The following management's discussion and analysis of the Company's financial
condition and results of operations contain forward-looking statements that
involve risks, uncertainties and assumptions including, among others, statements
regarding our capital needs, business plans and expectations. In evaluating
these statements, you should consider various factors, including the risks,
uncertainties and assumptions set forth in reports and other documents we have
filed with or furnished to the
Introduction
The following discussion summarizes the results of operations for each of our
fiscal years ended
Overview
Our business is the production and cultivation of medical and recreational
marijuana in
Results of Operations for the years ended
The following table sets forth our results of operations for the fiscal years
ended
July 31, July 31, 2022 2021 $ $ Sales 31,638,163 26,900,869 Cost of sales and other (20,694,217 ) (14,910,660 )
General and Administrative Expenses (14,463,446 ) (11,402,882 ) Other Items
(22,115,439 ) (397,079 ) Net Loss (28,228,104 ) (1,976,461 ) Foreign Currency Translation Adjustment 96,380 395,945 Comprehensive Loss (28,131,724 ) (1,580,516 ) Basic and Diluted Loss Per Share (0.25 ) (0.02 ) Revenues
For the year ended
Year ended July 31, 2022 Revenues - By Segment $ % Wholesale 5,324,803 17 % Retail 26,313,360 83 % Total 31,638,163 45 Table of Contents Operating Expenses
For the year ended
Income Taxes
The (benefit) expense for income taxes consists of the following:
2022 2021 Current: Federal$ 2,277,868 $ 2,281,497 State 85,867 99,322 2,363,735 2,380,819 Deferred: Federal 6,598 (214,352 ) State 222,832 242 229,430 (214,110 )
Total (benefit) expense for income taxes
Section 280E of the Internal Revenue Code ("IRC") prohibits businesses engaged
in the trafficking of Schedule I or Schedule II controlled substances from
deducting normal business expenses, such as payroll and rent, from gross income
(revenue less cost of goods sold). Section 280E was originally intended to
penalize criminal market operators, but because cannabis remains a Schedule I
controlled substance for
2022 2021
Net loss for the year before income tax
21.00 % 21.00 % Expected income tax recovery (5,383,335 ) 39,951 IRC 280E disallowance 8,208,764 1,935,581 Stock options 118,816 243,829 Impairment of consolidated investment - 176,816 Other permanent differences (78,052 ) (82,301 ) Opening deferred tax adjustments (602,555 ) (284,621 ) State taxes (394,760 ) 7,598 Change in benefit not recognized 724,287 129,856 Total income tax expense$ 2,593,165 $ 2,166,709
The impact of the loss on impairment of goodwill, intangible assets, ROU assets,
and loans receivable in the aggregate amount of
46 Table of Contents Other Items
During the year ended
Net Loss
Net loss for the year ended
Other Comprehensive Income (Loss)
We recorded translation adjustments gain of
Liquidity and Capital Resources
The following table sets out our cash and working capital as ofJuly 31, 2022 and 2021: As of As of July 31, July 31, 2022 2021 Cash reserves$ 1,854,277 $ 7,374,194 Working capital$ 1,380,421 $ 8,819,840 Financings
There has been no equity financing during the year ended
During the year ended
47 Table of Contents Statement of Cashflows
During the year ended
Cash Flow used in Operating Activities
Cash flow used in operating activities totaled
· The Company incurred a net loss from operations of$28,228,104 during the year endedJuly 31, 2022 compared to$1,976,461 in 2021. The net loss in 2022 included, among other things, non-cash depreciation of$969,157 (2021:$765,857 ), accrued interest and accretion of$1,035,592 (2021:$15,474 ), amortization of right-of-use assets of$517,163 (2021:$431,427 ), amortization of licenses of$1,266,753 (2021:$1,122,415 ), equity-method investment change from earnings of $Nil (2021:$13,219 ), impairment loss on its assets of$20,517,192 (2021:$592,747 ), and stock-based compensation of$435,266 (2021:$975,555 ).
The following non-cash items further adjusted the loss for the year ended
· Decrease in amounts receivable and prepaid of$1,009,578 (2021: increase of$528,364 ), increase in inventory of$291,168 (2020:$809,491 ), increase in deposits of$113,828 (2021: $Nil), increase in trade payables and accrued liabilities of$653,068 (2021: decrease of$194,328 ), decrease in lease liabilities of$871,407 (2021:$536,985 ), decrease in income taxes payable of$843,329 (2021: increase of$1,798,668 ), increase in due to related parties of$111,788 (2021: decrease of$3,439 ), and net increase in loan due from NMG Ohio of $Nil (2021:$891,279 ).
Cash Flow used in Investing Activities
During the year ended
Cash Flow provided by Financing Activities
During the year ended
During the year ended
Trends and Uncertainties
Potential Impact of the COVID-19 Pandemic
In
48 Table of Contents
There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Outstanding share data
At
Critical Accounting Policies
Our financial statements and accompanying notes have been prepared in accordance
with
We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.
We believe the following critical accounting policies require us to make significant judgments and estimates in the preparation of our consolidated financial statements.
· Income taxes The determination of deferred income tax assets or liabilities requires subjective assumptions regarding future income tax rates and the likelihood of utilizing tax carry-forwards. Changes in these assumptions could materially affect the recorded amounts, and therefore do not necessarily provide certainty as to their recorded values. · Foreign currency The Company determines the functional currency through an analysis of several indicators such as expenses and cash flows, financing activities, retention of operating cash flows, and frequency of transactions with the reporting entity. 49 Table of Contents · Fair value of financial instruments Management uses valuation techniques, in measuring the fair value of financial instruments, where active market quotes are not available. In applying the valuation techniques, management makes maximum use of market inputs wherever possible, and uses estimates and assumptions that are, as far as possible, consistent with observable data that market participants would use in pricing the instrument. Where applicable data is not observable, management uses its best estimate about the assumptions that market participants would make. Such estimates include liquidity risk, credit risk and volatility may vary from the actual results that would be achieved in an arm's length transaction at the reporting date. The assessment of the timing and extent of impairment of intangible assets involves both significant judgements by management about the current and future prospects for the intangible assets as well as estimates about the factors used to quantify the extent of any impairment that is recognized. · Long-lived assets and goodwill Long-lived assets and goodwill are reviewed for indicators of impairment at least annually. When there are indications of impairment, the Company calculates the fair value of reporting units for goodwill and the fair value of the asset groups for long-lived assets using various valuation techniques, which require the input of highly subjective assumptions that can materially affect the fair value estimate. · Intellectual property The recoverability of the carrying value of the intellectual property is dependent on numerous factors. The carrying value of these assets is reviewed by management when events or circumstances indicate that its carrying value may not be recovered. If impairment is determined to exist, an impairment loss is recognized to the extent that the carrying amount exceeds the recoverable amount. · Stock-based compensation The option pricing models require the input of highly subjective assumptions, particularly the expected stock price volatility. Changes in the subjective input assumptions can materially affect the fair value estimate, and therefore the existing models do not necessarily provide a reliable single measure of the fair value of the Company's stock options. · Business Combination The results of businesses acquired in a business combination are included in our consolidated financial statements from the date of the acquisition. Purchase accounting results in assets and liabilities of an acquired business being recorded at their estimated fair values on the acquisition date. Any excess consideration over the fair value of assets acquired and liabilities assumed is recognized as goodwill. We perform valuations of assets acquired and liabilities assumed on each acquisition accounted for as a business combination in order to record the tangible and intangible assets acquired and liabilities assumed based on our best estimate of fair value. Determining the fair value of assets acquired and liabilities assumed requires management to use significant judgment and estimates including the selection of valuation methodologies, estimates of future revenue and cash flows, discount rates and selection of comparable companies. Significant estimation is required in determining the fair value of the customer relationship intangible assets, deferred revenue and contingent consideration liabilities. The significant estimation is primarily due to the judgmental nature of the inputs to the valuation models used to measure the fair value of these intangible assets, deferred revenue and contingent consideration liabilities, as well as the sensitivity of the respective fair values to the underlying significant assumptions. We use the income approach to measure the fair value of these intangible assets. The significant assumptions used to estimate the fair value of the intangible assets included forecasted revenues from existing customers and existing customer attrition rates. When estimating the significant assumptions to be used in the valuation we include a consideration of current industry information, market and economic trends, historical results of the acquired business and other relevant factors. These significant assumptions are forward-looking and could be affected by future economic and market conditions. We engage the assistance of valuation specialists in concluding on fair value measurements in connection with determining fair values of assets acquired and liabilities assumed in a business combination.
Recent Accounting Pronouncements
In
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In
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