As of December 31, 2021, the Company had not generated significant revenues and
had no income or cash flows from operations since inception. As of December 31,
2021, the Company had a working capital deficit of $3,459,035 and an accumulated
deficit of $26,263,614.
The Company's independent auditors have issued a report raising substantial
doubt about the Company's ability to continue as a going concern.
At present, the Company has begun its operations at its Simcoe Facility
cultivating Premium Cannabis and started generating revenue within the Canadian
wholesale cannabis market. However, the continuation of the Company as a going
concern is dependent upon these operations successfully generating cashflow for
the Company, financial support from its stockholders, its ability to obtain
necessary equity financing to continue operations and/or to successfully locate
and negotiate with a business entity for the combination of the target company
with the Company.
Balance sheet as of December 31, 2021 and 2020
Cash and restricted cash
On December 31, 2021, we had cash of $113,079 (excluding restricted cash of
9,072) compared to $172,597 (excluding restricted cash of 9,032) as of December
31, 2020. The decrease is due to investment in the joint venture which reflects
payments of salaries, rent, and other operating expenses of our subsidiary,
Canary, and payment towards outstanding payables during the period offset by
proceeds from private placement during the current year ended.
Prepaid asset
As of December 31, 2021, we had prepaid expenses of $44,567 compared to $46,775
as of December 31, 2020. The balance represents the security deposit for the
leased land for the facility to produce Medical Marijuana.
Sales tax recoverable
As of December 31, 2021, the Company had $22,146 of gross sales tax recoverable
compared to $95,386 as of December 31, 2020. This is due to the sales tax paid
on expenses incurred during the year which are recoverable from the government.
The Company has recorded an allowance in the amount of $509 (2020: $19,924)
stemming from potentially uncollectible balances within the outstanding sales
tax recoverable amount.
Goodwill and intangible assets
Goodwill represents the excess of the cost of an acquisition over the fair value
of the Company's share of the net identifiable assets of our subsidiaries at the
date of acquisition.
Fixed assets
The Company initiated construction on its leased 44,000 square foot cannabis
cultivation facility in September of 2017. Since then, extensive demolition and
structural upgrades have been carried out at the site. On May 1, 2019, the
Company completed the construction of its 44,000 square foot cannabis
cultivation facility and on May 14, 2019, the Company submitted a Site Evidence
Package to Health Canada as part of the steps to obtain the license to cultivate
cannabis at the Company's facility. On October 8, 2019, the Company was granted
licenses to cultivate, process and sell cannabis pursuant to the Cannabis Act
(Bill C-45). On June 4, 2021, Canary received its Sales License amendment from
Health Canada.
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Accounts payable and accrued liabilities
Accounts payable amounting to $2,885,909 as of December 31, 2021, primarily
represents customer advance for sales amounting to $394,400, consulting and
construction services related to fixed asset additions amounting to $163,101,
interest on promissory notes and loans amounting to $952,376, outstanding and
accrued professional fees amounting to $973,017.
Accounts payable amounting to $1,809,120 as of December 31, 2020, primarily
represents consulting and construction services related to capital work in
progress amounting to 141,935, interest on promissory notes and loans amounting
to $403,865, and outstanding plus accrued professional fees of $1,002,098.
Payable to related parties
As of December 31, 2021, we had $10,658,800 of the amount payable to related
parties as compared to $9,934,960 as of December 31, 2020. The balance primarily
represents loans provided by the Company's shareholders and a related party,
CLI, management services fee outstanding to the managers of the company, and
outstanding amount of $65,000 to be paid to a former shareholder of CannaKorp as
part of the settlement agreement.
For additional detail, refer to Note 14 in consolidated financial statements.
Convertible promissory notes payable
Interest amounting to $109 was accrued for the year ended December 31, 2021
(2020: $12,182).
The principal amount outstanding as of December 31, 2021 and 2020 was $480 and
$3,128, respectively. As of December 31, 2021 and 2020, the entire balance was
current.
During the year ended December 31, 2021, the Company converted the outstanding
principal balance of Note K.
All notes maturing prior to the date of this report are outstanding.
Income statement for the years ended December 31, 2021 and 2020
Revenues for the years ended December 31, 2021 and 2020
The Company did not generate revenue during the current year ended as compared
to $30,000 revenue during the comparable period ended in 2020. The revenue
represented the sale of Wisp™ vaporizer and pod units. However, Canary generated
revenues of $2,198,592 (though its investment in JVCo) during the current year
ended (2020: $108,930) and is represented as a share of income from joint
venture on the audited consolidated statement of operations. The revenue
represents the sale of cannabis product, and the entire revenue was sold to ten
customers (2020: one).
Expenses for the years ended December 31, 2021 and 2020
Our expenses are classified primarily into advisory and consultancy fees,
management fees, salaries and wages, legal and professional fees, and
amortization and depreciation expense. The decrease in operating expenses for
the year ended December 31, 2021 compared to 2020 is due to a lower level of
activity compared to prior year, the management's continuous efforts to control
and reduce expenses, and Canary's investment in the joint venture which is
incurring the operation expenses of Canary.
Expenses for the year ended December 31, 2021 primarily represented consulting
fees of $21,702 (2020: $69,466), management fees of $149,819 (2020: $286,978),
legal and professional charges of $232,151 (2020: $477,539) comprising legal,
review, accounting and Edgar agent fee, amortization and depreciation expense
amounting to $971,524 (2020: $292,944).
Changes in other income and expenses were due to the revaluation of the warrant
and convertible debt liabilities on each quarter-end, loans charging interest
expense for the full period compared to a partial period in the comparable
period and started to earning net income from the joint venture, as a result,
the share of loss has reduced.
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Other income and expenses comprised, change in fair value of derivative and
warranty liability amounting to positive $2,930,894 (2020: positive $3,228,622),
(gain) loss on settlement of debt amounting to $(26,049) (2020: $3,347,630),
interest and bank charges amounting to $985,634 (2020: $514,028), accretion
expenses of $nil (2020: $27,704) related to promissory notes and share of loss
from joint venture of $272,995 (2020: $248,685). In addition, impairment of
goodwill in the amount of $nil (2020: $4,413,742).
Liquidity and Capital Resources
As of December 31, 2021, the Company had a working capital deficit of $3,459,035
and an accumulated deficit of $26,263,614 (2020: Working capital deficit of
$4,118,770 and an accumulated deficit of $26,536,495). The Company is actively
seeking various financing operations to meet the working capital requirements.
We have relied on equity financing and personal funds for our operations. The
proceeds may not be sufficient to effectively develop our business to the
fullest extent to allow us to maximize our revenue potential, in which case, we
will need additional capital.
We will need capital to allow us to invest in development. The Company
anticipates that its future operations will generate positive cash flows
starting in 2022 provided that it is successful in obtaining additional
financing in the foreseeable future.
Statement of Cash Flow - For the years ended December 31, 2021 and 2020:
Net cash used in operating activities
Operating activities provided cash of $100,118 compared to the usage of cash of
$1,433,169 during the prior year. This improvement is due to the management's
efficient use of cash and Canary starting to generate sales through the JVCo
compared to the prior year.
Net cash used in investing activities
Investing activities used cash of $1,405,966 compared to $976,355 during the
prior year. The current period cash utilization represents improvements to
Canary's facility to increase its efficiency and increase cannabis production,
and investment made in the JVCo by way of paying operating expenses such as
salaries, rent, utilities, etc., which will be reimbursed by the JVCo in the
future.
Net cash from financing activities
Financing activities provided cash of $1,251,489 compared to $2,571,791 for the
corresponding period of the prior year. During the current period, cash was
primarily provided by private placements offset by settlement payments to one
party while in the prior period, loans were received from multiple related
parties offset by a number of settlements payments to multiple parties.
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