EX-99.2 3 flora_ex992.htm UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS flora_ex992.htm

EXHIBIT 99.2

 

Flora Growth Corp.

 

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

For the three and nine months ended September 30, 2022 and 2021

 

(Unaudited)

 

(Expressed in United States Dollars)

 

 

 

 

Flora Growth Corp.

 

 

 

 

Interim Condensed Consolidated Statements of Financial Position

(Unaudited - Prepared by Management)

(in thousands of United States dollars)

 

 

 

 

As at:

 

September 30,

2022

 

 

December 31,

2021

 

ASSETS

 

 

 

 

 

 

Current

 

 

 

 

 

 

Cash

 

$ 5,900

 

 

$ 37,614

 

Restricted cash

 

 

1

 

 

 

2

 

Trade and amounts receivable (Note 3)

 

 

4,392

 

 

 

5,324

 

Loans receivable and advances

 

 

255

 

 

 

273

 

Prepaid expenses

 

 

1,990

 

 

 

1,700

 

Biological assets (Note 4)

 

 

91

 

 

 

37

 

Inventory (Note 5)

 

 

10,280

 

 

 

2,993

 

Total current assets

 

 

22,909

 

 

 

47,943

 

Non-current

 

 

 

 

 

 

 

 

Property, plant and equipment (Note 6)

 

 

4,349

 

 

 

3,750

 

Right of use assets (Note 6 and 11)

 

 

3,258

 

 

 

1,229

 

Intangible assets (Note 9)

 

 

12,652

 

 

 

9,736

 

Goodwill (Note 9)

 

 

28,856

 

 

 

20,054

 

Investments (Note 7)

 

 

839

 

 

 

2,670

 

Other Assets

 

 

271

 

 

 

97

 

Total assets

 

$ 73,134

 

 

$ 85,479

 

LIABILITIES

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

 

Trade payables and accrued liabilities

 

$ 7,559

 

 

$ 5,628

 

Current portion of long term debt

 

 

5

 

 

 

18

 

Current portion of lease liability (Note 11)

 

 

1,102

 

 

 

412

 

Other accrued liabilities

 

 

18

 

 

 

61

 

Total current liabilities

 

 

8,684

 

 

 

6,119

 

Non-current

 

 

 

 

 

 

 

 

Non-current debt

 

 

79

 

 

 

-

 

Non-current lease liability (Note 11)

 

 

2,137

 

 

 

908

 

Deferred tax (Note 16)

 

 

1,531

 

 

 

1,511

 

Other long term liabilities (Note 8)

 

 

6,537

 

 

 

-

 

Total liabilities

 

 

18,968

 

 

 

8,538

 

SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Share capital (Note 12)

 

 

120,160

 

 

 

102,428

 

Options (Note 13)

 

 

6,242

 

 

 

3,712

 

Warrants (Note 14)

 

 

9,276

 

 

 

10,670

 

Accumulated other comprehensive loss

 

 

(2,723 )

 

 

(1,108 )

Deficit

 

 

(78,457 )

 

 

(38,536 )

Non-controlling interest

 

 

(332 )

 

 

(225 )

Total shareholders' equity

 

 

54,166

 

 

 

76,941

 

Total liabilities and shareholders' equity

 

$ 73,134

 

 

$ 85,479

 

 

Nature of operations (Note 1); Provisions, commitments and contingencies (Note 15); Subsequent events (Note 22)

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

 

 
Page 2

 

 

Flora Growth Corp.

 

 

 

 

 

 

Interim Condensed Consolidated Statements of Loss and Comprehensive Loss

 

 

 

 

 

 

(Unaudited - Prepared by Management)

 

 

 

 

 

 

(in thousands of United States dollars, except per share amounts which are in thousands of shares)

 

 

 

 

 

 

 

For the three months ended September 30,

2022

 

 

For the three months ended September 30,

2021

 

 

For the nine

months ended

September 30,

2022

 

 

For the nine

months ended September 30,

2021

 

Revenue (Note 21)

 

$ 10,765

 

 

$ 2,093

 

 

$ 25,682

 

 

$ 4,211

 

Cost of sales

 

 

5,936

 

 

 

1,474

 

 

 

14,351

 

 

 

2,580

 

Gross profit before fair value adjustments

 

 

4,829

 

 

 

619

 

 

 

11,331

 

 

 

1,631

 

Unrealized gain on changes in fair value of biological assets (Note 4)

 

 

152

 

 

 

-

 

 

 

198

 

 

 

-

 

Realized fair value amounts included in inventory sold (Note 4)

 

 

(10 )

 

 

-

 

 

 

(12 )

 

 

-

 

Gross Profit

 

 

4,971

 

 

 

619

 

 

 

11,517

 

 

 

1,631

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consulting and management fees

 

 

3,237

 

 

 

1,905

 

 

 

8,480

 

 

 

4,167

 

Professional fees

 

 

802

 

 

 

904

 

 

 

2,898

 

 

 

1,670

 

General and administrative

 

 

1,186

 

 

 

610

 

 

 

3,615

 

 

 

2,091

 

Promotion and communication

 

 

2,195

 

 

 

34

 

 

 

6,914

 

 

 

1,214

 

Travel expenses

 

 

288

 

 

 

140

 

 

 

889

 

 

 

283

 

Share based compensation (Note 13)

 

 

139

 

 

 

393

 

 

 

2,994

 

 

 

488

 

Research and development

 

 

170

 

 

 

(20 )

 

 

592

 

 

 

65

 

Depreciation and amortization (Notes 6 and 9)

 

 

985

 

 

 

67

 

 

 

2,697

 

 

 

186

 

Bad debt expense (Note 3)

 

 

631

 

 

 

-

 

 

 

1,036

 

 

 

100

 

Goodwill impairment (Notes 9 and 10)

 

 

-

 

 

 

-

 

 

 

16,000

 

 

 

-

 

Other expenses (income), net

 

 

346

 

 

 

198

 

 

 

1,524

 

 

 

131

 

Total operating expenses

 

 

9,979

 

 

 

4,231

 

 

 

47,639

 

 

 

10,395

 

Operating Loss

 

 

(5,008 )

 

 

(3,612 )

 

 

(36,122 )

 

 

(8,764 )

Interest expense

 

 

75

 

 

 

57

 

 

 

144

 

 

 

121

 

Foreign exchange loss (gain)

 

 

128

 

 

 

(38 )

 

 

328

 

 

 

(116 )

Unrealized loss from changes in fair value (Note 7 and Note 8)

 

 

2,177

 

 

 

-

 

 

 

3,510

 

 

 

-

 

Net loss before income taxes

 

 

(7,388 )

 

 

(3,631 )

 

 

(40,104 )

 

 

(8,769 )

Income tax benefit (Note 16)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Net loss for the period

 

$ (7,388 )

 

$ (3,631 )

 

$ (40,104 )

 

$ (8,769 )

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exchange differences on foreign operations

 

1,048

 

 

463

 

 

1,615

 

 

663

 

Total comprehensive loss for the period

 

$ (8,436 )

 

$ (4,094 )

 

$ (41,719 )

 

$ (9,432 )

Net loss attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Flora Growth Corp.

 

$ (7,358 )

 

$ (3,608 )

 

$ (39,969 )

 

$ (8,705 )

Non-controlling interests

 

 

(30 )

 

 

(23 )

 

 

(135 )

 

 

(64 )

Comprehensive loss attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Flora Growth Corp.

 

$ (8,406 )

 

$ (4,071 )

 

$ (41,584 )

 

$ (9,368 )

Non-controlling interests

 

 

(30 )

 

 

(23 )

 

 

(135 )

 

 

(64 )

Basic and diluted loss per share attributable to Flora Growth Corp.

 

$ (0.10 )

 

$ (0.08 )

 

$ (0.54 )

 

$ (0.21 )

Weighted average number of common shares outstanding - basic and diluted (Note 17)

 

 

76,611

 

 

 

44,199

 

 

 

74,335

 

 

 

41,152

 

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

 

 
Page 3

 

 

Flora Growth Corp.

Interim Condensed Consolidated Statement of Shareholders' Equity (Deficiency)

(Unaudited - Prepared by Management)

(in thousands of United States dollars, except for share amounts which are in thousands of shares)

 

 

Common Shares

 

 

Options

 

 

Warrants

 

 

Accumulated other comprehensive (loss) income

 

 

Accumulated Deficit

 

 

Non-Controlling interest (Deficiency)

 

 

Shareholders' Equity (Deficiency)

 

 

 

#

 

 

$

 

 

 $

 

 

$

 

 

$  

 

 

$

 

 

 

 

 

Balance, December 31, 2020

 

 

38,355

 

 

 

27,254

 

 

 

2,396

 

 

 

3,961

 

 

 

39

 

 

 

(17,287 )

 

 

(113 )

 

 

16,250

 

Initial public offering

 

 

3,333

 

 

 

16,667

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

16,667

 

Initial public offering issuance costs

 

 

-

 

 

 

(3,145 )

 

 

-

 

 

 

1,320

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,825 )

Regulation A and Other Offerings (Note 16)

 

 

55

 

 

 

267

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

267

 

Common shares issued for investments

 

 

225

 

 

 

1,125

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,125

 

Share issuance costs

 

 

-

 

 

 

(2,264 )

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,264 )

Warrants exercised

 

 

3,769

 

 

 

11,114

 

 

 

-

 

 

 

(757 )

 

 

-

 

 

 

-

 

 

 

-

 

 

 

10,357

 

Warrants cancelled

 

 

-

 

 

 

9

 

 

 

-

 

 

 

(9 )

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Options issued

 

 

-

 

 

 

-

 

 

 

488

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

488

 

Other comprehensive loss – exchange differences on foreign operations

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(663 )

 

 

-

 

 

 

-

 

 

 

(663 )

Current year net loss attributable to Flora

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(8,705 )

 

 

(64 )

 

 

(8,769 )

Balance, September 30, 2021

 

 

45,737

 

 

 

51,027

 

 

 

2,884

 

 

 

4,515

 

 

 

(624 )

 

 

(25,992 )

 

 

(177 )

 

 

31,633

 

Balance, December 31, 2021

 

 

65,517

 

 

 

102,428

 

 

 

3,712

 

 

 

10,670

 

 

 

(1,108 )

 

 

(38,536 )

 

 

(225 )

 

 

76,941

 

Share repurchase (Note 12)

 

 

(368 )

 

 

(255 )

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(255 )

Common shares issued for business combinations (Notes 8 and 12)

 

 

9,500

 

 

 

14,697

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

14,697

 

Common shares issued for other agreements (Note 12)

 

 

811

 

 

 

1,470

 

 

 

84

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,554

 

Acquisition of noncontrolling interest (Note 8)

 

 

131

 

 

 

220

 

 

 

63

 

 

 

-

 

 

 

-

 

 

 

(365 )

 

 

28

 

 

 

(54 )

Options issued (Note 13)

 

 

-

 

 

 

-

 

 

 

3,567

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,567

 

Options exercised (Note 13)

 

 

545

 

 

 

102

 

 

 

(20 )

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

82

 

Options expired/cancelled (Note 13)

 

 

-

 

 

 

-

 

 

 

(1,164 )

 

 

-

 

 

 

-

 

 

 

413

 

 

 

-

 

 

 

(751 )

Restricted stock granted (Note 13)

 

 

770

 

 

 

95

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

95

 

Warrants exercised (Note 14)

 

 

473

 

 

 

138

 

 

 

-

 

 

 

(41 )

 

 

-

 

 

 

-

 

 

 

-

 

 

 

97

 

Warrants expired/cancelled (Note 14)

 

 

-

 

 

 

1,353

 

 

 

-

 

 

 

(1,353 )

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Share issuance costs

 

 

-

 

 

 

(88 )

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(88 )

Other comprehensive loss – exchange differences on foreign operations

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,615 )

 

 

-

 

 

 

-

 

 

 

(1,615 )

Current year net loss attributable to Flora

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(39,969 )

 

 

(135 )

 

 

(40,104 )

Balance, September 30, 2022

 

 

77,379

 

 

 

120,160

 

 

 

6,242

 

 

 

9,276

 

 

 

(2,723 )

 

 

(78,457 )

 

 

(332 )

 

 

54,166

 

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

 

 
Page 4

 

 

Flora Growth Corp.

Consolidated Statement of Cash Flows

(Unaudited - Prepared by Management)

(in thousands of United States dollars)

 

 

For the

nine months ended

September 30,

2022

 

 

For the

nine months ended

September 30,

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$ (40,104 )

 

$ (8,769 )

Adjustments to net loss:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

2,697

 

 

 

186

 

Stock-based compensation

 

 

3,184

 

 

 

488

 

Impairments

 

 

16,000

 

 

 

-

 

Changes in fair value of investments, biological assets and liabilities

 

 

3,312

 

 

 

-

 

Bad debt expense

 

 

1,036

 

 

 

100

 

Interest expense

 

 

123

 

 

 

18

 

Income tax benefit

 

 

-

 

 

 

-

 

Income tax (paid) received

 

 

-

 

 

 

-

 

 

 

 

(13,752 )

 

 

(7,977 )

Net change in non-cash working capital:

 

 

 

 

 

 

 

 

Trade and other receivables

 

 

909

 

 

 

(9,692 )

Inventory

 

 

(884 )

 

 

(1,025 )

Prepaid expenses and other assets

 

 

353

 

 

 

(1,596 )

Trade payables and accrued liabilities

 

 

(458 )

 

 

1,005

 

Net cash used in operating activities

 

 

(13,832 )

 

 

(19,285 )

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Common shares issued

 

 

-

 

 

 

18,067

 

Equity issue costs

 

 

(88 )

 

 

(2,431 )

Exercise of warrants and options

 

 

179

 

 

 

10,357

 

Repayments of lease liability

 

 

(707 )

 

 

(97 )

Common shares repurchased

 

 

(255 )

 

 

-

 

Interest paid

 

 

(126 )

 

 

-

 

Loan borrowing (repayments)

 

 

66

 

 

 

(247 )

Net cash (used) provided by financing activities

 

 

(931 )

 

 

25,649

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Loans provided

 

 

-

 

 

 

(268 )

Loan repayments received

 

 

-

 

 

 

224

 

Purchases of property, plant and equipment and other assets

 

 

(948 )

 

 

(1,472 )

Purchase of investments

 

 

-

 

 

 

(3,653 )

Business and asset acquisitions, net of cash acquired

 

 

(15,388 )

 

 

(1,284 )

Net cash used in investing activities

 

 

(16,336 )

 

 

(6,453 )

 

 

 

 

 

 

 

 

 

Effect of exchange rate on changes on cash

 

 

(615 )

 

 

(613 )

 

 

 

 

 

 

 

 

 

Change in cash during the period

 

 

(31,714 )

 

 

(702 )

Cash and cash equivalents at beginning of period

 

 

37,614

 

 

 

15,523

 

Cash and cash equivalents at end of period

 

$ 5,900

 

 

$ 14,821

 

Supplemental disclosure of non-cash activities

 

 

 

 

 

 

 

 

Right of use assets and lease liabilities acquired (Note 11)

 

$ 2,042

 

 

$ -

 

Common shares issued for business combinations (Notes 8)

 

 

14,917

 

 

 

-

 

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

 

 
Page 5

 

 

Flora Growth Corp.

Notes to the interim condensed consolidated financial statements (unaudited)

For the nine months ended September 30, 2022 and September 30,2021

(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 a manufacturer of global cannabis 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 33312.

 

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.

 

2. BASIS OF PRESENTATION

 

Statement of compliance

These interim condensed consolidated financial statements have been prepared by management in accordance with International Financial Reporting Standards (“IFRS”) and International Accounting Standards 34, Interim Financial Reporting (“IAS 34”), issued by the International Accounting Standards Board (“IASB”). These interim condensed consolidated financial statements do not include all notes of the type normally included within the annual financial statements and should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2021 included in our Annual Report on Form 20-F filed with the Securities and Exchange Commission (the “SEC”), which have been prepared in accordance with IFRS issued by the IASB and interpretations issued by the IFRS Interpretations Committee (“IFRIC”).

 

These consolidated financial statements were approved and authorized for issuance by the Board of Directors of the Company on November 22, 2022.

 

Basis of consolidation

These interim condensed 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. As at September 30, 2022, the Company had the following subsidiaries:

 

Subsidiaries

 

Country of incorporation

 

Ownership

 

Functional currency

Cosechemos YA S.A.S.

 

Colombia

 

90%

 

Colombia Peso (COP)

Flora Growth Corp. Sucursal Colombia

 

Colombia

 

100%

 

Colombia Peso (COP)

Hemp Textiles & Co. LLC

 

United States

 

100%

 

United States Dollar (USD)

Hemp Textiles & Co. S.A.S.

 

Colombia

 

100%

 

Colombia Peso (COP)

Flora Beauty LLC

 

United States

 

100%

 

United States Dollar (USD)

Flora Beauty LLC Sucursal Colombia

 

Colombia

 

100%

 

Colombia Peso (COP)

Kasa Wholefoods Company S.A.S.

 

Colombia

 

90%

 

Colombia Peso (COP)

Kasa Wholefoods Company LLC

 

United States

 

100%

 

United States Dollar (USD)

Grupo Farmaceutico Cronomed S.A.S.

 

Colombia

 

100%

 

Colombia Peso (COP)

Labcofarm Laboratorios S.A.S.

 

Colombia

 

100%

 

Colombia Peso (COP)

Breeze Laboratory S.A.S.

 

Colombia

 

100%

 

Colombia Peso (COP)

Vessel Brand Inc.

 

United States

 

100%

 

United States Dollar (USD)

Just Brands LLC

 

United States

 

100%

 

United States Dollar (USD)

Just Brands International LTD

 

United Kingdom

 

100%

 

British Pound (GBP)

High Roller Private Label LLC

 

United States

 

100%

 

United States Dollar (USD)

Flora Growth US Holdings Corp.

 

United States

 

100%

 

United States Dollar (USD)

Flora Growth Management Corp.

 

United States

 

100%

 

United States Dollar (USD)

Cardiff Brand Corp.

 

United States

 

100%

 

United States Dollar (USD)

Keel Brand Corp.

 

United States

 

100%

 

United States Dollar (USD)

Flora Growth F&B Corp.

 

United States

 

100%

 

United States Dollar (USD)

Masaya Holding Corp

 

United States

 

100%

 

United States Dollar (USD)

 

 
Page 6

 

 

Flora Growth Corp.

Notes to the interim condensed consolidated financial statements (unaudited)

For the nine months ended September 30, 2022 and September 30,2021

(United States dollars, except shares and per share amounts)

  

Basis of measurement

The interim condensed consolidated financial statements have been prepared on the historical cost basis, except for certain financial instruments that are measured at fair value and biological assets as explained in the accounting policies included in the audited consolidated financial statements of the Company for the year ended December 31, 2021. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.

 

The unaudited interim condensed consolidated financial statements are presented in United States dollars (“$”) unless otherwise noted.

 

Significant Accounting Policies and Critical Judgments and Estimation Uncertainties

The interim condensed consolidated financial statements were prepared using the same accounting policies, judgments, estimates and assumptions as those used in the Company’s consolidated financial statements for the year ended December 31, 2021, except as noted below for the following new significant transactions that occurred in 2022.

 

Contingent Purchase Consideration

Contingent consideration is measured at its acquisition date fair value and is included as part of the consideration transferred in a business combination, subject to the applicable terms and conditions. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as a liability is remeasured at subsequent reporting dates with the corresponding gain or loss recognized in profit or loss. Management exercises judgment to determine the classification of contingent consideration as equity or liability based on the terms of the agreement and potential for the consideration to result in a cash outflow by the Company. Fair value estimates are determined using appropriate valuation techniques based on the nature of the terms in the purchase agreement.

 

3. TRADE AND AMOUNTS RECEIVABLE

 

The Company’s trade and amounts receivable are recorded at amortized cost. The trade and other receivables balance as at September 30, 2022 and December 31, 2021 consists of trade accounts receivable, amounts recoverable from the Government of Canada for Harmonized Sales Taxes (“HST”) and other receivables.

 

 

 

September 30,

2022

 

 

December 31,

2021

 

Thousands of United States dollars

 

 

 

 

 

 

Trade accounts receivable

 

$ 5,311

 

 

$ 5,565

 

Allowance for expected credit losses

 

 

(2,219 )

 

 

(1,252 )

HST receivable

 

 

468

 

 

 

259

 

Other receivables

 

 

832

 

 

 

752

 

Total

 

$

4,392

 

 

$

5,324

 

 

Changes in the trade accounts receivable allowance in the nine months ended September 30, 2022 primarily relate to establishing allowances for expected credit losses. There were no write-offs of trade receivables during the nine months ended September 30, 2022. The Company has no amounts written-off that are still subject to collection enforcement activity as at September 30, 2022. There was an additional $0.3 million of expected credit losses recorded in other receivables as at September 30, 2022. The Company’s aging of trade accounts receivable is as follows:

 

 

 

September 30,

2022

 

Thousands of United States dollars

 

 

 

Current

 

$ 1,409

 

1-30 Days

 

 

643

 

31-60 Days

 

 

499

 

61-90 Days

 

 

336

 

91-180 Days

 

 

404

 

180+ Days

 

 

2,020

 

Total trade receivables

 

$ 5,311

 

 

 
Page 7

 

 

Flora Growth Corp.

Notes to the interim condensed consolidated financial statements (unaudited)

For the nine months ended September 30, 2022 and September 30,2021

(United States dollars, except shares and per share amounts)

  

4. BIOLOGICAL ASSETS

 

The Company’s biological assets consist of cannabis plants throughout the growth cycle including propagation, vegetative and flowering stages. Cannabis plants cease being biological assets upon harvest when the fair value at time of harvest is transferred to harvested cannabis inventory. The Company has no biological assets with title restricted or pledged as collateral, and no significant commitments for development or acquisition of biological assets as at September 30, 2022.

 

The changes in the carrying value of biological assets are as follows:

 

Thousands of United States Dollars

 

 

 

 

 

 

 

 

THC Cannabis

 

 

CBD Cannabis

 

 

Total

 

Opening balance at December 31, 2021

 

$ -

 

 

$ 37

 

 

$ 37

 

Changes in fair value less cost to sell due to biological transformation

 

 

74

 

 

 

124

 

 

 

198

 

Transferred to harvested cannabis inventory upon harvest

 

 

-

 

 

 

(144 )

 

 

(144 )

Ending balance at September 30, 2022

 

$ 74

 

 

$ 17

 

 

$ 91

 

 

The valuation of biological assets is based on an income approach (Level 3) in which the fair value at the point of harvesting is estimated based on selling prices less the costs to sell. For in-process biological assets (growing plants), the fair value at the point of harvest is adjusted based on the stage of growth at period-end. Harvested cannabis is transferred from biological assets at their fair value at harvest to harvested cannabis within inventory.

 

Significant inputs and assumptions used in determining the fair value of cannabis plants are as follows as at September 30, 2022:

 

 

 

THC Cannabis

 

 

CBD Cannabis

 

Average selling price per gram  (1)

 

$ 0.21

 

 

$ 0.07

 

Weighted average yield (grams per plant)  (2)

 

 

27.38

 

 

 

27.38

 

Standard cost per gram to complete production  (3)

 

$ 0.06

 

 

$ 0.04

 

_______ 

(1)

Average selling price per gram represents estimated selling price of dried cannabis end products net of excise taxes, where applicable, for the period for all strains of cannabis, which is expected to approximate future selling prices. Increasing this amount results in an increase in fair value.

 

 

(2)

Weighted average yield represents the weighted average number of grams of dried cannabis inventory expected to be harvested from each cannabis plant. Increasing this amount results in an increase in fair value.

 

 

(3)

Standard cost per gram to complete production is based on estimated future production costs incurred divided by estimated grams produced in the period. Increasing this amount results in a decrease in fair value.

 

Changes in the assumptions above of 10% would not have a significant impact on the fair value of biological assets as at September 30, 2022.

 

As at September 30, 2022:

 

 

 

THC Cannabis

 

 

CBD Cannabis

 

Weighted average fair value less cost to complete and cost to sell a gram of dried cannabis

 

$ 0.15

 

 

$ 0.04

 

Expected yield from biological assets (total grams)

 

 

248,863

 

 

 

357,159

 

Weighted average stage of growth

 

 

29.2 %

 

 

59.7 %

 

For the nine months ended September 30, 2022, the Company’s biological assets produced the following when harvested:

 

 

 

THC Cannabis

 

 

CBD Cannabis

 

Kilograms of dried cannabis

 

 

-

 

 

 

1,241

 

 

 
Page 8

 

 

Flora Growth Corp.

Notes to the interim condensed consolidated financial statements (unaudited)

For the nine months ended September 30, 2022 and September 30,2021

(United States dollars, except shares and per share amounts)

 

5. INVENTORY

 

Inventory is comprised of the following as at September 30, 2022 and December 31, 2021:

 

Thousands of United States dollars

 

September 30,

2022

 

 

December 31,

2021

 

Raw materials and supplies

 

$ 2,672

 

 

$ 899

 

Harvested cannabis

 

 

146

 

 

 

35

 

Work in progress

 

 

447

 

 

 

97

 

Finished goods

 

 

7,015

 

 

 

1,962

 

Total

 

$ 10,280

 

 

$ 2,993

 

 

6. PROPERTY, PLANT AND EQUIPMENT

 

In Thousands of United States dollars

 

Construction in progress

 

 

Machinery and Office equipment

 

 

Buildings

 

 

Vehicles

 

 

Land

 

 

Subtotal

 

 

Right of use assets

 

 

Total

 

Cost at December 31, 2021

 

$ 905

 

 

$ 1,991

 

 

$ 928

 

 

$ 37

 

 

$ 112

 

 

$ 3,973

 

 

$ 1,532

 

 

$ 5,505

 

Additions

 

 

317

 

 

 

261

 

 

 

31

 

 

 

17

 

 

 

295

 

 

 

921

 

 

 

2,042

 

 

 

2,963

 

Business combinations (Note 8)

 

 

-

 

 

 

506

 

 

 

-

 

 

 

30

 

 

 

-

 

 

 

536

 

 

 

772

 

 

 

1,308

 

Foreign exchange translation

 

 

(141 )

 

 

(220 )

 

 

(115 )

 

 

(6 )

 

 

(45 )

 

 

(527 )

 

 

(119 )

 

 

(646 )

Cost as at September 30, 2022

 

 

1,081

 

 

 

2,538

 

 

 

844

 

 

 

78

 

 

 

362

 

 

 

4,903

 

 

 

4,227

 

 

 

9,130

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated depreciation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at December 31, 2021

 

 

-

 

 

 

(169 )

 

 

(44 )

 

 

(10 )

 

 

-

 

 

 

(223 )

 

 

(303 )

 

 

(526 )

Depreciation

 

 

-

 

 

 

(340 )

 

 

(66 )

 

 

(4 )

 

 

-

 

 

 

(410 )

 

 

(716 )

 

 

(1,126 )

Disposals

 

 

-

 

 

 

28

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

28

 

 

 

-

 

 

 

28

 

Foreign exchange translation

 

 

-

 

 

 

37

 

 

 

12

 

 

 

2

 

 

 

-

 

 

 

51

 

 

 

50

 

 

 

101

 

Accumulated depreciation as at September 30, 2022

 

 

-

 

 

 

(444 )

 

 

(98 )

 

 

(12 )

 

$ -

 

 

 

(554 )

 

 

(969 )

 

 

(1,523 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Carrying value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at December 31, 2021

 

 

905

 

 

 

1,822

 

 

 

884

 

 

 

27

 

 

 

112

 

 

 

3,750

 

 

 

1,229

 

 

 

4,979

 

As at September 30, 2022

 

$ 1,081

 

 

$ 2,094

 

 

$ 746

 

 

$ 66

 

 

$ 362

 

 

$ 4,349

 

 

$ 3,258

 

 

$ 7,607

 

 

7. LONG-TERM INVESTMENTS

 

As at September 30, 2022, the Company’s long-term investments consist of common shares and warrants to purchase additional common shares in an early stage European cannabis company. In 2021, the Company purchased common shares from the investee for Euro 2.0 million ($2.4 million), purchased its first tranche of warrants from existing investors in exchange for 225,000 common shares of the Company, and obtained a second tranche of warrants from the investee as an inducement to exercise some of the first tranche of warrants. As at September 30, 2022, the Company owns approximately 9.6% of the investee, or approximately 8.6% on a diluted basis including exercisable warrants of the Company and other investors.

 

The warrants allow the holder to purchase one common share of the investee for CAD 0.30 ($0.22) for the first tranche, and CAD 1.00 ($0.73) for the second tranche. The warrants were immediately exercisable and expire February 1, 2023.

 

The Company’s cost of the investments was recorded based on the fair value of the consideration exchanged as at the respective transaction dates. The investee is not a publicly listed entity and has no active quoted prices for its common shares or warrants. Subsequent remeasurements are recorded as FVPL as indicated on the unrealized loss from changes in fair value caption on the statement of loss and comprehensive loss. The Company estimated the fair value of the investments as at September 30, 2022 using Level 3 inputs of the fair value hierarchy with the fair value of the investee common shares at $0.22, the first tranche warrants at $0.05, and the second tranche warrants at less than $0.01.

 

 
Page 9

 

 

Flora Growth Corp.

Notes to the interim condensed consolidated financial statements (unaudited)

For the nine months ended September 30, 2022 and September 30,2021

(United States dollars, except shares and per share amounts)

  

The investee common shares were valued considering price to book value and price to tangible book value of the investee (3.6 and 4.8, respectively) as well as comparable guideline publicly traded companies at the time of initial investment. These initial investment multiples were compared to the guideline public company multiples observed as at September 30, 2022 (1.6 price to book value and 2.2 price to tangible value), with these updated valuation multiples applied to the investee’s estimated book value. The Company also considered the status of the investee’s milestones between the purchase date and year-end for indicators of change in value.

 

The fair value of the warrants was developed using a Black-Scholes model for each tranche with the following assumptions:

 

 

 

Warrants CAD 0.30 exercise price

 

 

Warrants CAD 1.00 exercise price

 

Share price

 

$ 0.22

 

 

$ 0.22

 

Exercise price

 

$ 0.22

 

 

$ 0.73

 

Volatility

 

 

100 %

 

 

100 %

Risk-free interest rate

 

 

3.8 %

 

 

3.8 %

Dividend yield

 

 

0.0 %

 

 

0.0 %

Expected term in years

 

 

0.3

 

 

 

0.3

 

Fair value

 

$ 0.05

 

 

$ 0.00

 

Quantity owned

 

 

1,666,667

 

 

 

333,333

 

Fair value

 

$ 83,000

 

 

$ 1,000

 

 

The share price is based on the calculated value of the investee’s common shares as discussed above. The volatility considers actual volatility of comparable guideline public companies.

 

A schedule of the Company’s long-term investments activity is as follows:

 

 

 

Investee common shares

 

 

Warrants CAD 0.30 exercise price

 

 

Warrants CAD 1.00 exercise price

 

 

 

Financial asset hierarchy level

 

Level 3

 

 

Level 3

 

 

Level 3

 

 

Total

 

Thousands of United States dollars

 

$

 

 

$

 

 

 $

 

 

$

 

Balance at December 31, 2021

 

 

1,987

 

 

 

625

 

 

 

58

 

 

 

2,670

 

Loss on changes in fair value

 

 

(1,232 )

 

 

(542 )

 

 

(57 )

 

 

(1,831 )

Balance at September 30, 2022

 

 

755

 

 

 

83

 

 

 

1

 

 

 

839

 

 

The loss on changes in fair value appear in the unrealized loss from changes in fair value caption in the statement of loss and comprehensive loss.

 

As a sensitivity assessment to the fair value calculations, a 10% change in the valuation multiples applied to the investee common shares results in a 10% change in the fair value as at September 30, 2022 of $76,000. Applying a 10% change in share price to the warrants results in an approximately $22,000 change in fair value, and a 10% change in volatility of approximately $8,000.

 

8. ASSET ACQUISITIONS AND BUSINESS COMBINATIONS

 

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 100% of the outstanding equity interests in each of (i) Just Brands LLC and (ii) High Roller Private Label LLC for total purchase consideration of $34.4 million. JustCBD is a manufacturer and distributor of consumable cannabinoid products, including gummies, tinctures, vape cartridges, and creams. JustCBD is based in Florida in the United States and was formed in 2017. The Company acquired JustCBD to expand its product offerings, accelerate its revenue growth, expand its customer and distribution footprints in the United States and for the acquisition of human capital through JustCBD's management team.

 

 
Page 10

 

 

Flora Growth Corp.

Notes to the interim condensed consolidated financial statements (unaudited)

For the nine months ended September 30, 2022 and September 30,2021

(United States dollars, except shares and per share amounts)

   

The purchase consideration was comprised of $16.0 million of cash, less $0.2 million returned to the Company in August 2022 due to final calculated closing working capital falling short of the target working capital, 9.5 million common shares of the Company valued at $14.7 million, inclusive of a 15% fair value discount for the required six-month holding period of the shares, and $4.0 million of contingent purchase consideration. The contingent purchase consideration is based on a clause in the purchase agreement that provides that if at any time during the 24 months following the acquisition date, the five-day volume weighted average price (“VWAP”) per share of the Company's common shares as quoted on the Nasdaq Capital Market fails to equal or exceed $5.00, then the Company shall issue a number of additional common shares to the sellers equal to the difference between (x) a fraction, the numerator of which is $47.5 million and the denominator of which is the highest five day VWAP at any point during the 24 months following the closing and (y) the 9.5 million common shares delivered to the sellers at the closing. In no event shall the Company be required to issue more than 3.65 million common shares unless it shall have obtained the consent of the Company’s shareholders to do so. In the event the Company is required to deliver in excess of 3.65 million shares to the sellers (”Excess Shares”) and the Company shall not have obtained shareholder consent, the Company may deliver cash to the sellers in lieu of such Excess Shares determined by a formula set forth in the purchase agreement. The contingent purchase consideration is classified as a financial liability within other long-term liabilities on the statement of financial position as the Company may be required to settle any amounts due in cash instead of common shares if the Company's common shareholders do not provide requisite shareholder approval to issue additional common shares.

 

The fair value of the contingent purchase consideration at February 24, 2022 was determined using a Monte Carlo simulation incorporating Brownian motion with 100,000 trials through a binomial lattice model. The significant inputs to the valuation included the two-year time period, the Company's closing share price at February 24, 2022 ($1.82), estimated Company common share volatility (100%), and risk free rate of 1.5% to discount the ending result to present value.

 

The fair value of the contingent purchase consideration at September 30, 2022 was determined using a Monte Carlo simulation incorporating Brownian motion with 100,000 trials through a binomial lattice model. The significant inputs to the valuation include the remaining time period, the Company's closing share price at September 30, 2022 ($0.71), estimated Company common share volatility (100%), and risk free rate of 4.1% to discount the ending result to present value. The Company determined that the balance of this contingent consideration at September 30, 2022 was $5.6 million, with the $1.6 million increase over the balance at February 24, 2022 recorded in the unrealized loss from changes in fair value caption in the statement of loss and comprehensive loss.

 

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:

 

(Thousands of United States dollars)

 

 

 

Current assets

 

 

 

Cash

 

$ 535

 

Trade receivables

 

 

975

 

Inventory

 

 

5,534

 

Other current assets

 

 

540

 

 

 

 

 

 

Non-current assets

 

 

 

 

Property, plant, and equipment

 

 

536

 

Right of use assets

 

 

772

 

Other non-current assets

 

 

127

 

Intangible asset

 

 

4,533

 

Goodwill

 

 

24,898

 

Total assets

 

$ 38,450

 

 

 

 

 

 

Current liabilities

 

 

 

 

Trade payables and accrued liabilities

 

$ (2,273 )

Current lease liabilities

 

 

(644 )

Provision for sales tax

 

 

(982 )

Deferred tax

 

 

(24 )

Other current liabilities

 

 

(99 )

Total liabilities

 

$ (4,022 )

Total net assets acquired

 

$ 34,428

 

 

The fair value of the trade receivables reflects a $0.3 million discount to the gross contractual amounts as allowance for potentially uncollectible amounts. Since the acquisition date through September 30, 2022, JustCBD revenue was $17.8 million with net loss and comprehensive loss of $0.6 million.

 

 
Page 11

 

 

Flora Growth Corp.

Notes to the interim condensed consolidated financial statements (unaudited)

For the nine months ended September 30, 2022 and September 30,2021

(United States dollars, except shares and per share amounts)

   

The intangible assets of $4.5 million are comprised of the following categories and estimated useful lives: tradenames of $3.1 million for eight to nine years, customer relationships of $1.2 million for five to seven years, and know-how of $0.2 million for three years. The Company expects the goodwill and intangible asset values to be deductible for Unites States income tax purposes.

 

If JustCBD was acquired at January 1, 2022, the combined revenue and net loss of JustCBD and the Company would have increased approximately $5.2 million and $1.6 million, respectively. 

 

No Cap Hemp Co. business combination

On July 20, 2022, Just Brands LLC., a wholly owned subsidiary of the Company, acquired certain assets, assumed liabilities, employees and processes (together the “purchased assets”) of No Cap Hemp Co. (“No Cap”) for total purchase consideration of $0.9 million. No Cap is a manufacturer and distributor of high quality and affordable CBD products. No Cap is based in Florida in the United States and was formed in 2017. Just Brands LLC acquired No Cap to expand its product offerings and accelerate its revenue growth.

 

As consideration for the purchased assets of No Cap, Just Brands LLC will pay an amount equal to 10% of the sales of No Cap until such a time that Just Brands LLC will have paid a total of $2.0 million. Also on July 20, 2022, Just Brands LLC advanced $0.2 million to the former owners of No Cap. This $0.2 million will be settled prior to and in the same manner as the consideration for the purchased assets. As these entire amounts are considered contingent consideration, it was valued using discounted cash flow models utilizing two different rates, high and low. The significant inputs to the valuation include the estimated nine-year time period to accumulate the $2.0 million maximum payment and discount rates of 23.5%, high, and 14.3%, low, to estimate the present value of the future cash outflows. The resulting acquisition date fair value of $0.9 million contingent purchase consideration is classified within other long term liabilities on the statement of financial position. At September 30, 2022, the remaining balance outstanding was $0.9 million.

 

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:

 

(Thousands of United States dollars)

 

 

Current assets

 

 

Cash

 

$

(150)

 

Trade receivables

 

 

31

 

Inventory

 

 

725

 

Other current assets

 

 

150

 

 

 

 

 

 

Non-current assets

 

 

 

 

Intangible asset

 

 

-

 

Goodwill

 

 

417

 

Total assets

 

$ 1,173

 

 

 

 

 

 

Current liabilities

 

 

 

 

Trade payables and accrued liabilities

 

$ (272 )

Total liabilities

 

$ (272 )

Total net assets acquired

 

$ 901

 

 

The fair value of the trade receivables reflects a $0.2 million discount to the gross contractual amounts as allowance for potentially uncollectible amounts. Since the acquisition date through September 30, 2022, No Cap revenue was $0.4 million with net income and comprehensive income of $0.1 million.

 

The Company expects the goodwill to be deductible for Unites States income tax purposes.

 

If No Cap was acquired at January 1, 2022, the combined revenue of No Cap and the Company would have increased approximately $1.9 million, and the combined net loss would have decreased by $1.0 million.

 

Acquisition of Minority interests

On January 18, 2022, the Company acquired the remaining 10% of the outstanding equity interests in Flora Beauty LLC from its minority shareholder in exchange for 100,000 common shares of the Company and a stock option exercisable for up to 50,000 common shares of the Company at an exercise price of $1.70 per share that expire five years from the date of the grant.

 

On January 31, 2022, the Company completed its acquisition of Breeze by acquiring the remaining 10% of the equity interests in Breeze from its minority shareholders in exchange for 30,282 common shares of the Company.

 

 
Page 12

 

 

Flora Growth Corp.

Notes to the interim condensed consolidated financial statements (unaudited)

For the nine months ended September 30, 2022 and September 30,2021

(United States dollars, except shares and per share amounts)

 

9. INTANGIBLE ASSETS AND GOODWILL  

 

A continuity of intangible assets for the nine months ended September 30, 2022 is as follows:

 

In Thousands of United States dollars

 

License

 

 

Customer Relationships

 

 

Trademarks and Brands

 

 

Patents

 

 

Non-Compete Agreements

 

 

Goodwill

 

 

Total

 

Cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2021

 

$ 610

 

 

$ 1,759

 

 

$ 2,211

 

 

$ 4,300

 

 

$ 1,190

 

 

$ 20,054

 

 

$ 30,124

 

Acquired through business combinations (Note 8)

 

 

-

 

 

 

1,240

 

 

 

3,063

 

 

 

230

 

 

 

-

 

 

 

25,315

 

 

 

29,848

 

Impairment (Note 10)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(16,000 )

 

 

(16,000 )

At September 30, 2022

 

$ 610

 

 

$ 2,999

 

 

$ 5,274

 

 

$ 4,530

 

 

$ 1,190

 

 

$ 29,369

 

 

$ 43,972

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated Amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2021

 

$ 129

 

 

$ 26

 

 

$ 35

 

 

$ 48

 

 

$ 66

 

 

$ -

 

 

$ 304

 

Additions

 

 

113

 

 

 

266

 

 

 

459

 

 

 

435

 

 

 

298

 

 

 

-

 

 

 

1,571

 

At September 30, 2022

 

$ 242

 

 

$ 292

 

 

$ 494

 

 

$ 483

 

 

$ 364

 

 

$ -

 

 

$ 1,875

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign Currency translation

 

 

(38 )

 

 

(6 )

 

 

(32 )

 

 

-

 

 

 

-

 

 

 

(513 )

 

 

(589 )

Net book value at September 30, 2022

 

$ 330

 

 

$ 2,701

 

 

$ 4,748

 

 

$ 4,047

 

 

$ 826

 

 

$ 28,856

 

 

$ 41,508

 

 

The Company’s intangible asset additions in 2022 primarily consist of assets acquired as part of the February 2022 purchase of JustCBD (Note 8). Information regarding the significant JustCBD intangible assets within the indicated categories of the table above is as follows as at September 30, 2022:

 

 

·

Tradenames: carrying amount $2.8 million with 89 to 101 months of remaining amortization periods

 

 

 

 

·

Customer relationships: carrying amount $1.1 million with 53 to 77 months of remaining amortization periods

 

 

 

 

·

Know-how: carrying amount $0.2 million with 29 months of remaining amortization period

 

The Company’s goodwill is assigned to the following cash generating units (“CGU’s”) as at September 30, 2022:

 

In Thousands of United States dollars

 

Pharmaceuticals and nutraceuticals

 

 

Vessel

 

 

JustCBD

 

 

Total

 

As at December 31, 2021

 

$ 379

 

 

$ 19,675

 

 

$ -

 

 

$ 20,054

 

Acquired through business combinations (Note 8)

 

 

-

 

 

 

-

 

 

 

24,802

 

 

 

24,802

 

Impairment

 

 

-

 

 

 

(16,000 )

 

 

-

 

 

 

(16,000 )

As at September 30, 2022

 

$ 379

 

 

$ 3,675

 

 

$ 24,802

 

 

$ 28,856

 

 

10. IMPAIRMENT OF ASSETS

 

The carrying amounts of the Company’s non-financial assets are reviewed for impairment each reporting period or whenever events or changes in circumstances indicate that the carrying amount of an asset exceeds its recoverable amount. The Company determined that there were no events or changes in circumstances that would indicate that the carrying amount of its cash generating units (“CGU”) would exceed their recoverable amount as at September 30, 2022.

 

At June 30, 2022, the Company’s Vessel CGU had external indicators of impairment primarily due to a 2022 decline in comparable public company share prices which would negatively impact the implied valuation of Vessel. As such, the Company tested the Vessel CGU non-financial assets for impairment as at June 30, 2022. The Vessel CGU was acquired in November 2021 and is part of the Company’s consumer products reportable segment.

 

 
Page 13

 

 

Flora Growth Corp.

Notes to the interim condensed consolidated financial statements (unaudited)

For the nine months ended September 30, 2022 and September 30,2021

(United States dollars, except shares and per share amounts)

  

Vessel’s June 30, 2022 carrying value of $28.0 million was comprised primarily of goodwill and identified intangible assets of $28.0 million and other long-lived assets of $1.4 million. The carrying value was reduced by inseparable market participant liabilities associated with the November 2021 acquisition of Vessel which included $1.4 million of deferred tax liability and $1.2 million of lease liability. The estimated recoverable amount of Vessel at June 30, 2022 was $11.9 million, resulting in impairment of $16.0 million as the carrying value of the CGU’s assets exceeded the recoverable amount. The impairment was recorded in goodwill impairment caption on the statement of loss and comprehensive loss.

 

The recoverable amount was based on fair value less costs of disposal. The fair value was determined based on guideline public companies similar to Vessel considering financial metrics such as historical revenue growth, gross margin and EBITDA profitability and with operations focused on consumer brands and similar sales channels. An enterprise value to latest twelve months revenue multiple of 1.75 was selected based on consideration of the enterprise value to latest twelve months multiples of the guideline companies. The multiple was applied to Vessel’s revenue for the twelve months ended June 30, 2022. Estimated costs of disposal of 3% were subtracted to arrive at the recoverable amount. The impairment test valuation is considered a Level 3 method within the IFRS 13 fair value hierarchy.

 

After the impairment, Vessel’s carrying value is equal to its recoverable amount. Any change in the significant assumptions could result in additional impairment of its goodwill and long-lived assets as at June 30, 2022. As a sensitivity assessment to the recoverable amount calculations, reducing the selected revenue multiple by 0.5 from 1.75 above down to 1.25 (approximately 29% decrease) would have resulted in additional goodwill impairment of approximately $3.0 million.

 

11. LEASES

 

The Company’s leases primarily consist of administrative real estate leases in Colombia and the United States, and the Company’s cultivation property in Santander, Colombia. Information regarding the Company’s leases is as follows:

 

Thousands of United States dollars

 

 Nine months ended September 30, 2022

 

 

 Nine months ended September 30, 2021

 

Lease expense

 

 

 

 

 

 

Amortization expense by class of underlying asset

 

 

 

 

 

 

Office Space

 

$ 554

 

 

$ 76

 

Building

 

 

123

 

 

 

5

 

Land

 

 

39

 

 

 

-

 

Total amortization expense

 

 

716

 

 

 

81

 

Interest on lease liabilities

 

 

123

 

 

 

20

 

Short-term and low value assets lease expense

 

 

391

 

 

 

-

 

Total lease expense

 

$ 1,230

 

 

$ 101

 

 

 

 

 

 

 

 

 

 

Other Information

 

 

 

 

 

 

 

 

Additions to right of use assets

 

$ 2,042

 

 

$ -

 

 

 

 

 

 

 

 

 

 

Cash paid for amounts included in the measurement of lease liabilities

 

 

 

 

 

 

 

 

Financing cash flows from leases (interest)

 

 

126

 

 

 

19

 

Financing cash flows from leases (principal)

 

 

707

 

 

 

103

 

Operating cash flows for short term and low value asset leases

 

 

391

 

 

 

-

 

Total cash outflows from leases

 

$ 1,224

 

 

$ 122

 

 

 

 

 

 

 

 

 

 

Carrying amount of right of use asset by class of underlying asset

 

 

 

 

 

 

 

 

Office Space

 

$ 2,264

 

 

$ 195

 

Building

 

 

904

 

 

 

16

 

Land

 

 

90

 

 

 

-

 

Total carrying amount of right of use assets

 

$ 3,258

 

 

$ 211

 

 

 
Page 14

 

 

Flora Growth Corp.

Notes to the interim condensed consolidated financial statements (unaudited)

For the nine months ended September 30, 2022 and September 30,2021

(United States dollars, except shares and per share amounts)

  

The maturity analysis of the undiscounted contractual balances of the lease liability is as follows:

 

Thousands of United States dollars

 

As at

September 30,

2022

 

2023

 

$ 1,327

 

2024

 

 

1,039

 

2025

 

 

433

 

2026

 

 

436

 

2027

 

 

320

 

Thereafter

 

 

210

 

Total undiscounted cash flows

 

$ 3,765

 

Less: present value discount

 

 

(526 )

Total lease liabilities

 

$ 3,239

 

 

Most of the Company’s leases contain renewal options to continue the leases for another term equivalent to the original term, which are generally up to two years. The lease liabilities above include renewal terms that management has executed or is reasonably certain of renewing, which only included leases that would have expired in 2022. The Company’s land lease for 361 hectares of property in Santander, Colombia expires August 31, 2024 and is recorded as a right of use asset in property, plant and equipment. There is an option to extend the lease for an additional five years, unless either the Company or lessor provide notice to terminate the lease at the end of the original term with six months’ notice.

 

12. CAPITAL STOCK

 

Authorized and issued

 

The Company has an unlimited number of common shares, no par value, authorized.

 

The Company had the following significant common share transactions:

 

Nine months ended September 30, 2022

 

FEBRUARY 2022 PAYMENT TO JUSTCBD OWNERS

As discussed in Note 8, the Company issued 9,500,000 common shares of the Company valued at $14.7 million, inclusive of a 15% fair value discount for the required six-month holding period of the shares, to the prior owners of JustCBD as part of the Company’s acquisition of JustCBD in February 2022.

 

ACQUISITION OF NONCONTROLLING INTERESTS

On January 18, 2022, the Company issued 100,000 common shares of the Company valued at $0.2 million to acquire the remaining 10% of the outstanding equity interests in Flora Beauty LLC from its minority shareholders. In addition to the common shares, the Company granted a stock option, exercisable for up to 50,000 common shares of the Company at an exercise price of $1.70 per share that expire five years from the date of the grant.

 

On January 31, 2022, the Company issued 30,282 common shares of the Company valued at $0.1 million to complete its acquisition of Breeze by acquiring the remaining 10% of the equity interests in Breeze from its minority shareholders.

 

OTHER ISSUANCES

In January 2022, the Company amended an agreement with a consultant pursuant to which the Company issued 111,112 common shares of the Company valued at $0.2 million and a stock option, exercisable for up to 83,333 common shares of the Company at an exercise price of $2.25 per share that expire five years from the date of the grant.

 

On April 5, 2022, the Company issued 700,000 common shares of the Company valued at $1.3 million as part of a settlement agreement with Boustead Securities, LLC (“Boustead”) to resolve certain disputes arising under a prior underwriting agreement and engagement letter. In addition to the common shares, the Company paid Boustead $0.4 million.

 

 
Page 15

 

 

Flora Growth Corp.

Notes to the interim condensed consolidated financial statements (unaudited)

For the nine months ended September 30, 2022 and September 30,2021

(United States dollars, except shares and per share amounts)

 

SHARE REPURCHASE

The Company repurchased 368,244 common shares for $0.3 million during the nine months ended September 30, 2022.

 

Any future repurchases will depend on factors such as market conditions, share price and other opportunities to invest capital for growth. From time to time when management does not possess material nonpublic information about the Company or its securities, the Company may enter a pre-defined plan with a broker to allow for the repurchase of shares at times when the Company ordinarily would not be active in the market due to internal trading blackout periods, insider trading rules or otherwise. Any such plans entered with our broker will be adopted in accordance with applicable securities laws such as the requirements of Rule 10b5-1 under the U.S. Securities Exchange Act of 1934, as amended.

 

13. SHARE BASED COMPENSATION

 

The Company adopted the Flora Growth Corp. 2022 Incentive Compensation Plan (the “2022 Plan”) to attract, retain and motivate independent directors, executives, key employees and consultants. The 2022 Plan was approved by the Company’s shareholders on July 5, 2022, and reserves an aggregate of 6,000,000 of the Company’s common shares for issuance in connection with Awards (as defined in the 2022 Plan) granted under the 2022 Plan. Previously, the Company’s shareholders had adopted a “rolling” stock option plan (the “Prior Plan”) which authorized the Company to grant stock options constituting up to 10% of the Company’s issued and outstanding common shares at the time of each option grant. Since the adoption of the 2022 Plan, no further grants have been made or will be made under the Prior Plan; however, any currently outstanding stock options granted prior to July 5, 2022 will remain in effect until they have been exercised or terminated or have expired in accordance with the terms of the Prior Plan. Under the 2022 Plan, the Compensation Committee of our Board of Directors (the “Committee”) may grant a variety of awards including stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalents and other stock-based awards.

 

OPTIONS

Stock options granted under the Prior Plan are non-transferable and non-assignable and may be granted for a term not exceeding five years. Under the 2022 Plan, stock options may be granted with a term of up to ten years and in the case of all stock options, the exercise price may not be less than 100% of the fair market value of a Common Share on the date the award is granted. Stock option vesting terms are subject to the discretion of the Committee.

 

Information relating to share options outstanding and exercisable as at September 30, 2022 and December 31, 2021:

 

 

 

Number of options

 

 

Weighted average exercise price

 

 

 

Thousands

 

 

$

 

Balance, December 31, 2021

 

 

5,448

 

 

 

1.96

 

Granted

 

 

746

 

 

 

1.37

 

Exercised

 

 

(545 )

 

 

0.15

 

Cancelled/Expired

 

 

(601 )

 

 

2.98

 

Balance, September 30, 2022

 

 

5,048

 

 

 

1.95

 

 

Date of expiry

 

Options outstanding

 

 

Options exercisable

 

 

Exercise price

 

 

Grant date fair value vested 

 

 

Remaining life

in years

 

 

 

Thousands

 

 

Thousands

 

 

$

 

 

Thousands of $

 

 

 

June 28, 2024

 

 

915

 

 

 

915

 

 

$ 0.15

 

 

$ 34

 

 

 

1.7

 

April 23, 2025

 

 

33

 

 

 

33

 

 

 

2.25

 

 

 

138

 

 

 

2.6

 

July 6, 2025

 

 

167

 

 

 

167

 

 

 

2.25

 

 

 

138

 

 

 

2.8

 

July 15, 2025

 

 

84

 

 

 

84

 

 

 

2.25

 

 

 

84

 

 

 

2.8

 

July 31, 2025

 

 

-

 

 

 

-

 

 

 

2.25

 

 

 

-

 

 

 

2.8

 

September 8, 2025

 

 

17

 

 

 

17

 

 

 

2.25

 

 

 

23

 

 

 

2.9

 

November 4, 2025

 

 

666

 

 

 

666

 

 

 

2.25

 

 

 

918

 

 

 

3.1

 

December 23, 2025

 

 

500

 

 

 

500

 

 

 

2.25

 

 

 

689

 

 

 

3.2

 

June 3, 2026

 

 

233

 

 

 

233

 

 

 

3.87

 

 

 

669

 

 

 

3.7

 

June 10, 2026

 

 

167

 

 

 

167

 

 

 

3.68

 

 

 

455

 

 

 

3.7

 

September 21, 2026

 

 

16

 

 

 

16

 

 

 

5.20

 

 

 

64

 

 

 

4.0

 

September 25, 2026

 

 

135

 

 

 

135

 

 

 

6.90

 

 

 

692

 

 

 

4.0

 

December 16, 2026

 

 

1,493

 

 

 

243

 

 

 

2.04

 

 

 

1,956

 

 

 

4.2

 

January 17, 2027

 

 

50

 

 

 

50

 

 

 

1.70

 

 

 

63

 

 

 

4.3

 

January 26, 2027

 

 

247

 

 

 

217

 

 

 

1.48

 

 

 

282

 

 

 

4.3

 

May 16, 2027

 

 

50

 

 

 

-

 

 

 

1.30

 

 

 

16

 

 

 

4.6

 

August 18, 2032

 

 

275

 

 

 

-

 

 

 

0.93

 

 

 

21

 

 

 

9.9

 

 

 

 

5,048

 

 

 

3,443

 

 

1.95

 

 

6,242

 

 

 

3.7

 

 

 
Page 16

 

 

Flora Growth Corp.

Notes to the interim condensed consolidated financial statements (unaudited)

For the nine months ended September 30, 2022 and September 30,2021

(United States dollars, except shares and per share amounts)

  

The fair value of stock options issued during the nine months ended September 30, 2022 was determined at the time of issuance using the Black-Scholes option pricing model with the following weighted average inputs, assumptions and results:

 

Risk-free annual interest rate

 

 

2.15 %

Current stock price

 

$ 1.34

 

Expected annualized volatility

 

 

100 %

Expected life (years)

 

 

6.62

 

Expected annual dividend yield

 

 

0 %

Exercise price

 

$ 1.37

 

 

The total expense related to the options granted in the nine months ended September 30, 2022 was $2.9 million (2021 - $0.5 million). This expense is included in the share based compensation line on the statement of comprehensive loss. Generally, the options granted in 2022 vest one year following the date of grant provided that the recipient is still employed or engaged by the Company.

 

A total of 600,830 stock options expired or were forfeited in the nine months ended September 30, 2022.

 

RESTRICTED STOCK AWARDS

Restricted stock is a grant of common shares which may not be sold or disposed of, and which is subject to such risks of forfeiture and other restrictions as the Committee, in its discretion, may impose. A participant granted restricted stock generally has all of the rights of a shareholder of the Corporation, unless otherwise determined by the Committee. Subject to certain exceptions, the vesting of restricted stock awards is subject to the holder’s continued employment or engagement through the applicable vesting date. Unvested restricted stock awards will be forfeited if the holder’s employment or engagement ceases during the vesting period and may, in certain circumstances, be accelerated. The Company values restricted stock awards based on the closing share price of the Company’s common shares as of the date of grant. The fair value of the restricted stock award is recorded as expense over the vesting period.

 

Information relating to restricted stock awards outstanding as at September 30, 2022 and December 31, 2021:

 

 

 

Number of restricted stock awards

 

 

Weighted average grant date fair value

 

 

 

Thousands

 

 

$

 

Balance, December 31, 2021

 

 

-

 

 

 

-

 

Granted

 

 

770

 

 

 

1.06

 

Vested

 

 

(20 )

 

 

0.73

 

Balance, September 30, 2022

 

 

750

 

 

 

1.07

 

 

The total expense related to the restricted stock awards in the period ended September 30, 2022 was $0.1 million (2021 - nil). This expense is included in the share based compensation line on the statement of comprehensive loss. The Company issued 20,000 restricted stock awards that vested immediately on September 28, 2022. The remaining restricted stock awards issued in 2022 vest on July 5, 2023 provided if the award holder is still employed or engaged by the Company.

 

No restricted stock awards expired or were forfeited in the nine months ended September 30, 2022.

 

 
Page 17

 

 

Flora Growth Corp.

Notes to the interim condensed consolidated financial statements (unaudited)

For the nine months ended September 30, 2022 and September 30,2021

(United States dollars, except shares and per share amounts)

  

14. WARRANTS

 

The following tables show warrants outstanding as at September 30, 2022:

 

 

 

Number of warrants

 

 

Weighted average exercise price

 

 

 

Thousands

 

 

 

Balance, December 31, 2021

 

 

8,746

 

 

$ 3.37

 

Exercised

 

 

(473 )

 

 

0.49

 

Cancelled/Expired

 

 

(2,058 )

 

 

3.00

 

Balance, September 30, 2022

 

 

6,215

 

 

$ 3.72

 

 

 

Date of expiry

 

Warrants outstanding

 

 

Exercise price

 

 

Grant date

fair value

 

 

Remaining life

in years

 

 

 

Thousands

 

 

 $

 

 

Thousands of $

 

 

 

October 20, 2022

 

 

5

 

 

 

3.00

 

 

 

3

 

 

 

0.05

 

November 18, 2026

 

 

5,750

 

 

 

3.75

 

 

 

8,706

 

 

 

4.14

 

November 18, 2027

 

 

460

 

 

 

3.30

 

 

 

1,055

 

 

 

5.14

 

 

 

 

6,215

 

 

3.72

 

 

9,764

 

 

 

4.21

 

 

15. PROVISIONS, COMMITMENTS AND CONTINGENCIES

 

Provisions

The Company’s current known provisions and contingent liabilities consist of termination benefits and legal disputes.

 

Thousands of United States dollars

 

Termination benefits

 

 

Legal

disputes

 

 

Sales

tax

 

Balance as at December 31, 2021

 

$ 352

 

 

$ 1,681

 

 

$ -

 

Acquired through business combinations

 

 

-

 

 

 

-

 

 

 

982

 

Payments/Settlements

 

 

(352 )

 

 

(1,681 )

 

 

-

 

Additional provisions

 

 

-

 

 

 

-

 

 

 

616

 

Balance as at September 30, 2022

 

$ -

 

 

$ -

 

 

$ 1,598

 

 

The Sales tax provision relates to estimated amounts owed to certain jurisdictions in the Unites States for sales from the Company's JustCBD operations. The opening balance was acquired during the February 24, 2022 acquisition of JustCBD, with additional provision for estimated amounts due on sales subsequent to the acquisition. The ending balance is recorded within trade payables and accrued liabilities with current liabilities on the consolidated statement of financial position, and as a reduction of revenue on the statement of loss and comprehensive loss.

 

The Company records liabilities for legal proceedings in those instances where it can reasonably estimate the amount of the loss and where liability is probable. The Company is engaged from time-to-time in various legal proceedings and claims that have arisen in the ordinary course of business. The outcome of all the proceedings and claims against the Company is subject to future resolution, including the uncertainties of litigation. Based on information currently known to the Company and after consultation with outside legal counsel, management believes that the probable ultimate resolution of any such proceedings and claims, individually or in the aggregate, will not have a material adverse effect on the financial condition of the Company, taken as a whole as at September 30, 2022.

 

On June 21, 2022, an action was brought against the Company in the Ontario Superior Court of Justice by Gerardo Andres Garcia Mendez claiming that the Company is obligated to issue 3.0 million (pre-one-for three reverse stock split) common shares to him for a purchase price of $0.05 per share. Mr. Mendez claims he is entitled to such shares as a result of alleged consulting services he performed in 2019. The Company disputes his claims and intends to vigorously defend against this action. The Company believes that an unfavorable settlement in this matter is remote, and, as such, has not accrued a liability as of September 30, 2022. 

 

 
Page 18

 

 

Flora Growth Corp.

Notes to the interim condensed consolidated financial statements (unaudited)

For the nine months ended September 30, 2022 and September 30,2021

(United States dollars, except shares and per share amounts)

  

In connection with the Company’s acquisition of JustCBD, the former owners of JustCBD agreed to fully indemnify the Company against any losses which may arise out of certain pre-existing litigation against JustCBD (including all matters disclosed below) as well as litigation which may be brought in the future against JustCBD and pertaining to the period prior to the acquisition. Since these matters are fully indemnified, the Company has not accrued any liability with respect to these claims. As of the date hereof, the following actions are pending against JustCBD:

 

In October, a full and complete settlement was reached in the matter of: Erin Gilbert et al. vs. Just CBD LLC, et al., Case No. 062019CA020275AXXXCE. The matter involved allegations that JustCBD and other named defendants sold a defective vape cartridge which was alleged to have caused Plaintiff, Erin Gilbert, to suffer personal injuries. The terms of the settlement are confidential, but the Company is not required to contribute financially or otherwise, to the settlement. No provision amount was previously recorded related to this matter.

 

William Braley vs. Just Brands USA, Inc., Just Brands FL, LLC, and SSGI Financial Services, Inc., Case No. 21-cv-06812, Northern District of Illinois. This matter involves allegations that the Defendants falsely and deceptively marketed cannabidiol infused gummies as not containing Tetrahydrocannabinol (“THC”). Plaintiff asserts he has suffered damages because after ingesting the gummies he failed an employment related drug test. JustCBD disputes these claims. At this time, JustCBD has filed a motion to dismiss the RICO portion of the complaint and answered and asserted affirmative defenses to the Consumer Protection claims.

 

Management contracts

The Company is party to certain management contracts. As at September 30, 2022, these contracts require payments totaling approximately $2.7 million to be made upon the occurrence of a change in control to the officers of the Company. The Company is also committed to payments to certain individuals upon termination of approximately $1.9 million pursuant to the terms of these contracts. As a triggering event has not taken place, these amounts have not been recorded in these consolidated financial statements.

 

16. INCOME TAXES

 

Income tax expense is recognized at an amount determined by multiplying the income (loss) before income taxes for the interim period for each significant jurisdiction by management’s best estimate of the annual income tax rate expected for the full fiscal year for each significant jurisdiction.

 

There was no current or deferred income tax expense recorded for the nine months ended September 30, 2022. The Company’s effective income tax rate of nil% for the nine months ended September 30, 2022 is different than the statutory rate primarily due to the nonrecognition of deferred tax assets related to net operating losses.

 

17. LOSS PER SHARE

 

The following securities were not included in the computation of diluted shares outstanding because the effect would be anti-dilutive as the Company has a net loss for each period presented:

 

Thousands of securities

 

September 30, 

2022

 

 

September 30,

2021

 

Stock options (Note 13)

 

 

5,048

 

 

 

4,459

 

Warrants (Note 14)

 

 

6,215

 

 

 

5,862

 

Restricted stock awards (Note 13)

 

 

750

 

 

 

-

 

JustCBD potential additional shares to settle contingent consideration (Note 8)

 

 

13,141

 

 

 

-

 

Total anti-dilutive

 

 

25,154

 

 

 

10,321

 

  

Subsequent to September 30, 2022, the Company granted a total of 966,414 Restricted Stock Awards and 1,060,203 Options under the 2022 Plan (Note 22).

 

 
Page 19

 

 

Flora Growth Corp.

Notes to the interim condensed consolidated financial statements (unaudited)

For the nine months ended September 30, 2022 and September 30,2021

(United States dollars, except shares and per share amounts)

  

18. RELATED PARTY DISCLOSURES

 

Key management personnel compensation

 

In addition to their contracted fees, directors and officers also participate in the Company’s stock option program. Certain executive officers are subject to termination notices of 6 to 24 months and change of control payments (Note 15). Key management personnel compensation is comprised of the following:

 

Thousands of United States dollars

 

Nine months ended

September 30, 2022

 

 

Nine months ended

September 30, 2021

 

Directors’ and officers’ compensation

 

$ 1,124

 

 

$ 1,039

 

Share-based payments

 

 

365

 

 

 

2,238

 

 

 

$ 1,489

 

 

$ 3,277

 

 

The Company defines key management personnel as those persons having authority and responsibility for planning, directing, and controlling the activities of the Company directly or indirectly, and was determined to be executive officers and directors (executive and non-executive) of the Company. The remuneration of directors and key executives is determined by the Board of Directors of the Company having regard to the performance of individuals and market trends.

 

As at September 30, 2022, less than $0.1 million of the above directors’ and officers’ compensation was included in the trade payables and accrued liabilities (December 31, 2021 – $0.1 million). These amounts are unsecured, non-interest bearing and due on demand.

 

19. FINANCIAL INSTRUMENTS AND RISK MANAGMENT

 

Environmental

The Company’s growth and development activities are subject to laws and regulations governing the protection of the environment. These laws and regulations are continually changing and generally becoming more restrictive. The Company believes its operations are materially in compliance with all applicable laws and regulations. The Company has made, and expects to make in the future, expenditures to comply with such laws and regulations.

 

Fair value

The Company’s financial instruments measured at amortized cost as at September 30, 2022 and December 31, 2021 consist of cash, restricted cash, trade and amounts receivable, loans receivable, trade payables and accrued liabilities, amounts payable to vendors on business combinations, contingent purchase consideration liabilities, lease liabilities, and debt and loans payable. The amounts reflected in the consolidated statements of financial position approximate fair value due to the short-term maturity of these instruments.

 

Financial instruments recorded at the reporting date at fair value are classified into one of three levels based upon the fair value hierarchy. Items are categorized based on inputs used to derive fair value based on:

 

Level 1 - quoted prices that are unadjusted in active markets for identical assets or liabilities

Level 2 - inputs other than quoted prices included in level 1 that are observable for the asset/liability either directly or indirectly; and

Level 3 - inputs for the instruments are not based on any observable market data.

 

The Company’s long-term investments require significant unobservable inputs and as discussed at Note 7, are measured at FVPL and as a Level 3 fair value financial instrument within the fair value hierarchy as at September 30, 2022. As discussed in Note 8, the Company’s other long-term liabilities consist of the estimated fair value of contingent purchase consideration from the acquisition of JustCBD in February 2022. The amount is measured at FVPL as a Level 2 fair value financial instrument within the fair value hierarchy as at September 30, 2022. As valuations of investments for which market quotations are not readily available are inherently uncertain, may fluctuate within short periods of time and are based on estimates, determination of fair value may differ materially from the values that would have resulted if a ready market existed for the investments. Such changes may have a significant impact on the Company’s financial condition or operating results.

 

Risk management overview

The Company has exposure to credit, liquidity and market risks from its use of financial instruments. This note provides information about the Company’s exposure to each of these risks, the Company’s objectives, policies and processes for measuring and managing risk. Further quantitative disclosures are included throughout these condensed interim consolidated financial statements.

 

Credit risk

Credit risk is the risk of financial loss to the Company if a counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Company’s trade and other receivables, loans receivable and cash held with banks and other financial intermediaries.

 

 
Page 20

 

 

Flora Growth Corp.

Notes to the interim condensed consolidated financial statements (unaudited)

For the nine months ended September 30, 2022 and September 30,2021

(United States dollars, except shares and per share amounts)

  

The carrying amount of the cash, restricted cash, trade and amounts receivables and loan receivable represents the maximum credit exposure as presented in the statement of financial position.

 

The Company has assessed that there has been no significant increase in credit risk of the loans receivable from initial recognition based on the financial position of the borrowers, and the regulatory and economic environment of the borrowers. As a result, the loss allowance recognized during the period was limited to twelve months expected credit losses. Based on historical information, and adjusted for forward-looking expectations, the Company has assessed an insignificant loss allowance on the loans’ receivable and advances as at September 30, 2022 and December 31, 2021.

 

The Company provides credit to certain customers in the normal course of business and has established credit evaluation and monitoring processes to mitigate credit risk. Credit risk for customers is assessed on a case-by-case basis and an allowance for specific expected credit losses is recorded where required, in addition to an estimate of lifetime expected credit losses for the portfolio of accounts receivable. See credit risk analysis for trade receivables at Note 3.

 

The Company held cash and restricted cash of $5.9 million and $37.6 million as at September 30, 2022 and December 31, 2021, respectively, of which, $5.7 million and $37.4 million, respectively, was held with large financial institutions and national central banks. The remaining $0.2 million cash amounts for both periods are held with financial intermediaries in Colombia and the United States. The Company has assessed no significant increase in credit risk from initial recognition based on the availability of funds, and the regulatory and economic environment of the financial intermediary. As a result, the loss allowance recognized during the period was limited to twelve months of expected credit losses. Based on historical information, and adjusted for forward-looking expectations, the Company has assessed an insignificant loss allowance on these cash and restricted cash balances as at September 30, 2022 and December 31, 2021.

 

Market risk

Market risk is the risk that changes in market conditions, such as commodity prices, foreign exchange rates, and interest rates, will affect the Company’s net income or the value of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable limits, while maximizing the Company’s returns.

 

Foreign currency exchange rate risk is the risk that the fair value of future cash flows will fluctuate due to changes in foreign exchange rates. The Company does not currently use foreign exchange contracts to hedge its exposure to currency rate risk as management has determined that this risk is not significant. As such, the Company's financial position and financial results may be adversely affected by the unfavorable fluctuations in currency exchange rates.

 

As at September 30, 2022, the Company had the following monetary assets and liabilities denominated in foreign currencies:

 

 

 

CAD

 

 

COP

 

 

GBP

 

 

EUR

 

 

CHF

 

Thousands of foreign currencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

 

607

 

 

 

1,946,446

 

 

 

41

 

 

 

98

 

 

 

-

 

Amounts receivable

 

 

4

 

 

 

11,605,203

 

 

 

253

 

 

 

-

 

 

 

-

 

Loans receivable

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

250

 

Trade payables

 

 

(216 )

 

 

(5,526,589 )

 

 

(23 )

 

 

-

 

 

 

-

 

Accrued liabilities

 

 

(174 )

 

 

(1,566,035 )

 

 

(22 )

 

 

-

 

 

 

-

 

Lease liability

 

 

-

 

 

 

(1,981,753 )

 

 

(22 )

 

 

-

 

 

 

-

 

Long term debt

 

 

-

 

 

 

(24,743 )

 

 

-

 

 

 

-

 

 

 

-

 

Net carrying value

 

 

221

 

 

 

4,452,529

 

 

 

227

 

 

 

98

 

 

 

250

 

 

 
Page 21

 

 

Flora Growth Corp.

Notes to the interim condensed consolidated financial statements (unaudited)

For the nine months ended September 30, 2022 and September 30,2021

(United States dollars, except shares and per share amounts)

  

As at December 31, 2021, the Company had the following monetary assets and liabilities denominated in foreign currencies:

 

 

 

CAD

 

 

COP

 

 

EUR

 

 

CHF

 

Thousands of foreign currencies

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

 

1,393

 

 

 

4,451,775

 

 

 

896

 

 

 

-

 

Amounts receivable

 

 

72

 

 

 

15,775,755

 

 

 

-

 

 

 

-

 

Loans receivable

 

 

-

 

 

 

-

 

 

 

-

 

 

 

250

 

Trade payables

 

 

(40 )

 

 

(5,398,068 )

 

 

-

 

 

 

-

 

Accrued liabilities

 

 

(589 )

 

 

(2,120,869 )

 

 

-

 

 

 

-

 

Lease liability

 

 

-

 

 

 

(1,690,797 )

 

 

-

 

 

 

-

 

Long term debt

 

 

-

 

 

 

(72,963 )

 

 

-

 

 

 

-

 

Net carrying value

 

 

836

 

 

 

10,944,833

 

 

 

896

 

 

 

250

 

 

Monetary assets and liabilities denominated in Canadian dollars, Colombian pesos, British pounds, Euros and Swiss Francs are subject to foreign currency risk. The Company has estimated that as at September 30, 2022, the effect of a 10% increase or decrease in Canadian dollars, Colombian pesos, British pounds, Euros and Swiss Francs (“CHF”) against the Unites States dollar on financial assets and liabilities would result in an increase or decrease of approximately $0.2 million (December 31, 2021 – $0.5 million) to net loss and comprehensive loss.

 

The Company calculates this sensitivity analysis based on the net financial assets denominated in each currency using the September 30, 2022 exchange rate, then changing the rate by 10%. Management determined 10% is a ‘reasonably possible’ change in foreign currency rates by considering the approximate change in rates in the prior twelve months.

 

It is management’s opinion that the Company is not subject to significant commodity or interest rate risk.

 

Management considers concentration risk with counterparties considering the level of purchases and sales of its business segments (Note 21). Several of the Company’s business units purchase substantially all their inventory or materials from a single supplier.

 

Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with its financial liabilities. The Company’s financial liabilities consist of trade payables and accrued liabilities, loans payable and debt, and lease liabilities as presented on the statement of financial position. The Company had cash and restricted cash as presented on the statement of financial position. The Company has no available credit lines of facilities to draw borrowings from should additional liquidity be needed. The Company’s policy is to review liquidity resources and ensure that sufficient funds are available to meet financial obligations as they become due. Further, the Company's management is responsible for ensuring funds exist and are readily accessible to support business opportunities as they arise.

 

Trade payables and accrued liabilities consist of invoices payable to trade suppliers for administration and professional expenditures. The Company processes invoices within a normal payment period. Trade payables have contractual maturities of less than 90 days. Some suppliers of materials and inventory require full prepayment from the Company prior to providing such goods to the Company. See schedule of future lease commitments at Note 11.

 

The Company’s long-term investments in equity of other entities are not publicly traded and there is not an active market to sell the investments for cash.

 

Novel Coronavirus (“COVID-19”)

The Company’s operations could be significantly adversely affected by the effects of a widespread global outbreak of a contagious disease, including the recent outbreak of respiratory illness caused by COVID-19. The Company cannot accurately predict the impact COVID-19 will have on its operations and the ability of others to meet their obligations with the Company, including uncertainties relating to the ultimate geographic spread of the virus, the severity of the disease, the duration of the outbreak, and the length of travel and quarantine restrictions imposed by governments of affected countries. In addition, a significant outbreak of contagious diseases in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could further affect the Company’s operations and ability to finance its operations.

 

20. CAPITAL MANAGEMENT

 

The Company considers the aggregate of its common shares, options, warrants and borrowings as capital. The Company’s capital management objective is to ensure sufficient resources are available to meet day to day operating requirements and to safeguard its ability to continue as a going concern to provide returns for shareholders and benefits for other shareholders.

 

 
Page 22

 

 

Flora Growth Corp.

Notes to the interim condensed consolidated financial statements (unaudited)

For the nine months ended September 30, 2022 and September 30,2021

(United States dollars, except shares and per share amounts)

  

For the nine months ended September 30, 2022, the Company had negative cash from operations and the main source of cash flow was generated from 2021 and prior financing activities. Potential business activities are appropriately evaluated by senior management and a formal review and approval process has been established by the Board of Directors. The Company may enter new financing arrangements to meet its objectives for managing capital until the Company’s operating cash flows are sufficient to cover its operational requirements. The Company’s capital management objectives were being met in 2022 primarily from the use of existing cash balances from 2021 and prior issuances of common shares and warrants and generating increasing revenue in 2022 from the Company’s reportable segments as presented in Note 21.

 

The Company’s officers and senior management take full responsibility for managing the Company’s capital and do so through quarterly meetings and regular review of financial information. The Company’s Board of Directors is responsible for overseeing this process.

 

The Company is not subject to any external capital requirements.

 

21. SEGMENTED INFORMATION

 

The Company is engaged in the growth, cultivation, and development of medicinal cannabis and medicinal cannabis derivative products through its Colombia Cosechemos subsidiary. The Company’s other businesses are run through its other Colombia and United States subsidiaries. Management has defined the reportable segments of the Company based on this internal business unit reporting, which is by major product line, and aggregates similar businesses into the Consumer Products segment below. The Corporate segment reflects balances and expenses that do not directly influence business unit operations and includes the Company’s long-term investments. The Corporate segment revenue includes the license of intellectual property.

 

The following tables show information regarding the Company’s segments for the three and nine months ended September 30, 2022 and September 30, 2021. The 2022 segments were updated to reflect the acquisitions of JustCBD and No Cap (Note 8) with High Roller Private Label LLC operations assigned to the Pharmaceuticals and nutraceuticals segment, and Just Brands LLC and No Cap assigned to the Consumer products segment.

  

Thousands of United States dollars

 

Cannabis growth and derivative production

 

 

Consumer products

 

 

Pharmaceuticals and nutraceuticals

 

 

Beverage and food

 

 

Corporate and Eliminations

 

 

Total

 

For the three months ended September 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$ 21

 

 

$ 9,934

 

 

$ 2,310

 

 

$ 339

 

 

$ (1,839 )

 

$ 10,765

 

Gross profit

 

 

163

 

 

 

4,028

 

 

 

800

 

 

 

(20 )

 

 

-

 

 

 

4,971

 

Net (loss) income

 

 

(161 )

 

 

(1,391 )

 

 

(51 )

 

 

(154 )

 

 

(5,631 )

 

 

(7,388 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the nine months ended September 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$ 24

 

 

$ 23,537

 

 

$ 6,018

 

 

$ 591

 

 

$ (4,488 )

 

$ 25,682

 

Gross profit

 

 

210

 

 

 

8,332

 

 

 

2,896

 

 

 

79

 

 

 

-

 

 

 

11,517

 

Net (loss) income

 

 

(876 )

 

 

(20,811 )

 

 

266

 

 

 

(616 )

 

 

(18,067 )

 

 

(40,104 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended September 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$ -

 

 

$ 203

 

 

$ 669

 

 

$ 1,241

 

 

$ (20 )

 

$ 2,093

 

Gross profit

 

 

-

 

 

 

160

 

 

 

202

 

 

 

257

 

 

 

-

 

 

 

619

 

Net (loss) income

 

 

(264 )

 

 

462

 

 

 

(208 )

 

 

89

 

 

 

(3,710 )

 

 

(3,631 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the nine months ended September 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$ -

 

 

$ 489

 

 

$ 2,298

 

 

$ 1,551

 

 

$ (127 )

 

$ 4,211

 

Gross profit

 

 

-

 

 

 

333

 

 

 

954

 

 

 

344

 

 

 

-

 

 

 

1,631

 

Net (loss) income

 

 

(692 )

 

 

(395 )

 

 

(158 )

 

 

25

 

 

 

(7,549 )

 

 

(8,769 )

 

 
Page 23

 

 

Flora Growth Corp.

Notes to the interim condensed consolidated financial statements (unaudited)

For the nine months ended September 30, 2022 and September 30, 2021

(United States dollars, except shares and per share amounts)

  

Geographical information:

 

Thousands of United States dollars

 

Colombia

 

 

United States

 

 

Canada

 

 

United Kingdom

 

 

Total

 

Non-current assets at September 30, 2022

 

$ 4,840

 

 

$ 41,962

 

 

$ 983

 

 

$ 2,440

 

 

$ 50,225

 

Total liabilities at September 30, 2022

 

 

2,132

 

 

 

9,982

 

 

 

6,761

 

 

 

93

 

 

 

18,968

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-current assets at December 31, 2021

 

$ 4,042

 

 

$ 29,650

 

 

$ 3,844

 

 

$ -

 

 

$ 37,536

 

Total liabilities at December 31, 2021

 

 

2,359

 

 

 

3,106

 

 

 

3,073

 

 

 

-

 

 

 

8,538

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenue

 

$ 1,039

 

 

$ 9,388

 

 

$ -

 

 

$ 338

 

 

$ 10,765

 

Gross profit

 

 

287

 

 

 

4,491

 

 

 

-

 

 

 

193

 

 

 

4,971

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenue

 

$ 2,670

 

 

$ 22,275

 

 

$ -

 

 

$ 737

 

 

$ 25,682

 

Gross profit

 

 

1,286

 

 

 

9,962

 

 

 

-

 

 

 

269

 

 

 

11,517

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenue

 

$ 2,041

 

 

$ 52

 

 

$ -

 

 

$ -

 

 

$ 2,093

 

Gross profit

 

 

538

 

 

 

81

 

 

 

-

 

 

 

-

 

 

 

619

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenue

 

$ 4,110

 

 

$ 101

 

 

$ -

 

 

$ -

 

 

$ 4,211

 

Gross profit

 

 

1,547

 

 

 

84

 

 

 

-

 

 

 

-

 

 

 

1,631

 

 

In 2022, the Company did not have sales to a single customer exceeding 10% of its consolidated revenue.

 

 
Page 24

 

 

Flora Growth Corp.

Notes to the interim condensed consolidated financial statements (unaudited)

For the nine months ended September 30, 2022 and September 30,2021

(United States dollars, except shares and per share amounts)

  

22. SUBSEQUENT EVENTS

 

ENTRY INTO AGREEMENT TO ACQUIRE FRANCHISE GLOBAL HEALTH

On October 21, 2022, the Company and Franchise Global Health Inc. (“FGH”) entered into an Arrangement Agreement (the “Arrangement Agreement”) pursuant to which the Company intends to acquire all the issued and outstanding common shares of FGH by way of a statutory plan of arrangement (the “Arrangement”) under the Business Corporations Act (British Columbia). As consideration for the acquisition of 100% of the issued and outstanding FGH common shares, at the completion of the Arrangement, the Company will issue between 36,515,060 and 43,525,951 of its common shares, based upon a formula set forth in the Arrangement Agreement. In accordance with the terms set forth in the Arrangement Agreement, upon the completion of the Arrangement, all of the Company’s common shares to be delivered to the former shareholders of FGH shall be restricted from being sold for a period of ninety (90) days following the completion of the Arrangement. In addition, Clifford Starke, the Chairman and Chief Executive Officer of FGH, shall have the right to name two designees to serve on the Company’s board of directors immediately following the closing of the Arrangement and Mr. Starke is currently expected to be one of such designees.

 

Completion of the Arrangement is subject to certain closing conditions customary for transactions of this nature including, among other things, approval of the Arrangement by the Supreme Court of British Columbia and the approval of at least 66 2/3% of the votes cast by shareholders of FGH at a meeting of FGH shareholders.

 

The Arrangement Agreement also provides for a termination fee of CAD $1.0 million to be paid by FGH to the Company if the Arrangement Agreement is terminated in certain specified circumstances. FGH and the Company have also agreed to a reciprocal expense reimbursement of CAD $0.3 million payable if the Arrangement Agreement is terminated in certain circumstances.

 

In addition, the Chairman and Chief Executive Officer of FGH, along with certain of his affiliated entities, have entered into a voting, support and indemnity agreement, pursuant to which, in addition to agreeing to vote their FGH Common Shares in favor of the Arrangement, they have agreed to indemnify the Company for certain potential liabilities of FGH and its subsidiaries for up to US $5.0 million.

 

OTHER

Subsequent to September 30, 2022, the Company granted a total of 966,414 Restricted Stock Awards and 1,060,203 Options under the 2022 Plan. Also, a total of 4,928 warrants expired.

  

 
Page 25