UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
ACT OF 1934
For the quarterly period ended
1934
Commission file number:
(Exact name of registrant as specified in its charter)
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Indicate by check mark whether the registrant
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(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. ☒
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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| Emerging growth company | | ||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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As of August 8, 2022, the registrant had
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FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or the negative of these words or other comparable terminology.
The identification in this report of factors that may affect our future performance and the accuracy of forward-looking statements is meant to be illustrative and by no means exhaustive. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty.
Factors that could cause our actual results to differ materially from those expressed or implied by forward-looking statements include, but are not limited to:
| ● | Trends affecting our financial condition, results of operations or future prospects, including the impact of COVID-19; |
| ● | Our business and growth strategies; |
| ● | Our financing plans and forecasts; |
| ● | The factors that we expect to contribute to our success and our ability to be successful in the future; |
| ● | Our business model and strategy for realizing positive results as sales increase; |
| ● | Competition, including our ability to respond to such competition and its expectations regarding continued competition in the market in which we compete; |
| ● | Our ability to meet our projected operating expenditures and the costs associated with development of new projects; |
| ● | The impact of new accounting pronouncements on our financial statements; |
| ● | Whether our cash flows from operating activities will be sufficient to meet our operating expenditures; |
| ● | Our market risk exposure and efforts to minimize risk; |
| ● | Regulations, including tax law and practice, federal and state laws governing the cannabis and cannabinoid industries, and tariff legislation; |
| ● | Our overall outlook including all statements under Management’s Discussion and Analysis of Financial Condition and Results of Operations; |
| ● | That estimates and assumptions made in the preparation of financial statements in conformity with accounting principles generally accepted in the United states (“GAAP”) may differ from actual results; and |
| ● | Our expectations as to future financial performance, cash and expense levels and liquidity sources. |
Any forward-looking statements in this Quarterly Report on Form 10-Q reflect our current views with respect to future events or to our future financial performance. A more detailed description of risk factors that may affect our operating results can be found in Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q and Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the SEC on March 28, 2022, and our other filings with the SEC. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.
[TABLE OF CONTENTS]
i
CRYOMASS TECHNOLOGIES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| June 30, 2022 | December 31, 2021 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| Loan receivable | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Total current liabilities | ||||||||
| Notes payable | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 15) | ||||||||
| Shareholders’ equity: | ||||||||
| Preferred stock, $ | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Common stock to be issued | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
1
CRYOMASS TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| Three Months Ended June 30, | Six
Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| As restated, see Note 3 | As restated, see Note 3 | |||||||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Personnel costs | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Legal and professional fees | ||||||||||||||||
| Amortization expense | ||||||||||||||||
| Research and development | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expenses): | ||||||||||||||||
| Interest expense – net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain / (loss) on foreign exchange | ( | ) | ||||||||||||||
| Total other expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss from continuing operations, before taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income taxes | ||||||||||||||||
| Net loss from continuing operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net gain / (loss) from discontinued operations, net of tax | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Comprehensive loss from discontinued operations | ||||||||||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per common share: | ||||||||||||||||
| Loss from continuing operations – basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Gain / (loss) from discontinued operations – basic and diluted | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
2
CRYOMASS TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(UNAUDITED)
| Common Stock | Additional Paid-In | Common Stock to | Accumulated | Total Shareholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Be Issued | Deficit | Equity | |||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Share issuance | ( | ) | ||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Share issuance | ||||||||||||||||||||||||
| Share issuance related to Cryocann asset purchase | ||||||||||||||||||||||||
| Share issuance pursuant to employment agreements | ||||||||||||||||||||||||
| Share issuance in exchange for extinguishment of debt | ||||||||||||||||||||||||
| Share issuance in exchange for services | ||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||
| Stock options issued | - | |||||||||||||||||||||||
| Beneficial Conversion Feature of Note Payable | - | |||||||||||||||||||||||
| Warrants issued in conjunction with Convertible Notes Payable | - | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at June 30, 2021 (As restated, see Note 3) | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
3
| Common Stock | Additional Paid-In | Common Stock to | Accumulated | Total Shareholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Be Issued | Deficit | Equity | |||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Share issuance in exchange for services | ||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Shares issued from warrants exercised | ||||||||||||||||||||||||
| Share issuance in exchange for services | ||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
CRYOMASS TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For the Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | As restated, see Note 3 | |||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities from continuing operations: | ||||||||
| Amortization of debt discount | ||||||||
| Depreciation and amortization expense | ||||||||
| Stock-based compensation expense | ||||||||
| Share issuances in exchange for services | ||||||||
| Change in operating assets and liabilities: | ||||||||
| Prepaid expenses | ||||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Net cash used in operating activities from continuing operations | ( | ) | ( | ) | ||||
| Net cash used in operating activities from disc ops | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Cash payment for Cryocann asset purchase | ( | ) | ||||||
| Payoff of CryoCann loan agreement at closing | ( | ) | ||||||
| Issuance of loans receivable | ( | ) | ||||||
| Purchase of property and equipment | ( | ) | ||||||
| Purchase of intangible assets | ( | ) | ||||||
| Net cash used in investing activities from continuing operations | ( | ) | ( | ) | ||||
| Net cash used in investing activities from discontinued operations | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from issuance of common stock | ||||||||
| Proceeds from common stock subscribed and to be issued | ||||||||
| Repayment of loans payable, current | ( | ) | ||||||
| Proceeds from notes payable | ||||||||
| Related party note disbursement | ( | ) | ||||||
| Net cash provided by financing activities from continuing operations | ||||||||
| Net cash provided by financing activities from discontinued operations | ||||||||
| Net cash provided by financing activities | ||||||||
| Net increase / (decrease) in cash from continuing operations | ( | ) | ||||||
| Net increase / (decrease) in cash from discontinued operations | ( | ) | ||||||
| Cash at beginning of period | ||||||||
| Cash at end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Common stock issued pursuant to vesting of restricted stock units | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
5
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of the Business
Cryomass Technologies Inc (“Cryomass Technologies” or the “Company”) designs, manufactures and is developing the strategy to commercialize patented cryo-mechanical systems for the harvesting and refinement of hemp, cannabis, and potentially other high value crops such as hops. 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 can be operated at a cultivation site or be installed at a processing facility and is being optimized for the collection of fully intact hemp and cannabis trichomes. The first functional “beta” machine has been through a first phase of testing field-. The first commercial unit is expected to be delivered to an operating partner’s facility by the end of the third quarter 2022.
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 condensed 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 Critical Mass Industries LLC DBA Good Meds (“CMI” and/or “Good Meds”) 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 were included in the accompanying condensed 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.
CMI Statement of Operations
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Income Statement | ||||||||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold, inclusive of depreciation | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Personnel costs | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Legal and professional fees | ||||||||||||||||
| Amortization expense | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Gain / (loss) from operations | ||||||||||||||||
| Other income (expenses): | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ||||||||||||
| Loss on foreign exchange | ||||||||||||||||
| Total other expenses | ( | ) | ( | ) | ||||||||||||
| Net gain from discontinued operations, before taxes | ||||||||||||||||
| Income taxes | ||||||||||||||||
| Net gain from discontinued operations | $ | $ | $ | $ | ||||||||||||
As a result of new agreements entered with CMI
on December 31, 2021, we disposed of all CMI-related assets and extinguished any and all related obligations in exchange for a $
6
3. Restatement
During Q2
2021, the Company executed two tranches of convertible term note agreements in aggregate principal value of $
As part of year-end audit procedures, the Company discovered these warrant contracts would require an independent fair value calculation, as well as beneficial conversion value to be attributed to the convertible notes. The Company engaged an independent valuation firm to perform a fair value calculation of the warrants and associated beneficial conversion feature. As a result of the fair value analysis, additional paid-in capital was allocated to beneficial conversion feature and to warrants, resulting in debt discount and associated amortization expense as of and for the period ended June 30, 2021.
CRYOMASS TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| As of June 30, 2021 | ||||||||||||
| Previously Reported | Adjustments | Revised | ||||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||
| Current liabilities: | ||||||||||||
| Accounts payable and accrued expenses | $ | $ | $ | |||||||||
| Loans payable | ||||||||||||
| Taxes payable | ||||||||||||
| Liabilities held for sale, current | ||||||||||||
| Total current liabilities | ||||||||||||
| Notes payable | ( | ) | ||||||||||
| Deferred tax liability | ||||||||||||
| Total liabilities | ( | ) | ||||||||||
| Commitments and contingencies | ||||||||||||
| Shareholders’ equity: | ||||||||||||
| Preferred stock, $ | ||||||||||||
| Common stock, $ | ||||||||||||
| Additional paid-in capital | ||||||||||||
| Accumulated deficit | ( | ) | ( | ) | ( | ) | ||||||
| Total shareholders’ equity | ||||||||||||
| Total liabilities and shareholders’ equity | $ | $ | $ | |||||||||
7
CRYOMASS TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| For the Three Months Ended June 30, 2021 | ||||||||||||
| Previously Reported | Adjustments | Revised | ||||||||||
| Other income (expenses): | ||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ||||||
| Gain on foreign exchange | ( | ) | ( | ) | ||||||||
| Total other expenses | ( | ) | ( | ) | ( | ) | ||||||
| Net loss from continuing operations, before taxes | ( | ) | ( | ) | ( | ) | ||||||
| Income taxes | ||||||||||||
| Net loss from continuing operations | ( | ) | ( | ) | ( | ) | ||||||
| Net loss from discontinued operations, net of tax | ||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Comprehensive loss from discontinued operations | ||||||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| For the Six Months Ended June 30, 2021 | ||||||||||||
| Previously Reported | Adjustments | Revised | ||||||||||
| Other income (expenses): | ||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ||||||
| Gain on foreign exchange | ||||||||||||
| Total other expenses | ( | ) | ( | ) | ( | ) | ||||||
| Net loss from continuing operations, before taxes | ( | ) | ( | ) | ( | ) | ||||||
| Income taxes | ||||||||||||
| Net loss from continuing operations | ( | ) | ( | ) | ( | ) | ||||||
| Net loss from discontinued operations, net of tax | ||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Comprehensive loss from discontinued operations | ||||||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
8
CRYOMASS TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(UNAUDITED)
| Common Stock | Additional Paid-In | Common Stock to | Accumulated | Total Shareholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Be Issued | Deficit | Equity | |||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | $ | - | $ | ( | ) | $ | ||||||||||||||||
| Share issuance | - | - | - | |||||||||||||||||||||
| Share issuance related to Cryocann asset purchase | - | - | ||||||||||||||||||||||
| Share issuance pursuant to employment agreements | - | - | ||||||||||||||||||||||
| Share issuance in exchange for extinguishment of debt | - | - | ||||||||||||||||||||||
| Share issuance in exchange for services | - | - | ||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | ||||||||||||||||||||
| Stock options issued and outstanding | - | - | - | - | ||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||
| Previously reported balance at June 30, 2021 | $ | $ | $ | - | $ | ( | ) | $ | ||||||||||||||||
| Adjustments: | ||||||||||||||||||||||||
| Interest expense from debt discount amortization related to Beneficial Conversion Feature | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||
| Beneficial Conversion Feature of Note Payable | - | - | - | - | ||||||||||||||||||||
| Warrants issued in conjunction with Convertible Notes Payable | - | - | - | - | ||||||||||||||||||||
| Adjusted balance at June 30, 2021 | $ | $ | $ | - | $ | ( | ) | $ | ||||||||||||||||
9
CRYOMASS TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For the Six Months Ended June 30, 2021 | ||||||||||||
| Previously Reported | Adjustments | Revised | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Adjustments to reconcile net loss to net cash used in operating activities from continuing operations: | ||||||||||||
| Amortization of debt discount | ||||||||||||
| Fair value of common stock issued pursuant to service and advisory agreements | ||||||||||||
| Stock-based compensation expense | ||||||||||||
| Change in operating assets and liabilities: | ||||||||||||
| Accounts receivable | ||||||||||||
| Prepaid expenses | ||||||||||||
| Accounts payable and accrued expenses | ||||||||||||
| Taxes payable | ||||||||||||
| Net cash used in operating activities from continuing operations | ( | ) | ( | ) | ||||||||
| Net cash provided by operating activities from discontinued operations | ( | ) | ( | ) | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||||||
4. 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. As of June 30,
2022, the Company had working capital of $
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 payment of our note receivable from CMI, and ultimately the attainment of profitable
operations. For the six months ended June 30, 2022, our company used $
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 June 30, 2022 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 Condensed Consolidated Financial Statements in future reporting periods.
10
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.
5. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying condensed consolidated financial statements have been prepared in accordance with GAAP. The condensed 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. CMI was no longer included in the condensed consolidated financial statements as of or for the period subsequent to December 31, 2021. 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 condensed consolidated 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 condensed consolidated financial statements, and the reported amounts of expenses during the reporting period. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to determining the fair value of the assets acquired and liabilities assumed in acquisition, 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 interim condensed 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.
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 $
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.
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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 was the primary beneficiary of CMI and therefore consolidated the financial results of the entity through December 31, 2021. 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.
Discontinued Operations
The Company had no revenues from discontinued operations for the three and six months ended June 30, 2022. For the three and six months ended June 30, 2021, Company’s revenue consisted of sales of cannabis and ancillary products to both retail consumers and wholesale customers. Revenue for retail customers was 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 was 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 was recognized upon transfer of control of promised products to customers, generally as risk of loss passes, in an amount that reflected the consideration the Company expected to receive in exchange for those products. Taxes collected from customers, which was subsequently remitted to governmental authorities, were excluded from revenue.
Retail customer loyalty liabilities were recognized in the period in which they were incurred and were often be retired without being utilized. Shipping and handling costs were expensed as incurred and are included in cost of sales.
The Company operated in a highly regulated environment in which state regulatory approval was 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, research and development 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 Cryocann. Personnel costs consist primarily of consulting expense and administrative salaries and wages. 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.
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.
12
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 | ||
| Furniture and fixtures | ||
| Machinery and equipment | ||
| Leasehold improvements | Shorter of lease term or |
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 consist of in process research and development and internal-use software. 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. Internal-use software costs recognized as an intangible asset relates to capitalizable costs of computer software obtained for internal-use as defined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 350-40-30-1. All other internal-use software costs are expensed as incurred by the Company. Amortization will be recorded straight-line over the estimated useful life of the software once the software is ready for its intended use. As of June 30, 2022, our internal-use software was not ready for its intended use. The estimated useful life for internal-use software will be determined and periodically reassessed based on considerations for obsolescence, technology, competition, and other economic factors.
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 | ||
| In process research and development | ||
| Internal-use software |
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.
Management concluded that there were no events indicative of goodwill impairment during the six months ended June 30, 2022.
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.
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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.
Management concluded that there were no events indicative of identifiable intangible asset impairment during the six months ended June 30, 2022.
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.
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, and notes 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. 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 our 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 in the allocation. Management additionally evaluates the facts and circumstances to determine whether the principal balance of convertible notes approximate their fair value, which we have concluded for all convertible notes issued.
As a result of our fair value calculations, we
recognized $
14
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
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 smaller reporting companies for fiscal years beginning after December 15, 2023, 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 condensed consolidated financial statements, but has not yet determined the impact.
6. Business Combination
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 “Cryocann Acquisition”). The aggregate purchase price was $
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 | $ | |||
| Common stock | ||||
| Promissory Note | ||||
| Total purchase price | $ |
| Description | Fair Value | Weighted average useful life (in years) | ||||||
| Assets acquired: | ||||||||
| Intangible assets: | ||||||||
| In process research and development | ||||||||
| Patent | ||||||||
| Goodwill | ||||||||
| Total assets acquired | $ | |||||||
As if the acquisition occurred on January 1, 2021,
as reported in our pro forma basis, our net loss would have been $
15
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 consolidated statements of operations include the following operating results related to these CMI discontinued operations:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold, inclusive of depreciation | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Personnel costs | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Legal and professional fees | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Gain from operations | ||||||||||||||||
| Other income (expenses): | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ||||||||||||
| Loss on foreign exchange | ||||||||||||||||
| Total other expenses | ( | ) | ( | ) | ||||||||||||
| Net gain from discontinued operations, before taxes | ||||||||||||||||
| Income taxes | ||||||||||||||||
| Net gain from discontinued operations | $ | $ | $ | $ | ||||||||||||
8. Property and Equipment, Net
Property and equipment, net consisted of the following. All property and equipment is classified as held for sale.
| June 30, 2022 | December 31, 2021 | |||||||
| Leasehold improvements | $ | $ | ||||||
| Machinery and equipment | ||||||||
| Furniture and fixtures | ||||||||
| Construction in progress | ||||||||
| Less: Accumulated depreciation | ||||||||
| $ | $ | |||||||
As of June 30, 2022, our machinery and equipment was not capable of producing a unit of product that is saleable. Depreciation expense will be recognized once our machinery and equipment is ready for its intended use.
9. Goodwill and Intangible Assets
The carrying value of goodwill was $
The following tables summarize information relating to the Company’s identifiable intangible assets as of June 30, 2022 and December 31, 2021:
| June 30, 2022 | ||||||||||||||
| Estimated Useful Life (Years) | Gross Amount | Accumulated Amortization | Carrying Value | |||||||||||
| Amortized | ||||||||||||||
| Patent | $ | $ | ( | ) | $ | |||||||||
| Indefinite-lived | ||||||||||||||
| In-process research and development | ||||||||||||||
| Internal-use software | ||||||||||||||
| Total identifiable intangible assets | $ | $ | ( | ) | $ | |||||||||
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| December 31, 2021 | ||||||||||||||
| Estimated Useful Life (Years) | Gross Amount | Accumulated Amortization | Carrying Value | |||||||||||
| Amortized | ||||||||||||||
| Patent | $ | $ | ( | ) | $ | |||||||||
| Indefinite-lived | ||||||||||||||
| In-process research and development | ||||||||||||||
| Total identifiable intangible assets | $ | $ | ( | ) | $ | |||||||||
Amortization expense was $
10. Loans Receivable
As a result of new agreements entered with CMI
on December 31, 2021, as further detailed in Note 1 above, we received a $
11. Debt
On July 27, 2020, the Company entered into a subscription
agreement consisting of 1) a convertible note and 2) warrants.
On August 26, 2020, the Company entered into a
$
On March 18, 2021, the Company entered into a
$
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
Between May 11, 2021 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
All notes were converted during the fourth quarter of 2021.
17
On August 20, 2021, the Company entered into a
$
12. Related Party Transactions
In conjunction with the Cryocann Acquisition,
the Company received a promissory note from Matt Armstrong, an employee of the Company, for $
On August 19, 2021, the Company entered into a
loan agreement of $
On November 15, 2021, the Company issued
13. Shareholders’ Equity
From January to March 2021, the Company issued
From April to June 2021, the Company issued
From July to September 2021, the Company issued
From October to December 2021, the Company issued
From January to March 2022, the Company issued
From April to June 2022, the Company issued
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. On January 10, 2022, the shareholders approved the 2022 Stock Incentive Plan which then replaced the 2019 Plan.
A summary of the Company’s RSU award activity for the six months ended June 30, 2022 is as follows:
| Restricted Stock Units | Weighted Average Grant Date Fair Value | |||||||
| Outstanding at December 31, 2021 | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ||||||||
| Outstanding at March 31, 2022 | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ( | ) | ||||||
| Outstanding at June 30, 2022 | ||||||||
The total fair value of RSUs vested during the
three and six months ending June 30, 2022 was $
18
Stock-based compensation expense relating to RSU’s
was $
Stock Option Awards
A summary of the Company’s stock option activity for the six months ended June 30, 2022 is as follows:
| Stock Option Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value | |||||||||||||
| Outstanding at December 31, 2021 | $ | $ | ||||||||||||||
| Granted and vested | ||||||||||||||||
| Forfeited | ||||||||||||||||
| Outstanding at March 31, 2022 | $ | $ | ||||||||||||||
| Granted and vested | ||||||||||||||||
| Forfeited | ||||||||||||||||
| Outstanding at June 30, 2022 | $ | $ | ||||||||||||||
During the three and six months ended June 30,
2022, the Company did not issue any stock options. During the three and six months ended June 30, 2021, the Company issued
During the year ended December 31, 2021, the Company
issued warrants with the option to purchase
The fair value of these warrants is $
14. Income Taxes
In accordance with ASC 740-270, the Company calculates
the interim tax expense based on an annual effective tax rate (“AETR”). The AETR represents the Company’s estimated
effective tax rate for the year based on full year projection of tax expense, divided by the projection of full year pretax book loss,
adjusted for discrete transactions occurring during the period. The annual effective tax rate for the six months ended June 30, 2022 was
As of June 30, 2022, the Company has recorded no income tax liability.
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 condensed 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.
19
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 leases with a term exceeding
An ROU asset of $
The present value of the liabilities decreased
by $
The Company does not have any leases that have not yet commenced which are significant.
Legal Proceedings
Legal proceedings covering a dispute arising from a past employment agreements is pending against the Company’s former 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.
16. Subsequent Events
On July 13, the Company issued
On
August 10, 2022, we issued
20
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
In this quarterly report, unless otherwise specified, our financial statements are expressed in United States Dollars (US$) and are prepared in accordance with United States generally accepted accounting principles. All references to “common shares” refer to the common shares in our capital stock.
Unless expressly indicated or the context requires otherwise, the terms “Cryomass Technologies,” the “Company,” “we,” “us,” and “our” refer to Cryomass Technologies Inc., a Nevada corporation, and, where appropriate, its wholly owned subsidiaries.
General Overview
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 our telephone number is 303-416-7208. The Company’s website is www.cryomass.com.
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.
21
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. The first functional “beta” machine has been extensively field-tested and we expect to deliver our first commercial unit to an operating partner’s facility by the end of the third quarter, with first revenues occurring no later in the fourth quarter of 2022.
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.
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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. 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.
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 2021, 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 17, 2021, 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. 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, either individually or through entities controlled by them.
Update on COVID-19
In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China, which has spread throughout the world, including the United States. On January 30, 2020, the World Health Organization declared the outbreak of COVID-19 a “Public Health Emergency of International Concern,” and on March 11, 2020, it characterized the outbreak as a “pandemic”. 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.
To date, COVID-19 has surfaced in nearly all regions around the world and resulted in travel restrictions, both domestic and international, closing of borders and business slowdowns or shutdowns in affected areas. As a result, COVID-19 has impacted the Company’s business. Although deemed an essential business during the pandemic, many dispensaries and cannabis manufacturers have suspended or reduced operations on a temporary basis due to matters associated with COVID-19. While activities resumed in full in 2022, there are continued threats of short-notice, temporary restrictions that may impact our business.
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; some 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.
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Our Current Business
Our business portfolio includes the accounts of Cryomass LLC (formerly known as General Extract), which is controlled by the Company through its 100% ownership interest. The Company dissolved its previously reported VIE relationship with Critical Mass Industries Inc., such that we no longer report the VIE as discontinued operations held for sale.
On June 23, 2021, the Company consummated purchase of assets of Cryocann USA Corp through its wholly-owned subsidiary Cryomass LLC. We are currently finalizing research and development work of our patented technology. We intend to begin commercial-scale testing of the system prototype in the first half of 2022 and plan to target specific markets and industries to employ this ground-breaking technology.
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 hundreds of 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.
The first functional “beta” machine is expected to be fully field-tested during mid-2022. In the same time-frame, we expect to commission the build of the first production-run system and to deploy both machines in commercial scale operations by the end of the third quarter, 2022, including revenue generation.
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.
Results of Operations for the Three Months Ended June 30, 2022 and 2021
Our operating results for the three months ended June 30, 2022 and 2021 are summarized as follows:
| For the Three Months Ended June 30, | Change | |||||||||||||||
| 2022 | 2021 | Dollars | Percentage | |||||||||||||
| Net sales | $ | - | $ | - | $ | - | 0 | % | ||||||||
| Cost of goods sold, inclusive of depreciation | - | - | - | 0 | % | |||||||||||
| Gross profit | - | - | - | 0 | % | |||||||||||
| Total operating expenses | 1,416,244 | 2,637,445 | (1,194,905 | ) | -46 | % | ||||||||||
| Loss from operations | (1,416,244 | ) | (2,637,445 | ) | 1,194,905 | -46 | % | |||||||||
| Total other expenses | (14,174 | ) | (370,880 | ) | 356,706 | -96 | % | |||||||||
| Net loss from continuing operations, before taxes | (1,430,418 | ) | (3,008,325 | ) | 1,551,611 | -52 | % | |||||||||
| Income taxes | - | - | - | 0 | % | |||||||||||
| Net loss from continuing operations | $ | (1,430,418 | ) | $ | (3,008,325 | ) | $ | 1,551,611 | -52 | % | ||||||
| Net income / (loss) from disc. operations, net of tax | $ | - | $ | 238,686 | $ | (238,686 | ) | -100 | % | |||||||
| Net loss | $ | (1,430,418 | ) | $ | (2,769,639 | ) | $ | 1,312,925 | -48 | % | ||||||
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Our operating results for the three months ended June 30, 2022 and 2021, relating to our former variable interest entity, CMI, are classified as discontinued operations above and summarized as follows:
| For the Three Months Ended June 30, | Change | |||||||||||||||
| 2022 | 2021 | Dollars | Percentage | |||||||||||||
| Net sales | $ | - | $ | 1,617,647 | $ | (1,617,647 | ) | -100 | % | |||||||
| Cost of goods sold, inclusive of depreciation | - | 1,006,958 | (1,006,958 | ) | -100 | % | ||||||||||
| Gross profit | - | 610,689 | (610,689 | ) | -100 | % | ||||||||||
| Total operating expenses | - | 351,464 | (351,464 | ) | -100 | % | ||||||||||
| Gain / (loss) from operations | - | 259,225 | (259,225 | ) | -100 | % | ||||||||||
| Total other expenses | - | (20,539 | ) | 20,539 | -100 | % | ||||||||||
| Net income / (loss), before taxes | - | 238,686 | (238,686 | ) | -100 | % | ||||||||||
| Income taxes | - | - | - | 0 | % | |||||||||||
| Net income / (loss) | $ | - | $ | 238,686 | $ | (238,686 | ) | -100 | % | |||||||
Net Sales and Cost of Goods Sold
There were no net sales related to continuing operations for the three months ended June 30, 2022 and 2021. CMI had no net sales for the three months ended June 30, 2022. CMI net sales were $1,617,647 for the three months ended June 30, 2021, of which $1,123,396 was related to medical retail, $512,282 was related to medical wholesale, $0 was related to recreational wholesale and $(18,031) was related to other revenues. The overall decrease in CMI net sales for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 was $1,617,647, or 100%, which is which is attributable to the Company’s disposal of its discontinued operations as of December 31, 2021.
There were no cost of goods sold related to continuing operations for the three months ended June 30, 2022 and 2021, respectively. CMI had no cost of goods sold for the three months ended June 30, 2022. CMI’s cost of goods sold were $1,006,958 for the three months ended June 30, 2021, representing a decrease of $1,006,958 or 100%. This decrease is attributable to the Company’s disposal of its discontinued operations as of December 31, 2021.
Operating Expenses
Operating expenses encompass personnel costs, general and administrative expenses, and legal and professional fees. Total operating expenses were $1,416,244 for the three months ended June 30, 2022 as compared to $2,637,445 for the three months ended June 30, 2021. The decrease of $1,221,201, or 46%, was primarily attributable to the following changes in operating expenses of:
| ● | General and administrative expenses - $1,740,905 decrease |
| ● | Legal and professional fees - $456,168 increase |
The decrease of $1,740,905, or 88%, in general and administrative expenses is primarily due to the fact that the Company incurred significant stock compensation costs during the three months ending June 30, 2021 related to new CEO Christian Noel’s employment agreement and stock options granted for the CryoCann transaction.. The increase of $456,168, or 197%, in legal and professional fees is primarily due to the fact that the Company incurred a number of large expenses for its primary investor relations consultant.
CMI operating expenses encompass personnel costs, general and administrative, legal and professional fees, and amortization expense. Total operating expenses for CMI were $0 and $351,464 for the three months ending June 30, 2022 and 2021, respectively, representing a decrease of $351,464, or 100%. This decrease was attributable to the Company’s disposal of its discontinued operations as of December 31, 2021.
Other Expense
Other expense for the three months ending June 30, 2022 consisted of $35,235 interest expense and $21,061 gain on foreign exchange. Other expense for the three months ending June 30, 2021 consisted of $359,648 interest expense and $11,232 loss on foreign exchange. The decrease in interest expense was a result of fully converting $4,900,000 of notes payable into common shares during Q4 2021. The loss on foreign exchange relates to a payable agreement with Cryomass LLC’s supplier.
CMI had no other expense for the three months ending June 30, 2022. CMI’s other expense during the three months ending June 30, 2021 consisted of $20,539 interest expense, which primarily relates to the related party note.
Net Loss
For the foregoing reasons, we had a net loss of $1,430,418 for the three months ending June 30, 2022, or $0.01 net loss per common share – basic and diluted, compared to a net loss of $2,769,639 for the three months ending June 30, 2021, or $0.02 net loss per common share – basic and diluted.
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Results of Operations for the Six Months Ended June 30, 2022 and 2021
Our operating results for the six months ended June 30, 2022 and 2021 are summarized as follows:
| For the Six Months Ended June 30, | Change | |||||||||||||||
| 2022 | 2021 | Dollars | Percentage | |||||||||||||
| Net sales | $ | - | $ | - | $ | - | 0 | % | ||||||||
| Cost of goods sold, inclusive of depreciation | - | - | - | 0 | % | |||||||||||
| Gross profit | - | - | 0 | % | ||||||||||||
| Total operating expenses | 3,544,034 | 3,633,149 | (89,115 | ) | -2 | % | ||||||||||
| Loss from operations | (3,544,034 | ) | (3,633,149 | ) | 89,115 | -2 | % | |||||||||
| Total other expenses | (38,689 | ) | (538,719 | ) | 500,030 | -93 | % | |||||||||
| Net loss from continuing operations, before taxes | (3,582,723 | ) | (4,171,868 | ) | 589,145 | -14 | % | |||||||||
| Income taxes | - | - | - | 0 | % | |||||||||||
| Net loss from continuing operations | $ | (3,582,723 | ) | $ | (4,171,868 | ) | $ | 589,145 | -14 | % | ||||||
| Net income from discontinued operations, net of tax | $ | - | $ | 355,302 | $ | (355,302 | ) | -100 | % | |||||||
| Net loss | $ | (3,582,723 | ) | $ | (3,816,566 | ) | $ | 233,843 | -6 | % | ||||||
Our operating results for the six months ended June 30, 2022 and 2021, relating to our former variable interest entity, CMI, are included above and summarized as follows:
| For the six Months Ended June 30, | Change | |||||||||||||||
| 2022 | 2021 | Dollars | Percentage | |||||||||||||
| Net sales | $ | - | $ | 3,313,572 | $ | (3,313,572 | ) | -100 | % | |||||||
| Cost of goods sold, inclusive of depreciation | - | 2,125,693 | (2,125,693 | ) | -100 | % | ||||||||||
| Gross profit | - | 1,187,879 | (1,187,879 | ) | -100 | % | ||||||||||
| Total operating expenses | - | 782,774 | 782,774 | -100 | % | |||||||||||
| Gain / (loss) from operations | - | 405,105 | 405,105 | -100 | % | |||||||||||
| Total other expenses | - | (49,803 | ) | (49,803 | ) | -100 | % | |||||||||
| Net income, before taxes | - | 355,302 | (355,302 | ) | -100 | % | ||||||||||
| Income taxes | - | - | - | 0 | % | |||||||||||
| Net income | $ | - | $ | 355,302 | $ | (355,302 | ) | -100 | % | |||||||
Net Sales and Cost of Goods Sold
There were no net sales related to continuing operations for the six months ended June 30, 2022 and 2021. CMI contributed no net sales for the six months ended June 30, 2022. CMI net sales were $3,313,572 for the six months ended June 30, 2021, of which $2,253,900 was related to medical retail, $1,068,592 was related to medical wholesale, $9,010 was related to recreational wholesale, and $(17,930) was related to other revenues. The overall decrease in CMI net sales for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was $3,313,572, or 100%.
There were no cost of goods sold related to continuing operations for the six months ended June 30, 2022 and 2021. CMI contributed no cost of goods sold for the six months ended June 30, 2022. CMI’s cost of goods sold were $2,125,693 for the six months ended June 30, 2021, representing a decrease of $2,125,693 or 100%. This decrease is attributable to the Company’s disposal of its discontinued operations as of December 31, 2021.
Operating Expenses
Operating expenses encompass personnel costs, general and administrative expenses, and legal and professional fees. Total operating expenses were $3,544,034 for the six months ended June 30, 2022 as compared to $3,633,149 for the six months ended June 30, 2021. The decrease of $89,115, or 2%, was primarily attributable to the following:
| ● | General and administrative expenses - $1,842,026 decrease |
| ● | Legal and professional fees - $1,688,905 increase |
The $1,842,026, or 78%, decrease in general and administrative expenses is primarily due to the fact that the Company incurred additional stock-based compensation expense during the six months ending June 30, 2021 related to new CEO Christian Noel’s employment agreement and stock options granted for the Cryocann Acquisition. The 1,688,905, or 369%, increase in legal and professional fees primarily resulted from the fact that the Company incurred a number of large expenses for its primary investor relations consultant.
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CMI operating expenses encompass personnel costs, general and administrative, legal and professional fees, and amortization expense. Total operating expenses for CMI were $0 and $782,774, respectively, for the six months ended June 30, 2022 and 2021, which represents a decrease of $782,774 or 100%.
Other Expense
Other expense for the six months ending June 30, 2022 consisted of $71,258 interest expense and $32,569 gain on foreign exchange. Other expense for the six months ending June 30, 2021 consisted of $562,257 interest expense and $23,538 gain on foreign exchange. The decrease in interest expense was a result of fully converting $4,900,000 of notes payable into common shares during Q4 2021. The loss on foreign exchange relates to a payable agreement with Cryomass LLC’s supplier.
CMI contributed no other expense for the six months ending June 30, 2022. CMI’s other expense during the three months ending June 30, 2021 consisted of $49,803 interest expense, which primarily relates to the related party note.
Net Loss
For the foregoing reasons, we had a net loss of $3,582,723 for the six months ending June 30, 2022, or $0.02 net loss per common share – basic and diluted, compared to a net loss of $3,816,566 for the six months ending June 30, 2021, or $0.04 net loss per common share – basic and diluted.
Liquidity, Capital Resources and Cash Flows
As of June 30, 2022, the Company had working capital of $1,165,814 and cash balance of $2,188,032. The Company estimates that it needs approximately $4,000,000 to cover overhead costs plus an additional $500,000-$1,000,000 to support the capital expenditures and operations over the next twelve months. In addition to offsets from available cash balances, these costs are expected to be offset by revenues which we believe will begin to be realized in the fourth quarter of 2022. However, if needed, the Company also has available to it a facility that can be used to put shares to an investment fund in return for cash. The dollar amount of each put is determined by a formula which is based on trading volumes and prices of our shares. Based on current trading volumes and prices, we estimate that approximately $225,000 could be available every two weeks until we reach the facility limit of $10,000,000 or the end of 2023, whichever comes first. We believe that the combination of available cash, revenue generation and the facility described above will be sufficient to meet our anticipated costs going forward.
COVID-19 has resulted in, and may continue to result in, significant disruption of financial markets, which may reduce the Company’s ability to access capital or its customers’ ability to pay the Company for past or future purchases, which could negatively affect the Company’s liquidity. The Company believes that the cash balances and cash from operations will be sufficient to satisfy its cash needs for the next few months until it can obtain new long-term financing or other sources of capital. If we are unable to attain additional financing, we will have to seek additional strategic alternatives and relief from our additional liabilities accumulated during COVID-19.
The impact of COVID-19 developments and uncertainty with respect to the economic effects of the pandemic have introduced significant volatility in the financial markets. The uncertainties associated with COVID-19 related to our industry present risk and doubt about the Company’s ability to continue as a going concern.
Going Concern
Management believes it has sufficient cash available to support an anticipated level of operations for at least 12 months following the date of this report.
Capital Resources
The following table summarizes total current assets, liabilities and working capital for the periods indicated:
| June 30, 2022 | December 31, 2021 | |||||||
| Current assets | $ | 2,254,873 | $ | 6,530,222 | ||||
| Current liabilities | 1,089,059 | 1,882,419 | ||||||
| Working capital | $ | 1,165,814 | $ | 4,647,803 | ||||
As of June 30, 2022 and December 31, 2021, we had a cash balance of $2,188,032 and $5,772,839, respectively.
Summary of Cash Flows
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Net cash used in operating activities | $ | (1,337,124 | ) | $ | (1,582,395 | ) | $ | (2,968,424 | ) | $ | (2,048,618 | ) | ||||
| Net cash used in investing activities | $ | (135,270 | ) | $ | (2,297,684 | ) | $ | (762,742 | ) | $ | (2,471,687 | ) | ||||
| Net cash provided by financing activities | $ | 66,151 | $ | 3,649,994 | $ | 146,359 | $ | 4,621,772 | ||||||||
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Net used in operating activities
Net cash used in operating activities was $2,968,424 during the six months ended June 30, 2022. This included a net loss of $3,582,723, a non-cash charge related to amortization of debt discount of $62,500, a non-cash charge related to depreciation and amortization expense of $43,663, a non-cash charge related to share issuances in exchange for services of $401,044, and a non-cash charge related to stock-based compensation of $209,910. This was partially offset by net changes in prepaid expenses, security deposits, and accounts payable and accrued expenses of $102,818.
Net cash used in operating activities was $2,048,618 during the six months ended June 30, 2021. This included a net loss of $3,983,086, a non-cash charge related to stock-based compensation of $2,074,547, a non-cash charge related to the amortization of debt discount of $62,500, share issuances in exchange for services of $27,200 and cash used in operating activities from discontinued operations of $452,828. This was partially offset by net changes in prepaid expenses and accounts payable and accrued expenses of $223,049.
Net cash used in investing activities
Net cash used in investing activities was $762,742 during the six months ended June 30, 2022, due to the issuance of loans receivable, purchase of property and equipment, and purchase of intangible assets.
Net cash used in investing activities was $2,471,687 during the six months ended June 30, 2021, primarily due to the purchase of property and equipment for discontinued operations and the CryoCann transaction.
Net cash provided by financing activities
Net cash provided by financing activities for the six months ended June 30, 2022 was $146,359, from proceeds from issuance of common stock.
Net cash provided by financing activities during the six months ended June 30, 2021 was $4,621,772, which consisted of $120,000 proceeds from the issuance of common stock, $412,359 repayment of loans payable, and $4,690,000 proceeds from notes payable.
Off-Balance Sheet Arrangements
None.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to intangibles, accounting for acquisitions, revenue recognition, income taxes, useful life and recoverability of long-lived assets and deferred income tax asset valuations. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Revenue Recognition
Under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 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.
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 pass, 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 three and six months ended June 30, 2022 and 2021.
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.
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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. Previously, management concluded that the Company was the primary beneficiary of CMI and consolidated 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.
Income Taxes
Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has adopted ASC 740, Income Taxes as of its inception. ASC 740 prescribes the procedures for recognition and measurement of tax positions taken or expected to be taken in income tax returns. Pursuant to ASC 740 the Company is required to compute tax asset benefits for net operating losses carried forward. The potential benefits of net operating losses have not been recognized in these condensed consolidated financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years. As of June 30, 2022 and 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable for a smaller reporting company.
Item 4. Controls and Procedures
Management’s Evaluation of Disclosure Controls and Procedures
We have carried out an evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), to allow timely decisions regarding required disclosures. Based upon that evaluation, our Company’s CEO and CFO concluded that our Company’s disclosure controls and procedures were not effective as of June 30, 2022.
Management has not formally documented its procedures and controls and as such does not have a sufficient basis to assess its internal controls over financial reporting. Management identified that it did not maintain adequately designed internal control over the preparation and oversight of:
| ● | month-end and period-end financial close processes. |
| ● | non-routine or complex transactions. |
| ● | the adoption of new accounting standards. |
Management’s Report on Internal Control Over Financial Reporting
We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2022, the end of the annual period covered by this report and according to the criteria established in Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.
Based on that evaluation, management has concluded that the Company did not maintain effective internal control over financial reporting as of the quarter ended June 30, 2022 due to the existence of significant deficiency in the internal control over financial reporting described below.
A significant deficiency is a deficiency, or a combination of deficiencies, in internal controls over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
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Management has determined that we did not maintain effective internal controls over financial reporting as of the quarter ended June 30, 2022 due to the existence of the following material weaknesses identified by management:
| ● | Due to the Company’s size, the is insufficient segregation of duties to prevent or detect on a timely basis a misstatement of our annual or interim financial statements. |
We intend to continue to evaluate and strengthen our internal control over financial reporting. These efforts require significant time and resources. If we are unable to establish adequate internal control over financial reporting, we may encounter difficulties in the audit or review of our financial statements by our independent registered public accounting firm, which in turn may have a material adverse effect on our ability to prepare financial statements in accordance with GAAP and to comply with our SEC reporting obligations.
Management is in the process of determining how best to change our current system and implement a more effective system to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act have been recorded, processed, summarized and reported accurately. Our management intends to develop procedures to address the current deficiencies to the extent possible given limitations in financial and personnel resources.
Management utilizes external experts to assist the Company with technical accounting expertise needs as deemed necessary and plans to perform a formal assessment of its internal control’s framework. However, no assurance can be made at this point that the implementation of such controls and procedures will be completed in a timely manner or that they will be adequate once implemented.
Attestation report of Registered Public Accounting Firm
This Quarterly Report on Form 10-Q does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting because we are not an “accelerated filer” or a “large accelerated filer”. Our management’s report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report in this Quarterly Report on Form 10-Q.
Management’s Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer (who is also the Company’s principal executive officer), and our chief financial officer (who is also the Company’s principal financial and accounting officer) to allow for timely decisions regarding required disclosure. Thus, in accordance with Rules 13a-15(b) under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures as of June 30, 2022, which is the end of the period covered by this Form 10-Q. Based on the evaluation of these disclosure controls and procedures, and in light of the significant deficiency found in our internal controls over financial reporting, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were not effective. The ineffectiveness of our disclosure controls and procedures was due to a significant deficiency identified in our internal control over financial reporting.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting that occurred during the quarter ended June 30, 2022. We have not been able to remediate the significant deficiency described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and 2020. Our remediation efforts will continue to be implemented throughout our 2022 fiscal year. We believe that the controls that we will be implementing will improve the effectiveness of our internal control over financial reporting. As we continue to evaluate and work to improve our internal control over financial reporting, we may determine to take additional measures to address the significant deficiency or determine to supplement or modify certain of the remediation measures described above.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
Legal proceedings covering a dispute arising from a past employment agreement is pending against the Company’s former 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 condensed 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 condensed consolidated financial statements for an unfavorable outcome in this case, if applicable. Any applicable legal advice costs are expensed as incurred.
Item 1A. Risk Factors
In addition to the other information set forth in this Report, you should carefully consider the factors discussed in Item 1A, “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 and subsequent quarterly reports on Form 10-Q, which could materially affect our business, financial condition or future results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
| Exhibit Number |
Description | |
| 31.1* | Section 302 Certification under the Sarbanes-Oxley Act of 2002 of the Principal Executive Officer. | |
| 31.2* | Section 302 Certification under the Sarbanes-Oxley Act of 2002 of the Principal Financial Officer and Principal Accounting Officer. | |
| 32.1* | Section 906 Certification under the Sarbanes-Oxley Act of 2002 of the Principal Executive Officer. | |
| 32.2* | Section 906 Certification under the Sarbanes-Oxley Act of 2002 of the Principal Financial Officer and Principal Accounting Officer. | |
| 101.INS | Inline XBRL Instance Document. | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
| * | Filed herewith. |
31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| CRYOMASS TECHNOLOGIES INC. | |
| (Registrant) | |
| Dated: August 11, 2022 | |
| /s/ Christian Noel | |
| Christian Noel | |
| Chief Executive Officer and Director | |
| (Principal Executive Officer) | |
| Dated: August 11, 2022 | |
| /s/ Philip Mullin | |
| Philip Mullin | |
| Chief Financial Officer and Treasurer | |
| (Principal Financial Officer and Principal Accounting Officer) |
32
Exhibit 31.1
CERTIFICATION PURSUANT
TO
18 U.S.C. ss 1350, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Christian Noël, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Cryomass Technologies Inc; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
| 5. | The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and | |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
| Date: August 11, 2022 | |
| /s/ Christian Noël | |
| Christian Noël | |
| Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION PURSUANT
TO
18 U.S.C. ss 1350, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Philip B. Mullin, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Cryomass Technologies Inc; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
| 5. | The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and | |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
| Date: August 11, 2022 | |
| /s/ Philip B. Mullin | |
| Philip B Mullin | |
| Chief Financial Officer and Treasurer | |
| (Principal Financial Officer and Principal Accounting Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT
TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Christian Noël, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | the Quarterly Report on Form 10-Q of Cryomass Technologies Inc for the quarter ended June 30, 2022 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Cryomass Technologies Inc |
Dated: August 11, 2022
| /s/ Christian Noël | |
| Christian Noël | |
| Chief Executive Officer (Principal Executive Officer) | |
| Cryomass Technologies Inc |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Cryomass Technologies Inc and will be retained by Cryomass Technologies Inc and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION PURSUANT
TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Philip B. Mullin, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | the Quarterly Report on Form 10-Q of Cryomass Technologies Inc for the quarter ended June 30, 2022 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Cryomass Technologies Inc |
Dated: August 11, 2022
| /s/ Philip B. Mullin | |
| Philip B Mullin | |
| Chief Financial Officer and Treasurer | |
| (Principal Financial Officer and Principal Accounting Officer) | |
| Cryomass Technologies Inc |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Cryomass Technologies Inc and will be retained by Cryomass Technologies Inc and furnished to the Securities and Exchange Commission or its staff upon request.
Condensed Consolidated Balance Sheets (Unaudited) (Parentheticals) - $ / shares |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Preferred stock, par value (in Dollars per share) | $ 0.001 | $ 0.001 |
| Preferred stock, shares authorized | 100,000 | 100,000 |
| Preferred stock, shares issued | ||
| Preferred stock, shares outstanding | ||
| Common stock, par value (in Dollars per share) | $ 0.001 | $ 0.001 |
| Common stock, shares authorized | 500,000,000 | 500,000,000 |
| Common stock, shares issued | 201,051,665 | 196,949,801 |
| Common stock, shares outstanding | 201,051,665 | 196,949,801 |
Condensed Consolidated Statements of Operations (Unaudited) (Parentheticals) - $ / shares |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Income Statement [Abstract] | ||||
| Loss per common share – basic and diluted | $ (0.01) | $ (0.02) | $ (0.02) | $ (0.04) |
| Weighted average common shares outstanding—basic and diluted | 200,596,549 | 106,008,685 | 200,164,004 | 102,176,247 |
Nature of the Business |
6 Months Ended |
|---|---|
Jun. 30, 2022 | |
| Accounting Policies [Abstract] | |
| Nature of the Business | 1. Nature of the Business
Cryomass Technologies Inc (“Cryomass Technologies” or the “Company”) designs, manufactures and is developing the strategy to commercialize patented cryo-mechanical systems for the harvesting and refinement of hemp, cannabis, and potentially other high value crops such as hops. 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 can be operated at a cultivation site or be installed at a processing facility and is being optimized for the collection of fully intact hemp and cannabis trichomes. The first functional “beta” machine has been through a first phase of testing field-. The first commercial unit is expected to be delivered to an operating partner’s facility by the end of the third quarter 2022. |
Variable Interest Entity |
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| Variable Interest Entity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Variable Interest Entity | 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 condensed 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 Critical Mass Industries LLC DBA Good Meds (“CMI” and/or “Good Meds”) 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 were included in the accompanying condensed 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.
As a result of new agreements entered with CMI on December 31, 2021, 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. |
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Restatement |
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| Restatement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restatement | 3. Restatement
During Q2 2021, the Company executed two tranches of convertible term note agreements in aggregate principal value of $3.0 million and $1.9 million, respectively that bear interest at a rate of 12% per annum. The notes mature on March 31, 2022 and September 30, 2022, respectively. In conjunction with the notes, the Company entered into certain warrant purchase agreements to purchase common shares of the Company. The Company offered 24,500,000 of warrant shares in conjunction with the issuance of the notes with an exercise price of $0.40. The warrants from each tranche of convertible notes shall be exercisable from the issuance date through March 31, 2023 and April 30, 2023, respectively.
As part of year-end audit procedures, the Company discovered these warrant contracts would require an independent fair value calculation, as well as beneficial conversion value to be attributed to the convertible notes. The Company engaged an independent valuation firm to perform a fair value calculation of the warrants and associated beneficial conversion feature. As a result of the fair value analysis, additional paid-in capital was allocated to beneficial conversion feature and to warrants, resulting in debt discount and associated amortization expense as of and for the period ended June 30, 2021.
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Going Concern Uncertainty, Financial Conditions and Management’s Plans |
6 Months Ended |
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Jun. 30, 2022 | |
| Going Concern Uncertainty, Financial Conditions and Management’s Plans [Abstract] | |
| Going Concern Uncertainty, Financial Conditions and Management’s Plans | 4. 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. As of June 30, 2022, the Company had working capital of $1,165,814 and cash balance of $2,188,032. The Company estimates that it needs approximately $4,000,000 to cover overhead costs plus an additional $500,000-$1,000,000 to support the capital expenditures and operations over the next twelve months. In addition to offsets from available cash balances, these costs are expected to be offset by revenues which we believe will begin to be realized in the fourth quarter of 2022. However, if needed, the Company also has available to it a facility that can be used to put shares to an investment fund in return for cash. The dollar amount of each put is determined by a formula which is based on trading volumes and prices of our shares. Based on current trading volumes and prices, we estimate that approximately $225,000 could be available every two weeks until we reach the facility limit of $10,000,000 or the end of 2023, whichever comes first. We believe that the combination of available cash, revenue generation and the facility described above will be sufficient to meet our anticipated costs going forward.
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 payment of our note receivable from CMI, and ultimately the attainment of profitable operations. For the six months ended June 30, 2022, our company used $2,968,424 of cash for operating activities, incurred a net loss of $3,582,723 and has an accumulated deficit of $32,171,560 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 June 30, 2022 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 Condensed Consolidated Financial Statements in future reporting periods.
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. |
Summary of Significant Accounting Policies |
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Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Significant Accounting Policies | 5. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying condensed consolidated financial statements have been prepared in accordance with GAAP. The condensed 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. CMI was no longer included in the condensed consolidated financial statements as of or for the period subsequent to December 31, 2021. 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 condensed consolidated 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 condensed consolidated financial statements, and the reported amounts of expenses during the reporting period. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to determining the fair value of the assets acquired and liabilities assumed in acquisition, 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 interim condensed 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.
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 at the end of 2021, 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.
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 was the primary beneficiary of CMI and therefore consolidated the financial results of the entity through December 31, 2021. 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.
Discontinued Operations
The Company had no revenues from discontinued operations for the three and six months ended June 30, 2022. For the three and six months ended June 30, 2021, Company’s revenue consisted of sales of cannabis and ancillary products to both retail consumers and wholesale customers. Revenue for retail customers was 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 was 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 was recognized upon transfer of control of promised products to customers, generally as risk of loss passes, in an amount that reflected the consideration the Company expected to receive in exchange for those products. Taxes collected from customers, which was subsequently remitted to governmental authorities, were excluded from revenue.
Retail customer loyalty liabilities were recognized in the period in which they were incurred and were often be retired without being utilized. Shipping and handling costs were expensed as incurred and are included in cost of sales.
The Company operated in a highly regulated environment in which state regulatory approval was 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, research and development 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 Cryocann. Personnel costs consist primarily of consulting expense and administrative salaries and wages. 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.
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:
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 consist of in process research and development and internal-use software. 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. Internal-use software costs recognized as an intangible asset relates to capitalizable costs of computer software obtained for internal-use as defined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 350-40-30-1. All other internal-use software costs are expensed as incurred by the Company. Amortization will be recorded straight-line over the estimated useful life of the software once the software is ready for its intended use. As of June 30, 2022, our internal-use software was not ready for its intended use. The estimated useful life for internal-use software will be determined and periodically reassessed based on considerations for obsolescence, technology, competition, and other economic factors.
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:
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.
Management concluded that there were no events indicative of goodwill impairment during the six months ended June 30, 2022.
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.
Management concluded that there were no events indicative of identifiable intangible asset impairment during the six months ended June 30, 2022.
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 condensed consolidated 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:
The carrying values reported in the consolidated balance sheets for cash, prepaid expenses, inventories, accounts payable, and notes 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. 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 our 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 in the allocation. Management additionally evaluates the facts and circumstances to determine whether the principal balance of convertible notes approximate their fair value, which we have concluded for all convertible notes issued.
As a result of our fair value calculations, we recognized $928,779 and $515,763 of additional paid in capital associated with the value of the warrants and beneficial conversion, respectively, resulting in a total notes payable discount of $1,444,542. As such, no debt discount amortization was recognized during the three and six months ended June 30, 2022. $188,782 of debt discount amortization was recognized as interest expense during the three and six months ended June 30, 2021.
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 1,258,982 unvested RSU’s considered potentially dilutive securities outstanding as of June 30, 2022 and 2,185,000 unvested RSU’s considered potentially dilutive securities outstanding as of June 30, 2021. Diluted net loss per share is the same as basic net loss per share for each period.
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 smaller reporting companies for fiscal years beginning after December 15, 2023, 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 condensed consolidated financial statements, but has not yet determined the impact. |
Business Combination |
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| Business Combination [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Business Combination | 6. Business Combination
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 “Cryocann Acquisition”). The aggregate purchase price was $3,500,000 million in cash and 10,000,000 shares of Company common stock 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:
As if the acquisition occurred on January 1, 2021, as reported in our pro forma basis, our net loss would have been $3,008,325 and $5,034,172 and our net loss per common share would have been $0.03 and $0.05 for the three and six months ended June 30, 2021, respectively. Our net sales would have remained unchanged during the period. 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. |
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Discontinued Operations |
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| Discontinued Operations [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Discontinued Operations | 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 consolidated statements of operations include the following operating results related to these CMI discontinued operations:
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Property and Equipment, Net |
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| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PROPERTY AND EQUIPMENT, NET | 8. Property and Equipment, Net
Property and equipment, net consisted of the following. All property and equipment is classified as held for sale.
As of June 30, 2022, our machinery and equipment was not capable of producing a unit of product that is saleable. Depreciation expense will be recognized once our machinery and equipment is ready for its intended use. |
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Goodwill and Intangible Assets |
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| Goodwill and Intangible Assets [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill and Intangible Assets | 9. Goodwill and Intangible Assets
The carrying value of goodwill was $1,190,000 as of June 30, 2022 and December 31, 2021.
The following tables summarize information relating to the Company’s identifiable intangible assets as of June 30, 2022 and December 31, 2021:
Amortization expense was $21,833 and $43,663 for the three and six months ended June 30, 2022, respectively, and was $0 and $0 for the three and six months ended June 30, 2021, respectively. |
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Loans Receivable |
6 Months Ended |
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Jun. 30, 2022 | |
| Loan Receivable [Abstract] | |
| Loans Receivable | 10. Loans Receivable
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. During the first quarter of 2022, the Company issued an additional $620,000 in loans to CMI, which is included in the loan receivable balance on the condensed consolidated balance sheets. |
Debt |
6 Months Ended |
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Jun. 30, 2022 | |
| Debt Disclosure [Abstract] | |
| Debt | 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 June 30, 2022, the net carrying amount is $239,583, which consists of the $250,000 convertible note and $10,417 unamortized debt discount. As of December 31, 2021, the net carrying amount was $177,083, which consisted of the $250,000 convertible note and $72,917 unamortized debt discount. The 2) warrants are exercisable to purchase an additional 2,500,000 shares of common stock at $0.25 per share and mature on August 1, 2022.
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.
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 would have matured on March 31, 2022 had they not all been converted and the Initial Warrants mature on March 31, 2023, and accrued interest at a rate of 12% per annum payable on a quarterly basis.
Between May 11, 2021 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.
All notes were converted during the fourth quarter of 2021.
On August 20, 2021, the Company entered into a $300,000 loan agreement, which accrued 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. |
Related Party Transactions |
6 Months Ended |
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Jun. 30, 2022 | |
| Related Party Transactions [Abstract] | |
| Related Party Transactions | 12. Related Party Transactions
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, the Company issued 250,000 common shares and warrants, respectively, to Christian Noel in exchange for $50,000. In addition, the Company issued 760,000 common shares and warrants, respectively, to Trichome Capital Inc. in exchange for $152,000. Christian Noel has voting and investment control of Trichome Capital Inc. |
Shareholders' Equity |
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| Shareholders’ Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shareholders' Equity | 13. Shareholders’ Equity
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.
From January to March 2022, the Company issued 458,334 shares of common stock in exchange for services, 550,000 shares of common stock for 2021 management performance bonuses, 185,529 shares of common stock for director compensation, and 1,000,000 shares of common stock for 2020 RSU grants vesting in January 2022.
From April to June 2022, the Company issued 687,501 shares of common stock in exchange for services, 1,000,000 shares of common stock related to director and management compensation, and 220,500 shares of common stock for exercise of warrants.
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. On January 10, 2022, the shareholders approved the 2022 Stock Incentive Plan which then replaced the 2019 Plan.
A summary of the Company’s RSU award activity for the six months ended June 30, 2022 is as follows:
The total fair value of RSUs vested during the three and six months ending June 30, 2022 was $317,000 and $1,165,600, respectively. The total fair value of RSUs vested during the three and six months ending June 30, 2021 was $900,000 and $3,046,602, respectively. As of June 30, 2022, there was $274,241 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 $69,095 and $209,910 for the three and six months ending June 30, 2022, respectively. Stock-based compensation expense relating to RSU’s was $1,091,028 and $1,341,845 for the three and six months ending June 30, 2021, respectively. Stock-based compensation for the three months ending June 30, 2022 consisted of equity awards forfeited, granted and vested to employees, directors and consultants of the Company in the amount of $530, $68,566, and $27,708, respectively. Stock-based compensation for the six months ending June 30, 2022 consisted of equity awards forfeited, granted and vested to employees, directors and consultants of the Company in the amount of $1,003,516, $71,259, and $16,253, respectively. Expenses for stock-based compensation is included on the accompanying consolidated statements of operations in general and administrative expense.
Stock Option Awards
A summary of the Company’s stock option activity for the six months ended June 30, 2022 is as follows:
During the three and six months ended June 30, 2022, the Company did not issue any stock options. During the three and six months ended June 30, 2021, the Company issued 6,135,000 and 6,635,000 stock options, respectively.
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. During the three and six months ended June 30, 2022, 220,500 warrants were exercised at $0.30 per share.
The fair value of these warrants is $1,867,960, which is reflected in additional paid in capital. |
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Income Taxes |
6 Months Ended |
|---|---|
Jun. 30, 2022 | |
| Income Tax Disclosure [Abstract] | |
| Income Taxes | 14. Income Taxes
In accordance with ASC 740-270, the Company calculates the interim tax expense based on an annual effective tax rate (“AETR”). The AETR represents the Company’s estimated effective tax rate for the year based on full year projection of tax expense, divided by the projection of full year pretax book loss, adjusted for discrete transactions occurring during the period. The annual effective tax rate for the six months ended June 30, 2022 was 0.0%,
As of June 30, 2022, the Company has recorded no income tax liability. |
Commitments & Contingencies |
6 Months Ended |
|---|---|
Jun. 30, 2022 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| Commitments & Contingencies | 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 condensed 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 leases with a term exceeding twelve months. There were no lease payments not accounted for under ASU Topic 842 for the three and six months ended June 30, 2022, respectively. Other lease payments not accounted for under ASU Topic 842 total $16,124 and $30,516 for the three and six months ended June 30, 2021, respectively.
An ROU asset of $1,411,461 was recognized upon the CMI Transaction. 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 present value of the liabilities decreased by $0 and $81,218 for the three months ended June 30, 2022 and 2021, respectively, and by $0 and $213,448 for the six months ended June 30, 2022 and 2021, respectively. This balance is included in the operating section of the statement of cash flows for six months ended June 30, 2022 and 2021. Operating lease cost was approximately $0 and $166,509 for the three months ended March 31, 2022 and 2021, respectively, and was approximately $0 and 326,034 for the six months ended June 30, 2022 and 2021, respectively.
The Company does not have any leases that have not yet commenced which are significant.
Legal Proceedings
Legal proceedings covering a dispute arising from a past employment agreements is pending against the Company’s former 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. |
Subsequent Events |
6 Months Ended |
|---|---|
Jun. 30, 2022 | |
| Subsequent Events [Abstract] | |
| Subsequent Events | 16. Subsequent Events
On July 13, the Company issued 291,667 shares of common stock at $0.35 per share in exchange for services and 135,000 shares of common stock at $0.20 per share for employee incentive bonuses.
On August 10, 2022, we issued 1 million shares to Peak One Opportunity Fund, L.P. at a price of $0.2493 subject to adjustment per the terms of our agreement with Peak One Opportunity Fund, L.P., which was included as Exhibit 10.18 to the Form S-1 filed on April 27, 2022. |
Accounting Policies, by Policy (Policies) |
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| Accounting Policies [Abstract] | ||||||||||||||||
| Principles of Consolidation | Principles of Consolidation
The accompanying condensed consolidated financial statements have been prepared in accordance with GAAP. The condensed 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. CMI was no longer included in the condensed consolidated financial statements as of or for the period subsequent to December 31, 2021. 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.
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| Use of Estimates | Use of Estimates
The preparation of the Company’s condensed consolidated 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 condensed consolidated financial statements, and the reported amounts of expenses during the reporting period. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to determining the fair value of the assets acquired and liabilities assumed in acquisition, 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.
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| Reclassifications | Reclassifications
Certain items in the interim condensed consolidated financial statements were reclassified from prior periods for presentation purposes.
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| Cash and Cash Equivalents | 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.
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| Concentrations of Credit Risk | 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 at the end of 2021, 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.
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| Purchase Accounting for Acquisitions | 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.
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| Variable Interest Entities | 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 was the primary beneficiary of CMI and therefore consolidated the financial results of the entity through December 31, 2021. 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.
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| Discontinued Operations | Discontinued Operations
The Company had no revenues from discontinued operations for the three and six months ended June 30, 2022. For the three and six months ended June 30, 2021, Company’s revenue consisted of sales of cannabis and ancillary products to both retail consumers and wholesale customers. Revenue for retail customers was 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 was 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 was recognized upon transfer of control of promised products to customers, generally as risk of loss passes, in an amount that reflected the consideration the Company expected to receive in exchange for those products. Taxes collected from customers, which was subsequently remitted to governmental authorities, were excluded from revenue.
Retail customer loyalty liabilities were recognized in the period in which they were incurred and were often be retired without being utilized. Shipping and handling costs were expensed as incurred and are included in cost of sales.
The Company operated in a highly regulated environment in which state regulatory approval was 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.
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| Expenses | Expenses
Operating Expenses
Operating expenses encompass personnel costs, research and development 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 Cryocann. Personnel costs consist primarily of consulting expense and administrative salaries and wages. 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.
Other Expense, net
Other expense, net consisted of interest expense, other income and (loss) gain on foreign exchange.
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| Stock-Based Compensation | 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.
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| Property and Equipment, net | 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:
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| Goodwill and Intangible Assets | 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 consist of in process research and development and internal-use software. 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. Internal-use software costs recognized as an intangible asset relates to capitalizable costs of computer software obtained for internal-use as defined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 350-40-30-1. All other internal-use software costs are expensed as incurred by the Company. Amortization will be recorded straight-line over the estimated useful life of the software once the software is ready for its intended use. As of June 30, 2022, our internal-use software was not ready for its intended use. The estimated useful life for internal-use software will be determined and periodically reassessed based on considerations for obsolescence, technology, competition, and other economic factors.
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:
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| Impairment of Goodwill and Intangible Assets | 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.
Management concluded that there were no events indicative of goodwill impairment during the six months ended June 30, 2022.
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| Indefinite-Lived Intangible Assets and Intangible Assets Subject to Amortization | 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.
Management concluded that there were no events indicative of identifiable intangible asset impairment during the six months ended June 30, 2022.
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| Income Taxes | 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 condensed consolidated financial statements.
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| Fair Value Measurements | 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:
The carrying values reported in the consolidated balance sheets for cash, prepaid expenses, inventories, accounts payable, and notes 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. 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 our 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 in the allocation. Management additionally evaluates the facts and circumstances to determine whether the principal balance of convertible notes approximate their fair value, which we have concluded for all convertible notes issued.
As a result of our fair value calculations, we recognized $928,779 and $515,763 of additional paid in capital associated with the value of the warrants and beneficial conversion, respectively, resulting in a total notes payable discount of $1,444,542. As such, no debt discount amortization was recognized during the three and six months ended June 30, 2022. $188,782 of debt discount amortization was recognized as interest expense during the three and six months ended June 30, 2021.
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| Net Loss per Share | 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 1,258,982 unvested RSU’s considered potentially dilutive securities outstanding as of June 30, 2022 and 2,185,000 unvested RSU’s considered potentially dilutive securities outstanding as of June 30, 2021. Diluted net loss per share is the same as basic net loss per share for each period.
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| Recent Accounting Pronouncements | 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 smaller reporting companies for fiscal years beginning after December 15, 2023, 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 condensed consolidated financial statements, but has not yet determined the impact. |
Variable Interest Entity (Tables) |
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| Variable Interest Entity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of determined that CMI no longer qualifies as a variable interest entity |
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Restatement (Tables) |
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| Restatement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of condensed balance sheet |
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| Schedule of consolidated statements of operations |
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| Schedule of consolidated statements of shareholders’ equity |
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| Schedule of consolidated statements of cash flows |
|
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Summary of Significant Accounting Policies (Tables) |
6 Months Ended | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 | ||||||||||||||||
| Accounting Policies [Abstract] | ||||||||||||||||
| Schedule of estimated useful life of property and equipment |
|
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| Schedule of estimated useful lives of intangible assets |
|
Business Combination (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Business Combination [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of purchase price |
|
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| Schedule of business combination |
|
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Discontinued Operations (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Discontinued Operations [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of CMI discontinued operations |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property and Equipment, Net (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of property and equipment, net |
|
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Goodwill and Intangible Assets (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill and Intangible Assets [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of identifiable intangible assets |
|
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Shareholders' Equity (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stockholders' Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of the company's RSU award activity |
|
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| Schedule of stock options activity |
|
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Variable Interest Entity (Details) |
12 Months Ended |
|---|---|
|
Dec. 31, 2021
USD ($)
| |
| Variable Interest Entity [Abstract] | |
| Promissory note due | $ 3,600,000 |
| Due date | Dec. 31, 2023 |
Variable Interest Entity (Details) - Schedule of determined that CMI no longer qualifies as a variable interest entity - VIE's [Member] - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Income Statement | ||||
| Net sales | $ 1,617,647 | $ 3,313,572 | ||
| Cost of goods sold, inclusive of depreciation | 1,006,958 | 2,125,693 | ||
| Gross profit | 610,689 | 1,187,879 | ||
| Operating expenses: | ||||
| Personnel costs | 109,637 | 264,097 | ||
| General and administrative | 233,077 | 488,412 | ||
| Legal and professional fees | 8,750 | 30,265 | ||
| Amortization expense | ||||
| Total operating expenses | 351,464 | 782,774 | ||
| Gain / (loss) from operations | 259,225 | 405,105 | ||
| Other income (expenses): | ||||
| Interest expense | (20,539) | (49,803) | ||
| Loss on foreign exchange | ||||
| Total other expenses | (20,539) | (49,803) | ||
| Net gain from discontinued operations, before taxes | 238,686 | 355,302 | ||
| Income taxes | ||||
| Net gain from discontinued operations | $ 238,686 | $ 355,302 | ||
Restatement (Details) - USD ($) $ / shares in Units, $ in Millions |
6 Months Ended | |
|---|---|---|
Jun. 30, 2022 |
Mar. 18, 2021 |
|
| Restatement (Details) [Line Items] | ||
| Interest rate | 12.00% | 15.00% |
| Warrant shares (in Shares) | 24,500,000 | |
| Exercise price (in Dollars per share) | $ 0.4 | |
| Maximum [Member] | ||
| Restatement (Details) [Line Items] | ||
| Aggregate principal value | $ 3.0 | |
| Minimum [Member] | ||
| Restatement (Details) [Line Items] | ||
| Aggregate principal value | $ 1.9 |
Restatement (Details) - Schedule of condensed balance sheet (Parentheticals) - Revised [Member] |
Jun. 30, 2021
$ / shares
shares
|
|---|---|
| Condensed Balance Sheet Statements, Captions [Line Items] | |
| Preferred stock, par value (in Dollars per share) | $ / shares | $ 0.001 |
| Preferred stock, shares authorized | 100,000 |
| Preferred stock, shares issued | 0 |
| Preferred stock, shares outstanding | 0 |
| Common stock, par value (in Dollars per share) | $ / shares | $ 0.001 |
| Common stock, shares authorized | 500,000,000 |
| Common stock, shares issued | 118,533,933 |
| Common stock, shares outstanding | 97,005,817 |
Going Concern Uncertainty, Financial Conditions and Management’s Plans (Details) |
6 Months Ended |
|---|---|
|
Jun. 30, 2022
USD ($)
| |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| Working capital | $ 1,165,814 |
| Cash balance | 2,188,032 |
| Estimated cost | 4,000,000 |
| Additional amount | 500,000 |
| Capital expenditures | 1,000,000 |
| Investment amount | 225,000 |
| Facility limit | 10,000,000 |
| Cash for operating activities | 2,968,424 |
| Incurred net loss | 3,582,723 |
| Accumulated deficit | $ 32,171,560 |
Summary of Significant Accounting Policies (Details) - USD ($) |
5 Months Ended | 6 Months Ended | |
|---|---|---|---|
Aug. 31, 2022 |
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Accounting Policies [Abstract] | |||
| Loan receivable | $ 3,600,000 | ||
| Income taxes, description | 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 condensed consolidated financial statements. | ||
| Fair value of warrants | $ 928,779 | ||
| Conversion of warrants | 515,763 | ||
| Notes payable | 1,444,542 | ||
| Debt discount amortization | $ 188,782 | $ 188,782 | |
| Unvested RSU’s considered potentially dilutive securities outstanding (in Shares) | 1,258,982 | 2,185,000 | |
Summary of Significant Accounting Policies (Details) - Schedule of estimated useful lives of intangible assets |
6 Months Ended |
|---|---|
Jun. 30, 2022 | |
| Patents [Member] | |
| Finite-Lived Intangible Assets [Line Items] | |
| Estimated useful lives of intangible assets | 10 years |
| In process research and development [Member] | |
| Finite-Lived Intangible Assets [Line Items] | |
| Estimated useful lives of intangible assets | Indefinite |
| Internal-use software [Member] | |
| Finite-Lived Intangible Assets [Line Items] | |
| Estimated useful lives of intangible assets | Indefinite |
Business Combination (Details) - USD ($) |
3 Months Ended | 6 Months Ended | |||
|---|---|---|---|---|---|
Oct. 15, 2021 |
Jun. 22, 2021 |
Jun. 30, 2021 |
Jun. 30, 2021 |
Apr. 23, 2021 |
|
| Business Combination [Abstract] | |||||
| Aggregate purchase price | $ 3,500,000,000,000 | ||||
| Shares of common stock (in Shares) | 10,000,000 | ||||
| Promissory note issued | $ 1,252,316 | ||||
| Purchase price | $ 2,500,000 | ||||
| Net loss | $ 3,008,325 | $ 5,034,172 | |||
| Net loss per share (in Dollars per share) | $ 0.03 | $ 0.05 |
Business Combination (Details) - Schedule of purchase price - Cryocann Acquisition [Member] |
6 Months Ended |
|---|---|
|
Jun. 30, 2022
USD ($)
| |
| Business Combination (Details) - Schedule of purchase price [Line Items] | |
| Cash | $ 2,247,684 |
| Common stock | 1,804,500 |
| Promissory Note | 1,220,079 |
| Total purchase price | $ 5,272,263 |
Business Combination (Details) - Schedule of business combination - Cryocann Acquisition [Member] |
6 Months Ended |
|---|---|
|
Jun. 30, 2022
USD ($)
| |
| Intangible assets: | |
| In process research and development, Fair Value | $ 3,209,000 |
| In process research and development, Weighted average useful life (in years) | Indefinite |
| Patent, Fair Value | $ 873,263 |
| Patent, Weighted average useful life (in years) | 10 years |
| Goodwill, Fair Value | $ 1,190,000 |
| Total assets acquired, Fair Value | $ 5,272,263 |
Discontinued Operations (Details) - Schedule of CMI discontinued operations - CMI Transaction [Member] - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Discontinued Operations (Details) - Schedule of CMI discontinued operations [Line Items] | ||||
| Net sales | $ 1,617,647 | $ 3,313,572 | ||
| Cost of goods sold, inclusive of depreciation | 1,006,958 | 2,125,693 | ||
| Gross profit | 610,689 | 1,187,879 | ||
| Operating expenses: | ||||
| Personnel costs | 109,637 | 264,097 | ||
| General and administrative | 233,077 | 488,412 | ||
| Legal and professional fees | 8,750 | 30,265 | ||
| Total operating expenses | 351,464 | 782,774 | ||
| Gain from operations | 259,225 | 405,105 | ||
| Other income (expenses): | ||||
| Interest expense | (20,539) | (49,803) | ||
| Loss on foreign exchange | ||||
| Total other expenses | (20,539) | (49,803) | ||
| Net gain from discontinued operations, before taxes | 238,686 | 355,302 | ||
| Income taxes | ||||
| Net gain from discontinued operations | $ 238,686 | $ 355,302 | ||
Property and Equipment, Net (Details) - Schedule of property and equipment, net - USD ($) |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | $ 349,586 | $ 225,000 |
| Less: Accumulated depreciation | ||
| Property and equipment, net | 349,586 | 225,000 |
| Leasehold Improvements [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | ||
| Machinery and Equipment [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | 349,586 | 225,000 |
| Furniture and Fixtures [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | ||
| Construction in Progress [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross |
Goodwill and Intangible Assets (Details) - USD ($) |
3 Months Ended | 6 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
Dec. 31, 2021 |
|
| Goodwill and Intangible Assets [Abstract] | |||||
| Carrying value of goodwill | $ 1,190,000 | $ 1,190,000 | |||
| Amortization expense | $ 21,833 | $ 0 | $ 43,663 | $ 0 | |
Loans Receivable (Details) - USD ($) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2021 |
Mar. 31, 2022 |
|
| Loan Receivable [Abstract] | ||
| Promissory note due | $ 3,600,000 | |
| Additional loans | $ 620,000 |
Debt (Details) - USD ($) |
2 Months Ended | 3 Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|---|
Aug. 20, 2021 |
Mar. 18, 2021 |
Jan. 25, 2021 |
Jul. 27, 2020 |
Jul. 06, 2021 |
Jul. 06, 2021 |
Jun. 30, 2022 |
Dec. 31, 2021 |
Aug. 26, 2020 |
|
| Debt (Details) [Line Items] | |||||||||
| Debt instrument description | The 1) convertible note has a face value of $250,000, matures August 1, 2022, and accrues interest at 8% per annum. | ||||||||
| Net carrying amount | $ 239,583 | $ 177,083 | |||||||
| Convertible notes | 250,000 | 250,000 | |||||||
| Unamortized debt discount | $ 10,417 | $ 72,917 | |||||||
| Interest per annum | 15.00% | 12.00% | |||||||
| Refinanced loan percentage | 93.60% | ||||||||
| Loan repaid date | Oct. 19, 2021 | May 07, 2021 | Apr. 27, 2021 | ||||||
| Note payable | $ 225,000 | ||||||||
| Common stock exercise price per share (in Dollars per share) | $ 0.3 | ||||||||
| Loan agreement | $ 300,000 | ||||||||
| Accrued interest | 91.23% | ||||||||
| Maturity date | May 27, 2021 | ||||||||
| Maturity date | Aug. 01, 2022 | ||||||||
| Convertible Debt [Member] | |||||||||
| Debt (Details) [Line Items] | |||||||||
| Aggregate units (in Shares) | 1,900 | ||||||||
| Principal amount | $ 1,000 | $ 1,000 | |||||||
| Warrant for purchase shares (in Shares) | 5,000 | 5,000 | |||||||
| Common stock exercise price per share (in Dollars per share) | $ 0.4 | $ 0.4 | |||||||
| Aggregate net proceeds | $ 1,900,000 | $ 1,900,000 | |||||||
| Convertible term description | 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. | ||||||||
| Conversion price per share (in Dollars per share) | $ 0.2 | $ 0.2 | |||||||
| Subscription Agreement [Member] | |||||||||
| Debt (Details) [Line Items] | |||||||||
| Convertible into shares (in Shares) | 2,500,000 | ||||||||
| Conversion price (in Dollars per share) | $ 0.1 | ||||||||
| Warrants exercisable (in Shares) | 2,500,000 | ||||||||
| Common stock price per share (in Dollars per share) | $ 0.2 | $ 0.2 | $ 0.25 | ||||||
| Aggregate units (in Shares) | 3,000 | ||||||||
| Principal amount | $ 1,000 | $ 1,000 | |||||||
| Warrant for purchase shares (in Shares) | 5,000 | 5,000 | |||||||
| Common stock exercise price per share (in Dollars per share) | $ 0.4 | $ 0.4 | |||||||
| Aggregate net proceeds | $ 3,000,000 | $ 3,000,000 | |||||||
| Convertible term description | The Initial Convertible Term Notes would have matured on March 31, 2022 had they not all been converted and the Initial Warrants mature on March 31, 2023, and accrued interest at a rate of 12% per annum payable on a quarterly basis. | ||||||||
| Loan Agreement [Member] | |||||||||
| Debt (Details) [Line Items] | |||||||||
| Loan agreement | $ 600,000 | ||||||||
| Interest per annum | 84.00% |
Related Party Transactions (Details) - USD ($) |
1 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Aug. 19, 2021 |
Jun. 30, 2022 |
Nov. 15, 2021 |
Oct. 22, 2021 |
|
| Related Party Transactions (Details) [Line Items] | ||||
| Promissory note received | $ 281,771 | |||
| Loan agreement | $ 237,590 | |||
| Interest rate | 14.00% | |||
| Common shares and warrants (in Shares) | 250,000 | |||
| Exchange amount | $ 50,000 | |||
| Trichome Capital Inc [Member] | ||||
| Related Party Transactions (Details) [Line Items] | ||||
| Common shares and warrants (in Shares) | 760,000 | |||
| Exchange amount | $ 152,000 |
Shareholders' Equity (Details) - Schedule of the company's RSU award activity - $ / shares |
3 Months Ended | |
|---|---|---|
Jun. 30, 2022 |
Mar. 31, 2022 |
|
| Schedule of the company's RSU award activity [Abstract] | ||
| Restricted Stock Units, Outstanding beginning balance | 1,933,985 | 2,200,003 |
| Weighted Average Grant Date Fair Value, Outstanding beginning balance | $ 0.27 | $ 0.45 |
| Restricted Stock Units, Granted | 510,000 | 1,469,511 |
| Weighted Average Grant Date Fair Value, Granted | $ 0.35 | $ 0.27 |
| Restricted Stock Units, Vested | (1,135,000) | (1,735,529) |
| Weighted Average Grant Date Fair Value, Vested | $ 0.28 | $ 0.49 |
| Restricted Stock Units, Forfeited | (50,000) | |
| Weighted Average Grant Date Fair Value, Forfeited | $ 0.17 | |
| Restricted Stock Units, Outstanding ending balance | 1,258,985 | 1,933,985 |
| Weighted Average Grant Date Fair Value, Outstanding ending balance | $ 0.2 | $ 0.27 |
Income Taxes (Details) |
6 Months Ended |
|---|---|
Jun. 30, 2022 | |
| Income Tax Disclosure [Abstract] | |
| Annual effective tax rate | 0.00% |
Commitments & Contingencies (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Commitments & Contingencies (Details) [Line Items] | ||||
| Other lease term | 12 months | |||
| Other lease payments | $ 16,124 | $ 30,516 | ||
| Present value of liabilities | $ 0 | 81,218 | $ 0 | 213,448 |
| Operating lease cost | 0 | $ 166,509 | 0 | $ 326,034 |
| CMI Transaction [Member] | ||||
| Commitments & Contingencies (Details) [Line Items] | ||||
| Assets recognized | $ 1,411,461 | $ 1,411,461 | ||
Subsequent Events (Details) - Subsequent Event [Member] - $ / shares |
Aug. 10, 2022 |
Jul. 13, 2022 |
|---|---|---|
| Common Stock [Member] | ||
| Subsequent Events (Details) [Line Items] | ||
| Shares issued | 291,667 | |
| Price per share | $ 0.35 | |
| Common stock, share issued | 135,000 | |
| Common Stock, Par or Stated Value Per Share | $ 0.2 | |
| Opportunity Fund, L.P. [Member] | ||
| Subsequent Events (Details) [Line Items] | ||
| Shares issued | 1,000,000 | |
| Price per share | $ 0.2493 |