This prospectus relates to
the resale of shares of our Common stock, par value $0.001 per share (the “Common Shares”), of an aggregate of 20,708,163
Common Shares pursuant to our January 6, 2021 Equity Purchase Agreement which may be offered by Peak One Opportunity Fund, LP (“Peak
One”) and Peak One Investments, LLC (“Peak One Investments) (the “EPA”), as follows: (a) up to 20,408,163 Common
Stock Shares to be issued to Peak One pursuant to put notices under the January 6, 2021 Equity Purchase Agreement with Peak One; (b) 150,000
Commitment Fee Shares issued to Peak One and Peak One Investments for an aggregate of 300,000 Commitment Fee Shares (Peak One Investments
is the General Partner of Peak One, both of which are Delaware corporations); and (c) pursuant to Rule 416 under the Securities Act, an
indeterminate number of shares of common stock that are issuable upon stock splits, stock dividends, recapitalizations or other similar
transactions affecting the shares of the selling stockholder.
The amount of shares of Common Shares which may be sold pursuant to
this Prospectus would constitute 9.4% of the Company’s issued and outstanding Common Shares as of April 22, 2022 (20,708,163 divided
by the sum of current outstanding of 200,435,331 and 20,708,163 for a total of 220,843,494, which includes the 300,000 Commitment Fee
Shares, and assuming that we issue all 20,708,163 shares to the selling security holders (the “Selling Stockholders”).
Peak One and Peak One Investments
are the Selling Stockholders and are deemed to be each an “underwriter” within the meaning of the Securities Act of 1933,
as amended (the “Act”) and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters”
within the meaning of the Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents
and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or equivalent expenses and
expenses of legal counsel applicable to the sale of the shares.
The prices at which the Selling
Stockholders may sell the shares of Common Shares in this Offering will be determined by the prevailing market prices for the shares
of Common Shares or in negotiated transactions.
An investment in our common
stock involves a high degree of risk. You should purchase our common stock only if you can afford a complete loss of your purchase.
We urge you to read carefully
the “Risk Factors” section beginning on page 9 where we describe specific risks associated with an investment in these
securities before you make your investment decision.
Our Common Shares are quoted on the OTCQB (“OTC”) under
the stock symbol “CRYM”. On May 6, 2022, the closing price of our Common Shares was $0.3349 per Common Share.
TABLE OF CONTENTS
You should rely only on the information contained
in this Prospectus. We have not authorized anyone to provide you with different information. We are not making an offer of these securities
in any state where the offer is not permitted.
PROSPECTUS
SUMMARY
You should read the following summary together
with the more detailed information and Company’s financial statements for the years ended December 31, 2021 and December 31, 2020
(the “Financial Statements”) appearing elsewhere in this Prospectus. This Prospectus contains forward-looking statements
that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements
as a result of certain factors, including those set forth under “Risk Factors” and elsewhere in this Prospectus. Unless the
context indicates or suggests otherwise, references to “we,” “our,” “us,” the “Company,”
or the “Registrant” refer to Cryomass Technologies Inc, a Nevada corporation. References to “$” refer to monetary
amounts expressed in U.S. dollars.
Our Business
Corporate History
Cryomass Technologies Inc (“Cryomass Technologies”
or the “Company”) began as Auto Tool Technologies Inc., which was incorporated under the laws of the State of Nevada on May
10, 2011. The Company’s name was changed to AFC Building Technologies Inc. effective January 10, 2014. Effective April 26, 2018,
the Company changed its name to First Colombia Development Corp. Effective October 14, 2019, the Company changed its name to Redwood
Green Corp. Effective September 1, 2020, the Company changed its name to Andina Gold Corp. On July 15, 2021, the Company entered into
a plan of merger with its wholly-owned subsidiary, Cryomass Technologies Inc a Nevada corporation, for the purpose of changing the name
of the Company to Cryomass Technologies Inc, effective August 27, 2021. Our ticker symbol changed from AGOL to CRYM.
The Company’s principal office is located
at 1001 Bannock St., Suite 612, Denver, CO 80204, and its telephone number is 303-416-7208. The Company’s website is www.cryomass.com.
Information appearing on the website is not incorporated by reference into this prospectus.
The Company over its history has explored a number
of different business opportunities.
On May 10, 2018, the Company acquired all the
issued and outstanding share capital of First Colombia Devco S.A.S. (“Devco”), a Colombian company, and began to establish
various business ventures in Colombia in the agriculture and real estate development, tourism, and infrastructure sectors before commencing
to phase them out in April 2019.
On July 1, 2019, the Company acquired 100% of
the membership interests in General Extract, LLC (“General Extract”), a Colorado limited liability company. General Extract
was founded in 2015 as an importer, distributor, broker and postprocessor of hemp and hemp derivatives. The Company acquired all of the
issued and outstanding membership interests, including business plans and access to contacts.
On July 15, 2019, the Company, through its wholly
owned subsidiary Good Acquisition Co., entered into a Membership Interest Purchase Agreement to acquire cannabis-related intellectual
property and other assets of Critical Mass Industries LLC DBA Good Meds (“CMI” and/or “Good Meds”), a Colorado
limited liability company (“CMI Transaction”). CMI is licensed by the Marijuana Enforcement Division of Colorado Department
of Revenue to produce cannabis and cannabis products under its six licenses. These licenses allow for cultivation, manufacturing of infused
products and retail distribution. At the time the Company entered into the Membership Interest Purchase Agreement, Colorado law prohibited
public companies, including the Company, from owning cannabis licenses. Therefore, CMI spun off certain assets acquired by the Company.
Under the terms of the Membership Interest Purchase Agreement, CMI retained the cannabis license, inventory and accounts receivable (the
“Cannabis License Assets”) and continued to operate the cannabis business related to those assets. In consideration for the
transfer of the acquired assets, the Company delivered 13,553,233 shares of the Company common stock, in addition to $1,999,770 in cash
to CMI.
Effective December 31, 2021, we entered into
a restated and amended administrative services agreement, terminated our license and marketing agreements, and restated the asset purchase
agreement with CMI and affiliates. As a result of these agreements, we disposed of all CMI-related assets and extinguished any and all
related obligations. For clarity, we have no management or operations decision-making right or responsibility, nor any access to future
economic benefits from operation of the assets. Therefore, upon commencing these agreements, we determined that CMI no longer qualifies
as a variable interest entity (“VIE”) as of December 31, 2021.
Good Meds, the operating unit of CMI, is based
in Denver, CO, and operates in a 60,000-square-foot cultivation and processing facility. This facility produces cannabis for sale as
dry flower and biomass input for processing into Marijuana-Infused Products (“MIP”), such as live resin, wax and budder.
Good Meds also owns and operates two medical cannabis dispensaries located in Lakewood, CO and Englewood, CO. The business has been in
operation since 2009.
Beginning in March 2020, an evaluation of various
strategic alternatives was followed by the decision to sell the Colorado-based assets and refocus its attention on unique opportunities
for gold exploration in Colombia. In August 2020, the Company established a wholly owned Colombian subsidiary, Andina Gold Colombia SAS
for this purpose. In December 2020, due to the death of the top geologist exploring opportunities on behalf of the Company, and the effects
of the ongoing Coronavirus pandemic, the Company determined that pursuit of gold exploration in Colombia was no longer a practical alternative.
On June 22, 2021, the Company entered into an
Asset Purchase Agreement with Cryocann USA Corp, a California corporation (“Cryocann”), pursuant to which Company acquired
substantially all the assets of Cryocann. The aggregate purchase price was $3,500,000 million in cash and 10,000,000 shares of Company
common stock. As part of the Cryocann Acquisition, we retained both Cryocann employees, who have expert knowledge of the industry, related
participants, customers and the acquired patented technology. Under their employment agreements, each employee may receive compensation
if specific performance targets are met in association with our future operating performance when the Cryocann technology enters the
market. The technology and assets acquired from Cryocann are operated from the Company’s subsidiary, Cryomass LLC. The patented
cryo-mechanical technology is for the separation of plant materials in the harvesting of hemp and cannabis, and potentially other high
value crops such as hops. We believe this technology will reduce processing costs and increases the quality of extracted compounds. We
are exploring the application of the underlying technology to a broad range of industries that handle high-value materials and that could
benefit from our precision capture methods. We anticipate that cannabis and hemp will be the first in a series of such industries.
To develop and commercialize the technology,
we contracted with an independent engineering and manufacturing firm to refine the design of our cryo-mechanical system for the handling
of harvested hemp, cannabis and other high-value plants. The system exploits CryoMass’s U.S.-patented process for the
controlled application of liquid nitrogen to stabilize and separate the structural elements of gross plant material. The device
currently under development is scaled for highway transportability and is being optimized for the low-cost collection of fully intact
hemp and cannabis trichomes. It can be used within minutes after plants have been cut and can also efficiently capture trichomes from
fresh frozen or even dried plant parts, including trim. The device’s through-put capacity is expected to be approximately 600 kilograms
of gross plant material per hour. The advanced design for the equipment has been completed, and testing of a prototype
machine is currently underway. The engineering and manufacturing firm has indicated that it has the capacity to build 10 to 15 such devices
per month.
In November, 2021, we retained a second
engineering and manufacturing firm to independently develop a separate machine design that applies our patented process. We expect their
work to help strengthen the power and robustness of our technology. In addition, it opens a channel to a second manufacturing source.
The first functional “beta” CryoMass
system is ready for field testing by a third-party cannabis producer as of the date hereof. The first production-run machine is
expected to be ready for commercial use towards the end of the second quarter 2022. At that moment, we expect to start helping our first
tolling client (fee for service) increase their margins by cutting the cost of handling, processing and refining its hemp or
cannabis and increasing the resulting material’s value to formulators of end products.
Canadian Patent no. 3 064 896 “Cryogenic
Separation of Plant Material” was filed on May 25, 2018 by two assignors, who assigned it, among other, various other intellectual
property rights, to a wholly owned subsidiary of the Company as part of the Cryocann June 22, 2021 transaction. The respective Canadian
patent was granted on April 19, 2022. Provided that all patent maintenance fees are paid, the Canadian patent no. 2 064 896 will expire
on May 25, 2038.
Management believes the CryoMass system
will deliver a compelling combination of cost and time savings while enhancing product quality and quantity for largescale cultivators
and processors of hemp and cannabis. The use of a CryoMass system – which can be trucked to and operated on the
fields of most large hemp and cannabis growers or be permanently installed at a user’s processing facility – should eliminate
many of the costs that come with traditional practices, especially the labor, fuel and capital costs of drying and curing hemp
or cannabis that is grown for the extraction of end products. With traditional practices, harvested plants are transported to a
specially constructed drying house and then treated for a week or longer under controlled conditions of temperature and humidity. It’s
a costly method. With our system, harvested plants are simply fed into the front end of a CryoMass machine, and minutes later
fully intact trichomes are collected at the back end of the machine. With traditional practices and their seven-to-ten days of handling
and drying, a large share of a plant’s valuable trichomes break off and are lost. Then the remaining trichomes are damaged by long
exposure to oxygen and by the evaporation of their volatile terpenes. The CryoMass system, on the other hand, stabilizes and
collects fully intact trichomes at harvest, leaving no opportunity for such wasteful loss. Field-captured trichomes are the cleanest
element of a hemp or cannabis plant because, unlike the rest of the plant, trichomes do not readily take up heavy metals, pesticides or
other common soil contaminants. As a product for end-users, field-captured trichomes are closest to being contaminant free. As feedstock
for manufacturers of extracts and oils, they are the key to the purest products possible.
Because the trichomes collected with CryoMass technology
represent only 10% or so of a plant’s weight and volume, they are cheaper to ship and store than gross plant material. For
the same reason and because trichomes are free of the waxes and other unwanted materials found in the rest of the plant, processing trichomes
into oils and extracts can be far quicker, cheaper and easier than processing gross plant material. Even trichomes captured
from dried or frozen plant parts deliver this cost-saving advantage to processors of oils and extracts. The three-dimensional advantage
achievable with the CryoMass system – first-stage cost savings, product enhancement and downstream cost savings –
can as much as double a crop’s wholesale value. And in some jurisdictions, users may enjoy a reduction in excise taxes levied on
cannabis and hemp harvests, which typically are tied to the gross weight of hemp or cannabis that is removed from the field.
Market Size
Production and processing of hemp and cannabis
is a huge, worldwide industry. In the U.S., for example, the wholesale value of the cannabis crop from just the 11 states permitting
adult-use and medical cannabis exceeds $6 billion annually.1 Growth in the U.S. and in the worldwide market is
likely fed in part by the growing acceptance of medicinal cannabis products and anticipated legislative changes in various jurisdictions
worldwide.
And that may only be chapter one of the Company’s
story. Several other high-value plants, including species that are important for health and wellness products, wrap their valuable elements
in trichomes. The technology we are developing for hemp and cannabis may have profitable application to those other species as well.
We intend to find out.
Recent Developments
Canadian Patent no. 3 064 896 “Cryogenic
Separation of Plant Material” was filed on May 25, 2018 by two assignors, who assigned it, among other, various other intellectual
property rights, to a wholly owned subsidiary of the Company as part of the Cryocann June 22, 2021 transaction. The respective Canadian
patent was granted on April 19, 2022. Provided that all patent maintenance fees are paid, the Canadian patent no. 2 064 896 will expire
on May 25, 2038.
Smaller Reporting Company Status
Rule 12b-2 of the Securities Exchange Act of
1934, as amended (the “Exchange Act”) defines a “smaller reporting company” as an issuer that is not an investment
company, an asset-backed issuer, or a majority-owned subsidiary of a parent that is not a smaller reporting company and that:
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had a public float of less
than $75,000,000 as of the last business day of its most recently completed second fiscal quarter, computed by multiplying the aggregate
worldwide number of shares of its voting and non-voting common equity held by non-affiliates by the price at which the common equity
was last sold, or the average of the bid and asked prices of common equity, in the principal market for the common equity; or |
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in the case of an initial
registration statement under the United States Securities Act of 1933, as amended (the “Securities Act”) or Exchange
Act for shares of its common equity, had a public float of less than $75,000,000 as of a date within 30 days of the date of the filing
of the registration statement, computed by multiplying the aggregate worldwide number of such shares held by non-affiliates before
the registration plus, in the case of a Securities Act registration statement, the number of such shares included in the registration
statement by the estimated public offering price of the shares; or |
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in the case of an issuer
whose public float as calculated under paragraph (1) or (2) of this definition was zero, had annual revenues of less than $50,000,000
during the most recently completed fiscal year for which audited financial statements are available. |
As a smaller reporting company, we will not be
required and may not include a Compensation Discussion and Analysis section in our proxy statements; we will provide only two years of
financial statements; and we need not provide the table of selected financial data. We also will have other “scaled” disclosure
requirements that are less comprehensive than issuers that are not smaller reporting companies which could make our Common Shares less
attractive to potential investors, which could make it more difficult for our shareholders to sell their shares.
SUMMARY OF THE OFFERING
| Common Shares offered by Selling
Shareholders and Certain Beneficial Owners |
|
Common Shares, including: |
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● 20,408,163
shares of common stock that we may issue to Peak One pursuant to put notices under the Equity Purchase Agreement |
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● 150,000
shares equally issued as Commitment Shares to Peak One and Peak One Investments, LLC |
| Common Shares outstanding before
the offering |
|
200,435,331
Common Shares as of the date hereof. |
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|
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| Offering Price |
|
The selling stockholders
may sell all or a portion of the shares being offered pursuant to this prospectus at fixed prices, at prevailing market prices at
the time of sale, at varying prices, or at negotiated prices. |
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|
| Use of proceeds |
|
We will not receive any
proceeds from the sale of the shares of our common stock by the Selling Stockholders. However, we will receive proceeds from receive
cash proceeds from Put Notices we issue to Peak One Opportunity Fund pertaining to the 20,408,163 shares being registered on behalf
of Selling Shareholder Peak One. |
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| OTC Trading Symbol |
|
CRYM |
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| Risk Factors |
|
The Common Shares offered
hereby involves a high degree of risk and should not be purchased by investors who cannot afford the loss of their entire investment.
See “Risk Factors”. |
Equity Purchase Agreement (“EPA”)
with Peak One Opportunity Fund
On January 6, 2021, we entered into the EPA with
Peak One and Peak One Investments (also referred to herein as the “Investor). Although we are not required to sell shares under
the EPA, the EPA gives us the option to sell up to an aggregate of $10,000,000 worth of our common stock to Peak One (the “Maximum
Commitment Amount”), in increments, over the period ending on the Commitment Period (the Commitment Period is mean the period commencing
on the Execution Date, and ending on the earlier of (i) the date on which the Investor shall have purchased Put Shares equal to the Maximum
Commitment Amount, (ii) 36 months after the initial effectiveness of the Registration Statement, (iii) our written notice of termination
to the Investor, (iv) the Registration Statement is no longer effective, or (v) the date that, pursuant to or within the meaning of any
Bankruptcy Law, the Company commences a voluntary case or any Person commences a proceeding against the Company, a Custodian is appointed
for the Company or for all or substantially all of its property or the Company makes a general assignment for the benefit of its creditors.
Additionally, we are required to issue Commitment Fees of 150,000 Shares each to Peak One and Peak One Investments.
There is no assurance the market price of our common stock will increase
in the future. Dependent upon the share price, the number of common shares that remain issuable may be insufficient to allow us to access
the full amount contemplated under the EPA. If the bid/ask spread remains the same, we will be unable to place puts for the full commitment
under the EPA. Based on the closing trading price of our common stock on April 22, 2022 of $0.49, the registration statement covers the
offer and possible sale 20,708,163 shares to Peak One, which includes the 150,000 Common Stock Commitment Fee Shares we issued to each
Peak One and Peak One Investments on January 6, 2021 for an aggregate of 300,000 Commitment Fee Shares.
During the Commitment Period, we may, in our
sole discretion, deliver a Put Notice to Peak One stating the dollar amount we intend to sell to Peak One on a designated closing date.
The purchase price of our Common Stock will be set at eighty-nine percent (89%) of the Market Price on such date on which the Purchase
Price is calculated. The Market Price is defined in the EPA as the lesser of the (i) closing bid price of the Common Stock on the Principal
Market on the Trading Day immediately preceding the respective Put Date, or (ii) the lowest closing bid price of the Common Shares on
the Principal Market for any Trading Day during the Valuation Period. The Valuation Period is defined as the period of seven (7) Trading
Days immediately following the Clearing Date associated with the applicable Put Notice. The Valuation Period begins on the first Trading
Day following the Clearing Date.
We are not entitled to deliver a Put Notice and
Peak One is not obligated to purchase any Put Shares at a Closing unless all of the following conditions are met:
| 1. | A registration statement has been declared
effective and remains effective (or a post-effective registration statement, if needed, has
been filed and declared effective). |
| 2. | We maintain and continue our stock quotation
on the Principal Market and the trading of our common stock shall not have been suspended
by the SEC, the Principal Market, or FINRA. |
| 3. | We have performed, satisfied and completed
in all material respects with all covenants, agreements and conditions of the EPA to be performed,
satisfied or complied with by us. |
| 4. | The issuance of the shares has not violated
any shareholder approval requirements of Principal Markets. |
| 5. | The lowest trading price of our common
stock in the 10 trading days preceding the respective Put Date must exceed $0.001 per share. |
| 6. | The issuance of the Put Shares shall not
exceed the Exchange Cap; Exchange Cap is defined as if when the issuance of the Put Shares
exceeds the aggregate number of common stock shares which we may issue without breaching
our obligations under the rules and regulations of the Principal Market. |
| 7. | Since the date of filing of our most recent
SEC Document, no event that had or is reasonably likely to have a Material Adverse Effect
has occurred. |
| 8. | The number of Put Shares then to be purchased
by the Investor shall not exceed the number of such shares that, when aggregated with all
other shares of Common Shares then owned by the Investor beneficially or deemed beneficially
owned by the Investor, would result in the Investor owning more than the Beneficial Ownership
Limitation, as determined in accordance with Section 16 of the Securities Exchange Act of
1934 and the regulations promulgated thereunder. |
| 9. | We shall have no knowledge of any event
more likely than not to have the effect of causing the Registration Statement to be suspended
or otherwise ineffective (which event is more likely than not to occur within the fifteen
(15) Trading Days following the Trading Day on which such Put Notice is deemed delivered). |
| 10. | Our Common Shares must be DWAC Eligible. |
| 11. | All reports, schedules, registrations,
forms, statements, information and other documents required to have been filed by the Company
with the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934
shall have been filed with the SEC within the applicable time periods prescribed for such
filings under the Securities Exchange Act of 1934. |
| 12. | We shall have reserved 100% of the Required
Minimum for the Investor’s benefit under this Agreement and satisfied the reserve requirements
with respect to all other contracts between us and the Investor. |
If any of the events described above occurs during
a pricing period, then Peak One shall have no obligation to purchase the shares delivered in the Put Notice.
Neither Peak One nor any of its affiliates are
permitted to execute any short sales involving our common stock, during the period commencing on the Execution Date of the EPA, January
6, 2021, and continuing through the end of the Commitment Period, however, sales of our common stock by Peak One after delivery of a
put notice of such number of shares reasonably expected to be purchased by Peak One under a put will not be deemed short sales.
As we Put on the Equity Line pursuant to the
EPA, shares of our common stock will be sold into the market by Peak One. The sale of these shares could cause our stock price to decline.
If our stock price declines and we issue more puts, more shares will come into the market, which could cause a further decline in our
stock price. We determine when and whether to issue a put to Peak One, so we will know precisely both the stock price used as the reference
point, and the number of shares issuable to Peak One upon such exercise. You should be aware that there is an inverse relationship between
the market price of our common stock and the number of shares to be issued under the EPA. We have no obligation to utilize the full amount
available under the EPA and all determinations regarding the execution of a put provision remains solely in the discretion of our company.
We paid to Peak One and Peak One Investments
a commitment fee of 150,000 shares each for entering into the EPA, for aggregate Commitment Fee Shares of 300,000 equal to $60,000 calculated
using a per share closing price of $0.20 as of January 6, 2021, the effective date of the EPA.
The EPA also provides for indemnification of
Peak One and its affiliates in the event that Peak One incurs losses, liabilities, obligations, claims, contingencies, damages, costs
and expenses related to a breach by us of any of our representations and warranties under the EPA or the other related transaction documents
or any action instituted against Peak One or its affiliates due to the transactions contemplated by the EPA or other transaction documents,
subject to certain limitations. The Registration Rights Agreement indemnifies Peak One for the aggregate in losses, claims, damages liabilities,
judgements, fines, penalties, charges, costs, reasonable attorneys’ fees, amounts paid in settlement, incurred in investigating,
preparing or defending any action, claim, suit inquiry, proceeding, investigation or appeal taken from the foregoing by or before any
court or governmental, administrative, or other regulatory agency, body or the SEC, to which the Company may become based upon any material
violation by Peak One of the Securities Act of 1933, the Securities Exchange Act of 1934, state securities laws relating to the offer
or sale of the Registrable Securities pursuant to the Registration Statement.
The issuances of the Commitment Shares and the
sale of the Shares to Peak One under the EPA are exempt from registration under the Securities Act pursuant to the exemption for transactions
by an issuer not involving any public offering under Section 4(a)(2) of and Regulation D under the Securities Act.
At an assumed purchase price of $0.4361 (equal to 89% of the closing
price of our common stock of $0.49 on April 22, 2022, and assuming the sale by us to Peak One of all of the 20,708,163 Shares, or approximately
9.4% of our issued and outstanding common stock, and including the issuance of such shares to be purchased and Commitment Fee Shares to
be issued, being registered hereunder pursuant to put notices under the EPA, we would receive only approximately $8.9 million in gross
proceeds. Furthermore, we may receive substantially less than this $10,000,000 in gross proceeds from the financing due to our share price,
discount to market and other factors relating to our common stock. If we elect to issue and sell more than the 20,708,163 Shares offered
under this prospectus to Peak One, which we have the right, but not the obligation to do, we must first register for resale under the
Securities Act any such additional shares, which could cause additional dilution to our stockholders. Based on the above assumptions,
we would be required to register an additional approximately 2,522,357 shares of our common stock to obtain the balance of approximately
$1.1 million of the Total Commitment that would be available to us under the EPA. We currently have authorized and available for issuance
of 500,000,000 shares of our common stock pursuant to our charter.
The number of shares of our common stock ultimately
offered for resale by Peak One is dependent upon a number of factors, including the extent to which we ultimately issue and sell to Peak
One under the EPA. The following table sets forth the total number of Shares that would be issued at varying purchase prices for us to
receive the entire $10,000,000 in gross proceeds under the EPA (without accounting for certain fees and expenses):
Assumed Average Purchase Price(1) | | |
Total Number of Shares to be Issued if Full Purchase | | |
Percentage of Currently Outstanding Shares (1) | | |
Gross proceeds from the Sale of Shares to Peak One Under the EPA | |
| $ | 0.1090 | (2) | |
| 91,722,082 | | |
| 45.8 | % | |
| 10,000,000 | |
| $ | 0.2181 | (3) | |
| 45,861,041 | | |
| 22.9 | % | |
| 10,000,000 | |
| $ | 0.3271 | (4) | |
| 30,574,027 | | |
| 15.3 | % | |
| 10,000,000 | |
| $ | 0.5451 | (5) | |
| 18,344,416 | | |
| 9.2 | % | |
| 10,000,000 | |
| $ | 0.6542 | (6) | |
| 15,287,013 | | |
| 7.6 | % | |
| 10,000,000 | |
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(1) |
The denominator is based on 200,435,331 shares outstanding as of April 22, 2022, including 300,000 Initial Commitment Shares comprised of 150,000 issued each to Peak One and Peak One Investments as consideration for its commitment to purchase our common stock pursuant to the EPA. The numerator is based on the number of Shares issuable to Peak One under the EPA at the corresponding assumed average purchase price set forth in the adjacent column. |
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(2) |
Assumed average purchase price of $0.1090 is equal to 89% of 25% of the closing sale price of our common stock of $0.49 on April 22, 2022. |
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(3) |
Assumed average purchase price of $0.2181 is equal to
89% of 50% of the closing sale price of our common stock of $0.49 on April 22, 2022. |
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(4) |
Assumed average purchase price of $0.3271 is equal to 89% of 75% of the closing sale price of our common stock of $0.49 on April 22, 2022. |
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(5) |
Assumed average purchase price of $0.5451 is equal to 89% of 125% of the closing sale price of our common stock of $0.49 on April 22, 2022. |
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(6) |
Assumed average purchase price of $0.6542 is equal to
89% of 150% of the closing sale price of our common stock of $0.49 on April 22, 2022. |
The following table sets forth the amount of proceeds we would receive
from Peak One from the sale of Shares under the EPA that are registered in this offering at varying purchase prices (without accounting
for certain fees and expenses) in the event Peak One is restricted to hold no more than 4.99% of the issued and outstanding shares of
common stock, including 300,000 Initial Commitment Shares comprised of 150,000 issued each to Peak One and Peak One Investments as consideration
for its commitment to purchase our common stock pursuant to the EPA:
Assumed Average Purchase Price | | |
Number of Registered Shares to be Issued | | |
Percentage of Currently Outstanding Shares (1) | | |
Proceeds from the Sale of Shares to Peak One Under the EPA | |
| $ | 0.1090 | (2) | |
| 10,001,723 | | |
| 4.99 | % | |
$ | 1,090,187 | |
| $ | 0.2181 | (3) | |
| 10,001,723 | | |
| 4.99 | % | |
$ | 2,181,375 | |
| $ | 0.3271 | (4) | |
| 10,001,723 | | |
| 4.99 | % | |
$ | 3,271,563 | |
| $ | 0.5451 | (5) | |
| 10,001,723 | | |
| 4.99 | % | |
$ | 5,451,939 | |
| $ | 0.6542 | (6) | |
| 10,001,723 | | |
| 4.99 | % | |
$ | 6,543,127 | |
| |
(1) |
The denominator is based on 200,435,331 shares outstanding as of April 27, 2022, including 300,000 Initial Commitment Shares comprised of 150,000 issued each to Peak One and Peak One Investments as consideration for its commitment to purchase our common stock pursuant to the EPA. The numerator is based on the number of Shares issuable to Peak One under the EPA at the corresponding assumed average purchase price set forth in the adjacent column. |
| |
(2) |
Assumed average purchase price of $0.1090 is equal to 89% of 25% of the closing sale price of our common stock of $0.49 on April 22, 2022. |
| |
(3) |
Assumed average purchase price of $0.2181 is equal to
89% of 50% of the closing sale price of our common stock of $0.49 on April 22, 2022. |
| |
(4) |
Assumed average purchase price of $0.3271 is equal to 89% of 75% of the closing sale price of our common stock of $0.49 on April 22, 2022. |
| |
(5) |
Assumed average purchase price of $0.5451 is equal to 89% of 125% of the closing sale price of our common stock of $0.49 on April 22, 2022. |
| |
(6) |
Assumed average purchase price of $0.6542 is equal to
89% of 150% of the closing sale price of our common stock of $0.49 on April 22, 2022. |
SUMMARY
OF FINANCIAL INFORMATION
The following selected financial information
is derived from the Financial Statements appearing elsewhere in this Prospectus and should be read in conjunction with the Financial
Statements, including the notes thereto, appearing elsewhere in this Prospectus. The amounts below are expressed in United States dollars.
| | |
As of or For the Year Ended | |
| | |
December 31, | | |
December 31, | |
| | |
2021 | | |
2020 | |
| | |
(audited) | | |
(audited) | |
| Operating Statement Data: | |
| | | |
| | |
| Revenues | |
$ | - | | |
$ | 781,455 | |
| Expenses | |
| 10,134,642 | | |
| 7,641,898 | |
| Net (loss) income from continuing operations | |
| (10,134,642 | ) | |
| (6,860,443 | ) |
| Net (loss) income | |
| (12,859,643 | ) | |
| (11,815,907 | ) |
| Net loss from continuing operations per common share | |
| (0.06 | ) | |
| (0.07 | ) |
| Net loss per common share | |
| (0.08 | ) | |
| (0.12 | ) |
| Balance Sheet Data: | |
| | | |
| | |
| Total assets | |
| 15,583,822 | | |
| 7,798,154 | |
| Total liabilities | |
| 2,059,502 | | |
| 4,192,860 | |
| Common shares issued and outstanding | |
| 196,949,801 | | |
| 97,005,817 | |
| Shareholders’ equity | |
| 13,524,320 | | |
| 3,605,294 | |
RISK
FACTORS
You should carefully consider the risks described
below together with all other information included in our public filings before making an investment decision with regard to our securities.
The statements contained in or incorporated into this Prospectus that are not historic facts are forward- looking statements are subject
to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward- looking
statements. While the risks described below are the ones we believe are most important for you to consider, these risks are not the only
ones that we face. If any of the following events described in these risk factors actually occurs, our business, financial condition
or results of operations could be harmed. In that case, the trading price of our Common Shares could decline, and you may lose all or
part of your investment.
General Risk Factors
We have a limited operating history in
an evolving industry, which makes it difficult to accurately assess our future growth prospects.
Although we believe our management team has extensive
knowledge of the cannabis industry and closely monitors changes in legislation, we also intend to provide equipment and services in an
evolving industry that may not develop as expected. Furthermore, our operations continue to evolve under our business plan as we continually
assess new strategic opportunities for our business within our industry. Assessing the future prospects of our business is challenging
in light of both known and unknown risks and difficulties we may encounter. Growth prospects in our industry can be affected by a wide
variety of factors including:
| |
● |
Competition from other
similar companies; |
| |
● |
Regulatory limitations
on the industry we primarily supply to (cannabis agriculture) we can offer and markets we can serve; |
| |
● |
Other changes in the regulation
of cannabis and hemp grow, harvesting and processing; |
| |
● |
Changes in cannabis industry
demand and consumer behavior, which may affect the size of the agricultural businesses we intend to serve; |
| |
● |
Our ability to access adequate
financing on reasonable terms and our ability to raise additional capital in order to fund our operations; |
| |
● |
Challenges with new machinery,
services and markets; and |
| |
● |
Fluctuations in the commodities
markets. |
We may not be able to successfully address these
factors, which could negatively impact our growth, harm our business and cause our operating results to be worse than expected.
Our success depends on the introduction
of new products, which requires substantial expenditures.
Our long-term results depend upon our ability
to introduce and market new products successfully. The success of our new products will depend on a number of factors, including:
| |
● |
the efficiency of our suppliers
in providing component parts and of our contract manufacturing facilities in producing final products; and |
| |
● |
the performance and quality
of our products relative to those of our competitors. |
We cannot predict the level of market acceptance
or the amount of market share our new products will achieve. We may experience delays in the introduction of new products. Any delays
or other problems with our new product launches will adversely affect our performance. In addition, introducing new products can result
in decreases in revenues from our existing products. We expect to make substantial investments in product development and refinement.
We may need more funding for product development and refinement than is readily available, which could adversely affect our business.
We face significant competition, and, if
we are unable to compete successfully against other agricultural equipment manufacturers, we will lose customers and our net sales and
profitability will decline.
The agricultural equipment business is highly
competitive, particularly in the United States. Established and substantially larger agricultural equipment manufacturers, with substantially
greater financial and other resources, have the capability to compete with us successfully. Our competitors may substantially increase
the resources devoted to the development and marketing of products that compete with our products. In addition, competitive pressures
in the agricultural equipment business may affect the market prices of new and used equipment, which, in turn, may adversely affect our
performance.
We will require significant additional
capital to fund our business plan.
The Company will be required to expend significant
funds to implement its business plan. The Company anticipates that it will be required to make substantial capital expenditures for the
manufacture of its equipment.
The Company’s ability to obtain necessary
funding for these purposes, in turn, depends upon a number of factors, including the status of the national and worldwide economy and
the financial markets and the availability of capital. Capital markets worldwide were adversely affected by substantial losses by financial
institutions, caused by investments in asset-backed securities and remnants from those losses continue to impact the ability for the
Company to raise capital. The Company may not be successful in obtaining the required financing or, if it can obtain such financing,
such financing may not be on terms that are favorable to us.
The Company’s inability to access sufficient
capital for its operations could have a material adverse effect on its financial condition, results of operations, or prospects. Sales
of substantial amounts of securities may have a highly dilutive effect on the Company’s ownership or share structure. Sales of
a large number of shares of the Company’s Common Shares in the public markets, or the potential for such sales, could decrease
the trading price of the Common Shares and could impair the Company’s ability to raise capital through future sales of Common Shares.
International, national and regional trade
laws, regulations and policies and government farm programs and policies could significantly impair our profitability and growth prospects.
International, national and regional laws, regulations
and policies directly or indirectly related to or restricting the import and export of the Company’s products, services and technology,
including protectionist policies in particular jurisdictions or for the benefit of favored industries or sectors, could harm the Company’s
ability to grow in international markets and subject the Company to civil and criminal sanctions. Restricted access to global markets
impairs the Company’s ability to export goods and services from its various manufacturing locations around the world, and limits
the ability to access raw materials and high-quality parts and components at competitive prices on a timely basis. Trade restrictions
could limit the Company’s ability to capitalize on future growth opportunities in international markets and impair the Company’s
ability to expand the business by offering new technologies, products and services. These restrictions may affect the Company’s
competitive position. Additionally, changes in government farm programs and policies, including restrictions on cannabis and hemp cultivation
and processing, can significantly influence demand for agricultural equipment.
Changing demand for certain agricultural products
could have an effect on the price of farming output and consequently the demand for certain of our equipment and could also result in
higher research and development costs related to changing machine requirements.
Negative economic conditions and outlook
can materially weaken demand for our equipment and services, limit access to funding and result in higher funding costs.
The demand for the Company’s products and
services can be significantly reduced in an economic environment characterized by high unemployment, cautious consumer spending, lower
corporate earnings, U.S. budget issues and lower business investment. Negative or uncertain economic conditions causing the Company’s
customers to lack confidence in the general economic outlook can significantly reduce their likelihood of purchasing the Company’s
equipment. If negative economic conditions affect the overall farm economy, there could be a similar effect on the Company’s agricultural
equipment sales. In addition, uncertain or negative outlook with respect to ongoing U.S. budget issues as well as general economic conditions
and outlook can cause significant changes in market liquidity conditions. Such changes could impact access to funding and associated
funding costs, which could reduce the Company’s earnings and cash flows. Such changes could affect the ability of the Company’s
customers, contract manufacturers, suppliers and lenders to finance their respective businesses, to access liquidity at acceptable financing
costs, if at all, the availability of supplies, materials and manufacturing facilities and on the demand for the Company’s products.
We may encounter difficulties in fully
exploiting the assets we acquired from Cryocann USA Corp and may not fully achieve, or achieve within a reasonable time frame, expected
strategic objectives and other expected benefits of the acquisitions.
Our recent acquisition of Cryocann USA Corp assets
is expected to realize strategic and other benefits, including, among other things, the opportunity to enter the agricultural equipment
industry, identify customers and provide our customers with an appealing range of products and services. However, it is impossible to
predict with certainty whether, or to what extent, these benefits will be realized or whether we will be able to exploit the acquired
assets in a timely and effective manner. For example:
| |
● |
the costs of using the
assets in developing and manufacturing agricultural equipment may be higher than we expect and may require significant attention
from our management; |
| |
● |
the asset acquisition and
subsequent exploitation of the assets may result in as of yet unidentified liabilities, such as infringement of third parties’
intellectual property, environmental liabilities or liabilities for violations of laws, such as the FCPA, that we did not expect; |
| |
● |
our ability to successfully
carry out our growth strategies with the help of the acquired assets will be affected by, among other things, our ability to maintain
and enhance our relationships with potential customers, our ability to manufacture and distribution products, changes in the spending
patterns and preferences of customers and potential customers, fluctuating economic and competitive conditions and our ability to
retain their key personnel; |
| |
● |
litigation or other claims
in connection with the acquired assets, including claims from Cryocann USA Corp customers, current or former shareholders or other
third parties; and |
| |
● |
our due diligence of Cryocann
USA Corp may have failed to identify all liabilities associated with the acquisition. Further, the acquired assets consisted primarily
of intellectual property, which does not have a market value, and we may not have correctly assessed the relative benefits and detriments
of making the acquisition and may have pay acquisition consideration exceeding the value of the acquired assets. |
Further acquisitions may be necessary to realize
our overall corporate strategy. There can be no assurance that we will be able to identify appropriate acquisition targets, successfully
acquire identified targets or successfully integrate the business of acquired companies or the assets acquired to realize the full, anticipated
benefits of such acquisitions. Our ability to address these issues will determine the extent to which we are able to successfully integrate,
exploit and develop the acquired assets and to realize the expected benefits of the Cryocann USA Corp. transactions. Our failure to do
so could have a material adverse effect on our performance following the transaction
Our business results depend largely on
its ability to understand its customers’ specific preferences and requirements, and to develop, manufacture and market products
that meet customer demand.
The Company’s ability to match new product
offerings to customers’ anticipated preferences for different types and sizes of equipment and various equipment features and functionality,
at affordable prices, is critical to its success. This requires a thorough understanding of the Company’s potential customers and
their needs, as well as an understanding of the cannabis and hemp cultivation dynamics and of other agricultural commodities cultivation
dynamics. Failure to deliver quality products that meet customer needs at competitive prices ahead of competitors could have a significant
adverse effect on the Company’s business.
Our business may be directly and indirectly
affected by unfavorable weather conditions or natural disasters that reduce agricultural production and demand for agriculture equipment.
Poor or unusual weather conditions can significantly
affect the purchasing decisions of the Company’s potential customers. Natural calamities such as regional floods, hurricanes or
other storms, and droughts can have significant negative effects on agricultural production. The resulting negative impact on farm income
can strongly affect demand for agricultural equipment.
Changes in the availability and price of
certain raw materials, components and whole goods could result in production disruptions or increased costs and lower profits on sales
of our products.
The Company requires access to various materials
and components at competitive prices to manufacture and distribute its products. Changes in the availability and price of these materials
and components, which have fluctuated in the past and are more likely to fluctuate during times of economic volatility, can significantly
increase the costs of production which could have a material negative effect on the profitability of the business, particularly if the
Company, due to pricing considerations or other factors, is unable to recover the increased costs from its customers. The Company relies
on suppliers and contract manufacturers to acquire materials and components to manufacture its products. Supply chain and contract manufacturing
disruptions due to supplier or contract manufacturer financial distress, capacity constraints, business continuity, quality, delivery
or disruptions due to weather-related or natural disaster events could affect the Company’s operations and profitability.
In determining the required quantities of our
products and the manufacturing schedule, we must make significant judgments and estimates that are not based on any historical data.
Because of the inherent nature of estimates, there could be significant differences between our estimates and the actual amounts of products
we require, which could harm our business and results of operations.
The agricultural equipment industry is
highly seasonal, and seasonal fluctuations may significantly impact our performance.
The agricultural equipment business is highly
seasonal, which may cause our quarterly results and our cash flow to fluctuate during the year. Farmers generally purchase agricultural
equipment seasonally in conjunction with the harvesting seasons. Seasonal fluctuations can significantly impact our performance in a
specific quarter, or overall.
If we are unable to hire and retain key
personnel, we may not be able to implement our business plan and our business may fail.
Our future success depends to a large extent
on our ability to attract, hire, train and retain qualified managerial, operational and other personnel. We face significant competition
for qualified and experienced employees in our industry and from other industries and, as a result, we may be unable to attract and retain
the personnel needed to successfully conduct and grow our operations. Additionally, key personnel, including members of management, may
leave and compete against us. At present, we do not have all the necessary personnel to carry out our business plans. If we are unable
to hire and retain key personnel, our business will be materially adversely affected.
Our growth is highly dependent on the U.S.
cannabis and hemp markets. New regulations causing licensing shortages and future regulations may create other limitations that decrease
the demand for our products. General regulations at state and federal in the future may adversely impact our business.
The base of cannabis growers in the U.S. has
grown over the past 20 years since the legalization of cannabis for medical uses in states such as California, Colorado and Washington.
The U.S. cannabis market is still in its infancy and early adopter states such as California, Colorado and Washington represent a large
portion of historical industry revenues. The U.S. cannabis cultivation market is expected to be one of the fastest growing industries
in the U.S. over the next five years. If the U.S. cannabis cultivation market does not grow as expected, our business, financial condition
and results of operations could be adversely impacted. The California cannabis cultivation market is expected to be one of the fastest
growing industries in California over the next five years. If the California cannabis cultivation market does not grow as expected, our
business, financial condition and results of operations could be adversely impacted.
Cannabis remains illegal under U.S. federal law,
with cannabis listed as a Schedule I substance under the United States Controlled Substances Act of 1970 (the “CSA”). Notwithstanding
laws in various states permitting certain cannabis activities, all cannabis activities, including possession, distribution, processing
and manufacturing of cannabis and investment in, and financial services or transactions involving proceeds of, or promoting such activities
remain illegal under various U.S. federal criminal and civil laws and regulations, including the CSA, as well as laws and regulations
of several states that have not legalized some or any cannabis activities to date. Compliance with applicable state laws regarding cannabis
activities does not protect us from federal prosecution or other enforcement action, such as seizure or forfeiture remedies, nor does
it provide any defense to such prosecution or action. Cannabis activities conducted in or related to conduct in multiple states may potentially
face a higher level of scrutiny from federal authorities. Penalties for violating federal drug, conspiracy, aiding, abetting, bank fraud
and/or money laundering laws may include prison, fines, and seizure/forfeiture of property used in connection with cannabis activities,
including proceeds derived from such activities.
We are not currently subject directly to any
state laws or regulations controlling participants in the legal cannabis industry. However, regulation of the cannabis industry does
impact our potential customers in the cultivation industry and, accordingly, there can be no assurance that changes in regulation of
the industry and more rigorous enforcement by federal authorities will not have a material adverse effect on us.
Legislation and regulations pertaining to the
use and cultivation of cannabis are enacted on both the state and federal government level within the United States. As a result, the
laws governing the cultivation and use of cannabis may be subject to change. Any new laws and regulations limiting the use or cultivation
of cannabis and any enforcement actions by state and federal governments could indirectly reduce demand for our products and may impact
our current and planned future operations.
Evolving federal and state laws and regulations
pertaining to the use or cultivation of cannabis, as well active enforcement by federal or state authorities of the laws and regulations
governing the use and cultivation of cannabis may indirectly and adversely affect our business, our revenues and our profits. Local,
state and federal cannabis laws and regulations are broad in scope and subject to evolving interpretations, which could require the end
users of certain of our products or us to incur substantial costs associated with compliance or to alter our respective business plans.
In addition, violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse
effect on our results of operation and financial condition.
Certain of our products may be purchased for
use for agricultural products other than cannabis and/or be subject to varying, inconsistent, and rapidly changing laws, regulations,
administrative practices, enforcement approaches, judicial interpretations, future scientific research and public perception.
The public’s perception of cannabis may
significantly impact the cannabis industry’s success. Both the medical and adult-use of cannabis are controversial topics, and
there is no guarantee that future scientific research, publicity, regulations, medical opinion, and public opinion relating to cannabis
will be favorable. The cannabis industry is an early-stage business that is constantly evolving with no guarantee of viability. Among
other things, such a shift in public opinion could cause state jurisdictions to abandon initiatives or proposals to legalize cultivation
and sale of cannabis or adopt new laws or regulations restricting or prohibiting the cultivation of cannabis where it is now legal, thereby
limiting the potential customers who are engaged in the cannabis industry.
Demand for our products may be negatively impacted
depending on how laws, regulations, administrative practices, enforcement approaches, judicial interpretations, and consumer perceptions
develop. We cannot predict the nature of such developments or the effect, if any, that such developments could have on our business.
Our indirect involvement in the cannabis
industry could affect the public’s perception of us and be detrimental to our reputation.
Damage to our reputation can be the result of
the actual or perceived occurrence of any number of events, and could include any negative publicity, whether true or not. Cannabis has
often been associated with various other narcotics, violence and criminal activities, the risk of which is that our retailers and resellers
that transact with cannabis businesses might attract negative publicity. There is also risk that the action(s) of other participants,
companies and service providers in the cannabis industry may negatively affect the reputation of the industry as a whole and thereby
negatively impact our reputation. The increased use of social media and other web-based tools used to generate, publish and discuss user-generated
content and to connect with other users has made it increasingly easier for individuals and groups to communicate and share opinions
and views with regard to cannabis companies and their activities, whether true or not and the cannabis industry in general, whether true
or not. We do not ultimately have direct control over how the cannabis industry and its suppliers is perceived by others. Reputation
loss may result in decreased investor confidence, increased challenges in developing and maintaining community relations and an impediment
to our overall ability to advance its business strategy and realize on its growth prospects, thereby having a material adverse impact
on our business.
Businesses involved in the cannabis industry,
and investments in such businesses, are subject to a variety of laws and regulations related to money laundering, financial recordkeeping
and proceeds of crimes.
We sell our products through third party retailers
and resellers. Investments in the U.S. cannabis industry are subject to a variety of laws and regulations that involve money laundering,
financial recordkeeping and proceeds of crime, including the BSA, as amended by the Patriot Act, other anti-money laundering laws, and
any related or similar rules, regulations or guidelines, issued, administered or enforced by governmental authorities in the United States.
In February 2014, the Financial Crimes Enforcement Network of the Treasury Department issued a memorandum (the “FinCEN Memo”)
providing guidance to banks seeking to provide services to cannabis businesses. The FinCEN Memo outlines circumstances under which banks
may provide services to cannabis businesses without risking prosecution for violation of U.S. federal money laundering laws. It refers
to supplementary guidance that Deputy Attorney General Cole issued to U.S. federal prosecutors relating to the prosecution of U.S. money
laundering offenses predicated on cannabis violations of the CSA and outlines extensive due diligence and reporting requirements, which
most banks have viewed as onerous. The FinCEN Memo currently remains in place, but it is unclear at this time whether the current administration
will continue to follow the guidelines of the FinCEN Memo. Such requirements could negatively affect the ability of certain of the end
users of our products to establish and maintain banking connections.
We are subject to extensive anti-corruption
laws and regulations.
The Company’s foreign operations, if and
when established, must comply with all applicable laws, which may include the U.S. Foreign Corrupt Practices Act (FCPA), the UK Bribery
Act or other anti-corruption laws. These anti-corruption laws generally prohibit companies and their intermediaries from making improper
payments or providing anything of value to improperly influence government officials or private individuals for the purpose of obtaining
or retaining a business advantage regardless of whether those practices are legal or culturally expected in a particular jurisdiction.
Recently, there has been a substantial increase in the global enforcement of anti-corruption laws. Although the Company has a compliance
program in place designed to reduce the likelihood of potential violations of such laws, violations of these laws could result in criminal
or civil sanctions and have an adverse effect on the Company’s reputation, business and results of operations and financial condition.
Our business,
results of operations and financial condition may be adversely affected by pandemic infectious diseases, particularly the recent novel
coronavirus strain known as COVID-19.
Pandemic infectious
diseases, such as the current COVID-19 strains, may adversely impact our business, consolidated results of operations and financial condition.
The global spread of COVID-19 has created significant volatility and uncertainty and economic disruption. The extent to which COVID-19
impacts our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately
predict, including: the duration and scope of the pandemic; governmental, business and individuals’ actions that have been and
continue to be taken in response to the pandemic; the impact of the pandemic on economic activity and actions taken in response; the
effect on our customers and customer demand our services, products and solutions; our ability to sell and provide its services and solutions,
including as a result of travel restrictions and people working from home; the ability of our customers to pay for our services and solutions;
and any closures of our offices and the offices and facilities of our customers. COVID-19, as well as measures taken by governmental
authorities to limit the spread of this virus, may interfere with the ability of our employees, suppliers, and other business providers
to carry out their assigned tasks or supply materials or services at ordinary levels of performance relative to the requirements of our
business, which may cause us to materially curtail certain of our business operations. We require additional funding and such funding
may not be available to us as a result of contracting capital markets resulting from the COVID-19 pandemic. Any of these events could
materially adversely affect our business, financial condition, results of operations and/or stock price.
Natural disasters, pandemic outbreaks or
other health crises could disrupt business and result in lower sales and otherwise adversely affect our financial performance.
The occurrence of one or more natural disasters,
climate change, pandemic outbreaks or other health crises (including but not limited to the COVID-19 outbreak), could adversely affect
our business and financial performance. If any of these events result in the closure of one or more of our dispensaries, extended sick
leave involving our personnel, or impact key suppliers, our operations and financial performance could be materially adversely affected
through an inability to provide other support functions to our stores and through lost sales. These events also could affect consumer
shopping patterns or prevent customers from reaching our dispensaries, which could lead to lost sales and higher markdowns, the temporary
lack of an adequate work force in a market, the temporary or long-term disruption of product availability in our dispensaries and the
temporary or long-term inability to obtain technology needed to effectively run our business.
Our business may be impacted by geopolitical
events, war, terrorism, and other related business interruptions.
War, terrorism, geopolitical uncertainties, and
other related business interruptions have caused and could cause damage or disruption to international commerce and the global economy,
and thus could have a material adverse effect on the Company, its suppliers, logistics providers, manufacturing vendors and customers.
The Company’s business operations are subject to interruption by, among others, disasters, whether as a result of war, refugee
crises, fire, power shortages, nuclear power plant accidents and other industrial accidents, terrorist attacks and other hostile acts,
labor disputes, and other events beyond its control. Such events could decrease demand for the Company’s products, make it difficult
or impossible for the Company to develop, prototype, make and deliver products to its customers or to receive components from its suppliers,
and create delays and inefficiencies in the Company’s supply chain. While the Company’s suppliers are expected to maintain
safe working environments and operations, an industrial accident could occur and could result in disruption to the Company’s business
and harm to the Company’s reputation. In any event of business interruption, the Company could incur significant losses, require
substantial recovery time and experience significant expenditures in order to resume operations.
Security breaches and other disruptions
to our information technology infrastructure could interfere with our operations and could compromise the Company’s and its customers’
and suppliers’ information, exposing us to liability that would cause the Company’s business and reputation to suffer.
In the ordinary course of business, the Company
relies upon information technology networks and systems, some of which are managed by third parties, to process, transmit and store electronic
information, and to manage or support a variety of business processes and activities, including supply chain, manufacturing, distribution,
invoicing and collection of payments from intermediaries or other purchasers or lessees of our equipment. We use information technology
systems to record, process and summarize financial information and results of operations for internal reporting purposes and to comply
with regulatory financial reporting, legal and tax requirements. Additionally, we collect and store sensitive data, including intellectual
property, proprietary business information and the proprietary business information of the Company’s customers and suppliers, as
well as personally identifiable information of our customers and employees, in third party data centers, “cloud” providers
and on information technology networks. The secure operation of these information technology networks, and the processing and maintenance
of this information is critical to the Company’s business operations and strategy. Such third parties, as well as the Company’s
information technology networks, cloud and infrastructure may be vulnerable to damage, disruptions or shutdowns due to attacks by hackers
or breaches due to employee error or malfeasance or other disruptions during the process of upgrading or replacing computer software
or hardware, power outages, computer viruses, telecommunication or utility failures or natural disasters or other catastrophic events.
The occurrence of any of these events could compromise the respective storage networks, data centers or cloud, and the information stored
there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in
legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information, disrupt operations,
and damage our reputation, which could adversely affect the Company’s business.
Our suppliers, contract manufacturers and
customers are subject to and affected by increasingly rigorous environmental, health and safety laws and regulations of federal,
state and local authorities in the U.S. and various regulatory authorities with jurisdiction over the Company’s operations. In
addition, private civil litigation on these subjects has increased, primarily in the U.S.
Enforcement actions arising from violations of
environmental, health and safety laws or regulations can lead to investigation and defense costs, and result in significant fines or
penalties. In addition, new or more stringent requirements of governmental authorities could prevent or restrict the Company’s
operations, or those of our suppliers and customers, require significant expenditures to achieve compliance and/or give rise to civil
or criminal liability. There can be no assurance that violations of such legislation and/or regulations, or private civil claims for
damages to property or personal injury arising from the environmental, health or safety impacts of our operations, or those of our suppliers
and customers, would not have consequences that result in a material adverse effect on our business, financial condition or results of
operations.
Increasingly stringent engine emission
standards could impact our ability to manufacture and distribute certain equipment, which could negatively affect business results.
The Company’s equipment operations must
meet increasingly stringent engine emission reduction standards, including USEPA, Interim Tier 4/Stage IIIb and Final Tier 4/Stage IV
non-road diesel emission requirements in the U.S. and European Union.
We may incur increased costs due to new
or more stringent greenhouse gas emission standards designed to address climate change and could be further impacted by physical effects
attributed to climate change on its facilities, suppliers and customers.
There is a growing political and scientific consensus
that emissions of greenhouse gases (GHG) continue to alter the composition of Earth’s atmosphere in ways that are affecting and
are expected to continue to affect the global climate. These considerations may lead to international, national, regional or local legislative
or regulatory responses in the future. Various stakeholders, including legislators and regulators, shareholders and non-governmental
organizations, as well as companies in many business sectors, including the Company, are considering ways to reduce GHG emissions. The
regulation of GHG emissions from certain stationary or mobile sources could result in additional costs to the Company or its suppliers
in the form of taxes or emission allowances, facilities improvements and energy costs, which would increase our operating costs through
higher contract manufacturing, utility, transportation and materials costs. Increased input costs and compliance-related costs could
also impact customer operations and demand for our equipment. Because the impact of any future GHG legislative, regulatory or product
standard requirements on our businesses and products is dependent on the timing and design of mandates or standards, the Company is unable
to predict its potential impact at this time.
Furthermore, the potential physical impacts of
climate change on our suppliers and customers and therefore on our operations are highly uncertain and will be particular to the circumstances
developing in various geographical regions. These may include long-term changes in temperature levels and water availability. These potential
physical effects may adversely impact the demand for the Company’s products and the cost, production, sales and financial performance
of the Company’s operations.
Our business increasingly is subject to
regulations relating to privacy and data protection, and if we violate any of those regulations, we could be subject to significant claims,
penalties and damages.
Increasingly, the United States, the European
Union and other governmental entities are imposing regulations designed to protect the collection, maintenance and transfer of personal
information. For example, the European Union adopted the General Data Protection Regulation (the “GDPR”) that imposes stringent
data protection requirements and greater penalties for non-compliance beginning in May 2018. The GDPR also protects a broader set of
personal information than traditionally has been protected in the United States and provides for a right of “erasure.” Other
regulations govern the collection and transfer of financial data and data security generally. These regulations generally impose penalties
in the event of violations. While we attempt to comply with all applicable cybersecurity regulations, their implementation is complex,
and, if we are not successful, we may be subject to penalties and claims for damages from regulators and the impacted individuals.
Risks Relating to Our Intellectual Property
Recent laws make it difficult to predict
how patents will be issued or enforced in our industry.
Changes in either the patent laws or interpretation
of the patent laws in the United States and other countries may have a significant impact on our ability to protect our technology and
enforce our intellectual property rights. There have been numerous recent changes to the patent laws and to the rules of the United States
Patent and Trademark Office (the “USPTO”), which may have a significant impact on our ability to protect our technology and
enforce our intellectual property rights. For example, the Leahy-Smith America Invents Act, which was signed into law in 2011, includes
a transition from a “first-to-invent” system to a “first-to-file” system, and changes the way issued patents
can be challenged. Certain changes, such as the institution of inter partes review and post-grant and derivation proceedings, came into
effect in 2012. Substantive changes to patent law associated with the Leahy-Smith America Invents Act may affect our ability to obtain
patents, and, if obtained, to enforce or defend them in litigation or inter partes review, or post-grant or derivation proceedings, all
of which could harm our business.
We may not be able to adequately protect
our intellectual property and other proprietary rights that are material to our business.
Our ability to compete effectively depends in
part on our rights to trademarks, patents and other intellectual property rights we own. We have not sought to register every one of
our intellectual properties either in the United States or in every country in which such intellectual property may be used. Furthermore,
because of the differences in foreign trademark, patent and other intellectual property or proprietary rights laws, we may not receive
the same protection in other countries as we would in the United States with respect to the registered brand names and issued patents
we hold. If we are unable to protect our intellectual property, proprietary information and/or brand names, we could suffer a material
adverse effect on our business, financial condition and results of operations.
Litigation may be necessary to enforce our intellectual
property rights and protect our proprietary information, or to defend against claims by third parties that our products or services infringe
their intellectual property rights. Any litigation or claims brought by or against us could result in substantial costs and diversion
of our resources. A successful claim of trademark, patent or other intellectual property infringement against us, or any other successful
challenge to the use of our intellectual property, could subject us to damages or prevent us from providing certain products or services,
or using certain of our recognized brand names, which could have a material adverse effect on our business, financial condition and results
of operations.
Obtaining and maintaining our patent protection
depends on compliance with various procedural, document submissions, fee payment and other requirements imposed by governmental patent
agencies, and our patent protection could be reduced or eliminated for noncompliance with these requirements.
Periodic maintenance or annuity fees on any issued
patents are due to be paid to the USPTO, and/or foreign patent agencies in several stages over the lifetime of the patent. The USPTO
and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payments and other
similar provisions during the patent application process. While an inadvertent or unintentional lapse can in many cases be cured by payment
of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment
or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance
events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond
to official actions within prescribed time limits, nonpayment of fees and failure to properly legalize and submit formal documents. If
we or our licensors fail to maintain the patents and patent applications covering our products, our competitors might be able to enter
the market, which would have a material adverse effect on our business.
From time to time, we may need to rely on licenses
to proprietary technologies, which may be difficult or expensive to obtain or we may lose certain licenses which may be difficult to
replace, harming our competitive position.
We may need to obtain licenses to patents and
other proprietary rights held by third parties to develop, manufacture and market our products, if, for example, we sought to develop
our products, in conjunction with any patented technology. If we are unable to timely obtain these licenses on commercially reasonable
terms and maintain these licenses, our ability to commercially market our products, may be inhibited or prevented, which could have a
material adverse effect on our business, results of operations, financial condition and cash flows.
In spite of our best efforts, our licensors might
conclude that we have materially breached our license agreements and might therefore terminate the license agreements, thereby removing
our ability to develop and commercialize products and technology covered by these license agreements. If these in-licenses are terminated,
or if the underlying patents fail to provide the intended exclusivity, competitors may have the freedom to market products identical
to ours.
Third parties may initiate legal proceedings
alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could have a material
adverse effect on the success of our business.
Our success depends upon our ability to develop,
manufacture, market and sell our products, and to use our proprietary technologies without infringing the proprietary rights of third
parties. We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights
with respect to our products and technology, including interference or derivation proceedings and various other post-grant proceedings
before the USPTO and/or non-United States opposition proceedings. Third parties may assert infringement claims against us based on existing
patents or patents that may be granted in the future. As a result of any such infringement claims, or to avoid potential claims, we may
choose or be compelled to seek intellectual property licenses from third parties. These licenses may not be available on acceptable terms,
or at all. Even if we are able to obtain a license, the license would likely obligate us to pay license fees, royalties, minimum royalties
and/or milestone payments and the rights granted to us could be nonexclusive, which would mean that our competitors may be able to obtain
licenses to the same intellectual property. Ultimately, we could be prevented from commercializing a product and/or technology or be
forced to cease some aspect of our business operations if, as a result of actual or threatened infringement claims, we are unable to
enter into licenses of the relevant intellectual property on acceptable terms. Further, if we attempt to modify a product and/or technology
or to develop alternative methods or products in response to infringement claims or to avoid potential claims, we could incur substantial
costs, encounter delays in product introductions or interruptions in sales.
Intellectual property rights do not necessarily
address all potential threats to our competitive advantage.
The degree of future protection afforded by our
intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business,
or permit us to maintain our competitive advantage. The following examples are illustrative:
| |
● |
Others may be able to construct
products that are similar to our products but that are not covered by the claims of the patents that we own or have exclusively licensed; |
| |
● |
We or our licensors or
strategic collaborators, if any, might not have been the first to make the inventions covered by the issued patent or pending patent
application that we own or have exclusively licensed; |
| |
● |
We or our licensors or
strategic collaborators, if any, might not have been the first to file patent applications covering certain of our inventions; |
| |
● |
Others may independently
develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights; |
| |
● |
It is possible that our
pending patent applications will not lead to issued patents; |
| |
● |
Issued patents that we
own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as
a result of legal challenges by our competitors; |
| |
● |
Our competitors might conduct
research and development activities in countries where we do not have patent rights and then use the information learned from such
activities to develop competitive products for sale in our major commercial markets; |
| |
● |
We may not develop additional
proprietary technologies that are patentable; and |
| |
● |
The patents of others may
have an adverse effect on our business. |
Should any of these events occur, they could
significantly harm our business, results of operations and prospects.
We may be subject to claims that our employees
have wrongfully used or disclosed alleged trade secrets of their former employers.
Although we try to ensure that our employees
do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees
have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s
former employer. We are not aware of any threatened or pending claims related to these matters or concerning agreements with our employees,
but in the future litigation may be necessary to defend against such claims. If we fail in defending any such claims, in addition to
paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against
such claims, litigation could result in substantial costs and be a distraction to management.
Intellectual property disputes could cause
us to spend substantial resources and distract our personnel from their normal responsibilities.
Even if resolved in our favor, litigation or
other legal proceedings relating to intellectual property claims may cause us to incur significant expenses and could distract our personnel
from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim
proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a substantial
adverse effect on the value of our common stock. Such litigation or proceedings could substantially increase our operating losses and
reduce the resources available for development activities or any future sales, marketing or distribution activities. We may not have
sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to
sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources. Uncertainties
resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our
ability to compete in the marketplace.
Risks Related to the Common Shares
The Company’s Common Share price
may be volatile and as a result investor could lose all or part of their investment.
In addition to volatility associated with equity
securities in general, the value of an investor’s investment could decline due to the impact of any of the following factors upon
the market price of the Common Shares:
| |
● |
disappointing results from
the Company’s operations or financing activities; |
| |
● |
decline in demand for its
Common Shares; |
| |
● |
downward revisions in securities
analysts’ estimates or changes in general market conditions; |
| |
● |
technological innovations
by competitors or in competing technologies; |
| |
● |
investor perception of
the Company’s industry or its prospects; and |
| |
● |
general economic trends. |
Our Common Share price on the OTCQB has experienced
significant price and volume fluctuations. Stock markets in general have experienced extreme price and volume fluctuations, and the market
prices of securities have been highly volatile. These fluctuations are often unrelated to operating performance and may adversely affect
the market price of the Common Shares. As a result, an investor may be unable to sell any Common Shares such investor acquires at a desired
price.
Potential future sales under Rule 144 may
depress the market price for our Common Shares.
In general, under Rule 144, a person who has
satisfied a minimum holding period of between 6 months and one-year and any other applicable requirements of Rule 144, may thereafter
sell such shares publicly. A significant number of the Company’s currently issued and outstanding Common Shares held by existing
shareholders, including officers and directors and other principal shareholders, are currently eligible for resale pursuant to and in
accordance with the provisions of Rule 144. The possible future sale of the Company’s Common Shares by its existing shareholders,
pursuant to and in accordance with the provisions of Rule 144, may have a depressive effect on the price of its Common Shares in the
over-the-counter market.
The Company’s Common Shares currently
deemed a “penny stock”, which may make it more difficult for investors to sell their Common Shares.
The SEC has adopted regulations which generally
define “penny stock” to be any equity security that has a market price less than $5.00 per Common Share or an exercise price
of less than $5.00 per Common Share, subject to certain exceptions. The Company’s s securities are covered by the penny stock rules,
which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited
investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or
individuals with a net worth in excess of $1,000,000, exclusive of their principal residence, or annual income exceeding $200,000 or
$300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise
exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about
penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current
bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly
account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and
the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the
transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock
rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special
written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement
to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market
for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers
to trade its securities. The Company believes that the penny stock rules may discourage investor interest in and limit the marketability
of its Common Shares.
The Company has never paid dividends on
its Common Shares.
The Company has not paid dividends on its Common
Shares to date, and it does not expect to pay dividends for the foreseeable future. The Company intends to retain its initial earnings,
if any, to finance its operations. Any future dividends on Common Shares will depend upon the Company’s earnings, its then-existing
financial requirements, and other factors, and will be at the discretion of the Board.
FINRA has adopted sales practice requirements,
which may also limit an investor’s ability to buy and sell the Company’s Common Shares.
In addition to the “penny stock”
rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have
reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low-priced securities
to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial
status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a
high probability that speculative low-priced securities will not be suitable for at least some customers. FINRA requirements make it
more difficult for broker-dealers to recommend that their customers buy the Company’s Common Shares, which may limit an investor’s
ability to buy and sell its stock and have an adverse effect on the market for the Common Shares.
Investors’ interests in the Company
will be diluted and investors may suffer dilution in their net book value per share of Common Shares if we issue additional employee/director/consultant
options or if we sell additional Common Shares and/or warrants to finance its operations.
In order to further expand the Company’s
operations and meet its objectives, any additional growth and/or expanded business activity will likely need to be financed through sale
of and issuance of additional Common Shares. The Company will also in the future grant to some or all of its directors, officers, and
key employees and/or consultants options to purchase Common Shares as non-cash incentives. The issuance of any equity securities could,
and the issuance of any additional Common Shares will, cause the Company’s existing shareholders to experience dilution of their
ownership interests.
If the Company issues additional Common Shares
or decides to enter into joint ventures with other parties in order to raise financing through the sale of equity securities, investors’
interests in the Company will be diluted and investors may suffer dilution in their net book value per share of Common Shares depending
on the price at which such securities are sold.
The issuance of additional shares of Common
Shares may negatively impact the trading price of the Company’s securities.
We have issued Common Shares in the past and
will continue to issue Common Shares to finance our activities in the future. In addition, newly issued or outstanding options and warrants
to purchase Common Shares may be exercised, resulting in the issuance of additional Common Shares. Any such issuance of additional Common
Shares would result in dilution to the Company’s shareholders, and even the perception that such an issuance may occur could have
a negative impact on the trading price of the Common Shares.
The issuance of a large number of shares
of our Common Stock could significantly dilute existing stockholders and negatively impact the market price of our Common Stock.
On January 6, 2021, the Company entered into
an Equity Purchase Agreement, with Peak One providing that, upon the terms and subject to the conditions thereof, Peak One is committed
to purchase, on an unconditional basis, shares of Common Stock (“Put Shares”) at an aggregate price of up to $10 million
over the course of the commitment period. Pursuant to the terms of the equity purchase agreement, the purchase price for each of the
Put Shares equals 89% of the Market Price on such date on which the Purchase Price is calculated. The Market Price is defined in the
EPA as the lesser of the (i) closing bid price of the Common Stock on the Principal Market on the Trading Day immediately preceding the
respective Put Date, or (ii) the lowest closing bid price of the Common Shares on the Principal Market for any Trading Day during the
Valuation Period. The Valuation Period is defined as the period of seven (7) Trading Days immediately following the Clearing Date associated
with the applicable Put Notice. The Valuation Period begins on the first Trading Day following the Clearing Date.As a result, if we sell
shares of Common Stock under the equity purchase agreement, we will be issuing Common Stock at below market prices, which could cause
the market price of our Common Stock to decline, and if such issuances are significant in number, the amount of the decline in our market
price could also be significant. In general, we are unlikely to sell shares of Common Stock under the equity purchase agreement at a
time when the additional dilution to stockholders would be substantial unless we are unable to obtain capital to meet our financial obligations
from other sources on better terms at such time. However, if we do, the dilution that could result from such issuances could have a material
adverse impact on existing stockholders and could cause the price of our common stock to fall rapidly based on the amount of such dilution.
The Selling Securityholders may sell a
large number of shares, resulting in substantial diminution to the value of shares held by existing stockholders.
Pursuant to the Equity Purchase Agreement, we
are prohibited from delivering a Put Notice to Peak One to the extent that the issuance of shares would cause the Selling Securityholders
to beneficially own more than 4.99% of our then-outstanding shares of common stock; provided, however, the Selling Securityholders in
their sole discretion can waive this ownership limitation up to 9.99% of our then-outstanding shares of Common Stock. These restrictions
however, do not prevent the Selling Stockholder from selling shares of Common Stock received in connection with the Equity Line and then
receiving additional shares of Common Stock in connection with a subsequent issuance. In this way, the Selling Securityholders could
sell more than 4.99% (or 9.99% if 4.99% ownership limitation is waived) of the outstanding shares of Common Stock in a relatively short
time frame while never holding more than 4.99% (or 9.99% if 4.99% ownership limitation is waived) at any one time. As a result, existing
stockholders and new investors could experience substantial diminution in the value of their shares of Common Stock. Additionally, we
do not have the right to control the timing and amount of any sales by the Selling Securityholders of the shares issued under the Equity
Line.
The Company faces risks related to
compliance with corporate governance laws and financial reporting standards.
The Sarbanes-Oxley Act of 2002, as well as related
new rules and regulations implemented by the SEC and the Public Company Accounting Oversight Board, require changes in the corporate
governance practices and financial reporting standards for public companies. These laws, rules and regulations, including compliance
with Section 404 of the Sarbanes-Oxley Act of 2002 relating to internal control over financial reporting, referred to as Section 404,
materially increase the Company’s legal and financial compliance costs and make certain activities more time-consuming and burdensome.
Cautionary Note
We have sought to identify what we believe to
be the most significant risks to our business, but we cannot predict whether, or to what extent, any of such risks may be realized nor
can we guarantee that we have identified all possible risks that might arise. Investors should carefully consider all of such risk factors
before making an investment decision with respect to our common stock.
DISCLOSURE
REGARDING FORWARD-LOOKING STATEMENTS
Except for statements of historical facts,
this Prospectus contains forward-looking statements involving risks and uncertainties. The words “anticipate,” “believe,”
“estimate,” “expect,” “future,” “intend,” “plan” or the negative of these
terms and similar expressions or variations thereof are intended to forward looking statements. Such statements reflect the current view
of the Registrant with respect to future events and are subject to risks, uncertainties, assumptions and other factors (including the
risks contained in the section of this registration statement on Form S-1 entitled “Risk Factors”) relating to the Registrant’s
industry, the Registrant’s operations and results of operations and any businesses that may be acquired by the Registrant. Should
one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ
significantly from those anticipated, believed, estimated, expected, intended or planned.
Although the Registrant believes that the
expectations reflected in the forward-looking statements are reasonable, the Registrant cannot guarantee future results, levels of activity,
performance or achievements. Except as required by applicable law, including the securities laws of the United States, the Registrant
does not intend to update any of the forward-looking statements to conform these statements to actual results. The following discussion
should be read in conjunction with the Registrant’s financial statements and the related notes included in this registration statement
on Form S-1.
USE
OF PROCEEDS
We will not receive any proceeds from the disposition
and/or resale of the shares of common stock by the Selling Stockholders or their transferees. We will, however, receive cash proceeds
from the Put Notices we issue to Peak One Opportunity Fund, LP (“Peak One”), which we, while we retain broad discretion on
the use of proceeds, intend to use for general corporate and operating expenses.
SELLING SHAREHOLDERS
The selling security holders identified in this
prospectus may offer and sell:
| |
1. |
Peak One – 20,408,163 Shares of our Common Stock to be purchased by Peak One pursuant to the Equity Purchase Agreement (“EPA”), registered for resale herein, and would represent [8.33%] of our issued and outstanding shares of common stock as of April 22, 2022 and including the issuance of such shares to be purchased and Commitment Fee Shares to be issued; |
| |
2. |
150,000 Commitment Fee Shares issued to Peak One on January 6, 2021, which represents less than 1% (0.07%) of our issued and outstanding shares of common stock as of April 22, 2022 and including the issuance of such shares to be purchased and Commitment Fee Shares to be issued. |
| |
3. |
150,000 Commitment Fee Shares issued to Peak One Investments, LLC on January 6, 2021, which represents less than 1% (0.07%) of our issued and outstanding shares of common stock as of April 22, 2022 and including the issuance of such shares to be purchased and Commitment Fee Shares to be issued. |
Peak One Investments is the general partner of
Peak One Opportunity Fund, LP.
The selling security holders identified in the
table below may from time to time offer and sell under this prospectus any or all of the shares of common stock described under the column
“Shares to be Offered” in the table below.
Peak One and Peak One Investments will be deemed
to be underwriters within the meaning of the Securities Act. Any profits realized by the selling stockholders may be deemed to be underwriting
commissions.
We cannot give an estimate as to the number of
shares of common stock that will actually be held by the selling stockholders upon termination of this offering, because each selling
security holder may offer some or all of the common stock being registered on their individual behalf under the offering contemplated
by this prospectus or acquire additional shares of common stock. The total number of shares that may be sold hereunder will not exceed
the number of shares offered hereby. Please read the section entitled “Plan of Distribution” in this prospectus.
The following table sets forth the name of the selling stockholder,
the number of shares of our common stock beneficially owned by such stockholder before this offering, the number of shares to be offered
for such stockholders’ account and the number and (if one percent or more) the percentage of the class to be beneficially owned
by such stockholders after completion of the offering. The number of shares owned are those beneficially owned, as determined under the
rules of the SEC, and such information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules,
beneficial ownership includes any shares of our common stock as to which a person has sole or shared voting power or investment power
and any shares of common stock which the person has the right to acquire within 60 days of the date as of which the information is provided,
through the exercise of any option, warrant or right, through conversion of any security or pursuant to the automatic termination of a
power of attorney or revocation of a trust, discretionary account or similar arrangement, and such shares are deemed to be beneficially
owned and outstanding for computing the share ownership and percentage of the person holding such options, warrants or other rights, but
are not deemed outstanding for computing the percentage of any other person. Beneficial ownership percentages are calculated based on
200,435,331 shares of our common stock outstanding as of April 22, 2022 and including the issuance of such shares to be purchased and
Commitment Fee Shares to be issued.
Unless otherwise set forth below, (a) the persons
and entities named in the table have sole voting and sole investment power with respect to the shares set forth opposite the selling
stockholder’s name, subject to community property laws, where applicable, and (b) no selling stockholders had any position, office
or other material relationship within the past three years, with us or with any of our predecessors or affiliates. The number of shares
of common stock shown as beneficially owned before the offering is based on information furnished to us or otherwise based on information
available to us at the timing of the filing of the registration statement of which this prospectus forms a part.
| Name of Selling Shareholder |
|
Shares Beneficially
Owned
Prior to Offering |
|
|
Shares to be
Offered |
|
|
Amount
Beneficially
Owned After
Offering %(3) |
|
| Peak One Opportunity Fund |
|
|
0 |
|
|
|
20,408,163 |
](1)(2)(3)(4) |
|
|
0 |
(2) |
| Peak One Opportunity Fund |
|
|
150,000 |
|
|
|
150,000 |
(5) |
|
|
0 |
(2) |
| Peak One Investments, LLC |
|
|
150,000 |
|
|
|
150,000 |
(6) |
|
|
0 |
(2) |
Notes:
| 1) | Beneficial ownership is determined in accordance with Securities
and Exchange Commission rules and generally includes voting or investment power with respect to shares of common stock. Shares of common
stock subject to options, warrants and convertible debentures currently exercisable or convertible, or exercisable or convertible within
60 days, are counted as outstanding. The actual number of shares of common stock issuable upon the conversion of the convertible debentures
is subject to adjustment depending on, among other factors, the future market price of our common stock, and could be materially less
or more than the number estimated in the table. |
| 2) | Because the selling security
holders may offer and sell all or only some portion of the 20,708,163 shares of our common stock being offered pursuant to this prospectus
and may acquire additional shares of our common stock in the future, we can only estimate the number and percentage of shares of our
common stock that the selling stockholder will hold upon termination of the offering. The column titled “Amount Beneficially Owned
After Offering” assumes that the Selling Stockholders will sell all of their Shares. |
| 3) | Jason Goldstein exercises voting and dispositive power with
respect to the shares of our common stock that are beneficially owned by Peak One and Peak One Investments. |
| 4) | Consists of up 20,408,163 shares
of common stock to be sold by Peak One pursuant to Put Notices we issue to Peak One pursuant to the Equity Purchase Agreement. |
| 5) | Consists of 150,000 Commitment Shares issued to Peak One
on January 6, 2021. |
| 6) | Consists of 150,000 shares of Commitment Shares issued to
Peak One Investments on January 6, 2021. |
PLAN
OF DISTRIBUTION
We are registering the Common Shares to permit
the resale of those Common Shares under the Securities Act from time to time after the date of this Prospectus at the discretion of the
holders of such Common Shares. We will not receive any of the proceeds from the sale by the selling shareholders of the Common Shares.
We will bear all fees and expenses incident to our obligation to register the Common Shares.
Each selling shareholder and any of their pledgees,
assignees and successors-in-interest may, from time to time, sell any or all of their Common Shares on the OTCQB, or any other stock
exchange, market, quotation service or trading facility on which the shares are traded or in private transactions, provided that all
applicable laws are satisfied. The selling shareholders may also sell their Common Shares directly or through one or more underwriters,
broker-dealers, or agents. If the Common Shares are sold through underwriters or broker-dealers, the selling shareholders will be responsible
for underwriting discounts or commissions or agent’s commissions. The Common Shares may be sold in one or more transactions at
fixed prices, at prevailing market prices at the time of the sale, at varying prices determined at the time of sale, or at negotiated
prices. A selling shareholder may use any one or more of the following methods when selling shares:
| |
● |
ordinary brokerage transactions
and transactions in which the broker-dealer solicits purchasers; |
| |
|
|
| |
● |
block trades in which the
broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate
the transaction; |
| |
|
|
| |
● |
purchases by a broker-dealer
as principal and resale by the broker-dealer for its account; |
| |
|
|
| |
● |
an exchange distribution
in accordance with the rules of the applicable exchange; |
| |
|
|
| |
● |
privately negotiated transactions; |
| |
|
|
| |
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settlement of short sales
entered into after the effective date of the registration statement of which this Prospectus is a part; |
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broker-dealers may agree
with the selling shareholders to sell a specified number of such shares at a stipulated price per share; |
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through the writing or
settlement of options or other hedging transactions, whether through an options exchange or otherwise; |
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a combination of any such
methods of sale; and |
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any other method permitted
pursuant to applicable law. |
The selling shareholders may also sell shares
pursuant to Rule 144 under the Securities Act, if available, rather than under this Prospectus.
If the selling shareholders effect such transactions
by selling Common Shares to or through underwriters, broker-dealers, or agents, such underwriters, broker-dealers, or agents may receive
commissions in the form of discounts, concessions, or commissions from the selling shareholders or commissions from purchasers of the
Common Shares for whom they may act as agent or to whom they may sell as principal (which discounts, concessions, or commissions as to
particular underwriters, broker-dealers, or agents may be in excess of those customary in the types of transactions involved). Broker-dealers
engaged by any selling shareholder may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the selling shareholder (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in
amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction not in excess
of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown
in compliance with FINRA IM-2440.
In connection with sales of Common Shares or
interests therein, the selling shareholders may enter into hedging transactions with broker-dealers or other financial institutions,
which may in turn engage in short sales of the Common Shares in the course of hedging in positions they assume. The selling shareholders
may also sell Common Shares short and deliver Common Shares covered by this Prospectus to close out their short positions and to return
borrowed shares in connection with such short sales. The selling shareholders may also loan or pledge Common Shares to broker-dealers
that in turn may sell such Common Shares. The selling shareholders may also enter into option or other transactions with broker-dealers
or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer
or other financial institution of Common Shares offered by this Prospectus, which Common Shares such broker-dealer or other financial
institution may resell pursuant to this Prospectus (as supplemented or amended to reflect such transaction).
The selling shareholders and any broker-dealers
or agents that are involved in selling the Common Shares may be deemed to be “underwriters” within the meaning of the Securities
Act, in connection with such sales. In such event, any commissions received by, or any discounts or concessions allowed to, any such
broker-dealer or agent and any profit on the resale of any Shares purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act. At the time a particular offering of the Common Shares is made, a prospectus supplement, if required, will
be distributed that will set forth the aggregate amount of Common Shares being offered and the terms of the offering, including the name
or names of any broker-dealers or agents, any discounts, commissions, and other terms constituting compensation from the selling shareholders
and any discounts, commissions, or concessions allowed or re-allowed or paid to broker-dealers.
Peak One has informed us that it does not have
any written or oral agreement or understanding, directly or indirectly, with any person to distribute the Common Shares.
Because the selling shareholders may be deemed
to be “underwriters” within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements
of the Securities Act, including Rule 172 thereunder. Once this registration statement becomes effective, we intend to file the final
prospectus with the SEC in accordance with SEC Rules 172 and 424. Provided we are not the subject of any SEC stop orders and we are not
subject to any cease and desist proceedings, the obligation to deliver a final prospectus to a purchaser will be deemed to have been
met.
There is no underwriter or coordinating broker
acting in connection with the proposed sale of the resale shares by the selling shareholders.
Under the securities laws of some states, the
Common Shares may be sold in such states only through registered or licensed brokers or dealers. In addition, in some states the Common
Shares may not be sold unless such shares have been registered or qualified for sale in such state, or an exemption from registration
or qualification is available and is complied with.
There can be no assurance that any selling shareholder
will sell any or all of the Common Shares registered pursuant to the registration statement of which this Prospectus forms a part.
Under applicable rules and regulations under
the Exchange Act, any person engaged in the distribution of the Common Shares may not simultaneously engage in market making activities
with respect to the Common Shares for the applicable restricted period, as defined in Regulation M, prior to the commencement of the
distribution. In addition, the selling shareholders will be subject to applicable provisions of the Exchange Act, and the rules and regulations
thereunder, including Regulation M, which may limit the timing of purchases and sales of Common Shares by the selling shareholders or
any other person. All of the foregoing provisions may affect the marketability of the Common Shares and the ability of any person or
entity to engage in market-making activities with respect to the Common Shares.
We will pay all expenses of the registration
of the Common Shares, estimated to be approximately [$30,000] in total, including, without limitation, SEC filing fees, expenses of compliance
with state securities or “blue sky” laws, and legal and accounting fees; provided, however, that a selling shareholder will
pay all underwriting discounts and selling commissions, if any. We will indemnify the selling shareholders against liabilities, including
some liabilities under the Securities Act, in accordance with applicable registration rights agreements, if any, or the selling shareholders
will be entitled to contribution. We may be indemnified by the selling shareholders against civil liabilities, including liabilities
under the Securities Act, that may arise from any written information furnished to us by the selling shareholder specifically for use
in this Prospectus, in accordance with the related registration rights agreement, or we may be entitled to contribution.
We agreed to keep this Prospectus effective until
the earlier of (i) the date on which the Common Shares may be resold by the selling shareholders without registration and without the
requirement to be in compliance with Rule 144(c)(1) and otherwise without restriction or limitation pursuant to Rule 144 or (ii) all
of the Common Shares have been sold pursuant to this Prospectus or Rule 144 under the Securities Act or any other rule of similar effect.
Once sold under the registration statement of
which this Prospectus forms a part, the Common Shares will be freely tradable in the hands of persons other than our affiliates.
DESCRIPTION
OF SECURITIES TO BE REGISTERED
Our authorized capital stock consists of consists of 500,000,000 Common
Shares with a par value of $0.001 per Common Share. As of April 22, 2022, there were 200,435,331 Common Shares outstanding.
The following description of our Common Shares
and provisions of our articles of association and by-laws is only a summary. Investors are directed for a complete description of the
terms and provisions of our articles and by-laws, which are exhibits to the registration statement which contains this Prospectus. We
encourage you to review complete copies of our articles and by-laws.
Voting Rights
Holders of the Common Shares are entitled to
one vote per share on all matters to be voted upon by the shareholder.
Dividend Rights
Holders of Common Shares are entitled to receive
ratably such dividends, if any, as may be declared by the Board out of funds legally available for dividends. The Company has not declared
a dividend in its history and there are no plans to declare a dividend in the foreseeable future.
Liquidation Rights
Upon the liquidation, dissolution, or winding
up of our company, the holders of Common Shares are entitled to share ratably in all of our assets which are legally available for distribution
after payment of all debts and other liabilities.
Conversion and Redemption
Holders of Common Shares have no pre-emptive,
subscription, redemption or conversion rights.
Change of Control
Nevada’s “Acquisition of Controlling
Interest Statute” applies to Nevada corporations that have at least 200 shareholders, with at least 100 shareholders of record
being Nevada residents and that do business directly or indirectly in Nevada. Where applicable, the statute prohibits an acquiror from
voting shares of a target company’s stock after exceeding certain threshold ownership percentages, until the acquiror provides
certain information to the company and a majority of the disinterested shareholders vote to restore the voting rights of the acquiror’s
shares at a meeting called at the request and expense of the acquiror. If the voting rights of such shares are restored, shareholders
voting against such restoration may demand payment for the “fair value” of their shares. The Nevada statute also restricts
a “business combination” with “interested shareholders”, unless certain conditions are met, with respect to corporations
which have at least 200 shareholders of record. A “combination” includes:
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(i) |
any merger with an “interested
shareholder,” or any other corporation which is or after the merger would be, an affiliate or associate of the interested shareholder; |
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(ii) |
any sale, lease, exchange,
mortgage, pledge, transfer or other disposition of assets, to an “interested shareholder,” having an aggregate market
value equal to 5% or more of the aggregate market value of the corporation’s assets; an aggregate market value equal to 5%
or more of the aggregate market value of all outstanding shares of the corporation; or representing 10% or more of the earning power
or net income of the corporation; |
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(iii) |
any issuance or transfer
of shares of the corporation or its subsidiaries, having an aggregate market value equal to 5% or more of the aggregate market value
of all the outstanding shares of the corporation to the “interested shareholder” |
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(iv) |
the adoption of any plan
or proposal for the liquidation or dissolution of the corporation proposed by the “interested shareholder”; |
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certain transactions which
would result in increasing the proportionate percentage of shares of the corporation owned by the “interested shareholder”;
or |
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(vi) |
the receipt of benefits,
except proportionately as a shareholder, of any loans, advances or other financial benefits by an “interested shareholder.” |
An “interested shareholder” is a
person who, together with affiliates and associates, beneficially owns (or within the prior three years, did beneficially own) 10% or
more of the corporation’s voting stock. A corporation to which this statute applies may not engage in a “combination”
within three years after the interested shareholder acquired its shares, unless the combination or the interested shareholder’s
acquisition of shares was approved by the board of directors before the interested shareholder acquired the shares. If this approval
was not obtained, then after the three-year period expires, the combination may be consummated if all applicable statutory requirements
are met.
Approval of mergers, conversion, amendments to
the articles of incorporation, and sales, leases or exchanges of all of the property or assets of a corporation, whether or not in the
ordinary course of business, requires the affirmative vote or consent of the holders of a majority of the outstanding shares entitled
to vote, except that, unless required by the articles of incorporation, no vote of shareholders of the corporation surviving a merger
is necessary if:
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(i) |
the merger does not amend
the articles of incorporation of the corporation; |
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each outstanding share
immediately prior to the merger is to be an identical share after the merger; |
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(iii) |
The number of voting shares
outstanding immediately after the merger, plus the number of voting issued as a result of the merger, either by the conversion of
shares securities issued pursuant to the merger or the exercise of rights and warrants issued pursuant to the merger, will not exceed
by more than 20% the total number of voting shares of the surviving domestic corporation outstanding immediately before the merger;
and |
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(iv) |
the number of participating
shares (i.e. shares that entitle their holders to participate without limitation in distribution) outstanding immediately after the
merger, plus the number of participating shares issuable as a result of the merger, either by the conversion of securities issued
pursuant to the merger or the exercise of rights and warrants issued pursuant to the merger, will not exceed by more than 20% the
total number of participating shares outstanding immediately before the merger. |
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Special Note of Caution Regarding Forward-Looking
Statements
Certain statements in this report, including
statements in the following discussion, are what are known as “forward looking statements”, which are basically statements
about the future. For that reason, these statements involve risk and uncertainty since no one can accurately predict the future. Words
such as “plans,” “intends,” “will,” “hopes,” “seeks,” “anticipates,”
“expects “and the like often identify such forward looking statements, but are not the only indication that a statement is
a forward-looking statement. Such forward looking statements include statements concerning our plans and objectives with respect to the
present and future operations of the Company, and statements which express or imply that such present and future operations will or may
produce revenues, income or profits. Numerous factors and future events could cause the Company to change such plans and objectives or
fail to successfully implement such plans or achieve such objectives, or cause such present and future operations to fail to produce
revenues, income or profits. Therefore, the reader is advised that the following discussion should be considered in light of the discussion
of risks and other factors contained in this Prospectus and in the Company’s other filings with the Securities and Exchange Commission.
No statements contained in the following discussion should be construed as a guarantee or assurance of future performance or future results.
Background and Overview
Results of Operations
Comparison of the fiscal years ended December
31, 2021 and December 31, 2020
Revenue
During the fiscal year ended December 31, 2021,
the Company generated total revenues of $0 as compared to $781,455 during the fiscal year ended December 31, 2020; a decrease of $781,455
or 100%.
Expenses
During the fiscal year ended December 31, 2021,
the Company reported total operating expenses of $7,991,827 as compared to $6,572,017 during the fiscal year ended December 31, 2020;
an increase of $1,419,810 or approximately 22%.
Net Loss and Comprehensive Loss
During the fiscal year ended December 31, 2021,
the Company reported a net loss and comprehensive loss of $12,859,643 as compared to $11,815,907 during the fiscal year ended December
31, 2020; an increase of $1,043,736 or approximately 9%.
Liquidity and Capital Resources
After completion of a $10.3 million private placement
in November 2021 and the conversion of $4.9 million of convertible debt to common shares, the Company has sufficient resources to meets
its existing obligations for a period of at least twelve months, and likewise sufficient resources to implement its new business plan
arising from the acquisition of the assets of Cryocann USA Corp.
Current Assets and Total Assets
As of December 31, 2021, the Company’s
balance sheet reflects that the Company had: i) total current assets of $6,530,222, compared to total current assets of $7,798,154 at
December 31, 2020 – a decrease of $1,267,932 or approximately 16%; and ii) total assets of $15,583,822, compared to total assets
of $7,798,154 at December 31, 2020 – an increase of $7,785,668 or approximately 100%. The increase in total assets was predominantly
due to the assets acquired in the Cryocann acquisition and a note receivable from the sale of the Company’s discontinued operations.
Current Liabilities and Total Liabilities
As of December 31, 2021, the Company’s
balance sheet reflects that the Company had: i) total current liabilities of $1,882,419, compared to total current liabilities of $4,125,851
at December 31, 2020 – a decrease of $2,243,432 or approximately 54%; and ii) total liabilities of $2,059,502, compared to total
liabilities of $4,192,860 at December 31, 2020 – a decrease of $2,133,358 or approximately 51%. The decrease in current and total
liabilities was predominantly due to the disposal of the Company’s discontinued operations.
Cash Flow
For the years ended December 31, 2021 and 2020,
the Company had net cash used in operating activities of $5,600,512 and $3,749,621, respectively.
Off-Balance Sheet Arrangements
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, as defined in
Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this item.
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
Our directors and executive officers and their
respective ages, positions, and biographical information are set forth below.
| Name |
|
Position |
|
Age |
| Christian Noël |
|
Chief Executive Officer & Director |
|
45 |
| Philip Mullin |
|
Chief Financial Officer |
|
68 |
| Patricia Kovacevic |
|
General Counsel, Corporate Secretary |
|
51 |
| Dr. Delon Human |
|
Chairman of the Board |
|
59 |
| Mario Gobbo |
|
Director |
|
68 |
| Mark Radke |
|
Director |
|
67 |
| Simon Langelier |
|
Director |
|
64 |
Christian Noël, Chief Executive Officer
& Director
Christian Noel is a trusted investor and business
strategist, who has held senior positions in financial and investment organizations in Montreal, Canada, for the last 21 years. During
his career, he has acquired extensive experience in risk management, tax planning, investment banking, and financial strategy design
and execution.
In 2005 he joined Richardson GMP as Vice-President
and Partner. Richardson GMP is a non-bank organization that specializes in portfolio management for high-net-worth individuals and families.
In 2014 Christian was admitted as a portfolio
manager of GVC Ltd, a boutique wealth management firm based in Montreal, and was subsequently named Partner. At GVC, he developed a deep
understanding of the nascent cannabis industry, building a team to analyze investment opportunities in all facets of the cannabis value
chain, thereby providing clients with a superior range of services.
Christian expertise spans many different industries
and has performed numerous due diligence activities over the last 20 years. He specializes in small and mid-cap companies as well as
sophisticated alternative investment strategies. Christian is fluent in English and French and possesses a vast network of relationships
in North American, European, and other regional capital markets.
Philip Mullin, Chief Financial Officer
Philip Mullin has 30 years’ experience as CFO, COO, and in consulting
and turnarounds for businesses with revenues of less than $100 million and has served as Chief Financial Officer of the Company since
June, 20219. Mr. Mullin was previously managing director of Somerset Associates LLC, a CFO, accounting, tax and financial consulting company.
Since 2009, he has operated primarily in consulting and interim CFO roles in multiple sectors including fintech, blockchain, drones, recycling,
medical marijuana, and electrical power generation. From 2003-09, Mr. Mullin was a partner of Tatum Partners, a human capital firm engaged
in providing CFO services. Within Tatum, Mr. Mullin served in numerous leadership roles: from 2006-09, as CFO of Zi Corporation, a leading
software development company specializing in mobile phones, which was sold in April 2009 to Nuance Communications; from 2003-06, as interim
CFO of Homax Products, Vice President Finance of Yakima Products, and as a consultant in several engagements in industrial construction,
manufacturing and air transportation. From 2001-03, he served as turnaround consultant to companies in the telecom sector during the critical
post-9/11 timeframe; from 1995-2001, he was engaged in various C-level capacities in a public entity that was restructured and eventually
became International DisplayWorks, a manufacturer of LCD displays based in Rocklin, California with operations in Shenzhen, China, which
was later sold to Flextronics.
Mr. Mullin began his career in banking in 1982
after completing his MBA from University of Western Ontario Richard Ivey School of Business in London, Ontario, Canada and BA in Economics
from Wilfrid Laurier University, in Waterloo, Ontario, Canada.
Patricia Kovacevic, General Counsel &
Head of External Affairs
An experienced legal and compliance department
leader, Patricia I. Kovacevic’s career comprises leading senior legal and regulatory positions with FDA-regulated multinationals,
including Philip Morris International and Lorillard, as well as partner roles with large law firms.
Her expertise includes corporate law, compliance,
M&A, US and global food, drug, nicotine and consumer goods regulation, cannabis/CBD regulation, external affairs and the legal framework
applicable to marketing, media communications, investigations, FCPA, trade sanctions, privacy, intellectual property, product development
and launch. She also led cross-disciplinary teams engaged in scientific research efforts. She has served on various trade association
bodies and conference advisory boards. Ms. Kovacevic authored several articles on nicotine regulation, co-authored an academic treatise,
“The Regulation of E-Cigarettes” and is often invited as a keynote speaker or panelist before global conferences and government
agencies public hearings.
Patricia Kovacevic is an attorney admitted to
practice in New York, before the U.S. Tax Court, before the U.S. Court of International Trade and before the Supreme Court of the United
States. She holds a Juris Doctor (Doctor of Law) degree from Columbia Law School in New York and completed the Harvard Business School
“Corporate Leader” executive education program. Ms. Kovacevic speaks several languages, including French, Italian, Spanish,
Romanian and Croatian.
Dr. Delon Human, Chairman of the Board
Dr. Delon Human, M.B.Ch.B., M.Prax.Med, MFGP,
DCH, MBA serves as President of the Board of Directors of Cryomass Technologies Inc
He is an experienced global business leader,
published author and health & technology consultant. He serves as President of Health Diplomats, a specialized health, technology
and nutrition consulting group, operating worldwide. Health Diplomats clients include Fortune 500 companies such as Johnson & Johnson,
Pfizer, Nestlé, McDonald’s, Nicoventures, BAT, ABInBev, foundations such as the IKEA Foundation, Rockefeller Foundation,
PepsiCo Foundation; governments such as Ireland, South Africa, Kuwait and Taiwan and NGOs such as the International Food and Beverage
Alliance (IFBA).
From 2016 to 2020, he served as Director (Vice-Chairman)
of the Board of Pharmacielo, a biopharmaceutical health & wellness company, from its early phase, to its listing on the Toronto Stock
Exchange. Since August 2019, he has also served on the board of Redwood Green Corporation (now called Cryomass Technologies Inc), from
December 2019 as Chairman of the Board. This company is listed on the USA OTCQB stock exchange. In addition, he serves on the board of
the Fio Corporation, a big data and medical diagnostics company.
He has acted as adviser to three WHO Directors-General
and to UN Secretary-General Ban Ki Moon. Up to 2014 he served as Secretary-General and Special Envoy to WHO / UN of the International
Food and Beverage Alliance, a group of leading food and non-alcoholic beverage companies with a global presence (including Unilever,
Nestlé, McDonald’s, Coca-Cola, PepsiCo, Ferrero, Mars, General Mills, Mondeléz and the Bel Group). He serves on the
Board of Directors / Advisory Boards of selected health, wellness and medical diagnostics companies.
Up to 2005, Dr. Human served as secretary general
of the World Medical Association (WMA), the global representative body for physicians. He was instrumental in the establishment of the
World Health Professions Alliance, an alliance of the global representative bodies of physicians, nurses, pharmacists, dentists and physical
therapists. During 2006 he was elected to serve as the secretary-general of the Africa Medical Association (AfMA). He is a fellow of
the Russian and Romanian Academies of Medical Sciences. He is a published author, international lecturer and health care consultant specializing
in global health strategy, corporate and product transformation, harm reduction, access to healthcare and health communication. He authored
the book “Wise Nicotine” in 2009, in which the preferred future for tobacco harm reduction and the emergence of next generation
nicotine products was described. Editor of the book “Caring Physicians of the World”, a project in collaboration with Pfizer
Inc.
He was a clinician for two decades, part of the
pediatric endocrinology research and diabetes unit at the John Radcliffe Hospital and was involved in the establishment of several medical
centers, a hospital and emergency clinic in South Africa.
Dr. Human qualified as a physician in South Africa
and completed his postgraduate studies in family medicine and child health in South Africa and Oxford, England. His business studies
(MBA) were completed at the Edinburgh Business School.
Mario Gobbo, Director
Mario Gobbo has 35 years of banking and corporate
finance experience in healthcare and energy. His expertise encompasses venture capital and private equity as well as investment banking
and strategic advisory services. Mr. Gobbo currently serves as acting Chief Business Officer of Xcovery, a cancer-based biotech company
and is Chairman of the Supervisory Board of Chair of Cinkarna Celje, a fine chemicals for paints (titanium dioxide) company based in
Celje, Slovenia. Until recently, he was on the board of Zavarovalnica Triglav, the largest Slovene insurance company spearheading healthcare
insurance in Central Europe and was Chairman of the Board and Chair of the Audit Committee of Helix BioPharma, a Toronto-listed biotech
company developing interesting novel complex biomolecules to combat various cancers. As an executive director, he was also on the board
of Lazard Brothers, London.
While Managing Director for Health Care Capital
Markets and Advisory with Natixis Bleichroeder in New York, from 2006 to 2009, he secured transactions for the bank’s M&A and
equity capital markets pharmaceuticals and life sciences group. He obtained mandates for several IPOs and follow-on transactions on NASDAQ,
as well as advisory assignments for health care and medical devices companies. When with the International Finance Corporation, a World
Bank Group institution dealing with private sector investments, the team he led completed several highly successful equity and loan investments
in biotech and generic pharmaceutical companies and funds in India, Latin America, China and Central Europe. From 1993 to 2001, he was
with Lazard in London, where he created and managed their Central and Eastern European operations, including Turkey. Mr. Gobbo advised
on M&A, fundraising and privatization efforts for several key firms in the region.
Mario Gobbo holds a Bachelor of Arts in Organic
Chemistry from Harvard College, a Master of Science in Biochemistry from the University of Colorado and an MBA, a Master of Business
Economics and a PhD (Management) from the Wharton School of the University of Pennsylvania.
Mark Radke, Director
Mark Radke is a lawyer with a distinguished career
in the area of financial services, specializing in federal securities regulation. As the Chief of Staff of the Securities and Exchange
Commission under Chairman Harvey Pitt, he was responsible for that agency’s rulemaking in response to the Sarbanes Oxley Act. In
private practice, as partner at several multinational law firms, he has represented corporations, brokerage and accounting firms, hedge
funds and individuals on corporate governance, compliance, and regulatory issues involving not only the SEC but other federal and state
regulators.
He was active in advising clients on legislative
initiatives that lead to the Dodd-Frank Act of 2010, and in subsequent efforts to extend, implement or amend various components of that
and other federal securities legislation.
As an adjunct professor at the Georgetown University
Law Center, he has taught classes in aspects of securities regulation since 1999. He holds a B.A., University of Washington, J.D., University
of Baltimore, LI.M., Securities Regulation, Georgetown University Law Center.
Simon Langelier - Director
Simon Langelier is currently a director of Imperial
Brands PLC, a British multinational company with a comprehensive portfolio of traditional and non-combustible tobacco and nicotine products.
Previously, in his 30-year career with Philip
Morris International, Simon Langelier served in several senior positions, including President Eastern Europe, Middle East & Africa,
President Eastern Asia and President of Next Generation Products & Adjacent Businesses. He was also Managing Director in numerous
countries in Europe and Colombia.
Mr. Langelier is currently an Honorary Professorial
Fellow at Lancaster University in the U.K, a member of the Dean’s Council of that university’s Management School and a BSc
Management Sciences graduate from the same institution.
Information Concerning the Board of Directors
and Certain Committees
The Board of Directors currently consists of
five directors, four of whom the Board of Directors has determined are independent within the meaning of the rules of the OTCQB, which
the Company has adopted as its definition of independence in the Audit Committee Charter. The Board of Directors held four regularly
scheduled meetings during the 2021 fiscal year, and two special meetings during the 2021 fiscal year. Each of the directors attended
all meetings of the Board of Directors and committees on which they served during the 2021 fiscal year. The Board of Directors does not
have a formal policy governing director attendance at its annual meeting of stockholders.
The standing committees of the Board of Directors
are the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee, each of which was formed in
2019.
Audit Committee. The purpose of the Audit
Committee is to oversee (i) the integrity of our financial statements and disclosures, (ii) our compliance with legal and
regulatory requirements, (iii) the qualifications, independence and performance of our independent auditing firm (the “External
Auditor”), (iv) the performance of our External Auditors, (v) our internal control systems, and (vi) our procedures
for monitoring compliance with our Code of Business Conduct and Ethics.
The Audit Committee held four formal meetings
during fiscal year 2021. The current members of the Audit Committee are Messrs. Gobbo (Chair) and Radke.
The Board of Directors has determined that each
member of the Audit Committee meets the independence standards set forth in Rule 10A-3 promulgated under the Exchange Act and the independence
standards set forth in the rules of the OTCQB. The Board of Directors has determined that Mr. Gobbo qualifies as an “audit committee
financial expert” as defined in Item 407(d)(5)(ii) of Regulation S-K, promulgated under the Exchange Act.
The Audit Committee operates under a written
charter that is reviewed annually. Under the charter, the Audit Committee is required to pre-approve the audit and non-audit services
to be performed by our independent registered public accounting firm.
Our Audit Committee meets on a regular basis,
at least quarterly and more frequently as necessary. Our Audit Committee’s primary function is to assist our Board of Directors
in fulfilling its oversight responsibilities by reviewing the financial information to be provided to stockholders and others, reviewing
our system of internal controls, which management has established, overseeing the audit and financial reporting process, including the
preapproval of services performed by our independent registered public accounting firm, and overseeing certain areas of risk management.
Compensation Committee. The Compensation
Committee reviews the compensation strategy of the Company and consults with the Chief Executive Officer, as needed, regarding the role
of our compensation strategy in achieving our objectives and performance goals and the long-term interests of our stockholders. The Compensation
Committee has direct responsibility for approving the compensation of our Chief Executive Officer and makes recommendations to the Board
with respect to our other executive officers. The term “executive officer” has the same meaning specified for the term “officer”
in Rule 16a-1(f) under the Exchange Act.
Our Chief Executive Officer sets the compensation
of anyone whose compensation is not set by the Board and reports to the Board regarding the basis for any such compensation if requested
by it.
The Compensation Committee may retain compensation
consultants, outside counsel and other advisors as the Board deems appropriate to assist it in discharging its duties.
The Compensation Committee held one formal meeting
during fiscal year 2021. The members of the Compensation Committee are Dr. Human (Chair), and Mr. Langelier.
The Compensation Committee operates under a written
charter that is reviewed annually.
Nominating and Corporate Governance Committee.
The Nominating and Corporate Governance Committee identifies and recommends to the Board individuals qualified to be nominated for election
to the Board and recommends to the Board the members and Chairperson for each Board committee.
In addition to stockholders’ general nominating
rights provided in our Bylaws, stockholders may recommend director candidates for consideration by the Board. The Nominating and Corporate
Governance Committee will consider director candidates recommended by stockholders if the recommendations are sent to the Board in accordance
with the procedures in the bylaws. All director nominations submitted by stockholders to the Board for its consideration must include
all of the required information set forth in our Bylaws.
Director Qualifications. In selecting
nominees for director, without regard to the source of the recommendation, the Nominating and Corporate Governance Committee believes
that each director nominee should be evaluated based on his or her individual merits, taking into account the needs of the Company and
the composition of the Board. Members of the Board should have the highest professional and personal ethics, consistent with our values
and standards and Code of Ethics. At a minimum, a nominee must possess integrity, skill, leadership ability, financial sophistication,
and capacity to help guide us. Nominees should be committed to enhancing stockholder value and should have sufficient time to carry out
their duties and to provide insight and practical wisdom based on their experiences. Their service on other boards of public companies
should be limited to a number that permits them, given their individual circumstances, to responsibly perform all director duties. In
addition, the Nominating and Corporate Governance Committee considers all applicable statutory and regulatory requirements and the requirements
of any exchange upon which our common stock is listed or to which it may apply in the foreseeable future.
Evaluation of Director Nominees. The Nominating
and Corporate Governance Committee will typically employ a variety of methods for identifying and evaluating nominees for director. The
Nominating and Corporate Governance Committee regularly assesses the appropriate size of the Board and whether any vacancies on the Board
are expected due to retirement or otherwise. In the event that vacancies are anticipated, or otherwise arise, the Nominating and Corporate
Governance Committee will consider various potential candidates for director. Candidates may come to the attention of the Nominating
and Corporate Governance Committee through current directors, stockholders, or other companies or persons. The Nominating and Corporate
Governance Committee does not evaluate director candidates recommended by stockholders differently than director candidates recommended
by other sources. Director candidates may be evaluated at regular or special meetings of the Nominating and Corporate Governance Committee
and may be considered at any point during the year.
We do not have a formal policy with regard to
the consideration of diversity in identifying director nominees, but the Nominating and Corporate Governance Committee strives to nominate
directors with a variety of complementary skills so that, as a group, the Board will possess the appropriate talent, skills, and expertise
to oversee our businesses. In evaluating director nominations, the Nominating and Corporate Governance Committee seeks to achieve a balance
of knowledge, experience, and capability on the Board. In connection with this evaluation, the Audit and Executive Oversight Committee
will make a determination of whether to interview a prospective nominee based upon the Board’s level of interest. If warranted,
one or more members of the Nominating and Corporate Governance Committee, and others as appropriate, will interview prospective nominees
in person or by telephone. After completing this evaluation and any appropriate interviews, the Nominating and Corporate Governance Committee
will recommend the director nominees after consideration of all its directors’ input. The director nominees are then selected by
a majority of the independent directors on the Board, meeting in executive session and considering the Nominating and Corporate Governance
Committee’s recommendations.
The Nominating and Corporate Governance Committee
did not hold any meetings during the fiscal year 2021. The members of the Nominating and Corporate Governance Committee are Messrs. Radke
(Chair) and Mr. Langelier.
The Board of Directors has determined that each
member of the Nominating and Corporate Governance Committee meets the independence standards set forth in Rule 10A-3 promulgated under
the Exchange Act and the independence standards set forth in the New York Stock Exchange.
The Nominating and Corporate Governance Committee
operates under a written charter that is reviewed annually.
Stockholder and Interested Party Communications
with Directors
We provide the opportunity for our stockholders
and other interested parties to communicate with any member, or all members, of our Board of Directors by mail. To communicate with our
Board of Directors, correspondence should be addressed to our Board of Directors or any one or more individual directors or group or
committee of directors by either name or title. All such correspondence should be sent to the following address:
The Board of Directors of Cryomass Technologies
Inc
c/o Dr. Delon Human, Chairman of the Board
1001 Bannock Street, Suite 612, Denver, CO 80204
All communications received as described above
will be opened by our Secretary for the sole purpose of determining whether the contents constitute a communication to our directors.
Any contents that are not in the nature of advertising, promotions of a product or service, or patently offensive material will be forwarded
promptly to the director or directors to whom it is addressed. In the case of communications to our Board of Directors or to any group
of directors, our Secretary will make sufficient copies of the contents to send to each addressee.
Compliance with Section 16(a) of the Exchange
Act
Section 16(a) of the Exchange Act requires the
Company’s directors, executive officers and persons who beneficially own 10% or more of a class of securities registered under
Section 12 of the Exchange Act to file reports of beneficial ownership and changes in beneficial ownership with the SEC. Directors, executive
officers and greater than 10% stockholders are required by the rules and regulations of the SEC to furnish the Company with copies of
all reports filed by them in compliance with Section 16(a).
During the fiscal year ended December 31, 2019,
the Company and its officers, directors and 10% shareholders (“Reporting Persons”) were not subject to the insider trading
reports under Section 16 of the Securities Exchange Act of 1934 (the “Exchange Act”). On March 23, 2020 the Company became
a reporting company under the Exchange Act and from that date Reporting Persons will be responsible for such filings. At time of filing,
all such reports that should have been filed have been filed.
Code of Ethics and Business Conduct
We have adopted a Code of Ethics that applies
to all employees including our principal executive officer, principal financial officer, principal accounting officer or controller,
or persons performing similar functions. Our Code of Ethics is designed to deter wrongdoing and promote: (i) honest and ethical
conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
(ii) full, fair, accurate, timely and understandable disclosure in reports and documents that we file with, or submit to, the SEC
and in our other public communications; (iii) compliance with applicable governmental laws, rules and regulations; (iv) the
prompt internal reporting of violations of the code to an appropriate person or persons identified in the code; and (v) accountability
for adherence to the code. Our Code of Ethics is available on our website at cryomass.com.
Legal Proceedings
We know of no material, existing or pending legal
proceedings against us, 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 company.
Family Relationships
There are no family relationships among our directors
or executive officers.
Involvement in Certain Legal Proceedings
None of our directors, executive officers, promoters
or control persons has been involved in any events requiring disclosure under Item 401(f) of Regulation S-K, except as follows:
EXECUTIVE
OFFICERS COMPENSATION
The following table sets forth, for the years
indicated, all compensation paid, distributed or earned for services, including salary and bonus amounts, rendered in all capacities
by the Company’s named executive officers during the years ended December 31, 2021 and December 31, 2020. The information contained
below represents compensation earned by the Company’s officers for their work related to the Company:
| Name and
Position |
|
Year |
|
|
Salary
($) |
|
|
Share-based
awards
($) |
|
|
Option-based
awards
($) |
|
|
Total
compensation
($) |
|
| Christian Noel,
Chief Executive Officer |
|
2021
2020 |
|
|
|
240,000
- |
|
|
|
981,000
- |
|
|
|
-
- |
|
|
|
1,221,000
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Christopher Hansen, Chief
Executive Officer |
|
2021
2020 |
|
|
|
75,000
155,500 |
|
|
|
70,000
201,040 |
|
|
|
-
- |
|
|
|
145,000
356,540 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Michael Saxon, Chief Executive
Officer |
|
2021
2020 |
|
|
|
-
456,800 |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
456,800 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Philip Mullin, Chief Financial
Officer |
|
2021
2020 |
|
|
|
264,000
240,000 |
|
|
|
54,000
82,559 |
|
|
|
-
317,447 |
|
|
|
318,000
640,006 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Patricia
Kovacevic, General Counsel & Head of External Affairs |
|
2021
2020 |
|
|
|
230,083
159,600 |
|
|
|
13,500
17,800 |
|
|
|
258,003
- |
|
|
|
501,586
177,400 |
|
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR END
The following table provides information regarding
the incentive plan awards for each named executive officer outstanding as of December 31, 2021:
Outstanding Share Awards and Option Awards
as of December 31, 2021
| | |
Option-based
Awards(1) | | |
Share-based Awards | |
| Name and Position | |
Number of
securities
underlying
unexercised
options
(#) | | |
Option
exercise price
($) | | |
Value of
unexercised
in-the-money
options as at
December 31,
2021 | | |
Number of
shares or
units of
shares
that
have not
vested | | |
Market or
payout value
of share
awards
that
have not
vested | |
| Christian Noel, Chief Executive Officer | |
| N/A | | |
| N/A | | |
| N/A | | |
| N/A | | |
| N/A | |
| Christopher Hansen, Chief Executive Officer | |
| N/A | | |
| N/A | | |
| N/A | | |
| N/A | | |
| N/A | |
| Philip Mullin, Chief Financial Officer | |
| 2,000,000 | | |
| 0.16 | | |
| 220,000 | | |
| - | | |
| - | |
| Patricia Kovacevic, General Counsel & Head of External Affairs | |
| 1,000,000 | | |
| 0.29 | | |
| - | | |
| - | | |
| - | |
The following table provides information regarding
the value vested or earned on incentive plan awards during the year ended December 31, 2021:
Incentive Plan Awards – Value Vested
or Earned During the Year
| Name and Position | |
Option-based
awards - Value vested during the year(1)
($) | | |
Share-based awards - Value vested
during the year
($) | |
| Christian Noel, Chief Executive Officer | |
| N/A
| | |
| 900,000 | |
| Christopher Hansen, Chief Executive Officer | |
| N/A
| | |
| 70,000 | |
| Philip Mullin, Chief Financial Officer | |
| N/A
| | |
| N/A | |
| Patricia Kovacevic, General Counsel & Head of External Affairs | |
| 258,003 | | |
| N/A | |
Re-pricing of Options
We did not re-price any options previously granted
to our executive officers during the fiscal years ended December 31, 2021 and 2020.
DIRECTOR
COMPENSATION
Director Compensation
The general policy of the Board is that compensation
for independent directors should be a fair mix between cash and equity-based compensation. Additionally, the Company reimburses directors
for reasonable expenses incurred during the course of their performance. There are no long-term incentive or medical reimbursement plans.
the Company does not pay directors, who are part of management, for Board service in addition to their regular employee compensation.
The Board determines the amount of director compensation. The board may appoint a compensation committee to take on this role.
Director Compensation Table
The following table provides information regarding
compensation paid to the Company’s directors (other than a director who was a named executive officer) during the year ended December
31, 2021:
| Name | |
Fees
earned
($) | | |
Share-based awards
($) | | |
Option-based awards
($) | | |
Total
($) | |
| Dr. Delon Human | |
$ | 84,546 | | |
$ | - | | |
$ | - | | |
$ | 84,546 | |
| Mario Gobbo | |
| 40,000 | | |
| - | | |
| - | | |
| 40,000 | |
| Mark Radke | |
| 40,000 | | |
| - | | |
| - | | |
| 40,000 | |
| Carlos Hernández | |
| 6,556 | | |
| - | | |
| - | | |
| 6,556 | |
| Gary Artmont | |
| 7,667 | | |
| 32,254 | | |
| - | | |
| 39,921 | |
2019 Omnibus Stock Incentive Plan
The Company adopted its 2019 Omnibus Stock
Incentive Plan (the “2019 Plan”), which provides for the issuance of stock options, stock grants and RSUs to employees,
directors and consultants. The primary purpose of the 2019 Plan is to enhance the ability to attract, motivate, and retain the
services of qualified employees, officers and directors. Any RSUs or stock options granted under the 2019 Plan will be at the
discretion of the Compensation Committee of the Board of Directors. For the year ended December 31, 2021, the total stock
compensation expense was $2,653,271 and consisted of $1,685,066 related to RSUs and $968,205 related to stock options. Expenses for
stock-based compensation is included on the accompanying consolidated statements of operations in general and administrative
expense. No cash was used to settle equity instruments granted under share-based payment arrangements.
2022 Stock Incentive plan
General
The board of directors of the Company have adopted
the 2022 Stock Incentive Plan (Incentive Plan), subject to the approval of the Incentive Plan by the Company’s stockholders. The
purpose of the Incentive Plan is to advance the interests of the Company and its stockholders by enabling the Company and its subsidiaries
to attract and retain qualified individuals to perform services, to provide incentive compensation for such individuals in a form that
is linked to the growth and profitability of the Company and increases in stockholder value, and to provide opportunities for equity
participation that align the interests of recipients with those of its stockholders.
The Incentive Plan will permit the board of directors
of the Company, or a committee or subcommittee thereof, to grant to eligible employees, non-employee directors and consultants
of the Company and its subsidiaries non-statutory and incentive stock options, stock appreciation rights (SARs), restricted stock
awards, restricted stock units (RSUs), deferred stock units, performance awards, non-employee director awards, and other stock-based awards.
Subject to adjustment, the maximum number of shares of Common Stock to be authorized for issuance under the Incentive Plan is 15.2% of
the outstanding shares of Common Stock.
The Incentive Plan was approved by a majority
vote of shareholders on January 10, 2022.
Summary of the Incentive Plan
The following is a summary of the principal features
of the Incentive Plan. The summary is qualified in its entirety by reference to the full text of the Incentive Plan, which is set
forth in Exhibit 10.6.
Purpose
The purpose of the Incentive Plan is to advance
the interests of the Company and its stockholders by enabling the Company and its subsidiaries to attract and retain qualified individuals
to perform services, to provide incentive compensation for such individuals in a form that is linked to the growth and profitability
of the Company and increases in stockholder value, and to provide opportunities for equity participation that align the interests of
recipients with those of its stockholders.
Administration
The board of directors of the Company will administer
the Incentive Plan. The board has the authority under the Incentive Plan to delegate plan administration to a committee of the board
or a subcommittee thereof. The board of directors of the Company or the committee of the board to which administration of the Incentive
Plan has been delegated is referred to as the Committee. Subject to certain limitations, the Committee will have broad authority under
the terms of the Incentive Plan to take certain actions under the plan.
To the extent permitted by applicable law, the
Committee may delegate to one or more of its members or to one or more officers of the Company such administrative duties or powers,
as it may deem advisable. The Committee may authorize one or more directors or officers of the Company to designate employees,
other than officers, non-employee directors, or 10% stockholders of the Company, to receive awards under the Incentive Plan and
determine the size of any such awards, subject to certain limitations.
No Re-pricing
The Committee may not, without prior approval
of the the Company stockholders, effect any re-pricing of any previously granted “underwater” option or SAR
by: (i) amending or modifying the terms of the option or SAR to lower the exercise price or grant price; (ii) cancelling the underwater
option or SAR in exchange for (A) cash; (B) replacement options or SARs having a lower exercise price or grant price; or (C) other
awards; or (iii) repurchasing the underwater options or SARs and granting new awards under the Incentive Plan. An option or SAR will
be deemed to be “underwater” at any time when the fair market value of Common Stock is less than the exercise price
of the option or the grant price of the SAR.
Stock Subject to the Incentive Plan
Subject to adjustment (as described below), the maximum
number of shares of Common Stock authorized for issuance under the Incentive Plan is 30,000,000 shares.
Shares that are issued under the Incentive Plan
or that are subject to outstanding awards will be applied to reduce the maximum number of shares remaining available for issuance
under the Incentive Plan only to the extent they are used; provided, however, that the full number of shares subject to a stock-settled SAR
or other stock-based award will be counted against the shares authorized for issuance under the Incentive Plan, regardless of the
number of shares actually issued upon settlement of such SAR or other stock-based award. Any shares withheld to satisfy tax withholding
obligations on awards issued under the Incentive Plan, any shares withheld to pay the exercise price or grant price of awards under the
Incentive Plan and any shares not issued or delivered as a result of the “net exercise” of an outstanding option or settlement
of a SAR in shares will not be counted against the shares authorized for issuance under the Incentive Plan and will be available again
for grant under the Incentive Plan. Shares subject to awards settled in cash will again be available for issuance pursuant to awards
granted under the Incentive Plan. Any shares related to awards granted under the Incentive Plan that terminate by expiration, forfeiture,
cancellation or otherwise without the issuance of the shares will be available again for grant under the Incentive Plan. Any shares repurchased
by the Company on the open market using the proceeds from the exercise of an award will not increase the number of shares available for
future grant of awards. To the extent permitted by applicable law, shares issued in assumption of, or in substitution for, any outstanding
awards of any entity acquired in any form of combination by the Company or a subsidiary or otherwise will not be counted against shares
available for issuance pursuant to the Incentive Plan. The shares available for issuance under the Incentive Plan may be authorized and
unissued shares or treasury shares.
Adjustments
In the event of any reorganization, merger, consolidation,
recapitalization, liquidation, reclassification, stock dividend, stock split, combination of shares, rights offering, divestiture or
extraordinary dividend (including a spin off) or other similar change in the corporate structure or shares of Common Stock, the Committee
will make the appropriate adjustment or substitution. These adjustments or substitutions may be to the number and kind of securities
and property that may be available for issuance under the Incentive Plan. In order to prevent dilution or enlargement of the rights of
participants, the Committee may also adjust the number, kind, and exercise price or grant price of securities or other property
subject to outstanding awards.
Eligible Participants
Awards may be granted to employees, non-employee directors
and consultants of the Company or any of its subsidiaries. A “consultant” for purposes of the Incentive Plan is one who renders
services to the Company or its subsidiaries that are not in connection with the offer and sale of its securities in a capital raising
transaction and do not directly or indirectly promote or maintain a market for its securities.
Types of Awards
The Incentive Plan will permit the Company to
grant non-statutory and incentive stock options, stock appreciation rights, restricted stock awards, restricted stock units, deferred
stock units, performance awards, non-employee director awards and other stock-based awards. Awards may be granted either alone or in
addition to or in tandem with any other type of award.
Stock Options. Stock options entitle
the holder to purchase a specified number of shares of Common Stock at a specified price, which is called the exercise price, subject
to the terms and conditions of the stock option grant. The Incentive Plan permits the grant of both non-statutory and incentive
stock options. Incentive stock options may be granted solely to eligible employees of the Company or its subsidiary. Each stock option
granted under the Incentive Plan must be evidenced by an award agreement that specifies the exercise price, the term, the number of shares
underlying the stock option, the vesting and any other conditions. The exercise price of each stock option granted under the Incentive
Plan must be at least 100% of the fair market value of a share of Common Stock as of the date the award is granted to a participant.
Fair market value under the plan means, unless otherwise determined by the Committee, the closing sale price of Common Stock, as reported
on the Nasdaq Stock Market, on the grant date. The Committee will fix the terms and conditions of each stock option, subject to
certain restrictions, such as a ten-year maximum term.
Stock Appreciation Rights. A stock appreciation
right, or SAR, is a right granted to receive payment of cash, stock or a combination of both, equal to the excess of the fair market
value of shares of Common Stock on the exercise date over the grant price of such shares. Each SAR granted must be evidenced by an award
agreement that specifies the grant price, the term, and such other provisions as the Committee may determine. The grant price of a SAR
must be at least 100% of the fair market value of Common Stock on the date of grant. The Committee will fix the term of each SAR, but
SARs granted under the Incentive Plan will not be exercisable more than 10 years after the date the SAR is granted.
Restricted Stock Awards, Restricted Stock
Units and Deferred Stock Units. Restricted stock awards, restricted stock units, or RSUs, and/or deferred stock units may be granted
under the Incentive Plan. A restricted stock award is an award of Common Stock that is subject to restrictions on transfer and risk
of forfeiture upon certain events, typically including termination of service. RSUs or deferred stock units are similar to restricted
stock awards except that no shares are actually awarded to the participant on the grant date. Deferred stock units permit the holder
to receive shares of Common Stock or the equivalent value in cash or other property at a future time as determined by the Committee.
The Committee will determine, and set forth in an award agreement, the period of restriction, the number of shares of restricted stock
awards or the number of RSUs or deferred stock units granted, the time of payment for deferred stock units and other such conditions
or restrictions.
Performance Awards. Performance awards,
in the form of cash, shares of Common Stock, other awards or a combination of both, may be granted under the Incentive Plan in such amounts
and upon such terms as the Committee may determine. The Committee shall determine, and set forth in an award agreement, the amount of
cash and/or number of shares or other awards, the performance goals, the performance periods and other terms and conditions. The extent
to which the participant achieves his or her performance goals during the applicable performance period will determine the amount of
cash and/or number of shares or other awards earned by the participant.
Non-Employee Director Awards. The
Committee at any time and from time to time may approve resolutions providing for the automatic grant to non-employee directors
of non-statutory stock options or SARs. The Committee may also at any time and from time-to-time grant on a discretionary basis
to non-employee directors non-statutory stock options or SARs. In either case, any such awards may be granted singly, in
combination, or in tandem, and may be granted pursuant to such terms, conditions and limitations as the Committee may establish in its
sole discretion consistent with the provisions of the Incentive Plan. The Committee may permit non-employee directors to elect to receive
all or any portion of their annual retainers, meeting fees or other fees in restricted stock, RSUs, deferred stock units or other stock-based awards
in lieu of cash. Under the Incentive Plan the sum of any cash compensation, or other compensation, and the value (determined as of the
grant date in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, or any successor thereto)
of awards granted to a non-employee director as compensation for services as a non-employee director during any fiscal
year of the Company may not exceed $250,000 (increased to $350,000 with respect to any director serving as Chairman of the Board or Lead
Independent Director or in the fiscal year of a director’s initial service as a director).
Other Stock-Based Awards. Consistent
with the terms of the plan, other stock-based awards may be granted to participants in such amounts and upon such terms as the
Committee may determine.
Dividend Equivalents. With the exception
of stock options, SARs and unvested performance awards, awards under the Incentive Plan may, in the Committee’s discretion, earn
dividend equivalents with respect to the cash or stock dividends or other distributions that would have been paid on the shares of Common
Stock covered by such award had such shares been issued and outstanding on the dividend payment date. However, no dividends or dividend
equivalents may be paid on unvested awards. Such dividend equivalents will be converted to cash or additional shares of Common Stock
by such formula and at such time and subject to such limitations as determined by the Committee.
Termination of Employment or Other Service
The Incentive Plan provides for certain default
rules in the event of a termination of a participant’s employment or other service. These default rules may be modified in an award
agreement or an individual agreement between the Company and a participant. If a participant’s employment or other service
with the Company is terminated for cause, then all outstanding awards held by such participant will be terminated and forfeited. In the
event a participant’s employment or other service with the Company is terminated by reason of death, disability or retirement,
then:
| |
● |
All outstanding stock options
(excluding non-employee director options in the case of retirement) and SARs held by the participant will, to the extent exercisable,
remain exercisable for a period of one year after such termination, but not later than the date the stock options or SARs expire; |
| |
● |
All outstanding stock options
and SARs that are not exercisable and all outstanding restricted stock will be terminated and forfeited; and |
| |
● |
All outstanding unvested
RSUs, performance awards and other stock-based awards held by the participant will terminate and be forfeited. However, with
respect to any awards that vest based on the achievement of performance goals, if a participant’s employment or other
service with the Company or any subsidiary is terminated prior to the end of the performance period of such award, but after the
conclusion of a portion of the performance period (but in no event less than one year), the Committee may, in its sole discretion,
cause shares to be delivered or payment made with respect to the participant’s award, but only if otherwise earned for the
entire performance period and only with respect to the portion of the applicable performance period completed at the date of such
event, with proration based on the number of months or years that the participant was employed or performed services during the performance
period. |
In the event a participant’s employment
or other service with the Company is terminated by reason other than for cause, death, disability or retirement, then:
| |
● |
All outstanding stock options
(including non-employee director options) and SARs held by the participant that then are exercisable will remain exercisable
for three months after the date of such termination, but will not be exercisable later than the date the stock options or SARs expire; |
| |
● |
All outstanding restricted
stock will be terminated and forfeited; and |
| |
● |
All outstanding unvested
RSUs, performance awards and other stock-based awards will be terminated and forfeited. However, with respect to any awards
that vest based on the achievement of performance goals, if a participant’s employment or other service with the Company or
any subsidiary is terminated prior to the end of the performance period of such award, but after the conclusion of a portion of the
performance period (but in no event less than one year), the Committee may, in its sole discretion, cause shares to be delivered
or payment made with respect to the participant’s award, but only if otherwise earned for the entire performance period and
only with respect to the portion of the applicable performance period completed at the date of such event, with proration based
on the number of months or years that the participant was employed or performed services during the performance period. |
Modification of Rights upon Termination
Upon a participant’s termination of employment
or other service with the Company or any subsidiary, the Committee may, in its sole discretion (which may be exercised at any time on
or after the grant date, including following such termination) cause stock options or SARs (or any part thereof) held by such participant
as of the effective date of such termination to terminate, become or continue to become exercisable or remain exercisable following
such termination of employment or service, and restricted stock, RSUs, deferred stock units, performance awards, non-employee director
awards and other stock-based awards held by such participant as of the effective date of such termination to terminate, vest or
become free of restrictions and conditions to payment, as the case may be, following such termination of employment or service,
in each case in the manner determined by the Committee; provided, however, that no stock option or SAR may remain exercisable beyond
its expiration date any such action by the Committee adversely affecting any outstanding award will not be effective without the consent
of the affected participant, except to the extent the Committee is authorized by the Incentive Plan to take such action.
Forfeiture and Recoupment
If a participant is determined by the Committee
to have taken any action while providing services to the Company or within one year after termination of such services, that would constitute
“cause” or an “adverse action,” as such terms are defined in the Incentive Plan, all rights of the participant
under the Incentive Plan and any agreements evidencing an award then held by the participant will terminate and be forfeited. The Committee
has the authority to rescind the exercise, vesting, issuance or payment in respect of any awards of the participant that were exercised,
vested, issued or paid, and require the participant to pay to the Company, within 10 days of receipt of notice, any amount received or
the amount gained as a result of any such rescinded exercise, vesting, issuance or payment. the Company may defer the exercise of
any stock option or SAR for up to six months after receipt of notice of exercise in order for the Board to determine whether “cause”
or “adverse action” exists. The Company is entitled to withhold and deduct future wages or make other arrangements to collect
any amount due.
In addition, if the Company is required to prepare
an accounting restatement due to material noncompliance, as a result of misconduct, with any financial reporting requirement under the
securities laws, then any participant who is one of the individuals subject to automatic forfeiture under Section 304 of the Sarbanes-Oxley Act
of 2002 will reimburse the Company for the amount of any award received by such individual under the Incentive Plan during the 12 month
period following the first public issuance or filing with the SEC, as the case may be, of the financial document embodying such financial
reporting requirement. The Company also may seek to recover any award made as required by the provisions of the Dodd-Frank Wall
Street Reform and Consumer Protection Act or any other clawback, forfeiture or recoupment provision required by applicable law or
under the requirements of any stock exchange or market upon which Common Stock is then listed or traded or any policy adopted by the
Company.
Effect of Change in Control
Generally, a change in control will mean:
| |
● |
The acquisition, other
than from the Company, by any individual, entity or group of beneficial ownership of 50% or more of the then outstanding shares
of Common Stock; |
| |
● |
The consummation of a reorganization,
merger or consolidation of the Company with respect to which all or substantially all of the individuals or entities who were the
beneficial owners of Common Stock immediately prior to the transaction do not, following the transaction, beneficially own more than
50% of the outstanding shares of common stock and voting securities of the corporation resulting from the transaction; or |
| |
● |
A complete liquidation
or dissolution of the Company or the sale or other disposition of all or substantially all of the assets of the Company. |
Subject to the terms of the applicable award
agreement or an individual agreement between the Company and a participant, upon a change in control, the Committee may, in its discretion,
determine whether some or all outstanding options and SARs shall become exercisable in full or in part, whether the restriction period
and performance period applicable to some or all outstanding restricted stock awards and RSUs shall lapse in full or in part and whether
the performance measures applicable to some or all outstanding awards shall be deemed to be satisfied. The Committee may further
require that shares of stock of the corporation resulting from such a change in control, or a parent corporation thereof, be substituted
for some or all of the shares of Common Stock subject to an outstanding award and that any outstanding awards, in whole or in part, be
surrendered to the Company by the holder, to be immediately cancelled by the Company, in exchange for a cash payment, shares of capital
stock of the corporation resulting from or succeeding the Company or a combination of both cash and such shares of stock.
Term, Termination and Amendment
Unless sooner terminated by the Board, the Incentive
Plan will terminate at midnight on the day before the ten year anniversary of its effective date. No award will be granted
after termination of the Incentive Plan, but awards outstanding upon termination of the Incentive Plan will remain outstanding in accordance
with their applicable terms and conditions and the terms and conditions of the Incentive Plan.
Subject to certain exceptions, the Board has
the authority to suspend or terminate the Incentive Plan or terminate any outstanding award agreement and the Board has the authority
to amend the Incentive Plan or amend or modify the terms of any outstanding award at any time and from time to time. No amendments to
the Incentive Plan will be effective without approval of the Company’ stockholders if: (a) stockholder approval of the amendment
is then required pursuant to Section 422 of the Code, the rules of the primary stock exchange on which Common Stock is then traded,
applicable U.S. state and federal laws or regulations and the applicable laws of any foreign country or jurisdiction where awards are,
or will be, granted under the Incentive Plan; or (b) such amendment would: (i) materially increase benefits accruing to participants;
(ii) modify the re-pricing provisions of the Incentive Plan; (iii) increase the aggregate number of shares of Common Stock issued
or issuable under the Incentive Plan; (iv) increase any limitation set forth in the Incentive Plan on the number of shares of Common
Stock which may be issued or the aggregate value of awards which may be made, in respect of any type of award to any single participant
during any specified period; (v) modify the eligibility requirements for participants in the Incentive Plan; or (vi) reduce the minimum
exercise price or grant price as set forth in the Incentive Plan. No termination, suspension or amendment of the Incentive Plan or an
award agreement shall adversely affect any award previously granted under the Incentive Plan without the written consent of the participant
holding such award.
Federal Income Tax Information
The following is a general summary, as of the
date of this prospectus/proxy statement, of the federal income tax consequences to participants and the Company of transactions under
the Incentive Plan. This summary is intended for the information of stockholders considering how to vote at the Annual Meeting and not
as tax guidance to participants in the Incentive Plan, as the consequences may vary with the types of grants made, the identity of the
participant and the method of payment or settlement. The summary does not address the effects of other federal taxes or taxes imposed
under state, local or foreign tax laws. Participants are encouraged to seek the advice of a qualified tax advisor regarding the
tax consequences of participation in the Incentive Plan.
Tax Consequences of Awards
Incentive Stock Options. With respect
to incentive stock options, generally, the participant is not taxed, and the Company is not entitled to a deduction, on either the grant
or the exercise of an incentive stock option so long as the requirements of Section 422 of the Code continue to be met. If the participant
meets the employment requirements and does not dispose of the shares of Common Stock acquired upon exercise of an incentive stock option
until at least one year after date of the exercise of the stock option and at least two years after the date the stock option was
granted, gain or loss realized on sale of the shares will be treated as long-term capital gain or loss. If the shares of Common
Stock are disposed of before those periods expire, which is called a disqualifying disposition, the participant will be required
to recognize ordinary income in an amount equal to the lesser of (i) the excess, if any, of the fair market value of Common Stock on
the date of exercise over the exercise price, or (ii) if the disposition is a taxable sale or exchange, the amount of gain realized.
Upon a disqualifying disposition, the Company will generally be entitled, in the same tax year, to a deduction equal to the amount of
ordinary income recognized by the participant, assuming that a deduction is allowed under Section 162(m) of the Code.
Non-Statutory Stock Options. The
grant of a stock option that does not qualify for treatment as an incentive stock option, which is generally referred to as a non-statutory stock
option, is generally not a taxable event for the participant. Upon exercise of the stock option, the participant will generally be required
to recognize ordinary income in an amount equal to the excess of the fair market value of Common Stock acquired upon exercise (determined as
of the date of exercise) over the exercise price of the stock option, and the Company will be entitled to a deduction in an equal amount
in the same tax year, assuming that a deduction is allowed under Section 162(m) of the Code. At the time of a subsequent sale or disposition
of shares obtained upon exercise of a non-statutory stock option, any gain or loss will be a capital gain or loss, which will be
either a long-term or short-term capital gain or loss, depending on how long the shares have been held.
SARs. The grant of an SAR will not cause
the participant to recognize ordinary income or entitle the Company to a deduction for federal income tax purposes. Upon the exercise
of an SAR, the participant will recognize ordinary income in the amount of the cash or the value of shares payable to the participant
(before reduction for any withholding taxes), and the Company will receive a corresponding deduction in an amount equal to the ordinary
income recognized by the participant, assuming that a deduction is allowed under Section 162(m) of the Code.
Restricted Stock, RSUs, Deferred Stock Units
and Other Stock-Based Awards. The federal income tax consequences with respect to restricted stock, RSUs, deferred stock
units, performance shares and performance stock units, and other stock unit and stock-based awards depend on the facts and circumstances
of each award, including, in particular, the nature of any restrictions imposed with respect to the awards. In general, if an award
of stock granted to the participant is subject to a “substantial risk of forfeiture” (e.g., the award is conditioned upon
the future performance of substantial services by the participant) and is nontransferable, a taxable event occurs when the risk of forfeiture
ceases or the awards become transferable, whichever first occurs. At such time, the participant will recognize ordinary income to the
extent of the excess of the fair market value of the stock on such date over the participant’s cost for such stock (if any), and
the same amount is deductible by the Company, assuming that a deduction is allowed under Section 162(m) of the Code. Under certain circumstances,
the participant, by making an election under Section 83(b) of the Code, can accelerate federal income tax recognition with respect
to an award of stock that is subject to a substantial risk of forfeiture and transferability restrictions, in which event the ordinary
income amount and the Company’ deduction, assuming that a deduction is allowed under Section 162(m) of the Code, will be measured
and timed as of the grant date of the award. If the stock award granted to the participant is not subject to a substantial risk of forfeiture
or transferability restrictions, the participant will recognize ordinary income with respect to the award to the extent of the excess
of the fair market value of the stock at the time of grant over the participant’s cost, if any, and the same amount is deductible
by us, assuming that a deduction is allowed under Section 162(m) of the Code. If a stock unit award or other stock-based award
is granted but no stock is actually issued to the participant at the time the award is granted, the participant will recognize ordinary
income at the time the participant receives the stock free of any substantial risk of forfeiture (or receives cash in lieu of such stock)
and the amount of such income will be equal to the fair market value of the stock at such time over the participant’s cost, if
any, and the same amount is then deductible by the Company, assuming that a deduction is allowed under Section 162(m) of the Code.
Withholding Obligations
The Company is entitled to withhold and deduct
from future wages of the participant, to make other arrangements for the collection of, or to require the participant to pay to the Company,
an amount necessary for it to satisfy the participant’s federal, state or local tax withholding obligations with respect to awards
granted under the Incentive Plan. Withholding for taxes may be calculated based on the maximum applicable tax rate for the participant’s
jurisdiction or such other rate that will not trigger a negative accounting impact on the Company. The Committee may permit a participant
to satisfy a tax withholding obligation by withholding shares of Common Stock underlying an award, tendering previously acquired shares,
delivery of a broker exercise notice or a combination of these methods.
Code Section 409A
A participant may be subject to a 20% penalty
tax, in addition to ordinary income tax, at the time a grant becomes vested, plus an interest penalty tax, if the grant constitutes deferred
compensation under Section 409A of the Code and the requirements of Section 409A of the Code are not satisfied.
Code Section 162(m)
Pursuant to Section 162(m) of the Code, the annual
compensation paid to an individual who is a “covered employee” is not deductible by the Company to the extent it exceeds
$1 million. The Tax Cut and Jobs Act, signed into law on December 22, 2017, amended Section 162(m), effective for tax years
beginning after December 31, 2017, (i) to expand the definition of a “covered employee” to include any person who was
the Chief Executive Officer or the Chief Financial Officer at any time during the year and the three most highly compensated officers
(other than the Chief Executive Officer or the Chief Financial Officer) who were employed at any time during the year whether or not
the compensation is reported in the Summary Compensation Table included in the proxy statement for the Company’ Annual Meeting;
(ii) to treat any individual who is considered a covered employee at any time during a tax year beginning after December 31, 2016
as remaining a covered employee permanently; and (iii) to eliminate the performance-based compensation exception to the $1 million
deduction limit.
Excise Tax on Parachute Payments
Unless otherwise provided in a separate agreement
between a participant and the Company, if, with respect to a participant, the acceleration of the vesting of an award or the payment
of cash in exchange for all or part of an award, together with any other payments that such participant has the right to receive from
the Company, would constitute a “parachute payment” then the payments to such participant will be reduced to the largest
amount as will result in no portion of such payments being subject to the excise tax imposed by Section 4999 of the Code. Such reduction,
however, will only be made if the aggregate amount of the payments after such reduction exceeds the difference between the amount
of such payments absent such reduction minus the aggregate amount of the excise tax imposed under Section 4999 of the Code attributable to
any such excess parachute payments. If such provisions are applicable and if an employee will be subject to a 20% excise tax on any “excess
parachute payment” pursuant to Section 4999 of the Code, the Company will be denied a deduction with respect to such excess
parachute payment pursuant to Section 280G of the Code.
New Plan Benefits
It is not presently possible to determine the
benefits or amounts that will be received by or allocated to participants under the Incentive Plan or would have been received by
or allocated to participants for the last completed fiscal year if the Incentive Plan had then been in effect because awards under the Incentive
Plan will be made at the discretion of the Committee.
Vote Required for Approval
The approval of the Incentive Plan Proposal requires
the affirmative vote of the holders of a majority of the shares of Common Stock cast by the stockholders represented in person or by
proxy and entitled to vote thereon at the Annual Meeting. Abstentions and broker non-votes will not be counted for purposes of
determining whether this proposal has been approved.
Incentive Plan Awards
The following table provides information regarding
the incentive plan awards for each director (other than a director who was a named executive officer) outstanding as of December 31,
2020:
Outstanding Share Awards and Options Awards
| | |
Option-based
Awards(1) | | |
Share-based Awards | |
| Name | |
Number of
securities
underlying
unexercised
options (#) | | |
Option
exercise
price ($) | | |
Value of
unexercised
in-the-money
options as at
December 31,
2021 | | |
Number of
shares or
units of
shares
that
have not
vested | | |
Market or
payout value
of share
awards
that
have not
vested | |
| Dr. Delon Human | |
| 1,500,000 | | |
| 0.16 | | |
| 62,400 | | |
| 400,000 | | |
| 108,000 | |
| Mario Gobbo | |
| N/A
| | |
| N/A
| | |
| N/A
| | |
| 400,000 | | |
| 108,000 | |
| Mark Radke | |
| N/A
| | |
| N/A
| | |
| N/A
| | |
| 400,000 | | |
| 108,000 | |
Directors and Officers Liability Insurance
As of December 31, 2021, the Corporation maintained
$1,000,000 of group liability insurance for the protection of the directors and officers of the Corporation. In the fiscal year ended
December 31, 2020, the Corporation paid an annual premium of $272,500 for such policy.
Pension, Retirement or Similar Benefit Plans
There are no arrangements or plans in which we
provide pension, retirement or similar benefits for directors or executive officers. We have no material bonus or profit-sharing plans
pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that stock options,
restricted share units and deferred share units may be granted at the discretion of the Board or a committee thereof.
Indebtedness of Directors, Senior Officers,
Executive Officers and Other Management
None of our directors or executive officers or
any associate or affiliate of our Company during the last two fiscal years, is or has been indebted to our Company by way of guarantee,
support agreement, letter of credit or other similar agreement or understanding currently outstanding.
Termination Benefits
We do not have agreements with any named executives
that would result in payments to them solely upon a change in control of Cryomass Technologies Inc. However, under the employment and
severance agreements with named executives, three named executives would be entitled to severance benefits upon termination of employment
under certain circumstances. Further, our Compensation Committee retains discretion to provide additional benefits to senior executives
upon termination or resignation if it determines the circumstances so warrant.
As of the date hereof, Ms. Patricia Kovacevic’s
employment agreement provides that Ms. Kovacevic shall receive continued payments from the Company in the event of disability, death,
termination for any reason or no reason except for cause (including resignation) of the named executive officer with the Company, for
the duration of the term of the respective employment agreement, and shall be given credit under any RSU agreement as if she remained
employed with the Company for the term of the employment agreement for the purposes of vesting thereunder.
As of the date hereof, Mr. Philip Blair Mullin’s
employment agreement provides that Mr.Mullin shall receive certain payments from the Company in the event of disability, death, termination
for other than for cause of the named executive officer with the Company, for the duration of the term of the respective employment agreement,
and shall be given credit under any RSU agreement as if he remained employed with the Company for the term of the employment agreement
for the purposes of vesting thereunder.
As of the date hereof, Mr. Christian Noel’s
employment agreements provides that Mr. Noel shall receive certain payments from the Company in the event of disability, death, termination
for other than for cause of the named executive officer with the Company, for the duration of the term of the respective employment agreement,
and shall be given credit under any RSU agreement as if he remained employed with the Company for the term of the employment agreement
for the purposes of vesting thereunder.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows, as of April 2, 2022, the amount of each
class of our common stock beneficially owned (unless otherwise indicated) by (i) any person who is known by us to be the beneficial
owner of more than five percent of the outstanding shares of such class, (ii) our directors, (iii) our executive officers, and
(iv) all of our directors and executive officers as a group.
| Name and Address of Beneficial Owner (1) | |
Amount
and
Nature of
Beneficial
Ownership | | |
Percentage
of Class (2) | |
| Alexander Massa | |
| 47,205,000 | (3) | |
| 23.6 | |
| 9318-2582 Quebec Inc | |
| 12,550,000 | (4) | |
| 6.3 | |
| 8000 boul Langelier #407 | |
| | | |
| | |
| Montreal, Quebec HIP 3K2 | |
| | | |
| | |
| Steve Cimini | |
| 12,500,000 | (9) | |
| 6.2 | |
| Christian Noël | |
| 8,505,529 | (5) | |
| 4.2 | |
| Delon Human | |
| 3,420,000 | (6) | |
| 1.7 | |
| Philip Mullin | |
| 2,622,000 | (7) | |
| 1.3 | |
| Patricia Kovacevic | |
| 1,250,000 | (8) | |
| 0.6 | |
| Mario Gobbo | |
| 400,000 | | |
| 0.2 | |
| Mark Radke | |
| 400,000 | | |
| 0.2 | |
| Simon Langelier | |
| 400,000 | | |
| 0.2 | |
| All directors and officers as a group (7 persons) | |
| 16,997,528 | | |
| 8.5 | |
| (1) |
Unless otherwise indicated, the address of the beneficial owner is c/o the Company, 1001 Bannock Street, Suite 612, Denver, CO 80204. |
| (2) |
Based on 200,435,331 shares
outstanding. |
| (3) |
Alexander Massa has voting
and investment control over 22,500,000 shares and exercisable warrants to purchase 22,500,00 shares held by CRYM Co-Invest, LP, 602,500
shares and 500,000 exercisable warrants to purchase shares held by Ham Senior Inc., and 602,500 shares and exercisable warrants to
purchase 500,000 shares held by Hungry Asset Monster Inc. The address for CRYM Co-Invest, LP is One World Trade Center, Suite 83G,
New York, NY 10007 and the address for Ham Senior Inc. and Hungry Asset Monster Inc. is 50 North Laura Street, Jacksonville, FL 32202. |
| (4) |
Patrick Varin has voting
and investment control over 6,275,000 shares and exercisable warrants to purchase 6,275,000 shares held by 9318-2582 Quebec Inc. |
| (5) |
Mr. Noël is beneficial
owner of 760,000 shares and exercisable warrants to purchase 760,000 shares held by Trichome Capital Inc. and exercisable warrants
to purchase 250,000 shares. |
| |
|
| (6) |
Dr. Human is the beneficial
holder of fully-vested stock options to purchase 1,500,000 shares, exercisable at $0.16 per share, expiring in 2030, and is the beneficial
owner of 760,000 shares and exercisable warrants to purchase 760,000 shares held by Health Diplomats Pte Ltd. |
| |
|
| (7) |
Mr. Mullin is the beneficial
holder of fully-vested stock options to purchase 2,000,000 shares, exercisable at $0.16 per share, expiring in 2030. |
| (8) |
Ms. Kovacevic is the beneficial
holder of fully-vested stock options to purchase 1,000,000 shares, exercisable at $0.29 per share, expiring in 2031. |
| (9) |
Mr. Cimini has dispositive
control of 10,000,000 common shares held by Cryocann USA Crop, warrants exercisable at $0.40 per share to purchase 250,000 shares,
expiring in 2024, and fully-vested stock options exercisable at $0.18 per share to purchase 2,000,000 shares, expiring in
2031. |
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of
the Exchange Act requires our directors, our officers, and certain beneficial owners, or, collectively, reporting persons, to file reports
of the Company holdings and transactions in our shares of common stock with the Commission. To our knowledge, based solely on review
of copies of such reports, as of the date of filing, all of such reporting persons complied with all Section 16(a) filing requirements
applicable to them.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Review, Approval or other transactions, transactions
with family members – loans, debt conversion, private placement, ratification of transactions with related persons
We have adopted a code of ethics and we rely
on our board to review related party transactions on an ongoing basis to prevent conflicts of interest. Our Board reviews a transaction
in light of the affiliations of the director, officer or employee and the affiliations of such person’s immediate family. Transactions
are presented to our Board for approval before they are entered into or, if this is not possible, for ratification after the transaction
has occurred. If our Board finds that a conflict of interest exists, then it will determine the appropriate remedial action, if any.
Our Board approves or ratifies a transaction if it determines that the transaction is consistent with the best interests of the Company.
During the year-ended December 31, 2021, the Board reviewed and approved a loan to the Company made by Christian Noel, its CEO. There
were no other such transactions or requests for review during the fiscal years ended December 31, 2020 and December 31, 2021.
LEGAL
PROCEEDINGS
Legal proceedings covering a dispute arising
from a past employment agreements is pending against the Company’s principal business partner, CMI. In Gaudio v. Critical Mass
Industries, LLC et al, CMI’s motion to set aside a default judgment was granted April 26, 2021. It is possible that there could
be adverse developments in the Gaudio case. An unfavorable outcome or settlement of pending litigation would have a significant impact
on our ability to collect receivables from CMI, to complete any of the pending transactions involving our Colorado assets and agreements
and could encourage the commencement of additional litigation against CMI or the Company. We and our subsidiaries will record provisions
in the consolidated financial statements for pending litigation when we determine that an unfavorable outcome is probable and the amount
of the loss can be reasonably estimated. At the present time, while it is reasonably possible that an unfavorable outcome in the Gaudio
case may occur, (i) management is unable to estimate the possible loss or range of loss that our Company would undergo that could result
from an unfavorable outcome or settlement in Gaudio; and (iii) accordingly, management has not provided any amounts in the consolidated
financial statements for an unfavorable outcome in this case, if applicable. Any applicable legal advice costs are expensed as incurred.
INTERESTS
OF NAMED EXPERTS AND COUNSEL
No expert or counsel named in this Prospectus
as having prepared or certified any part of this Prospectus or having given an opinion upon the validity of the securities being registered
or upon other legal matters in connection with the registration or offering of the Common Shares was employed on a contingency basis,
or had, or is to receive, in connection with the offering, a substantial interest, direct or indirect, in the registrant or any of its
parents or subsidiaries. Nor was any such person connected with the registrant or any of its parents or subsidiaries as a promoter, managing
or principal underwriter, voting trustee, director, officer, or employee.
The Financial Statements included in this Prospectus
and in the registration statement have been audited by BF Borgers CPA PC and are included in reliance upon such report given upon the
authority of said firm as experts in auditing and accounting.
The validity of the issuance of the Common Shares
hereby will be passed upon for us by J.P. Galda & Co., 40 East Montgomery Avenue, LTW 220 Ardmore, PA 19003. Joseph P. Galda, the
principal of J.P. Galda & Co., is the beneficial owner of 430,000 common shares of the Company.
PRINCIPAL
ACCOUNTING FEES AND SERVICES
The following table shows the fees paid or accrued
by us for the audit and other services provided for the fiscal periods shown.
| | |
2021 | | |
2020 | |
| Haynie & Company: | |
| | |
| |
| Audit and Non-Audit Fees | |
| | |
| |
| Audit fees | |
$ | - | | |
$ | 5,000 | |
| Audit-related fees | |
| - | | |
| - | |
| Tax fees | |
| - | | |
| - | |
| All other fees | |
| - | | |
| - | |
| Total | |
$ | - | | |
$ | 5,000 | |
| | |
| | | |
| | |
| Marcum: | |
| | | |
| | |
| Audit
and Non-Audit Fees | |
| | | |
| | |
| Audit fees | |
$ | - | | |
$ | 77,086 | |
| Audit-related fees | |
| - | | |
| - | |
| Tax fees | |
| - | | |
| - | |
| All other fees | |
| - | | |
| - | |
| Total | |
$ | - | | |
$ | 77,086 | |
| | |
| | | |
| | |
| Borgers: | |
| | | |
| | |
| Audit
and Non-Audit Fees | |
| | | |
| | |
| Audit fees | |
$ | 274,000 | | |
$ | 566,200 | |
| Audit-related fees | |
| 54,000 | | |
| - | |
| Tax fees | |
| - | | |
| - | |
| All other fees | |
| - | | |
| - | |
| Total | |
$ | 328,000 | | |
$ | 566,200 | |
The Audit Committee pre-approves all audit and
non-audit services to be performed by the independent registered public accounting firm in accordance with the rules and regulations
promulgated under the Exchange Act. The Board pre-approved 100% of the audit, audit-related and tax services performed by the independent
registered public accounting firm for the fiscal years ended December 31, 2021 and 2020. The percentage of hours expended on the principal
accountant’s engagement to audit the Company’s financial statements for the most recent fiscal year that were attributed
to work performed by persons other than the principal accountant’s full-time, permanent employee was 0%.
DISCLOSURE
OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Nevada law allows a corporation to indemnify
its directors, officers, employees and agents against all reasonable expenses (including attorneys’ fees and amounts paid in settlement)
and, provided that such individual, or indemnitee, acted in good faith and for a purpose which he or she reasonably believed to be in,
or not opposed to, the best interests of the corporation and, in the case of a criminal proceeding, had reasonable grounds to believe
his or her conduct was lawful. Nevada law authorizes a corporation to indemnify its directors, officers, employees and agents against
all reasonable expenses including amounts paid in settlement and attorneys’ fees in connection with a lawsuit by or in the right
of the corporation to procure a judgment in its favor if such person acted in good faith and in a manner reasonably believed to be in
or not opposed to the best interest of the corporation, except that no indemnification may be paid as to any claim, issue or matter as
to which such person has been adjudged liable to the corporation unless it is determined by the court making such adjudication of liability
that, despite such finding, such person is fairly and reasonably entitled for such expenses deemed proper.
Nevada law also provides for discretionary indemnification
made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee
or agent is proper in the circumstances. The determination must be made either:
| |
(i) |
by the shareholders; |
| |
|
|
| |
(ii) |
by the board of directors
by majority vote of a quorum consisting of directors who were not parties to the actions, suit or proceeding; |
| |
|
|
| |
(iii) |
if a majority vote of a
quorum consisting of directors who were not parties to the actions, suit or proceeding so orders, by independent legal counsel in
a written opinion; or |
| |
|
|
| |
(iv) |
if a quorum consisting
of directors who were not parties to the actions, suit or proceeding cannot be obtained, by independent legal counsel in a written
opinion. |
The articles of incorporation, the bylaws or
an agreement made by the corporation may provide that the expenses of officers and directors incurred in defending a civil or criminal
action, suit or proceeding must be paid by the corporation as they are incurred and in advance of the final disposition of the actions,
suit or proceeding, upon receipt of an undertaking by or on behalf of the director or officer to repay the amount if it is ultimately
determined by a court of competent jurisdiction that he is not entitled to be indemnified by the corporation. The provisions do not affect
any right to advancement of expenses to which corporate personnel other than directors or officers may be entitled under any contract
or otherwise by law. The indemnification and advancement of expenses authorized in or ordered by a court pursuant to Nevada law does
not exclude any other rights to which a person seeking indemnification or advancement of expenses may be entitled under the articles
of incorporation or any bylaw, agreement, vote of shareholders or disinterested directors or otherwise, for either an action in his official
capacity or an action in another capacity while holding office, except that indemnification, unless ordered by a court or for the advancement
of expenses, may not be made to or on behalf of any director or officer if his acts or omissions involved intentional misconduct, fraud
or a knowing violation of the law and was material to the cause of action. In addition, indemnification continues for a person who has
ceased to be a director, officer, employee or agent and inures to the benefit of the heirs, executors and administrators of such a person.
Insofar as indemnification for liabilities arising
under the Securities Act, as amended, may be permitted to directors, officers or persons controlling the Registrant pursuant to the foregoing
provisions, the Registrant has been informed that in the opinion of the SEC such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable.
WHERE
YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form
S-1, together with all amendments and exhibits, with the SEC. This Prospectus, which forms a part of that registration statement, does
not contain all information included in the registration statement. Certain information is omitted and you should refer to the registration
statement and its exhibits. With respect to references made in this Prospectus to any of our contracts or other documents, the references
are not necessarily complete and you should refer to the exhibits attached to the registration statement for copies of the actual contracts
or documents. You may read and copy any document that we file at the Commission’s Public Reference Room at 100 F Street, N.E.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference rooms.
Our filings and the registration statement can also be reviewed by accessing the SEC’s website at http://www.sec.gov.
FINANCIAL
STATEMENTS
Our audited financial statements as of and for
the fiscal years ended December 31, 2021 and December 31, 2020.
CRYOMASS TECHNOLOGIES INC
(f/k/a Andina Gold Corp.)
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021 AND 2020
(EXPRESSED IN UNITED STATES DOLLARS)
CRYOMASS TECHNOLOGIES INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Cryomass Technologies Inc.:
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheets of Cryomass Technologies Inc. (the “Company”) as of December 31, 2021 and 2020 and the related consolidated
statements of operations, shareholders’ equity, and cash flows for the two years in the period ended December 31, 2021, and the
related notes and schedules (collectively referred to as the financial statements). In our opinion, the financial statements present
fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations
and its cash flows for the two years in the period ended December 31, 2021 and 2020, in conformity with accounting principles generally
accepted in the United States of America.
Going Concern Matter
The accompanying financial statements have been
prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company
has suffered recurring losses from operations that raises substantial doubt about its ability to continue as a going concern. Management’s
plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our
audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding
of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess
the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial
statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audit provide a reasonable basis for our opinion.
Critical Audit Matter
Critical audit matters
are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to
the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our
especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/S BF Borgers CPA PC
BF Borgers CPA PC
We have served as the Company’s auditor
since 2020
Lakewood, CO
March 28, 2022
CRYOMASS TECHNOLOGIES
INC.
CONSOLIDATED BALANCE SHEETS
| | |
As of December 31, | |
| | |
2021 | | |
2020 | |
| ASSETS | |
| | |
| |
| Current assets: | |
| | |
| |
| Cash and cash equivalents | |
$ | 5,772,839 | | |
$ | 329,839 | |
| Accounts receivable, net | |
| - | | |
| 540,000 | |
| Prepaid expenses | |
| 757,383 | | |
| 60,475 | |
| Assets held for sale, current | |
| - | | |
| 6,867,840 | |
| Total current assets | |
| 6,530,222 | | |
| 7,798,154 | |
| | |
| | | |
| | |
| Loan receivable | |
| 3,600,000 | | |
| - | |
| Property and equipment, net | |
| 225,000 | | |
| - | |
| Goodwill | |
| 1,190,000 | | |
| - | |
| Intangible assets, net | |
| 4,038,600 | | |
| - | |
| Total assets | |
$ | 15,583,822 | | |
$ | 7,798,154 | |
| | |
| | | |
| | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |
| | | |
| | |
| | |
| | | |
| | |
| Current liabilities: | |
| | | |
| | |
| Accounts payable and accrued expenses | |
$ | 1,881,648 | | |
$ | 2,248,235 | |
| Loans payable | |
| - | | |
| 412,560 | |
| Taxes payable | |
| 771 | | |
| 771 | |
| Liabilities held for sale, current | |
| - | | |
| 1,464,285 | |
| Total current liabilities | |
| 1,882,419 | | |
| 4,125,851 | |
| Notes payable | |
| 177,083 | | |
| 52,083 | |
| Deferred tax liability | |
| - | | |
| 14,926 | |
| Total liabilities | |
| 2,059,502 | | |
| 4,192,860 | |
| | |
| | | |
| | |
| Commitments and contingencies (Note 15) | |
| | | |
| | |
| | |
| | | |
| | |
| Shareholders’ equity: | |
| | | |
| | |
| Preferred stock, $0.001 par value, 100,000 shares authorized,
no shares issued and outstanding respectively | |
| - | | |
| - | |
| Common stock, $0.001 par value, 500,000,000 shares authorized,
196,949,801 and 97,005,817 shares issued and outstanding at December 31, 2021 and 2020, respectively | |
| 196,950 | | |
| 97,006 | |
| Additional paid-in capital | |
| 41,916,207 | | |
| 19,138,947 | |
| Common stock to be issued | |
| - | | |
| 98,535 | |
| Accumulated deficit | |
| (28,588,837 | ) | |
| (15,729,194 | ) |
| Total shareholders’ equity | |
| 13,524,320 | | |
| 3,605,294 | |
| Total liabilities and shareholders’
equity | |
$ | 15,583,822 | | |
$ | 7,798,154 | |
The accompanying notes are an integral part of
these consolidated financial statements.
CRYOMASS TECHNOLOGIES
INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
| | |
For the Years Ended
December
31, | |
| | |
2021 | | |
2020 | |
| Net sales | |
$ | - | | |
$ | 781,455 | |
| Cost of goods sold, inclusive of provision
for inventory loss of $0 and $400,787 for the years ended December 31, 2021 and 2020, respectively | |
| - | | |
| 744,279 | |
| Gross profit | |
| - | | |
| 37,176 | |
| | |
| | | |
| | |
| Operating expenses: | |
| | | |
| | |
| Personnel costs | |
| 3,207,110 | | |
| 2,473,730 | |
| Sales and marketing | |
| 44,095 | | |
| 14,854 | |
| General and administrative | |
| 3,939,131 | | |
| 2,338,599 | |
| Legal and professional fees | |
| 757,828 | | |
| 1,744,834 | |
| Research and development | |
| 43,663 | | |
| - | |
| Total operating expenses | |
| 7,991,827 | | |
| 6,572,017 | |
| Loss from operations | |
| (7,991,827 | ) | |
| (6,534,841 | ) |
| | |
| | | |
| | |
| Other income (expenses): | |
| | | |
| | |
| Interest expense | |
| (2,189,959 | ) | |
| (236,912 | ) |
| Gain / (loss) on foreign exchange | |
| 47,144 | | |
| (88,690 | ) |
| Total other expenses | |
| (2,142,815 | ) | |
| (325,602 | ) |
| Net loss from continuing operations, before taxes | |
| (10,134,642 | ) | |
| (6,860,443 | ) |
| Income taxes | |
| - | | |
| - | |
| Net loss from continuing operations | |
| (10,134,642 | ) | |
| (6,860,443 | ) |
| Net gain / (loss) from discontinued operations,
net of tax (including loss on disposal of $3,021,724) | |
| (2,725,001 | ) | |
| (4,955,464 | ) |
| Net loss | |
$ | (12,859,643 | ) | |
$ | (11,815,907 | ) |
| | |
| | | |
| | |
| Comprehensive loss from discontinued operations | |
| - | | |
| - | |
| Comprehensive loss | |
$ | (12,859,643 | ) | |
$ | (11,815,907 | ) |
| | |
| | | |
| | |
| Net loss per common share: | |
| | | |
| | |
| Loss from continuing operations - basic
and diluted | |
$ | (0.06 | ) | |
$ | (0.07 | ) |
| | |
| | | |
| | |
| Gain / (loss) from discontinued operations
- basic and diluted | |
$ | (0.02 | ) | |
$ | (0.05 | ) |
| | |
| | | |
| | |
| Loss per common share - basic and diluted | |
$ | (0.08 | ) | |
$ | (0.12 | ) |
| | |
| | | |
| | |
| Weighted average common shares outstanding—basic and diluted | |
| 157,509,715 | | |
| 99,863,059 | |
The accompanying notes are an integral part of
these consolidated financial statements.
CRYOMASS TECHNOLOGIES
INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’
EQUITY
| | |
Common Stock | | |
Additional Paid-In | | |
Common Stock
to be | | |
Accumulated | | |
Total Shareholders’ | |
| | |
Shares | | |
Amount | | |
Capital | | |
Issued | | |
Deficit | | |
Equity | |
| Balance at December 31, 2019
(Revised) | |
| 106,216,708 | | |
$ | 106,216 | | |
$ | 16,894,103 | | |
$ | - | | |
$ | (3,913,287 | ) | |
$ | 13,087,032 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Issuance of common stock pursuant to separation agreement | |
| 1,175,549 | | |
$ | 1,176 | | |
$ | 148,824 | | |
$ | - | | |
$ | - | | |
$ | 150,000 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Issuance of common stock pursuant to accelerated vesting of RSU’s | |
| 600,000 | | |
| 600 | | |
| 162,440 | | |
| - | | |
| - | | |
| 163,040 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Stock-based compensation - shares | |
| 757,895 | | |
| 758 | | |
| 570,954 | | |
| - | | |
| - | | |
| 571,712 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Stock-based compensation - options | |
| - | | |
| - | | |
| 555,532 | | |
| - | | |
| - | | |
| 555,532 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Share cancellations | |
| (15,350,000 | ) | |
| (15,350 | ) | |
| 15,350 | | |
| - | | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Share issuance from sale of common stock | |
| 3,605,665 | | |
| 3,606 | | |
| 541,744 | | |
| - | | |
| - | | |
| 545,350 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Common stock to be issued | |
| - | | |
| - | | |
| - | | |
| 98,535 | | |
| - | | |
| 98,535 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Beneficial Conversion Feature of Note Payable | |
| - | | |
| - | | |
| 250,000 | | |
| - | | |
| - | | |
| 250,000 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| (11,815,907 | ) | |
| (11,815,907 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance at December 31, 2020 | |
| 97,005,817 | | |
$ | 97,006 | | |
$ | 19,138,947 | | |
$ | 98,535 | | |
$ | (15,729,194 | ) | |
$ | 3,605,294 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Share issuance from sale of common stock | |
| 53,191,819 | | |
| 53,192 | | |
| 9,556,368 | | |
| (98,535 | ) | |
| - | | |
| 9,511,025 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Share issuance related to CryoCann asset purchase | |
| 10,000,000 | | |
| 10,000 | | |
| 1,794,500 | | |
| - | | |
| - | | |
| 1,804,500 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Share issuance pursuant to employment agreements | |
| 6,701,586 | | |
| 6,702 | | |
| 894,000 | | |
| - | | |
| - | | |
| 900,702 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Share issuance in exchange for extinguishment of debt | |
| 27,121,119 | | |
| 27,095 | | |
| 5,381,308 | | |
| - | | |
| - | | |
| 5,408,403 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Share issuance in exchange for services | |
| 2,837,333 | | |
| 2,837 | | |
| 965,175 | | |
| - | | |
| - | | |
| 968,012 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Share issuance for interest on note payable | |
| 92,127 | | |
| 118 | | |
| 49,823 | | |
| - | | |
| - | | |
| 49,941 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Stock-based compensation - shares | |
| - | | |
| - | | |
| 784,364 | | |
| - | | |
| - | | |
| 784,364 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Stock-based compensation - options | |
| - | | |
| - | | |
| 968,205 | | |
| - | | |
| - | | |
| 968,205 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Beneficial Conversion Feature of Note Payable | |
| - | | |
| - | | |
| 515,763 | | |
| - | | |
| - | | |
| 515,763 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Fair value of warrants issued | |
| - | | |
| - | | |
| 1,867,754 | | |
| - | | |
| - | | |
| 1,867,754 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| (12,859,643 | ) | |
| (12,859,643 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance at December 31, 2021 | |
| 196,949,801 | | |
$ | 196,950 | | |
$ | 41,916,207 | | |
$ | - | | |
$ | (28,588,837 | ) | |
$ | 13,524,320 | |
The accompanying notes are an integral part of
these consolidated financial statements.
CRYOMASS TECHNOLOGIES
INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | |
For the Years Ended
December
31, | |
| | |
2021 | | |
2020 | |
| CASH FLOWS FROM OPERATING ACTIVITIES: | |
| | |
| |
| Net loss | |
$ | (10,134,642 | ) | |
$ | (6,860,443 | ) |
| Adjustments to reconcile net loss to net cash used in operating
activities from continuing operations: | |
| | | |
| | |
| Amortization of debt discount | |
| 1,547,181 | | |
| 52,083 | |
| Depreciation and amortization expense | |
| 43,663 | | |
| - | |
| Bad debt expense | |
| 540,000 | | |
| - | |
| Fair value of common stock issued pursuant to service and
advisory agreements | |
| 1,011,075 | | |
| 7,500 | |
| Payable extinguishment for services not provided | |
| 318,970 | | |
| - | |
| Provision for inventory loss | |
| - | | |
| 400,787 | |
| Stock-based compensation expense | |
| 2,653,271 | | |
| 1,440,284 | |
| Deferred income tax expense | |
| (14,926 | ) | |
| 10,235 | |
| Change in operating assets and liabilities: | |
| | | |
| | |
| Accounts receivable | |
| - | | |
| (540,000 | ) |
| Prepaid expenses | |
| (696,908 | ) | |
| 40,080 | |
| Inventory, net | |
| - | | |
| (60,787 | ) |
| Accounts payable and accrued expenses | |
| (366,587 | ) | |
| 1,493,385 | |
| Taxes payable | |
| - | | |
| 771 | |
| Net cash used in operating activities
from continuing operations | |
| (5,098,903 | ) | |
| (4,016,105 | ) |
| Net (used in) / provided by operating
activities from discontinued operations | |
| (501,609 | ) | |
| 266,484 | |
| Net cash used in operating activities | |
| (5,600,512 | ) | |
| (3,749,621 | ) |
| CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | | |
| | |
| Cash Payment for CryoCann asset purchase | |
| (1,000,000 | ) | |
| - | |
| Payoff of CryoCann loan agreement at closing | |
| (1,247,684 | ) | |
| - | |
| Purchase of property and equipment | |
| (225,000 | ) | |
| - | |
| Net cash used in investing activities from continuing operations | |
| (2,472,684 | ) | |
| - | |
| Net cash used in investing activities
from discontinued operations | |
| (330,560 | ) | |
| (693,255 | ) |
| Net cash used in investing activities | |
| (2,803,244 | ) | |
| (693,255 | ) |
| CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | | |
| | |
| Proceeds from notes payable, related parties | |
| 237,590 | | |
| - | |
| Repayment of notes payable, related parties | |
| (237,590 | ) | |
| - | |
| Proceeds from issuance of common stock | |
| 10,308,000 | | |
| 537,850 | |
| Proceeds from common stock subscribed and to be issued | |
| - | | |
| 98,535 | |
| Proceeds from loans payable, current | |
| 286,441 | | |
| - | |
| Repayment of loans payable, current | |
| (698,800 | ) | |
| 412,560 | |
| Proceeds from notes payable | |
| 4,900,000 | | |
| 250,000 | |
| Repayment of seller note for acquisition | |
| (1,173,016 | ) | |
| - | |
| Related party note disbursement | |
| (281,771 | ) | |
| - | |
| Net cash provided by financing activities from continuing
operations | |
| 13,340,854 | | |
| 1,298,945 | |
| Net cash provided by financing activities
from discontinued operations | |
| 505,902 | | |
| - | |
| Net cash provided by financing activities | |
| 13,846,756 | | |
| 1,298,945 | |
| Net increase / (decrease) in cash from continuing
operations | |
| 5,769,267 | | |
| (2,727,395 | ) |
| Net decrease in cash from discontinued operations | |
| (326,267 | ) | |
| (426,771 | ) |
| Cash at beginning of period | |
| 329,839 | | |
| 3,473,770 | |
| Cash at end of period | |
$ | 5,772,839 | | |
$ | 329,839 | |
| Supplemental disclosure of cash flow information: | |
| | | |
| | |
| Cash paid for interest | |
$ | 449,068 | | |
$ | 162,810 | |
| Supplemental disclosure of non-cash investing
and financing activities: | |
| | | |
| | |
| Common stock issued pursuant to separation agreement | |
$ | - | | |
$ | 150,000 | |
| Common stock issued pursuant to vesting of restricted stock
units | |
$ | 2,851,103 | | |
$ | 163,040 | |
| Loan receivable issued pursuant to disposal of discontinued
operations | |
$ | 3,600,000 | | |
$ | - | |
The accompanying notes are an integral part of
these consolidated financial statements.
CRYOMASS
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.
NATURE OF THE BUSINESS
Cryomass
Technologies Inc (“Cryomass Technologies” or the “Company”) began as Auto Tool Technologies Inc., which was incorporated
under the laws of the State of Nevada on May 10, 2011. The Company’s name was changed to AFC Building Technologies Inc. effective
January 10, 2014. Effective April 26, 2018, the Company changed its name to First Colombia Development Corp. Effective October 14, 2019,
the Company changed its name to Redwood Green Corp. Effective September 1, 2020, the Company changed its name to Andina Gold Corp. On
July 15, 2021, the Company entered into a plan of merger with its wholly-owned subsidiary, Cryomass Technologies Inc a Nevada corporation,
pursuant to which we agreed that subsidiary would merge with and into our company. Following the consummation of the merger, the separate
existence of the subsidiary ceased, and we continued as the surviving corporation with our name changed to Cryomass Technologies Inc.
effective August 27, 2021. Our ticker symbol changed from AGOL to CRYM.
The
Company’s principal office is located at 1001 Bannock St., Suite 612, Denver, CO 80204, and its telephone number is 303-416-7208.
The Company’s website is www.cryomass.com. Information appearing on the website is not incorporated by reference into this prospectus.
The
Company over its history has explored a number of different business opportunities.
On
May 10, 2018, the Company acquired all the issued and outstanding share capital of First Colombia Devco S.A.S. (“Devco”)
a Colombian company and began to establish various business ventures in Colombia in the agriculture and real estate development, tourism,
and infrastructure sectors before commencing to phase them out in April 2019.
On
July 1, 2019, the Company acquired 100% of the membership interests in General Extract, LLC (“General Extract”), a Colorado
limited liability company. General Extract was founded in 2015 as an importer, distributor, broker and postprocessor of hemp and hemp
derivatives. The Company acquired all of the issued and outstanding membership interests, including business plans and access to contacts.
Effective August 27, 2021, General Extract became Cryomass LLC.
On
July 15, 2019, the Company, through its wholly owned subsidiary Good Acquisition Co., entered into a Membership Interest Purchase Agreement
to acquire cannabis-related intellectual property and other assets of Critical Mass Industries LLC DBA Good Meds (“CMI” and/or
“Good Meds”), a Colorado limited liability company (“CMI Transaction”). CMI is licensed by the Marijuana Enforcement
Division of Colorado Department of Revenue to produce cannabis and cannabis products under its six licenses. These licenses allow for
cultivation, manufacturing of infused products and retail distribution. At the time the Company entered into the Membership Interest
Purchase Agreement, Colorado law prohibited public companies, including the Company, from owning cannabis licenses. Therefore, CMI spun
off certain assets acquired by the Company. Under the terms of the Membership Interest Purchase Agreement, CMI retained the cannabis
license, inventory and accounts receivable (the “Cannabis License Assets”) and continued to operate the cannabis business
related to those assets. In consideration for the transfer of the acquired assets, the Company delivered 13,553,233 shares of the Company
common stock, in addition to $1,999,770 in cash to CMI.
Good
Meds, the operating unit of CMI, is based in Denver, CO, and operates in a 60,000-square-foot cultivation and processing facility. This
facility produces cannabis for sale as dry flower and biomass input for processing into Marijuana-Infused Products (“MIP”),
such as live resin, wax and budder. Good Meds also owns and operates two medical cannabis dispensaries located in Lakewood, CO and Englewood,
CO. The business has been in operation since 2009.
CRYOMASS
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
Effective
December 31, 2021, we entered into a restated and amended administrative services agreement, terminated our license and marketing agreements,
and restated the asset purchase agreement with CMI and affiliates. As a result of these agreements, we disposed of all CMI-related assets
and extinguished any and all related obligations. For clarity, we have no management or operations decision-making right or responsibility,
nor any access to future economic benefits from operation of the assets. Therefore, upon commencing these agreements, we determined that
CMI no longer qualifies as a variable interest entity as of December 31, 2021.
Beginning
in March 2020, an evaluation of various strategic alternatives was followed by the decision to sell the Colorado-based assets and refocus
its attention on unique opportunities for gold exploration in Colombia. In August 2020, the Company established a wholly owned Colombian
subsidiary, Andina Gold Colombia SAS for this purpose. In December 2020, due to the death of the top geologist exploring opportunities
on behalf of the Company, and the effects of the ongoing Coronavirus pandemic, the Company determined that pursuit of gold exploration
in Colombia was no longer a practical alternative.
On
June 22, 2021, the Company entered into an Asset Purchase Agreement with Cryocann USA Corp, a California corporation (“Cryocann”),
pursuant to which Company acquired substantially all the assets of Cryocann. The aggregate purchase price was $3,500,000 million in cash
and 10,000,000 shares of Company common stock As part of the Cryocann Acquisition, we retained both Cryocann employees, who have expert
knowledge of the industry, related participants, customers and the acquired patented technology. Under their employment agreements, each
employee may receive compensation if specific performance targets are met in association with our future operating performance when the
Cryocann technology enters the market. The technology and assets acquired from Cryocann are operated from the Company’s subsidiary,
Cryomass LLC. The patented cryo-mechanical technology is for the separation of plant materials in the harvesting of hemp and cannabis,
and potentially other high value crops such as hops. We believe this technology will reduce processing costs and increases the quality
of extracted compounds. We are exploring the application of the underlying technology to a broad range of industries that handle high-value
materials and that could benefit from our precision capture methods. We anticipate that cannabis and hemp will be the first in a series
of such industries.
To
develop and commercialize the technology, we contracted with an independent engineering and manufacturing firm to refine the design of
our cryo-mechanical system for the handling of harvested hemp, cannabis and other high-value plants. The system exploits CryoMass’s
U.S.-patented process for the controlled application of liquid nitrogen to stabilize and separate the structural elements of gross plant
material. The device currently under development is scaled for highway transportability and is being optimized for the low-cost collection
of fully intact hemp and cannabis trichomes. It can be used within minutes after plants have been cut and can also efficiently capture
trichomes from fresh frozen or even dried plant parts, including trim. The device’s through-put capacity is expected to be approximately
600 kilograms of gross plant material per hour. The advanced design for the equipment has been completed, and testing
of a prototype machine is currently underway. The engineering and manufacturing firm has indicated that it has the capacity to build
10 to 15 such devices per month.
In
November we retained a second engineering and manufacturing firm to independently develop a separate machine design that applies
our patented process. We expect their work to help strengthen the power and robustness of our technology. In addition, it opens
a channel to a second manufacturing source.
The
first functional “beta” machine is ready for field testing by a third-party cannabis producer as of the date hereof. The
first production-run machine is expected to be ready for use towards the end of the second quarter 2022. At that moment, we expect to
start helping our first tolling client (fee for service) increase its margins by cutting the cost of handling, processing and
refining its hemp or cannabis and increasing the resulting material’s value to formulators of end products.
CRYOMASS
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
Management
believes the CryoMass system will deliver a compelling combination of cost and time savings while enhancing product quality
and quantity for largescale cultivators and processors of hemp and cannabis. The use of a CryoMass system – which
can be trucked to and operated on the fields of most large hemp and cannabis growers or be permanently installed at a user’s processing
facility – should eliminate many of the costs that come with traditional practices, especially the labor, fuel and capital
costs of drying and curing hemp or cannabis that is grown for the extraction of end products. With traditional practices, harvested
plants are transported to a specially constructed drying house and then treated for a week or longer under controlled conditions of temperature
and humidity. It’s a costly method. With our system, harvested plants are simply fed into the front end of a CryoMass machine,
and minutes later fully intact trichomes are collected at the back end of the machine. With traditional practices and their seven-to-ten
days of handling and drying, a large share of a plant’s valuable trichomes break off and are lost. Then the remaining trichomes
are damaged by long exposure to oxygen and by the evaporation of their volatile terpenes. The CryoMass system, on the other
hand, stabilizes and collects fully intact trichomes at harvest, leaving no opportunity for such wasteful loss. Field-captured trichomes
are the cleanest element of a hemp or cannabis plant because, unlike the rest of the plant, trichomes do not readily take up heavy metals, pesticides or
other common soil contaminants. As a product for end-users, field-captured trichomes are closest to being contaminant free. As feedstock
for manufacturers of extracts and oils, they are the key to the purest products possible.
Because
the trichomes collected with CryoMass technology represent only 10% or so of a plant’s weight and volume, they are cheaper
to ship and store than gross plant material. For the same reason and because trichomes are free of the waxes and other unwanted
materials found in the rest of the plant, processing trichomes into oils and extracts can be far quicker, cheaper and easier
than processing gross plant material. Even trichomes captured from dried or frozen plant parts deliver this cost-saving advantage to
processors of oils and extracts. The three-dimensional advantage achievable with the CryoMass system – first-stage
cost savings, product enhancement and downstream cost savings – can as much as double a crop’s wholesale value. And in some
jurisdictions, users may enjoy a reduction in excise taxes levied on cannabis and hemp harvests, which typically are tied to the gross
weight of hemp or cannabis that is removed from the field.
Production
and processing of hemp and cannabis is a huge, worldwide industry. In the U.S., for example, the wholesale value of the cannabis crop
from just the 11 states permitting adult-use and medical cannabis exceeds $6 billion annually.1 Growth in the U.S.
and in the worldwide market is likely fed in part by the growing acceptance of medicinal cannabis products and anticipated legislative
changes in various jurisdictions worldwide.
And
that may only be chapter one of the Company’s story. Several other high-value plants, including species that are important for
health and wellness products, wrap their valuable elements in trichomes. The technology we are developing for hemp and cannabis may have
profitable application to those other species as well. We intend to find out.
In
September, we were granted an additional patent for our process from the Chinese Intellectual Property Office. We currently are
taking steps to gain further protection for our intellectual property through the European Union Intellectual Property Office and several
other international jurisdictions.
On
November 17th we announced the completion of a $10.3 million equity financing. The financing and the earlier conversion
of substantially all the company’s debt into common stock left the Company with a strong balance sheet and adequate resources for
our planned business development during the coming twelve months. In connection with the financing, 1,010,000 shares and 760,000
shares of CryoMass Technologies common stock were purchased by CEO Christian Noël and Chairman of the Board Delon Human,
respectively.
CRYOMASS
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
2.
VARIABLE INTEREST ENTITY
Pursuant
to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Section 810, Consolidation
(“ASC 810”), the Company is required to include in its consolidated financial statements, the financial statements of
its variable interest entity (“VIE”). ASC 810 requires a VIE to be consolidated if that company is subject to a majority
of the risk of loss for the VIE or is entitled to receive a majority of the VIE’s residual returns. VIEs are those entities in
which a company, through contractual arrangements, bears the risk of, and enjoys the rewards normally associated with ownership of the
entity, and therefore the company is the primary beneficiary of the entity.
Under
ASC 810, a reporting entity has a controlling financial interest in a VIE, and must consolidate that VIE, if the total equity investment
at risk is not sufficient to permit the legal entity to finance its activities without additional subordinated financial support provided
by any parties, including equity holders. Beginning July 15, 2019, the Company consolidated CMI as a VIE pursuant to certain intellectual
property, administrative and consulting agreements in which the Company is deemed the primary beneficiary of CMI. Accordingly, the results
of CMI have been included in the accompanying consolidated financial statements. Effective December 31, 2021, the Company entered into
an asset purchase agreement involving its VIE with Critical Mass Industries, Inc. and John Knapp, the sole shareholder of Critical Mass
Industries, Inc., to divest its discontinued operations in cannabis cultivation, where the buyer assumes all assets and liabilities from
the Company. Therefore, with regards to both criteria discussed above, the Company no longer has the power to direct activities, absorb
losses, or receive benefits from the VIE and as such will no longer consolidate with CMI.
| CMI Assets & Liabilities |
| | |
As of December 31, | |
| Description | |
2021 | | |
2020 | |
| Current assets | |
| | |
| |
| Cash and cash equivalents | |
$ | - | | |
$ | 196,445 | |
| Accounts receivable, net | |
| - | | |
| 66,043 | |
| Inventory, net | |
| - | | |
| 791,868 | |
| Total current assets | |
| - | | |
| 1,054,356 | |
| | |
| | | |
| | |
| Total assets | |
$ | - | | |
$ | 1,054,356 | |
| | |
| | | |
| | |
| Current liabilities | |
| | | |
| | |
| Accounts payable and accrued expenses | |
$ | - | | |
$ | 211,463 | |
| Total current liabilities | |
| - | | |
| 211,463 | |
| | |
| | | |
| | |
| Total liabilities | |
| - | | |
| 211,463 | |
| Net assets | |
$ | - | | |
$ | 842,893 | |
CRYOMASS
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
| CMI Statement of Operations |
| | |
For the Years Ended
December
31, | |
| Description | |
2021 | | |
2020 | |
| Net sales | |
$ | 5,891,894 | | |
$ | 6,860,282 | |
| Cost of goods sold, inclusive of depreciation | |
| 4,132,696 | | |
| 4,901,237 | |
| Gross profit | |
$ | 1,759,198 | | |
$ | 1,959,045 | |
| | |
| | | |
| | |
| Operating expenses | |
| | | |
| | |
| Personnel costs | |
| 428,728 | | |
| 402,389 | |
| Sales and marketing | |
| 816,683 | | |
| 908,502 | |
| General and administrative | |
| 112,934 | | |
| 231,376 | |
| Legal and professional fees | |
| 44,092 | | |
| 156,782 | |
| Amortization expense | |
| - | | |
| 26,901 | |
| Total operating expenses | |
| 1,402,437 | | |
| 1,725,950 | |
| Gain from operations | |
$ | 356,761 | | |
$ | 233,095 | |
| | |
| | | |
| | |
| Other income / (expense) | |
| | | |
| | |
| Interest expense | |
| (49,803 | ) | |
| (153,592 | ) |
| Goodwill impairment | |
| - | | |
| (4,663,514 | ) |
| Intangibles impairment | |
| - | | |
| (361,218 | |
| Other income | |
| - | | |
| - | |
| Total other income / (expense) | |
| (49,803 | ) | |
| (5,178,324 | ) |
| Loss on disposal of discontinued operations | |
| (3,021,724 | ) | |
| - | |
| Net income / (loss), before taxes | |
| (2,714,766 | ) | |
| (4,945,229 | ) |
| Income taxes | |
| (10,235 | ) | |
| (10,235 | ) |
| Net income / (loss), net of taxes | |
$ | (2,725,001 | ) | |
$ | (4,955,464 | ) |
As
a result of new agreements entered with CMI on December 31, 2021, as further detailed in Note 1 above, we disposed of all CMI-related
assets and extinguished any and all related obligations in exchange for a $3,600,000 promissory note due to us no later than December
31, 2023. When comparing the carrying value of CMI-related net assets to the value of the loan receivable, we calculated a loss on disposal
of discontinued operations of $3,021,724.
3.
GOING CONCERN UNCERTAINTY, FINANCIAL CONDITIONS AND MANAGEMENT’S PLANS
The
Company believes it has sufficient cash available to fund its anticipated level of operations for at least the next twelve months. During
the year, the Company raised $10,548,535 in common stock and $4,900,000 in convertible notes which were all converted to common stock.
While
management believes the Company has sufficient cash available to support an anticipated level of operations for at least the next twelve
months, the continuation of our company as a going concern is dependent upon the continued financial support from its shareholders, the
ability of our company to obtain necessary equity or debt financing to continue operations, the sale of assets, and ultimately the attainment
of profitable operations. For the year ended December 31, 2021, our company used $5,600,512 of cash for operating activities, incurred
a net loss of $12,859,643 and has an accumulated deficit of $28,588,837 since inception.
On
March 11, 2020, the 2019 novel coronavirus (“COVID-19) was characterized as a “pandemic.” The Company’s
operations were impacted during the year in the United States. The impact of COVID-19 developments and uncertainty with respect
to the economic effects of the pandemic has introduced significant volatility in the financial markets.
The
Company assessed certain accounting matters that require consideration of forecasted financial information, including, but not limited
to, the carrying value of the Company’s goodwill, intangible assets, and other long-lived assets, and valuation allowances in context
with the information reasonably available to the Company and the unknown future impacts of COVID-19 as of December 31, 2021 and
through the date of this report. The Company’s future assessment of the magnitude and duration of COVID-19, as well as other
factors, could result in material impacts to the Consolidated Financial Statements in future reporting periods.
CRYOMASS
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
The
COVID-19 pandemic and responses to this crisis, including actions taken by federal, state and local governments, have had an impact on
the operations of the company, including, without limitation, the following: reduced staffing due to employee suspected conditions and
social distancing measures; constraints on productivity; management and staff non-essential business-related travel was constrained due
to stay-at-home orders; most employees have shifted to remote work resulting in loss of productivity; consumers visiting dispensaries
operated under license impacted by stay-at-home orders. Management continues to monitor the COVID-19 pandemic situation and federal,
state and local recommendations and will provide updates as appropriate.
4.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation
The
accompanying consolidated financial statements have been prepared in accordance with GAAP. The consolidated financial statements include
the accounts of the Cryomass Technologies Inc, Cryomass LLC, and CMI, a VIE for which the Company was deemed to be the primary beneficiary.
All significant intercompany balances and transactions have been eliminated in consolidation. The Company operates as one segment from
its corporate headquarters in Colorado.
Effective
December 31, 2021, the Company entered into an asset purchase agreement involving its VIE with Critical Mass Industries, Inc. and John
Knapp, the sole shareholder of Critical Mass Industries, Inc., to divest its discontinued operations in cannabis cultivation, where the
buyer assumes all assets and liabilities from the Company. Therefore, with regards to both criteria discussed above, the Company no longer
has the power to direct activities, absorb losses, or receive benefits from the VIE and as such will no longer consolidate with CMI.
Use
of Estimates
The
preparation of the Company’s financial statements in conformity with GAAP 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 expenses during the reporting period. Significant estimates and assumptions reflected in these
financial statements include, but are not limited to determining the fair value of the assets acquired and liabilities assumed in acquisition,
determining the fair value and potential impairment of inventory, determining the useful lives and potential impairment of long-lived
assets and potential impairment of goodwill. The Company bases its estimates on historical experience, known trends and other market-specific
or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates
when there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known.
Actual results could differ from those estimates.
Reclassifications
Certain
items in the consolidated financial statements were reclassified from prior periods for presentation purposes.
Cash
and Cash Equivalents
The
Company considers all highly liquid instruments with maturities of three months or less at the time of issuance to be cash equivalents.
CRYOMASS
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
Concentrations
of Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit risk consist principally of cash. Periodically, the Company
maintains deposits in accredited financial institutions in excess of federally insured limits. The Company deposits its cash in financial
institutions that it believes have high credit quality and has not experienced any losses on such accounts. Additionally, the company
entered into a $3,600,000 loan receivable in conjunction with the disposal of discontinued operations, which is backed by the assets
of the discontinued operations, should the borrower default. Aside from these items, the Company does not believe it is exposed to any
unusual credit risk.
Purchase
Accounting for Acquisitions
We
apply the acquisition method of accounting for a business combination. In general, this methodology requires us to record assets acquired
and liabilities assumed at their respective fair values at the date of acquisition. Any amount of the purchase price paid that is in
excess of the estimated fair value of the net assets acquired is recorded as goodwill. For certain acquisitions, we also record a liability
for contingent consideration based on estimated future business performance. We monitor our assumptions surrounding these estimated future
cash flows and, if there is a significant change, would record an adjustment to the contingent consideration liability and a corresponding
adjustment to either income or expense. We determine fair value using widely accepted valuation techniques, primarily discounted cash
flow and market multiple analyses. These types of analyses require us to make assumptions and estimates regarding industry and economic
factors, the profitability of future business strategies, discount rates and cash flow.
If
actual results are not consistent with our assumptions and estimates, or our assumptions and estimates change due to new information,
we may be exposed to an impairment charge in the future. If the contingent consideration paid for any of our acquisitions differs from
the amount initially recorded, we would record either income or expense associated with the change in liability.
Variable
Interest Entities
The
Company accounts for variable interest entities in accordance with FASB ASC Topic 810, Consolidation. Management evaluates
the relationship between the Company and VIEs and the economic benefit flow of the contractual arrangement with the VIEs. Management
determines if the Company is the primary beneficiary of a VIE through a qualitative analysis that identifies which variable interest
holder has the controlling financial interest in the VIE. The variable interest holder who has both of the following has the controlling
financial interest and is the primary beneficiary: (1) the power to direct the activities of the VIE that most significantly impact the
VIE’s economic performance and (2) the obligation to absorb losses of, or the right to receive benefits from, the VIE that could
potentially be significant to the VIE. In performing our analysis, we consider all relevant facts and circumstances, including: the design
and activities of the VIE, the terms of the contracts the VIE has entered into, the nature of the VIE’s variable interests issued
and how they were negotiated with or marketed to potential investors, and which parties participated significantly in the design or redesign
of the entity. As a result of such evaluation, management concluded that the Company is the primary beneficiary of CMI and consolidates
the financial results of this entity. Effective December 31, 2021, the Company entered into an asset purchase agreement involving its
VIE with Critical Mass Industries, Inc. and John Knapp, the sole shareholder of Critical Mass Industries, Inc., to divest its discontinued
operations in cannabis cultivation, where the buyer assumes all assets and liabilities from the Company. Therefore, with regards to both
criteria discussed above, the Company no longer has the power to direct activities, absorb losses, or receive benefits from the VIE and
as such will no longer consolidate with CMI.
Accounts
Receivable, net
Accounts
receivable, net is comprised of balances due from customers and are recorded at the invoiced amount. Past due balances are determined
based on the contractual terms of the arrangements. Accounts receivable are accrued against when management determines, after considering
economic and business conditions and all means of collection efforts have been exhausted and the potential for recovery is considered
remote, that the collection of receivables is doubtful. Accounts receivable amounts, net of allowance for doubtful accounts, were $0
and $606,043 as of December 31, 2021 and 2020, respectively. This includes $0 and $66,043, respectively, related to the VIE. Uncollectible
accounts previously recorded as receivables are recognized as bad debt expense, with a corresponding decrease to accounts receivable.
Bad debt expense was $541,099 and $188,548 for the years ended December 31, 2021 and 2020, respectively. This amount includes $1,099
and $4,548, respectively, related to the VIE, which is classified as discontinued operations.
CRYOMASS
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
Inventory,
net
Inventory,
net is comprised of work-in-process and finished goods consisting of cannabis and cannabidiol products. Cost includes expenditures directly
related to the manufacturing process as well as suitable portions of related production overheads, based on normal operating capacity.
Inventory, net is stated at the lower of cost or net realizable value. The Company compares the cost of inventory with market value and
writes down inventories to net realizable value, if lower. In evaluating whether inventories are stated at lower of cost or net realizable
value, management considers such factors as inventories on hand, physical deterioration, obsolescence, changes in price levels, estimated
time to sell such inventories and current market conditions. Due to changing market conditions, management conducted a thorough review
of its inventory. As a result, a provision for inventory losses of $0 and $400,787 was charged against cost of goods sold during the
years ended December 31, 2021 and 2020, respectively, due to a write down of inventory to its net realizable value. This was based on
the Company’s best estimates of product sales prices and customer demand patterns. It is at least reasonably possible that the
estimates used by the Company to determine its provision for inventory losses will be materially different from the actual amounts or
results. These differences could result in materially higher than expected inventory provisions, which could have a materially adverse
effect on the Company’s results of operations and financial conditions in the near term.
Revenue
Recognition
Under
FASB Topic 606, Revenue from Contacts with Customers (“ASC 606”), the Company recognizes revenue when the customer
obtains control of promised goods or services, in an amount that reflects the consideration which is expected to be received in exchange
for those goods or services. The Company recognizes revenue following the five-step model prescribed under ASC 606: (i) identify contract(s)
with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the
transaction price to the performance obligation(s) in the contract; and (v) recognize revenues when (or as) the Company satisfies a performance
obligation.
Discontinued
Operations
The
Company’s revenue consists of sales of cannabis and ancillary products to both retail consumers and wholesale customers. Revenue
for retail customers is recognized upon completion of the transaction in the point of sale system and satisfaction of the sale by providing
the corresponding inventory at the retail location. Revenue for wholesale customers is recognized upon acceptance of the physical goods
and confirmation by acceptance of the inventory in the regulatory marijuana enforcement tracking reporting compliance (“METRC”)
system. Revenue is recognized upon transfer of control of promised products to customers, generally as risk of loss passes, in an amount
that reflects the consideration the Company expects to receive in exchange for those products. Taxes collected from customers, which
are subsequently remitted to governmental authorities, are excluded from revenue.
Retail
customer loyalty liabilities are recognized in the period in which they are incurred and will often be retired without being utilized.
Shipping and handling costs are expensed as incurred and are included in cost of sales, which were not material for the years ended December
31, 2021 and 2020.
The
Company operates in a highly regulated environment in which state regulatory approval is required prior to the customer being able to
purchase the product, either through the Colorado Marijuana Enforcement Division for wholesale clients or the Colorado Department of
Public Health and Environment for medical patients.
Expenses
Operating
Expenses
Operating
expenses encompass personnel costs, sales and marketing expenses, general and administrative expenses, professional and legal fees and
depreciation and amortization related to the property and equipment and intangibles acquired through the acquisition of CMI and Cryocann.
Personnel costs consist primarily of consulting expense and administrative salaries and wages. Sales and marketing expenses consist primarily
of advertising and marketing, and salaries related to sales and marketing employees. General and administrative expenses are comprised
of travel expenses, accounting expenses, and board fees. Professional services are principally comprised of outside legal and professional
fees.
Discontinued
Operations
Cost
of Goods Sold, Net of Depreciation and Amortization
Cost
of goods sold primarily consisted of allocated salaries and wages of employees directly related with the production process, allocated
depreciation and amortization directly related to the production process, cultivation supplies, rent and utilities.
CRYOMASS
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
Other
Expense, net
Other
expense, net consisted of interest expense, other income and (loss) gain on foreign exchange.
Stock-Based
Compensation
The
fair value of restricted stock units (“RSUs”) granted are measured on the grant date using the closing price
of the Company’s common shares on the grant date. For stock options, the Company engages a valuation firm to calculate the grant
date fair value of the options issued. The Company accounts for forfeitures as they occur, rather than estimating expected forfeitures
over the course of a vesting period. All stock-based compensation costs are recorded in general and administrative expenses in the consolidated
statements of operations.
Property
and Equipment, net
Purchase
of property and equipment are recorded at cost. Improvements and replacements of property and equipment are capitalized. Maintenance
and repairs that do not improve or extend the lives of property and equipment are charged to expense as incurred. When assets are sold
or retired, their cost and related accumulated depreciation are removed from the accounts and any gain or loss is reported in the consolidated
statements of operations. Depreciation and amortization expense is recognized using the straight-line method over the estimated useful
life of each asset, as follows:
| |
|
Estimated
Useful Life |
| Computer equipment |
|
3 – 5 years |
| Furniture and fixtures |
|
5 – 7 years |
| Machinery and equipment |
|
5 – 8 years |
| Leasehold improvements |
|
Shorter
of lease term or 15 years |
Goodwill
and Intangible Assets
Goodwill
represents the excess of the purchase price of an acquired entity over the fair value of identifiable tangible and intangible assets
acquired and liabilities assumed in a business combination.
Indefinite-lived
intangible assets established in connection with business combinations consists of in process research and development. Intangible assets
with indefinite lives are recorded at their estimated fair value at the date of acquisition. Once in process research and development
is placed in service, it will be amortized over the estimated useful life.
Intangible
assets with finite lives are recorded at their estimated fair value at the date of acquisition and are amortized over their estimated
useful lives using the straight-line method. Amortization of assets ceases upon designation as held for sale. The estimated useful lives
of intangible assets are detailed in the table below:
| |
|
Estimated
Useful
Life |
| Patent |
|
10 years |
| In process research and development |
|
Indefinite |
CRYOMASS
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
Impairment
of Goodwill and Intangible Assets
Goodwill
Goodwill
is not amortized, but instead is tested annually at December 31 for impairment and upon the occurrence of certain events or substantive
changes in circumstances.
We
account for the impairment of goodwill under the provisions of Financial Accounting Standards Board (FASB) Accounting Standard Update
2017-04 (“ASU 2017-04”), “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment” and FASB Accounting Standards Codification (ASC) 350-20-35, Intangibles – Goodwill and Other – Goodwill.
The
Company performs impairment testing for goodwill by performing the following steps: 1) evaluate the relevant events or circumstances
to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, 2) if yes to
step 1, calculate the fair value of the reporting unit and compare it with its carrying amount, including goodwill, 3) recognize impairment,
limited to the total amount of goodwill allocated to that reporting unit, equal to the excess of the carrying value of a reporting unit
over its fair value.
During
the year ended December 31, 2020, the Company concluded that goodwill resulting from the CMI transaction was impaired, resulting in a
$4,663,514 impairment charge included in net loss from discontinued operations.
In
accordance with ASC 350, as of December 31, 2021, management concluded that the goodwill resulting from the Cryocann acquisition was
not impaired.
Indefinite-Lived
Intangible Assets and Intangible Assets Subject to Amortization
Indefinite-lived
intangible assets and intangible assets subject to amortization are not amortized, but instead are tested annually at December 31 for
impairment and upon the occurrence of certain events or substantive changes in circumstances.
We
account for the impairment of indefinite-lived intangible assets under the provisions of Financial Accounting Standards Board (FASB)
Accounting Standards Codification (ASC) 350-30-35, Intangibles – Goodwill and Other – General Intangibles Other Than Goodwill.
Following this guidance, the Company compares the estimated fair value of the indefinite-lived intangible assets to its carrying value.
If the carrying value exceeds the fair value, the Company recognizes impairment equal to that excess.
We
account for the impairment of intangible assets subject to amortization under the provisions of Financial Accounting Standards Board
(FASB) Accounting Standards Codification (ASC) 360-10-35, Property, Plant, and Equipment. Following this guidance, the Company
compares the estimated fair value of the intangible assets subject to amortization to its carrying value. If the carrying value exceeds
the fair value, the Company recognizes impairment equal to that excess.
During
the year ended December 31, 2020, the Company concluded that intangible assets resulting from the CMI transaction were impaired, resulting
in an impairment charge of $316,218, which is included in net loss from discontinued operations.
As
of December 31, 2021, management concluded that identifiable intangible assets resulting from the Cryocann transaction were not impaired.
Contingencies
An
initial right-of-use (“ROU”) asset and corresponding liability of $1,411,461 was recognized upon the CMI Transaction. The
Company adopted ASU Topic 842 January 1, 2019, but had no reportable operating leases at that point in time. As of December 31, 2021,
our ROU assets and liabilities associated with CMI were no longer included on the consolidated balance sheets.
CRYOMASS
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
Income
Taxes
The
Company uses the liability method of accounting for income taxes as set forth in ASC 740, Income Taxes. Under the liability method,
deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities
using tax rates expected to be in effect during the years in which the basis differences reverse. A valuation allowance is recorded when
it is likely that the deferred tax assets will not be realized. We assess our income tax positions and record tax benefits for all years
subject to examination based upon our evaluation of the facts, circumstances and information available at the reporting date. In accordance
with ASC 740-10, for those tax positions where there is a greater than 50% likelihood that a tax benefit will be sustained, our policy
will be to record the largest amount of tax benefit that is more likely than not to be realized upon ultimate settlement with a taxing
authority that has full knowledge of all relevant information. For those income tax positions where there is less than 50% likelihood
that a tax benefit will be sustained, no tax benefit will be recognized in the financial statements.
Fair
Value Measurements
Certain
assets and liabilities of the Company are carried at fair value under GAAP. Fair value is defined as the exchange price that would be
received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability
in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize
the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are
to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered
observable and the last is considered unobservable:
| |
● |
Level 1 — Quoted
prices in active markets for identical assets or liabilities. |
| |
|
|
| |
● |
Level 2 — Observable
inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices
in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated
by observable market data. |
| |
|
|
| |
● |
Level 3 — Unobservable
inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities,
including pricing models, discounted cash flow methodologies and similar techniques. |
The
carrying values reported in the consolidated balance sheets for cash, prepaid expenses, inventories, accounts payable, notes payable,
and taxes payable approximate fair values because of the immediate or short-term maturities of these financial instruments. There were
no other assets or liabilities that require fair value to be recalculated on a recurring basis.
The
fair value of beneficial conversion features associated with convertible notes and the fair value of warrants are calculated utilizing
level 2 inputs.
When
multiple instruments are issued in a single transaction, the total proceeds from the transaction should be allocated among the individual
freestanding instruments identified. In this case, there were warrants issued in conjunction with convertible notes of $4.9 million and
$250K and the sale of common stock through subscription agreements for $679K and $10.3 million. The allocation occurs after identifying
(1) all the freestanding instruments and (2) the subsequent measurement basis for those instruments. The subsequent measurement basis
helps inform how the proceeds should be allocated. After the proceeds are allocated to the freestanding instruments, those instruments
should be further evaluated for embedded features that may need to be bifurcated or separated.
If
debt or stock is issued with detachable warrants, the guidance in ASC 470-20-25-2 (applied by analogy to stock) requires that the proceeds
be allocated to the two instruments based on their relative fair values. This method is generally appropriate if debt or stock is issued
with any other freestanding instrument that is classified in equity (such as a detachable forward contract) or as a liability but not
subject to subsequent fair value accounting.
Given
that the convertible notes and common stock that were issued with warrants are both not subject to subsequent fair value accounting treatment,
Management determined the relative fair value method shall be used for allocating the proceeds of the transaction. Under the relative
fair value method, the instrument being analyzed is allocated a portion of the proceeds based on its fair value to the sum of the fair
value of all the instruments covered int the allocation.
Management
additionally evaluated the facts and circumstances to determine whether the principal balance of the Notes ($4.9 million and $250K) approximated
their fair value. The Notes were issued entirely to unrelated third parties which were deemed to be arm’s length transactions.
In addition, the comparable interest rates for loans of similar companies as of the date of the Note issuances range from 10-15% given
the liquidity concerns of the Company. The term of the Notes issued range from 8-15 months, which would support the conclusion that the
principal balance approximates their fair value given the short-term maturities of each Note. Finally, the Warrants issued in connection
with the Notes were included akin to a “sweetener” in the offering as opposed to compensation for adjusting the interest
rate or other key terms within the Convertible Term Loan Agreements. As such, the Company concluded that the principal balance of the
Notes approximated their fair value.
CRYOMASS
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
The
Warrants were initially measured at fair value and subsequent fair value measurement is not required as long as the instrument continues
to be classified in equity. The proceeds from each transaction were allocated between the Notes and Warrants as well as common stock
and Warrants based on the relative fair value method.
Warrants
issued in connection with cash provided for common shares, and not convertible notes, during the fourth quarter of 2021 also followed
the same fair value assessment and treatment as noted above.
Net
Loss per Share
The
Company follows ASC 260, Earnings Per Share, which requires presentation of basic and diluted earnings per share (“EPS”)
on the face of the income statement for all entities with complex capital structures. Net earnings or loss per share is computed by dividing
net income or loss by the weighted-average number of common shares outstanding during the period, excluding shares subject to redemption
or forfeiture. The Company presents basic and diluted net earnings or loss per share. Diluted net earnings or loss per share reflect
the actual weighted average of common shares issued and outstanding during the period, adjusted for potentially dilutive securities outstanding.
Potentially dilutive securities are excluded from the computation of the diluted net loss per share if their inclusion would be anti-dilutive.
There were 2,200,003 unvested RSU’s considered potentially dilutive securities outstanding as of December 31, 2021 and 2,453,172
unvested RSU’s considered potentially dilutive securities outstanding as of December 31, 2020. Diluted net loss per share is the
same as basic net loss per share for each period.
Assets
and Liabilities of Discontinued Operations Held for Sale
Assets
and liabilities are classified as held for sale when all of the following criteria for a plan of sale have been met: (1) management,
having the authority to approve the action, commits to a plan to sell the assets; (2) the assets are available for immediate sale, in
their present condition, subject only to terms that are usual and customary for sales of such assets; (3) an active program to locate
a buyer and other actions required to complete the plan to sell the assets have been initiated; (4) the sale of the assets is probable
and is expected to be completed within one year; (5) the assets are being actively marketed for a price that is reasonable in relation
to their current fair value; and (6) actions required to complete the plan indicate that it is unlikely that significant changes to the
plan will be made or the plan will be withdrawn. When all of these criteria have been met, the assets (and liabilities) are classified
as held for sale in the balance sheet. Assets classified as held for sale are reported at the lower of their carrying value or fair value
less costs to sell. Depreciation of assets ceases upon designation as held for sale.
Recent
Accounting Pronouncements
In
August 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-06, Debt—Debt with
Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40).
ASU 2020-06 reduces the number of accounting models for convertible debt instruments and convertible preferred stock. The accounting
model for beneficial conversion features is removed. The ASU is effective for fiscal years beginning after December 15, 2021, including
interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15,
2020, including interim periods within those fiscal years. The Company determined that this update will impact its financial statements.
In
August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (ASC 820): Disclosure Framework-Changes to the Disclosure Requirements
for Fair Value Measurement. ASU 2018-13 removes certain disclosures, modifies certain disclosures and adds additional disclosures.
The ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019. Early
adoption is permitted. The Company has evaluated that this update will not have a material impact on its financial statements and related
disclosures.
In
January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (ASC 350), which simplifies the test for goodwill impairment.
The ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019. Early
adoption is permitted. The Company adopted this new standard on January 1, 2020.
In
February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASC 842). In July 2018, the FASB issued ASU No.
2018-10, Codification Improvements to Topic 842, Leases (ASU 2018- 10), which provides narrow amendments to clarify how to apply certain
aspects of the new lease standard, and ASU No. 2018-11, Leases (Topic 842)-Targeted Improvements (ASU 2018-11), which addressed implementation
issues related to the new lease standard. Under ASC 842, leases are classified as either finance or operating, with classification affecting
the pattern of expense recognition in the income statement. The standard also requires disclosures to help investors and other financial
statement users better understand the amount, timing and uncertainty of cash flows arising from leases. ASU 2016-02 was effective for
annual reporting periods beginning after December 15, 2018 and interim periods within that reporting period. The Company adopted ASC
842 on January 1, 2019 and used the modified retrospective approach with the effective date as the date of initial application. Prior
period results continue to be presented under ASC 840 based on the accounting standards originally in effect for such periods.
CRYOMASS
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
5.
REVENUE RECOGNITION
Disaggregated
Revenue
| | |
For the Years Ended
December
31, | |
| | |
2021 | | |
2020 | |
| Types of Revenues: | |
| | |
| |
| Medical retail | |
$ | - | | |
$ | 11,200 | |
| Medical wholesale | |
| - | | |
| 700 | |
| Recreational wholesale | |
| - | | |
| 769,555 | |
| Total revenues | |
$ | - | | |
$ | 781,455 | |
6.
BUSINESS COMBINATIONS
Effective
June 23, 2021, the Company acquired substantially all the assets of Cryocann for $3,500,000 million in cash and 10,000,000 shares of
Company common stock, of which $1,000,000 in cash and 10,000,000 shares of Company common stock were paid at closing and a promissory
note was issued for $1,252,316 payable by Company to Cryocann on October 15, 2021, which represents the remaining Purchase Price of $2,500,000
minus the amount owed by Cryocann under a Loan Agreement dated April 23, 2021 by and between Cryocann and the Company.
The
Company concluded that the Cryocann Acquisition qualified as a business combination under ASC 805. The Company’s allocation of
the purchase price was calculated as follows:
| Cash | |
$ | 2,247,684 | |
| Common stock | |
| 1,804,500 | |
| Promissory Note | |
| 1,220,079 | |
| Total purchase price | |
$ | 5,272,263 | |
Description | |
Fair Value | | |
Weighted
average
useful
life
(in years) | |
| Assets acquired: | |
| | |
| |
| Intangible assets: | |
| | |
| |
| In process research and development | |
| 3,209,000 | | |
| Indefinite | |
| Patent | |
| 873,263 | | |
| 10 | |
| Goodwill | |
| 1,190,000 | | |
| | |
| Total assets acquired | |
$ | 5,272,263 | | |
| | |
CRYOMASS
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
The
following table below represents the revenue, net loss and loss per share effect of the acquired company, as reported in our pro forma
basis as if the acquisition occurred on January 1, 2020. These pro forma results are not necessarily indicative of the results that actually
would have occurred if the acquisition had occurred on the first day of the periods presented, nor does the pro forma financial information
purport to represent the results of operations for future periods.
| | |
For the Years Ended
December
31, | |
| | |
2021 | | |
2020 | |
| Net Sales | |
$ | 7,641,737 | | |
$ | 781,455 | |
| Net loss | |
$ | (12,417,483 | ) | |
$ | (12,134,840 | ) |
| Net loss per common share | |
$ | (0.08 | ) | |
$ | (0.12 | ) |
7.
DISCONTINUED OPERATIONS
In
June 2020, the Company’s board of directors adopted a plan to exit the cultivation, manufacturing of infused products and retail
distribution businesses through the sale of CMI. The Company determined that the intended sale represented a strategic shift that will
have a major effect on the Company’s operations and financial results.
The
accompanying consolidated balance sheets include the following carrying amounts of assets and liabilities related to these CMI discontinued
operations:
| | |
December 31,
2021 | | |
December 31,
2020 | |
| Assets | |
| | |
| |
| Accounts receivable, net | |
$ | - | | |
$ | 66,043 | |
| Prepaid expenses | |
| - | | |
| 7,601 | |
| Inventory, net | |
| - | | |
| 791,868 | |
| Property and equipment, net | |
| - | | |
| 2,714,771 | |
| Goodwill | |
| - | | |
| - | |
| Intangible assets, net | |
| - | | |
| 2,481,128 | |
| Security deposits | |
| - | | |
| 11,522 | |
| Right of use asset, net | |
| - | | |
| 794,907 | |
| Total current assets held for sale | |
| - | | |
| 6,867,840 | |
| | |
| | | |
| | |
| Total assets held for sale | |
$ | - | | |
$ | 6,867,840 | |
| | |
| | | |
| | |
| Liabilities | |
| | | |
| | |
| Accounts payable and accrued expenses | |
| - | | |
| 211,463 | |
| Taxes payable | |
| - | | |
| 22,645 | |
| Notes payable, related parties | |
| - | | |
| 458,599 | |
| Right of use liability | |
| - | | |
| 771,578 | |
| Total liabilities held for sale | |
| - | | |
| 1,464,285 | |
| Net assets | |
$ | - | | |
$ | 5,403,555 | |
CRYOMASS
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
The
consolidated statements of operations include the following operating results related to these CMI discontinued operations:
| | |
Year Ended
December 31, | |
| | |
2021 | | |
2020 | |
| Net sales | |
$ | 5,891,894 | | |
$ | 6,860,282 | |
| Cost of goods sold, inclusive of depreciation | |
| 4,132,696 | | |
| 4,901,237 | |
| Gross profit | |
| 1,759,198 | | |
| 1,959,045 | |
| | |
| | | |
| | |
| Operating expenses: | |
| | | |
| | |
| Personnel costs | |
| 428,728 | | |
| 402,389 | |
| Sales and marketing | |
| 816,683 | | |
| 908,502 | |
| General and administrative | |
| 112,934 | | |
| 231,376 | |
| Legal and professional fees | |
| 44,092 | | |
| 156,782 | |
| Amortization expense | |
| - | | |
| 26,901 | |
| Total operating expenses | |
| 1,402,437 | | |
| 1,725,950 | |
| Gain from operations | |
| 356,761 | | |
| 233,095 | |
| | |
| | | |
| | |
| Other income (expenses): | |
| | | |
| | |
| Interest expense | |
| (49,803 | ) | |
| (153,592 | ) |
| Goodwill impairment | |
| - | | |
| (4,663,514 | ) |
| Intangibles impairment | |
| - | | |
| (361,218 | ) |
| Other income | |
| - | | |
| - | |
| Total other income (expenses) | |
| (49,803 | ) | |
| (5,178,324 | ) |
| Loss on disposal of discontinued operations | |
| (3,021,724 | ) | |
| (4,945,229 | ) |
| Net gain / (loss) from discontinued operations, before taxes | |
| (2,714,766 | ) | |
| (4,945,229 | ) |
| Income taxes | |
| (10,235 | ) | |
| (10,235 | ) |
| Net gain / (loss) from discontinued operations | |
$ | (2,725,001 | ) | |
$ | (4,955,464 | ) |
As
discussed in Note 2, we disposed of all CMI-related assets and extinguished any and all related obligations, resulting in a loss on disposal
of discontinued operations of $3,021,724.
CRYOMASS
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
8.
PROPERTY AND EQUIPMENT, NET
Property
and equipment, net consisted of the following.
| | |
December 31,
2021 | | |
December 31,
2020 | |
| Leasehold improvements | |
$ | - | | |
$ | 2,770,385 | |
| Machinery and equipment | |
| 225,000 | | |
| 1,065,885 | |
| Furniture and fixtures | |
| - | | |
| 43,331 | |
| Construction in progress | |
| - | | |
| 227,995 | |
| | |
| 225,000 | | |
| 4,107,596 | |
| Less: Accumulated depreciation | |
| - | | |
| (1,392,825 | ) |
| | |
$ | 225,000 | | |
$ | 2,714,771 | |
Depreciation
expense for the years ended December 31, 2021 and 2020 was $0 and $131,110, respectively. Depreciation expense was recorded in cost of
goods sold and general and administrative expense and is included in discontinued operations.
9.
GOODWILL AND INTANGIBLE ASSETS
The
carrying value of goodwill was $1,190,000 and $0, as of December 31, 2021 and December 31, 2020, respectively.
The
following tables summarize information relating to the Company’s identifiable intangible assets as of December 31, 2021. The Company
had no identifiable intangible assets as of December 31, 2020.
| | |
Estimated
Useful Life
(Years) | |
Gross
Amount | | |
Accumulated Amortization | | |
Carrying
Value | |
| Amortized | |
| |
| | |
| | |
| |
| Patent | |
10 years | |
| 873,263 | | |
| (43,663 | ) | |
| 829,600 | |
| Indefinite-lived | |
| |
| | | |
| | | |
| | |
| In-process research and development | |
Indefinite | |
| 3,209,000 | | |
| - | | |
| 3,209,000 | |
| Total identifiable intangible assets | |
| |
$ | 4,082,263 | | |
$ | (43,663 | ) | |
$ | 4,038,600 | |
Amortization
expense, which is included in continuing operations, was $43,663 and $0 for the years ended December 31, 2021 and 2020, respectively.
CRYOMASS
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
10.
LOAN RECIEVABLE
As
a result of new agreements entered with CMI on December 31, 2021, as further detailed in Note 1 above, we received a $3,600,000 promissory
note due to us no later than December 31, 2023. In consideration of the loan receivable, we conveyed to CMI, any and all manufacturing,
grow equipment, retail-related assets and other assets Seller owns in the state of Colorado and are currently used by CMI subsidiaries
in the course of business, including client lists and appertaining intellectual property, and no other Buyer or Parent assets, as well
as all liabilities related to these assets.
11.
DEBT
On
July 27, 2020, the Company entered into a subscription agreement consisting of 1) a convertible note and 2) warrants. The 1) convertible
note has a face value of $250,000, matures August 1, 2022, and accrues interest at 8% per annum. The note is convertible into 2,500,000
shares of the Company’s common stock at a conversion price of $0.10 per share. The beneficial conversion feature is accounted for
in accordance with ASC 470-20 Debt with Conversion and Other Options and the resulting debt discount is amortized over the life
of the note. As of December 31, 2021, the net carrying amount is $177,083, which consists of the $250,000 convertible note and $72,917
unamortized debt discount. As of December 31, 2020, the net carrying amount is $52,083, which consists of the $250,000 convertible note
and $197,917 unamortized debt discount. The warrants are exercisable to purchase an additional 2,500,000 shares of common stock at $0.25
per share.
On
August 26, 2020, the Company entered into a $600,000 loan agreement, which accrues interest at 84% per annum. On January 25, 2021, the
Company refinanced this loan at 93.6%, to obtain additional funding. The loan was fully repaid on April 27, 2021, with a $412,560 loan
balance as of December 31, 2020.
On
March 18, 2021, the Company entered into a $225,000 note payable, which accrued interest at 15% per annum. The note was fully repaid
on May 7, 2021.
Between
March 29, 2021 and July 6, 2021, the Company entered into a series of similar subscription agreements with either domestic or non-US
accredited investors, respectively (each, a “Initial Tranche Subscription Agreement (US)” and, respectively, “Initial
Tranche Subscription Agreement (non-US)”) pursuant to which the Company issued and sold to certain accredited investors, in the
initial tranche of a non-brokered private placement (the “Private Placement”), an aggregate 3,000 units (“Units”),
each Unit representing (i) one $1,000 principal amount term note providing for an optional conversion into shares of Company common stock
at a price of $0.20 per share (each the “Initial Convertible Term Note”) and (ii) a common share warrant for the purchase
of 5,000 shares of Company common stock at an exercise price of $0.40 per share (each an “Initial Warrant”), for aggregate
net proceeds of $3,000,000. The Initial Convertible Term Notes and the Initial Warrants mature on March 31, 2022 and March 31, 2023,
respectively, and accrued interest at a rate of 12% per annum payable on a quarterly basis.
CRYOMASS
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
Between
May and July 6, 2021, the Company entered into a series of substantially similar subscription agreements with either domestic or non-US
investors (each, a “Subscription Agreement (US)”, and, respectively, “Subscription Agreement (non-US)”) pursuant
to which the Company issued and sold to certain accredited investors, in the second tranche of the Private Placement, an aggregate 1,900
units (“Units”), each Unit representing (i) one $1,000 principal amount term note (each a “Convertible Term Note”)
providing for an optional conversion into shares of Company common stock at a price of $0.20 per share and (ii) a common share warrant
for the purchase of 5,000 shares of Company common stock at an exercise price of $0.40 per share (each a “Warrant”), for
additional aggregate net proceeds of $1,900,000. The Convertible Term Notes and Warrants mature on September 30, 2022 and April 30, 2023,
respectively, and accrued interest at a rate of 12% per annum payable on a quarterly basis.
During
the year ended December 31, 2021, we recorded a $1,444,542 debt discount associated on the $4,900,000 of convertible notes, comprised
of additional paid in capital for the fair value of warrants and a beneficial conversion feature of $928,779 and $515,763, respectively.
All notes were converted during the year ended December 31, 2021, and the entire debt discount was amortized into interest expense during
the year.
On
August 20, 2021, the Company entered into a $300,000 loan agreement, which accrues interest at 91.23% per annum. Payment is due on a
weekly basis up to the maturity date of May 27, 2021. The loan was fully repaid on October 19, 2021.
12.
RELATED PARTY TRANSACTIONS
In
conjunction with the CMI Transaction, the Company assumed a note payable in which the note holder, John Knapp (“Knapp”) is
a significant shareholder in the Company. In the second quarter of 2021, the Company issued 2,500,000 shares to pay off the balance of
the note. Effective February 25, 2020, Knapp resigned as a director of Cryomass Technologies, at which time 200,000 Restricted Stock
Units were deemed to have vested and were converted into 200,000 common shares. Refer to Note 2 for additional details on the relationship
of CMI as a VIE. The outstanding balance of the notes payable, related party was $0 and $458,599 as of December 31, 2021 and December
31, 2020, respectively.
In
conjunction with the Cryocann Acquisition, the Company received a promissory note from Matt Armstrong, an employee of the Company, for
$281,771. This note receivable was issued as part of an employment agreement with Matt Armstrong, effective June 22, 2021, and was offset
against his signing bonus on October 15, 2021. There was no interest associated with the note.
On
August 19, 2021, the Company entered into a loan agreement of $237,590 with its Chief Executive Officer, Christian Noel. The note accrues
interest at 14% per annum and was repaid on October 22, 2021.
On
November 15, 2021, issued 250,000 common shares and warrants, respectively, to Christian Noel in exchange for $50,000.
CRYOMASS
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
13.
SHAREHOLDERS’ EQUITY
From
June to August 2019, the Company completed a private placement for the sale of its common stock. The Company issued 14,325,005 shares
of common stock for gross proceeds of $7,162,503, or $0.50 per share, minus equity issuance costs of $72,096.
In
July 2019, the Company issued 13,553,233 shares of common stock in connection with the CMI Transaction (refer to Note 6).
During
the year ended December 31, 2019, the Company issued 790,000 shares of common stock pursuant to advisory agreements. The fair value of
$395,000 was included in legal and professional fees in the consolidated statements of operations.
In
February 2020, the Company issued 400,000 shares of common stock pursuant to accelerated vesting of RSU’s upon the resignation
of a former executive.
In
February 2020, the Company issued 200,000 shares of common stock pursuant to accelerated vesting of RSU’s upon the resignation
of a former board member.
In
March 2020, the Company issued 1,175,549 shares of common stock to a former executive per a separation agreement.
In
June 2020, four shareholders submitted 15,050,000 shares of common stock for cancellation pursuant to prior agreements among certain
shareholders. Accordingly, the Company cancelled 15,050,000 shares of common stock.
In
July 2020, the Company issued 10,000 shares of common stock to a former employee per a separation agreement.
In
July 2020, one shareholder submitted 300,000 shares of common stock for cancellation pursuant to prior agreements. Accordingly, the Company
cancelled 300,000 shares of common stock.
In
August 2020, the Company issued 60,000 shares of common stock in order to raise capital.
In
August 2020, the Company issued 757,895 shares of common stock to former board members per a separation agreement.
From
October to December 2020, the Company issued 3,535,665 shares of common stock in order to raise capital.
From
January to March 2021, the Company issued 1,491,819 shares of common stock in order to raise capital.
From
April to June 2021, the Company issued 10,000,000 shares of common stock related to the CryoCann transaction, 6,903,172 shares of common
stock pursuant to employment agreements, 2,500,000 shares of common stock in exchange for the extinguishment of debt, and 633,125 shares
of common stock in exchange for services.
From
July to September 2021, the Company issued 798,414 shares of common stock in order to raise capital, 633,707 shares of common stock in
exchange for services, and 92,127 shares of common stock for interest payment on a note payable.
From
October to December 2021, the Company issued 50,700,000 shares of common stock in order to raise capital, 1,570,501 shares of common
stock in exchange for services, and 24,621,119 shares of common stock in exchange for extinguishment of debt.
Restricted
Stock Unit Awards
The
Company adopted its 2019 Omnibus Stock Incentive Plan (the “2019 Plan”), which provides for the issuance of stock options,
stock grants and RSUs to employees, directors and consultants. The primary purpose of the 2019 Plan is to enhance the ability to attract,
motivate, and retain the services of qualified employees, officers and directors. Any RSUs granted under the 2019 Plan will be at the
discretion of the Compensation Committee of the Board of Directors. In April 2021 Board of Directors cancelled the 2019 Plan.
CRYOMASS
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
A
summary of the Company’s RSU award activity for the year ended December 31, 2021 is as follows:
| | |
Restricted Stock
Units | | |
Weighted
Average
Grant
Date Fair
Value | |
| Outstanding at December 31, 2020 | |
| 2,453,175 | | |
$ | 0.45 | |
| Granted | |
| 6,650,000 | | |
| 0.15 | |
| Vested | |
| (6,903,172 | ) | |
| 0.15 | |
| Forfeited | |
| - | | |
| - | |
| Outstanding at December 31, 2021 | |
| 2,200,003 | | |
$ | 0.45 | |
The
total fair value of RSUs vested during the years ending December 31, 2021 and 2020 was $2,851,102 and $309,790, respectively. As
of December 31, 2021 and 2020, there was $78,676 and $600,241, respectively, of unrecognized stock-based compensation cost related to
non-vested RSU’s, which is expected to be recognized over the remaining vesting period.
Stock-based
compensation expense relating to RSU’s was $1,685,066 and $734,752 for the years ending December 31, 2021 and 2020, respectively.
Stock-based compensation for the year ending December 31, 2021 consisted of equity awards forfeited, granted and vested to employees,
directors and consultants of the Company in the amount of $1,272,779, $347,275, and $65,012, respectively.
Stock
Option Awards
A
summary of the Company’s stock option activity for the year ended December 31, 2021 is as follows:
| | |
Stock
Option
Shares | | |
Weighted
Average
Exercise
Price | | |
Weighted
Average
Remaining
Contractual
Term | | |
Aggregate
Intrinsic
Value | |
| Outstanding at December 31, 2020 | |
| 3,500,000 | | |
$ | 0.16 | | |
| 8.8 | | |
$ | 581,591 | |
| Granted and vested | |
| 5,000,000 | | |
| 0.20 | | |
| 9.5 | | |
| 987,517 | |
| Forfeited | |
| - | | |
| - | | |
| - | | |
| - | |
| Outstanding at December 31, 2021 | |
| 8,500,000 | | |
$ | 0.18 | | |
| 9.2 | | |
$ | 1,579,108 | |
During
the years ended December 31, 2021 and 2020, the Company issued 5,000,000 and 3,500,000, respectively, of stock options to certain employees,
which vested immediately, for a total fair value of $968,205 and $555,532, respectively. Stock-based compensation expense relating to
stock options was $968,205 and $555,532, respectively.
Expenses
for stock-based compensation is included on the accompanying consolidated statements of operations in general and administrative expense.
During
the year ended December 31, 2021, the Company issued warrants with the option to purchase 73,950,000 common shares at an exercise price
of $0.40 per share. Of these warrants, 15,000,000 shares expire on March 31, 2023, 9,500,000 expire on April 30, 2023, 1,000,000 expire
on September 17, 2023, 7,750,000 expire on October 15, 2023, 9,510,000 expire on October 26, 2023, 190,000 expire on November 2, 2023,
27,060,000 expire on November 10, 2023, 1,940,000 expire on November 15, 2023, and 750,000 expire on November 17, 2023.
The
fair value of these warrants is $1,867,960, which is reflected in additional paid in capital.
During
the year ended December 31, 2020, the Company issued 2,500,000 and 4,525,898 warrant shares at an excersice price of $0.25 and $0.30,
respectively, which expire on August 1, 2022 and November 22, 2022, respectively.
The
fair value of these warrants is $266,383, which is reflected in additional paid in capital.
CRYOMASS
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
14.
INCOME TAXES
Deferred
taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating
loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences
are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in the tax laws and rates on the date
of enactment. The Company recognizes interest and penalties related to unrecognized tax benefits within income tax expense.
The
amounts in the following table are included in net loss from discontinued operations, net of tax. The provision (benefit) for income
taxes for the years ended December 31, 2021 and 2020 consists of:
| | |
2021 | | |
2020 | |
| Current (benefit) provision | |
| | |
| |
| Federal | |
$ | - | | |
$ | - | |
| State | |
| - | | |
| - | |
| Total Current | |
| - | | |
| - | |
| | |
| | | |
| | |
| Deferred (benefit) provision | |
| | | |
| | |
| Federal | |
$ | 3,724 | | |
$ | 3,724 | |
| State | |
| 6,511 | | |
| 6,511 | |
| Total Deferred | |
$ | 10,235 | | |
$ | 10,235 | |
| | |
| | | |
| | |
| Total Provision | |
$ | 10,235 | | |
$ | 10,235 | |
The
statutory federal income tax rate (21 percent) for the years ended December 31, 2021 and 2020 is reconciled to the effective income tax
rate as follows:
| | |
2021 | | |
2020 | |
| | |
Tax | | |
Percentage | | |
Tax | | |
Percentage | |
| Income Taxes At Statutory Federal Income Tax Rate | |
$ | (2,202,256 | ) | |
| 21.00 | % | |
$ | (2,517,221 | ) | |
| 21.00 | % |
| State Taxes, Net Of Federal Income Tax Benefit | |
| 6,511 | | |
| (0.06 | ) | |
| 6,511 | | |
| (0.05 | ) |
| Meals & Entertainment | |
| - | | |
| 0.00 | | |
| 261 | | |
| 0.00 | ) |
| Penalties and Fines | |
| - | | |
| 0.00 | | |
| - | | |
| 0.00 | |
| Return to Provision Adjustment - Permanent Items | |
| - | | |
| 0.00 | | |
| - | | |
| 0.00 | |
| Deferred Only Adjustment | |
| - | | |
| 0.00 | | |
| (228,539 | ) | |
| 1.91 | |
| Change in Valuation Allowance | |
| 1,838,803 | | |
| (17.53 | ) | |
| 200,791 | | |
| (1.68 | ) |
| Section 280E Expense Disallowance | |
| 367,177 | | |
| (3.50 | ) | |
| 2,548,431 | | |
| (21.26 | ) |
| Other | |
| - | | |
| 0.00 | | |
| - | | |
| 0.00 | |
| Effective tax | |
$ | 10,235 | | |
| (0.10 | )% | |
$ | 10,235 | | |
| (0.09 | )% |
Deferred
tax assets and liabilities by type at December 31, 2021 and 2020 are as follows:
| Deferred Tax Assets (Liabilities): | |
2021 | | |
2020 | |
| Stock Compensation | |
$ | (7,335 | ) | |
$ | 62,606 | |
| Stock Compensation - Options | |
| 259,057 | | |
| - | |
| Accrued Salary | |
| 44,384 | | |
| - | |
| Trademark/Trade Name | |
| (8,033 | ) | |
| (4,765 | ) |
| Developed Manufacturing Process - Extraction | |
| (53,747 | ) | |
| (31,884 | ) |
| Customer Relationships | |
| 1,947 | | |
| 1,158 | |
| Patent | |
| 3,589 | | |
| - | |
| In-Process Research & Development - CryoCann | |
| (26,376 | ) | |
| - | |
| Goodwill - CMI | |
| 179,892 | | |
| 168,688 | |
| In-Process Research & Development - CMI | |
| 98,135 | | |
| 105,985 | |
| Goodwill - CryoCann | |
| 3,490 | | |
| - | |
| NOL - Federal Pre-2018 | |
| 43,367 | | |
| 43,367 | |
| NOL - Federal Post-2017 | |
| 2,097,542 | | |
| 377,529 | |
| NOL - State | |
| 608,703 | | |
| 294,183 | |
| Deferred Tax Assets (Liabilities) | |
$ | 3,244,615 | | |
$ | 1,016,867 | |
| | |
| | | |
| | |
| Valuation Allowance | |
| (3,269,776 | ) | |
| (1,031,792 | ) |
| | |
| | | |
| | |
| Net Deferred Tax Assets (Liabilities) | |
$ | (25,160 | ) | |
$ | (14,926 | ) |
CRYOMASS
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
At
December 31, 2021 and 2020, the Company had federal net operating loss carry-forwards of approximately $10,194,806 and $2,004,266 that
may be offset against future taxable income from the years 2022 through 2041. State net operating losses were approximately $16,641,692
and $8,042,840 at December 31, 2021 and 2020. However, as a result of the 2017 Tax Cuts and Jobs Act (“TCJA”) and the
2020 Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), any federal net operating losses generated in years
beginning after December 31, 2017 and before January 1, 2022 can be carried forward indefinitely to offset taxable income in future periods.
The amount of NOLs with no expiration totalled $9,988,297 as of December 31, 2021. The deferred tax assets before valuation allowance
for the net operating losses were $2,749,613 and $715,079 as of December 31, 2021 and 2020. Should a change in ownership occur, the NOLs
would be subject to the limitations set forth under IRC Section 382.
Management
assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit
use of the existing deferred tax assets. On the basis of this evaluation, as of December 31, 2021, the Company has recorded a full valuation
allowance against its net deferred tax assets. The valuation allowance is estimated to be approximately $3,269,776 and $1,031,792 for
the years ended December 31, 2021 and 2020, respectively. However, because deferred tax liabilities related to indefinite lived intangibles
cannot be used as a source of income to recognize deferred tax assets with definite lives, the recorded valuation allowance exceeded
the net deferred assets resulting in an overall net deferred tax liability, as reflected in the table above.
The
Company has adopted the provisions of ASC 740 which prescribe the procedures for recognition and measurement of tax positions taken or
expected to be taken in income tax returns. As of December 31, 2021, the Company does not have an accrual relating to uncertain
tax positions. It is not anticipated that unrecognized tax benefits would significantly increase or decrease within 12 months of the
reporting date.
15.
COMMITMENTS & CONTINGENCIES
Occasionally,
the Company may be involved in claims and legal proceedings arising from the ordinary course of its business. The Company records a provision
for a liability when it believes that it is both probable that a liability has been incurred, and the amount can be reasonably estimated.
If these estimates and assumptions change or prove to be incorrect, it could have a material impact on the Company’s consolidated
financial statements. Contingencies are inherently unpredictable, and the assessments of the value can involve a series of complex judgments
about future events and can rely heavily on estimates and assumptions.
Lease
Commitments
The
Company accounts for lease transactions in accordance with Topic 842, Leases (“ASC 842”), which requires an entity
to recognize a right-of-use (“ROU”) asset and a lease liability for virtually all leases. Operating lease ROU assets and
liabilities are recognized at commencement date based on the present value of lease payments over the lease term. ROU assets represent
the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation
to make lease payments arising from the lease.
There
are no other leases that meet the reporting standards of ASU Topic 842 as the Company does not have any other leases with a term exceeding
twelve months. Other lease payments not accounted for under ASU Topic 842 total $59,051 and $73,777 for the years ended December 31,
2021 and 2020, respectively.
An
ROU asset of $1,411,461 was recognized upon the CMI Transaction. The present value of the liabilities decreased by $519,671 and $472,154
for the years ended December 31, 2021 and 2020, respectively. This balance is included in the operating section of the statement of cash
flows for the years ended December 31, 2021 and 2020. Operating lease cost was approximately $664,686 and $627,132 for the years ended
December 31, 2021 and 2020, respectively.
The
right of use assets and lease liabilities assumed from the CMI transaction were disposed of as part of the disposal of our discontinued
operations, which is described in further detail above.
The
Company does not have any leases that have not yet commenced which are significant.
CRYOMASS
TECHNOLOGIES INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
Legal
Proceedings
We
know of no material, existing or pending legal proceedings against us, 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 company.
16.
SUBSEQUENT EVENTS
On
January 10, 2022, the Company’s shareholders approved a new stock incentive plan (the “2022 Stock Incentive Plan”).
The purpose of the 2022 Stock Incentive Plan is to advance the interests of the Company and its stockholders by enabling the Company
and its subsidiaries to attract and retain qualified individuals to perform services, to provide incentive compensation for such individuals
in a form that is linked to the growth and profitability of the Company and increases in stockholder value, and to provide opportunities
for equity participation that align the interests of recipients with those of its stockholders.
Also
on January 10, 2022, the Company’s shareholders approved an amendment to the Company’s Articles of Incorporation to effect
a reverse stock split of the issued and outstanding shares of our Common Stock, par value $0.001 per share, such split to combine a whole
number of outstanding shares of our Common Stock in a range of not less than three (3) shares and not more than ten (10) shares, into
one share of Common Stock at any time prior to March 31, 2022.
On
January 12, 2022, the Company issued 735,529 shares of common stock to its three executive officers and 371,058 shares of common stock
to two directors at a stock price of $0.27.
On
January 17, 2022, Mr. Simon Langelier was elected to the Company’s Board of Directors. Mr. Langelier holds a Bachelor of Science
degree (Honors) in Management Sciences (Operational Research) from the University of Lancaster, United Kingdom. During his thirty-year
career with Philip Morris International, until 2011, Mr. Langelier served in several senior positions, including President Eastern Europe,
Middle East & Africa, President Eastern Asia and President of Next Generation Products & Adjacent Businesses. He was also Managing
Director in numerous countries in Europe and Columbia. He is currently a director of Imperial Brands PLC. Mr. Langelier is also an Honorary
Professorial Fellow at the University of Lancaster in the United Kingdom and a member of the Dean’s Council of that university’s
Management School.
Subsequent
to year end, the Company has disbursed $620,000 in loans to CMI.
CryoMass Technologies (QB) (USOTC:CRYM)
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CryoMass Technologies (QB) (USOTC:CRYM)
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