Name | Jurisdiction | | Ownership | | | Date of acquisition or formation | | 7DEP Nevada Inc. (“DEP Nevada”) | | Nevada, USA | | | 100 | % | | 10 August 2017 | | Table of ContentsNevada Medical Group LLC (“NMG”) |
Body and Mind Inc. (formerly Deploy Technologies Inc.)
| Nevada, USA | | | 100 | % | | 14 November 2017 | | NMG Long Beach LLC (“NMG LB”) | | California, USA | | | 100 | % | | 18 December 2018 | | Notes to Consolidated Interim Financial StatementsNMG Cathedral City LLC
| (Unaudited)
| California, USA | | | 100 | % | | 4 January 2019 | | For the nine months ended NMG San Diego LLC (“NMG SD”)
| | California, USA | | | 60 | % | | 30 April 2018January 2019 | | U.S. DollarsNMG Ohio LLC (“NMG Ohio”)
| | Ohio, USA | | | 100 | % | | 27 April 2017 | | NMG OH 1, LLC (“NMG OH 1”) | | Ohio, USA | | | 100 | % | | 29 January 2020 | | NMG OH P1, LLC (“NMG OH P1”) | | Ohio, USA | | | 100 | % | | 29 January 2020 | | NMG MI 1, Inc. (“NMG MI 1”) | | Michigan, USA | | | 100 | % | | 24 June 2021 | | NMG MI C1 Inc. | | Michigan, USA | | | 100 | % | | 24 June 2021 | | NMG MI P1 Inc. | | Michigan, USA | | | 100 | % | | 24 June 2021 | | Canopy Monterey Bay, LLC (“Canopy”) | | California, USA | | | 80 | %* | | 1 December 2021 | |
1. Nature* Represents the Company’s controlling interest (see Note 11). The Company is yet to close its acquisition and Continuance of Operations – Continued
Principles of Consolidation – Continued
The results of operations from NMG are included in these consolidated financial statements from the date of the Company acquired control over NMG on 14 November 2017.does not have a legal ownership.
All inter-company transactions and balances are eliminated upon consolidation. 2. Recent Accounting Pronouncements
In January 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-01, "Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities." ASU 2016-01 amends various aspects of the recognition, measurement, presentation, and disclosure of financial instruments. ASU 2016-01 is effective for annual reporting periods and interim periods within those years beginning after 15 December 2017. The Company does not anticipate this amendment to have a significant impact on the financial statements.
In February 2016, the FASB issued ASU No. 2016-02 (Topic 842) "Leases." Topic 842 supersedes the lease recognition requirements in Accounting Standards Codification (“ASC”) Topic 840 "Leases." Under Topic 842, lessees are required to recognize assets and liabilities on the balance sheet for most leases and provide enhanced disclosures. Leases will continue to be classified as either finance or operating. Topic 842 is effective for annual reporting periods and interim periods within those years beginning after 15 December 2018. Early adoption by public entities is permitted. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements, and there are certain optional practical expedients that an entity may elect to apply. Full retrospective application is prohibited. The Company is currently evaluating the impact that this new standard will have on its financial statements.
2. | Recent Accounting Pronouncements |
In June 2016, the FASB issued ASU No. 2016-13, "FinancialFinancial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments"Instruments which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. ASU 2016-13 is effective for annual reporting periods, and interim periods within those years beginning after 15 December 2019.2022. The Company does not anticipate this amendment to have a significant impact on the consolidated financial statements. Body and Mind Inc. Notes to Condensed Consolidated Interim Financial Statements For the Six Months Ended 31 January 2022 (U.S. Dollars) |
2. | Recent Accounting Pronouncements – Continued |
In May 2014,December 2019, the FASB issued ASU No. 2015-142019-12, Income Taxes (Topic 606) “Revenue from Contracts with Customers”, which provides a five-step approach740) Simplifying the Accounting for Income Taxes. ASU 2019-12 removes certain exceptions for investments, intraperiod allocations and interim calculations, and adds guidance to be applied to all contracts with customers and also requires expanded disclosures about revenue recognition. Thereduce complexity in accounting for income taxes. ASU 2019-12 is effective for annual reportingand interim periods beginning after 15 December 2017, including interim periods and is to be retrospectively applied.2020. Early adoption is not permitted. The Company doesAdoption this ASU did not anticipate this amendment to have a significant impact on the Company’s consolidated financial statements. In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. ASU 2021-08 requires the recognition and measurement of contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, Revenue from Contracts with Customers. Considerations to determine the amount of contract assets and contract liabilities to record at the acquisition date include the terms of the acquired contract, such as timing of payment, identification of each performance obligation in the contract and allocation of the contract transaction price to each identified performance obligation on a relative standalone selling price basis as of contract inception. ASU 2021-08 is effective for the Company beginning in the first quarter of 2023. ASU 2021-08 should be applied prospectively for acquisitions occurring on or after the effective date of the amendments. Early adoption of the proposed amendments would be permitted, including adoption in an interim period. The Company is currently assessing the impact this standard will have on the Company’s consolidated financial statements. Body and Mind Inc. (formerly Deploy Technologies Inc.)
| | Notes to Consolidated Interim Financial Statements
(Unaudited)
| For the nine months ended 30 April 2018
| U.S. Dollars
|
The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the consolidated financial position, statements of operations and cash flows. 3. Significant Accounting Policies
3. | Significant Accounting Policies |
The following is a summary of significant accounting policies used in the preparation of these consolidated financial statements. Basis of presentation TheThese condensed consolidated interim financial statements of the Company have been preparedand related notes are presented in accordance with GAAPaccounting principles generally accepted in the United States of America (“GAAP”) and are expressed in U.S. dollars. The Company’s fiscal year end is 31 July.
Cash and cash equivalents
Cash and cash equivalents include highly liquid investments with original maturities of three months or less.
Derivative financial instruments
The Company has not, to the date of these financial statements, entered into derivative instruments.
Amounts receivable Amounts receivable represents amounts owed from customers for sale of medical marijuanaand recreational cannabis and sales tax recoverable. Amounts are presented net of the allowance for doubtful accounts, which represents the Company’s best estimate of the amount of probablyprobable credit losses in the existing accounts receivable balance. The Company determines the allowance for doubtful accounts based on historical experience and current economic conditions. The Company reviews the adequacy of its allowance for doubtful accounts on a regularquarterly basis. As at 30 April 2018of 31 January 2022 and 31 July 2017,2021, the Company has no allowance for doubtful accounts. Body and Mind Inc. Notes to Condensed Consolidated Interim Financial Statements For the Six Months Ended 31 January 2022 (U.S. Dollars) |
3. | Significant Accounting Policies – Continued |
Revenue recognition The Company derivesrecognizes revenue primarily from product sales when our customers obtain control of our products. This determination is based on the salecustomer specific terms of medical marijuana. In accordance with ASC 605 “Revenue Recognition”, revenue is recognized when persuasive evidencethe arrangement for wholesale operations. Upon transfer of an arrangement exists,control, the services have been rendered and the goods have been delivered, the amount is fixed and determinable, and collection is reasonably assured.Company has no further performance obligations. All retail sales are considered COD. TheDue to the nature of the Company’s revenue from contracts with customers, the Company does not have standard termsmaterial contract assets or liabilities that permit returnfall under the scope of product; however, in certain markets where returns occur managementASC 606.
The Company’s revenues accounted for under ASC 606, generally, do not require significant estimates the amount of returns as variable considerationor judgments based on historical return experiencethe nature of the Company’s revenue streams. The sales prices are generally fixed and adjust revenue accordingly. Products thatall consideration from contracts is included in the transaction price. The Company’s contracts do not meet our high quality standards are returned by the customerinclude multiple performance obligations or recalled and destroyed and are recorded as a reduction of revenue. The reversal of revenue is recorded upon determination that the product will be recalled and destroyed. Management estimates the costs required to facilitate product returns and record them in cost of goods sold as required.material variable consideration. See Note 17 for revenue disaggregation table. Inventory Inventory consists of raw material, work in progress (live plants and plants in the drying process), finished goods, and consumables. The Company values its raw material, finished goods and consumables at the lower of the actual costs or its current estimated market value less costs to sell. The Company values its work in progress at cost. The Company periodically reviews its inventory for obsolete and potentially impaired items. As of 31 January 2022 and 31 July 2021, the Company has no allowance for inventory obsolescence. Loans receivable Body and Mind Inc. (formerly Deploy Technologies Inc.)
| | Notes to Consolidated Interim Financial Statements
(Unaudited)
| For the nine months ended 30 April 2018
| U.S. Dollars
|
The Company carries its loans receivable at cost and are reviewed for indicators of impairment at least annually. 3. Significant Accounting Policies – Continued
Property and equipment Property and equipment are stated at cost and are amortized over their estimated useful lives on a straight-line basis:basis as follows: Office equipment | | | 7 years | | Cultivation equipment | | | 7 years | | Production equipment | | | 7 years | | Kitchen equipment | | | 7 years | | Vehicles | | | 7 years | | Vault equipment | | | 7 years | | Leasehold improvements | shorter of useful life or the term of the lease | | 15 years
| |
Brands and licensesIntangible assets
Intangible assets acquired from third parties are measured initially at fair value and either classified as indefinite life or finite life depending on their characteristics. Intangible assets with indefinite lives are tested for impairment at least annually and intangible assets with finite lives are reviewed for indicators of impairment at least annually. The Company’s brands and licenses acquired from NMG have indefinite lives; therefore no amortization is recognized. The Company’s brands and licenses acquired by NMG SD have a finite life of 10 years, brands and licenses acquired by NMG LB and NMG OH 1 have a finite life of 10 years, customer relationships acquired by NMG OH 1 have a finite life of five years, licenses acquired by Canopy have a finite life of 10 years and are amortized over these estimated useful lives on a straight-line basis. Body and Mind Inc. Notes to Condensed Consolidated Interim Financial Statements For the Six Months Ended 31 January 2022 (U.S. Dollars) |
3. | Significant Accounting Policies – Continued |
Goodwill Goodwill represents the excess of the aggregate purchase price paid over the fair value of the net assets acquired in our business combinations. Goodwill is not amortized and is tested for impairment at least annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Events or changes in circumstances that could trigger an impairment review include a significant adverse change in business climate, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel, significant changes in the manner of our use of the acquired assets or the strategy for our overall business, significant negative industry or economic trends, or significant underperformance relative to expected historical or projected future results of operations. The Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying value, including goodwill. If, after assessing the totality of events or circumstances, the Company determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, additional impairment testing is not required. The Company tests for goodwill impairment annually during its fourth quarter on 31st July. Income taxes Deferred income taxes are reported for timing differences between items of income or expense reported in the consolidated financial statements and those reported for income tax purposes in accordance with Accounting Standards Codification (“ASC”)ASC 740, “Income Taxes”, which requires the use of the asset/liability method of accounting for income taxes. Deferred income taxes and tax benefits are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases, and for tax losses and credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company provides for deferred taxes for the estimated future tax effects attributable to temporary differences and carry-forwards when realization is more likely than not. Basic and diluted net loss per share The Company computes net income (loss) per share in accordance with ASC 260, “Earnings per Share”. ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excluded all dilutive potential shares if their effect is anti-dilutive. Body and Mind Inc. (formerly Deploy Technologies Inc.)
| | Notes to Consolidated Interim Financial Statements
(Unaudited)
| For the nine months ended 30 April 2018
| U.S. Dollars
|
3. Significant Accounting Policies – Continued
Segments Potentially dilutive options of an enterprise9,253,000 and related information
ASC 280, “Segment Reporting” establishes guidance for the way that public companies report information about operating segments in annual consolidated financial statements and requires reportingwarrants of selected information about operating segments in interim consolidated financial statements17,215,284 existed at 31 January 2022. This figure does not include 3,200,000 warrants issued to the public. It also establishes standards for disclosures regarding productsAgent pursuant to the Loan Agreement, which warrants are held in escrow by us and services, geographic areas and major customers. ASC 280 defines operating segments as componentsare to be released to the Agent if we draw on the Delayed Draw Term Loan by 1 June 2022, or cancelled if we do not draw on the Delayed Draw Term Loan. Each warrant, if released to the Agent, will entitle the holder to acquire one share of a company about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company has evaluated this Codification and does not believe it is applicablecommon stock at this time.an exercise price of US$0.45 per share until 19 July 2025.
Start-up expenses
The Company has adopted ASC 720-15, “Start-Up Costs”, which requires that costs associated with start-up activities be expensed as incurred. Accordingly, start-up costs associated with the Company’s formation have been included in the Company’s expenses for the period from the date of inception.
Comprehensive loss ASC 220, “Comprehensive Income”, establishes standards for the reporting and display of comprehensive income/loss and its components in the consolidated financial statements. As at 30 April 2018,of 31 January 2022 and 31 July 2021, the Company reported foreign currency translation adjustments as other comprehensive income or loss and included a schedule of comprehensive income/loss in the consolidated financial statements. Body and Mind Inc. Notes to Condensed Consolidated Interim Financial Statements For the Six Months Ended 31 January 2022 (U.S. Dollars) |
3. | Significant Accounting Policies –Continued |
Foreign currency translation The Company’s functional currency is the Canadian dollarsdollar and its reporting currency is in U.S. dollars. The Company’s subsidiary, NMG, hassubsidiaries have a functional currency ofin U.S. dollars. The consolidated financial statements of the Company are translated to U.S. dollars in accordance with ASC 830, “Foreign Currency Matters”. Exchange gains and losses on inter-company balances that form part of the net investment in foreign operations are included in other comprehensive income. Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. The exchange rates used to translate Canadian dollar to U.S. dollar was 0.7928 for monetary assets and liabilities and 0.7862 as an average rate for transactions occurred during the period ended 31 January 2022. Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the determination of income. The Company has not, to the date of these financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.net loss. Stock-based compensation The Company estimates the fair value of each stock option award at the grant date by using the Black-Scholes Option Pricing Model. The fair value determined represents the cost for the award and is recognized over the required service period, generally defined as the vesting period. The Company’s accounting policy is to recognize forfeitures as they occur. Fair value measurements The Company accounts for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are: | · | Level 1 – inputs are based upon unadjusted quoted prices for identical instruments in active markets. | | | | | · | Level 2 – inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques (e.g. the Black-Scholes model) for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs including interest rate curves, credit spreads, foreign exchange rates, and forward and spot prices for currencies. | | | | | · | Level 3 – inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models. Our Level 3 assets and liabilities include investments in other private entities, and goodwill and intangible assets, when they are recorded at fair value due to an impairment charge. Unobservable inputs used in the models are significant to the fair values of the assets and liabilities. |
The Company measures equity investments without readily determinable fair values on a nonrecurring basis. The fair values of these investments are determined based on valuation techniques using the best information available, and may include quoted market prices, market comparables, and discounted cash flow projections. The convertible note receivable was valued using Level 3 inputs. Other current financial assets and current financial liabilities have fair values that approximate their carrying values. Body and Mind Inc. Notes to Condensed Consolidated Interim Financial Statements For the Six Months Ended 31 January 2022 (U.S. Dollars) |
3. | Significant Accounting Policies – Continued |
Use of estimates and assumptions The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosures of contingent assets and liabilities, if any, at the date of the consolidated financial statements and the reported amounts of revenues and expenditures during the reporting period. Actual results could differ from these estimates. Comparative figuresLease accounting
Certain comparative figures have been adjustedUnder ASC 842, leases are separated into two classifications: operating leases and financial leases. Lease classification under ASC 842 is relatively similar to conformASC 840. For a lease to be classified as a finance lease, it must meet one of the five finance lease criteria: (1) transference of title/ownership to the current year’s presentation.lessee, (2) purchase option, (3) lease term for major part of the remaining economic life of the asset, (4) present value represents substantially all of the fair value of the asset, and (5) asset specialization. Any lease that does not meet these criteria is classified as an operating lease. ASC 842 requires all leases to be recognized on the Company’s balance sheet. Specifically, for operating leases, the Company recognize a right-of-use asset and a corresponding lease liability upon lease commitment.
Body and Mind Inc. (formerly Deploy Technologies Inc.)4.
| Financial Instruments | | Notes to Consolidated Interim Financial Statements
(Unaudited)
| For the nine months ended 30 April 2018
| U.S. Dollars
|
4. Financial Instruments
The following table represents the Company’s assets that are measured at fair value as of 30 April 201831 January 2022 and 31 July 2017:2021: | | As at 30 April 2018 | | | As at 31 July 2017 | | | As of 31 January 2022 | | | As of 31 July 2021 | | Financial assets at fair value | | | | | | | | | | | Cash | | $ | 1,046,940 | | $ | 366,584 | | | $ | 4,615,793 | | $ | 7,374,194 | | Available-for-sale | | | 1 | | | | 1 | | | Convertible loan receivable | | | | 1,854,785 | | | | 1,648,816 | | | | | | | | | | | | | Total financial assets at fair value | | $ | 1,046,941 | | | $ | 366,585 | | | $ | 6,470,578 | | | $ | 9,023,010 | |
Management of financial risks The financial risk arising from the Company’s operations areinclude credit risk, liquidity risk, interest rate risk and currency risk. These risks arise from the normal course of operations and all transactions undertaken are to support the Company’s ability to continue as a going concern. The risks associated with these financial instruments and the policies on how to mitigate these risks are set out below. Management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner. Credit risk Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Company is not exposedreduces its exposure to credit risk as it does not holdby maintaining its cash in excess of federally insured limits, with major financial institutions. Credit risk associated with the convertible loans receivable arises from the possibility that the principal and/or interest due may become uncollectible. The Company mitigates this risk by managing and monitoring the underlying business relationship. Body and Mind Inc. Notes to Condensed Consolidated Interim Financial Statements For the Six Months Ended 31 January 2022 (U.S. Dollars) |
4. | Financial Instruments – Continued |
Liquidity risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company ensures, as far as reasonably possible, that it will have sufficient capital in order to meet short-term business requirements, after taking into account cash flows from operations and the Company’s holdings of cash. The Company has cash flows from operations of $245,641 for the six months ended 31 January 2022, and had a working capital deficit of $342,411 as$4,073,522 at 30 April 2018. However,31 January 2022. The Company anticipates that current cashflow positive operations, cash on hand and working capital will ensure coverage for all expenses associated with current operations for at least the next 15 months from the issuance of these financial statements. Management believes that the Company has incurred losses from operationsaccess to date and is currently attemptingcapital resources through potential public or private issuances of debt or equity securities to implement its business plan; therefore,further contribute to the Company is exposed to liquidity risk.growth of the company. Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is not exposed to interest rate risk as it does not hold financial instruments that will fluctuate in value due to changes in interest rates. Currency risk
Currency risk is the risk that the fair values of future cash flows of a financial instrument will fluctuate because they are denominated in currencies that differ from the respective functional currency. The Company is exposed to currency risk by incurring expenditures and holding assets denominated in currencies other than its functional currency. Assuming all | | 31 January 2022 | | | 31 July 2021 | | | | | | | | | Work in progress | | $ | 529,641 | | | $ | 503,215 | | Finished goods | | | 3,444,612 | | | | 1,547,493 | | Consumables | | | 98,770 | | | | 885,448 | | | | | | | | | | | Total | | $ | 4,073,023 | | | $ | 2,936,156 | |
6. | Convertible loan receivable |
Effective March 15, 2019, the Company, through its wholly owned subsidiaries, DEP Nevada and NMG, entered into a convertible loan agreement and a management agreement with Comprehensive Care Group LLC (“CCG”), an Arkansas limited liability company, with respect to the development of a medical cannabis dispensary facility in West Memphis, Arkansas. The convertible loan agreement can be extended by either party and the current agreement has a maturity date of 30 March 2022. Under no circumstances the maturity date of the convertible loan agreement shall extend beyond the expiration of the management agreement as described below. Pursuant to the management agreement, NMG will provide operations and management services, including management, staffing, operations, administration, oversight, and other variables remain constant, a 1% changerelated services. Under the management agreement, NMG will be required to obtain approval from CCG for any key decisions as defined in the Canadian dollar againstagreement and accordingly the US dollar wouldCompany does not resultcontrol CCG. NMG will be paid a monthly management fee equal to 66.67% of the monthly net profits of CCG, subject to conversion of the convertible loan as discussed below upon which the monthly management fee shall be $6,000 per month, unless otherwise agreed by the parties in a significant change to the Company’s operations.writing. The management agreement has an expiration of 15 March 2024 and can be mutually extendable. Other risks
The Company is not exposed to other risks unless otherwise noted.
Body and Mind Inc. (formerly Deploy Technologies Inc.)
| | Notes to Consolidated Interim Financial Statements
(Unaudited)
| For the nine months ended 30 April 2018
| U.S. Dollars
|
5. Inventory
| | 30 April 2018 | | | 31 July 2017 | | | | | | | | | Raw materials | | $ | 26,708 | | | $ | - | | Work in progress | | | 259,888 | | | | - | | Finished goods | | | 181,643 | | | | - | | Consumables | | | 223,470 | | | | - | | | | | | | | | | | Total | | $ | 691,709 | | | $ | - | |
Inventory at January 31, 2018 was measured at cost. On the acquisition of Nevada Medical Group LLC effective 14 November 2017, the Company acquired inventory in the amount of $534,880, which was measured at cost (Note 12).
6. Property and Equipment
| | Office Equipment | | | Cultivation Equipment | | | Production Equipment | | | Kitchen Equipment | | | Vehicles | | | Vault
Equipment | | | Improvements | | | Total | | Cost: | | | | | | | | | | | | | | | | | | | | | | | | | Balance, 31 July 2017 | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | Acquired assets | | | 23,105 | | | | 245,659 | | | | 176,354 | | | | 15,809 | | | | 38,717 | | | | 1,644 | | | | 1,450,408 | | | | 1,951,696 | | Additions | | | 1,481 | | | | 77,315 | | | | 79,473 | | | | 3,664 | | | | - | | | | - | | | | 332,208 | | | | 494,141 | | Balance, 30 April 2018 | | | 24,586 | | | | 322,974 | | | | 255,827 | | | | 19,473 | | | | 38,717 | | | | 1,644 | | | | 1,782,616 | | | | 2,445,837 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Accumulated Depreciation: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, 31 July 2017 | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | Depreciation | | | 2,049 | | | | 22,881 | | | | 16,207 | | | | 1,378 | | | | 3,546 | | | | 147 | | | | 53,741 | | | | 99,949 | | Balance, 30 April 2018 | | | 2,049 | | | | 22,881 | | | | 16,207 | | | | 1,378 | | | | 3,546 | | | | 147 | | | | 53,741 | | | | 99,949 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net Book Value: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | As at 31 July 2017 | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | As at 30 April 2018 | | $ | 22,537 | | | $ | 300,093 | | | $ | 239,620 | | | $ | 18,095 | | | $ | 35,171 | | | $ | 1,497 | | | $ | 1,728,875 | | | $ | 2,345,888 | |
Body and Mind Inc. (formerly Deploy Technologies Inc.) | | Notes to Condensed Consolidated Interim Financial Statements (Unaudited)
| For the nine months ended 30 April 2018Six Months Ended 31 January 2022 (U.S. Dollars) |
U.S. Dollars6.
| Convertible loan receivable – Continued |
7. Related Party BalancesThe convertible loan agreement is for an amount up to $1,250,000 from DEP to CCG with proceeds to be used to fund construction of a facility, working capital and Transactionsinitial operating expenses. The loan bears interest at a fixed rate of $6,000 per month until the parties mutually agree to increase the interest. Upon the latter of one year of granting of a medical cannabis dispensary license by the appropriate authorities or one year after entering into the convertible loan agreement, DEP may elect to convert the loan into preferred units of CCG equal to 40% of all outstanding units of CCG, subject to approval of the Arkansas Medical Marijuana Commission.
The key management personnel compensationCompany evaluated the convertible loan receivable’s settlement provisions and elected the fair value option in accordance with ASC 825 “Financial Instruments”, to value this instrument. Under such election, the loan receivable is measured initially and subsequently at fair value, with any changes in the fair value of the instrument being recorded in the consolidated financial statements as a change in fair value of the financial instruments. The Company estimates the fair value of this instrument by first estimating the fair value of the straight debt portion, excluding the embedded conversion option, using a discounted cash flow model. The Company then estimates the fair value of the embedded conversion option using the Black-Scholes Option Pricing Model. The sum of these two valuations is the fair value of the loan receivable balance of $1,854,785. Management believes that the accretion of the straight debt portion and embedded derivative related to the conversion option are not material due to the short term maturity of the loan. At 31 January 2022, the Company had advanced $1,854,785 (31 July 2021 - $1,648,816) and accrued interest income of $18,000 (2021 - $18,000) and $36,000 (2021 - $36,000) for the ninethree and six months ended 30 April 2018 and 2017 is as follows:31 January 2022, respectively. As of 31 January 2022, total interest receivable was $186,000 (31 July 2021 - $150,000). | | 30 April
2018 | | | 30 April 2017 | | | | | | | | | Accounting fees | | $ | 22,088 | | | $ | 8,680 | | Management and consulting fees | | | 254,252 | | | | 44,341 | | | | | | | | | | | Total | | $ | 276,340 | | | $ | 53,021 | |
Except as disclosed elsewhereThe loan receivable at 31 January 2022 in these full annual financial statements, relatedthe amount of $239,834 (31 July 2021 – $239,834) acquired from NMG LB is due from an arm’s length party transactionsthat is unsecured, non-interest bearing and due on demand.
8. | Loan receivable from NMG Ohio LLC |
On 7 June 2018, the Company acquired a 30% interest in NMG Ohio, which had a cannabis dispensary and a provisional production license. On 31 January 2019, the Company entered into a definitive agreement (“Definitive Agreement”) to acquire 100% ownership of NMG Ohio, or the remaining 70% interest for total cash payments of $1,575,000 and issuance of 3,173,864 common shares of the nine month period ended 30 April 2018 and 2017 are as follows:Company. On 17 September 2021, the Company closed the acquisition of the remaining 70% interest in NMG Ohio. The transaction included the transfer of a dispensary license for the Clubhouse Dispensary in Elyria, Ohio to our wholly owned subsidiary, NMG OH 1, which became effective on 4 September 2020. The transaction also included the final award of a production license which has now been transferred to our wholly owned subsidiary, NMG OH P1. As a result of the closing of this acquisition, the Company now directly own 100% of NMG Ohio. The following table is a representation of amounts advanced, the majority of which is property and equipment, which has been reclassified as assets. | | 31 January 2022 | | | 31 July 2021 | | Loan receivable (payable) to NMG Ohio | | | | | | | Opening balance | | $ | 891,279 | | | $ | (466,495 | ) | Advances provided to NMG Ohio | | | 64,598 | | | | 1,120,015 | | Foreign exchange | | | 0 | | | | 4,671 | | Reclassified to property and equipment and other current assets | | | (955,877 | ) | | | 233,088 | | | | | | | | | | | Loan receivable from NMG Ohio | | $ | 0 | | | $ | 891,279 | |
Body and Mind Inc. Notes to Condensed Consolidated Interim Financial Statements For the Six Months Ended 31 January 2022 (U.S. Dollars) |
9. | Investment in and advances to GLDH |
On 3 July 2019, the Company entered into the following agreements with GLDH and other third parties: | a)1. | Duringa definitive asset purchase agreement (the “Purchase Agreement”) between the nine months ended 30 April 2018, accounting fees of $22,088 (2017 - $8,680) were paid/accruedCompany’s wholly owned subsidiary, NMG LB, GLDH and Airport Collective, Inc. to a company controlled byacquire 100% ownership interest in GLDH’s Long Beach, California dispensary. The Purchase Agreement was executed under the former Chief Financial Officer and a director of the Company.following terms: | | | | | b) | DuringThe purchase price is USD$6,700,000 (the “Purchase Price”). The consideration under the nine months ended 30 April 2018, consulting fees of $69,000 (2017 - $Nil)Purchase Agreement includes the following on closing: |
| i. | The USD$5,200,000 Note and management fees of $43,544 (2017 - $Nil) were paid/accrued to companies related to the Chief Executive Officer of the Company.interest; and | | | | | c)ii. | DuringUSD$1,500,000 to be paid in common shares of the nine months ended 30 April 2018, management feesCompany at a price of $93,869 (2017 - $Nil) were paid/accruedCAD$0.7439 per common share to a company controlled bymaximum of 2,681,006 common shares (the “Share Payment”) (issued) (Note 16) upon NMG LB receiving the transfer of all licenses, permits and BCC authorizations for NMG LB to conduct medical and adult-use commercial cannabis retail operations. The Share Payment is subject to reduction equal to the net liability of GLDH and Airport Collective. The Share Payment reduction is pending and, as a directorresult, the related shares have not been released from escrow. | | | |
| 2. | a settlement agreement (“NMG SD Settlement Agreement”) between the Company and its subsidiaries, and GLDH and its subsidiaries, to acquire a 60% ownership interest in GLDH’s San Diego, California dispensary. The NMG SD Settlement Agreement’s consideration includes the following on closing: |
| i. | USD$500,000 to be paid in common shares (624,380 common shares issued) (Note 16) to SGSD at a share price equal to the maximum allowable discount pursuant to Canadian Securities Exchange policies, upon execution of the Company.settlement agreement; | | | | | d)ii. | During the nine months ended 30 April 2018, management feesUSD$750,000 to be paid in common shares (issued) (Note 16) to Barakett at a price of $35,627 (2017 - $7,547) were paid/accruedCAD$0.7439 per 4common share to a company controlled by the Chief Financial Officermaximum of the Company.1,340,502 Common Shares (the “DB Share Payment”) upon NMG SD receiving all licenses, permits and authorizations for NMG SD to conduct medical commercial cannabis retail operations; and | | | | | e)iii. | During the nine months ended 30 April 2018, management feesUSD$750,000 to be paid in common shares (issued) (Note 16) to Barakett at a price of $2,712 (2017 - $Nil) were paid/accruedCAD$0.7439 per common share to a former Chief Executive Officermaximum of 1,340,502 common shares (the “DB Additional Shares Payment”) upon NMG SD receiving all licenses, permits and authorizations for NMG SD to conduct adult-use commercial cannabis retail operations. | | | |
Body and Mind Inc. Notes to Condensed Consolidated Interim Financial Statements For the Company.Six Months Ended 31 January 2022 (U.S. Dollars) |
9. | Investment in and advances to GLDH – Continued |
| 3. | a lease assignment (the “Lease Assignment Agreement”) on the San Diego operation between the Company’s 60%-owned subsidiary, NMG SD, Green Road, LLC, Show Grow San Diego, LLC (“SGSD”), and SJJR LLC. The Lease Assignment Agreement was executed under the following terms: | | | |
| The Company is required to issue cash and share payments to the landlord as follows: | | | | | f)i. | DuringUSD$700,000, payable in common shares (1,031,725 common shares issued) (Note 16) at a share price equal to the nine months ended 30 April 2018, management fees of $9,500 (2017 - $Nil) were paid/accruedmaximum allowable discount pursuant to a company controlled by the former Chief Executive OfficerCanadian Securities Exchange policies, upon execution of the Company.assignment agreement; | | | | | g)ii. | DuringUSD$783,765, payable in cash (paid), within 5 business days following execution of the nine monthsassignment agreement (paid); and | | | |
In April 2020, the Company fulfilled all obligations under the NMG SD Settlement Agreement and the Lease Assignment Agreement and completed the acquisition of a 60% owned dispensary located in San Diego (the “SD Transaction”). The SD Transaction was accounted for as an asset acquisition. The Company acquired the rights to an existing lease that was zoned for use as a cannabis dispensary. The Company owns the dispensary through a 60% owned subsidiary, NMG SD. The Company consolidated 100% of the assets, liabilities and the operations of NMG SD with 40% disclosed as a non-controlling interest. Additionally: 1. | The Company is to provide a loan to GLDH in the amount of USD$200,000 at an interest rate of 12% per annum, accrued and compounded quarterly and due within 3 years (provided); | | | 2. | The Company is to enter into a consulting agreement with Barakett through NMG LB to provide certain consulting and advisory services to NMG LB, agreeing to pay Barakett a total of USD$200,000 ($50,000 paid in fiscal 2019 and additional $150,000 paid during the year ended 30 April 2018, management fees31 July 2020); | | | 3. | The Company will forgive approximately USD$800,000 for prior operating loans advanced by the Company to GLDH; and; | | | 4. | The Company licenses certain intellectual property from Green Light District Management, LLC and GLDH (collectively referred to as “Licensor”). The Licensor grants the Company a perpetual license to utilize its operational intellectual property consisting of $Nil (2017customer data, sales data, customer outreach strategies standard operating procedures, and other proprietary operational intellectual property. Licensor grants the Company a license for 2 years to utilize intellectual property such as trademarks and branding (the “Branding IP”). As consideration for the licenses, the Company has agreed to utilize the Branding IP until 19 June 2021 at the Company’s premises and at the San Diego retail locations for a period of 2 years from operations commencing at that location. Additionally, the Company agreed to pay the Licensor 3% of gross receipts from sales at the Long Beach dispensary. |
Body and Mind Inc. Notes to Condensed Consolidated Interim Financial Statements For the Six Months Ended 31 January 2022 (U.S. Dollars) |
9. | Investment in and advances to GLDH – Continued |
The Company’s total investment in GLDH was as follows: Note receivable | | $ | 5,200,000 | | Share issuances | | | 4,092,175 | | Share payment reduction | | | (793,416 | ) | Interest income accrued on the Note | | | 1,821,476 | | Advances for working capital | | | 2,813,515 | | Lease Assignment Agreement payment | | | 1,533,765 | | Amount transferred to Property and Equipment | | | (1,431,585 | ) | Amount transferred to Brand and Licenses | | | (3,585,483 | ) | Expensed during the year | | | (690,741 | ) | Foreign exchange | | | (46,973 | ) | | | | | | Balance – 31 July 2020 | | | 8,912,733 | | | | | | | Impairment loss | | | (534,165 | ) | Acquisition of ShowGrow Long Beach dispensary (Note 11) – 28 August 2020 | | $ | (8,378,568 | ) |
Body and Mind Inc. Notes to Condensed Consolidated Interim Financial Statements For the Six Months Ended 31 January 2022 (U.S. Dollars) |
10. | Property and Equipment |
| | Office Equipment | | | Cultivation Equipment | | | Production Equipment | | | Kitchen Equipment | | | Vehicles | | | Vault Equipment | | | Leasehold Improvements | | | Total | | Cost: | | | | | | | | | | | | | | | | | | | | | | | | | Balance, 31 July 2021 | | $ | 401,571 | | | $ | 466,110 | | | $ | 570,702 | | | $ | 51,108 | | | $ | 38,717 | | | $ | 10,335 | | | $ | 5,055,799 | | | $ | 6,594,342 | | Additions | | | 47,650 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 1,446,253 | | | | 1,493,903 | | Balance, 31 January 2022 | | | 449,221 | | | | 466,110 | | | | 570,702 | | | | 51,108 | | | | 38,717 | | | | 10,335 | | | | 6,502,052 | | | | 8,088,245 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Accumulated Depreciation: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, 31 July 2021 | | | 49,765 | | | | 250,544 | | | | 210,166 | | | | 21,722 | | | | 24,328 | | | | 1,790 | | | | 1,142,237 | | | | 1,700,552 | | Depreciation | | | 30,390 | | | | 34,437 | | | | 40,230 | | | | 3,680 | | | | 2,788 | | | | 744 | | | | 359,669 | | | | 471,938 | | Balance, 31 January 2022 | | | 80,155 | | | | 284,981 | | | | 250,396 | | | | 25,402 | | | | 27,116 | | | | 2,534 | | | | 1,501,906 | | | | 2,172,490 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net Book Value: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | At 31 July 2021 | | | 351,806 | | | | 215,566 | | | | 360,536 | | | | 29,386 | | | | 14,389 | | | | 8,545 | | | | 3,913,562 | | | | 4,893,790 | | At 31 January 2022 | | $ | 369,066 | | | $ | 181,129 | | | $ | 320,306 | | | $ | 25,706 | | | $ | 11,601 | | | $ | 7,801 | | | $ | 5,000,146 | | | $ | 5,915,755 | |
For the six months ended 31 January 2022, a total depreciation of $98,003 (2021 - $37,946) was included in General and Administrative Expenses and a total depreciation of $373,935 (2021 - $214,681) was included in Cost of Sales. The Clubhouse dispensary On 4 September 2020, NMG OH 1 received all approvals and final license and name transfer from the Ohio Department of Pharmacy for Clubhouse dispensary located in Elyria, Ohio. The acquisition was accounted for as a business combination in accordance with ASC 805, Business Combinations. The acquisition of The Clubhouse dispensary allows the Company to expand into the State of Ohio. This acquisition was the first part of the acquisition of the remaining 70% interest in NMG Ohio. The remaining production licenses were transferred to NMG OH P1 in the asset acquisition (Note 8) resulting in the completion of the acquisition of NMG Ohio. The following table summarizes the fair value of the assets acquired and the liabilities assumed, which were recorded as of the acquisition date, as well as the aggregate consideration for the acquisition of NMG OH 1 made by the Company: Purchase consideration | | | | | Cash | | $ | 1,652,600 | | Equity-method investment change from earnings | | | 466,804 | | Shares of common stock | | | 1,745,847 | | Foreign exchange | | | 7,919 | | Impairment loss | | | (58,382 | ) | | | | 3,814,788 | | Assets acquired: | | | | | Cash | | | 257,462 | | Amounts receivable | | | 510,367 | | Prepaid expenses | | | 4,965 | | Inventory | | | 178,898 | | Property and equipment | | | 763,951 | | Licenses and customer relationships | | | 2,710,000 | | | | | | | Liabilities assumed: | | | | | Trade payable and accrued liabilities | | | (443,589 | ) | | | | | | Net assets acquired | | | 3,982,054 | | Bargain purchase | | | (167,266 | ) | TOTAL | | $ | 3,814,788 | |
Body and Mind Inc. Notes to Condensed Consolidated Interim Financial Statements For the Six Months Ended 31 January 2022 (U.S. Dollars) |
11. | Business Acquisition –Continued |
ShowGrow Long Beach dispensary On 28 August 2020, NMG LB received all approvals and final license transfer for the ShowGrow Long Beach dispensary. The acquisition was accounted for as a business combination in accordance with ASC 805, Business Combinations. The acquisition of ShowGrow Long Beach dispensary allows the Company to enter the California market. The following table summarizes the fair value of the assets acquired and the liabilities assumed, which were recorded as of the acquisition date, as well as the aggregate consideration for the acquisition of NMG LB made by the Company: Purchase consideration (Note 9) | | $ | 8,378,568 | | | | | | | Assets acquired: | | | | | Cash | | | 65,340 | | Prepaid expenses | | | 15,264 | | Inventory | | | 177,930 | | Property and equipment | | | 5,402 | | Loan receivable (Note 7) | | | 239,834 | | | | | | | Liabilities assumed: | | | | | Trade payable and accrued liabilities | | | (732,262 | ) | Income taxes payable | | | (423,931 | ) | Loans payable (Note 14) | | | (12,910 | ) | | | | | | Net assets acquired | | | (664,613 | ) | Brand and licenses | | | 6,510,000 | | Goodwill | | | 2,533,181 | | TOTAL | | $ | 8,378,568 | |
Canopy Monterey Bay, LLC On November 30, 2021, the Company entered into two definitive agreements with Canopy and the membership interest owners (the “Sellers”) of Canopy to acquire an aggregate of 100% of Canopy, which owns a retail dispensary in the limited license jurisdiction of Seaside, California. The first purchase agreement (“PA #1”) between DEP and Canopy and all of the Sellers provides for the assignment of 80% of the membership interests of Canopy to DEP in exchange for a purchase price of $4,800,000 comprised of $2,500,000 in cash (the “Cash Purchase Price”) and a secured promissory note in the amount of $2,300,000 bearing interest at a rate of 10% per annum compounded annually and having a maturity date of five years from the effective date of PA #1. Interest is payable for the first 6 months with the principal and accrued interest due at maturity. There are no prepayment penalties. The Cash Purchase Price is to be paid into escrow pursuant to an escrow agreement between the parties to PA #1 and Secured Trust Escrow, which Cash Purchase Price is to be released to the Sellers upon the receipt of city and state approval and completion of the audited annual financial statements and unaudited interim reviewed financial statements (collectively, the “Financial Statements”) of Canopy, or returned to DEP in the event of the denial of city or state approval or failure to complete the Financial Statements and the agreement is terminated, in which case the 80% membership interests will be transferred back to the Sellers and the promissory note will automatically be terminated. As of the date hereof, the city and state approvals have been received and the formal closing of the purchase of the 80% of the membership interests in Canopy is expected to take place on the date following the completion of the Financial Statements. Body and Mind Inc. Notes to Condensed Consolidated Interim Financial Statements For the Six Months Ended 31 January 2022 (U.S. Dollars) |
11. | Business Acquisition – Continued |
Canopy Monterey Bay, LLC – Continued The second purchase agreement (“PA #2”) between DEP and the one continuing Seller provides for the assignment of the remaining 20% of the membership interests of Canopy to DEP following the receipt of the city and state approval and completion of the Financial Statements under PA #1 in exchange for $1,000,000 to be paid in either shares of common stock of the Company (the “Consideration Shares”) or in cash at DEP’s sole option if such payment takes place within six (6) months following the execution of PA #1. If DEP elects to pay the purchase price in Consideration Shares, the amount of Consideration Shares shall be determined based on the 10 day volume weighted average price (“VWAP”) ending on 30 November 2021, which is US$0.3665 per share for a total of 2,728,156 shares (issued) (Note 16). In the event that six (6) months following the execution of PA #1, the value of the Consideration Shares have decreased such that total value of the Consideration Shares is less than ninety percent (90%) of its value, DEP agrees to cause the Company to issue an additional $100,000 worth of shares of common stock of the Company (the “Additional Shares”) to be issued to the one continuing Seller based on the ten day VWAP calculated as of six (6) months following the closing of PA #1. PA #2 contains a working capital adjustment provision, which provides that if there is a working capital deficiency as of the closing date of PA #1, then the purchase price under PA #2 shall be reduced by the amount of the deficiency, and if there is a working capital surplus as of the closing date of PA #1, then the purchase price under PA #2 shall be increased by the amount of the surplus. On or around December 1, 2021, 80% of the membership interests of Canopy were transferred to DEP for purposes of applying for city and state approvals of the change in ownership of Canopy, however, the purchase price consideration of (i) $2.5 million in cash, and (ii) a promissory note in the amount of $2.3 million to be paid by DEP, were placed in escrow and not to be released to the sellers of the 80% membership interests in Canopy until the city and state approvals have been received and the audited annual financial statements and unaudited reviewed interim financial statements (collectively, the “Financial Statements”) of Canopy are completed. If the city or state approvals are not received, or the Financial Statements of Canopy are not completed, then the Buyer may terminate the membership interest purchase agreement requiring the membership interests in Canopy to be transferred back to the sellers and the escrow agent to deliver back to DEP the cash consideration and the promissory note shall automatically be terminated. As of the date hereof, the city and state approvals have been received and the formal closing of the purchase of the 80% membership interests in Canopy will take place on the date following the completion of the Financial Statements. The acquisition was accounted for as a business combination in accordance with ASC 805, Business Combinations. For accounting purposes, the acquisition date is 1 December 2021, which is the date that the Company obtained full control over the operations, although not all conditions for closing the acquisition had occurred as of 1 December 2021. The purchase accounting process has not been completed primarily because the valuation of acquired assets has not been finalized. We expect to complete the purchase accounting as soon as practicable but no later than one year from the acquisition date. Body and Mind Inc. Notes to Condensed Consolidated Interim Financial Statements For the Six Months Ended 31 January 2022 (U.S. Dollars) |
11. | Business Acquisition – Continued |
The following table summarizes the preliminary estimated fair value of the assets acquired and the liabilities assumed, which were recorded as of the acquisition date, as well as the aggregate consideration for the acquisition of Canopy made by the Company: Purchase consideration | | | | Cash | | $ | 2,500,000 | | Promissory note | | | 2,300,000 | | Shares of common stock (Note 16) | | | 939,544 | | Total consideration – preliminary | | | 5,739,544 | | | | | | | Assets acquired: | | | | | Cash – preliminary | | | 378,503 | | Inventory – preliminary | | | 630,039 | | | | | | | Liabilities assumed: | | | | | Trade payable and accrued liabilities – preliminary | | | (317,594 | ) | | | | | | Net assets acquired – preliminary | | | 690,948 | | Brand and licenses – preliminary | | | 4,270,000 | | Goodwill – preliminary | | | 778,596 | | TOTAL | | $ | 5,739,544 | |
Pro Forma The following table summarizes the results of operations of The Clubhouse Dispensary and NMG LB since the acquisition dates included in the Company’s consolidated results of operations for the six months ended 31 January 2022: | | The Clubhouse Dispensary | | | NMG LB | | Revenue | | $ | 4,079,342 | | | $ | 3,074,776 | | Net income | | | 907,485 | | | | 99,614 | |
The following table summarizes our consolidated results of operations for the six months ended 31 January 2021 as though the acquisitions of The Clubhouse Dispensary and NMG LB had occurred on 1 August 2020: | | Six months ended 31 January 2021 | | | | As Reported | | | Pro Forma (unaudited) | | Revenue | | $ | 11,609,769 | | | $ | 12,683,946 | | Net income (loss) | | | (1,925,467 | ) | | | 665,028 | |
Pro forma financial information related to Canopy was deemed impractical to disclose as the final consideration and the allocation of intangible assets is still preliminary. Body and Mind Inc. Notes to Condensed Consolidated Interim Financial Statements For the Six Months Ended 31 January 2022 (U.S. Dollars) |
11. | Business Acquisition – Continued |
The unaudited pro forma information set forth above is for informational purposes only and include all adjustments necessary for the fair presentation, in all material respects, of the Company’s combined operations including The Clubhouse Dispensary and NMG LB as if the business combinations occurred on 1 August 2020. No adjustments have been made to reflect potential cost savings that may occur subsequent to completion of the transactions. The unaudited pro forma financial information is not intended to reflect the results of operations of the Company which would have actually resulted had the proposed transaction been effected on the date indicated above. Further, the unaudited pro forma financial information is not necessarily indicative of the results of operations that may be obtained in the future. The actual pro forma adjustments will depend on a number of factors, and could result in a change to the unaudited pro forma financial information. 12. | Intangible Assets, Net |
| | | | | | | | As of 31 January 2022 | | | | Gross carrying amount | | | Weighted average life (years) | | | Accumulated amortization | | | Net carrying amount | | Amortizable intangible assets: | | | | | | | | | | | | | Brand | | $ | 517,000 | | | | - | | | $ | 0 | | | $ | 517,000 | | Licenses | | | 24,718,508 | | | | 10.0 | | | | (1,846,428 | ) | | | 22,872,080 | | Customer relationships | | | 90,000 | | | | 5.0 | | | | (25,334 | ) | | | 64,666 | | | | | | | | | | | | | | | | | | | Total intangible assets | | $ | 25,325,508 | | | | | | | $ | (1,871,762 | ) | | $ | 23,453,746 | |
| | | | | | | | As of 31 July 2021 | | | | Gross carrying amount | | | Weighted average life (years) | | | Accumulated amortization | | | Net carrying amount | | Amortizable intangible assets: | | | | | | | | | | | | | Brand | | $ | 247,000 | | | | - | | | $ | 0 | | | $ | 247,000 | | Licenses | | | 20,718,508 | | | | 10.0 | | | | (1,184,175 | ) | | | 19,534,333 | | Customer relationships | | | 90,000 | | | | 5.0 | | | | (16,265 | ) | | | 73,735 | | | | | | | | | | | | | | | | | | | Total intangible assets | | $ | 21,055,508 | | | | | | | $ | (1,200,440 | ) | | $ | 19,855,068 | |
Amortization expense for intangible assets was $671,322 and $504,761 for the six months ended 31 January 2022 and 2021, respectively. Included in the licenses is $7,925,000 of indefinite lived assets. The expected amortization of the intangible assets, as of 31 January 2022, for each of the next five years and thereafter is as follows: 2022 (remaining) | | $ | 792,900 | | 2023 | | | 1,598,943 | | 2024 | | | 1,603,324 | | 2025 | | | 1,598,943 | | 2026 | | | 1,582,678 | | Thereafter | | | 7,834,958 | | | | $ | 15,011,746 | |
Body and Mind Inc. Notes to Condensed Consolidated Interim Financial Statements For the Six Months Ended 31 January 2022 (U.S. Dollars) |
13. | Related Party Balances and Transactions |
In addition to those disclosed elsewhere in these consolidated financial statements, related party transactions paid/accrued for the three and six months ended 31 January 2022 and 2021 are as follows: | | For the three months ended 31 January 2022 | | | For the three months ended 31 January 2021 | | | For the six months ended 31 January 2022 | | | For the six months ended 31 January 2021 | | A company controlled by the President, Chief Executive Officer and a director Management fees | | $ | 53,400 | | | $ | 37,440 | | | $ | 172,996 | | | $ | 74,965 | | A company controlled by the Chief Financial Officer and a director Management fees | | | 47,976 | | | | 23,316 | | | | 78,578 | | | | 46,002 | | A company controlled by a former director and former President of NMG Management fees | | | 0 | | | | 10,000 | | | | 0 | | | | 65,000 | | A company controlled by the Corporate Secretary Management fees | | | 19,282 | | | | 17,774 | | | | 37,463 | | | | 34,789 | | | | $ | 120,658 | | | $ | 88,530 | | | $ | 289,037 | | | $ | 220,756 | |
On November 12, 2021 the independent members of the Compensation Committee and Board of Directors of Body and Mind approved an Executive Bonus Program for FY2022 for the CEO, COO and CFO. The Board of Directors approved an incentive-based cash bonus program for CEO’s consulting company and for the COO of up to a maximum of $200,000 per CEO or COO based on the consolidated revenue performance of the Company for each quarter of the fiscal year ended July 31, 2022 compared to the prior quarter. Each of the CEO and COO could earn (i) $5,000 in cash for each 1% revenue growth over the prior quarter, and/or (ii) $10,000 in cash for each 1% Adjusted EBITDA growth over the prior quarter, all subject to a $50,000 maximum amount per executive that could be earned for each quarter of the fiscal year ended July 31, 2022. In addition, the Compensation Committee and the Board of Directors approved that they will consider a further discretionary cash bonus to the CEO’s consulting company and the COO at the fiscal year ended July 31, 2022, based on performance metrics of the Company over the course of the fiscal year ended July 31, 2022. Furthermore, on November 12, 2021, the independent members of Compensation Committee and the Board of Directors approved a cash bonus to be paid to the CFO’s consulting company up to a maximum of $40,000 based on the timing of the filing of Company’s periodic reports for the fiscal year ended July 31, 2022. The bonus consists of a quarterly bonus of $10,000 per quarter based on filing of the Company’s Form 10-Q’s and 10-K by the filing deadline, not including any extensions pursuant to Rule 12b-25 under the Exchange Act. Body and Mind Inc. Notes to Condensed Consolidated Interim Financial Statements For the Six Months Ended 31 January 2022 (U.S. Dollars) |
13. | Related Party Balances and Transactions – Continued |
On November 30, 2021, the independent members of Compensation Committee and Board of Directors of Body and Mind approved an Executive Bonus for FY2021 for the CEO, COO. The Compensation Committee and Board of Directors approved an aggregate of 448,000 stock options (the “Options”) in accordance with the Company’s stock option plan at an exercise price of CAD$0.44 per share for a term of five years expiring on November 30, 2026. The Options are subject to vesting provisions such that 25% of the Options vest six (6) months from the date of grant, 25% of the Options vest twelve (12) months from the date of grant, 25% of the Options vest eighteen (18) months from the date of grant and 25% of the Options vest twenty-four (24) months from the date of grant. Amounts owing to related parties at 31 January 2022 and 31 July 2021 are as follows: | a) | As of 31 January 2022, the Company owed $31,810 (31 July 2021 - $36,794) were paid/accrued$26,841) to a formerthe Chief Executive Officer of the Company.Company and a company controlled by him. | | | | | h)b) | As at 30 April 2018,of 31 January 2022, the Company owed $Nil (31 July 20172021 - $4,805)$18,914) to the former Chief ExecutiveFinancial Officer of the Company.Company and a company controlled by him. | | | | | i)c) | As at 30 April 2018,of 31 January 2022, the Company owed $39,745$Nil (31 July 20172021 - $Nil)$6,319) to the Chief Executive OfficerCorporate Secretary of the Company and his company.a company controlled by him. |
The above amounts owing to related parties are unsecured, non-interest bearing and are due on demand. On 19 July 2021, the Company entered into and closed a loan agreement (the “Loan Agreement”) with FG Agency Lending LLC (the “Agent”) and Bomind Holdings LLC (the “Lender”). Upon entering into the Loan Agreement, the Lender provided the initial term loan (the “Initial Term Loan”) in the face amount of $6,666,667 of which $6,000,000 was advanced to the Company with the 10% representing an origination discount as consideration for the use or forbearance of money. The Company may draw upon the remaining face amount of $4,444,444 (the “Delayed Draw Term Loan”) upon providing a 30-day request to the Agent by 1 June 2022 (as extended on 1 December 2021), whereby $4,000,000 will be advanced to the Company after applying the 10% origination discount. The Initial Term Loan and the Delayed Draw Term Loan mature on 19 July 2025 and bear interest at a rate of 13% per annum payable on the first day of each month hereafter. Pursuant to the Loan Agreement, the Company issued an aggregate of 8,000,000 common stock purchase warrants (each, a “Warrant”) to the Agent of which (i) 4,800,000 Warrants will entitle the holder to acquire shares of common stock (each, a “Warrant Share”) at an exercise price of $0.40 per Warrant Share until July 19, 2025, and (ii) 3,200,000 Warrants will be held in escrow by us and released to the Agent at the time the Company draws on the Delayed Draw Term Loan, or cancelled if we do not draw on the Delayed Draw Term Loan, which will entitle the holder to acquire a Warrant Share at an exercise price of $0.45 per Warrant Share until July 19, 2025. Body and Mind Inc. Notes to Condensed Consolidated Interim Financial Statements For the Six Months Ended 31 January 2022 (U.S. Dollars) |
14. | Loans Payable – Continued |
The 4,800,000 Warrants were valued at $1,037,146 using the Black Scholes Option Pricing Model using the following assumptions: Expected life of the options | | 4.00 years | | Expected volatility | | | 139 | % | Expected dividend yield | | | 0 | % | Risk-free interest rate | | | 0.55 | % |
The Company also paid agent fee, legal fees and other fees in the amount of $175,758. The Initial Term Loan is secured by certain of the Company’s assets, equity interest in subsidiaries and various agreements, under the Security Agreement, the Pledge Agreement (“PA”) and the Omnibus Collateral Assignment. On 30 November 2021, the Company completed PA #1 related to the Company’s acquisition of initial 80% interest in Canopy (Note 11). In connection with PA #1, DEP entered into secured promissory note (the “Promissory Note”) promising to pay $2,300,000 to the Sellers. The Promissory Note was delivered as partial consideration for DEP’s agreement to purchase 80% of the issued and outstanding membership interests (the “Purchased Interests) of Canopy from the Sellers. The Promissory Note was signed on 30 November 2021, but does not become effective by its terms unless and until the state regulators and local regulators approve DEP as the owner of the Purchased Interests (the date such approval is received being the “Effective Date”). In the event the MIPA #1 for DEP to purchase the Purchased Interests is terminated for any reason, the Promissory Note automatically terminates. | a) | On 10 November 2017, NMG entered into a revised five-year lease agreement for the property located at 3375 Pepper Lane, Las Vegas, NV, containing approximately 18,000 square feet. The Company has four options to extend the lease and each option is for five years. The monthly rent was $12,500 plus common area expenses, which now increased to $13,663 plus common area expenses. The guaranteed minimum monthly rent is subject to a 2% increase on each anniversary date of the lease. | | | | | j)b) | AsOn 9 April 2019, NMG entered into a three-year lease agreement for the property located at 30 April 2018,6420 Sunset Corporate Drive, Las Vegas, NV, containing approximately 7,700 square feet. The Company has one option to extend the Company owed $4,090 (31 July 2017 - $Nil)lease for an additional three-year term and an option to purchase the Chief Financial Officer ofproperty at any point during the Company.initial term. The monthly rent is $6,026 plus $1,129 in common area expenses, totaling $7,156 every month. The monthly rent now increased to $6,478. | | | | | k)c) | On 18 December 2017,24 April 2020, the Company reached an agreement withassumed a real estate investment group, ledfive-year lease dated 1 December 2018, as amended on 13 June 2019, for the property located at 7625 Carroll Road, San Diego, CA. The Company has three options to extend the lease and each option is for five years. The monthly rent is $15,450 per month increasing by 3% every year until 1 December 2022. The rent is now $16,883. The lease contains a sale bonus provision of $1,000,000 or 10% of the Company’s President, who anticipated purchasing a building adjacent topurchase price of the Company’s existing facility and lease it back to a newly formed partnership called Pepper Lane North LLC (“PLN” or “Partnership”) on a long-term basis with renewal options. PLNentire business, whichever is a strategic partnership between the Company and a dispensary chaingreater, in the Stateevent of Nevada. The PLN’s partner was to also transfer an active cultivation license tosale or assignment of the facility and all expenditures under PLN would be funded on a 50/50 basis. There was a $250,000 payment made by each partner as a non-refundable deposit to secure the lease (Notes 13 and 15). |
Body and Mind Inc. (formerly Deploy Technologies Inc.)lease.
| | | |
Body and Mind Inc. Notes to Condensed Consolidated Interim Financial Statements (Unaudited)For the Six Months Ended 31 January 2022
(U.S. Dollars) |
15. | Operating Leases – Continued |
| d) | On August 2, 2018, NMG Ohio, LLC entered into a three-year lease agreement for the property located at 709 Sugar Lane, Elyria, Ohio 44035, containing approximately 4,100 square feet. The Company has three options to extend the lease and each option is for three years. The rent is $4,200 per month increasing by 5% starting on 1 July 2021 and 1 July 2024. | For the nine months ended 30 April 2018
| | | U.S. Dollars
| e) | On 28 August 2020, the Company assumed a five-year lease dated 10 January 2017, as amended on 7 September 2018, for the property located at 3411 E. Anaheim St., Long Beach, California. The Company has one option to extend the lease for five years. The rent is $7,682 per month increasing by 3% every year until 10 January 2022. | | | | | f) | On 14 September 2021, the Company assumed a three-year lease dated 1 October 2019 for the property located at 719 Sugar Lane, Elyria, Ohio (Note 8). The Company has three options to extend the lease and each option is for three years. The rent is $4,000 per month. | | | | | g) | On 23 April 2021, the Company’s subsidiary NMG MI 1 entered into a five-year lease for the property located at 885 E. Apple Ave., Muskegon, Michigan. The Company has three options to extend the lease and each option is for five years. The rent is $5,000 per month increasing by 2% every year. The lease is contingent upon NMG MI 1 receiving one or more commercial marihuana municipal licenses from the City of Muskegon. The license(s) would allow NMG MI 1 to operate a dispensary for the distribution of adult-use and/or medical marihuana and all activities permissible under the Michigan and Muskegon Marihuana Laws. The Company took possession of the property effective 1 October 2021. |
Upon NMG MI 1 receiving one or more licenses, NMG MI 1 agrees to cause the Company to issue common shares having a value of up to $150,000 to Kendal, with portions of the common shares to be issued upon the achievement of certain milestones as follows: 8. Promissory Notes
| | i. | 25% of the common shares to be issued within 30 days following NMG MI 1’s receipt of a local commercial medical marihuana retail license from the city of Muskegon, MI and a state commercial medical marihuana retail license from the state of Michigan; | | | ii. | 25% of the common shares to be issued within 30 days following NMG MI 1 passing final inspections at the Leased premises regarding the commercial medical marihuana retail license and receiving its local operating permit allowing NMG MI 1 to begin medical marihuana operations at the premises; | | | iii. | 25% of the common shares to be issued within 30 days following NMG MI 1’s receipt of a local commercial adult-use marihuana retail license from the city of Muskegon, MI and a state commercial adult-use marihuana retail license from the state of Michigan; | | | iv. | 25% of the common shares to be issued within 30 days following NMG MI 1 passing final inspections at the Leased premises regarding the commercial adult-use marihuana retail license and receiving its local operating permit allowing NMG MI 1 to begin adult-use marihuana operations at the premises; |
In connection withDuring the Acquisition of NMG, on 14 November 2017,six months ended 31 January 2022, the Company accrued $150,000 for milestones above and were included in the related operating lease liability. On 21 September 2021, the Company issued the necessary common shares to settle $75,000 of this liability (Note 16).
Body and Mind Inc. Notes to Condensed Consolidated Interim Financial Statements For the Six Months Ended 31 January 2022 (U.S. Dollars) |
15. | Operating Leases – Continued |
| h) | On 10 February 2020, the Company’s subsidiary NMG MI C1 executed a lease agreement with 254 River Street LLC (“River Street”) to lease commercial space located at 254 River Street, Manistee, MI, 49660. The term of the lease is for a period of 60 months and the lease includes rent abatement and reduced rent periods during construction and start up. Final rent is approximately US$22,500 per month and is contingent upon NMG MI C1 receiving one or more commercial marihuana municipal licenses from the City of Manistee. The license(s) would allow NMG MI C1 to operate a cultivation facility for adult use and/or medical marihuana and all activities permissible under the Michigan and Manistee Marihuana Laws. | | | | | | Upon NMG MI C1 receiving one or more Licenses, NMG MI C1 agrees to cause the Company to issue common shares having a value of up to $600,000 to River Street, with portions of the Common Shares to be issued upon the achievement of certain milestones as follows: |
| | i. | US$200,000 of common shares to be issued within 30 days of NMG MI C1 receiving local and state commercial marihuana cultivation licenses; | | | | | | | ii. | US$200,000 of common shares to be issued within 30 days of passing final inspections at the premises with respect to cultivation and receiving local operating permit to begin commercial marihuana cultivation operations at the premises; | | | | | | | iii. | US$100,000 of common shares to be issued within 30 days of NMG MI C1 receiving local and state commercial marihuana retail licenses; and | | | | | | | iv. | US$100,000 of common shares to be issued within 30 days of passing final inspections at the premises with respect to retail operations and receiving local operating permit to begin commercial marihuana retail operations at the premises. | | | | | | | At 31 July 2021, the Company accrued $200,000 for milestone (i) above. On 21 September 2021, the Company issued the necessary common shares to settle this $200,000 liability (Note 16). During the six months ended 31 January 2022, the Company accrued an additional $200,000 and were included in the related operating lease liability for milestone (ii) above. Milestones (iii) and (iv) are not expected to occur and, as a result, no amounts have been accrued at 31 January 2022. |
| I) | On 10 February 2020, the Company’s subsidiary NMG MI P1 executed a lease agreement with 254 River Street LLC (“River Street”) to lease commercial space located at 254 River Street, Manistee, MI, 49660. The term of the lease is for a period of 60 months and the lease includes rent abatement and reduced rent periods during construction and start up. Final rent is approximately US$7,500 per month, which increases 2% annually, and is contingent upon NMG MI P1 receiving one or more commercial marihuana municipal licenses from the City of Manistee. The license(s) would allow NMG MI P1 to operate a production facility for adult-use and/or medical marihuana and all activities permissible under the Michigan and Manistee Marihuana Laws. | | | | | | Upon NMG MI P1 receiving one or more Licenses, NMG MI P1 agrees to cause the Company to issue common shares having a value of up to $400,000 to River Street, with portions of the Common Shares to be issued upon the achievement of certain milestones as follows: |
| | i. | US$200,000 of common shares to be issued within 30 days of NMG MI P1 receiving local and state commercial marihuana processing licenses; and | | | | | | | ii. | US$200,000 of common shares to be issued within 30 days of passing final inspections at the premises with respect to processing and receiving local operating permit to begin commercial marihuana processing operations at the premises. | | | | | | | At 31 July 2021, the Company accrued $200,000 for milestone (i) above. On 21 September 2021, the Company issued the necessary common shares to settle this $200,000 liability (Note 16). During the six months ended 31 January 2022, the Company accrued an additional $200,000 and were included in the related operating lease liability for milestone (ii) above. |
Body and Mind Inc. Notes to Condensed Consolidated Interim Financial Statements For the Six Months Ended 31 January 2022 (U.S. Dollars) |
15. | Operating Leases – Continued |
At 31 January 2022, a promissory note intotal deposit $470,546 for prior year shares were reclassified and incorporated into the amountright-of-use asset and lease liabilities related to the Company’s leases for the River Street. The value of $2,000,000the common shares will be calculated based on the lesser of: (1) the closing market price on the respective milestone achievement date and (2) a ten percent discount to NMG Members and another promissory note in the amount of $175,000twenty-day volume weighted average price for the twenty days immediately prior to TI Nevada as a repayment of loans made by TI Nevada to NMG (Note 12)the respective milestone achievement date(s). As these promissory notes are non-interest bearing, theyLeases for 254 River St., Manistee, Michigan 49660 and 885 E. Apple Ave., Muskegon, Michigan 49442 were discountedsubject to the Company subsidiaries receiving approval by the State of Michigan and could be cancelled by the Company if licences were not awarded. The licenses for NMG MI P1 and NMG MI C1 were issued on 19 July 2021 and license for NMG MI 1 was issued on 3 August 2021.
| j) | On 1 January 2020, the Company’s subsidiary Canopy entered into a three-and-a-half-year lease agreement for the property located in Seaside, California. The rent is now $9,000 per month until June 20221, when it increases by 3% to $9,270 through June 2023. |
During the six months ended 31 January 2022, the Company recorded a present valuetotal lease expense of $1,826,537 at a$405,386 related to the amortization of right-of-use assets of which $332,463 was included in General and Administrative Expenses and $72,923 was included in Cost of Sales for the six months ended 31 January 2022. Supplemental cash flow information for the period ended 31 January 2022 related to leases was as follows: Cash paid for amounts included in the measurement of lease liabilities: | | | | Operating cash flows from operating leases | | $ | 336,076 | | Right-of-use assets obtained in exchange for lease obligations: | | | | | Operating leases | | $ | 2,745,932 | | | | | | | Weighted-average remaining lease term – operating leases | | 7.31 years | | Weighted-average discount rate – operating leases | | | 12 | % |
The discount rate of 15%.12% was determined by the Company as the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Both promissory notes are non-interest bearing, secured by the assetsMaturities of the Company, and due 14 February 2019. Any unpaid amounts at maturity will bear interest at a rate of 10% per annum.lease liabilities were as follows:
| | 30 April
2018 | | | 31 July 2017 | | | | | | | | | Balance, beginning | | $ | - | | | $ | - | | Issuance of promissory notes (Note 12) | | | 1,826,537 | | | | - | | Accretion expense | | | 119,131 | | | | - | | Foreign exchange adjustment | | | 1,484 | | | | - | | | | | | | | | | | Balance, ending | | $ | 1,947,152 | | | $ | - | |
Year Ending 31 July | | Operating Leases | | 2022 (remaining) | | $ | 552,385 | | 2023 | | | 1,522,408 | | 2024 | | | 1,085,798 | | 2025 | | | 1,105,041 | | 2026 and thereafter | | | 4,152,966 | | Total lease payments | | $ | 8,418,598 | | Less imputed interest | | | (2,810,822 | ) | Total | | $ | 5,607,776 | | Less current portion | | | (859,007 | ) | Long term portion | | $ | 4,748,769 | |
9. Capital Stock
Body and Mind Inc. Notes to Condensed Consolidated Interim Financial Statements For the Six Months Ended 31 January 2022 (U.S. Dollars) |
The Company’s authorized share capital comprises 900,000,000 Common Shares, with a $0.0001 par value per share. In connection with the Acquisition, on 14 November 2017,On 21 October 2020, the Company eliminated its authorized Class A Preferred shares and completed a consolidation of itsissued 793,466 common shares onvalued at $297,042 in relation to acquiring the basis of three (3) pre-consolidationremaining 70% interest in NMG Ohio.
On 21 September 2021, the Company issued 238,929 common shares to one (1) post-consolidationentity based on the terms and conditions of the certain lease agreement for the Muskegon, Michigan premises and issued an aggregate of 1,304,601 common share. Unless otherwise noted, all figures inshares to another entity based on the financial statements are retroactively adjusted to reflectterms and conditions of the consolidation (Note 12)two lease agreements for the Manistee, Michigan premises (Notes 15 and 18). On 15 August 2017 and 16 August 2017,Pursuant to the Purchase Agreement (Note 9), the Company closedissued 2,681,006 common shares in escrow. The share consideration remains subject to reduction with reference to the first twoliabilities of four tranches of a non-brokered private placementthe business that will be outstanding on the closing date, which is expected to occur in the near future (Notes 11 and issued 8,276,294 Subscription Receipts (defined below) at a price of $0.53 (CAD$0.66) per Subscription Receipt for aggregate gross proceeds of $4,372,267 (CAD$5,462,369) (Note 12)19).
On 31 October 2017,Pursuant to the PA #2 for the acquisition of Canopy’s membership interest, the Company closed a third tranche of a non-brokered private placementissued 2,728,156 common shares in escrow (Notes 11 and issued 757,666 Subscription Receipts at a price of $0.53 (CAD$0.66) per Subscription Receipt for aggregate gross proceeds of $400,088 (CAD$500,060) (Note 12)18).
On 1 November 2017, the Company closed a fourth and final tranche of a non-brokered private placement and issued 68,181 Subscription Receipts at a price of $0.53 (CAD$0.66) per Subscription Receipt for aggregate gross proceeds of $35,524 (CAD$45,000) (Note 12).
On 14 November 2017, the Company issued a total of 18,827,000 common shares valued at $9,940,656 in connection with the Acquisition of NMG (Note 12). The Company is obligated to issue 423,000 common shares, which have a fair value of $223,344 (Note 12). On 14 November 2017, a total of 9,102,141 Subscription Receipts converted to 9,102,141 common shares and 9,102,141 share purchase warrants exercisable at CAD $0.66 or CAD$0.90 for a period of 24 months pursuant to the closing of the Acquisition of NMG (Note 12). The Company issued a total of 367,286 brokers’ warrants with a fair value of $62,138 (CAD$78,122) in connection with these financings. The brokers’ warrants are exercisable at CAD $0.90 for a period of 24 months. The Company incurred other share issuance costs of $222,196 (CAD $279,352) in relation to this private placement.
Body and Mind Inc. (formerly Deploy Technologies Inc.)
| | Notes to Consolidated Interim Financial Statements
(Unaudited)
| For the nine months ended 30 April 2018
| U.S. Dollars
|
9. Capital Stock– Continued
On 1 December 2017, the Company closed a non-brokered private placement of 637,393 units at a price of $0.53 (CAD$0.66) per unit for aggregate gross proceeds of $334,608 (CAD$420,680). Each unit consists of one common share and one share purchase warrant. Each warrant entitles the holder to purchase one additional common share of the Company at a price of CAD$0.90 per warrant for a period of 24 months from the closing.
Stock options The Company previously approved an incentive stock option plan, (the “Plan”), pursuant to which the Company may grant stock options up to an aggregate of 10% of the issued and outstanding common shares in the capital of the Company from time to time. Under this plan, the Company may issue up to 11,334,946 stock options. At 31 January 2022, the Company had 9,253,000 stock options issued and outstanding. The Company recorded total stock-based compensation expense of $149,769 (2021 - $201,191) and $294,944 (2021 - $488,822) for the three and six months ended 31 January 2022 and 2021, respectively, in connection with the issuance of options to purchase common stock. Stock-based compensation expense is included in general and administrative expenses on the accompanying statements of operations. | | Number of options | | | Weighted average exercise price | | Weighted average contractual term remaining (in years) | | | Aggregate intrinsic value | | Outstanding at 31 July 2021 | | | 9,855,000 | | | CAD$0.71 | | | 2.76 | | | CAD$ | 3,750 | | Granted | | | 648,000 | | | CAD$0.44 | | | 4.22 | | | CAD$ | 0 | | Cancelled | | | (1,250,000 | ) | | CAD$0.70 | | | 1.16 | | | CAD$ | 0 | | Outstanding at 31 January 2022 | | | 9,253,000 | | | CAD$0.69 | | | 2.54 | | | CAD$ | 0 | | Vested and fully exercisable at 31 January 2022 | | | 7,398,750 | | | CAD$0.71 | | | 2.17 | | | CAD$ | 0 | |
On 2430 November 2017,2021, the Company issued an aggregate of 3,850,000granted 448,000 stock options in accordanceto two officers and directors of the Company with the Company’s stock option plan at an exercise price of CDN$0.66CAD$0.44 per share expiring on 30 November 2026. These stock options vest equally every 6 months for a five year term expiringperiod of 24 months.
On 30 November 2022. The2021, the Company granted 200,000 stock options were granted to officers, directors and consultantsa consultant of the Company.Company with an exercise price of CAD$0.44 per share expiring on 30 November 2024 (Note 19). These stock options vest immediately.
Body and Mind Inc. Notes to Condensed Consolidated Interim Financial Statements For the Six Months Ended 31 January 2022 (U.S. Dollars) |
16. | Capital Stock – Continued |
Share Purchase Warrants The fair valueAs of the stock options was calculated to be $733,679 (CAD$922,403) using the Black-Scholes Option Pricing Model using31 January 2022 and 31 July 2021, the following assumptions:warrants are outstanding:
Expected lifeNumber of the options
| | 5 years
| | Expected volatility
| | | 198 | % | Expected dividend yield
| | | 0 | % | Risk-free interest rate
| | | 1.63 | % |
| | 30 April 2018warrants outstanding and exercisable
| | | 31 July 2017
| | Exercise price | | Number of
options
| | | Exercise
Price
| | | Number of
options
| | | Exercise
Price
| Expiry dates | Opening balance
| | | - | | | | - | | | | - | | | | - | | Options granted
| | | 3,850,000 | | | | CAD$0.66
| | | | - | | | | - | | | | | | | | | | | | | | | | | | | Closing balance
| | | 3,850,000 | | | | CAD$0.66
| | | | - | | | | - | |
Share purchase warrants and brokers’ warrants
| | 30 April 2018
| | | 31 July 2017
| | | | Number of
warrants
| | | Exercise
Price
| | | Number of
warrants
| | | Exercise
Price
| | Opening balance
| | | - | | | | - | | | | - | | | | - | | Warrants issued
| | | 10,106,820 | | | | CAD$0.89
| | | | - | | | | - | | | | | | | | | | | | | | | | | | | Closing balance
| | | 10,106,820 | | | | CAD$0.89
| | | | - | | | | - | |
Body and Mind Inc. (formerly Deploy Technologies Inc.)
| | Notes to Consolidated Interim Financial Statements
(Unaudited)
| For the nine months ended 30 April 2018
| U.S. Dollars
|
9. Capital Stock – ContinuedShare purchase warrants and brokers’ warrants – Continued
As at 30 April 2018, the following warrants are outstanding:
Number of warrants outstanding and exercisable
| | | Exercise price
| | Expiry dates
| | 248,350
11,780,134 | | | CAD$0.661.50 | | 15 August 201917 May 2023
| | 58,324
635,150 | | | CAD$0.661.25 | | 16 August 2019May 2023 | | 60,612
4,800,000 | | | CAD$0.66USD$0.40
| | 3 November 201919 July 2025
| | 9,102,141
| 17,215,284(1) | | CAD$0.90 | | 14 November 2019
| | 637,393
| | | CAD$0.90
| | 1 December 2019
| | 10,106,820
| | | | | |
10. Segmented Information
The Company’s activities are all in the one industry segment of medical and recreational marijuana. All of the Company’s revenue generating activities and capital assets relate to this segment and are located in the USA.
11. Supplemental Disclosures with Respect to Cash Flows
| | Nine Month Period Ended 30 April | | | | 2018 | | | 2017 | | Cash paid during the period for interest | | $ | - | | | $ | - | | Cash paid during the period for income taxes | | $ | - | | | $ | - | |
Body and Mind Inc. (formerly Deploy Technologies Inc.)
| | Notes to Consolidated Interim Financial Statements
(Unaudited)
| For the nine months ended 30 April 2018
| U.S. Dollars
|
12. Business AcquisitionOn 15 May 2017, the Company entered into an assignment and novation agreement (the “Assignment Agreement”) with Toro Pacific Management Inc. (the “Transferor”) pursuant to which the Transferor assigned a letter of intent (the “LOI”) effective 12 May 2017 to the Company in accordance with its terms. The Assignment Agreement and the LOI contemplated a business combination transaction (the “Acquisition”) to acquire all of the issued and outstanding securities of Nevada Medical Group LLC (“NMG”), an arm’s length Nevada-based licensed producer of medical marijuana.
As consideration for the Assignment Agreement, the Company will issue to the Transferor 1,000,000 common shares of the Company at a deemed price of CAD$0.66 per share. On November 13, 2017, the Assignment Agreement was amended, whereby the Company would issue the 1,000,000 common shares as follows:
| a) | 470,000 common shares to Benjamin Rutledge upon closing of the Acquisition (issued); | | b) | 60,000 common shares to Chris Hunt upon closing of the Acquisition (issued); | | c) | 470,000 common shares to the Transferor according to the following schedule: |
| a. | 1/10 of the Transferor’s shares upon closing of the Acquisition (issued); | | b. | 1/6 of the remaining Transferor’s shares 6 months after closing the Acquisition; | | c. | 1/5 of the remaining Transferor’s shares 12 months after closing the Acquisition; | | d. | 1/4 of the remaining Transferor’s shares 18 months after closing the Acquisition; | | e. | 1/3 of the remaining Transferor’s shares 24 months after closing the Acquisition; | | f. | 1/2 of the remaining Transferor’s shares 30 months after closing the Acquisition; and | | g. | of the remaining Transferor’s shares 36 months after closing the Acquisition. |
The remaining 423,000 shares to be issued to the Transferor are included in equity with a total fair value of $223,344 (Note 9).
On 14 September 2017, the Company and Dep Nevada entered into a definitive agreement (the “Share Exchange Agreement”) with NMG. Pursuant to the Share Exchange Agreement, Dep Nevada acquired all of the issued and outstanding securities of NMG in exchange for the issuance of the Company’s common shares and certain cash and other non-cash consideration (the “Acquisition”).
The concurrent financing consisted of subscription receipts of the Company (the “Subscription Receipts”), at an issue price of CAD$0.66 per Subscription Receipt, with each Subscription Receipt being automatically converted, at no additional cost to the subscriber, upon the completion of the Acquisition for one common share and one share purchase warrant exercisable at a price of CAD$0.90 for a period of 24 months from the date of issuance. Each warrant is subject to acceleration provisions following the six-month anniversary of the date of closing, if the closing trading price of the common shares is equal to or greater than $1.20 for seven consecutive trading days, at which time the Company may accelerate the expiry date of the warrants by issuing a press release announcing the reduced warrant term whereupon the warrant will expire 21 calendar days after the date of such press release. These Subscription Receipts were recognized as liability on initial receipt. During the nine months ended April 30, 2018, the Acquisition closed and the shares were issued; therefore the Subscription Receipts were reclassified from liability to equity on conversion to common shares.
Body and Mind Inc. (formerly Deploy Technologies Inc.)
| | Notes to Consolidated Interim Financial Statements
(Unaudited)
| For the nine months ended 30 April 2018
| U.S. Dollars
|
12. Business Acquisition – Continued
On 14 November 2017, the Company closed the Acquisition, and acquired all of the issued and outstanding membership units of NMG (the “Units”) through DEP Nevada. In consideration for the Units, the Company issued to the NMG Members an aggregate of 16,000,000 common shares with a fair value of $8,448,000 as well as a cash payment of $2,084,000 pro rata amongst the NMG Members and a promissory note to the NMG members in the aggregate amount of $2,000,000. The Company also issued 2,037,879 common shares to TI Nevada, LLC with a fair value of $1,076,000, 212,121 common shares to Charles Fox with a fair value of $112,000, 47,000 common shares to Toro Pacific Management Inc. with a fair value of $24,816, 60,000 common shares to Chris Hunt with a fair value of $31,680, and 470,000 common shares to Benjamin Rutledge with a fair value of $248,160 in connection with the Acquisition. The Company has an obligation to issue a further 423,000 common shares to Toro Pacific Management Inc., which had a fair value of $223,344 on the date of acquisition. In addition, the Company paid the amount of $225,000 and issued a promissory note in the amount of $175,000 to TI Nevada as repayment for a loan made by TI Nevada to NMG. The promissory notes were discounted to a present value of $1,826,537 (Note 8). In connection with the closing of the Acquisition, the net proceeds of the Company's private placements of Subscription Receipts in support of the Acquisition, (the "Offering") have been released to the Company from escrow. Immediately prior to closing of the Acquisition, the Company completed a consolidation of its common shares on the basis of three (3) pre-consolidation common shares to one (1) post-consolidation common share, as well a name change, changing the name of the Company from Deploy Technologies, Inc. to Body and Mind Inc. The Company eliminated its authorized Class A Preferred shares (Note 9).
As a result of the acquisition of NMG, the Company changed its business focus to growing and supplying medical and recreational marijuana in the state of Nevada. The acquisition of NMG was accounted for as a business combination, in which the assets acquired and the liabilities assumed are recorded at their estimated fair values. These values are based on preliminary management estimates and are subject to final valuation adjustments. The allocation of the purchase consideration is as follows:
Purchase consideration | | | | Share considerations | | $ | 10,164,000 | | Cash considerations | | | 2,309,000 | | Promissory notes issued | | | 1,826,537 | | TOTAL | | | 14,299,537 | | | | | | | Assets acquired: | | | | | Cash | | | 260,842 | | Amounts receivable | | | 253,697 | | Prepaid expenses | | | 44,552 | | Inventory | | | 534,880 | | Property and equipment | | | 1,951,696 | | Liabilities assumed: | | | | | Trade payable and accrued liabilities | | | (367,385 | ) | Loans payable | | | (250,000 | ) | | | | | | Net assets acquired | | | 2,428,282 | | Brand and licenses | | | 11,871,255 | | TOTAL | | $ | 14,299,537 | |
Body and Mind Inc. (formerly Deploy Technologies Inc.)
| | Notes to Consolidated Interim Financial Statements
(Unaudited)
| For the nine months ended 30 April 2018
| U.S. Dollars
|
13. Commitments
| a) | On 11 November 2014, NMG entered into a five year lease for its premises. The Company has five options to extend the lease and each option is for five years. The monthly rent was $12,500, increased to $15,000 on 1 January 2018. | 1.21 | | |
| b)(1) | On 18 December 2017, the Company reached an agreement with a real estate investment group, led by the Company’s President, to purchase a building adjacentThis figure does not include 3,200,000 warrants issued to the existing facility and lease it back to a newly formed partnership called Pepper Lane North LLC (“PLN” or “Partnership”) on a long-term basis with renewal options. PLN is a strategic partnership between the Company and one of the preeminent dispensary chains in the State of Nevada. The PLN’s partner will also transfer an active cultivation licenseAgent pursuant to the facilityLoan Agreement, which warrants are held in escrow by us and all expenditures under PLN willare to be funded on a 50/50 basis. The new facility will primarily consist of flowering rooms as production, packaging, distribution, and head office functions will remain at the existing facility. The Company has also earmarked approximately 4,000 square feet of frontage for a dispensary upon receipt of a retail license. It is contemplated that at least half of the sales under PLN will be soldreleased to the PNL partner through their existing dispensary network. In addition,Agent if we draw on the Company has signedDelayed Draw Term Loan by 1 June 2022, or cancelled if we do not draw on the Delayed Draw Term Loan. Each warrant, if released to the Agent, will entitle the holder to acquire one share of common stock at an operatingexercise price of US$0.45 per share until July 19, 2025 |
17. | Segmented Information and management agreement with PLN and will receive the greater of $15,000/month or 10% of PLN’s net profits. Prior to entering the Partnership, the Company engaged surveyors to ensure compliance with permitting procedures and received the necessary approvals to move forward. The Company was later notified that a church was located in close proximity of the building and that permitting was unlikely to proceed. The Company has put an insurance claim to recover damages (Note 15).Major Customers |
In its operation of the business, management, including our chief operating decision marker, who is also our Chief Executive Officer, reviews certain financial information, including segmented internal profit and loss statements prepared on a basis not consistent with GAAP. During the periods presented, the Company reported its financial performance based on the following segments: | · | Wholesale; | | · | Retail; and | | · | Under the Partnership Agreement, each party has provided an initial capital contribution to PLN (Note 7).
All others | | | | | c)
| On November 14, 2017, the Company entered into the following consulting agreements:
|
Revenue and costs are generally directly attributed to our segments. However, due to the integrated structure of our business, certain costs incurred by one segment may benefit other segments. In addition, certain costs incurred at a corporate level are not allocated to our segments. | i. | $16,667 per month to TI Nevada for a term of three years; and | | ii. | CAD $10,000 per month to Toro Pacific Management Inc., which is controlled by an officer of the Company. |
Segment revenue and net loss before income taxes were as follows during the six months ended 31 January 2022: | | 31 January 2022 | | Revenue | | | | Wholesale | | $ | 3,092,676 | | Retail | | | 12,524,666 | | Total | | $ | 15,617,342 | | | | | | | Net loss before income taxes | | | | | Wholesale | | $ | 667,771 | | Retail | | | 1,715,136 | | All others | | | (3,664,887 | ) | Total | | $ | (1,281,980 | ) |
14. Income Taxes
During the six months ended 31 January 2022, the Company had no major customer over 10% of its revenues. A reconciliation of income taxes at statutory rates with the reported taxes is as follows:
| | April 30,
2018 | | | April 30,
2017 | | | | | | | | | Net loss for the period | | $ | (1,998,725 | ) | | $ | (152,823 | ) | Federal and state income tax rates | | | 35 | % | | | 35 | % | | | | | | | | | | Expected income tax expense (recovery) | | | (699,554 | ) | | | (53,488 | ) | Change in estimates and others | | | 264,157 | | | | - | | Change in benefit not recognized | | | 435,397 | | | | 53,488 | | | | | | | | | | | Total income tax recovery | | $ | - | | | $ | - | |
Body and Mind Inc. Notes to Condensed Consolidated Interim Financial Statements For the Six Months Ended 31 January 2022 (U.S. Dollars) |
18. | Supplemental Disclosures with Respect to Cash Flows |
| | Six Months Ended 31 January | | | | 2022 | | | 2021 | | Cash paid during the period for interest | | $ | 440,556 | | | $ | 0 | | Cash paid during the period for income taxes | | $ | 15,641 | | | $ | 1,125 | |
Pursuant to certain licensing milestones being achieved under a lease agreement for a premises in Muskegon, Michigan and certain licensing and operational milestones being achieved under two lease agreements for a premises in Manistee, Michigan, on 21 September 2021, the Company issued 238,929 shares of common stock to one entity based on the terms and conditions of the certain lease agreement for the Muskegon, Michigan premises and issued an aggregate of 1,304,601 shares of common stock to another entity based on the terms and conditions of the two lease agreements for the Manistee, Michigan premises (Notes 15 and 16). On the assumption of an additional leases in Ohio and Michigan, the Company recognized right-of-use assets (Note 15), and a corresponding increase in lease liabilities, in the amount of $2,745,932 which represented the present value of future lease payments using a discount rate of 12% per annum. Pursuant to the PA #2 for the acquisition of Canopy’s membership interest, the Company issued 2,728,156 common shares in escrow (Notes 11 and 16). In connection with the strategic investment agreement with Australis dated 30 October 2018 (the “Investment Agreement”) (Note 20), the Company agreed to pay a monthly service fee of $10,000 to Australis. In connection with the Company’s investment in GLDH and the promissory note provided by Australis, the Company agreed to increase the monthly services fee to Australis to $16,500 per month for 5 years unless ownership held by Australis drops below 10% in which the fee will cease. Following the repayment of the promissory note, the monthly service fee to Australis was reduced to $12,000 commencing June 2019. In September 2021, Australis sold 9,900,000 of our restricted common shares in a private transaction which resulted in Australis’ beneficial ownership dropping below 10% of our outstanding common shares. As a result of Australis’ beneficial ownership falling below 10%, the Investment Agreement was terminated and monthly commercial advisory and consulting fees paid from the Company to Australis were terminated along with Australis’ entitlement to nominate a director to the board of directors of our Company. Pursuant to the ShowGrow Long Beach Purchase Agreement (Note 9), the Company issued 2,681,006 common shares in escrow. The share consideration remains subject to reduction with reference to the liabilities of the business that will be outstanding on the closing date, which is expected to occur in the near future. Any final settlement that is different than liabilities’ balances currently recorded will be allocated to other income or expense. The Company signed a consulting agreement with Skanderbeg Capital Advisors Inc. to provide capital market advisory services, including introductions to prospective investors and merger and acquisition transactions and advising on capital structuring and other financial aspects of financings or strategic transactions. Skanderbeg Capital Advisors is a boutique merchant bank and capital advisor firm, which is focused on identifying companies with highly prospective business opportunities in the natural resource, technology, biotech and special situations sectors. The Company will pay a monthly fee of CAD$7,500 and a one-time payment of 200,000 options priced at CAD$0.44 (Note 16). Body and Mind Inc. (formerly Deploy Technologies Inc.) | | Notes to Condensed Consolidated Interim Financial Statements (Unaudited)
| For the nine months ended 30 April 2018Six Months Ended 31 January 2022 (U.S. Dollars) |
U.S. Dollars20.
| Other Agreements |
On 6 August 2021, the Company entered into management agreements with each of NMG IL 1, LLC (“NMG IL 1”) and NMG IL 4, LLC (“NMG IL 4”) along with an option to indirectly acquire all of the membership interests in each of NMG IL 1 and NMG IL 4 pursuant to a convertible credit facility between our subsidiary, DEP and each of NMG IL 1 and NMG IL 4, and membership interest purchase agreements between DEP and the members of NMG IL 1 and NMG IL 4, subject to obtaining all required local and state regulatory authorization. Each of NMG IL 1 and NMG IL 4 have been identified in the Illinois Department of Financial and Professional Regulation (IDFPR) results of the Social Equity Justice Involved Lottery for 55 Conditional Adult-Use Cannabis Dispensary Licenses (Conditional Licenses) across the state. The certified results are from a lottery with a pool of applicants who scored 85 % or greater in their applications. NMG IL 1 and NMG IL 4 were drawn in BLS Region #5 (Chicago-Naperville-Elgin) where 36 conditional licenses are available. The applications are not tied to specified locations. 14. Income Taxes – Continued The significant componentsOn 2 February 2022, the Company, through its wholly owned subsidiary, has received all licenses and approvals and will open the Body and Mind branded dispensary on 2 February 2022 to serve medical patients and recreational customers in Muskegon, Michigan
On 3 March 2022, the Company’s subsidiary, NMG MI 1, Inc. entered into an Amendment No. 1 to Lease Agreement with Kendal Properties, LLC with respect to the premises located at 885 E. Apple Ave., Muskegon, Michigan, whereby the parties amended the original Lease Agreement to provide that two of the Company's deferred income tax assets and liabilities are as follows: | | As at
30 April 2018 | | | As at 31 July 2017 | | | | | | | | | Deferred income tax assets | | | | | | | Net income tax operating loss carry forward | | $ | 4,697,448 | | | $ | 3,453,457 | | | | | | | | | | | Statutory federal income tax rate | | | 35 | % | | | 35 | % | | | | | | | | | | Deferred income tax asset | | | 1,644,107 | | | | 1,208,710 | | Deferred tax allowance | | | (1,644,707 | ) | | | (1,208,710 | ) | | | | | | | | | | Net deferred income tax assets | | $ | - | | | $ | - | |
A roll-forwardmilestone payments that were to be made in the form of the Company’s deferred tax allowance is as follows:shares are to now be made in the form of cash.
| | As at
30 April 2018 | | | As at 31 July 2017 | | | | | | | | | Deferred tax allowance, beginning | | $ | 1,208,710 | | | $ | 1,083,529 | | Increase (decrease) during the year | | | 435,397 | | | | 125,181 | | | | | | | | | | | Deferred tax allowance, ending | | $ | 1,644,107 | | | $ | 1,208,710 | |
All events have been evaluated through the date of this report. Body and Mind Inc. (formerly Deploy Technologies Inc.)
| | Notes to Consolidated Interim Financial Statements
(Unaudited)
| For the nine months ended 30 April 2018
| U.S. Dollars
|
15. Subsequent Events | a) | In May 2018, the real estate investment group completed the purchase of the building adjacent to the existing NMG facility (“PLN Facility”). The Company made the decision to terminate its lease back agreement regarding the PLN Facility as it was unable to relocate a church that was in close proximity to the PLN Facility. The PLN Facility may still be an opportunity for the Company to lease storage and administrative space and the Company will continue to evaluate this opportunity. The Company initiated a claim with the surveyor’s insurance company stating the surveyor made an error and did not disclose the church location in their report to the Company. The primary claim, amongst other damages, is to recover the non-refundable $250,000 deposits made by each member of the Partnership (Notes 7 and 13). | | | | | b) | On 7 June 2018 the Company announced the Company’s subsidiary, NMG, and its strategic in-state investment partners received notification that the State of Ohio awarded a medical cannabis dispensary licenses to NMG Ohio, LLC (“NMG Ohio”). NMG currently maintains a 30% ownership interest in NMG Ohio. | | | | | c) | On 12 June 2018, the Company granted 175,000 stock options with an exercise price of CAD$0.41 per common share for a period of five years to a consultant of the Company. | | | | | d) | On 19 September 2018, the Company announced the Company, through its subsidiary, NMG, and its strategic in-state investment partners received notification that the State of Ohio awarded a medical cannabis production licenses to NMG Ohio, LLC (“NMG Ohio”). NMG currently maintains a 30% ownership interest in NMG Ohio. |
| e) | On 20 September 2018 the Company announced its wholly-owned subsidiary, NMG and an in-state investment group, submitted four cannabis dispensary license applications in the State of Nevada. |
ITEM 2 -– MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The terms “BAM”, “Company”, “we”, “our”, and “us” refer to Body and Mind Inc. unless the context suggests otherwise. FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-QThe following management’s discussion and analysis of the Company’s financial condition and results of operations (the “MD&A”) contains forward-looking statements that involve risks and uncertainties. All statements, other than statements of historical facts, included in this Form 10-Q that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements. These forward-looking statements are based on assumptions which we believe are reasonable based on current expectations and projections about future events and industry conditions and trends affecting our business. However, whether actual results and developments will conform to our expectations and predictions is subject to a number of risks and uncertainties that, among other things, could cause actual results to differ materially from those contained in the forward-looking statements, including, without limitation, the Risk Factors set forth in our Annual Report on Form 1010-K for the fiscal year ended July 31, 2021, including the consolidated financial statements with respectand related notes contained therein. These factors, or any one of them, may cause our actual results or actions in the future to differ materially from any forward-looking statement made in this document. Refer to “Forward-looking Statements” as disclosed in our Annual Report on Form 10-K for the following:fiscal year ended July 31, 2021.
| · | our failure to obtain additional financing; | | · | our inability to continue as a going concern; | | · | the unique difficulties and uncertainties inherent in the business; | | · | local and multi-national economic and political conditions, and | | · | our common stock. |
Introduction GeneralThis MD&A is focused on material changes in our financial condition from July 31, 2021, our most recently completed year end, to January 31, 2022, and our results of operations for the three and six months ended January 31, 2022, and should be read in conjunction with Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations as contained in our Annual Report on Form 10-K for the fiscal year ended July 31, 2021.
Company Overview Body and Mind is a multi-state cannabis operator, which has retail, distribution, cultivation, and/or processing operations in Nevada, California, Arkansas and Ohio. Our platform approach to expansion focuses on limited license states and jurisdictions, entering new markets through lower cost license applications and opportunistic/targeted acquisitions. We have developed the marquis lifestyle “Body and Mind” brand in Nevada with strong penetration into dispensaries and have recently expanded our brand and products to dispensaries in California. The Body and Mind brand appeals to a wide range of cannabis consumers with products including flower, oils, extracts (wax, live resin, ambrosia) and edibles. We have a long track record of producing award-winning cannabis products and we have success with licensing to manufacture for brands. We completed construction and commenced production operations at the new Nevada production facility in August of 2020. We are a reporting issuerNevada corporation that, through our wholly-owned subsidiary, Nevada Medical Group, LLC (“NMG”), are engaged in British Columbiathe cultivation and Ontario,production of medical and adult-use recreational marijuana products. NMG produces cannabis flower, oil extracts and edibles under license in the state of Nevada, which are available for sale under the brand name “Body and Mind” in dispensaries in Nevada. In April 2020, we closed the San Diego ShowGrow dispensary transaction, which is owned 60% by our wholly-owned subsidiary, NMG San Diego, LLC (“NMG SD”), and has received all licenses, permits and authorizations required to conduct medical and adult-use commercial cannabis retail operations. The San Diego ShowGrow dispensary opened in early July 2020. We, through our wholly-owned subsidiary, NMG Long Beach, LLC (“NMG LB”), have been managing the ShowGrow Long Beach dispensary operations for over a year, received all approvals and final license transfer for the dispensary, which was transferred to NMG LB at the end of August 2020 and is expected to close in the near future. On July 11, 2021, we announced receipt of local approval for a cannabis manufacturing facility in Cathedral City, California and execution of a lease for the facility. We have applications in process with the California Bureau of Cannabis Control (BCC) for a type “N” manufacturing license, and with the California Department of Public Health (CDPH) for a distribution license, which is anticipated to allow us to manufacture and distribute our BaM branded flower products, extracts, oils and edibles. In Ohio, we, through NMG, were managing the fully operational The Clubhouse dispensary located in Elyria, Ohio, which is owned by NMG Ohio LLC, of which we own 30% through our subsidiary NMG, and have an agreement to acquire the remaining 70% of NMG Ohio LLC. We received all approvals and final license and name transfer from the Ohio Department of Pharmacy in early September 2020 and transferred the dispensary license and all assets and liabilities associated with such dispensary from NMG Ohio LLC to a 100% owned subsidiary of Body and Mind; however, the transfer of the remaining 70% interest in NMG Ohio LLC to NMG will not occur until NMG Ohio LLC receives a production license. On September 17, 2021, the final award of the production license was transferred to our shareswholly owned subsidiary, NMG OH P1 LLC, and the transaction closed resulting in NMG now owning 100% of NMG Ohio. In Arkansas, we, through NMG, manage the “Body and Mind” branded medical marijuana dispensary in West Memphis, Arkansas, which opened on April 27, 2020. In Michigan, we received all licenses and approvals and opened the “Body and Mind” branded dispensary on February 2, 2022 to serve medical patients and recreational customers in Muskegon, Michigan. Our common stock is listed on the Canadian Securities Exchange under the symbol “BAMM”, with a and our common stock is posted for trading on the OTCQB Venture Market under the symbol “BMMJ.” Our head office located at 750 – 1095 West Pender Street, Vancouver, British Columbia, Canada V6E 2M6. Intercorporate Relationships The following is a list of all of our subsidiaries and the corresponding date of jurisdiction of incorporation or organization and the ownership interest of each. All of our subsidiaries are directly or indirectly owned by us: Name of Entity | | Place of Incorporation/Formation | | Ownership Interest | | | Date of Acquisition or formation | | DEP Nevada Inc.(1) | | Nevada, USA | | | 100 | % | | August 10, 2017 | | Nevada Medical Group, LLC(2) | | Nevada, USA | | | 100 | % | | November 14, 2017 | | NMG Long Beach, LLC(3) | | California, USA | | | 100 | % | | December 18, 2018 | | NMG Cathedral City, LLC(4) | | California, USA | | | 100 | % | | January 4, 2019 | | NMG San Diego, LLC(5) | | California, USA | | | 60 | % | | January 30, 2019 | | NMG Ohio LLC(6) | | Ohio, USA | | | 100 | % | | April 27, 2017 | | NMG OH 1, LLC(7) | | Ohio, USA | | | 100 | % | | January 29, 2020 | | NMG OH P1, LLC(8) | | Ohio, USA | | | 100 | % | | January 29, 2020 | | NMG MI 1, Inc.(9) | | Michigan, USA | | | 100 | % | | June 24, 2021 | | NMG MI P1 Inc. (10) | | Michigan, USA | | | 100 | % | | June 24, 2021 | | NMG MI C1 Inc. (11) | | Michigan, USA | | | 100 | % | | June 24, 2021 | | Canopy Monterey Bay, LLC (12) | | California, USA | | | 80 | % | | December 1, 2021 | |
Notes: | (1) | DEP Nevada Inc. is a wholly-owned subsidiary of Body and Mind Inc. | | (2) | Nevada Medical Group, LLC is a wholly-owned subsidiary of DEP Nevada Inc. | | (3) | NMG Long Beach, LLC is a wholly-owned subsidiary of DEP Nevada Inc. | | (4) | NMG Cathedral City, LLC is a wholly-owned subsidiary of DEP Nevada Inc. | | (5) | NMG San Diego, LLC is a 60% owned subsidiary of DEP Nevada Inc.. | | (6) | NMG Ohio LLC is a wholly-owned subsidiary of Nevada Medical Group LLC | | (7) | NMG OH 1, LLC is a wholly-owned subsidiary of DEP Nevada Inc. | | (8) | NMG OH P1, LLC is a wholly-owned subsidiary of DEP Nevada Inc. | | (9) | NMG MI 1, Inc. is a wholly-owned subsidiary of DEP Nevada, Inc. | | (10) | NMG MI P1 Inc. is a wholly-owned subsidiary of DEP Nevada, Inc. | | (11) | NMG MI C1 Inc. is a wholly-owned subsidiary of DEP Nevada, Inc. | | (12) | Canopy Monterey Bay, LLC is 80% owned subsidiary of DEP Nevada, Inc. DEP Nevada Inc.’s ownership of such 80% of Canopy is subject to obtaining city and state approvals, which have now been received, and to completion of the required audited annual financial statements and unaudited interim financial statements of Canopy, failing which the Company may terminate the membership interest purchase agreement requiring the membership interests to be transferred back to the sellers and the escrow agent to return to DEP Nevada Inc. the cash consideration and the promissory note being automatically terminated. |
Business Operations Development of Our Business Incorporation and Early Corporate History We were originally incorporated on November 5, 1998 in the State of Delaware under the name Concept Development Group, Inc. In May 2004, we acquired 100% of Kaleidoscope Venture Capital, Inc. (formerly Vocalscape Networks, Inc.) and changed our name to Vocalscape, Inc. In November 2005, we changed our name to Nevstar Precious Metals Inc. In September 2008, we changed our name to Deploy Technologies Inc. (“Deploy Tech”) and effective November 13,14, 2017, we changed our name to Body and Mind, Inc. (“Body and Mind”). On September 15, 2010, we incorporated a wholly-owned subsidiary, Deploy Acquisition Corp. (“Deploy”) under the laws of the State of Nevada, USA. On September 17, 2010, Deploy completed a merger with Deploy Tech, its former parent company, pursuant to which Deploy was the surviving corporation and assumed all the assets, obligations and commitments of Deploy Tech. Upon the completion of the merger Deploy assumed the name “Deploy Technologies Inc.” and all of the issued and outstanding common stock of Deploy Tech was automatically converted into and became Deploy’s – that is, our Company’s issued and outstanding common stock. On May 10, 2011, we registered as an extra-provincial company in British Columbia, and on September 30, 2011, we filed a certificate of amendment with the Nevada Secretary of State to designate 2,900,000 shares of our authorized capital stock as Class A Preferred Shares (the “Preferred Shares”). On September 2, 2014, we filed a certificate of amendment with the Nevada Secretary of State increasing the authorized Preferred Shares from 2,900,000 shares to 20,000,000 shares. On November 11, 2014, we filed a certificate of change with the Nevada Secretary of State whereby we reverse split our authorized as well as the issued and outstanding shares of common stock (the “Common Shares”“Common Shares”) on the basis of one (1) new share for ten (10) old shares whichshares. This resulted in a reduction of our authorized capital from 100,000,000 Common Shares to 10,000,000 Common Shares, and a reduction of our issued and outstanding Common Shares decreasing from 23,130,209 Common Shares to approximately 2,313,021 Common Shares. On April 11, 2017, we filed a certificate of amendment with the Nevada Secretary of State to increase the authorized capital from 10,000,000 Common Shares to 900,000,000 Common Shares. Acquisition of Nevada Medical Group, LLC On August 10, 2017, we incorporated a wholly-owned subsidiary, Dep Nevada Inc. (“DEP”). On September 14, 2017, we, with DEP Nevada Inc (“DEP”), entered into a definitive agreement (the “Share Exchange Agreement”) with Nevada Medical Group, LLC (“NMG”), an arm’s length party, to carry out the business combination transaction initially announced on May 17, 2017, following the signingwhereby DEP acquired all of the letterissued and outstanding securities of intent between Toro Pacific Management Inc. (“ToroNMG in exchange for (a) 16,000,000 post reverse-split Common Shares, (b) $2,000,000 cash, and (b) promissory notes (the “Promissory Notes”) and NMG (the "Letterin the aggregate principal amount of Intent"), which was assigned to us pursuant to an assignment and novation agreement among Toro, NMG, and us dated effective May 12, 2017 (the “Assignment Agreement”). Pursuant$2,000,000, to the Assignment Agreement, Toro received 470,000NMG securityholders on a pro rata basis in accordance with their respective ownership interest in NMG. The Promissory Notes were secured by a senior priority security interest in all of our Common Shares. assets, and were due to be repaid at the earlier of fifteen (15) months from the closing date of the Share Exchange Agreement, or, if an equity or debt financing subsequent to the Concurrent Financing (as defined below) were to be closed in an aggregate amount of not less than $5,000,000, then within 30 days of the closing date of such subsequent financing. The Share Exchange Agreement closed on November 14, 2017.
Pursuant to the Share Exchange Agreement, we changed our name to “Body and Mind, Inc.”, effective on November 14, 2017, by filing a certificate of amendment with the Nevada Secretary of State andState; at the same time, we cancelled our entire authorized class of Preferred Shares. In addition, on November 14, 2017, we filed a certificate of change with the Nevada Secretary of State whereby we reverse split our issued and outstanding Common Shares on the basis of one (1) new share for three (3) old shares (the “Consolidation”) which resulted in there being 28,239,876 Common Shares issued and outstanding post-Consolidation. DEP, our wholly-owned subsidiary, acquired all of the issued and outstanding securities of NMG in exchange for the issuance of our Common Shares on a post-consolidation basis and certain cash and other non-cash consideration, as further described below (the "Acquisition"). Completion of the Acquisition resulted in a fundamental change under the policies of the Canadian Securities Exchange (the “CSE”). Subsequent to completion of the Acquisition,Share Exchange Agreement, we filed articles of exchange with the Nevada Secretary of State. We
Concurrent with the Share Exchange Agreement, we completed a concurrentan equity financing to raise aggregate gross proceeds of CAD$6,007,429.896,007,430 through the issuance of subscription receipts (the “Subscription Receipts”) with, at a pre-Consolidation price of CAD$0.22 per Subscription Receipt (the “Concurrent Financing”). On November 14, 2017, each Subscription Receipt convertible intowas exchanged in accordance with its terms, for no additional consideration, for one pre-Consolidation Common Share and one common share purchase warrant (each a “Warrant”) of Body and Mind, at a price of CAD$0.22 per Subscription Receipt (the “Concurrent Financing”).the Company. Each Warrant iswas exercisable by the holder at a price of CAD $0.30CAD$0.90 for a period of 24 months from the date of issuance. Each Warrant On completion of the Share Exchange Agreement, we assumed the business of NMG, being the cultivation and production of medical marijuana products. Convertible Loan and Management Agreements with Comprehensive Care Group LLC On March 19, 2018, we, through our wholly-owned subsidiaries DEP and NMG, entered into a convertible loan agreement (the “Convertible Loan Agreement”) and a management agreement (the “Management Agreement”), respectively, with Comprehensive Care Group LLC (“CCG”), an Arkansas limited liability company, with respect to the development of a medical marijuana dispensary including a 50 flowering plant cultivation facility in West Memphis, Arkansas which agreements were effective as of March 15, 2019. Pursuant to the Convertible Loan Agreement, DEP agreed to make loan advances to CCG from time to time in the aggregate principal amount of up to $1,250,000 and as of January 31, 2022, DEP has loaned $1,854,785 to CCG. The loan proceeds were used to fund the construction of the medical marijuana dispensary facility, and to provide working capital to cover initial operating expenses. The construction was completed and all permits and licenses were received for the dispensary in late April 2020, which opened for operations on April 27, 2020. The interest on the outstanding principal amount is currently set at $6,000 per month, payable monthly in arrears on or before the first calendar day of each month. CCG is not obligated to repay any principal outstanding under the loan until March 30, 2021. Either CCG or DEP may unilaterally extend the maturity date by one year, and may thereafter continue to extend the maturity date on a yearly basis by increments of one year (each, an “Extension Option”) by providing written notice of the exercise of the Extension Option by the party seeking an extension to the other party; provided, however, that under no circumstances shall any extended maturity date extend beyond the expiration of the term of the Management Agreement entered into between NMG and CCG. The Company extended the loan maturity date by one year resulting in a new maturity date of March 30, 2022. The Management Agreement has an expiration of March 15, 2024 and can be mutually extendable. Upon the latter of: (a) one year after granting of a medical marijuana dispensary license by the Arkansas Medical Marijuana Commission to CCG, or (b) one year after entering into the Convertible Loan Agreement, DEP may, in its sole discretion, subject to acceleration provisionsDEP providing all reasonable assistance to obtain all necessary approvals from the applicable government authorities to engage in the medical marijuana dispensary business, elect to convert all of the outstanding indebtedness into preferred units of CCG equal to 40% of the overall member units of CCG, subject to approval of the Arkansas Medical Marijuana Commission, with the following May 14,preferred rights: (i) the right to an allocative share of 66.67% of the net profits of CCG (as defined in the Convertible Loan Agreement) and the right to distributions equal to 66.67% of the net profits on a monthly basis; (ii) the right to a 66.67% share of CCG’s assets upon dissolution of CCG; and (iii) the right to 66.67% of all voting rights of members of CCG. DEP is waiting for regulatory clearance from the State regulators before proceeding with the conversion Pursuant to the Management Agreement, NMG provides operations and management services to CCG (including management, staffing, operations administration, oversight and other related services) for the medical marijuana dispensary. In consideration for such services CCG pays NMG a monthly management fee in the amount equal to 66.67% of the Monthly Net Profits (as defined below) of CCG for the immediately-preceding month. Notwithstanding the foregoing, in the event that DEP exercises its conversion right under the Convertible Loan Agreement, then NMG’s monthly management fee shall be fixed at $6,000 per month, unless otherwise agreed by the parties in writing. For purposes of the Management Agreement, “Monthly Net Profits” means, for each calendar month, an amount equal to CCG’s gross revenue for such calendar month less CCG’s operating expenses (including cost of goods sold, interest, and tax for said month), as reasonably determined in accordance with generally accepted accounting principles. Acquisition of NMG Ohio LLC We, through NMG, until September 2021 owned a 30% interest in NMG Ohio, LLC (“NMG Ohio”), which has a cannabis dispensary carrying on business as “The Clubhouse” in Elyria, Loraine County, Ohio. On January 31, 2019, we, through NMG, entered into a definitive agreement to acquire the remaining 70% interest in NMG Ohio. The consideration for the remaining 70% interest in NMG Ohio consists of cash payments totaling $1,575,000 and 3,173,864 common shares of the Company. As at the date hereof, we have issued 3,173,864 common shares, with a fair value of $1,188,168, and paid $1,575,000. All share and cash payments for the transactions have been paid in full and closing of the acquisition was subject to receipt of regulatory approval, which all approvals and final license and name transfer approvals from the Ohio Department of Pharmacy were received in early September 2020 but the remaining 70% was not closed as of July 31, 2021. As such, the dispensary license for The Clubhouse dispensary, as well as the assets and liabilities associated with the dispensary, were transferred to the Company’s wholly-owned subsidiary, NMG OH 1 LLC. On September 17, 2021, the final award of the production license was transferred to our wholly owned subsidiary, NMG OH P1 LLC, and the transaction closed resulting in NMG now owning 100% of NMG Ohio. Strategic Investment and Commercial Advisory Agreements with Australis Capital Inc. Pursuant to an investment agreement (the “Investment Agreement”) entered into with Australis Capital Inc. (“Australis”) on October 30, 2018, ifwhereby Australis acquired (a) 16,000,000 units of the Company, with each unit being comprised of one share of our common stock and one common share purchase warrant at a purchase price of CAD$0.40 per unit, for gross proceeds of CAD$6,400,000 and (b) CAD$1,600,000 principal amount 8% unsecured convertible debentures (the “Debentures”) of the Company, we entered into a commercial advisory agreement (the “Commercial Advisory Agreement”) with Australis Capital (Nevada) Inc. (“Australis Nevada”), a wholly-owned subsidiary of Australis, pursuant to which Australis Nevada has agreed to provide advisory and consulting services to us for a fee of $10,000 per month payable on the first day of each month for a term ending on the date that is the earlier of (i) five years following the closing trading price of the transactions contemplated by the Investment Agreement, and (ii) the date Australis no longer holds 10% or more of our Company’s issued and outstanding common shares. The foregoing is more fully disclosed in our Current Report on Form 8-K filed with the SEC on November 5, 2018. On July 1, 2019, we entered into a conversion agreement with Australis, whereby Australis has agreed to convert the Debentures on July 1, 2020. Upon execution of the conversion agreement, we remitted CAD$148,340 to Australis as an advanced interest payment for the period from November 2, 2018 to July 1, 2020. On July 1, 2020, we issued 2,909,091 Common Shares is equal to or greater thanAustralis at a deemed value of CAD$1.20 for seven consecutive trading days, at which time we may accelerate0.55 per Common Shares and the expiry date of the Warrants by issuing a press release announcing the reduced warrant term whereupon the Warrants will expire 21 calendar days after the date of such press release.Debentures were fully converted to Common Shares. In considerationaddition, pursuant to the terms of the Investment Agreement and subject to certain exceptions, Australis will be entitled to maintain its pro rata ownership interest of the Company until such time as it no longer holds 10% or more of our issued and outstanding common shares. Furthermore, pursuant to the terms of the Investment Agreement and subject to applicable laws and the rules of the CSE, for as long as Australis owns at least 10% of our issued and outstanding common shares, Australis will be entitled to nominate one director for election to our Board of Directors of the Company. If Australis exercises all of its warrants and converts all of its debentures, Australis will be entitled to nominate a second director for election to our Board of Directors. Further, for as long as Australis maintains ownership of at least 25% of our issued and outstanding common shares, Australis will be entitled to maintain two directors on our Board of Directors, provided that each director nominee must meet the requirements of applicable corporate, securities and other laws and rules of the CSE. As of July 31, 2020, Australis has exercised all of its warrants and the Debentures have all been converted, however, Australis no longer maintains ownership of at least 25% of our outstanding Common Shares. Australis’ current nominee director on our Board of Directors is Brent Reuter. On September 2, 2021, Australis ownership of Body and Mind fell below 10% which resulted in the termination of the parties obligations under the Investment Agreement and Commercial Advisory Agreement. Transaction and Settlement with Green Light District Holdings Inc. – ShowGrow Long Beach and San Diego Prior Agreement with Green Light District Holdings Inc. On November 28, 2018, we entered into an interim agreement (the “Prior GLDH Agreement”) with Green Light District Holdings Inc. (“GLDH”), a private company incorporated under the laws of Delaware, and David Barakett, whereby our Company agreed to acquire up to 100% of the issued securitiesand outstanding common shares of NMG,GLDH. We concurrently made a strategic investment in a senior secured convertible note issued by GLDH in the NMG securityholders (collectively,principal amount of $5,200,000 (the “Prior GLDH Note”), bearing interest at the “NMG Members”) received,rate of 20% per annum and maturing on November 28, 2020. At the time, GLDH was the owner of the ShowGrow dispensary brand, and owner of: | (a) | the ShowGrow Long Beach dispensary, | | | | | (b) | 43% of the equity interest and 60% of the voting rights in the ShowGrow San Diego dispensary, and | | | | | (c) | 30% of the equity interest in the ShowGrow Las Vegas dispensary. |
GLDH is also the owner of the ShowGrow app. The dispensaries were in various stages of licensing. In order to fund our original investment in GLDH, Australis advanced a pro rata basis, (a) 16,000,000 post-Consolidation$4,000,000 loan which was evidenced by a senior secured note dated November 28, 2018, bearing an interest rate of 15% per annum and maturing in two years. The terms required semi-annual interest payments unless we elected to accrue the interest by adding it to the principal amount of the debt facility. We may prepay the loan at any time, in any amount, subject to a 5% prepayment penalty on any amount repaid within the first year of the loan. Additionally, Australis exercised $1.2 million in warrants they held in our Company at an exercise price of CAD$0.50, which equated to 3,206,160 common shares. We paid a financing fee to Australis in the approximate amount of CAD$795,660, by issuing 1,105,083 Common Shares (the “Payment Shares”) at a deemed price of CAD$0.660.72 per share. Original Settlement and Release Agreement On June 19, 2019, our Company, our indirect wholly-owned subsidiary NMG LB, and our 60% owned subsidiary NMG SD, entered into a settlement agreement (the “Original GLDH Settlement Agreement”) with GLDH, The Airport Collective, Inc. (“Airport Collective”), Mr. Barakett, and SGSD, LLC (“SGSD”). SGSD was the commercial tenant at 7625 Carroll Road, San Diego, California 92121 (the “San Diego Location”). Pursuant to the Original GLDH Settlement Agreement, we, GLDH, and Mr. Barakett agreed to restructure the Prior GLDH Agreement, and enter into a mutual release of all claims related to the Prior GLDH Agreement. In connection with the settlement, (a) SGSD agreed to assign its lease for the San Diego Location to NMG SD, and (b) GLDH, Airport Collective and NMG LB entered into an asset purchase agreement dated June 19, 2019 (the “Asset Purchase Agreement”), pursuant to which NMG LB agreed to purchase all of the assets of GLDH and Airport Collective utilized in the medical and adult-use commercial cannabis retail business at 3411 E. Anaheim St., Long Beach, CA 90804 (the “Long Beach Location”). Amended and Restated Settlement and Release Agreement On June 28, 2019, we, NMG LB, NMG SD, GLDH, Airport Collective, Mr. Barakett, and SGSD entered into an amended and restated settlement and release agreement (the “Amended GLDH Settlement Agreement”) which supersedes and replaces the Original GLDH Settlement Agreement. Pursuant to the Amended GLDH Settlement Agreement, the parties agreed as follows: | i. | GLDH, Airport Collective, and Mr. Barakett agreed to release us from all claims related to the Prior GLDH Agreement upon closing of the Asset Purchase Agreement in consideration of the following: | | | |
| A. | the Company issuing to Mr. Barakett or his designee up to 1,340,502 Common Shares at a deemed price of CAD$0.7439 per share, subject to NMG SD receiving all licenses, permits, and authorizations required for NMG SD to conduct medical commercial cannabis retail operations at the San Diego Location (the “SD Medical Licenses”) (issued); | | | | | B. | the Company issuing to Mr. Barakett or his designee up to 1,340,502 Common Shares at a deemed price of CAD$0.7439 per share, subject to NMG SD receiving all licenses, permits, and authorizations required for NMG SD to conduct adult-use commercial cannabis retail operations at the San Diego Location (the “SD Adult-use Licenses”) (issued); and | | | | | C. | the Company paying certain legal and consulting expenses incurred by GLDH, Airport Collective and Barakett in an aggregate amount of US$90,500 (paid); and | | | |
| ii | SGSD agreed to assign its lease for the San Diego Location to NMG SD, and to release our Company, NMG LB and NMG SD from any and all claims, in consideration of the payment by us of a total of USD$500,000 to SGSD’s members, to be paid and satisfied by the issuance of Common Shares to them at the maximum discount allowed by the CSE (issued). | | | |
NMG SD is owned 60% by the our subsidiary, DEP, and 40% by SJJR, LLC (“SJJR”). Mr. Barakett agreed to cover SJJR’s portion of all start-up costs associated with NMG SD establishing commercial cannabis operations at the San Diego Location, inclusive of: (i) the costs associated with becoming a tenant at the San Diego Location; and (ii) all construction costs associated with building out the San Diego Location for NMG SD’s operations. The share consideration payable to Mr. Barakett under the Amended GLDH Settlement Agreement is subject to reduction if Mr. Barakett fails to meet this obligation on a timely basis. NMG SD, which has assumed the lease on the ShowGrow San Diego premises, has been awarded its own medical commercial cannabis retail license and adult-use commercial retail license and commenced operations on April 15, 2020. In consideration for the landlord, Green Road, LLC, agreeing to consent to the assignment of the original lease with SGSD to NGM SD, we agreed to provide the following consideration to the landlord: | i. | $700,000 in Common Shares of the Company calculated upon execution of the assignment and first amendment to commercial lease (the “Assignment and First Amendment”), dated June 13, 2019, at the maximum discount allowed by the CSE to be issued to the landlord immediately following execution of the Assignment and First Amendment (1,031,725 shares issued on August 12, 2019); | | | | | ii. | $783,765.26 in cash to be paid to the landlord via bank draft within five (5) business days of execution of the Assignment and First Amendment (paid); and | | | | | iii | $750,000 in cash, plus interest at the rate of five percent (5%) simple per annum accruing from the effective date to be paid no later than five (5) business days of the landlord’s receipt from the City of San Diego of a Conditional Use Permit allowing adult-use commercial cannabis storefront retail operations at the San Diego Location (paid). |
Pursuant to the Assignment and First Amendment, the parties agreed to amend the original lease to permit NMG SD to have three (3) five (5) year renewal options as opposed to two (2) renewal options. In addition, the parties agreed to reduce the amount of the sale bonus provision in the original lease to $1,000,000 from $2,000,000, which shall only be payable in connection with the first two assignments triggering this obligation, and thereafter, assignments will not require payment of a sale bonus. Furthermore, the parties also amended certain provisions of the original lease to ensure that any change in members representing less than fifty percent (50%) of the existing membership interests of NMG SD shall be an excluded transaction and not trigger the sale bonus or be deemed an assignment requiring consent of the landlord. Amended and Restated Convertible Note and General Security Agreement As contemplated by the Original GLDH Settlement Agreement, we entered into a loan agreement with GLDH dated June 19, 2019 (the “2019 GLDH Loan Agreement”), pursuant to which the Prior GLDH Note has been superseded and replaced with an amended and restated senior secured convertible note payable to us by GLDH in the principal amount of $5,200,000 (the “Amended and Restated GLDH Note”). The Amended and Restated GLDH Note bears interest at the rate of 20% per annum, compounded annually, and will mature and become repayable on June 19, 2022. GLDH’s obligations under 2019 GLDH Loan Agreement and the Amended and Restated GLDH Note have been guaranteed by Airport Collective, and are secured under a security agreement dated June 19, 2019 by all of GLDH’s and Airport Collective’s personal property, including but not limited to equipment, inventory, accounts receivable, cash or cash equivalents, and rights under contracts. Asset Purchase Agreement Pursuant to the Asset Purchase Agreement, NMG Long Beach has agreed to purchase all of GLDH’s and Airport Collective’s assets (the “Purchased Assets”) utilized in the retail cannabis business at the Long Beach Location for $6,700,000. Upon closing of the transaction, the outstanding principal amount under the Amended and Restated GLDH Note will be applied to the purchase price, and Airport Collective will be released from its obligations as a guarantor of the GLDH’s obligations under the Amended and Restated GLDH Note. We will pay the balance of the purchase price for the Purchased Assets by issuing up to 2,681,006 Common shares at a deemed price of CAD$0.7439 per share (issued in escrow on August 12, 2019); the number of shares required to pay and satisfy the balance of the purchase price for the Purchased Assets in the amount of $1,500,000 was determined with reference to the Agreed Foreign Exchange Rate of CAD$1.3296:USD$1.00. NMG LB received all approvals and license transfer from local and state authorities to conduct medical and adult-use commercial cannabis retail operation at the Long Beach Location, which were transferred to NMG LB at the end of August 2020 and is expected to close in the near future. The purchase price is fixed and the share consideration remains subject to reduction with reference to the liabilities of the business that will be outstanding on the closing date, which is expected to occur in the near future. Any final settlement that is different than currently estimated will be allocated to other income or expense. Contemporaneous Loan We entered into a contemporaneous loan (the “Share ExchangeContemporaneous Loan”), (b) $2,000,000 with GLDH in the amount of $726,720 to fund certain business improvements and expansion needs of GLDH’s business operations. We and NMG LB agreed to forgive the Contemporaneous Loan on the date of closing of the Asset Purchase Agreement. Management Assignment and Assumption Agreement On or around August 1, 2019, NMG LB began managing the ShowGrow Long Beach business pursuant to the management assignment and assumption agreement dated June 19, 2019, among NMG LB, GLDH and Airport Collective. Under the agreement, NMG LB is entitled to manage the business and recognize the profits from the business until NMG LB receives all approval and license transfer for operations at the Long Beach Location, which were received and transferred at the end of August 2020, and the Asset Purchase Agreement is expected to close in the near future. Nevada Production Facility On June 20, 2019, we announced the receipt of a conditional use permit from Clark County, Nevada, for a new production facility located within one mile of NMG’s existing cultivation facility located at 3375 Pepper Lane, in Las Vegas. The facility is approximately 7,500 square feet, and tenant improvement of the building holding the facility was completed in February 2020. The facility includes high-volume extraction equipment, which we expect will dramatically increase our manufacturing capacity and efficiency for our extraction products, including oils, wax, live resin and ambrosia. The facility also expands the kitchen area and creates an opportunity for the Company to white label for brands seeking an entry to the Nevada market. After passing all inspections, receiving all permits, and finalizing license transfer approvals, the new production facility began operations in March 2020. Acquisition of Canopy Monterey Bay, LLC On December 1, 2021 The Company announced the entering into of two definitive agreements with Canopy Monterey Bay, LLC (“Canopy”) and the membership interest owners (the “Sellers”) of Canopy to acquire an aggregate of 100% of Canopy, which owns a retail dispensary in the limited license jurisdiction of Seaside, California. The first purchase agreement (“PA #1”) between BaM’s subsidiary, DEP, Canopy and all of the Sellers provides for the assignment of 80% of the membership interests of Canopy to DEP in exchange for a purchase price of US$4.8 million comprised of US$2.5 million in cash (the “Cash Purchase Price”) and (c) five non-interest bearinga secured promissory note for an aggregatein the amount of $2,000,000 (the “Promissory Notes”) issued as follows: $450,000 to MBK Investments, LLC, $450,000 to$2.3 million bearing interest at a rate of 10% per annum compounded annually and having a maturity date of five years from the Rozok Family Trust, $490,000 to KAJ Universal Real Estate Investments, LLC, $120,000 to NV Trees, LLC,effective date of PA #1. Interest is payable for the first 6 months with the principal and $490,000 to SW Fort Apache, LLC.accrued interest due at maturity. There are no prepayment penalties. The Promissory Notes were secured by a senior priority security interest in all of our assets,Cash Purchase Price is to be paid into escrow pursuant to an escrow agreement between the parties to PA #1 and Secured Trust Escrow, which Cash Purchase Price is to be released to the Sellers upon the receipt of city and state approval, or returned to DEP in the event of the denial of city and state approval and the agreement is terminated, in which case the 80% membership interests will be transferred back to the Sellers and the promissory note will be terminated. The second purchase agreement (“PA #2”) between DEP and the one continuing Seller provides for the assignment of the remaining 20% of the membership interests of Canopy to DEP following the receipt of the city and state approval under PA #1 in exchange for US$1 million to be paid in either shares of common stock of BaM (the “Consideration Shares”) or in cash at DEP’s sole option if such payment takes place within six (6) months following the earlierexecution of fifteen (15)PA #1. If DEP elects to pay the purchase price in Consideration Shares, the amount of Consideration Shares shall be determined based on the 10 day volume weighted average price (“VWAP”) ending on November 30, 2021, which is US$0.3665 per share for a total of 2,728,156 shares. In the event that six (6) months fromfollowing the execution of PA #1, the value of the Consideration Shares have decreased such that total value of the Consideration Shares is less than ninety percent (90%) of its value, DEP agrees to cause BaM to issue an additional One Hundred Thousand Dollars ($100,000) worth of shares of common stock of BaM (the “Additional Shares”) to be issued to the one continuing Seller based on the ten day VWAP calculated as of six (6) months following the closing date of the Acquisition or,PA #1. PA #2 contains a working capital adjustment provision, which provides that if an equity or debt financing subsequent to the Concurrent Financingthere is closed in an aggregate amount of not less than $5,000,000, then within 30 daysa working capital deficiency as of the closing date of such subsequent financing. We assumed NMG’s obligations pursuantPA #1, then the purchase price under PA #2 shall be reduced by the amount of the deficiency, and if there is a working capital surplus as of the closing date of PA #1, then the purchase price under PA #2 shall be increased by the amount of the surplus. On or around December 1, 2021, 80% of the membership interests of Canopy were transferred to DEP for purposes of applying for city and state approvals of the change in ownership of Canopy, however, the purchase price consideration of (i) $2.5 million in cash, and (ii) a loanpromissory note in the amount of $400,000, payable$2.3 million to TI Nevada, LLC, (“TI Nevada”be paid by DEP, were placed in escrow and not to be released to the sellers of the 80% membership interests in Canopy until the city and state approvals have been received and the audited annual financial statements and unaudited reviewed interim financial statements (collectively, the “Financial Statements”) of Canopy are completed. If the city or state approvals are not received, or the Financial Statements of Canopy are not completed, then the Buyer may terminate the membership interest purchase agreement requiring the membership interests in Canopy to be transferred back to the sellers and the escrow agent to deliver back to DEP the cash consideration and the promissory note shall automatically be terminated. As of the date hereof, the city and state approvals have been received and the formal closing of the purchase of the 80% membership interests in Canopy will take place on the date following the completion of the Financial Statements. Material Contracts Other than already disclosed above under the subsection titled “Description of Our Business”, we have the following material contracts: Loan Agreement On July 19, 2021, we (also referred to as the “Borrower”), along with our subsidiaries, DEP Nevada Inc., Nevada Medical Group, LLC, NMG OH 1, LLC, NMG OH P1, LLC, NMG Long Beach, LLC, NMG Cathedral City, LLC, NMG CA 1, LLC, NMG CA C1, LLC, NMG MI 1, Inc., NMG MI P1, Inc., and NMG MI C1, Inc. (each, a “Guarantor” and collectively, the “Guarantors”) entered into and closed a loan agreement (the “Loan Agreement”) with FG Agency Lending LLC (the “Agent”) and Bomind Holdings LLC (the “Lender”), dated July 19, 2021. Upon entering into the Loan Agreement and the associated loan documents and agreements described below, the Lender provided the initial term loan (the “Initial Term Loan”) in the face amount of US$6,666,667 of which $225,000US$6,000,000 was advanced to the Company with the 10% representing an origination discount (the “Origination Discount”) as consideration for the use or forbearance of money. We may draw upon the remaining face amount of US$4,444,444 (the “Delayed Draw Term Loan”) upon providing a 30-day request to the Agent by June 1, 2022, whereby US$4,000,000 will be advanced to the Company after applying the Origination Discount. The Initial Term Loan and the Delayed Draw Term Loan mature on July 19, 2025 and bear interest at a rate of 13% per annum payable on the first day of each month hereafter. Pursuant to the Loan Agreement, we have issued an aggregate of 8,000,000 common stock purchase warrants (each, a “Warrant”) to the Agent of which (i) 4,800,000 Warrants will entitle the holder to acquire shares of common stock (each, a “Warrant Share”) at an exercise price of US$0.40 per Warrant Share until July 19, 2025, and (ii) 3,200,000 Warrants will be held in escrow by us and released to the Agent at the time the Company draws on the Delayed Draw Term Loan, or cancelled if we do not draw on the Delayed Draw Term Loan, which will entitle the holder to acquire a Warrant Share at an exercise price of US$0.45 per Warrant Share until July 19, 2025. The Initial Term Loan is evidenced by a Term Note (a “Term Note”), which is attached as Exhibit C to the Loan Agreement. If the Delayed Draw Term Loan is drawn upon by us, it will also be evidenced by a separate Term Note. The following table sets forth additional terms of the Loan Agreement and the other loan documents entered into on July 19, 2021, as amended on November 30, 2021 to extend the delayed draw request period from December 1, 2021 to June 1, 2022: Loan Term | | Four years | | | | Face Amount | | US$11,111,111 (the “Face Amount”) funded in two (2) draws: (i) Initial Term Loan of US$6,666,667 issued on closing; and (ii) Delayed Draw Term Loan of US$4,444,444 issued upon 30 day request of the Company, which request must be made to the Agent by December 1, 2021. | | | | Interest Rate | | 13% per annum, payable monthly in cash on the first of each month following funding | | | | Default Interest Rate | | 20% per annum (inclusive of the 13% rate noted above) | | | | Origination Discount | | 10% of the Face Amount treated as consideration for the use or forbearance of money | | | | Agent Fee | | The Borrower paid the Agent a US$66,666.67 fee upon execution of the Loan Agreement, which was withheld from the initial advance of the Initial Term Loan made by the Lender. A further Agent Fee of $44,444.44 will be withheld from the advance of the Delayed Draw Term Loan made by the Lender, if drawn upon by the Company. | | | | Lender Expenses | | The Borrower is required to pay the Lender’s reasonable costs, fees and expenses, including attorney’s fees, in connection with entering into the Loan Agreement and the other loan documents, subject to a cap of US$125,000. | | | | Voluntary Prepayment | | The Borrower may not prepay within one year of the closing date (“No Call Period”). Provided that no event of default has occurred following the No Call Period, Borrower may prepay the principle balance, in a minimum amount of US$1,000,000, at the following rates: (1) Following the No Call Period through two-year anniversary of the Closing Date: 107%; (2) Following the two-year anniversary of the Closing Date through the three-year anniversary of the Closing Date: 103%; and (3) following the three year anniversary of the Closing Date and prior to the Maturity Date: 100%. |
Mandatory Prepayment | | Under certain circumstances, if the Borrower or any Guarantor incurs insurance claims or condemnation proceedings, then Borrower or the Guarantor must either reinvest such proceeds in assets useful to the Borrower’s or Guarantor’s business, as applicable, or use the resulting net cash proceeds to prepay the loan. There are mandatory prepayment provisions for some change of control scenarios. | | | | Financial Covenants | | The Borrower and its subsidiaries taken as a whole are required to have at least $1,500,00 in liquidity at all times reported monthly. The Borrower and Guarantors on a consolidated basis must maintain a leverage ratio of at least 3:1 for acquisitions. | | | | Other Covenants | | The Borrower and its subsidiaries are subject to additional covenants customary for this type of transaction, including without limitation, covenants related to notices of certain events and reporting, and covenants restricting the Borrower’s and its subsidiaries’ business activities, other debt, fundamental transactions, acquisitions and dispositions, investments, dividend payments and affiliate transactions, in each case subject to mutually agreed upon qualifications and exceptions. | | | | Events of Default | | The Loan Agreement contains events of defaults customary for this type of transaction, some of which are subject to mutually agreed upon cure periods and notice requirements. | | | | Remedies | | The Loan Agreement and the other loan documents contain remedies customary for this type of transaction, including, without limitation, giving the Lender the ability to declare the loan and all amounts owed under the Loan Agreement due and payable upon the occurrence of an event of default and to operate or sell collateral and use the proceeds to repay the loan. | | | | Other Provisions | | The Loan Agreement and the other loan documents contain other provisions customary for this type of transaction, including, without limitation, representations and warranties, indemnities and confidentiality undertaking. |
Security Agreement On July 19, 2021 (the “Effective Date”), we and the Guarantors (collectively, the “Grantors”) entered into a security agreement (the “Security Agreement”) with the Agent (acting as the agent to the Lender) (the Agent and the Lender being referred to herein as, the “Secured Parties”) wherein Grantors have granted to Secured Parties a security interest in and to certain assets of the Grantors in order to secure our obligations pursuant to the Loan Agreement. Pursuant to the Security Agreement, the Grantors are granting to the Secured Parties a security interest in all personal property and other assets owned as of the Effective Date or acquired thereafter (the “Collateral”). Certain assets are excluded from the Collateral such as: (i) intent to use United States trademark applications; (ii) certain assets acquired with third-party financing (provided that such financing does not amortize prior to the maturity date of the Loan Agreement, matures at least 1 year after maturity of the Loan Agreement and the leverage ratio remains 3:1 following financing for such assets); and (iii) rights to licenses or contracts where granting liens is prohibited by law. Upon a default under the Loan Agreement, the Secured Parties may enter upon the premises of the Grantors where any Collateral is located through self-help, without judicial process, without first obtaining a final judgment or giving the Grantors or any other Person notice and opportunity for a hearing on the Secured Parties’ claim or action and may collect, receive, assemble, process, appropriate and realize the Collateral, or any part thereof. In such event, the Grantors agree to assemble the Collateral and make it available to the Agent. Until the Agent is able to effect a disposition of the Collateral, the Agent shall have the right to hold or use the Collateral, or any part thereof, to the extent that it deems appropriate in its sole discretion for the purpose of preserving the Collateral or its value or for any other purpose deemed appropriate by the Agent. Agent shall not have any rights to take any action that would violate law. To protect the Secured Parties’ interests in the Collateral, the Grantor’s have executed a power of attorney appointing Agent as the Grantors’ attorney in fact with such power and appointment only exercisable in the event of a default under the Loan Agreement and we have further agreed to file all UCC Financing Statements evidencing the granted security interests set forth in the Security Agreement. Pledge Agreement On July 19, 2021, we and our subsidiaries, DEP and NMG (collectively, the “Pledgors”) entered into a Pledge Agreement (the “Pledge Agreement”) with the Agent (acting as the collateral agent for the Lender) (the Lender and Agent are referred to herein as, the “Secured Parties”) wherein Pledgors have pledged certain of Pledgors’ equity interests in various subsidiaries in order to secure our obligations pursuant to the Loan Agreement. Pursuant to the Pledge Agreement, Pledgors are pledging to the Secured Parties a lien on certain equity interests in Pledgors’ subsidiaries as follows (collectively, the “Pledged Collateral”): | 1) | Company is pledging to the Secured Parties all rights, privileges and interests in Company’s equity securities in DEP, which comprises of one hundred percent (100%) of the issued and outstanding shares of DEP; | | | | | 2) | NMG is pledging to the Secured Parties all rights, privileges and interests in NMG’s equity securities in NMG Ohio, which comprises of one hundred percent (100%) of the issued and outstanding membership interest of NMG Ohio; and | | | | | 3) | DEP is pledging to the Secured Parties all rights, privileges and interests in DEP’s equity securities in NMG, NMG OH 1, LLC, NMG OH P1, LLC, NMG LONG BEACH, LLC, NMG MI C1, INC., NMG MI P1, INC., NMG MI 1, INC., NMG CA C1, LLC, NMG CA P1, LLC, NMG CA 1, LLC, and NMG CATHEDRAL CITY, LLC (collectively, the “DEP Pledged Subsidiaries”). DEP owns one hundred percent (100%) of the issued and outstanding equity interests in each of the DEP Pledged Subsidiaries (collectively, DEP, NMG Ohio, and the DEP Pledged Subsidiaries being, the “Pledged Entities”). |
The pledge, assignment and delivery of the Pledged Collateral pursuant to the Pledge Agreement creates a valid first priority lien. Without the prior written consent of the Agent, no Pledgor will sell, assign, transfer, pledge, or otherwise encumber any of its rights in or to the Pledged Collateral, or any unpaid dividends, interest or other distributions or payments with respect to the Pledged Collateral. As long as no default under the Loan Agreement has occurred and is continuing, Pledgors shall have the right to vote and give consents with respect to the Pledged Collateral for all purposes not inconsistent with the provisions of the Pledge Agreement. Upon a default, the Agent, acting on behalf of the Secured Parties, is hereby authorized and empowered to (i) transfer the Pledged Collateral to the Secured Parties; (ii) transfer and register in its name the Pledged Collateral; (iii) exchange certificates representing Pledged Collateral for certificates of smaller or larger denominations, (iv) exercise the voting and all other rights; (v) collect and receive all cash dividends; (vi) notify the Pledged Entities to make payment to Agent of any amounts due in connection with the Pledged Collateral; (vii) endorse instruments in the name of the Pledgors to allow collection; (viii) enforce collection of any of the Pledged Collateral by suit or otherwise; (ix) sell, with notice and in accordance with applicable law, Pledged Collateral; (x) act with respect to the Pledged Collateral as though Agent was the outright owner; (xi) appoint a receiver (selected by Agent in its sole discretion) to administer the Pledged Collateral; and (xii) exercise any other rights or remedies the Secured Parties may have under the UCC or other applicable law. Pledgors irrevocably appoint the Agent acting on behalf of the Secured Parties, as the proxy and attorney in fact with respect to the Pledged Collateral. Omnibus Collateral Assignment On July 19, 2021, we and our subsidiaries, DEP, NMG, NMG MI 1, Inc. (“NMG MI 1”), NMG MI C1, Inc. (“NMG C1”) and NMG MI P1, Inc. (“NMG MI P1”) (collectively, the “Assignors”) entered into an Omnibus Collateral Assignment (the “Collateral Assignment”) with the Agent wherein Assignors have granted to the Agent for the benefit of the Lender certain rights, interests and privileges of Assignors in and to certain contracts in order to secure our obligations pursuant to the Loan Agreement. Pursuant to the Collateral Assignment, Assignors have granted to the Agent for the benefit of the Lender(s) a security interest in all the rights, interests and privileges which such Assignor has or may have in or under the following contracts (the “Assigned Contracts”): | 1) | Management Agreement between NMG and Comprehensive Care Group, LLC dated March 15, 2019; | | | | | 2) | Convertible Credit Facility Agreement from DEP to NMG MI 1, Inc. (formerly NMG MI 1, LLC) dated February 1, 2021; | | | | | 3) | Convertible Credit Facility Agreement from DEP to NMG MI C1, Inc. (formerly NMG MI C1, LLC) dated February 1, 2021; and | | | | | 4) | Convertible Credit Facility Agreement from DEP to NMG MI P1, Inc. (formerly NMG MI P1, LLC) dated February 1, 2021. |
The rights of the Agent may only be exercised in the event of a default and the exercise of such rights must not violate any applicable law. Each Assignor, upon the occurrence and continuation of a default, authorizes the Agent on behalf of the Lender(s), at the Agent’s option and without notice, to directly receive any and all payments and other benefits owed to any Assignor under any Assigned Contract. Intercompany Subordinated Demand Promissory Note On July 19, 2021, we and our subsidiaries (DEP, NMG, NMG OH 1, LLC, NMG OH P1, LLC, NMG Long Beach, LLC, NMG MI C1, Inc., NMG MI P1, Inc., NMG MI 1, Inc., NMG CA C1, LLC, NMG CA P1, LLC, NMG CA 1, LLC and NMG Cathedral City, LLC) (collectively, the “Affiliate Obligors”) entered into a Intercompany Subordinated Demand Promissory Note wherein Affiliate Obligors agree and acknowledge that all debt, liabilities and obligations owing or due, or to become due, to any other of our subsidiaries will be subordinate, and junior (the “Subordinated Debt”) to the discharge of our obligations under the Loan Agreement. So long as no default has occurred under the Loan Agreement, each Affiliate Obligor may make payments on account of the Subordinated Debt in the ordinary course of business, solely to the extent such payments are permitted under the Loan Agreement. Upon default, no Affiliate Obligor shall make, accept or receive, any payment of Subordinated Debt Payment. Until our satisfaction of all obligations under the loan, no subsidiary holding rights to be paid Subordinated Debt will (i) accelerate, make demand, or otherwise make due and payable prior to the original due date thereof any Subordinated Debt; (ii) exercise any rights under or with respect to guaranties of the Subordinated Debt; (iii) exercise any of its rights or remedies in connection with the Subordinated Debt; (iv) exercise any right to set-off or counterclaim in respect of any debt, contest, protest, or object to any exercise of secured creditor remedies by Agent or any Lender; (v) object to any forbearance by the Agent; (vi) commence, or cause to be commenced, and insolvency proceeding; or (vii) contest, protest, or object to any Affiliate Obligor obtaining debtor-in-possession financing. The foregoing descriptions of the Loan Agreement, the Security Agreement, the Pledge Agreement, the Omnibus Collateral Assignment, the Intercompany Subordinated Demand Promissory Note, the Term Note and the Warrants do not purport to be complete and are qualified in their entirety by reference to the full text of those documents, copies of which were attached as Exhibits 10.1, 10.2, 10.3, 10.4, 10.5, 10.6, 4.1 and 4.2, respectively, to our Current Report on Form 8-K filed with the SEC on July 23, 2021 and are incorporated by reference herein. Amendment No. 1 to Loan Agreement On November 30, 2021, we and the Guarantors entered into Amendment No. 1 to Loan Agreement (“Amendment No. 1 to Loan Agreement”) with the Agent and the Lender to (i) amend the definition of the term “Delayed Draw Request Period” to mean the period commencing on the Closing Date (as defined below) and ending on the remaining $175,000, which was secured by a senior priority security interest in all of our assets, will be paid within 15 monthsearlier of the Closing Date. Furthermore, we reimbursed NMG ($84,000) for expenditures incurred priorDelayed Draw Effective date or June 1, 2022, and (ii) to amend Schedule 7.17 to include as follows: “4. On or before the date that is sixty (60) days after the Closing Date which were related(which date may be extended in writing by Agent in its sole discretion), the Borrower shall use commercially reasonable efforts to deliver to the acquisition of production equipment.Agent, in form and substance reasonably acceptable to the Agent, a fully executed Landlord Waiver and Consent, by and between NMG OH 1, LLC and the applicable landlord for that certain lease property located at 709 Sugar Ln., Elyria, OH 44035.” PlanThe foregoing description of Operationsthe Amendment No. 1 to Loan Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Amendment No. 1 to Loan Agreement which is attached as Exhibit 10.1 hereto and is incorporated by reference herein.
Past business of Deploy
We were a development stage company engaged in designing and developing technologies and products for the management of truck fleets by companies in the freight haulage, waste haulage, mining, industrial operations and manufacturing, military and law enforcement industries.
We identified our proprietary technology and primary product by the name “Fleet Data Management & Weigh System”. The principal and unique feature of the Fleet Data Management & Weigh System enables operators of heavy industrial hydraulic lifting equipment to weigh cargo “on-the-fly” during the process of loading carrier vehicles. The load weight of trucks is important information for several purposes, including billing, compliance with highway and safety regulations and loading within capacity specifications. We designed and developed the Fleet Data Management & Weigh System to provide this information, as well as much more, on a real-time basis. The Fleet Data Management & Weigh System is capable of providing such information for in-cab entry and can deliver the information by wireless communication to operations centers, billing departments and for archival purposes, in order to meet the needs of any fleet operator.
Following the 2008 acquisition by our predecessor entity of the on-the-fly weigh system technology from Trepped Enterprises Inc., we devoted much of our time to engineering; circuit board design and testing; firmware and software development and testing; adding components and features; hardware selection; and improving, testing and packaging the Fleet Data Management & Weigh System. Upon the completion of our merger with Deploy Tech, we acquired the rights to both the technology and products that comprise the system by virtue of being the surviving corporation.
We developed a final prototype of the products that comprise our Fleet Data Management & Weigh System. We have tested both prototype packages on various types of vehicles. We have experienced delays due to lack of required funding which resulted in less attention on sales and marketing than expected.
Due to the large number of different vehicles and vehicle models that contain variations in parts, our system had to be tested on each variation of a vehicle before it can be sold to customers to ensure that it is properly calibrated for that specific vehicle. This significantly increases our testing and sales timelines.
Throughout our 2014 fiscal year, our management was focused on sales of our products as well as raising capital required to achieve our sales and marketing goals. We were not successful in raising required capital to hire sales and marketing staff or launch a sales and marketing campaign and therefore restructured the company to be more attractive to the investment community.
Although a lack of funding caused delays in sales and marketing efforts, we were able to remain current in our reporting obligations, including the year-end requirements to file our audited financial statements, MD&A and annual listing statement.
Throughout our previous three years, we had developed and patented and had been selling our Fleet Data Management & Weigh System and prepared the Company for commercialization of our product line. We remain the owner of Patent # 2798525 which is titled as “Load-Measuring, Fleet Asset Tracking and Data Management System for Load-Lifting Vehicles.” While we continue to own and maintain this patent, our focus has changed to the business of cultivating and producing medical and recreational marijuana as further described in the “Description of Business” below. We anticipate selling our patent in the foreseeable future and do not anticipate allocating any current or future resources to our prior business.
Description of Business
NMG was organized as a limited liability company under the laws of the State of Nevada on March 3, 2014. NMG was an early applicant in Nevada in 2014 and was awarded one of the first state medical licences for both cultivation and production of marijuana. NMG has been a licensed producer and cultivator of cannabis products since it was issued its first cultivation license on November 5, 2015 and production license on December 10, 2015. On July 1, 2017 NMG was awarded an additional state recreational cultivation and production license. NMG operates under its marquee brand name of Body & Mind Inc. (“BaM”) and produces flower, oil extracts and edibles and are available for sale in dispensaries in Nevada.
NMG anticipates an increase in demand due to the recently approved “Adult Use” licensing in the State of Nevada that began in July 2017. NMG has several growth initiatives underway including new product introductions, product licensing, third party extraction, out-of-State licensing, and acquisitions.
Results of Operations for the three month periods ended April 30, 2018January 31, 2022 and 20172021: The following table sets forth our results of operations for the three month periods ended April 30, 2018January 31, 2022 and 2017:2021: | | April 30, 2018 $ | | | April 30, 2017 $ | | | January 31, 2022 $ | | | January 31, 2021 $ | | Sales | | 789,209 | | - | | | 8,046,526 | | 6,315,411 | | Cost of Sales | | (569,653 | ) | | - | | | (5,022,568 | ) | | (3,567,425 | ) | Gross Margin | | 219,556 | | - | | | 3,023,958 | | 2,747,986 | | General and Administrative Expenses | | (538,657 | ) | | (83,789 | ) | | (3,994,731 | ) | | (2,555,432 | ) | Loss for the Period | | | (2,722,548 | ) | | (1,147,100 | ) | Foreign Currency Translation Adjustment | | (18,959 | ) | | (9,482 | ) | | (35,160 | ) | | 81,237 | | Comprehensive Loss | | (421,817 | ) | | (40,627 | ) | | (2,757,708 | ) | | (1,065,863 | ) | Basic and Diluted Loss Per Share | | (0.01 | ) | | (0.01 | ) | | Basic and Diluted Earnings (Loss) Per Share | | | (0.02 | ) | | (0.01 | ) |
Revenues For the three month period ended April 30, 2018January 31, 2022 we had total sales of $789,209$8,046,526 and cost of sales of $569,653$5,022,568 for a gross margin of $219,556$3,023,958 compared to total sales of $6,315,411 and cost of sales of $3,567,425 for a gross margin of $2,747,986 in the three month period ended April 30, 2017 where we did not generate any revenues. January 31, 2021. The significant increase in net sales and cost of sales for the period ended January 31, 2022 is largely due to steady growth at all dispensaries and acquisitions. During the three months ended April 30, 2018,January 31, 2022, the Company recorded product sales as follows: Revenues – By Product | | Three months ended April 30,
2018
$ | | | % | | | | | | | | | Flower | | | 295,334 | | | | 37 | | Concentrates | | | 438,173 | | | | 56 | | Edibles | | | 38,444 | | | | 5 | | Pre-rolled | | | 17,258 | | | | 2 | | | | | | | | | | | Total | | | 789,209 | | | | 100 | |
Revenues – By Segment | | Six months ended January 31, 2022 $ | | | % | | | | | | | | | Wholesale | | | 1,336,877 | | | | 17 | % | Retail | | | 6,709,649 | | | | 83 | % | | | | | | | | | | Total | | | 8,046,526 | | | | | |
The Company anticipates edible revenues to materially increase over time due to higher demand for this type of product. The Company anticipates that its edible revenues will represent a more significant ratio of the Company’s overall gross sales in the near future. The Company’s other revenue generating products, being flower, concentrates and pre-rolled products, are expected to have relatively consistent revenues for the foreseeable future.
Operating Expenses For the three month period ended April 30, 2018,January 31, 2022, operating expenses totaled $538,657$3,994,731 compared with $83,789$2,555,432 for the three month period ended April 30, 2017. The changeJanuary 31, 2021. A significant reason for the increase in operating expenses was mainlybetween the periods related to an increase in salaries and wages from $773,437 to $1,292,481, as the Company continues to expand, an increase in licenses, utilities and office administration from $537,928 to $985,456, and an increase in business development from $11,927 to $80,316. The Company’s office administration and salaries and wages increased considerably as a result of various ongoing acquisitions and expansions and as a result of increased operations in Nevada as well as the total number of employees under payroll. The Company also had an increase in depreciation and amortization expense of $437,781 compared to $297,370 due to the receipta larger balance of a Nevada state license for recreational marijuana productionproperty and cultivation. This created an increased demand for productsequipment and more expenditures in orderintangible assets that need to increase production capacity and create new product lines. be depreciated/amortized. Other Items During the three month period ended April 30, 2018,January 31, 2022, our other items accounted for $83,757 in expenses$336,125 of losses as compared to income of $46,699$185,560 for the three month period ended April 30, 2017.January 31, 2021. The significant components in other items primarily relates to foreign exchange. In 2017, the Company recorded a settlementCompany’s interest income on the secured convertible note in the prior period and interest expense of liabilities resulting$340,020 on the long-term loan payable in other income of $51,894. the current period. Net Income (Loss)Loss Net loss for the quarter ended April 30, 2018January 31, 2022 totaled $402,858$2,722,548 compared with a net loss of $37,090$1,147,100 for the quarter ended April 30, 2018.January 31, 2021. The increase in net loss of $365,768 resulted primarily fromis largely due to the increase in general and administrative expenses, and other expenses as discussed above. Results of Operations for the nine month periods ended April 30, 2018 and 2017
The following table sets forth our results of operations for the nine month periods ended April 30, 2018 and 2017:
| | April 30, 2018 $ | | | April 30, 2017 $ | | Sales | | | 1,618,968 | | | | - | | Cost of Sales | | | (980,919 | ) | | | - | | Gross Margin | | | 638,049 | | | | - | | General and Administrative Expenses | | | (2,546,653 | ) | | | (130,302 | ) | Foreign Currency Translation Adjustment | | | (16,936 | ) | | | 55,396 | | Comprehensive Loss | | | (2,015,661 | ) | | | (97,427 | ) | Basic and Diluted Loss Per Share | | | (0.06 | ) | | | (0.04 | ) |
Revenues
For the nine month period ended April 30, 2018 we had total sales of $1,618,968 and cost of sales of $980,919 for a gross margin of $638,049 compared to the nine month period ended April 30, 2017 where we did not generate any revenues. During the nine months ended April 30, 2018, the Company recorded product sales as follows:
Revenues – By Product | | Nine months
ended April 30,
2018 $ | | | % | | | | | | | | | Flower | | | 735,111 | | | | 45 | | Concentrates | | | 725,789 | | | | 45 | | Edibles | | | 106,661 | | | | 7 | | Pre-rolled | | | 51,407 | | | | 3 | | | | | | | | | | | Total | | | 1,618,968 | | | | 100 | |
As discussed previously in the quarterly results of operations section, the Company anticipates edible revenues to materially increase over time due to higher demand for this type of product. The Company anticipates that its edible revenues will represent a more significant ratio of the Company’s overall gross sales in the near future. The Company’s other revenue generating products, being flower, concentrates and pre-rolled products, are expected to have relatively consistent revenues for the foreseeable future. It should be noted that the Company began recording revenues upon closing of the transaction with NMG in November 2017.
Operating Expenses
Operating expenses totaled $2,546,653 for the nine months ended April 30, 2018 compared with $130,302 for the nine months ended April 30, 2017. The change in general and administrative expenses relate to a number of factors, but mainly attributed to the process of finalizing its acquisition agreement with NMG which resulted inpartially offset by an increase in listing feesgross profit. The Company also reported income tax expense of $471,408 (2017$1,415,650 (2021 - $Nil), professional fees of $223,320 (2017 - $12,139) and consulting fees of $136,295 (2017 - $59,392).$1,154,094) for the quarter.
Of the $2,546,653 expenses for the nine months ended April 30, 2018, a total of $471,408 relates to non-recurring listing fees as part of the Acquisition of NMG. In addition, the Company granted stock options to various officers, directors, employees and/or consultants, resulting in a non-cash stock-based compensation of $733,679 calculated using the Black Scholes Option Pricing Model.
A total of $254,252 relates to management and consulting fees paid/accrued to the Chief Executive Officer, Chief Financial Officer and former Chief Executive Officer and $22,088 relates to accounting fees paid/accrued to the former Chief Financial Officer and a director.
Another factor contributing to the change in the general and administrative expenses was the variation in exchange rates. The Company’s functional currency is the Canadian dollar and its reporting currency is the United States dollar.
Net Income (Loss)
Net loss for the nine months ended April 30, 2018 totaled $1,998,725 compared with a net loss of $152,823 for the nine months ended April 30, 2017. The increase in net loss of $1,845,902 resulted primarily from the increase in general and administrative expenses as discussed above.
Other Comprehensive Income (Loss) We recorded a foreign currency translation adjustmentsadjustment loss of $(16,936)$35,160 and $55,396gain of $81,237 for the nine monthsquarter ended April 30, 2018January 31, 2022 and 2017,2021, respectively. The amounts are included in the statement of operations as other comprehensive gain for the respective periods. Results of Operations for the six month periods ended January 31, 2022 and 2021: The following table sets forth our results of operations for the six month periods ended January 31, 2022 and 2021: | | January 31, 2022 $ | | | January 31, 2021 $ | | Sales | | | 15,617,342 | | | | 11,609,769 | | Cost of Sales | | | (9,103,168 | ) | | | (7,061,729 | ) | Gross Margin | | | 6,514,174 | | | | 4,548,040 | | General and Administrative Expenses | | | (7,169,638 | ) | | | (5,050,795 | ) | Loss for the Period | | | (3,399,802 | ) | | | (1,925,467 | ) | Foreign Currency Translation Adjustment | | | 1,121 | | | | 349,334 | | Comprehensive Loss | | | (3,398,681 | ) | | | (1,576,133 | ) | Basic and Diluted Earnings (Loss) Per Share | | | (0.03 | ) | | | (0.02 | ) |
Revenues For the six month period ended January 31, 2022 we had total sales of $15,617,342 and cost of sales of $9,103,168 for a gross margin of $6,514,174 compared to total sales of $11,609,769 and cost of sales of $7,061,729 for a gross margin of $4,548,040 in the six month period ended January 31, 2021. The significant increase in net sales and cost of sales for the period ended January 31, 2022 is largely due to steady growth at all dispensaries and acquisitions. During the six months ended January 31, 2022, the Company recorded product sales as follows: Revenues – By Segment | | Six months ended January 31, 2022 $ | | | % | | | | | | | | | Wholesale | | | 3,092,676 | | | | 20 | % | Retail | | | 12,524,666 | | | | 80 | % | | | | | | | | | | Total | | | 15,617,342 | | | | | |
Operating Expenses For the six month period ended January 31, 2022, operating expenses totaled $7,169,638 compared with $5,050,795 for the six month period ended January 31, 2021. A significant reason for the increase in operating expenses between the periods related to an increase in salaries and wages from $1,556,055 to $2,284,198, as the Company continues to expand, an increase in licenses, utilities and office administration from $1,113,173 to $1,767,070, an increase in business development from $13,336 to $175,075, an increase in accounting and legal fees from $466,014 to $550,844. The Company’s office administration and salaries and wages increased considerably as a result of various ongoing acquisitions and expansions and as a result of increased operations in Nevada as well as the total number of employees under payroll. The Company also had an increase in depreciation and amortization expense of $769,325 compared to $542,707 due to a larger balance of property and equipment and intangible assets that need to be depreciated/amortized. Other Items During the six month period ended January 31, 2022, our other items accounted for $626,516 of losses as compared to an income of $241,357 for the six month period ended January 31, 2021. The significant components in other items primarily relates to the Company’s interest income on the secured convertible note and interest expense of $678,784 on the long-term loan payable. In 2020, other items also consisted of the Company’s proportion of income on equity investee in NMG Ohio LLC of $24,872 and the bargain purchase price of the Ohio dispensary acquisition of $208,176. Net Loss Net loss for the six months ended January 31, 2022 totaled $3,399,802 compared with a net loss of $1,925,467 for the six months ended January 31, 2021. The increase in net loss is largely due to the increase in general and administrative expenses, partially offset by an increase in gross profit. The Company also reported an income tax expense of $2,117,822 (2021 - $1,664,069) for the period. Other Comprehensive Income (Loss) We recorded foreign currency translation adjustments of $1,121 and $349,334 for the six months ended January 31, 2022 and 2021, respectively. The amounts are included in the statement of operations as other comprehensive gain for the respective periods. Liquidity and Capital Resources Our financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation.
The following table sets out our cash and working capital as of April 30, 2018:January 31, 2022: | | As of April 30, 2018 | | | | (unaudited) | | Cash reserves | | $ | 1,046,940 | | Working capital (deficit) | | $ | (342,411 | ) |
The Company’s working capital position improved significantly during the three and nine months ended April 30, 2018 due to the Company completing the following financings:
| | As of January 31, 2022 | | | | (unaudited) | | Cash reserves | | $ | 4,615,793 | | Working capital | | $ | 4,073,522 | |
| 1)
| On August 15, 2017 and August 16, 2017, the Company closed the first two of four tranches of a non-brokered private placement and issued 8,276,294 Subscription Receipts at a price of CAD$0.66 per Subscription Receipt for aggregate gross proceeds of CAD$5,462,369.
| | | | | 2)
| On 31 October 2017, the Company closed a third tranche of a non-brokered private placement and issued 757,666 Subscription Receipts at a price of CAD$0.66 per Subscription Receipt for aggregate gross proceeds of CAD$500,060.
| | | | | 3)
| On 1 November 2017, the Company closed a fourth and final tranche of a non-brokered private placement and issued 68,181 Subscription Receipts at a price of CAD$0.66 per Subscription Receipt for aggregate gross proceeds of CAD$45,000.
| | | | | 4)
| On 1 December 2017, the Company closed a non-brokered private placement of 637,393 units at a price of CAD$0.66 per unit for aggregate gross proceeds of CAD$420,680.
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We anticipate raising additional funds through the issuanceAt January 31, 2022, we had cash of $4,615,793 as compared to cash of $7,374,194 at July 31, 2021. The Company has minimal committed capital stock and/or debt financings within the next 12 months, however, we cannot provide any assurance that any additional financing will be available to us, or if available, will be on terms acceptable to us.expenditures.
Statement of Cash flows During the ninesix month period ended April 30, 2018,January 31, 2022, our net cash increaseddecreased by $680,356 (2017: $691,523)$2,758,401 (2021 – $186,041), which included net cash used inprovided by operating activities of $1,534,195 (2017: $268,425)$245,641 (2021 – used $105,356), net cash used in investing activities of $2,692,299 (2017: $Nil)$2,988,289 (2021 - $420,967), net cash provided byused in financing activities of $4,920,291 (2017: $904,552)$16,874 (2021 – $9,052) and effect of exchange rate changes on cash and cash equivalents of $(13,441) (2017: $55,396)$1,121 (2021 - $349,334). Cash Flow used inprovided by Operating Activities Cash flow used inprovided by operating activities totaled $1,534,195$245,641 and $268,425($105,356) during the ninesix months ended April 30, 2018January 31, 2022 and 2017,2021, respectively. Cash used in operating activities increased significantly in 2018 as a result of the Company’s finalization of the Assignment Agreement and the Share Exchange Agreement with NMG. Significant changes in cash used in operating activities are outlined as follows: | · | The Company incurred a net loss from operations of $1,998,725$3,399,802 during the ninesix months ended April 30, 2018January 31, 2022 compared to $158,823$1,925,467 in 2017.2021. The net loss in 20182022 included, among other things, depreciation of $471,938 (2021 - $252,627), amortization of licenses of $671,322 (2021 - $504,761), non-cash operating lease costs of $405,386 (2021 - $113,500), amortization of debt discount of $235,487 (2021 - $Nil), accrued interest income of $Nil (2017: $1,343)$36,000 (2021 - $124,143), accretion expenses of $119,131 (2017: $Nil), depreciation of $99,949 (2017: $1,588), settlement of liabilities of $Nil (2017: $51,904),and stock-based compensation of $733,679 (2017: $Nil), and write-off of amounts receivable of $879 (2017: $Nil)$294,944 (2021 - $488,822). |
The following non-cash items further adjusted the loss for the ninesix months ended April 30, 2018January 31, 2022 and 2017:2021: | · | IncreaseDecrease in amounts receivable and prepaid of $195,246 (2017: $1,667)$470,282 (2021 – increase of $558,579), increase in inventory of $156,829 (2017:$484,191 (2021 – $91,968), increase in deposits of $107,290 (2021 - $Nil), decrease in trade payables and accrued liabilities of $132,470 (2017: $26,690)$22,352 (2021 - increase of $240,002), increase in income taxes payable and increasedeferred taxes of $2,102,257 (2021 - $1,456,726), decrease in due to related parties of $31,881 (2017:$20,264 (2021 - increase of $206,229), decrease of $41,714 ).operating lease liabilities of $336,076 (2021 - $93,943), and decrease in loan to NMG Ohio LLC of $Nil (2020 - $228,736).
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Cash Flow used in Investing Activities During the ninesix month period ended April 30, 2018,January 31, 2022, investing activities used cash of $2,692,299$2,988,289 compared to $Nil$420,967 during the ninesix month period ended April 30, 2017.January 31, 2021. The change in cash used in investing activities from the ninesix month period ended April 30, 2018 as compared to April 30, 2017January 31, 2022 relates primarily to the acquisition of 80% membership interest in Canopy for $2,121,497, net of cash received. In addition, the Company purchased equipment of $606,408 (2021 - $224,477), a convertible loan of $205,969 (2021 - $311,353) provided to CCG in Arkansas, and cash provided to NMG Ohio, net of cash received in the amount of $1,948,158 (2017: $Nil), deposit for the Pepper Lane North expansion for $250,000 (2017: $Nil) and purchase of property and equipment of $494,141 (2017: $Nil)on acquisition, was $54,415 (2021 –$136,326). Cash Flow provided byused in Financing Activities During the ninesix month period ended April 30, 2018, as partJanuary 31, 2022, financing activities used cash of $16,874 compared to $9,052 during the six month period ended January 31, 2021, all related to a repayment of loan. Trends and Uncertainties Potential Impact of the Concurrent Financing requirementCOVID-19 Pandemic In December 2019, a strain of novel coronavirus (now commonly known as COVID-19) was reported to have surfaced in Wuhan, China. COVID-19 has since spread rapidly throughout many countries, and, on March 11, 2020, the World Health Organization declared COVID-19 to be a pandemic. In an effort to contain and mitigate the spread of COVID-19, many countries, including the United States, Canada and China, have imposed unprecedented restrictions on travel, and there have been business closures and a substantial reduction in economic activity in countries that have had significant outbreaks of COVID-19. COVID-19 may have a future material impact on our results of operation with respect to retail sales at our dispensary locations as well as wholesales of our products in Nevada to dispensaries in Nevada. Significant uncertainty remains as to the potential impact of the Share Exchange Agreement with NMG,COVID-19 pandemic on our operations, and on the Company raised $4,920,291 netglobal economy as a whole. It is currently not possible to predict how long the pandemic will last or the time that it will take for economic activity to return to prior levels. We do not yet know the full extent of share issue costs (2017: $Nil) by issuing 9,102,165 Subscription Receipts at a price of CAD$0.66 per Subscription Receipt. On November 14, 2017, each Subscription Receipt converted into one common share ofany impact on our business or our operations, however, we will continue to monitor the CompanyCOVID-19 situation closely, and one share purchase warrant of the Company exercisable at a price of CAD$0.90 for a period of 24 months from the date of issuance.intend to follow health and safety guidelines as they evolve. Off-balance sheet arrangements Off-balance Sheet Arrangements
The Company hasThere are no off-balance sheet arrangements that would require disclosure.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.
Subsequent events
In May 2018, the real estate investment group completed the purchase of the building adjacent to the existing NMG facility (“PLN Facility”). The Company made the decision to terminate its lease back agreement regarding the PLN Facility as it was unable to relocate a church that was in close proximity to the PLN Facility. The PLN Facility may still be an opportunity for us to lease storage and administrative space and we will continue to evaluate this opportunity. We initiated a claim with the surveyor’s insurance company stating the surveyor made an error and did not disclose the church location in their report to us. The primary claim, amongst other damages, is to recover the non-refundable $250,000 deposits made by each member of the Partnership.
On June 7, 2018 the Company announced the Company’s subsidiary, NMG, and its strategic in-state investment partners received notification that the State of Ohio awarded a medical cannabis dispensary licenses to NMG Ohio, LLC (“NMG Ohio”). NMG currently maintains a 30% ownership interest in NMG Ohio.
On June 12, 2018, we granted 175,000 stock options having an exercise price of CAD$0.41 per common share for a period of five years to a consultant of the Company.
On September 19, 2018, the Company announced the Company, through its subsidiary, NMG, and its strategic in-state investment partners received notification that the State of Ohio awarded a medical cannabis production licenses to NMG Ohio, LLC (“NMG Ohio”). NMG currently maintains a 30% ownership interest in NMG Ohio.
On September 20, 2018 the Company announced its wholly-owned subsidiary, NMG and an in-state investment group, submitted four cannabis dispensary license applications in the State of Nevada.
Critical Accounting Policies Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles 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 financial statements and the reported amounts of revenues and expenses during the reporting periods. 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 determinationCompany determines the functional currency through an analysis of deferred income tax assets or liabilities requires subjective assumptions regarding future income tax ratesseveral indicators such as expenses and cash flows, financing activities, retention of operating cash flows, and frequency of transactions with 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.reporting entity. |
| · | 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.
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| 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. |
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| | · | 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 recoverabilityoption 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 carryingfair 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.Company’s stock options. |
| · | Stock-based compensationBusiness Combination
| | | | | | The option pricing models requireresults of businesses acquired in a business combination are included in our consolidated financial statements from the inputdate of highly subjective assumptions, particularly the expected stock price volatility. Changesacquisition. Purchase accounting results in assets and liabilities of an acquired business being recorded at their estimated fair values on the subjective input assumptions can materially affectacquisition 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 thereforeliabilities assumed requires management to use significant judgment and estimates including the existing models do not necessarily provide a reliable single measureselection 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 Company’s stock options.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 January 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-01, “Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-01 amends various aspects of the recognition, measurement, presentation, and disclosure of financial instruments. ASU 2016-01 is effective for annual reporting periods and interim periods within those years beginning after 15 December 2017. The Company does not anticipate this amendment to have a significant impact on the financial statements.
In February 2016, the FASB issued ASU No. 2016-02 (Topic 842) “Leases.” Topic 842 supersedes the lease recognition requirements in Accounting Standards Codification (“ASC”) Topic 840 “Leases.” Under Topic 842, lessees are required to recognize assets and liabilities on the balance sheet for most leases and provide enhanced disclosures. Leases will continue to be classified as either finance or operating. Topic 842 is effective for annual reporting periods and interim periods within those years beginning after 15 December 2018. Early adoption by public entities is permitted. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements, and there are certain optional practical expedients that an entity may elect to apply. Full retrospective application is prohibited. The Company does not anticipate this amendment to have a significant impact on the financial statements.
In June 2016, the FASB issued ASU No. 2016-13 “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. ASU 2016-13 is effective for annual reporting periods, and interim periods within those years beginning after December 15, December 2019.2022. The Company does not anticipate this amendment to have a significant impact on the consolidated financial statements. In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes. ASU 2019-12 removes certain exceptions for investments, intraperiod allocations and interim calculations, and adds guidance to reduce complexity in accounting for income taxes. ASU 2019-12 is effective for annual and interim periods beginning after December 15, 2020. Early adoption is permitted. Adopting this ASU did not have a significant impact on the Company’s consolidated financial statements. In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. ASU 2021-08 requires the recognition and measurement of contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, Revenue from Contracts with Customers. Considerations to determine the amount of contract assets and contract liabilities to record at the acquisition date include the terms of the acquired contract, such as timing of payment, identification of each performance obligation in the contract and allocation of the contract transaction price to each identified performance obligation on a relative standalone selling price basis as of contract inception. ASU 2021-08 is effective for the Company beginning in the first quarter of 2023. ASU 2021-08 should be applied prospectively for acquisitions occurring on or after the effective date of the amendments. Early adoption of the proposed amendments would be permitted, including adoption in an interim period. The Company is currently assessing the impact this standard will have on the Company’s condensed consolidated financial statements. Management of financial risks The financial risk arising from the Company’s operations are credit risk, liquidity risk, interest rate risk and currency risk. These risks arise from the normal course of operations and all transactions undertaken are to support the Company’s ability to continue as a going concern. The risks associated with these financial instruments and the policies on how to mitigate these risks are set out below. Management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner. | · | Credit risk | | | | | | Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Company is not exposedreduces its exposure to credit risk as it does not holdby maintaining its cash in excess of federally insured limits, with major financial institutions. Credit risk associated with the convertible loans receivable arises from the possibility that the principal and/or interest due may become uncollectible. The Company mitigates this risk by managing and monitoring the underlying business relationship. The Company is not currently exposed to any significant credit risk associated with its trade receivable. |
| · | Liquidity risk | | | | | | Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company had a working capital deficit of $342,411$4,073,522 as at April 30, 2018. In addition,January 31, 2022. The Company outlined substantial doubt about its ability to continue as a going concern in prior periods which has been alleviated by securing long term debt, cash flow positive operations and increased sales. The Company anticipates that current cashflow positive operations, cash on hand and working capital will ensure coverage for all expenses associated with current operations for at least the next 15 months from the issuance of these financial statements. Management believes that the Company has incurred losses from operationsaccess to date and is currently attemptingcapital resources through potential public or private issuances of debt or equity securities to implement its business plan; therefore,further contribute to the Company is exposed to liquidity risk.growth of the company. |
| · | Interest rate risk | | | | | | Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is not exposed to interest rate risk as it does not hold financial instruments that will fluctuate in value due to changes in market interest rates. |
| · | Currency risk | | | | | | Currency risk is the risk that the fair values of future cash flows of a financial instrument will fluctuate because they are denominated in currencies that differ from the respective functional currency. The Company is exposed to currency risk by incurring expenditures and holding assets denominated in currencies other than its functional currency. Assuming all other variables remain constant, a 1% change in the Canadian dollar against the US dollar would not result in a significant change to the Company’s operations. |
| · | Other risks | | | | | | Currency risk is the risk that the fair values of future cash flows of a financial instrument will fluctuate because they are denominated in currencies that differ from the respective functional currency. The Company is not exposed to currency risk by incurring expenditures and holding assets denominated in currencies other than its functional currency. Assuming all other variables remain constant, a 1% change in the Canadian dollar against the US dollar would not result in a significant change to the Company’s operations.risks unless otherwise noted.
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| Other risks
| | | | | | The Company is not exposed to other risks unless otherwise noted.
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ITEM 3 –- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company does not issue or invest in financial instruments or their derivatives for trading or speculative purposes. The limited operations of the Company were conducted primarily in Canada and the U.S.A., and, are not subject to material foreign currency exchange risk. Although the Company has outstanding debt and related interest expense, market risk of interest rate exposure in the United States is currently not material.
ITEM 4 – CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
We maintain 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, Leonard Clough, and our Chief Financial Officer, Darren Tindale, to allow for timely decisions regarding required disclosure. Our Chief Executive Officer and Chief Financial Officer are responsible for establishing and maintaining disclosure controls and procedures for our Company.
Our management has evaluated the effectiveness of our disclosure controls and procedures as of April 30, 2018 (under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer), pursuant to Rule 13a-15(b) promulgated under the Securities Exchange Act of 1934, as amended. As part of such evaluation, management considered the matters discussed below relating to internal control over financial reporting. Based on this evaluation, our Company’s Chief Executive Officer and Chief Financial Officer has concluded that our Company’s disclosure controls and procedures were effective as of April 30, 2018.
(b) Internal control over financial reporting
The term “internal control over financial reporting” is defined as a process designed by, or under the supervision of, the registrant’s principal executive and principal financial officers, or persons performing similar functions, and effected by the registrant’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
| · | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the registrant; | | | | | · | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the registrant are being made only in accordance with authorizations of management and directors of the registrant; and | | | | | · | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the registrant’s assets that could have a material effect on the financial statements. |
A material weakness is defined in Public Company Accounting Oversight Board Auditing Standard No. 5 as a significant deficiency, or a combination of significant deficiencies, in internal control over financial reporting that results in there being more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.
There have not been any changes in our internal control over financial reporting that occurred during our fiscal quarter ended April 30, 2018 that have materially affected, or are likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1 – LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, affiliates or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.
ITEM 1A. RISK FACTORS
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item. ITEM 4 – CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures We have established disclosure controls and procedures to ensure that material information relating to us is made known to the officers who certify our financial reports and the Board. Based on their evaluation as of January 31, 2022, our principal executive and principal financial and accounting officers have concluded that these disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were not effective as of January 31, 2022 to provide reasonable assurance that information required to be disclosed by us in reports that we file under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in Securities and Exchange Commission rules and forms and that information required to be disclosed by us in our reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our principal executive officer and our principal financial officer, as appropriate to allow timely decisions regarding required disclosures. In our assessment of the effectiveness of our internal control over financial reporting as at January 31, 2022, based on criteria for effective internal control over financial reporting described in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, material weaknesses were identified regarding experienced personnel with knowledge of GAAP and the proper levels of supervision and review required to provide timely financial information. 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 could not be prevented or detected on a timely basis. The Company added more experienced personnel in the accounting department to remediate this material weaknesses. However, the Company’s management will not consider this remediated until the control procedures operate for a period of time and the control procedures are tested to ensure they are operating effectively. It should be noted that any system of controls is based in part upon certain assumptions designed to obtain reasonable (and not absolute) assurance as to its effectiveness, and there can be no assurance that any design will succeed in achieving its stated goals. Change in Internal Control over Financial Reporting There were no changes to our internal control over financial reporting that occurred during the quarter ended January 31, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. PART II – OTHER INFORMATION ITEM 1 – LEGAL PROCEEDINGS We are not, and were not during our most recently completed fiscal quarter, engaged in any legal proceedings and none of our property is or was during that period the subject of any legal proceedings. We do not know of any such legal proceedings which are contemplated. ITEM 1A. RISK FACTORS We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item. ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS On August 15, 2017 and August 16, 2017, we closed the first two of four tranches of a non-brokered private placement and issued 8,276,294 Subscription Receipts to 116 individuals and 21 entities at a price of CAD$0.66 per Subscription Receipt for aggregate gross proceeds of CAD$5,462,369. Each Subscription Receipt automatically converted, at no additional cost to the subscriber, upon the completion of the acquisition of NMG for one common share and one share purchase warrant of the Company. Each warrant entitles the holder to purchase one additional common share of the Company at a price of CAD$0.90 per warrant for a period of 24 months from the date of issuance. We relied on exemptions from registration under Regulation S promulgated under the Securities Act for issuances to non-U.S. persons as the securities were issued to the individuals/entities through offshore transactions which were negotiated and consummated outside of the United States and we relied on exemptions from registration under the Securities Act provided by Rule 506 of Regulation D and/or Section 4(a)(2) for issuances to U.S. persons.None
On October 31, 2017, we closed a third tranche of a non-brokered private placement and issued 757,666 Subscription Receipts at a price of CAD$0.66 per Subscription Receipt to one individual for aggregate gross proceeds of CAD$500,060. Each Subscription Receipt automatically converted, at no additional cost to the subscriber, upon the completion of the acquisition of NMG for one common share and one share purchase warrant of the Company. Each warrant entitles the holder to purchase one additional common share of the Company at a price of CAD$0.90 per warrant for a period of 24 months from the date of issuance. We relied on exemptions from registration under Regulation S promulgated under the Securities Act for the issuance as the securities were issued to the individual through an offshore transaction which was negotiated and consummated outside of the United States.
On November 10, 2017 we closed a fourth and final tranche of a non-brokered private placement and issued 68,181 Subscription Receipts at a price of CAD$0.66 per Subscription Receipt to one individual for aggregate gross proceeds of CAD$45,000. Each Subscription Receipt automatically converted, at no additional cost to the subscriber, upon the completion of the acquisition of NMG for one common share and one share purchase warrant of the Company. Each warrant entitles the holder to purchase one additional common share of the Company at a price of CAD$0.90 per warrant for a period of 24 months from the date of issuance. We relied on exemptions from registration under Regulation S promulgated under the Securities Act for the issuance as the securities were issued to the individual through an offshore transaction which was negotiated and consummated outside of the United States.
On November 24, 2017, we granted an aggregate of 3,850,000 stock options in accordance with our stock option plan to 19 individuals at an exercise price of CAD$0.66 per share for a five year term expiring November 24, 2022. We relied on exemptions from registration under Regulation S promulgated under the Securities Act for the option grants to non-U.S. persons and we relied on the exemption from registration under the Securities Act provided by Rule 701 for the option grants to U.S. persons.
On December 1, 2017, we closed a non-brokered private placement of 637,393 units at a price of CAD$0.66 per unit to five individuals and one entity for aggregate gross proceeds of CAD$420,680. Each unit consists of one common share and one share purchase warrant. Each warrant entitles the holder to purchase one additional common share of the Company at a price of CAD$0.90 per warrant for a period of 24 months from the closing. We relied on exemptions from registration under Regulation S promulgated under the Securities Act for issuances to non-U.S. persons as the securities were issued to the individuals/entities through offshore transactions which were negotiated and consummated outside of the United States.
On June 6, 2018, we granted 175,000 stock options in accordance with out stock option plan to one individual at an exercise price of CAD$0.41 per common share for a period of five years expiring on June 6, 2023. We relied on exemptions from registration under Regulation S promulgated under the Securities Act for the option grant to the non-U.S. person.
ITEM 3 – DEFAULTS UPON SENIOR SECURITIES None ITEM 4 – SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSMINE SAFETY DISCLOSURES Not applicable ITEM 5 – OTHER INFORMATION None None
ITEM 6 – EXHIBITS The following exhibits are included with this Quarterly Report: SIGNATURESSIGNATURE
Pursuant to the requirements 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. | BODY AND MIND INC. | | Date: March 17, 2022 | BY: | /s/ Michael Mills | | | | | October 29, 2018
| By:
| /s/ Leonard Clough
| | Date
| | Leonard Clough,
Michael Mills, President and Chief Executive Officer
(Principal Executive Officer) | | Date: March 17, 2022 | BY: | /s/ Dong Shim | | | | Dong H. Shim, Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | | October 29, 2018
| By:
| /s/ Darren Tindale
| | Date
| | Darren Tindale,
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
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