GILLA INC.
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(Exact
name of registrant as specified in its charter)
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Nevada
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88-0335710
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(State
or Other Jurisdiction of Incorporation or
Organization)
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(I.R.S.
Employer Identification Number)
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475 Fentress Blvd., Unit L, Daytona Beach, Florida
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32114
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(Address
of Principal Executive Offices)
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(Zip
Code)
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Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
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☐
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Yes
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☑
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No
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Indicate
by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.
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☐
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Yes
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☑
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No
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Page
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Part I
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ITEM
1.
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Business.
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4
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ITEM
1A.
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Risk
Factors.
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15
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ITEM
1B.
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Unresolved
Staff Comments.
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25
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ITEM
2.
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Properties.
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25
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ITEM
3.
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Legal
Proceedings.
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25
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ITEM
4.
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Mine
Safety Disclosures.
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25
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Part II
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ITEM
5.
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Market
for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.
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26
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ITEM
6.
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Selected
Financial Data.
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26
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ITEM
7.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operation.
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27
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ITEM
7A.
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Quantitative
and Qualitative Disclosures About Market Risk.
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41
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ITEM
8.
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Financial
Statements and Supplementary Data.
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F-1
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ITEM
9.
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Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure.
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42
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ITEM
9A.
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Controls
and Procedures.
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42
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ITEM
9B.
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Other
Information.
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43
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Part III
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ITEM
10.
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Directors,
Executive Officers and Corporate Governance.
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44
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ITEM
11.
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Executive
Compensation.
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48
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ITEM
12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
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50
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ITEM
13.
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Certain
Relationships and Related Transactions, and Director
Independence.
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52
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ITEM
14.
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Principal
Accounting Fees and Services.
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59
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ITEM
15.
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Exhibits,
Financial Statement Schedules.
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59
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Signatures
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62
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Gilla Manufactures
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Gilla Markets
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Gilla Innovates
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Gilla Sells
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Gilla
owns proprietary manufacturing operations and a global distribution
platform to ensure the efficient, sustainable production and supply
of E-liquid. The Company strives to meet and exceed customer
expectations.
|
The
Company invests in global marketing initiatives and targeted sales
programs to attract and inform consumers and to build its brands.
Gilla helps consumers make educated choices about E-liquid and
related vaping products.
|
Innovation
is key to the Company’s continued growth. Gilla is committed
to developing new and attractive flavor profiles, new packaging and
product offerings to capitalize on emerging trends in the
marketplace.
|
Everyone
at the Company understands the vapor industry and how they can
assist in building valuable relationships with customers and
consumers. Gilla is passionate about delivering unparalleled
customer service to extend the Company’s sales
reach.
|
2015
|
HIGH
|
LOW
|
First
Quarter
|
$
0.28
|
$
0.13
|
Second
Quarter
|
$
0.18
|
$
0.09
|
Third
Quarter
|
$
0.19
|
$
0.09
|
Fourth
Quarter
|
$
0.17
|
$
0.09
|
2016
|
HIGH
|
LOW
|
First
Quarter
|
$
0.20
|
$
0.09
|
Second
Quarter
|
$
0.20
|
$
0.13
|
Third
Quarter
|
$
0.21
|
$
0.13
|
Fourth
Quarter
|
$
0.15
|
$
0.07
|
Level
1
|
-
|
Unadjusted
quoted prices in active markets for identical assets or
liabilities;
|
Level
2
|
-
|
Observable
inputs other than Level 1 prices such as quoted prices for
similar assets or liabilities; quoted prices in markets with
insufficient volume or infrequent transactions (less active
markets); or model-derived valuations in which all significant
inputs are observable or can be derived principally from or
corroborated by observable market data for substantially the full
term of the assets or liabilities; and
|
Level
3
|
-
|
Inputs
that are not based on observable market data.
|
Furniture
and equipment:
|
3
years
|
Computer
hardware:
|
3
years
|
Manufacturing
equipment:
|
3
years
|
Brands:
|
|
5
years
|
Customer
relationships:
|
|
5
years
|
Assets
acquired:
|
Allocation
|
Measurement
Period Adjustments
|
Final
Allocation
|
Cash
|
$
22,942
|
-
|
$
22,942
|
Receivables
|
48,356
|
(1,705
)
|
46,651
|
Other current
assets
|
21,195
|
(24
)
|
21,171
|
Inventory
|
122,309
|
4,428
|
126,737
|
Fixed
assets
|
118,867
|
7
|
118,874
|
Intangible
assets
|
-
|
160,000
|
160,000
|
Goodwill
|
847,265
|
(154,211
)
|
693,054
|
Total
assets acquired
|
$
1,180,934
|
|
$
1,189,429
|
|
|
|
|
Liabilities
assumed:
|
|
|
|
Accounts
payable
|
$
206,252
|
-
|
$
206,252
|
Accrued
liabilities
|
-
|
28,000
|
28,000
|
Loan
payable
|
25,000
|
-
|
25,000
|
Total
liabilities assumed
|
$
231,252
|
|
$
259,252
|
|
|
|
|
Consideration:
|
|
|
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Cash
|
$
225,000
|
-
|
$
225,000
|
Promissory Notes A,
unsecured and non-interest bearing, due November 1,
2015
|
196,026
|
(19,505
)
|
176,521
|
Promissory Notes B,
unsecured and non-interest bearing, due April 1, 2016
|
275,555
|
-
|
275,555
|
Promissory Notes C,
unsecured and non-interest bearing, due January 1,
2017
|
253,101
|
-
|
253,101
|
Total
consideration
|
$
949,682
|
|
$
930,177
|
|
Promissory Note
A
|
Promissory Note
B
|
Promissory Note
C
|
Total
|
Present value at
acquisition date
|
$
293,204
|
$
275,555
|
$
253,101
|
$
821,860
|
Working capital
adjustment
|
(97,178
)
|
-
|
-
|
(97,178
)
|
Interest expense
related to accretion
|
7,547
|
16,065
|
14,756
|
38,368
|
Present
value at December 31, 2015
|
$
203,573
|
$
291,620
|
$
267,857
|
$
763,050
|
|
|
|
|
|
Measurement period
adjustment
|
(19,505
)
|
-
|
-
|
(19,505
)
|
Interest expense
related to accretion
|
(751
)
|
8,380
|
32,143
|
39,772
|
Present
value at December 31, 2016
|
$
183,317
|
$
300,000
|
$
300,000
|
$
783,317
|
|
Estimated
Useful
Life (in
years)
|
Amount
|
Brands
|
5
|
$
20,000
|
Customer
relationships
|
5
|
140,000
|
|
|
$
160,000
|
|
December
31,
2016
|
December
31,
2015
|
Pro forma
revenue
|
$
4,572,332
|
$
1,679,867
|
Pro forma loss from
operations
|
$
(3,590,177
)
|
$
(2,738,649
)
|
Pro forma net
loss
|
$
(4,362,320
)
|
$
(3,216,321
)
|
Assets
acquired:
|
|
Inventory
|
$
11,335
|
Equipment
|
11,872
|
Intangibles
|
63,000
|
Goodwill
|
87,000
|
Total
assets acquired
|
$
173,207
|
|
|
Consideration:
|
|
Cash
|
$
23,207
|
1,000,000 Common
Shares at $0.15 per share
|
150,000
|
Total
consideration
|
$
173,207
|
|
Estimated
Useful
Life (in
years)
|
Amount
|
Brands
|
5
|
$
30,000
|
Customer
relationships
|
5
|
33,000
|
|
|
$
63,000
|
|
|
|
Assets
acquired:
|
|
Inventory
|
$
41,462
|
Equipment
|
36,579
|
Intangibles
|
157,000
|
Goodwill
|
208,376
|
Total
assets acquired
|
$
443,417
|
|
|
Consideration:
|
|
819,672 Common
Shares at $0.122 per share
|
$
100,000
|
Deferred payments
short term
|
149,134
|
Deferred payments
long term
|
194,283
|
Total
consideration
|
$
443,417
|
|
Estimated
Useful
Life (in
years)
|
Amount
|
Brands
|
5
|
$
60,000
|
Customer
relationships
|
5
|
97,000
|
|
|
$
157,000
|
|
|
|
|
December
31,
2016
|
December
31,
2015
|
Amount
advanced
|
$
1,219,840
|
$
-
|
Exchange gains
during the year
|
(28,159
)
|
-
|
Principal payments
made
|
(76,815
)
|
-
|
Interest
accrued
|
140,540
|
-
|
Interest payments
made
|
(111,069
)
|
-
|
Amount owing at end
of year
|
$
1,144,337
|
$
-
|
2017
|
$
56,110
|
|
|
2017
|
|
€
27,000
|
|
|
2017
|
|
€
41,289
|
|
|
Report of Independent Registered Public Accounting
Firm
|
F-3
|
|
|
Consolidated Balance Sheets as at December 31, 2016 and
2015
|
F-4
|
|
|
Consolidated Statements of Operations and Comprehensive Loss for
the years ended December 31, 2016 and 2015
|
F-5
|
|
|
Consolidated Statement of Changes in Stockholders’ Deficiency
for the years ended December 31, 2016 and 2015
|
F-6
to F-7
|
|
|
Consolidated Statements of Cash Flows for the years ended December
31, 2016 and 2015
|
F-8
|
|
|
Notes to Consolidated Financial Statements
|
F-9
to F-38
|
March 30, 2017
|
Chartered Professional Accountants
|
Toronto, Ontario
|
Licensed Public Accountants
|
|
2016
|
2015
|
|
|
|
Sales
revenue
|
$
4,550,793
|
$
1,163,096
|
Cost of goods
sold
|
1,927,657
|
908,887
|
Gross
profit
|
2,623,136
|
254,209
|
|
|
|
Operating
expenses
|
|
|
Administrative
|
5,305,326
|
1,983,114
|
Consulting fees -
related parties (note 19)
|
473,149
|
605,180
|
Depreciation
|
56,055
|
20,986
|
Amortization
|
94,000
|
25,632
|
Bad debt
expense
|
256,280
|
20,370
|
Loss on settlement
of account receivable
|
-
|
24,582
|
Impairment of fixed
assets (note 7)
|
70,142
|
-
|
Impairment of
website (note 8)
|
-
|
73,325
|
Impairment of
inventory (note 6)
|
39,124
|
75,964
|
Impairment of
intangible assets (note 9)
|
122,983
|
-
|
Impairment of
goodwill (note 10)
|
208,376
|
-
|
Gain on related
party settlement (note 19)
|
(9,263
)
|
-
|
Loss on issuance of
common shares (note 15)
|
28,426
|
-
|
Gain on settlement
(note 4d)
|
(274,052
)
|
-
|
Total operating
expenses
|
6,370,547
|
2,829,153
|
|
|
|
Loss from
operations
|
(3,747,411
)
|
(2,574,944
)
|
|
|
|
Other income
(expenses):
|
|
|
Foreign exchange
gain (loss)
|
(35,477
)
|
155,519
|
Loss on settlement
of debt
|
-
|
(4,431
)
|
Amortization of
debt discount
|
(94,546
)
|
(239,330
)
|
Interest expense,
net
|
(622,772
)
|
(385,151
)
|
|
|
|
Total other
expenses
|
(752,795
)
|
(473,393
)
|
|
|
|
Net loss before
income taxes
|
(4,500,206
)
|
(3,048,337
)
|
Income taxes (note
20)
|
-
|
-
|
Net
loss
|
$
(4,500,206
)
|
$
(3,048,337
)
|
|
|
|
Loss per share
(basic and diluted)
|
$
(0.04
)
|
$
(0.03
)
|
|
|
|
Weighted average
number of common shares outstanding (basic and
diluted)
|
100,238,844
|
95,008,270
|
|
|
|
|
|
|
Comprehensive
loss:
|
|
|
Net
loss
|
$
(4,500,206
)
|
$
(3,048,337
)
|
|
|
|
Foreign exchange
translation adjustment
|
(14,246
)
|
227,639
|
|
|
|
Comprehensive
loss
|
$
(4,514,452
)
|
$
(2,820,698
)
|
|
Common
Stock
|
Additional
Paid-In
|
Shares To
Be
|
Accumulated
|
Accumulated
Other
Comprehensive
|
Total
Stockholders’
|
|
|
Shares
|
Amount
|
Capital
|
Issued
|
Deficit
|
Income
|
Deficiency
|
Balance, December 31,
2014
|
92,698,018
|
$
18,542
|
$
3,998,482
|
$
-
|
$
(5,702,351
)
|
$
131,911
|
$
(1,553,416
)
|
|
|
|
|
|
|
|
|
Common shares issued for settlement
of
interest payable on convertible
debentures
|
4,918
|
1
|
737
|
-
|
-
|
-
|
738
|
|
|
|
|
|
|
|
|
Common shares issued for settlement
of
interest payable on convertible
debentures
to a director of the
Company
|
2,385
|
-
|
358
|
-
|
-
|
-
|
358
|
|
|
|
|
|
|
|
|
Common shares issued for conversions
of convertible debentures
|
2,299,999
|
460
|
160,540
|
-
|
-
|
-
|
161,000
|
|
|
|
|
|
|
|
|
Common shares issued for conversion
of convertible debentures to a director of the
Company
|
228,572
|
45
|
15,955
|
-
|
-
|
-
|
16,000
|
|
|
|
|
|
|
|
|
Common shares issued for settlement
of
consulting fees
|
300,000
|
60
|
32,940
|
-
|
-
|
-
|
33,000
|
|
|
|
|
|
|
|
|
Common shares issued for settlement
of
marketing costs
|
408,597
|
82
|
44,864
|
-
|
-
|
-
|
44,946
|
|
|
|
|
|
|
|
|
Common shares issued for acquisition
of subsidiary
|
500,000
|
100
|
84,900
|
-
|
-
|
-
|
85,000
|
|
|
|
|
|
|
|
|
Warrants issued for acquisition of
subsidiary
|
-
|
-
|
41,975
|
-
|
-
|
-
|
41,975
|
|
|
|
|
|
|
|
|
Common shares issued for settlement
of
consulting fees
|
60,000
|
12
|
11,388
|
-
|
-
|
-
|
11,400
|
|
|
|
|
|
|
|
|
Common shares issued for settlement
of
interest payable on convertible
debentures
|
201,945
|
40
|
33,221
|
-
|
-
|
-
|
33,261
|
|
|
|
|
|
|
|
|
Common shares issued on acquisition
of a business
|
1,000,000
|
200
|
149,800
|
-
|
-
|
-
|
150,000
|
|
|
|
|
|
|
|
|
Common shares issued for settlement
of
consulting fees
|
211,389
|
42
|
31,666
|
-
|
-
|
-
|
31,708
|
|
|
|
|
|
|
|
|
Common shares issued for settlement
of
related party
loans
|
500,000
|
100
|
49,900
|
-
|
-
|
-
|
50,000
|
|
|
|
|
|
|
|
|
Common shares issued for
cash
|
225,428
|
45
|
22,498
|
-
|
-
|
-
|
22,543
|
|
|
|
|
|
|
|
|
Common shares issued on acquisition
of a business
|
819,672
|
164
|
99,836
|
-
|
-
|
-
|
100,000
|
|
|
|
|
|
|
|
|
Common shares issued for settlement
of prepaid consulting fees
|
100,000
|
20
|
10,980
|
-
|
-
|
-
|
11,000
|
|
|
|
|
|
|
|
|
Common shares to be issued for
settlement of consulting fees
|
-
|
-
|
-
|
20,000
|
-
|
-
|
20,000
|
|
|
|
|
|
|
|
|
Warrants issued as stock based
compensation
|
-
|
-
|
141,545
|
-
|
-
|
-
|
141,545
|
|
|
|
|
|
|
|
|
Warrants issued with convertible
debentures
|
-
|
-
|
516,343
|
-
|
-
|
-
|
516,343
|
|
|
|
|
|
|
|
|
Embedded conversion feature of
convertible debentures
|
-
|
-
|
133,657
|
-
|
-
|
-
|
133,657
|
|
|
|
|
|
|
|
|
Foreign currency translation
gain
|
-
|
-
|
-
|
-
|
-
|
227,639
|
227,639
|
|
|
|
|
|
|
|
|
Net loss
|
-
|
-
|
-
|
-
|
(3,048,337
)
|
-
|
(3,048,337
)
|
|
|
|
|
|
|
|
|
Balance, December
31, 2015
|
99,560,923
|
$
19,913
|
$
5,581,585
|
$
20,000
|
$
(8,750,688
)
|
$
359,550
|
$
(2,769,640
)
|
|
Common
Stock
|
Additional
Paid-In
|
Shares To
Be
|
Accumulated
|
Accumulated
Other
Comprehensive
|
Total
Stockholders’
|
|
|
Shares
|
Amount
|
Capital
|
Issued
|
Deficit
|
Income
|
Deficiency
|
Balance, December 31,
2015
|
99,560,923
|
$
19,913
|
$
5,581,585
|
$
20,000
|
$
(8,750,688
)
|
$
359,550
|
$
(2,769,640
)
|
|
|
|
|
|
|
|
|
Common shares to be issued for
conversion of convertible debentures (note 18)
|
-
|
-
|
-
|
23,000
|
-
|
-
|
23,000
|
|
|
|
|
|
|
|
|
Common shares issued for settlement
of
deferred fees owing to a related
party
|
480,000
|
96
|
76,704
|
-
|
-
|
-
|
76,800
|
|
|
|
|
|
|
|
|
Common shares issued for settlement
of
consulting fees
|
562,715
|
112
|
78,668
|
(20,000
)
|
-
|
-
|
58,780
|
|
|
|
|
|
|
|
|
Common shares issued for employment
income
to a related
party
|
150,000
|
30
|
20,970
|
-
|
-
|
-
|
21,000
|
|
|
|
|
|
|
|
|
Common shares to be issued for
settlement of consulting fees (note 18)
|
-
|
-
|
-
|
68,550
|
-
|
-
|
68,550
|
|
|
|
|
|
|
|
|
Common shares to be issued for
settlement of consulting fees (note 18)
|
-
|
-
|
-
|
55,000
|
-
|
-
|
55,000
|
|
|
|
|
|
|
|
|
Warrants issued as stock based
compensation
(note
17)
|
-
|
-
|
662,777
|
-
|
-
|
-
|
662,777
|
|
|
|
|
|
|
|
|
Warrants issued with convertible
debentures
(note 16)
|
-
|
-
|
378,608
|
-
|
-
|
-
|
378,608
|
|
|
|
|
|
|
|
|
Embedded conversion feature of
convertible debentures (note 14)
|
-
|
-
|
248,667
|
-
|
-
|
-
|
248,667
|
|
|
|
|
|
|
|
|
Foreign currency translation
gain
|
-
|
-
|
-
|
-
|
-
|
(14,246
)
|
(14,246
)
|
|
|
|
|
|
|
|
|
Net loss
|
-
|
-
|
-
|
-
|
(4,500,206
)
|
-
|
(4,500,206
)
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2016
|
100,753,638
|
$
20,151
|
$
7,047,979
|
$
146,550
|
$
(13,250,894
)
|
$
345,304
|
$
(5,690,910
)
|
|
2016
|
2015
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
Net
loss
|
$
(4,500,206
)
|
$
(3,048,337
)
|
Items
not requiring an outlay of cash
|
|
|
Depreciation
|
56,055
|
20,986
|
Amortization
|
94,000
|
25,632
|
Stock based
compensation (note 17)
|
811,481
|
240,945
|
Interest on amounts
owing on acquisition
|
9,583
|
-
|
Bad debt
expense
|
256,280
|
20,370
|
Interest on
promissory notes
|
39,772
|
-
|
Amortization of
debt discount
|
94,546
|
239,330
|
Gain on related
party settlement
|
9,263
|
-
|
Loss on issuance of
common shares (note 15)
|
28,426
|
-
|
Gain on settlement
(note 4d)
|
(274,051
)
|
4,431
|
Interest on
promissory notes
|
-
|
41,626
|
Impairment of
inventory
|
39,124
|
75,964
|
Impairment of
website
|
-
|
73,325
|
Impairment of
intangible assets
|
122,983
|
-
|
Impairment of
goodwill
|
208,376
|
-
|
Impairment of fixed
assets
|
70,142
|
-
|
Loss on settlement
of account receivable
|
-
|
24,582
|
Changes
in operating assets and liabilities
|
|
|
Trade
receivable
|
(311,174
)
|
(7,779
)
|
Other current
assets
|
(147,283
)
|
72,833
|
Inventory
|
(439,019
)
|
(27,326
)
|
Accounts
payable
|
1,175,835
|
286,161
|
Accrued
liabilities
|
153,116
|
182,500
|
Customer
deposits
|
(313,413)
|
372,500
|
Due to related
parties
|
759,689
|
418,891
|
Amounts owing on
acquisition
|
(45,000
)
|
-
|
Interest owing on
term loan
|
29,472
|
-
|
Accrued
interest-related parties
|
132,035
|
92,476
|
Net
cash used in operating activities
|
(1,939,969
)
|
(890,890
)
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
Disposal (addition)
of capital assets
|
(78,841
)
|
(2,245
)
|
Acquisition of
businesses
|
-
|
(248,207
)
|
Website
development
|
-
|
-
|
Net
cash used in investing activities
|
(78,841
)
|
(250,452
)
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
Net cash acquired
from acquisitions of subsidiaries
|
-
|
28,323
|
Proceeds from
credit facility
|
-
|
212,415
|
Repayments to
credit facility
|
-
|
(324,463
)
|
Proceeds from term
loan
|
783,629
|
-
|
Repayments to term
loan
|
(78,485
)
|
-
|
Loans to subsidiary
prior to acquisition
|
-
|
(25,000
)
|
Shareholder loans
received
|
470,467
|
230,189
|
Shareholder loans
paid
|
-
|
(5,687
)
|
Proceeds from
related parties
|
659,038
|
873,633
|
Repayments to
related parties
|
(260,510
)
|
(496,665
)
|
Repayments of
convertible debentures
|
(75,000
)
|
-
|
Proceeds from sale
of convertible debentures
|
562,275
|
117,000
|
Proceeds from
issuance of common shares
|
-
|
22,541
|
Net
cash provided by financing activities
|
2,061,414
|
632,286
|
Effect of exchange
rate changes on cash
|
60,454
|
94,028
|
Net
increase in cash
|
103,058
|
(415,028
)
|
Cash
at beginning of year
|
81,696
|
496,724
|
Cash
at end of year
|
$
184,754
|
$
81,696
|
|
|
|
Supplemental
Schedule of Cash Flow Information:
|
|
|
Cash
paid for interest
|
$
116,507
|
$
40,058
|
Cash
paid for income taxes
|
$
-
|
$
-
|
|
|
|
Non
cash financing activities:
|
|
|
Common shares
issued in settlement of related party and shareholder
loans
|
$
-
|
$
50,000
|
Common shares
issued in settlement of related party deferred fees
|
$
76,800
|
$
-
|
Common shares
issued for settlement of interest payable
|
$
-
|
$
34,356
|
Common shares
issued/to be issued for settlement of consulting and marketing fees
payable
|
$
55,000
|
$
132,054
|
Debentures issued
for settlement of related party and shareholder loans
|
$
35,000
|
$
503,000
|
Debentures issued
for settlement of amounts owing to an employee
|
$
10,000
|
$
-
|
Debentures issued
for payment of consulting fees payable to related
parties
|
$
20,000
|
$
10,000
|
Debentures issued
for settlement of consulting and marketing fees
payable
|
$
-
|
$
20,000
|
Level
1:
|
|
Unadjusted quoted
prices in active markets for identical assets or
liabilities;
|
Level
2:
|
|
Observable inputs
other than Level 1 prices such as quoted prices for
similar assets or liabilities; quoted prices in markets with
insufficient volume or infrequent transactions (less active
markets); or model-derived valuations in which all significant
inputs are observable or can be derived principally from or
corroborated by observable market data for substantially the full
term of the assets or liabilities; and
|
Level
3:
|
|
Inputs
that are not based on observable market data.
|
Furniture
and equipment:
|
3
years
|
Computer
hardware:
|
3
years
|
Manufacturing
equipment:
|
3
years
|
Brands:
|
|
5
years
|
Customer
relationships:
|
|
5
years
|
Assets
acquired:
|
Allocation
|
Measurement
Period Adjustments
|
Final
Allocation
|
Cash
|
$
22,942
|
-
|
$
22,942
|
Receivables
|
48,356
|
(1,705
)
|
46,651
|
Other current
assets
|
21,195
|
(24
)
|
21,171
|
Inventory
|
122,309
|
4,428
|
126,737
|
Fixed
assets
|
118,867
|
7
|
118,874
|
Intangible
assets
|
-
|
160,000
|
160,000
|
Goodwill
|
847,265
|
(154,211
)
|
693,054
|
Total
assets acquired
|
$
1,180,934
|
|
$
1,189,429
|
|
|
|
|
Liabilities
assumed:
|
|
|
|
Accounts
payable
|
$
206,252
|
-
|
$
206,252
|
Accrued
liabilities
|
-
|
28,000
|
28,000
|
Loan
payable
|
25,000
|
-
|
25,000
|
Total
liabilities assumed
|
$
231,252
|
|
$
259,252
|
|
|
|
|
Consideration:
|
|
|
|
Cash
|
$
225,000
|
-
|
$
225,000
|
Promissory Notes A,
unsecured and non-interest bearing, due November 1,
2015
|
196,026
|
(19,505
)
|
176,521
|
Promissory Notes B,
unsecured and non-interest bearing, due April 1, 2016
|
275,555
|
-
|
275,555
|
Promissory Notes C,
unsecured and non-interest bearing, due January 1,
2017
|
253,101
|
-
|
253,101
|
Total
consideration
|
$
949,682
|
|
$
930,177
|
|
Promissory Note
A
|
Promissory Note
B
|
Promissory Note
C
|
Total
|
Present value at
acquisition date
|
$
293,204
|
$
275,555
|
$
253,101
|
$
821,860
|
Working capital
adjustment
|
(97,178
)
|
-
|
-
|
(97,178
)
|
Interest expense
related to accretion
|
7,547
|
16,065
|
14,756
|
38,368
|
Present
value at December 31, 2015
|
$
203,573
|
$
291,620
|
$
267,857
|
$
763,050
|
|
|
|
|
|
Measurement period
adjustment
|
(19,505
)
|
-
|
-
|
(19,505
)
|
Interest expense
related to accretion
|
(751
)
|
8,380
|
32,143
|
39,772
|
Present
value at December 31, 2016
|
$
183,317
|
$
300,000
|
$
300,000
|
$
783,317
|
|
Estimated
Useful
Life (in
years)
|
Amount
|
Brands
|
5
|
$
20,000
|
Customer
relationships
|
5
|
140,000
|
|
|
$
160,000
|
|
December
31,
2016
|
December 31,
2015
|
Pro forma
revenue
|
$
4,572,332
|
$
1,679,867
|
Pro forma loss from
operations
|
$
(3,590,177
)
|
$
(2,738,649
)
|
Pro forma net
loss
|
$
(4,362,320
)
|
$
(3,216,321
)
|
Assets
acquired:
|
|
Cash
|
$
5,381
|
Website
|
10,000
|
Inventory
|
2,150
|
Goodwill
|
109,444
|
Total
assets acquired
|
$
126,975
|
|
|
Total
liabilities assumed
|
$
-
|
|
|
Consideration:
|
|
500,000 Common
Shares at $0.17 per share
|
$
85,000
|
500,000
warrants
|
41,975
|
Total
consideration
|
$
126,975
|
Assets
acquired:
|
|
Inventory
|
$
11,335
|
Equipment
|
11,872
|
Intangibles
|
63,000
|
Goodwill
|
87,000
|
Total
assets acquired
|
$
173,207
|
|
|
Consideration:
|
|
Cash
|
$
23,207
|
1,000,000 Common
Shares at $0.15 per share
|
150,000
|
Total
consideration
|
$
173,207
|
|
Estimated
Useful
Life (in
years)
|
Amount
|
Brands
|
5
|
$
30,000
|
Customer
relationships
|
5
|
33,000
|
|
|
$
63,000
|
|
|
|
Assets
acquired:
|
|
Inventory
|
$
41,462
|
Equipment
|
36,579
|
Intangibles
|
157,000
|
Goodwill
|
208,376
|
Total
assets acquired
|
$
443,417
|
|
|
Consideration:
|
|
819,672 Common
Shares at $0.122 per share
|
$
100,000
|
Deferred payments
short term
|
149,134
|
Deferred payments
long term
|
194,283
|
Total
consideration
|
$
443,417
|
|
Estimated
Useful
Life (in
years)
|
Amount
|
Brands
|
5
|
$
60,000
|
Customer
relationships
|
5
|
97,000
|
|
|
$
157,000
|
|
|
|
|
December
31,
2016
|
December
31,
2015
|
Vendor deposits
|
$
13,256
|
$
175,700
|
Prepaid
expenses
|
301,348
|
88,274
|
Trade currency
|
45,000
|
45,000
|
Other
receivables
|
103,104
|
13,352
|
|
$
462,708
|
$
322,326
|
|
December
31,
2016
|
December
31,
2015
|
Vaping hardware and
accessories
|
$
105,496
|
$
-
|
E-liquid bottles -
finished goods
|
181,392
|
65,247
|
E-liquid
components
|
158,050
|
57,988
|
Bottles and
packaging
|
100,197
|
31,465
|
|
$
545,135
|
$
154,700
|
|
December
31,
2016
|
December 31,
2015
|
||
|
Cost
|
Accumulated
Depreciation
|
Net
|
Net
|
Furniture and
equipment
|
$
63,947
|
$
18,030
|
$
45,917
|
$
1,156
|
Computer
hardware
|
29,722
|
13,737
|
15,985
|
5,525
|
Manufacturing
equipment
|
52,856
|
21,690
|
31,166
|
143,668
|
|
$
146,525
|
$
53,457
|
$
93,068
|
$
150,349
|
|
December
31,
2016
|
December 31,
2015
|
||
|
Cost
|
Accumulated
Amortization
|
Net
|
Net
|
VaporLiq
website
|
$
10,000
|
$
2,917
|
$
7,083
|
$
9,083
|
|
|
|
|
|
|
December
31,
2016
|
December 31,
2015
|
||
|
Cost
|
Accumulated
Amortization
|
Net
|
Net
|
Brands
|
$
50,000
|
$
13,000
|
$
37,000
|
$
88,000
|
Customer
relationships
|
173,000
|
49,700
|
123,300
|
127,283
|
|
$
223,000
|
$
62,700
|
$
160,300
|
$
215,283
|
|
|
|
|
|
|
2016
|
2015
|
As
at January 1
|
$
1,252,084
|
$
-
|
Acquisitions (note
4)
|
-
|
1,252,084
|
Measurement period
adjustment (note 4)
|
(154,211
)
|
-
|
Impairment
|
(208,376
)
|
-
|
As
at December 31
|
$
889,497
|
$
1,252,084
|
|
|
|
|
December
31,
2016
|
December
31,
2015
|
Non-interest
bearing, unsecured, no specific terms of repayment
|
$
5,000
|
$
5,000
|
Bears interest of
1.5% per month on a cumulative basis, unsecured, no specific terms
of repayment
(i)
|
23,223
|
22,528
|
Bears interest of
6% per annum on a cumulative basis, secured by the assets of the
Company, matures on March 2, 2018
(v)
|
474,065
|
-
|
|
$
502,288
|
$
27,528
|
|
December
31,
2016
|
December
31,
2015
|
Bears interest of
10% per annum on a cumulative basis, secured by the assets of the
Company, matures on July 1, 2018
(ii)
|
$
372,400
|
$
361,250
|
Bears interest of
10% per annum on a cumulative basis, secured by the assets of the
Company, matures on July 1, 2018
(iii)
|
100,000
|
100,000
|
Bears interest of
6% per annum on a cumulative basis, secured by the assets of the
Company, matures on March 2, 2018
(v)
|
24,951
|
-
|
|
$
497,351
|
$
461,250
|
|
December 31,
2016
|
December 31,
2015
|
Amount
advanced
|
$
1,219,840
|
$
-
|
Exchange gains
during the year
|
(28,159
)
|
-
|
Principal payments
made
|
(76,815
)
|
-
|
Interest
accrued
|
140,540
|
-
|
Interest payments
made
|
(111,069
)
|
-
|
Amount owing at end
of year
|
$
1,144,337
|
$
-
|
|
December 31,
2016
|
December 31,
2015
|
Convertible
Debentures Series A
|
$
17,341
|
$
232,830
|
Convertible
Debentures Series B
|
52,781
|
6,500
|
Convertible
Debentures Series C-1
|
21,674
|
-
|
Convertible
Debentures Series C-2
|
2,750
|
-
|
|
$
94,546
|
$
239,330
|
Balance,
December 31, 2014
|
$
24,828
|
Face value
Convertible Debentures Series B
|
650,000
|
Relative fair value
of detachable warrants
|
(287,757
)
|
BCF
|
(362,243
)
|
Amortization of
debt discount
|
239,330
|
Conversions
|
(177,000
)
|
Balance,
December 31, 2015
|
87,158
(1)
|
Face value
Convertible Debentures Series C-1
|
375,000
|
Face value
Convertible Debentures Series C-2
|
275,000
|
Relative fair value
of detachable warrants
|
(378,608
)
|
BCF
|
(248,667
)
|
Transaction
costs
|
(22,725
)
|
Amortization of
debt discount
|
94,546
|
Conversion
|
(23,000
)
|
Cash
settlements
|
(75,000
)
|
Balance,
December 31, 2016
|
$
83,704
|
Date Form
of
Election
Received
|
Face Value of
Convertible Debentures Series A Converted
|
Number
of
Common
Shares Issued on Conversion
|
April 15,
2014
|
$
50,000
|
714,286
|
September 30,
2014
|
800,000
|
11,428,572
|
November 10,
2014
|
275,000
|
3,928,571
|
March 9,
2015
(1)
|
52,000
|
742,857
|
July 15,
2015
|
105,000
|
1,500,000
|
September 1,
2015
|
20,000
|
285,714
|
|
$
1,302,000
|
18,600,000
|
|
●
|
Issued
480,000 Common Shares at $0.10 per share for settlement of $48,000
in deferred fees owing to a related party (note 19). The amount
allocated to Shareholders’ Deficiency, based on the fair
value, amounted to $76,800. The balance of $28,800 has been
recorded as a loss on settlement of debt;
|
|
●
|
Issued
562,715 Common Shares at an average price of $0.141 per share for
settlement of $79,154 in consulting fees. The amount allocated to
Shareholders’ Deficiency, based on the fair value, amounted
to $78,780. The balance of $374 has been recorded as a gain on
settlement of debt; and
|
|
●
|
Issued
150,000 Common Shares at $0.14 per share for $21,000 in related
party employment income (note 19).
|
|
●
|
Issued
100,000 Common Shares at a fair value of $0.11 per share for
settlement of $10,000 in prepaid consulting fees to an unrelated
party. The amount allocated to Shareholders’ Deficiency,
based on the fair value, amounted to $11,000. The balance of $1,000
has been recorded as a loss on settlement of debt in the statement
of operations and comprehensive loss;
|
|
●
|
Issued
819,672 Common Shares at $0.122 per share for a total value of
$100,000 in part consideration for an acquisition of a
business;
|
|
●
|
Issued
225,428 Common Shares at $0.10 per share for cash proceeds of
$22,543;
|
|
●
|
Issued 500,000 Common Shares at $0.10 per share for settlement of
$50,000 of related party loans;
|
|
●
|
Issued
211,389 Common Shares at a fair value of $0.15 per share for
settlement of $25,000 in consulting fees to unrelated parties. The
amount allocated to Shareholders’ Deficiency, based on the
fair value, amounted to $31,708. The balance of $6,708 has been
recorded as a loss on settlement of debt in the statement of
operations and comprehensive loss;
|
|
●
|
Issued 1,000,000 Common Shares of the Company valued at $0.15 per
share for a total value of $150,000 in part consideration for an
acquisition of a business;
|
|
●
|
Issued
201,945 Common Shares at a fair value of $0.11 per share for
settlement of $20,194 in interest payable on a Convertible
Debenture Series A to an unrelated party. The amount allocated to
Shareholders’ Deficiency, based on the fair value, amounted
to $33,261 and includes the value of the purchase warrants issued.
The balance of $13,067 has been recorded as a loss on settlement of
debt in the statement of operations and comprehensive
loss;
|
|
●
|
Issued
60,000 Common Shares at $0.19 per share for settlement of $11,400
in consulting fees to an unrelated party;
|
|
●
|
Issued
500,000 Common Shares at $0.17 per share for consideration paid in
the amount of $85,000 for the acquisition of a
subsidiary;
|
|
●
|
Issued
4,918 Common Shares at $0.15 per share for settlement of $738 in
interest payable on Convertible Debentures Series A to unrelated
parties;
|
|
●
|
Issued
2,385 Common Shares at $0.15 per share for settlement of $358 in
interest payable on Convertible Debentures Series A to a Director
of the Company;
|
|
●
|
Issued
2,299,999 Common Shares at $0.07 per share as a result of the
conversion of $161,000 of Convertible Debentures Series
A;
|
|
●
|
Issued
228,572 Common Shares at $0.07 per share to a Director of the
Company as a result of the conversion of $16,000 of Convertible
Debentures Series A;
|
|
●
|
Issued
300,000 Common Shares at $0.11 per share as compensation for
$33,000 in consulting fees to an unrelated party; and
|
|
●
|
Issued
408,597 Common Shares valued at a fair value of $0.11 per share for
settlement of $61,290 in marketing costs owing to an unrelated
party. The amount allocated to Shareholders’ Deficiency,
based on the fair value, amounted to $44,946. The balance of
$16,344 has been recorded as a gain on settlement of debt in the
statement of operations and comprehensive loss.
|
|
December 31,
2016
|
December 31,
2015
|
||||
|
Warrants
Outstanding
|
Weighted Average
Exercise Price
|
Weighted Average
Life Remaining (yrs)
|
Warrants
Outstanding
|
Weighted Average
Exercise Price
|
Weighted Average
Life Remaining (yrs)
|
Beginning of
year
|
8,177,373
|
$
0.25
|
1.39
|
1,510,640
|
$
0.25
|
1.87
|
Issued
|
11,935,000
|
0.21
|
2.05
|
6,677,373
|
0.25
|
1.73
|
Cancelled
|
(1,125,000
)
|
0.25
|
1.13
|
-
|
-
|
-
|
Expired
|
(1,427,373
)
|
0.19
|
-
|
(10,640
)
|
0.15
|
-
|
End of
year
|
17,560,000
|
$
0.23
|
1.21
|
8,177,373
|
$
0.25
|
1.39
|
|
|
|
|
|
|
|
Issuance
Date
|
|
Number
of
Warrants
|
Expected Life in
Years
|
Exercise Price
($)
|
Risk Free
Rate
|
Dividend
Yield
|
Expected
Volatility
|
Fair Value
($)
|
January 30,
2015
|
(a)
|
250,000
|
2
|
0.30
|
0.71
%
|
Nil
|
320
%
|
38,719
|
May 29,
2015
|
(b)
|
250,000
|
2
|
0.40
|
0.85
%
|
Nil
|
298
%
|
35,362
|
May 29,
2015
|
(b)
|
250,000
|
2
|
0.50
|
0.85
%
|
Nil
|
298
%
|
35,134
|
May 29,
2015
|
(b)
|
250,000
|
2
|
0.60
|
0.85
%
|
Nil
|
298
%
|
34,934
|
May 29,
2015
|
(b)
|
250,000
|
2
|
0.70
|
0.85
%
|
Nil
|
298
%
|
34,755
|
June 29,
2015
|
(c)
|
500,000
|
1
|
0.15
|
0.51
%
|
Nil
|
166
%
|
40,643
|
July 14,
2015
|
(d)
|
500,000
|
1.5
|
0.20
|
0.51
%
|
Nil
|
219
%
|
41,975
|
July 15,
2015
|
(e)
|
201,945
|
1
|
0.20
|
0.52
%
|
Nil
|
174
%
|
11,047
|
November 5,
2015
|
(f)
|
725,428
|
1
|
0.20
|
0.60
%
|
Nil
|
186
%
|
48,398
|
December 30,
2015
|
(g)
|
250,000
|
1.5
|
0.20
|
0.88
%
|
Nil
|
190
%
|
26,821
|
December 31,
2015
|
(h)
|
3,250,000
|
2
|
0.20
|
1.19
%
|
Nil
|
265
%
|
516,343
|
January 18,
2016
|
(i)
|
250,000
|
2.46
|
0.20
|
0.91
%
|
Nil
|
263
%
|
51,598
|
February 18,
2016
|
(j)
|
300,000
|
2
|
0.25
|
0.80
%
|
Nil
|
275
%
|
30,501
|
February 18,
2016
|
(k)
|
1,500,000
|
2
|
0.25
|
0.80
%
|
Nil
|
275
%
|
152,503
|
March 2,
2016
|
(l)
|
1,000,000
|
2
|
0.20
|
0.91
%
|
Nil
|
271
%
|
158,995
|
April 13,
2016
|
(m)
|
1,750,000
|
2
|
0.25
|
0.88
%
|
Nil
|
264
%
|
241,754
|
May 20,
2016
|
(n)
|
3,750,000
|
2
|
0.20
|
1.03
%
|
Nil
|
259
%
|
234,737
|
May 20,
2016
|
(o)
|
85,000
|
2
|
0.20
|
1.03
%
|
Nil
|
259
%
|
14,225
|
July 15,
2016
|
(p)
|
300,000
|
2.46
|
0.20
|
0.91
%
|
Nil
|
263
%
|
45,799
|
December 22,
2016
|
(q)
|
250,000
|
1.5
|
0.20
|
0.87
%
|
Nil
|
180
%
|
18,840
|
December 31,
2016
|
(r)
|
2,750,000
|
2
|
0.20
|
1.20
%
|
Nil
|
259
%
|
143,871
|
|
18,612,373
|
|
|
|
|
|
1,956,955
|
|
December 31, 2016
|
Warrants
Issued as Stock Based Compensation
|
|
Warrants issued in
connection to the Term Loan (note 16(i))
|
$
51,598
|
Warrants issued in
connection to the Term Loan (note 16(i))
|
42,325
|
Warrants issued in
connection to a consulting agreement (note 16(j))
|
16,511
|
Warrants issued in
connection to a consulting agreement (note 16(k))
|
108,656
|
Warrants issued in
connection the Shareholder Loan (note 16(l))
|
158,995
|
Warrants issued in
connection to a consulting agreement (note 16(m))
|
205,828
|
Warrants issued as
commission related to Convertible Debentures Series C-1 (note
16(o))
|
14,225
|
Warrants issued in
connection to the Term Loan (note 16(p))
|
45,799
|
Warrants issued in
connection to the Secured Notes (note 16(q))
|
18,840
|
Total
Warrants Issued as Stock Based Compensation
|
662,777
|
|
|
Shares
issued for consulting fees
|
59,154
|
Shares
to be issued for consulting fees
|
68,550
|
Shares
issued for employment income to a related party
|
21,000
|
Total
Stock Based Compensation
|
$
811,481
|
(a)
|
The
Company’s current and former officers and shareholders have
advanced funds on an unsecured, non-interest bearing basis to the
Company, unless stated otherwise below, for travel related and
working capital purposes. The Company has not entered into any
agreement on the repayment terms for these
advances.
|
|
December
31,
2016
|
December
31,
2015
|
Advances by and
amounts payable to Officers of the Company, two of which are also
Directors
|
$
95,759
|
$
242,758
|
Advances by and
consulting fees payable to a corporation owned by two Officers of
the Company, one of which is also a Director
|
313,745
|
196,581
|
Consulting fees
owing to persons related to Officers who are also Directors of the
Company
|
77,463
|
37,028
|
Advances by
Officers of the Company, one of which is also a Director, bears
interest at 1.5% per month
|
901,784
|
355,802
|
Amounts payable to
a corporation formerly related by virtue of a common Officer of the
Company
|
-
|
30,294
|
Amounts payable to
a corporation related by virtue of common Officers and a common
Director of the Company
|
76,407
|
50,976
|
Consulting fees and
director fees payable to Directors of the Company
|
13,725
|
83,500
|
|
$
1,478,883
|
$
996,939
|
(b)
|
Interest
accrued to related parties were as follows:
|
|
December
31,
2016
|
December
31,
2015
|
|
|
|
Interest accrued on
advances by Officers of the Company, one of which is also a
Director
|
$
234,121
|
$
129,729
|
Advances by and
consulting fees payable to a corporation owned by two Officers of
the Company, one of which is also a Director
|
29,669
|
2,026
|
|
$
263,790
|
$
131,755
|
(c)
|
Transactions
with related parties were as follows:
|
|
December
31,
2016
|
December
31,
2015
|
Directors
|
$
-
|
$
92,750
|
Officers
|
330,900
|
273,974
|
Corporation
formerly related by virtue of common Officers and a common
Director
|
-
|
74,396
|
Corporation owned
by two Officers, one of which is also a Director
|
-
|
92,799
|
Persons related to
a Director
|
142,249
|
71,261
|
|
$
473,149
|
$
605,180
|
|
United
States
|
Canada
|
Ireland
|
Hungary
|
Slovakia
|
Total
|
2032
|
$
(434,283
)
|
$
(626,235
)
|
$
-
|
$
-
|
$
-
|
$
(1,060,518
)
|
2033
|
(1,016,051
)
|
(438,761
)
|
-
|
-
|
-
|
(1,454,812
)
|
2034
|
(2,159,772
)
|
(301,868
)
|
(372,764
)
|
-
|
-
|
(2,834,404
)
|
2035
|
(1,470,508
)
|
(676,485
)
|
(29,133
)
|
(65,163
)
|
-
|
(2,241,289
)
|
2036
|
(2,432,316
)
|
(1,166,994
)
|
(2,175
)
|
(137,757
)
|
-
|
(3,739,242
)
|
|
$
(7,512,930
)
|
$
(3,210,343
)
|
$
(404,072
)
|
$
(202,920
)
|
$
-
|
$
(11,330,266
)
|
|
December
31,
2016
|
December
31,
2015
|
Loss before income
taxes
|
$
4,500,206
|
$
3,048,336
|
Applicable tax rate
ranges from 10% to 35%
|
|
|
Expected income tax
(recovery) at the statutory rates
|
(1,439,417
)
|
(981,895
)
|
Permanent
differences
|
200,042
|
171,912
|
Tax benefits
not recognized
|
1,239,375
|
809,983
|
Provision for
income taxes
|
$
-
|
$
-
|
|
United
States
|
Canada
|
||
|
December
31,
2016
|
December
31,
2015
|
December
31,
2016
|
December
31,
2015
|
Loss before income
taxes
|
$
3,103,756
|
$
2,317,527
|
$
1,291,477
|
$
(578,775
)
|
Applicable tax rate
ranges from 10% to 35%
|
|
35
%
|
|
26.5
%
|
Expected income tax
(recovery) at the statutory rates
|
(1,086,315
)
|
(811,134
)
|
(342,241
)
|
(153,375
)
|
Permanent
differences
|
177,943
|
164,649
|
22,099
|
7,263
|
Tax benefits
not recognized
|
908,372
|
646,485
|
320,142
|
146,112
|
Income
taxes-current and deferred
|
$
-
|
$
-
|
$
-
|
$
-
|
|
Ireland
|
Hungary
|
||
|
December
31,
2016
|
December
31,
2015
|
December
31,
2016
|
December
31,
2015
|
Loss before income
taxes
|
$
(2,301
)
|
$
87,276
|
$
111,489
|
$
64,758
|
Applicable tax rate
ranges from 10% to 35%
|
12.5
%
|
12.5
%
|
10
%
|
10
%
|
Expected income tax
(recovery) at the statutory rates
|
288
|
(10,910
)
|
(11,149
)
|
(6,476
)
|
Permanent
differences
|
|
-
|
1
|
-
|
Tax benefits
not recognized
|
-
|
10,910
|
11,148
|
6,476
|
Income
taxes-current and deferred
|
$
288
|
$
-
|
$
-
|
$
-
|
|
Slovakia
|
|
|
December
31,
2016
|
December
31,
2015
|
Loss before income
taxes
|
$
(4,216
)
|
$
-
|
Applicable tax rate
ranges from 10% to 35%
|
22
%
|
22
%
|
Expected income tax
(recovery) at the statutory rates
|
928
|
-
|
Permanent
differences
|
-
|
-
|
Tax benefits
not recognized
|
-
|
-
|
Income
taxes-current and deferred
|
$
928
|
$
-
|
|
December
31,
2016
|
December
31,
2015
|
Operating losses
available to offset future income taxes
|
$
(11,330,266
)
|
$
(7,951,215
)
|
Expected
income tax recovery at a statutory rate of 35%
|
3,535,016
|
2,502,523
|
Valuation
allowance
|
(3,535,016
)
|
(2,502,523
)
|
Income taxes
– current and deferred
|
$
-
|
$
-
|
2017
|
$
56,110
|
|
|
2017
|
|
€
27,000
|
|
|
2017
|
|
€
41,289
|
|
|
December 31, 2016
|
Accounts Payable
|
Accounts Receivable
|
Cash
|
CAD
|
$
204,350
|
$
219
|
$
3,166
|
HUF
|
$
334,698
|
$
46,138
|
$
127,788
|
EUR
|
$
18,672
|
$
-
|
$
10,328
|
|
December
31,
2016
|
December
31,
2015
|
Canada
|
$
826
|
$
-
|
United
States
|
1,125,704
|
1,624,669
|
Europe
|
23,418
|
2,130
|
|
$
1,149,948
|
$
1,626,799
|
|
December
31,
2016
|
December
31,
2015
|
Canada
|
$
49,732
|
$
-
|
United
States
|
2,596,172
|
1,163,096
|
Europe
|
1,904,889
|
-
|
|
$
4,550,793
|
$
1,163,096
|
REPORT
OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING
|
Name
|
Age
|
Position
|
Graham
Simmonds
|
43
|
Chairman of the
Board of Directors and Chief Executive Officer
|
Gerald
Goldberg
|
73
|
Director and
Chairman of the Audit Committee
|
Henry
J. Kloepper
|
67
|
Lead
Independent Director and Chairman of the Compensation and
Governance Committees
|
Daniel
Yuranyi
|
60
|
Director and Chief
Procurement Officer
|
Dr.
Blaise A. Aguirre
|
52
|
Director
|
Christopher
Rich
|
63
|
Director
|
Stanley D.
Robinson
|
67
|
Director
|
Ashish
Kapoor
|
39
|
Chief
Financial Officer and Interim Corporate Secretary
|
Name and
Relation to the Company
|
|
Number of Late
Reports
|
|
Transactions
Not
Timely
Reported
|
|
Known Failures
to File a
Required Form
(Type of
Form indicated
herein)
|
Graham
Simmonds
(Chairman and
Chief Executive Officer)
|
|
5
|
|
4
|
|
Form
4, Form 5
|
Daniel
Yuranyi
(Director and
Chief Procurement Officer)
|
|
2
|
|
1
|
|
Form
4, Form 5
|
Ashish
Kapoor
(Chief
Financial Officer)
|
|
2
|
|
1
|
|
Form
4, Form 5
|
Dr.
Blaise A. Aguirre
(Director)
|
|
2
|
|
1
|
|
Form
4, Form 5
|
Henry
J. Kloepper
(Director)
|
|
2
|
|
1
|
|
Form
4, Form 5
|
Gerald
Goldberg
(Director)
|
|
1
|
|
1
|
|
Form
3
|
Name/Title
|
Year
|
Salary
$
(1)
|
Bonus
$
(1)
|
Other
Annual
Compensation
$
(1)
|
Restricted
Option
Stocks/
Payouts
Awarded
#
|
Graham
Simmonds
(2)(3)(4)(7)
Chairman of the
Board of Directors and Chief Executive Officer
|
2016
|
$120,000
|
-
|
-
|
-
|
2015
|
$113,494
|
-
|
-
|
-
|
|
2014
|
$108,662
|
-
|
-
|
-
|
|
Gerald
Goldberg
(2)(5)(9)(10)
Chairman of the
Audit Committee
|
2016
|
$9,000
|
-
|
-
|
-
|
2015
|
-
|
-
|
-
|
-
|
|
2014
|
-
|
-
|
-
|
-
|
|
Henry
J. Kloepper
(2)(5)(10)
Lead
Independent Director and Chairman of the Compensation and
Governance Committees
|
2016
|
$18,000
|
-
|
-
|
-
|
2015
|
$18,000
|
-
|
-
|
-
|
|
2014
|
-
|
-
|
-
|
-
|
|
Daniel
Yuranyi
(2)(3)
Director and Chief
Procurement Officer
|
2016
|
$90,720
|
-
|
-
|
-
|
2015
|
$93,974
|
-
|
-
|
-
|
|
2014
|
$108,662
|
-
|
-
|
-
|
|
Dr.
Blaise A. Aguirre
(2)(5)(10)
Director
|
2016
|
$18,000
|
-
|
-
|
-
|
2015
|
$18,000
|
-
|
-
|
-
|
|
2014
|
-
|
-
|
-
|
-
|
|
Christopher
Rich
(2)(5)
Director
|
2016
|
$18,000
|
-
|
-
|
-
|
2015
|
$18,000
|
-
|
$92,750
(8)
|
-
|
|
2014
|
-
|
-
|
$76,000
(8)
|
-
|
|
Stanley D.
Robinson
(2)(5)
Director
|
2016
|
$18,000
|
-
|
-
|
-
|
2015
|
$18,000
|
-
|
-
|
-
|
|
2014
|
-
|
-
|
-
|
-
|
|
Ashish
Kapoor
(2)(3)(4)(6)
Chief
Financial Officer and Interim Corporate Secretary
|
2016
|
$120,000
|
-
|
-
|
-
|
2015
|
$113,494
|
-
|
-
|
-
|
|
2014
|
$108,662
|
-
|
-
|
-
|
|
Ernest
Eves
(5)(7)
Former
Chairman of the Board of Directors
|
2016
|
-
|
-
|
-
|
-
|
2015
|
$7,500
|
-
|
-
|
-
|
|
2014
|
-
|
-
|
-
|
-
|
|
Carrie
J. Weiler
(3)(6)
Former
Corporate Secretary
|
2016
|
-
|
-
|
-
|
-
|
2015
|
$5,873
|
-
|
-
|
-
|
|
2014
|
$27,165
|
-
|
-
|
-
|
Name of
Beneficial
Owner
|
Number of
Common
Shares
Beneficially
Held
|
Number
of
Additional
Common
Shares
Deemed
Outstanding
|
Total Number
of
Common
Shares
Beneficially
Owned
|
Percentage
Owned
|
Graham
Simmonds
|
10,517,982
(5)
|
4,850,000
(6)(7)
|
15,367,982
|
12.65
%
|
Daniel
Yuranyi
|
7,948,650
|
-
|
7,948,650
|
6.81
%
|
Ashish
Kapoor
|
4,807,245
(8)
|
725,000
(9)(10)
|
5,532,245
|
4.71
%
|
Dr. Blaise A.
Aguirre
|
1,213,397
(11)
|
100,000
(12)
|
1,313,397
|
1.12
%
|
Christopher
Rich
|
510,000
(13)
|
-
|
510,000
|
0.44
%
|
Henry J.
Kloepper
|
100,000
(14)
|
400,000
(15)
|
500,000
|
0.43
%
|
Stanley D.
Robinson
|
60,000
|
-
|
60,000
|
0.05
%
|
Gerald
Goldberg
|
-
|
-
|
-
|
0.00
%
|
Directors and
Executive Officers as a group
|
25,157,274
|
6,075,000
|
31,232,274
|
25.45
%
|
|
|
|
|
|
Southshore Capital
Partners, LP
|
6,793,975
|
3,500,000
(16)
|
10,293,975
|
8.57
%
|
|
December 31,
2016
|
December 31,
2015
|
Amount
advanced
|
$
1,219,840
|
$
-
|
Exchange gains
during the year
|
(28,159
)
|
-
|
Principal payments
made
|
(76,815
)
|
-
|
Interest
accrued
|
140,540
|
-
|
Interest payments
made
|
(111,069
)
|
-
|
Amount owing at end
of year
|
$
1,144,337
|
$
-
|
|
December 31,
2016
|
December 31,
2015
|
Convertible
Debentures Series A
|
$
17,341
|
$
232,830
|
Convertible
Debentures Series B
|
52,781
|
6,500
|
Convertible
Debentures Series C-1
|
21,674
|
-
|
Convertible
Debentures Series C-2
|
2,750
|
-
|
|
$
94,546
|
$
239,330
|
Balance,
December 31, 2014
|
$
24,828
|
Face value
Convertible Debentures Series B
|
650,000
|
Relative fair value
of detachable warrants
|
(287,757
)
|
BCF
|
(362,243
)
|
Amortization of
debt discount
|
239,330
|
Conversions
|
(177,000
)
|
Balance,
December 31, 2015
|
$
87,158
(1)
|
Face value
Convertible Debentures Series C-1
|
375,000
|
Face value
Convertible Debentures Series C-2
|
275,000
|
Relative fair value
of detachable warrants
|
(378,608
)
|
BCF
|
(248,667
)
|
Transaction
costs
|
(22,725
)
|
Amortization of
debt discount
|
94,546
|
Conversion
|
(23,000
)
|
Cash
settlements
|
(75,000
)
|
Balance,
December 31, 2016
|
$
83,704
|
Date Form
of
Election
Received
|
Face Value of
Convertible Debentures Series A Converted
|
Number
of
Common Shares
Issued on Conversion
|
April 15,
2014
|
$
50,000
|
714,286
|
September 30,
2014
|
800,000
|
11,428,572
|
November 10,
2014
|
275,000
|
3,928,571
|
March 9,
2015
(1)
|
52,000
|
742,857
|
July 15,
2015
|
105,000
|
1,500,000
|
September 1,
2015
|
20,000
|
285,714
|
|
$
1,302,000
|
18,600,000
|
(a)
|
The
Company’s current and former officers and shareholders have
advanced funds on an unsecured, non-interest bearing basis to the
Company, unless stated otherwise below, for travel related and
working capital purposes. The Company has not entered into any
agreement on the repayment terms for these
advances.
|
|
December
31,
2016
|
December
31,
2015
|
Advances by and
amounts payable to Officers of the Company, two of which are also
Directors
|
$
95,759
|
$
242,758
|
Advances by and
consulting fees payable to a corporation owned by two Officers of
the Company, one of which is also a Director
|
313,745
|
196,581
|
Consulting fees
owing to persons related to Officers who are also Directors of the
Company
|
77,463
|
37,028
|
Advances by
Officers of the Company, one of which is also a Director, bears
interest at 1.5% per month
|
901,784
|
355,802
|
Amounts payable to
a corporation formerly related by virtue of a common Officer of the
Company
|
-
|
30,294
|
Amounts payable to
a corporation related by virtue of common Officers and a common
Director of the Company
|
76,407
|
50,976
|
Consulting fees and
director fees payable to Directors of the Company
|
13,725
|
83,500
|
|
$
1,478,883
|
$
996,939
|
(b)
|
Interest
accrued to related parties were as follows:
|
|
December
31,
2016
|
December
31,
2015
|
|
|
|
Interest accrued on
advances by Officers of the Company, one of which is also a
Director
|
$
234,121
|
$
129,729
|
Advances by and
consulting fees payable to a corporation owned by two Officers of
the Company, one of which is also a Director
|
29,669
|
2,026
|
|
$
263,790
|
$
131,755
|
(c)
|
Transactions
with related parties were as follows:
|
|
December
31,
2016
|
December
31,
2015
|
Directors
|
$
-
|
$
92,750
|
Officers
|
330,900
|
273,974
|
Corporation
formerly related by virtue of common Officers and a common
Director
|
-
|
74,396
|
Corporation owned
by two Officers, one of which is also a Director
|
-
|
92,799
|
Persons related to
a Director
|
142,249
|
71,261
|
|
$
473,149
|
$
605,180
|
Exhibit
Number
|
|
Exhibit
Description
|
|
Filed
Herewith
|
|
Incorporated
by Reference
|
||||
|
|
|
Form
|
|
Exhibit
|
|
Filing Date
|
|||
|
|
|
|
|
|
|
|
|
||
3.1
|
|
Articles
of Incorporation.
|
|
|
|
10-SB
|
|
3.1
|
|
11/15/1999
|
|
|
|
|
|
|
|
|
|
|
|
3.2
|
|
Articles
of Amendment to the Articles of Incorporation.
|
|
|
|
8-K
|
|
3.2
|
|
5/14/2003
|
|
|
|
|
|
|
|
|
|
|
|
3.3
|
|
Bylaws.
|
|
|
|
10-SB
|
|
3.2
|
|
11/15/1999
|
|
|
|
|
|
|
|
|
|
|
|
10.1
|
|
Share
Purchase Agreement, by and between the Company and Credifinance
Capital Corp., dated as of June 22, 2012.
|
|
|
|
8-K
|
|
|
|
11/28/2012
|
|
|
|
|
|
|
|
|
|
|
|
10.2
|
|
Letter
of Intent, by and between the Company and Snoke Distribution Canada
Ltd., dated as of June 25, 2012.
|
|
|
|
8-K
|
|
|
|
11/28/2012
|
|
|
|
|
|
|
|
|
|
|
|
10.5
|
|
Loan
Agreement, by and between the Company and Credifinance Capital
Corp., dated as of April 15, 2011.
|
|
|
|
8-K
|
|
|
|
11/28/2012
|
|
|
|
|
|
|
|
|
|
|
|
10.6
|
|
Loan
Termination Agreement, by and between the Company and Credifinance
Capital Corp., dated as of November 15, 2012.
|
|
|
|
8-K
|
|
|
|
11/28/2012
|
|
|
|
|
|
|
|
|
|
|
|
10.7
|
|
New
Loan Agreement, by and between the Company and Credifinance Capital
Corp., dated as of November 15, 2012.
|
|
|
|
8-K
|
|
|
|
11/28/2012
|
|
|
|
|
|
|
|
|
|
|
|
10.8
|
|
6%
Convertible Credit Note, by and between the Company and
Credifinance Capital Corp., dated as of November 15,
2012.
|
|
|
|
8-K
|
|
|
|
11/28/2012
|
|
|
|
|
|
|
|
|
|
|
|
10.9
|
|
Form of
Gilla Inc. Private Placement Subscription Agreement and Investment
Letter, dated as of November 15, 2012.
|
|
|
|
8-K
|
|
|
|
11/28/2012
|
|
|
|
|
|
|
|
|
|
|
|
10.10
|
|
Exclusive
Distribution Agreement, by and between Snoke Distibution Canada
Ltd. and Ecoreal GmbH & Co. KG, dated as of November 24,
2011.
|
|
|
|
8-K
|
|
|
|
11/28/2012
|
|
|
|
|
|
|
|
|
|
|
|
10.11
|
|
Secured
Note from the Company to Gravitas Financial Inc., dated as of
February 13, 2014.
|
|
|
|
8-K
|
|
|
|
2/19/2014
|
|
|
|
|
|
|
|
|
|
|
|
10.12
|
|
General
Security Agreement, by and between the Company and Gravitas
Financial Inc., dated as of February 13, 2014.
|
|
|
|
8-K
|
|
|
|
2/19/2014
|
|
|
|
|
|
|
|
|
|
|
|
10.13
|
|
Letter
Agreement, by and between the Company and Drianan Marketing
Limited, dated as of January 22, 2014.
|
|
|
|
10-Q
|
|
|
|
5/21/2014
|
|
|
|
|
|
|
|
|
|
|
|
10.14
|
|
Purchase
and Sale Agreement, by and among the Company, Drinan Marketing
Limited, Andrew Hennessy and Michele Hennessy, dated as of January
23, 2014.
|
|
|
|
10-Q
|
|
|
|
5/21/2014
|
|
|
|
|
|
|
|
|
|
|
|
10.15
|
|
Loan
Agreement (for a Credit Facility), by and between the Company and
Sarasvati Investments Inc., dated as of August 1,
2014.
|
|
|
|
8-K
|
|
|
|
8/8/2014
|
|
|
|
|
|
|
|
|
|
|
|
10.16
|
|
Intercreditor
and Subordination Agreement, by and among the Company, Sarasvati
Investments Inc., and Gravitas Financial Inc., dated as of August
1, 2014.
|
|
|
|
8-K
|
|
|
|
8/8/2014
|
|
|
|
|
|
|
|
|
|
|
|
10.17
|
|
Security
Agreement from the Company to Sarasvati Investments Inc., dated as
of August 1, 2014.
|
|
|
|
8-K
|
|
|
|
8/8/2014
|
|
|
|
|
|
|
|
|
|
|
|
10.18
|
|
Secured
Note No.2 from the Company to Gravitas Financial Inc., dated as of
July 15, 2014.
|
|
|
|
10-Q
|
|
|
|
11/18/2014
|
|
|
|
|
|
|
|
|
|
|
|
10.19
|
|
Secured
Note Amendment, by and between the Company and Gravitas Financial
Inc., dated November 10, 2014.
|
|
|
|
10-Q
|
|
|
|
11/18/2014
|
|
|
|
|
|
|
|
|
|
|
|
10.20
|
|
Secured
Note No.3 from the Company to Gravitas Financial Inc., dated as of
June 29, 2015.
|
|
|
|
10-Q
|
|
|
|
11/20/2015
|
|
|
|
|
|
|
|
|
|
|
|
10.21
|
|
Form of
Unsecured Promissory Notes from the Company to the vendors of E
Vapor Labs Inc.
|
|
|
|
10-Q
|
|
|
|
11/20/2015
|
|
|
|
|
|
|
|
|
|
|
|
10.22
|
|
Term
Loan Agreement, by and between the Company and Sarasvati
Investments Inc., dated as of January 18, 2016.
|
|
|
|
8-K
|
|
|
|
1/22/2016
|
|
|
|
|
|
|
|
|
|
|
|
10.23
|
|
Loan
Termination Agreement, by and between the Company and Sarasvati
Investments Inc., dated as of January 18, 2016.
|
|
|
|
8-K
|
|
|
|
1/22/2016
|
|
|
|
|
|
|
|
|
|
|
|
10.24
|
|
Loan
Agreement, by and between the Company and Gravitas International
Corporation, dated as of March 2, 2016.
|
|
|
|
8-K
|
|
|
|
3/8/2016
|
|
|
|
|
|
|
|
|
|
|
|
10.25
|
|
General
Security Agreement, by and between the Company and Gravitas
International Corporation, dated as of March 2, 2016.
|
|
|
|
8-K
|
|
|
|
3/8/2016
|
|
|
|
|
|
|
|
|
|
|
|
10.26
|
|
Term
Loan Amendment, by and between the Company and Sarasvati
Investments Inc., dated as of July 15, 2016.
|
|
|
|
8-K
|
|
|
|
7/22/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Bridge
Loan Agreement, by and between Gravitas Financial Inc., dated as of
January 12, 2017.
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Term
Loan Amendment No.2, by and between the Company and Sarasvati
Investments Inc., dated as of February 27, 2017.
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X
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List of
Subsidiaries.
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X
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Certification
of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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X
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Certification
of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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X
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Certification
of Chief Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.*
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Certifications
of Chief Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.*
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99.1
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Audit
Committee Charter.
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10-K
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99.1
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4/8/2014
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99.2
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Code of
Ethics.
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10-K
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99.2
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4/8/2014
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101.INS
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XBRL
Instance Document
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X
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101.SCH
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XBRL
Taxonomy Extension Schema
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X
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101.CAL
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XBRL
Taxonomy Extension Calculation Linkbase
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X
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101.DEF
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XBRL
Taxonomy Definition Linkbase
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X
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101.LAB
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XBRL
Taxonomy Extension label Linkbase
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X
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101.PRE
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XBRL
Taxonomy Extension Presentation Linkbase
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X
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*
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This
certification is deemed not filed for purposes of section 18 of the
Securities Exchange Act of 1934, as amended (the “Exchange
Act”), or otherwise subject to the liability of that section,
nor shall it be deemed incorporated by reference into any filing
under the Securities Act or the Exchange Act.
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GILLA INC.
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By:
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/s/
Graham Simmonds
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Graham
Simmonds
Chief
Executive Officer and Principal Executive Officer
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By: | /s/ Ashish Kapoor |
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Ashish
Kapoor
Chief Financial Officer and
Principal
Accounting Officer
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Name
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Title
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Date
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/s/
Graham Simmonds
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Graham
Simmonds
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Chairman/
CEO
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March
31, 2017
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/s/
Gerald Goldberg
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Gerald
Goldberg
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Director
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March
31, 2017
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/s/
Henry J. Kloepper
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Henry
J. Kloepper
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Director
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March
31, 2017
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/s/
Daniel Yuranyi
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Daniel
Yuranyi
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Director/CPO
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March
31, 2017
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/s/ Dr.
Blaise A. Aguirre
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Dr.
Blaise A. Aguirre
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Director
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March
31, 2017
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/s/
Christopher Rich
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Christopher
Rich
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Director
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March
31, 2017
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/s/
Stanley D. Robinson
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Stanley
D. Robinson
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Director
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March
31, 2017
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GILLA
INC.
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Per:
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/s/
Graham
Simmonds
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Name: Graham Simmonds |
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Title: CEO |
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GRAVITAS
FINANCIAL INC.
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Per:
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/s/
David
Carbonaro
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Name:
David
Carbonaro
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Title:
Authorized Signatory
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GILLA
INC.
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By:
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/s/
Graham
Simmonds
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Name: Graham
Simmonds
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Title:
Chief
Executive Officer
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GRAVITAS
FINANCIAL INC.
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Per:
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/s/
David
Carbonaro
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Name: David
Carbonaro
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Title: Authorized
Signatory
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GILLA
INC.
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By:
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/s/
Graham
Simmonds
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Name: Graham
Simmonds
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Title:
Chief
Executive Officer
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GRAVITAS
FINANCIAL INC.
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Per:
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/s/
David
Carbonaro
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Name: David
Carbonaro
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Title: Authorized
Signatory
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GILLA
INC.
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Per:
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/s/
Ashish
Kapoor
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Name: Ashish Kapoor |
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Title: Chief Financial Officer |
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SARASVATI INVESTMENTS INC. |
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/s/ Ashok Gautam |
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Name: Ashok Gautam |
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Title: President |
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GILLA
INC.
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By:
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/s/
J. Graham Simmond
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Authorized Signing Officer |
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SARASVATI INVESTMENTS INC. |
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By:
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/s/ Ashok Gautam |
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Authorized Signing Officer |
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GILLA
INC.
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Per:
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/s/
Ashish
Kapoor
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Name: Ashish Kapoor |
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Title: Chief Financial Officer |
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SARASVATI INVESTMENTS INC. |
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/s/ Ashok Gautam |
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Name: Ashok Gautam |
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Title: President |
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Subsidiary
Name
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Jurisdictions in
which Incorporated
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Percentage of
Ownership
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Gilla
Operations, LLC
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USA
(Florida)
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100%
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E
Vapor Labs Inc.
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USA
(Florida)
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100%
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Gilla
Enterprises Inc.
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Canada
(Ontario)
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100%
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Gilla
Operations Europe s.r.o.
(1)
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Slovak
Repubic (Nove Zamky)
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100%
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Gilla
Europe Kft.
(2)
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Hungary
(Budapest)
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100%
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E-Liq
World, LLC
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USA
(California)
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100%
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Gilla
Franchises, LLC
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USA
(Florida)
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100%
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Legion
of Vape, LLC
(3)
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USA
(Florida)
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100%
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Gilla
Operations Worldwide Limited
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Ireland
(Dublin)
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100%
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Charlie’s
Club, Inc.
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USA
(Florida)
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100%
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Snoke
Distribution Canada Ltd.
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Canada
(Ontario)
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100%
|
Snoke
Distribution USA, LLC
(4)
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USA
(Florida)
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100%
|
|
Gilla
Inc.
|
|
|
|
|
Date:
March 31, 2017
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By:
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/s/
Graham Simmonds
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Name:
Graham Simmonds
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|
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Title:
Chief Executive Officer
|
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Gilla
Inc.
|
|
|
|
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Date:
March 31, 2017
|
By:
|
/s/
Ashish Kapoor
|
|
|
Name:
Ashish Kapoor
|
|
|
Title:
Chief Financial Officer
|
|
Gilla
Inc.
|
|
|
|
|
Date:
March 31, 2017
|
By:
|
/s/
Graham Simmonds
|
|
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Name:
Graham Simmonds
|
|
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Title:
Chief Executive Officer
|
|
Gilla
Inc.
|
|
|
|
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Date:
March 31, 2017
|
By:
|
/s/
Ashish Kapoor
|
|
|
Name:
Ashish Kapoor
|
|
|
Title:
Chief Financial Officer
|