Notes to the Condensed Consolidated Financial Statements
For the three months ended February 29, 2016 and February 28, 2015
(unaudited)
1.
Organization and Nature of Operations
Gala Global Inc. (the Company) was incorporated in the State of Nevada on March 10, 2010. The Company was formed to provide garment tailoring and alteration services.
On May 19, 2014, a change in control of the Company occurred when IDG Ventures Ltd. sold all of its 3,547,000 common shares, representing 60.04% of our issued and outstanding common shares, in a private share purchase transaction to Messrs Haas, Lefevre and Naccarato.
On June 26, 2014, the Company had a change in management when Mr. Robert Frei resigned as President and Director of the Company and Mr. Lefevre was appointed as his successor. Concurrent with the change of management, the Company acquired two 100% owned subsidiary companies, Cannabis Ventures Inc (USA), incorporated on February 27, 2014 in the state of Nevada and Cannabis Ventures Inc. (Canada), incorporated on April 9, 2014 in Vancouver, British Columbia. Neither of these subsidiary companies had traded prior to their acquisition by the Company other than as described below.
The Company, since its change in management effective June 26, 2014, has expanded into the Hemp and Cannabidiol (CBD) industry. The expansion is focusing on the development, research, and commercialization of products derived from the Hemp and Cannabis plant. The Company currently is finalizing its marketing strategy for a new CBD flavored thin-film strip. The film strip delivery system uses a dissolving film strip that is absorbed in the mouth. The film-strip method is an advanced method of providing CBD for dietary supplement. The Company also is seeking acquisition candidates in this area of interest in the nutraceutical and pharmaceutical industries. The Company also plans to enter into the medical marijuana cultivation industry as approved in the United States and Canada to build legalized cultivation operations.
The Companys services include the development of cannabinoid based health and wellness products; the development of medical grade compounds; the licensing of proprietary testing, genetics, labeling and packaging, tracking, production, and standardization methods for the medicinal herb industry.
Going Concern
These consolidated financial statements have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities in the normal course of business. As at February 29, 2016, the Company has a working capital deficit of $323,125 and an accumulated deficit of $1,111,730. The continuation of the Company as a going concern is dependent upon the continued financial support from its management, and its ability to identify future investment opportunities and obtain the necessary debt or equity financing, and generating profitable operations from the Companys future operations. These factors raise substantial doubt regarding the Companys ability to continue as a going concern. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
2.
Summary of Significant Accounting Policies
a)
Basis of Presentation
The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (US GAAP) and are expressed in U.S. dollars. The Companys fiscal year end is November 30.
b)
Principles of Consolidation
These consolidated financial statements include the accounts of the Company and its three wholly owned subsidiaries, Cannabis Ventures Inc. (USA), Cannabis Ventures Inc. (Canada), CBD Life, Inc, from the date of their acquisition by the Company effective June 26, 2014. All inter-company transactions and balances have been eliminated on consolidation.
2.
Summary of Significant Accounting Policies
(continued)
c)
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the recoverability of long-lived assets and investments, and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Companys estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
d)
Interim Financial Statements
The accompanying unaudited financial statements of the Company have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In managements opinion the financial statements include all adjustments (consisting of normal recurring accruals) necessary in order to make the financial statements not misleading. Operating results for the three months ended February 29, 2016 are not necessarily indicative of the results that may be expected for the year ended November 30, 2016. For more complete financial information, these unaudited financial statements should be read in conjunction with the audited financial statements for the year ended November 30, 2015 included in our Form 10-K filed with the SEC.
e)
Inventory
Inventory is comprised of Vape Mods purchased for resale, and is recorded at the lower of cost or net realizable value on a first-in first-out basis. The Company establishes inventory reserves for estimated obsolete or unsaleable inventory equal to the difference between the cost of inventory and the estimated realizable value based upon assumptions about future market conditions.
f)
Cash and Cash Equivalents
The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents. As of February 28, 2016 and November 30, 2015, there were no cash equivalents.
g)
Financial Instruments
Companys financial instruments consist principally of cash, accounts payable and accrued liabilities, loans payable to related parties, loan payable, and amounts due to related party. The recorded values of all these financial instruments approximate their current fair values because of the short term nature of these financial instruments.
h)
Income Taxes
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740,
Accounting for Income Taxes
. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
i)
Revenue Recognition
The Company earns revenue from the sale of Vape Mods, which are modified electronic cigarettes and vape pens. Revenue will be recognized only when the price is fixed and determinable, persuasive evidence of an arrangement exists, the service has been provided, and collectability is assured. The Company is not exposed to any credit risks as amounts are prepaid prior to performance of services.
j)
Stock-based Compensation
The Company records stock-based compensation in accordance with ASC 718,
Compensation Stock Compensation
using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued.
k)
Basic and Diluted Net Loss per Share
The Company computes net income (loss) per share in accordance with ASC 260,
Earnings per Share
. ASC 260 requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. No potentially dilutive debt or equity instruments were issued and outstanding during the three months ended February 28, 2016 and 2015.
l)
Recent Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
3.
Related Party Transactions
a)
During the three months ended February 29, 2016, the Company issued 625,000 shares of common stock with a fair value of $10,625 to the Chief Executive Officer of the Company for services as a director of the Company. The Company incurred consulting services of $6,458 during the quarter ended February 29, 2016. As at February 29, 2016, the Company had a prepaid expense balance of $7,083 (2015 - $2,917) to the Chief Executive Officer of the Company related to these services.
b)
As at February 29, 2016, the Company issued 625,000 common shares with a fair value of $7,187 to the Chief Financial Officer for Chief Financial Officer consulting services to be provided from March 1, 2016 to August 31, 2016. The amount has been included in prepaid expense.
c)
As at February 29, 2016, the Company owed $249,335 (2015 - $255,295) to a company controlled by a significant shareholder of the Company to fund payment of operating expenditures. The amount owed is unsecured, non-interest bearing, and due on demand.
3.
Related Party Transactions
(continued)
d)
As at February 29, 2016, the Company owed $61,334 (2015 - $76,500) to a significant shareholder of the Company, which has been recorded in accounts payable and accrued liabilities. The amount is unsecured, non-interest bearing, and due on demand. During the three months ended February 29, 2016, the Company incurred legal fees of $9,000 (2015 - $nil) to this significant shareholder. On January 27, 2016, the Company issued 166,666 shares of preferred stock to settle outstanding debt owed to related parties of $24,167.
4.
Loan Payable
On December 29, 2015, the Company issued a $20,000 promissory note to an unrelated party. Under the terms of the note, the amount due is unsecured, bears interest at 3%, and due 180 days from the date of issuance.
5.
Loan Payable - Related Parties
a)
As at February 29, 2016, the Company owed $10,000 (2015 - $10,000) to a company controlled by a significant shareholder of the Company. The amount due is unsecured, non-interest bearing, and due on demand.
b)
As at February 29, 2016, the Company owed $nil (2015 - $42,000) to a significant shareholder of the Company. The amount due is unsecured, bears interest at 3% per annum, and due 180 days from the date of issuance. As at February 29, 2016, accrued interest of $nil (2015 - $435) has been included in accounts payable and accrued liabilities. On January 27, 2016, the Company issued 333,334 shares of preferred stock to the loan holder as a part of settling all of the outstanding debt and accrued interest.
c)
As at February 29, 2016, the Company owed a $200 (2015 - $200) to the Chief Executive Officer of the Company. The amount due is unsecured, bears interest at 1% per annum, and due 180 days from the date of issuance. As at February 29, 2016, accrued interest of $1 (2015 - $nil) has been included in accounts payable and accrued liabilities.
d)
As at February 29, 2016, the Company owed $nil (2015 - $5,000) to a significant shareholder of the Company. The amount due is unsecured, bears interest at 1% per annum, and due 180 days from the date of issuance. As at February 29, 2016, accrued interest of $nil (2015 - $1) has been included in accounts payable and accrued liabilities. On January 27, 2016, the Company issued 333,334 shares of preferred stock to the loan holder as a part of settling all of the outstanding debt and accrued interest.
e)
As at February 29, 2016, the Company owed $nil (2015 - $805) to a significant shareholder of the Company. The amount due is unsecured, bears interest at 1% per annum, and due 180 days from the date of issuance. On January 27, 2016, the Company issued 333,334 shares of preferred stock to the loan holder as a part of settling all of the outstanding debt and accrued interest.
6.
Stockholders Equity
(a)
On December 23, 2015, the Company issued 1,250,000 shares of common stock with a fair value of $25,000 to a consultant pursuant to a consulting agreement dated May 1, 2015.
(b)
On December 23, 2015, the Company issued 2,500,000 of shares of common stock with a fair value of $39,063 to the Chief Financial Officer and director of the Company pursuant to the agreement dated September 1, 2015. 1,250,000 shares were issued for the consultants services as a director, and 1,250,000 shares for services as the Companys Chief Financial Officer.
(c)
On December 23, 2015, the Company issued 1,250,000 of shares of common stock with a fair value of $21,250 to the Chief Executive Officer of the Company for the consultants services as a director pursuant to the consulting agreement dated September 1, 2015.
(d)
On December 23, 2015, the Company issued 625,000 of shares of common stock with a fair value of $10,625 to the Chief Executive Officer of the Company for services as the Companys Chief Executive Officer pursuant to the consulting agreement dated June 29, 2015.
(e)
On December 23, 2015, the Company issued 1,250,000 of shares of common stock with a fair value of $17,500 to a consultant pursuant to a consulting agreement dated December 14, 2015.
(f)
On January 27, 2016, the Company issued 500,000 shares of preferred stock to significant shareholders to settle debt of $72,620. Each preferred share is entitled to receive dividends when and if declared by the Companys board of directors, has 500 to 1 voting power and liquidation rights in the amount of the shares; par value in accordance with the Companys certificate of designation. Of the 500,000 shares issued, 166,666 shares were issued to a significant shareholder to settle outstanding payables to a significant shareholder of $24,167, and the remaining 333,334 shares are issued to another significant shareholder to settle debts of $42, 638 , $5, 009 , and $ 806 described at Note 5 for a total of $48,453 in outstanding principal and accrued interest.
7.
Commitments
a)
On June 29, 2015, the Company entered into a consulting agreement with the Chief Executive Officer of the Company for consulting services relating to the cannabis industry. Pursuant to the agreement, the Company is to issue 625,000 shares of common stock to the consultant upon execution of the agreement (issued) and every six months thereafter as compensation. Either party may terminate the agreement by providing written thirty days notice.
b)
On September 1, 2015, the Company entered into an agreement with the Chief Executive Officer of the Company for assuming the role as Chief Executive Officer. Pursuant to the agreement, the Company is to issue 1,250,000 shares of common stock to the Chief Executive Officer upon execution and every twelve months thereafter. The agreement shall be terminated upon mutual agreement with the Company and the Chief Executive Officer.
c)
On September 1, 2015, the Company entered into an agreement with the Chief Financial Officer of the Company. Pursuant to the agreement, the Company is to issue 1,250,000 shares of common stock to the Chief Financial Officer upon execution and every twelve months as compensation for being the Chief Financial Officer. The Company shall also issue an additional 625,000 shares of common stock to the Chief Financial Officer upon execution and every six months as compensation for being a director. The agreement shall be terminated upon mutual agreement with the Company and the Chief Financial Officer.
d)
On December 14, 2015, the Company entered into a consulting agreement for marketing and promotion services. Pursuant to the agreement, the consultant is to be compensated by being issued 1,250,000 shares of common stock on an annual basis until the agreement is cancelled or terminated. Either party may terminate the agreement by providing written thirty days notice.
8.
Subsequent Events
We have evaluated subsequent events through to the date of issuance of the financial statements, and did not have any material recognizable subsequent events after February 29, 2016.