1933 INDUSTRIES INC.
Consolidated Financial Statements
For the years ended July 31, 2024 and 2023
(Expressed in Canadian dollars)
Independent Auditor's Report
To the Shareholders of 1933 Industries Inc.:
Opinion
We have audited the consolidated financial statements of 1933 Industries Inc. and its subsidiaries (the "Company"),
which comprise the consolidated statements of financial position as at July 31, 2024 and July 31, 2023, and the
consolidated statements of loss and comprehensive loss, changes in shareholders'deficiency and cash flows for the
years then ended, and notes to the consolidated financial statements, including material accounting policy
information.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the
consolidated financial position of the Company as at July 31, 2024 and July 31, 2023, and its consolidated financial
performance and its consolidated cash flows for the years then ended in accordance with IFRS® Accounting
Standards.
Basis for Opinion
We conducted our audits in accordance with Canadian generally accepted auditing standards. Our responsibilities
under those standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated
Financial Statements section of our report. We are independent of the Company in accordance with the ethical
requirements that are relevant to our audits of the consolidated financial statements in Canada, and we have fulfilled
our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our opinion.
Material Uncertainty Related to Going Concern
We draw attention to Note 1 in the consolidated financial statements, which indicates that the Company incurred a
net loss during the year ended July 31, 2024 and, as of that date, the Company had an accumulated deficit. As stated
in Note 1, these events and conditions, along with other matters as set forth in Note 1, indicate that a material
uncertainty exists that may cast significant doubt on the Company's ability to continue as a going concern. Our
opinion is not modified in respect of this matter.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the
consolidated financial statements of the current period. These matters were addressed in the context of our audit of
the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a
separate opinion on these matters.
In addition to the matter described in the Material Uncertainty Related to Going Concern section, we have
determined the matters described below to be the key audit matters to be communicated in our report.
MNP LLP
1122 International Blvd, 6th floor, Burlington ON, L7L 6Z8 | T: 905.333.9888 F: 905.333.9583 |
Valuation and Accuracy of Cultivated Inventory and Biological Assets
Key Audit Matter Description
The cost of finished goods cannabis inventories includes (a) cost of dried cannabis, (b) applicable allocation of cost of
labour, fixed and variable overheads as part of the production process, and (c) other costs incurred to bring the
inventories to their present location and condition. The determination of the intial deemed cost of the cannabis
cultivated by the Company is based on the fair value at the time of harvest, which is determined by management
based on estimated selling prices and costs to complete and sell the product. Inventories are subsequently assessed
for write-downs based on the lower of cost and net realizable value. Net realizable value is estimated based on
assumptions including the nature of the product, future demand, selling prices and market conditions. Refer to Notes
6 and 7 of the consolidated financial statements for further details. We identified the valuation and accuracy of
biological assets and related inventories as a key audit matter, as a high degree of auditor judgment was required to
evaluate the judgments made by management in determining the costs and estimated net realizable value of
inventories.
Audit Response
We responded to this matter by performing audit procedures in relation to the valuation and accuracy of inventories.
Our audit work in relation to this included, but was not restricted to, the following:
- Obtained management's biological asset model, which was used to determine the initial deemed cost of the
cannabis inventories, and tested the key assumptions in the model;
- Obtained a listing of sales subsequent to year-end and recalculated the net-realizable-value ("NRV") of each
product category. Selected a sample of products sold from the subsequent sales listing and obtained the invoice and
cash payment related to the sample to verify the accuracy of the subsequent sales listing. Compared each product
category to the cost and ensured inventory is being valued appropriately;
- Tested the allocation of post-harvest costs based on actual production quantities by assessing the appropriateness
of the allocation method, recalculating the allocation, and verifying to source documents; and
- Calculated inventory turnover per product and investigated any products with a turnover greater than one year.
Other Information
Management is responsible for the other information. The other information comprises Management's Discussion
and Analysis.
Our opinion on the consolidated financial statements does not cover the other information and we do not express
any form of assurance conclusion thereon.
In connection with our audits of the consolidated financial statements, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent with the consolidated
financial statements or our knowledge obtained in the audits or otherwise appears to be materially misstated. We
obtained Management's Discussion and Analysis prior to the date of this auditor's report. If, based on the work we
have performed on this other information, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for the Consolidated Financial
Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in
accordance with IFRS® Accounting Standards, and for such internal control as management determines is necessary
to enable the preparation of consolidated financial statements that are free from material misstatement, whether due
to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Company's ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern
basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no
realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company's financial reporting process.
Auditor's Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our
opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it
exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these
consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional
judgment and maintain professional skepticism throughout the audit. We also:
- Identify and assess the risks of material misstatement of the consolidated financial statements, whether due
to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence
that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion,
forgery, intentional omissions, misrepresentations, or the override of internal control.
- Obtain an understanding of internal control relevant to the audit in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the Company's internal control.
- Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates
and related disclosures made by management.
- Conclude on the appropriateness of management's use of the going concern basis of accounting and, based
on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that
may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw attention in our auditor's report to the related
disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report.
However, future events or conditions may cause the Company to cease to continue as a going concern.
- Evaluate the overall presentation, structure and content of the consolidated financial statements, including
the disclosures, and whether the consolidated financial statements represent the underlying transactions and
events in a manner that achieves fair presentation.
- Plan and perform the group audit to obtain sufficient appropriate audit evidence regarding the financial
information of the entities or business units within the Company as a basis for forming an opinion on the
consolidated financial statements. We are responsible for the direction, supervision and review of the audit
work performed for the purposes of the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and
timing of the audits and significant audit findings, including any significant deficiencies in internal control that we
identify during our audits.
We also provide those charged with governance with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most
significance in the audit of the consolidated financial statements of the current period and are therefore the key audit
matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about
the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our
report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest
benefits of such communication.
The engagement partner on the audit resulting in this independent auditor's report is Giacomo Angelini.
Burlington, Ontario | Chartered Professional Accountants |
February 25, 2025 | Licensed Public Accountants |
1933 INDUSTRIES INC.
Consolidated Statements of Financial Position
(Expressed in Canadian dollars) | ||||||||
July 31, | July 31, | |||||||
Note | 2024 | 2023 | ||||||
ASSETS | $ | $ | ||||||
Current | 449,184 | |||||||
Cash | 1,092,562 | |||||||
Receivables | 5 | 2,008,667 | 2,231,302 | |||||
Inventory | 6 | 2,725,525 | 2,191,403 | |||||
Biological assets | 7 | 425,729 | 414,075 | |||||
Prepaid expenses and deposits | 8 | 374,720 | 539,131 | |||||
5,983,825 | 6,468,473 | |||||||
Property and equipment | 9 | 10,884,527 | 11,551,256 | |||||
Total assets | 16,868,352 | 18,019,729 | ||||||
LIABILITIES | ||||||||
Current | 4,863,718 | |||||||
Accounts payable and accrued liabilities | 11,17 | 4,017,644 | ||||||
Income tax payable | 64,313 | 1,694,210 | ||||||
Current portion of lease liability | 12 | 439,763 | 551,366 | |||||
Current portion of note payable | 13 | 54,455 | 37,565 | |||||
Current portion of convertible debentures | 14 | - | 4,406,730 | |||||
5,422,249 | 10,707,515 | |||||||
Convertible debentures | 14 | 2,869,327 | - | |||||
Lease liability | 12 | 13,412,248 | 12,554,029 | |||||
Note payable | 13 | - | 21,337 | |||||
Total liabilities | 21,703,824 | 23,282,881 | ||||||
SHAREHOLDERS' DEFICIENCY | 83,856,671 | |||||||
Share capital | 15(b) | 82,387,033 | ||||||
Reserves | 15(c) | 10,795,979 | 10,335,086 | |||||
Accumulated other comprehensive loss | (787,569) | (594,933) | ||||||
Deficit | (97,399,298) | (95,820,123) | ||||||
Deficiency attributable to shareholders of the Company | (3,534,217) | (3,692,937) | ||||||
Non-controlling interest | (1,301,255) | (1,570,215) | ||||||
Total shareholders' deficiency | (4,835,472) | (5,263,152) | ||||||
Total liabilities and shareholders' deficiency | 16,868,352 | 18,019,729 | ||||||
Nature of operations and going concern (Note 1) | ||||||||
Approved and authorized for the issue on behalf of the Board of Directors: | ||||||||
/s/ "Brian Farrell" | /s/ "Paul Rosen" | |||||||
Director | Director |
The accompanying notes are an integral part of these consolidated financial statements.
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1933 INDUSTRIES INC.
Consolidated Statements of Loss and Comprehensive Loss
(Expressed in Canadian dollars, except share numbers) | |||||||
For the year ended | |||||||
July 31, | |||||||
2024 | 2023 | ||||||
Note | (Note 24) | ||||||
$ | $ | ||||||
Revenues | 19,350,916 | 16,881,564 | |||||
Cost of sales | (16,702,008) | (17,075,559) | |||||
Gross profit, excluding fair value adjustments | 2,648,908 | (193,995) | |||||
Change in fair value due to biological | 1,791,060 | ||||||
transformation | - | ||||||
Fair value adjustment on sale of biological assets | (1,498,005) | (1,172,758) | |||||
Gross profit (loss) | 2,941,963 | (1,366,753) | |||||
Expenses (income) | 143,475 | ||||||
Accretion expense | - | ||||||
Depreciation | 9 | 100,284 | 199,916 | ||||
Foreign exchange | (60,147) | (52,032) | |||||
Gain on disposal of assets held for sale | 9 | - | (50,078) | ||||
Gain on extinguishment of convertible debenture | 14 | (483,941) | - | ||||
General and administration | 16,17 | 926,842 | 1,754,790 | ||||
Goodwill impairment | 10 | - | 4,599,734 | ||||
Interest expense | 345,143 | 1,743,380 | |||||
License taxes and insurance | 2,110,638 | 3,558,222 | |||||
Loss (gain) on sale of property and equipment | 9 | (6,796) | 27,198 | ||||
Gain on lease extinguishment | 9 | - | (9,974) | ||||
Loss on deposit | - | 87,323 | |||||
Management and consulting fees | 17 | 513,334 | 628,000 | ||||
Other income | 20 | - | (1,739,552) | ||||
Professional fees | 619,313 | 901,070 | |||||
Share-based compensation | 17 | 31,471 | 183,238 | ||||
Wages and benefits | 956,432 | 873,782 | |||||
5,196,048 | 12,705,017 | ||||||
Loss before income tax recovery (expense) | (2,254,085) | (14,071,770) | |||||
Current income tax recovery (expense) | 23 | 1,630,000 | (515,534) | ||||
Net loss for the year - continuing operations | (624,085) | (14,587,304) | |||||
Net (loss) income from discontinued operations | 24 | (329,619) | 628,549 | ||||
Foreign currency translation adjustment | (111,975) | 462,912 | |||||
Comprehensive loss for the year | (1,065,679) | (13,495,843) | |||||
Net income (loss) attributable to: | (1,142,003) | ||||||
Shareholders of the Company | (13,363,920) | ||||||
Non-controlling interest | 188,299 | (594,835) | |||||
Foreign currency translation adjustment | |||||||
attributable to: | (192,636) | ||||||
Shareholders of the Company | (439,416) | ||||||
Non-controlling interest | 80,661 | (23,496) | |||||
Comprehensive income (loss) attributable to: | |||||||
Shareholders of the Company | (1,334,639) | (12,924,504) | |||||
Non-controlling interest | 268,960 | (571,339) | |||||
Net loss per share from continuing operations | (0.00) | ||||||
Basic and diluted | (0.03) | ||||||
Weighted average number of shares | 477,763,336 | ||||||
Basic and diluted | 455,694,947 |
The accompanying notes are an integral part of these consolidated financial statements.
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1933 INDUSTRIES INC.
Consolidated Statements of Cash Flows
(Expressed in Canadian dollars)
For the year ended | ||
July 31, | ||
2024 | 2023 | |
(Note 24) | ||
Operating activities | $ | $ |
(624,085) | ||
Net loss for the year | (14,587,304) | |
Adjustments for: | 1,993,824 | |
Depreciation included in cost of sales | 1,395,598 | |
Change in fair value due to biological transformation | (1,791,060) | - |
Fair value adjustment on sale of biological assets | 1,498,005 | 1,172,758 |
Accretion expense | 143,475 | - |
Depreciation | 85,314 | 204,415 |
Unrealized foreign exchange | - | (48,884) |
Gain on disposal of assets held for sale | - | (53,005) |
Gain on extinguishment of debenture | (483,941) | - |
Gain on lease termination | - | (9,974) |
Loss on sale of property and equipment | - | 27,198 |
Goodwill impairment | - | 4,599,734 |
Interest expense | 1,803,635 | 364,084 |
Loss on deposit | - | 87,323 |
Share-based compensation | 31,471 | 183,238 |
Changes in non-cash working capital: | 128,080 | |
Receivables | (881,034) | |
Inventory | (829,071) | 4,172,865 |
Biological assets | 281,401 | (222,425) |
Prepaid expenses and deposits | 160,726 | (250,965) |
Accounts payable and accrued liabilities | 881,932 | 1,199,265 |
Income tax payable | (1,629,897) | 621,310 |
Net cash provided by (used in) operating activities | 1,649,809 | (2,025,803) |
Investing activities | (890,780) | |
Purchase of property and equipment | (801,989) | |
Proceeds from property and equipment | - | 79,434 |
Proceeds from sale of assets held for sale | - | 2,425,446 |
Net cash provided by (used in) investing activities | (890,780) | 1,702,891 |
Financing activities | (1,373,983) | |
Repayment of lease liability | (282,010) | |
Repayment of note payable | (46,271) | (18,928) |
Repayment of convertible debenture payable | (41,000) | - |
Net cash used in financing activities | (1,461,254) | (300,938) |
Effect of exchange rate on changes on cash | 16,165 | 190,872 |
Change in cash from continuing operations | (686,060) | (432,978) |
Change in cash from discontinuing operations | 42,682 | 1,162,266 |
Cash, beginning of year | 1,092,562 | 363,274 |
Cash, end of year | 449,184 | 1,092,562 |
Supplemental disclosure with respect to cash flows (Note 18)
The accompanying notes are an integral part of these consolidated financial statements.
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1933 INDUSTRIES INC.
Consolidated Statements of Changes in Shareholders' Equity (Deficiency)
(Expressed in Canadian dollars, except share numbers) | ||||||||
Accumulated | Total | |||||||
other | Non- | shareholders' | ||||||
Common | comprehensive | controlling | equity | |||||
shares | Share capital | Reserves | loss | Deficit | interest | (deficiency) | ||
# | $ | $ | $ | $ | $ | $ | ||
Balance, July 31, 2022 | 450,699,319 | 81,855,012 | 10,157,141 | (1,034,349) | (82,456,203) | (998,876) | 7,522,725 | |
Shares issued - conversion of convertible | ||||||||
debentures $0.05 | 10,534,551 | 532,021 | (5,293) | - | - | - | 526,728 | |
Share-based compensation | - | - | 183,238 | - | - | - | 183,238 | |
Non-controlling interest | - | - | - | - | - | (594,835) | (594,835) | |
Foreign currency translation adjustment | - | - | - | 439,416 | - | 23,496 | 462,912 | |
Net loss for the year | - | - | - | - | (13,363,920) | - | (13,363,920) | |
Balance, July 31, 2023 | 461,233,870 | 82,387,033 | 10,335,086 | (594,933) | (95,820,123) | (1,570,215) | (5,263,152) | |
Shares issued - conversion of convertible | ||||||||
debentures $0.05 | 29,237,787 | 1,469,638 | (7,750) | - | - | - | 1,461,888 | |
Issuance of convertible debentures $0.05 | - | - | 437,172 | - | (437,172) | - | - | |
Share-based compensation | - | - | 31,471 | - | - | - | 31,471 | |
Non-controlling interest | - | - | - | - | - | 188,299 | 188,299 | |
Foreign currency translation adjustment | - | - | - | (192,636) | - | 80,661 | (111,975) | |
Net loss for the year | - | - | - | - | (1,142,003) | - | (1,142,003) | |
Balance, July 31, 2024 | 490,471,657 | 83,856,671 | 10,795,979 | (787,569) | (97,399,298) | (1,301,255) | (4,835,472) |
The accompanying notes are an integral part of these consolidated financial statements.
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1933 INDUSTRIES INC.
Notes to the Consolidated Financial Statements For the years ended July 31, 2024 and 2023 (Expressed in Canadian dollars, except where noted)
1. NATURE OF OPERATIONS AND GOING CONCERN
1933 Industries Inc. (the "Company") was incorporated pursuant to the provisions of the Business Corporations Act of Alberta and later continued into the Province of British Columbia. The Company is a publicly traded company with its registered office located at 300 - 1055 West Hastings Street, Vancouver, British Columbia, Canada. The Company's common shares are listed under the symbol "TGIF" on the Canadian Securities Exchange and under the symbol "TGIFF" on the OTCQX.
The Company operates in the medical and recreational cannabis sectors in Nevada, USA. Alternative Medicine Association ("AMA"), a 91% owned subsidiary of the Company, is licensed in the State of Nevada as (i) a cultivation facility; and (ii) a production facility for edible, or cannabis-infused products. Infused Mfg ("Infused"), a 100% owned subsidiary of the Company, is focused on developing, and manufacturing hemp and cannabidiol ("CBD") infused products and brands for retail sale and use in jurisdictions where permitted. During the year ended July 31, 2024, Infused operations were discontinued (Note 24).
While some states in the United States ("U.S.") have authorized the use and sale of cannabis, it remains illegal under federal law and the approach to enforcement of U.S. federal laws against cannabis is subject to change. The Company assumes certain risks due to conflicting state and federal laws because the Company engages in cannabis related activities in the U.S. The federal law relating to cannabis could be enforced at any time and this would put the Company at risk of being prosecuted and having its assets seized. The Company may be irreparably harmed by a change in enforcement policies of the federal government depending on the nature of such change.
Given the current illegality of cannabis under U.S. federal law, the Company's ability to access both public and private capital may be hindered by the fact that certain financial institutions are regulated by the U.S. federal government and are thus prohibited from providing financing to companies engaged in cannabis-related activities. The Company's ability to access public capital markets in the U.S. is directly hindered as a result. The Company may, however, be able to access public and private capital markets in Canada in order to support continuing operations.
Going concern
The Company has not yet achieved profitable operations and during the years ended July 31, 2024 and 2023, the Company incurred a net loss of $1,065,679 (2023 - $13,495,843). As at July 31, 2024, the Company had an accumulated deficit of $97,399,298 (July 31, 2023 - $95,820,123) and working capital of $561,576 (July 31, 2023 - working capital deficiency of $4,239,042). These factors represent a material uncertainty that may raise significant doubt regarding the Company's ability to continue as a going concern. As a result, the Company may be unable to realize its assets and discharge its liabilities in the normal course of business.
These consolidated financial statements for the years ended July 31, 2024 and 2023 ("financial statements") have been prepared on a going concern basis, which assumes that the Company will be able to meet its obligations and continue its operations for at least the next twelve months.
The Company evaluates if the going concern assumption at each reporting period is appropriate and will consider removing the going concern and uncertainty note when the Company can depend on profitable operations or is confident of obtaining additional debt, equity or other financing to fund ongoing operations until profitability is achieved. These financial statements do not reflect adjustments that would be necessary if the going concern assumption were not appropriate. Should the Company be unable to obtain additional capital in the future and the Company's ability to continue as a going concern be impaired, material adjustments may be necessary to these financial statements. Such adjustments could be material.
2. BASIS OF PREPARATION
- Statement of compliance
These financial statements have been prepared in accordance with IFRS® Accounting Standards issued by the International Accounting Standards Board ("IASB") and the IFRIC® Interpretations of the IFRS Interpretations Committee.
These financial statements were approved by the Board of Directors and authorized for issue on February 25, 2025.
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