law, relevant regulations and depositions, to federal district Court matters. She is well versed in a number of commercial practice areas including corporate finance, public company markets, real estate, translations, licensing and contracts, research and development, and has helped formulate numerous companies as well as handling the social media marketing platforms for their businesses. Romina is a bilingual speaker who is proficient in both fluent Spanish and English.
| 12 |
Term of Office of Directors
Our directors are appointed for a one-year term to hold office until the next annual general meeting of our stockholders or until removed from office in accordance with our bylaws. Our officers are appointed by our Board of Directors and hold office until the officer dies or resigns or the Board elects a successor or removes the officer.
Key Employees
None.
Family Relationships
None.
Involvement in Certain Legal Proceedings
None.
Audit Committee Financial Expert
No determination has been made as to whether any member of the audit committee qualified as an audit committee financial expert as defined in Item 401 of Regulation S-K.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and executive officers, and persons who beneficially own more than 10% of a registered class of our equity securities, to file reports of beneficial ownership and changes in the beneficial ownership of our securities with the SEC of Forms 3 (Initial Statement of Beneficial Ownership), 4 (Statement of Changes of Beneficial Ownership of Securities) and 5 (Annual Statement of Beneficial Ownership of Securities). Directors, executive officers and beneficial owners of more than 10% of our Common Stock are required by SEC regulations to furnish us with copies of all Section 16(a) forms that they file. The required filings have been made.
Code of Ethics
We have adopted an informal Code of Ethics that applies to our officers, directors, which we feel is sufficient at this time, given we are still in the start-up, development stage and have no employees, other than our officers and directors.
| 13 |
Item 11. Executive and Director Compensation.
SUMMARY COMPENSATION TABLE
Name and Principal Position (a) | Year (b) | Salary ($) (c) | Bonus ($) (d) | Stock Awards ($) (e) | Option Awards ($) (f) | Non-Equity Incentive Plan Compensation ($) (g) | Change in Pension Value Nonqualified Deferred Compensation Earnings ($) (h) | All Other Compensation ($) (i) | Total ($) (j) | |||||||||||||||||||||||||||||
| Allison Hess, Secretary, Treasurer | 2017 | 0 | 0 | 20,219 | 0 | 0 | 0 | 0 | 20,219 | |||||||||||||||||||||||||||||
| 2016 | 0 | 0 | 12,812 | 0 | 0 | 0 | 0 | 12,812 | ||||||||||||||||||||||||||||||
| 2015 | 0 | 0 | 31,875 | 0 | 0 | 0 | 0 | 31,875 | ||||||||||||||||||||||||||||||
| Maqsood Rehman, CEO | 2017 | 90,000 | 0 | 14,118 | 0 | 0 | 0 | 0 | 104,118 | |||||||||||||||||||||||||||||
| 2016 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||
| 2015 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||
| Romina Martinez, Director | 2017 | 0 | 0 | 20,219 | 0 | 0 | 0 | 0 | 20,219 | |||||||||||||||||||||||||||||
| 2016 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||
| 2015 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||
| Calvin Frye, Former Chairman and CEO | 2017 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||
| 2016 | 0 | 0 | 13,542 | 0 | 0 | 0 | 0 | 13,542 | ||||||||||||||||||||||||||||||
| 2015 | 0 | 0 | 35,833 | 0 | 0 | 0 | 0 | 35,833 | ||||||||||||||||||||||||||||||
| Harold Milburn, Former CEO, CFO, President, and Treasurer | 2017 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||
| 2016 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||
| 2015 | 0 | 0 | 51,617 | 0 | 0 | 0 | 49,883 | 101,500 | ||||||||||||||||||||||||||||||
| George Lefevre, Former CEO, CFO, Chairman, and Treasurer | 2017 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||
| 2016 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||
| 2015 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||
| 14 |
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE
| OPTION AWARDS | STOCK AWARDS | |||||||||||||||||||||||||||
Name and Principal Positions (s) (a) |
Number of Securities Underlying Unexercised Options (#) (Exercisable) (b) |
Number of Securities Underlying Unexercised Options (#) (Unexercisable) (c) |
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) (d) | Option Exercise Price ($) (e) | Option Expiration Date (f) | Number of Shares or Units of Stock That Have Not Vested (#) (g) | Market Value of Shares or Units of Stock That Have Not Vested ($) (h) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) (i) |
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) (j) |
|||||||||||||||||||
| Maqsood Rehman, CEO | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||
| Allison Hess, Secretary, Treasurer, Director | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||
| Romina Martinez Director |
0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||
| Calvin Frye, Former Chairman and CEO | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||
| Harold Milburn, Former President, CEO, CFO, and Treasurer | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||
| George Lefevre, Former Chairman, CEO, Treasurer, and CFO | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||
| 15 |
Option Grants
No options were granted during the fiscal years ended November 30, 2017 and 2016.
Director Compensation
| (a) | On June 29, 2015, the Company entered into a consulting agreement with the former Chief Executive Officer of the Company for consulting services relating to the cannabis industry. Pursuant to the agreement, the Company shall issue 6,250 shares of common stock to the consultant upon execution of the agreement (issued) and every six months thereafter as compensation. Either party may terminate the agreement by providing written thirty days notice. |
| (b) | On September 1, 2015, the Company entered into an agreement with the Chief Financial Officer of the Company. Pursuant to the agreement, the Company shall issue 12,500 shares of common stock to the Chief Financial Officer upon execution and every twelve months to compensation for being the Chief Financial Officer. The Company shall also issue an additional 6,250 shares of common stock to the Chief Financial Officer upon execution and every six months as compensation for being a director. The agreement shall be terminated upon mutual agreement with the Company and the Chief Financial Officer. |
| (c) | On September 1, 2015, the Company entered into an agreement with the former Chief Executive Officer of the Company for assuming the role as Chief Executive Officer. Pursuant to the agreement, the Company shall issue 12,500 shares of common stock to the Chief Executive Officer upon execution and every twelve months. The agreement shall be terminated upon mutual agreement with the Company and the former Chief Executive Officer. |
| (d) | On February 12, 2017, the Company entered into an agreement with a Director of the Company. Pursuant to the agreement, the Company shall issue 1,000,000 common shares upon execution. The agreement shall terminate upon mutual agreement between the parties. |
| (e) | On March 30, 2017, the Company entered into an agreement with the Secretary, Treasurer, and a Director of the Company. Pursuant to the agreement, the Company shall issue 1,500,000 common shares upon execution. The agreement shall be terminate upon mutual agreement between the parties. |
Employment Agreements
| (a) | On September 1, 2017, the Company entered into an employment agreement with Chief Executive Officer of the Company. Pursuant to the agreement, the Company will compensate the Chief Executive Officer a base salary of $15,000 per month, living and housing expense of no more than $3,000 per month, and the issuance of 1,500,000 common shares of the Company on an annual basis. The agreement shall be terminated when the Company provides 10 days notice or the Chief Executive Officer provides 30 days notice to terminate the agreement. |
Report on Repricing of Options
None.
| 16 |
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table provides certain information regarding the ownership of our common stock, as of November 30, 2017 and as of the date of the filing of this annual report by:
| · | each of our executive officers; |
| · | each director; |
| · | each person known to us to own more than 5% of our outstanding common stock; and |
| · | all of our executive officers and directors and as a group. |
As of November 30, 2017, we had a total of 35,701,561 shares of common stock issued and outstanding. Except as indicated in footnotes to this table, the persons named in this table have sole voting and investment power with respect to all shares of common stock indicated below. Except where noted, the address of all listed beneficial owners is in care of our office address.
| Name and Address of Beneficial Owner | Title of Class | Amount and Nature of Beneficial Ownership (1) (#) | Percent of Class (2) (%) | |||||||||
| Maqsood Rehman, Principal Executive Officer | Common Shares | 1,500,000 | 4.2% | |||||||||
| Allison Hess, Secretary, Treasurer Director | Common Shares | 1,525,000 | 4.3% | |||||||||
| James Haas, Significant shareholder | Common Shares | 10,047,600 | 28.1% | |||||||||
| Romina Martinez, Director | Common Shares | 1,500,000 | 4.2% | |||||||||
| Owen Naccarato, Significant shareholder | Common Shares | 10,352,131 | 29.0% | |||||||||
| All Officers and Directors as a Group | Common Shares | 4,525,000 | 12.7% | |||||||||
Item 13. Certain Relationships, Related Transactions and Director Independence
Year Ended November 30, 2017
| (a) | As at November 30, 2017, the Company owed $48,367 (2016 - $249,835) to a company controlled by a significant shareholder of the Company to fund payment of operating expenditures. During the year ended November 30, 2017, the Company settled $249,835 of related party debt with the issuance of 1,387,970 common shares. Refer to Note 9(c). The remaining amount owed is unsecured, non-interest bearing, and due on demand. |
| (b) | As at November 30, 2017, the Company owed $17,000 (2016 - $nil) to the former Chief Executive Officer of the Company for compensation and consulting services, which has been recorded in accounts payable and accrued liabilities – related parties. The amounts owing are unsecured, non-interest bearing, and due on demand. |
| 17 |
| (c) | As at November 30, 2017, the Company owed $25,000 (2016 - $79,333) to a significant shareholder of the Company, which has been recorded in accounts payable and accrued liabilities - related parties. The amount owed is unsecured, non-interest bearing, and due on demand. During the year ended November 30, 2017, the Company incurred $177,295 (2016 - $36,000) of consulting expense relating to services provided to the Company. In August 2017, the Company settled $88,333 of related party debt with the issuance of 490,742 common shares. |
| (d) | As at November 30, 2017, the Company owed $5,625 (2016 - $5,625) to an officer of the Company, which has been recorded in accounts payable and accrued liabilities – related parties. The amount owing is unsecured, non-interest bearing, and due on demand. |
| (e) | As at November 30, 2017, the Company owed $18,500 (November 30, 2016 - $10,000) to a company controlled by a significant shareholder of the Company. The amount owed is unsecured, non-interest bearing, and due on demand. |
| (f) | As at November 30, 2017, the Company owed $2,064 (2016 - $2,064) to a significant shareholder of the Company. The amount is unsecured, bears interest at 3% per annum, and due 180 days from the date of issuance. As at November 30, 2017, accrued interest of $82 (November 30, 2016 - $15) has been included in accounts payable and accrued liabilities, related parties. |
| (g) | As at November 30, 2017, the Company owed $12,500 (2016 -$ nil) to the Chief Operating Officer of the Company for consulting services, which has been recorded in accounts payable and accrued liabilities – related parties. The amounts owing are unsecured, non-interest bearing, and due on demand. |
| (h) | As at November 30, 2017, the Company owed $1,195 (2016 - $nil) to the Chief Executive Officer of the Company for services, which has been recorded in accounts payable and accrued liabilities – related parties. The amounts owing are unsecured, non-interest bearing, and due on demand. |
| (i) | As at November 30, 2017, the Company owed $nil (2016 - $10,000) to the spouse of a former significant shareholder of the Company for a note issued on September 21, 2016. Under the terms of the note, the amount due was unsecured, bore interest at 3% per annum, and was due 180 days from the date of issuance. In July 2017, the Company issued 128,750 common shares with a fair value of $38,625 to settle $10,000 of principal balance and $254 of accrued interest. |
| (j) | On May 8, 2017, the Company entered into an agreement whereby the Company agreed to acquire 80% of the issued and outstanding common stock of Controlled Environment Genomics Inc ("CEG Inc"), in exchange for a new series of the Company’s preferred shares, and issue 5,000,000 restricted common shares in exchange for CEG's intellectual property. In the event that CEG, Inc. becomes its own public entity, the executive shall receive 51% ownership of the new entity, and the Company will retain the remaining 49%. As at November 30, 2017, the agreement to acquire the common stock of CEG Inc. was cancelled and costs of $53,297 relating to the proposed acquisition was expensed as incurred. |
| (k) | During the year ended November 30, 2017, the Company issued 24,500,000 common shares with a fair value of $490,000 to officers and directors of the Company as compensation for services for a period of one year. As at November 30, 2017, the Company recorded $165,853 as deferred compensation within shareholders’ equity. During the year ended November 30, 2017, the Company recorded $324,147 (2016 - $nil) of share based compensation expense. |
| (l) | During the year ended November 30, 2017, the Company loaned $20,000 (2016- $nil) to a company controlled by the former Chief Executive Officer of the Company for day-to-day expenses. The amount owing is unsecured, non-interest bearing, and due on demand. As at November 30, 2017, the Company recorded an impairment charge of $20,000 due to the unlikelihood of collecting outstanding amounts owed to the Company. |
| 18 |
Year Ended November 30, 2016
| a) | During the year ended November 30, 2016, the Company issued 6,250 shares of common stock with a fair value of $10,625 to the former Chief Executive Officer of the Company for services as a director of the Company. During the year ended November 30, 2016, the Company incurred consulting services of $13,540 (2015 - $21,250). As at November 30, 2016, the Company had a prepaid expense balance of $nil (2015 - $2,917) to the former Chief Executive Officer of the Company related to these services. |
| b) | During the year ended November 30, 2016, the Company issued 6,250 shares of common stock with a fair value of $7,187 to the Chief Financial Officer for consulting services. During the year ended November 30, 2016, the Company incurred consulting services of $25,936 (2015 - $31,875). As at November 30, 2016, the Company owed $18,750 to the Chief Financial Officer, which has been recorded in accounts payable and accrued liabilities - related party. |
| c) | As at November 30, 2016, the Company owed $249,835 (2015 - $255,295) to a company controlled by a significant shareholder of the Company to fund payment of operating expenditures. The amount owing is unsecured, non-interest bearing, and due on demand. |
| d) | As at November 30, 2016, the Company owed $10,000 (2015 - $10,000) to a company controlled by a significant shareholder of the Company. The amount owing is unsecured, non-interest bearing, and due on demand. |
| e) | As at November 30, 2016, the Company owed $2,064 (2015 - $nil) to a significant shareholder of the Company. The amount is unsecured, bears interest at 3% per annum, and due 180 days from the date of issuance. As at November 30, 2016, accrued interest of $20 (2015 - $nil) has been included in accounts payable and accrued liabilities - related party. |
| f) | On September 21, 2016, the Company owed $10,000 (2015 - $nil) to the former spouse of a significant shareholder of the Company. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 180 days from the date of issuance. As at November 30, 2016, accrued interest of $58 (2015 - $nil) has been included in accounts payable and accrued liabilities - related party. |
| g) | As at November 30, 2016, the Company owed $200 (2015 - $200) to the former Chief Executive Officer of the Company. The amount is unsecured, bears interest at 1% per annum, and due 180 days from the date of issuance. As at November 30, 2016, accrued interest of $3 (2015 - $nil) has been included in accounts payable and accrued liabilities - related party. |
| h) | As at November 30, 2016, the Company owed $nil (2015 - $42,000) to a significant shareholder of the Company. The amount is unsecured, bears interest at 3% per annum, and due 180 days from the date of issuance. As at November 30, 2016, accrued interest of $nil (2015 - $435) has been included in accounts payable and accrued liabilities - related party. |
| i) | As at November 30, 2016, the Company owed $nil (2015 - $5,000) to a significant shareholder of the Company. The amount is unsecured, bears interest at 1% per annum, and due 180 days from the date of issuance. As at November, 2016, accrued interest of $nil (2015 - $1) has been included in accounts payable and accrued liabilities - related party. |
| j) | As at November 30, 2016, the Company owed $nil (2015 - $805) to a significant shareholder of the Company. The amount is unsecured, bears interest at 1% per annum, and due 180 days from the date of issuance. On January 27, 2016, the Company issued 333,334 shares of preferred stock to the loan holder as part of settling all of the outstanding debt and accrued interest. |
| k) | As at November 30, 2016, the Company owed $79,333 (2015 - $76,500) to a significant shareholder of the Company, which has been recorded in accounts payable and accrued liabilities - related party. The amount is unsecured, non-interest bearing, and due on demand. During the year ended November 30, 2016, the Company incurred legal fees of $27,000 (2015 - $76,500) to this significant shareholder. On January 27, 2016, the Company issued 166,666 shares of preferred stock to settle outstanding debt owed to related parties of $24,167. |
| 19 |
| l) | During the year ended November 30, 2016, the Company recognized revenue of $nil (2015 - $1,592) from a Company controlled by significant shareholders of the Company. |
| m) | During the year ended November 30, 2016, the Company incurred $nil (2015 - $101,500) in consulting fees to the former President of the Company. During the year ended November 30, 2015, the Company issued 21,324 shares of common stock with a fair value of $51,617 to settle the amount owing in addition to paying $8,300 to settle debt owed to the former President of the Company. During the year ended November 30, 2015, $33,000 of the amount owing was paid by a significant shareholder and the remainder of $8,583 has been forgiven and recorded as additional paid-in capital. |
Director Independence
The OTC Bulletin Board does not have a requirement that a majority of our Board of Directors be independent. However, with respect to the definition of independence utilized by NASDAQ, our officers and directors would be deemed to be independent.
Our Audit Committee is comprised of our officers and directors. NASDAQ requires at least three members on the Audit Committee, each of whom must be independent. NASDAQ also requires that, if its Chief Executive Officer’s compensation is determined by its Compensation Committee, the Compensation Committee must be comprised solely of independent directors. The Company currently does not meet either of these requirements.
The NASDAQ rules have both objective tests and a subjective test for determining who is an “independent director.” The objective tests state, for example, that a director is not considered independent if he or she is an employee of the Company or is a partner, executive officer or controlling stockholder of an entity to which the company made, or from which the Company received, payments in the current or any of the past three fiscal years that exceed the greater of $200,000 or 5% of the recipient’s consolidated gross revenue for that year or a family member serves in the current fiscal year or has served at any time during the last three fiscal years as an executive officer of the Company. The subjective test states that an independent director must be a person who lacks a relationship that, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
Item 14. Principal Accountant Fees and Services
The Company paid or accrued the following fees in each of the prior two fiscal years to its independent certified public accountants, Haynie & Co. and Pritchett, Siler and Hardy PC combined for the year ended November 30, 2017 and Pritchett, Siler and Hardy PC for the year ended November 30, 2016:
| For the Year Ended November 30, | ||||||||
| 2017 | 2016 | |||||||
| Audit Fees | $ | 18,250 | $ | 13,500 | ||||
| Audit-Related Fees | $ | 0 | $ | 0 | ||||
| Tax Fees | $ | 0 | $ | 0 | ||||
| All Other Fees | $ | 0 | $ | 0 | ||||
| Total Fees | $ | 18,250 | $ | 13,500 | ||||
"Audit Fees" consisted of fees billed for services rendered for the audit of the Company’s annual financial statements and audit related fees are for review of the financial statements included in the Company’s quarterly reports on Form 10-Q.
| 20 |
| Item 15. | Exhibits |
The financial statement schedules are omitted because they are inapplicable or the requested information is shown in our financial statements or related notes thereto.
Exhibits
|
Exhibit Number |
Exhibit Description |
| 31.1 | Certification of the Chief Executive Officer and Chief Financial Officer Pursuant to Rule 13a-14 or 15d-14 of the Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 32.1 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| EX-101.INS | XBRL Instance Document |
| EX-101.SCH | XBRL Taxonomy Extension Schema |
| EX-101.CAL | XBRL Taxonomy Extension Calculation Linkbase |
| EX-101.LAB | XBRL Taxonomy Extension Label Linkbase |
| EX-101.PRE | XBRL Taxonomy Extension Presentation Linkbase |
| EX-101.DEF | XBRL Taxonomy Extension Definition Linkbase |
| Item 16. | Form 10-K Summary |
Not applicable.
| 21 |
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
| GALA PHARMACEUTICAL INC. | |
| By: /s/ Maqsood Rehman | |
| Date: April 6, 2018 | Maqsood Rehman |
| Principal Executive Officer |
Pursuant to the requirements of the Exchange Act this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date |
| /s/ Maqsood Rehman | Principal Executive Officer | April 6, 2018 |
| Maqsood Rehman |
| 22 |
EXHIBIT 31.1
CERTIFICATION PURSUANT TO
18 U.S.C. ss 1350, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Maqsood Rehman, certify that:
| 1. | I have reviewed this Annual Report on Form 10-K of Gala Pharmaceutical Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
| 5. | I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
| Date: | April 6, 2018 |
| /s/ Maqsood Rehman | |
| Maqsood Rehamn President, Chief Executive Officer and Principal Financial Officer. (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) | |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Maqsood Rehman, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | the Annual Report on Form 10-K of Gala Pharmaceutical Inc. for the year ended November 30, 2017 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Gala Pharmaceutical Inc. |
| Dated: April 6, 2018 | ||||
| /s/ Maqsood Rehman | ||||
| MAqsood Rehman | ||||
| President, Chief Executive Officer, Principal Financial Officer. | ||||
| (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) | ||||
Document and Entity Information - USD ($) |
12 Months Ended | |
|---|---|---|
Nov. 30, 2017 |
Apr. 03, 2018 |
|
| Document And Entity Information | ||
| Entity Registrant Name | Gala Pharmaceuticals Inc. | |
| Entity Central Index Key | 0001513403 | |
| Document Type | 10-K | |
| Document Period End Date | Nov. 30, 2017 | |
| Amendment Flag | false | |
| Current Fiscal Year End Date | --11-30 | |
| Is Entity a Well-known Seasoned Issuer? | No | |
| Is Entity a Voluntary Filer? | No | |
| Is Entity's Reporting Status Current? | Yes | |
| Entity Filer Category | Smaller Reporting Company | |
| Entity Public Float | $ 1,994,486 | |
| Entity Common Stock, Shares Outstanding | 47,635,145 | |
| Document Fiscal Period Focus | FY | |
| Document Fiscal Year Focus | 2017 |
Consolidated Balance Sheets (Parenthetical) - $ / shares |
Nov. 30, 2017 |
Nov. 30, 2016 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Preferred stock, shares authorized | 10,000,000 | 10,000,000 |
| Preferred stock, par value per share | $ 0.001 | $ 0.001 |
| Preferred stock, shares issued | 500,000 | 500,000 |
| Preferred stock, shares outstanding | 500,000 | 500,000 |
| Common stock, shares authorized | 500,000,000 | 500,000,000 |
| Common stock, par value per share | $ 0.001 | $ 0.001 |
| Common stock, shares issued | 1,369,224 | 35,701,561 |
| Common stock, shares outstanding | 1,369,224 | 35,701,561 |
Consolidated Statements Of Operations - USD ($) |
12 Months Ended | |
|---|---|---|
Nov. 30, 2017 |
Nov. 30, 2016 |
|
| Operating expenses | ||
| Consulting fees | $ 132,944 | $ 17,500 |
| Consulting fee - related party | 364,733 | 26,354 |
| Depreciation | 5,389 | 0 |
| General and administrative | 89,740 | 50,028 |
| General and administrative - related party | 187,393 | 36,000 |
| Rent | 18,085 | 38,550 |
| Total operating expenses | 798,284 | 168,432 |
| Loss before other expense | (798,284) | (168,432) |
| Other expense | ||
| Change in fair value of derivative liabilities | (277,578) | 0 |
| Interest expense | (393,107) | (1,744) |
| Loss on settlement of debt | (93,050) | 0 |
| Loss on settlement of debt - related party | (366,540) | 0 |
| Loss on dissolution of proposed acquisition | (53,297) | 0 |
| Total other expense | (1,183,572) | (1,744) |
| Net loss | $ (1,981,856) | $ (170,176) |
| Net loss per share, basic and diluted | $ (0.09) | $ (0.12) |
| Weighted average common shares outstanding | 21,250,299 | 1,369,224 |
1. Organization And Nature Of Operations |
12 Months Ended |
|---|---|
Nov. 30, 2017 | |
| Organization And Nature Of Operations | |
| Organization and Nature of Operations |
Gala Pharmaceutical Inc. (formerly Gala Global Inc.) (the “Company” or “GPI”) was incorporated in the State of Nevada on March 10, 2010. The Company provides Testing or Analytical Chemistry tools for chemical, plant, soil, and liquid composition analysis. GPI provides analysis of compositional traits for hemp and cannabis products (cannabinoid, terpenes, pesticides, residual solvents and microbial). The analysis is being done at certified labs with persistent results.
The Company also provides genetic “fingerprinting” and “sequencing” of various crop species. This fingerprinting allows for storing genetic fingerprint information into a proprietary database. Customers can access genetic fingerprint data which can be used for predictive breeding applications and for protecting intellectual property (IP). Additionally, the Company can develop new genetics by using state of the art breeding technology and provides tissue culture and cloning services. These clones are guaranteed to be disease free, chemical free and healthy and robust.
Additionally, the Company provides consulting on testing and manufacturing lab designs and standard operating procedures. The Company provides services to customers for building turnkey labs, drug formulations and troubleshooting. It has highly qualified professionals to bring productivity and efficiency within your current resources.
Going Concern
These consolidated financial statements have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities in the normal course of business. As at November 30, 2017, the Company has a working capital deficit of $951,880 and an accumulated deficit of $3,218,569. The continuation of the Company as a going concern is dependent upon the continued financial support from its management, and its ability to identify future investment opportunities and obtain the necessary debt or equity financing, and generating profitable operations from the Company’s future operations. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. |
2. Summary Of Significant Accounting Policies |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Nov. 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Significant Accounting Policies |
These consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) and are expressed in U.S. dollars. The Company’s fiscal year end is November 30.
These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries: Cannabis Ventures Inc (USA), Cannabis Ventures Inc (Canada), and CBD Life, Inc. All inter-company transactions and balances have been eliminated on consolidation.
The preparation of consolidated financial statements in conformity with US GAAP requires preparation of financial statements in conformity with US GAAP requires management to make 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 and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the valuation of inventory, valuation of derivative liability and share-based compensation, and deferred income tax asset valuation allowances.
The Company’s functional and reporting currency is the U.S. dollar. Monetary assets and liabilities of integrated operations and other monetary assets and liabilities denominated in foreign currencies are translated to U.S. dollars at exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are translated at historical rates. Revenues and expenses are translated at average rates for the period, except for amortization, which is translated on the same basis as the related asset. The resulting exchange gains or losses are recognized in the statements of operations.
The Company computes net income (loss) per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. All effects of the reverse stock split discussed at Note 9(d) has been applied retroactively to calculations of basic and diluted net loss per share for periods presented. As at November 30, 2017, the Company had 2,659,468 (2016 – nil) potentially issuable shares from an outstanding convertible note, which are anti-dilutive.
From time to time, the Company may issue equity instruments that may contain an embedded derivative instrument which may result in a derivative liability. A derivative liability exists on the date the equity instrument is issued when there is a contingent exercise provision. The derivative liability is recorded at its fair value calculated by using an option pricing model such as a multi-nominal lattice model. The fair value of the derivative liability is then calculated on each balance sheet date with the corresponding gains and losses recorded in the consolidated statement of operations
From time to time, the Company may issue convertible notes that may contain an embedded beneficial conversion feature. A beneficial conversion feature exists on the date a convertible note is issued when the fair value of the underlying common stock to which the note is convertible into is in excess of the remaining unallocated proceeds of the note after first considering the allocation of a portion of the note proceeds to the fair value of the warrants, if related warrants have been granted. The intrinsic value of the beneficial conversion feature is recorded as a debt discount with a corresponding amount to additional paid in capital. The debt discount is amortized to interest expense over the life of the note using the effective interest method.
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations. |
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3. Deferred Compensation |
12 Months Ended |
|---|---|
Nov. 30, 2017 | |
| Retirement Benefits [Abstract] | |
| Deferred Compensation | Deferred compensation is comprised of common shares issued to officers and directors of the Company for compensation services. During the year ended November 30, 2017, the Company issued 24,500,000 common shares with a fair value of $490,000 for compensation of which $324,147 was expensed during the period and the remaining $165,853 was recorded as deferred compensation within shareholders’ equity. |
4. Equipment |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Nov. 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equipment |
During the year ended November 30, 2017, the Company recorded $5,389 (2016 - $nil) of depreciation expense. |
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5. Convertible Debenture |
12 Months Ended |
|---|---|
Nov. 30, 2017 | |
| Debt Disclosure [Abstract] | |
| Convertible Debenture |
On May 15, 2017, the Company entered into a promissory note agreement with a non-related party for proceeds of $280,000, net of an original issuance discount and legal fees of $30,000 which were capitalized and amortized over the period of the convertible debenture. The promissory note is unsecured, bears interest at 10% per annum, and is due on November 30, 2017. The promissory note is convertible into common shares at the lesser of: (a) $0.35; or (b) 65% of the average of the three lowest volume weighted average price of the Company’s common shares in the 20 days preceding the notice of conversion limited by a conversion floor price of $0.05 per share.
The embedded conversion option qualifies for derivative accounting under ASC 815-15, Derivatives and Hedging. The fair value of the derivative liability resulted in a full discount of the $250,000 based on the net proceeds received from promissory note. The carrying value of the convertible debenture was accreted over the term of the convertible debenture up to the face value of $280,000. The note is in default and now has a default interest rate of 22%. On November 30, 2017, a default penalty of $73,629 was applied as the Company defaulted on the convertible debenture. As at November 30, 2017, the carrying value of the convertible debenture was $353,629 and the unamortized discount on the convertible debenture was $nil. |
6. Derivative Liability |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Nov. 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative Instruments and Hedging Activities Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative Liability |
The Company records the fair value of the conversion price of the convertible debentures, as disclosed in Note 5, in accordance with ASC 815, Derivatives and Hedging. The fair value of the derivative liability is revalued on each balance sheet date or upon conversion of the underlying convertible debenture into equity with corresponding gains and losses recorded in the consolidated statement of operations. The fair value of the derivative as of May 15, 2017 was $305,957 calculated using the binomial option pricing model. At inception, there was a debt discount related to the conversion feature of $175,427 and a loss on the derivative of $130,530. During the year ended November 30, 2017, the Company recorded a loss on the change in fair value of the derivative liability of $277,578 (2016 - $nil). As at November 30, 2017, the Company had a derivative liability of $453,005 (2016 - $nil).
The following inputs and assumptions were used to value the convertible debentures outstanding during the year ended November 30, 2017:
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7. Related Party Transactions |
12 Months Ended | ||||||||||||||||||||||||||||||||||||
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Nov. 30, 2017 | |||||||||||||||||||||||||||||||||||||
| Related Party Transactions [Abstract] | |||||||||||||||||||||||||||||||||||||
| Related Party Transactions |
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8. Loans Payable |
12 Months Ended | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Nov. 30, 2017 | ||||||||||||||||
| Loan Payable To Related Parties | ||||||||||||||||
| Loans Payable |
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9. Common Shares |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Nov. 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stockholders' Equity Note [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Shares |
Stock transactions for the year ended November 30, 2017:
Preferred Shares
On January 27, 2016, the Company issued 500,000 shares of preferred stock to significant shareholders to settle debt of $72,620. Each preferred share is entitled to receive dividends when and if declared by the Company’s board of directors, has 500 to 1 voting power and liquidation rights in the amount of the shares; par value in accordance with the Company’s certificate of designation. Of the 500,000 shares issued, 166,666 shares were issued to a significant shareholder to settle outstanding payables to a significant shareholder of $24,167, and the remaining 333,334 shares are issued to another significant shareholder to settle debts of $42,638, $5,009, and $806 described at Note 4 for a total of $48,453 in outstanding principal and accrued interest. |
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10. Share Purchase Warrants |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Nov. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share Purchase Warrants |
On May 15, 2017, the Company issued 486,783 share purchase warrants with an exercise price of $0.09 per share for a period of five years in conjunction with the issuance of convertible debt. The fair value of the share purchase warrants was $105,396, calculated using the binomial option pricing model assuming no expected dividends, volatility of 199%, expected life of 5 years, and a risk free rate of 1.05%. The allocated relative fair value of the warrants was $74,573. The fair value of the share purchase warrants were recorded in the consolidated statement of operations as debt discount. In October 2017, the Company issued 400,000 common shares as a settlement and return of the outstanding share purchase warrants by the convertible note holder.
On October 23, 2017, the share purchase warrants were cancelled and replaced with the issuance of 400,000 common shares. Refer to Note 9(o).
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11. Supplemental Disclosures |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Nov. 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Supplemental Cash Flow Elements [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Supplemental Disclosures |
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12. Income Taxes |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Nov. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Taxes |
As at November 30, 2017, the Company has $1,294,000 of net operating losses carried forward to offset taxable income in future years through fiscal 2036. No tax benefit has been reported during the years ended November 30, 2017 and 2016 as the potential tax benefit is offset by a valuation allowance as there is uncertainty as to whether the Company can be profitable in the future to utilize tax losses. Net operating loss carryforwards for federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur in the future, net operating losses carryfoward may be limited as to use in future years.
The significant components of deferred income tax assets and liabilities at November 30, 2017 and 2016 are as follows:
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13. Subsequent Events |
12 Months Ended | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Nov. 30, 2017 | |||||||||||||
| Subsequent Events [Abstract] | |||||||||||||
| Subsequent Events |
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2. Summary Of Significant Accounting Policies (Policies) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Nov. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basis of Presentation |
These consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) and are expressed in U.S. dollars. The Company’s fiscal year end is November 30. |
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| Principles of Consolidation |
These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries: Cannabis Ventures Inc (USA), Cannabis Ventures Inc (Canada), and CBD Life, Inc. All inter-company transactions and balances have been eliminated on consolidation. |
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| Use of Estimates |
The preparation of consolidated financial statements in conformity with US GAAP requires preparation of financial statements in conformity with US GAAP requires management to make 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 and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the valuation of inventory, valuation of derivative liability and share-based compensation, and deferred income tax asset valuation allowances.
The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. |
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| Inventory |
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| Cash and Cash Equivalents |
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| Financial Instruments |
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| Income Taxes |
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| Property and Equipment |
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| Fair Value of Financial Instruments |
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| Revenue Recognition |
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| Stock-Based Compensation |
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| Deferred Compensation |
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| Foreign Currency Translation |
The Company’s functional and reporting currency is the U.S. dollar. Monetary assets and liabilities of integrated operations and other monetary assets and liabilities denominated in foreign currencies are translated to U.S. dollars at exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are translated at historical rates. Revenues and expenses are translated at average rates for the period, except for amortization, which is translated on the same basis as the related asset. The resulting exchange gains or losses are recognized in the statements of operations. |
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| Basic and Diluted Net Loss Per Share |
The Company computes net income (loss) per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. All effects of the reverse stock split discussed at Note 9(d) has been applied retroactively to calculations of basic and diluted net loss per share for periods presented. As at November 30, 2017, the Company had 2,659,468 (2016 – nil) potentially issuable shares from an outstanding convertible note, which are anti-dilutive. |
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| Derivative Liability |
From time to time, the Company may issue equity instruments that may contain an embedded derivative instrument which may result in a derivative liability. A derivative liability exists on the date the equity instrument is issued when there is a contingent exercise provision. The derivative liability is recorded at its fair value calculated by using an option pricing model such as a multi-nominal lattice model. The fair value of the derivative liability is then calculated on each balance sheet date with the corresponding gains and losses recorded in the consolidated statement of operations |
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| Recent Accounting Pronouncements |
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations. |
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2. Summary Of Significant Accounting Policies (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||
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Nov. 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Estimated lives of Property and Equipment |
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| Fair value of derivative liability |
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4. Equipment (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Nov. 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property and equipment |
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6. Derivative Liability (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Nov. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Derivative Liabilities |
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| Assumptions used |
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10. Share Purchase Warrants (Tables) |
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Nov. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Warrants Granted |
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11. Supplemental Disclosures (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Supplemental Cash Flow Elements [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash Flow supplemental disclosures |
|
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12. Income Taxes (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Income Taxes Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Income Tax Provision |
|
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| Schedule of Deferred Income Tax Assets |
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1. Organization And Nature Of Operations (Details Narrative) - USD ($) |
Nov. 30, 2017 |
Nov. 30, 2016 |
|---|---|---|
| Organization And Nature Of Operations | ||
| Working capital | $ (951,880) | |
| Accumulated deficit | $ (3,218,569) | $ (1,236,713) |
2. Summary Of Significant Accounting Policies (Details - Property lives) |
12 Months Ended |
|---|---|
Nov. 30, 2017 | |
| Computers and Equipment [Member] | |
| Property useful lives | 3-5 years |
| Furniture and Fixtures [Member] | |
| Property useful lives | 5-10 years |
2. Summary Of Significant Accounting Policies (Details - Fair value of derivatives) - USD ($) |
Nov. 30, 2017 |
Nov. 30, 2016 |
|---|---|---|
| Fair value of derviative liability | $ 453,005 | $ 0 |
| Fair Value, Inputs, Level 2 [Member] | ||
| Fair value of derviative liability | 0 | |
| Fair Value, Inputs, Level 3 [Member] | ||
| Fair value of derviative liability | $ 453,005 |
2. Summary Of Significant Accounting Policies (Details Narrative) - USD ($) |
12 Months Ended | |
|---|---|---|
Nov. 30, 2017 |
Nov. 30, 2016 |
|
| Accounting Policies [Abstract] | ||
| Deferred compensation | $ 165,853 | $ 0 |
| Cash equivalents | $ 0 | $ 0 |
| Potentially dilutive shares | 0 | 0 |
3. Deferred Compensation (Details Narrative) - USD ($) |
12 Months Ended | |
|---|---|---|
Nov. 30, 2017 |
Nov. 30, 2016 |
|
| Share-based compensation | $ 324,147 | $ 0 |
| Deferred compensation | $ 165,853 | $ 0 |
| Officers and Directors [Member] | ||
| Stock issued for compensation, shares | 24,500,000 | |
| Stock issued for compensation, value | $ 490,000 | |
| Share-based compensation | $ 327,147 | |
4. Equipment (Details) - USD ($) |
Nov. 30, 2017 |
Nov. 30, 2016 |
|---|---|---|
| Property, Plant and Equipment [Abstract] | ||
| Equipment, gross | $ 52,869 | $ 0 |
| Accumulated amortization | 6,809 | 0 |
| Equipment, net | $ 46,060 | $ 0 |
4. Equipment (Details Narrative) - USD ($) |
12 Months Ended | |
|---|---|---|
Nov. 30, 2017 |
Nov. 30, 2016 |
|
| Property, Plant and Equipment [Abstract] | ||
| Depreciation expense | $ 5,389 | $ 0 |
5. Convertible Debenture (Details Narrative) - USD ($) |
12 Months Ended | |
|---|---|---|
Nov. 30, 2017 |
Nov. 30, 2016 |
|
| Debt Disclosure [Abstract] | ||
| Debt face amount | $ 280,000 | |
| Proceeds from convertible debt | 250,000 | $ 0 |
| Payment of debt issuance costs | $ 30,000 | |
| Debt stated interest percent | 10.00% | |
| Debt maturity date | Nov. 30, 2017 | |
| Convertible debenture carrying amount | $ 353,629 | 0 |
| Unamortized discount | $ 0 | |
| Default interest rate | 22.00% | |
| Default penalty interest | $ 73,629 | $ 0 |
6. Derivative Liability (Details - Assumptions) |
5 Months Ended | 12 Months Ended |
|---|---|---|
May 15, 2017 |
Nov. 30, 2017 |
|
| Date of Issuance [Member] | ||
| Expected volatility | 288.00% | |
| Risk-free interest rate | 1.02% | |
| Expected dividend yield | 0.00% | |
| Expected life (in years) | 6 months | |
| Mark-to-Market [Member] | ||
| Expected volatility | 338.00% | |
| Risk-free interest rate | 1.27% | |
| Expected dividend yield | 0.00% | |
| Expected life (in years) | 3 months 18 days |
6. Derivative Liability (Details - Fair value) - USD ($) |
12 Months Ended | |
|---|---|---|
Nov. 30, 2017 |
Nov. 30, 2016 |
|
| Fair value of derivative, beginning balance | $ 0 | |
| Conversion feature | 175,427 | |
| Change in fair value | 277,578 | $ 0 |
| Fair value of derivative, ending balance | 453,005 | $ 0 |
| Loss at Inception [Member] | ||
| Change in fair value | 130,530 | |
| Change in Fair Value [Member] | ||
| Change in fair value | $ 147,048 | |
10. Share Purchase Warrants (Details) |
12 Months Ended |
|---|---|
|
Nov. 30, 2017
$ / shares
shares
| |
| Equity [Abstract] | |
| Warants outstanding, beginning balance | shares | 0 |
| Warrants issued | shares | 486,783 |
| Warrants cancelled | shares | (486,783) |
| Warants outstanding, ending balance | shares | 0 |
| Weighted average exercise price, beginning balance | $ / shares | |
| Weighted average exercise price, warrants issued | $ / shares | 0.09 |
| Weighted average exercise price, warrants cancelled | $ / shares | 0.09 |
| Weighted average exercise price, ending balance | $ / shares | $ 0.00 |
10. Share Purchase Warrants (Details Narrative) |
12 Months Ended |
|---|---|
|
Nov. 30, 2017
USD ($)
shares
| |
| Warrants issued | 486,783 |
| Fair value of warrants issued | $ | $ 105,396 |
| Warrant Exchange [Member] | |
| Shares issued from exercise of warrants, shares issued | 400,000 |
11. Supplemental Disclosures (Details) - USD ($) |
12 Months Ended | |
|---|---|---|
Nov. 30, 2017 |
Nov. 30, 2016 |
|
| Non-cash investing and financing activities: | ||
| Common shares issued for deferred compensation | $ 490,000 | $ 0 |
| Common shares issued for settlement of related party debt | 714,962 | 0 |
| Common shares issued to settle third party debt | 127,462 | 0 |
| Common shares issued to settle outstanding payables | 0 | 25,000 |
| Expenses paid by related parties that increased related party debt | 19,500 | 2,064 |
| Preferred shares issued to settle related party payables | 0 | 24,167 |
| Preferred shares issued to settle related party debt | 0 | 48,453 |
| Shares issued for prepaid expenses | 40,000 | 0 |
| Warrants issued with debt | 74,573 | 0 |
| Exercise of warrants | 400 | 0 |
| Original issue discount | 25,000 | 0 |
| Debt issuance costs | 5,000 | 0 |
| Debt conversion feature | 175,427 | 0 |
| Interest paid | 0 | 0 |
| Income tax paid | $ 0 | $ 0 |
12. Income Taxes (Details - Tax Provision) - USD ($) |
12 Months Ended | |
|---|---|---|
Nov. 30, 2017 |
Nov. 30, 2016 |
|
| Income Taxes Schedule Of Income Tax Provision Details | ||
| Net loss before taxes | $ (1,981,856) | $ (170,176) |
| Statutory rate | 34.00% | 34.00% |
| Computed expected tax recovery | $ (673,800) | $ (57,900) |
| Permanent differences | 490,000 | (68,100) |
| Change in valuation allowance | 183,800 | 126,000 |
| Income tax provision | $ 0 | $ 0 |
12. Income Taxes (Details - Deferred Taxes) - USD ($) |
Nov. 30, 2017 |
Nov. 30, 2016 |
|---|---|---|
| Income Taxes Schedule Of Deferred Income Tax Assets Details | ||
| Net operating losses carried forward | $ 439,900 | $ 281,180 |
| Accrued interest | 5,900 | 500 |
| Related party payables | 20,900 | 3,200 |
| Deferred tax liability - Accumulated depreciation above book value | (3,300) | 0 |
| Deferred tax assets, gross | 463,400 | 313,700 |
| Valuation allowance | (463,400) | (313,700) |
| Net deferred income tax asset | $ 0 | $ 0 |
12. Income Taxes (Details Narrative) |
12 Months Ended |
|---|---|
|
Nov. 30, 2017
USD ($)
| |
| Income Taxes Narrative Details | |
| Net operating loss carryforward | $ 1,294,000 |
| Net operating loss expiration date | Dec. 31, 2036 |
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