Exhibit 99.2


 

 

Picture 1 

 

 

 

 

Condensed Interim Consolidated Financial Statements

For the three and six months ended

January 31, 2020 and 2019

(Expressed in Canadian dollars - Unaudited)

 


TIDAL ROYALTY CORP.

Condensed Interim Consolidated Statements of Financial Position

(Expressed in Canadian dollars - Unaudited)


 

 

January 31,

July 31,

AS AT

Notes

2019

(Unaudited)

2019

(Audited)

 

 

 

 

ASSETS

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

Cash and cash equivalents

 

$          154,627

$      2,961,514

Other receivables

 

98,649

-

Convertible debenture receivable

5

17,712,200

15,000,000

Prepaid expenses and deposits

4

30,808

129,418

 

 

17,996,284

   18,090,932

 

 

 

 

Deposits

4

330,825

328,700

Promissory note receivable

6

4,119,938

3,412,421

Right-of-use assets

3

178,912

-

Land

7

-

592,655

Investments in equity securities

8

1,778,376

1,766,953

TOTAL ASSETS

 

$    24,404,335

$    24,191,661

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

Accounts payable and accrued liabilities

9

$         348,224

$         336,540

Due to related parties

10

17,566

21,347

Lease liabilities

3

185,548

-

Loan payable

10

50,164

-

TOTAL LIABILITIES

 

601,502

357,887

 

 

 

 

EQUITY

 

 

 

Convertible preferred shares

11

2,388,941

2,388,941

Common shares

11

49,124,043

48,525,793

Reserves

11

11,958,030

11,816,876

Accumulated other comprehensive income (loss)

 

16,949

(796)

Accumulated deficit

 

(39,685,130)

(38,897,040)

TOTAL EQUITY

 

23,802,833

23,833,774

TOTAL LIABILITIES AND EQUITY

 

24,404,335

$    24,191,661

 

Nature and Continuance of Operations (Note 1)

Commitment (Note 15)

Subsequent Events (Note 16)

 

Approved on behalf of the Board of Directors:

 

 

“Stuart Wooldridge”

 

“Theo van der Linde”

Stuart Wooldridge, Director

 

Theo van der Linde, Director

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed interim consolidated financial statements


1


TIDAL ROYALTY CORP.

Condensed Interim Consolidated Statements of Comprehensive Loss

(Expressed in Canadian dollars - Unaudited)


 

Three months ended

 

Six months ended

 

January 31,

January 31,

 

January 31,

 

January 31,

 

2020

2019

 

2020

 

2019

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

Advertising and promotion

$      4,427

$   192,726

$

81,682

$

2,347,800

Consulting fees (Note 10)

70,957

229,156

 

293,032

 

471,713

Depreciation (Note 3)

67,092

-

 

134,184

 

-

General and administration

4,614

124,149

 

15,206

 

251,745

Insurance

2,044

-

 

38,275

 

-

Interest expense (Note 3)

8,682

-

 

19,647

 

-

Professional fees

152,585

524,546

 

214,918

 

707,430

Rent (Note 10)

-

47,819

 

-

 

92,573

Salaries and benefits (Note 10)

-

303,394

 

1,191

 

562,201

Share-based compensation (Notes 10 and 11)

35,508

481,521

 

141,154

 

1,147,610

Transfer agent and filing fees

49,138

19,679

 

83,431

 

66,598

Travel

2,301

62,036

 

3,626

 

118,563

 

(397,348)

(1,985,026)

 

(1,026,346)

 

(5,766,233)

Other income (expense)

 

 

 

 

 

 

   Accretion

-

84,024

 

-

 

84,024

   Dividends income

-

-

 

5,227

 

-

   Interest income

97,570

110,474

 

192,307

 

107,795

   Foreign exchange gain (loss)

(687)

246,308

 

289

 

171,086

   Loss on sale of land

-

-

 

(103,574)

 

-

   Rent income    

55,562

-

 

144,007

 

-

Net loss

$   (244,903)

$(1,544,220)

(788,090)

$

(5,403,328)

 

 

 

 

 

 

 

Other comprehensive loss

 

 

 

 

 

 

   Foreign subsidiary currency translation gain (loss)

11,783

(3,384)

 

17,745

 

(3,384)

Net loss and comprehensive loss for the period

(233,120)

(1,557,604)

 

(770,345)

 

(5,406,712)

 

 

 

 

 

 

 

Loss per share, basic and diluted for the period

$       ( 0.00)

$     (0.01)

$

(0.00)

$

(0.02)

 

 

 

 

 

 

 

Weighted average number of common shares outstanding

 

301,935,705

 

260,670,106

 

 

300,034,401

 

 

252,837,992


The accompanying notes are an integral part of these condensed interim consolidated financial statements

 

2


TIDAL ROYALTY CORP.

D R A F T

Condensed Interim Consolidated Statements of Changes in Equity

(Expressed in Canadian dollars –Unaudited)


 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of convertible preferred shares

#

Convertible preferred shares

$

Convertible preferred shares issuable

$

 

 

 

 

Number of common shares

#

Common shares

$

Share-based payment reserve

$

Warrant reserve

$

Total reserves

$

Accumulated deficit

$

Accumulated other comprehensive income (loss)

$

Total shareholders' equity

 

$

Balance, July 31, 2018

40,000,000

1,754,721

2,000,000

227,787,662

45,432,573

3,277,940

2,046,076

5,324,016

(20,285,319)

-

34,225,991

 

 

 

 

 

 

 

 

 

 

 

 

 Conversion of preferred shares

40,000,000

2,000,000

(2,000,000)

-

-

-

-

-

-

-

-

 Conversion of special warrants

-

-

-

12,690,000

634,500

-

(634,500)

(634,.500)

-

-

-

 Conversion of 4,000,000 special finder warrants

-

-

-

4,000,000

141,440

-

(141,440)

(141,440)

-

-

-

 Conversion of 1,220,000 special finder warrants

-

-

-

1,220,000

61,000

-

(61,000)

(61,000)

-

-

-

 Proceeds from warrants exercised

-

-

-

15,820,000

791,000

-

-

-

-

-

791,000

 Share-based compensation

-

-

-

-

-

1,147,610

-

1,147,610

-

-

1,147,610

 Accumulated other comprehensive loss

-

-

-

-

-

-

-

-

-

(3,384)

(3,384)

 Net loss for the period

-

-

-

-

-

-

-

-

(5,403,328)

-

(5,403,328)

Balance, January 31, 2019

80,000,000

3,754,721

-

261,517,662

47,060,513

4,425,550

1,209,136

5,634,686

(25,688,647)

(3,384)

30,757,889

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, July 31, 2019

50,900,000

2,388,941

-

292,607,662

48,525,793

10,607,740

1,209,136

11,816,876

(38,897,040)

(796)

23,833,774

 

 

 

 

 

 

 

 

 

 

 

 

 Proceeds from warrants exercised

-

-

-

11,965,000

598,250

-

-

-

-

-

598,250

 Share-based compensation

-

-

-

-

-

141,154

-

141,154

-

-

141,154

 Foreign subsidiary currency translation gain

-

-

-

-

-

-

-

-

-

17,745

17,745

 Net loss for the period

-

-

-

-

-

-

-

-

(788,090)

-

(788,090)

Balance, January 31, 2020

50,900,000

2,388,941

-

304,572,662

49,124,043

10,748,894

1,209,136

11,958,030

(39,685,130)

16,949

23,802,833


The accompanying notes are an integral part of these condensed interim consolidated financial statements

 

3


TIDAL ROYALTY CORP.

Condensed Interim Consolidated Statements of Cash Flows

(Expressed in Canadian dollars - Unaudited)


 

 

Six months ended

 

 

January 31,

2020

 

January 31,

2019

Cash provided by (used in):

 

 

 

 

OPERATING ACTIVITIES

 

 

 

 

Net loss for the period

$

(788,090)

$

(5,403,328)

 

 

 

 

 

Items not affecting operating cash:

 

 

 

 

  Accretion

 

-

 

(84,024)

  Depreciation

 

134,184

 

-

  Interest income

 

(192,039)

 

(107,795)

  Interest expense

 

19,811

 

-

  Loss on sale of land

 

103,574

 

-

  Foreign exchange gain

 

(22,200)

 

(8,570)

  Share-based payments

 

141,154

 

1,147,610

 

 

(603,606)

 

(4,456,107)

Net changes in non-cash working capital:

 

 

 

 

 Other receivables

 

(98,649)

 

(72,028)

 Prepaid expenses and deposits

 

98,610

 

294,926

 Accounts payables and accrued liabilities

 

7,903

 

(56,070)

 

 

(595,742)

 

(4,289,279)

 

FINANCING ACTIVITIES

 

 

 

 

Lease payments

 

(147,195)

 

-

Loan received

 

50,000

 

-

Proceeds from exercise of common share purchase warrants

 

598,250

 

791,000

 

 

501,055

 

791,000

 

 

 

 

 

INVESTING ACTIVITIES

 

 

 

 

Promissory note receivable

 

-

 

(2,816,418)

Convertible debenture receivable

 

(2,712,200)

 

-

Land

 

-

 

(592,475)

Investments

 

-

 

(9,572,000)

 

 

(2,712,200)

 

(12,980,893)

 

 

 

 

 

Decrease in cash and cash equivalents

 

(2,806,887)

 

(16,479,172)

Cash and cash equivalents, beginning of the period

 

2,961,514

 

33,904,759

Cash and cash equivalents, end of the period

$

154,627

$

17,425,587

 

 

 

 

 

The components of cash and cash equivalents are:

 

 

 

 

     Cash at bank

$

154,627

$

17,425,587

     Term deposit

 

-

 

-

 

$

154,627

$

17,425,587

 

Non-cash Investing and Financing Activities

 

 

 

 

Conversion of special warrants

$

-

$

836,940

Property for promissory note

$

490,210

$

-


The accompanying notes are an integral part of these condensed interim consolidated financial statements

 

4


TIDAL ROYALTY CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended January 31, 2020 and 2019

(Expressed in Canadian dollars -Unaudited)


1.Nature and Continuance of Operations  

Tidal Royalty Corp. ("the Company") was incorporated under the laws of British Columbia The Company’s principal business is to invest in conventional equity, debt and other forms of investments in private and public companies in Canada and the United States.

 

The head office, address and records office of the Company are located at Suite 810 - 789 West Pender Street, Vancouver, British Columbia, V6C 1H2.   The principal place of business of the Company is 161 Bay St., Suite 4010, Toronto ON, M5J 2S1.

On May 13, 2019, the Company entered into a business combination agreement (the “Definitive Agreement”) with MichiCann Medical Inc. (d/b/a Red White & Bloom) (“MichiCann”), with respect to the acquisition of all of the issued and outstanding shares of MichiCann (“Proposed Transaction”).

 

These condensed interim consolidated financial statements have been prepared on the basis of accounting principles applicable to a going concern, which assumes the Company will be able to continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business.

 

As at January 31, 2020, the Company has an accumulated deficit of $39,685,130, no source of operating cash flow and no assurance that sufficient funding will be available. Management intends to raise funds through a combination of equity and/or debt financing, along with a realization of sale of investments. The success of these plans will also depend upon the ability of the Company to generate cash flows from its portfolio investments.

 

These condensed interim consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary, should the Company be unable to continue as a going concern. Such amounts could be material. However, management has assessed and concluded that the Company has the ability to continue as a going concern for at least the next twelve months.

2.Basis of Preparation and Statement of Compliance 

Statement of Compliance

 

These condensed interim consolidated financial statements have been prepared in accordance with IAS 34 – Interim Financial Reporting under International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).  The condensed interim consolidated financial statements do not include all the information required for annual financial statements and should be read in conjunction with the Company's audited financial statements for the year ended July 31, 2019. These condensed interim consolidated financial statements have been prepared following the same accounting policies as the Company’s audited financial statements for the year ended July 31, 2019, except for the adoption of IFRS 16 Leases as per Note 3(a) below.

 

The condensed interim consolidated financial statements were approved and authorized for issuance by the Board of Directors on March 31, 2020.

 

These condensed interim consolidated financial statements have been prepared on the accrual basis and are based on historical costs, modified where applicable. The condensed interim consolidated financial statements are presented in Canadian dollars unless otherwise noted.

 

Basis of Presentation

 

The consolidated financial statements have been prepared on a historical cost basis except for financial instruments measured at fair value.


5


TIDAL ROYALTY CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended January 31, 2020 and 2019

(Expressed in Canadian dollars -Unaudited)


2.Basis of Preparation and Statement of Compliance (continued) 

Functional and Presentation Currency

 

These financial statements are presented in Canadian dollars. The functional currency of each entity is determined using the currency of the primary economic environment in which the entity operates. The Company’s functional currency, as determined by management, is the Canadian dollar. The Company’s US subsidiaries functional currencies, as determined by management, are the United States dollar.

Basis of Consolidation 

As at January 31, 2020, the Company’s structure includes Tidal Royalty Corp., the parent company incorporated pursuant to the laws of the Business Corporations Act (British Columbia), and the following subsidiaries:

 

Entity

Domicile of Incorporation

% of interest at January 31, 2020

Royalty USA Corp.

Delaware, USA

100%

RLTY Beverage 1 LLC

Delaware, USA

100%

RLTY Development MA 1 LLC

Delaware, USA

100%

RLTY Development 1 NV 1 LLC

Delaware, USA

100%

RLTY Development Orange LLC

Massachusetts, USA

100%

RLTY Development Springfield LLC

Massachusetts, USA

100%

RLTY Service LLC

Delaware, USA

100%

RLTY Development FLA 1 LLC

Delaware, USA

100%

RLTY Development FLA 2 LLC

Delaware, USA

100%

RLTY Development CA 1 LLC

Delaware, USA

100%

TDMA Orange LLC.

Massachusetts, USA

100%

 

 

 

These condensed interim consolidated financial statements include the accounts of the Company and its controlled entities. Control is achieved when the Company has the power to govern the financial operating policies of an entity so as to obtain benefits from its activities. Subsidiaries are fully consolidated from the date on which control is transferred to the Company until the date on which control ceases. All inter-company transactions, balances, income and expenses are eliminated in full upon consolidation.

Use of Estimates and Judgments 

 

The preparation of financial statements in accordance with IFRS requires management to make estimates and assumptions about the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities, and the results of operations. Significant assumptions about the future and other sources of estimation uncertainty that management has made at the statement of financial position date, that could result in a material adjustment to the carrying amounts of assets and liabilities, in the event that actual results differ from assumptions made, relate to, but are not limited to, the following:

 

Significant accounting estimates:

 

i)Investments in equity securities, convertible and promissory notes receivable 

 

Management uses valuation techniques in measuring the fair value of investments in equity securities, convertible and promissory notes receivable.

 

In applying the valuation techniques management makes maximum use of market inputs wherever possible, and uses estimates and assumptions that are, as far as possible, consistent with observable data that market participants would use in pricing the instrument.


6


TIDAL ROYALTY CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended January 31, 2020 and 2019

(Expressed in Canadian dollars -Unaudited)


2.Basis of Preparation and Statement of Compliance (continued) 

Use of Estimates and Judgments (continued)

 

Where applicable data is not observable, company-specific information is considered when determining whether the fair value of an investment in equity securities or convertible and promissory notes receivable should be adjusted upward or downward at the end of each reporting period. In addition to company-specific information, the Company will take into account trends in general market conditions and the share performance of comparable publicly-traded companies when valuing investment in equity securities, convertible and promissory notes receivable.

 

ii) Share-based payment transactions

Management uses the Black-Scholes pricing model to determine the fair value of stock options and standalone share purchase warrants issued.  This model requires assumptions of the expected future price volatility of the Company’s common shares, expected life of options and warrants, future risk-free interest rates and the dividend yield of the Company’s common shares.

 

Significant accounting judgements:

 

i)Going concern 

The assessment of the Company’s ability to continue as a going concern involves management judgement about the Company’s resources and future prospects.

 

ii) Income taxes

Management exercises judgment to determine the extent to which deferred tax assets are recoverable, and can therefore be recognized in the statements of financial position and comprehensive income or loss.

 

Estimates are reviewed on an ongoing basis and are based on historical experience and other facts and circumstances. Revisions to estimates and the resulting effects on the carrying amounts of the Company’s assets and liabilities are accounted for prospectively.

 

3.      Significant Accounting Policies

In preparing these condensed interim consolidated financial statements, the significant accounting policies and the significant judgments made by management in applying the Company’s significant accounting policies and key sources of estimation uncertainty were the same as those that applied to the Company’s audited consolidated financial statements for the year ended July 31, 2019, with exception to the new accounting policies adopted by the Company discussed below.

 

(a)Adoption of New or Amended Accounting Standards  

 

IFRS 16 Leases - IFRS 16 supersedes IAS 17 Leases and requires how leases will be recognized, measured, presented and disclosed. The standard provides a single lessee accounting model, requiring lessees to recognize assets and liabilities for all leases unless the lease term is twelve months or less or the underlying asset has a low value. For leases where the Company is the lessee, it recognizes a right-of-use asset and a lease liability for its office premise leases previously classified as operating leases. The Company chose to adopt the modified retrospective approach on transition to IFRS 16 on August 1, 2019, and has elected to set the right-of-use assets equal to the lease liabilities. As such the cumulative effect of initial application recognized in retained earnings at August 1, 2019 is $nil. Accordingly, the comparative information presented for the prior period has not been restated and is presented as previously reported under IAS 17 and related interpretations.


7


TIDAL ROYALTY CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended January 31, 2020 and 2019

(Expressed in Canadian dollars -Unaudited)


3.      Significant Accounting Policies (Continued)

(a)Adoption of New or Amended Accounting Standards (continued) 

 

On adoption of IFRS 16, the Company used the following additional practical expedients:

-Applied a single discount rate to a portfolio of leases with similar characteristics; 

-Applied the exemption not to recognize right-of-use assets and lease liabilities for short-term leases with terms of 12 months or less and leases of low-value assets. The Company recognizes the lease payments associated with these leases as an expense on a straight-line or other systematic basis over the lease term; 

-Excluded initial direct costs from the measurement of the right-of-use asset at the date of initial application; and 

-Used hindsight when determining the lease term if the contract contains options to extend or terminate the lease. 

 

Lease liabilities

On adoption of IFRS 16, the Company recognized lease liabilities on office premise which had previously been classified as operating lease under IAS 17. The lease liabilities were measured at the present value of the remaining lease payments, discounted using the Company’s incremental borrowing rates applies to the lease liabilities on August 1, 2019. The incremental borrowing rate applied to the lease liabilities on August 1, 2019 was 15% per annum. The details of the lease liabilities recognized as August 1, 2019 are as follow.

 

 

 

2019

 

 

$

Operating lease commitment disclosed as at July 31, 2019

 

343,239

Discount of future commitments as at August 1, 2019

 

(30,143)

Lease liabilities recognized as at August 1, 2019

 

313,096

 

 

 

Current lease liabilities

 

264,966

Non- current lease liabilities

 

48,130

Total lease liabilities

 

313,096

 

 

 

 

 

The following is the continuity of lease liabilities as at and for the six months ended January 31, 2020:

 

 

 

2020

 

 

$

Balance, August 1, 2019

 

313,096

Lease payments

 

(147,195)

Interest expense on lease liabilities

 

19,647

 

 

 

Balance, January 31, 2020

 

185,548

 

 

 

Current lease liabilities

 

185,548

Non- current lease liabilities

 

-

Total lease liabilities

 

185,548

 

 

 

 

As at January 31, 2020, minimum lease payments for the lease liabilities are as follows:

Year ending

 

$

July 31, 2020

 

147,102

July 31, 2021

 

49,034

 

 

 

Total undiscounted lease liabilities at January 31, 2020

 

196,136

Less: Interest on lease liabilities

 

(10,588)

Total present value of minimum lease payments at January 31, 2020

 

185,548

 

 

 


8


TIDAL ROYALTY CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended January 31, 2020 and 2019

(Expressed in Canadian dollars -Unaudited)


3.      Significant Accounting Policies (Continued)

(a)Adoption of New or Amended Accounting Standards (continued) 

 

Right-of-use assets

On adoption of IFRS 16, the Company recognized right-of-use assets of $313,096 related to its office premise lease. Right-of-use assets are measured at the initial amount of the lease liabilities, lease payments made at or before the commencement date less any lease incentives received, initial direct costs if any, and decommissioning costs to restore the site to the condition required by the terms and conditions of the lease. Subsequent to initial measurement, the Company applies the cost model to the right of-use assets and measures the asset at cost less any accumulated depreciation, accumulated impairment losses in accordance with IAS 36, and any remeasurements of the lease liabilities. Assets are depreciated from the commencement date on a straight-line basis over the earlier of the end of the assets’ useful lives or the end of the lease terms.

 

The following is the continuity of the cost and accumulated depreciation of right-of-use assets (office premise and equipment lease) as at and for the six months ended January 31, 2020:

 

 

 

January 31,

2020

Cost

 

$

Balance, August 1, 2019

 

313,096

Addition

 

-

Balance, January 31, 2020

 

313,096

 

 

 

Accumulated depreciation

 

 

Balance, August 1, 2019

 

-

Depreciation

 

134,184

 

 

 

Balance, January 31, 2020

 

134,184

 

 

 

Carrying amount, January 31, 2020

 

178,912

 

 

 

 

During the three and six months ended January 31, 2020, the Company recognized depreciation expenses of $67,092 and  $134,184 and interest expense of $8,589 and $19,647, respectively.

 

(b)New Accounting Standards Issued but Not Yet Effective  

 

A number of new standards and amendments to existing standards have been issued by the IASB that are mandatory for accounting periods beginning on or after August 1, 2019, or later periods. The Company has not early adopted these new standards in preparing these financial statements. There new standards are either not applicable or are not expected to have a significant impact on the Company’s financial statements

 

4.Prepaid Expenses and Deposits 

 

 

January 31, 2020

$

 

July 31, 2019

$

Insurance

152

 

1,432

Advertising and promotion

9,188

 

71,736

Consulting

15

 

24,797

Deposits

21,453

 

31,453

 

30,808

 

129,418

 

As at January 31, 2020, the Company had advanced a refundable deposit of $330,825 (US $250,000) to an arm’s length vendor (July 31, 2019 - $328,700).


9


TIDAL ROYALTY CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended January 31, 2020 and 2019

(Expressed in Canadian dollars -Unaudited)


5.      Convertible Debenture Receivable

 

MichiCann Medical Inc. 

 

On February 25, 2019, pursuant to the terms of the Proposed Transaction, the Company advanced $15,000,000 to Michicann pursuant to a senior secured convertible debenture (the “February MichiCann Debenture”). On September 11, 2019, the Company advanced an additional $2,712,200 (US $2,000,000) of senior secured convertible debenture (the “September MichiCann Debenture”) to fund operations.

The February and September MichiCann Debenture (collectively, the “MichiCann Debentures”) are non-interest bearing, other than 12% in the event of default by MichiCann and matured on September 30, 2019 (the “Maturity Date”). The MichiCann Debentures are secured by way of first ranking security against the personal property of MichiCann. If the Proposed Transaction is not completed by the Maturity Date or MichiCann’s fails to comply with the terms of the MichiCann Debentures and MichiCann pursues an alternative go public transaction or a change of control transaction (an “Alternate Liquidity Transaction”), the Company may elect to convert, in whole or in part, the outstanding amount of the MichiCann Debentures into common shares of MichiCann at a price per MichiCann share that is the lesser if i) $2.50 per MichiCann Share and (ii) a 20% discount to the issue or effective price per Michicann Share under the Alternate Liquidity Transaction. As the Proposed Transaction was not completed by October 25, 2019 (the “Transaction Completion Date), MichiCann may elect to prepay the outstanding amount under the MichiCann Debenture, with a prepayment penalty of 10%.

 

The Company is in negotiation with Michicann to extend the Maturity Date of MichiCann Debentures to March 31, 2020 and the Transaction completion date to May 25, 2020. Therefore, MichiCann may elect to prepay the outstanding amount under the MichiCann Debenture, with a prepayment penalty of 10%.

 

The initial fair value of the February MichiCann Debenture was determined to be $15,000,000 using the Black- Scholes option pricing and discounted cash flow models with following assumptions: estimated share price of $2.50; conversion price of $2.50; risk-free interest rate of 1.73%; dividend yield of 0%; stock price volatility of 125%, an expected life of 0.50 years, and adjusted for a credit spread of 12.00% and a probability factor of  16% for the Alternate Liquidity Transaction.

 

As of January 31, 2020, the February MichiCann Debenture had an estimated fair value of $15,000,000 using the Black- Scholes option pricing and discounted cash flow models with following assumptions: estimated share price of $5.00; conversion price of $2.50; risk-free interest rate of 1.64%; dividend yield of 0%; stock price volatility of 76.22% an expected life of 0.16 years, and adjusted for a credit spread of 12.00% and a probability factor of 2% for the Alternate Liquidity Transaction. If the estimated volatility increases or decrease by 10%, the estimated fair value would increase or decrease by a nominal amount.

The initial fair value of the September 11, 2019 MichiCann Debenture was determined to be $2,636,200 (US $ 2,000,000) using the Black- Scholes option pricing and discounted cash flow models with following assumptions: estimated share price of $2.50; conversion price of $2.50; risk-free interest rate of 1.66%; dividend yield of 0%; stock price volatility of 77.72% ,an expected life of 0.55  years, and adjusted for a credit spread of 12.00% and a probability factor of  24 % for the Alternate Liquidity Transaction.

 

As of January 31, 2020, the September MichiCann Debenture had an estimated fair value of $2,722,000 (US $ 2,000,000) using the Black- Scholes option pricing and discounted cash flow models with following assumptions: estimated share price of $5.00; conversion price of $2.50; risk-free interest rate of 1.64%; dividend yield of 0%; stock price volatility of 76.22% an expected life of 0.16 years, and adjusted for a credit spread of 12.00% and a probability factor of 2% for the Alternate Liquidity Transaction. If the estimated volatility increase or decrease by 10%, the estimated fair value would increase or decrease by a nominal amount.


10


TIDAL ROYALTY CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended January 31, 2020 and 2019

(Expressed in Canadian dollars -Unaudited)


6.      Promissory Note Receivable

On August 31, 2018, the Company entered into a definitive agreement, as amended by the Supplemental Agreement dated October 15, 2018 and the Second Supplemental Agreement dated December 26, 2018 (collectively, the “Framework Agreement”), with VLF Holdings LLC, an Oregon limited liability company d/b/a Diem Cannabis (“Diem”) to provide TDMA LLC, a Massachusetts subsidiary of Diem (“TDMA”) with up to US$12.5 million (the “Funding”) over the next three years to develop and operate a large-scale cultivation and processing facility (the “Site”) and up to four dispensaries (the “Dispensaries”).

 

The Funding will be in the form of (i) promissory notes advanced at various stages of development of operations in the state; and (ii) the purchase price for real property acquisitions with respect to Sites and Dispensaries. Newly-formed subsidiaries of RLTY Development MA 1 LLC will acquire title to the real property purchased in respect of the Site and Dispensary acquisitions and will enter into leases (“Leases”) with TDMA (or its nominee) with respect to their operation. The Leases will be “triple net” and will include payments of (i) annual base rent; (ii) percentage rent calculated as 15% of net sales; and (iii) additional rent relating to the costs of property insurance, real estate taxes and any maintenance and repair.

 

The Funding will be secured by (i) guarantees of the payment and performance of all obligations of TDMA by Diem and certain of its subsidiaries (the “Entity Guarantors”) and key individuals (the “Individual Guarantors”); (ii) liens over all of the assets of the Entity Guarantors; and (iii) pledges by the Entity Guarantors and Individual Guarantors of all equity interests in Diem and/or its subsidiaries. Once the Site and Dispensaries are operational and the Leases have been entered into, the Framework Agreement Promissory Note and all subsequently issued promissory notes (including interest accrued thereon) will be deemed satisfied in full.

 

During the year ended July 31, 2019, and pursuant to the Funding, the Company entered into various promissory note agreements (the “Framework Agreement Promissory Note”) with TDMA for $3,216,274 (US $2,446,208) as a working capital advance for licenses, Site build out, identification and negotiation of the purchase agreements for the Site and Dispensaries. The Framework Agreement Promissory Note bears interest of 10% per annum and is due on February 28, 2021, unless earlier satisfied.

 

On August 23, 2019, the Company entered into a Termination of Framework Agreement (the “Termination”) with Diem. Pursuant to the termination, the Company conveyed titles of certain properties to TDMA (See Note 7) in exchange for two promissory notes (the “Property Promissory Note”) for $490,210 (US $372,500). The Framework Agreement Promissory Note bears interest of 10% per annum and is due on August 31, 2021.

 

On September 26, 2019, the Company entered into a definitive Membership Interest Purchase Agreement (the “MIPA”) with TDMA to acquire all of the issued and outstanding equity in TDMA Orange, LLC, a Diem Cannabis subsidiary. Pursuant to the terms of the MIPA, the Company obtains 100% interest in two cultivation licenses and a processing license in the county of Orange, in the Commonwealth of the State of Massachusetts.

As consideration, the Company will forgive the Framework Agreement Promissory Note and Property Promissory Note including accrued interest, cross collateralization and general security arrangement. The Company expects the MIPA to close by April 30, 2020.


11


TIDAL ROYALTY CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended January 31, 2020 and 2019

(Expressed in Canadian dollars -Unaudited)


6.      Promissory Note Receivable (Continued)

Continuity for the periods presented is as follows:

 

 

Total

$

Balance, July 31, 2018

-

Funds advanced

3,216,274

Accrued interest

197,429

Foreign exchange

(1,282)

Balance, July 31, 2019

3,412,421

Additions (Note 7)

490,210

Accrued interest

192,039

Foreign exchange

25,268

Balance, October 31, 2019

4,119,938

7.     Land

During the year ended July 31, 2019, through the Company’s wholly owned subsidiary and pursuant to the definitive agreement with Diem, RLTY Development Springfield LLC (the “Springfield Property”) and RLTY Development Orange LLC (the “Orange Property”), the Company acquired two Sites for $592,655 (US $450,757). On October 8, 2019, the Company sold the Springfield Property and Orange Property land to TDMA in exchange for $490,210 (US $372,500) of the Property Promissory Notes that bears 10% interest and matures on August 31, 2021 (See note 6). The Property Promissory Notes are secured against the Springfield Property and Orange Property. The Company recognized a loss on sale of land of $103,574(US $78,257).

8.     Investments in Equity Securities

Continuity for the six months ended January 31, 2020 is as follows: 

 

Fair value hierarchy level

Level 3

Level 2

 

Investments Measured at FVTPL

Harborside Inc. Warrants

$

Lighthouse Strategies, LLC

 $

Total

$

 

 

 

 

Balance, July 31, 2019

82,061

1,684,892

1,766,953

Foreign exchange

531

10,892

11,423

Balance, January 31, 2020

82,592

1,695,784

1,778,376

 

The Company had no investments in equity securities during the six-month period ended January 31, 2019.

Harborside Inc. Warrants

 

On November 11, 2018, the Company received 263,523 share purchase warrants. The initial fair value of the warrants was $536,697 computed using the Black – Scholes option pricing model based on the following assumptions: estimated share price of $5.95; exercise price of $8.60; risk-free interest rate of 2.20%; dividend yield of 0%; stock price volatility of 81% and an expected life of 2 years.

 

As at July 31, 2019, the warrants remain unexercised with a fair value of $82,061 computed  using the Black – Scholes option pricing model based on the following assumptions: estimated share price of $3.10; exercise price of $8.60; risk-free interest rate of 1.61%; dividend yield of 0%; stock price volatility of 81% and an expected life of 1.3 years. If the estimated volatility increase or decrease by 10%, the estimated fair value would increase or decrease by a nominal amount.


12


TIDAL ROYALTY CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended January 31, 2020 and 2019

(Expressed in Canadian dollars -Unaudited)


8.     Investments in Equity Securities (Continued)

 

As at January 31, 2020, the warrants remain unexercised with a fair value of $82,592 computed  using the Black – Scholes option pricing model based on the following assumptions: estimated share price of $3.10; exercise price of $8.60; risk-free interest rate of 1.61%; dividend yield of 0%; stock price volatility of 81% and an expected life of 1.3 years. If the estimated volatility increase or decrease by 10%, the estimated fair value would increase or decrease by a nominal amount.

 

Lighthouse Strategies, LLC 

On January 9, 2019 the Company closed its strategic investment of $6,574,000 (US $5,000,000) in Lighthouse Strategies LLC (“Lighthouse”) Series A membership units concurrently with a financing arrangement for certain Lighthouse beverage lines. Pursuant to the Financing Fee Agreement, the Company is entitled to 1% of net sales of certain of Lighthouse’s beverage lines, including Cannabiniers, Two Roots Brewing Co and Creative Waters Beverage Company (“Financing Fees”).  Financing Fees will accrue until December 1, 2019, at which point the Company may choose to receive such fees in cash or Series A membership units of Lighthouse.  Thereafter, financing fees are payable quarterly in cash.  The terms of the Financing Fee Agreement are between four and six years, depending on certain milestones and includes acceleration provisions in certain events (including a substantial asset divestiture, change of control, or initial public offering). Management estimated that the 1% royalty of net sales had a fair value of $Nil and the entire transaction price was allocated to the membership units.

As at January 31, 2020, the investment had an estimated fair value of $1,695,784 (July 31, 2019 - $1,684,892) based on Lighthouse’s most recent financing preceding January 31, 2020.

 

9.      Accounts Payable and Accrued Liabilities

 

 

January 31, 2020

$

 

July 31, 2019

$

Accounts payables

328,224

 

304,540

Accrued liabilities

20,000

 

32,000

 

348,224

 

336,540

 

10.    Related Party Transactions and Balances

The Company has identified its directors and certain senior officers as its key management personnel.   

 

Key management compensation for the three and six months ended January 31, 2020 and 2019 is as follows:

 

 

Three months ended January 31

Six months ended

January 31

 

2020

$

2019

$

2020

$

2019

$

   Short-term employee benefits:

 

 

 

 

       Consulting and accounting fees

61,790

33,000

234,740

87,250

       Salary and benefits

-

148,750

-

297,500

 

61,790

181,750

234,740

384,750

   Share-based compensation

8,185

184,654

20,335

519,513

Total

69,975

366,404

255,075

904,263

 

During the three and six months ended January 31, 2020 the Company paid $Nil in rent (January 31, 2019 - $1,500 and $3,000, respectively) to related parties comprised of directors, officers and companies with common directors.  

 

As at January 31, 2020, $17,566 was due to the Companies controlled by directors and officers (July 31, 2019 - $21,347). The amounts are unsecured, non-interest bearing and due on demand.


13


TIDAL ROYALTY CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended January 31, 2020 and 2019

(Expressed in Canadian dollars -Unaudited)


10.    Related Party Transactions and Balances (Continued)

As at January 31, 2020, loan and interest payable to a Company controlled by an officer was $50,164, with a total interest accrual of $164 (July 31, 2019 - $Nil). The loan is due on demand and bears interest at 8% per annum.

 

11.Share Capital 

 

Authorized

Unlimited number of common shares without par value, and unlimited number of Series 1 Convertible Preferred shares without par value, participating, each share convertible into one common share by the holder, and non-voting.

 

Issued and Outstanding

 

As at January 31, 2020, there were 50,900,000 (July 31, 2019 – 50,900,000) Series 1 Convertible Preferred Shares and 304,572,662 (July 31, 2019 -292,607,662) common shares issued and outstanding.

Convertible Preferred Shares

During the six months ended January 31, 2020, there were no convertible preferred share transactions.

Common Shares

During the six months ended January 31, 2020, the Company issued 11,965,000 common shares pursuant to the exercise of 11,965,000 warrants for gross proceeds of $598,250.

Stock Options 

Under the Company’s stock option plan (the “Plan”) the Company has adopted a 20% rolling stock option plan (“Plan”) to replace its previous 10% rolling plan. The Plan provides that the Board may from time to time, in its discretion, grant to directors, officers, employees, technical consultants and other participants to the Company, non-transferrable stock options to purchase common shares, provided that the number of common shares reserved for issuance will not exceed 20% of the Company’s issued and outstanding common shares. Such options will be exercisable for a period of up to ten years from the date of grant. In addition, the number of common shares which may be issuable under the Plan within a one year period: (i) to any one individual shall not exceed 5% of the issued and outstanding common shares; and (ii) to a consultant or an employee performing investor relations activities, shall not exceed 2% of the issued and outstanding common shares. The underlying purpose of the Plan is to attract and motivate the directors, officers, employees and consultants of the Company and to advance the interests of the Company by affording such persons with the opportunity to acquire an equity interest in the Company through rights granted under the Plan.

 

Continuity of stock options outstanding for the periods presented is as follows:

 

Options

outstanding

Weighted
average
exercise price
$

Balance, July 31, 2019

28,785,766

0.33

Forfeited

-

-

Issued

-

-

Balance, January 31, 2020

28,785,766

0.33


14


TIDAL ROYALTY CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended January 31, 2020 and 2019

(Expressed in Canadian dollars -Unaudited)


11.Share Capital (Continued) 

 

As at January 31, 2020, the outstanding and exercisable stock options are as follows:

 

Expiry Date

Exercise price

$

Number of options

#

Exercisable options

#

September 24, 2020

US$0.24

100,000

50,000

April 26, 2024

US$0.26

20,477,039

20,477,039

June 22, 2023

     0.33

7,488,727

6,694,977

December 12, 2023

US$0.12

720,000

270,000

 

0.33

28,785,766

27,492,016

 

During the three and six months ended January 31, 2020, the Company recognized $35,508 and $141,154 (January 31, 2019- $481,521and $1,147,610) in share-based compensation expense, respectively..

Common Share Purchase Warrants

The continuity of the Company's common share purchase warrants for the periods presented is as follows:

 

 

Number of share purchase warrants

#

Weighted average exercise price

$

Outstanding, July 31, 2019

125,771,365

0.06

Exercised

(11,965,000)

(0.05)

Outstanding, January 31, 2020

113,806,365

0.05

 

As of January 31, 2020, the Company had share purchase warrants outstanding and exercisable to acquire common shares of the Company as follows:

 

Expiry Date

Exercise price

$

Number of warrants

#

February 8, 2020

     0.05

54,307,000

March 1, 2020

0.05

40,512,000

April 30, 2020

0.05

13,805,000

June 11, 2020

0.33

5,182,365

 

 

113,806,365


15


TIDAL ROYALTY CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended January 31, 2020 and 2019

(Expressed in Canadian dollars -Unaudited)


12.Financial Instruments and Risks 

 

(a)Fair Values and Classification 

 

The Company’s financial instruments consist of cash and cash equivalent, convertible debenture receivable, promissory note receivable, investments in equity securities, accounts payable, due to related parties and loan payable. Financial instruments are classified into one of the following categories: FVTPL, FVTOC, or amortized cost. The carrying values of the Company’s financial instruments are classified into the following categories:

 

Financial Instrument

Category

January 31, 2020

July 31, 2019

Cash and cash equivalents

FVTPL

$

154,627

$

2,961,514

Convertible debenture receivable

FVTPL

 

17,712,200

 

15,000,000

Promissory note receivable

FVTPL

 

4,119,938

 

3,412,421

Investments in equity securities

FVTPL

 

1,778,376

 

1,766,953

Loan payable

Amortized cost

 

50,164

 

-

Accounts payable

Amortized cost

 

328,224

 

304,540

Due to related parties

Amortized cost

 

17,566

 

21,347

 

The Company applied the following fair value hierarchy which prioritizes the inputs used in the valuation methodologies in measuring fair value into three levels. The three levels are defined as follows:

 

a)Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;  

b)Level 2 – Inputs other than quoted prices that are observable for assets or liabilities, either directly or indirectly; and 

c)Level 3 – Input for assets or liabilities that are not based on observable market data. 

 

Assets and liabilities are classified in entirety based on the lowest level of input that is significant to the fair measurement. The Company’s financial assets measured on a recurring basis at fair value are as follows:

 

           January 31, 2020 

 

Level 1

Level 2

Level 3

Total

Cash and cash equivalents

$ 154,627

$           -

$           -

$      154,627

Convertible debenture receivable

-

-

17,712,200

17,712,200

Promissory note receivable

-

4,119,938

-

4,119,938

Investments in membership units

-

1,695,784

-

1,695,784

Investments in warrants

-

-

82,592

82,592

Total

154,627

5,815,722

17,794,792

23,765,141


16


TIDAL ROYALTY CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended January 31, 2020 and 2019

(Expressed in Canadian dollars -Unaudited)


12.Financial Instruments and Risks (Continued) 

(a)Fair Values and Classification (continued) 

 

Changes in level 3 items for the six months ended January 31, 2020 are as follows:

 

 

Convertible debenture receivable

Investments in warrants

 

 

 

Balance, July 31, 2019

$  15,000,000

$     82,061

Additions

2,712,200

-

Foreign exchange

-

531

Balance, January 31, 2020

17,712,200

82,592

 

During the six months ended January 31, 2020, there were no level 3 items transactions.

 

The fair values of accounts payables, due to related parties and notes payable approximate their carrying value due to their short-term maturity.

 

(b) Credit Risk 

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Company’s maximum credit risk is equal to the carrying value of cash and cash equivalents, deposits, convertible debenture receivable and promissory note receivable.

The Company deposits the majority of its cash with high credit quality financial institutions in Canada. Therefore, management considers its exposure to credit risk arising from its cash to be minimal.

 

(c)Foreign Exchange Rate and Interest Rate Risk 

Foreign exchange rate

Foreign currency risk is limited to the portion of the Company’s business transactions denominated in currencies other than the Canadian dollar. The Company has not entered into any foreign currency contracts to mitigate this risk, but manages the risk by minimizing the value of financial instruments denominated in foreign currency. The Company is exposed to foreign currency risk to the extent that the following monetary assets and liabilities are denominated in US dollars:

 

 

January 31, 2020

July 31, 2019

 

 

 

Balance in US dollars:

 

 

Prepaid expenses and deposits

$     250,000

$     250,000

Promissory note receivable

3,113,382

2,595,392

Convertible debenture receivable

2,000,000

-

Net exposure

5,363,382

2,845,392

Balance in Canadian dollars:

$  7,097,363

$  3,741,121


17


TIDAL ROYALTY CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended January 31, 2020 and 2019

(Expressed in Canadian dollars -Unaudited)


12.Financial Instruments and Risks (Continued) 

(c)Foreign Exchange Rate and Interest Rate Risk (continued) 

A 10% change in the US dollar to the Canadian dollar exchange rate would impact the Company’s net loss by approximately $708,000 for the period ended January 31, 2020 (July 31, 2019 - $374,000).

Interest rate risk

Interest rate risk consists of two components:

i)To the extent that payments made or received on the Company’s monetary assets and liabilities are affected by changes in the prevailing market interest rates, the Company is exposed to interest rate cash flow risk.  

ii)To the extent that changes in prevailing market rates differ from the interest rate in the Company’s monetary assets and liabilities, the Company is exposed to interest rate price risk.  

The Company is exposed to interest rate risk with respect to its convertible debenture receivable (see Note 5) and its promissory note receivable (see Note 6).

 

(d)Liquidity Risk 

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company currently settles its financial obligations using cash. The ability to do so relies on the Company raising equity financing in a timely manner. The Company manages liquidity risk through the management of its capital structure and financial leverage as outlined in Note 13.

The following are contractual maturities of financial liabilities as at January 31, 2020:

 

 

Carrying amount

Contractual cash flows

Within

1 year

 

 

 

 

Accounts payable and accrued liabilities

$     348,224

$     348,224

$     348,224

Due to related parties

17,566

17,566

17,566

Loan payable

50,164

50,164

50,164

Lease liabilities

185,548

185,548

185,548

 

13.Capital Management  

 

The Company’s objectives when managing capital are to identify and pursue business opportunities, to maintain financial strength, to protect its ability to meet its on-going liabilities, to continue as a going concern, to maintain creditworthiness and to maximize returns for shareholders over the long term. The Company does not have any externally imposed capital requirements to which it is subject.  The Company's principal source of funds is through the issuance of equity.  Management considers all components of shareholders' equity as capital.

The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Company may attempt to issue new shares while minimizing dilution for its existing shareholders.

The Company’s overall strategy with respect to capital risk management remains unchanged from the year ended July 31, 2019.


18


TIDAL ROYALTY CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended January 31, 2020 and 2019

(Expressed in Canadian dollars -Unaudited)


14.Segment Information 

The Company currently operates in a single reportable operating segment.

For the six-month period ended January 31, 2020, the Company operated in two geographical areas being Canada and the United States of America.

As at January 31, 2020, non-current assets other than financial instruments were located in Canada. As at July 31, 2019, the Company had the following:

 

Canada

United States of America

Total

 

 

 

 

Non-current assets other than financial instruments

$          

-

$               592,655

$                 592,655

 

15.Commitments 

Amended and Re-stated Agreement with MichiCann 

On March 12, 2020, the Company and MichiCann entered into an amended and restated business combination agreement (the “Amended Agreement”) pursuant to which the Company will acquire all of the issued and outstanding shares of MichiCann (the “Proposed Transaction”) on a 2:1 basis, subject to adjustment in certain circumstances (the “Exchange Ratio”). The terms of the Amended Agreement provide that the share consideration will now be comprised of one (1) common share (the “Common Shares”) and one (1) series 2 convertible preferred share (the “Series 2 Shares”) of the resulting company (the “Resulting Issuer”). The Series 2 Shares to be issued to MichiCann shareholders (i) will carry voting rights (entitling a holder to one vote per Series 2 Share held, voting together with the holders of Common Shares), (ii) will be entitled to 5% annual dividends payable in additional Series 2 Shares (the “Dividends”), (iii) will be convertible (together with accrued Dividends) into Common Shares on a 1:1 basis at the option of the holder on or after the seven (7) month anniversary of their issuance date, and (iv) will automatically be converted on the same basis on the two (2) year anniversary of their issuance date.  All outstanding options and warrants to purchase MichiCann common shares will be exchanged with options and warrants to purchase Common Shares and Series 2 Shares in accordance with the Exchange Ratio.

The Proposed Transaction will be completed by way of a three-cornered amalgamation under the Business Corporations Act (Ontario), whereby 2690229 Ontario Inc., a wholly-owned subsidiary of the Company (“Subco”) will amalgamate with MichiCann (the “Amalgamation”), which will require the approval of 66 2/3 of the votes cast by MichiCann shareholders at a special meeting of shareholders to be held.  The Proposed Transaction will constitute a “Fundamental Change” of the Company, as such term is defined in the policies of the Canadian Securities Exchange (the “CSE”) and as a result the Company will be required to obtain the approval of the holders of its outstanding common shares, by simple majority, which it intends to obtain by way of written consent.

The Amended Agreement contemplates the following changes: Immediately prior to the completion of the Amalgamation, the Company will (i) complete a share consolidation on a 16:1 basis (the “Consolidation”), (ii) change its name to “Red White & Bloom Brands Inc.” (the “Name Change”) and (iii) reconstitute its board of directors such that the board of the Resulting Issuer will consist of five (5) directors, which will include two (2) members of the current board of the Company and three (3) nominees of MichiCann (the “Board Appointments”).

Pursuant to the terms of the Amended Agreement, the closing of the Proposed Transaction is subject to a number of conditions, including but not limited to (i) obtaining the requisite shareholder approvals, (ii) the completion of the Consolidation, the Name Change and the Board Appointments, (iii) obtaining requisite regulatory approvals including the approval of the CSE for the Proposed Transaction and the listing of the Common Shares, (iv) obtaining escrow agreements from the directors and officers of each of MichiCann and Tidal, and certain shareholders of each of MichiCann, its Michigan based investee and Tidal pursuant to which the escrowed shares would be subject to restrictions on transfer and other dealings and released in three equal tranches over a period of 18 months following the closing of the Proposed Transaction, and (v) other closing conditions customary for transactions of this nature.


19


TIDAL ROYALTY CORP.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended January 31, 2020 and 2019

(Expressed in Canadian dollars -Unaudited)


15.Commitments (continued) 

On January 10, 2020, MichiCann closed the acquisition of Mid-American Growers, Inc. pursuant to an agreement and plan of merger dated October 9, 2019, as amended on January 9, 2020 by way of a merger between MichiCann’s wholly-owned subsidiary, RWB Acquisition Sub, Inc., and Mid-American Growers Inc. under the laws of Delaware to form MAG. On the same day, MichiCann’s wholly-owned subsidiary, RWB Illinois Inc. acquired 142 acres of land located at 14240 Greenhouse Avenue, Granville, Illinois, together with the buildings, plant facilities, structures, building systems fixtures and improvements located thereon and related personal property and intangibles.

In connection with the Proposed Transaction, Tidal and MichiCann have filed updated application materials with the CSE to list the Common Shares. The Proposed Transaction remains subject to a number of conditions, including CSE approval and requisite shareholder approvals.  The common shares of Tidal are currently halted from trading on the CSE pending completion of the Proposed Transaction and the parties are working towards obtaining CSE approval of the amended terms of the Proposed Transaction in March with the recommencement of trading shortly thereafter.

 

As at March 31, 2020, the transaction has not yet closed.

 

16.Subsequent Events  

Subsequent to January 31, 2020, the Company issued 70,858,999 shares pursuant to the exercise of share purchase warrants for gross proceeds of $3,542,950.

 

Subsequent to January 31, 2020, the Company entered into an amendment to MichiCann Debentures (see Note 5) to extend the Maturity Date to April 30, 2020 and the Transaction completion date to May 25, 2020. The Company also advanced MichiCaan an additional US $ 500,000 to fund operations. As a result, principal amount of September MichiCann Debenture was increased to USD $2,500,000.


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