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Psyched Wellness Ltd. — Interim / Quarterly Report 2020
Jul 27, 2020
44521_rns_2020-07-27_078b270c-2e28-433c-94db-32ce8efc4c43.pdf
Interim / Quarterly Report
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Psyched Wellness Ltd.
(formerly Duncan Park Holdings Corporation)
Unaudited Condensed Interim Consolidated Financial Statements
For the three and six months ended May 31, 2020 and 2019
(Expressed in Canadian Dollars)
Notice to Reader
Under National Instrument 51-102, Part 4, subsection 4.3(3)(a), if an auditor has not performed a review of the condensed interim consolidated financial statements, they must be accompanied by a notice indicating that the condensed interim consolidated financial statements have not been reviewed by an auditor.
The accompanying unaudited condensed interim consolidated financial statements have been prepared by and are the responsibility of the management of Psyched Wellness Ltd. (formerly Duncan Park Holdings Corporation).
The Company’s independent auditor has not performed a review of these unaudited condensed interim consolidated financial statements in accordance with the standards established by the Chartered Professional Accountants of Canada for a review of interim financial statements by an entity’s auditor.
Psyched Wellness Ltd. (formerly Duncan Park Holdings Corporation) Unaudited Condensed Interim Consolidated Statements of Financial Position
(Expressed in Canadian Dollars)
| As at May 31, 2020 As at November 30, 2019 |
|
|---|---|
| Notes $ $ Assets Current Assets Cash 1,831,188 1,471 Accounts receivable 5 62,138 3,308 Prepaid expenses 6 216,000 - |
|
| Total Current Assets 2,109,326 4,779 Goodwill 4 448,611 - |
|
| Total Assets 2,557,937 4,779 |
|
| Liabilities Accounts payable and accrued liabilities 7,14 258,171 369,736 Promissorynotespayable 9 - 49,638 |
|
| Total Liabilities 258,171 419,374 |
|
| Shareholders’ Equity Share capital 11 14,754,926 12,046,131 Shares to be issued 12 135,000 - Contributed surplus 400,293 400,293 Reserve for warrants 13 32,983 - Accumulated deficit (13,023,436) (12,861,019) |
|
| Total Shareholders’ Equity 2,299,766 (414,595) |
|
| Total Liabilities and Shareholders’ Equity 2,557,937 4,779 |
|
| Nature of operations and going concern 1 Subsequent events 18 |
Approved on behalf of the Board of Directors:
“Jeffrey Stevens” “Christopher Hazelton” Jeffrey Stevens, Director Christopher Hazelton, Director
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements
3
Psyched Wellness Ltd. (formerly Duncan Park Holdings Corporation)
Unaudited Condensed Interim Consolidated Statements of Loss and Comprehensive Loss For the three and six months ended May 31, 2020 and 2019 (Expressed in Canadian Dollars)
| Three months ended May 31, 2020 Three months ended May 31, 2019 Six months ended May 31, 2020 Six months ended May 31, 2019 |
|
|---|---|
| Notes $ $ $ $ Expenses Management fees 14 108,291 14,800 108,991 28,533 Professional fees 14 85,879 68,708 95,487 108,383 Regulatory compliance 10,796 12,483 11,001 22,281 Investor communications 6,626 500 9,126 1,481 Office and general 3,376 6,783 4,896 7,938 Interest on debt settlement 7 7,783 - 7,783 - Interest on term loans 8 - 1,105 - 5,617 Interest on promissory notes 9 81 666 740 666 Interest on convertible debentures 10 - 6,301 - 12,465 Amortization of financing costs 10 - 9,829 - 19,445 Bank charges 830 305 933 765 Property taxes - 418 139 3,247 Annual minimum royalty - - - 10,000 |
|
| Total Expenses (223,662) (121,898) (239,096) (220,821) |
|
| Other Income Gain on debt settlement 14 78,182 - 78,182 - Promissory notes interest – related party 14 155 - 155 - Foreign exchange loss (831) - (1,658) - |
|
| 77,506 - 76,679 - |
|
| Net Loss and Comprehensive Loss (146,156) (121,898) (162,417) (220,821) |
|
| Weighted Average Number of Outstanding Shares - Basic and diluted 28,969,210 3,422,088 17,314,586 3,288,480 |
|
| Loss per Share -Basic and diluted (0.005) (0.036) (0.009) (0.067) |
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements
4
Psyched Wellness Ltd. (formerly Duncan Park Holdings Corporation)
Unaudited Condensed Interim Consolidated Statements of Changes in Shareholders’ Equity For the six months ended May 31, 2020 and 2019 (Expressed in Canadian Dollars)
| Number of | Shares to be | Contributed | Reserve for | Accumulated | ||||
|---|---|---|---|---|---|---|---|---|
| Shares | Share Capital | Issued | Surplus | Warrants | Deficit | Total | ||
| Notes | # | $ | $ | $ | $ | $ | $ | |
| Balance, November 30, 2018 | 3,151,903 | 11,332,138 | - | 400,293 | - | (12,510,900) | (778,469) | |
| Issuance of shares on debt settlement | 8,11 | - | 438,653 | - | - | - | - | 438,653 |
| Net loss for theperiod | - | - | - | - | - | (220,821) | (220,821) | |
| Balance, May 31, 2019 | 3,151,903 | 11,770,791 | - | 400,293 | - | (12,731,721) | (560,637) | |
| Balance, November 30, 2019 | 5,531,890 | 12,046,131 | - | 400,293 | - | (12,861,019) | (414,595) | |
| Issuance of shares on debt settlement | 7,11 | 18,000,000 | 360,000 | - | - | - | - | 360,000 |
| Issuance of shares from Seed Financing | 11 | 7,050,090 | 141,002 | - | - | - | - | 141,002 |
| Issuance of shares on share exchange agreement | 11 | 33,500,000 | 670,000 | - | - | - | - | 670,000 |
| Issuance of shares from Series A Financing | 11,12 | 16,370,000 | 1,637,000 | 135,000 | - | - | - | 1,772,000 |
| Share issuance costs | 11,13 | - | (99,207) | - | - | 32,983 | - | (66,224) |
| Net loss for theperiod | - | - | - | - | - | (162,417) | (162,417) | |
| Balance, May 31, 2020 | 80,451,980 | 14,754,926 | 135,000 | 400,293 | 32,983 | (13,023,436) | 2,299,766 |
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements
5
Psyched Wellness Ltd. (formerly Duncan Park Holdings Corporation) Unaudited Condensed Interim Consolidated Statements of Cash Flows For the six months ended May 31, 2020 and 2019 (Expressed in Canadian Dollars)
| 2020 2019 |
|
|---|---|
| Notes $ $ Operating Activities Net loss for the period (162,417) (220,821) Adjustments for non-cash items: Gain on debt settlement 14 (78,182) - Interest in debt settlement 7 7,783 - Interest on term loans 8 - 5,617 Interest on promissory notes 9 740 666 Interest on convertible debentures 10 - 12,465 Amortization of financing costs 10 - 19,445 Promissorynotes interest – relatedparty 14 (155) - |
|
| (232,231) (182,628) Net change in non-cash working capital items: Accounts receivable 5 (38,962) (10,640) Prepaid expenses 6 (185,400) - Accountspayable and accrued liabilities 7 153,279 107,368 |
|
| Cash Flows used in Operating Activities (303,314) (85,900) |
|
| Financing Activities Proceeds from on promissory notes 9 10,000 30,000 Loans made to Psyched Wellness Corp. 14 (117,521) - Payments on settlement of debts 7 (138,008) - Proceeds from private placements 11 2,307,000 - Finders’ fees paid on private placements 11 (63,440) - Proceeds received on subscriptions 12 135,000 - |
|
| Cash Flows provided by Financing Activities 2,133,031 30,000 |
|
| Increase (decrease) in cash 1,829,717 (55,900) Cash,beginningofperiod 1,471 55,757 |
|
| Cash, end of period 1,831,188 600,471 |
|
| Supplemental Information Settlement of debts with issuance of shares 11 142,002 - |
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements
6
Psyched Wellness Ltd. (formerly Duncan Park Holdings Corporation) Notes to the Unaudited Condensed Interim Consolidated Financial Statements Six months ended May 31, 2020 and 2019 (Expressed in Canadian Dollars)
1. Nature of Operations and Going Concern
Psyched Wellness Ltd. (formerly Duncan Park Holdings Corporation) (“Psyched” or the “Company”) is incorporated in the Province of Ontario, Canada. The Company previously operated in the mining industry and devoted its efforts to establish commercially viable mineral properties by exploring for gold and other precious metals in politically stable areas of the world. By completing the Share Exchange (defined hereafter), the Company changed its business focus to specialize on formulating, selling, and distributing mushroom infused products and associated consumer packaged goods. The Company’s objective is to create premium mushroom products that have the potential to become a leading North American brand in the emerging functional food category.
The Company’s registered address is 77 King Street West, Suite 3000, Toronto, Ontario, M5K 1G8, Canada.
On May 5, 2020, the Company entered into a share exchange agreement (the “Share Exchange”) with Psyched Wellness Corp. (“Psyched Wellness”), a private entity incorporated under the Canadian Business Corporations Act, whereby the Company issued 18,000,000 common shares and acquired all of the outstanding common shares of Psyched Wellness in exchange for common shares of the Company on a one for one basis. Pursuant to the Share Exchange, Psyched Wellness became a wholly-owned subsidiary of the Company.
On July 13, 2020, the Company changed its name to Psyched Wellness Ltd., to reflect the change of business to focus in the growing psychedelic space.
The business of medicinal mushrooms health and wellness products involves a high degree of risk, and there is no assurance that any prospective project in the psychedelic industry will be successfully initiated or completed. Further, regulatory evolution and uncertainty may require the Company to alter its business plan and make further investments to react to regulatory changes.
The Company also continued to hold mining claims in Ontario and has taken steps to verify title to the properties on which it is conducting exploration and in which it has an interest, in accordance with industry standards for the current stage of exploration of such properties. These procedures do not guarantee the Company’s title. Property title may be subject to unregistered prior agreements, unregistered claims, aboriginal claims, and noncompliance with regulatory, social and environmental requirements.
These unaudited condensed interim consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) accounting principles applicable to a going concern. The application of the going concern basis is dependent upon the Company achieving profitable operations to generate sufficient cash flows to fund continuing operations, or, in the absence of adequate cash flows from operations, obtaining additional financing to support operations for the foreseeable future. It is not possible to predict whether financing efforts will be successful or if the Company will attain profitable levels of operations.
These unaudited condensed interim consolidated financial statements do not give effect to adjustments that would be necessary should the Company be unable to continue as a going concern and therefore be required to realize its assets and liquidate its liabilities and commitments in other than the normal course of business and at amounts different from those in the accompanying consolidated financial statements. Such adjustments could be material.
2. Basis of Presentation
(a) Statement of Compliance
The Company’s unaudited condensed interim consolidated financial statements, including comparatives, have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). These unaudited condensed interim financial statements have been prepared in accordance with International Accounting Standards 34 – Interim Financial Reporting (“IAS 34”).
These unaudited condensed interim consolidated financial statements were reviewed, approved and authorized for issuance by the Board of Directors (the “Board”) of the Company on July 27, 2020.
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Psyched Wellness Ltd. (formerly Duncan Park Holdings Corporation) Notes to the Unaudited Condensed Interim Consolidated Financial Statements Six months ended May 31, 2020 and 2019 (Expressed in Canadian Dollars)
2. Basis of Presentation (continued)
(b) Basis of Measurement
These unaudited condensed interim consolidated financial statements have been prepared in accordance with IFRS, on the historical cost basis. In addition, these unaudited condensed interim consolidated financial statements have been prepared using the accrual basis of accounting, except for cash flow information.
(c) Basis of Consolidation
These unaudited condensed interim consolidated financial statements include the accounts of the Company and Psyched Wellness. The unaudited condensed interim consolidated financial statements include all the assets, liabilities, revenues, expenses and cash flows of the Company and its subsidiary after eliminating inter-entity balances and transactions.
(d) Functional Currency
These unaudited condensed interim consolidated financial statements are presented in Canadian dollars, which is also the functional currency of the Company and its subsidiary, unless otherwise noted. The functional currency is the currency of the primary economic environment in which the Company operates.
(e) Significant Accounting Judgments and Estimates
The preparation of these unaudited condensed interim consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, revenue and expenses. On an ongoing basis, management evaluates its judgments and estimates in relation to assets, liabilities, revenue and expenses. Management uses historical experience and various other factors it believes to be reasonable under the given circumstances as the basis for its judgments and estimates. Actual outcomes may differ from these estimates under different assumptions and conditions. These estimates are reviewed periodically, and adjustments are made as appropriate in the period they become known. Items for which actual results may differ materially from these estimates are described as follows:
Going concern
At each reporting period, management exercises judgment in assessing the Company’s ability to continue as a going concern by reviewing the Company’s performance, resources and future obligations.
Business combination
In a business acquisition, substantially all identifiable assets, liabilities and contingent liabilities acquired are recorded at the acquisition date at their respective fair values. The date on which the acquirer obtains control of the acquiree is generally the date on which the acquirer legally transfers the consideration, acquires the assets and assumes the liabilities of the acquiree – the closing date. However, the acquirer might obtain control on a date that is either earlier or later than the closing date. Management exercises judgment in considering all pertinent facts and circumstances in identifying the acquisition date.
Classification of an acquisition as a business combination or an asset acquisition depends on whether the assets acquired constitute a business, which can be a complex judgment. Whether an acquisition is classified as a business combination or asset acquisition can have a significant impact on the entries made on and after acquisition. In determining the fair value of all identifiable assets, liabilities and contingent liabilities acquired, the most significant estimates relate to contingent consideration and intangible assets. Management also exercises judgement in estimating the probability and timing of when earn-outs are expected to be achieved which is used as the basis for estimating fair value. For any intangible asset identified, depending on the type of intangible asset and the complexity of determining its fair value, an independent valuation expert or management may develop the fair value, using appropriate valuation techniques, which are generally based on a forecast of the total expected future net cash flows. The evaluations are linked closely to the assumptions made by management regarding the future performance of these assets and any changes in the discount rate applied.
8
Psyched Wellness Ltd. (formerly Duncan Park Holdings Corporation) Notes to the Unaudited Condensed Interim Consolidated Financial Statements Six months ended May 31, 2020 and 2019 (Expressed in Canadian Dollars)
2. Basis of Presentation (continued)
(e) Significant Accounting Judgments and Estimates (continued)
Fair value of financial assets and financial liabilities
Fair value of financial assets and financial liabilities on the consolidated statements of financial position that cannot be derived from active markets, are determined using a variety of techniques including the use of valuation models. The inputs to these models are derived from observable market data where possible, but where observable market data are not available, judgment is required to establish fair values. The judgments include, but are not limited to, consideration of model inputs such as volatility, estimated life and discount rates.
Goodwill
Goodwill is tested for impairment annually and whenever events or changes in circumstances indicate that the carrying amount of goodwill has been impaired. In order to determine if the value of goodwill has been impaired, the groups of assets (each a “Cash-Generating Unit or a “CGU”) to which goodwill has been allocated must be valued using present value techniques. The Company assesses impairment by comparing the recoverable amount of a long-lived asset, CGU, or CGU group to its carrying value. The recoverable amount is defined as the higher of: (i) value in use; or (ii) fair value less cost to sell. The determination of the recoverable amount involves significant estimates and assumptions. When applying this valuation technique, the Company relies on a number of factors, including historical results, business plans, forecasts and market data. Changes in the conditions for these judgments and estimates can significantly affect the assessed value of goodwill.
Warrants and options
Warrants and options are initially recognized at fair value, based on the application of the Black-Scholes valuation model (“Black-Scholes”). This pricing model requires management to make various assumptions and estimates which are susceptible to uncertainty, including the expected volatility of the share price, expected forfeitures, expected dividend yield, expected term of the warrants or options, and expected risk-free interest rate.
Income taxes
Income taxes and tax exposures recognized in the financial statements reflect management’s best estimate of the outcome based on facts known at the reporting date. When the Company anticipates a future income tax payment based on its estimates, it recognizes a liability. The difference between the expected amount and the final tax outcome has an impact on current and deferred taxes when the Company becomes aware of this difference.
In addition, when the Company incurs losses that cannot be associated with current or past profits, it assesses the probability of taxable profits being available in the future based on its budgeted forecasts. These forecasts are adjusted to take account of certain non-taxable income and expenses and specific rules on the use of unused credits and tax losses. When the forecasts indicate the sufficient future taxable income will be available to deduct the temporary differences, a deferred tax asset is recognized for all deductible temporary differences.
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Psyched Wellness Ltd. (formerly Duncan Park Holdings Corporation) Notes to the Unaudited Condensed Interim Consolidated Financial Statements Six months ended May 31, 2020 and 2019 (Expressed in Canadian Dollars)
3. Summary of Significant Accounting Policies
The accounting policies applied by the Company in these unaudited condensed interim consolidated financial statements are the same as those noted in the Company’s audited financial statements for the year ended November 30, 2019, unless otherwise noted below.
(a) Adoption of New Accounting Policies
The Company adopted the following standard, effective December 1, 2019. The changes were made in accordance with the applicable transitional provisions:
IFRS 16 – Leases (“IFRS 16”)
IFRS 16 was issued in January 2016 and replaces IAS 17 – Leases as well as some lease related interpretations. With certain exceptions for leases under twelve months in length or for assets of low value, IFRS 16 states that upon lease commencement a lessee recognizes a right-of-use (“ROU”) asset and a lease liability. The ROU asset is initially measured at the amount of the liability plus any initial direct costs. After lease commencement, the lessee shall measure the ROU asset at cost less accumulated amortization and accumulated impairment. A lessee shall either apply IFRS 16 with full retrospective effect or alternatively not restate comparative information but recognize the cumulative effect of initially applying IFRS 16 as an adjustment to opening equity at the date of initial application. IFRS 16 requires that lessors classify each lease as an operating lease or a finance lease. A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership of an underlying asset. Otherwise it is an operating lease.
The Company has reviewed its leasing arrangements outstanding as at December 1, 2019, in respect of the new lease standard, and had assessed that there was no material impact upon adoption of this new standard on the Company’s unaudited condensed interim consolidated financial statements.
IFRIC 23 – Uncertainty Over Income Tax Treatments (“IFRIC 23”)
IFRIC 23 clarifies the accounting for uncertainties in income taxes. The IFRS Interpretations Committee (“IFRIC”) concluded that an entity shall consider whether it is probable that a taxation authority will accept an uncertain tax treatment. If an entity concludes it is probable that the taxation authority will accept an uncertain tax treatment, then the entity shall determine taxable profit (tax loss), tax bases, unused tax losses and credits or tax rates consistently with the tax treatment used or planned to be used in its income tax filings. If an entity concludes it is not probable that the taxation authority will accept an uncertain tax treatment, the entity shall reflect the effect of uncertainty in determining the related taxable profit (tax loss), tax bases, unused tax losses and credits or tax rates. The Company had assessed that there was no material impact upon adoption of this new standard on its unaudited condensed interim consolidated financial statements.
(b) Recent Accounting Pronouncements
At the date of authorization of these unaudited condensed interim consolidated financial statements, the IASB and IFRIC have issued the following new and revised standards and amendments which are effective for annual periods beginning on or after December 1, 2020:
IAS 1 – Presentation of Financial Statements (“IAS 1”) and IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors (“IAS 8”)
IAS 1 and IAS 8 were amended in October 2018 to refine the definition of materiality and clarify its characteristics. The revised definition focuses on the idea that information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general-purpose financial statements make on the basis of those financial statements. The amendments are effective for annual reporting periods beginning on or after December 1, 2020.
10
Psyched Wellness Ltd. (formerly Duncan Park Holdings Corporation) Notes to the Unaudited Condensed Interim Consolidated Financial Statements Six months ended May 31, 2020 and 2019
(Expressed in Canadian Dollars)
4. Business Combination
On May 5, 2020, the Company completed the Share Exchange pursuant to which the Company acquired all issued and outstanding shares of Psyched Wellness from holders of Psyched Wellness shares (the “Share Exchange Agreement”). Upon closing of the Share Exchange, Psyched Wellness became a wholly-owned subsidiary of the Company. The Company determined that the Share Exchange was a business combination in accordance to the definition of IFRS 3 – Business Combination, and as such, has accounted for it in accordance with this standard, with the Company being the acquirer on the closing date.
The purchase price for the Share Exchange was $360,000 and was satisfied in full by the Company issuing to holders of Psyched Wellness shares an aggregate of 18,000,000 common shares. The purchase price and other terms of the Share Exchange Agreement were negotiated at arm’s length with the Board of the Company and Psyched Wellness.
The following table sets forth the preliminary allocation of the purchase price to the assets acquired, based on a preliminary estimate of fair value. Final valuations of assets and liabilities are not yet complete due to the timing of the Share Exchange. The preliminary allocation is subject to adjustments:
| Purchase Price Consideration Paid | |
|---|---|
| $ | |
| Fair value of common shares issued | 360,000 |
| Fair value of settlement of pre-existing balance | 117,676 |
| Total consideration paid | 477,676 |
| Net Identifiable Asset Acquired | |
| Accounts receivable | 19,868 |
| Prepaid expenses | 30,600 |
| Accounts payable and accrued liabilities | (21,403) |
| Total net identifiable assets acquired | 29,065 |
| Goodwill | 448,611 |
Total consideration of $477,676 paid on the Share Exchange is comprised of the following components that were measured at the estimated fair value on the closing date:
-
(i) The fair value of the 18,000,000 common shares, issued to holders of Psyched Wellness shares, was determined to be $360,000 based on the fair value of founders’ shares issued on April 23, 2020 (see Note 11).
-
(ii) The effective settlement of a pre-existing relationship related to the promissory note to the Company by Psyched Wellness of $117,676, including interest of $155 (see Note 14).
5. Accounts Receivable
The Company’s accounts receivable balance represents amounts due from government taxation authorities in respect of the Harmonized Sales Tax. The Company anticipates full recovery of these amounts and therefore no credit loss has been recorded against these receivables, which are due in less than one year.
6. Prepaid Expenses
| Prepaid Expenses | ||
|---|---|---|
| May 31, | November 30, | |
| 2020 | 2019 | |
| $ | $ | |
| Advances made to suppliers | 200,000 | - |
| Otherprepaid expenses and assets | 16,000 | - |
| 216,000 | - |
11
Psyched Wellness Ltd. (formerly Duncan Park Holdings Corporation) Notes to the Unaudited Condensed Interim Consolidated Financial Statements Six months ended May 31, 2020 and 2019
(Expressed in Canadian Dollars)
7. Accounts Payable and Accrued Liabilities
Accounts payables of the Company are principally comprised of amounts outstanding for trade purchases relating to regular business activities and amounts payable for financing activities.
| May 31, | November 30, | |
|---|---|---|
| 2020 | 2019 | |
| $ | $ | |
| Accounts payable | 118,511 | 87,271 |
| Accrued liabilities | 84,720 | 261,197 |
| Others | 54,940 | 21,268 |
| 258,171 | 369,736 |
The Company’s standard term for trade payable is 30 to 60 days.
8. Term Loans
Commencing in 2014, the Company entered into a series of unsecured term loan agreements aggregating $250,000 and $116,000, respectively, with the late Ian McAvity, a former officer and director of the Company, and Eric P. Salsberg (“E. Salsberg”), also a former director. The loans bore interest at the rate of 5% per annum calculated annually and were due and payable on December 15, 2017.
On May 14, 2019, the Company settled $301,989 and $136,664 (the “Debt Settlement”) of outstanding principal term loan balances (including accrued interest) with the Estate of Ian McAvity (the “Estate”) and E. Salsberg, respectively, through the issuance of 1,462,178 common shares (“Debt Settlement Shares”). The Debt Settlement Shares were issued at a price of $0.30 per share on May 14, 2019. For purposes of calculating interest, accrued interest was calculated as of the fifth (5[th] ) business day prior to the issuance of the Debt Settlement Shares.
As a condition of the Debt Settlement, the Estate and E. Salsberg agreed to sell the Debt Settlement Shares to certain investors, including certain subscribers to the Private Placement from October 2018 (defined hereafter), at a price equal to 20% of the principal amount of the debt and accrued interest.
During the period from December 1, 2018 up to the Debt Settlement on May 14, 2019, interest expense of $5,617 was recorded on the loans.
9. Promissory Notes Payable
On March 11, 2019, the Company issued a promissory note (the “First Promissory Note”) to an arm’s length party, in exchange for an advance of $30,000. The First Promissory Note is unsecured, bears interest at a rate of 10% per annum on the unpaid portion of the principal, calculated and compounded monthly. The First Promissory Note is due and payable on demand.
On October 23, 2019, the Company issued another promissory note (the “Second Promissory Note”) to another arm’s length party, in exchange for an advance of $17,202. The Second Promissory Note is unsecured, bears interest at a rate of 12% per annum on the unpaid portion of the principal, calculated and compounded monthly. The Second Promissory Note is due and payable on demand.
On January 16, 2020, the Company issued another promissory note (the “Third Promissory Note”) to another arm’s length party, in exchange for an advance of $10,000. The Third Promissory Note is unsecured, bears interest at a rate of 12% per annum on the unpaid portion of the principal, calculated and compounded monthly. The Third Promissory Note is due and payable on demand.
On April 23, 2020, the Company settled $60,378 of outstanding promissory notes (including accrued interest) with the above-mentioned arm’s length parties, as part of the issuance of 7,050,900 Debt Settlement Shares (see Note 11 for details).
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Psyched Wellness Ltd. (formerly Duncan Park Holdings Corporation) Notes to the Unaudited Condensed Interim Consolidated Financial Statements Six months ended May 31, 2020 and 2019 (Expressed in Canadian Dollars)
9. Promissory Notes Payable (continued)
During the period up from December 1, 2019 to the Shares-for-Debt Issuances (defined hereafter) on April 23, 2020, $740 (2019 – $666) of interest expense was incurred in relation to the promissory notes.
10. Convertible Debentures
On October 9, 2018, the Company completed a private placement of $250,000 (the “Private Placement”) of convertible debentures (the “Debentures”), which had a term of one year and accrued interest at a rate of 10% per annum. Pursuant to the Private Placement, the Debentures are convertible into units of the Company at the election of the holder. Each underlying unit was comprised of one pre-consolidation share (a “Debenture Share”) and one-half (1/2) of one pre-consolidation share purchase warrant (a “Warrant”), subject to adjustment following completion of the share consolidation, as described in Note 11.
Following the completion of the share consolidation, the Debentures were convertible based on a price of $0.40, adjusted to account for the consolidation ratio. Following the completion of the share consolidation, the Warrants would be exercisable at a price of $0.60 for every post-consolidation share. Following the Company’s delisting from the TSX Venture Exchange on May 9, 2019, the Debentures became effectively convertible into one Debenture Share (and no Warrants) at a price of $0.30 per share, adjusted to account for the share consolidation.
On October 9, 2019, immediately prior to its maturity, the Debentures were converted into 917,800 Debenture Shares of the Company, at the adjusted conversion price of $0.30.
During the six months ended May 31, 2019, interest expense of $12,465 was recorded on the Debentures.
11. Share Capital
Authorized share capital
The Company is authorized to issue an unlimited number of common shares without par value.
Common shares issued and outstanding as at May 31, 2020 are as follows:
| May 31, | November 30, | |
|---|---|---|
| 2020 | 2019 | |
| $ | $ | |
| Issued: 80,451,971 common shares | ||
| (November 30,2019 – 5,531,881 common shares) | 14,754,926 | 12,046,131 |
Share capital transactions for the six months ended May 31, 2020
On April 23, 2020, the Company closed a non-brokered private placement (“Seed Financing”) through the issuance of 33,500,000 common shares at a price of $0.02 per common share, for gross proceeds of $670,000.
On April 23, 2020, the Company also settled an aggregate amount of $141,002 of indebtedness owed to certain arm’s length and non-arms’ length creditors through the issuance of 7,050,090 common shares of the Company (“Shares-forDebt Issuances”) at a price of $0.02 per common share.
On May 5, 2020, the Company entered into the Share Exchange with Psyched Wellness, whereby the Company acquired all of the outstanding common shares of Psyched Wellness in exchange for common shares of the Company on a one for one basis. On closing, holders of Psyched Wellness shares were issued an aggregate of 18,000,000 common shares of the Company.
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Psyched Wellness Ltd. (formerly Duncan Park Holdings Corporation) Notes to the Unaudited Condensed Interim Consolidated Financial Statements Six months ended May 31, 2020 and 2019 (Expressed in Canadian Dollars)
11. Share Capital (continued)
Share capital transactions for the six months ended May 31, 2020 (continued)
On May 22, 2020, the Company completed the first tranche of a non-brokered private placement (“Series A Financing”) for gross proceeds of $1,637,000 through the issuance of 16,370,000 common shares at a price of $0.10 per common share. In connection with the Series A Financing, the Company paid finders’ fees of $63,440 and issued 632,000 broker warrants. Each broker warrant is exercisable into one common share of the Company at a price of $0.10 for a period of 24 months from closing of the Series A Financing.
Share capital transactions for the six months ended May 31, 2019
On December 18, 2018, at the Company’s Annual General Meeting of Shareholders, shareholders of the Company approved a resolution empowering the Board to affect a share consolidation of up to one post-consolidation share for every 40 pre-consolidation shares (the “Share Consolidation”). Subsequently, the Board approved a motion to consolidate the Company’s shares at a 40:1 ratio. Regulatory approval was received on January 29, 2019, and the Share Consolidation was effective February 1, 2019.
On May 14, 2019, the Company issued 1,461,178 Debt Settlement Shares to settle the outstanding term loans of $301,989 and $136,664 (including accrued interest) with the Estate and E. Salsberg, respectively (see Note 8). The Debt Settlement Shares were valued at $438,653 based on the fair value of the outstanding term loans.
Basic and diluted loss per share
Basic and diluted loss per share is calculated by dividing the net loss for the period by the weighted average number of common shares outstanding during the period. For the three and six months ended May 31, 2020, the basic and diluted loss per share was $0.005 and $0.009, respectively (2019 – $0.036 and 0.067, respectively).
Potentially dilutive shares totaling 632,000 were excluded from the calculations of diluted net loss per share as of May 31, 2020 as they were deemed to be antidilutive.
12. Shares to be Issued
As at May 31, 2020, the Company had received total proceeds of $135,000 in relation to subscription of funds of the second tranche of the Series A Financing, which closed subsequent to period-end (see Note 18).
13. Reserve for Warrants
The following summarizes the warrant activity for the six months ended May 31, 2020 and 2019:
| **May 31, ** | 2020 | May31,2019 | May31,2019 | |
|---|---|---|---|---|
| Weighted | Weighted | |||
| Number of | average | Number of | average | |
| warrants | exerciseprice | warrants | exerciseprice | |
| # | $ | # | $ | |
| Outstanding, beginning of period | - | - | - | - |
| Issued from Series A Financing | 632,000 | 0.10 | - | - |
| Outstanding, end of period | 632,000 | 0.10 | - | - |
Warrant issuances for the six months ended May 31, 2020
On May 22, 2020, the Company issued 632,000 broker warrants as compensation to finders in connection with the Series A Financing, as disclosed in Note 11. Each broker warrant is exercisable at $0.10 to purchase one common share of the Company for a period of 24 months from closing of the Series A Financing. The grant date fair value of the broker warrants issued was estimated to be $32,983 using Black-Scholes with the following assumptions: share price of $0.10, expected volatility of 100% based on estimated volatility for the psychedelic industry, expected dividend yield of 0%, risk-free interest rate of 0.29% and an expected life of two years.
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Psyched Wellness Ltd. (formerly Duncan Park Holdings Corporation) Notes to the Unaudited Condensed Interim Consolidated Financial Statements Six months ended May 31, 2020 and 2019 (Expressed in Canadian Dollars)
13. Reserve for Warrants (continued)
Warrant issuances for the six months ended May 31, 2019
There were no warrant issuances during the six months ended May 31, 2019.
The following table summarizes information of warrants outstanding as at May 31, 2020:
| Number of | Weighted average | |||
|---|---|---|---|---|
| warrants | remaining | |||
| Date | of expiry | outstanding | Exerciseprice | contractual life |
| # | $ | Years | ||
| May | 22,2022 | 632,000 | 0.10 | 1.98 |
| 632,000 | 0.10 | 1.98 |
14. Key Management Compensation and Related Party Transactions
Key management personnel compensation
Key management includes the Company’s directors and officers with authority and responsibility for planning, directing and controlling the activities of an entity, directly or indirectly.
The remuneration of directors and other members of key management personnel during the six months ended May 31, 2020 and 2019 were as follows:
| 0 and 2019 were as follows: | ||
|---|---|---|
| 2020 | 2019 | |
| $ | $ | |
| Management fees | 68,000 | 28,533 |
| Professional fees | 27,625 | 9,000 |
| 95,625 | 37,533 |
On March 25, 2020, the Company and S4 Management Group Inc. (“S4 Management”), an entity controlled by Jeffrey Stevens, the Chief Executive Officer (“CEO”) and a director of the Company, entered into a consulting agreement, for a monthly renumeration of $8,000 in consideration of the CEO’s services to be provided to the Company. For the six months ended May 31, 2020, S4 Management charged $24,000 (2019 – $nil) for consulting services provided to the Company, which are included in management fees. As at May 31, 2020, no balance was owed to S4 Management (November 30, 2019 – $nil).
On March 25, 2020, the Company and David Shisel, the Chief Operating Officer (“COO”) of the Company, entered into a consulting agreement, for a monthly renumeration of $8,000 in consideration of the COO’s services to be provided to the Company. For the six months ended May 31, 2020, the COO charged $24,000 (2019 – $nil) for consulting services provided to the Company, which are included in management fees. As at May 31, 2020, an amount of $28,713 (November 30, 2019 – $nil) owing to the COO was included in accounts payable and accrued liabilities. The amount outstanding is unsecured, non-interest bearing and due on demand.
During the six months ended May 31, 2020, Nicholas Kadysh and Michael Nederhoff, directors of the Company, charged $7,500 (2019 – $nil) and $12,500 (2019 – $nil), respectively, for consulting services provided to the Company, which are included in management fees. As at May 31, 2020, no balance was owed to either directors of the Company (November 30, 2019 – $nil).
During the six months ended May 31, 2020, Branson Corporate Services Ltd. (“Branson”), where Keith Li, the Chief Financial Officer (“CFO”) of the Company is employed, charged fees of $27,625 (2019 – $9,000), for CFO services provided to the Company, as well as other accounting and administrative services, which are included in professional fees. As at May 31, 2020, no balance was owed to Branson (November 30, 2019 – $19,755; included in accounts payable and accrued liabilities).
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Psyched Wellness Ltd. (formerly Duncan Park Holdings Corporation) Notes to the Unaudited Condensed Interim Consolidated Financial Statements Six months ended May 31, 2020 and 2019 (Expressed in Canadian Dollars)
14. Key Management Compensation and Related Party Transactions (continued)
Key management personnel compensation (continued)
During the six months ended May 31, 2019, the Company was charged $20,028 (USD$15,000) and $8,505, respectively, by David Shaddrick (“D. Shaddrick”), a former President and CEO of the Company, and Harold Doran, a former CFO, for consulting and accounting services previously provided to the Company.
Other related party transactions
On March 5, 2020, the Company entered into a Debt Settlement with E. Salsberg and D. Shaddrick, as debts of $216,190 previously owed to the parties were settled for payments of $79,173 and $58,835, respectively. As a result, the Company recorded a gain of $78,182 on the Debt Settlement. E. Salsberg was issued 1,000,000 common shares of the Company at a price of $0.02 per common share, as part of the Shares-for-Debt Issuances on April 23, 2020, to settle a remaining debt balance of $20,000.
On April 23, 2020, the Company entered into a Shares-for-Debt Issuance with Branson through the issuance of 1,779,750 common shares at a price of $0.02 per common share, to settle debts of $35,595.
On May 1, 2020, the Company advanced funds of $117,521 to Psyched Wellness, in exchange of a promissory note. The promissory note is unsecured, due on demand and bears interest at a rate of 12% per annum. Upon closing of the Share Exchange, the balance had been eliminated on consolidation. The Company recognized interest income of $155 on the promissory note from the period from issuance to May 5, 2020.
15. Capital Management
The Company’s objectives when managing capital is to safeguard its ability to continue as a going concern and to maintain optimal returns to shareholders and benefits for its stakeholders. While the Company does not yet have any commercial operations, monitors its capital structure and makes adjustments according to market conditions to meet its objectives given the current outlook of the business and industry in general. The Board of the Company does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the management team to sustain the future development of the business.
Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable. The Company’s capital management objectives, policies and processes have remained unchanged during the six months ended May 31, 2020 and the year ended November 30, 2019.
The Company is not subject to any externally imposed capital requirements.
16. Financial Instrument Risks
The Company’s financial instruments consist primarily of cash, accounts payable and promissory notes payable. The Company is exposed to various risks as it relates to these financial instruments. There have not been any changes in the nature of these risks or the process of managing these risks from previous reporting periods.
Credit risk
Credit risk is the risk of loss associated with a counterparty’s inability to fulfill its payment obligations. Cash is held with reputable Canadian chartered banks and in trust with the Company’s legal counsel, which is closely monitored by management. Management believes that the credit risk concentration with respect to financial instruments is minimal. The maximum exposure to credit risk at period-end is limited to the accounts receivable balance.
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Psyched Wellness Ltd. (formerly Duncan Park Holdings Corporation) Notes to the Unaudited Condensed Interim Consolidated Financial Statements Six months ended May 31, 2020 and 2019 (Expressed in Canadian Dollars)
16. Financial Instrument Risks (continued)
Liquidity risk
Liquidity risk is the risk that the Company will not have sufficient cash resources to meet its financial obligations as they come due. The Company’s liquidity and operating results may be adversely affected if the Company’s access to the capital market is hindered, whether as a result of a downturn in stock market conditions generally or related to matters specific to the Company. The Company generates cash flow primarily from its financing activities. As at May 31, 2020, the Company had a cash balance of $1,831,188 (November 30, 2019 – $1,471) to settle current liabilities of $258,171 (November 30, 2019 – $419,374).
The Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet its liabilities as they come due. The Company has undertaken several proposed restructuring initiatives and other corporate measures to rationalize its capital and debt structure to better position the Company for future opportunities and meet its obligations as they come due. Until these initiatives and efforts are finalized, there is no assurance that one or any of these initiatives will be successful.
Foreign exchange risk
From time to time, the Company incurs transactions in currencies denominated in currencies other than the CAD, primarily in United States dollars (“USD”). The Company’s exposure to fluctuations in foreign exchange is related to amounts of USD denominated accounts payable as follows:
| May 31, | November 30, | |
|---|---|---|
| 2020 | 2019 | |
| $ | $ | |
| Accounts payable and term loans | 3,778 | 92,000 |
17. Comparative Figures
Certain comparative figures have been reclassified to conform to the current period’s presentation on the unaudited condensed interim consolidated financial statements. Net loss previously reported has not been affected by this reclassification.
18. Subsequent Events
On June 1, 2020, the Company completed the second tranche of the Series A Financing for gross proceeds of $2,231,500 through the issuance of 22,315,000 common shares at a price of $0.10 per common share.
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