Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

☐  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended August 31, 2018

 

☐ TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT

 

For the transition period from _________ to _________

 

Commission File Number: 333-172744

 

GALA PHARMACEUTICAL INC.

(Name of Small Business Issuer in its charter)

 

Nevada	42-1771014
(state or other jurisdiction of incorporation or organization)	(I.R.S. Employer I.D. No.)

 

2780 South Jones Blvd. #3725, Las Vegas, Nevada 89146

(Address of principal executive offices)

 

657-215-5742

Issuer’s telephone number

 

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was require to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  ☐Yes  ☒   No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  ☐   No  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)

 

Large accelerated filer ☐	Accelerated filer  ☐
Non-accelerated filer  ☐ (Do not check if a smaller reporting company)	Smaller reporting company  ☒
	Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ☐     No  ☒ 

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

As of October 22, 2018, the registrant had 78,954,937 shares of common stock outstanding.

 

 

 

 

GALA PHARMACEUTICAL INC.

 

Table of Contents

 

 

PART I – FINANCIAL INFORMATION	1
Item 1. Financial Statements (unaudited)	1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3. Quantitative and Qualitative Disclosures About Market Risk	19
Item 4. Controls and Procedures	19
PART II – OTHER INFORMATION	20
Item 1. Legal Proceedings	20
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Securities	20
Item 3. Defaults Upon Senior Securities	21
Item 4. Mine Safety Disclosures	21
Item 5. Other Information	21
Item 6. Exhibits	21
SIGNATURES	22

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GALA PHARMACEUTICAL INC.

 

Condensed Consolidated Financial Statements

(unaudited)

 

For the Three and Nine Month Periods Ended August 31, 2018 and 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets (unaudited)	2
Condensed Consolidated Statements of Operations (unaudited)	3
Condensed Consolidated Statements of Cash Flows (unaudited)	4
Notes to the Condensed Consolidated Financial Statements (unaudited)	5

 

 

 

 

GALA PHARMACEUTICAL INC.

Condensed Consolidated Balance Sheets

 

		August 31, 2018 $				November 30, 2017 $
			(unaudited)
ASSETS
Current assets
Cash			14,616				7,767
Marketable securities			67,800				–
Inventory			2,241				2,241
Prepaid expenses			115,116				41,908
Prepaid expenses – related party			10,000				10,000
Total current assets			209,773				61,916
Equipment, net of accumulated depreciation			37,883				46,060
Total assets			247,656				107,976
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities
Accounts payable and accrued liabilities			62,460				34,556
Accounts payable and accrued liabilities – related party			116,327				61,475
Due to related parties			123,367				48,367
Loans payable			42,000				42,000
Loans payable - related parties			20,764				20,764
Convertible debentures, net of unamortized discount of $29,380 and $nil, respectively			257,881				353,629
Derivative liabilities			832,531				453,005
Total liabilities			1,455,330				1,013,796
Commitments and contingencies
STOCKHOLDERS’ DEFICIT
Preferred stock Authorized: 10,000,000 shares with a par value of $0.001 per share Issued and outstanding: 500,000 and 500,000 shares, respectively			500				500
Common stock Authorized: 500,000,000 shares with a par value of $0.001 per share Issued and outstanding: 58,704,908 and 35,701,561 shares, respectively			58,705				35,702
Additional paid-in capital			3,637,493				2,417,400
Common stock issuable			137,500				25,000
Deferred compensation – related party			(125,000	)			(165,853	)
Accumulated deficit			(4,907,251	)			(3,218,569	)
Total shareholders’ deficit attributable to Gala Pharmaceutical Inc.			(1,198,053	)			(905,820	)
Noncontrolling interest			(9,621	)			–
Total stockholders’ deficit			(1,207,674	)			(905,820	)
Total liabilities and stockholders’ deficit			247,656				107,976

 

(The accompanying notes are an integral part of these unaudited condensed consolidated financial statements)

 

 

 

 

GALA PHARMACEUTICAL INC.

Condensed Consolidated Statements of Operations

(unaudited)

 

		Three months ended August 31, 2018 $				Three months ended August 31, 2017 $				Nine months ended August 31, 2018 $				Nine months ended August 31, 2017 $
Revenue			–				–				4,675				–
Cost of revenue			–				–				(3,216	)			–
Gross Profit			–				–				1,459				–
Operating expenses
Consulting fees			129,561				23,852				380,140				23,852
Consulting fees – related party			138,303				164,736				560,335				210,845
Depreciation			2,723				–				8,177
General and administrative			19,519				28,822				164,847				54,075
General and administrative – related party			9,000				68,344				94,405				124,865
Rent			9,700				1,050				33,303				3,500
Total operating expense			308,806				286,804				1,241,207				417,137
Loss before other expense			(308,806	)			(286,804	)			(1,239,748	)			(417,137	)
Other expense
Change in fair value of derivative liability			(477,174	)			(197,308	)			(588,364	)			(207,340	)
Interest expense			(22,421	)			(89,656	)			(56,428	)			(265,430	)
Gain on sale of subsidiaries			71,800				–				71,800				–
Gain (loss) on settlement of notes payable			23,694				(93,050	)			118,437				(93,050	)
Loss on settlement of notes payable – related party			–				(28,371	)			–				(116,705	)
Unrealized loss on marketable securities			(4,000	)			–				(4,000	)			–
Total other expense			(408,101	)			(408,385	)			(458,555	)			(682,525	)
Net loss before controlling interest			(716,907	)			(695,189	)			(1,698,303	)			(1,099,662	)
Less: Net loss attributed to non-controlling interest			5,211				–				9,621				–
Net loss			(711,696	)			(695,189	)			(1,688,682	)			(1,099,662	)
Net loss per share, basic and diluted			(0.01	)			(0.02	)			(0.03	)			(0.06	)
Weighted average common shares outstanding			57,019,548				36,913,138				50,214,771				19,368,632

 

(The accompanying notes are an integral part of these unaudited condensed consolidated financial statements)

 

 

 

GALA PHARMACEUTICAL INC.

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

		For the Nine Months Ended August 31, 2018 $				For the Nine Months Ended August 31, 2017 $
Operating activities
Net loss for the period			(1,698,303	)			(1,099,662	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of discount on convertible note			620				77,570
Amortization of debt issuance costs			–				16,281
Change in fair value of derivative liability			588,364				207,340
Common shares issued for services and compensation – related party			312,500				210,777
Common shares issued for services			562,853				8,852
Depreciation			8,177				–
Derivative expense			–				161,353
Fair value of warrants issued			5,695				–
Loss on settlement of related party debt			–				116,705
Loss (gain) on settlement of debt			(118,437	)			93,050
Gain on sale of subsidiaries			(71,800	)			–
Unrealized loss on marketable securities			4,000				–
Changes in operating assets and liabilities:
Prepaid expenses			(73,208	)			(37,168	)
Prepaid expenses – related party			–				(10,000	)
Accounts payable and accrued liabilities			81,536				12,668
Accounts payable and accrued liabilities – related party			54,852				16,566
Net cash used in operating activities			(343,151	)			(225,668	)
Investing activities
Loan issued to related party			–				(20,000	)
Purchase of equipment			–				(100,000	)
Net cash used in investing activities			–				(120,000	)
Financing activities
Proceeds from related party debt			75,000				28,867
Proceeds from convertible note			30,000				250,000
Proceeds from issuance of common shares			245,000				108,000
Proceeds from note payable - related party			–				8,500
Net cash provided by financing activities			350,000				395,367
Increase in cash			6,849				49,699
Cash, beginning of period			7,767				10,841
Cash, end of period			14,616				60,540

 

Supplemental Disclosures (Note 14)

 

(The accompanying notes are an integral part of these unaudited condensed consolidated financial statements)

 

 

GALA PHARMACEUTICAL INC.

Notes to the Condensed Consolidated Financial Statements

For the Nine Months Ended August 31, 2018 and 2017

(unaudited)

 

1.

Organization and Nature of Operations

 

Gala Pharmaceutical Inc. (formerly Gala Global Inc.) (the “Company” or “GPI”) was incorporated in the State of Nevada on March 10, 2010. The Company provides Testing or Analytical Chemistry tools for chemical, plant, soil, and liquid composition analysis. GPI provides analysis of compositional traits for hemp and cannabis products (cannabinoid, terpenes, pesticides, residual solvents and microbial). The analysis is being done at certified labs with persistent results.

 

The Company also provides genetic “fingerprinting” and “sequencing” of various crop species. This fingerprinting allows for storing genetic fingerprint information into a proprietary database. Customers can access genetic fingerprint data which can be used for predictive breeding applications and for protecting intellectual property (IP). Additionally, the Company provides consulting on testing lab designs and SOPs.

 

Going Concern

 

These condensed consolidated financial statements have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities in the normal course of business. As at August 31, 2018, the Company has a working capital deficit of $1,245,557, an accumulated deficit of $4,907,251, and has a convertible debenture that is currently in default. Refer to Note 6. The continuation of the Company as a going concern is dependent upon the continued financial support from its management, and its ability to identify future investment opportunities and obtain the necessary debt or equity financing, and generating profitable operations from the Company’s future operations. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

2.

Summary of Significant Accounting Policies

 

(a)

Basis of Presentation

 

The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) and are expressed in U.S. dollars.

 

(b)

Principles of Consolidation

 

These consolidated financial statements include the accounts of the Company and its subsidiaries, 51% of Gala Pharmaceuticals California, Inc. (“Gala California”) from February 7, 2018 (date of incorporation) and 100% of Gala Labs, Inc. from July 11, 2018 (date of incorporation) as well as Cannabis Ventures, Inc. (USA) and Cannabis Ventures Inc. (Canada) from June 26, 2014 (date of incorporation) until the sale of those subsidiaries on June 20, 2018. Refer to Note 3. All inter-company transactions and balances have been eliminated on consolidation and the proportionate net income/loss on the 49% non-controlling interest has been deducted from the Company’s net loss on the consolidated statement of operations commencing with a corresponding entry within stockholders’ deficit.

 

 

 

 

GALA PHARMACEUTICAL INC.

Notes to the Condensed Consolidated Financial Statements

For the Nine Months Ended August 31, 2018 and 2017

(unaudited)

 

2.

Summary of Significant Accounting Policies (continued)

 

(c)

Interim Financial Statements

 

The accompanying unaudited financial statements of the Company have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In management’s opinion the financial statements include all adjustments (consisting of normal recurring accruals) necessary in order to make the financial statements not misleading. Operating results for the nine months ended August 31, 2018 are not necessarily indicative of the results that may be expected for the year ended November 30, 2018. For more complete financial information, these unaudited financial statements should be read in conjunction with the audited financial statements for the year ended November 30, 2017 included in our Form 10-K filed with the SEC.

 

(d)

Use of Estimates

 

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the valuation of inventory, valuation of derivative liability and share-based compensation, and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

 

(e)

Basic and Diluted Net Loss per Share

 

The Company computes net income (loss) per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti dilutive. For the three and nine months ended August 31, 2018, the Company had 5,920,263 and 4,893,819 (three and nine months ended August 31, 2017 - 823,671 and 484,246) potentially issuable shares from an outstanding convertible note.

 

(f)

Revenue Recognition Policy

 

The Company recognizes and accounts for revenue in accordance with ASC 605 as a principal on the sale of goods. Pursuant to ASC 605, Revenue Recognition, revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the amount is fixed and determinable, risk of ownership has passed to the customer and collection is reasonably assured. The Company considered ASC 605-45, Principal Agent Considerations, and determined that the Company acts as a principal in its revenue-earnings activities as they are responsible for the production of goods purchased by the customer, can determine the pricing costs, goods purchased are paid directly by the Company, and has a credit risk with respect to collection of amounts owed by its customers.

 

 

 

 

GALA PHARMACEUTICAL INC.

Notes to the Condensed Consolidated Financial Statements

For the Nine Months Ended August 31, 2018 and 2017

(unaudited)

 

2. Summary of Significant Accounting Policies (continued)

 

(g)

Fair Value Measurements

 

Pursuant to ASC 820, Fair Value Measurements and Disclosures, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:

 

Level 1

 

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 receivable, accounts payable and accrued liabilities, loans payable, amounts due to and from related parties, liabilities for shares issuable – related party, and convertible debentures. Pursuant to ASC 820, the fair value of our cash is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. We believe that the recorded values of all of our other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.

 

The following table represents assets and liabilities that are measured and recognized in fair value as of August 31, 2018, on a recurring basis:

 

		Level 1 $				Level 2 $				Level 3 $				Total gains and (losses)
Marketable securities			67,800				–				–				(4,000	)
Derivative liabilities			–				–				(832,531	)			(588,364	)
Total			67,800				–				(832,531	)			(592,364	)

 

The following table represents assets and liabilities that are measured and recognized in fair value as of November 30, 2017, on a recurring basis:

 

		Level 1 $				Level 2 $				Level 3 $				Total gains and (losses)
Derivative liabilities			–				–				(453,005	)			(277,578	)
Total			–				–				(453,005	)			(277,578	)

 

 

 

 

 

GALA PHARMACEUTICAL INC.

Notes to the Condensed Consolidated Financial Statements

For the Nine Months Ended August 31, 2018 and 2017

(unaudited)

 

2. Summary of Significant Accounting Policies (continued)

 

(h)

Recent Accounting Pronouncements

 

The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

 

3.

Sale of Subsidiaries

 

On June 20, 2018, the Company approved the sale of its wholly-owned subsidiaries, Cannabis Ventures, Inc. (USA) and Cannabis Ventures, Inc. (Canada) including any and all of its rights, title and interest in exchange for 2,000,000 common shares of Greengro Technologies Inc., a company with common shareholders, at the fair value of $71,800, which has been recorded as a gain on sale of subsidiaries since the subsidiaries had no assets or liabilities.

 

4.

Deferred Compensation

 

Deferred compensation is comprised of common shares issued to officers and directors of the Company for compensation services. As at August 31, 2018, deferred compensation of $125,000 (November 30, 2017 - $165,854) was recorded within shareholders’ equity. During the nine months ended August 31, 2018, the Company recorded an additional $172,500 (August 31, 2017 - $520,000) of deferred compensation costs and recorded an expense of $213,353 (August 31, 2017 - $210,777) of deferred compensation costs to the consolidated statement of operations.

 

5.

Equipment

 

				Cost $				Accumulated amortization $				August 31, 2018 $				November 30, 2017 $
	Machinery				51,449				13,566				37,883				46,060

 

As at November 30, 2017, the Company had accumulated amortization of $6,808. During the three months ended August 31, 2018, the Company recorded $2,723 (August 31, 2017 - $nil) of amortization expense. During the nine months ended August 31, 2018, the Company recorded $8,177 (August 31, 2017 - $nil) of amortization expense.

 

6.

Convertible Debentures

 

(a)

On May 15, 2017, the Company entered into a promissory note agreement with a non-related party for proceeds of $280,000, net of an original issuance discount and legal fees of $30,000 which were capitalized and amortized over the period of the convertible debenture. The promissory note is unsecured, bears interest at 10% per annum, and was due on November 30, 2017. The promissory note is convertible into common shares at the lesser of: (a) $0.35; or (b) 65% of the average of the three lowest volume weighted average price of the Company’s common shares in the 20 days preceding the notice of conversion limited by a conversion floor price of $0.05 per share.

 

The embedded conversion option qualifies for derivative accounting under ASC 815-15, Derivatives and Hedging. The fair value of the derivative liability resulted in a full discount of the $250,000 based on the net proceeds received from promissory note. The carrying value of the convertible debenture will be accreted over the term of the convertible debenture up to the face value of $280,000. On November 30, 2017, a default penalty of $73,629 was applied as the Company defaulted on the convertible debenture, and the debenture is currently in default. As at August 31, 2018, the carrying value of the convertible debenture was $257,261 (November 30, 2017 - $353,629).

 

 

 

 

GALA PHARMACEUTICAL INC.

Notes to the Condensed Consolidated Financial Statements

For the Nine Months Ended August 31, 2018 and 2017

(unaudited)

 

6.

Convertible Debentures (continued)

 

(b)

On June 6, 2018, the Company issued a callable secured convertible note for $15,000. Under the terms of the note, the amount owing is unsecured, bears interest at 12% per annum, and is due on June 1, 2019. The note is also convertible into common shares of the Company at the lesser of: (a) $0.04; or (b) 50% of the lowest 3 trading prices during the 20 trading days prior to the date of conversion. Upon default of the note, the interest rate will increase to 15% per annum. In addition to the note, the Company also issued 30,000 share purchase warrants which entitles the note holder to acquire 30,000 common shares at $0.01 per common share for a period of seven years.

 

The embedded conversion option qualifies for derivative accounting under ASC 815-15, Derivatives and Hedging. The fair value of the derivative liability resulted in a full discount of the $15,000 based on the net proceeds received from promissory note. The carrying value of the convertible debenture will be accreted over the term of the convertible debenture up to the face value of $15,000. During the three and nine month period ended August 31, 2018, the Company recorded accretion expense of $435 (2017 - $nil). As at August 31, 2018, the carrying value of the convertible debenture was $435.

 

(c)

On July 24, 2018, the Company issued a callable secured convertible note for $15,000. Under the terms of the note, the amount owing is unsecured, bears interest at 12% per annum, and is due on June 1, 2019. The note is also convertible into common shares of the Company at the lesser of: (a) $0.04; or (b) 50% of the lowest 3 trading prices during the 20 trading days prior to the date of conversion. Upon default of the note, the interest rate will increase to 15% per annum. In addition to the note, the Company also issued 30,000 share purchase warrants which entitles the note holder to acquire 30,000 common shares at $).01 per common share for a period of seven years.

 

The embedded conversion option qualifies for derivative accounting under ASC 815-15, Derivatives and Hedging. The fair value of the derivative liability resulted in a full discount of the $15,000 based on the net proceeds received from promissory note. The carrying value of the convertible debenture will be accreted over the term of the convertible debenture up to the face value of $15,000. During the three and nine month period ended August 31, 2018, the Company recorded accretion expense of $185 (2017 - $nil). As at August 31, 2018, the carrying value of the convertible debenture was $185.

 

7.

Derivative Liability

 

The Company records the fair value of the conversion price of the convertible debentures, as disclosed in Note 6, in accordance with ASC 815, Derivatives and Hedging. The fair value of the derivative liability is revalued on each balance sheet date or upon conversion of the underlying convertible debenture into equity with corresponding gains and losses recorded in the consolidated statement of operations. During the three months ended August 31, 2018, the Company recorded a loss on the change in fair value of the derivative liability of $477,174 (August 31, 2017 - $197,308). During the nine months ended August 31, 2018, the Company recorded a loss on the change in fair value of the derivative liability of $588,364 (August 31, 2017 - $207,340). As at August 31, 2018, the Company had a derivative liability of $803,301 (November 30, 2017 - $453,005).

 

	Balance, November 30, 2017	$	453,005
	Adjustment for conversion		(208,838)
	Change in fair value		588,364
	Balance, August 31, 2018		832,531

 

 

 

 

GALA PHARMACEUTICAL INC.

Notes to the Condensed Consolidated Financial Statements

For the Nine Months Ended August 31, 2018 and 2017

(unaudited)

 

7.

Derivative Liability (continued)

 

The following inputs and assumptions were used to value the convertible debentures outstanding during the period ended August 31, 2018:

 

					Expected Volatility				Risk-free Interest Rate				Expected Dividend Yield				Expected Life (in years)
	May 15, 2017 convertible debenture:
	As at May 15, 2017 (date of issuance)				288%				1.02%				0%				0.50
	As at December 7, 2017 (conversion)				294%				1.67%				0%				0.98
	As at February 2, 2018 (conversion)				301%				1.88%				0%				0.83
	As at February 13, 2018 (conversion)				304%				1.95%				0%				0.80
	As at February 26, 2018 (conversion)				312%				2.03%				0%				0.76
	As at February 28, 2018 (mark-to-market)				312%				2.07%				0%				0.75
	As at May 31, 2018 (mark-to-market)				271%				2.07%				0%				0.50
	As at August 31, 2018 (mark-to-market)				429%				2.11%				0%				0.25
	June 4, 2018 convertible debenture:
	As at June 4, 2018 (date of issuance)				296%				2.30%				0%				0.99
	As at August 31, 2018 (mark-to-market)				332%				2.46%				0%				0.75
	July 24, 2018 convertible debenture:
	As at July 24, 2018 (date of issuance)				296%				2.42%				0%				0.85
	As at August 31, 2018 (mark-to-market)				332%				2.46%				0%				0.75

 

8.

Related Party Transactions

 

(a)

As at August 31, 2018, the Company owed $123,367 (November 30, 2017 - $48,367) to a company controlled by a significant shareholder of the Company to fund payment of operating expenditures. In December 2017, the Company received an additional $75,000 of financing. The amount owed is unsecured, non-interest bearing, and due on demand.

 

(b)

As at August 31, 2018, the Company owed $49,000 (November 30, 2017 - $25,000) to a significant shareholder of the Company, which has been recorded in accounts payable and accrued liabilities - related parties. The amount owed is unsecured, non-interest bearing, and due on demand. During the three and nine months ended August 31, 2018, the Company incurred $9,000 and $27,000 (August 31, 2017 - $58,911 and $115,432 respectively) of consulting expense relating to services provided to the Company.

 

(c)

As at August 31, 2018, the Company owed $5,625 (November 30, 2017 - $5,625) to an officer of the Company, which has been recorded in accounts payable and accrued liabilities – related parties. The amount owing is unsecured, non-interest bearing, and due on demand.

 

(d)

As at August 31, 2018, the Company owed $2,064 (November 30, 2017 - $2,064) to a significant shareholder of the Company. The amount is unsecured, bears interest at 3% per annum, and due 180 days from the date of issuance. As at August 31, 2018, accrued interest of $129 (November 30, 2017 - $82) has been included in accounts payable and accrued liabilities - related parties.

 

(e)

As at August 31, 2018, the Company owed $49,000 (November 30, 2017 - $1,195) to the Chief Executive Officer of the Company. During the three and nine months ended August 31, 2018, the Company incurred management salaries of $54,000 and $156,000, respectively (August 31, 2017 - $nil and $nil respectively). During the period ended August 31, 2018, the Company issued 5,000,000 common shares with a fair value of $200,000 as bonus compensation, and incurred an additional $112,500 for common shares to be issued as part of his management agreement which has been recorded as deferred compensation.

 

 

 

 

GALA PHARMACEUTICAL INC.

Notes to the Condensed Consolidated Financial Statements

For the Nine Months Ended August 31, 2018 and 2017

(unaudited)

 

8.

Related Party Transactions (continued)

 

(f)

In May 2018, the Company issued 1,500,000 common shares with a fair value of $60,000 to a director of the Company for compensation of services for a period of one year. As at August 31, 2018, an additional 1,500,000 common shares with a fair value of $112,500 are issuable to the Chief Executive Officer of the Company. As at August 31, 2018, the Company recorded $125,000 (November 30, 2017 - $165,853) as deferred compensation within shareholders’ equity.

 

9.

Loans Payable

 

(a)

On April 22, 2016, the Company issued a $22,000 promissory note to an unrelated party. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 180 days from the date of issuance. As at August 31, 2018, the outstanding balance of the promissory note was $22,000 (November 30, 2017 - $22,000).

 

(b)

On June 3, 2016, the Company issued a $20,000 promissory note to an unrelated party. Under the terms of the note, the amount due is unsecured, bears interest at 3% per annum, and is due 180 days from the date of issuance. As at August 31, 2018, the outstanding balance of the promissory note was $20,000 (November 30, 2017 - $20,000).

 

10.

Common Shares

 

(a)

On December 7, 2017, the Company issued 209,727 common shares with a fair value of $56,773 to settle convertible debentures of $30,000 and derivative liability of $50,993 resulting in a gain on settlement of debt of $24,220.

 

(b)

On January 11, 2018, the Company issued 5,000,000 common shares with a fair value of $200,000 to the Chief Executive Officer of the Company as a performance bonus.

 

(c)

On February 1, 2018, the Company issued 1,500,000 common shares with a fair value of $60,000 for consulting services for a period twelve months from the date of issuance.

 

(d)

On February 2, 2018, the Company issued 3,000,000 common shares, which were issuable at November 30, 2017, for consulting services with a fair value of $300,000.

 

(e)

On February 2, 2018, the Company issued 618,684 common shares with a fair value of $49,495 to settle convertible debentures of $30,000 and derivative liability of $43,021 resulting in a gain on settlement of debt of $23,526.

 

(f)

On February 13, 2018, the Company issued 758,284 common shares with a fair value of $41,478 to settle convertible debentures of $30,000 and derivative liability of $35,246 resulting in a gain on settlement of debt of $23,768.

 

(g)

On February 26, 2018, the Company issued 846,860 common shares with a fair value of $50,812 to settle convertible debentures of $30,000 and derivative liability of $44,041 resulting in a gain on settlement of debt of $23,229.

 

(h)

On April 6, 2018 the Company cancelled 583,333 common shares which was returned by the former Chief Executive Officer of the Company.

 

(i)

On April 18, 2018, the Company issued 5,000,000 common shares for proceeds of $200,000.

 

(j)

On May 14, 2018, the Company issued 1,500,000 common shares with a fair value of $60,000 to a director of the Company for consulting services for a period of one year.

 

(k)

On May 14, 2018, the Company issued 1,500,000 common shares with a fair value of $60,000 for consulting services to a non-related party.

 

(l)

On June 19, 2018, 1,500,000 common shares with a fair value of $120,000 to a director of the Company for consulting services for a period of one year.

 

 

 

 

GALA PHARMACEUTICAL INC.

Notes to the Condensed Consolidated Financial Statements

For the Nine Months Ended August 31, 2018 and 2017

(unaudited)

 

10.

Common Shares (continued)

(m)

On July 3, 2018, the Company issued 653,125 common shares with a fair value of $71,844 to settle convertible debentures of $30,000 and derivative liability of $65,537 resulting in a gain on settlement of debt of $23,693.

 

(n)

On August 28, 2018, the Company issued 500,000 common shares for proceeds of $20,000.

 

(o)

On August 28, 2018, the Company issued 1,000,000 common shares to a consultant for services with a fair value of $50,000.

 

(p)

As at August 31, 2018, the Company received proceeds of $25,000 for the issuance of 2,500,000 common shares at $0.01 per share.

 

11.

Share Purchase Warrants

 

During the nine months ended August 31, 2018, the Company issued 60,000 share purchase warrants with an exercise price of $0.01 per share for a period of seven years in conjunction with the issuance of convertible debt. The fair value of the share purchase warrants was $5,694, calculated using the Black-Scholes model. The fair value of the share purchase warrants was recorded in the consolidated statement of operations as interest expense.

 

				Number of warrants				Weighted average exercise price $
	Balance, November 30, 2017				–				–
	Issued				60,000				0.01
	Balance, August 31, 2018				60,000				0.01

 

12.

Commitment

 

On May 1, 2018, Gala California, a 51% owned subsidiary of the Company, entered into a commercial lease agreement. Under the terms of the agreement, the Company will pay annual rental fees of $108,000 commencing on the date of the agreement, for a period of five years with a 4% increase in rent costs per annum. The Company is committed to the following minimum lease payments:

 

Fiscal Year	$
2018	27,000
2019	110,520
2020	114,940
2021	119,538
2022	124,320
Thereafter	52,634

 

13.

Contingency

 

In April 2018, the Company received notice of a pending lawsuit, filed in the State of California for which the Company was one of several defendants named, citing breach of contract, conspiracy to commit fraud, and specific performance. The Company’s position is that the claims are without merit and intends to defend itself and its position in a court of law. As of the date of the filing, the likelihood of loss and the amount of loss cannot be quantified and as such, no accrual has been made as of August 31, 2018.

 

 

 

 

GALA PHARMACEUTICAL INC.

Notes to the Condensed Consolidated Financial Statements

For the Nine Months Ended August 31, 2018 and 2017

(unaudited)

 

14.

Supplemental Disclosures

 

		Nine months ended August 31, 2018 $				Nine months ended August 31, 2017 $
Non-cash investing and financing activities:
Common shares issued for consulting services – related party			200,000				210,777
Common shares issued for consulting services			470,000				8,852
Common shares issued for deferred compensation			172,500				309,223
Common shares issued for deposit on intangible assets – related party			–				100,000
Common shares issued for prepaid expenses			–				31,148
Common shares issued for settlement of related party debt			–				348,422
Common shares issued to settle third party debt			270,401				34,412
Common shares issued for deposit on intangible assets			–				100,000
Expenses paid by related parties that increased related party debt			–				4,500
Supplemental disclosures:
Interest paid			–				–
Income tax paid			–				–

 

15.

Subsequent Events

 

(a)

Subsequent to August 31, 2018, the Company issued 2,500,000 common shares at a price of $0.01 per share for proceeds of $25,000, which was received as of August 31, 2018. Refer to Note 10(o).

 

(b)

Subsequent to August 31, 2018, the Company issued 1,500,000 common shares with a fair value of $112,500 to the Chief Executive Officer of the Company for compensation of services for a period of one year, which was recorded as shares issuable as at August 31, 2018.

 

(c)

Subsequent to August 31, 2018, the Company issued 13,250,000 common shares at a price of $0.02 per share for proceeds of $265,000.

 

(d)

Subsequent to August 31, 2018, the Company issued 1,500,000 common shares to a consultant for consulting services.

 

(e)

Subsequent to August 31, 2018, the Company issued 1,500,000 common shares to a director of the Company for services.

 

 

 

 

 

ITEM 2     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Safe Harbor Statement

 

This report on Form 10-Q contains certain forward-looking statements.  All statements other than statements of historical fact are “forward-looking statements” for purposes of these provisions, including any projections of earnings, revenues, or other financial items; any statements of the plans, strategies, and objectives of management for future operation; any statements concerning proposed new products, services, or developments; any statements regarding future economic conditions or performance; statements of belief; and any statement of assumptions underlying any of the foregoing. Such forward-looking statements are subject to inherent risks and uncertainties, and actual results could differ materially from those anticipated by the forward-looking statements.

 

These forward-looking statements involve significant risks and uncertainties, including, but not limited to, the following: competition, promotional costs, and risk of declining revenues.  Our actual results could differ materially from those anticipated in such forward-looking statements as a result of a number of factors.  These forward-looking statements are made as of the date of this filing, and we assume no obligation to update such forward-looking statements.  The following discusses our financial condition and results of operations based upon our financial statements which have been prepared in conformity with accounting principles generally accepted in the United States.  It should be read in conjunction with our financial statements and the notes thereto included elsewhere herein.

 

The following discussion should be read in conjunction with our financial statements, including the notes thereto, appearing elsewhere in this Form 10-Q.  The discussions of results, causes and trends should not be construed to imply any conclusion that these results or trends will necessarily continue into the future.

 

RESULTS OF OPERATIONS

 

Working Capital

 

		August 31, 2018 $				November 30, 2017 $
Current Assets			209,773				61,916
Current Liabilities			(1,455,330	)			(1,013,796	)
Working Capital (Deficit)			(1,245,557	)			(951,880	)

  

Cash Flows

 

		Nine months ended August 31, 2018 $				Nine months ended August 31, 2017 $
Cash Flows from (used in) Operating Activities			(343,151	)			(225,668	)
Cash Flows from (used in) Investing  Activities			–				(120,000	)
Cash Flows from (used in) Financing Activities			350,000				395,367
Net Increase (decrease) in Cash During Period			6,849				49,699

 

 

 

 

Revenues

 

During the three months ended August 31, 2018, the Company earned no revenues. During the nine months ended August 31, 2018, the Company earned revenues of $4,675 from the sale of parts and equipment with a cost of sales of $3,216.

 

Operating Expenses

 

Three Months Ended August 31, 2018 and 2017

 

During the three months ended August 31, 2018, the Company incurred operating expenses of $308,806 compared to operating expenses of $286,804 during the three months ended August 31, 2017. The increase in operating expenses was due to an increase of $79,276 in consulting expenses which was due to recognition of deferred compensation owed to officers and directors of the Company which was offset by decreases of $68,647 in general and administrative expense as the Company issued common shares to a related party in the prior year for legal services which resulted in higher than normal overhead costs.

 

The Company incurred a net loss of $716,907 during the three months ended August 31, 2018 compared to a net loss of $695,189 during the three months ended August 31, 2017. In addition to operating expenses, the Company recorded interest expense of $22,421 and a loss on the change in fair value of the derivative liability of $477,174 which was a result of the fair value of the beneficial conversion feature on the Company’s outstanding convertible debentures, which was offset by a gain of $71,800 on the sale of the Cannabis Ventures (USA) Inc. and Cannabis Ventures (Canada) Inc. subsidiaries during the period, as well as a gain of $23,694 on the settlement of outstanding convertible notes that were converted during the period. During the three months ended August 31, 2017, the Company incurred interest expense of $89,656, incurred a loss on the change in fair value of derivative liability of $197,308, and incurred a loss on settlement of notes payable of $121,421 including a loss of $28,371 for related party notes payable.

 

Nine Months Ended August 31, 2018 and 2017

 

During the nine months ended August 31, 2018, the Company incurred operating expenses of $1,241,207 compared to operating expenses of $417,137 during the nine months ended August 31, 2017. The increase in operating expenses was due to $940,475 of consulting expenses including $560,335 to related parties for consulting services. These amounts included 5,000,000 common shares issued to the Company’s Chief Executive Officer as a compensation bonus with a fair value of $200,000, $112,500 of common shares issuable, of which $90,000 is recorded as deferred compensation, to the Chief Executive Officer of the Company for annual incentive shares that were issuable as of June 2018 (issued in September 2018), issuance of 1,500,000 common shares to a director with a fair value of $60,000, of which $35,000 was recorded as deferred compensation, as well as the recognition of $213,353 of deferred compensation for shares which were previously issued. The Company also had an increase in general and administrative expenses of $80,312, which was due to additional costs that were incurred in the first two quarters of fiscal 2018 as the Company was transitioning management and business and operating strategies. Furthermore, the Company incurred more professional fees related to accounting and audit services as the amount of transactions in the Company and overall operations increased compared to prior year, and an increase in rent expense of $29,803 as the Company has a new head office space which is larger than the previous head office location and also had a new office lease in the current quarter for Gala Pharmaceutical California Inc in Long Beach, California.

 

The Company incurred a net loss of $1,698,303 during the nine months ended August 31, 2018 compared to a net loss of $1,099,662 during the nine months ended August 31, 2017. In addition to operating expenses, the Company recorded interest expense of $56,428, a loss on the change in fair value of derivative liabilities of $588,364, and a gain on settlement of debt of $118,437, a gain of $71,800 on the sale of the Cannabis Ventures (USA) Inc. and Cannabis Ventures (Canada) Inc. subsidiaries, as well as a net loss attributed to non-controlling interest in Gala Pharmaceuticals (California) of $9,621. During the nine months ended August 31, 2017, the Company incurred interest expense of $265,430, a loss on settlement of debt of $93,050 along with a loss on the change in fair value of derivative liability of $207,340. Overall, interest expense decreased as the Company had less accretion expense for the beneficial conversion feature of the convertibility terms on the outstanding notes payable, but experienced a greater loss on the change in the fair value of the derivative liability as the Company had more fluctuations and volatility in their share price during fiscal 2018 compared to fiscal 2017.

 

 

 

 

Net Loss

 

During the nine months ended August 31, 2018, the Company incurred a net loss of $1,688,682 or $0.03 loss per share compared to a net loss of $1,099,662 and loss per share of $0.06 during the nine months ended August 31, 2017. The increase in the net loss and loss per share amounts were due to greater expenditures relating to consulting expenses and general and administrative expenses that were incurred during the current year.

 

Liquidity and Capital Resources

 

As of August 31, 2018, the Company has working capital deficit of $1,245,557 and an accumulated deficit of $4,907,251 compared to a working capital deficit of $951,880 and an accumulated deficit of $3,218,569 as at November 30, 2017. The increase in working capital deficit was due to an increase in the derivative liability as the Company added 2 new convertible debentures during the current period that increased the fair value of the conversion feature in the convertible debentures.

 

During the nine months ended August 31, 2018, the Company issued the following common shares:

 

·

Issuance of 3,086,680 common shares to settle outstanding convertible note balances of $150,000 and recorded derivative liabilities of $238,838;

·

Issuance of 5,000,000 common shares to the Chief Executive Officer of the Company with a fair value of $200,000 pursuant to bonus compensation;

·

Issuance of 1,500,000 common shares to a director of the Company with a fair value of $60,000 for consulting services;

·

Issuance of 1,500,000 common shares to a non-related party with a fair value of $60,000 for consulting services;

·

Issuance of 1,500,000 common shares to a director of the Company with a fair value of $120,000 for consulting services;

·

Issuance of 5,500,000 common shares to consultants with a fair value of $410,000 for consulting services over a one-year period;

·

Issuance of 5,500,000 common shares for proceeds of $220,000, plus an additional $25,000 for the issuance of 2,500,000 common shares which were not issued until September 2018; and

·

Return and cancellation of 583,333 common shares from the former Chief Executive Officer of the Company.

 

Cash flow from Operating Activities

 

During the nine months ended August 31, 2018, the Company used cash of $343,151 for operating activities compared to $225,668 during the nine months ended August 31, 2017. The increase in the cash used for operating activities was due to higher operating expenditures compared to the prior year.

 

Cash flow from Investing Activities

 

During the nine months ended August 31, 2018, the Company did not have any investing activities compared to use of $120,000 during the nine months ended August 31, 2017 for a loan issued to a related party of $20,000 and purchase of equipment of $100,000.

 

Cash flow from Financing Activities

 

During the nine months ended August 31, 2018, the Company received $350,000 from financing activities, which included $75,000 from related party advances, $30,000 from the issuance of convertible notes, and $245,000 from the issuance of common shares. During the nine months ended August 31, 2017, the Company received $395,367 from financing activities which included $250,000 from the issuance of a convertible note, $108,000 from the issuance of common shares, and $37,367 from related party advances and loans.

 

 

 

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

 

Subsequent Events

 

(a)

Subsequent to August 31, 2018, the Company issued 2,500,000 common shares at a price of $0.01 per share for proceeds of $25,000, which was received as of August 31, 2018. Refer to Note 10(o).

 

(b)

Subsequent to August 31, 2018, the Company issued 1,500,000 common shares with a fair value of $112,500 to the Chief Executive Officer of the Company for compensation of services for a period of one year, which was recorded as shares issuable as at August 31, 2018.

 

(c)

Subsequent to August 31, 2018, the Company issued 13,250,000 common shares at a price of $0.02 per share for proceeds of $265,000.

 

(d)

Subsequent to August 31, 2018, the Company issued 1,500,000 common shares to a consultant for consulting services.

 

(e)

Subsequent to August 31, 2018, the Company issued 1,500,000 common shares to a director of the Company for services.

 

Going Concern

 

The continuation of the Company as a going concern is dependent upon the continued financial support from its management, and its ability to identify future investment opportunities and obtain the necessary debt or equity financing, and generating profitable operations from the Company’s future operations. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

Future Financings

 

We will continue to rely on equity sales of our common shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund planned acquisitions and activities.

 

Critical Accounting Policies

 

Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

 

We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. A complete summary of these policies is included in note (1) of the notes to our financial statements. In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.

 

 

 

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes for the reporting period. Significant areas requiring the use of management estimates relate to the valuation of its mineral leases and claims and our ability to obtain final government permission to complete the project.

 

Stock-Based Compensation

 

The Company records stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation, using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued.

 

Derivative Liability

 

From time to time, the Company may issue equity instruments that may contain an embedded derivative instrument which may result in a derivative liability. A derivative liability exists on the date the equity instrument is issued when there is a contingent exercise provision. The derivative liability is records at is fair value calculated by using an option pricing model such as a multi-nominal lattice model. The fair value of the derivative liability is then calculated on each balance sheet date with the corresponding gains and losses recorded in the consolidated statement of operations.

 

Beneficial Conversion Features

 

From time to time, the Company may issue convertible notes that may contain an embedded beneficial conversion feature. A beneficial conversion feature exists on the date a convertible note is issued when the fair value of the underlying common stock to which the note is convertible into is in excess of the remaining unallocated proceeds of the note after first considering the allocation of a portion of the note proceeds to the fair value of the warrants, if related warrants have been granted. The intrinsic value of the beneficial conversion feature is recorded as a debt discount with a corresponding amount to additional paid in capital. The debt discount is amortized to interest expense over the life of the note using the effective interest method.

 

Recently Issued Accounting Pronouncements

 

The Company has reviewed all the recently issued, but not yet effective, accounting pronouncements and does not believe that the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations as reported in its financial statements.

 

Contractual Obligations

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

 

 

 

ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

ITEM 4.     CONTROLS AND PROCEDURES

 

Management's Report on Internal Control over Financial Reporting.

 

Our Internal control over financial reporting is a process that, under the supervision of and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, was designed to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and our trustees; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that our controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Evaluation of disclosure controls and procedures.

 

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act as of the end of the period covered by this Quarterly Report on Form 10-Q.  In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.  In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.  The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

 

Based on that evaluation, our chief executive officer and chief financial officer concluded that, as of August 31, 2018, our disclosure controls and procedures were not effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules, regulations and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Changes in internal controls.

 

Our management, with the participation of the chief executive officer and chief financial officer, has concluded there were no significant changes in our internal controls over financial reporting that occurred during our last quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

 

 

PART II – OTHER INFORMATION

 

ITEM 1.     LEGAL PROCEEDINGS

 

In April 2018, the Company received notice of a pending lawsuit, filed in the State of California for which the Company was one of several defendants named, citing several complaints including breach of contract, conspiracy to commit fraud, and specific performance.  The Company’s position is that the claims are without merit and intends to defend itself and its position in a court of law. As of the date of the filing, the likelihood of loss and the amount of loss cannot be quantified and as such, no accrual has been made as of August 31, 2018.

 

ITEM 2.      UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS SECURITIES

 

For the nine months ended August 31, 2018, there were the following equity transactions.

 

(a)

On December 7, 2017, the Company issued 209,727 common shares with a fair value of $56,773 to settle convertible debentures of $30,000 and derivative liability of $50,993 resulting in a gain on settlement of debt of $24,220.

 

(b)

On January 11, 2018, the Company issued 5,000,000 common shares with a fair value of $200,000 to the Chief Executive Officer of the Company as a performance bonus.

 

(c)

On February 1, 2018, the Company issued 1,500,000 common shares with a fair value of $60,000 for consulting services for a period twelve months from the date of issuance.

 

(d)

On February 2, 2018, the Company issued 3,000,000 common shares, which were issuable at November 30, 2017, for consulting services with a fair value of $300,000.

 

(e)

On February 2, 2018, the Company issued 618,684 common shares with a fair value of $49,495 to settle convertible debentures of $30,000 and derivative liability of $43,021 resulting in a gain on settlement of debt of $23,526.

 

(f)

On February 13, 2018, the Company issued 758,284 common shares with a fair value of $41,478 to settle convertible debentures of $30,000 and derivative liability of $35,246 resulting in a gain on settlement of debt of $23,768.

 

(g)

On February 26, 2018, the Company issued 846,860 common shares with a fair value of $50,812 to settle convertible debentures of $30,000 and derivative liability of $44,041 resulting in a gain on settlement of debt of $23,229.

 

(h)

On April 6, 2018 the Company cancelled 583,333 common shares which was returned by the former Chief Executive Officer of the Company.

 

(i)

On April 18, 2018, the Company issued 5,000,000 common shares for proceeds of $200,000.

 

(j)

On May 14, 2018, the Company issued 1,500,000 common shares with a fair value of $60,000 to a director of the Company for consulting services for a period of one year.

 

(k)

On May 14, 2018, the Company issued 1,500,000 common shares with a fair value of $60,000 for consulting services to a non-related party.

 

(l)

On June 19, 2018, 1,500,000 common shares with a fair value of $120,000 to a director of the Company for consulting services for a period of one year.

 

(m)

On July 3, 2018, the Company issued 653,125 common shares with a fair value of $71,844 to settle convertible debentures of $30,000 and derivative liability of $65,537 resulting in a gain on settlement of debt of $23,693.

 

 

 

 

(n)

On August 28, 2018, the Company issued 500,000 common shares for proceeds of $20,000.

 

(o)

On August 28, 2018, the Company issued 1,000,000 common shares to a consultant for services with a fair value of $50,000.

 

(p)

As at August 31, 2018, the Company received proceeds of $25,000 for the issuance of 2,500,000 common shares at $0.01 per share.

 

ITEM 3.      DEFAULTS UPON SENIOR SECURITIES 

 

None noted

 

ITEM 4.     MINE SAFETY DISCLOSURES

 

Not applicable to our Company.

 

ITEM 5.      OTHER INFORMATION

 

None noted

 

ITEM 6.     EXHIBITS

 

Exhibit Number			Exhibit Description
	31.1		Certification of the Chief Executive Officer and Chief Financial Officer Pursuant to Rule 13a-14 or 15d-14 of the Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	101.INS		XBRL Instance Document
	101.SCH		XBRL Taxonomy Extension Schema
	101.CAL		XBRL Taxonomy Extension Calculation Linkbase
	101.LAB		XBRL Taxonomy Extension Label Linkbase
	101.PRE		XBRL Taxonomy Extension Presentation Linkbase
	101.DEF		XBRL Taxonomy Extension Definition Linkbase

 

 

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on our behalf by the undersigned thereunto duly authorized.

 

	GALA PHARMACEUTICAL INC.
		(REGISTRANT)
Date:  October 25, 2018	/s/   Maqsood Rehman
		Maqsood Rehman
		Chief Executive Officer