UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For the quarterly period ended OR |
For the transition period from to Commission file number: |
(Exact name of registrant as specified in its charter)
| ||
(State or other jurisdiction of incorporation or organization) | (I.R.S. employer identification no.) | |
(Address of principal executive offices) | (Zip code) |
( |
(Registrant’s telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since last report) Securities registered pursuant to Section 12(b) of the Act: None |
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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
Emerging growth company |
If an emerging growth company, 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
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of July 31, 2023, there were
TILT HOLDINGS INC.
INDEX
2
USE OF NAMES AND CURRENCY
In this Quarterly Report on Form 10-Q, unless the context otherwise requires, the terms “we,” “us,” “our,” “Company,” or “TILT” refer to TILT Holdings Inc. together with its wholly-owned subsidiaries.
Unless otherwise indicated, all references to “$,” “US$” or “USD$” in this Quarterly Report on Form 10-Q refer to United States dollars, and all references to “C$” or “CAD$” refer to Canadian dollars.
DISCLOSURES REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes “forward-looking information” and “forward-looking statements” within the meaning of applicable Canadian and United States (“U.S.”) securities laws (collectively, “forward-looking statements”). Such statements include, but are not limited to, statements with respect to expectations, projections, or other characterizations of future events or circumstances, and our objectives, goals, strategies, beliefs, intentions, plans, estimates, projections and outlook, including statements relating to our plans and objectives, or estimates or predictions of actions of customers, suppliers, competitors or regulatory authorities. These statements are subject to certain risks, assumptions and uncertainties that could cause actual results to differ materially from those included in the forward-looking statements. The words “believe”, “plan”, “intend”, “estimate”, “expect”, “likely”, “potential”, “proposed,” “scheduled,” “forecast” or “anticipate”, and similar expressions, as well as future or conditional verbs such as “will”, “should”, “would,” “may”, “might” and “could” identify forward-looking statements.
Management of the Company has based the forward-looking statements on its current views with respect to future events and financial performance and has made assumptions and applied certain factors regarding, among other things: future product pricing; costs of inputs; the Company’s ability to successfully market its products to its anticipated clients; the Company’s reliance on its key personnel; certain regulatory requirements; the application of federal and state environmental laws; the impact of increasing competition; the ability to obtain additional financing on favorable terms; the receipt of applicable regulatory approvals; and the regulatory environments in which the Company operates. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. The Company’s forward-looking statements are expressly qualified in their entirety by this cautionary statement. The purpose of forward-looking statements is to provide the reader with a description of management’s expectations, and such forward-looking statements may not be appropriate for any other purpose.
By its nature, forward-looking information is subject to risks and uncertainties, and there are a variety of risk factors, many of which are beyond the control of the Company, and that may cause actual outcomes to differ materially from those discussed in the forward-looking statements. Such factors include, among others, the status of cannabis as a controlled substance under the U.S. Federal Controlled Substances Act (“CSA”); risks related to the enforcement activities by the U.S. Department of Justice (“DOJ”); risks related to the Company’s ability to continue as a going concern; reputational risk to third parties; risks associated with banking, financial transactions and anti-money laundering laws and regulations; risks related to federal and state forfeiture laws; the risk of heightened scrutiny by regulatory authorities; risks related to the potential negative impact of regulatory scrutiny on raising capital; risks related to regulatory or political change; risks due to industry immaturity or limited comparable, competitive or established industry best practices; risks related to the uncertainty surrounding existing protection from U.S. federal prosecution relating to cannabis laws; risks related to uncertainty with respect to geo-political disruptions; risks related to regulatory changes in relation to vaporization devices and subsequent impacts to interstate commerce, registrations and revenue reporting requirements, and potential excise tax applicability; risks relating to tax status; risks associated with the Company’s business model; risks related to the transition of the Company’s leadership; risks related to the Company’s dependency on skilled labor, equipment, parts, components and key inputs; risks related to the reliance on third party suppliers; risks related to adverse economic conditions, labor shortages, supply chain disruptions, inflationary pressures and increasing interest rates; the uncertainty of the impact of the coronavirus (“COVID-19”) pandemic on the Company and on the operations of the Company; risks that the Company’s actual financial position and results of operations may differ materially from the expectations of the Company’s management; risks related to the costs and obligations relating to the Company’s investment in infrastructure, growth, regulatory compliance and operations; risks related to the Company’s
3
dependency on regulatory approvals and licenses to conduct its business; risks related to the potential for changes in laws, regulations and guidelines which could adversely affect the Company’s future business; risks related to a failure on the part of the Company to comply with applicable regulations; risks related to the legal, regulatory and scientific status of cannabis; risks related to the Company’s ability to find suitable candidates and capital necessary to complete strategic alliances or partnerships; risks related to the Company’s ability to successfully identify and execute future acquisitions or dispositions; risks related to indebtedness and the Company’s ability to extend, refinance or repay such indebtedness; risks related to the Company’s ability to develop its products; risks related to the Company’s ability to achieve successful cultivation; risks related to adverse environmental conditions, accidents and labor disputes; risks related to the Company’s ability to turn a profit or generate immediate revenues; risks related to limitations on the permissible ownership of licenses; risks related to constraints on marketing the Company’s products under varying state laws; risks related to the potential results of future clinical research; risks related to the Company’s ability to effectively manage its growth and operations; risks related to the regulation of medical cannabis by the U.S. Food and Drug Administration (“FDA”); risks related to the differing local rules and regulations and the impact this may have on the Company’s ability to expand into new markets; risks related to the protection and enforcement of intellectual property rights and allegations that the Company is in violation of intellectual property rights of third parties; risks relating to access to banking; risks relating to disclosure of personal information to government or regulatory entities; risks related to potential requirement to disclose personal identifying information to government or regulatory entities; risk that the Company may be forced to litigate or defend its intellectual property rights, or to defend against claims by third parties against the Company relating to intellectual property rights; risks related to data privacy laws, rules and regulations; risks relating to fraudulent activity by employees, contractors and consultants, risks regarding the enforceability of contracts; risk of litigation generally; risks relating to increasing competition in the industry; risks relating to the Company’s ability to secure adequate or reliable sources of funding; risks relating to product recalls; risks relating to reliance on technology systems that may be subject to cyber-attacks or security breaches; risks that the Company’s officers and directors may be engaged in a range of business activities resulting in conflicts of interest; risks that the Company’s officers, directors and other parties may exert significant influence on the Company; risks relating to the Company’s inability to successfully implement adequate internal controls over financial reporting; risks relating to restrictions on entry to the U.S. for the Company’s Canadian individuals; risks relating to consumer perception; risks relating to the potential that bond requirements and insurance premiums may be economically prohibitive; risks relating to global economic and political instability and conflicts, such as the conflict between Russia and Ukraine; the risk that the Company’s web presence’s visibility is not limited by geography; risks relating to volatility in the market price of the Company’s securities; risks related to price volatility of publicly traded securities; risks related to dilution of the Company’s securities; risks related to the Company’s securities being currently quoted on the OTCQX; and other factors beyond our control, as more particularly described under the heading “Risk Factors” in this Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, the Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, and the Form 10-K for the fiscal year ended December 31, 2022 filed by the Company with the U.S. Securities and Exchange Commission (the “SEC”) on March 16, 2023 (the “Form 10-K”) and on the System for Electronic Document Analysis and Retrieval (“SEDAR”) at www.sedar.com.
Readers are cautioned that the foregoing list is not exhaustive of all factors and assumptions which may have been used. Although we have attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such forward-looking information and statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such information and statements. Accordingly, readers should not place undue reliance on forward-looking information and statements. The forward-looking information and statements contained herein are presented for the purposes of assisting readers in understanding our expected financial and operating performance and our plans and objectives and may not be appropriate for other purposes.
The forward-looking information and statements contained in this Quarterly Report on Form 10-Q represent our views and expectations as of the date of this Quarterly Report on Form 10-Q. We anticipate that subsequent events and developments may cause our views to change. However, while we may elect to update such forward-looking information and statements at a future time, we have no current intention of doing so except to the extent required by applicable law.
4
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
TILT HOLDINGS INC.
Condensed Consolidated Balance Sheets
(Amounts Expressed in Thousands of United States Dollars, Except for Share Amounts)
| June 30, 2023 |
| December 31, 2022 | |||
(unaudited) | (audited) | |||||
ASSETS | ||||||
Current assets | ||||||
Cash and cash equivalents | $ | | $ | | ||
Restricted cash | | | ||||
Trade receivables, net | | | ||||
Inventories | | | ||||
Loans receivable, current portion | — | | ||||
Prepaid expenses and other current assets | | | ||||
Assets held for sale | — | | ||||
Total current assets | | | ||||
Non-current assets | ||||||
Property, plant and equipment, net | | | ||||
Right-of-use assets – finance, net | | | ||||
Right-of-use assets – operating, net | | | ||||
Investments | | | ||||
Intangible assets, net | | | ||||
Loans receivable, net of current portion | | | ||||
Deferred tax asset | | — | ||||
Goodwill | | | ||||
Other assets | | | ||||
TOTAL ASSETS | $ | | $ | | ||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||
Current liabilities | ||||||
Accounts payable and accrued liabilities | $ | | $ | | ||
Income taxes payable | | | ||||
Deferred revenue | | | ||||
Finance lease liability, current portion | | | ||||
Operating lease liability, current portion | | | ||||
Notes payable, current portion | | | ||||
Total current liabilities | | | ||||
Non-current liabilities | ||||||
Finance lease liability, net of current portion | | | ||||
Operating lease liability, net of current portion | | | ||||
Notes payable, net of discount, net of current portion | | | ||||
Massachusetts lease liability | | | ||||
Deferred tax liability | — | | ||||
Other liabilities | | | ||||
TOTAL LIABILITIES | | | ||||
Shareholders’ equity | ||||||
Common shares, without par value, unlimited shares authorized, | | | ||||
Additional paid-in capital | | | ||||
Warrants | | | ||||
Accumulated other comprehensive income | | | ||||
Accumulated deficit | ( | ( | ||||
TOTAL SHAREHOLDERS’ EQUITY | | | ||||
Non-controlling interest | ( | | ||||
TOTAL EQUITY | | | ||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | | $ | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
TILT HOLDINGS INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)
(Amounts Expressed in Thousands of United States Dollars, Except Share and Per Share Amounts)
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||
Revenues, net | $ | | $ | | $ | | $ | | |||
Cost of goods sold | ( | ( | ( | ( | |||||||
Gross profit | | | | | |||||||
Operating expenses: | |||||||||||
Wages and benefits | | | | | |||||||
General and administrative | | | | | |||||||
Sales and marketing | | | | | |||||||
Share-based compensation expense (benefit) | ( | | ( | | |||||||
Depreciation and amortization | | | | | |||||||
Impairment loss and loss on disposal of assets | | | | | |||||||
Total operating expenses | | | | | |||||||
Operating loss | ( | ( | ( | ( | |||||||
Other income (expense): | |||||||||||
Interest income | ( | | — | | |||||||
Other income | | | | | |||||||
Change in fair value of warrant liability | — | | — | | |||||||
Gain on sale of assets | — | — | | | |||||||
Unrealized loss on investment | ( | ( | ( | ( | |||||||
Loan receivable losses | ( | ( | ( | ( | |||||||
Loss on foreign currency exchange | ( | — | ( | — | |||||||
Interest expense | ( | ( | ( | ( | |||||||
Total other expense | ( | ( | ( | ( | |||||||
Loss from operations before income tax and non-controlling interest | ( | ( | ( | ( | |||||||
Income taxes | |||||||||||
Income tax benefit | | | | | |||||||
Net loss before non-controlling interest | ( | ( | ( | ( | |||||||
Less: Net income attributable to non-controlling interest | | | | | |||||||
Net loss attributable to TILT Holdings Inc. | $ | ( | $ | ( | $ | ( | $ | ( | |||
Other comprehensive loss | |||||||||||
Net loss before non-controlling interest | $ | ( | $ | ( | $ | ( | $ | ( | |||
Foreign currency translation differences | ( | ( | ( | ( | |||||||
Comprehensive loss before non-controlling interest | ( | ( | ( | ( | |||||||
Less: Net income attributable to non-controlling interest | | | | | |||||||
Comprehensive loss attributable to TILT Holdings Inc. | $ | ( | $ | ( | $ | ( | $ | ( | |||
Weighted average number of shares outstanding: | |||||||||||
Basic and diluted | | | | | |||||||
Net loss per common share attributable to TILT Holdings Inc. | |||||||||||
Basic and diluted | $ | ( | $ | ( | $ | ( | $ | ( |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
TILT HOLDINGS INC.
Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)
(Amounts Expressed in Thousands of United States Dollars, Except Share Amounts)
Accumulated Other | Shareholders' | ||||||||||||||||||||||
Common Shares | Additional | Comprehensive | Accumulated | Non-Controlling | Equity | ||||||||||||||||||
Shares | Amount | Paid in Capital | Warrants | Income (Loss) | Deficit | Interest | Total | ||||||||||||||||
Balance - December 31, 2022 |
| |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | ( |
| $ | |
| $ | |
Share-based compensation | — | — | | — | — | — | — | | |||||||||||||||
Warrants expired | — | — | | ( | — | — | — | — | |||||||||||||||
Issuance and vesting of restricted share units | | | — | — | — | — | — | | |||||||||||||||
Shares reserved for contingent consideration | — | | — | — | — | — | — | | |||||||||||||||
Warrants issued as part of debt modification | — | — | — | | — | — | — | | |||||||||||||||
Comprehensive (loss) income for the period | — | — | — | — | ( | ( | | ( | |||||||||||||||
Balance - March 31, 2023 | | $ | | $ | | $ | | $ | | $ | ( | $ | | $ | | ||||||||
Share-based compensation | — | — | | — | — | — | — | | |||||||||||||||
Issuance and vesting (forfeiture) of restricted share units | | ( | — | — | — | — | — | ( | |||||||||||||||
Shares reserved for contingent consideration | — | ( | — | — | — | — | — | ( | |||||||||||||||
Comprehensive loss for the period | — | — | — | — | ( | ( | ( | ( | |||||||||||||||
Balance - June 30, 2023 | | $ | | $ | | $ | | $ | | $ | ( | $ | ( | $ | |
Accumulated Other | Shareholders’ | ||||||||||||||||||||||
Common Shares | Additional | Comprehensive | Accumulated | Non-Controlling | Equity | ||||||||||||||||||
| Shares |
| Amount |
| Paid in Capital |
| Warrants |
| Income (Loss) |
| Deficit |
| Interest |
| Total | ||||||||
Balance - December 31, 2021 | | $ | | $ | | $ | | $ | | $ | ( | $ | | $ | | ||||||||
Share-based compensation | — | — | | — | — | — | — | | |||||||||||||||
Issuance and vesting of restricted share units | | | — | — | — | — | — | | |||||||||||||||
Shares reserved for contingent consideration | — | | — | — | — | — | — | | |||||||||||||||
Comprehensive income (loss) for the period | — | — | — | — | | ( | ( | ( | |||||||||||||||
Balance - March 31, 2022 | | $ | | $ | | $ | | $ | | $ | ( | $ | | $ | | ||||||||
Share-based compensation | — | — | | — | — | — | — | | |||||||||||||||
Issuance and vesting of restricted share units | | | — | — | — | — | — | | |||||||||||||||
Shares reserved for contingent consideration | — | | — | — | — | — | — | | |||||||||||||||
Comprehensive loss for the period | — | — | — | — | ( | ( | ( | ( | |||||||||||||||
Balance - June 30, 2022 | | $ | | $ | | $ | | $ | | $ | ( | $ | | $ | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
TILT HOLDINGS INC.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Amounts Expressed in Thousands of United States Dollars)
Six Months Ended June 30, | ||||||
| 2023 |
| 2022 | |||
Cash flows from operating activities: | ||||||
Net loss | $ | ( | $ | ( | ||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||
Unrealized loss on investments | | | ||||
(Gain) loss on sale of assets and other | ( | | ||||
Depreciation and amortization | | | ||||
Amortization of operating lease right of use assets | | | ||||
Change in allowance for doubtful accounts | | ( | ||||
Non-cash interest income | — | ( | ||||
Deferred tax | ( | ( | ||||
Share-based compensation expense (benefit) | ( | | ||||
Accretion of debt discount | | | ||||
Change in fair value of warrant liability | — | ( | ||||
Loan receivable losses | | | ||||
Impairment loss and loss on disposal of assets | | | ||||
Inventory adjustments | | | ||||
Non-cash interest expense | | | ||||
Net change in working capital items: | ||||||
Trade receivables, net | | | ||||
Inventories | | | ||||
Prepaid expenses and other current assets | | ( | ||||
Accounts payable and accrued liabilities | ( | | ||||
Income tax payable | | | ||||
Deferred revenue | ( | ( | ||||
Net cash provided by operating activities | | | ||||
Cash flows from investing activities: | ||||||
Purchases of property, plant, and equipment | ( | ( | ||||
Proceeds from sale of property, plant and equipment | | | ||||
Repayment of loan receivable, net of advances | ( | ( | ||||
Net cash provided by (used in) investing activities | | ( | ||||
Cash flows from financing activities: | ||||||
Payments on lease liability | ( | ( | ||||
Repayments on notes payable and Massachusetts Lease Liability | ( | ( | ||||
Repayments on Revolving Facility | ( | ( | ||||
Debt issuance costs | ( | — | ||||
Proceeds from Revolving Facility | | | ||||
Proceeds from notes payable and Massachusetts Lease Liability | | | ||||
Net cash (used in) provided by financing activities | ( | | ||||
Effect of foreign exchange on cash and cash equivalents | ( | ( | ||||
Net change in cash and cash equivalents and restricted cash | | | ||||
Cash and cash equivalents and restricted cash, beginning of year | | | ||||
Cash and cash equivalents and restricted cash, end of year | $ | | $ | | ||
Supplemental disclosures of non-cash investing and financing activities: | ||||||
Increases to right of use assets related to Pennsylvania Transaction | $ | | $ | — | ||
Increase to operating lease liability related to Pennsylvania Transaction | $ | | $ | — | ||
Reclassification from accounts payable and accrued liabilities to notes payable related to 2023 New Notes (see Note 11) | $ | | $ | — | ||
Warrants issued related to 2023 Notes (equity classified) | $ | | $ | — | ||
Noteholder representative fee related to 2023 Refinanced Notes | $ | | $ | — | ||
Non-cash debt issuance cost | $ | | $ | — | ||
Decreases to right of use assets related to Taunton Facility transactions | $ | — | $ | | ||
Decreases to operating lease liability related to Taunton Facility transactions | $ | — | $ | | ||
Decreases to property, plant, and equipment related to Taunton Facility transactions | $ | — | $ | | ||
Supplemental disclosure of cash flow information: | ||||||
Cash paid for interest | $ | | $ | | ||
Cash paid for income taxes | $ | — | $ | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
8
1. Nature and Continuance of Operations
TILT Holdings Inc. (“TILT” or the “Company”) is a business solutions provider to the global cannabis industry offering a diverse range of value-added products and services to industry participants. Through a portfolio of companies providing technology, hardware, cultivation and production, TILT services brands and cannabis retailers in regulated markets across
TILT was incorporated under the laws of Nevada pursuant to NRS Chapter 78 on June 22, 2018. The Company was continued under the Business Corporations Act (British Columbia) pursuant to a Certificate of Continuance dated November 14, 2018. The Company is a reporting issuer in Canada in the Provinces of British Columbia, Alberta, and Ontario and its common shares are listed for trading on the Cboe Canada formerly known as the NEO Exchange under the symbol “TILT.” In addition, the common shares are quoted on the OTCQX in the U.S. under the symbol “TLLTF.” The Company’s head office is in Phoenix, Arizona and its registered office is located at 745 Thurlow Street, #2400 Vancouver, BC V6C 0C5 Canada.
Going Concern
The Company has experienced operating losses since its inception and may continue to incur losses in the development of its business. The Company incurred a comprehensive loss of $
During the six months ended June 30, 2023, the Company (i) completed the Pennsylvania Transaction (as defined below), (ii) refinanced the 2019 Junior Notes (as defined below), (iii) extended the maturity date of and increased the amount available under the Revolving Facility (as defined below) and (iv) obtained additional funds through the 2023 Bridge Notes (as defined below).
On February 15, 2023, the Company completed its previously announced sale-leaseback transaction with Innovative Industrial Properties, Inc. (“IIP”) pertaining to its White Haven, Pennsylvania facility (“White Haven Facility”) for $
On February 15, 2023, the Company entered into the NPA Amendment (as defined below) relating to the refinancing of the 2019 Junior Notes (as defined below) and issued the 2023 Refinanced Notes (as defined below) and the 2023 New Notes (as defined below). See Note 11 — Notes Payable for defined terms and more information. On February 15, 2023, the Company repaid the remaining balance of the senior secured promissory notes issued on November 1, 2019 (the “2019 Senior Notes”), retiring the remainder of its 2019 senior debt facility previously extended to February 28, 2023, with
On March 13, 2023, the Company, through its subsidiary Jupiter Research LLC (“Jupiter”), entered into an amendment to its existing $
On May 15, 2023, the Company and its subsidiaries issued senior secured promissory notes in the aggregate principal amount of $
For further details regarding these transactions, see Note 5 — Property, Plant and Equipment and Assets Held for Sale, Note 11 — Notes Payable and Note 13 — Leases.
All dollar amounts expressed in thousands, except per share amounts
9
The Company’s operating plans for the next 12 months include (i) increasing revenue growth from the sale of existing products and the introduction of new products across all operating segments; (ii) reducing production and operational costs as a result of efficiencies in cannabis operations; (iii) reducing supply chain costs; (iv) reducing and delaying overhead and other certain expenditures; and (v) obtaining other financings as necessary.
The Company believes that these actions will help to mitigate any substantial doubt raised by our historical operating results and satisfy our estimated liquidity needs for the 12 months following the issuance of these condensed consolidated financial statements. However, during the second quarter of 2023, a primary supplier significantly changed the payment terms of the Company’s trade payable. This was an unexpected event impacting short-term liquidity, therefore, the Company secured additional financing through the 2023 Bridge Notes to satisfy the transition of the new payment terms and provide working capital for the business. However, the issuance of the 2023 Bridge Notes caused the Company to have to obtain a waiver of the financial covenant defaults expected to occur for the 2023 Refinanced Notes (defined below) and 2023 New Notes (defined below). As a result of the waiver, the Company had to pay default interest rates on its 2023 Refinanced Notes and 2023 New Notes, which resulted in an increase from
As a result of this and other factors, the Company cannot predict with certainty the outcome of its actions to generate liquidity as discussed above, including the availability of additional financing as necessary, or whether such actions would generate the expected liquidity as currently planned. Therefore, management has concluded there is substantial doubt about the Company’s ability to continue as a going concern within 12 months after the date of this filing. The financial statements do not include any adjustments that might become necessary should the Company be unable to continue as a going concern. See Part II, Item 1A, Risk Factors for further details.
COVID-19 Pandemic and Global Conflicts
In March 2020, the World Health Organization categorized coronavirus disease 2019 (“COVID-19”) as a global pandemic. The Company continues to implement and evaluate actions to strengthen its financial position and support the continuity of its business and operations in response to the COVID-19 pandemic.
The impact of the COVID-19 pandemic and geopolitical conflicts, including the recent war in Ukraine, created much uncertainty in the global marketplace. There are many uncertainties regarding these events, and the Company is closely monitoring the ongoing impact on all aspects of its business, including how it will impact its services, customers, employees, vendors, and business partners now and in the future. While the COVID-19 pandemic and recent geopolitical conflicts did not materially adversely affect the Company’s financial results and business operations in the six months ended June 30, 2023, the Company is unable to predict the impact that these events will have on its future financial position and operating results due to numerous uncertainties.
2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated unaudited interim financial statements have been prepared in accordance with (i) United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information, and (ii) the instructions to Form 10-Q and (iii) Article 10 of Regulation S-X. In the opinion of our management, our condensed consolidated unaudited financial statements and accompanying notes (the “Financial Statements”) include all normal recurring adjustments that are necessary for the fair statement of the interim periods presented. Interim results of operations are not necessarily indicative of results for the full year, or any other period. The Financial Statements should be read in conjunction with our audited consolidated financial statements (and notes thereto) in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the “Form 10-K”), as filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 16, 2023 and with the relevant Canadian securities regulatory authorities under our profile on SEDAR. Except as noted below, there have been no material changes to the Company's significant accounting policies and estimates during the six months ended June 30, 2023. Certain information, footnotes and disclosures normally included
All dollar amounts expressed in thousands, except per share amounts
10
in the annual financial statements, prepared in accordance with U.S. GAAP, have been condensed or omitted in accordance with SEC rules and regulations.
The financial data included in the Financial Statements contain all normal and recurring adjustments necessary to state fairly the consolidated financial condition, results of operations, statements of stockholder’s equity, and cash flows of the Company for the six months ended June 30, 2023 and 2022. Operating results for the six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the current year ending December 31, 2023.
Principles of Consolidation
The Financial Statements have been prepared in accordance with U.S. GAAP and include the accounts of the Company and its subsidiaries, as well as the accounts of any entities over which the Company has a controlling financial interest in accordance with Accounting Standards Codification (“ASC”) 810 Consolidation. All transactions and balances between these entities have been eliminated upon consolidation.
Reclassifications
Certain amounts in the Company's prior period consolidated financial statements have been reclassified to conform to the current period presentation.
During the six months ended June 30, 2023, the Company reclassified $
During the six months ended June 30, 2023, the Company reclassified $
Use of Estimates
The preparation of these Financial Statements requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, and revenue and expenses. Actual results may differ from these estimates.
Restricted Cash
The Company had $
Estimated Useful Lives and Depreciation of Property, Plant and Equipment
Depreciation of property, plant and equipment is dependent upon estimates of useful lives which are determined through the exercise of judgment. The assessment of any impairment of these assets is dependent upon estimates of recoverable amounts that take into account factors such as economic and market conditions and the useful lives of assets.
All dollar amounts expressed in thousands, except per share amounts
11
Depreciation is provided on a straight-line basis over the following estimated useful lives:
Machinery and equipment | |
Furniture and fixtures | |
Autos and trucks | |
Buildings and land improvements | |
Leasehold improvements | Lesser of useful life of lease term |
Greenhouse - agricultural structure | |
Land | Not depreciated |
The assets’ residual values, useful lives and methods of depreciation are reviewed annually and adjusted prospectively, if appropriate. Buildings, leaseholds and land improvements are amortized over the shorter of either the useful life or term of the lease. Gains or losses on disposal of an item are determined by comparing the proceeds from disposal with the carrying amount of the item and recognized in the consolidated statements of operations and comprehensive loss.
Recently Adopted and Issued Accounting Pronouncements
Recent accounting pronouncements, other than those below, issued by the Financial Accounting Standards Board (“FASB”), the American Institute of Certified Public Accountants, and the SEC did not or are not believed by management to have a material effect on the Company’s present or future financial statements.
Recently Adopted Accounting Pronouncements
In August 2020, the FASB issued an accounting standards update (“ASU”) 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, which is intended to simplify the recognition of convertible instruments and contracts in an entity’s own equity. ASU 2020-06 reduces the number of accounting models for convertible debt instruments and convertible preferred stock, revises the derivatives scope exception, and makes targeted improvements to the related earnings per share guidance. ASU 2020-06 became effective for the Company in the first quarter of 2022. The ado