| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
2022
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
_________to ___________to
(§ ☒ Smaller reporting company ☒ Emerging growth company ☒
Page No. | ||||||
PART I. FINANCIAL INFORMATION | ||||||
Item 1. | 1 | |||||
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Item 4. | ||||||
Item 5. | ||||||
Item 6. | ||||||
ITEM 1. | FINANCIAL STATEMENTS |
SHEET
| March 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (Revised) | ||||||||
Assets | ||||||||
Cash | $ | 13,692 | $ | 11,015 | ||||
Restricted cash | 8,435 | 495 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $401 (December 31, 2020 - $401) | 4,360 | 3,351 | ||||||
Prepaid expenses | 4,639 | 3,611 | ||||||
Inventories | 26,174 | 25,451 | ||||||
Other assets | 3,200 | 1,700 | ||||||
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Current Assets | $ | 60,500 | $ | 45,623 | ||||
Investments | 532 | 512 | ||||||
Property, plant and equipment | 109,075 | 106,997 | ||||||
Right-of-use assets | 32,204 | 33,083 | ||||||
Other long-term assets | 7,752 | 8,137 | ||||||
Intangible assets | 154,818 | 158,781 | ||||||
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Total Assets | $ | 364,881 | $ | 353,133 | ||||
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Liabilities | ||||||||
Accounts payable | $ | 13,897 | $ | 12,089 | ||||
Accrued and other current liabilities | 67,450 | 55,053 | ||||||
Current portion of long-term debt | 161,443 | 157,042 | ||||||
Derivative liabilities | 282 | 245 | ||||||
Current portion of lease liabilities | 7,630 | 7,450 | ||||||
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Current Liabilities | $ | 250,702 | $ | 231,879 | ||||
Long-term debt, net of issuance costs | 25,590 | 14,133 | ||||||
Deferred income tax | 32,130 | 32,122 | ||||||
Long-term portion of lease liabilities | 26,948 | 27,670 | ||||||
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Total Liabilities | $ | 335,370 | $ | 305,804 | ||||
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Commitments and Contingencies | ||||||||
Shareholders’ Equity | ||||||||
Common shares — no par value. Authorized — unlimited number. 171,718 — issued and outstanding (December 31, 2020 — 171,718 — issued and outstanding) | $ | — | $ | — | ||||
Shares to be issued | 1,531 | 1,531 | ||||||
Additional paid-in capital | 771,574 | 769,940 | ||||||
Accumulated deficit | (743,594 | ) | (724,142 | ) | ||||
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Total Shareholders’ Equity | $ | 29,511 | $ | 47,329 | ||||
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Total Liabilities and Shareholders’ Equity | $ | 364,881 | $ | 353,133 | ||||
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March 31, | December 31, | |||||||
2022 | 2021 | |||||||
(Revised) | ||||||||
Assets | ||||||||
| Cash | $ | 14,078 | $ | 13,244 | ||||
| Restricted cash | 2,641 | 3,334 | ||||||
| Accounts receivable, net of allowance for doubtful accounts of $15 (December 31, 2021—$27) | 3,687 | 3,595 | ||||||
| Prepaid expenses | 5,060 | 3,178 | ||||||
| Inventories, net | 31,950 | 28,692 | ||||||
| Other current assets | 1,462 | 1,603 | ||||||
Current Assets | 58,878 | 53,646 | ||||||
| Investments | 536 | 568 | ||||||
| Property, plant and equipment, net | 109,716 | 112,634 | ||||||
Right-of-use | 32,529 | 30,429 | ||||||
| Other long-term assets | 3,897 | 8,650 | ||||||
| Intangible assets, net | 154,139 | 139,062 | ||||||
Total Assets | $ | 359,695 | $ | 344,989 | ||||
Liabilities and Shareholder’s Deficit | ||||||||
| Accounts payable | $ | 17,296 | $ | 13,636 | ||||
| Accrued and other current liabilities | 110,817 | 98,933 | ||||||
| Current portion of long-term debt, net of issuance costs | 178,562 | 165,381 | ||||||
| Derivative liabilities | 4 | 16 | ||||||
| Current portion of lease liabilities | 7,895 | 7,342 | ||||||
Current Liabilities | 314,574 | 285,308 | ||||||
| Long-term debt, net of issuance costs | 16,336 | 27,999 | ||||||
| Deferred income tax | 31,597 | 27,507 | ||||||
| Long-term portion of lease liabilities | 29,465 | 27,814 | ||||||
Total Liabilities | 391,972 | 368,628 | ||||||
Commitments and Contingencies | 0 | 0 | ||||||
Shareholders’ Deficit | ||||||||
Common shares—0 par value. Authorized— unlimited | 0— | 0— | ||||||
| Shares to be issued | 1,531 | 1,531 | ||||||
Additional paid-in capital | 777,926 | 776,462 | ||||||
| Accumulated deficit | (811,734 | ) | (801,632 | ) | ||||
Total Shareholders’ Deficit | $ | (32,277 | ) | $ | (23,639 | ) | ||
Total Liabilities and Shareholders’ Deficit | $ | 359,695 | $ | 344,989 | ||||
| For the Three Months Ended March 31, | ||||||||
| 2021 | 2020 | |||||||
Revenues, net of discounts | $ | 51,805 | $ | 30,426 | ||||
Costs and expenses applicable to revenues | (22,084 | ) | (14,974 | ) | ||||
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Gross profit | 29,721 | 15,452 | ||||||
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Operating expenses | ||||||||
Selling, general and administrative expenses | 23,686 | 27,741 | ||||||
Depreciation and amortization expenses | 7,374 | 6,414 | ||||||
Write-downs and other charges | 259 | 679 | ||||||
Impairment loss | — | 199,364 | ||||||
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Loss from operations | (1,598 | ) | (218,746 | ) | ||||
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Interest income | 124 | 12 | ||||||
Other income | 274 | 81 | ||||||
Interest expense | (5,678 | ) | (4,467 | ) | ||||
Accretion expense | (4,852 | ) | (4,004 | ) | ||||
Provision for debt obligation fee | (414 | ) | (12,503 | ) | ||||
Losses (gains) from change in fair value of financial instruments | (17 | ) | 4,692 | |||||
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Loss from operations before income taxes | (12,161 | ) | (234,935 | ) | ||||
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Income tax expense | 7,291 | 1,406 | ||||||
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Net loss | $ | (19,452 | ) | $ | (236,341 | ) | ||
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Net loss per share - basic and diluted | $ | (0.11 | ) | $ | (1.38 | ) | ||
Weighted average number of common shares outstanding - basic and diluted | 171,718 | 171,667 | ||||||
For the Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
Revenues, net of discounts | $ | 42,790 | $ | 51,805 | ||||
Costs and expenses applicable to revenues | (20,298 | ) | (22,084 | ) | ||||
Gross profit | 22,492 | 29,721 | ||||||
Operating expenses | ||||||||
| Selling, general and administrative expenses | 23,406 | 24,228 | ||||||
| Depreciation and amortization | 8,406 | 6,832 | ||||||
| Write-downs, recoveries and other charges, net | 57 | 259 | ||||||
Total operating expenses | 31,869 | 31,319 | ||||||
Loss from operations | (9,377 | ) | (1,598 | ) | ||||
| Interest income | 60 | 124 | ||||||
| Other income | 11,266 | 274 | ||||||
| Interest expense | (5,894 | ) | (5,678 | ) | ||||
| Accretion expense | (766 | ) | (4,852 | ) | ||||
| Provision for debt obligation fee | (414 | ) | (414 | ) | ||||
| Losses from change in fair value of financial instruments | (102 | ) | (17 | ) | ||||
Loss before income taxes | (5,227 | ) | (12,161 | ) | ||||
| Income tax expense | 4,875 | 7,291 | ||||||
Net loss | $ | (10,102 | ) | $ | (19,452 | ) | ||
Net loss per share—basic and diluted | $ | (0.06 | ) | $ | (0.11 | ) | ||
Weighted average number of common shares outstanding—basic and diluted | 171,718 | 171,718 | ||||||
| Three Months Ended March 31, 2021 | ||||||||||||||||||||
| Number of Shares (Common) | Shares to be Issued | Additional Paid- in-Capital | Accumulated Deficit | Total Shareholders’ Equity | ||||||||||||||||
Balance – January 1, 2021 - Revised | 171,718,192 | $ | 1,531 | $ | 769,940 | $ | (724,142 | ) | $ | 47,329 | ||||||||||
Share-based compensation | — | — | 1,634 | — | 1,634 | |||||||||||||||
Net loss | — | — | — | (19,452 | ) | (19,452 | ) | |||||||||||||
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Balance – March 31, 2021 | 171,718,192 | $ | 1,531 | $ | 771,574 | $ | (743,594 | ) | $ | 29,511 | ||||||||||
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| Three Months Ended March 31, 2020 | ||||||||||||||||||||
| Number of Shares (Common) | Shares to be Issued | Additional Paid- in-Capital | Accumulated Deficit | Total Shareholders’ Equity | ||||||||||||||||
Balance – January 1, 2020 | 171,643,192 | $ | 1,531 | $ | 761,722 | $ | (410,780 | ) | $ | 352,473 | ||||||||||
Share issuance – Settlement of outstanding obligations | 75,000 | — | 193 | — | 193 | |||||||||||||||
Share-based compensation | — | — | 5,175 | — | 5,175 | |||||||||||||||
Other - Warrant issuance | — | — | (3,325 | ) | — | (3,325 | ) | |||||||||||||
Net loss | — | — | — | (236,341 | ) | (236,341 | ) | |||||||||||||
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Balance – March 31, 2020 | 171,718,192 | $ | 1,531 | $ | 763,765 | $ | (647,121 | ) | $ | 118,175 | ||||||||||
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or shares)
Three Months Ended March 31, 2022 | ||||||||||||||||||||
Number of Common Shares (‘000) | Shares to be Issued | Additional Paid- in-Capital | Accumulated Deficit | Total Shareholders’ Deficit | ||||||||||||||||
Balance – January 1, 2022 – (Revised) | 171,718 | $ | 1,531 | $ | 776,462 | $ | (801,632 | ) | $ | (23,639 | ) | |||||||||
| Share-based compensation | — | — | 1,464 | — | 1,464 | |||||||||||||||
| Net loss | — | — | — | (10,102 | ) | (10,102 | ) | |||||||||||||
Balance – March 31, 2022 | 171,718 | $ | 1,531 | $ | 777,926 | $ | (811,734 | ) | $ | (32,277 | ) | |||||||||
Three Months Ended March 31, 2021 | ||||||||||||||||||||
Number of Common Shares (‘000) | Shares to be Issued | Additional Paid- in-Capital | Accumulated Deficit | Total Shareholders’ Equity | ||||||||||||||||
Balance – January 1, 2021 – (Revised) | 171,718 | $ | 1,531 | $ | 769,940 | $ | (724,142 | ) | $ | 47,329 | ||||||||||
| Share-based compensation | — | — | 1,634 | — | 1,634 | |||||||||||||||
| Net loss | — | — | — | (19,452 | ) | (19,452 | ) | |||||||||||||
Balance – March 31, 2021 | 171,718 | $ | 1,531 | $ | 771,574 | $ | (743,594 | ) | $ | 29,511 | ||||||||||
| Three Months Ended March 31, | ||||||||
| 2021 | 2020 | |||||||
CASH FLOW FROM OPERATING ACTIVITIES | ||||||||
Net loss | $ | (19,452 | ) | $ | (236,341 | ) | ||
Adjustments to reconcile net loss to cashflow from (used in) operations: | ||||||||
Interest income | (124 | ) | (12 | ) | ||||
Interest expense | 5,678 | 4,467 | ||||||
Accretion expense | 4,852 | 4,004 | ||||||
Debt obligation fees | 414 | 12,503 | ||||||
Impairment loss | — | 199,364 | ||||||
Depreciation and amortization | 7,374 | 6,414 | ||||||
Write-downs and other charges | 259 | 679 | ||||||
Share-based compensation | 1,634 | 5,368 | ||||||
Gain from change in fair value of financial instruments | 17 | (4,692 | ) | |||||
Income from equity-accounted investments | — | 41 | ||||||
Deferred income taxes | 8 | (2,206 | ) | |||||
Change in non-cash working capital items (Note 12) | 4,792 | 3,473 | ||||||
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NET CASH FLOW FROM (USED IN) OPERATING ACTIVITIES | $ | 5,452 | $ | (6,938 | ) | |||
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CASH FLOW FROM INVESTING ACTIVITIES | ||||||||
Purchase of property, plant and equipment | (4,752 | ) | (10,030 | ) | ||||
Acquisition of other intangible assets | — | (292 | ) | |||||
Proceeds from redemption and sale of investment | — | 110 | ||||||
Issuance of related party promissory note | (375 | ) | — | |||||
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NET CASH USED IN INVESTING ACTIVITIES | $ | (5,127 | ) | $ | (10,212 | ) | ||
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CASH FLOW FROM FINANCING ACTIVITIES | ||||||||
Proceeds from issuance of debt | 11,000 | — | ||||||
Debt issuance costs | (694 | ) | — | |||||
Repayment of debt | (14 | ) | (11,212 | ) | ||||
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NET CASH PROVIDED (USED IN) BY FINANCING ACTIVITIES | $ | 10,292 | $ | (11,212 | ) | |||
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CASH, CASH EQUIVALENTS AND RESTRICTED CASH: | ||||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH DURING THE PERIOD | 10,617 | (28,362 | ) | |||||
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CASH AND RESTRICTED CASH, BEGINNING OF PERIOD | 11,510 | 34,821 | ||||||
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CASH AND RESTRICTED CASH, END OF PERIOD | $ | 22,127 | $ | 6,459 | ||||
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Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
CASH FLOW FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | (10,102 | ) | $ | (19,452 | ) | ||
| Adjustments to reconcile net loss to cash provided by operations: | ||||||||
| Interest income | (60 | ) | (124 | ) | ||||
| Interest expense | 5,894 | 5,678 | ||||||
| Accretion expense | 766 | 4,852 | ||||||
| Debt obligation fees | 414 | 414 | ||||||
| Depreciation and amortization | 9,029 | 7,374 | ||||||
| Write-downs, recoveries and other charges, net | 57 | 259 | ||||||
| Share-based compensation | 1,464 | 1,634 | ||||||
| Losses from change in fair value of financial instruments | 102 | 17 | ||||||
Gain from nonmonetary consideration from acquisition (Refer to Note 4) | (10,460 | ) | — | |||||
| Deferred income taxes | — | 8 | ||||||
Change in operating assets and liabilities ( Refer to Note 13) | 4,647 | 4,792 | ||||||
NET CASH FLOW PROVIDED BY OPERATING ACTIVITIES | $ | 1,751 | $ | 5,452 | ||||
CASH FLOW FROM INVESTING ACTIVITIES | ||||||||
| Purchase of property, plant and equipment | (1,573 | ) | (4,752 | ) | ||||
| Acquisition of other intangible assets | (61 | ) | — | |||||
| Proceeds from sale of property, plant and equipment | 127 | — | ||||||
| Issuance of related party promissory note | (92 | ) | (375 | ) | ||||
| Purchase of subsidiaries, net of cash acquired | 4 | — | ||||||
NET CASH USED IN INVESTING ACTIVITIES | $ | (1,595 | ) | $ | (5,127 | ) | ||
CASH FLOW FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from issuance of debt | — | 11,000 | ||||||
| Debt issuance costs | — | (694 | ) | |||||
| Repayment of debt | (15 | ) | (14 | ) | ||||
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES | $ | (15 | ) | $ | 10,292 | |||
CASH AND RESTRICTED CASH: | ||||||||
NET INCREASE IN CASH AND RESTRICTED CASH DURING THE YEAR | 141 | 10,617 | ||||||
CASH AND RESTRICTED CASH, BEGINNING OF YEAR ( Refer to Note 13 ) | 16,578 | 11,510 | ||||||
CASH AND RESTRICTED CASH, END OF YEAR ( Refer to Note 13 ) | $ | 16,719 | $ | 22,127 | ||||
unless otherwise stated)
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Business
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These
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unless otherwise stated)
proposed transaction.
Because the Company received the necessary approvals of the Plan of Arrangement from the Court, Secured Lenders, Unsecured Lenders and the holders of the Company’s common shares, options and warrants, the Recapitalization Transaction will be implemented through the British Columbia Business Corporations Act and not the CCAA.
iANTHUS CAPITAL HOLDINGS, INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except per share amounts)
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Prior Year’s Line item | Reclassified Amount | Current Year’s Line item | ||||
| Depreciation and amortization | $ | 542 | Selling, general and administrative expenses | |||
| Depreciation and amortization | (542 | ) | Depreciation and amortization | |||
unless otherwise stated)
December 31, 2021 | ||||||||||||
As previously reported | Adjustment | As adjusted | ||||||||||
Inventories | $ | 30,447 | $ | (1,755 | ) | $ | 28,692 | |||||
Current assets | 55,401 | (1,755 | ) | 53,646 | ||||||||
Total assets | 346,744 | (1,755 | ) | 344,989 | ||||||||
Accrued and other current liabilities | 99,446 | (513 | ) | 98,933 | ||||||||
Current liabilities | 285,821 | (513 | ) | 285,308 | ||||||||
Total liabilities | 369,141 | (513 | ) | 368,628 | ||||||||
Accumulated deficit | (800,390 | ) | (1,242 | ) | (801,632 | ) | ||||||
Total shareholders’ deficit | (22,397 | ) | (1,242 | ) | (23,639 | ) | ||||||
Total liabilities and shareholders’ deficit | 346,744 | (1,755 | ) | 344,989 | ||||||||
Year Ended December 31, 2021 | ||||||||||||
As previously reported | Adjustment | As adjusted | ||||||||||
Costs and expenses applicable to revenues | $ | (91,735 | ) | $ | (1,755 | ) | $ | (93,490 | ) | |||
Gross profit | 111,283 | (1,755 | ) | 109,528 | ||||||||
Loss from operations | (22,025 | ) | (1,755 | ) | (23,780 | ) | ||||||
Loss from operations before income tax | (53,999 | ) | (1,755 | ) | (55,754 | ) | ||||||
Income tax expense | 22,249 | (513 | ) | 21,736 | ||||||||
Net loss | (76,248 | ) | (1,242 | ) | (77,490 | ) | ||||||
Earnings per share | (0.44 | ) | (0.01 | ) | (0.45 | ) | ||||||
March 31, 2022 | ||||||||||||
As previously reported | Adjustment | As adjusted | ||||||||||
Accumulated deficit – Balance January 1, 2022 | $ | (800,390 | ) | $ | (1,242 | ) | $ | (801,632 | ) | |||
Total Shareholders’ deficit – Balance January 1, 2022 | (22,397 | ) | (1,242 | ) | (23,639 | ) | ||||||
| Operating Leases | ||||
2021 | $ | 7,630 | ||
2022 | 6,983 | |||
2023 | 7,041 | |||
2024 | 7,198 | |||
2025 | 7,271 | |||
Thereafter | 57,004 | |||
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Total lease payments | $ | 93,127 | ||
Less: interest expense | (58,549 | ) | ||
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Present value of lease liabilities | $ | 34,578 | ||
Weighted-average remaining lease term (years) | 11.9 | |||
Weighted-average discount rate | 20 | % | ||
Operating Leases | ||||
| 2023 | $ | 7,895 | ||
| 2024 | 7,892 | |||
| 2025 | 8,065 | |||
| 2026 | 8,161 | |||
| 2027 | 7,835 | |||
| Thereafter | 58,473 | |||
| Total lease payments | $ | 98,321 | ||
| Less: interest expense | (60,961 | ) | ||
| Present value of lease liabilities | $ | 37,360 | ||
| Weighted-average remaining lease term (years) | 11.4 | |||
| Weighted-average discount rate | 20 | % | ||
underlying lease expense are presented gross on the Company’s unaudited interim condensed consolidated balance sheets. For the three months ended March 31, 2022, the Company recorded sublease income of $0.2 million (March 31, 2021—$NaN), which is included in other income on the unaudited interim condensed consolidated statements of operations.
Balance Sheet Information | Classification | March 31, 2021 | December 31, 2020 | |||||||||
Right-of-use assets | Operating leases | $ | 32,204 | $ | 33,083 | |||||||
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Lease Liabilities | ||||||||||||
Current portion of lease liabilities | Operating leases | $ | 7,630 | $ | 7,450 | |||||||
Long-term lease liabilities | Operating leases | 26,948 | 27,670 | |||||||||
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Total | $ | 34,578 | $ | 35,120 | ||||||||
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Balance Sheet Information | Classification | March 31, 2022 | December 31, 2021 | |||||||
Right-of-use | Operating leases | $ | 32,529 | $ | 30,429 | |||||
Lease Liabilities | ||||||||||
| Current portion of lease liabilities | Operating leases | $ | 7,895 | $ | 7,342 | |||||
| Long-term lease liabilities | Operating leases | 29,465 | 27,814 | |||||||
Total | $ | 37,360 | $ | 35,156 | ||||||
| March 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (Revised) | ||||||||
Supplies | $ | 4,816 | $ | 5,010 | ||||
Raw materials | 7,150 | 7,047 | ||||||
Work in process | 6,925 | 5,710 | ||||||
Finished goods | 7,283 | 7,684 | ||||||
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Total | $ | 26,174 | $ | 25,451 | ||||
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March 31, 2022 | December 31, 2021 | |||||||
(Revised) | ||||||||
| Supplies | $ | 6,744 | $ | 6,188 | ||||
| Raw materials | 8,059 | 5,641 | ||||||
| Work in process | 8,444 | 9,464 | ||||||
| Finished goods | 8,703 | 7,399 | ||||||
Total | $ | 31,950 | $ | 28,692 | ||||
unless otherwise stated)
| Consideration | ||||
| Cash | $ | 1 | ||
Settlement of pre-existing relationships | 19,193 | |||
Fair value of consideration | $ | 19,194 | ||
| Assets acquired and liabilities assumed | ||||
| Cash | $ | 5 | ||
| Fixed assets | 100 | |||
Other non-current assets | 15 | |||
| Intangible assets | 19,100 | |||
| Accounts payable | (15 | ) | ||
| Accrued and other current liabilities | (11 | ) | ||
Net assets acquired | $ | 19,194 | ||
| Secured Notes | May 2019 Debentures | March 2019 Debentures | Other | Total | ||||||||||||||||
As of January 1, 2021 | $ | 115,350 | $ | 23,240 | $ | 31,665 | $ | 920 | $ | 171,175 | ||||||||||
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Fair value of financial liabilities issued | 10,860 | — | — | 160 | 11,020 | |||||||||||||||
Accretion of balance | 4,007 | 193 | 357 | 295 | 4,852 | |||||||||||||||
Repayment | — | — | — | (14 | ) | (14 | ) | |||||||||||||
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As of March 31, 2021 | $ | 130,217 | $ | 23,433 | $ | 32,022 | $ | 1,361 | $ | 187,033 | ||||||||||
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Secured Notes (1) | May 2019 Debentures | March 2019 Debentures | Other | Total | ||||||||||||||||
As of January 1, 2022 | $ | 134,902 | $ | 24,033 | $ | 33,138 | $ | 1,307 | $ | 193,380 | ||||||||||
| Fair value of financial liabilities issued | 767 | — | — | 0 | 767 | |||||||||||||||
| Accretion of balance | 193 | 200 | 373 | 0 | 766 | |||||||||||||||
| Repayment | — | — | — | (15 | ) | (15 | ) | |||||||||||||
As of March 31, 2022 | $ | 135,862 | $ | 24,233 | $ | 33,511 | $ | 1,292 | $ | 194,898 | ||||||||||
| (1) | This amount |
|
operations.
14.
iANTHUS CAPITAL HOLDINGS, INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except per share amounts)
The principal amount of such notes will remain outstanding until the closing of the Recapitalization Transaction. Interest on the Tranche Two Secured Notes will continue to accrue at the default rate of 16.0% per annum until such time.
operations.
The principal amount of such notes will remain outstanding until the closing of the Recapitalization Transaction. Interest on the Tranche Three Secured Notes will continue to accrue at default rate of 16.0% per annum until such time.
operations.
operations.
iANTHUS CAPITAL HOLDINGS, INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except per share amounts)
Interest is to be paid in kind by adding the interest accrued on the principal amount on the last day of each fiscal quarter (the first such interest payment date being March 31, 2021), and such amount thereafter becoming part of the principal amount and will accrue interest. Interest paid in kind will be payable on the date that all of the principal amount is due and payable.
|
sheets as they are set expire on February 2, 2023.
financing activities, including certain restrictions on the Company’s ability to incur certain additional indebtedness at the subsidiary level. As of March 31, 2021,2022, the Company defaultedis still in default on its interest obligations to the holders of the Secured Notes. This default triggered a cross-default on its interest obligations to the holders of the March 2019 Debentures. Further, as a result of this default the Company is classifying the debt as a current liability on the unaudited interim condensed consolidated balance sheets as the March 2019Unsecured Debentures are due on demand. The event of default is applicable to all amounts outstanding under the MarchUnsecured Debentures.
|
Debentures
operations.
|
As part of the acquisition of MPX Bioceutical Corporation (“MPX”) on February 5, 2019 (the “MPX Acquisition”) (Note 5(b)), the Company assumed a long-term note (the “Stavola Trust Note”) of $10.8 million, payable to the Elizabeth Stavola 2016 NV Irrevocable Trust. This trust is for the benefit of a former director and officer of the Company, Elizabeth Stavola, and is therefore a related party balance. The note had a maturity date of January 19, 2020, and an interest rate of 8.0%. Repayment of the note was secured by the assets of certain subsidiaries of the Company. On January 10, 2020, the Stavola Trust
iANTHUS CAPITAL HOLDINGS, INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except per share amounts)
Note 5 - 6—Share Capital
|
The following is a summary of the common share issuances for the three months ended March 31, 2020:
75,000 common shares of the Company were issued to settle outstanding obligations, with share issuance costs of $0.2 million.
|
| March 31, 2021 | ||||||||
| Units | Weighted Average Exercise Price (C$) | |||||||
Warrants outstanding as of December 31, 2020 | 49,236 | $ | 4.06 | |||||
Granted | — | — | ||||||
Exercised | — | — | ||||||
Expired | (9,411 | ) | 2.52 | |||||
|
|
|
| |||||
Warrants outstanding as of March 31, 2021 | 39,825 | $ | 4.24 | |||||
|
|
|
| |||||
warrants:
March 31, 2022 | ||||||||
Units | Weighted Average Exercise Price (C$) | |||||||
| Warrants outstanding, beginning | 22,640 | $ | 3.56 | |||||
| Granted | 0 | 0— | ||||||
| Exercised | 0 | 0— | ||||||
| Expired | (4,685 | ) | 7.53 | |||||
| Warrants outstanding, ending | 17,955 | $ | 2.49 | |||||
| March 31, 2021 | December 31, 2020 | |||||||
Risk-free interest rate | 0.2 | % | 0.2 | % | ||||
Expected dividend yield | 0.0 | % | 0.0 | % | ||||
Expected volatility | 139.0 - 209.6 | % | 148.0 - 251.1 | % | ||||
March 31, 2022 | December 31, 2021 | |||||||
| Risk-free interest rate | 0.9 | % | 0.9 | % | ||||
| Expected dividend yield | 0.0 | % | 0.0 | % | ||||
| Expected volatility | 124.0 -137.1 | % | 93.7 -297.1 | % | ||||
| Expected life | 0.9 years | 0.9 years | ||||||
| March 31, 2021 | December 31, 2020 | |||||||||||||||
Year of expiration | Number Outstanding | Weighted Average Exercise Price (C$) | Number Outstanding | Weighted Average Exercise Price (C$) | ||||||||||||
2021 | 17,185 | $ | 5.16 | 26,596 | $ | 4.37 | ||||||||||
2022 | 20,855 | 3.44 | 20,855 | 3.62 | ||||||||||||
2023 | 1,785 | 4.57 | 1,785 | 4.57 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Warrants outstanding | 39,825 | $ | 4.24 | 49,236 | $ | 4.06 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
iANTHUS CAPITAL HOLDINGS, INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except per share amounts)
|
March 31, 2022 | December 31, 2021 | |||||||||||||||
Year of expiration | Number Outstanding | Weighted Average Exercise Price (C$) | Number Outstanding | Weighted Average Exercise Price (C$) | ||||||||||||
| 2022 | 16,170 | 2.26 | 20,855 | 3.47 | ||||||||||||
| 2023 | 1,785 | 4.57 | 1,785 | 4.57 | ||||||||||||
| Warrants outstanding | 17,955 | $ | 2.49 | 22,640 | $ | 3.56 | ||||||||||
| March 31, 2021 | December 31, 2020 | |||||||
Common Share Options | 10,825 | 11,510 | ||||||
Warrants | 39,825 | 49,236 | ||||||
Secured Notes | 46,458 | 46,458 | ||||||
Debentures | 10,135 | 10,135 | ||||||
MPX dilutive instruments(1) | 408 | 408 | ||||||
|
|
|
| |||||
Total* | 107,651 | 117,747 | ||||||
|
|
|
| |||||
|
March 31, 2022 | December 31, 2021 | |||||||
| Common share options | 9,620 | 10,504 | ||||||
| Warrants | 17,955 | 22,640 | ||||||
| Secured notes | 46,458 | 46,458 | ||||||
| Debentures | 10,135 | 10,135 | ||||||
| MPX dilutive instruments (1) | 408 | 408 | ||||||
| Total | 84,576 | 90,145 | ||||||
| (1) | Prior to the acquisition of MPX |
|
| March 31, 2021 | December 31, 2020 | |||||||||||||||||||||||
| Units | Weighted Average Exercise Price (C$) | Weighted Average Contractual Life | Units | Weighted Average Exercise Price (C$) | Weighted Average Contractual Life | |||||||||||||||||||
Options outstanding, beginning | 11,510 | $ | 4.86 | — | 19,578 | $ | 4.80 | — | ||||||||||||||||
Granted | — | — | — | 135 | 0.82 | — | ||||||||||||||||||
Exercised | — | — | — | — | — | — | ||||||||||||||||||
Forfeited/Expired | (685 | ) | 4.09 | — | (8,203 | ) | 4.99 | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Options outstanding, ending | 10,825 | $ | 4.91 | 6.72 | 11,510 | $ | 4.86 | 7.34 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
March 31, 2022 | December 31, 2021 | |||||||||||||||||||||||
Units | Weighted Average Exercise Price (C$) | Weighted Average Contractual Life | Units | Weighted Average Exercise Price (C$) | Weighted Average Contractual Life | |||||||||||||||||||
| Options outstanding, beginning | 10,504 | $ | 4.95 | — | 11,510 | $ | 4.86 | — | ||||||||||||||||
| Granted | 0 | 0— | — | 0 | 0 | — | ||||||||||||||||||
| Exercised | 0 | 0— | — | 0 | 0— | — | ||||||||||||||||||
| Forfeited/Expired | (884 | ) | 4.79 | — | (1,006 | ) | 3.96 | — | ||||||||||||||||
| Options outstanding, ending | 9,620 | $ | 4.96 | 5.97 | 10,504 | $ | 4.95 | 6.24 | ||||||||||||||||
| 2021 | 2020 | |||||||
Loss from operations before income taxes | $ | (12,161 | ) | $ | (234,935 | ) | ||
Income tax expense | 7,291 | 1,406 | ||||||
|
|
|
| |||||
Effective tax rate | (60.0 | )% | (0.6 | )% | ||||
|
|
|
| |||||
2021:
Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
| Loss before income taxes | $ | (5,227 | ) | $ | (12,161 | ) | ||
| Income tax expense | 4,875 | 7,291 | ||||||
| Effective tax rate | (93.3 | )% | (60.0 | )% | ||||
unless otherwise stated)
2021:
| For the Three Months Ended March 31, | ||||||||
| 2021 | 2020 | |||||||
Revenues | ||||||||
Eastern Region | $ | 33,056 | $ | 18,049 | ||||
Western Region | 18,302 | 11,725 | ||||||
Other(1) | 447 | 652 | ||||||
|
|
|
| |||||
Total | $ | 51,805 | $ | 30,426 | ||||
|
|
|
| |||||
Gross profit | ||||||||
Eastern Region | 21,162 | $ | 10,761 | |||||
Western Region | 8,580 | 4,761 | ||||||
Other | (21 | ) | (70 | ) | ||||
|
|
|
| |||||
Total | $ | 29,721 | $ | 15,452 | ||||
|
|
|
| |||||
Depreciation and amortization | ||||||||
Eastern Region | $ | 6,178 | $ | 5,519 | ||||
Western Region | 838 | 590 | ||||||
Other | 358 | 305 | ||||||
|
|
|
| |||||
Total | $ | 7,374 | $ | 6,414 | ||||
|
|
|
| |||||
Asset impairments and write-downs | ||||||||
Eastern Region | $ | 259 | $ | 196,844 | ||||
Western Region | — | 252 | ||||||
Other | — | 2,947 | ||||||
|
|
|
| |||||
Total | $ | 259 | $ | 200,043 | ||||
|
|
|
| |||||
Purchase of property, plant and equipment | ||||||||
Eastern Region | $ | 4,745 | $ | 9,621 | ||||
Western Region | 3 | 388 | ||||||
Other | 4 | 21 | ||||||
|
|
|
| |||||
Total | $ | 4,752 | $ | 10,030 | ||||
|
|
|
| |||||
Purchase of intangibles | ||||||||
Eastern Region | $ | — | $ | 218 | ||||
Western Region | — | 74 | ||||||
Other | — | — | ||||||
|
|
|
| |||||
Total | $ | — | $ | 292 | ||||
|
|
|
| |||||
Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
Revenues | ||||||||
| Eastern Region | $ | 24,785 | $ | 33,056 | ||||
| Western Region | 17,716 | 18,302 | ||||||
| Other (1) | 289 | 447 | ||||||
Total | $ | 42,790 | $ | 51,805 | ||||
Gross profit (loss) | ||||||||
| Eastern Region | $ | 16,068 | $ | 21,162 | ||||
| Western Region | 6,411 | 8,580 | ||||||
| Other | 13 | (21 | ) | |||||
Total | $ | 22,492 | $ | 29,721 | ||||
Depreciation and amortization | ||||||||
| Eastern Region | $ | 5,259 | $ | 5,876 | ||||
| Western Region | 3,012 | 757 | ||||||
| Other | 135 | 199 | ||||||
Total | $ | 8,406 | $ | 6,832 | ||||
Write-downs, (recoveries) and other charges, net | ||||||||
| Eastern Region | $ | 69 | $ | 259 | ||||
| Western Region | 0 | 0 | ||||||
| Other | (12 | ) | 0 | |||||
Total | $ | 57 | $ | 259 | ||||
Net income (loss) | ||||||||
| Eastern Region | $ | 7,328 | $ | 2,916 | ||||
| Western Region | (913 | ) | 335 | |||||
| Other | (16,517 | ) | (22,703 | ) | ||||
Total | $ | (10,102 | ) | $ | (19,452 | ) | ||
Purchase of property, plant and equipment | ||||||||
| Eastern Region | $ | 1,220 | $ | 4,745 | ||||
| Western Region | 351 | 3 | ||||||
| Other | 2 | 4 | ||||||
Total | $ | 1,573 | $ | 4,752 | ||||
Purchase of intangibles | ||||||||
| Eastern Region | $ | — | $ | — | ||||
| Western Region | — | — | ||||||
| Other | 61 | — | ||||||
Total | $ | 61 | $ | 0 | ||||
| (1) | Revenues from segments below the quantitative thresholds are attributable to an operating segment of the Company that includes revenue from the sale of CBD products throughout the United States. This segment has never met any of the quantitative thresholds for determining reportable segments |
| March 31, 2021 | December 31, 2020 | |||||||
| (Revised) | ||||||||
Assets | ||||||||
Eastern Region | $ | 230,195 | $ | 227,237 | ||||
Western Region | 109,356 | 109,039 | ||||||
Other | 25,330 | 16,857 | ||||||
|
|
|
| |||||
Total | $ | 364,881 | $ | 353,133 | ||||
|
|
|
| |||||
iANTHUS CAPITAL HOLDINGS, INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except per share amounts)
March 31, | December 31, | |||||||
2022 | 2021 (Revised) | |||||||
Assets | ||||||||
| Eastern Region | $ | 240,291 | $ | 222,350 | ||||
| Western Region | 103,441 | 106,485 | ||||||
| Other | 15,963 | 16,154 | ||||||
Total | $ | 359,695 | $ | 344,989 | ||||
| For the Three Months Ended March 31, | ||||||||
| 2021 | 2020 | |||||||
Revenue | ||||||||
iAnthus branded products | $ | 31,182 | $ | 15,179 | ||||
Third party branded products | 15,207 | 10,458 | ||||||
Wholesale/bulk/other products | 5,416 | 4,789 | ||||||
|
|
|
| |||||
Total | $ | 51,805 | $ | 30,426 | ||||
|
|
|
| |||||
Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
Revenue | ||||||||
| iAnthus branded products | $ | 22,158 | $ | 31,182 | ||||
| Third party branded products | 17,147 | 15,207 | ||||||
| Wholesale/bulk/other products | 3,485 | 5,416 | ||||||
| Total | $ | 42,790 | $ | 51,805 | ||||
| March 31, 2021 | December 31, 2020 | |||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||
Financial Assets | ||||||||||||||||||||||||||||||||
Long term investments - other1 | $ | 532 | $ | — | $ | — | $ | 532 | $ | 512 | $ | — | $ | — | $ | 512 | ||||||||||||||||
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|
|
|
|
|
|
|
|
| |||||||||||||||||
Financial Liabilities | ||||||||||||||||||||||||||||||||
Derivative liabilities | $ | — | $ | — | $ | 282 | $ | 282 | $ | — | $ | — | $ | 245 | $ | 245 | ||||||||||||||||
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|
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|
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|
|
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|
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|
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| |||||||||||||||||
March 31, 2022 | December 31, 2021 | |||||||||||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||
Financial Assets | ||||||||||||||||||||||||||||||||
| Long term investments—other 1 | $ | 454 | $ | — | $ | — | $ | 454 | $ | 568 | $ | — | $ | — | $ | 568 | ||||||||||||||||
Financial Liabilities | ||||||||||||||||||||||||||||||||
| Derivative liabilities | $ | — | $ | — | $ | 4 | $ | 4 | $ | — | $ | — | $ | 16 | $ | 16 | ||||||||||||||||
| (1) | Long-term investments – other are included in the investments balance |
iANTHUS CAPITAL HOLDINGS, INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except per share amounts)
There were no transfers between Level 1, Level 2, and Level 3 within the fair value hierarchy during the three months ended March 31, 2021. For the three months ended March 31, 2020, there was a transfer of long-term investments from Level 3 to Level 1 within the fair value hierarchy. This transfer is related to shares of another company that is now publicly traded2022 and can be valued using listed stock prices.
2021.
| Financial Assets | ||||
Balance as of December 31, 2020 | $ | 512 | ||
Revaluations on Level 1 instruments | 20 | |||
|
| |||
Balance as of March 31, 2021 | $ | 532 | ||
|
| |||
Financial Assets | ||||
Balance as of December 31, 2021 | $ | 568 | ||
| Revaluations on Level 1 instruments | (114 | ) | ||
Balance as of March 31, 2022 | $ | 454 | ||
| Derivative Liabilities | ||||
Balance as of December 31, 2020 | $ | 245 | ||
Revaluations on Level 3 instruments | 37 | |||
|
| |||
Balance as of March 31, 2021 | $ | 282 | ||
|
| |||
Derivative Liabilities | ||||
Balance as of December 31, 2021 | $ | 16 | ||
| Revaluations on Level 3 instruments | (12 | ) | ||
Balance as of March 31, 2022 | $ | 4 | ||
| March 31, 2021 | December 31, 2020 | |||||||||||||||
| Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||||||
Unsecured Debentures | $ | 55,455 | $ | 56,305 | $ | 54,905 | $ | 53,830 | ||||||||
Secured Notes | 130,217 | 141,230 | 115,350 | 134,609 | ||||||||||||
Other | 1,361 | 1,086 | 920 | 924 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 187,033 | $ | 198,621 | $ | 171,175 | $ | 189,363 | ||||||||
|
|
|
|
|
|
|
| |||||||||
March 31, 2022 | December 31, 2021 | |||||||||||||||
Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||||||
| Unsecured Debentures | $ | 57,744 | $ | 67,566 | $ | 57,171 | $ | 64,596 | ||||||||
| Secured Notes | 135,862 | 184,119 | 134,902 | 176,487 | ||||||||||||
| Other | 1,292 | 1,021 | 1,307 | 1,021 | ||||||||||||
Total | $ | 194,898 | $ | 252,706 | $ | 193,380 | $ | 242,104 | ||||||||
iANTHUS CAPITAL HOLDINGS, INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except per share amounts)
| For the twelve months ended March 31, | ||||||||||||||||||||
| 2022 | 2023 | 2024 | 2025 | 2026 | ||||||||||||||||
Operating leases | $ | 7,630 | $ | 6,983 | $ | 7,041 | $ | 7,198 | $ | 7,271 | ||||||||||
Service contracts | 2,701 | — | — | — | — | |||||||||||||||
Construction contracts | 12 | — | — | — | — | |||||||||||||||
Long-term debt, principal(1) | 167,901 | 11,605 | 58 | 65 | 15,681 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 178,244 | $ | 18,588 | $ | 7,099 | $ | 7,263 | $ | 22,952 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
For the twelve months ended March 31, | 2023 | 2024 | 2025 | 2026 | 2027 | |||||||||||||||
| Operating leases | $ | 7,895 | $ | 7,892 | $ | 8,065 | $ | 8,161 | $ | 7,835 | ||||||||||
| Service contracts | 2,705 | 2 | 0 | 0— | 0— | |||||||||||||||
Long-term debt, principal (1) | 168,205 | 12,969 | 68 | 16,987 | 81 | |||||||||||||||
Total | $ | 178,805 | $ | 20,863 | $ | 8,133 | $ | 25,148 | $ | 7,916 | ||||||||||
| (1) | The payment schedule above shows amounts payable if the conversion options are not exercised by the lender |
15 years.Line of CreditZia Integrated, LLCOn May 23, 2019, the Company established a line of credit with Zia Integrated, LLC (“Zia”), a cannabis management and consulting firm based in Maryland, permitting Zia drawdowns of up to an aggregate of $15.0 million. For each drawdown made by Zia, a convertible promissory note will be issued to Zia by the Company. As of the date of filing of the unaudited interim condensed consolidated financial statements, no drawdowns have been made on the line of credit and the principal amount on the convertible promissory note is $Nil (December 31, 2020—$Nil).10 - 11—Contingencies and GuaranteesAccounting Standards CodificationASC Topic 450 Contingencies, the Company will make a provision for a liability when it is both probable that a loss has been incurred and the amount of the loss can be reasonably estimated. The Company believes it has adequate provisions for any such matters. The Company reviews these provisions in conjunction with any related provisions on assets related to the claims at least quarterly and adjusts these provisions to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other pertinent information related to the case. Should developments in any of these matters outlined below cause a change in the Company’s determination as to an unfavorable outcome and result in the need to recognize a material provision, or, should any of these matters result in a final adverse judgment or be settled for significant amounts, they could have a material adverse effect on the Company’s results of operations, cash flows, and financial position in the period or periods in which such a change in determination, settlement or judgment occurs.
The Company has been named as a defendant in several legal actions and is subject to various risks and contingencies arising in the normal course of business. Based on consultation with counsel, management and legal counsel is of the opinion that the outcome of these uncertainties will not have a material adverse effect on the Company’s financial position.
iANTHUS CAPITAL HOLDINGS, INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except per share amounts)
In addition, the Company is currently reviewing the following matters with legal counsel and has not yet determined the range of potential losses:
There is
complaints filed against the Company. On March 4, 2020, a security services firm28, 2022, the court consolidated the action filed a complaint against McCrory Sunny Hill Nursery, LLC (“McCrory”), GHHIA Management, Inc (“GHHIA”), GrowHealthy Properties, LLC (“GHP”),Randy Maslow with the Roberts Plaintiffs’ action for discovery and iAnthus Holdings Florida, LLC (“IHF”), collectively, claiming $1.0 million in damages, astrial purposes. As a result, the court vacated the matter’s current trial date of an alleged breachMay 9, 2022. The case has not been reset for trial yet. On April 22, 2022, the parties attended a court required mediation, which was unsuccessful. On May 6, 2022, the Circuit Court of Palm Beach County granted Randy Maslow’s motion to dismiss the Maslow Complaint. The Roberts have 30 days from the date of the court’s order, or until June 6, 2022, to file a contractual relationship by McCrory, GHHIA, GHP,second amended complaint.
shares in thousands, unless otherwise stated)
On January 8, 2021, the Lead Plaintiff filed an opposition to the Motion to Dismiss the Amended Complaint. The Company and its Chief Financial Officer’s reply to the opposition was filed on February 22, 2021. In a memorandum of opinion dated August 30, 2021, the SDNY granted the Company’s and its Chief Financial Officer’s Motion to Dismiss the Amended Complaint. The SDNY indicated that the Lead Plaintiff may move for leave to file a proposed second amended complaint by September 30, 2021. On October 1, 2021, the Lead Plaintiff filed a motion for leave to amend the Amended Complaint. The Lead Plaintiff’s Motion for Leave to File a Second Amended Complaint was included as part of the Stipulation identified above. On November 3, 2021, the SDNY
On June 15, 2021, the Company and the Lenders agreed to amend the date by which the Recapitalization Transaction pursuant to the Plan of Arrangement is required to be implemented by from June 30, 2021 to August 31, 2021. On August 20, 2021, the Applicants filed the Application with the OSCJ, which sought, among other things, a declaration that the Outside Date be extended to the date on which any regulatory approval or consent condition to implementation of the Plan of Arrangement is satisfied or waived. On August 24, 2021, the Company and Applicants appeared for a case conference before the OSCJ. At this conference, the OSCJ issued a Stay Order that required the parties to the Restructuring Support Agreement to maintain the status quo until the hearing on September 23, 2021. Specifically, the Stay Order provided that the parties shall remain bound by the Restructuring Support Agreement and not take any steps to advance or impede the regulatory approval process for the closing of the Recapitalization Transaction or otherwise have any communication with the applicable state-level regulators concerning the Recapitalization Transaction or the other counterparties to the Restructuring Support Agreement. On September 23, 2021, the parties appeared before the OSCJ for a hearing on the Application. Following this hearing, the OSCJ issued an endorsement that extended the Stay Order from September 23, 2021 until 48 hours after the release of the OSCJ’s decision on the merits of the Application. On October 12, 2021, the OSCJ issued the Decision. Specifically, the OSCJ granted the declaration sought by the Applicants and ordered that the Outside Date in the Restructuring Support Agreement be extended to the date on which any regulatory approval or consent condition to implementation of the Plan of Arrangement is satisfied or waived. On November 10, 2021, the Company filed a Notice of Appeal with the Ontario Court of Appeal and a hearing on the appeal is currently scheduled for June 9, 2022.
vacated.
During the year ended December 31, 2020, the Company received demand letters (the “Employee Demand Letters”) from two former employees, claiming combined damages
unless otherwise stated)
On January 13, 2021, a class action complaint was filed against iAnthus Empire Holdings, LLC (“IEH”) in the United States District Court for the Southern District of New York, alleging violations of the Telephone Consumer Protection Act relating to IEH’s alleged text message marketing. On February 1, 2021, the plaintiff filed a Notice of Dismissal Without Prejudice, dismissing all claims of the named, individual plaintiff and the unnamed members of the alleged class.
On April 13, 2021, Sean Zaboroski (“Zaboroski”) filed a Statement of Claim for a putative class action lawsuit against the Company, its former Chief Executive Officer, its current Interim Chief Executive Officer and its current Board of Directors (collectively, the “iAnthus Defendants”) alleging gross negligence on the part of the iAnthus Defendants. Zaboroski seeks to certify the proposed class on behalf of all persons, except the Company’s and Gotham Green Partners LLC’s affiliates, agents, officers, directors, senior employees, legal representatives, heirs, predecessors, successors and assigns, and any member of the individual defendants’ immediate families and any entity in which any of the foregoing has or had an interest, who were non-debenture holding shareholders of the Company from the date the Company defaulted on its obligations pursuant to the Debentures to the date the Plan of Arrangement was or is implemented (the “Proposed Class”). The Proposed Class does not include shareholders who acquired the Company’s shares in the secondary market on or after May 30, 2019 and who held some or all of those securities until after the close of trading on April 5, 2020. Zaboroski seeks an unspecified amount of damages, including punitive damages, together with costs and interest. Zaboroski’s certification motion has not yet been scheduled.
Declaratory Judgment Complaint.
| March 31, 2021 | December 31, 2020 | |||||||
Financial Statement Line Item | ||||||||
Accounts receivable | $ | — | $ | 140 | ||||
Other long-term assets | 3,732 | 3,358 | ||||||
|
|
|
| |||||
Total | $ | 3,732 | $ | 3,498 | ||||
|
|
|
| |||||
March 31, 2022 | December 31, 2021 | |||||||
Financial Statement Line Item | ||||||||
| Other long-term assets | 0 | 4,552 | ||||||
Total | $ | 0 | $ | 4,552 | ||||
iANTHUS CAPITAL HOLDINGS, INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except per share amounts)
| For the Three Months Ended March 31, | ||||||||
| 2021 | 2020 | |||||||
Income taxes | $ | 657 | $ | — | ||||
Interest | 24 | 52 | ||||||
For the Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
| Income taxes | $ | 98 | $ | 657 | ||||
| Interest | 23 | 24 | ||||||
| For the Three Months Ended March 31, | ||||||||
| 2021 | 2020 | |||||||
Decrease (increase) in: | ||||||||
Accounts receivables | $ | (1,009 | ) | $ | (344 | ) | ||
Prepaid expenses | (1,028 | ) | (790 | ) | ||||
Inventories | (723 | ) | (2,823 | ) | ||||
Other assets | (719 | ) | (54 | ) | ||||
Increase (decrease) in: | ||||||||
Accounts payable | 1,930 | (3,974 | ) | |||||
Accrued and other liabilities | 6,341 | 11,458 | ||||||
|
|
|
| |||||
| $ | 4,792 | $ | 3,473 | |||||
|
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|
| |||||
For the Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
Decrease (increase) in: | ||||||||
| Accounts receivables | $ | (81) | $ | (1,009 | ) | |||
| Prepaid expenses | (1,809 | ) | (1,028 | ) | ||||
| Inventories | (3,258 | ) | (723 | ) | ||||
| Other current assets | 201 | (1,374 | ) | |||||
| Other long-term assets | (13 | ) | 647 | |||||
| Operating leases | (313 | ) | (203 | ) | ||||
Increase in: | ||||||||
| Accounts payable | 3,561 | 1,599 | ||||||
| Accrued and other current liabilities | 6,359 | 6,883 | ||||||
$ | 4,647 | $ | 4,792 | |||||
| For the Three Months Ended March 31, | ||||||||
| 2021 | 2020 | |||||||
Property, plant and equipment | $ | 2,977 | $ | 2,146 | ||||
Operating lease right-of-use assets | 542 | 413 | ||||||
Other intangible assets | 3,855 | 3,855 | ||||||
|
|
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| |||||
| $ | 7,374 | $ | 6,414 | |||||
|
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|
| |||||
For the Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
| Property, plant and equipment | $ | 4,396 | $ | 2,977 | ||||
Operating lease right-of-use | 623 | 542 | ||||||
| Intangible assets | 4,010 | 3,855 | ||||||
$ | 9,029 | $ | 7,374 | |||||
| For the Three Months Ended March 31, 2021 | ||||||||
| 2020 |
| |||||||
Write-downs: | ||||||||
Accounts receivable provisions | $ | — | $ | 329 | ||||
Fixed asset | 259 | 350 | ||||||
|
|
|
| |||||
| $ | 259 | $ | 679 | |||||
|
|
|
| |||||
iANTHUS CAPITAL HOLDINGS, INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except per share amounts)
For the Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
Write-downs : | ||||||||
| Account receivable recoveries | $ | (12 | ) | $ | 0 | |||
Operating lease right-of-use | — | 259 | ||||||
| Property, plant and equipment | 69 | — | ||||||
$ | 57 | $ | 259 | |||||
| For the Three Months Ended March 31, | ||||||||
| 2021 | 2020 | |||||||
Supplemental Cash Flow Information: | ||||||||
Share issuance – settlement of outstanding obligations | $ | — | $ | 193 | ||||
Cashless exercise of MPX warrants recorded as derivatives | — | 3,325 | ||||||
For the Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
Supplemental Cash Flow Information: | ||||||||
Non-cash consideration forpaid-in-kind | 767 | 554 | ||||||
Non-cash consideration for asset acquisition | 19,193 | — | ||||||
| March 31, 2021 | December 31, 2020 | |||||||
Cash | $ | 13,692 | $ | 11,015 | ||||
Restricted cash | 8,435 | 495 | ||||||
|
|
|
| |||||
Total cash and restricted cash presented in statements of cash flows | $ | 22,127 | $ | 11,510 | ||||
|
|
|
| |||||
March 31, 2022 | December 31, 2021 | |||||||
| Cash | $ | 14,078 | $ | 13,244 | ||||
| Restricted cash | 2,641 | 3,334 | ||||||
Total cash and restricted cash presented in the statements of cash flows | $ | 16,719 | $ | 16,578 | ||||
(in ’000s of U.S. dollars) | Restructured Senior Debt1 | Interim Financing2 | 8% Senior Unsecured Debentures3 | Pro Forma Common Equity4 | ||||||||||||
Secured Lenders | $ | 85,000 | $ | 14,737 | $ | 5,000 | 48.625 | % | ||||||||
Unsecured Debentureholders | — | — | 15,000 | 48.625 | % | |||||||||||
Existing Shareholders | — | — | — | 2.75 | % | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 85,000 | $ | 14,737 | $ | 20,000 | 100 | % | ||||||||
|
|
|
|
|
|
|
| |||||||||
(in ’000s of U.S. dollars) | Restructured Senior Debt 1 | Interim Financing 2 | 8% Senior Unsecured Debentures 3 | Pro Forma Common Equity 4 | ||||||||||||
| Secured Lenders | $ | 85,000 | $ | 14,737 | $ | 5,000 | 48.625 | % | ||||||||
Unsecured Lenders | — | — | 15,000 | 48.625 | % | |||||||||||
| Existing Shareholders | — | — | — | 2.75 | % | |||||||||||
Total | $ | 85,000 | $ | 14,737 | $ | 20,000 | 100 | % | ||||||||
| (1) | The principal balance of the Secured Notes will be reduced to $85.0 million, which will be increased by the amount of the Interim Financing, non-convertible andnon-callable for three years and includes payment in kind at an interest rate of 8% per year and a maturity date which will be five years after the consummation of the Recapitalization Transaction (the “Restructured Senior Debt”). |
| (2) | The Secured Lenders provided $14.7 million of interim financing (“Interim Financing”) to |
iANTHUS CAPITAL HOLDINGS, INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except per share amounts)
| (3) | The senior unsecured de include payment in kind at an interest rate of 8% per bentures non-callable for three years and are subordinate to the Restructured Senior Debt but senior to the Company’s common (the “8% Senior Unsecured Debentures”). |
| (4) |
On January 6, 2022, the Company’s Board of Directors approved the terms of a Long-Term Incentive Program recommended by the Board of Director’s compensation committee and, pursuant to which,the Company will allocate to certain ofits employees (including executive officers) restricted stock units and option awards up to, in the aggregate, 5.75% of the fully diluted equity of the Company under the Company’s Amended and Restated Omnibus Incentive Plan dated October 15, 2018 (“LTIP Awards”) in order to attract and retain such employees. The allocations of the LTIP Awards are contingent upon, and will occur within ten days following, the closing of the Recapitalization Transaction |
Board and the Company’s Chief Executive Officer.
Specifically, certain of the transactions contemplated by the Recapitalization Transaction have triggered the requirement for an approval by state-level regulators in certain U.S. states with jurisdiction over the licensed cannabis operations of entities owned, in whole or in part, or controlled, directly or indirectly, by the Company in such states. On February 23, 2021, the Nevada Cannabis Compliance Board approved the proposed change of ownership and control of the Company’s wholly-owned subsidiary, GMNV, contemplated by the Recapitalization Transaction. On June 17, 2021, the CCC issued the June 17 Approval. On June 15, 2021, the Company and the Lenders agreed to amend the Outside Date by which the Recapitalization Transaction pursuant to the Plan of Arrangement is required to be implemented by from June 30, 2021 to August 31, 2021.
During ownership and control of the Company’s wholly-owned subsidiary, S8, contemplated by the Recapitalization Transaction. S8 currently controls 4 licensed entities in Maryland through management services agreements.
Based on an analysis of Accounting Standards Codification (“ASC”) 250 – “Accounting Changes and Error Corrections” (“ASC 250”), Staff Accounting Bulletin 99 – “Materiality” (“SAB 99”) and Staff Accounting Bulletin 108 – “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”), the Company determined that these errors were immaterial to the previously issued financial statements, and as such no restatement was necessary. Correcting prior period financial statements for immaterial errors would not require previously filed reports to be amended.
The effect of the adjustments on the line items within the Company’s consolidated balance sheet as of December 31, 2020 is as follows:
| December 31, 2020 | ||||||||||||
| As previously reported | Adjustment | As adjusted | ||||||||||
Inventories | $ | 30,292 | $ | (4,841 | ) | $ | 25,451 | |||||
Current Assets | 50,464 | (4,841 | ) | 45,623 | ||||||||
Total Assets | 357,974 | (4,841 | ) | 353,133 | ||||||||
Accrued and other current liabilities | 56,381 | (1,328 | ) | 55,053 | ||||||||
Current liabilities | 233,207 | (1,328 | ) | 231,879 | ||||||||
Total Liabilities | 307,132 | (1,328 | ) | 305,804 | ||||||||
Accumulated Deficit | (720,629 | ) | (3,513 | ) | (724,142 | ) | ||||||
Total Shareholders’ Equity | 50,842 | (3,513 | ) | 47,329 | ||||||||
Total Liabilities and Shareholders’ Equity | 357,974 | (4,841 | ) | 353,133 | ||||||||
The effect of the adjustments on the line items within the Company’sunaudited interim condensed consolidated statements of Shareholders’ equityoperations.
| March 31, 2021 | ||||||||||||
| As previously reported | Adjustment | As adjusted | ||||||||||
Deficit accumulated – Balance January 1, 2021 | $ | (720,629 | ) | $ | (3,513 | ) | $ | (724,142 | ) | |||
Shareholders’ equity total – Balance January 1, 2021 | 50,842 | (3,513 | ) | 47,329 | ||||||||
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
note.
states, all subject to the necessary regulatory approvals.
Operational
(the “Tranche One Secured Notes”) are required to transfer the 3,891,051 common shares issued under the $10.0 million equity financing that closed concurrently with the Tranche One Secured Notes to us. As of March 31, 2022, we have not paid the Exit Fee and such shares have not been transferred to us.
(in ’000s of U.S. dollars) | Restructured Senior Debt 1 | Interim Financing 2 | 8% Senior Unsecured Debentures 3 | Pro Forma Common Equity 4 | ||||||||||||
Secured Lenders | $ | 85,000 | $ | 14,737 | $ | 5,000 | 48.625 | % | ||||||||
Unsecured Lenders | — | — | 15,000 | 48.625 | % | |||||||||||
Existing Shareholders | — | — | — | 2.75 | % | |||||||||||
Total | $ | 85,000 | $ | 14,737 | $ | 20,000 | 100 | % | ||||||||
| (1) | The principal balance of the Secured Notes will be reduced to $85.0 million, which will be increased by the amount of the Interim Financing, which has a first lien, senior secured position over all of our assets, is non-convertible andnon-callable for three years and includes payment in kind at an interest rate of 8% per year and a maturity date which will be five years after the consummation of the Recapitalization Transaction (the “Restructured Senior Debt”). |
| (2) | The Secured Lenders provided $14.7 million of interim financing (the “Interim Financing”) to ICM on substantially the same terms as the Restructured Senior Debt, net of a 5% original issue discount. The amounts of the Interim Financing along with any accrued interest thereon is expected to be converted into, and the original principal balance will be added to, the Restructured Senior Debt upon consummation of the Recapitalization Transaction. |
| (3) | The senior unsecured debentures include payment in kind at an interest rate of 8% per annum, a maturity date which will be five years after the consummation of the Recapitalization Transaction, are non-callable for three years and are subordinate to the Restructured Senior Debt but senior to our common shares (the “8% Senior Unsecured Debentures”). |
| (4) | On January 6, 2022, our Board of Directors approved the terms of a Long-Term Incentive Program (“LTIP”) recommended by the Board of Directors compensation committee and, pursuant to which, we will allocate to certain of our employees (including executive officers) restricted stock units and option awards up to, in the aggregate, 5.75% of our fully diluted equity under our Amended and Restated Omnibus Incentive Plan dated October 15, 2018 in order to attract and retain such employees. The allocations of the LTIP Awards are contingent upon, and will occur within ten days following, the closing of the Recapitalization Transaction contemplated by the Restructuring Support Agreement. All of our existing warrants and options will be cancelled, and our common shares may be consolidated pursuant to a consolidation ratio which has yet to be determined. |
2021
| Three Months Ended March 31, | ||||||||
| (in ‘000s of U.S. dollars) | 2021 | 2020 | ||||||
Revenues | ||||||||
Eastern Region | $ | 33,056 | $ | 18,049 | ||||
Western Region | 18,302 | 11,725 | ||||||
Other | 447 | 652 | ||||||
|
|
|
| |||||
Total revenues | $ | 51,805 | $ | 30,426 | ||||
|
|
|
| |||||
Cost of sales applicable to revenues | ||||||||
Eastern Region | $ | (11,893 | ) | $ | (7,288 | ) | ||
Western Region | (9,723 | ) | (6,963 | ) | ||||
Other | (468 | ) | (723 | ) | ||||
|
|
|
| |||||
Total cost of sales applicable to revenues | $ | (22,084 | ) | $ | (14,974 | ) | ||
|
|
|
| |||||
Gross profit | ||||||||
Eastern Region | $ | 21,162 | $ | 10,761 | ||||
Western Region | 8,580 | 4,761 | ||||||
Other | (21 | ) | (70 | ) | ||||
|
|
|
| |||||
Total gross profit | $ | 29,721 | $ | 15,452 | ||||
|
|
|
| |||||
Three Months Ended March 31, | ||||||||
(in ’000s of U.S. dollars) | 2022 | 2021 | ||||||
Revenues | ||||||||
Eastern Region | $ | 24,785 | $ | 33,056 | ||||
Western Region | 17,716 | 18,302 | ||||||
Other | 289 | 447 | ||||||
Total revenues | $ | 42,790 | $ | 51,805 | ||||
Cost of sales applicable to revenues | ||||||||
Eastern Region | $ | (8,717 | ) | $ | (11,894 | ) | ||
Western Region | (11,305 | ) | (9,723 | ) | ||||
Other | (276 | ) | (467 | ) | ||||
Total cost of sales applicable to revenues | $ | (20,298 | ) | $ | (22,084 | ) | ||
Gross profit | ||||||||
Eastern Region | $ | 16,068 | $ | 21,162 | ||||
Western Region | 6,411 | 8,580 | ||||||
Other | 13 | (21 | ) | |||||
Total gross profit | $ | 22,492 | $ | 29,721 | ||||
As ofregion
Our2022, our sales revenues in the eastern region increased by 83.1% from $18.0were $24.8 million in the prior year quarteras compared to $33.1 million for the three months ended March 31, 2021. Across2021, which represents a decrease of 25.0%. The main drivers for the eastern region, we continueddecrease in revenues are attributable to experience steady organic growth within each of our revenue channels:lower retail wholesale,revenues in Florida, Maryland and delivery. TheMassachusetts from increased competition and pricing pressures. This was offset by an increase in salesretail revenues was alsoin New York attributable to two new dispensariesthe sale of whole flower which was recently approved for sale in Florida and Massachusetts, which openedthe state of New York in January 2021 and December 2020, respectively.
DuringOctober 2021.
In the eastern region, for the three months ended March 31, 2021,2022, gross profit was $21.2$16.1 million, or 64.0%64.9% of sales revenues, as compared to $10.8a gross profit of $21.2 million, or 59.6%64.0% of sales revenues, for the three months ended March 31, 2020. The increase in gross2021. Gross profit as a percentage of sales revenue is primarily due to a more favorable sales mixhas remained relatively consistent between the three months ended March 31, 2022 and from improving efficiency of our operations across the Easton Region2021 in the current year quarter.
Western Region
As of
three months ended March 31, 2021. Sales revenues in Arizona have remained consistent between the three months ended March 31, 2022 and 2021.
Inthree months ended March 31, 2022, as compared to the western region,three months ended March 31, 2021.
Other revenues
Other revenues include revenues from the sale of CBD products and income from property leasing arrangementslower sales from our CBD business.
Three Months Ended March 31, | ||||||||
(in ’000s of U.S. dollars) | 2022 | 2021 | ||||||
Total operating expenses | $ | 31,869 | $ | 31,319 | ||||
Total other (income) expenses | (4,150 | ) | 10,563 | |||||
Income tax expense | 4,875 | 7,291 | ||||||
Selling, general and administrative expenses
| Three Months Ended March 31, | ||||||||
| (in ‘000s of U.S. dollars) | 2021 | 2020 | ||||||
Salaries and employee benefits | $ | 10,006 | $ | 11,135 | ||||
Share-based compensation | 1,634 | 5,175 | ||||||
Legal and other professional fees | 5,238 | 3,330 | ||||||
Facility, insurance, and technology costs | 4,100 | 3,887 | ||||||
Marketing expenses | 1,153 | 1,540 | ||||||
Travel and pursuit costs | 151 | 596 | ||||||
Other general corporate expenditures | 1,404 | 2,078 | ||||||
|
|
|
| |||||
Total | $ | 23,686 | $ | 27,741 | ||||
|
|
|
| |||||
Salaries and employee benefits
For the three months ended March 31, 2021, salaries and employee benefits decreased to $10.0 million as compared to $11.1 million for the prior year quarter. The decrease was primarily due to a reduction in headcount and optimization of our workforce as part of our cost savings initiatives that began in the second quarter of 2020.
As of March 31, 2021, total employee headcount was approximately 930 employees as compared to 750 employees as of March 31, 2020.
Share-based compensation
Share-based compensation decreased to $1.6$31.3 million for the three months ended March 31, 2021, which represents an increase of 1.8%.
Legal These increases in operating expenses are offset by a decrease in our legal and other professional fees
Legal totaling $1.6 million as there were fewer ongoing litigation matters and settlements during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021.
Facility, insurance and technology costs
Facility, insurance and technology costs for the three months ended March 31, 2021 increased toMPX NJ acquisition. Further, accretion expense decreased by $4.1 million as compared to $3.9our Tranche One Secured Notes, the additional $20.0 million forof secured notes issued on September 30, 2019 and the prior year quarter. Costs suchadditional $36.2 million of secured notes issued on December 20, 2019 have been fully accreted as facility rent, utilities, property taxes, insurance, repairs and maintenance have remained relatively consistent quarter over quarter. The increase is attributable to new facility build-outs since the prior year quarter, offset by the decrease as a result of savings from the renewal of our insurance policies in February 2021.
Marketing expenses
Marketing expenses for the three months ended decreased to $1.2 million from $1.5 million for the prior year quarter due to fewer marketing initiatives in the current quarterMay 2021, as compared to the prior year quarter.
Travel and pursuit costs
Travel and pursuit costs for the three months ended March 31, 2021 decreased to $0.2 million from $0.6 million for the three months ended March 31, 2020 primarily due to fewer travel expenses incurred in the current quarter as compared to the prior year quarter due to travel restrictions as a result of COVID-19.
Other general corporate expenditures
Other general corporate expenditures for the three months ended March 31, 2021 were $1.4 million as compared to $2.1 million for the prior year quarter. Other general corporate expenditures include research and development costs related to new products, bank fees, general office expenses, regulatory and compliance related expenses, loss contingencies, foreign exchange gains and losses and miscellaneous items, other than interest. The decrease was mainly due to savings in office expenses as most of our employees have been working from home since the onset of COVID-19 in March 2020.
Depreciation and amortization expenses
Depreciation and amortization expenses for the three months ended March 31, 2021 were $7.4 million as compared to $6.4 million in the prior year quarter. The increase was primarily due to the increased depreciable asset base resulting from the opening of new dispensaries in the Eastern region and the continued buildout of our cultivation and processing facilities in Florida, Arizona and New Jersey. Amortization of intangible assets of $3.9 million remained consistent quarter over quarter.
Impairment loss
For the three months ended March 31, 2021, no impairment loss was recognized as compared to $199.4 million in the prior year quarter. As a result of the decline in our stock price in the prior year quarter, indicators of impairment existed which resulted in the recognition of an impairment charge of $199.4 million of which $48.0 million was attributable to the Eastern region and $151.4 was attributable to the Western region.
Interest income
For the three months ended March 31, 2021 and 2020, interest income of $0.1 million and less than $0.1 million, respectively, was recognized as a result of our loan facilities and bank balances.
Interest expense,full accretion expense and other debt related expenses
| Three Months Ended March 31, | ||||||||
| (in ’000s of U.S. dollars) | 2021 | 2020 | ||||||
Interest expense | $ | 5,678 | $ | 4,467 | ||||
Accretion expense | 4,852 | 4,004 | ||||||
Provision for debt obligation fee | 414 | 12,503 | ||||||
|
|
|
| |||||
Total | $ | 10,944 | $ | 20,974 | ||||
|
|
|
| |||||
For the three months ended March 31, 2021, interest expense increased to $5.7 million as compared to $4.5 million for the prior year quarter. The increase was mainly due to the following financings and certain amendments to terms of existing debtthese instruments taken during the three months ended March 31, 2021:
In March 2020, we defaulted on our 13% senior secured convertible debentures (“Secured Notes”) which triggered an escalation of the annual interest rate from 13% to 16%;
In July 2020, the holders of the Secured Notes (“Secured Lenders”) provided $14.7 million of secured debentures (“Interim Financing”) which have an annual interest rate of 8%; and
In February 2021, iAnthus New Jersey, LLC issued $11.0 million of senior secured bridge notes (“Senior Secured Bridge Notes”) which have an annual interest rate of 14%.
For2021. Furthermore, during the three months ended March 31, 2021,2022, we received a payment of $0.4 million in Arizona from an early cancellation of a cultivation services agreement, which was recorded accretion expense of $4.9 million as compared to $4.0 million for the prior year quarter. The increase was mainly due to accretion expense recognizedother income on the additional financings noted above. Refer to Note 4 in the accompanyingour unaudited interim condensed consolidated financial statements for more detailsstatement of operations. This was partially offset by an increase in interest expense of $0.2 million as we are now accruing three months of interest expense on the long-term debt instruments that have an impact on periodicFebruary 2021 financing as compared to two months of interest and accretion expense.
Forexpense during the three months ended March 31, 2021, accrued interest of $0.4 million was recognized as part of the $10.0 million obligation required to be paid as part of the Secured Notes which accrue interest at a rate of 13% (the “Exit Fee”). The Exit Fee is classified under the provision for debt obligation fee on the unaudited interim condensed consolidated statements of operations. Refer to Note 4 in the accompanying unaudited interim condensed consolidated financial statements for more details on the Exit Fee.
Our policy is to2021.
Change in fair value of financial instruments
For the three months ended March 31, 2021, we recorded a loss of less than $0.1 million due to the change in fair value of financial instruments classified as derivative liabilities requiring fair value recognition each reporting period as compared to a gain of $4.7 million in the prior year quarter. We use the Black-Scholes valuation model to determine the fair value of derivative financial instruments each reporting period. Key inputs to the model are current share price, volatility and a risk-free rate. The loss from the change in fair value recorded in 2021 was
Income Taxes
federally illegal cannabis industry, we are subject to the limitations of Internal Revenue Code Section 280E (“Section 280E”) under which taxpayers are only allowed to deduct expenses directly related to sales of product and no other ordinary business expenses. Our effective tax rate differs from the statutory tax rate and varies from year to year primarily as a result of numerous permanent differences, the provision for income taxes at different rates in foreign and domestic jurisdictions, including changes in enacted statutory tax rate increases or reductions in the year, changes in our valuation allowance based on our recoverability assessments of deferred tax assets and favorable or unfavorable resolution of various tax examinations.
As of March 31, 2021, we had a gross deferred income tax liability of $32.1 million as compared to $34.6 million for the prior year quarter.
Financing requirements have fluctuated from period
Our major financing activities during the three months ended March 31, 2021 were as follows:
thereon. In February 2021, weour wholly-owned subsidiary, iAnthus New Jersey, LLC issued $11.0 million of senior secured bridge notes which mature on the earlier of (i) February 2, 2023, (ii) the date on whichnotes. While we close a Qualified Financing and (iii) such earlier date that the principal amount may become due and payable pursuant to the terms of such notes. The senior secured bridge notes accrue interest at 14% annually (increasing to 25% annually in the event of default and decreasing to 8% annually upon the completion of our proposed recapitalization transaction). “Qualified Financing” means a transaction or series of related transactions resulting in net proceeds to us of not less than $10 million from the subscription of our securities, including, but not limited to, a private placement or rights offering.
Our major financing activities during the year ended December 31, 2020 were as follows:
In July 2020, we issued $14.7 million of secured debentures which mature on July 13, 2025 and accrue interest at 8% annually.
Although there has been an increase in the amount of capital available over the last several years, there is neither a broad nor deep pool of institutional capital that is available to cannabis license holders and/or applicants in the United States. There can be no assurance that additional capital will be available to us when needed or on terms that are acceptable. Our potential inability to raise capital to fund capital expenditures and/or acquisitions may cast substantial doubt on our ability to continue as a going concern and may have a material adverse effect on future profitability.
The terms of our outstanding Secured Notes impose certain restrictions on our operating and financing activities, including certain restrictions on our ability to incur certain additional indebtedness, grant liens, make certain dividends and other payment restrictions affecting our subsidiaries, issue shares or convertible securities and sell certain assets. Such notes are secured by all of our current and future assets and the rights of the remaining lenders are subordinate to the secured notes. Our remaining outstanding unsecured debt instruments also impose certain restrictions on our operating and financing activities, including certain restrictions on our ability to incur certain additional indebtedness at the subsidiary level.
We believe that the financing transactions discussed above should provide us with thewe have funding necessary for us to continue as a going concern. However, in the eventconcern, we may need to raise additional capital and there can be no assurance that such capital will be available to us on favorable terms, if at all. As such, these material circumstances cast substantial doubt on our ability to continue as a going concern for a period of no less than 12 months from the date of this report. Ourreport, and our unaudited interim condensed consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.
Working Capital
As of March 31, 2021, We have based this estimate on assumptions that may prove to be wrong, and we held unrestricted cash of $13.7 million (December 31, 2020 —$11.0 million). The increase in cash wascould utilize our available capital resources sooner than we currently plan due to the net cash inflows from operating activities and the Senior Secured Bridge Notes financing, partially offset by capital expenditures during the three months ended March 31, 2021. As of March 31, 2021, we had a working capital deficit of $190.2 million, comparedincorrect assumptions or due to a working capital deficit of $186.3 million as of December 31, 2020. Working capital is in a deficit in both periods primarily as a resultdecision to expand our default on our long-term debt on April 4, 2020, which resulted in classifying our secured notes issued on May 14, 2018 in the aggregate principal amount of $40 million, our secured notes issued on December 20, 2019 in the principal amount of $20 million, our secured notes issued on December 20, 2019 in the principal amount of $36.2 million as current liabilities on the interim condensed consolidated balance sheets. Furthermore, working capital decreased from higher interest and income taxes for the three months ended March 31, 2021 as compared to the prior year quarter. This was partially offset by higher inventory and biological asset balances due to increased cultivation and processing quarter to quarter, cash received from operating activities and financings, and an increase in accounts receivable from wholesale revenues on account.
Cash from 2021
Cash flows
2022.
three months ended March 31, 2021, and an increase of $2.1 million related to the recognition of
$3.6 million.
Cash from the future.
three months ended March 31, 2021.
Cash from three months ended March 31, 2021.
Off-Balance Sheet Arrangements; Commitments and Contractual Obligations
As of March 31, 2021, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K and did not have any commitments or contractual obligations.
Change in Estimates
In January 2021, we completed an assessment100% of the yield per gram that is used as an input to value our inventory. The timingequity interests in MPX NJ. We recorded acquisition costs of this review was based on a combination of factors accumulating over time that provided us with updated information to make a better estimate$0.2 million and $Nil within selling, general and administrative expenses on the yieldunaudited interim condensed consolidated statement of our products. These factors included enhanced data gathering of crop production and yields into inventory. The assessment resulted in a revision of our production yield estimates that are used to value ending inventory. This change in accounting estimate was effective in the first quarter of 2021. The effect of this change was an increase in costs and expenses applicable to revenues of approximately $2.9 millionoperations for the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022, the balance of such facility was $Nil (December 31, 2021 – $4.6 million), which includes accrued interest of $Nil (December 31, 2021—$0.9 million). The related party balances are presented in other long-term assets on the unaudited interim condensed consolidated balance sheets.
As part of Ford’s termination agreement, the total loan facility was offset by compensation owed to Ford of $0.5 million during the first quarter of 2021. As of March 31, 2022, the outstanding balance of the facility including accrued interest was $Nil (December 31, 2021 – $Nil).
ITEM 4. | CONTROLS AND PROCEDURES. |
|
weakness.
ITEM 1. | LEGAL PROCEEDINGS. |
Walmer
On May 29, 2019, Walmer Capital Limited (“Walmer”
SDNY.
MPX NJ Matter
On December 16, 2020, MPX New Jersey, LLC (“MPX NJ”) filedand a complaint in the Superior Court of New Jersey Chancery Division – Monmouth County against iAnthus Capital Management, LLC (“ICM”) and iAnthus New Jersey, LLC (“INJ”). MPX NJ seeks a declaratory judgment from the court declaring: (i) MPX NJ is solely authorized to represent its interests to state and local officials and other parties and that Elizabeth Stavola, our former Chief Strategy Officer and Director, is principally responsible for the management and operations of MPX NJ; and (ii) that the Services Agreement dated August 27, 2019 by and between INJ and MPX NJ is currently ineffective and unenforceable. MPX NJ also seeks preliminary and final injunctive relief enjoining ICM and INJ from representing itself as having authority to act on MPX NJ’s behalf or as having a controlling interest in MPX NJ and from executing any agreements on MPX NJ’s behalf with any state or local official or other party. Additionally, MPX NJ seeks relief enjoining ICM and INJ from acting, directing or causing any actions at the Pleasantville, New Jersey cultivation facility absent express consent from MPX NJ. On December 23, 2020, the Superior Court of New Jersey preliminarily entered an order, with ICM’s and INJ’s consent, granting temporary restraints that: (i): enjoin ICM and INJ from entering into contracts that would bind MPX NJ; (ii) enjoin ICM and INJ from representing that ICM or INJ currently has a controlling interest in MPX NJ and that any future control is subject to approval by the New Jersey Department of Health; and (iii) require ICM and INJ to disclose to MPX NJ all contracts and activities taking place at the Pleasantville, New Jersey cultivation facility and to obtain consent of MPX NJ for any construction that takes place in regulated cultivation areas of the facility. The court hearing for the preliminary injunction was held on February 3, 2021. On February 3, 2021, the court issued an order, denying MPX NJ’s request for injunctive relief; provided, however, that the court ordered that the area of the Pleasantville, New Jersey cultivation facility currently growing and/or cultivating cannabis shall remain under the control of MPX NJ and be accessed under the supervision of MPX NJ. The court’s February 3, 2021 order supersedes its December 23, 2020 order. On March 11, 2021, MPX NJ, ICM and INJ executed a consent for a final judgement on the matter, which was ordered by the court on March 17, 2021. The final judgment ordered that: (i) MPX NJ’s Motionappeal is scheduled for Preliminary Injunction is denied in part for the reasons stated in the court’s February 3, 2021 order and for those reasons set forth by the court on the oral record; (ii) the areaJune 9, 2022.
Telephone Consumer Protection Act (“TCPA”) Class Action Matter
On January 13, 2021, a class action complaint was filed against iAnthus Empire Holdings, LLC (“IEH”) in the United States District Court for the Southern District of New York, alleging violations of the TCPA relating to IEH’s alleged text message marketing. On February 1, 2021, the plaintiff filed a Notice of Dismissal Without Prejudice, dismissing all claims of the named, individual plaintiff and the unnamed members of the alleged class.
ITEM 1A. | RISK FACTORS. |
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. |
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES. |
ITEM 4. | MINE SAFETY DISCLOSURES. |
ITEM 5. | OTHER INFORMATION. |
ITEM 6. | EXHIBITS. |
| * | Filed herewith. |
| IANTHUS CAPITAL HOLDINGS, INC. | ||||||
| By: | /s/ | |||||
| Interim Chief Executive Officer | ||||||
| (Principal Executive Officer) | ||||||
| Date: May | By: | /s/ Julius Kalcevich | ||||
Julius Kalcevich | ||||||
Chief Financial Officer | ||||||
(Principal Financial and Accounting Officer) |
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