Commission File No. 0-53646
Grown Rogue International, Inc. (formerly
Novicius Corp).
Indicate by check mark whether the registrant files or will
file annual reports under cover of Form 20-F or Form 40F.
Indicate by check mark if the registrant is submitting the Form
6-K in paper as permitted by Regulation S-T Rule 101(b)(1):
Indicate by check mark if the registrant is submitting the Form
6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
The consolidated financial statements were
prepared and approved by management of Grown Rogue Unlimited, LLC. The Managing Member of the LLC reviewed and approved the consolidated
financial statements.
Management is responsible for the preparation
of the consolidated financial statements and believes that the consolidated financial statements represent fairly the Company's
financial position and the results of operations in accordance with International Financial Reporting Standards. Management has
included amounts in the Company's consolidated financial statements based on estimates, judgements, and policies that it believes
reasonable in the circumstances.
To discharge its responsibilities for financial
reporting and for the safeguarding of assets, management believes that it has established appropriate systems of internal accounting
control which provide reasonable assurance that the assets are maintained and accounted for in accordance with its policies and
that transactions are recorded accurately in the Company's books and records.
Notes to the Consolidated Financial Statements
For the year ended October 31, 2018 and the period
from October 31, 2016 to October 31, 2017
Expressed in United States Dollars
Grown Rogue Unlimited, LLC (the
“Company”), was incorporated on October 31, 2016, under Oregon Revised Statutes 63 of the State of Oregon. The Company's
registered office is located at 805 SW Broadway, Suite 2400, Portland, Oregon, 97205.
The consolidated financial statements
as at October 31, 2018 and 2017, and for the year ended October 31, 2018 and the period from October 31, 2016 to October 31, 2017,
include Grown Rogue Unlimited, LLC and its subsidiaries (collectively referred to as the "Company"). The Company's subsidiaries
include Grown Rogue Gardens, LLC; Grown Rogue Distribution, LLC; GRU Properties, LLC; GRIP, LLC; and Grown Rogue Meds, LLC.
Grown Rogue Gardens, LLC is
engaged in cannabis cultivation activities. Grown Rogue Distribution, LLC is engaged in wholesale activities; GRU Properties, LLC
is engaged in real estate activities; and GRIP, LLC is engaged in intellectual property activities.
|
|
a)
|
Statement of Compliance
|
The Company’s consolidated
financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as
issued by the International Accounting Standards Board.
These consolidated financial
statements were approved and authorized for issuance by the managing member of the LLC on February 28, 2019.
The 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.
|
|
c)
|
Functional and Presentation Currency
|
The Company and its affiliates’
functional currency is the United States (“U.S.”) dollar. These consolidated financial statements are presented in
U.S. dollars.
|
|
d)
|
Basis of Consolidation
|
The Subsidiaries are 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 of all of the issued and outstanding
common shares. The financial statements of subsidiaries are included in these consolidated financial statements from the date that
control commences until the date control ceases. All significant inter-company balances and transactions have been eliminated upon
consolidation
Grown Rogue Unlimited, LLC
Notes to the Consolidated Financial Statements
For the year ended October 31, 2018 and the period
from October 31, 2016 to October 31, 2017
Expressed in United States Dollars
|
|
3.
|
Significant Accounting Policies
|
The Company records revenue when
it has transferred the risks and rewards of ownership of the goods to the purchaser, when it has no continuing managerial involvement
over the goods, when it is probable the Company will receive the consideration, and when it can reliably measure the amount of
revenue and costs associated with the transaction.
Inventory is valued at the lower
of cost and net realizable value. Harvested cannabis included in inventory is recognized at the fair value of the biological asset
at the point of harvest. Manufactured inventory and work-in-progress includes an allocation of production overhead, which is based
on normal operating capacity. The Company reviews inventories for obsolete, redundant and slow moving goods and any such inventories
identified are written down to net realizable value.
Cost of goods sold includes the
cost of finished goods inventory sold during the period, revaluations of biological assets at the point of harvest, and inventory
write-downs during the period.
The Company measures biological
assets consisting of cannabis plants at fair value less costs to sell up-to the point of harvest. Subsequent to harvest, the recognized
biological asset amount becomes the cost basis of finished goods inventory. Seeds are measured at fair value. Unrealized gains
or losses arising from changes in fair value less costs to sell during the period are included in the consolidated results of operations
of the appropriate period.
|
|
e)
|
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.
|
|
f)
|
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 subject to common
control or common significant influence. 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.
Grown Rogue Unlimited, LLC
Notes to the Consolidated Financial Statements
For the year ended October 31, 2018 and the period
from October 31, 2016 to October 31, 2017
Expressed in United States Dollars
|
|
3.
|
Significant Accounting Policies (continued)
|
|
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g)
|
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.
Amortization is recognized so
as to write off 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.
As at October 31, 2018, the Company
was in the process of completing construction of its warehouse facility in order to expand its cultivation and wholesale activities.
The Company has capitalized the costs incurred to date on the construction-in-process asset, but as the assets were not available
for use as intended by management as at October 31, 2018, amortization expense was not recorded.
Amortization is calculated applying
the following useful lives:
|
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
|
15 - 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.
Leases are classified as finance
leases whenever substantially all the risks and rewards of ownership of the leased asset are transferred to the Company. Leased
assets are measured initially at an amount equal to the lower of fair value and present value of minimum lease payments. Subsequent
to initial recognition, the assets are accounted for in accordance with the accounting policy applicable to the asset.
Assets held under other leases,
where the risks and rewards of ownership are not transferred are classified as operating leases and are not recognized on the Company's
consolidated statement of financial position.
Grown Rogue Unlimited, LLC
Notes to the Consolidated Financial Statements
For the year ended October 31, 2018 and the period
from October 31, 2016 to October 31, 2017
Expressed in United States Dollars
|
|
3.
|
Significant Accounting Policies (continued)
|
Intangible assets are initially
measured at cost. The useful life of intangible assets is assessed as either finite or indefinite. Following the initial recognition,
intangible assets with finite useful lives are carried at cost less accumulated amortization and accumulated impairment losses,
if any. If impairment indicators are present, these assets are subject to an impairment review. Amortization is calculated using
the straight-line method over the estimated useful lives of the intangible assets of two to three years.
|
|
j)
|
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 pre-tax 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 the consolidated statement of operations.
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.
|
|
k)
|
Deferred transaction costs
|
Deferred transaction costs represents
professional fees incurred with respect to a contemplated transaction that is to be completed in a future period. The transaction
costs will be recognized in profit and loss in the period in which the transaction is completed.
Financial assets and liabilities
within the scope of IAS 39 (Financial Instruments: Recognition and Measurement) are classified as financial assets or liabilities
at fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale financial assets,
other financial liabilities or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Company
determines the classification of its financial assets and liabilities at initial recognition.
All of the Company's financial
instruments are initially measured at fair value, with subsequent measurements dependent upon the classification of each financial
instrument.
Cash is comprised of deposits
held in financial institutions and undeposited cash on hand.
Grown Rogue Unlimited, LLC
Notes to the Consolidated Financial Statements
For the year ended October 31, 2018 and the period
from October 31, 2016 to October 31, 2017
Expressed in United States Dollars
|
|
3.
|
Significant Accounting Policies (continued)
|
|
|
l)
|
Financial Instruments (continued)
|
Financial assets are classified
as fair value through profit or loss ("FVTPL") if the assets are considered to be held for trading or designated as such
upon initial recognition.
Loans and receivables represent
financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognized initially
at fair value plus any directly attributable transaction costs.
Subsequent to initial recognition,
loans and receivables are measured at amortized cost using the effective interest rate method, less any losses from impairment.
Loans and receivables is comprised of accounts receivable and other receivable.
Other financial liabilities are
recognized initially on the date the Company becomes party to the contractual provisions of the financial instrument. Financial
liabilities are recognized initially at fair value, including any directly attributable transaction costs. Subsequent to initial
recognition, the Company measures financial liabilities at amortized cost using the effective interest rate method. The Company
derecognizes a financial liability when its contractual obligations are discharged or cancelled. Other financial liabilities include
the Company's accounts payable and accrued liabilities, convertible promissory notes, and long-term debt.
The effective interest method
is used to calculate the amortized cost of a financial asset or liability and allocates interest income over the corresponding
period. The effective interest rate is the rate that is used to discount estimated future cash receipts or payments over the expected
life of the financial asset or liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.
Compound financial instruments
issued by the Company comprise convertible promissory notes that are convertible to share capital at either the option of the holder
or upon consummation of a qualifying go-public transaction. The number of shares to be issued will depend on the conversion price,
which will be agreed to by the Company and the purchaser of the note. The liability component of a compound financial instrument
would be recognized initially at the fair value of a similar liability that does not have an equity conversion option. The equity
component would be recognized initially at the difference between the fair value of the compound financial instrument as a whole
and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity
components in proportion to the initial carrying amounts.
Subsequent to initial recognition,
the liability component of a compound financial instrument is measured at amortized cost using the effective interest method. The
equity component of a compound financial instrument would not be re-measured subsequent to initial recognition.
Grown Rogue Unlimited, LLC
Notes to the Consolidated Financial Statements
For the year ended October 31, 2018 and the period
from October 31, 2016 to October 31, 2017
Expressed in United States Dollars
|
|
3.
|
Significant Accounting Policies (continued)
|
|
|
l)
|
Financial Instruments (continued)
|
The Company’s financial
assets and financial liabilities are classified and subsequently measured as follows:
|
Asset/Liability
|
|
Classification
|
|
Subsequent Measurement
|
|
|
|
|
|
|
|
Cash
|
|
FVTPL
|
|
FVTPL
|
|
Accounts receivable
|
|
Loans and receivables
|
|
Amortized cost
|
|
Other receivable
|
|
Loans and receivables
|
|
Amortized cost
|
|
Accounts payable and accrued liabilities
|
|
Other financial liabilities
|
|
Amortized cost
|
|
Long term debt
|
|
Other financial liabilities
|
|
Amortized cost
|
|
Convertible promissory notes
|
|
Other financial liabilities
|
|
Amortized cost
|
|
Finance lease payable
|
|
Other financial liabilities
|
|
Amortized cost
|
|
Due to employee/ director
|
|
Other financial liabilities
|
|
Amortized cost
|
|
Interest payable
|
|
Other financial liabilities
|
|
Amortized cost
|
|
Convertible debentures
|
|
Other financial liabilities
|
|
Amortized cost
|
|
|
m)
|
Impairment of Financial Assets
|
An impairment loss in respect
of a financial asset measured at amortized cost, such as accounts receivable and other receivable, is calculated as the difference
between its carrying amount and the present value of the estimated future cash flows discounted at the asset's original effective
interest rate. Losses are recognized in profit or loss and reflected in an allowance account against the corresponding asset.
|
|
n)
|
Unit Based Compensation
|
Unit Based Payment Transactions
Transactions with non-employees
that are settled in equity instruments of the Company are measured at the fair value of the 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.
Grown Rogue Unlimited, LLC
Notes to the Consolidated Financial Statements
For the year ended October 31, 2018 and the period
from October 31, 2016 to October 31, 2017
Expressed in United States Dollars
|
|
3.
|
Significant Accounting Policies (continued)
|
|
|
n)
|
Unit Based Compensation (continued)
|
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 as 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.
The dilutive effect of outstanding
options, if any, is reflected as additional dilution in the computation of loss per unit.
Unit Issuance Costs
Costs incurred in connection
with the issuance of members' equity are netted against the proceeds received net of tax. Costs related to the issuance of members'
equity and incurred prior to issuance are recorded as deferred members' equity issuance costs and subsequently netted against proceeds
when they are received.
Members' capital consists of
common units, incentive units and seed round preferred units which are classified as equity on the statements of financial position.
Incremental costs attributable directly to the issuance of member's capital are recognized as deduction from equity, net of any
tax effects.
Grown Rogue Unlimited, LLC
Notes to the Consolidated Financial Statements
For the year ended October 31, 2018 and the period
from October 31, 2016 to October 31, 2017
Expressed in United States Dollars
|
|
3.
|
Significant Accounting Policies (continued)
|
No provision for federal or state
income taxes is included in the Company's consolidated financial statements because the tax effects of the Company's income or
loss for the period from inception to December 31, 2017 are passed on to the Members. Effective January 1, 2018, Grown Rogue Gardens,
LLC and Grown Rogue Distribution, LLC elected to be taxed as corporations. As such, these two entities will follow the asset and
liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities are determined based
on the differences between the carrying amount of assets and liabilities on the statement of financial position and their corresponding
tax value, using the substantively enacted tax rates expected to apply when these temporary differences are reversed. Deferred
income tax assets are recorded to recognize tax benefits only to the extent that, based on available evidence, it is probable that
they will be realized. Income tax expense is recognized in profit or loss except to the extent that it relates to a business combination,
or items recognized directly in equity.
Deferred tax liabilities are
recognized for all temporary differences except when the deferred income tax liability arises from the initial recognition of goodwill
or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither
the accounting profit nor taxable profit or loss.
|
|
q)
|
Future Accounting Pronouncements
|
IFRS 9 Financial Instruments
(“IFRS 9”) was issued in final form in July 2014 by the IASB, 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 1 January 2018, with early application permitted. The Company is currently evaluating the impact
adopting IFRS 9 will have on its consolidated financial statements.
IFRS 15 Revenue from Contracts
with Customers ("IFRS 15") was issued by the IASB in May 2014 and will replace IAS 18 Revenue, IAS 11 Construction contracts,
and IFRIC 13
Customer loyalty programmes
. IFRS 15 uses a control-based approach to recognize revenue, which represents a
change from the risk and reward approach used under the current standard, and it applies to all contracts with customers, except
for contracts that are within the scope of the standards on leases, insurance contracts, and financial instruments. Companies can
elect to use either a full or modified retrospective approach when adopting the standard, which is effective for annual periods
beginning on or after January 1, 2018. The Company is currently evaluating the impact adopting IFRS 15 will have on its consolidated
financial statements.
Grown Rogue Unlimited, LLC
Notes to the Consolidated Financial Statements
For the year ended October 31, 2018 and the period
from October 31, 2016 to October 31, 2017
Expressed in United States Dollars
|
|
3.
|
Significant Accounting Policies (continued)
|
|
|
q)
|
Future Accounting Pronouncements (continued)
|
IFRS 16 Leases ("Leases")
was issued in January 2016 and replaces IAS 17 Leases. Under IAS 17, lessees were required to make a distinction between a finance
lease and an operating lease. If the lease was classified as a finance lease, a lease liability was included on the statement of
financial position. IFRS 16 now requires lessees to recognize a right of use asset and lease liability reflecting future lease
payments for virtually all lease contracts. The right of use asset is treated similarly to other non-financial assets and depreciated
accordingly. The lease liability accrues interest. The IASB has included an optional exemption for certain short term leases and
leases of low value assets; however, this exemption can only be applied by lessees. Under IFRS 16, a contract is, or contains,
a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
Control is conveyed where the customer has both the right to direct the identified asset’s use and obtain substantially all
the economic benefits from that use. IFRS 16 is effective for annual periods beginning on or after January 1, 2019 with early adoption
permitted if IFRS 15, Revenue from Contracts with Customers, is also applied. The Company is currently evaluating the impact adopting
IFRS 16 will have on its consolidated financial statements.
|
|
4.
|
Liquidity and Capital Resources
|
The Company has incurred significant
losses and has deficiencies in both working capital and total capital. The Company’s management continues to finance its
cash needs through promissory and convertible promissory notes, and the issuance of membership units. If management is unsuccessful
in its efforts to generate profitable operations and/or continue to receive financial support, the Company may not be able to continue
as a going concern. The ability of the Company to continue as a going concern and to meet its obligations will be dependent upon
successful sales of product and a return to successful operations and cash flows as well as the potential issuance of members'
capital. The accompanying consolidated financial statements do not reflect any adjustment that might result from the outcome of
this uncertainty.
|
|
5.
|
Significant Accounting Judgments, Estimates and Assumptions
|
The preparation of these consolidated
financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of income and expenses during the reporting period. The estimates and associated assumptions
are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. The most significant judgments include those related
to the ability of the Company to continue as a going concern, the determination of when property and equipment are available for
use, and impairment of its financial and non-financial assets. The most significant estimates and assumptions include those related
to the valuation of biological assets, the collectibility of accounts receivable, the useful lives of property and equipment, inputs
used in accounting the determination of the discount rate used to estimate the fair value of the liability component of convertible
promissory notes, the inputs used in the estimate of the fair value of unit-based compensation and the inputs used in the estimate
of the fair value of the unit purchase option issued.
Grown Rogue Unlimited, LLC
Notes to the Consolidated Financial Statements
For the year ended October 31, 2018 and the period
from October 31, 2016 to October 31, 2017
Expressed in United States Dollars
Biological assets consists of cannabis seeds and
cannabis plants. The reconciliation of changes in the carrying amount of biological assets as at October 31, 2018 and October 31,
2017 follows:
|
Balance - October 31, 2016
|
|
$
|
-
|
|
|
Add: Purchase of cannabis seeds
|
|
|
3,200
|
|
|
Add: Purchased mothers & clones
|
|
|
753
|
|
|
Add: Purchased cannabis plants
|
|
|
363,565
|
|
|
Change in fair value less costs to sell due to biological transformation
|
|
|
985,515
|
|
|
Transferred to inventory upon harvest
|
|
|
(1,342,597
|
)
|
|
|
|
|
|
|
|
Balance - October 31, 2017
|
|
|
10,436
|
|
|
Add: Purchase of cannabis seeds
|
|
|
-
|
|
|
Add: Purchased mothers & clones
|
|
|
-
|
|
|
Add: Purchased cannabis plants
|
|
|
521,949
|
|
|
Change in fair value less costs to sell due to biological transformation
|
|
|
541,352
|
|
|
Transferred to inventory upon harvest
|
|
|
(924,120
|
)
|
|
|
|
|
|
|
|
Balance - October 31, 2018
|
|
$
|
149,617
|
|
When determining the fair value of biological assets,
the Company makes estimates and uses assumptions as follows:
|
|
·
|
Expected costs required to grow the cannabis up to the point of harvest
|
|
|
·
|
Expected costs associated with harvesting and selling
|
|
|
·
|
Expected yield from the cannabis plants and selling price.
|
The estimates and assumptions
used are subject to volatility in uncontrollable market conditions, may significantly impact the fair value of biological assets.
Biological assets represent a level 3 assets in the fair value hierarchy.
As at October 31, 2018, the Company's inventory consists
of 638kg (October 31, 2017 - 609 kg) of harvested cannabis.
|
Balance - October 31, 2017
|
|
$
|
1,342,597
|
|
|
|
|
|
|
|
|
Balance - October 31, 2018
|
|
$
|
1,380,101
|
|
The cost of inventories included as an expense and
included in cost of goods sold, excluding amortization expense was $2,886,973 (2017 - $151,663).
Grown Rogue Unlimited, LLC
Notes to the Consolidated Financial Statements
For the year ended October 31, 2018 and the period from October
31, 2016 to October 31, 2017
Expressed in United States Dollars
|
|
8.
|
Property and Equipment
|
|
|
|
|
|
|
Computer and
|
|
|
Production
|
|
|
Construction in
|
|
|
|
|
|
|
|
|
|
|
Furniture and
|
|
|
Office
|
|
|
Equipment and
|
|
|
Progress -
|
|
|
Leasehold
|
|
|
|
|
|
|
|
Fixtures
|
|
|
Equipment
|
|
|
Other
|
|
|
Warehouse
|
|
|
Improvements
|
|
|
Total
|
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - October 31, 2016
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Additions
|
|
|
750
|
|
|
|
2,230
|
|
|
|
169,403
|
|
|
|
536,008
|
|
|
|
326,731
|
|
|
|
1,035,122
|
|
|
Balance - October 31, 2017
|
|
$
|
750
|
|
|
$
|
2,230
|
|
|
$
|
169,403
|
|
|
$
|
536,008
|
|
|
$
|
326,731
|
|
|
$
|
1,035,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
-
|
|
|
|
73,653
|
|
|
|
199,827
|
|
|
|
772,746
|
|
|
|
740,994
|
|
|
|
1,787,220
|
|
|
Disposals
|
|
|
750
|
|
|
|
-
|
|
|
|
12,115
|
|
|
|
730,596
|
|
|
|
-
|
|
|
|
743,461
|
|
|
Balance - October 31, 2018
|
|
$
|
-
|
|
|
$
|
75,883
|
|
|
$
|
357,115
|
|
|
$
|
578,158
|
|
|
$
|
1,067,725
|
|
|
$
|
2,078,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - October 31, 2016
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Amortization for the year
|
|
|
6
|
|
|
|
145
|
|
|
|
13,133
|
|
|
|
-
|
|
|
|
32,642
|
|
|
|
45,926
|
|
|
Balance - October 31, 2017
|
|
|
6
|
|
|
|
145
|
|
|
|
13,133
|
|
|
|
-
|
|
|
|
32,642
|
|
|
|
45,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers
|
|
|
(6
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6
|
|
|
|
-
|
|
|
Amortization for the period
|
|
|
-
|
|
|
|
1,762
|
|
|
|
61,036
|
|
|
|
-
|
|
|
|
397,248
|
|
|
|
460,046
|
|
|
Disposals
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,012
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,012
|
)
|
|
Balance - October 31, 2018
|
|
$
|
-
|
|
|
$
|
1,907
|
|
|
$
|
71,157
|
|
|
$
|
-
|
|
|
$
|
429,896
|
|
|
$
|
502,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Book Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at October 31, 2017
|
|
$
|
744
|
|
|
$
|
2,085
|
|
|
$
|
156,270
|
|
|
$
|
536,008
|
|
|
$
|
294,089
|
|
|
$
|
989,196
|
|
|
As at October 31, 2018
|
|
$
|
-
|
|
|
$
|
73,976
|
|
|
$
|
285,958
|
|
|
$
|
578,158
|
|
|
$
|
637,829
|
|
|
$
|
1,575,921
|
|
Grown Rogue Unlimited, LLC
Notes to the Consolidated Financial Statements
For the year ended October 31,
2018 and the period from October 31, 2016 to October 31, 2017
Expressed
in United States Dollars
The Company's intangible asset
included amounts charged to develop the Company's website and brand positioning. The Company determined the useful lives of the
assets to be 2 and 3 years, respectively. Amortization is calculated on a straight-line basis over the respective useful lives.
|
|
|
Website
|
|
|
Branding
|
|
|
Total
|
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - October 31, 2016
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Additions
|
|
|
29,405
|
|
|
|
9,968
|
|
|
|
39,373
|
|
|
Balance - October 31, 2017
|
|
|
29,405
|
|
|
|
9,968
|
|
|
|
39,373
|
|
|
Additions
|
|
|
41,971
|
|
|
|
2,392
|
|
|
|
44,363
|
|
|
Balance - October 31, 2018
|
|
$
|
71,376
|
|
|
$
|
12,360
|
|
|
$
|
83,736
|
|
|
Accumulated Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - October 31, 2016
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Additions
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Balance - October 31, 2017
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Amortization for the period
|
|
|
15,862
|
|
|
|
2,900
|
|
|
|
18,762
|
|
|
Balance - October 31, 2018
|
|
$
|
15,862
|
|
|
$
|
2,900
|
|
|
$
|
18,762
|
|
|
Net Book Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at October 31, 2017
|
|
$
|
29,405
|
|
|
$
|
9,968
|
|
|
$
|
39,373
|
|
|
As at October 31, 2018
|
|
$
|
55,514
|
|
|
$
|
9,460
|
|
|
$
|
64,974
|
|
|
|
10.
|
Finance lease liabilities
|
|
|
i)
|
Effective July 11, 2017, and as amended on July 28, 2017, the Company entered into an agreement
with a third party to lease equipment at a cost $134,289 over a thirty-six month period for monthly payments of $4,778. The terms
and conditions of the lease predicate that substantially all of the risks and rewards of ownership of the leased asset transfer
to the Company. Therefore, the Company has classified the agreement as a finance lease.
|
|
|
ii)
|
Effective November 8, 2017, the Company entered into an agreement with a third party to lease equipment
at a cost $158,193 over a thirty-six month period for monthly payments of $5,630. The terms and conditions of the lease predicate
that substantially all of the risks and rewards of ownership of the leased asset transfer to the Company. Therefore, the Company
has classified the agreement as a finance lease.
|
As at October 31, 2018, the
related lease liabilities are payable as follows:
|
|
|
Future minimum
|
|
|
|
|
|
|
|
|
|
|
lease payments
|
|
|
Interest
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than one year
|
|
$
|
99,134
|
|
|
$
|
25,762
|
|
|
$
|
124,896
|
|
|
Between one and five years
|
|
|
97,680
|
|
|
|
8,080
|
|
|
|
105,760
|
|
|
|
|
$
|
196,814
|
|
|
$
|
33,842
|
|
|
$
|
230,656
|
|
As at October 31, 2018, the net book value
of the growing equipment under finance lease is $218,275.
Grown Rogue Unlimited, LLC
Notes to the Consolidated Financial Statements
For the year ended October 31,
2018 and the period from October 31, 2016 to October 31, 2017
Expressed
in United States Dollars
Transactions related to the
Company's unsecured promissory notes during the year ended October 31, 2018, include the following:
|
|
|
Face
|
|
|
Carrying
|
|
|
Interest
|
|
|
|
|
value
|
|
|
amount
|
|
|
payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - October 31, 2017
|
|
$
|
552,173
|
|
|
$
|
552,173
|
|
|
$
|
14,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred financing costs
|
|
|
642
|
|
|
|
642
|
|
|
|
-
|
|
|
Settled in exchange for convertible promissory note (note )
|
|
|
(500,000
|
)
|
|
|
(500,000
|
)
|
|
|
(10,416
|
)
|
|
Interest expense on long-term debt
|
|
|
-
|
|
|
|
-
|
|
|
|
6,000
|
|
|
Debt repayments
|
|
|
(2,815
|
)
|
|
|
(2,815
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - October 31, 2018
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
10,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: current portion
|
|
|
-
|
|
|
|
-
|
|
|
|
10,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - October 31, 2018 net of current portion
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
|
$
|
-
|
|
Transactions related to the
Company's unsecured promissory notes during the period from October 31, 2016 to October 31, 2017, include the following:
|
|
|
Face
|
|
|
Carrying
|
|
|
Interest
|
|
|
|
|
value
|
|
|
amount
|
|
|
payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - October 31, 2016
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
12% - February 1, 2017 (i)
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
4,444
|
|
|
25% - October 1, 2017 (iii)
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
10,416
|
|
|
Other
|
|
|
2,815
|
|
|
|
2,815
|
|
|
|
-
|
|
|
|
|
|
552,815
|
|
|
|
552,815
|
|
|
|
14,860
|
|
|
Deferred financing costs
|
|
|
(1,170
|
)
|
|
|
(1,170
|
)
|
|
|
-
|
|
|
Amortization of deferred financing costs
|
|
|
528
|
|
|
|
528
|
|
|
|
-
|
|
|
Interest expense on long-term debt
|
|
|
-
|
|
|
|
-
|
|
|
|
14,860
|
|
|
Balance - October 31, 2017
|
|
|
552,173
|
|
|
|
552,173
|
|
|
|
14,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: current portion
|
|
|
502,173
|
|
|
|
502,173
|
|
|
|
14,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - October 31, 2017, net of current portion
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
|
$
|
-
|
|
Grown Rogue Unlimited, LLC
Notes to the Consolidated Financial Statements
For the year ended October 31,
2018 and the period from October 31, 2016 to October 31, 2017
Expressed
in United States Dollars
|
|
11.
|
Long-term Debt (continued)
|
|
|
i)
|
On February 1, 2017: Principal of $50,000 with simple interest accrued at a rate of 12% per annum.
Interest only payments due on the following: (i) $6,000 on each of July 1, 2018 and July 1, 2019 and interest and principal payment,
$56,000 due on July 1, 2020. As at October 31, 2018, accrued interest of $10,444 (2017 - $4,444) was incurred.
|
|
|
ii)
|
On October 1, 2017: Principal of $500,000 with simple interest accrued at a rate of 25% per annum.
During the period ended October 31, 2018, this Company formalized this debt by way of a convertible promissory note (see note 12
(iii)). As at October 31, 2018, accrued interest of $Nil (2017 - $10,416) was incurred.
|
|
|
12.
|
Convertible Promissory Notes
|
Transactions related to the
Company's convertible promissory notes during the year ended October 31, 2018, include the following:
|
|
|
Face
|
|
|
Carrying
|
|
|
Interest
|
|
|
|
|
value
|
|
|
amount
|
|
|
payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - October 31, 2017
|
|
$
|
1,518,391
|
|
|
$
|
1,394,582
|
|
|
$
|
140,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50% - November 7, 2017 (i)
|
|
|
300,000
|
|
|
|
300,000
|
|
|
|
-
|
|
|
50% - November 14, 2017 (ii)
|
|
|
190,000
|
|
|
|
190,000
|
|
|
|
-
|
|
|
50% - November 14, 2017 (ii)
|
|
|
125,000
|
|
|
|
125,000
|
|
|
|
-
|
|
|
50% - November 14, 2017 (ii)
|
|
|
90,000
|
|
|
|
90,000
|
|
|
|
-
|
|
|
50% - November 14, 2017 (ii)
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
-
|
|
|
50% - November 14, 2017 (ii)
|
|
|
70,000
|
|
|
|
70,000
|
|
|
|
-
|
|
|
50% - November 14, 2017 (ii)
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
-
|
|
|
50% - November 14, 2017 (ii)
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
-
|
|
|
25% - December 15, 2017 (iii)
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
-
|
|
|
12.5% - August 1, 2018 (vii)
|
|
|
57,500
|
|
|
|
57,500
|
|
|
|
-
|
|
|
|
|
|
3,425,891
|
|
|
|
3,302,082
|
|
|
|
140,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred financing costs
|
|
|
(55,008
|
)
|
|
|
(55,008
|
)
|
|
|
-
|
|
|
Amortization of deferred financing costs
|
|
|
52,286
|
|
|
|
52,286
|
|
|
|
-
|
|
|
Interest expense on long-term debt
|
|
|
-
|
|
|
|
-
|
|
|
|
822,165
|
|
|
Fair value of conversion option
|
|
|
-
|
|
|
|
(298,000
|
)
|
|
|
-
|
|
|
Interest accretion
|
|
|
-
|
|
|
|
284,042
|
|
|
|
-
|
|
|
Exchanged
|
|
|
(50,000
|
)
|
|
|
(50,000
|
)
|
|
|
(7,500
|
)
|
|
Repaid
|
|
|
(492,223
|
)
|
|
|
(492,223
|
)
|
|
|
(205,678
|
)
|
|
Converted to common units
|
|
|
(1,537,775
|
)
|
|
|
(1,443,803
|
)
|
|
|
(294,330
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - October 31, 2018
|
|
|
1,343,171
|
|
|
|
1,299,376
|
|
|
|
454,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: current portion
|
|
|
265,277
|
|
|
|
265,277
|
|
|
|
454,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - net of current portion
|
|
$
|
1,077,894
|
|
|
$
|
1,034,099
|
|
|
$
|
-
|
|
Grown Rogue Unlimited, LLC
Notes to the Consolidated Financial Statements
For the year ended October 31,
2018 and the period from October 31, 2016 to October 31, 2017
Expressed
in United States Dollars
|
|
12.
|
Convertible Promissory Notes (continued)
|
Transactions related to the
Company's convertible promissory notes during the period from October 31, 2016 to October 31, 2017, include the following:
|
|
|
Face
|
|
|
Carrying
|
|
|
Interest
|
|
|
|
|
value
|
|
|
amount
|
|
|
payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - October 31, 2016
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15% - February 1, 2017 (iv)
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
11,209
|
|
|
15% - February 1, 2017 (v)
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
11,209
|
|
|
25% - June 1, 2017 (vi)
|
|
|
637,775
|
|
|
|
637,775
|
|
|
|
65,816
|
|
|
50% - July 26, 2017 (vii)
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
13,185
|
|
|
50% - July 26, 2017 (viii)
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
13,185
|
|
|
50% - July 26, 2017 (ix)
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
13,185
|
|
|
50% - October 1, 2017 (x)
|
|
|
250,000
|
|
|
|
250,000
|
|
|
|
10,274
|
|
|
50% - October 20, 2017 (xi)
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
1,507
|
|
|
50% - October 23, 2017 (xii)
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
548
|
|
|
|
|
|
1,537,775
|
|
|
|
1,537,775
|
|
|
|
140,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred financing costs
|
|
|
(20,008
|
)
|
|
|
(20,008
|
)
|
|
|
-
|
|
|
Amortization of deferred financing costs
|
|
|
624
|
|
|
|
624
|
|
|
|
-
|
|
|
Interest expense on long-term debt
|
|
|
-
|
|
|
|
-
|
|
|
|
140,118
|
|
|
Fair value of conversion option
|
|
|
-
|
|
|
|
(157,000
|
)
|
|
|
-
|
|
|
Interest accretion
|
|
|
-
|
|
|
|
33,191
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - October 31, 2017
|
|
|
1,518,391
|
|
|
|
1,394,582
|
|
|
|
140,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: current portion
|
|
|
640,065
|
|
|
|
640,065
|
|
|
|
140,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - net of current portion
|
|
$
|
878,326
|
|
|
$
|
754,517
|
|
|
$
|
-
|
|
During the period ended October
31, 2018, the Company issued the following unsecured convertible promissory notes:
|
|
i)
|
Effective November 7, 2017, the Company entered into an agreement with the Company's Marketing
Consultant (the "Consultant") whereby the Consultant purchased a convertible promissory note for the total principal
of $300,000 with simple interest accrued at a rate of 50%. Accrued interest shall be paid in monthly installments of $12,500 until
maturity. A balloon interest payment of $15,000 was due to the Consultant on day 180 and has been accrued as of July 31, 2018.
The note, which includes any unpaid principal and accrued interest, unless converted in accordance with provisions stated in the
agreement shall be due and payable on the earlier of the following: (a) 12 months from the effective date of the note; or (b) the
occurrence of a change of control of the Company. The note does not have a prepayment option under the agreement, unless agreed
to in writing by the purchaser.
|
Grown Rogue Unlimited, LLC
Notes to the Consolidated Financial Statements
For the year ended October 31,
2018 and the period from October 31, 2016 to October 31, 2017
Expressed
in United States Dollars
|
|
12.
|
Convertible Promissory Notes (continued)
|
At any time prior to the maturity
of the agreement, the Consultant has the right to convert all (but not less than all) of the outstanding principal amount and all
accrued and unpaid interest into the number of fully paid and non-assessable common units of the Company at a price per unit equal
to the applicable conversion price calculated immediately before the closing of a going public event or qualified transaction.
The conversion price represents
an amount equal to the applicable conversion valuation divided by the number of units outstanding at the time of conversion. The
Conversion valuation represents the following a) $15,000,000 if the holder converts the note within 6 months of the effective date
of the note and b) $18,000,000 if the holder converts the note after 6 months of the effective date of the note, but prior to the
note’s maturity. On June 1, 2018, the principle of $300,000 was converted into 285.70 common units of the Company as described
in note 14(xvi).
|
|
ii)
|
Effective November 14, 2017, the Company entered into an agreement with certain purchasers (collectively
the “Purchasers” and individually the “Purchaser”), to issue a series of notes with substantially similar
terms, including maturity, interest rates, and conversion terms. Under the agreements, the Purchasers purchased convertible promissory
notes with aggregate principal of $550,000. The notes accrue simple interest as follows:
|
|
|
a)
|
Interest will accrue on the outstanding principal at an annual rate of 50% calculated on the basis
of a year of 365 days.
|
|
|
b)
|
Should the Purchasers extend the maturity date due to a public event prior to the end of the period,
the Purchaser has the right to extend the Maturity date by up to 3 months after the consummation of the public event at an annual
rate of 0% following the initial period.
|
|
|
c)
|
Should purchasers extend the Maturity Date by 6 months on all but not less than all of the then-outstanding
principal; provided, however the Company shall pay Holder all principal not so extended, and all accrued but unpaid interest at
the end of the initial period at an annual rate of 30% calculated on the basis of a year of 365 days.
|
|
|
d)
|
Should the Purchaser extend the maturity date of this note by 18 months on not less than $10,000
of the then-outstanding principal and unpaid interest accrued under the Note at the end of the initial period; provided, however
the Company shall pay Purchaser all principal and/or interest for which the maturity date is not so extended at an annual rate
of 20% calculated on the basis of a year of 365 days.
|
The notes, which includes any
unpaid principal and accrued interest, unless converted in accordance with provisions stated in the agreement shall be due and
payable on the earlier of the following: (a) the date on which the initial period ends (the Maturity Date) unless the Maturity
Date is extended by Purchaser by 3, 6, or 18 months after the Public Event. The notes may not be prepaid, in whole or in part,
prior to the Maturity Date without the prior written consent of a majority in interest of a Purchaser.
Grown Rogue Unlimited, LLC
Notes to the Consolidated Financial Statements
For the year ended October 31,
2018 and the period from October 31, 2016 to October 31, 2017
Expressed
in United States Dollars
|
|
12.
|
Convertible Promissory Notes (continued)
|
If at any time prior to the maturity
of the notes and qualified equity financing occurs, the Purchaser has the right to convert not less than $10,000 of the outstanding
principal amount and all accrued and unpaid interest into the number of fully paid and non-assessable common membership units of
the Company at a price per unit equal to the applicable conversion price. If the Purchaser has extended the maturity date and the
qualified equity financing occurs during the 18 months following the initial period, the Purchaser shall have the obligation to
convert all of the outstanding principal amount and all accrued and unpaid interest into the number of fully paid and non- assessable
common membership until of the Company at a price per unit equal to the applicable conversion price. The conversion price represents
the following:
|
|
a)
|
In the event of a qualified equity financing, the lower of (i) the valuation cap divided by issued
and outstanding share count immediately prior to the qualified equity financing, or (ii) eighty percent (80%) of the price per
unit paid in cash by purchasers of New Units issued in such qualified equity financing; provided, however, that such percentage
shall decline by two percent (2%) for each month an event of default occurs and is continuing after the end of the initial period,
up to a maximum of ten percent (10%) (e.g., if such an event of default continues for five months, the conversion price under this
paragraph (a) will be a price equal to seventy (70%) of the applicable price set forth in clause (ii) above); or
|
|
|
b)
|
In the event of a public event the lower of (i) the valuation cap divided by the issued and outstanding
share count immediately prior to the public event, or (ii) eighty percent (80%) of the price per unit paid in cash by purchasers
of new units issued in such Public Event; provided, however, that such percentage shall decline by two percent (2%) for each month
an event of default occurs and is continuing after the end of the Initial Period, up to a maximum of ten percent (10%) (
e.g.
,
if such an event of default continues for five months, the conversion Price under this paragraph (b) will be a price equal to seventy
(70%) of the applicable price set forth in clause (ii) above); or
|
|
|
c)
|
In the event of a change of control transaction, the lower of (i) the valuation cap divided by
the change of control issued and outstanding share count immediately prior to the qualified equity financing, or (ii) eighty percent
(80%) of the price per unit paid by the purchaser(s) in such change of control transaction; provided, however, that such percentage
shall decline by two percent (2%) for each month an event of default occurs and is continuing after the end of the initial period,
up to a maximum of ten percent (10%) (
e.g.
, if such an event of default continues for five months, the conversion price
under this paragraph (c) will be a price equal to seventy (70%) of the applicable price set forth in clause (ii) above); provided,
further, that if a transaction or event can be characterized both as a public event and as a change of control transaction, the
conversion price shall be established as if such transaction or event were a change of control transaction; or
|
Grown Rogue Unlimited, LLC
Notes to the Consolidated Financial Statements
For the year ended October 31,
2018 and the period from October 31, 2016 to October 31, 2017
Expressed
in United States Dollars
|
|
12.
|
Convertible Promissory Notes (continued)
|
|
|
d)
|
In the event of a nonqualified equity financing, the lower of (i) the valuation cap divided by
Issued and outstanding share count immediately prior to the nonqualified equity financing, or (ii) eighty percent (80%) of the
price per unit paid in cash by purchasers of new units issued in such nonqualified equity financing; provided, however, that such
percentage shall decline by two percent (2%) for each month an event of default occurs and is continuing after the end of the initial
period, up to a maximum of ten percent (10%) (e.g., if such an event of default continues for five months, the conversion price
under this paragraph (a) will be a price equal to seventy (70%) of the applicable price set forth in clause (ii) above). During
the year ended October 31, 2018, the Company made aggregate principal repayments of $275,000. As at October 31, 2018, accrued interest
of $127,915 remained unpaid.
|
|
|
iii)
|
Effective December 15, 2017, the Company entered into an agreement whereby the holder purchased
a convertible promissory note for the total principal of $1,000,000 with simple interest accrued at a rate of 25%, payable as follows:
|
|
|
a)
|
As at October 31, 2018 interest accrued to $105,556 on the sum of $500,000, of debt previously
held by the holder.
|
|
|
b)
|
Interest shall accrue from the effective date of the note on the total sum of $1,000,000 and paid
in monthly installments of $20,833.33 to the holder beginning on January 15, 2018. As at October 31, 2018 none of the monthly instalments
had been paid.
|
|
|
c)
|
A one-time additional interest payment equal to 5% of the unpaid principal balance payable concurrent
with the 12
th
scheduled monthly installment payment is otherwise due. In the event the holder
completed a full or partial conversion within 12 months of the effective date, the one-time interest payment shall be pro-rated
as at the date of the full or partial conversion.
|
The note, which includes any
unpaid principal and accrued interest, unless converted in accordance with provisions stated in the agreement shall be due and
payable on the earlier of the following: (a) 36 months from the effective date of the note; or (b) the occurrence of a change of
control of the Company. Within the first 24 months from the effective date of the note, no prepayment will occur, except for payments
of accrued interest or other payments as outlined above.
At any time prior to the 24 month
anniversary of the effective date of the note, the holder has the right to fully or partially convert the outstanding principal
and all accrued and unpaid interest into the number of fully paid and non-assessable common membership units of the Company at
a price per unit equal to the applicable conversion price. The Conversion price represents an amount equal to the applicable conversion
valuation divided by the number of issued and outstanding units of the Company at the time of conversion calculated immediately
before the closing of a qualified equity financing event if the conversion is in conjunction with a qualified equity financing
event.
Grown Rogue Unlimited, LLC
Notes to the Consolidated Financial Statements
For the year ended October 31,
2018 and the period from October 31, 2016 to October 31, 2017
Expressed
in United States Dollars
|
|
12.
|
Convertible Promissory Notes (continued)
|
If the Company consummates a
going public event within the 12 months anniversary date of the note, the holder has the right to fully or partially convert the
total principal outstanding at a price per unit equal to the applicable conversion price by providing written notice to the Company
of its election to convert within 7 days after receipt from the Company of the financing notice. If the holder so converts, the
Company will offer the holder a position as a strategic advisor to the Company for a 12 month term, which commences on the date
of conversion. The holder will receive gross monthly compensation equal to $10,000 if the holder fully converts or a portion of
the $10,000 equal to the ratio of the amount converted.
The conversion valuation represents
the following a) $20,000,000 if the holder converts the note within 12 months of the effective date of the note and b) $40,000,000
if the holder converts the note after 12 months of the effective date of the note, but before 24 months of the effective date of
the note. As at October 31, 2018, accrued interest of $248,958 was incurred.
During the period ended October
31, 2017, the Company issued the following unsecured convertible promissory notes:
|
|
iv)
|
Effective February 1, 2017: Principal of $100,000 with simple interest accrued at a rate of 15%.
Principal and interest due and payable on the three year anniversary of the promissory note, February 1, 2020. In the event the
Company completes a qualified equity financing transaction on or before the maturity date of the promissory note, the holder has
the right to convert in whole or in part the unpaid principal and interest balance into fully paid non-assessable shares of common
stock of the Company. The conversion price per unit will equal 80% of the price per unit paid in cash by purchasers of new units
in a qualified equity transaction. As at October 31, 2018, accrued interest of $26,219 (2017 - $11,209) was incurred. The fair
value of the conversion option was estimated as $Nil.
|
|
|
v)
|
Effective February 1, 2017: Principal of $100,000 with simple interest accrued at a rate of 15%.
Principal and interest due and payable on the three year anniversary of the promissory note, February 1, 2020. In the event the
Company completes a qualified equity financing transaction on or before the maturity date of the promissory note, the holder has
the right to convert in whole or in part the unpaid principal and interest balance into fully paid non-assessable shares of common
stock of the Company. The conversion price per unit will equal 80% of the price per unit paid in cash by purchasers of new units
in a qualified equity transaction. As at October 31, 2018, accrued interest of $22,438 (2017 - $11,209) was incurred. The fair
value of the conversion option was estimated as $Nil.On June 15, 2018, the principle of $100,000 and unpaid interest of $20,465
were converted into 115 common units of the Company as described in note 14(xviii).
|
Grown Rogue Unlimited, LLC
Notes to the Consolidated Financial Statements
For the year ended October 31,
2018 and the period from October 31, 2016 to October 31, 2017
Expressed
in United States Dollars
|
|
12.
|
Convertible Promissory Notes (continued)
|
|
|
vi)
|
Effective June 1, 2017: the Company entered into an agreement with its President and CEO and the
President and CEO’s spouse (the “Holder”), whereby the Holder purchased a convertible non- negotiable promissory
note for total principal of $637,775 with simple interest calculated at a rate of 25% per annum. The note, which includes any unpaid
principal and accrued interest, unless converted in accordance with provisions stated in the agreement shall be due and payable
on the earlier of the following: (a) 36 months from the effective date of the note; or (b) the occurrence of a change of control
of the Company. A balloon interest payment of $30,000 was due to the Holder on June 1, 2018. On June 1, 2018, the principle of
$637,775 and unpaid interest of $146,157 (which included the $30,000 balloon interest payment) were converted into 922.70 common
units of the Company as described in note 14(xv).
|
In the event the Company completes
a qualified equity financing transaction on or before the maturity date of the promissory note, the holder has the right to convert
in whole or in part the unpaid principal and interest balance into fully paid non-assessable shares of common stock of the Company
at a price per unit equal to the applicable conversion price calculated immediately before the closing of a going public event
or qualified transaction. At any time prior to the maturity of the agreement, the Holder has the right to convert a portion of
the outstanding principal amount and all accrued and unpaid interest into the number of fully paid and non-assessable common membership
units of the Company.
The conversion price represents
an amount equal to the applicable conversion valuation divided by the number of units outstanding at the time of conversion. The
Conversion valuation represents the following a) $10,000,000 if the holder converts the note within 12 months of the effective
date of the note and b) $15,000,000 if the holder converts the note after 12 months of the effective date of the note, but prior
to the note’s maturity. As at October 31, 2017, accrued interest of $65,816 was incurred.
The fair value of the conversion
option was estimated as $54,000 using the following inputs, assumptions and estimates:
|
Risk-free interest rate
|
|
|
1.68
|
%
|
|
Expected life
|
|
|
2.6 years
|
|
|
Expected volatility
|
|
|
70
|
%
|
|
Share price
|
|
$
|
612
|
|
|
Units outstanding at time of conversion
|
|
|
10,000
|
|
|
Conversion price at time of conversion
|
|
|
$1,000 - $1,500
|
|
Grown Rogue Unlimited, LLC
Notes to the Consolidated Financial Statements
For the year ended October 31,
2018 and the period from October 31, 2016 to October 31, 2017
Expressed
in United States Dollars
|
|
12.
|
Convertible Promissory Notes (continued)
|
|
|
vii)
|
Effective July 26, 2017, the Company through its wholly owned subsidiary GRU Properties, LLC entered
into an agreement whereby the holder purchased a convertible promissory note for the total principal of $100,000 with simple interest
calculated at a rate of 50% per annum for the first 6 months. The note became due on February 1, 2018 and was extendable for another
6 months at the holder's option. If the holder extends the term an additional 6 months the rate of simple interest will change
to 30%, such that at the end of the 12 month period, the total outstanding principal and interest amount would not exceed $140,000.
|
The holder of the convertible
promissory note has the unrestricted right, at the holder's option to convert a maximum of $125,000 of the outstanding balances
into common units of the Company at a price per unit agreed upon by the Company and the holder, or if a conversion price per unit
cannot be agreed upon, the price per unit will be determined by appraisal. The right to convert may be exercised after the extended
maturity date of the convertible promissory note. The number of common shares into which the convertible promissory notes may or
will be converted shall be determined by dividing the unpaid principal balance, together with all accrued and unpaid interest thereon,
by the conversion price. On January 31, 2018, $50,000 of the outstanding principal was repaid and the remaining principal of $50,000
was extended to August 1, 2018. In addition, $25,000 of accrued and unpaid interest was converted into common units of the Company
as described in note 14(x)(iii). On August 1, 2018, the holder of the convertible promissory note accepted a new convertible promissory
note in the amount of $57,500 in exchange for the current note and $7,500 of accrued interest. The new convertible promissory note
has a maturity date to August 1, 2019, with interest at 12.5% per annum, payable monthly. As at October 31, 2018, accrued interest
of $1,197 (2017 - $13,185) was incurred.
The fair value of the conversion
option was estimated as $23,000 using the following inputs, assumptions and estimates:
|
Risk-free interest rate
|
|
|
1.36
|
%
|
|
Expected life
|
|
|
0.75 years
|
|
|
Expected volatility
|
|
|
70
|
%
|
|
Share price
|
|
$
|
612
|
|
|
Conversion price at time of conversion
|
|
$
|
612
|
|
Grown Rogue Unlimited, LLC
Notes to the Consolidated Financial Statements
For the year ended October 31,
2018 and the period from October 31, 2016 to October 31, 2017
Expressed
in United States Dollars
|
|
12.
|
Convertible Promissory Notes (continued)
|
|
|
viii)
|
Effective July 26, 2017, the Company through its wholly owned subsidiary GRU Properties, LLC entered
into an agreement whereby the holder purchased a convertible promissory note for the total principal of $100,000 with simple interest
calculated at a rate of 50% per annum for the first 6 months. The note became due on February 1, 2018 and was extendable for another
6 months at the holder's option. If the holder extends the term an additional 6 months the rate of simple interest will change
to 30%, such that at the end of the 12 month period, the total outstanding principal and interest amount would not exceed $140,000.
|
The holder of the convertible
promissory note has the unrestricted right, at the holder's option to convert a maximum of $125,000 of the outstanding balances
into common units of the Company at a price per unit agreed upon by the Company and the holder, or if a conversion price per unit
cannot be agreed upon, the price per unit will be determined by appraisal. The right to convert may be exercised after the extended
maturity date of the convertible promissory note. The number of common shares into which the convertible promissory notes may or
will be converted shall be determined by dividing the unpaid principal balance, together with all accrued and unpaid interest thereon,
by the conversion price. As at October 31, 2017, accrued interest of $13,185 was incurred. On January 31, 2018, the principle of
$100,000 and unpaid interest of $25,000 were converted into 89.8 common units of the Company as described in note 14(x)(iii).
The fair value of the conversion
option was estimated as $23,000 using the following inputs, assumptions and estimates:
|
Risk-free interest rate
|
|
|
1.36
|
%
|
|
Expected life
|
|
|
0.75 years
|
|
|
Expected volatility
|
|
|
70
|
%
|
|
Share price
|
|
$
|
612
|
|
|
Conversion price at time of conversion
|
|
$
|
612
|
|
Grown Rogue Unlimited, LLC
Notes to the Consolidated Financial Statements
For the year ended October 31,
2018 and the period from October 31, 2016 to October 31, 2017
Expressed
in United States Dollars
|
|
12.
|
Convertible Promissory Notes (continued)
|
|
|
ix)
|
Effective July 26, 2017: Principal of $100,000 with simple interest calculated at a rate of 50%
per annum for the first 6 months. The note becomes due and payable on the earlier of a) February 1, 2018 unless extended for another
6 months at the holder's option and b) the occurrence of a change of control of the Company. At the maturity date, the holder has
the right to either a) convert the total unpaid principal and accrued interest balance into other convertible notes then being
offered or b) extend the original term of the note for an additional 6-month period. If the holder extends the term an additional
6-months the rate of simple interest will change to 30% per annum. As at October 31, 2017, accrued interest of $13,185 was incurred.
Effective January 31, 2018, the principal and unpaid interest of $25,000 were converted into 74.8 common units of the Company.
|
The fair value of the conversion
option was estimated as $15,000 using the following inputs, assumptions and estimates:
|
Risk-free interest rate
|
|
|
1.15
|
%
|
|
Expected life
|
|
|
0.25 years
|
|
|
Expected volatility
|
|
|
60
|
%
|
|
Share price
|
|
$
|
612
|
|
|
Conversion price at time of conversion
|
|
$
|
612
|
|
|
|
x)
|
Effective October 1, 2017: the Company entered into an agreement with its President and CEO and
the President and CEO’s spouse (the “Holder”), whereby the Holder purchased two convertible non-negotiable promissory
note for total principal of $250,000 with simple interest calculated at a rate of 50% per annum. The note, which includes any unpaid
principal and accrued interest, unless converted in accordance with provisions stated in the agreement shall be due and payable
on the earlier of the following: (a) 12 months from the effective date of the note; or (b) the occurrence of a change of control
of the Company. A balloon interest payment of $15,000 is due to the Holder on day 180. The note does not have a prepayment option
under the agreement, unless agreed to in writing by the Holder. Effective March 31, 2018, the principal and unpaid interest of
$46,250 were converted into 332.4 common units of the Company.
|
At any time prior to the maturity
of the agreement, the Holder had the right to convert a portion of the outstanding principal amount and all accrued and unpaid
interest into the number of fully paid and non-assessable common membership units of the Company at a price per unit equal to the
applicable conversion price calculated immediately before the closing of a going public event or qualified transaction.
Grown Rogue Unlimited, LLC
Notes to the Consolidated Financial Statements
For the year ended October 31,
2018 and the period from October 31, 2016 to October 31, 2017
Expressed
in United States Dollars
|
|
12.
|
Convertible Promissory Notes (continued)
|
The conversion price represents
an amount equal to the applicable conversion valuation divided by the number of units outstanding at the time of conversion. The
Conversion valuation represents the following a) $10,000,000 if the holder converts the note within 6 months of the effective date
of the note and b) $15,000,000 if the holder converts the note after 6 months of the effective date of the note, but prior to the
note’s maturity. As at October 31, 2017, accrued interest of $10,274 was incurred.
The fair value of the conversion
option was estimated as $8,000 using the following inputs, assumptions and estimates:
|
Risk-free interest rate
|
|
|
1.41
|
%
|
|
Expected life
|
|
|
0.92 years
|
|
|
Expected volatility
|
|
|
70
|
%
|
|
Share price
|
|
$
|
612
|
|
|
Units outstanding at time of conversion
|
|
|
10,000
|
|
|
Conversion price at time of conversion
|
|
|
$1,000 - $1,500
|
|
|
|
xi)
|
Effective October 20, 2017, Principal of $100,000 with simple interest accrued at a rate of 50%
per annum. All unpaid principal and accrued interest become due and payable on the earlier of a) the 6 month anniversary of the
note, unless extended at the sole discretion of the holder and b) the occurrence of a change in control of the Company. At the
Maturity date, the holder has the right to either a) convert the total unpaid principal and accrued interest into other convertible
notes then being offered by the Company or b) extend the maturity of the note by 6 months. Should the holder extend the note, interest
will accrue on the original principal at a rate of 30% per annum. As of the maturity date, October 20, 2017, the maturity date
was extended by 6 months and fully matured on April 20, 2018. On April 20, 2018, the maturity was extended by 6 months to October
20, 2018 with interest accrued at a rate of 30% during the extension period. The maturity date was then extended further to November
8, 2018. As at October 31, 2018, accrued interest of $40,000 (2017 - $1,507) was incurred.
|
The fair value of the conversion
option was estimated as $23,000 using the following inputs, assumptions and estimates:
|
Risk-free interest rate
|
|
|
1.27
|
%
|
|
Expected life
|
|
|
0.47 years
|
|
|
Expected volatility
|
|
|
70
|
%
|
|
Share price
|
|
$
|
612
|
|
|
Conversion price at time of conversion
|
|
$
|
612
|
|
Grown Rogue Unlimited, LLC
Notes to the Consolidated Financial Statements
For the year ended October 31,
2018 and the period from October 31, 2016 to October 31, 2017
Expressed
in United States Dollars
|
|
12.
|
Convertible Promissory Notes (continued)
|
|
|
xii)
|
On October 23, 2017, Principal of $50,000 with simple interest accrued at a rate of 50% per annum.
All unpaid principal and accrued interest become due and payable on the earlier of a) the 6 month anniversary of the note, unless
extended at the sole discretion of the holder and b) the occurrence of a change in control of the Company. At the Maturity date,
the holder has the right to either a) convert the total unpaid principal and accrued interest into other convertible notes then
being offered by the Company or b) extend the maturity of the note by 6 months. Should the holder extend the note, interest will
accrue on the original principal at a rate of 30% per annum. As at October 31, 2017, accrued interest of $548 was incurred. On
January 26, 2018, the holder converted the original principal amount and accrued and unpaid interest of $6,458 into 34 uncertified
common units of the Company.
|
The fair value of the conversion
option was estimated as $11,000 using the following inputs, assumptions and estimates:
|
Risk-free interest rate
|
|
|
1.27
|
%
|
|
Expected life
|
|
|
0.48 years
|
|
|
Expected volatility
|
|
|
70
|
%
|
|
Share price
|
|
$
|
612
|
|
|
Conversion price at time of conversion
|
|
$
|
612
|
|
|
|
13.
|
Convertible Debentures
|
Transactions related to the
Company's convertible debentures during the year ended October 31, 2018, include the following:
|
|
|
Face
|
|
|
Carrying
|
|
|
Interest
|
|
|
|
|
value
|
|
|
amount
|
|
|
payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - October 31, 2016 and 2017
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued during the year
|
|
|
1,141,060
|
|
|
|
1,141,060
|
|
|
|
7,758
|
|
|
Fair value of conversion option
|
|
|
-
|
|
|
|
(132,000
|
)
|
|
|
-
|
|
|
Interest accretion
|
|
|
-
|
|
|
|
33,785
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: issuance costs
|
|
|
(111,746
|
)
|
|
|
(111,746
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - October 31, 2018
|
|
|
1,029,314
|
|
|
|
931,099
|
|
|
|
7,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: current portion
|
|
|
-
|
|
|
|
-
|
|
|
|
7,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - net of current portion
|
|
$
|
1,029,314
|
|
|
$
|
931,099
|
|
|
$
|
-
|
|
Grown Rogue Unlimited, LLC
Notes to the Consolidated Financial Statements
For the year ended October 31,
2018 and the period from October 31, 2016 to October 31, 2017
Expressed
in United States Dollars
|
|
13.
|
Convertible Debentures (continued)
|
(i) During the period ended October 31, 2018, the Company issued a series of secured convertible debentures with aggregate principal of CAD$1,500,000 ($1,141,060). This series of convertible debentures bear interest at 2% quarterly payable on the last day of March, June, September, and December. The convertible debentures mature twenty four months from the effective date of the agreement or December 1, 2018 if a change in ownership has not occurred. The debentures will be secured by a general security agreement granting a security interest in all of the Company’s property and assets. The debentures can be converted by the holder into common units of the company at a conversion price of CAD$0.44 per Unit. In the event of a default, the Conversion Price shall be reduced to CAD$0.05 per Unit. In connection with the issuance of the convertible debentures, the Company incurred issuance costs of $111,746.
The Company has allocated the
proceeds from the issuance of the convertible debentures as follows:
|
Convertible debentures, principal
|
|
$
|
1,009,060
|
|
|
Conversion option
|
|
|
132,000
|
|
|
|
|
$
|
1,141,060
|
|
The value of the conversion option
was calculated by subtracting the net present value of the debenture from the face value of the convertible debentures. The net
present value of the debenture was calculated using a discount rate of 15% over a period of 24 months.
The Company is authorized to
issue up to 20,000 common units, up to 750 Seed Round Preferred Units and up to 3,000 Incentive Units.
The following table summarizes
the common unit activities for the periods ended October 31, 2018 and October 31, 2017:
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seed
|
|
|
|
|
|
|
|
Number of
|
|
|
Number of
|
|
|
Round
|
|
|
|
|
|
|
|
Common
|
|
|
Incentive
|
|
|
Preferred
|
|
|
Member's
|
|
|
|
|
Units
|
|
|
Units
|
|
|
Units
|
|
|
Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, October 31, 2016 (date of inception)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
Issued for cash proceeds (i)
|
|
|
7,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
100
|
|
|
Balance, October 31, 2017 (i)
|
|
|
7,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
100
|
|
|
Issued pursuant to conversion of promissory notes
|
|
|
1,854
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,152,134
|
|
|
Issued for cash proceeds
|
|
|
191
|
|
|
|
-
|
|
|
|
733
|
|
|
|
1,525,345
|
|
|
Issued as employee compensation (ii)
|
|
|
-
|
|
|
|
300
|
|
|
|
-
|
|
|
|
-
|
|
|
Issued to service providers
|
|
|
1,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,049,595
|
|
|
Issuance costs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(25,401
|
)
|
|
Balance, October 31, 2018
|
|
|
10,545
|
|
|
|
300
|
|
|
|
733
|
|
|
$
|
4,701,773
|
|
Grown Rogue Unlimited, LLC
Notes to the Consolidated Financial Statements
For the year ended October 31,
2018 and the period from October 31, 2016 to October 31, 2017
Expressed
in United States Dollars
|
|
14.
|
Members' Capital (continued)
|
|
|
i)
|
During the period ended October 31, 2017, the Company issued 7,000 common units to the Company's
CEO and President for proceeds of $100.
|
|
|
ii)
|
On November 27, 2017, the Company issued 300 Incentive Units to an employee of the Company.
|
|
|
iii)
|
Effective December 11, 2017, the Company entered into a Seed Round Preferred Unit Subscription
Agreement whereby the Company will issue up to 621 Seed Round Preferred Units (the “Units”) at a purchase price of
$1,773.05 per Unit. Under the Agreement the Company issued 253 Units for total proceeds of $448,581. Each Unit will have one vote
per unit and will be subject to automatic conversion into common units rounded to the nearest whole common unit, at the then effective
conversion rate immediately prior to the closing of a public event. The conversion rate shall be determined by dividing the original
issue price for a single Unit by the conversion price effective at the time of conversion. The Conversion price will change upon
the occurrence of an event which changes the number of outstanding and issued common units at the time of conversion.
|
|
|
iv)
|
Effective December 11, 2017, the Company entered into a Seed Round Preferred Unit Subscription
Agreement whereby the Company will issue up to 621 Seed Round Preferred Units (the “Units”) at a purchase price of
$1,773.05 per Unit. Under the Agreement the Company issued 56 Units for a total purchase price of $99,291. Each Unit will have
one vote per unit and will be subject to automatic conversion into common units rounded to the nearest whole common unit, at the
then effective conversion rate immediately prior to the closing of a public event. The conversion rate shall be determined by dividing
the original issue price for a single Unit by the conversion price effective at the time of conversion. The Conversion price will
change upon the occurrence of an event which changes the number of outstanding and issued common units at the time of conversion.
|
|
|
v)
|
Effective December 11, 2017, the Company entered into a Seed Round Preferred Unit Subscription
Agreement whereby the Company will issue up to 621 Seed Round Preferred Units (the “Units”) at a purchase price of
$1,773.05 per Unit. Under the Agreement the Company issued 139 Units for a total purchase price of $246,454. Each Unit will have
one vote per unit and will be subject to automatic conversion into common units rounded to the nearest whole common unit, at the
then effective conversion rate immediately prior to the closing of a public event. The conversion rate shall be determined by dividing
the original issue price for a single Unit by the conversion price effective at the time of conversion. The Conversion price will
change upon the occurrence of an event which changes the number of outstanding and issued common units at the time of conversion.
|
|
|
vi)
|
Effective December 15, 2017, the Company entered into a Seed Round Preferred Unit Subscription
Agreement whereby the Company will issue up to 621 Seed Round Preferred Units (the “Units”) at a purchase price of
$1,773.05 per Unit. Under the Agreement the Company issued 3 Units for a total purchase price of $5,319. Each Unit will have one
vote per unit and will be subject to automatic conversion into common units rounded to the nearest whole common unit, at the then
conversion rate immediately prior to the closing of a public event. The conversion rate shall be determined by dividing the original
issue price for a single Unit by the conversion price effective at the time of conversion. The conversion price will change upon
the occurrence of an event which changes the number of outstanding and issued common units at the time of conversion.
|
Grown Rogue Unlimited, LLC
Notes to the Consolidated Financial Statements
For the year ended October 31,
2018 and the period from October 31, 2016 to October 31, 2017
Expressed
in United States Dollars
|
|
14.
|
Members' Capital (continued)
|
|
|
vii)
|
Effective January 5, 2018, the Company entered into a Seed Round Preferred Unit Subscription Agreement
whereby the Company will issue up to 621 Seed Round Preferred Units (the “Units”) at a purchase price of $1,773.05
per Unit. Under the Agreement the Company issued 170 Units for a total purchase price of $301,418. Each Unit will have one vote
per unit and will be subject to automatic conversion into common units rounded to the nearest whole common unit, at the then conversion
rate immediately prior to the closing of a public event. The conversion rate shall be determined by dividing the original issue
price for a single Unit by the conversion price effective at the time of conversion. The conversion price will change upon the
occurrence of an event which changes the number of outstanding and issued common units at the time of conversion.
|
|
|
viii)
|
Effective January 26, 2018, the holder of a convertible promissory note converted the original
principal amount of $50,000 and all accrued and unpaid interest of $6,458 into 34 uncertified common units of the Company.
|
|
|
ix)
|
Effective January 31, 2018, the holder of a note payable assigned 100% principal and accrued and
unpaid interest to a limited liability company (the "Entity"), which is wholly owned by the holder. Through the execution
of the assignment agreement, the terms within, the Entity converted the original principal amount of $100,000 and all accrued and
unpaid interest of $25,000 into 74.8 uncertified common units of the Company.
|
|
|
x)
|
Effective January 31, 2018, the holder of two convertible promissory notes in the original principal
amount of $100,000 took the following actions:
|
|
|
(i)
|
Received a return of principal of $50,000 from one of the convertible promissory notes.
|
|
|
(ii)
|
Extended the maturity date of the continuing convertible promissory not for the principal amount
of $50,000 to August 1, 2018 with a coupon interest rate of 30% per annum. All principal and accrued and unpaid interest, shall
become due on the earlier of a) August 1, 2018 or b) the occurrence of a change of control of the Company; and
|
|
|
(iii)
|
Converted the original principal of the second convertible promissory note and accrued and unpaid
interest of $50,000 into 89.8 uncertified common units of the Company.
|
|
|
xi)
|
Effective February 9, 2018, the Company entered into a Seed Round Preferred Unit Subscription Agreement
whereby the Company will issue up to 750 Seed Round Preferred Units (the “Units”) at a purchase price of $1,773.05
per Unit. Under the Agreement the Company issued 56 Units for a total purchase price of $99,291. Each Unit will have one vote per
unit and will be subject to automatic conversion into common units rounded to the nearest whole common unit, at the then effective
conversion rate immediately prior to the closing of a public event. The conversion rate shall be determined by dividing the original
issue price for a single Unit by the conversion price effective at the time of conversion. The conversion price will change upon
the occurrence of an event which changes the number of outstanding and issued common units at the time of conversion.
|
Grown Rogue Unlimited, LLC
Notes to the Consolidated Financial Statements
For the year ended October 31,
2018 and the period from October 31, 2016 to October 31, 2017
Expressed
in United States Dollars
|
|
14.
|
Members' Capital (continued)
|
|
|
xii)
|
Effective February 9, 2018, the Company entered into a Seed Round Preferred Unit Subscription Agreement
whereby the Company will issue up to 750 Seed Round Preferred Units (the “Units”) at a purchase price of $1,773.05
per Unit. Under the Agreement the Company issued 56 Units for a total purchase price of $99,291. Each Unit will have one vote per
unit and will be subject to automatic conversion into common units rounded to the nearest whole common unit, at the then effective
conversion rate immediately prior to the closing of a public event. The conversion rate shall be determined by dividing the original
issue price for a single Unit by the conversion price effective at the time of conversion. The conversion price will change upon
the occurrence of an event which changes the number of outstanding and issued common units at the time of conversion.
|
|
|
xiii)
|
Effective March 1, 2018, the Company issued 750 common units to the Company's CFO/ general counsel
and 750 common units to the Company's marketing consultant. The fair value of these units was estimated to be $1,049,595 and has
been expensed as unit-based compensation expense.
|
|
|
xiv)
|
Effective March 31, 2018, the holder of a convertible promissory note converted the original principal
amount of $250,000 and all accrued and unpaid interest of $46,250 into 332.4 uncertified common units of the Company.
|
|
|
xv)
|
Effective June 1, 2018, the holder of a convertible promissory note converted the original principal
amount of $637,775 and all accrued and unpaid interest of $146,157 into 922.70 uncertified common units of the Company.
|
|
|
xvi)
|
Effective June 1, 2018, the holder of a convertible promissory note converted the original principal
amount of $300,000 into 285.70 uncertified common units of the Company.
|
|
|
xvii)
|
Between June 13, 2018 and June 15, 2018, the Company issued 190.8 common units of the Company for
proceeds of $225,000.
|
|
|
xviii)
|
Effective June 15, 2018, the holder of a convertible promissory note converted the original principal
amount of $100,000 and all accrued and unpaid interest of $20,465 into 115 uncertified common units of the Company.
|
|
|
15.
|
Subscriptions Payable
|
During the year ended October
31, 2018, the Company received aggregate proceeds of CAD$923,630 ($720,516) for 2,099,159 Subscription Receipts. Each Subscription
Receipt includes one common unit of the Company, and one purchase warrant of the Company. Each purchase warrant is exercisable
at the option of the holder to purchase one common unit of the Company at a price of CAD$0.55 per common unit for a period of two
years from the time the Company completes a transaction whereby all of the equity instruments of the issuer are acquired by a Reporting
Issuer in exchange for common shares of the Reporting Issuer. As of the date of these financial statements, the common units and
purchase warrants had not been issued by the Company.
Grown Rogue Unlimited, LLC
Notes to the Consolidated Financial Statements
For the year ended October 31,
2018 and the period from October 31, 2016 to October 31, 2017
Expressed
in United States Dollars
|
|
16.
|
Unit Purchase Options
|
|
|
i)
|
During the period ended October 31, 2018, the Company granted an option to purchase 2,727,250 common
units of the Company for an aggregate amount of CAD$54,545 at any point prior to December 31, 2018. The exercise of the option
is contingent upon the optionee having invested a minimum of CAD$1,050,000 of cash in securities of another party. As at October
31, 2018, this minimum investment had been completed.
|
The fair value of the option
of $871,230 has been expensed as a finance charge expense and was estimated at the grant date based on the Black-Scholes pricing
model, using the following assumptions:
|
Expected dividend yield
|
|
|
Nil%
|
|
|
Risk-free interest rate
|
|
|
1.710
|
%
|
|
Expected life
|
|
|
5.5 months
|
|
|
Expected volatility
|
|
|
99
|
%*
|
* Based on the volatility of comparable
publicly traded companies
|
|
ii)
|
During the period ended October 31, 2018, the Company received proceeds of CAD$649,351 ($500,000)
in exchange for an option to acquire 1,475,979 common units and warrants to purchase a further 1,675,979 common units. Each warrant
shall be exercisable period of two years following the date of option exercise ("the Expiration Date"); provided, however,
that the expiration date shall be automatically extended for an additional three years (the “Extended Period”) if,
during the initial two-year term the Company does not raise at least $18,000,000 in additional equity capital at an effective price
per common unit at or above $0.70 (a “Qualified Offering”); and provided further, that the Company has the right, only
during the Extended Period, if any, and only following the exercise of the Option, to accelerate the expiration date to forty-five
days following written notice to the holder if during the Extended Period the Company closes a Qualified Offering.
|
|
|
iii)
|
During the period ended October 31, 2018, the Company granted an option to purchase 2,000,000 common
units of the Company for an aggregate amount of CAD$40,000 at any point prior to December 31, 2018. The exercise of the option
is contingent upon the optionee having invested a minimum of CAD$1,050,000 of cash in securities of another party. As at October
31, 2018, this minimum investment had been completed.
|
The fair value of the option
of $639,259 has been expensed as a finance charge expense and was estimated at the grant date based on the Black-Scholes pricing
model, using the following assumptions:
|
Expected dividend yield
|
|
|
Nil%
|
|
|
Risk-free interest rate
|
|
|
1.710
|
%
|
|
Expected life
|
|
|
2.0 months
|
|
|
Expected volatility
|
|
|
100
|
%*
|
* Based on the volatility of comparable
publicly traded companies
Grown Rogue Unlimited, LLC
Notes to the Consolidated Financial Statements
For the year ended October 31,
2018 and the period from October 31, 2016 to October 31, 2017
Expressed
in United States Dollars
|
|
17.
|
Changes in Non-cash Working Capital
|
The changes to the Company's
non-cash working capital for the periods ended October 31, 2018 and 2017 are as follows:
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
(221,158
|
)
|
|
$
|
(31,750
|
)
|
|
Other receivable
|
|
|
(52,843
|
)
|
|
|
-
|
|
|
Inventory
|
|
|
364,667
|
|
|
|
(367,518
|
)
|
|
Prepaid expenses and other assets
|
|
|
(136,129
|
)
|
|
|
(43,228
|
)
|
|
Accounts payable and accrued liabilities
|
|
|
1,676,027
|
|
|
|
669,742
|
|
|
Due to employee/ director
|
|
|
-
|
|
|
|
104,000
|
|
|
Interest payable
|
|
|
614,264
|
|
|
|
154,978
|
|
|
Deferred rent
|
|
|
6,344
|
|
|
|
24,912
|
|
|
|
|
$
|
2,251,172
|
|
|
$
|
511,136
|
|
The following table reconciles
income taxes calculated at combined United States federal/state tax rates with the income tax recovery in the consolidated financial
statements:
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
|
|
|
$
|
(7,509,986
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Expected income tax recovery
|
|
|
27.60
|
%
|
|
$
|
(2,072,756
|
)
|
|
Loss (income) related to entities taxed as partnerships
|
|
|
(21.95
|
)%
|
|
|
1,648,189
|
|
|
Temporary differences related to inventory valuation
|
|
|
0.32
|
%
|
|
|
(24,262
|
)
|
|
Non-deductible expenses
|
|
|
(0.39
|
)%
|
|
|
29,378
|
|
|
Temporary differences related to cost of goods sold
|
|
|
(3.27
|
)%
|
|
|
245,410
|
|
|
Unrealized gain on biological assets
|
|
|
1.99
|
%
|
|
|
(149,413
|
)
|
|
Losses and other deductions for which no benefit has been recognized
|
|
|
(4.30
|
)%
|
|
|
323,454
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (recovery)
|
|
|
-
|
%
|
|
$
|
-
|
|
Grown Rogue Unlimited, LLC
Notes to the Consolidated Financial Statements
For the year ended October 31,
2018 and the period from October 31, 2016 to October 31, 2017
Expressed
in United States Dollars
|
|
18.
|
Income Taxes
(continued)
|
The temporary differences that
give rise to deferred income tax assets and deferred income tax liabilities are presented below:
|
|
|
2018
|
|
|
2017
|
|
|
Deferred Tax Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Start-up costs
|
|
$
|
200,231
|
|
|
$
|
-
|
|
|
Inventory
|
|
|
48,498
|
|
|
|
-
|
|
|
Biological asset fair value adjustment
|
|
|
(149,955
|
)
|
|
|
-
|
|
|
Net operating loss carry-forwards
|
|
|
335,701
|
|
|
|
-
|
|
|
Allowance for doubtful accounts
|
|
|
29,485
|
|
|
|
-
|
|
|
|
|
|
463,960
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred taxes not recognized
|
|
|
(463,960
|
)
|
|
|
-
|
|
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
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 deductible for
accounting purposes until future periods. Deferred income tax assets result primarily from operating tax loss carry forwards and
have been offset against deferred income tax liabilities.
As the Company operates in the
cannabis industry, it is subject to the limits of United States Internal Revenue Code Section 280E under which the Company is only
allowed to deduct expenses directly related to sales of product. This results in permanent differences between ordinary and necessary
business expenses deemed non-allowable under United States Internal Revenue Code Section 280E.
Federal and Oregon tax laws impose
restrictions on net operating loss carryforwards in the event of a change in ownership of the Company, as defined by the United
States Internal Revenue Code Section 382. The Company does not believe that a change in ownership, as defined by United States
Internal Revenue Code Section 382, has occurred but a formal study has not been completed.
Grown Rogue Unlimited, LLC
Notes to the Consolidated Financial Statements
For the year ended October 31,
2018 and the period from October 31, 2016 to October 31, 2017
Expressed
in United States Dollars
|
|
19.
|
Related Party Transactions
|
During the period ended October
31, 2018, the Company incurred the following related party transactions:
|
|
i)
|
Through its wholly owned subsidiary, GRU Properties, LLC leased 41.92 acres of real property located
in Trail, Oregon owned by the Company's President and CEO. The lease expires on December 31, 2020. Rent of $65,000 was included
in facility expense for the period ended October 31, 2018 (2017 - $50,000). The Company had $5,500 (October 31, 2017 - $45,000)
owing in accounts payable and accrued liabilities at October 31, 2018.
|
|
|
ii)
|
The Company incurred employee/director fees of $48,000 (2017 - $14,000) with an individual related
to the Company's President and CEO. At October 31, 2018, due to employee/ director includes $14,000 (October 31, 2017 - $14,000)
and accounts payable and accrued liabilities includes $12,000 (October 31, 2017 - $14,000) payable to this individual.
|
|
|
iii)
|
The Company incurred fees related to marketing and promotion services of $239,568 (2017 - $89,504)
from two companies owned by the Company's Chief Strategy Officer ("CSO"). At October 31, 2018, accounts payable and accrued
liabilities includes $25,054 (October 31, 2017 - $4,362) payable to these companies.
|
|
|
iv)
|
The Company incurred fees related to computer services of $Nil (2017 - $9,060) from a company owned
by an individual related to the Company's President and CEO. As at October 31, 2018, accounts payable and accrued liabilities includes
$Nil (October 31, 2017 - $Nil) payable to this company.
|
|
|
v)
|
Key management personnel consists of the President and CEO; Executive Vice President, CFO/General
Counsel; and the CSO. The compensation paid or payable to key management for services for the periods ended October 31, 2018 and
2017 is as follows:
|
|
|
|
2018
|
|
|
2017
|
|
|
Salaries and consulting fees
|
|
$
|
533,568
|
|
|
$
|
235,504
|
|
|
Unit-based compensation
|
|
$
|
1,049,565
|
|
|
$
|
-
|
|
Accounts payable and accrued
liabilities at October 31, 2018 includes $94,000 (October 31, 2017 - $14,362) and due to employee/ directors includes $90,000 (October
31, 2017 - $90,000) payable to these parties.
Additional related party transactions
are disclosed in notes 12(vi) and 12(x)
The transactions are in the
normal course of operations and are measured at the exchange amounts being the amounts agreed to by the parties.
Grown Rogue Unlimited, LLC
Notes to the Consolidated Financial Statements
For the year ended October 31,
2018 and the period from October 31, 2016 to October 31, 2017
Expressed
in United States Dollars
|
|
20.
|
Financial Instruments
|
As at October 31, 2018, no financial
assets and liabilities were denominated in a foreign currency.
At October 31, 2018 and 2017,
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.
Credit risk is derived from
cash and trade accounts receivable. The Company places its cash in deposit with major United States financial institutions. The
Company has established a policy to mitigate the risk of loss related to granting customer credit.
The carrying amount of cash
and trade accounts receivable represents the Company's maximum exposure to credit risk, which amounted to $1,079,551 (October 31,
2017 - $484,949) as at October 31, 2018. The allowance for doubtful accounts at October 31, 2018 is $106,443 (October 31, 2017
- $Nil)
As at October 31, 2018 and 2017,
the Company's trade accounts receivable were aged as follows:
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
131,558
|
|
|
$
|
10,400
|
|
|
1-30 days
|
|
|
112,420
|
|
|
|
9,700
|
|
|
31 days-older
|
|
|
8,930
|
|
|
|
11,650
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
$
|
252,908
|
|
|
$
|
31,750
|
|
Grown Rogue Unlimited, LLC
Notes to the Consolidated Financial Statements
For the year ended October 31,
2018 and the period from October 31, 2016 to October 31, 2017
Expressed
in United States Dollars
|
|
20.
|
Financial Instruments (continued)
|
|
|
i)
|
Market Risk (continued)
|
Liquidity risk represents the
risk that the Company will encounter difficulty in meeting the obligations associated with 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 October 31, 2018, the Company has current assets of $2,869,694 (2017 - $2,914,491) and current liabilities of $3,321,239 (2017
- $2,147,549), which resulted in a working capital deficit of $451,545 (2017 - working capital of $766,942).
The contractual maturities of
the Company's accounts payable and accrued liabilities, convertible promissory notes, long-term debt, and finance lease payable
occurs over the next three years as follows:
|
|
|
Year 1
|
|
|
Years 2 - 3
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
2,382,694
|
|
|
$
|
-
|
|
|
Convertible promissory notes
|
|
|
265,277
|
|
|
|
1,066,144
|
|
|
Long-term debt
|
|
|
-
|
|
|
|
50,000
|
|
|
Convertible debentures
|
|
|
-
|
|
|
|
1,029,314
|
|
|
Due to employee/officer
|
|
|
104,000
|
|
|
|
-
|
|
|
Interest payable
|
|
|
470,134
|
|
|
|
-
|
|
|
Deferred rent
|
|
|
-
|
|
|
|
31,256
|
|
|
Finance lease
|
|
|
99,134
|
|
|
|
97,680
|
|
|
Derivative liabilities
|
|
|
-
|
|
|
|
109,500
|
|
|
|
|
$
|
3,321,239
|
|
|
$
|
2,383,894
|
|
Grown Rogue Unlimited, LLC
Notes to the Consolidated Financial Statements
For the year ended October 31,
2018 and the period from October 31, 2016 to October 31, 2017
Expressed
in United States Dollars
|
|
20.
|
Financial Instruments (continued)
|
|
|
i)
|
Market Risk (continued)
|
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.
A number of the Company's accounting
policies and disclosures require the measurement of fair valued for both financial and non-financial 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: quoted prices (unadjusted) 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
|
|
|
·
|
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable
inputs).
|
During the period ended October
31, 2018 there were no transfers of amounts between levels.
Grown Rogue Unlimited, LLC
Notes to the Consolidated Financial Statements
For the year ended October 31,
2018 and the period from October 31, 2016 to October 31, 2017
Expressed
in United States Dollars
|
|
21.
|
Segmented information
|
The Company's only operating
segment is the production and sale of cannabis. All property and equipment and intangible assets are located in the United States.
All revenue were generated in the United States during the periods ended October 31, 2018 and 2017. As such, amounts disclosed
in the consolidated financial statements also represent the single operating and geographical reporting segment.
|
|
22.
|
General and Administrative Expenses
|
General and administrative expenses
for the periods ended October 31, 2018 and 2017 are as follows:
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Legal and professional
|
|
$
|
898,599
|
|
|
$
|
525,810
|
|
|
Salaries and benefits
|
|
|
791,518
|
|
|
|
200,274
|
|
|
Supplies
|
|
|
11,748
|
|
|
|
-
|
|
|
Facility expense
|
|
|
215,922
|
|
|
|
123,703
|
|
|
Marketing and promotion
|
|
|
302,401
|
|
|
|
90,673
|
|
|
Travel
|
|
|
159,848
|
|
|
|
43,611
|
|
|
Office expense
|
|
|
36,535
|
|
|
|
30,845
|
|
|
Utilities
|
|
|
49,952
|
|
|
|
-
|
|
|
Business license and fees
|
|
|
35,904
|
|
|
|
19,362
|
|
|
Repairs and maintenance
|
|
|
4,243
|
|
|
|
-
|
|
|
Consultants
|
|
|
-
|
|
|
|
9,088
|
|
|
Commissions
|
|
|
-
|
|
|
|
4,133
|
|
|
Research and development
|
|
|
5,233
|
|
|
|
-
|
|
|
Insurance
|
|
|
9,194
|
|
|
|
-
|
|
|
Bank fees
|
|
|
17,270
|
|
|
|
2,156
|
|
|
Bad debt
|
|
|
113,028
|
|
|
|
-
|
|
|
Miscellaneous
|
|
|
56,491
|
|
|
|
-
|
|
|
|
|
$
|
2,707,886
|
|
|
$
|
1,049,655
|
|
Grown Rogue Unlimited, LLC
Notes to the Consolidated Financial Statements
For the year ended October 31,
2018 and the period from October 31, 2016 to October 31, 2017
Expressed
in United States Dollars
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:
|
|
(i)
|
to safeguard the Company’s assets and ensure the Company’s ability to continue as a
going concern;
|
|
|
(ii)
|
to raise sufficient capital to finance the construction of its production facility and obtain license
to produce recreational marijuana; and
|
|
|
(iii)
|
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.
|
|
24.
|
Definitive Transaction Agreement
|
On October 31, 2018, the Company,
Novicius Corp. ("Novicius"), Grown Rogue Canada Inc. (“Grown Rogue Canada”) and Novicius Acquisition Corp.
entered into a definitive transaction agreement which set out the terms for the reverse take-over of Novicius by the Company and
the related transactions (the “Transaction”). On the closing date of the Transaction, Novicius acquired the business
of the Company and the funds raised by Grown Rogue Canada. Effective November 1, 2018, in preparation for the Transaction, Novicius
completed a consolidation of its common shares on the basis of 1.4 pre-consolidated common shares for 1 post-consolidated common
share (a “Resulting issuer Share”) and changed its name to “Grown Rogue International Inc.”. In consideration
for all of the equity interests of the Company, the unitholders and warrant holders of the Company received an aggregate of 60,746,202
Resulting Issuer Shares at a deemed price of $0.44 per share and 5,446,202 Resulting Issuer Warrants with an exercise price of
$0.55 per share. The transaction closed on November 15, 2018.
Grown Rogue Unlimited, LLC
Notes to the Consolidated Financial Statements
For the year ended October 31,
2018 and the period from October 31, 2016 to October 31, 2017
Expressed
in United States Dollars
|
|
a)
|
The Company has commitments under operating leases for its facilities and commitments under a finance
lease for equipment. The minimum lease payments due are as follows:
|
|
Fiscal Year
|
|
Amount
|
|
|
|
|
|
|
|
2019
|
|
$
|
259,384
|
|
|
2020
|
|
|
227,772
|
|
|
2021
|
|
|
20,600
|
|
|
|
b)
|
During the period ended October 31, 2018, the Company entered into a technology license agreement
pursuant to which, the Company was granted the exclusive license to certain intellectual property in the field of development,
breeding, cultivation, growing, harvesting, processing and commercializing cannabis, hemp and related plants and products (the
“Technology”) in exchange for 6,600,000 common units of the Company. As of the date if these financial statements,
the common units had yet to be issued.
|
Subsequent to the year ended
October 31, 2018:
|
|
a)
|
The Company cancelled the unit purchase option disclosed in note 16(i).
|
An additional subsequent event
is disclosed in note 24.