MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE YEARS ENDED JULY 31, 2024 AND 2023
(in Canadian Dollars, except where noted)
This Management Discussion and Analysis ("MD&A") for 1933 Industries Inc., together with its wholly owned subsidiaries ("1933" or "the Company") is prepared as of July 31, 2024 and relates to the financial condition and results of operations for the years ended July 31, 2024 and 2023. Past performance may not be indicative of future performance. This MD&A should be read in conjunction with the audited consolidated financial statements and related notes for the years ended July 31, 2024, and 2023 ("financial statements"), which 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.
The Company's certifying officers are responsible for ensuring that the financial statements and MD&A do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made. The Company's certifying officers certify that the financial statements together with the other financial information included in the filings fairly present in all material respects the financial condition, financial performance, and cash flows of the Company as of the date of and for the periods presented in the filings.
The Company's certifying officers are responsible for ensuring that the Financial Statements and MD&A do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made. The Company's certifying officers certify that the Financial Statements together with the other financial information included in the filings fairly present in all material respects the financial condition, financial performance, and cash flows of the Company as of the date of and for the periods presented in the filings.
The first, second, third and fourth quarters of the Company's fiscal years are referred to as "Q1", "Q2", "Q3" and "Q4", respectively. The years ended July 31, 2024 and 2023, are referred to as "fiscal 2024" and "fiscal 2023", respectively. All amounts are presented in Canadian dollars, the Company's presentation currency, unless otherwise stated. References to "USD" are to United States dollars.
Statements are subject to the risks and uncertainties identified in the "Risks and Uncertainties", and "Cautionary Note Regarding Forward-Looking Statements" sections of this document. The Company has included the non-GAAP performance measures of Earnings before interest, taxes, depreciation, and amortization ("EBITDA") and Adjusted EBITDA per share within this document. For further information and detailed calculations of these measures, see the "Non-GAAP Measures" section of this document.
The Company is publicly traded on the Canadian Securities Exchange under the symbol "TGIF" and quoted on the OTCQB under the symbol "TGIFF". Additional information relating to the Company is available on the Company's website at www.1933industries.com, and on SEDAR+ at www.sedarplus.ca. Information in this MD&A is prepared as of February 24, 2025 (the "MD&A Date").
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This document contains certain "forward-looking statements" which may include, but are not limited to, statements with respect to the future financial or operating performance of the Company. Often, but not always, forward-looking statements can be identified by the use of words such as "plans", "expects", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates", or "believes" or variation (including negative variations) of such words and phrases, or statements that certain actions, events, or results "may", "could", "would", "might", or "will" be taken, occur or to achieve.
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1933 INDUSTRIES INC.
MANAGEMENT DISCUSSION AND ANALYSIS For the years ended July 31, 2024 and 2023 (In Canadian dollars, except where noted)
Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance, or achievements of the Company and/or its subsidiaries to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such factors include, among others, the Company's business model; U.S. regulatory landscape and enforcement related to cannabis, including political risks; risks related to capital raising due to heightened regulatory scrutiny; risks related to quantifying the Company's target market; risks related to access to banks and credit card payment processors; risks related to lack of U.S. federal trademark and patent protection; risks related to the enforceability of contracts; risks related to potential violation of laws by banks and other financial institutions; risks related to service providers withdrawing or suspending services under threat of prosecution; risks related to tax liabilities; and heightened scrutiny by Canadian regulatory authorities.
Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results to differ from those anticipated, estimated, or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements.
OUTLOOK AND THE PATH FORWARD
1933 Industries is a licensed cannabis operator with cultivation, production, and distribution assets based in Las Vegas, Nevada. The Company cultivates and produces its own cannabis products, under the Alternative Medicine Association (AMA) brand in a purpose-built, indoor cultivation facility under perpetual harvest cycle. Its craft-style flower cultivation is supported by an integrated production facility, focused on high-quality concentrate products that are sold directly to licensed dispensaries in the State of Nevada. The Company's brand of cannabis flower, pre-rolls and extraction products have strong wholesale penetration in dispensaries in Las Vegas, while its ultra-craft, select-batch premium brand offers unique, exotic strains that appeal to cannabis connoisseurs.
The Company holds cannabis licenses for cultivation, processing, and distribution in Nevada's limited license regime. The Company's revenue is derived from wholesale cannabis sales in Nevada, and, until recently, from the sale of hemp-derived consumer packaged goods sold B2B and direct to consumers via ecommerce at cannahemp.com. During the reporting period, the Canna Hemp™ manufacturing subsidiary was discontinued, while the Company assesses the future viability of the CBD market. The market demand for CBD products has experienced a downward trend, with many companies exiting the category altogether. The lack of federal rules on CBD and other cannabinoids and the grey area surrounding the introduction of psychoactive Delta 8 compounds into products under the ambiguity of the Farm Bill continue to erode the traditional CBD market and hinder future growth.
AMA branded packaged flower is available in 1 gram, 3.5 gram, 7 gram, 14 gram, and 28 gram formats. Live and cured concentrates are offered in 0.5 and 1 gram and are known for their exceptional potency and purity. AMA's infused 1 gram pre- rolls and vapor pens are among the Company's best-selling products. In each product category, AMA offers dozens of premium strains, while constantly striving to find the best genetics that give consumers a wide choice of products that keep them engaged.
The Company's strengths lie in its expertise as a top cultivator in the Nevada market with a strong market presence in several categories, and in its ability to attain shelf space in dispensaries. As a widely recognized non-dispensary brand, AMA consistently rates as a top brand by volume sold in the state, according to business intelligence aggregator Headset1. In the highly competitive Nevada flower and pre-roll categories, AMA ranked in the top 5 brands during the reporting period, indicating a consistent demand for its products. According to Headset, AMA "has been consistently robust, particularly in the Concentrates and Flower categories, where it has maintained top rankings. The brand has consistently held the 2nd position in Concentrates and has shown an upward movement in the Flower category, rising from 3rd to 2nd position by December 2024. This stability and upward movement in rankings highlight the brand's strong market presence and consumer preference in Nevada. However, in the Vapor Pens category, despite being present in the top 20, the brand has seen some fluctuations, indicating a competitive landscape that requires strategic focus to maintain and improve its standing."
With over 160 brands available in Nevada, AMA stands out in a competitive cannabis marketplace due to its ability to offer a large variety of quality cannabis products withassured consistency with a pricing strategy that meets changing consumer demands.
Overall, Nevada has experienced pricing decrease year over year and state-wide sales have continued on a downward trend. However, Nevada remains top of the list for cannabis sales per capital due to its resilient tourism industry. Moreover, Nevada presents significant opportunities for operators due to the state's high barriers to entry with a favourable licensing structure and
1 https://www.headset.io/brands/alternative-medicine-association-ama
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1933 INDUSTRIES INC.
MANAGEMENT DISCUSSION AND ANALYSIS For the years ended July 31, 2024 and 2023 (In Canadian dollars, except where noted)
generous patient reciprocity laws. Demand for the Company's AMA products remains strong, and the Company believes that it has attained the right approach in delivering quality products to its dispensary partners at a price point that resonates with current market conditions in Nevada. With the cultivation facility's upgrades completed and operating at full capacity, the Company is well positioned to take advantage of the continued demand for cannabis flower and cannabis products.
During fiscal 2024, the Company recorded revenues of $19.3 million, a 15% increase from fiscal 2023. Gross profit increased to $2.9M from a loss of $1.4M, including fair market value adjustments of biological assets. The strong performance is attributed the Company's consistent product quality and pricing. Company-wide, fiscal 2024 net loss was $1.0 million, compared to fiscal 2023 net loss of $13.5 million. The Company continues to improve margins and control costs, without compromising quality, and will remain focused on revenue growth.
COMPANY OVERVIEW AND DESCRIPTION OF THE BUSINESS
1933 Industries Inc. is a brand-focused cannabis company with operations in the United States, with cultivation, and extraction facilities based in Las Vegas, Nevada. Operating through two subsidiary companies, the Company owns leading cannabis brands as well as licensed cannabis cultivation, extraction, processing, manufacturing, and distribution assets. The Company owns 91% of Alternative Medicine Association LC ("AMA"), 100% of AMA Production LLC, and 100% of Infused MFG. ("Infused"). During the year ended July 31, 2024, Infused operations were discontinued.
In Nevada, the Company operates two subsidiaries: AMA, a licensed cannabis cultivator, extractor, product manufacturer, and distributor; and Infused, a manufacturer of hemp-extracted wellness products, which recently suspended operations.
The Company operates in three sought-after verticals:
- Craft cannabis flower cultivation;
- Extraction of cannabis concentrates; and
- Manufacturing of proprietary cannabinoid branded goods, focusing on Cannabidiol ("CBD"), Cannabigerol ("CBG") and Cannabinol ("CBN").
AMA's wholesale cannabis products include premium craft-style cannabis, infused pre-rolls, full spectrum oils, high quality distillates, proprietary blends of terpenes, vaporizer products and boutique concentrates such as shatter, crumble, batter, sugar wax, diamonds, and cured and live resins, sold under the house brands AMA and Level X. AMA cultivates and wholesales its products to regulated medical and adult-use dispensaries in the state. With an extensive selection of products, the AMA brand has strong penetration into dispensaries throughout Nevada, where it appeals to a wide range of both medical and recreational consumers. The AMA brand combines craft style cultivation, quality, and competitive pricing, while the Level X brand offers exclusive strains and premium quality.
Cannabis flower is cultivated in the Company's 68,000 sq. ft., purpose-built, state-of-the-art facility, serving the Las Vegas market. Biomass (remaining parts of the plant that contain THC such as sugar leaf trim and popcorn/small buds) is utilized to produce AMA's extensive line of concentrates.
The Company abides by strict quality assurance standards, implementing required policies and procedures and adhering to licensing requirements set by regulators across all levels of government in order to ensure the safety, consistency, and quality of its products.
The Company's common shares are listed for trading on the Canadian Securities Exchange under the symbol "TGIF" and traded on the OTC Pink Open Market under the symbol "TGIFF".
The Company's head office is located at #300-1055 West Hastings Street, Vancouver, BC V6E 2E9. The head office of operations is located at 3370 Pinks Place, Suite B, Las Vegas, Nevada 89102.
AMA - Cultivation and Extraction Segment
AMA's business involves the growing of cannabis indoors for personal medicinal and recreational use and the production of premium, boutique concentrates for the Nevada market. AMA began commercial production in April 2015 when it was the first Medical Marijuana Establishment or "MME" approved for cultivation in Southern Nevada. Its first crops were harvested, dried, packaged and sold in October 2015 and it has produced cannabis on a commercial scale in Nevada since then, providing a first- mover advantage.
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1933 INDUSTRIES INC.
MANAGEMENT DISCUSSION AND ANALYSIS For the years ended July 31, 2024 and 2023 (In Canadian dollars, except where noted)
Market Plans and Strategies
The Company's business model is based on servicing the existing medicinal cannabis patient base in Nevada (which has approximately 3.0 million residents) and the recreational cannabis consumers, including those who visit Las Vegas each year (41.7 million visitors in 2024). The Company is an established wholesale supplier of unique branded flower and extraction products to licensed dispensaries and cannabis stores.
As its branded image and reputation is well established, the Company may license or acquire other cannabis businesses in the United States that have legalized medicinal cannabis and/or recreational cannabis specific brands with recurring sales to a loyal and growing clientele.
The Company believes that the constantly evolving regulatory environment for the production and distribution of recreational cannabis within the U.S., and the dispensing of both medicinal and recreational cannabis will be disruptive for both producers and consumers, transforming the current industry into one of commercial scale. The Company is focused on establishing a portfolio of high quality, premium cannabis products that have wide appeal to a growing and varied consumer base. The Company has developed a comprehensive marketing program to create visibility and awareness in the market for its products. AMA markets its products locally, via social media, in-store programs, as well as via targeted marketing campaigns in conjunction with dispensaries and educational programs targeting budtenders and consumers.
The Company has been focused on cultivating craft flowers delivered to customers at competitive prices with an extensive line of news strains, and top-tier ultra-craft line branded as Level X. The Company believes that carrying a consistent base of high- quality strains and cannabis products is essential to its long-term success.
Reporting Requirements
The State of Nevada has selected Franwell Inc.'s METRC solution ("METRC") as the state's track-and-trace system used to track commercial cannabis activity and movement across the distribution chain ("seed-to-sale"). Individual licensees whether directly or through third-party integration systems are required to push data to the state to meet all reporting requirements. For all Nevada licensed facilities, the Company has designated an in-house computerized seed-to-sale software that integrates with METRC via an application programming interface.
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1933 INDUSTRIES INC.
MANAGEMENT DISCUSSION AND ANALYSIS For the years ended July 31, 2024 and 2023 (In Canadian dollars, except where noted)
FISCAL 2024 AND FISCAL 2023 CONSOLIDATED OPERATING FINANCIAL HIGHLIGHTS
- Total revenues were $19,350,916 for 2024 and $16,881,564 for 2023.
- Expenses were $5,196,048 for 2024 compared to $12,705,017 for 2023. The decrease from the prior year was primarily due to goodwill impairment in 2023 and operational efficiencies in 2024.
- Gross profit was $2,941,963 for 2024 and gross loss of $1,366,753 for 2023. The increase in gross profit was primarily due to a more efficient operation, the upgrading of plant equipment and facility improvements, and the fair market valuation of biological assets.
- During the reporting period, the Company recorded a tax recovery of $1.630,000, compared to $515,534 expense in the previous year
- Net loss was $624,085 for 2024 and comprehensive loss was $1,065,679. Net loss was $14,587,304 and comprehensive loss was $13,495,843 in the prior year.
FISCAL 2024 KEY DEVELOPMENTS
On December 29, 2023, the Company announced the renegotiation of its convertible debentures with an original maturity date of December 31, 2023. Of the total principal of $3,114,000, holders of $3,073,000 agreed to be issued replacement debentures and holders of $41,000 of the convertible debentures were repaid in cash during February 2024. The renegotiated debentures accrue interest at 10% per annum, may be converted into units of the Company and mature on December 31, 2025. Each unit is comprised of one common share and one common share purchase warrant entitling the holder to purchase one additional common share at a price of $0.05 for a period of five years from the date of issuance of the new convertible debentures. Interest in arrears resulting from the original debentures remains payable in cash or may be settled through the issuance of units of the Company at $0.05 per unit.
On March 12, 2024, the Company discontinued its Canna Hemp™ CBD consumer packaged goods subsidiary due to uncertainty of the viability of the CBD market going forward. The market demand for hemp-infused CBD products has continued to decrease since the COVID pandemic, primarily due to increased competition, the closure of brick-and-mortar stores, and customers exiting the CBD category. The lack of federal rules on CBD products, and the grey area surrounding the introduction of psychoactive Delta 8 compounds into products under the ambiguity of the Farm Bill continue to erode the traditional CBD market and hinder future growth.
On April 8, 2024, the Company announced that its wholly owned subsidiary, FN Pharmaceuticals, entered into a Membership Interest Purchase Agreement (the "Agreement") to acquire from the Company's then Executive VP and General Counsel, Caleb Zobrist, his nine percent (9%) of the issued and outstanding membership interests of AMA. Upon successful completion of this transaction, FN Pharmaceuticals would own 100% of the membership interest in AMA. Mr. Zobrist's employment agreement ended in accordance with the term specified therein. As at July 31, 2024, the acquisition of the 9% of the issued and outstanding membership interests of AMA has not completed.
Under the terms of the Agreement, the purchase price for the Membership is USD$50,000, payable through the issuance of common shares of 1933 Industries (the "Shares"). The estimated number of Shares to be issued is 3,375,000 and the final number of shares will be determined by the 10-day VWAP price of the Shares prior to the closing date. The Shares will be issued to the seller via the Direct Registration System and will be subject to normal legends required by the US Securities and Exchange Commission and will be subject to four months and one day hold period required by applicable securities laws in Canada but will not be subject to escrow. The closing of this Agreement is conditional upon regulatory approvals, including the approval of the Canadian Securities Exchange, and the Nevada Cannabis Compliance Board, as applicable. There is no guarantee that this transaction will close.
As Mr. Zobrist was a senior officer of the Company until June 5th, 2024, and he is a "related party" to the Company within the meaning of Multilateral Instrument 61-101- Protection of Minority Security Holders in Special Transactions ("MI 61-101"). As such, the transaction constitutes a "related party transaction" within the meaning of MI 61-101.
The Company expects to rely on exemptions from formal valuation and the minority shareholder approval requirements of MI 61-101 found in sections 5.5(a) and 5.7(1)(a) of MI 61-101 as the fair market value of the transaction does not constitute more than the 25% of the Company's market capitalization.
5
1933 INDUSTRIES INC.
MANAGEMENT DISCUSSION AND ANALYSIS For the years ended July 31, 2024 and 2023 (In Canadian dollars, except where noted)
SUMMARY OF QUARTERLY RESULTS
A summary of the Company's result for the eight most recently completed quarters is as follows:
Q4 2024 | Q3 2024 | Q2 2024 | Q1 2024 | |
$ | $ | $ | $ | |
Revenues | 4,225,885 | 4,865,696 | 4,744,948 | 5,514,387 |
Net income (loss) for the period | 421,124 | 82,179 | (732,999) | (394,389) |
Basic / diluted earnings (loss) per share | 0.00 | 0.00 | (0.00) | (0.00) |
Number of weighted average shares | 490,471,657 | 490,471,657 | 469,152,428 | 461,014,610 |
Q4 2023 | Q3 2023 | Q2 2023 | Q1 2023 | |
$ | $ | $ | $ | |
Revenues | 5,609,131 | 4,073,142 | 4,297,375 | 4,964,851 |
Net loss for the period | (9,070,311) | (3,362,402) | (359,191) | (1,166,851) |
Basic / diluted loss per share | (0.02) | (0.01) | (0.00) | (0.00) |
Number of weighted average shares | 460,681,080 | 457,534,847 | 451,045,719 | 451,045,719 |
The Company is expected to remain subject to many of the risks and challenges common to cannabis enterprises, including those related to laws, regulations, licensing, integrating, and retaining qualified employees; making effective use of limited resources; achieving market acceptance of existing and future solutions; competing against companies with greater financial and technical resources; acquiring and retaining customers; and developing new solutions.
The Company's revenues have remained relatively stable over the past four quarters during the year ended July 31, 2024. Cost- savings efforts combined with the Company's upgrades and improvements undertaken to its cultivation facility in Las Vegas are expected to help stabilize operating expenses and improve net loss in future quarters.
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1933 INDUSTRIES INC.
MANAGEMENT DISCUSSION AND ANALYSIS For the years ended July 31, 2024 and 2023 (In Canadian dollars, except where noted)
SUMMARY OF RESULTS
A summary of the Company's results of continuing operations is as follows:
Fiscal 2024 | Fiscal 2023 | |
$ | $ | |
Revenues | 19,350,916 | 16,881,564 |
Gross profit (loss) | 2,941,963 | (1,366,753) |
Expense | 143,475 | - |
Accretion expense | ||
General and administration | 926,842 | 1,754,790 |
Goodwill impairment | - | 4,599,734 |
Gain on extinguishment of convertible debenture | (483,941) | - |
License taxes and insurance | 2,110,638 | 3,558,222 |
Loss (gain) on sale of property and equipment | (6,796) | 27,198 |
Gain on lease extinguishment | - | (9,974) |
Loss on deposit | - | 87,323 |
Management and consulting fees | 513,334 | 628,000 |
Other expenses | 385,280 | 101,634 |
Professional fees | 619,313 | 901,070 |
Share-based compensation | 31,471 | 183,238 |
Wages and benefits | 956,432 | 873,782 |
5,196,048 | 12,705,017 | |
Net loss before income tax expense | (2,254,085) | (14,071,770) |
Current income tax (recovery) expense | 1,630,000 | (515,534) |
Net loss from continuing operations for the year | (624,085) | (14,587,304) |
Net (loss) income from discontinuing operations for the year | (329,619) | 628,549 |
Foreign currency translation adjustment | (111,975) | 462,912 |
Comprehensive loss for the year | (1,065,679) | (13,495,843) |
Fiscal 2024 compared to Fiscal 2023 from continuing operations
The Company generated revenue of $19,350,916 compared to $16,881,564 in the prior year comparable period. The Company generated gross profit of $2,941,963 in the current period compared to gross loss of $1,366,753 in the prior year comparable period as a result of the upgrades and improvements to its cultivation facility completed in Q4 2023 and the running of a more efficient operation and the fair market valuation of biological assets.
Gross margin excluding fair value adjustments, calculated as gross profit excluding fair value adjustments divided by revenue was 14% in Fiscal 2024 and negative margin of 1% in Fiscal 2023, indicating slightly reduced production costs against revenues in the year. Gross margin, calculated as gross profit divided by revenue was 15% in Fiscal 2024 and a negative margin of 8% in Fiscal 2023.
The Company's expenses decreased to $5,196,048 from $12,705,017 in the prior year comparable period.
Overall, the Company has made progress in reducing expenses compared to the prior year comparable period as follows:
- General and administration decreased to $926,842 compared to $1,754,790 in the prior year comparable period resulting from ongoing cost saving efforts.
- Professional fees decreased to $619,313 compared to $901,070 in the prior year comparable period resulting from lower accounting and legal expenses incurred during the current period.
- Management and consulting fees decreased to $513,334 compared to $628,000 in the prior year comparable period.
- Share-basedcompensation decreased to $31,471 compared to $183,238 in the prior year comparable period due to the timing of the vesting of previously issued stock options, partially offset by stock options granted and cancelled in the current period.
7
1933 INDUSTRIES INC.
MANAGEMENT DISCUSSION AND ANALYSIS For the years ended July 31, 2024 and 2023 (In Canadian dollars, except where noted)
The Company's foreign currency translation adjustment results from the consolidation process when translating the results of subsidiaries in the group from their functional currency to the presentation currency of the financial statements. The foreign currency translation adjustment for year ended July 31, 2024 was a loss of $111,975 (2023 - gain of $462,912).
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Liquidity risk is the risk that the Company will encounter difficulties in meeting obligations associated with its financial liabilities and other contractual obligations. The Company's strategy for managing liquidity is based on the Company achieving positive cash flows from operations to internally fund operating and capital requirements.
Factors that may affect the Company's liquidity are continuously monitored. These factors include production levels, operating costs, capital costs, income tax refunds, foreign currency fluctuations, seasonality, market immaturity, and a highly fluid environment related to state and federal law passage and regulations.
In the event that the Company is adversely affected by any of these factors and, as a result, the operating cash flows are not sufficient to meet the Company's working capital requirements, there is no guarantee that the Company would be able to raise additional capital on acceptable terms to fund a potential cash shortfall. Consequently, the Company is subject to liquidity risk. The Company monitors its liquidity primarily by focusing on total liquid assets and working capital. The Company monitors its level of working capital and working capital ratio to assess its ability to enter into strategic opportunities such as equity investments, royalty financing arrangements, and providing start-up working capital to its existing and future business units.
While the Company has historically issued shares as a component of the consideration for acquisitions, there can be no assurance that the Company will be able to continue to finance strategic opportunities via the issuance of shares or debt. Management will continue to monitor and assess its acquisition activities to ensure that operating requirements are met over the next twelve months.
A summary of the Company's liquidity-related information is as follows:
July 31, | July 31, | |
2024 | 2023 | |
$ | $ | |
Cash | 449,184 | 1,092,562 |
Liquid assets (1) | 5,183,376 | 5,515,267 |
Working capital (deficiency) | 561,576 | (4,239,042) |
Quick ratio (2) | 0.96 | 0.52 |
Working capital ratio (3) | 1.10 | 0.60 |
- Liquid assets include cash, receivables and inventory.
- Quick ratio is defined as liquid assets divided by current liabilities.
- Working capital ratio is defined as current assets divided by current liabilities.
Note that current liabilities as at July 31, 2023 contained $4,406,730 pertaining to the convertible debentures that had a maturity extension to December 31, 2025. As at July 31, 2024 the convertible debentures have a balance of $2,869,327 and are classified within non-current liabilities.
8
1933 INDUSTRIES INC.
MANAGEMENT DISCUSSION AND ANALYSIS For the years ended July 31, 2024 and 2023 (In Canadian dollars, except where noted)
Capital Resources
A summary of the Company's capital structure is as follows:
July 31, | July 31, | |
2024 | 2023 | |
$ | $ | |
Shareholders' deficiency | (4,835,472) | (5,263,152) |
Convertible debentures | 2,869,327 | 4,406,730 |
(1,966,145) | (856,422) | |
Less: cash | (449,184) | (1,092,562) |
(2,415,329) | (1,948,984) |
The Company's objective when managing capital is to safeguard the Company's ability to continue as a going concern in order to pursue the development of its business. The Company manages its capital structure and adjusts it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust its capital structure, the Company may issue new equity instruments, new debt, or acquire and/or dispose of assets. The Company's ability to continue as a going concern is uncertain and dependent upon the continued financial support of its shareholders, future profitable operations, the lack of adverse political developments in the United States with respect to cannabis legislation and securing additional financing.
Dividends
No dividends have been declared or paid by the Company in any of the periods presented above. The Company does not anticipate declaring or paying any dividends on its common shares in the foreseeable future.
SOURCES AND USES OF CASH
A summary of the Company's sources and uses of cash during the years ended July 31, 2024 and 2023 is as follows:
Fiscal 2024 | Fiscal 2023 | |
$ | $ | |
Net cash provided by (used in) operating activities | 1,649,809 | (2,025,803) |
Net cash (used in) provided by) investing activities | (890,780) | 1,702,891 |
Net cash used in financing activities | (1,461,254) | (300,938) |
Change in cash from discontinuing operations | 42,682 | 1,162,266 |
Effect of exchange rate changes on cash | 16,165 | 190,872 |
Cash, beginning of year | 1,092,562 | 363,274 |
Cash, end of year | 449,184 | 1,092,562 |
Operating activities
Cash provided by operating activities for the year ended July 31, 2024, was $1,649,809 compared to cash used of $2,025,803, respectively, during the prior year comparable periods. The Company was able to generate cash from operating activities due to closer management of working capital and improved gross profit excluding fair value adjustments.
Investing activities
Cash used in investing activities for the year ended July 31, 2024, was $890,780 compared to cash provided of $1,702,891 in the prior year comparable periods. The investing activities in fiscal 2024 resulted from the purchases of production equipment and leasehold improvements for the Company's production facility in Las Vegas.
Financing activities
Cash used in financing activities for the year ended July 31, 2024 was $1,461,254 compared to $300,938 in the prior year comparable periods. The change in the current year compared to prior year comparable for cash used in financing activities during the current period and prior year comparable period are due to lease modifications in fiscal 2023.
9
1933 INDUSTRIES INC.
MANAGEMENT DISCUSSION AND ANALYSIS For the years ended July 31, 2024 and 2023 (In Canadian dollars, except where noted)
OUTSTANDING SHARE DATA
The authorized capital of the Company consists of an unlimited number of common shares without par value.
A summary of securities outstanding is as follows:
Type of security | July 31, | MD&A Date |
2024 | ||
# | # | |
Common shares | 490,471,657 | 490,471,657 |
Stock options | 22,790,000 | 22,790,000 |
Warrants | 3,700,000 | 3,700,000 |
Convertible debentures - $0.05 conversion | 3,073,000 | 3,073,000 |
A summary of the Company's stock options, warrants, and agent options as at July 31, 2024 is as follows:
Type of | Proceeds if | |||
Expiry date | security | Number Exercise price | exercised | |
# | $ | $ | ||
November 8, 2025 | Stock options | 11,050,000 | 0.10 | 1,105,000 |
August 24, 2027 | Stock options | 10,740,000 | 0.05 | 537,000 |
October 27, 2028 | Stock options | 1,000,000 | 0.05 | 50,000 |
22,790,000 | 0.07 | 1,692,000 | ||
November 9, 2025 | Warrants | 3,700,000 | 0.075 | 277,500 |
3,700,000 | 0.075 | 277,500 | ||
A summary of the Company's stock options, warrants and agent options as at the MD&A date is as follows: | ||||
Type of | Proceeds if | |||
Expiry date | security | Number Exercise price | exercised | |
# | $ | $ | ||
November 8, 2025 | Stock options | 11,050,000 | 0.10 | 1,105,000 |
August 24, 2027 | Stock options | 10,740,000 | 0.05 | 537,000 |
October 27, 2028 | Stock options | 1,000,000 | 0.05 | 50,000 |
22,790,000 | 0.07 | 1,692,000 | ||
November 9, 2025 | Warrants | 3,700,000 | 0.075 | 277,500 |
3,700,000 | 0.075 | 277,500 |
OFF-BALANCE SHEET ARRANGEMENTS
The Company has not entered into any material off-balance sheet arrangements such as guarantee contracts, contingent interests in assets transferred to unconsolidated entities, derivative financial obligations, or arrangements with respect to any obligations under a variable interest equity arrangement.
The Company has no off-balance sheet arrangements as of the date of this MD&A.
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