Eden Empire Inc. — Audit Report / Information 2021

Nov 30, 2021

EDEN EMPIRE INC.

CONSOLIDATED FINANCIAL STATEMENTS (Expressed in Canadian Dollars)

FOR THE YEARS ENDED JULY 31, 2021 AND 2020

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INDEPENDENT AUDITORS’ REPORT

To the Shareholders of Eden Empire Inc.

Opinion

We have audited the consolidated financial statements of Eden Empire Inc. (the “Company”), which comprise the consolidated statements of financial position as at July 31, 2021 and 2020, the consolidated statements of loss and comprehensive loss, cash flows and changes in equity (deficiency) for the years ended July 31, 2021 and 2020, and the related notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the Company as at July 31, 2021 and 2020 and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards (IFRSs).

Basis for Opinion

We conducted our audits in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audits of the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Other Information

Management is responsible for the other information, which comprises the information included in the Company’s Management Discussion & Analysis to be filed with the relevant Canadian securities commissions.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above 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, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Material Uncertainty Related to Going Concern

We draw attention to Note 1 of the accompanying consolidated financial statements, which describes matters and conditions that indicate the existence of a material uncertainty that may cast significant doubt about the Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.

Responsibilities of Management and Those Charged with Governance for the Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRSs, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company's financial reporting process.

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audits. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audits in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audits and significant audit findings, including any significant deficiencies in internal control that we identify during our audits.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

The engagement partner on the audits resulting in this independent auditors’ report is Waseem Javed.

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CHARTERED PROFESSIONAL ACCOUNTANTS Vancouver, British Columbia November 29, 2021

EDEN EMPIRE INC. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Expressed in Canadian Dollars) AS AT

	July 31, 2021	July 31, 2020
ASSETS Current Cash and cash equivalents $ Amounts receivable (Note 8) Prepaids (Note 5) Inventory (Note 6) Asset classified as held for sale (Note 12) Bridge loan(Note 8) Option agreement(Note 9) Lease inducements(Note 10) Property and equipment(Note 11) Intangible assets(Note 13) $	71,245 $ 267,843 182,356 54,946 1,533,594 2,109,984 - 31,155 - 2,245,720 31,133 4,417,992 $	688,346 67,128 48,977 27,312 -
		831,763 842,065 26,808 80,000 2,968,114 18,000
		4,766,750
LIABILITIES AND SHAREHOLDERS’ EQUITY Current Accounts payable and accrued liabilities (Notes 8 and 18) $ Deposits (Note 12) Lease liabilities (Note 14) Loan payable (Note 15) Liabilities classified as held for sale (Note 12) Lease liabilities(Note 14) Deferred income tax liability (Note 19) Loan payable (Note 15) Shareholders’ equity Share capital (Note 17) Reserves (Note 17) Accumulated other comprehensive loss Deficit Non-controlling interest $	997,180 $ 150,000 34,032 664,429 2,068,438 3,914,079 149,821 43,504 - 4,107,404 9,998,904 272,847 (115,926) (10,022,135) 176,898 310,588 4,417,992 $	532,491 - 306,529 - -
		839,020 1,256,505 - 40,000
		2,135,525 8,873,458 130,070 (3,289) (6,369,014) -
		2,631,225
		4,766,750

NATURE OF OPERATIONS AND GOING CONCERN (Note 1) SUBSEQUENT EVENTS (Notes 8, 9, 12 and 23) Approved and authorized by the Board on November 29, 2021

/s/ Gerry Trapasso Director /s/ Kolten Taekema Director

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

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EDEN EMPIRE INC. CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS (Expressed in Canadian Dollars) FOR THE YEARS ENDED JULY 31,

	2021 2020
REVENUE COST OF SALES GROSS PROFIT EXPENSES Accounting and legal Consulting Depreciation (Note 11) Filing and transfer agent fees Foreign exchange gain Interest, accretion, and bank charges Investor relations Licenses and applications Management fees Office and administration Property costs Prospective location costs Salaries and wages Service agreement recoveries Travel and meals Total operating expenses Other items: Allowance for amounts receivables (Notes 7 and 8) Expense recoveries Gain on settlement of loan (Note 15) Gain on sale of retail subsidiary (Note 8) Gain on sale of subsidiary (Note 12) Loss on bridge loan forgiveness (Note 12) Interest and other income Loss on disposal of assets (Note 11) Reverse takeover expense (Note 4) Loss before income taxes Deferred income tax expense (Note 19) Loss for the year OTHER COMPREHENSIVE LOSS Foreign exchange on translating foreign operations Loss and comprehensive loss for the year	$ 217,934 $ - (155,939)
	61,995 - 409,646 631,014 233,633 342,738 536,190 242,146 34,757 3,940 (2,277) (27,322) 351,240 1,024,419 111,005 352,994 39,891 191,255 195,000 120,000 74,161 78,587 78,323 204,866 91,625 382,282 1,049,045 714,714 - (13,393) 57,412 112,838
	(3,259,651) (4,361,078) (38,579) (450,726) - 10,000 285,950 - 121,127 - - 964,325 (763,352) - 49,293 72,824 (113,552) - - (1,306,349)
	(735,063) (433,976)
	(3,932,719) (4,795,054) (43,504) -
	(3,976,223) (4,795,054) (112,637) (3,289)
	$ (4,088,860) $ (4,798,343)
Net loss and comprehensive loss attributable to: Owners of the parent company Non-controlling interest	$ (3,964,049) $ (4,795,054) (12,174) -
	$ (3,976,223) $ (4,795,054)
Loss per share attributable to owners of the parent Basic and diluted	$ (0.04) $ (0.07)
Weighted average number of common shares outstanding	93,915,461 67,050,821

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

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EDEN EMPIRE INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Expressed in Canadian Dollars) FOR THE YEARS ENDED JULY 31,

	2021	2020
CASH FLOWS USED IN OPERATING ACTIVITIES Net loss for the year $ Non-cash items: Accrued interest Allowance for amounts receivables Consulting fees issued in shares Depreciation Finance expense Loss on bridge loan forgiveness Reverse takeover expense Gain on settlement of loan Gain on sale of subsidiary Gain on sale of retail subsidiary Loss on disposal of assets Deferred income tax expense Changes in non-cash working capital items: Amounts receivable Prepaid expenses and deposits Inventory Accounts payable and accrued liabilities Deposits CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES Bridge loan – funds provided Proceeds received from sale of retail subsidiary, net Proceeds received from partial disposal of subsidiary Promissory note – funds provided Property and equipment Proceeds received for disposal of asset Lease inducements Cash received upon sale of subsidiary Finder’s fee paid on sale of subsidiary Cash received upon completion of reverse take over Option agreement payment Intangible assets CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES Interest paid on convertible debentures Interest paid on loans Funds received from loans, net Loan repayment Lease payments Proceeds from issuance of common shares, net Subscriptions received Foreign exchange effect on cash Change in cash and cash equivalents during the year Cash and cash equivalents, beginning of year Cash and cash equivalents, end ofyear $	(3,976,223) $ (38,579) 38,579 - 536,190 340,354 549,479 - (10,000) - (121,127) 113,552 43,504 (25,715) (133,379) (27,634) 357,500 (50,000) (2,403,499) 78,713 510,000 500,000 - (854,340) 2,680 (20,000) - - - (6,369) (13,133) 197,551 - (73,140) 863,000 (30,000) (41,494) 870,568 - 1,588,934 (87) (617,101) 688,346 71,245 $	(4,795,054) (52,044) 450,726 150,000 242,146 1,021,363 - 1,249,936 - (964,325) - - - 9,249 4,198 (27,312) 87,743 -
		(2,623,374)
		(384,353) - - (391,137) (1,472,376) - (80,000) 1,010,000 (30,000) 825 (26,924) -
		(1,373,965)
		(361,670) - 40,000 - (199,192) 5,000 101,250
		(414,612)
		- (4,411,951) 5,100,297
		688,346
Supplementary cash flow information: Shares in settlement of accounts and loan payable $ Brokers’ warrants Interest paid	397,655 $ 21,979 50,827	361,670 6,034,940 150,000

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

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CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIENCY) (Expressed in Canadian Dollars) FOR THE YEARS ENDED JULY 31, 2021 AND 2020

EDEN EMPIRE INC.

		Share capital	Share capital		Subscriptions receivable		Reserves		Equity component of convertible debentures	Accumulated other comprehensive loss	Accumulated other comprehensive loss		Deficit	Non- controlling interest	Total
		Number	Amount
Balance, July 31, 2019 Subscriptions received Shares issued on RTO closing (Note 4) Warrants issued on RTO closing (Note 4) Shares issued for convertible debt Shares issued for consulting fees Shares issued Loss and comprehensive loss for the year Balance, July 31, 2020		65,222,500 - 3,690,094 - 20,779,952 500,000 100,000 - 90,292,546	$ 1,404,564 - 1,107,028 - 6,206,866 150,000 5,000 - $ 8,873,458		$ (101,250) 101,250 - - - - - - $ -		$ 44,293 - - 85,777 - - - - $ 130,070		$ 171,926 - - - (171,926) - - - $ -		$ - - - - - - - (3,289) $ (3,289)		$ (1,573,960) - - - - - - (4,795,054) $ (6,369,014)	$ - - - - - - - - $-	$ (54,427) 101,250 1,107,028 85,777 6,034,940 150,000 5,000 (4,798,343) $2,631,225
Private placement, net of issuance costs Shares issued upon conversion of debt Partial disposal of subsidiary (Note 12) Loss and comprehensive loss for the year Balance, July 31, 2021		7,708,733 2,909,841 - - 100,911,120	727,791 397,655 - - $ 9,998,904		- - - - $ -		142,777 - - - $ 272,847		- - - - $ -		- - - (112,637) $ (115,926)		- - 310,928 (3,964,049) $ (10,022,135)	- - 189,072 (12,174) $176,898	870,568 397,655 500,000 (4,088,860) $ 310,588

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

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EDEN EMPIRE INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in Canadian Dollars) FOR THE YEARS ENDED JULY 31, 2021 AND 2020

1. NATURE OF OPERATIONS AND GOING CONCERN

Eden Empire Inc. (formerly Rosehearty Energy Inc.) (“Eden Empire” or the “Company”) was incorporated in the Province of Ontario on September 1, 2000 under the name Phoenix Matachewan Mines Inc. Effective December 30, 2008, the Company changed its name to Galahad Metals Inc., effective July 31, 2014, changed its name to Rosehearty Energy Inc. and effective May 14, 2020, changed its name to Eden Empire Inc. and continued into the Province of British Columbia. The records office of the Company is located at 408 – 150 24th Street, West Vancouver, British Columbia, V7V 4G8. The Company is listed on the Canadian Securities Exchange under the symbol “EDEN”.

The Company is in the business of investments and operations in the cannabis sector and engaging in retail and activities in respect of cannabis in Canada and the United States. It is the intention that the Company becomes a fully integrated cannabis product retailer company in Canada and the United States. The Company has registered certain trademark brands and has entered into an agreement to acquire dispensary locations currently under licensing process (Note 8). The Company has commenced retail operations at its location in Winnipeg, Manitoba.

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) on a going concern basis, which contemplates that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. Accordingly, these consolidated financial statements do not include any adjustments to the amounts and classifications of assets and liabilities that might be necessary should the Company be unable to continue as a going concern. Such adjustments could be material.

The Company reported a loss of $3,976,223 for the year ended July 31, 2021 and had an accumulated deficit of $10,022,135 and non-controlling equity interest of $176,898 as at July 31, 2021. The Company’s ability to continue as a going concern is dependent upon its ability to raise funds primarily through the issuance of shares or achieve profitable operations. The achievement of profitable operations is dependent on successful licensing of its storefront operations. The outcome of these matters cannot be predicted at this time. If the Company is unable to obtain additional financing, management may be required to curtail certain expenses. These material uncertainties cast significant doubt about the Company’s ability to continue as a going concern.

In March 2020, the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, potentially leading to an economic downturn. The pandemic has not had a drastic impact on the Company’s operations. Management continues to monitor the situation.

Reverse Takeover

On May 14, 2020, the Company completed a reverse takeover transaction (“Eden RTO”) whereby Eden Empire Inc. (predecessor), amalgamated with a wholly-owned subsidiary of the Company and the shareholders of Eden Empire Inc. (predecessor) received corresponding securities of the Company on a 1:1 basis. Upon completion of the Eden RTO, the shareholders of Eden Empire Inc. (predecessor) obtained control of the consolidated entity. In applying acquisition accounting to a reverse acquisition, Eden Empire Inc. (predecessor) was identified as the accounting acquirer, and, accordingly, the Company is considered to be a continuation of Eden Empire Inc. (predecessor), with the net assets of the Company at the date of the Eden RTO deemed to have been acquired by Eden Empire Inc. (predecessor). The Company continued under the name of Eden Empire Inc. following the completion of the Eden RTO.

As Eden Empire Inc. (predecessor) was deemed to be the acquirer for accounting purposes, these consolidated financial statements include its assets and liabilities and operations. The Company’s results of operations are included from May 14, 2020 onwards.

2. BASIS OF PREPARATION

Statement of compliance

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 International Financial Reporting Interpretations Committee (“IFRIC”).

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EDEN EMPIRE INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in Canadian Dollars) FOR THE YEARS ENDED JULY 31, 2021 AND 2020

2. BASIS OF PREPARATION (cont’d…)

Basis of consolidation and presentation

The consolidated financial statements have been prepared on a historical cost basis, except for certain financial instruments measured at fair value. In addition, these consolidated financial statements have been prepared using the accrual basis of accounting, except for cash flow information.

The accounting policies set out in Note 3 have been applied consistently by the Company and its subsidiaries to all periods presented.

Use of judgments and estimates

The preparation of these consolidated financial statements requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported expenses during the year. Actual results could differ from these estimates.

Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Accounting estimates will, by definition, seldom equal the actual results. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

The key areas of judgment applied in the preparation of the consolidated financial statements that could result in a material adjustment to the carrying amounts of assets and liabilities are as follows:

• Going concern

The assessment of the Company’s ability to continue as a going concern and to raise sufficient funds to pay its ongoing operation expenditures and to meet its liabilities for the ensuing year, involves significant judgment based on historical experience and other factors, including expectation of future events that are believed to be reasonable under the circumstances.

 Deferred income tax

The value of deferred tax assets is evaluated based on the probability of realization; the Company has assessed that it is improbable that such assets will be realized and has accordingly not recognized a value for deferred taxes.

• Right-of-use assets and lease liability

The Company applies judgement in determining whether the contract contains an identified asset, whether they have the right to control the asset, and the lease term. The lease term is based on considering facts and circumstances, both qualitative and quantitative, that can create an economic incentive to exercise renewal options. Management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not to exercise a termination option.

• Business combinations

Judgment is used in determining whether an acquisition is a business combination or an asset acquisition.

 Held for sale

The Company used judgement in estimating the classification of assets or a disposal group as assets held for distribution to owners when management is committed to immediately distributing the asset or disposal group in its present condition, and this distribution is highly probable and expected to be completed within one year.

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EDEN EMPIRE INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in Canadian Dollars) FOR THE YEARS ENDED JULY 31, 2021 AND 2020

2. BASIS OF PREPARATION (cont’d…)

Use of judgments and estimates (cont’d…)

The key areas of estimates applied in the preparation of the consolidated financial statements that could result in a material adjustment to the carrying amounts of assets and liabilities are as follows:

 Intangible assets – impairment

The application of the Company’s accounting policy for intangible assets requires judgment in determining whether it is likely that future economic benefits will flow to the Company, which may be based on assumptions about future events or circumstances. The calculations for impairment testing of the Company’s indefinite life intangible assets involve significant estimates and assumptions. Items estimated include cash flows, discount rates and assumptions on revenue growth rates. These estimates could affect the Company’s future results if the current estimates of future performance and fair values change. Judgment is also exercised to determine whether an indication of impairment is present that would require the completion of an impairment test in addition to the annual testing.

 Right-of-use assets and lease liability

The Company uses estimation in determining the incremental borrowing rate used to measure the lease liability, specific to the asset, underlying currency, and geographic location. Where the rate implicit in the lease is not readily determinable, the discount rate of the lease obligations is estimated using a discount rate similar to the Company’s specific borrowing rate. This rate represents the rate that the Company would incur to obtain the funds necessary to purchase the asset of a similar value, with similar payment terms and security in a similar environment.

 Convertible debentures

The valuation of convertible debentures at inception requires management to make estimates with respect to borrowing rates used to measure the liability component.

 Share-based payments and compensation

The Company applies estimates with respect to the valuation of shares issued for non-cash consideration. Shares are valued at the fair value of the equity instruments granted at the date the Company receives the goods or services for share-based payments made to those other than employees or others providing similar services. As a private entity, the Company relies on concurrent or recent financings to provide guidance with respect to prevailing share prices.

The Company measures the cost of equity-settled transactions by reference to the fair value of the equity instruments at the date at which they are granted for share-based payments made to employees or others providing similar services. Estimating fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model including the fair value of the underlying common shares, the expected life of the share option or warrant, volatility and dividend yield and making assumptions about them.

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EDEN EMPIRE INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in Canadian Dollars) FOR THE YEARS ENDED JULY 31, 2021 AND 2020

3. SIGNIFICANT ACCOUNTING POLICIES

Basis of consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries:

Subsidiary	**Date of Incorporation **	**Location **	Ownership
Eden Empire Inc. (formerly Rosehearty)	September 1, 2000	Canada	-
1194360 B.C. Ltd.	January 17, 2019	Canada	100%
1268495 B.C. Ltd.	October 2, 2020	Canada	50%
King Edward & Cambie Operations Ltd.	January 9, 2019	Canada	100%
Peaceful Park Inc.	August 12, 2018	Canada	100%
Eden Empire Ontario One Ltd.	April 28, 2020	Canada	100%
Eden Empire Manitoba One Ltd.	June 3, 2020	Canada	100%
Eden Empire US, Inc.	August 7, 2019	United States	100%
Eden Empire Michigan, LLC	August 7, 2019	United States	100%
Eden Empire Battle Creek RE, LLC	August 7, 2019	United States	100%

All material intercompany transactions have been eliminated upon consolidation. Subsidiaries are entities controlled by the Company. The Company is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its current ability to direct the entity’s relevant activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

The interest of non-controlling shareholders in the acquire is initially measured at the non-controlling shareholders’ proportion of the net fair value of the identifiable assets, liabilities and contingent liabilities recognized.

Total comprehensive income and net loss is attributed to the owner of the parent and its non-controlling interest even if this results in the non-controlling interests having a deficit balance.

Cash equivalents

Cash equivalents consist of a cashable guaranteed investment certificate that is readily convertible into a known amount of cash within 90 days or less.

Currency Translation

IFRS requires that the functional currency of each entity in the consolidated group be determined separately in accordance with the indicators as per International Accounting Standards (“IAS”) 21 The Effects of Changes in Foreign Exchange Rates and should be measured using the currency of the primary economic environment in which the entity operates (the “functional currency"). The functional currency of the Company and its Canada-domiciled subsidiaries is the Canadian dollar; subsidiaries domiciled in the US have a US dollar functional currency. The consolidated interim financial statements are presented in Canadian dollars, which is the Company’s presentation currency.

Under IFRS, the results and financial position of all the Company’s entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

• assets and liabilities are translated at the closing rate at the date of the consolidated statement of financial position;

• income and expenses are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the date of the transaction); and

• all resulting exchange differences are recognized as a separate component of equity.

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into the functional currency at the exchange rate at that date. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in profit or loss.

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EDEN EMPIRE INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in Canadian Dollars) FOR THE YEARS ENDED JULY 31, 2021 AND 2020

3. SIGNIFICANT ACCOUNTING POLICIES (cont’d…)

Financial instruments

Financial assets

The Company classifies its financial assets in the following categories: fair value through profit or loss, amortized cost or fair value through other comprehensive income. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of financial assets at initial recognition.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss (“FVPL”) are initially recognized at fair value with changes in fair value recorded in profit or loss. The Company classifies Bridge Loan (Note 8) as FVPL.

Amortized cost

Financial assets are classified at amortized cost if both of the following criteria are met and the financial assets are not classified or designated as at fair value through profit and loss: 1) the Company’s objective for these financial assets is to collect their contractual cash flows and 2) the asset’s contractual cash flows represent ‘solely payments of principal and interest’. The Company’s cash and cash equivalents, and receivables are recorded at amortized cost as they meet the required criteria.

Fair value through other comprehensive income (“OCI”)

For financial assets that are not held for trading, the Company can make an irrevocable election at initial recognition to classify the instruments at fair value through other comprehensive income (“FVOCI”), with all subsequent changes in fair value being recognized in other comprehensive income. This election is available for each separate investment. Under this new FVOCI category, fair value changes are recognized in OCI while dividends are recognized in profit or loss. On disposal of the investment the cumulative change in fair value is not recycled to profit or loss, rather transferred to deficit. 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/loss. The Company has not classified any assets as FVOCI.

Financial liabilities

Financial liabilities are non-derivatives and are recognized initially at fair value, net of transaction costs, and are subsequently stated at amortized cost. Any difference between the amounts originally received, net of transaction costs, and the redemption value is recognized in profit or loss over the period to maturity using the effective interest method.

Financial liabilities are classified as current or non-current based on their maturity date. Financial liabilities include accounts payable and convertible debentures.

Fair value hierarchy

Fair value measurements of financial instruments are required to be classified using a fair value hierarchy that reflects the significance of inputs in making the measurements. The levels of the fair value hierarchy are defined as follows.

Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 – Inputs for the asset or liability that are not based on observable market data.

Inventory

Inventory is recorded at the lower of cost and net realizable value. Cost is determined using the weighted average cost method. Net realizable value is the estimated selling price in the ordinary course of business, less selling expenses.

All inventories are periodically reviewed for impairment due to slow-moving and obsolete inventory. Provisions for obsolete, slow-moving or defective inventories are recognized in profit or loss. Previous write-downs to net realizable value are reversed to the extent there is a subsequent increase in the net realizable value of the inventories.

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EDEN EMPIRE INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in Canadian Dollars) FOR THE YEARS ENDED JULY 31, 2021 AND 2020

3. SIGNIFICANT ACCOUNTING POLICIES (cont’d…)

Property and equipment

Property and equipment are recorded at cost less accumulated depreciation and accumulated impairment losses. Depreciation is recorded using the straight-line method and is intended to depreciate the costs of assets over their estimated useful live:

Office furniture 5 years Right-of-use assets Over underlying lease term Leasehold improvements Over underlying lease term

Investment property

Investment property comprises a building and land owned by the Company and leased to third parties under operating leases. The Company applies the cost model to its investment property whereby the initial recognition value includes the purchase price and transaction costs of the property. The value of the investment property is largely attributable to the land with the building at a nominal value until refurbishments are completed.

Assets and liabilities classified as held for sale

Non-current assets, or disposal groups comprising assets and liabilities, are classified as held for sale if it is highly probable that they will be recovered primarily through sale rather than through continuing use. Such assets, or disposal groups, are measured at the lower of their carrying amount and fair value less costs to sell.

Leases

At inception of a contract, we assess whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. We assess whether the contract involves the use of an identified asset, whether we have the right to obtain substantially all of the economic benefits from use of the asset during the term of the arrangement and if we have the right to direct the use of the asset.

As a lessee, the Company recognizes a right-of-use asset, and a lease liability at the commencement date of a lease. The right-of-use asset is initially measured at cost, which is comprised of the initial amount of the lease liability adjusted for any payments made at or before the commencement date, plus any decommissioning and restoration costs, less any lease incentives received.

The right-of-use asset is subsequently depreciated from the commencement date to the earlier of the end of the lease term, or the end of the useful life of the asset. In addition, the right-of-use asset may be reduced due to impairment losses, if any, and adjusted for certain measurements of the lease liability.

A lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by the interest rate implicit in the lease, or if that rate cannot be readily determined, the incremental borrowing rate. Lease payments included in the measurement of the lease liability are comprised of:

• fixed payments, including in-substance fixed payments, less any lease incentives receivable;

• variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;

• amounts expected to be payable under a residual value guarantee;

• exercise prices of purchase options if we are reasonably certain to exercise that option; and

• payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease.

The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, or if there is a change in our estimate or assessment of the expected amount payable under a residual value guarantee, purchase, extension or termination option. Variable lease payments not included in the initial measurement of the lease liability are charged directly to profit.

The Company does not recognize right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less and leases of low-value assets. The lease payments associated with these leases are charged directly to profit on a straight-line basis over the lease term.

• 12 -

EDEN EMPIRE INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in Canadian Dollars) FOR THE YEARS ENDED JULY 31, 2021 AND 2020

3. SIGNIFICANT ACCOUNTING POLICIES (cont’d…)

Disposal of Subsidiary or Investment in Associate

When a disposal of a subsidiary occurs or is planned, the Company will consider IFRS 5, Non-current assets held for sale and discontinued operations. If the subsidiary is available for its immediate sale in its present condition and its sale is highly probable, it is classified as “held for sale”. A subsidiary classified as held for sale is carried at the lower of the carrying amount and fair value less costs to sell, and presented separately on the face of the balance sheet. The Company will cease recording depreciation on property and equipment if the subsidiary is held for sale.

The date of disposal of a subsidiary is the date on which control passes. The consolidated statements of operations includes the results of a subsidiary up to the date of disposal and the gain or loss on disposal is the difference between the carrying amount of the net assets and the proceeds of sale.

When the Company disposes of a partial interest in a subsidiary in which the Company retains control, the Company applies IFRS 10, Consolidated financial statements. The Company will recognize the gain or loss on the partial disposal in equity and present non-controlling interests in the consolidated statement of financial position within equity, separately from the equity of the owners of the parent. Changes in the Company’s ownership interest in a subsidiary that do not result in the Company losing control of the subsidiary are equity transactions.

A partial disposal of an interest in a subsidiary in which the parent company loses control creates a gain or loss on the entire interest. If the Company loses control of a subsidiary, the Company derecognises the assets and liabilities of the former subsidiary from the consolidated financial statements at their carrying amounts and derecognizes the carrying amount of any non-controlling interest. The Company recognises the fair value of the proceeds and recognizes any retained non-controlling investment in the former subsidiary at its fair value. The difference between the carrying value of the entire interest which is the carrying value of the subsidiary net of the carrying value of non-controlling interest, and fair value of proceeds plus the fair value of retained investment, is recognized as a gain or loss in the consolidated statements of operations.

Where the Company loses control of a subsidiary, the retained non-controlling investment will be recorded as investment in associate using the equity method, if the Company has significant influence over the subsidiary and IFRS 28, Investment in associates and joint ventures applies. If the Company does not have significant influence over the subsidiary, the retained non-controlling investment will be recorded as a financial asset in accordance with IAS 39, Financial instruments.

The Company applies IFRS 5 to an investment or a portion of an investment in an associate that meets the criteria to be classified as held for sale. Any retained portion of an investment in an associate that has not been classified as held for sale shall be accounted for using equity method until disposal of the portion that is classified as held for sale takes place. After the disposal takes place, the Company accounts for any retained interest in the associate in accordance with IAS 39, unless the retained interest continues to be an associate or a joint venture, in which case the entity uses the equity method.

Investment in Associate

An investment in associate is accounted for using the equity method. An associate is an entity over which the Company has significant influence, but not control, over financial and operating policy decisions. Under the equity method the investment in an associate is initially recognized at cost on date of acquisition. Subsequently the carrying amount of investment is increased or decreased to recognize the Company’s share of the profit or loss of the associate and eliminate gains and losses resulting from upstream and downstream sales to the extent of the Company’s share.

Additionally, any distributions received from the associate are adjusted against the carrying amount of the investment. If the Company loses control through disposal of a subsidiary, but retains significant influence, on the disposal date the retained non-controlling investment is recognized at fair value determined by disposal of ownership in the subsidiary.

The carrying amount of the investment in associate is tested for impairment as one cash generating unit by comparing its recoverable amount with the carrying value of investment to determine if an impairment loss needs to be recognized against the carrying value of the investment. A reversal of that impairment loss is recognized to the extent that the recoverable amount of the investment subsequently increases.

• 13 -

EDEN EMPIRE INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in Canadian Dollars) FOR THE YEARS ENDED JULY 31, 2021 AND 2020

3. SIGNIFICANT ACCOUNTING POLICIES (cont’d…)

Investment in Associate (cont’d...)

When the Company's share of losses of an associate equal or exceeds its interest in the associate, the Company discontinues recognizing its share of further losses. The interest in an associate is the carrying amount of the investment in the associate determined using the equity method together with any long-term interests that, in substance, form part of the Company's net investment in the associate.

After the Company's interest is reduced to zero, additional losses are provided for, and a liability is recognized, only to the extent that the entity has incurred legal or constructive obligations or made payments on behalf of the associate. If the associate subsequently reports profits, the entity resumes recognizing its share of those profits only after its share of the profits equals the share of losses not recognized.

Intangible assets

The Company owns intangible assets consisting of trademarks. Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets with indefinite lives are carried at cost less any accumulated impairment losses and are not amortized. Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific asset to which they relate. All other expenditures are recognized in profit or loss as incurred.

Impairment of non-current assets

At the end of each reporting period, the Company’s assets are reviewed to determine whether there is any indication that those assets may be impaired. If such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment, if any. Indefinite life intangible assets are tested for annually, or more frequently, if events or changes indicate that the asset may be impaired. The recoverable amount is the higher of fair value less costs to sell and value in use. Fair value is determined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount and the impairment loss is recognized in profit or loss for the period. For an asset that does not generate largely independent cash flows, the recoverable amount is determined for the cash-generating unit (“CGU”) to which the asset belongs.

When an impairment loss subsequently reverses, the carrying amount of the asset (or CGU) is increased to the revised estimate of its recoverable amount, but to an amount that does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or CGU) in prior years. A reversal of an impairment loss is recognized immediately in profit or loss.

Revenue

The Company’s accounting policy for revenue recognition under IFRS 15, Revenue from Contracts with Customers (“IFRS 15”) is to follow a five-step model to determine the amount and timing of revenue to be recognized i) identify the contract with a customer; ii) identify the performance obligations in the contract; iii) determine the transaction price; iv) allocate the transaction price to the performance obligations in the contract; and v) recognize revenue when (or as) the Company satisfies a performance obligation.

Revenue from the sale of cannabis is recognized when the Company transfers control of the good to the customer. The Company generally satisfies its performance obligation and transfers control to the customer upon delivery and acceptance by the customer. Revenue is recorded at the estimated amount of consideration to which the Company expects to be entitled.

The Company recognizes revenue in an amount that reflects the consideration the Company expects to receive taking into account any variation that may result from rights of return.

Areas of judgment include identifying the customer per the definition within IFRS 15 and determining whether control has passed to the customer.

• 14 -

EDEN EMPIRE INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in Canadian Dollars) FOR THE YEARS ENDED JULY 31, 2021 AND 2020

3. SIGNIFICANT ACCOUNTING POLICIES (cont’d…)

Share capital

Proceeds received on the issuance of units, consisting of common shares and warrants, are allocated first to common shares based on the market trading price of the common shares at the time the units are priced, and any excess is allocated to warrants.

Shares issued as consideration for goods or services provided by to those other than employees or others providing similar services are measured at the fair value of the goods or services received, except where the fair value cannot be measured reliably, in which case they are measured at the fair value of the equity instruments granted.

Share-based payments

Share-based payments to employees are measured at the fair value of the instruments issued and recognized over the vesting periods. Share-based payments to non-employees are measured at the fair value of the goods or services received or the fair value of the equity instruments issued, if it is determined the fair value of the goods or services cannot be reliably measured, and are recorded at the date the goods or services are received. The amount recognized as an expense is adjusted to reflect the number of awards expected to vest. The offset to the recorded cost is to reserve.

Consideration received on the exercise of stock options is recorded as share capital and the related reserve is transferred to share capital. Charges for options that are forfeited before vesting are reversed from reserve. For those unexercised options that expire, the recorded value is transferred to deficit.

Share purchase warrants

The Company from time to time issues common shares and share purchase warrants as a unit. The residual method is used to allocate the value of warrants. The fair value of common shares is the market price on the date of issue with any residual value allocated to the share purchase warrant.

Business combinations

Acquisitions of businesses are accounted for using the acquisition method. At the acquisition date the identifiable assets acquired and the liabilities assumed are recognized at their fair value, except deferred tax assets or liabilities, which are recognized and measured in accordance with IAS 12 – Income Taxes. Subsequent changes in fair values are adjusted against the cost of acquisition if they qualify as measurement period adjustments. The measurement period is the period between the date of the acquisition and the date where all significant information necessary to determine the fair values is available and cannot exceed 12 months. All other subsequent changes are recognized in the consolidated statements of comprehensive loss.

The purchase price allocation process resulting from a business combination requires management to estimate the fair value of identifiable assets acquired including intangible assets and liabilities assumed including any contingently payable purchase price obligation due over time. The Company uses valuation techniques, which are generally based on forecasted future net cash flows discounted to present value. These valuations are closely linked to the assumptions used by management on the future performance of the related assets and the discount rates applied. The determination of fair value involves making estimates relating to acquired intangibles assets, property and equipment and contingent consideration.

Acquisition related costs are recognized in the consolidated statements of comprehensive loss as incurred.

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.

The Company acquired Eden Empire Inc. as described in Note 4 and concluded that the transaction did not qualify as a business combination under IFRS 3, “Business Combinations”.

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EDEN EMPIRE INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in Canadian Dollars) FOR THE YEARS ENDED JULY 31, 2021 AND 2020

3. SIGNIFICANT ACCOUNTING POLICIES (cont’d…)

Loss per share

Basic loss per share is calculated by dividing the loss available to common shareholders by the weighted average number of shares outstanding in the period. For all periods presented, the loss available to common shareholders equals the reported loss. Diluted loss per share is calculated by the treasury stock method. Under the treasury stock method, the weighted average number of shares outstanding for the calculation of diluted loss per share assumes that the proceeds to be received on the exercise of dilutive share options and warrants are used to repurchase common shares at the average market price during the period. In the Company’s case, diluted loss per share is the same as basic loss per share, as the effects of including all outstanding options and warrants would be anti-dilutive.

Income taxes

The Company uses the balance sheet method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using substantively enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred income tax assets also result from unused loss carry-forwards, resource related pools and other deductions. A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences to the extent that it is possible that future taxable profits will be available against which they can be utilized.

Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

Upcoming accounting pronouncements

A number of new standards, and amendments to standards and interpretations, are not yet effective for the year ended July 31, 2021, and have not been applied in preparing these consolidated financial statements. Management does not expect the impact of any such new standards and amendments to have any significant impact on its consolidated financial statements.

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EDEN EMPIRE INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in Canadian Dollars) FOR THE YEARS ENDED JULY 31, 2021 AND 2020

4. REVERSE TAKEOVER TRANSACTION

As described in Note 1, the Company acquired Rosehearty Energy Inc. (“Rosehearty”). For accounting purposes, the acquisition is considered to be outside the scope of IFRS 3 – Business Combinations (“IFRS 3”) since Rosehearty, prior to acquisition, did not constitute a business. The transaction is accounted for in accordance with IFRS 2 – Share-based payments whereby the Company is deemed to have issued shares in exchange for the net assets of Rosehearty together with any reverse takeover transaction costs at the fair value of the consideration received.

As a result, a reverse takeover transaction cost of $1,306,349 has been recorded. This reflects the difference between the estimated fair value of the Eden Empire’s shares deemed to have been issued to the Company’s shareholders, plus transaction costs incurred, less the net fair value of the assets acquired.

In accordance with reverse acquisition accounting:

i) The assets and liabilities of Rosehearty are included in the statement of financial position at their carrying values ii) The net liabilities of the Company are included at their fair value of $57,131.

Fair value of consideration allocated: Fair value of 3,690,094 shares issued at $0.30 per share $ Fair value of 1,011,166 warrants(1)	1,107,028 85,777
Identifiable net assets acquired: Cash Amounts receivable Prepaids Accounts payable Transaction costs	1,192,805 825 7,988 3,675 (69,618)
	(57,131)
	(56,413)
Total RTO expense $	1,306,349

(1) The fair value of the warrants was determined using the following weighted average Black-Scholes assumptions:

Grant date share price	$	0.60
Risk-free interest rate		0.27%
Expected life of warrants		0.8 years
Expected annualized volatility		120.00%
Dividendrate		-

5. PREPAIDS

	July 31, 2021 July 31, 2020
Purchase prepayments Prepaid expenses Deposits Balance, end ofyear	$ 10,172 $ - 156,851 15,333 39,331 9,646
	$ 182,356 $ 48,977

• 17 -

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in Canadian Dollars) FOR THE YEARS ENDED JULY 31, 2021 AND 2020

EDEN EMPIRE INC.

6. INVENTORY

Inventory	July 31, 2021 July 31, 2020
Packaged Dried Cannabis Packaged Cannabis Derived Accessories Promotional materials Balance, end ofyear	$ 17,316 9,209 6,254 22,167 $ - - - 27,312
	$ 54,946 $ 27,312

During the year ended July 31, 2021, the Company recognized $155,939 (2020 - $Nil) of cash costs expensed to costs of sales.

7. PROMISSORY NOTE

In the year ended July 31, 2020, the Company provided a promissory note (“Promissory Note”) of $391,137 to a private entity in St. Vincent & the Grenadines for the purpose of applying for one or more licenses in that jurisdiction. The Promissory Note is unsecured, accrues interest at a rate of 1% per annum and is payable on demand after March 1, 2021. The Company recognized interest income of $1,693 in the year ended July 31, 2020. As at July 31, 2020, the Company recorded an allowance for the promissory note receivable of $392,830 to write down the carrying value of the promissory note to $Nil.

8. ACQUISITION OF B.C. DISPENSARIES

On May 16, 2019, as amended March 13, 2020, the Company entered into an agreement to acquire all of the issued and outstanding common shares of seven private companies, each holding a retail lease for a dispensary location, from 1175579 B.C. Ltd. (“1175579”), a private company. Each one of the seven private companies is identified as a “Retail Subsidiary”.

Pursuant to the agreement, the Company will acquire the Retail Subsidiaries from 1175579 upon the issuance of a license to operate a private non-medical cannabis retail store under the Cannabis Control and Licensing Act (“License”). Each Retail Subsidiary will be acquired for $65,000 payable in the form of cash or common shares at a price of $0.30, escalating to $0.90 over 6 months following a Retail Subsidiary acquisition (at a rate of $0.10 per month), per share at the option of 1175579 and an amount not exceeding $15,000 for expenses in connection with certain allowable expenses incurred by 1175579 in connection with the Retail Subsidiary. Four of the seven Retail Subsidiaries are subject to a cash payment of $350,000 on acquisition. Should a Retail Subsidiary not be successful in obtaining a License, the Company will not be required to purchase that entity.

Additionally, on execution of the agreement, the Company extended a bridge loan to 1175579 for the general working capital purposes to pursue Licenses and maintain operations of the Retail Subsidiaries (“Bridge Loan”). The Bridge Loan had a facility of up to $1,100,000, which is advanced and was subject to an interest rate of 8%. At February 11, 2021, the Company acquired and concurrently disposed of substantially all assets of the first Retail Subsidiary and upon closing, the principal and all accrued and unpaid interest on the Bridge Loan of $763,352 was forgiven pursuant to the terms of the underlying agreement with 1175579.

As at July 31, 2021, the Company had a balance receivable of $nil (2020 - $842,065) under the Bridge Loan.

On November 16, 2020, the Company entered into agreement with 1175579 which permitted a Retail Subsidiary to dispose of substantially all of its assets to an unrelated third party for gross proceeds of $750,000. As described above, the Company completed this transaction on February 11, 2021. During the year ended July 31, 2021, the Company received proceeds of $575,000 with respect to the transaction. As party to the agreement, the Company reimbursed 1175579 for the associated legal fees, paid $65,000 to 1175579 and accrued an amount payable of $350,000 which 1175579 would otherwise be entitled to under a Retail Subsidiary purchase within 14 months as the balance of funds are paid to the Company. The accumulated balance under the Bridge Loan for this Retail Subsidiary of $213,873 was forgiven and reflected as a reduction of the gain on the sale of the retail subsidiary and the Company has recorded a net gain on sale of this retail subsidiary of $121,127. In connection with this transaction, the Company has recorded an amount payable to 1175579 of $350,000 included in accounts payable and accrued liabilities and an amount receivable of $175,000 from the purchaser as at July 31, 2021.

• 18 -

EDEN EMPIRE INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in Canadian Dollars) FOR THE YEARS ENDED JULY 31, 2021 AND 2020

9. OPTION AGREEMENT

Option Agreement for the Acquisition of Actium Botanicals

On October 7, 2019, the Company entered into an option agreement (the “Michigan Option”) to purchase all of the issued and outstanding shares of Actium Botanicals, Incorporated (“Actium”). Actium is in the process of applying for facility licenses at two locations: its Battle Creek facility and its Stronach facility in Michigan, USA. Pursuant to the Actium Option, the seller agrees to use reasonable best efforts for Actium to obtain the required licenses, consents and approvals to initiate the operations of the facilities.

The Company paid a non-refundable deposit of USD$20,000 with respect to the Michigan Option, which may be applied against future payments due under the option. On September 20, 2021, subsequent to the year end, the Michigan Option was exercised. For accounting purposes, the acquisition is considered to be outside the scope of IFRS 3 – Business Combinations (“IFRS 3”) since Actium, prior to acquisition, did not constitute a business.

As the purchase price for the Michigan Option, the Company shall make payments in an amount equal to 4% of the amount of all gross receipts received by Actium at the Battle Creek and Stronach facilities, due within 45 days after each calendar quarter. The Company may terminate its obligation to make payments on gross receipts by making a one-time payment of US$5,000,000.

The Michigan Option provides that, concurrently with its execution, the Company and Actium enter into a service agreement and a lease for the real estate owned by the Company and an affiliate of the vendor, on which the Stronach Facility is situated. Pursuant to the service agreement, the Company will provide certain services to support Actium’s operation of the Battle Creek and Stronach facilities.

10. LEASE INDUCEMENTS

King Edward & Cambie Operations Ltd.

On August 21, 2019, entered into a lease agreement for a retail space through its wholly-owned subsidiary King Edward & Cambie Operations Ltd. (“Cambie”). The lease is for a period of 5 years, subject to extension. The Company will pay a monthly rent charge of $20,000 for the initial 5 years. Additionally, the Company must pay 3% of the gross sales of all goods or products legally sold from the leased premises up to $5,000,000 annually. The Company must also pay $110,000 in four non-refundable payments upon satisfaction of the following conditions:

• a) $20,000 upon acceptance of the lease offer (paid);

• b) $30,000 upon execution of the lease (paid);

• c) $30,000 on the date the Company obtains a development permit and the building permit from the City of Vancouver in order to use the premises for cannabis (paid); and

• d) $30,000 on the date the Company obtains a conditional cannabis permit issued by the applicable governmental authorities having jurisdiction over the sale of cannabis with respect to the premises.

On July 16, 2021, the lease agreement was terminated. Payments totaling $80,000 to hold the lease agreement were recorded as lease inducements were non-refundable and forfeited to the landlord. Due to a fire at the premise, the leasehold improvements and office equipment were written off during the year ended July 31, 2021.

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EDEN EMPIRE INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in Canadian Dollars) FOR THE YEARS ENDED JULY 31, 2021 AND 2020

11. PROPERTY AND EQUIPMENT

	Office equipment	Investment property	Right-of-use assets	Leasehold improvements	Total
Cost Balance, July 31, 2019 Additions Disposal (Note 12) Foreign exchange Balance, July 31, 2020 Additions Classified as held for sale (Note 12) Disposal Foreign exchange Balance, July 31, 2021	$ - 61,336 - - 61,336 30,370 (28,768) (32,568) (327) $ 30,043	$ 131,480 1,327,211 - (3,173) 1,455,518 366,483 - - (110,243) $ 1,711,758	$ - 1,723,900 (66,046) - 1,657,854 636,234 (2,093,543) - - $ 200,545	$ - 15,451 - - 15,451 457,107 (30,840) (17,189) - $ 424,529	$ 131,480 3,127,898 (66,046) (3,173) 3,190,159 1,490,194 (2,153,151) (49,757) (110,570) $ 2,366,875
Accumulated Depreciation Balance, July 31, 2019 Depreciation expense Disposal (Note 12) Foreign exchange Balance, July 31, 2020 Depreciation expense Classified as held for sale (Note 12) Disposal Foreign exchange Balance, July 31, 2021	$ - 6,134 - - 6,134 15,717 (8,821) (9,581) (42) $ 3,407	$ - - - - - - - - - $ -	$ - 234,018 (20,101) - 213,917 429,071 (607,407) - - $ 35,581	$ - 1,994 - - 1,994 91,402 (6,905) (4,324) - $ 82,167	$ - 242,146 (20,101) - 222,045 536,190 (623,133) (13,905) (42) $ 121,155
Net Book Value Balance, July 31, 2020 Balance, July 31,2021	$ 55,202 $ 26,636	$ 1,455,518 $ 1,711,758	$ 1,443,937 $ 164,964	$ 13,457 $ 342,362	$ 2,968,114 $ 2,245,720

At July 31, 2021, the Company reclassified property and equipment with a cost of $2,153,151 and accumulated depreciation of $623,133 to assets to held for sale. The assets consisted primarily of a right-of-use asset as well as leasehold improvements the right-of-use asset. Management estimated the fair value less costs to sell exceeds the carrying value and therefore the assets are measured at their carrying values.

During the year ended July 31, 2021, the leasehold improvements and office equipment were written off due to a fire at the Cambie premise, resulting in a loss on disposal of assets of $114,332. In addition, the Company disposed of office equipment for proceeds of $2,680 and recorded a gain on disposal of asset of $780.

Investment property

In the year ended July 31, 2020, the Company completed the purchase of a building and contiguous land in Battle Creek, Michigan, US. The Company paid US$995,000 and additional transaction costs of US$200,346. The Company has a lease agreement on the property with Actium for the period of one year after which the Company will grant a month-tomonth tenancy. Actium may use the property only for the operation of a provisioning center and/or cannabis retailer once Actium has received all requisite licenses and permits from all relevant regulatory or governmental authorities and for no other purpose. No income was recognized with respect to the lease agreement in the year ended July 31, 2021. Actium will be required to pay rent once the premise is opened for operations.

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EDEN EMPIRE INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in Canadian Dollars) FOR THE YEARS ENDED JULY 31, 2021 AND 2020

12. SALE OF SUBSIDIARIES

4317 Fraser Street Operations Ltd.

On March 30, 2020, the Company completed the sale of its wholly-owned subsidiary 4317 Fraser Street Operations Ltd. (“4317 Fraser”). The Company received $1,010,000 in proceeds on the sale of the entity and paid a finder’s fee of $30,000 with respect to the transaction. The Company is entitled to additional proceeds contingent on certain revenue targets which may or may not be met by the purchaser. The contingent consideration has been valued at $Nil as the ability of the purchaser to generate revenue on the entity’s assets is uncertain.

Disposal of 4317 Fraser
Consideration Finder’s fee paid on transaction Net assets disposed Deposit Right-of-use assets Lease liability Gainonsale ofsubsidiary	$ 1,010,000 (30,000)
	980,000 10,000 45,945 (40,270)
	15,675
	$ 964,325

1268495 B.C. Ltd.

On June 15, 2021, the Company issued 100 Class B non-voting shares, which represents a 50% interests, in its whollyowned subsidiary, 1268495 B.C. Ltd. for total proceeds of $500,000. Proceeds were paid in part by the settlement of $200,000 of the Notes (Note 15).

On July 24, 2021, the Company entered into a non-binding exclusivity and deposit agreement with the Class B shareholder to purchase the remaining shares or substantially all the assets of 1268495 B.C. Ltd. For an aggregate purchase price of $600,000. The Company received a deposit of $100,000 which will be applied to the purchase price pending the satisfaction of a number of conditions. In the event the transaction fails to close for any reason other than by reason of breach of terms and conditions, the deposit will be fully refunded to the non-voting shareholder by Company.

The Company recorded a gain on the issuance of Class B shares of $310,928 in equity, and non-controlling interest of $189,072 upon the issuance of Class B shares.

As at July 31, 2021, as a result of the pending sale of 1268495 B.C. Ltd., the Company reclassified the carrying value of $367,707 as assets held for sale and $425,934 as liabilities held for sale.

Peaceful Park Inc.

As at July 31, 2021, the Company had executed a letter of intent to enter into a share purchase agreement (see Note 23) with a private arm’s length third party to dispose of a 50% interest in Peaceful Park Inc. During the year ended July 31, 2021, the Company received $50,000 which will be applied to the proposed purchase price of $1,050,000. As at July 31, 2021, Peaceful Park Inc. was classified as a separate disposal group held for sale which consist of $1,165,887 of assets held for sale and $1,642,504 of liabilities held for sale as the Company actively pursues a divestment of the entity.

13. INTANGIBLE ASSETS

The Eden IP and underlying trademarks have been assigned an indefinite useful life, as there is no foreseeable limit to the period over which the assets are expected to generate net cash inflows and the Company’s intention is to continue to utilize these trade names for the foreseeable future.

	July 31, 2021 July 31, 2020
Trademarks Balance, end ofyear	$ 31,133 $ 18,000
	$ 31,133 $ 18,000

• 21 -

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in Canadian Dollars) FOR THE YEARS ENDED JULY 31, 2021 AND 2020

EDEN EMPIRE INC.

14. LEASE LIABILITIES

Lease liabilities	July 31, 2021	July 31, 2020
Balance, beginning of period Additions Accrued finance expense Lease payments paid or accrued in accounts payable Disposal (Note 12) Classified as held for sale (Note 12) Balance, end of year Current Long term	$ 1,563,034 616,234 240,785 (620,294) - (1,615,906) $ 183,853 $ 34,032 $ 149,821	$ - 1,655,523 146,973 (199,192) (40,270) - $ 1,563,034 $ 306,529 $ 1,256,505

The Company has applied an incremental borrowing rate of 14%.

The Company has the following lease commitments:

Lease commitments	Fiscal year 2022 Fiscal year 2023 Fiscal year 2024 Fiscal year 2025 Fiscal year 2026 and beyond
1674 Davie St. (Note 12) 2230 McPhillips St. 348 Water St. (Note 12)	$ 438,000 $ 450,000 $ 462,000 $ 234,000 $ - 56,978 56,978 56,978 56,978 9,496 167,400 170,200 85,800 - -
	$ 662,378 $ 677,178 $ 604,778 $ 290,978 $ 9,496

In the event the Company receives a business license from the City of Vancouver, the Company will have to pay a success fee of $120,000 to the landlord of the Davie St. property.

On July 20, 2020, the Company signed a five year lease for McPhillips St. in Winnipeg, Manitoba which commenced on October 1, 2020. The Company has the option to renew for two five year periods.

On September 25, 2020, the Company signed a three year lease for Water St. in Vancouver, British Columbia which commenced on February 1, 2021.

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EDEN EMPIRE INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in Canadian Dollars) FOR THE YEARS ENDED JULY 31, 2021 AND 2020

15. LOAN PAYABLE

The Company received a $40,000 revolving line of credit as part of the Canada Emergency Business Account (CEBA) program due to COVID-19. The loan was interest free and required no principal payments until December 2022 (“Initial Term Date”). In the year ended July 31, 2021, the loan was repaid before the Initial Term date and as a result 25% was forgiven and the Company recorded a gain on settlement of debt of $10,000.

On December 4, 2020, the Company issued two interest bearing promissory notes (together, the “Notes”) to two arm’slength parties for proceeds of $700,000 and $200,000 subject to an interest of 14% and 13% respectively. The Company paid finders’ fees of $37,000 with respect to the Notes which are accreted over the term of the Notes. The Notes have a term of fourteen months ending February 4, 2022, following which the principal amount then outstanding will be due and payable by the Company. The Notes are secured against the Company’s interest in and to its present and after acquired personal property and its interest in and to the Company’s option to acquire a Retail Subsidiary located in Nanaimo, B.C. (Note 8). During the year ended July 31, 2021, $200,000 of the Notes was applied to a shareholders’ agreement as detailed in Note 12.

Loans payable	July 31, 2021	July 31, 2020
Balance, beginning of year Funds received Finders’ fees Finance expense Interest paid Repayment Forgiveness of debt Settled with common shares (Note 17 (b)(iii)) Applied to shareholders’ agreement (Note 12) Balance, end of year	$ 40,000 900,000 (37,000) 99,569 (73,140) (30,000) (10,000) (25,000) (200,000) $ 664,429	$ - 40,000 - - - - - - - $ 40,000

16. CONVERTIBLE DEBENTURES

In the year ended July 31, 2019, the Company issued convertible debentures for gross proceeds of $5,904,000. The debentures accrue interest at a rate of 10%, payable in arrears on December 31[st] of each year, and mature 18 months from issuance. At the option of the holders, the debentures, and any accrued and unpaid interest, may be converted to common shares of the Company at a price of $0.30 per common share. The debentures will convertible upon the filing of a prospectus in Canada, becoming a reporting issuer in British Columbia, or similar liquidity transaction.

The Company estimated that a similar borrowing without a conversion feature would be available to the Company at an interest rate of 14% per annum. The Company discounted the convertible debentures to recognize the value of the conversion feature as $325,893, reduced by a deferred income tax impact of $153,967. The Company incurred other transaction costs of $235,106 and issued brokers’ warrants valued at $9,248 (Note 16(c)) which are being accreted over the term of the debentures.

During the year ended July 31, 2020, the convertible debentures with a carrying value of $5,704,956 were converted in exchange for 19,680,000 common shares of the Company. The Company also issued 1,099,952 common shares in exchange for accrued interest of $330,212 on the convertible debentures.

Convertible debentures	July 31, 2020
Balance, July 31, 2019 Finance expense Interest paid Debt conversion Balance, July 31, 2020	$ 5,522,449 874,389 (361,670) (6,035,168) $ -

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EDEN EMPIRE INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in Canadian Dollars) FOR THE YEARS ENDED JULY 31, 2021 AND 2020

17. SHARE CAPITAL AND RESERVES

• a) Authorized share capital

Unlimited number of common shares without par value. Unlimited number of preferred shares without par value.

• b) Issued share capital

In the year ended July 31, 2021, the Company:

• i. Issued 7,708,733 units at a price of $0.12 per unit for gross proceeds of $925,048. Each unit consists of one common share and one share purchase warrant. Each warrant is exercisable at a price of $0.20 per share for a period of 24 months and subject to certain acceleration clauses (Note 17(c)). In connection with the private placement, the Company paid finders’ fees of $34,380, other share issue costs of $20,100, and issued 286,500 broker warrants. The broker warrants were valued at $21,979 using the following Black-Scholes inputs: expected life of 2 years, volatility of 120%, and risk-free interest rate of 0.26%.

• ii. Issued 2,919,841 common shares to settle outstanding liabilities of $397,655.

In the year ended July 31, 2020, the Company:

• i. Issued 3,690,094 common shares for the Eden RTO (Note 4).

• ii. Issued 20,779,952 common shares upon conversion of debentures (Note 16).

• iii. Issued 500,000 common shares for consulting fees valued at $150,000.

• iv. Issued 100,000 common shares for proceeds of $5,000.

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EDEN EMPIRE INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in Canadian Dollars) FOR THE YEARS ENDED JULY 31, 2021 AND 2020

17. SHARE CAPITAL AND RESERVES (cont’d…)

• c) Warrants

Warrant transactions are summarized as follows:

	Numberof Warrants Weighted Average ExercisePrice
Balance, July 31, 2019 Issued Balance outstanding, July 31, 2020 Issued Expired Balance outstanding, July 31,2021	661,630 $ 0.30 1,011,166 0.06
	1,672,796 $ 0.48 8,045,233 0.20 (1,506,130) 0.47
	8,211,899 $ 0.21

Warrants outstanding as at July 31, 2021:

	Number outstanding Exercise price Expiry date
Warrants	166,666 $ 0.60 August 19, 2021(1) 5,041,833 (2) 0.20 March 18, 2023 2,120,000 (2) 0.20 April 15, 2023 883,400 (2) 0.20 April 30, 2023 8,211,899

(1) Expired unexercised subsequent to July 31, 2021.

(2) If the Company’s weighted average price of its common shares is $0.40 or greater for any ten consecutive trading days, the Company may accelerate the expiry date to 30 days following date of notice.

As at July 31, the weighted average outstanding life of the Company’s outstanding warrants is 1.63 years (2020 – 0.64 years).

During the year ended July 31, 2020, the Company issued 1,011,666 warrants with a weighted average fair value of $0.60 per warrant as part of the Eden RTO (Note 4). The Company recognized $85,777 with respect to these warrants in reserves.

18. RELATED PARTY TRANSACTIONS AND BALANCES

Management Compensation

Key management personnel comprise the Chairman, Chief Executive Officer, President & Chief Business Officer, Chief Financial Officer, and directors of the Company. The remuneration of the key management personnel during the year ended July 31, 2021 and 2020 is as follows:

**Payments to key management personnel **		2021		2020
Consulting fees paid to a company controlled by an officer	$	165,000	$	120,000
Salaries paid to directors and officers of the Company		270,000		240,000

During the year ended July 31, 2020, the Company issued 500,000 common shares valued at $150,000 as bonus compensation to an employee of the Company who is also a relative of an officer of the Company.

As at July 31, 2021, the Company had $32,522 (2020 - $17,999) due to a significant shareholder and directors included in accounts payable and accrued liabilities. All balances are unsecured, non-interest-bearing, have no fixed repayment terms and are due on demand.

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EDEN EMPIRE INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in Canadian Dollars) FOR THE YEARS ENDED JULY 31, 2021 AND 2020

19. INCOME TAX

The following table reconciles the expected income tax expense (recovery) at the Canadian statutory income tax rates to the amounts recognized in the statement of operations and comprehensive loss for the year ended July 31, 2021 and July 31, 2020:

	2021 2020
Income before income tax Statutory income tax rate Expected Income Tax Recovery Non-deductible items Unused tax losses and balances acquired upon Eden RTO Non-taxable portion of capital gain Provision to tax return adjustment Change in unused tax losses and tax offsets not recognized in tax assets Impact of foreign statutory tax rates on subsidiary earnings Other Total income tax expense	$ (3,932,719) $ (4,795,054) 27.00% 27.00%
	(1,062,000) (1,295,000) 20,000 464,000 4,283,000 (4,283,000) (28,496) - (225,000) - (2,948,000) 5,114,000 2,000 - 2,000 -
	$ 43,504 $ -
	July 31, 2021 July 31, 2020
Current tax expense Deferred tax expense Total tax expense	$ - $ - 43,504 -
	$ 43,504 $ -

Deferred taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax values. Details of deferred tax assets (liabilities) are as follows:

	July 31, 2021 July 31, 2020
Property and equipment Assets classified as held for sale Capital gains reserve Lease liability Liabilities classified as held for sale Non-capital losses carryforwards Net deferred tax liabilities	$ (45,000) $ (389,863) (401,000) - (46,504) - 45,000 389,863 400,000 - 4,000 -
	$ (43,504) $ -

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EDEN EMPIRE INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in Canadian Dollars) FOR THE YEARS ENDED JULY 31, 2021 AND 2020

19. INCOME TAX (cont’d…)

The unrecognized deductible temporary differences as at July 31, 2021 and July 31, 2020 are comprised of the following:

	July 31, 2021 July 31, 2020
Non-capital losses carryforward - Canada Net operating losses carryforward - USA Exploration and Evaluation Costs Share issuance costs Property and equipment Capital losses Input tax credits Lease liability Total unrecognized deductible temporary differences	$ 6,760,000 $ 13,746,000 648,000 - - 6,051,000 302,000 79,000 26,000 8,000 - 153,000 - 35,000 19,000 -
	$ 7,755,000 $ 20,072,000

The Company has not recognized deferred tax assets in respect of non-capital loss carryforward of approximately $6,760,000 (2020: $13,746,000) which may be carried forward to apply against future income for Canadian income tax purposes, subject to the final determination by taxation authorities, expiring between 2036 and 2040. The 2021 noncapital loss balance excludes restricted losses due to acquisition of control in 2019.

The Company has not recognized deferred tax assets in respect of net operating loss carryforwards of approximately $648,000 which may be carried forward to apply against future income for US income tax purposes, subject to final determination by taxation authorities.

20. SEGMENTED INFORMATION

The Company operates in one segment, being cannabis retail investment. The Company is currently earning revenues only from its operations in Canada. The Company’s non-current assets, other than financial instruments are located as follows:

Non-current assets	Canada	United States	**Total **
Option agreement Property and equipment Office equipment Investment property Right-of-use assets Leasehold improvements Intangible assets Balance, July 31, 2021	$ - 13,781 - 164,964 342,362 31,133 $ 552,240	$ 31,155 12,855 1,711,758  - - $ 1,755,768	$ 31,155 26,636 1,711,758 164,964 342,362 31,133 $ 2,308,008

Non-current assets	Canada	United States	Total
Option agreement Lease inducements Property and equipment Office equipment Investment property Right-of-use assets Leasehold improvements Intangible assets Balance, July 31, 2020	$ - 80,000 55,202 - 1,443,937 13,457 18,000 $ 1,610,596	$ 26,808 - - 1,455,518  - - $ 1,482,326	$ 26,808 80,000 55,202 1,455,518 1,443,937 13,457 18,000 $ 3,092,922

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EDEN EMPIRE INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in Canadian Dollars) FOR THE YEARS ENDED JULY 31, 2021 AND 2020

21. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

Financial instruments

Cash and cash equivalents, amounts receivable, accounts payable and loan payable are carried at amortized cost. The Company considers that the carrying amount of these financial assets and liabilities measured at amortized cost to approximate their fair value due to the short-term nature of the financial instruments. The Company’s Promissory Note (Note 7) and Bridge Loan (Note 8) are carried at fair value using level 3 inputs.

Fair value estimates of financial instruments are made at a specific point in time, based on relevant information about financial markets and specific financial instruments. As these estimates are subjective in nature, involving uncertainties and matters of significant judgment, they cannot be determined with precision. Changes in assumptions can significantly affect estimated fair values. Although the Company believes its estimates of fair value are appropriate, the use of different methodologies or assumptions could lead to different measurements of fair value. For fair value measurements in level 3, the impact of a 10% increase or decrease in the underlying fair value would result in an increase or decrease of $85,498 in the fair value of the Bridge Loan.

Financial risk factors

Credit risk

Credit risk is the risk of potential loss to the Company if the counterparty to a financial instrument fails to meet its contractual obligations. The Company’s credit risk is primarily attributable to its liquid financial assets, including cash and cash equivalents and receivables. The Company limits exposure to credit risk on liquid financial assets through maintaining its cash and cash equivalents with high-credit quality financial institutions. The Company considers the risk of financial loss on cash and cash equivalents to be remote. The Company’s receivables consist materially of GST input tax credits recoverable from the government of Canada. The Company considers credit risk with respect to these amounts to be low.

The Company’s ability to collect on the Promissory Note and Bridge Loan is assessed on an ongoing basis by management. The Bridge Loan is secured by a general security agreement against the assets of 1175579 B.C. Ltd.

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due. As at July 31, 2021, the Company had a negative working capital deficiency of $1,804,095. The Company’s financial liabilities mature within 30 days with the exception of the lease liabilities which are payable over several years (Note 14) and loan due in February 2022.

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EDEN EMPIRE INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in Canadian Dollars) FOR THE YEARS ENDED JULY 31, 2021 AND 2020

21. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (cont’d…)

Financial risk factors (cont’d…)

Market risk

Market risk is the risk of loss that may arise from changes in market factors, such as interest rates, foreign exchange rates, and commodity and equity prices. The Company does not have a practice of trading derivatives.

a) Interest rate risk

The Company’s financial asset exposed to interest rate risk consists of cash and cash equivalents. The Company’s current policy is to invest excess cash in investment-grade short-term deposit certificates issued by its banking institutions. The Company periodically monitors the investments it makes and is satisfied with the credit ratings of its banks. Management believes the interest rate risk is low given the current low global interest rate environment.

The interest rate applied to the Company’s convertible debentures and loan payable is fixed and reduces interest rate liability risk.

b) Foreign currency risk

The Company holds an investment property (Note 11) and an option agreement (Note 9) in the United States (“US”). The investment in the US could increase the Company’s exposure to foreign currency risk in the future.

As at July 31, 2021, the Company’s net foreign denominated financial assets and liabilities are as follows:

	US Dollars
Cash Accounts payable Equivalent in Canadian Dollars	$ 3,100 (180,470) (177,370) $ (221,038)

Based on the balances held as at July 31, 2021, a 10% increase (decrease) in the Canadian dollar to US dollar exchange rate on this date would have resulted in a decrease (increase) in the net loss for the year of approximately $22,104.

22. CAPITAL MANAGEMENT

The Company’s capital management policy is to maintain a strong but flexible capital structure that optimizes the cost of capital, creditor and market confidence while sustaining the future development of the business.

The Company manages its capital structure and makes adjustments to it in light of changes in economic conditions. The Company’s capital structure includes shareholders’ equity. In order to maintain or adjust the capital structure, the Company may from time to time issue shares, seek debt financing and adjust its capital spending to manage current and working capital requirements. The Company is not subject to externally imposed capital requirements.

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EDEN EMPIRE INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in Canadian Dollars) FOR THE YEARS ENDED JULY 31, 2021 AND 2020

23. SUBSEQUENT EVENTS

• On September 1, 2021, the Company granted 350,000 stock options to a director of the Company at an exercise price of $0.05, expiring on September 1, 2031. The options will vest one-third on each of the grant date, first and second anniversary dates of the grant date.

• On September 20, 2021, the Company closed the share purchase agreement to sell a 50% interest in its subsidiary, Peaceful Park Inc. for the purchase price of $1,050,000. The Company will continue to jointly operate the Davie street while the Company continues to locate a buyer for its remaining 50% interest.

• On November 1, 2021, the Company completed the acquisition of two Retail Subsidiaries from 1175579 (see Note 8) for consideration of $130,000 settled in common shares of the Company. In addition, the Company also reimbursed 1175579 for costs incurred in connection with the two Retail Subsidiaries totaling $195,000 which was settled in common shares of the Company. As a result, the Company issued a total of 6,500,000 common shares.

• On November 16, 2021, the Company announced a non-brokered private placement of 10,000,000 units at a price of $0.05 per unit for gross proceeds of $500,000. Each unit consists of one common share and one common share purchase warrant. Each warrant is exercisable at $0.10 per common share for a period of 36 months from date of issuance and includes an acceleration clause that is triggered by a share price of $0.24 per share or greater for any 10 consecutive trading days during the period where the warrants are outstanding, the Company may, by written notice to the holder or by issuing a news release, accelerate the warrant expiry Date of the warrants to be 30 days following the date of such notice or news release. On November 24, 2021 the Company closed the first tranche, which consisted of proceeds of 4,800,000 units for gross proceeds of $240,000. In connection with the first trance private placement, the Company paid a cash finder’s fee of $5,600 and issued 112,000 broker warrants.

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