| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
June 30, 2022
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
_________to ___________to Avenue, Aven
S-T (§ a non-acceleratedanon-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 Rule12b-2 of Large accelerated filer ☐ Accelerated filer ☐ ☒ Smaller reporting company ☒ Emerging growth company ☒
6,244,297,897.
Page No. | ||||||
PART I. FINANCIAL INFORMATION | ||||||
Item 1. | 4 | |||||
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Item 1A. | 45 | |||||
Item 2. | ||||||
Item 3. | ||||||
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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June 30, | December 31, | |||||||
2022 | 2021 | |||||||
(Revised) | ||||||||
Assets | ||||||||
| Cash | $ | 29,803 | $ | 13,244 | ||||
| Restricted cash | 1,337 | 3,334 | ||||||
| Accounts receivable, net of allowance for doubtful accounts of $4 (December 31, 2021—$27) | 3,007 | 3,595 | ||||||
| Prepaid expenses | 4,050 | 3,178 | ||||||
| Inventories, net | 29,138 | 28,692 | ||||||
| Other current assets | 1,226 | 1,603 | ||||||
Current Assets | 68,561 | 53,646 | ||||||
| Investments | 394 | 568 | ||||||
| Property, plant and equipment, net | 109,454 | 112,634 | ||||||
Right-of-use | 31,955 | 30,429 | ||||||
| Other long-term assets | 3,897 | 8,650 | ||||||
| Intangible assets, net | 150,034 | 139,062 | ||||||
Total Assets | $ | 364,295 | $ | 344,989 | ||||
Liabilities and Shareholder’s Deficit | ||||||||
| Accounts payable | $ | 12,883 | $ | 13,636 | ||||
| Accrued and other current liabilities | 72,763 | 98,933 | ||||||
| Current portion of long-term debt, net of issuance costs | 13,495 | 165,381 | ||||||
| Derivative liabilities | — | 16 | ||||||
| Current portion of lease liabilities | 7,852 | 7,342 | ||||||
Current Liabilities | 106,993 | 285,308 | ||||||
| Long-term debt, net of issuance costs | 125,572 | 27,999 | ||||||
| Deferred income tax | 31,597 | 27,507 | ||||||
| Long-term portion of lease liabilities | 29,157 | 27,814 | ||||||
Total Liabilities | 293,319 | 368,628 | ||||||
Commitments and Contingencies | 0 | 0 | ||||||
Shareholders’ Equity (Deficit) | ||||||||
Common shares — 0 par value. Authorized — unlimited | 0— | 0— | ||||||
| Shares to be issued | 1,531 | 1,531 | ||||||
Additional paid-in capital (Refer to Note 6) | 1,254,741 | 776,462 | ||||||
| Accumulated deficit | (1,185,296 | ) | (801,632 | ) | ||||
Total Shareholders’ Equity (Deficit) | $ | 70,976 | $ | (23,639 | ) | |||
Total Liabilities and Shareholders’ Equity (Deficit) | $ | 364,295 | $ | 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 | ||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Revenues, net of discounts | $ | 43,481 | $ | 54,228 | $ | 86,271 | $ | 106,033 | ||||||||
Costs and expenses applicable to revenues | (23,813 | ) | (22,917 | ) | (44,111 | ) | (45,001 | ) | ||||||||
Gross profit | 19,668 | 31,311 | 42,160 | 61,032 | ||||||||||||
Operating expenses | ||||||||||||||||
| Selling, general and administrative expenses | 58,130 | 21,491 | 81,536 | 45,719 | ||||||||||||
| Depreciation and amortization | 6,810 | 7,264 | 15,216 | 14,096 | ||||||||||||
| Write-downs, recoveries and other charges, net | 154 | (73 | ) | 211 | 186 | |||||||||||
| Impairment loss | — | 1,696 | — | 1,696 | ||||||||||||
Total operating expenses | 65,094 | 30,378 | 96,963 | 61,697 | ||||||||||||
(Loss) Income from operations | (45,426 | ) | 933 | (54,803 | ) | (665 | ) | |||||||||
| Interest income | 16 | 109 | 76 | 233 | ||||||||||||
| Other income | 912 | 220 | 12,178 | 494 | ||||||||||||
| Interest expense | (5,793 | ) | (5,879 | ) | (11,687 | ) | (11,557 | ) | ||||||||
| Accretion expense | (775 | ) | (2,664 | ) | (1,541 | ) | (7,516 | ) | ||||||||
| Provision for debt obligation fee | (390 | ) | (418 | ) | (804 | ) | (832 | ) | ||||||||
| Loss on debt extinguishment (Refer to Note 5) | (316,577 | ) | — | (316,577 | ) | — | ||||||||||
| Losses from change in fair value of financial instruments | (138 | ) | 327 | (240 | ) | 310 | ||||||||||
Loss before income taxes | (368,171 | ) | (7,372 | ) | (373,398 | ) | (19,533 | ) | ||||||||
| Income tax expense | 5,391 | 7,884 | 10,266 | 15,175 | ||||||||||||
Net loss | $ | (373,562 | ) | $ | (15,256 | ) | $ | (383,664 | ) | $ | (34,708 | ) | ||||
Net loss per share - basic and diluted | $ | (0.65 | ) | $ | (0.09 | ) | $ | (1.03 | ) | $ | (0.20 | ) | ||||
Weighted average number of common shares outstanding - basic and diluted | 572,108 | 171,643 | 373,019 | 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 June 30, 2022 | ||||||||||||||||||||
Number of Common Shares (‘000) | Shares to be Issued | Additional Paid-in-Capital | Accumulated Deficit | Total Shareholders’ (Deficit) Equity | ||||||||||||||||
Balance – March 31, 2022 | 171,718 | $ | 1,531 | $ | 777,926 | $ | (811,734 | ) | $ | (32,277 | ) | |||||||||
| Share-based compensation | — | — | 21,372 | — | 21,372 | |||||||||||||||
| Share issuance - Recapitalization Transaction | 6,072,580 | — | 455,443 | — | 455,443 | |||||||||||||||
| Net loss | — | — | — | (373,562 | ) | (373,562 | ) | |||||||||||||
Balance – June 30, 2022 | 6,244,298 | $ | 1,531 | $ | 1,254,741 | $ | (1,185,296 | ) | $ | 70,976 | ||||||||||
Six Months Ended June 30, 2022 | ||||||||||||||||||||
Number of Common Shares (‘000) | Shares to be Issued | Additional Paid-in-Capital | Accumulated Deficit | Total Shareholders’ (Deficit) Equity | ||||||||||||||||
Balance – January 1, 2022 - (Revised) | 171,718 | $ | 1,531 | $ | 776,462 | $ | (801,632 | ) | $ | (23,639 | ) | |||||||||
| Share-based compensation | — | — | 22,836 | — | 22,836 | |||||||||||||||
| Share issuance - Recapitalization Transaction | 6,072,580 | — | 455,443 | — | 455,443 | |||||||||||||||
| Net loss | — | — | — | (383,664 | ) | (383,664 | ) | |||||||||||||
Balance – June 30, 2022 | 6,244,298 | $ | 1,531 | $ | 1,254,741 | $ | (1,185,296 | ) | $ | 70,976 | ||||||||||
Three Months Ended June 30, 2021 | ||||||||||||||||||||
Number of Common Shares (‘000) | Shares to be Issued | Additional Paid-in-Capital | Accumulated Deficit | Total Shareholders’ Equity | ||||||||||||||||
Balance – March 31, 2021 | 171,718 | $ | 1,531 | $ | 771,574 | $ | (743,594 | ) | $ | 29,511 | ||||||||||
| Share-based compensation | — | — | 1,661 | — | 1,661 | |||||||||||||||
| Net loss | — | — | — | (15,256 | ) | (15,256 | ) | |||||||||||||
Balance – June 30, 2021 | 171,718 | $ | 1,531 | $ | 773,235 | $ | (758,850 | ) | $ | 15,916 | ||||||||||
Six Months Ended June 30, 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 | — | — | 3,295 | — | 3,295 | |||||||||||||||
| Net loss | — | — | — | (34,708 | ) | (34,708 | ) | |||||||||||||
Balance – June 30, 2021 | 171,718 | $ | 1,531 | $ | 773,235 | $ | (758,850 | ) | $ | 15,916 | ||||||||||
| 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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Six Months Ended June 30, | ||||||||
2022 | 2021 | |||||||
CASH FLOW FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | (383,664 | ) | $ | (34,708 | ) | ||
| Adjustments to reconcile net loss to cash (used in) provided by operations: | ||||||||
| Interest income | (76 | ) | (233 | ) | ||||
| Interest expense | 11,687 | 11,557 | ||||||
| Accretion expense | 1,541 | 7,516 | ||||||
| Debt obligation fees | 804 | 832 | ||||||
| Impairment loss | — | 1,696 | ||||||
| Depreciation and amortization | 16,424 | 15,133 | ||||||
| Write-downs, recoveries and other charges, net | 211 | 186 | ||||||
| Share-based compensation | 22,836 | 3,295 | ||||||
| Losses from change in fair value of financial instruments | 240 | (310 | ) | |||||
| Gain from nonmonetary consideration from acquisition (Refer to Note 4) | (10,460 | ) | — | |||||
| Loss on debt extinguishment (Refer to Note 5) | 316,577 | — | ||||||
| Change in operating assets and liabilities (Refer to Note 13) | 18,227 | 7,409 | ||||||
NET CASH FLOW (USED IN) PROVIDED BY OPERATING ACTIVITIES | $ | (5,653 | ) | $ | 12,373 | |||
CASH FLOW FROM INVESTING ACTIVITIES | ||||||||
| Purchase of property, plant and equipment | (4,731 | ) | (9,611 | ) | ||||
| Acquisition of other intangible assets | (70 | ) | (31 | ) | ||||
| Proceeds from sale of property, plant and equipment | 885 | — | ||||||
| Issuance of related party promissory note | (92 | ) | (638 | ) | ||||
| Purchase of subsidiaries, net of cash acquired | 4 | — | ||||||
NET CASH USED IN INVESTING ACTIVITIES | $ | (4,004 | ) | $ | (10,280 | ) | ||
CASH FLOW FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from issuance of debt | 24,250 | 11,000 | ||||||
| Debt issuance costs | — | (694 | ) | |||||
| Repayment of debt | (31 | ) | (28 | ) | ||||
NET CASH PROVIDED BY FINANCING ACTIVITIES | $ | 24,219 | $ | 10,278 | ||||
CASH AND RESTRICTED CASH: | ||||||||
NET INCREASE IN CASH AND RESTRICTED CASH DURING THE PERIOD | 14,562 | 12,371 | ||||||
CASH AND RESTRICTED CASH, BEGINNING OF PERIOD (Refer to Note 13) | 16,578 | 11,510 | ||||||
CASH AND RESTRICTED CASH, END OF PERIOD (Refer to Note 13) | $ | 31,140 | $ | 23,881 | ||||
unless otherwise stated)
(a) |
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(b) |
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These
(c) |
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(d) | Going Concern |
(e) | Basis of Consolidation |
(f) | Use of Estimates |
(g) | Change in Estimates |
(h) | Coronavirus Pandemic |
(i) | Reclassification |
Prior Year’s Line item | Reclassified Amount | Current Year’s Line item | ||||||||
Three Months Ended June 30, 2021 | Six Months Ended June 30, 2021 | |||||||||
| Depreciation and amortization | $ | 495 | $ | 1,037 | Selling, general and administrative expenses | |||||
| Depreciation and amortization | (495 | ) | (1,037 | ) | Depreciation and amortization | |||||
(j) | Revision of Prior Period Financial Statements |
Duringrevenues for the year ended December 31, 2021.
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 | ) | ||||||
June 30, 2022 | ||||||||||||
As 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 | ||||
| 2023 | $ | 7,852 | ||
| 2024 | 7,932 | |||
| 2025 | 8,107 | |||
| 2026 | 8,137 | |||
| 2027 | 7,672 | |||
| Thereafter | 56,617 | |||
| Total lease payments | $ | 96,317 | ||
| Less: interest expense | (59,308 | ) | ||
| Present value of lease liabilities | $ | 37,009 | ||
| Weighted-average remaining lease term (years) | 11.2 | |||
| Weighted-average discount rate | 20 | % | ||
Balance Sheet Information | Classification | June 30, 2022 | December 31, 2021 | |||||||
Right-of-use | Operating leases | $ | 31,955 | $ | 30,429 | |||||
Lease l iabilities | ||||||||||
| Current portion of lease liabilities | Operating leases | $ | 7,852 | $ | 7,342 | |||||
| Long-term lease liabilities | Operating leases | 29,157 | 27,814 | |||||||
Total | $ | 37,009 | $ | 35,156 | ||||||
June 30, 2022 | December 31, 2021 | |||||||
(Revised) | ||||||||
| Supplies | $ | 5,296 | $ | 6,188 | ||||
| Raw materials | 8,132 | 5,641 | ||||||
| Work in process | 7,187 | 9,464 | ||||||
| Finished goods | 8,523 | 7,399 | ||||||
Total | $ | 29,138 | $ | 28,692 | ||||
| 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 | ||
iANTHUS CAPITAL HOLDINGS, INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except per share amounts)
As a result of the March 31, 2020 default, the Board of Directors (the “Board”)of the Company formed a special committee comprisingcomprised of the Company’s then five independent,
Defaults.
On September 14, 2020, the Company held meetings at which the stakeholders approved the Plan of Arrangement. Following the stakeholder vote, on September 25, 2020, the Company attended a court hearing before the Supreme Court
closing the Recapitalization Transaction on June 24, 2022. The Company believes that the financing transactions discussed above should provide the necessary funding for the Companyis working to continue as a going concern. However, there can be no assurance that such capital will be availablefinalize any outstanding Requisite Approvals, including state regulatory approval in the future. As such, these material circumstances cast substantial doubt on the Company’s ability to continue as a going concern for a periodNew Jersey and New York.
|
unless otherwise stated)
|
The preparation of the unaudited interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and judgements that affect the application of accounting policies and the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of unaudited interim condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates and assumptions are continuously evaluated and are based on management’s experience and other factors, including expectations regarding future events that are believed to be reasonable under the circumstances. Actual results may differ significantly from these estimates.
Significant estimates made by management include, but are not limited to: economic lives of leased assets; allowances for potential uncollectability of accounts and notes receivable, provisions for inventory obsolescence; impairment assessment of long-lived assets; depreciable lives of property, plant and equipment; useful lives of intangible assets; accruals for contingencies including tax contingencies; valuation allowances for deferred income tax assets; estimates of fair value of identifiable assets and liabilities acquired in business combinations; estimates of fair value of derivative instruments; and estimates of the fair value of stock-based payment awards.
|
In January 2021, the Company completed an assessment of the yield per gram that is used as an input to value the Company’s inventory. The timing of this review was based on a combination of factors accumulating over time that provided the Company with updated information to make a better estimate on the yield of its products. These factors included enhanced data gathering of crop production and yields into inventory. The assessment resulted in a revision of the Company’s 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 million for the three months ended March 31, 2021.
|
In March 2020, the World Health Organization declared the global emergence of the COVID-19 pandemic. The impact of COVID-19 on the Company’s business is currently unknown. The Company will continue to monitor guidance and orders issued by federal, state, and local authorities with respect to COVID-19. As a result, the Company may take actions that alter its business operations as may be required by such guidance and orders or take other steps that the Company determines are in the best interest of its employees, customers, partners, suppliers, shareholders, and stakeholders.
Any such alterations or modifications could cause substantial interruption to the Company’s business and could have a material adverse effect on the Company’s business, operating results, financial condition, and the trading price of common shares, and could include temporary closures of one or more of the Company’s facilities; temporary or long-term labor shortages; temporary or long-term adverse impacts on the Company’s supply chain and distribution channels; and the potential of increased network vulnerability and risk of data loss resulting from increased use of remote access and removal of data from the Company’s facilities. In addition, COVID-19 could negatively impact capital expenditures and overall economic activity in the impacted regions or depending on the severity, globally, which could impact the demand for the Company’s products and services.
It is unknown whether and how the Company may be impacted if the COVID-19 pandemic persists for an extended period of time or it there are increases in its breadth or in its severity, including as a result of the waiver of regulatory requirements or the implementation of emergency regulations to which the Company is subject. The COVID-19 pandemic poses a risk that the Company or its employees, contractors, suppliers, and other partners may be prevented from conducting business activities for an indefinite period.
Although the Company has been deemed essential and/or has been permitted to continue operating its facilities in the states in which it cultivates, processes, manufactures, and sells cannabis during the pendency of the COVID-19 pandemic, subject to the implementation of certain restrictions on adult-use cannabis sales in both Massachusetts and Nevada, which have since been lifted, there is no assurance that the Company’s operations will continue to be deemed essential and/or will continue to be permitted to operate. The Company may incur expenses or delays relating to such events outside of its control, which could have a material adverse impact on its business, operating results, financial condition and the trading price of the common shares of the Company.
iANTHUS CAPITAL HOLDINGS, INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except per share amounts)
Note 2 – Leases
The Company mainly leases office space and cannabis cultivation, processing and retail dispensary space. Leases with an initialfollowing table summarizes long term of less than 12 months are not recorded on the unaudited interim condensed consolidated balance sheets. The Company recognizes lease expense for these leases on a straight-line basis over the lease term. Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to five years or more. The Company assumed that it was reasonably certain that the renewal options on the majority of its cannabis cultivation, processing and retail dispensary space would be exercised based on previous history and knowledge, current understanding of future business needs and the level of investment in leasehold improvements, among other considerations. The incremental borrowing rate used in the calculation of the lease liability is based on the rate available to the parent company. None of the Company’s leases include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. Certain subsidiaries of the Company rent or sublease certain office space to/from other subsidiaries of the Company. These intercompany subleases are eliminated on consolidation and have lease terms ranging from less than 1 year to 15 years.
Maturities of lease liabilities for operating leasesdebt outstanding as of March 31, 2021 were as follows:
| Operating Leases | ||||
2021 | $ | 7,630 | ||
2022 | 6,983 | |||
2023 | 7,041 | |||
2024 | 7,198 | |||
2025 | 7,271 | |||
Thereafter | 57,004 | |||
|
| |||
Total lease payments | $ | 93,127 | ||
Less: interest expense | (58,549 | ) | ||
|
| |||
Present value of lease liabilities | $ | 34,578 | ||
Weighted-average remaining lease term (years) | 11.9 | |||
Weighted-average discount rate | 20 | % | ||
For the three months ended March 31, 2021 and 2020, the Company recorded operating lease expenses of $2.4 million and $2.0 million, respectively, which are included in selling, general and administrative expenses, and depreciation and amortization expenses.
Supplemental balance sheet information related to leases are as follows:
Balance Sheet Information | Classification | March 31, 2021 | December 31, 2020 | |||||||||
Right-of-use assets | Operating leases | $ | 32,204 | $ | 33,083 | |||||||
|
|
|
| |||||||||
Lease Liabilities | ||||||||||||
Current portion of lease liabilities | Operating leases | $ | 7,630 | $ | 7,450 | |||||||
Long-term lease liabilities | Operating leases | 26,948 | 27,670 | |||||||||
|
|
|
| |||||||||
Total | $ | 34,578 | $ | 35,120 | ||||||||
|
|
|
| |||||||||
Note 3 - Inventories
Inventories is comprised of the following items:
| 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 | ||||||
|
|
|
| |||||
Total | $ | 26,174 | $ | 25,451 | ||||
|
|
|
| |||||
iANTHUS CAPITAL HOLDINGS, INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except per share amounts)
Note 4 - Long-Term Debt
| Secured Notes | May 2019 Debentures | March 2019 Debentures | Other | Total | ||||||||||||||||
As of January 1, 2021 | $ | 115,350 | $ | 23,240 | $ | 31,665 | $ | 920 | $ | 171,175 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Fair value of financial liabilities issued | 10,860 | — | — | 160 | 11,020 | |||||||||||||||
Accretion of balance | 4,007 | 193 | 357 | 295 | 4,852 | |||||||||||||||
Repayment | — | — | — | (14 | ) | (14 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
As of March 31, 2021 | $ | 130,217 | $ | 23,433 | $ | 32,022 | $ | 1,361 | $ | 187,033 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Secured Notes (1) | March 2019 Debentures | May 2019 Debentures | June Secured Debentures | Additional Secured Debentures | June Unsecured Debentures | Other | Total | |||||||||||||||||||||||||
As of January 1, 2022 | $ | 134,902 | $ | 33,138 | $ | 24,033 | $ | — | — | — | $ | 1,307 | $ | 193,380 | ||||||||||||||||||
| Fair value of financial liabilities issued | 1,526 | — | — | 84,681 | 25,033 | 14,880 | — | 126,120 | ||||||||||||||||||||||||
| Accretion of balance | 382 | 730 | 367 | 46 | — | 16 | — | 1,541 | ||||||||||||||||||||||||
| Debt extinguishment | (123,675 | ) | (33,868 | ) | (24,400 | ) | — | — | — | — | (181,943 | ) | ||||||||||||||||||||
| Repayment | — | — | — | — | — | — | (31 | ) | (31 | ) | ||||||||||||||||||||||
As of June 30, 2022 | $ | 13,135 | $ | — | $ | — | $ | 84,727 | $ | 25,033 | $ | 14,896 | $ | 1,276 | $ | 139,067 | ||||||||||||||||
| (1) | This amount |
|
operations.
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 along with accrued interest at the default rate of 16.0% per annum were extinguished on June 24, 2022 in connection with the closing of the Recapitalization Transaction.
operations.
As of June 24, 2022, this debt, related accrued interest and fees were fully satisfied pursuant to the terms of the Restructuring Support Agreement and no default existed with respect to the Tranche Two Secured Notes.
The principal amount of such notes along with accrued interest at the default rate of 16.0% per annum were extinguished on June 24, 2022 in connection with the closing of the Recapitalization Transaction.
operations.
As of June 24, 2022, this debt, related accrued interest and fees were fully satisfied pursuant to the terms of the Restructuring Support Agreement and no default existed with respect to the Tranche Two Secured Notes.
as such, were considered to be extinguished in connection with the closing of the Recapitalization Transaction.
All terms, restrictions, and financial covenants applicable to the Tranche One Secured Notes, Tranche Two Secured Notes, and Tranche Three Secured Notes discussed above, are also applicable to the Tranche Four Secured Notes. The Company remains in default with respect to the Tranche One Secured Notes, Tranche Two Secured Notes and Tranche Three Secured Notes, due to failure to remit applicable interest payments between March 2020 and March 2021. Thus, all amounts owing on the Tranche One Secured Notes, Tranche Two Secured Notes and Tranche Three Secured Notes are classified as current liabilities in the unaudited interim condensed consolidated balance sheets. The Company has not defaulted on the Tranche Four Secured Notes as of March 31, 2021. Therefore, the Tranche Four Secured Notes are classified as long-term liabilities in the unaudited interim condensed consolidated balance sheets.
thousands, unless otherwise stated)
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 thatwhen all of the principal amount is due and payable.
|
sheets as they are due on February 2, 2023.
2023; however, on June 24, 2022, the outstanding principal of March 2019 Debentures along with related accrued interest and applicable fees were extinguished as part of the closing of the Recapitalization Transaction.
financing activities, including certain restrictions on the Company’s ability to incur certain additional indebtedness at the subsidiary level. As of March 31, 2021,June 24, 2022, immediately prior to the consummation of the Recapitalization Transaction, the Company defaultedwas 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, asAs a result of this default, the Company is classifyingclassified the debt as a current liability on the unaudited interim condensed consolidated balance sheets as the Unsecured Debentures were due on demand. As of June 24, 2022, this debt, related accrued interest and fees were fully satisfied pursuant to the terms of the Restructuring Support Agreement and no default existed with respect to the March 2019 Debentures are due on demand. The eventDebentures.
|
Debentures
2023; however, on June 24, 2022, the outstanding principal of May 2019 Debentures along with related accrued interest and applicable fees were extinguished as part of the closing of the Recapitalization Transaction.
operations.
|
As part of the acquisition of MPX Bioceutical Corporation (“MPX”) on February 5, 2019 (the “MPX Acquisition”) (Note 5(b)),Recapitalization Transaction, the Company assumed a long-term note (the “Stavola Trust Note”) of $10.8 million, payableentered into the Secured DPA, pursuant to the Elizabeth Stavola 2016 NV Irrevocable Trust. This trust is for the benefit of a former director and officer ofwhich the Company Elizabeth Stavola, and is therefore a related party balance. The note hadissued the Jun
annum increasing to 11.0% per annum upon the occurrence of an Event of Default (as defined in the Unsecured DPA), with maturity date of June 24, 2027. The June Unsecured Debentures may be prepaid on a pro rata basis from and after the third anniversary of the Closing Date of the Recapitalization Transaction upon prior written notice to the Unsecured Lender without premium or penalty.
|
The following is a summary of the common share issuances for the three and six months ended March 31, 2020:
75,000
|
| March 31, 2021 | ||||||||
| Units | Weighted Average Exercise Price (C$) | |||||||
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:
June 30, 2022 | ||||||||
Units | Weighted Average Exercise Price (C$) | |||||||
| Warrants outstanding, beginning | 22,640 | $ | 3.56 | |||||
| Granted | — | 0 — | ||||||
| Forfeited | (17,955 | ) | 2.52 | |||||
| Expired | (4,685 | ) | 7.53 | |||||
| Warrants outstanding, ending | — | $ | 0— | |||||
| 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 | % | ||||
June 30, 2022 | December 31, 2021 | |||||||
| Risk-free interest rate | — | 0.9 | % | |||||
| Expected dividend yield | — | 0.0 | % | |||||
| Expected volatility | — | 93.7 - 297.1 | % | |||||
| Expected life | — | 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 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
June 30, 2022 | December 31, 2021 | |||||||||||||||
Year of expiration | Number Outstanding | Weighted Average Exercise Price (C$) | Number Outstanding | Weighted Average Exercise Price (C$) | ||||||||||||
| 2022 | — | — | 20,855 | 3.47 | ||||||||||||
| 2023 | — | — | 1,785 | 4.57 | ||||||||||||
| Warrants outstanding | — | $ | — | 22,640 | $ | 3.56 | ||||||||||
|
unless otherwise stated)
| 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 | ||||||
|
|
|
| |||||
|
June 30, 2022 | December 31, 2021 | |||||||
| Common share options | 0— | 10,504 | ||||||
Restricted s tock units | 320,165 | 0— | ||||||
| Warrants | 0— | 22,640 | ||||||
| Secured notes | 0— | 46,458 | ||||||
| Debentures | 0— | 10,135 | ||||||
MPX dilutive instruments (1) | 408 | 408 | ||||||
Total | 320,573 | 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 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
period:
June 30, 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 | — | — | — | — | — | — | ||||||||||||||||||
| Exercised | — | 0— | — | — | 0— | — | ||||||||||||||||||
| Cancellations | (7,111 | ) | 4.70 | — | — | — | — | |||||||||||||||||
| Forfeitures | (3,152 | ) | 5.85 | — | — | — | — | |||||||||||||||||
| Expirations | (241 | ) | 1.21 | — | (1,006 | ) | 3.96 | — | ||||||||||||||||
| Options outstanding, ending | — | $ | — | — | 10,504 | $ | 4.95 | 6.24 | ||||||||||||||||
period:
June 30, 2022 | ||||||||
Units | Weighted Average Grant Price (C$) | |||||||
| Unvested balance, beginning | — | $ | — | |||||
| Granted | 390,802 | 0.12 | ||||||
| Vested | (101,514 | ) | 0.12 | |||||
| Forfeited | (70,637 | ) | 0.12 | |||||
| Unvested balance, ending | 218,651 | $ | 0.12 | |||||
| 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 June 30, | Six Months Ended June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
| Loss before income taxes | $ | (368,171 | ) | $ | (7,372 | ) | $ | (373,398 | ) | $ | (19,533 | ) | ||||
| Income tax expense | 5,391 | 7,884 | 10,266 | 15,175 | ||||||||||||
| Effective tax rate | (1.5 | )% | (106.9 | )% | (2.7 | )% | (77.7 | )% | ||||||||
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 June 30, | Six Months Ended June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Revenues | ||||||||||||||||
| Eastern Region | $ | 25,760 | $ | 34,724 | $ | 50,545 | $ | 67,780 | ||||||||
| Western Region | 17,429 | 19,103 | 35,145 | 37,406 | ||||||||||||
Other (1) | 292 | 401 | 581 | 847 | ||||||||||||
Total | $ | 43,481 | $ | 54,228 | $ | 86,271 | $ | 106,033 | ||||||||
Gross profit (loss) | ||||||||||||||||
| Eastern Region | $ | 14,269 | $ | 24,402 | $ | 30,337 | $ | 45,565 | ||||||||
| Western Region | 5,212 | 7,004 | 11,623 | 15,583 | ||||||||||||
| Other | 187 | (95 | ) | 200 | (116 | ) | ||||||||||
Total | $ | 19,668 | $ | 31,311 | $ | 42,160 | $ | 61,032 | ||||||||
Depreciation and amortization | ||||||||||||||||
| Eastern Region | $ | 3,678 | $ | 6,457 | $ | 8,936 | $ | 12,333 | ||||||||
| Western Region | 2,998 | 605 | 6,010 | 1,362 | ||||||||||||
| Other | 134 | 202 | 270 | 401 | ||||||||||||
Total | $ | 6,810 | $ | 7,264 | $ | 15,216 | $ | 14,096 | ||||||||
| Asset impairments and write-downs | ||||||||||||||||
| Eastern Region | $ | 7 | $ | — | $ | 76 | $ | 259 | ||||||||
| Western Region | — | — | — | — | ||||||||||||
| Other | 147 | 1,623 | 135 | 1,623 | ||||||||||||
Total | $ | 154 | $ | 1,623 | $ | 211 | $ | 1,882 | ||||||||
Net income (loss) | ||||||||||||||||
| Eastern Region | $ | (2,641 | ) | $ | 2,746 | $ | 4,686 | $ | 3,482 | |||||||
| Western Region | (2,022 | ) | 668 | (2,934 | ) | 3,167 | ||||||||||
| Other | (368,899 | ) | (18,670 | ) | (385,416 | ) | (41,357 | ) | ||||||||
Total | $ | (373,562 | ) | $ | (15,256 | ) | $ | (383,664 | ) | $ | (34,708 | ) | ||||
Purchase of property, plant and equipment | ||||||||||||||||
| Eastern Region | $ | 2,818 | $ | 4,992 | $ | 4,038 | $ | 9,523 | ||||||||
| Western Region | 340 | 64 | 691 | 68 | ||||||||||||
| Other | — | 16 | 2 | 20 | ||||||||||||
Total | $ | 3,158 | $ | 5,072 | $ | 4,731 | $ | 9,611 | ||||||||
Purchase of intangibles | ||||||||||||||||
| Eastern Region | $ | — | $ | 31 | $ | — | $ | 31 | ||||||||
| Western Region | — | — | — | — | ||||||||||||
| Other | 9 | — | 70 | — | ||||||||||||
Total | $ | 9 | $ | 31 | $ | 70 | $ | 31 | ||||||||
| (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 | ||||
|
|
|
| |||||
25
unless otherwise stated)
June 30, | December 31, | |||||||
2022 | 2021 (Revised) | |||||||
Assets | ||||||||
| Eastern Region | $ | 234,807 | $ | 222,350 | ||||
| Western Region | 95,157 | 106,485 | ||||||
| Other | 34,331 | 16,154 | ||||||
Total | $ | 364,295 | $ | 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 | ||||||
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Total | $ | 51,805 | $ | 30,426 | ||||
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| |||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Revenue | ||||||||||||||||
| iAnthus branded products | $ | 23,178 | $ | 32,298 | $ | 45,336 | $ | 63,480 | ||||||||
| Third party branded products | 18,280 | 16,394 | 35,427 | 31,601 | ||||||||||||
| Wholesale/bulk/other products | 2,023 | 5,536 | 5,508 | 10,952 | ||||||||||||
Total | $ | 43,481 | $ | 54,228 | $ | 86,271 | $ | 106,033 | ||||||||
| 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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June 30, 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 | $ | 312 | $ | — | $ | — | $ | 312 | $ | 568 | $ | — | $ | — | $ | 568 | ||||||||||||||||
Financial Liabilities | ||||||||||||||||||||||||||||||||
| Derivative liabilities | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 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 and six months ended March 31,June 30, 2022 and 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 traded and can be valued using listed stock prices.
| Financial Assets | ||||
Balance as of December 31, 2020 | $ | 512 | ||
Revaluations on Level 1 instruments | 20 | |||
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| |||
Balance as of March 31, 2021 | $ | 532 | ||
|
| |||
Financial Assets | ||||
Balance as of December 31, 2021 | $ | 568 | ||
| Revaluations on Level 1 instruments | (256 | ) | ||
Balance as of June 30, 2022 | $ | 312 | ||
On June 24, 2022 all warrants were forfeited upon the consummation of the Recapitalization Transaction.
| Derivative Liabilities | ||||
Balance as of December 31, 2020 | $ | 245 | ||
Revaluations on Level 3 instruments | 37 | |||
|
| |||
Balance as of March 31, 2021 | $ | 282 | ||
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| |||
Derivative Liabilities | ||||
Balance as of December 31, 2021 | $ | 16 | ||
| Revaluations on Level 3 instruments | (16 | ) | ||
Balance as of June 30, 2022 | $ | — | ||
| 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 | ||||||||||||
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Total | $ | 187,033 | $ | 198,621 | $ | 171,175 | $ | 189,363 | ||||||||
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June 30, 2022 | December 31, 2021 | |||||||||||||||
Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||||||
| June Unsecured Debentures | $ | 14,896 | $ | 14,888 | $ | 57,171 | $ | 64,596 | ||||||||
| June Secured Debentures | 109,760 | 105,938 | 134,902 | 176,487 | ||||||||||||
| Secured Notes | 13,135 | 12,971 | — | — | ||||||||||||
| Other | 1,276 | 1,135 | 1,307 | 1,021 | ||||||||||||
Total | $ | 139,067 | $ | 134,932 | $ | 193,380 | $ | 242,104 | ||||||||
iANTHUS CAPITAL HOLDINGS, INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except per share amounts)
The following table summarizes the Company’s contractual obligations and commitments as of March 31, 2021:
| 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 | |||||||||||||||
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Total | $ | 178,244 | $ | 18,588 | $ | 7,099 | $ | 7,263 | $ | 22,952 | ||||||||||
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For the twelve months ended June 30, | 2023 | 2024 | 2025 | 2026 | 2027 | |||||||||||||||
| Operating leases | $ | 7,852 | $ | 7,932 | $ | 8,107 | $ | 8,137 | $ | 7,672 | ||||||||||
| Service contracts | 2,108 | 2 | — | 0— | 0— | |||||||||||||||
| Long-term debt | 14,425 | 134 | 134 | 134 | 216,432 | |||||||||||||||
Total | $ | 24,385 | $ | 8,068 | $ | 8,241 | $ | 8,271 | $ | 224,104 | ||||||||||
The |
Line of Credit to Zia Integrated, LLC
On 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).
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, 2020,28, 2022, the court consolidated the action filed against Randy Maslow with the Roberts Plaintiffs’ action for discovery and trial purposes. As a security services firmresult, the court vacated the matter’s initial trial date of May 9, 2022 and 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. On May 19, 2022, the Roberts filed a second amended complaint against McCrory Sunny Hill Nursery, LLCMr. Maslow (“McCrory”Amended Maslow Complaint”), GHHIA Management, Inc (“GHHIA”), GrowHealthy Properties, LLC (“GHP”), and iAnthus Holdings Florida, LLC (“IHF”), collectively, claiming $1.0 million in damages, as. On June 3, 2022, Mr. Maslow filed a result of an alleged breach of a contractual relationship by McCrory, GHHIA, GHP, and IHF.
motion to dismiss the Amended Maslow Complaint, which motion remains pending before the court.
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, Secured Lenders and Consenting Unsecured Lenders agreed to amend the Outside Date with respect to the Recapitalization Transaction 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 for the closing of the Recapitalization Transaction 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 October 12, 2021, 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. The Company intends to discontinue such appeal with prejudice now that the Recapitalization Transaction has closed.
vacated.
During the year ended December 31, 2020,Transaction, Oasis discontinued its counterclaim with prejudice.
iANTHUS CAPITAL HOLDINGS, INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except per share amounts)
Arbitration. On December 16, 2020, MPX New Jersey, LLC (“MPX NJ”)November 18, 2021, THCWC and iA AZ filed a complaint againstComplaint for Declaratory Judgment (“Declaratory Judgment Complaint”) with the Company in theArizona Superior Court, of New Jersey Chancery Division—MonmouthMaricopa County (“Arizona Superior Court”), seeking preliminary and final injunctive relief. Subsequently, 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. On March 11, 2021, MPX NJ, iAnthus Capital Management, LLC (“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 ordereddeclarations that: (i) MPX NJ’s Motion for Preliminary Injunctionthe JV Agreement is denied in part for the reasons stated in the court’s February 3, 2021 ordervoid, against public policy and for those reasons set forth by the court on the oral record;terminable at will; (ii) the area of the Pleasantville facility currently growing and/or cultivating cannabis shall remain under the control of MPX NJJV Agreement is unenforceable and be accessed only under the supervision of or with the consent of MPX NJ;not binding; and (iii) the matter be closed and this order constituteJV Agreement only applies to sales under the final judgment and orderArizona Medical Marijuana Act. On January 21, 2022, Saloum filed an Answer with Counterclaims in response to the Declaratory Judgment Complaint. The Declaratory Judgment Complaint remains pending before the Arizona Superior Court. The Arbitration Action is stayed, pending resolution of the court; (iv) the parties expressly preserve all rights to appeal the court’s February 3, 2021 order denying MPX NJ’s Motion for Preliminary Injunction and granting MPX NJ certain relief, as well as the final order and judgment; and (v) in the event the February 3, 2021 order from the court is vacated on appeal, both the February 3, 2021 order and the final order and judgment is also vacated.
Declaratory Judgment Complaint.
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 shareholderswholly-owned subsidiary of the Company, filed a demand for arbitration (the “CGX Arbitration”) with the American Arbitration Association (“AAA”) against LMS Wellness, Benefit LLC (“LMS”) and its 100% owner, William Huber (“Huber” and together with LMS, the “Defendants”) for various breaches under the option agreements entered into between CGX and LMS, on the one hand, and CGX and Huber on the other (collectively, the “Option Agreements”). Specifically, CGX is seeking: (i) an order finding the Defendants in breach of the Option Agreements and directing specific performance by
| March 31, 2021 | December 31, 2020 | |||||||
Financial Statement Line Item | ||||||||
Accounts receivable | $ | — | $ | 140 | ||||
Other long-term assets | 3,732 | 3,358 | ||||||
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Total | $ | 3,732 | $ | 3,498 | ||||
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June 30, 2022 | December 31, 2021 | |||||||
Financial Statement Line Item | ||||||||
Current portion of long-term debt, net of issuance costs (1) | 12,062 | — | ||||||
Long-term debt, net of issuance costs (1) | 106,360 | — | ||||||
Accrued and other current liabilities | 11,626 | |||||||
| Other long-term assets | — | 4,552 | ||||||
Total | $ | 130,048 | $ | 4,552 | ||||
| (1) | Upon the closing of the Recapitalization Transaction, certain of the Company’s lenders held greater than 10.0% of the voting interests in the Company and therefore are classified as related parties. Refer to Note 5 for further discussion. |
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 | ||||||
Six Months Ended June 30, | ||||||||
2022 | 2021 | |||||||
| Income taxes | $ | 1,069 | $ | 1,560 | ||||
| Interest | 45 | 47 | ||||||
| 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 | ||||||
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| $ | 4,792 | $ | 3,473 | |||||
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| |||||
Six Months Ended June 30, | ||||||||
2022 | 2021 | |||||||
Decrease (increase) in: | ||||||||
| Accounts receivables | $ | 604 | $ | (291 | ) | |||
| Prepaid expenses | (800 | ) | (267 | ) | ||||
| Inventories | (446 | ) | (2,205 | ) | ||||
| Other current assets | 286 | (1,102 | ) | |||||
| Other long-term assets | (35 | ) | 506 | |||||
| Operating leases | (674 | ) | (704 | ) | ||||
(Decrease) increase in: | ||||||||
| Accounts payable | (881 | ) | (1,232 | ) | ||||
| Accrued and other current liabilities | 20,173 | 12,704 | ||||||
$ | 18,227 | $ | 7,409 | |||||
| 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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Six Months Ended June 30, | ||||||||
2022 | 2021 | |||||||
| Property, plant and equipment | $ | 7,091 | $ | 6,386 | ||||
Operating lease right-of-use | 1,208 | 1,037 | ||||||
| Intangible assets | 8,125 | 7,710 | ||||||
$ | 16,424 | $ | 15,133 | |||||
| For the Three Months Ended March 31, 2021 | ||||||||
| 2020 |
| |||||||
Write-downs: | ||||||||
Accounts receivable provisions | $ | — | $ | 329 | ||||
Fixed asset | 259 | 350 | ||||||
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| $ | 259 | $ | 679 | |||||
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iANTHUS CAPITAL HOLDINGS, INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except per share amounts)
Six Months Ended June 30, | ||||||||
2022 | 2021 | |||||||
Write-downs : | ||||||||
| Account receivable recoveries | $ | (17 | ) | $ | (72 | ) | ||
Operating lease right-of-use | — | 258 | ||||||
| Property, plant and equipment | 228 | — | ||||||
$ | 211 | $ | 186 | |||||
| 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 | ||||||
Six Months Ended June 30, | ||||||||
2022 | 2021 | |||||||
Supplemental Cash Flow Information: | ||||||||
Non-cash consideration forpaid-in-kind | 1,719 | 554 | ||||||
Non-cash consideration for asset acquisition | 19,193 | — | ||||||
Non-cash issuance of shares from consummation of the Recapitalization Transaction | 455,443 | — | ||||||
Non-cash debt extinguishment from the consummation of the Recapitalization Transaction | (238,269 | ) | — | |||||
Non-cash issuance of June Secured Debentures and June Unsecured Debentures from the consummation of the Recapitalization Transaction | 99,402 | — | ||||||
Bridge Notes.
| March 31, 2021 | December 31, 2020 | |||||||
Cash | $ | 13,692 | $ | 11,015 | ||||
Restricted cash | 8,435 | 495 | ||||||
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| |||||
Total cash and restricted cash presented in statements of cash flows | $ | 22,127 | $ | 11,510 | ||||
|
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June 30, 2022 | December 31, 2021 | |||||||
| Cash | $ | 29,803 | $ | 13,244 | ||||
| Restricted cash | 1,337 | 3,334 | ||||||
Total cash and restricted cash presented in the statements of cash flows | $ | 31,140 | $ | 16,578 | ||||
Legal Proceedings
Please refer to Note 10 for further discussion.
Event of Default and Financial Restructuring
The Company is currently in default
As partshareholders (the “Budding Rose Sellers”) of Budding Rose, Inc. (“Budding Rose”); (ii) all of the Restructuring Support Agreementshareholders (the “Rosebud Sellers”) of Rosebud Organics, Inc. (“Rosebud”) and (iii) Elizabeth Stavola (the “GMMD Seller” and together with the Secured LendersBudding Rose Sellers and Rosebud Sellers, the “Sellers”), a majority of the Unsecured Debentureholders, dated July 13, 2020, the Secured Lenders, the Unsecured Debentureholdersformer officer and the Existing Shareholdersdirector of the Company areand the sole member of GreenMart of Maryland, LLC (“GMMD”), pursuant to be allocatedwhich, CGX was granted and issued, approximately,exercised its options to acquire
(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 | % | |||||||||||
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Total | $ | 85,000 | $ | 14,737 | $ | 20,000 | 100 | % | ||||||||
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Upon consummation of the Recapitalization Transaction, a new board of directors (the “New Board”) will be composed of the following members: (i) three nominees will be designated by the Secured Lenders; (ii) three nominees will be designated by the majority of the Unsecured Lenders (“Consenting Unsecured Lenders”); and (iii) one nominee will be designated by the director nominees of the Secured Lenders and Consenting Unsecured Lenders to serve as a member of the Company’s New Board.
Pursuant to the terms of the proposed Recapitalization Transaction, the Collateral Agent, the Secured Lenders and the Consenting Unsecured Lenders agreed to forbear from further exercising any rights or remedies in connection with any events of default that now exist or may in the future arise under any of the purchase agreements with respect of the Secured Notes and all other agreements delivered in connection therewith, the purchase agreements with respect of the Unsecured Convertible Debentures and all other agreements delivered in connection therewith and any other agreement to which the Collateral Agent, Secured Lenders, or Consenting Unsecured Lenders are a party to (collectively, the “Defaults”) and shall take such steps as are necessary to stop any current or pending enforcement efforts in relation thereto. Upon consummation of the Recapitalization Transaction, the Collateral Agent, Secured Lenders and Consenting Unsecured Lenders are also expected to irrevocably waive all Defaults and take all steps required to withdraw, revoke and/or terminate any enforcement efforts in relation thereto.
Completion of the Recapitalization Transaction will be subject to receipt of the Requisite Approvals. If the Requisite Approvals are obtained, the Plan of Arrangement will bind all Secured Lenders, Unsecured Debentureholders and Existing Shareholders. The Plan of Arrangement was approved by the Supreme Court of British Columbia on October 5, 2020. On January 29, 2021, a notice of appeal with respect to the final approval for the Plan of Arrangement received by the Company on November 5, 2020 was dismissed by the British Columbia Court of Appeal. The Company is in progress of obtaining the remaining Requisite Approvals.
Note 14 - Revision of Prior Period Financial Statements
During the three months ended March 31, 2021, the Company determined that it had not appropriately recorded cost of inventory as of December 31, 2020. This resulted in an overstatement of the inventory balance, accrued and other current liabilities and accumulated deficit as of December 31, 2020 and income tax expense and an understatement of costs and expenses applicable to revenues for the year ended December 31, 2020.
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’s interim condensed consolidated statements of Shareholders’ equity for the three months ended March 31, 2021 is as follows:
| 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 “Restructuring Support Agreement”) with the Secured Lenders and certain of our Unsecured Lenders (the “Consenting Unsecured Lenders”) to effectuate a recapitalization transaction (the “Recapitalization Transaction”), which we consummated on June 24, 2022 (the “Closing Date”). The Recapitalization Transaction closed pursuant to the terms of the amended and restated plan of arrangement (the “Plan of Arrangement”) under the Business Corporations Act (British Columbia) approved by the Supreme Court of British Columbia (the “Court”). Pursuant to the terms of the Restructuring Support Agreement, the Collateral Agent, the Secured Lenders and the Consenting Unsecured Lenders agreed to forbear from further exercising any rights or remedies in connection with any events of default that existed or may have existed in the future arising under any of the purchase agreements with respect to the Secured Notes and all other agreements delivered in connection therewith, the purchase agreements with respect to the Unsecured Debentures and all other agreements delivered in connection therewith and any other agreement to which the Collateral Agent, Secured Lenders, or Consenting Unsecured Lenders are a party to (collectively, the “Defaults”). As of the Closing Date, the Collateral Agent, Secured Lenders and Consenting Unsecured Lenders irrevocably waived all Defaults.
(in ’000s of U.S. dollars) | June Secured Debentures 1 | Interim Financing 2 | June 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 Secured Notes and Interim Financing (as defined below) were extinguished as of the Closing Date and, in exchange, ICM issued the June Secured Debentures, which may be prepaid on a pro rata basis from and after the third anniversary of the Closing Date upon prior written notice to the New Secured Lenders without premium or penalty. |
| (2) | Certain of the Secured Lenders provided $14.7 million of interim financing (the “Interim Financing”) to ICM pursuant to the Restructuring Support Agreement. |
| (3) | The Unsecured Debentures were extinguished as of the Closing Date, and in exchange, ICM issued the June Unsecured Debentures, which may be prepaid on a pro rata basis from and after the third anniversary of the Closing Date upon prior written notice to the Unsecured Lenders without premium or penalty. The June Unsecured Debentures are subordinate to the June Secured Debentures, but are senior to the Company’s common shares. |
| (4) | On December 31, 2021, our Board of Directors approved the terms of a Long-Term Incentive Program (“LTIP”) recommended by our compensation committee and, pursuant to which, on July 26, 2022 we issued to certain of our employees (including executive officers) an aggregate of 320,165,409 restricted stock units (“RSUs”), under our Amended and Restated Omnibus Incentive Plan dated October 15, 2018 in order to attract and retain such employees. All of our existing warrants and options were cancelled, and our common shares may be consolidated pursuant to a consolidation ratio which has yet to be determined. |
| i. | For so long as the First Investor’s Debt Exchange Common Share Percentage (as defined in the IRA) is at least 30.0%, the First Investor shall be entitled to designate up to three individuals as director nominees; |
| ii. | For so long as the First Investor’s Debt Exchange Common Share Percentage is less than 30.0% but is at least 15.0%, the First Investor shall be entitled to designate up to two individuals as director nominees; and |
| iii. | For so long as the First Investor’s Debt Exchange Common Share Percentage is less than 15.0% but is at least 5.0%, the First Investor shall be entitled to designate up to one individual as a director nominee. |
| 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 | ||||||
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Total revenues | $ | 51,805 | $ | 30,426 | ||||
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Cost of sales applicable to revenues | ||||||||
Eastern Region | $ | (11,893 | ) | $ | (7,288 | ) | ||
Western Region | (9,723 | ) | (6,963 | ) | ||||
Other | (468 | ) | (723 | ) | ||||
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| |||||
Total cost of sales applicable to revenues | $ | (22,084 | ) | $ | (14,974 | ) | ||
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| |||||
Gross profit | ||||||||
Eastern Region | $ | 21,162 | $ | 10,761 | ||||
Western Region | 8,580 | 4,761 | ||||||
Other | (21 | ) | (70 | ) | ||||
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| |||||
Total gross profit | $ | 29,721 | $ | 15,452 | ||||
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| |||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| (in ’000s of U.S. dollars) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
Revenues | ||||||||||||||||
Eastern Region | $ | 25,760 | $ | 34,725 | $ | 50,545 | $ | 67,780 | ||||||||
Western Region | 17,429 | 19,103 | 35,145 | 37,406 | ||||||||||||
Other | 292 | 400 | 581 | 847 | ||||||||||||
Total revenues | $ | 43,481 | $ | 54,228 | $ | 86,271 | $ | 106,033 | ||||||||
Cost of sales applicable to revenues | ||||||||||||||||
Eastern Region | $ | (11,491 | ) | $ | (10,322 | ) | $ | (20,208 | ) | $ | (22,216 | ) | ||||
Western Region | (12,217 | ) | (12,099 | ) | (23,522 | ) | (21,823 | ) | ||||||||
Other | (105 | ) | (496 | ) | (381 | ) | (963 | ) | ||||||||
Total cost of sales applicable to revenues | $ | (23,813 | ) | $ | (22,917 | ) | $ | (44,111 | ) | $ | (45,001 | ) | ||||
Gross profit | ||||||||||||||||
Eastern Region | $ | 14,269 | $ | 24,403 | $ | 30,337 | $ | 45,565 | ||||||||
Western Region | 5,212 | 7,004 | 11,623 | 15,583 | ||||||||||||
Other | 187 | (96 | ) | 200 | (116 | ) | ||||||||||
Total gross profit | $ | 19,668 | $ | 31,311 | $ | 42,160 | $ | 61,032 | ||||||||
Eastern Region
As
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| (in ’000s of U.S. dollars) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
Total operating expenses | $ | 65,094 | $ | 30,378 | $ | 96,963 | $ | 61,697 | ||||||||
Total other expenses | 322,745 | 8,305 | 318,595 | 18,868 | ||||||||||||
Income tax expense | 5,391 | 7,884 | 10,266 | 15,175 | ||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| (in ‘000s of U.S. dollars) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
Salaries and employee benefits | $ | 8,950 | $ | 9,344 | $ | 19,240 | $ | 19,350 | ||||||||
Severance | 11,889 | — | 11,889 | — | ||||||||||||
Share-based compensation | 21,372 | 1,661 | 22,836 | 3,295 | ||||||||||||
Legal and other professional fees | 1,747 | 3,597 | 5,370 | 8,836 | ||||||||||||
Deferred Professional Fees related to the Recapitalization Transaction | 7,091 | — | 7,091 | — | ||||||||||||
Facility, insurance and technology costs | 3,805 | 3,873 | 7,965 | 7,973 | ||||||||||||
Marketing expenses | 1,213 | 1,019 | 2,508 | 2,171 | ||||||||||||
Travel and pursuit costs | 208 | 113 | 470 | 264 | ||||||||||||
Amortization on right-of-use assets | 585 | 495 | 1,208 | 1,037 | ||||||||||||
Other general corporate expenditures | 1,270 | 1,389 | 2,959 | 2,793 | ||||||||||||
Total | $ | 58,130 | $ | 21,491 | $ | 81,536 | $ | 45,719 | ||||||||
Our sales revenues in the eastern region increased by 83.1% from $18.0 million in the prior year quarter to $33.1 million for the three months ended March 31, 2021. Across the eastern region, we continued to experience steady organic growth within eachordinary
During the three months ended March 31, 2021, approximately 11,700 poundsor delivery of plant material was harvested from three cultivation facilitiescannabis products.
In the eastern region, for the three months ended March 31, 2021, gross profit was $21.2 million, or 64.0% of sales revenues, as compared to $10.8 million, or 59.6% of sales revenues for the three months ended March 31, 2020. The increase in gross profit as a percentage of sales revenue is primarily due to a more favorable sales mix and from improving efficiency of our operations across the Easton Region in the current year quarter.
Western Region
As of March 31, 2021,federally illegal cannabis industry, we held licenses to operate up to eight dispensaries and fourteen cultivation and processing facilities in the western region,are subject to regulatory approval. Asthe limitations of March 31, 2021, we had five dispensaries and five cultivation and processing facilities open and operational in this region. As of March 31, 2020, we held licensesInternal Revenue Code Section 280E (“Section 280E”) under which taxpayers are only allowed to operate updeduct expenses directly related to eight dispensaries and five cultivation and processing facilities in the western region. As of March 31, 2020, we had five dispensaries and five cultivation and processing facilities open and operational. The decrease in the number of dispensary and cultivation facilities was a result of the redemption of our equity interest in Reynold Greenleaf & Associates, LLC (“RGA”) which occurred in the fourth quarter of 2020.
Our sales revenues in the western region increased by 56.1% from $11.7 million in the prior year quarter to $18.3 million for the three months ended March 31, 2021. The increase in sales revenues was mainly attributable to strong same-store sales growth in each of our four Arizona dispensaries. Furthermore, wholesale revenues in both Arizona and Nevada markets improved quarter over quarter, and revenues generated from delivery and toll processing channels increased nearly threefold in the current quarter as compared to the prior year quarter.
During the three months ended March 31, 2021, approximately 1,700 pounds of plant material was harvested from five cultivation facilities operating in the western region as compared to approximately 1,800 pounds harvested from the same facilities in the prior year quarter.
In the western region, for the three months ended March 31, 2021, gross profit was $8.6 million, or 46.9% of sales revenues, as compared to $4.8 million, or 40.6% of sales revenues for the prior year quarter. The increase in gross margin in the western region is due to our manufacturing and selling of more higher margin in-house products in the current quarter as compared to the prior year quarter.
Other revenues
Other revenues include revenues from the sale of CBD products and income from property leasing arrangements from our assets in Colorado which do not meet the consolidation criteria under U.S. GAAP. For the three months ended March 31, 2021, other revenues were $0.4 million as compared to $0.7 million for the prior year quarter. This decrease was attributable to lower retail sales of CBD products as a result of restrictions imposed on retailers across the U.S. due to COVID-19.
Selling, generalproduct 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 | ||||||
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| |||||
Total | $ | 23,686 | $ | 27,741 | ||||
|
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| |||||
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 million for the three months ended March 31, 2021 as compared to $5.2 million for the prior year quarter as a result of the forfeitures of certain executive and employee options during 2020 and during the three months ended March 31, 2021.
Legal andno other professional fees
Legal and other professional fees for the three months ended March 31, 2021 increased to $5.2 million as compared to $3.3 million for the prior year quarter. We continue to use the expertise of various professionals such as bankers, lawyers, accountants, auditors, valuators and tax specialists to ensure compliance with local and state regulations. The main driver for the increase in legal and other professional fees for the three months ended March 31, 2021 is $0.8 million in fees incurred related to the Recapitalization Transaction. Professional fees related to the Recapitalization Transaction are incurred as we navigate closing of the Recapitalization Transaction.
Facility, insurance and technology costs
Facility, insurance and technology costs for the three months ended March 31, 2021 increased to $4.1 million as compared to $3.9 million for the prior year quarter. Costs such 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 quarter 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, 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 | ||||||
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|
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| |||||
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 debt instruments 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%.
For the three months ended March 31, 2021, we 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 recognized on the additional financings noted above. Refer to Note 4 in the accompanying unaudited interim condensed consolidated financial statements for more details on the long-term debt instruments that have an impact on periodic interest and accretion expense.
For 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 to expense any debt issuance costs allocated to a derivative liability for our compound financial instruments at the time of issuance. For the three months ended March 31, 2021 and 2020, debt issuance costs were $0.7 million and $Nil, respectively. Debt issuance costs allocated to the host debt contracts are deferred and amortized over the time to maturity of the debt instrument and are included in accretion expense. Any debt issuance costs allocated to financial instruments classified in equity are recorded in paid-in-capital on the unaudited interim condensed consolidated balance sheets.
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 a result of the movement in our share price quarter over quarter.
Income Taxes
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
Financing requirements have fluctuated from period
WeQuarterly Report on Form 10-Q do not include any adjustments that might be necessary if we are currently in default with respect to our long-term debt which, as of March 31, 2021 consists of $97.5 million and $60.0 million of principal amount, and $19.0 million and $6.0 million in accrued interest, with respect to the Secured Notes and our 8% convertible unsecured debentures (“Unsecured Debentures”), respectively. In addition, as a result of the default, we have accrued additional principal and interest of $14.2 million in excess of the aforementioned amounts.
Our major financing activities during the three months ended March 31, 2021 were as follows:
In February 2021, we issued $11.0 million of senior secured bridge notes which mature on the earlier of (i) February 2, 2023, (ii) the date on which 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 abilityunable 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.
Weconcern.
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 taxesactivities beyond those currently planned.
Cash Flow For the ThreeSix Months Ended March 31, 2021June 30, 2022 as Compared to March 31, 2020
Cash from the Six Months Ended June 30, 2021
Cash flows
June 30, 2022.
six months ended June 30, 2021, and an increase of $0.7 million related to the recognition of
$0.9 million.
Cash from the future.
There were no cash inflowssix months ended June 30, 2021. In addition, during the six months ended June 30, 2022, we loaned $0.1 million to MPX NJ as compared to $0.6 million during the six months ended June 30, 2021.
Cash from six months ended June 30, 2021.
Off-Balance Sheet Arrangements; CommitmentsCorporation on February 5, 2019, we acquired a related party receivable of $0.7 million due from a company owned by a former director and Contractual Obligations
Asofficer, Elizabeth Stavola. The related party receivable was converted into a loan facility of Marchup to $10.0 million, which accrued interest at the rate of 16.0%, compounded annually. Interest was due upon maturity of the loan on December 31, 2021. During the year ended December 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 assessmentexercised our right to convert the principal balance of the yield per gram that is used as an inputloan and accrued interest into a 99% equity interest in MPX NJ and exercised our option to value our inventory. The timingacquire the remaining 1% of this reviewMPX NJ, which was basedapproved by the New Jersey Cannabis Regulatory Commission on a combinationJanuary 7, 2022. We recorded acquisition costs of factors accumulating over time that provided us with updated information to make a better estimate$0.1 million and $0.3 million within selling, general and administrative expenses on the yieldunaudited interim condensed consolidated statement of operations for the three and six months ended June 30, 2022 and 2021, respectively. As of June 30, 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.
2021 with the SEC.
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
ITEM 4. | CONTROLS AND PROCEDURES. |
|
weaknesses by year end.
ITEM 1. | LEGAL PROCEEDINGS. |
Walmer
U.S. Shareholder Class Action
On April 20, 2020, a shareholder of the Company filed a putative class action against the Company, its former Chief Executive Officer, its current Chief Financial Officer and others in the United States District Court for the Southern District of New York seeking damages of an unspecified amount for alleged false and misleading statements regarding certain proceeds from the issuance of long-term debt that were held in escrow to make interest payments in the event of a default thereof. On May 5, 2020, another shareholder of the Company filed a putative class action against the same defendants alleging substantially similar causes of action.S8 on March 12, 2018. On June 16, 2020, four separate motions for consolidation, appointment as lead plaintiff,24, 2022, the Defendants filed Motion to Consolidate the CGX Arbitration and approval of lead counsel were filed.S8 Arbitration. On July 9, 2020, the court issued an order consolidating the various class actions complaints along with U.S. Hi-Med LLC matter (as set forth below) and appointed a lead plaintiff and lead counsel. On July 23, 2020, the parties filed a stipulation and proposed scheduling and coordination order to coordinate the pleadings for the consolidated actions. On September 4, 2020, the lead plaintiff filed a consolidated amended class action complaint. On October 14, 2020, the court issued a stipulation and scheduling and coordination order, which requires that the defendants answer, move, or otherwise respond to the amended complaints no later than November 20, 2020. On November 20, 2020, the Company and its current Chief Financial Officer filed a motion to dismiss the amended class action complaint. On January 8, 2021, the lead plaintiff5, 2022, CGX filed an opposition to the motionDefendants’ Motion to dismiss. TheConsolidate and a cross-Motion to Stay the S8 Arbitration to allow the CGX Arbitration to proceed first. On July 26, 2022, the parties attended a preliminary conference with the arbitrator, at which conference the arbitrator preliminarily granted the Defendants’ Motion to Consolidate and denied CGX’s cross-Motion to Stay the S8 Arbitration.
ITEM 1A. | RISK FACTORS. |
U.S. Hi-Med Matter
On April 19, 2020, Hi-Med LLC (“Hi-Med”),
Plan of Arrangement
On July 13, 2020, the Company entered into a restructuring support agreement (the “Restructuring Support Agreement”) with all of the holders (the “Secured Lenders”) the 13% senior secured convertible debentures issued by the Company (the “Secured Notes”) and certain holders of the Company’s Unsecured Debentures to effectuate a proposed recapitalization transaction to be implemented by way of a court-approved plan of arrangement (the “Plan of Arrangement”) under the Business Corporations Act (British Columbia). On October 5, 2020, the Plan of Arrangement was approved by the Supreme Court of British Columbia, subject to the receipt of all necessary regulatory and stock exchange approvals. On November 3, 2020, Walmer, Island and Crawford collectively served and filed a Notice of Appealstate income tax payments have been made with respect to the court’s approval2021 tax year. Those subsidiaries currently owe approximately $13,124,460 for 2020 and $24,199.412 for 2021 in United States federal income taxes and $495,303 for 2020 and $4,279,592 for 2021 in state income taxes. In addition, the IRS has assessed against those subsidiaries approximately $778,059 in interest and penalties, and state taxing authorities have assessed $694,801in interest and penalties against those subsidiaries. Interest and penalties will continue to accrue for as long as such taxes, interest and penalties remain unpaid.
MPX NJ Matter
December 31of each fiscal year. On December 16, 2020, MPX New Jersey, LLC (“MPX NJ”) filedeach quarter end date, we assess whether recent events or changes in circumstances constitute a complainttriggering event requiring us to assess whether goodwill, other intangibles or fixed assets may be impaired before the annual testing date. Occurrences that may constitute a change in the Superior Court of New Jersey Chancery Division – Monmouth County against iAnthus Capital Management, LLC (“ICM”)circumstances include, but are not limited to, a decline in our share price 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 statemarket capitalization, decreases in expected future cash flows and local officialsslower growth rates in our industry. We review our fixed assets and other partiesfinite life intangibles for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. As a result of our annual test, we recognized an impairment loss on goodwill and that Elizabeth Stavola, our former Chief Strategy Officerintangible assets of $7.4 million and Director, is principally responsible$203.5 million for the managementyears ended December 31, 2021 and operations of MPX NJ; and (ii)2020, respectively.
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.
Risk factors that affect our business and financial results are discussed in Part I, Item 1A “Risk Factors,”continued decrease in our Annual Report on Form 10-Kshare price during 2020, our share price declined below net book value per share. As a result, we were required to record a significant impairment loss to reduce the amount of goodwill recorded in our financial statements for the year ended December 31, 2020 (“Annual Report”). There have been no material changesto $Nil. If the share price continues to remain below the net book value per share, or other negative business factors arise, we may be required to perform additional impairment analyses before our next annual testing date which could result in additional impairment charges. During 2021 as our stock price continued to be below net book value per share, we performed an impairment assessment of each reporting unit, which resulted in an impairment loss on
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. |
Exhibit No. | Description | |
| 10.1 | ||
| 10.2 | ||
| 10.3†# | ||
| 10.4†# | ||
| 10.5 | ||
| 10.6 | ||
| 10.7# | ||
| 10.8# | ||
| 31.1* | ||
| 31.2* | ||
| 32.1** | ||
| 32.2** | ||
| 101.INS* | Inline XBRL Instance Document | |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104* | Cover Page Interactive Data File—the cover page from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022 is formatted in Inline XBRL | |
| * | Filed herewith. |
| ** | Furnished herewith. |
| † | Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company hereby undertakes to furnish supplementally copies of any of the omitted schedules upon request by the Securities and Exchange Commission. |
| # | Pursuant to Item 601(b)(10) of Regulation S-K, certain confidential portions of this exhibit were omitted by means of marking such portions with an asterisk because the identified confidential portions (i) are not material and (ii) the Company customarily and actually treats that information as private or confidential. |
IANTHUS CAPITAL HOLDINGS, INC. | ||||||
Date: August 15, 2022 | By: | /s/ | ||||
Robert Galvin | ||||||
Interim Chief Executive Officer | ||||||
(Principal Executive Officer) | ||||||
Date: | By: | /s/ Julius Kalcevich | ||||
Julius Kalcevich | ||||||
Chief Financial Officer | ||||||
(Principal Financial and Accounting Officer) | ||||||
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