☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 2020
or
☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number 000-54338
GREEN HYGIENICS HOLDINGS INC.
(Exact name of registrant as specified in its charter)
Nevada
26-2801338
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)
13795 Blaisdell Place, Suite 202, Poway, CA 92064
(Address of principal executive offices) (Zip Code)
1-855-802-0299
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of exchange on which registered
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such fling requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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.
Large accelerated filer
☐
Accelerated filer
☐
Non-Accelerated filer
☒
Emerging growth company
☐
Smaller reporting 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 ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 38,496,205 common shares issued and outstanding as of June 2, 2020.
The interim consolidated financial statements included herein are unaudited but reflect, in management’s opinion, all adjustments, consisting only of normal recurring adjustments that are necessary for a fair presentation of our financial position and the results of our operations for the interim periods presented. Because of the nature of our business, the results of operations for the quarterly period ended April 30, 2020 are not necessarily indicative of the results that may be expected for the full fiscal year.
1. Nature of Operations and Continuance of Business
Green Hygienics Holdings Inc. (the “Company”) was incorporated in the State of Nevada on June 12, 2008 as Silver Bay Resources, Inc. On June 30, 2010, the name was changed to Takedown Entertainment Inc. On July 24, 2012, the Company changed its name to Green Hygienics Holdings Inc.
The Company is an innovative, full-scope, science-driven, premium hemp cultivation and branding enterprise focused on the cultivation and processing of industrial hemp for cannabidiol (“CBD”). The Hemp Farming Act of 2018 removed hemp from Schedule I controlled substances (defined as cannabis with less than 0.3% THC) making it an ordinary agricultural commodity.
The Company’s business model includes generating revenues from the sale of hemp and premium-grade CBD products; creating trusted global consumer brands; developing valuable IP; and growing the Company rapidly through strategic acquisitions. With direct regard to acquisitions, the Company acts as a business accelerator and a vertical integrator focusing to support rapid growth and development of companies with extraordinary potential.
On June 10, 2019, the Company secured a multiyear purchase order for the sale of hemp to U.S. Tobacco De Mexico. Under the terms of the contract, the Company is required to deliver a total $56.4 million worth of hemp flower over a five-year period to US Tobacco De Mexico for use in the production of CBD hemp cigarettes.
On June 14, 2019, the Company secured from the County of San Diego Department of Agriculture, Weights and Measures, a grower registration for industrial hemp cultivation.
On July 22, 2019, the Company secured licenses for the processing of hemp in the state of North Carolina.
The licenses were granted to the Company’s newly formed subsidiary, Coastal Labs North Carolina LLC, by the North Carolina Industrial Hemp Commission. The Company’s second subsidiary in the state is Green Hygienics North Carolina LLC, which will be partnering for cultivation this year with the intention of meeting the earnings qualification to be licensed on its own for next year’s cultivation.
The Company created Coastal labs and Green Hygienics near the end of July. There was no accounting activity prior to April 30, 2020. The Company’s policy is to consolidate all entities which we control and or own more than 51% of the voting stock. These entities are expected to have accounting activity during subsequent periods and will be consolidated accordingly.
On August 26, 2019, the Company completed the acquisition of the 824-acre Potrero Ranch Property near San Diego, California for a total purchase price of $4,510,000. The Company will utilize the land for industrial hemp for CBD cultivation. The property includes over 400,000 square feet of outbuildings which are currently being converted into greenhouses.
Going Concern
These consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company has generated revenues of $108,574 since 2013. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to obtain necessary equity financing to continue operations, and the attainment of profitable operations. As of April 30, 2020, the Company has a working capital deficiency of $3,383,228 and has an accumulated deficit of $48,383,601 since inception. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
These financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States and are expressed in U.S. dollars.
(b) Principles of Consolidation
These financial statements include the accounts of the Company and its subsidiaries. Subsidiaries are all entities (including structured entities) which the Company controls. For accounting purposes, control is established by an investor when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. All inter-company balances and transactions are eliminated.
(c) Use of Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses in the reporting period. The Company regularly evaluates estimates and assumptions related to deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
(d) Cash and Cash Equivalents
The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance and trust funds to be cash equivalents.
(e) Inventory
Inventory is carried at the lower of cost or net realizable value, with the cost being determined on a first-in, first-out (FIFO) basis. The Company periodically reviews physical inventory and will record a reserve for excess and/or obsolete inventory if necessary. In the current quarter the inventory was fully impaired due to unfavorable weather conditions. In the early growing stages the plants were severely damaged by a sand storm and could not be salvaged.
(f) Impairment of Long-Lived Assets
The Company evaluates the recoverability of its fixed assets and other assets in accordance with ASC 360-10-15, Impairment or Disposal of Long-Lived Assets. Impairment of long-lived assets is recognized when the net book value of such assets exceeds their expected cash flows, in which case the assets are written down to fair value, which is determined based on discounted future cash flows or appraised values.
(g) Related Party Transactions
The Company follows ASC 850, Related Party Disclosures, for the identification of related parties and disclosure of related party transactions. In accordance with ASC 850, the Company’s financial statements include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business, as well as transactions that are eliminated in the preparation of financial statements.
(h) Income Taxes
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, “Income Taxes”. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
The Company’s functional and reporting currency is the U.S. dollar. Transactions in foreign currencies are translated into the currency of measurement at the exchange rates in effect on the transaction date. Monetary balance sheet items expressed in foreign currencies are translated into U.S. dollars at the exchange rates in effect at the balance sheet date. The resulting exchange gains and losses are recognized in the statement of operations.
(j) Financial Instruments and Fair Value Measures
ASC 820, “Fair Value Measurements and Disclosures”, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Company’s financial instruments consist principally of cash, accounts payable and accrued liabilities, loans payable, and amounts due to related parties. Pursuant to ASC 820, the fair value of cash is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
(k) Stock-based Compensation
The Company records stock-based compensation in accordance with ASC 718, “Compensation – Stock Compensation” and ASC 505, “Equity Based Payments to Non-Employees”, using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
(l) Revenue
Pursuant to ASC 606, Revenue from contracts with customers. As of the date of this report, the Company has not recognized any revenue related to the hemp production business. The only revenue recognized to date is the land use rental income from San Diego Gas and Electric Company in the amount of $108,574. The term of the rental agreement is in effect until December 2020 with a monthly payment of $17,000.
(m) Leases
Pursuant to ASC 842, transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing transactions. As of the date of this report, the Company has no material transactions to report.
The Company computes earnings (loss) per share in accordance with ASC 260, “Earnings per Share”. ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing earnings (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. As of April 30, 2020, the Company does not have any potentially dilutive shares.
(o) Comprehensive Loss
ASC 220, “Comprehensive Income”, establishes standards for the reporting and display of comprehensive loss and its components in the financial statements.
(p) Recent Accounting Pronouncements
In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases. The amendments in ASU 2018-10 provide additional clarification and implementation guidance on certain aspects of the previously issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”) and have the same effective and transition requirements as ASU 2016-02. Upon the effective date, ASU 2018-10 will supersede the current lease guidance in ASC Topic 840, Leases. Under the new guidance, lessees will be required to recognize for all leases, with the exception of short-term leases, a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis. Concurrently, lessees will be required to recognize a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2018-10 is effective for private companies and emerging growth public companies for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. The guidance is required to be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative periods presented in the financial statements. During the nine months ended April 30, 2020 the Company assessed the impact this guidance had on its financial statements and concluded that at present ASU No. 2018-10 has no impact on its financial statements.
3. Fixed Assets
Fixed assets are recorded at cost reduced by accumulated depreciation. Depreciation expense is recognized over the assets’ estimated useful lives using the straight-line method. Estimated useful lives are periodically reviewed and, when appropriate, changes are made prospectively. When certain events or changes in operating conditions occur, asset lives may be adjusted and an impairment assessment may be performed on the recoverability of the carrying amounts.
Fixed assets consist of the following:
Useful Life
Balance at
July 31,
2019
$
Additions
$
Accumulated Depreciation
$
Balance at
April 30,
2020
$
Production equipment
5 years
46,379
313,530
(45,733
)
314,176
Furniture and office equipment
5 years
8,102
-
(1,218
)
6,884
Buildings and improvements
15 years
90,657
134,510
(8,972
)
216,195
Land
-
4,212,362
-
4,212,362
145,138
4,660,402
(55,923
)
4,749,617
Fixed asset costs are being depreciated using the straight-line method based on the useful life of the asset.
On August 26, 2019, the Company completed the acquisition of the 824-acre Potrero Ranch Property near San Diego, California for a total purchase price of $4,510,000. The Company will utilize the land and buildings for industrial hemp for CBD cultivation. The property includes over 400,000 square feet of outbuildings which are currently being converted into greenhouses. On August 23, 2019, the Company entered into an agreement payable with the Vendor of the Property for $2,750,000 for a portion of the purchase price. The terms of the agreement are monthly payments of interest only at the rate of 6% per annum. The debt is secured by a Promissory Note secured by a Deed of Trust on real property commonly known as Round Potrero Road, Potrero, California. The maturity date of the debt is August 23, 2024. On August 23, 2019 the Company entered into an agreement payable for $1,760,000 with monthly payments of interest only at the rate of 15% per annum. The debt is secured by a Promissory Note secured by a second charge on the Deed of Trust on real property commonly known as Round Potrero Road, Potrero, California. The maturity date of the debt is August 15, 2024.
4. Loans Payable
(a)
As of April 30, 2020, the Company owes $24,989 (2019 - $nil) plus accrued interest of $301 (2018 - $nil) to a non-related party, which bears interest at the rate of 10% per annum, is unsecured and was due and payable on or before December 19, 2019. This loan payable is in default, and the Company is currently in negotiations to extend the maturity date.
(b)
On April 30, 2020 the Company received loan proceeds in the amount of $444,850 under the Paycheck Protection Program (“PPP”). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The loans and accrued interest are forgivable after eight weeks as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the eight-week period. The unforgiven portion of the PPP loan is payable over two years at an interest rate of 1%, with a deferral of payments for the first six months. The Company intends to use the proceeds for purposes consistent with the PPP. While the Company currently believes that its use of the loan proceeds will meet the conditions for forgiveness of the loan, we cannot assure you that we will not take actions that could cause the Company to be ineligible for forgiveness of the loan, in whole or in part.
(c)
As of April 30, 2020, the Company owes $221,712 (2019 - $nil) to a non-related party. On December 19, 2019, the Company entered into an securities purchase agreement, which was amended on January 8, 2020 (collectively, the “SPA”) with Triton Funds, LP, an accredited investor (“Triton”), pursuant to which the Company issued and sold to Triton (i) a discounted convertible promissory note (the “Note”) in the aggregate principal amount of up to $750,000, due June 30, 2020, bearing interest at a rate of ten percent (10%) per annum and convertible into shares of the Company’s common stock at a conversion price of $2.50 per share and (ii) a common stock purchase warrant (the “Warrant”), exercisable for two (2) years, to purchase up to 250,000 shares of the Company’s common stock at an exercise price of $3.00 per share, for an aggregate purchase price of $600,000. If not exercised, the Warrant will expire at 5:00 pm EST on December 31, 2021. The Note can be prepaid at any time by paying 110% of the then outstanding principal, interest, default interest (if any), and any other amounts then due under the Note. The Note is initially convertible at a price per share equal to $2.50 (the “Fixed Conversion Price”); provided, however, that during the continuance of an event of default under the Note, the conversion price shall be equal to 75% of the lowest trading price of the Company’s common stock during the 30 trading days prior to conversion.
On December 31, 2019, Triton paid an initial purchase price of $100,000 at the initial closing. The Company received net proceeds of $85,000 after paying fees of $15,000. On February 20, 2020, Triton paid the purchase price balance of $500,000, at which point, the Note was payable in the aggregate principal amount of $750,000 and the Warrant was exercisable as to the right to purchase 250,000 shares. The original issue discount on the Note is a total of $150,000.
The Note can be prepaid at any time by paying 110% of the then outstanding principal, interest, default interest (if any), and any other amounts then due under the Note. The Note is initially convertible at a price per share equal to $2.50 (the “Fixed Conversion Price”); provided, however, that during the continuance of an event of default under the Note, the conversion price shall be equal to 75% of the lowest trading price of the Company’s common stock during the 30 trading days prior to conversion.
On March 31, 2020, the Company and Triton entered into a Modification Agreement, pursuant to which (i) the Company paid $250,000 of the principal amount of the Note, bringing the principal balance of the Note to $500,000, (ii) the maturity date of the Note was extended to August 20, 2020, (iii) the conversion price of the Note was established as 75% of the lowest trading price of the Company’s common stock during the 30 trading days prior to conversion, and (iv) the minimum volume weighted price requirement of the Note was deleted. As of April 30, 2020, Triton had converted $50,000 of the debt into 166,667 shares which were converted within the terms of the Note.
The warrant discount is $166,727 as of April 30, 2020. The Warrants was valued using a Black Scholes model which created a discount of the full value of cash received, bringing the full discount on the note to $428,700, which is to be amortized over the term of the Note. Through April 30, 2020, $261,973 of the discount was amortized, bringing the balance of the note to $221,712.
Warrants
During the nine months ended April 30, 2020, the Company entered into warrant agreement in conjunction with the note issued by Triton Funds, LP. The warrant provided the right to purchase 250,000 shares of the Company’s common stock at $3 per share exercise. As of the nine months end April 30, 2020 and the year ended July 31, 2019, there were 250,000 and zero warrants outstanding, respectively.
The fair value of the warrants granted for the nine months ended April 30, 2020 were determined using Black Scholes method with the following assumptions:
Nine months ended April 30,
2020
Risk free interest of 1.62%
Stock volatility
338
%
Weighted average expected warrant life in years
2
Expected dividend yield
0.00
%
Nine months ended April 30, 2020
Year ended July 31, 2019
Warrants
Weighted average exercise price
Warrants
Weighted average exercise price
Outstanding-beginning of the year
0
$
0
0
$
0
Issued
250,000
$
3
0
$
0
Exercised
0
$
0
0
$
0
Forfeited
0
$
0
0
$
0
Outstanding at respective periods
250,000
$
3
0
$
0
Exercisable at each respective period
250,000
$
3
0
0
Weighted average fair value of warrants granted during the year
$
750,000
Warrant expense for the nine months ended April 30, 2020 and for the year ended July 31, 2019 were $428,700 and $0.
The weighted average remaining contractual life of the warrants outstanding as of April 30, 2020 was as follows:
Exercise price
Number of warrants outstanding
Weighted Average remaining
contractual life (years)
$
3.00
250,000
1.64
5. Agreement Payable
As of April 30, 2020, the Company owes $159,207 (2018 - $nil) to a non-related party and requires monthly payments of $4,290.40 including interest at the rate of 5.66% per annum for a period of 48 months commencing November 1, 2019. The loan is secured by a collateral charge on production equipment.
6. Mortgage Payable
As of April 30, 2020, the Company owes $2,750,000 (2018 - $nil) to a non-related party, with monthly payments of interest only at the rate of 6% per annum. The debt is secured by a Promissory Note secured by a Deed of Trust on real property commonly known as Round Potrero Road, Potrero, California. The maturity date of the debt is August 23, 2024.
7. Second Mortgage Payable
As of April 30, 2020, the Company owes $1,760,000 (2018 - $nil) to a non-related party, with monthly payments of interest only at the rate of 15% per annum. The debt is secured by a Promissory Note secured by a second charge on the Deed of Trust on real property commonly known as Round Potrero Road, Potrero, California. The maturity date of the debt is August 15, 2024.
(a) As of April 30, 2020, the Company owes $56,824 (July 31, 2019 - $56,824) to a company controlled by the CEO of the Company. The debt bears interest at 5% per annum, is unsecured, and is due on demand. As of April 30, 2020, accrued interest of $16,973 (July 31, 2019 - $14,825) has been included in amounts due to related parties.
(b) As of April 30, 2020, the Company owes $1,807,813 (July 31, 2019 - $696,074) to a company controlled by the CEO of the Company. The debt includes funds advanced to the Company for business development purposes, is non-interest bearing, unsecured, and due on demand.
(c) As of April 30, 2020, the Company owes $67,500 (July 31, 2019 - $nil) to the CEO of the Company for accrued consulting fees. The debt is non-interest bearing, unsecured, and due on demand and is included in accounts payable.
(d) As of April 30, 2020, the Company owes $35,000 (July 31, 2019 - $27,500) to a former director of the Company for accrued consulting fees. The debt is non-interest bearing, unsecured, and due on demand and is included in accounts payable.
(e) As of April 30, 2020, the Company owes $67,500 (July 31, 2019 - $15,000) to the CEO of a subsidiary of the Company for consulting fees. The debt is non-interest bearing, unsecured, and due on demand and is included in accounts payable.
(f) As of April 30, 2020, the Company owes $67,500 (July 31, 2019 - $15,000) to the President of a subsidiary of the Company for consulting fees. The debt is non-interest bearing, unsecured, and due on demand and is included in accounts payable.
(g) As of April 30, 2020, the Company owes $10,000 (July 31, 2019 - $nil) to the CTO of the Company for consulting fees. The debt is non-interest bearing, unsecured, and due on demand and is included in accounts payable.
(h) As of April 30, 2020, the Company owes $43,833 (July 31, 2019 - $nil) to the Chief Agricultural Operations Manager of the Company for consulting fees. The debt is non-interest bearing, unsecured, and due on demand and is included in accounts payable.
(i) As of April 30, 2020, the Company owes $3,250 (July 31, 2019 - $nil) to the Chief Financial Officer of the Company for consulting fees. The debt is non-interest bearing, unsecured, and due on demand and is included in accounts payable.
(j) During the nine months ended April 30, 2020, the Company incurred $67,500 (2019 - $nil) in consulting fees to the CEO of the Company.
(k) During the nine months ended April 30, 2020, the Company incurred $22,500 (2019 - $7,500) in consulting fees to the CTO of the Company.
(l) During the nine months ended April 30, 2020, the Company incurred $7,500 (2019 - $7,500) in consulting fees to a former VP and former Director of the Company.
(m) During the nine months ended April 30, 2020, the Company incurred $67,500 (2019 - $nil) in consulting fees to the President of a subsidiary of the Company.
(n) During the nine months ended April 30, 2020, the Company incurred $67,500 (2019 - $nil) in consulting fees to the CEO of a subsidiary of the Company.
(o) During the nine months ended April 30, 2020, the Company incurred $7,500 (2019 - $nil) in consulting fees to the CFO of the Company.
(p) Imputed interest of $94,833 for the nine months ended April 30, 2020 and $22,009 for the year ended July 31, 2019 has been recorded for the above related party debts.
9. Share Issuances
(a) During the nine months ended April 30, 2020, the Company issued 250,000 common shares to the CEO of the Company in exchange for consulting services. The shares were valued based on OTC’s closing trade price on the date of the agreement.
(b) During the nine months ended April 30, 2020, the Company issued 50,000 common shares to the Chief Agricultural Operations Manager of the Company in exchange for consulting services. The shares were valued based on OTC’s closing trade price on the date of the agreement.
(c) During the nine months ended April 30, 2020, the Company issued 200,000 common shares to the Chief Project Manager of the Company in exchange for consulting services. The shares were valued based on OTC’s closing trade price on the date of the agreement.
(d) During the nine months ended April 30, 2020, the Company issued 25,000 common shares to the Assistant Agricultural Operations Manager of the Company in exchange for consulting services. The shares were valued based on OTC’s closing trade price on the date of the agreement.
(e) During the nine months ended April 30, 2020, the Company issued 300,000 common shares to non-related parties in exchange for consulting services. The shares were valued based on OTC’s closing trade price on the date of the agreement.
(f) During the nine months ended April 30, 2020, the Company agreed to issue 100,000 common shares to an Independent Director of the Company in exchange for consulting services. The shares were valued based on OTC’s closing trade price on the date of the agreement. The Company issued 50,000 of the shares on April 20, 2020.
(g) During the nine months ended April 30, 2020, the Company agreed to issue 250,000 common shares to the Senior Vice President of Corporate Development of the Company in exchange for consulting services. The shares were valued based on OTC’s closing trade price on the date of the agreement. The Company issued 125,000 of the shares on April 20, 2020.
(h) During the nine months ended April 30, 2020, the Company agreed to issue 250,000 common shares to a Senior Vice President of Business Development – Agriculture Division of the Company in exchange for consulting services. The shares were valued based on OTC’s closing trade price on the date of the agreement. The Company issued 125,000 of the shares on April 20, 2020.
(i) During the nine months ended April 30, 2020, the Company issued 166,667 common shares to Triton Funds Inc. in exchange for debt. The shares were valued based on OTC’s closing trade price on the date of the agreement.
10. Commitments/Contingencies
(a) On September 1, 2018, the Company entered into a consulting agreement with the CTO, Jeff Palumbo, whereby the Company agreed to pay a consulting fee of $2,500 per month for a period of two years commencing August 1, 2018. The agreement can be extended to four years upon mutual agreement. Upon completion of a minimum $1,000,000 financing, the Company will increase this payment to $5,000 per month. Upon completion of a minimum $5,000,000 financing or profitable operations, the Company will increase this payment to an amount mutually agreed upon that reflects the market rate for services provided by the CTO.
(b) On April 1, 2019, the Company entered into a consulting agreement with the Chief Development Officer of the Company, Hamid Rowshan, whereby the Company agreed to pay a to be negotiated consulting fee for an initial period of three months, which can be extended to five years upon mutual agreement. As of April 30, 2020, the Company had issued 500,000 common shares but does notexpect to issue any common shares in the future due to failure to meet conditions of the consulting agreement.
(c) On April 1, 2019, the Company entered into a consulting agreement with the Business Development Officer of the Company, Paymon Omidi, whereby the Company agreed to pay a to be negotiated consulting fee for an initial period of three months, which can be extended to five years upon mutual agreement. As of April 30, 2020, the Company had issued 500,000 common shares but does notexpect to issue any common shares in the future due to failure to meet conditions of the consulting agreement.
(d) On April 1, 2019, the Company entered into a consulting agreement with the Head of Research and Development of a subsidiary of the Company, Kiarash Mirkia. Pursuant to the terms of the agreement, the Company issued the consultant 50,000 common shares upon execution of the agreement. As of April 30, 2020, the Company had issued 50,000 common shares but does notexpect to issue any common shares in the future due to failure to meet conditions of the consulting agreement.
(e) On June 1, 2019, the Company entered into a consulting agreement with the CEO of a subsidiary of the Company, Kavan Thanasith, whereby the Company agreed to pay a consulting fee of $7,500 per month for a period of five years. The monthly fee will increase to: $10,000 per month if the Company generates gross revenue of $1,000,000 per month; $12,500 per month if the Company generates gross revenue of $1,500,000 per month; $15,000 per month if the Company generates gross revenue of $2,000,000 per month and $20,000 per month if the Company generates gross revenue of $2,500,000 per month. The consultant shall also be granted 200,000 common shares per year for a period of five years. As of April 30, 2020, the Company had issued 200,000common shares but does notexpect to issue any common shares in the future due to failure to meet conditions of the consulting agreement.
(f) On June 1, 2019, the Company entered into a consulting agreement with the President of a subsidiary of the Company, Travis Chrisman, whereby the Company agreed to pay a consulting fee of $7,500 per month for a period of five years. The monthly fee will increase to: $10,000 per month if the Company generates gross revenue of $1,000,000 per month; $12,500 per month if the Company generates gross revenue of $1,500,000 per month; $15,000 per month if the Company generates gross revenue of $2,000,000 per month and $20,000 per month if the Company generates gross revenue of $2,500,000 per month. The consultant shall also be granted 200,000 common shares per year for a period of five years. As of April 30, 2020, the Company had issued 200,000 common shares but does not expect to issue any common shares in the future due to failure to meet conditions of the consulting agreement.
(g) On August 1, 2019, the Company entered into a consulting agreement with the CEO of the Company, Ron Loudoun, whereby the Company agreed to pay a consulting fee of $7,500 per month for a period of three years and whereby the Company granted the Consultant an option to acquire 250,000 common shares of the Company or 250,000 Options at 10% below market value at the date of grant upon execution of the consulting agreement for an additional 2 years. On August 1, 2019, the Company issued 250,000 common shares to the Consultant at a value of $1.48 per share.
(h) On August 1, 2019, the Company entered into a consulting agreement with the Chief Agricultural Operations Manager, Anthony Curci, whereby the Company agreed to pay a signing bonus of $6,000 and a consulting fee of $6,000 per month for a period of nine months. At the end of the six-month period, the Company may evaluate the performance with regards to an extension of the agreement. The Company also granted the Consultant an option to acquire 25,000 common shares of the Company or 25,000 Options at 10% below market value at the date of grant upon execution of the consulting agreement. On August 1, 2019, the Company issued 50,000 common shares to the Consultant at a value of $1.48 per share but does not expect to issue any additional common shares in the future due to failure to meet conditions of the consulting agreement.
(i) On August 1, 2019, the Company entered into a consulting agreement with the Chief Project Manager, Greg Stinson, whereby the Company agreed to pay a signing bonus of $15,000 and a consulting fee of $7,500 per month for a period of five years. The Company also granted the Consultant an option to acquire 100,000 common shares of the Company or 100,000 Options priced at $0.50 per share upon execution of the consulting agreement and an additional 100,000 common shares or Options priced at 10% below market value at the date of grant nine months after the execution of the agreement. On August 31, 2019, the Company issued 200,000 common shares to the Consultant at a value of $1.48 per share. As of April 30, 2020, the Company has fulfilled all current obligations under the consulting contract and have been reflected in the Condensed Consolidated Financial Statements.
(j) On August 1, 2019, the Company entered into a consulting agreement with the Assistant Agricultural Operations Manager, Carol Snyder, whereby the Company agreed to pay a signing bonus of $4,000 and a consulting fee of $2,000 per month for a period of nine months. At the end of the six-month period, the Company may evaluate the performance with regards to an extension of the agreement. The Company also granted the Consultant an option to acquire 25,000 common shares of the Company or Options at $0.50 per share upon execution of the consulting agreement and an additional 25,000 common shares or Options at 10% below market value at the date of grant nine months after the execution of the agreement. On August 31, 2019, the Company issued 25,000 common shares to the Consultant at a value of $1.48 per share. As of April 30, 2020, the Company has fulfilled all current obligations under the consulting contract and have been reflected in the Condensed Consolidated Financial Statements.
(k) On February 15, 2020, the Company entered into a consulting agreement with the Chief Financial Officer of the Company, whereby the Company agreed to pay a consulting fee of $7,500 per month and whereby the Company granted the consultant an option to receive 100,000 common shares for services rendered broken down into two allotment of 50,000 shares, the first at the execution of the agreement and the second six months after the execution of the agreement. These initial shares will be issued in June 2020 at market value of $.50 per share. The Company has the option to extend the consulting agreement for an additional 2 years. As of April 30, 2020, no compensation for the common shares has been recognized under this consulting agreement.
(l) On November 15, 2019, the Company entered into a consulting agreement with the Chief Operations Officer, whereby the Company agreed to pay a consulting fee of $7,500 per month for a period of three years and, in addition whereby the Company agreed to pay a consulting fee whereby the Company granted the consultant to receive 200,000 common shares for services rendered broken down into two allotment of 100,000 shares, the first at the execution of the agreement and the second six months after the execution of the agreement. These initial shares will be issued in June 2020 at market value of $.50 per share. The Company has the option to extend the consulting agreement for an additional 2 years. As of April 30, 2020, no compensation for the common shares has been recognized under this consulting agreement.
(m) On April 1, 2020, the Company entered into a consulting agreement with the Compliance Officer, whereby the Company agreed to pay a consulting fee of $6,000 per month for a period of three years and, in addition whereby the Company agreed to pay a consulting fee whereby the Company granted the consultant to receive 35,000 common shares for services rendered after the execution of the agreement. These common shares will be issued in June 2020 at market value of $.50 per share. The Company has the option to extend the consulting agreement for an additional 2 years. As of April 30, 2020, no compensation for the common shares has been recognized under this consulting agreement.
(n) On March 15, 2020, the Company entered into a consulting agreement with the Director of Grow Operations, whereby the Company agreed to pay a consulting fee of $6,000 per month for a period of three years and, in addition whereby the Company agreed to pay a consulting fee whereby the Company granted the consultant to receive 25,000 common shares for services rendered broken down into two allotment of 12,500 shares, the first at the execution of the agreement and the second six months after the execution of the agreement. These initial shares will be issued in June 2020 at market value of $.50 per share. The Company has the option to extend the consulting agreement for an additional 2 years. As of April 30, 2020, no compensation for the common shares has been recognized under this consulting agreement.
(o) During the nine months ended April 30, 2020, the Company agreed to issue 50,000 common shares to an Independent Director of the Company in exchange for consulting services. The shares were valued based on OTC’s closing trade price on the date of the agreement.
(p) During the nine months ended April 30, 2020, the Company agreed to issue 125,000 common shares to the Senior Vice President of Corporate Development of the Company in exchange for consulting services. The shares were valued based on OTC’s closing trade price on the date of the agreement.
(q) During the nine months ended April 30, 2020, the Company agreed to issue 125,000 common shares to a Senior Vice President of Business Development – Agriculture Division of the Company in exchange for consulting services. The shares were valued based on OTC’s closing trade price on the date of the agreement.
11. Subsequent Events
On May 8, 2020, the Company issued 214,286 common shares to Triton Funds LP upon partial conversion of the Note at the conversion price then in effect.
On May 22, 2020, the Company issued 178,571 common shares to Triton Funds LP upon partial conversion of the Note at the conversion price then in effect.
On June 8, 2020, the Company issued 153,846 common shares to Triton Funds LP upon partial conversion of the Note at the conversion price then in effect.
The information set forth in this section contains certain “forward-looking statements,” including, among other things, (i) expected changes in our revenues and profitability, (ii) prospective business opportunities, and (iii) our strategy for financing our business. Forward-looking statements are statements other than historical information or statements of current condition. Some forward-looking statements may be identified by use of terms such as “believes,” “anticipates,” “intends,” or “expects.” These forward-looking statements relate to our plans, objectives and expectations for future operations. Although we believe that our expectations with respect to the forward-looking statements are based upon reasonable assumptions within the bounds of our knowledge of our business and operations, in light of the risks and uncertainties inherent in all future projections, the inclusion of forward-looking statements in this report should not be regarded as a representation by us or any other person that our objectives or plans will be achieved. Unless otherwise specified in this quarterly report, all dollar amounts are expressed in United States dollars and all references to “common stock” refer to shares of our common stock. As used in this quarterly report, the terms “we”, “us”, “our” and “our company” mean Green Hygienics Holdings Inc. and our subsidiaries, Coastal Labs NC LLC and Green Hygienics NC LLC, unless otherwise indicated.
Corporate Overview
Green Hygienics Holdings Inc. (the Company) was incorporated in the State of Nevada on June 12, 2008 as Silver Bay Resources Inc. On June 30, 2010, the Company changed its name to Takedown Entertainment Inc. On July 24, 2012, the Company changed its name to Green Hygienics Holdings Inc.
The Company is an innovative, full-scope, science-driven, premium hemp cultivation and branding enterprise focused on the cultivation and processing of industrial hemp for cannabidiol (“CBD”). The Hemp Farming Act of 2018 removed hemp from Schedule I controlled substances (defined as cannabis with less than 0.3% THC) making it an ordinary agricultural commodity.
The Company’s business model includes generating revenues from the sale of hemp and premium-grade CBD products; creating trusted global consumer brands; developing valuable IP; and growing the Company rapidly through strategic acquisitions. With direct regard to acquisitions, the Company acts as a business accelerator and a vertical integrator focusing to support rapid growth and development of companies with extraordinary potential.
Effective April 29, 2019, the Company entered into a definitive agreement with Coastal Labs, LLC to acquire all of the assets of Coastal Labs. The total consideration for the assets would be, at the Company’s election, $3,000,000 or a total of 2,000,000 shares of the Company’s common stock issuable over five years. In addition, the Company would enter into consulting agreements with each individual member of Coastal, or such entity as each respective member may designate, that sets forth ongoing compensation to each individual member of Coastal. The parties further agreed to form a new entity or arrange for the transfer of ownership of Coastal to a wholly-owned subsidiary of the Company to hold the acquired assets, to enter into an operating agreement that governs the operation of the assets, and to establish a board of directors for the subsidiary of up to 6 members, of whom 3, or half, whichever is greater, shall be nominees of Coastal. Further, the Company would assume all of Coastal’s contracts relating to sales and distribution of the products. The acquisition of the assets of Coastal Labs has not closed, and either party may terminate the agreement at any time.
In June, 2019, the Company formed two wholly owned subsidiaries, Coastal Labs NC LLC and Green Hygienics NC LLC for the purpose of registering as an industrial hemp processor and cultivator in the State of North Carolina pursuant to the North Carolina Industrial Hemp Pilot Program.
On June 10, 2019, the Company secured a multiyear purchase order for the sale of hemp to U.S. Tobacco De Mexico. Under the terms of the contract, the Company is required to deliver a total $56.4 million worth of hemp flower over a five-year period to US Tobacco De Mexico for use in the production of CBD hemp cigarettes. Since the issuance of the purchase order, the Company and US Tobacco De Mexico determined to renegotiate the purchase order due to several reasons, including production capacity and market price fluctuation. These negotiations are ongoing.
On June 14, 2019, the Company secured from the County of San Diego Department of Agriculture, Weights and Measures, a grower registration for industrial hemp cultivation.
On July 22, 2019, the Company secured licenses for the processing of hemp in the state of North Carolina. The licenses were granted to the Company’s newly formed subsidiary, Coastal Labs NC LLC, by the North Carolina Industrial Hemp Commission. The Company’s second subsidiary in the state is Green Hygienics NC LLC, which will be partnering for cultivation this year with the intention of meeting the earnings qualification to be licensed on its own for next year’s cultivation.
On August 26, 2019, the Company the completed the acquisition of 824 acres of land known as the Potrero Ranch Property, located near San Diego, California for a purchase price of $4 million. The Company will utilize the land and buildings for industrial hemp for CBD cultivation. The property includes over 400,000 square feet of outbuildings which are currently being converted into greenhouses. The Company entered into an agreement payable with the seller of the property for $2,750,000 for a portion of the purchase price. The terms of the agreement are monthly payments of interest only at the rate of 6% per annum. This debt is secured by a promissory note secured by a deed of trust on the real property. The maturity date of the debt is August 23, 2024. The Company also entered into an agreement payable for $1,760,000 with monthly payments of interest only at the rate of 15% per annum. This debt is also secured by a promissory note secured by a second charge on the deed of trust on the real property. The maturity date of this debt is August 15, 2024. To date, the Company has spent $184,342 in property and building improvements and has acquired over $300,000 worth of production equipment.
In October 2019, the Company entered into an agreement to purchase the real property located at 13795 Blaisdell Place, Poway, California 92064, which includes a building containing approximately 15,048 square feet of R&D space on a 0.95 acre lot, for $4,000,000, of which $2,000,000 is payable in cash or common stock of the Company, and of which $2,000,000 would be financed pursuant to a promissory note and secured by a deed of trust on the property. The Company has until April 2020 to obtain the necessary financing to consummate the transaction.
Results of Operations
Three Months Ended April 30, 2020 Compared to the Three Months Ended April 30, 2019
Revenues
We are currently in the product growing and production stages and anticipate producing revenue in the next six months. We have also generated $52,800 in revenue for the three months ended April 30, 2020 from license fees pursuant to a license agreement for the right to use the premises at the Potrero Ranch Property for temporary storage of construction equipment.
Expenses
Operating expenses for the three months ended April 30, 2020 increased to $1,075,531 compared to $47,096 for the three months ended April 30, 2019. This increase is primarily due to a material increase in business development costs, consulting fees, supplies, subcontracts, payroll expenses and general and administrative costs, all of which resulted from our commencement of cultivation operations.
We incurred a total of $509,727 in interest expenses due to debt financing during the three months ended April 30, 2020, which is an increase from $716 for the same period in 2019. The debt financing costs include $151,678 in interest expense and $358,049 in debt discount costs.
We recorded $21,459 of depreciation for the three months ended April 30, 2020.
We experienced a net loss of $1,553,917 during the three months ended April 30, 2020, as compared to a net loss of $47,812 for the three months ended April 30, 2019.
An analysis of our results of operations are as follows:
Three Months Ended
April 30,
2020
$
April 30,
2019
$
Change
$
Rental Revenue
52,800
-
$
52,800
Expenses
Consulting fees
112,000
45,000
$
67,000
Business development costs
30,000
-
30,000
Supplies
112,685
-
112,685
Sub contracts
18,021
-
18,021
Payroll expenses
231,897
-
231,897
Inventory impairment expense
306,450
-
306,450
General and administrative
264,478
2,096
262,382
Interest
509,727
716
509,011
Depreciation
21,459
-
21,459
Net loss for the period
(1,553,917
)
(47,812
)
(1,506,105
)
Nine months Ended April 30, 2020 Compared to the Nine months Ended April 30, 2019
Revenues
We are currently in the product growing and production stages and anticipate producing revenue in the next six months. We have also generated $108,574 in revenue for the nine months ended April 30, 2020 from license fees pursuant to a license agreement for the right to use the premises at the Potrero Ranch Property for temporary storage of construction equipment.
Expenses
We incurred operating losses of $48,383,601 from date of incorporation June 12, 2008 to the period ended April 30, 2020. These losses consisted of consulting fees, business development costs, inventory impairment, supplies, wages and general operating expenses incurred in connection with the day to day operation of our business and the preparation and filing of our periodic reports.
Operating expenses for the nine months ended April 30, 2020 increased to $4,885,004 compared to $112,268 for the nine months ended April 30, 2019. This increase is primarily due to a material increase in business development costs but was also due to increases in consulting fees, supplies, subcontracts, payroll expenses, and general and administrative costs, all of which resulted from our commencement of cultivation operations.
We incurred a total of $785,096 in interest expenses due to debt financing during the three months ended April 30, 2020, which is an increase from $2,148 for the same period in 2019. The debt financing costs include $419,694 in interest expense and $365,412 in debt discount costs.
We recorded $55,923 of depreciation for the nine months ended April 30, 2020.
We experienced a net loss of $5,617,459 during the nine months ended April 30, 2020, as compared to a net loss of $114,416 for the nine months ended April 30, 2019.
An analysis of our results of operations are as follows:
Nine months Ended
April 30,
2020
$
April 30,
2019
$
Change
$
Rental Revenue
108,574
-
$
108,574
Expenses
Consulting fees
390,396
100,000
$
290,396
Business development costs
2,471,884
-
2,471,884
Supplies
594,150
-
594,150
Sub contracts
138,699
-
138,699
Payroll expenses
570,614
-
570,614
Inventory impairment expense
306,450
-
306,450
General and administrative
412,811
12,268
400,543
Interest
785,106
2,148
782,958
Depreciation
55,923
-
55,923
Net loss for the period
(5,617,459
)
(114,416
)
(5,503,043
)
Balance Sheet
Our total assets increased to $4,977,854 as of April 30, 2020, from $554,841 as of July 31, 2019. This increase resulted primarily from our acquisition of the 824-acre Potrero Ranch Property near San Diego, California for a total purchase price of $4,000,000.
In 2019, our auditors issued a going concern opinion. This means that there is substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain additional capital to pay our bills. This is because we have generated minimal revenues to date. The following table provides selected financial data about our Company as of April 30, 2020 and July 31, 2019.
Balance Sheet Data:
April 30,
2020
$
July 31,
2019
$
Cash and prepaid expenses
228,237
3,253
Inventory
-
306,450
Deposits
-
100,000
Fixed assets
4,749,617
145,138
Total assets
4,977,854
554,841
Total liabilities
8,240,775
1,194,836
Stockholders’ equity (deficit)
(3,262,921
)
(639,995
)
Liquidity and Capital Resources
As of April 30, 2020, our current assets were $228,237, comprised of $228,237 in cash. This is a decrease in current assets from $309,703 as of July 31, 2019. Our working capital deficit as of April 30, 2020 was $3,383,228, compared to a working capital deficit of $885,133 as of July 31, 2019.
Working Capital
April 30,
2020
$
July 31,
2019
$
Current Assets
228,237
309,703
Current Liabilities
3,611,465
1,194,836
Working Capital (Deficit)
(3,383,228
)
(885,133
)
During the nine months ended April 30, 2020, we used $1,664,071 of cash for operating activities compared to generating $56 in the nine months ended April 30, 2019.
During the nine months ended April 30, 2020, we used $118,586 of cash for investing activities compared to none in the nine months ended April 30, 2019.
During the nine months ended April 30, 2020, we generated $2,007,641 of cash from financing activities compared to none in the nine months ended April 30, 2019.
Net cash provided by (used in) operating activities
(1,664,071
)
56
Net cash provided by (used in) investing activities
(118,586
)
-
Net cash provided by financing activities
2,007,641
-
Net change in cash
224,984
56
Our current cash balance will be unable to sustain operations for the next twelve months. We will be forced to raise additional funds by issuing new debt or equity securities or otherwise. We have raised no funds during the current quarter. If we fail to raise sufficient capital when needed, we will not be able to complete our business plan. We are a development stage company and have generated no revenue to date.
The future of our Company is dependent upon its ability to obtain financing and upon future profitable operations from the development of acquisitions.
We estimate that our expenses over the next 12 months will be approximately $600,000, comprised of $120,000 in business development costs and $480,000 in general and administrative expenses. These estimates may change significantly depending on the performance of our products in the marketplace and our ability to raise capital from shareholders or other sources.
We intend to meet our cash requirements for the next 12 months through a combination of debt financing and equity financing by way of private placements. We currently do not have any arrangements in place to complete any private placement financings and there is no assurance that we will be successful in completing any private placement financings on terms that will be acceptable to us. We may not raise sufficient funds to fully carry out our business plan.
Effective December 19, 2019, we entered into a securities purchase agreement dated as of December 19, 2019 (the “SPA”) with Triton Funds, LP, an accredited investor (the “Buyer”), pursuant to which the Company issued and sold to the Buyer (i) a convertible promissory note (the “Note”) in the aggregate principal amount of up to $750,000, due June 30, 2020, bearing interest at a rate of ten percent (10%) per annum and convertible into shares of the Company’s common stock at a conversion price of $2.50 per share and (ii) a common stock purchase warrant (the “Warrant”), exercisable for two (2) years, to purchase up to 250,000 shares of the Company’s common stock at an exercise price of $3.00 per share, for an aggregate purchase price of $600,000.
On December 31, 2019, the Buyer paid an initial purchase price of $100,000 at the initial closing. The purchase price balance of $500,000 was paid on February 20, 2020. The Note is totally vested and the Warrant is currently vested only as to the right to purchase 41,667 shares. The original issue discount on the Note fully vested is $150,000.
The Note can be prepaid at any time by paying 110% of the then outstanding principal, interest, default interest (if any), and any other amounts then due under the Note. The Note is initially convertible at a price per share equal to $2.50 (the “Fixed Conversion Price”); provided, however, that during the continuance of an event of default under the Note, the conversion price shall be equal to 75% of the lowest trading price of the Company’s common stock during the 30 trading days prior to conversion.
Concurrently therewith, we entered into a registration rights agreement with the Buyer, pursuant to which we agreed to file a registration statement with the SEC for the registration of the secondary offering and resale of the shares issuable upon conversion of the Note and exercise of the Warrant and to have the registration statement declared effective by the SEC at the earliest possible date. The registration was declared effective by the SEC on February 11, 2020. The Buyer paid the purchase balance, and the Note and Warrant fully vested, on February 20, 2020.
On March 31, 2020, we and Triton entered into a Modification Agreement, pursuant to which (i) we paid $250,000 of the principal amount of the Note, bringing the principal balance of the Note to $500,000, (ii) the maturity date of the Note was extended to August 20, 2020, (iii) the conversion price of the Note was established as 75% of the lowest trading price of our common stock during the 30 trading days prior to conversion, and (iv) the minimum volume weighted price requirement of the Note was deleted.
On April 30, 2020, we received loan proceeds in the amount of $444,850 under the Paycheck Protection Program (“PPP”). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The loans and accrued interest are forgivable after eight weeks as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the eight-week period. The unforgiven portion of the PPP loan is payable over two years at an interest rate of 1%, with a deferral of payments for the first six months. We intend to use the proceeds for purposes consistent with the PPP. While we currently believe that our use of the loan proceeds will meet the conditions for forgiveness of the loan, we cannot assure you that we will not take actions that could cause us to be ineligible for forgiveness of the loan, in whole or in part.
We will require additional financing in order to enable us to proceed with our plan of operations, as discussed above, including approximately an additional $120,000 over the next 12 months to pay for our ongoing expenses. These expenses include legal, accounting, and audit fees as well as general and administrative expenses. These cash requirements are in excess of our current cash and working capital resources. Accordingly, we will require additional financing in order to continue operations and to repay our liabilities. There is no assurance that any party will advance additional funds to us in order to enable us to sustain our plan of operations or to repay our liabilities.
We anticipate continuing to rely on equity sales of our common stock in order to fund our business operations. Issuances of additional shares will result in dilution to our existing stockholders. There is no assurance that we will achieve any additional sales of our equity securities or arrange for debt or other financing to fund our planned business activities.
We presently do not have any arrangements for additional financing and no potential lines of credit or sources of financing are currently available for the purpose of proceeding with our plan of operations.
Critical Accounting Policies
Use of Estimates
The preparation of the 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. Our Company regularly evaluates estimates and assumptions related to deferred income tax asset valuation allowances. Our 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 our Company may differ materially and adversely from our Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance and trust funds to be cash equivalents.
Inventory
Inventory is carried at the lower of cost or net realizable value, with the cost being determined on a first-in, first-out (FIFO) basis. The Company periodically reviews physical inventory and will record a reserve for excess and/or obsolete inventory if necessary. In the current quarter the inventory was fully impaired due to unfavorable weather conditions. In the early growing stages the plants were severely damaged by a sand storm and could not be salvaged.
Impairment of Long-Lived Assets
The Company evaluates the recoverability of its fixed assets and other assets in accordance with ASC 360-10- 15, Impairment or Disposal of Long-Lived Assets. Impairment of long-lived assets is recognized when the net book value of such assets exceeds their expected cash flows, in which case the assets are written down to fair value, which is determined based on discounted future cash flows or appraised values.
Related Party Transactions
The Company follows ASC 850, Related Party Disclosures, for the identification of related parties and disclosure of related party transactions. In accordance with ASC 850, the Company’s financial statements include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business, as well as transactions that are eliminated in the preparation of financial statements.
Income Taxes
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, “Income Taxes”. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
The Company’s functional and reporting currency is the U.S. dollar. Transactions in foreign currencies are translated into the currency of measurement at the exchange rates in effect on the transaction date. Monetary balance sheet items expressed in foreign currencies are translated into U.S. dollars at the exchange rates in effect at the balance sheet date. The resulting exchange gains and losses are recognized in the statement of operations.
Financial Instruments and Fair Value Measures
ASC 820, “Fair Value Measurements and Disclosures”, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Company’s financial instruments consist principally of cash, accounts payable and accrued liabilities, loans payable, and amounts due to related parties. Pursuant to ASC 820, the fair value of cash is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
Stock-based Compensation
The Company records stock-based compensation in accordance with ASC 718, “Compensation – Stock Compensation” and ASC 505, “Equity Based Payments to Non-Employees”, using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
The Company computes earnings (loss) per share in accordance with ASC 260, “Earnings per Share”. ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing earnings (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. As at April 30, 2020 and 2019, the Company does not have any potentially dilutive shares.
Comprehensive Loss
ASC 220, “Comprehensive Income”, establishes standards for the reporting and display of comprehensive loss and its components in the financial statements.
Recent Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company 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.
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 that is material to stockholders.
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 , as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our president and chief financial officer (also our principal executive officer, principal financial officer and principal accounting officer) to allow for timely decisions regarding required disclosure.
As of April 30, 2020, we carried out an evaluation, under the supervision and with the participation of our president and chief financial officer (also our principal executive officer, principal financial officer and principal accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our president and chief financial officer (also our principal executive officer, principal financial officer and principal accounting officer) concluded that our disclosure controls and procedures were not effective in providing reasonable assurance in the reliability of our corporate reporting as of the end of the period covered by this quarterly report due to certain deficiencies that existed in the design or operation of our internal controls over financial reporting and that may be considered to be material weaknesses. The material weaknesses included weaknesses in procedures for control evaluation, a lack of an audit committee, insufficient documentation of review procedures, and insufficient information technology procedures.
Changes in Internal Controls
There have been no changes in our internal controls over financial reporting that occurred during the quarter ended April 30, 2020 that have materially or are reasonably likely to materially affect, our internal controls over financial reporting.
M&K CPAs, our independent registered public accounting firm, is not required to and has not provided an assessment over the design or effectiveness of our internal controls over financial reporting.
We know of no material, existing or pending legal proceedings against our Company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.
During the nine months ended April 30, 2020, the Company issued 250,000 common shares to the CEO of the Company in exchange for consulting services. The issuance was exempt under Section 4(a)(2) of the Securities Act.
During the nine months ended April 30, 2020, the Company issued 50,000 common shares to the Chief Agricultural Operations Manager of the Company in exchange for consulting services. The issuance was exempt under Section 4(a)(2) of the Securities Act.
During the nine months ended April 30, 2020, the Company issued 200,000 common shares to the Chief Project Manager of the Company in exchange for consulting services. The issuance was exempt under Section 4(a)(2) of the Securities Act.
During the nine months ended April 30, 2020, the Company issued 25,000 common shares to the Assistant Agricultural Operations Manager of the Company in exchange for consulting services. The issuance was exempt under Section 4(a)(2) of the Securities Act.
During the nine months ended April 30, 2020, the Company issued 300,000 common shares to non-related parties in exchange for consulting services. The issuances were exempt under Section 4(a)(2) of the Securities Act.
During the nine months ended April 30, 2020, the Company agreed to issue 100,000 common shares to an independent director of the Company in exchange for consulting services. The issuance was exempt under Section 4(a)(2) of the Securities Act. The Company issued 50,000 of the shares in April, 2020.
During the nine months ended April 30, 2020, the Company agreed to issue 250,000 common shares to the Senior Vice President of Corporate Development of the Company in exchange for consulting services. The issuance was exempt under Section 4(a)(2) of the Securities Act. The Company issued 125,000 of the shares in April, 2020.
During the nine months ended April 30, 2020, the Company agreed to issue 250,000 common shares to a Senior Vice President of Business Development – Agriculture Division of the Company in exchange for consulting services. The issuance was exempt under Section 4(a)(2) of the Securities Act. The Company issued 125,000 of the shares in April, 2020.
During the nine months ended April 30, 2020, the Company issued 166,667 common shares to Triton Funds LP upon partial conversion of the Note at the conversion price then in effect.
On May 8, 2020, the Company issued 214,286 common shares to Triton Funds LP in exchange for $60,000 debt. The shares were valued based on OTC’s closing trade price on the date of the agreement.
On May 22, 2020, the Company issued 178,571 common shares to Triton Funds LP upon partial conversion of the Note at the conversion price then in effect.
On June 8, 2020, the Company issued 153,846 common shares to Triton Funds LP upon partial conversion of the Note at the conversion price then in effect.
In accordance with the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
GREEN HYGIENICS HOLDINGS INC.
(Registrant)
Date: June 15, 2020
/s/ Ron Loudoun
Ron Loudoun
President, Chief Executive Officer, Secretary and Treasurer
Director
(Principal Executive Officer)
Date: June 15, 2020
/s/ Todd Mueller
Todd Mueller
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
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