C21 Investments Inc 20-F/A, filed Jul 28, 2023
C21 Investments Inc. (CWLXF)
About this 20-F/A
C21 Investments Inc filed this 20-F/A on July 28, 2023, covering the fiscal year ended January 31, 2023.
Headline figures
Fiscal year ended January 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $28.89M
- down 12.4% from $32.98M a year earlier
- Net income
- $293.21K
- down 97.1% from net income of $9.95M a year earlier
- Diluted EPS
- $0.00
- compared with $0.08 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM (Amendment No. 1) |
OR
For fiscal year ended
OR
For the transition period from ____ to ______
OR
Date of event requiring this shell company report:
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Commission file number
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(Exact name of Registrant as specified in its charter)
British Columbia,
(Jurisdiction of incorporation or organization)
19th
(Address of principal executive offices)
C21 Investments Inc.
19th
Tel:
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered pursuant to Section 12(b) of the Act: Not applicable.
Securities registered pursuant to Section 12(g) of the Act:
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report: As at January 31, 2023,
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of "large accelerated filer, "accelerated filer," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
|
Emerging growth company |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.
| † | The term "new or revised financial accounting standard" refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012. |
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐1
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
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International Financial Reporting Standards as issued ☐ by the International Accounting Standards Board |
Other ☐ |
__________________________________
1Not applicable.
2
If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:
Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No
Explanatory Note
Pursuant to Rule 12b-15 promulgated under the United States Securities Exchange Act of 1934, as amended, we have repeated the entire text of Item 18 and Item 19 from the Form 20-F in this Amendment. However, there have been no changes to the text of either item other than the change stated in the immediately preceding paragraph.
This Amendment includes new certifications by our Principal Executive Officer and Principal Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 as Exhibits 12.1, 12.2, 13.1 and 13.2 hereto.
Except as expressly set forth above, this Amendment does not, and does not purport to, amend, update or restate the information in any other item of the Form 20-F or reflect any events that have occurred after the filing of the original Form 20-F.
3
Item 18. Financial Statements
The following financial statements pertaining to the Company are filed as part of this Annual Report:
Audited Financial Statements of the Company for the years ended January 31, 2023 and 2022 audited in accordance with U.S. GAAP.
Audited Financial Statements of the Company for the years ended January 31, 2021 audited in accordance with U.S. GAAP.
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Consolidated Financial Statements For the years ended January 31, 2023 and 2022 (Expressed in U.S. Dollars) |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of C21 Investments Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of C21 Investments Inc. (the "Company") as of January 31, 2023, the related consolidated statements of income and comprehensive income, changes in shareholders' equity and cash flows for the year then ended, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 31, 2023, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
We have also audited the adjustments described in Note 2 that were applied to restate the 2022 consolidated financial statements to correct an error. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to the 2022 consolidated financial statements of the Company other than with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2022 consolidated financial statements taken as a whole.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
We have served as the Company's auditor since 2022.
June 13, 2023
PCAOB #ID
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of
Directors C21 Investments Inc.
Opinion on the Financial Statements
We have audited, before the effects of the adjustments described in Note 2, the accompanying consolidated balance sheet of C21 Investments Inc. (the "Company") as of January 31, 2022, and the related consolidated statements of comprehensive income, changes in shareholders' equity, and cashflows for the year then ended, and related notes. (collectively referred to as the "consolidated financial statements").
In our opinion, the consolidated financial statements, before the effects of the adjustments described in Note 2, present fairly, in all material respects, the financial position of the Company as of January 31, 2022, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
We were not engaged to audit, review, or apply any procedures to the adjustments for the change described in Note 2 and, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by other auditors.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
Baker Tilly US, LLP, trading as Baker Tilly, is a member of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities. © 2023 Baker Tilly US, LLP
We served as the Company's auditor from 2020 to 2022.
Irvine, CA
August 15, 2022
Consolidated Balance Sheets
(Expressed in U.S. dollars)
| January 31, 2023 |
January 31, 2022 (As restated - Note 2) |
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| $ | $ | |||||
| ASSETS | ||||||
| Current assets | ||||||
| Cash | ||||||
| Receivables | ||||||
| Inventory | ||||||
| Prepaid expenses and deposits | ||||||
| Assets classified as held for sale | ||||||
| Non-current assets | ||||||
| Property and equipment | ||||||
| Right-of-use assets | ||||||
| Intangible assets | ||||||
| Goodwill | ||||||
| Security deposit | ||||||
| Deferred tax asset | ||||||
| Total assets | ||||||
| LIABILITIES | ||||||
| Current liabilities | ||||||
| Accounts payable and accrued liabilities | ||||||
| Promissory note payable - current portion | ||||||
| Convertible promissory notes | ||||||
| Income taxes payable | ||||||
| Deferred revenue | ||||||
| Lease liabilities - current portion | ||||||
| Liabilities classified as held for sale | ||||||
| Deferred income tax liability | ||||||
| Non-current liabilities | ||||||
| Lease liabilities | ||||||
| Deposit liability | ||||||
| Promissory note payable | ||||||
| Derivative liability | ||||||
| Reclamation obligation | ||||||
| Total liabilities | ||||||
| Commitments and contingencies(Notes 17 and 20) | ||||||
| SHAREHOLDERS' EQUITY | ||||||
| Common stock, |
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| Commitment to issue shares | ||||||
| Accumulated other comprehensive loss | ( |
) | ( |
) | ||
| Deficit | ( |
) | ( |
) | ||
| Total shareholders' equity | ||||||
| Total liabilities and shareholders' equity |
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On behalf of the Board: |
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|
|
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"Bruce Macdonald" |
Director |
"Michael Kidd" |
Director |
The accompanying notes are an integral part of these consolidated financial statements.
1
Consolidated Statements of Income and Comprehensive Income
(Expressed in U.S. dollars, except number of shares)
| Years ended January 31 | ||||||
| 2023 |
2022 (As restated - |
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| $ | $ | |||||
| Revenue | ||||||
| Cost of sales | ||||||
| Gross profit | ||||||
| Selling, general and administrative expenses | ||||||
| Income from operations | ||||||
| Accretion expense | ( |
) | ||||
| Gain on change in fair value of derivative liabilities | ||||||
| Impairment loss | ( |
) | ||||
| Interest expense | ( |
) | ( |
) | ||
| Other (expenses) income | ( |
) | ||||
| Net income from continuing operations before income taxes | ||||||
| Income tax expense | ( |
) | ( |
) | ||
| Net income from continuing operations after income taxes | ||||||
| Net loss from discontinued operations after income taxes | ( |
) | ( |
) | ||
| Net income | ||||||
| Other comprehensive income (loss) | ||||||
| Cumulative translation adjustment | ( |
) | ||||
| Comprehensive income | ||||||
| Basic income per share from continuing operations | ||||||
| Diluted income per share from continuing operations | ||||||
| Basic and diluted loss per share from discontinued operations | ( |
) | ( |
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| Basic income per share | ||||||
| Diluted income per share | ||||||
| Weighted average number of common shares outstanding - basic | ||||||
| Weighted average number of common shares outstanding - diluted | ||||||
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The accompanying notes are an integral part of these consolidated financial statements. |
2
Consolidated Statements of Changes in Shareholders’ Equity
(Expressed in U.S. dollars, except number of shares)
| Number of shares |
Common stock |
Commitment to issue shares |
Accumulated other comprehensive loss |
Deficit | Total shareholders' equity |
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| # | $ | $ | $ | $ | $ | |||||||||||||
| Balance, January 31, 2021 (As restated - Note 2) | ( |
) | ( |
) | ||||||||||||||
| Commitment to issue shares on purchase of EFF | ( |
) | - | - | ||||||||||||||
| Shares issued on exercise of Phantom Farms warrants | - | - | - | |||||||||||||||
| Shares issued on exercise of guaranteed warrants | - | - | - | - | ||||||||||||||
| Shares issued - settlement of earn out shares | - | - | - | |||||||||||||||
| Share-based compensation | - | - | - | - | ||||||||||||||
| Net income and other comprehensive loss for the year | - | - | - | ( |
) | |||||||||||||
| Balance, January 31, 2022 (As restated - Note 2) | ( |
) | ( |
) | ||||||||||||||
| Share-based compensation | - | - | - | - | ||||||||||||||
| Net income and other comprehensive income for the year | - | - | - | |||||||||||||||
| Balance, January 31, 2023 | ( |
) | ( |
) |
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The accompanying notes are an integral part of these consolidated financial statements. |
3
| Years ended January 31, | ||||||
| 2023 | 2022 (As restated - Note 2) |
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| $ | $ | |||||
| OPERATING ACTIVITIES | ||||||
| Net income after taxes from continuing operations | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
| Accretion expense | ||||||
| Amortization of right-of-use assets | ||||||
| Deferred income tax (recovery) expense | ( |
) | ||||
| Depreciation and amortization | ||||||
| Foreign exchange (gain) loss | ( |
) | ||||
| Gain on change in fair value of derivative liabilities | ( |
) | ( |
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| Impairment loss | ||||||
| Interest expense | ||||||
| Provision to record inventory at net realizable value | ||||||
| Share-based compensation | ||||||
| Changes in operating assets and liabilities: | ||||||
| Receivables | ( |
) | ( |
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| Inventory | ( |
) | ( |
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| Prepaid expenses and deposits | ( |
) | ||||
| Assets classified as held for sale | ||||||
| Accounts payable and accrued liabilities | ||||||
| Income taxes payable | ||||||
| Deferred revenue | ||||||
| Lease liabilities | ( |
) | ( |
) | ||
| Liabilities classified as held for sale | ( |
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| Cash provided by operating activities of continuing operations | ||||||
| Cash used in operating activities of discontinued operations | ( |
) | ( |
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| INVESTING ACTIVITIES | ||||||
| Purchases of property and equipment | ( |
) | ( |
) | ||
| Cash used in investing activities of continuing operations | ( |
) | ( |
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| Cash provided by investing activities of discontinued operations | ||||||
| FINANCING ACTIVITIES | ||||||
| Principal repayments on promissory note payable | ( |
) | ( |
) | ||
| Repayments of convertible promissory notes | ( |
) | ( |
) | ||
| Cash proceeds from warrants | - | |||||
| Interest paid in cash | ( |
) | ( |
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| Lease payments received | ||||||
| Cash used in financing activities of continuing operations | ( |
) | ( |
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| Cash used in financing activities of discontinued operations | ( |
) | ( |
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| Effect of foreign exchange on cash | ( |
) | ( |
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| Decrease in cash during the year | ( |
) | ( |
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| Cash beginning of year | ||||||
| Cash end of year | ||||||
| Supplemental disclosure of cash flow information | ||||||
| Interest paid in cash | ||||||
| Income taxes paid in cash | ||||||
| Non-cash financing activities | ||||||
| Fair value of common shares issued in settlement of Phantom Farms earn out shares | ||||||
| Fair value of common shares issued as partial settlement of commitment to issue shares | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
Notes to the Consolidated Financial Statements
For the years ended January 31, 2023 and 2022
(Expressed in U.S. dollars, except as noted)
1. NATURE OF OPERATIONS
C21 Investments Inc. (the "Company" or "C21") was incorporated January 15, 1987, under the Company Act of British Columbia. The Company is a publicly traded company with its registered office is 170-601 West Cordova Street, Vancouver, BC, V6B 1G1.
Pursuant to a change of business announced on January 29, 2018 to the Cannabis industry, the Company commenced acquiring and operating revenue-producing cannabis operations in the USA.
On June 15, 2018, the Company's common shares were delisted from the TSX Venture Exchange ("TSX-V") at the Company's request and on June 18, 2018 the Company commenced trading on the Canadian Securities Exchange ("CSE"), completed its change of business to the cannabis industry and commenced trading under the symbol CXXI. The Company registered its common shares in the United States and on May 6, 2019, its shares were cleared by the Financial Industry Regulatory Authority for trading on the OTC Markets platform under the U.S. trading symbol CXXIF. On September 28, 2020, the Company began trading on the OTCQB® Venture Market.
For the year ended January 31, 2021, the Company operated in two segments: recreational cannabis in Oregon, USA and recreational and medical cannabis in Nevada, USA (Note 16). During the year ended January 31, 2022, the Company made the strategic decision to exit operations in Oregon. The comparative results of operations have been re-stated to present the operating results of the Oregon segment as discontinued operations. The Nevada segment remains engaged in the cultivation of and manufacturing of cannabis flower products, vape products and extract products for wholesale and retail sales.
At January 31, 2023, the Company had a working capital deficit of $
At the federal level, however, cannabis currently remains a Schedule I controlled substance under the Federal Controlled Substances Act of 1970. Under U.S. federal law, a Schedule I drug or substance has a high potential for abuse, no accepted medical use in the United States, and a lack of accepted safety for the use of the drug under medical supervision. As such, even in those states in which marijuana is legalized under state law, the manufacture, importation, possession, use or distribution of cannabis remains illegal under U.S. federal law. This has created a dichotomy between state and federal law, whereby many states have elected to regulate and remove state-level penalties regarding a substance which is still illegal at the federal level. There remains uncertainty about the US federal government's position on cannabis with respect to cannabis-legal status. A change in its enforcement policies could impact the ability of the Company to continue as a going concern.
2. BASIS OF PREPARATION
a) Basis of presentation
These consolidated financial statements as of and for the years ended January 31, 2023 and 2022 ("consolidated financial statements") are prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). These consolidated financial statements have been prepared on an accrual basis and are based on historical costs, except for certain financial instruments classified as fair value through profit or loss.
b) Functional and reporting currency
The functional currency of C21 Investments Inc. is Canadian dollars ("C$"), and the functional currency of the Company's subsidiaries is U.S. dollars. C21 has determined that the U.S. dollar ("USD") is the most relevant and appropriate reporting currency as the Company's operations are conducted in U.S. dollars and its financial results are prepared and reviewed internally by management in U.S. dollars. The consolidated financial statements are presented in U.S. dollars unless otherwise noted.
5
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the years ended January 31, 2023 and 2022
(Expressed in U.S. dollars, except as noted)
2. BASIS OF PREPARATION (continued)
c) Basis of consolidation
The consolidated financial statements incorporate the accounts of the Company and all the entities in which the Company has a controlling voting interest and is deemed to be the primary beneficiary. All consolidated entities were under common control during the entirety of the periods for which their respective results of operations were included in the consolidated statements from the date of acquisition. All intercompany balances and transactions are eliminated upon consolidation.
A summary of the Company's subsidiaries included in these financial statements as at January 31, 2023 is as follows:
| Name of subsidiary (1) | Principal activity |
| 320204 US Holdings Corp. | Holding Company |
| 320204 Oregon Holdings Corp. | Holding Company |
| 320204 Nevada Holdings Corp. | Holding Company |
| 320204 Re Holdings, LLC | Holding Company |
| Eco Firma Farms LLC (2) | Cannabis producer |
| Silver State Cultivation LLC | Cannabis producer |
| Silver State Relief LLC | Cannabis retailer |
| Swell Companies LTD (2) | Cannabis processor, distributor |
| Megawood Enterprises Inc. (2) | Cannabis retailer |
| Phantom Venture Group, LLC (2) | Holding Company |
| Phantom Brands, LLC (2) | Holding Company |
| Phantom Distribution, LLC (2) | Cannabis distributor |
| 63353 Bend, LLC (2) | Cannabis producer |
| 20727-4 Bend, LLC (2) | Cannabis processor |
| 4964 BFH, LLC (2) | Cannabis producer |
| Workforce Concepts 21, Inc. | Payroll and benefits services |
(1) All subsidiaries of the Company were incorporated in the USA, are wholly owned and have USD as their functional currency.
(2) Operations discontinued and results included in discontinued operations.
d) Restatement of the January 31, 2022 consolidated financial statements
The January 31, 2022 balances have been restated for an error in the Company's measurement of income taxes payable. The Company identified amounts of depreciation, amortization and lease payments included in its calculation of income taxes payable for the years ended January 31, 2022 and 2021 that are ineligible for deduction. The Company also identified amounts of inventory impairments that were not included as deductible expenses.
The effects of the restatement in the consolidated balance sheet as at January 31, 2022 are as follows:
| Previously reported | Change | Restated | |||||||
| $ | $ | $ | |||||||
| Income taxes payable | |||||||||
| Deferred tax asset | ( |
) | |||||||
| Deferred tax liability | |||||||||
| Deficit | ( |
) | ( |
) | ( |
) |
The effects of the restatement in the consolidated statement of comprehensive income for the year ended January 31, 2022 are as follows:
| Previously reported | Change | Restated | |||||||
|
|
$ | $ | $ | ||||||
| Income tax expense | ( |
) | ( |
) | ( |
) |
6
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the years ended January 31, 2023 and 2022
(Expressed in U.S. dollars, except as noted)
2. BASIS OF PREPARATION (continued)
For the year ended January 31, 2022, the consolidated statement of cash flows contains an adjustment of $
For the year ended January 31, 2022, basic and diluted income per share from continuing operations and basic and diluted income per share decreased from $
3. SIGNIFICANT ACCOUNTING POLICIES
a) Significant accounting estimates and assumptions
The preparation of the Company's financial statements in conformity with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Estimates and assumptions are continuously evaluated and are based on management's experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from those estimates and judgments.
Areas requiring a significant degree of estimation and judgment relate to the determination of recoverability of goodwill, recoverability of intangible assets, fair value less costs to sell of assets classified as held for sale, estimates used in valuation and costing of inventory, impairment of long-lived assets and inventory, fair value measurements, useful lives, depreciation and amortization of property, equipment and intangible assets, the recoverability and measurement of deferred tax assets and liabilities, share-based compensation, and fair value of derivative liabilities.
b) Cash
Cash held in financial institutions and cash held at retail locations, have carrying values that approximate fair value.
The recent closures of Silicon Valley Bank, Signature Bank and First Republic Bank and their placement into receivership with the Federal Deposit Insurance Corporation ("FDIC") have identified bank-specific liquidity risks and concerns. Although the Department of the Treasury, the Federal Reserve, and the FDIC jointly released a statement that depositors at Silicon Valley Band and Signature Bank would have access to their funds, even deposit amounts that exceed FDIC deposit insurance limits, future adverse developments with respect to specific financial institutions or the broader financial services industry may lead to market-wide liquidity shortages.
The failure of any bank in which we deposit our funds could reduce the amount of cash we have available for our operations or delay our ability to access such funds. Any such failure may increase the possibility of a sustained deterioration of financial market liquidity, or illiquidity at clearing, cash management and/or custodial financial institutions. We do not currently have a commercial relationship with a bank that has failed or is, to our knowledge, otherwise is experiencing operational distress, nor have we experienced delays or other issues in meeting our financial obligations. If other banks and financial institutions enter receivership or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, our ability to access our cash may be threatened and could have a material adverse effect on our business operations and financial condition.
As at January 31, 2023, the Company had FDIC coverage over $
c) Foreign currency translation
Foreign currency transactions are translated into U.S. dollars at exchange rates in effect on the date of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rate at the reporting date. All differences are recorded in the consolidated statements of income and comprehensive income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined.
Assets and liabilities of foreign operations are translated into U.S. dollars at year-end exchange rates and any revenue and expenses are translated at the average exchange rate for the year. The resulting exchange differences are recognized in other comprehensive income.
7
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the years ended January 31, 2023 and 2022
(Expressed in U.S. dollars, except as noted)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
d) Inventory
Inventory consists of raw materials, consumables and packaging supplies used in the process to prepare inventory for sale; work in process consisting of pre-harvested cannabis plants, by-products to be extracted, oils and terpenes; and finished goods.
Inventory is valued at the lower of cost and net realizable value, with cost determined using the weighted average cost method. Net realizable value is calculated as the estimated selling price in the ordinary course of business, less any estimated costs to complete and sell the goods. Costs are capitalized to inventory, until substantially ready for sale. Costs include direct and indirect labor, raw materials, consumables, packaging supplies, utilities, facility costs, quality and testing costs, production related depreciation and other overhead costs. The Company records inventory reserves for obsolete and slow-moving inventory.
Inventory reserves are based on inventory obsolescence trends, and the historical and professional experience of management. The Company classifies cannabis inventory as a current asset, although, due to the duration of the cultivation, drying, and conversion process, certain inventory items may not be realized in cost of sales within one year.
e) Property and equipment
Property and equipment is measured at cost less accumulated depreciation and losses on impairment.
Depreciation is provided on the straight-line basis over the estimated useful lives of the assets as follows:
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Buildings |
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Furniture & fixtures |
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Computer equipment |
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Machinery & equipment |
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Leasehold improvements |
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f) Intangible assets
Intangible assets are recorded at cost less accumulated amortization and accumulated impairment losses, if any. Intangible assets acquired in a business combination are measured at fair value at the acquisition date.
Intangible assets with finite useful lives are amortized on a straight-line basis over their estimated useful lives. Amortization of intangible assets begins when the asset becomes available for use. Brands, licenses, and customer relationships are amortized over
g) Goodwill
Goodwill represents the excess of the purchase price paid for the acquisition of subsidiaries over the fair value of the net intangible and tangible assets acquired. Following the initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is allocated to the reporting unit in which the business that created the goodwill resides. A reporting unit is an operating segment, or a business unit one level below that operating segment, for which discrete financial information is prepared and regularly reviewed by segment management. The Company's goodwill is part of the Nevada reporting unit.
Goodwill is tested annually for any impairment, or more frequently in the case that events or circumstances indicate that the carrying amount of a reporting unit may not be recoverable. The Company may elect to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If factors indicate this is the case, then a quantitative test is performed and an impairment is recorded for any excess carrying value above the reporting unit's fair value, not to exceed the amount of goodwill.
For the years ended January 31, 2023 and 2022, the recoverable amount of goodwill allocated to the Nevada reporting unit exceeded the carrying amount and as such, no impairment was noted.
8
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the years ended January 31, 2023 and 2022
(Expressed in U.S. dollars, except as noted)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
h) Impairment of long-lived assets
Long-lived assets include property and equipment, right-of-use assets, and intangible assets with finite useful lives.
At the end of each fiscal year, the Company reviews the intangible assets' estimated useful lives and amortization methods, with the effect of any changes in estimates accounted for on a prospective basis.
Long-lived assets are reviewed for indicators of impairment at each statement of balance sheet date or whenever events or changes in circumstances indicate that a potential impairment has occurred. The Company groups assets at the lowest level for which cash flows are separately identifiable, referred to as an asset group. When indicators of potential impairment are present the Company prepares a projected undiscounted cash flow analysis to determine the recoverable amount for the respective asset or asset group. An impairment loss is recognized whenever the carrying amount of the asset exceeds its recoverable amount and is recorded as in profit or loss equal to the amount by which the carrying amount exceeds the fair value.
i) Assets and liabilities held for sale
Non-current assets, or disposal groups comprising assets and liabilities, are classified as held for sale if it is highly probable that they will be recovered primarily through sale rather than through continuing use. Such assets, or disposal groups, are measured at the lower of their carrying amount and fair value less costs to sell. The comparative consolidated balance sheet is re-presented to classify assets as held for sale in the period that the respective assets are classified as held for sale.
k) Convertible instruments
The Company accounts for convertible debt as a single unit of account, unless the conversion feature requires bifurcation and recognition as a derivative. Additionally, the Company uses the if-converted method for all convertible instruments in the diluted earnings per share calculation and includes the effect of potential share settlement for instruments that may be settled in cash or shares.
l) Leases
Upon commencement of a contract containing a lease, the Company classifies leases other than short-term leases as either an operating lease or a finance lease according to the criteria prescribed by ASU 2016-02, Leases ("ASC 842"). The lease classification is reassessed only when: (a) the contract is modified and the modification is not accounted for as a separate contract, and (b) there is a change in the lease term or the assessment of whether the lessee is reasonably certain to exercise an option to purchase the underlying asset. The Company has elected not to recognize right-of-use assets and liabilities for short-term leases that have a term of 12 months or less.
For both finance leases and operating leases, right-of-use assets and lease liabilities are initially measured as the present value of future lease payments and initial direct costs discounted at the interest rate implicit in the lease, or if that rate is not readily determinable, the Company's incremental borrowing rate. Subsequent measurement of lease liabilities classified as finance leases is at amortized cost using the effective interest rate method. Subsequent measurement of right-of-use assets classified as finance leases is at carrying amount less accumulated amortization, where amortization is recorded straight-line over the lease term. Subsequent measurement of lease liabilities classified as operating leases is at the present value of the unpaid lease payments discounted at the discount rate for the lease established at the commencement date. Subsequent measurement of right-of-use assets classified as operating leases is carrying amount less accumulated amortization where amortization is calculated as the difference between straight-line lease cost for the period, including amortization of initial direct costs, and the periodic accretion of the lease liability.
m) Financial instruments
Financial instruments are contracts that give rise to a financial asset of one party and a financial liability or equity instrument of another party. Financial instruments are recorded initially at fair value, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Subsequent measurement depends on how the financial instrument has been classified and may be at fair value or amortized cost. For financial instruments subsequently measured at fair value, the Company calculates the estimated fair value of financial instruments using quoted market prices whenever available. When quoted market prices are not available, the Company uses standard pricing models including the Black-Scholes option pricing model.
9
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the years ended January 31, 2023 and 2022
(Expressed in U.S. dollars, except as noted)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels of the fair value hierarchy are:
Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 - Inputs other than quoted prices that are observable for the asset or liability either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3 - Inputs that are not based on observable market data.
There have been no transfers between fair value hierarchy levels during the years ended January 31, 2023 and 2022.
The Company's measures the derivative liability at fair value using Level 3 inputs.
The Company's cash, receivables, accounts payable and accrued liabilities, and income taxes payable are recorded at cost. The carrying values of these financial instruments approximate their fair value due to their short-term maturities. Unless otherwise noted, it is management's opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments.
Financial instruments subsequently measured at amortized cost include promissory note payable, convertible promissory notes, and reclamation obligation.
n) Share-based compensation
The Company measures equity settled share-based payments based on their fair value at their grant date and recognizes share-based compensation expense over the vesting period based on the Company's estimate of equity instruments that will eventually vest. Consideration paid to the Company on the exercise of stock options is recorded as common stock.
o) Income taxes
The Company uses the asset and liability method to account for income taxes. Deferred income tax assets and liabilities are determined based on enacted tax rates and laws for the years in which the differences are expected to reverse.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
As the Company operates in the cannabis industry, it is subject to the limits of IRC Section 280E under which the Company is only allowed to deduct expenses directly related to the cost of producing the products or cost of production.
The Company recognizes uncertain income tax positions at the largest amount that is more-likely-than-not to be sustained upon examination by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Recognition or measurement is reflected in the period in which the likelihood changes. Any interest and penalties related to unrecognized tax liabilities are presented within income tax expense in the consolidated statements of comprehensive income.
p) Earnings (loss) per share
The Company presents basic and diluted loss per share data for its common shares. Basic loss per share is calculated using the weighted average number of shares outstanding during the respective years. Diluted loss per share is computed by dividing net loss by the weighted average shares outstanding adjusted for additional shares from the assumed exercise of stock options, restricted share units, or warrants, if dilutive.
The number of additional shares is calculated by assuming the outstanding dilutive convertible instruments, options, and warrants are exercised and that the assumed proceeds are used to acquire common shares at the average market price during the year. Diluted loss per share figures for the years presented are equal to those of basic loss per share for the years since the effects of convertible instruments, stock options and warrants are anti-dilutive.
10
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the years ended January 31, 2023 and 2022
(Expressed in U.S. dollars, except as noted)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
q) Revenue recognition
Revenue is recognized by the Company in accordance with ASC 606 - Revenue From Contracts With Customers. Through application of the standard, the Company recognizes revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.
In order to recognize revenue under ASC 606, the Company applies the following five steps:
1. Identify a customer along with a corresponding contract
2. Identify the performance obligation(s) in the contract to transfer goods or provide distinct services to a customer
3. Determine the transaction price that the Company expects to be entitled to in exchange for transferring promised goods or services to a customer
4. Allocate the transaction price to the performance obligation(s) in the contract
5. Recognize revenue when or as the Company satisfies the performance obligation(s) in the contract
The Company's contracts with customers for the sale of dried cannabis and other products derived from cannabis consist of one performance obligation, being the transfer of control of the goods to the customer at the point of sale. The Company transfers control and satisfies its performance obligation when collection has taken place, compliant documentation has been signed, and the product was accepted by the buyer. The Company does not have performance obligations subsequent to delivery on the sale of goods to customers and revenues from sale of goods are recognized at a "point in time", which is upon passing of control to the customer.
Provisions for expected credit losses on accounts receivable are based on the Company's assessment of the collectability of specific customer balances, which is based upon a review of the customer's creditworthiness and past collection history. For trade receivables deemed to be uncollectible, and arose from the sale of goods, the Company will write off the specific balance against the allowance for doubtful accounts when it is known that a provided amount will not be collected.
The Company disaggregates its revenues based on sales to its retail customers where cash is received immediately versus wholesale customers to whom the Company extends credit terms. For the year ended January 31, 2023, revenue from retail sales from continuing operations totaled $
r) Loyalty program
The Company offers a loyalty reward program to its dispensary customers that allows customers to earn reward credits that can be applied to future purchases. Loyalty reward credits issued as part of a sales transaction result in revenue being deferred until the loyalty reward is redeemed by the customer. The loyalty rewards are shown as reductions to the 'Revenue' line within the accompanying consolidated statements of income and comprehensive income and included as deferred revenue on the consolidated balance sheets. A portion of the revenue generated in a sale must be allocated to the loyalty points earned. The amount allocated to the points earned is deferred until the loyalty points are redeemed or expire. The loyalty program expiration policy is six months. As of January 31, 2023 and 2022, the loyalty liability totaled $
s) Reclamation obligation
The Company recognizes the fair value of a legal or constructive liability for a reclamation obligation in the year in which it is incurred and when a reasonable estimate of fair value can be made. The carrying amount of the related long-lived asset is increased by the same amount as the liability. Changes in the liability for a reclamation obligation due to the passage of time will be recognized within accretion expense. The amount will be recognized as an increase in the liability and an accretion expense in the consolidated statements comprehensive income. Changes resulting from revisions to the timing or the amount of the original estimate of undiscounted cash flows are recognized as an increase or a decrease to the carrying amount of the liability and the related long-lived asset.
t) Recently issued accounting pronouncements
Recent accounting pronouncements, other than those below, issued by the Financial Accounting Standards Board, the American Institute of Certified Public Accountants and the U.S. Securities and Exchange Commission did not or are not believed by management to have a material effect on the Company's present or future financial statements.
11
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the years ended January 31, 2023 and 2022
(Expressed in U.S. dollars, except as noted)
4. DISCONTINUED OPERATIONS
In January 2022, the Company entered into to a lease-to-own arrangement with a lessee for certain licenses, land and equipment in Oregon, USA, representing its outdoor growing operation. The lease-to-own arrangement concludes in January 2027 with total undiscounted payments over the term amounting to $
As a result of non-profitable operations in the Oregon reporting unit, the Company began to wind down operations in Oregon beginning in the year ended January 31, 2021. At January 31, 2021, the Company classified the assets and liabilities in Swell and Megawood as held for sale and completed the sale of these assets in April 2021. By January 31, 2022, the Company made the decision to cease all growing, manufacturing, and processing activities in Bend, Oregon. As the Oregon reporting unit comprises the assets of multiple components in distinct geographic locations, management anticipates completing the sale on a piecemeal basis. Management is engaged in an active program to seek buyers for the major classes of assets and liabilities in Oregon in order to complete a sale in the next twelve months.
On July 20, 2022, the Company sold the remaining Oregon inventory with a book value of $
During the year ended January 31, 2023, net loss from discontinued operations included impairment loss attributable to inventory in Oregon in the amount of $
During the year ended January 31, 2023, net loss from discontinued operations included impairment of right-of-use assets in Oregon in the amount of $
Prepaid expenses classified as held for sale primarily relates to the renewal of licenses that may be transferred in the event of a sale. Otherwise, prepaid expenses will be expensed within loss from discontinued operations over the next twelve months.
For the year ended January 31, 2023, the Company recorded a provision for expected credit losses on previously recorded management fees receivable of $
Long-term debt consists of vehicle loans and a building mortgage. The mortgage began on February 1, 2015 and matures on January 1, 2035 (
The following table summarizes the major classes of assets and liabilities of the discontinued Oregon operation that have been classified as held-for-sale in the consolidated balance sheets:
| January 31, 2023 |
January 31, 2022 |
|||||
| $ | $ | |||||
| Carrying amounts of the major classes of assets included in discontinued operations: | ||||||
| Receivables | ||||||
| Inventory | ||||||
| Prepaid expenses and deposits | ||||||
| Deferred tax asset | ||||||
| Property and equipment | ||||||
| Right-of-use assets | ||||||
| Total assets classified as held for sale | ||||||
| Carrying amounts of the major classes of liabilities included in discontinued operations: | ||||||
| Lease liabilities | ||||||
| Long-term debt | ||||||
| Total liabilities classified as held for sale |
12
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the years ended January 31, 2023 and 2022
(Expressed in U.S. dollars, except as noted)
4. DISCONTINUED OPERATIONS (continued)
A summary of the Company's major classes of line items constituting net loss from discontinued operations for the years ended January 31, 2023 and 2022 is as follows:
| 2023 | 2022 | |||||
| $ | $ | |||||
| Revenue | ||||||
| Cost of sales | ||||||
| Gross loss | ( |
) | ||||
| Expenses (income) | ||||||
| Selling, general and administrative expenses | ||||||
| Impairment loss | ||||||
| Provision for expected credit losses | ||||||
| Other income | ( |
) | ||||
| Net loss from discontinued operations before income taxes | ( |
) | ( |
) | ||
| Income tax (recovery) expense | ( |
) | ||||
| Net loss from discontinued operations after income taxes | ( |
) | ( |
) |
A summary of the Company's cash flows from discontinued operations for the years ended January 31, 2023 and 2022 is as follows:
| 2023 | 2022 | |||||
| $ | $ | |||||
| Net cash used in operating activities of discontinued operations | ( |
) | ( |
) | ||
| Net cash provided by investing activities of discontinued operations | ||||||
| Net cash used in financing activities of discontinued operations | ( |
) | ( |
) |
5. SECURITY DEPOSIT
Non-current assets include a security deposit with the Alberta Energy Regulator ("AER") under the AER's Liability Management programs to cover potential liabilities relating to its wells. The required security deposit with the AER is determined based on a monthly licensee management rating assessment. At January 31, 2023, the security deposit had a balance of $
6. RECEIVABLES
A summary of the Company's receivables is as follows:
| January 31, 2023 |
January 31, 2022 |
|||||
| $ | $ | |||||
| Taxes receivable | ||||||
| Trade receivables | ||||||
There was
13
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the years ended January 31, 2023 and 2022
(Expressed in U.S. dollars, except as noted)
7. INVENTORY
A summary of the Company's inventory is as follows:
|
January 31, 2023 |
January 31, 2022 |
|||||
| $ | $ | |||||
| Finished goods | ||||||
| Work in process | ||||||
| Raw materials | ||||||
During the year ended January 31, 2022, cost of sales includes a provision to record inventory at net realizable value of $
8. PROPERTY AND EQUIPMENT AND RIGHT-OF-USE ASSETS
a) Property and equipment
A summary of the Company's property and equipment is as follows:
| January 31, 2023 |
January 31, 2022 |
|||||
| $ | $ | |||||
| Land | ||||||
| Leasehold improvements | ||||||
| Furniture & fixtures | ||||||
| Computer equipment | ||||||
| Machinery & equipment | ||||||
| Less: accumulated depreciation | ( |
) | ( |
) | ||
Total depreciation expense for the year ended January 31, 2023 was $
At January 31, 2022, the Company reclassified buildings with a cost of $
b) Right-of-use assets
The Company's right-of-use assets result from its operating leases (Note 11) and consist of land and buildings used in the cultivation, processing, and warehousing of its products.
At January 31, 2023, assets classified as held for sale contains right-of-use assets with a carrying value of $
14
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the years ended January 31, 2023 and 2022
(Expressed in U.S. dollars, except as noted)
9. INTANGIBLE ASSETS AND GOODWILL
a) Intangible assets
A summary of the Company's intangible assets subject to amortization is as follows:
|
January 31, 2023 |
January 31, 2022 |
|||||
| $ | $ | |||||
| Licenses | ||||||
| Brands | ||||||
| Customer relationships | ||||||
| Less: accumulated amortization | ( |
) | ( |
) | ||
During the year ended January 31, 2023, the Company recognized amortization expense on intangible assets of $
During the year ended January 31, 2022, the Company recognized impairment charges of $
The estimated aggregate amortization expense for each of the five succeeding years is as follows:
| $ | |||
| January 31, 2024 | |||
| January 31, 2025 | |||
| January 31, 2026 | |||
| January 31, 2027 | |||
| January 31, 2028 | |||
| Thereafter | |||
b) Goodwill
As at January 31, 2023 and 2022, the Company had goodwill of $
10. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
A summary of the Company's accounts payable and accrued liabilities is as follows:
| January 31, 2023 |
January 31, 2022 |
|||||
| $ | $ | |||||
| Accounts payable | ||||||
| Accrued liabilities | ||||||
| EFF settlement accrual (Note 20) | ||||||
| Interest payable | ||||||
15
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the years ended January 31, 2023 and 2022
(Expressed in U.S. dollars, except as noted)
11. LEASES
The Company's leases consist of land and buildings used in the cultivation, processing, and warehousing of its products. All leases were classified as operating leases in accordance with ASC 842.
A summary of the Company's active leases and total lease term under contract as at January 31, 2023 is as follows:
| Entity Name/Lessee | Asset | Lease term | Type |
| Silver State Cultivation LLC | Land/ Building |
|
Operating lease |
| Silver State Relief LLC (Sparks) | Land/ Building |
|
Operating lease |
| Silver State Relief LLC (Fernley) | Land/ Building |
|
Operating lease |
| Phantom Distribution, LLC | Land/ Building |
|
Operating lease |
| 63353 Bend, LLC | Land/ Building |
|
Operating lease |
| 20727-4 Bend, LLC | Land/ Building |
|
Operating lease |
For the year ended January 31, 2023, the Company incurred operating lease costs in continuing operations of $
A summary of the Company's weighted average discount rate used in calculating lease liabilities and weighted average remaining lease term is as follows:
| January 31, 2023 |
January 31, 2022 |
|||||
| Weighted average discount rate | ||||||
| Weighted average remaining lease term (years) |
|
|
A summary of the maturity of contractual undiscounted liabilities associated with the Company's operating leases as of January 31, 2023 is as follows:
| Year ending January, | $ | ||
| 2024 | |||
| 2025 | |||
| 2026 | |||
| 2027 | |||
| 2028 | |||
| Thereafter | |||
| Total undiscounted lease liabilities | |||
| Interest on lease liabilities | ( |
) | |
| Total present value of minimum lease payments | |||
| Current portion of lease liability | |||
| Lease liability |
As at January 31, 2023, liabilities classified as held for sale include lease liabilities of $
As at January 31, 2023, the Company has total undiscounted lease liabilities of $
12. PROMISSORY NOTES
Transaction costs related to the issuance of convertible promissory notes are apportioned to their respective financial liability and equity components (if applicable) in proportion to the allocation of proceeds as a reduction to the carrying amount of each component.
When valuing the financial liability component of the promissory notes, the Company used specific interest rates assuming no conversion features existed. The resulting liability component is accreted to its face value over the convertible note's term until its maturity date.
16
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the years ended January 31, 2023 and 2022
(Expressed in U.S. dollars, except as noted)
12. PROMISSORY NOTES (continued)
a) Convertible promissory notes
A summary of the Company's convertible promissory notes denominated in U.S. dollars is as follows:
|
June 13, 2018 issuance |
May 24, 2019 issuance |
Total | |||||||
| $ | $ | $ | |||||||
| Balance, January 31, 2021 | |||||||||
| Payment | ( |
) | ( |
) | |||||
| Interest expense | |||||||||
| Accretion expense | |||||||||
| Balance, January 31, 2022 | |||||||||
| Payment | ( |
) | ( |
) | |||||
| Interest expense | |||||||||
| Loss on foreign exchange translation | ( |
) | ( |
) | |||||
| Balance, January 31, 2023 |
On August 19, 2022, the Company repaid $
On June 13, 2018, the Company issued convertible promissory notes to the vendors that sold Eco Firma Farms, LLC ("EFF") to the Company in the aggregate principal amount of $
On May 24, 2019, the Company issued a two-year unsecured convertible promissory note to a debtor of Swell Companies in the principal amount of $
b) Promissory note payable
A summary of the Company's promissory note payable denominated in USD is as follows:
| $ | |||
| Balance, January 31, 2021 | |||
| Repayments | ( |
) | |
| Balance, January 31, 2022 | |||
| Repayments | ( |
) | |
| Balance, January 31, 2023 | |||
| Current portion | |||
| Non-current portion |
On January 1, 2019, the Company issued a promissory note to Mr. Newman, who sold Silver State to the Company in the principal amount of $
On July 1, 2019, the terms of the promissory note payable for the acquisition of Silver State were amended to call for immediate payment of $
17
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the years ended January 31, 2023 and 2022
(Expressed in U.S. dollars, except as noted)
12. PROMISSORY NOTES (continued)
Effective November 21, 2019 and June 25, 2020, Mr. Newman and the Company agreed to further amend the terms of the promissory note due to Mr. Newman. The December 1, 2019 principal payment of $
On November 19, 2020, the Company announced an agreement with Mr. Newman that the remaining $
For the year ended January 31, 2023, interest expense was $
13. DERIVATIVE LIABILITY
A summary of the Company's derivative liabilities is as follows:
| Conversion feature of convertible promissory notes |
Earn out shares |
Total | |||||||
| $ | $ | $ | |||||||
| Balance, January 31, 2021 | |||||||||
| Fair value adjustment on derivative liabilities | ( |
) | ( |
) | ( |
) | |||
| Settlement of Phantom earn out | ( |
) | ( |
) | |||||
| Effect of foreign exchange | |||||||||
| Balance, January 31, 2022 | |||||||||
| Fair value adjustment on derivative liabilities | ( |
) | ( |
) | |||||
| Effect of foreign exchange | ( |
) | ( |
) | |||||
| Balance, January 31, 2023 |
Upon the February 4, 2019 acquisition of Phantom Farms, the vendors can earn up to
Upon the May 24, 2019 acquisition of Swell Companies, the vendors can earn up to
A summary of the Company's significant inputs into the Monte Carlo simulation used to determine the fair value of earn out shares is as follows:
|
|
January 31, |
January 31, |
||||
| Discount rate |
|
|||||
| Expected life in years |
|
|||||
| Expected stock volatility |
|
|||||
| Expected volatility of foreign exchange |
|
18
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the years ended January 31, 2023 and 2022
(Expressed in U.S. dollars, except as noted)
14. SHARE CAPITAL
Share capital consists of one class of fully paid common shares, with no par value. The Company is authorized to issue an unlimited number of common shares. All shares are equally eligible to receive dividends and repayment of capital and represent one vote at the Company's shareholders' meetings.
A summary of the Company's share capital is as follows:
|
Number of shares |
Common stock |
|||||
| # | $ | |||||
| Balance, January 31, 2021 | ||||||
| Shares issued - Phantom Farm warrants exercises (1) | ||||||
| Shares issued - EFF commitment (2) | ||||||
| Shares issued - Guaranteed warrants (3) | ||||||
| Shares issued - Settlement of Earn out shares (4) | ||||||
| Share-based compensation | - | |||||
| Balance, January 31, 2022 | ||||||
| Share-based compensation | - | |||||
| Balance, January 31, 2023 |
(1) On February 4, 2021 the Company issued
(2) On April 5, 2021, the Company issued
(3) On June 17, 2021, the Company issued
(4) On January 24, 2022, the Company issued
a) Commitment to issue shares
In connection with the acquisition of EFF on June 13, 2018, the Company issued a promissory note payable to deliver
b) Warrants
A summary of the Company's warrant activity is as follows:
|
Warrants outstanding |
Weighted average exercise price |
Weighted average remaining life |
|||||||
| # | C$ | Years | |||||||
| Balance January 31, 2021 |
|
||||||||
| Exercised | ( |
) | |||||||
| Expired | ( |
) | |||||||
| Balance, January 31, 2022 |
|
||||||||
| Balance, January 31, 2023 |
|
A summary of the Company's outstanding and exercisable warrants at January 31, 2023, is as follows:
| Expiry date | Exercise price |
Number of warrants |
||||
| C$ | # | |||||
| December 31, 2023 | ||||||
| January 30, 2024 | ||||||
| May 24, 2024 | ||||||
As at January 31, 2023 and 2022, outstanding and exercisable warrants had intrinsic values of $
19
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the years ended January 31, 2023 and 2022
(Expressed in U.S. dollars, except as noted)
14. SHARE CAPITAL (continued)
On February 4, 2021,
On June 17, 2021,
c) Stock options
The Company is authorized to grant options to executive officers and directors, employees, and consultants, enabling them to acquire up to 10% of the issued and outstanding common shares of the Company. The exercise price of each option equals the market price of the Company's shares as calculated on the date of grant. The options can be granted for a maximum term of
A summary of the Company's stock option activity is as follows:
|
Options outstanding and exercisable |
Weighted average exercise price |
Weighted average remaining life |
|||||||
| # | C$ | Years | |||||||
| Balance January 31, 2021 |
|
||||||||
| Expired | ( |
) | |||||||
| Balance, January 31, 2022 |
|
||||||||
| Granted | |||||||||
| Expired | ( |
) | |||||||
| Balance, January 31, 2023 |
|
A summary of the Company's stock options outstanding and exercisable at January 31, 2023, is as follows:
| Expiry date | Exercise price | Outstanding | Exercisable | ||||||
| C$ | # | # | |||||||
| August 17, 2023 | |||||||||
| January 28, 2024 | |||||||||
| October 9, 2024 | |||||||||
| February 10, 2025 | |||||||||
As at January 31, 2023 and 2022, outstanding and exercisable stock options had intrinsic values of $
During the year ended January 31, 2023, the Company recorded a share-based compensation expense of $
| 2023 | 2022 | |||||
| Stock price | C$ |
|||||
| Exercise price | C$ |
|||||
| Risk-free rate | ||||||
| Expected life of options |
|
- | ||||
| Annualized volatility | ||||||
| Dividend rate |
20
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the years ended January 31, 2023 and 2022
(Expressed in U.S. dollars, except as noted)
14. SHARE CAPITAL (continued)
The Company has computed the fair value of options granted using the Black-Scholes option pricing model. The expected term used for options issued to non-employees is the contractual life and the expected term used for options issued to employees and directors is the estimated period of time that options granted are expected to be outstanding. The Company utilizes the "simplified" method to develop an estimate of the expected term of "plain vanilla" employee option grants. The Company is utilizing an expected volatility figure based on a review of the historical volatilities, over a period of time, equivalent to the expected life of the instrument being valued, of similarly positioned public companies within its industry. The risk-free interest rate was determined from the implied yields from U.S. Treasury zero-coupon bonds with a remaining term consistent with the expected term of the instrument being valued.
15. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
A summary of the Company's selling, general and administration expenses for the years ended January 31, 2023 and 2022, is as follows:
| 2023 | 2022 | |||||
| $ | $ | |||||
| Accounting and legal | ||||||
| Depreciation and amortization | ||||||
| License fees, taxes and insurance | ||||||
| Office facilities and administrative | ||||||
| Operating lease cost | ||||||
| Other expenses | ||||||
| Professional fees and consulting | ||||||
| Salaries and wages | ||||||
| Sales, marketing, and promotion | ||||||
| Share-based compensation | ||||||
| Shareholder communications | ||||||
| Travel and entertainment | ||||||
16. SEGMENTED INFORMATION
The Company defines its major geographic operating segments as Oregon and Nevada. Due to the jurisdictional cannabis compliance issues ever-present in the industry, each state operation is by nature operationally segmented.
Key decision makers primarily review revenue, cost of sales expense, and gross margin as the primary indicators of segment performance. As the Company continues to expand via acquisition, the segmented information will expand based on management's agreed upon allocation of costs beyond gross margin.
A summary of the Company's segmented operational activity and balances for the year ended January 31, 2023 is as follows:
| Discontinued operations (Oregon) |
Nevada | Corporate | Consolidated | |||||||||
| $ | $ | $ | $ | |||||||||
| Total revenue | ||||||||||||
| Gross profit | ||||||||||||
| Operating expenses: | - | |||||||||||
| General and administration | ( |
) | ( |
) | ( |
) | ( |
) | ||||
| Sales, marketing, and promotion | ( |
) | ( |
) | ( |
) | ||||||
| Operating lease cost | ( |
) | ( |
) | ( |
) | ||||||
| Depreciation and amortization | ( |
) | ( |
) | ( |
) | ( |
) | ||||
| Share-based compensation | ( |
) | ( |
) | ||||||||
| Impairment of inventory | ( |
) | ( |
) | ( |
) | ||||||
| Provision for expected credit losses | ( |
) | ( |
) | ||||||||
| Interest, accretion, and other | ( |
) | ( |
) | ||||||||
| Net income (loss) before taxes | ( |
) | ( |
) |
21
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the years ended January 31, 2023 and 2022
(Expressed in U.S. dollars, except as noted)
A summary of the Company's segmented operational activity and balances for the year ended January 31, 2022 is as follows:
|
Discontinued operations (Oregon) |
Nevada | Corporate | Consolidated | |||||||||
| $ | $ | $ | $ | |||||||||
| Total revenue | ||||||||||||
| Gross profit (loss) | ( |
) | ||||||||||
| Operating expenses: | ||||||||||||
| General and administration | ( |
) | ( |
) | ( |
) | ( |
) | ||||
| Sales, marketing, and promotion | ( |
) | ( |
) | ||||||||
| Operating lease cost | ( |
) | ( |
) | ( |
) | ||||||
| Depreciation and amortization | ( |
) | ( |
) | ( |
) | ( |
) | ||||
| Share-based compensation | ( |
) | ( |
) | ||||||||
| Impairment of inventory | ( |
) | ( |
) | ||||||||
| Interest, accretion, and other | ||||||||||||
| Net income (loss) before taxes | ( |
) |
a) Entity-wide disclosures
All revenue for the years ended January 31, 2023 and 2022 was earned in the United States.
For the years ended January 31, 2023 and January 31, 2022, no customer represented more than 10% of the Company's net revenue and receivables.
A summary of the Company's the long-lived tangible assets disaggregation by geographic area is as follows:
| January 31, 2023 |
January 31, 2022 |
|||||
| $ | $ | |||||
| Nevada | ||||||
| Discontinued operations (Oregon) | ||||||
| Other | ||||||
17. COMMITMENTS
The Company and its subsidiaries are committed under lease agreements with third parties and related parties, for land, office space, and equipment in Nevada and Oregon. A summary of the Company's future minimum payments at the year ended January 31, 2023 is as follows:
| Third Parties | Related Parties |
Total | |||||||
| $ | $ | $ | |||||||
| 2024 | |||||||||
| 2025 | |||||||||
| 2026 | |||||||||
| 2027 | |||||||||
| 2028 | |||||||||
| Thereafter | |||||||||
22
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the years ended January 31, 2023 and 2022
(Expressed in U.S. dollars, except as noted)
18. RELATED PARTY TRANSACTIONS
A summary of the Company's related balances included in accounts payable, accrued liabilities, and promissory note payable is as follows:
| January 31, 2023 |
January 31, 2022 |
|||||
| $ | $ | |||||
| Due to the President and CEO | ||||||
| Lease liabilities due to a company controlled by the CEO | ||||||
| Lease liabilities due to SDP Development | ||||||
| Due to the CFO of the Company | ||||||
Due to the President and CEO consists of promissory note principal and interest and reimbursable expenses incurred in the normal course of business.
A summary of the Company's transactions with related parties including key management personnel for the years ended January 31, 2023 and 2022 is as follows:
| 2023 | 2022 | |||||
| $ | $ | |||||
| Consulting fees paid to a director | ||||||
| Amounts paid to CEO or companies controlled by CEO for leases | ||||||
| Amounts paid to CEO or companies controlled by CEO for repayments of promissory note | ||||||
| Amounts paid to CEO or companies controlled by CEO for remuneration | ||||||
| Salary paid to directors and officers | ||||||
| Share based compensation including warrants and stock options for directors and officers | ||||||
| Lease payments made to SDP Development | ||||||
Amounts paid to CEO or companies controlled by CEO consists of salary, lease payments, and promissory note principal and interest.
On February 12, 2020, the Company amended the purchase agreement with SDP Development, of which a Director of the Company is a principal owner. The Company had agreed on February 4, 2019 to purchase SDP Development on October 15, 2020, which owned
23
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the years ended January 31, 2023 and 2022
(Expressed in U.S. dollars, except as noted)
19. EARNINGS PER SHARE
A summary of the Company's calculation of basic and diluted earnings per share for the years ended January 31, 2023 and 2022, is as follows:
| 2023 | 2022 | |||||
| Net income from continuing operations after income taxes | $ | $ | ||||
| Net loss from discontinued operations after income taxes | $ | ( |
) | $ | ( |
) |
| Net income | $ | $ | ||||
| Weighted average number of common shares outstanding | ||||||
| Dilutive effect of warrants and stock options outstanding | ||||||
| Diluted weighted average number of common shares outstanding | ||||||
| Basic income per share, continuing operations | $ | $ | ||||
| Diluted income per share, continuing operations | $ | $ | ||||
|
Basic loss per share, discontinued operations |
$ | ( |
) | $ | ( |
) |
| Diluted loss per share, discontinued operations | $ | ( |
) | $ | ( |
) |
| Basic income per share | $ | $ | ||||
| Diluted income per share | $ | $ |
The computation of diluted earnings per share excludes the effect of the potential exercise of warrants and stock options when the average market price of the common stock is lower than the exercise price of the respective warrant or stock option and when inclusion of these amounts would be anti-dilutive. For the years ended January 31, 2023 and 2022, the number of warrants excluded from the computation was
20. CONTINGENCIES
From time to time, the Company is involved in various litigation matters arising in the ordinary course of its business. Management is of the opinion that disposition of any current matter will not have a material adverse impact on the Company's financial position, results of operations, or the ability to carry on any of its business activities.
a) Legal proceedings
Oregon Action: A complaint was filed in the Oregon State Circuit Court for Clackamas County, on April 29, 2019, by two current owners of Proudest Monkey Holdings, LLC (the former sole member of EFF) (the "Plaintiffs"), alleging contract, employment, and statutory claims, alleging $
On October 22, 2020, the Company submitted a petition to recover the costs and attorney fees incurred by the Company as the prevailing party in the Oregon Action. On January 20, 2021, the Court ruled in the Company's favor, awarding the Company and its subsidiaries $
On November 12, 2020, the plaintiffs appealed the order dismissing the claims alleged in their amended complaint. On March 2, 2021, the plaintiffs amended their appeal to also appeal the award of attorney fees and costs.
24
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the years ended January 31, 2023 and 2022
(Expressed in U.S. dollars, except as noted)
20. CONTINGENCIES (continued)
On October 26, 2022, the Court of Appeals issued its decision, reversing the general and supplemental judgments in favor of the Company and remanding the case to the trial court for further proceedings. The Company filed a petition for reconsideration of the Court of Appeals decision on December 7, 2022, which was denied.
On April 19, 2023, the Company filed a petition for review in the Oregon Supreme Court. The petition for review is pending. The Company cannot predict if the Oregon Supreme Court will grant certiorari to hear the appeal, and if so, the likely resolution of the appeal.
British Columbia Action: On or about September 13, 2019, the Company delivered a notice to the above-mentioned Plaintiffs of alleged breach and default under the EFF purchase and sale agreement, due to alleged unlawful, intentional acts and material misrepresentations by the Plaintiffs before and after the completion of the purchase. As a result of such breach, the Company denied the Plaintiffs' tender of their share payment notes in connection with the agreement. On or about October 14, 2019, Proudest Monkey Holdings, LLC and one of its current owners, sued the Company in the Supreme Court of British Columbia to compel the issuance and delivery of the subject shares, including interests and costs (the "British Columbia Action").
On November 8, 2019, the Company responded and counterclaimed for general, special and punitive damages, including interest and costs, related to breach of contract, repudiation of contract, breach of indemnity and fraudulent and negligent misrepresentation by the Plaintiffs. The Plaintiffs filed a response to the Company's counterclaims on or about June 5, 2020, and the parties stipulated to a form of amended pleading which included the joinder of additional parties, an owner of Proudest Monkey Holdings, LLC and EFF, and additional contract and equitable claims and damages, partially duplicative to those alleged by the Plaintiffs in the Oregon Action (breach of contract, indemnity, unjust enrichment and wrongful termination claims). Plaintiffs allege $
Settled and Dismissed Action: On or about May 30, 2019, Wallace Hill Partners Ltd. ("Wallace Hill") filed a civil claim in the Supreme Court of British Columbia alleging breach of contract and entitlement to
On March 23, 2022, the Company and Wallace Hill entered into a mutual release agreement, pursuant to which, among other things, all parties agreed to dismiss their respective claims and to release one another from any further causes of action in connection with the subject matter of the original claims. On April 23, 2022, the parties filed a Notice of Discontinuance in the Supreme Court of British Columbia formally dismissing the civil action.
25
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the years ended January 31, 2023 and 2022
(Expressed in U.S. dollars, except as noted)
21. INCOME TAXES
The Company is a Canadian resident company, as defined in the Income Tax Act (Canada) (the "ITA"), for Canadian income tax purposes. However, it has subsidiaries that are treated as United States corporations for US federal income tax purposes per the Internal Revenue Code (US) ("IRC") and are thereby subject to federal income tax on their worldwide income. As a result, the Company is subject to taxation both in Canada and the United States.
A summary of the Company's components of the income tax provision for the years ended January 31, 2023 and 2022, is as follows:
| 2023 | 2022 (As restated - Note 2) |
|||||
| $ | $ | |||||
| Current | ||||||
| Canadian | ||||||
| US Federal and State | ||||||
| Total current income tax expense | ||||||
| Deferred | ||||||
| Canadian | ||||||
| US Federal and State | ( |
) | ||||
| Total deferred income tax recovery | ( |
) | ||||
| Total income tax expense |
A summary of the Company's domestic and foreign components of income (loss) before provision for income taxes for the years ended January 31, 2023 and 2022, is as follows:
| 2023 | 2022 (As restated - Note 2) |
|||||
| $ | $ | |||||
| Canadian | ( |
) | ||||
| United States | ||||||
| Income (loss) before income taxes |
A summary of the Company's reconciliation of the statutory income tax rate percentage to the effective tax rate for the years ended January 31, 2023 and 2022 is as follows:
| 2023 | 2022 (As restated - Note 2) |
|||||
| $ | $ | |||||
| Income (loss) for the year | ||||||
| Statutory rate | ||||||
| Income tax expense at statutory rate | ||||||
| Non-deductible expenditures and non-taxable revenues | ||||||
| IRC section 280E disallowance | ||||||
| Other | ||||||
| Foreign tax rate differential | ( |
) | ( |
) | ||
| Change in foreign exchange rates and other | ||||||
| Change in valuation allowance | ( |
) | ( |
) | ||
| Payable adjustment to provision versus statutory tax returns | ||||||
| Deferred adjustment to provision versus statutory tax returns | ( |
) | ||||
| Uncertain tax position, inclusive of interest and penalties | ||||||
26
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the years ended January 31, 2023 and 2022
(Expressed in U.S. dollars, except as noted)
21. INCOME TAXES (continued)
A summary of the Company's deferred tax assets significant components is as follows:
| January 31, 2023 |
January 31, 2022 (As restated - Note 2) |
|||||
| $ | $ | |||||
| Deferred tax assets | ||||||
| Share issuance costs and financing fees | ||||||
| Allowable capital losses | ||||||
| Non-capital losses | ||||||
| Intangible assets | ||||||
| Right of use assets and lease liabilities, net | ||||||
| Reclamation obligation | ||||||
| Derivative liability | ||||||
| Inventories | ||||||
| Convertible promissory note | ||||||
| Total deferred tax assets | ||||||
| Valuation allowance | ( |
( |
||||
| Total net deferred tax assets | ||||||
| Deferred tax liabilities | ||||||
| Property and equipment | ( |
( |
||||
| Net deferred tax (liability) asset | ( |
Realization of deferred tax assets associated with the net operating loss carryforwards is dependent upon generating sufficient taxable income prior to their expiration. A valuation allowance to reflect management's estimate of the Canadian loss carryforwards that may expire prior to their utilization has been recorded at January 31, 2023.
As of January 31, 2023, the Company has $
As the Company operates in the cannabis industry, the Company is subject to the limits of Internal Revenue Code ("IRC") Section 280E for US federal income tax purposes as well as state income tax purposes. Under IRC Section 280E, the Company is only allowed to deduct expenses directly related to costs of goods sold. This results in permanent differences between ordinary and necessary business expenses deemed non-allowable under IRC Section 280E.
Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred by the Canadian entity over the three-year period ended January 31, 2023. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth.
On the basis of this evaluation, as of January 31, 2023, a valuation allowance of $
The Company recognizes benefits from uncertain tax positions based on the cumulative probability method whereby the largest benefit with a cumulative probability of greater than 50% is recorded. An uncertain tax position is not recognized if it has less than a 50% likelihood of being sustained. As of January 31, 2023, and January 31, 2022, the Company recorded an uncertain tax liability of $
27
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the years ended January 31, 2023 and 2022
(Expressed in U.S. dollars, except as noted)
21. INCOME TAXES (continued)
The uncertain tax position comprises of certain deductions for lease obligations, depreciation and amortization taken in prior years in excess of the accounting expenses in respect of assets used in production as well as deductions for inventory impairment that were not previously taken. The total of these uncertainties before interest and penalties is $
During the years ended January 31, 2023, the Company recorded interest of $
The aggregate change in the balance of gross unrecognized tax benefits, which includes interest and penalties is as follows:
| January 31, 2023 |
2022 (As restated - Note 2) |
|||||
| $ | $ | |||||
| Beginning balance | ||||||
| Increase due to tax positions taken during a prior year | ||||||
| Ending balance |
The total amount of unrecognized tax benefits that would, if recognized, impact the effective tax rate is $
A summary of the components of the Company's income taxes payable is as follows:
| January 31, 2023 |
January 31, 2022 (As restated - Note 2) |
|||||
| $ | $ | |||||
| Income taxes payable | ||||||
| Unrecognized tax position, inclusive of interest and penalties | ||||||
22. FINANCIAL INSTRUMENTS
The following tables present information about the Company's financial instruments and their classifications as of January 31, 2023 and January 31, 2022 and indicate the fair value hierarchy of the valuation inputs utilized to determine such fair value:
| Fair value measurements at January 31, 2023 using: | Level 1 | Level 2 | Level 3 | Total | ||||||||
|
$ |
$ |
$ |
$ |
|||||||||
| Financial liabilities: | ||||||||||||
| Earn out shares (Note 13) |
| Fair value measurements at January 31, 2022 using: | Level 1 | Level 2 | Level 3 | Total | ||||||||
|
$ |
$ |
$ |
$ |
|||||||||
| Financial liabilities: | ||||||||||||
| Earn out shares (Note 13) |
The fair value of the derivative liability associated with the earn out shares was derived using a Monte Carlo simulation using non-observable inputs, and therefore represent a Level 3 measurement.
28
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the years ended January 31, 2023 and 2022
(Expressed in U.S. dollars, except as noted)
23. SUBSEQUENT EVENTS
On February 13, 2023 the Company announced it had negotiated the cancellation of a portion of the earn out share obligations pursuant to the Swell Purchase agreement. The Company entered into agreements with certain Swell vendors to extinguish the Company's obligation to issue
On February 6, 2023, the Company and its CEO, Sonny Newman, agreed to defer payment of the principal portion of the March 1, 2023 promissory note payment in order to facilitate the cash coverage required to settle the Company's cash settlement with the Swell vendors. The principal portion was deferred until April 1, 2023 and normally scheduled payments of principal and interest resumed at that time.
On March 9, 2023, the Company executed a settlement agreement to terminate the lease-to-own arrangement accounted for as a sales-type lease for certain licenses, land and equipment in Oregon, USA (Note 4). The lessee failed to make the minimum payments under the arrangement and the Company exercised its right to terminate the relationship. As part of the settlement agreement, the lessee paid $
On June 1, 2023, the Company completed all payments totaling $
29
C21 INVESTMENTS INC.
 |
Consolidated Financial Statements For the year ended January 31, 2021 (Expressed in U.S. Dollars) |
C21 INVESTMENTS INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 |
|
| Baker Tilly US, LLP 18500 Von Karman Ave; 10th Fl. Irvine, CA 92612 United States of America T: +1 (949) 222 2999 F: +1 (949) 222 2989 bakertilly.com |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors
C21 Investments Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of C21 Investments Inc. (the "Company") as of January 31, 2021, the related consolidated statements of comprehensive loss, changes in shareholders' equity, and cashflows for the year then ended, and related notes (collectively referred to as the "consolidated financial statements").
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of January 31, 2021, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
We served as the Company's auditor from 2020 to 2022.
Irvine, CA
August 15, 2022
Baker Tilly US, LLP, trading as Baker Tilly, is a member of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities. © 2020 Baker Tilly US, LLP
C21 INVESTMENTS INC.
CONSOLIDATED BALANCE SHEET
AS AT JANUARY 31, 2021
(Expressed in U.S. dollars)
| January 31, 2021 | |||
| $ | |||
| ASSETS | |||
| Current assets | |||
| Cash | |||
| Receivables | |||
| Inventory | |||
| Prepaid expenses and deposits | |||
| Current portion of assets classified as held for sale | |||
| Non-current assets | |||
| Property and equipment | |||
| Right-of-use assets | |||
| Intangible assets | |||
| Goodwill | |||
| Security deposit | |||
| Deferred tax asset | |||
| Assets classified as held for sale | |||
| TOTAL ASSETS | |||
| LIABILITIES | |||
| Current liabilities | |||
| Accounts payable and accrued liabilities | |||
| Promissory note payable - current portion | |||
| Convertible promissory note - current portion | |||
| Income taxes payable | |||
| Lease liabilities - current portion | |||
| Current portion of liabilities classified as held for sale | |||
| Non-current liabilities | |||
| Lease liabilities | |||
| Deposit liability | |||
| Promissory note payable | |||
| Derivative liabilities | |||
| Reclamation obligation | |||
| Liabilities classified as held for sale | |||
| TOTAL LIABILITIES | |||
| SHAREHOLDERS' EQUITY | |||
| Common stock, |
|||
| Commitment to issue shares | |||
| Accumulated other comprehensive loss | ( |
) | |
| Deficit | ( |
) | |
| TOTAL SHAREHOLDERS' EQUITY | |||
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY |
|
See accompanying notes to the consolidated financial statements |
p. 1
C21 INVESTMENTS INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS
FOR THE YEAR ENDED JANUARY 31, 2021
(Expressed in U.S. dollars)
| January 31, 2021 | |||
| $ | |||
| Revenue | |||
| Cost of sales | |||
| Gross Profit | |||
| Selling, general and administrative expense | |||
| Income from operations | |||
| Interest expense | ( |
) | |
| Accretion expense | ( |
) | |
| Other income | |||
| Loss on change in fair value of derivative liabilities | ( |
) | |
| Net loss from continuing operations before income taxes | ( |
) | |
| Income tax expense | ( |
) | |
| Net loss from continuing operations after income taxes | ( |
) | |
| Net loss from discontinued operations after income taxes | ( |
) | |
| NET LOSS | ( |
) | |
| Other comprehensive loss | |||
| Cumulative translation adjustment | ( |
) | |
| COMPREHENSIVE LOSS | ( |
) | |
| Basic loss per share from continuing operations | ( |
) | |
| Diluted loss per share from continuing operations | ( |
) | |
| Basic and diluted loss per share from discontinued operations | ( |
) | |
| Basic loss per share | ( |
) | |
| Diluted loss per share | ( |
) | |
| Weighted average number of common shares outstanding - basic | |||
| Weighted average number of common shares outstanding - diluted |
| See accompanying notes to the consolidated financial statements |
p. 2
C21 INVESTMENTS INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEAR ENDED JANUARY 31, 2021
(Expressed in U.S. dollars)
| Number of shares |
Common stock | Commitment to issue shares |
Accumulated other comprehensive loss |
Deficit | Total shareholders' equity |
|||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||
| Balance at January 31, 2020 | ( |
) | ( |
) | ||||||||||||||
| Purchase of Phantom real estate | - | - | - | |||||||||||||||
| Amendment of Megawood consideration | - | - | - | |||||||||||||||
| Shares issued on exercise of options | - | - | - | |||||||||||||||
| Shares issued on exercise of convertible debentures | - | - | - | |||||||||||||||
| Commitment to issue shares on purchase of Swell Companies | ( |
) | - | - | - | |||||||||||||
| Payment of EFF share payment note | ( |
) | - | - | - | |||||||||||||
| Standby warrants issued | - | - | - | - | ||||||||||||||
| Share-based compensation | - | - | - | - | ||||||||||||||
| Net loss and comprehensive loss for the year | - | - | - | ( |
) | ( |
) | ( |
) | |||||||||
| Balance at January 31, 2021 | ( |
) | ( |
) |
| See accompanying notes to the consolidated financial statements |
p. 3
C21 INVESTMENTS INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JANUARY 31, 2021
(Expressed in U.S. dollars)
| January 31, 2021 | |||
| $ | |||
| OPERATING ACTIVITIES | |||
| Net loss from continuing operations | ( |
) | |
| Adjustments to reconcile net loss to net cash provided by operating activities: | |||
| Depreciation and amortization | |||
| Share-based compensation | |||
| Interest expense | |||
| Accretion expense | |||
| Deferred income tax | |||
| Foreign exchange gain | |||
| Loss on change in fair value of derivative liabilities | |||
| Gain on disposal of assets | ( |
) | |
| Changes in operating assets and liabilities | |||
| Inventory | |||
| Prepaid expenses and deposits | ( |
) | |
| Receivables | |||
| Assets classified as held for sale | |||
| Accounts payable and accrued liabilities | ( |
) | |
| Income tax payable | ( |
) | |
| Lease liabilities | ( |
) | |
| Liabilities classified as held for sale | |||
| Cash provided by operating activities of continuing operations | |||
| Cash provided by operating activities of discontinued operations | |||
| INVESTING ACTIVITIES | |||
| Purchases of property and equipment | ( |
) | |
| Payment of Megawood consideration payable | ( |
) | |
| Payment of Swell consideration payable | ( |
) | |
| Cash used in investing activities of continuing operations | ( |
) | |
| Cash provided by investing activities of discontinued operations | |||
| FINANCING ACTIVITIES | |||
| Principal repayments on promissory note payable | ( |
) | |
| Repayment of convertible promissory notes | |||
| Cash proceeds from warrants | |||
| Cash proceeds from options | |||
| Issuance of convertible debentures on exercise of warrants | |||
| Interest paid in cash | ( |
) | |
| Lease payments received | |||
| Cash used in financing activities of continuing operations | ( |
) | |
| Cash used in financing activities of discontinued operations | ( |
) | |
| Effect of foreign exchange on cash | ( |
) | |
| Increase in cash during the year | |||
| Cash, beginning of year | |||
| Cash, end of year | |||
| Supplemental disclosure of cash flow information | |||
| Interest paid in cash | |||
| Income taxes paid in cash | |||
| Non-cash investing activities | |||
| Right-of-use asset additions resulting from lease renewals | |||
| Non-cash financing activities | |||
| Common shares issued on exercise of convertible debentures | |||
| Common shares issued in settlement of Phantom Farms earn out shares | |||
| Common shares issued as partial settlement of commitment to issue shares | |||
| Common shares issued to complete purchase of land | |||
| Common shares issued as partial repayment of promissory note |
| See accompanying notes to the consolidated financial statements |
p. 4
C21 INVESTMENTS INC.
FOR THE YEAR ENDED JANUARY 31, 2021
(Expressed in U.S. dollars, except as noted)
1. NATURE OF OPERATIONS
C21 Investments Inc. (the "Company" or "C21") was incorporated January 15, 1987, under the Company Act of British Columbia. The Company is a publicly traded company with its registered office is 1900-885 West Georgia Street, Vancouver, BC, V6C 3H4.
Pursuant to a change of business announced on January 29, 2018 to the Cannabis industry, the Company commenced acquiring and operating revenue-producing cannabis operations in the USA.
On June 15, 2018, the Company's common shares were delisted from the TSX Venture Exchange ("TSX-V") at the Company's request and on June 18, 2018 the Company commenced trading on the Canadian Securities Exchange ("CSE"), completed its change of business to the cannabis industry and commenced trading under the symbol CXXI. The Company registered its common shares in the United States and on May 6, 2019, its shares were cleared by the Financial Industry Regulatory Authority for trading on the OTC Markets platform under the U.S. trading symbol CXXIF. On September 28, 2020, the Company began trading on the OTCQB® Venture Market.
For the year ended January 31, 2021, the Company operated in two segments: recreational cannabis in Oregon, USA and recreational and medical cannabis in Nevada, USA (note 17). Subsequent to the year ended January 31, 2021, the Company made the strategic decision to exit operations in Oregon. The results of operations for the year ended January 31, 2021 have been re-stated to present the operating results of the Oregon segment as discontinued operations. The Nevada segment remains engaged in the cultivation of and manufacturing of cannabis flower products, vape products and extract products for wholesale and retail sales.
At January 31, 2021, the Company had cash of $
Management has taken several actions to ensure that the Company will continue as a going concern through January 31, 2022 and January 31, 2023, including the closing of its operations in Oregon (note 4), selling the assets in Oregon, reducing headcount, and reducing discretionary expenditures. The Company is seeking additional financing in the form of debt which could consolidate existing debt on its balance sheet on more favorable terms.
In the United States, 36 states, the District of Columbia, and four out of five U.S. territories allow the use of medical cannabis. The recreational adult-use of cannabis is legalized in 17 states, including Alaska, Arizona, California, Colorado, Illinois, Maine, Massachusetts, Michigan, Montana, Nevada, New Jersey, New Mexico, New York, Oregon, Vermont, Virginia, Washington, and the District of Columbia. At the federal level, however, cannabis currently remains a Schedule I controlled substance under the Federal Controlled Substances Act of 1970. Under U.S. federal law, a Schedule I drug or substance has a high potential for abuse, no accepted medical use in the United States, and a lack of accepted safety for the use of the drug under medical supervision. As such, even in those states in which marijuana is legalized under state law, the manufacture, importation, possession, use or distribution of cannabis remains illegal under U.S. federal law. This has created a dichotomy between state and federal law, whereby many states have elected to regulate and remove state-level penalties regarding a substance which is still illegal at the federal level. There remains uncertainty about the US federal government's position on cannabis with respect to cannabis-legal status. A change in its enforcement policies could impact the ability of the Company to continue as a going concern.
| p. 5 |
|
C21 INVESTMENTS INC. |
2. BASIS OF PREPARATION
Basis of presentation
These consolidated financial statements as at and for the year ended January 31, 2021 ("consolidated financial statements") are prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). These consolidated financial statements have been prepared on an accrual basis and are based on historical costs, except for certain financial instruments classified as fair value through profit or loss.
Functional and reporting currency
The functional currency of C21 Investments Inc. is Canadian dollars, and the functional currency of the Company's subsidiaries is U.S. dollars. C21 has determined that the U.S. dollar is the most relevant and appropriate reporting currency as the Company's operations are conducted in U.S. dollars and its financial results are prepared and reviewed internally by management in U.S. dollars. The consolidated financial statements are presented in U.S. dollars unless otherwise noted.
Basis of consolidation
The consolidated financial statements incorporate the accounts of the Company and all the entities in which the Company has a controlling voting interest and is deemed to be the primary beneficiary. All consolidated entities were under common control during the entirety of the periods for which their respective results of operations were included in the consolidated statements (i.e. from the date of acquisition). All intercompany balances and transactions are eliminated upon consolidation.
The following are the Company's subsidiaries that are included in these consolidated financial statements as at and for the year ended January 31, 2021:
| Name of Subsidiary |
Country of Incorporation |
Percentage Ownership |
Functional Currency |
Principal Activity |
| 320204 US Holdings Corp. | USA | USD | Holding Company | |
| 320204 Oregon Holdings Corp. | USA | USD | Holding Company | |
| 320204 Nevada Holdings Corp. | USA | USD | Holding Company | |
| 320204 Re Holdings, LLC | USA | USD | Holding Company | |
| Eco Firma Farms LLC | USA | USD | Cannabis producer | |
| Silver State Cultivation LLC | USA | USD | Cannabis producer | |
| Silver State Relief LLC | USA | USD | Cannabis retailer | |
| Swell Companies LTD | USA | USD | Cannabis processor, distributor | |
| Megawood Enterprises Inc. | USA | USD | Cannabis retailer | |
| Phantom Venture Group, LLC | USA | USD | Holding Company | |
| Phantom Brands, LLC | USA | USD | Holding Company | |
| Phantom Distribution, LLC | USA | USD | Cannabis distributor | |
| 63353 Bend, LLC | USA | USD | Cannabis producer | |
| 20727-4 Bend, LLC | USA | USD | Cannabis processor | |
| 4964 BFH, LLC | USA | USD | Cannabis producer | |
| Workforce Concepts 21, Inc. | USA | USD | Payroll and benefits services |
| p. 6 |
|
C21 INVESTMENTS INC. |
3. SIGNIFICANT ACCOUNTING POLICIES
Significant accounting estimates and assumptions
The preparation of the Company's financial statements in conformity with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Estimates and assumptions are continuously evaluated and are based on management's experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from those estimates and judgments.
Areas requiring a significant degree of estimation and judgment relate to the determination of fair values of assets acquired and liabilities assumed in business combinations, impairment of long-lived assets and inventory, fair value measurements, useful lives, depreciation and amortization of property, equipment and intangible assets, the recoverability and measurement of deferred tax assets and liabilities, share-based compensation, and fair value of derivative liabilities.
Cash
Cash held in financial institutions and cash held at retail locations, have carrying values that approximate fair value.
Foreign currency translation
Foreign currency transactions are translated into U.S. dollars at exchange rates in effect on the date of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rate at the reporting date. All differences are recorded in the consolidated statement of comprehensive loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined.
Assets and liabilities of foreign operations are translated into U.S. dollars at year-end exchange rates and any revenue and expenses are translated at the average exchange rate for the year. The resulting exchange differences are recognized in other comprehensive loss.
Inventory
Inventory consists of raw materials, consumables and packaging supplies used in the process to prepare inventory for sale; work in process consisting of pre-harvested cannabis plants, by-products to be extracted, oils and terpenes; and finished goods.
Inventory is valued at the lower of cost and net realizable value, with cost determined using the weighted average cost method. Net realizable value is calculated as the estimated selling price in the ordinary course of business, less any estimated costs to complete and sell the goods. Costs are capitalized to inventory, until substantially ready for sale. Costs include direct and indirect labor, raw materials, consumables, packaging supplies, utilities, facility costs, quality and testing costs, production related depreciation and other overhead costs. The Company records inventory reserves for obsolete and slow-moving inventory. Inventory reserves are based on inventory obsolescence trends, and the historical and professional experience of management. The Company classifies cannabis inventory as a current asset, although, due to the duration of the cultivation, drying, and conversion process, certain inventory items may not be realized in cost of sales within one year.
| p. 7 |
|
C21 INVESTMENTS INC. |
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Property and equipment
Property and equipment is measured at cost less accumulated depreciation and losses on impairment.
Depreciation is provided on the straight-line basis over the estimated useful lives of the assets as follows:
Buildings
Leasehold improvements
Furniture & fixtures
Computer equipment
Machinery & equipment
Intangible assets
Intangible assets with finite useful lives are amortized on a straight-line basis over their estimated useful lives. Amortization of intangible assets begins when the asset becomes available for use. Brands, licenses, and customer relationships are amortized over
Goodwill and indefinite lived Intangible assets
Intangible assets are recorded at cost less accumulated amortization and accumulated impairment losses, if any. Intangible assets acquired in a business combination are measured at fair value at the acquisition date.
Goodwill represents the excess of the purchase price paid for the acquisition of subsidiaries over the fair value of the net intangible and tangible assets acquired. Following the initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is allocated to the reporting unit in which the business that created the goodwill resides. A reporting unit is an operating segment, or a business unit one level below that operating segment, for which discrete financial information is prepared and regularly reviewed by segment management. The Company's goodwill is part of the Nevada reporting unit.
Goodwill is tested annually for any impairment, or more frequently in the case that events or circumstances indicate that the carrying amount of a reporting unit may not be recoverable. The Company may elect to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If factors indicate this is the case, then a quantitative test is performed and an impairment is recorded for any excess carrying value above the reporting unit's fair value, not to exceed the amount of goodwill.
For the year ended January 31, 2021, the recoverable amount of goodwill allocated to the Nevada reporting unit exceeded its carrying amount and as such, no impairment was noted.
Impairment of long-lived assets
Long-lived assets include property and equipment, right-of-use assets, and intangible assets with finite useful lives.
At the end of each fiscal year, the Company reviews the intangible assets' estimated useful lives and amortization methods, with the effect of any changes in estimates accounted for on a prospective basis.
| p. 8 |
|
C21 INVESTMENTS INC. |
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Long-lived assets are reviewed for indicators of impairment at each statement of balance sheet date or whenever events or changes in circumstances indicate that a potential impairment has occurred. The Company groups assets at the lowest level for which cash flows are separately identifiable, referred to as an asset group. When indicators of potential impairment are present the Company prepares a projected undiscounted cash flow analysis to determine the recoverable amount for the respective asset or asset group. An impairment loss is recognized whenever the carrying amount of the asset exceeds its recoverable amount and is recorded as in profit or loss equal to the amount by which the carrying amount exceeds the fair value.
Assets and liabilities held for sale
Non-current assets, or disposal groups comprising assets and liabilities, are classified as held for sale if it is highly probable that they will be recovered primarily through sale rather than through continuing use. Such assets, or disposal groups, are measured at the lower of their carrying amount and fair value less costs to sell. The comparative consolidated balance sheet is re-presented to classify assets as held for sale in the period that the respective assets are classified as held for sale.
Business combinations
Acquisitions are accounted for in accordance with ASC 805 - Business Combinations, with the assets and liabilities acquired recorded at their fair values at the acquisition date.
The Company is required to allocate the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values. The excess of the purchase price over those fair values of the net assets acquired is recorded as goodwill. Any excess of the fair value of the net assets acquired over the consideration, is a gain on business acquisition and would be recognized as a gain in the consolidated statement of loss and comprehensive loss.
Convertible instruments
In August 2020, the Financial Accounting Standards Board ("FASB") issued Accounting standards update 2020-06-debt-debt with conversion and other options (subtopic 470-20) and derivatives and hedging-contracts in entity's own equity (subtopic 815-40): accounting for convertible instruments and contracts in an entity's own equity, an update to simplify the accounting for convertible debt and other equity-linked instruments. The new guidance simplifies the accounting for convertible instruments by eliminating the cash conversion and beneficial conversion feature models used to separately account for embedded conversion features as a component of equity. Instead, the Company will account for the convertible debt as a single unit of account, unless the conversion feature requires bifurcation and recognition as a derivative. Additionally, the guidance requires the Company to use the if-converted method for all convertible instruments in the diluted earnings per share calculation and include the effect of potential share settlement for instruments that may be settled in cash or shares. The Company early adopted this new guidance using the full retrospective method as of February 1, 2020. The adoption of this new guidance did not have a material impact on the Company's consolidated financial statements and there was no impact to the number of potentially dilutive shares in each of the periods presented.
| p. 9 |
|
C21 INVESTMENTS INC. |
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Leases
In February 2016, the FASB issued ASU 2016-02, Leases ("ASC 842"), a standard that requires lessees to increase transparency and comparability among organizations by requiring the recognition of right-of-use assets and lease liabilities on the balance sheet. The requirements of this standard include a significant increase in required disclosures to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The FASB has issued several amendments and practical expedients to the standard, including clarifying guidance, transition relief on comparative reporting at adoption, a practical expedient, which allows lessees to elect as an accounting policy not to apply the provisions of ASC 842 to short term leases, and codification improvements to clarify that lessees and lessors are exempt from certain interim disclosure requirement associated with adopting the new leases standard. The standard was adopted by the Company beginning February 1, 2020 and the standard was adopted using the modified retrospective transition approach, which allows the Company to recognize a cumulative effect adjustment to the opening balance of accumulated deficit in the period of adoption rather than restate comparative prior year periods. The cumulative effect adjustment to the opening balance of accumulated deficit was $nil. The Company has elected not to recognize right-of-use assets and liabilities for short-term leases that have a term of 12 months or less.
Upon commencement of a contract containing a lease, the Company classifies leases other than short-term leases as either an operating lease or a finance lease according to the criteria prescribed by ASC 842. The lease classification is reassessed only when: (a) the contract is modified and the modification is not accounted for as a separate contract, and (b) there is a change in the lease term or the assessment of whether the lessee is reasonably certain to exercise an option to purchase the underlying asset.
For both finance leases and operating leases, right-of-use assets and lease liabilities are initially measured as the present value of future lease payments and initial direct costs discounted at the interest rate implicit in the lease, or if that rate is not readily determinable, the Company's incremental borrowing rate. Subsequent measurement of lease liabilities classified as finance leases is at amortized cost using the effective interest rate method. Subsequent measurement of right-of-use assets classified as finance leases is at carrying amount less accumulated amortization, where amortization is recorded straight-line over the lease term. Subsequent measurement of lease liabilities classified as operating leases is at the present value of the unpaid lease payments discounted at the discount rate for the lease established at the commencement date. Subsequent measurement of right-of-use assets classified as operating leases is carrying amount less accumulated amortization where amortization is calculated as the difference between straight-line lease cost for the period, including amortization of initial direct costs, and the periodic accretion of the lease liability.
Financial instruments
Financial instruments are contracts that give rise to a financial asset of one party and a financial liability or equity instrument of another party. Financial instruments are recorded initially at fair value, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Subsequent measurement depends on how the financial instrument has been classified and may be at fair value or amortized cost. For financial instruments subsequently measured at fair value, the Company calculates the estimated fair value of financial instruments using quoted market prices whenever available. When quoted market prices are not available, the Company uses standard pricing models including the Black-Scholes option pricing model.
| p. 10 |
|
C21 INVESTMENTS INC. |
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels of the fair value hierarchy are:
Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 - Inputs other than quoted prices that are observable for the asset or liability either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3 - Inputs that are not based on observable market data.
There have been no transfers between fair value hierarchy levels during the year ended January 31, 2021.
The Company's measures the derivative liability at fair value using Level 3 inputs.
The Company's cash, receivables, accounts payable and accrued liabilities, and income taxes payable are recorded at cost. The carrying values of these financial instruments approximate their fair value due to their short-term maturities. Unless otherwise noted, it is management's opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments.
Financial instruments subsequently measured at amortized cost include promissory note payable, and reclamation obligation.
Share-based compensation
The Company measures equity settled share-based payments based on their fair value at their grant date and recognizes share-based compensation expense over the vesting period based on the Company's estimate of equity instruments that will eventually vest. Consideration paid to the Company on the exercise of stock options is recorded as common stock.
Income taxes
The Company uses the asset and liability method to account for income taxes. Deferred income tax assets and liabilities are determined based on enacted tax rates and laws for the years in which the differences are expected to reverse.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
As the Company operates in the cannabis industry, it is subject to the limits of IRC Section 280E under which the Company is only allowed to deduct expenses directly related to the cost of producing the products or cost of production.
The Company recognizes uncertain income tax positions at the largest amount that is more-likely-than-not to be sustained upon examination by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Recognition or measurement is reflected in the period in which the likelihood changes. Any interest and penalties related to unrecognized tax liabilities are presented within income tax expense in the consolidated statement of comprehensive loss.
| p. 11 |
|
C21 INVESTMENTS INC. |
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
loss per share
The Company presents basic and diluted loss per share data for its common shares. Basic loss per share is calculated using the weighted average number of shares outstanding during the respective years. Diluted loss per share is computed by dividing net loss by the weighted average shares outstanding adjusted for additional shares from the assumed exercise of stock options, restricted share units, or warrants, if dilutive.
The number of additional shares is calculated by assuming the outstanding dilutive convertible instruments, options, and warrants are exercised and that the assumed proceeds are used to acquire common shares at the average market price during the year. Diluted loss per share figures for the years presented are equal to those of basic loss per share for the years since the effects of convertible instruments, stock options and warrants are anti-dilutive.
Revenue recognition
Revenue is recognized by the Company in accordance with ASC 606. Through application of the standard, the Company recognizes revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.
In order to recognize revenue under ASC 606, the Company applies the following five steps:
1. Identify a customer along with a corresponding contract
2. Identify the performance obligation(s) in the contract to transfer goods or provide distinct services to a customer
3. Determine the transaction price that the Company expects to be entitled to in exchange for transferring promised goods or services to a customer
4. Allocate the transaction price to the performance obligation(s) in the contract
5. Recognize revenue when or as the Company satisfies the performance obligation(s) in the contract
The Company's contracts with customers for the sale of dried cannabis and other products derived from cannabis consist of one performance obligation, being the transfer of control of the goods to the customer at the point of sale. The Company transfers control and satisfies its performance obligation when collection has taken place, compliant documentation has been signed, and the product was accepted by the buyer. The Company does not have performance obligations subsequent to delivery on the sale of goods to customers and revenues from sale of goods are recognized at a "point in time", which is upon passing of control to the customer.
Transaction costs associated with a business combination, (i.e., other than those associated with the issuance of debt or equity), are expensed as incurred as a line item in the consolidated statement of loss and comprehensive loss.
| p. 12 |
|
C21 INVESTMENTS INC. |
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Reclamation obligation
The Company recognizes the fair value of a legal or constructive liability for a reclamation obligation in the year in which it is incurred and when a reasonable estimate of fair value can be made. The carrying amount of the related long-lived asset is increased by the same amount as the liability. Changes in the liability for a reclamation obligation due to the passage of time will be recognized within accretion expense. The amount will be recognized as an increase in the liability and an accretion expense in the consolidated statements comprehensive loss. Changes resulting from revisions to the timing or the amount of the original estimate of undiscounted cash flows are recognized as an increase or a decrease to the carrying amount of the liability and the related long-lived asset.
Recently issued accounting pronouncements
Recent accounting pronouncements, other than those below, issued by the FASB, the American Institute of Certified Public Accountants("AICPA") and the U.S. Securities and Exchange Commission ("SEC") did not or are not believed by management to have a material effect on the Company's present or future financial statements.
Debt
In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options ("ASU 2020-06"), (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. The FASB reduced the number of accounting models for convertible debt and convertible preferred stock instruments and made certain disclosure amendments to improve the information provided to users. In addition, the FASB amended the derivative guidance for the own stock scope exception and certain aspects of the earnings-per-share guidance. The amendments are effective for interim and annual periods beginning after December 15, 2021, with early adoption permitted for after December 15, 2020. The Company early adopted this new guidance using the full retrospective method as of February 1, 2020.
Leases
In February 2016, the FASB issued new guidance on the recognition and measurement of leases, ASC 842 - Leases. Under this guidance, a lessee recognizes assets and liabilities on its balance sheet for most leases. Lease expense continues to be consistent with previous guidance. Additionally, this guidance requires enhanced disclosures regarding the amount, timing, and uncertainty of cash flows arising from leasing arrangements. The Company adopted this guidance effective February 1, 2020 using the modified retrospective transition method and comparative year ended January 31, 2021.
The adoption of this guidance resulted in the recognition of operating lease right-of-use assets of $5,001,360, and $5,001,360 of lease liabilities, with a $nil impact on deficit. The transition to ASC 842 did not have a material impact on the Company's results of operations or liquidity. When measuring lease liabilities, the Company used its incremental borrowing rate, estimated at 10%.
Revenue
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"), which provides a single comprehensive model for accounting for revenue from contracts with customers and supersedes nearly all previously existing revenue recognition guidance. The core principle of ASU 2014-09 is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company adopted the standard as of February 1, 2020. There was no impact of adopting ASU 2014-09 on the consolidated financial statements.
| p. 13 |
|
C21 INVESTMENTS INC. |
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Financial instruments
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires the measurement of current expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. Adoption of ASU 2016-13 will require financial institutions and other organizations to use forward-looking information to better formulate their credit loss estimates. In addition, the ASU amends the accounting for credit losses on available for sale debt securities and purchased financial assets with credit deterioration.
This update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted ASU 2016-13 on February 1, 2020 and adoption did not have a material impact on the Company's consolidated financial statements.
Fair value measurement
In August 2018, the FASB issued ASU 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (Topic 820). ASU 2018-13 adds, modifies, and removes certain fair value measurement disclosure requirements. ASU 2018-13 is effective for annual and interim periods beginning after December 15, 2019. Early adoption is permitted. The Company adopted ASU 2018-13 on February 1, 2020 and the adoption did not have a material impact on the Company's consolidated financial statements.
Income taxes
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020 and was adopted on February 1, 2021 and the adoption did not have a material impact on the Company's consolidated financial statements.
4. DISCONTINUED OPERATIONS
As a result of non-profitable operations in the Oregon reporting unit, the Company began to wind down operations in Oregon beginning in the year ended January 31, 2021. At January 31, 2021, the Company classified the assets and liabilities in Swell and Megawood as held for sale and completed the sale of these assets in April 2021. By January 31, 2022, the Company made the decision to cease all growing, manufacturing, and processing activities in Bend, Oregon. As the Oregon reporting unit comprises the assets of multiple components in distinct geographic locations, management anticipates completing the sale on a piecemeal basis. Management is engaged in an active program to seek buyers for the major classes of assets and liabilities in Oregon in order to complete a sale in the next twelve months.
Remaining inventory on hand at January 31, 2021 had an estimated aggregate net realizable value of approximately $
Prepaid expenses classified as held for sale primarily relates to the renewal of licenses that may be transferred in the event of a sale. Otherwise, prepaid expenses will be expensed within loss from discontinued operations over the next twelve months.
| p. 14 |
|
C21 INVESTMENTS INC. |
4. DISCONTINUED OPERATIONS (Continued)
For the year ended January 31, 2021, the Company recorded a provision for expected credit losses on previously recorded management fees receivable of $
Long-term debt consists of vehicle loans and a building mortgage. The mortgage began on February 1, 2015 and matures on January 1, 2035 (
The following table summarizes the major classes of assets and liabilities of the discontinued Oregon operation that have been classified as held-for-sale in the consolidated balance sheet:
| January 31, 2021 | |||
| $ | |||
| Carrying amounts of the major classes of assets included in discontinued operations: | |||
| Receivables | |||
| Inventory | |||
| Prepaid expenses and deposits | |||
| Deferred tax asset | |||
| Property and equipment | |||
| Right-of-use assets | |||
| Intangible assets | |||
| Total assets classified as held for sale | |||
| Current portion of assets classified as held for sale | ( |
) | |
| Non-current portion of assets classified as held for sale | |||
| Carrying amounts of the major classes of liabilities included in discontinued operations: | |||
| Lease liabilities | |||
| Long-term debt | |||
| Total liabilities classified as held for sale | |||
| Current portion of liabilities classified as held for sale | ( |
) | |
| Non-current portion of liabilities classified as held for sale |
In connection with the wind-down of operations, the Company concluded that the customer relationship intangible asset held in the Oregon reporting unit had no value and recognized $
| p. 15 |
|
C21 INVESTMENTS INC. |
4. DISCONTINUED OPERATIONS (Continued)
The following table provides the major classes of line items constituting pre-tax loss from discontinued operations:
| January 31, 2021 | |||
| $ | |||
| Revenue | |||
| Cost of sales | |||
| Gross margin | |||
| Expenses | |||
| General and administration | |||
| Provision for expected credit losses | |||
| Sales, marketing, and promotion | |||
| Operating lease cost | |||
| Depreciation and amortization | |||
| Impairment of inventory | |||
| Impairment of intangible asset | |||
| Other expenses | |||
| Net loss from discontinued operations before income taxes | ( |
) | |
| Income tax expense | |||
| Net loss from discontinued operations after income taxes | ( |
) |
The following table summarizes the cash flows from discontinued operations:
| January 31, 2021 | |||
| $ | |||
| Net cash (used in) provided by operating activities of discontinued operations | |||
| Net cash provided by investing activities of discontinued operations | |||
| Net cash used in financing activities of discontinued operations | ( |
) |
5. SECURITY DEPOSIT
The Company has a security deposit with the Alberta Energy Regulator ("AER") under the AER's Liability Management programs to cover potential liabilities relating to its wells. The required security deposit with the AER is determined based on a monthly licensee management rating assessment. At January 31, 2021, the security deposit had a balance of $
6. RECEIVABLES
| January 31, 2021 | |||
| $ | |||
| Sales taxes receivable | |||
| Trade receivables, net | |||
At January 31, 2021, trade receivables are presented net of a provision for expected credit losses of $
| p. 16 |
|
C21 INVESTMENTS INC. |
7. INVENTORY
| January 31, 2021 | |||
| $ | |||
| Finished goods | |||
| Work in process | |||
| Raw materials | |||
8. PROPERTY AND EQUIPMENT AND RIGHT-OF-USE ASSETS
Property and equipment
The following table summarizes the Company's property and equipment:
| January 31, 2021 | |||
| $ | |||
| Land | |||
| Leasehold improvements | |||
| Furniture & fixtures | |||
| Computer equipment | |||
| Machinery & equipment | |||
| Less: accumulated depreciation and amortization | ( |
) | |
Total depreciation and amortization expense for the year ended January 31, 2021 was $
At January 31, 2021, the Company reclassified property and equipment with a cost of $
During the year ended January 31, 2021, the Company recorded a loss of $
During the year ended January 31, 2021, the Company transferred lights and equipment with a cost of $
Right-of-use assets
The Company's right-of-use assets result from its operating leases (note 11) and consist of land and buildings used in the cultivation, processing, and warehousing of its products.
During the year ended January 31, 2021, the Company amended lease agreements on three leases to extend their term. This resulted in right-of-use asset additions of $
| p. 17 |
|
C21 INVESTMENTS INC. |
8. PROPERTY AND EQUIPMENT AND RIGHT-OF-USE ASSETS (Continued)
For the year ended January 31, 2021, operating lease costs include right-of-use asset amortization of $
At January 31, 2021, the Company reclassified right-of-use assets with a carrying amount of $
At January 31, 2021, the Company reclassified right-of-use assets with a carrying amount of $
9. INTANGIBLE ASSETS AND GOODWILL
Intangible assets
The following table summarizes the Company's intangible assets:
| January 31, 2021 | |||
| $ | |||
| Licenses | |||
| Brands | |||
| Customer relationships | |||
| Less: accumulated amortization | ( |
) | |
Total amortization expense from intangible assets for the year ended January 31, 2021 was $
During the year ended January 31, 2021, the Company sold a brand for $
At January 31, 2021, the Company reclassified intangible assets with a cost of $
Goodwill
As at January 31, 2021, the Company had goodwill of $
| p. 18 |
|
C21 INVESTMENTS INC. |
10. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The following table summarizes the Company's accounts payable and accrued liabilities:
| January 31, 2021 | |||
| $ | |||
| Accounts payable | |||
| Accrued liabilities | |||
| Interest payable | |||
11. LEASES
On February 1, 2020 the Company adopted ASC 842 using the modified retrospective transition approach which requires the recognition of lease assets and liabilities for operating and finance leases. Beginning on February 1, 2020, the Company's financial statements are presented in accordance with the revised policy.
The Company's accounting policy is described in note 3. As a result of the adoption of ASC 842, the Company recorded operating right-of-use assets of $
The Company's leases consist of land and buildings used in the cultivation, processing, and warehousing of its products. All leases were found to be operating leases in accordance with ASC 842.
The following table presents the Company's active leases and total lease term under contract:
| Entity Name/Lessee | Asset |
Useful life (years) |
Type |
| Swell Companies, LTD | Land/Building |
|
Operating lease |
| Silver State Cultivation LLC | Land/Building |
|
Operating lease |
| Silver State Relief LLC (Sparks) | Land/Building |
|
Operating lease |
| Silver State Relief LLC (Fernley) | Land/Building |
|
Operating lease |
| Megawood Enterprises Inc. | Land/Building |
|
Operating lease |
| Phantom Distribution, LLC | Land/Building |
|
Operating lease |
| 63353 Bend, LLC | Land/Building |
|
Operating lease |
| 20727-4 Bend, LLC | Land/Building |
|
Operating lease |
| 4964 BFH, LLC | Land/Building |
|
Operating lease |
For the year ended January 31, 2021, the Company incurred operating lease costs of $
The following table displays the weighted average discount rate used in calculating lease liabilities and weighted average remaining lease term:
| January 31, 2021 | |||
| Weighted average discount rate | |||
| Weighted average remaining lease term (years) |
|
| p. 19 |
|
C21 INVESTMENTS INC. |
11. LEASES (Continued)
The maturity of the contractual undiscounted lease liabilities of the Company's operating leases as of January 31, 2021 is as follows:
| Year ending January, | Continuing operations |
Discontinued operations |
Total | ||||||
| $ | |||||||||
| 2022 | |||||||||
| 2023 | |||||||||
| 2024 | |||||||||
| 2025 | |||||||||
| 2026 | |||||||||
| Thereafter | |||||||||
| Total undiscounted lease liabilities | |||||||||
| Interest on lease liabilities | ( |
) | ( |
) | ( |
) | |||
| Total present value of minimum lease payments | |||||||||
| Current portion of lease liability | |||||||||
| Non-current portion of lease liability |
As at January 31, 2021, liabilities classified as held for sale includes lease liabilities of $
12. CONVERTIBLE DEBENTURES AND PROMISSORY NOTES
The Company early adopted ASU 2020-06 on February 1, 2021 using the full retrospective method. The adoption eliminates the cash conversion and beneficial conversion feature models used to separately account for embedded conversion features as a component of equity.
Transaction costs related to the issuance of convertible promissory notes are apportioned to their respective financial liability and equity components (if applicable) in proportion to the allocation of proceeds as a reduction to the carrying amount of each component.
When valuing the financial liability component of the convertible debentures and promissory notes, the Company used specific interest rates assuming no conversion features existed. The resulting liability component is accreted to its face value over the convertible note's term until its maturity date.
Convertible debentures
The following is the continuity of the Company's convertible debentures issued in Canadian dollars. All below disclosure is denominated in U.S. dollars:
| December 31, 2018 issuance |
January 30, 2019 issuance |
Total | |||||||
| $ | $ | $ | |||||||
| Balance, January 31, 2020 | |||||||||
| New issuances on exercise of warrants | |||||||||
| Conversions | ( |
) | ( |
) | ( |
) | |||
| Interest | |||||||||
| Accretion expense | |||||||||
| Interest paid - cash | ( |
) | ( |
) | ( |
) | |||
| Foreign exchange loss | |||||||||
| Balance, January 31, 2021 |
| p. 20 |
|
C21 INVESTMENTS INC. |
12. CONVERTIBLE DEBENTURES AND PROMISSORY NOTES (Continued)
The following transactions occurred during the year ended January 31, 2021:
(a)
(b)
(c)
(d)
The following is a continuity of the Company's convertible promissory notes denominated in U.S. dollars:
| June 13, 2018 | January 23, 2019 | May 24, 2019 | ||||||||||
| issuance | issuance | issuance | Total | |||||||||
| $ | $ | $ | $ | |||||||||
| Balance, January 31, 2020 | ||||||||||||
| Payment | ( |
) | ( |
) | ||||||||
| Interest | ||||||||||||
| Accretion expense | ||||||||||||
| Balance, January 31, 2021 |
On June 13, 2018, the Company issued convertible promissory notes to the vendors that sold Eco Firma Farms, LLC to the Company in the aggregate principal amount of $
On issuance, the Company determined the conversion feature was a derivative liability as the convertible promissory notes are exercisable in USD while the functional currency of the Company is Canadian dollars. The fair value of the conversion feature as at January 31, 2021 was $
On January 23, 2019, the Company issued a convertible promissory note to the vendor that sold Megawood Enterprises, Inc. to the Company in the principal amount of $
| p. 21 |
|
C21 INVESTMENTS INC. |
12. CONVERTIBLE DEBENTURES AND PROMISSORY NOTES (Continued)
On May 24, 2019, the Company issued a two-year unsecured convertible promissory note to a debtor of Swell Companies in the principal amount of $
On May 24, 2021 the note was fully repaid.
Promissory notes
The following is a continuity of the Company's promissory notes denominated in U.S. dollars:
| January 1, 2019 | |||
| issuance | |||
| $ | |||
| Balance, January 31, 2020 | |||
| Payments | ( |
) | |
| Balance, January 31, 2021 | |||
| Current portion | |||
| Non-current portion |
On January 1, 2019, the Company issued a promissory note to Mr. Newman, who sold Silver State to the Company in the principal amount of $
On July 1, 2019, the terms of the promissory note payable for the acquisition of Silver State were amended to call for immediate payment of $
Effective November 21, 2019 and June 25, 2020, Mr. Newman and the Company agreed to further amend the terms of the secured promissory note due to Mr. Newman. The December 1, 2019 principal payment of $
On November 19, 2020, the Company announced agreement with Mr. Newman that the remaining $
For the year ended January 31, 2021, interest expense was $
| p. 22 |
|
C21 INVESTMENTS INC. |
13. RECLAMATION OBLIGATION
The Company has recorded a decommissioning provision in connection with estimated reclamation costs on a previously written off property. The obligation is recognized based on the estimated future reclamation costs. The Company had two wells in Alberta which were determined to be uneconomic and costs have been incurred to plug these wells. Reclamation and remediation work is still required to bring the site back to its natural state.
14. DERIVATIVE LIABILITIES
The following reflects the continuity of derivative liabilities:
|
Conversion |
Earn out shares | Total | |||||||
| $ | $ | $ | |||||||
| Balance, January 31, 2020 | |||||||||
| Fair value adjustment on derivative liabilities | |||||||||
| Effect of foreign exchange | |||||||||
| Balance, January 31, 2021 |
Upon the February 4, 2019 acquisition of Phantom Farms the vendors can earn up to
Upon the May 24, 2019 acquisition of Swell Companies the vendors can earn up to
Significant inputs into the Monte Carlo simulation used to determine the fair value of earn of earn out shares were as follows:
| Earn out shares | |||
| January 31, 2021 | |||
| Discount rate | |||
| Expected life in years | |||
| Expected stock volatility | |||
| Expected volatility of foreign exchange |
| p. 23 |
|
C21 INVESTMENTS INC. |
14. DERIVATIVE LIABILITIES (CONTINUED)
The fair value of the conversion features of the convertible promissory notes is determined using a Black-Scholes option pricing model. Significant inputs into the calculation were as follows:
|
Conversion |
Conversion |
|||||
| January 31, 2021 | January 31, 2021 | |||||
| Discount rate | ||||||
| Expected life in years | ||||||
| Expected stock volatility | ||||||
| Stock price (CAD) | $ | $ | ||||
| Exercise price (CAD) | $ | $ |
As at January 31, 2021, the conversion features of the June 13, 2018 and May 24, 2019 convertible promissory notes had fair values of $
15. SHAREHOLDERS' EQUITY
Common stock consists of one class of fully paid common shares, with no par value. The Company is authorized to issue an unlimited number of common shares. All shares are equally eligible to receive dividends and repayment of capital and represent one vote at the Company's shareholders' meetings.
The following table reflects the continuity of common stock for the year ended January 31, 2021:
|
Number of |
Common stock | |||||
| $ | ||||||
| Balance, January 31, 2020 | ||||||
| Shares issued - acquisition of Phantom Farms (i) | ||||||
| Shares issued - Megawood (ii) | ||||||
| Shares issued - option exercises (iii) | ||||||
| Shares issued - conversion of debentures (iv) | ||||||
| Shares issued - Swell commitment (v) | ||||||
| Shares issued - EFF commitment (vi) | ||||||
| Standby warrants issued | - | |||||
| Share-based compensation | - | |||||
| Balance, January 31, 2021 |
(i) On February 19, 2020, the Company amended the terms of the purchase of Phantom Farms, including SDP. The amended terms of the purchase agreement regarding the real estate assets of SDP group resulted in the Company electing to purchase the real estate of the Phantom Farms outdoor grow (two parcels), and SDP receiving
(ii) On February 21, 2020, the Company repaid the convertible promissory note with a cash payment of $
| p. 24 |
|
C21 INVESTMENTS INC. |
15. SHAREHOLDERS' EQUITY (CONTINUED)
(iii) On October 15, 2020, the Company issued
(iv) During the year ended January 31, 2021 the Company issued
(v) On November 23, 2020, the Company issued
(vi) On December 30, 2020, the Company issued
Commitment to issue shares
The Company issued a promissory note payable to deliver
Warrants
The following summarizes the Company's warrant activity:
|
Warrants outstanding |
Weighted average exercise price |
Weighted average remaining life |
|||||||
| # | C$ | Years | |||||||
| Balance January 31, 2020 |
|
||||||||
| Issued | |||||||||
| Balance, January 31, 2021 |
|
As at January 31, 2021, the following warrants were outstanding and exercisable:
| Expiry Date | Exercise Price |
Number of |
||||
| C$ | # | |||||
| February 4, 2021 | ||||||
| May 28, 2021 | ||||||
| December 31, 2023 | ||||||
| January 30, 2024 | ||||||
| May 24, 2024 | ||||||
On May 28, 2020, the Company extended the expiry date of
On February 4, 2021,
| p. 25 |
|
C21 INVESTMENTS INC. |
15. SHAREHOLDERS' EQUITY (Continued)
On June 17, 2021,
Stock options
The Company is authorized to grant options to executive officers and directors, employees and consultants, enabling them to acquire up to 10% of the issued and outstanding common shares of the Company. The exercise price of each option is set by the Board of Directors and shall not be less than the market price of the Company's shares on the date of grant. The options can be granted for a maximum term of
Details of the Company's stock option activity are as follows:
|
Options |
Weighted |
Weighted |
|||||||
| # | C$ | Years | |||||||
| Balance January 31, 2020 |
|
||||||||
| Granted | |||||||||
| Exercised | ( |
) | |||||||
| Expired/Cancelled | ( |
) | |||||||
| Balance, January 31, 2021 |
|
As at January 31, 2021, the following stock options were outstanding and exercisable:
| Expiry Date | Exercise Price | Outstanding | Exercisable | ||||||
| C$ | # | # | |||||||
| June 25, 2021 | |||||||||
| February 5, 2022 | |||||||||
| October 9, 2022 | |||||||||
| January 24, 2023 | |||||||||
| August 17, 2023 | |||||||||
| January 28, 2024 | |||||||||
| October 9, 2024 | |||||||||
During the year ended January 31, 2021, the Company recorded a share-based compensation expense of $
| Expiry Date | 2021 | ||
| Risk-free rate | |||
| Expected term of options |
|
||
| Annualized volatility | |||
| Dividend rate |
| p. 26 |
|
C21 INVESTMENTS INC. |
16. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expenses for the year ended January 31, 2021 were comprised of the following:
| 2021 | |||
| $ | |||
| Accounting and legal | |||
| Depreciation and amortization | |||
| License fees, taxes and insurance | |||
| Office Facilities and administrative | |||
| Operating lease cost | |||
| Other | |||
| Professional Fees and consulting | |||
| Salaries and wages | |||
| Share-based compensation | |||
| Shareholder Communications | |||
| Travel and entertainment | |||
17. SEGMENTED INFORMATION
The Company defines its major geographic operating segments as Oregon and Nevada. Due to the jurisdictional cannabis compliance issues ever-present in the industry, each state operation is by nature operationally segmented.
Key decision makers primarily review revenue, cost of sales expense, and gross margin as the primary indicators of segment performance. As the Company continues to expand via acquisition, the segmented information will expand based on management's agreed upon allocation of costs beyond gross margin.
Segmented operational activity and balances are as follows:
| January 31, 2021 |
Discontinued |
Nevada | Corporate | Consolidated | ||||||||
| $ | $ | $ | $ | |||||||||
| Total revenue | ||||||||||||
| Gross profit | ||||||||||||
| Operating expenses: | - | - | ||||||||||
| Selling, general and administrative | ( |
) | ( |
) | ( |
) | ( |
) | ||||
| Operating lease cost | ( |
) | ( |
) | ( |
) | ||||||
| Depreciation and amortization | ( |
) | ( |
) | ( |
) | ( |
) | ||||
| Share-based compensation | ( |
) | ( |
) | ||||||||
| Impairment of inventory | ( |
) | ( |
) | ||||||||
| Interest, accretion, and other | ( |
) | ( |
) | ( |
) | ( |
) | ||||
| Net income (loss) before taxes | ( |
) | ( |
) | ( |
) |
Entity-wide disclosures
All revenue for the year ended January 31, 2021 was earned in the United States.
For the year ended January 31, 2021, no customer represented more than 10% of the Company's net revenue.
| p. 27 |
|
C21 INVESTMENTS INC. |
17. SEGMENTED INFORMATION (Continued)
The following table displays the disaggregation of long-lived assets by geographic area:
|
January 31, |
|||
| $ | |||
| Nevada | |||
| Discontinued operations (Oregon) | |||
| Other | |||
| Total |
18. COMMITMENTS
The Company and its subsidiaries are committed under lease agreements with related parties, for land, office space, and equipment in Nevada and Oregon as well as for mortgage payments on a building held for sale. At January 31, 2021, the Company has the following future minimum payments:
| Mortgage |
Leases with |
Total | |||||||
| $ | $ | $ | |||||||
| 2022 | |||||||||
| 2023 | |||||||||
| 2024 | |||||||||
| 2025 | |||||||||
| 2026 | |||||||||
| Thereafter | |||||||||
Leases with related parties includes $
19. INCOME TAXES
The Company is a Canadian resident company, as defined in the Income Tax Act (Canada) (the "ITA"), for Canadian income tax purposes. However, it has subsidiaries that are treated as United States corporations for US federal income tax purposes per the Internal Revenue Code (US) ("IRC") and are thereby subject to federal income tax on their worldwide income. As a result, the Company is subject to taxation both in Canada and the United States.
The components of the income tax provision for the year ended January 31, 2021 include:
|
January 31, 2021 |
|||
| $ | |||
| Current | |||
| Canadian | |||
| US Federal | |||
| Total current income tax expense | |||
| Deferred | |||
| Canadian | |||
| US Federal | |||
| Total deferred income tax recovery | |||
| Total income tax expense |
| p. 28 |
|
C21 INVESTMENTS INC. |
19. INCOME TAXES (Continued)
The domestic and foreign components of loss before provision for income taxes consisted of the following:
|
January 31, |
|||
| $ | |||
| Canadian | ( |
) | |
| US Federal | |||
| Loss before income taxes | ( |
) |
A reconciliation of the statutory income tax rate percentage to the effective tax rate for the year ended January 31, 2021 is as follows:
|
January 31, |
|||
| $ | |||
| Loss for the year | ( |
) | |
| Statutory rate | |||
| Income tax recovery at statutory rate | ( |
) | |
| Non-deductible expenditures and non-taxable revenues | |||
| Foreign tax rate differential | ( |
) | |
| Change in valuation allowance | |||
| Adjustment to provision versus statutory tax returns | |||
The significant components of the Company's deferred tax assets as follows at January 31, 2021:
|
January 31, |
|||
| $ | |||
| Deferred tax assets | |||
| Share issuance costs and financing fees | |||
| Allowable capital losses | |||
| Non-capital losses | |||
| Intangible assets | |||
| Mineral resource properties | |||
| Right of use assets and lease liabilities, net | |||
| Goodwill | |||
| Reclamation obligation | |||
| Total deferred tax assets | |||
| Valuation allowance | ( |
) | |
| Total net deferred tax assets | |||
| Deferred tax liabilities | |||
| Property and equipment | ( |
) | |
| Net deferred tax asset |
| p. 29 |
|
C21 INVESTMENTS INC. |
19. INCOME TAXES (Continued)
Realization of deferred tax assets associated with the net operating loss carryforwards is dependent upon generating sufficient taxable income prior to their expiration. A valuation allowance to reflect management's estimate of the net operating loss carryforwards that may expire prior to their utilization has been recorded at January 31, 2021.
As the Company operates in the cannabis industry, the Company is subject to the limits of Internal Revenue Code ("IRC") Section 280E for US federal income tax purposes as well as state income tax purposes for all states except for California and Colorado. Under IRC Section 280E, the Company is only allowed to deduct expenses directly related to costs of goods sold. This results in permanent differences between ordinary and necessary business expenses deemed non-allowable under IRC Section 280E.
Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred by the Canadian entity over the three-year period ended January 31, 2021. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth.
On the basis of this evaluation, as of January 31, 2021, a valuation allowance of $
The Company recognizes benefits from uncertain tax positions based on the cumulative probability method whereby the largest benefit with a cumulative probability of greater than 50% is recorded. An uncertain tax position is not recognized if it has less than a 50% likelihood of being sustained. As of January 31, 2021, the Company has not recorded any uncertain tax assets or liabilities.
The Company does not expect that uncertain tax benefits will materially change in the next 12 months. The Company is subject to taxation in Canada and the United States. As of January 31, 2021, tax years for 2019 and 2020 are subject to examination by the tax authorities. The 2018 tax year is also subject to investigation in Canada.
20. RELATED PARTY TRANSACTIONS
Balances due to related parties included in accounts payable, accrued liabilities, and promissory note payable at January 31, 2021:
| January 31, 2021 | |||
| $ | |||
| Due to the President and CEO | |||
| Lease liabilities due to a company controlled by the CEO | |||
| Lease liabilities due to SDP Development | |||
| Due to the CFO of the Company | |||
| p. 30 |
|
C21 INVESTMENTS INC. |
20. RELATED PARTY TRANSACTIONS (continued)
Due to the President and CEO consists of promissory note principal and interest and reimbursable expenses incurred in the normal course of business.
The Company had the following transactions with related parties including key management personnel during the year ended January 31, 2021:
| January 31, 2021 | |||
| $ | |||
| Consulting fees paid to a director | |||
| Amounts paid to CEO or companies controlled by CEO | |||
| Salary paid to directors and officers | |||
| Share compensation for directors and officers | |||
| Convertible debenture interest paid to directors and officers | |||
| Lease payments made to SDP Development | |||
Amounts paid to CEO or companies controlled by CEO consists of salary, lease payments, and promissory note principal and interest.
On February 12, 2020, the Company amended the purchase agreement with SDP Development, of which a director of the Company is a principal owner. The Company had agreed on February 4, 2019 to purchase SDP Development on October 15, 2020, which owned
On February 12, 2020 the parties agreed to the following modified terms: the Company purchased the
On November 16, 2020, the Company amended the terms of the three Nevada leases with Double G Holdings (a Company controlled by the Company's President and CEO). The term of the two dispensary leases and the warehouse lease was extended to November 30, 2027 with a right to extend for a further
| p. 31 |
|
C21 INVESTMENTS INC. |
21. EARNINGS PER SHARE
The following is a reconciliation for the calculation of basic and diluted earnings per share for the year ended January 31, 2021:
|
January 31, 2021 |
|||
| Net loss from continuing operations after income taxes | $ | ( |
) |
| Net loss from discontinued operations after income taxes | $ | ( |
) |
| Net loss | $ | ( |
) |
| Weighted average number of common shares outstanding | |||
| Dilutive effect of warrants and stock options outstanding | |||
| Diluted weighted average number of common shares outstanding | |||
| Basic loss per share, continuing operations | $ | ( |
) |
| Diluted loss per share, continuing operations | $ | ( |
) |
| Basic loss per share, discontinued operations | $ | ( |
) |
| Diluted loss per share, discontinued operations | $ | ( |
) |
| Basic loss per share | $ | ( |
) |
| Diluted loss per share | $ | ( |
) |
The computation of diluted earnings per share excludes the effect of the potential exercise of warrants and stock options when the average market price of the common stock is lower than the exercise price of the respective warrant or stock option and when inclusion of these amounts would be anti-dilutive. For the year ended January 31, 2021, the number of warrants and stock options excluded from the computation was
22. CONTINGENCIES
From time to time, the Company is involved in various litigation matters arising in the ordinary course of its business. Management is of the opinion that disposition of any current matter will not have a material adverse impact on the Company's balance sheet, results of operations, or the ability to carry on any of its business activities.
Legal proceedings
Oregon Action: A complaint was filed in the Oregon State Circuit Court for Clackamas County, on April 29, 2019, by two current owners of Proudest Monkey Holdings, LLC (the former sole member of EFF) (the "Plaintiffs"), alleging contract, employment, and statutory claims, alleging $
| p. 32 |
|
C21 INVESTMENTS INC. |
22. CONTINGENCIES (Continued)
On October 22, 2020, the Company submitted a petition to recover the costs and attorney fees incurred by the Company as the prevailing party in the Oregon Action. On January 20, 2021, the Court ruled in the Company's favor, awarding the Company and its subsidiaries $
The parties have since briefed the appeal to the Oregon Court of Appeals and await a determination from the Court. It is too early to predict the resolution of the appeal.
British Columbia Action: On or about September 13, 2019, the Company delivered a notice to the above-mentioned Plaintiffs of alleged breach and default under the EFF purchase and sale agreement, due to alleged unlawful, intentional acts and material misrepresentations by the Plaintiffs before and after the completion of the purchase. As a result of such breach, the Company denied the Plaintiffs' tender of their share payment notes in connection with the agreement. On or about October 14, 2019, Proudest Monkey Holdings, LLC and one of its current owners, sued the Company in the Supreme Court of British Columbia to compel the issuance and delivery of the subject shares, including interests and costs (the "British Columbia Action").
On November 8, 2019, the Company responded and counterclaimed for general, special and punitive damages, including interest and costs, related to breach of contract, repudiation of contract, breach of indemnity and fraudulent and negligent misrepresentation by the Plaintiffs. Plaintiffs filed a response to the Company's counterclaims on or about June 5, 2020, and the parties stipulated to a form of amended pleading which included the joinder of additional parties, an owner of Proudest Monkey Holdings, LLC and EFF, and additional contract and equitable claims and damages, partially duplicative to those alleged by the Plaintiffs in the Oregon lawsuit (breach of contract, indemnity, unjust enrichment and wrongful termination claims). Plaintiffs allege $
Settled and Dismissed Action: On or about May 30, 2019, Wallace Hill Partners Ltd. ("Wallace Hill") filed a civil claim in the Supreme Court of British Columbia alleging breach of contract and entitlement to
On March 23, 2022, the Company and Wallace Hill entered into a mutual release agreement, pursuant to which, among other things, all parties agreed to dismiss their respective claims and to release one another from any further causes of action in connection with the subject matter of the original claims. On April 23, 2022, the parties filed a Notice of Discontinuance in the Supreme Court of British Columbia formally dismissing the civil action.
| p. 33 |
|
C21 INVESTMENTS INC. |
23. FINANCIAL INSTRUMENTS
The following tables present information about the Company's financial instruments and their classifications as of January 31, 2021 and indicate the fair value hierarchy of the valuation inputs utilized to determine such fair value:
Fair value measurements at January 31, 2021 using:
| Level 1 | Level 2 | Level 3 | Total | |||||||||
| $ | $ | $ | $ | |||||||||
| Financial liabilities: | ||||||||||||
| Conversion features of convertible promissory notes (note 14) | ||||||||||||
| Earn out shares (note 14) |
The fair value of the conversion feature of convertible promissory notes was determined using the Black-Scholes option pricing model. The assumptions in the model were based on the share price and other active market data that is observable as well as unobservable estimates and therefore represent a level 3 measurement.
The fair value of the derivative liability associated with the earn out shares was derived using a Monte Carlo simulation using non-observable inputs, and therefore represent a level 3 measurement.
| p. 34 |
Item 19. Exhibits
*Previously filed
SIGNATURES
The Registrant hereby certifies that it meets all of the requirements for filing on Form 20-F/A and has *duly caused and authorized the undersigned to sight this Annual Report on its behalf.
| C21 Investments Inc. | ||
| By: | /s/ Sonny Newman | |
| Name: | Sonny Newman | |
| Title: | President and Chief Executive Officer | |
Date: July 27, 2023
Exhibit 12.1
CERTIFICATION REQUIRED BY RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, Sonny Newman, certify that:
1. I have reviewed this annual report on Form 20-F/A of C21 Investments Inc. (the “Issuer”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Issuer as of, and for, the periods presented in this report;
4. The Issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Issuer and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the Issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the Issuer's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Issuer's internal control over financial reporting.
5. The Issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Issuer's auditor and the audit committee of the Issuer's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Issuer's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Issuer's internal control over financial reporting.
| Date: July 27, 2023 | By: | /s/ Sonny Newman |
| Sonny Newman President and Chief Executive Officer (Principal Executive Officer) |
Exhibit 12.2
CERTIFICATION REQUIRED BY RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, Michael Kidd, certify that:
1. I have reviewed this annual report on Form 20-F/A of C21 Investments Inc. (the “Issuer”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Issuer as of, and for, the periods presented in this report;
4. The Issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the issuer and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the Issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the Issuer's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Issuer's internal control over financial reporting.
5. The Issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Issuer's auditor and the audit committee of the Issuer's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Issuer's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Issuer's internal control over financial reporting.
| Date: July 27, 2023 | By: | /s/ Michael Kidd |
| Michael Kidd Chief Financial Officer and Director (Principal Financial and Accounting Officer) |
Exhibit 13.1
CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of C21 Investments Inc. (the “Company”) on Form 20-F/A for the period ended January 31, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Sonny Newman, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| July 27, 2023 | /s/ Sonny Newman |
| Sonny Newman | |
| President and Chief Executive Officer | |
| (Principal Executive Officer) |
A signed original of this written statement required by Section 906 has been provided to C21 Investments Inc. and will be retained by C21 Investments Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 13.2
CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of C21 Investments Inc. (the “Company”) on Form 20-F/A for the period ended January 31, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael Kidd, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| July 27, 2023 | /s/ Michael Kidd |
| Michael Kidd | |
| Chief Financial Officer | |
| (Principal Financial and Accounting Officer) |
A signed original of this written statement required by Section 906 has been provided to C21 Investments Inc. and will be retained by C21 Investments Inc. and furnished to the Securities and Exchange Commission or its staff upon request.