_______________________
_______________________
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December 24, 2022
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_______________________
British Columbia | 98-1431779 | |||||||
(State or other jurisdiction of |
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| (I.R.S. employer | |||||||
8740 S Sepulveda Blvd, Suite 105, Los Angeles, California | 90045 | |||||||
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(Address of principal executive offices) | ( | |||||||
_______________________
_______________________
| Large Accelerated Filer |
| Accelerated Filer |
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Non-Accelerated Filer |
| Smaller Reporting Company |
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| Emerging Growth Company |
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MEDMEN ENTERPRISES INC.
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(Unaudited) |
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| September 26, |
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| June 27, |
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| 2020 |
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| 2020 |
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| (unaudited) |
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| (audited) |
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ASSETS |
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Current Assets: |
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Cash and Cash Equivalents |
| $ | 10,310,260 |
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| $ | 10,093,925 |
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Restricted Cash |
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| 9,873 |
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|
| 9,873 |
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Accounts Receivable and Prepaid Expenses |
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| 7,192,349 |
|
|
| 5,626,761 |
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Inventory |
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| 21,294,149 |
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| 22,638,120 |
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Current Assets Held for Sale |
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| 30,304,046 |
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| 33,459,879 |
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Other Current Assets |
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| 15,768,919 |
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| 9,105,457 |
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Due from Related Party |
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| 3,109,718 |
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| 3,109,717 |
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Total Current Assets |
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| 87,989,314 |
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| 84,043,732 |
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|
|
|
|
|
|
|
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Operating Lease Right-of-Use Assets |
|
| 100,762,121 |
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|
| 116,354,828 |
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Property and Equipment, Net |
|
| 156,197,545 |
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| 174,547,867 |
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Intangible Assets, Net |
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| 138,437,778 |
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|
| 148,081,030 |
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Goodwill |
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| 33,861,150 |
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|
| 33,861,150 |
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Other Assets |
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| 16,928,369 |
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| 17,374,997 |
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TOTAL ASSETS |
| $ | 534,176,277 |
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| $ | 574,263,604 |
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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LIABILITIES: |
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Current Liabilities: |
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Accounts Payable and Accrued Liabilities |
| $ | 76,266,738 |
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| $ | 79,530,930 |
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Income Taxes Payable |
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| 57,663,832 |
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|
| 38,599,349 |
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Other Current Liabilities |
|
| 12,572,672 |
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| 20,278,381 |
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Current Portion of Operating Lease Liabilities |
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| 8,206,432 |
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| 9,757,669 |
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Current Portion of Finance Lease Liabilities |
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| 1,418,156 |
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| 1,644,044 |
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Current Portion of Notes Payable |
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| 17,067,303 |
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| 16,188,668 |
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Current Liabilities Held for Sale |
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| 20,345,665 |
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| 18,659,038 |
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Due to Related Party |
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| 4,553,715 |
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| 4,556,814 |
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Total Current Liabilities |
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| 198,094,513 |
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| 189,214,893 |
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Operating Lease Liabilities, Net of Current Portion |
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| 115,297,418 |
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| 131,045,238 |
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Finance Lease Liabilities, Net of Current Portion |
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| 29,701,187 |
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| 58,569,498 |
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Other Non-Current Liabilities |
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| 4,073,875 |
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| 4,215,533 |
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Deferred Tax Liabilities |
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| 46,996,241 |
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| 48,928,492 |
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Senior Secured Convertible Credit Facility |
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| 169,374,611 |
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| 166,368,463 |
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Notes Payable, Net of Current Portion |
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| 162,975,025 |
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| 152,809,937 |
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TOTAL LIABILITIES |
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| 726,512,870 |
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| 751,152,054 |
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MEZZANINE EQUITY |
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Super Voting Shares (no par value, unlimited shares authorized, 815,295 and 815,295 shares issued and outstanding as of September 26, 2020 and June 27, 2020, respectively) |
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| 82,500 |
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| 82,500 |
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SHAREHOLDERS’ EQUITY: |
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Preferred Shares (no par value, unlimited shares authorized and no shares issued and outstanding) |
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| - |
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| - |
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Subordinate Voting Shares (no par value, unlimited shares authorized, 439,396,938 and 403,907,218 shares issued and outstanding as of September 26, 2020 and June 27, 2020, respectively) |
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| - |
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| - |
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Additional Paid-In Capital |
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| 816,321,013 |
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| 791,172,613 |
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Accumulated Deficit |
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| (649,149,618 | ) |
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| (631,365,866 | ) |
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Total Equity Attributable to Shareholders of MedMen Enterprises Inc. |
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| 167,253,895 |
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| 159,889,247 |
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Non-Controlling Interest |
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| (359,590,488 | ) |
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| (336,777,697 | ) |
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TOTAL SHAREHOLDERS’ EQUITY |
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| (192,336,593 | ) |
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| (176,888,450 | ) |
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TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
| $ | 534,176,277 |
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| 574,263,604 |
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| December 24, 2022 | June 25, 2022 | ||||||||||
| (unaudited) | (audited) | ||||||||||
| ASSETS | |||||||||||
| Current Assets: | |||||||||||
| Cash and Cash Equivalents | $ | 15,605,362 | $ | 10,795,999 | |||||||
| Accounts Receivable and Prepaid Expenses | 5,415,701 | 7,539,767 | |||||||||
| Inventory | 13,675,322 | 10,010,731 | |||||||||
| Assets Held for Sale | 43,611,513 | 123,158,751 | |||||||||
| Receivable for Assets Held for Sale | 11,500,000 | — | |||||||||
| Other Assets | 10,403,527 | 9,990,992 | |||||||||
| Total Current Assets | 100,211,425 | 161,496,240 | |||||||||
| Operating Lease Right-of-Use Assets | 34,275,701 | 47,649,270 | |||||||||
| Property and Equipment, Net | 57,645,329 | 64,107,792 | |||||||||
| Intangible Assets, Net | 32,653,134 | 35,746,114 | |||||||||
| Goodwill | 9,810,049 | 9,810,049 | |||||||||
| Other Non-Current Assets | 3,879,373 | 4,414,219 | |||||||||
| TOTAL ASSETS | $ | 238,475,011 | $ | 323,223,684 | |||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||
| LIABILITIES: | |||||||||||
| Current Liabilities: | |||||||||||
| Accounts Payable and Accrued Liabilities | $ | 42,926,092 | $ | 38,905,818 | |||||||
| Income Taxes Payable | 67,472,697 | 58,646,291 | |||||||||
| Other Liabilities | 16,591,825 | 16,704,283 | |||||||||
| Derivative Liabilities | 3,642,777 | 6,749,563 | |||||||||
| Current Portion of Operating Lease Liabilities | 11,897,467 | 10,925,128 | |||||||||
| Current Portion of Finance Lease Liabilities | 4,294,333 | 4,061,273 | |||||||||
| Current Portion of Notes Payable | 66,294,249 | 97,003,922 | |||||||||
| Liabilities Held for Sale | 24,524,988 | 86,595,102 | |||||||||
| Total Current Liabilities | 237,644,428 | 319,591,380 | |||||||||
| Operating Lease Liabilities | 40,724,983 | 50,917,244 | |||||||||
| Finance Lease Liabilities | 27,288,988 | 26,553,287 | |||||||||
| Other Non-Current Liabilities | 2,846,182 | 3,082,277 | |||||||||
| Deferred Tax Liability | 38,459,344 | 35,213,671 | |||||||||
| Senior Secured Convertible Credit Facility | 146,193,049 | 132,005,663 | |||||||||
| Notes Payable | 74,110,205 | 74,372,898 | |||||||||
| TOTAL LIABILITIES | 567,267,179 | 641,736,420 | |||||||||
| SHAREHOLDERS’ EQUITY: | |||||||||||
| Preferred Shares (no par value, unlimited shares authorized and no shares issued and outstanding) | — | — | |||||||||
| Subordinate Voting Shares (no par value, unlimited shares authorized, 1,302,129,084 and 1,301,423,950 shares issued and outstanding as of December 24, 2022 and June 25, 2022, respectively) | — | — | |||||||||
| Additional Paid-In Capital | 1,060,236,631 | 1,057,228,873 | |||||||||
| Accumulated Deficit | (913,798,904) | (901,758,875) | |||||||||
| Total Equity Attributable to Shareholders of MedMen Enterprises Inc. | 146,437,727 | 155,469,998 | |||||||||
| Non-Controlling Interest | (475,229,895) | (473,982,734) | |||||||||
| TOTAL SHAREHOLDERS’ EQUITY | (328,792,168) | (318,512,736) | |||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 238,475,011 | $ | 323,223,684 | |||||||
(Unaudited) |
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| Three Months Ended |
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| September 26, |
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| September 28, |
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|
| 2020 |
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| 2019 |
| ||
|
| (unaudited) |
|
| (unaudited) |
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Revenue |
| $ | 35,625,968 |
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| $ | 39,669,996 |
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Cost of Goods Sold |
|
| 18,801,910 |
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|
| 20,277,820 |
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|
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|
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Gross Profit |
|
| 16,824,058 |
|
|
| 19,392,176 |
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|
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Expenses: |
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|
|
|
|
|
|
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General and Administrative |
|
| 31,683,604 |
|
|
| 54,094,949 |
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Sales and Marketing |
|
| 193,385 |
|
|
| 5,782,780 |
|
Depreciation and Amortization |
|
| 8,625,708 |
|
|
| 9,484,181 |
|
Realized and Unrealized Loss on Changes in Fair Value of Contingent Consideration |
|
| 302,834 |
|
|
| 2,284,054 |
|
Impairment Expense |
|
| 789,709 |
|
|
| - |
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Gain On Disposals of Assets, Restructuring Fees and Other Expenses |
|
| (16,697,861 | ) |
|
| (697,962 | ) |
|
|
|
|
|
|
|
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Total Expenses |
|
| 24,897,379 |
|
|
| 70,948,002 |
|
|
|
|
|
|
|
|
|
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Loss from Operations |
|
| (8,073,321 | ) |
|
| (51,555,826 | ) |
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|
|
|
|
|
|
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Other Expense (Income): |
|
|
|
|
|
|
|
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Interest Expense |
|
| 11,142,864 |
|
|
| 8,163,617 |
|
Interest Income |
|
| (1,210 | ) |
|
| (369,342 | ) |
Amortization of Debt Discount and Loan Origination Fees |
|
| 3,202,894 |
|
|
| 3,067,535 |
|
Change in Fair Value of Derivatives |
|
| (305,379 | ) |
|
| (5,128,420 | ) |
Realized and Unrealized Gain on Investments, Assets Held For Sale and Other Assets |
|
| (12,415,479 | ) |
|
| (11,480,322 | ) |
Loss on Extinguishment of Debt |
|
| 10,129,655 |
|
|
| 31,570,116 |
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|
|
|
|
|
|
|
|
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Total Other Expense |
|
| 11,753,345 |
|
|
| 25,823,184 |
|
|
|
|
|
|
|
|
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Loss from Continuing Operations Before Provision for Income Taxes |
|
| (19,826,666 | ) |
|
| (77,379,010 | ) |
Provision for Income Tax Expense |
|
| (10,338,562 | ) |
|
| (6,020,522 | ) |
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|
|
|
|
|
|
|
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Net Loss from Continuing Operations |
|
| (30,165,228 | ) |
|
| (83,399,532 | ) |
Net Loss from Discontinued Operations, Net of Taxes |
|
| (2,682,175 | ) |
|
| (3,855,053 | ) |
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|
|
|
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Net Loss |
|
| (32,847,403 | ) |
|
| (87,254,585 | ) |
|
|
|
|
|
|
|
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Net Loss Attributable to Non-Controlling Interest |
|
| (10,927,541 | ) |
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| (54,161,820 | ) |
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Net Loss Attributable to Shareholders of MedMen Enterprises Inc. |
| $ | (21,919,862 | ) |
| $ | (33,092,765 | ) |
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Loss Per Share - Basic and Diluted: |
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From Continuing Operations Attributable to Shareholders of MedMen Enterprises Inc. |
| $ | (0.06 | ) |
| $ | (0.15 | ) |
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From Discontinued Operations Attributable to Shareholders of MedMen Enterprises Inc. |
| $ | (0.01 | ) |
| $ | (0.02 | ) |
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Weighted-Average Shares Outstanding - Basic and Diluted |
|
| 423,187,218 |
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| 191,711,038 |
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| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| December 24, 2022 | December 25, 2021 | December 24, 2022 | December 25, 2021 | ||||||||||||||||||||
| Revenue | $ | 29,554,100 | $ | 35,517,161 | $ | 59,598,153 | $ | 72,253,065 | |||||||||||||||
| Cost of Goods Sold | 14,501,052 | 17,637,003 | 29,601,351 | 36,986,993 | |||||||||||||||||||
| Gross Profit | 15,053,048 | 17,880,158 | 29,996,802 | 35,266,072 | |||||||||||||||||||
| Operating Expenses: | |||||||||||||||||||||||
| General and Administrative | 18,341,221 | 31,292,754 | 36,452,557 | 63,941,988 | |||||||||||||||||||
| Sales and Marketing | 551,106 | 1,007,255 | 994,897 | 1,600,479 | |||||||||||||||||||
| Depreciation and Amortization | 3,477,086 | 6,379,865 | 7,423,606 | 12,203,482 | |||||||||||||||||||
| Realized and Unrealized Changes in Fair Value of Contingent Consideration | — | (301,459) | (863,856) | (301,459) | |||||||||||||||||||
| Impairment Expense | 5,052,995 | — | 6,716,906 | 435,241 | |||||||||||||||||||
| Other Operating (Income) Expense | (5,634,350) | 630,971 | (7,544,063) | 2,829,999 | |||||||||||||||||||
| Total Operating Expenses | 21,788,058 | 39,009,386 | 43,180,047 | 80,709,730 | |||||||||||||||||||
| Loss from Operations | (6,735,010) | (21,129,228) | (13,183,245) | (45,443,658) | |||||||||||||||||||
| Non-Operating (Income) Expenses: | |||||||||||||||||||||||
| Interest Expense | 9,686,929 | 8,077,496 | 19,739,620 | 16,249,257 | |||||||||||||||||||
| Interest Income | (27,991) | (22,907) | (28,024) | (45,915) | |||||||||||||||||||
| Accretion of Debt Discount and Loan Origination Fees | 1,543,896 | 1,277,827 | 2,885,912 | 7,625,298 | |||||||||||||||||||
| Change in Fair Value of Derivatives | (3,912,376) | (14,106,370) | (3,106,786) | (16,211,785) | |||||||||||||||||||
| Gain on Extinguishment of Debt | — | — | — | (10,233,607) | |||||||||||||||||||
| Total Non-Operating Expenses | 7,290,458 | (4,773,954) | 19,490,722 | (2,616,752) | |||||||||||||||||||
| Loss from Continuing Operations Before Provision for Income Taxes | (14,025,468) | (16,355,274) | (32,673,967) | (42,826,906) | |||||||||||||||||||
| Provision for Income Tax Expense | (1,060,808) | 8,137,898 | (6,752,886) | (11,554,010) | |||||||||||||||||||
| Net Loss from Continuing Operations | (15,086,276) | (8,217,376) | (39,426,853) | (54,380,916) | |||||||||||||||||||
| Net Income (Loss) from Discontinued Operations, Net of Taxes | (2,255,978) | (12,140,600) | 26,132,489 | (26,587,091) | |||||||||||||||||||
| Net Income (Loss) | (17,342,254) | (20,357,976) | (13,294,364) | (80,968,007) | |||||||||||||||||||
| Net Loss Attributable to Non-Controlling Interest | (1,134,849) | (1,331,174) | (1,247,161) | (6,611,177) | |||||||||||||||||||
| Net Income (Loss) Attributable to Shareholders of MedMen Enterprises Inc. | $ | (16,207,405) | $ | (19,026,802) | $ | (12,047,203) | $ | (74,356,830) | |||||||||||||||
| Earnings (Loss) Per Share - Basic and Diluted: | |||||||||||||||||||||||
| From Continuing Operations Attributable to Shareholders of MedMen Enterprises Inc. | $ | (0.01) | $ | (0.01) | $ | (0.03) | $ | (0.05) | |||||||||||||||
| From Discontinued Operations Attributable to Shareholders of MedMen Enterprises Inc. | $ | (0.00) | $ | (0.01) | $ | 0.01 | $ | (0.02) | |||||||||||||||
| Weighted-Average Shares Outstanding - Basic | 1,301,874,615 | 1,198,515,279 | 1,301,767,158 | 1,070,605,666 | |||||||||||||||||||
| Weighted-Average Shares Outstanding - Diluted | 1,301,874,615 | 1,198,515,279 | 4,845,052,067 | 1,070,605,666 | |||||||||||||||||||
(Unaudited) |
|
| Mezzanine Equity |
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| TOTAL EQUITY |
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| Units |
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| $ Amount |
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| Units |
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| $ Amount |
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| ATTRIBUTABLE |
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| Super |
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| Super |
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| Subordinate |
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| Subordinate |
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| Additional |
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| TO |
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| Non- |
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| TOTAL |
| |||||||||
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| Voting |
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| Voting |
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| Voting |
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| Voting |
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| Paid-In |
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| Accumulated |
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| SHAREHOLDERS |
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| Controlling |
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| SHAREHOLDERS’ |
| |||||||||
|
| Shares |
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| Shares |
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| Shares |
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| Shares |
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| Capital |
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| Deficit |
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| OF MEDMEN |
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| Interest |
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| EQUITY |
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| |||||||||
BALANCE AS OF JUNE 30, 2019 |
|
| 1,630,590 |
|
| $ | 164,999 |
|
|
| 173,010,922 |
|
| $ | - |
|
| $ | 613,356,006 |
|
| $ | (370,382,824 | ) |
| $ | 243,138,181 |
|
| $ | (31,867,405 | ) |
| $ | 211,270,776 |
|
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|
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|
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Net Loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (33,092,765 | ) |
|
| (33,092,765 | ) |
|
| (54,161,820 | ) |
|
| (87,254,585 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Controlling Interest Equity Transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At-the-Market Equity Financing Program, Net |
|
| - |
|
|
| - |
|
|
| 4,940,800 |
|
|
| - |
|
|
| 8,894,012 |
|
|
| - |
|
|
| 8,894,012 |
|
|
| - |
|
|
| 8,894,012 |
|
Shares Issued for Cash |
|
| - |
|
|
| - |
|
|
| 14,634,147 |
|
|
| - |
|
|
| 30,000,001 |
|
|
| - |
|
|
| 30,000,001 |
|
|
| - |
|
|
| 30,000,001 |
|
Shares Issued to Settle Debt |
|
| - |
|
|
| - |
|
|
| 1,231,280 |
|
|
| - |
|
|
| 2,441,912 |
|
|
| - |
|
|
| 2,441,912 |
|
|
| - |
|
|
| 2,441,912 |
|
Equity Component of Debt - New and Amended |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,097,335 |
|
|
| - |
|
|
| 2,097,335 |
|
|
| - |
|
|
| 2,097,335 |
|
Redemption of MedMen Corp Redeemable Shares |
|
| - |
|
|
| - |
|
|
| 8,382,618 |
|
|
| - |
|
|
| 20,196,142 |
|
|
| (19,986,022 | ) |
|
| 210,120 |
|
|
| (210,120 | ) |
|
| - |
|
Shares Issued for Other Assets |
|
| - |
|
|
| - |
|
|
| 225,494 |
|
|
| - |
|
|
| 509,614 |
|
|
| - |
|
|
| 509,614 |
|
|
| - |
|
|
| 509,614 |
|
Shares Issued for Acquisition Costs |
|
| - |
|
|
| - |
|
|
| 214,716 |
|
|
| - |
|
|
| 421,497 |
|
|
| - |
|
|
| 421,497 |
|
|
| - |
|
|
| 421,497 |
|
Shares Issued for Business Acquisition |
|
| - |
|
|
| - |
|
|
| 5,112,263 |
|
|
| - |
|
|
| 9,833,000 |
|
|
| - |
|
|
| 9,833,000 |
|
|
| - |
|
|
| 9,833,000 |
|
Stock Grants for Compensation |
|
| - |
|
|
| - |
|
|
| 364,948 |
|
|
| - |
|
|
| 875,055 |
|
|
| - |
|
|
| 875,055 |
|
|
| - |
|
|
| 875,055 |
|
Share-Based Compensation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 3,367,898 |
|
|
| - |
|
|
| 3,367,898 |
|
|
| - |
|
|
| 3,367,898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Controlling Interest Equity Transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (310,633 | ) |
|
| (310,633 | ) |
Equity Component on Debt and Debt Modification |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1,444,676 | ) |
|
| (1,444,676 | ) |
Share-Based Compensation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 833,531 |
|
|
| 833,531 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AS OF SEPTEMBER 28, 2019 |
|
| 1,630,590 |
|
| $ | 164,999 |
|
|
| 208,117,188 |
|
| $ | - |
|
| $ | 691,992,472 |
|
| $ | (423,461,611 | ) |
| $ | 268,695,860 |
|
| $ | (87,161,123 | ) |
| $ | 181,534,737 |
|
|
| Mezzanine Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
| TOTAL EQUITY |
|
|
|
|
|
|
| ||||||||||||
|
| Units |
|
| $ Amount |
|
| Units |
|
| $ Amount |
|
|
|
|
|
|
|
| ATTRIBUTABLE |
|
|
|
|
|
|
| |||||||||
|
| Super |
|
| Super |
|
|
|
|
| Subordinate |
|
| Additional |
|
|
|
|
| TO |
|
| Non- |
|
| TOTAL |
| |||||||||
|
| Voting |
|
| Voting |
|
| Subordinate |
|
| Voting |
|
| Paid-In |
|
| Accumulated |
|
| SHAREHOLDERS |
|
| Controlling |
|
| SHAREHOLDERS’ |
| |||||||||
|
| Shares |
|
| Shares |
|
| Voting Shares |
|
| Shares |
|
| Capital |
|
| Deficit |
|
| OF MEDMEN |
|
| Interest |
|
| EQUITY |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
BALANCE AS OF JUNE 28, 2020 |
|
| 815,295 |
|
| $ | 82,500 |
|
|
| 403,907,218 |
|
| $ | - |
|
| $ | 791,172,613 |
|
| $ | (631,365,865 | ) |
| $ | 159,889,247 |
|
| $ | (336,777,697 | ) |
| $ | (176,888,450 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (21,919,862 | ) |
|
| (21,919,862 | ) |
|
| (10,927,541 | ) |
|
| (32,847,403 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Controlling Interest Equity Transactions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Issued to Settle Accounts Payable and Liabilities |
|
| - |
|
|
| - |
|
|
| 3,608,690 |
|
|
| - |
|
|
| 516,618 |
|
|
| - |
|
|
| 516,618 |
|
|
| - |
|
|
| 516,618 |
|
Equity Component of Debt - New and Amended |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 21,660,379 |
|
|
| - |
|
|
| 21,660,379 |
|
|
| - |
|
|
| 21,660,379 |
|
Redemption of MedMen Corp Redeemable Shares |
|
| - |
|
|
| - |
|
|
| 29,947,959 |
|
|
| - |
|
|
| 5,351,262 |
|
|
| 9,019,576 |
|
|
| 14,370,838 |
|
|
| (14,370,838 | ) |
|
| - |
|
Shares Issued for Vested Restricted Stock Units |
|
| - |
|
|
| - |
|
|
| 614,207 |
|
|
| - |
|
|
| 157,477 |
|
|
| - |
|
|
| 157,477 |
|
|
| - |
|
|
| 157,477 |
|
Stock Grants for Compensation |
|
| - |
|
|
| - |
|
|
| 1,318,865 |
|
|
| - |
|
|
| 181,589 |
|
|
| - |
|
|
| 181,589 |
|
|
| - |
|
|
| 181,589 |
|
Deemed Dividend - Down Round Feature of Warrants |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 4,883,467 |
|
|
| (4,883,467 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
Deferred Tax Impact On Conversion Feature |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (8,610,921 | ) |
|
| - |
|
|
| (8,610,921 | ) |
|
| - |
|
|
| (8,610,921 | ) |
Share-Based Compensation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,008,530 |
|
|
| - |
|
|
| 1,008,530 |
|
|
| - |
|
|
| 1,008,530 |
|
Non-Controlling Interest Equity Transactions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Component on Debt and Debt Modification |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,485,588 |
|
|
| 2,485,588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AS OF SEPTEMBER 26, 2020 |
|
| 815,295 |
|
| $ | 82,500 |
|
|
| 439,396,939 |
|
| $ | - |
|
| $ | 816,321,014 |
|
| $ | (649,149,618 | ) |
| $ | 167,253,895 |
|
| $ | (359,590,488 | ) |
| $ | (192,336,593 | ) |
|
|
| Three Months Ended |
| |||||
|
| September 26, |
|
| September 28, |
| ||
|
| 2020 |
|
| 2019 |
| ||
|
|
|
|
|
|
| ||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
| ||
Net Loss from Continuing Operations |
| $ | (30,165,228 | ) |
| $ | (83,399,532 | ) |
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities: |
|
|
|
|
|
|
|
|
Deferred Tax (Recovery) Expense |
|
| (8,749,513 | ) |
|
| (78,281 | ) |
Depreciation and Amortization |
|
| 8,688,155 |
|
|
| 10,394,617 |
|
Non-Cash Operating Lease Costs |
|
| 7,658,920 |
|
|
| 6,702,802 |
|
Accretion of Debt Discount and Loan Origination Fees |
|
| 3,202,894 |
|
|
| 3,067,536 |
|
Gain on Lease Modifications |
|
| (15,919,946 | ) |
|
| - |
|
Accretion of Deferred Gain on Sale of Property |
|
| (141,659 | ) |
|
| (141,656 | ) |
Impairment of Assets |
|
| 789,709 |
|
|
| - |
|
Realized and Unrealized Gain on Investments, Assets Held For Sale and Other Assets |
|
| (12,415,479 | ) |
|
| (11,480,322 | ) |
Unrealized Gain on Changes in Fair Value of Contingent Consideration |
|
| 302,834 |
|
|
| 2,284,054 |
|
Change in Fair Value of Derivative Liabilities |
|
| - |
|
|
| (5,128,420 | ) |
Loss on Extinguishment of Debt and Settlement of Accounts Payables and Accrued Liabilities |
|
| 10,129,658 |
|
|
| 32,230,229 |
|
Share-Based Compensation |
|
| 1,347,604 |
|
|
| 5,076,470 |
|
Shares Issued for Acquisition Costs |
|
| - |
|
|
| 421,497 |
|
Changes in Operating Assets and Liabilities: |
|
|
|
|
|
|
|
|
Accounts Receivable |
|
| (1,565,588 | ) |
|
| (1,308,981 | ) |
Prepaid Rent - Related Party |
|
| - |
|
|
| 2,712,237 |
|
Prepaid Expenses |
|
| (172 | ) |
|
| 5,630,506 |
|
Income Taxes Receivable |
|
|
|
|
|
| (2,994,072 | ) |
Inventory |
|
| 1,343,971 |
|
|
| (10,849,695 | ) |
Other Current Assets |
|
| 1,994,417 |
|
|
| (497,876 | ) |
Due from Related Party |
|
| - |
|
|
| 458,160 |
|
Other Assets |
|
| 446,628 |
|
|
| (7,022,876 | ) |
Accounts Payable and Accrued Liabilities |
|
| (473,753 | ) |
|
| 10,527,727 |
|
Interest Payments on Finance Leases |
|
| (1,523,821 | ) |
|
| (1,432,930 | ) |
Cash Payments - Operating Lease Liabilities |
|
| (9,158,398 | ) |
|
| (7,172,029 | ) |
Income Taxes Payable |
|
| 19,064,475 |
|
|
| 11,242,233 |
|
Other Current Liabilities |
|
| 8,189,077 |
|
|
| (18,654,740 | ) |
Due to Related Party |
|
| (3,099 | ) |
|
| (729,871 | ) |
Other Non-Current Liabilities |
|
| - |
|
|
| 15,870,558 |
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN CONTINUED OPERATING ACTIVITIES |
|
| (16,958,314 | ) |
|
| (44,272,655 | ) |
|
|
|
|
|
|
|
|
|
Net Cash (Used in) Provided by Discontinued Operating Activities |
|
| (1,194,616 | ) |
|
| 2,206,319 |
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN OPERATING ACTIVITIES |
|
| (18,152,930 | ) |
|
| (42,066,336 | ) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Purchases of Property and Equipment |
|
| (201,017 | ) |
|
| (17,976,501 | ) |
Additions to Intangible Assets |
|
| (55,505 | ) |
|
| (1,821,936 | ) |
Proceeds from Sale of Assets Held for Sale and Other Assets |
|
| 10,000,000 |
|
|
| - |
|
Proceeds from Sale of Property |
|
| - |
|
|
| 9,300,000 |
|
Acquisition of Businesses, Net of Cash Acquired |
|
| - |
|
|
| (1,000,000 | ) |
Restricted Cash |
|
| - |
|
|
| 43,477 |
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY (USED IN) CONTINUED INVESTING ACTIVITIES |
|
| 9,743,478 |
|
|
| (11,454,960 | ) |
|
|
|
|
|
|
|
|
|
Net Cash Used in Discontinued Investing Activities |
|
| - |
|
|
| (1,694,969 | ) |
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES |
|
| 9,743,478 |
|
|
| (13,149,929 | ) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Issuance of Subordinate Voting Shares for Cash |
|
| - |
|
|
| 38,894,013 |
|
Payment of Loan Amendment Fee |
|
| - |
|
|
| (500,000 | ) |
Proceeds from Issuance of Senior Secured Convertible Credit Facility |
|
| 4,825,000 |
|
|
| 25,000,000 |
|
Proceeds from Issuance of Notes Payable |
|
| 4,125,000 |
|
|
| 11,100,000 |
|
Principal Repayments of Notes Payable |
|
| (284,334 | ) |
|
| (9,940,188 | ) |
Principal Repayments of Finance Lease Liability |
|
| (39,879 | ) |
|
| - |
|
Debt and Equity Issuance Costs |
|
| - |
|
|
| (544,498 | ) |
Distributions - Non-Controlling Interest |
|
| - |
|
|
| (310,633 | ) |
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY FINANCING ACTIVITIES |
|
| 8,625,787 |
|
|
| 63,698,694 |
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH AND CASH EQUIVALENTS |
|
| 216,335 |
|
|
| 8,482,429 |
|
Cash and Cash Equivalents, Beginning of Period |
|
| 10,093,925 |
|
|
| 33,753,747 |
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD |
| $ | 10,310,260 |
|
| $ | 42,236,176 |
|
|
|
| Three Months Ended |
| |||||
|
| September 26, |
|
| September 28, |
| ||
|
| 2020 |
|
| 2019 |
| ||
|
|
|
|
|
|
| ||
SUPPLEMENTAL DISCLOSURE FOR CASH FLOW INFORMATION |
|
|
|
|
|
| ||
Cash Paid for Interest |
| $ | 3,893,490 |
|
| $ | 10,004,305 |
|
|
|
|
|
|
|
|
|
|
Non-Cash Investing and Financing Activities: |
|
|
|
|
|
|
|
|
Net Assets Transferred to Held for Sale |
| $ | 6,614,987 |
|
| $ | 8,453,664 |
|
Receivable Recorded on Asset Held for Sale |
| $ | 9,407,879 |
|
| $ | - |
|
Adoption of ASC 842 - Leases |
| $ | - |
|
| $ | 141,557,231 |
|
Lease Termination and Amendments |
| $ | 34,250,918 |
|
| $ | - |
|
Recognition of Right-of-Use Assets for Finance Leases |
| $ | 350,249 |
|
| $ | 42,676,528 |
|
Issuance of Subordinate Voting Shares for Intangible Assets and Other Assets |
| $ | - |
|
| $ | 509,614 |
|
Redemption of MedMen Corp Redeemable Shares |
| $ | 14,370,838 |
|
| $ | 210,120 |
|
Release of Investments for liabilities |
| $ | 750,000 |
|
| $ | - |
|
Shares Issued to Settle Accounts Payable and Liabilities |
| $ | 516,618 |
|
| $ | 2,028,342 |
|
Equity Component of Debt - New and Amended |
| $ | 2,883,786 |
|
| $ | 652,659 |
|
Deferred Tax Impact on Conversion Feature |
| $ | 8,610,921 |
|
| $ | - |
|
| For the Six Months Ended December 24, 2022 | |||||||||||||||||||||||||||||||||||||||||
| Units | $ Amount | Additional Paid-In Capital | Accumulated Deficit | TOTAL EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF MEDMEN | Non- Controlling Interest | TOTAL SHAREHOLDERS’ DEFICIENCY | |||||||||||||||||||||||||||||||||||
| Subordinate Voting Shares | Subordinate Voting Shares | ||||||||||||||||||||||||||||||||||||||||
| Balance as of June 25, 2022 | 1,301,423,950 | $ | — | $ | 1,057,228,873 | $ | (901,758,875) | $ | 155,469,998 | $ | (473,982,734) | $ | (318,512,736) | ||||||||||||||||||||||||||||
| Net Income (Loss) | — | — | — | 4,160,212 | 4,160,212 | (112,312) | 4,047,901 | ||||||||||||||||||||||||||||||||||
| Controlling Interest Equity Transactions | |||||||||||||||||||||||||||||||||||||||||
| Partner Contributions | — | — | — | 37,561 | 37,561 | — | 37,561 | ||||||||||||||||||||||||||||||||||
| Redemption of MedMen Corp Redeemable Shares | 259,814 | — | 15,318 | (15,318) | — | — | — | ||||||||||||||||||||||||||||||||||
| Share-Based Compensation | — | — | 863,685 | — | 863,685 | — | 863,685 | ||||||||||||||||||||||||||||||||||
| Balance as of September 24, 2022 | 1,301,683,764 | — | $ | 1,058,107,876 | $ | (897,576,420) | $ | 160,531,456 | $ | (474,095,046) | $ | (313,563,590) | |||||||||||||||||||||||||||||
| Net Income (Loss) | — | — | — | (16,207,405) | (16,207,405) | (1,134,849) | (17,342,254) | ||||||||||||||||||||||||||||||||||
| Controlling Interest Equity Transactions | |||||||||||||||||||||||||||||||||||||||||
| Partner Contributions | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Redemption of MedMen Corp Redeemable Shares | 445,320 | — | 15,079 | (15,079) | — | — | — | ||||||||||||||||||||||||||||||||||
| Share-Based Compensation | — | — | 2,113,676 | — | 2,113,676 | — | 2,113,676 | ||||||||||||||||||||||||||||||||||
| Balance as of December 24, 2022 | 1,302,129,084 | $ | — | $ | 1,060,236,631 | $ | (913,798,904) | $ | 146,437,727 | $ | (475,229,895) | $ | (328,792,168) | ||||||||||||||||||||||||||||
| For the Six Months Ended December 25, 2021 | |||||||||||||||||||||||||||||||||||||||||
| Units | $ Amount | Additional Paid-In Capital | Accumulated Deficit | TOTAL EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF MEDMEN | Non- Controlling Interest | TOTAL SHAREHOLDERS’ DEFICIENCY | |||||||||||||||||||||||||||||||||||
| Subordinate Voting Shares | Subordinate Voting Shares | ||||||||||||||||||||||||||||||||||||||||
| BALANCE AS OF JUNE 27, 2021 | 726,866,374 | $ | — | $ | 908,992,686 | $ | (717,232,706) | $ | 191,759,980 | $ | (445,393,599) | $ | (253,633,619) | ||||||||||||||||||||||||||||
| Net Loss | — | — | — | (55,330,028) | (55,330,028) | (5,280,003) | (60,610,031) | ||||||||||||||||||||||||||||||||||
| Controlling Interest Equity Transactions | |||||||||||||||||||||||||||||||||||||||||
| Shares Issued for Cash, Net of Fees | 406,249,973 | — | 73,393,745 | — | 73,393,745 | — | 73,393,745 | ||||||||||||||||||||||||||||||||||
| Shares Issued to Settle Debt and Accrued Interest | 20,833,333 | — | 4,030,000 | — | 4,030,000 | — | 4,030,000 | ||||||||||||||||||||||||||||||||||
| Shares Issued to Settle Accounts Payable and Liabilities | 4,182,730 | — | 700,000 | — | 700,000 | — | 700,000 | ||||||||||||||||||||||||||||||||||
| Equity Component of Debt - New and Amended | 0 | — | 41,388,048 | — | 41,388,048 | — | 41,388,048 | ||||||||||||||||||||||||||||||||||
| Redemption of MedMen Corp Redeemable Shares | 4,054,278 | — | 1,121,441 | 374,701 | 1,496,142 | (1,496,142) | — | ||||||||||||||||||||||||||||||||||
| Shares Issued for Vested Restricted Stock Units and Cashless Exercise of Options | 8,473,868 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Shares Issued for Exercise of Warrants | 8,807,605 | — | 1,273,679 | — | 1,273,679 | — | 1,273,679 | ||||||||||||||||||||||||||||||||||
| Shares Issued for Conversion of Debt | 16,014,665 | — | 2,371,100 | — | 2,371,100 | — | 2,371,100 | ||||||||||||||||||||||||||||||||||
| Stock Grants for Compensation | 1,455,415 | — | 1,421,400 | — | 1,421,400 | — | 1,421,400 | ||||||||||||||||||||||||||||||||||
| Deferred Tax Impact On Conversion Feature | — | — | (13,057,730) | — | (13,057,730) | — | (13,057,730) | ||||||||||||||||||||||||||||||||||
| Share-Based Compensation | — | — | 1,682,677 | — | 1,682,677 | — | 1,682,677 | ||||||||||||||||||||||||||||||||||
| BALANCE AS OF SEPTEMBER 25, 2021 | 1,196,938,241 | $ | — | $ | 1,023,317,046 | $ | (772,188,033) | $ | 251,129,013 | $ | (452,169,744) | $ | (201,040,731) | ||||||||||||||||||||||||||||
| Net Loss | — | — | — | (19,026,802) | (19,026,802) | (1,331,174) | (20,357,976) | ||||||||||||||||||||||||||||||||||
| Controlling Interest Equity Transactions | |||||||||||||||||||||||||||||||||||||||||
| Shares Issued for Cash, Net of Fees | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Shares Issued to Settle Debt and Accrued Interest | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Shares Issued to Settle Accounts Payable and Liabilities | 98,118 | — | 15,000 | — | 15,000 | — | 15,000 | ||||||||||||||||||||||||||||||||||
| Equity Component of Debt - New and Amended | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Redemption of MedMen Corp Redeemable Shares | 84,605 | — | 18,627 | 6,835 | 25,462 | (25,462) | — | ||||||||||||||||||||||||||||||||||
| Shares Issued for Vested Restricted Stock Units and Cashless Exercise of Options | 2,283,972 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Shares Issued for Exercise of Warrants | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Shares Issued for Conversion of Debt | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Stock Grants for Compensation | 714,356 | — | 207,494 | — | 207,494 | — | 207,494 | ||||||||||||||||||||||||||||||||||
| Deferred Tax Impact On Conversion Feature | — | — | 1,345,580 | — | 1,345,580 | — | 1,345,580 | ||||||||||||||||||||||||||||||||||
| Share-Based Compensation | — | — | 500,612 | — | 500,612 | — | 500,612 | ||||||||||||||||||||||||||||||||||
| BALANCE AS OF DECEMBER 25, 2021 | 1,200,119,292 | $ | — | $ | 1,025,404,359 | $ | (791,208,000) | $ | 234,196,359 | $ | (453,526,380) | $ | (219,330,021) | ||||||||||||||||||||||||||||
| ||
MEDMEN ENTERPRISES INC. Condensed Consolidated Statements of Cash Flows (Unaudited) (Amounts Expressed in United States Dollars | ||
| Six Months Ended | |||||||||||
| December 24, 2022 | December 25, 2021 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
| Net Loss from Continuing Operations | $ | (39,426,853) | $ | (54,380,916) | |||||||
| Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities: | |||||||||||
| Deferred Tax Expense | — | (9,365,019) | |||||||||
| Depreciation and Amortization | 7,471,055 | 13,121,707 | |||||||||
| Non-Cash Operating Lease Costs | 6,200,503 | 8,854,752 | |||||||||
| Accretion of Debt Discount and Loan Origination Fees | 2,885,912 | 7,625,298 | |||||||||
| Loss on Disposals of Assets | 1,358,820 | — | |||||||||
| Gain on Lease Terminations | (3,464,947) | — | |||||||||
| Accretion of Deferred Gain on Sale of Property | (236,095) | (283,314) | |||||||||
| Impairment of Assets | 6,716,906 | 435,241 | |||||||||
| Realized and Unrealized Changes in Fair Value of Contingent Consideration | 863,856 | — | |||||||||
| Change in Fair Value of Derivative Liabilities | (3,106,786) | (16,211,785) | |||||||||
| Gain on Extinguishment of Debt | — | (10,233,610) | |||||||||
| Share-Based Compensation | 2,977,361 | 3,812,183 | |||||||||
| Interest Capitalized to Senior Secured Convertible Debt and Notes Payable | 12,319,509 | 13,008,234 | |||||||||
| Interest Capitalized to Finance Lease Liabilities | 969,427 | 777,564 | |||||||||
| Changes in Operating Assets and Liabilities: | |||||||||||
| Accounts Receivable and Prepaid Expenses | 5,057,758 | (1,830,219) | |||||||||
| Inventory | (3,664,591) | (3,139,817) | |||||||||
| Other Current Assets | (412,535) | 321,953 | |||||||||
| Other Assets | 534,846 | 479,019 | |||||||||
| Accounts Payable and Accrued Liabilities | 7,659,848 | 3,218,996 | |||||||||
| Interest Payments on Finance Leases | (3,639,574) | (3,510,293) | |||||||||
| Cash Payments - Operating Lease Liabilities | (1,501,594) | (5,777,739) | |||||||||
| Income Taxes Payable | 12,072,079 | 17,776,242 | |||||||||
| Other Current Liabilities | (976,314) | (1,282,468) | |||||||||
| NET CASH PROVIDED BY (USED IN) CONTINUED OPERATING ACTIVITIES | 10,658,591 | — | (36,583,991) | ||||||||
| Net Cash Used in Discontinued Operating Activities | (18,992,355) | (13,314,891) | |||||||||
| NET CASH USED IN OPERATING ACTIVITIES | (8,333,764) | (49,898,882) | |||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
| Purchases of Property and Equipment | (5,974,346) | (3,974,462) | |||||||||
| Additions to Intangible Assets | (30,999) | (486,759) | |||||||||
| Proceeds from the Sale of Assets Held for Sale | 51,500,000 | — | |||||||||
| NET CASH PROVIDED BY (USED IN) CONTINUED INVESTING ACTIVITIES | 45,494,655 | — | (4,461,221) | ||||||||
| Net Cash Used in Discontinued Investing Activities | — | (3,107,056) | |||||||||
| NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES | 45,494,655 | (7,568,277) | |||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
| Issuance of Subordinate Voting Shares for Cash | — | 95,000,000 | |||||||||
| Payment of Stock Issuance Costs Relating to Private Placement | — | (5,352,505) | |||||||||
| Exercise of Warrants for Cash | — | 1,273,679 | |||||||||
| Payment of Debt Issuance Costs Relating to Senior Secured Convertible Credit Facility | — | (2,608,964) | |||||||||
| Proceeds from Issuance of Notes Payable | — | 5,000,000 | |||||||||
| Principal Repayments of Notes Payable | (32,388,433) | (152,887) | |||||||||
| Principal Repayments of Finance Lease Liability | (666) | (959) | |||||||||
| Distributions - Non-Controlling Interest | 37,561 | — | |||||||||
| NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES | (32,351,538) | 93,158,364 | |||||||||
| NET INCREASE IN CASH AND CASH EQUIVALENTS | 4,809,353 | 35,691,206 | |||||||||
| Cash Included in Assets Held for Sale | — | (275,178) | |||||||||
| Cash and Cash Equivalents, Beginning of Period | 10,795,999 | 11,575,868 | |||||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 15,605,352 | $ | 46,991,896 | |||||||
MEDMEN ENTERPRISES INC. Condensed Consolidated Statements of Cash Flows (Unaudited) (Amounts Expressed in United States Dollars) | ||
| Six Months Ended | |||||||||||
| December 24, 2022 | December 25, 2021 | ||||||||||
| SUPPLEMENTAL DISCLOSURE FOR CASH FLOW INFORMATION | |||||||||||
| Cash Paid for Interest | $ | 5,078,605 | $ | 1,940,280 | |||||||
| Non-Cash Investing and Financing Activities: | |||||||||||
| Net Assets Transferred to Held for Sale | — | 4,476,993 | |||||||||
| Redemption of MedMen Corp Redeemable Shares | 705,134 | 1,521,604 | |||||||||
| Derivative Liability Incurred on Convertible Facility and Equity Financing | 805,590 | 30,500,000 | |||||||||
| Conversion of Convertible Debentures | — | 2,371,100 | |||||||||
| Shares Issued to Settle Debt and Lender Fees | — | 4,030,000 | |||||||||
| Shares Issued to Settle Accounts Payable and Liabilities | — | 715,000 | |||||||||
| Equity Component of Debt - New and Amended | — | 41,388,047 | |||||||||
| Deferred Tax Impact on Conversion Feature | — | 11,712,150 | |||||||||
MEDMEN ENTERPRISES INC. Notes to Condensed Consolidated Financial Statements (Unaudited) Three and Six Months Ended December 24, 2022 and December 25, 2021 (Amounts Expressed in United States Dollars, Except for Share and Per Share Data) | ||
| 1. | NATURE OF OPERATIONS | ||||
MM CAN was converted into a California corporation (from a Delaware corporation) on May 16, 2018 and is based in Culver City, California. The head office and principal address of MM CAN is 10115 Jefferson Boulevard, Culver City, California 90232.
MM Enterprises USA was formed on January 9, 2018 and is based in Culver City, California. The head office and principal address of MM Enterprises USA is 10115 Jefferson Boulevard, Culver City, California 90232. MM Enterprises USA was formed as a joint venture whose contributors were MMMG, LLC (“MMMG”); MedMen Opportunity Fund, LP (“Fund I”); MedMen Opportunity Fund II, LP (“Fund II”), The MedMen of Nevada 2, LLC (“MMNV2”); DHSM Investors, LLC (“DHS Owner”); and Bloomfield Partners Utica, LLC (“Utica Owner”) (collectively, the “MedMen Group of Companies”).
On January 24, 2018, pursuant to a Formation and Contribution Agreement (the “Agreement”), a roll-up transaction was consummated whereby thethus classifies all assets and liabilities and profit or loss allocable to its operations in the state of The MedMen GroupNew York as discontinued operations. In August 2022, the Company completed the sale of Companiesits operations in the state of Florida of which all assets and liabilities and profit or loss allocable to Florida were transferred into MM Enterprises USA. In return,classified as discontinued operations until the MedMen Groupday of Companies received 217,184,382 MM Enterprises USA Class B Units. The Agreement was entered into bysale, on August 22, 2022. Subsequent to August 22, 2022, the remaining post-acquisition assets and among MM Enterprises Manager, LLC,liabilities, which is primarily comprised of a current receivable for the sole managerportion of MM Enterprises USA; MMMG; Fund I; Fund II; MMNV2; DHS Owner;the sales proceeds due to us in March 2023, and Utica Owner.
| |||||
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | ||||
The accompanying unaudited interimCondensed Consolidated Financial Statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from uncertainty related to our ability to continue as a going concern.
|
|
25, 2022, as filed with the Securities and Exchange Commission on September 9, 2022 (the “2022 Form 10-K”).
Management believes that substantial doubt of our ability to meet our obligations for the next twelve months from the date these financial statements were first made available has been alleviated due to, but not limited to, (i) capital raised between December 2020Statements, and December 2021, (ii) restructuring plans that have already been put in place to reduce corporate-level expenses, (iii) debt amendments that have been agreed to with lenders and landlords to defer cash interest and rent payments, (iv) reduction in capital expenditures through a slow-down in new store buildouts, (v) plans to divest non-core assets to raise non-dilutive capital, (vi) enhancements to its digital offering, including direct-to-consumer delivery and curbside pick-up in light of COVID-19 and (vii) a change in retail strategy to pass certain local taxes and payment processing fees to customers.
However, management cannot provide any assurances that we will be successful in accomplishing any of our plans. Management also cannot provide any assurance as to unforeseen circumstances that could occur at any time within the next twelve months or thereafter which could increase our need to raise additional capital on an immediate basis.
The Company will continually monitor its capital requirements based on its capital and operational needs and the economic environment and may raise new capital as necessary. The Company’s abilitytherefore, to continue as a going concern will depend onconcern.
position, results of operations, equity and or its access to capital and future financing.
On March 11, 2020,
Emerging Growth Company
The Company is an emerging growth company as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”) under which emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies.
Functional Currency
The Company and its subsidiaries’ functional currency, as determined by management, is the United States (“U.S.”) dollar. These unaudited interim Condensed Consolidated Financial Statements are presented in U.S. dollars as this is the primary economic environment of the group. All references to “C$” refer to Canadian dollars.
|
|
December 24, 2022.
Restricted Cash
Restricted cash balances are those which meet the definition of cash and cash equivalents but are not available for use by the Company. As of September 26, 2020 and June 27, 2020, restricted cash was $9,873 and $9,873, respectively, which is used to pay for lease costs and costs incurred related to building construction in Reno, Nevada. This account is managed by a contractor and the Company is required to maintain a certain minimum balance.
Down-Round Provisions
The Company calculates down-round features under ASU 2017-11, in which down round features do not meet the criteria for derivative accounting and no liability is to be recorded until an actual issuance of securities triggers the down-round feature.
LossDecember 24, 2022.
Condensed Consolidated Financial Statements.
|
|
Recently Issued Accounting Standards
In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes”, which eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company iscurrently evaluating the adoption date and impact, if any, adoption will have on its financial position and results of operations.
In August 2020, the FASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20)” and “Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible instruments and contracts in an Entity’s Own Equity”, which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. ASU 2020-06 is effective for the Company for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2020, and2022, including interim periods within those fiscal years. Adoption is applied on a modified or full retrospective transition approach. The Company is currently evaluating the adoption date and impact, if any, adoption will have on its financial position and results of operations.
| |||||
| 3. | INVENTORY | ||||
As
| December 24, 2022 | June 25, 2022 | |||||||||||||
| Raw Materials | $ | 736,389 | $ | 521,777 | ||||||||||
| Work-in-Process | 956,705 | 671,541 | ||||||||||||
| Finished Goods | 11,982,228 | 8,817,413 | ||||||||||||
| Total Inventory | $ | 13,675,322 | $ | 10,010,731 | ||||||||||
|
| September 26, |
|
| June 27, |
| ||
|
| 2020 |
|
| 2020 |
| ||
|
|
|
|
|
|
| ||
Raw Materials |
| $ | 2,671,185 |
|
| $ | 2,055,500 |
|
Work-in-Process |
|
| 9,654,494 |
|
|
| 8,807,137 |
|
Finished Goods |
|
| 8,968,470 |
|
|
| 11,775,483 |
|
|
|
|
|
|
|
|
|
|
Total Inventory |
| $ | 21,294,149 |
|
| $ | 22,638,120 |
|
|
|
As of September 26, 2020six months ended December 24, 2022 and June 27, 2020, other current assets consist of the following:
|
| September 26, |
|
| June 27, |
| ||
|
| 2020 |
|
| 2020 |
| ||
|
|
|
|
|
|
| ||
Investments |
| $ | 3,036,791 |
|
| $ | 3,786,791 |
|
Excise Tax Receivable |
|
| 3,447,005 |
|
|
| 5,254,595 |
|
Note Receivable |
|
| 9,171,694 |
|
|
| - |
|
Other Current Assets |
|
| 113,429 |
|
|
| 64,071 |
|
|
|
|
|
|
|
|
|
|
Total Other Current Assets |
| $ | 15,768,919 |
|
| $ | 9,105,457 |
|
As of September 26, 2020 and June 27, 2020, investments included in other current assets consist of the following:
|
| ToroVerde Inc. |
|
| The Hacienda Company, LLC |
|
| Old Pal |
|
| Other Investments |
|
| TOTAL |
| |||||
|
|
| (1) |
|
| (2) |
|
| (3) |
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Fair Value as of June 27, 2020 |
| $ | - |
|
| $ | 750,000 |
|
| $ | 1,970,000 |
|
| $ | 1,066,791 |
|
| $ | 3,786,791 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement of Liabilities |
|
| - |
|
|
| (750,000 | ) |
|
| - |
|
|
| - |
|
|
| (750,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value as of September 26, 2020 |
| $ | - |
|
| $ | - |
|
| $ | 1,970,000 |
|
| $ | 1,066,791 |
|
| $ | 3,036,791 |
|
________________________
(1) In July 2018,December 25, 2021, the Company purchased 9,000,000 common sharesrecognized impairment of ToroVerde Inc., an investment company focused on emerging international cannabis markets, for an aggregate purchase price of $5,000,000, or $0.56 per common share, amountingnil and $900,000 respectively, to 14.3% of the outstanding common shares. As the Company was not deemedwrite down inventory to exert any significant influence, the investment was recorded at FVTPL as of September 26, 2020 and June 27, 2020. As of September 26, 2020 and June 27, 2020, the Company holds 14.3% of the equity ownership and voting interests in this investment.
(2) In July 2018, the Company purchased units of The Hacienda Company, LLC, a California limited liability company, which owns Lowell Herb Co., a California-based cannabis brand known for its pack of pre-rolls called Lowell Smokes, for an aggregate purchase price of $1,500,000, amounting to 3.2% of the outstanding units. Pursuant to SEC guidance under ASC 323, the application of equity method to investments applies to limited liability companies and are required unless the investor holds less than 3-5%. Accordingly, the Company was deemed to have significant influence resulting in equity method accounting.net realizable value. The Company has elected the fair value option under ASC 825 and the investment was recorded at FVTPL. Asdid not recognize any impairment of September 26, 2020 and June 27, 2020, the Company holds 3.2% and 0%, respectively, of the equity ownership and voting interests in this investment.
(3) In October 2018 and March 2019, the Company purchased an aggregate of 125.3 units of Old Pal, a California-based brand that provides high-quality cannabis flower for its customers, for an aggregate purchase price of $2,000,000, amounting to approximately 10.0% of the outstanding units with 8.7% voting interests. Pursuant to SEC guidance under ASC 323, the application of equity method to investments applies to limited liability companies and are required unless the investor holds less than 3-5%. Accordingly, the Company was deemed to have significant influence resulting in equity method accounting. During the year ended June 27, 2020, the Company decreased their level of ownership in which Old Pal no longer qualified under equity method accounting. The Company has elected the fair value option under ASC 825 and the investment was recorded at FVTPL as of June 27, 2020 and continues to measure Old Pal at the previously elected FVTPL under ASC 323 as of September 26, 2020. As of September 26, 2020, the Company holds 2.6% of the equity ownership and 1.4% of the voting interests in this investment.
As of September 26, 2020, the Company’s investment balance in ToroVerde Inc. and The Hacienda Company, LLC was nil and nil, respectively. In August 2020, the Company entered into an agreement to exchange all of its investment in The Hacienda Company, LLC to settle outstanding balances totaling approximately $750,000. The Company determined that the fair value of its investment in Old Pal LLC was $1,970,000 as of September 26, 2020.
The fair value of investments included in other current assets is considered a Level 3 categorization in the fair value hierarchy. Investments are measured at fair value using a market approach that is based on unobservable inputs.
|
|
A reconciliation of the beginning and ending balances of assets held for sale for the three months ended September 26, 2020 is as follows:
|
| PharmaCann Assets (1) |
|
| Available for Sale Subsidiaries (2) |
|
| Discontinued Operations |
|
| TOTAL |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Balance at Beginning of Period |
| $ | 212,400 |
|
| $ | 12,066,428 |
|
| $ | 21,181,051 |
|
| $ | 33,459,879 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transferred In |
|
| - |
|
|
| 6,614,987 |
|
|
| - |
|
|
| 6,614,987 |
|
Gain on the Sale of Assets Held for Sale |
|
| - |
|
|
| 12,415,479 |
|
|
| - |
|
|
| 12,415,479 |
|
Proceeds from Sale |
|
| - |
|
|
| (19,407,879 | ) |
|
| - |
|
|
| (19,407,879 | ) |
Ongoing Activity from Discontinued Operations |
|
| - |
|
|
| (2,300,763 | ) |
|
| (477,657 | ) |
|
| (2,778,420 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at End of Period |
| $ | 212,400 |
|
| $ | 9,388,252 |
|
| $ | 20,703,394 |
|
| $ | 30,304,046 |
|
________________________
(1) During the year ended June 27, 2020, PharmaCann LLC, (“PharmaCann”) transferred 100% of the membership interests for MME Evanston Retail, LLC (“Evanston”), PharmaCann Virginia, LLC (“Staunton”), and PC 16280 East Twombly LLC (“Hillcrest”). As of September 27, 2020, the Company has 100% of membership interests in Staunton which holds land and a license for a vertically-integrated facility in Staunton, Virginia. The Staunton assets were classified as assets held for sale in accordance with ASC 360, “Long-Lived Assets Classified as Held for Sale” and are measured at the lower of its carrying amount or FVLCTS which was determined as $212,400 as of September 26, 2020.
(2) Long-lived assets classified as held for sale that do not qualify as discontinued operation and classified as held for sale. Significant classes of assets and liabilities are presented in the notes to the Condensed Consolidated Financial Statements in accordance with ASC 360-10.
On July 1, 2020, the Company agreed to transfer all outstanding membership interests in MME Evanston Retail, LLC (“Evanston”) dispensary operation located in Evanston, Illinois to an unaffiliated third party (“Purchaser”). The Company received an aggregate consideration of $20,000,000, of which, $10,000,000 cash was received at closing on July 1, 2020 (“Closing Date”), an additional $8,000,000 cash is due on or before November 16, 2020 and an additional $2,000,000 in the form of a secured promissory note will be payable three months following the Closing Date in exchange for all of the company’s membership interests in Evanston. On August 10, 2020 (“Effective Date”), all operational control and risk of loss was transferred to the Purchaser and the Company had no further obligation to fund operations of Evanston through a Consulting Agreement. Management performed an assessment and determined that the Company no longer has a controlling financial interest as of the Effective Date. The transfer of the cannabis license is pending regulatory approval as of the issuance of these Condensed Consolidated Financial Statements and the Company will take all commercially reasonable steps to maintain all permits for Evanston to operate its business. The Company recognized a gain upon sale of membership interests equal to the difference between the aggregate consideration and the book value of the assets as of the disposition date, less direct costs to sell, which is recognized on the Condensed Consolidated Statements of Operationsinventory during the three months ended September 26, 2020.
AsDecember 24, 2022 and December 25, 2021.
In accordance of ASC 360-10, the company performed an analysis of any impairments prior to reclassifying certain assets as held for sale and recorded an impairment charge of $789,709 which is included as a component of impairment expense in the accompanying Condensed Consolidated Statements of Operations.
|
| ASSETS HELD FOR SALE | ||
Subsidiaries classified as
| Discontinued Operations & Other Assets | |||||||||||||||||
| Balance as of June 25, 2022 | $ | 123,158,751 | |||||||||||||||
| Ongoing Activities | (12,547,238) | ||||||||||||||||
Proceeds from Sale (1) | (67,000,000) | ||||||||||||||||
| Balance as of December 24, 2022 | 43,611,513 | ||||||||||||||||
| 5. | PROPERTY AND EQUIPMENT. | ||||
|
| September 26, |
|
| June 27, |
| ||
|
| 2020 |
|
| 2020 |
| ||
|
|
|
|
|
|
| ||
Carrying Amounts of the Assets Included in Assets Held for Sale: |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Cash and Cash Equivalents |
| $ | 7,714 |
|
| $ | 743,271 |
|
Prepaid Expenses |
|
| 4,054 |
|
|
| 7,798 |
|
Inventory |
|
| - |
|
|
| 520,464 |
|
Other Current Assets |
|
| 53,176 |
|
|
| 81,427 |
|
|
|
|
|
|
|
|
|
|
TOTAL CURRENT ASSETS (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and Equipment, Net |
|
| 326,701 |
|
|
| 717,952 |
|
Operating Lease Right-of-Use Assets |
|
| 1,042,535 |
|
|
| 190,986 |
|
Intangible Assets, Net |
|
| 6,115,570 |
|
|
| 5,227,288 |
|
Goodwill |
|
| 1,838,502 |
|
|
| 4,577,242 |
|
|
|
|
|
|
|
|
|
|
TOTAL NON-CURRENT ASSETS (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS OF SUBSIDIARIES CLASSIFIED AS HELD FOR SALE |
| $ | 9,388,252 |
|
| $ | 12,066,428 |
|
|
|
|
|
|
|
|
|
|
Carrying Amounts of the Liabilities Included in Assets Held for Sale: |
|
|
|
|
|
|
|
|
Accounts Payable and Accrued Liabilities |
| $ | 137,061 |
|
| $ | 963,255 |
|
Income Taxes Payable |
|
| 85,616 |
|
|
| 159,053 |
|
Other Current Liabilities |
|
| 2,670 |
|
|
| 27,854 |
|
Current Portion of Operating Lease Liabilities |
|
| 274,079 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
TOTAL CURRENT LIABILITIES (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Lease Liabilities, Net of Current Portion |
|
| 1,088,221 |
|
|
| 296,694 |
|
Deferred Tax Liabilities |
|
| 2,328,367 |
|
|
| 2,151,879 |
|
|
|
|
|
|
|
|
|
|
TOTAL NON-CURRENT LIABILITIES (1) |
|
|
|
|
|
|
|
|
|
|
| - |
|
|
| - |
|
TOTAL LIABILITIES OF SUBSIDIARIES CLASSIFIED AS HELD FOR SALE |
| $ | 3,916,014 |
|
| $ | 3,598,735 |
|
_____________________
(1) The assets and liabilities of subsidiaries classified as held for sale are classified as current on the Condensed Consolidated Balance Sheets as of September 26, 2020 and June 27, 2020 because it is probable that the sale will occur and proceeds will be collected within one year.
|
|
|
As of September 26, 2020 and June 27, 2020,25, 2022, property and equipment consists of the following:
|
| September 26, |
|
| June 27, |
| ||
|
| 2020 |
|
| 2020 |
| ||
|
|
|
|
|
|
| ||
Land and Buildings |
| $ | 37,421,326 |
|
| $ | 37,400,378 |
|
Finance Lease Right-of-Use Assets |
|
| 12,556,847 |
|
|
| 26,194,566 |
|
Furniture and Fixtures |
|
| 13,991,481 |
|
|
| 13,970,449 |
|
Leasehold Improvements |
|
| 67,428,253 |
|
|
| 63,976,372 |
|
Equipment and Software |
|
| 29,496,811 |
|
|
| 29,277,120 |
|
Construction in Progress |
|
| 35,333,101 |
|
|
| 38,470,016 |
|
|
|
|
|
|
|
|
|
|
Total Property and Equipment |
|
| 196,227,819 |
|
|
| 209,288,901 |
|
|
|
|
|
|
|
|
|
|
Less Accumulated Depreciation |
|
| (40,030,274 | ) |
|
| (34,741,034 | ) |
|
|
|
|
|
|
|
|
|
Property and Equipment, Net |
| $ | 156,197,545 |
|
| $ | 174,547,867 |
|
| December 24, 2022 | June 25, 2022 | ||||||||||
| Land and Buildings | $ | 29,933,999 | $ | 29,933,999 | |||||||
| Capital Leases | 5,318,516 | 5,315,625 | |||||||||
| Furniture and Fixtures | 8,651,132 | 8,776,994 | |||||||||
| Leasehold Improvements | 33,625,888 | 33,069,524 | |||||||||
| Equipment and Software | 15,972,636 | 16,897,649 | |||||||||
| Construction in Progress | 4,169,772 | 6,828,923 | |||||||||
| Total Property and Equipment | 97,671,943 | 100,822,714 | |||||||||
| Less Accumulated Depreciation | (40,026,614) | (36,714,922) | |||||||||
| Property and Equipment, Net | $ | 57,645,329 | $ | 64,107,792 | |||||||
|
|
| September 26, |
|
| June 27, |
| ||
|
| 2020 |
|
| 2020 |
| ||
|
|
|
|
|
|
| ||
Dispensary Licenses |
| $ | 133,053,216 |
|
| $ | 139,736,881 |
|
Customer Relationships |
|
| 18,586,200 |
|
|
| 18,586,200 |
|
Management Agreement |
|
| 7,594,937 |
|
|
| 7,594,937 |
|
Capitalized Software |
|
| 9,311,278 |
|
|
| 9,255,026 |
|
Intellectual Property |
|
| 8,520,116 |
|
|
| 8,520,121 |
|
|
|
|
|
|
|
|
|
|
Total Intangible Assets |
|
| 177,065,747 |
|
|
| 183,693,165 |
|
|
|
|
|
|
|
|
|
|
Dispensary Licenses |
|
| (21,228,281 | ) |
|
| (19,162,587 | ) |
Customer Relationships |
|
| (12,480,609 | ) |
|
| (8,113,913 | ) |
Management Agreement |
|
| (615,347 | ) |
|
| (565,972 | ) |
Capitalized Software |
|
| (2,862,569 | ) |
|
| (2,273,432 | ) |
Intellectual Property |
|
| (1,441,163 | ) |
|
| (5,496,231 | ) |
|
|
|
|
|
|
|
|
|
Less Accumulated Amortization |
|
| (38,627,969 | ) |
|
| (35,612,135 | ) |
|
|
|
|
|
|
|
|
|
Intangible Assets, Net |
| $ | 138,437,778 |
|
| $ | 148,081,030 |
|
| December 24, 2022 | June 25, 2022 | ||||||||||
| Dispensary Licenses | $ | 40,814,762 | $ | 49,253,452 | |||||||
| Customer Relationships | 16,409,600 | 16,409,600 | |||||||||
| Capitalized Software | 7,413,470 | 7,413,470 | |||||||||
| Intellectual Property | 12,455,287 | 4,016,597 | |||||||||
| Total Intangible Assets | $ | 77,093,119 | $ | 77,093,119 | |||||||
| Dispensary Licenses | $ | (18,084,368) | $ | (16,876,912) | |||||||
| Customer Relationships | (15,378,567) | (15,870,284) | |||||||||
| Capitalized Software | (4,824,287) | (4,413,974) | |||||||||
| Intellectual Property | (6,152,763) | (4,185,835) | |||||||||
| Less Accumulated Amortization | (44,439,985) | (41,347,005) | |||||||||
| Intangible Assets, Net | $ | 32,653,134 | $ | 35,746,114 | |||||||
|
|
| ||
As of September 26, 2020 and June 27, 2020, other assets consist of the following:
|
| September 26, |
|
| June 27, |
| ||
|
| 2020 |
|
| 2020 |
| ||
|
|
|
|
|
|
| ||
Long-Term Security Deposits for Leases |
| $ | 9,270,225 |
|
| $ | 9,752,611 |
|
Loans and Other Long-Term Deposits |
|
| 7,563,737 |
|
|
| 7,568,738 |
|
Other Assets |
|
| 94,407 |
|
|
| 53,648 |
|
|
|
|
|
|
|
|
|
|
Total Other Assets |
| $ | 16,928,369 |
|
| $ | 17,374,997 |
|
| ACCOUNTS PAYABLE AND ACCRUED |
|
| September 26, |
|
| June 27, |
| ||
|
| 2020 |
|
| 2020 |
| ||
|
|
|
|
|
|
| ||
Accounts Payable |
| $ | 53,330,661 |
|
| $ | 58,614,619 |
|
Accrued Liabilities |
|
| 9,998,881 |
|
|
| 10,532,715 |
|
Other Accrued Liabilities |
|
| 12,937,196 |
|
|
| 10,383,596 |
|
|
|
|
|
|
|
|
|
|
Total Other Current Liabilities |
| $ | 76,266,738 |
|
| $ | 79,530,930 |
|
| December 24, 2022 | June 25, 2022 | ||||||||||
| Accounts Payable | $ | 19,663,409 | $ | 14,627,746 | |||||||
| Accrued Liabilities | 9,862,983 | 9,464,567 | |||||||||
| Accrued Inventory | 6,397,508 | 5,868,831 | |||||||||
| Accrued Payroll | 1,405,253 | 1,682,517 | |||||||||
| Local & State Taxes Payable | 5,030,310 | 6,695,532 | |||||||||
| Deferred Gain on Sale of Assets | 566,627 | 566,627 | |||||||||
| Total Accounts Payable and Accrued Liabilities | $ | 42,926,090 | $ | 38,905,820 | |||||||
|
As of September 26, 2020 and June 27, 2020, other current liabilities consist of the following:
|
| September 26, |
|
| June 27, |
| ||
|
| 2020 |
|
| 2020 |
| ||
|
|
|
|
|
|
| ||
Accrued Interest Payable |
| $ | 1,239,976 |
|
| $ | 9,051,650 |
|
Contingent Consideration |
|
| 9,254,634 |
|
|
| 8,951,801 |
|
Derivatives |
|
| 240,697 |
|
|
| 546,076 |
|
Other Current Liabilities |
|
| 1,837,365 |
|
|
| 1,728,854 |
|
|
|
|
|
|
|
|
|
|
Total Other Current Liabilities |
| $ | 12,572,672 |
|
| $ | 20,278,381 |
|
Contingent Consideration
Contingent consideration recorded relates to a business acquisition during the year ended June 27, 2020. The contingent consideration related to the acquisition of One Love Beach Club is based upon fair value of the additional shares required to be paid upon the expiration of the lock-up and is based upon the fair market value of the Company’s trading stock and is considered a Level 1 categorization in the fair value hierarchy. Contingent consideration classified as a liability and measured at fair value in accordance with ASC 480, “Distinguishing Liabilities from Equity”. The contingent consideration is remeasured at fair value at each reporting period with changes recorded in profit and loss in the Condensed Consolidated Statements of Operations.
|
|
|
Derivative Liabilities
| TOTAL | |||||
| Balance as of June 25, 2022 | $ | 6,749,563 | |||
| Change in Fair Value of Derivative Liabilities | (3,106,786) | ||||
| Balance as of December 24, 2022 | $ | 3,642,777 | |||
| Top-Up Provision | |||||
| Average Stock Price | $ | 0.02 | |||
| Weighted-Average Probability | 50.00 | % | |||
| Term (in Years) | 5 | ||||
| Expected Stock Price Volatility | 121.15 | % | |||
| Number of Warrants | Exercise Price (C$) | Expiration Date | |||||||||||||||
March 2021 Private Placement (1) | 50,000,000 | $0.50 | March 27, 2024 | ||||||||||||||
| 50,000,000 | |||||||||||||||||
|
| September 26, |
| |
|
| 2020 |
| |
|
|
|
| |
Balance as of Beginning of Year |
| $ | 546,076 |
|
|
|
|
|
|
Initial Recognition of Derivative Liabilities |
|
| - |
|
Change in Fair Value of Derivative Liabilities |
|
| (305,379 | ) |
|
|
|
|
|
Balance as of End of Year |
| $ | 240,697 |
|
Fair
| Expected Stock Price Volatility | 161.95% | ||||
| Risk-Free Annual Interest Rate | 2.35% | ||||
| Expected Life (in Years) | 0.25 | ||||
| Share Price | $0.02 | ||||
| Exercise Price | $0.37 | ||||
| |||||
| 9. | LEASES | ||||
In accordance with ASU 2016-02, the Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right‐of‐use (“ROU”) assets and accrued obligations under operating lease (current and non-current) liabilities in the Condensed Consolidated Balance Sheets. Finance lease ROU assets are included in property and equipment, net and accrued obligations under finance lease (current and noncurrent) liabilities in the Condensed Consolidated Balance Sheets.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets are classified as a finance lease or an operating lease. The Company classifies a lease as an operating lease when it does not meet any of the criteria of a finance lease as set forth by ASU 2016-02.
ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.
Most operating leases contain renewal options that provide for rent increases based on prevailing market conditions.
|
|
|
operates.
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| December 24, 2022 | December 25, 2021 | December 24, 2022 | December 25, 2021 | ||||||||||||||||||||
| Finance Lease Cost: | |||||||||||||||||||||||
| Amortization of Finance Lease Right-of-Use Assets | $ | 267,312 | $ | 251,221 | $ | 534,624 | $ | 534,627 | |||||||||||||||
| Interest on Lease Liabilities | 1,835,068 | 1,725,752 | 3,639,574 | 3,510,293 | |||||||||||||||||||
| Operating Lease Cost | 2,746,638 | 4,412,675 | 6,200,503 | 8,854,752 | |||||||||||||||||||
| Total Lease Expenses | $ | 4,849,018 | $ | 6,389,648 | $ | 10,374,701 | $ | 12,899,672 | |||||||||||||||
Sublease Income (1) | $ | (1,521,651) | $ | (1,444,234) | $ | (3,043,302) | $ | (1,444,234) | |||||||||||||||
| Cash Paid for Amounts Included in the Measurement of Lease Liabilities: | |||||||||||||||||||||||
| Financing Cash Flows from Finance Leases | $ | (1,818) | $ | — | $ | 666 | $ | 959 | |||||||||||||||
| Operating Cash Flows from Operating Leases | $ | 474,802 | $ | 2,298,848 | $ | 1,501,594 | $ | 5,777,739 | |||||||||||||||
|
| September 26, |
|
| September 28, |
| ||
|
| 2020 |
|
| 2019 |
| ||
|
|
|
|
|
|
| ||
Finance Lease Cost: |
|
|
|
|
|
| ||
Amortization of Finance Lease Right-of-Use Assets |
| $ | 314,143 |
|
| $ | 2,070,767 |
|
Interest on Lease Liabilities |
|
| 1,523,821 |
|
|
| 1,432,930 |
|
Operating Lease Cost |
|
| 7,658,920 |
|
|
| 6,986,299 |
|
|
|
|
|
|
|
|
|
|
Total Lease Expenses |
| $ | 9,496,884 |
|
| $ | 10,489,996 |
|
|
|
|
|
|
|
|
|
|
|
| 2020 |
|
| 2019 |
| ||
|
|
|
|
|
|
|
|
|
(Gain) and Loss on Sale and Leaseback Transactions, Net |
| $ | - |
|
| $ | (704,207 | ) |
Cash Paid for Amounts Included in the Measurement of Lease Liabilities: |
|
|
|
|
|
|
|
|
Financing Cash Flows from Finance Leases |
| $ | 39,879 |
|
| $ | - |
|
Operating Cash Flows from Operating Leases |
| $ | 9,158,398 |
|
| $ | 7,172,043 |
|
Non-Cash Additions to Right-of-Use Assets and Lease Liabilities: |
|
|
|
|
|
|
|
|
Recognition of Right-of-Use Assets for Finance Leases |
| $ | 350,249 |
|
| $ | 42,676,528 |
|
Recognition of Right-of-Use Assets for Operating Leases |
| $ | - |
|
| $ | 141,557,231 |
|
|
|
|
|
|
|
|
|
|
|
| 2020 |
|
| 2019 |
| ||
|
|
|
|
|
|
|
|
|
Weighted-Average Remaining Lease Term (Years) - Finance Leases |
|
| 38 |
|
|
| 48 |
|
Weighted-Average Remaining Lease Term (Years) - Operating Leases |
|
| 8 |
|
|
| 9 |
|
Weighted-Average Discount Rate - Finance Leases |
|
| 16.22 | % |
|
| 10.66 | % |
Weighted-Average Discount Rate - Operating Leases |
|
| 13.50 | % |
|
| 11.35 | % |
June 25, 2022, is as follows:
| December 24, 2022 | June 25, 2022 | ||||||||||
| Weighted-Average Remaining Lease Term (Years) - Finance Leases | 46 | 46 | |||||||||
| Weighted-Average Remaining Lease Term (Years) - Operating Leases | 7 | 8 | |||||||||
| Weighted-Average Discount Rate - Finance Leases | 24.81 | % | 24.33 | % | |||||||
| Weighted-Average Discount Rate - Operating Leases | 16.66 | % | 18.70 | % | |||||||
Fiscal Year Ending |
| Operating Leases |
|
| Finance Leases |
| ||
|
|
|
|
|
|
| ||
June 26, 2021 |
| $ | 23,512,450 |
|
| $ | 3,725,785 |
|
June 25, 2022 |
|
| 31,430,045 |
|
|
| 5,860,696 |
|
June 24, 2023 |
|
| 31,536,071 |
|
|
| 6,035,912 |
|
June 29, 2024 |
|
| 41,208,860 |
|
|
| 11,494,331 |
|
June 28, 2025 |
|
| 38,674,115 |
|
|
| 7,347,736 |
|
September 26, 2026 and Thereafter |
|
| 126,851,773 |
|
|
| 1,080,067,137 |
|
|
|
|
|
|
|
|
|
|
Total Lease Payments |
|
| 293,213,314 |
|
|
| 1,114,531,597 |
|
Less: Interest |
|
| (169,709,464 | ) |
|
| (1,083,412,254 | ) |
Present Value of Lease Liability |
| $ | 123,503,850 |
|
| $ | 31,119,343 |
|
Finance leases noted above contain required security deposits, refer
| Fiscal Year Ending | Operating Leases | Finance Leases | ||||||||||||
| July 1, 2023 (remaining) | $ | 4,692,026 | $ | 2,934,524 | ||||||||||
| June 29, 2024 | 12,931,089 | 10,961,495 | ||||||||||||
| June 28, 2025 | 9,311,213 | 7,087,736 | ||||||||||||
| June 27, 2026 | 9,495,658 | 7,300,368 | ||||||||||||
| June 26, 2027 | 9,466,730 | 7,519,379 | ||||||||||||
| Thereafter | 26,267,466 | 1,061,283,374 | ||||||||||||
| Total Lease Payments | 72,164,182 | 1,097,086,876 | ||||||||||||
| Less Interest | (19,541,732) | (1,065,503,555) | ||||||||||||
| Lease Liability Recognized | $ | 52,622,450 | $ | 31,583,321 | ||||||||||
Lease Deferral Arrangements
On July 2, 2020,Operating Income
| 10. | NOTES PAYABLE | ||||
|
|
|
December 24, 2022
|
| September 26, |
|
| June 27, |
| ||
|
| 2020 |
|
| 2020 |
| ||
|
|
|
|
|
|
| ||
Finance liabilities incurred on various dates between January 2019 through September 2019 with implied interest rates ranging from 0.7% to 17.0% per annum. |
| $ | 83,576,661 |
|
| $ | 83,576,661 |
|
|
|
|
|
|
|
|
|
|
Non-revolving, senior secured term notes dated between October 1, 2018 and September 16, 2020, issued to accredited investors, which mature on January 31, 2022, and bear interest at a rate of 15.5% and 18.0% per annum. |
|
| 89,464,671 |
|
|
| 77,675,000 |
|
|
|
|
|
|
|
|
|
|
Convertible debentures dated September 16, 2020, issued to accredited investors and qualified institutional buyers, which mature on September 16, 2022, and bear interest at a rate of 7.5% |
|
| 1,000,000 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
Promissory notes dated between January 15, 2019 through March 29, 2019, issued for deferred payments on acquisitions, which mature on varying dates from August 3, 2019 to June 30, 2020 and bear interest at rates ranging from 8.0% to 9.0% per annum. |
|
| 16,298,250 |
|
|
| 16,173,250 |
|
|
|
|
|
|
|
|
|
|
Promissory notes dated November 7, 2018, issued to Lessor for tenant improvements as part of sales and leaseback transactions, which mature on November 7, 2028, bear interest at a rate of 10.0% per annum and require minimum monthly payments of $15,660 and $18,471. |
|
| 2,057,058 |
|
|
| 2,339,564 |
|
|
|
|
|
|
|
|
|
|
Other |
|
| 15,419 |
|
|
| 15,418 |
|
|
|
|
|
|
|
|
|
|
Total Notes Payable |
|
| 192,412,059 |
|
|
| 179,779,893 |
|
Less Unamortized Debt Issuance Costs and Loan Origination Fees |
|
| (12,369,731 | ) |
|
| (10,781,288 | ) |
|
|
|
|
|
|
|
|
|
Net Amount |
| $ | 180,042,328 |
|
| $ | 168,998,605 |
|
Less Current Portion of Notes Payable |
|
| (17,067,303 | ) |
|
| (16,188,668 | ) |
|
|
|
|
|
|
|
|
|
Notes Payable, Net of Current Portion |
| $ | 162,975,025 |
|
| $ | 152,809,937 |
|
|
|
|
|
|
| December 24, 2022 | June 25, 2022 | ||||||||||
| Financing liability incurred on various dates between January 2019 through September 2019 with implied interest rates ranging from 0.7% to 17.0% per annum. | $ | 72,300,000 | $ | 72,300,000 | |||||||
| Non-revolving, senior secured term notes dated between October 1, 2018 and October 30, 2020, issued to accredited investors, which mature on August 1, 2022 and July 31, 2022, and bear interest at a rate of 15.5% and 18.0% per annum. | 66,169,035 | 97,162,001 | |||||||||
| Promissory notes dated November 7, 2018, issued to Lessor for tenant improvements as part of sales and leaseback transactions, which mature on November 7, 2028, bear interest at a rate of 10% per annum and require minimum monthly payments of $15,660 and $18,471. | 2,057,207 | 2,057,207 | |||||||||
| Other | 15,691 | 15,691 | |||||||||
| Total Notes Payable | 140,541,933 | 171,534,899 | |||||||||
| Less Unamortized Debt Issuance Costs and Loan Origination Fees | (137,478) | (158,079) | |||||||||
| Net Amount | 140,404,455 | 171,376,820 | |||||||||
| Less Current Portion of Notes Payable | (66,294,249) | (97,003,922) | |||||||||
| Notes Payable, Net of Current Portion | $ | 74,110,206 | $ | 74,372,898 | |||||||
|
| September 26, |
| |
|
| 2020 |
| |
|
|
|
| |
Balance at Beginning of Period |
| $ | 168,998,605 |
|
|
|
|
|
|
Cash Additions |
|
| 4,125,000 |
|
Non-Cash Addition - Debt Modification |
|
| 877,439 |
|
Debt Discount Recognized on Modification |
|
| (879,267 | ) |
Paid-In-Kind Interest Capitalized |
|
| 7,912,232 |
|
Cash Payments |
|
| (284,334 | ) |
Equity Component of Debt |
|
| (2,883,786 | ) |
Cash Paid for Debt Issuance Costs |
|
| 1,828 |
|
Accretion of Debt Discount |
|
| 2,174,611 |
|
|
|
|
|
|
Balance at End of Period |
| $ | 180,042,328 |
|
|
|
|
|
|
Less Current Portion of Notes Payable |
|
| (17,067,303 | ) |
|
|
|
|
|
Notes Payable, Net of Current Portion |
| $ | 162,975,025 |
|
Amendments to
| December 24, 2022 | |||||
| Balance at Beginning of Period | $ | 171,376,820 | |||
| Paid-In-Kind Interest Capitalized | 1,257,988 | ||||
| Cash Payments | (32,388,433) | ||||
| Accretion of Debt Discount | (239,953) | ||||
| Accretion of Debt Discount Included in Discontinued Operations | 398,032 | ||||
| Balance at End of Period | $ | 140,404,454 | |||
| Less Current Portion of Notes Payable | $ | (66,294,249) | |||
| Notes Payable, Net of Current Portion | $ | 74,110,205 | |||
On July 2, 2020,
The Company incurred an amendment fee of $834,000 that was added to the outstanding principal balance. As consideration for the amendment, the Company issued approximately 20,227,863 warrants exercisablemake a mandatory prepayment of at $0.34 per share until July 2, 2025. Theleast $37,500,000 in the event the sale of certain assets and imposed covenants in regard to strategic actions the Company also cancelled 20,227,863 existing warrants heldwould have to implement if unable to pay the Term Loans by the lenders exercisable at $0.60 per share untilextended stated maturity date.
|
|
|
|
|
On September 16, 2020, the Company entered into further amendments wherein the amount of funds available underinterest assessed on the Facility was increased by $12,000,000, of which $5,700,000 was fully committed by the lenders through October 31, 2020. The additional amounts are funded through incremental term loans at anand Term Loans include a default interest rate of 18.0% per annum wherein 12.0% shall be paid in cash monthly in arrears and 6.0% shall accrue monthly as payment-in-kind. In connection with each incremental draw under the amended Facility,5%. As of December 24, 2022, the Company shall issue warrants equal to 200% ofis in ongoing discussions with the incremental term loan amount, divided by the greater of (a) $0.20 per share and (b) 115% multiplied by the volume-weighted average trading price (“VWAP”) of the shares for the five consecutive trading days ending on the trading day immediately priorLenders.
| 11. | SENIOR SECURED CONVERTIBLE CREDIT FACILITY | ||||
On September 16, 2020, the Company closed on an incremental term loan of $3,000,000 under the amended Facility. As consideration for the amendment, the Company issued approximately 20,227,863 warrants exercisable at $0.34 per share until September 16, 2025. The Company also cancelled 20,227,863 existing warrants held by the lenders exercisable at $0.60 per share until December 31, 2022. In connection with the incremental term loan of $3,000,000, the Company issued 30,000,000 warrants with an exercise price of $0.20 per share until December 31, 2025. The warrants may be exercised at the election of their holders on a cashless basis and are classified as equity instruments. The change in fair valuefootnotes of the warrants was recordedannual financial statements as a debt discount in connection with the Facility. Accordingly, the Company recorded an additional debt discount of $1,579,152 related to the change in terms of the warrants and the incremental term loan. See “Note 15 – Share-Based Compensation” for further information.
On September 16, 2020, the down round feature on the warrants issued in connection with the incremental term loan of $3,000,000 on September 16, 2020 was triggered wherein the exercise price was adjusted to $0.17 per share. The value of the effect of the down round feature was determined to be $259,736 and recognized as an increase in additional paid-in capital.
Unsecured Convertible Facility
On September 16, 2020, the Company entered into an unsecured convertible debenture facility for total available proceeds of $10,000,000 wherein the convertible debentures shall have a conversion price equal to the closing price on the trading day immediately prior to the closing date, a maturity date of 24 months from the date of issuance and will bear interest at a rate of 7.5% per annum payable semi-annually in cash. The unsecured facility is callable in additional tranches in the amount of $1,000,000 each, up to a maximum of $10,000,000 under all tranches. The timing of additional tranches can be accelerated based on certain conditions. The Company has the right to prepay, in whole or in part, the outstanding principal amount and accrued interest prior to maturity, upon payment of 7.5% of the principal amount being repaid, less the amount of interest paid during the year of prepayment. The debentures provide for the automatic conversion into Subordinate Voting Shares in the event that the VWAP is greater than $0.25 on the CSE for 45 consecutive trading days, at a conversion price per Subordinate Voting Share equal to $0.17.
On September 16, 2020, the Company closed on an initial $1,000,000 of the facility with a conversion price of $0.17 per Subordinate Voting Share. In connection with the initial tranche, the Company issued 3,293,413 warrants with an exercise price of $0.21 per share. Under ASC 815, the conversion option and warrantsJune 25, 2022. There were recorded as an equity instrument. As of September 26, 2020, the relative fair value of the warrants with a value of $172,153 has been recorded to equity.
Financing Liability
In connection with the Company’s failed sale and leaseback transactions described in “Note 11 – Leases”, a financing liability was recognized equal to the cash proceeds received upon inception. The cash payments made on the lease less the portion considered to be interest expense, will decrease the financing liability. The financing liability was modified due to an amended lease agreementno amendments during the three months ended September 26, 2020 in which the new terms of the amended agreement do not qualify as a substantial modification under ASC 470-50, “Modifications and Extinguishments”.
|
|
|
|
|
December 24, 2022.
|
|
|
|
| September 26, |
|
| June 27, |
| |||
|
| Tranche |
|
| 2020 |
|
| 2020 |
| |||
|
|
|
|
|
|
|
|
|
| |||
Senior secured convertible notes dated April 23, 2019, issued to accredited investors, which mature on April 23, 2022 and bear interest at LIBOR plus 6.0% per annum. |
|
| 1A |
| $ | 22,613,719 |
|
| $ | 21,660,583 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior secured convertible notes dated May 22, 2019, issued to accredited investors, which mature on April 23, 2022 and bear interest at LIBOR plus 6.0% per annum. |
|
| 1B |
|
| 89,839,938 |
|
|
| 86,053,316 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior secured convertible notes dated July 12, 2019, issued to accredited investors, which mature on April 23, 2022 and bear interest at LIBOR plus 6.0% per annum. |
|
| 2 |
|
|
| 27,740,154 |
|
|
| 26,570,948 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior secured convertible notes dated November 27, 2019, issued to accredited investors, which mature on April 23, 2022 and bear interest at LIBOR plus 6.0% per annum. |
|
| 3 |
|
|
| 10,741,556 |
|
|
| 10,288,815 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior secured convertible notes dated March 27, 2020, issued to accredited investors, which mature on April 23, 2022 and bear interest at LIBOR plus 6.0% per annum. |
|
| 4 |
|
|
| 13,050,118 |
|
|
| 12,500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amendment fee converted to senior secured convertible notes dated October 29, 2019, which mature on April 23, 2022 and bear interest at LIBOR plus 6.0% per annum. |
|
| - |
|
|
| 20,278,293 |
|
|
| 19,423,593 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior secured convertible notes dated April 24, 2020, issued to accredited investors, which mature on April 23, 2022 and bear interest at LIBOR plus 6.0% per annum. |
| IA-1 |
|
|
| 2,835,875 |
|
|
| 2,734,282 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior secured convertible notes dated September 14, 2020, issued to accredited investors, which mature on April 23, 2022 and bear interest at LIBOR plus 6.0% per annum. |
| IA-2 |
|
|
| 5,484,058 |
|
|
| - |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restatement fee issued in senior secured convertible notes dated March 27, 2020, which mature on April 23, 2022 and bear interest at LIBOR plus 6.0% per annum. |
|
| - |
|
|
| 8,560,735 |
|
|
| 8,199,863 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second restatement fee issued in senior secured convertible notes dated July 2, 2020, which mature on April 23, 2022 and bear interest at LIBOR plus 6.0% per annum. |
|
| - |
|
|
| 2,040,906 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Drawn on Senior Secured Convertible Credit Facility |
|
|
|
|
|
| 203,185,352 |
|
|
| 187,431,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Unamortized Debt Discount |
|
|
|
|
|
| (33,810,741 | ) |
|
| (21,062,937 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Convertible Credit Facility, Net |
|
|
|
|
| $ | 169,374,611 |
|
| $ | 166,368,463 |
|
| Tranche | December 24, 2022 | June 25, 2022 | |||||||||||||||
| Senior secured convertible notes dated August 17, 2019, issued to accredited investors, which mature on August 17, 2028 and bear interest at LIBOR plus 6.0% per annum. | 1A | $ | 23,944,485 | $ | 22,880,556 | ||||||||||||
| Senior secured convertible notes dated May 22, 2019, issued to accredited investors, which mature on August 17, 2028 and bear interest at LIBOR plus 6.0% per annum. | 1B | 103,124,572 | 98,542,422 | ||||||||||||||
| Senior secured convertible notes dated July 12, 2019, issued to accredited investors, which mature on August 17, 2028 and bear interest at LIBOR plus 6.0% per annum. | 2 | 33,534,018 | 32,043,996 | ||||||||||||||
| Senior secured convertible notes dated November 27, 2019, issued to accredited investors, which mature on August 17, 2028 and bear interest at LIBOR plus 6.0% per annum. | 3 | 12,985,058 | 12,408,091 | ||||||||||||||
| Senior secured convertible notes dated March 27, 2020, issued to accredited investors, which mature on August 17, 2028 and bear interest at LIBOR plus 6.0% per annum. | 4 | 15,273,641 | 14,594,985 | ||||||||||||||
| Amendment fee converted to senior secured convertible notes dated October 29, 2019, which mature on August 17, 2028 and bear interest at LIBOR plus 6.0% per annum. | — | 24,512,781 | 23,424,438 | ||||||||||||||
| Senior secured convertible notes dated April 24, 2020, issued to accredited investors, which mature on August 17, 2028 and bear interest at LIBOR plus 6.0% per annum. | IA-1 | 3,428,182 | 3,275,857 | ||||||||||||||
| Senior secured convertible notes dated September 14, 2020, issued to accredited investors, which mature on August 17, 2028 and bear interest at LIBOR plus 6.0% per annum. | IA-2 | 6,629,552 | 6,334,980 | ||||||||||||||
| Restatement fee issued in senior secured convertible notes dated March 27, 2020, which mature on August 17, 2028 and bear interest at LIBOR plus 6.0% per annum. | — | 10,348,746 | 9,888,919 | ||||||||||||||
| Second restatement fee issued in senior secured convertible notes dated July 2, 2020, which mature on August 17, 2028 and bear interest at LIBOR plus 6.0% per annum. | — | 2,292,231 | 2,190,380 | ||||||||||||||
| Third restatement fee issued in senior secured convertible notes dated January 11, 2021, which mature on August 17, 2028 and bear interest at LIBOR plus 6.0% per annum. | — | 12,893,031 | 12,320,154 | ||||||||||||||
| Total Drawn on Senior Secured Convertible Credit Facility | 248,966,298 | 237,904,778 | |||||||||||||||
| Less Unamortized Debt Discount | (102,773,249) | (105,899,115) | |||||||||||||||
| Senior Secured Convertible Credit Facility, Net | $ | 146,193,049 | $ | 132,005,663 | |||||||||||||
|
| Tranche 1 |
|
| Tranche 2 |
|
| Tranche 3 |
|
| Tranche 4 |
|
| Amendment |
|
| Restatement Fee Notes |
|
| 2nd Restatement Fee Notes |
|
| TOTAL |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Balance as of June 27, 2020 |
| $ | 102,833,447 |
|
| $ | 25,352,687 |
|
| $ | 9,680,433 |
|
| $ | 2,455,231 |
|
| $ | 18,964,600 |
|
| $ | 7,082,065 |
|
| $ | - |
|
| $ | 166,368,463 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Additions |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 4,825,000 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 4,825,000 |
|
Fees Capitalized to Debt Related to |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 468,568 |
|
|
| - |
|
|
| - |
|
|
| 2,000,000 |
|
|
| 2,468,568 |
|
Paid-In-Kind Interest Capitalized |
|
| 4,739,758 |
|
|
| 1,169,206 |
|
|
| 452,741 |
|
|
| 667,205 |
|
|
| 854,700 |
|
|
| 360,872 |
|
|
| 40,906 |
|
|
| 8,285,388 |
|
Net Effect on Equity Component of New |
|
| (5,440,833 | ) |
|
| (1,492,268 | ) |
|
| (586,606 | ) |
|
| (2,618,335 | ) |
|
| (1,193,896 | ) |
|
| (2,444,153 | ) |
|
| - |
|
|
| (13,776,091 | ) |
Cash Paid for Debt Issuance Costs |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 175,000 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 175,000 |
|
Amortization of Debt Discounts |
|
| 261,193 |
|
|
| 73,947 |
|
|
| 31,097 |
|
|
| 585,518 |
|
|
| 28,685 |
|
|
| 47,843 |
|
|
| - |
|
|
| 1,028,283 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 26, 2020 |
| $ | 102,393,565 |
|
| $ | 25,103,572 |
|
| $ | 9,577,665 |
|
| $ | 6,558,187 |
|
| $ | 18,654,089 |
|
| $ | 5,046,627 |
|
| $ | 2,040,906 |
|
| $ | 169,374,611 |
|
| Tranche 1 | Tranche 2 | Tranche 3 | Tranche 4 | Incremental Advance - 1 | Incremental Advance - 2 | 3rd Advance | Amendment Fee Notes | Restatement Fee Notes | 2nd Restatement Fee Notes | TOTAL | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of June 25, 2022 | $ | 80,178,586 | $ | — | $ | 21,218,356 | $ | — | $ | 8,217,079 | $ | — | $ | 1,051,827 | $ | — | $ | 224,585 | $ | — | $ | 433,598 | $ | — | $ | 842,981 | $ | — | $ | 15,512,409 | $ | 2,211,711 | $ | 2,114,531 | $ | — | $ | 132,005,663 | |||||||||||||||||||||||||||
| $ | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Paid-In-Kind Interest Capitalized | 5,646,079 | 1,490,022 | 576,967 | 678,656 | 152,325 | 294,572 | 572,878 | 1,088,344 | 459,827 | 101,851 | 11,061,521 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accretion of Debt Discount | 1,954,788 | 514,561 | 199,249 | — | — | — | — | 376,148 | 73,578 | 7,541 | 3,125,865 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 24, 2022 | $ | 87,779,453 | $ | 23,222,939 | $ | 8,993,295 | $ | 1,730,483 | $ | 376,910 | $ | 728,170 | $ | 1,415,859 | $ | 16,976,901 | $ | 2,745,116 | $ | — | $ | 2,223,923 | $ | 146,193,049 | |||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
On July 2, 2020, the Company amended and restated the securities purchase agreement with Gotham Green Partners (“GGP”) under the senior secured convertible credit facility (the “Convertible Facility”) (the “Fourth Amendment”) wherein the minimum liquidity covenant was waived until September 30, 2020 and resetting at $5,000,000 thereafter with incremental increases on March 31, 2021 and December 31, 2021. The payment-in-kind feature on the Convertible Facility was also extended, such that 100% of the cash interest due prior to June 2021 will be paid-in-kind and 50% of the cash interest due thereafter will be paid-in-kind. The Fourth Amendment released certain assets from its collateral to allow greater flexibility to generate proceeds through the sale of non-core assets. The Fourth Amendment allows for immediate prepayment of amounts under the Convertible Facility with a 5% prepayment penalty until 2nd anniversary of the Fourth Amendment and 3% prepayment penalty thereafter. As part of the Fourth Amendment, holders of notes under the Convertible Facility were provided down-round protection where issuances of equity interests (including securities that are convertible or exchangeable for equity interests) by the Company at less than the higher of (i) lowest conversion price under the amended and restated notes of the Convertible Facility amendment dated March 27, 2020 and (ii) the highest conversion price determined for any incremental advances, will automatically adjust the conversion/exercise price of the previous tranches and incremental tranche 4 warrants and the related replacement warrants to the price of the newly issued equity interests. Certain issuances of equity interests are exempted such as issuances to existing lenders, equity interests in contemplation at the time of Fourth Amendment and equity interests issued to employees, consultants, directors, advisors or other third parties, in exchange for goods and services or compensation. Pursuant to ASU 2017-11, the down-round protection was not considered a derivative and will be recognized when the down-round protection adjustments are triggered.
As consideration for the amendment, the conversion price for 52% of the tranches 1 through 3 and the first amendment fee notes outstanding under the Convertible Facility were amended to $0.34 per share. An amendment fee of $2,000,000 was also paid through the issuance of additional notes at a conversion price of $0.28 per share. The Fourth Amendment to the Convertible Facility was deemed to be a substantial modification under ASC 470-50, “Modifications and Extinguishments,” and a loss on extinguishment of $10,129,655 was recognized.
On September 14, 2020, the Company closed on an incremental advance in the amount of $5,000,000 under its existing Convertible Facility with GGP at a conversion price of $0.20 per share. In connection with the incremental advance, the Company issued 25,000,000 warrants with an exercise price of $0.20 per share. In addition, 1,080,255 Existing warrants were cancelled and replaced with 16,875,001 warrants with an exercise price of $0.20 per share. Pursuant to the terms of the GGP Facility, the conversion price for 5.0% of the existing Notes outstanding prior to Tranche 4 and Incremental Advance (including paid-in-kind interest accrued on such Notes), being 5.0% of an aggregate principal amount of $170,729,923, was amended to $0.20 per share. As consideration for the additional advance, the Company issued convertible notes as consideration for a $468,564 fee with a conversion price of $0.20 per share.
On September 16, 2020, the down round feature on the convertible notes and warrants issued in connection with Tranche 4, Incremental Advances and certain amendment fees was triggered wherein the exercise price was adjusted to $0.17 per share. The value of the effect of the down round feature on convertible notes and warrants was determined to be $21,672,272 and $4,883,467, respectively. The effect related to convertible notes was recognized as additional debt discount and an increase in additional paid-in-capital. The effect related to warrants was recognized as a deemed distribution and an increase in additional paid-in capital.
|
|
|
|
|
|
| Subordinate Voting |
|
| Super |
|
| MM CAN USA |
|
| MM Enterprises USA |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance as of June 27, 2020 |
|
| 403,907,218 |
|
|
| 815,295 |
|
|
| 236,123,851 |
|
|
| 725,016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Issued to Settle Accounts Payable and Liabilities |
|
| 3,608,690 |
|
|
| - |
|
|
| - |
|
|
| - |
|
Redemption of MedMen Corp Redeemable Shares |
|
| 29,947,959 |
|
|
| - |
|
|
| (29,947,959 | ) |
|
| - |
|
Shares Issued for Vested Restricted Stock Units |
|
| 614,207 |
|
|
| - |
|
|
| - |
|
|
| - |
|
Stock Grants for Compensation |
|
| 1,318,865 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 26, 2020 |
|
| 439,396,939 |
|
|
| 815,295 |
|
|
| 206,175,892 |
|
|
| 725,016 |
|
| Subordinate Voting Shares | MM CAN USA Class B Redeemable Units | MM Enterprises USA Common Units | |||||||||||||||
| Balance as of June 25, 2022 | 1,301,423,950 | 65,066,106 | 725,016 | ||||||||||||||
| Redemption of MedMen Corp Redeemable Shares | 259,814 | (259,814) | — | ||||||||||||||
| Balance as of September 24, 2022 | 1,301,683,764 | 64,806,292 | 725,016 | ||||||||||||||
| Redemption of MedMen Corp Redeemable Shares | 445,320 | (445,320) | — | ||||||||||||||
| Balance as of December 24, 2022 | 1,302,129,084 | 64,360,972 | 725,016 | ||||||||||||||
The following table represents the summarized financial information about the Company’s consolidated VIEs. VIEs include the balances of Venice Caregiver Foundation, Inc., LAX Fund II Group, LLC, and Natures Cure, Inc. and Venice Caregiver Foundation, Inc. This information represents amounts before intercompany eliminations.
|
|
|
|
|
| Venice Caregivers Foundation, Inc. | LAX Fund II Group, LLC | Natures Cure, Inc. | TOTAL | ||||||||||||||||||||
| Current Assets | $ | 1,471,651 | $ | — | $ | 27,171,414 | $ | 28,643,065 | |||||||||||||||
| Non-Current Assets | 8,482,483 | 3,011,882 | 4,874,353 | 16,368,718 | |||||||||||||||||||
| Total Assets | $ | 9,954,134 | $ | 3,011,882 | $ | 32,045,767 | $ | 45,011,783 | |||||||||||||||
| Current Liabilities | $ | 10,984,598 | $ | 16,687,993 | $ | 10,031,350 | $ | 37,703,941 | |||||||||||||||
| Non-Current Liabilities | 6,957,566 | 1,922,553 | 1,342,632 | 10,222,751 | |||||||||||||||||||
| Total Liabilities | $ | 17,942,164 | $ | 18,610,546 | $ | 11,373,982 | $ | 47,926,692 | |||||||||||||||
| Non-Controlling Interest | $ | (7,988,030) | $ | (15,598,664) | $ | 20,671,785 | $ | (2,914,909) | |||||||||||||||
| Revenues | $ | 3,766,847 | $ | — | $ | 6,562,185 | $ | 10,329,032 | |||||||||||||||
| Net (Loss) Income Attributable to Non-Controlling Interest | $ | (944,589) | $ | (1,622,510) | $ | 1,917,227 | $ | (649,872) | |||||||||||||||
|
| Venice Caregivers Foundation, Inc. |
|
| LAX Fund II Group, LLC |
|
| Natures Cure, Inc. |
|
| TOTAL |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Current Assets |
| $ | 912,450 |
|
| $ | (4,268,671 | ) |
| $ | 5,913,332 |
|
| $ | 2,557,111 |
|
Non-Current Assets |
|
| 13,890,323 |
|
|
| 3,188,194 |
|
|
| 5,011,523 |
|
|
| 22,090,040 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
| 14,802,773 |
|
|
| (1,080,477 | ) |
|
| 10,924,855 |
|
|
| 24,647,151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities |
| $ | 12,471,726 |
|
| $ | 3,142,212 |
|
| $ | 1,895,769 |
|
| $ | 17,509,707 |
|
Non-Current Liabilities |
|
| 9,142,143 |
|
|
| 2,611,035 |
|
|
| 1,146,331 |
|
|
| 12,899,509 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
| 21,613,869 |
|
|
| 5,753,247 |
|
|
| 3,042,100 |
|
|
| 30,409,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Controlling Interest |
| $ | (6,811,096 | ) |
| $ | (6,833,724 | ) |
| $ | 7,882,755 |
|
| $ | (5,762,065 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
| $ | 2,245,915 |
|
| $ | (570 | ) |
| $ | 3,438,820 |
|
| $ | 5,684,165 |
|
Net (Loss) Income Attributable to Non-Controlling Interest |
| $ | (885,911 | ) |
| $ | (763,397 | ) |
| $ | 1,103,128 |
|
| $ | (546,180 | ) |
As of and for the year ended June 27, 2020, the balances of the VIEs consists of the following:
|
| Venice Caregivers Foundation, Inc. |
|
| LAX Fund II Group, LLC |
|
| Natures Cure, Inc. |
|
| TOTAL |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Current Assets |
| $ | 1,233,188 |
|
| $ | 811,025 |
|
| $ | 6,639,231 |
|
| $ | 8,683,444 |
|
Non-Current Assets |
|
| 16,867,824 |
|
|
| 3,259,563 |
|
|
| 5,032,428 |
|
|
| 25,159,815 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
| 18,101,012 |
|
|
| 4,070,588 |
|
|
| 11,671,659 |
|
|
| 33,843,259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities |
| $ | 12,831,161 |
|
| $ | 7,481,953 |
|
| $ | 3,745,710 |
|
| $ | 24,058,824 |
|
Non-Current Liabilities |
|
| 11,196,585 |
|
|
| 2,662,078 |
|
|
| 1,146,322 |
|
|
| 15,004,985 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
| 24,027,746 |
|
|
| 10,144,031 |
|
|
| 4,892,032 |
|
|
| 39,063,809 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Controlling Interest |
| $ | (5,926,734 | ) |
| $ | (6,073,443 | ) |
| $ | 6,779,627 |
|
| $ | (5,220,550 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
| $ | 10,949,458 |
|
| $ | - |
|
| $ | 13,976,810 |
|
| $ | 24,926,268 |
|
Net (Loss) Income Attributable to Non-Controlling Interest |
| $ | (6,132,528 | ) |
| $ | (3,777,079 | ) |
| $ | 3,143,437 |
|
| $ | (6,766,170 | ) |
|
|
|
|
|
| Venice Caregivers Foundation, Inc. | LAX Fund II Group, LLC | Natures Cure, Inc. | TOTAL | ||||||||||||||||||||
| Current Assets | $ | 1,735,304 | $ | 1,067,636 | $ | 23,557,168 | $ | 26,360,108 | |||||||||||||||
| Non-Current Assets | 10,073,880 | 3,379,412 | 4,973,459 | 18,426,751 | |||||||||||||||||||
| Total Assets | $ | 11,809,184 | $ | — | $ | 4,447,048 | $ | — | $ | 28,530,627 | $ | 44,786,859 | |||||||||||
| Current Liabilities | $ | 9,238,460 | $ | 16,238,249 | $ | 8,433,436 | $ | 33,910,145 | |||||||||||||||
| Non-Current Liabilities | 9,614,164 | 2,184,953 | 1,342,633 | 13,141,750 | |||||||||||||||||||
| Total Liabilities | $ | 18,852,624 | $ | — | $ | 18,423,202 | $ | — | $ | 9,776,069 | $ | 47,051,895 | |||||||||||
| Non-Controlling Interest | $ | (7,043,440) | $ | — | $ | (13,976,154) | $ | — | $ | 18,754,558 | $ | — | $ | (2,265,036) | |||||||||
| Revenues | $ | 4,815,688 | $ | — | $ | 8,816,113 | $ | 13,631,801 | |||||||||||||||
| Net (Loss) Income Attributable to Non-Controlling Interest | $ | (607,858) | $ | (2,206,450) | $ | 3,911,125 | $ | 1,096,817 | |||||||||||||||
|
| Venice Caregivers Foundation, Inc. |
|
| LAX Fund II Group, LLC |
|
| Natures Cure, Inc. |
|
| Other Non- Controlling Interests |
|
| TOTAL |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Balance as of June 27, 2020 |
| $ | (5,925,185 | ) |
| $ | (6,070,327 | ) |
| $ | 6,779,627 |
|
| $ | (331,561,812 | ) |
| $ | (336,777,697 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
| (885,911 | ) |
|
| (763,397 | ) |
|
| 1,103,128 |
|
|
| (10,381,361 | ) |
|
| (10,927,541 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Component on Debt and Debt Modification |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,485,588 |
|
|
| 2,485,588 |
|
Redemption of MedMen Corp Redeemable Shares |
| �� | - |
|
|
| - |
|
|
| - |
|
|
| (14,370,838 | ) |
|
| (14,370,838 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 26, 2020 |
| $ | (6,811,096 | ) |
| $ | (6,833,724 | ) |
| $ | 7,882,755 |
|
| $ | (353,828,423 | ) |
| $ | (359,590,488 | ) |
Le Cirque Rouge, LP (the Operating Partnership,” or the “OP”) is a Delaware limited partnership that holds substantially all of the real estate assets owned by the REIT, conducts the REIT’s operations, and is financed by the REIT. Under ASC 810, “Consolidation”, the OP was determined to be a variable interest entity in which the Company has a variable interest. The Company was determined to have an implicit variable interest in the OP based on the leasing relationship and arrangement with the REIT. The Company was not determined to be the primary beneficiary of the VIE as the Company does not have the power to direct the activities of the VIE that most significantly affect its economic performance. As of September 26, 2020, the Company continues to have a variable interest in the OP. During the three months ended September 26, 2020, the Company did not provide any financial or other support to the REIT other than the REIT being a lessor on various leases as described in “Note 11 – Leases”. Accordingly, Le Cirque Rouge, LP is not consolidated as a variable interest entity within the unaudited interim Condensed Consolidated Financial Statements.
| Venice Caregivers Foundation, Inc. | LAX Fund II Group, LLC | Natures Cure, Inc. | Other Non- Controlling Interests | TOTAL | |||||||||||||||||||||||||
| Balance as of June 25, 2022 | $ | (7,043,440) | $ | (13,976,154) | $ | 18,754,558 | $ | (471,717,698) | $ | (473,982,734) | |||||||||||||||||||
| Net (Loss) Income | $ | (944,589) | $ | (1,622,510) | $ | 1,917,227 | $ | (597,289) | $ | (1,247,161) | |||||||||||||||||||
| Balance as of December 24, 2022 | $ | (7,988,029) | $ | (15,598,664) | $ | 20,671,785 | $ | (472,314,987) | $ | (475,229,895) | |||||||||||||||||||
|
|
|
|
|
|
| Three Months Ended |
| |||||
|
| September 26, |
|
| September 28, |
| ||
|
| 2020 |
|
| 2019 |
| ||
|
|
|
|
|
|
| ||
Stock Options |
| $ | 1,008,538 |
|
| $ | 1,687,273 |
|
LTIP Units |
|
| - |
|
|
| 833,531 |
|
Stock Grants for Services |
|
| 181,589 |
|
|
| 364,948 |
|
Restricted Stock Grants |
|
| 157,477 |
|
|
| 1,680,625 |
|
|
|
|
|
|
|
|
|
|
Total Share-Based Compensation |
| $ | 1,347,604 |
|
| $ | 4,566,377 |
|
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| December 24, 2022 | December 25, 2021 | December 24, 2022 | December 25, 2021 | ||||||||||||||||||||
| Stock Options | $ | 1,912,792 | $ | 97,746 | $ | 2,625,581 | $ | 1,314,193 | |||||||||||||||
| Stock Grants for Compensation | — | 207,494 | — | 540,827 | |||||||||||||||||||
| Restricted Stock Grants | 200,884 | 402,866 | 351,780 | 1,957,163 | |||||||||||||||||||
| Total Share-Based Compensation | $ | 2,113,676 | $ | 708,106 | $ | 2,977,361 | $ | 3,812,183 | |||||||||||||||
|
| Number of Stock Options |
|
| Weighted-Average Exercise Price |
|
| Number of Stock Options Exercisable |
|
| Weighted-Average Exercise Price |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance as of June 27, 2020 |
|
| 8,618,204 |
|
| $ | 2.78 |
|
|
| 4,248,393 |
|
| $ | 2.78 |
|
Granted |
|
| - |
|
| $ | - |
|
|
| 896,857 |
|
| $ | 3.48 |
|
Forfeited |
|
| (717,794 | ) |
| $ | (3.26 | ) |
|
| - |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 26, 2020 |
|
| 7,900,410 |
|
| $ | 2.74 |
|
|
| 5,145,250 |
|
| $ | 3.24 |
|
The aggregate intrinsic value of options outstanding was nil at both September 26, 2020 and June 27, 2020.
|
|
|
|
|
LTIP
| Number of Stock Options | Weighted-Average Exercise Price | ||||||||||
| Outstanding at June 25, 2022 | 8,649,673 | $ | 1.35 | ||||||||
| Granted | 92,382,965 | 0.05 | |||||||||
| Forfeited | (312,032) | 3.60 | |||||||||
| Outstanding at December 24, 2022 | 100,720,606 | $ | 0.15 | ||||||||
| Stock Options Exercisable as of December 24, 2022 | 8,037,095 | ||||||||||
|
|
|
|
|
| Weighted |
| |||||
|
| LTIP Units |
|
| LLC |
|
| Average |
| |||
|
| Issued and |
|
| Redeemable |
|
| Grant Date |
| |||
|
| Outstanding |
|
| Units |
|
| Fair Value |
| |||
|
|
|
|
|
|
|
|
|
| |||
Balance as of June 27, 2020 and September 26, 2020 |
|
| 19,323,878 |
|
|
| 725,016 |
|
| $ | 0.52 |
|
Deferred
| LTIP Units | LLC Redeemable Units | Weighted Average Grant Date Fair Value | |||||||||||||||
| Issued and Outstanding | |||||||||||||||||
| Balance as of June 25, 2022 and December 24, 2022 | 19,323,878 | 725,016 | $ | 0.52 | |||||||||||||
Effective December 10, 2019, the Company’s board of directors approved a Deferred Share Unit (“DSU”) award under the Company’s Incentive Plan. The DSU award was for units to the Company’s non-management directors. Each director will be provided the Company’s Subordinate Voting Shares based on the duration of their term as a director up to $250,000 for a year of service ending August 2020. At September 26, 2020 and June 27, 2020, there was 1,283,567 units issued and outstanding. For the three months ended September 26, 2020 and September 28, 2019, compensation expense related to the DSU award was nil, was included in accounts payable and stock based compensation expense on the Company’s Condensed Consolidated Balance Sheets. As of September 26, 2020, the corresponding Subordinate Voting Share have not yet been issued to the directors. A reconciliation of the beginning and ending balance of DSUs outstanding is as follows:
|
| Issued and Outstanding |
|
| Weighted- Average Fair Value |
| ||
|
|
|
|
|
|
| ||
Balance as of June 27, 2020 |
|
| 1,283,567 |
|
| $ | 0.38 |
|
|
|
|
|
|
|
|
|
|
Granted |
|
| - |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
Balance as of September 26, 2020 |
|
| 1,283,567 |
|
| $ | 0.38 |
|
Restricted Stock Grants
During the three months ended September 26, 2020 and September 28, 2019, the Company granted an entitlement to 614,207 and 178,190, respectively, of restricted Subordinate Voting Shares to certain officers and directors.
| Issued and Outstanding | Vested | Weighted-Average Fair Value | |||||||||||||||
| Balance as of June 25, 2022 | 10,998,483 | 4,030,460 | $ | 0.20 | |||||||||||||
| Granted | — | — | — | ||||||||||||||
| Vested | — | 490,661 | 0.21 | ||||||||||||||
Forfeited (1) | (1,813,408) | — | (0.22) | ||||||||||||||
| Non-vested at December 24, 2022 | 9,185,075 | 4,521,121 | $ | 0.30 | |||||||||||||
|
| Issued and Outstanding |
|
| Vested |
|
| Weighted- Average Fair Value |
| |||
|
|
|
|
|
|
|
|
|
| |||
Balance as of June 27, 2020 |
|
| 7,159,164 |
|
|
| 192,459 |
|
| $ | 0.68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
| 614,207 |
|
|
| - |
|
| $ | 0.29 |
|
Redemption of Vested Stock |
|
| (614,207 | ) |
|
| (614,207 | ) |
| $ | 0.29 |
|
Vesting of Restricted Stock |
|
| - |
|
|
| 628,873 |
|
| $ | 0.35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 26, 2020 |
|
| 7,159,164 |
|
|
| 207,125 |
|
| $ | 0.68 |
|
Certain restricted
|
|
|
|
|
Contents
|
| Number of Warrants Outstanding |
|
|
|
| ||||||||||
|
| Subordinate Voting Shares |
|
| MedMen Corp Redeemable Shares |
|
| Total |
|
| Weighted-Average Exercise Price |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance as of June 27, 2020 |
|
| 114,998,915 |
|
|
| 40,455,731 |
|
|
| 155,454,646 |
|
| $ | 0.59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued |
|
| 110,757,575 |
|
|
| 70,455,726 |
|
|
| 181,213,301 |
|
| $ | 0.17 |
|
Cancelled |
|
| (1,080,226 | ) |
|
| (40,455,731 | ) |
|
| (41,535,957 | ) |
| $ | (0.50 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 26, 2020 |
|
| 224,676,264 |
|
|
| 70,455,726 |
|
|
| 295,131,990 |
|
| $ | 0.34 |
|
During the three months ended September 26, 2020, 40,455,726 and 30,000,000 warrants were issued for MedMen Corp Redeemable Shares with an exercise price of $0.34 and $0.20, respectively, and expire through September 16, 2025. Additionally, 41,875,000, 3,293,413 and 3,500,000 warrants were issued for Subordinate Voting Shares with an exercise price of $0.20, $0.21 and $0.34, respectively, and expire through July 2, 2025.
The fair value of warrants exercisable for MedMen Corp Redeemable Shares was determined using the Black-Scholes option-pricing model with the following assumptions on the date of issuance:
|
| September 26, |
|
| June 27 |
| ||
|
| 2020 |
|
| 2020 |
| ||
|
|
|
|
|
|
| ||
Weighted-Average Risk-Free Annual Interest Rate |
|
| 0.12 | % |
|
| 2.82 | % |
Weighted-Average Expected Annual Dividend Yield |
|
| 0 | % |
|
| 0 | % |
Weighted-Average Expected Stock Price Volatility |
|
| 91.38 | % |
|
| 82.93 | % |
Weighted-Average Expected Life of Warrants |
| 1 year |
| 1 year | ||||
The fair value of warrants exercisable for the Company’s Subordinate Voting Shares was determined using the Black-Scholes option-pricing model with the following assumptions on the latest modification of September 16, 2020:
| Number of Warrants Outstanding | |||||||||||||||||||||||
| Subordinate Voting Shares | MM CAN USA Redeemable Shares | TOTAL | Weighted-Average Exercise Price | ||||||||||||||||||||
| Balance as of June 25, 2022 | 352,704,355 | 97,430,456 | 450,134,811 | $ | 0.25 | ||||||||||||||||||
| Expired | (6,023,696) | — | (6,023,696) | $ | 2.03 | ||||||||||||||||||
| Balance as of December 24, 2022 | 346,680,659 | 97,430,456 | 444,111,115 | $ | 0.22 | ||||||||||||||||||
| ||||||||
| ||||||||
| ||||||||
|
| |||||||
Stock price volatility was estimated by using the historical volatility of the Company’s Subordinate Voting Shares and the average historical volatility of comparable companies from a representative peer group of publicly-traded cannabis companies. The expected life in years represents the period of time that warrants issued are expected to be outstanding. The risk-free rate was based on U.S. Treasury bills with a remaining term equal to the expected life of the warrants. 80,838,323 of warrants are cancelable if the Company meets certain cash flow metrics for two consecutive quarters. The effects of contingent cancellation feature were included in determining the fair value of the related warrants.
As of September 26, 2020 and June 27, 2020, warrants outstanding have a weighted-average remaining contractual life of 53.8 and 46.2 months, respectively.
|
|
|
|
| LOSS PER SHARE |
|
| Three Months Ended |
| |||||
|
| September 26, |
|
| September 28, |
| ||
|
| 2020 |
|
| 2019 |
| ||
|
|
|
|
|
|
| ||
Net Loss from Continuing Operations Attributable to Shareholders of MedMen Enterprises, Inc. |
| $ | (19,237,687 | ) |
| $ | (29,237,712 | ) |
Less: Deemed Dividend - Down Round Feature of Warrants |
|
| (4,883,467 | ) |
|
| - |
|
Net Loss from Continuing Operations Available to Shareholders of MedMen Enterprises, Inc. |
| $ | (24,121,154 | ) |
| $ | (29,237,712 | ) |
|
|
|
|
|
|
|
|
|
Net Loss from Discontinued Operations |
|
| (2,682,175 | ) |
|
| (3,855,053 | ) |
|
|
|
|
|
|
|
|
|
Weighted-Average Number of Shares Outstanding |
|
| 423,187,218 |
|
|
| 191,711,038 |
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) Per Share - Basic and Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From Continuing Operations Attributable to Shareholders of MedMen Enterprises, Inc. |
| $ | (0.06 | ) |
| $ | (0.15 | ) |
|
|
|
|
|
|
|
|
|
From Discontinued Operations |
| $ | (0.01 | ) |
| $ | (0.02 | ) |
DilutedDecember 25, 2021 is as follows:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| December 24, 2022 | December 25, 2021 | December 24, 2022 | December 25, 2021 | ||||||||||||||||||||
| Net Loss from Continuing Operations Attributable to Shareholders of MedMen Enterprises, Inc. | $ | (15,086) | $ | (8,217) | $ | (39,427) | $ | (54,381) | |||||||||||||||
| Net Income (Loss) from Discontinued Operations | (2,256) | (12,141) | 26,132 | (26,587) | |||||||||||||||||||
| Total Loss | $ | (17,342) | $ | (20,358) | $ | (13,294) | $ | (80,968) | |||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted-Average Shares Outstanding - Basic | 1,301,874,615 | 1,198,515,279 | 1,301,767,158 | 1,070,605,666 | |||||||||||||||||||
| Dilutive effect of LTIP and LLC Redeemable Units issued for compensation | 19,323,878 | 19,323,878 | 19,323,878 | 19,323,878 | |||||||||||||||||||
| Dilutive effect of restricted stock granted under the Equity Plan | 9,185,075 | 25,673,720 | 9,185,075 | 25,673,720 | |||||||||||||||||||
| Dilutive effect of warrants and top-up warrants | 194,720,261 | 138,498,284 | 258,878,685 | 175,668,177 | |||||||||||||||||||
| Dilutive effect of convertible debentures | 3,255,897,270 | 1,007,089,116 | 3,255,897,270 | 1,007,089,116 | |||||||||||||||||||
Weighted-Average Shares Outstanding - Diluted (1) | 4,781,001,100 | 2,389,100,278 | 4,845,052,067 | 2,298,360,557 | |||||||||||||||||||
| |||||
| 15. | GENERAL AND ADMINISTRATIVE EXPENSES | ||||
|
| September 26, 2020 |
|
| September 28, 2019 |
| ||
|
|
|
|
|
|
| ||
| Salaries and Benefits |
| $ | 10,040,704 |
|
| $ | 20,901,335 |
|
| Professional Fees |
|
| 3,599,335 |
|
|
| 5,285,269 |
|
| Rent |
|
| 8,607,733 |
|
|
| 7,134,515 |
|
| Licenses, Fees and Taxes |
|
| 3,250,878 |
|
|
| 2,321,899 |
|
| Other General and Administrative |
|
| 6,184,954 |
|
|
| 18,451,931 |
|
|
|
|
|
|
|
|
|
|
| Total General and Administrative Expenses |
| $ | 31,683,604 |
|
| $ | 54,094,949 |
|
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| December 24, 2022 | December 25, 2021 | December 24, 2022 | December 25, 2021 | ||||||||||||||||||||
| Salaries and Benefits | $ | 6,536,411 | $ | 9,991,545 | $ | 13,468,859 | $ | 19,903,033 | |||||||||||||||
| Professional Fees | 2,137,010 | 7,815,185 | 3,509,420 | 15,245,844 | |||||||||||||||||||
| Rent | 3,021,217 | 4,712,476 | 6,649,162 | 9,467,359 | |||||||||||||||||||
| Licenses, Fees and Taxes | 1,823,436 | 1,293,194 | 3,866,945 | 3,830,982 | |||||||||||||||||||
| Share-Based Compensation | 2,113,676 | 722,802 | 2,977,361 | 2,370,111 | |||||||||||||||||||
| Deal Costs | — | 1,174,357 | 429,272 | 2,811,944 | |||||||||||||||||||
| Other General and Administrative | 2,709,471 | 5,583,195 | 5,551,538 | 10,312,715 | |||||||||||||||||||
| Total General and Administrative Expenses | $ | 18,341,221 | $ | 31,292,754 | $ | 36,452,557 | $ | 63,941,988 | |||||||||||||||
| OTHER OPERATING (INCOME) EXPENSE | |||||
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| December 24, 2022 | December 25, 2021 | December 24, 2022 | December 25, 2021 | ||||||||||||||||||||
| Other Operating (Income) Expense: | |||||||||||||||||||||||
| Loss (Gain) on Disposals of Assets | $ | 1,153,225 | $ | (141,662) | $ | 1,358,820 | $ | (126,516) | |||||||||||||||
| Restructuring and Reorganization Expense | — | 385,652 | 423,793 | 2,764,327 | |||||||||||||||||||
| Gain on Settlement of Accounts Payable | 215,659 | — | 141,022 | (177,990) | |||||||||||||||||||
| (Gain) Loss on Lease Terminations | (1,877,298) | 173,765 | (3,464,947) | 173,765 | |||||||||||||||||||
| (Gain) Loss on Disposal of Assets Held for Sale | (112,225) | — | 532,598 | — | |||||||||||||||||||
| Legal Settlements | (3,491,431) | — | (3,491,431) | — | |||||||||||||||||||
| Other Income | (1,522,280) | 213,216 | (3,043,918) | 196,413 | |||||||||||||||||||
| Total Other Operating (Income) Expense | $ | (5,634,350) | $ | 630,971 | $ | (7,544,063) | $ | 2,829,999 | |||||||||||||||
|
|
|
|
| PROVISION FOR INCOME TAXES AND DEFERRED INCOME TAXES | ||
|
| Three Months Ended |
| |||||
|
| September 26, 2020 |
|
| September 28, 2019 |
| ||
|
|
|
|
|
|
| ||
Loss from Continuing Operations Before Provision for Income Taxes |
| $ | (19,826,666 | ) |
| $ | (77,379,010 | ) |
Income Tax Expense |
|
| (10,338,562 | ) |
|
| (6,020,522 | ) |
Effective Tax Rate |
|
| (52.04 | )% |
|
| (10.67 | )% |
Historically,December 25, 2021
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| December 24, 2022 | December 25, 2021 | December 24, 2022 | December 25, 2021 | ||||||||||||||||||||
| Loss from Continuing Operations Before Provision for Income Taxes | $ | (14,025,468) | $ | (16,355,274) | $ | (32,673,967) | $ | (42,826,906) | |||||||||||||||
| Provision for Income Tax Expense | (1,060,808) | 8,137,898 | (6,752,886) | (11,554,010) | |||||||||||||||||||
| Effective Tax Rate | 8 | % | -50 | % | 21 | % | 27 | % | |||||||||||||||
The federal statuteDecember 24, 2022, the Company recognized a net discrete tax expense of limitation remains open for$407,993 primarily related on interest of past liabilities. During the 2017next twelve months, the Company does not estimate any material reduction in its unrecognized tax year to the present. The state income tax returns generally remain open for the 2016 tax year through the present. Net operating losses arising prior to these years are also open to examination if and when utilized.
|
|
|
|
| COMMITMENTS AND CONTINGENCIES | ||
In July 2018, a legal claim was filed against the Company related to alleged misrepresentations in respect of a financing transaction completed in May 2018. The claimant is seeking damages of approximately $2,200,000. The Company believes the likelihood of a loss contingency is remote. As a result, no amount has been set up for potential damages in these financial statements.
In late January 2019, the Company’s former Chief Financial Officer (“CFO”) filed a complaint against MM Enterprises in the Superior Court of California, County of Los Angeles, seeking damages for claims relating to his employment. The Company is currently defending against this lawsuit, which seeks damages for wrongful termination, breach of contract, and breach of implied covenant of good faith. The former CFO’s employment agreement provided for the payment of severance in the event of termination without cause. The Company disputes the claims set forth in this lawsuit and believes that the outcome is neither probable nor estimable; therefore, no amounts have been accrued in relation to the claim.
In September 2020, a legal disputeearnings was filed against the Company related toin Los Angeles Superior Court. The matter is in the separationprocess of a former officer in which the severance issued is currently being disputed.litigated. The Company believes the likelihood of loss is remote. As a result,such, no amount has been set up for potential damagesaccrued in these financial statements.
A
|
|
|
|
| RELATED PARTY TRANSACTIONS | ||
All related party balances due from or due to the Company as
As of September 26, 2020 and June 27, 2020, amounts due from related parties were as follows:
|
|
| September 26, |
|
| June 27, |
| |||
Name and Relationship to Company |
| Transaction |
| 2020 |
|
| 2020 |
| ||
|
|
|
|
|
|
|
|
| ||
MMOF GP II, LLC (“Fund LP II”), an entity which Mr. Adam Bierman, Mr. Andrew Modlin and Mr. Christopher Ganan each holds 33.3% indirect voting interest. The shareholders each hold 27.1% of indirect equity interest in Fund LP II, the General Partner of Fund II, which both hold equity interests in a subsidiary of the Company. (1) |
| Management Fees |
| $ | 1,820,204 |
|
| $ | 1,820,204 |
|
|
|
|
|
|
|
|
|
|
|
|
MedMen Opportunity Fund GP, LLC (“Fund LP”), an entity which Mr. Adam Bierman, Mr. Andrew Modlin and Mr. Christopher Ganan each holds 33.3% indirect voting interest. The shareholders each hold 24.2% of indirect equity interest in Fund LP, the General Partner of Fund I, which both hold equity interests in a subsidiary of the Company. (1) |
| Management Fees |
|
| 1,289,514 |
|
|
| 1,289,513 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Amounts Due from Related Parties |
|
|
| $ | 3,109,718 |
|
| $ | 3,109,717 |
|
_____________________
(1) As of February 2020 and May 2020, Mr. Adam Bierman and Mr. Andrew Modlin, respectively, no longer held board or management positions and therefore as of September 26, 2020 are not related parties, however they were during the fiscal year ended June 27, 2020. As of September 26, 2020, Chris Ganantwo-thirds is a member of the Company’s board of directors and thus considered a related party under ASC 850, “Related Party Disclosures”.
As of September 26, 2020 and June 27, 2020, amounts due to related parties were as follows:
|
|
|
| September 26, |
|
| June 27, |
| ||
Name and Relationship to Company |
| Transaction |
| 2020 |
|
| 2020 |
| ||
|
|
|
|
|
|
|
|
| ||
Fund LP II, an entity which Mr. Adam Bierman, Mr. Andrew Modlin and Mr. Christopher Ganan each holds 33.3% indirect voting interest. The shareholders each hold 27.1% of indirect equity interest in Fund LP II, the General Partner of Fund II, which both hold equity interests in a subsidiary of the Company. (1) |
| Working Capital, Construction and Tenant Improvements, Lease Deposits and Cash Used for Acquisitions |
| $ | (1,093,896 | ) |
| $ | (1,093,896 | ) |
|
|
|
|
|
|
|
|
|
|
|
Fund LP, an entity which Mr. Adam Bierman, Mr. Andrew Modlin and Mr. Christopher Ganan each holds 33.3% indirect voting interest. The shareholders each hold 24.2% of indirect equity interest in Fund LP, the General Partner of Fund I, which both hold equity interests in a subsidiary of the Company. (1) |
| Working Capital, Management Fees and Cash Used for Acquisitions |
|
| (1,986,697 | ) |
|
| (1,986,697 | ) |
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
| (1,473,122 | ) |
|
| (1,476,221 | ) |
|
|
|
|
|
|
|
|
|
|
|
Total Amounts Due to Related Parties |
|
|
| $ | (4,553,715 | ) |
| $ | (4,556,814 | ) |
_____________________
(1) As of February 2020 and May 2020, Mr. Adam Bierman and Mr. Andrew Modlin, respectively, no longer held board or management positions and therefore as of September 26, 2020 are not related parties, however they were during the fiscal year ended June 27, 2020. As of September 26, 2020, Chris Ganan is a member of the Company’s board of directors and thus considered a related party under ASC 850, “Related Party Disclosures”.
|
|
|
|
|
On December 11, 2019, the Company announced that Benjamin Rose, the Executive Chairman of the Board, was granted a limited proxy of 815,295 Class A Super Voting Shares, which represents 50% of the total Class A Super Voting Shares, for a period of one year. As a result of the proxy, Mr. Rose has joint control of the Company. Under ASC 850, “Related Party Disclosures”, Mr. Rose is a member of the key management personnel of Wicklow Capital, Inc. and accordingly, Wicklow Capital is a related party of the Company. In August 2020, the Company granted 102,519 deferred stock units to Mr. Rose. As of September 26, 2020, the corresponding Subordinate Voting Shares have not yet been issued to Mr. Rose.
As of September 26, 2020, the Company determined GGP to be a related party as a result of GGP having significant influence over the Company. See “Note 13 – Senior Secured Convertible Credit Facility” for a full disclosure of transactions and balances related to GGP.
In March 2020, the Company entered into restructuring plan and retained interim management and advisory firm, Sierra Constellation Partners (“SCP”). As part of the engagement, Tom Lynch was appointed as Interim Chief Executive Officer and Chief Restructuring Officer, and Tim Bossidy was appointed as Interim Chief Operating Officer. Mr. Lynch is a Partner and Senior Managing Director at SCP. Mr. Bossidy is a Director at SCP. As of September 26, 2020, the Company had paid $699,322 in fees to SCP for interim management and restructuring support.
|
| REVENUE | |||||
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| December 24, 2022 | December 25, 2021 | December 24, 2022 | December 25, 2021 | ||||||||||||||||||||
| California | $ | 19,575,393 | $ | 23,368,439 | $ | 39,504,378 | $ | 47,994,994 | |||||||||||||||
| Nevada | 2,812,902 | 3,855,371 | 5,810,371 | 7,934,522 | |||||||||||||||||||
| Illinois | 3,082,089 | 4,104,970 | 6,624,159 | 8,433,572 | |||||||||||||||||||
| Arizona | 3,343,592 | 4,173,609 | 6,138,238 | 7,875,206 | |||||||||||||||||||
| Massachusetts | 734,394 | 14,772 | 1,515,277 | 14,771 | |||||||||||||||||||
| Revenue from Continuing Operations | 29,548,370 | 35,517,161 | 59,592,423 | 72,253,065 | |||||||||||||||||||
| Revenue from Discontinued Operations | 2,282,288 | 8,065,341 | 5,911,927 | 15,405,440 | |||||||||||||||||||
| Total Revenue | $ | 31,830,658 | $ | 43,582,502 | $ | 65,504,350 | $ | 87,658,505 | |||||||||||||||
| 22. | |||||
|
|
|
|
|
During the fiscal second quarter of 2020, the Company contemplated the divesture of non-core assets and management entered into a plan to sell its operations in the state of Arizona. During the fiscal year ended June 27, 2020, the Company entered into binding and non-binding term sheets and began separate negotiations to sell its operations in the state of Arizona, including the related management entities, for total gross proceeds of approximately $25,500,000. As of September 26, 2020, the contemplated transactions are subject to customary closing conditions and is expected to close within the next twelve months. After the close
Consequently,discontinued operations are summarized as follows:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| December 24, 2022 | December 25, 2021 | December 24, 2022 | December 25, 2021 | ||||||||||||||||||||
| Revenue | $ | 2,282,288 | $ | 8,065,341 | $ | 5,911,927 | $ | 15,405,440 | |||||||||||||||
| Cost of Goods Sold | 439,466 | 5,672,043 | 2,630,135 | 10,899,596 | |||||||||||||||||||
| Gross Profit | 1,842,822 | 2,393,298 | 3,281,792 | 4,505,844 | |||||||||||||||||||
| Expenses: | |||||||||||||||||||||||
| General and Administrative | 2,134,342 | 6,329,144 | 6,853,135 | 11,946,739 | |||||||||||||||||||
| Sales and Marketing | 15,015 | 127,844 | 58,326 | 231,647 | |||||||||||||||||||
| Depreciation and Amortization | 21,107 | 1,189,331 | 894,002 | 2,411,090 | |||||||||||||||||||
| Impairment Expense | — | — | (78,433) | — | |||||||||||||||||||
| Gain on Disposal of Assets and Other Income | — | — | (36,305,166) | (597,591) | |||||||||||||||||||
| Total (Income) Expenses | $ | 2,170,464 | $ | 7,646,319 | $ | (28,578,136) | $ | 13,991,885 | |||||||||||||||
| Income (Loss) from Discontinued Operations | (327,642) | (5,253,021) | 31,859,928 | (9,486,041) | |||||||||||||||||||
| Other Expense: | |||||||||||||||||||||||
| Interest Expense | 1,783,685 | 4,755,126 | 5,545,446 | 9,371,955 | |||||||||||||||||||
| Accretion of Debt Discount and Loan Origination Fees | — | 3,446,949 | 398,032 | 6,987,857 | |||||||||||||||||||
| Total Other Expense | 1,783,685 | 8,202,075 | 5,943,478 | 16,359,812 | |||||||||||||||||||
| Income (Loss) from Discontinued Operations Before Provision for Income Taxes | (2,111,327) | (13,455,096) | 25,916,450 | (25,845,853) | |||||||||||||||||||
| Provision for Income Tax Benefit (Expense) | (144,651) | 1,314,496 | 216,039 | (741,238) | |||||||||||||||||||
| Net Income (Loss) from Discontinued Operations | $ | (2,255,978) | $ | (12,140,600) | $ | 26,132,489 | $ | (26,587,091) | |||||||||||||||
| December 24, 2022 | June 25, 2022 | ||||||||||
| Carrying Amounts of the Assets Included in Discontinued Operations: | |||||||||||
| Cash and Cash Equivalents | $ | 540,828 | $ | 1,124,076 | |||||||
| Restricted Cash | 5,280 | 5,280 | |||||||||
| Accounts Receivable and Prepaid Expenses | 22,019 | 334,621 | |||||||||
| Inventory | 4,483,051 | 6,866,833 | |||||||||
TOTAL CURRENT ASSETS (1) | |||||||||||
| Property and Equipment, Net | 9,569,610 | 41,273,597 | |||||||||
| Operating Lease Right-of-Use Assets | 19,111,359 | 31,543,058 | |||||||||
| Intangible Assets, Net | 10,582,559 | 40,799,146 | |||||||||
| Other Assets | 458,383 | 1,181,795 | |||||||||
| TOTAL ASSETS OF THE DISPOSAL GROUP CLASSIFIED AS HELD FOR SALE | 44,773,089 | 123,128,406 | |||||||||
| Carrying Amounts of the Liabilities Included in Discontinued Operations: | |||||||||||
| Accounts Payable and Accrued Liabilities | $ | 979,864 | $ | 6,295,745 | |||||||
| Income Taxes Payable | 389,677 | 1,671,380 | |||||||||
| Other Current Liabilities | (5,641) | 89,069 | |||||||||
| Current Portion of Operating Lease Liabilities | 2,812,765 | 4,209,512 | |||||||||
| Current Portion of Finance Lease Liabilities | — | 174,000 | |||||||||
TOTAL CURRENT LIABILITIES (1) | |||||||||||
| Operating Lease Liabilities, Net of Current Portion | 18,398,345 | 56,410,071 | |||||||||
| Deferred Tax Liabilities | 5,977,580 | 6,097,597 | |||||||||
| Notes Payable | — | 11,100,000 | |||||||||
TOTAL NON-CURRENT LIABILITIES (1) | |||||||||||
| TOTAL LIABILITIES OF THE DISPOSAL GROUP CLASSIFIED AS HELD FOR SALE | $ | 28,552,590 | $ | 86,047,374 | |||||||
The Company will continue to operate the Arizona operations until the ultimate sale of the disposal group. Net operating loss of the discontinued operations and the gain or loss from re-measurement of assets and liabilities classified as held for sale are summarized as follows:
|
| September 26, |
|
| September 28, |
| ||
|
| 2020 |
|
| 2019 |
| ||
|
|
|
|
|
|
| ||
Revenue |
| $ | 1,599,990 |
|
| $ | 4,304,749 |
|
Cost of Goods Sold |
|
| 1,268,752 |
|
|
| 3,880,606 |
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
| 331,238 |
|
|
| 424,143 |
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
General and Administrative |
|
| 976,611 |
|
|
| 1,823,752 |
|
Sales and Marketing |
|
| 6,501 |
|
|
| 948 |
|
Depreciation and Amortization |
|
| 49,142 |
|
|
| 499,328 |
|
|
|
|
|
|
|
|
|
|
Total Expenses |
|
| 1,032,254 |
|
|
| 2,324,028 |
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Operations |
|
| (701,016 | ) |
|
| (1,899,885 | ) |
|
|
|
|
|
|
|
|
|
Other Expense (Income): |
|
|
|
|
|
|
|
|
Other Expense |
|
| 37,056 |
|
|
| 5,385 |
|
|
|
|
|
|
|
|
|
|
Total Other Expense |
|
| 37,056 |
|
|
| 5,385 |
|
|
|
|
|
|
|
|
|
|
Loss on Discontinued Operations Before Provision for Income Taxes |
|
| (738,072 | ) |
|
| (1,905,270 | ) |
Provision for Income Tax (Expense) Benefit |
|
| (1,944,103 | ) |
|
| (1,949,783 | ) |
|
|
|
|
|
|
|
|
|
Loss on Discontinued Operations |
| $ | (2,682,175 | ) |
| $ | (3,855,053 | ) |
|
|
|
|
|
The carrying amounts of assets and liabilities in the disposal group are summarized as follows:
|
| September 26, |
|
| June 27, |
| ||
|
| 2020 |
|
| 2020 |
| ||
|
|
|
|
|
|
| ||
Carrying Amounts of the Assets Included in Discontinued Operations: |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Cash and Cash Equivalents |
| $ | 319,834 |
|
| $ | 522,966 |
|
Accounts Receivable |
|
| 239,702 |
|
|
| 274,886 |
|
Prepaid Expenses |
|
| 59,921 |
|
|
| 74,622 |
|
Inventory |
|
| 3,241,697 |
|
|
| 3,323,978 |
|
Other Current Assets |
|
| 65,851 |
|
|
| 64,600 |
|
|
|
|
|
|
|
|
|
|
TOTAL CURRENT ASSETS (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and Equipment, Net |
|
| 4,224,082 |
|
|
| 4,288,808 |
|
Operating Lease Right-of-Use Assets |
|
| 5,136,228 |
|
|
| 5,257,327 |
|
Intangible Assets, Net |
|
| 7,298,804 |
|
|
| 7,260,288 |
|
Other Assets |
|
| 117,275 |
|
|
| 113,576 |
|
|
|
|
|
|
|
|
|
|
TOTAL NON-CURRENT ASSETS (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS OF THE DISPOSAL GROUP CLASSIFIED AS HELD FOR SALE |
| $ | 20,703,394 |
|
| $ | 21,181,051 |
|
|
|
|
|
|
|
|
|
|
Carrying Amounts of the Liabilities Included in Discontinued Operations: |
|
|
|
|
|
|
|
|
Accounts Payable and Accrued Liabilities |
| $ | 1,732,280 |
|
| $ | 2,126,162 |
|
Income Taxes Payable |
|
| 2,818,170 |
|
|
| 946,679 |
|
Other Current Liabilities |
|
| 22,462 |
|
|
| 22,747 |
|
Current Portion of Operating Lease Liabilities |
|
| 379,529 |
|
|
| 385,699 |
|
|
|
|
|
|
|
|
|
|
TOTAL CURRENT LIABILITIES (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Lease Liabilities, Net of Current Portion |
|
| 5,199,132 |
|
|
| 5,300,936 |
|
Deferred Tax Liabilities |
|
| 6,278,078 |
|
|
| 6,278,079 |
|
|
|
|
|
|
|
|
|
|
TOTAL NON-CURRENT LIABILITIES (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES OF THE DISPOSAL GROUP CLASSIFIED AS HELD FOR SALE |
| $ | 16,429,651 |
|
| $ | 15,060,302 |
|
_____________________
(1) The assets and liabilities of the disposal group classified as held for sale are classified as current on the Condensed Consolidated Balance Sheets as of September 26, 2020 because it is probable that the sale will occur and proceeds will be collected within one year.
|
|
|
|
|
Senior Secured Term Loan Facility
On October 30, 2020, the Company closed on incremental term loans totaling approximately $7,700,000 under its existing Facility with Hankey Capital at an interest rate
Unsecured Convertible Facility
On September 28, 2020, the Company closed on a second tranche of $1,000,000 under its existing unsecured convertible facility with a conversion price of $0.17 per Subordinate Voting Share. In connection with the second tranche, the Company issued 3,777,475 warrants with an exercise price of $0.21 per Subordinate Voting Share. On November 20, 2020, the Company closed on a third tranche of $1,000,000 under the facility with a conversion price of $0.17 per Subordinate Voting Share. In connection with the third tranche, the Company issued 3,592,326 warrants with an exercise price of $0.21 per share.
Sale of Assets
Subsequent to September 26, 2020, Level Up was sold at auction for a sales price of approximately $25,000,000.
|
|
Certain comparative amounts have been reclassified to conform with current period presentation.
Contents
Basis of Presentation
Fiscal Period
The Company’s
Selected Financial Data
The data set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”) and the unaudited interim Condensed Consolidated Financial Statements and related notes presented in Item 1 of this Form 10-Q. 10-Q for further information.
|
| Three Months Ended |
| |||||
|
| September 26, |
|
| September 28, |
| ||
($ in Millions) |
| 2020 |
|
| 2019 |
| ||
|
|
|
|
|
|
| ||
Revenue |
| $ | 35.6 |
|
| $ | 39.7 |
|
Gross Profit |
| $ | 16.8 |
|
| $ | 19.4 |
|
Loss from Operations |
| $ | (8.1 | ) |
| $ | (51.6 | ) |
Total Other Expense |
| $ | 11.8 |
|
| $ | 25.8 |
|
Net Loss from Continuing Operations |
| $ | (30.2 | ) |
| $ | (83.4 | ) |
Net Loss from Discontinued Operations |
| $ | (2.7 | ) |
| $ | (3.9 | ) |
Net Loss |
| $ | (32.8 | ) |
| $ | (87.3 | ) |
Net Loss Attributable to Non-Controlling Interest |
| $ | (10.9 | ) |
| $ | (54.2 | ) |
Net Loss Attributable to Shareholders of MedMen Enterprises Inc. |
| $ | (21.9 | ) |
| $ | (33.1 | ) |
|
|
|
|
|
|
|
|
|
Adjusted Net Loss from Continuing Operations (Non-GAAP) |
| $ | (35.0 | ) |
| $ | (53.8 | ) |
EBITDA from Continuing Operations (Non-GAAP) |
| $ | 3.4 |
|
| $ | (55.5 | ) |
Adjusted EBITDA from Continuing Operations (Non-GAAP) |
| $ | (11.7 | ) |
| $ | (31.9 | ) |
Quarterly Highlights
Continued Strategic Partnership with Gotham Green Partners
On April 23, 2019, The accompanying Condensed Consolidated Financial Statements do not include any adjustments to reflect the Company secured a senior secured convertible credit facility (the “GGP Facility”) to provide up to $250.0 million in gross proceeds, arranged by Gotham Green Partners (“GGP”). The GGP Facility has been accessed to date through issuances to the lenders of convertible senior secured notes (“GGP Notes”) co-issued by the Company and MM Can USA, Inc. (“MM CAN” or “MedMen Corp.”). As of September 26, 2020, the Company has drawn down on a total of $155.0 millionpossible future effects on the GGP Facility,recoverability and classification of which $5.0 million was funded duringassets or the three months ended September 26, 2020 as described below.
During the three months ended September 26, 2020, the Company amendedamounts and restated the GGP Facility on July 2, 2020. Refer to “Note 13 – Senior Secured Convertible Credit Facility”classification of the unaudited interim condensed consolidated financial statements for the three months ended September 26, 2020 and September 28, 2019.
On September 14, 2020, the Company had drawn down $5,000,000 through Tranche IA-2 of the GGP Facility. In connection with the funding of Tranche IA-2, the Company issued 25,000,000 warrants to the lenders at an exercise price of $0.20 per share. In addition, 1,080,255 existing warrants were cancelled and replaced with 16,875,001 warrants with an exercise price of $0.20 per share.
On September 16, 2020, the down round feature on the convertible notes and warrants issued in connection with Tranche 4, Incremental Advances and certain amendment fees was triggered wherein the exercise price was adjusted to $0.17 per share. The value of the effect of the down round feature on convertible notes and warrants was determined to be $21,672,272 and $4,883,467, respectively. The effectliabilities that may result from uncertainty related to convertible notes was recognized as additional debt discount and an increase in additional paid-in-capital. The effect relatedour ability to warrants was recognizedcontinue as a deemed distribution and an increase in additional paid-in capital.
Secured Term Loan Amendment
In October 2018, MedMen Corp. completed a $77,675,000 senior secured term loan (the “2018 Term Loan”) with funds managed by Hankey Capital, LLC and with an affiliate of Stable Road Capital. On January 14, 2020, the 2018 Term Loan was amended wherein the maturity date was extended to January 31, 2022 and the interest rate was increased to a fixed rate of 15.5% per annum, of which 12.0% will be payable monthly in cash based on the outstanding principal and 3.5% will accrue monthly to the principal amount of the debt as a payment-in-kind. Certain ownership interestsgoing concern.
| ($ in Millions) | December 24, 2022 | June 25, 2022 | $ Change | % Change | ||||||||||||||||||||||
| Cash and Cash Equivalents | $ | 15.6 | $ | 10.8 | $ | 4.8 | 45 | % | ||||||||||||||||||
| Total Current Assets | $ | 100.2 | $ | 161.5 | $ | (61.3) | (38 | %) | ||||||||||||||||||
| Total Assets | $ | 238.5 | $ | 323.2 | $ | (84.7) | (26 | %) | ||||||||||||||||||
| Total Current Liabilities | $ | 237.6 | $ | 319.6 | $ | (81.9) | (26 | %) | ||||||||||||||||||
| Notes Payable, Net of Current Portion | $ | 74.1 | $ | 74.4 | $ | (0.3) | — | % | ||||||||||||||||||
| Total Liabilities | $ | 567.3 | $ | 641.7 | $ | (74.5) | (12 | %) | ||||||||||||||||||
| Total Shareholders’ Equity | $ | (328.8) | $ | (318.5) | $ | (10.3) | 3 | % | ||||||||||||||||||
| Working Capital Deficit | $ | (137.4) | $ | (158.1) | $ | 20.7 | (13 | %) | ||||||||||||||||||
On July 2, 2020, the Company further amended the 2018 Term Loan wherein the interest rate of 15.5% per annum will accrue monthly to the principal amount of the debt as a payment-in-kind effective March 1, 2020 through July 2, 2021 and thereafter until maturity on January 31, 2022, 7.75% interest per annum will be payable monthly in cash and 7.75% interest per annum will be paid-in-kind. Certain reporting and financial covenants were added and amended, and the minimum liquidity covenant was waived until September 30, 2020. The Company may request an increase to the 2018 Term Loan through December 31, 2020 to be funded through incremental term loans. As consideration for the amendment, the Company cancelled 20,227,863 existing warrants exercisable at $0.60 per share held by the lenders of the 2018 Term Loan, and MM CAN issued 20,227,863 warrants at $0.34 per share that are exercisable until July 2, 2025.
On September 16, 2020, the Company executed an amendment to the 2018 Term Loan in which the funds available under the facility was increased by $12,000,000, of which $5,700,000 was fully committed by the lenders through October 31, 2020. The additional funds accrue interest at 18.0% per annum wherein 12.0% will be paid in cash monthly in arrears and 6.0% per annum accrues monthly as payment-in-kind. As consideration for the amendment, the Company cancelled 20,227,863 existing warrants held by the lenders exercisable at $0.60 per share, and MM CAN issued 20,227,863 warrants exercisable at $0.34 per share until September 16, 2025.
As of September 26, 2020, the Company closed on an incremental term loan of $3,000,000 under the amended 2018 Term Loan. In connection with the incremental term loan, MM CAN issued 30,000,000 warrants with an exercise price of $0.20 per share until December 31, 2025. The newly issued warrants may be exercised at the election of their holders on a cashless basis.
On September 16, 2020, the down round feature on the warrants issued in connection with the incremental term loan of $3,000,000 on September 16, 2020 was triggered wherein the exercise price was adjusted to $0.17 per share. The value of the effect of the down round feature was determined to be $259,736 and recognized as an increase in additional paid-in capital.
Unsecured Convertible Facility
On September 16, 2020, the Company entered into an unsecured convertible debenture facility for total available proceeds of $10,000,000 wherein the convertible debentures will have a conversion price equal to the closing price on the trading day immediately prior to the closing date, a maturity date of 24 months from the date of issuance and will bear interest at a rate of 7.5% per annum payable semi-annually in cash. The unsecured facility is callable in additional tranches in the amount of $1,000,000 each, up to a maximum of $10,000,000 under all tranches. The timing of additional tranches can be accelerated based on certain conditions. The debentures provide for the automatic conversion into Subordinate Voting Shares in the event that the VWAP is 50% above the conversion price on the CSE for 45 consecutive trading days. On September 16, 2020, the Company closed on an initial $1,000,000 under the facility with a conversion price of $0.17 per Subordinate Voting Share. In connection with the initial tranche, the Company issued 3,293,413 warrants with an exercise price of $0.21 per share.
Subsequent to the fiscal first quarter of 2021, on October 1, 2020, the Company closed on a second tranche of $1,000,000 under the facility with a conversion price of $0.17 per Subordinate Voting Share. In connection with the second tranche, the Company issued 3,777,472 warrants with an exercise price of $0.21 per share. On November 20, 2020, the Company closed on a third tranche of $1,000,000 under the facility with a conversion price of $0.17 per Subordinate Voting Share. In connection with the third tranche, the Company issued 3,592,326 warrants with an exercise price of $0.21 per share.
Landlord Support for Company Turnaround
The Company currently has lease arrangements with affiliates of Treehouse Real Estate Investment Trust (the “REIT”), which include 14 retail and cultivation properties across the U.S. On July 3, 2020, the Company announced modifications to its existing lease arrangements with the REIT, in which the REIT agreed to defer a portion of total current monthly base rent for the 36-month period between July 1, 2020 and July 1, 2023. The total amount of all deferred rent accrues interest at 8.6% per annum during the deferral period. As consideration for the rent deferral, the Company issued 3,500,000 warrants to the REIT, each exercisable at $0.34 per share for a period of five years. As part of the agreement, the Company will pursue a partnership with a cannabis cultivation company for the Company’s Desert Hot Springs and Mustang facilities that are leased from the REIT in order to continue the Company’s focus on retail operations.
Discontinued Operations
On November 15, 2019, the Company announced its plan to sell its operations in the state of Arizona. As a result, assets and liabilities allocable toFlorida at the operations within the state of Arizona were classified as held for sale. In addition, revenue and expenses, gains or losses relating to the discontinuation of Arizona operations were classified as discontinued operations and were eliminated from profit or loss from the Company’s continuing operations for all periods presented. Discontinued operations are presented separately from continuing operations in the Condensed Consolidated Statements of Operations and the Condensed Consolidated Statements of Cash Flows.
Assets Held of Sale
On July 1, 2020, the Company received $10,000,000 upon the signing of definite agreements for the sale of a cannabis retail license located in Evanston, Illinois. Of the totalfinal sales price of $20,000,000, the remaining amount is$67,000,000 which comprised of $63,000,000 in cash and $4,000,000 in liabilities to be received subsequentassumed by the Buyer. The Buyer made a cash payment of $40,000,000 at closing, $11,500,000 on September 15, 2023, and is required to September 26, 2020. Transfermake an additional installment payment of $11,500,000 on or before March 15, 2023. During the fiscal third quarter of 2022, net proceeds to
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||
| ($ in Millions) | December 24, 2022 | December 25, 2021 | $ Change | % Change | December 24, 2022 | December 25, 2021 | $ Change | % Change | ||||||||||||||||||||||||||||||||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||||||||||||||||||||||||||||||||||||
| Revenue | $ | 29.6 | $ | 35.5 | $ | (5.9) | (17 | %) | $ | 59.6 | $ | 72.3 | $ | (12.7) | (18 | %) | ||||||||||||||||||||||||||||||||||
| Cost of Goods Sold | 14.5 | 17.6 | (3.1) | (18 | %) | 29.6 | 37.0 | (7.4) | (20 | %) | ||||||||||||||||||||||||||||||||||||||||
| Gross Profit | 15.1 | 17.9 | (2.8) | (16 | %) | 30.0 | 35.3 | (5.3) | (15 | %) | ||||||||||||||||||||||||||||||||||||||||
| Operating Expenses: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| General and Administrative | 18.3 | 31.3 | (13.0) | (42 | %) | 36.5 | 63.9 | (27.4) | (43 | %) | ||||||||||||||||||||||||||||||||||||||||
| Sales and Marketing | 0.6 | 1.0 | (0.4) | (40 | %) | 1.0 | 1.6 | (0.6) | (38 | %) | ||||||||||||||||||||||||||||||||||||||||
| Depreciation and Amortization | 3.5 | 6.4 | (2.9) | (45 | %) | 7.4 | 12.2 | (4.8) | (39 | %) | ||||||||||||||||||||||||||||||||||||||||
| Realized and Unrealized Changes in Fair Value of Contingent Consideration | — | (0.3) | 0.3 | — | (0.9) | (0.3) | (0.6) | — | ||||||||||||||||||||||||||||||||||||||||||
| Impairment Expense | 5.1 | — | 5.1 | — | % | 6.7 | 0.4 | 6.3 | 1575 | % | ||||||||||||||||||||||||||||||||||||||||
| Other Operating (Income) Expense | (5.6) | 0.6 | (6.2) | (1033 | %) | (7.5) | 2.8 | (10.3) | (368 | %) | ||||||||||||||||||||||||||||||||||||||||
| Total Operating Expenses | 21.8 | 39.0 | (21.3) | (55 | %) | 43.2 | 80.7 | (21.3) | (26 | %) | ||||||||||||||||||||||||||||||||||||||||
| Loss from Operations | (6.7) | (21.1) | 14.4 | (68 | %) | (13.2) | (45.4) | 32.2 | (71 | %) | ||||||||||||||||||||||||||||||||||||||||
| Non-Operating (Income) Expenses: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest Expense | 9.7 | 8.1 | 1.6 | 20 | % | 19.7 | 16.2 | 3.5 | 22 | % | ||||||||||||||||||||||||||||||||||||||||
| Accretion of Debt Discount and Loan Origination Fees | 1.5 | 1.3 | 0.2 | 16 | % | 2.9 | 7.6 | (4.7) | (62 | %) | ||||||||||||||||||||||||||||||||||||||||
| Change in Fair Value of Derivatives | (3.9) | (14.1) | 10.2 | (72 | %) | (3.1) | (16.2) | 13.1 | (81 | %) | ||||||||||||||||||||||||||||||||||||||||
| Gain on Extinguishment of Debt | — | — | — | (10.2) | ||||||||||||||||||||||||||||||||||||||||||||||
| Total Non-Operating Expense | 7.3 | (4.8) | 12.1 | (252 | %) | 19.5 | (2.6) | 22.1 | (850 | %) | ||||||||||||||||||||||||||||||||||||||||
| Loss from Continuing Operations Before Provision for Income Taxes | (14.0) | (16.4) | 2.4 | (15 | %) | (32.7) | (42.8) | 10.1 | (24 | %) | ||||||||||||||||||||||||||||||||||||||||
| Provision for Income Tax Expense | (1.1) | 8.1 | (9.2) | (114 | %) | (6.8) | (11.6) | 4.8 | (41 | %) | ||||||||||||||||||||||||||||||||||||||||
| Net Loss from Continuing Operations | (15.1) | (8.2) | (6.9) | 84 | % | (39.4) | (54.4) | 15.0 | (28 | %) | ||||||||||||||||||||||||||||||||||||||||
| Net Income (Loss) from Discontinued Operations, Net of Taxes | (2.3) | (12.1) | 9.8 | (81 | %) | 26.1 | (26.6) | 52.7 | (198 | %) | ||||||||||||||||||||||||||||||||||||||||
| Net Income (Loss) | (17.3) | (20.4) | 3.1 | (15 | %) | (13.3) | (81.0) | 67.7 | (84 | %) | ||||||||||||||||||||||||||||||||||||||||
| Net Loss Attributable to Non-Controlling Interest | (1.1) | (1.3) | 0.2 | (15 | %) | (1.2) | (6.6) | 5.4 | (82 | %) | ||||||||||||||||||||||||||||||||||||||||
| Net Loss Attributable to Shareholders of MedMen Enterprises Inc. | $ | (16.2) | $ | (19.0) | $ | 2.8 | (15 | %) | $ | (12.0) | $ | (74.4) | $ | 62.4 | (84 | %) | ||||||||||||||||||||||||||||||||||
| EBITDA from Continuing Operations (Non-GAAP) | $ | 0.7 | $ | (0.1) | $ | 0.8 | (800 | %) | $ | (2.6) | $ | (5.8) | $ | 3.2 | (55 | %) | ||||||||||||||||||||||||||||||||||
| Adjusted EBITDA from Continuing Operations (Non-GAAP) | $ | — | $ | (12.0) | $ | 12.0 | (100 | %) | $ | 0.2 | $ | (14.2) | $ | 14.4 | (101 | %) | ||||||||||||||||||||||||||||||||||
Factors Affecting Performance
Company management believes that the nascent cannabis industry represents an extraordinary opportunity in which the Company’s performance and success depend on a number of factors:
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Trends
MedMen is subject to various trends that could have a material impact on the Company, its financial performance and condition, and its future outlook. A deviation from expectations for these trends could cause actual results to differ materially from those expressed or implied in forward-looking information included in this MD&A and the Company’s financial statements. These trends include, but are not limited to, the liberalization of cannabis laws, popular support for cannabis legalization, and balanced supply and demand in states. Refer to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Item 2 of the Company’s Form 10.
Components of Results of Operations
Revenue
For the three months ended September 26, 2020,December 24, 2021. Revenue for the Company derivessix months ended December 24, 2022 was $59.6 million, a decrease of $12.7 million, or 18%, compared to revenue of $72.3 million for the majoritysix months ended December 25, 2021.
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||
| ($ in Millions) | December 24, 2022 | December 25, 2021 | $ Change | % Change | December 24, 2022 | December 25, 2021 | $ Change | % Change | ||||||||||||||||||||||||||||||||||||||||||
| California | $ | 19.6 | $ | 23.4 | $ | (3.8) | (16) | % | $ | 39.5 | $ | 48.0 | $ | (8.5) | (18) | % | ||||||||||||||||||||||||||||||||||
| Nevada | 2.8 | 3.9 | (1.1) | (28) | % | 5.8 | 7.9 | (2.1) | (27) | % | ||||||||||||||||||||||||||||||||||||||||
| Illinois | 3.1 | 4.1 | (1.0) | (24) | % | 6.6 | 8.4 | (1.8) | (21) | % | ||||||||||||||||||||||||||||||||||||||||
| Arizona | 3.3 | 4.2 | (0.9) | (21) | % | 6.1 | 7.9 | (1.8) | (23) | % | ||||||||||||||||||||||||||||||||||||||||
| Massachusetts | 0.7 | — | 0.7 | — | % | 1.5 | — | 1.5 | — | % | ||||||||||||||||||||||||||||||||||||||||
| Revenue from Continuing Operations | $ | 29.5 | $ | 35.5 | $ | (6.0) | (17) | % | $ | 59.6 | $ | 72.3 | $ | (12.7) | (18) | % | ||||||||||||||||||||||||||||||||||
| Revenue from Discontinued Operations | $ | 2.3 | $ | 8.1 | $ | (5.8) | (72) | % | $ | 5.9 | $ | 15.4 | $ | (9.5) | (62) | % | ||||||||||||||||||||||||||||||||||
| Total Revenue | $ | 31.8 | $ | 43.6 | $ | (11.8) | (27) | % | $ | 65.5 | $ | 87.7 | $ | (22.2) | (25) | % | ||||||||||||||||||||||||||||||||||
this reporting period.
Gross profit is revenue less cost of goods sold.
Expenses
factors discussed below.
net $3.5 million gain on legal settlements, recognition of $3.0 million in sublease income, a $3.6 million increase in gain on lease terminations, partially offset by a $2.3 million decrease in restructuring and reorganization expenses and a $1.5 million increase in loss on disposals of assets.
Three Months Ended September 26, 2020 Compared to Three Months Ended September 28, 2019
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| Three Months Ended |
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| September 26, |
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| September 28, |
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($ in Millions) |
| 2020 |
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| 2019 |
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| $ Change |
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| % Change |
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Revenue |
| $ | 35.6 |
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| $ | 39.7 |
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| $ | (4.1 | ) |
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| (10 | )% |
Cost of Goods Sold |
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| 18.8 |
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| 20.3 |
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| (1.5 | ) |
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| (7 | )% |
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| - |
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Gross Profit |
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| 16.8 |
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| 19.4 |
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| (2.6 | ) |
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| (13 | )% |
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Expenses: |
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General and Administrative |
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| 31.7 |
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| 54.1 |
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| (22.4 | ) |
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| (41 | )% |
Sales and Marketing |
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| 0.2 |
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| 5.8 |
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| (5.6 | ) |
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| (97 | )% |
Depreciation and Amortization |
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| 8.6 |
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| 9.5 |
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| (0.9 | ) |
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| (9 | )% |
Realized and Unrealized Loss on Changes in Fair Value of Contingent Consideration |
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| 0.3 |
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| 2.3 |
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| (2.0 | ) |
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| (87 | )% |
Impairment Expense |
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| 0.8 |
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| - |
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| 0.8 |
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| 100 | % |
Gain On Disposals of Assets, Restructuring Fees and Other Expenses |
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| (16.7 | ) |
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| (0.7 | ) |
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| (16.0 | ) |
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| 2,286 | % |
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| - |
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Total Expenses |
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| 24.9 |
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| 71.0 |
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| (46.1 | ) |
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| (65 | )% |
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Loss from Operations |
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| (8.1 | ) |
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| (51.6 | ) |
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| 43.5 |
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| (84 | )% |
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| - |
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Other Expense (Income): |
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Interest Expense |
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| 11.1 |
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| 8.2 |
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| 2.9 |
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| 35 | % |
Interest Income |
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| - |
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| (0.4 | ) |
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| 0.4 |
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| (100 | )% |
Amortization of Debt Discount and Loan Origination Fees |
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| 3.2 |
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| 3.1 |
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| 0.1 |
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| 3 | % |
Change in Fair Value of Derivatives |
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| (0.3 | ) |
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| (5.1 | ) |
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| 4.8 |
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| (94 | )% |
Realized and Unrealized Gain on Investments, Assets Held for Sale and Other Assets |
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| (12.4 | ) |
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| (11.5 | ) |
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| (0.9 | ) |
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| 8 | % |
Loss on Extinguishment of Debt |
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| 10.1 |
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| 31.6 |
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| (21.5 | ) |
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| (68 | )% |
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| - |
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Total Other Expense |
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| 11.7 |
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| 25.9 |
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| (14.2 | ) |
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| (55 | )% |
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| - |
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Loss from Continuing Operations Before Provision for Income Taxes |
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| (19.8 | ) |
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| (77.5 | ) |
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| 57.7 |
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| (74 | )% |
Provision for Income Tax Expense |
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| (10.3 | ) |
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| (6.0 | ) |
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| (4.3 | ) |
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| 72 | % |
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| - |
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Net Loss from Continuing Operations |
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| (30.1 | ) |
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| (83.5 | ) |
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| 53.4 |
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| (64 | )% |
Net Loss from Discontinued Operations, Net of Taxes |
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| (2.7 | ) |
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| (3.9 | ) |
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| 1.2 |
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| (31 | )% |
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Net Loss |
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| (32.8 | ) |
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| (87.4 | ) |
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| 54.6 |
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| (62 | )% |
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Net Loss Attributable to Non-Controlling Interest |
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| (10.9 | ) |
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| (54.2 | ) |
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| 43.3 |
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| (80 | )% |
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| - |
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Net Loss Attributable to Shareholders of MedMen Enterprises Inc. |
| $ | (21.9 | ) |
| $ | (33.2 | ) |
| $ | 11.3 |
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| (34 | )% |
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Adjusted Net Loss from Continuing Operations (Non-GAAP) |
| $ | (35.0 | ) |
| $ | (53.8 | ) |
| $ | 18.8 |
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| (35 | )% |
EBITDA from Continuing Operations (Non-GAAP) |
| $ | 3.4 |
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| $ | (55.5 | ) |
| $ | 58.9 |
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| (106 | )% |
Adjusted EBITDA from Continuing Operations (Non-GAAP) |
| $ | (11.7 | ) |
| $ | (31.9 | ) |
| $ | 20.2 |
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| (63 | )% |
Revenue
Revenue for the three months ended September 26, 2020 was $35.6 million, a decrease of $4.1 million, or 10%, compared to revenue of $39.7 million for the three months ended September 28, 2019. The decrease in revenue was primarily due to the impact of COVID-19 in overall retail traffic and tourism as further discussed below. During the three months ended September 26, 2020, MedMen had 26 active retail locations in the states of California, New York, Nevada, Arizona, Illinois and Florida, of which three were located within the state of Arizona and were classified as discontinued operations, compared to 27 active retail locations for the comparative prior period. During the fiscal first quarter of 2021, five retail locations in the state of Florida remained temporarily closed in order to redirect inventory from its Eustis facility to its highest performing stores and thus excluded from the number of active retail locations as of September 26, 2020. In addition, on July 30, 2020, the Company opened their Coral Shores location near Fort Lauderdale for a total of four active retail locations in Florida. As of September 26, 2020, the Company had 24 active retail locations related to continuing operations.
Despite the consistent number of active retail locations, the decrease in revenue was primarily related to the impact of the COVID-19 pandemic. The Company experienced decreased sales in certain locations within California and Nevada due to reduced foot traffic as a result of shelter-at-home orders, declining tourism, and social distancing restrictions within a retail establishment. Retail revenue for the three months ended September 26, 2020 in California and Nevada decreased $8.9 million and $1.9 million, respectively, compared to the three months ended September 28, 2019. In Illinois, Florida and New York, revenues have not been significantly impacted by COVID-19 and in some cases, retail locations in those markets have increased sales during the three months ended September 26, 2020. During the three months ended September 26, 2020, the Company pivoted to enhance its retail experience through better product assortment, customer service and purchasing options with an emphasis on curbside pickup and delivery in response to the COVID-19 pandemic. During the fiscal first quarter of 2021, the Company had to significantly modify store operations based on Centers for Disease Control and Prevention guidelines and local ordinances which limit in-store traffic for certain locations and consequently increased focus on direct-to-consumer delivery, including curbside pickup. MedMen expects to continue offering a variety of purchasing options for its customers to navigate through the COVID-19 pandemic, which is expected to increase revenues in the coming periods.
Cost of Goods Sold and Gross Profit
Cost of goods sold for the three months ended September 26, 2020 was $18.8 million, a decrease of $1.5 million, or 7%, compared with $20.3 million of cost of goods sold for the three months ended September 28, 2019. Gross profit for the three months ended September 26, 2020 was $16.8 million, representing a gross margin of 47%, compared with gross profit of $19.4 million, representing a gross margin of 49%, for the three months ended September 28, 2019. The decrease in gross margin is primarily due to the decrease in revenue at a faster rate than the decrease in cost of goods sold as a result of the COVID-19 pandemic as described above, coupled with increased product, labor and overhead costs associated with the Company’s retail, cultivation and manufacturing expansion compared to the same period in the prior year. In particular, the Company ramped up its operations in the state of Florida during fiscal year 2020, resulting in cost of goods sold of $3.3 million for the three months September 26, 2020 compared to $0.7 million for the three months ended September 28, 2019.
For the three months ended September 26, 2020, the Company had 26 active retail locations in the states of California, New York, Nevada, Arizona, Illinois and Florida, of which three were located within the state of Arizona and were classified as discontinued operations, compared to 27 active retail locations for the comparative prior period. For the three months ended September 26, 2020, MedMen operated six cultivation and production facilities in the states of New York, Florida and Arizona, of which two were related to the operations within the state of Arizona that were classified as discontinued operations compared to six cultivation facilities for the three months ended September 28, 2019. As of the fiscal first quarter of 2021, the Company continues to evaluate strategic partnerships for its cultivation and production facilities in California and Nevada. During the fiscal fourth quarter of 2020, five retail locations in Florida were temporarily closed in order to shift supply levels from its Eustis facility to the Company’s highest-performing stores in Florida which remain closed as of September 26, 2020. MedMen expects costs of goods sold to increase at a slower rate than the increase in revenue in the coming periods as the Company restructures certain operations and divests licenses in non-core markets.
Total Expenses
Total expenses for the three months ended September 26, 2020 were $24.9 million, a decrease of $46.1 million, or 65%, compared to total expenses of $71.0 million for the three months ended September 28, 2019, which represents 70% of revenue for the three month ended September 26, 2020, compared to 179% of revenue for the three months ended September 28, 2019. The decrease in total expenses was attributable to the factors described below.
General and administrative expenses for the three months ended September 26, 2020 and September 28, 2019 were $31.7 million and $54.1 million, respectively, a decrease of $22.4 million, or 41%. General and administrative expenses have decreased primarily due to the Company’s efforts to reduce company-wide selling, general and administrative expenses (“SG&A”). Key drivers of the decrease in general and administrative expenses include overall corporate cost savings, strategic headcount reductions across various departments, and elimination of non-core functions and overhead in several departments, resulting in a decrease in payroll and payroll related expenses of $10.9 million, a decrease in share-based compensation expense of $5.4 million, and a decrease in professional fees of $1.7 million. Such decreases were offset by an increase in rent expense of $1.5 million due to new leases entered into as part of the Company’s expansion in Florida.
Sales and marketing expenses for the three months ended September 26, 2020 and September 28, 2019 were $0.2 million and $5.8 million, respectively, a decrease of $5.6 million, or 97%. The decrease in sales and marketing expenses is primarily attributed to the reduction in marketing and sales related spending compared to the same period in the prior year as part of the Company’s corporate cost reduction initiatives. During the three months ended September 26, 2020, the Company redefined its marketing initiatives geared towards the change in customer base to provide higher returns on advertising spend and reconfigured strategies to drive revenue growth through fiscal year 2021. For the fiscal first quarter of 2021, sales and marketing initiatives focused on the Company’s loyalty customers through the Buds Loyalty program which personalizes shopping recommendations and gives priority product access through local initiatives that relatively are low in cost and more based on human capital, compared to a traditional and digital paid media marketing campaign of $4.0 million during the three months ended September 28, 2019.
Depreciation and amortization for the three months ended September 26, 2020 and September 28, 2019 was $8.6 million and $9.5 million, respectively, a decrease of $0.9 million, or 9%. During the fiscal fourth quarter of 2020, the Company recognized impairment expense of $143.0 million on property and equipment and $39.0 million on intangible assets, resulting in an overall decrease in the asset balance and related depreciation and amortization expense in the current period compared to the three months ended September 28, 2019.
Realized and unrealized changes in fair value of contingent consideration for the three months ended September 26, 2020 and September 28, 2019 was $0.3 million and $2.3 million, respectively, a decrease of $2.0 million, or 87%. The contingent consideration is related to an acquisition of a California dispensary license during the fiscal first quarter of 2020 wherein the liability is remeasured at each reporting period.
Impairment expense for the three months ended September 26, 2020 and September 28, 2019 was $0.8 million and nil, respectively, an increase of $0.8 million, or 100%. The increase relates to the impairment of a California dispensary license transferred to assets held for sale during the three months ended September 26, 2020 in which the asset is measured at the lower of its carrying amount or FVLCTS upon classification.
Gain on disposals of assets, restructuring fees and other expenses for the three months ended September 26, 2020 and September 28, 2019 was $16.7 million and $0.7 million, respectively, an increase of $16.0 million, or 2,286%. The increase was primarily attributable to the $16.3 million gain related to the lease deferral with the REIT during the three months ended September 26, 2020 as the decrease in present value of lease payments was greater than the remaining net asset balance of finance lease assets.
Total Other Expense
Total other income for the three months ended September 26, 2020 was $11.7 million, a decrease of $14.2 million compared to total other expense of $25.9 million, or 55%, for the three months ended September 28, 2019. The decrease in total other expense was primarily attributable to a loss on extinguishment of debt of $32.2 million related to the First Amendment of the GGP Facility during the three months ended September 28, 2019 compared to a loss on extinguishment of debt of $10.1 million during the current period related to the July 2, 2020 amendment of the GGP Facility, resulting in a $21.5 million decrease in loss on extinguishment of debt. This was offset by a $4.8 million decrease in the unrealized gain on changes in fair value of derivatives which are based on the closing price of the Company’s warrants related to bought deals traded on the Canadian Securities Exchange under the ticker symbol “MMEN.WT” which have stabilized during the fiscal first quarter of 2021 compared to fiscal first quarter of 2020. In addition, interest expense of $11.1 million for the three months ended September 26, 2020 increased by $2.9 million compared to $8.2 million for the three months ended September 28, 2019 as a result of the Company’s higher debt balance in which during the fiscal first quarter of 2020, proceeds from issuances of the GGP Facility were $4.8 million and proceeds from issuances of notes payable, including the 2018 Term Loan and the Unsecured Convertible Facility, totaled $4.1 million.
Provision for Income Taxes
expenditures.
infrastructure.
In addition to providing financial measurements based on GAAP, the Company provides additional financial metrics that are not prepared in accordance with GAAP. Management uses non-GAAP financial measures, in addition to GAAP financial measures, to understand
Non-GAAP financial measuresAdjusted EBITDA from Continuing Operations are financial measures that are not defined under GAAP. Management believes that these non-GAAPWe define EBITDA as net income (loss), or “earnings”, before interest, income taxes, depreciation and amortization. We define Adjusted EBITDA as EBITDA before: (i) transaction costs and restructuring costs; (ii) non-cash share-based compensation expense; (iii) fair value changes in derivative liabilities and contingent consideration; (iv) (gains) losses on disposal of assets, assets held for sale, extinguishment of debt and lease terminations; and (v) other one-time charges for non-cash operating costs. These financial measures assessare metrics that have been adjusted from the Company’s ongoing businessGAAP net income (loss) measure in an effort to provide readers with a manner that allows fornormalized metric in making comparisons more meaningful comparisons and analysis of trends inacross the business, as they facilitate comparing financial results across accounting periods and to those of peer companies. The Company uses these non-GAAP financial measures and believes they enhance an investors’ understanding of the Company’s financial and operating performance from period to period. Management also believes that these non-GAAP financial measures enable investors to evaluate the Company’s operating results and future prospects in the same manner as management.
In particular, the Company continues to make investments in its cannabis properties and management resources to better position the organization to achieve its strategic growth objectives which have resulted in outflows of economic resources. Accordingly, the Company uses these metrics to measure its core financial and operating performance for business planning purposes. In addition, the Company believes investors use both GAAP and non-GAAP measures to assess management’s past and future decisions associated with its priorities and allocation of capital,industry, as well as to analyze howremove non-recurring, irregular and one-time items that may otherwise distort the business operates in, or responds to, swings in economic cycles or to other events that impact the cannabis industry. However, these measures do not have any standardized meaning prescribed by GAAP and may not be comparable to similar measures presented by othernet income measure. Other companies in the Company’s industry. Accordingly, these non-GAAP financial measures are intended to provide additional information and should not be considered in isolation orour industry may calculate this measure differently, limiting their usefulness as a substitute for measurescomparative measures.
These non-GAAP financial measures exclude certain material non-cash items and certain other adjustments the Company believes are not reflective of its ongoing operations and performance. These financial measures are not intended to represent and should not be considered as alternatives to net income, operating income or any other performance measures derived in accordance with GAAP as measures of operating performance or operating cash flows or as measures of liquidity. These non-GAAP financial measures have important limitations as analytical tools and should not be considered in isolation or as a substitute for any standardized measure under GAAP. For example, certain of these non-GAAP financial measures:
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Retail Performance
Within the cannabis industry, MedMen is uniquely focused on the retail component of the value chain. For the fiscal first quarter of 2021, the Company is providing detail with respect to earnings before interest, taxes, depreciation and amortization (“EBITDA”) attributable to the Company’s national retail operations to show how it is leveraging its retail footprint and strategically investing in the future. The table below highlights the Company’s national Retail Adjusted EBITDA Margin (Non-GAAP), which excludes corporate marketing expenses, distribution expenses, inventory adjustments, and local cannabis and excise taxes. Entity-wide Adjusted EBITDA (Non-GAAP) is presented in Item 2 “
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| Fiscal Quarter Ended |
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| September 26, |
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| June 27, |
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| 2020 |
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| 2020 |
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| $ Change |
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| % Change |
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Gross Profit |
| $ | 16.8 |
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| $ | 11.0 |
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| $ | 5.8 |
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| 53 | % |
Gross Margin Rate |
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| 47 | % |
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| 40 | % |
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| 7 | % |
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| 18 | % |
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Consolidated Revenue |
| $ | 35.6 |
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| $ | 27.4 |
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| $ | 8.2 |
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|
| 30 | % |
Cultivation & Wholesale |
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| (0.3 | ) |
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| - |
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| (0.3 | ) |
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| 100 | % |
Non-Retail Revenue |
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| (0.3 | ) |
|
| - |
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| (0.3 | ) |
|
| 100 | % |
Retail Revenue |
| $ | 35.3 |
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| $ | 27.4 |
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| $ | 7.9 |
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| 29 | % |
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Consolidated Cost of Goods Sold |
| $ | 18.8 |
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| $ | 16.4 |
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| $ | 2.4 |
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|
| 15 | % |
Cultivation & Wholesale |
|
| (2.5 | ) |
|
| (3.1 | ) |
|
| 0.6 |
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|
| (19 | )% |
Non-Retail Cost of Goods Sold |
|
| (2.5 | ) |
|
| (3.1 | ) |
|
| 0.6 |
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|
| (19 | )% |
Retail Cost of Goods Sold |
| $ | 16.3 |
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| $ | 13.3 |
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| $ | 3.0 |
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| 23 | % |
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Non-Retail Gross Margin |
|
| (2.2 | ) |
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| (3.1 | ) |
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| 0.9 |
|
| (29%) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail Gross Margin (Non-GAAP) |
| $ | 19.0 |
|
| $ | 14.1 |
|
| $ | 4.9 |
|
|
| 35 | % |
Retail Gross Margin Rate (Non-GAAP) |
|
| 54 | % |
|
| 51 | % |
|
| 3 | % |
|
| 7 | % |
|
| Fiscal Quarter Ended |
|
|
|
|
|
|
| |||||||
|
| September 26, |
|
| June 27, |
|
|
|
|
|
|
| ||||
|
| 2020 |
|
| 2020 |
|
| $ Change |
|
| % Change |
| ||||
Loss from Operations |
| $ | (8.1 | ) |
| $ | (284.8 | ) |
| $ | 276.7 |
|
|
| (97 | )% |
Realized and Unrealized Loss on Changes in Fair Value of Contingent Consideration |
|
| 0.3 |
|
|
| 0.5 |
|
|
| (0.2 | ) |
|
| (40 | )% |
Impairment Expense |
|
| 0.8 |
|
|
| 239.5 |
|
|
| (238.7 | ) |
|
| (100 | )% |
Gain On Disposals of Assets, Restructuring Fees and Other Expenses |
|
| (16.7 | ) |
|
| (0.2 | ) |
|
| (16.5 | ) |
|
| 8,250 | % |
Loss from Operations Before Excluded Items |
| $ | (23.7 | ) |
| $ | (45.0 | ) |
| $ | 21.3 |
|
|
| (47 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Retail Gross Margin |
|
| (2.2 | ) |
|
| (3.1 | ) |
|
| 0.9 |
|
|
| (29 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Operating Expenses (without Excluded Items) |
| $ | 40.5 |
|
| $ | 56.0 |
|
| $ | (15.5 | ) |
|
| (28 | )% |
Cultivation & Wholesale |
|
| (0.4 | ) |
|
| (1.6 | ) |
|
| 1.2 |
|
|
| (75 | )% |
Corporate SG&A |
|
| (10.3 | ) |
|
| (14.6 | ) |
|
| 4.3 |
|
|
| (29 | )% |
Pre-Opening Expenses |
|
| (5.9 | ) |
|
| (5.3 | ) |
|
| (0.6 | ) |
|
| 11 | % |
Depreciation & Amortization |
|
| (8.6 | ) |
|
| (15.9 | ) |
|
| 7.3 |
|
|
| (46 | )% |
Other |
|
| (2.5 | ) |
|
| (6.2 | ) |
|
| 3.7 |
|
|
| (60 | )% |
Non-Retail Operating Expenses |
|
| (27.7 | ) |
|
| (43.6 | ) |
|
| 15.9 |
|
|
| (36 | )% |
Direct Store Operating Expenses |
| $ | 12.8 |
|
| $ | 12.4 |
|
| $ | 0.4 |
|
|
| 3 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Retail EBITDA Margin |
|
| (29.9 | ) |
|
| (46.7 | ) |
|
| 16.8 |
|
|
| (36 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail EBITDA Margin (Non-GAAP) |
| $ | 6.2 |
|
| $ | 1.7 |
|
| $ | 4.5 |
|
|
| 265 | % |
Retail EBITDA Margin Rate (Non-GAAP) |
|
| 18 | % |
|
| 6 | % |
| (4%) |
|
|
| (64 | )% | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Local Taxes |
|
| 0.4 |
|
|
| 1.1 |
|
|
| (0.7 | ) |
|
| (64 | )% |
Distribution Expenses |
|
| 0.8 |
|
|
| 0.8 |
|
|
| - |
|
|
| - |
|
Inventory Adjustments |
|
| (1.8 | ) |
|
| (0.6 | ) |
|
| (1.2 | ) |
|
| 200 | % |
Total Adjustments |
|
| (0.6 | ) |
|
| 1.3 |
|
|
| (1.9 | ) |
|
| (146 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail Adjusted EBITDA Margin (Non-GAAP) |
| $ | 6.8 |
|
| $ | 0.4 |
|
| $ | 6.4 |
|
|
| 1,600 | % |
Retail Adjusted EBITDA Margin Rate (Non-GAAP) |
|
| 19 | % |
|
| 1 | % |
| (7%) |
|
|
| (480 | )% | |
The non-GAAP retail performance measures demonstrate the Company’s four-wall margins which reflect the sales of the Company’s retail operations relative to the direct costs required to operate such dispensaries. Retail revenue is related to net sales from the Company’s stores, excluding non-retail revenue, such as cultivation and manufacturing revenue. Similarly, retail cost of goods sold and direct store operating expenses are directly related to the Company’s retail operations. Non-Retail Revenue includes revenue from third-party wholesale sales. Non-Retail Cost of Goods Sold includes costs directly related to third-party wholesale sales produced by the Company’s cultivation and production facilities, such as packaging, materials, payroll, rent, utilities, security, etc. While third-party sales were not significant for the fiscal quarter ended September 26, 2020, Non-Retail Cost of Goods Sold related to cultivation and wholesale operations was $2.5 million due to unallocated overages from increased production burn rate. Non-Retail Operating Expenses include ongoing costs related to the Company’s cultivation and wholesale operations, corporate spending, and pre-opening expenses. Non-Retail EBITDA Margin reflects the gross margins of the Company’s cultivation and wholesale operations excluding any related operating expenses. To determine the Company’s four-wall margins, certain costs that do not directly support the Company’s retail function are excluded from Retail EBITDA Margin, such as rent, payroll, security, insurance, office supplies and payment processing fees. Local taxes include cannabis sales and excise taxes imposed by municipalities in which the Company has active retail operations and vary by jurisdiction. Local taxes are not a cost required to directly operate the Company’s dispensaries, but rather a byproduct of retail operations. Distribution expenses relate to additional porter fees. Inventory adjustments consist of one-time write-offs related to unusual or infrequent events.
For the fiscal first quarter of 2021, system-wide retail revenue was $35.3 million across the Company’s operations in California, Nevada, New York, Illinois and Florida. This represents a 29% increase, or $7.9 million, over the fiscal fourth quarter of 2020 of $27.4 million. The increase in system-wide revenue was driven primarily by increased sales as consumer spending gradually returns to pre-COVID levels. In particular, certain retail locations in California and Nevada experienced an increase in sales during the fiscal first quarter of 2021 due to stores reopening from COVID and riot related closures during the fiscal fourth quarter of 2020. The execution of mobilizing curbside pickup and delivery during the fiscal quarter ended September 26, 2020 allowed increased revenues and will continue to be a significant part of the Company’s future as consumer purchasing habits continue to evolve. Retail Cost of Goods Sold (Non-GAAP) for the fiscal first quarter of 2021 was $16.3 million, representing a 23% increase, or $3.0 million, over the fiscal fourth quarter of 2020 of $13.3 million primarily due to the increase in revenues resulting from improved market conditions. During the fiscal first quarter of 2021, the Company opened its Coral Shores location near Fort Lauderdale, Florida and had not reopened the five temporarily closed locations, noting a total of four active retail locations in the state of Florida as of September 26, 2020.
Retail Gross Margin Rate (Non-GAAP), which is Retail Gross Margin (Non-GAAP) divided by Retail Revenue (Non-GAAP), for the fiscal first quarter of 2021 was 54%, compared to the fiscal fourth quarter of 2020 of 51% as a result of the factors described above. Retail Gross Margin (Non-GAAP) is Retail Revenue (Non-GAAP) less the related Retail Cost of Goods Sold (Non-GAAP).
The Company had an aggregate Retail Adjusted EBITDA Margin Rate (Non-GAAP), which is Retail Adjusted EBITDA Margin (Non-GAAP) divided by Retail Revenue (Non-GAAP), of 19% for the fiscal first quarter of 2021 which represents an increase compared to the 1% realized in the fiscal fourth quarter of 2020 primarily due to direct store operating expenses which include, but are not limited to, rent, utilities, payroll and payroll related expenses, employee benefits, and security. Direct store operating expenses increased $0.4 million, or 3%, compared to the fiscal fourth quarter of 2020, which is significantly less than the increase in retail revenue, primarily driven by a decrease in payroll expense as the Company implemented dynamic staffing model to reduce payroll spend while maintaining customer experience. The increase in direct store operating expenses of 3% was not commensurate with the increase in revenues of 29% during the fiscal first quarter of 2021, resulting in an overall increase in Retail EBITDA Margins (Non-GAAP) compared to the fiscal fourth quarter of 2020. Excluding local taxes, distribution expenses and inventory adjustments, Retail EBITDA Margin Rate (Non-GAAP) , which is Retail EBITDA Margin (Non-GAAP) divided by Retail Revenue (Non-GAAP),would have been 18% in the fiscal first quarter of 2021 versus 6% in the fiscal fourth quarter of 2020.
Reconciliations of Non-GAAP Financial Measures
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||||||||
| ($ in Millions) | December 24, 2022 | December 25, 2021 | December 24, 2022 | December 25, 2021 | ||||||||||||||||||||||||||||||||||
| Net Loss | $ | (17.3) | $ | (20.4) | $ | (13.3) | $ | (81.0) | ||||||||||||||||||||||||||||||
| Less: Net (Income) Loss from Discontinued Operations, Net | 2.3 | 12.1 | (26.1) | 26.6 | ||||||||||||||||||||||||||||||||||
| Add (Deduct) Impact of: | ||||||||||||||||||||||||||||||||||||||
Net Interest and Other Financing Costs (1) | 11.2 | 9.4 | 22.6 | 23.9 | ||||||||||||||||||||||||||||||||||
| Provision for Income taxes | 1.1 | (8.1) | 6.8 | 11.6 | ||||||||||||||||||||||||||||||||||
| Amortization and Depreciation | 3.5 | 6.9 | 7.5 | 13.1 | ||||||||||||||||||||||||||||||||||
| EBITDA from Continuing Operations | $ | 0.8 | $ | (0.1) | $ | (2.5) | $ | (5.8) | ||||||||||||||||||||||||||||||
| Other Operating (Income) Expense: | ||||||||||||||||||||||||||||||||||||||
| Share-based Compensation | $ | 2.1 | $ | 0.7 | 3.0 | 2.4 | ||||||||||||||||||||||||||||||||
| Change in Fair Value of Derivative Liabilities | (3.9) | (14.1) | (3.1) | (16.2) | ||||||||||||||||||||||||||||||||||
| Change in Fair Value of Contingent Consideration | — | (0.3) | (0.9) | (0.3) | ||||||||||||||||||||||||||||||||||
| Impairment Expense | 5.1 | — | 6.7 | 0.4 | ||||||||||||||||||||||||||||||||||
| (Gain) Loss on Disposals of Assets | 1.2 | (0.1) | 1.4 | (0.1) | ||||||||||||||||||||||||||||||||||
| Restructuring and Reorganization Expense | — | 1.6 | 0.9 | 5.6 | ||||||||||||||||||||||||||||||||||
| Gain on Lease Terminations | (1.9) | 0.2 | (3.5) | 0.2 | ||||||||||||||||||||||||||||||||||
| (Gain) Loss on Disposal of Assets Held for Sale | (0.1) | — | 0.5 | — | ||||||||||||||||||||||||||||||||||
| Legal Settlements | (3.5) | — | (3.5) | — | ||||||||||||||||||||||||||||||||||
| Non-Cash Rent Expense | 0.9 | — | 1.6 | — | ||||||||||||||||||||||||||||||||||
| Other Non-Cash Operating Costs | (0.6) | 0.2 | (0.4) | (0.3) | ||||||||||||||||||||||||||||||||||
| Total Adjustments | (0.7) | (11.8) | 2.7 | (8.3) | ||||||||||||||||||||||||||||||||||
| Adjusted EBITDA from Continuing Operations | $ | 0.1 | $ | (11.9) | $ | 0.2 | $ | (14.1) | ||||||||||||||||||||||||||||||
|
| Three Months Ended |
| |||||
|
| September 26, |
|
| September 28, |
| ||
($ in Millions) |
| 2020 |
|
| 2019 |
| ||
|
|
|
|
|
|
| ||
Net Loss from Continuing Operations |
| $ | (30.2 | ) |
| $ | (83.4 | ) |
|
|
|
|
|
|
|
|
|
Add (Deduct) Impact of: |
|
|
|
|
|
|
|
|
Transaction Costs & Restructuring Costs |
|
| 2.7 |
|
|
| 1.0 |
|
Share-Based Compensation |
|
| 1.0 |
|
|
| 6.4 |
|
Provision for Income Taxes |
|
| 10.3 |
|
|
| 6.0 |
|
Other Non-Cash Operating Costs (1) |
|
| (18.8 | ) |
|
| 16.2 |
|
|
|
|
|
|
|
|
|
|
Total Adjustments |
|
| (4.8 | ) |
|
| 29.6 |
|
|
|
|
|
|
|
|
|
|
Adjusted Net Loss from Continuing Operations (Non-GAAP) |
| $ | (35.0 | ) |
| $ | (53.8 | ) |
|
|
|
|
|
|
|
|
|
Net Loss from Continuing Operations |
| $ | (30.2 | ) |
| $ | (83.4 | ) |
|
|
|
|
|
|
|
|
|
Add (Deduct) Impact of: |
|
|
|
|
|
|
|
|
Net Interest and Other Financing Costs |
|
| 11.1 |
|
|
| 7.8 |
|
Provision for Income Taxes |
|
| 10.3 |
|
|
| 6.0 |
|
Amortization and Depreciation |
|
| 12.2 |
|
|
| 14.1 |
|
|
|
|
|
|
|
|
|
|
Total Adjustments |
|
| 33.6 |
|
|
| 27.9 |
|
|
|
|
|
|
|
|
|
|
EBITDA from Continuing Operations (Non-GAAP) |
| $ | 3.4 |
|
| $ | (55.5 | ) |
|
|
|
|
|
|
|
|
|
EBITDA from Continuing Operations (Non-GAAP) |
| $ | 3.4 |
|
| $ | (55.5 | ) |
|
|
|
|
|
|
|
|
|
Add (Deduct) Impact of: |
|
|
|
|
|
|
|
|
Transaction Costs & Restructuring Costs |
|
| 2.7 |
|
|
| 1.0 |
|
Share-Based Compensation |
|
| 1.0 |
|
|
| 6.4 |
|
Other Non-Cash Operating Costs (1) |
|
| (18.8 | ) |
|
| 16.2 |
|
|
|
|
|
|
|
|
|
|
Total Adjustments |
|
| (15.1 | ) |
|
| 23.6 |
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA from Continuing Operations (Non-GAAP) |
| $ | (11.7 | ) |
| $ | (31.9 | ) |
|
Other non-cash operating
|
| Three Months Ended |
| |||||
|
| September 26, |
|
| September 28, |
| ||
|
| 2020 |
|
| 2019 |
| ||
|
|
|
|
|
|
| ||
Change in Fair Value of Derivative Liabilities |
| $ | (0.3 | ) |
| $ | (5.1 | ) |
Change in Fair Value of Investments |
|
| (12.4 | ) |
|
| (11.5 | ) |
Change in Fair Value of Contingent Consideration |
|
| 0.3 |
|
|
| 2.3 |
|
Gain/Loss on Lease Modifications |
|
| (16.6 | ) |
|
| (0.2 | ) |
Gain/Loss on Extinguishment of Debt |
|
| 10.1 |
|
|
| 32.2 |
|
Gain/Loss from Disposal of Assets |
|
| (0.1 | ) |
|
| (0.9 | ) |
Impairment Expense |
|
| 0.8 |
|
|
| - |
|
Other Non-Cash Operating Costs |
|
| (0.5 | ) |
|
| (0.7 | ) |
|
|
|
|
|
|
|
|
|
Total Other Non-Cash Operating Costs |
| $ | (18.8 | ) |
| $ | 16.2 |
|
During the three months ended September 26, 2020,December 24, 2022 and $2.9 million for the decreasesix months ended December 24, 2022. The prior year amount of $53.2$1.3 million or 64% in Net Loss from Continuing Operations was primarily due to reductions in SG&A due to implementation of the Company’s cost reduction initiatives in addition to an extinguishment of debt recognized of $32.2 million duringfor the three months ended September 28, 2019 compared to $10.1December 25, 2021 and $7.6 million infor the six months ended December 25, 2021 have been reclassified for consistency with the current period or a decrease of $22.1 million. In addition, during the three months ended September 26, 2020, the Company recognized a $16.6 million gain on lease modifications primarily due to the deferral of lease payments with the REIT. This is adjusted for transaction costs, restructuring costs, share-based compensation, other non-cash operating costs, interest and financing costs as a direct resultyear presentation. Accretion of debt financings, income taxes relateddiscount was previously excluded from the reconciliation of Net Loss to the number of retail locationsEBITDA from Continuing Operations and cultivation and production facilities operated, and amortization and depreciation expense related to the Company’s retail stores, cultivation and production facilities. Adjusted Net LossEBITDA from Continuing Operations.
For the three months ended September 26, 2020, the Company saw an improvement in Nevada, which includes lower rents.
Refer toItem 2 “Retail Performance” above for reconciliations of Retail Adjusted EBITDA.
Corporate SG&A
Corporate-level general and administrative expenses across various functions including Marketing, Legal, Retail Corporate, Technology, Accounting and Finance, Human Resources and Security (collectively referred to as “Corporate SG&A”) are combined to account for a significant proportion ofoutlook.
|
| Fiscal Quarter Ended |
|
|
|
|
|
|
| |||||||
|
| September 26, |
|
| June 27, |
|
|
|
|
|
|
| ||||
($ in Millions) |
| 2020 |
|
| 2020 |
|
| $ Change |
|
| % Change |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
General and Administrative |
| $ | 31.7 |
|
| $ | 39.9 |
|
| $ | (8.2 | ) |
|
| (21 | )% |
Sales and Marketing |
|
| 0.2 |
|
|
| 0.2 |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated SG&A |
|
| 31.9 |
|
|
| 40.1 |
|
|
| (8.2 | ) |
|
| (20 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct Store Operating Expenses |
|
| 12.8 |
|
|
| 12.4 |
|
|
| 0.4 |
|
|
| 3 | % |
Cultivation & Wholesale |
|
| 0.4 |
|
|
| 1.6 |
|
|
| (1.2 | ) |
| (75 | )% | |
Pre-Opening Expenses |
|
| 5.9 |
|
|
| 5.3 |
|
|
| 0.6 |
|
|
| 11 | % |
Other |
|
| 2.5 |
|
|
| 6.2 |
|
|
| (3.7 | ) |
| (60 | )% | |
Less: Non-Corporate SG&A |
|
| 21.6 |
|
|
| 25.5 |
|
|
| (3.9 | ) |
| (15 | )% | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate SG&A as a Component of Adjusted EBITDA from Continuing Operations (Non-GAAP) |
| $ | 10.3 |
|
| $ | 14.6 |
|
| $ | (4.3 | ) |
| (29 | )% | |
For the fiscal first quarter of 2021, Corporate SG&A (Non-GAAP) contributed $10.3 million to Adjusted EBITDA from Continuing Operations (Non-GAAP), representing a decrease of $4.3 million, or 29%, from the $14.6 million that Corporate SG&A (Non-GAAP) contributed to Adjusted EBITDA Loss from Continuing Operations (Non-GAAP) in the fiscal fourth quarter of 2020. The largest driver of the improvement was a reduction in headcount and marketing and technology related expenses as a result of the successful implementation of the Company’s cost-cutting plans announced on November 15, 2019. As part of its efforts to optimize Corporate SG&A (Non-GAAP), marketing spend is now focused on consumer engagement through digital content and mobile marketing targeting the Company’s changing customer base across multiple markets. Technology spend is now focused on driving revenue-generating activities, such as scaling MedMen’s curbside pickup and delivery platform, which has resulted in increased revenues during the fiscal first quarter of 2021. The Company expects additional improvements in reduction of Corporate SG&A (Non-GAAP) in the upcoming quarters.
Cash Flows
|
| Three Months Ended |
|
|
|
|
|
|
| |||||||
|
| September 26, |
|
| September 28, |
|
|
|
|
|
|
| ||||
($ in Millions) |
| 2020 |
|
| 2019 |
|
| $ Change |
|
| % Change |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net Cash Used in Operating Activities |
| $ | (18.2 | ) |
| $ | (42.1 | ) |
| $ | 23.9 |
|
|
| (57 | )% |
Net Cash Provided by (Used in) Investing Activities |
|
| 9.7 |
|
|
| (13.1 | ) |
|
| 22.8 |
|
|
| (174 | )% |
Net Cash Provided by Financing Activities |
|
| 8.6 |
|
|
| 63.7 |
|
|
| (55.1 | ) |
| (86 | )% | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase in Cash and Cash Equivalents |
|
| 0.2 |
|
|
| 8.5 |
|
|
| (8.3 | ) |
| (98 | )% | |
Cash and Cash Equivalents, Beginning of Period |
|
| 10.1 |
|
|
| 33.8 |
|
|
| (23.7 | ) |
| (70 | )% | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, End of Period |
| $ | 10.3 |
|
| $ | 42.2 |
|
| $ | (31.9 | ) |
| (76 | )% | |
December 25, 2021:
| Six Months Ended | ||||||||||||||||||||||||||
| ($ in Millions) | December 24, 2022 | December 25, 2021 | $ Change | % Change | ||||||||||||||||||||||
| Net Cash Used in Operating Activities | $ | (8.3) | $ | (49.9) | $ | 41.6 | (83 | %) | ||||||||||||||||||
| Net Cash Provided by (Used in) Investing Activities | 45.5 | (7.6) | 53.1 | (701 | %) | |||||||||||||||||||||
| Net Cash (Used in) Provided by Financing Activities | (32.4) | 93.2 | (125.5) | (135 | %) | |||||||||||||||||||||
| Net Increase in Cash and Cash Equivalents | 4.8 | 35.7 | (30.9) | (87 | %) | |||||||||||||||||||||
| Cash Included in Assets Held for Sale | — | (0.3) | 0.3 | (100 | %) | |||||||||||||||||||||
| Cash and Cash Equivalents, Beginning of Period | 10.8 | 11.6 | (0.8) | (7 | %) | |||||||||||||||||||||
| Cash and Cash Equivalents, End of Period | $ | 15.6 | $ | 47.0 | $ | (31.4) | (67 | %) | ||||||||||||||||||
Operations
” above.Florida during the current period.
Financial Condition
The following table summarizes certain aspects of the Company’s financial condition as of September 26, 2020 and June 27, 2020:
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| September 26, |
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| June 27, |
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($ in Millions) |
| 2020 |
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| 2020 |
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| $ Change |
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| % Change |
| ||||
|
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|
|
|
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|
|
|
|
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| ||||
Cash and Cash Equivalents |
| $ | 10.3 |
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| $ | 10.1 |
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| $ | 0.2 |
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|
| 2 | % |
Total Current Assets |
| $ | 88.0 |
|
| $ | 84.0 |
|
| $ | 4.0 |
|
|
| 5 | % |
Total Assets |
| $ | 534.2 |
|
| $ | 574.3 |
|
| $ | (40.1 | ) |
|
| (7 | )% |
Total Current Liabilities |
| $ | 198.1 |
|
| $ | 189.2 |
|
| $ | 8.9 |
|
|
| 5 | % |
Notes Payable, Net of Current Portion |
| $ | 332.3 |
|
| $ | 319.2 |
|
| $ | 13.1 |
|
|
| 4 | % |
Total Liabilities |
| $ | 726.5 |
|
| $ | 751.2 |
|
| $ | (24.7 | ) |
|
| (3 | )% |
Total Shareholders' Equity |
| $ | (192.3 | ) |
| $ | (176.9 | ) |
| $ | (15.4 | ) |
|
| 9 | % |
Working Capital Deficit |
| $ | (110.1 | ) |
| $ | (105.2 | ) |
| $ | (4.9 | ) |
|
| 5 | % |
As of September 26, 2020, the Company had $10.3 millioncompleted a private placement with Serruya Private Equity Inc. (“SPE”) resulting in an equity investment of cash and cash equivalents and $110.1 million of working capital deficit, compared to $10.1 million of cash and cash equivalents and $105.2 million of working capital deficit as of June 27, 2020. In addition to the factors described in the ���Cash Flows” section above, the increase in cash and cash equivalents was also associated with execution of the Company’s financial restructuring and turnaround plan to defer approximately $32.0 million in cash commitments over the next twelve months in which on July 2, 2020, the Company amended the GGP Facility and 2018 Term Loan wherein all interest payable through June 2021 will be paid-in-kind. Further, on July 2, 2020, the Company also amended its lease terms with the REIT wherein a portion of the total current monthly base rent will be deferred for the 36-month period between July 1, 2020 and July 1, 2023. The foregoing cash savings were partially offset by cash payments on operating lease liabilities, principal repayments of notes payable, and principal payments on finance lease liabilities during the three months ended September 26, 2020.
The $4.9 million increase in working capital deficit was primarily related to an increase of $6.7 million in other current assets related to the outstanding portion of the sales price for the sale of the retail location in Evanston, Illinois and a decrease in excise tax receivable, which was offset by a decrease of $3.2 million in assets held for sale related to the Company’s divestiture of non-core assets during the three months ended September 26, 2020. The net increase in current assets was coupled with an increase of $19.1 million in income taxes payable, a decrease of $7.7 million in other current liabilities primarily due to decreases in accrued interest which was capitalized to non-current notes payable as paid-in-kind during the fiscal first quarter of 2021, and a decrease of $3.3 million in accounts payable and accrued liabilities.
The Company’s working capital will be significantly impacted by continued growth in retail operations, operationalizing existing licenses, and the success of the Company’s cost-cutting measures. The ability to fund working capital needs will also be dependent on the Company’s ability to raise additional debt and equity financing.
$100.0 million.
As of September 26, 2020, the Company had $10.3 million of cash and cash equivalents and $110.1 million of working capital deficit, compared to $10.1 million of cash and cash equivalents and $105.2 million of working capital deficit as of June 27, 2020. For the three months ended September 26, 2020, the Company’s monthly burn rate, which was calculated as cash spent per month in operating activities, was approximately $6.1 million compared to a monthly burn rate of approximately $14.0 million for the three months ended September 28, 2019. During fiscal year 2020, in November 2019, the Company shifted its focus from an aggressive expansion strategy to a revised growth strategy focused on achieving profitability. During the three months ended September 26, 2020, management continued their efforts of executing the Company’s strategic plan to limit significant cash outlays and reduce the overall cash burn. As of September 26, 2020, cash generated from ongoing operations may not be sufficient to fund operations and, in particular, to fund the Company’s growth strategy in the short-term or long-term.
Subsequent to September 26, 2020, management continued to execute on its financial restructuring and turnaround plan to support the expansion of the Company’s retail footprint. The strategic plan includes, but is not limited to, capital raised subsequent to year-end, diverting interest and rent payments due in the near term, modifying covenants for additional flexibility and restructuring plans that have already been put in place to reduce corporate-level expenses, reduction in capital expenditures through a slow-down in new store buildouts, plans to divest non-core assets to raise non-dilutive capital, enhancements to its digital offering, including direct-to-consumer delivery and curbside pick-up in light of COVID-19 and a change in retail strategy to pass certain local taxes and payment processing fees to customers. The Company has also revamped its procurement process to restructure new vendor contracts with better margins. In addition, the Company is looking at new customer acquisition tools that will increase traffic and sales within existing stores and e-commerce platform as well as third-party technology and software to increase the returns on the Company’s existing tools. The Company will continue to focus on the optimization of SG&A expenses, including reducing payroll spend at retail locations by implementing a dynamic staffing model, reducing banking and payment processing fees, and reducing security spend. Management is in the process of leveraging the Company’s operating scale with a focus on high ROI initiatives through strategic opportunities that will allow the Company to maintain its leadership within the industry. Management is also exploring joint ventures on certain capital intensive projects that will bring in qualified partners to enable the Company to maintain their strong retail presence without having to deploy upfront capital. Further, the Company will continue to streamline operations and invest in core markets, with a focus on markets in which MedMen already has a leadership position in. The Company’s restructuring plan includes a market-based approach wherein strategic decisions vary by market considering regulatory and economic conditions, potential partnerships and synergies, and the Company’s position in that market. The Company continues to execute on its plan to achieve its growth and profitability goals.
The Company continues to explore avenues of raising additional funds from debt and equity financing subsequent to the three months ended September 26, 2020 to mitigate any potential liquidity risk. The Company intends to continue raising capital by utilizing debt and equity financings on an as needed basis. Management evaluated its financial condition as of September 26, 2020 in conjunction with recent financings and transactions which provide capital subsequent to the three months ended September 26, 2020 as discussed below.
Senior Secured Term Loan Facility
On October 30, 2020, the Company closed on incremental term loans totaling approximately $7.7 million under its existing senior secured facility with Hankey Capital at an interest rate of 18.0% per annum of which 12.0% shall be paid in cash monthly in arrears; and 6.0% shall accrue monthly to the outstanding principal as payment-in-kind. In connection with the funding, MM CAN issued 77,052,790 warrants each exercisable at $0.20 per share for a period of five years.
Unsecured Convertible Facility
On October 1, 2020, the Company closed on a second tranche of $1.0 million under its existing $10.0 million unsecured convertible debenture facility (“Unsecured Convertible Facility”) with certain institutional investors. Subject to certain conditions, the Company has the right to call additional tranches of $1.0 million each, no later than 20 trading days following the issuance of each tranche, including the initial tranche, up to a maximum of $10.0 million under all tranches. The timing of additional tranches can be accelerated based on certain conditions. The investors have the right to at least four additional tranches, with any such subsequent tranche to be at least $1.0 million. In connection with the second tranche, the Company issued 3,777,475 warrants with an exercise price of $0.21 per share. On November 20, 2020, the Company closed on a third tranche of $1.0 million under the facility with a conversion price of $0.17 per Subordinate Voting Share. In connection with the third tranche, the Company issued 3,592,326 warrants with an exercise price of $0.21 per share.
Sale of Assets
The Company received an additional $10,000,000 related to the divestiture of the Evanston retail license located in Illinois of which $8,000,000 cash (“Closing Cash Payment”) was received on November 16, 2020 (“Closing Date”) and $2,000,000 on or before the three month anniversary of the Closing Date and Closing Cash Payment. The $2,000,000 will be paid in the form of a secured promissory note in which interest will accrue at a rate of 2.0% interest rate per annum compounded annually and will mature as agreed upon between the Company and borrower. Management continues to seek buyers for divestiture of the Company’s other non-core assets, which include licenses and investments, to provide additional capital. Given the Company’s specialization in retail, management is revaluating its vertical integration strategy and identifying opportunities to realign the Company’s focus on the retail market.
Down Round Features
In July 2017,10-K for the FASB issued ASU 2017-11, “Earnings Per Share (Topic 260)” wherein the amendments change the classificationfiscal year ended June 25, 2022.
Notes to Condensed Consolidated Financial Risk Management
Credit Risk
The operating results and financial position of the Company are reported in U.S. dollars. Some of the Company’s financial transactions are denominated in currencies other than the U.S. dollar. The results of the Company’s operations are subject to currency transaction and translation risks. The Company’s main risk is associated with fluctuations in Canadian dollars. The Company holds cash in U.S. dollars, investments denominated in U.S. dollars, debt denominated in U.S. dollars, and equity,Statements”, which is denominatedincorporated in U.S. and Canadian dollars. Such assets and liabilities denominated in currencies other than the U.S. dollar are translated based on the Company’s foreign currency translation policy.
As of September 26, 2020 and June 27, 2020, the Company had no hedging agreements in place for foreign exchange rates. The Company has not entered into any agreements or purchased any instruments to hedge possible currency risks at this time.
Interest Rate Risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Cash and cash equivalents bear interest at market rates. The Company’s financial liabilities have fixed rates of interest and therefore expose the Company to a limited interest rate fair value risk.
Equity Price Risks
Price risk is the risk of variability in fair value due to movements in equity or market prices. The Company’s investments are susceptible to price risk arising from uncertainties about their future outlook, future values and the impact of market conditions. The fair value of investments held in privately-held entities is based on a market approach, which uses prices and other relevant information generateditem by market transactions involving identical or comparable assets or liabilities.
Transactions with Related Parties
All related party balances due from or due to the Company as of September 26, 2020 and June 27, 2020 did not have any formal contractual agreements regarding payment terms or interest. For amounts due from and to related parties, refer to “Note 20 – Related Party Transactions” of the Consolidated Financial Statements for the three months ended September 26, 2020 and September 28, 2019 in Item 1.
Gotham Green Partners
As discussed in in Item 2 “Liquidity and Capital Resources” and Item 2 “Quarterly Highlights”, the Company has engaged in a strategic partnership with Gotham Green Partners, a related party. reference.
SierraConstellation Partners
In March 2020, the Company entered into restructuring plan and retained interim management and advisory firm, SierraConstellation Partners (“SCP”), to support the Company in the development and execution of its turnaround and restructuring plan. As part of the engagement, Tom Lynch was appointed as Interim Chief Executive Officer and Chief Restructuring Officer, and Tim Bossidy was appointed as Interim Chief Operating Officer. Mr. Lynch is a Partner and Senior Managing Director at SCP. Mr. Bossidy is a Director at SCP. As of December 3, 2020, the Company had paid $1,111,767 in fees to SCP for interim management and restructuring support during the current fiscal year.
$0.15 per share.
Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. generally accepted accounting principles. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis.
During the year ended June 27, 2020, the Company identified a material weakness in its internal control over financial reporting relating to its impairment assessment and measurement standards. In connection with the SEC’s review of the Company’s Form 10, we determined that we had a material weakness in our internal control over financial reporting relating to the appropriate review of the presentation and disclosure of non-routine transactions including impairments of goodwill and long-lived assets, changes in the fair value of contingent consideration and restructuring expenses. To address these material weaknesses, we have instituted a number of accounting processes and procedures which includes i) formal, documented process to identify, assess and calculate impairment on goodwill and long-lived assets, and ii) the preparation of presentation and disclosure requirement checklists to be reviewed by management for all new transactions and accounting standards.
The actions we have taken are subject to continued review, supported by confirmation and testing by management. While we have completed a plan to remediate these weaknesses, we cannot assure you that we will be able to remediate these weaknesses, which could impair our ability to accurately and timely report our financial position, results of operations or cash flows. Our failure to remediate the identification of additional material weaknesses in the future, could adversely affect our ability to report financial information, including our filing of quarterly or annual reports with the Commission on a timely and accurate basis, which may adversely affect the market price of shares of our common stock.
During the audit of the Consolidated Financial Statements for the
In connection with the SEC’s review of the Company’s Form 10,effectively which we identified a material weakness in internal control over financial reporting, that if not corrected, could result in a material misstatement in our financial statements. The material weakness was related to the presentation and disclosure of non-routine expenses, including impairments of goodwill and long-lived assets. This error resultedanticipate will occur in the reclassification of these expenses from being included in other expense to being included in loss from operations in our June 27, 2020 and June 29, 2019 consolidated financial statements. The accounting treatment of these expenses was reviewed during the quarter ended September 26, 2020 and confirmed that the error was limited to these expenses. Our review process for non-routine expenses allowed this error to go undetected, and management has assessed the potential magnitude and concluded that this represents a material weakness in our internal control over financial reporting. To remediate this internal control weakness, the Company implemented additional controls around the review of financial statement presentation and disclosure for such transactions, including the preparation and review of a quarterly disclosure checklist. In addition, the Company has presented these expenses in the Statements of Operations for the three months ended September 26, 2020 and September 28, 2019 for consistency with applicable accounting standards. Based on the actions taken by the management, we successfully completed the assessment necessary to conclude that the previously identified and disclosed material weakness has been remediated as of September 26, 2020.
ensuing months.
There have been no material changes
During the fiscal quarter ended September 26, 2020, the Company issued the securities listed below:
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The securities were issued in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Regulation D promulgated thereunder. Each of the investors represented to the Company, among other things, that it is an “accredited investor” (as such term is defined in Rule 501(a) of Regulation D under the Securities Act).
AND USE OF PROCEEDS
None.
Contents
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| Incorporated by Reference | ||||||||||||||||||||||||||||||||||||||
| Exhibit No. | Form | File No. | Exhibit | Filing Date | Filed/ Furnished Herewith | |||||||||||||||||||||||||||||||||
| 31.1 | ||||||||||||||||||||||||||||||||||||||
| ✓ | |||||||||||||||||||||||||||||
| ✓ | ||||||||||||||||||||||||||||||||||||||
| 32.1* | ||||||||||||||||||||||||||||||||||||||
| ✓ | ||||||||||||||||||||||||||||||||||||||
| 101.INS | ||||||||||||||||||||||||||||||||||||||
| XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||||||||||||||||||||||||||||||||||||
| 101.SCH | ||||||||||||||||||||||||||||||||||||||
| XBRL Taxonomy Extension Schema | ✓ | ||||||||||||||||||||||||||||||||||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | ✓ | ||||||||||||||||||||||||||||||||||||
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| XBRL Taxonomy Extension Definition | |||||||||||||||||||||||||||||||||||||
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| XBRL Taxonomy Extension Label Linkbase Document. | ✓ | |||||||||||||||||||||||||||||||||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. | ✓ | ||||||||||||||||||||||||||||||||||||
| Cover Page Interactive Data File. (Formatted as Inline XBRL and contained in Exhibit 101.) | ✓ |
Companyregistrant has duly caused this report to be signed on its behalf by the undersigned thereuntohereunto duly authorized.MEDMEN ENTERPRISES INC.Dated: February 2, 2023 MEDMEN ENTERPRISES INC Date: December 7, 2020/s/ Zeeshan HyderBy:Zeeshan HyderTitle:By:Ana Bowman Its: Chief Financial Officer (duly authorized officer)-66-