UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
Commission
file number:
(Exact name of registrant as specified in its charter)
| (State of incorporation) | (IRS Employer Identification No.) | |
| (Address of principal executive offices) | (Zip Code) |
303-222-8092
(Registrant’s telephone number, including area code)
ANDINA GOLD CORP.
(Former name, former address and former fiscal year, if changed since last report)
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. ☒
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer | ☐ |
| Smaller reporting company | ||
| 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 Exchange Act) ☐ Yes
As
of November 9, 2021, the registrant had
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or the negative of these words or other comparable terminology.
The identification in this report of factors that may affect our future performance and the accuracy of forward-looking statements is meant to be illustrative and by no means exhaustive. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty.
Factors that could cause our actual results to differ materially from those expressed or implied by forward-looking statements include, but are not limited to:
| ● | Trends affecting our financial condition, results of operations or future prospects, including the impact of COVID-19; |
| ● | Our business and growth strategies; |
| ● | Our financing plans and forecasts; |
| ● | The factors that we expect to contribute to our success and our ability to be successful in the future; |
| ● | Our business model and strategy for realizing positive results as sales increase; |
| ● | Competition, including our ability to respond to such competition and its expectations regarding continued competition in the market in which we compete; |
| ● | Our ability to meet our projected operating expenditures and the costs associated with development of new projects; |
| ● | The impact of new accounting pronouncements on our financial statements; |
| ● | Whether our cash flows from operating activities will be sufficient to meet our operating expenditures; |
| ● | Our market risk exposure and efforts to minimize risk; |
| ● | Regulations, including tax law and practice, federal and state laws governing the cannabis and cannabinoid industries, and tariff legislation; |
| ● | Our overall outlook including all statements under Management’s Discussion and Analysis of Financial Condition and Results of Operations; |
| ● | That estimates and assumptions made in the preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) may differ from actual results; and |
| ● | Our expectations as to future financial performance, cash and expense levels and liquidity sources. |
Any forward-looking statements in this Quarterly Report on Form 10-Q reflect our current views with respect to future events or to our future financial performance. A more detailed description of risk factors that may affect our operating results can be found in Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q and Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with the SEC on March 30, 2021, and our other filings with the SEC. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.
TABLE OF CONTENTS
| PAGE | ||
| PART I - FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements | |
| Consolidated Balance Sheets as of September 30, 2021 (Unaudited) and December 31, 2020 | 1 | |
| Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2021 and 2020 (Unaudited) | 2 | |
| Consolidated Statements of Shareholders’ Equity for the Three and Nine Months Ended September 30, 2021 and 2020 (Unaudited) | 3 | |
| Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020 (Unaudited) | 4 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 20 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 27 |
| Item 4. | Controls and Procedures | 27 |
| PART II - OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 29 |
| Item 1A. | Risk Factors | 29 |
| Item 2. | Unregistered Sale of Equity Securities and Use of Proceeds | 38 |
| Item 3. | Defaults Upon Senior Securities | 38 |
| Item 4. | Mine Safety Disclosures | 38 |
| Item 5. | Other Information | 38 |
| Item 6. | Exhibits | 38 |
| Signatures | 39 | |
i
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
CRYOMASS TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| September 30, 2021 | December 31, 2020 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Prepaid expenses | ||||||||
| Related party note receivable | ||||||||
| Assets held for sale, current | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Loans payable | ||||||||
| Taxes payable | ||||||||
| Note payable, related party | ||||||||
| Liabilities held for sale, current | ||||||||
| Total current liabilities | ||||||||
| Notes payable | ||||||||
| Deferred tax liability | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 16) | ||||||||
| Shareholders’ equity: | ||||||||
| Preferred stock, $ | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Common stock to be issued | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
1
CRYOMASS TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold, inclusive of provision for inventory loss of $ | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Personnel costs | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Amortization expense | ||||||||||||||||
| Legal and professional fees | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expenses): | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain / (loss) on foreign exchange | ( | ) | ( | ) | ||||||||||||
| Total other expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss from continuing operations, before taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income taxes | ||||||||||||||||
| Net loss from continuing operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net gain / (loss) from discontinued operations, net of tax | ( | ) | ( | ) | ||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Comprehensive loss from discontinued operations | ||||||||||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per common share: | ||||||||||||||||
| Loss from continuing operations - basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Gain / (loss) from discontinued operations - basic and diluted | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Loss per common share - basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average common shares outstanding—basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
2
CRYOMASS TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(UNAUDITED)
| Common Stock | Additional Paid-In | Common Stock to | Accumulated | Total Shareholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Be Issued | Deficit | Equity | |||||||||||||||||||
| Balance at December 31, 2019 (Revised) | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Issuance of common stock pursuant to separation agreement | ||||||||||||||||||||||||
| Issuance of common stock pursuant to accelerated vesting of RSU’s | ||||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at March 31, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Share cancellations | ( | ) | ||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at June 30, 2020 | ( | ) | ||||||||||||||||||||||
| Share cancellations | ( | ) | ( | ) | ||||||||||||||||||||
| Share issuance | ||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||
| Beneficial Conversion Feature of Note Payable | - | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at September 30, 2020 | ( | ) | ||||||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Share issuance | ( | ) | ||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Share issuance | ||||||||||||||||||||||||
| Share issuance related to Cryocann asset purchase | ||||||||||||||||||||||||
| Share issuance pursuant to employment agreements | ||||||||||||||||||||||||
| Share issuance in exchange for extinguishment of debt | ||||||||||||||||||||||||
| Share issuance in exchange for services | ||||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||
| Stock options issued and outstanding | - | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Share issuance | ||||||||||||||||||||||||
| Share issuance in exchange for services | ||||||||||||||||||||||||
| Share issuance for interest payment on note payable | ||||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||
| Stock options issued and outstanding | - | |||||||||||||||||||||||
| Beneficial Conversion Feature of Note Payable | - | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
3
CRYOMASS TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For the Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities from continuing operations: | ||||||||
| Depreciation and amortization expense | ||||||||
| Amortization of debt discount | ||||||||
| Provision for inventory loss | ||||||||
| Stock-based compensation expense | ||||||||
| Deferred income tax expense | ||||||||
| Fair value of common stock issued pursuant to service and advisory agreements | ||||||||
| Change in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid expenses | ( | ) | ( | ) | ||||
| Inventory, net | ( | ) | ||||||
| Assets held for sale | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Taxes payable | ||||||||
| Net cash used in operating activities from continuing operations | ( | ) | ( | ) | ||||
| Net cash provided by / (used in) operating activities from disc ops | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Cash payment for Cryocann asset purchase | ( | ) | ||||||
| Issuance of other payable related to Cryocann asset purchase | ( | ) | ||||||
| Purchase of property and equipment | ( | ) | ||||||
| Net cash used in investing activities from continuing operations | ( | ) | ||||||
| Net cash used in investing activities from discontinued operations | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from note payable, related parties | ||||||||
| Proceeds from issuance of common stock | ||||||||
| Repayment of loans payable, current | ( | ) | ||||||
| Proceeds from loans payable | ||||||||
| Proceeds from notes payable | ||||||||
| Related party note disbursement | ( | ) | ||||||
| Net cash provided by financing activities from continuing operations | ||||||||
| Net cash provided by financing activities from discontinued operations | ||||||||
| Net cash provided by financing activities | ||||||||
| Net increase / (decrease) in cash from continuing operations | ( | ) | ||||||
| Net increase / (decrease) in cash from discontinued operations | ( | ) | ( | ) | ||||
| Cash at beginning of period | ||||||||
| Cash at end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Common stock issued pursuant to separation agreement | $ | $ | ||||||
| Common stock issued pursuant to vesting of restricted stock units | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of the Business
Cryomass Technologies Inc (“Cryomass Technologies” or the “Company”) began as Auto Tool Technologies Inc., which was incorporated under the laws of the State of Nevada on May 10, 2011. The Company’s name was changed to AFC Building Technologies Inc. effective January 10, 2014. Effective April 26, 2018, the Company changed its name to First Colombia Development Corp. Effective October 14, 2019, the Company changed its name to Redwood Green Corp. Effective September 1, 2020, the Company changed its name to Andina Gold Corp. On July 15, 2021, the Company entered into a plan of merger with a wholly-owned subsidiary, the effect of which was to change its name to Cryomass Technologies Inc. Our ticker symbol changed from AGOL to CRYM.
On May 10, 2018, the Company acquired all the issued and outstanding share capital of First Colombia Devco S.A.S. (“Devco”) a Colombian company and began to establish various business ventures in Colombia in the agriculture and real estate development, tourism, and infrastructure sectors before commencing to phase them out in April 2019.
On
July 1, 2019, the Company acquired
On
July 15, 2019, the Company, through its wholly owned subsidiary Good Acquisition Co., entered into a Membership Interest Purchase Agreement
to acquire cannabis brands and other assets of Critical Mass Industries LLC DBA Good Meds (“CMI” and/or “Good Meds”),
a Colorado limited liability company (“CMI Transaction”). CMI is licensed by the Marijuana Enforcement Division of Colorado
Department of Revenue to produce cannabis and cannabis products under its six licenses. These licenses allow for cultivation, manufacturing
of infused products and retail distribution. At the time the Company entered into the Membership Interest Purchase Agreement, Colorado
law prohibited public companies, including the Company, from owning cannabis licenses. Under the terms of the Membership Interest Purchase
Agreement, CMI retained the cannabis license, inventory and accounts receivable (the “Cannabis License Assets”) and will
continue to operate the cannabis business related to those assets. In consideration for the transfer of the acquired assets, the Company
delivered
The Company is actively pursuing divestiture of its Colorado-based subsidiaries and assets.
In August 2020, the Company merged with its wholly owned Nevada subsidiary, Andina Gold Corp., and changed its name into Andina Gold Corp. On October 21, 2020, FINRA issued an advisory accepting the company’s name change from Redwood Green Corp to Andina Gold Corp and ticker symbol change to AGOL effective as of October 22, 2020. In August 2020, the Company established a wholly owned Colombian subsidiary, Andina Gold Colombia SAS for the purpose of pursuing opportunities in the gold exploration business in Colombia. In December 2020, due to the death of the top geologist exploring opportunities on behalf of the Company, and the effects of the ongoing Coronavirus pandemic, the Company determined that pursuit of gold exploration in Colombia was no longer a practical alternative.
On
June 22, 2021, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Cryocann USA Corp, a
California corporation (“Cryocann”), pursuant to which Company acquired substantially all the assets of Cryocann, (the “Cryocann
Acquisition”). The Acquisition was consummated on June 23, 2021. The aggregate purchase price for substantially all the assets
of Cryocann was $
As part of the Cryocann Acquisition, we retained both Cryocann employees, who have expert knowledge of the industry, related participants, customers and the acquired patented technology. Under these employment agreements, each employee may receive compensation if specific performance targets are met in association with our future operating performance once the Cryocann technology enters the market.
Cryocann is a designer and seller of equipment developed on the basis of patented technology for cannabis varieties harvesting, refinement, and extraction. The technology reduces processing costs, increases the quality of the extracted compounds and has potential for other agricultural applications including hemp and hops. The Company is exploring the application of the underlying technology to a broad range of industries that handle high-value materials and that could benefit from our precision capture methods. We anticipate that cannabis and hemp will be the first in a series of such industries. Further, we expect to begin field-testing in the fourth quarter of this year and to start commercialization early in 2022.
5
2. Variable Interest Entity
Pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Section 810, Consolidation (“ASC 810”), the Company is required to include in its consolidated financial statements, the financial statements of its variable interest entity (“VIE”). ASC 810 requires a VIE to be consolidated if that company is subject to a majority of the risk of loss for the VIE or is entitled to receive a majority of the VIE’s residual returns. VIEs are those entities in which a company, through contractual arrangements, bears the risk of, and enjoys the rewards normally associated with ownership of the entity, and therefore the company is the primary beneficiary of the entity.
Under ASC 810, a reporting entity has a controlling financial interest in a VIE, and must consolidate that VIE, if the total equity investment at risk is not sufficient to permit the legal entity to finance its activities without additional subordinated financial support provided by any parties, including equity holders. As of July 15, 2019, the Company consolidates CMI as a VIE pursuant to certain intellectual property, administrative and consulting agreements in which the Company is deemed the primary beneficiary of CMI. Accordingly, the results of CMI have been included in the accompanying consolidated financial statements.
Furthermore, the Company notes it does not own the Cannabis License Assets; however, pursuant to accounting principles generally accepted in the United States (“GAAP”), the Cannabis License Assets are consolidated in the accompanying consolidated financial statements along with certain liabilities and the associated revenues and expenses of CMI. See Note 8 for further information regarding CMI.
| Balance Sheet | As of September 30, 2021 | As of December 31, 2020 | ||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventory, net | ||||||||
| Total current assets | ||||||||
| Total assets | $ | $ | ||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Total current liabilities | ||||||||
| Total liabilities | ||||||||
| Net assets | $ | $ | ||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Income Statement | ||||||||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold, inclusive of depreciation | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Personnel costs | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Legal and professional fees | ||||||||||||||||
| Amortization expense | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Gain / (loss) from operations | ( | ) | ||||||||||||||
| Other income (expenses): | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ||||||||||
| Goodwill impairment | ( | ) | ( | ) | ||||||||||||
| Total operating expenses | ( | ) | ( | ) | ( | ) | ||||||||||
| Net income from discontinued operations | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
6
3. Revision of Prior Period Financial Statements
On the consolidated balance sheet for the year ended December 31, 2019 and the quarter ended September 30, 2019, the Cannabis License Assets of CMI, a VIE in which the Company is deemed the primary beneficiary (Note 2), was presented as non-controlling interest pursuant to and in conjunction with the CMI Transaction. The Company does not own the Cannabis License Assets; however, they are included in the accompanying consolidated financial statements for GAAP reporting purposes.
The
Company revised its consolidated financial statements for the fiscal year ended December 31, 2019, in which this line item was adjusted
to correct the classification by reflecting accounts receivable, net of $
The impact of these adjustments on the Company’s consolidated financial statements was as follows:
| December 31, 2019 | ||||||||||||
| Previously Reported | Non-controlling Interest Adjustment | Revised (1) | ||||||||||
| Inventory, net (2) | $ | $ | $ | |||||||||
| Accounts receivable, net (2) | $ | $ | $ | |||||||||
| Total current assets | $ | $ | $ | |||||||||
| Goodwill | $ | $ | ( | ) | $ | |||||||
| Total assets | $ | $ | ( | ) | $ | |||||||
| Accounts payable and accrued expenses | $ | $ | $ | |||||||||
| Total current liabilities | $ | $ | $ | |||||||||
| Total liabilities | $ | $ | $ | |||||||||
| Additional paid-in capital | $ | $ | $ | |||||||||
| Non-controlling interests in consolidated variable interest entity | $ | $ | ( | ) | $ | |||||||
| Total shareholders’ equity | $ | $ | ( | ) | $ | |||||||
| Total liabilities and shareholders’ equity | $ | $ | ( | ) | $ | |||||||
| (1) |
| (2) |
4. Going Concern Uncertainty, Financial Conditions and Management’s Plans
The Company believes it has sufficient cash available
(most of which was received subsequent to the end of the quarter) to fund its anticipated level of operations for at least the next twelve
months. During the quarter and subsequent to quarter end, the Company raised a total of $
Our
unaudited financial statements for the three and nine months ended September 30, 2021 have been prepared on a going concern basis. The
continuation of our company as a going concern is dependent upon the continued financial support from its shareholders, the ability of
our company to obtain necessary equity or debt financing to continue operations, the sale of assets, and ultimately the attainment of
profitable operations. For the nine months ended September 30, 2021, our company used $
On March 11, 2020, the 2019 novel coronavirus (“COVID-19) was characterized as a “pandemic.” The Company’s operations were impacted in the United States. The impact of COVID-19 developments and uncertainty with respect to the economic effects of the pandemic has introduced significant volatility in the financial markets.
The Company assessed certain accounting matters that require consideration of forecasted financial information, including, but not limited to, the carrying value of the Company’s goodwill, intangible assets, and other long-lived assets, and valuation allowances in context with the information reasonably available to the Company and the unknown future impacts of COVID-19 as of September 30, 2021 and through the date of this report. The Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to the Consolidated Financial Statements in future reporting periods.
7
The COVID-19 pandemic and responses to this crisis, including actions taken by federal, state and local governments, have had an impact on the operations of the company, including, without limitation, the following: reduced staffing due to employee suspected conditions and social distancing measures; constraints on productivity; management and staff non-essential business-related travel was constrained due to stay-at-home orders; most employees have shifted to remote work resulting in loss of productivity; consumers visiting dispensaries operated under license impacted by stay-at-home orders. Management continues to monitor the COVID-19 pandemic situation and federal, state and local recommendations and will provide updates as appropriate.
5. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the Securities and Exchange Commission (“SEC”) for interim reporting. Accordingly, they do not include certain footnotes and financial presentations normally required under GAAP for complete financial statements. The consolidated financial statements include the accounts of Cryomass Technologies Inc., Cryomass Inc. and CMI, a VIE for which the Company is deemed to be the primary beneficiary. All significant intercompany balances and transactions have been eliminated in consolidation. The Company operates as one segment from its corporate headquarters in Colorado. The unaudited consolidated financial statements have been prepared on the same basis as the annual financial statements, with exception to the revision as described in Note 3 and reflect all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial position and the results of operations and cash flows. The results for the three and nine-month periods ended September 30, 2021 and 2020 are not necessarily indicative of the results to be expected for any subsequent period or the entire year ending December 31, 2021. These unaudited interim consolidated financial statements should be read in conjunction with the Company’s annual audited financial statements and notes thereto for the year ended December 31, 2020, included in the Company’s Form 10-K filed on March 30, 2021 with the SEC.
Use of Estimates
The preparation of the Company’s financial statements in conformity with GAAP 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 expenses during the reporting period. Significant estimates and assumptions reflected in these financial statements include, but are not limited to determining the fair value of the assets acquired and liabilities assumed in acquisition, determining the fair value and potential impairment of inventory, determining the useful lives and potential impairment of long-lived assets and potential impairment of goodwill. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.
Reclassifications
Certain items in the interim consolidated financial statements were reclassified from prior periods for presentation purposes.
Variable Interest Entities
The Company accounts for variable interest entities in accordance with FASB ASC Topic 810, Consolidation. Management evaluates the relationship between the Company and VIEs and the economic benefit flow of the contractual arrangement with the VIEs. Management determines if the Company is the primary beneficiary of a VIE through a qualitative analysis that identifies which variable interest holder has the controlling financial interest in the VIE. The variable interest holder who has both of the following has the controlling financial interest and is the primary beneficiary: (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE. In performing our analysis, we consider all relevant facts and circumstances, including: the design and activities of the VIE, the terms of the contracts the VIE has entered into, the nature of the VIE’s variable interests issued and how they were negotiated with or marketed to potential investors, and which parties participated significantly in the design or redesign of the entity. As a result of such evaluation, management concluded that the Company is the primary beneficiary of CMI and consolidates the financial results of this entity.
8
Purchase Accounting for Acquisitions
We apply the acquisition method of accounting for a business combination. In general, this methodology requires us to record assets acquired and liabilities assumed at their respective fair values at the date of acquisition. Any amount of the purchase price paid that is in excess of the estimated fair value of the net assets acquired is recorded as goodwill. For certain acquisitions, we also record a liability for contingent consideration based on estimated future business performance. We monitor our assumptions surrounding these estimated future cash flows and, if there is a significant change, would record an adjustment to the contingent consideration liability and a corresponding adjustment to either income or expense. We determine fair value using widely accepted valuation techniques, primarily discounted cash flow and market multiple analyses. These types of analyses require us to make assumptions and estimates regarding industry and economic factors, the profitability of future business strategies, discount rates and cash flow.
If actual results are not consistent with our assumptions and estimates, or our assumptions and estimates change due to new information, we may be exposed to an impairment charge in the future. If the contingent consideration paid for any of our acquisitions differs from the amount initially recorded, we would record either income or expense associated with the change in liability.
Accounts Receivable, net
Accounts
receivable, net is comprised of balances due from customers and are recorded at the invoiced amount. Past due balances are determined
based on the contractual terms of the arrangements. Accounts receiveable are accrued against when management determines, after considering
economic and business conditions and all means of collection efforts have been exhausted and the potential for recovery is considered
remote, that the collection of receivables is doubtful. Accounts receivable amounts, net of allowance for doubtful accounts, were $
Inventory, net
Inventory,
net is comprised of work-in-process and finished goods consisting of cannabis and cannabidiol products. Cost includes expenditures directly
related to the manufacturing process as well as suitable portions of related production overheads, based on normal operating capacity.
Inventory, net is stated at the lower of cost or net realizable value. The Company compares the cost of inventory with market value and
writes down inventories to net realizable value, if lower. In evaluating whether inventories are stated at lower of cost or net realizable
value, management considers such factors as inventories on hand, physical deterioration, obsolescence, changes in price levels, estimated
time to sell such inventories and current market conditions. Due to changing market conditions, management conducted a thorough review
of its inventory. As a result, a provision for inventory loss of $
Revenue Recognition
Under FASB Topic 606, Revenue from Contacts with Customers (“ASC 606”), the Company recognizes revenue when the customer obtains control of promised goods or services, in an amount that reflects the consideration which is expected to be received in exchange for those goods or services. The Company recognizes revenue following the five-step model prescribed under ASC 606: (i) identify contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenues when (or as) the Company satisfies a performance obligation.
The Company’s revenue consists of sales of cannabis and ancillary products to both retail consumers and wholesale customers. Revenue for retail customers is recognized upon completion of the transaction in the point-of-sale system and satisfaction of the sale by providing the corresponding inventory at the retail location. Revenue for wholesale customers is recognized upon acceptance of the physical goods and confirmation by acceptance of the inventory in the regulatory marijuana enforcement tracking reporting compliance (“METRC”) system. Revenue is recognized upon transfer of control of promised products to customers, generally as risk of loss passes, in an amount that reflects the consideration the Company expects to receive in exchange for those products. Taxes collected from customers, which are subsequently remitted to governmental authorities, are excluded from revenue.
Retail customer loyalty liabilities are recognized in the period in which they are incurred and will often be retired without being utilized. Shipping and handling costs are expensed as incurred and are included in cost of sales, which were not material for the three and nine months ended September 30, 2021 and 2020.
The Company operates in a highly regulated environment in which state regulatory approval is required prior to the customer being able to purchase the product, either through the Colorado Marijuana Enforcement Division for wholesale clients or the Colorado Department of Public Health and Environment for medical patients.
9
Cost of Goods Sold, Net of Depreciation and Amortization
Cost of goods sold primarily consisted of allocated salaries and wages of employees directly related with the production process, allocated depreciation and amortization directly related to the production process, cultivation supplies, rent and utilities.
Operating Expenses
Operating expenses encompass personnel costs, sales and marketing expenses, general and administrative expenses, professional and legal fees and depreciation and amortization related to the property and equipment and intangibles acquired through the acquisition of CMI. Personnel costs consist primarily of consulting expense and administrative salaries and wages. Sales and marketing expenses consist primarily of advertising and marketing, and salaries related to sales and marketing employees. General and administrative expenses are comprised of travel expenses, accounting expenses, and board fees. Professional services are principally comprised of outside legal and professional fees.
Other Expense, net
Other expense, net consisted of interest expense and gain on foreign exchange.
Stock-Based Compensation
The fair value of restricted stock units (“RSUs”) granted are measured on the grant date using the closing price of the Company’s common shares on the grant date. The Company accounts for forfeitures as they occur, rather than estimating expected forfeitures over the course of a vesting period. All stock-based compensation costs are recorded in general and administrative expenses in the consolidated statements of operations.
Property and Equipment, net
Purchase of property and equipment are recorded at cost. Improvements and replacements of property and equipment are capitalized. Maintenance and repairs that do not improve or extend the lives of property and equipment are charged to expense as incurred. When assets are sold or retired, their cost and related accumulated depreciation are removed from the accounts and any gain or loss is reported in the consolidated statements of operations. Depreciation and amortization expense is recognized using the straight-line method over the estimated useful life of each asset, as follows:
| Estimated Useful Life | ||
| Computer equipment | ||
| Furniture and fixtures | ||
| Machinery and equipment | ||
| Leasehold improvements | Shorter of lease term or |
Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price of an acquired entity over the fair value of identifiable tangible and intangible assets acquired and liabilities assumed in a business combination.
Indefinite-lived intangible assets established in connection with business combinations consist of trademarks, trade names and developed manufacturing processes. Intangible assets with indefinite lives are recorded at their estimated fair value at the date of acquisition.
Intangible assets with finite lives are recorded at their estimated fair value at the date of acquisition and are amortized over their estimated useful lives using the straight-line method. Amortization of assets ceases upon designation as held for sale. The estimated useful lives of intangible assets are detailed in the table below:
| Estimated Useful Life | ||
| Customer relationships | ||
| Trademark/trade name | ||
| Developed manufacturing process | ||
| In process research and development | ||
| Patent |
Intangible assets associated with in process research and development are indefinite lived until the research and development is finalized, at which point we will assess an estimated useful life.
Impairment of Goodwill and Intangible Assets
Goodwill
Goodwill is not amortized, but instead is tested annually at December 31 for impairment and upon the occurrence of certain events or substantive changes in circumstances.
10
We account for the impairment of goodwill under the provisions of Financial Accounting Standards Board (FASB) Accounting Standard Update 2017-04 (“ASU 2017-04”), “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” and FASB Accounting Standards Codification (ASC) 350-20-35, Intangibles – Goodwill and Other - Goodwill.
The Company performs impairment testing for goodwill by performing the following steps: 1) evaluate the relevant events or circumstances to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, 2) if yes to step 1, calculate the fair value of the reporting unit and compare it with its carrying amount, including goodwill, 3) recognize impairment, limited to the total amount of goodwill allocated to that reporting unit, equal to the excess of the carrying value of a reporting unit over its fair value.
As of December 31, 2020, management concluded that the goodwill resulting from the CMI transaction (Note 7) was impaired. See Note 11.
Indefinite-Lived Intangible Assets
Indefinite-lived intangible assets are not amortized, but instead are tested annually at December 31 for impairment and upon the occurrence of certain events or substantive changes in circumstances.
We account for the impairment of indefinite-lived intangible assets under the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 350-30-35, Intangibles – Goodwill and Other – General Intangibles Other Than Goodwill. Following this guidance, the Company compares the estimated fair value of the indefinite-lived intangible assets to its carrying value. If the carrying value exceeds the fair value, the Company recognizes impairment equal to that excess.
As of December 31, 2020, management concluded that indefinite-lived intangible assets were impaired. See Note 11.
Intangible Assets Subject to Amortization
Intangible assets subject to amortization are tested annually at December 31 for impairment and upon the occurrence of certain events or substantive changes in circumstances.
We account for the impairment of intangible assets subject to amortization under the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 360-10-35, Property, Plant, and Equipment. Following this guidance, the Company compares the estimated fair value of the intangible assets subject to amortization to its carrying value. If the carrying value exceeds the fair value, the Company recognizes impairment equal to that excess.
As of December 31, 2020, management concluded that intangible assets subject to amortization were impaired. See Note 11.
Contingencies
An
initial right-of-use (“ROU”) asset and corresponding liability of $
Income Taxes
The
Company uses the liability method of accounting for income taxes as set forth in ASC 740, Income Taxes. Under the liability method,
deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities
using tax rates expected to be in effect during the years in which the basis differences reverse. A valuation allowance is recorded when
it is likely that the deferred tax assets will not be realized. We assess our income tax positions and record tax benefits for all years
subject to examination based upon our evaluation of the facts, circumstances and information available at the reporting date.
Fair Value Measurements
Certain assets and liabilities of the Company are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
| ● | Level 1 — Quoted prices in active markets for identical assets or liabilities. |
| ● | Level 2 — Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data. | |
| ● | Level 3 — Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques. |
11
The carrying values reported in the consolidated balance sheets for cash, prepaid expenses, inventories, accounts payable, notes payable, and taxes payable approximate fair values because of the immediate or short-term maturities of these financial instruments. There were no other assets or liabilities that require fair value to be recalculated on a recurring basis.
Net Loss per Share
The
Company follows ASC 260, Earnings Per Share, which requires presentation of basic and diluted earnings per share (“EPS”)
on the face of the income statement for all entities with complex capital structures. Net earnings or loss per share is computed by dividing
net income or loss by the weighted-average number of common shares outstanding during the period, excluding shares subject to redemption
or forfeiture. The Company presents basic and diluted net earnings or loss per share. Diluted net earnings or loss per share reflect
the actual weighted average of common shares issued and outstanding during the period, adjusted for potentially dilutive securities outstanding.
Potentially dilutive securities are excluded from the computation of the diluted net loss per share if their inclusion would be anti-dilutive.
There were
Assets and Liabilities of Discontinued Operations Held for Sale
Assets and liabilities are classified as held for sale when all of the following criteria for a plan of sale have been met: (1) management, having the authority to approve the action, commits to a plan to sell the assets; (2) the assets are available for immediate sale, in their present condition, subject only to terms that are usual and customary for sales of such assets; (3) an active program to locate a buyer and other actions required to complete the plan to sell the assets have been initiated; (4) the sale of the assets is probable and is expected to be completed within one year; (5) the assets are being actively marketed for a price that is reasonable in relation to their current fair value; and (6) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or the plan will be withdrawn. When all of these criteria have been met, the assets (and liabilities) are classified as held for sale in the balance sheet. Assets classified as held for sale are reported at the lower of their carrying value or fair value less costs to sell. Depreciation of assets ceases upon designation as held for sale. See Note 8.
Recent Accounting Pronouncements
In August 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40). ASU 2020-06 reduces the number of accounting models for convertible debt instruments and convertible preferred stock. The accounting model for beneficial conversion features is removed. The ASU is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company determined that this update will impact its financial statements.
6. Revenue Recognition
Disaggregated Revenue
| For the Three Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Types of Revenues: | ||||||||
| $ | $ | |||||||
| ( | ) | |||||||
| Total revenues | $ | $ | ||||||
12
| For the Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Types of Revenues: | ||||||||
| $ | $ | |||||||
| Other revenues (amounts related to VIE discontinued operations of $( | ( | ) | ||||||
| Total revenues | $ | $ | ||||||
7. Business Combination
Effective
July 15, 2019, the Company acquired cannabis-related brands and other assets of CMI. In consideration of the sale and transfer of the
acquired assets, the Company delivered
The CMI Transaction was accounted for as a business combination in accordance with ASC 805, Business Combinations (“ASC 805”). The Company’s allocation of the purchase price was calculated as follows:
| Cash | $ | |||
| Common stock | ||||
| Total purchase price | $ |
| Description | Fair Value | Weighted average useful life (in years) | |||||
| Assets acquired: | |||||||
| Cash | $ | ||||||
| Other current assets | |||||||
| Property and equipment, net | |||||||
| Intangible assets: | |||||||
| Customer relationships | |||||||
| Trademark/trade name | |||||||
| Developed manufacturing process | |||||||
| Goodwill | |||||||
| Right of use asset | |||||||
| Deposits | |||||||
| Total assets acquired | $ | ||||||
| Liabilities assumed: | |||||||
| Notes payable | $ | ||||||
| Notes payable, related parties | |||||||
| Right of use liability | |||||||
| Total liabilities assumed | |||||||
| Estimated fair value of net assets acquired | $ | ||||||
Effective
June 23, 2021, the Company acquired substantially all the assets of Cryocann for $
The Company concluded that the Cryocann Acquisition qualified as a business combination under ASC 805. The Company’s allocation of the purchase price was calculated as follows:
| Cash | $ | |||
| Common stock | ||||
| Promissory Note | ||||
| Total purchase price | $ |
13
Description | Fair Value | Weighted average useful life (in years) | ||||||
| Assets acquired: | ||||||||
| Intangible assets: | ||||||||
| In process research and development | ||||||||
| Patent | ||||||||
| Goodwill | ||||||||
| Total assets acquired | $ | |||||||
The estimates of the fair value of the assets acquired assumed at the date of the Cryocann Acquisition are subject to adjustment during the measurement period (up to one year from each acquisition date). The primary areas of the accounting for the Cryocann Acquisition that are not yet finalized relate to the fair value of intangible assets acquired, residual goodwill and any related tax impact. The fair value of these net assets acquired is based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. While the Company believes that such preliminary estimates provide a reasonable basis for estimating the fair value of assets acquired, it evaluates any necessary information prior to finalization of the fair value. During the measurement period, the Company will adjust assets if new information is obtained about facts and circumstances that existed as of the date of the Cryocann Acquisition that, if known, would have resulted in the revised estimated values of those assets as of that date. The impact of all changes that do not qualify as measurement period adjustments are included in current period earnings. If the actual results differ from the estimates and judgments used in these fair values, the amounts recorded in the consolidated financial statements could be subject to a possible impairment of the intangible assets or goodwill or require acceleration of the amortization expense of intangible assets in subsequent periods.
8. Discontinued Operations
In June 2020, the Company’s board of directors adopted a plan to end its involvement through the various 2019 CMI contracts with the cultivation, manufacturing of infused products and retail distribution businesses through the sale of Good Meds. The Company determined that the intended sale represented a strategic shift that will have a major effect on the Company’s operations and financial results and therefore, for financial statement reporting purposes classified Good Meds and its consolidated VIE CMI as held for sale at September 30, 2021 and December 31, 2020.
The accompanying consolidated balance sheets include the following carrying amounts of assets and liabilities related to these CMI discontinued operations:
| September 30, 2021 |
December 31, 2020 | |||||||
| Assets | ||||||||
| Accounts receivable, net | $ | $ | |
|||||
| Prepaid expenses | ||||||||
| Inventory, net | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Security deposits | ||||||||
| Right of use asset, net | ||||||||
| Total current assets held for sale | ||||||||
| Total assets held for sale | $ | $ | ||||||
| Liabilities | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Taxes payable | ||||||||
| Notes payable, related parties | ||||||||
| Right of use liability | ||||||||
| Total liabilities held for sale | ||||||||
| Net assets | $ | $ | ||||||
14
The consolidated statements of operations include the following operating results related to these CMI discontinued operations:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold, inclusive of depreciation | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Personnel costs | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Legal and professional fees | ||||||||||||||||
| Amortization expense | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Gain / (loss) from operations | ( | ) | ||||||||||||||
| Other income (expenses): | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ||||||||||
| Goodwill impairment | ( | ) | ( | ) | ||||||||||||
| Total other expenses | ( | ) | ( | ) | ( | ) | ||||||||||
| Net gain / (loss) from discontinued operations, before taxes | ( | ) | ( | ) | ||||||||||||
| Income taxes | ||||||||||||||||
| Net loss from discontinued operations | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
9. Inventory, Net
Inventory, net consisted of the following:
| September 30, 2021 | December 31, 2020 | |||||||
| Finished goods (amounts related to VIE discontinued operations of $ | $ | $ | ||||||
| Work-in-process inventory grow (amounts related to VIE discontinued operations of $ | ||||||||
| $ | $ | |||||||
The Company re-negotiated the selling price of the cannabidiol finished goods inventory from Cryomass LLC in 2019 and 2020. All remaining cannabidiol finished goods inventory was sold in 2020 Q2.
10. Property and Equipment, Net
Property
and equipment, net consisted of the following. All property and equipment is classified as held for sale, except for $
| September 30, 2021 | December 31, 2020 | |||||||
| Leasehold improvements | $ | $ | ||||||
| Machinery and equipment | ||||||||
| Furniture and fixtures | ||||||||
| Construction in progress | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| $ | $ | |||||||
Depreciation
expense for the three and nine months ended September 30, 2021 was $
15
11. Goodwill and Intangible Assets
The
Company tests goodwill and intangible assets for impairment annually as of December 31st, or more frequently whenever
events or changes in circumstances indicate that the asset might be impaired. As the Company marketed CMI’s subsidiaries and the
Company’s related assets for sale, management determined it was more likely than not that the fair value was less than the carrying
value. Therefore, in 2020,
The
carrying value of goodwill was $
The following tables summarize information relating to the Company’s identifiable intangible assets, which are classified as held for sale, as of September 30, 2021 and December 31, 2020:
| September 30, 2021 | ||||||||||||||||||
| Estimated Useful Life (Years) | Gross Amount | Accumulated Amortization | Impairment | Carrying Value | ||||||||||||||
| Amortized | ||||||||||||||||||
| Customer relationships | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||
| Patent | ( | ) | ||||||||||||||||
| Total amortized | ( | ) | ( | ) | ||||||||||||||
| Indefinite-lived | ||||||||||||||||||
| In-process research and development | ||||||||||||||||||
| Trademark/trade name | ( | ) | ||||||||||||||||
| Developed manufacturing process | ( | ) | ||||||||||||||||
| Total indefinite-lived | ( | ) | ||||||||||||||||
| Total identifiable intangible assets | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||
| December 31, 2020 | ||||||||||||||||||
| Estimated Useful Life (Years) | Gross Amount | Accumulated Amortization | Impairment | Carrying Value | ||||||||||||||
| Amortized | ||||||||||||||||||
| Customer relationships | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||
| Total amortized | ( | ) | ( | ) | ||||||||||||||
| Indefinite-lived | ||||||||||||||||||
| Trademark/trade name | ( | ) | ||||||||||||||||
| Developed manufacturing process | ( | ) | ||||||||||||||||
| Total indefinite-lived | ( | ) | ||||||||||||||||
| Total identifiable intangible assets | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||
Amortization
expense, which is included in continuing operations, was $
12. Debt
On
July 27, 2020, the Company entered into a subscription agreement consisting of 1) a convertible note and 2) warrants. The 1) convertible
note has a face value of $
16
On August 26, 2020, the Company entered into a
$
On March 18, 2021, the Company entered into a
$
Between March 29, 2021 and July 6, 2021, the Company
entered into a series of similar subscription agreements with either domestic or non-US accredited investors, respectively (each, a “Initial
Tranche Subscription Agreement (US)” and, respectively, “Initial Tranche Subscription Agreement (non-US)”) pursuant
to which the Company issued and sold to certain accredited investors, in the initial tranche of a non-brokered private placement (the
“Private Placement”), an aggregate
On August 20, 2021, the Company entered into a $
13. Related Party Transactions
In conjunction with the CMI Transaction, the Company
assumed a note payable in which the note holder, John Knapp (“Knapp”) is a significant shareholder in the Company. In the
second quarter of 2021, the Company issued
In conjunction with the Cryocann Acquisition,
the Company received a promissory note from Matt Armstrong, an employee of the Company, for $
On August 19, 2021, the Company entered into a
loan agreement of $
14. Shareholders’ Equity
From June to August 2019, the Company completed
a private placement for the sale of its common stock. The Company issued
In July 2019, the Company issued
During the year ended December 31, 2019, the Company
issued
In February 2020, the Company issued
In February 2020, the Company issued
In March 2020, the Company issued
In June 2020, four shareholders submitted
In July 2020, the Company issued
17
In July 2020, one shareholder submitted
In August 2020, the Company issued
In August 2020, the Company issued
From October to December 2020, the Company issued
From January to March 2021, the Company issued
From April to June 2021, the Company issued
From July to September 2021, the Company issued
Restricted Stock Unit Awards
The Company adopted its 2019 Omnibus Stock Incentive Plan (the “2019 Plan”), which provides for the issuance of stock options, stock grants and RSUs to employees, directors and consultants. The primary purpose of the 2019 Plan is to enhance the ability to attract, motivate, and retain the services of qualified employees, officers and directors. Any RSUs granted under the 2019 Plan will be at the discretion of the Compensation Committee of the Board of Directors. In April 2021 Board of Directors cancelled the 2019 Plan.
A summary of the Company’s RSU award activity for the nine months ended September 30, 2021 is as follows:
| Restricted Stock Units | Weighted Average Grant Date Fair Value | |||||||
| Outstanding at December 31, 2020 | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ||||||||
| Outstanding at March 31, 2021 | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ||||||||
| Outstanding at June 30, 2021 | ||||||||
| Granted | ||||||||
| Vested | ||||||||
| Forfeited | ||||||||
| Outstanding at September 30, 2021 | ||||||||
The total fair value of RSUs vested during the
three and nine months ending September 30, 2021 was $
Stock-based compensation expense relating to RSU’s
was $
Expenses for stock-based compensation is included on the accompanying consolidated statements of operations in general and administrative expense.
18
15. Income Taxes
In accordance with ASC 740-270, the Company calculates
the interim tax expense based on an annual effective tax rate (“AETR”). The AETR represents the Company’s estimated
effective tax rate for the year based on full year projection of tax expense, divided by the projection of full year pretax book loss,
adjusted for discrete transactions occurring during the period. The annual effective tax rate for the nine months ended September 30,
2021 was
As of September 30, 2021, the Company has recorded
a total income tax liability in the amount of $
16. Commitments & Contingencies
Occasionally, the Company may be involved in claims and legal proceedings arising from the ordinary course of its business. The Company records a provision for a liability when it believes that it is both probable that a liability has been incurred, and the amount can be reasonably estimated. If these estimates and assumptions change or prove to be incorrect, it could have a material impact on the Company’s consolidated financial statements. Contingencies are inherently unpredictable, and the assessments of the value can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions.
Lease Commitments
The Company accounts for lease transactions in accordance with Topic 842, Leases (“ASC 842”), which requires an entity to recognize a right-of-use (“ROU”) asset and a lease liability for virtually all leases. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.
There are no other leases that meet the reporting
standards of ASU Topic 842 as the Company does not have any other leases with a term exceeding
An ROU asset of $
The Company does not have any leases that have not yet commenced which are significant.
Legal Proceedings
We know of no material, existing or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our company.
17. Subsequent Events
On October 10, 2021, the Company issued
From October 10, 2021 to October 26, 2021, convertible note holders
converted their notes into
Between October 14, 2021 and November 3, 2021,
the Company issued
On October 15, 2021, the Company fully repaid
the promissory note that was issued for $
On October 15, 2021, our related party note receivable
of $
On October 19, 2021, the Company fully repaid the remaining principal
balance for the $
On October 22, 2021, the Company fully repaid the related party note due to its Chief Executive Officer, Christian Noel.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
In this quarterly report, unless otherwise specified, our financial statements are expressed in United States Dollars (US$) and are prepared in accordance with United States generally accepted accounting principles. All references to “common shares” refer to the common shares in our capital stock.
Unless expressly indicated or the context requires otherwise, the terms “Cryomass Technologies,” the “Company,” “we,” “us,” and “our” refer to Cryomass Technologies Inc., a Nevada corporation, and, where appropriate, its wholly owned subsidiaries.
General Overview
Cryomass Technologies Inc began as Auto Tool Technologies Inc., which was incorporated under the laws of the State of Nevada on May 10, 2011. The Company’s name was changed to AFC Building Technologies Inc. effective January 10, 2014. Effective April 26, 2018, the Company changed its name to First Colombia Development Corp. Effective October 14, 2019, the Company changed its name to Redwood Green Corp. Effective September 1, 2020, the Company changed its name to Andina Gold Corp. On July 15, 2021, the Company entered into a plan of merger with its wholly-owned subsidiary, Cryomass Technologies Inc. a Nevada corporation, pursuant to which we agreed that subsidiary would merge with and into our company. Following the consummation of the merger, the separate existence of the subsidiary ceased, and we continued as the surviving corporation with our name changed to Cryomass Technologies Inc. effective August 27, 2021. Our ticker symbol changed from AGOL to CRYM.
The Company’s corporate headquarters are located in Denver, Colorado.
In April 2018, the Company effected a forward stock split of our authorized and issued and outstanding shares of common stock on a one (1) old for two (2) new basis. Upon effect of the forward split, authorized capital increased from 250,000,000 shares of common stock to 500,000,000 shares of common stock and correspondingly, the issued and outstanding shares of common stock increased from 34,760,008 to 73,520,016 shares of common stock, all with a par value of $0.001. The stock split was subsequently reviewed and approved by the Financial Industry Regulatory Authority (FINRA) on April 26, 2018.
On May 10, 2018, the Company acquired all the issued and outstanding share capital of First Colombia Devco S.A.S. (“Devco”) a Colombian company, and began to establish various business ventures in Colombia in the agriculture and real estate development, tourism, and infrastructure sectors before commencing to phase them out in April 2019.
On July 1, 2019, the Company acquired 100% of the membership interests in General Extract, LLC (“General Extract”), a Colorado limited liability company. General Extract was founded in 2015 as an importer, distributor, broker and postprocessor of hemp and hemp derivatives. The Company acquired all of the issued and outstanding membership interests, including business plans and access to contacts. In consideration of the sale and transfer of the membership interests, the Company delivered 299,170 shares, representing 100% of the ownership of First Colombia Devco. Effective August 27, 2021, General Extract became Cryomass LLC.
On July 15, 2019, the Company, through its wholly owned subsidiary Good Acquisition Co., entered into a Membership Interest Purchase Agreement to acquire cannabis brands and other assets of Critical Mass Industries, LLC DBA Good Meds (“CMI”), a Colorado limited liability company (“CMI Transaction”). CMI is licensed by the Marijuana Enforcement Division of Colorado Department of Revenue to produce cannabis and cannabis products under its six licenses. These licenses allow for cultivation, manufacturing of infused products and retail distribution. At the time, Colorado law prohibited public companies, including the Company, from owning cannabis licenses. Therefore, CMI spun off assets acquired by the Company into two new entities, Good Holdco, LLC and Good IPCo, LLC. Under the terms of the Membership Interest Purchase Agreement, CMI retained the cannabis licenses, inventory and accounts receivable and continues to operate the cannabis business related to these assets under the agreements entered into with Cryomass Technologies. In consideration for the transfer of the acquired assets, the Company delivered 13,553,233 shares of the Company common stock, in addition to $1,999,770 in cash paid to CMI. The Good Meds assets are currently offered for sale.
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In August 2020, the Company merged with its wholly owned Nevada subsidiary, Andina Gold Corp., and changed its name into Andina Gold Corp. On October 21, 2020 FINRA issued an advisory accepting the company’s name change from Redwood Green Corp to Andina Gold Corp and ticker symbol change to AGOL effective as of October 22, 2020. In August 2020, the Company established a wholly owned Colombian subsidiary, Andina Gold Colombia SAS for the purpose of pursuing opportunities in the gold exploration business in Colombia. Due to the death of the top geologist exploring opportunities on behalf of the Company, and the effects of the ongoing Coronavirus pandemic, the Company determined in December 2020 that pursuit of gold exploration in Colombia was no longer a practical alternative.
On June 23, 2021, the Company consummated purchase of assets of Cryocann USA Corp, a designer and seller of equipment developed on the basis of patented technology for cannabis varieties harvesting, refinement, and extraction. The technology reduces processing costs, increases the quality of the extracted compounds and has potential for other agricultural applications including hemp and hops. The Company is exploring the application of the underlying technology to a broad range of industries that handle high-value materials and that could benefit from our precision capture methods. We anticipate that cannabis and hemp will be the first in a series of such industries.
Update on COVID-19
In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China, which has spread throughout the world, including the United States. On January 30, 2020, the World Health Organization declared the outbreak of COVID-19 a “Public Health Emergency of International Concern,” and on March 11, 2020, it characterized the outbreak as a “pandemic”. The impact of COVID-19 developments and uncertainty with respect to the economic effects of the pandemic has introduced significant volatility in the financial markets.
To date, COVID-19 has surfaced in nearly all regions around the world and resulted in travel restrictions, both domestic and international, closing of borders and business slowdowns or shutdowns in affected areas. As a result, COVID-19 has impacted the Company’s business. Although deemed an essential business during the pandemic, many dispensaries and cannabis manufacturers have suspended or reduced operations on a temporary basis due to matters associated with COVID-19.
The COVID-19 pandemic and responses to this crisis, including actions taken by federal, state and local governments, have had an impact on the operations of the Company, including, without limitation, the following: reduced staffing due to employee suspected conditions and social distancing measures; constraints on productivity; management and staff non-essential business-related travel was constrained due to stay-at-home orders; some employees have shifted to remote work resulting in loss of productivity; consumers visiting dispensaries operated under license impacted by stay-at-home orders. Management continues to monitor the COVID-19 pandemic situation and federal, state and local recommendations and will provide updates as appropriate.
Our Current Business
Our business portfolio includes the accounts of Cryomass LLC (formerly known as General Extract), which is controlled by the Company through its 100% ownership interest, and CMI, a variable interest entity (“VIE”) for which the Company is deemed to be the primary beneficiary and therefore is a consolidated entity of Cryomass Technologies for GAAP purposes.
In August 2020, the Company’s board of directors redirected the Company’s business strategy to exit the cultivation, manufacturing of infused products and retail distribution businesses. Therefore, the Company’s operations and financial results relating to CMI, a VIE of the Company, has been reported as discontinued operations held for sale.
The Company identified strategic opportunities in gold exploration in Colombia and briefly considered moving into the pursuit of opportunities in this field. However, circumstances came to light that rendered these initiatives impractical, including travel restrictions due to Covid-19 and the death of our local geological advisor.
On June 23, 2021, the Company consummated purchase of assets of Cryocann USA Corp through its wholly-owned subsidiary Cryomass LLC. We are currently finalizing research and development work of our patented technology and plan to target specific markets and industries to employ this ground-breaking technology. We expect to begin field-testing in the fourth quarter of this year and to start commercialization early in 2022.
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Results of Operations for the Three Months Ended September 30, 2021 and 2020
Our operating results for the three months ended September 30, 2021 and 2020 are summarized as follows:
For the Three Months Ended September 30, | Change | |||||||||||||||
| 2021 | 2020 | Dollars | Percentage | |||||||||||||
| Net sales | $ | - | $ | - | $ | - | 0 | % | ||||||||
| Cost of goods sold, inclusive of depreciation | - | - | - | 0 | % | |||||||||||
| Gross profit | - | - | - | 0 | % | |||||||||||
| Total operating expenses | 2,056,476 | 1,181,384 | 875,092 | 74 | % | |||||||||||
| Loss from operations | (2,056,476 | ) | (1,181,384 | ) | (875,092 | ) | 74 | % | ||||||||
| Total other expenses | (247,382 | ) | (121,540 | ) | (125,842 | ) | 104 | % | ||||||||
| Net loss from continuing operations, before taxes | (2,303,858 | ) | (1,302,924 | ) | (1,000,934 | ) | 77 | % | ||||||||
| Income taxes | - | 2,559 | (2,559 | ) | -100 | % | ||||||||||
| Net loss from continuing operations | $ | (2,303,858 | ) | $ | (1,305,483 | ) | $ | (998,375 | ) | 76 | % | |||||
| Net income / (loss) from disc. operations, net of tax | $ | 250,092 | $ | (4,634,506 | ) | $ | 4,884,598 | -105 | % | |||||||
| Net loss | $ | (2,053,766 | ) | $ | (5,939,989 | ) | $ | 3,886,223 | -65 | % | ||||||
Our operating results for the three months ended September 30, 2021 and 2020, relating to our variable interest entity, CMI, are classified as discontinued operations above and summarized as follows:
For
the Three Months Ended | Change | |||||||||||||||
| 2021 | 2020 | Dollars | Percentage | |||||||||||||
| Net sales | $ | 1,399,505 | $ | 1,858,202 | $ | (458,697 | ) | -25 | % | |||||||
| Cost of goods sold, inclusive of depreciation | 857,281 | 1,354,626 | (497,345 | ) | -37 | % | ||||||||||
| Gross profit | 542,224 | 503,576 | 38,648 | 8 | % | |||||||||||
| Total operating expenses | 292,132 | 448,710 | (156,578 | ) | -35 | % | ||||||||||
| Gain / (loss) from operations | 250,092 | 54,866 | 195,226 | 356 | % | |||||||||||
| Total other expenses | - | (4,689,372 | ) | 4,689,372 | -100 | % | ||||||||||
| Net income / (loss), before taxes | 250,092 | (4,634,506 | ) | 4,884,598 | -105 | % | ||||||||||
| Income taxes | - | - | - | 0 | % | |||||||||||
| Net income / (loss) | $ | 250,092 | $ | (4,634,506 | ) | $ | 4,884,598 | -105 | % | |||||||
Net Sales and Cost of Goods Sold
There were no net sales related to continuing operations for the three months ended September 30, 2021 and 2020. Revenue generating activities for continuing operations are attributable to Cryomass LLC. CMI net sales were $1,399,505 for the three months ended September 30, 2021, of which $943,012 was related to medical retail, $456,540 was related to medical wholesale, $(47) was related to recreational wholesale, and $0 was related to other revenues. CMI net sales were $1,858,202 for the three months ended September 30, 2020, of which $1,259,120 was related to medical retail, $455,521 was related to medical wholesale, and $381,746 was related to recreational wholesale. The overall decrease in CMI net sales for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 was $458,697, or 25%, which is primarily attributable to decreased medical retail sales. Revenue generating activities for discontinued operations are attributable to CMI.
There were no cost of goods sold related to continuing operations for the three months ended September 30, 2021 and 2020. CMI’s cost of goods sold for the three months ended September 30, 2021 were $857,281 and primarily consisted of allocated salaries and wages of employees directly related to the production process, cultivation supplies, rent and utilities. CMI’s cost of goods sold were $1,354,626 for the three months ended September 30, 2020, representing a decrease of $497,345 or 37%. This decrease is primarily attributable to a decrease in excise tax related to the medical / recreational product mix, a decrease in depreciation as depreciation is no longer recorded against assets held for sale, and a decrease in inventory purchases from third party suppliers.
Operating Expenses
Operating expenses encompass personnel costs, sales and marketing, general and administrative expenses, and legal and professional fees. Total operating expenses were $2,056,476 for the three months ended September 30, 2021 as compared to $1,181,384 for the three months ended September 30, 2020. The increase of $875,092, or 74%, was primarily attributable to the following changes in operating expenses of:
| ● | Personnel costs - $695,590 increase |
| ● | General and administrative expenses - $62,879 increase |
22
The increase of $695,590, or 137%, in personnel costs is primarily due to the fact that the Company accrued significant bonuses for its employees during the three months ending September 30, 2021. The increase of $62,879, or 16%, in general and administrative expenses is primarily due to additional stock options expense during the three months ending September 30, 2021 related to an employment agreement.
CMI operating expenses encompass personnel costs, sales and marketing, general and administrative, legal and professional fees, and amortization expense. Total operating expenses for CMI were $292,132 and $448,710 for the three months ending September 30, 2021 and 2020, respectively, representing a decrease of $156,578, or 35%. This decrease was primarily attributable to a decrease in selling related personnel costs, security costs, consulting costs, recruiting costs, and computer costs.
Other Expense
Other expense for the three months ending September 30, 2021 consisted of $270,552 interest expense and a $23,170 gain on foreign exchange. Other expense for the three months ending September 30, 2020 consisted of $85,040 interest expense and $36,500 loss on foreign exchange. The increase in interest expense was a result of entering into numerous debt agreements from Q3 2020 to Q3 2021. The gain on foreign exchange relates to a payable agreement with Cryomass LLC’s supplier.
CMI recorded no other expense during the three months ending September 30, 2021. CMI’s other expense during the three months ending September 30, 2020 consisted of $25,858 interest expense, which primarily relates to the related party note, and $4,663,514 goodwill impairment.
Net Loss
For the foregoing reasons, we had a net loss of $2,017,504 for the three months ending September 30, 2021, or $0.02 net loss per common share – basic and diluted, compared to a net loss of $5,939,989 for the three months ending September 30, 2020, or $0.06 net loss per common share – basic and diluted.
Results of Operations for the Nine Months Ended September 30, 2021 and 2020
Our operating results for the nine months ended September 30, 2021 and 2020 are summarized as follows:
For
the Nine Months Ended | Change | |||||||||||||||
| 2021 | 2020 | Dollars | Percentage | |||||||||||||
| Net sales | $ | - | $ | 781,455 | $ | (781,455 | ) | -100 | % | |||||||
| Cost of goods sold, inclusive of depreciation | - | 744,279 | (744,279 | ) | -100 | % | ||||||||||
| Gross profit | - | 37,176 | (37,176 | ) | -100 | % | ||||||||||
| Total operating expenses | 5,689,625 | 5,340,000 | 349,625 | 7 | % | |||||||||||
| Loss from operations | (5,689,625 | ) | (5,302,824 | ) | (386,801 | ) | 7 | % | ||||||||
| Total other expenses | (597,319 | ) | (137,551 | ) | (459,768 | ) | 334 | % | ||||||||
| Net loss from continuing operations, before taxes | (6,286,944 | ) | (5,440,375 | ) | (846,569 | ) | 16 | % | ||||||||
| Income taxes | - | 7,676 | (7,676 | ) | -100 | % | ||||||||||
| Net loss from continuing operations | $ | (6,286,944 | ) | $ | (5,448,051 | ) | $ | (838,893 | ) | 15 | % | |||||
| Net loss from discontinued operations, net of tax | $ | 605,394 | $ | (4,862,255 | ) | $ | 5,467,649 | -112 | % | |||||||
| Net loss | $ | (5,681,550 | ) | $ | (10,310,306 | ) | $ | 4,628,756 | -45 | % | ||||||
Our operating results for the nine months ended September 30, 2021 and 2020, relating to our variable interest entity, CMI, are included above and summarized as follows:
| For the Nine Months Ended September 30, | Change | |||||||||||||||
| 2021 | 2020 | Dollars | Percentage | |||||||||||||
| Net sales | $ | 4,713,077 | $ | 5,187,069 | $ | (473,992 | ) | -9 | % | |||||||
| Cost of goods sold, inclusive of depreciation | 2,982,974 | 3,982,677 | (999,703 | ) | -25 | % | ||||||||||
| Gross profit | 1,730,103 | 1,204,392 | 525,711 | 44 | % | |||||||||||
| Total operating expenses | 1,074,906 | 1,277,050 | (202,144 | ) | -16 | % | ||||||||||
| Gain / (loss) from operations | 655,197 | (72,658 | ) | 727,855 | -1,002 | % | ||||||||||
| Total other expenses | (49,803 | ) | (4,789,597 | ) | 4,739,794 | -99 | % | |||||||||
| Net loss, before taxes | 605,394 | (4,862,255 | ) | 5,467,649 | -112 | % | ||||||||||
| Income taxes | - | - | - | N/A | ||||||||||||
| Net loss | $ | 605,394 | $ | (4,862,255 | ) | $ | 5,467,649 | -112 | % | |||||||
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Net Sales and Cost of Goods Sold
There were no net sales related to continuing operations for the nine months ended September 30, 2021. Net sales related to continuing operations for the nine months ended September 30, 2020 were $781,455. Revenue generating activities for continuing operations are attributable to Cryomass LLC. CMI net sales were $4,713,077 for the nine months ended September 30, 2021, of which $3,196,912 was related to medical retail, $1,525,132 was related to medical wholesale, $8,963 was related to recreational wholesale, and $(17,930) was related to other revenues. CMI net sales were $5,187,069 for the nine months ended September 30, 2020, of which $3,531,304 was related to medical retail, $1,054,748 was related to medical wholesale, $598,276 was related to recreational wholesale, and $2,741 was related to other revenues. The overall decrease in CMI net sales for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 was $473,992, or 9%. Revenue generating activities for discontinued operations are attributable to CMI.
There were no cost of goods sold related to continuing operations for the nine months ended September 30, 2021. Cost of goods sold related to continuing operations for the nine months ended September 30, 2020 were $744,279 and primarily consisted of the cost of CBD isolate and provision for inventory loss. CMI’s cost of goods sold for the nine months ended September 30, 2021 were $2,982,974 and primarily consisted of allocated salaries and wages of employees directly related to the production process, cultivation supplies, rent and utilities. CMI’s cost of goods sold were $3,982,677 for the nine months ended September 30, 2020, representing a decrease of $999,703 or 25%. This decrease is primarily attributable to a decrease in excise tax related to the medical / recreational product mix, a decrease in depreciation as depreciation is no longer recorded against assets held for sale, and a decrease in inventory purchases from third party suppliers.
Operating Expenses
Operating expenses encompass personnel costs, sales and marketing, general and administrative expenses, and legal and professional fees. Total operating expenses were $5,689,625 for the nine months ended September 30, 2021 as compared to $5,340,000 for the nine months ended September 30, 2020. The increase of $349,625, or 7%, was primarily attributable to the following:
| ● | Personnel costs - $78,701 increase |
| ● | General and administrative expenses - $638,910 increase |
| ● | Legal and professional fees - $419,027 decrease |
The $78,701 or 4%, increase in personnel costs is primarily due to the fact that the Company accrued significant bonuses for its employees during the nine months ending September 30, 2021. The $638,910, or 29%, increase in general and administrative expenses is primarily due to the fact that the Company incurred additional stock-based compensation expense during the nine months ending September 30, 2021 related to Christian Noel’s employment agreement and stock options granted for the Cryocann Acquisition as well as stock options granted to Patricia Kovacevic. The $419,027, or 34%, decrease in legal and professional fees primarily resulted from the fact that the Company had increased management oversight at the parent company level during the nine months ended September 30, 2020 due to the planned shift in operations.
CMI operating expenses encompass personnel costs, sales and marketing, general and administrative, legal and professional fees, and amortization expense. Total operating expenses for CMI were $1,074,906 and $1,277,050, respectively, for the nine months ended September 30, 2021 and 2020, which represents a decrease of $202,144, or 16%.
Other Expense
Other expense for the nine months ending September 30, 2021 consisted of $644,027 interest expense and $46,708 gain on foreign exchange. Other expense for the nine months ending September 30, 2020 consisted of $85,040 interest expense and $52,511 loss on foreign exchange. The increase in interest expense was a result of entering into numerous debt agreements from Q3 2020 to Q3 2021. The gain on foreign exchange relates to a payable agreement with Cryomass LLC’s supplier.
CMI’s other expense for the nine months ending September 30, 2021 consisted of $49,803 interest expense, which primarily relates to the related party note. CMI’s other expense during the three months ending September 30, 2020 consisted of $126,083 interest expense, which primarily relates to the related party note.
Net Loss
For the foregoing reasons, we had a net loss of $5,681,550 for the nine months ending September 30, 2021, or $0.05 net loss per common share – basic and diluted, compared to a net loss of $10,310,306 for the nine months ending September 30, 2020, or $0.10 net loss per common share – basic and diluted.
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Liquidity, Capital Resources and Cash Flows
During 2021 Q2 and Q3, the Company obtained a total of $4,900,000 cash through a convertible debt unit offering consisting of a convertible note and a warrant to purchase shares. These funds are available to cover operating expenses while exploring new business opportunities. On June 23, 2021, the Company consummated purchase of assets of Cryocann USA Corp.
As of September 30, 2021, the Company had working capital of $4,877,533 and cash balance of $237,552. The Company estimates that it needs approximately $3,000,000 to cover overhead costs plus an additional $3,000,000 to support the capital expenditures and operations and growth of the assets acquired from CryoCann USA Corp, over the next twelve months. Management believes it has sufficient cash available, based on proceeds from a private placement completed after the end of the current quarter to support the anticipated level of operations for the foreseeable future..
COVID-19 has resulted in, and may continue to result in, significant disruption of financial markets, which may reduce the Company’s ability to access capital or its customers’ ability to pay the Company for past or future purchases, which could negatively affect the Company’s liquidity. The Company believes that the cash balances and cash from operations will be sufficient to satisfy its cash needs for the next few months until it can obtain new long-term financing or other sources of capital. If we are unable to attain additional financing, we will have to seek additional strategic alternatives and relief from our additional liabilities accumulated during COVID-19.
The impact of COVID-19 developments and uncertainty with respect to the economic effects of the pandemic have introduced significant volatility in the financial markets. The uncertainties associated with COVID-19 related to our industry present risk and doubt about the Company’s ability to continue as a going concern.
Going Concern
Management believes it has sufficient cash available to support an anticipated level of operations for the foreseeable future.
Capital Resources
The following table summarizes total current assets, liabilities and working capital for the periods indicated:
| September 30, 2021 | December 31, 2020 | |||||||
| Current assets | $ | 8,490,725 | $ | 7,798,154 | ||||
| Current liabilities | 5,546,617 | 4,125,851 | ||||||
| Working capital | $ | 2,944,108 | $ | 3,672,303 | ||||
As of September 30, 2021 and December 31, 2020, we had a cash balance of $237,552 and $329,839, respectively, however, subsequent to quarter end, as of November 5, 2021, the Company raised $9,954,000 in private placements plus reduced debt by $4,900,000 in debt-to-equity conversions.
Summary of Cash Flows
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net cash used in operating activities | $ | (1,021,477 | ) | $ | (836,746 | ) | $ | (3,070,095 | ) | $ | (3,247,391 | ) | ||||
| Net cash used in investing activities | $ | (191,558 | ) | $ | (10,912 | ) | $ | (2,663,245 | ) | $ | (462,174 | ) | ||||
| Net cash provided by financing activities | $ | 1,019,281 | $ | 850,000 | $ | 5,641,053 | $ | 850,000 | ||||||||
Net used in operating activities
Net cash used in operating activities was $3,070,095 during the nine months ended September 30, 2021. This included a net loss of $6,86,944, a non-cash charge related to stock-based compensation of $2,400,976, a non-cash charge related to the amortization of debt discount of $30,861, the fair value of common stock issued pursuant to service and advisory agreements of $291,096, a non-cash charge related to depreciation and amortization expense of $21,832 and cash used in operating activities from discontinued operations of $347,204. This was partially offset by net changes in prepaid expenses and accounts payable and accrued expenses of $819,288.
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Net cash used in operating activities was $3,247,391 during the nine months ended September 30, 2020. This included a net loss of $5,448,051, a non-cash charge related to provision for inventory loss of $400,787, a non-cash charge related to stock-based compensation of $1,593,055, a non-cash charge of deferred income tax expense of $2,985, a non-cash charge related to the amortization of debt discount of $20,833, a non-cash charge related to the fair value of common stock issued of $15,000, and cash provided by operating activities from discontinued operations of $132,937. This was partially offset by net changes in accounts receivable, prepaid expenses, inventories, accounts payable and accrued expenses, assets held for sale, and taxes payable of $35,063.
Net cash used in investing activities
Net cash used in investing activities was $2,663,245 during the nine months ended September 30, 2021, primarily due to the purchase of property and equipment for discontinued operations and the CryoCann transaction.
Net cash used in investing activities was $462,174 during the nine months ended September 30, 2020, due to the purchase of property and equipment for discontinued operations.
Net cash provided by financing activities
Net cash provided by financing activities during the nine months ended September 30, 2021 was $5,641,053, which consisted of $320,000 proceeds from the issuance of common stock, $40,668 repayment of loans payable, $4,900,000 repayment proceeds from notes payable, $237,590 proceeds from notes payable, related parties, and a $281,771 disbursement of a related party note.
Net cash provided by financing activities during the nine months ended September 30, 2020 was $850,000, which consisted of $600,000 proceeds from loans payable and $250,000 proceeds from notes payable.
Off-Balance Sheet Arrangements
None.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to intangibles, accounting for acquisitions, revenue recognition, income taxes, useful life and recoverability of long-lived assets and deferred income tax asset valuations. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Revenue Recognition
Under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contacts with Customers (“ASC 606”), the Company recognizes revenue when the customer obtains control of promised goods or services, in an amount that reflects the consideration which is expected to be received in exchange for those goods or services. The Company recognizes revenue following the five-step model prescribed under ASC 606: (i) identify contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenues when (or as) the Company satisfies a performance obligation.
The Company’s revenue consists of sales of cannabis and ancillary products to both retail consumers and wholesale customers. Revenue for retail customers is recognized upon completion of the transaction in the point-of-sale system and satisfaction of the sale by providing the corresponding inventory at the retail location. Revenue for wholesale customers is recognized upon acceptance of the physical goods and confirmation by acceptance of the inventory in the regulatory marijuana enforcement tracking reporting compliance (“METRC”) system. Revenue is recognized upon transfer of control of promised products to customers, generally as risk of loss pass, in an amount that reflects the consideration the Company expects to receive in exchange for those products. Taxes collected from customers, which are subsequently remitted to governmental authorities, are excluded from revenue.
Retail customer loyalty liabilities are recognized in the period in which they are incurred and will often be retired without being utilized. Shipping and handling costs are expensed as incurred and are included in cost of sales, which were not material for the three and nine months ended September 30, 2021 and 2020.
The Company operates in a highly regulated environment in which state regulatory approval is required prior to the customer being able to purchase the product, either through the Colorado Marijuana Enforcement Division for wholesale clients or the Colorado Department of Public Health and Environment for medical patients.
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Variable Interest Entities
The Company accounts for variable interest entities in accordance with FASB ASC Topic 810, Consolidation. Management evaluates the relationship between the Company and VIEs and the economic benefit flow of the contractual arrangement with the VIEs. Management determines if the Company is the primary beneficiary of a VIE through a qualitative analysis that identifies which variable interest holder has the controlling financial interest in the VIE. The variable interest holder who has both of the following has the controlling financial interest and is the primary beneficiary: (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE. In performing our analysis, we consider all relevant facts and circumstances, including: the design and activities of the VIE, the terms of the contracts the VIE has entered into, the nature of the VIE’s variable interests issued and how they were negotiated with or marketed to potential investors, and which parties participated significantly in the design or redesign of the entity. As a result of such evaluation, management concluded that the Company is the primary beneficiary of CMI and consolidates the financial results of this entity.
Income Taxes
Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has adopted ASC 740, Income Taxes as of its inception. Pursuant to ASC 740 the Company is required to compute tax asset benefits for net operating losses carried forward. The potential benefits of net operating losses have not been recognized in these financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years. As of September 30, 2021 and December 31, 2020, the Company had no accrued interest or penalties related to uncertain tax positions.
Assets and Liabilities of Discontinued Operations Held for Sale
Assets and liabilities are classified as held for sale when all of the following criteria for a plan of sale have been met: (1) management, having the authority to approve the action, commits to a plan to sell the assets; (2) the assets are available for immediate sale, in their present condition, subject only to terms that are usual and customary for sales of such assets; (3) an active program to locate a buyer and other actions required to complete the plan to sell the assets have been initiated; (4) the sale of the assets is probable and is expected to be completed within one year; (5) the assets are being actively marketed for a price that is reasonable in relation to their current fair value; and (6) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or the plan will be withdrawn. When all of these criteria have been met, the assets (and liabilities) are classified as held for sale in the balance sheet. Assets classified as held for sale are reported at the lower of their carrying value or fair value less costs to sell. Depreciation of assets ceases upon designation as held for sale.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable for a smaller reporting company.
Item 4. Controls and Procedures
Management’s Evaluation of Disclosure Controls and Procedures
We have carried out an evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), to allow timely decisions regarding required disclosures. Based upon that evaluation, our Company’s CEO and CFO concluded that our Company’s disclosure controls and procedures were not effective as of September 30, 2021.
Management has not formally documented its procedures and controls and as such does not have a sufficient basis to assess its internal controls over financial reporting. Management identified that it did not maintain adequately designed internal control over the preparation and oversight of:
| ● | month-end and period-end financial close processes. | |
| ● | non-routine or complex transactions. | |
| ● | the adoption of new accounting standards. |
Management’s Report on Internal Control Over Financial Reporting
We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2021, the end of the quarterly period covered by this report and according to the criteria established in Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.
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Based on that evaluation, management has concluded that the Company did not maintain effective internal control over financial reporting as of the quarter ended September 30, 2021 due to the existence of significant deficiency in the internal control over financial reporting described below.
A significant deficiency is a deficiency, or a combination of deficiencies, in internal controls over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
Management has determined that we did not maintain effective internal controls over financial reporting as of the quarter ended September 30, 2021 due to the existence of the following material weaknesses identified by management:
| ● | Due to the Company’s size, the is insufficient segregation of duties to prevent or detect on a timely basis a misstatement of our annual or interim financial statements. |
We intend to continue to evaluate and strengthen our internal control over financial reporting. These efforts require significant time and resources. If we are unable to establish adequate internal control over financial reporting, we may encounter difficulties in the audit or review of our financial statements by our independent registered public accounting firm, which in turn may have a material adverse effect on our ability to prepare financial statements in accordance with GAAP and to comply with our SEC reporting obligations.
Management is in the process of determining how best to change our current system and implement a more effective system to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act have been recorded, processed, summarized and reported accurately. Our management intends to develop procedures to address the current deficiencies to the extent possible given limitations in financial and personnel resources.
Management utilizes external experts to assist the Company with technical accounting expertise needs as deemed necessary and plans to perform a formal assessment of its internal control’s framework. However, no assurance can be made at this point that the implementation of such controls and procedures will be completed in a timely manner or that they will be adequate once implemented.
Changes in internal control over financial reporting
Due to the Company’s acquisition of cannabis brands and other assets in the CMI Transaction, there were changes in internal controls including new transaction cycles such as accounts payable, payroll, financial close and information technology. Internal controls are in place for the acquired entities and have since been strengthened.
Attestation report of Registered Public Accounting Firm
This Quarterly Report on Form 10-Q does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. We are not an “accelerated filer” or a “large accelerated filer”. Our management’s report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report in this Quarterly Report on Form 10-Q.
Management’s Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer (who is also the Company’s principal executive officer), and our chief financial officer (who is also the Company’s principal financial and accounting officer) to allow for timely decisions regarding required disclosure. Thus, in accordance with Rules 13a-15(b) under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures as of September 30, 2021, which is the end of the period covered by this Form 10-Q. Based on the evaluation of these disclosure controls and procedures, and in light of the significant deficiency found in our internal controls over financial reporting, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were not effective. The ineffectiveness of our disclosure controls and procedures was due to a significant deficiency identified in our internal control over financial reporting.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control
over financial reporting that occurred during the quarter ended September 30, 2021. During the period covered by this Quarterly Report
on Form 10-Q, we have not been able to remediate the significant deficiency described in our Annual Report on Form 10-K for the fiscal
year ended December 31, 2020. Our remediation efforts will continue to be implemented throughout our 2021 fiscal year. We believe that
the controls that we will be implementing will improve the effectiveness of our internal control over financial reporting. As we continue
to evaluate and work to improve our internal control over financial reporting, we may determine to take additional measures to address
the significant deficiency or determine to supplement or modify certain of the remediation measures described above.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
Legal proceedings covering a dispute arising from a past employment agreements is pending against the Company’s principal business partner, CMI. In Gaudio v. Critical Mass Industries, LLC et al, CMI’s motion to set aside a default judgment was granted April 26, 2021. It is possible that there could be adverse developments in the Gaudio case. An unfavorable outcome or settlement of pending litigation would have a significant impact on our ability to collect receivables from CMI, to complete any of the pending transactions involving our Colorado assets and agreements and could encourage the commencement of additional litigation against CMI or the Company. We and our subsidiaries will record provisions in the consolidated financial statements for pending litigation when we determine that an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. At the present time, while it is reasonably possible that an unfavorable outcome in the Gaudio case may occur, (i) management is unable to estimate the possible loss or range of loss that our Company would undergo that could result from an unfavorable outcome or settlement in Gaudio; and (iii) accordingly, management has not provided any amounts in the consolidated financial statements for an unfavorable outcome in this case, if applicable. Any applicable legal advice costs are expensed as incurred.
Item 1A. Risk Factors
The following risks are considered the most significant to Cryomass Technologies Inc’s business based upon current knowledge, information and assumptions. This discussion of risk factors should be considered closely in conjunction with Management’s Discussion and Analysis beginning on page 23, including the risks and uncertainties described in the Safe Harbor Statement on pages 35, and the Notes to Consolidated Financial Statements beginning on page 5. These risk factors and other forward-looking statements that relate to future events, expectations, trends and operating periods involve certain factors that are subject to change, and important risks and uncertainties that could cause actual results to differ materially. Some of these risks and uncertainties could affect particular lines of business, while others could affect all of the Company’s businesses. Although each risk is discussed separately, many are interrelated. The Company, except as required by law, undertakes no obligation to update or revise this risk factors discussion, whether as a result of new developments or otherwise. The risks described in this Quarterly Report on Form 10-Q and the “Safe Harbor Statement” in this report are not the only risks faced by the Company. Additional risks and uncertainties may also materially affect the Company’s business, financial condition or operating results. You should not consider these risk factors to be a complete discussion of risks, uncertainties and assumptions.
Natural disasters, pandemic outbreaks or other health crises could disrupt business and result in lower sales and otherwise adversely affect our financial performance.
The occurrence of one or more natural disasters, pandemic outbreaks or other health crises (including but not limited to the COVID-19 outbreak), could adversely affect our business and financial performance. If any of these events result in the closure of one or more of our dispensaries, extended sick leave involving our personnel, or impact key suppliers, our operations and financial performance could be materially adversely affected through an inability to provide other support functions to our stores and through lost sales. These events also could affect consumer shopping patterns or prevent customers from reaching our dispensaries, which could lead to lost sales and higher markdowns, the temporary lack of an adequate work force in a market, the temporary or long-term disruption of product availability in our dispensaries and the temporary or long-term inability to obtain technology needed to effectively run our business. In addition, other factors include: We have a limited operating history in an evolving industry, which makes it difficult to accurately assess our future growth prospects; international, national and regional trade laws, regulations and policies and government farm programs and policies could significantly impair Cryomass Technologies Inc’s profitability and growth prospects; Cryomass Technologies Inc operates in highly competitive markets; Cryomass Technologies Inc is subject to extensive anti-corruption laws and regulations; negative economic conditions and outlook can materially weaken demand for Cryomass Technologies Inc’s equipment and services, limit access to funding and result in higher funding costs; Cryomass Technologies Inc’s business results depend largely on its ability to understand its customers’ specific preferences and requirements, and to develop, manufacture and market products that meet customer demand; Cryomass Technologies Inc’s business may be directly and indirectly affected by unfavorable weather conditions or natural disasters that reduce agricultural production and demand for agriculture equipment; Changes in the availability and price of certain raw materials, components and whole goods could result in production disruptions or increased costs and lower profits on sales of Cryomass Technologies Inc products; Cryomass Technologies Inc. suppliers, contract manufacturers and customers are subject to and affected by increasingly rigorous environmental, health and safety laws and regulations of federal, state and local authorities in the U.S. and various regulatory authorities with jurisdiction over Cryomass Technologies Inc’s operations. In addition, private civil litigation on these subjects has increased, primarily in the U.S.; increasingly stringent engine emission standards could impact Cryomass Technologies Inc’s ability to manufacture and distribute certain equipment, which could negatively affect business results; security breaches and other disruptions to Cryomass Technologies Inc’s information technology infrastructure could interfere with Cryomass Technologies Inc’s operations and could compromise Cryomass Technologies Inc’s and its customers’ and suppliers’ information, exposing Cryomass Technologies Inc to liability that would cause Cryomass Technologies Inc’s business and reputation to suffer; Cryomass Technologies Inc may incur increased costs due to new or more stringent greenhouse gas emission standards designed to address climate change and could be further impacted by physical effects attributed to climate change on its facilities, suppliers and customers; the agricultural equipment industry is highly seasonal, and seasonal fluctuations may significantly impact our performance; our success depends on the introduction of new products, which requires substantial expenditures; we face significant competition, and, if we are unable to compete successfully against other agricultural equipment manufacturers, we will lose customers and our net sales and profitability will decline; we have a substantial amount of indebtedness, and, as a result, we are subject to certain restrictive covenants and payment obligations that may adversely affect our ability to operate and expand our business; our business increasingly is subject to regulations relating to privacy and data protection, and if we violate any of those regulations we could be subject to significant claims, penalties and damages; we may encounter difficulties in fully exploiting the assets we acquired from Cryocann USA Corp and may not fully achieve, or achieve within a reasonable time frame, expected strategic objectives and other expected benefits of the acquisitions; if we are unable to hire and retain key personnel, we may not be able to implement our business plan and our business may fail; our growth is highly dependent on the U.S. cannabis market. New regulations causing licensing shortages and future regulations may create other limitations that decrease the demand for our products. General regulations at state and federal in the future may adversely impact our business; our indirect involvement in the cannabis industry could affect the public’s perception of us and be detrimental to our reputation; recent laws make it difficult to predict how patents will be issued or enforced in our industry; we may not be able to adequately protect our intellectual property and other proprietary rights that are material to our business; we may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers; intellectual property disputes could cause us to spend substantial resources and distract our personnel from their normal responsibilities; intellectual property rights do not necessarily address all potential threats to our competitive advantage; our need to raise substantial funds in order to continue as a going concern; the risk that we may fail to maintain an effective system of internal controls; the costs of compliance with the Sarbanes-Oxley Act of 2002, including its effect on our ability to attract and retain qualified personnel; the impact of market conditions on the volatility of our share price; our expectation not to pay dividends in the foreseeable future; the volatility of our share price; and the potential effect of “Penny Stock” perception and rules on the level of trading activity in our stock.
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We have a limited operating history in an evolving industry, which makes it difficult to accurately assess our future growth prospects.
Although we believe our management team has extensive knowledge of the cannabis industry and closely monitors changes in legislation, we also intend to provide equipment and services in an evolving industry that may not develop as expected. Furthermore, our operations continue to evolve under our business plan as we continually assess new strategic opportunities for our business within our industry. Assessing the future prospects of our business is challenging in light of both known and unknown risks and difficulties we may encounter. Growth prospects in our industry can be affected by a wide variety of factors including:
| ● | Competition from other similar companies; |
| ● | Regulatory limitations on the industry we primarily supply to (cannabis agriculture) we can offer and markets we can serve; |
| ● | Other changes in the regulation of cannabis and hemp grow, harvesting and processing; |
| ● | Changes in cannabis industry demand and consumer behavior, which may affect the size of the agricultural businesses we intend to serve; |
| ● | Our ability to access adequate financing on reasonable terms and our ability to raise additional capital in order to fund our operations; |
| ● | Challenges with new machinery, services and markets; and |
| ● | Fluctuations in the commodities markets. |
We may not be able to successfully address these factors, which could negatively impact our growth, harm our business and cause our operating results to be worse than expected.
Our business, results of operations and financial condition may be adversely affected by pandemic infectious diseases, particularly the recent novel coronavirus strain known as COVID-19.
Pandemic infectious diseases, such as the current COVID-19 strains, may adversely impact our business, consolidated results of operations and financial condition. The global spread of COVID-19 has created significant volatility and uncertainty and economic disruption. The extent to which COVID-19 impacts our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict, including: the duration and scope of the pandemic; governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic; the impact of the pandemic on economic activity and actions taken in response; the effect on our customers and customer demand our services, products and solutions; our ability to sell and provide its services and solutions, including as a result of travel restrictions and people working from home; the ability of our customers to pay for our services and solutions; and any closures of our offices and the offices and facilities of our customers. COVID-19, as well as measures taken by governmental authorities to limit the spread of this virus, may interfere with the ability of our employees, suppliers, and other business providers to carry out their assigned tasks or supply materials or services at ordinary levels of performance relative to the requirements of our business, which may cause us to materially curtail certain of our business operations. We require additional funding and such funding may not be available to us as a result of contracting capital markets resulting from the COVID-19 pandemic. Any of these events could materially adversely affect our business, financial condition, results of operations and/or stock price.
International, national and regional trade laws, regulations and policies and government farm programs and policies could significantly impair Cryomass Technologies Inc’s profitability and growth prospects.
International, national and regional laws, regulations and policies directly or indirectly related to or restricting the import and export of Cryomass Technologies Inc’s products, services and technology, including protectionist policies in particular jurisdictions or for the benefit of favored industries or sectors, could harm Cryomass Technologies Inc’s ability to grow in international markets and subject Cryomass Technologies Inc to civil and criminal sanctions. Restricted access to global markets impairs Cryomass Technologies Inc’s ability to export goods and services from its various manufacturing locations around the world and limits the ability to access raw materials and high-quality parts and components at competitive prices on a timely basis. Trade restrictions could limit Cryomass Technologies Inc’s ability to capitalize on future growth opportunities in international markets and impair Cryomass Technologies Inc’s ability to expand the business by offering new technologies, products and services. These restrictions may affect Cryomass Technologies Inc’s competitive position. Additionally, changes in government farm programs and policies, including restrictions on cannabis and hemp cultivation and processing, can significantly influence demand for agricultural equipment.
Changing demand for certain agricultural products could have an effect on the price of farming output and consequently the demand for certain Cryomass Technologies Inc equipment and could also result in higher research and development costs related to changing machine requirements.
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Cryomass Technologies Inc operates in highly competitive markets.
Cryomass Technologies Inc operates in highly competitive markets. Cryomass Technologies Inc competes with a number of other manufacturers and distributors that produce and sell similar products. Cryomass Technologies Inc intends to compete on the basis of product performance, innovation and quality, distribution, customer service and price. Aggressive pricing or other strategies pursued by competitors, unanticipated product or manufacturing delays or Cryomass Technologies Inc’s failure to price its products competitively could adversely affect Cryomass Technologies Inc’s business, results of operations and financial condition.
Cryomass Technologies Inc is subject to extensive anti-corruption laws and regulations.
Cryomass Technologies Inc’s foreign operations, if any, must comply with all applicable laws, which may include the U.S. Foreign Corrupt Practices Act (FCPA), the UK Bribery Act or other anti-corruption laws. These anti-corruption laws generally prohibit companies and their intermediaries from making improper payments or providing anything of value to improperly influence government officials or private individuals for the purpose of obtaining or retaining a business advantage regardless of whether those practices are legal or culturally expected in a particular jurisdiction. Recently, there has been a substantial increase in the global enforcement of anti-corruption laws. Although Cryomass Technologies Inc has a compliance program in place designed to reduce the likelihood of potential violations of such laws, violations of these laws could result in criminal or civil sanctions and have an adverse effect on Cryomass Technologies Inc’s reputation, business and results of operations and financial condition.
Negative economic conditions and outlook can materially weaken demand for Cryomass Technologies Inc’s equipment and services, limit access to funding and result in higher funding costs.
The demand for Cryomass Technologies Inc’s products and services can be significantly reduced in an economic environment characterized by high unemployment, cautious consumer spending, lower corporate earnings, U.S. budget issues and lower business investment. Negative or uncertain economic conditions causing Cryomass Technologies Inc’s customers to lack confidence in the general economic outlook can significantly reduce their likelihood of purchasing Cryomass Technologies Inc’s equipment. If negative economic conditions affect the overall farm economy, there could be a similar effect on Cryomass Technologies Inc’s agricultural equipment sales. In addition, uncertain or negative outlook with respect to ongoing U.S. budget issues as well as general economic conditions and outlook can cause significant changes in market liquidity conditions. Such changes could impact access to funding and associated funding costs, which could reduce the Company’s earnings and cash flows. Such changes could affect the ability of Cryomass Technologies Inc’s customers, contract manufacturers, suppliers and lenders to finance their respective businesses, to access liquidity at acceptable financing costs, if at all, the availability of supplies, materials and manufacturing facilities and on the demand for Cryomass Technologies Inc’s products.
Cryomass Technologies Inc’s business results depend largely on its ability to understand its customers’ specific preferences and requirements, and to develop, manufacture and market products that meet customer demand.
Cryomass Technologies Inc’s ability to match new product offerings to customers’ anticipated preferences for different types and sizes of equipment and various equipment features and functionality, at affordable prices, is critical to its success. This requires a thorough understanding of Cryomass Technologies Inc’s potential customers and their needs, as well as an understanding of the cannabis and hemp cultivation dynamics and of other agricultural commodities cultivation dynamics. Failure to deliver quality products that meet customer needs at competitive prices ahead of competitors could have a significant adverse effect on Cryomass Technologies Inc’s business.
Cryomass Technologies Inc’s business may be directly and indirectly affected by unfavorable weather conditions or natural disasters that reduce agricultural production and demand for agriculture equipment.
Poor or unusual weather conditions can significantly affect the purchasing decisions of Cryomass Technologies Inc’s potential customers. Natural calamities such as regional floods, hurricanes or other storms, and droughts can have significant negative effects on agricultural production. The resulting negative impact on farm income can strongly affect demand for agricultural equipment.
Changes in the availability and price of certain raw materials, components and whole goods could result in production disruptions or increased costs and lower profits on sales of Cryomass Technologies Inc products.
Cryomass Technologies Inc requires access to various materials and components at competitive prices to manufacture and distribute its products. Changes in the availability and price of these materials and components, which have fluctuated in the past and are more likely to fluctuate during times of economic volatility, can significantly increase the costs of production which could have a material negative effect on the profitability of the business, particularly if Cryomass Technologies Inc, due to pricing considerations or other factors, is unable to recover the increased costs from its customers. Cryomass Technologies Inc relies on suppliers and contract manufacturers to acquire materials and components to manufacture its products. Supply chain and contract manufacturing disruptions due to supplier or contract manufacturer financial distress, capacity constraints, business continuity, quality, delivery or disruptions due to weather-related or natural disaster events could affect Cryomass Technologies Inc’s operations and profitability.
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In determining the required quantities of our products and the manufacturing schedule, we must make significant judgments and estimates that are not based on any historical data. Because of the inherent nature of estimates, there could be significant differences between our estimates and the actual amounts of products we require, which could harm our business and results of operations.
Cryomass Technologies Inc. suppliers, contract manufacturers and customers are subject to and affected by increasingly rigorous environmental, health and safety laws and regulations of federal, state and local authorities in the U.S. and various regulatory authorities with jurisdiction over Cryomass Technologies Inc’s operations. In addition, private civil litigation on these subjects has increased, primarily in the U.S.
Enforcement actions arising from violations of environmental, health and safety laws or regulations can lead to investigation and defense costs, and result in significant fines or penalties. In addition, new or more stringent requirements of governmental authorities could prevent or restrict Cryomass Technologies Inc’s operations, or those of our suppliers and customers, require significant expenditures to achieve compliance and/or give rise to civil or criminal liability. There can be no assurance that violations of such legislation and/or regulations, or private civil claims for damages to property or personal injury arising from the environmental, health or safety impacts of Cryomass Technologies Inc’s operations, or those of our suppliers and customers, would not have consequences that result in a material adverse effect on Cryomass Technologies Inc’s business, financial condition or results of operations.
Increasingly stringent engine emission standards could impact Cryomass Technologies Inc’s ability to manufacture and distribute certain equipment, which could negatively affect business results.
Cryomass Technologies Inc’s equipment operations must meet increasingly stringent engine emission reduction standards, including USEPA, Interim Tier 4/Stage IIIb and Final Tier 4/Stage IV non-road diesel emission requirements in the U.S. and European Union.
Security breaches and other disruptions to Cryomass Technologies Inc’s information technology infrastructure could interfere with Cryomass Technologies Inc’s operations and could compromise Cryomass Technologies Inc’s and its customers’ and suppliers’ information, exposing Cryomass Technologies Inc to liability that would cause Cryomass Technologies Inc’s business and reputation to suffer.
In the ordinary course of business, Cryomass Technologies Inc relies upon information technology networks and systems, some of which are managed by third parties, to process, transmit and store electronic information, and to manage or support a variety of business processes and activities, including supply chain, manufacturing, distribution, invoicing and collection of payments from intermediaries or other purchasers or lessees of Cryomass Technologies Inc equipment. Cryomass Technologies Inc uses information technology systems to record, process and summarize financial information and results of operations for internal reporting purposes and to comply with regulatory financial reporting, legal and tax requirements. Additionally, Cryomass Technologies Inc collects and stores sensitive data, including intellectual property, proprietary business information and the proprietary business information of Cryomass Technologies Inc’s customers and suppliers, as well as personally identifiable information of Cryomass Technologies Inc’s customers and employees, in third party data centers, “cloud” providers and on information technology networks. The secure operation of these information technology networks and the processing and maintenance of this information is critical to Cryomass Technologies Inc’s business operations and strategy. Such third parties, as well as, Cryomass Technologies Inc’s information technology networks, cloud and infrastructure may be vulnerable to damage, disruptions or shutdowns due to attacks by hackers or breaches due to employee error or malfeasance or other disruptions during the process of upgrading or replacing computer software or hardware, power outages, computer viruses, telecommunication or utility failures or natural disasters or other catastrophic events. The occurrence of any of these events could compromise the respective storage networks, data centers or cloud, and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information, disrupt operations, and damage Cryomass Technologies Inc’s reputation, which could adversely affect Cryomass Technologies Inc’s business.
Cryomass Technologies Inc may incur increased costs due to new or more stringent greenhouse gas emission standards designed to address climate change and could be further impacted by physical effects attributed to climate change on its facilities, suppliers and customers.
There is a growing political and scientific consensus that emissions of greenhouse gases (GHG) continue to alter the composition of Earth’s atmosphere in ways that are affecting and are expected to continue to affect the global climate. These considerations may lead to international, national, regional or local legislative or regulatory responses in the future. Various stakeholders, including legislators and regulators, shareholders and non-governmental organizations, as well as companies in many business sectors, including Cryomass Technologies Inc, are considering ways to reduce GHG emissions. The regulation of GHG emissions from certain stationary or mobile sources could result in additional costs to Cryomass Technologies Inc or its suppliers in the form of taxes or emission allowances, facilities improvements and energy costs, which would increase Cryomass Technologies Inc’s operating costs through higher contract manufacturing, utility, transportation and materials costs. Increased input costs and compliance-related costs could also impact customer operations and demand for Cryomass Technologies Inc equipment. Because the impact of any future GHG legislative, regulatory or product standard requirements on Cryomass Technologies Inc’s businesses and products is dependent on the timing and design of mandates or standards, Cryomass Technologies Inc is unable to predict its potential impact at this time.
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Furthermore, the potential physical impacts of climate change on Cryomass Technologies Inc’s suppliers and customers and therefore on Cryomass Technologies Inc’s operations are highly uncertain and will be particular to the circumstances developing in various geographical regions. These may include long-term changes in temperature levels and water availability. These potential physical effects may adversely impact the demand for Cryomass Technologies Inc’s products and the cost, production, sales and financial performance of Cryomass Technologies Inc’s operations.
The agricultural equipment industry is highly seasonal, and seasonal fluctuations may significantly impact our performance.
The agricultural equipment business is highly seasonal, which may cause our quarterly results and our cash flow to fluctuate during the year. Farmers generally purchase agricultural equipment seasonally conjunction with the harvesting seasons. Seasonal fluctuations can significantly impact our performance in a specific quarter, or on the overall.
Our success depends on the introduction of new products, which requires substantial expenditures.
Our long-term results depend upon our ability to introduce and market new products successfully. The success of our new products will depend on a number of factors, including:
| ● | innovation; |
| ● | customer acceptance; |
| ● | the efficiency of our suppliers in providing component parts and of our contract manufacturing facilities in producing final products; and |
| ● | the performance and quality of our products relative to those of our competitors. |
We cannot predict the level of market acceptance or the amount of market share our new products will achieve. We may experience delays in the introduction of new products. Any delays or other problems with our new product launches will adversely affect our performance. In addition, introducing new products can result in decreases in revenues from our existing products. We expect to make substantial investments in product development and refinement. We may need more funding for product development and refinement than is readily available, which could adversely affect our business.
We face significant competition, and, if we are unable to compete successfully against other agricultural equipment manufacturers, we will lose customers and our net sales and profitability will decline.
The agricultural equipment business is highly competitive, particularly in the United States. Established and substantially larger agricultural equipment manufacturers, with substantially greater financial and other resources, have the capability to compete with us successfully. Our competitors may substantially increase the resources devoted to the development and marketing of products that compete with our products. In addition, competitive pressures in the agricultural equipment business may affect the market prices of new and used equipment, which, in turn, may adversely affect our performance.
If we are unable to compete successfully against other similar agricultural equipment manufacturers, we could lose customers and performance may decline.
We have a substantial amount of indebtedness, and, as a result, we are subject to certain payment obligations that may adversely affect our ability to operate and expand our business.
Our substantial indebtedness could have important adverse consequences such as:
| ● | requiring us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, which would reduce the availability of our cash flow to fund future working capital, capital expenditures, acquisitions and other general corporate purposes; |
| ● | increasing our vulnerability to general adverse economic and industry conditions; |
| ● | limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; |
| ● | restricting us from being able to introduce new products or pursuing business opportunities; |
| ● | placing us at a competitive disadvantage compared to our competitors that may have less indebtedness; and |
| ● | limiting, among other things, our ability to borrow additional funds, pay cash dividends or engage in or enter into certain transactions. |
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Our business increasingly is subject to regulations relating to privacy and data protection, and if we violate any of those regulations, we could be subject to significant claims, penalties and damages.
Increasingly, the United States, the European Union and other governmental entities are imposing regulations designed to protect the collection, maintenance and transfer of personal information. For example, the European Union adopted the General Data Protection Regulation (the “GDPR”) that imposes stringent data protection requirements and greater penalties for non-compliance beginning in May 2018. The GDPR also protects a broader set of personal information than traditionally has been protected in the United States and provides for a right of “erasure.” Other regulations govern the collection and transfer of financial data and data security generally. These regulations generally impose penalties in the event of violations. While we attempt to comply with all applicable cybersecurity regulations, their implementation is complex, and, if we are not successful, we may be subject to penalties and claims for damages from regulators and the impacted individuals.
We may encounter difficulties in fully exploiting the assets we acquired from Cryocann USA Corp and may not fully achieve, or achieve within a reasonable time frame, expected strategic objectives and other expected benefits of the acquisitions.
Our recent acquisition of Cryocann USA Corp assets is expected to realize strategic and other benefits, including, among other things, the opportunity to enter the agricultural equipment industry, identify customers and provide our customers with an appealing range of products and services. However, it is impossible to predict with certainty whether, or to what extent, these benefits will be realized or whether we will be able to exploit the acquired assets in a timely and effective manner. For example:
| ● | the costs of using the assets in developing and manufacturing agricultural equipment may be higher than we expect and may require significant attention from our management; |
| ● | the asset acquisition and subsequent exploitation of the assets may result in as of yet unidentified liabilities, such as infringement of third parties’ intellectual property, environmental liabilities or liabilities for violations of laws, such as the FCPA, that we did not expect; and |
| ● | our ability to successfully carry out our growth strategies with the help of the acquired assets will be affected by, among other things, our ability to maintain and enhance our relationships with potential customers, our ability to manufacture and distribution products, changes in the spending patterns and preferences of customers and potential customers, fluctuating economic and competitive conditions and our ability to retain their key personnel. |
| ● | litigation or other claims in connection with the acquired assets, including claims from Cryocann USA Corp customers, current or former shareholders or other third parties. |
| ● | Our due diligence of Cryocann USA Corp may have failed to identify all liabilities associated with the acquisition. Further, the acquired assets consisted primarily of intellectual property, which does not have a market value, and we may not have correctly assessed the relative benefits and detriments of making the acquisition and may have pay acquisition consideration exceeding the value of the acquired assets. |
Further acquisitions may be necessary to realize our overall corporate strategy. There can be no assurance that we will be able to identify appropriate acquisition targets, successfully acquire identified targets or successfully integrate the business of acquired companies or the assets acquired to realize the full, anticipated benefits of such acquisitions. Our ability to address these issues will determine the extent to which we are able to successfully integrate, exploit and develop the acquired assets and to realize the expected benefits of the Cryocann USA Corp. transactions. Our failure to do so could have a material adverse effect on our performance following the transaction
If we are unable to hire and retain key personnel, we may not be able to implement our business plan and our business may fail.
Our future success depends to a large extent on our ability to attract, hire, train and retain qualified managerial, operational and other personnel. We face significant competition for qualified and experienced employees in our industry and from other industries and, as a result, we may be unable to attract and retain the personnel needed to successfully conduct and grow our operations. Additionally, key personnel, including members of management, may leave and compete against us. At present, we do not have all the necessary personnel to carry out our business plans. If we are unable to hire and retain key personnel, our business will be materially adversely affected.
Our growth is highly dependent on the U.S. cannabis and hemp markets. New regulations causing licensing shortages and future regulations may create other limitations that decrease the demand for our products. General regulations at state and federal in the future may adversely impact our business.
The base of cannabis growers in the U.S. has grown over the past 20 years since the legalization of cannabis for medical uses in states such as California, Colorado and Washington. The U.S. cannabis market is still in its infancy and early adopter states such as California, Colorado and Washington represent a large portion of historical industry revenues. The U.S. cannabis cultivation market is expected to be one of the fastest growing industries in the U.S. over the next five years. If the U.S. cannabis cultivation market does not grow as expected, our business, financial condition and results of operations could be adversely impacted. The California cannabis cultivation market is expected to be one of the fastest growing industries in California over the next five years. If the California cannabis cultivation market does not grow as expected, our business, financial condition and results of operations could be adversely impacted.
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Cannabis remains illegal under U.S. federal law, with cannabis listed as a Schedule I substance under the United States Controlled Substances Act of 1970 (the “CSA”). Notwithstanding laws in various states permitting certain cannabis activities, all cannabis activities, including possession, distribution, processing and manufacturing of cannabis and investment in, and financial services or transactions involving proceeds of, or promoting such activities remain illegal under various U.S. federal criminal and civil laws and regulations, including the CSA, as well as laws and regulations of several states that have not legalized some or any cannabis activities to date. Compliance with applicable state laws regarding cannabis activities does not protect us from federal prosecution or other enforcement action, such as seizure or forfeiture remedies, nor does it provide any defense to such prosecution or action. Cannabis activities conducted in or related to conduct in multiple states may potentially face a higher level of scrutiny from federal authorities. Penalties for violating federal drug, conspiracy, aiding, abetting, bank fraud and/or money laundering laws may include prison, fines, and seizure/forfeiture of property used in connection with cannabis activities, including proceeds derived from such activities.
We are not currently subject directly to any state laws or regulations controlling participants in the legal cannabis industry. However, regulation of the cannabis industry does impact our potential customers in the cultivation industry and, accordingly, there can be no assurance that changes in regulation of the industry and more rigorous enforcement by federal authorities will not have a material adverse effect on us.
Legislation and regulations pertaining to the use and cultivation of cannabis are enacted on both the state and federal government level within the United States. As a result, the laws governing the cultivation and use of cannabis may be subject to change. Any new laws and regulations limiting the use or cultivation of cannabis and any enforcement actions by state and federal governments could indirectly reduce demand for our products and may impact our current and planned future operations.
Evolving federal and state laws and regulations pertaining to the use or cultivation of cannabis, as well active enforcement by federal or state authorities of the laws and regulations governing the use and cultivation of cannabis may indirectly and adversely affect our business, our revenues and our profits. Local, state and federal cannabis laws and regulations are broad in scope and subject to evolving interpretations, which could require the end users of certain of our products or us to incur substantial costs associated with compliance or to alter our respective business plans. In addition, violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our results of operation and financial condition.
Certain of our products may be purchased for use for agricultural products other than cannabis and/or be subject to varying, inconsistent, and rapidly changing laws, regulations, administrative practices, enforcement approaches, judicial interpretations, future scientific research and public perception.
The public’s perception of cannabis may significantly impact the cannabis industry’s success. Both the medical and adult-use of cannabis are controversial topics, and there is no guarantee that future scientific research, publicity, regulations, medical opinion, and public opinion relating to cannabis will be favorable. The cannabis industry is an early-stage business that is constantly evolving with no guarantee of viability. Among other things, such a shift in public opinion could cause state jurisdictions to abandon initiatives or proposals to legalize cultivation and sale of cannabis or adopt new laws or regulations restricting or prohibiting the cultivation of cannabis where it is now legal, thereby limiting the potential customers who are engaged in the cannabis industry.
Demand for our products may be negatively impacted depending on how laws, regulations, administrative practices, enforcement approaches, judicial interpretations, and consumer perceptions develop. We cannot predict the nature of such developments or the effect, if any, that such developments could have on our business.
Our indirect involvement in the cannabis industry could affect the public’s perception of us and be detrimental to our reputation.
Damage to our reputation can be the result of the actual or perceived occurrence of any number of events, and could include any negative publicity, whether true or not. Cannabis has often been associated with various other narcotics, violence and criminal activities, the risk of which is that our retailers and resellers that transact with cannabis businesses might attract negative publicity. There is also risk that the action(s) of other participants, companies and service providers in the cannabis industry may negatively affect the reputation of the industry as a whole and thereby negatively impact our reputation. The increased use of social media and other web-based tools used to generate, publish and discuss user-generated content and to connect with other users has made it increasingly easier for individuals and groups to communicate and share opinions and views with regard to cannabis companies and their activities, whether true or not and the cannabis industry in general, whether true or not. We do not ultimately have direct control over how the cannabis industry and its suppliers is perceived by others. Reputation loss may result in decreased investor confidence, increased challenges in developing and maintaining community relations and an impediment to our overall ability to advance its business strategy and realize on its growth prospects, thereby having a material adverse impact on our business.
Businesses involved in the cannabis industry, and investments in such businesses, are subject to a variety of laws and regulations related to money laundering, financial recordkeeping and proceeds of crimes.
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We sell our products through third party retailers and resellers. Investments in the U.S. cannabis industry are subject to a variety of laws and regulations that involve money laundering, financial recordkeeping and proceeds of crime, including the BSA, as amended by the Patriot Act, other anti-money laundering laws, and any related or similar rules, regulations or guidelines, issued, administered or enforced by governmental authorities in the United States. In February 2014, the Financial Crimes Enforcement Network of the Treasury Department issued a memorandum (the “FinCEN Memo”) providing guidance to banks seeking to provide services to cannabis businesses. The FinCEN Memo outlines circumstances under which banks may provide services to cannabis businesses without risking prosecution for violation of U.S. federal money laundering laws. It refers to supplementary guidance that Deputy Attorney General Cole issued to U.S. federal prosecutors relating to the prosecution of U.S. money laundering offenses predicated on cannabis violations of the CSA and outlines extensive due diligence and reporting requirements, which most banks have viewed as onerous. The FinCEN Memo currently remains in place, but it is unclear at this time whether the current administration will continue to follow the guidelines of the FinCEN Memo. Such requirements could negatively affect the ability of certain of the end users of our products to establish and maintain banking connections.
Risks Relating to Our Intellectual Property
Recent laws make it difficult to predict how patents will be issued or enforced in our industry.
Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may have a significant impact on our ability to protect our technology and enforce our intellectual property rights. There have been numerous recent changes to the patent laws and to the rules of the United States Patent and Trademark Office (the “USPTO”), which may have a significant impact on our ability to protect our technology and enforce our intellectual property rights. For example, the Leahy-Smith America Invents Act, which was signed into law in 2011, includes a transition from a “first-to-invent” system to a “first-to-file” system, and changes the way issued patents can be challenged. Certain changes, such as the institution of inter partes review and post-grant and derivation proceedings, came into effect in 2012. Substantive changes to patent law associated with the Leahy-Smith America Invents Act may affect our ability to obtain patents, and, if obtained, to enforce or defend them in litigation or inter partes review, or post-grant or derivation proceedings, all of which could harm our business.
We may not be able to adequately protect our intellectual property and other proprietary rights that are material to our business.
Our ability to compete effectively depends in part on our rights to trademarks, patents and other intellectual property rights we own. We have not sought to register every one of our intellectual properties either in the United States or in every country in which such intellectual property may be used. Furthermore, because of the differences in foreign trademark, patent and other intellectual property or proprietary rights laws, we may not receive the same protection in other countries as we would in the United States with respect to the registered brand names and issued patents we hold. If we are unable to protect our intellectual property, proprietary information and/or brand names, we could suffer a material adverse effect on our business, financial condition and results of operations.
Litigation may be necessary to enforce our intellectual property rights and protect our proprietary information, or to defend against claims by third parties that our products or services infringe their intellectual property rights. Any litigation or claims brought by or against us could result in substantial costs and diversion of our resources. A successful claim of trademark, patent or other intellectual property infringement against us, or any other successful challenge to the use of our intellectual property, could subject us to damages or prevent us from providing certain products or services, or using certain of our recognized brand names, which could have a material adverse effect on our business, financial condition and results of operations.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submissions, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for noncompliance with these requirements.
Periodic maintenance or annuity fees on any issued patents are due to be paid to the USPTO, and/or foreign patent agencies in several stages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payments and other similar provisions during the patent application process. While an inadvertent or unintentional lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, nonpayment of fees and failure to properly legalize and submit formal documents. If we or our licensors fail to maintain the patents and patent applications covering our products, our competitors might be able to enter the market, which would have a material adverse effect on our business.
From time to time, we may need to rely on licenses to proprietary technologies, which may be difficult or expensive to obtain or we may lose certain licenses which may be difficult to replace, harming our competitive position.
We may need to obtain licenses to patents and other proprietary rights held by third parties to develop, manufacture and market our products, if, for example, we sought to develop our products, in conjunction with any patented technology. If we are unable to timely obtain these licenses on commercially reasonable terms and maintain these licenses, our ability to commercially market our products, may be inhibited or prevented, which could have a material adverse effect on our business, results of operations, financial condition and cash flows.
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In spite of our best efforts, our licensors might conclude that we have materially breached our license agreements and might therefore terminate the license agreements, thereby removing our ability to develop and commercialize products and technology covered by these license agreements. If these in-licenses are terminated, or if the underlying patents fail to provide the intended exclusivity, competitors may have the freedom to market products identical to ours.
Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of our business.
Our success depends upon our ability to develop, manufacture, market and sell our products, and to use our proprietary technologies without infringing the proprietary rights of third parties. We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our products and technology, including interference or derivation proceedings and various other post-grant proceedings before the USPTO and/or non-United States opposition proceedings. Third parties may assert infringement claims against us based on existing patents or patents that may be granted in the future. As a result of any such infringement claims, or to avoid potential claims, we may choose or be compelled to seek intellectual property licenses from third parties. These licenses may not be available on acceptable terms, or at all. Even if we are able to obtain a license, the license would likely obligate us to pay license fees, royalties, minimum royalties and/or milestone payments and the rights granted to us could be nonexclusive, which would mean that our competitors may be able to obtain licenses to the same intellectual property. Ultimately, we could be prevented from commercializing a product and/or technology or be forced to cease some aspect of our business operations if, as a result of actual or threatened infringement claims, we are unable to enter into licenses of the relevant intellectual property on acceptable terms. Further, if we attempt to modify a product and/or technology or to develop alternative methods or products in response to infringement claims or to avoid potential claims, we could incur substantial costs, encounter delays in product introductions or interruptions in sales.
We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
Although we try to ensure that our employees do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s former employer. We are not aware of any threatened or pending claims related to these matters or concerning agreements with our employees, but in the future litigation may be necessary to defend against such claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.
Intellectual property disputes could cause us to spend substantial resources and distract our personnel from their normal responsibilities.
Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses and could distract our personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the value of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.
Intellectual property rights do not necessarily address all potential threats to our competitive advantage.
The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:
| ● | Others may be able to construct products that are similar to our products but that are not covered by the claims of the patents that we own or have exclusively licensed; | |
| ● | We or our licensors or strategic collaborators, if any, might not have been the first to make the inventions covered by the issued patent or pending patent application that we own or have exclusively licensed; | |
| ● | We or our licensors or strategic collaborators, if any, might not have been the first to file patent applications covering certain of our inventions; | |
| ● | Others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights; | |
| ● | It is possible that our pending patent applications will not lead to issued patents; |
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| ● | Issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as a result of legal challenges by our competitors; | |
| ● | Our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets; | |
| ● | We may not develop additional proprietary technologies that are patentable; and | |
| ● | The patents of others may have an adverse effect on our business. | |
| ● | Should any of these events occur, they could significantly harm our business, results of operations and prospects. |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
| * | Filed herewith. |
38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| CRYOMASS TECHNOLOGIES INC. | |
| (Registrant) | |
| Dated: November 12, 2021 | |
| /s/ Christian Noel | |
| Christian Noel | |
| Chief Executive Officer and Director | |
| (Principal Executive Officer) | |
| Dated: November 12, 2021 | |
| /s/ Philip Mullin | |
| Philip Mullin | |
| Chief Financial Officer and Treasurer | |
| (Principal Financial Officer and Principal Accounting Officer) |
39
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, Christian Noel, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Cryomass Technologies 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. | The registrant's other certifying officer(s) and I are 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. | The registrant's other certifying officer(s) and I have disclosed, based on our 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: November 12, 2021 | |
| /s/ Christian Noel | |
| Christian Noel | |
| Chief Executive Officer and Director | |
| (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION PURSUANT
TO
18 U.S.C. ss 1350, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Philip B. Mullin, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Cryomass Technologies 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. | The registrant's other certifying officer(s) and I are 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. | The registrant's other certifying officer(s) and I have disclosed, based on our 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: November 12, 2021 | |
| /s/ Philip B. Mullin | |
| Philip B. Mullin | |
| Chief Financial Officer and Treasurer | |
| (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, Christian Noel, 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 Quarterly Report on Form 10-Q of Cryomass Technologies Inc for the quarter ended September 30, 2021 (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 Cryomass Technologies Inc |
Dated: November 12, 2021
| /s/ Christian Noel | |
| Christian Noel | |
| President, Chief Executive Officer and Director | |
| (Principal Executive Officer) | |
| Cryomass Technologies Inc |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Cryomass Technologies Inc and will be retained by Cryomass Technologies Inc and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Philip B. Mullin, 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 Quarterly Report on Form 10-Q of Cryomass Technologies Inc for the quarter ended September 30, 2021 (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 Cryomass Technologies Inc |
Dated: November 12, 2021
| /s/ Philip B. Mullin | |
| Philip B. Mullin | |
| Chief Financial Officer and Treasurer | |
| (Principal Financial Officer and Principal Accounting Officer) | |
| Cryomass Technologies Inc |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Cryomass Technologies Inc and will be retained by Cryomass Technologies Inc and furnished to the Securities and Exchange Commission or its staff upon request.
Consolidated Balance Sheets (Unaudited) (Parentheticals) - $ / shares |
Sep. 30, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Preferred stock, par value (in Dollars per share) | $ 0.001 | $ 0.001 |
| Preferred stock, shares authorized | 100,000 | 100,000 |
| Preferred stock, shares issued | ||
| Preferred stock, shares outstanding | ||
| Common stock, par value (in Dollars per share) | $ 0.001 | $ 0.001 |
| Common stock, shares authorized | 500,000,000 | 500,000,000 |
| Common stock, shares issued | 120,058,181 | 97,005,817 |
| Common stock, shares outstanding | 120,058,181 | 97,005,817 |
Consolidated Statements of Operations (Unaudited) (Parentheticals) - USD ($) |
3 Months Ended | 9 Months Ended |
|---|---|---|
Sep. 30, 2020 |
Sep. 30, 2020 |
|
| Income Statement [Abstract] | ||
| Provision for inventory loss | $ 0 | $ 400,787 |
Nature of the Business |
9 Months Ended |
|---|---|
Sep. 30, 2021 | |
| Accounting Policies [Abstract] | |
| Nature of the Business | 1. Nature of the Business
Cryomass Technologies Inc (“Cryomass Technologies” or the “Company”) began as Auto Tool Technologies Inc., which was incorporated under the laws of the State of Nevada on May 10, 2011. The Company’s name was changed to AFC Building Technologies Inc. effective January 10, 2014. Effective April 26, 2018, the Company changed its name to First Colombia Development Corp. Effective October 14, 2019, the Company changed its name to Redwood Green Corp. Effective September 1, 2020, the Company changed its name to Andina Gold Corp. On July 15, 2021, the Company entered into a plan of merger with a wholly-owned subsidiary, the effect of which was to change its name to Cryomass Technologies Inc. Our ticker symbol changed from AGOL to CRYM.
On May 10, 2018, the Company acquired all the issued and outstanding share capital of First Colombia Devco S.A.S. (“Devco”) a Colombian company and began to establish various business ventures in Colombia in the agriculture and real estate development, tourism, and infrastructure sectors before commencing to phase them out in April 2019.
On July 1, 2019, the Company acquired 100% of the membership interests in General Extract, LLC (“General Extract”), a Colorado limited liability company. General Extract was founded in 2015 as an importer, distributor, broker and postprocessor of hemp and hemp derivatives. The Company acquired all of the issued and outstanding membership interests, including business plans and access to contacts. Effective August 27, 2021, General Extract became Cryomass LLC.
On July 15, 2019, the Company, through its wholly owned subsidiary Good Acquisition Co., entered into a Membership Interest Purchase Agreement to acquire cannabis brands and other assets of Critical Mass Industries LLC DBA Good Meds (“CMI” and/or “Good Meds”), a Colorado limited liability company (“CMI Transaction”). CMI is licensed by the Marijuana Enforcement Division of Colorado Department of Revenue to produce cannabis and cannabis products under its six licenses. These licenses allow for cultivation, manufacturing of infused products and retail distribution. At the time the Company entered into the Membership Interest Purchase Agreement, Colorado law prohibited public companies, including the Company, from owning cannabis licenses. Under the terms of the Membership Interest Purchase Agreement, CMI retained the cannabis license, inventory and accounts receivable (the “Cannabis License Assets”) and will continue to operate the cannabis business related to those assets. In consideration for the transfer of the acquired assets, the Company delivered 13,553,233 shares of the Company common stock, in addition to $1,999,770 in cash to CMI. (see Note 2 and Note 7).
Good Meds, the operating unit of CMI, is based in Denver, CO, and operates in a 60,000-square-foot cultivation and processing facility. The Denver facility produces cannabis for sale as dry flower and biomass input for processing into Marijuana-Infused Products (“MIP”), such as live resin, wax and budder. Good Meds also operates two medical marijuana dispensaries and related businesses in Colorado (see Note 2). The business has been in operation since 2009. Its mission is to deliver high-quality, safely manufactured, sustainable, innovative, and accessible cannabis products which support individual well-being.
The Company is actively pursuing divestiture of its Colorado-based subsidiaries and assets.
In August 2020, the Company merged with its wholly owned Nevada subsidiary, Andina Gold Corp., and changed its name into Andina Gold Corp. On October 21, 2020, FINRA issued an advisory accepting the company’s name change from Redwood Green Corp to Andina Gold Corp and ticker symbol change to AGOL effective as of October 22, 2020. In August 2020, the Company established a wholly owned Colombian subsidiary, Andina Gold Colombia SAS for the purpose of pursuing opportunities in the gold exploration business in Colombia. In December 2020, due to the death of the top geologist exploring opportunities on behalf of the Company, and the effects of the ongoing Coronavirus pandemic, the Company determined that pursuit of gold exploration in Colombia was no longer a practical alternative.
On June 22, 2021, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Cryocann USA Corp, a California corporation (“Cryocann”), pursuant to which Company acquired substantially all the assets of Cryocann, (the “Cryocann Acquisition”). The Acquisition was consummated on June 23, 2021. The aggregate purchase price for substantially all the assets of Cryocann was $3,500,000 million in cash and 10,000,000 shares of Company common stock (the “Purchase Price”), of which $1,000,000 in cash and 10,000,000 shares of Company common stock were paid at closing and a promissory note was issued for $1,252,316 payable by Company to Cryocann on October 15, 2021, which represents the remaining Purchase Price of $2,500,000 minus the amount owed by Cryocann under a Loan Agreement dated April 23, 2021 by and between Cryocann and Company.
As part of the Cryocann Acquisition, we retained both Cryocann employees, who have expert knowledge of the industry, related participants, customers and the acquired patented technology. Under these employment agreements, each employee may receive compensation if specific performance targets are met in association with our future operating performance once the Cryocann technology enters the market.
Cryocann is a designer and seller of equipment developed on the basis of patented technology for cannabis varieties harvesting, refinement, and extraction. The technology reduces processing costs, increases the quality of the extracted compounds and has potential for other agricultural applications including hemp and hops. The Company is exploring the application of the underlying technology to a broad range of industries that handle high-value materials and that could benefit from our precision capture methods. We anticipate that cannabis and hemp will be the first in a series of such industries. Further, we expect to begin field-testing in the fourth quarter of this year and to start commercialization early in 2022. |
Variable Interest Entity |
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| Variable Interest Entity, Primary Beneficiary, Does Not Hold Majority Voting Interest, Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Variable Interest Entity | 2. Variable Interest Entity
Pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Section 810, Consolidation (“ASC 810”), the Company is required to include in its consolidated financial statements, the financial statements of its variable interest entity (“VIE”). ASC 810 requires a VIE to be consolidated if that company is subject to a majority of the risk of loss for the VIE or is entitled to receive a majority of the VIE’s residual returns. VIEs are those entities in which a company, through contractual arrangements, bears the risk of, and enjoys the rewards normally associated with ownership of the entity, and therefore the company is the primary beneficiary of the entity.
Under ASC 810, a reporting entity has a controlling financial interest in a VIE, and must consolidate that VIE, if the total equity investment at risk is not sufficient to permit the legal entity to finance its activities without additional subordinated financial support provided by any parties, including equity holders. As of July 15, 2019, the Company consolidates CMI as a VIE pursuant to certain intellectual property, administrative and consulting agreements in which the Company is deemed the primary beneficiary of CMI. Accordingly, the results of CMI have been included in the accompanying consolidated financial statements.
Furthermore, the Company notes it does not own the Cannabis License Assets; however, pursuant to accounting principles generally accepted in the United States (“GAAP”), the Cannabis License Assets are consolidated in the accompanying consolidated financial statements along with certain liabilities and the associated revenues and expenses of CMI. See Note 8 for further information regarding CMI.
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Revision of Prior Period Financial Statements |
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| Revision Of Prior Period Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revision of Prior Period Financial Statements | 3. Revision of Prior Period Financial Statements
On the consolidated balance sheet for the year ended December 31, 2019 and the quarter ended September 30, 2019, the Cannabis License Assets of CMI, a VIE in which the Company is deemed the primary beneficiary (Note 2), was presented as non-controlling interest pursuant to and in conjunction with the CMI Transaction. The Company does not own the Cannabis License Assets; however, they are included in the accompanying consolidated financial statements for GAAP reporting purposes.
The Company revised its consolidated financial statements for the fiscal year ended December 31, 2019, in which this line item was adjusted to correct the classification by reflecting accounts receivable, net of $113,599, inventory, net of $768,633, and accounts payable and accrued expenses of $337,386 in addition to a decrease in goodwill of $1,192,234 and an increase in additional-paid-in capital of $647,458.
The impact of these adjustments on the Company’s consolidated financial statements was as follows:
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Going Concern Uncertainty, Financial Conditions and Management’s Plans |
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| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| Going Concern Uncertainty, Financial Conditions and Management’s Plans | 4. Going Concern Uncertainty, Financial Conditions and Management’s Plans
The Company believes it has sufficient cash available (most of which was received subsequent to the end of the quarter) to fund its anticipated level of operations for at least the next twelve months. During the quarter and subsequent to quarter end, the Company raised a total of $9,954,000 in private placements, and reduced debt by $4,900,000 in debt -to-equity conversions. Approximately $3,000,000 is required by management to operate the parent company for the next twelve months and the capital expenditures and startup costs associated with Cryomass LLC are anticipated to be approximately $3,000,000. Therefore, management believes that it has sufficient cash available to support this level of operations for the foreseeable future..
Our unaudited financial statements for the three and nine months ended September 30, 2021 have been prepared on a going concern basis. The continuation of our company as a going concern is dependent upon the continued financial support from its shareholders, the ability of our company to obtain necessary equity or debt financing to continue operations, the sale of assets, and ultimately the attainment of profitable operations. For the nine months ended September 30, 2021, our company used $3,070,095 of cash for operating activities, incurred a net loss of $5,645,288 and has an accumulated deficit of $21,374,482 since inception. While management believes the Company has sufficient cash available to support an anticipated level of operations for at least the next twelve months, there can be no assurance that it will continue to be able to obtain necessary equity or debt funding, or funding through the sale of assets, or attainment of sufficient levels of profitability to sustain operations beyond that time.
On March 11, 2020, the 2019 novel coronavirus (“COVID-19) was characterized as a “pandemic.” The Company’s operations were impacted in the United States. The impact of COVID-19 developments and uncertainty with respect to the economic effects of the pandemic has introduced significant volatility in the financial markets.
The Company assessed certain accounting matters that require consideration of forecasted financial information, including, but not limited to, the carrying value of the Company’s goodwill, intangible assets, and other long-lived assets, and valuation allowances in context with the information reasonably available to the Company and the unknown future impacts of COVID-19 as of September 30, 2021 and through the date of this report. The Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to the Consolidated Financial Statements in future reporting periods.
The COVID-19 pandemic and responses to this crisis, including actions taken by federal, state and local governments, have had an impact on the operations of the company, including, without limitation, the following: reduced staffing due to employee suspected conditions and social distancing measures; constraints on productivity; management and staff non-essential business-related travel was constrained due to stay-at-home orders; most employees have shifted to remote work resulting in loss of productivity; consumers visiting dispensaries operated under license impacted by stay-at-home orders. Management continues to monitor the COVID-19 pandemic situation and federal, state and local recommendations and will provide updates as appropriate. |
Summary of Significant Accounting Policies |
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| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Significant Accounting Policies | 5. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the Securities and Exchange Commission (“SEC”) for interim reporting. Accordingly, they do not include certain footnotes and financial presentations normally required under GAAP for complete financial statements. The consolidated financial statements include the accounts of Cryomass Technologies Inc., Cryomass Inc. and CMI, a VIE for which the Company is deemed to be the primary beneficiary. All significant intercompany balances and transactions have been eliminated in consolidation. The Company operates as one segment from its corporate headquarters in Colorado. The unaudited consolidated financial statements have been prepared on the same basis as the annual financial statements, with exception to the revision as described in Note 3 and reflect all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial position and the results of operations and cash flows. The results for the three and nine-month periods ended September 30, 2021 and 2020 are not necessarily indicative of the results to be expected for any subsequent period or the entire year ending December 31, 2021. These unaudited interim consolidated financial statements should be read in conjunction with the Company’s annual audited financial statements and notes thereto for the year ended December 31, 2020, included in the Company’s Form 10-K filed on March 30, 2021 with the SEC.
Use of Estimates
The preparation of the Company’s financial statements in conformity with GAAP 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 expenses during the reporting period. Significant estimates and assumptions reflected in these financial statements include, but are not limited to determining the fair value of the assets acquired and liabilities assumed in acquisition, determining the fair value and potential impairment of inventory, determining the useful lives and potential impairment of long-lived assets and potential impairment of goodwill. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.
Reclassifications
Certain items in the interim consolidated financial statements were reclassified from prior periods for presentation purposes.
Variable Interest Entities
The Company accounts for variable interest entities in accordance with FASB ASC Topic 810, Consolidation. Management evaluates the relationship between the Company and VIEs and the economic benefit flow of the contractual arrangement with the VIEs. Management determines if the Company is the primary beneficiary of a VIE through a qualitative analysis that identifies which variable interest holder has the controlling financial interest in the VIE. The variable interest holder who has both of the following has the controlling financial interest and is the primary beneficiary: (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE. In performing our analysis, we consider all relevant facts and circumstances, including: the design and activities of the VIE, the terms of the contracts the VIE has entered into, the nature of the VIE’s variable interests issued and how they were negotiated with or marketed to potential investors, and which parties participated significantly in the design or redesign of the entity. As a result of such evaluation, management concluded that the Company is the primary beneficiary of CMI and consolidates the financial results of this entity.
Purchase Accounting for Acquisitions
We apply the acquisition method of accounting for a business combination. In general, this methodology requires us to record assets acquired and liabilities assumed at their respective fair values at the date of acquisition. Any amount of the purchase price paid that is in excess of the estimated fair value of the net assets acquired is recorded as goodwill. For certain acquisitions, we also record a liability for contingent consideration based on estimated future business performance. We monitor our assumptions surrounding these estimated future cash flows and, if there is a significant change, would record an adjustment to the contingent consideration liability and a corresponding adjustment to either income or expense. We determine fair value using widely accepted valuation techniques, primarily discounted cash flow and market multiple analyses. These types of analyses require us to make assumptions and estimates regarding industry and economic factors, the profitability of future business strategies, discount rates and cash flow.
If actual results are not consistent with our assumptions and estimates, or our assumptions and estimates change due to new information, we may be exposed to an impairment charge in the future. If the contingent consideration paid for any of our acquisitions differs from the amount initially recorded, we would record either income or expense associated with the change in liability.
Accounts Receivable, net
Accounts receivable, net is comprised of balances due from customers and are recorded at the invoiced amount. Past due balances are determined based on the contractual terms of the arrangements. Accounts receiveable are accrued against when management determines, after considering economic and business conditions and all means of collection efforts have been exhausted and the potential for recovery is considered remote, that the collection of receivables is doubtful. Accounts receivable amounts, net of allowance for doubtful accounts, were $578,188 and $606,043 as of September 2021 and December 31, 2020, respectively. This includes $38,188 and $66,043, respectively, related to the VIE, which is classified as held for sale. Uncollectible accounts previously recorded as receivables are recognized as bad debt expense, with a corresponding decrease to accounts receivable. Bad debt expense was $2,415 and $954 for the three and nine months ended September 30, 2021, respectively. This amount includes $2,415 and $954, respectively, related to the VIE, which is classified as discontinued operations. Bad debt expense was $34,765 and $42,118 for the three and nine months ended September 30, 2020, respectively. This amount includes $(1,235) and $2,118, respectively, related to the VIE.
Inventory, net
Inventory, net is comprised of work-in-process and finished goods consisting of cannabis and cannabidiol products. Cost includes expenditures directly related to the manufacturing process as well as suitable portions of related production overheads, based on normal operating capacity. Inventory, net is stated at the lower of cost or net realizable value. The Company compares the cost of inventory with market value and writes down inventories to net realizable value, if lower. In evaluating whether inventories are stated at lower of cost or net realizable value, management considers such factors as inventories on hand, physical deterioration, obsolescence, changes in price levels, estimated time to sell such inventories and current market conditions. Due to changing market conditions, management conducted a thorough review of its inventory. As a result, a provision for inventory loss of $0 and $400,787 was charged against cost of goods sold during the nine months ended September 30, 2021 and 2020, respectively, due to a write down of inventory to its net realizable value. This was based on the Company’s best estimates of product sales prices and customer demand patterns. It is at least reasonably possible that the estimates used by the Company to determine its provision for inventory losses will be materially different from the actual amounts or results. These differences could result in materially higher than expected inventory provisions, which could have a materially adverse effect on the Company’s results of operations and financial conditions in the near term.
Revenue Recognition
Under FASB Topic 606, Revenue from Contacts with Customers (“ASC 606”), the Company recognizes revenue when the customer obtains control of promised goods or services, in an amount that reflects the consideration which is expected to be received in exchange for those goods or services. The Company recognizes revenue following the five-step model prescribed under ASC 606: (i) identify contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenues when (or as) the Company satisfies a performance obligation.
The Company’s revenue consists of sales of cannabis and ancillary products to both retail consumers and wholesale customers. Revenue for retail customers is recognized upon completion of the transaction in the point-of-sale system and satisfaction of the sale by providing the corresponding inventory at the retail location. Revenue for wholesale customers is recognized upon acceptance of the physical goods and confirmation by acceptance of the inventory in the regulatory marijuana enforcement tracking reporting compliance (“METRC”) system. Revenue is recognized upon transfer of control of promised products to customers, generally as risk of loss passes, in an amount that reflects the consideration the Company expects to receive in exchange for those products. Taxes collected from customers, which are subsequently remitted to governmental authorities, are excluded from revenue.
Retail customer loyalty liabilities are recognized in the period in which they are incurred and will often be retired without being utilized. Shipping and handling costs are expensed as incurred and are included in cost of sales, which were not material for the three and nine months ended September 30, 2021 and 2020.
The Company operates in a highly regulated environment in which state regulatory approval is required prior to the customer being able to purchase the product, either through the Colorado Marijuana Enforcement Division for wholesale clients or the Colorado Department of Public Health and Environment for medical patients.
Cost of Goods Sold, Net of Depreciation and Amortization
Cost of goods sold primarily consisted of allocated salaries and wages of employees directly related with the production process, allocated depreciation and amortization directly related to the production process, cultivation supplies, rent and utilities.
Operating Expenses
Operating expenses encompass personnel costs, sales and marketing expenses, general and administrative expenses, professional and legal fees and depreciation and amortization related to the property and equipment and intangibles acquired through the acquisition of CMI. Personnel costs consist primarily of consulting expense and administrative salaries and wages. Sales and marketing expenses consist primarily of advertising and marketing, and salaries related to sales and marketing employees. General and administrative expenses are comprised of travel expenses, accounting expenses, and board fees. Professional services are principally comprised of outside legal and professional fees.
Other Expense, net
Other expense, net consisted of interest expense and gain on foreign exchange.
Stock-Based Compensation
The fair value of restricted stock units (“RSUs”) granted are measured on the grant date using the closing price of the Company’s common shares on the grant date. The Company accounts for forfeitures as they occur, rather than estimating expected forfeitures over the course of a vesting period. All stock-based compensation costs are recorded in general and administrative expenses in the consolidated statements of operations.
Property and Equipment, net
Purchase of property and equipment are recorded at cost. Improvements and replacements of property and equipment are capitalized. Maintenance and repairs that do not improve or extend the lives of property and equipment are charged to expense as incurred. When assets are sold or retired, their cost and related accumulated depreciation are removed from the accounts and any gain or loss is reported in the consolidated statements of operations. Depreciation and amortization expense is recognized using the straight-line method over the estimated useful life of each asset, as follows:
Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price of an acquired entity over the fair value of identifiable tangible and intangible assets acquired and liabilities assumed in a business combination.
Indefinite-lived intangible assets established in connection with business combinations consist of trademarks, trade names and developed manufacturing processes. Intangible assets with indefinite lives are recorded at their estimated fair value at the date of acquisition.
Intangible assets with finite lives are recorded at their estimated fair value at the date of acquisition and are amortized over their estimated useful lives using the straight-line method. Amortization of assets ceases upon designation as held for sale. The estimated useful lives of intangible assets are detailed in the table below:
Intangible assets associated with in process research and development are indefinite lived until the research and development is finalized, at which point we will assess an estimated useful life.
Impairment of Goodwill and Intangible Assets
Goodwill
Goodwill is not amortized, but instead is tested annually at December 31 for impairment and upon the occurrence of certain events or substantive changes in circumstances.
We account for the impairment of goodwill under the provisions of Financial Accounting Standards Board (FASB) Accounting Standard Update 2017-04 (“ASU 2017-04”), “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” and FASB Accounting Standards Codification (ASC) 350-20-35, Intangibles – Goodwill and Other - Goodwill.
The Company performs impairment testing for goodwill by performing the following steps: 1) evaluate the relevant events or circumstances to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, 2) if yes to step 1, calculate the fair value of the reporting unit and compare it with its carrying amount, including goodwill, 3) recognize impairment, limited to the total amount of goodwill allocated to that reporting unit, equal to the excess of the carrying value of a reporting unit over its fair value.
As of December 31, 2020, management concluded that the goodwill resulting from the CMI transaction (Note 7) was impaired. See Note 11.
Indefinite-Lived Intangible Assets
Indefinite-lived intangible assets are not amortized, but instead are tested annually at December 31 for impairment and upon the occurrence of certain events or substantive changes in circumstances.
We account for the impairment of indefinite-lived intangible assets under the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 350-30-35, Intangibles – Goodwill and Other – General Intangibles Other Than Goodwill. Following this guidance, the Company compares the estimated fair value of the indefinite-lived intangible assets to its carrying value. If the carrying value exceeds the fair value, the Company recognizes impairment equal to that excess.
As of December 31, 2020, management concluded that indefinite-lived intangible assets were impaired. See Note 11.
Intangible Assets Subject to Amortization
Intangible assets subject to amortization are tested annually at December 31 for impairment and upon the occurrence of certain events or substantive changes in circumstances.
We account for the impairment of intangible assets subject to amortization under the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 360-10-35, Property, Plant, and Equipment. Following this guidance, the Company compares the estimated fair value of the intangible assets subject to amortization to its carrying value. If the carrying value exceeds the fair value, the Company recognizes impairment equal to that excess.
As of December 31, 2020, management concluded that intangible assets subject to amortization were impaired. See Note 11.
Contingencies
An initial right-of-use (“ROU”) asset and corresponding liability of $1,411,461 was recognized upon the CMI Transaction. The Company adopted ASU Topic 842 January 1, 2019, but had no reportable operating leases at that point in time.
Income Taxes
The Company uses the liability method of accounting for income taxes as set forth in ASC 740, Income Taxes. Under the liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differences reverse. A valuation allowance is recorded when it is likely that the deferred tax assets will not be realized. We assess our income tax positions and record tax benefits for all years subject to examination based upon our evaluation of the facts, circumstances and information available at the reporting date. In accordance with ASC 740-10, for those tax positions where there is a greater than 50% likelihood that a tax benefit will be sustained, our policy will be to record the largest amount of tax benefit that is more likely than not to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where there is less than 50% likelihood that a tax benefit will be sustained, no tax benefit will be recognized in the financial statements.
Fair Value Measurements
Certain assets and liabilities of the Company are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
The carrying values reported in the consolidated balance sheets for cash, prepaid expenses, inventories, accounts payable, notes payable, and taxes payable approximate fair values because of the immediate or short-term maturities of these financial instruments. There were no other assets or liabilities that require fair value to be recalculated on a recurring basis.
Net Loss per Share
The Company follows ASC 260, Earnings Per Share, which requires presentation of basic and diluted earnings per share (“EPS”) on the face of the income statement for all entities with complex capital structures. Net earnings or loss per share is computed by dividing net income or loss by the weighted-average number of common shares outstanding during the period, excluding shares subject to redemption or forfeiture. The Company presents basic and diluted net earnings or loss per share. Diluted net earnings or loss per share reflect the actual weighted average of common shares issued and outstanding during the period, adjusted for potentially dilutive securities outstanding. Potentially dilutive securities are excluded from the computation of the diluted net loss per share if their inclusion would be anti-dilutive. There were 2,185,000 unvested RSU’s considered potentially dilutive securities outstanding as of September 30, 2021 and 2,453,172 unvested RSU’s considered potentially dilutive securities outstanding as of December 31, 2020. Diluted net loss per share is the same as basic net loss per share for each period.
Assets and Liabilities of Discontinued Operations Held for Sale
Assets and liabilities are classified as held for sale when all of the following criteria for a plan of sale have been met: (1) management, having the authority to approve the action, commits to a plan to sell the assets; (2) the assets are available for immediate sale, in their present condition, subject only to terms that are usual and customary for sales of such assets; (3) an active program to locate a buyer and other actions required to complete the plan to sell the assets have been initiated; (4) the sale of the assets is probable and is expected to be completed within one year; (5) the assets are being actively marketed for a price that is reasonable in relation to their current fair value; and (6) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or the plan will be withdrawn. When all of these criteria have been met, the assets (and liabilities) are classified as held for sale in the balance sheet. Assets classified as held for sale are reported at the lower of their carrying value or fair value less costs to sell. Depreciation of assets ceases upon designation as held for sale. See Note 8.
Recent Accounting Pronouncements
In August 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40). ASU 2020-06 reduces the number of accounting models for convertible debt instruments and convertible preferred stock. The accounting model for beneficial conversion features is removed. The ASU is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company determined that this update will impact its financial statements. |
Revenue Recognition |
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| Revenue Recognition | 6. Revenue Recognition
Disaggregated Revenue
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Business Combination |
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| Business Combination [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Business Combination | 7. Business Combination
Effective July 15, 2019, the Company acquired cannabis-related brands and other assets of CMI. In consideration of the sale and transfer of the acquired assets, the Company delivered 13,553,233 shares of Cryomass Technologies common stock, in addition to $1,999,770 in cash to the members of CMI, and to CMI, respectively.
The CMI Transaction was accounted for as a business combination in accordance with ASC 805, Business Combinations (“ASC 805”). The Company’s allocation of the purchase price was calculated as follows:
Effective June 23, 2021, the Company acquired substantially all the assets of Cryocann for $3,500,000 million in cash and 10,000,000 shares of Company common stock, of which $1,000,000 in cash and 10,000,000 shares of Company common stock were paid at closing and a promissory note was issued for $1,252,316 payable by Company to Cryocann on October 15, 2021, which represents the remaining Purchase Price of $2,500,000 minus the amount owed by Cryocann under a Loan Agreement dated April 23, 2021 by and between Cryocann and the Company.
The Company concluded that the Cryocann Acquisition qualified as a business combination under ASC 805. The Company’s allocation of the purchase price was calculated as follows:
The estimates of the fair value of the assets acquired assumed at the date of the Cryocann Acquisition are subject to adjustment during the measurement period (up to one year from each acquisition date). The primary areas of the accounting for the Cryocann Acquisition that are not yet finalized relate to the fair value of intangible assets acquired, residual goodwill and any related tax impact. The fair value of these net assets acquired is based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. While the Company believes that such preliminary estimates provide a reasonable basis for estimating the fair value of assets acquired, it evaluates any necessary information prior to finalization of the fair value. During the measurement period, the Company will adjust assets if new information is obtained about facts and circumstances that existed as of the date of the Cryocann Acquisition that, if known, would have resulted in the revised estimated values of those assets as of that date. The impact of all changes that do not qualify as measurement period adjustments are included in current period earnings. If the actual results differ from the estimates and judgments used in these fair values, the amounts recorded in the consolidated financial statements could be subject to a possible impairment of the intangible assets or goodwill or require acceleration of the amortization expense of intangible assets in subsequent periods. |
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Discontinued Operations |
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| Discontinued Operations | 8. Discontinued Operations
In June 2020, the Company’s board of directors adopted a plan to end its involvement through the various 2019 CMI contracts with the cultivation, manufacturing of infused products and retail distribution businesses through the sale of Good Meds. The Company determined that the intended sale represented a strategic shift that will have a major effect on the Company’s operations and financial results and therefore, for financial statement reporting purposes classified Good Meds and its consolidated VIE CMI as held for sale at September 30, 2021 and December 31, 2020.
The accompanying consolidated balance sheets include the following carrying amounts of assets and liabilities related to these CMI discontinued operations:
The consolidated statements of operations include the following operating results related to these CMI discontinued operations:
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Inventory, Net |
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| Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||
| Inventory, Net | 9. Inventory, Net
Inventory, net consisted of the following:
The Company re-negotiated the selling price of the cannabidiol finished goods inventory from Cryomass LLC in 2019 and 2020. All remaining cannabidiol finished goods inventory was sold in 2020 Q2. |
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| Property and Equipment, Net | 10. Property and Equipment, Net
Property and equipment, net consisted of the following. All property and equipment is classified as held for sale, except for $135,000 of machinery and equipment held by Cryomass Inc.
Depreciation expense for the three and nine months ended September 30, 2021 was $0 and $0, respectively. Depreciation expense for the three and nine months ended September 30, 2020 was $0, and $131,110, respectively. Depreciation expense was recorded in cost of goods sold and general and administrative expense. |
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Goodwill and Intangible Assets |
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| Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill and Intangible Assets | 11. Goodwill and Intangible Assets
The Company tests goodwill and intangible assets for impairment annually as of December 31st, or more frequently whenever events or changes in circumstances indicate that the asset might be impaired. As the Company marketed CMI’s subsidiaries and the Company’s related assets for sale, management determined it was more likely than not that the fair value was less than the carrying value. Therefore, in 2020, the Company recorded an impairment loss of $4,663,514 related to goodwill in accordance with ASC 350-20-35, Intangibles – Goodwill and Other - Goodwill. Additionally, in 2020, the Company recorded an impairment loss of $334,195 related to indefinite-lived intangible assets in accordance with ASC 350-30-35 Intangibles – Goodwill and Other – General Intangibles Other Than Goodwill and an impairment loss of $27,023 related to intangible assets subject to amortization in accordance with ASC 360-10-35, Property, Plant, and Equipment. The fair value of CMI was the expected sales price, which management determined based on offers received and sales negotiations.
The carrying value of goodwill was $1,190,000 and $0, as of September 30, 2021 and December 31, 2020, respectively.
The following tables summarize information relating to the Company’s identifiable intangible assets, which are classified as held for sale, as of September 30, 2021 and December 31, 2020:
Amortization expense, which is included in continuing operations, was $21,832 and $21,832 for the three and nine months ended September 30, 2021, respectively, and was $8,967 and $26,901 for the three and nine months ended September 30, 2020, respectively. Amortization expense included in discontinued operations was $8,967 and $26,901 for the three and nine months ended September 30, 2020, respectively. |
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Debt |
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| Debt Disclosure [Abstract] | |
| Debt | 12. Debt
On July 27, 2020, the Company entered into a subscription agreement consisting of 1) a convertible note and 2) warrants. The 1) convertible note has a face value of $250,000, matures August 1, 2022, and accrues interest at 8% per annum. The note is convertible into 2,500,000 shares of the Company’s common stock at a conversion price of $0.10 per share. The beneficial conversion feature is accounted for in accordance with ASC 470-20 Debt with Conversion and Other Options and the resulting debt discount is amortized over the life of the note. As of September 30, 2021, the net carrying amount is $145,833, which consists of the $250,000 convertible note and $104,167 unamortized debt discount. As of December 31, 2020, the net carrying amount is $52,083, which consists of the $250,000 convertible note and $197,917 unamortized debt discount. The warrants are exercisable to purchase an additional 2,500,000 shares of common stock at $0.25 per share.
On August 26, 2020, the Company entered into a $600,000 loan agreement, which accrues interest at 84% per annum. On January 25, 2021, the Company refinanced this loan at 93.6%, to obtain additional funding. The loan was fully repaid on April 27, 2021, with a $412,560 loan balance as of December 31, 2020.
On March 18, 2021, the Company entered into a $225,000 note payable, which accrued interest at 15% per annum. The note was fully repaid on May 7, 2021.
Between March 29, 2021 and July 6, 2021, the Company entered into a series of similar subscription agreements with either domestic or non-US accredited investors, respectively (each, a “Initial Tranche Subscription Agreement (US)” and, respectively, “Initial Tranche Subscription Agreement (non-US)”) pursuant to which the Company issued and sold to certain accredited investors, in the initial tranche of a non-brokered private placement (the “Private Placement”), an aggregate 3,000 units (“Units”), each Unit representing (i) one $1,000 principal amount term note providing for an optional conversion into shares of Company common stock at a price of $0.20 per share (each the “Initial Convertible Term Note”) and (ii) a common share warrant for the purchase of 5,000 shares of Company common stock at an exercise price of $0.40 per share (each an “Initial Warrant”), for aggregate net proceeds of $3,000,000. Between May and July 6, 2021, the Company entered into a series of substantially similar subscription agreements with either domestic or non-US investors (each, a “Subscription Agreement (US)”, and, respectively, “Subscription Agreement (non-US)”) pursuant to which the Company issued and sold to certain accredited investors, in the second tranche of the Private Placement, an aggregate 1,900 units (“Units”), each Unit representing (i) one $1,000 principal amount term note (each a “Convertible Term Note”) providing for an optional conversion into shares of Company common stock at a price of $0.20 per share and (ii) a common share warrant for the purchase of 5,000 shares of Company common stock at an exercise price of $0.40 per share (each a “Warrant”), for additional aggregate net proceeds of $1,900,000. During the nine months ended September 30, 2021, the Company received $4,900,000 of proceeds from the Private Placement.
On August 20, 2021, the Company entered into a $300,000 loan agreement, which accrues interest at 91.23% per annum. Payment is due on a weekly basis up to the maturity date of May 27, 2021. The loan had an outstanding balance of $286,441 as of September 30, 2021. The loan was fully repaid on October 19, 2021. See Note 17 for further detail regarding the loan repayment. |
Related Party Transactions |
9 Months Ended |
|---|---|
Sep. 30, 2021 | |
| Related Party Transactions [Abstract] | |
| Related Party Transactions | 13. Related Party Transactions
In conjunction with the CMI Transaction, the Company assumed a note payable in which the note holder, John Knapp (“Knapp”) is a significant shareholder in the Company. In the second quarter of 2021, the Company issued 2,500,000 shares to pay off the balance of the note. Effective February 25, 2020, Knapp resigned as a director of Cryomass Technologies, at which time 200,000 Restricted Stock Units were deemed to have vested and were converted into 200,000 common shares. Refer to Note 2 for additional details on the relationship of CMI as a VIE. The outstanding balance of the notes payable, related party was $0 and $458,599 as of September 30, 2021 and December 31, 2020, respectively.
In conjunction with the Cryocann Acquisition, the Company received a promissory note from Matt Armstrong, an employee of the Company, for $281,771. This note receivable was issued as part of an employment agreement with Matt Armstrong, effective June 22, 2021, and was offset against his signing bonus on October 15, 2021. There was no interest associated with the note.
On August 19, 2021, the Company entered into a loan agreement of $237,590 with its Chief Executive Officer, Christian Noel. The note accrues interest at 14% per annum and was repaid on October 22, 2021. |
Shareholders' Equity |
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| Stockholders' Equity Note [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shareholders' Equity | 14. Shareholders’ Equity
From June to August 2019, the Company completed a private placement for the sale of its common stock. The Company issued 14,325,005 shares of common stock for gross proceeds of $7,162,503, or $0.50 per share, minus equity issuance costs of $72,096.
In July 2019, the Company issued 13,553,233 shares of common stock in connection with the CMI Transaction (refer to Note 7).
During the year ended December 31, 2019, the Company issued 790,000 shares of common stock pursuant to advisory agreements. The fair value of $395,000 was included in legal and professional fees in the consolidated statements of operations.
In February 2020, the Company issued 400,000 shares of common stock pursuant to accelerated vesting of RSU’s upon the resignation of a former executive.
In February 2020, the Company issued 200,000 shares of common stock pursuant to accelerated vesting of RSU’s upon the resignation of a former board member.
In March 2020, the Company issued 1,175,549 shares of common stock to a former executive per a separation agreement.
In June 2020, four shareholders submitted 15,050,000 shares of common stock for cancellation pursuant to prior agreements among certain shareholders. Accordingly, the Company cancelled 15,050,000 shares of common stock.
In July 2020, the Company issued 10,000 shares of common stock to a former employee per a separation agreement.
In July 2020, one shareholder submitted 300,000 shares of common stock for cancellation pursuant to prior agreements. Accordingly, the Company cancelled 300,000 shares of common stock.
In August 2020, the Company issued 60,000 shares of common stock in order to raise capital.
In August 2020, the Company issued 757,895 shares of common stock to former board members per a separation agreement.
From October to December 2020, the Company issued 3,535,665 shares of common stock in order to raise capital.
From January to March 2021, the Company issued 1,491,819 shares of common stock in order to raise capital.
From April to June 2021, the Company issued 10,000,000 shares of common stock related to the CryoCann transaction, 6,903,172 shares of common stock pursuant to employment agreements, 2,500,000 shares of common stock in exchange for the extinguishment of debt, and 633,125 shares of common stock in exchange for services.
From July to September 2021, the Company issued 798,414 shares of common stock in order to raise capital, 633,707 shares of common stock in exchange for services, and 92,127 shares of common stock for interest payment on a note payable.
Restricted Stock Unit Awards
The Company adopted its 2019 Omnibus Stock Incentive Plan (the “2019 Plan”), which provides for the issuance of stock options, stock grants and RSUs to employees, directors and consultants. The primary purpose of the 2019 Plan is to enhance the ability to attract, motivate, and retain the services of qualified employees, officers and directors. Any RSUs granted under the 2019 Plan will be at the discretion of the Compensation Committee of the Board of Directors. In April 2021 Board of Directors cancelled the 2019 Plan.
A summary of the Company’s RSU award activity for the nine months ended September 30, 2021 is as follows:
The total fair value of RSUs vested during the three and nine months ending September 30, 2021 was $0 and $2,851,102, respectively. The total fair value of RSUs vested during the three and nine months ending September 30, 2020 was $144,000 and $536,810, respectively. As of September 30, 2021, there was $202,069 of unrecognized stock-based compensation cost related to non-vested RSU’s, which is expected to be recognized over the remaining vesting period.
Stock-based compensation expense relating to RSU’s was $68,328 and $1,410,173 for the three and nine months ending September 30, 2021, respectively. Stock-based compensation expense relating to RSU’s was $220,399 and $828,830 for the three and nine months ending September 30, 2020, respectively. Stock-based compensation for the three months ending September 30, 2021 consisted of equity awards forfeited, granted and vested to employees, directors and consultants of the Company in the amount of $(19,184), $71,259, and $16,253, respectively. Stock-based compensation for the nine months ending September 30, 2021 consisted of equity awards forfeited, granted and vested to employees, directors and consultants of the Company in the amount of $1,085,398, $276,016, and $48,759, respectively.
Expenses for stock-based compensation is included on the accompanying consolidated statements of operations in general and administrative expense. |
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Income Taxes |
9 Months Ended |
|---|---|
Sep. 30, 2021 | |
| Income Tax Disclosure [Abstract] | |
| Income Taxes | 15. Income Taxes
In accordance with ASC 740-270, the Company calculates the interim tax expense based on an annual effective tax rate (“AETR”). The AETR represents the Company’s estimated effective tax rate for the year based on full year projection of tax expense, divided by the projection of full year pretax book loss, adjusted for discrete transactions occurring during the period. The annual effective tax rate for the nine months ended September 30, 2021 was 0.0%,
As of September 30, 2021, the Company has recorded a total income tax liability in the amount of $14,926. The total income tax liability recorded is in relation to the discontinued operations of the company and available for sale assets. |
Commitments & Contingencies |
9 Months Ended |
|---|---|
Sep. 30, 2021 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| Commitments & Contingencies | 16. Commitments & Contingencies
Occasionally, the Company may be involved in claims and legal proceedings arising from the ordinary course of its business. The Company records a provision for a liability when it believes that it is both probable that a liability has been incurred, and the amount can be reasonably estimated. If these estimates and assumptions change or prove to be incorrect, it could have a material impact on the Company’s consolidated financial statements. Contingencies are inherently unpredictable, and the assessments of the value can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions.
Lease Commitments
The Company accounts for lease transactions in accordance with Topic 842, Leases (“ASC 842”), which requires an entity to recognize a right-of-use (“ROU”) asset and a lease liability for virtually all leases. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.
There are no other leases that meet the reporting standards of ASU Topic 842 as the Company does not have any other leases with a term exceeding twelve months. Other lease payments not accounted for under ASU Topic 842 total $16,190 and $46,706 for the three and nine months ended September 30, 2021, respectively. Other lease payments not accounted for under ASU Topic 842 total $19,584 and $55,471 for the three and nine months ended September 30, 2020, respectively.
An ROU asset of $1,411,461 was recognized upon the CMI Transaction. The present value of the liabilities decreased by $150,259 and 363,707 for the three and nine months ended September 30, 2021, respectively. The present value of the liabilities decreased by $123,530 and $344,762 for the three and nine months ended September 30, 2020, respectively. This balance is included in the operating section of the statement of cash flows for the nine months ended September 30, 2021 and 2020. Operating lease cost was approximately $169,326 and $495,360 for the three and nine months ended September 30, 2021, respectively. Operating lease cost was approximately $159,525 and $467,607 for the three and nine months ended September 30, 2020, respectively.
The Company does not have any leases that have not yet commenced which are significant.
Legal Proceedings
We know of no material, existing or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our company. |
Subsequent Events |
9 Months Ended |
|---|---|
Sep. 30, 2021 | |
| Subsequent Events [Abstract] | |
| Subsequent Events | 17. Subsequent Events
On October 10, 2021, the Company issued 62,500 shares of common stock at $0.35 per share. On October 25, 2021 the Company issued 543,000 and 270,000 shares of common stock at $0.50 and $0.52 per share, respectively. These issuances were in exchange for services.
From October 10, 2021 to October 26, 2021, convertible note holders converted their notes into 24,614,500 shares of common stock at $0.20 per share. These conversions were associated with the Initial Convertible Term Note and Convertible Term Note defined in Note 12.
Between October 14, 2021 and November 3, 2021, the Company issued 13,590,000 shares of common stock at $0.20 per share in order to raise capital.
On October 15, 2021, the Company fully repaid the promissory note that was issued for $1,252,316 payable by the Company to Cryocann as part of the Cryocann Acquisition.
On October 15, 2021, our related party note receivable of $281,771 was relieved through the signing bonus due to Matt Armstrong as part of his employment agreement.
On October 19, 2021, the Company fully repaid the remaining principal balance for the $286,441 note entered into on August 20, 2021.
On October 22, 2021, the Company fully repaid the related party note due to its Chief Executive Officer, Christian Noel. |
Accounting Policies, by Policy (Policies) |
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| Accounting Policies [Abstract] | |||||||||||||||||||
| Principles of Consolidation | Principles of Consolidation
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the Securities and Exchange Commission (“SEC”) for interim reporting. Accordingly, they do not include certain footnotes and financial presentations normally required under GAAP for complete financial statements. The consolidated financial statements include the accounts of Cryomass Technologies Inc., Cryomass Inc. and CMI, a VIE for which the Company is deemed to be the primary beneficiary. All significant intercompany balances and transactions have been eliminated in consolidation. The Company operates as one segment from its corporate headquarters in Colorado. The unaudited consolidated financial statements have been prepared on the same basis as the annual financial statements, with exception to the revision as described in Note 3 and reflect all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial position and the results of operations and cash flows. The results for the three and nine-month periods ended September 30, 2021 and 2020 are not necessarily indicative of the results to be expected for any subsequent period or the entire year ending December 31, 2021. These unaudited interim consolidated financial statements should be read in conjunction with the Company’s annual audited financial statements and notes thereto for the year ended December 31, 2020, included in the Company’s Form 10-K filed on March 30, 2021 with the SEC.
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| Use of Estimates | Use of Estimates
The preparation of the Company’s financial statements in conformity with GAAP 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 expenses during the reporting period. Significant estimates and assumptions reflected in these financial statements include, but are not limited to determining the fair value of the assets acquired and liabilities assumed in acquisition, determining the fair value and potential impairment of inventory, determining the useful lives and potential impairment of long-lived assets and potential impairment of goodwill. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.
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| Reclassifications | Reclassifications
Certain items in the interim consolidated financial statements were reclassified from prior periods for presentation purposes.
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| Variable Interest Entities | Variable Interest Entities
The Company accounts for variable interest entities in accordance with FASB ASC Topic 810, Consolidation. Management evaluates the relationship between the Company and VIEs and the economic benefit flow of the contractual arrangement with the VIEs. Management determines if the Company is the primary beneficiary of a VIE through a qualitative analysis that identifies which variable interest holder has the controlling financial interest in the VIE. The variable interest holder who has both of the following has the controlling financial interest and is the primary beneficiary: (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE. In performing our analysis, we consider all relevant facts and circumstances, including: the design and activities of the VIE, the terms of the contracts the VIE has entered into, the nature of the VIE’s variable interests issued and how they were negotiated with or marketed to potential investors, and which parties participated significantly in the design or redesign of the entity. As a result of such evaluation, management concluded that the Company is the primary beneficiary of CMI and consolidates the financial results of this entity.
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| Purchase Accounting for Acquisitions | Purchase Accounting for Acquisitions
We apply the acquisition method of accounting for a business combination. In general, this methodology requires us to record assets acquired and liabilities assumed at their respective fair values at the date of acquisition. Any amount of the purchase price paid that is in excess of the estimated fair value of the net assets acquired is recorded as goodwill. For certain acquisitions, we also record a liability for contingent consideration based on estimated future business performance. We monitor our assumptions surrounding these estimated future cash flows and, if there is a significant change, would record an adjustment to the contingent consideration liability and a corresponding adjustment to either income or expense. We determine fair value using widely accepted valuation techniques, primarily discounted cash flow and market multiple analyses. These types of analyses require us to make assumptions and estimates regarding industry and economic factors, the profitability of future business strategies, discount rates and cash flow.
If actual results are not consistent with our assumptions and estimates, or our assumptions and estimates change due to new information, we may be exposed to an impairment charge in the future. If the contingent consideration paid for any of our acquisitions differs from the amount initially recorded, we would record either income or expense associated with the change in liability.
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| Accounts Receivable, net | Accounts Receivable, net
Accounts receivable, net is comprised of balances due from customers and are recorded at the invoiced amount. Past due balances are determined based on the contractual terms of the arrangements. Accounts receiveable are accrued against when management determines, after considering economic and business conditions and all means of collection efforts have been exhausted and the potential for recovery is considered remote, that the collection of receivables is doubtful. Accounts receivable amounts, net of allowance for doubtful accounts, were $578,188 and $606,043 as of September 2021 and December 31, 2020, respectively. This includes $38,188 and $66,043, respectively, related to the VIE, which is classified as held for sale. Uncollectible accounts previously recorded as receivables are recognized as bad debt expense, with a corresponding decrease to accounts receivable. Bad debt expense was $2,415 and $954 for the three and nine months ended September 30, 2021, respectively. This amount includes $2,415 and $954, respectively, related to the VIE, which is classified as discontinued operations. Bad debt expense was $34,765 and $42,118 for the three and nine months ended September 30, 2020, respectively. This amount includes $(1,235) and $2,118, respectively, related to the VIE.
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| Inventory, net | Inventory, net
Inventory, net is comprised of work-in-process and finished goods consisting of cannabis and cannabidiol products. Cost includes expenditures directly related to the manufacturing process as well as suitable portions of related production overheads, based on normal operating capacity. Inventory, net is stated at the lower of cost or net realizable value. The Company compares the cost of inventory with market value and writes down inventories to net realizable value, if lower. In evaluating whether inventories are stated at lower of cost or net realizable value, management considers such factors as inventories on hand, physical deterioration, obsolescence, changes in price levels, estimated time to sell such inventories and current market conditions. Due to changing market conditions, management conducted a thorough review of its inventory. As a result, a provision for inventory loss of $0 and $400,787 was charged against cost of goods sold during the nine months ended September 30, 2021 and 2020, respectively, due to a write down of inventory to its net realizable value. This was based on the Company’s best estimates of product sales prices and customer demand patterns. It is at least reasonably possible that the estimates used by the Company to determine its provision for inventory losses will be materially different from the actual amounts or results. These differences could result in materially higher than expected inventory provisions, which could have a materially adverse effect on the Company’s results of operations and financial conditions in the near term.
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| Revenue Recognition | Revenue Recognition
Under FASB Topic 606, Revenue from Contacts with Customers (“ASC 606”), the Company recognizes revenue when the customer obtains control of promised goods or services, in an amount that reflects the consideration which is expected to be received in exchange for those goods or services. The Company recognizes revenue following the five-step model prescribed under ASC 606: (i) identify contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenues when (or as) the Company satisfies a performance obligation.
The Company’s revenue consists of sales of cannabis and ancillary products to both retail consumers and wholesale customers. Revenue for retail customers is recognized upon completion of the transaction in the point-of-sale system and satisfaction of the sale by providing the corresponding inventory at the retail location. Revenue for wholesale customers is recognized upon acceptance of the physical goods and confirmation by acceptance of the inventory in the regulatory marijuana enforcement tracking reporting compliance (“METRC”) system. Revenue is recognized upon transfer of control of promised products to customers, generally as risk of loss passes, in an amount that reflects the consideration the Company expects to receive in exchange for those products. Taxes collected from customers, which are subsequently remitted to governmental authorities, are excluded from revenue.
Retail customer loyalty liabilities are recognized in the period in which they are incurred and will often be retired without being utilized. Shipping and handling costs are expensed as incurred and are included in cost of sales, which were not material for the three and nine months ended September 30, 2021 and 2020.
The Company operates in a highly regulated environment in which state regulatory approval is required prior to the customer being able to purchase the product, either through the Colorado Marijuana Enforcement Division for wholesale clients or the Colorado Department of Public Health and Environment for medical patients.
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| Cost of Goods Sold, Net of Depreciation and Amortization | Cost of Goods Sold, Net of Depreciation and Amortization
Cost of goods sold primarily consisted of allocated salaries and wages of employees directly related with the production process, allocated depreciation and amortization directly related to the production process, cultivation supplies, rent and utilities.
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| Operating Expenses | Operating Expenses
Operating expenses encompass personnel costs, sales and marketing expenses, general and administrative expenses, professional and legal fees and depreciation and amortization related to the property and equipment and intangibles acquired through the acquisition of CMI. Personnel costs consist primarily of consulting expense and administrative salaries and wages. Sales and marketing expenses consist primarily of advertising and marketing, and salaries related to sales and marketing employees. General and administrative expenses are comprised of travel expenses, accounting expenses, and board fees. Professional services are principally comprised of outside legal and professional fees.
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| Other Expense, net | Other Expense, net
Other expense, net consisted of interest expense and gain on foreign exchange.
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| Stock-Based Compensation | Stock-Based Compensation
The fair value of restricted stock units (“RSUs”) granted are measured on the grant date using the closing price of the Company’s common shares on the grant date. The Company accounts for forfeitures as they occur, rather than estimating expected forfeitures over the course of a vesting period. All stock-based compensation costs are recorded in general and administrative expenses in the consolidated statements of operations.
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| Property and Equipment, net | Property and Equipment, net
Purchase of property and equipment are recorded at cost. Improvements and replacements of property and equipment are capitalized. Maintenance and repairs that do not improve or extend the lives of property and equipment are charged to expense as incurred. When assets are sold or retired, their cost and related accumulated depreciation are removed from the accounts and any gain or loss is reported in the consolidated statements of operations. Depreciation and amortization expense is recognized using the straight-line method over the estimated useful life of each asset, as follows:
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| Goodwill and Intangible Assets | Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price of an acquired entity over the fair value of identifiable tangible and intangible assets acquired and liabilities assumed in a business combination.
Indefinite-lived intangible assets established in connection with business combinations consist of trademarks, trade names and developed manufacturing processes. Intangible assets with indefinite lives are recorded at their estimated fair value at the date of acquisition.
Intangible assets with finite lives are recorded at their estimated fair value at the date of acquisition and are amortized over their estimated useful lives using the straight-line method. Amortization of assets ceases upon designation as held for sale. The estimated useful lives of intangible assets are detailed in the table below:
Intangible assets associated with in process research and development are indefinite lived until the research and development is finalized, at which point we will assess an estimated useful life.
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| Impairment of Goodwill and Intangible Assets | Impairment of Goodwill and Intangible Assets
Goodwill
Goodwill is not amortized, but instead is tested annually at December 31 for impairment and upon the occurrence of certain events or substantive changes in circumstances.
We account for the impairment of goodwill under the provisions of Financial Accounting Standards Board (FASB) Accounting Standard Update 2017-04 (“ASU 2017-04”), “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” and FASB Accounting Standards Codification (ASC) 350-20-35, Intangibles – Goodwill and Other - Goodwill.
The Company performs impairment testing for goodwill by performing the following steps: 1) evaluate the relevant events or circumstances to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, 2) if yes to step 1, calculate the fair value of the reporting unit and compare it with its carrying amount, including goodwill, 3) recognize impairment, limited to the total amount of goodwill allocated to that reporting unit, equal to the excess of the carrying value of a reporting unit over its fair value.
As of December 31, 2020, management concluded that the goodwill resulting from the CMI transaction (Note 7) was impaired. See Note 11.
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| Indefinite-Lived Intangible Assets | Indefinite-Lived Intangible Assets
Indefinite-lived intangible assets are not amortized, but instead are tested annually at December 31 for impairment and upon the occurrence of certain events or substantive changes in circumstances.
We account for the impairment of indefinite-lived intangible assets under the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 350-30-35, Intangibles – Goodwill and Other – General Intangibles Other Than Goodwill. Following this guidance, the Company compares the estimated fair value of the indefinite-lived intangible assets to its carrying value. If the carrying value exceeds the fair value, the Company recognizes impairment equal to that excess.
As of December 31, 2020, management concluded that indefinite-lived intangible assets were impaired. See Note 11.
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| Intangible Assets Subject to Amortization | Intangible Assets Subject to Amortization
Intangible assets subject to amortization are tested annually at December 31 for impairment and upon the occurrence of certain events or substantive changes in circumstances.
We account for the impairment of intangible assets subject to amortization under the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 360-10-35, Property, Plant, and Equipment. Following this guidance, the Company compares the estimated fair value of the intangible assets subject to amortization to its carrying value. If the carrying value exceeds the fair value, the Company recognizes impairment equal to that excess.
As of December 31, 2020, management concluded that intangible assets subject to amortization were impaired. See Note 11.
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| Contingencies | Contingencies
An initial right-of-use (“ROU”) asset and corresponding liability of $1,411,461 was recognized upon the CMI Transaction. The Company adopted ASU Topic 842 January 1, 2019, but had no reportable operating leases at that point in time.
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| Income Taxes | Income Taxes
The Company uses the liability method of accounting for income taxes as set forth in ASC 740, Income Taxes. Under the liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differences reverse. A valuation allowance is recorded when it is likely that the deferred tax assets will not be realized. We assess our income tax positions and record tax benefits for all years subject to examination based upon our evaluation of the facts, circumstances and information available at the reporting date. In accordance with ASC 740-10, for those tax positions where there is a greater than 50% likelihood that a tax benefit will be sustained, our policy will be to record the largest amount of tax benefit that is more likely than not to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where there is less than 50% likelihood that a tax benefit will be sustained, no tax benefit will be recognized in the financial statements.
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| Fair Value Measurements | Fair Value Measurements
Certain assets and liabilities of the Company are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
The carrying values reported in the consolidated balance sheets for cash, prepaid expenses, inventories, accounts payable, notes payable, and taxes payable approximate fair values because of the immediate or short-term maturities of these financial instruments. There were no other assets or liabilities that require fair value to be recalculated on a recurring basis.
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| Net Loss per Share | Net Loss per Share
The Company follows ASC 260, Earnings Per Share, which requires presentation of basic and diluted earnings per share (“EPS”) on the face of the income statement for all entities with complex capital structures. Net earnings or loss per share is computed by dividing net income or loss by the weighted-average number of common shares outstanding during the period, excluding shares subject to redemption or forfeiture. The Company presents basic and diluted net earnings or loss per share. Diluted net earnings or loss per share reflect the actual weighted average of common shares issued and outstanding during the period, adjusted for potentially dilutive securities outstanding. Potentially dilutive securities are excluded from the computation of the diluted net loss per share if their inclusion would be anti-dilutive. There were 2,185,000 unvested RSU’s considered potentially dilutive securities outstanding as of September 30, 2021 and 2,453,172 unvested RSU’s considered potentially dilutive securities outstanding as of December 31, 2020. Diluted net loss per share is the same as basic net loss per share for each period.
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| Assets and Liabilities of Discontinued Operations Held for Sale | Assets and Liabilities of Discontinued Operations Held for Sale
Assets and liabilities are classified as held for sale when all of the following criteria for a plan of sale have been met: (1) management, having the authority to approve the action, commits to a plan to sell the assets; (2) the assets are available for immediate sale, in their present condition, subject only to terms that are usual and customary for sales of such assets; (3) an active program to locate a buyer and other actions required to complete the plan to sell the assets have been initiated; (4) the sale of the assets is probable and is expected to be completed within one year; (5) the assets are being actively marketed for a price that is reasonable in relation to their current fair value; and (6) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or the plan will be withdrawn. When all of these criteria have been met, the assets (and liabilities) are classified as held for sale in the balance sheet. Assets classified as held for sale are reported at the lower of their carrying value or fair value less costs to sell. Depreciation of assets ceases upon designation as held for sale. See Note 8.
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| Recent Accounting Pronouncements | Recent Accounting Pronouncements
In August 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40). ASU 2020-06 reduces the number of accounting models for convertible debt instruments and convertible preferred stock. The accounting model for beneficial conversion features is removed. The ASU is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company determined that this update will impact its financial statements. |
Variable Interest Entity (Tables) |
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| Variable Interest Entity, Primary Beneficiary, Does Not Hold Majority Voting Interest, Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Variable Interest Entity |
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| Schedule of description of operating results of Variable Interest Entities |
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Revision of Prior Period Financial Statements (Tables) |
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Sep. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revision Of Prior Period Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of impact of these adjustments on consolidated financial statements |
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Summary of Significant Accounting Policies (Tables) |
9 Months Ended | ||||||||||||||||||
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Sep. 30, 2021 | |||||||||||||||||||
| Accounting Policies [Abstract] | |||||||||||||||||||
| Schedule of estimated useful life of property and equipment |
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| Schedule of estimated useful lives of intangible assets |
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Revenue Recognition (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue from Contract with Customer [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of disaggregated revenue |
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Business Combination (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Business Combination [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of purchase price |
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| Schedule of business combination description |
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Discontinued Operations (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Discontinued Operations and Disposal Groups [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of assets and liabilities related to these CMI discontinued operations |
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| Schedule of discontinued operations statements of operations |
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Inventory, Net (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||
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Sep. 30, 2021 | |||||||||||||||||||||||||||||||||||||
| Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||
| Schedule of inventory |
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Property and Equipment, Net (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of property and equipment, net |
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Goodwill and Intangible Assets (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of identifiable intangible assets |
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Shareholders' Equity (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stockholders' Equity Note [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of the company's RSU award activity |
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Variable Interest Entity (Details) - Schedule of Variable Interest Entity - VIE's [Member] - USD ($) |
Sep. 30, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Current assets | ||
| Cash and cash equivalents | $ 117,113 | $ 196,445 |
| Accounts receivable, net | 38,188 | 66,043 |
| Inventory, net | 1,311,197 | 791,868 |
| Total current assets | 1,466,498 | 1,054,356 |
| Total assets | 1,466,498 | 1,054,356 |
| Current liabilities | ||
| Accounts payable and accrued expenses | 252,882 | 211,463 |
| Total current liabilities | 252,882 | 211,463 |
| Total liabilities | 252,882 | 211,463 |
| Net assets | $ 1,213,616 | $ 842,893 |
Variable Interest Entity (Details) - Schedule of description of operating results of Variable Interest Entities - VIE's [Member] - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2021 |
Sep. 30, 2020 |
|
| Income Statement | ||||
| Net sales | $ 1,399,505 | $ 1,858,202 | $ 4,713,077 | $ 5,187,069 |
| Cost of goods sold, inclusive of depreciation | 857,281 | 1,354,626 | 2,982,974 | 3,982,677 |
| Gross profit | 542,224 | 503,576 | 1,730,103 | 1,204,392 |
| Operating expenses: | ||||
| Personnel costs | 71,085 | 104,021 | 335,182 | 286,788 |
| Sales and marketing | 186,190 | 224,382 | 621,765 | 699,080 |
| General and administrative | 29,307 | 54,904 | 82,144 | 186,614 |
| Legal and professional fees | 5,550 | 56,436 | 35,815 | 77,667 |
| Amortization expense | 8,967 | 26,901 | ||
| Total operating expenses | 292,132 | 448,710 | 1,074,906 | 1,277,050 |
| Gain / (loss) from operations | 250,092 | 54,866 | 655,197 | (72,658) |
| Other income (expenses): | ||||
| Interest expense | (25,858) | (49,803) | (126,083) | |
| Goodwill impairment | (4,663,514) | (4,663,514) | ||
| Total operating expenses | 292,132 | (4,689,372) | (49,803) | (4,789,597) |
| Net income from discontinued operations | $ 250,092 | $ (4,634,506) | $ 605,394 | $ (4,862,255) |
Revision of Prior Period Financial Statements (Details) - USD ($) |
1 Months Ended | |||
|---|---|---|---|---|
Dec. 31, 2019 |
Sep. 30, 2021 |
|||
| Non-controlling Interest Adjustment [Member] | ||||
| Revision of Prior Period Financial Statements (Details) [Line Items] | ||||
| Accounts receivable, net | [1] | $ 113,599 | ||
| Inventory, net | [1] | 768,633 | ||
| Accounts payable and accrued expenses | 337,386 | |||
| Decrease in goodwill | 1,192,234 | |||
| Increase in additional-paid-in capital | $ 647,458 | |||
| VIE's [Member] | ||||
| Revision of Prior Period Financial Statements (Details) [Line Items] | ||||
| Accounts receivable, net | $ 113,599 | |||
| Inventory, net | $ 768,633 | |||
| ||||
Going Concern Uncertainty, Financial Conditions and Management’s Plans (Details) |
9 Months Ended |
|---|---|
|
Sep. 30, 2021
USD ($)
| |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| Private placement amount | $ 9,954,000 |
| Debt amount | 4,900,000 |
| Management amount | $ 3,000,000 |
| Approximate amount | $3,000,000 |
| Cash for operating activities | $ 3,070,095 |
| Net loss | 5,645,288 |
| Accumulated deficit | $ 21,374,482 |
Summary of Significant Accounting Policies (Details) - USD ($) |
3 Months Ended | 9 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2021 |
Sep. 30, 2020 |
Dec. 31, 2020 |
|
| Summary of Significant Accounting Policies (Details) [Line Items] | |||||
| Allowance for doubtful accounts | $ 578,188 | $ 606,043 | |||
| Accounts receivable, net | $ 540,000 | 540,000 | $ 540,000 | ||
| Bad debt expense | 2,415 | $ 34,765 | 954 | $ 42,118 | |
| Provision for inventory loss | $ 0 | 400,787 | |||
| Income taxes, description | In accordance with ASC 740-10, for those tax positions where there is a greater than 50% likelihood that a tax benefit will be sustained, our policy will be to record the largest amount of tax benefit that is more likely than not to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where there is less than 50% likelihood that a tax benefit will be sustained, no tax benefit will be recognized in the financial statements. | ||||
| Unvested RSU’s considered potentially dilutive securities outstanding (in Shares) | 2,185,000 | 2,453,172 | |||
| CMI Transaction [Member] | |||||
| Summary of Significant Accounting Policies (Details) [Line Items] | |||||
| Right-of-use assets and corresponding liability | 1,411,461 | $ 1,411,461 | |||
| Variable Interest Entity, Primary Beneficiary [Member] | |||||
| Summary of Significant Accounting Policies (Details) [Line Items] | |||||
| Accounts receivable, net | 38,188 | 38,188 | $ 66,043 | ||
| Bad debt expense | $ 2,415 | $ (1,235) | $ 954 | $ 2,118 | |
Summary of Significant Accounting Policies (Details) - Schedule of estimated useful life of property and equipment |
9 Months Ended |
|---|---|
Sep. 30, 2021 | |
| Leasehold improvements [Member] | |
| Summary of Significant Accounting Policies (Details) - Schedule of estimated useful life of property and equipment [Line Items] | |
| Property, plant and equipment, useful life | 15 years |
| Minimum [Member] | Computer equipment [Member] | |
| Summary of Significant Accounting Policies (Details) - Schedule of estimated useful life of property and equipment [Line Items] | |
| Property, plant and equipment, useful life | 3 years |
| Minimum [Member] | Furniture and fixtures [Member] | |
| Summary of Significant Accounting Policies (Details) - Schedule of estimated useful life of property and equipment [Line Items] | |
| Property, plant and equipment, useful life | 5 years |
| Minimum [Member] | Machinery and equipment [Member] | |
| Summary of Significant Accounting Policies (Details) - Schedule of estimated useful life of property and equipment [Line Items] | |
| Property, plant and equipment, useful life | 5 years |
| Maximum [Member] | Computer equipment [Member] | |
| Summary of Significant Accounting Policies (Details) - Schedule of estimated useful life of property and equipment [Line Items] | |
| Property, plant and equipment, useful life | 5 years |
| Maximum [Member] | Furniture and fixtures [Member] | |
| Summary of Significant Accounting Policies (Details) - Schedule of estimated useful life of property and equipment [Line Items] | |
| Property, plant and equipment, useful life | 7 years |
| Maximum [Member] | Machinery and equipment [Member] | |
| Summary of Significant Accounting Policies (Details) - Schedule of estimated useful life of property and equipment [Line Items] | |
| Property, plant and equipment, useful life | 8 years |
Summary of Significant Accounting Policies (Details) - Schedule of estimated useful lives of intangible assets |
9 Months Ended |
|---|---|
Sep. 30, 2021 | |
| Customer relationships [Member] | |
| Finite-Lived Intangible Assets [Line Items] | |
| Estimated useful lives of intangible assets | 6 years |
| Trademark/trade name [Member] | |
| Finite-Lived Intangible Assets [Line Items] | |
| Estimated useful lives of intangible assets, description | Indefinite |
| Developed manufacturing process [Member] | |
| Finite-Lived Intangible Assets [Line Items] | |
| Estimated useful lives of intangible assets, description | Indefinite |
| In process research and development [Member] | |
| Finite-Lived Intangible Assets [Line Items] | |
| Estimated useful lives of intangible assets, description | Indefinite |
| Patent [Member] | |
| Finite-Lived Intangible Assets [Line Items] | |
| Estimated useful lives of intangible assets | 10 years |
Revenue Recognition (Details) - Schedule of disaggregated revenue - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2021 |
Sep. 30, 2020 |
|
| Disaggregation of Revenue [Line Items] | ||||
| Total revenues | $ 1,399,505 | $ 1,858,202 | $ 4,713,077 | $ 5,968,524 |
| Medical retail [Member] | ||||
| Disaggregation of Revenue [Line Items] | ||||
| Total revenues | 943,012 | 1,259,120 | 3,196,912 | 3,542,504 |
| Medical wholesale [Member] | ||||
| Disaggregation of Revenue [Line Items] | ||||
| Total revenues | 456,540 | 455,521 | 1,525,132 | 1,055,448 |
| Recreational wholesale [Member] | ||||
| Disaggregation of Revenue [Line Items] | ||||
| Total revenues | (47) | 143,561 | 8,963 | 1,367,831 |
| Other revenues [Member] | ||||
| Disaggregation of Revenue [Line Items] | ||||
| Total revenues | $ (17,930) | $ 2,741 | ||
Revenue Recognition (Details) - Schedule of disaggregated revenue (Parentheticals) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2021 |
Sep. 30, 2020 |
|
| Medical retail [Member] | ||||
| Disaggregation of Revenue [Line Items] | ||||
| Amounts related to VIE discontinued operations | $ 1,123,396 | $ 1,205,330 | $ 2,253,900 | $ 2,283,384 |
| Medical Wholesale [Member] | ||||
| Disaggregation of Revenue [Line Items] | ||||
| Amounts related to VIE discontinued operations | 512,282 | 336,776 | 1,068,592 | 599,927 |
| Recreational wholesale [Member] | ||||
| Disaggregation of Revenue [Line Items] | ||||
| Amounts related to VIE discontinued operations | 974,426 | 9,010 | 1,224,270 | |
| Other revenues [Member] | ||||
| Disaggregation of Revenue [Line Items] | ||||
| Amounts related to VIE discontinued operations | $ 18,031 | $ 0 | $ 17,930 | $ 2,741 |
Business Combination (Details) - USD ($) |
1 Months Ended | |||
|---|---|---|---|---|
Oct. 15, 2021 |
Jul. 15, 2019 |
Jun. 23, 2021 |
Apr. 23, 2021 |
|
| Business Combination (Details) [Line Items] | ||||
| Cash paid | $ 1,999,770 | |||
| Acquired assets | $ 1,000,000 | |||
| Shares of common stock (in Shares) | 10,000,000 | |||
| Cryocann [Member] | ||||
| Business Combination (Details) [Line Items] | ||||
| Acquired assets | $ 3,500,000,000,000 | |||
| Shares of common stock (in Shares) | 10,000,000 | |||
| Promissory note issued | $ 1,252,316 | |||
| Purchase amount | $ 2,500,000 | |||
| CMI Transaction [Member] | ||||
| Business Combination (Details) [Line Items] | ||||
| Number of common stock issued (in Shares) | 13,553,233 |
Business Combination (Details) - Schedule of purchase price |
9 Months Ended |
|---|---|
|
Sep. 30, 2021
USD ($)
| |
| CMI Transaction [Member] | |
| Business Combination (Details) - Schedule of purchase price [Line Items] | |
| Cash | $ 1,999,770 |
| Common stock | 6,776,617 |
| Total purchase price | 8,776,387 |
| Cryocann Acquisition [Member] | |
| Business Combination (Details) - Schedule of purchase price [Line Items] | |
| Cash | 2,247,684 |
| Common stock | 1,804,500 |
| Promissory Note | 1,220,079 |
| Total purchase price | $ 5,272,263 |
Business Combination (Details) - Schedule of business combination description |
9 Months Ended |
|---|---|
|
Sep. 30, 2021
USD ($)
| |
| CMI Transaction [Member] | |
| Assets acquired: | |
| Cash | $ 136,654 |
| Other current assets | 74 |
| Property and equipment, net | 1,985,738 |
| Intangible assets: | |
| Customer relationships | $ 215,900 |
| Customer relationships weighted average useful life | 6 years |
| Trademark/trade name | $ 1,340,000 |
| Trademark/trade name weighted average useful life, description | Indefinite |
| Developed manufacturing process | $ 1,330,000 |
| Developed manufacturing process weighted average useful life, description | Indefinite |
| Goodwill | $ 4,663,514 |
| Right of use asset | 1,411,461 |
| Deposits | 12,348 |
| Total assets acquired | 11,095,689 |
| Liabilities assumed: | |
| Notes payable | 147,268 |
| Notes payable, related parties | 760,573 |
| Right of use liability | 1,411,461 |
| Total liabilities assumed | 2,319,302 |
| Estimated fair value of net assets acquired | 8,776,387 |
| Cryocann Acquisition [Member] | |
| Intangible assets: | |
| Goodwill | 1,190,000 |
| Total assets acquired | 5,272,263 |
| Liabilities assumed: | |
| In process research and development | $ 3,209,000 |
| In process research and development weighted average useful life, description | Indefinite |
| Patent | $ 873,263 |
| Patent weighted average useful life, description | 10 |
Discontinued Operations (Details) - Schedule of assets and liabilities related to these CMI discontinued operations - CMI Transaction [Member] - USD ($) |
Sep. 30, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Assets | ||
| Accounts receivable, net | $ 38,188 | $ 66,043 |
| Prepaid expenses | 11,696 | 7,601 |
| Inventory, net | 1,311,197 | 791,868 |
| Property and equipment, net | 2,995,332 | 2,714,771 |
| Intangible assets, net | 2,481,128 | 2,481,128 |
| Security deposits | 11,522 | 11,522 |
| Right of use asset, net | 464,735 | 794,907 |
| Total current assets held for sale | 7,313,798 | 6,867,840 |
| Total assets held for sale | 7,313,798 | 6,867,840 |
| Liabilities | ||
| Accounts payable and accrued expenses | 252,882 | 211,463 |
| Taxes payable | 16,331 | 22,645 |
| Notes payable, related parties | 458,599 | |
| Right of use liability | 407,871 | 771,578 |
| Total liabilities held for sale | 677,084 | 1,464,285 |
| Net assets | $ 6,636,714 | $ 5,403,555 |
Discontinued Operations (Details) - Schedule of discontinued operations statements of operations - CMI Transaction [Member] - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2021 |
Sep. 30, 2020 |
|
| Discontinued Operations (Details) - Schedule of discontinued operations statements of operations [Line Items] | ||||
| Net sales | $ 1,399,505 | $ 1,858,202 | $ 4,713,077 | $ 5,187,069 |
| Cost of goods sold, inclusive of depreciation | 857,281 | 1,354,626 | 2,982,974 | 3,982,677 |
| Gross profit | 542,224 | 503,576 | 1,730,103 | 1,204,392 |
| Operating expenses: | ||||
| Personnel costs | 71,085 | 104,021 | 335,182 | 286,788 |
| Sales and marketing | 186,190 | 224,382 | 621,765 | 699,080 |
| General and administrative | 29,307 | 54,904 | 82,144 | 186,614 |
| Legal and professional fees | 5,550 | 56,436 | 35,815 | 77,667 |
| Amortization expense | 8,967 | 26,901 | ||
| Total operating expenses | 292,132 | 448,710 | 1,074,906 | 1,277,050 |
| Gain / (loss) from operations | 250,092 | 54,866 | 655,197 | (72,658) |
| Other income (expenses): | ||||
| Interest expense | (25,858) | (49,803) | (126,083) | |
| Goodwill impairment | (4,663,514) | (4,663,514) | ||
| Total other expenses | (4,689,372) | (49,803) | (4,789,597) | |
| Net gain / (loss) from discontinued operations, before taxes | 250,092 | (4,634,506) | 605,394 | (4,862,255) |
| Income taxes | ||||
| Net loss from discontinued operations | $ 250,092 | $ (4,634,506) | $ 605,394 | $ (4,862,255) |
Inventory, Net (Details) - Schedule of inventory - USD ($) |
Sep. 30, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Schedule of inventory [Abstract] | ||
| Finished goods (amounts related to VIE discontinued operations of $1,003,985 and $431,466) | $ 1,003,985 | $ 431,466 |
| Work-in-process inventory grow (amounts related to VIE discontinued operations of $307,212 and $360,402) | 307,212 | 360,402 |
| Total inventory | $ 1,311,197 | $ 791,868 |
Inventory, Net (Details) - Schedule of inventory (Parentheticals) - USD ($) |
Sep. 30, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Schedule of inventory [Abstract] | ||
| Finished goods discontinued operations | $ 1,003,985 | $ 431,466 |
| Work-in-process discontinued operations | $ 307,212 | $ 360,402 |
Property and Equipment, Net (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2021 |
Sep. 30, 2020 |
|
| Property, Plant and Equipment [Abstract] | ||||
| Property and equipment | $ 135,000 | |||
| Depreciation expense | $ 0 | $ 0 | $ 0 | $ 131,110 |
Property and Equipment, Net (Details) - Schedule of property and equipment, net - USD ($) |
Sep. 30, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | $ 4,523,157 | $ 4,107,596 |
| Less: Accumulated depreciation | (1,392,825) | (1,392,825) |
| Property and equipment, net | 3,130,332 | 2,714,771 |
| Leasehold improvements [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | 2,770,385 | 2,770,385 |
| Machinery and equipment [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | 1,207,443 | 1,065,885 |
| Furniture and fixtures [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | 43,331 | 43,331 |
| Construction in Progress [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | $ 501,998 | $ 227,995 |
Goodwill and Intangible Assets (Details) - USD ($) |
3 Months Ended | 9 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2021 |
Sep. 30, 2020 |
Dec. 31, 2020 |
|
| Goodwill and Intangible Assets Disclosure [Abstract] | |||||
| Impairment loss, description | the Company recorded an impairment loss of $4,663,514 related to goodwill in accordance with ASC 350-20-35, Intangibles – Goodwill and Other - Goodwill. Additionally, in 2020, the Company recorded an impairment loss of $334,195 related to indefinite-lived intangible assets in accordance with ASC 350-30-35 Intangibles – Goodwill and Other – General Intangibles Other Than Goodwill and an impairment loss of $27,023 related to intangible assets subject to amortization in accordance with ASC 360-10-35, Property, Plant, and Equipment. The fair value of CMI was the expected sales price, which management determined based on offers received and sales negotiations. | ||||
| Carrying value of goodwill | $ 1,190,000 | $ 0 | |||
| Amortization expense including discontinued operations | $ 21,832 | $ 8,967 | 21,832 | $ 26,901 | |
| Amortization expense | $ 8,967 | $ 26,901 | |||
Goodwill and Intangible Assets (Details) - Schedule of identifiable intangible assets - USD ($) |
9 Months Ended | 12 Months Ended |
|---|---|---|
Sep. 30, 2021 |
Dec. 31, 2020 |
|
| Amortized | ||
| Amortized intangible assets, Carrying Value | $ 4,060,431 | |
| Indefinite-lived | ||
| Indefinite-lived Intangible assets, Gross Amount | 2,885,900 | |
| Indefinite-lived Intangible assets, Accumulated Amortization | (43,554) | |
| Indefinite-lived intangible assets, Impairment | (361,218) | |
| Indefinite-lived intangible assets, Carrying Value | $ 2,481,128 | |
| Customer relationships [Member] | ||
| Amortized | ||
| Amortized intangible assets, Estimated Useful Life (Years) | 6 years | 6 years |
| Amortized intangible assets, Gross Amount | $ 215,900 | $ 215,900 |
| Amortized intangible assets, Accumulated Amortization | (43,554) | (43,554) |
| Amortized intangible assets, Impairment | (27,023) | (27,023) |
| Amortized intangible assets, Carrying Value | $ 145,323 | 145,323 |
| Patent [Member] | ||
| Amortized | ||
| Amortized intangible assets, Estimated Useful Life (Years) | 10 years | |
| Amortized intangible assets, Gross Amount | $ 873,263 | |
| Amortized intangible assets, Accumulated Amortization | (21,832) | |
| Amortized intangible assets, Impairment | ||
| Amortized intangible assets, Carrying Value | 851,431 | |
| Total amortized [Member] | ||
| Amortized | ||
| Amortized intangible assets, Gross Amount | 1,089,163 | 215,900 |
| Amortized intangible assets, Accumulated Amortization | (65,386) | (43,554) |
| Amortized intangible assets, Impairment | (27,023) | (27,023) |
| Amortized intangible assets, Carrying Value | $ 996,754 | $ 145,323 |
| In-process research and development [Member] | ||
| Indefinite-lived | ||
| Indefinite-lived intangible assets, Estimated Useful Life (Years) | Indefinite | |
| Indefinite-lived Intangible assets, Gross Amount | $ 3,209,000 | |
| Indefinite-lived Intangible assets, Accumulated Amortization | ||
| Indefinite-lived intangible assets, Impairment | ||
| Indefinite-lived intangible assets, Carrying Value | $ 3,209,000 | |
| Trademark/trade name [Member] | ||
| Indefinite-lived | ||
| Indefinite-lived intangible assets, Estimated Useful Life (Years) | Indefinite | Indefinite |
| Indefinite-lived Intangible assets, Gross Amount | $ 1,340,000 | $ 1,340,000 |
| Indefinite-lived Intangible assets, Accumulated Amortization | ||
| Indefinite-lived intangible assets, Impairment | (167,723) | (167,723) |
| Indefinite-lived intangible assets, Carrying Value | $ 1,172,277 | $ 1,172,277 |
| Developed manufacturing process [Member] | ||
| Indefinite-lived | ||
| Indefinite-lived intangible assets, Estimated Useful Life (Years) | Indefinite | Indefinite |
| Indefinite-lived Intangible assets, Gross Amount | $ 1,330,000 | $ 1,330,000 |
| Indefinite-lived Intangible assets, Accumulated Amortization | ||
| Indefinite-lived intangible assets, Impairment | (166,472) | (166,472) |
| Indefinite-lived intangible assets, Carrying Value | 1,163,528 | 1,163,528 |
| Total indefinite-lived [Member] | ||
| Indefinite-lived | ||
| Indefinite-lived Intangible assets, Gross Amount | 5,879,000 | 2,670,000 |
| Indefinite-lived Intangible assets, Accumulated Amortization | ||
| Indefinite-lived intangible assets, Impairment | (334,195) | (334,195) |
| Indefinite-lived intangible assets, Carrying Value | 5,544,805 | $ 2,335,805 |
| Total identifiable intangible assets [Member] | ||
| Indefinite-lived | ||
| Indefinite-lived Intangible assets, Gross Amount | 6,968,163 | |
| Indefinite-lived Intangible assets, Accumulated Amortization | (65,386) | |
| Indefinite-lived intangible assets, Impairment | (361,218) | |
| Indefinite-lived intangible assets, Carrying Value | $ 6,541,559 |
Debt (Details) - USD ($) |
1 Months Ended | 2 Months Ended | 3 Months Ended | 9 Months Ended | 12 Months Ended | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Aug. 20, 2021 |
Aug. 19, 2021 |
Mar. 18, 2021 |
Jan. 25, 2021 |
Jul. 27, 2020 |
Jul. 06, 2021 |
Jul. 06, 2021 |
Jun. 30, 2021 |
Sep. 30, 2021 |
Dec. 31, 2020 |
Aug. 01, 2022 |
Sep. 30, 2020 |
Aug. 26, 2020 |
|
| Debt (Details) [Line Items] | |||||||||||||
| Net carrying amount | $ 145,833 | $ 52,083 | |||||||||||
| Convertible note | 250,000 | 250,000 | |||||||||||
| Unamortized debt discount | $ 104,167 | 197,917 | |||||||||||
| Warrants exercisable (in Shares) | 2,500,000 | ||||||||||||
| Common stock exercise price per share (in Dollars per share) | $ 0.4 | $ 0.4 | $ 0.25 | ||||||||||
| Accrued interest per annum | 15.00% | ||||||||||||
| Refinanced loan percentage | 93.60% | ||||||||||||
| Maturity date | May 07, 2021 | ||||||||||||
| Loan balance | $ 412,560 | ||||||||||||
| Note payable | $ 225,000 | $ 250,000 | |||||||||||
| Aggregate units (in Shares) | 6,903,172 | ||||||||||||
| Principal amount | $ 1,000 | $ 1,000 | |||||||||||
| Common stock price per share (in Dollars per share) | $ 0.2 | $ 0.2 | |||||||||||
| Warrant for purchase shares (in Shares) | 5,000 | 5,000 | |||||||||||
| Net proceeds | $ 3,000,000 | ||||||||||||
| Proceeds from private placement | $ 4,900,000 | ||||||||||||
| Loan agreement | $ 300,000 | $ 237,590 | |||||||||||
| Interest | $ 0.9123 | ||||||||||||
| Repayment loan | $ 286,441 | ||||||||||||
| Convertible Debt [Member] | |||||||||||||
| Debt (Details) [Line Items] | |||||||||||||
| Conversion price (in Dollars per share) | $ 0.2 | $ 0.2 | |||||||||||
| Common stock exercise price per share (in Dollars per share) | $ 0.4 | $ 0.4 | |||||||||||
| Aggregate units (in Shares) | 1,900,000 | ||||||||||||
| Principal amount | $ 1,000 | $ 1,000 | |||||||||||
| Warrant for purchase shares (in Shares) | 5,000 | 5,000 | |||||||||||
| Private Placement [Member] | |||||||||||||
| Debt (Details) [Line Items] | |||||||||||||
| Aggregate units (in Shares) | 1,900 | 3,000 | |||||||||||
| Subscription Agreement [Member] | |||||||||||||
| Debt (Details) [Line Items] | |||||||||||||
| Convertible note face value | $ 250,000 | ||||||||||||
| Interest per annum | 8.00% | ||||||||||||
| Convertible into shares (in Shares) | 2,500,000 | ||||||||||||
| Conversion price (in Dollars per share) | $ 0.1 | ||||||||||||
| Loan Agreement [Member] | |||||||||||||
| Debt (Details) [Line Items] | |||||||||||||
| Convertible note face value | $ 600,000 | ||||||||||||
| Accrued interest per annum | 84.00% | ||||||||||||
| Maturity date | Apr. 27, 2021 | ||||||||||||
Related Party Transactions (Details) - USD ($) |
1 Months Ended | 6 Months Ended | 12 Months Ended | ||||
|---|---|---|---|---|---|---|---|
Oct. 22, 2021 |
Aug. 20, 2021 |
Aug. 19, 2021 |
Feb. 25, 2020 |
Jun. 30, 2021 |
Dec. 31, 2020 |
Sep. 30, 2021 |
|
| Related Party Transactions (Details) [Line Items] | |||||||
| Shares issued (in Shares) | 2,500,000 | ||||||
| Notes payable, related party | $ 0 | $ 458,599 | |||||
| Note receivable issued | $ 281,771 | ||||||
| loan agreement | $ 300,000 | $ 237,590 | |||||
| Note interest | 14.00% | ||||||
| Restricted Stock Units [Member] | |||||||
| Related Party Transactions (Details) [Line Items] | |||||||
| Vested shares (in Shares) | 200,000 | ||||||
| Converted into common shares (in Shares) | 200,000 | ||||||
Shareholders' Equity (Details) - USD ($) |
1 Months Ended | 3 Months Ended | 9 Months Ended | 12 Months Ended | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Aug. 31, 2020 |
Jul. 31, 2020 |
Jun. 30, 2020 |
Mar. 31, 2020 |
Feb. 29, 2020 |
Aug. 31, 2019 |
Jul. 31, 2019 |
Sep. 30, 2021 |
Jul. 06, 2021 |
Jun. 30, 2021 |
Mar. 31, 2021 |
Dec. 31, 2020 |
Sep. 30, 2020 |
Sep. 30, 2021 |
Sep. 30, 2020 |
Dec. 31, 2019 |
|
| Shareholders' Equity (Details) [Line Items] | ||||||||||||||||
| Issuance of common stock shares | 790,000 | |||||||||||||||
| Gross proceeds (in Dollars) | $ 3,000,000 | |||||||||||||||
| Price per share (in Dollars per share) | $ 0.2 | |||||||||||||||
| issuance costs (in Dollars) | $ 72,096 | |||||||||||||||
| Professional fees (in Dollars) | $ 395,000 | |||||||||||||||
| Issuance of common stock shares | 10,000,000 | |||||||||||||||
| Transaction shares | 6,903,172 | |||||||||||||||
| Agreements shares | 2,500,000 | |||||||||||||||
| Share exchange for services | 633,125 | |||||||||||||||
| Common stock shares | 798,414 | |||||||||||||||
| Raising capital | 633,707 | |||||||||||||||
| Interest rate | 92,127 | |||||||||||||||
| Fair value of RSU’s vested (in Dollars) | $ 0 | $ 144,000 | $ 2,851,102 | $ 536,810 | ||||||||||||
| Unrecognized stock based compensation costs (in Dollars) | 202,069 | 202,069 | ||||||||||||||
| Stock-based compensation expense (in Dollars) | 68,328 | $ 220,399 | 1,410,173 | $ 828,830 | ||||||||||||
| Common Stock [Member] | ||||||||||||||||
| Shareholders' Equity (Details) [Line Items] | ||||||||||||||||
| Issuance of common stock shares | 14,325,005 | 13,553,233 | 10,000,000 | |||||||||||||
| Gross proceeds (in Dollars) | $ 7,162,503 | |||||||||||||||
| Price per share (in Dollars per share) | $ 0.5 | |||||||||||||||
| Executive [Member] | ||||||||||||||||
| Shareholders' Equity (Details) [Line Items] | ||||||||||||||||
| Issuance of common stock shares | 1,175,549 | 400,000 | ||||||||||||||
| Board [Member] | ||||||||||||||||
| Shareholders' Equity (Details) [Line Items] | ||||||||||||||||
| Issuance of common stock shares | 757,895 | 200,000 | ||||||||||||||
| Shareholders [Member] | ||||||||||||||||
| Shareholders' Equity (Details) [Line Items] | ||||||||||||||||
| Issuance of common stock shares | 15,050,000 | |||||||||||||||
| Shares of common stock cancelled | 15,050,000 | |||||||||||||||
| Employees [Member] | ||||||||||||||||
| Shareholders' Equity (Details) [Line Items] | ||||||||||||||||
| Issuance of common stock shares | 10,000 | |||||||||||||||
| Stock-based compensation consisted of equity awards granted and vested (in Dollars) | (19,184) | 1,085,398 | ||||||||||||||
| Shareholder [Member] | ||||||||||||||||
| Shareholders' Equity (Details) [Line Items] | ||||||||||||||||
| Issuance of common stock shares | 300,000 | |||||||||||||||
| Shares of common stock cancelled | 300,000 | |||||||||||||||
| Raise capital [Member] | ||||||||||||||||
| Shareholders' Equity (Details) [Line Items] | ||||||||||||||||
| Issuance of common stock shares | 60,000 | 1,491,819 | 3,535,665 | |||||||||||||
| Directors [Member] | ||||||||||||||||
| Shareholders' Equity (Details) [Line Items] | ||||||||||||||||
| Stock-based compensation consisted of equity awards granted and vested (in Dollars) | 71,259 | 276,016 | ||||||||||||||
| Consultants [Member] | ||||||||||||||||
| Shareholders' Equity (Details) [Line Items] | ||||||||||||||||
| Stock-based compensation consisted of equity awards granted and vested (in Dollars) | $ 16,253 | $ 48,759 | ||||||||||||||
Shareholders' Equity (Details) - Schedule of the company's RSU award activity - $ / shares |
1 Months Ended | 3 Months Ended | ||
|---|---|---|---|---|
Jul. 25, 2021 |
Sep. 30, 2021 |
Jun. 30, 2021 |
Mar. 30, 2021 |
|
| Schedule of the company's RSU award activity [Abstract] | ||||
| Restricted Stock Units, Outstanding beginning balance | 2,185,003 | 2,185,003 | 2,050,003 | 2,453,175 |
| Weighted Average Grant Date Fair Value, Outstanding beginning balance | $ 0.45 | $ 0.45 | $ 0.46 | $ 0.42 |
| Restricted Stock Units, Granted | 6,135,000 | 500,000 | ||
| Weighted Average Grant Date Fair Value, Granted | $ 0.15 | $ 0.14 | ||
| Restricted Stock Units, Vested | (543,000) | (6,000,000) | (903,172) | |
| Weighted Average Grant Date Fair Value, Vested | $ 0.15 | $ 0.16 | ||
| Restricted Stock Units, Forfeited | ||||
| Weighted Average Grant Date Fair Value, Forfeited | ||||
| Restricted Stock Units, Outstanding ending balance | 2,185,003 | 2,185,003 | ||
| Weighted Average Grant Date Fair Value, Outstanding ending balance | $ 0.45 | $ 0.45 | ||
Income Taxes (Details) |
9 Months Ended |
|---|---|
|
Sep. 30, 2021
USD ($)
| |
| Income Tax Disclosure [Abstract] | |
| Annual effective tax rates | 0.00% |
| Income tax liability | $ 14,926 |
Commitments & Contingencies (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2021 |
Sep. 30, 2020 |
|
| Commitments & Contingencies (Details) [Line Items] | ||||
| Other lease term | 12 months | |||
| Lease payments | $ 16,190 | $ 19,584 | $ 46,706 | $ 55,471 |
| Present value of liabilities | 150,259 | 123,530 | 363,707 | 344,762 |
| Operating lease cost | 169,326 | $ 159,525 | 495,360 | $ 467,607 |
| CMI Transaction [Member] | ||||
| Commitments & Contingencies (Details) [Line Items] | ||||
| Right of use asset, net | $ 1,411,461 | $ 1,411,461 | ||
Subsequent Events (Details) - USD ($) |
1 Months Ended | 3 Months Ended | 9 Months Ended | 12 Months Ended | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
Oct. 15, 2021 |
Oct. 10, 2021 |
Nov. 03, 2021 |
Oct. 26, 2021 |
Oct. 25, 2021 |
Aug. 20, 2021 |
Jul. 25, 2021 |
Sep. 30, 2021 |
Jun. 30, 2021 |
Mar. 30, 2021 |
Sep. 30, 2021 |
Dec. 31, 2019 |
|
| Subsequent Events (Details) [Line Items] | ||||||||||||
| Private placement of convertible term notes | $ 4,900,000 | |||||||||||
| Shares purchased | 543,000 | 6,000,000 | 903,172 | |||||||||
| Exercise price | $ 270,000 | |||||||||||
| Common stock issued | 790,000 | |||||||||||
| Repaid principal balance | $ 286,441 | |||||||||||
| Subsequent Event [Member] | ||||||||||||
| Subsequent Events (Details) [Line Items] | ||||||||||||
| Gross proceeds | $ 62,500 | |||||||||||
| Private placement of convertible term notes | $ 0.35 | |||||||||||
| Common stock per value | $ 0.2 | |||||||||||
| Converted notes | 24,614,500 | |||||||||||
| Common stock issued | 13,590,000 | |||||||||||
| Per share | $ 0.2 | |||||||||||
| Related-party note receivable | $ 281,771 | |||||||||||
| Cryocann Acquisition [Member] | Subsequent Event [Member] | ||||||||||||
| Subsequent Events (Details) [Line Items] | ||||||||||||
| Repaid promissory note | $ 1,252,316 | |||||||||||
| Minimum [Member] | Subsequent Event [Member] | ||||||||||||
| Subsequent Events (Details) [Line Items] | ||||||||||||
| Common stock per value | $ 0.5 | |||||||||||
| Maximum [Member] | Subsequent Event [Member] | ||||||||||||
| Subsequent Events (Details) [Line Items] | ||||||||||||
| Common stock per value | $ 0.52 | |||||||||||
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