As of December 31, 2022, the Company had not generated significant revenues and
had no income or cash flows from operations since inception. As of December 31,
2022, the Company had a working capital deficit of $6,358,008 and an accumulated
deficit of $30,783,678.
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 is running its operations at its Simcoe Facility
cultivating Premium Cannabis and started generating revenue (though its
investment in JVCo) 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, 2022 and 2021
Cash and restricted cash
On December 31, 2022, we had cash of $223,843 (excluding restricted cash of
$8,490) compared to $113,079 (excluding restricted cash of $9,072) as of
December 31, 2021. The increase is due to increased cash being provided by
investment in the joint venture which reflects net recovery of payments of
salaries, rent, and other operating expenses of our subsidiary, Canary, and
additional loan provided by a related party offset by payments of a loan to a
different related party.
The change in restricted cash is due to foreign exchange conversion of balances
in Canadian Dollar into United States Dollar.
Prepaid asset
As of December 31, 2022, we had prepaid expenses of $41,714 compared to $44,567
as of December 31, 2021. The balance represents the security deposit for the
leased land for the facility to produce Medical Marijuana.
Sales tax recoverable and payable
As of December 31, 2022, the Company had $nil of gross sales tax recoverable
compared to $22,146 as of December 31, 2021 while the Company had $35,254 of
gross sales tax payable as of December 31, 2022.
Recoverable is due to the sales tax paid by the Company on expenses incurred
during the year which are recoverable from the government while payable is due
to the sales tax received (after deducting sales tax paid on expenses incurred
by the Company) during the year which are payable from the government due to
sales conducted by the Joint Venture.
Sales tax recoverable allowance on December 31, 2022 is $nil (December 31, 2021:
$509).
Goodwill
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.
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Fixed assets
The Company had initiated construction on its leased 44,000 square foot cannabis
cultivation facility in September of 2017. 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 had 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.
Accounts payable and accrued liabilities
Accounts payable amounting to $2,296,935 as of December 31, 2022, primarily
represents consulting and construction services related to fixed asset additions
amounting to $154,811, interest on promissory notes and loans amounting to
$739,130, outstanding and accrued professional fees amounting to $906,596.
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.
Payable to related parties
As of December 31, 2022, we had $10,346,465 of the amount payable to related
parties as compared to $10,658,800 as of December 31, 2021. 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 $37 was accrued for the year ended December 31, 2022
(2021: $109).
The principal amount outstanding as of December 31, 2022 and 2021 was $480. At
both reporting dates, the entire balance was current.
All notes maturing prior to the date of this report are outstanding.
Income statement for the years ended December 31, 2022 and 2021
Revenues for the years ended December 31, 2022 and 2021
The Company did not generate revenue during the current or the comparable year
ended in 2021. However, Canary generated revenues of $3,916,539 (though its
investment in JVCo) during the current year ended (2021: $2,198,592) 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 thirteen customers (2021: ten).
Expenses for the years ended December 31, 2022 and 2021
Our expenses are classified primarily into advisory and consultancy fees,
management fees, salaries and wages, legal and professional fees, and
depreciation expense. The decrease in operating expenses for the year ended
December 31, 2022 compared to 2021 is due to decrease in consulting expenses,
management fees and depreciation and amortization expense.
Expenses for the year ended December 31, 2022 primarily represented consulting
fees of $18,926 (2021: $21,702), management fees of $143,677 (2021: $149,819),
legal and professional charges of $243,670 (2021: $232,151) comprising legal,
review, accounting and Edgar agent fee, depreciation expense amounting to
$885,229 (2021: $971,524).
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Changes in other income and expenses were due to: (1) the revaluation of the
warrant and convertible debt liabilities on each quarter-end which reduced
significantly in magnitude since a significant number of warrants expired during
the current year ended; (2) increase in the principal balance of higher interest
rate bearing loans led to increased interest expense; (3) started to earning net
income from the joint venture, as a result, the share of income has increased
significantly; (4) the recovery of interest expense charged on shareholder loan
from JVCo operations caused a significant increase in other income; (5)
impairment of goodwill related to Canary's acquisition and (6) significant
increase in exchange income during the year due to favorable exchange rate.
Other income and expenses comprised, change in fair value of derivative and
warranty liability amounting to positive $14,383 (2021: positive $2,930,894),
(gain) loss on settlement of debt amounting to $nil (2021: $(26,049)), interest
and bank charges amounting to $1,121,595 (2021: $985,634), exchange income of
$126,314 (2021: loss of $73,163) other income of $811,464 (2021: 30,769),
impairment of inventory in the amount of $99,000 (2021: $nil), impairment of
goodwill in the amount of $3,315,749 (2021: $nil) and share of income from joint
venture of $354,736 (2021: loss of $272,995).
Liquidity and Capital Resources
As of December 31, 2022, the Company had a working capital deficit of $6,358,008
and an accumulated deficit of $30,783,678 (2021: Working capital deficit of
$3,459,035 and an accumulated deficit of $26,263,614). 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, 2022 and 2021:
Operating activities
Operating activities used cash of $1,014,828 compared to the provided cash of
$100,118 during the prior year. This is primarily due to the payments of a
number of outstanding balances in accounts payable and accrued liabilities.
Investing activities
Investing activities provided cash of $1,015,040 compared to usage of $1,405,966
during the prior year. The current period cash generation represents the
recovery of investment and increased revenue generated by the JVCo offset by
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. The switch from using cash to providing cash is due to
the JVCo starting to generate sales leading to reduced funding towards JVCo.
Financing activities
Financing activities provided cash of $122,674 compared to $1,251,489 for the
corresponding period of the prior year. During the current period, cash was
provided by a loan advance from a related party offset by payment to another
related party while in the prior period, cash was primarily provided by proceeds
from private placements.
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