Akanda (US:AKAN)2022-05-01 16:00Acquisition and Ownership - Akanda completed the acquisition of Cannahealth Limited from Halo, issuing 13,129,212 Common Shares at $1.00 per share, resulting in Halo owning approximately 68.3% of Akanda's outstanding shares at the time of acquisition [146]. - As of April 30, 2022, Halo's ownership in Akanda decreased to approximately 43.84% following a share transfer [147]. - The Holigen Acquisition involved a purchase price of $3,000,000 in cash and 1,900,000 common shares of Akanda, enhancing Akanda's operational capacity in Portugal [148]. - As of April 30, 2022, the company had a total of 173 employees, with approximately 168 located in Lesotho and 5 in the United Kingdom [258]. - The company has 28,909,026 Common Shares outstanding as of April 30, 2022, with executive officers and directors collectively owning 5,894,987 shares, representing 20.39% of total shares [261]. - Halo Collective Inc. is the largest shareholder, owning 12,669,022 Common Shares, which accounts for 43.8% of the total [264]. Financial Performance - Akanda Group reported revenue of $41,431 for the year ended December 31, 2021, a significant increase from $2,062 in 2020, with no revenue in 2019 [201]. - The cost of sales rose to $43,022 in 2021 from $1,809 in 2020, reflecting increased sales activities and purchases of CBPMs [202]. - The net loss for the year ended December 31, 2021, was $8,131,197, compared to $2,300,571 in 2020 and $1,394,641 in 2019 [209]. - Total operating expenses increased to $6,119,002 in 2021 from $1,607,529 in 2020, driven by higher personnel, consulting, and general administrative expenses [201]. - Personnel expenses surged to $2,379,649 in 2021, up from $374,900 in 2020, due to increased staffing for cultivation operations [205]. - Consulting and professional fees rose to $1,855,419 in 2021, significantly higher than $702,016 in 2020, attributed to increased operational activities and corporate restructuring [204]. - General and administrative expenses increased to $1,504,172 in 2021 from $229,743 in 2020, primarily due to heightened site-related operational activities [206]. - The loss on change in fair value of biological assets was $713,135 in 2021, up from $58,429 in 2020, reflecting challenges in selling harvested produce [201]. - Amortization and depreciation expenses increased to $309,022 in 2021 from $248,743 in 2020, due to new property and equipment acquisitions [203]. - Interest expense for 2021 was $1,092,881, compared to $645,162 in 2020, primarily due to lease liabilities related to Bophelo's premises [207]. - For the year ended December 31, 2021, Akanda's cash flow from operating activities increased by $5,204,594 due to increased operating expenses and corporate activities [213]. Capital and Financing - Akanda issued a total of 22,231,318 common shares with an associated share capital value of $20,891,213 during the year ended December 31, 2021 [213]. - Cash provided by financing activities for the year ended December 31, 2021, was $11,235,691, an increase of $10,202,206 compared to the previous year [214]. - Akanda completed its initial public offering of 4,000,000 common shares at a price of $4.00 per share, generating gross proceeds of $16,000,000 on March 17, 2022 [215]. - The company received additional loans amounting to $6,679,135 for capital and working capital needs during the year ended December 31, 2021 [215]. - As of December 31, 2021, Akanda's minimum lease payments included $108,628 due within one year, $1,042,832 due in 1-5 years, and $3,193,669 due over 5 years [217]. - Akanda's cash used by operating activities for the year ended December 31, 2021, was $(6,557,062), compared to $(1,352,468) in 2020 [214]. Corporate Governance and Management - The company has established a strategy for market expansion and governance practices through its diverse board of directors [231][232]. - The Board of Directors consists of seven members, with four being independent directors who meet regularly in executive sessions [252]. - The company follows Canadian corporate governance practices as a foreign private issuer, which may provide less protection than Nasdaq rules for U.S. domestic issuers [250]. - Akanda's executive officers' total compensation for 2021 amounted to $1,148,206, with Louisa Mojela receiving $351,780 as Executive Chairman [234]. - Tejinder Virk, the Chief Executive Officer, has an annual salary of $670,645 and is entitled to an incentive payment of $335,323 following the successful listing of Akanda [238]. - Dr. Aslihan Akkar-Schenkl, President of Akanda, has an annual salary of $178,578 and is entitled to a fixed annual bonus of €46,000 [240]. - Trevor Scott, Chief Financial Officer, has an annual salary of £250,000 and is eligible for an incentive payment of £150,000 upon the successful listing of Akanda [244]. - Non-executive directors receive an annual retainer of $75,000, with the lead independent director earning $112,500 [236]. - Akanda's executive officers are entitled to participate in a bonus scheme with opportunities up to 100% of their annual salary based on achieving KPIs [238][244]. Risk Management - The company is exposed to a 5% appreciation or deterioration of the USD against the GBP, which could impact net income by approximately $161,000 [339]. - Credit risk concentration is significant, with 94% of accounts receivable owed by a single customer, highlighting potential vulnerability [341]. - The company did not record any bad debt expenses for the years ended December 31, 2021, 2020, and 2019, indicating effective credit management [341]. - Liquidity risk is managed by continuously monitoring cash flows to ensure obligations can be met as they come due [342]. - The company has not entered into any foreign exchange hedging contracts, exposing it to currency risk from GBP, LSL, and CAD [336]. Tax Considerations - U.S. federal income tax considerations for U.S. Holders include the requirement to report distributions as dividends if paid from current or accumulated earnings and profits [310]. - Dividends paid to corporate U.S. Holders are taxable at regular rates and are not eligible for the dividends-received deduction [311]. - For non-corporate U.S. Holders, dividends may be taxed at lower long-term capital gains rates if certain conditions are met, including the shares being readily tradable [311]. - Dividends are treated as foreign source income for U.S. foreign tax credit purposes, and Canadian income taxes withheld may be creditable against U.S. federal income tax liability [312]. - A U.S. Holder generally recognizes capital gain or loss on the sale of Common Shares, calculated as the difference between cash/property received and the adjusted tax basis [314]. - Long-term capital gains for non-corporate U.S. Holders may be taxed at lower rates than ordinary income, while short-term gains are taxed at ordinary income rates [315]. - A non-U.S. corporation is classified as a Passive Foreign Investment Company (PFIC) if at least 75% of its gross income is passive or at least 50% of its assets produce passive income [316]. - If classified as a PFIC, U.S. Holders may face adverse tax consequences unless they make a timely QEF election [319]. - The company has not sought a ruling from the IRS regarding U.S. federal income tax consequences, and future changes in tax laws may affect the accuracy of the information provided [307]. - U.S. Holders are advised to consult their tax advisors regarding the implications of acquiring, holding, and disposing of Common Shares [309]. Internal Controls - No significant changes in internal control over financial reporting for the fiscal year ended December 31, 2021 [345]. - Management acknowledges inherent limitations on the effectiveness of controls and procedures due to resource constraints [345]. - The company is classified as an emerging growth company, thus not including an attestation report from its registered public accounting firm [345].