Mr. Terry Booth reports

AUDACIOUS PROVIDES CORPORATE UPDATE

Australis Capital Inc. has provided an update to investors with the company's latest developments in operations, financing initiatives, the status of financial reporting and the cease trade order.

Operational developments

New York

The expanding legalization of adult-usage cannabis presents a tremendous economic opportunity for New York State. The New York cannabis market is expected to reach $5-billion (U.S.) by 2025, representing a $2.1-billion (U.S.) wholesale market for existing and new cultivators. An estimated 4.1 million square feet of canopy will be required to meet this demand.

Further, the restrictions on the MSO-led (management services organization) New York medical operations, extension of conditional cultivators' licence period and priority review of provisional licence holders represents a significant opportunity for the current holders of conditional and provisional licences. The company's partner, Hempire Farms LLC, is conditionally licensed by the state regulatory authorities for the cultivation and manufacturing of cannabis products for the adult-use market.

Hempire's intention is to transition from the present conditional cultivator licence to a Tier 2 combination licence then into a Tier 4 or Tier 5 indoor cultivator licence.

The first harvest by Hempire was completed on Oct. 14, 2022. The crop yielded approximately 282 pounds of dry cannabis flower. It was flash frozen to be processed into derivatives for future use in non-flower cannabis products such as edibles and vape cartridges for vape pens.

The 2023 grow season commenced in June with approximately 4,300 seedlings planted on a second property within Broome county which was better suited. The property is flatter, has a better weather profile for cannabis, and includes high-quality buildings that will be utilized to dry, trim, process and package. This is a leased property with a first right option to purchase.

Of the four strains which were planted, current indications show that after 30 days in the ground, the crop has a greater-than-95-per-cent germination rate and less-than-1-per-cent failure rate. The cultivation selection process was conducted with the oversite of Bob Luciano, also known as Mr. Natural, a world-renowned cannabis pioneer and disabled Vietnam veteran who has been a strong advocate for the use of medical cannabis for veterans.

In July of this year, the New York State Office of Cannabis Management inspectors conducted a second audit of the grow operations to check for compliance. The audit results were very positive as zero non-compliance issues were found. The auditors were pleased with all required paperwork, suite of standard operating procedures and field set-up. With Hempire passing the audit, the project can move forward and serve the New York adult-use market.

"We are growing our cannabis for flower sales by selecting only the choicest buds from the main colas with the rest of the plant used for derivative products," stated Roger Sykes, the chief operating officer of the company. "Harvest will begin in the middle of September to first week of October, 2023, and we are expecting over 3,000 lb of dried saleable product. Operations will include drying, curing, trimming and packaging our own flower at our facility. With operations ranging from industry-leading, sustainable cultivation design, in-house cultivation to manufacturing, Audacious will ultimately produce high-quality branded products for New York consumers."

As part of its partnership with Hempire, the company intends to complete the majority acquisition of Hempire as soon as possible.

New Jersey

The New Jersey cannabis industry has witnessed significant growth, fuelled by the increasing number of licensees and a burgeoning marketplace. Notably, in March, state legislators passed a bill that permits cannabis businesses to deduct ordinary business expenses on their state tax returns, addressing the long-standing issue of the prohibitive 280E tax code at the federal level. This bill, recently signed into law by Governor Phil Murphy, is expected to alleviate the substantial tax burden previously borne by cannabis businesses operating within the state.

The continued growth of the industry is further supported by the continuing issuance of licences by the New Jersey Cannabis Regulatory Commission.

Through its investment in Audacious N.J. LLC, the company and its social equity partner won a provisional cultivation and manufacturing licence for up to 50,000 square feet of canopy and a provisional adult-use manufacturing licence in New Jersey. On Oct. 28, 2022, Audacious N.J. received conditional Class 1 cultivator and conditional Class 2 manufacturer approval letters from New Jersey. This application process in New Jersey continues with modifications from previous submission.

"We are excited about the future of Audacious," said Terry Booth, chief executive officer of the company. "Our assets in New York and New Jersey are well positioned to capitalize on our strong portfolio of cannabis brands. The company's projects provide a unique and differentiated asset base to become a key player in the tri-state area. Buckling down under our new CFO, Robert Wilson, and staying focused on the East Coast was imperative during this tumultuous time for the company. The reporting issues we have encountered have been beyond frustrating for investors, management and myself."

Mr. Booth continued: "We are absolutely committed to supplying high-quality products while remaining respectful of the legacy market. We will also continue to support inclusion, social equity and diversity; this is not a strategy, it is righteous."

Corporate cost reductions

Subsequent to the sale of the ALPS business in February of this year, the company has undertaken a number of cost reduction initiatives targeted at bringing down overall burn rate at the corporate level. The most significant reduction in costs has taken place in staffing where contract terminations, layoffs and furlough initiatives have reduced over 50 per cent of corporate employee costs.

Financing update

ALPS note receivable

As announced on Feb. 27, 2023, the company sold all its rights, title and interest in all of the assets, properties and rights in connection with the business of ALPS for an aggregate purchase price of $6,251,400. The purchase price included: (i) cash payment by the purchaser for an amount of $1-million; (ii) the assignment and assumption by the purchaser of accrued and unpaid bonus; and (iii) a promissory note payable by the purchaser in the amount of $4,277,572. The note bears no interest for 90 days following the closing date and 7.5 per cent per annum thereafter, calculated monthly until paid in full with mandatory monthly payments of $250,000 if the note remains unpaid 180 days following the closing, subject to certain adjustments and set-offs in accordance with the purchase agreement.

The company's share of the note shall be used to finance continuing operation of the company, including the expansion of the business in New York and New Jersey.

Lola Ventures loan

The CEO, Mr. Booth, has continued to finance the working capital requirements of the business through his company Lola Ventures Inc. Since taking control of the company, Mr. Booth has contributed over $6.9-million in cash contributions to the continuing operations of the company.

Interest on the Lola loan is accrued at 2 per cent per month on the outstanding balance and an additional fee is recognized at a rate of 10 per cent per annum for balances outstanding for over six months. On Sept. 29, 2022, the board approved an increase in the facility to $4-million, which was increased again on July 6, 2023, to $8-million.

Financial reporting and cease trade order update

Management expects to complete the fiscal 2022 audit of the financial statements before the end of August. Subsequent to the filing of the fiscal 2022 statements, the company will file its unaudited interim statements for the quarters ended June 30, 2022, Sept. 30, 2022, and Dec. 31, 2022. In addition, management intends to complete its fiscal 2023 financial statements for the period ending March 31, 2023, and re-engage its auditors.

Note that the fiscal 2023 statements were due July 30, 2023; as such, the company expects that its shares will continue to be suspended from trading by the Canadian Securities Exchange pursuant to CSE Policy 3.

It is the intention of management to complete all outstanding financial reports and apply for resumption of trading.

About Australis Capital Inc.

Australis is a next-generation cannabis company with experience across all verticals. Led by industry pioneer Mr. Booth and an accomplished management team with proven industry records, Australis is forging the inclusive cannabis community of tomorrow, today.

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