NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE PERIOD
FROM FEBRUARY 26, 2018, (INCEPTION) THROUGH OCTOBER 31, 2018
NOTE 1 -ORGANIZATION AND BASIS OF PRESENTATION
Apotheca Biosciences is a medical device company
developing engineering and device solutions for cannabinoid medical technologies. The company is incorporated in Nevada as a Corporation
with principal business in Saint Petersburg, FL. The company develops, license and market cannabinoid technologies to various market
sectors.
Apotheca Biosciences is developing cutting-edge
medical products, nutraceuticals, formulation and delivery technologies for the healthcare and consumer care industry. Our pipeline
of products includes, transdermal, sublingual, and nasal delivery technologies for precise and controlled dosing of cannabinoids.
We believe that we can deliver meaningful benefits using our technologies to the world’s aging population.
The last two decades of research have brought
a tremendous improvement in knowledge of the endocannabinoid system (eCB system) components and functions under physiological and
pathological conditions. The eCB is a neuromodulatory system consists of two subtypes of cannabinoid receptors, CB1 and CB2
Vision
Apotheca Biosciences is positioning to be global
leader in discovering new cannabinoid medical technologies to make life better and healthier
Mission
To contribute to human welfare through
innovative biomedical engineering solutions; to deliver cannabinoid actives that relieve pain, restore health, and longevity of
millions of patients around the world.
Core values:
|
·
|
Bring cost-effective
and meaningful medical care to patients
|
|
·
|
Build an environment
of creativity and transform new ideas into breakthrough technologies and devices
|
|
·
|
Pursue innovative engineering
solutions that challenge established thinking
|
|
·
|
Change and act with speed
via scientific collaboration, partnership and a winning spirit
|
Apotheca Biosciences, Inc. (the "Company") was originally incorporated in the State of Nevada on
October 6, 2014, under the name Pacificorp Holdings, Ltd. On June 2, 2017 the Company entered into a short form Merger Agreement
with the Company’s wholly owned subsidiary in order to effect the change of their corporate name. The name change was effected
through a parent/subsidiary short-form merger of the Company and its wholly-owned subsidiary, Cannabis Leaf Incorporated., a Nevada
Corporation (the “Subsidiary”), under Section 92A.180 of the Nevada Revised Statutes (“NRS”). Pursuant
to an Agreement of Merger, dated June 2, 2017, between the Company and the Subsidiary, effective June 7, 2017, the Subsidiary merged
with and into the Company and ceased to exist (the “Merger”). Pacificorp Holdings, Ltd was the surviving entity and
adopted the name of the subsidiary, Cannabis Leaf Incorporated.
On March 6, 2018 an Agreement and Plan
of Merger (the "Agreement") was made and entered into as of March 6, 2018 by and among Cannabis Leaf Incorporated (“CLI”)
and Apotheca. The respective Boards of Directors of CLI and Apotheca determined that it was in the best interest of each company
and its respective stockholders to consummate the business combination transaction provided for in the agreement in which Apotheca
would merge with and into CLI (the "Merger"), with Apotheca as the surviving entity post-Merger, the respective Boards
of Directors of CLI and the Apotheca approved the Agreement, the Merger, and the other transactions contemplated by the Agreement,
upon the terms and subject to the conditions set forth in the Agreement in accordance with the Nevada Revised Statutes regarding
business combinations or merger ("NRS"), and their respective corporate documents.
APOTHECA BIOSCIENCES, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE PERIOD
FROM FEBRUARY 26, 2018, (INCEPTION) THROUGH OCTOBER 31, 2018
NOTE 1 -ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
On
August 2, 2018
, Articles of Merger
and the Merger Agreement were filed with the Nevada Secretary of State,
giving Effect to the Merger
and the change
of name of our company to Apotheca Biosciences Incorporated.
These financial statements and related notes
are presented in accordance with accounting principles generally accepted in the United States and are expressed in United States
(US) dollars. The Company has not produced any revenue from its principal business and is a development stage company. The Company
has changed it business from a license holder with Affordable Green LLC of Tacoma WA to a cannabis bioscience company. Additionally,
the Company has changed its name as a result of a merger with the Company’s wholly owned subsidiary Apotheca Biosciences,
Inc. as a result of this merger Cannabis Leaf adopted the name of the subsidiary. The comparative balance sheet is the balance
sheet audited as of April 30, 2018 for Apotheca Private.
NOTE 2 -SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The unaudited condensed financial statements
of the Company and the accompanying notes included in this Quarterly Report on Form 10-Q are unaudited and have not been reviewed.
In the opinion of management, all adjustments necessary for a fair presentation of the Condensed Financial Statements have been
included. Such adjustments are of a normal, recurring nature. The Condensed Consolidated Financial Statements, and the accompanying
notes, are prepared in accordance with generally accepted accounting principles in the United States ("GAAP"). Results
for the interim periods presented are not necessarily indicative of the results that might be expected for the entire fiscal year.
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 reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements. The estimates and judgments will also affect the reported amounts for certain revenues
and expenses during the reporting period. Actual results could differ from these good faith estimates and judgments.
Fair Value of Financial Instruments
The Company’s financial instruments consist
primarily of accounts payable and accrued liabilities and loans payable – related parties. The carrying amounts of such financial
instruments approximate their respective estimated fair value due to the short-term maturities and approximate market interest
rates of these instruments.
Basic and Diluted Earnings Per Share
Net loss per share is calculated in accordance with FASB ASC 260,
Earnings Per Share
, for the
period presented. ASC 260 requires presentation of basic earnings per share and diluted earnings per share. Basic income (loss)
per share (“Basic EPS”) is computed by dividing net loss available to common stockholders by the weighted average number
of common shares outstanding during the period. Diluted earnings per share (“Diluted EPS”) is similarly calculated.
Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised
at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common
stock at the average market price during the period. For the period ended October 31, 2018,
there
were no potentially dilutive securities.
APOTHECA BIOSCIENCES, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE PERIOD
FROM FEBRUARY 26, 2018, (INCEPTION) THROUGH OCTOBER 31, 2018
NOTE 2 -SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
New Accountin
g
Pronouncements
In February 2016, FASB issued ASC 842 that
requires lessees to recognize lease assets and corresponding lease liabilities on the balance sheet for all leases with terms of
more than 12 months. The update, which supersedes existing lease guidance, will continue to classify leases as either finance or
operating, with the classification determining the pattern of expense recognition in the income statement.
The ASU will be effective for annual and interim
periods beginning January 1, 2019, with early adoption permitted, and is applicable on a modified retrospective basis with various
optional practical expedients. The Company is assessing the impact of this standard.
In May 2014, ASU 2014-09 was issued related
to revenue from contracts with customers. The ASU was further amended in August 2015, March 2016, April 2016, and May 2016 by ASU
2015-14, 2016-08, 2016-10 and 2016-12.
The new standard provides a five-step approach
to be applied to all contracts with customers and also requires expanded disclosures about revenue recognition.
In August 2015, the effective date was deferred
to reporting periods, including interim periods, beginning after December 31, 2017, and will be applied retrospectively. Early
adoption is not permitted.
The Company reviews new accounting standards
as issued. No new standards had any material effect on these financial statements. The accounting pronouncements issued subsequent
to the date of these financial statements that were considered significant by management were evaluated for the potential effect
on these consolidated financial statements. Management does not believe any of the subsequent pronouncements will have a material
effect on these consolidated financial statements as presented and does not anticipate the need for any future restatement of these
consolidated financial statements because of the retro-active application of any accounting pronouncements issued subsequent to
October 31, 2018 through the date these financial statements were issued.
NOTE 3 – MERGER
On
March 6, 2018
an Agreement and Plan
of Merger was made and entered into as of March 6, 2018 by and among Cannabis Leaf (CLI) and Apotheca. The respective Boards of
Directors of CLI and Apotheca have determined that it is in the best interest of each company and its respective stockholders to
consummate the business combination transaction provided for in the agreement in which Apotheca would merge with and into CLI ,
with Apotheca (post name change from cannabis Leaf) as the surviving entity post-Merger, upon the terms and subject to the conditions
set forth herein; the respective Boards of Directors of CLI and the Apotheca have approved the Agreement, the Merger, and the other
transactions contemplated by the Agreement, upon the terms and subject to the conditions set forth in the Agreement in accordance
with the Nevada Revised Statutes regarding business combinations or merger ("NRS"), and their respective corporate documents.
At the Effective Time, by virtue of the
Merger and without any action on the part of CLI or Apotheca or any holder of capital stock of CLI or Apotheca:
(a) Capital Stock of CLI. Each issued
and outstanding share of capital stock of shall by virtue of the Merger and without any action on the part of any holder thereof,
be converted into and shall be existing as one share of CLI's common stock without need of re-issuance. Such shares shall
thereafter constitute all of the issued and outstanding capital stock of the Surviving Corporation being Apotheca.
(b) Conversion of CLI Stock:(i) Each share
of CLI Common Stock issued and outstanding immediately prior to the Effective Time (individually a "Share" and collectively
the "Shares"), shall be considered shares of Apotheca as the surviving entity as set forth below (the "Merger Consideration").
APOTHECA BIOSCIENCES, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE PERIOD
FROM FEBRUARY 26, 2018, (INCEPTION) THROUGH OCTOBER 31, 2018
NOTE 3 – MERGER (CONTINUED)
(ii) At the Effective Time, each Share
held by CLI as treasury stock or held by CLI, or any Subsidiary of CLI, immediately prior to the Effective Time shall, by virtue
of the Merger and without any action on the part of CLI continue to exist as shares of Apotheca as the surviving entity without
further consideration with respect thereto.
(iii) At the Effective Time, each Share
of the Treasury Stock as Authorized Shares but unissued Shares of CLI shall become Treasury Shares but unissued Shares of Apotheca,
with no change the authorized shares which were in effect immediately prior to the Effective Time.
(iv) At the Effective Time, Apotheca as the surviving entity and
in exchange for the acquisition of Apotheca shall be issued as such exchange for control and merger the amount of sixty million
(60,000,000) shares of Apotheca as the surviving Company in the form of common shares to be distributed as set forth by Apotheca
at its direction on a schedule set forth for issuance. Such shares shall be considered the Merger Control Shares and shall represent
approximately sixty percent of the then post-issuance control of CLI post-merger. (v) At the time of exchange in such transaction,
there is as certified by CLI, its board of directors and management, exist no convertible or other debt with claims or rights superior
for the issuance of any shares of common stock in CLI, and no such claims need be recognized by Apotheca as debt of the surviving
entity. Any such debt must have been and was not disclosed to Apotheca before this transaction, and the existing of such debt or
claims is a liability of the prior management of CLI and not of Apotheca as the surviving entity.
Closing. Upon the terms and subject to
the conditions set forth herein and unless this Agreement has been terminated pursuant to its terms, the closing of the Merger
on
May 15, 2018
at which time the conditions to Closing set forth in this Agreement shall have been satisfied or, to the
extent permitted hereunder, waived by the appropriate party (other than those conditions that by their nature are to be satisfied
at the Closing, but subject to the satisfaction or, to the extent permitted hereunder, waiver of all such conditions) or at such
other time, date or location as the parties hereto agree. The date on which the Closing actually occurs, and the transactions contemplated
hereby become effective is hereinafter referred to as the Closing Date CLI and Apotheca shall deliver the certificates and other
documents and instruments required to be delivered hereunder.
Effective Time of the Merger. Subject to
the provisions of this Agreement, at the Closing, the parties hereto shall (a) cause a certificate of merger in substantially the
form required by the Secretary of State of Nevada to be executed and filed with the Secretary of State of the State of Nevada,
and (b) take all such other and further actions as may be required by the NRS or other applicable Law to make the Merger effective.
The Merger shall become effective as of the date and time of the filing of the Nevada Certificate of Merger or at such later date
or time as may be agreed by CLI and CLI in writing and specified in the Nevada Certificate of Merger in accordance with relevant
provisions of the NRS. The date and time of such effectiveness are referred to herein as the Effective Time
On
August 2, 2018
, Articles of Merger
and the Merger Agreement were filed with the Nevada Secretary of State,
giving Effect to the Merger
and the change
of name of our company to Apotheca Biosciences Incorporated.
The unaudited pro forma combined condensed
financial statements were prepared using the acquisition method of accounting as outlined in Financial Accounting Standards Board
Accounting Standards Codification (“ASC”) 805,
Business Combinations
, with the Company considered the acquiring
company. Based on the acquisition method of accounting, the consideration transferred by the Company is based on number or equity
interests (e.g., shares) the Company issued to give the shareholders of the CLI the same percentage of equity interest in the combined
entity that resulted from the reverse merger. Consolidated statements immediately following the reverse merger are a continuation
of the financial statements of the Company (“accounting acquirer”) retroactively adjusted to reflect the CLI (“accounting
acquiree”) legal capital.
APOTHECA BIOSCIENCES, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE PERIOD
FROM FEBRUARY 26, 2018, (INCEPTION) THROUGH OCTOBER 31, 2018
NOTE 3 – MERGER (CONTINUED)
The acquisition of a private operating company
by a nonoperating public shell corporation typically results in the owners and management of the private company having actual
or effective voting and operating control of the combined company. A public shell reverse acquisition is viewed as a capital
transaction in substance, rather than a business combination. As a result, it should be accounted for as a reverse recapitalization
equivalent to the issuance of stock by the private company for the net monetary assets of the shell corporation accompanied by
a recapitalization. This accounting treatment is similar to that resulting from a reverse acquisition, except that no goodwill
or other intangible assets should be recorded.
The following is the statement of stockholders’
equity as of October 31, 2018 reflecting the recapitalization.
APOTHECA BIOSCIENCES, INC.
Unaudited Pro Forma Condensed Consolidated Statement
of Stockholders’ Equity for the Period
From February 26, 2018 (Inception) through to
October 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Additional Paid in Capital
|
|
Shares to be issued
|
|
Accumulated (Deficit)
|
|
Total
|
Balances, February 26, 2018
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued by Apotheca in exchange for services ($.001 par value)
|
|
|
60,000,000
|
|
|
|
6,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recapitalization on August 2, 2018
|
|
|
51,314,000
|
|
|
|
105,314
|
|
|
|
(1,444,587
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,339,273
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued in satisfaction of accrued liability (license settlement)
|
|
|
2,600,000
|
|
|
|
2,600
|
|
|
|
1,141,000
|
|
|
|
|
|
|
|
|
|
|
|
1,144,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares to be issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73,700
|
|
|
|
|
|
|
|
73,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from February 26, 2018 through October 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
405,339
|
|
|
|
405,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, October 31, 2018
|
|
|
113,914,000
|
|
|
$
|
113,914
|
|
|
$
|
(303,187
|
)
|
|
$
|
73,7000
|
|
|
$
|
405,339
|
|
|
$
|
(520,912
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
APOTHECA BIOSCIENCES, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE PERIOD
FROM FEBRUARY 26, 2018, (INCEPTION) THROUGH OCTOBER 31, 2018
NOTE 4 – GOING CONCERN
The Company's financial statements are prepared using the generally accepted accounting principles applicable
to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.
At
October 31, 2018 and April 30, 2018, the Company had $168,462 and $0 in cash and $520,912 and $32,242 in negative working capital,
respectively. From inception (February 26, 2018) through October 31, 2018, the Company had a net loss of $405,339. Continued
losses may adversely affect the liquidity of the Company in the future.
Therefore, the
factors noted above raise substantial doubt about our ability to continue as a going concern.
The recoverability of
a major portion of the recorded asset amounts shown in the accompanying balance sheet is dependent upon continued operations of
the Company, which in turn is dependent upon the Company's ability to raise additional capital, obtain financing and to succeed
in its future operations. The financial statements do not include any adjustments relating to the recoverability and classification
of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to
continue as a going concern. The Company’s existence is dependent upon management’s ability to develop profitable operations
and resolve its liquidity problems.
NOTE 5 – ACCOUNTS PAYABLE – RELATED PARTY
As of October 31, 2018, the Company has an
accounts payable balance of $3,724 to a related party. The Company has a lease agreement with the related party, Nuvus Gro Corp,
in which the Company pays $6,408 per month for office space. On October 15, 2018, the Company paid $2,684 towards the $6,408 rent
due for October leaving a balance of $3,724. See Note 10.
NOTE 6 – ACCRUED LIABILITIES
As of October 31, 2018, the Company has the
following accrued liabilities:
|
|
Amount
|
Accrued salary – officer
|
|
$
|
38,791
|
|
Credit card
|
|
|
9,608
|
|
Accrued interest
|
|
|
2,654
|
|
Total
|
|
$
|
51,053
|
|
NOTE 7 – NOTES PAYABLE
As of October 31, 2018, the Company had outstanding
notes payable totaling $18,600. The notes bear an interest rate of 5% per annum and are due upon demand giving 30 days written
notice to the borrower. From inception through October 31, 2018, the Company recorded $464 in interest expense on the notes.
NOTE 8 – GAIN ON SETTLEMENT
OF LIABILITY
In May 2017, CLI, the accounting acquiree, entered into a Licensing Agreement with Affordable Green Washington
LLC where the consideration was $2,100,000. On May 3, 2018 the CLI entered into a Settlement and Release Agreement with AGH WA,
LLC in order to terminate the License Agreement and cease the business relationship between the Parties and remedy any defaults
of the terms and conditions of the License Agreement. The Compensation and Settlement pertaining to entering into the Settlement
and Release Agreement was an aggregate total of 2,600,000 restricted Common Shares. On CLI’s balance sheet, a liability was
recorded in the amount of $2,158,000, which was based on a fair value of $0.83 per share on the commitment date. As of the merger
date, the liability balance of $1,300,000 was assumed by Apotheca in the merger. On August 7, 2018, Apotheca issued 2,600,000 in
full satisfaction of the liability. On the date the shares were issued, the fair value of the shares were equal to $0.44. As a
result, Apotheca recorded a gain on settlement of liability of $156,000.
APOTHECA BIOSCIENCES, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE PERIOD
FROM FEBRUARY 26, 2018, (INCEPTION) THROUGH OCTOBER 31, 2018
NOTE 9 – CONVERTIBLE NOTE PAYABLE
On October 3,
2018, the Company entered into a Securities Purchase Agreement with Firstfire Global Opportunities Fund, LLC, an accredited investor
“Firstfire” pursuant to which the Company issued to Firstfire a
Senior
Convertible Promissory Note (“Note”) in the aggregate principal amount of $300,000. The Note The Company received net
proceeds of $243,900 after a $24,000 original note discount and $32,100 of financing costs. The Note has a maturity date of October
3, 2019 and the Company has agreed to pay interest on the unpaid principal balance of the Note at the rate of five percent (5%)
per annum from the date on which the Note is issued until the same becomes due and payable, whether at maturity or upon acceleration
or by prepayment or otherwise. The Company shall have the right to prepay the Note, provided it makes a payment to Firstfire as
set forth in the Note.
The outstanding principal amount of the Note is convertible into common stock at the lender’s option
at $0.20 per share. The agreements contain down-round protection in the event the Company issues common stock at a lower price.
In connection with the agreement, the Company issued detachable warrants to purchase 480,000 shares of the company’s common
stock. The warrants have a strike price of $0.3125 and an expiration date of October 3, 2021. The warrants contain down-round protection
in the event the Company issues common stock at a lower price.
Accounting Considerations
The Company has accounted for the Note as a
financing transaction, wherein the net proceeds that were received were allocated to the financial instrument issued. Prior to
making the accounting allocation, the Company evaluated the agreement under ASC 815
Derivatives and Hedging
(“ASC
815”). ASC 815 generally requires the analysis embedded terms and features that have characteristics of derivatives to be
evaluated for bifurcation and separate accounting in instances where their economic risks and characteristics are not clearly and
closely related to the risks of the host contract. The material embedded derivative features consisted of the embedded conversion
option and default puts. The conversion option and default puts bear risks of equity which were not clearly and closely related
to the host debt agreement and required bifurcation. Current accounting principles that are also provided in ASC 815 do not permit
an issuer to account separately for individual derivative terms and features that require bifurcation and liability classification.
Rather, such terms and features must be and were bundled together and fair valued as a single, compound embedded derivative. Additionally
the warrants required classification as derivative liabilities.
Based on the previous conclusions, the Company
allocated the cash proceeds first to the derivative components at its fair value with the residual allocated to the host debt contract,
as follows:
|
|
Allocation
|
Compound embedded derivative
|
|
$
|
408,373
|
|
Derivative warrants
|
|
|
128,544
|
|
Day-one derivative loss
|
|
|
(260,917
|
)
|
Financing fees
|
|
|
(32,100
|
)
|
Net proceeds
|
|
$
|
(243,900
|
)
|
The net proceeds
of $243,900 were allocated to the compound embedded derivative and derivative warrants. This resulted in a day-one derivative loss
of $260,917. Due to the 100% discount of the note, the net carrying value on the balance sheet was zero upon inception. The Note
will be amortized up to its face value of $300,000 over the life of Note based on an effective interest rate. Amortization expense
for the period amounted to $8,313. The carrying value of the Note as of October 31, 2018 amounted to $8,313.
NOTE 10 –DERIVATIVE FINANCIAL INSTRUMENTS
The following tables summarize the components
of the Company’s derivative liabilities and linked common shares as of October 31, 2018 and the amounts that were reflected
in income related to derivatives for the period ended:
|
October 31, 2018
|
|
The financings giving rise to derivative financial instruments
|
Indexed
Shares
|
Fair
Values
|
|
Compound embedded derivative
|
301,898
|
$ (439,548)
|
|
Derivative warrants
|
480,000
|
(140,112)
|
|
Total
|
781,898
|
$ (579,660)
|
|
APOTHECA BIOSCIENCES, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE PERIOD
FROM FEBRUARY 26, 2018, (INCEPTION) THROUGH OCTOBER 31, 2018
NOTE 10 –DERIVATIVE FINANCIAL INSTRUMENTS
(CONTINUED)
The following table summarizes the effects on the Company’s
gain (loss) associated with changes in the fair values of the derivative financial instruments by type of financing for the three
months ended October 31, 2018 and for the period from February 26, 2018 (Inception) through to October 31, 2018:
The financings giving rise to derivative financial instruments and the income effects:
|
|
Three Months Ended
December 31, 2013
|
Compound embedded derivative
|
|
$
|
(31,175
|
)
|
Derivative warrants
|
|
|
(11,568
|
)
|
Day-one derivative loss
|
|
|
(260,917
|
)
|
Total gain (loss)
|
|
$
|
(303,660
|
)
|
The Company’s face value $300,000 Secured
Convertible Promissory Note and Detachable Warrants issued on October 3, 2018 gave rise to derivative financial instruments. The
Notes embodied certain terms and conditions that were not clearly and closely related to the host debt agreement in terms of economic
risks and characteristics. These terms and features consist of the embedded conversion option. Additionally the detachable warrants
contained terms and features that gave rise to derivative liability classification.
Current accounting principles that are provided
in ASC 815 -
Derivatives and Hedging
require derivative financial instruments to be classified in liabilities and carried
at fair value with changes recorded in income. In addition, the standards do not permit an issuer to account separately for individual
derivative terms and features embedded in hybrid financial instruments that require bifurcation and liability classification as
derivative financial instruments. Rather, such terms and features must be bundled together and fair valued as a single, compound
embedded derivative. The Company has selected the Monte Carlo Simulations valuation technique to fair value the compound embedded
derivative because it believes that this technique is reflective of all significant assumption types, and ranges of assumption
inputs, that market participants would likely consider in transactions involving compound embedded derivatives. Such assumptions
include, among other inputs, interest risk assumptions, credit risk assumptions and redemption behaviors in addition to traditional
inputs for option models such as market trading volatility and risk-free rates. The Monte Carlo Simulations technique is a level
three valuation technique because it requires the development of significant internal assumptions in addition to observable market
indicators.
Significant inputs and results arising from
the Monte Carlo Simulations process are as follows for the compound embedded derivative that has been bifurcated from the Convertible
Notes and classified in liabilities:
|
Inception
|
October 31, 2018
|
|
Quoted market price on valuation date
|
$0.41
|
$0.44
|
|
Contractual conversion rate
|
$0.20
|
$0.20
|
|
Contractual term to maturity
|
1.00 Year
|
0.92 Years
|
|
Market volatility:
|
|
|
|
Equivalent Volatility
|
163.10%
|
152.57%
|
|
Interest rate
|
5.0%
|
5.0%
|
|
The Company has selected the Black Scholes
Merton valuation technique to fair value the detachable warrants because it believes that this technique is reflective of all significant
assumption types, and ranges of assumption inputs, that market participants would likely consider in transactions involving compound
embedded derivatives.
APOTHECA BIOSCIENCES, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE PERIOD
FROM FEBRUARY 26, 2018, (INCEPTION) THROUGH OCTOBER 31, 2018
NOTE 10 –DERIVATIVE FINANCIAL INSTRUMENTS
(CONTINUED)
Significant inputs and results arising from
the Black Scholes Merton process are as follows for the detachable warrants classified in liabilities:
|
Inception
|
October 31, 2018
|
|
Quoted market price on valuation date
|
$0.41
|
$0.44
|
|
Contractual strike price
|
$0.3125
|
$0.3125
|
|
Range of effective contractual conversion rates
|
--
|
--
|
|
Contractual term to maturity
|
3.00 Year
|
2.93 Years
|
|
Market volatility:
|
|
|
|
Volatility
|
166.14%
|
164.78%
|
|
Risk-free interest rate
|
2.94%
|
2.93%
|
|
The following table reflects the issuances
of compound embedded derivatives and detachable warrants and changes in fair value inputs and assumptions related to the compound
embedded derivatives during the quarter ended October 31, 2018.
|
|
October 31, 2018
|
Balances at February 26, 2018 (Company Inception)
|
|
$
|
--
|
|
Issuances:
|
|
|
|
|
Compound embedded derivative
|
|
|
408,373
|
|
Detachable warrants
|
|
|
128,544
|
|
Changes in fair value inputs and assumptions reflected in income
|
|
|
42,743
|
|
Balances at October 31
|
|
$
|
579,660
|
|
NOTE 11 –LEASE OBLIGATION
On August 1, 2018, the Company entered into
a lease agreement with Nuvus Gro Corp, a related party. The agreement provides for monthly rent payments in the amount of $6,408.
The lease period is 24 months. Upon execution of the agreement, the Company was required to pay the last month’s rent deposit
in the amount of $6,000. As of October 31, 2018, the Company recorded $19,224 in rent expense related to this agreement. The Companies
remaining lease obligation is as follows:
Period
|
|
Amount Due
|
|
Fiscal Year Ended January 31, 2019
|
|
|
$
|
19,224
|
|
|
Fiscal Year Ended January 31, 2020
|
|
|
|
44,856
|
|
|
Total
|
|
|
$
|
64,080
|
|
NOTE 12 –COMMON SHARES TO BE ISSUED
From inception through October 31, 2018, the
Company received cash totaling $73,700 in exchange for 184,250 shares of common stock at $0.40 per share. As of October 31, 2018
the shares had not been issued. As such, the value of $73,700 was recorded in equity under shares to be issued, common shares.
NOTE 13 –EQUITY
The Company has authorized 600,000,000 common
shares with a par value of $0.001 per share. Each common share entitles the holder to one vote, in person or proxy, on any matter
on which action of the stockholders of the corporation is sought.
As of October 31, 2018, the company had 113,914,000
shares of common stock issued and outstanding.
NOTE 14 - SUBSEQUENT EVENTS
Share issuances
Subsequent to the reporting period, the Company
issued 300,000 shares to its President Sam Talari for a bonus.