World High Life PLC - Annual Financial Report
RNS Number : 7263H
World High Life PLC
07 December 2020
 

 

7 December 2020

 

World High Life PLC / Market: AQSE

 

 

WORLD HIGH LIFE PLC

("World High Life" or the "Company")

Audited Results for the year ended 30 June 2020

 

World High Life PLC, the AQSE listed investment company with a focus on developing business opportunities in the regulated cannabis industry in Europe, is pleased to announce its audited annual results for the year ended 30 June 2020.

 

The Directors of World High Life are also pleased to provide an update on progress and the focus of the Company advancing into 2021.

 

Acting Chairman's Statement

 

The Directors of World High Life are pleased to provide an update on progress, recognising that in challenging global business environments the Company, along with its wholly owned subsidiary, Love Hemp Limited ("Love Hemp"), has achieved significant milestones, which include:

 

·      Successful listing of shares in North America on the US OTC Market

·      Increased manufacturing infrastructure of LH Botanicals, Love Hemp's wholesale, bulk and white label business

·      Appointment of Scientific Advisors

·      Launch of new ecommerce site for Love Hemp's global online retailer, CBDOILs UK at www.cbdoilsuk.com

·      ISO 9001:2015 certification achieved by Love Hemp

·      Commencement of construction on Love Hemp's 13,500 sq ft new facility

·      Launch of new consumer brand, Buzz Leaf CBD, for 21-34 demographic

·      Achieved significant sales growth online during the COVID 19 pandemic, with month over month gains including a 57% increase in sales in July 2020, compared to June 2020, building off growth in May 2020 where online sales were 107% higher than in January 2020

 

Love Hemp Acquisition and Progress

The Love Hemp team have taken significant steps to increase market share in the UK and Europe, deploying capital and expertise to achieve multiple milestones, including:

·      Advancing the official launch of LH Botanicals - Love Hemp's all-around CBD specialist, CBD supplier and white label producer

·      Signed 3-time UFC World Champion, Georges St-Pierre as Love Hemp and World High Life Brand Ambassador - delivering a vast promotional platform with a globally recognized sport and health personality

·      Completing an extensive, consumer packaged goods (CPG) informed branding strategy with one of Europe's top CPG agencies, aimed at renewing the Love Hemp brand for global expansion

 

Love Hemp will be entirely focused on continued growth in the UK and Europe, increasing production capacity and growing its LH Botanicals business line as its new facility becomes operational, which will provide additional capacity to expand to global markets. The Directors believe that Love Hemp's CBD, Health and Wellness positioning is strengthening as global demand for products representing the associated lifestyles continue to open significant opportunities for growth. Overall, the Directors believe that Love Hemp is exceptionally well positioned with its expertise, brand and team to be a global leader in the CBD Health and Wellness space.

New Investment Opportunities

World High Life is actively seeking new investment opportunities in alignment with its objectives in the CBD Health and Wellness space. The World High Life team has extensive knowledge in the CBD Health and Wellness, and the medicinal cannabis industries, along with an extensive global network. Those strengths are being put to use in identifying and assessing potential investments that the Directors believe can add significant shareholder value.

Financials

 

From the date of the close of the acquisition of Love Hemp on 18 October 2019 to 30 June 2020, the combined operation has recognized £1,690,447 in revenues and achieved overall gross margins of 57%. The Company recorded an adjusted EBITDA loss of £3,327,971 (earnings before interest, tax, depreciation, share-based payments, and transactions costs, impairment of intangible assets, and derivative fair value adjustments) for the year ended 30 June 2020. Net loss per IFRS was £12,671,931 for the year or £0.10 per ordinary share. The Company incurred above average professional fees in relation to admission to the AQSE Growth Market which occurred on 12 September 2019.  Additionally, the Company incurred £201,407 in transaction costs in relation to the close of the acquisition of Love Hemp which represent one-time costs. The Company deemed it prudent to recognise an impairment charge to goodwill and intangible assets of £7,434,666 in relation to the Love Hemp acquisition given the current economic uncertainty in relation to COVID-19.

As at 30 June 2020, the Company's consolidated working capital deficiency was £1,982,311 excluding lease liabilities recorded under IFRS of £180,918, derivative fair value adjustment of £383,139 and deferred consideration of £2,000,000 which was settled in ordinary shares subsequent to the year end. Excluding the remaining deferred consideration of £2,000,000 from the above the Company had available working capital of £17,689.

Subsequent to 30 June 2020, the Company received short term loans of £179,000. Additionally, the Company issued 38,114,285 Ordinary Shares of £0.01 through a private subscription raising gross proceeds of £381,143. The Company aims to curtail discretionary spending as necessary to ensure its financial obligations are met on a timely basis.

The Company is in the process of evaluating additional sources of capital including both equity and debt arrangements.

Outlook

 

World High Life welcomed the Financial Conduct Authority announcement of 17 September 2020 regarding their update and clarification on the listings of cannabis-related businesses, which is aligned with the Company's  position and the basis on which the AQSE Growth Market has always operated, as well as the legal basis on which World High Life originally listed and made its first investment.

Responsibility Statement

 

We confirm that to the best of our knowledge: 

 

·      the consolidated financial statements have been prepared in accordance with International Accounting Standards as adopted by the EU;

·      the consolidated financial statements give a true and fair view of the assets, liabilities, financial position and loss of the Company;

·      the report includes a fair review of the information required by DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the financial year and their impact on the set of financial statements; and a description of the principal risks and uncertainties; and

·      The report includes a fair review of the information required by DTR 4.2.8R of the Disclosure and Transparency Rules, being the information required on related party transactions.

 

This results report was approved by the Board of Directors and the above responsibility statement was signed on its behalf by:

 

 

Robert Payment

Acting Chairman

7 December 2020

 

For further information please contact:

Robert Payment

Acting Chairman

World High Life PLC

+44 (0) 7926 397 675

info@worldhighlife.uk

 

 

 

AQSE Corporate Adviser

Mark Anwyl/Allie Feuerlein

Peterhouse Capital Limited

+44 (0) 20 7469 0930

ma@peterhousecap.com

af@peterhousecap.com

 

 

For more information on World High Life please visit:                https://www.worldhighlife.uk/

 

 

 

 

INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF WORLD HIGH LIFE PLC

Opinion

We have audited the financial statements of World High Life Plc (the 'group') for the year ended 30 June 2020 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Equity,  the Consolidated Statement of Cash Flows and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

In our opinion, the financial statements:

·     give a true and fair view of the state of the group's affairs as at 30 June 2020 and of its loss for the year then ended;

·     have been properly prepared in accordance with IFRSs as adopted by the European Union; and

·     have been prepared in accordance with the requirements of the Companies Act 2006.

 

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard as applied to listed entities, 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 2 in the financial statements, which indicates that the group incurred a net loss of £12,671,931 during the year ended 30 June 2020, that as of that date, the group's current liabilities exceeded its total assets by £4,614,416 and that the group will be required to obtain further financing in order to meet its working capital requirements for the period of 12 months from the date of approval of the financial statement. As stated in note 2, these events or conditions, along with the other matters as set forth in note2, indicate that a material uncertainty exists that may cast significant doubt on the group's ability to continue as a going concern.

 

Our opinion is not modified in respect of this matter.

 

Our application of materiality

We consider the loss before tax to be the most significant determinant of the group's performance used by shareholders, with the key financial statement items being revenue, cost of sales, operating expenses, share based payment expenses and impairment charges.

Whilst materiality for the group financial statements as a whole was set at £276,000, the materiality for the parent company was set at £230,000, with performance materiality set at 70%. The component materiality for Love Hemp Limited was £50,000, with performance materiality set at 70%.

We agreed with the audit committee that we would report to the committee all audit differences identified during the course of our audit in excess of £13,800. There were certain misstatements identified during the course of our audit that were individually considered to be material and adjusted for by management.

 

 

An overview of the scope of our audit

In designing our audit, we determined materiality and assessed the risk of material misstatement in the financial statements. In particular, we looked at areas requiring the directors to make subjective judgements, for example in respect of significant accounting estimates including the valuation of share-based payments and the consideration of future events that are inherently uncertain. We also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by the directors that represented a risk of material misstatement due to fraud.

 

An audit was performed on the financial information of the group's significant operating components which, for the year ended 30 June 2020, were located in the United Kingdom, with the group's accounting functions being based in the UK and Canada.

 

All components were audited by PKF Littlejohn. The audits of all components were performed solely for consolidation purposes. 

 

The going concern status of the group was reviewed through discussing post year-end performance and funding plans with the Directors, obtaining and critically assessing cashflow forecasts for the 12-month period from the date of approval of the financial statements and ascertaining the Group's current financial position. See the 'material uncertainty related to going concern' section above for our conclusions drawn from the performing of the aforementioned procedures.

 

The approach detailed above gave us sufficient appropriate evidence for our opinion on the group financial statements.

 

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the 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.

Key Audit Matter

How the scope of our audit responded to the key audit matter

Carrying value of goodwill, investments and intragroup balances

 

Investments in subsidiaries and intra group loans are significant assets in the Parent Company's financial statements. Their recoverability is directly linked to the recoverability of intangible assets in those entities, and given that Love Hemp Ltd are currently loss making, there is a risk that they may not be fully recoverable.

Goodwill is required to be reviewed for impairment at least annually. The methodology requires a calculation of the value in use of the cash generating unit attached to the goodwill.

The value in use calculation requires estimation of future cash flows from the cash generating unit, as well as growth factors and discount rates to apply to the cash flows.

There was a risk that the goodwill arising on acquisition of the subsidiary, the investment in the subsidiary and the balance due from the subsidiary was impaired.

Our work in this area included:

·     Confirmation of ownership of investments;

·     Considerations of recoverability of investments and intra company loans by reference to underlying net asset values and exploration projects.

·     Obtaining and challenging management's valuation of goodwill recognised at year end.

·     Challenging the assumptions for any potential impairment indicators and estimations within management's assessment; and

·     Ensuring that the goodwill recognised is in terms of IFRS

Having reviewed management's discounted cash flow workings to support their estimate of the recoverable value of Love Hemp Limited, challenging the key assumptions made and inputs into the calculations in the process, assurance was gained that the carrying value of goodwill in the consolidated statement of financial position and investments and intragroup debtors in the statement of financial position are not materially impaired.

 

Furthermore, from reviewing the share purchase agreement and the goodwill calculations in respect of the acquisition of Love Hemp Limited as well as gaining assurance over the accuracy of the acquisition trial balance, we were able to gain assurance over the valuation of the investment and goodwill balances prior to the impairment charges recognised in the year.

The accounting for the acquisition of Love Hemp Limited

 

During the year, the Company gained control of Love Hemp through acquisition of shareholding.

There was the risk that the acquisition has not been accounted for correctly and the required disclosures have not been made.

Our work in this area included the following:

·     A review of the business combination workings including testing the accuracy of the Love Hemp Ltd trial balance as at acquisition;

·     Recalculation of goodwill arising from the acquisition;

·     Obtaining support for ownership documents; 

·     A review the consolidation workings; and

·     Consideration regarding the appropriateness of the disclosures made.

 

From conducting the aforementioned procedures, assurance was gained over the accuracy of the subsidiary's trial balance as at acquisition.

 

From reviewing Management's goodwill calculation and their accounting for the deferred consideration, assurance was gained that the cost of the investment and the initial goodwill were correctly treated. We were also able to gain assurance that the deferred consideration was recognised at the correctly fair value and was held within current liabilities as at 30 June 2020 correctly.

 

 

 

Other information

The other information comprises the information included in the annual report, other than the financial statements and our auditor's report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, 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.

Opinions on other matters prescribed by the Companies Act 2006

In our opinion, based on the work undertaken in the course of the audit:

·     the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and

·     the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.

 

Matters on which we are required to report by exception

In the light of the knowledge and understanding of the group and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report.

We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:

·     adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or

·     the financial statements are not in agreement with the accounting records and returns; or

·     certain disclosures of directors' remuneration specified by law are not made; or

·     we have not received all the information and explanations we require for our audit.

 

Responsibilities of directors

As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the group'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 the directors either intend to liquidate the group or to cease operations, or have no realistic alternative but to do so.

Auditor's responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the 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 ISAs (UK) 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 financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.

Use of our report

This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.  Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose.  To the fullest extent permitted by law, we do not accept or assume responsibility to anyone, other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.

 

 

Alistair Roberts (Senior Statutory Auditor)                                                            15 Westferry Circus

For and on behalf of PKF Littlejohn LLP                                                                         Canary Wharf

Statutory Auditor                                                                                                           London E14 4HD

 

                                                 7 December 2020

 

 

 

WORLD HIGH LIFE PLC

 

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

EXPRESSED IN POUNDS STERLING

 

 

 

 

 

 

AS AT

 

30 June

30 June

 

 

2020

2019

 

Note

£

£

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Current

 

 

 

   Cash

 

200,546

1,307,456

   Trade receivables and other

6

282,295

286

   Inventory

7

281,351

-

 

 

764,192

1,307,742

Non-current

 

 

 

   Property and equipment

8

224,707

-

   Right of use assets

8

1,246,419

 

   Goodwill

9

2,700,000

-

Total assets

 

4,935,318

1,307,742

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

Current

 

 

 

   Accounts payable and accrued liabilities

10

573,660

33,731

   Lease liability - current

8

180,918

-

9

4,000,000

-

   Loans payable - current

11

172,843

-

   Derivative liability

12

451,187

-

 

 

5,378,608

33,731

Non-current

 

 

 

   Lease liability

8

962,807

-

   Loans payable

11

272,662

-

   Convertible debentures

12

1,734,304

-

Total liabilities

 

8,348,381

33,731

 

 

 

 

Equity

 

 

 

   Share capital

13

1,456,007

886,413

   Share premium

13

4,661,576

291,233

   Shares to be issued

13

2,251,845

175,493

   Reserves

13

968,568

-

   Deficit

 

(12,751,059)

(79,128)

Total equity

 

(3,413,063)

1,274,011

Total liabilities and equity

 

4,935,318

1,307,742

 

 

 

 

Nature and continuance of operations (Note 1,2)

Subsequent events (Note 17)

The accompanying notes are an integral part of these consolidated financial statements

 

WORLD HIGH LIFE PLC

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

YEAR ENDED

EXPRESSED IN POUNDS STERLING

 

 

 

 

 

 

 

 

 

30 June

30 June

 

 

           2020

           2019

 

Note

£

£

 

 

 

 

Revenue

 

1,690,447

-  

Cost of goods sold

 

734,267

-  

Gross profit

 

956,180

-  

 

 

 

 

Expenses

 

 

 

   Selling, general, and administrative

5, 14

2,003,040

53,233

   Salaries and wages

14

415,701

-

   Consulting

 

1,173,965

-

   Professional fees

 

669,177

91,834

   Transaction costs

 

201,407

-

   Depreciation

8

30,982

-

   Share-based compensation

13

968,568

-

   Interest and accretion

8,12

325,198

-

   Foreign exchange

 

-

(65,939)

Total expenses

 

5,788,038

79,128

Loss before other items

 

(4,831,858)

(79,128)

  Impairment - goodwill

9

(7,434,666)

-

  Loss on debt settlement

 

(22,268)

-

  Derivative fair value adjustment

 

(383,139)

-

Net and comprehensive loss for the year

 

(12,671,931)

(79,128)

 

 

 

 

Loss per share

 

 

 

    Basic and diluted - £

 

(0.10)

(0.01)

 

 

 

 

Weighted average number of ordinary shares

 

 

 

    Basic and diluted

 

130,038,096

14,154,687

 

 

 

 

 

 

 The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

WORLD HIGH LIFE PLC

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

YEAR ENDED 30 JUNE 2020

EXPRESSED IN POUNDS STERLING

 

 

 

 

 

 

 

 

 

Number of ordinary shares

Share Capital

Share Premium

Share subscriptions received

Reserves

Deficit

Total equity

 

 

£

£

£

£

£

£

At incorporation

1,000

10

-  

-  

-  

-  

10

Ordinary shares issued at £0.01 each

82,815,712

828,157

-  

-  

-  

-  

828,157

Ordinary shares issued at £0.06 each

5,824,642

58,246

291,233

-  

-  

-  

349,479

Subscriptions received in advance

-  

-  

-  

175,493

-  

-  

175,493

Net loss for the year

-  

-  

-  

-  

-  

(79,128)

(79,128)

Balance, 30 June 2019

88,641,354

886,413

291,233

175,493

-  

(79,128)

1,274,011

Ordinary shares issued at £0.01 each

8,100,000

81,000

-  

-  

-  

-  

81,000

Ordinary shares issued at £0.06 each

675,000

6,750

33,750

-  

-  

-  

40,500

Ordinary shares issued at £0.10 each

10,991,737

109,917

989,257

(175,493)

-  

-  

923,681

Ordinary shares issued for services

4,960,980

49,610

446,488

-  

-  

-  

496,098

Ordinary shares issued to acquire Love Hemp Ltd.

30,000,000

300,000

2,700,000

-  

-  

-  

3,000,000

Ordinary shares to be issued - debt settlements

2,231,650

22,317

200,848

-  

-  

-  

223,165

Ordinary shares to be issued - conversion of debenture

-  

-  

-  

2,251,845

-  

-  

2,251,845

Share-based compensation

-  

-  

-  

-  

968,568

-  

968,568

Net loss for the year

-  

-  

-  

-  

-  

(12,671,931)

(12,671,931)

Balance, 30 June 2020

145,600,721

1,456,007

4,661,576

2,251,845

968,568

(12,751,059)

(3,413,063)

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

WORLD HIGH LIFE PLC

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEAR ENDED

EXPRESSED IN POUNDS STERLING

 

 

 

 

30 June

30 June

 

2020

2019

 

£

£

Operating activities

 

 

Net loss for the year

(12,671,931)

(79,128)

Adjusted for:

 

 

   Depreciation

30,982

-

   Share based payments

968,568

-

   Accretion and interest

292,194

-

   Shares issued for services

496,098

-

   Accrued interest

29,885

-

   Impairment - goodwill

7,434,666

-

   Derivative fair value adjustment

383,139

-

 

 

 

Changes in non-cash working capital:

 

 

   Trade receivables and other

162,743

(286)

   Inventory

263,555

-

   Accounts payable and accrued liabilities

877,442

33,731

Cash flows from operating activities

(1,732,659)

(45,683)

 

 

 

Investing activities

 

 

   Acquisition of Love Hemp Limited, net of cash acquired

(2,915,651)

-

   Property and equipment

(69,204)

-

Cash flows from investing activities

(2,984,855)

-

 

 

 

Financing activities

 

 

   Ordinary shares issued for cash

1,045,181

1,177,646

   Share subscriptions received in advance

-

175,493

   Convertible debentures issued for cash

2,355,782

-

   Convertible debentures - transaction costs

(48,459)

-

   Loans received

659,415

-

   Lease payments

(102,694)

-

   Loan repayments

(298,621)

-

Cash flows from financing activities

3,610,604

1,353,139

 

 

 

(Decrease)/increase in cash

(1,106,910)

1,307,456

Cash, beginning of year

1,307,456

-

Cash, end of year

200,546

1,307,456

 

 

 

Non-cash transactions:

 

 

Convertible debenture conversion feature

252,618

-

Reallocated to equity upon conversion of convertible debenture

184,288

-

Shares to be issued to settle debt

1,454,680

-

Shares issued to settle debt

223,165

-

The accompanying notes are an integral part of these consolidated financial statements.

 

1.            NATURE AND CONTINUANCE OF OPERATIONS

 

World High Life Limited was incorporated in England and Wales on 30 January 2019 with registration number 11797850 under the Companies Act 2006. The limited company reregistered as a public company on 6 August 2019, and thus became World High Life Plc (the "Company") on the same date.  The Company's head office and registered office address is 7-9 Swallow Street, 2nd Floor, London, United Kingdom, W1B 4DE. There is no ultimate controlling party.

 

The Company is focused on developing business opportunities in the CBD Health and Wellness market, as well as the Regulated Medicinal Cannabis market in the UK and Europe. The Company's wholly owned subsidiary Love Hemp Ltd is a leading CBD products company based in the UK. This financial information was authorised for issuance by the Board of Directors on 7 December 2020.

 

2.            BASIS OF PRESENTATION

 

The Company acquired the entire share capital of Love Hemp Ltd on 18 October 2019 which the Directors have treated as a business combination as explained in Note 9 to the financial statements for the year ended 30 June 2020. The Directors are required to and have prepared consolidated financial statements which include the results of the acquired subsidiary from the date that the acquisition took place.

 

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and interpretations of the IFRS Interpretations Committee ("IFRIC") as adopted by the European Union.

 

The consolidated financial statements have been prepared under the historical cost convention except for certain financial assets and liabilities (including derivative instruments) measure at fair value.

 

Going concern

 

The consolidated financial statements have been prepared on a going concern basis. The Company's assets are generating revenues and based on the Board's budgets, cash flow forecasts, and considered ability to raise further finance, the Directors are of the view that the Company has sufficient funds to undertake its operating activities for at least the next 12 months from the date these financial statements are approved.

 

After making enquiries, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. The Company therefore continues to adopt the going concern basis in preparing its financial statements. There is no certainty whether the Company will generate significant revenues or attain profitable operations in the near future and there can be no assurance that it will achieve profitability in the future. The Company incurred a loss of £12,671,931 for the year ended 30 June 2020, and has an accumulated deficit £12,751,059. Additionally, the Company also had a working capital deficiency of £4,163,229 as at 30 June 2020.

 

 

 

 

2.            BASIS OF PRESENTATION (Continued)

 

Going concern (Continued)

 

The Company has a need for financing working capital, product development, marketing and sales. Because of continuing operating losses, the Company's continuance as a going concern is dependent upon its ability to obtain adequate financing and to reach profitable levels of operations. It is not possible to accurately predict whether present financing efforts will be successful or if the Company will attain profitable levels of operations. The Company will periodically have to raise funds to continue operations and, although it has been successful in doing so in the past, there is no assurance it will be able to do so in the future. These conditions raise significant doubt as to the Company's ability to continue as a going concern.

 

On March 11, 2020, the World Health Organization categorized COVID-19 as a pandemic. The potential economic effects within the Company's environment and in the global markets, possible disruption in supply chains, and measures being introduced at various levels of government to curtail the spread of the virus (such as travel restrictions, closures of non-essential municipal and private operations, imposition of quarantines and social distancing) could have a material impact on the Company's operations. As of the date of the audit report the extent of the impact of this outbreak and related containment measures on the Company's operations cannot be reliably estimated. The directors have taken proactive steps to manage costs during this time and expect to be in a position to meet all short-term obligations from cash flow generated from operations.

 

Risks and uncertainties

 

 The Board continuously assesses and monitors the key risks of the business. The key risks that could affect the Company's medium-term performance are liquidity risk, credit risk, interest rate risk and fair value estimation (Note 15)

 

Critical accounting judgements and estimate uncertainty

 

The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the end of the reporting period. Significant items subject to such judgement and estimates are set out in Note 3.

 

New and amended standards mandatory for the first time for the financial year beginning 1 July 2019

The following new IFRS standards and/or amendments to IFRS standards are mandatory for the first time for the Company: 

Standard

 

Effective date

 

 

 

IFRS 16

IAS 28 (Amendments)

Leases

Long term interests in associates and joint ventures

1 January 2019

1 January 2019

IFRS 9 (Amendments)

Prepayment Features with Negative Compensation

1 January 2019

Annual Improvements

2015 - 2017 Cycle

1 January 2019

IAS 19 (Amendments)

Employee Benefits

1 January 2019

IFRIC 23

Uncertainty over income tax treatments

1 January 2019

 

The adoption of these standards has not had a material impact on the financial statements other than changes to disclosures.

 

 

2.            BASIS OF PRESENTATION (Continued)

 

New standards, amendments and Interpretations in issue but not yet effective or not yet endorsed and not early adopted

The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the consolidated financial statements are listed below. The Company intends to adopt these standards, if applicable when they become effective.

Standard

 

Effective date

 

 

 

IFRS 3 (Amendments)

Business Combinations

1 January 2020

IAS 1 (Amendments)

Presentation of Financial Statements

1 January 2020

IAS 8 (Amendments)

Definition of Material

1 January 2020

IFRS 7 and 9 (Amendments)

Interest Rate Benchmark Reform

1 January 2020

 

The Company is evaluating the impact of the new and amended standards above. The Directors believe that these new and amended standards are not expected to have a material impact on the Company's results or shareholders' funds.

 

3.            USE OF ESTIMATES, ASSUMPTIONS, AND JUDGEMENTS

 

The preparation of financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at the date of the financial statements, and the reported amounts of expenses during the reporting period. Estimates and assumptions are continuously evaluated and are based on management's experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Uncertainty about these judgments, estimates and assumptions could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in future periods.

 

Impairment of non-current assets

 

Non-current assets, including property and equipment, and intangible assets, are reviewed for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of an asset exceeds its recoverable amount. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or group of assets (CGU). The recoverable amount of an asset or a CGU is the higher of its fair value less costs to sell, and its value in use. If the carrying amount of an asset exceeds its recoverable amount, an impairment charge is recognised immediately in profit or loss by the amount by which the carrying amount of the asset exceeds the recoverable amount. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the lesser of the revised estimate of recoverable amount, and the carrying amount that would have been recorded had no impairment loss been recognised previously. The evaluation of asset carrying values includes consideration discount rates, probability of business outcomes, and anticipated growth rates.

 

The estimates and assumptions used are subject to uncertainty; hence, there is the possibility that changes in circumstances will alter these projections, which may impact the recoverable amount of the assets. In such circumstances some or all of the carrying value of the assets may be further impaired or the impairment charge reduced with the impact recorded in profit and loss.

 

 

 

3.            USE OF ESTIMATES, ASSUMPTIONS, AND JUDGEMENTS (Continued)

 

Business combinations

 

The consolidated financial statements comprise the financial statements of World High Life Plc and its subsidiaries as at 30 June2020. Subsidiaries are entities controlled by the Group. Control exists when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has all of the following:

 

·      Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee)

·      Exposure, or rights, to variable returns from its involvement with the investee

·      The ability to use its power over the investee to affect its returns

 

Judgement is used in determining whether an acquisition is a business combination or an asset acquisition. Management determines whether assets acquired and liabilities assumed constitute a business.  A business consists of inputs and processes applied to those inputs that have the ability to create outputs. Management determines whether assets acquired and liabilities assumed constitute a business. In examining processes and potential outputs, management considers the ability of the acquired and existing processes to adequately be capable of producing the potential outputs; where the processes are insufficient and/or incomplete to produce potential outputs, the company considers the acquisition to be an asset acquisition.

 

The Company measures all the assets acquired and liabilities assumed at their acquisition-date fair values. Non-controlling interests in the acquiree are measured on the basis of the non-controlling interests' proportionate share of the equity in the acquiree's identifiable net assets. Acquisition-related costs are recognized as expenses in the periods in which the costs are incurred and the services are received (except for the costs to issue debt or equity securities which are recognized according to specific requirements). The excess of the aggregate of (a) the consideration transferred to obtain control, the amount of any non-controlling interest in the acquiree over (b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed, is recognised as goodwill as of the acquisition date.

 

Determination of asset fair values and allocation of purchase consideration

 

Significant asset acquisitions and business combinations require judgements and estimates to be made at the date of acquisition in relation to determining the relative fair value of property and equipment, as well as the allocation of the purchase consideration over the fair value of the assets. The information necessary to measure the fair values as at the acquisition date of assets acquired requires management to make certain judgements and estimates about future events, including but not limited to future production potential, and future market prices of products, and the ability to effectively distribute products. In certain circumstances, such as the valuation of property and equipment, intangible assets and goodwill acquired, the Company may rely on independent third-party valuators. Provisional purchase price allocations are subject to review by management upon integration of the acquired businesses and will be adjusted as necessary were circumstances indicate it is appropriate to do so.

 

 

3.            USE OF ESTIMATES, ASSUMPTIONS, AND JUDGEMENTS (Continued)

 

Share-based payments

 

The Company utilizes the Black-Scholes Option Pricing Model ("Black-Scholes") to estimate the fair value of warrants and stock options granted to Directors, Officers, employees, and consultants. The use of Black-Scholes requires management to make various estimates and assumptions that impact the value assigned to the stock options including the forecast future volatility of the stock price, the risk-free interest rate, dividend yield and the expected life of the stock options. Any changes in these assumptions could have a material impact on the Share-based compensation calculation value, however the most significant estimate is the volatility. The Company estimated volatility based on historic share prices of companies operating in the regulated cannabis industry. Historical volatility is not necessarily indicative of future volatility.  The expected life of stock options or warrants is determined based on the estimate that they would be exercised evenly over their term. There was no recent history of stock option exercises available to consider in the estimate of expected life at the time of grant.

 

Convertible instruments

 

Convertible instruments are compound financial instruments which are accounted for separately by their components: a financial liability and an equity instrument. The financial liability, which represents the obligation to pay coupon interest on the convertible notes in the future, is initially measured at its fair value and subsequently measured at amortised cost. The residual amount is accounted for as an equity instrument at issuance. The identification of convertible note components is based on interpretations of the substance of the contractual arrangement and therefore requires judgement from management. The separation of the components affects the initial recognition of the convertible debenture at issuance and the subsequent recognition of interest on the liability component. The determination of the fair value of the liability is also based on a number of assumptions, including contractual future cash flows, discount rates and the presence of any derivative financial instruments.

 

4.            SIGNIFICANT ACCOUNTING POLICIES

 

Foreign currencies

 

Functional and presentation currency

 

The functional currency is the currency of the primary economic environment in which the entity operates. The functional currency of the Company and its subsidiaries was determined by conducting an analysis of the consideration factors identified in IAS 21, "The Effects of Changes in Foreign Exchange Rates" ("IAS 21"). The functional currency of the Company is Pounds Sterling which is also the presentation currency of the group.

 

Translation of foreign transactions and balances into the functional currency

 

Foreign currency transactions are translated into the functional currency of the Company at rates of exchange prevailing on the dates of the transactions. At each reporting date, all monetary assets and liabilities that are denominated in foreign currencies are translated to the functional currency of the Company at the rates prevailing at the date of the statement of financial position. Foreign exchange gains and losses resulting from the settlement of such transactions are recognised in profit or loss. Non-monetary items that are measured at historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transaction

 

Cash

 

In the Statement of Cash Flows, cash is comprised of cash at bank and in hand and demand deposits with banks and other financial institutions, that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.

 

 

4.            SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Loss per share

 

The Company presents basic loss per share for its ordinary shares, calculated by dividing the loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted loss per share does not adjust the loss attributable to ordinary shareholders or the weighted average number of ordinary shares outstanding when the effect is anti-dilutive.

 

Financial instruments

 

Financial assets

On initial recognition, financial assets are recognised at fair value and are subsequently classified and measured at: (i) amortised cost; (ii) fair value through other comprehensive income ("FVOCI"); or (iii) fair value through profit or loss ("FVTPL").  The classification of financial assets is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics.  A financial asset is measured at fair value net of transaction costs that are directly attributable to its acquisition except for financial assets at FVTPL where transaction costs are expensed.  All financial assets not classified and measured at amortised cost or FVOCI, are measured at FVTPL.  On initial recognition of an equity instrument that is not held for trading, the Company may irrevocably elect to present subsequent changes in the investment's fair value in other comprehensive income.

 

For a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give rise to cash flows that are 'solely payments of principal and interest (SPPI)' on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level. Financial assets with cash flows that are not SPPI are classified and measured at fair value through profit or loss, irrespective of the business modelThe classification determines the method by which the financial assets are carried on the statement of financial position subsequent to inception and how changes in value are recorded. 

 

Impairment

An 'expected credit loss' impairment model applies which requires a loss allowance to be recognised based on expected credit losses.  The estimated present value of future cash flows associated with the asset is determined and an impairment loss is recognised for the difference between this amount and the carrying amount as follows: the carrying amount of the asset is reduced to estimated present value of the future cash flows associated with the asset, discounted at the financial asset's original effective interest rate, either directly or through the use of an allowance account and the resulting loss is recognised in profit or loss for the period.

In a subsequent period, if the amount of the impairment loss related to financial assets measured at amortised cost decreases, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

Financial liabilities

Financial liabilities are designated as either: (i) FVTPL; or (ii) other financial liabilities.  All financial liabilities are classified and subsequently measured at amortised cost except for financial liabilities at FVTPL.  The classification determines the method by which the financial liabilities are carried on the statement of financial position subsequent to inception and how changes in value are recorded.  Accounts payable and accrued liabilities is classified as other financial liabilities and carried on the statement of financial position at amortised cost.

 

 

4.            SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Impairment of financial assets

 

Financial assets are assessed for indicators of impairment at the end of each reporting period. Financial assets are impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial assets, the estimated future cash flows of the investments have been impacted.

For all financial assets objective evidence of impairment could include:

 

-         significant financial difficulty of the issuer or counterparty; or

-         default or delinquency in interest or principal payments; or

-         it becoming probable that the borrower will enter bankruptcy or financial re-organisation.

 

For certain categories of financial assets, such as receivables, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis. The carrying amount of financial assets is reduced by the impairment loss directly for all financial assets with the exception of receivables, where the carrying amount is reduced through the use of an allowance account. When a receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss.

 

Taxation

 

Income tax on the profit or loss for the periods presented comprises current and deferred tax. Income tax is recognised in profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax expense is the expected tax payable on the taxable income for the

year, using tax rates enacted or substantively enacted at period end, adjusted for amendments to tax payable with regards to previous years.

 

Deferred tax is recorded by providing for temporary differences, between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: goodwill not deductible for tax purposes; the initial recognition of assets or liabilities which affect neither accounting nor taxable loss as well as differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the statement of financial position date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised.

 

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.

 

Impairment of non-financial assets

 

Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment.  Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.  An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount.  The recoverable amount is the higher of an asset's fair value less costs to sell and value in use.  For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).  Non-financial assets that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.

 

 

4.            SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Equity

 

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and other equity instruments are recognised as a deduction from equity. Ordinary shares issued for consideration other than cash, are valued based on their market value at the date the shares are issued.

 

The Company has adopted a residual value method with respect to the measurement of warrants attached to private placement units. The residual value method first allocates value to the more easily measurable component based on fair value and then the residual value, if any, to the less easily measurable component.  The Company considers the fair value of ordinary shares issued in the private placements to be the more easily measurable component and the ordinary shares are valued at their fair value, as determined by the closing market price on the announcement date.  The balance, if any, is allocated to the attached warrants.  Any fair value attributed to the warrants is recorded as reserves.

 

The Company's Ordinary shares have a nominal (par) value of £0.01. All amount for shares over the nominal value are recorded to share premium.

 

Inventory

 

Inventories of finished goods and packing materials are valued initially at cost and subsequently at the lower of cost and net realisable value. Inventory consists of infused products, raw materials, accessories, and product packaging. Net realizable value is determined as the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Cost is determined using the weighted average cost basis. Products for resale and supplies and consumables are valued at the lower of cost and net realizable value. The Company reviews inventory for obsolete and slow-moving goods and any such inventory is written-down to net realisable value.

 

Property and equipment

 

Property and equipment are stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated using the following methods and rates:

 

 

 

 

Category

Method

 

Rate

Leasehold improvements

Declining balance

20%

Production equipment

Declining balance

15%

Office equipment

Declining balance

15%

 

 

 

 

An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected from its use. Any gain or loss arising from derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying value of the asset) is included in the profit or loss in the period the asset is derecognized. The assets' residual values, useful lives and methods of depreciation are reviewed at each reporting date, and adjusted prospectively, if appropriate.

 

 

4.            SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Leases

 

To identify a lease, the Company (1) considers whether an explicit or implicit asset is specified in the contract and (2) determines whether the Company obtains substantially all the economic benefits from the use of the underlying asset by assessing numerous factors, including but not limited to substitution rights and the right to determine how and for what purpose the asset is used.

 

When assessing the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option or to not exercise a termination option. This judgment is based on factors such as contract rates compared to market rates, economic reasons, significance of leasehold improvements, termination and relocation costs, installation of specialized assets, residual value guarantees, and any sublease term.

 

The Company has elected not to recognize right-of-use assets and lease liabilities for low-value assets or short-term leases with a term of 12 months or less. These lease payments are recognised in operating expenses over the lease term.

 

The lease liability is initially measured at the present value of the lease payments that are not paid. The Company elected to not separate non-lease components from lease components and to account for the non-lease and lease components as a single lease component. Lease payments generally include fixed payments less any lease incentives receivable. The lease liability is discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company's incremental borrowing rate. The Company estimates the incremental borrowing rate based on the lease term, collateral assumptions, and the economic environment in which the lease is denominated. The lease liability is subsequently measured at amortized cost using the effective interest method. The lease liability is remeasured when the expected lease payments change as a result of new assessments of contractual options and residual value guarantees.

 

The right-of-use asset is recognised at the present value of the liability at the commencement date of the lease less any incentives received from the lessor. Added to the right-of-use asset are initial direct costs, payments made before the commencement date, and estimated restoration costs. The right-of-use asset is subsequently depreciated on a straight-line basis from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

 

Revenue

 

The Company's accounting policy for revenue recognition under IFRS 15 is as follows:

 

To determine the amount and timing of revenue to be recognised, the Company follows a 5-step process:

1. Identifying the contract with a customer

2. Identifying the performance obligations

3. Determining the transaction price

4. Allocating the transaction price to the performance obligations

5. Recognising revenue when/as performance obligation(s) are satisfied.

 

Revenue from the direct sale of infused products for a fixed price is recognized when the Company transfers control of the good to the customer upon delivery and it is probable that future economic benefits will flow to the entity.

 

 

4.            SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Share-based payments

 

The Company may grant stock options to acquire common shares of the Company to Directors, Officers, employees and consultants. An individual is classified as an employee when the individual is an employee for legal or tax purposes or provides services similar to those performed by an employee.

 

The fair value of stock options is measured on the date of grant, using the Black-Scholes option pricing model, and is recognized over the vesting period. Consideration paid for the shares on the exercise of stock options is credited to share capital.  In situations where equity instruments are issued to non-employees and some or all of the goods or services received by the entity as consideration cannot be specifically identified, they are measured at fair value of the share-based payment. Otherwise, share-based payments are measured at the fair value of goods or services received.

 

5.            NATURE OF EXPENSES

 

 

 

 

30 June,

30 June,

 

2020

2019

Selling, general and administrative expense

£

£

Office and administration

70,372

7,737

Advertising and promotion

1,349,709

-  

Rent, utilities, operating costs

199,473

-  

Travel and entertainment

237,592

45,496

Insurance

66,063

-  

Bank charges and processing costs

79,831

-  

Total

2,003,040

53,233

 

 

 

 

6.            TRADE RECEIVABLES AND OTHER

 

 

 

 

30 June,

30 June,

 

2020

2019

 

£

£

Trade receivables

75,641

-  

Prepaid expenses and deposits

206,654

-  

Total

282,295

-  

 

 

 

 

 

 

7.            INVENTORY

 

 

 

 

30 June,

30 June,

 

2020

2020

 

£

£

Raw materials

162,856

-  

Finished goods

118,495

-  

Total

281,351

-  

 

 

 

 

During the year ended 30 June 2020 the Company recorded inventory in cost of goods sold of £426,656.

 

8.            PROPERTY AND EQUIPMENT

 

 

 

 

 

 

 

Leasehold Improvements

Right of Use

Production Equipment

Office Equipment

Total

 

£

£

£

£

£

Cost

 

 

 

 

 

Balance 30 June 2019

-

-

-

-

-

Additions - Love Hemp acquisition

34,413

1,246,419

58,419

147,309

1,486,560

Additions

-

-

32,090

37,114

 69,204

Balance 30 June 2020

34,413

1,246,419

90,509

184,423

1,555,764

 

 

 

 

 

 

Accumulated depreciation

 

 

 

 

 

Balance 30 June 2019

-

-

 

-

-

Additions - Love Hemp acquisition

2,243

-

14,432

36,981

53,656

Depreciation

1,213

-

9,661

20,108

30,982

Balance 30 June 2020

3,456

-

 24,093

57,089

 84,638

 

 

 

 

 

 

Net book value

 

 

 

 

 

30 June 2019

-

-

-

-

-

30 June 2020

30,957

1,246,419

66,416

127,334

1,471,126

 

 

 

 

 

 

 

A continuity of the lease liability underlying the right of use assets is as follows:

 

 

 

 

 

30 June,

 

 

2020

 

 

£

Balance, 30 June 2019

 

-  

Acquired in Love Hemp transaction (Note 9)

 

1,246,419

Principal reduction

 

(102,694)

Balance, 30 June 2020

 

1,143,725

Less: Current portion

 

(180,918)

Lease liability

 

962,807

 

 

 

 

The Company recorded interest expense of £33,004 in relation to the lease liability during the year.

 

 

9.            ACQUISITION OF LOVE HEMP LIMITED

 

On 18 October 2019 the Company acquired 100% of Love Hemp Ltd. ("Love Hemp") for consideration of between £9 million and £10 million as follows:

 

·              £3 million of the consideration paid in cash on completion

·              £3 million satisfied by the issue of 30,000,000 Ordinary Shares on completion

 

A further earn out of up to a maximum of £4 million to be paid as follows:

 

·              £1,500,000 in cash on the date falling six months and one day from the date of completion, provided that at the Company's election it can alternatively pay to the sellers an amount of £2,000,000 to be satisfied by the issue of Ordinary Shares calculated on a 10% discount to the 10 day VWAP preceding the date of the issue of those shares.

·              £1,500,000 in cash on the date falling twelve months and one day from the date of completion provided that at the Company's election it can alternatively pay to the sellers an amount of £2,000,000 to be satisfied by the issue of Ordinary Shares calculated on a 10% discount to the 10 day VWAP preceding the date of the issue of those shares.

 

Subsequent to 30 June 2020 the Company entered a Deed of Variation with the Sellers of Love Hemp Ltd. whereby the purchase consideration was amended as follows:

 

·      On 25 September 2020 the Company issued 22,222,222 Ordinary shares at a deemed price of £0.09 per share as settlement of the first earn out payment which was due under the original agreement.

·      £1,500,000 in cash on 15 January 2021 provided that at the sellers election the Company can alternatively pay to the sellers an amount of £2,000,000 to be satisfied by the issue of Ordinary Shares calculated on a 10% discount to the 10 day VWAP preceding the date of the issue of those shares.

 

The acquisition aligns with the Company's mandate to invest in leading companies in the European CBD wellness industry. Love Hemp is an early mover in the UK CBD market with established distribution and long-standing brand recognition.

 

The acquisition has been accounted for as a business combination, using the acquisition method. The purchase consideration has been provisionally allocated based on the Company's estimated fair value of the identifiable assets acquired and the liabilities assumed at the acquisition date.

 

 

9.            ACQUISITION OF LOVE HEMP LIMITED (Continued)

 

The estimated purchase price allocation is as follows:

 

 

 

Consideration

 

£

30,000,000 Ordinary shares at a fair value of £0.10 per share:

 

     3,000,000

Cash

 

     3,000,000

Contingent consideration

 

     4,000,000

 

 

  10,000,000

Provisional net assets of Love Hemp Ltd.

 

 

Cash

 

          84,349

Accounts receivable

 

        378,395

Inventory

 

        544,906

Other current assets

 

          66,357

Equipment

 

        186,485

Right of use asset

 

     1,246,419

Lease liability

 

  (1,246,419)

Accounts payable and accrued liabilities

 

     (808,531)

Loan payable

 

     (586,627)

Net assets acquired

 

     (134,666)

Goodwill

 

  10,134,666

Total

 

  10,000,000

 

 

 

 

As of the date of these consolidated financial statements, the determination of fair value of assets and liabilities acquired is based on preliminary estimates and has not been finalised. The Company is currently in the process of determining the fair values of the net assets acquired, specifically the final allocation between goodwill and separately identifiable assets. The actual fair values of the assets and liabilities may differ materially from the amounts disclosed in the preliminary fair value above and are subject to change within a period not to exceed twelve months from the acquisition date with retroactive restatement of the impact of adjustment to those provisional fair values effective as at the acquisition date.

 

Goodwill is expected to arise in the acquisition of Love Hemp because the cost of acquisition included amounts in relation to the benefit of expected revenue growth, existing distribution relationships, and future market development. These benefits are not recognized separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets.

 

During the year ended 30 June 2020, in light of the international COVID-19 Virus pandemic, the Company determined it would be prudent to conduct an impairment analysis of the acquired provisional goodwill and intangible assets. Using a probability weighted discounted cash flow ("DCF") analysis the Company determined that an impairment charge of £7,434,666 of the provisional goodwill and intangible assets was appropriate given uncertain economic growth prospects. The DCF utilized a 15% discount rate and estimated sales growth rates of between 0% to 15% per month.

 

Cash consideration of £3,000,000 less cash acquired of £84,349 resulted in net cash on completion of the acquisition of £2,915,651. The purchase price allocation has yet to be finalised.

 

 

9.            ACQUISITION OF LOVE HEMP LIMITED (Continued)

 

The continuity of goodwill is as follows:

 

 

 

 

 

30 June,

 

 

2020

 

 

£

Acquisition of Love Hemp

 

     10,134,666

Impairment

 

     (7,434,666)

Total

 

       2,700,000

 

 

 

 

From the date of the acquisition on 18 October 2019 to 30 June 2020 Love Hemp Ltd. recognized revenue of £1,690,447 and incurred a loss of £696,253. If the acquisition had occurred on 1 July 2019 (which it did not) the Company would have recognized revenue of£ 2,632,060 and incurred a loss of £13,087,531.

 

10.          ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

 

 

 

 

30 June,

30 June,

 

2020

2020

 

£

£

Accounts payable

506,308

33,731

Accrued liabilities and other

67,352

-  

Total

573,660

33,731

 

 

 

 

 

 

11.          LOANS PAYABLE

 

A continuity of the loan balance is as follows:

 

 

 

 

 

30 June,

 

 

2020

 

 

£

Balance acquired - Love Hemp acquisition (Note 9)

 

586,627

Accrued interest

 

29,885

Loans issued

 

659,415

Shares to be issued for debt settlement

 

(308,636)

Shares issued

 

(223,165)

Re-payments

 

(298,621)

Total

 

445,505

Current portion

 

(172,843)

Non-current portion

 

272,662

 

 

 

 

a)     During April 2019, Love Hemp entered a loan agreement for a principal amount of up to £360,343 bearing interest at 9.90% per annum. The loan matures in sixty months and requires monthly repayments of £7,638. Upon maturity, Love Hemp is required to pay a completion fee of £10,495. The loan is secured by the assets of Love Hemp.

 

b)    Love Hemp issued a 12% promissory note of £250,000 which was repaid following the close of the acquisition.

 

c)     The Company entered unsecured loan agreements whereby approximately £396,341 was advanced to the Company with an interest rate of 5% per annum repayable on November 1, 2020. On 30 April 2020 £220,404 plus accrued interest of £2,761 was settled by the issuance of 2,231,650 Ordinary shares with a fair value of £0.10 each.  On 30 June 2020 the Company entered an agreement to settle the remaining £175,937 plus accrued interest of £714 through the issuance of 1,962,789 Ordinary shares with a fair value of £0.09. As the Ordinary shares were issued subsequent to 30 June 2020 the balance has been recorded as shares to be issued as of 30 June 2020.

 

d)    The Company obtained a bounce back loan facility of £50,000.

 

e)    The Company entered unsecured loan agreements whereby approximately £81,187 was advanced to the Company with an interest rate of 5% per annum repayable on November 1, 2020. The loan was from a Company with a common CFO and Director.

 

f)     The Company entered unsecured loan agreements whereby approximately £131,887 was advanced to the Company with an interest rate of 5% per annum repayable on November 1, 2020. On 30 June 2020 the Company entered an agreement to settle £131,887 plus accrued interest of £1,670 through the issuance of 1,483,967 Ordinary shares with a fair value of £0.09. As the Ordinary shares were issued subsequent to 30 June 2020 the balance has been recorded as shares to be issued as of 30 June 2020.

 

 

12.          CONVERTIBLE DEBENTURES

 

 

 

 

 

October

November

 

 

2019

2019

Total

 

£

£

£

Balance, 30 June 2019

-  

-  

-  

Convertible debentures issued (a,b)

2,338,554

17,228

2,355,782

Transaction costs - cash

(48,459)

-  

(48,459)

Conversion feature

(250,452)

(1,884)

(252,336)

Accretion expense

120,385

681

121,066

Interest expense

169,836

1,292

171,128

Converted to Ordinary Shares

(612,877)

-  

(612,877)

Balance, 30 June 2020

1,716,987

17,317

1,734,304

 

 

 

 

 

In October and November of 2019, the Company issued 2,355,782 £0.10 convertible debenture units raising gross proceeds of £2,355,782. The convertible debentures units each consist of one debenture convertible into £0.01 nominal value Ordinary Shares at a price of £0.10 and one share purchase warrant exercisable at a price of £0.15 for a period of two years from closing, subject to the Company's right to accelerate the maturity date upon 30 days' notice in the event that the Ordinary Shares trade at £0.25 or higher for a 10 day period.

 

The debentures accrue interest of 10% annually and are subject to the Company's right to force conversion upon 30 days' notice in the event that the Ordinary Shares trade at £0.30 or higher for a 10-day period. Interest may be paid in cash or in Ordinary Shares, or a combination thereof at the discretion of the Company. The Debentures will mature in two years plus one day from the closing dates.

 

In connection with the above the Company paid cash transaction costs of £45,883 and issued a total of 54,970 share purchase warrants exercisable at a price of 0.15 per ordinary share for a period of two years from issue.

 

As stated in the convertible debenture agreements the conversion price will be adjusted if the Company completes a rights offering for less than 90% of the quoted price. The variability of the conversion price creates a derivative which has been recognized as a financial liability.

 

A continuity of the derivative liability related to the debenture conversion feature is as follows:

 

 

 

 

 

October

November

 

 

2019

2019

Total

 

£

£

£

Balance, 30 June 2019

-  

-  

-  

Conversion feature - initial recognition

250,452

1,884

252,336

Fair value adjustment

380,285

2,854

383,139

Allocated to equity

(184,288)

-  

184,288)

Balance, 30 June 2020

446,449

4,738

451,187

 

 

 

 

 

The conversion feature was valued at 30 June 2020 using the Black-Scholes valuation model with the following assumptions: Expected life 1.3 years, volatility 75%, discount rate 1%, dividend yield 0%.

 

 

 

13.          SHARE CAPITAL AND RESERVES

 

Authorised 

 

2,000,000,000 ordinary shares with £0.01 nominal (par) value. As of 30 June 2020, there were 145,600,721 ordinary shares outstanding.

 

Shares Under Lock-In Agreement

 

The Company has ordinary shares subject to trading restrictions which were released 12 September 2020 subject to agreed upon orderly market conditions.  As at 30 June 2020, a total of 127,415,360 ordinary shares were subject to these lock-in restrictions. 

 

The Sellers of Love Hemp are entitled to sell up to 10% of the Ordinary Shares at any time from the Completion date of the transaction. Up to 55% can be sold at any time from the date that is twelve months plus one day from the Completion date. The remaining 45% can be sold twenty four months following the Completion date.

 

Issued and Outstanding - Ordinary Shares

 

On 14 April 2020 the Company completed a subdivision of its Ordinary shares ("share consolidation") on the basis of ten post-subdivision Ordinary share for every one pre-subdivision Ordinary shares held (10-to-1). All references contained in these financial statements to issued and outstanding Ordinary shares, warrants, per share amounts, and exercise prices, have been retroactively restated to reflect the effect of the share sub-division.

 

On 20 November 2019 the Company completed a consolidation of its Ordinary shares ("share consolidation") on the basis of one post-consolidation Ordinary share for every ten pre-consolidation Ordinary shares held (10-to-1).

 

During the year ended 30 June 2020 the Company issued ordinary shares as follows:

 

a)     In July 2019 the Company issued 3,079,930 units at a price of £0.10 per unit for gross proceeds of £307,993 with each unit consisting of one ordinary share and one half of a share purchase warrant. The par value of £0.01 per share totalling £30,799 was recorded to share capital and £277,194 was recorded to share premium. £175,493 of the proceeds was recorded prior to 30 June 2019 and was previously recorded as shares to be issued. Each full warrant entitles the holder to acquire an additional ordinary share at a price of £0.20 per ordinary share for a period of 2 years from the date of issuance. If the price of the ordinary shares of the Company trade above £0.50 per share on a stock exchange for 10 consecutive days, the Company has the right to provide notice to accelerate the expiry of the warrants to 30 days after the notice is given.

 

b)    In July 2019 the Company issued 1,990,000 ordinary shares at a fair value of £0.10 each for services totalling £199,000.

 

c)     In August 2019, the Company issued 7,285,000 Ordinary Shares to raise £728,500 at a subscription price of £0.10 to which the subscribers also received half a warrant of which a whole warrant can be exercised in return for an Ordinary Share at a price of £0.20 per Ordinary Share for a period of two years from the date of issue. The Company maintains an election to accelerate the expiry of such warrants should the Company's shares trade at a price of £0.50 or more for a period of 10 days.

 

d)    In August 2019, the Company issued 8,100,000 Ordinary Shares to raise £81,000 at a subscription price of £0.01.

 

 

 

e)    In August 2019, the Company issued 675,000 Ordinary Shares to raise £40,500 at a subscription price of £0.06 to which the subscribers also received half a warrant of which a whole warrant can be exercised in return for an Ordinary Share at a price of £0.12 per Ordinary Share for a period of two years from the date of issue. The Company maintains an election to accelerate the expiry of such warrants should the Company's shares trade at a price of £0.30 or more for a period of 10 days.

13.          SHARE CAPITAL AND RESERVES (Continued)

 

Issued and Outstanding - Ordinary Shares (Continued)

 

f)     In August 2019, the Company issued 626,810 Ordinary Shares to raise £62,681 at a subscription price of £0.10 to which the subscribers also received half a warrant of which a whole warrant can be exercised in return for an Ordinary Share at a price of £0.20 per Ordinary Share for a period of two years from the date of issue. The Company maintains an election to accelerate the expiry of such warrants should the Company's shares trade at a price of £0.50 or more for a period of 10 days.

 

g)     In September 2019 the Company issued 500,000 Ordinary Shares at a fair value of £0.10 each to Peterhouse Capital Ltd. for services totalling £50,000.

 

h)    On 18 October 2019 the Company issued 30,000,000 Ordinary Shares at a fair value of £0.10 each to acquire Love Hemp Ltd (Note 9).

 

h)    In December 2019, the Company issued 814,680 Ordinary Shares to raise £81,468 at a subscription price of £0.10 to which the subscribers also received half a warrant of which a whole warrant can be exercised in return for an Ordinary Share at a price of £0.20 per Ordinary Share for a period of two years from the date of issue. The Company maintains an election to accelerate the expiry of such warrants should the Company's shares trade at a price of £0.50 or more for a period of 10 days.

 

i)      On 30 April 2020, the Company issued 960,000 Ordinary Shares with a fair value of £0.10 each for service totalling £96,000.

 

j)      On 30 April 2020, the Company issued 2,231,650 Ordinary Shares with a fair value of £0.10 each to settle debt totalling £223,165.

 

k)     On 4 February 2020 the Company issued 696,300 Ordinary shares of £0.01 each for £0.10 per share for a total consideration of £69,630 in lieu of consulting fees.

 

During the period ended 30 June 2019 the Company issued ordinary shares as follows:

 

a)     In January 2019 the Company was incorporated with an issued share capital of £10 divided into 1,000 ordinary shares with a nominal value of £0.01.

 

b)    In June 2019 the Company issued 82,815,712 ordinary shares at a price of £0.01 per share for gross proceeds of £828,157.

 

c)     In June 2019 the Company issued 5,824,642 units at a price of £0.06 per unit for gross proceeds of £349,479 with each unit consisting of one ordinary share and one half of a share purchase warrant. The nominal value of £0.01 per share totalling £58,246 was recorded to share capital and £291,233 was recorded to share premium. Each full warrant entitles the holder to acquire an additional ordinary share at a price of £0.12 per ordinary share for a period of 2 years from the date of issuance. If the price of the ordinary shares of the Company trade above £0.30 per share on a stock exchange for 10 consecutive days, the Company has the right to provide notice to accelerate the expiry of the warrants to 30 days after the notice is given.

 

d)    In accordance with a £1.00 unit offering a total £175,493 had been collected by the Company prior to closing.

 

 

13.          SHARE CAPITAL AND RESERVES (Continued)

 

Options

 

The Company has adopted an informal plan whereby options granted to acquire Ordinary Shares will not exceed 20 percent of the Company's issued Ordinary Shares from time to time without the prior approval of the Shareholders.

 

A summary of the share option transactions for the year ended 30 June 2020 is summarized as follows:

 

 

 

 

Number of

Weighted Average Exercise

 

Options

Price £

Balance at 30 June 2019

-

Granted

28,800,000

0.128

Balance at 30 June 2020

28,800,000

0.128

 

 

 

 

The following table summarizes stock options outstanding and exercisable as at 30 June 2020

 

 

 

 

 

 

 

 

 

 

Number of

Number of

Weighted Average Exercise

Weighted Average Remaining Years

Expiry date

 

 

Options

Exercisable Options

Price £

27 February 2025

 

 

25,500,000

Nil

0.128

4.67

15 June 2025

 

 

3,300,000

Nil

0.128

4.96

 

 

 

28,800,000

 

 

 

 

 

 

 

 

 

 

 

The stock options were valued at issuance using the Black-Scholes Option Pricing Model using the following assumptions:

 

 

 

 

 

30 June,

 

 

2020

Risk-free interest rate

 

0.36%

Expected life of options

 

4.25

Annualized volatility

 

80%

Dividend rate

 

0%

Weighted average fair value per option

 

 £              0.05

 

 

 

 

During the period ended 30 June 2020 share-based payment expense related to the issuance of options was £945,524.

 

 

13.          SHARE CAPITAL AND RESERVES (Continued)

 

Warrants

 

A summary of warrant activity is as follows:

 

 

 

 

Number of

Weighted Average Exercise

 

Warrants

Price £

Granted

             2,912,328

0.12

Balance at 30 June 2019

             2,912,328

Granted

           30,509,482

                          0.16

Balance at 30 June 2020

           33,421,810

                          0.15

 

 

 

 

The following table summarises warrants outstanding at 30 June 2020:

 

 

 

 

 

 

Expiry date

 

 

Number of

Weighted Average

Weighted Average Remaining Years

 Warrants

Exercise Price £

June 28, 2021

 

 

2,912,328

                                     0.12

                        0.99

July 19, 2021

 

 

1,539,965

                                     0.20

                         1.05

August 16, 2021

 

 

3,642,500

                                     0.20

                         1.13

August 27, 2021

 

 

337,500

                                     0.12

                         1.16

August 27, 2021

 

 

313,405

                                      0.20

                        1.16

September 12, 2020

 

 

551,990

                                      0.10

                       0.20

October 9, 2021

 

 

11,404,850

                                     0.15

                         1.28

October 9, 2021

 

 

104,000

                                      0.15

                         1.28

October 15, 2021

 

 

8,666,660

                                      0.15

                         1.29

October 28, 2021

 

 

3,314,030

                                     0.15

                         1.33

October 28, 2021

 

 

49,332

                                     0.15

                         1.33

November 21, 2021

 

 

407,340

                                      0.15

                         1.39

November 29, 2021

 

 

172,280

                                      0.15

                         1.42

November 29, 2021

 

 

5,630

                                      0.15

                         1.42

 

 

 

33,421,810

                                      0.15

                         1.22

 

 

 

 

 

 

 

Share-based compensation expense recognized during the period of £23,044 related to 551,990 warrants granted to the Corporate Adviser upon listing on the AQSE Growth Market. The warrants were valued using the Black-Scholes Option Pricing Model using the following weighted average assumptions:

 

 

 

 

 

30 June,

 

 

2020

Risk-free interest rate

 

2.25%

Expected life

 

2

Annualized volatility

 

75%

Dividend rate

 

0%

Weighted average fair value per warrant

 

 £              0.04

 

 

 

 

Expected annualized volatility was determined using the historic volatility of established comparable publicly traded cannabis companies.
 

14.         RELATED PARTY TRANSACTIONS

 

Key management personnel

 

Key management personnel include those persons having authority and responsibility for planning, directing and controlling the activities of the Company as a whole. The Company has determined that key management personnel consist of executive and non-executive members of the Company's Board of Directors and corporate Officers and/or companies controlled by those individuals.During the year ended 30 June 2020 the Company entered the following transactions with key management personnel:

 

 

 

 

 

30 June,

 

 

2020

Key Management Remuneration:

 

£

Service fees accrued - David Stadnyk, CEO, Director

 

           264,000

Service fees accrued - Robert Payment, CFO, Director

 

             25,000

Service fees accrued - Charlie Lamb, Director

 

             15,000

Service fees accrued - Kevin Ernst, Director

 

             15,000

Service fees accrued / paid - Andrew Male, Director

 

             45,000

Salaries paid - Antonio Calamita, Director of Subsidiary

 

             67,500

Salaries paid - Thomas Rowland, Director of Subsidiary

 

             67,500

Total

 

           499,000

 

 

 

 

 

30 June,

 

 

2020

Other transactions:

 

£

Fair value of stock options granted to directors

 

          325,291

Service fees, Heytsbury Corporate LLP, Corporate Secretary

 

             43,417

 

 

 

The following is a summary of the amounts owing to key management:

 

 

 

 

 

30 June,

 

 

2020

Due to Key Management:

 

£

Service fees accrued - David Stadnyk, CEO, Director

 

-  

Service fees accrued - Robert Payment, CFO, Director

 

-  

Service fees accrued - Charlie Lamb, Director

 

-  

Service fees accrued - Kevin Ernst, Director

 

-  

Service fees accrued - Andrew Male, Director

 

-  

Service fees, Heytsbury Corporate LLP, Corporate Secretary

 

-  

Total

 

-  

 

 

 

 

 

30 June,

 

 

2020

Other amounts owing:

 

£

Loan to company with common officers and directors

 

81,187

Deferred compensation - Antonio Calamita

 

1,800,000

Deferred compensation - Thomas Rowland

 

1,800,000

Total

 

3,681,187

 

 

15.          FINANCIAL INSTRUMENTS

 

Fair value

 

Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels of the fair value hierarchy are:

 

•     Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities;

•     Level 2 - Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and

•     Level 3 - Inputs that are not based on observable market data.

 

The Company's financial assets and liabilities measured at fair value on a recurring basis were calculated as follows:

 

 

 

 

 

30 June 2020 - Financial assets

 Balance £

 Level 1 £

 Level 2 £

 Level3 £

Cash

200,546

200,546

-  

-  

Trade receivables and other

75,641

75,641

-  

-  

 

 

 

 

 

30 June 2019 - Financial assets

 Balance £

 Level 1 £

 Level 2 £

 Level3 £

Cash

1,307,456

1,307,456

-  

-  

Trade receivables and other

-  

-  

-  

-  

 

 

 

 

 

 

 

 

 

 

30 June 2020 - Financial liabilities

 Balance £

 Level 1 £

 Level 2 £

 Level3 £

Accounts payable and accrued liabilities

573,660

573,660

-  

-  

Loans payable - current

172,843

172,843

-  

-  

Loans payable - non-current

272,662

272,662

-  

-  

Convertible debentures

1,734,304

-  

1,734,304

-  

Derivative liability

451,187

-  

451,187

-  

 

 

 

 

 

 

 

 

 

 

30 June 2019 - Financial liabilities

 Balance £

 Level 1 £

 Level 2 £

 Level3 £

 Accounts payable and accrued liabilities

33,731

33,731

-  

-  

 

 

 

 

 

 

Financial risk management

 

The Company's risk exposures and the impact on the Company's financial instruments are summarised below.

 

Credit risk

 

Credit risk is the risk of a potential loss to the Company if customer or third party to a financial instrument fails to meet its contractual obligations. The majority of the Company's credit exposure at 30 June 2020 is the carrying amount of cash. The Company does not have significant credit risk with respect to its customers. All cash and cash equivalents are placed with major UK financial institutions.

 

The Company provides credit to its customers in the normal course of business and has established credit evaluation and monitoring processes to mitigate credit risk.

 

Interest rate risk

 

The Company is exposed to interest rate risk to the extent that the cash maintained at the financial institutions is subject to a floating rate of interest. The interest rate risk on cash is not considered significant.

 

15.          FINANCIAL INSTRUMENTS (Continued)

 

Financial risk management (Continued)

 

Liquidity risk

 

The Company's approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due. As at 30 June 2020, the Company's current financial liabilities and contractual maturities were as follows:

 

 

 

 

 

 

2021

2022

2023 to 2025

2025 and thereafter

Remaining contractual maturities

£

£

£

£

Derivative financial liabilities:

 

 

 

 

  Derivative liability

-  

451,187

-  

-  

 

 

 

 

 

Non-derivative financial liabilities:

 

 

 

 

  Accounts payable and accrued liabilities

573,660

-  

-  

-  

  Loans payable

172,843

70,414

61,242

141,006

  Lease liability

180,918

141,364

424,092

397,351

  Deferred consideration

4,000,000

-  

-  

-  

  Convertible debentures

-  

1,734,304

-  

-  

Total

4,927,421

211,778

485,334

538,357

 

 

 

 

 

 

Foreign currency risk

 

Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign currency rates.  As at 30 June 2020 the Company had cash, accounts payable and accrued liabilities, denominated in Canadian dollars ("CAD"). A 10% fluctuation in the foreign exchange rate between the Pound Sterling and Canadian dollar would not have a significant impact on profit or loss for the period. The Company does not undertake currency hedging activities to mitigate its foreign currency risk.

 

16.          CAPITAL MANAGEMENT

 

The Company defines capital as equity. The Company manages its capital structure and makes adjustments in order to have the funds available to support its operating activities.

 

The Company's objective when managing capital is to safeguard the Company's ability to continue as a going concern 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. As discussed in Note 2, 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 Kingdom and Europe with respect to cannabis legislation, and securing additional financing.

 

Management reviews its capital management approach on an ongoing basis. There were no changes in the Company's approach to capital management during the periods presented. The Company is not subject to externally imposed capital requirement.

 

 

17.          SUBSEQUENT EVENTS

 

Subsequent to 30 June 2020, the Company completed the following transactions:

 

a)     The Company issued 6,666,660 Ordinary Shares of £0.01 upon conversion of debentures with a principal value of £666,666 convertible at £0.10. A further 515,478 Ordinary Shares of £0.01 were issued for accrued interest to the conversion date at a price of £0.09 for total consideration of £46,393.

 

b)    The Company issued 3,446,756 Ordinary Shares of £0.01 in settlement of debt at a price of £0.09 for total consideration of £310,208.

 

c)     The Company issued 12,733,823 Ordinary Share of £0.01 in settlement of various amounts due in lieu of cash at a price of £0.09 for total consideration of £1,146,044

 

d)    Entered a Deed of Variation with the Sellers of Love Hemp Ltd (Note 9)

 

e)    The Company issued 38,114,285 Ordinary Shares of £0.01 through a private subscription raising gross proceeds of £381,143. Pursuant to the terms of the Subscription, each of the subscribers has been granted one warrant for each Ordinary Share subscribed for, and each warrant entitles the holder to subscribe for an additional Ordinary Share at a price of 1 pence per share exercisable for a period of two years, subject to the Company's right to accelerate the maturity date upon 30 days' notice in the event that the Ordinary Shares trade at 10 pence or higher for a 10 day period.  In aggregate the Company has granted 38,114,285 warrants pursuant to the Subscription.

 

f)     The Company entered unsecured loan agreements whereby approximately £179,000 was advanced to the Company with an interest rate of 10% per annum repayable on January 30, 2021.

 

 

 

 

 

18.          INCOME TAX

 

A reconciliation of income taxes at statutory rates with the reported taxes is as follows:

 

 

 

 

 30 June

 30 June

 

 2020

 2019

 

 £

 £

Earnings (loss) for the year

 (12,671,931)

                (79,128)

 

 

 

Expected income tax (recovery) - 18% tax rate

          (2,834,000)

                (20,573)

Change in statutory, foreign tax, and other

                824,000 

                              -  

Permanent Difference

                175,000 

                              -  

Change in unrecognized deductible temporary differences

             1,835,000 

                   20,573 

Total income tax expense (recovery)

                              -  

                              -  

 

 

 

 

The significant components of the Company's deferred income tax assets and liabilities are as follows:

 

 

 

 

 30 June

 30 June

 

 2020

 2019

 

 £

 £

Deferred Tax Assets (liabilities)

 

 

   Property and equipment

(117,000)

-  

Debt with accretion

(8,000)

-  

Intangible assets

1,218,000 

-  

   Losses available for future period

798,000 

20,573 

 

 

 

 

A deferred tax asset has not been recognised on the statement of financial position as there is currently no certainty the Company will achieve profitable operations to apply the tax losses against. The significant components of the Company's temporary differences, unused tax credits and unused tax losses that have not been included on the consolidated statement of financial position are as follows:

 

 

 

 

 

 

 30 June

 

 30 June

 

 

 2020

 Expiry Date Range

 2019

 Expiry Date Range

Temporary Differences

 £

 

 £

 

   Property and equipment

(1,297,930)

 No expiry date

-  

 No expiry date

Debt with accretion

 (45,188)

 No expiry date

-  

 No expiry date

Intangible assets

6,767,999

 No expiry date

-  

 No expiry date

Non-capital losses

4,436,236

 No expiry date

20,573

 No expiry date

 

 

 

 

 

 

Tax attributes are subject to review, and potential adjustment, by tax authorities.

 

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