UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___ to ___
Commission
File Number:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s
telephone number, including area code:
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
As of August 16, 2023, there were shares of the registrant’s common stock outstanding and nil shares of the registrant’s preferred shares outstanding.
TABLE OF CONTENTS
| i |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes statements that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and therefore are, or may be deemed to be, “forward-looking statements.” All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q may be forward-looking statements. These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “continues,” “anticipates,” “expects,” “seeks,” “projects,” “intends,” “plans,” “may,” “will,” “would” or “should” or, in each case, their negative or other variations or comparable terminology. They appear in a number of places throughout this Quarterly Report on Form 10-Q, and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies, future acquisitions and the industry in which we operate.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We believe that these risks and uncertainties include, but are not limited to, those described in the “Risk Factors” section of this Quarterly Report on Form 10-Q.
These factors should not be construed as exhaustive and should be read with the other cautionary statements in this Quarterly Report on Form 10-Q.
Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and industry developments may differ materially from statements made in or suggested by the forward-looking statements contained in this Quarterly Report on Form 10-Q. The matters summarized under “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this Quarterly Report on Form 10-Q could cause our actual results to differ significantly from those contained in our forward-looking statements. In addition, even if our results of operations, financial condition and liquidity, and industry developments are consistent with the forward-looking statements contained in this Quarterly Report on Form 10-Q, those results or developments may not be indicative of results or developments in subsequent periods.
In light of these risks and uncertainties, we caution you not to place undue reliance on these forward-looking statements. Any forward-looking statement that we make in this Quarterly Report on Form 10-Q speaks only as of the date of such statement, and we undertake no obligation to update any forward-looking statement or to publicly announce the results of any revision to any of those statements to reflect future events or developments, except as required by applicable law. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless specifically expressed as such, and should only be viewed as historical data.
| ii |
| PART I. | FINANCIAL INFORMATION |
| ITEM 1. | FINANCIAL STATEMENTS (UNAUDITED) |
Condensed Financial Statements (Unaudited)
BRIGHT GREEN CORPORATION
June 30, 2023 and 2022
(Expressed in United States Dollars)
| BRIGHT GREEN CORPORATION |
| For the Three Months and Six Months Ended June 30, 2023 and 2022 (Unaudited) |
Table of Contents
| 1 |
| BRIGHT GREEN CORPORATION |
| Condensed Balance Sheets |
| As at June 30, 2023 and December 31, 2022 |
| (Expressed in United States Dollars) |
| June 30, 2023 | December 31, 2022 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses and other assets | ||||||||
| Total current assets | ||||||||
| Deposits (Notes 5 and 9) | ||||||||
| Equity method investment (Note 6) | ||||||||
| Property, plant, and equipment (Note 7) | ||||||||
| Intangible assets (Note 8) | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable (Note 12) | $ | $ | ||||||
| Accrued liabilities (Note 12) | ||||||||
| Due to others (Note 6) | ||||||||
| Due to related party (Note 10) | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities | ||||||||
| Related party line of credit note (Notes 10 and 12) | ||||||||
| Total long-term liabilities | ||||||||
| Total liabilities | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Common stock; $ par value; stock authorized; and stock issued and outstanding at June 30, 2023 and December 31, 2022, respectively (Note 11) | ||||||||
| Additional paid-in capital (Note 11) | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
| Going Concern (Note 2) | ||||||||
| Commitments (Note 9) | ||||||||
| Contingencies (Note 13) | ||||||||
| Subsequent events (Note 14) | ||||||||
The accompanying notes are an integral part of the condensed financial statements.
| 2 |
| BRIGHT GREEN CORPORATION |
| Condensed Statements of Operations and Comprehensive Loss (Unaudited) |
| For the Three Months and Six Months Ended June 30, 2023 and 2022 |
| (Expressed in United States Dollars) |
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Expenses | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Depreciation | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other expense | ||||||||||||||||
| Foreign currency transaction loss | ||||||||||||||||
| Total other expense | ||||||||||||||||
| Loss before income taxes and equity in net losses of affiliate | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Income tax expense | ||||||||||||||||
| Loss before equity in net losses of affiliate | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Equity in net losses of affiliate (Note 6) | ( | ) | ( | ) | ||||||||||||
| Net loss and comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average common shares outstanding - basic and diluted | ||||||||||||||||
| Net loss per common share - basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
The accompanying notes are an integral part of the condensed financial statements.
| 3 |
| BRIGHT GREEN CORPORATION |
| Condensed Statements of Changes in Stockholders’ Equity (Unaudited) |
| For the Three and Six Months Ended June 30, 2023 and 2022 |
| (Expressed in United States Dollars) |
| Three Months and Six Months Ended June 30, 2023 | ||||||||||||||||||||
| Additional | Total | |||||||||||||||||||
| Common Stock | paid-in | Accumulated | stockholders’ | |||||||||||||||||
| Shares | Amount | capital | deficit | equity | ||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Common stock and warrants issued for cash in a private placement, net of issuance costs of $ | ||||||||||||||||||||
| Common stock issued for services (Note 11) | ||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Balance at December 31, 2022 (Audited) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Common stock and warrants issued for cash in a private placement, net of issuance costs of $ | ||||||||||||||||||||
| Warrants exercised for cash (Note 11) | ||||||||||||||||||||
| Common stock issued for a cashless conversion from related party LOC for EB-5 program (Note 11) | ||||||||||||||||||||
| Common stock issued for cash for EB-5 program (Note 11) | ||||||||||||||||||||
| Common stock issued for services (Note 11) | ||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Three Months and Six Months Ended June 30, 2022 | ||||||||||||||||||||
| Additional | Total | |||||||||||||||||||
| Common Stock | paid-in | Accumulated | stockholders’ | |||||||||||||||||
| Shares | Amount | capital | deficit | equity | ||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Common stock issued for cash (Note 11) | ||||||||||||||||||||
| Common stock issued for services (Note 11) | ||||||||||||||||||||
| Common stock cancelled that was issued for services (Note 11) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Balance at December 31, 2021 (Audited) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Common stock issued for cash (Note 11) | ||||||||||||||||||||
| Common stock issued for services (Note 11) | ||||||||||||||||||||
| Common stock cancelled that was issued for services (Note 11) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
The accompanying notes are an integral part of the condensed financial statements.
| 4 |
| BRIGHT GREEN CORPORATION |
| Condensed Statements of Cash Flows (Unaudited) |
| For the Six Months Ended June 30, 2023 and 2022 |
| (Expressed in United States Dollars) |
| Six Months Ended | ||||||||
| June 30, 2023 | June 30, 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net cash used in operating activities: | ||||||||
| Equity in net losses of affiliate | ||||||||
| Depreciation | ||||||||
| Stock-based compensation | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other assets | ( | ) | ||||||
| Accounts payable | ||||||||
| Accrued liabilities | ||||||||
| Accrued interest | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Deposits | ||||||||
| Purchase of property, plant, and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from related party line of credit | ||||||||
| Proceeds from issuance of common stock | ||||||||
| Proceeds from issuance of common stock and warrants, issued in private placement, net of issuance costs | ||||||||
| Proceeds from warrants exercised | ||||||||
| Net cash provided by financing activities | ||||||||
| NET INCREASE (DECREASE) IN CASH | ( | ) | ||||||
| CASH, BEGINNING OF PERIOD | ||||||||
| CASH, END OF PERIOD | $ | $ | ||||||
| CASH PAID FOR | ||||||||
| Interest | $ | $ | ||||||
| Taxes | $ | $ | ||||||
| SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES | ||||||||
| Transfer from due to related party to related party LOC | $ | $ | ||||||
| Related party LOC in exchange for common stock for EB-5 program | $ | ( | ) | $ | ||||
The accompanying notes are an integral part of the condensed financial statements.
| 5 |
| BRIGHT GREEN CORPORATION |
| Notes to the Condensed Financial Statements (Unaudited) |
| For the Three and Six Months Ended June 30, 2023 and 2022 |
| (Expressed in United States Dollars) |
1. Description of Business and Organization
Bright
Green Corporation (the “Company,” “our,” “us,” “we,” or “Bright Green”) was incorporated on
On March 29, 2022, the Company filed a registration statement pursuant to the Securities Act of 1933, as amended (the “Securities Act”) on Form S-1 with the Securities and Exchange Commission (“SEC”), which was declared effective May 13, 2022, (as amended, the “Registration Statement”), in connection with the direct listing of the Company’s common stock with the Capital Market of the Nasdaq Stock Market LLC (“Nasdaq”).
On May 17, 2022, the Company’s common stock commenced trading on Nasdaq under the symbol “BGXX.”
On February 1, 2023, the Company initiated a private placement offering of our common stock, only to accredited or qualified institutional investors, in reliance upon Rule 506, Regulation D promulgated under the Securities Act, pursuant to the U.S. government’s EB-5 immigrant investor program. Under our EB-5 Program, we may issue up to an aggregate of shares of common stock at $ per share.
On May 21, 2023, the Company entered
into a Securities Purchase Agreement with an accredited investor and existing stockholder of the Company for the sale by the Company
of (i) shares of the Company’s common stock, par value $per share, and (ii) warrants to purchase up to an aggregate of
The
Company is a start-up company at June 30, 2023 and has
2. Going Concern and Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared by the Company in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. The information furnished herein reflects all adjustments, consisting only of normal recurring adjustments, which in the opinion of management, are necessary to fairly state the Company’s financial position, the results of its operations, and cashflows for the periods presented. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with U.S. GAAP were omitted pursuant to such rules and regulations.
The financial information contained in this report should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which the Company filed on April 17, 2023. The results of operations for the six months ended June 30, 2023 are not necessarily indicative of the results for the year ending December 31, 2023.
| 6 |
| BRIGHT GREEN CORPORATION |
| Notes to the Condensed Financial Statements (Unaudited) |
| For the Three and Six Months Ended June 30, 2023 and 2022 |
| (Expressed in United States Dollars) |
| 2. | Going Concern and Basis of Presentation (continued) |
For
the six months ended June 30, 2023 and 2022, the Company had no revenues from product sales and incurred a net loss of $
The Company is in its initial stages of building facilities to grow, research, and distribute medical plants. The Company has historically financed its operations through the sale of equity securities and debt financing. The Company does not have sufficient working capital to pay its operating expenses for a period of at least 12 months from the date the condensed financial statements were authorized to be issued. Therefore, the Company’s continued existence depends on its ability to continue executing its operating plan and obtaining additional debt or equity financing. The Company has developed plans to raise funds and continues to pursue sources of funding that management believes, if successful, would be sufficient to support the Company’s operating plan.
During
the six months ended June 30, 2023, the Company raised $
In addition, the Company’s current and future operations are subject to various risks and uncertainties, including but not limited to general economic conditions, competition, and regulatory matters. Accordingly, the Company’s operation plan is predicated on various assumptions including, but not limited to, the level of product demand, cost estimates, its ability to continue raising additional financing, and the state of the general economic environment in which the Company operates.
| 7 |
| BRIGHT GREEN CORPORATION |
| Notes to the Condensed Financial Statements (Unaudited) |
| For the Three and Six Months Ended June 30, 2023 and 2022 |
| (Expressed in United States Dollars) |
| 2. | Going Concern and Basis of Presentation (continued) |
These risks and uncertainties may have a material adverse effect on the Company’s financial condition and operating results. Management has taken actions to address the Company’s liquidity needs, including managing expenses, developing pathways to revenue, and pursuing additional financing, such as the EB-5 Capital Program announced on February 1, 2023. However, there can be no assurance that such actions will be sufficient to enable the Company to continue as a going concern. There can be no assurance that these assumptions will prove accurate in all material respects or that the Company will be able to successfully execute its operating plan.
The condensed financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. In addition, the Company does not have any short or long-term contractual purchases with suppliers for future purchases, capital expenditure commitments that cannot be canceled with minimal fees, noncancelable operating leases, or any commitment or contingency that would hinder management’s ability to scale down operations and management expenses until funding is raised.
The Company’s ability to continue as a going concern is dependent upon the outcome of the matters described above. The condensed financial statements do not include any adjustments that might result from the outcome of these uncertainties.
This disclosure is intended to inform users of the condensed financial statements about the Company’s current financial condition and its ability to continue as a going concern. The Company will continue to monitor its liquidity position and take appropriate actions as necessary to address any potential going concern issues.
3. Summary of Significant Accounting Policies
A. Basis of Measurement
The condensed financial statements of the Company have been prepared on a historical cost basis except as indicated otherwise.
B. Property, Plant, and Equipment
Property, plant, and equipment is stated at cost less accumulated depreciation. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals and betterments are capitalized. When property, plant, and equipment is retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property, plant, and equipment, except land, which is not depreciated, is provided using the declining balance method, or straight-line method, with estimated lives as follows:
| 8 |
| BRIGHT GREEN CORPORATION |
| Notes to the Condensed Financial Statements (Unaudited) |
| For the Three and Six Months Ended June 30, 2023 and 2022 |
| (Expressed in United States Dollars) |
| 3. | Summary of Significant Accounting Policies (continued) |
| B. | Property, Plant, and Equipment (continued) |
| Building and improvement - declining balance method | ||
| Furniture and fixtures - straight-line method |
Construction in progress is not depreciated until the asset is placed in service.
C. Long-lived Assets
The Company applies the provisions of ASC Topic 360, Property, Plant, and Equipment, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. ASC Topic 360 requires that long-lived assets be reviewed annually for impairment whenever events or changes in circumstances indicate that the assets’ carrying amounts may not be recoverable; it further requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair values are reduced for the cost of disposal.
D. Intangible Assets
The Company’s intangible assets consist of certain licenses (Note 8) which will be amortized over the term of each license. The intangible assets with finite useful lives are reviewed for impairment when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the long-lived assets.
E. Fair Value of Financial Instruments
In accordance with ASC 820 (Topic 820, Fair Value Measurements and Disclosures), the Company uses a three-level hierarchy for fair value measurements of certain assets and liabilities for financial reporting purposes that distinguishes between market participant assumptions developed from market data obtained from outside sources (observable inputs) and our own assumptions about market participant assumptions developed from the best information available to us in the circumstances (unobservable inputs). The fair value hierarchy is divided into three levels based on the source of inputs as follows:
| ● | Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets; |
| 9 |
| BRIGHT GREEN CORPORATION |
| Notes to the Condensed Financial Statements (Unaudited) |
| For the Three and Six Months Ended June 30, 2023 and 2022 |
| (Expressed in United States Dollars) |
| 3. | Summary of Significant Accounting Policies (continued) |
| E. | Fair Value of Financial Instruments (continued) |
| ● | Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability other than quoted prices, either directly or indirectly including inputs in markets that are not considered to be active; and | |
| ● | Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The carrying amounts of the Company’s cash, other assets, accounts payable, accrued liabilities, due to others, and due to related party approximated their fair values as of June 30, 2023 and December 31, 2022 due to their short-term nature.
F. Investments Under the Equity Method
When
the Company does not have a controlling financial interest in an entity but can exert significant influence over the entity’s operating
and financial policies, the investment is accounted for either (i) under the equity method of accounting or (ii) at fair value by electing
the fair value option available under U.S. generally accepted accounting principles (“GAAP”). Significant influence generally
exists when the Company owns
Under the equity method of accounting, investments are initially recorded at cost, including transaction costs incurred to acquire the investment, and thereafter adjusted for additional investments, distributions and the proportionate share of earnings or losses of the investee. The Company evaluated the equity method investment for impairment when events or changes in circumstances indicate that an other-than-temporary decline in value may have occurred.
Derivative Financial Instruments
The Company evaluates all its financial instruments to determine if such instruments contain features that qualify as embedded derivatives. Embedded derivatives must be separately measured from the host contract if all the requirements for bifurcation are met. The assessment of the conditions surrounding the bifurcation of embedded derivatives depends on the nature of the host contract. Bifurcated embedded derivatives are recognized at fair value, with changes in fair value recognized in the condensed statement of operations and comprehensive loss each period. Bifurcated embedded derivatives are classified with the related host contract in the Company’s condensed balance sheets.
| 10 |
| BRIGHT GREEN CORPORATION |
| Notes to the Condensed Financial Statements (Unaudited) |
| For the Three and Six Months Ended June 30, 2023 and 2022 |
| (Expressed in United States Dollars) |
| 3. | Summary of Significant Accounting Policies (continued) |
G. Advertising Costs
Advertising
costs are charged to operations when incurred. Advertising costs totaled $
H. Income Taxes
The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes. ASC 740 requires a company to use the asset and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The Company has not changed its methodology for estimating the valuation allowance. A change in valuation allowance affects earnings in the period the adjustments are made and could be significant due to the large valuation allowance currently established.
Under
ASC 740, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained
in a tax examination, with a tax examination being presumed to occur.
Basic earnings (loss) per share is calculated using the weighted average number of common shares outstanding during the period. The dilutive effect on earnings per share is calculated, presuming the exercise of outstanding options, warrants and similar instruments. It assumes that the proceeds of such exercise would be used to repurchase common shares at the average market price during the period. However, the calculation of diluted loss per share excludes the effects of various conversions and exercise of options and warrants that would be anti-dilutive.
| 11 |
| BRIGHT GREEN CORPORATION |
| Notes to the Condensed Financial Statements (Unaudited) |
| For the Three and Six Months Ended June 30, 2023 and 2022 |
| (Expressed in United States Dollars) |
| 3. | Summary of Significant Accounting Policies (continued) |
J. Segment Reporting
ASC 280-10, “Disclosures about Segments of an Enterprise and Related Information”, establishes standards for how public business enterprises report information about operating segments in the Company’s condensed financial statements. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-maker in deciding how to allocate resources and in assessing performance. Significantly all of the assets of the Company are located in the United States of America and the Company is a start-up company as at June 30, 2023 and 2022 and has no revenue. The Company’s reportable segments and operating segments will include its growth, production and research of medicinal plants operations.
K. Use of Estimates
The preparation of the condensed financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. This applies in particular to valuation allowance for deferred tax assets, valuation of warrants and stock-based compensation, going concern assessment, and assignment of the useful lives of property, plant, and equipment. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
L. Stock-based Compensation
The Company accounts for stock-based payments in accordance with the provision of ASC 718, which requires that all stock-based payments issued to acquire goods or services, including grants of employee stock options, be recognized in the condensed statement of operations and comprehensive loss based on their fair values, net of estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Compensation expense related to stock-based awards is recognized over the requisite service period, which is generally the vesting period.
| 12 |
| BRIGHT GREEN CORPORATION |
| Notes to the Condensed Financial Statements (Unaudited) |
| For the Three and Six Months Ended June 30, 2023 and 2022 |
| (Expressed in United States Dollars) |
| 3. | Summary of Significant Accounting Policies (continued) |
| L. | Stock-based Compensation (continued) |
The Company accounts for stock-based compensation awards issued to non-employees for services, as prescribed by ASC 718-10, at either the fair value of the services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, using the guidelines in ASC 505-50. The Company issues compensatory shares for services including, but not limited to, executive management, management, accounting, operations, corporate communication, financial and administrative consulting services.
M. Warrants
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in FASB, ASC 480 and ASC 815. The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own ordinary shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding. For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each condensed balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the condensed statements of operations and comprehensive loss.
N. Standards, Amendments, and Interpretations Adopted
| 1) | Modification of Equity-Classified Written Call Options |
In April 2021, The FASB issued ASU 2021-04 to codify the final consensus reached by the Emerging Issues Task Force (EITF) on how an issuer should account for modifications made to equity-classified written call options (here-after referred to as a warrant to purchase the issuer’s common stock). The guidance in the ASU requires the issuer to treat a modification of an equity-classified warrant that does not cause the warrant to become liability-classified as an exchange of the original warrant for a new warrant. This guidance applies whether the modification is structured as an amendment
| 13 |
| BRIGHT GREEN CORPORATION |
| Notes to the Condensed Financial Statements (Unaudited) |
| For the Three and Six Months Ended June 30, 2023 and 2022 |
| (Expressed in United States Dollars) |
| 3. | Summary of Significant Accounting Policies (continued) |
| N. | Standards, Amendments, and Interpretations Adopted (continued) |
| 1) | Modification of Equity-Classified Written Call Options (continued) |
to the terms and conditions of the warrant or as termination of the original warrant and issuance of a new warrant. This update is effective for annual periods beginning after December 15, 2021, and interim periods within those periods, and early adoption is permitted. The Company adopted this accounting policy as of January 1, 2022.
| 2) | Leases |
In February 2016, the FASB issued ASU No. 2016-02, Leases. The new standard establishes a right-of-use (ROU) model that requires a lessee to record an ROU asset and a lease liability on the statement of financial position for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the statement of activities.
The new standard became effective for public business entities on January 1, 2019, with early adoption permitted. The new standard became effective for the Company on May 17, 2022, the date the Company became a public entity. The Company adopted this accounting policy as of May 17, 2022.
A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. While the Company continues to evaluate certain aspects of the new standard, including those still being revised by the FASB, the new standard does not have a material effect on the Company’s financial statements. As of June 30, 2023, the Company has one month to month lease, whereas the new standard does not apply.
| 3) | Fair Value Measurement |
In August 2018, the FASB issued Accounting Standards Update (ASU) 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement”, which changes the fair value measurement disclosure requirements of ASC 820. This update was effective for fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years. Effective October 4, 2022, the Company adopted FASB guidance on the recognition and measurement of financial instruments (Note 6).
| 14 |
| BRIGHT GREEN CORPORATION |
| Notes to the Condensed Financial Statements (Unaudited) |
| For the Three and Six Months Ended June 30, 2023 and 2022 |
| (Expressed in United States Dollars) |
4. Concentration of Credit Risk
Financial
instruments that potentially subject the Company to concentration of credit risk consist principally of cash deposits. Accounts at each
institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $
5. Deposits
As of December 31, 2022, deposits were comprised of one down payment for a construction of equipment contract for which the Company had not yet taken title and one down payment for a construction contract for which the work had not started. As of June 30, 2023, the Company has still not taken title of the equipment and the construction contract was completed (Note 9).
6. Equity Method Investment in Alterola
On October 3, 2022, the Company entered into a Secondary Stock Purchase Agreement and Release (the “Secondary SPA”) with Phytotherapeutix Holdings Ltd., a United Kingdom entity, Equipped4 Holdings Limited, a United Kingdom entity, TPR Global Limited, a United Kingdom entity (each, a “Seller” and collectively, the “Sellers”) and Alterola Biotech Inc., a Nevada corporation (“Alterola”) providing for the purchase by Bright Green of shares of Common Stock of Alterola from the Sellers (the “Transferred Shares”).
The
Secondary SPA provides that, as of the date thereof, the authorized shares of Alterola consist of shares of common stock,
$ par value, of which shares are issued and outstanding. The Sellers Transferred Shares consisted of, in aggregate,
shares of Common Stock, which were sold to Bright Green for a purchase price of $
The
Sellers held
| 15 |
| BRIGHT GREEN CORPORATION |
| Notes to the Condensed Financial Statements (Unaudited) |
| For the Three and Six Months Ended June 30, 2023 and 2022 |
| (Expressed in United States Dollars) |
| 6. | Equity Method Investment in Alterola (continued) |
Concurrently with the signing of the Secondary SPA, Bright Green and the Sellers entered into a voting agreement (the “Voting Agreement”) whereby the Sellers agree to vote in favor of the adoption of an agreement to effect Bright Green’s acquisition of Alterola or the Alterola’s merger into Bright Green or a subsidiary of Bright Green, as the case may be, pursuant to additional terms set forth in the Voting Agreement. The agreement will terminate upon the earlier of eight months from the date of the agreement or written notice by Bright Green.
Concurrently
with the execution of the Voting Agreement, each Stockholder agrees to deliver to Bright Green an Irrevocable Proxy (“Proxy”).
The
Company accounted for the transaction under the equity method and recorded the carrying value of the Company’s investment in Alterola
common shares at cost, including transaction costs incurred to obtain the equity method investment of $
Due to an inability to timely obtain the June 30, 2023’s financial information for Alterola, the following table provides summarized balance sheet information available for Alterola as of March 31, 2023 and December 31, 2022:
| March 31, 2023 | December 31, 2022 | |||||||
| Current assets | $ | $ | ||||||
| Non-current assets | ||||||||
| Current Liabilities | ||||||||
| Non-current liabilities | ||||||||
| Equity | $ | $ | ||||||
Due to an inability to timely obtain the June 30, 2023’s financial information for Alterola, the following table provides summarized income statement information available for Alterola for the three months ended March 31, 2023 and 2022:
| Three Months Ended | ||||||||
| March 31, 2023 | March 31, 2022 | |||||||
| Total revenues | $ | $ | ||||||
| Net loss | $ | $ | ||||||
| 16 |
| BRIGHT GREEN CORPORATION |
| Notes to the Condensed Financial Statements (Unaudited) |
| For the Three and Six Months Ended June 30, 2023 and 2022 |
| (Expressed in United States Dollars) |
| 6. | Equity Method Investment in Alterola (continued) |
The
Company’s ownership percentage of
On April 4, 2023, the Company announced its intention to acquire the remaining issued and outstanding common stock of Alterola. However, as of June 30, 2023, the Company is currently negotiating a new agreement with the Sellers.
Voting Agreement
The
Voting Agreement was initially measured at fair value utilizing the Black-Scholes-option-pricing model based on the following assumptions:
dividend rate of , risk free rate of , term of years, volatility of , the stock price of $ million, inclusive of
a Control Premium of % valued at $ million, determined using the Recent Transaction Method as the transaction was determined to
be arms-length, and a strike price of $ million reflecting the option to purchase the remaining % of the outstanding shares of
common stock for $
As of December 31, 2022, the value of the option was impaired to $nil to reflect the likelihood that the option would be exercised according to the terms set forth. At June 30, 2023, the option has expired.
7. Property, Plant, and Equipment
The
Company owns an expansive
Property, plant, and equipment at June 30, 2023 and December 31, 2022, consisted of the following:
| June 30, 2023 | December 31, 2022 | |||||||
| Furniture and fixtures | $ | $ | ||||||
| Land | ||||||||
| Construction in progress | ||||||||
| Building and improvement | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Net property, plant, and equipment | $ | $ | ||||||
| 17 |
| BRIGHT GREEN CORPORATION |
| Notes to the Condensed Financial Statements (Unaudited) |
| For the Three and Six Months Ended June 30, 2023 and 2022 |
| (Expressed in United States Dollars) |
| 7. | Property, Plant, and Equipment (continued) |
The
amount of interest costs capitalized and included in construction in progress totaled $
Real Estate Options
In 2020, the Company entered into a merger agreement with Grants Greenhouse Growers, Inc. and acquired the following two land options:
| - | A
Real Estate Option Agreement dated October 5, 2020, and expiring on | |
| - | A
Real Estate Option Agreement dated October 21, 2020, and expiring on |
As of December 31, 2022, the Company notified the two land owners of the Company’s intention to exercise the two Real Estate Option Agreements. The Company is in the process of negotiating final terms of the two acquisitions. As of June 30, 2023, the acquisitions have not been completed.
8. Intangible Assets
Intangible assets at June 30, 2023 and December 31, 2022, consisted of the following:
| June 30, 2023 | December 31, 2022 | |||||||
| Licenses | $ | $ | ||||||
| Accumulated amortization | ||||||||
| Net intangible assets | $ | $ | ||||||
9. Commitments
In
2022, the Company entered a contract to purchase equipment for $
| 18 |
| BRIGHT GREEN CORPORATION |
| Notes to the Condensed Financial Statements (Unaudited) |
| For the Three and Six Months Ended June 30, 2023 and 2022 |
| (Expressed in United States Dollars) |
10. Related Party Line of Credit Note
On
June 5, 2022, the Company and LDS Capital LLC (“Lender”), whose managing member is a member of the Board, entered into an
unsecured line of credit in the form of a note (the “June Note”). The Note provides that the Company may borrow up to $
As
of June 30, 2023, the Lender has funded the Company $
On
February 1, 2023, through a cashless conversion, the related party line of credit note was used to pay in full the related party loan
balance of $
On
February 6, 2023, through a cashless conversion, the related party line of credit note was paid down $
On
March 14, 2023, the Company drew an additional $
11. Stockholders’ Equity
The Company has authorized shares of $ par value common stock and shares of $ par value preferred stock. As of June 30, 2023, and December 31, 2022, there were and , respectively, of common shares issued and outstanding. The Company has not issued any preferred shares to date.
| 19 |
| BRIGHT GREEN CORPORATION |
| Notes to the Condensed Financial Statements (Unaudited) |
| For the Three and Six Months Ended June 30, 2023 and 2022 |
| (Expressed in United States Dollars) |
| 11. | Stockholders’ Equity (continued) |
During the six months ended June 30, 2023, the Company issued the following:
| - | ||
| - |
shares of common stock issued at $ per share, to a member of the Board in February 2023, through a cashless conversion; the
related party line of credit note was paid down $ | |
| - | shares of common stock issued at $ per share, to one accredited investor in March 2023, pursuant to the Company’s EB-5 Program; | |
| - | shares of common stock for services rendered, at a fair value of $ per share, to the Company’s Executive Chairman, in March 2023 (Note 12); | |
| - | shares of common stock for services rendered, at a fair value of $ per share, to the Company’s Chief Executive Officer, in May 2023 (Note 12); | |
| - |
shares of common stock and warrants to purchase up to an aggregate of | |
| - | shares of common stock for services rendered, at a fair value of $ per share, to the Company’s Executive Chairman, in June 2023 (Note 12). |
Private Placement Offerings
September 2022 Private Placement
On
September 7, 2022, the Company entered into a Securities Purchase Agreement with investors for
the sale by the Company of shares of common stock and warrants to purchase up to an aggregate of
| 20 |
| BRIGHT GREEN CORPORATION |
| Notes to the Condensed Financial Statements (Unaudited) |
| For the Three and Six Months Ended June 30, 2023 and 2022 |
| (Expressed in United States Dollars) |
| 11. | Stockholders’ Equity (continued) |
In connection with the September 2023 Private Placement, the Company entered into a Registration Rights Agreement with the investors. The Company’s registration statement on Form S-1 to register the securities issued in the September 2022 Private Placement went effective on September 21, 2022.
Transaction
costs incurred related to the September 2022 Private Placement include the following: (i) placement agent fees of $
May 2023 Private Placement
On
May 21, 2023, the Company entered into a Securities Purchase Agreement with an accredited investor
and existing stockholder of the Company. The combined purchase price of one share and the accompanying warrant (“May 2023 Warrants”)
was $. Subject to certain ownership limitations, the May 2023 Warrants are exercisable immediately after issuance at an exercise
price equal to $
In connection with the May 2023 Private Placement, the Company entered into a Registration Rights Agreement with the investor. The Company’s registration statement on Form S-3 to register the securities issued in the May 2023 Private Placement went effective on June 5, 2023.
Transaction
costs incurred related to the May 2023 Private Placement include the following: (i) placement agent fees of $
Warrants
September 2022 Warrants
In
the Company’s September 2022 Private Placement, Warrants to purchase up to
| 21 |
| BRIGHT GREEN CORPORATION |
| Notes to the Condensed Financial Statements (Unaudited) |
| For the Three and Six Months Ended June 30, 2023 and 2022 |
| (Expressed in United States Dollars) |
| 11. | Stockholders’ Equity (continued) |
The
fair value of the September 2022 Warrants immediately prior to the modification was $
May 2023 Warrants
In
the Company’s May 2023 Private Placement, Warrants to purchase up to shares of Common Stock were issued (“May 2023
Warrants”). The fair value of the May 2023 Warrants was determined utilizing a Black Scholes model considering all relevant assumptions
current at the date of issuance (i.e., share price of $, exercise price of $
During the six months ended June 30, 2022, the Company issued the following:
| - |
shares of common stock at a purchase price of $ per share, for gross cash proceeds of $ | |
| - | shares of common stock for services rendered, at a fair value of $ per share determined using the per share purchase price of the latest $ private placement Round, to the Chief Financial Officer of the Company, in April 2022; | |
| - | shares of common stock for services rendered, at a fair value of $ per share determined using the per share purchase price of the latest $ private placement Round, to six consultants in April 2022; | |
| - | shares of common stock that were issued in January 2021 to a director of the Company, for services valued at $ per share determined using the per share purchase price of the $ Round, were canceled in April 2022; | |
| - |
shares of common stock at a purchase price of $ per share, for gross cash proceeds of $ | |
| - | shares of common stock that were issued in June 2019 to a consultant of the Company, for services valued at $ per share determined using an asset approach, were canceled in June 2022. |
| 22 |
| BRIGHT GREEN CORPORATION |
| Notes to the Condensed Financial Statements (Unaudited) |
| For the Three and Six Months Ended June 30, 2023 and 2022 |
| (Expressed in United States Dollars) |
12. Related Party Transactions
Other than the transactions disclosed elsewhere in the condensed financial statements, the following are the other significant related party transactions and balances:
Included in common stock issued for services during the six months ended June 30, 2023, were shares of common stock issued to the Executive Chairman of the Company (Note 11).
Included in common stock issued for services during the six months ended June 30, 2023, were shares of common stock issued to the Chief Executive Officer of the Company (Note 11).
At
June 30, 2023, $
At
June 30, 2023, $
At
June 30, 2023, $
At
June 30, 2023, $
At
June 30, 2023, the outstanding
balance on the related party line of credit note of $
13. Contingencies
In the ordinary course of business, the Company is routinely defendants in, or parties to a number of pending and threatened legal actions including actions brought on behalf of various classes of claimants. In view of the inherent difficulty of predicting the outcome of such matters, the Company cannot state what the eventual outcome of such matters will be. Legal provisions are established when it becomes probable that the Company will incur an expense related to a legal action and the amount can be reliably estimated. Such provisions are recorded at the best estimate of the amount required to settle any obligation related to these legal actions as at the balance sheet date, taking into account the risks and uncertainties surrounding the obligation. Management and internal and external experts are involved in estimating any amounts that may be required. The actual costs of resolving these claims may vary significantly from the amount of the legal provisions. The Company’s estimate involves significant judgement, given the varying stages of the proceedings, the fact that the Company’s liability, if any, has yet to be determined and the fact that the underlying matters will change from time to time. Other than as set forth below, the Company is not presently a party to any litigation. The Company is not able to make a reliable assessment of the potential losses as these matters are at an early stage, accordingly, no amounts have been accrued in the condensed financial statements.
Bright Green Corporation v. John Fikany, State of New Mexico, County of Cibola, Thirteenth Judicial District. In this matter, the Company filed a complaint for declaratory judgment against a consultant of the Bright Green Group of Companies, an entity unrelated to the Company, to determine if defendant is entitled to 5,000,000 shares of the Company’s common stock, based on a failure to fulfill agreed upon conditions precedent to earning such shares from the Company. Defendant counterclaimed and filed a third-party claim against a director of the Company, and her spouse, for claims including wrongful termination and breach of contract. The Company denies defendants allegations and have set forth arguments refuting defendant’s counterclaims and third-party claims. The case is in the discovery phase. The Company is exploring potential dispositive motions against the counter and third-party claims.
Bright
Green Corporation v. Jerry Capussi, State of New Mexico, County of Cibola, Thirteenth Judicial District. In this matter, the Company
and defendant, a former consultant of Sunnyland Farms Inc., an entity unrelated to the Company, have each filed claims for declaratory
judgment seeking to determine by court order whether defendant is entitled to
14. Subsequent Events
The Company’s management has evaluated the subsequent events up to August 16, 2023, the date the financial statements were issued, pursuant to the requirements of ASC 855, and has determined that the following constitute material subsequent events:
On July 31, 2023, the Company issued shares to a consultant for professional services, pursuant to the terms of a consulting services agreement.
| 23 |
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed financial statements and the accompanying notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements based upon current plans, expectations, and beliefs, involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements. You should review the sections titled “Special Note Regarding Forward-Looking Statements” and “Risk Factors” in this Quarterly Report, our most recent Annual Report on Form 10-K, subsequent Quarterly Reports on Form 10-Q, and other periodic reports filed with the Securities and Exchange Commission (the “SEC”) for discussions of forward-looking statements and factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis, and elsewhere in this Quarterly Report on Form 10-Q. Our historical results are not necessarily indicative of the results that may be expected for any period in the future.
Overview
Bright Green Corporation (“Company”, “BGC”, “Bright Green”, “we”, “us”, or “our”) is a first-mover in the U.S. federally-authorized cannabis space. BGC is one of a few companies who have received from the U.S. Drug Enforcement Administration (the “DEA”), a federal controlled substances registration for the bulk manufacturing of cannabis under DEA Registration No. RB0649383 (the “DEA Registration”), which allows the Company to produce federally legal cannabis, cannabis extracts, and tetrahydrocannabinol in the U.S. We received the DEA Registration on April 28, 2023, pursuant to the Memorandum of Agreement (the “MOA”) with the DEA entered into on April 27, 2023, which replaced the 2021 Memorandum of Agreement (the “2021 MOA”) (DEA Document Control Number W20078135E).
Unlike state-licensed cannabis companies who engage in commercial sales to consumers, and whose businesses are legal under state law but not federal law, subject to the milestones and requirements set forth herein, we are authorized by the federal government to sell cannabis commercially for research and manufacturing purposes, export cannabis for international cannabis research purposes, and sell cannabis to DEA-registered pharmaceutical companies for the production of medical cannabis products and preparations. Our business activities under the DEA Registration are subject to applicable federal law and regulations and to our obligations under the MOA we entered into with the DEA. Our DEA Registration is valid through July 31, 2024. We plan to focus on the development of cannabis strains and sales of cannabis and hemp products with high contents of CBN (cannabinol) and CBG (cannabigerol).
In addition to research and pharmaceutical supply sales, Bright Green will be able to sell certain cannabinoids, such as CBN (cannabinol) and CBG (cannabigerol) as hemp isolates or extracts, and plans to sell CBN and CBG hemp products to consumers where such products are fully legal under all applicable laws. On August 9, 2022, the DEA confirmed to BGC that cannabinoids, including, but not limited to CBN/CBG, which meet the definition of “hemp” by having a Delta-9-tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis, are outside of the DEA’s jurisdiction because they are not controlled under the CSA. Hemp and hemp products were made legal by the Agriculture Improvement Act of 2018 (the “2018 Farm Bill”), which has been codified in 21 U.S.C. § 802(16)(B)(i), and 7 U.S.C. § 1639o. This hemp product business line will be in addition to our research and pharmaceutical cannabis activities conducted under the DEA Registration.
Because cannabis is still a Schedule I controlled substance in the U.S., it has been historically under-researched. Though the majority of Americans now live in states where cannabis is legal, the full potential of the cannabis plant for medicinal use remains understudied due to limited access to federally-approved cannabis. The DEA recently issued a call for more cannabis research supply based on the increased demand for cannabis research in the U.S. As described herein, on April 28, 2023, we received the DEA Registration, which allows us to produce federally legal cannabis, cannabis extracts, and tetrahydrocannabinol and to sell legally within the U.S. to licensed researchers and pharmaceutical companies, in addition to qualifying us to export cannabis internationally.
| 24 |
BGC must comply with the terms agreed upon pursuant to the MOA which include: submitting an Individual Procurement Quota on or before April 1 of each year utilizing DEA Form 250; submitting an Individual Manufacturing Quota on or before May 1 of each year utilizing DEA Form 189; collecting samples of cannabis and distributing them to DEA-registered analytical laboratories for chemical analysis during the pendency of cultivation and prior to the DEA’s taking possession of the cannabis grown; providing the DEA with 15-day advance written notification, via email, of its intent to harvest cannabis; following the DEA’s packaging, labeling, storage and transportation requirements; distributing DEA’s stocks of cannabis to buyers who entered into bona fide supply agreements with the Company; providing the DEA with 15-day advance written notification of its intent to distribute cannabis; and invoicing the DEA for harvested cannabis that it intends to sell to the DEA.
Having received our DEA Registration, we are permitted to cultivate and manufacture cannabis, supply cannabis researchers in the U.S. and globally, and produce cannabis for use in pharmaceutical production of prescription medicines within the U.S. Our DEA Registration permits our cannabis activities under federal law, which sets BGC apart from most other U.S. cannabis companies.
We have assembled an experienced team of medical professionals and researchers, international horticultural growers and experts, and construction and cannabis production professionals, which we believe position us as a future industry leader in the production of cannabis.
Recent Developments
None.
Results of Operations
This section includes a summary of our historical results of operations, followed by detailed comparisons of our results for the three and six months ended June 30, 2023 and June 30, 2022.
The Company has not started commercial operations but has incurred expenses in connection with corporate and administrative matters, upkeep of acquired properties for future growing, processing and distribution of medical plants, and improvements to those properties. These expenses include stock-based compensation for services rendered, legal and audit fees, and property-related expenses such as depreciation, insurance and taxes. As a result, the Company reported a net loss both reporting periods.
| 25 |
Three and six months ended June 30, 2023 compared to three and six months ended June 30, 2022.
Revenue:
We are a start-up company and have not generated any revenues for the three and six months ended June 30, 2023 and 2022. We can provide no assurance that we will generate sufficient revenues from our intended business operations to sustain a viable business operation.
Operating Expenses:
We incurred operating expenses in the amount of $2,986,506 for the three months ended June 30, 2023, as compared with $19,181,093 for the same period ended 2022. We incurred operating expenses in the amount of $5,599,129 for the six months ended June 30, 2023, as compared with $19,907,439 for the same period ended 2022. Our operating expenses for all periods consisted entirely of general and administrative expenses and depreciation. The detail by major category within general and administrative expenses for the three and six months ended June 30, 2023 and 2022 is reflected in the table below.
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | |||||||||||||
| Stock-based compensation | $ | 1,448,750 | $ | 14,578,468 | $ | 2,272,650 | $ | 14,578,468 | ||||||||
| Professional fees | 720,478 | 4,069,967 | 1,646,571 | 4,532,173 | ||||||||||||
| Officer salaries | 464,549 | - | 945,306 | - | ||||||||||||
| Other expenses | 118,360 | 88,370 | 241,893 | 99,435 | ||||||||||||
| Insurance | 37,405 | 33,602 | 78,311 | 46,903 | ||||||||||||
| Travel | 23,201 | 120,691 | 63,016 | 132,337 | ||||||||||||
| Property taxes | 14,528 | 14,498 | 29,056 | 28,997 | ||||||||||||
| Licenses | 25 | 70,335 | 5,575 | 81,658 | ||||||||||||
| Land option | - | 10,500 | - | 21,000 | ||||||||||||
| Total general and administrative expenses | $ | 2,827,296 | $ | 18,986,431 | $ | 5,282,378 | $ | 19,520,971 | ||||||||
| Depreciation | 159,210 | 194,662 | 316,751 | 386,468 | ||||||||||||
| Total operating expenses | $ | 2,986,506 | $ | 19,181,093 | $ | 5,599,129 | $ | 19,907,439 | ||||||||
The decrease of $16,159,135 and $14,238,593 in our general and administrative expenses for the three and six months ended June 30, 2023, respectively, versus the same periods ended 2022 is largely the result of decreased spending on stock-based compensation to executives and professional fees associated with the Direct Listing.
We expect our general and administrative expenses to increase in future quarters as we continue with our reporting obligations with the SEC and the increased expenses associated with increased operational activity, which is expected for the balance of the year.
Liquidity and Capital Resources
As of June 30, 2023, the Company had cash of $507,445 compared to $414,574 as of December 31, 2022. The increase of $92,871 in cash was mainly by cash received from the sales of units of $3,104,750, $880,000 through the sales of common stock from the Company’s EB-5 Program, $210,000 from the exercise of warrants, and $200,000 from a draw on the line of credit. This was partly offset by the use of funds for the construction in progress, deposits for equipment, and the costs associated with the Company’s SEC filings. Since its inception, the Company has incurred net losses and funded its operations primarily through the issuance of equities, an advance from a director, and draws on the line of credit provided by a Director of the Company. As of June 30, 2023, the Company had a total stockholders’ equity of $13,320,800 (December 31, 2022 - $11,578,836).
The Company is in its initial stages to start building facilities to grow, research and distribute medical plants. The Company has incurred recurring losses from operations, and as of June 30, 2023, had an accumulated deficit of $39,681,257 (December 31, 2022 - $34,075,821), and a negative working capital of $7,314,852 (December 31, 2022 – $7,030,929). The Company does not have sufficient working capital to pay its operating expenses for a period of at least 12 months from the date the condensed financial statements were authorized to be issued. The Company’s continued existence is dependent upon its ability to continue to execute its operating plan and to obtain additional debt or equity financing. The Company has developed plans to raise funds and continues to pursue sources of funding that management believes, if successful, would be sufficient to support the Company’s operating plan. During the three months ended June 30, 2023, the Company raised $3,104,750 through unit issuances. The Company’s operating plan is predicated on a variety of assumptions including, but not limited to, the level of product demand, cost estimates, its ability to continue to raise additional financing and the state of the general economic environment in which the Company operates. There can be no assurance that these assumptions will prove accurate in all material respects, or that the Company will be able to successfully execute its operating plan. In the event that the Company is not able to raise capital from investors or credit facilities in a timely manner, the Company will explore available options, including but not limited to, an equity backed loan against the property. In the absence of additional appropriate financing, the Company may have to modify its plan or slow down the pace of development and commercialization.
Inflation
Although our operations are influenced by general economic conditions, we do not believe that inflation had a material effect on our results of operations during the six months ended June 30, 2023.
Off-balance sheet arrangements
We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources and would be considered material to investors.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon our condensed financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these condensed financial statements requires us to make estimates and judgments that affect the amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily available apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. For a detailed discussion about the Company’s significant accounting policies, refer to Note 3 “Summary of Significant Accounting Policies,” in the Company’s condensed financial statements included in this Quarterly Report on Form 10-Q. During the six months ended June 30, 2023, no material changes were made to the Company’s significant accounting policies.
JOBS Act Accounting Election
We are an emerging growth company, as defined in the JOBS Act. The JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have elected to use the extended transition period under the JOBS Act until the earlier of the date we (1) are no longer an emerging growth company or (2) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our condensed financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
The Company believes that it is not subject to material foreign currency exchange rate fluctuations, as substantially all of its sales and expenses are denominated in the U.S. dollar. The Company does not hold derivative securities and has not entered into contracts embedded with derivative instruments, such as foreign currency and interest rate swaps, options, forwards, futures, collars or warrants, either to hedge existing risks or for speculative purposes.
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| ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer has evaluated the effectiveness of our disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our management, including our former Interim Chief Executive Officer and Chief Financial Officer, we conducted an assessment of the effectiveness of our internal control over financial reporting as of June 30, 2022. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material error in our annual or interim financial statements will not be prevented or detected on a timely basis. In Management’s Report on Internal Control over Financial Reporting included in our quarterly report on Form 10-Q for the quarter ended June 30, 2022, (the “Original June Report”) filed with the SEC on August 12, 2022, our management previously concluded that we maintained effective internal control over financial reporting as of June 30, 2022. On August 16, 2022, management determined that we made certain errors related to the fair value recorded for shares issued for services rendered in June 2022. The fair value of such shares is $8.00 per share but was recorded as $4.00 per share in the Original June Report. As a result, we determined that there were material errors in the financial information that required an amendment to our Original June Report (the “June Amendment”). With this error being corrected in the June Amendment filed with the SEC on August 19, 2022, net loss increased by $6,297,960. We have strengthened our review controls around the issuance of shares of common stock and the recording of the associated expense by adding an additional reviewer to the review process. The Company continues to evaluate and implement procedures as deemed appropriate to enhance our disclosure controls.
Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures. As required by Rule 13a-15(b) of the Exchange Act, an evaluation as of June 30, 2023 was conducted under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based on this evaluation as of June 30, 2023, our Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of the period ended June 30, 2023.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting during the quarter ended June 30, 2023 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Management recognizes that a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
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| PART II. | OTHER INFORMATION |
| ITEM 1. | LEGAL PROCEEDINGS |
From time to time, we may be involved in legal proceedings arising from the normal course of business activities. Defending such proceedings is costly and can impose a significant burden on management and employees. The results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
| ITEM 1A. | RISK FACTORS |
An investment in our securities involves a high degree of risk, including those risks described in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022, which we encourage you to review. There have been no material changes from the risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on April 17, 2023 and in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 filed with the SEC on May 22, 2023. If any of these risks are realized, our business, financial condition and results of operations could be materially and adversely affected. In that event, the trading price of our securities could decline and you could lose all or part of your investment in our securities. Additional risks of which we are not presently aware or that we currently believe are immaterial may also harm our business and results of operations. Some statements in this Quarterly Report on Form 10-Q, including such statements in the following risk factors, constitute forward-looking statements. See the section entitled “Cautionary Note Regarding Forward-Looking Statements” for more information.
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES |
During the period from April 1, 2023 through the date hereof, the Company issued the following:
| ● | 3,684,210 shares of common stock and warrants to purchase up to an aggregate of 3,684,210 shares of common stock, at a combined purchase price of $0.95 per share of common stock and accompanying warrant, in a private placement offering, to one accredited investor. |
The Company relied upon the exemption provided by Section 4(a)(2) and/or Rule 506 of Regulation D of the Securities Act in connection with issuance and sale of the securities described above. The person who acquired these shares was a sophisticated investor and was provided full information regarding the Company’s business and operations. There were no general solicitations in connection with the offer or sale of these securities. The person who acquired these securities acquired them for their own account.
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
Not applicable.
| ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
| ITEM 5. | OTHER INFORMATION |
Given the timing of events, the following information is included in this Form 10-Q pursuant to Item 5.02 of Form 8-K “Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers” in lieu of filing a Form 8-K:
Our Chief Executive Officer, Seamus McAuley, has taken a brief medical leave of absence. Mr. McAuley’s temporary leave of absence is due to health reasons and required medical treatment and not any disagreement with us on any matter related to our operations, policies or practices. As of the filing date of this Quarterly Report on Form 10-Q, Mr. McAuley remains on a medical leave of absence. As resolved by the Company’s board of directors on August 14, 2023, Terry Rafih, the Company’s Executive Chairman, has been named acting Principal Executive Officer and has assumed all of Mr. McAuley’s authority and responsibilities with respect to such role, until Mr. McAuley returns from his temporary leave of absence. Mr. Rafih’s compensation as Executive Chairman of the Company shall remain unchanged.
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| ITEM 6. | EXHIBITS |
# Certain schedules and exhibits have been omitted pursuant to Item 601(A)(5) of Regulation S-K. The Company will furnish supplementally copies of omitted schedules and exhibits to the Securities and Exchange Commission or its staff upon its request.
* Filed herewith.
| † | The certifications attached as Exhibit 32.1 and 32.2 that accompany this Quarterly Report on Form 10-Q are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of the Registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| BRIGHT GREEN CORPORATION | ||
| Date: August 16, 2023 | By: | /s/ Saleem Elmasri |
| Saleem Elmasri | ||
| Chief Financial Officer | ||
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