PHARMAGREEN
BIOTECH INC.
Notes
to the Condensed Consolidated Financial Statements
December 31, 2020
(Expressed in U.S.
dollars)
(unaudited)
1.Nature
of Business and Continuance of Operations
Pharmagreen
Biotech Inc. (“the Company”) was incorporated under the laws of the
State of Nevada, U.S. on November 26, 2007, under the name Azure
International, Inc. On October 30, 2008, and effective as of
the same date, the Company filed Articles of Merger (“Articles”)
with the Secretary of State of the State of Nevada, to effect a
merger by and between Air Transport Group Holdings, Inc., a Nevada
corporation and Azure International, Inc. As a result of the
merger, the Company changed its name to Air Transport Group
Holdings, Inc. The Company was previously in the business of
providing technical advisory and appraisals to the aircraft and
aviation business as well as providing sourcing for aircraft leases
and parts. Pursuant to a Share Exchange Agreement with WFS
Pharmagreen Inc. (“WFS”) on May 2, 2018, the Company changed its
name to Pharmagreen Biotech Inc. and changed its principal business
to the construction of a biotech complex in Deroche, British
Columbia, Canada, for the purpose of producing a variety of starter
plantlets for the Canadian and international high CBD hemp and
medical cannabis industries through the application of the
proprietary plant tissue culture in vitro process called
“Chibafreen”. This proprietary process will produce plantlets that
will be genetically identical and free of pests and disease free
with consistent and certifiable constituent properties.
Going Concern
These
condensed consolidated financial statements have been prepared on
the going concern basis, which assumes that the Company will be
able to realize its assets and discharge its liabilities in the
normal course of business. As at December 31, 2020, the Company has
not earned any revenues from operations, has a working capital
deficit of $1,717,621, and has an accumulated deficit of
$7,584,455. During the three months ended December 31, 2020, the
Company incurred a net loss of $417,110 and used cash flows for
operations of $4,380. In addition, the Company filed voluntary
petitions for reorganization under Chapter 11 of the United States
Bankruptcy Code in the United States Bankruptcy Court for the
District of Nevada on August 7, 2020. As a result of the voluntary
petition, various convertible note holders triggered default
provisions on the Company’s outstanding convertible notes. On
October 9, 2020, a stay order was lifted by a United States
District Judge of the United States District Court for the Southern
District of New York, on an action filed by a lender. This
effectively removed the Company from its Chapter 11 bankruptcy
proceedings and protection. These factors raise substantial doubt
upon the Company’s ability to continue as a going concern. These
condensed consolidated financial statements do not reflect any
adjustments that may be necessary if the Company is unable to
continue as a going concern.
The outbreak
of the novel coronavirus COVID-19, which was declared a pandemic by
the World Health Organization on March 11, 2020, has led to adverse
impacts on the U.S. and global economies, disruptions of financial
markets, and created uncertainty regarding potential impacts to the
Company’s supply chain, operations, and customer demand. The
COVID-19 pandemic has impacted and could further impact the
Company’s operations and the operations of the Company’s suppliers
and vendors as a result of quarantines, facility closures, and
travel and logistics restrictions. Specifically, the Company
attributes the pandemic to a delay in a planned financing which was
to be used for the construction of the biotech complex, resulting
in an impairment of the capitalized construction-in-progress at
September 30, 2020. The extent to which the COVID-19 pandemic
further impacts the Company’s business, results of operations and
financial condition will depend on future developments, which are
highly uncertain and cannot be predicted, including, but not
limited to the duration, spread, severity, and impact of the
COVID-19 pandemic, the effects of the COVID-19 pandemic on the
Company’s customers, suppliers, and vendors and the remedial
actions and stimulus measures adopted by local and federal
governments, and to what extent normal economic and operating
conditions can resume. The management team is closely following the
progression of COVID-19 and its impact on the Company. Even after
the COVID-19 pandemic has subsided, the Company may continue to
experience adverse impacts to its business as a result of any
economic recession or depression that has occurred or may occur in
the future. Therefore, the Company cannot reasonably estimate the
impact at this time our business, liquidity, capital resources and
financial results.
2.Significant
Accounting Policies
(a)Interim
Financial Statements
These condensed consolidated financial statements have been
prepared on the same basis as the annual consolidated financial
statements and in the opinion of management, reflect all
adjustments, which include only normal recurring adjustments,
necessary to present fairly the Company’s financial position,
results of operations and cash flows for the periods shown. The
results of operations for such periods are not necessarily
indicative of the results expected for a full year or for any
future period.
7
PHARMAGREEN
BIOTECH INC.
Notes
to the Condensed Consolidated Financial Statements
December 31, 2020
(Expressed in U.S.
dollars)
(unaudited)
2.Significant
Accounting Policies (continued)
(b)Basis
of Presentation
The
accompanying condensed interim consolidated financial statements
have been prepared in accordance with accounting principles
generally accepted in the United States and are expressed in U.S.
dollars. These condensed consolidated financial statements include
the accounts of the Company and its wholly owned subsidiary, WFS
Pharmagreen Inc. (“WFS”), and its 89.7% owned subsidiary 1155097 BC
Ltd. (“115BC”), companies incorporated in British Columbia, Canada.
All inter-company accounts and transactions have been eliminated.
The Company’s fiscal year-end is September 30.
(c)Use
of Estimates and Judgments
The preparation of these condensed consolidated 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 and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. The Company regularly
evaluates estimates and assumptions related to the recoverability
of property and equipment, the equity component of convertible
notes, fair value of derivative liabilities, fair value of
stock-based payments, and deferred income tax asset valuation
allowances. The Company bases its estimates and assumptions on
current facts, historical experience, and various other factors
that it believes to be reasonable under the circumstances, the
results of which form the basis for making judgments about the
carrying values of assets and liabilities and the accrual of costs
and expenses that are not readily apparent from other sources. The
actual results experienced by the Company may differ materially and
adversely from the Company’s estimates. To the extent there are
material differences between the estimates and the actual results,
future results of operations will be affected.
The Company applies judgment in the application of the going
concern assumption which requires management to take into account
all available information about the future, which is at least, but
not limited to, 12 months from the end of the reporting period and
in the factors regarding the impairment of the property and
equipment. The Company tests property and equipment for
recoverability when events or changes in circumstances indicate
that their carrying amount may not be recoverable. Circumstances
which could trigger a review include, but are not limited to:
significant decreases in the market price of the asset; significant
adverse changes in the business climate or legal factors;
accumulation of costs significantly in excess of the amount
originally expected for the acquisition or construction of the
asset; current period cash flow or operating losses combined with a
history of losses or a forecast of continuing losses associated
with the use of the asset; and current expectation that the asset
will more likely than not be sold or disposed significantly before
the end of its estimated useful life. Recoverability is assessed
based on the carrying amount of the asset and its fair value, which
is generally determined based on the sum of the undiscounted cash
flows expected to result from the use and the eventual disposal of
the asset, as well as specific appraisal in certain instances. An
impairment loss is recognized when the carrying amount is not
recoverable and exceeds fair value.
(d)Recently
Adopted Accounting Pronouncements
The Company
has implemented all new accounting pronouncements that are in
effect and that may impact its consolidated financial statements
and does not believe that there are any other new accounting
pronouncements that have been issued that might have a material
impact on its financial position or results of operations.
3.Accounts
Payable and Accrued Liabilities
Accounts payable and accrued liabilities consists of the
following:
|
|
December 31,
2020
$
|
September
30,
2020
$
|
|
|
|
|
|
Accounts payable (Note 7)
|
495,229
|
455,310
|
|
Accrued
interest payable (Notes 4 and 5)
|
81,607
|
84,353
|
|
|
|
|
|
|
576,836
|
539,663
|
8
PHARMAGREEN
BIOTECH INC.
Notes
to the Condensed Consolidated Financial Statements
December 31, 2020
(Expressed in U.S.
dollars)
(unaudited)
4.Note
and Loan Payable
(a)On
November 22, 2019, the Company entered into a promissory note with
an unrelated party for $40,000 in connection with an equity
purchase agreement (Refer to Note 11(b)). The promissory note is
unsecured, due on November 30, 2020, and bears interest on the
unpaid principal balance at a rate of 10% per annum. As at December
31, 2020, the Company has recorded accrued interest payable of
$4,426 (September 30, 2020 - $3,421) and the promissory note is in
default.
(b)On
April 22, 2020, the Company received a loan for $28,260
(Cdn$40,000) from the Government of Canada under the Canada
Emergency Business Account program (“CEBA”). As at December 31,
2020, the balance owing is $31,390 (2019 – $30,028).These
funds are interest free until December 31, 2022, at which time the
remaining balance will convert to a 3-year term loan at an interest
rate of 5% per annum. If the Company repays the loan prior to
December 31, 2022, there will be loan forgiveness of 25% of the
principal balance repaid, up to a maximum of Cdn$10,000.
5.Convertible
Notes
(a)On
April 4, 2018, the amount of $32,485 owed to related parties was
converted to Series A convertible notes, which are unsecured,
non-interest bearing, and due on April 4, 2023. These notes are
convertible in whole or in part, at any time until maturity, to
common shares of the Company at $0.0001 per share. The outstanding
balance remaining at maturity shall bear interest at 12% per annum
until fully paid. The Company evaluated the convertible notes for a
beneficial conversion feature in accordance with ASC 470-20 Debt
with Conversion and Other Options. The Company determined that
the conversion price was below the closing stock price on the
commitment date, and the convertible notes contained a beneficial
conversion feature. The Company recognized the intrinsic value of
the embedded beneficial conversion feature of $32,485 as additional
paid-in capital and reduced the carrying value of the convertible
note to $nil. The carrying value will be accreted over the term of
the convertible notes up to their face value of $32,485.
During the year ended September 30, 2018, the Company issued
31,745,000 shares of common stock upon the conversion of $3,175 of
Series A convertible notes, which included 18,000,000 common shares
to the President of the Company and 5,320,000 common shares to
family members of the President of the Company. Upon conversion,
the Company immediately recognized the related remaining debt
discount of $3,112 as accretion expense.
During the year ended September 30, 2019, the Company issued
3,900,000 shares of common stock upon the conversion of $390 of
Series A convertible notes. Upon conversion, the Company
immediately recognized the related remaining debt discount of $375
as accretion expense.
During the year ended September 30, 2020, the Company issued
18,525,000 shares of common stock upon the conversion of $1,853 of
Series A convertible notes. Upon conversion, the Company
immediately recognized the related remaining debt discount of
$1,670 as accretion expense.
As at December 31, 2020, the carrying value of the convertible
notes was $4,241 (September 30, 2020 – $3,448) and had an
unamortized discount of $22,826 (September 30, 2020 - $23,619).
During the three months ended December 31, 2020, the Company
recorded accretion expense of $793 (2019 - $369).
9
PHARMAGREEN
BIOTECH INC.
Notes
to the Condensed Consolidated Financial Statements
December 31, 2020
(Expressed in U.S.
dollars)
(unaudited)
5. Convertible Notes (continued)
(b)On
October 1, 2019, the Company entered into a convertible note with
an unrelated party for $78,000, of which $3,255 was paid directly
to third parties for financing costs, resulting in net proceeds to
the Company of $74,745. The note is due on October 1, 2020, and
bears interest on the unpaid principal balance at a rate of 10% per
annum, which increases to 24% per annum upon default of the note.
The note may be converted at any time after the date of issuance
into shares of Company’s common stock at a conversion price equal
to lower of: (i) the lowest trading price during the 10-trading day
period prior to the issuance date; or (ii) 61% of the average 2
lowest trading prices during the 10-trading day period prior to the
conversion date. In connection with the issuance of the above
convertible note, the Company evaluated the conversion option for
derivative treatment under ASC 815-15, Derivatives and
Hedging, and determined the note and conversion feature
qualified as derivatives. The Company classified the conversion
feature as a derivative liability at fair value. The initial fair
value of the conversion feature was determined to be $70,744. The
Company recognized the maximum intrinsic value of the embedded
beneficial conversion feature of $74,245 and reduced the carrying
value of the convertible note to $500. The carrying value will be
accreted over the term of the convertible note up to its face value
of $78,000.
On July 22, 2020, the Company received a preliminary statement of
claim from the note holder for failure of the Company to deliver
shares of common stock upon receipt of notices of conversion.
Pursuant to the claim, the note holder requested receipt of all
shares of common stock requested in the notices of conversion, and
also damages in an amount to be determined at trial but in any
event in excess of principal in the sum of $180,000, including
without limitation the balance of any portion of the convertible
note that ultimately is not converted into shares of common stock,
along with default interest, liquidated damages, and damages as
provided for in the convertible note. Upon default, the Company
recognized the remaining debt discount of $46,904 as accretion
expense.
The financing costs were netted against the convertible note and
were being amortized over the term using the effective interest
rate method. During the year ended September 30, 2020, the Company
recognized accretion expense of $77,500 and a default penalty of
$85,864.
During the three months ended December 31, 2020, the Company issued
48,381,000 shares of common stock upon the conversion of $100,056
of the convertible note and $5,000 of conversion fees. As at
December 31, 2020, the carrying value of the convertible note was
$63,808 (September 30, 2020 - $163,864) and the fair value of the
derivative liability was $304,891 (September 30, 2020 -
$485,863).
(c)On
October 17, 2019, the Company entered into a convertible note with
an unrelated party for $63,000, of which $3,000 was paid directly
to third parties for financing costs, resulting in net cash
proceeds to the Company of $60,000. The note is due on October 17,
2020, and bears interest on the unpaid principal balance at a rate
of 10% per annum, which increases to 22% per annum upon default of
the note. The note may be converted at any time after 180 days of
the date of issuance into shares of Company’s common stock at a
conversion price equal to 61% of the average 2 lowest trading
prices during the 10-trading day period prior to the conversion
date.
On June 17, 2020, the Company entered into a settlement agreement
with the lender, whereby the Company and the lender agreed on
repayment terms for the remaining principal balance of $63,000, and
accrued interest owing on the note of $5,775 which was due on
September 30, 2020. Upon entering into the settlement agreement,
the Company immediately recognized the remaining debt discount of
$1,657. On September 30, 2020, the Company failed to meet the
repayment terms within the settlement agreement which resulted in a
default penalty of $63,000 and the resumption of the convertibility
feature at a conversion price equal to 61% of the average 2 lowest
trading prices during the 10-trading day period prior to the
conversion date. On September 30, 2020, the Company evaluated the
conversion option for derivative treatment under ASC 815-15,
Derivatives and Hedging, and determined the note and
conversion feature qualified as derivatives. The Company classified
the conversion feature as a derivative liability at fair value. The
initial fair value of the conversion feature was determined to be
$112,822.
The financing costs were netted against the convertible note and
were being amortized over the term using the effective interest
rate method. During the year ended September 30, 2020, the Company
recognized accretion expense of $3,000 and a default penalty of
$63,000.
10
PHARMAGREEN
BIOTECH INC.
Notes
to the Condensed Consolidated Financial Statements
December 31, 2020
(Expressed in U.S.
dollars)
(unaudited)
5. Convertible Notes (continued)
During the three months ended December 31, 2020, the Company issued
7,730,486 shares of common stock upon the conversion of $126,000 of
the convertible note and $3,150 of accrued interest. As at December
31, 2020, the carrying value of the convertible note was $nil
(September 30, 2020 - $126,000) and the fair value of the
derivative liability was $nil (September 30, 2020 - $112,822).
(d)On
January 2, 2020, the Company entered into a convertible note with
an unrelated party for $53,000, of which $3,000 was paid directly
to third parties for financing costs, resulting in cash proceeds to
the Company of $50,000. The note is due on January 2, 2021, and
bears interest on the unpaid principal balance at a rate of 10% per
annum, which increases to 22% per annum upon default of the note.
The note may be converted at any time after 180 days of the date of
issuance into shares of Company’s common stock at a conversion
price equal to 61% of the average 2 lowest trading prices during
the 10-trading day period prior to the conversion date.
On June 17, 2020, the Company entered into a settlement agreement
with the lender, whereby the Company and the lender agreed on
repayment terms for the remaining principal of $53,000 and accrued
interest owing on the note. Upon entering into the settlement
agreement, the Company immediately recognized the remaining debt
discount of $2,286. Effective September 30, 2020, the Company
failed to meet the repayment terms of the settlement agreement and
defaulted on the convertible note. On September 30, 2020, the
Company evaluated the conversion option for derivative treatment
under ASC 815-15, Derivatives and Hedging, and determined
the note and conversion feature qualified as derivatives. The
Company classified the conversion feature as a derivative liability
at fair value. The initial fair value of the conversion feature was
determined to be $139,702.
The financing costs were netted against the convertible note and
were being amortized over the term using the effective interest
rate method. During the year ended September 30, 2020, the Company
recognized accretion expense of $3,000 and a default penalty of
$53,000.
During the three months ended December 31, 2020, the Company issued
16,994,905 shares of common stock upon the conversion of $106,000
of the convertible note and $2,650 of accrued interest. As at
December 31, 2020, the carrying value of the convertible note was
$nil (September 30, 2020 - $106,000) and the fair value of the
derivative liability was $nil (September 30, 2020 - $139,702).
(e)On
January 14, 2020, the Company entered into a convertible note with
an unrelated party for $78,000, of which $3,000 was paid for
financing costs, resulting in net proceeds to the Company of
$75,000. The note is due on January 14, 2021, and bears interest on
the unpaid principal balance at a rate of 12% per annum, which
increases to 15% per annum upon default of the note. The note may
be converted at any time after the date of issuance into shares of
Company’s common stock at a conversion price equal to lower of: (i)
65% of the lowest trading price during the 20-trading day period
prior to the issuance date; or (ii) 65% of the lowest trading price
during the 20-trading day period prior to the conversion date. In
connection with the issuance of the above convertible note, the
Company evaluated the conversion option for derivative treatment
under ASC 815-15, Derivatives and Hedging, and determined
the note and conversion feature qualified as derivatives. The
Company classified the conversion feature as a derivative liability
at fair value. The initial fair value of the conversion feature was
determined to be $76,330. The Company recognized the maximum
intrinsic value of the embedded beneficial conversion feature of
$74,500, resulting in a loss on change in fair value of derivative
liabilities of $1,830, and reduced the carrying value of the
convertible note to $500. The carrying value will be accreted over
the term of the convertible note up to its face value of $78,000.
The financing costs were netted against the convertible note and
are being amortized over the term using the effective interest rate
method. During the year ended September 30, 2020, the Company
recognized accretion expense of $16,447.
During the three months ended December 31, 2020, the Company issued
2,600,000 shares of common stock upon the conversion of $18,923 of
the convertible note and $4,500 of conversion fees. As at December
31, 2020, the carrying value of the convertible note was $46,783
(September 30, 2020 - $16,947), net of an unamortized discount of
$12,294 (September 30, 2020 - $61,053), and the fair value of the
derivative liability was $113,106 (September 30, 2020 -
$110,604).
11
PHARMAGREEN
BIOTECH INC.
Notes
to the Condensed Consolidated Financial Statements
December 31, 2020
(Expressed in U.S.
dollars)
(unaudited)
5. Convertible Notes (continued)
(f)On
January 15, 2020, the Company entered into a convertible note with
an unrelated party for $61,000, of which $7,400 was paid directly
to third parties for financing costs and an original issue discount
of $3,000, resulting in proceeds to the Company of $50,600. The
note is due on January 15, 2021, and bears interest on the unpaid
principal balance at a rate of 10% per annum, payable in common
stock, which increases to 24% per annum upon default of the note.
The note may be converted at any time after the date of issuance
into shares of Company’s common stock at a conversion price equal
65% of the lowest trading price during the 20-trading day period
prior to the conversion date. In connection with the issuance of
the above convertible note, the Company evaluated the conversion
option for derivative treatment under ASC 815-15, Derivatives
and Hedging, and determined the note and conversion feature
qualified as derivatives. The Company classified the conversion
feature as a derivative liability at fair value. The initial fair
value of the conversion feature was determined to be $67,846.
The Company recognized the maximum intrinsic value of the embedded
beneficial conversion feature of $50,100, resulting in a loss on
change in fair value of derivative liabilities of $17,746, and
reduced the carrying value of the convertible note to $500. The
carrying value will be accreted over the term of the convertible
note up to its face value of $61,000.
On July 23, 2020, the Company entered into a settlement agreement
with the note holder, wherein the Company and the lender agreed to
settle a convertible note and accrued interest for a total of
$63,440 on a non-convertible basis, of which $15,000 was payable on
or before July 24, 2020 (paid), followed by 6 monthly instalment
payments of $8,073. Upon entering into the settlement agreement,
the Company immediately recognized the remaining debt discount of
$56,566. Effective August 24, 2020, the Company failed to meet the
repayment terms and defaulted on the settlement agreement.
The financing costs were netted against the convertible note and
were being amortized over the term using the effective interest
rate method. During the year ended September 30, 2020, the Company
recognized accretion expense of $60,500.
During the three months ended December 31, 2020, the Company issued
3,601,718 shares of common stock upon the conversion of $46,000 of
the convertible note, $5,586 of accrued interest and $500 of
conversion fees. As at December 31, 2020, the carrying value of the
convertible note was $nil (September 30, 2020 - $46,000) and the
fair value of the derivative liability was $nil (September 30, 2020
- $69,320).
(g)On
January 15, 2020, the Company entered into a convertible note with
an unrelated party for $55,000, of which $2,500 was paid directly
to third parties for financing costs, resulting in proceeds to the
Company of $52,500. The note is due on January 15, 2021, and bears
interest on the unpaid principal balance at a rate of 10% per
annum, which increases to 24% per annum upon default of the note.
The note may be converted at any time after the date of issuance
into shares of Company’s common stock at a conversion price equal
to lower of: (i) the lowest trading price during the 20-trading day
period ending on the latest complete trading day prior to the
issuance date; or (ii) 65% of the lowest trading price during the
20 consecutive trading day period on which at least 100 shares of
common stock were traded prior to the conversion date. In
connection with the issuance of the above convertible note, the
Company evaluated the conversion option for derivative treatment
under ASC 815-15, Derivatives and Hedging, and determined the note
and conversion feature qualified as derivatives. The Company
classified the conversion feature as a derivative liability at fair
value. The initial fair value of the conversion feature was
determined to be $61,173. The Company recognized the maximum
intrinsic value of the embedded beneficial conversion feature of
$52,000, resulting in a loss on change in fair value of derivative
liabilities of $9,173, and reduced the carrying value of the
convertible note to $500. The carrying value will be accreted over
the term of the convertible note up to its face value of $55,000.
During the year ended September 30, 2020, the Company defaulted on
the convertible note which resulted in a default penalty of $27,500
and the amendment of the conversion rate from 65% to 50% of the
lowest trading price during the 20 consecutive trading days prior
to conversion. The Company recognized the remaining debt
discount of $50,767 as accretion expense.
The financing costs were netted against the convertible note and
were being amortized over the term using the effective interest
rate method. During the year ended September 30, 2020, the Company
recognized accretion expense of $54,500 and a default penalty of
$27,500.
12
PHARMAGREEN
BIOTECH INC.
Notes
to the Condensed Consolidated Financial Statements
December 31, 2020
(Expressed in U.S.
dollars)
(unaudited)
5.Convertible
Notes (continued)
During the three months ended December 31, 2020, the Company issued
17,557,925 shares of common stock upon the conversion of $82,500 of
the convertible note, $7,693 of accrued interest and $3,000 of
conversion fees. As at December 31, 2020, the carrying value of the
convertible note was $nil (September 30, 2020 - $82,500) and the
fair value of the derivative liability was $nil (September 30, 2020
- $146,272).
(h)On
January 21, 2020, the Company entered into a convertible note with
an unrelated party for $66,150, of which $7,800 was paid directly
to third parties for financing costs and an original issue discount
of $3,150, resulting in proceeds to the Company of $55,200. The
note is due on January 21, 2021, and bears interest on the unpaid
principal balance at a rate of 8% per annum, payable in common
stock, which increases to 24% per annum upon default of the note.
The note may be converted at any time after the date of issuance
into shares of Company’s common stock at a conversion price equal
60% of the lowest trading price during the 20-trading day period
prior to the conversion date. In connection with the issuance of
the above convertible note, the Company evaluated the conversion
option for derivative treatment under ASC 815-15, Derivatives
and Hedging, and determined the note and conversion feature
qualified as derivatives. The Company classified the conversion
feature as a derivative liability at fair value. The initial fair
value of the conversion feature was determined to be $71,278.
The Company recognized the maximum intrinsic value of the embedded
beneficial conversion feature of $54,700, resulting in a loss on
change in fair value of derivative liabilities of $16,578, and
reduced the carrying value of the convertible note to $500. The
carrying value will be accreted over the term of the convertible
note up to its face value of $66,150.
The financing costs were netted against the convertible note and
are being amortized over the term using the effective interest rate
method. During the year ended September 30, 2020, the Company
recognized accretion expense of $13,202.
During the three months ended December 31, 2020, the Company issued
4,431,963 shares of common stock upon the conversion of $66,150 of
the convertible note and $3,907 of accrued interest. As at December
31, 2020, the carrying value of the convertible note was $nil
(September 30, 2020 - $13,702), net of an unamortized discount of
$nil (September 30, 2020 - $52,448), and the fair value of the
derivative liability was $nil (September 30, 2020 - $98,579).
(i)On
January 22, 2020, the Company entered into a convertible note with
an unrelated party for $78,750, of which $9,750 was paid directly
to third parties for financing costs, resulting in proceeds to the
Company of $69,000. The note is due on January 22, 2021, and bears
interest on the unpaid principal balance at a rate of 10% per
annum, payable in common stock, which increases to 24% per annum
upon default of the note. The note may be converted at any time
after the date of issuance into shares of Company’s common stock at
a conversion price equal to 65% of the lowest trading price during
the 20-trading day period ending on the latest complete trading day
prior to the conversion date. In connection with the issuance of
the above convertible note, the Company evaluated the conversion
option for derivative treatment under ASC 815-15, Derivatives
and Hedging, and determined the note and conversion feature
qualified as derivatives. The Company classified the conversion
feature as a derivative liability at fair value. The initial fair
value of the conversion feature was determined to be $75,179. The
Company recognized the maximum intrinsic value of the embedded
beneficial conversion feature of $68,500, resulting in a loss on
change in fair value of derivative liabilities of $6,679, and
reduced the carrying value of the convertible note to $500. The
carrying value will be accreted over the term of the convertible
note up to its face value of $78,750.
The financing costs were netted against the convertible note and
are being amortized over the term using the effective interest rate
method. During the year ended September 30, 2020, the Company
defaulted on the convertible note and recognized accretion expense
of $78,250. As at December 31, 2020, the carrying value of the
convertible note was $78,750 (September 30, 2020 - $78,750) and the
fair value of the derivative liability was $138,000 (September 30,
2020 - $107,660).
13
PHARMAGREEN
BIOTECH INC.
Notes
to the Condensed Consolidated Financial Statements
December 31, 2020
(Expressed in U.S.
dollars)
(unaudited)
5.Convertible
Notes (continued)
(j)On
February 4, 2020, the Company entered into a convertible note with
an unrelated party for $100,000, of which $16,970 was paid directly
to third parties for financing costs, resulting in proceeds to the
Company of $83,030. The note is due on February 4, 2021, and bears
interest on the unpaid principal balance at a rate of 12% per
annum, which increases to 24% per annum upon default of the note.
The note may be converted at any time after the date of issuance
into shares of Company’s common stock at a conversion price equal
to lower of: (i) the lowest trading price during the 10-trading day
period ending on the latest complete trading day prior to the
issuance date; or (ii) 60% of the average of the two lowest trading
prices during the 10-trading day period prior to the conversion
date. In connection with the issuance of the above convertible
note, the Company evaluated the conversion option for derivative
treatment under ASC 815-15, Derivatives and Hedging, and
determined the note and conversion feature qualified as
derivatives. The Company classified the conversion feature as a
derivative liability at fair value. The initial fair value of the
conversion feature was determined to be $125,640. The Company
recognized the maximum intrinsic value of the embedded beneficial
conversion feature of $82,530, resulting in a loss on change in
fair value of derivative liabilities of $43,110, and reduced the
carrying value of the convertible note to $500. The carrying value
will be accreted over the term of the convertible note up to its
face value of $100,000.
During the year ended September 30, 2020, the noteholder converted
$24,175 of the convertible note for 2,000,000 common shares with a
fair value of $180,000 and was issued on October 20, 2020. Upon the
notice of conversion, the Company immediately recognized the
related remaining debt discount of $23,136 as accretion
expense.
The financing costs were netted against the convertible note and
are being amortized over the term using the effective interest rate
method. During the year ended September 30, 2020, the Company
recognized accretion expense of $7,854.
During the three months ended December 31, 2020, the Company issued
41,017,383 shares of common stock upon the conversion of $75,825 of
the convertible note, $2,154 of accrued interest and $18,750 of
fees. As at December 31, 2020, the carrying value of the
convertible note was $nil (September 30, 2020 - $7,314), net of an
unamortized discount of $nil (September 30, 2020 - $68,511), and
the fair value of the derivative liability was $nil (September 30,
2020 - $110,135).
6.Derivative
Liabilities
The embedded conversion option of certain of the Company’s
convertible notes described in Note 5 contain a conversion feature
that qualifies for embedded derivative classification. The
fair value of these liabilities are re-measured at the end of every
reporting period and the change in fair value is reported in the
consolidated statement of operations as a gain or loss on change in
fair value of derivative liabilities. The table below sets forth a
summary of changes in the fair value of the Company’s Level 3
financial liabilities:
|
|
|
$
|
|
|
|
|
|
Balance, September
30, 2020
|
|
1,380,957
|
|
|
|
|
|
Conversion of convertible notes
|
|
(1,499,873)
|
|
Change in fair value
|
|
674,912
|
|
|
|
|
|
Balance, December 31,
2020
|
|
555,997
|
The Company uses Level 3 inputs for its valuation methodology for
the embedded conversion option liabilities as their fair values
were determined by using a binomial model based on various
assumptions. Significant changes in any of these inputs in
isolation would result in a significant change in the fair value
measurement. As required, these are classified based on the lowest
level of input that is significant to the fair value measurement.
The following table shows the weighted-average assumptions used in
the calculations:
|
|
Expected
volatility
|
Risk-free interest rate
|
Expected dividend yield
|
Expected life (in years)
|
|
|
|
|
|
|
|
As at December 31,
2020
|
367%
|
0.09%
|
0%
|
0.25
|
14
PHARMAGREEN
BIOTECH INC.
Notes
to the Condensed Consolidated Financial Statements
December 31, 2020
(Expressed in U.S.
dollars)
(unaudited)
7.Related Party Transactions
(a)As
at December 31, 2020, the Company owed $522,600 (Cdn$665,951)
(September 30, 2020 - $453,697 (Cdn$604,366)) to the President of
the Company, which is non-interest bearing, unsecured, and due on
demand. During the three months ended December 31, 2020, the
Company incurred consulting fees of $23,018 (2019 - $26,520) to the
President of the Company.
(b)As
at December 31, 2020, the Company owed $57,679 (Cdn$73,500)
(September 30, 2020 - $55,177 (Cdn$73,500)) to the father of the
President of the Company, which is non-interest bearing, unsecured,
and due on demand.
(c)As
at December 31, 2020, the Company owed $377,750 (Cdn$481,367)
(September 30, 2020 – $347,229 (Cdn$462,540)) to a company
controlled by the Chief Financial Officer of WFS, which is included
in accounts payable and accrued liabilities. The amount due is
non-interest bearing, unsecured, and due on demand. During the
three months ended December 31, 2020, the Company incurred
consulting fees of $23,018 (2019 - $26,520) to the company
controlled by the Chief Financial Officer of WFS.
(d)On
October 14, 2020, the Company issued 10,000 shares of Series A
Super Voting Preferred Stock to a Director of the Company for cash
proceeds of $10.
8.Common
Stock
Three months ended
December 31, 2020
(a)During
the three months ended December 31, 2020, the Company issued
5,400,000 units at $0.005 per unit for proceeds of $27,000. Each
unit consisted of one share of common stock and one share purchase
warrant exercisable at $0.05 per share of common stock expiring 2
years from the date of issuance.
(b)During
the three months ended December 31, 2020, the Company issued
48,381,000 shares of common stock upon the conversion of $100,056
of the convertible note and $5,000 of conversion fees (refer to
Note 5(b)).
(c)During
the three months ended December 31, 2020, the Company issued
7,730,486 shares of common stock upon the conversion of $126,000 of
the convertible note and $3,150 of accrued interest (refer to Note
5(c)).
(d)During
the three months ended December 31, 2020, the Company issued
16,994,905 shares of common stock upon the conversion of $106,000
of the convertible note and $2,650 of accrued interest (refer to
Note 5(d)).
(e)During
the three months ended December 31, 2020, the Company issued
2,600,000 shares of common stock upon the conversion of $18,923 of
the convertible note and $4,500 of conversion fees (refer to Note
5(e)).
(f)During
the three months ended December 31, 2020, the Company issued
3,601,718 shares of common stock upon the conversion of $46,000 of
the convertible note, $5,586 of accrued interest and $500 of
conversion fees (refer to Note 5(f)).
(g)During
the three months ended December 31, 2020, the Company issued
17,557,925 shares of common stock upon the conversion of $82,500 of
the convertible note, $7,693 of accrued interest and $3,000 of
conversion fees (refer to Note 5(g)).
(h)During
the three months ended December 31, 2020, the Company issued
4,431,963 shares of common stock upon the conversion of $66,150 of
the convertible note, $3,907 of accrued interest (refer to Note
5(h)).
(i)During
the three months ended December 31, 2020, the Company issued
41,017,383 shares of common stock upon the conversion of $75,825 of
the convertible note, $2,154 of accrued interest and $18,750 of
fees (refer to Note 5(j)).
(j)On
November 1, 2020, the Company issued 22,500 shares of common stock
with a fair value of $401 for management consulting and strategic
business advisory services.
(k)On
November 26, 2020, the Company issued 45,000 shares of common stock
with a fair value of $733 for management consulting and strategic
business advisory services.
15
PHARMAGREEN
BIOTECH INC.
Notes
to the Condensed Consolidated Financial Statements
December 31, 2020
(Expressed in U.S.
dollars)
(unaudited)
8.Common
Stock (continued)
(l)On
December 11, 2020, the Company issued 22,500 shares of common stock
with a fair value of $221 for management consulting and strategic
business advisory services.
(m)As
at September 30, 2020, the Company received a conversion notice for
2,000,000 shares of common stock with a fair value of $180,000
pursuant to the conversion of $30,750 of a convertible note (refer
to Note 5(j)). The common shares were issued on October 20,
2020.
9.Preferred
Stock
On October
13, 2020. The Company filed a certificate of amendment to its
articles of incorporation, whereby it increased the authorized
capital to 2,000,000,000 shares of common stock with a par value of
$0.001 per share and 1,000,000 preferred shares with a par value of
$0.001. On October 14, 2020, the Company designated 10,000
preferred shares as Series A Super Voting Preferred Stock.
The Series A Super Voting Preferred Stock has the following rights
and restrictions:
Dividends -
Initially, there will be no dividends due or payable on the Series
A Super Voting Preferred Stock. Any future terms with respect to
dividends shall be determined by the Board consistent with the
Corporation’s Certificate of Incorporation. Any and all such future
terms concerning dividends shall be reflected in an amendment to
this Certificate, which the Board shall promptly file or cause to
be filed.
Liquidation and
Redemption Rights - Upon the occurrence of a Liquidation
Event, the holders of Series A Super Voting Preferred Stock are
entitled to receive net assets on a pro-rata basis. Each holder of
Series A Super Voting Preferred Stock is entitled to receive
ratably any dividends declared by the Board, if any, out of funds
legally available for the payment of dividends.
Rank - All
shares of the Series A Super Voting Preferred Stock shall rank (i)
senior to the Corporation’s (A) Common Stock, par value $0.001 per
share ( “Common Stock” ), and any other class or series of capital
stock of the Corporation hereafter created, except as otherwise
provided in clauses (ii) and (iii) of this Section 4, (ii) pari
passu with any class or series of capital stock of the Corporation
hereafter created and specifically ranking, by its terms, on par
with the Series A Super Voting Preferred-Stock and (iii) junior to
any class or series of capital stock of the Corporation hereafter
created specifically ranking, by its terms, senior to the Series A
Preferred Stock, in each case as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary.
Voting Rights
- If at least one share of Series A Super Voting Preferred Stock is
issued and outstanding, then the total aggregate issued shares of
Series A Super Voting Preferred Stock at any given time, regardless
of their number, shall have voting rights equal to 20 times the sum
of: i) the total number of shares of Common stock which are issued
and outstanding at the time of voting, plus ii) the total number of
shares of all Series of Preferred stocks which are issued and
outstanding at the time of voting.
Each individual share of Series A Super Voting Preferred Stock
shall have the voting rights equal to:
·[twenty
times the sum of: {all shares of Common stock issued and
outstanding at the time of voting + all shares of Series A, Series
A and any newly designated Preferred stock issued and outstanding
at the time of voting}] Divided by:
·[the
number of shares of Series A Super Voting Preferred Stock issued
and outstanding at the time of voting]
With respect to all matters upon which stockholders are entitled to
vote or to which stockholders are entitled to give consent, the
holders of the outstanding shares of Series A Super Voting
Preferred Stock shall vote together with the holders of Common
Stock without regard to class, except as to those matters on which
separate class voting is required by applicable law or the
Certificate of Incorporation or By-laws.
Protective
Provisions - So long as any shares of Series A Super Voting
Preferred Stock are outstanding, the Corporation shall not, without
first obtaining the unanimous written consent of the holders of
Series A Super Voting Preferred Stock, alter or change the rights,
preferences or privileges of the Series A Super Voting Preferred so
as to affect adversely the holders of Series A Super Voting
Preferred Stock.
16
PHARMAGREEN
BIOTECH INC.
Notes
to the Condensed Consolidated Financial Statements
December 31, 2020
(Expressed in U.S.
dollars)
(unaudited)
9.Preferred
Stock (continued)
On October 14, 2020, the Company issued 10,000 shares of Series A
Super Voting Preferred Stock to a Director of the Company for cash
proceeds of $10. In connection with the issuance of the Series A
Super Voting Preferred Stock, the Company evaluated whether the
preferred stock should be classified as a liability based on the
guidance under ASC 480, Distinguishing Liabilities from
Equity. The Series A Super Voting Preferred Stock are not
considered mandatorily redeemable, are not settleable in a variable
number of shares, and do not contain any features embedded that
required a separate assessment. As a result, the Company determined
the Series A Super Voting Preferred Stock were not a liability and
classified the preferred stock within equity in the amount of the
aggregate par value of the issued shares of preferred stock, with
any excess attributed to additional paid-in capital.
10.Share
Purchase Warrants
The following table summarizes the continuity of the Company’s
share purchase warrants:
|
|
Number
of
warrants
|
Weighted average exercise price
$
|
|
|
|
|
|
Balance,
September 30, 2020
|
114,286
|
0.55
|
|
|
|
|
|
Issued
|
5,400,000
|
0.05
|
|
|
|
|
|
Balance,
December 31, 2020
|
5,514,286
|
0.06
|
As at December 31, 2020, the following share purchase warrants were
outstanding:
|
|
Number
of warrants
|
|
|
Exercise price
|
|
|
Expiry date
|
|
|
|
|
|
|
|
|
|
|
|
|
114,286
|
|
|
|
$0.55
|
|
|
July 22, 2022
|
|
|
|
400,000
|
|
|
|
$0.05
|
|
|
December 2, 2022
|
|
|
|
3,000,000
|
|
|
|
$0.05
|
|
|
December 11, 2022
|
|
|
|
2,000,000
|
|
|
|
$0.05
|
|
|
December 30, 2022
|
11.Commitments
(a)Effective
December 11, 2017, the Company entered into a binding Letter of
Intent (“LOI”) with Alliance Growers Corp. (“Alliance”), whereby
the Company will build a new cannabis biotech complex located in
Deroche, British Columbia, through their subsidiary, 115BC. On
January 25, 2019, the Company’s subsidiaries WFS and 115BC entered
into an option agreement with Alliance, which superseded the LOI
entered into on December 11, 2017. The option agreement grants an
option to Alliance to purchase 10% equity interest in 115BC for
Cdn$1,350,000 and previously granted a second option to purchase an
additional 20% equity interest in 115BC for funding of 30% of the
total construction and equipment costs for the biotech complex less
Cdn$1,350,000. On January 25, 2019, 115BC issued 8 shares of common
stock to Alliance upon exercise of the first option for
consideration of $1,018,182 (Cdn$1,350,008), which was recognized
as additional paid-in capital. The second option expired
unexercised. As at December 31, 2020, the Company received advances
of $58,856 (Cdn$75,000) (September 30, 2020 - $56,303 (Cdn$75,000))
from Alliance, which is unsecured, non-interest bearing, and due on
demand.
(b)On
November 22, 2019, the Company entered into an equity purchase
agreement with an unrelated party, whereby the third party is to
purchase up to $10,000,000 of the Company’s common stock. The
equity purchase agreement is effective for a term of 2 years from
the effective date of the registration statement. The purchase
price would be 85% of the market price. In return, the Company
issued a promissory note of $40,000 (refer to Note 4(a)). In
addition, the third party is required to pay an additional
commitment fee of $10,000, of which $5,000 was paid upon signing
the term sheet and the remaining $5,000 is due upon completion of
the first tranche of the financing.
(c)On
December 13, 2020, the Company entered into a consulting agreement
with a six month term. Pursuant to the agreement, the Company
will 75,000 common shares per month in exchange for consulting
services.
17
PHARMAGREEN
BIOTECH INC.
Notes
to the Condensed Consolidated Financial Statements
December 31, 2020
(Expressed in U.S.
dollars)
(unaudited)
12.Subsequent
Events
a)On
January 11, 2021, the Company issued 12,000,000 shares of common
stock upon the conversion of $27,800 of the convertible note and
$1,000 of fees (refer to Note 5(b)).
b)On
January 11, 2021, the Company issued 2,300,000 units at $0.005 per
unit for proceeds of $11,500. Each unit consisted of one share of
common stock and one share purchase warrant exercisable at $0.05
per share of common stock expiring 2 years from the date of
issuance.
c)On
January 21, 2021, the Company issued 12,900,000 shares of common
stock upon the conversion of $31,895 of the convertible note and
$1,000 of fees (refer to Note 5(b)).
d)On
January 27, 2021, the Company issued 13,600,000 shares of common
stock upon the conversion of $35,720 of the convertible note and
$1,000 of fees (refer to Note 5(b)).
e)On
January 30, 2021, the Company issued 13,500,000 units at $0.005 per
unit for proceeds of $67,500. Each unit consisted of one share of
common stock and one share purchase warrant exercisable at $0.05
per share of common stock expiring 2 years from the date of
issuance.
f)On
February 1, 2021, the Company issued 150,000 shares of common stock
for services pursuant to the agreement described in Note
11(c).
g)On
February 5, 2021, the Company issued 14,200,000 shares of common
stock upon the conversion of $62,900 of the convertible note and
$1,000 of fees (refer to Note 5(b)).
18
Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
Forward-Looking Statements
This section of the Form 10-Q includes a number of
forward-looking statements that reflect our current views with
respect to future events and financial performance. Forward-looking
statements are often identified by words like believe, expect,
estimate, anticipate, intend, project and similar expressions, or
words which, by their nature, refer to future events. You should
not place undue certainty on these forward-looking statements.
These forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially
from our predictions.
Company History Overview
Pharmagreen Biotech Inc. (“the Company”) was incorporated under the
laws of Nevada, U.S. on November 26, 2007 under the name Azure
International, Inc. On October 30, 2008 and effective as of the
same date, the Company filed Articles of Merger with the Secretary
of the State of Nevada, to effect a merger by and between Air
Transport Group Holdings, Inc., a Nevada corporation incorporated
on October 16, 2008, and Azure International, Inc. As a result of
the merger, the Company changed its name to Air Transport Group
Holdings, Inc.
On
April 12, 2018, the Company entered into a share exchange agreement
with WFS Pharmagreen Inc., a private company incorporated under the
laws of British Columbia, Canada, whereby the Company acquired all
of the issued and outstanding shares of WFS Pharmagreen Inc. in
exchange for 37,704,500 shares of common stock of the Company. Upon
completion of this transaction, the shareholders of WFS Pharmagreen
hold 95.5% of voting control of the Company.
Immediately prior to closing of the Agreement, the majority
shareholder of the Company was also the majority shareholder of
WFS. As a result of the common ownership upon closing of the
transaction, the acquisition was considered a common-control
transaction and was outside the scope of the business combination
guidance in ASC 805-50. The entities are deemed to be under common
control as of February 27, 2018, which was the date that the
majority shareholder acquired control of the Company and,
therefore, held control over both companies. On May 2, 2018, the
Share Exchange Agreement was effected. In connection with this
transaction, the Company changed its name on May 8, 2018 to
Pharmagreen Biotech Inc. and changed its year end from April 30th
to September 30th.
Our
principal executive offices are temporarily located at 2987
Blackbear Court, Coquitlam, British Columbia, Canada. Our telephone
number is (702-803-9404). Our internet address is
www.pharmagreen.ca.
On
August 7, 2020, (the “Petition Date”), the Company filed voluntary
petitions for reorganization (the “Bankruptcy Petitions” and the
cases commenced thereby, the “Chapter 11 Cases”) under chapter 11
of the United States Bankruptcy Code (the “Bankruptcy Code”) in the
United States Bankruptcy Court for the District of Nevada (the
“Court”). The Company’s filing with the Court was designated as
Case No. 20-13886. During the pendency of this matter, the Company
has also filed motions with the Court seeking authorization to
continue to operate its businesses as “debtors-in-possession” under
the jurisdiction of the Court and in accordance with the applicable
provisions of the Bankruptcy Code and orders of the Court. To
maintain and continue uninterrupted ordinary course operations
during the Chapter 11 Cases, the Company filed a variety of “first
day” motions seeking approval from the Court for various forms of
customary relief. These motions are designed primarily to minimize
the effect of bankruptcy on the Company’s operations, customers and
employees.
On
October 9, 2020, a stay order was lifted by a United States
District Judge of the United States District Court for the Southern
District of New York, on an action filed by a lender. This
effectively removed the Company from its Chapter 11 bankruptcy
proceedings and protection.
We
expect to continue to incur losses for at least the next 12 months.
We do not expect to generate revenue that is sufficient to cover
our expenses, and we do not have sufficient cash and cash
equivalents to execute our plan of operations for at least the next
twelve months. We will need to obtain additional financing, through
equity security sales, debt instruments and private financing, to
conduct our day-to-day operations, and to fully execute our
business plan. We plan to raise the capital necessary to fund our
business through the sale of equity securities, debt instruments or
private financing. These factors raise substantial doubt upon the
Company’s ability to continue
19
as a going concern. This report
does not reflect all the adjustments that may be necessary if the
Company is unable to continue as a going concern.
Our Current Business
Pharmagreen Biotech Inc. (the “Company”) was incorporated under the
laws of the State of Nevada on November 26, 2007. The Company is
headquartered in Coquitlam, British Columbia. The Company’s
mission is to advance the technology of tissue culture science and
to provide the highest quality 100% germ free, disease free and all
genetically the same plantlets of high CBD hemp and other flora and
offering full spectrum DNA testing for plant identification, live
genetics preservation using low temperature storage for
various cannabis and horticulture plants; extraction of botanical
oils mainly CBD oil, and to deliver laboratory based services to
the North American high CBD hemp, Cannabis and agriculture
sectors.
Management cannot provide assurance that the Company will
ultimately achieve profitable operations or become cash flow
positive, or raise additional debt and/or equity capital. However,
if the Company is unable to raise additional capital in the near
future, due to the Company’s liquidity problems, management expects
that the Company will need to curtail operations, liquidate assets,
seek additional capital on less favourable terms and/or pursue
other remedial measures. These consolidated financial statements do
not include any adjustments related to the recoverability and
classification of assets or the amounts and classification of
liabilities that might be necessary should the Company be unable to
continue as a going concern.
Its
immediate focus will be on producing tissue cultured high CBD hemp
starter plantlets. In the early part of 2018, the Company’s
wholly owned Canadian subsidiary, WFS Pharmagreen Inc., applied to
Health Canada for a license to produce and sell tissue culture
plantlets and cannabis oil. On February 7, 2019, the
Company’s wholly owned Canadian subsidiary, WFS Pharmagreen Inc.,
received notification from Health Canada that its cannabis
licensing application under the Cannabis Act and the Cannabis
Regulations to obtain a license at the proposed site in Deroche,
British Columbia, Canada has advanced from the first stage, “Intake
and Screening” to the second stage, “Detailed Review and Initiation
of Security Clearance Process,” of a three stage approval process.
On May 10, 2019, the Company received confirmation from Health
Canada that the second stage review was completed and that the
Company can proceed to the third and final stage, construction of
the biotech complex for final inspection and licensing.
Detailed Review and Initiation of Security Clearance Process means
applications are reviewed against the licensing and personnel
security requirements of the regulations.
The
third stage is Confirmation of Readiness: Confirmation is provided
to the applicant that the application substantively meets the
requirements and asks for confirmation that the site is ready for
licensing or inspection. This stage will be dependent on the timing
of completing the development of its site.in Deroche, British
Columbia Canada. The Company does not anticipate any additional
costs related to this stage.
The
Company has decided that immediate business development in the hemp
industry provides a much greater opportunity in the United States.
The project at Deroche has been placed on hold while the
Company moves forward to build out a similar infrastructure planned
for Deroche within the United States.
The
outbreak of the novel coronavirus COVID-19, which was declared a
pandemic by the World Health Organization on March 11, 2020, has
led to adverse impacts on the U.S. and global economies,
disruptions of financial markets, and created uncertainty regarding
potential impacts to the Company’s supply chain, operations, and
customer demand. The COVID-19 pandemic has impacted and could
further impact the Company’s operations and the operations of the
Company’s suppliers and vendors as a result of quarantines,
facility closures, and travel and logistics restrictions.
Specifically, the Company attributes the pandemic to a delay in a
planned financing which was to be used for the construction of the
biotech complex, resulting in an impairment of the capitalized
construction-in-progress at September 30, 2020. The extent to which
the COVID-19 pandemic further impacts the Company’s business,
results of operations and financial condition will depend on future
developments, which are highly uncertain and cannot be predicted,
including, but not limited to the duration, spread, severity, and
impact of the COVID-19 pandemic, the effects of the COVID-19
pandemic on the Company’s customers, suppliers, and vendors and the
remedial actions and stimulus measures adopted by local and federal
governments, and to what extent normal economic and operating
conditions can resume. The management team is closely following the
progression of COVID-19 and its impact on the Company. Even after
the COVID-19 pandemic has subsided, the Company may continue to
experience adverse impacts to its business as a result of any
economic
20
recession or depression that has
occurred or may occur in the future. Therefore, the Company cannot
reasonably estimate the impact at this time our business,
liquidity, capital resources and financial results.
Capital Resources and Liquidity
Our auditors
have issued a “going concern” opinion for our year ended September
30, 2020, meaning that there is substantial doubt if we can
continue as an on-going business unless we obtain additional
capital. No substantial revenues from our planned business model
are anticipated until we have completed financing the Company. As
at December 31, 2020, the Company has not generated any revenues,
incurred a net loss attributable to our shareholders of $417,109,
has a working capital deficit of $1,717,621 and an accumulated
deficit of $7,584,456.
We need to seek
capital from resources such as the sale of private placements in
the Company’s common stock or debt financing, which may not even be
available to the Company. However, if such financing were
available, because we are an early stage company with no or limited
operations to date, it would likely have to pay additional costs
associated with such financing and in the case of high risk loans
be subject to an above market interest rate. At such time these
funds are required, management would evaluate the terms of such
financing. If the Company cannot raise additional proceeds via such
financing, it may be required to cease business operations.
As of December
31, 2020, we had $29,764 in cash and prepaid expenses and deposits
of $253,924, as compared to $12,196 in cash, amounts receivable of
$295 and prepaid expenses and deposits of $253,754 as of September
30, 2020. As of the date of this Form 10-Q, the current funds
available to the Company will not be sufficient to fund the
expenses related to maintaining our planned operations. We are in
the process of seeking additional equity financing in the form of
private placements, loans and registration statements to fund our
intended business operations.
Management
believes that if subsequent private placements are successful or we
are successful in raising funds from registered securities, we will
generate sales revenue within twelve months thereof. However,
additional equity financing may not be available to us on
acceptable terms or at all, and thus we could fail to satisfy our
future cash requirements.
We do not
anticipate researching any further products nor the purchase or
sale of any significant equipment. We also do not expect any
significant additions to the number of employees.
Results of Operations
Three Months
Ended December 31, 2020
We had $nil in
revenue for the three months ended December 31, 2020 and 2019.
Total expenses
in the three months ended December 31, 2020 were $101,624 as
compared to total expenses for the three months ended December 31,
2019 of $117,116. The net increase in expenses during the current
period is mainly due to a decrease in consulting fees from $70,816
in 2019 to $50,140 in 2020. This was offset by an increase in
professional fees from $25,630 in 2019 to $33,508 in 2020, which
were higher due to indirect costs associated with the issuance of
convertible notes during the period.
In addition to
operating expenses, the Company incurred other expense of $315,486
during the three months ended December 31, 2020 compared to $88,941
during the three months ended December 31, 2019. The increase
in other expense is due to an increase in the change in fair value
of derivative liabilities and the gain on settlement of convertible
notes due to the increase in the number of common shares issued
during the current period to settle the Company’s outstanding debt
obligations.
We incurred a
comprehensive loss of $459,564 during the three months ended
December 31, 2020, compared to a comprehensive loss of $218,420
during the three months ended December 31, 2019. The increase
in comprehensive income was mainly attributable to a loss on change
in fair value of derivative liability of $674,912 and an increase
interest expenses related to the Company’s convertible notes.
During the three
months ended December 31, 2020, and 2019, we incurred a net loss of
$0.00 and $0.00 per share, respectively.
21
Off-balance Sheet Arrangements
The Company has
no off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect or change on the
company’s financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources
that are material to investors. The term “off-balance sheet
arrangement” generally means any transaction, agreement or other
contractual arrangement to which an entity unconsolidated with the
company is a party, under which the company has (i) any obligation
arising under a guarantee contract, derivative instrument or
variable interest; or (ii) a retained or contingent interest in
assets transferred to such entity or similar arrangement that
serves as credit, liquidity or market risk support for such
assets.
Item 3. Quantitative and Qualitative Disclosures About
Market Risk.
We are a smaller
reporting company as defined by Rule 12b-2 of the Exchange Act and
are not required to provide the information required under this
item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other
procedures that are designed to ensure that information required to
be disclosed in our reports filed or submitted under the Securities
Exchange Act of 1934 is recorded, processed, summarized and
reported, within the time period specified in the SEC's rules and
forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that
information required to be disclosed in our reports filed or
submitted under the Securities Exchange Act of 1934 is accumulated
and communicated to management including our principal executive
officer and principal financial officer as appropriate, to allow
timely decisions regarding required disclosure.
In
connection with this quarterly report, as required by Rule 15d-15
under the Securities Exchange Act of 1934, we have carried out an
evaluation of the effectiveness of the design and operation of our
company's disclosure controls and procedures. This evaluation was
carried out under the supervision and with the participation of our
company's management, including our company's principal executive
officer and principal financial officer. Based upon that
evaluation, our company's principal executive officer and principal
financial officer concluded that as of December 31, 2020 our
disclosure controls and procedures were not effective due to the
existence of material weaknesses in our internal controls over
financial reporting.
Changes in Internal Control Over Financial Reporting
There
were no changes in our internal control over financial reporting
(as defined in Rule 13a-15(f) or 15d-15(f)) during the quarter
ended December 31, 2020 that have materially affected, or are
reasonably likely to materially affect, our internal controls over
financial reporting.
Saturna Group Chartered Professional Accountants LLP, our
independent auditors, are not required to and have not performed an
assessment of our internal controls over financial reporting.
22
PART II—OTHER
INFORMATION
Item 1. Legal
Proceedings.
On July 22, 2020, the Company received a
preliminary statement of claim from a convertible note holder for
failure of the Company to deliver shares of common stock upon
receipt of notices of conversion. Pursuant to the claim, the
plaintiff has requested receipt of all shares of common stock
requested in the notices of conversion, and also damages in an
amount to be determined at trial but in any event in excess of
principal amount of $78,000 for a total sum of $180,000, including
without limitation the balance of any portion of the convertible
note that ultimately is not converted into shares of common stock,
along with default interest, liquidated damages, and damages as
provided for in the convertible note.
On
October 9, 2020, a stay order was lifted by a United States
District Judge of the United States District Court for
the Southern District of New York, on an action filed by a lender.
This effectively removed the Company from its Chapter 11 bankruptcy
proceedings and protection. The lifting of the stay order further
allowed the convertible note holders to convert thereby increasing
the number of shares issued and outstanding.
On October 29,
2020 a second note holder filed a statement of claim. This
lender, as of December 24, 2020, has completely converted the full
amount of the note of $100,000, interest of $8,689.80 and penalty
and fees aggregating $19,500.
Also,
as mentioned above, the Company filed voluntary petitions for
reorganization under chapter 11 of the United States Bankruptcy
Code in the United States Bankruptcy Court for the District of
Nevada on August 7, 2020. The Company’s filing with the Court was
designated as Case No. 20-13886. During the pendency of this
matter, the Company has also filed motions with the Court seeking
authorization to continue to operate its businesses as
“debtors-in-possession” under the jurisdiction of the Court and in
accordance with the applicable provisions of the Bankruptcy Code
and orders of the Court.
Except as mentioned in the preceding paragraphs, there are no
pending legal proceedings to which the Company is a party or in
which any director, officer or affiliate of the Company, any owner
of record or beneficially of more than 5% of any class of voting
securities of the Company, or stockholder is a party adverse to the
Company or has a material interest adverse to the Company.
Item 1A. Risk Factors.
As a
“smaller reporting company,” as defined in Rule 12b-2 of the
Exchange Act, we are not required to provide the information called
for by this Item.
Item 2. Unregistered Sales of
Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior
Securities.
The commencement of the Chapter
11 Cases discussed above constituted an event of default under
certain of the Company’s debt instruments, including various
convertible notes, which resulted in automatic acceleration of the
Company’s obligations under such debt instruments. Any efforts to
enforce payment obligations under the aforementioned debt
instruments are automatically stayed as a result of the filing of
the Chapter 11 Cases and the creditors’ rights of enforcement in
respect of the debt instruments are subject to the applicable
provisions of the Bankruptcy Code.
Item 4. Mine Safety Disclosure.
N/A
Item 5. Other
Information.
None
23
Item 6. Exhibits.
The following
documents are filed as a part of this report or are incorporated by
reference to previous filings, if so indicated:
|
Exhibit
Number
|
|
Description
|
|
|
|
|
|
2.1
|
|
Articles of
Incorporation and Bylaws dated November 26, 2007 as previously
filed with the SEC on March 20, 2019
|
|
|
|
|
|
2.2
|
|
Articles of Merger
dated, October 30, 2008 (Azure International, Inc./ Air Transport
Group Holding, Inc. as previously filed with the SEC on March 20,
2019
|
|
|
|
|
|
2.10
|
|
Equity Purchase
Agreement with Oscaleta Partners LLC as previously filed with the
SEC on December 2, 2019
|
|
|
|
|
|
2.11
|
|
Registration Rights
Agreement with Oscaleta Partners LLC as previously filed with the
SEC on December 2, 2019
|
|
|
|
|
|
31.1
|
|
Certification of
Principal Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a)
of the Securities Exchange Act of 1934*
|
|
|
|
|
|
31.2
|
|
Certification of Chief Executive Officer
Pursuant to Rule 13a–14(a) or 15d-14(a) of the Securities Exchange
Act of 1934**
|
|
|
|
|
|
32.1
|
|
Certification of
Chief Executive Officer under Section 1350 as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
32.2
|
|
Certification of
Principal Financial Officer under Section 1350 as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002**
|
|
|
|
|
* Included in Exhibit 31.1
** Included in Exhibit 32.1
24
SIGNATURES*
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
|
|
Pharmagreen
Biotech Inc.
|
|
|
|
|
|
By:
|
/s/ Peter Wojcik
|
|
|
|
Peter Wojcik
|
|
|
|
President and
Director
Principal Executive
Officer
|
|
|
|
|
|
By:
|
/s/ Terry Kwan
|
|
|
|
Terry Kwan
|
|
|
|
Principal Accounting
Officer
|
Dated February 22,
2021
25
