(The accompanying notes are an integral
part of these unaudited condensed consolidated financial statements)
(The accompanying notes are an integral
part of these unaudited condensed consolidated financial statements)
(The accompanying notes are an integral
part of these unaudited condensed consolidated financial statements)
Notes to the Condensed Consolidated Financial
Statements
For the Three and Six Months Ended May
31, 2017 and 2016
(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.
The Company has 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 Company’s services
include the development of cannabinoid based health and wellness products; the development of medical grade compounds; the licensing
of proprietary testing, genetics, labeling and packaging, tracking, production, and standardization methods for the medicinal herb
industry.
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 May 31, 2017, the Company has generated no revenues and has an
accumulated deficit of $1,641,186. The continuation of the Company as a going concern is dependent upon the continued financial
support from its management, and its ability to identify future investment opportunities and obtain the necessary debt or equity
financing, and generating profitable operations from the Company’s future operations. These factors raise substantial doubt
regarding the Company’s ability to continue as a going concern. These consolidated financial statements do not include any
adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern.
|
2.
|
Summary of Significant Accounting Policies
|
|
(a)
|
Basis of Presentation
|
The consolidated financial statements
of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”)
and are expressed in U.S. dollars. The Company’s fiscal year end is November 30.
|
(b)
|
Principles of Consolidation
|
These consolidated financial
statements include the accounts of the Company and its wholly-owned subsidiaries, Cannabis Ventures Inc. (USA), Cannabis Ventures
Inc. (Canada), from the date of their acquisition by the Company effective June 26, 2014 and CBD Life, Inc. from June 26, 2014
(date of acquisition) to December 30, 2016 (date of dissolution). All inter-company transactions and balances have been eliminated
on consolidation.
|
(c)
|
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 management’s
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 six months ended May 31, 2017 are not necessarily indicative of
the results that may be expected for the year ended November 30, 2017. 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, 2016 included
in our Form 10-K filed with the SEC.
GALA GLOBAL INC.
Notes to the Condensed Consolidated Financial
Statements
For the Three and Six Months Ended May
31, 2017 and 2016
(unaudited)
|
2.
|
Summary of Significant Accounting Policies
(continued)
|
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 valuation of inventory, valuation of derivative liability and share-based compensation, and deferred income tax asset valuation
allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that
it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying
values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual
results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there
are material differences between the estimates and the actual results, future results of operations will be affected.
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)
|
Financial Instruments
|
Company’s financial instruments
consist principally of cash, accounts payable and accrued liabilities, loans payable to related parties, loans payable, and amounts
due to related parties. The recorded values of all these financial instruments approximate their current fair values because of
the short term nature of these financial instruments.
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. There were no sales during
any of the periods presented.
|
(h)
|
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.
|
(i)
|
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. At May 31, 2017, the Company had 486,873 (November 30,
2016 – nil) potentially dilutive shares outstanding.
GALA GLOBAL INC.
Notes to the Condensed Consolidated Financial
Statements
For the Three and Six Months Ended May
31, 2017 and 2016
(unaudited)
|
2.
|
Summary of Significant Accounting Policies
(continued)
|
From time to time, the Company
may issue equity instruments that may contain an embedded derivative instrument which may result in a derivative liability. A derivative
liability exists on the date the equity instrument is issued when there is a contingent exercise provision. The derivative liability
is records at is fair value calculated by using an option pricing model such as a multi-nominal lattice model. The fair value of
the derivative liability is then calculated on each balance sheet date with the corresponding gains and losses recorded in the
consolidated statement of operations.
|
(k)
|
Beneficial Conversion Features
|
From time to time, the Company
may issue convertible notes that may contain an embedded beneficial conversion feature. A beneficial conversion feature exists
on the date a convertible note is issued when the fair value of the underlying common stock to which the note is convertible into
is in excess of the remaining unallocated proceeds of the note after first considering the allocation of a portion of the note
proceeds to the fair value of the warrants, if related warrants have been granted. The intrinsic value of the beneficial conversion
feature is recorded as a debt discount with a corresponding amount to additional paid in capital. The debt discount is amortized
to interest expense over the life of the note using the effective interest method.
|
(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.
Deferred compensation
is comprised of common shares issued to officers and directors of the Company for compensation services. During the six months
ended May 31, 2017, the Company issued 24,500,000 common shares with a fair value of $490,000 for compensation of which $80,630
was expensed during the period and the remaining $409,370 was recorded as deferred compensation within shareholders’ equity.
On May 15,
2017, the Company entered into a $280,000 promissory note agreement with a non-related party for proceeds of $250,000, which is
net of an original issuance discount and legal fees of $30,000 which were capitalized and amortized over the period of the convertible
debenture. The promissory note is unsecured, bears interest at 10% per annum, and is due on November 30, 2017. The promissory note
is convertible into common shares at the lesser of: (a) $0.35; or (b) 65% of the average of the three lowest volume weighted average
price of the Company’s common shares in the 20 days preceding the notice of conversion limited by a conversion floor price
of $0.05 per share.
The embedded conversion option
qualifies for derivative accounting under ASC 815-15,
Derivatives and Hedging
. The fair value of the derivative liability
resulted in a full discount of the $250,000 based on the net proceeds received from promissory note. The carrying value of the
convertible debenture will be accreted over the term of the convertible debenture up to the face value of $280,000. As at May 31,
2017, the carrying value of the convertible debenture was $11,752 and the unamortized discount on the convertible debenture was
$268,248, which includes $135,264 of unamortized discount on the convertible note and $132,984 of unamortized debt issuance costs
incurred.
GALA GLOBAL INC.
Notes to the Condensed Consolidated Financial
Statements
For the Three and Six Months Ended May
31, 2017 and 2016
(unaudited)
The Company records the fair
value of the conversion price of the convertible debentures, as disclosed in Note 3, in accordance with ASC 815,
Derivatives
and Hedging
. The fair value of the derivative liability is revalued on each balance sheet date or upon conversion of the underlying
convertible debenture into equity with corresponding gains and losses recorded in the consolidated statement of operations. The
fair value of the derivative as of May 15, 2017 was $305,957 calculated using the binomial option pricing model. $144,604 was applied
against the net proceeds received from promissory note as a conversion discount and the remaining $161,353 was included in interest
expense. During the three and six months ended May 31, 2017, the Company recorded a loss on the change in fair value of derivative
liability of $10,032 (2016 - $nil). As at May 31, 2017, the Company recorded a derivative liability of $315,989 (November 30, 2016
- $nil).
The following inputs and assumptions
were used to value the convertible debentures outstanding during the period ended May 31, 2017:
|
Expected
Volatility
|
Risk-free
Interest Rate
|
Expected
Dividend Yield
|
Expected Life
(in years)
|
May 15, 2017 convertible debenture:
|
|
|
|
|
As at May 15, 2017 (date of issuance)
|
288%
|
1.02%
|
0%
|
0.5
|
As at May 31, 2017 (mark-to-market)
|
267%
|
1.08%
|
0%
|
0.5
|
|
6.
|
Related Party Transactions
|
|
(a)
|
As at May 31, 2017, the Company owed $30,567 (November 30, 2016 - $249,835) to a company controlled
by a significant shareholder of the Company to fund payment of operating expenditures. During the period ended May 31, 2017, the
Company settled $249,835 of related party debt with the issuance of 1,387,979 common shares. Refer to Note 7(b). The amount owed
is unsecured, non-interest bearing, and due on demand.
|
|
(b)
|
As at May 31, 2017, the Company owed $10,000 (November 30, 2016 - $10,000) to a company controlled
by a significant shareholder of the Company. The amount owed in unsecured, non-interest bearing, and due on demand.
|
|
(c)
|
As at May 31, 2017, the Company owed $2,064 (November 30, 2016 - $2,064) to a significant shareholder
of the Company. The amount is unsecured, bears interest at 3% per annum, and due 180 days from the date of issuance. As at May
31, 2017, accrued interest of $51 (November 30, 2016 - $15) has been included in accounts payable and accrued liabilities.
|
|
(d)
|
As at May 31, 2017, the Company owed $2,500 (November 30, 2016 - $nil) to a significant shareholder
of the Company. The amount is unsecured, bears interest at 2% per annum, and due 180 days from the date of issuance. As at May
31, 2017, accrued interest of $49 (November 30, 2016 - $nil) has been included in accounts payable and accrued liabilities.
|
|
(e)
|
As at May 31, 2017, the Company owed $6,000 (November 30, 2016 - $nil) to a significant shareholder
of the Company. The amount is unsecured, bears interest at 2% per annum, and due 180 days from the date of issuance. As at May
31, 2017, accrued interest of $109 (November 30, 2016 - $nil) has been included in accounts payable and accrued liabilities.
|
|
(f)
|
As at May 31, 2017, the Company owed $10,000 (November 30, 2016 - $10,000) to the former spouse
of a significant shareholder of the Company for a note issued on September 21, 2016. Under the terms of the note, the amount due
is unsecured, bears interest at 3% per annum, and is due 180 days from the date of issuance. As at May 31, 2017, accrued interest
of $210 (November 30, 2016 - $58) has been included in accounts payable and accrued liabilities - related party.
|
|
(g)
|
As at May 31, 2017, the Company owed $10,500 (November 30, 2016 - $79,333) to a significant shareholder
of the Company, which has been recorded in accounts payable and accrued liabilities - related parties. The amount owed is unsecured,
non-interest bearing, and due on demand. During the three and six months ended May 31, 2017, the Company settled $88,333 of related
party debt with the issuance of 490,742 common shares. Refer to Note 7(b).
|
GALA GLOBAL INC.
Notes to the Condensed Consolidated Financial
Statements
For the Three and Six Months Ended May
31, 2017 and 2016
(unaudited)
|
6.
|
Related Party Transactions
(continued)
|
|
(h)
|
On May 8, 2017, the Company entered into an agreement whereby the Company agreed to acquire 80%
of the issued and outstanding common stock of Controlled Environment Genomics Inc ("CEG Inc"), in exchange for a new
series of the Company’s preferred shares, and issue 5,000,000 restricted common shares in exchange for CEG's intellectual
property. In the event that CEG, Inc. becomes its own public entity, the executive shall receive 51% ownership of the new entity,
and the Company will retain the remaining 49%. As at May 31, 2017, the Company issued 5,000,000 common shares with a fair value
of $100,000 to the Chief Executive Officer of the Company as a deposit for the proposed acquisition of intangible assets. As at
May 31, 2017, the agreement to acquire the common stock of CEG Inc. and the intangible assets has not been finalized. Refer to
Note 7(i).
|
|
(i)
|
During the six months ended May 31, 2017, the Company issued 23,000,000 common shares with a fair
value of $460,000 to officers and directors of the Company as compensation for services for a period of one year. On May 8, 2017,
the Company issued 1,500,000 common shares with a fair value of $30,000 to the Chief Executive Officer of the Company for compensation
of services for a period of one year. As at May 31, 2017, the Company recorded compensation expense of $80,630 and the remaining
fair value of $409,370 has been recorded as deferred compensation within shareholders’ equity.
|
|
(j)
|
During the six months ended May 31, 2017, the Company loaned $5,000 (November 30, 2016 - $nil)
to a company controlled by an officer of the Company for day-to-day expenses. The amount owing is unsecured, non-interest bearing,
and due on demand.
|
|
(a)
|
On January 30, 2017, the Company effected a share consolidation on a 100 old shares for 1 new share
basis. The share consolidation has been applied retroactively to the earliest period presented.
|
|
(b)
|
On March 22, 2017, the Company issued 490,742 common shares with a fair value of $176,667 to settle
outstanding debt of $88,333 owed to a director of the Company for legal services performed. The transaction resulted in a loss
on settlement of debt of $88,334, which was recorded in the consolidated statement of operations.
|
|
(c)
|
On March 22, 2017, the Company issued 1,387,970 common shares to settle outstanding debt of $249,835
owed to a company controlled by a director of the Company.
|
|
(d)
|
On March 30, 2017, the Company issued 10,000,000 common shares with a fair value of $200,000 to
a director of the Company for compensation services for a period of twelve months from the date of issuance. The common shares
were valued based on the fair value of the services to be provided. As at May 31, 2017, deferred compensation of $165,479 has been
recorded in prepaid expense.
|
|
(e)
|
On March 30, 2017, the Company issued 10,000,000 common shares with a fair value of $200,000 to
a director of the Company for compensation services for a period of twelve months from the date of issuance. The common shares
were valued based on the fair value of the services to be provided. As at May 31, 2017, deferred compensation of $165,479 has been
recorded in deferred compensation.
|
|
(f)
|
On March 30, 2017, the Company issued 1,500,000 common shares with a fair value of $30,000 to the
Chief Financial Officer of the Company for compensation services for a period of twelve months from the date of issuance. The common
shares were valued based on the fair value of the services to be provided. As at May 31, 2017, deferred compensation of $24,822
has been recorded in deferred compensation.
|
|
(g)
|
On March 30, 2017, the Company issued 1,500,000 common shares with a fair value of $30,000 to an
officer of the Company for compensation services for a period of twelve months from the date of issuance. The common shares were
valued based on the fair value of the services to be provided. As at May 31, 2017, deferred compensation of $24,822 has been recorded
in deferred compensation.
|
|
(h)
|
On May 17, 2017, the Company issued 1,500,000 common shares with a fair value of $30,000 to the
Chief Executive Officer of the Company for compensation services for a period of twelve months from the date of issuance. The common
shares were valued based on the fair value of the services to be provided. As at May 31, 2017, deferred compensation of $28,767
has been recorded in deferred compensation.
|
GALA GLOBAL INC.
Notes to the Condensed Consolidated Financial
Statements
For the Three and Six Months Ended May
31, 2017 and 2016
(unaudited)
|
7.
|
Common Shares
(continued)
|
|
(i)
|
On May 17, 2017, the Company issued 5,000,000 common shares with a fair value of $100,000 to a
company controlled by the Chief Executive Officer of the Company for the purchase of intangible assets.
|
|
8.
|
Share Purchase Warrants
|
On May 15, 2017, the Company
issued 486,783 share purchase warrants with an exercise price of $0.09 per share for a period of five years. The fair value of
the share purchase warrants was $105,396, calculated using the binomial option pricing model assuming no expected dividends, volatility
of 199%, expected life of 5 years, and a risk free rate of 1.05%. The fair value of the share purchase warrants were recorded in
the consolidated statement of operations as interest expense.
|
Number of
warrants
|
Weighted
average
exercise price
$
|
Balance, November 30, 2016
|
–
|
–
|
Issued
|
486,783
|
0.09
|
|
|
|
Balance, May 31, 2017
|
486,783
|
0.09
|
(a) On
March 30, 2017, the Company entered into the following consulting and management agreements:
|
·
|
With a director of the Company for management and legal services for a period of four years, subject
to termination upon providing 10 days written notice. The Company is to provide compensation of 10,000,000 common shares of the
Company per annum and 1% of the issued and outstanding common shares of the Company on September 30
th
of each fiscal
year of this agreement;
|
|
·
|
With a significant shareholder of the Company for consulting services for a period of four years,
subject to termination upon providing 10 days written notice. The Company is to provide compensation of 10,000,000 common shares
of the Company per annum and 1% of the issued and outstanding common shares of the Company on September 30
th
of each
fiscal year of this agreement;
|
|
·
|
With the Chief Financial Officer of the Company for management and consulting services for a period
of four years, subject to termination upon providing 10 days written notice. The Company is to provide compensation of 1,500,000
common shares of the Company per annum and 1% of the issued and outstanding common shares of the Company on September 30
th
of each fiscal year of this agreement; and
|
|
·
|
With a consultant of the Company for consulting services for consulting services for a period of
four years, subject to termination upon providing 10 days written notice. The Company is to provide compensation of 1,500,000 common
shares of the Company per annum and 1% of the issued and outstanding common shares of the Company on September 30
th
of each fiscal year of this agreement.
|
|
(b)
|
On May 8, 2017, the Company entered into a consulting and management agreement with the Chief Executive
Officer of the Company for management and consulting services until March 30, 2020, subject to termination upon providing 10 days
written notice. The Company is to provide compensation of 1,500,000 common shares of the Company per annum, and issue 1% of the
issued and outstanding common shares of the Company on November 1
st
of each fiscal year of this agreement. In addition,
the Company is to compensate $10,000 per month until the sale of the 1,500,000 common shares or the fair value of the 1% of the
issued and outstanding common shares issued on November 1
st
of each fiscal year equals or exceeds $10,000 per month
($120,000 per annum).
|
GALA GLOBAL INC.
Notes to the Condensed Consolidated Financial
Statements
For the Three and Six Months Ended May
31, 2017 and 2016
(unaudited)
We have evaluated subsequent
events through to the date of issuance of the condensed consolidated financial statements, and the following subsequent events:
|
(a)
|
On June 13, 2017, the Company issued 1,500,000 common shares to a non-related party for consulting
services.
|
|
(b)
|
On June 23, 2017, the Company issued 1,500,000 common shares for cash pursuant to a Stock Purchase
Agreement at $.08 per share.
|
|
(c)
|
On July 20, 2017, the Company authorized the issuance of 2,000,000 common shares to a non-related
parties for consulting services. As of the date of filing, the shares have not been issued.
|
|
(d)
|
On July 21, 2017, the Company authorized the settlement of $44,290 of loans payable, comprised
of principal amounts of $43,000 and accrued interest of $1,290, with the issuance of 553,625 common shares. As of the date of filing,
the shares have not been issued.
|