The provided content details Capital Resources, Summary of Cash Flows, Off-Balance Sheet Arrangements, Critical Accounting Policies and Estimates, Variable Interest Entities, and Income Taxes of an unidentified company. The company’s financial condition and performance were reported in accordance with generally accepted accounting principles. The company recognizes revenue in accordance with the five-step model prescribed under ASC 606. The discussion also highlights the procedures for recognition and measurement of tax positions taken or expected to be taken in income tax returns pursuant to ASC 740. Finally, the company is required to compute tax asset benefits for net operating losses carried forward.
Cryomass Technologies Inc’s Financial Condition and Results of Operations
Cryomass Technologies Inc, formerly known as Auto Tool Technologies Inc, is a company based in Denver, Colorado, that specializes in developing and investing in various business ventures. The company changed its name several times, most recently to Cryomass Technologies Inc, and its trading symbol is CRYM.
The discussion and analysis of the financial condition and results of operations for the years ended December 31, 2022, and 2021 should be read in conjunction with the company’s consolidated financial statements and notes included in this Annual Report on Form 10-K. The discussion includes forward-looking statements based on the company’s current expectations and intentions, which involve risks and uncertainties that could result in actual results and events timing to differ materially from anticipated results.
General Overview
The company was incorporated under the laws of the State of Nevada as Auto Tool Technologies Inc in 2011. The company changed its name several times over the years, with its most recent name being Cryomass Technologies Inc.
Cryomass Technologies’ principal office is located in Denver, Colorado, and its website is www.cryomass.com. The information on the website is not incorporated by reference into the report. The company began to establish various business ventures in Colombia through its Colombian subsidiary, First Colombia Devco S.A.S, on May 10, 2018.
Acquisitions and Disposals
On July 1, 2019, the company acquired 100% of the membership interests in General Extract, LLC, a Colorado limited liability company, in exchange for the shares of Devco. The name of this subsidiary was subsequently changed to Cryomass LLC.
On July 15, 2019, the company entered into a Membership Interest Purchase Agreement to acquire cannabis-related intellectual property and certain other assets of Critical Mass Industries LLC (CMI), a Colorado limited liability company. However, the company disposed of all CMI-related assets and extinguished any related obligations on December 31, 2021. Therefore, the company determined that CMI no longer qualifies as a variable interest entity as of December 31, 2021.
Cryomass Technologies Inc’s Recent Business Developments
Cryomass Technologies Inc, a company based in Denver, Colorado, has undergone several changes and acquisitions over the years. Here are some recent developments:
Gold Exploration in Colombia
In August 2020, the company established a wholly-owned Colombian subsidiary, Andina Gold Colombia SAS, to acquire gold properties in Colombia. However, due to the untimely death of the top geologist, the company determined that the pursuit of gold exploration in Colombia was no longer practical. As a result, the subsidiary was closed in Q1 2022.
Cryocann Acquisition
On June 22, 2021, the company acquired substantially all the assets of Cryocann USA Corp, a California corporation, for $3,500,000 million in cash and 10,000,000 shares of the company’s common stock. The acquisition included patented cryo-mechanical technology for the separation of plant materials in the harvesting of hemp and cannabis, potentially reducing processing costs and improving the quality of extracted compounds. The company believes that the technology can be applied to other high-value crops such as hops and is exploring the underlying technology’s application to a broad range of industries. Cryocann employees, who have expert knowledge of the industry, related participants, customers, and acquired patented technology, were retained as part of the acquisition.
CryoMass Trichome Separation System
To develop and commercialize the technology, Cryomass contracted with an independent engineering and manufacturing firm to refine the design of the cryo-mechanical system for the handling of harvested hemp, cannabis, and other high-value plants. The system uses CryoMass’s US-patented process for the controlled application of liquid nitrogen to stabilize and separate the structural elements of gross plant material. The system is called the CryoMass Trichome Separation System, and it can be used within minutes after plants have been cut, capturing trichomes from fresh-frozen or even dried plant parts, including trim. The prototype machine’s testing is currently underway, and the engineering and manufacturing firm has indicated the capacity to build up to 15 such devices per quarter.
Conclusion
Cryomass Technologies Inc has undergone several recent developments, including the acquisition of Cryocann USA Corp and the patented cryo-mechanical technology for the separation of plant materials in the harvesting of hemp and cannabis. The company is exploring the application of the underlying technology to a broad range of industries and has contracted with an independent engineering and manufacturing firm to develop and commercialize the CryoMass Trichome Separation System.
CryoMass Trichome Separation System: Revolutionizing Hemp and Cannabis Processing
CryoMass Technologies Inc, a Colorado-based company, has signed a license and lease agreement with a third party to deploy multiple CryoMass trichome separation units at the partner’s facility in California and other locations. The company intends to start commercial operations soon.
CryoMass Trichome Separation System
The CryoMass system is expected to revolutionize the processing of hemp and cannabis. It can be trucked to and operated on the fields of most large hemp and cannabis growers or be permanently installed at a user’s processing facility. The system should eliminate many of the costs associated with traditional practices, including the labor, fuel, and capital costs of drying and curing hemp or cannabis grown for end products.
Cost and Time Savings
With traditional practices, harvested plants are transported to a specially constructed drying house and then treated for a week or longer under controlled conditions of temperature and humidity. It’s a costly method. With the CryoMass system, harvested plants are simply fed into the front end of a CryoMass trichome separation system, and minutes later fully intact trichomes are collected at the back end of the unit.
Enhanced Product Quality and Quantity
Field-captured trichomes are the cleanest element of a hemp or cannabis plant because, unlike the rest of the plant, trichomes do not readily take up heavy metals, pesticides or other common soil contaminants. As a product for end-users, field-captured trichomes are closest to being contaminant-free. As feedstock for manufacturers of extracts and oils, they are the key to the purest products possible.
Cost-Saving Advantage
Trichomes collected with CryoMass technology represent only 10% or so of a plant’s weight and volume. They are cheaper to ship and store than gross plant material, and processing them into oils and extracts can be far quicker, cheaper, and easier than processing gross plant material. The three-dimensional advantage achievable with the CryoMass system – first-stage cost savings, product enhancement, and downstream cost savings – can double a crop’s wholesale value.
Conclusion
The CryoMass Trichome Separation System delivers a compelling combination of cost and time savings while enhancing product quality and quantity for large-scale cultivators and processors of hemp and cannabis. It eliminates many of the costs associated with traditional practices and stabilizes and collects fully intact trichomes at harvest, leaving no opportunity for wasteful loss. The CryoMass system is expected to revolutionize the processing of hemp and cannabis and potentially double a crop’s wholesale value.
CryoMass Technologies: Innovating the Hemp and Cannabis Industry
CryoMass Technologies, a company that specializes in cryo-mechanical technology for the separation of plant materials, has been making waves in the hemp and cannabis industry. With the use of its U.S.-patented process, the company has developed the CryoMass Trichome Separation System, a revolutionary system that is optimized for the low-cost collection of fully intact hemp and cannabis trichomes.
CryoMass System: The Key to Cost and Time Savings
Management at CryoMass Technologies is confident that its system will deliver a compelling combination of cost and time savings while enhancing product quality and quantity for large-scale cultivators and processors of hemp and cannabis. The system eliminates many of the costs that come with traditional practices, especially the labor, fuel, and capital costs of drying and curing hemp or cannabis that is grown for the extraction of end products.
Advantages of CryoMass System
Harvested plants are fed into the front end of a CryoMass trichome separation system, and minutes later fully intact trichomes are collected at the back end of the unit. Unlike traditional practices where harvested plants undergo seven-to-ten days of handling and drying, with CryoMass technology, harvested plants are stabilized and fully intact trichomes are collected at harvest. This method is less costly, more efficient, and produces higher quality results.
CryoMass Trichome Separation System stabilizes and collects fully intact trichomes at harvest, leaving no opportunity for wasteful loss. Field-captured trichomes are the cleanest element of a hemp or cannabis plant because, unlike the rest of the plant, trichomes do not readily take up heavy metals, pesticides, or other common soil contaminants.
Potential Applications of CryoMass System
The CryoMass system may have profitable applications to other species that are important for health and wellness products. The company is exploring the application of the underlying technology to a broad range of industries that handle high-value materials and could benefit from CryoMass’s precision capture methods.
CryoMass’s Progress and Financial Position
In September 2021, CryoMass Technologies was granted an additional patent for its process by the Chinese Intellectual Property Office. The company is currently taking steps to gain further protection for its intellectual property through the European Union Intellectual Property Office and several other international jurisdictions.
On November 17, 2021, CryoMass Technologies announced the completion of a $10.3 million equity financing. The financing and the earlier conversion of substantially all the company’s debt into common stock left the company with adequate resources for its planned business development. In connection with the financing, 1,010,000 shares and 760,000 shares of CryoMass Technologies common stock were purchased by CEO Christian Noël and Chairman of the Board Delon Human, respectively, either individually or through entities controlled by them.
On January 16, 2023, CryoMass Technologies entered into a Patent License and Equipment Rental Agreement with Redtape Core Partners, LLC.
COVID-19 Impact
The COVID-19 pandemic has impacted the Company’s business. Although deemed an essential business during the pandemic, many dispensaries and cannabis manufacturers have suspended or reduced operations on a temporary basis due to travel restrictions, both domestic and international, closing of borders, and business slowdowns or shutdowns in affected areas.
CryoMass Technologies continues to innovate and expand in the hemp and cannabis industry, delivering cost-effective and high-quality solutions to cultivators and processors worldwide.
CryoMass: The Revolutionary System Enhancing Cannabis and Hemp Processing
CryoMass Technologies is a leading-edge company with patented technology that revolutionizes the processing and extraction of hemp and cannabis. The company recently signed a license and lease arrangement with RedTape Core Partners LLC to deploy multiple CryoMass trichome separation units at the prospective partner’s facility in California and other locations, with the intention of starting commercial operations shortly.
CryoMass Technology
CryoMass technology has the potential to save time, costs and enhance product quality and quantity for large-scale cultivators and processors of hemp and cannabis. This system can be trucked to and operated on the fields of most large hemp and cannabis growers, or it can be permanently installed at a user’s processing facility.
Traditional practices, especially the labor, fuel and capital costs of drying and curing hemp or cannabis that is grown for the extraction of end products, can be very costly. However, the CryoMass system can eliminate many of these costs. It stabilizes and collects fully intact trichomes at harvest, leaving no opportunity for wasteful loss.
Field-captured trichomes are the cleanest element of a hemp or cannabis plant because, unlike the rest of the plant, trichomes do not readily take up heavy metals, pesticides, or other common soil contaminants. As a product for end-users, field-captured trichomes are closest to being contaminant-free. As feedstock for manufacturers of extracts and oils, they are the key to the purest products possible.
CryoMass Business Portfolio
CryoMass LLC, formerly known as General Extract, is controlled by the company through its 100% ownership interest. The company dissolved its previously reported VIE relationship with Critical Mass Industries Inc. as of December 31, 2021.
On June 23, 2021, the company consummated the purchase of assets of Cryocann USA Corp through its wholly-owned subsidiary Cryomass LLC. The research and development work of the patented technology has been finalized, and commercial-scale testing of the system has been completed.
CryoMass Financial Update
In September 2021, CryoMass Technologies was granted an additional patent for their process from the Chinese Intellectual Property Office. The company is currently taking steps to gain further protection for its intellectual property through the European Union Intellectual Property Office and several other international jurisdictions.
On November 17, 2021, the company announced the completion of a $10.3 million equity financing. The financing and the earlier conversion of substantially all the company’s debt into common stock left the company with adequate resources for its planned business development. In connection with the financing, CEO Christian Noël and Chairman of the Board Delon Human, respectively, purchased 1,010,000 shares and 760,000 shares of CryoMass Technologies common stock either individually or through entities controlled by them.
COVID-19 Impact
The COVID-19 pandemic has impacted the operations of the company, including reduced staffing due to employee suspected conditions and social distancing measures, constraints on productivity, management and staff non-essential business-related travel was constrained due to stay-at-home orders, some employees have shifted to remote work resulting in loss of productivity, and consumers visiting dispensaries operated under license impacted by stay-at-home orders.
While activities resumed in full in 2022, there are continued threats of short-notice, temporary restrictions that may impact the company’s business.
CryoMass Expansion Plans
The technology CryoMass is developing for hemp and cannabis may have profitable application to other high-value plants, including species that are important for health and wellness products, wrap their valuable elements in trichomes.
The CryoMass system’s three-dimensional advantage, achievable with the first-stage cost savings,
CryoMass Technologies: Enhancing Product Quality and Quantity for Cultivators and Processors
CryoMass Technologies is a company specializing in the research and development of patented technology for the production and processing of hemp and cannabis. The company has created a unique trichome separation system that offers significant benefits to large-scale cultivators and processors, including cost and time savings, improved product quality and quantity, and reduced wastage.
CryoMass System: A Cost-Effective and Efficient Alternative
Traditionally, harvested hemp or cannabis plants are transported to a specially constructed drying house, where they are treated for a week or longer under controlled conditions of temperature and humidity. With CryoMass system, harvested plants are simply fed into the front end of a trichome separation system, and minutes later, fully intact trichomes are collected at the back end of the unit. This method eliminates many of the costs that come with traditional practices, especially the labor, fuel, and capital costs of drying and curing.
The CryoMass system is an efficient alternative to traditional methods because it stabilizes and collects fully intact trichomes at harvest, leaving no opportunity for wasteful loss. The trichomes collected are the cleanest element of a hemp or cannabis plant, as they do not readily take up heavy metals, pesticides, or other common soil contaminants. For end-users, field-captured trichomes are closest to being contaminant-free. For manufacturers of extracts and oils, they are the key to the purest products possible.
Shipping and Storing Advantages
Trichomes collected from CryoMass system represent only 10% or so of a plant’s weight and volume, making them cheaper to ship and store than gross plant material. As trichomes are free of waxes and other unwanted materials found in the rest of the plant, processing trichomes into oils and extracts is far quicker, cheaper, and easier than processing gross plant material.
The CryoMass system delivers a three-dimensional advantage achievable that can as much as double a crop’s wholesale value. The benefits of the system – first-stage cost savings, product enhancement, and downstream cost savings – are significant for cultivators and processors.
Impact of COVID-19 on CryoMass Technologies
The COVID-19 pandemic and responses to this crisis, including actions taken by federal, state, and local governments, have had an impact on the operations of CryoMass Technologies. Reduced staffing due to employee suspected conditions and social distancing measures have constrained productivity. Some employees have shifted to remote work, resulting in loss of productivity. Consumers visiting dispensaries operated under license impacted by stay-at-home orders. Management continues to monitor the COVID-19 pandemic situation and federal, state, and local recommendations and will provide updates as appropriate.
Business Portfolio and Recent Developments
CryoMass Technologies’ business portfolio includes the accounts of Cryomass LLC and dissolved its previously reported VIE relationship with Critical Mass Industries Inc., as of December 31, 2021. The company consummated the purchase of assets of Cryocann USA Corp in June 2021 through its wholly-owned subsidiary Cryomass LLC.
Recently, the company signed a license and lease arrangement with RedTape Core Partners LLC (“RedTape”) to deploy multiple CryoMass trichome separation units at the prospective partner’s facility in California and other locations, with the intention of starting commercial operations shortly. Under the terms of a multi-state license agreement, RedTape has licensed the patented process and will deploy 12 Trichome Separation systems for a total upfront investment of US$10.2 million payable in installments to CryoMass throughout 2023.
Results of Operations for the Years Ended December 31, 2022
CryoMass System: The Key to High-quality and Cost-effective Extraction
The CryoMass system offers cost and time savings while enhancing product quality and quantity for large-scale cultivators and processors of hemp and cannabis. The traditional practices of drying and curing hemp or cannabis that is grown for the extraction of end products come with a lot of costs, especially labor, fuel, and capital costs. In contrast, harvested plants are simply fed into the front end of a CryoMass trichome separation system, and minutes later fully intact trichomes are collected at the back end of the unit.
Benefits of Using CryoMass System
Field-captured trichomes are the cleanest element of a hemp or cannabis plant, and the CryoMass system stabilizes and collects fully intact trichomes at harvest, leaving no opportunity for wasteful loss. As a product for end-users, field-captured trichomes are closest to being contaminant-free. Processing trichomes into oils and extracts can be far quicker, cheaper, and easier than processing gross plant material. Even trichomes captured from dried or frozen plant parts deliver this cost-saving advantage to processors of oils and extracts. The CryoMass system offers three-dimensional advantages that can double a crop’s wholesale value, including first-stage cost savings, product enhancement, and downstream cost savings.
Results of Operations for the Years Ended December 31, 2022 and 2021
For the year ended December 31, 2022, there were no net sales related to continuing operations. However, in the year ended December 31, 2021, CryoMass LLC, the Company’s wholly-owned subsidiary, consummated the purchase of assets of Cryocann USA Corp. CryoMass LLC signed a license and lease agreement with RedTape Core Partners LLC to deploy multiple CryoMass trichome separation units in California and other locations, which could potentially start commercial operations shortly. RedTape has licensed the patented process and will deploy 12 Trichome Separation systems for a total upfront investment of US$10.2 million payable in installments to CryoMass throughout 2023.
For the year ended December 31, 2022, the total operating expenses increased to $10,311,810 from $7,991,827 in 2021. The loss from operations increased to $10,311,810 from $7,991,827 in 2021. The total other expenses decreased to $132,669 from $2,142,815 in 2021. The net loss from continuing operations before taxes increased to $10,444,479 from $10,134,642 in 2021.
In relation to the Company’s variable interest entity (VIE), CMI, which is classified as discontinued operations, there were no net sales or cost of goods sold related to continuing operations for the year ended December 31, 2022. In the year ended December 31, 2021, CMI net sales were $5,891,894, and CMI’s cost of goods sold were $4,132,696. The decrease in CMI net sales for the year ended December 31, 2022, compared to the year ended December 31, 2021, was attributable to the Company’s disposal of its discontinued operations as of December 31, 2021.
Overall, the CryoMass system presents a significant opportunity for cost-effective and high-quality extraction, offering various benefits such as contaminant-free end products, reduced processing time and costs, and downstream cost savings.
Operating Expenses and Other Expenses
Operating expenses for a company refer to all the expenses incurred by a business to operate effectively. The operating expenses of Cryomass LLC for the year ended December 31, 2022, were $10,311,810, representing a 29% increase from $7,991,827 in 2021. The significant increase was due to a rise in legal and professional fees by $1,767,519, general and administrative expenses by $1,616,812, and depreciation and amortization expenses by $118,738.
The increase in general and administrative expenses was mainly because of an increase in bad debt expense, resulting from the company deeming its loans receivable from CMI as uncollectible at the end of 2022. The legal and professional fees also increased by 233% due to investor relations services from one vendor, while depreciation and amortization expenses increased by 272%, primarily due to the depreciation of machinery and equipment and the amortization of in-process research and development.
CMI, a variable interest entity, had no operating expenses for the year ended December 31, 2022, representing a decrease of $1,402,437 or 100%. The reduction was due to the Company’s disposal of its discontinued operations as of December 31, 2021.
The other expense for the year ended December 31, 2022, amounted to $147,014 in interest expense and $14,345 gain on foreign exchange, while for the year ended December 31, 2021, it was $2,189,959 in interest expense and $47,144 gain on foreign exchange. The decrease in interest expense was mainly due to the recognition and full amortization of a debt discount associated with a convertible note in 2021, while the increase in gain on foreign exchange was primarily related to a payable agreement with Cryomass LLC’s supplier.
CMI’s other expense for the year ended December 31, 2021, was $49,803 in interest expense, which primarily relates to the related party note.
Net Loss and Liquidity
As a result of the above operating and other expenses, Cryomass LLC had a net loss of $10,422,691 for the year ended December 31, 2022, representing a $2,436,952 or 19% reduction from the $12,859,643 net loss for the year ended December 31, 2021. The net loss per common share was $0.05 – basic and diluted, for the year ended December 31, 2022, and $0.08 – basic and diluted, for the year ended December 31, 2021.
The Company anticipates that its available cash balance as of the filing date would not be enough to fund its level of operations for the next twelve months. The Company’s ability to continue operations depends on the availability of cash from various sources. It intends to generate additional funds through equity or debt financing, joint ventures, partnerships, or other sources, but there can be no assurance that such financing will be available on favorable terms or at all.
Company’s Financial Position and Future Operations
Operating Expenses and Other Expenses
The Company’s operating expenses include personnel costs, general and administrative expenses, and legal and professional fees. In 2022, the total operating expenses were $10,311,810, a 29% increase from the previous year. This increase was primarily due to higher legal and professional fees, general and administrative expenses, and depreciation and amortization expenses.
Net Loss
For 2022, the Company reported a net loss of $10,422,691, which is an improvement from the previous year’s net loss of $12,859,643. The loss per common share-basic and diluted was $0.05 compared to $0.08 in 2021.
Liquidity, Capital Resources, and Cash Flows
As of December 31, 2022, the Company had working capital of $878,031 and a cash balance of $2,016,057. The Company needs approximately $4,000,000 to cover overhead costs and capital expenditure requirements ranging from zero to $6,600,000, depending on how many trichome separation units are ordered over the next twelve months. The Company expects to finance future cash needs from the results of operations and may require additional equity or debt financing until it achieves profitability.
Impact of COVID-19
The COVID-19 pandemic has disrupted financial markets, which may reduce the Company’s ability to access capital. The Company believes that its cash balances and cash from operations will be sufficient to satisfy its cash needs for the next few months until it can obtain new long-term financing or other sources of capital.
Going Concern
The Company believes that there is substantial doubt about its ability to continue as a going concern. The financial statements for the year ended December 31, 2022, were prepared on a going concern basis and contain an additional explanatory paragraph that identifies issues that raise substantial doubt about the Company’s ability to continue as a going concern.
The Company expects to finance its future cash needs through operating cash flow and additional financing. While one trichome separation unit has been delivered and is expected to begin producing revenue in the second quarter of 2023, there is no assurance that the Company will receive sufficient operating cash flow or necessary financing to cover its expenses.
Summary of Capital Resources and Cash Flows of Cryomass International Corporation
Cryomass International Corporation (CMI) released its annual report for the year ended December 31, 2022. In this report, the company provided a summary of its capital resources and cash flows.
Capital Resources
As of December 31, 2022, CMI had total current assets of $2,166,496 and current liabilities of $1,288,465, resulting in working capital of $878,031. Additionally, the company had a cash balance of $2,016,057, compared to $5,772,839 as of December 31, 2021.
Cash Flows
During the year ended December 31, 2022, CMI used net cash of $4,766,864 in operating activities. This included a net loss of $10,422,691, partially offset by net changes in accounts receivable, prepaid expenses, inventories, accounts payable and accrued expenses, and taxes payable.
In investing activities, CMI used net cash of $1,018,669 for the year ended December 31, 2022, primarily due to the purchase of property and equipment, purchase of intangible assets, and issuance of loan receivable.
For the same period, CMI provided net cash of $2,028,751 from financing activities, which included proceeds from issuance of common stock and proceeds from borrowings.
COVID-19 Impact
CMI believes that the uncertainties associated with COVID-19 have raised substantial doubt about its ability to continue as a going concern. COVID-19 has resulted in significant disruptions in the financial markets, which may reduce the company’s ability to access capital or its customers’ ability to pay the company for past or future purchases, negatively affecting its liquidity.
Conclusion
CMI’s annual report for the year ended December 31, 2022, provided an overview of the company’s capital resources and cash flows, indicating the need for additional financing to fund its anticipated level of operations. The impact of COVID-19 continues to present risks and doubts about the company’s ability to continue as a going concern.
the promised goods or services in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company recognizes revenue from the sale of products when there is persuasive evidence of an arrangement, the product has been delivered or services have been rendered, the sales price is fixed or determinable, and collectability is reasonably assured.
The Company recognizes revenue from its licensing agreements on a straight-line basis over the term of the agreement. The Company also recognizes royalty revenue when earned in accordance with the terms of the license agreement.
Estimates and Judgments
The preparation of consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. These estimates are based on historical experience and various assumptions, which the Company believes to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
The critical accounting policies and estimates include intangibles, accounting for acquisitions, revenue recognition, income taxes, useful life and recoverability of long-lived assets, and deferred income tax asset valuations.
Conclusion
In conclusion, the Company has working capital of $878,031 and cash balance of $2,016,057 as of December 31, 2022. The Company expects to need approximately $4,000,000 to cover overhead costs and capital expenditure requirements ranging from zero to $6,600,000 over the next twelve months. The Company also expects to incur losses for the immediate future, and financing will be required until it can achieve profitability and positive cash flows from operating activities. COVID-19 has resulted in significant disruption of financial markets, which may negatively affect the Company’s liquidity. The Company recognizes revenue from the sale of products and licensing agreements on a straight-line basis over the term of the agreement. The preparation of consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. These estimates are based on historical experience and various assumptions.
Summary of Capital Resources, Cash Flows, and Revenue Recognition
Capital Resources
As of December 31, 2022 and 2021, the Company had current assets of $2,166,496 and $6,530,222, respectively, and current liabilities of $1,288,465 and $1,882,419, respectively. The working capital was $878,031 as of December 31, 2022 and $4,647,803 as of December 31, 2021. In addition, the Company had a cash balance of $2,016,057 and $5,772,839, respectively.
Summary of Cash Flows
The net cash used in operating activities was $4,766,864 during the year ended December 31, 2022. This included a net loss of $10,422,691, partially offset by net changes in accounts receivable, prepaid expenses, inventories, accounts payable and accrued expenses, and taxes payable. The net cash used in operating activities was $5,600,512 during the year ended December 31, 2021, including a net loss of $10,134,642, partially offset by net changes in prepaid expenses and accounts payable and accrued expenses, and cash used in operating activities from discontinued operations.
The net cash used in investing activities was $1,018,669 during the year ended December 31, 2022, due to the purchase of property and equipment, purchase of intangible assets, and issuance of loan receivable. The net cash used in investing activities was $2,803,244 during the year ended December 31, 2021, due to the purchase of property and equipment and the CryoCann transaction.
The net cash provided by financing activities for the year ended December 31, 2022, was $2,028,751, which consisted of $256,876 proceeds from the issuance of common stock, $21,875 proceeds from common stock to be issued, and $1,750,000 proceeds from notes payable. The net cash provided by financing activities for the year ended December 31, 2021, was $13,846,756, which consisted primarily of $10,308,000 proceeds from the issuance of common stock and $4,900,000 proceeds from notes payable, offset by repayment of the seller’s note associated with the CryoCann transaction.
Revenue Recognition
The Company recognizes revenue following the five-step model prescribed under ASC 606. Revenue is recognized upon completion of promised services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those services. Taxes collected from customers, which are subsequently remitted to governmental authorities, are excluded from revenue.
Critical Accounting Policies and Estimates
The Company’s financial condition and results of operations are based upon its consolidated financial statements, which are prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosure of contingent assets and liabilities.
Accounting for Acquisitions
The Company recognizes identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquired entity for business combinations by applying the acquisition method. The Company capitalizes acquisition-related costs and fees associated with asset acquisitions and immediately expenses acquisition-related costs and fees associated with business combinations.
Variable Interest Entities
The Company accounts for variable interest entities in accordance with FASB ASC Topic 810, Consolidation. The Company determines if it is the primary beneficiary of a VIE through a qualitative analysis that identifies which variable interest holder has the controlling financial interest in the VIE.
Income Taxes
The Company adheres to ASC 740 in recognizing and measuring tax positions taken or expected to be taken in income tax returns. It computes tax asset benefits for net operating losses carried forward and carries a deferred tax asset on its balance sheet.
Don’t miss interesting posts on Famousbio
