Annual Statements Open main menu

Cryomass Technologies, Inc. - Quarter Report: 2023 June (Form 10-Q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2023

 

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission file number: 000-56155

 

CRYOMASS TECHNOLOGIES INC.

(Exact name of registrant as specified in its charter)

 

Nevada   82-5051728
(State of incorporation)   (IRS Employer
Identification No.)
     
1001 Bannock Street, Suite 612, Denver, CO   80204
(Address of principal executive offices)   (Zip Code)

 

303-416-7208

(Registrant’s telephone number, including area code)

  

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
  Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) ☐ Yes ☒ No

 

As of August 16, 2023, the registrant had 206,218,637 shares of its common stock, par value $0.001 per share, outstanding.

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
         

 

 

 

 

 

 

FORWARD LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or the negative of these words or other comparable terminology.

 

The identification in this report of factors that may affect our future performance and the accuracy of forward-looking statements is meant to be illustrative and by no means exhaustive. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty.

 

Factors that could cause our actual results to differ materially from those expressed or implied by forward-looking statements include, but are not limited to:

 

  Trends affecting our financial condition, results of operations or future prospects, including the impact of COVID-19;

 

  Our business and growth strategies;

 

  Our financing plans and forecasts;

 

  The factors that we expect to contribute to our success and our ability to be successful in the future;

 

  Our business model and strategy for realizing positive results as sales increase;

 

  Competition, including our ability to respond to such competition and its expectations regarding continued competition in the market in which we compete;

 

  Our ability to meet our projected operating expenditures and the costs associated with development of new projects;

 

  The impact of new accounting pronouncements on our financial statements;

 

  Whether our cash flows from operating activities will be sufficient to meet our operating expenditures;

 

  Our market risk exposure and efforts to minimize risk;

 

  Regulations, including tax law and practice, federal and state laws governing the cannabis and cannabinoid industries, and tariff legislation;

 

  Our overall outlook including all statements under Management’s Discussion and Analysis of Financial Condition and Results of Operations;

 

  That estimates and assumptions made in the preparation of financial statements in conformity with accounting principles generally accepted in the United states (“GAAP”) may differ from actual results; and

 

  Our expectations as to future financial performance, cash and expense levels and liquidity sources.

 

Any forward-looking statements in this Quarterly Report on Form 10-Q reflect our current views with respect to future events or to our future financial performance. A more detailed description of risk factors that may affect our operating results can be found in Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q and Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the SEC on March 24, 2023, and our other filings with the SEC. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

 

 

 

 

TABLE OF CONTENTS

 

    PAGE
     
PART I - FINANCIAL INFORMATION  
Item 1. Financial Statements  
  Condensed Consolidated Balance Sheets as of June 30, 2023 (Unaudited) and December 31, 2022 1
  Condensed Consolidated Statements of Operations (Unaudited) for the Three and Six Months Ended June 30, 2023 and 2022 2
  Condensed Consolidated Statements of Shareholders’ Equity (Deficit) (Unaudited) for the Three and Six Months Ended June 30, 2023 and 2022 3
  Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three and Six Months Ended June 30, 2023 and 2022 4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 16
Item 3. Quantitative and Qualitative Disclosures About Market Risk 22
Item 4. Controls and Procedures 22
     
PART II - OTHER INFORMATION  
Item 1. Legal Proceedings 25
Item 1A. Risk Factors 25
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds 25
Item 3. Defaults Upon Senior Securities 25
Item 4. Mine Safety Disclosures 25
Item 5. Other Information 25
Item 6. Exhibits 26
Signatures   27

 

i

 

 

CRYOMASS TECHNOLOGIES INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   June 30,
2023
(unaudited)
   December 31,
2022
 
ASSETS        
Current assets:        
Cash and cash equivalents  $316,267   $2,016,057 
Deferred Tax asset   21,788    21,788 
Prepaid expenses   140,351    128,651 
Total current assets   478,406    2,166,496 
           
Property and equipment, net   749,225    525,855 
Goodwill   
-
    1,190,000 
Intangible assets, net   131,117    3,980,582 
Total assets  $1,358,748   $7,862,933 
           
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)          
           
Current liabilities:          
Accounts payable and accrued expenses  $1,591,006   $1,288,465 
Notes payable, current, net   222,630    
-
 
Total current liabilities   1,813,636    1,288,465 
Notes payable, net   178,817    
-
 
Notes payable, related party, net   2,120,872    2,000,000 
Total liabilities   4,113,325    3,288,465 
           
Commitments and contingencies (Note 10)   
 
    
 
 
           
Shareholders’ equity (deficit):          
Preferred stock, $0.001 par value, 100,000 shares authorized, no shares issued and outstanding respectively   
-
    
-
 
Common stock, $0.001 par value, 500,000,000 shares authorized, 205,768,637 and 202,651,205 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively   205,769    202,652 
Additional paid-in capital   44,011,514    43,163,579 
Common stock to be issued   
-
    219,765 
Accumulated deficit   (46,971,860)   (39,011,528)
Total shareholders’ equity (deficit)   (2,754,577)   4,574,468 
Total liabilities and shareholders’ equity (deficit)  $1,358,748   $7,862,933 

 

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

 

1

 

 

CRYOMASS TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

   Three Months Ended
June 30,
   Six Months Ended
June 30,
 
   2023   2022    2023      2022 
Net sales  $
-
   $
-
   $
-
   $
-
 
Cost of goods sold   
-
    
-
    
-
    
-
 
Gross profit   
-
    
-
    
-
    
-
 
                     
Operating expenses:                    
Personnel costs   723,455    466,422    1,491,720    801,652 
General and administrative   446,149    238,432    786,045    533,781 
Legal and professional fees   104,497    688,194    403,239    2,146,451 
Depreciation and amortization expense   144,336    21,831    268,865    43,663 
Research and development   13,238    1,365    13,361    18,487 
Loss on impairment of intangible assets   3,653,043    
-
    3,653,043    
-
 
Loss on impairment of goodwill   1,190,000    
-
    1,190,000    
-
 
Total operating expenses   6,274,718    1,416,244    7,806,273    3,544,034 
Loss from operations   (6,274,718)   (1,416,244)   (7,806,273)   (3,544,034)
                     
Other income (expenses):                    
Interest expense – net   (82,602)   (35,235)   (136,263)   (71,258)
Gain / (loss) on foreign exchange   (4,486)   21,061    (17,796)   32,569 
Total other expenses   (87,088)   (14,174)   (154,059)   (38,689)
Net loss before taxes   (6,361,806)   (1,430,418)   (7,960,332)   (3,582,723)
Income taxes   
-
    
-
    
-
    
-
 
Net loss   (6,361,806)   (1,430,418)   (7,960,332)   (3,582,723)
                     
Net loss per common share:                    
Loss per common share – basic and diluted
  $(0.03)  $(0.01)  $(0.04)  $(0.02)
                     
Weighted average common shares outstanding—basic and diluted
   205,232,785    200,596,549    204,881,096    200,164,004 

 

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

 

2

 

 

CRYOMASS TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)

(UNAUDITED)

 

   Common Stock   Additional
Paid-In
   Common
Stock to
   Accumulated   Total
Shareholders’
Equity
 
   Shares   Amount   Capital   Be Issued   Deficit   (Deficit) 
Balance at December 31, 2021    196,949,801   $196,950   $41,916,207   $
-
   $(28,588,837)  $13,524,320 
Share issuance in exchange for services    458,334    458    159,959    80,208    
-
    240,625 
Stock-based compensation    1,735,529    1,736    139,079    
-
    
-
    140,815 
Net loss    -    
-
    
-
    
-
    (2,152,305)   (2,152,305)
Balance at March 31, 2022   199,143,664   $199,144   $42,215,245   $80,208   $(30,741,142)  $11,753,455 
Shares issued from warrants exercised    220,500    221    65,930    
-
    
-
    66,151 
Share issuance in exchange for services    687,501    688    239,938    
-
    
-
    240,626 
Stock-based compensation   1,000,000    1,000    68,095    
-
    
-
    69,095 
Net loss   -    
-
    
-
    
-
    (1,430,418)   (1,430,418)
Balance at June 30, 2022    201,051,665   $201,053   $42,589,208   $80,208   $(32,171,560)  $10,698,909 
                               
Balance at December 31, 2022    202,651,205   $202,652   $43,163,579   $219,765   $(39,011,528)  $4,574,468 
Common stock issued for prior period services    62,500    62    21,813    (21,875)   
-
    
-
 
Common stock issued for current period services    187,500    188    65,438    
-
    
-
    65,626 
Common stock issued for vested RSUs for prior period services    1,100,000    1,100    196,790    (197,890)   
-
    
-
 
Common stock issued for vested RSUs for current period services    777,932    778    49,222    
-
    
-
    50,000 
Stock-based compensation for vested RSUs for current period services    -    
-
    62,972    
-
    
-
    62,972 
Net loss    -    
-
    
-
    
-
    (1,598,526)   (1,598,526)
Balance at March 31, 2023    204,779,137   $204,780   $43,559,814   $
-
   $(40,610,054)  $3,154,540 
Common stock issued for current period services    187,500    187    19,925    
-
    
-
    20,112 
Common stock issued for vested RSUs for current period services    802,000    802    79,118    
-
    
-
    79,920 
Stock-based compensation for vested RSUs for current period services    -    
-
    173,631    
-
    
-
    173,631 
Warrants issued in conjunction with notes payable    -    
-
    179,026    
-
    
-
    179,026 
Net loss    -    
-
    
-
    
-
    (6,361,806)   (6,361,806)
Balance at June 30, 2023    205,768,637   $205,769   $44,011,514   $
-
   $(46,971,860)  $(2,754,577)

 

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

 

3

 

 

CRYOMASS TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

   For the Six Months Ended
June 30,
 
   2023   2022 
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net loss  $(7,960,332)  $(3,582,723)
Adjustments to reconcile net loss to net cash used in operating activities from continuing operations:          
Amortization of debt discount   13,036    62,500 
Depreciation and amortization expense   268,866    43,663 
Loss/(gain) on foreign exchange related to notes payable   1,412    
-
 
Loss on impairment of goodwill   1,190,000    
-
 
Loss on impairment of intangible assets   3,653,043    
-
 
Share issuances in exchange for services   
-
    401,044 
Stock-based compensation expense   
-
    209,910 
Common stock issued for vested RSUs for current period services   129,920    
-
 
Stock-based compensation for vested RSUs for current period services   236,603    
-
 
Common stock issued for the current period services   85,738    
-
 
Change in operating assets and liabilities:          
Prepaid expenses   (11,700)   690,542 
Accounts payable and accrued expenses   55,964    (793,360)
Net cash used in operating activities   (2,337,450)   (2,968,424)
CASH FLOWS FROM INVESTING ACTIVITIES:          
Issuance of loans receivable   
-
    (618,831)
Purchase of property and equipment   
-
    (124,586)
Purchase of intangible assets   (49,236)   (19,325)
Net cash used in investing activities   (49,236)   (762,742)
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from issuance of common stock   
-
    66,151 
Proceeds from common stock subscribed and to be issued   
-
    80,208 
Proceeds from notes payable   686,896    
-
 
Net cash provided by financing activities   686,896    146,359 
Net decrease in cash and cash equivalents   (1,699,790)   (3,584, 807) 
Cash and cash equivalents at beginning of period   2,016,057    5,772,839 
Cash and cash equivalents at end of period  $316,267   $2,188,032 
Supplemental disclosure of non-cash investing activities:          
Purchase of property and equipment on credit  $246,577    
-
 
Supplemental disclosure of non-cash financing activities:          
Debt discount recognized from warrants issued in conjunction with notes payable  $179,026    
-
 

 

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

 

4

 

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1. Nature of the Business

 

CryoMass Technologies Inc. develops and licenses cutting-edge equipment and processes to refine harvested cannabis, hemp, and other premium crops. The company’s patented technology harnesses liquid nitrogen to reduce biomass and then efficiently isolate, collect and preserve delicate resin glands (trichomes) containing prized compounds like cannabinoids and terpenes. Building on this technology, CryoMass has engineered its premier Trichome Separation unit (CryoSift Separator™), optimized via patented cryogenic processes to rapidly capture intact, high-value cannabis and hemp trichomes (CryoSift™).

 

The first functional commercial unit, known as a CryoSift Separator™, has been installed at the premises of an operating partner, pursuant to a license and lease arrangement to deploy multiple trichome separation units California and other locations. It has successfully transitioned from beta testing and entered into readiness for commercial-level processing.

 

The Company’s principal office is located at 1001 Bannock St., Suite 612, Denver, CO 80204, and its telephone number is 303-416-7208. The Company’s website is www.cryomass.com. Information appearing on the website is not incorporated by reference into this report.

 

Cryomass Technologies Inc is the parent company to wholly-owned subsidiaries Cryomass LLC, Cryomass California LLC, and 1304740 B.C. Unlimited Liability Company dba Cryomass Canada.

  

On June 22, 2021, the Company entered into an Asset Purchase Agreement with Cryocann USA Corp, a California corporation (“Cryocann”), pursuant to which Company acquired substantially all the assets of Cryocann. The acquired assets included the patented cryogenic process titled “System and method for cryogenic separation of plant material” (US patent #10,864,525) for the reduction of biomass and efficient isolation, collection and preservation of delicate resin glands (trichomes) of harvested of hemp and cannabis, and potentially other high value trichome-rich plants.

 

In September 2021, we were granted an additional patent for our process from the Chinese Intellectual Property Office. In April 2022, we were granted another patent # 3,064,896 from the Canadian Intellectual Property Office. We currently are taking steps to gain further protection for our intellectual property through the European Union Intellectual Property Office and other international jurisdictions.

 

2. Going Concern Uncertainty, Financial Conditions and Management’s Plans

 

The Company believes that there is substantial doubt about the Company’s ability to continue as a going concern. The Company believes that its available cash balance as of the date of this filing will not be sufficient to fund its anticipated level of operations for at least the next twelve months. The Company believes that, at the present time, its ability to continue operations depends on cash expected to be available from lease payments and royalty payments in connection with future revenue generation, or possibly from debt or equity investments, to fund its anticipated level of operations for at least the next twelve months. As of June 30, 2023, the Company had a working deficit of $1,335,230 and cash balance of $316,267. The Company estimates that it needs approximately $4,200,000 to cover overhead costs and has capital expenditure requirements ranging from zero to $6,600,000 depending on how many trichome separation units are ordered over the next twelve months. The Company believes that the Company will continue to incur losses for the immediate future. The Company expects to finance future cash needs from the results of operations and, depending on the results of operations, the Company may need additional equity or debt financing until the Company can achieve profitability and positive cash flows from operating activities. However, there can be no assurance that the Company will receive sufficient cash flow from operations to achieve positive cash flow, or that we will be able to attract the necessary financing to sustain operations.

 

The continuation of our Company as a going concern is dependent upon the continued financial support from our shareholders, the ability of our Company to obtain necessary equity or debt financing to continue operations, and ultimately the attainment of profitable operations. For the six months ended June 30, 2023, our Company used $2,337,450 of cash for operating activities, incurred a net loss of $7,960,332 and has an accumulated deficit of $46,971,860 since inception.

 

Our financial statements for the three and six months ended June 30, 2023 have been prepared on a going concern basis and do not include any adjustments that might result from the outcome of this uncertainty.

 

5

 

 

3. Summary of Significant Accounting Policies

 

Principles of Consolidation

 

The accompanying condensed consolidated financial statements have been prepared in accordance with Generally Accepted Accounting Principles. The condensed consolidated financial statements include the accounts of the Cryomass Technologies Inc, Cryomass LLC, Cryomass California LLC, and 1304740 B.C. Unlimited Liability Company dba Cryomass Canada. All significant intercompany balances and transactions have been eliminated in consolidation. The Company operates as one segment from its corporate headquarters in Colorado.

 

Use of Estimates

 

The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of expenses during the reporting period. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to determining the fair value of the assets acquired and liabilities assumed in acquisition, determining the useful lives and potential impairment of long-lived assets and potential impairment of goodwill. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.

  

Cash and Cash Equivalents

 

The Company considers all highly liquid instruments with maturities of three months or less at the time of issuance to be cash equivalents.

 

Concentrations of Credit Risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash. Periodically, the Company maintains deposits in accredited financial institutions in excess of federally insured limits. The Company deposits its cash in financial institutions that it believes have high credit quality and has not experienced any losses on such accounts. Aside from this, the Company does not believe it is exposed to any unusual credit risk.

 

Purchase Accounting for Acquisitions

 

We apply the acquisition method of accounting for a business combination. In general, this methodology requires us to record assets acquired and liabilities assumed at their respective fair values at the date of acquisition. Any amount of the purchase price paid that is in excess of the estimated fair value of the net assets acquired is recorded as goodwill. For certain acquisitions, we also record a liability for contingent consideration based on estimated future business performance. We monitor our assumptions surrounding these estimated future cash flows and, if there is a significant change, would record an adjustment to the contingent consideration liability and a corresponding adjustment to either income or expense. We determine fair value using widely accepted valuation techniques, primarily discounted cash flow and market multiple analyses. These types of analyses require us to make assumptions and estimates regarding industry and economic factors, the profitability of future business strategies, discount rates and cash flow.

 

If actual results are not consistent with our assumptions and estimates, or our assumptions and estimates change due to new information, we may be exposed to an impairment charge in the future.

 

6

 

 

Expenses

  

Operating Expenses

 

Operating expenses encompass personnel costs, research and development expenses, general and administrative expenses, professional and legal fees and depreciation and amortization related to the property and equipment and intangibles acquired through the acquisition of the assets of Cryocann. Personnel costs consist primarily of consulting expense and administrative salaries and wages. General and administrative expenses are comprised of travel expenses, accounting expenses, stock-based compensation, and board fees. Professional services are principally comprised of outside legal and professional fees.

  

Other Expense, net

 

Other expense, net consisted of interest expense, other income and (loss) gain on foreign exchange.

 

Stock-Based Compensation

 

The fair value of restricted stock units (“RSUs”) granted are measured on the grant date using the closing price of the Company’s common shares on the grant date. For stock options, the Company engages a valuation firm to calculate the grant date fair value of the options issued. The Company accounts for forfeitures as they occur, rather than estimating expected forfeitures over the course of a vesting period. All stock-based compensation costs are recorded in general and administrative expenses in the condensed consolidated statements of operations.

 

Property and Equipment, net

 

Purchase of property and equipment are recorded at cost. Improvements and replacements of property and equipment are capitalized. Maintenance and repairs that do not improve or extend the lives of property and equipment are charged to expense as incurred. When assets are sold or retired, their cost and related accumulated depreciation are removed from the accounts and any gain or loss is reported in the condensed consolidated statements of operations. Depreciation and amortization expense is recognized using the straight-line method over the estimated useful life of each asset, as follows:

 

   Estimated
Useful Life
Computer equipment  3 – 5 years
Furniture and fixtures  5 – 7 years
Machinery and equipment  15 years
Leasehold improvements  Shorter of lease term or useful life

 

7

 

 

Goodwill and Intangible Assets

 

Goodwill represents the excess of the purchase price of an acquired entity over the fair value of identifiable tangible and intangible assets acquired and liabilities assumed in a business combination.

 

Indefinite-lived intangible assets established in connection with business combinations consist of in-process research and development and internal-use software. Intangible assets with indefinite lives are recorded at their estimated fair value at the date of acquisition. Once in-process research and development is placed in service, it will be amortized over the estimated useful life. Internal-use software costs recognized as an intangible asset relates to capitalizable costs of computer software obtained for internal-use as defined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 350-40-30-1. All other internal-use software costs are expensed as incurred by the Company. Amortization is recorded straight-line over the estimated useful life of the software. The software has a useful life of 26 months with amortization beginning on April 1, 2023.

 

Intangible assets with finite lives are recorded at their estimated fair value at the date of acquisition and are amortized over their estimated useful lives using the straight-line method. Amortization of assets ceases upon designation as held for sale. The estimated useful lives of intangible assets are detailed in the table below:

 

   Estimated
Useful Life
Patent  120 Months
In-process research and development  104 Months
Internal use software  26 Months

 

Impairment of Goodwill and Intangible Assets

 

Goodwill

 

Goodwill is not amortized, but instead is tested annually at December 31 for impairment and upon the occurrence of certain events or substantive changes in circumstances.

 

We account for the impairment of goodwill under the provisions of Financial Accounting Standards Board (FASB) Accounting Standard Update 2017-04 (“ASU 2017-04”), “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” and FASB Accounting Standards Codification (ASC) 350-20-35, Intangibles – Goodwill and Other – Goodwill.

 

The Company performs impairment testing for goodwill by performing the following steps: 1) evaluate the relevant events or circumstances to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, 2) if yes to step 1, calculate the fair value of the reporting unit and compare it with its carrying amount, including goodwill, 3) recognize impairment, limited to the total amount of goodwill allocated to that reporting unit, equal to the excess of the carrying value of a reporting unit over its fair value.

  

Due to delays in implementing the Company’s business model of its cryogenic process, management concluded that goodwill was fully impaired as of June 30, 2023.

 

8

 

 

Indefinite-Lived Intangible Assets and Intangible Assets Subject to Amortization

 

Indefinite-lived intangible assets are not amortized, but instead are tested annually at December 31 for impairment and upon the occurrence of certain events or substantive changes in circumstances.

 

We account for the impairment of indefinite-lived intangible assets under the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 350-30-35, Intangibles – Goodwill and Other – General Intangibles Other Than Goodwill. Following this guidance, the Company compares the estimated fair value of the indefinite-lived intangible assets to its carrying value. If the carrying value exceeds the fair value, the Company recognizes impairment equal to that excess.

 

We account for the impairment of intangible assets subject to amortization under the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 360-10-35, Property, Plant, and Equipment. Following this guidance, the Company compares the estimated fair value of the intangible assets subject to amortization to its carrying value. If the carrying value exceeds the fair value, the Company recognizes impairment equal to that excess.

 

Due to delays in implementing the Company’s business model of its cryogenic process, management concluded that all related identifiable intangible assets were fully impaired as of June 30, 2023. Internal use software was not impaired as of June 30, 2023.

 

Leases

 

We account for our leases under ASC 842. Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases, and are recorded on the condensed consolidated balance sheet as both a right of use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or our incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the lease term. For finance leases, interest on the lease liability and the amortization of the right of use asset results in front-loaded expense over the lease term. Variable lease expenses are recorded when incurred.

 

In calculating the right of use and lease liability, we have elected to combine lease and non-lease components. We exclude short-term leases having an initial term of 12 months or less from the new guidance as an accounting policy election, and recognize rent expense on a straight-line basis over the lease term.

    

Income Taxes

 

The Company uses the liability method of accounting for income taxes as set forth in ASC 740, Income Taxes. Under the liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differences reverse. A valuation allowance is recorded when it is likely that the deferred tax assets will not be realized. We assess our income tax positions and record tax benefits for all years subject to examination based upon our evaluation of the facts, circumstances and information available at the reporting date. In accordance with ASC 740-10, for those tax positions where there is a greater than 50% likelihood that a tax benefit will be sustained, our policy will be to record the largest amount of tax benefit that is more likely than not to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where there is less than 50% likelihood that a tax benefit will be sustained, no tax benefit will be recognized in the condensed consolidated financial statements.

 

9

 

 

Fair Value Measurements

 

Certain assets and liabilities of the Company are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

 

  Level 1 — Quoted prices in active markets for identical assets or liabilities.
     
  Level 2 — Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.
     
  Level 3 — Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

 

The carrying values reported in the condensed consolidated balance sheets for cash, prepaid expenses, accounts payable, and notes payable approximate fair values because of the immediate or short-term maturities of these financial instruments.

 

Between April and June 2023, the Company issued Promissory Notes to investors as part of a capital raising effort. The Company has determined that the Warrants are classified as equity and are initially measured at fair value. The fair value of the Warrants was determined utilizing a Black-Scholes model considering all relevant assumptions at the dates of issuance. As the fair value of the Promissory Notes at the issuance date is less than the cash proceeds received, a debt discount on the Promissory Notes was also recorded. The debt discount will be amortized over the lives of the Promissory Notes using the effective interest method.

 

Net Loss per Share

 

The Company follows ASC 260, Earnings Per Share, which requires presentation of basic and diluted earnings per share (“EPS”) on the face of the income statement for all entities with complex capital structures. Net earnings or loss per share is computed by dividing net income or loss by the weighted-average number of common shares outstanding during the period, excluding shares subject to redemption or forfeiture. The Company presents basic and diluted net earnings or loss per share. Diluted net earnings or loss per share reflect the actual weighted average of common shares issued and outstanding during the period, adjusted for potentially dilutive securities outstanding. Potentially dilutive securities are excluded from the computation of the diluted net loss per share if their inclusion would be anti-dilutive. There were 2,290,085 unvested RSU’s considered potentially dilutive securities outstanding as of June 30, 2023 and 1,258,982 unvested RSU’s considered potentially dilutive securities outstanding as of June 30, 2022. Diluted net loss per share is the same as basic net loss per share for each period.

 

Recently Adopted Accounting Standards

  

In August 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40). ASU 2020-06 reduces the number of accounting models for convertible debt instruments and convertible preferred stock. The accounting model for beneficial conversion features is removed. 

 

ASU 2020-06 is effective for public business entities that meet the definition of an SEC filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years.

 

Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. An entity is not permitted to adopt the guidance in an interim period.

 

The Company adopted the provisions of ASU 2020-06 effective January 1, 2023. 

 

10

 

 

4. Property and Equipment, Net

 

Property and equipment, net, of $749,225 and $525,855 as of June 30, 2023 and December 31, 2022, respectively, consisted entirely of machinery and equipment.

 

   June 30,
2023
   December 31,
2022
 
Machinery and equipment   777,832    531,255 
Less: Accumulated depreciation   (28,607)   (5,400)
   $749,225   $525,855 

 

Depreciation expense for the three and six months ended June 30, 2023 was $13,077 and $23,207, respectively. The Company incurred no depreciation expense for the three and six months ended June 30, 2022.

 

5. Goodwill and Intangible Assets

  

The carrying value of goodwill was $0 and as of June 30, 2023 and $1,190,000 as of December 31, 2022, respectively. We fully impaired goodwill due to delays in implementing our business model, resulting in a $1,190,000 impairment charge for the three and six months ended June 30, 2023.

 

The following tables summarize information relating to the Company’s identifiable intangible assets as of June 30, 2023 and December 31, 2022:

 

   June 30, 2023
   Estimated  Gross   Accumulated        Carrying 
   Useful Life  Amount   Amortization   Impairment   Value 
Amortized                   
Patent  120 months   $873,263   $(174,653)  $(698,610)  $- 
Internal use software   26 months    148,219    (17,102)   -    131,117 
Indefinite-lived                       
In-process research and development  104 months   3,209,000    (254,567)   (2,954,433)   - 
Total identifiable intangible assets     $4,230,482   $(446,322)  $(3,653,043)  $131,117 

 

   December 31, 2022
   Estimated
Useful Life
  Gross
Amount
   Accumulated
Amortization
   Carrying
Value
 
Amortized               
Patent  120 months  $873,263   $(130,989)  $742,274 
Indefinite-lived                  
In-process research and development  104 months   3,209,000    (69,675)   3,139,325 
Internal use software 
Pending
   98,983    
-
    98,983 
Total identifiable intangible assets     $4,181,246   $(200,664)  $3,980,582 

 

Amortization expense was $131,260 and $245,659 for the three and six months ended June 30, 2023, respectively, and was $21,833 and $43,663 for the three and six months ended June 30, 2022, respectively.

 

Years ending December 31,  Amount 
2023 (remainder of year)   34,206 
2024   68,412 
2025   28,499 
    131,117 

 

11

 

 

6. Loans Receivable  

 

On July 15, 2019, the Company entered into a Membership Interest Purchase Agreement to acquire cannabis-related intellectual property and certain other assets, but not cannabis licenses, of Critical Mass Industries LLC (“CMI”), a Colorado limited liability company. Effective December 31, 2021, the Company disposed of all CMI-related assets and extinguished any and all related obligations. In conjunction with the disposal, we received a $6,600,000 promissory note due to us no later than December 31, 2023, of which we determined the net realizable value of the gross amount of the note was 3,600,000 as of December 31, 2021. In consideration of the loan receivable, we conveyed to CMI, any and all manufacturing, grow equipment, and retail-related assets and other assets Seller owned in the state of Colorado and were used by CMI subsidiaries in the course of business, including client lists and appertaining intellectual property, as well as all liabilities related to these assets. During the first quarter of 2022, the Company issued an additional $618,831 in loans to CMI. During the fourth quarter of 2022, the Company deemed the full loan receivable balance to be uncollectible and therefore it is no longer included on the condensed consolidated balance sheets as of June 30, 2023.

 

7. Notes Payable

 

Between April and June 2023, the Company issued promissory notes to investors as part of a capital raising effort (the “Promissory Notes”). The Promissory Notes issued have a total principal amount of $686,896 and bear interest of 12%. The Promissory Notes mature two years after issuance, at which point repayment is due in full. In conjunction with the Promissory Notes, the Company also issued Warrants to purchase common shares of the Company (the “Common Shares”) to the same investors. The Company issued 2,540,550 warrants with an “Exercise Price” of $0.25. The Warrants shall be exercisable for four years from the issuance date. The Company has determined that the Warrants are classified as equity and are initially measured at fair value. The fair value of the Warrants was determined utilizing a Black-Scholes model considering all relevant assumptions at the dates of issuance, including the Company stock price ($0.13 for April subscription agreements, $0.09 for May subscription agreements, $0.12 for June subscription agreement), exercise price ($0.25), term (4 years), historical volatility (153%), and risk-free rate (3.8% for April subscription agreements, 3.6% and 3.7% for May subscription agreements for Mario Gobbo and a private investor, respectively, 4.0% for June subscription agreement). The grant date fair value of the Warrants was $179,026. The fair value of the Promissory Notes was $507,870. As the fair value of the Promissory Notes at the issuance date is less than the cash proceeds received, a debt discount on the Promissory Notes of $179,026 was also recorded. As of June 30, 2023, the carrying value of the Promissory Notes was $522,319 and the interest accrued was $13,345.

 

8. Related Party Transactions

  

On September 15, 2022, the Company entered into a loan agreement of $2,000,000 with CRYM Co-Invest, for which Alexander Massa, a 23.1% beneficial owner of the Company, has investment control. The note accrues interest at 12% per annum and matures on October 1, 2024. As of June 30, 2023, we have accrued $20,000 in interest expense on the loan.

 

Of the $686,896 received in Promissory Notes with warrants mentioned in Note 7, $175,000 of the proceeds are from related parties (net of debt discount of $54,128). The Company received $100,000, $50,000, and $25,000 from Simon Langelier, Health Diplomats Pte Ltd, and Mario Gobbo, respectively. Mr. Langelier and Mr. Gobbo are directors of the Company. Dr. Delon Human is also a director of the Company and is the President of Health Diplomats Pte Ltd. The notes mature on April 17, 2025 and accrue interest at 12% per annum. In conjunction with the loans, the respective parties were issued warrants to purchase 454,500, 227,250, and 113,625 shares of common stock with an exercise price of $0.25 per share. The warrants expire on April 17, 2027.

 

9. Shareholders’ Equity

 

From January to March 2022, the Company issued 458,334 shares of common stock for a total dollar value of $160,417 and accrued an additional $80,208 in common stock to be issued at a later date for a total dollar value of $240,625 in exchange for services. The Company also issued 550,000 shares of common stock for 2021 management performance bonuses, 185,529 shares of common stock for director compensation, and 1,000,000 shares of common stock for 2020 RSU grants vesting in January 2022, all of which were expensed over the RSU grant vesting period, incurring $140,815 of expense during the first quarter of 2022.

 

12

 

 

From April to June 2022, the Company issued 220,500 shares of common stock for exercise of warrants for a total dollar value of $66,151 and 687,501 shares of common stock for a total dollar value of $240,626 in exchange for services. The Company also issued 1,000,000 shares of common stock related to director and management compensation which were expensed over the RSU grant vesting period, incurring $69,095 of expense during the second quarter of 2022.

 

From January to March 2023, the Company issued 62,500 shares of common stock for a total dollar value of $21,875 for prior period services, 187,500 shares of common stock for a total dollar value of $65,626 for current period services, 777,932 shares of common stock for a total dollar value of $50,000 for vested RSUs for current period services, and 1,100,000 shares of common stock for a total dollar value of $197,890 for vested RSUs for prior period services.

 

From April to June 2023, the Company issued 187,500 shares of common stock for current period services, as follows: 62,500 shares were issued at $0.091 per share for a total dollar value of $5,687, 62,500 shares were issued at $0.0909 per share for a total dollar value of $5,681, and 62,500 shares were issued at $0.1399 per share for a total dollar value of $8,744, all related to compensation to a consultant. The Company issued 802,000 shares of common stock for vested RSUs for current period services, as follows: 550,000 shares were issued at $0.098 per share for a total dollar value of $53,900, 187,000 shares were issued at $0.0995 per share for a total dollar value of $18,607, 10,000 shares were issued at $0.1088 per share for a total dollar value of $1,088, and 55,000 shares were issued at $0.115 per share for a total dollar value of $6,325, all relating to employee compensation.

 

Restricted Stock Unit Awards

 

The Company adopted its 2019 Omnibus Stock Incentive Plan (the “2019 Plan”), which provides for the issuance of stock options, stock grants and RSUs to employees, directors and consultants. The primary purpose of the 2019 Plan is to enhance the ability to attract, motivate, and retain the services of qualified employees, officers and directors. Any RSUs granted under the 2019 Plan will be at the discretion of the Compensation Committee of the Board of Directors. On January 10, 2022, the shareholders approved the 2022 Stock Incentive Plan which then replaced the 2019 Plan.

 

A summary of the Company’s RSU award activity for the six months ended June 30, 2023 and 2022, respectively, is as follows:

 

   Restricted
Stock
Units
   Weighted
Average
Grant Date
Fair Value
 
Outstanding at December 31, 2022   1,453,857   $0.30 
Granted   2,760,660    0.17 
Vested   (1,877,932)   0.23 
Forfeited   
-
    
-
 
Outstanding at March 31, 2023   2,336,585   $0.21 
           
Granted   755,500    0.10 
Vested   (802,000)   0.12 
Forfeited   
-
    
-
 
Outstanding at June 30, 2023   2,290,085   $0.21 

 

   Restricted
Stock
Units
   Weighted
Average
Grant Date
Fair Value
 
Outstanding at December 31, 2021   2,200,003   $0.45 
Granted   1,469,511    0.27 
Vested   (1,735,529)   0.49 
Forfeited   
-
    
-
 
Outstanding at March 31, 2022   1,933,985   $0.27 
           
Granted   510,000    0.35 
Vested   (1,135,000)   0.28 
Forfeited   (50,000)   0.17 
Outstanding at June 30, 2022   1,258,985   $0.20 

 

13

 

 

The total fair value of RSUs vested during the three and six months ending June 30, 2023 was $79,920 and $327,810, respectively. The total fair value of RSUs vested during the three and six months ending June 30, 2022 was $317,000 and $1,165,600, respectively. As of June 30, 2023 and 2022, there was $416,205 and $274,241, respectively, of unrecognized stock-based compensation cost related to non-vested RSU’s, which is expected to be recognized over the remaining vesting period.

 

Stock-based compensation expense relating to RSU’s was $253,552 and $366,523 for the three and six months ending June 30, 2023, respectively. Stock-based compensation expense relating to RSU’s was $69,095 and $209,910 for the three and six months ending June 30, 2022, respectively. Stock-based compensation for the three months ending June 30, 2023 consisted of equity awards forfeited, granted and vested to employees, directors and consultants of the Company in the amount of $203,552, $50,000, and $0, respectively. Stock-based compensation for the six months ending June 30, 2023 consisted of equity awards forfeited, granted and vested to employees, directors and consultants of the Company in the amount of $219,480, $147,043, and $0, respectively. Expenses for stock-based compensation are included on the accompanying condensed consolidated statements of operations in general and administrative expense.

 

Stock Option Awards

 

A summary of the Company’s stock option activity for the six months ended June 30, 2023 and 2022, respectively, is as follows:

 

   Stock
Option
Shares
   Weighted
Average
Exercise
Price
   Weighted
Average
Remaining
Contractual
Term
   Aggregate
Intrinsic
Value
 
Outstanding at December 31, 2022   8,500,000   $0.18    8.5   $1,579,108 
Granted and vested   
-
    
-
    
-
    
-
 
Forfeited   
-
    
-
    
-
    
-
 
Outstanding at March 31, 2023   8,500,000   $0.18    8.0   $1,579,108 
Granted and vested   
-
    
-
    
-
    
-
 
Forfeited   
-
    
-
    
-
    
-
 
Outstanding at June 30, 2023   8,500,000   $0.18    7.7   $1,579,108 

 

   Stock
Option
Shares
   Weighted
Average
Exercise
Price
   Weighted
Average
Remaining
Contractual
Term
   Aggregate
Intrinsic
Value
 
Outstanding at December 31, 2021   8,500,000   $0.18    9.2   $1,579,108 
Granted and vested   
-
    
-
    
-
    
-
 
Forfeited   
-
    
-
    
-
    
-
 
Outstanding at March 31, 2022   8,500,000   $0.18    9.0   $1,579,108 
Granted and vested   
-
    
-
    
-
    
-
 
Forfeited   
-
    
-
    
-
    
-
 
Outstanding at June 30, 2022   8,500,000   $0.18    8.7   $1,579,108 

 

During the three and six months ended June 30, 2023 and 2022, the Company did not issue any stock options.

 

Warrants

 

During the six months ended June 30, 2023, the Company issued warrants with the option to purchase 2,540,550 common shares at an exercise price of $0.25 per share through a series of debt subscription agreements. Of these warrants, 1,295,250 expire on April 17, 2027, 336,300 expire on April 18, 2027, 113,625 expire on May 2, 2027, 568,125 expire on May 17, 2027, and 227,250 expire on June 5, 2027. The fair value of these warrants was $179,026, which was recorded to additional paid in capital during the quarter ended June 30, 2023.

 

14

 

 

During the year ended December 31, 2021, the Company issued warrants with the option to purchase 73,950,000 common shares at an exercise price of $0.40 per share through a series of convertible note offerings and equity subscription agreements. All of the convertible notes were converted in 2021. Of these warrants, 15,000,000 shares expired on March 31, 2023, 9,500,000 expired on April 30, 2023, 1,000,000 expire on September 17, 2023, 9,000,000 expire on October 15, 2023, 9,510,000 expire on October 26, 2023, 190,000 expire on November 2, 2023, 4,560,000 expire on November 10, 2023, 1,940,000 expire on November 15, 2023, and 750,000 expire on November 17, 2023, and 22,500,000 expire on November 10, 2024. The fair value of these warrants was $1,867,960, which was recorded to additional paid in capital in the year ended December 31, 2021.

 

During the three and six months ended June 30, 2023, no warrants were exercised.

 

10. Income Taxes

 

In accordance with ASC 740-270, the Company calculates the interim tax expense based on an annual effective tax rate (“AETR”). The AETR represents the Company’s estimated effective tax rate for the year based on full year projection of tax expense, divided by the projection of full year pretax book loss, adjusted for discrete transactions occurring during the period. The annual effective tax rate for the three months ended June 30, 2023 was 0.0%,

 

 

11. Commitments & Contingencies

 

Occasionally, the Company may be involved in claims and legal proceedings arising from the ordinary course of its business. The Company records a provision for a liability when it believes that it is both probable that a liability has been incurred, and the amount can be reasonably estimated. If these estimates and assumptions change or prove to be incorrect, it could have a material impact on the Company’s condensed consolidated financial statements. Contingencies are inherently unpredictable, and the assessments of the value can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions.

 

Legal Proceedings

 

None.

 

12. Subsequent Events

 

 

On July 13, 2023 the Board of Directors adopted a unanimous Board consent in lieu of a meeting, amending the employment agreements of two company officers, Mr. Philip Blair Mullin, Chief Financial Officer, and Ms. Patricia Kovacevic, General Counsel Corporate Secretary and Head of External Affairs. Mr. Mullin’s employment term, subject to certain provisions in his respective employment agreement, is extended through July 10, 2025. Ms. Kovacevic’s employment term, subject to certain provisions in her respective employment agreement, is extended through July 1, 2025.

 

On July 11, 2023, we sold 400,000 shares to a private investor at a price of $0.125 for gross proceeds of $50,000.

 

On July 20, 2023, Philip B Mullin, Chief Financial Officer, exercised stock options to purchase 50,000 shares at a price of $0.16 for gross proceeds of $8,000.

 

On August 16, 2023, the Company agreed to amend the Patent License and Equipment Rental Agreement with RedTape Core Partners LLC in order to remove the state of California from the five states included in the Agreement, along with concomitant reductions in upfront fees and an amendment to the upfront fee payment schedule. 

 

On August 18, 2023, the Company entered into a Patent License and Equipment Rental Agreement with Rubberrock, Inc. ("Rubberrock") for a term of five years, in which the Company licenses its proprietary CryoSift SeparatorTM process and technology and leases one CryoSift SeparatorTM Unit for use in the state of California. Under the terms of the transaction, Rubberrock agrees to pay license fees of $750,000 and a monthly royalty based on 25% of revenues.

 

15

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Forward-Looking Statements

 

This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

 

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

 

In this quarterly report, unless otherwise specified, our financial statements are expressed in United States Dollars (US$) and are prepared in accordance with United States generally accepted accounting principles. All references to “common shares” refer to the common shares in our capital stock.

 

Unless expressly indicated or the context requires otherwise, the terms “Cryomass Technologies,” the “Company,” “we,” “us,” and “our” refer to Cryomass Technologies Inc., a Nevada corporation, and, where appropriate, its wholly owned subsidiaries.

 

General Overview

 

History

 

Cryomass Technologies Inc (“Cryomass Technologies” or the “Company”) began as Auto Tool Technologies Inc., which was incorporated under the laws of the State of Nevada on May 10, 2011. The Company’s name was changed to AFC Building Technologies Inc. effective January 10, 2014. Effective April 26, 2018, the Company changed its name to First Colombia Development Corp. On May 10, 2018, the Company began to establish various business ventures in Colombia through its Colombian subsidiary, First Colombia Devco S.A.S (“Devco”). On July 1, 2019, the Company acquired 100% of the membership interests in General Extract, LLC, a Colorado limited liability company, in exchange for the shares of Devco. The name of this subsidiary was subsequently changed to Cryomass LLC. On July 15, 2019, the Company entered into a Membership Interest Purchase Agreement to acquire cannabis-related intellectual property and certain other assets, but not cannabis licenses, of Critical Mass Industries LLC (“CMI”), a Colorado limited liability company. Effective October 14, 2019, the Company changed its name to Redwood Green Corp. In August 2020, the Company established a wholly owned Colombian subsidiary, Andina Gold Colombia SAS for this purpose acquiring gold properties in Colombia. Effective September 1, 2020, the Company changed its name to Andina Gold Corp. However, due to the untimely death of our top geologist, the Company determined that pursuit of gold exploration in Colombia was no longer a practical alternative. In Q1 2022 the respective subsidiary was closed.

 

On July 15, 2021, the Company changed its name to Cryomass Technologies Inc and subsequently changed its trading symbol to CRYM. Effective December 31, 2021, the Company disposed of all CMI-related assets and extinguished any and all related obligations.

 

The Company’s principal office is located at 1001 Bannock St., Suite 612, Denver, CO 80204, and its telephone number is 303-416-7208. The Company’s website is www.cryomass.com. Information appearing on the website is not incorporated by reference into this report.

 

16

 

 

On June 22, 2021, the Company entered into an Asset Purchase Agreement with Cryocann USA Corp, a California corporation (“Cryocann”), pursuant to which Company acquired substantially all the assets of Cryocann.

 

The patented technology acquired from CryoCann (including US patent #10,864,525) harnesses liquid nitrogen to reduce biomass and then efficiently isolate, collect and preserve delicate resin glands (trichomes) containing prized compounds like cannabinoids and terpenes. Building on this technology, CryoMass has engineered its premier Trichome Separation unit (CryoSift Separator™), optimized via patented cryogenic processes to rapidly capture intact, high-value cannabis and hemp trichomes (CryoSift™). Much like sugar and flour refinements, the resulting CryoSift™ concentrate is a superior product compared to unprocessed biomass. For cultivators, reducing biomass into CryoSift™ slashes volume up to 80%, dramatically lowering storage, handling, and transportation costs. Properly stored, CryoSift™ prevents potency and terpene degradation, preserving value. For processors, the minimized input volume also enables considerable cost savings and logistics advantages. Extracting from CryoSift™ using solvents and manufacturing solventless products unlocks industrial scale yields unattainable otherwise. CryoMass anticipates its efficiencies will catalyze industry-wide shifts in cannabis and hemp post-harvest methods. Additionally, the technology shows promise for diverse trichome-rich plants.

 

Through an independent engineering and manufacturing firm we refined the design of the CryoSift Separator™ for the handling of harvested hemp, cannabis and other premium crops. Our first CryoSift Separator™ unit has been fully developed and delivered to a licensee in California as described in the following section of this report. The engineering and manufacturing firm has indicated that it has the capacity to manufacture sufficient units to meet our needs for the foreseeable future.

 

Canadian Patent no. 3 064 896 “Cryogenic Separation of Plant Material” was filed on May 25, 2018 by two assignors, who assigned it, among other, various other intellectual property rights, to a wholly owned subsidiary of the Company as part of the Cryocann June 22, 2021 transaction. The respective Canadian patent was granted on April 19, 2022. Provided that all patent maintenance fees are paid, the Canadian patent no. 3 064 896 will expire on May 25, 2038.

 

In September 2021, we were granted an additional patent for our process from the Chinese Intellectual Property Office. We currently are taking steps to gain further protection for our intellectual property through the European Union Intellectual Property Office and several other international jurisdictions.

 

Management believes the CryoSift Sepatator™ system will deliver a compelling combination of cost and time savings while enhancing product quality and quantity for largescale cultivators and processors of hemp and cannabis. 

 

Because the trichomes collected with CryoMass technology represent only 10% to 20% of a plant’s volume, they are cheaper to ship and store than gross plant material. For the same reason and because trichomes are free of the waxes and other unwanted materials found in the rest of the plant, processing trichomes into oils and extracts can be far quicker, cheaper and easier than processing gross plant material. Even trichomes captured from dried or frozen plant parts deliver this cost-saving advantage to processors of oils and extracts. The three-dimensional advantage achievable with the CryoSift Separator™ – first-stage cost savings, product enhancement and downstream cost savings – can significantly increase a crop’s wholesale value.

17

 

 

Production and processing of hemp and cannabis is a huge, worldwide industry. In the U.S., for example, the wholesale value of the cannabis crop from just the 11 states permitting adult-use and medical cannabis exceeds $6 billion annually. Growth in the U.S. and in the worldwide market is likely fed in part by the growing acceptance of medicinal cannabis products and anticipated legislative changes in various jurisdictions worldwide.

 

Several other high-value plants, including species that are important for health and wellness products, wrap their valuable elements in trichomes. The technology we are developing for hemp and cannabis may have profitable application to those other species as well.

  

Our Current Business

 

Our business portfolio includes the accounts of Cryomass LLC, Cryomass California LLC and 1304740 BC ULC dba Cryomass Canada, which are 100% owned by Cryomass Technologies Inc.

 

CryoMass Technologies Inc. develops and licenses cutting-edge equipment and processes to refine harvested cannabis, hemp, and other premium crops. The company’s patented technology harnesses liquid nitrogen to reduce biomass and then efficiently isolate, collect and preserve delicate resin glands (trichomes) containing prized compounds like cannabinoids and terpenes. Building on this technology, CryoMass has engineered its premier Trichome Separation unit (CryoSift Separator™), optimized via patented cryogenic processes to rapidly capture intact, high-value cannabis and hemp trichomes (CryoSift™). Much like sugar and flour refinements, the resulting CryoSift™ concentrate is a superior product compared to unprocessed biomass. For cultivators, reducing biomass into CryoSift™ slashes volume up to 80%, dramatically lowering storage, handling, and transportation costs. Properly stored, CryoSift™ prevents potency and terpene degradation, preserving value. For processors, the minimized input volume also enables considerable cost savings and logistics advantages. Extracting from CryoSift™ using solvents and manufacturing solventless products unlocks industrial scale yields unattainable otherwise. CryoMass anticipates its efficiencies will catalyze industry-wide shifts in cannabis and hemp post-harvest methods. Additionally, the technology shows promise for diverse trichome-rich plants.

 

In January 2023, we signed a license and lease arrangement with RedTape Core Partners LLC (“RedTape”) to deploy multiple CryoMass trichome separation units at the prospective partner’s facility in California and other locations. The five states covered by the agreement are California, New York, New Jersey, Florida and Pennsylvania. To date, one CryoSift Separator™ unit has been delivered however, no funds have been paid by RedTape to CryoMass pursuant to the lease and license agreement.

 

On August 16, 2023, the Company agreed to amend the Patent License and Equipment Rental Agreement with RedTape Core Partners LLC in order to remove the state of California from the five states included in the Agreement, along with concomitant reductions in license fees and an amendment to the license fee payment schedule.

 

We believe that our technologies will deliver a compelling combination of cost and time savings while enhancing product quality and quantity for largescale cultivators and processors of hemp and cannabis. To that end, Cryomass is working with an extensive pipeline of cultivators and processors in various markets, including Canada.

 

Results of Operations for the Three Months Ended June 30, 2023 and 2022

 

Our operating results for the three months ended June 30, 2023 and 2022 are summarized as follows:

 

   For the Three Months Ended
June 30,
   Change 
   2023   2022   Dollars   Percentage 
Net sales  $-   $-   $-    0%
Cost of goods sold, inclusive of depreciation   -    -    -    0%
Gross profit   -    -    -    0%
Total operating expenses   6,274,718    1,416,244    4,858,474    343%
Loss from operations   (6,274,718)   (1,416,244)   (4,858,474)   343%
Total other expenses   (87,088)   (14,174)   (72,914)   514%
Net loss before taxes   (6,361,806)   (1,430,418)   (4,931,388)   345%
Income taxes   -    -    -    0%
Net loss  $(6,361,806)  $(1,430,418)  $(4,931,388)   345%

 

18

 

 

Net Sales and Cost of Goods Sold

 

There were no net sales or cost of goods sold for the three months ended June 30, 2023 and 2022.

 

Operating Expenses

 

Operating expenses encompass personnel costs, research and development, general and administrative expenses, depreciation and amortization expenses, loss on impairment of goodwill, and legal and professional fees. Total operating expenses were $6,274,718 for the three months ended June 30, 2023 as compared to $1,416,244 for the three months ended June 30, 2022. The net increase of $4,858,474 or 343%, was primarily attributable to the following changes in operating expenses of:

 

  General and administrative - $207,717 increase

 

  Personnel Costs - $257,033 increase

 

  Legal and Professional - $583,697 decrease
     
  Loss on impairment of goodwill and intangible assets - $4,843,043 increase

 

The increase of $207,717, or 82%, in General and administrative fees is primarily due to the fact that the Company incurred significant costs related to stock compensation expense during the three months ending June 30, 2023. The increase of $257,033 or 37%, in personnel costs is primarily due to the fact that the Company hired multiple new employees through out the second half of 2022 and first half of 2023. The decrease in legal and professional fees of $583,697, or 33%, is primarily due to large invoices in the first half of 2022 for investor relations services. Additionally, the Company fully impaired goodwill and identifiable intangible assets due to delays in implementing our business model, resulting in a $4,843,043 impairment charge for the three months ended June 30, 2023.

 

Other Expense

 

Other expense for the three months ending June 30, 2023 consisted of $82,602 interest expense – net and $4,486 loss on foreign exchange. Other expense for the three months ending June 30, 2022 consisted of $35,235 interest expense and $21,061 gain on foreign exchange. The increase in interest expense was a result of the Company issuing promissory notes to investors during the second quarter of 2023. The loss on foreign exchange predominantly relates to a payable agreement with Cryomass LLC’s supplier.

  

Net Loss 

 

For the foregoing reasons, we had a net loss of $6,361,806 for the three months ending June 30, 2023, or $0.03 net loss per common share – basic and diluted, compared to a net loss of $1,430,418 for the three months ending June 30, 2022, or $0.01 net loss per common share – basic and diluted.

 

Results of Operations for the Six Months Ended June 30, 2023 and 2022

 

Our operating results for the six months ended June 30, 2023 and 2022 are summarized as follows:

 

   For the Six Months Ended
June 30,
   Change 
   2023   2022   Dollars   Percentage 
Net sales  $-   $-   $-    0%
Cost of goods sold, inclusive of depreciation   -    -    -    0%
Gross profit   -    -    -    0%
Total operating expenses   7,806,273    3,544,034    4,262,239   120%
Loss from operations   (7,806,273)   (3,544,034)   (4,262,239)   120%
Total other expenses   (154,059)   (38,689)   (115,370)   298%
Net loss before taxes   (7,960,332)   (3,582,723)   (4,377,609)   122%
Income taxes   -    -    -    0%
Net loss  $(7,960,332)  $(3,582,723)  $(4,377,609)   122%

 

Net Sales and Cost of Goods Sold

 

There were no net sales or cost of goods sold for the six months ended June 30, 2023 and 2022.

 

19

 

 

Operating Expenses

 

Operating expenses encompass personnel costs, research and development, general and administrative expenses, depreciation and amortization expenses, loss on impairment of goodwill, and legal and professional fees. Total operating expenses were $4,153,230 for the six months ended June 30, 2023 as compared to $3,544,034 for the six months ended June 30, 2022. The net increase of $609,196 or 17%, was primarily attributable to the following changes in operating expenses of:

 

  Personnel Costs - $690,068 increase

 

  General and administrative - $252,264 increase

 

  Legal and Professional - $1,743,212 decrease
     
  Loss on impairment of goodwill and intangible assets - $4,843,043 increase

 

The increase of $690,068, or 86%, in personnel costs is primarily due to the fact that the Company hired multiple new employees through out the second half of 2022 and first half of 2023. The increase in general and administrative of $252,264, or 47%, is primarily due to the fact that the Company incurred significant costs related to stock compensation expense and a new health benefits program put in place during the second quarter of 2023. The decrease of $1,743,212, or 81% in legal and professional fees is primarily due to large invoices in the first half of 2022 for investor relations services. Additionally, the Company fully impaired goodwill and identifiable intangible assets due to delays in implementing our business model, resulting in a $4,843,043 impairment charge for the six months ended June 30, 2023.

 

Other Expense

 

Other expense for the six months ending June 30, 2023 consisted of $136,263 interest expense – net and $17,796 loss on foreign exchange. Other expense for the six months ending June 30, 2022 consisted of $71,258 interest expense and $32,569 gain on foreign exchange. The increase in interest expense was a result of the Company entering into new promissory note agreements during the second quarter of 2023. The loss on foreign exchange predominantly relates to a payable agreement with Cryomass LLC’s supplier.

  

Net Loss 

 

For the foregoing reasons, we had a net loss of $7,960,332 for the six months ending June 30, 2023, or $0.04 net loss per common share – basic and diluted, compared to a net loss of $3,582,723 for the six months ending June 30, 2022, or $0.02 net loss per common share – basic and diluted.

 

Liquidity, Capital Resources and Cash Flows

 

The Company believes that its available cash balance as of the date of this filing will not be sufficient to fund its anticipated level of operations for at least the next twelve months. The Company believes that, at the present time, its ability to continue operations depends on cash expected to be available from lease payments and royalty payments in connection with future revenue generation, as well as possible debt and equity investment sources, to fund its anticipated level of operations for at least the next twelve months. As of June 30, 2023, the Company had a working deficit of $1,335,230 and cash balance of $316,267. The Company estimates that it needs approximately $4,200,000 to cover overhead costs and capital expenditure requirements ranging from zero to $6,600,000 depending on how many trichome separation units are ordered over the next twelve months. The Company believes that the Company will continue to incur losses for the immediate future. The Company expects to finance future cash needs from the results of operations and, depending on the results of operations, the Company will need additional equity or debt financing until the Company can achieve profitability and positive cash flows from operating activities. However, there can be no assurance that the Company will receive sufficient cash flow from operations or otherwise that we will be able to attract the necessary financing.

 

Going Concern

 

The Company believes that there is substantial doubt about the Company’s ability to continue as a going concern. Our financial statements for the six months ended June 30, 2023 have been prepared on a going concern basis and do not include any adjustments that might result from the outcome of this uncertainty.

 

20

 

 

Capital Resources 

 

The following table summarizes total current assets, liabilities and working (deficit) capital for the periods indicated: 

 

   June 30,
2023
   December 31,
2022
 
Current assets  $478,406   $2,166,496 
Current liabilities   1,813,636    1,288,465 
Working (deficit) capital  $(1,335,230)  $878,031 

 

As of June 30, 2023 and December 31, 2022, we had a cash balance of $316,267 and $2,016,057, respectively.

 

Summary of Cash Flows

 

   For the Six Months Ended
June 30,
 
   2023   2022 
Net cash used in operating activities  $(2,337,450)  $(2,968,424)
Net cash used in investing activities  $(49,236)  $(762,742)
Net cash provided by financing activities  $686,896   $146,359 

 

Net cash used in operating activities

 

Net cash used in operating activities was $2,337,450 during the six months ended June 30, 2023. This included a net loss of $7,960,332, a non-cash charge related to depreciation and amortization of debt discount of $13,036, a non-cash charge related to depreciation and amortization expense of $268,866, a non-cash charge from a loss on foreign exchange related to notes payable, a non-cash charge related to loss on impairment of goodwill and intangible assets of $4,843,043, a non-cash charge related to common stock issued for vested RSUs for current period services of $129,920, a non-cash charge related to stock-based compensation for common stock issued for current period services of $236,603, a non-cash charge related to common stock issued for current period services of $85,738. This was in addition to net changes in prepaid expenses and accounts payable and accrued expenses of $44,264.

 

Net cash used in operating activities was $2,968,424 during the six months ended June 30, 2022. This included a net loss of $3,582,723, a non-cash charge related to amortization of debt discount of $62,500, a non-cash charge related to depreciation and amortization expense of $43,663, a non-cash charge related to share issuances in exchange for services of $401,044, and a non-cash charge related to stock-based compensation of $209,910. This was partially offset by net changes in prepaid expenses, security deposits, and accounts payable and accrued expenses of $102,818.

 

Net cash used in investing activities

 

Net cash used in investing activities was $49,236 during the six months ended June 30, 2023, due to the purchase of intangible assets.

 

Net cash used in investing activities was $762,742 during the six months ended June 30, 2022, due to the issuance of loans receivable, purchase of property and equipment, and purchase of intangible assets.

  

Net cash provided by financing activities

 

Net cash provided by financing activities for the six months ended June 30, 2023 was $686,896, from the Company issuing promissory notes to investors as part of a capital raising effort.

 

Net cash provided by financing activities for the six months ended June 30, 2022 was $146,359, from proceeds from issuance of common stock. 

 

21

 

 

Off-Balance Sheet Arrangements

 

None.

 

Critical Accounting Policies

 

The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, equity, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to intangibles, accounting for acquisitions, warrants, income taxes, useful life and recoverability of long-lived assets and deferred income tax asset valuations. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Not applicable for a smaller reporting company.

 

Item 4. Controls and Procedures

 

Management’s Evaluation of Disclosure Controls and Procedures

 

We have carried out an evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), to allow timely decisions regarding required disclosures. Based upon that evaluation, our Company’s CEO and CFO concluded that our Company’s disclosure controls and procedures were not effective as of June 30, 2023.

 

Management has not formally documented its procedures and controls and as such does not have a sufficient basis to assess its internal controls over financial reporting. Management identified that it did not maintain adequately designed internal control over the preparation and oversight of:

 

  month-end and period-end financial close processes.

 

  non-routine or complex transactions.

 

  the adoption of new accounting standards.

 

Management’s Report on Internal Control Over Financial Reporting

 

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2023, the end of the annual period covered by this report and according to the criteria established in Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

 

Based on that evaluation, management has concluded that the Company did not maintain effective internal control over financial reporting as of the quarter ended June 30, 2023 due to the existence of material weakness and significant deficiencies in the internal control over financial reporting described below.

 

22

 

 

A significant deficiency is a deficiency, or a combination of deficiencies, in internal controls over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

 

Management has determined that we did not maintain effective internal controls over financial reporting as of the quarter ended June 30, 2023 due to the existence of the following material weakness identified by management:

 

Management did not timely detect impairment of goodwill and intangible assets as of June 30, 2023 in accordance with GAAP.

 

Management has determined that we did not maintain effective internal controls over financial reporting as of the quarter ended June 30, 2023 due to the existence of the following significant deficiencies identified by management:

 

  Due to the Company’s size, there is insufficient segregation of duties to prevent or detect on a timely basis a misstatement of our annual or interim financial statements.

 

  Information technology controls are ineffective or lacking, An IT strategic plan and general controls related to access, change management, segregation of duties, contingency planning, information security, business applications, and interfaces are not yet adequately implemented, updated and monitored.

 

  A top-down risk assessment has not yet been performed and documented by management to identify, analyze, and assess risks related to operations, external financial and non-financial reporting, internal reporting, compliance, fraud or other changes that could significantly impact the internal control environment.

 

  Internal controls and related activities that could mitigate financial statement risks within key business processes have either not been established or are not fully adequate, documented, and/or maintained. Also, various regulatory compliance issues currently exist at an entity-level related to the control environment component specific to non-performance and/or insufficient/incomplete performance, document maintenance, review and approval, and the enforcement of individual accountability.

 

  Documented accounting and other standard rules, guidelines, policies and procedures for key functions within the organization (HR, Payroll, Finance, Sales, IT, etc) have either not been established, are not complete, and/or are not consistently being utilized and monitored against control activities for compliance and ICFR effectiveness.

 

  A whistle-blower program has not yet been established for the anonymous reporting, appropriate tracking, investigating, monitoring, and resolving of alleged wrongdoing, personnel complaints and grievances, without retribution.

 

  Recurring, formalized employee communication and training on internal controls and the company’s commitment to ICFR has not yet been established. Additionally, a permanent, independent internal audit solution has not yet been established to perform an ongoing evaluation of the company’s key controls and ICFR, continuous monitoring of corrective actions, and regular reporting of internal control deficiencies and overall effectiveness of the company’s internal control environment.

 

We intend to continue to evaluate and strengthen our internal control over financial reporting. These efforts require significant time and resources. If we are unable to establish adequate internal control over financial reporting, we may encounter difficulties in the audit or review of our financial statements by our independent registered public accounting firm, which in turn may have a material adverse effect on our ability to prepare financial statements in accordance with GAAP and to comply with our SEC reporting obligations.

 

Management has engaged the services of an experienced expert in internal controls who has been evaluating our current system and implement a more effective system to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act have been recorded, processed, summarized and reported accurately. Our management intends to develop or improve procedures to address the current material weakness and significant deficiencies to the extent possible by the end of fiscal year 2023.

 

23

 

 

Management utilizes external experts to assist the Company with technical accounting expertise needs as deemed necessary and has engaged a consultant to perform a formal assessment and remediation of its internal control’s framework. However, no assurance can be made at this point that the implementation of such controls and procedures will be completed in a timely manner or that they will be adequate once implemented.  

 

Attestation report of Registered Public Accounting Firm

 

This Quarterly Report on Form 10-Q does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting because we are not an “accelerated filer” or a “large accelerated filer”. Our management’s report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report in this Quarterly Report on Form 10-Q.

 

Management’s Evaluation of Disclosure Controls and Procedures

 

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer (who is also the Company’s principal executive officer), and our chief financial officer (who is also the Company’s principal financial and accounting officer) to allow for timely decisions regarding required disclosure. Thus, in accordance with Rules 13a-15(b) under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures as of June 30, 2023, which is the end of the period covered by this Form 10-Q. Based on the evaluation of these disclosure controls and procedures, and in light of the material weakness and significant deficiencies found in our internal controls over financial reporting, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were not effective. The ineffectiveness of our disclosure controls and procedures was due to a material weakness and significant deficiencies identified in our internal control over financial reporting.

 

Changes in Internal Control over Financial Reporting

 

There has been no change in our internal control over financial reporting that occurred during the quarter ended June 30, 2023. We have not been able to remediate the significant deficiency described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and 2021. Our remediation efforts will continue to be implemented throughout our 2023 fiscal year. We believe that the controls that we will be implementing will improve the effectiveness of our internal control over financial reporting. As we continue to evaluate and work to improve our internal control over financial reporting, we may determine to take additional measures to address the material weakness and significant deficiencies or determine to supplement or modify certain of the remediation measures described above.

 

24

 

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

None.

 

Item 1A. Risk Factors

 

In addition to the other information set forth in this Report, you should carefully consider the factors discussed in Item 1A, “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 and subsequent quarterly reports on Form 10-Q, which could materially affect our business, financial condition or future results.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None.

 

25

 

 

Item 6. Exhibits

 

Exhibit
Number
  Description
10.1*   Restated and Amended Patent License and Equipment Rental Agreement by and between RedTape Core Partners LLC and Cryomass Technologies Inc., dated August 15, 2023.
10.2*   Patent License and Equipment Rental Agreement Rubberrock Inc., dated August 18, 2023.
31.1*   Section 302 Certification under the Sarbanes-Oxley Act of 2002 of the Principal Executive Officer.
31.2*   Section 302 Certification under the Sarbanes-Oxley Act of 2002 of the Principal Financial Officer and Principal Accounting Officer.
32.1*   Section 906 Certification under the Sarbanes-Oxley Act of 2002 of the Principal Executive Officer.
32.2*   Section 906 Certification under the Sarbanes-Oxley Act of 2002 of the Principal Financial Officer and Principal Accounting Officer.
101.INS   Inline XBRL Instance Document
101.SCH   Inline XBRL Taxonomy Extension Schema Document
101.CAL   Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF   Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB   Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE   Inline XBRL Taxonomy Extension Presentation Linkbase Document
104   Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

 

* Filed herewith.

 

26

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

CRYOMASS TECHNOLOGIES INC.  
(Registrant)  
   

Dated: August 21, 2023

 
   
/s/ Christian Noel  
Christian Noel  
Chief Executive Officer and Director  
(Principal Executive Officer)  
   

Dated: August 21, 2023

 
   
/s/ Philip Mullin  
Philip Mullin  
Chief Financial Officer and Treasurer  
(Principal Financial Officer and
Principal Accounting Officer)
 

 

 

27