(The accompanying notes are an integral
part of these consolidated financial statements)
(The accompanying notes are an integral
part of these consolidated financial statements)
(The accompanying notes are an integral
part of these consolidated financial statements)
(The accompanying notes are an integral
part of these consolidated financial statements)
Notes to the Consolidated Financial Statements
Years ended November 30, 2018 and 2017
|
1.
|
Organization and Nature of Operations
|
Gala Pharmaceutical Inc. (the
“Company” or “GPI”) was incorporated in the State of Nevada on March 10, 2010. The Company provides Testing
or Analytical Chemistry tools for chemical, plant, soil, and liquid composition analysis. GPI provides analysis of compositional
traits for hemp and cannabis products (cannabinoid, terpenes, pesticides, residual solvents and microbial). The analysis is being
done at certified labs with persistent results.
The Company also provides genetic
“fingerprinting” and “sequencing” of various crop species. This fingerprinting allows for storing genetic
fingerprint information into a proprietary database. Customers can access genetic fingerprint data which can be used for predictive
breeding applications and for protecting intellectual property (IP). Additionally, the Company can develop new genetics by using
state of the art breeding technology and provides tissue culture and cloning services. These clones are guaranteed to be disease
free, chemical free and healthy and robust.
Additionally, the Company provides
consulting on testing and manufacturing lab designs and SOPs. The Company provides services to customers for building turnkey
labs, drug formulations and troubleshooting. It has highly qualified professionals to bring productivity and efficiency within
your current resources.
Going Concern
These consolidated financial
statements have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and
discharge its liabilities in the normal course of business. As of November 30, 2018, the Company has a working capital deficit
of $893,866 and an accumulated deficit of $5,077,446. The continuation of the Company as a going concern is dependent upon the
continued financial support from its management, and its ability to identify future investment opportunities and obtain the necessary
debt or equity financing, and generating profitable operations from the Company’s future operations. These factors raise
substantial doubt regarding the Company’s ability to continue as a going concern. These consolidated financial statements
do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities
that might be necessary should the Company be unable to continue as a going concern.
|
2.
|
Summary of Significant Accounting Policies
|
|
|
(a)
|
Basis of Presentation
|
These consolidated financial
statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“US
GAAP”) and are expressed in U.S. dollars. The Company’s fiscal year end is November 30.
|
|
(b)
|
Principles of Consolidation
|
These consolidated financial
statements include the accounts of the Company and its subsidiaries: 51% ownership of Gala Pharmaceutical (California), Inc. (“Gala
California”) from February 7, 2018 (date of incorporation) to current date, and 100% ownership of Cannabis Ventures Inc. (USA),
Cannabis Ventures Inc. (Canada), and CBD Life, Inc. until the sale of these subsidiaries on June 20, 2018. All inter-company transactions
and balances have been eliminated on consolidation and the proportionate net income/loss on the 49% non-controlling interest has
been deducted from the Company’s net loss on the consolidated statement of operations commencing with a corresponding entry
within stockholders’ deficit.
GALA PHARMACEUTICAL INC.
Notes to the Consolidated Financial Statements
Years ended November 30, 2018 and 2017
|
|
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.
|
|
(d)
|
Cash and Cash Equivalents
|
The Company considers all highly
liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents. As of November 30, 2018
and 2017, there were no cash equivalents.
Equipment is comprised of machinery
and is recorded at the lower of cost or net book value and amortized on a straight-line basis over an estimated useful life of
three to five years.
|
|
(f)
|
Financial Instruments
|
Pursuant to ASC 820,
Fair
Value Measurements and Disclosures
, an entity is required to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective
evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value
hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs
into three levels that may be used to measure fair value:
Level 1 applies to assets or
liabilities for which there are quoted prices in active markets for identical assets or liabilities. GRNH shares are quoted on
the OTC Markets Pink Sheets.
Level 2 applies to assets or
liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices
for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient
volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable
or can be derived principally from, or corroborated by, observable market data.
Level 3 applies to assets or
liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the
fair value of the assets or liabilities.
GALA PHARMACEUTICAL INC.
Notes to the Consolidated Financial Statements
Years ended November 30, 2018 and 2017
|
|
2.
|
Summary of Significant Accounting Policies
(continued)
|
|
|
(f)
|
Financial Instruments (continued)
|
The Company’s financial
instruments consist principally of cash, marketable securities, accounts payable and accrued liabilities, accounts payable and
accrued liabilities – related parties, loans payable, loans payable – related parties, convertible debt, derivative
liabilities, and amounts due to related parties. Pursuant to ASC 820, the fair value of cash is determined based on “Level
1” inputs, which consist of quoted prices in active markets for identical assets. The recorded values of all other financial
instruments approximate their current fair values because of their nature and respective maturity dates or durations.
The following table represents
assets and liabilities that are measured and recognized in fair value as of November 30, 2018, on a recurring basis (see footnote
2(f) - ASC 820,
Fair Value Measurements and Disclosures)
:
|
|
|
Level 1
$
|
|
|
Level 2
$
|
|
|
Level 3
$
|
|
|
Total gains and (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
|
41,800
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(30,000
|
)
|
|
Warrant liability
|
|
|
–
|
|
|
|
–
|
|
|
|
(5,694
|
)
|
|
|
–
|
|
|
Derivative liabilities
|
|
|
–
|
|
|
|
–
|
|
|
|
(458,109
|
)
|
|
|
(257,861
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
41,800
|
|
|
|
–
|
|
|
|
(463,803
|
)
|
|
|
(287,861
|
)
|
The following table represents
assets and liabilities that are measured and recognized in fair value as of November 30, 2017, on a recurring basis:
|
|
|
Level 1
$
|
|
|
Level 2
$
|
|
|
Level 3
$
|
|
|
Total gains and (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
|
–
|
|
|
|
–
|
|
|
|
(453,005
|
)
|
|
|
(277,578
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
–
|
|
|
|
–
|
|
|
|
(453,005
|
)
|
|
|
(277,578
|
)
|
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.
|
|
(h)
|
Marketable Securities
|
Marketable securities consist
of common shares of a publicly-traded company and are available-for-sale. The marketable securities are recorded at its fair value,
with any corresponding unrealized gains and losses recorded in the statement of operations.
The Company recognizes and accounts
for revenue in accordance with ASC 606 as a principal on the sale of goods.
Pursuant to
ASC
606
,
revenue is measured based on a consideration specified in a contract with a customer, and excludes
any sales incentives and amounts collected on behalf of third parties. The Company recognizes revenue when it satisfies a performance
obligation by transferring control over a product or service to a customer.
GALA PHARMACEUTICAL INC.
Notes to the Consolidated Financial Statements
Years ended November 30, 2018 and 2017
|
|
2.
|
Summary of Significant Accounting Policies
(continued)
|
|
|
(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.
ASC 220,
Comprehensive Income
,
establishes standards for the reporting and display of comprehensive loss and its components in the consolidated financial statements.
As of November 30, 2018 and 2017, the Company has no items representing comprehensive income or loss.
|
|
(l)
|
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 years ended November 30, 2018 and 2017. All effects of the reverse stock split discussed at Note
9(d) has been applied retroactively to calculations of basic and diluted net loss per share for periods presented. As of November
30, 2018, the Company had 12,254,104 (2017 – 2,659,468) potentially issuable shares from outstanding convertible notes.
From time to time, the Company
may issue equity instruments that may contain an embedded derivative instrument which may result in a derivative liability. A derivative
liability exists on the date the equity instrument is issued when there is a contingent exercise provision. The derivative liability
is recorded at its fair value calculated by using an option pricing model such as a multi-nominal lattice model. The fair value
of the derivative liability is then calculated on each balance sheet date with the corresponding gains and losses recorded in the
consolidated statement of operations.
Fair value of warrant liability
is based on using the Black-Scholes Model.
|
|
(n)
|
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.
GALA PHARMACEUTICAL INC.
Notes to the Consolidated Financial Statements
Years ended November 30, 2018 and 2017
|
|
2.
|
Summary of Significant Accounting Policies
(continued)
|
|
|
(o)
|
Concentration of Credit Risk
|
The Company may hold balances
that are in excess of FDIC insured limits. As of November 30, 2018 and 2017, the Company had no uninsured balances.
|
|
(p)
|
Recent Accounting Pronouncements
|
In August 2018, the FASB issued
guidance to improve the effectiveness of fair value measurement disclosures by removing or modifying certain disclosure requirements
and adding other requirements. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning
after December 15, 2019, with early adoption permitted. Certain amendments should be applied prospectively, while all other amendments
should be applied retrospectively to all periods presented. The Company is currently evaluating the impact of the new guidance.
In February 2018, the FASB issued
guidance that permits the Company to reclassify disproportionate tax effects in accumulated other comprehensive income caused by
the Tax Cuts and Jobs Act of 2017 to retained earnings. The guidance is effective for fiscal years, and interim periods within
those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the impact
of the new guidance.
In July 2017, the FASB issued
ASU 2017-11 which simplifies the accounting for certain financial instruments with down round features. The new standard will reduce
income statement volatility for companies that issue warrants and convertible instruments containing such features. The guidance
is effective for fiscal years beginning after December 15, 2018 with early adoption permitted. The Company is currently evaluating
the impact of the new guidance.
In June 2016, the FASB issued
a new credit loss standard that replaces the incurred loss impairment methodology in current GAAP. The new impairment model requires
immediate recognition of estimated credit losses expected to occur for most financial assets and certain other instruments. It
is effective for annual reporting periods beginning after December 15, 2019 and interim periods within those annual periods. Early
adoption for fiscal years beginning after December 15, 2018 is permitted. Entities will apply the standard’s provisions as
a cumulative-effect adjustment to retained earnings as of the beginning of the first effective reporting period. The Company is
currently evaluating the impact of the new guidance.
In February 2016, the FASB issued
new lease accounting guidance in ASU No. 2016-02, “
Leases
”. This new guidance was initiated as a joint project
with the International Accounting Standards Board to simplify lease accounting and improve the quality of and comparability of
financial information for users. This new guidance would eliminate the concept of off-balance sheet treatment for “operating
leases” for lessees for the vast majority of lease contracts. Under ASU No. 2016-02, at inception, a lessee must classify
all leases with a term of over one year as either finance or operating, with both classifications resulting in the recognition
of a defined “right-of-use” asset and a lease liability on the balance sheet. However, recognition in the income statement
will differ depending on the lease classification, with finance leases recognizing the amortization of the right-of-use asset separate
from the interest on the lease liability and operating leases recognizing a single total lease expense. Lessor accounting under
ASU No. 2016-02 would be substantially unchanged from the previous lease requirements under GAAP. ASU No. 2016-02 will take effect
for public companies in fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early
adoption is permitted and for leases existing at, or entered into after, the beginning of the earliest comparative period presented
in the financial statements, lessees and lessors must apply a modified retrospective transition approach. The Company is currently
evaluating the new guidance and has not determined the impact this standard may have on the consolidated financial statements.
GALA PHARMACEUTICAL INC.
Notes to the Consolidated Financial Statements
Years ended November 30, 2018 and 2017
|
|
2.
|
Summary of Significant Accounting Policies
(continued)
|
|
|
(p)
|
Recent Accounting Pronouncements (continued)
|
In January 2016, the FASB issued
new guidance which amends various aspects of the recognition, measurement, presentation, and disclosure of financial instruments.
With respect to the Company’s consolidated financial statements, the most significant impact relates to the accounting for
equity investments (other than those that are consolidated or accounted under the equity method) which will be measured at fair
value through earnings. The new guidance is effective for annual reporting periods, and interim periods within those years beginning
after December 15, 2017, with early adoption permitted only for certain provisions. The amendments should be applied by means of
a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption, with other amendments related
specifically to equity securities without readily determinable fair values applied prospectively. The adoption is not expected
to have a material impact on the Company's consolidated financial statements.
In May 2014, the FASB
issued their converged standard on revenue recognition, Accounting Standards Update No. 2014-09, “
Revenue from
Contracts with Customers (Topic 606)”
, updated in December 2016 with the release of ASU 2016-20. This standard
outlines a single comprehensive model for companies to use in accounting for revenue arising from contracts with customers
and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the
revenue model is that an entity recognizes revenue to depict the transfer of promised goods and services in an amount that
reflects the consideration to which the entity expects to be entitled to in exchange for those goods and services. In
addition, the new standard requires that reporting companies disclose the nature, amount, timing, and uncertainty of revenue
and cash flows arising from contracts with customers. In August 2015, the FASB issued ASU No 2015-14
“
Revenue from Contracts with Customers (Topic 606
):
Deferral of the Effective Date,
" which
deferred the effective date of ASU 2014-09 to annual reporting periods beginning after December 15, 2017, with earlier
application permitted but not before the original effective date.
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.
On June 20,
2018, the Company approved the sale of its wholly-owned subsidiaries, Cannabis Ventures, Inc. (USA) and Cannabis Ventures, Inc.
(Canada) including any and all of its rights, title and interest in exchange for 2,000,000 common shares of Greengro Technologies
Inc., a company with common shareholders, at the fair value of $71,800, which has been recorded as a gain on sale of subsidiaries
since the subsidiaries had no assets or liabilities.
Deferred compensation
is comprised of common shares issued to officers and directors of the Company for compensation services. During the year ended
November 30, 2018, the Company issued 6,000,000 (2017 - 24,500,000) common shares with a fair value of $232,500 (2017 - $490,000)
for compensation of which $281,334 (2017 - $324,146) was expensed during the period and the remaining $117,021 (2017 - $165,853)
was recorded as deferred compensation within shareholders’ equity.
GALA PHARMACEUTICAL INC.
Notes to the Consolidated Financial Statements
Years ended November 30, 2018 and 2017
|
|
|
Cost
$
|
|
|
Accumulated amortization
$
|
|
|
November 30,
2018
$
|
|
|
November 30,
2017
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Machinery
|
|
|
51,449
|
|
|
|
16,289
|
|
|
|
35,160
|
|
|
|
46,060
|
|
During the
year ended November 30, 2018, the Company recorded $10,900 (2017 - $5,389) of depreciation expense. As of November 30, 2018, the
Company recorded accumulated amortization of $16,289 (2017 - $6,809).
|
|
6.
|
Convertible Debentures
|
|
|
(a)
|
On May 15, 2017, the Company entered into a promissory note agreement with a non-related party
for proceeds of $280,000, net of an original issuance discount and legal fees of $30,000 which were capitalized and amortized over
the period of the convertible debenture. The promissory note is unsecured, bears interest at 10% per annum, and is due on November
30, 2017. The promissory note is convertible into common shares at the lesser of: (a) $0.35; or (b) 65% of the average of the three
lowest volume weighted average price of the Company’s common shares in the 20 days preceding the notice of conversion limited
by a conversion floor price of $0.05 per share.
|
The embedded conversion option
qualifies for derivative accounting under ASC 815-15,
Derivatives and Hedging
. The fair value of the derivative liability
resulted in a full discount of the $250,000 based on the net proceeds received from promissory note. The carrying value of the
convertible debenture will be accreted over the term of the convertible debenture up to the face value of $280,000. On November
30, 2017, a default penalty of $73,629 was applied as the Company defaulted on the convertible debenture. During the year ended
November 30, 2018, the Company issued 4,143,409 common shares for the conversion of $112,249 of principal balance and $77,751 of
accrued interest. As of November 30, 2018, the carrying value of the convertible debenture was $241,380 (2017 - $353,629).
|
|
(b)
|
On June 6, 2018, the Company issued a callable secured convertible note for $15,000. Under the
terms of the note, the amount owing is unsecured, bears interest at 12% per annum, and is due on June 1, 2019. The note is also
convertible into common shares of the Company at the lesser of: (a) $0.04; or (b) 50% of the lowest 3 trading prices during the
20 trading days prior to the date of conversion. Upon default of the note, the interest rate will increase to 15% per annum. In
addition to the note, the Company also issued 30,000 share purchase warrants which entitles the note holder to acquire 30,000 common
shares at $0.01 per common share for a period of seven years.
|
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 $15,000 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 $15,000. As of November 30, 2018,
the carrying value of the convertible debenture was $1,675 (2017 - $nil) and the unamortized discount on the convertible debenture
was $13,325 (2017 - $nil).
|
|
(c)
|
On July 24, 2018, the Company issued a callable secured convertible note for $15,000. Under the
terms of the note, the amount owing is unsecured, bears interest at 12% per annum, and is due on June 1, 2019. The note is also
convertible into common shares of the Company at the lesser of: (a) $0.04; or (b) 50% of the lowest 3 trading prices during the
20 trading days prior to the date of conversion. Upon default of the note, the interest rate will increase to 15% per annum. In
addition to the note, the Company also issued 30,000 share purchase warrants which entitles the note holder to acquire 30,000 common
shares at $).01 per common share for a period of seven years.
|
GALA PHARMACEUTICAL INC.
Notes to the Consolidated Financial Statements
Years ended November 30, 2018 and 2017
|
6.
|
Convertible Debentures
(continued)
|
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 $15,000 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 $15,000. As of November 30, 2018,
the carrying value of the convertible debenture was $1,089 (2017 - $nil) and the unamortized discount on the convertible debenture
was $13,911 (2017 - $nil).
|
|
(d)
|
On November 10, 2018, the Company issued a callable secured convertible note for $50,000. Under
the terms of the note, the amount owing is unsecured, bears interest at 12% per annum, and is due on November 10, 2019. The note
is also convertible into common shares of the Company at the lesser of: (a) $0.04; or (b) 50% of the lowest 3 trading prices during
the 20 trading days prior to the date of conversion. Upon default of the note, the interest rate will increase to 15% per annum.
|
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 $50,000 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 $15,000. As of November 30, 2018,
the carrying value of the convertible debenture was $333 (2017 - $nil) and the unamortized discount on the convertible debenture
was $49,667 (2017 - $nil).
The Company records the fair
value of the conversion price of the convertible debentures, as disclosed in Note 6, 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. During
the year ended November 30, 2018, the Company recorded a loss on the change in fair value of the derivative liability of $257,861
(2017 – $277,578). As of November 30, 2018, the Company had a derivative liability of $458,109 (2017 - $453,005).
The following inputs and assumptions
were used to value the derivative liabilities outstanding during the years ended November 30, 2018 and 2017, assuming no dividend
yield:
|
|
|
November 30,
2018
|
|
|
November 30,
2017
|
|
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
|
485%
|
|
|
|
338%
|
|
|
Risk free rate
|
|
|
2.52%
|
|
|
|
1.27%
|
|
|
Expected life (in years)
|
|
|
0.5
|
|
|
|
0.3
|
|
A summary of the activity of the derivative liability
is shown below:
|
|
|
$
|
|
|
|
|
|
|
|
Balance, November 30, 2017
|
|
|
453,005
|
|
|
Derivative loss due to new issuances
|
|
|
122,114
|
|
|
Adjustment for conversion
|
|
|
(374,871
|
)
|
|
Mark to market adjustment
|
|
|
257,861
|
|
|
|
|
|
|
|
|
Balance, November 30, 2018
|
|
|
458,109
|
|
GALA PHARMACEUTICAL INC.
Notes to the Consolidated Financial Statements
Years ended November 30, 2018 and 2017
|
|
8.
|
Related Party Transactions
|
|
|
a)
|
As of November 30, 2018, the Company owed $203,688 (2017 - $48,367) to a company controlled by
a significant shareholder of the Company to fund payment of operating expenditures. During the year ended November 30, 2018, the
Company received an additional $75,000 of financing. The amount owed is unsecured, non-interest bearing, and due on demand.
|
|
|
b)
|
As of November 30, 2018, the Company owed $43,000 (2017 - $25,000) to a significant shareholder
of the Company, which has been recorded in accounts payable and accrued liabilities - related parties. The amount owed is unsecured,
non-interest bearing, and due on demand. During the year ended November 30, 2018, the Company incurred $103,405 (2017 - $177,295)
of consulting expense relating to services provided to the Company.
|
|
|
c)
|
As of November 30, 2018, the Company owed $5,625 (2017 - $5,625) to an officer of the Company,
which has been recorded in accounts payable and accrued liabilities – related parties. The amount owing is unsecured, non-interest
bearing, and due on demand.
|
|
|
d)
|
As of November 30, 2018, the Company owed $2,064 (2017 - $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 of November
30, 2018, accrued interest of $129 (2017 - $82) has been included in accounts payable and accrued liabilities, related parties.
|
|
|
e)
|
As of November 30, 2018, the Company owed $3,500 (2017 - $18,500) to a company controlled by a
significant shareholder of the Company. The amount owed is unsecured, non-interest bearing, and due on demand.
|
|
|
f)
|
As of November 30, 2018, the Company owed $6,560 (2017 - $1,195) to the Chief Executive Officer
of the Company. During the year ended November 30, 2018, the Company incurred $476,429 (2017 - $nil) of compensation costs. During
the year ended November 30, 2018, the Company issued 5,000,000 common shares with a fair value of $200,000 as bonus compensation,
and 1,500,000 common shares with a fair value of $112,500 as part of his management agreement.
|
|
|
g)
|
As of November 30, 2018, the Company prepaid $27,000 (2017 - $nil) of prepaid rent to a shareholder
that holds 49% interest of Gala California. The amounts owed are unsecured, non-interest bearing, and due on demand.
|
|
|
h)
|
During the year ended November 30, 2018, the Company issued 6,000,000 (2017 - 24,500,000) common
shares with a fair value of $232,500 (2017 - $490,000) to officers and directors of the Company as compensation for services for
a period of one year. As of November 30, 2018, the Company recorded $117,020 (2017 - $165,853) as deferred compensation within
shareholders’ equity. During the year ended November 30, 2018, the Company recorded $281,334 (2017 - $324,147) of compensation
expense.
|
|
|
a)
|
On April 22, 2016, the Company issued a $22,000 promissory note to an unrelated party. Under the
terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 180 days from the date of issuance.
This note is past due and payable on demand. As of November 30, 2018, the outstanding balance of the promissory note was $22,000
(2017 - $22,000).
|
|
|
b)
|
On June 3, 2016, the Company issued a $20,000 promissory note to an unrelated party. Under the
terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 180 days from the date of issuance.
This note is past due and payable on demand As of November 30, 2018, the outstanding balance of the promissory note was $20,000
(2017 - $20,000).
|
GALA PHARMACEUTICAL INC.
Notes to the Consolidated Financial Statements
Years ended November 30, 2018 and 2017
Stock transactions
for the year ended November 30, 2018:
|
|
(a)
|
On December 7, 2017, the Company issued 209,727 common shares with a fair value of $56,773 to settle
convertible debentures of $30,000 and derivative liability of $50,993 resulting in a gain on settlement of debt of $24,220.
|
|
|
(b)
|
On January 11, 2018, the Company issued 5,000,000 common shares with a fair value of $200,000 to
the Chief Executive Officer of the Company as a performance bonus.
|
|
|
(c)
|
On February 1, 2018, the Company issued 1,500,000 common shares with a fair value of $60,000 for
consulting services for a period twelve months from the date of issuance.
|
|
|
(d)
|
On February 2, 2018, the Company issued 3,000,000 common shares, which were issuable at November
30, 2017, for consulting services with a fair value of $300,000.
|
|
|
(e)
|
On February 2, 2018, the Company issued 618,684 common shares with a fair value of $49,495 to settle
convertible debentures of $30,000 and derivative liability of $43,021 resulting in a gain on settlement of debt of $23,526.
|
|
|
(f)
|
On February 13, 2018, the Company issued 758,284 common shares with a fair value of $41,478 to
settle convertible debentures of $30,000 and derivative liability of $35,246 resulting in a gain on settlement of debt of $23,768.
|
|
|
(g)
|
On February 26, 2018, the Company issued 846,860 common shares with a fair value of $50,812 to
settle convertible debentures of $30,000 and derivative liability of $44,041 resulting in a gain on settlement of debt of $23,229.
|
|
|
(h)
|
On April 6, 2018 the Company cancelled 583,333 common shares which was returned by the former Chief
Executive Officer of the Company and reversed a cancellation of 1,500,000 common shares to the former Chief Executive Officer of
the Company
|
|
|
(i)
|
On April 18, 2018, the Company issued 5,000,000 common shares to an individual who holds 49% interest
in Gala California for proceeds of $200,000.
|
|
|
(j)
|
On May 14, 2018, the Company issued 1,500,000 common shares with a fair value of $60,000 to a director
of the Company for consulting services for a period of one year.
|
|
|
(k)
|
On June 19, 2018, 1,500,000 common shares with a fair value of $60,000 for consulting services
for a period of one year.
|
|
|
(l)
|
On July 3, 2018, the Company issued 653,125 common shares with a fair value of $71,844 to settle
convertible debentures of $30,000 and derivative liability of $65,537 resulting in a gain on settlement of debt of $23,693.
|
|
|
(m)
|
On August 28, 2018, the Company issued 500,000 common shares for proceeds of $20,000.
|
|
|
(n)
|
On August 28, 2018, the Company issued 1,000,000 common shares to a consultant for services with
a fair value of $50,000.
|
|
|
(o)
|
On September 2, 2018, the Company issued 2,500,000 common shares for proceeds of $50,000.
|
|
|
(p)
|
On September 13, 2018, the Company issued 8,250,000 common shares for proceeds of $165,000.
|
|
|
(q)
|
On September 19, 2018, the Company issued 3,000,000 common shares with a fair value of $142,500
for consulting services, which included 1,500,000 common shares with a fair value of $112,500 to the Chief Executive Officer and
Director of the Company.
|
|
|
(r)
|
On September 19, 2018, the Company issued 2,250,000 common shares for proceeds of $45,000.
|
GALA PHARMACEUTICAL INC.
Notes to the Consolidated Financial Statements
Years ended November 30, 2018 and 2017
|
10.
|
Common Shares
(continued)
|
|
|
(s)
|
On September 23, 2018, the Company issued 1,500,000 common shares with a fair value of $30,000
for consulting services.
|
|
|
(t)
|
On September 28, 2018, the Company issued 2,500,000 common shares for proceeds of $25,000, including
2,000,000 common shares to an individual with a 49% interest in Gala California.
|
|
|
(u)
|
On September 29, 2018, the Company issued 250,000 common shares for proceeds of $5,000.
|
|
|
(v)
|
On October 11, 2018, the Company issued 487,626 common shares with a fair value of $48,568 for
the settlement of convertible debentures of $20,000 and derivative liability of $45,429 resulting in a gain on settlement of debt
of $16,861.
|
|
|
(w)
|
On October 15, 2018, the Company issued 500,000 common shares for proceeds of $10,000.
|
|
|
(x)
|
On October 31, 2018, the Company issued 3,000,000 common shares with a fair value of $60,000 to
officers and directors of the Company for compensation services.
|
|
|
(y)
|
On November 1, 2018, the Company issued 5,500,000 common shares as part of a repricing of common
shares issued for cash on April 18, 2018 and August 28, 2018, which included 5,000,000 common shares issued to an individual who
holds 49% interest in Gala California.
|
|
|
(z)
|
On November 13, 2018, the Company issued 1,500,000 common shares with a fair value of $30,000 for
consulting services.
|
|
|
(aa)
|
On November 26, 2018, the Company issued 1,500,000 common shares with a fair value of $30,000
for consulting services.
|
|
|
(bb)
|
On November 26, 2018, the Company issued 569,103 common shares with a fair value of $51,162
for the settlement of $20,000 of convertible debt and derivative liability of $48,490 resulting in a gain on settlement of
debt of $17,328.
|
Stock transactions
for the year ended November 30, 2017:
|
|
(cc)
|
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.
|
|
|
(dd)
|
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. The transaction resulted in a loss on settlement of
debt of $88,334, which was recorded in the consolidated statement of operations.
|
|
|
(ee)
|
On March 22, 2017, the Company issued 1,387,970 common shares with a fair value of $499,670
to settle outstanding debt of $249,835 owed to a company controlled by a director of the Company. The transaction resulted in
a loss on settlement of debt of $249,835, which was recorded in the consolidated statement of operations.
|
|
|
(ff)
|
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. As of August 31, 2017,
deferred compensation of $115,068 has been recorded in deferred compensation.
|
|
|
(gg)
|
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. As of August
31, 2017, deferred compensation of $115,068 has been recorded in deferred compensation.
|
GALA PHARMACEUTICAL INC.
Notes to the Consolidated Financial Statements
Years ended November 30, 2018 and 2017
|
10.
|
Common Shares
(continued)
|
Stock transactions
for the year ended November 30, 2017:
|
|
(hh)
|
On March 30, 2017, the Company issued 1,500,000 common shares with a fair value of $30,000 to
the Chief Financial Officer of the Company for compensation services for a period of twelve months from the date of issuance.
As of August 31, 2017, deferred compensation of $17,260 has been recorded in deferred compensation.
|
|
|
(ii)
|
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. As of August 31, 2017,
deferred compensation of $17,260 has been recorded in prepaid expense.
|
|
|
(jj)
|
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. As of
November 30, 2017, the common shares were returnable to the Company.
|
|
|
(kk)
|
On May 17, 2017, the Company issued 5,000,000 common shares with a fair value of $30,000 to a company
controlled by the Chief Executive Officer of the Company for the purchase of intangible assets. As of November 30, 2017, the common
shares were returned to the Company.
|
|
|
(ll)
|
On July 6, 2017, the Company issued 1,500,000 common shares at $0.08 per common share pursuant
to private placement for proceeds of $120,000.
|
|
|
(mm)
|
On June 12, 2017, the Company issued 2,000,000 common shares for consulting services over a twelve
month period with a fair value of $40,000.
|
|
|
(nn)
|
On June 13, 2017, the Company issued 1,500,000 common shares with a fair value of $30,000 to
the Chief Operating Officer of the Company for compensation services for a period of twelve months from the date of issuance.
As of August 31, 2017, deferred compensation of $23,361 has been recorded in deferred compensation.
|
|
|
(oo)
|
On July 21, 2017, the Company issued 553,625 common shares with a fair value of $166,088 to
settle outstanding promissory notes and accrued interest of $44,666 resulting in a loss on settlement of debt of $121,422,
including 128,750 common shares with a fair value of $38,625 to settle outstanding promissory notes and accrued interest of
$10,254 resulting in a loss on settlement of debt of $28,371 to a related party.
|
|
|
(pp)
|
On September 1, 2017, the Company issued 1,500,000 common shares with a fair value of $30,000
for consulting services.
|
|
|
(qq)
|
On October 1, 2017, the Company issued 1,500,000 common shares with a fair value of $30,000
for consulting services.
|
|
|
(rr)
|
On October 20, 2017, the Company issued 250,000 common shares at $0.10 per share for proceeds of
$25,000.
|
|
|
(ss)
|
On October 23, 2017, the Company issued 400,000 common shares to settle the outstanding share purchase
warrants which were issued as part of the issuance of the convertible debenture.
|
|
|
(tt)
|
On November 9, 2017, the Company issued 250,000 common shares at $0.10 per share for proceeds of
$25,000.
|
|
|
(uu)
|
At November 30, 2017, the Company had 3,000,000 common shares issuable for consulting
services with a fair value of $300,000, of which $25,000 was recorded as consulting expense.
|
GALA PHARMACEUTICAL INC.
Notes to the Consolidated Financial Statements
Years ended November 30, 2018 and 2017
|
|
11.
|
Share Purchase Warrants
|
During the year ended November
30, 2018, the Company issued 60,000 share purchase warrants as part of the issuance of convertible debentures. The fair value of
the share purchase warrants was $5,694, calculated using the Black-Scholes option pricing model assuming no expected dividends,
volatility of 216%, expected life of 7 years, and a risk free rate of 2.89%.
|
|
|
Number of
warrants
|
|
|
Weighted average exercise price
$
|
|
|
|
|
|
|
|
|
|
|
Balance, November 30, 2016 and 2017
|
|
|
–
|
|
|
|
–
|
|
|
Issued
|
|
|
60,000
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, November 30, 2018
|
|
|
60,000
|
|
|
|
0.01
|
|
|
12.
|
Supplemental Disclosures
|
|
|
|
Year ended
November 30,
2018
$
|
|
|
Year ended November 30,
2017
$
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued for deferred compensation
|
|
|
232,500
|
|
|
|
490,000
|
|
|
Common shares issued for settlement of related party debt
|
|
|
–
|
|
|
|
714,962
|
|
|
Common shares issued to settle third party debt
|
|
|
370,131
|
|
|
|
127,462
|
|
|
Common shares issued for prepaid services
|
|
|
335,000
|
|
|
|
40,000
|
|
|
Debt conversion feature
|
|
|
162,074
|
|
|
|
175,427
|
|
|
Expenses paid by related parties that increased related party debt
|
|
|
–
|
|
|
|
19,500
|
|
|
Original issue discount
|
|
|
–
|
|
|
|
25,000
|
|
|
Warrants issued with debt
|
|
|
5,694
|
|
|
|
74,573
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
|
–
|
|
|
|
–
|
|
|
Income tax paid
|
|
|
–
|
|
|
|
–
|
|
As of November 30, 2018, the
Company has $2,915,300 of net operating losses carried forward to offset taxable income through fiscal 2037. No tax benefit has
been reported during the years ended November 30, 2018 and 2017 as the potential tax benefit is offset by a valuation allowance
as there is uncertainty as to whether the Company can be profitable in the future to utilize tax losses. Net operating loss carryforwards
for federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur in the future,
net operating losses carryfoward may be limited as to use in future years.
|
|
|
2018
$
|
|
|
2017$
|
|
|
|
|
|
|
|
|
|
|
Net loss before taxes
|
|
|
(1,858,877
|
)
|
|
|
(1,981,856
|
)
|
|
Statutory rate
|
|
|
21%
|
|
|
|
34%
|
|
|
|
|
|
|
|
|
|
|
|
|
Computed expected tax recovery
|
|
|
(390,400
|
)
|
|
|
(673,830
|
)
|
|
Permanent differences and other
|
|
|
34,100
|
|
|
|
490,000
|
|
|
Change in enacted tax rates
|
|
|
168,200
|
|
|
|
–
|
|
|
Change in valuation allowance
|
|
|
188,100
|
|
|
|
183,800
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
|
–
|
|
|
|
–
|
|
GALA PHARMACEUTICAL INC.
Notes to the Consolidated Financial Statements
Years ended November 30, 2018 and 2017
|
13.
|
Income Taxes
(continued)
|
The significant components of
deferred income tax assets and liabilities at November 30, 2018 and 2017 are as follows:
|
|
|
2018
$
|
|
|
2017
$
|
|
|
|
|
|
|
|
|
|
|
Net operating losses carried forward
|
|
|
643,100
|
|
|
|
439,900
|
|
|
Accrued interest
|
|
|
1,100
|
|
|
|
5,900
|
|
|
Related party payables
|
|
|
10,400
|
|
|
|
20,900
|
|
|
Accumulated depreciation above book value
|
|
|
(1,800
|
)
|
|
|
(3,300
|
)
|
|
Valuation allowance
|
|
|
(652,800
|
)
|
|
|
(463,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred income tax asset
|
|
|
–
|
|
|
|
–
|
|
|
|
14.
|
Commitments and Contingencies
|
|
|
(a)
|
On May 1, 2018, Gala California, a 51% owned subsidiary of the Company, entered into a lease agreement
with an individual who holds a 49% interest in Gala California to lease a commercial building in Long Beach, California. Under
the terms of the lease agreement, the Company is committed to the following minimum lease payments:
|
|
Fiscal year ended
|
|
$
|
|
|
|
|
|
|
|
November 30, 2019
|
|
|
110,520
|
|
|
November 30, 2020
|
|
|
114,941
|
|
|
November 30, 2021
|
|
|
119,538
|
|
|
November 30, 2022
|
|
|
124,320
|
|
|
November 30, 2023
|
|
|
52,644
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
521,963
|
|
During the
year ended November 30, 2018, the Company recorded rent expense of $81,799 (2017 - $18,085).
|
|
(b)
|
As of November 30, 2018, the Company is subject of a civil action relating to a former consultant
for a breach of contract. In April 2019, the Company anticipates a settlement agreement of this action. The Company has accrued
$64,000 as part of the settlement amount at November 30, 2018.
|
In accordance with ASC 855,
Subsequent Events, the Company has evaluated subsequent events through to the date of issuance of the financial statements, and
did not have any material recognizable subsequent events after November 30, 2018 with the exception of the following:
|
|
(a)
|
On December 5, 2018, the Company issued 500,000 common shares for proceeds of $25,000.
|
|
|
(b)
|
On December 31, 2018, the Company issued 1,500,000 common shares for consulting services to a director of the company.
|
|
|
(c)
|
On January 7, 2019, the Company issued 1,186,310 common shares for the conversion of $20,000 of loan payable
|
|
|
(d)
|
On February 5, 2019, the Company entered into a convertible note agreement for $5,000. The note
is unsecured, bears interest at 12% per annum, and is due on February 5, 2020. The note is convertible into common shares at the
lower of: (i) $0.04 per share; or (ii) 50% of the lowest three trading prices in the twenty day trading period leading up to the
date of conversion. In addition, the Company granted 10,000 share purchase warrants to the note holder with an exercise price of
$0.01 per share until February 5, 2026.
|
GALA PHARMACEUTICAL INC.
Notes to the Consolidated Financial Statements
Years ended November
30, 2018 and 2017
|
|
15.
|
Subsequent Events
(continued)
|
|
|
(c)
|
On February 8, 2019, the Company entered into a convertible note agreement for $210,000. The note
is unsecured, bears interest at 8% per annum, and is due on January 30, 2020. The note is convertible into common shares at 62%
of the average two lowest trading prices in the twenty trading days leading up to the date of conversion.
|
|
|
(d)
|
On March 19, 2019, the Company issued 1,500,000 common shares for proceeds of $75,000.
|
|
|
(e)
|
On March 19, 2019, the Company issued 1,000,000 common shares for consulting services to a non-related
party.
|
|
|
(f)
|
On March 19, 2019, the Company issued 1,725,000 common shares for the conversion of $1,725 of loan
payable.
|
|
|
(g)
|
Subsequent to November 30, 2018, the Company has paid $104,904 to the contractor for the build-out of the Testing Lab. The build-out
is scheduled to be completed by May 19, 2019.
|