(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 July 31, 2020 and 2019
(Expressed in U.S. dollars)
1. Nature of Operations and Continuance of Business
Green Hygienics Holdings Inc. (the “Company”) was incorporated in the State of Nevada on June 12, 2008 as Silver Bay Resources, Inc. On June 30, 2010, the name was changed to Takedown Entertainment Inc. On July 24, 2012, the Company changed its name to Green Hygienics Holdings Inc.
The Company is an innovative, full-scope, science-driven, premium hemp cultivation and branding enterprise focused on the cultivation and processing of industrial hemp for cannabidiol (“CBD”). The Hemp Farming Act of 2018 removed hemp from Schedule I controlled substances (defined as cannabis with less than 0.3% THC) making it an ordinary agricultural commodity.
The Company’s business model includes generating revenues from the sale of hemp and premium-grade CBD products; creating trusted global consumer brands; developing valuable IP; and growing the Company rapidly through strategic acquisitions. With direct regard to acquisitions, the Company acts as a business accelerator and a vertical integrator focusing to support rapid growth and development of companies with extraordinary potential.
Going Concern
These consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company has generated revenues of $161,374 since 2013. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to obtain necessary equity financing to continue operations, and the attainment of profitable operations. As of July 31, 2020, the Company has a working capital deficiency of $4,541,852 and has an accumulated deficit of $50,494,387 since inception. 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.
2. Significant Accounting Policies
(a) Basis of Presentation
These financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States and are expressed in U.S. dollars.
(b) Principles of Consolidation
These financial statements include the accounts of the Company and its subsidiaries. Subsidiaries are all entities (including structured entities) which the Company controls. For accounting purposes, control is established by an investor when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. All inter-company balances and transactions are eliminated.
(c) Use of Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses in the reporting period. The Company regularly evaluates estimates and assumptions related to 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 maturity of three months or less at the time of issuance and trust funds to be cash equivalents.
(e) Inventory
Inventory is carried at the lower of cost or net realizable value, with the cost being determined on a first-in, first-out (FIFO) basis. The Company periodically reviews physical inventory and will record a reserve for excess and/or obsolete inventory if necessary. In July 2020, the Company planted its first large scale hemp crops for cultivation. The planting covers approximately 120 acres of land and three greenhouses. During the fourth quarter of 2020, the Company purchased additional seeds and nutrients to plant in its greenhouses to be later transferred into the fields. The company determined to recognize these costs as expenses and not record as inventory as of the year ended July 31, 2020 due to our unfavorable outcome from our initial planting. These costs included approximately $105,000 for seeds and nutrients and $195,000 on labor to prepare the field and plant seeds. The Company anticipates harvesting and selling these crops by the end of 2020. The Company had previously planted a smaller crop during the year ended July 31, 2019, During the year ended July 31, 2020, the 2019 crop with an inventory value of $306,450 was fully impaired due to unfavorable weather conditions. In the early growing stages, the plants were severely damaged by a sand storm and could not be salvaged.
(f) Impairment of Long-Lived Assets
The Company evaluates the recoverability of its fixed assets and other assets in accordance with ASC 360-10-15, Impairment or Disposal of Long-Lived Assets. Impairment of long-lived assets is recognized when the net book value of such assets exceeds their expected cash flows, in which case the assets are written down to fair value, which is determined based on discounted future cash flows or appraised values.
(g) Related Party Transactions
The Company follows ASC 850, Related Party Disclosures, for the identification of related parties and disclosure of related party transactions. In accordance with ASC 850, the Company’s financial statements include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business, as well as transactions that are eliminated in the preparation of financial statements.
(h) Income Taxes
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, “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 carry-forwards. 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.
2. Significant Accounting Policies (continued)
(i) Foreign Currency Translation
The Company’s functional and reporting currency is the U.S. dollar. Transactions in foreign currencies are translated into the currency of measurement at the exchange rates in effect on the transaction date. Monetary balance sheet items expressed in foreign currencies are translated into U.S. dollars at the exchange rates in effect at the balance sheet date. The resulting exchange gains and losses are recognized in the statement of operations.
(j) Financial Instruments and Fair Value Measures
ASC 820, “Fair Value Measurements and Disclosures”, requires an entity 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
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
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
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.
The Company’s financial instruments consist principally of cash, accounts payable and accrued liabilities, loans payable, 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.
(k) Stock-based Compensation
The Company records stock-based compensation in accordance with ASC 718, “Compensation – Stock Compensation” and ASC 505, “Equity Based Payments to Non-Employees”, 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.
(l) Revenue and Deferred Revenue
Pursuant to ASC 606, Revenue from contracts with customers. As of the date of this report, the Company has not recognized any revenue related to the hemp production business. The only revenue recognized to date is the land use rental income from San Diego Gas and Electric Company in the amount of $161,374. The term of the rental agreement is in effect until December 2020 with a monthly payment of $17,600. As of July 31, 2020, the Company has recorded deferred revenue of $15,973, representing a portion of the payment received in July 2020, that pertains to August 2020 rental income.
(m) Leases
Pursuant to ASC 842, transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing transactions. As of the date of this report, the Company has no material transactions to report.
2. Significant Accounting Policies (continued)
(n) Loss Per Share
The Company computes earnings (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 earnings (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. As of July 31, 2020, the Company does not have any potentially dilutive shares.
(o) Comprehensive Loss
ASC 220, “Comprehensive Income”, establishes standards for the reporting and display of comprehensive loss and its components in the financial statements.
(p) Recent Accounting Pronouncements
In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases. The amendments in ASU 2018-10 provide additional clarification and implementation guidance on certain aspects of the previously issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”) and have the same effective and transition requirements as ASU 2016-02. Upon the effective date, ASU 2018-10 will supersede the current lease guidance in ASC Topic 840, Leases. Under the new guidance, lessees will be required to recognize for all leases, with the exception of short-term leases, a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis. Concurrently, lessees will be required to recognize a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2018-10 is effective for private companies and emerging growth public companies for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. The guidance is required to be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative periods presented in the financial statements. During the year ended July 31, 2020 the Company assessed the impact this guidance had on its financial statements and concluded that at present ASU No. 2018-10 has no impact on its financial statements.
3. Fixed Assets
Fixed assets are recorded at cost reduced by accumulated depreciation. Depreciation expense is recognized over the assets’ estimated useful lives using the straight-line method. Estimated useful lives are periodically reviewed and, when appropriate, changes are made prospectively. When certain events or changes in operating conditions occur, asset lives may be adjusted and an impairment assessment may be performed on the recoverability of the carrying amounts.
Fixed assets consist of the following:
|
|
Useful Life
|
|
Balance at
July 31,
2019
$
|
|
|
Additions
$
|
|
|
Accumulated Depreciation
$
|
|
|
Balance at
July 31,
2020
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production equipment
|
|
5 years
|
|
|
46,379
|
|
|
|
313,530
|
|
|
|
(63,728
|
)
|
|
|
296,181
|
|
Furniture and office equipment
|
|
5 years
|
|
|
8,102
|
|
|
|
-
|
|
|
|
(1,623
|
)
|
|
|
6,479
|
|
Buildings and improvements
|
|
15 years
|
|
|
90,657
|
|
|
|
134,510
|
|
|
|
(12,725
|
)
|
|
|
212,442
|
|
Land
|
|
|
|
|
-
|
|
|
|
4,212,362
|
|
|
|
-
|
|
|
|
4,212,362
|
|
|
|
|
|
|
145,138
|
|
|
|
4,660,402
|
|
|
|
(78,076
|
)
|
|
|
4,727,464
|
|
Fixed asset costs are being depreciated using the straight-line method based on the useful life of the asset. Depreciation expense for the year ended was July 31, 2020, was $78,076 and there was no depreciation expense for the year ended July 31, 2019, due to the immateriality as the assets were acquired near year end.
On August 26, 2019, the Company completed the acquisition of the 824-acre Potrero Ranch Property near San Diego, California for a total purchase price of $4,510,000. The property includes over 400,000 square feet of outside buildings which are currently being converted to greenhouses. The Company is utilizing the land and buildings for industrial hemp for CBD cultivation. On August 23, 2019, the Company entered into an agreement payable with the Vendor of the Property for $2,750,000 for a portion of the purchase price. The terms of the agreement are monthly payments of interest only at the rate of 6% per annum. The debt is secured by a Promissory Note secured by a Deed of Trust on real property commonly known as Round Potrero Road, Potrero, California. The maturity date of the debt is August 23, 2024.
On August 23, 2019, the Company entered into an agreement payable for $1,760,000 with monthly payments of interest only at the rate of 15% per annum. The debt is secured by a Promissory Note secured by a second charge on the Deed of Trust on real property commonly known as Round Potrero Road, Potrero, California. The maturity date of the debt is August 15, 2024.
4. Loans Payable
|
(a)
|
As of July 31, 2020, the Company owes $24,989 (2019 - $155,250) plus accrued interest of $931 (2019 - $510) to a non-related party, which bears interest at the rate of 10% per annum, is unsecured and was due and payable on or before December 19, 2019. This loan payable is in default, and the Company is currently in negotiations to extend the maturity date.
|
|
|
|
|
(b)
|
As of July 31, 2020, the Company owes $444,850 under the Paycheck Protection Program (“PPP”). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The loans and accrued interest are forgivable after eight weeks as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the eight-week period. The unforgiven portion of the PPP loan is payable over two years at an interest rate of 1%, with a deferral of payments for the first six months. The Company intends to use the proceeds for purposes consistent with the PPP. While the Company currently believes that its use of the loan proceeds will meet the conditions for forgiveness of the loan, we cannot assure you that we will not take actions that could cause the Company to be ineligible for forgiveness of the loan, in whole or in part.
|
|
|
|
|
(c)
|
As of July 31, 2020, the Company owes $171,213 in principal and $28,787 on accrued and unpaid interest (2019 - $-0-) to a non-related party. On December 19, 2019, the Company entered into an securities purchase agreement, which was amended on January 8, 2020 (collectively, the “SPA”) with Triton Funds, LP, an accredited investor (“Triton”), pursuant to which the Company issued and sold to Triton (i) a discounted convertible promissory note (the “Note”) in the aggregate principal amount of up to $750,000, due June 30, 2020, bearing interest at a rate of ten percent (10%) per annum and convertible into shares of the Company’s common stock at a conversion price of $2.50 per share and (ii) a common stock purchase warrant (the “Warrant”), exercisable for two (2) years, to purchase up to 250,000 shares of the Company’s common stock at an exercise price of $3.00 per share, for an aggregate purchase price of $600,000. If not exercised, the Warrant will expire at 5:00 pm EST on December 31, 2021. The Note can be prepaid at any time by paying 110% of the then outstanding principal, interest, default interest (if any), and any other amounts then due under the Note. The Note is initially convertible at a price per share equal to $2.50 (the “Fixed Conversion Price”); provided, however, that during the continuance of an event of default under the Note, the conversion price shall be equal to 75% of the lowest trading price of the Company’s common stock during the 30 trading days prior to conversion.
|
On December 31, 2019, Triton paid an initial purchase price of $100,000 at the initial closing. The Company received net proceeds of $85,000 after paying fees of $15,000. On February 20, 2020, Triton paid the purchase price balance of $500,000. The original issue discount on the Note is a total of $150,000. On March 31, 2020, the Company and Triton entered into a Modification Agreement, pursuant to which (i) the Company paid $250,000 of the principal amount of the Note, bringing the principal balance of the Note on that date to $500,000, (ii) the maturity date of the Note was extended to August 20, 2020, (iii) the conversion price of the Note was established as 75% of the lowest trading price of our common stock during the 30 trading days prior to conversion, and (iv) the minimum volume weighted price requirement of the Note was deleted. During the year ended July 31, 2020, in addition to the $250,000 paid on March 31, 2020, Triton converted $328,786 of the debt into 1,234,946 shares of common stock pursuant to the terms of the Modification Agreement. During the year ended July 31, 2020, the Company recorded amortization expense of note discounts of $164,999. On August 19, 2020, the Company paid the remaining principal and accrued and unpaid interest in the aggregate of $200,000 and as of that date the note balance is $-0-.
The Warrant was valued using a Black Scholes model which created a discount of the full value of cash received, bringing the full discount on the note to $428,700, which is to be amortized over the term of the Note. During the year ended July 31, 2020, $428,700 of the discount was amortized.
5. Agreement Payable
As of July 31, 2020, the Company owes $148,604 (2019 - $nil) to a non-related party and requires monthly payments of $4,290 including interest at the rate of 5.66% per annum for a period of 48 months commencing November 1, 2019. The loan is secured by a collateral charge on production equipment. Of the amount owed, $40,472 is included in current liabilities and $108,132 is included in long-term liabilities on the consolidated balance sheet resented herein.
6. Mortgage Payable
As of July 31, 2020, the Company owes $2,750,000 (2019 - $nil) plus accrued interest payable of $41,250 (2019 - $nil) to a non-related party, with monthly payments of interest only at the rate of 6% per annum. The debt is secured by a Promissory Note secured by a Deed of Trust on real property commonly known as Round Potrero Road, Potrero, California. The maturity date of the debt is August 23, 2024, and is included in long-term liabilities on the consolidated balance sheet resented herein.
7. Second Mortgage Payable
As of July 31, 2020, the Company owes $1,760,000 (2019 - $nil) plus accrued interest payable of $66,000 (2019 - $nil) to a non-related party, with monthly payments of interest only at the rate of 15% per annum. The debt is secured by a Promissory Note secured by a second charge on the Deed of Trust on real property commonly known as Round Potrero Road, Potrero, California. The maturity date of the debt is August 15, 2024, and the debt is included in long-term liabilities on the consolidated balance sheet resented herein.
8. Related Party Transactions
Controlling Shareholder
As of July 31, 2020, Alita Capital, Inc., together with its affiliates (collectively, “Alita”), is the controlling shareholder of the Company’s common stock, as Alita owns approximately 52.5% of our issued and outstanding common stock, Accordingly, Alita has the ability to exercise significant control over our affairs, including the election of directors and most actions requiring the approval of shareholders, including the approval of any potential merger or sale of all or substantially all assets or segments of the Company, or the Company itself. Alita is controlled by Mr. Ron Loudoun, the Company’s CEO.
Alita is subject to certain restrictions under federal securities laws on sales of its shares as an affiliate. Should Alita sell or otherwise dispose of all or a portion of its position in the Company, a change in ownership and control of the Company could occur. A change in ownership, as defined by Internal Revenue Code Section 382, could reduce the availability of the Company’s net operating losses (“NOLs”) for federal and state income tax purposes. Furthermore, a change of control could trigger the change of control provisions in a number of our material agreements.
As of July 31, 2020, the Company owes $2,348,482 (July 31, 2019 - $696,074) to Alita. The debt includes funds advanced to the Company and amounts paid directly to vendors, is non-interest bearing, unsecured, and due on demand.
Other related party transactions include the following:
(a) As of July 31, 2020, the Company owes $56,824 (July 31, 2019 - $56,824) to a company controlled by the CEO of the Company. The debt bears interest at 5% per annum, is unsecured, and is due on demand. As of July 31, 2020, accrued interest of $17,689 (July 31, 2019 - $14,825) has been included in amounts due to related parties.
(b) As of July 31, 2020, the Company incurred and owes $90,000 (July 31, 2019 - $nil) to the CEO of the Company for accrued consulting fees. The debt is non-interest bearing, unsecured, and due on demand and is included in related party accounts payable.
(c) As of July 31, 2020, the Company incurred $30,000 (2019- $nil) in consulting fees to the CTO and as of July 31, 2020 owes $15,000 (July 31, 2019 - $nil) to the CTO of the Company for accrued and unpaid consulting fees. The debt is non-interest bearing, unsecured, and due on demand and is included in related party accounts payable.
(d) During the year ended July 31, 2020, the Company incurred $4,250 (2019 - $nil) in consulting fees to the CFO of the Company. The amount was paid and there is no balance due the CFO.
(e) As of July 31, 2020, the Company owes $35,000 (July 31, 2019 - $27,500) to a former director of the Company for accrued consulting fees. The debt is non-interest bearing, unsecured, and due on demand and is included in related party accounts payable.
(f) As of July 31, 2020, the Company owes $67,500 (July 31, 2019 - $15,000) to the former CEO of a subsidiary of the Company for consulting fees. The debt is non-interest bearing, unsecured, and due on demand and is included in related party accounts payable.
(g) As of July 31, 2020, the Company owes $67,500 (July 31, 2019 - $15,000) to the former President of a subsidiary of the Company for consulting fees. The debt is non-interest bearing, unsecured, and due on demand and is included in related party accounts payable.
(h) As of July 31, 2020, the Company owes $27,144 (July 31, 2019 - $nil) to the former Chief Agricultural Operations Manager of the Company for consulting fees. The debt is non-interest bearing, unsecured, and due on demand and is included in related party accounts payable.
(i) Imputed interest of $154,074 for the year ended July 31, 2020 and $22,009 for the year ended July 31, 2019 has been recorded for the above related party debts.
9. Common Stock
Share Issuances
(a) On August 1, 2019, the Company issued 250,000 common shares to the CEO of the Company in exchange for services. The shares were valued at $370,000 based on OTC’s closing trade price on the date of the agreement.
(b) On August 1, 2019, the Company issued 50,000 common shares to the Chief Agricultural Operations Manager of the Company in exchange for consulting services. The shares were valued at $74,000 based on OTC’s closing trade price on the date of the agreement.
(c) On August 1, 2019, the Company issued 200,000 common shares to the Chief Project Manager of the Company in exchange for consulting services. The shares were valued at $296,000 based on OTC’s closing trade price on the date of the agreement.
(d) On August 1, 2019, the Company issued 25,000 common shares to the Assistant Agricultural Operations Manager of the Company in exchange for consulting services. The shares were valued at $37,000 based on OTC’s closing trade price on the date of the agreement.
(e) On August 1, 2019, the Company issued 250,000 common shares to a non-related party in exchange for consulting services. The shares were valued at $370,000 based on OTC’s closing trade price on the date of the agreement.
(f) On August 1, 2019, the Company issued 50,000 common shares to Triton Funds LLC in exchange for consulting services. The shares were valued at $74,000 based on OTC’s closing trade price on the date of the agreement.
(g) On April 20, 2020, the Company issued 50,000 common shares to an Independent Director of the Company in exchange for consulting services. The shares were valued at $100,000 based on OTC’s closing trade price on the date of the agreement.
(h) On April 20, 2020, the Company issued 125,000 common shares to the Senior Vice President of Corporate Development of the Company in exchange for consulting services. The shares were valued at $250,000 based on OTC’s closing trade price on the date of the agreement.
(i) On April 20, 2020, the Company issued 125,000 common shares to a Senior Vice President of Business Development – Agriculture Division of the Company in exchange for consulting services. The shares were valued at $250,000 based on OTC’s closing trade price on the date of the agreement.
(j) On April 20, 2020, the Company issued 166,667 common shares to Triton Funds LP upon conversion of $50,000 of debt. The shares were valued pursuant to the conversion terms of the convertible promissory note (see note 4(c)).
(k) On May 8, 2020, the Company issued 214,286 common shares to Triton Funds LP upon conversion of $60,000 of debt. The shares were valued pursuant to the conversion terms of the convertible promissory note (see note 4(c)).
(l) On May 23, 2020, the Company issued 178,571 common shares to Triton Funds LP upon conversion of $50,000 of debt. The shares were valued pursuant to the conversion terms of the convertible promissory note (see note 4(c)).
(m) On June 8, 2020, the Company issued 153,846 common shares to Triton Funds LP upon conversion of $40,000 of debt. The shares were valued pursuant to the conversion terms of the convertible promissory note (see note 4(c)).
(n) On June 23, 2020, the Company issued 200,000 common shares to Triton Funds LP upon conversion of $50,000 of debt. The shares were valued pursuant to the conversion terms of the convertible promissory note (see note 4(c)).
(o) On July 14, 2020, the Company issued 200,000 common shares to the Chief Operating Officer of the Company in exchange for services. The shares were valued at $399,360 based on OTC’s closing trade price on the date of the agreement.
(p) On July 14, 2020, the Company issued 50,000 common shares to the Chief Financial Officer of the Company in exchange for services. The shares were valued at $63,500 based on OTC’s closing trade price on the date of the agreement.
(q) On July 14, 2020, the Company issued 125,000 common shares to the Senior Vice President of Corporate Development of the Company in exchange for consulting services. The shares were valued at $250,000 based on OTC’s closing trade price on the date of the agreement.
(r) On July 14, 2020, the Company issued 125,000 common shares to a Senior Vice President of Business Development – Agriculture Division of the Company in exchange for consulting services. The shares were valued at $250,000 based on OTC’s closing trade price on the date of the agreement.
(s) On July 14, 2020, the Company issued in the aggregate 60,000 common shares to two independent consultants in exchange for services. The shares were valued at $48,300 in the aggregate, based on OTC’s closing trade price on the date of their respective agreements.
(t) On July 22, 2020, the Company issued 321,576 common shares to Triton Funds LP upon conversion of $78,786 of debt. The shares were valued pursuant to the conversion terms of the convertible promissory note (see note 4(c)).
Stock Payable
On November 15, 2019, the Company agreed to issue 100,000 common shares to an Independent Director of the Company, William Creekmur, in exchange for consulting services. The shares were valued based on OTC’s closing trade price on the date of the agreement. The Company issued 50,000 of the shares on April 20, 2020. The remaining 50,000 shares valued at $100,000 have not been issued and are included in Stock payable as of July 31, 2020.
On July 1, 2020, the Company agreed to issue 200,000 common shares to an Advisor to the Company in exchange for consulting services. The shares were valued at $92,000 based on OTC’s closing trade price on the date of the agreement.
10. Commitments/Contingencies
(a) On September 1, 2018, the Company entered into a consulting agreement with the CTO, Jeff Palumbo, whereby the Company agreed to pay a consulting fee of $2,500 per month for a period of two years commencing August 1, 2018. The agreement can be extended to four years upon mutual agreement. Upon completion of a minimum $1,000,000 financing, the Company will increase this payment to $5,000 per month. Upon completion of a minimum $5,000,000 financing or profitable operations, the Company will increase this payment to an amount mutually agreed upon that reflects the market rate for services provided by the CTO.
(b) On August 1, 2019, the Company entered into a consulting agreement with the CEO of the Company, Ron Loudoun, whereby the Company agreed to pay a consulting fee of $7,500 per month for a period of three years and pursuant to which, the Company issued the CEO 250,000 shares of common stock of the Company. Additionally, the Company agreed to issue an additional 250,000 shares of common stock per year for the remaining two years of the agreement.
(c) On August 1, 2019, the Company entered into a consulting agreement with the Chief Project Manager, Greg Stinson, whereby the Company agreed to pay a signing bonus of $15,000 and a consulting fee of $7,500 per month for a period of five years. Pursuant to the agreement, the Company also issued the Consultant 200,000 shares of common stock of the Company.
(d) On August 1, 2019, the Company entered into a consulting agreement with the Assistant Agricultural Operations Manager, Carol Snyder, whereby the Company agreed to pay a signing bonus of $4,000 and a consulting fee of $2,000 per month for a period of year. At the end of the six-month period, the Company may evaluate the performance with regards to an extension of the agreement. Pursuant to the agreement, the Company also issued the Consultant 25,000 shares of common stock of the Company.
(e) On November 15, 2019, the Company agreed to issue 100,000 common shares to an Independent Director of the Company, William Creekmur, in exchange for consulting services. The shares were valued based on OTC’s closing trade price on the date of the agreement. The Company issued 50,000 of the shares on April 20, 2020. The remaining 50,000 shares valued at $100,000 have not been issued and are included in Stock payable as of July 31, 2020.
(f) On February 13, 2020, the Company entered into a six-month (the “Initial Term”) consulting agreement with the CFO of the Company, Todd Mueller, whereby the Company agreed to pay a consulting fee of 100,000 shares, 50,000 shares would be delivered upon the execution of the agreement (certificated on July 14, 2020) and 50,000 delivered in six months based on the continuation of the agreement. Following the Initial Term, the Company and the Consultant may extend the Term for up to 5 years on similar terms and conditions by further agreement in writing to that effect. The Company may terminate this Agreement for any reason prior to the expiry of this Agreement with 30-day notice and full vesting of stock or stock options for the period of engagement. The Consultant may end this Agreement with 30 days written notice prior to the end of the term.
(g) On July 1, 2020, the Company agreed to issue 200,000 common shares to an Advisor to the Company in exchange for consulting services. The shares were valued at $92,000 based on OTC’s closing trade price on the date of the agreement.
There is currently no pending or threatened litigation.
11. Sales concentration
For the year ended July 31, 2020, 100% of our revenue is from the land use rental income from San Diego Gas and Electric Company in the amount of $161,374. The term of the rental agreement is in effect until December 2020 with a monthly payment of $17,600.
12. Income Taxes
The Company has net operating losses carried forward of $12,965,998 available to offset taxable income in future years which commence expiring in fiscal 2028.
The Company is subject to United States federal and state income taxes at an approximate rate of 26.42% (2019 – 26.42%). The reconciliation of the provision for income taxes at the United States federal statutory rate compared to the Company’s income tax expense as reported is as follows:
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Income tax recovery at statutory rate
|
|
$
|
(1,622,931
|
)
|
|
$
|
(387,218
|
)
|
Change in enacted tax rates
|
|
|
-
|
|
|
|
-
|
|
Change in valuation allowance
|
|
|
1,622,931
|
|
|
|
387,218
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
–
|
|
|
$
|
–
|
|
The significant components of deferred income tax assets and liabilities as at July 31, 2020 and 2019 are as follows:
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Net operating losses carried forward
|
|
$
|
2,722,859
|
|
|
|
1,099,928
|
|
Valuation allowance
|
|
|
(2,722,859
|
)
|
|
|
(1,099,928
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred income tax asset
|
|
|
–
|
|
|
|
–
|
|
The 2017 Act reduces the corporate tax rate from 34% to 21% for tax years beginning after December 31, 2017. For net operating losses arising after December 31, 2017, the 2017 Act limits a taxpayer’s ability to utilize net operating losses carryforwards to 80% of taxable income. In addition, net operating losses arising after 2017 can be carried forward indefinitely, but carryback is generally prohibited. Net operating losses generated in tax years beginning before January 1, 2018 will not be subject to the taxable income limitation. The 2017 Act would generally eliminate the carryback of all net operating losses arising in a tax year ending after 2017 and instead would permit all such net operating losses to be carried forward indefinitely.
13. Subsequent Events
Effective August 1, 2020 (the “Effective Date”), the Company entered into an employment agreement (the “Agreement”) with Dr. Levan Darjania, PhD as the Company’s Chief Science Officer. Dr. Darjania is a seasoned and accomplished research and development (“R&D”) professional and program manager with over 26-years’ experience in biotechnology, pharmaceutical drug development (both industry and academia) and proven track record of success in developing and directing in-house and collaborative R&D programs, and forward-thinking strategic planning capabilities. Pursuant to the Agreement the Company has agreed to compensate Dr. Darjania an annual base salary of $250,000, and the issuance of 200,000 shares of common stock, of which 100,000 vested on the Effective Date and 100,000 vest six (6) months from the Effective Date.
On September 2, 2020, the Company issued 500,000 common shares to SRAX, Inc. (“SRAX”), in exchange for the right to use the SRAX Sequire platform.
The Company entered into an Equity Financing Agreement (the “Financing Agreement”) dated as of September 13, 2020 with GHS Investments, LLC (“GHS”) for an equity line. Although the Company is not required to sell shares under the Financing Agreement, the Financing Agreement gives the Company the option to sell to GHS up to $25,000,000 worth of our common stock, in increments, over the period ending on the earlier of (i) the date GHS has purchased an aggregate of $25,000,000 of the Company’s common stock pursuant to the Financing Agreement, or (ii) the date that the registration statement for the registration of the secondary offering and resale of the shares to be acquired by GHS pursuant to the Financing Agreement is no longer in effect (the “Open Period”). Concurrently with the execution of the Financing Agreement, the Company issued to GHS 150,857 restricted shares of its Common stock (“Commitment Shares”) to offset transaction costs. The Commitment Shares are deemed earned upon the execution of the Financing Agreement.
The Company will sell shares of its common stock to GHS at a price equal to 100% of the lowest closing price of the Company’s common stock during the ten (10) consecutive trading day period ending on the date on which it delivers a put notice to GHS (the “Market Price”), and the Company will be obligated to simultaneously deliver the number of shares equal to120% of the put notice amount based on the Market Price. In addition, the Financing Agreement (i) imposes an ownership limitation on GHS of 4.99% (i.e., GHS has no obligation to purchase shares if it beneficially owns more than 4.99% of our common stock), (ii) requires a minimum of ten (10) trading days between put notices, and (iii) prohibits any single Put Amount from exceeding $500,000.
Concurrently therewith, the Company entered into a registration rights agreement with GHS, pursuant to which the Company agreed to file a registration statement with the SEC for the registration of the secondary offering and resale of the shares to be acquired by GHS pursuant to the Financing Agreement and the 150,857 Commitment Shares and to have the registration statement declared effective by the SEC at the earliest possible date. The registration statement was declared effective by the SEC on September 21, 2020.
On September 18, 2020 (the “Effective Date”), the Company entered into a Placement Agent and Advisory Services Agreement (the “Placement Agreement”) with Boustead Securities, LLC (“BSL”), an investment banking firm that advises clients on mergers and acquisitions, capital raises, and restructuring assignments in a wide array of industries and circumstances.
The initial term of this Agreement shall be exclusive for six (6) months from the Company’s delivery of an offering memorandum to BSL (the “Initial Term”). After the Initial Term, the term of the Placement Agreement will automatically be extended for additional successive one (1) year periods unless either party provides written notice to the other party of its intent not to so extend the term at least thirty (30) days before the expiration of the then current term. Under the terms of the Placement Agreement, the Company has agreed to issue to BSL an advisory fee of two hundred fifty thousand (250,000) common stock shares with an issuance date of the Effective Date.
On September 23, 2020, the Company issued 250,000 shares of common stock to the Company’s CEO, pursuant to his agreement dated August 1, 2019 (see Note 10(b)).
On September 23, 2020, the Company issued 200,000 shares of common stock pursuant to a consulting agreement dated July 1, 2020 (see Note 10(g)).
On September 23, 2020, the Company issued 50,000 shares to the Company’s CFO, pursuant to his consulting agreement dated February 13, 2020 (see Note 10(f)).
On September 23, 2020, the Company issued 140,000 shares of common stock to an independent third party in exchange for production equipment.
On September 23, 2020, the Company issued 50,000 shares of common stock in the aggregate to two independent third parties in exchange for production equipment.
On September 23, 2020, the Company issued in the aggregate 750,000 shares of common stock to eight (8) consultants for services.