By Articles of Amendment dated August 15, 2000, Bonanza Red Lake consolidated its issued and outstanding common shares on a one new common share for every three old common shares basis and changed the name of the company to Eugenic Corp.
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We completedDuring fiscal 2014 and 2015, the acquisition of 1406768 Ontario on October 12, 2000 and acquired all of the issued and outstanding shares of 1406768 Ontario for $290,000. The purchase price was satisfied by our issuance of 5,800,000 company units at $0.05 per unit. Each unitCompany’s principal activities consisted of one common shareexploration, development and one common share purchase warrant entitling the holder to purchase one common shareproduction of ours at an exercise price of $0.25 per common share until October 12, 2003. As a result of this transaction, the original shareholders of 1406768 Ontario owned 90.7% of our issued shares. The acquisition resulted in a change in businesspetroleum and an introduction of new management for us. The acquisition was accounted for as a reverse take-over of us by 1406768 Ontario. On February 27, 2009, we purchased all of the issued and outstanding shares issued in the capital stock of 1354166 Alberta Ltd. (“1354166 Alberta”), a company incorporated on October 3, 2007 in the Province of Alberta Canada (the "Transaction") under the Business Corporations Act (Alberta). In connection therewith, we issued to the shareholders of 1354166 an aggregate of 8,910,564 units (each a "Unit") at $0.05 per unit or an aggregate of $445,528 and following the closing repaid $118,000 of shareholders’ loans in 1354166 by cash payment. 1354166 was a private company that had a 5.1975% working interest in a natural gas unit located inproperties. In 2016, the Botha areaCompany divested itself of Alberta, Canada.
By Articles of Amendment dated November 12, 2009, 1406768 Ontariois mining, petroleum and natural gas assets, changed its name to Eagleford Energy Inc. By Articles of Amalgamation dated November 30, 2009 we amalgamated with Eagleford EnergyIntelligent Content Enterprises Inc. and upon the amalgamation the amalgamated entity's name became Eagleford Energy Inc.began acquiring assets to facilitate operations as a digital media and technology company.
On August 31, 2010 we acquired a 10% working interest before payoutDuring January and a 7.5% working interest after payout of production revenue of $15 million in the Matthews lease comprising approximately 2,629 gross acres of land in Zavala County, Texas (the “Lease Interest”). As consideration for the Lease Interest we paid on closing $212,780 (US$200,000).
On August 31, 2010, we acquired 100% of the issued and outstanding membership interests of Dyami Energy LLC, a Texas limited liability corporation for consideration of $4,218,812. (US$3,965,422) satisfied by (i) the issuance of 3,418,467 units of the Company. Each unit is comprised of one common share and one-half a purchase warrant. Each full warrant was exercisable into one additional common share at US$1.00 per share on or before August 31, 2014 (the “Units’) and (ii) the assumption of $1,021,344 (US$960,000) of Dyami Energy debt by way of a secured promissory note payable to Benchmark Enterprises LLC (“Benchmark”). The 6% per annum note was secured by Dyami’s interest in the Matthews and Murphy leases and was payable on December 31, 2011 or uponFebruary 2017, the Company closingdeveloped a financing or series of financings in excess of US$4,500,000. Commencing January 1, 2012 the interest rate increased from 6% to 10% and the due date of the note was extended to August 31, 2013, or within 15 days of written demand to us, or upon us closing of a cash financing or series of cash financings closing after the date of this agreement in excess of US$2,500,000 (Two Million, Five Hundred Thousand USA dollars), (the “Funding Threshold”) in which case fifty cents of every one dollar exceeding the Funding Threshold will be allocated to the Note until paid in full or upon an Event of Default. On January 3, 2012 we issued 515,406 pre forward split common shares to shares Benchmark as full settlement of interest due at December 31, 2011 in the amount of $103,028.
Dyami Energy held a 75% working interest before payout and a 61.50% working interest after payout of production revenue of $12.5 million in the Matthews Lease comprising approximately 2,629 gross acres of land in Zavala County, Texas and a 100% working interest in a mineral lease comprising approximately 2,637 acres of land in Zavala County, Texas (the “Murphy Lease”) subject to a 10% carried interest on the drilling costs from surface to base of the Austin Chalk formation, and a 3% carried interest on the drilling costs from the top of the Eagle Ford shale formation to basement on the first well drilled into a serpentine plug and for the first well drilled into a second serpentine plug, if discovered (collectively the “Leases”) (SeeItem 4.B: “Information on the Company – History and Development of the Company”).
The Members of Dyami entered into lock up agreements on closing and placed 50% of the Units in escrow until such time that we receive a National Instrument 51-101 compliant report from an independent engineering firm indicating at least 100,000 boe of proven reserves on either the Murphy Lease or any formation below the San Miguel on the Matthews Lease (the “Report”). The Report was not received by Dyami Energy within two years of the closing date of the acquisition and the escrow units were to be returned to us for cancellation. On August 31, 2012 we cancelled the 50% of Units held in escrow as the conditions precedent had not been satisfied and the time allowed for performance expired.
On March 31, 2011 we entered into a Farmout Agreement (the “Farmout”) from surface to the base of the San Miguel formation (the “San Miguel”) on the Matthews Lease located in Zavala County, Texas. Under the Farmout, the farmee may spend up to US$1,050,000 on exploration and development of the San Miguel to earn a maximum of 42.50% working interest (31.875% net revenue interest). Under the terms of the Farmout, the farmee may earn an initial 25% of the Company’s working interest in the San Miguel by paying 100% of the costs to drill, complete, equip and perform an injection operation on a test well to a depth of approximately 3,500 feet (the “Initial Test Well”). After the performance of the Initial Test Well, the farmee may increasetechnology-based platform, through its working interest to 50% of the Company’s working interest by spending the entire $1,050,000 on additional operations on the San Miguel in a good faith effort to produce hydrocarbons. We received US$647,536 from the farmee against costs of $711,395 related to the drilling, completion and injection operation of the Matthews/Dyami #3 well. As of the date of this Annual Report we have not assigned any interest to the farmee in the San Miguel formation.
During the fiscal year ended August 31, 2011 we drilled four wells and recorded additions of $3,262,782 to exploration and evaluation assets related to the Matthews and Murphy Leases.
As of the close of business on March 16, 2012, we completed a two-for-one forward stock split, pursuant to which one (1) newly-issued share of the Company’s common stock was issued to each holder of a share of common stock.
Subsequent to September 1, 2013 and the continuing development of the Matthews lease, Dyami Energy continued its development efforts with the Murphy lease. A tentative joint venture agreement with Stratex was reached but did not materialize and efforts to develop the Murphy lease were not successful. The Company had solicited lenders and investors in an attempt to obtain debt/equity financings as a means to improve Dyami Energy’s financial situation. Despite the Company’s attempts, these efforts were unsuccessful and management determined that it could no longer fund the Murphy operations, hence the lease was considered impaired and an impairment loss was recorded by Dyami Energy during the third quarter.
On March 6, 2014, the Company filed a Certificate of Termination of a Domestic Entity with the Secretary of State, Texas for our wholly-owned subsidiary Dyami Energy and effective April 3, 2014, Dyami Energy was dissolved. All prior obligations with respect to the Matthew’s and Murphy leases on the books of Dyami Energy prior to its dissolution were recorded by the Company.
During the year ended August 31, 2013, the Company, Dyami Energy and OGR Energy Corporation, the Lessees, were litigating a dispute with the Lessors of the Matthew’s property. During the last quarter of fiscal year August 2013, the Company and the Lessors agreed to resolve the litigation and continue with the development of the Matthew’s property. In order to comply with certain State legal requirements, it was deemed necessary by the Lessors counsel to continue with the development through a newly executed lease document and the Company formed, Zavala Inc. a new wholly owned subsidiary to execute the new lease. The new lease was signed effective September 1, 2013 and the first of two payments of US$150,000 were paid to the Lessors upon signing the new lease as required initial pre-payment of anticipated production royalties along with a continuing development obligation under the lease to complete the previously drilled Matthews #1H horizontal well or drill a new well on the Matthews property no later than March 30, 2014. On September 1, 2013, the Matthews lease was renewed by the Company through Zavala Inc. and based on the concept of faithful representation under IAS 8, the carrying value of the Matthew’s lease by Dyami Energy was considered to be the value for Zavala Inc. as this arrangement is simply a reorganization in substance.
On December 3, 2013, (amended January 21, 2014) we had entered into a Joint Development Agreement with Stratex Oil and Gas Holdings, Inc. (“Stratex”) (the “Stratex JDA”) to further develop the Matthews Lease. Under the terms of the Stratex JDA, Stratex acted as operator and upon Stratex delivering i) US$150,000 to the lessors of the Matthews Lease on behalf of ZavalaDoubleTap Daily Inc., ii) delivering US $150,000(“DoubleTap”) creating a digital media asset designed to showcase content and deliver digital media to engage social discourse while facilitating advertising and eCommerce with the Company; and iii) commencing a hydraulic fracture ofintent to improve the Matthews #1H not later than March 31, 2014, Stratex earned a 66.67% working interest before payout (50% working interest after payout) in the Matthews #1H well and a 50% working interest in the 2,629 acre Matthews Lease.
On April 11, 2014, the Company entered into a further Joint Development Agreement (“JDA2”) with Stratex and Quadrant Resources LLC, (“Quadrant”) for the development of the San Miguel formation on the Matthews Lease. Pursuant to the terms of the JDA2, upon satisfaction of certain conditions including the Phase 1 Work Program and the cash consideration described below, Quadrant could earn an undivided 66.67% before payout and a 50% working interest after payout to the base of the San Miguel formation of the Matthews Lease by i) drilling 3 new wells and reworking 5 wells at its sole cost and expense by June 30, 2015 (the “Phase I Work Program”); ii) deliver US$100,000 to the Company upon execution of the JDA2 (paid); and iii) deliver US$65,000 to the Company on each of July 8, 2014, October 6, 2014, January 5, 2015 and April 6, 2015.overall user experience. The Company recordedlaunched the cash payments and the payment of certain obligations under the Matthews Lease by Quadrant totaling US$303,712 (CDN$378,577) as a reduction in exploration and evaluation assets. Under the terms of the JDA2 Quadrant was required to complete the Phase I Work Program and pay the Company cash consideration totaling US$360,000 by June 30, 2015, which it did not and accordingly the JDA2 expired without Quadrant earning any interest in the development area.
We filed Articles of Amendment effective August 25, 2014 consolidating the common shares of Eagleford Energy Inc., on the basis of one (1) common share for every ten (10) common shares andplatform during March 2017, changed ourits name to Eagleford EnergyNovicius Corp. in May 2017 and also began implementing native advertising services and ad-overlay services on its digital media asset for commercialization.
During the year ended August 30, 2014, we converted shareholders’ loanssummer of 2017, DoubleTap executed its strategy to drive revenues through technologies and interest due inservices that deliver content, social and digital media, eCommerce and advertising. Management continued developing the aggregate amount of $1,180,570 through the issuance ofasset, by focusing activities to acquire content creators, bloggers and influencers while building a total of 147,571 units in the capital of our Company at a price of $8.00 per unit. Each unit is comprised of one (1) common sharesales pipeline to position growth. DoubleTap continued activities to expand its social media reach, and one half of one (1/2) common share purchase warrant. Each full warrant entitles the holder to purchase one (1) common share at an exercise price of CDN$10.00 until August 30, 2017.
For the twelve months ended August 31, 2014, the Company recorded net additions of $113,578 in exploration and evaluation assets and a net impairment loss of $1,315,276 related to the Murphy Lease.
Effective March 31, 2015, we entered into a settlement with Stratex and Quadrant pursuant to which Stratex assigned allweb presence of its rights, titlewebsite. The digital media marketplace is crowded and interest in, tocompetitive and under the Matthews Lease and the JDA, to us and Quadrant, and issued to us 1,333,333 common shares of Stratex as repayment of the disputed minimum royalty of US$152,293 and a further payment of US$25,000although DoubleTap’s web presence was to be paid to us under the settlement agreement. On May 12, 2015 we incorporated EEZ Operating Inc., in the state of Texas and took over as the operator of the Matthews Lease.
On July 2, 2015, the 2629 acre Matthews Lease transitioned into its production unit phase. A total of 340 acres were held as production units. Accordingly, we wrote down the lease to fair value of $1,212,996 and recorded an impairment of exploration and evaluation assets at August 31, 2015 of $4,490,045.
At August 31, 2014, we had a secured convertible promissory note payable with a face value of (US$1,216,175) (the “Note”). The Note had an interest rate of 10%. The Notegrowing, management was due on the earliest to occur of: (a) August 31, 2015; (b) the closing of any subsequent financing or series of financings by us that resulted in gross proceeds of an aggregate amount equal to or greater than US$4,400,000, excluding conversion of any existing debt into equity; (c) the date of a sale by us of all of the shares in the capital stock of Zavala Inc. held by us from time to time; (d) the closing of a merger, reorganization, take-over or other business combination which results in a change of control of us or Zavala Inc.; or (e) an event of default.
In accordance with the terms of the Note and the General Security Agreement (the “Loan Agreements”) between us and Benchmark Enterprises Inc., (“Benchmark”) we had granted and conveyed a first priority security interest in the Company and Zavala Inc.
At August 31, 2015, we were unable to paysustain or build revenues that exceeded its expenditures. In the Notemonth of $1,608,149 (US$1,216,175) plus interestSeptember of $154,179 (US$121,618), totaling $1,762,328 (US$1,337,793), which constituted an event of default pursuant to the terms of the Loan Agreements. Benchmark having made demand for payment of all amounts owed to it under the Note, gave notice to us that it intended to exercise its security on our assets.
In an effort to avoid further costs, we entered into a Settlement and Exercise of Security Agreement with Benchmark whereby effective August 31, 2015, the Company assigned and conveyed to Benchmark all of its rights, title and interest in and to Zavala Inc., and issued to Benchmark 100,000 shares of common stock of the Company. As a result of the extinguishment of the Note, the Company’s investment in Zavala Inc. has been deconsolidated from the Company’s Consolidated Financial Statements as at August 31, 2015 and presented as discontinued operations.
On August 13, 2015, we filed a petition against Stratex in the District Court of Harris County, Texas seeking breach of the settlement agreement dated March 31, 2015, for monies owed under the settlement agreement and unpaid production revenue of approximately US$44,000 in the aggregate plus damages. On December 4, 2015, we obtained a judgment against Stratex in the amount of $62,069.
Effective November 18, 2015, we entered into shares for debt conversion agreements and converted loans and interest due in the aggregate amount of $1,262,453 through the issuance of 954,311common shares in the capital of the Company. The fair value of $6,371,457 was recorded as an increase to common shares and $5,097,166 was recorded as a loss on settlement of debt.
Effective November 18, 2015, we issued 50,000 common shares in our capital at a price of $1.00 per share for gross proceeds of $50,000.
Effective November 18, 2015, we issued 1,032,998 Units in the capital of the Company pursuant to the anti-dilution provision of the August 30, 2014, debt conversion agreements. Each unit was comprised of one (1) common share and one half of one (1/2) common share purchase warrant. Each full warrant entitles the holder to purchase one (1) common share at an exercise price of CDN$10.00 until August 30, 2017. The fair value of the units of $6,896,800 was allocated to the common shares in the amount of $5,034,157 and warrants in the amount of $1,862,643 based on their relative fair values and $6,896,800 was recognized as a loss on settlement of debt in the statement of operations.
We filed articles of amendment effective February 1, 2016, and changed our name from Eagleford Energy Corp., to Intelligent Content Enterprises Inc., and consolidated our common shares on the basis of one (1) new share for every ten (10) old shares.
The Company negotiated an Asset Purchase Agreement to be effective February 29, 2016, with an expectation to acquire the net assets (the “Acquired Assets”) of Digital Widget Factory Inc., a Belize company (the “Vendor”), in an all-stock transaction by issuing 12,500,000 common shares and 5,750,000 Series A preferred shares (the “Proposed Purchase Price Shares”). The essential components of the proposed Acquired Assets were an intelligent content platform technology developed by Digital Widget Factory Inc. and a series of related websites under the url digiwdgy.com. The fair value of the transaction was estimated at $9,530,250 and agreed to be paid by the Company through the issuance of the Proposed Purchase Price Shares.
Subsequent to February 29, 2016, management of the Company came to the conclusion that certain representations and warranties made under the Asset Purchase Agreement were conceivably deficient and on November 24, 2016, the Company advanced a Notice of Claim. On December 22, 2016, it was agreed that all disputed matters contained in the Asset Purchase Agreement, be resolved in a Settlement Agreement whereby the Company agreed to return the Acquired Assets to the Vendor and the Vendor agreed to return the Proposed Purchase Price Shares back to the Company.
The Settlement Agreement closed effective January 20, 2017, when the Company returned the Acquired Assets to the Vendor and the Vendor returned to the Company the Proposed Purchase Price Shares previously issued to the Vendor and a full and final release in respect of all obligations under the DWF Agreement was exchanged between the Vendor and the Company. The Proposed Purchase Price Shares have been cancelled in the capital stock of the Company and the Company no longer has any interest in the DWF Technology and the series of digiwidgy.com websites.
Effective February 29, 2016, we disposed of our investment in 1354166 Alberta Ltd. (“1354166 Alberta”) an Alberta company.
On February 29, 2016, we entered into asset purchase and debt settlement agreement and converted loans and interest in the aggregate amount of $277,473 in exchange for our 0.03% net smelter return royalty on 8 mining claim blocks located in Red Lake, Ontario which were carried on the consolidated statement of financial position at $Nil.
On February 29, 2016, the Company entered into debt conversion agreements and converted debt in the aggregate amount of $451,557 through the issuance of 150,519 units in the capital of the Company. Each unit is comprised of one (1) common share and one (1) common share purchase warrant. Each full warrant entitles the holder to purchase one (1) common share at an exercise price of $3.50 until March 1, 2019.
On February 29, 2016, the Company completed a private placement for gross proceeds of $30,000 and issued 10,000 units in the capital of the Company at a purchase price of $3.00 per unit. Each unit is comprised of one (1) common share and one (1) common share purchase warrant. Each full warrant entitles the holder to purchase one (1) common share at an exercise price of $3.50 until March 1, 2019.
On May 25, 2016, the Company entered into a Term Sheet to license to acquire all the technology, production and client operations owned and operated by New York based Catch Star Studios LLC (“Catch Star”). On October 12, 2016, the Company advanced US$65,000 ($81,483 at August 31, 2017) to Catch Star and entered into a Secured Promissory Note and General Security Agreement (the “Note”) with Catch Star. The Note is due on demand and is secured by all of the assets of Catch Star. Subsequently, Catch Star and the Company could not reach a definitive agreement to memorialize the terms and conditions of the Term Sheet and abandoned the prospective transaction. On February 1, 2017, the Company issued a lettermaintained its digital media, and advertising platform while pursuing further ventures of demand for the repayment of the Notemerit to enhance shareholder value. Such efforts resulted in full. At August 31, 2017, the Company determined that the Secured Note was uncollectible and recorded an impairment of the full amount.
On August 31, 2016, we completed private placements for gross proceeds of $260,000 and issued 23,636 units in the capital of the Company at a purchase price of $11.00 per unit. Each unit is comprised of one (1) common share and one (1) common share purchase warrant. Each full warrant entitles the holder to purchase one (1) common share at an exercise price of $12.50 until August 31, 2019.
During the year ended August 31, 2016, 51,868 common share purchase warrants were exercised at $10.00 for proceeds of $518,683.
On November 30, 2016, we completed a private placement for gross proceeds of $50,000 and issued 7,692 units in the capital of the Company at a purchase price of $6.50 per unit. Each unit was comprised of one (1) common share and one (1) common share purchase warrant. Each full warrant entitles the holder to purchase one (1) common share at an exercise price of $10.00 until November 30, 2019.
Effective May 26, 2017, we changed our name from Intelligent Content Enterprises Inc., to Novicius Corp., and consolidated our common shares on the basis of one (1) new share for every ten (10) old shares.
Effective August 31, 2017, we settled shareholder advances of $213,781 and issued 1,187,672 common shares in the capital ours at a price of $0.18 per share.
As a result of the November 30, 2016, private placement of $50,000 and the August 31, 2017, settlement of shareholder advances of $213,781, effective August 31, 2017, we issued 1,420,809 common shares and 16,364 Units in the capital of the Company pursuant to the anti-dilution provisions of the August 31, 2016, private placement agreements.
On August 31, 2017, 538,417 common share purchase warrants expired. The amount allocated to warrants based on the Binomial Lattice model was $2,195,738 with a corresponding increase to contributed surplus.
Subsequent to the year ended August 31, 2017, the Company executed a non-binding Letter of Intent to combine with Grown RogueGR Unlimited LLC, an Oregon limited liability company (“Grown Rogue”) accordingas announced on September 28, 2017. The Company divested of DoubleTap Daily Inc. and its business following the closing of the Transaction.
Effective November 15, 2018 and pursuant to which it is contemplated thatthe Definitive Agreement, the Company will combinecombined its business operations with Grown Rogue (the “Transaction”)GR Unlimited, resulting in a reverse take-over of the Company by Grown Rogue. The Transaction as currently contemplated will result inGR Unlimited. Pursuant to this reverse takeover, the Company issued 60,746,202 common shares at a deemed price of CAD$0.44 and 5,446,202 warrants with an exercise price of $0.55 per share.
Effective November 1, 2018, we changed our name from Novicius Corp. to Grown Rogue becoming a wholly-owned subsidiary ofInternational Inc.
During the transition period ended December 31, 2023, and the fiscal years ended October 31, 2023 and 2022, the Company or otherwise combining its corporate existence with a wholly-owned subsidiaryinvested $770,010, $4,008,866, and $4,000,874, respectively, on property and equipment, the significant majority of the Company. No representation is given that the Transaction will close however if closed as contemplated it is expected that: (a) the current holders of the Company securities will own, and have the right to acquire upon exercise of warrants and options, common shares representing 3.6% of fully diluted common shares of the Resulting Issuer; (b) 55,500,000 post consolidated common shares of the Company (“Nov Shares”), or as adjusted such that the owners of Grown Rogue will own at least 75.9% of the Resulting Issuerwhich was spent on the closingbuild-out of the Transaction, will be issued to the owners of Grown Rogue in exchange for all of the issuedits indoor growing and outstanding equity membership interests of Grown Rogue based on a valuation acceptable to the parties of at least $27,750,000 and Nov Shares being issued at $0.50 per share and (c) purchasers of Offered Securities issued in the Private Placement will own 20.5% of fully diluted common shares of the Resulting Issuer.
processing facilities. The Company anticipates further expenditures to be made on future opportunities evaluated by the Company. Any expenditure whichthat exceeds available cash will be required to be funded by additional share capital or debt issued by the Company, or by other means. The Company’s long-term profitability will depend upon its ability to successfully implement its business plan. The Company’s past primary source of liquidity and capital resources has been proceeds from the issuance of share capital, debt, shareholders’ loans, and cash flow from oiloperations.
On February 10, 2020, the Company announced that it had received a commitment from Plant-Based Investment Corp (CSE: PBIC) (“PBIC”) to invest up to CAD$1,500,000 in a non-brokered private placement offering (the “February 2020 Private Placement) of units (the “Units”) with each Unit comprising of one common share in the capital of the Company and gas operations.one common share purchase warrant (the “Warrants”). Each Warrant is exercisable into one Share at a price equal to a 25% premium to the Unit price for a period of 24 months. The Company has the right to accelerate the expiry of the Warrants to thirty (30) days following written notice to the holder if the Shares close at or above CAD$0.25 per share for a period of ten (10) consecutive trading days on the CSE. The offering was completed for gross proceeds of approximately CAD$1,500,000, with 15,000,000 Units issued at a price of CAD$0.10 per Unit. In addition, PBIC and the Company entered into subscription agreements to exchange approximately CAD$1,500,000 worth of each other’s shares (the “Share Swap”). Under the terms of the Share Swap, the Company received 2,362,204 common shares of PBIC at a price of $0.635 per share, and PIBC received 15,000,000 shares of the Company at a price of $0.10 per share. PBIC and the Company signed a voting and resale agreement providing that both will be required to vote the shares acquired under the Share Swap as recommended by the other party and were restricted from trading the shares for a period of eighteen months.
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In February 2020, the Company, through its subsidiary GR Michigan, LLC (“GR Michigan”), signed an Option to Purchase Agreement (the “Option Agreement”) to acquire a 60% controlling interest in Golden Harvests, LLC (“Golden Harvests”). Golden Harvests is a Michigan-based, fully licensed, and operating cultivation company located in Bay City, Michigan. During the nine months ended July 31, 2021, the Company’s majority controlled subsidiary GR Michigan, LLC, terminated the Option Agreement. Simultaneously with the termination of the Option Agreement, a new entity, Canopy Management, LLC (“Canopy”), majority-owned by the Chief Executive Officer (“CEO”), signed an option agreement to purchase Golden Harvests under similar terms (the “New Option”). Canopy had already been approved by the State of Michigan for licensing and this facilitated the Company’s ability to accelerate and exercise its option to obtain a 60% interest in Golden Harvests.
On January 19, 2021, the Company completed the first tranche of a private placement of 2,031,784 shares for proceeds of $200,000. On February 5, 2021, the Company completed the second tranche of the private placement (the “February 2021 Private Placement 2nd Tranche) comprised of 8,200,000 units (the “Units”) at CAD$0.16 per Unit for proceeds of CAD$1,312,000 (U.S.$1,025,000). Each Unit was comprised of one common share and one warrant to purchase one common share. Each warrant has an exercise price of CAD$0.20 and a term of two years. The second tranche included subscriptions by the following related parties: our CEO subscribed to 1,600,000 Units; the CFO of GR Unlimited subscribed to 2,000,000 Units; a key Company operations manager subscribed to 1,000,000 Units; and PBIC subscribed to 2,000,000 Units.
On February 5, 2021, the Company agreed to acquire substantially all of the assets of the growing and retail operations of High Street Capital Partners, LLC (“HSCP”) for $3,000,000 of total agreed-upon consideration. The Company also executed a Management Services Agreement (“MSA”) with HSCP. The Company operated the growing facility under the MSA until the acquisition of the growing assets obtained regulatory approval. On April 14, 2022, the transaction closed with modifications to the original terms: the HSCP retail dispensary purchase was mutually terminated, and total consideration for the acquisition was reduced to $2,000,000. Upon closing, the Company had paid $750,000 towards the acquisition, and owed payments of $500,000 due on August 1, 2022, and U.S.$750,000 due on May 1, 2023.
On March 5, 2021, the Company announced the completion of a brokered private placement offering through the issuance of an aggregate of 21,056,890 special warrants (each a “Special Warrant”) at a price of CAD$0.225 (the “Issue Price”) per Special Warrant for aggregate gross proceeds of approximately $3.7 million (CAD$4,737,800) (the “Offering”). Each Special Warrant entitled the holder thereof to receive, for no additional consideration, one unit of the Company (each, a “Unit”) on the exercise or deemed exercise of the Special Warrant. Each Unit was comprised of one common share of the Company and one warrant to purchase one common share of the Company. Each Special Warrant entitled the holder to receive upon the exercise or deemed exercise thereof, at no additional consideration, 1.10 Units (instead of one (1) Unit), if the Company had not received a receipt for a final short form prospectus qualifying distribution of the common shares and warrants (the “Qualifying Prospectus”) from the applicable securities regulatory authorities (the “Securities Commissions”) on or before April 5, 2021. Each Special Warrant was to be deemed exercised on the date that was the earlier of: (i) the date that was three (3) days following the date on which the Company obtained receipt from the Securities Commissions for the Qualifying Prospectus underlying the Special Warrants and (ii) July 6, 2021. The Company obtained receipt for the Qualifying Prospectus on April 26, 2021. Accordingly, on April 30, 2021, the Company issued 23,162,579 Units, comprised of 23,162,579 common shares and 23,162,579 warrants to purchase one common share. The warrants entitle the holder to purchase one common share at an exercise price of CAD$0.30 for a period of two years.
On December 9, 2021, the Company announced that it had closed a non-brokered private placement of common shares (“December 2021 Private Placement”) for total gross proceeds of $1,300,000 (CAD$1,645,800). The December 2021 Private Placement resulted in the issuance of 13,166,400 common shares of the Company at a purchase price of CAD$0.125 per share. All common shares issued pursuant to the December 2021 Private Placement were subject to a hold period of four months and one day. Our CEO invested USD$300,000 in the December 2021 Private Placement and received 3,038,400 common shares of the Company.
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On December 5, 2022, the Company announced the closing of a non-brokered private placement of the December Convertible Debentures with an aggregate principal amount of $2,000,000. The December Convertible Debentures accrue interest at 9% per year, paid quarterly, and mature 36 months from the date of issue. The December Convertible Debentures are convertible into common shares of the Company at a conversion price of CAD$0.20 per common share. Additionally, on closing, the Company issued to the Purchasers of the December Convertible Debentures an aggregate of 6,716,499 warrants (the “December Warrants”), that represents 50% coverage of each purchaser’s convertible debenture investment. The December Warrants are exercisable for a period of three years from issuance into common shares at an exercise price of $0.25 CAD per common share. The Company has the right to accelerate the warrants if the closing share price of the common shares on the CSE is CAD$0.40 or higher for a period of 10 consecutive trading days. The December Convertible Debentures and December Warrants issued pursuant to the private placement (and the underlying common shares) were subject to a statutory hold period of four months and one day from the closing date. The Company issued the notice of acceleration required by the warrant certificates governing these warrants on March 1, 2024, thereby accelerating the expiry date to 90 days from the date of notice.
During the year ended October 31, 2023, Purchasers of the December Convertible Debentures converted an aggregate total of convertible debenture principal of $1,040,662 and $133,977 at CAD$0.20 per share into 10,151,250 and 1,022,025 common shares respectively.
In January 2023, the Company exercised an option to acquire 87% of our CEO’s membership interest in Canopy, which provides identical economic rights as the Company originally had in the February 2020 Option Agreement (described above). Canopy acquired a 60% controlling interest in Golden Harvests in May 2021. The Company acquired a controlling 60% interest in Golden Harvests for aggregate consideration of U.S.$1,007,719 comprised of 1,025,000 common shares of the Company with a fair value of U.S.$158,182, and cash payments and cash payable of U.S.$849,537.
On May 1, 2023, the terms of the Secured Promissory Note between GR Distribution and HSCP were amended for a second time. Under the second amendment, the Secured Promissory Note will be fully settled in two principal amounts. On May 1, 2023, the $500,000 principal payment plus all accrued but unpaid interest under the first amendment was due and payable. The remaining principal balance of $500,000, which bears no interest, is due and payable as follows: $150,000 due and payable on August 1, 2023; $150,000 due and payable on November 1, 2023; and $200,000 due and payable on December 31, 2023. The balance was fully paid during the two months ended December 31, 2023.
On May 24, 2023, GR Unlimited entered into an independent contractor consulting agreement with Goodness Growth Holdings, Inc., under which GR Unlimited will support Goodness Growth in the optimization of its cannabis flower products, with a particular focus on improving the quality and yield of top-grade “A” cannabis flower across its various operating markets, starting with Maryland and Minnesota. The consulting agreement was amended on September 20, 2023.
On July 13, 2023, the Company announced the closing of a non-brokered private placement of unsecured convertible debentures (the “July Convertible Debentures”) with an aggregate principal amount of $5,000,000. The July Convertible Debentures accrue interest at 9% per year, paid quarterly, and mature 48 months from the date of issue. The July Convertible Debentures are convertible into common shares of the Company at a conversion price of CAD$0.24 per common share, at any time on or prior to the maturity date. Additionally, on closing, the Company issued to the subscribers of the July Convertible Debentures an aggregate of 13,737,500 July Warrants, that represents one-half of one warrant for each CAD$0.24 of principal amount subscribed (the “July Warrants”). The July Warrants are exercisable for a period of three years from issuance into common shares at an exercise price of CAD$0.28 per common share. The Company has the right to accelerate the warrants if the closing share price of the common shares on the Canadian Securities Exchange is CAD$0.40 or higher for a period of 10 consecutive trading days. On March 1, 2024, the Company issued the notice of acceleration required by the warrant certificates governing the July Warrants, thereby accelerating the expiry date to 90 days from the date of notice.
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On August 17, 2023, the Company announced that it had closed the second and final tranche of a non-brokered private placement of unsecured convertible debentures for gross proceeds of $1,000,000 (the “August Convertible Debentures”), for a total aggregate principal amount under both tranches of $6,000,000 with the July Convertible Debentures. Additionally, on closing, the Company issued to subscribers under the second tranche an aggregate of 2,816,250 common share purchase warrants (the “August Warrants”). The terms of the August Convertible Debentures and August Warrants issued as part of this second tranche are the same as those issued with the July Convertible Debentures and July Warrants. On March 1, 2024, the Company issued the notice of acceleration required by the warrant certificates governing these warrants, thereby accelerating the expiry date to 90 days from the date of notice.
On October 3, 2023, GR Unlimited executed a promissory note (the “New Jersey Retail Promissory Note”) and advanced $250,000 to an individual representing the principal amount of the note. Pursuant to the New Jersey Retail Promissory Note, interest on the outstanding principal borrowed accrues at a rate of 12% per annum provided that, if the extended maturity date of the note is triggered, interest shall accrue on the outstanding balance commencing on the maturity date and ending on the extended maturity date of the New Jersey Retail Promissory Note. The Company signed a related definitive agreement on January 16, 2024 to invest in the development of an adult-use dispensary in West New York, New Jersey.
On October 4, 2023, the Company announced that it signed a definitive agreement with an option to acquire 70% of ABCO Garden State, LLC (“ABCO”), pending regulatory approval from the New Jersey Cannabis Regulatory Commission (the “CRC”). ABCO was granted a conditional cultivation and manufacturing license by the CRC and will receive its annual cultivation license soon. GR Unlimited executed a secured draw down promissory note (the “Iron Flag Promissory Note”) with Iron Flag, LLC (“Iron Flag”), to fund tenant improvements and for general working capital at the 50,000 square foot facility leased by ABCO for use in ABCO’s cannabis cultivation operations under construction and estimated to be completed in the second quarter of 2024. Pursuant to the Iron Flag Promissory Note, GR Unlimited shall make the maximum amount available to Iron Flag in one or more advances in an aggregate amount not to exceed $4,000,000. Interest on the outstanding principal borrowed accrues at a rate of 12.5% per annum commencing with respect to each advance and accruing until the date the standing advances and all accrued interest is paid in full.
The SEC maintains its EDGAR system on an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including the Company. The address of such Internet site is http://www.sec.gov. The Company’s Internet site is https://www.grownrogue.com/. The information on the Company’s Internet site is not included in and does not form a part of this Form 20-F.
Our registered office and principal place of business in Ontario is located at 1 King340 Richmond Street West, Suite 1505, Toronto, Ontario, M5H 1A1.M5V 1X2. Our telephone number at that address is (416) 364-4039.
| B. | BUSINESS OVERVIEW |
We areGeneral
Immediately prior to the reverse takeover Transaction, the Company operated as an emerging media and internet company with a focus on user experience and engagement, creatingengagement. As a result of the Transaction and through GR Unlimited, we became a multi-state cannabis company curating innovative products that allow consumers to enhance life experiences. Grown Rogue is committed to educating, inspiring and empowering consumers with information about cannabis so they can “enhance experiences” by selecting the right product. The Grown Rogue portfolio of brands have a diverse cannabis product suite that includes premium flower (indoor and sungrown) and flower pre-rolls. Grown Rogue is strategically focused on high quality, low cost production of flower and flower-based products. Flower continues to be the leading product category in most every state as compared to other products such as edible, vape cartridges, pre-rolls, or concentrates. With its best-in-class production methods, low cost cultivation, award winning product, and destinations globally, regionallygeographic location in the famed Emerald Triangle, Grown Rogue is well positioned to execute on becoming a leader in flower production in the cannabis sector.
Grown Rogue (through its subsidiaries) has direct involvement in the cultivation, manufacture, possession, sale, and by language thatdistribution of marijuana in the United States. Grown Rogue and its subsidiaries are value driven providing an informative, interactive, entertainingprimarily involved in the U.S. marijuana industry as a seed to retail company with operations currently in Oregon and engaging look at content.Michigan (both of which have legalized medical and recreational marijuana). Grown Rogue, through its subsidiaries, produces recreational marijuana and distributes it to dispensaries throughout Oregon and Michigan.
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Through ourOregon
Grown Rogue, through its wholly owned subsidiary, DoubleTap Daily Inc. Grown Rogue Gardens, LLC (“GR Gardens”), operates four cultivation facilities in Oregon, comprising approximately 95,000 square feet of flowering cultivation canopy, that currently service the Company is developing an online managementOregon recreational marijuana market: two outdoor sungrown farms called “Foothill” and advertising platform that powers user“Ross Lane”, and advertising engagement programstwo state-of-the-art indoor facilities (“Rossanley” and “Airport”). GR Gardens currently holds five producer licenses in real-time to desktop, mobileOregon from the Oregon Liquor Control Commission (“OLCC”), two wholesaler licenses, and portable devices (http://doubletap.co).two processor licenses.
Our platform had not generated any revenue at August 31, 2016. As at August 31, 2017 our platform generated a total of $20,788 in advertising revenue.
During the year ended AugustOctober 31, 2016,2023, we disposedexecuted a two-year lease which includes an option to purchase Ross Lane, an Oregon property which includes 35 acres, 3 tax lots and an additional OLCC producer license. Subsequent to the balance sheet date on January 12, 2024, the Company executed on this purchase option for total consideration of our investment$1,525,000 comprised of a promissory note of $1,285,000 with the remaining consideration consisting of down payment and credit for prepaids rents.
Grown Rogue’s Oregon business is headquartered in 1354166 Albertathe world-renowned Emerald Triangle, which is known world-wide for the quality of its cannabis. The Emerald Triangle includes the southern part of Oregon and its operations including revenuesnorthern part of California. The company capitalizes on this ideal outdoor growing environment to produce high-quality, low-cost cannabis flower. The two sungrown farms produce one crop per year per farm, which is planted in June and harvested in October.
GR Gardens is responsible for production of recreational marijuana using outdoor and indoor production methodologies. Foothill and Ross Lane are outdoor farms with 40,000 square feet of flowering canopy each, for a total of 80,000 square feet, sitting on a combined land package of approximately 135 acres. Our “Trail’s End” outdoor property will not be cultivated in 2023, and we will transfer the Trail’s End license to Ross Lane for production in 2024 to streamline operational efficiencies by centralizing production facilities.
Rossanley, an approximately 17,000 square-foot indoor facility, with approximately 5,600 square feet of flowering bench space, produces high-quality indoor flower through controlled environment agriculture (“CEA”) operations. By carefully controlling temperature, humidity, carbon dioxide levels, and other criteria, we produce a year-round supply of high-quality cannabis flower with multiple harvests per month. Rossanley has eight dedicated flower rooms, which allows for an average of nearly four harvests per month resulting in approximately 4,000 pounds annually.
Airport, acquired in 2022, is a 30,000 square foot indoor growing facility adding 30,000 square feet of CEA indoor production space and 9,152 square feet of flowering bench space. Airport is a short distance from Rossanley, which is a benefit to operating efficiency, and it has been accountedis equipped with state-of-the-art equipment which facilitates the implementation of best practices developed at Rossanley.
The total annual production capacity for as discontinuedGrown Rogue’s Oregon operations, based on the current constructed capacity, will range between 20,000 and 24,000 pounds, depending upon various factors including sungrown seasonality and strain performance.
Michigan
As described in our consolidated statements of operations.
For the fiscal year ended August 31, 2015 the total revenue, net of royalties was derived from the sale of natural gas from our interests in Canada.
The following table sets out our revenue for the years ended August 31, 2017, 2016Item 4(A) – “History and 2015:
| Year | Advertising Revenue $ | Natural Gas Sales $ | Total Revenue $ | |||||||||
| August 31, 2017 | 20,788 | - | 20,788 | |||||||||
| August 31, 2016 | - | - | - | |||||||||
| August 31, 2015 | - | 53,055 | 53,055 | |||||||||
Our future success depends in part on our ability to aggregate compelling content and deliver that content through our online properties. We license from third parties muchDevelopment of the contentCompany”, we acquired a 60% controlling interest in Golden Harvests in May 2021. Golden Harvests operates a single, 80,000 square ft facility that currently serves the Michigan recreational and servicesmedical market. Golden Harvests currently holds two medical Class C licenses and 4 recreational class C licenses, allowing for 3,000 and 8,000 plants, respectively.
The Golden Harvests facility is approximately 60% constructed, with approximately 50,000 square feet in operation, including approximately 14,550 square feet of flowering bench space, in addition to all the ancillary support space, including office and administration to support the operations The facility produces high quality indoor flower CEA, with fourteen individual flowering rooms in operation. Harvested pounds in Michigan in 2023 totaled approximately 10,000 pounds. Golden Harvests produces bulk flower, packaged flower, and manufactures pre-rolls on our online properties, such as news, stock quotes, weather, sports, video, and photos. In addition, our users also contribute content to us. We believe that users will increasingly demand high-quality content and services. We may need to make substantial payments to third parties from whom we license or acquire such content or services. Our ability to maintain and build relationships with such third-party providers is critical to our success. Numerous factors beyond our control, which could affect our success and operating results could include:site.
We caution that the foregoing list of important factors is not exhaustive. Investors and others who base themselves on our forward-looking statements should carefully consider the above factors as well as the uncertainties they represent and the risk they entail. We also caution readers not to place undue reliance on these forward-looking statements. Moreover, the forward-looking statements may not be suitable for establishing strategic priorities and objectives, future strategies or actions, financial objectives and projections other than those mentioned above.
We do not have a reliance on raw materials, as we operate in a technology industry.
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Services
On May 24, 2023, GR Unlimited entered into an independent contractor consulting agreement (the “Consulting Agreement”) with Goodness Growth Holdings, Inc. (CSE: GDNS; OTCQX: GDNSF) (“Goodness Growth”). Under the Consulting Agreement, GR Unlimited will support Goodness Growth in the optimization of its cannabis flower products, with a particular focus on improving the quality and yield of top-grade “A” cannabis flower across its various operating markets, starting with Maryland and Minnesota.
Under the initial term of the Consulting Agreement, which expires on June 30, 2025, Goodness Growth will provide compensation to GR Unlimited for sustained consulting support, including input on systems and processes, and recommendations to improve Goodness Growth’s cultivation operations. GR Unlimited will be entitled to receive additional incentive compensation if our services result in improved cash flow performance as compared to Goodness Growth’s baseline expectations over the term of the agreement. Our cooperation in the agreement will be on an exclusive basis to Goodness Growth within the markets in which Goodness Growth operates. The agreement will automatically extend for up to two additional two-year terms, unless terminated by Goodness Growth or the Company.
A termination fee of at least $5,000,000 is payable to GR Unlimited in the event that Goodness Growth is acquired, sells all or substantially all of its assets, or is merged into another entity and is not the surviving entity of such merger. In addition, a termination fee of at least $2,500,000 is payable to GR Unlimited in the event that the Consulting Agreement terminates for certain other conditions.
As part of this strategic agreement, Goodness Growth is obligated to issue 10,000,000 warrants to purchase 10,000,000 subordinate voting shares of Goodness Growth to the Company, with a strike price equal to CAD$0.317 (U.S.$0.233), being a 25.0 percent premium to the 10-day volume weighted average price (“VWAP”) of Goodness Growth’s subordinate voting shares prior to the effective date of the Consulting Agreement. Similarly, the Company will issue 8,500,000 warrants to purchase 8,500,000 common shares of the Company to Goodness Growth, with a strike price equal to CAD$0.225 (U.S.$0.166), being a 25.0 percent premium to the 10-day VWAP of the Company’s common shares prior to the effective date of the Consulting Agreement. These warrants were issued on October 5, 2023.
The Consulting Agreement and amendments to the Consulting Agreement provides for service revenue earned by us the Company to be calculated beginning January 2023, and we reported service revenue of $96,050 for the two months ended December 31, 2023 (for year ended October 31, 2023 - $929,016) and cost of service revenue of $89,120 for the two months ended December 31, 2023 (for year ended October 31, 2023 - $308,461).
Product
Grown Rogue produces a range of cultivars for consumers to enjoy, which are traditionally classified as indicas, sativas, and hybrids. Grown Rogue has a mix of “core” and “limited” strains to provide consumers with consistent and unique purchasing options at their local dispensary. Grown Rogue flower has won multiple awards in Oregon, which is one of the most competitive cannabis production environments in the world, including the prestigious Growers Cup competition on two occasions. Grown Rogue won 1st place for highest THC content, 1st place for highest terpene content, and 3rd place in the grower’s choice category. In addition, we believe we achieved an outdoor production potency record, at the time, in the state of Oregon, when its Monkey Train cultivar tested at a THC potency of 35.13%. In 2023, Grown Rogue won 3rd place in the Oregon Grower’s Cup Outdoor category for its Sour Grape Strain. Consumers can enjoy bulk flower in both Oregon and Michigan. In the Michigan market we also offer our innovative nitrogen sealed 3.5 gram flower jars, our patented nitrogen sealed pre-rolls, 3.5 gram flower bags, and regularly packaged pre-rolls.
We do not haverecently launched a reliance on any significant patents.new line of strain-specific prepackaged flower, coupled with proprietary genetics, in Michigan, and launched a new branded pre-roll pack product in Oregon in 2023. In addition, Grown Rogue launched a new brand of pre-rolls, a rapidly growing category, called Yeti in 2023. According to LeafLink’s MarketScape data, Grown Rogue was the #1 flower producer in Oregon and a top 5 indoor flower wholesaler in Michigan in 2022 and in 2023.
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The technology industry is highlyGenetics
We are committed to developing unique, proprietary genetics as long-term genetic diversity will be a major factor in establishing brand differentiation with consumers. We have allocated research and development space to develop new strains, while also phenotype hunting to identify new and exciting strain options that will resonate with consumers. Grown Rogue has developed a compelling mix of proprietary strains, along with a library of “fan favorites” to ensure that consumer and dispensary demand will remain strong for its flower and flower-derived products. All Grown Rogue genetics are rigorously tested to establish the genetic makeup of each strain in its portfolio. We continue to focus on bringing new unique genetics to bring a steady flow of innovative flower and flower products to market. Currently we carry more than 50 unique cultivars in our genetic library and are continually adding to the library as we trial new genetics.
Distribution and Sales
Grown Rogue uses a multi-channel distribution strategy that includes direct-to-retail delivery and third-party delivery (Michigan regulations mandate independent third-party delivery); wholesalers, who have their own distribution channels; and processors, who utilize Grown Rogue products (e.g., trim) to create retail-ready products.
Regarding the direct-to-retail channel, Grown Rogue’s sales team works closely with dispensary owners and intake managers to provide consistent product, competitive in every phase. Many of our competitors have greater financialprices, and technical resources, and have established multi-national operations, secured patents and licenses, which we may not have or be able to obtain. As a result, we may be preventedpersonalized service using sales techniques from participating in certain media and advertising programs (See, Item 3.D Key Information - Risk Factors).
Governmental Regulation
Federal, state, and international laws and regulations govern the collection, use, retention, disclosure, sharing and security of data that we receive from and about our users. The use of consumer data by online service providers and advertising networks is a topic of active interest among federal, state, and international regulatory bodies, and the regulatory environment is unsettled. Many states have passed laws requiring notification to users where there is a security breach for personal data,other industries such as California’s Information Practices Act. We face similar risks in international markets wherepharmaceutical and liquor. Grown Rogue’s goal is to establish and maintain the client relationship as we continue to expand our products and services are offered. In addition, the application and interpretation of these laws and regulations are often uncertain, particularlyfootprint in the new and rapidly-evolving industrystates in which we operate. There are also a number
Grown Rogue has developed end user product marketing collateral and other educational information regarding Grown Rogue products as part of legislative proposals pending beforeall sales with dispensaries that include strain type, testing results, information on the U.S. Congress, various state legislative bodies,product and foreign governments concerning data protection which could affect us. For example, a revisionother necessary information to clearly articulate the product being provided. Each product is uniquely packaged while maintaining brand consistency across the product suite.
Grown Rogue works with dispensary owners to develop promotional opportunities for the retail customers and bud tenders. Grown Rogue provides detailed tutorials to the 1995 European Union Data Protection Directivestaff and owners of the dispensaries around the product and how it is currently being consideredgrown, processed, cured and packaged so that they are intimately familiar with the Grown Rogue process. Grown Rogue also invites dispensary owners and operators to Grown Rogue’s operating facilities so they can see first-hand the methods and processes used to create the product.
Based upon information from MarketScape, which is part of the sales analytics tool utilized by legislative bodies that may include more stringent operational requirements for data processorsLeafLink, which handles all of our sales and significant penalties for non-compliance. Any failure, or perceived failure, by us to comply with or make effective modifications to our policies, or to comply with any federal, state, or international privacy, data-retention or data-protection-related laws, regulations, orders or industry self-regulatory principles could resultinvoicing, we are the largest producer in proceedings or actions against us by governmental entities or others, a loss of user confidence,Oregon and a losstop five indoor flower producer in Michigan.
Branding
Developing compelling branding that engages, inspires, and creates transparency and trust with consumers is one of users, advertising partners,the most important aspects of building a successful cannabis company. Cannabis product branding has been evolving from promising high-quality flower, to providing descriptions of the effect a consumer should expect from a particular product.
While other brands have shifted into the “one word” product description, Grown Rogue has leveraged consumer insights and product feedback to evolve the messaging to provide significantly more detail so consumers can make a more informed choice about which Grown Rogue products will optimally enhance their experience.
In order to grow the Grown Rogue community and spread knowledge of its products, Grown Rogue leverages social media and other digital platforms. Grown Rouge aspires to eliminate the “dark mystery” historically associated with cannabis by empowering consumers to learn about the plant and then “enhance experiences” as they desire. The transition from prohibition to legal cannabis has provided the cannabis community with an opportunity to welcome a large group of new members and it is vital that product education is completed in an authentic and informative manner to ensure that everyone’s first cannabis experience is not only positive but also as expected.
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Marketing and Advertising
Grown Rogue’s marketing channels include a comprehensive, fully responsive (mobile) interactive website. The website has been search-engine optimized (“SEO”) and includes calls to action that encourage consumers to become part of the Grown Rogue community by following the company on social media.
Grown Rogue is focused on providing education to new and existing consumers through Grown Rogue’s website but even more hands on through retail partners. We provide vendor and budtender education days where we spend one on one time with the budtenders educating them about everything Grown Rogue.
Grown Rogue strategically leverages the narrative at retail through digital and physical retail assets to further educate consumers about Grown Rogue.
Grown Rogue has established a social media presence that includes Facebook, Twitter, Instagram, LinkedIn, TikTok and YouTube. Grown Rogue’s social identity will be defined by delivering fresh content and keeping interaction with followers/fans prompt and positive. Grown Rogue intends to attract existing cannabis industry participants as well as people not familiar with the industry by creating a positive, inclusive environment where dialogue is encouraged. The goal is to change existing stereotypes and overcome the stigmas associated with the cannabis industry.
Licenses
Grown Rogue is dependent upon its ability (and the abilities of its subsidiaries) to obtain and maintain state and local licenses required to conduct its marijuana business in Oregon, California, and Michigan. Failure to obtain or maintain licenses any of which could potentiallysuch licenses would have ana material adverse effect on our business (See,Item 3.D Key Information - Risk Factors).the Company’s business.
Trademarks and Patents
Grown Rogue actively seeks to protect its brand and intellectual property. Grown Rogue currently has three registered U.S. trademarks:
| 1. | Grown Rogue was filed on September 22, 2017 and registered on August 7, 2018 under Registration No. 5537240 |
| 2. | The Right Experience Every Time was filed on September 29, 2017 and registered on August 7, 2018 under Registration No. 5537260. |
| 3. | Sizzleberry was filed on September 29, 2017 and registered on August 7, 2018 under Registration No. 5537259. |
Grown Rogue filed a patent for its nitrogen sealed glass containers on February 15, 2018 with the United States Patent and Trademark Office (“USPTO”). The nitrogen sealed glass containers preserve the freshness of the flower and essential terpenes to improve the “entourage effect.” The USPTO issued Grown Rogue United States Patent Number 10,358,282 on July 23, 2019. Several third parties have contacted us to request licensing information on this technology. We have introduced nitrogen sealed jars and pre-rolls in Michigan and plan on launching them as we enter additional new markets and may license the technology to third parties operating in markets in which Grown Rogue is not currently licensed.
Social and Environmental Policies
Grown Rogue employs sustainable business models in all of its operations. In cultivation, Grown Rogue maintains the highest standards of environmental stewardship. This includes sustainable water sources with reclamation and recapture as much as possible from runoff and recycling of water input. Grown Rogue uses only natural and sustainable products in all applications, from nutrients to integrated pest management. Grown Rogue maintains the highest level of sustainable cannabis practices through its focus on sustainable and natural cultivation methods.
Grown Rogue hires and pays living wage to all of its team members and is very involved in each of the communities where it operates.
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Plans for Expansion and Economic Outlook
Grown Rogue continues to focus on taking its learnings and experience from Oregon and Michigan into new markets across the US. During the last two years, Grown Rogue has established a platform that excels at licensing, compliance, high-quality and low-cost production, understanding consumer purchasing preferences, and product innovation. This platform places Grown Rogue in a superior position to capitalize on new markets compared to our competitors. Oregon is arguably the most competitive cannabis market in the world, and we have excelled by implementing standard business practices that make the Company well suited for entering and building successful brand presence in newly legalized cannabis markets.
The expansion into Airport and acquisition of a 60% interest in Golden Harvests represent execution of management’s strategy of growth through high quality, low-cost flower production. In addition, we have added a profitable services segment, which leverages our cultivation expertise to generate margin and increase our presence to two new states at low financial risk. As other growth opportunities arise under favorable financial terms, management can activate known and repeatable systems into new assets.
We believe that the future of the cannabis industry is in branded products and that the leading brands are being developed on the west coast, which is well known for high quality cannabis. Unlike many current multi-state operators who prefer to obtain just a few licenses in a large volume of states, Grown Rogue is focused on establishing a larger number of licenses in fewer states to capitalize on the economies of scale we view as optimal to maximize profits. Over the next twelve months, Grown Rogue is focused on furthering our footprints and flower market shares in the Oregon and Michigan markets, strengthening our presence in Minnesota and Maryland (by way of the Consulting Agreement), continuing to add new products to our portfolio, and exploring and executing on strategic opportunities in new states.
With the recent shift in political landscape, Grown Rogue has also begun analyzing the potential for federal de-regulation and the subsequent ability to export cannabis products across state lines. We believe Oregon will be a large export state. Being located in the Emerald Triangle also provides a unique product differentiator due to the ability to produce high quality low cost sungrown flower due to the environmental conditions that occur naturally in Southern Oregon. Our strategy to take advantage of what is projected to be a multi-billion dollar export business is developing, and we are excited to begin implementation of this business plan over the coming years.
| C. | ORGANIZATIONAL STRUCTURE |
WeAs of the date of this Transition Report, and as a result of the Transaction, we have twofive wholly-owned subsidiaries, Ice Studio Productions Inc.subsidiaries: GR Unlimited, GR Gardens, Grown Rogue Distribution, LLC (“GR Distribution”), a company incorporated in the Province of Ontario on June 16, 2016GRU Properties, LLC (“ICE Studio”GRUP”), and DoubleTap Daily Inc., a company incorporated in the Province of Ontario on February 29, 2016,GRIP, LLC (“DoubleTap”GRIP”). The Company owns GR Gardens, GR Distribution, GRUP, and GRIP, indirectly through its ownership of GR Unlimited; each of GR Gardens, GR Distribution, GRUP, and GRIP is a wholly owned subsidiary of GR Unlimited. Through GR Unlimited, the Company also has an indirect ownership of 87% interest in GR Michigan, LLC (“GR Michigan”), and 87% of Canopy Management LLC, which owns 60% of Golden Harvests. The Company also owns Grown Rogue Retail Ventures, LLC (“GR Retail”) indirectly through its ownership of GR Unlimited as GR Retail is a wholly owned subsidiary of GR Unlimited, which owns 43.5% of GR Retail.
All intercompany balances and transactions have been eliminated on consolidation.
The following tables include wholly owned subsidiaries of the Company following the Transaction:
| 100% owned subsidiaries incorporated in the Province of Ontario | 100% owned subsidiary Organized in Oregon | |
(incorporated |
( | |
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| Grown Rogue Unlimited, LLC | |||
| 100% owned subsidiaries of Grown Rogue Unlimited, LLC organized in Oregon* | |||
Grown Rogue Gardens, LLC (organized November 1, 2016) | Grown Rogue Distribution, LLC (organized November 1, 2016) | GRU Properties, LLC (organized November 1, 2016) | GRIP, LLC (organized October 31, 2016) |
| * | GR Unlimited also owns (i) an 87% interest in GR Michigan; (ii) and an 87% interest in Canopy, in which Canopy owns a 60% controlling interest in Golden Harvests. GR Michigan, Canopy and Golden Harvests are LLCs organized in Michigan. Additionally, GR Unlimited owns a 43.5% interest in GR Retail, an entity organized in Delaware. |
The corporate structure of the Company as of the date of this Transition Report is as follows:
| ** | The Company, through its subsidiary GR Retail invested $500,000 in the equity of GR West NY. GR West NY is a lender to a retail business in New Jersey. |
| D. | PROPERTY, PLANTS AND EQUIPMENT |
We signed a sublease agreement effective August 1, 2016 until December 31, 2017 forOur U.S. executive offices consist of approximately 1,7405,000 square feet of office space located at 251 Consumers Road, Suite 240, Toronto, Ontario, Canada to commence commercial operations at a cost of approximately $4,300 per month. During December 2016, we closed the office and returned the subleased space back to the lessee.
We do not own any real property at this time. Our executive offices consist of approximately 850 square feet of office space and are rented at $1,500 per month on a month to month basis.Airport facility. The address of our U.S. executive offices is 1 King550 Airport Road, Medford, Oregon 97504. Our Ontario executive offices are located at 340 Richmond Street West, Suite 1505, Toronto, Ontario, M5V 1X2, Canada.
Through GR Gardens, the Company operates four cultivation facilities that currently service the Oregon recreational marijuana market: Airport, Rossanley, Ross Lane, and Foothill. The Company formerly also operated Trail’s End, at which will production is not planned from 2023 forward. The Company also leases a facility used to for post-harvest processing called Lars.
The Company leases approximately 42 acres of real property in Jackson County, Oregon, commonly known as 741 West Fork Trail Creek Road, Trail, Oregon 97541, through that certain Commercial Lease Agreement, dated March 1, 2017, between J. Obie (“Jesse”) Strickler and GRUP. This property is subleased by GRUP to GR Gardens pursuant to that certain Commercial Sublease Agreement, dated March 1, 2017, between GRUP and GR Gardens.
The Company leases approximately 64 acres of real property in Jackson County, Oregon, commonly known as 3100 N. Foothill Road, Medford, Oregon, 97504, through that certain Commercial Lease Agreement, dated March 17, 2021, between Naumes, Inc., and GR Gardens.
The Company leases property located at 655 Rossanley Drive, Medford, Oregon, pursuant to that certain Commercial Lease Agreement, dated January 31, 2017, between VWPP, LLC, and GRUP. This property is subleased by GRUP to GR Gardens pursuant to that certain Commercial Sublease Agreement, dated January 31, 2017, between GRUP and GR Gardens.
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Our intangible asset,The Company leases property located at 550 Airport Road, Medford, Oregon, pursuant to that certain Commercial Lease Agreement, assumed on April 14, 2022, between Airport Road LLC and GRUP.
The Company leases property located at 2046 Lars Way, Medford, Oregon, pursuant to that certain Commercial Lease Agreement, dated December 20, 2021, between Airport Road LLC and GR Gardens.
The Company leases approximately 35 acres of real property, with an option to purchase, in Jackson County, Oregon, commonly known as 2888 Ross Lane, Central Point, Oregon, through that certain Commercial Lease Agreement, dated December 20, 2022, between Lender Capital, LLC, and GR Gardens., Subsequent to the DoubleTap platformstatement of financial position dated October 31, 2023, the Company exercised its option to purchase the Ross Lane property on January 12, 2024 for a total purchase price of $1,525,000. After applying deposits in escrow and rents paid adjustments, the remaining consideration due of $1,285,000 is comprisedin the form of a cloud based, global online content creation, managementsecured promissory note payable over 36 months.
The Company leases property located at 333 Morton St, Bay City, Michigan, pursuant to that certain Commercial Lease Agreement, dated February 1, 2020, between David Pleitner, LLC and advertising platform that powers online user and engagement programs globally in real-time to desktop, mobile and portable devices.Golden Harvests.
| ITEM 4A | UNRESOLVED STAFF COMMENTS |
Not Applicableapplicable.
| ITEM 5 | OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
The following discussion should be read in conjunction with our “Selected Financial Data” under Item 3 above, our Audited Consolidated Financial Statements for two months ended December 31, 2023 and the fiscal years ended AugustOctober 31, 20172023 and 20162022 and notes thereto included under Item 18. For a discussion of Operation and Financial Review and Prospects for the year ended October 31, 2021 please refer to the Company’s Form 20-F Annual Report for the fiscal year ended October 31, 2021 filed on November 4, 2022.
Certain statements made in this Item are forward-looking statements under the Reform Act.statements. Forward- looking statements are based on current expectations that involve a numbersnumber of risks and uncertainties, which could cause actual events or results to differ materially from those reflected herein. See, Item 3.D Key Information - Risk Factors for discussion of important factors, which could cause results to differ materially from the forward-looking statements below.
Overview
The Company, (formerly: Novicius Corp., (formerly: Intelligent Content Enterprises Inc.) was amalgamated under the Business Corporations Act (Ontario)(Ontario) on November 30, 2009(“Novicius” or the “Company”).2009. The Company filed articles of amendment effective November 1, 2018, and changed its name from Novicius Corp. to Grown Rogue International Inc. The Company had previously filed articles of amendment effective May 26, 2017, and changed its name from Intelligent Content Enterprises Inc., to Novicius Corp., and consolidated its shares of common sharesstock on the basis of one (1) new share for every ten (10) old shares. The Company filed articles of amendment effective February 1, 2016, and changed its name from Eagleford Energy Corp., to Intelligent Content Enterprises Inc., and consolidated its shares of common sharesstock on the basis of one (1) new share for every ten (10) old shares. Through the Company’s wholly owned Ontario subsidiary, DoubleTap Daily Inc., (formerly:Digital Widget Factory Inc.), the Company has developed an online content management and advertising platform that powers user and advertising engagement programs in real-time to desktop, mobile and portable devices (http://doubletap.co).devices. DoubleTap operations ceased immediately prior to the effectuation of the Transaction.
The Company'sCompany’s registered office is 140 King Street West,St W Suite 1505,5800, Toronto, Ontario,ON M5H 1A1. The Company’s3S1, Canada. Shares of our common shares tradestock quoted on OTCQBOTC Markets under the symbol NVSIFGRUSF and listed on the Canadian Securities ExchangeCSE under the symbol NVS.GRIN.
The consolidated financial statementsConsolidated Financial Statements include the accounts of Novicius,Grown Rogue International Inc., the legal parent, together with its wholly owned subsidiaries as at October 31, 2023: GR Unlimited, and GR Unlimited’s subsidiaries (collectively referred to as the “Subsidiaries”). GR Unlimited’s wholly-owned subsidiaries Ice Studio Productions Inc., incorporatedinclude GR Gardens; GR Distribution, LLC; GRUP; and GRIP. GR Unlimited also has an 87% interest in the ProvinceGR Michigan, as well as an 87% interest in Canopy, which owns 60% of Ontario on June 16, 2016 (“ICE Studio”) and DoubleTap Daily Inc., incorporated in the ProvinceGolden Harvests.
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Effective February 29, 2016, the Company disposed of its investment in 1354166 Alberta Ltd., a company operating in the province of Alberta (“1354166 Alberta”). The Company’s former subsidiaries, Eagleford Energy, Zavala Inc., a Nevada company (“Zavala Inc.”), and its’ wholly owned subsidiary EEZ Operating Inc., a Texas company (“EEZ Operating”) were disposed of effective August 31, 2015 (see Note 15 to the Consolidated Financial Statements).
Capital Management
The Company’s objectives when managing capital are to ensure the Company will have sufficient financial capacity, liquidity and flexibility to fund its operations, growth and ongoing development opportunities. The Company’s capital requirements currently exceed its operational cash flow. As such, the Company is dependent upon future financingsfinancing in order to maintain liquidity and will be required to issue equity or issue debt.
The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions, availability of capital and the risk characteristics of any underlying assets in order to meet current and upcoming obligations.
The boardCompany’s Board of directorsDirectors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company'sCompany’s management and favourablefavorable market conditions to sustain future development of the business. As at AugustAt December 31, 20172023, and 2016,October 31, 2023 and 2022, the Company considered its capital structure to be comprised of shareholders’ deficiency.
SUMMARYBASIS OF SIGNIFICANT ACCOUNTING POLICIES AND FUTURE ACCOUNTING PRONOUNCEMENTSPREPARATION
Our consolidated financial statements for the years ended August 31, 2017 and 2016Statement of Compliance
The Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”)IFRS as issued by the International Accounting Standards Board (“IASB”)IASB and interpretations issued by the International Financial Reporting Interpretation Committee (“IFRIC”). (See Item 18– Financial Statements).
NATURE OF BUSINESS AND GOING CONCERN
Nature of Business
Novicius Corp., (formerly: Intelligent Content Enterprises Inc.) was amalgamated underOn April 29, 2024, the Business Corporations Act (Ontario)on November 30, 2009(“Novicius” or the “Company”).The Company filed articles of amendment effective May 26, 2017, and changed its name from Intelligent Content Enterprises Inc., to Novicius Corp., and consolidated its common shares on the basis of one (1) new share for every ten (10) old shares. The Company filed articles of amendment effective February 1, 2016, and changed its name from Eagleford Energy Corp., to Intelligent Content Enterprises Inc., and consolidated its common shares on the basis of one (1) new share for every ten (10) old shares. Through the Company’s wholly owned Ontario subsidiary, DoubleTap Daily Inc., (formerly:Digital Widget Factory Inc.) the Company has developed an online content management and advertising platform that powers user and advertising engagement programs in real-time to desktop, mobile and portable devices (http://doubletap.co).
The Company's registered office is located at 1 King Street West, Suite 1505, Toronto, Ontario, M5H 1A1. The Company’s common shares trade on the OTCQB under the symbol NVSIF and on the Canadian Securities Exchange under the symbol NVS.
The consolidated financial statements include the accounts of Novicius, the legal parent, together with its wholly-owned subsidiaries, Ice Studio Productions Inc. incorporated in the Province of Ontario on June 16, 2016 (“ICE Studio”) and DoubleTap Daily Inc. incorporated in the Province of Ontario on February 29, 2016, (“DoubleTap”).
Effective February 29, 2016, the Company disposed of its investment in 1354166 Alberta Ltd., a company operating in the province of Alberta (“1354166 Alberta”). The Company’s former subsidiaries, Eagleford Energy, Zavala Inc., a Nevada company (“Zavala Inc.”), and its’ wholly owned subsidiary EEZ Operating Inc., a Texas company (“EEZ Operating”) were disposed of effective August 31, 2015.
Going Concern
These consolidated financial statements (the “Consolidated Financial Statements”) have been prepared in accordance with International Financial Reporting Standards (“IFRS”) applicable to a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business, as they come due for the foreseeable future. The Company is in the process of developing its advertising platform and has not yet realized profitable operations. The Company requires additional financing for its working capital and for the costs of development, content creation and marketing of its platform.
Due to continuing operating losses, the Company's continuance as a going concern is dependent upon its ability to obtain adequate financing and to reach profitable levels of operation. The Company will continue to seek additional forms of debt or equity financing, or other means of funding its operations, however, there is no assurance that it will be successful in doing so or that funds will be available on terms acceptable to the Company or at all. The ability of the Company to arrange such financing in the future will depend in part upon the prevailing capital market conditions as well as the business performance of the Company.
The Company has accumulated significant losses and negative cash flows from operations in recent years which raise doubt as to the validity of the going concern assumption. As at August 31, 2017, the Company has working capital deficiency of $487,776 (2016: working capital deficiency $690,649) and an accumulated deficit of $31,684,984, (2016: $29,587,246). These material uncertainties may cast significant doubt upon the entity’s ability to continue as a going concern. The Consolidated Financial Statements do not give effect to adjustments, if any that would be necessary should the Company be unable to continue as a going concern and, therefore, be required to realize its assets and liquidate its liabilities in other than the normal course of business and at amounts that may differ from those shown in the accompanying Consolidated Financial Statements.
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 issued by the International Financial Reporting Interpretation Committee (“IFRIC”). The policies applied in these Consolidated Financial Statements are based on IFRS issued and outstanding as of January 1, 2017. The Board of Directors approved the Consolidated Financial Statements onfor the two months ended December 28, 2017.31, 2023.
Basis of Consolidation
The subsidiaries are those companies controlled by the Company, as the Company is exposed, or has rights, to variable returns from its involvement with the subsidiaries and has the ability to affect those returns through its power over the subsidiaries by way of its ownership and rights pertaining to the subsidiaries. The financial statements of subsidiaries are included in these financial statements from the date that control commences until the date control ceases. All intercompany balances and transactions have been eliminated upon consolidation.
Basis of Measurement
The Consolidated Financial Statements have been prepared on a historical cost basis except for certain financial instruments measured at fair value. The Company’s significant accounting policies are disclosed in Note 2 of the Consolidated Financial Statement attached hereto.
Change in Fiscal Year End
On January 29, 2024, the Company changed its fiscal year-end from October 31st to December 31st, effective immediately. The decision to change the fiscal year-end to a calendar year-end was to align our reporting cycle more closely with how we plan to manage our business. This Transition Report on Form 20-F reports our financial results for the period from November 1, 2023, through December 31, 2023, which we refer to as the “transition period” in this report. Following the transition period, we will file an annual report for each twelve-month period ended December 31st of each year beginning with December 31, 2024.
Functional and Presentation Currency
The Company’s functional currency is the Canadian dollar and presentationthe functional currency of its Subsidiaries is the parent Novicius and its wholly owned subsidiaries ICE Studio and DoubleTap is Canadian dollars.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
Control exists when the Company is exposed to, or has rights to variable returns from its involvement with the entity and has the ability to affect these returns through its power over the entity. The financial statements of the subsidiaries are included in the Consolidated Financial Statements from the date that control commences until the date that control ceases. Intercompany balances and transactions, and any unrealized income and expenses arising from intercompany transactions, are eliminated in preparing the Consolidated Financial Statements.U.S. dollar. The Consolidated Financial Statements includeare presented in U.S. dollars.
Transactions denominated in foreign currencies are initially recorded in the accountsfunctional currency using exchange rates in effect at the dates of the Company, the legal parent, together with its wholly-owned subsidiaries, Ice Studiotransactions. Monetary assets and DoubleTap.
Revenue Recognition
Revenue is recognized when there is persuasive evidence that an arrangement exists which is when a contract or sales order is signed by both parties, delivery has occurred, ownership has been transferred to the customer, price is fixed or determinable and ultimate collection is reasonably assured at the time of delivery.
Revenue from advertising revenue were recognized when services were provided.
Foreign Currency
Items includedliabilities denominated in the Consolidated Financial Statements of each of the Company’s wholly owned subsidiaries are measured using the currency of the primary economic environment in which the entity operates (the "functional currency"). Foreign currency transactionsforeign currencies are translated into the functional currency using the exchange rates prevailing at the dates of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities not denominated in the functional currency of an entity are recognized in profit or loss.
Assets and liabilities of entities with functional currencies other than Canadian dollars are translated at the year- end rates of exchange, and the results of their operations are translated at average rates of exchange for the period. The resulting translation adjustments are included in the foreign currency translation reserve under other comprehensive income.
Significant Accounting Estimates and Judgements
The preparation of the Consolidated Financial Statements in accordance with IFRS requires that management make estimates and assumptions and use judgment regarding the measured amounts of assets, liabilities and contingent liabilities at the date of the Consolidated Financial Statements and reported amounts of revenue and expenses during the reporting period. Such estimates and judgments are continuously evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual outcomes may differ from these estimates.
The key sources of estimation uncertainty that have a significant risk of causing material adjustment to the amounts recognized in the Consolidated Financial Statements are:
Going Concern
The assessment of the Company’s ability to execute its strategy by funding future working capital requirements involves judgment. Estimates and assumptions 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. There is an uncertainty regarding the Corporation’s ability to continue as a going concern.
Fair value of financial instruments
The estimated fair value of financial assets and liabilities, by their very nature, are subject to measurement uncertainty.
Fair Value of Derivative Liabilities
The Company is exposed to risks related to changes in its share prices, foreign exchange rates, interest rate and volatility rates used to determine the estimated fair value of its derivative liabilities. In the determination of the fair value of these instruments, the Company utilizes certain independent values and, when not available, internal financial models which are based primarily on observable market data. Management’s judgment is required in the development of these models. This estimate also requires determining and making assumptions about the most appropriate inputs to the valuation model including the expected life, volatility, discount rates and dividend yield.
Settlement of Debt with Equity Instruments
Equity instruments issued to a creditor to extinguish a financial liability are measured at the fair value of the equity instruments at the date the financial liability is extinguished. The Company estimates the fair value of warrants using the Binomial Lattice pricing model and further assumptions including the expected life, volatility, discount rates and dividend yield. The fair value of the units comprising shares and warrants issued in connection with the extinguishment of a financial liability are then prorated to the total market value of the common shares.
Fair Value of Stock Based Compensation and Warrants
In determining the fair value of share based payments the calculated amounts are not based on historical cost, but is derived based on assumptions (such as the expected volatility of the price of the underlying security, expected hold period before exercise, dividend yield and the risk-free rate of return) input into a pricing model. The model requires that management make forecasts as to future events, including estimates of: the average future hold period of issued stock options and compensation warrants before exercise, expiry or cancellation; future volatility of the Company’s share price in the expected hold period; dividend yield; and the appropriate risk-free rate of interest. The resulting value calculated is not necessarily the value that the holder of the option or warrant could receive in an arm’s length transaction, given that there is no market for the options or compensation warrants and they are not transferable. Similar calculations are made in estimating the fair value of the warrant component of an equity unit. The assumptions used in these calculations are inherently uncertain. Changes in these assumptions could materially affect the related fair value estimates.
Income Tax
Provisions for taxes are made using the best estimate of the amount expected to be paid based on a qualitative assessment of all relevant factors. The Company reviews the adequacy of these provisions at the end of the reporting period. However, it is possible that at some future date an additional liability could result from audits by taxing authorities. Where the final outcome of these tax-related matters is different from the amounts that were initially recorded, such differences will affect the tax provisionsAll exchange gains and losses are included in the period in which such determination is madeconsolidated statement of comprehensive income (loss).
Earnings (Loss) per Share
The basic loss per share is calculated by dividing net loss by the weighted average number of common shares outstanding during the period. The diluted earnings per share reflects the dilution that would occur if outstanding stock options and share purchase warrants were exercised or converted into common shares using the treasury stock method.
The inclusion of the Company’s stock options and share purchase warrants in the computation of diluted loss per share would have an anti-dilutive effect on loss per share and are therefore excluded from the computation.
Discontinued Operations
A discontinued operation is a component of the Company's business that represents a separate major line of business or geographical area of operations that has been disposed of or is held for sale, or is a subsidiary acquired exclusively with a view to resale. Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale, if earlier. Effective August 31, 2015, the Company assigned all of its right, title and interest in Zavala Inc., as partial settlement of a secured convertible note payable and effective February 29, 2016, the Company disposed of its investment in 1354166 Alberta and accordingly their operations have been treated as discontinued operations.
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Financial Instruments
Classification and Measurement
Financial instruments are measured at fair value on initial recognitionFor the purpose of the instrument. Measurement in subsequent periods depends on whether thepresenting consolidated financial instrument has been classified as “fair value through profit and loss”, “loans and receivables”, “available-for-sale”, “held-to-maturity”, or “other financial liability” as defined by IAS 39, “Financial Instruments: Recognition and Measurement”.
Financialstatements, the assets and financial liabilities at “fair value through profit or loss” and are measured at fair value with changes in fair value recognized in the statement of operations. Transaction costs are expensed when incurred. The Company has classified cash and derivative liabilities as “fair value through profit and loss”.
Financial instruments classified as “loans and receivables”, “held-to-maturity”, or “financial liabilities” are measured at amortized cost using the effective interest rate method of amortized cost. “Loans and receivables” are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. “Held-to-maturity” financial assets are non-derivative investments that an entity has the positive intention and ability to hold to maturity.
“Other financial liabilities measured at amortized cost” are those financial liabilities that are not designated as “fair value through profit or loss”. The Company has classified trade and other payables as “other financial liabilities”.
Financial assets classified as “available-for-sale” are measured at fair value, with changes in fair value recognized in other comprehensive income. The Company has classified its marketable securities as “available for sale”.
Cash
Cash in the statement of financial position comprise cash held in banking institutions.
Marketable Securities
At each financial reporting period, the Company estimates the fair value of investments which are available-for-sale, which could be based on quoted closing bid ask spread prices or other measures for unquoted instruments. Adjustments to the fair value of the marketable securities at the financial position date are recorded to other comprehensive income until re-classified to the statement of operations.
Derivative Financial Instruments
The Company’s derivative instruments consist of derivative liabilities in relation to its i) anti-dilution units issued; and ii) its previous secured convertible note payable; and iii) share purchase warrants with a US Dollar exercise price.
i) The Company has issued Units that contain an anti-dilution provision such that if within 18 months of the issue date, the Company issues additional common shares for a consideration per share or with an exercise or conversion price per share, less than issue price (the “Adjusted Price”) the Holder shall be entitled to receive (for no additional consideration) additional Units in an amount such that, when added to the number of Units acquired by Holder under the agreement will equal the number of Units that the Holder would otherwise be entitled to receive had the transaction occurred at the Adjusted Price. The anti-dilution provision is considered a derivative and requires fair value measurement at each reporting period. During the reporting periods August 31, 2016 and 2015 the Company determined that based on the market price being greater than the issue price per share, no additional common shares were required to be fair valued and recorded as a derivative liability.
ii) The Company had a secured convertible note payable that had a conversion feature which could convert any unpaid principal and accrued interest into conversion units. A conversion unit was comprised of one (1) common share and one (1) common share purchase warrant entitling the holder to acquire a common share of the Company at a price equal to a 15% premium to the price of the common share acquired under the conversion unit. The price of the conversion unit was the lesser of a price equal to the 30-day rolling weighted average price of the Company’s common shares as of the date of conversion, less 20% or US$0.80 per share the (“Conversion Unit”). The terms and features of the conversion met the definition of an embedded derivative. Since both components of the Conversion Unit (the common share component and warrant component) contained a variable exercise/conversion price, the Conversion Unit met the definition of a financial liability under IAS 32 “Financial Instruments: Presentation”. As a result, the Conversion Unit was a derivative liability that required fair value measurement each reporting period. The Company had selected the Binomial Lattice model to fair value the warrant component of the conversion unit and the Monte Carlo Simulations process for the common share component of the Conversion Unit.
iii) In prior years, the Company had issued share purchase warrants with an exercise priceare expressed in US dollars, rather than Canadian dollars (the functional currency of the Company). Such share purchase warrants are derivative instruments and the Company was required to re-measure the fair value at each reporting date. The fair value of these share purchase warrants are re-measured at each reporting dateU.S. Dollars using the Black-Scholes option pricing model with changes recorded to the statement of operations.
Impairment
Financial Assets
A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. Individually significant financial assets are tested for impairment on an individual basis. Remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are recognized in the statement of operations. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognized. For financial assets measured at amortized cost the reversal is recognized in profit or loss.
Income tax
Income tax expense consists of current and deferred tax expense. Current and deferred tax are recognized in profit or loss except to the extent that it relates to items recognized directly in equity or other comprehensive income.
Current tax is recognized and measured at the amount expected to be recovered from or payable to the taxation authorities based on the income taxexchange rates enacted or substantively enactedprevailing at the end of the reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are recognized in other comprehensive income (loss) and includes any adjustmentreported as currency translation reserve in shareholders’ equity.
Foreign exchange gains or losses arising from a monetary item receivable from or payable to taxes payable in respecta foreign operation, the settlement of previous years.
Deferred taxwhich is recognized on any temporary differences between the carrying amounts of assets and liabilitiesneither planned nor likely to occur in the consolidated financial statementsforeseeable future and the corresponding tax bases usedwhich, in the computation of taxable earnings. Deferred tax assets and liabilities are measured at the tax rates that are expectedsubstance, is considered to apply in the period when the asset is realized and the liability is settled. The effect of a change in the enacted or substantively enacted tax rates is recognized in net earnings and comprehensive income or in equity depending on the item to which the adjustment relates.
Deferred tax assets are recognized to the extent future recovery is probable. At each reporting period end, deferred tax assets are reduced to the extent that it is no longer probable that sufficient taxable earnings will be available to allow all orform part of the asset to be recovered.
Share-Based Compensation
The Company has a share-based compensation plan that grants stock options to employees and non-employees. This plan is an equity settled plan. The Company usesnet investment in the fair value method for accounting for share-based awards to employees and non-employees.
The fair value determined at the grant date of the equity-settled share-based payments is expensed over the vesting period, based on the Company’s estimate of equity instruments that will eventually vest. At the end of each reporting period, the Company revises its estimate of the number of equity instruments expected to vest.
The impact of the revision of the original estimates, if any, isforeign operation, are recognized in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to contributed surplus.other comprehensive income (loss).
Equity-settled share-based payment transactions with parties other than employees are measured at the fair value of the goods or services received, except where that fair value cannot be estimated reliably, in which case they are measured at the fair value of the equity instruments granted, measured at the date the Company obtains the goods or the counterparty renders the service.
Warrants
When the Company issues units comprising common shares and warrants, the Company follows the relative fair value method of accounting for warrants attached to and issued with common shares of the Company. Under this method, the fair value of the common shares is estimated and the fair value of the warrants issued is estimated using an option pricing model. The fair value is then prorated to the total of the net proceeds received on issuance of the common shares and the warrants.
RECENT ACCOUNTING PRONOUNCEMENTS AND RECENT ADOPTED ACCOUNTING STANDARDS
Recent Issued Accounting Pronouncements
The following standards, amendments and interpretations, which may be relevant to the Company have been introduced or revised by the IASB:
(i) In May 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers, which supersedes IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, and IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers, and SIC 31 Revenue – Barter Transactions Involving Advertising Services. IFRS 15 establishes a comprehensive five-step framework for the timing and measurement of revenue recognition. The Company intends to adopt IFRS 15 effective September 1, 2018, and is currently assessing the impact of this new standard on the Consolidated Financial Statements.
(ii) In July 2014, the IASB issued the final version of IFRS 9, Financial Instruments which reflects all phases of the financial instruments project and replaces IAS 39, Financial Instruments – Recognition and Measurement and all previous versions of IFRS 9. The standard introduces new requirements for classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early application permitted. Retrospective application is required, but comparative information is not compulsory. The Company does not intend to adopt the new standard prior to its effective date and has not yet determined the impact of this new standard on the Consolidated Financial Statements.
(iii) On January 13, 2016, the IASB issued IFRS 16 Leases ("IFRS 16") which will replace IAS 17, Leases. IFRS 16 will bring leases on-balance sheet for lessees under a single model, eliminating the distinction between operating and finance leases. Lessor accounting however, remains largely unchanged and the distinction between operating and finance leases is retained. IFRS 16 is effective for annual reporting periods beginning on or after January 1, 2019. The Company is assessing the impact of this new standard on the Consolidated Financial Statements.
(iv) Amendments to IFRS 2 - Classification and measurement of Share-based payment transactions ("IFRS 2"):
On June 20, 2016, the IASB issued amendments to IFRS 2, clarifying how to account for certain types of share-based payment transactions. The amendments apply for annual periods beginning on or after January 1, 2018. As a practical simplification, the amendments can be applied prospectively, retrospectively, or early application is permitted if information is available without the use of hindsight. The amendments provide requirements on the accounting for:
| In October 2022, the IASB amended IAS 1 Presentation of Financial Statements. The |
| (iii) | As part of its 2018-2020 annual improvements to IFRS standards process, the IASB issued amendments to IAS 41 Agriculture. The amendment removes the requirement in paragraph 22 of IAS 41 for entities to exclude taxation cash flow when measuring the fair value of a |
| (iv) | As part of its 2018-2020 annual improvements to IFRS standards process, the IASB issued amendments to IFRS 9 Financial Instruments. The amendment clarifies the fees that |
| (v) | In May 2017, the IASB issued IFRS 17 Insurance Contracts. IFRS 17 establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts within the scope of the standard. The objective of IFRS 17 is to ensure that an entity provides relevant information that faithfully represents those contracts. The standard is effective for annual periods beginning on or after January 1, 2023. The Company is evaluating the potential impact of this standard on the Company’s consolidated financial statements. |
The Company intends to adopt the amendments to IFRS 2 in its Consolidated Financial Statements for the annual period beginning on September 1, 2018. The extent
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Table of the impact of adoption of the standard has not yet been determined.
IFRIC 22 – Foreign currency transactions and advance consideration: IFRIC was issued in December 2016 to provide guidance on accounting for transactions that include the receipt or payment of advance consideration in a foreign currency. The new interpretation is effective for annual periods beginning on or after January 1, 2018. The Company is currently assessing the interpretation on its consolidated financial statements.
Contents
SEGMENTED INFORMATION
The Company’s reportableoperating segments include the production and geographical segments are Canadasale of cannabis and previously the United States. The accounting policies used forprovision of consulting services in the reportable segments are the same as the Company’s accounting policies. For the purposesproduction and sale of monitoring segment performancecannabis. All property and allocating resources between segments, the Company’s executive officer monitors the tangible,equipment and intangible and financial assets attributable to each segment. All assets are allocated to reportable segments. Effective August 31, 2015, the Company discontinued its reportable segmentlocated in the United States. The following tables show information regardingAll revenues were generated in the Company’s reportable segments.United States during the two months ended December 31, 2023, and the years ended October 31, 2023 and 2022. As such, amounts disclosed in the Consolidated Financial Statements also represent the single operating and geographical reporting segment.
| For the year ended August 31, 2017 | Canada $ | United States $ | Total $ | |||||||||
| Revenue, continuing operations | 20,788 | - | 20,788 | |||||||||
| Net loss, continuing operations | (2,097,738 | ) | - | (2,097,738 | ) | |||||||
| Net loss | (2,097,738 | ) | - | (2,097,738 | ) | |||||||
| For the year ended August 31, 2016 | Canada $ | United States $ | Total $ | |||||||||
| Net loss, continuing operations | (13,534,298 | ) | - | (13,534,298 | ) | |||||||
| Net income (loss), discontinued operations | 8,731 | (6,020 | ) | 2,711 | ||||||||
| Net loss | (13,525,567 | ) | (6,020 | ) | (13,531,587 | ) | ||||||
| For the year ended August 31, 2015 | Canada $ | United States $ | Total $ | |||||||||
| Revenue, continuing operations | 53,055 | - | 53,055 | |||||||||
| Net income, continuing operations | 3,325,649 | - | 3,325,649 | |||||||||
| Net loss, discontinued operations | - | (4,762,461 | ) | (4,762,461 | ) | |||||||
| Net loss | 3,325,649 | (4,762,461 | ) | (1,436,812 | ) | |||||||
| As at August 31, 2017 | Canada $ | United States $ | Total $ | |||||||||
| Total Assets | 42,047 | - | 42,047 | |||||||||
| Total Liabilities | (529,823 | ) | - | (529,823 | ) | |||||||
| As at August 31, 2016 | Canada $ | United States $ | Total $ | |||||||||
| Total Assets | 482,582 | - | 482,582 | |||||||||
| Total Liabilities | (1,173,231 | ) | - | (1,173,231 | ) | |||||||
Other Information
AdditionalGeographical information relating to us may be obtained or viewed from the System for Electronic Data Analysis and Retrieval at www.sedar.com and our future United States Securities and Exchange Commission filings can be viewed through the Electronic Data Gathering Analysis and Retrieval System (EDGAR) atwww.sec.gov.Company’s activities is as follows:
| Geographical segments | Oregon | Michigan | Other | Services | Total | |||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||
| Non-current assets other than financial instruments | ||||||||||||||||||||
| At December 31, 2023 | 8,187,649 | 4,054,332 | 1,761,382 | - | 14,003,363 | |||||||||||||||
| At October 31, 2023 | 7,362,957 | 4,016,861 | 1,361,366 | - | 12,741,184 | |||||||||||||||
| At October 31, 2022 | 4,719,260 | 3,741,309 | - | - | 8,460,569 | |||||||||||||||
| Transition period ended December 31, 2023 | ||||||||||||||||||||
| Net revenue | 1,529,088 | 2,012,949 | - | 96,050 | 3,638,087 | |||||||||||||||
| Gross profit | 766,291 | 1,597,643 | - | 6,840 | 2,370,774 | |||||||||||||||
| Gross profit before fair value adjustment | 902,603 | 1,235,111 | - | 6,840 | 2,144,554 | |||||||||||||||
| Year ended October 31, 2023 | ||||||||||||||||||||
| Net revenue | 11,001,261 | 11,422,908 | - | 929,016 | 23,353,185 | |||||||||||||||
| Gross profit | 5,259,439 | 6,791,700 | - | 620,375 | 12,671,514 | |||||||||||||||
| Gross profit before fair value adjustment | 4,615,259 | 6,653,234 | - | 620,375 | 11,888,868 | |||||||||||||||
| Year ended October 31, 2022 | ||||||||||||||||||||
| Net revenue | 8,852,104 | 8,905,179 | - | - | 17,757,283 | |||||||||||||||
| Gross profit | 3,039,159 | 5,083,919 | - | - | 8,123,078 | |||||||||||||||
| (1) | Includes: Plant and equipment, and non-current assets other than financial instruments. |
SHARE CAPITAL AND RESERVES
The Company filed articles of amendment effective May 26, 2017,November 1, 2018 and changed its name from Intelligent Content Enterprises Inc., to Novicius Corp., and consolidated its common shares on the basis of one (1) new share for every ten (10) old shares. The Company filed articles of amendment effective February 1, 2016, and changed its name from Eagleford Energy Corp., to Intelligent Content EnterprisesGrown Rogue International Inc., and consolidated its common shares on the basis of one (1) new share for every ten (10) old shares. The consolidated financial statements have been adjusted to reflect these consolidations accordingly.
| a) | Share Capital |
Authorized:
Unlimited number of shares of common sharesstock at no par value
Unlimited number of preferred shares issuable in series
Shares of Common SharesStock Issued:
The following table sets out the changes in shares of common sharesstock during the respective periods:periods, presented at the number of common shares issued in connection with completion of the Transaction:
| Number | Amount $ | |||||||
| Balance August 31, 2015 | 377,295 | 9,997,792 | ||||||
| Common shares issued as debt extinguishment (Note b (a)) | 954,311 | 6,371,457 | ||||||
| Common shares issued as private placement (Note b (b)) | 50,000 | 50,000 | ||||||
| Common shares issued as anti-dilution provision (Note b (c)) | 1,032,998 | 5,034,157 | ||||||
| Common shares issued as private placement (Note b (d)) | 10,000 | 9,044 | ||||||
| Common shares issued as debt extinguishment (Note b (e)) | 150,519 | 638,295 | ||||||
| Common shares issued on exercise of warrants (Note b (f)) | 51,868 | 986,667 | ||||||
| Common shares issued as private placement (Note b (g)) | 23,636 | 133,271 | ||||||
| Balance August 31, 2016 | 2,650,627 | 23,220,683 | ||||||
| Common shares issued as private placement (Note b (h)) | 7,692 | 30,233 | ||||||
| Common shares issued as settlement of shareholder advances (Note b (i)) | 1,187,672 | 213,781 | ||||||
| Common shares issued as anti-dilution provision (Note b (j)) | 1,420,809 | 184,705 | ||||||
| Common shares issued as anti-dilution provision (Note b (k)) | 16,364 | 2,127 | ||||||
| Balance August 31, 2017 | 5,283,164 | 23,651,529 | ||||||
| Number | Amount $ | |||||||
| Balance October 31, 2021 | 156,936,876 | $ | 20,499,031 | |||||
| Shares issued for employment, director, and consulting services | 529,335 | 59,796 | ||||||
| Private placement of shares | 13,166,400 | 1,300,000 | ||||||
| Balance October 31, 2022 | 170,632,611 | 21,858,827 | ||||||
| Shares issued in consideration for the acquisition of Golden Harvests | 200,000 | 35,806 | ||||||
| Shares issued as partial settlement of December Convertible Debentures | 11,173,275 | 2,698,789 | ||||||
| Balance December 31, and October 31, 2023 | 182,005,886 | 24,593,422 | ||||||
29
Preferred Shares Issued:
As at August
At December 31, 20172023, October 31, 2023 and August 31, 2016,2022, there were no preferred shares issued.
| b) | Share Purchase Warrants |
The following table sets out the changes in warrants during the respective periods:
| August 31, 2017 | August 31, 2016 | |||||||||||||||
| Warrants | Number of Warrants | Weighted Average Price | Number of Warrants | Weighted Average Price | ||||||||||||
| Outstanding, beginning of year | 722,572 | - | 73,786 | - | ||||||||||||
| Warrants issued (Note b (c)) | - | - | 516,499 | - | ||||||||||||
| Warrants issued (Note b (d)) | - | - | 10,000 | - | ||||||||||||
| Warrants issued (Note b (e)) | - | - | 150,519 | - | ||||||||||||
| Warrants exercised (Note b (f)) | - | - | (51,868 | ) | - | |||||||||||
| Warrants issued (Note b (g)) | - | - | 23,636 | - | ||||||||||||
| Warrants issued (Note b (h)) | 7,692 | - | - | - | ||||||||||||
| Warrants issued (Note b (k)) | 16,364 | - | - | - | ||||||||||||
| Warrants expired (Note b (1)) | (538,417 | ) | - | - | - | |||||||||||
| Balance, end of year | 208,211 | $ | 5.27 | 722,572 | $ | 8.60 | ||||||||||
(a) Effective November 18, 2015, the Company entered into shares for debt conversion agreements and converted loans and interest due in the aggregate amount of $1,262,453 through the issuance of 954,311 common shares in the capital of the Company. The fair value of $6,371,457 was recorded as an increase to common shares and $5,109,004 was recorded as a loss on settlement of debt in the consolidated statement of operations (Note 9).
(b) Effective November 18, 2015, the Company completed a private placement for gross proceeds of $50,000 and issued 50,000 common shares in the capital of the Company at a purchase price of $1.00 per share.
(c) Effective November 18, 2015, the Company issued 1,032,998 Units in the capital of the Company pursuant to the anti-dilution provision of the August 30, 2014, debt conversion agreements. Each unit was comprised of one (1) common share and one half of one (1/2) common share purchase warrant. Each full warrant entitles the holder to purchase one (1) common share at an exercise price of $10.00 until August 30, 2017. The fair value of the units of $6,896,800 was allocated to the common shares in the amount of $5,034,157 and warrants in the amount of $1,862,643 based on their relative fair values and $6,896,800 was recognized as a loss on settlement of debt in the consolidated statement of operations (Note 9).
(d) On February 29, 2016, the Company completed a private placement for gross proceeds of $30,000 and issued 10,000 units in the capital of the Company at a purchase price of $3.00 per unit. Each unit is comprised of one (1) common share and one (1) common share purchase warrant. Each full warrant entitles the holder to purchase one (1) common share at an exercise price of $3.50 until March 1, 2019. The fair value of the units of $30,000 was allocated to common shares $9,044 and the amount allocated to warrants component using a Binomial Lattice model was $20,956.
(e) On February 29, 2016, the Company entered into debt conversion agreements and converted debt in the aggregate amount of $451,557 through the issuance of 150,519 units in the capital of the Company. Each unit is comprised of one (1) common share and one (1) common share purchase warrant. Each full warrant entitles the holder to purchase one (1) common share at an exercise price of $3.50 until March 1, 2019. The fair value of the units of $1,220,709 was allocated to common shares in the amount of $638,295 and warrants in the amount of $582,414 based on their relative fair values and $769,152 was recognized as a loss on extinguishment of debt in the consolidated statement of operations.
(f) During the year ended August 31, 2016, 51,868 common share purchase warrants were exercised at $10.00 for proceeds of $518,683. The amount allocated to warrants using a Binomial Lattice model was $467,984.
(g) On August 31, 2016, the Company completed private placements for gross proceeds of $260,000 and issued 23,636 units in the capital of the Company at a purchase price of $11.00 per unit. Each unit is comprised of one (1) common share and one (1) common share purchase warrant. Each full warrant entitles the holder to purchase one (1) common share at an exercise price of $12.50 until August 31, 2019. The Subscription agreements contain an anti-dilution provision such that if within 18 months of August 31, 2016, the Company issues additional common shares for a consideration per share or with an exercise or conversion price per share, less than $11.00 (the “Adjusted Price”) the Holder shall be entitled to receive from the Company (for no additional consideration) additional Units in an amount such that, when added to the number of Units acquired by Holder under this agreement will equal the number of Units that the Holder would otherwise be entitled to receive had this transaction occurred at the Adjusted Price. At August 31, 2016, the Company determined that based on the market price of the Company’s common shares being greater than the Unit issue price per share, no additional common shares were required to be fair valued and recorded as a derivative liability.
The fair value of the units of $260,000 was allocated to common shares in the amount of $133,271 and the amount allocated to warrants using a Binomial Lattice model was $126,729. The assumptions utilized in the Binomial Lattice process for the common share purchase warrants were as follows:
| August 31, 2016 | ||||
| Market value on valuation date | $ | 13.10 | ||
| Contractual exercise rate | $ | 12.50 | ||
| Term | 3 Years | |||
| Expected market volatility | 152.78 | % | ||
| Risk free rate using zero coupon US Treasury Security rate | 0.92 | % | ||
(h) On November 30, 2016, the Company completed private placements for gross proceeds of $50,000 and issued 7,692 units in the capital of the Company at a purchase price of $6.50 per unit. Each unit is comprised of one (1) common share and one (1) common share purchase warrant. Each full warrant entitles the holder to purchase one (1) common share at an exercise price of $10.00 until November 30, 2019. The fair value of the units ($50,000) was allocated to common shares $30,233 and the amount allocated to warrants component using a Binomial Lattice model was $19,767.
(i) Effective August 31, 2017, the Company settled shareholder advances of $213,781 and issued 1,187,672 common shares in the capital of the Company at a price of $0.18 per share.
(j) Pursuant to the August 31, 2017, settlement of shareholder advances of $213,781 (Note b (i), effective August 31, 2017, the Company issued 1,420,809 common shares in the capital of the Company pursuant to the anti-dilution provision of the August 31, 2016, private placement agreements. The fair value of $184,705 was calculated on the previous day’s closing price of the Company’s common shares and allocated to common shares and anti-dilution fees in the consolidated statement of operations.
(k) Pursuant to the November 30, 2016, private placement of $50,000 (Note b (h), effective August 31, 2017, the Company issued 16,364 Units in the capital of the Company pursuant to the anti-dilution provision of the August 31, 2016, private placement agreements. Each unit is comprised of one (1) common share and one (1) common share purchase warrant. Each full warrant entitles the holder to purchase one (1) common share at an exercise price of $10.00 until November 30, 2019. The fair value of the units of $2,127 was allocated to common shares and anti-dilution fees in the consolidated statement of operations. No value was allocated to warrants based on the Binomial Lattice model.
(l) On August 31, 2017, 538,417 common share purchase warrants exercisable at $10.00 expired. The amount allocated to warrants based on the Binomial Lattice model was $2,195,738 with a corresponding increase to contributed surplus.
| Warrants | Number of Warrants | Weighted Average Price (CAD$) | ||||||
| Outstanding, October 31, 2021 | 56,919,787 | $ | 0.22 | |||||
| Expiration of warrants | (23,409,091 | ) | (0.14 | ) | ||||
| Outstanding, October 31, 2022 | 33,510,696 | $ | 0.28 | |||||
| Issued pursuant to December Convertible Debentures | 6,716,499 | 0.25 | ||||||
| Issuance pursuant to July Convertible Debentures | 13,737,500 | 0.28 | ||||||
| Issuance pursuant to August Convertible Debentures | 2,816,250 | 0.28 | ||||||
| Issuance pursuant to Consulting Agreement with Goodness Growth | 8,500,000 | 0.33 | ||||||
| Expiration of warrants | (33,510,696 | ) | (0.28 | ) | ||||
| Outstanding, December 31, and October 31, 2023 | 31,770,249 | $ | 0.29 | |||||
The following table summarizestables summarize the outstanding warrants as at Augusttransition period ended December 31, 20172023, and Augustthe years ended October 31, 2016,2023, and 2022, respectively:
| Number of Warrants 2017 | Exercise Price | Expiry Date | Weighted Average Remaining Life (Years) | Warrant Value ($) | ||||||||||||
| 160,519 | $ | 3.50 | March 1, 2019 | 1.50 | 603,370 | |||||||||||
| 23,636 | $ | 12.50 | August 31, 2019 | 2.00 | 126,729 | |||||||||||
| 24,056 | $ | 10.00 | November 30, 2019 | 2.25 | 19,767 | |||||||||||
| 208,211 | 1.64 | 749,866 | ||||||||||||||
| Number of Warrants 2023 | Exercise Price (CAD$) | Expiry Date | Remaining Contractual Life (Years) | ||||||||||
| 6,716,499 | $ | 0.25 | December 2, 2025 | 1.92 | |||||||||
| 13,737,500 | 0.28 | July 13, 2026 | 2.53 | ||||||||||
| 2,816,250 | 0.28 | August 17, 2026 | 2.63 | ||||||||||
| 8,500,000 | 0.33 | October 5, 2028 | 4.77 | ||||||||||
| 31,770,249 | $ | 0.29 | 3.01 | ||||||||||
| Number of Warrants 2016 | Exercise Price | Expiry Date | Weighted Average Remaining Life (Years) | Warrant Value ($) | ||||||||||||
| 538,417 | $ | 10.00 | August 30, 2017 | 1.00 | 2,195,738 | |||||||||||
| 160,519 | $ | 3.50 | March 1, 2019 | 2.50 | 603,370 | |||||||||||
| 23,636 | $ | 12.50 | August 31, 2019 | 3.00 | 126,729 | |||||||||||
| 722,572 | 1.40 | 2,935,837 | ||||||||||||||
| Number of Warrants 2023 | Exercise Price (CAD$) | Expiry Date | Remaining Contractual Life (Years) | ||||||||||
| 6,716,499 | $ | 0.25 | December 2, 2025 | 2.09 | |||||||||
| 13,737,500 | 0.28 | July 13, 2026 | 2.70 | ||||||||||
| 2,816,250 | 0.28 | August 17, 2026 | 2.80 | ||||||||||
| 8,500,000 | 0.33 | October 5, 2028 | 4.93 | ||||||||||
| 31,770,249 | $ | 0.29 | 3.18 | ||||||||||
| Number of Warrants 2022 | Exercise Price (CAD$) | Expiry Date | Remaining Contractual Life (Years) | ||||||||||
| 8,200,000 | $ | 0.20 | February 5, 2023 | 0.27 | |||||||||
| 23,162,579 | 0.30 | March 5, 2023 | 0.34 | ||||||||||
| 2,148,117 | 0.44 | June 28, 2023 | 0.66 | ||||||||||
| 33,510,696 | $ | 0.28 | 0.34 | ||||||||||
30
| Weighted Average Shares Outstanding |
The following table summarizes the weighted average shares outstanding:
| August 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Weighted Average Shares Outstanding, basic | 2,663,614 | 2,077,096 | 276,989 | |||||||||
| Weighted Average Shares Outstanding, diluted | 2,663,614 | 2,077,096 | 375,551 | |||||||||
At August 31, 2017, there were 155,000 stock options and 208,211 common share purchase warrants that could be exercised, however they are anti-dilutive. The effects of any potential dilutive instruments on loss per share are anti-dilutive and therefore have been excluded from the calculation of diluted loss per share.
| December 31, 2023 | October 31, 2023 | October 31, 2022 | ||||||||||
| Weighted Average Shares Outstanding, basic | 182,005,886 | 172,708,792 | 169,193,812 | |||||||||
| Weighted Average Shares Outstanding, diluted | 214,046,728 | 172,708,792 | 169,193,812 | |||||||||
| Share Purchase Options |
The Company has a stock option plan to provide incentives for directors, officers, employees and consultants of the Company. The maximum number of shares, which may be set aside for issuance under the stock option plan, is 20% of the issued and outstanding common shares of the Company on a rolling basis.
The following table is a summary of the status of the Company’s stock options and changes during the period:
| Number | Weighted Average | |||||||
| of Options | Exercise Price $ | |||||||
| Balance, August 31, 2015 | 11,000 | 25.00 | ||||||
| Expired | (2,700 | ) | 23.00 | |||||
| Granted | 30,000 | (21.90 | ) | |||||
| Balance, August 31, 2016 | 38,300 | 22.80 | ||||||
| Granted | 200,000 | 12.05 | ||||||
| Expired | (83,300 | ) | (13.63 | ) | ||||
| Balance, August 31, 2017 | 155,000 | 13.87 | ||||||
| Number of Options | Weighted Average Exercise Price CAD$ | |||||||
| Balance, October 31, 2021 | 5,765,000 | $ | 0.20 | |||||
| Granted to employees | 605,000 | 0.15 | ||||||
| Forfeitures by service providers | (500,000 | ) | 0.44 | |||||
| Forfeitures by employees | (960,000 | ) | 0.15 | |||||
| Balance, October 31, 2022 | 4,910,000 | $ | 0.18 | |||||
| Granted to employees | 3,650,000 | 0.15 | ||||||
| Granted to employees | 400,000 | 0.30 | ||||||
| Granted to service providers | 2,750,000 | 0.15 | ||||||
| Expiration of options to employees | (430,000 | ) | 0.15 | |||||
| Expiration of options to employees | (75,000 | ) | 0.22 | |||||
| Balance, October 31, 2023 | 11,205,000 | $ | 0.17 | |||||
| Granted to employees | 100,000 | 0.39 | ||||||
| Granted to service providers | 500,000 | 0.39 | ||||||
| Expiration of options to employees | (5,000 | ) | 015 | |||||
| Balance, December 31, 2023 | 11,800,000 | $ | 0.18 | |||||
The following table is a summary of the Company'sCompany’s stock options outstanding and exercisable as at AugustDecember 31, 2017 and August 31, 2016, respectively:2023:
| Options Outstanding | Options Exercisable | |||||||||||||||||
| Exercise Price | Number of Options | Weighted Average Remaining Life (Years) | Expiry Date | Number of Options | Weighted Average Exercise Price $ | |||||||||||||
| $ | 12.00 | 5,000 | 2.20 | November 11, 2019 | 5,000 | 0.50 | ||||||||||||
| $ | 15.00 | 70,000 | 4.02 | September 8, 2021 | 35,000 | 3.79 | ||||||||||||
| $ | 13.00 | 80,000 | 4.02 | September 8, 2021 | 80,000 | 4.38 | ||||||||||||
| 155,000 | 3.95 | 85,000 | 13.87 | |||||||||||||||
| Options Outstanding | Options Exercisable | |||||||||||||||||
| Exercise Price | Number of Options | Weighted Average Remaining Life (Years) | Expiry Date | Number of Options | Weighted Average Exercise Price $ | |||||||||||||
| $ | 160.00 | 600 | 0.50 | February 17, 2017 | 600 | 2.51 | ||||||||||||
| $ | 160.00 | 200 | 0.27 | December 8, 2016 | 200 | 0.84 | ||||||||||||
| $ | 12.00 | 5,000 | 3.20 | November 11, 2019 | 5,000 | 1.57 | ||||||||||||
| $ | 12.00 | 2,500 | 0.27 | December 8, 2016 | 2,500 | 0.78 | ||||||||||||
| $ | 21.90 | 30,000 | 0.27 | December 8, 2016 | 30,000 | 17.10 | ||||||||||||
| 38,300 | 4.48 | 38,300 | 22.80 | |||||||||||||||
Employees
On September 9, 2016, the Company granted 30,000 immediately vesting common share purchase options to shares to a director and 30,000 common share purchase options vesting February 6, 2017 to the President. These options are exercisable at $13.00 per share and expire on September 8, 2021. The Company recorded non-cash stock based compensation expense of $706,178.
On September 9, 2016, the Company granted to the President 70,000 common share purchase options exercisable at $15.00 per share and expiring on September 8, 2021. Of these options 35,000, vest on September 8, 2017 and 35,000 vest on September 8, 2018. The Company recorded non-cash stock based compensation expense of $613,532.
On November 1, 2016, the Company granted 50,000 common share purchase options vesting March 30, 2017 to the former Chief Financial Officer. These options were exercisable at $6.40 per share and expired on April 25, 2017. The Company recorded non-cash stock based compensation expense of $294,895.
Non Employees
On September 9, 2016, the Company granted 20,000 immediately vesting common share purchase options to a consultant of the Company. These options are exercisable at $13.00 per share and expire on September 8, 2021. The Company recorded non-cash stock based compensation expense of $235,393.
| Options Outstanding | Options Exercisable | ||||||||||||||||||||
| Exercise Price CAD$ | Number of Options | Weighted Average Remaining Life (Years) | Expiry Date | Number of Options | Weighted Average Exercise Price CAD$ | ||||||||||||||||
| $ | 0.15 | 1,840,000 | 0.5 | July 2024 | 1,777,500 | $ | 0.15 | ||||||||||||||
| 0.15 | 200,000 | 0.9 | November 2024 | 200,000 | 0.15 | ||||||||||||||||
| 0.30 | 1,000,000 | 1.3 | April 2025 | 850,000 | 0.30 | ||||||||||||||||
| 0.16 | 1,150,000 | 1.4 | May 2025 | 1,150,000 | 0.16 | ||||||||||||||||
| 0.15 | 85,000 | 1.8 | November 2025 | 85,000 | 0.15 | ||||||||||||||||
| 0.15 | 300,000 | 2.3 | April 2026 | 150,000 | 0.15 | ||||||||||||||||
| 0.15 | 6,225,000 | 3.0 | January 2027 | 400,000 | .015 | ||||||||||||||||
| 0.30 | 400,000 | 3.7 | September 2027 | - | 0.30 | ||||||||||||||||
| 0.39 | 600,000 | 3.9 | November 2027 | 41,666 | 0.39 | ||||||||||||||||
| $ | 0.18 | 11,800,000 | 2.3 | 4,654,166 | $ | 0.18 | |||||||||||||||
31
The fair value of the stock options granted were estimated on the date of the grant using the Black Scholes option pricing model with the following assumptions and inputs:
| November 1, 2016 | September 9, 2016 | |||||||
| Weighted average fair value per option | $ | 5.90 | $ | 11.70 | ||||
| Weighted average risk free interest rate | 0.68 | % | 0.59 | % | ||||
| Forfeiture rate | 0 | % | 0 | % | ||||
| Weighted average expected volatility | 156.70 | % | 152.32 | % | ||||
| Expected life (years) | 5 | 5 | ||||||
| Dividend yield | Nil | Nil | ||||||
| Stock price on the date of grant | $ | 6.40 | $ | 12.90 | ||||
OVERALL PERFORMANCE
For
Revenues during the two months ended December 31, 2023, were lower than the comparative year ended October 31, 2023, due primarily to the number of months in which the revenues are based.
| For the two months ended | For the year ended | |||||||||||||||
| December 31, 2023 | October 31, 2023 | Variance | Variance | |||||||||||||
| ($) | ($) | ($) | (%) | |||||||||||||
| Revenue from Grown Rogue production | 3,542,037 | 22,424,169 | (18,882,132 | ) | (84 | %) | ||||||||||
| Revenue from services | 96,050 | 929,016 | (832,966 | ) | (90 | %) | ||||||||||
| Total revenue | 3,638,087 | 23,353,185 | (19,715,098 | ) | (84 | %) | ||||||||||
| For the two months ended | For the year ended | |||||||||||||||
| December 31, 2023 | October 31, 2023 | Variance | Variance | |||||||||||||
| ($) | ($) | ($) | (%) | |||||||||||||
| Indoor | 2,846,752 | 17,813,172 | (14,966,420 | ) | (84 | %) | ||||||||||
| Outdoor | 42,678 | 2,471,790 | (2,429,112 | ) | (98 | %) | ||||||||||
| Pre-rolls | 192,952 | 821,774 | (628,822 | ) | (77 | %) | ||||||||||
| Trim and other | 459,655 | 1,317,433 | (857,778 | ) | (65 | %) | ||||||||||
| Revenue from Grown Rogue production | 3,542,037 | 22,424,169 | (18,882,132 | ) | (84 | %) | ||||||||||
Cost of finished cannabis inventory sold during the two months ended December 31, 2023, decreased by 87% from the year ended AugustOctober 31, 2017, net loss from continuing operations was $2,097,738 compared to a net loss from continuing operations2023, while revenues for the same periods decreased 84%. The following table summarizes costs of $13,534,298sales for the two months ended December 31, 2023, and the year ended AugustOctober 31, 2016. The decrease2023,
| For the two months ended | For the year ended | |||||||||||||||
| December 31, 2023 | October 31, 2023 | Change | Change | |||||||||||||
| ($) | ($) | ($) | (%) | |||||||||||||
| Cost of finished cannabis inventory sold | 1,404,323 | 11,155,676 | (9,751,353 | ) | (87 | %) | ||||||||||
| Costs of service revenues | 89,210 | 308,641 | (219,431 | ) | (71 | %) | ||||||||||
| Costs of goods sold, excl. fair value items | 1,493,533 | 11,464,317 | (9,970,784 | ) | (87 | %) | ||||||||||
For the two months ended December 31, 2023, the Company reported a gross margin of $2,370,774 (for the years ended October 31, 2023 - $12,671,514, October 31, 2022 - $8,012,078). Our ability to generate margin depends upon the following significant factors: direct and indirect costs incurred to grow biological assets and complete inventory; depreciation of capital investments required to grow biological assets and complete inventory; and the impact of the adjustments that result from the fair valuation of biological assets. We prioritize cost efficiency in net lossproduction and efficiency of capital allocation, and to maximize sales revenues through a variety of efforts, including production of flower which is desirable to consumers, sales team incentives, and continually increasing the number of our wholesale customers.
Operating expenses for the two months ended December 31, 2023 were $1,944,620 (for the years ended October 31, 2023 - $8,417,363, October 31, 2022 - $7,165,929). Increased general and administrative costs during 2017, wasthe year ended October 31, 2023, were primarily relateddue to an increase in total overheads, from growth in facility sizes and number of facilities, and of which a loss on settlement of debt of $Nil compared to $12,489,249 in fiscal 2016. The loss on settlement of debt during fiscal 2016 was primarilyportion is attributed to administration. The increases are also due in part to additional staffing required to support expansion and growth, which demanded increases in management expertise in operations and corporate positions, as well as an increased utilization of professional services to support various transactions and costs of regulatory compliance and public disclosure executed during the issuanceyears ended October 31, 2023 and 2022.
32
During the two months ended December 31, 2023, we added $770,010 (for the years ended October 31, 2023 - $4,008,866; October 31, 2022 - $4,000,874) to property and equipment, including non-cash right-of-use asset additions. We expended cash flows of $126,090 for property and equipment additions during the two months ended December 31, 2023 (for the years ended October 31, 2023 - $1,456,782; October 31, 2022 - $1,111,283).
On April 14, 2022, the Company closed the purchase of indoor growing assets from High Street Capital Partners, LLC (see Item 4.A History and Development of the Company). Purchase consideration included a secured promissory note payable with a principal sum of $1,250,000, of which $500,000 was due on August 1, 2022 and $750,000 was due on May 1, 2023, before amendment of the agreement, which is described below. The collateral for the secured promissory note payable is comprised of the assets purchased.
On August 1, 2022, the terms of the Secured Promissory Note between Grown Rogue Distribution, LLC and HSCP Oregon, LLC, were amended. As amended, the secured promissory note was to be fully settled by two principal amounts of $500,000 (the “First Principal Payment”) and $750,000 due on May 1, 2023. Beginning on August 1, 2022, and continuing until repaid in full, the unpaid portion of the First Principal Amount will accrue simple interest at a rate per annum of 12.5%, payable monthly. In the event the Company raises capital, principal payments shall be made as follows. If the capital raise is less than or equal to $2 million, then 25% of the Company at fair value pursuantcapital raise shall be paid against the First Principal Payment; if the capital raise is greater than $2 million and less than or equal to $3 million, then $250,000 shall be paid against the anti-dilution provisionsFirst Principal Payment; and if the capital raise is greater than $3 million, then $500,000 shall be paid against the First Principal Payment.
On May 1, 2023, the terms of the secured promissory note were amended for a second time (the “Second Amendment”). Under the Second Amendment, the secured promissory note will be fully settled in two principal amounts. On May 1, 2023, the $500,000 principal payment plus all accrued but unpaid interest under the First Amendment was due and payable. The remaining principal balance of $500,000 (the “Second Principal Amount”), which bears no interest, was due and payable as follows: $150,000 due and payable on August 30, 2014, debt conversion agreements1, 2023; $150,000 due and payable on November 1, 2023; and $200,000 due and payable on December 31, 2023. The balance was fully paid during the issuancetwo months ended December 31, 2023.
On December 5, 2022, the Company announced the closing of 954,311a non-brokered private placement of the December Convertible Debentures with an aggregate principal amount of $2,000,000. The December Convertible Debentures accrue interest at 9% per year, paid quarterly, and mature 36 months from the date of issue. The December Convertible Debentures are convertible into common shares of the Company at fair value as settlementa conversion price of loans and interest due in the amount of $1,262,453. In addition during fiscal 2017,CAD$0.20 per common share. Additionally, on closing, the Company experienced an increase in stock based compensation of $1,234,074issued to $1,849,998 versus stock based compensation expense of $615,924 during fiscal 2016. The increase in stock based compensation expenses is largely related to increase in allotments, changes in share prices and assumptions used in the fair value calculation of stock options. During fiscal 2017, prior obligationsPurchasers of the Company’s former defunct subsidiary Dyami Energy, LLC (“Dyami Energy”) expiredDecember Convertible Debentures an aggregate of 6,716,499 Warrants, that represents 50% coverage of each Purchaser’s Convertible Debenture investment. The December Warrants are exercisable for a period of three years from issuance into common shares at an exercise price of $0.25 CAD per common share. The Company has the right to accelerate the warrants if the closing share price of the common shares on the CSE is CAD$0.40 or higher for a period of 10 consecutive trading days. The December Convertible Debentures and December Warrants issued pursuant to the Company recordedprivate placement (and the underlying common shares) were subject to a gain on de-recognitionstatutory hold period of financial liabilities infour months and one day from the amountclosing date.
During the year ended October 31, 2023, two holders of $893,990. Also in the current period the Company recorded a loss on marketable securitiesDecember Convertible Debentures converted an aggregate total of $Nil versus $120,125 for the same twelve month period in fiscal 2016. During fiscal 2017, the Company recorded an impairment lossconvertible debenture principal of $81,483 on a secured note receivable compared to $Nil in the prior fiscal period in 2016.$1,040,662 and $133,977 at CAD$0.20 per share into 10,151,250 and 1,022,025 common shares respectively.
On November 30, 2016,July 13, 2023, the Company completedannounced the closing of the first tranche of a non-brokered private placement for gross proceeds of $50,000the unsecured convertible debentures (“July Convertible Debentures”) with an aggregate principal amount of $5,000,000. The July Convertible Debentures accrue interest at 9% per year, paid quarterly, and issued 7,692 units inmature 48 months from the capitaldate of issue. The July Convertible Debentures are convertible into common shares of the Company at a purchaseconversion price of $6.50CAD$0.24 per unit. Each unit was comprisedcommon share, at any time on or prior to the maturity date. Additionally, on closing, the Company issued to the Subscribers of the July Convertible Debentures an aggregate of 13,737,500 warrants (the “July Warrants”), that represents one-half of one (1)warrant for each CAD$0.24 of principal amount subscribed. The July Warrants are exercisable for a period of three years from issuance into common share and one (1) common share purchase warrant. Each full warrant entitles the holder to purchase one (1) common shareshares at an exercise price of $10.00 until November 30, 2019.CAD$0.28 per common share. The Company has the right to accelerate the warrants if the closing share price of the common shares on the CSE is CAD$0.40 or higher for a period of 10 consecutive trading days. The July Warrants’ expiry date will be accelerated to 90 days following notice of the acceleration.
On May 25, 2016, the Company entered into a Term Sheet to license to acquire all the technology, production and client operations owned and operated by New York based Catch Star Studios LLC (“Catch Star”). On October 12, 2016, the Company advanced US$65,000 ($81,483 at August 31, 2017) to Catch Star and entered into a Secured Promissory Note and General Security Agreement with Catch Star (the “Secured Note”). The Secured Note is due on demand and is secured by all33
Effective August 31, 2017, the Company settled shareholder advances of $213,781 and issued 1,187,672 common shares in the capital of the Company at a purchase price of $0.18 per share.
As a result of the November 30, 2016, private placement of $50,000 and the August 31, 2017, settlement of shareholder advances of $213,781, effective August 31, 2017, the Company issued 1,420,809 common shares and 16,364 Units in the capital of the Company pursuant to the anti-dilution provisions of the August 31, 2016, private placement agreements.
On August 31, 2017, 538,41717, 2023, the Company announced that it had closed the second and final tranche of a non-brokered private placement of unsecured convertible debentures the August Convertible Debentures for gross proceeds of U.S.$1,000,000, for a total aggregate principal amount under both tranches of totaling $6,000,000 for both of the July Convertible Debentures and August Convertible Debentures. Additionally, on closing, the Company issued to subscribers under of the August Convertible Debentures the second tranche an aggregate of 2,816,250 common share purchase warrants. The terms of the convertible debentures and warrants expired. The amount allocated to warrants based onissued as part of this second tranche are the Binomial Lattice model was $2,195,738 with a corresponding increase to contributed surplus.same as those issued in the July Convertible Debentures and July Warrants.
The Company anticipates further expendituresDuring the year ended October 31, 2023, we granted 6,800,000 stock options, exercisable at a weighted average exercise price of CAD$0.16 per share and the vesting charge related to be made on future opportunities evaluated by the Company. Any expenditure which exceeds available cash will be required to be funded by additional share capital or debt issued by the Company, or by other means. The Company’s long-term profitability will depend upon its ability to successfully implement its business plan. The Company’s past primary source of liquidity and capital resources has been proceeds from the issuance of share capital, shareholders’ loans and cash flow from oil and gas operations.outstanding options was $344,593.
During the two months ended December 31, 2023, we granted 600,000 stock options, exercisable at a weighted average exercise price of CAD$0.39 per share and the vesting charge related to the outstanding options was $104,359.
RISK AND UNCERTAINTIES
The Company is subject to several risk factors whichthat may have adverse effects on our business and which could harm our operating results including, but not limited to: the ability to generate and aggregate compelling content to increase the number of users of our services or users’ level of engagement with our services; the effect of technologies, tools, software, and applications could block our advertisements, impair our ability to deliver interest-based advertising, or shift the location in which advertising appears; changes in regulations or user concerns regarding privacy and protection of user data; continued and unimpeded access to the internet by us and our users. Internet access providers may be able to block, degrade, or charge for access to certain of our products and services, which could lead to additional expenses and the loss of users and advertisers and certain of our metrics are subject to inherent challenges in measurement, and real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business.
As the Company has not experienced any significantonly recently generated cash flow from operations to independently finance its growth and operations, it has been reliant on access to capital in the form of both debt and equity to fund on-going operations and to fund capital investments. Although periodic volatility of financial and capital markets may severely limit access to capital, the Company has been able to attract the required investment capital in the past, however no assurances can be made that it will continue to do so in the future.
The Company cautions that the foregoing list of important factors is not exhaustive. Investors and others who base themselves on the Company’s forward-looking statements should carefully consider the above factors as well as the uncertainties they represent and the risk they entail. The Company also cautions readers not to place undue reliance on these forward-looking statements. Moreover, the forward-looking statements may not be suitable for establishing strategic priorities and objectives, future strategies or actions, financial objectives and projections other than those mentioned above (See Item 3D:3.D “Key Information, Risk Factors”).
SELECTED ANNUAL INFORMATION-CONTINUING OPERATIONS
34
| A. | OPERATING RESULTS |
General
Grown Rogue derives a substantial portion of its revenues from the state-legal cannabis industry in the United States. Grown Rogue is indirectly involved (through subsidiaries) in the state-legal cannabis industry in the United States where respective state laws permit “adult-use”/“reactional” and/or medical cannabis cultivation, manufacture, distribution, sales, and possession. Currently, Grown Rogue’s subsidiaries directly participate in the cultivation, manufacture, possession, distribution, or sale of cannabis in Oregon’s adult-use market and in Michigan’s medical and adult-use market. Pending regulatory approval, Grown Rogue, through its subsidiaries, expects to participate in Illinois’s and New Jersey’s adult-use markets over the coming year.
Cannabis is classified as a Schedule I narcotic under the Federal CSA, making it federally illegal in the United States. A Schedule I narcotic under the Federal CSA is deemed to have a high potential for abuse, no accepted medical use, and a lack of accepted safety for the use of the drug under medical supervision. The United States Food and Drug Administration has not approved marijuana as a safe and effective drug for any indication. Despite federal illegality, over the past decade 38 states have legalized cannabis for medical use within their borders, 24 states, two territories, and the District of Columbia have enacted measures to regulate cannabis for recreational use, and nine states have approved measures to allow for “low THC” medical use programs. As such, cannabis is largely regulated at the state level in the United States. Notwithstanding the permissive regulatory environment of cannabis at the state level, pursuant to the Supremacy Clause of the United States Constitution, United States federal laws are paramount and in case of conflict between federal and state law in the United States, the federal law shall apply. As a result of the conflict between state and federal law regarding cannabis, investments in cannabis businesses in the United States are subject to inconsistent legislation and regulation. Active enforcement of the current federal law on cannabis may directly and adversely affect revenues and profits of Grown Rogue.
Selected Financial Information
The following table reflects the summary of results for the transition period ended December 31, 2023, and the years set out.ended October 31, 2023 and 2022.
| For the Years Ended | ||||||||||||
| August 31 | ||||||||||||
| 2017 $ | 2016 $ | 2015 $ | ||||||||||
| Revenue | 20,788 | - | 53,055 | |||||||||
| Net income (loss) from continuing operations | (2,097,738 | ) | (13,534,298 | ) | 3,325,649 | |||||||
| Income (loss) per share from continuing operations, basic | (0.788 | ) | (6.516 | ) | 12.006 | |||||||
| Income (loss) per share from continuing operations, diluted | (0.788 | ) | (6.516 | ) | 8.855 | |||||||
| Assets | 42,047 | 482,582 | 93,115 | |||||||||
| Two months ended December 31, 2023 | Year ended October 31, 2023 | Year ended October 31, 2022 | ||||||||||
| ($) | ($) | ($) | ||||||||||
| Total revenue | 3,638,087 | 23,353,185 | 17,757,283 | |||||||||
| Income from operations | 426,154 | 4,254,151 | 957,149 | |||||||||
| Net income (loss) | 672,427 | (662,320 | ) | 419,951 | ||||||||
| Net income (loss) per share, basic and diluted | 0.00 | (0.00 | ) | 0.00 | ||||||||
| Comprehensive income (loss) | 678,533 | (666,882 | ) | 400,716 | ||||||||
| Comprehensive income (loss) per share, basic and diluted | 0.00 | (0.00 | ) | 0.00 | ||||||||
| Total assets | 29,615,900 | 30,162,721 | 16,370,582 | |||||||||
| Total non-current liabilities | 4,514,352 | 4,610,087 | 2,114,978 | |||||||||
| Cash dividends | Nil | Nil | Nil | |||||||||
35
AugustRevenue
The following tables summarize revenues earned during the transition period ended December 31, 2017 – 2016
For2023, and the year ended AugustOctober 31, 2017, net loss2023.
| Two months ended December 31, 2023 | Year ended October 31, 2023 | Variance | Variance | |||||||||||||
| ($) | ($) | ($) | (%) | |||||||||||||
| Revenue from Grown Rogue production | 3,542,037 | 22,424,169 | (18,882,132 | ) | (84 | %) | ||||||||||
| Revenue from services | 96,050 | 929,016 | (832,966 | ) | (90 | %) | ||||||||||
| Total revenue | 3,638,087 | 23,353,185 | (19,715,098 | ) | (84 | %) | ||||||||||
Revenue from continuing operations was $2,097,738 compared to a net loss from continuing operations of $13,534,298 forGrown Rogue production is detailed in the following table:
| Two months ended December 31, 2023 | Year ended October 31, 2023 | Variance | Variance | |||||||||||||
| ($) | ($) | ($) | (%) | |||||||||||||
| Indoor | 2,846,752 | 17,813,172 | (14,966,420 | ) | (84 | %) | ||||||||||
| Outdoor | 42,678 | 2,471,790 | (2,429,112 | ) | (98 | %) | ||||||||||
| Pre-rolls | 192,952 | 821,774 | (628,822 | ) | (77 | %) | ||||||||||
| Trim and other | 459,655 | 1,317,433 | (857,778 | ) | (65 | %) | ||||||||||
| Revenue from Grown Rogue production | 3,542,037 | 22,424,169 | (18,882,132 | ) | (84 | %) | ||||||||||
Revenues during the transition period ended December 31, 2023, were lower than the year ended AugustOctober 31, 2016. The decrease in net loss during 2017, was2023, due primarily related to a loss on settlement of debt of $Nil compared to $12,489,249 in fiscal 2016. The loss on settlement of debt during fiscal 2016 was primarily attributed to the issuancenumber of 1,032,998 unitsmonths in which the revenues are based. As detailed further below, we sold less pounds in the capital oftwo months ended December 31, 2023, than the Companycomparative year ended October 31, 2023, at fair value pursuant to the anti-dilution provisions of the August 30, 2014, debt conversion agreementshigher total ASP. The following table summarizes pounds sold, revenues from those pounds, and the issuance of 954,311 common shares of the Company at fair value as settlement of loans and interest due in the amount of $1,262,453. In addition during fiscal 2017, the Company experienced an increase in stock based compensation of $1,234,074 to $1,849,998 versus stock based compensation expense of $615,924 during fiscal 2016. The increase in stock based compensation expenses is largely related to increase in allotments, changes in share prices and assumptions used in the fair value calculation of stock options. During fiscal 2017, prior obligations of the Company’s former defunct subsidiary Dyami Energy, LLC (“Dyami Energy”) expired and the Company recorded a gain on de-recognition of financial liabilities in the amount of $893,990. Also in the current period the Company recorded a loss on marketable securities of $Nil versus $120,125 for the same twelve month period in fiscal 2016. During fiscal 2017, the Company recorded an impairment loss of $81,483 on a secured note receivable compared to $Nil in the prior fiscal period in 2016.average selling prices.
| Two months ended December 31, 2023 Pounds sold | Year ended October 31, 2023 pounds sold | Pounds variance | December 31, 2023 ASP ($) | October 31, 2023 ASP ($) | ASP variance | |||||||||||||||||||
| Indoor | 2,901 | 20,329 | (17,428 | ) | 981 | 876 | 105 | |||||||||||||||||
| Outdoor | 158 | 7,114 | (6,956 | ) | 270 | 347 | (77 | ) | ||||||||||||||||
| Pre-rolls | 178 | 651 | (473 | ) | 1,087 | 1,263 | (176 | ) | ||||||||||||||||
| Total | 3,237 | 28,094 | (24,857 | ) | 952 | 751 | 201 | |||||||||||||||||
| General and Administrative | Two months ended December 31, 2023 | Year ended October 31, 2023 | Year ended October 31, 2022 | |||||||||
| ($) | ($) | ($) | ||||||||||
| Office, banking, travel and overheads | 470,821 | $ | 1,960,695 | $ | 1,929,385 | |||||||
| Professional services | 59,701 | 585,342 | 456,532 | |||||||||
| Salaries and benefits | 906,831 | 3,919,840 | 3,466,319 | |||||||||
| Total | $ | 1,437,353 | $ | 6,465,877 | $ | 5,852,236 | ||||||
36
AugustGeneral and administrative costs for the two months ended December 31, 2016 – 2015
Net loss from continuing operations2023, were approximately 22% of the costs for the year ended AugustOctober 31, 2016 was $13,534,298 compared to a net income from continuing operations of $3,325,649 for2023. Increased general and administrative costs during the year ended AugustOctober 31, 2015. The increase in net loss during 2016, was2023, were primarily relateddue to an increase in loss on settlementtotal overheads, from growth in facility sizes and number of debtfacilities, and of $12,489,249 compared to $Nil in fiscal 2015 and an increase in stock based compensation of $503,231 to $615,924 versus stock based compensation expense of $112,693 during fiscal 2015. The increase in stock based compensation during fiscal 2016 was related to stock options granted towhich a director of the Company. Loss on settlement of debt during fiscal 2016 was, was primarilyportion is attributed to the issuance of 1,032,998 units in the capital of the Company at fair value pursuant to the anti-dilution provision of the August 30, 2014, debt conversion agreements and the issuance of 954,311 common shares of the Company at fair value as settlement of loans and interestadministration. The increases are also due in the amount of $1,262,453. The Company also experiencedpart to additional staffing required to support expansion and growth, which demanded increases in research, content developmentmanagement expertise in operations and technologycorporate positions, as well as an increased utilization of professional services to support various transactions and costs of $160,519 compared to $Nil in 2015regulatory compliance and increases in hosting, advertising and technology services of $45,272 compared to $Nil in fiscal 2015.
RESULTS OF OPERATIONS-CONTINUING OPERATIONS
Revenue
Advertising Revenue
Forpublic disclosure executed during the year ended AugustOctober 31, 2017, the Company recorded advertising revenue of $20,788 compared to $Nil for the same twelve month period ended during fiscal 2016. The increase in advertising revenue for the current period is a result of the development of the Company’s online management and advertising platform (http://doubletap.co) during fiscal 2017.2023.
Equity-Based Compensation
Natural Gas SalesEmployees
Natural gas sales for the years ended August 31, 2017 and 2016 was $Nil. Effective February 29, 2016, the Company disposed of its interest in 1354166 Alberta and as a result, its operations were deconsolidated from the Company’s Consolidated Financial Statements and presented as discontinued operations on the Consolidated Statements of Operations and Comprehensive Loss and the Consolidated Statements of Cash Flows.
During fiscal 2015, natural gas sales were $53,055, average natural gas sales volumes were 61 mcf/d and total production volume for the year ended August 31, 2015 was 22,406 mcf. The average price received per mcf was $3.06 and operating costs were $24,910 for fiscal 2015.
Research, Content Development and Technology Support
For the year ended August 31, 2017, the Company incurred research, content development and technology support costs of $313,106 compared to $160,519 in the prior comparable period in 2016 (2015: $Nil). The increase in research, content development and technology support costs during fiscal 2017 and 2016 is related to development of the Company’s online management and advertising platform (http://doubletap.co) during fiscal 2017.
Hosting, Advertising and Technology Services
For the year ended August 31, 2017, the Company incurred hosting and technology costs of $71,423 compared to $45,272 for the year ended August 31, 2016 (2015: $Nil). The increase in hosting and technology costs experienced in current fiscal year 2017 and 2016, was a result of the development of the Company’s online management and advertising platform (http://doubletap.co) during fiscal 2017.
| General and Administrative | For the Years Ended August 31, | |||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Professional fees | $ | 179,907 | $ | 148,662 | $ | 91,233 | ||||||
| Head office costs | 42,000 | 42,000 | 42,000 | |||||||||
| Management fees | 60,000 | 60,000 | (156,250 | ) | ||||||||
| Transfer and registrar costs | 20,985 | 12,842 | 9,053 | |||||||||
| Shareholders information | 72,473 | 63,375 | 34,187 | |||||||||
| Office and general costs | 11,809 | 5,826 | 5,384 | |||||||||
| Directors fees | 8,700 | 1,800 | 2,400 | |||||||||
| Consulting fees and expenses | 90,000 | 60,000 | 61,000 | |||||||||
| Travel | 2,920 | 15,215 | - | |||||||||
| Rent | 19,447 | 3,776 | - | |||||||||
| Insurance | - | 4,710 | - | |||||||||
| Total | $ | 508,241 | $ | 418,206 | $ | 89,007 | ||||||
For the year ended August 31, 2017, the Company’s general and administrative costs increased by $90,035 to $508,241 versus $418,206 for the year ended August 31, 2016. The increase expenses during fiscal 2017 was primarily attributed to an increase in professional fees of $31,245 to $179,907 compared to $148,662 in fiscal 2016, an increase in consulting fees of $30,000, and an increase of $15,671 in rent versus $3,776 recorded in the comparable period in 2016. The increase in professional fees was mainly attributed to the correction of prior period errors related to the DWF Settlement Agreement. The increase in rent during 2017 was a result of the office space rented in relation to DWF operations. During fiscal 2017, the Company also experienced an increase of $9,098 in shareholders information and an increase of $8,143 in transfer and registrar costs related to the name change of the Company from Intelligent Content Enterprises Inc., to Novicius Corp., and the consolidation of common shares effective May 26, 2017. In addition, the Company has recorded increased fees related to its listing on the Canadian Securities Exchange.
For the yeartransition period ended AugustDecember 31, 2016, the Company’s general and administrative costs were significantly higher by $329,199 to $418,206 compared to $89,007 for the comparable year ended August 31, 2015. The increase in expenses during fiscal 2016 was mainly attributed to an increase in management fees to $60,000 compared to a recovery of management fees of $156,250 in 2015 as a result of $306,250 of management fees forgiven by the former President. Shareholders’ information costs also increased by $29,188 during the current fiscal year to $63,375 compared to $34,187. The increases in shareholders information costs were by in large related to the consolidation of shares and name change of the Company effective February 1, 2016,2023, and the annual listing fees for the OTCQB. The Company also experienced increases in professional fees of $57,429 to $148,662 during fiscal 2016 compared to $91,233 for the yearyears ended AugustOctober 31, 2015. In addition, during fiscal 2016 the Company incurred additional increases in travel, insurance2023 and transfer agent fees.
Loss on Foreign Exchange
For the year ended August 31, 2017,2022, the Company recorded a loss on foreign exchange of $1,433 compared to a loss on foreign exchange of $21,890 foremployee equity-based payments valued at $44,845, $202,208, and $107,695, respectively.
During the same twelve monthtransition period ended AugustDecember 31, 2016.
For the year ended August 31, 2016, the Company recorded a loss on foreign exchange of $21,890 versus a loss on foreign exchange of $415,345 for year ended August 31, 2015.
These foreign exchange losses are attributed to the translation of monetary assets and liabilities not denominated in the functional currency of the Company. The decrease in the loss on foreign exchange during fiscal 2017 and 2016 compared to fiscal 2015, is largely attributed to the disposition of Zavala Inc., whose functional currency was US dollars.
Stock Based Compensation
Employees
For the year ended August 31, 2017, the Company recorded stock based compensation of $1,614,605 compared to $615,924 for the same period in 2016. During fiscal 2017,2023, the Company granted the following common share purchase options:stock options to employees:
| Number granted | Vesting terms | Exercise price (CAD$) | Expiration | |||||||||
| 100,000 | 50% on one year anniversary of grant date, 50% on second anniversary of grant date | 0.39 | 4 years from date of grant | |||||||||
ForDuring the year ended AugustOctober 31, 2016, the Company recorded stock based compensation of $615,924 compared to $84,520 for the same period in 2015. During fiscal 2016,2023, the Company granted the following common share purchase options:stock options to employees:
During fiscal 2015, the Company granted the following common share purchase options:
| Number granted | Vesting terms | Exercise price (CAD$) | Expiration | |||||||||
| 200,000 | 1/3 on each anniversary of grant date | 0.15 | 4 years from date of grant | |||||||||
| 200,000 | 50% on one year anniversary of grant date, 50% on second anniversary of grant date | |||||||||||
| 400,000 | Fully vested on grant date | 0.15 | 4 years from date of grant | |||||||||
| 6,000,000 | Vest on one year anniversary of grant date | 0.15 | 4 years from date of grant | |||||||||
| 6,800,000 | 0.15 | |||||||||||
Non Employees
For the yeartransition period ended AugustDecember 31, 2017,2023, and the years ended October 31, 2023 and 2022, the Company recorded stock basednon-employee equity-based compensation for non-employees of $235,393 compared to $Nil forvalued at $59,514, $142,385, and $49,258, respectively.
During the same twelve month period in 2016. On September 9, 2016,two months ended December 31, 2023, the Company granted 20,000 immediately vesting common share purchasethe following stock options to a consultant of the Company. These options are exercisable at $13.00 per share and expire on September 8, 2021.non-employees:
| Number granted | Vesting terms | Exercise price (CAD$) | Expiration | |||||||||
| 500,000 | Monthly over a year | 0.39 | 4 years from date of grant | |||||||||
Interest
For the yeartransition period ended AugustDecember 31, 2016,2023, the Company recorded stock based compensation for non-employeesinterest expense of $Nil compared to $28,173 for$69,164 (for the yearyears ended AugustOctober 31, 2015. On November 12, 2014, the Company granted options to purchase 2,500 common shares to a consultant of the Company. These options are exercisable at $11.20 per share, vest immediately and expire on November 11, 2019.2023 - $370,616; October 31, 2022 - $402,239).
Anti-Dilution Fees37
For the year ended August 31, 2017, the Company recorded anti-dilution feesTable of $186,832 compared to $Nil for the year ended August 31, 2016 and 2015.Contents
On August 31, 2016, the Company completed private placements for gross proceeds of $260,000 and issued 23,636 units in the capital of the Company at a purchase price of $11.00 per unit. The subscription agreements contain an anti-dilution provision such that if within 18 months of August 31, 2016, the Company issues additional common shares for a consideration per share or with an exercise or conversion price per share, less than $11.00 (the “Adjusted Price”) the Holder shall be entitled to receive from the Company (for no additional consideration) additional Units in an amount such that, when added to the number of Units acquired by Holder under this agreement will equal the number of Units that the Holder would otherwise be entitled to receive had this transaction occurred at the Adjusted Price.
As a result of the November 30, 2016, private placement of $50,000, the Company issued 16,364 Units in the capital of the Company pursuant to the anti-dilution provisions of the August 31, 2016, private placement agreements. The fair value of the units $2,127 was allocated to common shares and anti-dilution fees in the consolidated statement of operations. No value was allocated to warrants based on the Binomial Lattice model.
As a result of the August 31, 2017, private placement of $213,781, the Company issued 1,420,809 common shares in the capital of the Company pursuant to the anti-dilution provisions of the August 31, 2016, private placement agreements. The fair value of $184,705 was calculated on the previous day’s closing price of the Company’s common shares and allocated to common shares and anti-dilution fees in the consolidated statement of operations.
Gain on De-recognition of Financial Liabilities
During fiscal 2017, prior obligations of the Company’s former defunct subsidiary Dyami Energy expired and the Company recorded a gain on de-recognition of Dyami Energy’s financial liabilities in the amount of $893,990 (2016 and 2015: $Nil).
Impairment loss on Secured Note Receivable
During fiscal 2017, the Company recorded an impairment loss of $81,483 on a secured note receivable compared to $Nil in the prior fiscal period in 2016 and 2015.
On May 25, 2016, the Company entered into a Term Sheet to license to acquire all the technology, production and client operations owned and operated by New York based Catch Star Studios LLC (“Catch Star”). On October 12, 2016, the Company advanced US$65,000 ($81,483 at August 31, 2017) to Catch Star and entered into a Secured Promissory Note and General Security Agreement with Catch Star (the “Secured Note”). The Secured Note is due on demand and is secured by all of the assets of Catch Star. Subsequently, Catch Star and the Company could not reach a definitive agreement to memorialize the terms and conditions of the Term Sheet and abandoned the prospective transaction. At August 31, 2017, the Company determined that the Secured Note was uncollectible and recorded an impairment of the full amount
Gain on Disposal of Subsidiary
For the year ended August 31, 2017, the Company recorded a gain on disposal of subsidiary in the amount of $Nil compared to a gain of $68,489 for the year ended August 31, 2016.
For the year ended August 31, 2016, the Company recorded a gain on disposal of subsidiary in the amount of $68,489 compared to a gain of $615,881 for the year ended August 31, 2015.
Effective February 29, 2016, the Company entered into a Share Purchase and Debt Settlement Agreement with 1288131 Alberta Ltd. and disposed of its interest in 1354166 Alberta for the settlement of debt owed to 1288131 Alberta Ltd., in the amount of $62,867. The net assets and liabilities of 1354166 Alberta upon disposal were $(5,622) resulting in a gain of $68,489.
At August 31, 2015, the Company settled a secured convertible note payable plus interest, totaling $1,762,328 by conveying all of its rights, title and interest in and to Zavala Inc., and issuing 1,000,000 shares of common stock of the Company. As a result the Company’s extinguishment of the Note, the Company’s investment in Zavala Inc. had been deconsolidated from the Company’s Consolidated Financial Statements as at August 31, 2015, at which time the Company recorded a gain on disposal of subsidiary in the amount of $615,881.
Gain on Expiry of Derivative Liabilities
For the year ended August 31, 2017, the Company recorded a gain on expiry of derivative liabilities in the amount of $Nil versus a gain on expiry of derivative liabilities in the amount of $281,210 for the year ended August 31, 2016. During fiscal 2016, 1,305 warrants expired and the fair value of $281,210 was recorded as a gain on expiry of derivative liabilities in the consolidated statement of operations.
For the year ended August 31, 2016, the Company recorded a gain on expiry of derivative liabilities in the amount of $281,210 versus a gain on expiry of derivative liabilities in the amount of $1,258,206 for the year ended August 31, 2015. During fiscal 2015, 6,134 warrants expired and the fair value of $1,258,206 was recorded as a gain on expiry of derivative liabilities in the consolidated statement of operations.
Interest
For the year ended August 31, 2017, the Company recorded interest costs of $Nil compared to interest costs of $12,812 for the year ended August 31, 2016.
For the year ended August 31, 2016, the Company recorded interest costs of $12,812 compared to interest costs of $280,299 for the year ended August 31, 2015. The decrease in interest costs during the year ended August 31, 2017, and 2016 was primarily attributed to the settlement of loans payable and shareholder loans payable and the extinguishment of a secured convertible note effective August 31, 2015.
Loss on Settlement of Debt
For the year ended August 31, 2017, the Company recorded a loss on settlement of debt in the amount of $Nil compared to a loss on settlement of debt in the amount of $12,489,249 for the year ended August 31, 2016.
For the year ended August 31, 2016, the Company recorded a loss on settlement of debt in the amount of $12,489,249 compared to loss on settlement of debt of $Nil for the same twelve month period in 2015. The primary factors contributing to the resulting net loss on settlement of debt during the year ended August 31, 2016 was related to the issuance of 1,032,998 units in the capital of the Company pursuant to the anti-dilution provision of the August 30, 2014, debt conversion agreements. The fair value of the units $6,896,800 was recognized as a loss on settlement of debt in the consolidated statement of operations. In Addition, effective November 18, 2015, the Company entered into shares for debt conversion agreements and converted loans and interest due in the aggregate amount of $1,262,453 through the issuance of 954,311 common shares in the capital of the Company. The fair value of the common shares $6,371,457 was allocated to common shares and $5,109,004 was recorded as a loss on settlement of debt in the consolidated statement of operations.
Impairment Loss on Marketable Securities
For the year ended August 31, 2017, the Company recorded an impairment loss on marketable securities of $Nil compared to $120,125 for the year ended August 31, 2016.
For the year ended August 31, 2016, the Company recorded an impairment loss on marketable securities of $120,125 (August 31, 2015: $Nil). As at August 31, 2017 and 2016, the Company held 1,200,000 common shares in a quoted company security that had been acquired as settlement of litigation. As at August 31, 2015, the Company recorded a change in the fair value of the securities in other comprehensive loss in the amount of $110,525. For the year ended August 31, 2016, the Company re-classified the loss of $110,525 to the consolidated statement of operations and recorded a further impairment of $9,600.
At each financial reporting period, the Company estimates the fair value of investments which are held-for-trading, based on quoted closing bid prices at the consolidated statements of financial position date or the closing bid price on the last day the security traded if there were no trades at the consolidated statements of financial position date and such valuations are reflected in the consolidated financial statements.
Gain (Loss) on Derivative Liabilities
For the year ended August 31, 2017 the Company had no derivative liabilities. As at August 31, 2017, the Company recorded a gain on expiry of derivative warrant liabilities of $Nil compared to $281,210 for the year ended August 31, 2016.
As at August 31, 2016, the Company had 175,000 derivative warrant liabilities outstanding with a fair value of $Nil. On June 22, 2016, the Company entered into a consulting agreement and issued 175,000 common share purchase warrants exercisable at $15.00 with a cashless exercise option. At August 31, 2016, the Company determined that it would not continue with the agreement and it was suspended and on January 15, 2017, the agreement was mutually terminated no warrants were exercised
For the year ended August 31, 2015, the Company recorded a loss on derivative warrant liabilities of $214,109. The Company had warrants issued with an exercise price in US dollars which is different to the functional currency of the Company (Canadian Dollars) and accordingly the warrants were treated as a derivative financial liability and the fair value movement during the period was recognized in the consolidated statement of operations
During the year ended AugustOctober 31, 2015,2022, the Company recorded areported gain derivative unit liabilitieson debt settlement of $2,867,700. At August$453,858 related primarily to settlement of debt for marketable securities. There was no gain on debt settlement to report for transition period ended December 31, 2015, the Company wrote down derivative unit liabilities and recognized the fair value movement during the period in the consolidated statement of operations.
Marketing and Public Relations
For2023, nor the year ended AugustOctober 31, 2017 and 2016, the Company recorded of $Nil versus a recovery of marketing and public relations costs of $22,800 for the year ended August 31, 2015. The recovery related to the reversal of prior period accruals.
Accretion of Convertible Secured Note
For the year ended August 31, 2017 and 2016, the Company recorded accretion on a secured convertible note in the amount of $Nil compared to $475,755 for the year ended August 31, 2015. The Company had a secured convertible note payable with a face value of US$1,216,175 (the “Note”). The Note was being accreted up to its face value over the life of Note based on an effective interest rate and was extinguished on August 31, 2015.
Gain on settlement of Litigation
For the year ended August 31, 2017 and 2016, the Company recorded a gain on settlement of litigation in the amount of $Nil compared to $120,125 for the year ended August 31, 2015. During fiscal 2015, the Company entered into a settlement agreement with a former director of the Company and received 1,200,000 common shares and 1,200,000 common share purchase warrants of Stratex Oil & Gas Holdings, Inc. (“Stratex”) exercisable at US$0.15 per expiring December 31, 2018. The 1,200,000 common shares and warrants were recorded at fair value of $120,125 and allocated to gain on settlement of litigation on the consolidated statement of operations.
Net Income (Loss) from Continuing Operations
For the year ended August 31, 2017, net loss from continuing operations was $2,097,738 compared to a net loss from continuing operations of $13,534,298 for year ended August 31, 2016. The decrease in net loss during 2017, was primarily related to a loss on settlement of debt of $Nil compared to $12,489,249 in fiscal 2016. The loss on settlement of debt during fiscal 2016 was primarily attributed to the issuance of 1,032,998 units in the capital of the Company at fair value pursuant to the anti-dilution provisions of the August 30, 2014, debt conversion agreements and the issuance of 954,311 common shares of the Company at fair value as settlement of loans and interest due in the amount of $1,262,453. In addition during fiscal 2017, the Company experienced an increase in stock based compensation of $1,234,074 to $1,849,998 versus stock based compensation expense of $615,924 during fiscal 2016. The increase in stock based compensation expenses is largely related to increase in allotments, changes in share prices and assumptions used in the fair value calculation of stock options. During fiscal 2017, prior obligations of the Company’s former defunct subsidiary Dyami Energy, LLC (“Dyami Energy”) expired and the Company recorded a gain on de-recognition of financial liabilities in the amount of $893,990. Also in the current period the Company recorded a loss on marketable securities of $Nil versus $120,125 for the same twelve month period in fiscal 2016. During fiscal 2017, the Company recorded an impairment loss of $81,483 on a secured note receivable compared to $Nil in the prior fiscal period in 2016.
Net loss from continuing operations for the year ended August 31, 2016, was $13,534,298, compared to a net income of $3,325,649 for the year ended August 31, 2015. The increase in net loss during 2016, was primarily related to an increase in loss on settlement of debt of $12,489,249 compared to $Nil in fiscal 2015 and an increase in stock based compensation of $503,231 to $615,924 versus stock based compensation expense of $112,693 during fiscal 2015. The increase in stock based compensation during fiscal 2016 was related to stock options granted to a director of the Company. Loss on settlement of debt during fiscal 2016 was primarily attributed to the issuance of 1,032,998 units in the capital of the Company recorded at fair value pursuant to the anti-dilution provision of the August 30, 2014, debt conversion agreements and the issuance of 954,311 common shares of the Company at fair value as settlement of loans and interest due in the amount of $1,262,453. The Company also experienced increases in research, content development and technology support of $160,519 compared to $Nil in 2015 and increases in hosting, advertising and technology services of $45,272 compared to $Nil in fiscal 2015.
Net Income (Loss) from Discontinued Operations Net of Tax
Net income from discontinued operations net of tax for the year ended August 31, 2017, was $Nil compared to a net income from discontinued operations net of tax of $2,711, for the year ended August 31, 2016.
Net income from discontinued operations net of tax for the year ended August 31, 2016, was $2,711 compared to a net loss from discontinued operations net of tax of $4,762,461 for the year ended August 31, 2015.
The income (loss) from discontinued operations is a result of the discontinued operations of 1354166 Ontario and Zavala Inc. as follows:
1354166 Ontario
The Company entered into a Share Purchase and Debt Settlement Agreement with 1288131 Alberta Ltd. effective February 29, 2016 and disposed of its interest in 1354166 Alberta. As a result the Company’s investment in 1354166 Alberta had been derecognized from the Company’s Consolidated Financial Statements and presented as discontinued operations on the Consolidated Statements of Operations. The following table presents the statements of operations of 1354166 Alberta for the period set out:
| August 31,2016 | ||||
| Revenue | ||||
| Natural gas sales | $ | 13,998 | ||
| Expenses | ||||
| Operating costs | 5,170 | |||
| General and administrative | 97 | |||
| (5,267 | ) | |||
| Net income from discontinued operations | $ | 8,731 | ||
| Earnings per share from discontinued operations, basic and diluted | $ | 0.000 | ||
Zavala Inc.
At August 31, 2015, the Company entered into a Settlement and Exercise of Security Agreement whereby effective August 31, 2015, the Company assigned and conveyed all of its rights, title and interest in and to Zavala Inc. Accordingly, the Company’s investment in Zavala Inc. had been derecognized from the Company’s Consolidated Financial Statements as at August 31, 2015 and presented as discontinued operations. The following table presents the consolidated statements of operations and comprehensive income (loss) of Zavala Inc., for the years set out:
| August 31, 2016 | August 31, 2015 | |||||||
| Expenses | ||||||||
| Accretion | $ | - | $ | 1,498 | ||||
| General and administrative | 6,020 | 73,347 | ||||||
| Bad debt expense | - | 29,756 | ||||||
| Impairment loss on marketable securities | - | 167,815 | ||||||
| Impairment loss on exploration and evaluation assets | - | 4,490,045 | ||||||
| Loss from discontinued operations | (6,020 | ) | (4,762,461 | ) | ||||
| Foreign currency translation | - | (4,692 | ) | |||||
| Total loss from discontinued operations | $ | (6,020 | ) | $ | (4,767,153 | ) | ||
| Loss per share from discontinued operations, basic and diluted | $ | (0.000 | ) | $ | (17.194 | ) | ||
Net Loss
Net loss for the year ended August 31, 2017, was $2,097,738 compared to a net loss of $13,531,587 the year ended August 31, 2016. The decrease in net loss during 2017, was primarily related to an increase in loss on settlement of debt of $Nil compared to $12,489,249 in fiscal 2016. In addition during fiscal 2017, the Company an increase in stock based compensation of $1,234,074 to $1,849,998 versus stock based compensation expense of $615,924 during fiscal 2016 and the Company recorded a gain on de-recognition of financial liabilities in the amount of $893,990. Also in the current period the Company recorded a loss on marketable securities of $Nil versus $120,125 for the same twelve month period in fiscal 2016. During fiscal 2017, the Company recorded an impairment loss of $81,483 on a secured note receivable compared to $Nil in the prior fiscal period in 2016.
Net loss for the year ended August 31, 2016, was $13,531,587 compared to a net loss of $1,436,812 the year ended August 31, 2015. The increase in net loss during 2016, was primarily related to an increase in loss on settlement of debt of $12,489,249 compared to $Nil in fiscal 2015 and an increase in stock based compensation of $503,231 to $615,924 versus stock based compensation expense of $112,693 during fiscal 2015. The increase in stock based compensation during fiscal 2016 was related to stock options granted to a director of the Company. Loss on settlement of debt during fiscal 2016 was primarily attributed to the issuance of 1,032,998 units in the capital of the Company recorded at fair value pursuant to the anti-dilution provision of the August 30, 2014, debt conversion agreements and the issuance of 954,311 common shares of the Company at fair value as settlement of loans and interest due in the amount of $1,262,453. The Company also experienced increases in research, content development and technology support of $160,519 compared to $Nil in 2015 and increases in hosting, advertising and technology services of $45,272 compared to $Nil in fiscal 2015.
Other Comprehensive Income (Loss) to be Re-Classified
Impairment Loss on Marketable Securities
For the year ended August 31, 2016, the Company reclassified an unrealized loss on marketable securities of $110,525 recorded in fiscal 2015 to an impairment loss on marketable securities on the consolidated statements of operations as a result of the Company’s investment in Stratex Oil & Gas Holdings, Inc., common shares being fair valued at $Nil.
Foreign Currency Translation-Discontinued Operations
For the year ended August 31, 2017 and 2016, the Company incurred a loss on foreign currency translation of $Nil versus a loss of $4,692 for the year ended August 31, 2015.
The losses were related to translation differences between Zavala Inc.’s US dollar functional currency converted into Canadian dollars at the period end exchange rates, and the results operations converted at average rates of exchange for the period.2023.
Total Other Comprehensive Income (Loss)
Total
Currency Translation Adjustment
For the transition period ended December 31, 2023, the Company recorded a currency translation gain of $6,106 (for the years ended October 31, 2023 – translation loss of $4,562; October 31, 2022 – translation loss of $19,235).
These translation adjustments are the result of the following. Transactions denominated in foreign currencies are initially recorded in the functional currency using exchange rates in effect at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency using exchange rates prevailing at the end of the reporting period. All exchange gains and losses are included in the statement of comprehensive income (loss). For the purpose of presenting consolidated financial statements, the assets and liabilities of the Company are expressed in U.S. Dollars using exchange rates prevailing at the end of the reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are recognized in other comprehensive income for the year ended August 31, 2017, was $Nil compared to a total comprehensive income of $110,525 for the year ended August 31, 2016.(loss) and reported as currency translation reserve in shareholders’ equity.
Total other comprehensive income for the year ended August 31, 2016, was $110,525 compared to a total comprehensive loss of $115,217 for the year ended August 31, 2015.
Net Loss and Comprehensive Loss
Net
For the transition period ended December 31, 2023, the net income was $672,427 (for the years ended October 31, 2023 – net loss and comprehensiveof $662,320; October 31, 2022 – net loss of $1,014,747). Significant deductions from operating profit during 2023 included an unrealized loss on derivative liabilities, measured by non-cash fair value adjustments.
Comprehensive income (loss) for the yeartransition period ended AugustDecember 31, 2017, was $2,097,738 compared to $13,421,0622023, and the years ended October 31, 2023, and 2022, reflect net income (loss) adjusted for the year ended August 31, 2016. The decrease in net loss during 2017, was primarily related to an increase in loss on settlementimpact of debt of $Nil compared to $12,489,249 in fiscal 2016. In addition during fiscal 2017, the Company experienced an increase in stock based compensation of $1,234,074 to $1,849,998 versus stock based compensation expense of $615,924 during fiscal 2016 and the Company recorded a gain on de-recognition of financial liabilities in the amount of $893,990. Also in the current period the Company recorded a loss on marketable securities of $Nil versus $120,125 for the same twelve month period in fiscal 2016. During fiscal 2017, the Company recorded an impairment loss of $81,483 on a secured note receivable compared to $Nil in the prior fiscal period in 2016.
Net loss and comprehensive loss for the year ended August 31, 2016, was $13,421,062 compared to $1,552,029 for the year ended August 31, 2015. The increase in net loss during 2016, was primarily related to an increase in loss on settlement of debt of $12,489,249 compared to $Nil in fiscal 2015 and an increase in stock based compensation of $503,231 to $615,924 versus stock based compensation expense of $112,693 during fiscal 2015. The Company also experienced increases in research, content development and technology support of $160,519 compared to $Nil in 2015 and increases in hosting, advertising and technology services of $45,272 compared to $Nil in fiscal 2015.
Earnings (Loss) per Share, Basic
Continuing Operations
Basic loss per share from continuing operations for the year ended August 31, 2017, was $0.788 compared to basic loss per share of $6.516 for the same twelve month period in 2016.
Basic loss per share from continuing operations for the year ended August 31, 2016, was $6.516 compared to basic income per share of $12.006 for the same twelve month period in 2015.
Discontinued Operations
Basic loss per share from discontinued operations for the year ended August 31, 2017 was $Nil compared to a basic income of $0.001 for fiscal 2016.
Basic loss per share from discontinued operations for the year ended August 31, 2016 was $0.001 compared to basic loss per share of $17.194 for the same twelve month period in 2015.foreign currency translation.
Total Loss per Share, Basic
Total basic loss
Comprehensive income (loss) per share for the yeartransition period ended AugustDecember 31, 2017,2023, was $0.788 compared to total basic loss per share of $6.515 for$0.00, (for the same twelve month period in 2016.
Total basic loss per share for the yearyears ended AugustOctober 31, 2016, was $6.515 compared to total basic loss per share of $5.188 for the same twelve month period in 2015.
Earnings (Loss) per Share, Diluted
Continuing Operations
Diluted loss per share from continuing operations for the year ended August2023 - $(0.00); October 31, 2017, was $0.788 compared to diluted loss per share of $6.516 for the same twelve month period in 2016.
Diluted loss per share from continuing operations for the year ended August 31, 2016, was $6.516 compared to diluted income per share of $8.855 for the same twelve month period in 2015.
Discontinued Operations
Diluted loss per share from discontinued operations for the year ended August 31, 2017 was $Nil compared to diluted income per share of $0.001 for the same twelve month period in 2016.
Diluted income per share from discontinued operations for the year ended August 31, 2016 was $0.001 compared to diluted loss per share of $17.194 for the same twelve month period in 2015.
Total Loss per Share, Diluted
Total diluted loss per share for the year ended August 31, 2017, was $0.788 compared to total diluted loss per share of $6.515 for the same twelve month period in 2016.
Total diluted loss per share for the year ended August 31, 2016, was $6.515 compared to total diluted loss per share of $8.339 for the same twelve month period in 2015.2022 - $0.00).
SUMMARY OF QUARTERLY RESULTS-CONTINUING OPERATIONS
The following tables reflect the summary of quarterly results from continuing operations for the periods set out.
| 2017 | 2017 | 2017 | 2016 | |||||||||||||
| For the quarter ending | August 31 | May 31 | February 28 | November 30 | ||||||||||||
| Net loss for the period | $ | (1,199,755 | ) | $ | (198,521 | ) | $ | (81,215 | ) | $ | (618,247 | ) | ||||
| Loss per share, basic and diluted | $ | (0.447 | ) | $ | (0.08 | ) | $ | (0.03 | ) | $ | (0.23 | ) | ||||
| Two months ended | Fiscal Year 2023 | Fiscal Year 2023 | Fiscal Year 2023 | |||||||||||||
| Dec 31, 2023 | Quarter End Oct 31 | Quarter End Jul 31 | Quarter End Apr 30 | |||||||||||||
| Revenue ($) | 3,638,087 | 6,522,291 | 6,295,717 | 6,004,637 | ||||||||||||
| Net income (loss) ($) | 672,427 | (2,012,324 | ) | 345,488 | 411,979 | |||||||||||
| Net income (loss) per share, basic and diluted | 0.00 | (0.00 | ) | 0.00 | 0.00 | |||||||||||
38
| Fiscal Year 2023 | Fiscal Year 2022 | Fiscal Year 2022 | Fiscal Year 2022 | |||||||||||||
Quarter End Jan 31 | Quarter End Oct 31 | Quarter End Jul 31 | Quarter End Apr 30 | |||||||||||||
| Revenue ($) | 4,530,540 | 5,072,635 | 4,251,808 | 4,700,127 | ||||||||||||
| Net income (loss) ($) | 592,537 | (451,630 | ) | 571,406 | 144,734 | |||||||||||
| Net income (loss)/share, basic and diluted | 0.01 | (0.00 | ) | 0.00 | 0.01 | |||||||||||
Fiscal 2017
During the quarter ended August 31, 2017, the Company recorded stock based compensation expense of $1,698,901 a gain on de-recognition of financial liabilities of $893,990 and anti-dilution fees of $178,650. During ended May 31, 2017, the Company incurred general and administrative expenditures of $119,830. During the quarter ended February 28, 2017, the Company recorded research, content development and technology support costs of $63,641. During the quarter ended November 30, 2016, the Company recorded anti-dilution fees of $104,727.
| 2016 | 2016 | 2016 | 2015 | |||||||||||||
| For the quarter ending | August 31 | May 31 | February 29 | November 30 | ||||||||||||
| Net loss for the period | $ | (153,579 | ) | $ | (855,102 | ) | $ | (525,664 | ) | $ | (12,307,111 | ) | ||||
| Loss per share, basic and diluted | $ | (0.06 | ) | $ | (0.33 | ) | $ | (0.22 | ) | $ | (18.43 | ) | ||||
Fiscal 2016
During the quarter ended August 31, 2016, the Company reversed a previously recorded gain on de-recognition financial liabilities for prior obligations of Dyami Energy in the amount of $893,990. During the first quarter 2016, the Company recorded a loss on settlement of debt in the amount of $12,005,804 and research, content development and technology support costs of $68,819. During the quarter ended May 31, 2016, the Company recorded stock based compensation expense of $615,924. For the three months ended February 29, 2016, the Company recorded a gain on settlement of debt in the amount of $483,431.COMMITMENTS
FOURTH QUARTER RESULTS-CONTINUING OPERATIONSSet out below are undiscounted minimum future lease payments after December 31, 2023.
| For the quarter ending | August 31, 2017 | August 31, 2016 | ||||||
| Revenue | $ | 16,280 | $ | - | ||||
| Net Income (loss) for the period | $ | (1,199,755 | ) | $ | 153,579 | |||
| Income (loss) per share, basic and diluted | $ | (0.19 | ) | $ | (0.06 | |||
Advertising Revenue
For the three months ended August 31, 2017, the Company recorded advertising revenue of $16,280 compared to $Nil for the same three month period ended in fiscal 2016. The increase in advertising revenue for the current period is a result of the development of the Company’s online management and advertising platform (http://doubletap.co) during fiscal 2017.
Research, Content Development and Technology Support
For the three months ended August 31, 2017, the Company incurred research, content development and technology support costs of $20,378 compared to $68,819 in the prior comparable period in 2016. The decrease in research, content development and technology support costs during fiscal 2017 is related to the completion of the platform in the prior quarters.
Hosting, Advertising and Technology Services
For the three months August 31, 2017, the Company incurred hosting and technology costs of $20,144 compared to $5,666 for the year ended August 31, 2016. The increase in research, content development and technology support costs during fiscal 2017 is related to the maintenance of the Company’s online management and advertising platform.
| General and Administrative | For the Three Months Ended August 31, | |||||||
| 2017 | 2016 | |||||||
| Professional fees | $ | 51,848 | $ | 71,488 | ||||
| Head office costs | 10,500 | 10,500 | ||||||
| Management fees | 15,000 | 15,000 | ||||||
| Transfer and registrar costs | 3,833 | 8,296 | ||||||
| Shareholders information | 12,457 | 1,815 | ||||||
| Office and general costs | 1,252 | 4,626 | ||||||
| Directors fees | 900 | 600 | ||||||
| Consulting fees and expenses | 15,000 | 15,000 | ||||||
| Travel | - | 13,920 | ||||||
| Rent | - | 3,776 | ||||||
| Insurance | - | 4,710 | ||||||
| Total | $ | 110,790 | $ | 149,731 | ||||
General and administrative expenses for the three months ended August 31, 2017, decreased to $110,790 compared to $149,731 for the year ended August 31, 2016. For the three months ended August 31, 2017 shareholders information costs increased by $10,642 to $12,457 compared to $1,815 for the three months ended August 31, 2016. The fiscal 2017 increase was primarily attributed to the costs associated with the consolidation of the Company’s common shares and the addition of fees related to the Company’s listing on the Canadian Securities Exchange. For the three months ended August 31, 2017, professional fees decreased by $19,640 to $51,848 compared to $71,848 for the same three month ended in 2016. In addition, during fiscal 2017, travel costs decreased by $13,920, insurance costs decreased by $4,710 and rent decreased by $3,776. The reduction in costs were a result of the settlement of the DWF Transaction.
Loss on Foreign Exchange
For the three months ended August 31, 2017, the Company recorded a gain on foreign exchange of $321 versus a loss on foreign exchange of $112 for the same three month period in 2016.These foreign exchange gains and losses are attributed to the translation of monetary assets and liabilities not denominated in the functional currency of the Company.
Stock Based Compensation
Employees
For the three months ended August 31, 2017, the Company recorded stock based compensation of $1,478,314 compared to $Nil for the same three month period in 2016. During the three month period in fiscal 2017, the Company revised the fair value of stock options issued to directors and officers on September 9, 2016 and November 1, 2016.
Non Employees
For the three months ended August 31, 2017, the Company recorded stock based compensation for non-employees of $220,588 compared to $Nil for the same three month period in 2016. During the three month period in fiscal 2017, the Company revised the fair value of stock options issued to a consultant on September 9, 2016
Anti-Dilution Fees
For the three months ended August 31, 2017, the Company recorded anti-dilution fees of $178,650 compared to $Nil for the three months ended August 31, 2016.
On August 31, 2016, the Company completed private placements for gross proceeds of $260,000 and issued 23,636 units in the capital of the Company at a purchase price of $11.00 per unit. The subscription agreements contain an anti-dilution provision such that if within 18 months of August 31, 2016, the Company issues additional common shares for a consideration per share or with an exercise or conversion price per share, less than $11.00 (the “Adjusted Price”) the Holder shall be entitled to receive from the Company (for no additional consideration) additional Units in an amount such that, when added to the number of Units acquired by Holder under this agreement will equal the number of Units that the Holder would otherwise be entitled to receive had this transaction occurred at the Adjusted Price.
Gain on de-recognition of financial liabilities
During the three months ended August 31, 2017, the Company recorded a gain on de-recognition of financial liabilities in the amount of $893,990 relating to the expiry of prior obligations of Dyami Energy.
During the first quarter 2016, the Company recorded a gain on de-recognition of financial liabilities in the amount of $893,990 relating to the prior obligations of Dyami Energy after its dissolution in the statement of operations. For the three months ended August 31, 2016, the Company reversed the gain on de-recognition and restated the prior obligations of the $893,990 compared to $Nil for the same three month period in 2015. The obligations of $893,990 were included in trade and other payables at August 31, 2016.
Impairment loss on Secured Note Receivable
During the three months ended August 31, 2017, the Company recorded an impairment loss of $81,483 on a secured note receivable compared to $Nil in the same three month prior period in 2016 and 2015.
On May 25, 2016, the Company entered into a Term Sheet to license to acquire all the technology, production and client operations owned and operated by New York based Catch Star Studios LLC (“Catch Star”). On October 12, 2016, the Company advanced US$65,000 ($81,483 at August 31, 2017) to Catch Star and entered into a Secured Promissory Note and General Security Agreement with Catch Star (the “Secured Note”). The Secured Note is due on demand and is secured by all of the assets of Catch Star. Subsequently, Catch Star and the Company could not reach a definitive agreement to memorialize the terms and conditions of the Term Sheet and abandoned the prospective transaction. At August 31, 2017, the Company determined that the Secured Note was uncollectible and recorded an impairment of the full amount
Net Income (Loss) from Continuing Operations
Net loss from continuing operations for the three months ended August 31, 2017 was $1,199,755 versus a net income from continuing operations of $153,579 for the three months ended August 31, 2016. During the three months ended August 31, 2017, the Company recorded a gain on de-recognition of financial liabilities in the amount of $893,990 which gain was partially offset by an increase in stock based compensation expense of $1,698,901 compared to $Nil in the same three month prior period, anti-dilution fees of $178,650 compared to $Nil for the three months ended August 31, 2016 and an impairment loss of $81,483 on a secured note receivable compared to $Nil in the prior period in 2016.
Net Income from Discontinued Operations
For the three months ended August 31, 2017, net income from discontinued operations was $Nil versus net income from discontinued operations of $2,118 for the three months ended August 31, 2016.
Net Income (Loss) and Comprehensive Income (Loss)
Net loss for the three months ended August 31, 2017 was 1,199,755 compared to net income of $155,697 for three months ended August 31, 2016.During the three months ended August 31, 2017, the Company recorded a gain on de-recognition of financial liabilities in the amount of $893,990 which gain was partially offset by anti-dilution fees of $178,650 compared to $Nil for the three months ended August 31, 2016.
Earning (Loss) per Share, Basic and diluted
Basic and diluted loss per share from continuing operations for the three months ended August 31, 2017, was $0.447 compared to a basic and diluted loss per share from continuing operations of $0.06 for the same three month period in 2016.
CAPITAL EXPENDITURES
On May 25, 2016, the Company entered into a Term Sheet to license to acquire all the technology, production and client operations owned and operated by New York based Catch Star Studios LLC (“Catch Star Studios”). On October 12, 2016, the Company advanced US$65,000 ($81,483 at August 31, 2017) to Catch Star and entered into a Secured Promissory Note and General Security Agreement with Catch Star (the “Secured Note”). The Secured Note is due on demand and is secured by all of the assets of Catch Star. Subsequently, Catch Star and the Company could not reach a definitive agreement to memorialize the terms and conditions of the Term Sheet and abandoned the prospective transaction. On February 1, 2017, the Company issued a letter of demand for the repayment in full of the Secured Note from Catch Star. At August 31, 2017, the Company determined that the Secured Note was uncollectible and recorded an impairment of the full amount
| Total future minimum lease payments | ||||
| $ | ||||
| Less than one year | 982,881 | |||
| Between one and five years | 2,449,475 | |||
| Total minimum lease payments | 3,432,356 | |||
| Less amount representing interest | (534,298 | ) | ||
| Total | $ | 2,898,058 | ||
The Company expectshas four lease contracts with extension options remaining after December 31, 2023, which were negotiated by management to provide flexibility in managing business needs. Set out below are the undiscounted potential rental payments related to periods following the date of exercise options that capital expenditures will increaseare not included in future reporting periods as the Company seeks further opportunities and ventures of merit in an effort to increase shareholder value.lease term:
| Within five years | More than five years | |||||||
| Extension options available to be exercised | $ | 3,611,037 | $ | 6,351,725 | ||||
FINANCING ACTIVITIES
The contractual maturities of the Company’s accounts payable and accrued liabilities, debt, leases, and unearned revenue occur over the next three years are as follows:
| Year 1 | Over 1 Year - 3 Years | Over 3 Years - 5 Years | ||||||||||
| $ | $ | $ | ||||||||||
| Accounts payable and accrued liabilities | 1,358,962 | - | - | |||||||||
| Lease liabilities | 925,976 | 1,041,614 | 930,468 | |||||||||
| Convertible debentures | - | - | 2,459,924 | |||||||||
| Debt | 780,360 | 82,344 | - | |||||||||
| Business acquisition consideration payable | 360,000 | - | - | |||||||||
| Total | 3,425,298 | 1,123,958 | 3,390,392 | |||||||||
During the year ended August 31, 2017, the Company completed a private placement for gross proceeds
39
Effective August 31, 2017, the Company settled shareholder advances of $213,781 and issued 1,187,672 common shares in the capital of the Company at a purchase price of $0.18 per share.
| B. | LIQUIDITY AND CAPITAL RESOURCES |
Our ability to generate cash in the short term is based upon sales from production and financing proceeds, and in the long term is based upon sales from production, including production from investments in production increases, or from growth by business acquisitions, or a combination thereof. Investments to increase production or acquire business may require further financing. The Company generates cash flows from sales of cannabis products which generate margin that contribute to coverage of other operating costs, but has not yet reached productive scale to generate net income and positive net cash flows from operations on a consistent basis. We have raised financing historically through debt and equity, which has been and will be invested in the business in order to improve production yields and increase total productive capacity, as well as cover operating costs. We raised gross proceeds of $nil during the transition period ended December 31, 2023 (for years ended October 31, 2023 - $8.0 million; October 31, 2022 - approximately $1.4 million). We are typically able to sell finished goods shortly after inventory reaches its final state, and sales are primarily made on cash-on-delivery terms, or with short net terms. Our ability to fund operations, to plan capital expenditures, and to plan acquisitions, depends on future operating performance and cash flows and the availability of capital by way of debt or equity investment in the Company, which are subject to prevailing economic conditions and financial, business, and other factors, some of which are beyond the Company’s control.
Cash flows
The following table summarizes certain cash flow items for the transition period ended December 31, 2023, and the years ended October 31, 2023, and 2022.
| Two months ended December 31, 2023 | Year ended October 31, 2023 | Year ended October 31, 2022 | ||||||||||
| ($) | ($) | ($) | ||||||||||
| Net income (loss) | 672,427 | (662,320 | ) | 419,951 | ||||||||
| Net cash provided by (used in) operating activities | 231,109 | 5,729,351 | 2,004,175 | |||||||||
| Net cash used in investing activities | (1,145,286 | ) | (2,887,308 | ) | (1,113,283 | ) | ||||||
| Net cash provided by (used in) by financing activities | (1,139,491 | ) | 4,433,820 | (422,541 | ) | |||||||
| Net increase in cash and cash equivalents | (2,053,668 | ) | 7,275,863 | 468,351 | ||||||||
| Effect of currency translation | 6,106 | (2,210 | ) | 918 | ||||||||
| Cash and cash equivalents, beginning | 8,858,247 | 1,582,384 | 1,114,033 | |||||||||
| Cash and cash equivalents, ending | 6,804,579 | 8,858,247 | 1,582,384 | |||||||||
Operating activities
During the transition period ended December 31, 2023, cash provided by operating activities was $231,109, (for years ended October 31, 2023 - $5,729,351; October 31, 2022 –$2,004,175). This number was derived by adding back non-cash items to net income (loss), including the following significant adjustments:
| ● | $186,415 in amortization of property and equipment (years ended October 31, 2023 - 578,641; October 31, 2022 - $750,916); | |
| ● | $209,985 from depreciation expensed in costs of finished inventory sold (years ended October 31, 2023 - $1,757,672; October 31, 2022 - $1,102,688); | |
| ● | Deduction of $686,867 from the unrealized change in fair value of biological assets (years ended October 31, 2023 - $3,355,797; October 31, 2022 - $3,278,572); | |
| ● | $460,467 for changes in fair value in inventory sold (years ended October 31, 2023 - $2,573,151; October 31, 2022 - $3,685,338); |
40
| ● | $224,064 from deferred income taxes benefit (years ended October 31, 2023 - $470,358; October 31, 2022 - $nil); | |
| ● | $104,359 in share-based compensation and stock option vesting expense, including expense for option grants under our stock option plan implemented during 2020, as well as shares issued directly as compensation for employees, directors, and service providers (years ended October 31, 2023 - $344,593; October 31, 2022 - $96,649); | |
| ● | $216,493 (years ended October 31, 2023 - $1,026,732; October 31, 2022 - $491,751) in accretion of interest expense on debt and convertible debentures outstanding; | |
| ● | $Nil (years ended October 31, 2023 - $nil; October 31, 2022 - $333,777) from the unrealized loss on our investment in PBIC shares, measured at PBIC’s publicly quoted share price; | |
| ● | $Nil (years ended October 31, 2023 - $nil; October 31, 2022 - $455,674) from gain on debt settlement; | |
| ● | Deduction of $366,981 (years ended October 31, 2023 - $4,563,498 loss; October 31, 2022 - $nil) from the gain on fair value of derivative liability; and | |
| ● | Deduction of $400,016 (years ended October 31, 2023 - $129,113; October 31,2022 – $nil) from the unrealized gain on warrants asset. |
Increases in non-cash working capital are summarized in the following table.
| December 31, 2023 | October 31, 2023 | October 31, 2022 | ||||||||||
| ($) | ($) | ($) | ||||||||||
| Accounts receivable | 466,434 | (465,465 | ) | (904,711 | ) | |||||||
| Inventory and biological assets | (344,311 | ) | (767,636 | ) | (94,595 | ) | ||||||
| Prepaid expenses and other assets | (27,549 | ) | (40,513 | ) | 5,267 | |||||||
| Accounts payable and accrued liabilities | (1,115,128 | ) | 569,451 | (124,334 | ) | |||||||
| Interest payable | - | - | (13,750 | ) | ||||||||
| Income tax payable | 507,332 | 55,024 | 56,401 | |||||||||
| Unearned revenue | - | (28,024 | ) | (95,389 | ) | |||||||
| Total | (513,222 | ) | (677,163 | ) | (1,171,111 | ) | ||||||
Changes in accounts receivable are due to the timing and collection of sales. Changes in inventory and biological assets reflect increases due to increased productive capacity, as well as the timing of Augustharvests, the timing of the completion growth cycles, and the timing of sales of finished inventory. Changes in liabilities, including accounts payable and accrued liabilities reflect the use of credit terms and cash flow management based upon ongoing liquidity management.
Investing activities
During the transition period ended December 31, 2017, was $1,040 (August2023, we added $770,010 (years ended October 31, 2016: $449,983)2023 - $4,008,866; October 31, 2022 - $4,000,874) to property and equipment, including non-cash right-of-use asset additions. We expended cash flows of $126,690 (years ended October 31, 2023 - $1,456,782; October 31,2022 - $1,111,283) for property and equipment additions.
We also expended $1,018,596 (year ended October 31, 2023 - $1,420,526) as cash advances and loans to other parties during the two months ended December 31, 2023.
41
Financing activities
Net cash flows used by financing activities during the transition period ended December 31, 2023, were $1,139,491 (years ended October 31, 2023 – net cash provided of $4,433,820; October 31, 2022 – net cash used of $422,541).
ForSignificant financing activities for the transition period ended December 31, 2023, included the following:
| ● | Repayment of $126,978 of convertible debentures; | |
| ● | Repayments of $444,347 of lease principal; and | |
| ● | Repayments of $568,166 of long-term debt. |
Financing activities during the comparable year ended October 31, 2023, included the following:
| ● | Proceeds of $8,000,000 from issuance of convertible debentures; | |
| ● | Repayment of $261,006 of convertible debentures; | |
| ● | Repayments of $1,673,344 of lease principal; and | |
| ● | Repayments of $1,631,830 of long-term debt. |
Financing activities during the comparable year ended October 31, 2022, included the following:
| ● | Debt proceeds of $100,000 borrowed for general purposes; | |
| ● | $1,300,000 raised through a private placement of common shares; | |
| ● | Repayments of $1,089,738 of lease principal; and | |
| ● | Repayments of $732,803 of long-term debt. |
Trends and expected fluctuations in liquidity
| December 31, 2023 | October 31, 2023 | Variance | Variance | |||||||||||||
| ($) | ($) | ($) | (%) | |||||||||||||
| Current assets | 15,612,537 | 17,421,537 | (1,809,000 | ) | (10 | %) | ||||||||||
| Current liabilities | (11,770,203 | ) | (13,004,181 | ) | 1,233,978 | (9 | %) | |||||||||
| Working capital | 3,842,334 | 4,417,356 | (575,022 | ) | (13 | %) | ||||||||||
Working capital varied from October 31, 2023 to December 31, 2023, due to primarily to an increase in net cash used by financing activities, which was $1,139,491 during the transition period ended December 31, 2023 as compared to cash provided by financing activities of $4,433,820 during the year ended AugustOctober 31, 2017,2023, and net cash used by financing activities of $422,541 during the primary use of funds was related to general administrative expenses and the US $65,000 advance to Catch Star. The Company’syear ended October 31, 2022.
We expect significant ongoing fluctuations in working capital deficiency at August 31, 2017 was $487,776 (August 31, 2016 working capital deficiency: $690,649).
Our current assetsover time, as we are in the early stages of $42,047growth. We have historically raised debt with principal due on maturity, and accordingly, we expect significant one-time payments as at August 31, 2017 ($482,582debt matures, as of August 31, 2016) include the following items:opposed to smooth cash $1,040 ($449,983outflows over time. We have historically been able to meet commitments, modify debt maturities, and raise new financing as of August 31, 2016); other receivables $41,007 ($14,800 as of August 31, 2016); and prepaid expenses and deposits $Nil ($17,799 as of August 31, 2016). Our current liabilities of $529,823 as of August 31, 2017 ($1,173,231 as of August 31, 2016) include the following items: trade and other $529,823 ($1,173,231 as of August 31, 2016).
Management of the Company recognizes that cash flow from operations is not sufficient meet its working capital requirements or fund additional opportunities or ventures of merit. The Company hasrequired to respond to changes in our liquidity risk which necessitates the Company to obtain debt financing or raise additional equity. Thereposition, although there is no assurance the Companyguarantee we will be able to obtaindo so in the necessaryfuture. We are exposed to market pricing for cannabis products, which materially impacts our liquidity and is out of our control. The market for cannabis products, including flower, which is our primary product, is relatively immature, having recently become legal to buy and sell in certain markets. We have observed some indications of seasonality, and in addition, we have observed that market conditions can change rapidly without apparent explanations or analyzable causes. We cannot control whether we will be able to raise financing when required or sell cannabis products at profitable prices in the future; however, part of our strategy is to produce flower at sustainable gross margins over a timely manner.growing productive base, which, holding other factors constant, is expected to result in improved net loss or net income, as well as net cash flows.
The Company’s past primary source42
Outlook and Capital Requirements
We anticipate further expenditures to expand our current business plan. Amounts expended on future opportunities and ventures of merit is dependent on the nature of the opportunities evaluated by us. Any expenditure which exceeds available cash will be required to be funded by additional share capital or debt issued by us, or by other means. Our long-term profitability will depend upon its ability to successfully implement its business plan.
| C. | RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES |
We do not engage in significant research and development activities. As such, included in general and administrative expenses are limited research and development expenses during the transition period ended December 31, 2023, and the years ended October 31, 2023 and 2022.
| D. | TREND INFORMATION |
ThereThe trend of cannabis legalization in the United States has resulted in a significant opportunity. Forty-one U.S. states, as well as the District of Columbia and Puerto Rico, have legalized adult-use or medical cannabis markets. In the U.S., adult-use sales are expected to grow at a compounded annual growth rate of 21.7% through year 2025, and U.S. adult-use and medical sales are projected to reach U.S.$33.9 billion by year 2025 [Source: The State of Legal Cannabis Markets from Arcview Market Research and BDS Analytics, 8th Edition].
Consumer preferences change from time to time and can be affected by a number of different and unexpected trends. The Company’s failure to anticipate, identify or react quickly to these changes and trends, that have been developingand to introduce new and improved products on a timely basis, could result in reduced demand for the technology and media industry duringCompany’s products, which in turn could result in a material adverse effect on the past few years that appear to be shaping the near future of the business including managements review and analysis:Company.
| E. |
Not applicable.
**http://www.emarketer.com/Article/Mobile-Ad-Spend-Top-100-Billion-Worldwide-2016-51-of-Digital-Market/1012299
Another trend currently affecting the technology industry is the impact on capital markets caused by investor uncertainty in the domestic and global economy. Market events and conditions in recent years including disruptions in the international credit markets and other financial systems and the deterioration of global economic conditions have caused significant volatility to the capital markets. These conditions contribute to a loss of confidence in the domestic and global credit and financial markets.
There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes of financial condition, revenues, or expenses, results of operations, liquidity, capital expenditures or capital resources, which individually or in the aggregate are material to our investors.
The following table illustrates the contractual maturities of financial liabilities:
| August 31, 2017 | Payments Due by Period $ | |||||||||||||||||||
| Total | Less than 1 year | 1-3 years | 4-5 years | After 5 years | ||||||||||||||||
| Trade and others payables | 529,823 | 529,823 | - | - | - | |||||||||||||||
| Total | 529,823 | 529,823 | - | - | - | |||||||||||||||
| August 31, 2016 | Payments Due by Period $ | |||||||||||||||||||
| Total | Less than 1 year | 1-3 years | 4-5 years | After 5 years | ||||||||||||||||
| Trade and others payables | 1,173,231 | 1,173,231 | - | - | - | |||||||||||||||
| Total | 1,173,231 | 1,173,231 | - | - | - | |||||||||||||||
SECURED NOTE PAYABLE, SHAREHOLDERS’ LOANS, NOTES PAYABLE AND DEBT CONVERSION
Secured Note Payable
As at August 31, 2014, the Company had a secured convertible promissory note payable to Benchmark Enterprises LLC. (“Benchmark”) with a face value of $1,322,347 (US$1,216,175) with an interest rate of 10% (the “Note”). The Note was being accreted up to its face value over the life of Note, based on an effective interest rate. For the year ended August 31, 2015, the Company recorded interest on the Note of $154,179. The Note was due on the earliest to occur of: (a) August 31, 2015; (b) the closing of any subsequent financing or series of financings by the Company that results in gross proceeds of an aggregate amount equal to or greater than US$4,400,000, excluding conversion of any existing debt into equity; (c) the date of a sale by the Company of all of the shares in the capital stock of Zavala Inc. held by the Company from time to time; (d) the closing of a merger, reorganization, take-over or other business combination which results in a change of control of the Company or Zavala Inc.; or (e) an event of default. The Note was secured by all of the assets of the Company and Zavala Inc. Benchmark had the option at any time while the Note was outstanding to convert any unpaid principal and accrued interest into conversion units.
In accordance with the terms of the Note and the General Security Agreement (the “Loan Agreements”) the Company had granted and conveyed to Benchmark a first priority security interest in the Company and Zavala Inc., prior and superior to the rights of all third parties existing on or arising after the date of such Loan Agreements, subject to the Permitted Liens.
At August 31, 2015, the Company was unable to pay the Note due in the amount $1,608,149 plus interest of $154,179, totaling $1,762,328, which constituted an event of default pursuant to the terms of the Loan Agreements. Benchmark, having made demand for payment of all amounts owed to it under the Note, gave notice to the Company that it intended to exercise its security on the Company’s assets. In an effort to avoid further costs, the Company and Benchmark entered into a Settlement and Exercise of Security Agreement effective August 31, 2015, with the following terms:
As a result the Company’s extinguishment of the Note, the Company’s investment in Zavala Inc. had been derecognized from the Company’s Consolidated Financial Statements as at August 31, 2015. The fair value of the common shares was determined to be equal to the fair value of the secured note settled The following table presents the effect of the extinguishment of the Note on the Consolidated Financial Statements of the Company:
| August 31, 2015 | ||||
| Secured note payable settled | $ | 1,608,149 | ||
| Interest payable settled | 154,179 | |||
| Net assets and liabilities of Zavala Inc. transferred (Note 16 a) | (836,717 | ) | ||
| Common shares issued (Note 13 b (b)) | (925,611 | ) | ||
| $ | - | |||
Shareholder Loans
As at August 31, 2017 and 2016 the Company had shareholders’ loans payable of $Nil.
Effective August 30, 2014, the Company converted shareholders’ loans and interest due in the aggregate amount of $1,180,570 through the issuance of a total of 147,571 units in the capital of the Company. The terms of the August 30, 2014, conversion agreements contained an anti-dilution provision such that if within 18 months of the effective date, the Company issues additional common shares for a consideration per share or with an exercise or conversion price per share, less than $8.00 (the “Adjusted Price”) the Holder herein shall be entitled to receive from the Company (for no additional consideration) additional Units in an amount such that, when added to the number of Units acquired by Holder under this agreement will equal the number of Units that the Holder would otherwise be entitled to receive had this transaction occurred at the Adjusted Price. Effective November 18, 2015, the Company issued a total of 103,299 Units in the capital of the Company pursuant to the Adjusted Price. The warrant component was valued using a Binomial Lattice model whereas the fair value of the common share component was based on the current market value of the company’s stock. The fair value of the units of $6,896,800 was allocated to the common shares in the amount of $5,034,157 and warrants in the amount of $1,862,643 based on their relative fair values and $6,896,800 was recognized as a loss on settlement of debt in the statement of operations. Significant assumptions utilized in the Binomial Lattice process for the warrant component of the conversion were as follows:
| November 18, 2015 | ||||
| Market value on valuation date | $ | 6.60 | ||
| Contractual exercise rate | $ | 10.00 | ||
| Term | 1.79 Years | |||
| Expected market volatility | 183.30 | % | ||
| Risk free rate using zero coupon US Treasury Security rate | 0.90 | % | ||
Loans Payable
As at August 31, 2017 and 2016 the Company had loans payable of $Nil. For the year ended August 31, 2016, the Company recorded interest on the loans payable of $4,945. Effective November 18, 2015, the Company converted loans and interest due in the aggregate amount of $899,660 through the issuance of 680,068 common shares in the capital of the Company. The fair value of the common shares of $4,540,474 was allocated to common shares and $3,640,814 was recorded as loss on settlement of debt in the consolidated statement of operations.
On February 29, 2016, the Company entered into asset purchase and debt settlement agreement and converted loans and interest in the aggregate amount of $277,473 in exchange forthe Company’s 0.03% net smelter return royalty on 8 mining claim blocks located in Red Lake, Ontario which were carried on the consolidated statement of financial position at $Nil. Accordingly, the Company recorded a gain on settlement of debt for the full amount.
Debt Conversion
On February 29, 2016, the Company entered into shares for debt conversion agreements and converted debt in the aggregate amount of $451,557 through the issuance of 150,519 units in the capital of the Company. Each unit is comprised of one (1) common share and one (1) common share purchase warrant. Each full warrant entitles the holder to purchase one (1) common share at an exercise price of $3.50 until March 1, 2019. The fair value of the Units of $1,220,709 was allocated to common shares in the amount of $638,295 and warrants in the amount of $582,414 based on their relative fair values and $769,152 was recognized as a loss on extinguishment of debt in the consolidated statement of operations. Significant assumptions utilized in the Binomial Lattice process for the warrant component of the conversion were as follows:
| February 29, 2016 | ||||
| Market value on valuation date | $ | 8.10 | ||
| Contractual exercise rate | $ | 3.50 | ||
| Term (years) | 3 Years | |||
| Expected market volatility | 169.73 | % | ||
| Risk free rate using zero coupon US Treasury Security rate | 0.91 | % | ||
DERIVATIVE LIABILITIES
As at August 31, 2017, the Company had no derivative warrant liabilities. As at August 31, 2016, the Company had 175,000 derivative warrant liabilities outstanding with a fair value of $Nil. As at August 31, 2017, the Company recorded a gain on expiry of derivative warrant liabilities of $Nil (August 31, 2016: $281,210). The Company had warrants issued with a cashless exercise price and warrants issued with an exercise price in US dollars which was different from the functional currency of the Company and accordingly the warrants were treated as a financial liabilities. The fair value movement during the periods were recognized in the profit or loss. The following table sets out the changes in derivative warrant liabilities during the respective periods:
| Number of Warrants | Fair Value Assigned $ | Average Exercise Price $ | ||||||||||
| As at August 31, 2014 | 7,439 | 1,325,307 | US | 370.40 | ||||||||
| Warrants expired | (6,134 | ) | (1,258,206 | ) | US | (460.66) | ||||||
| Change in fair value estimates | - | 214,109 | - | |||||||||
| As at August 31, 2015 | 1,305 | 281,210 | US | 466.66 | ||||||||
| Warrants expired | (1,305 | ) | (281,210 | ) | - | |||||||
| Warrants issued | 175,000 | - | - | |||||||||
| As at August 31, 2016 | 175,000 | - | 15.00 | |||||||||
| Warrants expired | (175,000 | ) | - | - | ||||||||
| As at August 31, 2017 | - | - | - | |||||||||
On September 25, 2015, 1,305 warrants expired and the fair value measured using the Black-Scholes option pricing model of $281,210 was recorded as a gain on expiry of derivative liabilities on the consolidated statement of operations.
On June 22, 2016, the Company entered into a consulting agreement and issued 175,000 common share purchase warrants exercisable at $15.00 with a cashless exercise option. At August 31, 2016, the Company determined that it would not continue with the agreement and it was suspended and on January 15, 2017, the agreement was mutually terminated no warrants were exercised.
As at August 31, 2017, no derivative warrants liabilities were outstanding. The following tables set out the number of derivative warrant liabilities outstanding as at August 31, 2016 and 2015, respectively
| Number of Warrants 2016 | Exercise Price CDN ($) | Expiry Date | Weighted Average Remaining Life (Years) | Fair Value ($) | ||||||||||||
| 175,000 | 1.50 | January 15, 2017 | 0.13 | - | ||||||||||||
| Number of Warrants 2015 | Exercise Price US ($) | Expiry Date | Weighted Average Remaining Life (Years) | Fair Value ($) | ||||||||||||
| 1,125 | 500.00 | September 25, 2015 | 0.07 | 220,640 | ||||||||||||
| 180 | 250.00 | September 25, 2015 | 0.07 | 60,570 | ||||||||||||
| 1,305 | 0.07 | 281,210 | ||||||||||||||
Certain statements in Item 5.E and 5.F of this Annual Report may constitute "forward looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as "plans", "expects", "estimates", "budgets", "intends", "anticipates", "believes", "projects", "indicates", "targets", "objective", "could", "may", or other similar words. The forward-looking statements are subject to known and unknown risks and uncertainties and other factors that may cause actual results, levels of activity and achievements to differ materially from those expressed or implied by such statements. Readers should not place undue reliance on any forward-looking statement and should recognize that the statements are predictions of future results, which may not occur as anticipated.
| ITEM | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
| A. | DIRECTORS AND SENIOR MANAGEMENT |
The following table sets forth the names of all of our directors and executive officers as of the date of the filing of this Annual Report, with each position and office held by them in our Company, and the period of their service as a director or as an officer.
| Name | Position with the Company | Date First Elected | ||
| J. Obie Strickler | President, Chief Executive Officer and Director | November 15, 2018 | ||
| Chief Financial Officer, |
| |||
| Director | ||||
| Stephen Gledhill | Director | November 15, 2018 | ||
| Sean Conacher | Director | August 27, 2020 |
All of our directors’directors serve until our next Annual General Meeting or until a successor is duly elected, unless the office is vacated in accordance with our Articles or Bylaws. Subject to the terms of their employment agreements, if any, executive officers are appointed by the Board of Directors to serve until the earlier of their resignation or removal, with or without cause by the directors. Ritwik UbanMr. Strickler, our President, devotes approximately 35%100% of his work time to his duties as an officer and director.director of the Company.
There are no family relationships between any of our directors or executive officers. There are no arrangements or understandings between any twomajor shareholders, customers, suppliers or moreothers, pursuant to which any named directors or executive officers.officers were selected.
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J. Obie Strickler – President, Chief Executive Officer and Director. Mr. CassinaStrickler is the President, Chief Executive Officer and Chairman of the Company. He is also CEO, President, and founder of GR Unlimited. He founded Canopy in 2015 to consolidate the three medical facilities he had operated since 2006 within one company. Mr. Strickler formed GR Unlimited in 2016 and entered the Oregon recreational cannabis market with a plan to build a multi-national cannabis brand. Mr. Strickler has been active in the Oregon medical marijuana market since early 2000 where he organically scaled a single 15 plant property to four separate facilities with approximately 200 outdoor plants and 30 lights operating indoors. Mr. Strickler has a Bachelor of Science in Geology from Southern Oregon University and is also an officer since June 18, 2010Oregon Professional Geologist. During the time he was financing and overseeing Canopy’s growth he was also the regional manager for a directorlarge multi-service environmental company where he oversaw a staff of ours since February 9, 2010.15 people before starting his own business in 2011 to provide management services to large natural resource companies primarily in the mining sector. In this role, he was responsible for building and integrating complex technical teams to advance large, world-class, multi-billion-dollar mining projects from exploration through feasibility primarily in base and precious metals. In 2014, Mr. Cassina wasStrickler teamed with aerospace engineers to form HyperSciences, Inc a platform technology company focused on commercializing hypervelocity technology into a variety of industrial applications. Mr. Strickler helped secure a large contract with one of the President of Eagleford Energy and Zavala Inc. our former subsidiaries. As Chairman of Assure Energy, Inc. (“Assure”) (OTCBB: ASUR), anworld’s larger oil and gas explorationproviders to solve deep drilling challenges and moved this project through proof of concept before departing to focus on the opportunities in cannabis full time. Mr. Strickler will take his production company,experience in the cannabis industry and his integration and execution experience from the natural resource industry to build GR Unlimited into a premier cannabis company. Mr. Cassina led Assure’s merger in September 2005Strickler is 43 years old and is employed on a full-time basis with Geocan Energy Inc. (TSX: GCA) (“Geocan”), an oil and gas company which then grew to daily production of over 3,700 barrels of oilthe Company. Mr. Strickler has not signed a non-competition or gas equivalents. Mr. Cassina thereafter served as a Director of Geocan and later Chairperson of its Board appointed Special Advisory Committee formed to seek strategic alternatives to enhance shareholder value. Subsequently Geocan mergednon-disclosure agreement with Arsenal Energy Inc. in October 2008.the Company.
Ryan Kee – Mr. UbanKee is an MBA graduate from the prestigious Richard Ivey Schoolexperienced accounting professional with a history of Businessworking in mining in various global jurisdictions. He is skilled in financial reporting, IT integrations, and received an Honors, Bachelorsteam building and development. Mr. Kee has a Bachelor of ArtsScience in Accounting and Spanish from the University of Toronto. As PresidentIdaho, and is a Certified Public Accountant, licensed in Washington state. He has developed financial models to quantitatively describe the cost profiles of ICE,operating mines, optimize grade cutoffs, and drive cost reductions. Most recently, he led accounting, supply chain, and IT teams for an operating gold mine in South America, and will apply the best practices learned and developed in mining to cannabis production. Mr. Kee is 40 years old and is employed with the Company.
Sean Conacher – Mr. Conacher is an experienced executive with a demonstrated history of working in the financial services and marketing sectors. He is skilled in entrepreneurship, venture capital, public and private equity, foreign exchange, options and asset management. He is currently the Chief Strategy Officer of PBIC, a publicly traded investment corporation that offers unique global exposure to the emerging global cannabis and plant-based sector. PBIC’s main objective is to provide shareholders long-term total return through its subsidiaries including Ice Studio Productions Inc.,actively managed portfolio of securities, both public and private, operating in, or that derive a portion of their revenue or earnings from products or services related to the cannabis and plant-based industry. Mr. Uban overseesConacher is 53 years old and intends to devote the operational teams, develop market programs and expansion of the rapidly growing content and media areas of the business into high performance, revenue generating properties. Mr. Uban was formerlytime necessary to serve as a director of Uban Media and Construction of New Delhi, India (“Uban Media”) where he managed the business operations of the Canadian investment interests of Uban Media and assessed and analyzed new media opportunities from North America to export to the emerging India market.Mr. Uban was also the former head of operations for an event management company leading the client sourcing and procurement process and provided clients with a variety of services, including but not limited to, marketing, sales, venue sourcing, external vendor services and event sponsorships.Corporation.
Abhilash Patel – Director. Mr. BatraPatel is a serial entrepreneur, running two internationally successfulventure investor, speaker, and philanthropist. He is currently Founder and Principal at Lotus Capital, an early-stage investment fund in Santa Monica, California. He is on the board of directors for several non-profit organizations in Southern California, including the Los Angeles Food Bank, Junior Achievement of Southern California, and 10,000 Beds. Previously, Mr. Patel was founder and CEO at Ranklab, a digital marketing agency listed in Inc. Magazine’s fastest growing private companies in technology2015, and supply chain management while completingCo-founder at Recovery Brands, a digital publishing company based in San Diego, CA. In 2015 both companies were acquired by AAC, Holdings Inc. and Mr. Patel remained in an active leadership position at both companies until his BBA – Honours atexit in late 2016. Mr. Patel holds a Bachelor of Arts in Economics and Philosophy from Columbia University, and a Master of Business Administration from the University of Toronto.California, Los Angeles’ Anderson School of Management. Mr. Batra’s company, Torinit Technologies,Patel’s work has been featured in several major publications, including Inc., Huffington Post, Forbes, and Entrepreneur, USA Today, among others. Dr. Drew., Inc. named Mr. Patel “One of 20 Inspiring Entrepreneurs Improving Health for All” and Forbes highlights him in an interview entitled “How Web Publishing is Saving Lives”. Mr. Patel is 44 years old and intends to devote the time necessary to serve as a director of the Company, which is estimated to be 10% of his time. Mr. Patel has signed a non-disclosure agreement with the Company but has not signed a non-competition agreement with the Company.
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Stephen Gledhill – Director and Audit Committee Chairman. Mr. Gledhill is a global technologyfounding member and development outsourcing firm.Managing Director of RG Mining Investments Inc. and RG Management Services Inc., both of which are accounting, administrative and corporate secretarial services companies. In 1992, he formed Keshill Consulting Associates Inc., a boutique management consulting practice. Mr. Batra isGledhill has over 26 years of financial-control experience and acts as CFO and Corporate Secretary for multiple publicly-traded companies, several of which he was instrumental in scaling-up and taking public. He currently serves as the managing partnerCFO of Nova Sentio which builds market-centric teamsCaracara Silver Inc. (TSXV:CSV) and CO2 Gro Inc. (TSXV:GROW). Prior to turnaround struggling value chainsthe inception of RGMI and companies into high performing, rapid growth enterprises.RGMS, Mr. Batra is alsoGledhill served as the founderSenior Vice President and CFO of Phoenix 1™Borealis Capital Corporation, a North American company that is re-inventing a key automotive after care area in developing countries and isToronto-based merchant bank as well as Vice President of Finance of OMERS Realty Corporation (ORC), the Co-Founderreal estate entity of the Canada Entrepreneur Organization.Ontario Municipal Employees Retirement System. Mr. Gledhill is a Chartered Public Accountant and Certified Management Accountant and holds a Bachelor of Math Degree from the University of Waterloo. Mr. Gledhill is 63 years old and intends to devote the time necessary to serve as a director of the Company, which is expected to be 10% of his time. Mr. Gledhill has signed a non-disclosure agreement with the Company but has not signed a non-competition agreement with the Company.
| B. | COMPENSATION |
Executive Compensation
The following table presents a summary of all annual and long-term compensation paid or accrued by us including our subsidiaries, for services rendered to us by our executive officers and directors in any capacity for the transition period ended December 31, 2023 and year ended AugustOctober 31, 2017.2023.
| Summary Compensation Table | ||||||||||||||||||
| Name and Principal Position | Year | Salary | Option Based Awards(4) | All Other Compensation(5) | Total Compensation | |||||||||||||
| ($) | ($) | ($) | ($) | |||||||||||||||
| James Cassina, Chief Financial Officer and Director(1) | 2017 | $ | 60,000 | - | $ | 1,300 | $ | 61,300 | ||||||||||
| Ritwik Uban, Chief Executive Officer, President, Director(2) | 2017 | $ | 65,481 | $ | 613,531 | $ | 1,300 | $ | 680,312 | |||||||||
| Dikshant Batra, Director(3) | 2017 | - | $ | 353,089 | $ | 1,300 | $ | 354,389 | ||||||||||
| Name | Period | Salary, consulting fee, retainer or commission | Bonus | Committee or meeting fees | Value of perquisites | Value of all other compensation | Total compensation | ||||||||||||||||||||
| ($) | ($) | ($) | ($) | ($) | |||||||||||||||||||||||
| J. Obie Strickler, | Two months ended Dec 31, 2023 | 53,000 | 50,000 | Nil | Nil | 71,260 | (1) | 174,260 | |||||||||||||||||||
| President, CEO, and Director | Year ended Oct 31, 2023 | 240,000 | 20,000 | Nil | Nil | 347,036 | (2) | 607,036 | |||||||||||||||||||
| Adam August, | Two months ended Dec 31, 2023 | (3) | 38,924 | Nil | Nil | Nil | 9,693 | (4) | 48,616 | ||||||||||||||||||
| Senior VP Grown Rogue Unlimited LLC | Year ended Oct 31, 2023 | (3) | 192,038 | Nil | Nil | Nil | 41,262 | (4) | 233,300 | ||||||||||||||||||
| Ryan Kee, | Two months ended Dec 31, 2023 | 2,381 | Nil | Nil | Nil | 7,943 | (5) | 10,324 | |||||||||||||||||||
| Chief Financial Officer and Director | Year ended Oct 31, 2023 | 152,957 | Nil | Nil | Nil | 40,133 | (5) | 193,090 | |||||||||||||||||||
| Abhilash Patel, | Two months ended Dec 31, 2023 | Nil | Nil | Nil | Nil | 2,572 | (6) | 2,572 | |||||||||||||||||||
| Director | Year ended Oct 31, 2023 | Nil | Nil | Nil | Nil | 12,504 | (6) | 12,504 | |||||||||||||||||||
| Stephen Gledhill, | Two months ended Dec 31, 2023 | Nil | Nil | 3,000 | (7) | Nil | 2,572 | (6) | 5,572 | ||||||||||||||||||
| Director | Year ended Oct 31, 2023 | Nil | Nil | 18,000 | (7) | Nil | 12,504 | (6) | 30,504 | ||||||||||||||||||
| Sean Conacher, | Two months ended Dec 31, 2023 | Nil | Nil | Nil | Nil | 3,601 | (6) | 3,601 | |||||||||||||||||||
| Director | Year ended Oct 31, 2023 | Nil | Nil | Nil | Nil | 42,343 | (6) | 42,343 | |||||||||||||||||||
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| 1) | |
| 2) |
| 3) | On January 4, 2024, we announced that Mr. August will be stepping down from his position as Senior VP and will continue to support us in an advisory capacity ensuring his long-standing institutional knowledge continues with the | |
| 4) | Represents Option expense and interest paid on debenture to | |
| 5) | Represents Option expense paid to Mr. Kee. | |
| 6) | Represents stock option vesting expense. | |
| 7) | Mr. Gledhill was compensated $3,000 for the |
Outstanding Option-Based Awards
The following table sets forth thesummarizes options outstanding option-based awards for the Company held by executive officers and directors at AugustDecember 31, 2017.2023.
| Option-based Awards | ||||||||||||||
| Name | Number of Securities underlying unexercised options (#) (1)(2)(3) | Option exercise price | Option expiration date | Value of in-the- money options (3) (4) | ||||||||||
| James Cassina, Chief Financial Officer and Director | 2,500 | $ | 12.00 | November 11, 2019 | $ | - | ||||||||
| Ritwik Uban, President and Director (5) | 70,000 | $ | 15.00 | September 8, 2021 | $ | - | ||||||||
| 30,000 | $ | 13.00 | September 8, 2021 | $ | - | |||||||||
| Dikshant Batra, Director (6) | 30,000 | $ | 13.00 | September 8, 2021 | $ | - | ||||||||
| Exercise price (CAD$) | Options outstanding | Number exercisable | Remaining Contractual Life (years) | Expiry period | |||||||||||||
| 0.15 | 1,840,000 | 1,777,500 | 0.5 | July 2024 | |||||||||||||
| 0.15 | 200,000 | 200,000 | 0.9 | November 2024 | |||||||||||||
| 0.30 | 1,000,000 | 850,000 | 1.3 | April 2025 | |||||||||||||
| 0.16 | 1,150,000 | 1,150,000 | 1.4 | May 2025 | |||||||||||||
| 0.15 | 85,000 | 85,000 | 1.8 | November 2025 | |||||||||||||
| 0.15 | 300,000 | 150,000 | 2.3 | April 2026 | |||||||||||||
| 0.15 | 6,225,000 | 400,000 | 3.0 | January 2027 | |||||||||||||
| 0.30 | 400,000 | - | 3.7 | September 2027 | |||||||||||||
| 0.39 | 600,000 | 41,666 | 3.9 | November 2027 | |||||||||||||
| 0.18 | 11,800,000 | 4,654,166 | 2.3 | ||||||||||||||
Compensation Discussion and Analysis
Objective of the Compensation Program
The objectives of the Company'sCompany’s compensation program are to attract, hold and inspire performance of J. Obie Strickler and Ryan Kee, its Named Executive Officers (“NEOs”), of a quality and nature that will enhance the sustainable profitability and growth of the Company. The Company views it as an important objective of the Company'sCompany’s compensation program to ensure staff retention.
The Compensation Review Process
To determine compensation payable, the compensation committee of the Company (the "Compensation Committee"“Compensation Committee”) determines an appropriate compensation reflecting the need to provide incentive and compensation for the time and effort expended by the NEOs of the Company while taking into account the financial and other resources of the Company.
The Company’s Compensation Committee is comprised of Dikshant BatraJ. Obie Strickler, Abhilash Patel and James Cassina (Chair).Stephen Gledhill. Compensation is determined in the context of our strategic plan, our growth, shareholder returns and other achievements and considered in the context of position descriptions, goals and the performance of each NEO. With respect to directors’ compensation, the Compensation Committee reviews the level and form of compensation received by the directors, members of each committee, the board chair and the chair of each board committee, considering the duties and responsibilities of each director, his or her past service and continuing duties in service to us. The compensation of directors, the CEO and executive officers of competitors are considered, to the extent publicly available, in determining compensation and the Compensation Committee has the power to engage a compensation consultant or advisor to assist in determining appropriate compensation.
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Elements of Executive Compensation
The Company'sCompany’s NEO compensation program is based on the objectives of: (a) recruiting and retaining the executives critical to the success of the Company; (b) providing fair and competitive compensation; (c) balancing the interests of management and shareholders of the Company; and (d) rewarding performance, on the basis of both individual and corporate performance.
For the financial yeartransition period ended AugustDecember 31, 2017,2023, the Company'sCompany’s NEO compensation program consisted of the following elements:
| (a) | a management fee (the |
| (b) | a long-term equity compensation consisting of stock options granted under the |
The specific rationale and design of each of these elements are outlined in detail below.
Short-Term Incentive
Salaries form an essential element of the Company'sCompany’s compensation mix as they are the first base measure to compare and remain competitive relative to peer groups. Base salaries are fixed and therefore not subject to uncertainty and are used as the base to determine other elements of compensation and benefits. The base salary provides an immediate cash incentive for the Named Executive Officers. The Compensation Committee and the Board review salaries at least annually.
Base salary/management fees of the Named Executive Officers isare set by the Compensation Committee on the basis of the applicable officer’s responsibilities, experience and past performance. In determining the base salary to be paid to a particular Named Executive Officer, the Compensation Committee considers the particular responsibilities related to the position, the experience level of the officer, and his or her past performance at the Company and the current financial position of the Company.
Long-Term Incentive
The granting of stock options is a variable component of compensation intended to reward the Company'sCompany’s Named Executive Officers for their success in achieving sustained, long-term profitability and increases in stock value. Stock options may be provided to enhance the Named Executive Officers motivation to achieve long-term growth of the Company and increases in shareholder value. The Company provides long-term incentive compensation through its stock option plan. The Compensation Committee recommends the granting of stock options from time to time based on its assessment of the appropriateness of doing so in light of the long-term strategic objectives of the Company, its current stage of development, the need to retain or attract particular key personnel, the number of stock options already outstanding and overall market conditions. The Compensation Committee views the granting of stock options as a means of promoting the success of the Company and higher returns to its shareholders. The Board grants stock options after reviewing recommendations made by the Compensation Committee.
Stock Option Plan
The Company’s Amended Stock Option Plan (the "Plan"“Plan”) was adopted by the Board of Directors on January 20, 2012 and approved by a majority of our shareholders voting at the Annual and Special Meeting held on February 24, 2012. The Plan was adopted in order that we may be able to provide incentives for directors, officers, employees, consultants and other persons (an "Eligible Individual"“Eligible Individual”) to participate in our growth and development by providing us with the opportunity through share options to acquire an ownership interest in us. Directors and officers currently are not remunerated for their services except as stated in "Executive Compensation"“Executive Compensation” above. The Plan was revised on July 21, 2020.
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The maximum number of shares of our common sharesstock which may be set aside for issue under the Plan is an amount not to exceed 20% of the total shares issued and outstanding of the Company as of the date of each Option grant provided that the board has the right, from time to time, to increase such number subject to the approval of our shareholders and any relevant stock exchange or other regulatory authority. Any shares of our common sharesstock subject to an option, which are not exercised, will be available for subsequent grant under the Plan. The option price of any shares of our common sharesstock is to be determined by the Board in its sole discretion.
Options granted under the Plan may be exercised during a period nonot exceeding five years, subject to earlier termination upon the optionee ceasing to be an Eligible Individual, or, in accordance with the terms of the grant of the option. The options are non-transferable and non-assignable except between an Eligible Individual and a related corporation controlled by such Eligible Individual upon the consent of the Board of Directors. The Plan contains provisions for adjustment in the number of shares issuable there under in the event of subdivision, consolidation, reclassification, reorganization or change in the number of shares of our common shares,stock, a merger or other relevant change in the Company’s capitalization. The Board of Directors may from time to time amend or revise the terms of the Plan or may terminate the Plan at any time. The Company does not have any other long-term incentive plans, including any supplemental executive retirement plans.
Overview of How the Compensation Program Fits with Compensation Goals
The compensation package is designed to meet the goal of attracting, holding and motivating key talent in athe highly competitive oil and gas exploration environmentcannabis industry through salary and providing an opportunity to participate in the Company’s growth through stock options. Through the grant of stock options, if the price of the Company shares increases over time, both the Named Executive Officer and shareholders will benefit.
Incentive Plan Awards
At August
During the transition period ended December 31, 2017,2023, 100,000 stock options were granted to employees and 500,000 stock options were granted to service providers. During the year ended October 31, 2023, 6,800,000 stock options were granted to employees. During the year ended October 31, 2022, the Company has outstanding 2,500granted 605,000 stock options exercisable at $12.00 expiring on November 19, 2019; 60,000 stock options exercisable at $13.00 per share expiring on September 8, 2021; and 70,000 stock options exercisable at $15.00 per share expiring on September 8, 2021 (35,000 vested on September 8, 2017 and 35,000 vest on September 8, 2018) to Named Executive Officers and directors.employees.
Pension Plan Benefits
The Company does not currently provide pension plan benefits to its Named Executive Officers.
Termination and Change of Control Benefits
At AugustDecember 31, 2016,2023, the Company did not havehad one executive employment agreementsagreement in place with any of its Named Executive Officers that includethe Chief Financial Officer, which could be triggered by termination, or a constructive dismissal within six months of a change in control event. If triggered, a payment equal to 50% of control benefits; except that Ritwik Uban, subsequentthe Chief Financial Officer’s compensation for the twelve months prior to the year and, on September 9, 2016, executed an employment agreement that provided for considerationchange in control event would be due within sixty calendar days after the eventeffective date of termination or change of control. (See Exhibit 4.46).the triggering event.
The Company has no compensatory plan contract or arrangement where a named executive officer or director is entitled to receive compensation in the event of resignation, retirement, termination, change of control or a change in responsibilities following a change in control; except that Ritwik Uban, subsequent to the year and, on September 9, 2016, executed an employment agreement that provided for consideration in the event of termination or change of control. (See Exhibit 4.46).
Director Compensation
Each
The Company does not compensate its Board of Directors based on the number of meetings attended. Mr. Gledhill is paid a monthly fee of $1,500. Aggregate compensation paid to each director during the transition period ended December 31, 2023 is included in the Executive Compensation table above. As of the Company is entitled to receive the sumdate of $100 for each meetingthis Report, none of the Company’s directors meeting ofhas a committee of the directors or meeting of the shareholders attended. During the fiscal year ended August 31, 2017, no amount was paid ($3,800 accrued) byservice contract with the Company with respect to such fees.or its subsidiaries providing for benefits upon termination of employment.
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Retirement Policy for Directors
The Company does not have a retirement policy for its directors.
Directors’ and Officers’ Liability Insurance
The Company does not maintain directors’ and officers’ liability insurance.
Pension Plans, Retirement Plans, and Similar Benefits
Neither the Company nor its subsidiaries have set aside or accrued any amounts to provide pension, retirement or similar benefits.
| C. | BOARD PRACTICES |
Board of Directors
The mandate of our Board of Directors, prescribed by the Business Corporations Act (Ontario), is to manage or supervise the management of our business and affairs and to act with a view to our best interests. In doing so, the board oversees the management of our affairs directly and through its committees. The Board of Directors has met at least once annually or otherwise as circumstances warrant to review our business operations, corporate governance and financial results.
Mr. UbanStrickler, Mr. Patel, and Mr. BatraGledhill were appointed as directors on September 9, 2016.November 15, 2018. Mr. CassinaConacher was appointed as a director of ours on February 9, 2010. The term ofAugust 27, 2020 and Mr. KlymanKee was appointed as a director began on August 10, 2000 and ended upon his resignation on September 9, 2016. Mr. Budden who was appointed on December 22, 2015 and resigned on September 9, 2016.18, 2021. Our directors’directors serve until our next Annual General Meeting or until a successor is duly elected, unless the office is vacated in accordance with our Articles or Bylaws. Our chief executive officer, our president and our chief financial officer were appointed by our Board of Directors to serve until the earlier of their resignation or removal, with or without cause by the directors. There was no compensation paid by us to our directors during the fiscal year ended August 31, 2017 for their services in their capacity as directors or any compensation paid to committee members.
As of the date of this Annual Report our Board of Directors consists of threefive directors, onetwo of which none are considered "independent directors"“independent directors” in that they are "independent“independent from management and free from any interest and any business or other relationship which could, or could reasonably be perceived to, materially interfere with the directors ability to act with a view to our best interests, other than interests and relationships arising from their shareholding".shareholding.” It is our practice to attempt to maintain a diversity of professional and personal experience among our directors.
The Company holds meetings as required, at which the opinions of the directors are sought by management and duly acted upon for all material matters relating to the Company.
Directorships
None
At October 31, 2023 and December 31, 2023, the following director and officer of our directors are directorsthe Company also served as a director and/or officer of other Canadian or United States reporting issuers, as follows:
| Stephen Gledhill | CFO and Corporate Secretary of CO2 Gro Inc. (TSXV) | |
| CFO and Corporate Secretary of POSaBIT Systems Corporation (CSE) | ||
| CFO and director of Bhang Inc. (CSE) |
Board and Committee Meetingsof Directors Mandate
The Board of Directors has met at least once annually or otherwise as circumstances warrant to review our business operations, corporate governance and financial results. The table below reflects the attendance of each director of ours at each Board and committee meeting of the Board during the fiscal year ended August 31, 2017.
| Name | Board of Directors Meetings | Audit Committee Meetings | Compensation Committee Meetings | Disclosure Committee Meetings | ||||
| James Cassina | 8 | 3 | 1 | Nil | ||||
| Ritwik Uban | 8 | 3 | 0 | Nil | ||||
| Dikshant Batra | 8 | 3 | 1 | Nil |
Board Mandate
The Board assumes responsibility for stewardship of the Company, including overseeing all of the operation of the business, supervising management and setting milestones for the Company. The Board of Directors reviews the statements of responsibilities for the Company including, but not limited to, the code of ethics and expectations for business conduct.
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The Board of Directors approves all significant decisions that affect the Company and its subsidiaries and sets specific milestones towards which management directs their efforts.
The Board of Directors ensures, at least annually, that there are long-term goals and a strategic planning process in place for the Company and participates with management directly or through its committees in developing and approving the mission of the business of the Company and the strategic plan by which it proposes to achieve its goals, which strategic plan takes into account, among other things, the opportunities and risks of the Company'sCompany’s business. The strategic planning process is carried out at each Board of Directors meeting where there are regularly reviewed specific milestones for the Company.
The strategic planning process incorporates identifying the main risks to the Company'sCompany’s objectives and ensuring that mitigation plans are in place to manage and minimize these risks. The Board also takes responsibility for identifying the principal risks of the Company'sCompany’s business and for ensuring these risks are effectively monitored and mitigated to the extent practicable. The Board appoints senior management.
The Company adheres to regulatory requirements with respect to the timeliness and content of its disclosure. The Board approves all of the Company'sCompany’s major communications, including annual and quarterly reports and press releases. The Chief Executive Officer authorizes the issuance of news releases. The Chief Executive Officer is generally the only individual authorized to communicate with analysts, the news media and investors about information concerning the Company.
The Board and the audit committee of the Company (the "Audit Committee"(the “Audit Committee”)examines the effectiveness of the Company'sCompany’s internal control processes and information systems.
The Board as a whole, given its small size, is involved in developing the Company'sCompany’s approach to corporate governance. The number of scheduled board meetings varies with circumstances. In addition, special meetings are called as necessary. The Chief Executive Officer establishes the agenda at each Board meeting and submits a draft to each director for their review and recommendation for items for inclusion on the agenda. Each director has the ability to raise subjects that are not on the agenda at any board meeting. Meeting agendas and other materials to be reviewed and/or discussed for action by the Board are distributed to directors in time for review prior to each meeting. Board members have full and free access to senior management and employees of the Company.
Position Descriptions
The Board has not developed written position descriptions for the Chairman of the Board, the Chief Executive Officer, Chief Financial Officer or the President (the “Officers”). The Board is currently of the view that the respective corporate governance roles of the Board and management, as represented by the Officers, are clear and that the limits to management'smanagement’s responsibility and authority are well-defined.
Each of the Audit Committee Compensation Committee and DisclosureCompensation Committee has a chair and a mandate.
Orientation and Continuing Education
We have developed an orientation program for new directors including a director’s manual ("(“Director’s Manual"Manual”) which contains information regarding the roles and responsibilities of the board, each board committee, the board chair, the chair of each board committee and our president. The Director’s Manual contains information regarding its organizational structure, governance policies including the Board Mandate and each Board committee charter, and our code of business conduct and ethics. The Director’s Manual is updated as our business, governance documents and policies change. We update and inform the board regarding corporate developments and changes in legal, regulatory and industry requirements affecting us.
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Ethical Business Conduct
We have adopted a written codeCode of business conductBusiness Conduct and ethicsEthics (the "Code"“Code”) for our directors, officers and employees. The board encourages following the Code by making it widely available. It is distributed to directors in the Director’s Manual and to officers, employees and consultants at the commencement of their employment or consultancy. The Code reminds those engaged in service to us that they are required to report perceived or actual violations of the law, violations of our policies, dangers to health, safety and the environment, risks to our property, and accounting or auditing irregularities to the chair of the Audit Committee ..Committee. In addition to requiring directors, officers and employees to abide by the Code, we encourage consultants, service providers and all parties who engage in business with us to contact the chair of the Audit Committee regarding any perceived and all actual breaches by our directors, officers and employees of the Code. The chair of our Audit Committee is responsible for investigating complaints, presenting complaints to the applicable board committee or the board as a whole, and developing a plan for promptly and fairly resolving complaints. Upon conclusion of the investigation and resolution of a complaint, the chair of our Audit Committee will advise the complainant of the corrective action measures that have been taken or advise the complainant that the complaint has not been substantiated. The Code prohibits retaliation by us, our directors and management, against complainants who raise concerns in good faith and requires us to maintain the confidentiality of complainants to the greatest extent practical. Complainants may also submit their concerns anonymously in writing. In addition to the Code, we have an Audit Committee Charter and a Policy of Procedures for Disclosure Concerning Financial/Accounting Irregularities.
Since the beginning of our most recently completed financialfiscal year, no material change reports have been filed that pertain to any conduct of a director or executive officer that constitutes a departure from the Code. The board encourages and promotes a culture of ethical business conduct by appointing directors who demonstrate integrity and high ethical standards in their business dealings and personal affairs.
Directors are required to abide by the Code and expected to make responsible and ethical decisions in discharging their duties, thereby setting an example of the standard to which management and employees should adhere. The board is required by the Board Mandate to satisfy our CEO and other executive officers are acting with integrity and fostering a culture of integrity throughout the Company. The board is responsible for reviewing departures from the Code, reviewing and either providing or denying waivers from the Code, and disclosing any waivers that are granted in accordance with applicable law. In addition, the board is responsible for responding to potential conflict of interest situations, particularly with respect to considering existing or proposed transactions and agreements in respect of which directors or executive officers advise they have a material interest. The Board Mandate requires that directors and executive officers disclose any interest and the extent, no matter how small, of their interest in any transaction or agreement with us, and that directors excuse themselves from both board deliberations and voting in respect of transactions in which they have an interest. By taking these steps the board strives to ensure that directors exercise independent judgment, unclouded by the relationships of the directors and executive officers to each other and us, in considering transactions and agreements in respect of which directors and executive officers have an interest.
Nomination of Directors
The Board has not appointed a nominating committee and does not believe that such a committee is warranted at the present time. The entire Board determines new nominees to the Board, although a formal process has not been adopted. The nominees are generally the result of recruitment efforts by the Board members, including both formal and informal discussions among Board members and officers. The Board generally looks for the nominee to have significant public company experience. The nominee must not have a significant conflicting public company association.
Compensation
The Board determines director and executive officer compensation by recommendation of the Compensation Committee. The Company'sCompany’s Compensation Committee reviews the amounts and effectiveness of compensation. The Board reviews the adequacy and form of compensation and compares it to other companies of similar size and stage of development. There is no minimum share ownership requirement of directors.
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The Compensation Committee generally convenes at least once annually to review director and officer compensation and status of stock options. The Compensation Committee also responds to requests from management and the Board to review recommendations of management for new senior employees and their compensation. The Compensation Committee has the power to approve and/or amend these recommendations.
The Company has felt no need to retain any compensation consultants or advisors at any time since the beginning of the Company'sCompany’s most recently completed financial year.
Committees of the Board
Our Board of Directors discharges its responsibilities directly and through committees of the Board of Directors, currently consisting of the Audit Committee and a compensation committee (the "Compensation Committee"), and a disclosure committee (the "Disclosure Committee"“Compensation Committee”).
Audit Committee
The mandate of the Audit Committee is formalized in a written charter. The members of the Audit Committee are James Cassina, Ritwik UbanJ. Obie Strickler, Abhilash Patel and Dikshant BatraStephen Gledhill (Chair). Based on his professional experience, the board has determined that Dikshant BatraStephen Gledhill is an Audit Committee Financial Expert and that James CassinaJ. Obie Strickler and Ritwik UbanAbhilash Patel are financially literate. The Audit Committee'sCommittee’s primary duties and responsibilities are to serve as an objective party to monitor our financial reporting process and control systems, review and appraise the audit activities of our independent auditors, financial and senior management, and the lines of communication among the independent auditors, financial and senior management, and the Board of Directors for financial reporting and control matters including investigating fraud, illegal acts or conflicts of interest.
Compensation Committee
The mandate of the Compensation Committee is formalized in a written charter. The members of the Compensation Committee are Dikshant BatraJ. Obie Strickler, Abhilash Patel and James Cassina (Chair).Stephen Gledhill. Compensation is determined in the context of our strategic plan, our growth, shareholder returns and other achievements and considered in the context of position descriptions, goals and the performance of each individual director and officer. With respect to directors’ compensation, the Compensation Committee reviews the level and form of compensation received by the directors, members of each committee, the board chair and the chair of each board committee, considering the duties and responsibilities of each director, his or her past service and continuing duties in service to us. The compensation of directors, the CEO, CFO and executive officers of competitors are considered, to the extent publicly available, in determining compensation and the Compensation Committee has the power to engage a compensation consultant or advisor to assist in determining appropriate compensation.
Disclosure Committee
The mandate of the Disclosure Committee is formalized in a written charter. The members of the Disclosure Committee are Dikshant Batra, Ritwik Uban and James Cassina (Chair). The Committee's duties and responsibilities include, but are not limited to, review and revise our controls and other procedures ("Disclosure and Controls Procedures") to ensure that (i) information required by us to be disclosed to the applicable regulatory authorities and other written information that we will disclose to the public is reported accurately and on a timely basis, and (ii) such information is accumulated and communicated to management, as appropriate to allow timely decisions regarding required disclosure; assist in documenting and monitoring the integrity and evaluating the effectiveness of the Disclosure and Control Procedures; the identification and disclosure of material information about us, the accuracy completeness and timeliness of our financial reports and all communications with the investing public are timely, factual and accurate and are conducted in accordance with applicable legal and regulatory requirements.Assessments
Assessments
The boardBoard of Directors assesses, on an annual basis, the contributions of the board as a whole, the Audit Committee and each of the individual directors, in order to determine whether each is functioning effectively. The board monitors the adequacy of information given to directors, communication between the board and management and the strategic direction and processes of the board and committees. The Audit Committee will annually review the Audit Committee Charter and recommend, if any, revisions to the board as necessary.
Relevant Education and Experience of Audit Committee Members
Dikshant Batra, BBA
See Item 6.A – Honours is the ChairmanDirectors and Senior Management for biographies of the Audit Committee. Mr. Batra’s company, Torinit Technologies Inc., is a global technology and development outsourcing firm. Mr. Batra is the founder and major shareholder of Nova Sentio which builds market-centric teams to turnaround struggling value chains and companies into high performing, rapid growth enterprises. Mr. Batra is also the founder of Phoenix 1™ a North American company that is re-inventing a key automotive after care area in developing countries and is the Co-Founder of the Canada Entrepreneur Organization.Committee members.
James Cassina is a consultant in business development, mergers and acquisitions and corporate finance. James Cassina has served as a director and held various executive positions with public companies.52
Mr. Uban, MBA was formerly a director of Uban Media and Construction of New Delhi, India (“Uban Media”) where he managed the business operations of the Canadian investment interests of Uban Media and assessed and analyzed new media opportunities from North America to export to the emerging India market.Mr. Uban was also the former head of operations for an event management Company leading the client sourcing and procurement process and provided clients with a variety of services, including but not limited to, marketing, sales, venue sourcing, external vendor services and event sponsorships.
Audit Committee Charter
| ● | Our Audit Committee Charter (the “Charter”) has been adopted by our Board of Directors. The Audit Committee of the board (the “Committee”) will review and reassess this charter annually and recommend any proposed changes to the board for approval. The Audit Committee’s primary duties and responsibilities are to: |
| ● | Oversee (i) the integrity of our financial statements; (ii) our compliance with legal and regulatory requirements; and (iii) the independent auditors’ qualifications and independence. |
| ● | Serve as an independent and objective party to monitor our financial reporting processes and internal control systems. |
| ● | Review and appraise the audit activities of our independent auditors and the internal auditing functions. |
| ● | Provide open lines of communication among the independent auditors, financial and senior management, and the board for financial reporting and control matters. |
Role and Independence: Organization
The Committee assists the boardBoard of Directors on fulfilling its responsibility for oversight of the quality and integrity of our accounting, auditing, internal control and financial reporting practices. It may also have such other duties as may from time to time be assigned to it by the board.
The Audit Committee is to be comprised of at least three directors. .
All members shall, to the satisfaction of the board,Board of Directors, be financially literate (i.e. will have the ability to read and understand a balance sheet, an income statement, a cash flow statement and the notes attached thereto), and at least one member shall have accounting or related financial management expertise to qualify as “financially sophisticated”. A person will qualify as “financially sophisticated” if an individual who possesses the following attributes:
| ● | an understanding of financial statements and generally accepted accounting principles; |
| ● | an ability to assess the general application of such principles in connection with the accounting for estimates, accruals and reserves; |
| ● | experience preparing, auditing, analyzing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by our financial statements, or experience actively supervising one or more persons engaged in such activities; |
| ● | an understanding of internal controls and procedures for financial reporting; and |
The Board has determined that Dikshant Batra is an “audit committee financial expert” as defined in Item 401(h) of Regulation S-K promulgated by the Securities and Exchange Commission.
| ● | an understanding of audit committee functions. |
The Committee members will be elected annually at the first meeting of the Board following the annual meeting of shareholders. Each member of the Committee serves duringat the pleasure of the Board and, in any event, only so long as he or she is a director.
One member of the Committee shall be appointed as chair. The chair shall be responsible for leadership of the Committee, including scheduling and presiding over meetings and making regular reports to the Board. The chair will also maintain regular liaison with the CEO, CFO, President and the lead independent audit partner.
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Responsibilities and Powers
Although the Committee may wish to consider other duties from time to time, the general recurring activities of the Committee in carrying out its oversight role are described below.
| Annual review and revision of the Charter as necessary with the approval of the board. |
| Review and obtain from the independent auditors annually a formal written statement delineating all relationships between the auditor and us, consistent with Independence Standards Board Standard 1. |
| Recommending to the board the independent auditors to be retained (or nominated for shareholder approval) to audit our financial statements. Such auditors are ultimately accountable to the board and the Committee, as representatives of the shareholders. |
| ● | Evaluating, together with the board and management, the performance of the independent auditors and, where appropriate, replacing such auditors. |
| ● | Ensuring that the independent auditors are prohibited from providing the following non-audit services and determining which other non-audit services the independent auditors are prohibited from providing: |
| Bookkeeping or other services related to our accounting records or consolidated financial statements; |
| Financial information systems design and implementation; |
| Appraisal or valuation services, fairness opinions, or contribution-in-kind reports; |
| Actuarial services; |
| Internal audit outsourcing services; |
| Management functions or human resources; |
| Broker or dealer, investment advisor or investment banking services; |
| Legal services and expert services unrelated to the audit; and |
| Any other services which the Public Company Accounting Oversight Board determines to be impermissible. |
| Approving any permissible non-audit engagements of the independent auditors. |
| Meeting with our auditors and management to review the scope of the proposed audit for the current year, and the audit procedures to be used, and to approve audit fees. |
| Reviewing the audited consolidated financial statements and discussing them with management and the independent auditors. Consideration of the quality of our accounting principles as applied in its financial reporting. Based on such review, the Committee shall make its recommendation to the Board as to the inclusion of our audited consolidated financial statement in our |
| Discussing with management and the independent auditors the quality and adequacy of and compliance with our internal controls. |
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| Establishing procedures: (i) for receiving, handling and retaining of complaints received by us regarding accounting, internal controls, or auditing matters, and (ii) for employees to submit confidential anonymous concerns regarding questionable accounting or auditing matters. |
| Review and discuss all related party transactions involving us. |
| Engaging independent counsel and other advisors if the Committee determines that such advisors are necessary to assist the Committee in carrying out its duties. |
| Publicly disclose the receipt of warning about any violations of corporate governance rules. |
Authority
The Committee will have the authority to retain special legal, accounting or other experts for advice, consultation or special investigation. The Committee may request any officer or employee of ours, our outside legal counsel, or the independent auditor to attend a meeting of the Committee, or to meet with any member of, or consultants to, the Committee. The Committee will have full access to our books, records and facilities.
Meetings
The Committee shall meet at least yearly, or more frequently as the Committee considers necessary. Opportunities should be afforded periodically to the external auditor and to senior management to meet separately with the independent members of the Committee. Meetings may be with representatives of the independent auditors, and appropriate members of management, all either individually or collectively as may be required by the Chairman of the Committee.
The independent auditors will have direct access to the Committee at their own initiative.
The Chairman of the Committee will report periodically the Committee’s findings and recommendations to the Board of Directors.
| D. | EMPLOYEES |
As of AugustDecember 31, 2017,2023, we had two138 employees our presidentcompared to 204 and chief financial officer at the date181 employees as of the filing of this Annual Report we had two employees including our chief financial officerOctober 31, 2023 and our president.2022, respectively.
| E. | SHARE OWNERSHIP |
OurShares of our common sharesstock are owned by Canadian residents, United StatesU.S. residents and residents of other countries. The only class of our securities, which is outstanding as of the date of the filing of this Annual Report, is common stock. All holders of shares of our common stock have the same voting rights with respect to their ownership of shares of our common stock.
The following table sets forth as of November 30, 2017,April 29, 2024, certain information with respect to the amount and nature of beneficial ownership of theshares of our common stock held by (i) each person known to our management to be the beneficial owner of more than 5% of our outstanding shares of common stock; (ii) each person who is a director or an executive officer of ours; and (iii)(ii) all directors and executive officers of ours, as a group. Shares of our common stock subject to options, warrants, or convertible securities currently exercisable or convertible or exercisable or convertible within 60 days of the date of filing of this Annual Report are deemed outstanding for computing the share ownership and percentage of the person holding such options, warrants, or convertible securities but are not deemed outstanding for computing the percentage of any other person.
| Name and Owner | Identity | Amount and Nature of Beneficial Ownership of Common Stock (1) | Note | Percentage | ||||||||
| Dikshant Batra | Director | 30,000 | (2) | 0.56 | % | |||||||
| James Cassina | Officer/Director and Principal Shareholder | 1,028,245 | (3) | 19.41 | % | |||||||
| Core Energy Enterprise Inc.(4) | Principal Shareholder | 855,238 | (4) (5) | 16.19 | % | |||||||
| Ritwik Uban | Officer/Director | 65,000 | (6) | 1.22 | % | |||||||
| All officers and directors as a group (2 persons) | 1,112,245 | (2) (3) (5) (6) (7) | 21.19 | % | ||||||||
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| Name and Owner | Identity | Amount and | Percentage | ||||||||
| J. Obie Strickler | President, Chief Executive Officer and Director | 34,194,416 | (2) | 16.42 | % | ||||||
| Ryan Kee | Chief Financial Officer and Director | 97,500 | (3) | 0.05 | % | ||||||
| Adam August | Senior VP, Grown Rogue Unlimited LLC | 5,256,451 | (4) | 2.52 | % | ||||||
| Abhilash Patel | Officer/Director | 754,971 | 0.36 | % | |||||||
| Stephen Gledhill | Director | 44,386 | 0.02 | % | |||||||
| Sean Conacher | Director | 485,000 | 0.23 | % | |||||||
| All officers and directors as a group (6 persons) | 40,832,724 | 19.61 | % | ||||||||
| (1) | Unless otherwise indicated, the persons named have sole ownership, voting and investment power with respect to their stock, subject to applicable laws relative to rights of spouses. Percentage ownership is based on | |
| (2) | Mr. Strickler beneficially owns options to acquire 1,500,000 common shares at an exercise price of CAD$0.15 per common share, in which the options expire on January 10, 2027. |
| (3) | Mr. Kee owns options to acquire 1,000,000 common shares at an exercise price of CAD$0.15 per common share, in which 250,000 of these options expire on July 9, 2024, and the remaining 750,000 expire on January 10, 2027. |
| (4) | Mr. August exercised his options to acquire 1,500,000 common shares at an exercise price of CAD$0.15 per common share, in which 750,000 of these options expire on July 9, 2024, and the remaining 750,000 expire on January 10, 2027. Mr. August acquired convertible debentures with a principal amount of $50,000 with a maturity date of |
As of the date of the filing of this Annual Report, to the knowledge of our management, there are no arrangements which, could at a subsequent date result in a change in control of us. As of such date, and except as disclosed herein, our management has no knowledge that we are owned or controlled directly or indirectly by another company or any foreign government.
| F. | DISCLOSURE OF REGISTRANT’S ACTION TO RECOVER ERRONEOUSLY AWARDED COMPENSATION |
Not applicable.
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| ITEM 7 | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
| A. | MAJOR SHAREHOLDERS |
There are 5,283,164were 208,250,743 issued and outstanding shares of our common stock as of November 30, 2017.April 29, 2024. As of November 30, 2017,April 29, 2024, to the best of our knowledge, noMr. Strickler, Bengal Catalyst Fund, LP and Aaron Edelheit were the only persons holdwho held directly or indirectly or exerciseexercised control or direction over, shares of our common stock carrying 5% or more of the voting rights attached to all issued and outstanding shares of the common stock except as stated under Item 6.E above or set out in the table below. The shares of our common stock, owned by our major shareholders have identical voting rights as those owned by our other shareholders.
| Name | Amount and Nature of Beneficial Ownership of Common Stock | Note | Percentage | |||||||
| James Cassina | 1,028,245 | (1) | 19.41 | % | ||||||
| Core Energy Enterprise Inc.(2) | 855,238 | (2) (3) | 16.19 | % | ||||||
| CEDE & Co | 625,776 | (4) | 13.14 | % | ||||||
| CDS & Co | 693,968 | (4) | 11.84 | % | ||||||
| NBCN in Trust for Son-Dau Holdings Inc. | 366,450 | 6.94 | % | |||||||
| Plethora Industries Inc. | 483,664 | 9.15 | % | |||||||
| Touchstone Advisors Inc. | 469,846 | 8.89 | % | |||||||
| Plutonaster Isadella Holdings, LLC | 483,663 | 9.15 | % | |||||||
| Name | Amount and Nature of Beneficial Ownership of Common Stock | Note | Percentage | ||||||||
| J. Obie Strickler | 34,194,416 | 1 | 16.42 | % | |||||||
| Bengal Catalyst Fund, LP | 24,365,000 | 2 | 11.70 | % | |||||||
| Aaron Edelheit | 26,258,303 | 3 | 12.61 | % | |||||||
| (1) | ||
| (2) | During the years ended October 31, 2023 and |
| (3) |
The following table discloses the geographic distributionBased on a review of the majorityinformation provided to us by our transfer agent, as of theApril 29, 2024, there were 1,170 registered holders of record of our common stockshares, of which 79, holding approximately 13% of our common shares, had a registered addresses in the United States. These numbers are not representative of the number of beneficial holders of our common shares nor are they representative of where such beneficial holders reside, since many of these common shares were held of record by brokers or other nominees (including The Canadian Depository for Securities), which held approximately 66% of our outstanding common shares as of date of November 30, 2017.such date.
| Country | Number of Shareholders | Number of Shares | Percentage of Shareholders | Percentage of Shares | ||||||||||||
| Canada | 1,079 | 1,359,027 | 93.91 | % | 25.72 | % | ||||||||||
| USA | 46 | 2,078,891 | 0.040 | % | 39.35 | % | ||||||||||
| All Other | 24 | 1,845,246 | 0.020 | % | 34.93 | % | ||||||||||
| Total | 1,149 | 5,283,164 | 100.00 | % | 100.00 | % | ||||||||||
We are not directly or indirectly owned or controlled by another corporation, by any foreign government or by any other natural or legal person. There are no arrangements known to us, the operation of which may at a subsequent date result in a change in the control of us.
| B. | RELATED PARTY TRANSACTIONS |
Except as disclosed below, there are no existing or potential material conflicts of interest between the Company or a subsidiary of the Company and a director or officer of the Company or a subsidiary of the Company.
Property and Equipment Leases
J. Obie Strickler, CEO, owns the Trails End Property that is one of the facility properties leased to GRUP. Beginning with the 2019 outdoor harvest and through December 31, 2021, 2.5% of gross sales achieved from this property were payable in cash to Mr. Strickler. During the transition period ended December 31, 2023, rent charged was $12,000 (years ended October 31, 2023, and 2022 - $72,000 and $72,000, respectively). The lease liability for Trails End at December 31, 2023, was $129,401 (October 31, 2023 - $139,014; October 31, 2022 - $193,312).
J. Obie Strickler, our CEO, beneficially owns the Lars Property which was leased to GR Gardens during the year ended October 31, 2021, and is located in Medford, Oregon with a term through June 30, 2026. Lease charges of $31,827 were incurred for the transition period ended December 31, 2023 (years ended October 31, 2023 - $190,035; October 31, 2022 - $184,500). The lease liability for Lars at December 31, 2023, was $470,134 (October 31, 2023 - $470,134; October 31, 2022 - $607,900).
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During the year ended October 31, 2021, Mr. Strickler leased two pieces of mobile equipment to the Company. During the year ended October 31, 2023, total aggregate payments of $9,971 were made (October 31, 2022 - $28,871). Both leases were fully paid as at October 31, 2023 and at the end of the transition period on December 31, 2023.
Through its subsidiary, Golden Harvests, the Company leased Morton, owned by David Pleitner, the Company’s Michigan General Manager (“GM”). Morton is located in Michigan, with a lease term through January 2026. Lease charges of $32,000 (years ended October 31, 2023 - $180,000; October 31, 2022 - $152,000) were incurred during the transition period ended December 31, 2023. The lease liability of Morton at December 31, 2023 was $350,668 (October 31, 2023 - $377,043; October 31, 2022 - $428,476).
Through its subsidiary, Golden Harvests, the Company also leased Morton Annex located in Michigan, which is owned by David Pleitner, the Company’s GM. The lease term was extended during the transition period ended December 31, 2023, through November 2024. Lease charges of $330,000 (years ended October 31, 2023 - $740,000’ October 31, 2022 - $330,000) were incurred during the transition period ended December 31, 2023. The lease liability of Morton Annex at December 31, 2023, was $239,871 (October 31, 2023 - $29,774; October 31, 2022 - $211,991).
Financing Transactions
On February 5, 2021, the Company completed the February 2021 Private Placement 2nd Tranche, comprised of 8,200,000 units (the “Units”) at CAD$0.16 per Unit for proceeds of CAD$1,312,000 (U.S.$1,025,000). Each Unit was comprised of one common share and one warrant to purchase one common share. Each warrant has an exercise price of CAD$0.20 and a term of two years. Related party subscribers include the following: J. Obie Strickler, our CEO, subscribed to 1,600,000 Units; Ryan Kee, CFO of GR Unlimited, subscribed to 2,000,000 Units; a key Company operations manager subscribed to 1,000,000 Units; and PBIC subscribed to 2,000,000 Units.
On March 5, 2021, PBIC invested an aggregate total of $394,546 in the March 5, 2021, Special Warrant offering, for which PBIC received 2,444,444 common shares and 2,444,444 warrants to purchase common shares. Each warrant is exercisable at CAD$0.30 for a period of two years.
On December 9, 2021, the Company announced that it had closed the December 2021 Private Placement for total gross proceeds of $1,300,000 (CAD$1,645,800). The Private Placement resulted in the issuance of 13,166,400 common shares of Grown Rogue at a purchase price of CAD$0.125 per share. All common shares issued pursuant to the Private Placement were subject to a hold period of four months and one day. J. Obie Strickler, our CEO, invested USD$300,000 in the Private Placement and received 3,038,400 common shares of the Company, and Bengal Catalyst Fund, LP, invested USD$1,000,000 and received 10,128,000 common shares of the Company.
On December 5, 2022, the Company announced that it had closed the December Convertible Debentures with an aggregate principal amount of $2,000,000. They bear interest at 9% per year, paid quarterly, and mature thirty-six months from the date of issue. The December Convertible Debentures are convertible into common shares of the Company at a conversion price of CAD$0.20 CAD per common share. Additionally, on closing, the Company issued to the purchasers of the December Convertible Debentures, an aggregate of 6,716,499 December Warrants, that represent 50% coverage of each debenture investment. The Warrants are exercisable for a period of three years from issuance into common shares at an exercise price of CAD$0.25 per common share. The Company has the right to accelerate the warrants if the closing share price of the common shares on the CSE is CAD$0.40 or higher for a period of ten consecutive trading days. Adam August, the Senior VP of GR Unlimited, purchased December Convertible Debentures with a principal balance of $50,000 and was issued 167,912 December Warrants.
The following transactions with individuals related to the Company which arose in the normal course of business have been accounted for at the amount agreed to by the related parties.
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Compensation of Key Management Personnel
The remuneration of directors and other members of key management personnel during the periods set out were as follows:
| August 31, 2017 | August 31, 2016 | August 31, 2015 | ||||||||||
| Short term employee benefits (1) (2) | $ | 129,981 | $ | 60,000 | $ | 150,000 | ||||||
| Stock based compensation (3) | 1,614,605 | 615,924 | 84,520 | |||||||||
| $ | 1,734,586 | $ | 675,924 | $ | 234,520 | |||||||
| December 31, 2023 | October 31, 2023 | October 31, 2022 | ||||||||||
| Short term employee benefits | $ | 240,105 | $ | 880,195 | $ | 1,118,694 | ||||||
| Equity-based compensation | 32,894 | 161,422 | 33,125 | |||||||||
| $ | 272,999 | $ | 1,041,617 | $ | 1,151,819 | |||||||
The following balances owing to the President and Chief Financial Officer of the Companykey management personnel which are included in trade and other payables and are unsecured, non-interest bearing and due on demand:
| August 31, 2017 | August 31, 2016 | |||||||
| Short term employee benefits payable (1)(2) | $ | 101,500 | $ | 40,000 | ||||
| $ | 101,500 | $ | 40,000 | |||||
| December 31, 2023 | October 31, 2023 | October 31, 2022 | ||||||||||
| Short term employee benefits and reimbursables payable to key managers | $ | 65,160 | $ | 102,798 | $ | 136,588 | ||||||
| Lease liabilities | 1,165,648 | 1,015,965 | 1,451,112 | |||||||||
| Total | $ | 1,230,808 | $ | 1,118,763 | $ | 1,587,700 | ||||||
On September 1, 2016,During the transition period ended December 31, 2023, the Company entered into an agreementincurred compensation expense of $24,039 (years ended October 31, 2023 - $98,846; October 31, 2022 - $60,000), for employment services from the spouse of the CEO (“Ms. Strickler”).
During the transition period ended December 31, 2023, no options were granted to key management personnel. During the year ended October 31, 2023, 1,500,000 options were granted to J. Obie Strickler, our CEO; 750,000 options were granted to Ryan Kee, our CFO; 750,000 options were granted to Adam August, the Senior VP; and 175,000 options to David Pleitner, the GM. During the year ended October 31, 2022, no options to purchase common shares were granted to key management personnel.
During the year ended October 31, 2023, 1,250,000 options were granted to three members of the Board of Directors.
During the year ended October 31, 2023, the SVP purchased December 2022 Convertible Debentures with a periodprincipal balance of 12 months with Torinit Technologies Inc., (“Torinit”)$50,000 and was issued 167,912 December Warrants.
During the year ended October 31, 2023, the Company issued 200,000 shares to provide dedicated resource augmentation to DoubleTap in an effort to optimize user experience while navigating through thehttp://DoubleTap.co website and drive traffic growth by engaging users across all demographics (the “Torinit Services”). As GM, which represented a portion of consideration for the Torinit Services, the Company agreed to compensate Torinit the sumacquisition of $8,000 per month based on 320 hours per month for a 12 month period. Dikshant Batra, a director of the Company, is also the President, a director and major shareholder of Torinit. As at August 31, 2017, included in trade and other payables is $23,961 due to Torinit.Golden Harvests.
As at AugustCompensation to Board of Directors during the transition period ended December 31, 2017, the amount2023, was $3,000 (years ended October 31, 2023 - $18,000; October 31, 2022 – fees of directors’ fees included in trade$18,000 and other payables was $10,200 (August 31, 2016: $7,100). On February 29, 2016, Mr. Klyman, a former director of the Company agreed to convert outstanding directors’ fees due to him of $7,400 into 2,467 units of the Company.
As at August 31, 2017 and 2016, the Company had a promissory note payable to the former President of the Company of $Nil. For the year ended August 31, 2016, the Company recorded interest on the promissory note of $496 (August 31, 2015: $838). On February 26, 2016, the former President assigned the promissory note of $10,000 and all accumulated interest due in the amount of $113,844 to an arms-length third party. The note was due on demand with interest at a rate of 10% per annum. Effective November 18, 2015, the Company issued to the former President 114,009 Units in the capital of the Company pursuant to the anti-dilution provision contained in the August 30, 2014, debt conversion agreements. On February 29, 2016, the former President converted $38,239 in outstanding debt into 12,746 units in the capital of the Company.
Effective November 18, 2015, the Company entered into a shares for debt conversion agreement and converted a note and interest payable to Core Energy Enterprises Inc. (“Core”) in the aggregate amount of $362,793 through the issuance of 274,243273,750 common shares in the capital of the Company. Thewith a fair value of the common shares $1,830,983 was recorded as an increase to common shares and $1,468,190 was recorded as a loss on settlement of debt in the statement of operations. The CFO of the Company is a major shareholder, officer and a director of Core.
Inter-Company Balances
As at August 31, 2017, the inter-company balance due from our wholly owned subsidiary DoubleTap was $314,181. As at August 31, 2017, the inter-company balance due from our wholly owned subsidiary ICE Studio was $177,186. As of November 30, 2017, the inter-company balance due from DoubleTap was $314,768 and the amount due from ICE Studio was $177,186.$20,562).
| C. | INTERESTS OF EXPERTS AND COUNSEL |
Not Applicable. This Form 20-F is being filed as an Annual Report under the Exchange Act.
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| ITEM 8 | FINANCIAL INFORMATION |
| A. | CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION |
The Company'sCompany’s Audited Consolidated Financial Statements for the transition period ended December 31, 2023, and the fiscal years ended AugustOctober 31, 20172023, 2022, and 20162021, and the notes thereto required as part of this AnnualTransition Report are filed under Item 18 of this Annual Report.
Litigation
There isare no pending legal proceedings to which we or our subsidiaries are a party or of which any of our property or assets is the subject. There are no legal proceedings to which any of the directors, officers or affiliates or any associate of any such directors, officers or affiliates of either our company or our subsidiary is a party or has a material interest adverse to us.
Dividends
We have not paid any dividends on our common stock during the past five years. We do not intend to pay dividends on shares of our common stock in the foreseeable future as we anticipate that our cash resources will be used to finance growth.
| B. | SIGNIFICANT CHANGES |
There have been no significant changes that have occurred since the date of our annual financial statements included with this AnnualTransition Report except as disclosed in the Annualthis Transition Report.
| ITEM 9 | THE OFFER AND LISTING |
Common Shares
Our authorized capital consists of an unlimited number of shares of our common sharesstock without par value, of which 5,283,164182,005,886 were issued and outstanding as of November 30, 2017.December 31, 2023. All shares are initially issued in registered form. There are no restrictions on the transferability of shares of our common sharesstock imposed by our Articles of Amalgamation. Holders of shares of our common sharesstock are entitled to one vote for each common share held of record on all matters to be acted upon by our shareholders. Holders of shares of our common sharesstock are entitled to receive such dividends as may be declared from time to time by our Board of Directors, in their discretion. In addition, we are authorized to issue an unlimited number of preferred shares, issuable in series with such rights, preferences and privileges as may be determined from time to time by our Board of Directors and consistent with our Articles of Amendment of which Nil preferred shares were issued and outstanding at November 30, 2017.December 31, 2023.
OurShares of our common sharesstock entitle their holders to: (i) vote at all meetings of our shareholders except meetings at which only holders of specified classes of shares are entitled to vote, having one vote per common share, (ii) receive dividends at the discretion of our Board of Directors; and (iii) receive our remaining property on liquidation, dissolution or winding up.
| A. | OFFER AND LISTING DETAILS |
Our common stock became eligibleis quoted for trading on October 22, 2009 on the Over the Counter Bulletin Board ("OTCBB") under the symbol (“EGNKF”). Following the amalgamation on November 30, 2009 with our wholly owned subsidiary 1406768 Ontario, we changed our name to Eagleford Energy Inc. and commenced trading under the symbol (“EFRDF”). Prior to our common stock being included on the OTC Markets our common stock had not publicly traded in the United States. We completed a 2-for-1 forward stock split, pursuant to which one (1) newly-issued share of the Company’s common stock was issued to each holder of a share of common stock as of the close of business on March 16, 2012. On August 31, 2014 we completed a 1-for-10 stock consolidation and following commenced trading under the symbol (“EGFDF”). On February 1, 2016, we changed our name to Intelligent Content Enterprises Inc.“GRUSF” and completed a 1-for-10 stock consolidation and following commenced trading on the OTCQB under the symbol (“ICEIF”). On May 26, 2017, we changed our name from Intelligent Content Enterprises Inc., to Novicuis Corp., and completed a 1-for-10 stock consolidation and following commenced trading on the OTCQB under the symbol (“NVSIF”)
On November 18, 2016, our common shares commenced trading on the Canadian Securities Exchange (“CSE”), under the symbol “ISP”. On May 26, 2017, we changed our name from Intelligent Content Enterprises Inc., to Novicuis Corp., and completed a 1-for-10 stock consolidation and following commenced tradinglisted on the CSE, under the symbol (“NVS”)“GRIN”.
The following table set forth During the reported high and low bid pricespast three years, there have been two suspensions of trading for sharesfailure to timely file financial reports: trading of our common stock ceased over the OTC Markets in March 2020 and the CSE ceased trading of our common stock in March 2020, both associated with the same filing delay. On March 24, 2020, the Company rectified the default situation that gave rise to the suspension of trading, and trading on the OTCQB in US dollars forCSE and OTC Markets resumed. The SEC amendments to Rule 15c2-11 went into effect September 28, 2021, and on that date, quotations on the periods indicated.OTC Markets were no longer publishable due to lack of current information about the Company. Quotations on the OTC Markets resumed after the filing of delinquent disclosures.
| Period | High (2) | Low(2) | ||||||||
| Fiscal Year August 31, 2017 | Year Ended August 31, 2017 | $ | 10.90 | $ | 0.003 | |||||
| Fiscal Year August 31, 2016 | Year Ended August 31, 2016 | $ | 24.70 | $ | 4.00 | |||||
| Fiscal Year August 31, 2015 | Year Ended August 31, 2015 | $ | 40.00 | $ | 1.00 | |||||
| Fiscal Year August 31, 2014 | Year Ended August 31, 2014 | $ | 100.00 | $ | 20.00 | |||||
| Fiscal Year August 31, 2013 | Year Ended August 31, 2013 | $ | 400.00 | $ | 10.00 | |||||
| Fiscal Year 2018 by Quarter | First Quarter ended 11/30/2017 | $ | 0.13 | $ | 0.03 | |||||
| Fiscal Year 2016 by Quarter | First Quarter ended 11/30/2016 | $ | 10.90 | $ | 3.20 | |||||
| Second Quarter Ended 02/29/2017 | $ | 4.90 | $ | 0.80 | ||||||
| Third Quarter Ended 05/31/2017 | $ | 0.84 | $ | 0.51 | ||||||
| Fourth Quarter Ended 08/31/2017 | $ | 0.25 | $ | 0.003 | ||||||
| Calendar Year 2017 by Month | June | $ | 0.75 | $ | 0.06 | |||||
| July | $ | 0.10 | $ | 0.03 | ||||||
| August | $ | 0.13 | $ | 0.09 | ||||||
| September | $ | 0.13 | $ | 0.13 | ||||||
| October | $ | 0.13 | $ | 0.06 | ||||||
| November | $ | 0.12 | $ | 0.03 | ||||||
Notes.
There is currently only a limited public market for the common stock in the United States. There can be no assurance that a more activemarket will develop in the future.
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| B. | PLAN OF DISTRIBUTION |
Not Applicable. This Form 20-F is being filed as an Annual Report under the Exchange Act.
| C. | MARKETS |
See Item 9.A.
| D. | SELLING SHAREHOLDERS |
Not Applicable. This Form 20-F is being filed as an Annual Report under the Exchange Act.
| E. | DILUTION |
Not Applicable. This Form 20-F is being filed as an Annual Report under the Exchange Act.
| F. | EXPENSES OF THE ISSUE |
Not Applicable. This Form 20-F is being filed as an Annual Report under the Exchange Act.
| ITEM 10 | ADDITIONAL INFORMATION |
| A. | SHARE CAPITAL |
Not Applicable. This Form 20-F is being filed as an Annual Report under the Exchange Act.applicable.
| B. | MEMORANDUM AND ARTICLES OF ASSOCIATION |
Certificate of Incorporation
We were incorporated under the Business Corporations Act (Ontario) on September 22, 1978 under the name Bonanza Red Lake Explorations Inc. The corporation number as assigned by Ontario is 396323.
Articles of Amendment dated January 14, 1985
By Articles of Amendment dated January 14, 1985, our Articles wereCertificate of Incorporation (as amended, the “Articles”) was amended as follows:
1. The minimum number of directors of the Company shall be 3 and the maximum number of directors of the Company shall be 10.
| 1. | The minimum number of directors of the Company shall be 3 and the maximum number of directors of the Company shall be 10. |
2. (a) Delete the existing objects clauses and provide that there are no restrictions on the business we may carry on or on the powers that we may exercise;
| 2. | (a) | Delete the existing objects clauses and provide that there are no restrictions on the business we may carry on or on the powers that we may exercise; |
(b) Delete the term "head office" where it appears in the articles and substitute therefor the term "registered office";
| (b) | Delete the term “head office” where it appears in the Articles and substitute therefor the term “registered office”; |
(c) Delete the existing special provisions contained in the articles and substitute therefor the following:
| (c) | Delete the existing special provisions contained in the Articles and substitute therefor the following: |
The following special provisions shall be applicable to the Company:
Subject to the provisions of the Business Corporations Act, as amended or re-enacted from time to time, the directors may, without authorization of the shareholders:
| (i) | borrow money on the credit of the Company; |
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| (ii) | issue, re-issue, sell or pledge debt obligations of the Company; |
| (iii) | give a guarantee on behalf of the Company to secure performance of an obligation of any person; |
| (iv) | mortgage, hypothecate, pledge or otherwise create a security interest in all or any property of the Company owned or subsequently acquired, to secure any obligation of the Company; and |
| (v) | by resolution, delegate any or all such powers to a director, a committee of directors or an officer of the Company. |
3. (a) Provide that the Company is authorized to issue an unlimited number of shares;
| 3. | (a) | Provide that the Company is authorized to issue an unlimited number of shares; |
(b) Provide that the Company is authorized to issue an unlimited number of preference shares.
| Provide that the Company is authorized to issue an unlimited number of preference shares. |
Articles of Amendment dated August 16, 2000
By Articles of Amendment dated August 16, 2000, our articlesArticles were amended to consolidate our issued and outstanding shares of our common sharesstock on the basis on one common share for every three issued and outstanding shares of our common shares in our capital,stock, and change our name from Bonanza Red Lake Explorations Inc. to Eugenic Corp.
Our Articles of Amendment state that there are no restrictions on the business that may carry on, but do not contain a stated purpose or objective.
Articles of Amalgamation dated November 30, 2009
By Articles of Amalgamation dated November 30, 2009, we amalgamated with our wholly owned subsidiary Eagleford Energy Inc., (formerly: 1406768 Ontario Inc.), and changed the entity’s name to Eagleford Energy Inc.
Our Articles of Amalgamation state that there are no restrictions on the business that may carry on or on the powers the Company may exercise.
We are authorized to issue an unlimited number of shares of our common sharesstock and an unlimited number of preference shares of which Nil were outstanding as of the date of this Annual Report (the “Preference Shares”).
A description of the rights, preferences and privileges relating to the Company'sCompany’s Preference Shares is as follows:
(a)
| (a) | Our Preference Shares have a par value of one-tenth of one cent (1/10) and are redeemable, voting, non-participating shares. |
| (b) | No dividends at any time shall be declared, set aside or paid on our Preference Shares. |
| (c) | In the event of a liquidation, dissolution or winding of the Company or other distribution of assets or property of the Company among shareholders for the purpose of winding up its affairs, the holders of the Preference Shares shall be entitled to receive from the assets and property of the Company a sum equivalent to the aggregate par value of the Preference Shares held by them respectively before any amount shall be paid or any property or assets of the Company distributed to holders of any shares of our common stock or shares of any other class ranking junior to the Preference Shares. After payment to the holders of the Preference Shares of the amount so payable to them as above provided, they shall not be entitled to share in any further distribution of the assets or property of the Company. |
| (d) | The Company may not redeem the Preference Shares prior to the expiration of five years from the respective dates of issuance thereof, without the prior consent of the holders of the Preference Shares to be redeemed. The Company shall redeem all of the then outstanding Preference Shares five years from the respective dates of issue. |
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(b) No dividends at any time shall be declared, set aside or paid on our Preference Shares.
| (e) | The Company may at any time or times purchase for cancellation all or any part of the Preference Shares outstanding from time to time from the holders thereof, at a price not exceeding the par value thereof, with the consent of the holders thereof. |
(c) In the event of a liquidation, dissolution or winding of the Company or other distribution of assets or property of the Company among shareholders for the purpose of winding up its affairs, the holders of the Preference Shares shall be entitled to received from the assets and property of the Company a sum equivalent to the aggregate par value of the Preference Shares held by them respectively before any amount shall be paid or any property or assets of the Company distributed to holders of any common shares or shares of any other class ranking junior to the Preference Shares. After payment to the holders of the Preference Shares of the amount so payable to them as above provided, they shall not be entitled to share in any further distribution of the assets or property of the Company.
(d) The Company may not redeem the Preference Shares prior to the expiration of five years from the respective dates of issuance thereof, without the prior consent of the holders of the Preference Shares to be redeemed. The Company shall redeem all of the then outstanding Preference Shares five years from the respective dates of issue
(e) The Company may at any time or times purchase for cancellation all or any part of the Preference Shares outstanding from time to time from the holders thereof, at a price not exceeding the par value thereof, with the consent of the holders thereof.
(f) The holders of the Preference Shares shall be entitled to receive notice of and attend all meetings of shareholders of the Company and shall have one (1) vote for each Preference Share held at all meetings of the shareholders of the Company.
| (f) | The holders of the Preference Shares shall be entitled to receive notice of and attend all meetings of shareholders of the Company and shall have one (1) vote for each Preference Share held at all meetings of the shareholders of the Company. |
Other Provisions
The following special provisions shall be applicable to the Company:
Subject to the provisions of the Business Corporations Act, as amended or re-enacted from time to time, the directors may, without authorization of the shareholders:
(i) borrow money on the credit of the Company;
(ii) issue, re-issue, sell or pledge debt obligations of the Company;
(iii) give a guarantee on behalf of the Company to secure performance of an obligation of any person;
(iv) mortgage, hypothecate, pledge or otherwise create a security interest in all or any property of the Company owned or subsequently acquired, to secure any obligation of the Company; and
| borrow money on the credit of the Company; |
| (ii) | issue, re-issue, sell or pledge debt obligations of the Company; |
| (iii) | give a guarantee on behalf of the Company to secure performance of an obligation of any person; |
| (iv) | mortgage, hypothecate, pledge or otherwise create a security interest in all or any property of the Company owned or subsequently acquired, to secure any obligation of the Company; and |
(v) by resolution, delegate any or all such powers to a director, a committee of directors or an officer of the Company.
| (v) | by resolution, delegate any or all such powers to a director, a committee of directors or an officer of the Company. |
Articles of Amendment dated effective March 16, 2012
By Articles of Amendment dated effective March 16, 2012, our articlesArticles were amendedamended:
| a) | To change each issued and outstanding common share in the capital of the Company into two (2) common share of the Company (the “Stock Split”) effective as of the close of business on March 16, 2012; and |
| b) | To provide that no fractional shares shall be issued as a result of the Stock Split, and if any fractional share would otherwise result from the Stock Split, such fractional share shall be rounded up to the nearest whole share and distributed to the holder of the fractional interest as his or her interest appears. |
Articles of Amendment dated effective November 1, 2018
a) To change each issued and outstanding common share in the capital of the Corporation into two (2) common share of the Corporation (the "Stock Split") effective as of the close of business on March 16, 2012; and
b) To provide that no fractional shares shall be issued as a result of the Stock Split, and if any fractional share would otherwise resultEffective November 1, 2018, we changed our name from the Stock Split, such fractional share shall be rounded upNovicius Corp. to the nearest whole share and distributed to the holder of the fractional interest as his or her interest appearsGrown Rogue International Inc.
Bylaws
At the Annual and Special Meeting of Shareholders held on February 24, 2012, shareholders approved a resolution to repeal and replace the Company'sCompany’s By-Law No. 1 and Special By-Law No. 1 (the "Old By-Laws"“Old By-Laws”) with a new By-Law No. 1 (the "New By-Laws"“Bylaws”) in order to reflect the current circumstances and practices of the Company and certain amendments to theBusiness Corporations Act(Ontario) (the "OBCA"“OBCA”), which came into force on August 1, 2007.
No director of ours is permitted to vote on any resolution to approve a material contract or transaction in which such director has a material interest (Bylaws, Article 3.17).
Neither our Articles nor our Bylaws limit the directors’ power, in the absence of an independent quorum, to vote compensation to themselves or any members of their body. The Bylaws provide that directors shall receive remuneration as the Board of Directors shall determine from time to time (Bylaws, Article 3.19).
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Under our Articles and Bylaws, our Board of Directors may, without the authorization of our shareholders, (i) borrow money upon our credit; (ii) issue, reissue, sell or pledge debt obligations of ours; whether secured or unsecured (iii) give a guarantee on behalf of us to secure performance of obligations; and (iv) charge, mortgage, hypothecate, pledge or otherwise create a security interest in all currently owned or subsequently acquired real or personal, movable or immovable, tangible or intangible, property of ours to secure obligations(Bylaws, Article 13.1).
The annual meeting of shareholders shall be held at such time in each year as the Board, the Chairman of the Board (if any), the Chief Executive Officer, or the President may from time to time determine, for the purpose of considering the financial statements and reports required by the OBCA to be placed before the annual meeting, electing directors, appointing an auditor and for the transaction of such other business as may properly be brought before the meeting (Bylaws, Article 9.1).
The Board of Directors, the Chairman of the Board (if any) or the President shall have power to call a special meeting of shareholders at any time (Bylaws, Article 9.2).
Shareholders of record must be given notice of any meeting not less than 21 days or more than 50 days before the date of the meeting or as otherwise prescribed by applicable laws. Notice of a meeting of shareholders called for any purpose other than consideration of the financial statements and auditors’ report, election of directors and reappointment of the incumbent auditor shall state or be accompanied by a statement of the nature of such business in sufficient detail to permit the shareholder to form a reasoned judgment thereon and the text of any special resolution or by-law to be submitted to the meeting (Bylaws, Article 9.4). Our Board of Directors is permitted to fix a record date for any meeting of the shareholders that is between 30 and 60 days prior to such meeting or as otherwise prescribed by applicable laws. (Bylaws, Article 9.6). The only persons entitled to be present at a meeting of shareholders shall be those entitled to vote thereat, the directors and the auditor of the Company and others who, although not entitled to vote are entitled or required under any provision of the OBCA or the articlesArticles or the by-lawsBylaws to be present at the meeting. Any other person may be admitted only on the invitation of the chairman of the meeting or with the consent of the meeting (Bylaws, Article 9.9).
Neither our Articles nor our Bylaws discuss limitations on the rights to own securities or exercise voting rights thereon, and there is no provision of our Articles or Bylaws that would delay, defer or prevent a change in control of us, or that would operate only with respect to a merger, acquisition, or corporate restructuring involving us or any of its subsidiaries. Our Bylaws do not contain a provision indicating an ownership threshold above which shareholder ownership must be disclosed.
Articles of Amendment dated effective August 25, 2014
By Articles of Amendment dated effective August 25, 2014, our articlesArticles were amended to change our name from Eagleford Energy Inc., to Eagleford Energy Corp., and
| a) | To change every ten (10) issued and outstanding common share in the capital of the |
| To provide that no fractional shares shall be issued as a result of the Stock Consolidation and if any fractional share would otherwise result from the Stock Split, such fractional share shall be rounded up to the nearest whole share and distributed to the holder of the fractional interest as his or her interest appears. |
Articles of Amendment dated effective February 1, 2016
By Articles of Amendment dated effective February 1, 2016, our articlesArticles were amended to change our name from Eagleford Energy Corp., to Intelligent Content Enterprises Inc., and
| a) | To change every ten (10) issued and outstanding common share in the capital of the |
| b) | To provide that no fractional shares shall be issued as a result of the Stock Consolidation and if any fractional share would otherwise result from the Stock Split, such fractional share shall be rounded up to the nearest whole share and distributed to the holder of the fractional interest as his or her interest appears. |
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Articles of Amendment dated effective February 29, 2016
By Articles of Amendment dated effective February 29, 2016, our articlesArticles were amended to revise the attributes of the preferred shares.
The Company is authorized to issue an unlimited number of shares of our common sharesstock and an unlimited number of preference shares, issuable in series with the following attributes:
Share Provisions
(a) The Common Shares of the Corporation shall have attached thereto the following rights, privileges, restrictions and conditions:
| (a) | The shares of our common stock shall have attached thereto the following rights, privileges, restrictions and conditions: |
1. DIVIDENDS
| 1. | DIVIDENDS |
Subject to the prior rights of the holders of the Preference Shares and to any other shares ranking senior to the Common Sharesshares of our common stock with respect to priority in the payment of dividends, the holders of the Common Sharesshares of our common stock shall be entitled to receive dividends and the CorporationCompany shall pay dividends thereon, as and when declared by the Board of Directors of the Corporation,Company, out of moneys properly applicable to the payment of dividends, in such amount and in such form as the Board of Directors may from time to time determine and all dividends which the directors may declare on the Common Sharesshares of our common stock shall be declared and paid in equal amounts per share on all Common Sharesshares of our common stock at the time outstanding.
2. DISSOLUTION
| 2. | DISSOLUTION |
In the event of the dissolution, liquidation or winding-up of the Corporation,Company, whether voluntary or involuntary, or any other distribution of assets of the CorporationCompany among its shareholders for the purpose of winding-up its affairs, subject to the prior rights of the holders of the Preference Shares and to any other shares ranking senior to the Common Sharesshares of our common stock with respect to priority in the distribution of assets upon dissolution, liquidation or winding-up, the holders of the Common Sharesshares of our common stock shall be entitled to receive the remaining property and assets of the Corporation.Company.
| 3. | VOTING RIGHTS |
3. VOTING RIGHTS
The holders of the Common Sharesshares of our common stock shall be entitled to receive notice of and to attend all meetings of the shareholders of the CorporationCompany and shall have one (1) vote for each Common Share held at all meetings of the shareholders of the Corporation,Company, except for meetings at which only holders of another specified class or series of shares of the CorporationCompany are entitled to vote separately as a class or series.
(b) The rights, privileges, restrictions and conditions attaching to the Preference Shares, as a class, are as follows:
| (b) | The rights, privileges, restrictions and conditions attaching to the Preference Shares, as a class, are as follows: |
1. DIRECTORS’ AUTHORITY TO ISSUE ONE OR MORE SERIES
| 1. | DIRECTORS’ AUTHORITY TO ISSUE ONE OR MORE SERIES |
The Board of Directors of the CorporationCompany may issue the Preference Shares at any time and from time to time in one or more series. Before the first shares of a particular series are issued, the Board of Directors of the CorporationCompany shall fix the number of shares in such series and shall determine, subject to the limitations set out in the articles,Articles, the designation, rights, privileges, restrictions and conditions to attach to the shares of such series which may include, without limiting the generality of the foregoing, the rate or rates, amount or method or methods of calculation of preferential dividends, whether cumulative or non-cumulative or partially cumulative, and whether such rate(s), amount or method(s) of calculation shall be subject to change or adjustment in the future, the currency or currencies of payment, the date or dates and place or places of payment thereof and the date or dates from which such preferential dividends shall accrue, the redemption price and terms and conditions of redemption (if any), the rights of retraction (if any), and the prices and other terms and conditions of any rights of retraction and whether any additional rights of retraction may be vested in such holders in the future, voting rights and conversion or exchange rights (if any), and any sinking fund, purchase fund or other provisions attaching thereto. Before the issue of the first shares of a series, the Board of Directors of the CorporationCompany shall send to the Director (as defined in the Business Corporations Act) articles of amendment in the prescribed form containing a description of such series including the designation, rights, privileges, restrictions and conditions determined by the directors.
2. RANKING OF PREFERENCE SHARES65
| 2. | RANKING OF PREFERENCE SHARES |
2.1 No rights, privileges, restrictions or conditions attaching to a series of Preference Shares shall confer upon a series a priority in respect of dividends or return of capital in the event of liquidation, dissolution or winding-up of the CorporationCompany over any other series of Preference Shares. The Preference Shares of each series rank on a parity with the Preference Shares of every other series with respect to priority in the payment of dividends and the return of capital and the distribution of assets of the CorporationCompany in the event of the liquidation, dissolution or winding-up of the Corporation,Company, whether voluntary or involuntary, or any other distribution of the assets of the CorporationCompany among its shareholders for the purpose of winding-up its affairs.
2.2 The Preference Shares shall be entitled to priority over the Common Sharesshares of our common stock and over any other shares of any other class of the CorporationCompany ranking junior to the Preference Shares with respect to priority in the payment of dividends and the return of capital and the distribution of assets in the event of the liquidation, dissolution or winding-up of the Corporation,Company, whether voluntary or involuntary, or any other distribution of the assets of the CorporationCompany among its shareholders for the purpose of winding-up its affairs.
2.3 If any amount of cumulative dividends, whether or not declared, or declared non-cumulative dividends or amount payable on a return of capital in the event of the liquidation, dissolution or winding-up of the CorporationCompany in respect of a series of Preference Shares is not paid in full, the Preference Shares of all series shall participate rateablyratably in respect of all accumulated dividends, whether or not declared, and all declared non-cumulative dividends in accordance with the sums that would be payable on such shares if all such dividends were declared and paid in full, and in respect of amounts payable on return of capital in the event of the liquidation, dissolution or winding-up of the CorporationCompany in accordance with the sums that would be payable on such repayment of capital if all sums so payable were paid in full; provided, however, that in the event of there being insufficient assets to satisfy in full all such claims as aforesaid, the claims of the holders of the Preference Shares with respect to amounts payable on return of capital shall first be paid and satisfied and any assets remaining thereafter shall be applied towards the payment and satisfaction of claims in respect of dividends.
2.4 The Preference Shares of any series may also be given such other preferences not inconsistent with the provisions hereof over the Common Sharesshares of our common stock and over any other shares ranking junior to the Preference Shares as may be determined in the case of such series of Preference Shares.
| 3. | RESTRICTIONS ON DIVIDENDS AND REDEMPTIONS, ETC. |
3. RESTRICTIONS ON DIVIDENDS AND REDEMPTIONS, ETC.
Except with the approval of all the holders of the Preference Shares, no dividends shall at any time be declared or paid or set apart for payment on the Common SharesCompany or any other shares of the CorporationCompany ranking junior to the Preference Shares unless all dividends which have been declared by the Board of Directors up to and including the dividend payable for the last completed period for which such dividends have been declared by the Board of Directors on each series of Preference Shares then issued and outstanding shall have been paid or set apart for payment at the date of such declaration or payment or setting apart for payment on the Common SharesCompany or such other shares of the CorporationCompany ranking junior to the Preference Shares; nor shall the CorporationCompany call for redemption, redeem, purchase for cancellation, acquire for value or reduce or otherwise pay off any of the Preference Shares (less than the total amount then outstanding) or any Common SharesCompany or any other shares of the CorporationCompany ranking junior to the Preference Shares unless and until all dividends up to and including the dividends payable for the last completed period for which such dividends have been declared by the Board of Directors on each series of Preference Shares then issued and outstanding shall have been paid or set apart for payment at the date of such call for redemption, purchase, acquisition, reduction or other payment.
4. VOTING RIGHTS
| 4. | VOTING RIGHTS |
Except as hereinafter referred to or as otherwise provided by law or in accordance with any voting rights which may from time to time be attached to any series of Preference Shares, the holders of the Preference Shares as a class shall not be entitled as such to receive notice of, to attend to vote at any meeting of the shareholders of the Corporation.Company.
5. SPECIFIC MATTERS REQUIRING APPROVAL66
| 5. | SPECIFIC MATTERS REQUIRING APPROVAL |
5.1 The approval of the holders of the Preference Shares, given in the manner described in Section 6.1 below, shall be required for the creation of any new shares ranking prior to or on a parity with the Preference Shares, and if, but only so long as, any cumulative dividends are in arrears or any declared non-cumulative dividends are unpaid on any outstanding series of Preference Shares, for the issuance of any additional series of Preference Shares or of any shares ranking prior to or on a parity with the Preference Shares.
5.2 The provisions of Clauses 1 to 6 inclusive may be deleted, amended, modified or varied in whole or in part by a certificate of amendment issued by the Director appointed under the Business Corporations Act, but only with the prior approval of the holders of the Preference Shares given as hereinafter specified in addition to any other approval required by the Business Corporations Act or any other statutory provisions of like or similar effect, from time to time in force.
6. APPROVAL OF THE HOLDERS OF THE PREFERENCE SHARES
| 6. | APPROVAL OF THE HOLDERS OF THE PREFERENCE SHARES |
The approval of the holders of the Preference Shares with respect to any and all matters hereinbefore referred to may be given by at least two thirds of the votes cast at a meeting of the holders of the Preference Shares duly called for that purpose and held upon at least 21 days’ notice at which the holders of a majority of the outstanding Preference Shares are present or represented by proxy. If at any such meeting the holders of a majority of the outstanding Preference Shares are not present or represented by proxy within one half-hour after the time appointed for such meeting, then the meeting shall be adjourned to such date being not less than 30 days later and to such time and place as may be appointed by the chairman and not less than 21 days’ notice shall be given of such adjourned meeting. At such adjourned meeting the holders of the Preference Shares present or represented by proxy may transact the business for which the meeting was originally called and a resolution passed thereat by not less than two-thirds of the votes cast at such adjourned meeting shall constitute the approval of the holders of the Preference Shares referred to above. The formalities to be observed with respect to the giving of notice of any such meeting or adjourned meeting and the conduct thereof shall be those from time to time prescribed by the Business Corporations Act and the by-laws of the CorporationCompany with respect to meetings of shareholders. On every poll taken at every such meeting or adjourned meeting every holder of Preference Shares shall be entitled to one (1) vote in respect of each Preference Share held.
Articles of Amendment dated effective May 26, 2017
By Articles of Amendment dated effective May 26, 2017, our articlesArticles were amended to change our name from Intelligent Content Enterprises Inc., to Novicius Corp., and
| a) | To change every ten (10) issued and outstanding common share in the capital of the |
| To provide that no fractional shares shall be issued as a result of the Stock Consolidation and if any fractional share would otherwise result from the Stock Split, such fractional share shall be rounded up to the nearest whole share and distributed to the holder of the fractional interest as his or her interest appears. |
Articles of Amendment dated effective November 1, 2018
By Articles of Amendment dated effective November 1, 2018, we changed our name to Grown Rogue International Inc.
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Other Provisions
Neither our Articles nor our Bylaws discuss the retirement or non-retirement of directors under an age limit requirement or the number of shares required for director qualification.
Neither our Articles nor our Bylaws require that a director hold a share in the capital of the Company as qualification for his/her office.
Neither our Articles nor our Bylaws contain sinking fund provisions, provisions allowing us to make further capital calls with respect to any shareholder of ours, or provisions which discriminate against any holders of securities as a result of such shareholder owning a substantial number of shares.
| C. | MATERIAL CONTRACTS |
During the two year period preceding the filing date of this Annual Report, we entered into nothe following material contracts other than contracts entered intocontracts:
The Company leases approximately 35 acres of real property, with an option to purchase, in the ordinary course except for the following:Jackson County, Oregon, commonly known as 2888 Ross Lane, Central Point, Oregon, through that certain Commercial Lease Agreement, dated December 20, 2022, between Lender Capital, LLC, and GR Gardens.
On June 22, 2016, the Company entered into a consulting agreement to assist with the development of new business programs, business units, partnerships, revenues, concepts and ideas as well as technical, commercial and creative advisory services. As consideration for the services,February 5, 2021, the Company agreed to provide to the consultant remuneration of $20,000 upon execution the agreement, $10,000 monthly commencing July 1, 2016, and issue 175,000 common share purchase warrants, valid for 5 years with cashless exercise provisions issued at a price of $15.00 vesting 43,750 per quarter. On January 15, 2017, the consulting agreement was terminated and no warrants vested.
On May 25, 2016, the Company entered into a Term Sheet to license to acquire all the technology, production and client operations owned and operated by New York based Catch Star Studios LLC (“Catch Star”). On October 12, 2016, the Company advanced US$65,000 ($81,483 as at August 31, 2017) to Catch Star and entered into a Secured Promissory Note and General Security Agreement (the “Note”) with Catch Star. The Note is due on demand and is secured bysubstantially all of the assets of Catch Star. Subsequently, Catch Starthe growing and retail operations of HSCP for $3,000,000 of total agreed-upon consideration. The Company also executed the MSA with HSCP. The Company operated the growing facility under the MSA until the acquisition of the growing assets obtained regulatory approval. On April 14, 2022, the transaction closed with modifications to the original terms: the retail dispensary purchase was mutually terminated, and total consideration for the acquisition was reduced to $2,000,000. Upon closing, the Company could not reachhad paid $750,000 towards the acquisition, and owed payments of $500,000 due on August 1, 2022, and U.S.$750,000 due on May 1, 2023.
On May 1, 2021, the Company acquired a definitive agreement to memorialize the terms and conditionscontrolling 60% interest in Golden Harvests for aggregate consideration of $1,007,719 comprised of 1,025,000 common shares of the Term Sheet and abandoned the prospective transaction. On February 1, 2017, the Company issuedwith a letter of demand for the repayment of the Note in full. At August 31, 2017 the Company determined that the Secured Note was uncollectible and recorded an impairment of the full amount.
The Company negotiated an Asset Purchase Agreement to be effective February 29, 2016, with an expectation to acquire the net assets (the “Acquired Assets”) of Digital Widget Factory Inc., a Belize company (the “Vendor”), in an all-stock transaction by issuing 12,500,000 common shares and 5,750,000 Series A preferred shares (the “Proposed Purchase Price Shares”). The essential components of the proposed Acquired Assets were an intelligent content platform technology developed by Digital Widget Factory Inc. and a series of related websites under the url digiwdgy.com. The fair value of the transaction was estimated at $9,530,250$158,181 and was agreedcash payments of $849,536. Consideration remaining to be paid byat the Company throughdate of these financial statements included cash payments of $360,000. During the issuanceyear ended October 31, 2023, 200,000 common shares issuable since May 1, 2021, with an aggregate fair value of the Proposed Purchase Price Shares.
Subsequent to February 29, 2016, management of the Company came to the conclusion that certain representations and warranties made under the Asset Purchase Agreement$35,806, were conceivably deficient and on November 24, 2016, the Company advanced a Notice of Claim.issued. On December 22, 2016, it was agreed that all disputed matters contained in the Asset Purchase Agreement, be resolved in a Settlement Agreement whereby the Company agreed to return the Acquired Assets to the Vendor and the Vendor agreed to return the Proposed Purchase Price Shares back to the Company.
The Settlement Agreement closed effective January 20, 2017, when the Company returned the Acquired Assets to the Vendor and the Vendor returned to the Company the Proposed Purchase Price Shares previously issued to the Vendor and a full and final release in respect of all obligations under the DWF Agreement was exchanged between the Vendor and the Company. The Proposed Purchase Price Shares have been cancelled in the capital stock of1, 2021, the Company and the Company no longer has anyseller of the 60% controlling interest in Golden Harvests agreed to extend the DWF Technologydue date of the cash portion of business acquisition consideration payable until December 31, 2024, in exchange for monthly payments at a rate of 18% per annum. The Company may pay all or part of the cash portion of the business acquisition consideration payable prior to December 31, 2024.
On April 14, 2022, the Company purchased indoor growing assets from HSCP (Note 6.1). Purchase consideration included a secured promissory note payable with a principal sum of $1,250,000, of which $500,000 was due on August 1, 2022 and $750,000 was due on May 1, 2023, before amendment of the agreement, which is described below. The collateral for the secured promissory note payable is comprised of the assets purchased.
On August 1, 2022, the terms of the secured promissory note between GR Distribution and HSCP, were amended (the “First Amendment”). As amended, the secured promissory note will be fully settled by two principal amounts of $500,000 (the “First Principal Payment”) and $750,000 due on May 1, 2023. Beginning on August 1, 2022, and continuing until repaid in full, the unpaid portion of the First Principal Amount will accrue simple interest at a rate per annum of 12.5%, payable monthly. In the event the Company raises capital, principal payments shall be made as follows. If the capital raise is less than or equal to $2 million, then 25% of the capital raise shall be paid against the First Principal Payment; if the capital raise is greater than $2 million and less than or equal to $3 million, then $250,000 shall be paid against the First Principal Payment; and if the capital raise is greater than $3 million, then $500,000 shall be paid against the First Principal Payment.
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On December 5, 2022, the Company announced the closing of a non-brokered private placement of the December Convertible Debentures with an aggregate principal amount of $2,000,000. The December Convertible Debentures accrue interest at 9% per year, paid quarterly, and mature 36 months from the date of issue. The December Convertible Debentures are convertible into common shares of the Company at a conversion price of CAD$0.20 per common share. Additionally, on closing, the Company issued to the purchasers of the December Convertible Debentures an aggregate of 6,716,499 Warrants, that represents 50% coverage of each Purchaser’s Convertible Debenture investment. The December Warrants are exercisable for a period of three years from issuance into common shares at an exercise price of $0.25 CAD per common share. The Company has the right to accelerate the warrants if the closing share price of the common shares on the CSE is CAD$0.40 or higher for a period of 10 consecutive trading days. The December Convertible Debentures and December Warrants issued pursuant to the private placement (and the underlying common shares) were subject to a statutory hold period of four months and one day from the closing date.
During the year ended October 31, 2023, purchasers of the December Convertible Debentures converted an aggregate total of convertible debenture principal of $1,040,662 and $133,977 at CAD$0.20 per share into 10,151,250 and 1,022,025 common shares respectively.
On May 1, 2023, the terms of the secured promissory note between GR Distribution and HSCP were amended for a second time (the “Second Amendment”). Under the Second Amendment, the secured promissory note will be fully settled in two principal amounts. On May 1, 2023, the $500,000 principal payment plus all accrued but unpaid interest under the First Amendment was due and payable. The remaining principal balance of $500,000 (the “Second Principal Amount”), which bears no interest, is due and payable as follows: $150,000 due and payable on August 1, 2023; $150,000 due and payable on November 1, 2023; and $200,000 due and payable on December 31, 2023. The Company paid $900,000 during the year ended October 31, 2023. During the transition period ended December 31, 2023, the Company paid $350,000 which fully settled the debt.
On July 13, 2023, the Company announced the closing of a non-brokered private placement of the July Convertible Debentures with an aggregate principal amount of $5,000,000. The July Convertible Debentures accrue interest at 9% per year, paid quarterly, and mature 48 months from the date of issue. The July Convertible Debentures are convertible into common shares of the Company at a conversion price of CAD$0.24 per common share, at any time on or prior to the maturity date. Additionally, on closing, the Company issued to the subscribers of the July Convertible Debentures an aggregate of 13,737,500 July Warrants, that represents one-half of one warrant for each CAD$0.24 of principal amount subscribed. The July Warrants are exercisable for a period of three years from issuance into common shares at an exercise price of CAD$0.28 per common share. The Company has the right to accelerate the warrants if the closing share price of the common shares on the CSE is CAD$0.40 or higher for a period of 10 consecutive trading days. The July Warrants’ expiry date will be accelerated to 90 days following notice of the acceleration.
On August 17, 2023, the Company announced that it had closed the second and final tranche of a non-brokered private placement of the August Convertible Debentures for gross proceeds of $1,000,000, for a total aggregate principal amount under both tranches of $6,000,000 with the July Convertible Debentures. Additionally, on closing, the Company issued to subscribers under the second tranche an aggregate of 2,816,250 common share purchase warrants. The terms of the August Convertible Debentures and August Warrants issued as part of this second tranche are the same as those issued in the July Convertible Debentures and July Warrants.
Agreements pertaining to various equity financing arrangements are described in Item 4(A) History and Development of the Company, and the seriesdetails of digiwidgy.com websites.equity and debt and debenture financing agreements through October 31, 2023, are described in the notes to the financial statements in Item 18 Financial Statements.
| D. | EXCHANGE CONTROLS |
There are no governmental laws, decrees or regulations in Canada that restrict the export or import of capital, or affect the remittance of dividends, interest or other payments to a non-resident holder of shares of our common stock, other than withholding tax requirements (See "Taxation"“Taxation” below).
Except as provided in the Investment Canada Act, there are no limitations imposed under the laws of Canada, the Province of Ontario, or by our constituent documents on the right of a non-resident to hold or vote shares of our common stock.
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The Investment Canada Act (the "ICA"“ICA”), which became effective on June 30, 1985, regulates the acquisition by non-Canadians of control of a Canadian business enterprise. In effect, the ICA requires review by Investment Canada, the agency which administers the ICA, and approval by the Canadian government, in the case of an acquisition of control of a Canadian business by a non-Canadian where: (i) in the case of a direct acquisition (for example, through a share purchase or asset purchase), the assets of the business are CDNCAD $5 million or more in value; or (ii) in the case of an indirect acquisition (for example, the acquisition of the foreign parent of the Canadian business) where the Canadian business has assets of CDNCAD $5 million or more in value or if the Canadian business represents more than 50% of the assets of the original group and the Canadian business has assets of CDNCAD $5 million or more in value. Review and approval are also required for the acquisition or establishment of a new business in areas concerning "Canada's“Canada’s cultural heritage or national identity"identity” such as book publishing, film production and distribution, television and radio production and distribution of music, and the oil and natural gas industry, regardless of the size of the investment.
As applied to an investment in us, three methods of acquiring control of a Canadian business would be regulated by the ICA: (i) the acquisition of all or substantially all of the assets used in carrying on the Canadian business; (ii) the acquisition, directly or indirectly, of voting shares of a Canadian corporation carrying on the Canadian business; or (iii) the acquisition of voting shares of an entity which controls, directly or indirectly, another entity carrying on a Canadian business. An acquisition of a majority of the voting interests of an entity, including a corporation, is deemed to be an acquisition of control under the ICA. An acquisition of less than one-third of the voting shares of a corporation is deemed not to be an acquisition of control. An acquisition of less than a majority, but one-third or more, of the voting shares of a corporation is presumed to be an acquisition of control unless it can be established that on the acquisition the corporation is not, in fact, controlled by the acquirer through the ownership of voting shares. For partnerships, trusts, joint ventures or other unincorporated entities, an acquisition of less than a majority of the voting interests is deemed not to be an acquisition of control.
In 1988, the ICA was amended, pursuant to the Free Trade Agreement dated January 2, 1988 between Canada and the United States, to relax the restrictions of the ICA. As a result of these amendments, except where the Canadian business is in the cultural, oil and gas, uranium, financial services or transportation sectors, the threshold for direct acquisition of control by USU.S. investors and other foreign investors acquiring control of a Canadian business from US investors has been raised from CDNCAD $5 million to CDNCAD $150 million of gross assets, and indirect acquisitions are not reviewable.
In addition to the foregoing, the ICA requires that all other acquisitions of control of Canadian businesses by non-Canadians are subject to formal notification to the Canadian government. These provisions require a foreign investor to give notice in the required form, which notices are for information, as opposed to review, purposes.
| E. | TAXATION |
Certain Canadian Federal Income Tax Consequences
The following discussion describes the principal Canadian federal income tax consequences applicable to a holder of shares of our common sharesstock which are tradedquoted on the OTCQB,OTC Markets, who, at all material times, is a resident of the United States for purposes of the Canada-United States Income Tax Convention (the "Treaty"“Treaty”) entitled to the full benefit of the Treaty and is not a resident, or deemed to be a resident, of Canada, deals at arm'sarm’s length and is not affiliated with the Company, did not acquire shares of our common sharesstock by virtue of employment, is not a financial institution, specified financial institution, registered non-resident insurer, authorized foreign bank, partnership or a trust as defined in the Income Tax Act (Canada) (the "ITA"),ITA, holds shares of our common sharesstock as capital property and as beneficial owner, and does not use or hold, is not deemed to use or hold, his or her common sharesCompany in connection with carrying on a business in Canada and, did not, does not and will not have a fixed base or permanent establishment in Canada within the meaning of the Treaty (a "non-resident holder"“non-resident holder”).
This description is based upon the current provisions of the ITA, the regulations thereunder (the "Regulations"“Regulations”), management'smanagement’s understanding of the current publicly announced administration and assessing policies of Canada Revenue Agency, and all specific proposals (the "Tax Proposals"“Tax Proposals”) to amend the ITA and Regulations announced by the Minister of Finance (Canada) prior to the date hereof. This description is not exhaustive of all possible Canadian federal income tax consequences and, except for the Tax Proposals, does not take into account or anticipate any changes in law, whether by legislative, governmental or judicial action, nor does it take into account any income tax laws or considerations of any province or territory of Canada or foreign tax considerations which may differ significantly from those discussed below.
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The following discussion is for general information only and is not intended to be, nor should it be construed to be, legal or tax advice to any holder of common sharesCompany of the Company, and no opinion or representation with respect to the Canadian Federal Income Tax consequences to any such holder or prospective holder is made. Accordingly, holders and prospective holders of common sharesCompany are urged to consult with their own tax advisors about the federal, provincial and foreign tax consequences of purchasing, owning and disposing of common shares.Company.
Dividends
Dividends paid on shares of our common sharesstock to a non-resident holder will be subject to a 25% withholding tax pursuant to the provision of the ITA. The Treaty provides that the normal 25% withholding tax rate is generally reduced to 15% on dividends paid on shares of a corporation resident in Canada (such as the Company) to beneficial owners who are residents of the United States. However, if the beneficial owner is a resident of the United States and is a corporation which owns at least 10% of the voting stock of the Company, the withholding tax rate on dividends is reduced to 5%.
Capital Gains
A non-resident of Canada is subject to tax under the ITA in respect of a capital gain realized upon the disposition of a share of a corporation if the shares are considered to be "taxable“taxable Canadian property"property” of the holder within the meaning of the ITA and no relief is afforded under an applicable tax treaty. For purposes of the ITA, a common share of the Company will be taxable Canadian property to a non-resident holder if more than 50% of the fair market value of the common share during the 60 month period immediately preceding the disposition of the common share, was derived directly or indirectly from real or immovable property situated in Canada, Canadian resource properties or any options or interests in such properties.
In the case of a non-resident holder to whom shares of our common stock represent taxable Canadian property and who is a resident in the United States and not a former resident of Canada, no Canadian taxes will be payable on a capital gain realized on such shares by reason of the Treaty unless the value of such shares is derived principally from real property situated in Canada within the meaning of the Treaty at the time of the disposition.
Certain United States Federal Income Tax Consequences
The following is a general discussion of certain possible United States FederalU.S. federal income tax consequences, under current law, generally applicable to a USU.S. Holder (as defined below) of shares our common shares.stock. This discussion does not address all potentially relevant FederalU.S. federal income tax matters and does not address consequences peculiar to persons subject to special provisions of FederalU.S. federal income tax law, such as those described below as excluded from the definition of a USU.S. Holder. In addition, this discussion does not cover any state, local or foreign tax consequences (See “Certain Canadian Federal Income Tax Consequences” above).
The following discussion is based upon the sections of the Internal Revenue Code of 1986, as amended (the “Code”),IRC, Treasury Regulations, published Internal Revenue Service (“IRS”) rulings, published administrative positions of the IRS and court decisions that are currently applicable, any or all of which could be materially and adversely changed, possibly on a retroactive basis, at any time. In addition, this discussion does not consider the potential effects, both adverse and beneficial, of recently proposed legislation which, if enacted, could be applied, possibly on a retroactive basis, at any time. The following discussion is for general information only and it is not intended to be, nor should it be construed to be, legal or tax advice to any holder or prospective holder of shares of our common shares,stock, and no opinion or representation with respect to the United States Federal income tax consequences to any such holder or prospective holder is made. Accordingly, holders and prospective holders of shares of our common sharesstock are urged to consult their own tax advisors about the Federal, state, local, and foreign tax consequences of purchasing, owning and disposing of shares of our common shares.stock.
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U.S. Holders
As used herein, a “U.S. Holder” means a holder of shares of our common sharesstock who is a citizen or individual resident (as defined under United States tax laws) of the United States; a corporation created or organized in or under the laws of the United States or of any political subdivision thereof; an estate the income of which is taxable in the United States irrespective of source; or a trust if (a) a court within the United States is able to exercise primary supervision over the trust’s administration and one or more United States persons have the authority to control all of its substantial decisions or (b) the trust was in existence on August 20, 1996 and has properly elected to continue to be treated as a United States person. This summary does not address the United States tax consequences to, and U.S. Holder does not include, persons subject to specific provisions of federal income tax law, including but not limited to tax-exempt organizations, qualified retirement plans, individual retirement accounts and other tax-deferred accounts, financial institutions, insurance companies, real estate investment trusts, regulated investment companies, broker-dealers, non-resident alien individuals, persons or entities that have a “functional currency” other than the U.S. dollar, persons who hold shares of our common sharesstock as part of a straddle, hedging or a conversion transaction, and persons who acquire their shares of our common sharesstock as compensation for services. This discussion is limited to U.S. Holders who own shares of our common sharesstock as capital assets and who hold the shares of our common sharesstock directly (e.g., not through an intermediary entity such as a corporation, partnership, limited liability company, or trust). This discussion does not address the consequences to a person or entity of the ownership, exercise or disposition of any options, warrants or other rights to acquire shares of our common shares.stock.
Distributions on Ourshares of our Common SharesStock
Subject to the discussion below regarding passive foreign investment companies (“PFICs”), the gross amount of any distribution (including non-cash property) by us (including any Canadian taxes withheld therefrom) with respect to shares of our common sharesstock generally should be included in the gross income of a U.S. Holder as foreign source dividend income to the extent such distribution is paid out of current or accumulated earnings and profits of ours, as determined under United States Federal income tax principles. Distributions received by non-corporate U.S. Holders may be subject to United States Federal income tax at lower rates than other types of ordinary income (generally 15%) in taxable years beginning on or before December 31, 2010 if certain conditions are met. These conditions include the Company not being classified as a PFIC, it being a “qualified foreign corporation,” the U.S. Holder’s satisfaction of a holding period requirement, and the U.S. Holder not treating the distribution as “investment income” for purposes of the investment interest deduction rules. To the extent that the amount of any distribution exceeds our current and accumulated earnings and profits for a taxable year, the distribution first will be treated as a tax-free return of capital to the extent of the U.S. Holder’s adjusted tax basis in shares of our common sharesstock and to the extent that such distribution exceeds the Holder’s adjusted tax basis in shares of our common shares,stock, will be taxed as capital gain. In the case of U.S. Holders that are corporations, such dividends generally will not be eligible for the dividends received deduction.
If a U.S. Holder receives a dividend in Canadian dollars, the amount of the dividend for United States federal income tax purposes will be the U.S. dollar value of the dividend (determined at the spot rate on the date of such payment) regardless of whether the payment is later converted into U.S. dollars. In such case, the U.S. Holder may recognize additional ordinary income or loss as a result of currency fluctuations between the date on which the dividend is paid and the date the dividend amount is converted into U.S. dollars.
Disposition of Shares of our Common SharesStock
Subject to the discussion below regarding PFIC’s, gain or loss, if any, realized by a U.S. Holder on the sale or other disposition of shares of our common sharesstock (including, without limitation, a complete redemption of shares of our common shares)stock) generally will be subject to United States Federal income taxation as capital gain or loss in an amount equal to the difference between the U.S. Holder’s adjusted tax basis in shares of our common sharesstock and the amount realized on the disposition. Net capital gain (i.e., capital gain in excess of capital loss) recognized by a non-corporate U.S. Holder (including an individual) upon a sale or other disposition of shares of our common sharesstock that have been held for more than one year will generally be subject to a maximum United States federal income tax rate of 15% subject to the PFIC rules below. Deductions for capital losses are subject to certain limitations. If the U.S. Holder receives Canadian dollars on the sale or disposition, it will have a tax basis in such dollars equal to the U.S. dollar value. Generally, any gain or loss realized on a subsequent disposition of the Canadian dollars will be U.S. source ordinary income or loss.
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U.S. “Anti-Deferral” Rules
Passive Foreign Investment Company (“PFIC”) Regime. If we, or a non-U.S. entity directly or indirectly owned by us (“Related Entity”), has 75% or more of its gross income as “passive” income, or if the average value during a taxable year of ours or the Related Entity’s “passive assets” (generally, assets that generate passive income) is 50% or more of the average value of all assets held by us or the Related Entity, then the United States PFIC rules may apply to U.S. Holders. If we or a Related Entity is classified as a PFIC, a U.S. Holder will be subject to increased tax liability in respect of gain recognized on the sale of his, her or its shares of our common sharesstock or upon the receipt of certain distributions, unless such person makes a “qualified electing fund” election to be taxed currently on itspro rata portion of our income and gain, whether or not such income or gain is distributed in the form of dividends or otherwise, and we provide certain annual statements which include the information necessary to determine inclusions and assure compliance with the PFIC rules. As another alternative to the foregoing rules, a U.S. Holder may make a mark-to-market election to include in income each year as ordinary income an amount equal to the increase in value of its shares of our common sharesstock for that year or to claim a deduction for any decrease in value (but only to the extent of previous mark-to-market gains). We or a related entity can give no assurance as to its status as a PFIC for the current or any future year. U.S. Holders should consult their own tax advisors with respect to the PFIC issue and its applicability to their particular tax situation.
Controlled Foreign Corporation Regime (“CFC”). If a U.S. Holder (or person defined as a U.S. personsperson under Section 7701(aX3017701(a) of the Code)IRC) owns 10% or more of the total combined voting power of all classes of our stock (, a “U. S.(a “U.S. Shareholder”) and U.S. Shareholders own more than 50% of the vote or value of our Company, we would be a “controlled foreign corporation”. This classification would result in many complex consequences, including the required inclusion into income by such U. S. Shareholders of their pro rata shares of “Subpart F income” of our Company (as defined by the Internal Revenue Code) and our earnings invested in “US“U.S. property” (as defined by the Internal Revenue Code). In addition, under Section 1248 of the Code, gain from the sale or exchange of shares of our common sharesstock by a US person who is or was a U. S. Shareholder at any time during the five year period before the sale or exchange may be treated as ordinary income to the extent of earnings and profits of ours attributable to the stock sold or exchanged. It is not clear the CFC regime would apply to the U.S. Holders of shares of our common shares,stock, and is outside the scope of this discussion.
Foreign Tax Credit
A U.S. Holder who pays (or has withheld from distributions) Canadian income tax with respect to us may be entitled to either a deduction or a tax credit for such foreign tax paid or withheld, at the option of the U.S. Holder. Generally, it will be more advantageous to claim a credit because a credit reduces United States federal income tax on a dollar-for-dollar basis, while a deduction merely reduces the taxpayer’s income subject to tax. This election is made on a year-by-year basis and generally applies to all foreign taxes paid by (or withheld from) the U.S. Holder during that year.
There are significant and complex limitations which apply to the credit, among which is the general limitation that the credit cannot exceed the proportionate share of the U.S. Holder’s United States income tax liability that the U.S. Holder’s foreign source income bears to its worldwide taxable income. This limitation is designed to prevent foreign tax credits from offsetting United States source income. In determining this limitation, the various items of income and deduction must be classified into foreign and domestic sources. Complex rules govern this classification process.
In addition, this limitation is calculated separately with respect to specific “baskets” of income such as passive income, high withholding tax interest, financial services income, shipping income, and certain other classifications of income. Foreign taxes assigned to a particular class of income generally cannot offset United States tax on income assigned to another class. Under the American Jobs Creation Act of 2004 (the “Act”), this basket limitation will be modified significantly after 2006.
Unused foreign tax credits can generally be carried back one year and carried forward ten years. U.S. Holders should consult their own tax advisors concerning the ability to utilize foreign tax credits, especially in light of the changes made by the Act.
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Backup Withholding
Payment of dividends and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries generally are subject to information reporting requirement and to backup withholding unless the USU.S. Holder (i) is a corporation or other exempt recipient or (ii) in the case of backup withholding, provides a correct taxpayer identification number and certifies that no loss of exemption from backup withholding has occurredoccurred.
The amount of any backup withholding from a payment to a USU.S. Holder will be allowed as a credit against the US Federal income tax liability of the USU.S. Holder and may entitle the USU.S. Holder to a refund, provided that the required information is furnished to the IRS.
| F. | DIVIDENDS AND PAYING AGENTS |
Not Applicable. This Form 20-F is being filed as an Annual Report filed under the Exchange Act.applicable.
| G. | STATEMENT BY EXPERTS |
Not Applicable. This Form 20-F is being filed as an Annual Report filed under the Exchange Act.applicable.
| H. | DOCUMENTS ON DISPLAY |
The documents and exhibits referred to in this Annual Report are available for inspection at the registered and management office at 1 King340 Richmond Street West, Suite 1505, Toronto, Ontario, M5H 1A1M5V 1X2 during normal business hours.
| I. | SUBSIDIARY INFORMATION |
Not Applicable. This Form 20-F is being filed as an Annual Report filed under the Exchange Act.applicable.
| ITEM 11 | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK |
The Company is exposed in varying degreesWe are a “smaller reporting company” as defined by Rule 12b-2 of risks arising from its financial instruments. The Company has entered into certain financial derivative contracts. These instrumentsthe Exchange Act, and as such, we are not used for trading or speculative purposes. The Company has not designated its financial derivative contracts as effective accounting hedges, and thus has not applied hedge accounting. As a result, all financial derivative contracts are classified as fair value through “fair value through profit or loss” and are recorded on the statement of financial position at fair value.
The Board approves and monitors the risk management processes. The Board’s main objectives for managing risks are to ensure liquidity, the fulfillment of obligations and limited exposure to credit and market risks while ensuring greater returns on any surplus funds.
The Company’s financial instruments included on the consolidated statements of financial position are comprised of cash, secured note receivable and trade and other payables. The Company classifies the fair value of financial instruments measured at fair value according to the following hierarchy based on the amount of observable inputs used to value the instrument.
• Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions occur in sufficient frequency and volumerequired to provide pricingthe information on an ongoing basis.
• Level 2 – Pricing inputs are other than quoted prices in active markets included in Level 1. Prices in Level 2 are either directly or indirectly observable as of the reporting date. Level 2 valuations are based on inputs, including quoted forward prices for commodities, time value and volatility factors, which can be substantially observed or corroborated in the marketplace.
• Level 3 – Valuations inrequired under this level are those with inputs for the asset or liability that are not based on observable market data.
| August 31, 2017 | August 31, 2016 | |||||||||||||||||
Financial Instrument Classification | Level | Carrying Value ($) | Fair Value ($) | Carrying Value ($) | Fair Value ($) | |||||||||||||
| Fair value through profit or loss: | ||||||||||||||||||
| Cash | 1 | 1,040 | 1,040 | 449,983 | 449,983 | |||||||||||||
| Other financial liabilities: | ||||||||||||||||||
| Trade and other payables | 529,823 | 529,823 | 1,173,231 | 1,173,231 | ||||||||||||||
Cash is stated at fair value (Level 1 measurement). The carrying value of trade and other payables approximate their fair value due to the short-term maturity of these financial instruments.
The types of risk exposure and the ways in which such exposures are managed are as follows:
Credit Risk
Credit risk is primarily related to the Company’s receivables and cash and the risk of financial loss if a partner or counterparty to a financial instrument fails to meet its contractual obligations. At August 31, 2017, trade receivable amounts are $Nil (August 31, 2016: $Nil). At August 31, 2017, included in other receivables is HST due from the Government of Canada in the amount of $41,007 (August 31, 2016: $14,800).
Concentration risk exists in cash because cash balances are maintained with one financial institution. The risk is mitigated because the financial institution is an international bank and all amounts are due on demand.
The Company’s maximum exposure to credit risk is as follows:
| August 31, 2017 ($) | August 31, 2016 ($) | |||||||
| Cash | 1,040 | 449,983 | ||||||
| Balance | 1,040 | 449,983 | ||||||
Liquidity Risk
The Company monitors its liquidity position regularly to assess whether it has the funds necessary to fulfill planned opportunities or that viable options are available to fund such opportunities from new equity issuances or alternative sources of financings. As a company without significant revenue, there are inherent liquidity risks, including the possibility that additional financing may not be available to the Company, or that such financing terms may not be acceptable to the Company.
The following table illustrates the contractual maturities of financial liabilities:
| August 31, 2017 | Payments Due by Period $ | |||||||||||||||||||
| Total | Less than 1 year | 1-3 years | 4-5 years | After 5 years | ||||||||||||||||
| Trade and others payables | 529,823 | 529,823 | - | - | - | |||||||||||||||
| Total | 529,823 | 529,823 | - | - | - | |||||||||||||||
| August 31, 2016 | Payments Due by Period $ | |||||||||||||||||||
| Total | Less than 1 year | 1-3 years | 4-5 years | After 5 years | ||||||||||||||||
| Trade and others payables | 1,173,231 | 1,173,231 | - | - | - | |||||||||||||||
| Total | 1,173,231 | 1,173,231 | - | - | - | |||||||||||||||
Market Risk
Market risk represents the risk of loss that may impact the Company’s financial position, results of operations, or cash flows due to adverse changes in financial market prices, including interest rate risk, foreign currency exchange rate risk, and other relevant market or price risks. The Company does not use derivative instruments to mitigate this risk.Item.
The Company is exposed to the fluctuations in foreign exchange rates. The Company operates in Canada and a portion of its expenses are incurred in US dollars. A significant change in the currency exchange rates between the Canadian dollar relative to US dollar could have an effect on the Company’s financial instruments. The Company does not hedge its foreign currency exposure.
The following assets and liabilities are denominated in US dollars as at the year-end set out below:
| August 31, 2017 ($) | August 31, 2016 ($) | |||||||
| Cash | 77 | 6,157 | ||||||
| Prepaid expenses and deposits | - | 7,814 | ||||||
| Trade and other payables | (38,777 | ) | (26,322 | ) | ||||
| Net assets (liabilities) denominated in US$ | (38,700 | ) | (12,351 | ) | ||||
| Net assets (liabilities) CDN dollar equivalent at period end(1) | (48,514 | ) | (16,209 | ) | ||||
The following table shows the estimated sensitivity of the Company’s total loss for the periods set out from a change in the US dollar exchange rate in which the Company has exposure with all other variables held constant.
| August 31, 2017 | August 31, 2016 | |||||||||||||||||
| Increase | Decrease | Increase | Decrease | |||||||||||||||
| Percentage change in US Dollar | In total loss from a change in % in the US Exchange Rate ($) | In total loss from a change in % in the US Exchange Rate ($) | ||||||||||||||||
| 5 | % | (3,041 | ) | 3,041 | (1,064 | ) | 1,064 | |||||||||||
| 10 | % | (6,082 | ) | 6,082 | (2,127 | ) | 2,127 | |||||||||||
| 15 | % | (9,123 | ) | 9,123 | (3,191 | ) | 3,191 | |||||||||||
Interest rate risk refers to the risk that the value of a financial instrument or cash flows associated with the instrument will fluctuate due to changes in market interest rates. The majority of the Company’s debt is short-term in nature with fixed rates.
| ITEM 12 | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
| A. | DEBT SECURITIES |
Not applicable.
| B. | WARRANTS AND RIGHTS |
Not applicable.
| C. | OTHER SECURITIES |
Not Applicable.applicable.
| D. | AMERICAN DEPOSITORY SHARES |
Not Applicable.applicable.
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| ITEM 13 | DEFAULTS, |
Not Applicable.applicable.
| ITEM 14 | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |
Not applicable.
| ITEM 15 | CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
Under the supervision and with the participation of our senior management, including our chief executive officerChief Executive Officer, J. Obie Strickler, and chief financial officer, James Cassina,Chief Financial Officer, Ryan Kee, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act, of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this annual reportReport (the “Evaluation Date”). Based on this evaluation, our chief executive officerChief Executive Officer and chief financial officerChief Financial Officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the information relating to us, required to be disclosed in our Securities and Exchange Commission (“SEC”)reports filed with the SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles.
Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; (ii) provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company'sCompany’s assets that could have a material effect on our financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Management assessed the effectiveness of our internal control over financial reporting as of AugustDecember 31, 20172023 based on the framework established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that assessment, management concluded that, as of AugustDecember 31, 2017,2023, our internal controls over financial reporting were effective.
Our independent auditor was not engaged to express an opinion on the effectiveness of our internal control over financial reporting was effective based on the criteria established in Internal Control—Integrated Framework.reporting. Had an independent auditor been engaged to do so, additional control deficiencies may have been identified.
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Limitations on Effectiveness of Controls and Procedures
Our management, including our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Our control systems are designed to provide such reasonable assurance of achieving their objectives. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Changes in Internal Control over Financial Reporting
There have beenwere no changes in our internal control over financial reporting that occurred during the quartertransition period ending December 31, 2023, and the year ended AugustOctober 31, 20172023 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
| ITEM 16 | [RESERVED] |
| AUDIT COMMITTEE FINANCIAL EXPERT |
Our Board of Directors has determined that Mr. Dikshant BatraStephen Gledhill is an "audit“audit committee financial expert"expert”, as defined in Item 16A of Form 20-F. Dikshant Batra, BBA-Honors20-F, and is “independent,” as that term is defined in Rule 5605(a)(2) of the NASDAQ Global Market. Stephen Gledhill is the Chairman of the Audit Committee. He is a self-employed consultant.Please see Item 6.A – Directors and Senior Management for Mr. Batra’s company, Torinit Technologies Inc., is a global technology and development outsourcing firm. Mr. Batra is the founder and major shareholder of Nova Sentio which builds market-centric teams to turnaround struggling value chains and companies into high performing, rapid growth enterprises. Mr. Batra is also the founder of Phoenix 1™ a North American company that is re-inventing a key automotive after care area in developing countries and is the Co-Founder of the Canada Entrepreneur Organization.Gledhill’s biographical information.
| CODE OF ETHICS |
We have adopted a written codeCode of business conductBusiness Conduct and ethicsEthics (the "Code"“Code”) for our directors, officers and employees. The board encourages following the Code by making it widely available. It is distributed to directors in the Director’s Manual and to officers, employees and consultants at the commencement of their employment or consultancy. The Code reminds those engaged in service to us that they are required to report perceived or actual violations of the law, violations of our policies, dangers to health, safety and the environment, risks to our property, and accounting or auditing irregularities to the chair of the Audit Committee. In addition, to requiring directors, officers and employees to abide by the Code, we encourage consultants, service providers and all parties who engage in business with us to contact the chair of the Audit Committee regarding any perceived and all actual breaches by our directors, officers and employees of the Code. The chair of our Audit Committee is responsible for investigating complaints, presenting complaints to the applicable board committee or the board as a whole, and developing a plan for promptly and fairly resolving complaints. Upon conclusion of the investigation and resolution of a complaint, the chair of our Audit Committee will advise the complainant of the corrective action measures that have been taken or advise the complainant that the complaint has not been substantiated. The Code prohibits retaliation by us, our directors and management, against complainants who raise concerns in good faith and requires us to maintain the confidentiality of complainants to the greatest extent practical. Complainants may also submit their concerns anonymously in writing. In addition to the Code, we have an Audit Committee Charter and a Policy of Procedures for Disclosure Concerning Financial/Accounting Irregularities.
76
Since the beginning of our most recently completed financial year, no material change reports have been filed that pertain to any conduct of a director or executive officer that constitutes a departure from the Code. The boardBoard of Directors encourages and promotes a culture of ethical business conduct by appointing directors who demonstrate integrity and high ethical standards in their business dealings and personal affairs. Directors are required to abide by the Code and expected to make responsible and ethical decisions in discharging their duties, thereby setting an example of the standard to which management and employees should adhere. The board is required by the Board Mandate to satisfy our CEO and other executive officers are acting with integrity and fostering a culture of integrity throughout the Company. The board is responsible for reviewing departures from the Code, reviewing and either providing or denying waivers from the Code, and disclosing any waivers that are granted in accordance with applicable law. In addition, the board is responsible for responding to potential conflict of interest situations, particularly with respect to considering existing or proposed transactions and agreements in respect of which directors or executive officers advise they have a material interest. The Board Mandateof Directors’ mandate requires that directors and executive officers disclose any interest and the extent, no matter how small, of their interest in any transaction or agreement with us, and that directors excuse themselves from both board deliberations and voting in respect of transactions in which they have an interest. By taking these steps the board strives to ensure that directors exercise independent judgment, unclouded by the relationships of the directors and executive officers to each other and us, in considering transactions and agreements in respect of which directors and executive officers have an interest. Our Code applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or persons performing similar functions of the Company. There have been no waivers of our Code granted to our principal executive officer, principal financial officer, principal accounting officer or controller, or similar persons during the period covered by this Annual Report.
Upon written request to us at our registered and management office, attention: the President, we will provide by mail, to any person without charge a copy of our Code of Ethics.Code.
| PRINCIPAL ACCOUNTANT FEES AND SERVICES |
It is the policy of the Audit Committee that all audit and non-audit services are pre-approved prior to engagement. Before the initiation of each audit, the principal accountant submits a budget of the expected range of expenditures to complete their audit engagement (including Audit Fees, Audit-Related Fees and Tax Fees) to the Audit Committee for approval. In the event that the principal accountant exceeds these parameters, the individual auditor is expected to communicate to management the reasons for the variances, so that such variances can be ratified by the Audit Committee. As a result, 100% of expenditures within the scope of the noted budget are approved by the Audit Committee.
During fiscal 20172023 and 20162022, there were no hours performed by any person other than the primary accountant’s fulltime permanent employees.
Since the commencement of the Company'sCompany’s most recently completed financial year, no recommendations were made by the Audit Committee to nominate or compensate an external auditor.
External Auditor Service Fees (By Category)
The aggregate fees billed or accrued for professional fees rendered by MNP LLP, Chartered AccountantsTurner, Stone & Company, L.L.P. for the yeartwo transition period ended AugustDecember 31, 20172023 and Schwartz Levitsky Feldman llp, Chartered Accountants for the yearyears ended August AugustOctober 31, 20162023 and 2022 are as follows:
| Nature of Services | Fees Paid to Auditor for Year- ended August 31, 2017 | Fees Paid to Auditor for Year- ended August 31, 2016 | Fees Paid to December 31, | Fees Paid to October 31, 2023 | Fees Paid to October 31, 2022 | |||||||||||||||
| Audit Fees(1) | $ | 20,000 | $ | 30,000 | $ | 25,000 | $ | 75,000 | $ | 75,000 | ||||||||||
| Audit-Related Fees(2) | Nil | 6,500 | Nil | Nil | Nil | |||||||||||||||
| Tax Fees(3) | Nil | Nil | Nil | Nil | Nil | |||||||||||||||
| All Other Fees(4) | Nil | Nil | Nil | Nil | Nil | |||||||||||||||
| TOTALS | $ | 20,000 | $ | 36,500 | $ | 25,000 | $ | 75,000 | $ | 75,000 | ||||||||||
77
Notes:
| 1. |
| 2. |
| 3. |
| 4. |
| EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES |
Not Applicable.applicable.
| PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS |
Not applicable.
| CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT |
Appointment of DMCL LLP
Schwartz Levitsky Feldman, LLP, Chartered Accountants (“SLF”) tendered their resignation, upon their own initiative, as auditorsEffective November 14, 2019, directors of the Company effective November 1, 2017;
The resignationapproved the appointment of SLF was considered and approved byDMCL LLP (“DMCL”), as successor auditors for the Board of Directors of the Company;year ended October 31, 2019.
During the two fiscal years ended AugustOctober 31, 20162018 and 2015 and the subsequent interim period through May 31, 2017, there were no (i) disagreements with SLF on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements if not resolved to their satisfaction would have caused them to make reference in connection with their report to the subject matter of the disagreement, or (ii) reportable events.
Effective November 14, 2017, directors of the Corporation approved the appointment of MNP LLP, Chartered Accountants (“MNP”), as successor auditors for the year ended August 31, 2017;
During the two fiscal years ended August 31, 2016 and 2015 and the subsequent interim period through May 31, 2017, neither we nor anyone on our behalf consulted MNPDMCL regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on our financial statements, and neither a written report nor oral advice was provided us that MNPDMCL concluded was an important factor considered by us in reaching a decision as to the accounting, auditing or financial reporting issue, or (ii) any matter that was either the subject of a “disagreement” (as defined in Item 16F(a)(1)(iv) of Form 20-F and related instructions to Item 16-F of Form 20-F) with MNPDMCL or a “reportable event” (as described in Item 16F(a)(1)(v) of Form 20-F).
Our First Notice of Change of Auditor dated November 6, 2017;4, 2019; the resignation of SLFMNP effective November 1, 2017; our Second Notice of Change of Auditor dated November 14, 2017;October 31, 2019; and the acceptance of appointment of auditors from MNPDMCL dated November 17, 201714, 2019 were previously filed by Registrant on Form 6-K on November 22, 201714, 2019 (Exhibit 4.48).
Resignation of DMCL LLP
DMCL tendered their resignation as auditors of the Company effective November 16, 2021.
The resignation of DMCL was considered and approved by the Board of Directors of the Company.
DMCL’s reports on the Company’s financial statements for the fiscal years ended October 31, 2020 and 2019 did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope, or accounting principles
During the two fiscal years ended October 31, 2020 and 2019, there were no (i) disagreements with DMCL on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements if not resolved to their satisfaction would have caused them to make reference in connection with their report to the subject matter of the disagreement, or (ii) reportable events.
78
Appointment of Turner, Stone and Company, L.L.P.
Effective December 6, 2021, directors of the Company approved the appointment of Turner, Stone & Company, L.L.P. (“Turner”) as successor auditors for the year ended October 31, 2021. Turner also audited the financial statements of GR Unlimited for the year ended October 31, 2018 and the period from October 31, 2016 to October 31, 2017.
During the two fiscal years ended October 31, 2020 and 2019, neither we nor anyone on our behalf consulted Turner regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on our financial statements, and neither a written report nor oral advice was provided us that Turner concluded was an important factor considered by us in reaching a decision as to the accounting, auditing or financial reporting issue, or (ii) any matter that was either the subject of a “disagreement” (as defined in Item 16F(a)(1)(iv) of Form 20-F and related instructions to Item 16-F of Form 20-F) with Turner or a “reportable event” (as described in Item 16F(a)(1)(v) of Form 20-F).
Our First Notice of Change of Auditor dated December 7, 2021; the resignation of DMCL effective November 16, 2021; and the acceptance of appointment of auditors from Turner dated December 6, 2020 were previously filed by Registrant on Form 6-K on January 10, 2022 (Exhibit 15.3).
| CORPORATE GOVERNANCE |
Not Applicable.applicable.
| MINE SAFETY DISCLOSURE |
Not applicable.
| ITEM 16I. | DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTION |
Not applicable.
| ITEM 16J. | INSIDER TRADING POLICIES |
Not applicable.
| ITEM 16K. | CYBERSECURITY |
Not applicable.
79
| ITEM 17 | FINANCIAL STATEMENTS |
Not applicable.
| ITEM 18 | FINANCIAL STATEMENTS |
The following attached Consolidated Financial Statements are included in this Annual Report on Form 20-F beginning with page F-1:
| 1. | Audited Consolidated Financial Statements of |
| (a) |
| (b) | Consolidated Statements of Financial Position as |
| (c) | Consolidated Statements of |
| (d) | Consolidated Statements of Changes in |
| (e) | Consolidated Statements of Cash Flows for the |
| (f) | Notes to the Consolidated Financial Statements. |
INDEX TO FINANCIAL STATEMENTS
Audited Consolidated Financial Statements of Novicius Corp., (Formerly: Intelligent Content Enterprises Inc.) for the years ended August 31, 2017, 2016 and 2015, comprised of the following:
(Formerly: Intelligent Content Enterprises Inc.)
Consolidated Financial Statements
For the years ended August 31, 2017, 2016 and 2015
(Expressed in Canadian Dollars)
80
Consolidated Financial Statements
For the years ended August 31, 2017, 2016 and 2015
(Expressed in Canadian Dollars)
Contents
ReportTable of Independent Registered Public Accounting Firm
To the Shareholders of Novicius Corp. (formerly Intelligent Content Enterprises Inc.):
We have audited the accompanying consolidated financial statements of Novicius Corp. (formerly Intelligent Content Enterprises Inc.), which comprise the consolidated statement of financial position as at August 31, 2017, and the consolidated statement of operations and other comprehensive income (loss), changes in shareholders' deficiency, and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.
Management's Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board 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.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audit in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements 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 entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Novicius Corp. (formerly Intelligent Content Enterprises Inc.), as at August 31, 2017 and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Emphasis of Matter
Without modifying our opinion, we draw attention to Note 1 to the consolidated financial statements which highlights the existence of a material uncertainty relating to conditions that cast significant doubt on the Company’s ability to continue as a going concern.
Other Matter
The consolidated financial statements of Novicius Corp. (formerly Intelligent Content Enterprises Inc.) as at August 31, 2016 and 2015, and for the years then ended, were audited by another auditor who expressed an unqualified opinion on those consolidated financial statements in their report dated March 13, 2017.
Contents(formerly: Intelligent Content Enterprises Inc.)
| Consolidated Statements of Financial Position | ||||||||
| (Expressed in Canadian Dollars) | August 31, 2017 | August 31, 2016 | ||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | $ | 1,040 | $ | 449,983 | ||||
| Other receivables | 41,007 | 14,800 | ||||||
| Prepaid expenses and deposits | - | 17,799 | ||||||
| Total current assets | 42,047 | 482,582 | ||||||
| Total Assets | $ | 42,047 | $ | 482,582 | ||||
| Liabilities and Shareholders’ Deficiency | ||||||||
| Current liabilities | ||||||||
| Trade and other payables | $ | 529,823 | $ | 1,173,231 | ||||
| Total current liabilities | 529,823 | 1,173,231 | ||||||
| Total liabilities | 529,823 | 1,173,231 | ||||||
| Shareholders’ deficiency | ||||||||
| Common shares (Note 11 a) | 23,651,529 | 23,220,683 | ||||||
| Share purchase warrants (Note 11 b) | 749,866 | 2,925,837 | ||||||
| Share purchase options (Note 11 d) | 1,611,450 | 828,334 | ||||||
| Contributed surplus | 5,184,363 | 1,921,743 | ||||||
| Accumulated deficit | (31,684,984 | ) | (29,587,246 | ) | ||||
| Total shareholders’ deficiency | (487,776 | ) | (690,649 | ) | ||||
| Total Liabilities and Shareholders’ Deficiency | $ | 42,047 | $ | 482,582 | ||||
| Going Concern (Note 1 b) | ||||||||
| Related Party Transactions and Balances (Note 8) | ||||||||
| Discontinued Operations and Dissolution of subsidiary (Note 15) | ||||||||
| Subsequent Events (Note 16) | ||||||||
The accompanying notes are an integral part of these consolidated financial statements
(formerly: Intelligent Content Enterprises Inc.)
| Consolidated Statements of Operations and Other Comprehensive Income (Loss) | ||||||||||||
| For the years ended August 31, | 2017 | 2016 | 2015 | |||||||||
| (Expressed in Canadian Dollars) | ||||||||||||
| Continuing operations | ||||||||||||
| Revenue | ||||||||||||
| Advertising revenue | $ | 20,788 | $ | - | $ | - | ||||||
| Natural gas sales | - | - | 53,055 | |||||||||
| Total revenue | 20,788 | - | 53,055 | |||||||||
| Expenses | ||||||||||||
| Operating costs | - | - | 24,910 | |||||||||
| Research, content development and technology support | 313,106 | 160,519 | - | |||||||||
| Hosting, advertising and technology services | 71,423 | 45,272 | - | |||||||||
| General and administrative | 508,241 | 418,206 | 89,007 | |||||||||
| Loss on foreign exchange | 1,433 | 21,890 | 415,345 | |||||||||
| Stock based compensation (Note 11 e) | 1,614,605 | 615,924 | 84,520 | |||||||||
| Stock based compensation-non employees (Note 11 e) | 235,393 | - | 28,173 | |||||||||
| Anti-dilution fees (Note 11 b (j) and Note 11 b (k)) | 186,832 | - | - | |||||||||
| Gain on derecognition of financial liabilities (Note 15) | (893,990 | ) | - | - | ||||||||
| Impairment loss on secured note receivable (Note 7) | 81,483 | - | - | |||||||||
| Gain on disposal of subsidiary (Note 15 b) | - | (68,489 | ) | (615,881 | ) | |||||||
| Gain on expiry of derivative liabilities (Note 10) | - | (281,210 | ) | (1,258,206 | ) | |||||||
| Interest | - | 12,812 | 280,299 | |||||||||
| Loss on settlement of debt (Note 8 and 9) | - | 12,489,249 | - | |||||||||
| Impairment loss on marketable securities (Note 6) | - | 120,125 | - | |||||||||
| Gain on derivative liabilities (Note 10) | - | - | (2,653,591 | ) | ||||||||
| Marketing and public relations | - | - | (22,800 | ) | ||||||||
| Accretion of convertible secured note (Note 9) | - | - | 475,755 | |||||||||
| Gain on settlement of litigation | - | - | (120,125 | ) | ||||||||
| 2,118,526 | 13,534,298 | (3,272,594 | ) | |||||||||
| Net income (loss) from continuing operations | (2,097,738 | ) | (13,534,298 | ) | 3,325,649 | |||||||
| Net income (loss) from discontinued operations net of tax (Note 15) | - | 2,711 | (4,762,461 | ) | ||||||||
| Net loss | (2,097,738 | ) | (13,531,587 | ) | (1,436,812 | ) | ||||||
| Other comprehensive income (loss) to be re-classified to operations | ||||||||||||
| Impairment loss on marketable securities (Note 6) | - | 110,525 | (110,525 | ) | ||||||||
| Foreign currency translation | ||||||||||||
| Discontinued operations | - | - | (4,692 | ) | ||||||||
| Total other comprehensive income (loss) | - | 110,525 | (115,217 | ) | ||||||||
| Net loss from operations and other comprehensive income (loss) | $ | (2,097,738 | ) | $ | (13,421,062 | ) | $ | (1,552,029 | ) | |||
| Earnings (loss) per share, basic | ||||||||||||
| Continuing operations | $ | (0.788 | ) | $ | (6.516 | ) | $ | 12.006 | ||||
| Discontinued operations | $ | 0.000 | $ | 0.001 | (17.194 | ) | ||||||
| Total loss per share, basic | $ | (0.788 | ) | $ | (6.515 | ) | $ | (5.188 | ) | |||
| Earnings (loss) per share, diluted | ||||||||||||
| Continuing operations | $ | (0.788 | ) | $ | (6.516 | ) | $ | 8.855 | ||||
| Discontinued operations | $ | 0.000 | $ | 0.001 | (17.194 | ) | ||||||
| Total (loss) per share, diluted | $ | (0.788 | ) | $ | (6.515 | ) | ($ | 8.339 | ) | |||
| Weighted average shares outstanding, basic | 2,663,614 | 2,077,096 | 276,989 | |||||||||
| Weighted average shares outstanding, diluted | 2,663,614 | 2,077,096 | 375,551 | |||||||||
The accompanying notes are an integral part of these consolidated financial statements
(formerly: Intelligent Content Enterprises Inc.)
Consolidated Statements of Changes in Shareholders’ Deficiency
For the years ended August 31, 2017, 2016 and 2015
(Expressed in Canadian Dollars)
SHARE Number of | SHARE Common | SHARE PURCHASE WARRANTS | SHARE PURCHASE OPTIONS | CONTRI- BUTED SURPLUS | FOREIGN LATION RESERVE | AVAIL- ABLE FOR SALE RESERVE | ACCU- MULATED DEFICIT | TOTAL SHARE- HOLDERS’ (DEFICIENCY) | ||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Balance, August 31, 2014 | 277,295 | 9,072,181 | 1,970,968 | 170,972 | 680,599 | 4,692 | - | (14,618,847 | ) | (2,719,435 | ) | |||||||||||||||||||||||||
| Stock options expired | - | - | (11,112 | ) | 11,112 | - | - | - | - | |||||||||||||||||||||||||||
| Warrants expired | - | - | (1,169,889 | ) | - | 1,169,889 | - | - | - | - | ||||||||||||||||||||||||||
| Stock based compensation | - | - | - | 112,693 | - | - | - | - | 112,693 | |||||||||||||||||||||||||||
| Shares to be issued as debt extinguishment | 100,000 | 925,611 | - | - | - | - | - | - | 925,611 | |||||||||||||||||||||||||||
| Unrealized loss on marketable securities | - | - | - | - | - | - | (110,525 | ) | - | (110,525 | ) | |||||||||||||||||||||||||
| Foreign currency translation | ||||||||||||||||||||||||||||||||||||
| -discontinued operations | - | - | - | - | - | (4,692 | ) | - | - | (4,692 | ) | |||||||||||||||||||||||||
| Net loss for the period, continuing operations | - | - | - | - | - | - | - | 3,325,649 | 2,067,443 | |||||||||||||||||||||||||||
| Net loss for the period, discontinued operations | - | - | - | - | - | - | - | (4,762,461 | ) | (4,762,461 | ) | |||||||||||||||||||||||||
| Balance, August 31, 2015 | 377,295 | 9,997,792 | 801,079 | 272,553 | 1,861,600 | - | (110,525 | ) | (16,055,659 | ) | (3,233,160 | ) | ||||||||||||||||||||||||
| Item re-classified to statements of operations: | - | |||||||||||||||||||||||||||||||||||
| -loss on marketable securities | - | - | - | - | - | - | 110,525 | - | 110,525 | |||||||||||||||||||||||||||
| Shares issued as debt extinguishment | 954,311 | 6,371,457 | - | - | - | - | - | - | 6,371,457 | |||||||||||||||||||||||||||
| Shares issued as private placement | 500,000 | 50,000 | - | - | - | - | - | - | 50,000 | |||||||||||||||||||||||||||
| Shares issued as anti-dilution provision | 1,032,998 | 5,034,157 | 1,862,643 | - | - | - | - | - | 6,896,800 | |||||||||||||||||||||||||||
| Units issued as private placement | 10,000 | 9,044 | 20,956 | - | - | - | - | - | 30,000 | |||||||||||||||||||||||||||
| Units issued as private placement | 23,636 | 133,271 | 126,729 | - | - | - | - | - | 260,000 | |||||||||||||||||||||||||||
| Units issued as debt extinguishment | 150,519 | 638,295 | 582,414 | - | - | - | - | - | 1,220,709 | |||||||||||||||||||||||||||
| Exercise of warrants | 51,868 | 986,667 | (467,984 | ) | - | - | - | - | - | 518,683 | ||||||||||||||||||||||||||
| Stock options expired | - | - | - | (60,143 | ) | 60,143 | - | - | - | - | ||||||||||||||||||||||||||
| Stock based compensation | - | - | - | 615,924 | - | - | - | - | 615,924 | |||||||||||||||||||||||||||
| Net loss for the period, continuing operations | - | - | - | - | - | - | - | (13,534,298 | ) | (13,534,298 | ) | |||||||||||||||||||||||||
| Net loss for the period, discontinued operations | - | - | - | - | - | - | - | 2,711 | 2,711 | |||||||||||||||||||||||||||
| Balance, August 31, 2016 | 2,650,627 | 23,220,683 | 2,925,837 | 828,334 | 1,921,743 | - | - | (29,587,246 | ) | (690,649 | ) | |||||||||||||||||||||||||
| Stock based compensation | - | - | - | 1,849,998 | - | - | - | - | 1,849,998 | |||||||||||||||||||||||||||
| Units issued as private placement | 7,692 | 30,233 | 19,767 | - | - | - | - | - | 50,000 | |||||||||||||||||||||||||||
| Stock options expired | - | - | - | (1,066,882 | ) | 1,066,882 | - | - | - | - | ||||||||||||||||||||||||||
| Warrants expired | - | - | (2,195,738 | ) | - | 2,195,738 | - | - | - | - | ||||||||||||||||||||||||||
| Shares issued as settlement of shareholder advances | 1,187,672 | 213,781 | - | - | - | - | - | - | 213,781 | |||||||||||||||||||||||||||
| Shares issued as anti-dilution provision | 1,420,809 | 184,705 | - | - | - | - | - | - | 184,705 | |||||||||||||||||||||||||||
| Units issued as anti-dilution provision | 16,364 | 2,127 | - | - | - | - | - | - | 2,127 | |||||||||||||||||||||||||||
| Net loss for the period, continuing operations | - | - | - | - | - | - | - | (2,097,738 | ) | (2,097,738 | ) | |||||||||||||||||||||||||
| Balance, August 31, 2017 | 5,283,164 | 23,651,529 | 749,866 | 1,611,450 | 5,184,363 | - | - | (31,684,984 | ) | (487,776 | ) | |||||||||||||||||||||||||
*Reflects the May 26, 2017 one (1) for ten (10) consolidation and the February 1, 2016, one (1) for ten (10) consolidation
The accompanying notes are an integral part of these consolidated financial statements
(formerly: Intelligent Content Enterprises Inc.)
| Consolidated Statements of Cash Flows | ||||||||||||
For the years ended August 31, (Expressed in Canadian Dollars) | 2017 | 2016 | 2015 | |||||||||
| Cash provided by (used in) | ||||||||||||
| Operating activities | ||||||||||||
| Net income (loss) from continuing operations | $ | (2,097,738 | ) | $ | (13,534,298 | ) | $ | 3,325,649 | ||||
| Net income (loss) from discontinued operations (Note 15) | - | 2,711 | (4,762,461 | ) | ||||||||
| Net loss | (2,097,738 | ) | (13,531,587 | ) | (1,436,812 | ) | ||||||
| Items not involving cash: | ||||||||||||
| Stock based compensation (Note 11 e) | 1,849,998 | 615,924 | 112,693 | |||||||||
| Anti-dilution fees | 186,832 | - | - | |||||||||
| Gain on derecognition of financial liabilities (Note 15) | (893,990 | ) | - | - | ||||||||
| Impairment loss on secured note receivable (Note 7) | 81,483 | - | - | |||||||||
| Loss on settlement of debt (Note 8 and Note 9) | - | 12,489,249 | - | |||||||||
| Impairment loss on marketable securities (Note 7) | - | 120,125 | - | |||||||||
| Gain on disposal of subsidiary (Note 16) | - | (68,489 | ) | (615,881 | ) | |||||||
| Gain on expiry of derivative liabilities (Note 10) | - | (281,210 | ) | (1,258,206 | ) | |||||||
| Depletion and accretion | - | - | 1,498 | |||||||||
| Gain on derivative liabilities (Note 10) | - | - | (2,653,591 | ) | ||||||||
| Accretion of secured note | - | - | 475,755 | |||||||||
| Decommissioning obligation expenditure | - | - | (205 | ) | ||||||||
| Gain on settlement of litigation | - | - | (120,125 | ) | ||||||||
| Unrealized loss on marketable securities | - | - | 167,815 | |||||||||
| Impairment loss on exploration and evaluation assets (Note 15 a) | - | - | 4,490,045 | |||||||||
| Working capital adjustments: | ||||||||||||
| (Increase) decrease in other receivables | (26,202 | ) | 4,586 | 124,753 | ||||||||
| Increase in trade and other payables | 250,577 | 198,704 | 153,479 | |||||||||
| Decrease in prepaid expenses and deposits | 17,799 | 14,138 | 12,899 | |||||||||
| Decrease in deferred revenue | - | - | (177,804 | ) | ||||||||
| Net cash used in operating activities | (631,241 | ) | (438,560 | ) | (723,687 | ) | ||||||
| Investing activities | ||||||||||||
| Secured note receivable (Note 6) | (81,483 | ) | - | - | ||||||||
| Additions to exploration and evaluations assets | - | - | (109,874 | ) | ||||||||
| Net cash used in investing activities | (81,483 | ) | - | (109,874 | ) | |||||||
| Financing activities | ||||||||||||
| Shares issued as settlement of shareholder advances | 213,781 | - | - | |||||||||
| Private placement of units | 50,000 | 290,000 | - | |||||||||
| Warrants exercised | 518,683 | - | ||||||||||
| Private placement of shares | - | 50,000 | - | |||||||||
| Shareholders’ loans | - | - | 502,908 | |||||||||
| Loans payable | - | - | 196,998 | |||||||||
| Net cash provided by financing activities | 263,781 | 858,683 | 699,906 | |||||||||
| Increase (decrease) in cash for the year | (448,943 | ) | 420,123 | (133,655 | ) | |||||||
| Net effect of exchange rate changes on cash | - | (2,332 | ) | 62,632 | ||||||||
| Cash, beginning of year | 449,983 | 32,192 | 103,215 | |||||||||
| Cash, end of year | $ | 1,040 | $ | 449,983 | $ | 32,192 | ||||||
The accompanying notes are an integral part of these consolidated financial statements
(formerly: Intelligent Content Enterprises Inc.)
Notes to the Consolidated Financial Statements
August 31, 2017 and 2016 and 2015
(Expressed In Canadian Dollars)
Novicius Corp., (formerly: Intelligent Content Enterprises Inc.) was amalgamated under the Business Corporations Act (Ontario)on November 30, 2009(“Novicius” or the “Company”).The Company filed articles of amendment effective May 26, 2017, and changed its name from Intelligent Content Enterprises Inc., to Novicius Corp., and consolidated its common shares on the basis of one (1) new share for every ten (10) old shares. The Company filed articles of amendment effective February 1, 2016, and changed its name from Eagleford Energy Corp., to Intelligent Content Enterprises Inc., and consolidated its common shares on the basis of one (1) new share for every ten (10) old shares.Through the Company’s wholly owned Ontario subsidiary, DoubleTapDaily Inc., (formerly:Digital Widget Factory Inc.) the Company has developed an online content management and advertising platform that powers user and advertising engagement programs in real-time to desktop, mobile and portable devices (http://doubletap.co).
The Company's registered office is located at 1 King Street West, Suite 1505, Toronto, Ontario, M5H 1A1. The Company’s common shares trade on the OTCQB under the symbol NVSIF and on the Canadian Securities Exchange under the symbol NVS.
The consolidated financial statements include the accounts of Novicius, the legal parent, together with its wholly-owned subsidiaries, Ice Studio Productions Inc. incorporated in the Province of Ontario on June 16, 2016 (“ICE Studio”) and DoubleTapDaily Inc.incorporated in the Province of Ontario on February 29, 2016, (“DoubleTap”).
Effective February 29, 2016, the Company disposed of its investment in1354166 Alberta Ltd., a company operating in the province of Alberta (“1354166 Alberta”). The Company’s former subsidiaries, Eagleford Energy, Zavala Inc., a Nevada company (“Zavala Inc.”), and its’ wholly owned subsidiary EEZ Operating Inc., a Texas company (“EEZ Operating”) were disposed of effective August 31, 2015 (Note 15).
These consolidated financial statements (the “Consolidated Financial Statements”) have been prepared in accordance with International Financial Reporting Standards (“IFRS”) applicable to a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business, as they come due for the foreseeable future. The Company is in the process of developing its advertising platform and has not yet realized profitable operations. The Company requires additional financing for its working capital and for the costs of development, content creation and marketing of its platform.
Due to continuing operating losses, the Company's continuance as a going concern is dependent upon its ability to obtain adequate financing and to reach profitable levels of operation. The Company will continue to seek additional forms of debt or equity financing, or other means of funding its operations, however, there is no assurance that it will be successful in doing so or that funds will be available on terms acceptable to the Company or at all. The ability of the Company to arrange such financing in the future will depend in part upon the prevailing capital market conditions as well as the business performance of the Company.
The Company has accumulated significant losses and negative cash flows from operations in recent years which raise doubt as to the validity of the going concern assumption. As at August 31, 2017, the Company has working capital deficiency of $487,776 (2016: working capital deficiency $690,649) and an accumulated deficit of $31,684,984, (2016: $29,587,246). These material uncertainties may cast significant doubt upon the entity’s ability to continue as a going concern. The Consolidated Financial Statements do not give effect to adjustments, if any that would be necessary should the Company be unable to continue as a going concern and, therefore, be required to realize its assets and liquidate its liabilities in other than the normal course of business and at amounts that may differ from those shown in the accompanying Consolidated Financial Statements.
(formerly: Intelligent Content Enterprises Inc.)
Notes to the Consolidated Financial Statements
August 31, 2017 and 2016 and 2015
(Expressed In Canadian Dollars)
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 issued by the International Financial Reporting Interpretation Committee (“IFRIC”). The policies applied in these Consolidated Financial Statements are based on IFRS issued and outstanding as of January 1, 2017. The Board of Directors approved the Consolidated Financial Statements on December 28, 2017.
Basis of Measurement
The Consolidated Financial Statements have been prepared on a historical cost basis except for certain financial instruments measured at fair value.
Functional and Presentation Currency
The functional and presentation currency of the parent Novicius and its wholly owned subsidiaries ICE Studio and DoubleTap is Canadian dollars.
Basis of Consolidation
Control exists when the Company is exposed to, or has rights to variable returns from its involvement with the entity and has the ability to affect these returns through its power over the entity. The financial statements of the subsidiaries are included in the Consolidated Financial Statements from the date that control commences until the date that control ceases. Intercompany balances and transactions, and any unrealized income and expenses arising from intercompany transactions, are eliminated in preparing the Consolidated Financial Statements. The Consolidated Financial Statements include the accounts of the Company, the legal parent, together with its wholly-owned subsidiaries, Ice Studio and DoubleTap.
Revenue Recognition
Revenue is recognized when there is persuasive evidence that an arrangement exists which is when a contract or sales order is signed by both parties, delivery has occurred, ownership has been transferred to the customer, price is fixed or determinable and ultimate collection is reasonably assured at the time of delivery.
Revenue from advertising revenue were recognized when services were provided.
Foreign Currency
Items included in the Consolidated Financial Statements of each of the Company’s wholly owned subsidiaries are measured using the currency of the primary economic environment in which the entity operates (the "functional currency"). Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities not denominated in the functional currency of an entity are recognized in profit or loss.
Assets and liabilities of entities with functional currencies other than Canadian dollars are translated at the year- end rates of exchange, and the results of their operations are translated at average rates of exchange for the period. The resulting translation adjustments are included in the foreign currency translation reserve under other comprehensive income.
(formerly: Intelligent Content Enterprises Inc.)
Notes to the Consolidated Financial Statements
August 31, 2017 and 2016 and 2015
(Expressed In Canadian Dollars)
Significant Accounting Estimates and Judgements
The preparation of the Consolidated Financial Statements in accordance with IFRS requires that management make estimates and assumptions and use judgment regarding the measured amounts of assets, liabilities and contingent liabilities at the date of the Consolidated Financial Statements and reported amounts of revenue and expenses during the reporting period. Such estimates and judgments are continuously evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual outcomes may differ from these estimates.
The key sources of estimation uncertainty that have a significant risk of causing material adjustment to the amounts recognized in the Consolidated Financial Statements are:
Going Concern
The assessment of the Company’s ability to execute its strategy by funding future working capital requirements involves judgment. Estimates and assumptions 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. There is an uncertainty regarding the Corporation’s ability to continue as a going concern (see Note 1 b).
Fair value of financial instruments
The estimated fair value of financial assets and liabilities, by their very nature, are subject to measurement uncertainty.
Fair Value of Derivative Liabilities
The Company is exposed to risks related to changes in its share prices, foreign exchange rates, interest rate and volatility rates used to determine the estimated fair value of its derivative liabilities. In the determination of the fair value of these instruments, the Company utilizes certain independent values and, when not available, internal financial models which are based primarily on observable market data. Management’s judgment is required in the development of these models.This estimate also requires determining and making assumptions about the most appropriate inputs to the valuation model including the expected life, volatility, discount rates and dividend yield.
Settlement of Debt with Equity Instruments
Equity instruments issued to a creditor to extinguish a financial liability are measured at the fair value of the equity instruments at the date the financial liability is extinguished. The Company estimates the fair value of warrants using the Binomial Lattice pricing model and further assumptions including the expected life, volatility, discount rates and dividend yield. The fair value of the units comprising shares and warrants issued in connection with the extinguishment of a financial liability are then prorated to the total market value of the common shares.
Fair Value of Stock Based Compensation and Warrants
In determining the fair value of share based payments the calculated amounts are not based on historical cost, but is derived based on assumptions (such as the expected volatility of the price of the underlying security, expected hold period before exercise, dividend yield and the risk-free rate of return) input into a pricing model. The model requires that management make forecasts as to future events, including estimates of: the average future hold period of issued stock options and compensation warrants before exercise, expiry or cancellation; future volatility of the Company’s share price in the expected hold period; dividend yield; and the appropriate risk-free rate of interest. The resulting value calculated is not necessarily the value that the holder of the option or warrant could receive in an arm’s length transaction, given that there is no market for the options or compensation warrants and they are not transferable. Similar calculations are made in estimating the fair value of the warrant component of an equity unit. The assumptions used in these calculations are inherently uncertain. Changes in these assumptions could materially affect the related fair value estimates.
(formerly: Intelligent Content Enterprises Inc.)
Notes to the Consolidated Financial Statements
August 31, 2017 and 2016 and 2015
(Expressed In Canadian Dollars)
Income Tax
Provisions for taxes are made using the best estimate of the amount expected to be paid based on a qualitative assessment of all relevant factors. The Company reviews the adequacy of these provisions at the end of the reporting period. However, it is possible that at some future date an additional liability could result from audits by taxing authorities. Where the final outcome of these tax-related matters is different from the amounts that were initially recorded, such differences will affect the tax provisions in the period in which such determination is made
Earnings (Loss) per Share
The basic loss per share is calculated by dividing net loss by the weighted average number of common shares outstanding during the period. The diluted earnings per share reflects the dilution that would occur if outstanding stock options and share purchase warrants were exercised or converted into common shares using the treasury stock method.
The inclusion of the Company’s stock options and share purchase warrants in the computation of diluted loss per share would have an anti-dilutive effect on loss per share and are therefore excluded from the computation.
Discontinued Operations
A discontinued operation is a component of the Company's business that represents a separate major line of business or geographical area of operations that has been disposed of or is held for sale, or is a subsidiary acquired exclusively with a view to resale. Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale, if earlier. Effective August 31, 2015, the Company assigned all of its right, title and interest in Zavala Inc., as partial settlement of a secured convertible note payable andeffective February 29, 2016, the Company disposed of its investment in1354166 Alberta and accordingly their operations have been treated as discontinued operations.
Financial Instruments
Classification and Measurement
Financial instruments are measured at fair value on initial recognition of the instrument. Measurement in subsequent periods depends on whether the financial instrument has been classified as “fair value through profit and loss”, “loans and receivables”, “available-for-sale”, “held-to-maturity”, or “other financial liability” as defined by IAS 39, “Financial Instruments: Recognition and Measurement”.
Financial assets and financial liabilities at “fair value through profit or loss” and are measured at fair value with changes in fair value recognized in the statement of operations. Transaction costs are expensed when incurred. The Company has classified cash and derivative liabilities as “fair value through profit and loss”.
Financial instruments classified as “loans and receivables”, “held-to-maturity”, or “financial liabilities” are measured at amortized cost using the effective interest rate method of amortized cost. “Loans and receivables” are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. “Held-to-maturity” financial assets are non-derivative investments that an entity has the positive intention and ability to hold to maturity.
“Other financial liabilities measured at amortized cost” are those financial liabilities that are not designated as “fair value through profit or loss”. The Company has classified trade and other payables as “other financial liabilities”.
Financial assets classified as “available-for-sale” are measured at fair value, with changes in fair value recognized in other comprehensive income. The Company has classified its marketable securities as “available for sale”.
Cash
Cash in the statement of financial position comprise cash held in banking institutions.
(formerly: Intelligent Content Enterprises Inc.)
Notes to the Consolidated Financial Statements
August 31, 2017 and 2016 and 2015
(Expressed In Canadian Dollars)
Marketable Securities
At each financial reporting period, the Company estimates the fair value of investments which are available-for-sale, which could be based on quoted closing bid ask spread prices or other measures for unquoted instruments. Adjustments to the fair value of the marketable securities at the financial position date are recorded to other comprehensive income until re-classified to the statement of operations.
Derivative Financial Instruments
The Company’s derivative instruments consist of derivative liabilities in relation to its i) anti-dilution units issued; and ii) its previous secured convertible note payable; and iii) share purchase warrants with a US Dollar exercise price.
i) The Company has issued Units that contain an anti-dilution provision such that if within 18 months of the issue date, the Company issues additional common shares for a consideration per share or with an exercise or conversion price per share, less than issue price (the “Adjusted Price”) the Holder shall be entitled to receive (for no additional consideration) additional Units in an amount such that, when added to the number of Units acquired by Holder under the agreement will equal the number of Units that the Holder would otherwise be entitled to receive had the transaction occurred at the Adjusted Price. The anti-dilution provision is considered a derivative and requires fair value measurement at each reporting period. During the reporting periods August 31, 2016 and 2015 the Company determined that based on the market price being greater than the issue price per share, no additional common shares were required to be fair valued and recorded as a derivative liability.
ii) �� The Company had a secured convertible note payable that had a conversion feature which could convert any unpaid principal and accrued interest into conversion units. A conversion unit was comprised of one (1) common share and one (1) common share purchase warrant entitling the holder to acquire a common share of the Company at a price equal to a 15% premium to the price of the common share acquired under the conversion unit. The price of the conversion unit was the lesser of a price equal to the 30-day rolling weighted average price of the Company’s common shares as of the date of conversion, less 20% or US$0.80 per share the (“Conversion Unit”). The terms and features of the conversion met the definition of an embedded derivative. Since both components of the Conversion Unit (the common share component and warrant component) contained a variable exercise/conversion price, the Conversion Unit met the definition of a financial liability under IAS 32 “Financial Instruments: Presentation”. As a result, the Conversion Unit was a derivative liability that required fair value measurement each reporting period. The Company had selected the Binomial Lattice model to fair value the warrant component of the conversion unit and the Monte Carlo Simulations process for the common share component of the Conversion Unit.
iii) In prior years, the Company had issued share purchase warrants with an exercise price in US dollars, rather than Canadian dollars (the functional currency of the Company). Such share purchase warrants are derivative instruments and the Company was required to re-measure the fair value at each reporting date. The fair value of these share purchase warrants are re-measured at each reporting date using the Black-Scholes option pricing model with changes recorded to the statement of operations.
Impairment
Financial Assets
A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. Individually significant financial assets are tested for impairment on an individual basis. Remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are recognized in the statement of operations. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognized. For financial assets measured at amortized cost the reversal is recognized in profit or loss.
(formerly: Intelligent Content Enterprises Inc.)
Notes to the Consolidated Financial Statements
August 31, 2017 and 2016 and 2015
(Expressed In Canadian Dollars)
Income tax
Income tax expense consists of current and deferred tax expense. Current and deferred tax are recognized in profit or loss except to the extent that it relates to items recognized directly in equity or other comprehensive income.
Current tax is recognized and measured at the amount expected to be recovered from or payable to the taxation authorities based on the income tax rates enacted or substantively enacted at the end of the reporting period and includes any adjustment to taxes payable in respect of previous years.
Deferred tax is recognized on any temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable earnings. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the asset is realized and the liability is settled. The effect of a change in the enacted or substantively enacted tax rates is recognized in net earnings and comprehensive income or in equity depending on the item to which the adjustment relates.
Deferred tax assets are recognized to the extent future recovery is probable. At each reporting period end, deferred tax assets are reduced to the extent that it is no longer probable that sufficient taxable earnings will be available to allow all or part of the asset to be recovered.
Share-Based Compensation
The Company has a share-based compensation plan that grants stock options to employees and non-employees. This plan is an equity settled plan. The Company uses the fair value method for accounting for share-based awards to employees and non-employees.
The fair value determined at the grant date of the equity-settled share-based payments is expensed over the vesting period, based on the Company’s estimate of equity instruments that will eventually vest. At the end of each reporting period, the Company revises its estimate of the number of equity instruments expected to vest.
The impact of the revision of the original estimates, if any, is recognized in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to contributed surplus.
Equity-settled share-based payment transactions with parties other than employees are measured at the fair value of the goods or services received, except where that fair value cannot be estimated reliably, in which case they are measured at the fair value of the equity instruments granted, measured at the date the Company obtains the goods or the counterparty renders the service.
Warrants
When the Company issues units comprising common shares and warrants, the Company follows the relative fair value method of accounting for warrants attached to and issued with common shares of the Company. Under this method, the fair value of the common shares is estimated and the fair value of the warrants issued is estimated using an option pricing model. The fair value is then prorated to the total of the net proceeds received on issuance of the common shares and the warrants.
Recent Issued Accounting Pronouncements
The following standards, amendments and interpretations, which may be relevant to the Company have been introduced or revised by the IASB:
(formerly: Intelligent Content Enterprises Inc.)
Notes to the Consolidated Financial Statements
August 31, 2017 and 2016 and 2015
(Expressed In Canadian Dollars)
(i) In May 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers, which supersedes IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, and IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers, and SIC 31 Revenue – Barter Transactions Involving Advertising Services. IFRS 15 establishes a comprehensive five-step framework for the timing and measurement of revenue recognition. The Company intends to adopt IFRS 15 effective September 1, 2018, and is currently assessing the impact of this new standard on the Consolidated Financial Statements.
(ii) In July 2014, the IASB issued the final version of IFRS 9, Financial Instruments which reflects all phases of the financial instruments project and replaces IAS 39, Financial Instruments – Recognition and Measurement and all previous versions of IFRS 9. The standard introduces new requirements for classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early application permitted. Retrospective application is required, but comparative information is not compulsory. The Company does not intend to adopt the new standard prior to its effective date and has not yet determined the impact of this new standard on the Consolidated Financial Statements.
(iii) On January 13, 2016, the IASB issued IFRS 16 Leases ("IFRS 16") which will replace IAS 17, Leases. IFRS 16 will bring leases on-balance sheet for lessees under a single model, eliminating the distinction between operating and finance leases. Lessor accounting however, remains largely unchanged and the distinction between operating and finance leases is retained. IFRS 16 is effective for annual reporting periods beginning on or after January 1, 2019. The Company is assessing the impact of this new standard on the Consolidated Financial Statements.
(iv) Amendments to IFRS 2 - Classification and measurement of Share-based payment transactions ("IFRS 2"):
On June 20, 2016, the IASB issued amendments to IFRS 2, clarifying how to account for certain types of share-based payment transactions. The amendments apply for annual periods beginning on or after January 1, 2018. As a practical simplification, the amendments can be applied prospectively, retrospectively, or early application is permitted if information is available without the use of hindsight. The amendments provide requirements on the accounting for:
The Company intends to adopt the amendments to IFRS 2 in its Consolidated Financial Statements for the annual period beginning on September 1, 2018. The extent of the impact of adoption of the standard has not yet been determined.
IFRIC 22 – Foreign currency transactions and advance consideration: IFRIC was issued in December 2016 to provide guidance on accounting for transactions that include the receipt or payment of advance consideration in a foreign currency. The new interpretation is effective for annual periods beginning on or after January 1, 2018. The Company is currently assessing the interpretation on its consolidated financial statements.
The Company’s reportable and geographical segments are Canada and previously the United States. The accounting policies used for the reportable segments are the same as the Company’s accounting policies. For the purposes of monitoring segment performance and allocating resources between segments, the Company’s executive officer monitors the tangible, intangible and financial assets attributable to each segment. All assets are allocated to reportable segments. Effective August 31, 2015, the Company discontinued its reportable segment in the United States.
(formerly: Intelligent Content Enterprises Inc.)
Notes to the Consolidated Financial Statements
August 31, 2017 and 2016 and 2015
(Expressed In Canadian Dollars)
The following tables show information regarding the Company’s reportable segments:
| For the year ended August 31, 2017 | Canada $ | United States $ | Total $ | |||||||||
| Revenue, continuing operations | 20,788 | - | 20,788 | |||||||||
| Net loss, continuing operations | (2,097,738 | ) | - | (2,097,738 | ) | |||||||
| Net loss | (2,097,738 | ) | - | (2,097,738 | ) | |||||||
| For the year ended August 31, 2016 | Canada $ | United States $ | Total $ | |||||||||
| Net loss, continuing operations | (13,534,298 | ) | - | (13,534,298 | ) | |||||||
| Net income (loss), discontinued operations | 8,731 | (6,020 | ) | 2,711 | ||||||||
| Net loss | (13,525,567 | ) | (6,020 | ) | (13,531,587 | ) | ||||||
| For the year ended August 31, 2015 | Canada $ | United States $ | Total $ | |||||||||
| Revenue, continuing operations | 53,055 | - | 53,055 | |||||||||
| Net income, continuing operations | 3,325,649 | - | 3,325,649 | |||||||||
| Net loss, discontinued operations | - | (4,762,461 | ) | (4,762,461 | ) | |||||||
| Net loss | 3,325,649 | (4,762,461 | ) | (1,436,812 | ) | |||||||
| As at August 31, 2017 | Canada $ | United States $ | Total $ | |||||||||
| Total Assets | 42,047 | - | 42,047 | |||||||||
| Total Liabilities | (529,823 | ) | - | (529,823 | ) | |||||||
| As at August 31, 2016 | Canada $ | United States $ | Total $ | |||||||||
| Total Assets | 482,582 | - | 482,582 | |||||||||
| Total Liabilities | (1,173,231 | ) | - | (1,173,231 | ) | |||||||
As at August 31, 2017, the Company held 1,200,000 common shares in Stratex Oil & Gas Holdings, Inc. (“Stratex”). As at August 31, 2015, the Company recorded a change in the fair value of the securities in other comprehensive income (loss) in the amount of $110,525. For the year ended August 31, 2016, the Company re-classified the impairment of $110,525 from other comprehensive income (loss) to the statement of operations and recorded a further impairment of $9,600 as a result of the Stratex common shares being fair valued at $Nil.
| Market value on acquisition | $ | 120,125 | ||
| Change in fair value | (110,525 | ) | ||
| Market value, August 31, 2015 | $ | 9,600 | ||
| Impairment | (9,600 | ) | ||
| Market value, August 31, 2017 and 2016 | $ | - |
On May 25, 2016, the Company entered into a Term Sheet to license to acquire all the technology, production and client operations owned and operated by New York based Catch Star Studios LLC (“Catch Star”). On October 12, 2016, the Company advanced US$65,000 ($81,483 as at August 31, 2017) to Catch Star and entered into a Secured Promissory Note and General Security Agreement with Catch Star (the “Secured Note”). The Secured Note is due on demand and is secured by all of the assets of Catch Star. Subsequently, Catch Star and the Company could not reach a definitive agreement to memorialize the terms and conditions of the Term Sheet and abandoned the prospective transaction. On February 1, 2017, the Company issued a letter of demand for the repayment in full of the Secured Note from Catch Star. At August 31, 2017, the Company determined that the Secured Note was uncollectible and recorded an impairment of the full amount.
(formerly: Intelligent Content Enterprises Inc.)
Notes to the Consolidated Financial Statements
August 31, 2017 and 2016 and 2015
(Expressed In Canadian Dollars)
The following transactions with individuals related to the Company arose in the normal course of business have been accounted for at the amount agreed to by the related parties.
Compensation of Key Management Personnel
The remuneration of directors and other members of key management personnel during the periods set out were as follows:
| August 31, 2017 | August 31, 2016 | August 31, 2015 | ||||||||||
| Short term employee benefits (1) (2) | $ | 129,981 | $ | 60,000 | $ | 150,000 | ||||||
| Stock based compensation (3) | 1,614,605 | 615,924 | 84,520 | |||||||||
| $ | 1,734,586 | $ | 675,924 | $ | 234,520 | |||||||
The following balances owing to the President and Chief Financial Officer of the Company are included in trade and other payables and are unsecured, non-interest bearing and due on demand:
| August 31, 2017 | August 31, 2016 | |||||||
| Short term employee benefits payable (1)(2) | $ | 101,500 | $ | 40,000 | ||||
| $ | 101,500 | $ | 40,000 | |||||
On September 1, 2016, the Company entered into an agreement for a period of 12 months with Torinit Technologies Inc., (“Torinit”) to provide dedicated resource augmentation to DoubleTap in an effort to optimize user experience while navigating through thehttp://DoubleTap.co website and drive traffic growth by engaging users across all demographics (the “Torinit Services”). As consideration for the Torinit Services, the Company agreed to compensate Torinit the sum of $8,000 per month based on 320 hours per month for a 12 month period. Dikshant Batra, a director of the Company, is also the President, a director and major shareholder of Torinit. As at August 31, 2017, included in trade and other payables is $23,961 due to Torinit.
As at August 31, 2017, the amount of directors’ fees included in trade and other payables was $10,200 (August 31, 2016: $7,100). On February 29, 2016, Mr. Klyman, a former director of the Company agreed to convert outstanding directors’ fees due to him of $7,400 into 2,467 units of the Company (Note 9 and 11 b (a)).
As at August 31, 2017 and 2016, the Company had a promissory note payable to the former President of the Company of $Nil. For the year ended August 31, 2016, the Company recorded interest on the promissory note of $496 (August 31, 2015: $838). On February 26, 2016, the former President assigned the promissory note of $10,000 and all accumulated interest due in the amount of $113,844 to an arms-length third party. The note was due on demand with interest at a rate of 10% per annum. Effective November 18, 2015, the Company issued to the former President 114,009 Units in the capital of the Company pursuant to the anti-dilution provision contained in the August 30, 2014, debt conversion agreements. On February 29, 2016, the former President converted $38,239 in outstanding debt into 12,746 units in the capital of the Company (Note 9 and 11 b (a)).
(formerly: Intelligent Content Enterprises Inc.)
Notes to the Consolidated Financial Statements
August 31, 2017 and 2016 and 2015
(Expressed In Canadian Dollars)
Effective November 18, 2015, the Company entered into a shares for debt conversion agreement and converted a note and interest payable to Core Energy Enterprises Inc. (“Core”) in the aggregate amount of $362,793 through the issuance of 274,243 common shares in the capital of the Company. The fair value of the common shares of $1,830,983 was recorded as an increase to common shares and $1,468,190 was recorded as a loss on settlement of debt in the statement of operations. The CFO of the Company is a major shareholder, officer and a director of Core (Note 10 and 11 b (a)).
Secured Note Payable
As at August 31, 2014, the Company had a secured convertible promissory note payable to Benchmark Enterprises LLC. (“Benchmark”) with a face value of $1,322,347 (US$1,216,175) with an interest rate of 10% (the “Note”). The Note was being accreted up to its face value over the life of Note, based on an effective interest rate. For the year ended August 31, 2015, the Company recorded interest on the Note of $154,179. The Note was due on the earliest to occur of: (a) August 31, 2015; (b) the closing of any subsequent financing or series of financings by the Company that results in gross proceeds of an aggregate amount equal to or greater than US$4,400,000, excluding conversion of any existing debt into equity; (c) the date of a sale by the Company of all of the shares in the capital stock of Zavala Inc. held by the Company from time to time; (d) the closing of a merger, reorganization, take-over or other business combination which results in a change of control of the Company or Zavala Inc.; or (e) an event of default. The Note was secured by all of the assets of the Company and Zavala Inc. Benchmark had the option at any time while the Note was outstanding to convert any unpaid principal and accrued interest into conversion units.
In accordance with the terms of the Note and the General Security Agreement (the “Loan Agreements”) the Company had granted and conveyed to Benchmark a first priority security interest in the Company and Zavala Inc., prior and superior to the rights of all third parties existing on or arising after the date of such Loan Agreements, subject to the Permitted Liens.
At August 31, 2015, the Company was unable to pay the Note due in the amount $1,608,149 plus interest of $154,179, totaling $1,762,328, which constituted an event of default pursuant to the terms of the Loan Agreements. Benchmark, having made demand for payment of all amounts owed to it under the Note, gave notice to the Company that it intended to exercise its security on the Company’s assets. In an effort to avoid further costs, the Company and Benchmark entered into a Settlement and Exercise of Security Agreement effective August 31, 2015, with the following terms:
As a result the Company’s extinguishment of the Note, the Company’s investment in Zavala Inc. had been derecognized from the Company’s Consolidated Financial Statements as at August 31, 2015 (Note 16 a). The fair value of the common shares was determined to be equal to the fair value of the secured note settled The following table presents the effect of the extinguishment of the Note on the Consolidated Financial Statements of the Company:
| August 31, 2015 | ||||
| Secured note payable settled | $ | 1,608,149 | ||
| Interest payable settled | 154,179 | |||
| Net assets and liabilities of Zavala Inc. transferred (Note 16 a) | (836,717 | ) | ||
| Common shares issued (Note 13 b (b)) | (925,611 | ) | ||
| $ | - | |||
(formerly: Intelligent Content Enterprises Inc.)
Notes to the Consolidated Financial Statements
August 31, 2017 and 2016 and 2015
(Expressed In Canadian Dollars)
Shareholder Loans
As at August 31, 2017 and 2016 the Company had shareholders’ loans payable of $Nil.
Effective August 30, 2014, the Company converted shareholders’ loans and interest due in the aggregate amount of $1,180,570 through the issuance of a total of 147,571 units in the capital of the Company. The terms of the August 30, 2014, conversion agreements contained an anti-dilution provision such that if within 18 months of the effective date, the Company issues additional common shares for a consideration per share or with an exercise or conversion price per share, less than $8.00 (the “Adjusted Price”) the Holder herein shall be entitled to receive from the Company (for no additional consideration) additional Units in an amount such that, when added to the number of Units acquired by Holder under this agreement will equal the number of Units that the Holder would otherwise be entitled to receive had this transaction occurred at the Adjusted Price. Effective November 18, 2015, the Company issued a total of 103,299 Units in the capital of the Company pursuant to the Adjusted Price. The warrant component was valued using a Binomial Lattice model whereas the fair value of the common share component was based on the current market value of the company’s stock. The fair value of the units of $6,896,800 was allocated to the common shares in the amount of $5,034,157 and warrants in the amount of $1,862,643 based on their relative fair values and $6,896,800 was recognized as a loss on settlement of debt in the statement of operations. Significant assumptions utilized in the Binomial Lattice process for the warrant component of the conversion were as follows:
| November 18, 2015 | ||||
| Market value on valuation date | $ | 6.60 | ||
| Contractual exercise rate | $ | 10.00 | ||
| Term | 1.79 Years | |||
| Expected market volatility | 183.30 | % | ||
| Risk free rate using zero coupon US Treasury Security rate | 0.90 | % | ||
Loans Payable
As at August 31, 2017 and 2016 the Company had loans payable of $Nil. For the year ended August 31, 2016, the Company recorded interest on the loans payable of $4,945. Effective November 18, 2015, the Company converted loans and interest due in the aggregate amount of $899,660 through the issuance of 680,068 common shares in the capital of the Company. The fair value of the common shares of $4,540,474 was allocated to common shares and $3,640,814 was recorded as loss on settlement of debt in the consolidated statement of operations (Note 11 b).
On February 29, 2016, the Company entered into asset purchase and debt settlement agreement and converted loans and interest in the aggregate amount of $277,473 in exchange forthe Company’s 0.03% net smelter return royalty on 8 mining claim blocks located in Red Lake, Ontario which were carried on the consolidated statement of financial position at $Nil. Accordingly, the Company recorded a gain on settlement of debt for the full amount.
Debt Conversion
On February 29, 2016, the Company entered into shares for debt conversion agreements and converted debt in the aggregate amount of $451,557 through the issuance of 150,519 units in the capital of the Company. Each unit is comprised of one (1) common share and one (1) common share purchase warrant. Each full warrant entitles the holder to purchase one (1) common share at an exercise price of $3.50 until March 1, 2019. The fair value of the units of $1,220,709 was allocated to common shares in the amount of $638,295 and warrants in the amount of $582,414 based on their relative fair values and $769,152 was recognized as a loss on extinguishment of debt in the consolidated statement of operations. Significant assumptions utilized in the Binomial Lattice process for the warrant component of the conversion were as follows:
(formerly: Intelligent Content Enterprises Inc.)
Notes to the Consolidated Financial Statements
August 31, 2017 and 2016 and 2015
(Expressed In Canadian Dollars)
| February 29, 2016 | ||||
| Market value on valuation date | $ | 8.10 | ||
| Contractual exercise rate | $ | 3.50 | ||
| Term (years) | 3 Years | |||
| Expected market volatility | 169.73 | % | ||
| Risk free rate using zero coupon US Treasury Security rate | 0.91 | % | ||
As at August 31, 2017, the Company had no derivative warrant liabilities. As at August 31, 2016, the Company had 175,000 derivative warrant liabilities outstanding with a fair value of $Nil. As at August 31, 2017, the Company recorded a gain on expiry of derivative warrant liabilities of $Nil (August 31, 2016: $281,210). The Company had warrants issued with a cashless exercise price and warrants issued with an exercise price in US dollars which was different from the functional currency of the Company and accordingly the warrants were treated as a financial liabilities. The fair value movement during the periods were recognized in the profit or loss. The following table sets out the changes in derivative warrant liabilities during the respective periods:
Number of Warrants | Fair Value Assigned $ | Average Exercise Price $ | ||||||||||
| As at August 31, 2014 | 7,439 | 1,325,307 | US 370.40 | |||||||||
| Warrants expired | (6,134 | ) | (1,258,206 | ) | US (460.66) | |||||||
| Change in fair value estimates | - | 214,109 | - | |||||||||
| As at August 31, 2015 | 1,305 | 281,210 | US 466.66 | |||||||||
| Warrants expired | (1,305 | ) | (281,210 | ) | - | |||||||
| Warrants issued | 175,000 | - | - | |||||||||
| As at August 31, 2016 | 175,000 | - | 15.00 | |||||||||
| Warrants expired | (175,000 | ) | - | - | ||||||||
| As at August 31, 2017 | - | - | - | |||||||||
On September 25, 2015, 1,305 warrants expired and the fair value measured using the Black-Scholes option pricing model of $281,210 was recorded as a gain on expiry of derivative liabilities on the consolidated statement of operations.
On June 22, 2016, the Company entered into a consulting agreement and issued 175,000 common share purchase warrants exercisable at $15.00 with a cashless exercise option. At August 31, 2016, the Company determined that it would not continue with the agreement and it was suspended and on January 15, 2017, the agreement was mutually terminated no warrants were exercised.
As at August 31, 2017, no derivative warrants liabilities were outstanding. The following tables set out the number of derivative warrant liabilities outstanding as at August 31, 2016 and 2015, respectively:
Number of 2016 | Exercise Price CDN ($) | Expiry Date | Weighted Average Remaining Life | Fair Value ($) | ||||||||||||
| 175,000 | 1.50 | January 15, 2017 | 0.13 | - | ||||||||||||
(formerly: Intelligent Content Enterprises Inc.)
Notes to the Consolidated Financial Statements
August 31, 2017 and 2016 and 2015
(Expressed In Canadian Dollars)
Number of 2015 | Exercise Price US ($) | Expiry Date | Weighted Average Remaining Life | Fair Value ($) | ||||||||||||
| 1,125 | 500.00 | September 25, 2015 | 0.07 | 220,640 | ||||||||||||
| 180 | 250.00 | September 25, 2015 | 0.07 | 60,570 | ||||||||||||
| 1,305 | 0.07 | 281,210 | ||||||||||||||
The Company filed articles of amendment effective May 26, 2017, and changed its name from Intelligent Content Enterprises Inc., to Novicius Corp., and consolidated its common shares on the basis of one (1) new share for every ten (10) old shares. The Company filed articles of amendment effective February 1, 2016, and changed its name from Eagleford Energy Corp., to Intelligent Content Enterprises Inc., and consolidated its common shares on the basis of one (1) new share for every ten (10) old shares. The consolidated financial statements have been adjusted to reflect these consolidations accordingly.
Authorized:
Unlimited number of common shares at no par value
Unlimited number of preferred shares issuable in series
Common Shares Issued:
The following table sets out the changes in common shares during the respective periods:
| Number | Amount $ | |||||||
| Balance August 31, 2015 | 377,295 | 9,997,792 | ||||||
| Common shares issued as debt extinguishment (Note 11 b (a)) | 954,311 | 6,371,457 | ||||||
| Common shares issued as private placement (Note 11 b (b)) | 50,000 | 50,000 | ||||||
| Common shares issued as anti-dilution provision (Note 11 b (c)) | 1,032,998 | 5,034,157 | ||||||
| Common shares issued as private placement (Note 11 b (d)) | 10,000 | 9,044 | ||||||
| Common shares issued as debt extinguishment (Note 11 b (e)) | 150,519 | 638,295 | ||||||
| Common shares issued on exercise of warrants (Note 11 b (f)) | 51,868 | 986,667 | ||||||
| Common shares issued as private placement (Note 11 b (g)) | 23,636 | 133,271 | ||||||
| Balance August 31, 2016 | 2,650,627 | 23,220,683 | ||||||
| Common shares issued as private placement (Note 11 b (h)) | 7,692 | 30,233 | ||||||
| Common shares issued as settlement of shareholder advances (Note 11 b (i)) | 1,187,672 | 213,781 | ||||||
| Common shares issued as anti-dilution provision (Note 11 b (j)) | 1,420,809 | 184,705 | ||||||
| Common shares issued as anti-dilution provision (Note 11 b (k)) | 16,364 | 2,127 | ||||||
| Balance August 31, 2017 | 5,283,164 | 23,651,529 | ||||||
Preferred Shares Issued:
As at August 31, 2017 and August 31, 2016, there were no preferred shares issued.
(formerly: Intelligent Content Enterprises Inc.)
Notes to the Consolidated Financial Statements
August 31, 2017 and 2016 and 2015
(Expressed In Canadian Dollars)
The following table sets out the changes in warrants during the respective periods:
| August 31, 2017 | August 31, 2016 | |||||||||||||||
| Warrants | Number of Warrants | Weighted Average Price | Number of Warrants | Weighted Average Price | ||||||||||||
| Outstanding, beginning of year | 722,572 | - | 73,786 | - | ||||||||||||
| Warrants issued (Note 11 b (c)) | - | - | 516,499 | - | ||||||||||||
| Warrants issued (Note 11 b (d)) | - | - | 10,000 | - | ||||||||||||
| Warrants issued (Note 11 b (e)) | - | - | 150,519 | - | ||||||||||||
| Warrants exercised (Note 11 b (f)) | - | - | (51,868 | ) | - | |||||||||||
| Warrants issued (Note 11 b (g)) | - | - | 23,636 | - | ||||||||||||
| Warrants issued (Note 11 b (h)) | 7,692 | - | - | - | ||||||||||||
| Warrants issued (Note 11 b (k)) | 16,364 | - | - | - | ||||||||||||
| Warrants expired (Note 11 b (l)) | (538,417 | ) | - | - | - | |||||||||||
| Balance, end of year | 208,211 | $ | 5.27 | 722,572 | $ | 8.60 | ||||||||||
(a) Effective November 18, 2015, the Company entered into shares for debt conversion agreements and converted loans and interest due in the aggregate amount of $1,262,453 through the issuance of 954,311 common shares in the capital of the Company. The fair value of $6,371,457 was recorded as an increase to common shares and $5,109,004 was recorded as a loss on settlement of debt in the consolidated statement of operations (Note 9).
(b) Effective November 18, 2015, the Company completed a private placement for gross proceeds of $50,000 and issued 50,000 common shares in the capital of the Company at a purchase price of $1.00 per share.
(c) Effective November 18, 2015, the Company issued 1,032,998 Units in the capital of the Company pursuant to the anti-dilution provision of the August 30, 2014, debt conversion agreements. Each unit was comprised of one (1) common share and one half of one (1/2) common share purchase warrant. Each full warrant entitles the holder to purchase one (1) common share at an exercise price of $10.00 until August 30, 2017. The fair value of the units of $6,896,800 was allocated to the common shares in the amount of $5,034,157 and warrants in the amount of $1,862,643 based on their relative fair values and $6,896,800 was recognized as a loss on settlement of debt in the consolidated statement of operations (Note 9).
(d) On February 29, 2016, the Company completed a private placement for gross proceeds of $30,000 and issued 10,000 units in the capital of the Company at a purchase price of $3.00 per unit. Each unit is comprised of one (1) common share and one (1) common share purchase warrant. Each full warrant entitles the holder to purchase one (1) common share at an exercise price of $3.50 until March 1, 2019. The fair value of the units of $30,000 was allocated to common shares $9,044 and the amount allocated to warrants component using a Binomial Lattice model was $20,956.
(e) On February 29, 2016, the Company entered into debt conversion agreements and converted debt in the aggregate amount of $451,557 through the issuance of 150,519 units in the capital of the Company. Each unit is comprised of one (1) common share and one (1) common share purchase warrant. Each full warrant entitles the holder to purchase one (1) common share at an exercise price of $3.50 until March 1, 2019. The fair value of the Units of $1,220,709 was allocated to common shares in the amount of $638,295 and warrants in the amount of $582,414 based on their relative fair values and $769,152 was recognized as a loss on extinguishment of debt in the consolidated statement of operations.
(formerly: Intelligent Content Enterprises Inc.)
Notes to the Consolidated Financial Statements
August 31, 2017 and 2016 and 2015
(Expressed In Canadian Dollars)
(f) During the year ended August 31, 2016, 51,868 common share purchase warrants were exercised at $10.00 for proceeds of $518,683. The amount allocated to warrants using a Binomial Lattice model was $467,984.
(g) On August 31, 2016, the Company completed private placements for gross proceeds of $260,000 and issued 23,636 units in the capital of the Company at a purchase price of $11.00 per unit. Each unit is comprised of one (1) common share and one (1) common share purchase warrant. Each full warrant entitles the holder to purchase one (1) common share at an exercise price of $12.50 until August 31, 2019. The Subscription agreements contain an anti-dilution provision such that if within 18 months of August 31, 2016, the Company issues additional common shares for a consideration per share or with an exercise or conversion price per share, less than $11.00 (the “Adjusted Price”) the Holder shall be entitled to receive from the Company (for no additional consideration) additional Units in an amount such that, when added to the number of Units acquired by Holder under this agreement will equal the number of Units that the Holder would otherwise be entitled to receive had this transaction occurred at the Adjusted Price. At August 31, 2016, the Company determined that based on the market price of the Company’s common shares being greater than the Unit issue price per share, no additional common shares were required to be fair valued and recorded as a derivative liability (Note 9, Note 11 b (j) and Note 11 b (k)).
The fair value of the units of $260,000 was allocated to common shares in the amount of $133,271 and the amount allocated to warrants using a Binomial Lattice model was $126,729. The assumptions utilized in the Binomial Lattice process for the common share purchase warrants were as follows:
| August 31, 2016 | ||||
| Market value on valuation date | $ | 13.10 | ||
| Contractual exercise rate | $ | 12.50 | ||
| Term | 3 Years | |||
| Expected market volatility | 152.78 | % | ||
| Risk free rate using zero coupon US Treasury Security rate | 0.92 | % | ||
(h) On November 30, 2016, the Company completed private placements for gross proceeds of $50,000 and issued 7,692 units in the capital of the Company at a purchase price of $6.50 per unit. Each unit is comprised of one (1) common share and one (1) common share purchase warrant. Each full warrant entitles the holder to purchase one (1) common share at an exercise price of $10.00 until November 30, 2019. The fair value of the units ($50,000) was allocated to common shares $30,233 and the amount allocated to warrants component using a Binomial Lattice model was $19,767.
(i) Effective August 31, 2017, the Company settled shareholder advances of $213,781 and issued 1,187,672 common shares in the capital of the Company at a price of $0.18 per share.
(j) Pursuant to the August 31, 2017, settlement of shareholder advances of $213,781 (Note 11 b (i), effective August 31, 2017, the Company issued 1,420,809 common shares in the capital of the Company pursuant to the anti-dilution provision of the August 31, 2016, private placement agreements. The fair value of $184,705 was calculated on the previous day’s closing price of the Company’s common shares and allocated to common shares and anti-dilution fees in the consolidated statement of operations (Note 11 b (g)).
(k) Pursuant to the November 30, 2016, private placement of $50,000 (Note 11 b (h), effective August 31, 2017, the Company issued 16,364 Units in the capital of the Company pursuant to the anti-dilution provision of the August 31, 2016, private placement agreements. Each unit is comprised of one (1) common share and one (1) common share purchase warrant. Each full warrant entitles the holder to purchase one (1) common share at an exercise price of $10.00 until November 30, 2019. The fair value of the units of $2,127 was allocated to common shares and anti-dilution fees in the consolidated statement of operations. No value was allocated to warrants based on the Binomial Lattice model (Note 11 b (g)).
(formerly: Intelligent Content Enterprises Inc.)
Notes to the Consolidated Financial Statements
August 31, 2017 and 2016 and 2015
(Expressed In Canadian Dollars)
(l) On August 31, 2017, 538,417 common share purchase warrants exercisable at $10.00 expired. The amount allocated to warrants based on the Binomial Lattice model was $2,195,738 with a corresponding increase to contributed surplus.
The following table summarizes the outstanding warrants as at August 31, 2017 and August 31, 2016, respectively:
Number of Warrants 2017 | Exercise Price | Expiry Date | Weighted Average Remaining Life (Years) | Warrant Value ($) | ||||||||||||
| 160,519 | $ | 3.50 | March 1, 2019 | 1.50 | 603,370 | |||||||||||
| 23,636 | $ | 12.50 | August 31, 2019 | 2.00 | 126,729 | |||||||||||
| 24,056 | $ | 10.00 | November 30, 2019 | 2.25 | 19,767 | |||||||||||
| 208,211 | 1.64 | 749,866 | ||||||||||||||
Number of Warrants 2016 | Exercise Price | Expiry Date | Weighted Average Remaining Life (Years) | Warrant Value ($) | ||||||||||||
| 538,417 | $ | 10.00 | August 30, 2017 | 1.00 | 2,195,738 | |||||||||||
| 160,519 | $ | 3.50 | March 1, 2019 | 2.50 | 603,370 | |||||||||||
| 23,636 | $ | 12.50 | August 31, 2019 | 3.00 | 126,729 | |||||||||||
| 722,572 | 1.40 | 2,935,837 | ||||||||||||||
The following table summarizes the weighted average shares outstanding:
| August 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Weighted Average Shares Outstanding, basic | 2,663,614 | 2,077,096 | 276,989 | |||||||||
| Weighted Average Shares Outstanding, diluted | 2,663,614 | 2,077,096 | 375,551 | |||||||||
At August 31, 2017, there were 155,000 stock options and 208,211 common share purchase warrants that could be exercised, however they are anti-dilutive. The effects of any potential dilutive instruments on loss per share are anti-dilutive and therefore have been excluded from the calculation of diluted loss per share.
d) Share Purchase Options
The Company has a stock option plan to provide incentives for directors, officers, employees and consultants of the Company. The maximum number of shares, which may be set aside for issuance under the stock option plan, is 20% of the issued and outstanding common shares of the Company on a rolling basis.
The following table is a summary of the status of the Company’s stock options and changes during the period:
| Number | Weighted Average | |||||||
| of Options | Exercise Price $ | |||||||
| Balance, August 31, 2015 | 11,000 | 25.00 | ||||||
| Expired | (2,700 | ) | 23.00 | |||||
| Granted | 30,000 | (21.90 | ) | |||||
| Balance, August 31, 2016 | 38,300 | 22.80 | ||||||
| Granted | 200,000 | 12.05 | ||||||
| Expired | (83,300 | ) | (13.63 | ) | ||||
| Balance, August 31, 2017 | 155,000 | 13.87 | ||||||
(formerly: Intelligent Content Enterprises Inc.)
Notes to the Consolidated Financial Statements
August 31, 2017 and 2016 and 2015
(Expressed In Canadian Dollars)
The following table is a summary of the Company's stock options outstanding and exercisable as at August 31, 2017 and August 31, 2016, respectively:
| Options Outstanding | Options Exercisable | |||||||||||||||||||
Exercise Price | Number of Options | Weighted Remaining Life | Expiry Date | Number of Options | Weighted Exercise | |||||||||||||||
| $ | 12.00 | 5,000 | 2.20 | November 11, 2019 | 5,000 | 0.50 | ||||||||||||||
| $ | 15.00 | 70,000 | 4.02 | September 8, 2021 | 35,000 | 3.79 | ||||||||||||||
| $ | 13.00 | 80,000 | 4.02 | September 8, 2021 | 80,000 | 4.38 | ||||||||||||||
| 155,000 | 3.95 | 85,000 | 13.87 | |||||||||||||||||
| Options Outstanding | Options Exercisable | |||||||||||||||||||
Exercise Price | Number of Options | Weighted Remaining Life | Expiry Date | Number of Options | Weighted Exercise | |||||||||||||||
| $ | 160.00 | 600 | 0.50 | February 17, 2017 | 600 | 2.51 | ||||||||||||||
| $ | 160.00 | 200 | 0.27 | December 8, 2016 | 200 | 0.84 | ||||||||||||||
| $ | 12.00 | 5,000 | 3.20 | November 11, 2019 | 5,000 | 1.57 | ||||||||||||||
| $ | 12.00 | 2,500 | 0.27 | December 8, 2016 | 2,500 | 0.78 | ||||||||||||||
| $ | 21.90 | 30,000 | 0.27 | December 8, 2016 | 30,000 | 17.10 | ||||||||||||||
| 38,300 | 4.48 | 38,300 | 22.80 | |||||||||||||||||
Employees
On September 9, 2016, the Company granted 30,000 immediately vesting common share purchase options to shares to a director and 30,000 common share purchase options vesting February 6, 2017 to the President. These options are exercisable at $13.00 per share and expire on September 8, 2021. The Company recorded non-cash stock based compensation expense of $706,178.
On September 9, 2016, the Company granted to the President 70,000 common share purchase options exercisable at $15.00 per share and expiring on September 8, 2021. Of these options, 35,000 vest on September 8, 2017 and 35,000 vest on September 8, 2018. The Company recorded non-cash stock based compensation expense of $613,532.
On November 1, 2016, the Company granted 50,000 common share purchase options vesting March 30, 2017 to the former Chief Financial Officer. These options were exercisable at $6.40 per share and expired on April 25, 2017. The Company recorded non-cash stock based compensation expense of $294,895.
Non Employees
On September 9, 2016, the Company granted 20,000 immediately vesting common share purchase options to a consultant of the Company. These options are exercisable at $13.00 per share and expire on September 8, 2021. The Company recorded non-cash stock based compensation expense of $235,393.
The fair value of the stock options granted were estimated on the date of the grant using the Black Scholes option pricing model with the following assumptions and inputs:
(formerly: Intelligent Content Enterprises Inc.)
Notes to the Consolidated Financial Statements
August 31, 2017 and 2016 and 2015
(Expressed In Canadian Dollars)
| November 1, 2016 | September 9, 2016 | |||||||
| Weighted average fair value per option | $ | 5.90 | $ | 11.70 | ||||
| Weighted average risk free interest rate | 0.68 | % | 0.59 | % | ||||
| Forfeiture rate | 0 | % | 0 | % | ||||
| Weighted average expected volatility | 156.70 | % | 152.32 | % | ||||
| Expected life (years) | 5 | 5 | ||||||
| Dividend yield | Nil | Nil | ||||||
| Stock price on the date of grant | $ | 6.40 | $ | 12.90 | ||||
The following table summarizes the non-cash transactions for the years set out:
| Non-cash transactions | August 31, 2017 ($) | August 31, 2016 ($) | August 31, 2015 ($) | |||||||||
| Stock based compensation (Note 11 e) | 1,849,998 | 615,924 | 112,693 | |||||||||
| Stock options expired (Note 11 d) | (1,066,882 | ) | (60,143 | ) | (11,112 | ) | ||||||
| Warrants expired | (2,195,738 | ) | - | (1,169,889 | ) | |||||||
| Units issued as anti-dilution provision (Note 10) | 184,705 | 6,896,800 | - | |||||||||
| Shares issued as anti-dilution provision (Note 10) | 2,127 | - | ||||||||||
| Shares issued to settle debt (Note 9 and 10) | - | 6,371,457 | - | |||||||||
| Derivative warrants expired (Note 11) | - | (281,210 | ) | (1,258,206 | ) | |||||||
| Units issued as debt extinguishment (Note 10) | - | 1,220,709 | - | |||||||||
| Debt settled in exchange of property | - | (277,473 | ) | |||||||||
| Shares to be issued to settle debt | - | - | 925,611 | |||||||||
| Disposal of decommissioning obligation | - | - | 135,064 | |||||||||
Financial instruments are measured at fair value on initial recognition of the instrument. The types of risk exposure to the Company’s financial instruments and the ways in which such exposures are managed are as follows:
Credit Risk
Credit risk is primarily related to the Company’s receivables and cash and the risk of financial loss if a partner or counterparty to a financial instrument fails to meet its contractual obligations. At August 31, 2017, trade and other receivables amounts are $Nil (August 31, 2016: $Nil). At August 31, 2017, included in other receivables is HST due from the Government of Canada in the amount of $41,007 (August 31, 2016: $14,800).
Concentration risk exists in cash because cash balances are maintained with one financial institution. The risk is mitigated because the financial institution is an international bank and all amounts are due on demand.
The Company’s maximum exposure to credit risk is as follows:
| August 31, 2017 ($) | August 31, 2016 ($) | |||||||
| Cash | 1,040 | 449,983 | ||||||
| Balance | 1,040 | 449,983 | ||||||
(formerly: Intelligent Content Enterprises Inc.)
Notes to the Consolidated Financial Statements
August 31, 2017 and 2016 and 2015
(Expressed In Canadian Dollars)
Liquidity Risk
The Company monitors its liquidity position regularly to assess whether it has the funds necessary to fulfill planned opportunities or that viable options are available to fund such opportunities from new equity issuances or alternative sources of financings. As a company without significant revenue, there are inherent liquidity risks, including the possibility that additional financing may not be available to the Company, or that such financing terms may not be acceptable to the Company.
The following table illustrates the contractual maturities of financial liabilities:
| August 31, 2017 | Payments Due by Period $ | |||||||||||||||||||
| Total | Less than 1 year | 1-3 years | 4-5 years | After 5 years | ||||||||||||||||
| Trade and others payables | 529,823 | 529,823 | - | - | - | |||||||||||||||
| Total | 529,823 | 529,823 | - | - | - | |||||||||||||||
| August 31, 2016 | Payments Due by Period $ | |||||||||||||||||||
| Total | Less than 1 year | 1-3 years | 4-5 years | After 5 years | ||||||||||||||||
| Trade and others payables | 1,173,231 | 1,173,231 | - | - | - | |||||||||||||||
| Total | 1,173,231 | 1,173,231 | - | - | - | |||||||||||||||
Market Risk
Market risk represents the risk of loss that may impact the Company’s financial position, results of operations, or cash flows due to adverse changes in financial market prices, including interest rate risk, foreign currency exchange rate risk, and other relevant market or price risks. The Company does not use derivative instruments to mitigate this risk.
(i) Currency Risk
The Company is exposed to the fluctuations in foreign exchange rates. The Company operates in Canada and a portion of its expenses are incurred in US dollars. A significant change in the currency exchange rates between the Canadian dollar relative to US dollar could have an effect on the Company’s financial instruments. The Company does not hedge its foreign currency exposure.
The following assets and liabilities are denominated in US dollars as at the year-end set out below:
| August 31, 2017 ($) | August 31, 2016 ($) | |||||||
| Cash | 77 | 6,157 | ||||||
| Prepaid expenses and deposits | - | 7,814 | ||||||
| Trade and other payables | (38,777 | ) | (26,322 | ) | ||||
| Net assets (liabilities) denominated in US$ | (38,700 | ) | (12,351 | ) | ||||
| Net assets (liabilities) CDN dollar equivalent at period end(1) | (48,514 | ) | (16,209 | ) | ||||
(1) Translated at the exchange rate in effect at August 31, 2017 $1.2536 (August 31, 2016 $1.3124)
(formerly: Intelligent Content Enterprises Inc.)
Notes to the Consolidated Financial Statements
August 31, 2017 and 2016 and 2015
(Expressed In Canadian Dollars)
The following table shows the estimated sensitivity of the Company’s total loss for the periods set out from a change in the US dollar exchange rate in which the Company has exposure with all other variables held constant.
| August 31, 2017 | August 31, 2016 | |||||||||||||||||
| Increase | Decrease | Increase | Decrease | |||||||||||||||
| Percentage change in US Dollar | In total loss from a change in % in the US Exchange Rate ($) | In total loss from a change in % in the US Exchange Rate ($) | ||||||||||||||||
| 5 | % | (3,041 | ) | 3,041 | (1,064 | ) | 1,064 | |||||||||||
| 10 | % | (6,082 | ) | 6,082 | (2,127 | ) | 2,127 | |||||||||||
| 15 | % | (9,123 | ) | 9,123 | (3,191 | ) | 3,191 | |||||||||||
(ii) Interest Rate Risk
Interest rate risk refers to the risk that the value of a financial instrument or cash flows associated with the instrument will fluctuate due to changes in market interest rates. The majority of the Company’s debt is short-term in nature with fixed rates.
(iii) Fair Value of Financial Instruments
The Company’s financial instruments included on the consolidated statements of financial position are comprised of cash, secured note receivable and trade and other payables. The Company classifies the fair value of financial instruments measured at fair value according to the following hierarchy based on the amount of observable inputs used to value the instrument.
• Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
• Level 2 – Pricing inputs are other than quoted prices in active markets included in Level 1. Prices in Level 2 are either directly or indirectly observable as of the reporting date. Level 2 valuations are based on inputs, including quoted forward prices for commodities, time value and volatility factors, which can be substantially observed or corroborated in the marketplace.
• Level 3 – Valuations in this level are those with inputs for the asset or liability that are not based on observable market data.
| August 31, 2017 | August 31, 2016 | |||||||||||||||||||
Financial Instrument Classification | Level | Carrying Value ($) | Fair Value ($) | Carrying Value ($) | Fair Value ($) | |||||||||||||||
| Fair value through profit or loss: | ||||||||||||||||||||
| Cash | 1 | 1,040 | 1,040 | 449,983 | 449,983 | |||||||||||||||
| Other financial liabilities: | ||||||||||||||||||||
| Trade and other payables | 529,823 | 529,823 | 1,173,231 | 1,173,231 | ||||||||||||||||
Cash is stated at fair value (Level 1 measurement). The carrying value of trade and other payables approximate their fair value due to the short-term maturity of these financial instruments.
Capital Management
The Company’s objectives when managing capital are to ensure the Company will have sufficient financial capacity, liquidity and flexibility to fund its operations, growth and ongoing development opportunities. The Company’s capital requirements currently exceed its operational cash flow. As such, the Company is dependent upon future financings in order to maintain liquidity and will be required to issue equity or issue debt.
(formerly: Intelligent Content Enterprises Inc.)
Notes to the Consolidated Financial Statements
August 31, 2017 and 2016 and 2015
(Expressed In Canadian Dollars)
The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions, availability of capital and the risk characteristics of any underlying assets in order to meet current and upcoming obligations.
The board of directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company's management and favourable market conditions to sustain future development of the business. As at August 31, 2017 and 2016, the Company considered its capital structure to be comprised of shareholders’ deficiency.
The reconciliation of the combined Canadian federal and provincial statutory tax rate of 26.5% to the effective tax rate is as follows:
| 2017 | 2016 | 2015 | ||||||||||
| Net loss before recovery of income taxes | $ | 2,097,738 | $ | 13,531,587 | $ | 1,436,812 | ||||||
| Expected income tax (recovery) expense | (555,901 | ) | (3,585,871 | ) | (380,755 | ) | ||||||
| Share based compensation and non-deductible expenses | 302,853 | - | - | |||||||||
| Debt forgiveness | 236,907 | - | - | |||||||||
| Non-taxable items and others | - | 3,458,054 | 230,893 | |||||||||
| Change in tax benefits not recognized | 16,141 | 127,817 | 149,862 | |||||||||
| Income tax (recovery) expense | $ | - | $ | - | $ | - | ||||||
Deferred taxes are provided as a result of temporary differences that arise due to the differences between the income tax values and the carrying amount of assets and liabilities. Deferred tax assets have not been recognized in respect of the following deductible temporary differences:
| 2017 | 2016 | 2015 | ||||||||||
| Non-capital losses carried forward - Canada | $ | 5,154,600 | $ | 1,313,096 | $ | 1,187,152 | ||||||
| Share issue costs | 16,790 | 5,621 | 3,748 | |||||||||
| Capital losses carry forwards | - | 28,070 | 28,070 | |||||||||
| Oil and gas interests | - | 76,713 | 76,713 | |||||||||
| Unrecognized deferred tax asset | $ | 5,171,390 | $ | 1,423,500 | $ | 1,295,683 | ||||||
The Company’s Canadian non-capital losses expire as follows:
| 2030 | 703,290 | |||
| 2031 | 648,300 | |||
| 2032 | 1,200,570 | |||
| 2033 | 870,780 | |||
| 2034 | 662,600 | |||
| 2035 | 258,560 | |||
| 2036 | 766,380 | |||
| 2037 | 44,120 | |||
| $ | 5,154,600 |
(formerly: Intelligent Content Enterprises Inc.)
Notes to the Consolidated Financial Statements
August 31, 2017 and 2016 and 2015
(Expressed In Canadian Dollars)
In accordance with the terms of a Secured Note and a General Security Agreement, the Company and Benchmark Enterprises Inc., (“Benchmark”) entered into a Settlement and Exercise of Security Agreement effective August 31, 2015 for the extinguishment of the Secured Note and Interest in the amount of $1,762,328. The Company assigned and conveyed to Benchmark all of its rights, title and interest in and to Zavala Inc. and issued 100,000 common shares of the Company to Benchmark.
As a result of the extinguishment of the Note, the Company’s investment in Zavala Inc. had been derecognized from the Company’s Consolidated Financial Statements as at the effective date (August 31, 2015) and presented as discontinued operations on the Consolidated Statements of Operations and Comprehensive Loss and the Consolidated Statements of Cash Flows. Upon the disposition of Zavala Inc., the Company realized a foreign exchange translation gain of $615,881. The following table presents the consolidated statements of operations and other comprehensive income (loss) of Zavala Inc., for the years set out:
| August 31, 2016 | August 31, 2015 | |||||||
| Expenses | ||||||||
| Accretion | $ | - | $ | 1,498 | ||||
| General and administrative | 6,020 | 73,347 | ||||||
| Bad debt expense | - | 29,756 | ||||||
| Impairment loss on marketable securities | - | 167,815 | ||||||
| Impairment loss on exploration and evaluation assets | - | 4,490,045 | ||||||
| Loss from discontinued operations | (6,020 | ) | (4,762,461 | ) | ||||
| Foreign currency translation | - | (4,692 | ) | |||||
| Total loss from discontinued operations | $ | (6,020 | ) | $ | (4,767,153 | ) | ||
| Loss per share from discontinued operations, basic and diluted | $ | (0.000 | ) | $ | (17.194 | ) | ||
The following table presents the consolidated statements of cash flows of Zavala Inc. for the periods set out:
| August 31, 2016 | August 31,2015 | |||||||
| Cash provided by (used in) | ||||||||
| Operating activities | ||||||||
| Net loss from discontinued operations | $ | (6,020 | ) | $ | (4,762,461 | ) | ||
| Accretion | - | 1,498 | ||||||
| Impairment loss on marketable securities | - | 167,815 | ||||||
| Impairment loss on exploration and evaluation assets | - | 4,490,045 | ||||||
| Net changes in non-cash working capital | ||||||||
| Accounts receivable | - | 79,790 | ||||||
| Accounts payable | - | (58,979 | ) | |||||
| Deferred revenue | - | (177,804 | ) | |||||
| Cash provided by (used in) operating activities, discontinued operations | (6,020 | ) | (260,096 | ) | ||||
| Investing activities | ||||||||
| Additions to exploration and evaluation assets, net | - | (109,874 | ) | |||||
| Cash used in investing activities, discontinued operations | - | (109,874 | ) | |||||
| Financing activities | ||||||||
| Loans payable | - | 279,053 | ||||||
| Cash provided by financing activities, discontinued operations | - | 279,053 | ||||||
| Net cash provided by (used in) discontinued operations | $ | (6,020 | ) | $ | (90,917 | ) | ||
(formerly: Intelligent Content Enterprises Inc.)
Notes to the Consolidated Financial Statements
August 31, 2017 and 2016 and 2015
(Expressed In Canadian Dollars)
The following table presents the effect of the disposal of Zavala Inc., on the Consolidated Statement of Financial Position of the Company at the effective date:
| August 31, 2015 | ||||
| Accounts receivable | $ | 658 | ||
| Restricted cash | 33,058 | |||
| Marketable securities | 10,578 | |||
| Exploration and evaluation assets | 1,212,996 | |||
| Provisions | (135,064 | ) | ||
| Loan payable | (279,053 | ) | ||
| Accounts payable | (6,456 | ) | ||
| Net assets and liabilities of Zavala Inc. | $ | 836,717 | ||
b) Discontinued operations of 1354166 Alberta Ltd.
The Company entered into a Share Purchase and Debt Settlement Agreement with 1288131 Alberta Ltd. effective February 29, 2016 and disposed of its interest in 1354166 Alberta for the settlement of debt owed to 1288131 Alberta Ltd., in the amount of $62,867.
As a result the extinguishment of the debt, the Company’s investment in 1354166 Alberta had been derecognized from the Company’s Consolidated Financial Statements as at the effective date (February 29, 2016) and presented as discontinued operations on the Consolidated Statements of Operations and Comprehensive Loss and the Consolidated Statements of Cash Flows. Upon the disposition of 1354166 Alberta the Company recognized a gain in the amount of $68,489.
The following table presents the statements of operations of 1354166 Alberta for the period set out:
| August 31,2016 | ||||
| Revenue | ||||
| Natural gas sales | $ | 13,998 | ||
| Expenses | ||||
| Operating costs | 5,170 | |||
| General and administrative | 97 | |||
| (5,267 | ) | |||
| Net income from discontinued operations | $ | 8,731 | ||
| Earnings per share from discontinued operations, basic and diluted | $ | 0.000 | ||
The following table presents the statements of cash flows of 1354166 Alberta for the period set out:
| August 31,2016 | ||||
| Cash provided by (used in) | ||||
| Operating activities | ||||
| Net income from discontinued operations | $ | 8,731 | ||
| Item not involving cash | ||||
| Net changes in non-cash working capital | ||||
| Accounts receivable | 4,955 | |||
| Accounts payable | 14 | |||
| Cash provided by operating activities, discontinued operations | 13,700 | |||
| Net cash provided by discontinued operations | $ | 13,700 | ||
(formerly: Intelligent Content Enterprises Inc.)
Notes to the Consolidated Financial Statements
August 31, 2017 and 2016 and 2015
(Expressed In Canadian Dollars)
The following table presents the effect of the disposal of 1354166 Alberta on the Consolidated Statement of Financial Position of the Company:
| February 29, 2016 | ||||
| Cash | $ | 2,564 | ||
| Accounts Receivable | 3,391 | |||
| Accounts payable | (14 | ) | ||
| Provisions (Note 12) | (11,563 | ) | ||
| Net assets and liabilities of 1354166 Alberta | $ | (5,622 | ) | |
Effective April 3, 2014, the Company’s former wholly owned subsidiary Dyami Energy, LLC (“Dyami Energy”) was dissolved.
The Company’s investment in Dyami Energy had been derecognized from the Company’s Consolidated Financial Statements as at the effective date, and presented on the Consolidated Statements of Operations and the Consolidated Statements of Cash Flow as an impairment of the net assets and liabilities on dissolution of subsidiary. Prior obligations of Dyami Energy, with respect to the Matthews and Murphy Leases of $893,990 were previously recorded by the Company as financial liabilities and in the current period recognized as a gain upon de-recognition of financial liabilities.
Subsequent to the year ended August 31, 2017, the Company’s Chief Financial Officer advanced the Company $35,000.
Subsequent to the year ended August 31, 2017, the Company received a non interest bearing due on demand loan of US $20,000.
Subsequent to the year ended August 31, 2017, the Company executed a non-binding Letter of Intent with Grown Rogue Unlimited, LLC, an Oregon limited liability company (“Grown Rogue”) according to which it is contemplated that the Company will combine its business operations with Grown Rogue (the “Transaction”) resulting in a reverse take-over of the Company by Grown Rogue. The Transaction as currently contemplated will result in Grown Rogue becoming a wholly-owned subsidiary of the Company or otherwise combining its corporate existence with a wholly-owned subsidiary of the Company. No representation is given that the Transaction will close however if closed as contemplated it is expected that: (a) the current holders of the Company securities will own, and have the right to acquire upon exercise of warrants and options, common shares representing 3.6% of fully diluted common shares of the Resulting Issuer; (b) 55,500,000 post consolidated common shares of the Company (“Nov Shares”), or as adjusted such that the owners of Grown Rogue will own at least 75.9% of the Resulting Issuer on the closing of the Transaction, will be issued to the owners of Grown Rogue in exchange for all of the issued and outstanding equity membership interests of Grown Rogue based on a valuation acceptable to the parties of at least $27,750,000 and Nov Shares being issued at $0.50 per share and (c) purchasers of Offered Securities issued in the Private Placement will own 20.5% of fully diluted common shares of the Resulting Issuer.
Prior to the closing of the Private Placement and the Transaction, if at all, it is intended that the Company will complete a consolidation (the “Consolidation”) of its common shares on the basis of two (2) pre-consolidated common shares for one (1) post-consolidated common share.
| ITEM 19 | EXHIBITS |
The following exhibits are included in the AnnualTransition Report on Form 20-F:
| Exhibit # | Description | |
| 1.1 | Certificate of Incorporation | |
| 1.2 | Articles of Amendment dated January 14, 1985 (1) | |
| 1.3 | Articles of Amendment dated August 16, 2000 (1) | |
| 1.4 | Bylaw No 1 | |
| 1.5 | Special By-Law No 1 | |
| 1.6 | Articles of Amalgamation dated November 30, 2009 | |
| Code of Business Conduct and Ethics (1) | ||
| Compensation Committee Charter (1) | ||
| Amended Audit Committee Charter | ||
| By-Law No. 1, February 24, 2012 | ||
| Articles of Amendment, effective March 16, 2012 | ||
81
| Reference # | Incorporated by Reference | |
| (1) | Previously filed on April 29, 2009 by Registrant as part of Registration Statement on Form 20-F (SEC File No. 0-53646) | |
| (2) | Previously Filed by Registrant | |
| Previously filed by Registrant on Form 6-K on February 1, 2012 | ||
| Previously filed by Registrant on Form 6-K on March 9, 2012 | ||
| Previously filed by Registrant on Form 6-K on August 20, 2014 | ||
| Previously filed by Registrant on Form 6-K on February 4, 2016 | ||
| Previously filed by Registrant on Form 6-K on March 9, 2016 |
| Previously filed by Registrant on Form 6-K on December 29, 2016 | ||
| Previously filed by Registrant on Form | ||
| Previously filed by Registrant on Form 6-K on | ||
| Previously filed by Registrant on Form 6-K on | ||
| Previously filed by Registrant on Form 6-K on December 7, 2021 | ||
| (13) | Previously filed by Registrant on Form 6-K on November 15, 2018 | |
| (14) | Filed as an Exhibit hereto |
82
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this AnnualTransition Report on its behalf.
| By: | /s/ J. Obie Strickler | ||
| Name: | J. Obie Strickler | ||
| Title: | President & Chief Executive Officer | ||
Date: April 29, 2024
83
INDEX TO FINANCIAL STATEMENTS
Audited Consolidated Financial Statements of Grown Rogue International Inc. for the two months ended December 31, 2023 and the years ended October 31, 2023, 2022 and 2021, comprised of the following:
84
GROWN ROGUE INTERNATIONAL INC.
Consolidated Financial Statements
For the Two months ended December 31, 2023
and the Years ended October 31, 2023, 2022 and 2021
Expressed in United States Dollars
F-1
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of
Grown Rogue International Inc.
Opinion on the Consolidated Financial Statements
We have audited the consolidated statements of financial position of Grown Rogue International Inc. (the “Company”) as of December 31, 2023, and October 31, 2023 and 2022, and the related consolidated statements of comprehensive income (loss), changes in equity and cash flows for the two months ended December 31, 2023 and each of the three years in the period ended October 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2023, and October 31, 2023 and 2022, and the consolidated results of its operations and its cash flows for the two months ended December 31, 2023, and each of the three years in the period ended October 31, 2023, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatements, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provides a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Turner, Stone & Company, L.L.P. Accountants and Consultants 12700 Park Central Drive, Suite 1400 Dallas, Texas 75251 Telephone: 972-239-1660 ⁄ Facsimile: 972-239-1665 Toll Free: 877-853-4195 Web site: turnerstone.com |
INTERNATIONAL ASSOCIATION OF ACCOUNTANTS AND AUDITORS |
F-2
| ● | Measurement of fair value of biological assets – as discussed in Note 3 of notes to the consolidated financial statements, the Company measures biological assets at fair value less costs to sell in accordance with IAS 41, Agriculture, which we identified as a critical audit matter. The Company uses an income approach to determine the fair value less costs to sell at a specific measurement date, based on the existing cannabis plant’s stage of completion up to the point of harvest. |
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested calculations, including the assumptions used, to determine the fair value of the biological assets. We tested allocation of indirect costs, which formed part of standard cost per unit to complete production, by assessing the allocation method, recalculating the allocations and on a selection basis comparing the underlying allocation to source documents.
| ● | Stock Based Compensation – as discussed in Note 2.14 of the notes to the consolidated financial statements, the Company states that transactions with non-employees that are settled in equity instruments are measured at the fair value of the goods or services rendered utilizing the Black-Sholes option pricing model. |
The following are the primary procedures we performed to address this critical audit matter. We compared the listing of the provided share-based payment areas, in equity, options, and warrants to the underlying share-based agreements that reflected the amount of consideration being provided. Utilizing the Black-Sholes option pricing model, we recalculated the remaining lives, expense allocations, forfeitures, and cancellations of the share-based transactions during the year.
| ● | Derivative Liability – as discussed in Note 11 of the notes to the consolidated financial statements, the Company uses the Black-Scholes option pricing model to estimate the fair value of its derivative liabilities which result from the variable conversion terms of their convertible notes payable. The Black-Scholes option pricing model involves the use of several significant estimates such as the expected life of the underlying convertible note payable, expected share price volatility, dividend yield, and risk-free interest rate. Given the significant estimates involved in estimating the fair value of its derivative liabilities, the related audit effort in evaluating management’s estimates in determining the fair value of derivative liabilities required a high degree of auditor judgment. We obtained an understanding over the Company’s process to estimate the fair value of derivative liabilities, including how the Company develops each of the estimates required to utilize the Black-Scholes option-pricing model. We applied the following audit procedures related to testing the Company’s estimates utilized in the Black-Scholes option pricing model: |
| ○ | We reviewed the Company’s dividend history noting the Company has not issued dividends historically and management indicated that no future dividends were currently anticipated. |
| ○ | We compared the Company’s risk-free interest rate used to the comparable Canadian three-year bond yield for a term comparable to the expected term of the convertible notes payable. |
| ○ | We recalculated the Company’s historical share price volatility for a term comparable to the expected term of the convertible notes payable. |
| ○ | We recalculated the expected term of underlying convertible note agreement using the simplified method. |
We have served as Grown Rogue International Inc.’s auditor since 2021.
Dallas, Texas
76
April 29, 2024
Turner, Stone & Company, L.L.P. Accountants and Consultants 12700 Park Central Drive, Suite 1400 Dallas, Texas 75251 Telephone: 972-239-1660 ⁄ Facsimile: 972-239-1665 Toll Free: 877-853-4195 Web site: turnerstone.com |
INTERNATIONAL ASSOCIATION OF ACCOUNTANTS AND AUDITORS |
F-3
Grown Rogue International Inc.
Consolidated Statements of Financial Position
Expressed in United States Dollars
| December 31, 2023 | October 31, 2023 | October 31, 2022 | ||||||||||
| $ | $ | $ | ||||||||||
| ASSETS | ||||||||||||
| Current assets | ||||||||||||
| Cash | 6,804,579 | 8,858,247 | 1,582,384 | |||||||||
| Accounts receivable (Note 18) | 1,642,990 | 2,109,424 | 1,643,959 | |||||||||
| Biological assets (Note 3) | 1,723,342 | 1,566,822 | 1,199,519 | |||||||||
| Inventory (Note 4) | 5,021,290 | 4,494,257 | 3,131,877 | |||||||||
| Prepaid expenses and other assets | 420,336 | 392,787 | 352,274 | |||||||||
| Total current assets | 15,612,537 | 17,421,537 | 7,910,013 | |||||||||
| Property and equipment (Note 8) | 8,820,897 | 8,753,266 | 7,734,901 | |||||||||
| Notes receivable (Notes 6.2.1 and 6.2.2) | 2,449,122 | 1,430,526 | - | |||||||||
| Warrants asset (Note 13.2) | 1,761,382 | 1,361,366 | - | |||||||||
| Intangible assets and goodwill (Note 9) | 725,668 | 725,668 | 725,668 | |||||||||
| Deferred tax assets (Note 20) | 246,294 | 470,358 | - | |||||||||
| TOTAL ASSETS | 29,615,900 | 30,162,721 | 16,370,582 | |||||||||
| LIABILITIES | ||||||||||||
| Current liabilities | ||||||||||||
| Accounts payable and accrued liabilities | 1,358,962 | 2,359,750 | 1,821,875 | |||||||||
| Current portion of lease liabilities (Note 7) | 925,976 | 824,271 | 1,025,373 | |||||||||
| Current portion of long-term debt (Note 10) | 780,358 | 1,285,604 | 1,769,600 | |||||||||
| Business acquisition consideration payable (Note 5) | 360,000 | 360,000 | 360,000 | |||||||||
| Unearned revenue | - | - | 28,024 | |||||||||
| Derivative liability (Notes 11.1.1, 11.2 and 11.2.1) | 7,471,519 | 7,808,500 | - | |||||||||
| Income tax payable | 873,388 | 366,056 | 311,032 | |||||||||
| Total current liabilities | 11,770,203 | 13,004,181 | 5,315,904 | |||||||||
| Lease liabilities (Note 7) | 1,972,082 | 2,094,412 | 1,275,756 | |||||||||
| Long-term debt (Note 10) | 82,346 | 102,913 | 839,222 | |||||||||
| Convertible debentures (Notes 11.1, 11.2 and 11.2.1) | 2,459,924 | 2,412,762 | - | |||||||||
| TOTAL LIABILITIES | 16,284,555 | 17,614,268 | 7,430,882 | |||||||||
| EQUITY | ||||||||||||
| Share capital (Note 12) | 24,593,422 | 24,539,422 | 21,858,827 | |||||||||
| Shares issuable (Note 12) | - | - | 35,806 | |||||||||
| Contributed surplus (Notes 13 and 14) | 8,186,297 | 8,081,938 | 6,505,092 | |||||||||
| Accumulated other comprehensive loss | (108,069 | ) | (114,175 | (109,613 | ) | |||||||
| Accumulated deficit | (20,353,629 | ) | (20,996,449 | (21,356,891 | ) | |||||||
| Equity attributable to shareholders | 12,318,021 | 11,564,736 | 6,933,221 | |||||||||
| Non-controlling interest (Note 23) | 1,013,324 | 983,717 | 2,006,479 | |||||||||
| TOTAL EQUITY | 13,331,345 | 12,548,453 | 8,939,700 | |||||||||
| TOTAL LIABILITIES AND EQUITY | 29,615,900 | 30,162,721 | 16,370,582 | |||||||||
Commitments and contingencies (Note 24)
Subsequent events (Note 26)
The accompanying notes form an integral part of these consolidated financial statements.
F-4
Grown Rogue International Inc.
Consolidated Statements of Comprehensive Income (Loss)
Expressed in United States Dollars
| Two months ended December 31, | Years ended October 31, | |||||||||||||||
| 2023 | 2023 |
| 2022 | 2021 | ||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Revenue | ||||||||||||||||
| Product sales (Note 2.6.1) | 3,542,037 | 22,424,169 | 17,757,283 | 9,034,618 | ||||||||||||
| Service revenue (Note 2.6.2) | 96,050 | 929,016 | - | 344,055 | ||||||||||||
| Total revenue | 3,638,087 | 23,353,185 | 17,757,283 | 9,378,673 | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Cost of finished cannabis inventory sold | (1,404,323 | ) | (11,155,676 | ) | (9,227,439 | ) | (3,997,617 | ) | ||||||||
| Cost of service revenues | (89,210 | ) | (308,641 | ) | - | (154,353 | ) | |||||||||
| Gross profit, excluding fair value items | 2,144,554 | 11,888,868 | 8,529,844 | 5,226,703 | ||||||||||||
| Realized fair value loss amounts in inventory sold | (460,647 | ) | (2,573,151 | ) | (3,685,338 | ) | (950,461 | ) | ||||||||
| Unrealized fair value gain on growth of biological assets | 686,867 | 3,355,797 | 3,278,572 | 1,824,226 | ||||||||||||
| Gross profit | 2,370,774 | 12,671,514 | 8,123,078 | 6,100,468 | ||||||||||||
| Expenses | ||||||||||||||||
| Accretion expense | 216,493 | 1,026,732 | 491,781 | 949,811 | ||||||||||||
| Amortization of property and equipment | 186,415 | 578,641 | 750,916 | 180,015 | ||||||||||||
| General and administrative | 1,437,353 | 6,465,877 | 5,852,236 | 3,983,250 | ||||||||||||
| Share-based compensation | 104,359 | 346,113 | 70,996 | 280,819 | ||||||||||||
| Total expenses | 1,944,620 | 8,417,363 | 7,165,929 | 5,398,892 | ||||||||||||
| Income from operations | 426,154 | 4,254,151 | 957,149 | 701,576 | ||||||||||||
| Other income and (expense) | ||||||||||||||||
| Interest expense | (69,164 | ) | (370,616 | ) | (402,239 | ) | (197,632 | ) | ||||||||
| Other income (expense) | 49,678 | 441,487 | (3,432 | ) | (17,072 | ) | ||||||||||
| Gain on debt settlement | - | - | 453,858 | 141,180 | ||||||||||||
| Loss on settlement on non-controlling interest | - | - | - | (189,816 | ) | |||||||||||
| Unrealized loss on marketable securities | - | - | (333,777 | ) | (35,902 | ) | ||||||||||
| Unrealized gain (loss) on derivative liability | 336,981 | (4,563,498 | ) | - | (1,258,996 | ) | ||||||||||
| Unrealized gain on warrants asset | 400,016 | 129,113 | - | - | ||||||||||||
| Loss on disposal of property and equipment | (87,699 | ) | (182,025 | ) | (6,250 | ) | (7,542 | ) | ||||||||
| Total other expense, net | 629,812 | (4,545,539 | ) | (291,840 | ) | (1,565,780 | ) | |||||||||
| Income (loss) from operations before taxes | 1,055,966 | (291,388 | ) | 665,309 | (864,204 | ) | ||||||||||
| Income tax (Note 20) | (383,539 | ) | (370,932 | ) | (245,358 | ) | (150,543 | ) | ||||||||
| Net income (loss) | 672,427 | (662,320 | ) | 419,951 | (1,014,747 | ) | ||||||||||
| Other comprehensive income (items that may be subsequently reclassified to profit and loss): | ||||||||||||||||
| Currency translation gain (loss) | 6,106 | (4,562 | ) | (19,235 | ) | (78,181 | ) | |||||||||
| Total comprehensive income (loss) | 678,533 | (666,882 | ) | 400,716 | (1,092,928 | ) | ||||||||||
| Gain (loss) per share attributable to shareholders – basic | 0.00 | (0.00 | ) | 0.00 | (0.02 | ) | ||||||||||
| Weighted average shares outstanding – basic | 182,005,886 | 172,708,792 | 169,193,812 | 135,231,802 | ||||||||||||
| Gain (loss) per share attributable to shareholders – diluted | 0.00 | (0.00 | ) | 0.00 | (0.02 | ) | ||||||||||
| Weighted average shares outstanding – diluted | 214,046,728 | 172,708,792 | 169,193,812 | 135,231,802 | ||||||||||||
| Net income (loss) for the year attributable to: | ||||||||||||||||
| Non-controlling interest | 29,607 | (129,279 | ) | (27,507 | ) | 1,395,558 | ||||||||||
| Shareholders | 642,820 | (533,041 | ) | 447,458 | (2,410,305 | ) | ||||||||||
| Net income (loss) | 672,427 | (662,320 | ) | 419,951 | (1,014,747 | ) | ||||||||||
| Comprehensive income (loss) for the year attributable to: | ||||||||||||||||
| Non-controlling interest | 29,607 | (129,279 | ) | (27,507 | ) | 1,395,558 | ||||||||||
| Shareholders | 648,926 | (537,603 | ) | 428,223 | (2,488,486 | ) | ||||||||||
| Total comprehensive income (loss) | 678,533 | (666,882 | ) | 400,716 | (1,092,928 | ) | ||||||||||
The accompanying notes form an integral part of these consolidated financial statements.
F-5
Grown Rogue International Inc.
Consolidated Statements of Changes in Equity
Expressed in United States Dollars
| Number of common shares | Share capital | Shares issuable | Contributed surplus | Accumulated other comprehensive loss | Accumulated deficit | Non- controlling interests | Total equity | |||||||||||||||||||||||||
| # | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||
| Balance - October 31, 2023 | 182,005,886 | 24,593,422 | - | 8,081,938 | (114,175 | ) | (20,996,449 | ) | 983,717 | 12,548,453 | ||||||||||||||||||||||
| Stock option vesting expense | - | - | - | 104,359 | - | - | - | 104,359 | ||||||||||||||||||||||||
| Currency translation gain | - | - | - | - | 6,106 | - | - | 6,106 | ||||||||||||||||||||||||
| Net income | - | - | - | - | - | 642,820 | 29,607 | 672,427 | ||||||||||||||||||||||||
| Balance – December 31, 2023 | 182,005,886 | 24,593,422 | - | 8,186,297 | (108,069 | ) | (20,353,629 | ) | 1,013,324 | 13,331,345 | ||||||||||||||||||||||
| Number of common shares | Share capital | Shares issuable | Contributed surplus | Accumulated other comprehensive loss | Accumulated deficit | Non- controlling interests | Total equity | |||||||||||||||||||||||||
| # | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||
| Balance - October 31, 2022 | 170,632,611 | 21,858,827 | 35,806 | 6,505,092 | (109,613 | ) | (21,356,891 | ) | 2,006,479 | 8,939,700 | ||||||||||||||||||||||
| Issuance of shares underlying shares issuable (Note 12.1) | 200,000 | 35,806 | (35,806 | ) | - | - | - | - | - | |||||||||||||||||||||||
| Stock option vesting expense | - | - | - | 344,593 | - | - | - | 344,593 | ||||||||||||||||||||||||
| Currency translation loss | - | - | - | - | (4,562 | ) | - | - | (4,562 | ) | ||||||||||||||||||||||
| Exercise of option to acquire 87% of Canopy membership units | - | - | - | - | 893,483 | (893,483 | ) | - | ||||||||||||||||||||||||
| Goodness Growth warrants swap | - | - | - | 1,232,253 | - | - | - | 1,232,253 | ||||||||||||||||||||||||
| Settlement of convertible debentures for common shares (Note 11.1.1) | 11,173,275 | 2,698,789 | - | - | - | 2,698,789 | ||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | (533,041 | ) | (129,279 | ) | (662,320 | ) | |||||||||||||||||||||
| Balance – October 31, 2023 | 182,005,886 | 24,593,422 | - | 8,081,938 | (114,175 | ) | (20,996,449 | ) | 983,717 | 12,548,453 | ||||||||||||||||||||||
The accompanying notes form an integral part of these consolidated financial statements.
F-6
Grown Rogue International Inc.
Consolidated Statements of Changes in Equity
Expressed in United States Dollars
| Number of common shares | Share capital | Shares issuable | Contributed surplus | Accumulated other comprehensive loss | Accumulated deficit | Non- controlling interests | Total equity | |||||||||||||||||||||||||
| # | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||
| Balance - October 31, 2021 | 156,936,876 | 20,499,031 | 74,338 | 6,407,935 | (90,378 | ) | (21,804,349 | ) | 2,033,986 | 7,120,563 | ||||||||||||||||||||||
| Shares issued for employment, director, and consulting services (Note 12.4) | 529,335 | 59,796 | (38,532 | ) | - | - | - | - | 21,264 | |||||||||||||||||||||||
| Private placement of shares (Note 12.5) | 13,166,400 | 1,300,000 | - | - | - | - | - | 1,300,000 | ||||||||||||||||||||||||
| Stock option vesting | - | - | - | 97,157 | - | - | - | 97,157 | ||||||||||||||||||||||||
| Currency translation loss | - | - | - | - | (19,235 | ) | - | - | (19,235 | ) | ||||||||||||||||||||||
| Net income (loss) | - | - | - | - | 447,458 | (27,507 | ) | 419,951 | ||||||||||||||||||||||||
| Balance – October 31, 2022 | 170,632,611 | 21,858,827 | 35,806 | 6,505,092 | (109,613 | ) | (21,356,891 | ) | 2,006,479 | 8,939,700 | ||||||||||||||||||||||
The accompanying notes form an integral part of these consolidated financial statements.
| Number of common shares | Share capital | Shares issuable | Contributed surplus | Accumulated other comprehensive loss | Accumulated deficit | Non- controlling interests | Total equity | |||||||||||||||||||||||||
| # | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||
| Balance - October 31, 2020 | 107,782,397 | 14,424,341 | - | 4,070,264 | (12,197 | ) | (19,394,044 | ) | (33,383 | ) | (945,019 | ) | ||||||||||||||||||||
| Shares issued for employment, director, and consulting services (Note 12.6) | 534,294 | 95,294 | - | - | - | - | - | 95,294 | ||||||||||||||||||||||||
| Shares issuable for employment, director and consulting services | - | - | 38,532 | - | - | - | - | 38,532 | ||||||||||||||||||||||||
| Shares issued pursuant to private placement (Notes 12.7) | 10,231,784 | 1,225,000 | - | - | - | - | - | 1,225,000 | ||||||||||||||||||||||||
| Expenses of non-brokered private placement (Note 12.7) | - | (15,148 | ) | - | - | - | - | - | (15,148 | ) | ||||||||||||||||||||||
| Shares issued to extend payment due date (Note 12.8) | 25,000 | 2,103 | - | - | - | - | - | 2,103 | ||||||||||||||||||||||||
| Shares payments towards acquisition of Golden Harvests and extend due date (Note 12.10) | 600,000 | 107,461 | - | - | - | - | - | 107,461 | ||||||||||||||||||||||||
| Shares issuable for consideration for acquisition of Golden Harvests (Note 5) | - | - | 35,806 | - | - | - | - | 35,806 | ||||||||||||||||||||||||
| Shares issued to partner creditor (Note 12.9) | 400,000 | 36,310 | - | - | - | - | - | 36,310 | ||||||||||||||||||||||||
| Shares and warrants issued pursuant to brokered private placement of Special Warrants (Notes 12.11) | 23,162,579 | 3,738,564 | - | - | - | - | - | 3,738,564 | ||||||||||||||||||||||||
| Expenses of brokered private placement of Special Warrants (Note 12.11) | - | (485,722 | ) | - | - | - | - | - | (485,722 | ) | ||||||||||||||||||||||
| Broker and advisory warrants issued pursuant to Special Warrant financing (Notes 12.11) | - | (210,278 | ) | - | 210,278 | - | - | - | - | |||||||||||||||||||||||
| Settlement of convertible debentures for cash and common shares (Note 12.12) | 10,488,884 | 916,290 | - | 1,883,731 | - | - | - | 2,800,021 | ||||||||||||||||||||||||
| Issuance of non-controlling interest in subsidiary for cash | - | - | - | (475,000 | ) | - | - | 475,000 | - | |||||||||||||||||||||||
| Purchase of non-controlling interest in subsidiary | 3,711,938 | 664,816 | 475,000 | - | - | (475,000 | ) | 664,816 | ||||||||||||||||||||||||
| Change in ownership interests in subsidiaries | - | - | - | - | - | - | 671,811 | 671,811 | ||||||||||||||||||||||||
| Stock option vesting expense | - | - | - | 243,662 | - | - | - | 243,662 | ||||||||||||||||||||||||
| Currency translation adjustment | - | - | - | - | (78,181 | ) | - | - | (78,181 | ) | ||||||||||||||||||||||
| Net income (loss) | - | - | - | - | - | (2,410,305 | ) | 1,395,558 | (1,014,747 | ) | ||||||||||||||||||||||
| Balance - October 31, 2021 | 156,936,876 | 20,499,031 | 74,338 | 6,407,935 | (90,378 | ) | (21,804,349 | ) | 2,033,986 | 7,120,563 | ||||||||||||||||||||||
F-7
Grown Rogue International Inc.
Consolidated Statements of Cash Flows
Expressed in United States Dollars
| Two months ended December 31, | Years ended October 31, | |||||||||||||||
| 2023 | 2023 | 2022 | 2021 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Operating activities | ||||||||||||||||
| Net income (loss) | 672,427 | (662,320 | ) | 419,951 | (1,014,747 | ) | ||||||||||
| Adjustments for non-cash items in net income (loss) | ||||||||||||||||
| Amortization of property and equipment | 186,415 | 578,641 | 750,916 | 180,015 | ||||||||||||
| Amortization of property and equipment included in costs of inventory sold | 209,985 | 1,757,672 | 1,102,688 | 733,655 | ||||||||||||
| Amortization of intangible assets | - | - | - | 4,997 | ||||||||||||
| Unrealized fair value gain on growth of biological assets | (686,867 | ) | (3,355,797 | ) | (3,278,572 | ) | (1,824,226 | ) | ||||||||
| Realized fair value loss amounts in inventory sold | 460,647 | 2,573,151 | 3,685,338 | 950,461 | ||||||||||||
| Deferred income taxes | 224,064 | (470,358 | ) | - | - | |||||||||||
| Share-based compensation | - | - | 21,264 | 170,136 | ||||||||||||
| Stock option expense | 104,359 | 344,593 | 96,649 | 243,662 | ||||||||||||
| Accretion expense | 216,493 | 1,026,732 | 491,781 | 949,811 | ||||||||||||
| Gain on debt settlement | - | - | (455,674 | ) | - | |||||||||||
| Loss on disposal of property and equipment | 87,699 | 182,025 | 6,250 | 7,542 | ||||||||||||
| Unrealized loss on marketable securities | - | - | 333,777 | 35,902 | ||||||||||||
| Unrealized (gain) loss on fair value of derivative liability | (336,981 | ) | 4,563,498 | - | 1,258,996 | |||||||||||
| Unrealized gain on warrants asset | (400,016 | ) | (129,113 | ) | - | - | ||||||||||
| Loss on acquisition of non-controlling interest paid in shares | - | - | - | 189,816 | ||||||||||||
| Currency translation gain (loss) | 6,106 | (2,210 | ) | 918 | 7,233 | |||||||||||
| Noncash Items In Net Loss | 744,331 | 6,406,514 | 3,175,286 | 1,893,253 | ||||||||||||
| Changes in non-cash working capital (Note 15) | (513,222 | ) | (677,163 | ) | (1,171,111 | ) | (2,131,714 | ) | ||||||||
| Net cash provided by (used in) operating activities | 231,109 | 5,729,351 | 2,004,175 | (238,461 | ) | |||||||||||
| Investing activities | ||||||||||||||||
| Purchase of property and equipment and intangibles | (126,690 | ) | (1,456,782 | ) | (1,111,283 | ) | (2,047,136 | ) | ||||||||
| Net cash acquired | - | - | - | 76,128 | ||||||||||||
| Payment of acquisition payable | - | - | (2,000 | ) | (6,000 | ) | ||||||||||
| Other investment | - | - | - | (750,000 | ) | |||||||||||
| Cash advances and loans made to other parties | (1,018,596 | ) | (1,430,526 | ) | - | |||||||||||
| Net cash used in investing activities | (1,145,286 | ) | (2,887,308 | ) | (1,113,283 | ) | (2,727,008 | ) | ||||||||
| Financing activities | ||||||||||||||||
| Third party investment in subsidiary | - | - | - | 475,000 | ||||||||||||
| Proceeds from convertible debentures | - | 8,000,000 | - | - | ||||||||||||
| Proceeds from long-term debt | - | - | 100,000 | 1,125,000 | ||||||||||||
| Proceeds from private placement | - | - | 1,300,000 | 1,225,000 | ||||||||||||
| Proceeds from brokered private placement | - | - | - | 3,738,564 | ||||||||||||
| Payment of equity and debenture issuance costs | - | - | - | (500,870 | ) | |||||||||||
| Repayment of long-term debt | (568,166 | ) | (1,631,830 | ) | (732,803 | ) | (507,715 | ) | ||||||||
| Repayment of convertible debentures | (126,978 | ) | (261,006 | ) | - | (1,312,722 | ) | |||||||||
| Payments of lease principal | (444,347 | ) | (1,673,344 | ) | (1,089,738 | ) | (380,543 | ) | ||||||||
| Net cash provided by (used in) financing activities | (1,139,491 | ) | 4,433,820 | (422,541 | ) | 3,861,714 | ||||||||||
| Change in cash | (2,053,668 | ) | 7,275,863 | 468,351 | 896,245 | |||||||||||
| Cash, beginning | 8,858,247 | 1,582,384 | 1,114,033 | 217,788 | ||||||||||||
| Cash, ending | 6,804,579 | 8,858,247 | 1,582,384 | 1,114,033 | ||||||||||||
The accompanying notes form an integral part of these consolidated financial statements.
F-8
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the transition period ended December 31, 2023, and the years ended October 31, 2023, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
| 1. | CORPORATE INFORMATION AND DEFINED TERMS |
| 1.1 | Corporate Information |
These consolidated financial statements for the transition period ended December 31, 2023, and the years ended October 31, 2023, 2022, and 2021, include the accounts of Grown Rogue International Inc. and its subsidiaries. The registered office is located at 40 King St W Suite 5800, Toronto, ON M5H 3S1.
Grown Rogue International Inc.’s subsidiaries and ownership thereof are summarized in the table below.
| Schedule of subsidiaries and ownership | ||||
| Company | Ownership | Defined Term | ||
| Grown Rogue International Inc. | 100% owner of GR Unlimited | The “Company” | ||
| Grown Rogue Unlimited, LLC | 100% by the Company | “GR Unlimited” | ||
| Grown Rogue Gardens, LLC | 100% by GR Unlimited | “GR Gardens” | ||
| GRU Properties, LLC | 100% by GR Unlimited | “GRU Properties” | ||
| GRIP, LLC | 100% by GR Unlimited | “GRIP” | ||
| Grown Rogue Distribution, LLC | 100% by GR Unlimited | “GR Distribution” | ||
| GR Michigan, LLC | 87% by GR Unlimited | “GR Michigan” | ||
| Canopy Management, LLC | 87% by GR Unlimited | “Canopy” | ||
| Golden Harvests LLC | 60% by Canopy | “Golden Harvests” |
The Company is primarily engaged in the business of growing and selling cannabis products. The primary cannabis product produced and sold is cannabis flower.
| 1.2 | Defined Terms |
| Schedule of defined terms related information | ||||
| Term | Defined Term | Reference | ||
| General terms: | ||||
| International Financial Reporting Standards | “IFRS” | |||
| International Accounting Standards | “IAS” | |||
| International Accounting Standards Board | “IASB” | |||
| International Financial Reporting Interpretations Committee | “IFRIC” | |||
| United States | “U.S.” | |||
| United States dollar | “U.S. dollar” | |||
| Fair value less costs to sell | “FVLCTS” | |||
| Fair value through profit or loss | “FVTPL” | |||
| Fair value through other comprehensive income | “FVOCI” | |||
| Other comprehensive income | “OCI” | |||
| Solely payments of principal and interest | “SPPI” | |||
| Expected credit loss | “ECL” | |||
| Cash generating unit | “CGU” | |||
| Internal Revenue Code | “IRC” | |||
| U.S. Securities and Exchange Commission | “SEC” | |||
| Securities Exchange Act of 1934 | “1934 Act” | |||
| Federal Deposit Insurance Corporation | “FDIC” |
F-9
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the transition period ended December 31, 2023, and the years ended October 31, 2023, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
| Term | Defined Term | Reference | ||
| Terms related to the Company’s locations: | ||||
| Outdoor grow property located in Trail, Oregon leased from CEO | “Trail” | |||
| Outdoor post-harvest facility located in Medford, Oregon leased from CEO | “Lars” | |||
| Terms related to officers and directors of the Company: | ||||
| President & Chief Executive Officer | “CEO” | |||
| Chief Financial Officer | “CFO” | |||
| Senior Vice President of GR Unlimited | “SVP” | |||
| Chief Operating Officer (position eliminated in December 2021) | “COO” | |||
| Michigan General Manager | “GM” | |||
| Terms related to transactions with High Street Capital Partners, LLC: | ||||
| High Street Capital Partners, LLC | “HSCP” | Note 6.1 | ||
| Agreement of the Company to acquire substantially all of the assets of the growing and retail operations of HSCP | “HSCP Transaction” | Note 6.1 | ||
| Management Services Agreement with HSCP | “HSCP MSA” | Note 6.1 | ||
| Secured promissory note payable with a principal sum of $1,250,000 | “Secured Promissory Note” | Notes 6.1, 10.1 | ||
| Principal Payment of $500,000 due to HSCP on May 1, 2023 | “First Principal Payment” | Note 10.1 | ||
| Terms related to transactions with Plant-Based Investment Corp.: | ||||
| Plant-Based Investment Corp., formerly related party | “PBIC” | |||
| Unsecured promissory note agreement with PBIC of September 9, 2021 | “PBIC Note” | Note 10.2 | ||
| The Company’s sun-grown A-flower 2021 harvest, defined in the PBIC Note | “Harvest” | Note 10.2 | ||
| Note 10.2 | ||||
| Note 10.2 | ||||
| Terms related to Convertible Debentures issued in December 2022: | ||||
| Convertible debentures with aggregate principal amount of $2,000,000 issued in December 2022 | “December Convertible Debentures” | Note 11.1 | ||
| Purchasers of Convertible Debentures | “Purchasers” | Note 11.1 | ||
| 6,716,499 warrants issued to the Purchasers | “December Warrants” | Note 11.1 | ||
| Terms related to Convertible Debentures issued in July 2023: | ||||
| Convertible debentures with aggregate principal amount of $5,000,000 issued in July 2023 | “July Convertible Debentures” | Note 11.2 | ||
| Subscribers of Convertible Debentures | “Subscribers” | Note 11.2 | ||
| 13,737,500 warrants issued to the Subscribers | “July Warrants” | Note 11.2 | ||
| Terms related to Convertible Debentures issued in August 2023: | ||||
| Convertible debentures with aggregate principal amount of $1,000,000 issued in August 2023 | “August Convertible Debentures” | Note 11.2.1 | ||
| Subscribers of Convertible Debentures | “Subscribers” | Note 11.2.1 |
F-10
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the transition period ended December 31, 2023, and the years ended October 31, 2023, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
| Term | Defined Term | Reference | ||
| Terms related to December 2021 non-brokered private placement of common shares: | ||||
| “Private Placement” | Note 12.3 | |||
| Terms related to March 2021 brokered private placement of special warrants: | ||||
| Agent for March 2021 brokered private placement of special warrants | “Agent” | Note 13.1 | ||
| March 2021 brokered private placement of special warrants | “Offering” | |||
| An aggregate of 1,127,758 broker warrants of the Company | “Broker Warrants” | Note 13.1 | ||
| Compensation options, resulting from exercise of Broker Warrants | “Compensation Options” | Note 13.1 | ||
| Warrants for consideration of advisory services issued to the Agent | “Advisory Warrants” | Note 13.1 | ||
| The Broker Warrants and Advisory Warrants referred to collectively | “Agent Warrants” | Note 13.1 | ||
| One unit of the Company resulting from exercise of a Compensation Option, comprised of one common share and one common share purchase warrant | “Compensation Unit” | Note 13.1 | ||
| Warrant resulting from Compensation Option | “Compensation Warrant” | Note 13.1 | ||
| Terms related to consulting agreement with Goodness Growth | ||||
| Goodness Growth Holdings, Inc. (CSE: GDNS; OTCQX: GDNSF) | “Goodness Growth” | Note 13.2 | ||
| The consulting agreement under which the Company provides services to Goodness Growth | “Consulting Agreement” | Note 13.2 | ||
| Volume weighted average price | “VWAP” | Note 13.2 | ||
| Terms related to Iron Flag, LLC secured draw down promissory note | ||||
| Iron Flag, LLC | “Iron Flag” | Note 6.2.1 | ||
| ABCO Garden State, LLC | “ABCO” | Note 6.2.1 | ||
| New Jersey Cannabis Regulatory Commission | “CRC” | Note 6.2.1 | ||
| Secured draw down promissory note | “Iron Flag Promissory Note” | Note 6.2.1 |
F-11
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the transition period ended December 31, 2023, and the years ended October 31, 2023, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
| 2. | SIGNIFICANT ACCOUNTING POLICIES AND JUDGMENTS |
| 2.1 | Statement of Compliance |
The Company’s consolidated financial statements have been prepared in accordance with IFRS as issued by the IASB and interpretations of the IFRIC. These consolidated financials are filed on the system for electronic document analysis and retrieval (SEDAR+).
The Board of Directors authorized the issuance of these consolidated financial statements on April 29, 2024.
The principal accounting policies adopted in the preparation of these consolidated financial statements are set forth below.
| 2.2 | Basis of Consolidation |
The subsidiaries are those companies controlled by the Company, as the Company is exposed, or has rights, to variable returns from its involvement with the subsidiaries and has the ability to affect those returns through its power over the subsidiaries by way of its ownership and rights pertaining to the subsidiaries. The financial statements of subsidiaries are included in these consolidated financial statements from the date that control commences until the date control ceases. All intercompany balances and transactions have been eliminated upon consolidation.
| 2.3 | Basis of Measurement |
These consolidated financial statements have been prepared on a historical cost basis except for certain financial instruments and biological assets, which are measured at fair value as described herein.
| 2.4 | Change in Fiscal Year End |
On January 29, 2024, the Company’s Board of Directors approved a change in the Company’s fiscal year end from October 31 to December 31, effective immediately. As a result of this change, the Company is filing this Transition Report on Form 20-F (“Transition Report”) for the two month transition period ended December 31, 2023.
| 2.5 | Functional and Presentation Currency |
The Company’s functional currency is the Canadian dollar, and the functional currency of its subsidiaries is the United States dollar. These consolidated financial statements are presented in U.S. dollars.
Transactions denominated in foreign currencies are initially recorded in the functional currency using exchange rates in effect at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency using exchange rates prevailing at the end of the reporting period. All exchange gains and losses are included in the consolidated statements of comprehensive income (loss).
For the purpose of presenting consolidated financial statements, the assets and liabilities of the Company are expressed in U.S. Dollars using exchange rates prevailing at the end of the reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are recognized in other comprehensive income (loss) and reported as currency translation reserve in shareholders’ equity.
Foreign exchange gains or losses arising from a monetary item receivable from or payable to a foreign operation, the settlement of which is neither planned nor likely to occur in the foreseeable future and which, in substance, is considered to form part of the net investment in the foreign operation, are recognized in other comprehensive income (loss).
F-12
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the transition period ended December 31, 2023, and the years ended October 31, 2023, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
| 2.6 | Revenue |
Revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied, which is upon the transfer of control of the contracted goods or provision of contracted services. Control of goods is transferred when title and physical possession of the contracted goods have been transferred to the customer, which is determined by the shipping terms and certain additional considerations. The Company does not have performance obligations subsequent to the transfer of title and physical possession of the contracted goods.
| 2.6.1 | Revenues From Sales of Goods |
Revenues from sales of goods are recognized when the transfer of ownership to the customer has occurred and the customer has accepted the product.
| 2.6.2 | Service Revenue |
Revenues from services are recognized when services have been provided, the income is determinable, and collectability is reasonably assured. The Company’s contract terms do not include a provision for significant post-service delivery obligations. On May 24, 2023, GR Unlimited entered into the Consulting Agreement with Goodness Growth. Under the Consulting Agreement, GR Unlimited supports Goodness Growth in the optimization of its cannabis flower products, with a particular focus on improving the quality and yield of top-grade “A” cannabis flower across its various operating markets, starting with Maryland and Minnesota. The Consulting Agreement and amendments to the Consulting Agreement provide for service revenue earned to be calculated beginning January 2023. Also see Note 13.2 for further discussion on the terms of the Consulting Agreement.
| 2.7 | Inventory |
Inventory is valued at the lower of cost and net realizable value. The capitalized cost for produced inventory includes the direct and indirect costs initially capitalized to biological assets before the transfer to inventory. The capitalized cost also includes subsequent costs such as materials, labor, depreciation and amortization expense on equipment involved in packaging, labelling and inspection. The total cost of inventory also includes the fair value adjustment which represents the fair value of the biological asset at the time of harvest and which is transferred from biological asset costs to inventory upon harvest. All direct and indirect costs related to inventory are capitalized as they are incurred; these costs are recorded ‘Cost of finished cannabis inventory sold’ on the consolidated statements of comprehensive income (loss) at the time cannabis is sold. The realized fair value amounts included in inventory sold are recorded as a separate line on the consolidated statements of comprehensive income (loss).
| 2.8 | Cost of Finished Cannabis Inventory Sold |
Cost of finished cannabis inventory sold includes the value of inventory sold, excluding the fair value adjustment carried from biological assets into inventory. Cost of finished cannabis inventory sold also includes the value of inventory write downs.
F-13
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the transition period ended December 31, 2023, and the years ended October 31, 2023, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
| 2.9 | Biological Assets |
Biological assets are measured at fair value. The Company’s biological assets consist of cannabis plants. The Company capitalizes all the direct and indirect costs as incurred related to the biological transformation of the biological assets between the point of initial recognition and the point of harvest, including direct costs, indirect costs, allocated fixed and variable overheads, and depreciation and amortization of equipment used to grow plants through the harvest of the plants. Before planting, the capitalized costs approximate fair value. After planting, fair value is estimated at the fair value of the market sales price of the finished product less costs to complete. Subsequent to harvest, the recognized biological asset amount becomes the cost basis of finished goods inventory. Unrealized gains or losses arising from changes in fair value less costs to sell during the period are included in the consolidated statements of income (loss) as ‘Unrealized fair value gain on growth of biological assets.’ After sale, the amount of ‘Unrealized fair value gain on growth of biological assets’ sold is recognized as ‘Realized fair value amounts in inventory sold’.
| 2.10 | Income (Loss) per Share |
Basic income (loss) per share is calculated by dividing the income (loss) attributable to common shareholders by the weighted average number of common shares outstanding in the period. For all periods presented, the income (loss) attributable to common shareholders equals the reported income (loss) attributable to owners of the Company. Diluted income (loss) per share is calculated by the treasury stock method. Under the treasury stock method, the weighted average number of common shares outstanding for the calculation of diluted income (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.
| 2.11 | Accounts Payable and Accrued Liabilities |
Liabilities are recognized for amounts to be paid in the future for goods or services received, whether billed by the supplier or not. Provisions are recognized when the Company has an obligation (legal or constructive) arising from a past event, and the costs to settle this obligation are both probable and able to be reliably measured.
| 2.12 | Related Party Transactions |
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are members of key management, subject to common control, or can exert significant influence over the company. Related parties may be individuals or corporate entities. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.
| 2.13 | Property and Equipment |
Property and equipment are stated at cost less accumulated amortization and accumulated impairment losses, if any. Costs include borrowing costs for assets that require a substantial period of time to become ready for use.
F-14
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the transition period ended December 31, 2023, and the years ended October 31, 2023, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
Amortization is recognized so as to recognize the cost of assets less their residual values over their useful lives, using the straight-line method. Amortization begins when an asset is available for use, meaning that it is in the location and condition necessary for it to be used in the manner intended by management. The estimated useful lives, residual values and method of amortization are reviewed at each period end, with the effect of any changes in estimated useful lives and residual values accounted for on a prospective basis.
The Company capitalizes costs incurred to construct assets; when such assets are not available for use as intended by management, amortization expense is not recorded until constructed assets are placed into service.
Amortization is calculated applying the following useful lives:
| Schedule of Amortization | ||||
| Furniture and fixtures | 7-10 | years on a straight-line basis | ||
| Computer and office equipment | 3-5 | years on a straight-line basis | ||
| Production equipment and other | 5-10 | years on a straight-line basis | ||
| Leasehold improvements | 1-40 | years on a straight-line basis |
The carrying values of property and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. If any such indication exists, and where the carrying values exceed the estimated recoverable amount, the assets are written down to their recoverable amount, being the higher of their fair value less costs of disposal and their value in use. Fair value is the price at which the asset could be bought or sold in an orderly transaction between market participants. In assessing value in use, the estimated cash flows are discounted to their present value using a pre tax discount rate that reflects the current market assessments of the time value of money and the risks specific to the asset.
Right-of-use leased assets are measured at cost, which is calculated as the amount of the initial measurement of lease liability plus any lease payments made at or before the commencement date, any initial direct costs and related restoration costs. The right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the useful life of the underlying asset. Depreciation is recognized from the commencement date of the lease.
| 2.14 | Impairment of Long-Lived Assets |
For all long-lived assets, except for intangible assets with indefinite useful lives and intangible assets not yet available for use, the Company reviews its carrying amount at the end of each reporting period to determine whether there is any indication that those assets have suffered an impairment loss. Where such impairment exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss.
An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the greater of fair value less costs of disposal and value in use. In assessing value in use, estimated future cash flows are discounted to their present value using a pretax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses are recognized in profit or loss.
Impairment losses may be reversed in a subsequent period where the impairment no longer exists or has decreased. The carrying amount after a reversal must not exceed the carrying amount (net of depreciation) that would have been determined had no impairment loss been recognized. A reversal of impairment loss is recognized in profit or loss.
F-15
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the transition period ended December 31, 2023, and the years ended October 31, 2023, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
| 2.15 | Share-based Compensation |
| 2.15.1 | Share Based Payment Transactions |
Transactions with non-employees that are settled in equity instruments of the Company are measured at the fair value of the goods or services rendered. In situations where the fair value of the goods or services received by the entity as consideration cannot be reliably measured, transactions are measured at fair value of the equity instruments granted. The fair value of the share-based payments is recognized together with a corresponding increase in equity over a period that services are provided, or goods are received.
| 2.15.2 | Equity Settled Transactions |
The costs of equity settled transactions with employees are measured by reference to the fair value of the equity instruments at the date on which they are granted, using the Black Scholes option pricing model.
The costs of equity settled transactions are recognized, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (“the vesting date”). The cumulative cost is recognized for equity settled transactions at each reporting date until the vesting date reflects the Company’s best estimate of the number of equity instruments that will ultimately vest. The profit or loss charge or credit for a period represents the movement in cumulative expense recognized at the beginning and end of that period and the corresponding amount is represented in contributed surplus. No expense is recognized for awards that do not ultimately vest.
| 2.14.3 | Share Issuance Costs |
Costs incurred in connection with the issuance of equity are netted against the proceeds received net of tax. Costs related to the issuance of equity and incurred prior to issuance are recorded as deferred equity issuance costs and subsequently netted against proceeds when they are received.
| 2.16 | Income Taxes |
Tax expense includes current and deferred tax. This expense is recognized in profit or loss, except for income tax related to the components of other comprehensive income (loss) or equity, in which case the tax expense is recognized in other comprehensive income (loss) or equity respectively.
Current tax assets and liabilities are obligations or claims for the current and prior periods to be recovered from (or paid to) taxation authorities that are still outstanding at the end of the reporting period. Current tax is computed on the basis of tax profit which differs from net profit. Income taxes are calculated using tax rates and laws enacted or substantively enacted at the end of the reporting period.
Deferred tax is recognized based on temporary differences between the carrying amount and the tax basis of the assets and liabilities. Any change in the net amount of deferred tax assets and liabilities is included in profit or loss. Deferred tax assets and liabilities are determined based on enacted or substantively enacted tax rates and laws that are expected to apply to taxable profit for the periods in which the assets and liabilities will be recovered or settled. Deferred tax assets are recognized when it is likely they will be realized. Deferred tax assets and liabilities are not discounted.
The Company recognizes a deferred tax asset or liability for all deductible temporary differences arising from equity securities of subsidiaries, unless it is probable that the temporary difference will not reverse in the foreseeable future and the Company is able to control the timing of the reversal.
F-16
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the transition period ended December 31, 2023, and the years ended October 31, 2023, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
| 2.17 | Financial Instruments |
| 2.17.1 | Financial Assets |
Initial Recognition
The Company initially recognizes financial assets at fair value on the date that the Company becomes a party to the contractual provisions of the instrument. The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred.
Classification and measurement
Under IFRS 9 - Financial Instruments, financial assets are initially measured at fair value. In the case of a financial asset not categorized as FVTPL, transaction costs are included. Transaction costs of financial assets carried at FVTPL are expensed in net income (loss).
Subsequent classification and measurement of financial assets depends on the Company’s business objective for managing the asset and the cash flow characteristics of the asset:
| - | Amortized cost – Financial assets held for collection of contractual cash flows that meet the SPPI test are measured at amortized cost. Interest income is recognized as Other income (expense) in the financial statements, and gains/losses are recognized in net income (loss) when the asset is derecognized or impaired. |
| - | FVOCI – Financial assets held to achieve a particular business objective other than short term trading are designated at FVOCI. IFRS 9 also provides the ability to make an irrevocable election at initial recognition of a financial asset, on an instrument by instrument basis, to designate an equity investment that would otherwise be classified as FVTPL and that is neither held for trading nor contingent consideration arising from a business combination to be classified as FVOCI. There is no recycling of gains or losses through net income (loss). Upon derecognition of the asset, accumulated gains or losses are transferred from OCI directly to Deficit. |
| - | FVTPL – Financial assets that do not meet the criteria for amortized cost or FVOCI are measured at FVTPL. |
| 2.17.2 | Financial Liabilities |
The Company initially recognizes financial liabilities at fair value on the date at which the Company becomes a party to the contractual provisions of the instrument. The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled or expire. The subsequent measurement of financial liabilities is determined based on their classification as follows:
| - | FVTPL – Derivative financial instruments entered into by the Company that do not meet hedge accounting criteria are classified as FVTPL. Gains or losses on these types of financial liabilities are recognized in net income (loss). |
| - | Amortized cost – All other financial liabilities are classified as amortized cost using the effective interest method. Gains and losses are recognized in net income (loss) when the liabilities are derecognized as well as through the amortization process. |
F-17
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the transition period ended December 31, 2023, and the years ended October 31, 2023, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
The following table summarizes the original measurement categories for each class of the Company’s financial assets and financial liabilities:
| Schedule of financial assets and financial liabilities | ||
| Asset/Liability | Classification | |
| Accounts receivable | Amortized cost | |
| Cash and cash equivalents | Amortized cost | |
| Marketable securities | FVTPL | |
| Warrants asset | FVTPL | |
| Accounts payable and accrued liabilities | Amortized cost | |
| Long-term debt | Amortized cost | |
| Interest payable | Amortized cost | |
| Convertible debentures | Amortized cost | |
| Derivative liabilities | FVTPL |
Impairment
IFRS 9 introduces a three-stage ECL model for determining impairment of financial assets. The expected credit loss model does not require the occurrence of a triggering event before an entity recognizes credit losses. IFRS 9 requires an entity to recognize expected credit losses upon initial recognition of a financial asset and to update the quantum of expected credit losses at the end of each reporting period to reflect changes to credit risk of the financial asset. The adoption of the ECL model did not have a material impact on the Company’s financial statements.
The Company recognizes a loss allowance for expected credit losses on financial assets that are measured at amortized cost. At each reporting date, the loss allowance for the financial asset is measured at an amount equal to the lifetime expected credit losses if the credit risk on the financial asset has increased significantly since initial recognition. If at the reporting date, the financial asset has not increased significantly since initial recognition, the loss allowance is measured for the financial asset at an amount equal to twelve month expected credit losses. For trade receivables the Company applies the simplified approach to providing for expected credit losses, which allows the use of a lifetime expected loss provision. Impairment losses on financial assets carried at amortized cost are reversed in subsequent periods if the amount of the loss decreases and the decrease can be objectively related to an event occurring after the impairment was recognized.
| 2.18 | Business Combinations |
A business combination is a transaction or event in which the acquirer obtains control of one or more businesses and is accounted for using the acquisition method. The total consideration paid for the acquisition is the aggregate of the fair values of assets acquired, liabilities assumed, and equity instruments issued in exchange for control of the acquiree at the acquisition date. The acquisition date is the date when the Company obtains control of the acquiree. The identifiable assets acquired and liabilities assumed are recognized at their acquisition date fair values, except for deferred taxes and share-based payment awards where IFRS provides exceptions to recording the amounts at fair values. Goodwill represents the difference between total consideration paid and the fair value of the net identifiable assets acquired. Acquisition costs incurred are expensed within the consolidated statements of comprehensive income (loss).
F-18
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the transition period ended December 31, 2023, and the years ended October 31, 2023, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
Contingent consideration is measured at its acquisition date fair value and is included as part of the consideration transferred in a business combination, subject to the applicable terms and conditions. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is remeasured at subsequent reporting dates in accordance with IFRS 9 Financial Instruments with the corresponding gain or loss recognized in profit or loss.
Based on the facts and circumstances that existed at the acquisition date, management will perform a valuation analysis to allocate the purchase price based on the fair values of the identifiable assets acquired and liabilities assumed on the acquisition date. Management has one year from the acquisition date to confirm and finalize the facts and circumstances that support the finalized fair value analysis and related purchase price allocation. Until such time, these values are provisionally reported and are subject to changed. Changes to fair values and allocations are retrospectively adjusted in subsequent periods.
In determining the fair value of all identifiable assets acquired and liabilities assumed, the most significant estimates generally relate to contingent consideration and intangible assets. Management exercises judgment in estimating the probability and timing of when earn-out milestones are expected to be achieved, which is used as the basis for estimating fair value. Identified intangible assets are fair valued using appropriate valuation techniques which are generally based on a forecast of the total expected future net cash flows of the acquiree. Valuations are highly dependent on the inputs used and assumptions made by management regarding the future performance of these assets and any changes in the discount rate applied.
Acquisitions that do not meet the definition of a business combination are accounted for as asset acquisitions. Consideration paid for an asset acquisition is allocated to the individual identifiable assets acquired and liabilities assumed based on their relative fair values. Asset acquisitions do not give rise to goodwill.
Management exercises judgment in determining the entities that it controls for consolidation and associated non-controlling interests. For financial reporting purposes, an entity is considered controlled when the Company has power over an entity and its ability to affect its economic return from the entity. The Company has power over an entity when it has existing rights that give it the ability to direct the relevant activities which can significantly affect the investee’s returns. Such power can result from contractual arrangements. However, certain contractual arrangements contain rights that are designed to protect the Company’s interest, without direct equity ownership in the entity, in which case non-controlling interests are recognized.
| 2.19 | Intangible Assets and Goodwill |
Intangible assets are recorded at cost less accumulated amortization and any impairment losses. Intangible assets acquired in a business combination are measured at fair value at the acquisition date. Amortization of definite life intangibles is calculated on a straight-line basis over their estimated useful lives.
Goodwill represents the excess of the purchase price paid for the acquisition of an entity over the fair value of the net tangible and intangible assets acquired. Goodwill is allocated to the CGU or group of CGUs which are expected to benefit from the synergies of the combination. Goodwill is not subject to amortization.
F-19
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the transition period ended December 31, 2023, and the years ended October 31, 2023, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
Goodwill and intangible assets with an indefinite life or not yet available for use are tested for impairment annually at year-end, and whenever events or circumstances that make it more likely than not that an impairment may have occurred, such as a significant adverse change in the business climate or a decision to sell or dispose all or a portion of a reporting unit. Finite life intangible assets are tested whenever there is an indication of impairment.
Goodwill and indefinite life intangible assets are tested for impairment by comparing the carrying value of each CGU containing the assets to its recoverable amount. Indefinite life intangible assets are tested for impairment by comparing the carrying value of each CGU containing the assets to its recoverable amount. Goodwill is tested for impairment based on the level at which it is monitored by management, and not at a level higher than an operating segment. The Company’s goodwill is allocated to the cannabis operating segment and the U.S. cannabis and hemp-derived market CGU. The allocation of goodwill to the CGUs or group of CGUs requires the use of judgment.
An impairment loss is recognized for the amount by which the CGU’s carrying amount exceeds its recoverable amount. The recoverable amounts of the CGUs’ assets are determined based on either fair value less costs of disposal or value-in-use method. There is a material degree of uncertainty with respect to the estimates of the recoverable amounts of the CGU, given the necessity of making key economic assumptions about the future. Impairment losses recognized in respect of a CGU are first allocated to the carrying value of goodwill, and any excess is allocated to the carrying value of assets in the CGU. Any impairment is recorded in profit and loss in the period in which the impairment is identified. A reversal of an asset impairment loss is allocated to the assets of the CGU on a pro rata basis. In allocating a reversal of an impairment loss, the carrying amount of an asset shall not be increased above the lower of its recoverable amount and the carrying amount that would have been determined had no impairment loss been recognized for the asset in the prior period. Impairment losses on goodwill are not subsequently reversed.
| 2.20 | Adoption of New Accounting Pronouncements |
Amendments to IAS 41: Agriculture
As part of its 2018-2020 annual improvements to the standards process of IFRS, the IASB issued amendments to IAS 41 Agriculture. The amendment removes the requirement in paragraph 22 of IAS 41 for entities to exclude taxation cash flow when measuring the fair value of a biological asset using a present value technique. This will ensure consistency with the requirements in IFRS 13 Fair Value Measurement. The amendment is effective for annual reporting periods beginning on or after January 1, 2022. The Company adopted the Amendments to IAS 41 effective November 1, 2022, which did not have a material impact to the Company’s consolidated financial statements.
Amendments to IFRS 9: Financial Instruments
As part of its 2018-2020 annual improvements to the standards process of IFRS, the IASB issued amendments to IFRS 9 Financial Instruments. The amendment clarifies the fees that an entity includes when assessing whether the terms of a new or modified financial liability are substantially different from the terms of the original financial liability. These fees include only those paid or received between the borrower and the lender, including fees paid or received by either the borrower or lender on the other’s behalf. An entity applies the amendment to financial liabilities that are modified or exchanged on or after the beginning of the annual reporting period in which the entity first applies the amendment. The amendment is effective for annual reporting periods beginning on or after January 1, 2022 with earlier adoption permitted. The Company adopted the Amendments to IFRS 9 effective November 1, 2022, which did not have a material impact to the Company’s consolidated financial statements.
F-20
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the transition period ended December 31, 2023, and the years ended October 31, 2023, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
Amendments to IAS 37: Onerous Contracts and the Cost of Fulfilling a Contract
The amendment specifies that the ‘cost of fulfilling’ a contract comprises the ‘costs that relate directly to the contract’. Costs that relate directly to a contract can either be incremental costs of fulfilling that contract or an allocation of other costs that relate directly to fulfilling contracts. The amendment is effective for annual periods beginning on or after January 1, 2022 with early application permitted. The Company adopted the amendments to IAS 37 effective November 1, 2022, which did not have a material impact to the Company’s consolidated financial statements.
| 2.21 | New Accounting Pronouncements |
Amendments to IAS 1: Classification of Liabilities as Current or Non-current
The amendment clarifies the requirements relating to determining if a liability should be presented as current or non-current in the statement of financial position. Under the new requirement, the assessment of whether a liability is presented as current or non-current is based on the contractual arrangements in place as at the reporting date and does not impact the amount or timing of recognition. The amendment applies retrospectively for annual reporting periods beginning on or after January 1, 2024. The Company is currently evaluating the potential impact of these amendments on the Company’s consolidated financial statements.
IFRS 17 – Insurance Contracts
IFRS 17 Insurance Contracts establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts within the scope of the standard. The objective of IFRS 17 is to ensure that an entity provides relevant information that faithfully represents those contracts. The standard is effective for annual periods beginning on or after January 1, 2023. The Company is evaluating the potential impact of this standard on the Company’s consolidated financial statements.
| 3. | BIOLOGICAL ASSETS |
Biological assets consist of cannabis plants, which reflect measurement at FVLCTS. changes in the carrying amounts of biological assets at December 31, 2023, and October 31, 2023, and 2022 are as follows:
| Schedule of Fair value of biological assets | ||||||||||||
| December 31, 2023 | October 31, 2023 | October 31, 2022 | ||||||||||
| $ | $ | $ | ||||||||||
| Beginning balance | 1,566,822 | 1,199,519 | 1,188,552 | |||||||||
| Increase in biological assets due to capitalized costs | 1,057,764 | 6,792,298 | 5,630,863 | |||||||||
| Change in FVLCTS due to biological transformation | 686,867 | 3,355,797 | 3,278,572 | |||||||||
| Transferred to inventory upon harvest | (1,588,111 | ) | (9,780,792 | ) | (8,898,468 | ) | ||||||
| Ending balance | 1,723,342 | 1,566,822 | 1,199,519 | |||||||||
FVLCTS is determined using a model which estimates the expected harvest yield for plants currently being cultivated, and then adjusts that amount for the expected selling price and also for any additional costs to be incurred, such as post-harvest costs.
F-21
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the transition period ended December 31, 2023, and the years ended October 31, 2023, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
The following significant unobservable inputs, all of which are classified as level 3 on the fair value hierarchy, were used by management as part of this model:
| - | Expected costs required to grow the cannabis up to the point of harvest |
| - | Estimated selling price per pound |
| - | Expected yield from the cannabis plants |
| - | Estimated stage of growth – The Company applied a weighted average number of days out of the 60-day growing cycle that biological assets have reached as of the measurement date based on historical evidence. The Company assigns fair value basis according to the stage of growth and estimated costs to complete cultivation. |
| Schedule of Fair value of biological assets | ||||||||||||||||
| Impact of 20% change | ||||||||||||||||
| December 31, 2023 | October 31, 2023 | December 31, | October 31, 2023 | |||||||||||||
| Estimated selling price per pound ($/pound) | $ | 938 | $ | 945 | $ | 335,193 | $ | 340,390 | ||||||||
| Estimated stage of growth (%) | 55 | % | 51 | % | $ | 285,243 | $ | 280,663 | ||||||||
| Estimated flower yield per harvest (pound) | 2,972 | 3,283 | $ | 285,243 | $ | 280,663 | ||||||||||
| 4. | INVENTORY |
The Company’s inventory composition is as follows:
| Schedule of inventory | ||||||||||||
| December 31, 2023 | October 31, 2023 | October 31, | ||||||||||
| $ | $ | $ | ||||||||||
| Raw materials | 503,216 | 501,433 | 134,926 | |||||||||
| Work in process | 3,979,335 | 3,677,502 | 2,735,000 | |||||||||
| Finished goods | 538,739 | 315,322 | 261,951 | |||||||||
| Ending balance | 5,021,290 | 4,494,257 | 3,131,877 | |||||||||
The cost of inventories, excluding changes in fair value, included as an expense and included in cost of goods sold for the transition period ended December 31, 2023, was $1,404,323 (October 31, 2023 - $11,155,676; October 31, 2022 - $9,227,439, October 31, 2021 - $3,997,617).
| 5. | BUSINESS COMBINATIONS |
| 5.1 | Golden Harvests LLC |
On May 1, 2021, the Company acquired a controlling 60% interest in Golden Harvests for aggregate consideration of $1,007,719 comprised of 1,025,000 common shares of the Company with a fair value of $158,181 and cash payments of $849,536. Consideration remaining to be paid at the date of these consolidated financial statements included cash payments of $360,000.
| Schedule of consideration remaining | ||||||||
| Total consideration | Common shares | $ | ||||||
| Cash paid | - | 479,000 | ||||||
| Cash payable | - | 370,537 | ||||||
| Common shares issued | 825,000 | 122,376 | ||||||
| Common shares issued | 200,000 | 35,806 | ||||||
| Total | 1,025,000 | 1,007,719 | ||||||
F-22
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the transition period ended December 31, 2023, and the years ended October 31, 2023, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
During the year ended October 31, 2023, common shares with an aggregate fair value of $ were issued.
On December 1, 2021, the Company and the seller of the 60% controlling interest in Golden Harvests agreed to extend the due date of the cash portion of business acquisition consideration payable until December 31, 2024, in exchange for monthly payments at a rate of 18% per annum. The Company may pay all or part of the cash portion of the business acquisition consideration payable prior to December 31, 2024. The following table summarizes the movement in business acquisition consideration payable.
| Schedule of business acquisition consideration payable | ||||
| Business acquisition consideration payable | $ | |||
| Acquisition date fair value | 370,537 | |||
| Payments | (8,000 | ) | ||
| Application of prepayments | (4,000 | ) | ||
| Accretion | 1,463 | |||
| Balance – December 31, 2023, October 31, 2023, and 2022 | 360,000 | |||
| 6. | OTHER INVESTMENTS, PURCHASE DEPOSITS AND NOTES RECEIVABLE |
| 6.1 | Investment in Assets Sold by HSCP |
On February 5, 2021, the Company agreed to acquire substantially all of the assets of the growing and retail operations pursuant to the HSCP Transaction, for an aggregate total of $3,000,000 in consideration, payable in a series of tranches, subject to receipt of all necessary regulatory and other approvals. A payment of $250,000 was to be due at closing and the payment of the remaining purchase price was to depend on the timing of the closing. The Company also executed the HSCP MSA, a management services agreement, pursuant to which the Company agreed to pay $21,500 per month as consideration for services rendered thereunder, until the completion of the HSCP Transaction. In accordance with the MSA, the Company owned all production from the growing assets derived from the growing operations of HSCP, and the Company operated the growing facility of HSCP under the MSA until receipt of the necessary regulatory approvals relating to the acquisition by the Company of HSCP’s growing assets. The Company had no involvement with the retail operations contemplated in the agreement until the HSCP Transaction was completed.
On April 14, 2022, the HSCP Transaction closed with modifications to the original terms: the retail purchase was mutually terminated, and total consideration for the acquisition was reduced to $2,000,000. Upon closing, the Company had paid $750,000 towards the acquisition, and owed a promissory note payable with a principal sum of $1,250,000, which was fully paid during the transition period ended December 31, 2023.
| 6.2 | Notes Receivable |
| Schedule of Notes Receivable | ||||||||||||
| Note | ||||||||||||
| Changes in notes receivable | 6.2.1 | 6.2.2 | Total $ | |||||||||
| Balance - October 31, 2022 | - | - | - | |||||||||
| Advances | 1,170,101 | 250,000 | 1,420,101 | |||||||||
| Accrued interest | 8,758 | 1,667 | 10,425 | |||||||||
| Balance - October 31, 2023 | 1,178,859 | 251,667 | 1,430,526 | |||||||||
| Advances | 982,758 | - | 982,758 | |||||||||
| Accrued interest | 30,755 | 5,083 | 35,838 | |||||||||
| Balance – December 31, 2023 | 2,192,372 | 256,750 | 2,449,122 | |||||||||
| Current portion | - | - | - | |||||||||
| Non-current portion | 2,192,372 | 256,750 | 2,449,122 | |||||||||
F-23
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the transition period ended December 31, 2023, and the years ended October 31, 2023, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
| 6.2.1 | Iron Flag Draw Down Promissory Note |
On October 4, 2023, the Company announced that it signed a definitive agreement with an option to acquire 70% of ABCO, pending regulatory approval from the CRC. ABCO was granted a conditional cultivation and manufacturing license by the CRC and will receive its annual cultivation license soon. GR Unlimited executed the Iron Flag Promissory Note with ABCO’s affiliate, Iron Flag, to fund tenant improvements and for general working capital at the 50,000 square foot facility leased by ABCO for use in ABCO’s cannabis cultivation operations under construction and estimated to be completed in the second quarter of 2024.
Pursuant to the Iron Flag Promissory Note, GR Unlimited shall make the maximum amount available to Iron Flag, LLC in one or more advances in an aggregate amount not to exceed $4,000,000. Interest on the outstanding principal borrowed shall accrue at a rate of 12.5% per annum commencing with respect to each advance and accruing until the date the standing advances and all accrued interest is paid in full.
As at December 31, 2023, the outstanding balance of the Iron Flag Promissory Note was $2,152,859 (October 31, 2023 - $1,170,101), and the accrued interest receivable was $39,513 (October 31, 2023 - $8,758).
| 6.2.2 | New Jersey Retail Promissory Note |
On October 3, 2023, GR Unlimited executed a promissory note and advanced $250,000 to an individual representing the principal amount of the note (the “NJ Retail Promissory Note”). Pursuant to the NJ Retail Promissory Note agreement, interest on the outstanding principal borrowed shall accrue at a rate of 12% per annum provided that, if the extended maturity date of the note is triggered, interest shall accrue on the outstanding balance commencing on the maturity date and ending on the extending maturity date of the promissory note.
As at December 31, 2023, the outstanding balance of the NJ Retail Promissory Note was $250,000 (October 31, 2023 - $250,000), and the accrued interest receivable was $6,750 (October 31, 2023 - $1,667).
Subsequent to the transition period ended December 31, 2023, the Company signed a related definitive agreement on January 16, 2024, to invest in the development of an adult-use dispensary in West New York, New Jersey. Also see subsequent event in note 26.2.
| 7. | LEASES |
The following is a continuity schedule of lease liabilities:
| Schedule of lease liabilities | ||||||||||||
| Lease liabilities | December 31, 2023 | October 31, 2023 | October 31, | |||||||||
| $ | $ | $ | ||||||||||
| Balance - beginning | 2,918,683 | 2,301,129 | 2,360,438 | |||||||||
| Additions | 528,980 | 2,583,661 | 1,030,429 | |||||||||
| Disposals | (105,258 | ) | (292,763 | ) | - | |||||||
| Interest expense on lease liabilities | 58,361 | 272,521 | 243,360 | |||||||||
| Payments | (502,708 | ) | (1,945,865 | ) | (1,333,098 | ) | ||||||
| Balance - ending | 2,898,058 | 2,918,683 | 2,301,129 | |||||||||
| Current portion | 925,976 | 824,271 | 1,025,373 | |||||||||
| Non-current portion | 1,972,082 | 2,094,412 | 1,275,756 | |||||||||
F-24
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the transition period ended December 31, 2023, and the years ended October 31, 2023, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
Set out below are undiscounted minimum future lease payments after December 31, 2023:
| Schedule of minimum future lease payments | ||||
Total future | ||||
| Less than one year | 982,881 | |||
| Between one and five years | 2,449,475 | |||
| Total minimum lease payments | 3,432,356 | |||
| Less amount representing interest | (534,298 | ) | ||
| Total | 2,898,058 | |||
| 8. | PROPERTY AND EQUIPMENT |
| Property and equipment | ||||||||||||||||||||
| Computer and Office Equipment | Production Equipment and Other | Leasehold Improvements | Right-of- use Assets | Total | ||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||
| COST | ||||||||||||||||||||
| Balance - October 31, 2021 | 16,283 | 511,167 | 4,978,088 | 3,328,032 | 8,833,570 | |||||||||||||||
| Additions | - | 34,690 | 3,014,807 | 951,377 | 4,000,874 | |||||||||||||||
| Disposals | - | (2,825 | ) | (10,375 | ) | - | (13,200 | ) | ||||||||||||
| Balance - October 31, 2022 | 16,283 | 543,032 | 7,982,520 | 4,279,409 | 12,821,244 | |||||||||||||||
| Additions | - | 434,736 | 990,469 | 2,583,661 | 4,008,866 | |||||||||||||||
| Disposals | - | (3,339 | ) | (3,862 | ) | (599,707 | ) | (606,908 | ) | |||||||||||
| Balance - October 31, 2023 | 16,283 | 974,429 | 8,969,127 | 6,263,363 | 16,223,202 | |||||||||||||||
| Additions | - | 14,109 | 226,921 | 528,980 | 770,010 | |||||||||||||||
| Disposals | - | (70,198 | ) | (131,646 | ) | (185,826 | ) | (387,670 | ) | |||||||||||
| Balance - December 31, 2023 | 16,283 | 918,340 | 9,064,402 | 6,606,517 | 16,605,542 | |||||||||||||||
| ACCUMULATED AMORTIZATION | ||||||||||||||||||||
| Balance - October 31, 2021 | 16,283 | 196,103 | 2,017,029 | 861,571 | 3,090,986 | |||||||||||||||
| Amortization for the period | - | 114,197 | 706,567 | 1,181,543 | 2,002,307 | |||||||||||||||
| Disposals | - | (895 | ) | (6,055 | ) | - | (6,950 | ) | ||||||||||||
| Balance - October 31, 2022 | 16,283 | 309,405 | 2,717,541 | 2,043,114 | 5,086,343 | |||||||||||||||
| Amortization for the period | - | 94,518 | 1,108,228 | 1,312,968 | 2,515,714 | |||||||||||||||
| Disposals | - | (2,584 | ) | (802 | ) | (128,735 | ) | (132,121 | ) | |||||||||||
| Balance - October 31, 2023 | 16,283 | 401,339 | 3,824,967 | 3,227,347 | 7,469,936 | |||||||||||||||
| Amortization for the period | - | 26,866 | 197,164 | 285,392 | 509,422 | |||||||||||||||
| Disposals | - | (54,726 | ) | (47,038 | ) | (92,949 | ) | (194,713 | ) | |||||||||||
| Balance - December 31, 2023 | - | 373,479 | 3,975,093 | 3,419,790 | 7,784,645 | |||||||||||||||
| NET BOOK VALUE | ||||||||||||||||||||
| Balance - October 31, 2022 | - | 233,627 | 5,264,979 | 2,236,295 | 7,734,901 | |||||||||||||||
| Balance - October 31, 2023 | - | 573,090 | 5,144,160 | 3,036,016 | 8,753,266 | |||||||||||||||
| Balance – December 31, 2023 | - | 544,861 | 5,089,309 | 3,186,727 | 8,820,897 | |||||||||||||||
For the transition period ended December 31, 2023, amortization capitalized into inventory was $323,007 (years ended October 31, 2023 - $1,937,073; October 31, 2022 - $1,251,391) and expensed amortization was $186,415 (years ended October 31, 2023 - $578,641; October 31, 2022 - $750,916; October 31, 2021 - $180,015).
F-25
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the transition period ended December 31, 2023, and the years ended October 31, 2023, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
| 9. | INTANGIBLE ASSETS AND GOODWILL |
| Schedule of intangible assets and goodwill | ||||||||||||
| Indefinite lived intangible assets and goodwill | December 31, 2023 | October 31, 2023 | October 31, 2022 | |||||||||
| $ | $ | $ | ||||||||||
| Balance – beginning | 725,668 | 725,668 | 399,338 | |||||||||
| Additions – grower licenses | - | - | 326,330 | |||||||||
| Balance – ending | 725,668 | 725,668 | 725,668 | |||||||||
Additions during the year ended October 31, 2022, resulted from the HSCP Transaction (Note 6.1).
| 10. | LONG-TERM DEBT |
Transactions related to the Company’s long-term debt during the transition period ended December 31, 2023, and the years ended October 31, 2023 and 2022, include the following:
| Long-term Debt | ||||||||||||||||||||||||||||||||
| Note | ||||||||||||||||||||||||||||||||
| Movement in long-term debt | 10.1 | 10.2 | 10.3 | 10.4 | 10.5 | 10.6 | 10.7 | Total $ | ||||||||||||||||||||||||
| Balance - October 31, 2021 | - | 600,572 | 249,064 | 280,567 | 150,000 | 142,997 | 786,461 | 2,209,661 | ||||||||||||||||||||||||
| Additions to debt | 1,250,000 | 100,000 | - | - | - | - | - | 1,350,000 | ||||||||||||||||||||||||
| Settlement of debt | - | (706,352 | ) | - | - | - | - | - | (706,352 | ) | ||||||||||||||||||||||
| Interest accretion | - | 5,780 | 79,046 | 71,443 | - | 36,594 | 295,453 | 488,316 | ||||||||||||||||||||||||
| Debt payments | - | - | (25,000 | ) | (25,000 | ) | (150,000 | ) | (12,500 | ) | (520,303 | ) | (732,803 | ) | ||||||||||||||||||
| Balance - October 31, 2022 | 1,250,000 | - | 303,110 | 327,010 | - | 167,091 | 561,611 | 2,608,822 | ||||||||||||||||||||||||
| Interest accretion | - | - | 96,985 | 83,752 | - | 43,006 | 187,782 | 411,525 | ||||||||||||||||||||||||
| Debt payments | (900,000 | ) | - | (25,000 | ) | (25,000 | ) | - | (12,500 | ) | (669,330 | ) | (1,631,830 | ) | ||||||||||||||||||
| Balance - October 31, 2023 | 350,000 | - | 375,095 | 385,762 | - | 197,597 | 80,063 | 1,388,517 | ||||||||||||||||||||||||
| Interest accretion | - | - | 18,355 | 15,418 | - | 3,811 | 4,769 | 42,353 | ||||||||||||||||||||||||
| Debt payments | (350,000 | ) | - | (4,167 | ) | (4,167 | ) | - | (125,000 | ) | (84,832 | ) | (568,166 | ) | ||||||||||||||||||
| Balance - December 31, 2023 | - | - | 389,283 | 397,013 | - | 76,408 | - | 862,704 | ||||||||||||||||||||||||
| Current portion | - | - | 348,581 | 355,369 | - | 76,408 | - | 780,358 | ||||||||||||||||||||||||
| Non-current portion | - | - | 40,702 | 41,644 | - | - | - | 82,346 | ||||||||||||||||||||||||
| 10.1 | 0% Stated Rate Note Payable to PBIC with Original Principal Amount of $800,000 and Harvest-based Payments (Settled) |
On April 14, 2022, the Company purchased indoor growing assets from HSCP (Note 6.1). Purchase consideration included a Secured Promissory Note payable with a principal sum of $1,250,000, of which $500,000 was due on August 1, 2022 and $750,000 was due on May 1, 2023, before amendment of the agreement, which is described below. Collateral for the Secured Promissory Note payable is comprised of the assets purchased.
On August 1, 2022, the terms of the Secured Promissory Note between GR Distribution and HSCP, were amended. As amended, the Secured Promissory Note will be fully settled by two principal amounts of $500,000 and $750,000 due on May 1, 2023. Beginning on August 1, 2022, and continuing until repaid in full, the unpaid portion of the First Principal Amount will accrue simple interest at a rate per annum of 12.5%, payable monthly. In the event the Company raises capital, principal payments shall be made as follows. If the capital raise is less than or equal to $2 million, then 25% of the capital raise shall be paid against the First Principal Payment; if the capital raise is greater than $2 million and less than or equal to $3 million, then $250,000 shall be paid against the First Principal Payment; and if the capital raise is greater than $3 million, then $500,000 shall be paid against the First Principal Payment.
F-26
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the transition period ended December 31, 2023, and the years ended October 31, 2023, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
On May 1, 2023, the terms of the Secured Promissory Note were amended for a second. Under the second amendment, the Secured Promissory Note will be fully settled in two principal amounts. On May 1, 2023, the $500,000 principal payment plus all accrued but unpaid interest under the first amendment was due and payable. The remaining principal balance of $500,000, which bears no interest, is due and payable as follows: $150,000 due and payable on August 1, 2023; $150,000 due and payable on November 1, 2023; and $200,000 due and payable on December 31, 2023. The balance was fully paid during the transition period ended December 31, 2023.
| 10.2 | 0% Stated Rate Note Payable to PBIC with Original Principal Amount of $800,000 and Harvest-based Payments (Settled) |
On September 9, 2021, the Company entered into the PBIC Note, an unsecured promissory note agreement with PBIC, a formerly related party, in the amount of $800,000, which was to be fully advanced by September 30, 2021. During the year ended October 31, 2022, $100,000 was received (through October 31, 2021 - $600,000). The PBIC Note was to mature on December 15, 2022, with payments commencing January 15, 2022, and continuing through and including December 15, 2022. The terms required the Company to make certain participation payments to the lender based on a percentage monthly sales of cannabis flower sold from the Company’s Harvest (sun-grown A-flower 2021 harvest), less 15% of such amount to account for costs of sales. The percentage was determined by dividing 2,000 by the total volume of pounds of the Harvest, proportionate to principal proceeds. A portion of these payments were to be used to pay down the outstanding principal on a monthly basis. The PBIC Note would have automatically terminated when the full amount of any outstanding principal plus the applicable participation payments were paid prior to the maturity date. Should the participation payments have fully repaid the principal amount prior to the maturity date then the PBIC Note would have automatically terminated. The PBIC Note bore no stated rate of interest, and in the event of default, would have born interest at 15% per annum. The PBIC Note was reported at amortized cost using an effective interest rate of approximately 1.9%.
On June 20, 2022, the Company announced the settlement of the PBIC Note, which had a principal balance owing of $700,000. The Company agreed to transfer its PBIC Shares (the Company’s ownership of common shares of PBIC), to the Creditor (2766923 Ontario Inc.), to which PBIC sold and assigned the PBIC Note. In exchange, the Creditor provided forgiveness and settlement of all amounts owing in connection with the PBIC Note. The Company reported a gain on debt settlement of $449,684 as a result of the settlement.
| 10.3 | 10% Note Payable Owed by Golden Harvests with Original Principal Amount of $250,000 |
On May 1, 2021, the Company assumed a note payable owed by Golden Harvests (Note 5) with a carrying value of $227,056. The note is for a principal amount of $250,000, interest paid monthly at 10% per annum, and a maturity date of January 14, 2024. After the maturity date, additional interest payments are due quarterly, at amounts that cause total interest paid over the life of the debt to equal $250,000. The note is reported at amortized cost using an effective interest rate of approximately 33%. During the transition period ended December 31, 2023, the Company made principal payments of $4,167 (years ended October 31, 2023, and 2022 - $25,000 each).
| 10.4 | 10% Note Payable Owed by GR Distribution with Original Principal Amount of $250,000 |
On January 27, 2021, debt was issued by GR Distribution with a principal amount of $250,000, interest paid monthly at 10% per annum, and a maturity date of January 27, 2024. After the maturity date, additional interest payments are due quarterly, at amounts that cause total interest paid over the life of the debt to equal $250,000. The note is reported at amortized cost using an effective interest rate of approximately 27%. During the transition period ended December 31, 2023, the Company made principal payments of $4,167 (years ended October 31, 2023, and 2022 - $25,000 each).
F-27
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the transition period ended December 31, 2023, and the years ended October 31, 2023, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
| 10.5 | 10% Note Payable Owed by GR Gardens with Original Principal Amount of $150,000 (SETTLED) |
On December 2, 2020, debt was issued by GR Gardens with a principal amount of $150,000, interest accrued at 10% per annum, and a maturity date of December 31, 2021. Interest and principal are payable upon maturity. The maturity date was extended by six-months for a fee of $1,000 per $10,000 of principal extended, which was $75,000. The balance was fully paid during the year ended October 31, 2022.
| 10.6 | 10% Note Payable Owed by GR Distribution with Original Principal Amount of $125,000 |
On November 23, 2020, debt was issued by GR Distribution with a principal amount of $125,000, interest paid monthly at 10% per annum, and a maturity date of November 23, 2023. After the maturity date, additional interest payments are due quarterly, at amounts that cause total interest paid over the life of the debt to equal $125,000. The note is reported at amortized cost using an effective interest rate of approximately 27%. During the transition period ended December 31, 2023, the Company made principal payments of $125,000 (years ended October 31, 2023, and 2022 - $12,500 each).
| 10.7 | 0% Stated Rate Note Payable by Canopy with Original Principal Amount of $60,000 and Royalty Payments to Lenders |
On March 20, 2020, debt with a principal amount of $600,000 was received under a secured debt investment of $600,000. It carries a two-year term, with monthly payments of principal commencing June 15, 2020, and with payments calculated at 1% of cash sales receipts of Golden Harvests. Once the principal is repaid, each investor receives a monthly royalty of 1% per $100,000 invested of cash receipts for sales by Golden Harvests. The royalty commenced in December 2021, at which time principal was repaid, and is payable monthly a period of two years. The royalty maximum is two times the amount of principal invested, and the royalty minimum is equal to the principal loaned. The Company has the right, but not the obligation, to terminate royalty payments from any lender by paying an amount equal to the original principal invested by such lender. The debt is reported at the carrying value of the probability-weighted estimated future cash flows of all payments under the agreement at amortized cost using the effective interest method, at an effective interest rate of approximately 73%. A portion of this debt is due to related parties (Note 17.4). During the years ended October 31, 2023, and 2022, the Company made principal payments of $669,330 and $520,303, respectively. During the transition period ended December 31, 2023, the balance was fully paid.
| 10.8 | Accrued Interest Payable |
Accrued interest payable on long-term debt at December 31, 2023 was $Nil 0 (October 31, 2023 and 2022 - $Nil0).
| 11. | CONVERTIBLE DEBENTURES |
| Schedule of Convertible Debentures | ||||||||||||
| $ | $ | $ | ||||||||||
| Movement in convertible debt | Note 11.1 | Note 11.2 | Total | |||||||||
| Balance - October 31, 2022 | - | - | - | |||||||||
| Additions to debt | 2,000,000 | 6,000,000 | 8,000,000 | |||||||||
| Derivative liability recognition | (783,856 | ) | (3,982,944 | ) | (4,766,800 | ) | ||||||
| Debt settlement through conversion of shares (Note 11.1.1) | (1,174,639 | ) | - | (1,174,639 | ) | |||||||
| Interest accretion | 343,556 | 271,651 | 615,207 | |||||||||
| Debt payments | (137,745 | ) | (123,261 | ) | (261,006 | ) | ||||||
| Balance - October 31, 2023 | 247,316 | 2,165,446 | 2,412,762 | |||||||||
| Interest accretion | 11,672 | 162,468 | 174,140 | |||||||||
| Debt payments | (7,875 | ) | (119,103 | ) | (126,978 | ) | ||||||
| Balance - December 31, 2023 | 251,113 | $ | 2,208,811 | $ | 2,459,924 | |||||||
| Current portion | - | - | - | |||||||||
| Non-current portion | 251,113 | 2,208,811 | 2,459,924 | |||||||||
F-28
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the transition period ended December 31, 2023, and the years ended October 31, 2023, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
| 11.1 | 9% Convertible Debentures with Original Principal Amount of $2,000,000 |
On December 5, 2022, the Company announced the closing of a non-brokered private placement of the December Convertible Debentures with an aggregate principal amount of $2,000,000. The December Convertible Debentures accrue interest at 9% per year, paid quarterly, and mature 36 months from the date of issue. The December Convertible Debentures are convertible into common shares of the Company at a conversion price of CAD$ per common share. Additionally, on closing, the Company issued to the Purchasers of the December Convertible Debentures an aggregate of Warrants, that represents 50% coverage of each Purchaser’s Convertible Debenture investment. The December Warrants are exercisable for a period of three years from issuance into common shares at an exercise price of $ CAD per common share. The Company has the right to accelerate the warrants if the closing share price of the common shares on the CSE is CAD$ or higher for a period of 10 consecutive trading days. Subsequent to the consolidated statements of financial position dated December 31, 2023, the Company issued the notice of acceleration dated March 1, 2024, required by the warrant certificates governing the December Warrants, which accelerated the expiry date to 90 days from the date of note. See subsequent event in note 26.3.
| 11.1.1 | Debt Settlement Through Conversion of Shares |
During the year ended October 31, 2023, Purchasers of the December Convertible Debentures converted an aggregate total of convertible debenture principal of $1,040,662 and $133,977 at CAD$ per share into and common shares respectively.
The conversion feature of the December Convertible Debentures gives rise to the derivative liability reported on the statements of financial position at December 31, 2023. The derivative liability is remeasured at fair value through profit and loss at each reporting period using the Black-Scholes option pricing model. The fair value of the derivative liability at December 31, 2023, was estimated to be $439,860 (October 31, 2023 - $490,195; October 31, 2022 - $Nil) using the following assumptions:
| Schedule of derivative liability assumption | |||
| Expected dividend yield | Nil | ||
| Risk-free interest rate | % | ||
| Expected life | years | ||
| Expected volatility | % |
| 11.2 | 9% Convertible Debentures with Original Principal Amount of $5,000,000 |
On July 13, 2023, the Company announced the closing of a non-brokered private placement of unsecured the July Convertible Debentures with an aggregate principal amount of $5,000,000. The Convertible Debentures accrue interest at 9% per year, paid quarterly, and mature 48 months from the date of issue. The July Convertible Debentures are convertible into common shares of the Company at a conversion price of CAD$ per common share, at any time on or prior to the maturity date. Additionally, on closing, the Company issued to the Subscribers of the July Convertible Debentures an aggregate of July Warrants, that represents one-half of one warrant for each CAD$0.24 of Principal amount subscribed. The July Warrants are exercisable for a period of three years from issuance into common shares at an exercise price of CAD$ per common share. The Company has the right to accelerate the warrants if the closing share price of the common shares on the CSE is CAD$ or higher for a period of 10 consecutive trading. Subsequent to the consolidated statements of financial position dated December 31, 2023, the Company issued the notice of acceleration dated March 1, 2024, required by the warrant certificates governing the July Warrants, which accelerated the expiry date to 90 days from the date of notice. See subsequent event in note 26.3.
F-29
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the transition period ended December 31, 2023, and the years ended October 31, 2023, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
The conversion feature of the July Convertible Debentures gives rise to the derivative liability reported on the statements of financial position at December 31, 2023. The derivative liability is remeasured at fair value through profit and loss at each reporting period using the Black-Scholes option pricing model. The fair value of the derivative liability at December 31, 2023, was estimated to be $5,824,496 (October 31, 2023 - $6,053,927; October 31, 2022 - $Nil) using the following assumptions:
| Schedule Of Fair Value Derivative Liability | |||
| Expected dividend yield | Nil | ||
| Risk-free interest rate | % | ||
| Expected life | years | ||
| Expected volatility | % |
| 11.2.1 | 9% Convertible Debentures with Original Principal Amount of $1,000,000 |
On August 17, 2023, the Company announced that it had closed the second and final tranche of a non-brokered private placement of unsecured convertible debentures for gross proceeds of $1,000,000 (the August Convertible Debentures), for a total aggregate principal amount under both tranches of $6,000,000 with the July Convertible Debentures. Additionally, on closing, the Company issued to Subscribers under the second tranche an aggregate of 2,816,250 common share purchase warrants. The terms of the August Convertible Debentures and warrants issued as part of this second tranche are the same as those issued in the July Convertible Debentures and July Warrants.
Subsequent to the consolidated statements of financial position dated December 31, 2023, the Company issued the notice of acceleration dated March 1, 2024 required by the warrant certificates governing the August Warrants, which accelerated the expiry date to 90 days from the date of notice. See subsequent event in note 26.3.
The conversion feature of the August Convertible Debentures gives rise to the derivative liability reported on the statements of financial position at December 31, 2023. The derivative liability is remeasured at fair value through profit and loss at each reporting period using the Black-Scholes option pricing model. The fair value of the derivative liability at December 31, 2023, was estimated to be $1,264,378 (October 31, 2023 - $1,264,378; October 31, 2022 - $Nil) using the following assumptions:
| Schedule Of Black Scholes Option | |||
| Expected dividend yield | Nil | ||
| Risk-free interest rate | % | ||
| Expected life | years | ||
| Expected volatility | % |
| 12. | SHARE CAPITAL AND SHARES ISSUABLE |
The Company is authorized to issue an unlimited number of common shares at no par value and an unlimited number of preferred shares issuable in series.
During the transition period ended December 31, 2023, no share transactions occurred.
During the year ended October 31, 2023, the following share transactions occurred:
| 12.1 | 200,000 Common Shares Issued to Settle Shares Issuable |
On January 10, 2023, the Company issued common shares with an aggregate fair value of $, which was reported as issuable as at October 31, 2022, which represented a portion of consideration for the acquisition of Golden Harvests (Note 5).
F-30
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the transition period ended December 31, 2023, and the years ended October 31, 2023, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
| 12.2 | 10,151,250 Common Shares Issued to Settle Convertible Debentures |
On July 13, 2023, the Company issued common shares with an aggregate fair value of $, as holders opted to convert their convertible debentures (Note 11.1.1).
| 12.3 | 1,022,025 Common Shares Issued to Settle Convertible Debentures |
On August 30, 2023, the Company issued common shares with an aggregate fair value of $, as holders opted to convert their convertible debentures.
During the year ended October 31, 2022, the following share transactions occurred:
| 12.4 | 529,335 Common Shares Issued to Employees, Directors, and/or Consultants |
The Company issued common shares with a fair value of $59,796 for employment compensation, director services and consulting services.
| 12.5 | 13,166,400 Common Shares Issued in Private Placement for Proceeds of $1,300,000 |
On December 9, 2021, the Company closed the Private Placement, a non-brokered private placement of common shares, for total gross proceeds of $1,300,000 (CAD$1,645,800). The Private Placement resulted in the issuance of common shares of Grown Rogue at a purchase price of CAD$ per share. All common shares issued pursuant to the Private Placement were subject to a hold period of four months and one day. The CEO of Grown Rogue invested $300,000 in the Private Placement and received common shares of the Company.
During the year ended October 31, 2021, the following share transactions occurred:
| 12.6 | The Company issued common shares with a fair value of $95,294 for employment compensation, director services and consulting services. |
| 12.7 | On February 5, 2021, the Company closed a non-brokered private placement of an aggregate total of common shares with a fair value of $. The private placement was raised in two tranches. In the first tranche, common shares were issued for proceeds of $. In the second tranche, 8,200,000 common shares and 8,200,000 warrants to purchase one common share were issued for proceeds of $1,025,000. All proceeds of the private placement were allocated to share capital, and costs of $15,148 incurred for this private placement were allocated to share capital. |
| 12.8 | The Company issued shares with a fair value of $ in order to extend an option payment as part of the Company’s acquisition of Golden Harvests (Note 8). | |
| 12.10 | The Company issued common shares with an aggregate fair value of $ to make payments towards the acquisition of Golden Harvests. Of the common shares issued, common shares were issued to satisfy milestone payments, and common shares were issued to extend the due date of a milestone payment. |
| 12.11 | On March 5, 2021, The Company announced the completion of a brokered private placement offering through the issuance of an aggregate of special warrants (each a “Special Warrant”), before the adjustment to Special Warrants described below, at a price of CAD$ (the “Issue Price”) per Special Warrant for aggregate gross proceeds of approximately $3,738,564 (CAD$4,737,800) (the “Offering”). Each Special Warrant entitled the holder thereof to receive, for no additional consideration, one unit of the Company (each, a “Unit”) on the exercise or deemed exercise of the Special Warrant. Each Unit was comprised of one common share of the Company and one warrant to purchase one common share of the Company. Each Special Warrant entitled the holder to receive upon the exercise or deemed exercise thereof, at no additional consideration, 1.10 Units (instead of one (1) Unit), if the Company had not received a receipt for a final short form prospectus qualifying distribution of the common shares and warrants (the “Qualifying Prospectus”) from the applicable securities regulatory authorities (the “Securities Commissions”) on or before April 5, 2021. |
F-31
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the transition period ended December 31, 2023, and the years ended October 31, 2023, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
Each Special Warrant was to be deemed exercised on the date that was the earlier of: (i) the date that was three (3) days following the date on which the Company obtained receipt from the Securities Commissions for the Qualifying Prospectus underlying the Special Warrants and (ii) July 6, 2021. The Company obtained receipt for the Qualifying Prospectus on April 26, 2021. Accordingly, on April 30, 2021, the Company issued Units, comprised of common shares and warrants to purchase one common share. The warrants entitle the holder to purchase one common share at an exercise price of CAD$ for a period of two years.
Proceeds of $3,738,564 and expenses of $485,722 were allocated to share capital; also allocated to share capital were the expenses for fair value of Agent Warrants of $210,278.
| 12.12 | The holders of convertible debentures converted an aggregate total of convertible debenture principal of $1,042,951 (CAD$1,311,111) at CAD$0.125 per share into common shares with an aggregate fair value of $. The value of derivative liabilities settled with the conversions allocated to equity was $1,833,731. |
| 13. | WARRANTS |
The following table summarizes the warrant activities for the transition period ended December 31, 2023, and the years ended October 31, 2023, 2022 and 2021:
| Schedule of warrant activities | ||||||||
| Number | Weighted Average Exercise Price (CAD$) | |||||||
| Balance - October 31, 2020 | 44,158,331 | 0.33 | ||||||
| Issuance pursuant to private placement | 8,200,000 | 0.20 | ||||||
| Issuance pursuant to the Offering | 23,162,579 | 0.30 | ||||||
| Expiration of broker warrants | (757,125 | ) | 0.44 | ) | ||||
| Expiration of warrants | (17,843,998 | ) | 0.55 | |||||
| Balance - October 31, 2021 | 56,919,787 | 0.22 | ||||||
| Expiration of warrants pursuant to convertible debt deemed re-issuance | (8,409,091 | ) | 0.16 | |||||
| Expiration of warrants issued pursuant to private placement to PBIC | (15,000,000 | ) | 0.13 | |||||
| Balance - October 31, 2022 | 33,510,696 | 0.28 | ||||||
| Issuance pursuant to the December Convertible Debentures (Note 11.1) | 6,716,499 | 0.25 | ||||||
| Issuance pursuant to the July Convertible Debentures (Note 11.2) | 13,737,500 | 0.28 | ||||||
| Issuance pursuant to the August Convertible Debentures (Note 11.2.1) | 2,816,250 | 0.28 | ||||||
| Issued pursuant to the Consulting Agreement with Goodness Growth (Note 13.2) | 8,500,000 | 0.33 | ||||||
| Expiration of warrants pursuant to Feb 2021 subscription | (8,200,000 | ) | 0.20 | |||||
| Expiration of warrants pursuant to the Offering (Special warrant issue) | (23,162,579 | ) | 0.30 | |||||
| Expiration of warrants pursuant to terminate purchase agreement | (2,148,117 | ) | 0.44 | |||||
| Balance – December 31, and October 31, 2023 | 31,770,249 | 0.29 | ||||||
At December 31, 2023, the following warrants were issued and outstanding:
| Schedule of warrant issued and outstanding | ||||||||||||
| Exercise price (CAD$) | Warrants outstanding | Life (years) | Expiry date | |||||||||
| 0.25 | 6,716,499 | |||||||||||
| 0.28 | 13,737,500 | |||||||||||
| 0.28 | 2,816,250 | |||||||||||
| 0.33 | 8,500,000 | |||||||||||
| 0.29 | 31,770,249 | |||||||||||
F-32
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the transition period ended December 31, 2023, and the years ended October 31, 2023, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
| 13.1 | Agent Warrants |
On March 5, 2021, as consideration for the services rendered by the agent (the “Agent”) to a brokered placement of special warrants (the “Offering”), the Company issued to the Agent an aggregate of 1,127,758 broker warrants of the Company (the “Broker Warrants”) exercisable to acquire 1,127,758 compensation options (the “Compensation Options”) for no additional consideration. As consideration for certain advisory services provided in connection with the Offering, the Company issued to the Agent an aggregate of 113,500 advisory warrants (the “Advisory Warrants”) exercisable to acquire 113,500 Compensation Options for no additional consideration. The Broker Warrants and Advisory Warrants are collectively referred to as the “Agent Warrants.”
Each Compensation Option entitles the holder thereof to purchase one unit of the Company (a “Compensation Unit”) at the Issue Price of CAD$ for a period of twenty-four (24) months. Each Compensation Unit is comprised of one common share and one common share purchase warrant of the Company (a “Compensation Warrant”). Each Compensation Warrant shall entitle the holder thereof to purchase one common share in the capital of the Company at a price of CAD$ for twenty-four (24) months. The Agent Warrants expired on March 5, 2023.
| 13.2 | Goodness Growth Consulting Agreement |
The Consulting Agreement with Goodness Growth was executed as of May 24, 2023, whereby GR Unlimited will support Goodness Growth in the optimization of its cannabis flower products, with a particular focus on improving the quality and yield of top-grade “A” cannabis flower across its various operating markets, starting with Maryland and Minnesota (Note 2.5.1).
As part of this strategic agreement, Goodness Growth is obligated to issue warrants to purchase subordinate voting shares of Goodness Growth to the Company, with a strike price equal to CAD$0.317 (U.S.$0.233), being a 25.0 percent premium to the 10-day VWAP of Goodness Growth’s subordinate voting shares prior to the effective date of the Consulting Agreement. Similarly, the Company will issue warrants to purchase common shares of the Company to Goodness Growth, with a strike price equal to CAD$0.225 (U.S.$0.166), being a 25.0 percent premium to the 10-day VWAP of the Company’s common shares prior to the effective date of the Consulting Agreement.
The Company first measured and recognized the fair value ($1,232,253) of the warrants using a Black-Scholes option pricing model as of the warrants’ deemed issuance date, which was the effective date of the Consulting Agreement (May 24, 2023). The Company and Goodness Growth issued and exchanged the warrants on October 5, 2023, at which time the carrying value ($1,232,253) of the warrants issued and received was recorded to equity and Warrants Asset, respectively.
The Warrants Asset is remeasured at fair value through profit and loss at each reporting period using the Black-Scholes option pricing model. The fair value of the Warrants Asset at December 31, 2023, was estimated to be $1,761,382 (October 31, 2023 - $1,361,366; October 31, 2022 - $Nil) using the following assumptions:
| Schedule of Agent warrants assumption at grant date based | |||
| Expected (strike) price | |||
| Risk-free interest rate | % | ||
| Expected life | years | ||
| Expected volatility | % |
F-33
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the transition period ended December 31, 2023, and the years ended October 31, 2023, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
| 14. | STOCK OPTIONS |
The following table summarizes the stock option movements for the transition period ended December 31, 2023, and the years ended October 31, 2023, 2022, and 2021:
| Schedule of stock option movements | ||||||||
| Number | Exercise price (CAD$) | |||||||
| Balance - October 31, 2020 | 3,720,000 | 0.19 | ||||||
| Granted to employees | 3,085,000 | 0.20 | ||||||
| Forfeitures by services providers | (65,000 | ) | 0.15 | |||||
| Forfeitures by employees | (965,000 | ) | 0.15 | |||||
| Forfeitures by employees | (10,000 | ) | 0.22 | |||||
| Balance - October 31, 2021 | 5,765,000 | 0.20 | ||||||
| Granted to employees | 605,000 | 0.15 | ||||||
| Forfeitures by service provider | (500,000 | ) | 0.44 | |||||
| Forfeitures by employees | (960,000 | ) | 0.15 | |||||
| Balance - October 31, 2022 | 4,910,000 | 0.18 | ||||||
| Granted to employees | 3,650,000 | 0.15 | ||||||
| Granted to employees | 400,000 | 0.30 | ||||||
| Granted to service providers | 2,750,000 | 0.15 | ||||||
| Expiration of options to employees | (430,000 | ) | 0.15 | |||||
| Expiration of options to employees | (75,000 | ) | 0.22 | |||||
| Balance - October 31, 2023 | 11,205,000 | 0.17 | ||||||
| Granted to employees | 100,000 | 0.39 | ||||||
| Granted to service providers | 500,000 | 0.39 | ||||||
| Expiration of options to employees | (5,000 | ) | 0.15 | |||||
| Balance - December 31, 2023 | 11,800,000 | 0.18 | ||||||
| 14.1 | During the transition period ended December 31, 2023, 600,000 options were granted to employees and service providers. |
The fair value of the options granted during the transition period ended December 31, 2023, was approximately $ (CAD$), which was estimated at the grant dates based on the Black-Scholes option pricing model, using the following assumptions:
| Schedule of fair value of options at the grant date based | |||
| Expected dividend yield | % | ||
| Risk-free interest rate | % | ||
| Expected life | years | ||
| Expected volatility | % |
The vesting terms of options granted during the transition period ended December 31, 2023, are set out in the table below:
| Schedule of vesting terms | ||||
| Vesting terms Number Granted | Description | |||
| 100,000 | 50% on one year anniversary of grant date, 50% on second anniversary of grant date | |||
| 500,000 | Monthly over a year | |||
| 600,000 | ||||
F-34
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the transition period ended December 31, 2023, and the years ended October 31, 2023, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
| 14.2 | During the year ended October 31, 2023, 6,800,000 options were granted to employees. |
The fair value of the options granted during the year ended October 31, 2023, was approximately $ (CAD$), which was estimated at the grant dates based on the Black-Scholes option pricing model, using the following assumptions:
| Schedule of assumptions | |||
| Expected dividend yield | % | ||
| Risk-free interest rate | % | ||
| Expected life | years | ||
| Expected volatility | % |
The vesting terms of options granted during the year ended October 31, 2023, are set out in the table below:
| Schedule of vesting terms of options granted | ||||
| Vesting terms Number Granted | Description | |||
| 200,000 | 1/3 on each anniversary of grant date | |||
| 200,000 | 50% on one year anniversary of grant date, 50% on second anniversary of grant date | |||
| 400,000 | Fully vested on grant date | |||
| 6,000,000 | Vest on one year anniversary of grant date | |||
| 6,800,000 | ||||
| 14.3 | During the year ended October 31, 2022, 605,000 options were granted to employees. |
The fair value of the options granted during the year ended October 31, 2022, was approximately $ (CAD$29,924) which was estimated at the grant dates based on the Black-Scholes option pricing model, using the following assumptions:
| Schedule of fair value of options vested | |||
| Expected dividend yield | % | ||
| Risk-free interest rate | % | ||
| Expected life | years | ||
| Expected volatility | % |
The vesting terms of options granted during the year ended October 31, 2022, are set out in the table below:
| Schedule of vesting terms options | ||||
| Vesting terms Number Granted | Description | |||
| 300,000 | 50% on one year anniversary of grant date, 50% on second anniversary of grant date | |||
| 100,000 | Fully vested on grant date | |||
| 205,000 | Vest on one year anniversary of grant date | |||
| 605,000 | ||||
| 14.4 | During the year ended October 31, 2021, 3,805,000 options were granted to employees. |
The fair value of the options granted during the year ended October 31, 2021, was approximately $ (CAD$343,034) which was estimated at the grant dates based on the Black-Scholes option pricing model, using the following assumptions:
| Schedule of fair value of Black-Scholes options | |||
| Expected dividend yield | % | ||
| Risk-free interest rate | % | ||
| Expected life | years | ||
| Expected volatility | % |
F-35
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the transition period ended December 31, 2023, and the years ended October 31, 2023, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
The vesting terms of options granted during the year ended October 31, 2021, are set out in the table below:
| Schedule of vesting terms granted | ||||
| Vesting terms Number Granted | Description | |||
| 500,000 | ½ on grant date, ½ on first anniversary of grant date | |||
| 1,000,000 | ½ on grant date, ½ seven months after grant date | |||
| 500,000 | ½ six months after grant date, ½ on first anniversary of grant date | |||
| 450,000 | ⅓ on each anniversary of grant date | |||
| 400,000 | ½ on first anniversary of grant date, ½ of anniversary of grant date | |||
| 235,000 | On first anniversary of grant date | |||
| 3,085,000 | ||||
At December 31, 2023, the following Stock Options were issued and outstanding:
| Schedule of stock options were issued and outstanding | ||||||||||||||||
| Exercise price (CAD$) | Options outstanding | Number exercisable | Remaining Contractual Life (years) | Expiry period | ||||||||||||
| 0.15 | 1,840,000 | 1,777,500 | ||||||||||||||
| 0.15 | 200,000 | 200,000 | ||||||||||||||
| 0.30 | 1,000,000 | 850,000 | ||||||||||||||
| 0.16 | 1,150,000 | 1,150,000 | ||||||||||||||
| 0.15 | 85,000 | 85,000 | ||||||||||||||
| 0.15 | 300,000 | 150,000 | ||||||||||||||
| 0.15 | 6,225,000 | 400,000 | ||||||||||||||
| 0.30 | 400,000 | - | ||||||||||||||
| 0.39 | 600,000 | 41,666 | ||||||||||||||
| 0.18 | 11,800,000 | 4,654,166 | ||||||||||||||
| 15. | CHANGES IN NON-CASH WORKING CAPITAL |
The changes to the Company’s non-cash working capital for the transition period ended December 31, 2023, and the years ended October 31, 2023, 2022, and 2021 are as follows:
| Schedule of non cash working capital | ||||||||||||||||
| December 31, 2023 | October 31, 2023 | October 31, 2022 | October 31, 2021 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Accounts receivable | 466,434 | (465,465 | ) | (904,711 | ) | (412,060 | ) | |||||||||
| Inventory and biological assets | (344,311 | ) | (767,636 | ) | (94,595 | ) | (1,359,567 | ) | ||||||||
| Prepaid expenses and other assets | (27,549 | ) | (40,513 | ) | 5,267 | (196,261 | ) | |||||||||
| Accounts payable and accrued liabilities | (1,115,128 | ) | 569,451 | (124,334 | ) | (294,846 | ) | |||||||||
| Interest payable | - | - | (13,750 | ) | 4,383 | |||||||||||
| Unearned revenue | - | (28,024 | ) | (95,389 | ) | - | ||||||||||
| Deferred rent | - | - | - | (10,494 | ) | |||||||||||
| Income taxes payable | 507,332 | 55,024 | 56,401 | 137,131 | ||||||||||||
| Total | (513,222 | ) | (677,163 | ) | (1,171,111 | ) | (2,131,714 | ) | ||||||||
F-36
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the transition period ended December 31, 2023, and the years ended October 31, 2023, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
| 16. | SUPPLEMENTAL CASH FLOW DISCLOSURE |
| Schedule supplemental cash flow | ||||||||||||||||
| December 31, 2023 | October 31, 2023 | October 31, 2022 | October 31, 2021 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Interest paid | 69,164 | 358,154 | 400,630 | 168,924 | ||||||||||||
| Fair value of common shares issued and issuable for services | - | - | 59,796 | 133,826 | ||||||||||||
| Fair value of common shares issued to Golden Harvests | - | - | - | 109,564 | ||||||||||||
| Fair value of common shares issued to Golden Harvests creditor | - | - | 36,310 | |||||||||||||
| Right-of-use assets acquired through leases (Note 7) | 528,980 | 2,583,660 | 1,030,429 | 2,642,588 | ||||||||||||
| Conversion of debenture into common shares | 2,698,789 | 2,698,789 | - | 916,290 | ||||||||||||
| Derivative liability recognized as contributed surplus upon debenture conversion | - | - | - | 1,833,731 | ||||||||||||
| Note payable to HSCP used to acquire assets (Note 10.1) | 350,000 | 350,000 | 1,250,000 | - | ||||||||||||
| 17. | RELATED PARTY TRANSACTIONS |
During the transition period ended December 31, 2023 and the years ended October 31, 2023, 2022, and 2021, the Company incurred the following related party transactions:
| 17.1 | Transactions with the CEO |
Through its wholly owned subsidiary, GRU Properties, LLC, the Company leased a property located in Trail, Oregon (“Trail”) owned by the Company’s President and CEO. The lease was extended during the year ended October 31, 2021, with a term through December 31, 2025. Lease charges of $24,000 were incurred for the transition period ended December 31, 2023 (October 31, 2023 - $72,000; October 31, 2022 – $72,000; October 31, 2021 - $72,000). The lease liability balance for Trail at December 31, 2023, was $129,401 (October 31, 2023 - $139,014; October 31, 2022 - $193,312).
During the year ended October 31, 2021, the Company leased a property which is beneficially owned by the CEO and is located in Medford, Oregon (“Lars”) with a term through June 30, 2026. Lease charges of $31,827 (October 31, 2023 - $190,035; October 31, 2022 - $184,500; October 31, 2021 - $60,000) were incurred for the transition period ended December 31, 2023. The lease liability for Lars at December 31, 2023, was $445,708 (October 31, 2023 - $470,134; October 31, 2022 - $607,900).
During the year ended October 31, 2021, the CEO leased equipment to the Company, which had a balance due of $0nil at December 31, 2023 (October 31, 2023 – $0nil). Payments of $nil were made against the equipment leases during the year ended October 31, 2023 (October 31, 2023 - $9,971; October 31, 2022 - $28,871; October 31, 2021 - $17,802).
Leases liabilities payable to the CEO were $575,109 in aggregate at December 31, 2023 (October 31, 2023 - $609,148; October 31, 2022 - $810,645).
The CEO earns a royalty of 2.5% of sales of flower produced at Trail through December 31, 2021, at which time the royalty terminated. The CEO earned royalties of $0nil during the transition period ended December 31, 2023 and the year ended October 31, 2023 (October 31, 2022 - $305; October 31, 2021 - $19,035).
F-37
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the transition period ended December 31, 2023, and the years ended October 31, 2023, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
During the year ended October 31, 2022, the Company settled $62,900 in long-term liabilities due to the CEO as part of the CEO’s total $300,000 subscription to a non-brokered private placement of common shares (Note 12.3). During the year ended October 31, 2021, the Company settled $162,899 in long-term accrued liabilities due to the CEO by way of a payment of $62,899 and $100,000 attributed to the CEO’s subscription to a non-brokered private placement on February 5, 2021.
During the year ended October 31, 2023, the Company, through GR Unlimited, acquired 87% of the membership units of Canopy from the CEO. All payments necessary for GR Unlimited to exercise its option to acquire 87% of Canopy were equal to payments made by Canopy to purchase a controlling 60% interest of Golden Harvests.
| 17.2 | Transactions with Spouse of the CEO |
During the transition period ended December 31, 2023, the Company incurred expenses of $24,039 (October 31, 2023 - $98,846; October 31, 2022 - $60,000’ October 31, 2021 - $58,020) for salary paid to the spouse of the CEO. At December 31, 2023, accounts and accrued liabilities payable to this individual were $3,846 (October 31, 2023 - $2,692; October 31, 2022 - $1,154). The spouse of the CEO was granted options during the year ended October 31, 2023.
| 17.3 | Transactions with Key Management Personnel |
Key management personnel consists of the President and CEO; the Senior Vice President of GR Unlimited (formerly the CFO of GR Unlimited); the former Chief Market Officer (“CMO”); the former Chief Operating Officer (“COO”)*; the Chief Accounting Officer (“CAO”)**; the Michigan General Manager (“GM”); and the CFO of the Company. The compensation to key management is presented in the following table:
| Schedule of Related Party Transactions | ||||||||||||||||
| December 31, 2023 | October 31, 2023 | October 31, 2022 | October 31, 2021 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Salaries and consulting fees | 240,105 | 880,195 | 1,118,694 | 875,058 | ||||||||||||
| Share-based compensation | - | - | 13,043 | 70,040 | ||||||||||||
| Stock option expense | 32,894 | 161,422 | 20,082 | 64,436 | ||||||||||||
| Total | 272,999 | 1,041,617 | 1,151,819 | 1,009,534 | ||||||||||||
| * | COO was appointed subsequent to April 30, 2021, and was paid and compensated prior to appointment; compensation for the year ended October 31, 2021, is included in the table above for comparability to past and ongoing expenses. COO’s final date of employment was December 27, 2021. | |
| ** | CAO was promoted to CFO in September 2021. |
Stock options granted to key management personnel and close family members of key management personnel include the following. During the transition period ended December 31, 2023, no options were granted to key management personnel. During the year ended October 31, 2023, options were granted to the CEO; options were granted to the CFO; options were granted to the SVP; and options to the GM. During the year ended October 31, 2022, no options were granted to key management personnel. During the year ended October 31, 2021: options were granted to the COO, which expired following the COO’s resignation. Subsequent to the two months ended December 31, 2023, options of were exercised into common shares by the SVP.
During the year ended October 31, 2023, stock options were granted to three Board of Directors.
F-38
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the transition period ended December 31, 2023, and the years ended October 31, 2023, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
During the year ended October 31, 2023, the SVP purchased December Convertible Debentures with a principal balance of $50,000 and was issued 167,912 December Warrants. Subsequent to the two months ended December 31, 2023, the SVP converted the $50,000 convertible debentures and exercised the 167,912 December Warrants. This resulted in the issuance of common shares at a price of CAD$ per share in accordance with the December Convertible Debenture, in addition to the issuance of common shares at an exercise price of $ CAD per common share upon the exercise of the December Warrants.
During the year ended October 31, 2023, the Company issued shares to the GM, which represented a portion of consideration for the acquisition of Golden Harvests (Note 5 and 12.1).
Compensation to the Board of Directors during the transition period ended December 31, 2023 was $3,000 (October 31, 2023 - $18,000; October 31, 2022 - $18,000 and common share issuances of common shares with a fair value of $; October 31, 2021 - fees of $ and common share issuances of common shares with a fair value of $).
Through its subsidiary, Golden Harvests, the Company leased Morton, owned by the Company’s GM, and is located in Michigan, with a lease term through January 2026. Lease charges of $32,000 (October 31, 2023 - $180,000; October 31, 2022 - $152,000) were incurred during the transition period ended December 31, 2023. The lease liability of Morton at December 31, 2023 was $350,668 (October 31, 2023 - $377,043; October 31, 2022 - $428,476).
Through its subsidiary, Golden Harvests, the Company also leased Morton Annex, located in Michigan, which is owned by the Company’s GM. The lease term was extended during the year ended October 31, 2023, through November 2023. Lease charges of $330,000 (October 31, 2023 - $740,000; October 31, 2022 - $330,000) were incurred during the transition period ended December 31, 2023. The lease liability of Morton Annex at December 31, 2023, was $239,871 (October 31, 2023 - $29,774; October 31, 2022 - $211,991).
Accounts payable, accrued liabilities, and lease liabilities due to key management at October 31, 2023, totaled $1,230,808 (October 31, 2023 - $1,118,763; October 31, 2022 - $1,587,700).
| 17.4 | Debt balances and movements with related parties |
The following table sets out portions of debt pertaining to related parties:
| Schedule of dept portions pertaining to related parties | ||||||||||||||||||||||||
| CEO | Senior VP - GR Unlimited LLC | Director | COO | GM | Total | |||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||
| Balance - October 31, 2021 | 65,539 | 131,078 | 196,617 | 163,750 | 358,537 | 915,521 | ||||||||||||||||||
| Interest | 24,621 | 49,242 | 73,863 | 1,250 | 62,863 | 211,839 | ||||||||||||||||||
| Payments | (43,361 | ) | (86,717 | ) | (130,076 | ) | (165,000 | ) | (61,400 | ) | (486,554 | ) | ||||||||||||
| Balance - October 31, 2022 | 46,799 | 93,603 | 140,404 | - | 360,000 | 640,806 | ||||||||||||||||||
| Interest | 15,649 | 31,297 | 46,947 | - | 64,800 | 158,693 | ||||||||||||||||||
| Payments | (55,778 | ) | (111,555 | ) | (167,333 | ) | - | (64,800 | ) | (399,466 | ) | |||||||||||||
| Balance - October 31, 2023 | 6,670 | 13,345 | 20,018 | - | 360,000 | 400,033 | ||||||||||||||||||
| Interest | 399 | 794 | 1,190 | - | 10,800 | 13,183 | ||||||||||||||||||
| Payments | (7,069 | ) | (14,139 | ) | (21,208 | ) | - | (10,800 | ) | (53,216 | ) | |||||||||||||
| Balance - December 31, 2023 | - | - | - | - | 360,000 | 360,000 | ||||||||||||||||||
F-39
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the transition period ended December 31, 2023, and the years ended October 31, 2023, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
Pursuant to the loan and related agreements transacted during the year ended October 31, 2020, the CEO, CFO of GR Unlimited LLC, and a director obtained 5.5%; 1%; and 2.5% ownership interests in GR Michigan LLC, respectively; third parties obtained 4% as part of the agreements, such that GR Michigan has a 13% non-controlling interest (Note 23.2). These parties, except the CEO, obtained the same interests in Canopy; the CEO obtained 92.5% of Canopy (Note 23.3); all payments necessary for the Company to exercise its option to acquire 87% of Canopy were equal to payments made by Canopy to purchase a controlling 60% interest of Golden Harvests. Interest payments of $10,800 were made on the business acquisition consideration payable of $360,000 for the two months ended December 31, 2023 ($59,400 for the year ended October 31, 2023). (Alse see Note 5.1).
| 17.5 | On November 23, 2020, a director, prior to his directorship, purchased 6.25 newly issued equity units of Grown Rogue Distribution, LLC for $, out of the total of 11.875 such units issued during the year ended October 31, 2021. On April 30, 2021, the Company purchased these units for consideration of common shares with a fair value of $. |
| 17.6 | Related party subscriptions to February 5, 2021, non-brokered private placement |
The following table sets out related party subscriptions to the February 5, 2021, non-brokered private placement:
| Schedule of non-brokered private placement | ||||||||||||
| Subscription amount ($) | Shares | Warrants | ||||||||||
| Chief Operating Officer | 125,000 | 1,000,000 | 1,000,000 | |||||||||
| Chief Financial Officer of GR Unlimited | 250,000 | 2,000,000 | 2,000,000 | |||||||||
| Chief Executive Officer | 200,000 | 1,600,000 | 1,600,000 | |||||||||
| PBIC | 250,000 | 2,000,000 | 2,000,000 | |||||||||
| Total | 825,000 | 6,600,000 | 6,600,000 | |||||||||
| 17.7 | On March 5, 2021, under the Offering, PBIC invested proceeds of $394,546 which resulted in the issuance to PBIC of 2,444,444 common shares and 2,444,444 warrants to purchase common shares. Each warrant is exercisable at CAD$0.30 for a period of two years. |
| 18. | FINANCIAL INSTRUMENTS |
| 18.1 | Market Risk (Including Interest Rate Risk and Currency Risk) |
Market risk is the risk that the fair value or cash flows of a financial instrument will fluctuate due to changes in market prices. Market risk reflects interest rate risk, currency risk and other price risks.
| 18.1.1 | Interest Rate Risk |
At December 31, and October 31, 2023, the Company’s exposure to interest rate risk relates to long-term debt, convertible promissory notes, and finance lease obligations, but its interest rate risk is limited as the aforementioned financial instruments are fixed interest rate instruments.
| 18.1.2 | Currency Risk |
At December 31, 2023, the Company had accounts payable and accrued liabilities of CAD$155,679 (October 31, 2023 – CAD$190,169; October 31, 2022 - CAD$616,345). The Company is exposed to the risk of fluctuation in the rate of exchange between the Canadian Dollar and the United States Dollar.
| 18.1.3 | Other Price Risk |
Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices, other than those arising from interest rate risk or foreign currency risk and a change in the price of cannabis. The Company is not exposed to significant other price risk.
F-40
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the transition period ended December 31, 2023, and the years ended October 31, 2023, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
| 18.2 | Credit Risk |
Credit risk is the risk that one party to a financial instrument will cause a loss for the other party by failing to pay for its obligation.
Credit risk to the Company is derived from cash and trade accounts receivable. The Company places its cash in deposit with United States financial institutions. The Company has established a policy to mitigate the risk of loss related to granting customer credit by primarily selling on a cash-on-delivery basis.
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash deposits. Accounts at each institution are insured by the FDIC up to $250,000. At December 31, and October 31, 2023, the Company had $6,054,579 and $8,108,247 in excess of the FDIC insured limit, respectively.
Accounts receivable primarily consist of trade accounts receivable and sales tax receivable. The Company provides credit to certain customers in the normal course of business and has established credit evaluation and monitoring processes to mitigate credit risk. Credit risk is assessed on a case-by-case basis and a provision is recorded where required.
The carrying amount of cash, accounts receivable, and other receivables represent the Company’s maximum exposure to credit risk; the balances of these accounts are summarized in the following table:
| Schedule of credit risk | ||||||||||||
| December 31, 2023 | October 31, 2023 | October 31, 2022 | ||||||||||
| $ | $ | $ | ||||||||||
| Cash | 6,804,579 | 8,858,247 | 1,582,384 | |||||||||
| Accounts Receivable | 1,642,990 | 2,109,424 | 1,643,959 | |||||||||
| Notes Receivable | 2,449,122 | 1,430,526 | - | |||||||||
| Total | 10,896,691 | 12,398,197 | 3,226,343 | |||||||||
The allowance for doubtful accounts at December 31, 2023, was $373,393 (October 31, 2023 - $165,347).
At December 31, 2023 and October 31, 2023 and 2022, the Company’s trade accounts receivable and other receivable were aged as follows:
| Schedule of exposure to credit risk | ||||||||||||
| December 31, 2023 | October 31, 2023 | October 31, 2022 | ||||||||||
| $ | $ | $ | ||||||||||
| Current | 604,920 | 1,079,657 | 872,100 | |||||||||
| 1-30 days | 568,445 | 475,909 | 336,149 | |||||||||
| 31 days-older | 732,981 | 616,574 | 614,022 | |||||||||
| Total trade accounts receivable | 1,906,346 | 2,172,140 | 1,822,271 | |||||||||
| GST /HST | 110,037 | 102,631 | 86,407 | |||||||||
| Provision for bad debts | (373,393 | ) | (165,347 | ) | (264,719 | ) | ||||||
| Total accounts receivable | 1,642,990 | 2,109,424 | 1,643,959 | |||||||||
F-41
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the transition period ended December 31, 2023, and the years ended October 31, 2023, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
Major customers are defined as customers that each individually account for greater than 10% of the Company’s annual revenues. During the transition period ended December 31, 2023, there was no major customer that accounted for greater than 10% of revenues (October 31, 2023 – no major customer accounted for over 10% of revenues; October 31, 2022 – one major customer accounted for 14% of revenues). There was one customer with an accounts receivable balance greater than 10% at December 31, 2023, in which the balance of the customer comprised 11% of the total accounts receivable balance (October 31, 2023 and 2022 – nil).
| 18.3 | Liquidity Risk |
Liquidity risk is the risk that an entity will have difficulties in paying its financial liabilities.
The Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when they become due. At December 31, 2023, and October 31, 2023 and 2022, the Company’s working capital accounts were as follows:
| Schedule of working capital accounts | ||||||||||||
| December 31, 2023 | October 31, 2023 | October 31, 2022 | ||||||||||
| $ | $ | $ | ||||||||||
| Cash | 6,804,579 | 8,858,247 | 1,582,384 | |||||||||
| Current assets excluding cash | 8,807,958 | 8,563,290 | 6,327,629 | |||||||||
| Total current assets | 15,612,537 | 17,421,537 | 7,910,013 | |||||||||
| Current liabilities | (11,770,203 | ) | (13,004,181 | ) | (5,315,904 | ) | ||||||
| Working capital | 3,842,334 | 4,417,356 | 2,594,109 | |||||||||
The contractual maturities of the Company’s accounts payable and accrued liabilities, long-term debt, and lease payable occurs over the next three years as follows:
| Schedule of assets and liabilities | ||||||||||||
| Year 1 | Over 1 Year - 3 Years | Over 3 Years - 5 Years | ||||||||||
| $ | $ | $ | ||||||||||
| Accounts payable and accrued liabilities | 1,358,962 | - | - | |||||||||
| Lease liabilities | 925,976 | 1,041,614 | 930,468 | |||||||||
| Convertible debentures | - | - | 2,459,924 | |||||||||
| Debt | 780,358 | 82,346 | - | |||||||||
| Business acquisition consideration payable | 360,000 | - | - | |||||||||
| Total | 3,425,296 | 1,123,960 | 3,390,392 | |||||||||
| 18.4 | Fair Values |
The carrying amounts for the Company’s cash, accounts receivable, accounts payable and accrued liabilities, amounts due to employee/director, promissory notes and convertible promissory notes approximate their fair values because of the short-term nature of these items.
F-42
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the transition period ended December 31, 2023, and the years ended October 31, 2023, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
| 18.5 | Fair Value Hierarchy |
A number of the Company’s accounting policies and disclosures require the measurement of fair value for both financial and nonfinancial assets and liabilities. The Company has an established framework, which includes team members who have overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values. When measuring the fair value of an asset or liability, the Company uses observable market data as far as possible. The Company regularly assesses significant unobservable inputs and valuation adjustments. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:
Level 1: unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly; or
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The carrying values of the financial instruments at December 31, 2023 are summarized in the following table:
| Schedule of valuations for the asset or liability not based on observable market data | |||||||||||
| Level in fair value hierarchy | Amortized Cost | FVTPL | |||||||||
| Financial Assets | |||||||||||
| Cash | Level 1 | $ | 6,804,579 | $ | - | ||||||
| Accounts receivable | Level 2 | 1,642,990 | - | ||||||||
| Warrants asset | Level 1 | - | 1,761,382 | ||||||||
| Financial Liabilities | |||||||||||
| Accounts payable and accrued liabilities | Level 2 | $ | 1,358,962 | $ | - | ||||||
| Debt | Level 2 | 862,704 | - | ||||||||
| Convertible debentures | Level 2 | 2,459,924 | |||||||||
| Business acquisition consideration payable | Level 2 | 360,000 | - | ||||||||
| Derivative liability | Level 2 | 7,471,519 | |||||||||
The carrying values of the financial instruments at October 31, 2023 are summarized in the following table:
| Schedule of carrying values for the asset or liability not based on observable market data | |||||||||||
| Level in fair value hierarchy | Amortized Cost | FVTPL | |||||||||
| Financial Assets | |||||||||||
| Cash | Level 1 | $ | 8,858,247 | $ | - | ||||||
| Accounts receivable | Level 2 | 2,109,424 | - | ||||||||
| Warrants asset | Level 1 | - | 1,361,366 | ||||||||
| Financial Liabilities | |||||||||||
| Accounts payable and accrued liabilities | Level 2 | $ | 2,359,750 | $ | - | ||||||
| Debt | Level 2 | 1,388,517 | - | ||||||||
| Convertible debentures | Level 2 | 2,412,762 | |||||||||
| Business acquisition consideration payable | Level 2 | 360,000 | - | ||||||||
| Derivative liability | Level 2 | 7,808,500 | |||||||||
F-43
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the transition period ended December 31, 2023, and the years ended October 31, 2023, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
The carrying values of the financial instruments at October 31, 2022 are summarized in the following table:
| Schedule of financial instruments for the asset or liability not based on observable market data | |||||||||||
| Level in fair value hierarchy | Amortized Cost | FVTPL | |||||||||
| Financial Assets | |||||||||||
| Cash | Level 1 | $ | 1,582,384 | $ | - | ||||||
| Accounts receivable | Level 2 | 1,643,959 | - | ||||||||
| Financial Liabilities | |||||||||||
| Accounts payable and accrued liabilities | Level 2 | $ | 1,821,875 | $ | - | ||||||
| Debt | Level 2 | 2,608,822 | - | ||||||||
| Business acquisition consideration payable | Level 2 | 360,000 | - | ||||||||
During the transition period ended December 31, 2023, and the years ended October 31, 2023 and 2022, there were no transfers of amounts between levels.
| 19. | GENERAL AND ADMINISTRATIVE EXPENSES |
General and administrative expenses for the transition period ended December 31, 2023, and the years ended October 31, 2023, 2022, and 2021, are as follows:
| Schedule of General and administrative expenses | ||||||||||||||||
| December 31, 2023 | October 31, 2023 | October 31, 2022 | October 31, 2021 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Office, banking, travel, and overheads | 470,821 | 1,960,696 | 1,929,385 | 1,158,975 | ||||||||||||
| Professional services | 59,701 | 585,342 | 456,532 | 767,050 | ||||||||||||
| Salaries and benefits | 906,831 | 3,919,839 | 3,466,319 | 2,057,225 | ||||||||||||
| Total | 1,437,353 | 6,465,877 | 5,852,236 | 3,983,250 | ||||||||||||
| 20. | INCOME TAXES |
As the Company operates in the legal cannabis industry, certain subsidiaries of the Company are subject to the limits of IRC Section 280E for U.S. federal income tax purposes. Under IRC Section 280E, these subsidiaries are generally only allowed to deduct expenses directly related to the Cost of Goods Sold. This results in permanent differences between ordinary and necessary business expenses deemed non-allowable under IRC Section 280E. Therefore, the effective tax rate can be highly variable and may not necessarily correlate with pre-tax income or loss recognized for financial reporting purposes.
The Company is treated as a U.S. corporation for U.S. federal income tax purposes under IRC Section 7874 and is subject to U.S. federal income tax on its worldwide income. However, for Canadian tax purposes, the Company, regardless of any application of IRC Section 7874, is treated as a Canadian resident company for Canadian income tax purposes as defined in the ITA. As a result, the Company is subject to taxation both in Canada and the United States. The Company is also subject to state income taxation in various state jurisdictions in the United States. The Company’s income tax is accounted for in accordance with IAS 12 Income Taxes.
F-44
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the transition period ended December 31, 2023, and the years ended October 31, 2023, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
For the transition period ended December 31, 2023, and the years ended October 31, 2023, 2022 and 2021, income tax expense consisted of:
| Schedule of income tax expense | ||||||||||||||||
| Two months ended December 31, 2023 | Year ended October 31, 2023 | Year ended October 31, 2022 | Year ended October 31, 2021 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Current expense: | ||||||||||||||||
| Federal | 122,714 | 498,435 | 217,571 | 113,699 | ||||||||||||
| State | 29,933 | 68,861 | 27,787 | 36,844 | ||||||||||||
| Adjustment to prior years provision versus statutory tax returns | 6,827 | 273,994 | - | - | ||||||||||||
| Total current expense: | 159,474 | 841,290 | 245,358 | 150,543 | ||||||||||||
| Deferred expense (benefit): | ||||||||||||||||
| Federal | 184,510 | (1,354,696 | ) | (990,452 | ) | (1,288,637 | ) | |||||||||
| State | 39,554 | (389,828 | ) | (350,374 | ) | (322,400 | ) | |||||||||
| Change in unrecognized deductible temporary differences | - | 1,274,166 | 1,340,826 | 1,611,037 | ||||||||||||
| Total deferred (benefit): | 224,064 | (470,358 | ) | - | - | |||||||||||
| Total income tax expense: | 383,539 | 370,932 | 245,359 | 150,543 | ||||||||||||
The difference between the income tax expense for the transition period ended December 31, 2023, and the years ended October 31, 2023, 2022, and 2021, and the expected income taxes based on the statutory tax rate applied to gain (loss) from operations before taxes are as follows:
| Schedule of income tax recovery | ||||||||||||||||
| Two months ended December 31, 2023 | Year ended October 31, 2023 | Year ended October 31, 2022 | Year ended October 31, 2021 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Gain (Loss) from operations before taxes | 1,055,966 | (291,388 | ) | 665,309 | (864,202 | ) | ||||||||||
| Statutory tax rates | 27.37 | % | 24.46 | % | 27.25 | % | 27.25 | % | ||||||||
| Expected income tax (recovery) | 289,056 | (71,275 | ) | 181,297 | (235,495 | ) | ||||||||||
| Change in statutory tax rates and FX rates | (2,030 | ) | 21,890 | 92,662 | 84,952 | |||||||||||
| Nondeductible expenses | (180,803 | ) | 1,069,536 | 38,802 | (42,264 | ) | ||||||||||
| Deferral adjustments | 224,064 | (1,189,931 | ) | (1,374,372 | ) | (1,260,938 | ) | |||||||||
| Change in unrecognized deductible temporary differences | - | 1,274,166 | 1,340,826 | 1,611,038 | ||||||||||||
| Net operating loss | 46,425 | (1,323,949 | ) | - | - | |||||||||||
| Fiscal year to calendar year adjustment | - | 316,501 | (33,856 | ) | (6,749 | ) | ||||||||||
| Adjustment to prior years provision versus statutory tax returns | 6,827 | 273,994 | - | - | ||||||||||||
| Total income tax expense: | 383,539 | 370,932 | 245,358 | 150,543 | ||||||||||||
F-45
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the transition period ended December 31, 2023, and the years ended October 31, 2023, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
The following tax assets arising from temporary differences and non-capital losses have been recognized in the consolidated financial statements for the transition period ended December 31, 2023, and the years ended October 31, 2023, 2022, and 2021:
| Schedule of non-capital losses | ||||||||||||||||
| Two months ended December 31, 2023 | Year ended October 31, 2023 | Year ended October 31, 2022 | Year ended October 31, 2021 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Property, plant and equipment | 8,061 | 127,305 | - | - | ||||||||||||
| Inventory | 129,573 | 127,846 | - | - | ||||||||||||
| ROU Leases | (168,327 | ) | (108,206 | ) | - | - | ||||||||||
| Net Operating Loss Carryforward (federal) | 274,831 | 318,614 | - | - | ||||||||||||
| Net Operating Loss Carryforward (state) | 2,156 | 4,799 | - | - | ||||||||||||
| Net deferred tax assets: | 246,294 | 470,358 | - | - | ||||||||||||
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred income tax liabilities result primarily from amounts not taxable until future periods. Deferred income tax assets result primarily from operating tax loss carry forwards and temporary differences related to property, plant and equipment and inventory, and have been offset against deferred income tax liabilities. As of December 31, 2023, the Company has estimated Canadian non-capital losses of CAD$9,000,490. These Canadian non-capital losses are available to be carried forward, to be applied against the Company’s taxable income earned in Canada over the next 20 years and expire between 2030 and 2042. The deferred tax benefit of these Canadian tax losses has not been set up as an asset as it is not probable that sufficient taxable profits will be available for Canadian tax purposes to realize the carryforward of unused tax losses. Additionally, the deferred tax benefit of capitalized transaction costs and startup costs have not been setup as a deferred tax asset since it is not probable that the Company would be able to realize these deductible temporary differences for U.S. tax purposes.
The Company operates in various U.S. state tax jurisdictions and is subject to examination of its income tax returns by tax authorities in those jurisdictions who may challenge any item on these returns. Because the tax matters challenged by tax authorities are typically complex, the ultimate outcome of these challenges is uncertain. In accordance with IAS 12, the Company recognizes the benefits of uncertain tax positions in our financial statements only after determining that it is more likely than not that the uncertain tax positions will be sustained. For the transition period ended December 31, 2023, and the years ended October 31, 2023, and 2022, the Company did not record an accrual for uncertain tax positions.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes. There are no positions for which it is reasonably possible that the uncertain tax benefit will significantly increase or decrease within twelve months. The Company files income tax returns in the United States, including various state jurisdictions, and in Canada, which remain open to examination by the respective jurisdictions for the 2018 tax year to the present.
U.S. Federal and state tax laws impose restrictions on net operating loss carryforwards in the event of a change in ownership of the Company, as defined by the IRC Section 382. The Company does not believe that a change in ownership, as defined by IRC Section 382, has occurred but a formal study has not been completed.
U.S. Congress passed the Inflation Reduction Act in August 2022. The Company does not anticipate any impact to its income tax provision as a result of the new U.S. legislation.
F-46
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the transition period ended December 31, 2023, and the years ended October 31, 2023, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
| 21. | CAPITAL DISCLOSURES |
The Company includes equity, comprised of share capital, contributed surplus (including the fair value of equity instruments to be issued), equity component of convertible promissory notes and deficit, in the definition of capital.
The Company’s objectives when managing capital are as follows:
| ○ | to safeguard the Company’s assets and ensure the Company’s ability to continue as a going concern; |
| ○ | to raise sufficient capital to finance the construction of its production facility and obtain license to produce recreational marijuana; and |
| ○ | to raise sufficient capital to meet its general and administrative expenditures. |
The Company manages its capital structure and makes adjustments to it, based on the general economic conditions, the Company’s short-term working capital requirements, and its planned capital requirements and strategic growth initiatives.
The Company’s principal source of capital is from the issuance of common shares. In order to achieve its objectives, the Company expects to spend its working capital, when applicable, and raise additional funds as required.
The Company does not have any externally imposed capital requirements.
| 22. | SEGMENT REPORTING |
Geographical information relating to the Company’s activities is as follows:
| Schedule of Geographical information activities | ||||||||||||||||||||
| Geographical segments | Oregon | Michigan | Other | Services | Total | |||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||
| Non-current assets other than financial instruments | ||||||||||||||||||||
| At December 31, 2023 | 8,187,649 | 4,054,332 | 1,761,382 | - | 14,003,363 | |||||||||||||||
| At October 31, 2023 | 7,362,957 | 4,016,861 | 1,361,366 | - | 12,74,184 | |||||||||||||||
| At October 31, 2022 | 4,719,260 | 3,741,309 | - | - | 8,460,569 | |||||||||||||||
| Two months ended December 31, 2023 | ||||||||||||||||||||
| Net revenue | 1,529,088 | 2,012,949 | - | 96,050 | 3,638,087 | |||||||||||||||
| Gross profit | 766,291 | 1,597,643 | - | 6,840 | 2,370,774 | |||||||||||||||
| Gross profit before fair value adjustment | 902,603 | 1,235,111 | - | 6,840 | 2,144,554 | |||||||||||||||
| Year ended October 31, 2023 | ||||||||||||||||||||
| Net revenue | 11,001,261 | 11,422,908 | - | 929,016 | 23,353,185 | |||||||||||||||
| Gross profit | 5,259,439 | 6,791,700 | - | 620,375 | 12,671,514 | |||||||||||||||
| Gross profit before fair value adjustment | 4,615,259 | 6,653,234 | - | 620,375 | 11,888,868 | |||||||||||||||
| Year ended October 31, 2022 | ||||||||||||||||||||
| Net revenue | 8,852,104 | 8,905,179 | - | - | 17,757,283 | |||||||||||||||
| Gross profit | 3,039,159 | 5,083,919 | - | - | 8,123,078 | |||||||||||||||
| Year ended October 31, 2021 | ||||||||||||||||||||
| Net revenue | 5,152,286 | 3,882,332 | 344,055 | - | 9,378,673 | |||||||||||||||
| Gross profit | 2,325,304 | 3,585,462 | 189,702 | - | 6,100,468 | |||||||||||||||
F-47
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the transition period ended December 31, 2023, and the years ended October 31, 2023, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
| 23. | NON-CONTROLLING INTERESTS |
The changes to the non-controlling interest for the two months ended December 31, 2023, and the years ended October 31, 2023, 2022, and 2021, and are as follows:
| Schedule of non-controlling interest | ||||||||||||||||
| December 31, 2023 | October 31, 2023 | October 31, 2022 | October 31, 2021 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Balance, beginning of year | 983,717 | 2,006,479 | 2,033,986 | (33,383 | ) | |||||||||||
| Non-controlling interest’s 13% share of GR Michigan | - | - | - | 5,743 | ||||||||||||
| Non-controlling interest’s 100% share of Canopy | 29,607 | (129,279 | ) | (27,507 | ) | 2,065,718 | ||||||||||
| Acquisition of 87% of Canopy | - | (893,483 | ) | - | - | |||||||||||
| Balance, end of year | 1,013,324 | 983,717 | 2,006,479 | 2,033,986 | ||||||||||||
| 23.1 | Non-controlling interest in GR Michigan |
The following is summarized financial information for GR Michigan:
| Schedule of summarized financial information | ||||||||||||||||
2023 | October 31, 2023 | October 31, 2022 | October 31, 2021 | |||||||||||||
| $ | $ | $ | ||||||||||||||
| Current assets | - | - | - | 1,453 | ||||||||||||
| Non-current assets | - | - | - | - | ||||||||||||
| Current liabilities | - | - | - | - | ||||||||||||
| Non-current liabilities | - | - | - | - | ||||||||||||
| Net loss for the year | - | - | - | 48,867 | ||||||||||||
Date: December 29, 2017
INDEX TO EXHIBITSNine percent (9%) of GR Michigan is owned by officers and directors of the Company; this ownership is pursuant to an agreement that included their loans made to GR Michigan (Note 17.4), and 4% of GR Michigan owned by a third party. The total non-controlling ownership, including ownership by officers and directors, is 13%.
| 23.2 | ||
The following is summarized financial information for Canopy, reflecting consolidation of Golden Harvests, of which Canopy is a 60% owner:
| Schedule of summarized financial information | ||||||||||||||||
| December 31, 2023 | October 31, 2023 | October 31, 2022 | October 31, 2021 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Current assets | 4,521,194 | 4,192,902 | 3,200,701 | 3,093,330 | ||||||||||||
| Non-current assets | 4,390,297 | 4,016,860 | 3,741,309 | 4,023,521 | ||||||||||||
| Current liabilities | 2,275,147 | 2,048,167 | 2,337,695 | 1,708,330 | ||||||||||||
| Non-current liabilities | 560,425 | 253,340 | 715,461 | 1,225,804 | ||||||||||||
| Advances due to parent | - | - | - | 530,020 | ||||||||||||
| Net income (loss) for the year | 29,607 | (129,279 | ) | (27,507 | ) | 2,196,479 | ||||||||||
In January of 2023, GR Unlimited exercised its option to acquire 87% of the membership units of Canopy from the CEO. Prior to this, ninety-six percent (96%) of Canopy was owned by officers and directors of the Company, and four percent (4%) was owned by a third party. Ownership by officers and directors, excluding the CEO, was pursuant to agreements which caused their ownership of Canopy to be equal to their ownership in GR Michigan (Note 23.2), which total 3.5%. The CEO owned 92.5% of Canopy, which was analogous to the CEO’s 5.5% ownership of GR Michigan, and an additional 87% of Canopy, which was and is equal to the Company’s 87% ownership of GR Michigan. Following GR Unlimited’s acquisition of 87% of the membership units of Canopy in January of 2023, Canopy became owned 87% by GR Unlimited; 7.5% by officers and directors; and 5.5% by the CEO.
F-48
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the transition period ended December 31, 2023, and the years ended October 31, 2023, 2022, and 2021
Expressed in United States Dollars, unless otherwise indicated
| 24. | LEGAL MATTERS |
On September 22, 2022, the SEC issued an Order Instituting Proceedings pursuant to Section 12(j) of the 1934 Act, against the Company alleging violations of the 1934 Act, as amended, and the rules promulgated thereunder, by failing to timely file periodic reports. Section 12(j) authorizes the SEC as it deems necessary or appropriate for the protection of investors to suspend for a period not exceeding 12 months, or to revoke, the registration of a security if the SEC finds, on the record after notice and opportunity for hearing, that the issuer of such security has failed to comply with any provision of the 1934 Act, as amended, or the rules promulgated thereunder. The Company has filed an answer to the Order Instituting Proceedings and is seeking a hearing in the matter. The Company is currently fully compliant with all of their filings, is vigorously defending itself in the matter, and is preparing to re-register its security if necessary.
| 25. |
As discussed in Note 2.4, the Company’s Transition Report includes financial information for the two months ended December 31, 2023, and the years ended October 31, 2023, 2022 and 2021. The consolidated statements of financial position, the consolidated statements of comprehensive income (loss), the consolidated statements of changes in equity and the consolidated statements of cash flows for the two months ended December 31, 2023, and 2022, are summarized below. All data for the two months ended December 31, 2022, was derived from the Company’s unaudited consolidated financial statements.
F-49
| Schedule of Consolidated Statement Of Financial Position | ||||||||
| CONSOLIDATED STATEMENTS OF FINANCIAL POSITION | December 31, 2023 | December 31, 2022 | ||||||
| $ | $ | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | 6,804,579 | 2,863,597 | ||||||
| Accounts receivable | 1,642,990 | 1,411,368 | ||||||
| Biological assets | 1,723,342 | 1,361,273 | ||||||
| Inventory | 5,021,290 | 3,490,591 | ||||||
| Prepaid expenses and other assets | 420,336 | 359,230 | ||||||
| Total current assets | 15,612,537 | 9,486,059 | ||||||
| Property and equipment | 8,820,897 | 7,469,962 | ||||||
| Notes receivable | 2,449,122 | - | ||||||
| Warrants asset | 1,761,382 | - | ||||||
| Intangible assets and goodwill | 725,668 | 725,668 | ||||||
| Deferred tax assets | 246,294 | - | ||||||
| TOTAL ASSETS | 29,615,900 | 17,681,689 | ||||||
| LIABILITIES | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | 1,358,962 | 1,434,536 | ||||||
| Current portion of lease liabilities | 925,976 | 633,716 | ||||||
| Current portion of long-term debt | 780,358 | 1,113,525 | ||||||
| Business acquisition consideration payable | 360,000 | 360,000 | ||||||
| Unearned revenue | - | 24,285 | ||||||
| Derivative liability | 7,471,519 | 783,854 | ||||||
| Income tax payable | 873,388 | 344,366 | ||||||
| Total current liabilities | 11,770,203 | 4,694,282 | ||||||
| Lease liabilities | 1,972,082 | 1,379,374 | ||||||
| Long-term debt | 82,346 | 1,198,336 | ||||||
| Convertible debentures | 2,459,924 | 1,228,104 | ||||||
| TOTAL LIABILITIES | 16,284,555 | 8,500,096 | ||||||
| EQUITY | ||||||||
| Share capital | 24,593,422 | 21,858,827 | ||||||
| Shares issuable | - | 35,806 | ||||||
| Contributed surplus | 8,186,297 | 6,505,092 | ||||||
| Accumulated other comprehensive loss | (108,069 | ) | (109,613 | ) | ||||
| Accumulated deficit | (20,353,629 | ) | (21,114,998 | ) | ||||
| Equity attributable to shareholders | 12,318,021 | 7,175,114 | ||||||
| Non-controlling interest | 1,013,324 | 2,006,479 | ||||||
| TOTAL EQUITY | 13,331,345 | 9,181,593 | ||||||
| TOTAL LIABILITIES AND EQUITY | 29,615,900 | 17,681,689 | ||||||
F-50
| Schedule of Consolidated Statements Of Comprehensive Income Loss | ||||||||
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) | Two months ended December 31, | |||||||
| 2023 | 2022 | |||||||
| $ | $ | |||||||
| Revenue | ||||||||
| Product sales | 3,542,037 | 2,782,125 | ||||||
| Service revenue | 96,050 | - | ||||||
| Total revenue | 3,638,087 | 2,782,125 | ||||||
| Cost of goods sold | ||||||||
| Cost of finished cannabis inventory sold | (1,404,323 | ) | (1,264,131 | ) | ||||
| Cost of service revenues | (89,210 | ) | - | |||||
| Gross profit, excluding fair value items | 2,144,554 | 1,517,994 | ||||||
| Realized fair value loss amounts in inventory sold | (460,647 | ) | (395,201 | ) | ||||
| Unrealized fair value gain on growth of biological assets | 686,867 | 435,897 | ||||||
| Gross profit | 2,370,774 | 1,558,690 | ||||||
| Expenses | ||||||||
| Accretion expense | 216,493 | 94,411 | ||||||
| Amortization of property and equipment | 186,415 | 89,735 | ||||||
| General and administrative | 1,437,353 | 1,009,355 | ||||||
| Share-based compensation | 104,359 | - | ||||||
| Total expenses | 1,944,620 | 1,193,501 | ||||||
| Income from operations | 426,154 | 365,189 | ||||||
| Other income and (expense) | ||||||||
| Interest expense | (69,164 | ) | (70,262 | ) | ||||
| Other income | 49,678 | 1,777 | ||||||
| Gain on debt settlement | - | - | ||||||
| Unrealized loss on marketable securities | - | - | ||||||
| Unrealized gain on derivative liability | 336,981 | - | ||||||
| Unrealized gain on warrants asset | 400,016 | - | ||||||
| Loss on disposal of property and equipment | (87,699 | ) | - | |||||
| Total other income (expense), net | 629,812 | (68,485 | ) | |||||
| Income from operations before taxes | 1,055,966 | 296,704 | ||||||
| Income tax (Note 20) | (383,539 | ) | (54,811 | ) | ||||
| Net income | 672,427 | 241,893 | ||||||
| Other comprehensive income (items that may be subsequently reclassified to profit and loss): | ||||||||
| Currency translation gain | 6,106 | - | ||||||
| Total comprehensive income | 678,533 | 241,893 | ||||||
| Gain per share attributable to shareholders – basic and diluted | 0.00 | 0.00 | ||||||
| Weighted average shares outstanding – basic and diluted | 182,005,886 | 169,193,812 | ||||||
| Net income for the year attributable to: | ||||||||
| Non-controlling interest | 29,607 | - | ||||||
| Shareholders | 642,820 | 241,893 | ||||||
| Net income | 672,427 | 241,893 | ||||||
| Comprehensive income for the year attributable to: | ||||||||
| Non-controlling interest | 29,607 | - | ||||||
| Shareholders | 648,926 | 241,893 | ||||||
| Total comprehensive income | 678,533 | 241,893 | ||||||
F-51
| Schedule of Statement Of Changes In Equity | ||||||||||||||||||||||||||||||||
| STATEMENT OF CHANGES IN EQUITY | Number of common shares | Share capital | Shares issuable | Contributed surplus | Accumulated other comprehensive loss | Accumulated deficit | Non- controlling interests | Total equity | ||||||||||||||||||||||||
| # | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||
| Balance - October 31, 2023 | 182,005,886 | 24,593,422 | - | 8,081,938 | (114,175 | ) | (20,996,449 | ) | 983,717 | 12,548,453 | ||||||||||||||||||||||
| Stock option vesting expense | - | - | - | 104,359 | - | - | - | 104,359 | ||||||||||||||||||||||||
| Currency translation gain | - | - | - | - | 6,106 | - | - | 6,106 | ||||||||||||||||||||||||
| Net income | - | - | - | - | - | 642,820 | 29,607 | 672,427 | ||||||||||||||||||||||||
| Balance – December 31, 2023 | 182,005,886 | 24,593,422 | - | 8,186,297 | (108,069 | ) | (20,353,629 | ) | 1,013,324 | 13,331,345 | ||||||||||||||||||||||
| STATEMENT OF CHANGES IN EQUITY | Number of common shares | Share capital | Shares issuable | Contributed surplus | Accumulated other comprehensive loss | Accumulated deficit | Non- controlling interests | Total equity | ||||||||||||||||||||||||
| # | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||
| Balance - October 31, 2022 | 170,632,611 | 21,858,827 | 35,806 | 6,505,092 | (109,613 | ) | (21,356,891 | ) | 2,006,479 | 8,939,700 | ||||||||||||||||||||||
| Net loss | - | - | - | - | - | 241,893 | - | 241,893 | ||||||||||||||||||||||||
| Balance – December 31, 2022 | 170,632,611 | 21,858,827 | 35,806 | 6,505,092 | (109,613 | ) | (21,114,998 | ) | 2,006,479 | 9,181,593 | ||||||||||||||||||||||
F-52
| Schedule of Consolidated Statements Of Cash Flows | ||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | Two months ended December 31, | |||||||
| 2023 | 2022 | |||||||
| $ | $ | |||||||
| Operating activities | ||||||||
| Net income | 672,427 | 241,893 | ||||||
| Adjustments for non-cash items in net income: | ||||||||
| Amortization of property and equipment | 186,415 | 89,735 | ||||||
| Amortization of property and equipment included in costs of inventory sold | 209,985 | 168,139 | ||||||
| Amortization of intangible assets | - | - | ||||||
| Unrealized fair value gain on growth of biological assets | (686,867 | ) | (435,897 | ) | ||||
| Realized fair value loss amounts in inventory sold | 460,647 | 395,201 | ||||||
| Deferred income taxes | 224,064 | - | ||||||
| Stock option expense | 104,359 | - | ||||||
| Accretion expense | 216,493 | 94,411 | ||||||
| Loss on disposal of property and equipment | 87,699 | - | ||||||
| Unrealized gain on fair value of derivative liability | (336,981 | ) | - | |||||
| Unrealized gain on warrants asset | (400,016 | ) | - | |||||
| Currency translation gain | 6,610 | - | ||||||
| Noncash Items In Net Loss | 744,331 | 553,482 | ||||||
| Changes in non-cash working capital | (513,222 | ) | (503,647 | ) | ||||
| Net cash provided by operating activities | 231,109 | 49,835 | ||||||
| Investing activities | ||||||||
| Purchase of property and equipment and intangibles | (126,690 | ) | (101,169 | ) | ||||
| Cash advances and loans made to other parties | (1,018,596 | ) | - | |||||
| Net cash used in investing activities | (1,145,286 | ) | (101,169 | ) | ||||
| Financing activities | ||||||||
| Proceeds from convertible debentures | - | 2,000,000 | ||||||
| Proceeds from long-term debt | - | - | ||||||
| Proceeds from private placement | - | - | ||||||
| Repayment of long-term debt | (568,166 | ) | (364,414 | ) | ||||
| Repayment of convertible debentures | (126,978 | ) | (15,000 | ) | ||||
| Payments of lease principal | (444,347 | ) | (288,039 | ) | ||||
| Net cash provided by (used in) financing activities | (1,139,491 | ) | 1,332,547 | |||||
| Change in cash | (2,053,668 | ) | 1,281,213 | |||||
| Cash, beginning | 8,858,247 | 1,582,384 | ||||||
| Cash, ending | 6,804,579 | 2,863,597 | ||||||
F-53
| 26. | |||
| 26.1 | ||
On January 12, 2024, the Company executed the option to purchase the Ross Lane property located in Central Point, Oregon for total consideration of $1,525,000.
| 26.2 | New Jersey Retail Investment |
On January 17, 2024, the Company announced that it formed Grown Rogue Retail Ventures LLC and signed a definitive agreement on January 16, 2024, to invest in and support Nile of NJ LLC, a company that is developing an adult-use dispensary in West New York, New Jersey. The investment is in the form of a secured note, in which the Company advanced $500,000 pursuant to this secured note on February 13, 2024. These retail operations will be supported with products from a cultivation facility under development.
| 26.3 | Warrants Acceleration |
On March 1, 2024, the Company announced it has accelerated the expiry date of an aggregate of 23,270,249 common share purchase warrants comprised of the December Warrants, July Warrants and August Warrants. The Company issued the notice of acceleration required by the warrant certificates governing these warrants on March 1, 2024, thereby accelerating the expiry date to 90 days from the date of notice. As of April 10, 2024, all 23,270,249 common share purchase warrants were exercised for an aggregate of 23,270,249 common shares for aggregate gross proceeds of approximately US$4.7 million.
| 26.4 | Illinois Expansion |
On March 5, 2024, the Company announced it signed a definitive agreement to form Rogue EBC, LLC, a joint venture with EBC Ventures. The joint venture has entered into a definitive agreement to acquire 100% of CannEquality, LLC, which holds a craft growers license with the Illinois Department of Agriculture. Grown Rogue will own 70% of the joint venture and has agreed to contribute up to US$6,000,000 to support the development of the facility. The joint venture agreement includes multiple purchase options, which ultimately give Grown Rogue the ability to acquire 100% of the membership interests of the joint venture.
| 26.5 | Grown Rogue Increases Ownership of Michigan Operations |
On April 25, 2024, the Company announced that it has increased ownership in its Michigan operations from 52.2% to 80% in two transactions for total consideration of US$2.8M, with US$0.2M paid in cash and US$2.6M paid by way of 4 year sellers’ notes. Grown Rogue increased its ownership in Golden Harvests, the entity that controls its Michigan operations, operating out of an 80,000 sq ft facility that contains approximately 15,000 square feet of flowering bench space. We purchased the total remaining minority interest in Canopy for US$0.8M, which includes a 20% down payment in cash and monthly payments for a period of 4 years with an interest rate of 5.2% per annum. Additionally, the Company purchased 20% of the minority interest in Golden Harvests for US$2.0M, which includes minimum quarterly payments in cash for a period of 4 years. The transaction provides for a valuation of Golden Harvests at US$10.0M. All payments owing to the sellers are expected to be completed with cash on hand and cash generated from operations. The Company retains the option to acquire the remaining 20% of Golden Harvests at a fair market valuation.
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