UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____________ to _____________
Commission file number
(Exact name of registrant as specified in its charter)
| Province of |
Not Applicable |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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| (Address of principal executive offices) | (Zip Code) |
(
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes ☐ No
As of August 3, 2023, the registrant had
Table of Contents
Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q (this "Quarterly Report") contains "forward-looking statements," as that term is defined under the Private Securities Litigation Reform Act of 1995 ("PSLRA"), Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements may include projections and estimates concerning our possible or assumed future results of operations, financial condition, business strategies and plans, market opportunity, competitive position, industry environment, and potential growth opportunities. In some cases, you can identify forward-looking statements by terms such as "may", "will", "should", "believe", "expect", "could", "intend", "plan", "anticipate", "estimate", "continue", "predict", "project", "potential", "target," "goal" or other words that convey the uncertainty of future events or outcomes. You can also identify forward-looking statements by discussions of strategy, plans or intentions. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, because forward-looking statements relate to matters that have not yet occurred, they are inherently subject to significant business, competitive, economic, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. These and other important factors, including, among others, those discussed in this Quarterly Report, may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by the forward-looking statements in this Quarterly Report. Risks and uncertainties, the occurrence of which could adversely affect our business, include, but are not limited to, the following:
Given the foregoing risks and uncertainties, you are cautioned not to place undue reliance on the forward-looking statements in this Quarterly Report. The forward-looking statements contained in this Quarterly Report are not guarantees of future performance and our actual results of operations and financial condition may differ materially from such forward-looking statements. In addition, even if our results of operations and financial condition are consistent with the forward-looking statements in this Quarterly Report, they may not be predictive of results or developments in future periods.
Any forward-looking statement that we make in this Quarterly Report speaks only as of the date of this Quarterly Report. Except as required by law, we do not undertake any obligation to update or revise, or to publicly announce any update or revision to, any of the forward-looking statements in this Quarterly Report, whether as a result of new information, future events or otherwise, after the date of this Quarterly Report.
PART I
Item 1. Financial Statements
Flora Growth Corp.
Table of Contents
4
Flora Growth Corp.
Unaudited Condensed Interim Consolidated Statements of Financial Position
(in thousands of United States dollars, except share amounts which are in thousands of shares)
| As at: | June 30, 2023 | December 31, 2022 | ||||
| ASSETS | ||||||
| Current | ||||||
| Cash | $ | $ | ||||
| Restricted cash | ||||||
| Trade and amounts receivable, net of $ |
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| Loans receivable and advances | ||||||
| Prepaid expenses and other current assets | ||||||
| Indemnification receivables | ||||||
| Inventory | ||||||
| Current assets held for sale | ||||||
| Total current assets | ||||||
| Non-current | ||||||
| Property, plant and equipment | ||||||
| Operating lease right of use assets | ||||||
| Intangible assets | ||||||
| Goodwill | ||||||
| Investments | ||||||
| Other assets | ||||||
| Noncurrent assets held for sale | ||||||
| Total assets | $ | $ | ||||
| LIABILITIES | ||||||
| Current | ||||||
| Trade payables | $ | $ | ||||
| Contingencies | ||||||
| Current portion of debt | ||||||
| Current portion of operating lease liability | ||||||
| Other accrued liabilities | ||||||
| Current liabilities held for sale | ||||||
| Total current liabilities | ||||||
| Non-current | ||||||
| Non-current operating lease liability | ||||||
| Deferred tax | ||||||
| Contingent purchase considerations | ||||||
| Noncurrent liabilities held for sale | ||||||
| Total liabilities | ||||||
| SHAREHOLDERS' EQUITY | ||||||
| Share capital, no par value, unlimited authorized, |
||||||
| Additional paid-in capital | ||||||
| Accumulated other comprehensive loss | ( |
) | ( |
) | ||
| Deficit | ( |
) | ( |
) | ||
| Total Flora Growth Corp. shareholders' equity | ||||||
| Non-controlling interest in subsidiaries | ( |
) | ( |
) | ||
| Total shareholders' equity | ||||||
| Total liabilities and shareholders' equity | $ | $ |
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.
Commitments and contingencies - see Note 16. Going concern - see Note 2.
5
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Flora Growth Corp. |
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Unaudited Condensed Interim Consolidated Statements of Loss and Comprehensive Loss |
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(in thousands of United States dollars, except per share amounts which are in thousands of shares) |
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| For the three months ended June 30, 2023 |
For the three months ended June 30, 2022 |
For the six months ended June 30, 2023 |
For the six months ended June 30, 2022 |
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| Revenue | $ | $ | $ | $ | ||||||||
| Cost of sales | ||||||||||||
| Gross profit | ||||||||||||
| Operating expenses | ||||||||||||
| Consulting and management fees | ||||||||||||
| Professional fees | ||||||||||||
| General and administrative | ||||||||||||
| Promotion and communication | ||||||||||||
| Travel expenses | ||||||||||||
| Share based compensation | ||||||||||||
| Research and development | ||||||||||||
| Operating lease expense | ||||||||||||
| Depreciation and amortization | ||||||||||||
| Bad debt expense | ||||||||||||
| Asset impairment | ||||||||||||
| Other expenses (income), net | ||||||||||||
| Total operating expenses | ||||||||||||
| Operating loss | ( |
) | ( |
) | ( |
) | ( |
) | ||||
| Interest expense (income) | ( |
) | ( |
) | ||||||||
| Foreign exchange (gain) loss | ( |
) | ( |
) | ||||||||
| Unrealized (gain) loss from changes in fair value | ( |
) | ( |
) | ||||||||
| Net loss before income taxes and discontinued operations | ( |
) | ( |
) | ( |
) | ( |
) | ||||
| Income tax recovery | ( |
) | ( |
) | ||||||||
| Net loss from continuing operations | ( |
) | ( |
) | ( |
) | ( |
) | ||||
| Loss from discontinued operations, net of taxes | ( |
) | ( |
) | ( |
) | ( |
) | ||||
| Net loss for the period | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) |
| Other comprehensive gain (loss) | ||||||||||||
| Exchange differences on foreign operations, net of income taxes of $nil ($nil in 2022) | $ | $ | $ | $ | ( |
) | ||||||
| Total comprehensive loss for the period | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) |
| Net loss attributable to: | ||||||||||||
| Flora Growth Corp. continuing operations | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) |
| Flora Growth Corp. discontinued operations | ( |
) | ( |
) | ( |
) | ( |
) | ||||
| Non-controlling interests in subsidiaries | ( |
) | ( |
) | ( |
) | ( |
) | ||||
| Comprehensive loss attributable to: | ||||||||||||
| Flora Growth Corp. | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) |
| Non-controlling interests in subsidiaries | ( |
) | ( |
) | ( |
) | ( |
) | ||||
| Basic and diluted loss per share from continuing operations | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) |
| Basic and diluted loss per share from discontinued operations | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) |
| Basic and diluted loss per share attributable to Flora Growth Corp. | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) |
| Weighted average number of common shares outstanding - basic and diluted |
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.
6
Flora Growth Corp.
Unaudited Condensed Interim Consolidated Statement of Shareholders' Equity (Deficiency)
(in thousands of United States dollars, except for share amounts which are in thousands of shares)
| Common shares | Additional paid-in capital |
Accumulated other comprehensive (loss) income |
Accumulated deficit |
Non- controlling interests in subsidiaries (deficiency) |
Shareholders' equity (deficiency) |
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| # | |||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | |||||||||
| Common shares issued for business combinations | - | - | - | - | |||||||||||||||||
| Common shares issued for other agreements | - | - | - | - | |||||||||||||||||
| Acquisition of noncontrolling interest | - | - | ( |
) | ( |
) | |||||||||||||||
| Options issued | - | - | - | - | - | ||||||||||||||||
| Options exercised | - | - | - | - | |||||||||||||||||
| Warrants exercised | - | - | - | - | |||||||||||||||||
| Share issuance costs | - | - | ( |
) | - | - | - | ( |
) | ||||||||||||
| Other comprehensive loss - exchange differences on foreign operations (net of income taxes of $nil) |
- | - | - | ( |
) | - | - | ( |
) | ||||||||||||
| Net loss | - | - | - | - | ( |
) | ( |
) | ( |
) | |||||||||||
| Balance, March 31, 2022 | ( |
) | ( |
) | ( |
) | |||||||||||||||
| Share repurchase | - | - | ( |
) | - | - | - | ( |
) | ||||||||||||
| Equity issued for other agreements | - | - | - | - | |||||||||||||||||
| Options issued | - | - | - | - | - | ||||||||||||||||
| Options exercised | - | - | - | - | |||||||||||||||||
| Warrants exercised | - | - | - | - | |||||||||||||||||
| Warrants expired/cancelled | - | - | - | - | - | - | |||||||||||||||
| Share issuance costs | - | - | - | - | - | ||||||||||||||||
| Other comprehensive loss - exchange differences on foreign operations (net of income taxes of $nil) |
- | - | - | - | - | ||||||||||||||||
| Net loss | - | - | - | ( |
) | ( |
) | ( |
) | ||||||||||||
| Balance, June 30, 2022 | $ | - | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||
| Balance, December 31, 2022 | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | |||||||||
| Equity issued for other agreements | - | - | - | - | |||||||||||||||||
| Options issued | - | - | - | - | - | ||||||||||||||||
| Options cancelled | - | - | ( |
) | - | - | - | ||||||||||||||
| Restricted units granted | - | - | - | - | |||||||||||||||||
| Other comprehensive loss - exchange differences on foreign operations (net of income taxes of $nil) |
- | - | - | - | - | ||||||||||||||||
| Net loss | - | - | - | - | ( |
) | ( |
) | ( |
) | |||||||||||
| Balance, March 31, 2023 | ( |
) | ( |
) | ( |
) | |||||||||||||||
| Equity issued for other agreements | - | - | - | - | |||||||||||||||||
| Options issued | - | - | - | - | - | ||||||||||||||||
| Options expired/cancelled | - | - | ( |
) | - | - | - | ( |
) | ||||||||||||
| Restricted stock granted | - | - | - | - | |||||||||||||||||
| Restricted stock cancelled | ( |
) | - | ( |
) | - | - | - | ( |
) | |||||||||||
| Share issuance costs | - | - | ( |
) | - | - | - | ( |
) | ||||||||||||
| Other comprehensive loss - exchange differences on foreign operations (net of income taxes of $nil) |
- | - | - | - | - | ||||||||||||||||
| Net loss | - | - | - | - | ( |
) | ( |
) | ( |
) | |||||||||||
| Balance, June 30, 2023 | $ | - | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.
7
Flora Growth Corp.
Unaudited Condensed Interim Consolidated Statement of Cash Flows
(in thousands of United States dollars)
| For the six months ended June 30, 2023 |
For the six months ended June 30, 2022 |
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| Cash flows from operating activities: | ||||||
| Net loss | $ | ( |
) | $ | ( |
) |
| Adjustments to net loss: | ||||||
| Depreciation and amortization | ||||||
| Share based compensation | ||||||
| Asset impairment | ||||||
| Changes in fair value of investments and liabilities | ( |
) | ||||
| Bad debt expense | ||||||
| Interest expense (income) | ( |
) | ||||
| Interest paid | ( |
) | ( |
) | ||
| Income tax recovery | ( |
) | ||||
| ( |
) | ( |
) | |||
| Net change in non-cash working capital: | ||||||
| Trade and other receivables | ||||||
| Inventory | ( |
) | ||||
| Prepaid expenses and other assets | ( |
) | ( |
) | ||
| Trade payables and accrued liabilities | ( |
) | ( |
) | ||
| Net cash used in operating activities | ( |
) | ( |
) | ||
| Cash flows from financing activities: | ||||||
| Equity issue costs | ( |
) | ( |
) | ||
| Exercise of warrants and options | ||||||
| Common shares repurchased | ( |
) | ||||
| Loan borrowings | ||||||
| Loan repayments | ( |
) | ( |
) | ||
| Net cash provided (used) by financing activities | ( |
) | ||||
| Cash flows from investing activities: | ||||||
| Purchases of property, plant and equipment and intangible assets | ( |
) | ( |
) | ||
| Business and asset acquisitions, net of cash acquired | ( |
) | ||||
| Net cash used in investing activities | ( |
) | ( |
) | ||
| Effect of exchange rate on changes on cash | ( |
) | ||||
| Change in cash during the period | ( |
) | ( |
) | ||
| Cash and restricted cash at beginning of period | ||||||
| Cash included in assets held for sale | ( |
) | ( |
) | ||
| Cash and restricted cash at end of period | $ | $ | ||||
| Supplemental disclosure of non-cash investing and financing activities | ||||||
| Common shares issued for business combinations | $ | $ | ||||
| Assets acquired for contingent consideration | ||||||
| Common shares issued for other agreements | ||||||
| Operating lease additions to right of use assets |
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.
8
Flora Growth Corp.
Notes to the unaudited condensed interim consolidated financial statements
For the three and six months ended June 30, 2023 and 2022
(In thousands of United States dollars, except shares and per share amounts)
1. NATURE OF OPERATIONS
Flora Growth Corp. (the "Company" or "Flora") was incorporated under the laws of the Province of Ontario, Canada on March 13, 2019. The Company is manufacturer, distributor and an all-outdoor cultivator of global cannabis and pharmaceutical products and brands, building a connected, design-led collective of plant-based wellness and lifestyle brands. The Company's registered office is located at 365 Bay Street, Suite 800, Toronto, Ontario, M5H 2V1, Canada and our principal place of business in the United States is located at 3406 SW 26th Terrace, Suite C-1, Fort Lauderdale, Florida 3312.
Presentation of comparative financial statements
On June 9, 2023, the Company consolidated its issued and outstanding common shares based on one new common share of the Company for every twenty existing common shares of the Company. All common shares and per share amounts have been restated to give retroactive effect to the share consolidation. See discussion in Note 13.
2. BASIS OF PRESENTATION
These unaudited condensed interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP") pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") for interim financial information. Accordingly, they do not include all of the information and notes required by U.S. GAAP. The Company believes that the disclosures made are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report filed on Form 10-K for the year ended December 31, 2022. These unaudited condensed interim consolidated financial statements reflect all adjustments, which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year.
These unaudited condensed interim consolidated financial statements apply the same accounting policies as those used in the financial statements included in the Company's Annual Report filed on Form 10-K for the year ended December 31, 2022.
These interim condensed consolidated financial statements have been prepared on a going concern basis, meaning that the Company will continue in operation for the foreseeable future and will be able to realize assets and discharge liabilities in the ordinary course of operations.
Prior to January 1, 2023, Flora was a foreign private issuer reporting its financial statements under International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standard Boards. These consolidated financial statements, for all periods, are presented in accordance with U.S. GAAP.
Going concern
The accompanying unaudited interim condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. The going concern basis of presentation assumes that the Company will continue one year after the date these unaudited condensed interim consolidated financial statements are issued and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business.
The Company had cash of $
| 9 |
| Flora Growth Corp. Notes to the unaudited condensed interim consolidated financial statements For the three and six months ended June 30, 2023 and 2022 (In thousands of United States dollars, except shares and per share amounts) |
Basis of consolidation
These unaudited condensed interim consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions were eliminated on consolidation. Subsidiaries are entities the Company controls when it is exposed, or has rights, to variable returns from its involvement in the entity and can affect those returns through its power to direct the relevant activities of the entity. Subsidiaries are included in the consolidated financial results of the Company from the date of acquisition up to the date of disposition or loss of control. The Company's subsidiaries and respective ownership percentage have not changed from the year ended December 31, 2022. On July 5, 2023, the Company sold its shares in its Colombian related subsidiaries. The results of these subsidiaries are included in discontinued operations in the accompanying unaudited condensed interim consolidated financial statements. See discussion in Note 3.
3. ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS
On July 5, 2023, the Company entered into a Share Purchase Agreement with Lisan Farma Colombia LLC ("Lisan"), a Delaware limited liability company, to sell all its shares in its Colombian related subsidiaries and its Colombian assets for a purchase price of CAD $
The sale enables the Company to concentrate on its core business divisions, which are lifestyle brands in the United States and international pharmaceutical distribution. The sale was part of several strategic changes to cut costs and streamline operations.
The Company has presented the associated assets and liabilities of the Colombian subsidiaries as held for sale. The major classes of assets and liabilities classified as held for sale as of June 30, 2023 and December 31, 2022 were as follows:
| June 30, 2023 | December 31, 2022 | |||||
| Assets held for sale | ||||||
| Cash | $ | $ | ||||
| Trade and amounts receivable | ||||||
| Prepaid expenses and other current assets | ||||||
| Inventory | ||||||
| Total current assets held for sale | ||||||
| Property, plant and equipment | ||||||
| Operating lease right of use assets | ||||||
| Intangible assets | ||||||
| Other assets | ||||||
| Total noncurrent assets held for sale | ||||||
| Total assets held for sale | $ | $ | ||||
| Liabilities held for sale | ||||||
| Current portion of long-term debt | $ | $ | ||||
| Current portion of operating lease liability | ||||||
| Other accrued liabilities | ||||||
| Total current liabilities held for sale | ||||||
| Non-current operating lease liability | ||||||
| Total liabilities held for sale | $ | $ |
The following table summarizes the major classes of line items included in loss from discontinued operations, net of tax, for the three and six months ended June 30, 2023 and 2022:
|
For the three |
For the three |
For the six |
For the six |
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| Revenue | $ | $ | $ | $ | ||||||||
| Cost of sales | ||||||||||||
| Gross profit from discontinued operations | ||||||||||||
| Consulting and management fees | ||||||||||||
| Professional fees | ||||||||||||
| General and administrative | ||||||||||||
| Promotion and communication | ||||||||||||
| Operating lease expense | ||||||||||||
| Depreciation and amortization | ||||||||||||
| Bad debt expense | ||||||||||||
| Asset impairment | ||||||||||||
| Other (income) expense | ||||||||||||
| Operating loss from discontinued operations | ( |
) | ( |
) | ( |
) | ( |
) | ||||
| Interest (income) expense | ||||||||||||
| Net loss before income taxes | ( |
) | ( |
) | ( |
) | ( |
) | ||||
| Loss on disposal of discontinued operations | ||||||||||||
| Income tax expense | ||||||||||||
| Loss from discontinued operations | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) |
| 10 |
| Flora Growth Corp. Notes to the unaudited condensed interim consolidated financial statements For the three and six months ended June 30, 2023 and 2022 (In thousands of United States dollars, except shares and per share amounts) |
The following table summarizes the significant operating and investing items related to the Colombian subsidiaries for the six months ended June 30, 2023 and 2022
|
For the six |
For the six |
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| Operating activities of discontinued operations | ||||||
| Depreciation and amortization | $ | $ | ||||
| Bad debt expense | ||||||
| Asset impairment | ||||||
| Investing activities of discontinued operations | ||||||
| Purchases of property, plant and equipment | $ | $ |
The subsidiaries sold included Cosechemos Ya S.A.S, which was part of the commercial and wholesale segment; Flora Lab S.A.S, Flora Med S.A.S. and Labcofarm Laboratories S.A.S, which were part of the pharmaceuticals segment; Flora Growth Corp Colombia S.A.S., and Kasa Wholefoods Company, S.A.S. and Flora Beauty LLC Sucursal Colombia which were part of the house of brands segment.
The Company applies significant judgement in determining whether a disposal meets the criteria to present as held for sale at the reporting date, and whether the disposal represents a strategic shift that has (or will have) a major effect on its operations and financial results in order to be classified as a discontinued operation. The criteria evaluated are both quantitative and qualitative in nature, to evaluate the significance of the disposal relative to the operations of the Company as a whole. The Company has determined this disposition represents a strategic shift in operations that will have a major effect on the Company's operations and financial results, and accordingly, has been presented as discontinued operations.
During the three and six months ended June 30, 2023, the Company recorded a loss on disposal of $
4. TRADE AND AMOUNTS RECEIVABLE
The Company's trade and amounts receivable are recorded at amortized cost. The trade and other receivables balance as at June 30, 2023 and December 31, 2022 consists of trade accounts receivable, amounts recoverable from the Government of Canada for Harmonized Sales Taxes ("HST"), as well as Value Added Tax ("VAT") from various jurisdictions, and other receivables.
| June 30, 2023 | December 31, 2022 | |||||
| Trade accounts receivable | $ | $ | ||||
| Allowance for expected credit losses | ( |
) | ( |
) | ||
| HST/VAT receivable | ||||||
| Other receivables | ||||||
| Total | $ | $ |
Changes in the trade accounts receivable allowance in the three and six months ended June 30, 2023 relate to establishing an allowance for expected credit losses and reclassification of assets held for sale. There was $
| 11 |
| Flora Growth Corp. Notes to the unaudited condensed interim consolidated financial statements For the three and six months ended June 30, 2023 and 2022 (In thousands of United States dollars, except shares and per share amounts) |
| June 30, 2023 | |||
| Current | $ | ||
| 1-30 Days | |||
| 31-60 Days | |||
| 61-90 Days | |||
| 91-180 Days | |||
| 180+ Days | |||
| Total trade receivables | $ |
5. INVENTORY
Inventory is comprised of the following as at June 30, 2023 and 2022:
| June 30, 2023 | December 31, 2022 | |||||
| Raw materials and supplies | $ | $ | ||||
| Finished goods | ||||||
| Total | $ | $ |
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
| June 30, 2023 | December 31, 2022 | |||||
| Land | $ | $ | ||||
| Buildings | ||||||
| Machinery and office equipment | ||||||
| Vehicles | ||||||
| Total | ||||||
| Less: accumulated depreciation | ( |
) | ( |
) | ||
| Property, plant and equipment, net | $ | $ |
Depreciation expense for the three and six months ended June 30, 2023 was less than $
7. INVESTMENTS
As at June 30, 2023, the Company's investments consisted of common shares and warrants in an early-stage European cannabis company.
The Company did not exercise the warrants and they expired on February 1, 2023. The Company recorded the remaining value of the warrants as a loss on changes in fair value of the investment during the six months ended June 30, 2023.
Due to the Company's declining share price, the declining share price of comparable public companies and challenging economic factors, the Company determined that impairment indicators were present at June 30, 2023.
| 12 |
| Flora Growth Corp. Notes to the unaudited condensed interim consolidated financial statements For the three and six months ended June 30, 2023 and 2022 (In thousands of United States dollars, except shares and per share amounts) |
A schedule of the Company's investments activity is as follows:
|
Investee common shares |
Warrants CAD 0.30 exercise price |
Warrants CAD 1.00 exercise price |
Total | |||||||||
| Financial asset hierarchy level | Level 3 | Level 3 | Level 3 | |||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | ||||||||
| Loss on changes in fair value | ( |
) | ( |
) | ( |
) | ||||||
| Balance at June 30, 2023 | $ | $ | $ | $ |
The loss on changes in fair value appears in the unrealized (gain) loss on changes in fair value caption in the unaudited condensed interim consolidated statements of loss and comprehensive loss.
The value of the investee common shares appears in the investment line on the unaudited condensed interim consolidated statement of financial position.
8. ASSET ACQUISITIONS AND BUSINESS COMBINATIONS
Original Hemp asset acquisition
On March 1, 2023, the Company completed its acquisition of all the assets operating under the brand "Original Hemp". The Company analyzed the acquisition under ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, determining Original Hemp did not meet the definition of a business as it did not have inputs, processes, and outputs in place that constituted a business under Topic 805. As a result, the transaction has been accounted for as an asset acquisition whereby all of the assets acquired and liabilities assumed are assigned a carrying amount based on relative fair values. Total purchase consideration was $
As consideration for the purchased assets of Original Hemp, the Company will pay an amount equal to
The purchase is accounted for as an asset acquisition with amounts allocated as at the acquisition date to each major class of assets as follows:
| Inventory | $ | ||
| Intangible asset | |||
| Total net assets acquired | $ |
Franchise Global Health Inc. ("FGH") business combination
On December 23, 2022, the Company completed its acquisition of all the issued and outstanding common shares (the "Franchise Common Shares") of FGH., a corporation existing under the laws of the Province of British Columbia, by way of a statutory plan of arrangement (the "Arrangement") under the Business Corporations Act (British Columbia). FGH, through its wholly owned subsidiaries, is a multi-national operator in the medical cannabis and pharmaceutical industry with principal operations in Germany. The Company acquired FGH to expand its product offerings, accelerate its revenue growth, expand its customer and distribution capabilities in Germany and to improve synergies and cost savings.
The purchase consideration was comprised of
| 13 |
| Flora Growth Corp. Notes to the unaudited condensed interim consolidated financial statements For the three and six months ended June 30, 2023 and 2022 (In thousands of United States dollars, except shares and per share amounts) |
The purchase is accounted for as a business combination with amounts recognized as at the acquisition date for each major class of assets acquired and liabilities assumed are as follows:
| Current assets | |||
| Cash | $ | ||
| Trade receivables | |||
| Inventory | |||
| Indemnity receivables | |||
| Prepaid assets | |||
| Non-current assets | |||
| Property, plant, and equipment | |||
| Right of use assets | |||
| Intangible asset | |||
| Goodwill | |||
| Total assets | $ | ||
| Current liabilities | |||
| Trade payables and accrued liabilities | $ | ( |
) |
| Current lease liabilities | ( |
) | |
| Current portion of debt | ( |
) | |
| Long term lease liability | ( |
) | |
| Deferred tax | ( |
) | |
| Total liabilities | $ | ( |
) |
| Total net assets acquired | $ |
The amounts shown are provisional. The Company has a measurement period of one year following the acquisition date on December 23, 2022 to adjust the provisional amounts recognized for any new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of additional assets or liabilities, or affected the measurement of the amounts recognized as of that date.
As part of the acquisition terms, Clifford Starke, the Company's current Chief Executive Officer and a Director and the former Chief Executive Officer of FGH, together with certain affiliated entities under his control, entered into an agreement pursuant to which they agreed to indemnify the Company for certain potential liabilities of FGH and its subsidiaries, up to a maximum of $
1. any losses that are related to the ownership or the operation of FGH and its Canadian subsidiaries, in each case prior to the closing of the Arrangement, that are unknown to the Company and that: (i) have not been disclosed or accounted for in FGH filings; or (ii) have not been disclosed in the FGH Disclosure Letter, in each case as at the date of the Arrangement Agreement;
2. any losses that may arise from amounts owed or that may become owed to certain persons or in respect of certain matters identified in the indemnity agreement, as amended; and
3. any fraud, intentional misrepresentation, willful breach, or willful misconduct on the part of FGH or any other entity identified in the indemnity agreement of any of the foregoing in connection with the indemnity agreement or the Arrangement Agreement
The intangible assets of $
Just Brands LLC and High Roller Private Label LLC (collectively "JustCBD") business combination
On February 24, 2022, Flora Growth U.S. Holdings Corp., a wholly owned subsidiary of the Company, completed the acquisition of
The purchase consideration was comprised of (i) $
| 14 |
| Flora Growth Corp. Notes to the unaudited condensed interim consolidated financial statements For the three and six months ended June 30, 2023 and 2022 (In thousands of United States dollars, except shares and per share amounts) |
The fair value of the contingent purchase consideration at February 24, 2022 was determined using a Monte Carlo simulation incorporating Brownian motion with
The fair value of the contingent purchase consideration at June 30, 2023 was determined using a Monte Carlo simulation incorporating Brownian motion with
The purchase is accounted for as a business combination with amounts recognized as at the acquisition date for each major class of assets acquired and liabilities assumed are as follows:
| Current assets | |||
| Cash | $ | ||
| Trade receivables | |||
| Inventory | |||
| Other current assets | |||
| Non-current assets | |||
| Property, plant, and equipment | |||
| Right of use assets | |||
| Other non-current assets | |||
| Intangible asset | |||
| Goodwill | |||
| Total assets | $ | ||
| Current liabilities | |||
| Trade payables and accrued liabilities | $ | ( |
) |
| Current lease liabilities | ( |
) | |
| Provision for sales tax | ( |
) | |
| Deferred tax | ( |
) | |
| Other current liabilities | ( |
) | |
| Total liabilities | $ | ( |
) |
| Total net assets acquired | $ |
The fair value of the trade receivables reflects a $
The intangible assets of $
| 15 |
| Flora Growth Corp. Notes to the unaudited condensed interim consolidated financial statements For the three and six months ended June 30, 2023 and 2022 (In thousands of United States dollars, except shares and per share amounts) |
No Cap Hemp Co. business combination
On July 20, 2022, Just Brands LLC., a wholly owned subsidiary of the Company, acquired certain assets, assumed certain liabilities, retained certain employees and processes (together the "purchased assets") of No Cap Hemp Co. ("No Cap") for total purchase consideration of $
As consideration for the purchased assets of No Cap, Just Brands LLC will pay an amount equal to
The Company determined that the balance of this contingent consideration at June 30, 2023 was $
The purchase is accounted for as a business combination with amounts recognized as at the acquisition date for each major class of assets acquired and liabilities assumed are as follows:
| Current assets | |||
| Trade receivables | $ | ||
| Inventory | |||
| Non-current assets | |||
| Goodwill | |||
| Total assets | $ | ||
| Current liabilities | |||
| Trade payables and accrued liabilities | ( |
) | |
| Total liabilities | $ | ( |
) |
| Total net assets acquired | $ |
The fair value of the trade receivables reflects a $
The Company expects the goodwill to be deductible for United States income tax purposes. The goodwill is assigned to the house of brands segment.
9. INTANGIBLE ASSETS AND GOODWILL
A continuity of intangible assets for the six months ended June 30, 2023 is as follows:
| License |
Customer/Supplier Relationships |
Trademarks |
Patents |
Non- |
Goodwill | Total | |||||||||||||||
| Cost | |||||||||||||||||||||
| At December 31, 2022 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||
| Additions | |||||||||||||||||||||
| Impairment | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | |||||||
| At June 30, 2023 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||
| Accumulated Amortization | |||||||||||||||||||||
| At December 31, 2022 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||
| Additions |