ITEM 2 MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Safe Harbor Statement
This report on Form 10-Q contains certain
forward-looking statements. All statements other than statements of historical fact are “forward-looking statements”
for purposes of these provisions, including any projections of earnings, revenues, or other financial items; any statements of
the plans, strategies, and objectives of management for future operation; any statements concerning proposed new products, services,
or developments; any statements regarding future economic conditions or performance; statements of belief; and any statement of
assumptions underlying any of the foregoing. Such forward-looking statements are subject to inherent risks and uncertainties, and
actual results could differ materially from those anticipated by the forward-looking statements.
These forward-looking statements involve
significant risks and uncertainties, including, but not limited to, the following: competition, promotional costs, and risk of
declining revenues. Our actual results could differ materially from those anticipated in such forward-looking statements
as a result of a number of factors. These forward-looking statements are made as of the date of this filing, and we assume
no obligation to update such forward-looking statements. The following discusses our financial condition and results of operations
based upon our financial statements which have been prepared in conformity with accounting principles generally accepted in the
United States. It should be read in conjunction with our financial statements and the notes thereto included elsewhere herein.
The following discussion should be read
in conjunction with our financial statements, including the notes thereto, appearing elsewhere in this Form 10-Q. The discussions
of results, causes and trends should not be construed to imply any conclusion that these results or trends will necessarily continue
into the future.
Business Expansion:
On May 8, 2017, Gala Global Inc. (“GLAG”)
and Controlled Environment Genomics, Inc. (“CEG”) entered into a definitive agreement whereby GLAG is acquiring 80%
of CEG. The transaction will be closing shortly.
Controlled Environment Genomics, Inc. (CEG),
Akron, Ohio, is a genomics company with expertise in digital plant gene sequencing, editing and cloning technologies. Genomics
is an interdisciplinary field of science and branch of molecular biology focused on the structure, function, evolution and mapping
of genomes, complete sets of DNA within single cells of an organism. CEG’s state-of-the-art genomics technology enables computerized
genome sequencing and plant cloning using a fully automated turnkey solution for digitally sequencing the genomes of the world’s
most desirable plant varieties based on flavor and nutrition.
CEG improves the most valuable crop varieties
currently available on the market by utilizing proprietary Cloud computing-based digital cloning technologies to crossbreed crops
that have advantageous traits with established varieties featuring the best genetic profiles for commercial production. The
very
best plant traits can be used to improve the most sought-after commercial varieties by adding characteristics like maximized yields
and quality conducive to increased consumer demand and optimized production profitability.
CEG’s patent-pending digital cloning
technology makes it possible for plant breeders to edit the original genetic profile of any crop by modifying it with specific
genes that control traits like active compound production and/or nutritional/medicinal value, thus increasing business efficiencies
while boosting commercial viability.
CEG Inc. designed its digital plant cloning
incubation and growth chambers with plant breeders in mind. CEG incubation technology enables breeders to control temperature,
light, humidity and more for agricultural biotechnology, phytopathology, entomology and other plant science research. Using CEG
technology, plant breeders can quickly clone hybridized plants containing specific desirable genes and traits “on demand”
in any geographical location.
RESULTS OF OPERATIONS
Working Capital
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August 31,
2017
$
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|
|
November 30,
2016
$
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|
|
Current Assets
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|
|
261,097
|
|
|
|
13,082
|
|
|
Current Liabilities
|
|
|
(752,105
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)
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|
|
(461,190
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)
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|
Working Capital (Deficit)
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|
|
(491,008
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)
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|
|
(448,108
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)
|
Cash Flows
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|
|
Nine months ended May 31,
2017
$
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|
|
Nine months ended May 31,
2016
$
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|
|
Cash Flows from (used in) Operating Activities
|
|
|
(225,668
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)
|
|
|
(60,757
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)
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|
Cash Flows from (used in) Investing Activities
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|
|
(120,000
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)
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|
|
–
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|
|
Cash Flows from (used in) Financing Activities
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|
|
395,367
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|
|
|
60,964
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|
|
Net Increase (decrease) in Cash During Period
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|
|
49,699
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|
|
|
207
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|
Operating Expenses
Three Months Ended August 31, 2017
and 2016
During the three months ended August 31,
2017, the Company incurred operating expenses of $286,804 compared to $49,252 during the three months ended August 31, 2016. The
increase in operating expenses is due to an increase in related party consulting fees of $155,622 related to the portion of deferred
compensation expensed during the period relating to the issuance of common shares to officers and directors of the Company for
services rendered, an increase of $59,344 in related party general and administrative costs for out of pockets incurred by officers
and directors of the Company due to the increase in operating activity related to the proposed acquisition of CEG, an increase
of $20,184 in general and administrative costs related to professional fees and day-to-day operating activities, and $23,852 in
consulting fees related to services provided by outside consultants to the Company. The increases were offset by a decrease in
rent of $21,450 as the Company moved from its previous head office location in order to preserve cash flow.
The Company incurred a net loss of $695,189
during the three months ended August 31, 2017 compared to a net loss of $49,792 during the three months ended August 31, 2016.
In addition to operating expenses incurred during the three months ended August 31, 2017, the Company also recorded a loss on settlement
of related party debt of $28,371 for the difference in the fair value of shares issued to a related party above the carrying value
of related party debt, $93,050 loss on settlement of notes payable related to the difference in the fair value of shares issued
to note holders above the carrying value of the notes payable, $197,308 for the change in fair value of the derivative liability,
and $89,656 for interest and accretion expense related to the convertible debenture issued and share purchase warrants issued during
the year. For the three months ended August 31, 2016, the Company had minimal other expense items.
Nine Months Ended August 31, 2017
and 2016
During the nine months ended August 31,
2017, the Company incurred operating expenses of $417,137 compared to $144,604 during the nine months ended August 31, 2016. The
increase in operating expenses is due to the issuance of common shares to officers and directors of the Company totaling $520,000
of which $210,777 was expensed during the period and the remaining amount of $309,223 was recorded as deferred compensation for
the fair value of future services due to the Company related to those share issuances. Furthermore, the Company incurred an increase
of $45,000 for consulting and salary costs incurred for a new officer of the Company, $40,000 in compensation costs to the Chief
Executive Officer of the Company, and $15,950 in general and administrative expense for out-of-pocket costs relating to the potential
acquisition of CEG and for an overall increase in business activity in the current fiscal year compared to the prior fiscal year.
The increases were offset by a decrease of $34,000 in rent expense as the Company is minimizing expenditures in order to maintain
sufficient cash flow for future use.
The Company incurred a net loss of $1,099,662
during the nine months ended August 31, 2017 compared to a net loss of $145,697 during the nine months ended August 31, 2016. In
addition to operating expenses incurred during the nine months ended August 31, 2017, the Company also recorded a loss on settlement
of related party debt of $116,705 for the difference in the fair value of shares issued to a related party above the carrying value
of related party debt, a loss of $93,050 for the settlement of non-related party notes payable for the difference in the fair value
of shares issued to settle notes payable, a loss of $207,340 for the change in fair value of the derivative liability, and $265,430
for interest and accretion expense related to the issuance and revaluation of the convertible debenture issued during the period
and for the fair value of share purchase warrants issued during the period of $105,396. For the nine months ended August 31, 2016,
the Company had minimal other expense items.
Net Loss
During the three months ended August 31,
2017, the Company incurred a net loss of $695,189 or $0.02 loss per share compared to a net loss of $49,792 and loss per share
of $0.04 during the three months ended August 31, 2017. During the nine months ended August 31, 2017, the Company incurred a net
loss of $1,099,662 or $0.06 loss per share compared to a net loss of $145,697 or $0.11 loss per share during the nine months ended
August 31, 2016. The increase in the net loss and loss per share amounts were due to greater expenditures relating to the fair
value of share-based compensation that was issued during the current period.
Liquidity and Capital Resources
As of August 31, 2017, the Company has
a working capital deficit of $491,008 and an accumulated deficit of $2,336,375 compared to a working capital deficit of $448,108
and an accumulated deficit of $1,236,713 at November 30, 2016. The increase in working capital deficit was due to the issuance
of convertible debentures that were used for operating activities, and the derivative liability relating to the conversion feature
of the convertible debentures that increased the overall working capital deficit.
During the nine months ended August 31,
2017, the Company issued the following common shares:
|
|
·
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Issuance of 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;
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|
|
·
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Issuance of 1,387,970 common shares to settle outstanding debt of $249,835 owed to a company controlled
by a director of the Company;
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|
|
·
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Issuance of 10,000,000 common shares with a fair value of $200,000 to a director of the Company
for compensation services of one year, ending March 30, 2018;
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|
|
·
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Issuance of 10,000,000 common shares with a fair value of $200,000 to a director of the Company
for compensation services of one year, ending March 30, 2018;
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|
|
·
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Issuance of 1,500,000 common shares with a fair value of $30,000 to the Chief Financial Officer
of the Company for compensation services of one year, ending March 30, 2018;
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|
|
·
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Issuance of 1,500,000 common shares with a fair value of $30,000 to an officer of the Company for
compensation services of one year, ending March 30, 2018;
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|
|
·
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Issuance of 1,500,000 common shares with a fair value of $30,000 to the Chief Executive Officer
of the Company for compensation services of one year, ending May 17, 2018;
|
|
|
·
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Issuance of 5,000,000 common shares with a fair value of $100,000 to a company controlled by the
Chief Executive Officer of the Company as a deposit for the purchase of intangible assets, which have not been finalized as of
August 31, 2017;
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|
|
·
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Issuance of 1,500,000 common shares with a fair value of $30,000 to a non-related company for consulting
services of one year, ending June 12, 2018;
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|
|
·
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Issuance of 500,000 common shares with a fair value of $10,000 to a non-related company for consulting
services of one year, ending June 12, 2018;
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|
·
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Issuance of 1,500,000 common shares with a fair value of $30,000 to the Chief Operating Officer
of the Company for compensation services of one year, ending June 2018;
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|
|
·
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Issuance of 1,500,000 common shares at $0.08 per share for proceeds of $120,000;
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·
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Issuance of 128,750 common shares for settlement of $10,254 of debt to a related company; and
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·
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Issuance of 424,875 common shares for settlement of $34,413 of debt to note holders.
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Cash flow from Operating Activities
During the nine months ended August 31,
2017, the Company used cash of $225,668 in operating activities compared to the use of $60,757 of cash for operating activities
during the nine months ended August 31, 2016. Overall, the cash used for operating activities increased to an overall increase
in funding from financing activities which included $250,000 of proceeds from a convertible note payable, and $108,000 in proceeds
from the issuance of common shares after accounting for a $12,000 payment for finder’s fees.
Cash flow from Investing Activities
During the nine months ended August 31,
2017, the Company used cash of $120,000 which included $100,000 for the purchase of equipment and $20,000 for a loan issued to
a related party. During the nine months ended August 31, 2016, the Company did not have any investing activities.
Cash flow from Financing Activities
During the nine months ended August 31,
2017, the Company received cash of $395,367 from financing activities compared to $60,964 during the nine months ended August 31,
2016. The increase in the cash received from financing activities was due to the receipt of $250,000 from the issuance of a convertible
debenture, $108,000 of proceeds received from the issuance of common shares after accounting for $12,000 of finder’s fees,
$28,867 from related parties, and $8,500 from the issuance of a related party note payable. During the nine months ended August
31, 2016, the Company received $65,000 from issuance of a loan payable, $2,064 of proceeds from a related party which was offset
by the repayment of $6,100 for related party debt.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements
that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Subsequent Events;
Subsequent to August 31, 2017, the Company
issued 1,500,000 common shares to a non-related party for consulting services.
Going Concern
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 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.
Future Financings
We will continue to rely on equity sales
of our common shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution
to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for
debt or other financing to fund planned acquisitions and activities.
Critical Accounting Policies
Our financial statements and accompanying
notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
periods.
We regularly evaluate the accounting policies
and estimates that we use to prepare our financial statements. A complete summary of these policies is included in note (1) of
the notes to our financial statements. In general, management's estimates are based on historical experience, on information from
third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances.
Actual results could differ from those estimates made by management.
Use of Estimates
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and accompanying notes for the reporting period. Significant
areas requiring the use of management estimates relate to the valuation of its mineral leases and claims and our ability to obtain
final government permission to complete the project.
Stock-Based Compensation
The Company records stock-based compensation
in accordance with ASC 718,
Compensation – Stock Compensation
, using the fair value method. All transactions in which
goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value
of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity
instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the
fair value of the equity instruments issued.
Derivative Liability
From time to time, the Company may issue
equity instruments that may contain an embedded derivative instrument which may result in a derivative liability. A derivative
liability exists on the date the equity instrument is issued when there is a contingent exercise provision. The derivative liability
is 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.
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.
Recently Issued Accounting Pronouncements
The Company has reviewed all the recently
issued, but not yet effective, accounting pronouncements and does not believe that the future adoption of any such pronouncements
may be expected to cause a material impact on its financial condition or the results of its operations as reported in its financial
statements.
Contractual Obligations
We are a smaller reporting company as defined
by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.