UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
|
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____________ to _____________
Commission file number
(Exact name of registrant as specified in its charter)
| Province of |
Not Applicable |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
|
|
|
|
|
| (Address of principal executive offices) | (Zip Code) |
(
(Registrant's telephone number, including area code)
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, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
|
|
☒ | Smaller reporting company |
|
| Emerging growth company |
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes ☐ No
As of August 9, 2024, the registrant had
Table of Contents
Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q (this "Quarterly Report") contains "forward-looking statements," as that term is defined under the Private Securities Litigation Reform Act of 1995 ("PSLRA"), Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements may include projections and estimates concerning our possible or assumed future results of operations, financial condition, business strategies and plans, market opportunity, competitive position, industry environment, and potential growth opportunities. In some cases, you can identify forward-looking statements by terms such as "may", "will", "should", "believe", "expect", "could", "intend", "plan", "anticipate", "estimate", "continue", "predict", "project", "potential", "target," "goal" or other words that convey the uncertainty of future events or outcomes. You can also identify forward-looking statements by discussions of strategy, plans or intentions. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, because forward-looking statements relate to matters that have not yet occurred, they are inherently subject to significant business, competitive, economic, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. These and other important factors, including, among others, those discussed in this Quarterly Report, may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by the forward-looking statements in this Quarterly Report. Risks and uncertainties, the occurrence of which could adversely affect our business, include, but are not limited to, the following:
Given the foregoing risks and uncertainties, you are cautioned not to place undue reliance on the forward-looking statements in this Quarterly Report. The forward-looking statements contained in this Quarterly Report are not guarantees of future performance and our actual results of operations and financial condition may differ materially from such forward-looking statements. In addition, even if our results of operations and financial condition are consistent with the forward-looking statements in this Quarterly Report, they may not be predictive of results or developments in future periods.
2
Any forward-looking statement that we make in this Quarterly Report speaks only as of the date of this Quarterly Report. Except as required by law, we do not undertake any obligation to update or revise, or to publicly announce any update or revision to, any of the forward-looking statements in this Quarterly Report, whether as a result of new information, future events or otherwise, after the date of this Quarterly Report.
3
PART I
Item 1. Financial Statements
Flora Growth Corp.
Table of Contents
4
Flora Growth Corp.
Unaudited Condensed Interim Consolidated Statements of Financial Position
(in thousands of United States dollars, except share amounts which are in thousands of shares)
| As at: | June 30, 2024 | December 31, 2023 | ||||
| ASSETS | ||||||
| Current | ||||||
| Cash | $ | $ | ||||
| Restricted cash | ||||||
| Trade and amounts receivable, net of $ |
||||||
| Prepaid expenses and other current assets | ||||||
| Indemnification receivables | ||||||
| Inventory | ||||||
| Total current assets | ||||||
| Non-current | ||||||
| Property, plant and equipment | ||||||
| Operating lease right of use assets | ||||||
| Intangible assets | ||||||
| Goodwill | ||||||
| Other assets | ||||||
| Total assets | $ | $ | ||||
| LIABILITIES | ||||||
| Current | ||||||
| Trade payables | $ | $ | ||||
| Contingencies | ||||||
| Debt | ||||||
| Current portion of operating lease liability | ||||||
| Contingent purchase considerations | ||||||
| Other accrued liabilities | ||||||
| Total current liabilities | ||||||
| Non-current | ||||||
| Non-current operating lease liability | ||||||
| Deferred tax | ||||||
| Total liabilities | ||||||
| SHAREHOLDERS' EQUITY | ||||||
| Share capital, no par value, unlimited authorized, |
||||||
| Additional paid-in capital | ||||||
| Accumulated other comprehensive loss | ( |
) | ( |
) | ||
| Deficit | ( |
) | ( |
) | ||
| Total Flora Growth Corp. shareholders' equity | ||||||
| Non-controlling interest in subsidiaries | ||||||
| Total shareholders' equity | ||||||
| Total liabilities and shareholders' equity | $ | $ |
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements. Commitments and contingencies - see Note 15. Going concern - see Note 2.
5
Flora Growth Corp.
Unaudited Condensed Interim Consolidated Statements of Loss and
Comprehensive Loss
(in thousands of United States dollars, except per share amounts which
are in thousands of shares)
| For the three months ended June 30, 2024 |
For the three months ended June 30, 2023 |
For the six months ended June 30, 2024 |
For the six months ended June, 2023 |
|||||||||
| Revenue | $ | $ | $ | $ | ||||||||
| Cost of sales | ||||||||||||
| Gross profit | ||||||||||||
| Operating expenses | ||||||||||||
| Consulting and management fees | ||||||||||||
| Professional fees | ||||||||||||
| General and administrative | ||||||||||||
| Promotion and communication | ||||||||||||
| Travel expenses | ||||||||||||
| Share based compensation | ||||||||||||
| Research and development | ||||||||||||
| Operating lease expense | ||||||||||||
| Depreciation and amortization | ||||||||||||
| Bad debt expense | ||||||||||||
| Asset impairment | ||||||||||||
| Other expenses (income), net | ||||||||||||
| Total operating expenses | ||||||||||||
| Operating loss | ( |
) | ( |
) | ( |
) | ( |
) | ||||
| Interest (income) expense | ( |
) | ( |
) | ||||||||
| Foreign exchange loss (gain) | ( |
) | ( |
) | ||||||||
| Unrealized gain from changes in fair value | ( |
) | ( |
) | ( |
) | ( |
) | ||||
| Net loss before income taxes and discontinued operations | ( |
) | ( |
) | ( |
) | ( |
) | ||||
| Income tax (benefit) expense | ( |
) | ( |
) | ( |
) | ||||||
| Net loss from continuing operations | ( |
) | ( |
) | ( |
) | ( |
) | ||||
| Loss from discontinued operations, net of taxes | ( |
) | ( |
) | ||||||||
| Net loss for the period | ( |
) | ( |
) | ( |
) | ( |
) | ||||
| Net loss attributable to noncontrolling interest | ( |
) | ( |
) | ( |
) | ( |
) | ||||
| Net loss attributable to Flora Growth Corp. | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) |
| Basic loss per share from continuing operations | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) |
| Diluted loss per share from continuing operations | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) |
| Basic loss per share attributable to Flora Growth Corp. | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) |
| Diluted loss per share attributable to Flora Growth Corp. | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) |
| Weighted average number of common shares outstanding - basic | ||||||||||||
| Weighted average number of common shares outstanding - diluted | ||||||||||||
| Other comprehensive loss | ||||||||||||
| Net loss for the period | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) |
| Foreign currency translation, net of income taxes of $ |
( |
) | ( |
) | ( |
) | ||||||
| Comprehensive loss for the period | ( |
) | ( |
) | ( |
) | ( |
) | ||||
| Comprehensive loss attributable to noncontrolling interests | ( |
) | ( |
) | ( |
) | ( |
) | ||||
| Comprehensive loss attributable to Flora Growth Corp. | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) |
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.
6
Flora Growth Corp.
Unaudited Condensed Interim Consolidated Statement of Shareholders' Equity (Deficiency)
(in thousands of United States dollars, except for share amounts which are in thousands of shares)
| Common shares |
Additional paid-in capital |
Accumulated other comprehensive (loss) income |
Accumulated deficit |
Non-controlling interests in subsidiaries (deficiency) |
Shareholders' equity (deficiency) |
||||||||||||||||
| # | |||||||||||||||||||||
| For the six months ended June 30, 2024 | |||||||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | |||||||||||
| April unit offering | - | - | - | - | |||||||||||||||||
| April unit offering issuance costs | - | - | ( |
) | - | - | - | ( |
) | ||||||||||||
| Equity issued for business combinations | - | - | - | ||||||||||||||||||
| Equity issued for other agreements | - | - | - | - | |||||||||||||||||
| Options vested | - | - | - | - | - | ||||||||||||||||
| Options forfeited | - | - | ( |
) | - | - | - | ||||||||||||||
| Restricted stock vested | - | - | - | - | - | ||||||||||||||||
| Restricted stock cancelled | ( |
) | - | ( |
) | - | - | - | ( |
) | |||||||||||
| Share issuance costs | - | - | - | - | - | ||||||||||||||||
| Other comprehensive loss - exchange differences (net of income taxes of $ |
- | - | - | - | - | ||||||||||||||||
| Net loss | - | - | - | - | ( |
) | ( |
) | ( |
) | |||||||||||
| Balance, June 30, 2024 | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | |||||||||||
| For the three months ended June 30, 2024 | |||||||||||||||||||||
| Balance, March 31, 2024 | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | |||||||||||
| April unit offering | - | - | - | - | |||||||||||||||||
| April unit offering issuance costs | - | ( |
) | ( |
) | ||||||||||||||||
| Equity issued for business combinations | - | - | - | ||||||||||||||||||
| Options forfeited | - | - | ( |
) | - | - | - | ||||||||||||||
| Restricted stock vested | - | - | - | - | - | ||||||||||||||||
| Share issuance costs | - | - | - | - | - | ||||||||||||||||
| Other comprehensive loss - exchange differences (net of income taxes of $ |
- | - | - | ( |
) | - | - | ( |
) | ||||||||||||
| Net loss | - | - | - | - | ( |
) | ( |
) | ( |
) | |||||||||||
| Balance, June 30, 2024 | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | |||||||||||
| For the six months ended June 30, 2023 | |||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | |||||||||
| Equity issued for other agreements | - | - | - | - | |||||||||||||||||
| Options vested | - | - | - | - | - | ||||||||||||||||
| Options forfeited | - | - | ( |
) | - | - | ( |
) | |||||||||||||
| Restricted stock granted | - | - | - | - | |||||||||||||||||
| Restricted stock cancelled | ( |
) | - | ( |
) | - | - | - | ( |
) | |||||||||||
| Share issuance costs | - | - | ( |
) | - | - | - | ( |
) | ||||||||||||
| Other comprehensive loss - exchange differences (net of income taxes of $ |
- | - | - | - | - | ||||||||||||||||
| Net loss | - | - | - | - | ( |
) | ( |
) | ( |
) | |||||||||||
| Balance, June 30, 2023 | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | |||||||||
| For the three months ended June 30, 2023 | |||||||||||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | |||||||||
| Equity issued for other agreements | - | - | - | - | |||||||||||||||||
| Options vested | - | - | - | - | - | ||||||||||||||||
| Options forfeited | - | - | ( |
) | - | - | - | ( |
) | ||||||||||||
| Restricted stock granted | - | - | - | - | |||||||||||||||||
| Restricted stock cancelled | ( |
) | - | ( |
) | - | - | - | ( |
) | |||||||||||
| Share issuance costs | - | - | ( |
) | - | - | - | ( |
) | ||||||||||||
| Other comprehensive loss - exchange differences (net of income taxes of $ |
- | - | - | - | - | ||||||||||||||||
| Net loss | - | - | - | - | ( |
) | ( |
) | ( |
) | |||||||||||
| Balance, June 30, 2023 | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | |||||||||
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.
7
Flora Growth Corp.
Unaudited Condensed Interim Consolidated Statement of Cash Flows
(in thousands of United States dollars)
| For the six months ended June 30, 2024 |
For the six months ended June 30, 2023 |
|||||
| Cash flows from operating activities: | ||||||
| Net loss | $ | ( |
) | $ | ( |
) |
| Adjustments to net loss: | ||||||
| Depreciation and amortization | ||||||
| Share based compensation | ||||||
|
Inventory impairments |
||||||
| Other asset impairments | ||||||
| Unrealized gain from changes in fair value | ( |
) | ( |
) | ||
| Bad debt expense | ||||||
| Interest (income) expense | ( |
) | ||||
| Interest received (paid) | ( |
) | ||||
| Income tax | ( |
) | ||||
| ( |
) | ( |
) | |||
| Net change in non-cash working capital: | ||||||
| Trade and other receivables | ( |
) | ||||
| Inventory | ( |
) | ||||
| Prepaid expenses and other assets | ( |
) | ||||
| Trade payables and accrued liabilities | ( |
) | ||||
| Net cash used in operating activities | ( |
) | ( |
) | ||
| Cash flows from financing activities: | ||||||
| Units issued | ||||||
| Equity issue costs | ( |
) | ( |
) | ||
| Loan borrowings, net | ||||||
| Net cash provided by financing activities | ||||||
| Cash flows from investing activities: | ||||||
| Purchases of property, plant and equipment and intangible assets | ( |
) | ( |
) | ||
| Net cash on asset disposals | ||||||
| Business combinations, net of cash acquired | ||||||
| Net cash used in investing activities | ( |
) | ( |
) | ||
| Effect of exchange rate on changes on cash | ||||||
| Change in cash during the period | ( |
) | ||||
| Cash and restricted cash at beginning of period | ||||||
| Cash included in assets held for sale | ( |
) | ||||
| Cash and restricted cash at end of period | $ | $ | ||||
| Supplemental disclosure of non-cash investing and financing activities | ||||||
| Assets acquired for contingent consideration | ||||||
| Common shares issued for other agreements | ||||||
| Option cancellations reclassified to equity | ||||||
| Operating lease additions to right of use assets | ||||||
| Common shares issued for business combinations |
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.
8
| Flora Growth Corp. Notes to the unaudited condensed interim consolidated financial statements For the three and six months ended June 30, 2024 and 2023 (In thousands of United States dollars, except shares and per share amounts) |
1. NATURE OF OPERATIONS
Flora Growth Corp. (the "Company" or "Flora") was incorporated under the laws of the Province of Ontario, Canada on March 13, 2019. The Company is a manufacturer and distributor of global cannabis and pharmaceutical products and brands, building a connected, design-led collective of plant-based wellness and lifestyle brands. The Company's registered office is located at 365 Bay Street, Suite 800, Toronto, Ontario, M5H 2V1, Canada and our principal place of business in the United States is located at 3230 W. Commercial Boulevard, Suite 180, Fort Lauderdale, Florida 33309.
Presentation of comparative financial statements
On June 9, 2023, the Company consolidated its issued and outstanding common shares based on one new common share of the Company for every twenty existing common shares of the Company. All common shares and per share amounts have been restated to give retroactive effect to the share consolidation. See discussion in Note 12.
2. BASIS OF PRESENTATION
These unaudited condensed interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP") pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") for interim financial information. Accordingly, they do not include all of the information and notes required by U.S. GAAP. The Company believes that the disclosures made are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report filed on Form 10-K for the year ended December 31, 2023. These unaudited condensed interim consolidated financial statements reflect all adjustments, which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year.
These unaudited condensed interim consolidated financial statements apply the same accounting policies as those used in the financial statements included in the Company's Annual Report filed on Form 10-K for the year ended December 31, 2023.
These unaudited condensed interim consolidated financial statements have been prepared on a going concern basis, meaning that the Company will continue in operation for the foreseeable future and will be able to realize assets and discharge liabilities in the ordinary course of operations.
Prior to January 1, 2023, Flora was a foreign private issuer reporting its financial statements under International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standard Boards. These consolidated financial statements, for all periods, are presented in accordance with U.S. GAAP.
Going concern
The accompanying unaudited condensed interim consolidated financial statements have been prepared assuming the Company will continue as a going concern. The going concern basis of presentation assumes that the Company will continue one year after the date these unaudited condensed interim consolidated financial statements are issued and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business.
The Company had cash of $
| 9 |
| Flora Growth Corp. Notes to the unaudited condensed interim consolidated financial statements For the three and six months ended June 30, 2024 and 2023 (In thousands of United States dollars, except shares and per share amounts) |
Basis of consolidation
These unaudited condensed interim consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions were eliminated on consolidation. Subsidiaries are entities the Company controls when it is exposed, or has rights, to variable returns from its involvement in the entity and can affect those returns through its power to direct the relevant activities of the entity. Subsidiaries are included in the consolidated financial results of the Company from the date of acquisition up to the date of disposition or loss of control. At June 30, 2024, the Company's subsidiaries and respective ownership percentage have not changed from the year ended December 31, 2023, except as noted below.
On April 22, 2024, the Company completed the first closing of the share purchase agreement to acquire
During the six months ended June 30, 2024, the Company voluntarily dissolved the Cardiff Brand Corp., Kasa Wholefoods Company LLC and Flora Beauty LLC, each of which were a U.S. entity. Also during the six months ended June 30, 2024, the Company signed articles of organization for Just Brands FL LLC, a United States domestic limited liability company, which is
3. ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS
On July 5, 2023, the Company entered into a Share Purchase Agreement with Lisan Farma Colombia LLC ("Lisan"), a Delaware limited liability company, to sell all its shares in its Colombian related subsidiaries and its Colombian assets for a purchase price of CAD $
The sale enabled the Company to concentrate on its core business divisions, which are lifestyle brands in the United States and international pharmaceutical distribution. The sale was part of several strategic changes to cut costs and streamline operations.
The following table summarizes the major classes of line items included in loss from discontinued operations, net of tax, for the three and six months ended June 30, 2024 and 2023:
|
For the three months ended June 30, 2024 |
For the three months ended June 30, 2023 |
For the six months ended June 30, 2024 |
For the six months ended June 30, 2023 |
|||||||||
| Revenue | $ | $ | $ | $ | ||||||||
| Cost of sales | ||||||||||||
| Gross profit from discontinued operations | ||||||||||||
| Operating expenses | ||||||||||||
| Consulting and management fees | ||||||||||||
| Professional fees | ||||||||||||
| General and administrative | ||||||||||||
| Promotion and communication | ||||||||||||
| Operating lease expense | ||||||||||||
| Depreciation and amortization | ||||||||||||
| Bad debt expense | ||||||||||||
| Asset impairment | ||||||||||||
| Other expense | ||||||||||||
| Operating loss from discontinued operations | ( |
) | ( |
) | ||||||||
| Interest expense | ||||||||||||
| Net loss before income taxes | ( |
) | ( |
) | ||||||||
| Loss on disposal of discontinued operations | ||||||||||||
| Income tax expense | ||||||||||||
| Loss from discontinued operations | $ | $ | ( |
) | $ | $ | ( |
) | ||||
| Basic loss per share from discontinued operations | $ | $ | ( |
) | $ | $ | ( |
) | ||||
| Diluted loss per share from discontinued operations | $ | $ | ( |
) | $ | $ | ( |
) |
| 10 |
| Flora Growth Corp. Notes to the unaudited condensed interim consolidated financial statements For the three and six months ended June 30, 2024 and 2023 (In thousands of United States dollars, except shares and per share amounts) |
The following table summarizes the significant operating and investing items related to the Colombian subsidiaries for the six months ended June 30, 2024 and 2023
|
For the six months ended June 30, 2024 |
For the six months ended June 30, 2023 |
|||||
| Operating activities of discontinued operations | ||||||
| Depreciation and amortization | $ | $ | ||||
| Bad debt expense | ||||||
| Asset impairment | ||||||
| Investing activities of discontinued operations | ||||||
| Purchases of property, plant and equipment | $ | $ |
The subsidiaries sold included Cosechemos Ya S.A.S, which was part of the commercial and wholesale segment; Flora Lab S.A.S, Flora Med S.A.S. and Labcofarm Laboratories S.A.S, which were part of the pharmaceuticals segment; Flora Growth Corp Colombia S.A.S., Kasa Wholefoods Company S.A.S. and Flora Beauty LLC Sucursal Colombia which were part of the house of brands segment.
The Company applies significant judgement in determining whether a disposal meets the criteria to present as held for sale at the reporting date, and whether the disposal represents a strategic shift that has (or will have) a major effect on its operations and financial results in order to be classified as a discontinued operation. The criteria evaluated are both quantitative and qualitative in nature, to evaluate the significance of the disposal relative to the operations of the Company as a whole. The Company has determined this disposition represents a strategic shift in operations that will have a major effect on the Company's operations and financial results, and accordingly, has been presented as discontinued operations.
During the three and six months ended June 30, 2023, the Company recorded a loss on disposal of $
4. TRADE AND AMOUNTS RECEIVABLE
The Company's trade and amounts receivable are recorded at amortized cost. The trade and other receivables balance as at June 30, 2024 and December 31, 2023 consists of trade accounts receivable, amounts recoverable from the Government of Canada for Harmonized Sales Taxes ("HST"), as well as Value Added Tax ("VAT") from various jurisdictions, and other receivables.
| June 30, 2024 | December 31, 2023 | |||||
| Trade accounts receivable | $ | $ | ||||
| Allowance for expected credit losses | ( |
) | ( |
) | ||
| HST/VAT receivable | ||||||
| Other receivables | ||||||
| Total | $ | $ |
Changes in the trade accounts receivable allowance in the three and six months ended June 30, 2024 relate to establishing an allowance for expected credit losses and reclassification of assets held for sale. There were less than $
| June 30, 2024 | December 31, 2023 | |||||
| Current | $ | $ | ||||
| 1-30 Days | ||||||
| 31-60 Days | ||||||
| 61-90 Days | ||||||
| 91-180 Days | ||||||
| 180+ Days | ||||||
| Total trade receivables | $ | $ |
| 11 |
| Flora Growth Corp. Notes to the unaudited condensed interim consolidated financial statements For the three and six months ended June 30, 2024 and 2023 (In thousands of United States dollars, except shares and per share amounts) |
5. INVENTORY
Inventory is comprised of the following:
| June 30, 2024 | December 31, 2023 | |||||
| Raw materials and supplies | $ | $ | ||||
| Finished goods | ||||||
| Total | $ | $ |
During the six months ended June 30, 2024, the Company recorded inventory impairment as a write-down to cost of sales in the amount of $
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
| June 30, 2024 | December 31, 2023 | |||||
| Land | $ | $ | ||||
| Buildings | ||||||
| Machinery and office equipment | ||||||
| Vehicles | ||||||
| Total | ||||||
| Less: accumulated depreciation | ( |
) | ( |
) | ||
| Property, plant and equipment, net | $ | $ |
Depreciation expense for the three and six months ended June 30, 2024 was less than $
See Note 9 for discussion of impairment of property, plant and equipment during the six months ended June 30, 2024.
7. BUSINESS COMBINATIONS
TruHC Pharma GmbH ("TruHC") asset acquisition
On April 16, 2024, the Company entered into a Stock Purchase Agreement (the "Purchase Agreement") with TruHC Holding GmbH (the "Seller") pursuant to which the Company will acquire all of the issued and outstanding shares of TruHC in exchange for
The Purchase Price will be paid and satisfied by the Company in two closings. At the first closing on April 22, 2024, the Company issued
TruHC is an early-stage cannabis company based in Hamburg, Germany, that holds wholesale, processing and production licenses for medical cannabis as well as a facility offering flexible production space with EU-GMP certified modules. The acquisition will allow the Company to leverage TruHC's German network and EU-GMP production facility and maximize the benefits of the recent cannabis legislation passed in Germany.
| 12 |
| Flora Growth Corp. Notes to the unaudited condensed interim consolidated financial statements For the three and six months ended June 30, 2024 and 2023 (In thousands of United States dollars, except shares and per share amounts) |
The purchase is accounted for as a business combination with amounts recognized as at the acquisition date for each major class of assets acquired and liabilities assumed are as follows:
| (Thousands of Untied States dollars) | |||
| Current assets | |||
| Cash | $ | ||
| Trade and amounts receivable | |||
| Prepaid expenses and other current assets | |||
| Total current assets | |||
| Non-current assets | |||
| Property, plant and equipment, net | |||
| Operating lease right of use assets | |||
| Intangible assets | |||
| Goodwill | |||
| Total assets | |||
| Current liabilities | |||
| Trade and amounts payable | ( |
) | |
| Current portion of operating lease liability | ( |
) | |
| Other accrued liabilities | ( |
) | |
| Total current liabilities | ( |
) | |
| Non-current operating lease liability | ( |
) | |
| Deferred tax | ( |
) | |
| Total liabilities | ( |
) | |
| Total net assets acquired | $ |
Since the acquisition date through June 30, 2024, TruHC reported revenue of $
The intangible assets of $
The goodwill is attributable to the assembled workforce of TruHC and the expected synergies between TruHC and Flora’s existing operations. This includes:
The Company does not expect the goodwill and intangible asset values to be deductible for Canadian tax purposes. The goodwill is assigned to the commercial and wholesale segment.
If TruHC was acquired at January 1, 2023, the combined revenue of TruHC and the Company would not have changed for the six months ending June 30, 2024 and 2023. The combined net loss of TruHC and the Company would have increased by approximately $
The Company incurred acquisition-related costs of $
Australian Vaporizers Pty LTD ("AV") business combination
On June 4, 2024, the Company acquired
| 13 |
| Flora Growth Corp. Notes to the unaudited condensed interim consolidated financial statements For the three and six months ended June 30, 2024 and 2023 (In thousands of United States dollars, except shares and per share amounts) |
The purchase is accounted for as a business combination with amounts recognized as at the acquisition date for each major class of assets acquired and liabilities assumed are as follows:
| (Thousands of Untied States dollars) | |||
| Current assets | |||
| Cash | $ | ||
| Inventory | |||
| Prepaid expenses and other current assets | |||
| Total current assets | |||
| Non-current assets | |||
| Property, plant and equipment, net | |||
| Operating lease right of use assets | |||
| Intangible assets | |||
| Goodwill | |||
| Total assets | |||
| Current liabilities | |||
| Trade and amounts payables | ( |
) | |
| Current portion of operating lease liability | ( |
) | |
| Other accrued liabilities | ( |
) | |
| Total current liabilities | ( |
) | |
| Non-current operating lease liability | ( |
) | |
| Deferred tax | ( |
) | |
| Total liabilities | ( |
) | |
| Total net assets acquired | $ |
Since the acquisition date through June 30, 2024, AV reported revenue of $
The intangible assets of $
The goodwill is attributable to the assembled workforce of AV and the significant synergies expected to arise after its acquisition. The Company does not expect the goodwill and intangible asset values to be deductible for Canadian income tax purposes. The goodwill is assigned to the house of brands segment.
If AV was acquired at January 1, 2023, the combined revenue of AV and the Company would have increased approximately $
The Company incurred acquisition related costs of less than $
8. INTANGIBLE ASSETS AND GOODWILL
A continuity of intangible assets for the six months ended June 30, 2024 is as follows:
| Licenses |
Trademarks and Brands |
Patents | Goodwill | Total | |||||||||||
| Cost | |||||||||||||||
| At December 31, 2023 | $ | $ | $ | $ | $ | ||||||||||
| Acquired through business combinations | |||||||||||||||
| Impairment | ( |
) | ( |
) | |||||||||||
| At June 30, 2024 | $ | $ | $ | $ | $ | ||||||||||
| Accumulated Amortization | |||||||||||||||
| At December 31, 2023 | $ | $ | $ | $ | $ | ||||||||||
| Additions | |||||||||||||||
| At June 30, 2024 | $ | $ | $ | $ | $ | ||||||||||
| Foreign currency translation | |||||||||||||||
| Net book value at June 30, 2024 | $ | $ | $ | $ | $ |
| 14 |
| Flora Growth Corp. Notes to the unaudited condensed interim consolidated financial statements For the three and six months ended June 30, 2024 and 2023 (In thousands of United States dollars, except shares and per share amounts) |
Amortization expense for the three and six months ended June 30, 2024 was $
The Company's intangible assets acquired through business combinations consist of assets acquired as part of the April 2024 purchase of TruHC and the June purchase of AV (Note 7). Information regarding the TruHC intangible assets within the indicated categories of the table above is as follows as at June 30, 2024:
Information regarding the AV intangible assets within the indicated categories of the table above is as follows as at June 30, 2024:
At June 30, 2024, the weighted average amortization period remaining for intangible assets was
At June 30, 2024, the estimated future amortization expense related to intangible assets is as follows:
| 2024 | $ | ||
| 2025 | |||
| 2026 | |||
| 2027 | |||
| 2028 | |||
| Thereafter | |||
| Total | $ |
The Company's goodwill is assigned to the following reporting units:
| TruHC | AV | Total | |||||||
| Net book value as at December 31, 2023 | $ | $ | $ | ||||||
| Acquired through business combinations | |||||||||
| Foreign currency translation | |||||||||
| Net book value as at June 30, 2024 | $ | $ | $ |
|
9. ASSET IMPAIRMENT
Goodwill
The Company tests its goodwill for impairment as part of its annual fourth quarter impairment test, and at interim periods when impairment indicators exist. The Company's goodwill is assigned to the reporting units associated with the original acquisition of those operations. At June 30, 2024, the Company determined that there were no indicators present for its TruHC and AV reporting units.
Long-lived assets
As discussed in Note 15, on May 7, 2024, Just Brands agreed to a settlement and general release, whereby Just Brands will remove the products subject to the stop sales orders from the state of Florida and accept a five-year revocation of its food permit in the state of Florida. As a result of this settlement, the Company began negotiations to exit its current warehouse lease in Pompano Beach, FL, and searching for a new warehousing facility in a different state. The Company considered this to be an indicator of impairment and, thus, performed a quantitative analysis as of March 31, 2024 to determine if impairment existed by comparing the carrying amount of the operating lease right of use asset and related leasehold improvements to the future undiscounted cash flows the asset is expected to generate over its remaining life. This analysis indicated the asset values may not be recoverable. The Company then calculated the fair value of this asset using an income approach. As a result, the Company recorded an impairment of operating lease right of use assets and property, plant and equipment within its Vessel asset group within the house of brands segment totaling $
Likewise, a facility lease housing the High Roller operations expired on June 30, 2024, and the Company has completed the move of these operations to the new warehouse in Pompano Beach, FL. The Company determined that much of the machinery and office equipment at the old facility would not be used at the new facility. As such, the Company will look the sell these assets. The Company was able to estimate the selling price of each asset as well as any potential cost of sales, which was then compared to the current book value of the assets. The difference of $0.1 million was recorded within its JustCBD asset group within the house of brands segment. These charges were recorded in the asset impairment caption on the unaudited condensed interim consolidated statements of loss and comprehensive loss.
| 15 |
| Flora Growth Corp. Notes to the unaudited condensed interim consolidated financial statements For the three and six months ended June 30, 2024 and 2023 (In thousands of United States dollars, except shares and per share amounts) |
The Company determined that the reduced sales forecast of Vessel was an indicator of impairment as of June 30, 2024. The Company performed a quantitative analysis to determine if impairment existed by comparing the carrying amount of each asset to the future undiscounted cash flows the asset is expected to generate over their remaining lives. This analysis indicated that carrying amount of the certain asset values may not be recoverable. The Company then calculated the fair value of these assets using an income approach, updating certain key variables, including 2024 sales, royalty savings rates, customer decay rates and discount rates. As a result, the Company recorded an impairment of patents within its Vessel asset group within the house of brands segment totaling $
10. DEBT
Euro credit facility
The Company, through FGH, has credit facilities totaling
11. LEASES
The Company's leases primarily consist of administrative real estate leases in Germany, the United States and Australia. Management has determined all the Company's leases are operating leases through June 30, 2024. Information regarding the Company's leases is as follows:
|
Three months ended June 30, 2024 |
Three months ended June 30, 2023 |
Six months ended June, 2024 |
Six months ended June 30, 2023 |
|||||||||
| Components of lease expense | ||||||||||||
| Operating lease expense | $ | $ | $ | $ | ||||||||
| Short-term lease expense | ||||||||||||
| Sublease income | ( |
) | ( |
) | ||||||||
| Total lease expense | $ | $ | $ | $ | ||||||||
| Other Information | ||||||||||||
| Operating cash flows from operating leases | $ | $ | $ | $ | ||||||||
| ROU assets obtained in exchange for new operating lease liabilities | ||||||||||||
| Weighted-average remaining lease term in years for operating leases |
|
|
||||||||||
| Weighted-average discount rate for operating leases |
Maturities of operating lease liabilities as of June 30, 2024 are as follows:
| Thousands of United States dollars | Operating Leases | ||
| 2024 | $ | ||
| 2025 | |||
| 2026 | |||
| 2027 | |||
| 2028 | |||
| Thereafter | |||
| Total future lease payments | |||
| Less: imputed interest | ( |
) | |
| Total lease liabilities | |||
| Less: current lease liabilities | ( |
) | |
| Total non-current lease liabilities | $ |
Some 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 five 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 2024 or 2025.
| 16 |
| Flora Growth Corp. Notes to the unaudited condensed interim consolidated financial statements For the three and six months ended June 30, 2024 and 2023 (In thousands of United States dollars, except shares and per share amounts) |
In April 2024, the Company began leasing 4,184 sq. ft. of office space in Fort Lauderdale, FL, for $
As part of the acquisition of TruHC in April 2024, the Company acquired a lease for warehouse and office space in Hamburg, Germany, for $
As part of the acquisition of AV in June 2024, the Company acquired a lease for warehouse and office space in Brisbane, Australia, for $
The Company began subleasing retail space in Miami, Florida to a third party during the third quarter of 2023. The sublease agreement is effective through November 30, 2026 and contains one option to renew for five more years. The Company began subleasing warehousing and office space in Carlsbad, CA to a third party during the fourth quarter of 2023. The sublease is effective through August 31, 2027 and does not contain renewal options.
See Note 9 for discussion of impairment of operating lease right of use assets during the six months ended June 30, 2024.
12. SHARE CAPITAL
Authorized and issued
The Company is authorized to issue an unlimited number of common shares, no par value. On June 9, 2023, the Company consolidated its issued and outstanding common shares based on one new common share of the Company for every twenty existing common shares of the Company. All common shares and per share amounts have been restated to give retroactive effect to the share consolidation.
The Company had the following significant common share transactions:
Six months ended June 30, 2024
JUNE 2024 PAYMENT TO AV OWNERS
As discussed in Note 7, the Company issued
APRIL 2024 PAYMENT TO TRUHC OWNERS
As discussed in Note 7, the Company issued
APRIL 2024 EQUITY OFFERING
On April 8, 2024, the Company closed an offering of
The offering of the securities described above was made pursuant to the Company's effective shelf registration statement on Form S-3 (Registration No. 333-274204), filed with the SEC on August 25, 2023 and amended on August 30, 2023, which was declared effective, on September 6, 2023, and the base prospectus included therein, as supplemented by the preliminary prospectus supplement filed with the SEC on April 4, 2024 and the final prospectus supplement filed with the SEC on April 5, 2024.
| 17 |
| Flora Growth Corp. Notes to the unaudited condensed interim consolidated financial statements For the three and six months ended June 30, 2024 and 2023 (In thousands of United States dollars, except shares and per share amounts) |
As part of the offering on April 8, 2024, YT Research Inc., a company in which the Company's CEO, Clifford Starke, is the sole director and equity owner, purchased
AT THE MARKET ("ATM") OFFERING
On April 26, 2024, the Company entered into an ATM Issuances Sales Agreement (the "Sales Agreement") with Aegis Capital Corp. (the "Agent") pursuant to which the Company may sell from time to time, at its option, common shares through the Agent in its capacity as sales agent. The sale of common shares, if any, will be made under the Company's registration statement filed on Form S-3 (File No. 333-274204) (the "Registration Statement"), by any method that is deemed to be an "at the market offering" as defined in Rule 415(a)(4) under the Securities Act.
Subject to the terms and conditions of the Sales Agreement, the Agent will use its commercially reasonable efforts, consistent with its normal trading and sales practices and applicable state and federal laws, rules and regulations and the rules of the Nasdaq Capital Market to sell on the Company's behalf all of the common shares requested to be sold by the Company. The Agent will offer the common shares, subject to the terms and conditions of the Sales Agreement, on a daily basis or as otherwise agreed upon by the Company and the Agent. The Company will designate the maximum amount of common shares to be sold through the Agent on a daily basis or otherwise determine such maximum amount, together with the Agent. The Company may instruct the Agent not to sell common shares if the sales cannot be effected at or above the price designated by the Company in any such instruction. The Company or the Agent may suspend the offering of common shares being made through the Agent under the Sales Agreement upon proper notice to the other parties.
The aggregate compensation payable to the Agent, on behalf of the Agent, shall be up to
The Company is not obligated to make any sales of common shares under the Sales Agreement. The offering of common shares pursuant to the Sales Agreement will terminate upon the termination of the Sales Agreement by the Company or by the Agent, only with respect to itself, under the circumstances specified in the Sales Agreement. The Company has yet to sell any of its common shares under the Sales Agreement.
OTHER ISSUANCES
On March 8, 2024, the Company entered into a settlement agreement with a third party pursuant to which the Company issued
13. SHARE BASED COMPENSATION
The Company's 2022 Incentive Compensation Plan (the "2022 Plan") and its previous "'rolling" stock option plan (the "Prior Plan") are described in the Company's 2023 Form 10-K.
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 Compensation Committee of the Company's Board of Directors. Common shares are newly issued from available authorized shares upon exercise of awards. The Company no longer makes new grants of stock options under the Prior Plan.
Information relating to share options outstanding and exercisable as at June 30, 2024 and December 31, 2023 is as follows:
| 18 |
| Flora Growth Corp. Notes to the unaudited condensed interim consolidated financial statements For the three and six months ended June 30, 2024 and 2023 (In thousands of United States dollars, except shares and per share amounts) |
| Options Outstanding | ||||||||||||
|
Number of options (in thousands) |
Weighted average exercise price |
Weighted average remaining life (years) |
Aggregate intrinsic value |
|||||||||
| Outstanding balance, December 31, 2023 | $ |
|
$ | |||||||||
| Forfeited | ( |
) | $ |
|
- | |||||||
| Outstanding balance, June 30, 2024 | $ |
|
$ | |||||||||
| Exercisable balance, June 30, 2024 | $ |
|
$ | |||||||||
The total expense related to the options granted in the three and six months ended June 30, 2024 was $
At June 30, 2024 the total remaining stock option cost for nonvested awards is $
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 Company, 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 an expense over the vesting period.
Information relating to restricted stock awards outstanding as at June 30, 2024 and December 31, 2023:
| Number of restricted stock awards | Weighted average grant date fair value | |||||
| Thousands | ||||||
| Balance, December 31, 2023 | $ | |||||
| Vested | ( |
) | ( |
) | ||
| Cancelled | ( |
) | ( |
) | ||
| Balance, June 30, 2024 | $ |
The total expense related to the restricted stock awards in the three and six months ended June 30, 2024 was less than $
The outstanding restricted stock awards vest over the next two years provided the award holder is still employed or engaged by the Company. As of June 30, 2024, the Company had less than $
14. WARRANTS
The following summarizes the number of warrants outstanding as of June 30, 2024:
| Number of warrants |
Weighted average exercise price |
|||||
| Thousands | ||||||
| Balance, December 31, 2023 | $ | |||||
| Balance, June 30, 2024 | $ |
| 19 |
| Flora Growth Corp. Notes to the unaudited condensed interim consolidated financial statements For the three and six months ended June 30, 2024 and 2023 (In thousands of United States dollars, except shares and per share amounts) |
| Date of expiry |
Warrants outstanding |
Exercise price |
Grant date fair value |
Remaining life in years |
||||||
| Thousands | ||||||||||
|
|
$ | $ |
|
|||||||
|
|
|
|||||||||
|
|
|
|||||||||
|
|
|
|||||||||
|
|
|
|||||||||
|
|
|
|||||||||
| $ | $ |
|
15. COMMITMENTS AND CONTINGENCIES
Provisions
The Company's current known provisions and contingent liabilities consist of the following as of June 30, 2024:
| Legal disputes | Sales tax | Total | |||||||
| Balance as at December 31, 2023 | $ | $ | $ | ||||||
| Payments/settlements | ( |
) | ( |
) | ( |
) | |||
| Additional provisions | |||||||||
| Foreign currency translation | |||||||||
| Balance as at June 30, 2024 | $ | $ | $ |
The legal disputes balance as of June 30, 2024, relate to the settlement of a contractual dispute involving the Company. It involves a former shareholder of ACA Mueller, an entity that was part of the Company's acquisition of FGH in December 2022, who filed a statement of claim against a wholly owned subsidiary of the Company in the Constance Regional Court in Germany. In March 2024, the Constance Regional Court in Germany ordered the Company to pay the plaintiff $
The settlement of legal disputes in 2024 related to the settlement of an action brought against the Company in the Ontario Superior Court of Justice by Gerardo Andres Garcia Mendez claiming that the Company was obligated to issue
On April 30, 2024, a group representing the sellers of Just Brands LLC to Flora in February 2022 brought an action against the Company in the United States District Court for the Southern District of New York claiming that the Company failed to promptly issue additional shares in accordance with a specific formula set forth in the securities purchase agreement after the two-year anniversary of the closing, which occurred on February 24, 2024. The plaintiffs claim that they are entitled to
The Sales tax relates to estimated amounts owed to certain jurisdictions in the Unites States for sales from the Company's JustCBD operations. The ending balance is recorded within contingencies on the unaudited condensed interim consolidated statement of financial position, and additions to the provision as a reduction of revenue on the unaudited condensed interim consolidated statements of loss and comprehensive loss.
Legal proceedings
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 June 30, 2024.
| 20 |
| Flora Growth Corp. Notes to the unaudited condensed interim consolidated financial statements For the three and six months ended June 30, 2024 and 2023 (In thousands of United States dollars, except shares and per share amounts) |
On November 1, 2023, Just Brands filed an Emergency Complaint for Declaratory Judgment and Injunctive Relief in the Southern District of Florida against the Florida Department of Agriculture and Consumer Services (the "Department") stemming from stop sale orders issued by the Department whereby the Department prohibited Just Brands from selling and moving most of its products. Relying on Florida Statute Section 581.217, which includes the definition of "attractive to children," the Department determined Just Brand's product could not be sold or moved because the products were manufactured in the shape of humans, cartoons, or animals; in a form that bears a reasonable resemblance to an existing candy product; and containing color additives. The Court ruled in favor of the Department and that Order was being appealed to the Eleventh Circuit Court of Appeals. Since then, the Department has initiated an Administrative Action claiming Just Brands moved product outside the State of Florida in violation of the stop sale orders. The statute provides for a penalty of up to $
On May 31, 2023, Maria Beatriz Fernandez Otero and Sara Cristina Jacome De Torres brought an action against the Company in the Ontario Superior Court of Justice claiming that the Company is obligated to issue
On May 31, 2023, Ramon Ricardo Castellanos Saenz and Miriam Ortiz brought an action against the Company in the Ontario Superior Court of Justice claiming that the Company is obligated to issue
In connection with the Company's acquisition of FGH, the Company's current CEO and the former Chief Executive Officer of FGH, together with certain affiliated entities under his control, entered into an agreement pursuant to which they agreed to indemnify the Company for certain potential liabilities of FGH and its subsidiaries, up to a maximum of $
On February 3, 2023, an action was brought in the Ontario Superior Court of Justice by Nathan Shantz and Liberacion e Inversiones S.A. against various parties including Clifford Starke, the Company's current CEO and FGH's former Chief Executive Officer, and FGH. The statement of claim alleges that, prior to the closing of the Arrangement,
The total amount claimed against the former entities of FGH currently exceeds the maximum $
16. LOSS PER SHARE
| 21 |
| Flora Growth Corp. Notes to the unaudited condensed interim consolidated financial statements For the three and six months ended June 30, 2024 and 2023 (In thousands of United States dollars, except shares and per share amounts) |
The Company calculates basic earnings per share based upon the weighted average number of common shares outstanding during the period, while the calculation of diluted earnings per share includes the dilutive effect of potential common shares outstanding during the period. The calculation of diluted earnings per share excludes all potential common shares if their inclusion would have an anti-dilutive effect. Restricted stock award recipients under the 2022 Plan have a non-forfeitable right to receive dividends declared by the Company and are therefore included in computing earnings per share.
|
Three months ended |
Three months ended |
Six months ended |
Six months ended |
|||||||||
| June 30, 2024 | June 30, 2023 | June 30, 2024 | June 30, 2023 | |||||||||
| Stock options | ||||||||||||
| Warrants | ||||||||||||
| Restricted stock awards | ||||||||||||
| JustCBD potential additional shares to settle contingent consideration | ||||||||||||
| Total anti-dilutive |
17. FINANCIAL INSTRUMENTS
Fair value
The Company's financial instruments measured at amortized cost as at June 30, 2024 and December 31, 2023 consist of cash, trade and amounts receivable, loans receivable, trade payables, contingencies, accrued liabilities, lease liabilities, and debt and loans payable. The amounts reflected in the unaudited condensed interim 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 contingent purchase considerations consist of the estimated fair value of contingent purchase consideration from the acquisitions of JustCBD in February 2022 and Original Hemp in March 2023. The amount for JustCBD is measured at FVPL as a Level 2 fair value financial instrument within the fair value hierarchy as at June 30, 2024. The fair value was determined using a simplified calculation which took the expected shares to be issued (
The following tables present information about the Company's financial instruments and their classifications as at June 30, 2024 and December 31, 2023 and indicate the fair value hierarchy of the valuation inputs utilized to determine such fair value.
| Fair value measurements at June 30, 2024 using: | ||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||
| Financial liabilities: | ||||||||||||
| Contingent purchase consideration from asset acquisitions and business combinations | $ | $ | $ | $ |
| Fair value measurements at December 31, 2023 using: | ||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||
| Financial liabilities: | ||||||||||||
| Contingent purchase consideration from asset acquisitions and business combinations | $ | $ | $ | $ |
The $
| 22 |
| Flora Growth Corp. Notes to the unaudited condensed interim consolidated financial statements For the three and six months ended June 30, 2024 and 2023 (In thousands of United States dollars, except shares and per share amounts) |
18. SEGMENTED INFORMATION
The Company reports its financial results for the following
For the year ended December 31, 2023, the Company had
The Company's operates its manufacturing and distribution business within its subsidiaries in the United States, Germany and Australia. 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 house of brands 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.
Information regarding the Company's segments is summarized as follows:
|
For the three months ended |
For the three months ended |
For the six months ended |
For the six months ended |
|||||||||
| June 30, 2024 | June 30, 2023 | June 30, 2024 | June 30, 2023 | |||||||||
| Net Sales | ||||||||||||
| Commercial & Wholesale | $ | $ | $ | $ | ||||||||
| House of Brands | ||||||||||||
| Eliminations | ( |
) | ( |
) | ( |
) | ( |
) | ||||
| $ | $ | $ | $ | |||||||||
|
Net Loss from Continuing Operations |
||||||||||||
| Commercial & Wholesale | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) |
| House of Brands | ( |
) | ( |
) | ( |
) | ( |
) | ||||
| Corp & Eliminations | ( |
) | ( |
) | ( |
) | ( |
) | ||||
| $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) |
| As at | June 30, 2024 | December 31, 2023 | ||||
| Assets | ||||||
| Commercial & Wholesale | $ | $ | ||||
| House of Brands | ||||||
| Corp & Eliminations | ||||||
| $ | $ |
Disaggregation of net sales by geographic area:
|
For the three months ended |
For the three months ended |
For the six months ended |
For the six months ended |
|||||||||
| June 30, 2024 | June 30, 2023 | June 30, 2024 | June 30, 2023 | |||||||||
| Net Sales | ||||||||||||
| United States | $ | $ | $ | $ | ||||||||
| Germany | ||||||||||||
| United Kingdom | ||||||||||||
| Australia | ||||||||||||
| $ | $ | $ | $ |
| 23 |
| Flora Growth Corp. Notes to the unaudited condensed interim consolidated financial statements For the three and six months ended June 30, 2024 and 2023 (In thousands of United States dollars, except shares and per share amounts) |
19. SUBSEQUENT EVENTS
On July 16, 2024, the Company filed a Form 1-A, Regulation A Offering Statement with the SEC, seeking to offer up to a maximum of
24
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis provides information we believe is relevant to an assessment and understanding of our results of operations, financial condition, liquidity and cash flows for the periods presented. This discussion should be read in conjunction with (a) our unaudited condensed consolidated financial statements and related notes contained elsewhere in Part I, Item 1, "Financial Statements" of this Quarterly Report, and (b) Part I, Item 1A "Risk Factors", Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our audited consolidated financial statements and related notes in our 2023 Annual Report. As discussed in the section above titled "Cautionary Statement Regarding Forward-Looking Statements," the following discussion contains forward-looking statements that are based upon our current expectations, including with respect to our future revenues and operating results. Our actual results may differ materially from those anticipated in such forward-looking statements as a result of various factors. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled "Risk Factors" included under Part II, Item 1A below and included under Part I, Item 1A in our 2023 Annual Report.
Amounts are expressed in United States dollars ("$" or "USD") unless otherwise stated to be in Canadian dollars ("CAD") or Euros ("€" or "EUR"). Amounts stated in foreign currencies include approximate USD amounts based on exchange rates on June 30, 2024. Variance, ratio, and percentage changes in this section are based on unrounded numbers. This section reports the Company's activities through June 30, 2024, unless otherwise indicated.
Overview of our Business
We are a multi-national cannabis company that manufactures and distributes consumer packaged goods and distributes medicinal cannabis and pharmaceutical products. Flora exists to create a world where the benefits of cannabis are accessible to everyone. Our primary businesses include JustCBD, Vessel and Phatebo. TruHC and Australian Vaporizers Pty Ltd were acquired in April 2024 and June 2024, respectively.
JustCBD
JustCBD is Flora's leading consumer packaged goods brand. JustCBD was launched in 2017 with a mission to bring high-quality, trustworthy and budget-friendly CBD products to market. The JustCBD offering currently consists of over 350 products across 15 categories, including CBD gummies, topicals, tinctures, and vape products and ships to over 11,500 independent retailers worldwide. JustCBD also sells direct to consumers with a customer base of approximately 350,000 people. JustCBD products are available for purchase in smoke and vape shops, clinics, spas and pet stores, as well as other independent non-traditional retail channels. JustCBD's products are both internally and third-party lab-tested to ensure quality.
Vessel
Vessel is Flora's cannabis accessory and technology brand currently servicing the United States and Canada through direct-to-consumer and retail sales. Vessel's products include cannabis consumption accessories, personal storage and travel accessories for the vape and dry herb categories, which are sold to consumers, dispensaries, smoke shops and cannabis brands. Vessel has positioned itself as a lifestyle brand, developing products for consumers interested in "elevating" the consumption experience, focusing primarily on the direct-to-consumer business and have garnered a customer base of approximately 150,000 people. Since our acquisition of Vessel in November 2021, Vessel has been fully integrated into JustCBD and now benefits from operational, logistical and sales synergies with JustCBD.
Phatebo
Based in Germany, Phatebo is a wholesale pharmaceutical distribution company with import and export capabilities of a wide range of pharmaceutical goods and medical cannabis products to treat a variety of health indications, including drugs related to cancer therapies, multiple sclerosis and anti-depressants, among others. Phatebo holds a License for the Trade in Narcotic Drugs (including the cannabis sales license amendment) and a Wholesale Trading License, both of which are issued by BfArM (the largest drug approval authority in Europe). Phatebo is focused on distributing pharmaceutical products within 28 countries globally, primarily in Europe, but also with sales to Asia, Latin America, and North America. In November 2018, Phatebo also received a medical cannabis import and distribution license. The Phatebo warehouse provides a logistics outpost for Flora's growing product portfolio and distribution network within the European Union.
25
TruHC
In April 2024, Flora acquired TruHC, an early-stage cannabis company based in Hamburg, Germany. TruHC holds a GDP wholesale and an EU-GMP processing and production license for medical cannabis. It also owns and operates an EU-GMP certified laboratory ready for instant cannabis analysis as required for the newly legalized cannabis social clubs. Moreover, the facility of TruHC is a flexible production space with EU-GMP certified modules that can be extended and customized for any production process from processing to extraction and enables a license extension for a future in country cultivation of medical cannabis and supply of cannabis dispensaries expected to be opened in 2025 during phase 3 of legalization in Germany. TruHC also holds a narcotic license with EU-GMP certified storage. These licenses allow TruHC to apply for new medical cannabis & cultivation licenses and become an official cannabis test lab for upcoming cannabis social clubs. It also enables extensive international import of seeds and flowers for future distribution in what is expected to become the largest federally legal recreational cannabis market in the world.
Australian Vaporizers Pty Ltd ("AV")
Based in Australia, AV was founded in 2010 and has become one of the largest online retailers of vaporizers, hardware, and accessories in Australia. It is an online expert for aromatherapy products, specializing in dry herb vaporizers. It has been providing vapes, accessories and knowledge to enthusiasts and newcomers alike through its website www.australianvaporizers.com.
Colombian Related Subsidiaries
On July 5, 2023, the Company entered into a share purchase agreement with Lisan, a Delaware limited liability company, to sell all its shares in certain of its Colombian subsidiaries and its Colombian assets for a purchase price of CAD $0.8 million (USD $0.6 million). The sale relates to Flora's operations in Colombia, including its interest in (i) its 361-acre Cosechemos farm located in Giron, Colombia and its related processing facilities and inventory and (ii) all other assets relating to Flora Lab 2, Flora Lab 4 and Flora's Colombian food and beverage and consumer products business (collectively "Colombia Assets"). The sale enables the Company to concentrate on its core business divisions, which are lifestyle brands in the United States and international pharmaceutical distribution. The sale was part of several strategic changes to cut costs and streamline operations. The Company received proceeds of CAD $0.5 million during the quarter ended September 30, 2023. The Company and Lisan completed the sale of Cosechemos Ya S.A.S on November 1, 2023.
Factors Impacting our Business
Challenges in realization of overhead reductions. Management has taken, and continues to implement, various cost-saving initiatives to lower overhead costs. However, the Company has not yet reached the critical balance in reducing overhead to meet both the existing and potential market demand in aggregate. The Company strives to attain sufficient growth to cover its overhead to reach profitability. If the Company fails to grow its business or reduce its operating expenses further in the long term, it will continue to face significant cash flow deficiencies in the future and continue to be reliant on debt and/or equity financing to fund operations.
Consistent profitability and positive operating cash flows. A key determinant of the Company's success is to deliver profitable results and positive cashflows from operating activities. The Company's results have not yet achieved the prerequisite consistency to achieve self-sufficiency. Since its inception, only the third quarter of 2023 yielded net income and positive cashflows from operating activities. There is no assurance that the Company will be able to produce adequate levels of sustained profitability and cash flow positive, or at all. These factors, amongst others, raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are described in Note 2 of the Company's unaudited condensed interim consolidated financial statements for the three and six months ended June 30, 2024. For more information, see Item 1A "Risk Factors" in the Company’s 2023 Annual Report.
Acquisition strategy disadvantages include significant transaction costs and liabilities of our acquirees. The Company has historically been opportunistic and pursues acquisitions from time to time that management believes will be complementary to or synergistic to the Company's existing business. However, any such acquisitions require the Company to incur heightened upfront transaction costs and require the Company to assume certain liabilities from the acquired companies. In addition, while the Company believes such acquisitions will provide enhanced value in the long term, it is possible that the anticipated synergies from the acquisition may never be realized.
26
Diversification of cashflows. Our sources of cash are diversified across geographic and product lines. Revenues are concentrated primarily in Germany and the United States, spanning pharmaceuticals, hemp and non-hemp consumer products and medicinal cannabis.
International cannabis developments. Flora's growth is embedded in the expansion, regulation and legalization of medicinal and recreational cannabis and cannabis derivative products across the world. While medicinal cannabis has been regulated at the federal level in multiple countries, the Company is focused on the most robust markets in Germany and the European Union. We remain tuned to international developments as potentially lucrative medicinal cannabis markets open.
Product evolution and brand acceptance. As the cannabis industry continues to change, divergent regulations and the corresponding resources required to introduce high-quality products are expected to impact our market share. Gaining access to continuously evolving and superior products remains a critical success factor. Our ultimate ability to produce and acquire products meeting stringent quality control standards drives the extent of consumer acceptance. Furthermore, the intrinsic value within our brands, including JustCBD and Vessel, is subject to evolving consumer sentiment.
Regulatory proficiency and adoption. The markets in which Flora operates are highly regulated and require extensive experience in navigating the associated complexities. We have assembled a team with deep knowledge of the regulatory and governance environments in which the Company operates. Fundamental expertise entails compliance with product approvals, import permits, export permits, distribution licenses and other pertinent licenses.
Integration of acquired companies. Our growth has been fueled substantially by the acquisition of JustCBD, Vessel and FGH. Our continued ability to extract incremental synergies from a group of diversified entities is a key determinant of our ability to expand organically.
Public Company Costs
We are a public company, which requires additional staff and the implementation of processes and procedures to address public company regulatory requirements and customary practices. We expect to continue to incur substantial additional annual expenses for, among other things, directors' and officers' liability insurance and additional internal and external costs for investor relations, accounting, audit, legal, and other functions.
Audit Committee Requirement
On December 6, 2023, the Company received a notification from Nasdaq, confirming that, due to having less than three independent audit committee members, the Company no longer complies with Nasdaq's audit committee requirements contained in Nasdaq Listing Rule 5605(c)(2)(A). As set forth in such notification, Nasdaq advised the Company that, under Nasdaq Rule 5605(c)(4), the Company was afforded a cure period in order to regain compliance (i) until the earlier of the Company's next annual shareholders' meeting or November 30, 2024, or (ii) if the next annual shareholders' meeting is held before May 28, 2024, then the Company must evidence compliance no later than May 28, 2024.
On May 2, 2024, the Board appointed Mr. Brendan Cahill as a director and member of each of the Company's audit committee, compensation committee and nominating and corporate governance committee.
After giving effect to Mr. Cahill's appointment, the audit committee of the Board has three independent members as required by Nasdaq Listing Rule 5605(c)(2)(A). As a result of the foregoing, the Company has regained compliance with the audit committee composition requirements of Nasdaq Listing Rule 5605(c)(2)(A).
Key Components of Results of Operations
Revenue
The Company primarily generates revenue as a distributor of pharmaceutical goods, and a manufacturer and reseller of a range of cannabis-based and complementary products. The Company has two major revenue groups, which are also its two reportable segments:
(1) House of Brands; and
(2) Commercial and Wholesale.
27
These segments reflect how the Company's operations are managed, how the Company's Chief Executive Officer, who is the chief operating decision maker, allocates resources and evaluates performance, and how the Company's internal management financial reporting is structured.
The Company's operates its manufacturing and distribution business through its subsidiaries in the United States, Germany and Australia. Until the sale of the Colombia Assets, the Company also was engaged in the growth, cultivation, and development of medicinal cannabis and medicinal cannabis derivative products in Colombia.
The Company uses the following five-step contract-based analysis of transactions to determine if, when and how much revenue can be recognized:
1. Identify the contract with a customer;
2. Identify the performance obligations in the contract;
3. Determine the transaction price;
4. Allocate the transaction price to the performance obligations in the contract; and
5. Recognize revenue when or as the Company satisfies the performance obligations.
Revenue is recognized at the transaction price, which is the amount of consideration to which the Company expects to be entitled in exchange for transferring promised goods to a customer. Gross revenue excludes duties and taxes collected on behalf of third parties. Revenue is presented net of expected price discounts, sales returns, customer rebates and other incentives. The Company's cannabis consumption accessory products include a six-month warranty, which the Company accrues for the estimated liability based on historical and expected claim costs.
The Company's contracts with customers for the sales of products consist of one performance obligation. Revenue from product sales is recognized at the point in time when control is transferred to the customer, which is on shipment or delivery, depending on the contract terms. The Company's payment terms generally range from 0 to 30 days from the transfer of control, and sometimes up to six months.
Cost of sales
The Company includes the cost of raw materials and supplies, purchased finished goods and changes in inventory reserves in cost of sales for each of its two reportable segments. Raw materials include the purchase cost of the materials, freight-in and duty. Finished goods include the cost of direct materials and labor and a proportion of manufacturing overhead allocated based on normal production capacity. Inventory reserves for excess and obsolete inventory are based upon quantities on hand, projected volumes from demand forecasts and net realizable value. The primary factors that can impact cost of goods sold on a period-to-period basis include the volume of products sold, the mix of products sold, third-party quality costs, transportation, overhead allocations and changes in inventory provisions.
Operating Expenses
The Company's operating expenses are apportioned based on the following categories:
28
Non-Operating (Income) Expenses
Non-operating expenses include interest income and expenses, foreign exchange losses and unrealized losses from changes in fair value. Interest is primarily related to the Company's operating lines of credit. Foreign exchange is largely related to the revaluation of balances denominated in foreign currencies to U.S. dollars. Unrealized losses from changes in fair value pertain to fluctuations in the fair values of the Company's investments and liabilities.
Income Tax
Income tax consists primarily of income taxes related to U.S. federal and state income taxes and income taxes in foreign jurisdictions in which we conduct business.
Loss from Discontinued Operations
Loss from discontinued operations includes the net loss, net of tax, of the Colombian subsidiaries sold on July 5, 2023 and on November 1, 2023. It also includes an expected loss on the disposal as the carrying value of the assets being sold exceeded the expected sale price.
Results of Operations
The following tables provide sets forth the Company's consolidated results of operations for the three and six months ended June 30, 2024 and 2023 (in thousands). The period-to-period comparisons of the Company's historical results are not necessarily indicative of the results that may be expected in the future. The results of operations data have been derived from our unaudited condensed interim consolidated financial statements for the three and six months ended June 30, 2024 and 2023 included elsewhere in this Quarterly Report.
| For the three months ended June 30, 2024 |
For the three months ended June 30, 2023 |
For the six months ended June 30, 2024 |
For the six months ended June 30, 2023 |
|||||||||
| Revenue | $ | 15,683 | $ | 21,460 | $ | 33,714 | $ | 40,779 | ||||
| Cost of sales | 12,516 | 17,500 | 26,693 | 31,473 | ||||||||
| Gross profit | 3,167 | 3,960 | 7,021 | 9,306 | ||||||||
| Consulting and management fees | 2,349 | 3,662 | 4,651 | 7,333 | ||||||||
| Professional fees | 1,146 | 668 | 1,599 | 665 | ||||||||
| General and administrative | 587 | 685 | 1,029 | 1,036 | ||||||||
| Promotion and communication | 1,125 | 1,263 | 2,229 | 2,571 | ||||||||
| Travel expenses | 123 | 124 | 192 | 256 | ||||||||
| Share based compensation | 12 | 338 | 22 | 992 | ||||||||
| Research and development | 62 | 13 | 109 | 29 | ||||||||
| Operating lease expense | 199 | 308 | 364 | 624 | ||||||||
| Depreciation and amortization | 257 | 874 | 331 | 1,738 | ||||||||
| Bad debt expense | 172 | 18 | 219 | 47 | ||||||||
| Asset impairment | 160 | 34,941 | 1,058 | 34,941 | ||||||||
| Other expenses, net | 513 | 1,127 | 1,241 | 1,505 | ||||||||
| Operating loss | (3,538 | ) | (40,061 | ) | (6,023 | ) | (42,431 | ) | ||||
| Non-operating income | (846 | ) | (1,951 | ) | (85 | ) | (1,057 | ) | ||||
| Net loss before taxes and discontinued operations | (2,692 | ) | (38,110 | ) | (5,938 | ) | (41,374 | ) | ||||
| Income tax | (35 | ) | (1,119 | ) | 93 | (1,196 | ) | |||||
| Net loss from continuing operations | (2,657 | ) | (36,991 | ) | (6,031 | ) | (40,178 | ) | ||||
| Loss from discontinued operations | - | (7,565 | ) | - | (8,283 | ) | ||||||
| Net loss for the period | $ | (2,657 | ) | $ | (44,556 | ) | $ | (6,031 | ) | $ | (48,461 | ) |
Stop Sale Order by Florida Department of Agriculture and Consumer Services Division of Food Safety (the "Department")
29
On October 31, 2023, the Department issued 340 stop sale orders on hemp extract products distributed by Just Brands primarily on the basis that such products were determined to be attractive to children with the product and/or labels in the shape of an animal, human, or cartoon; or bears any reasonable resemblance to an existing candy product, or branded food product. As a result, Just Brands has stopped distributing these products in the State of Florida. There is no assurance that these products can be sold in another jurisdiction, or at all.
On January 22, 2024, the Department issued a stop sale order on 231 hemp extract and other products distributed by Just Brands primarily on the basis that such products were determined to be attractive to children with the product and/or labels in the shape of an animal, human, or cartoon; or bears any reasonable resemblance to an existing candy product, or branded food product. As a result, Just Brands has stopped distributing these products in the State of Florida. There is no assurance that these products can be sold in another jurisdiction, or at all.
On April 2, 2024, the Department issued a stop sale order on 84 hemp extract and other products distributed by High Roller primarily on the basis that such products were determined to be attractive to children with the product and/or labels in the shape of an animal, human, or cartoon; or bears any reasonable resemblance to an existing candy product, or branded food product. As a result, Higher Roller has stopped distributing these products in the State of Florida. There is no assurance that these products can be sold in another jurisdiction, or at all.
On May 7, 2024, Just Brands and the Department agreed to a settlement and general release, whereby Just Brands will remove the products subject to the Stop Sales Orders from the state of Florida, pay the Department $60,500 to reimburse the Department's attorney's fees, and accept a five-year revocation of its food permit in the state of Florida. By signing the release, Just Brands waived, settled and released all claims it had or might have against the Department.
On June 27, 2024, Just Brands and the Department agreed to a settlement and general release, whereby High Roller will remove the products subject to the Stop Sales Orders from the state of Florida, destroy products containing controlled substances, pay the Department $5,000 to reimburse the Department's attorney's fees, and accept a two-year suspension of the manufacture, distribution and sale of gummy hemp extract products in the state of Florida. By signing the release, High Roller waived, settled and released all claims it had or might have against the Department.
The Company estimates that the disruption from these stop sale orders had an unfavorable impact of $0.7 million on revenue during the six months ended June 30, 2024. The total value of inventory impacted by the stop sale orders was $1.9 million. As per the agreement with the Department, all of the impacted inventory has been moved and is being sold outside the state of Florida.
For the Three Months Ended June 30, 2024, and 2023
Revenue
Revenue totaled $15.7 million and $21.5 million for the three months ended June 30, 2024 and 2023, respectively. The decrease was primarily driven by the following:
Gross Profit
Gross profit totaled $3.2 million and $4.0 million for the three months ended June 30, 2024 and 2023, respectively. The decrease was primarily driven by the decreased sales at JustCBD, which contributed $1.5 million in the three months ended June 30, 2024 compared to $3.0 million in the three months ended June 30, 2023. In addition, $0.7 million of inventory impairment was recorded at JustCBD in the three months ended June 30, 2024 related to inventory theft and recoveries of stolen inventory that is no longer saleable. The remaining fluctuation is due to increased gross margins at Vessel with $0.8 million in the three months ended June 30, 2024 compared to $0.6 million in the three months ended June 30, 2023, as well as at FGH with $0.8 million in the three months ended June 30, 2024 compared to $0.6 million in the three months ended June 30, 2023. AV was acquired in June 2024 and contributed $0.1 million during the three months ended June 30, 2024. As a percentage of net sales, or gross margin, the Company reported 20% and 18% for the three months ended June 30, 2024 and 2023, respectively. The increase is primarily due to better margins at FGH and Vessel.
30
Operating Expenses
Operating expenses totaled $6.7 million and $44.0 million for the three months ended June 30, 2024 and June 30, 2023, respectively. The decrease was primarily driven by increased asset impairments recorded in the three months ended June 30, 2023.
Consulting and Management Fees
Consulting and management fees were $2.3 million for the three months ended June 30, 2024 compared to $3.7 million for the three months ended June 30, 2023. These fees are related to employment and consulting contracts with most of the Company's management, as well as directors. The decrease is primarily due to a substantial reduction in the Company's total headcount across all its business units.
Professional Fees
Professional fees totaled $1.1 million for the three months ended June 30, 2024 compared to $0.7 million for the three months ended June 30, 2023. These expenses are associated with legal, accounting and audit services. The increase is due to costs related to the acquisitions of TruHC and AV during the three months ended June 30, 2024, as well as credit memos received during the three months ended June 30, 2023.
General and Administrative Expenses
General and administrative expenses totaled $0.6 million for the three months ended June 30, 2024 compared to $0.7 million for the three months ended June 30, 2023. The primary expenses included in both periods were filing services and shareholder communications, as well as professional dues and subscriptions.
Promotion and Communication Expenses
Promotion and communication expenses totaled $1.1 million for the three months ended June 30, 2024 compared to $1.3 million for the three months ended June 30, 2023. The decrease is due to reduced sales as well as cost-cutting initiatives by the Company aimed at reducing corporate overhead. Promotion expenses incurred in the period largely relate to the nature of JustCBD's business model, which is centered around promoting its products as a method for stimulating revenue growth.
Travel Expenses
Travel expenses totaled $0.1 million for both the three months ended June 30, 2024 and the three months ended June 30, 2023. These expenses were for various trips related to the subsidiaries and the Company's promotional activities.
Share-based Compensation Expenses
Share based compensation expenses totaled less than $0.1 million for the three months ended June 30, 2024 compared to $0.3 million for the three months ended June 30, 2023. These expenses represent the amortization of the fair value of share-based payments. The decrease is primarily due to the granting of fewer stock-based compensation awards during 2023 as well as a substantial reduction in total headcount across all its business units.
Research and Development Expenses
Research and development expenses totaled $0.1 million for the three months ended June 30, 2024 compared to less than $0.1 million for the three months ended June 30, 2023. Research and development expenses consist primarily of contract research fees, manufacturing, consultant fees, and costs related to the launch of new brands for the Vessel business.
31
Operating Lease Expenses
Operating lease expenses totaled $0.2 million for the three months ended June 30, 2024 compared to $0.3 million for three months ended June 30, 2023. The decrease is due to the impairment of the right-of-use operating lease assets during 2023, causing reduced operating lease expense in 2024.
Depreciation and Amortization Expense
Depreciation and amortization expenses totaled $0.3 million for the three months ended June 30, 2024 compared to $0.9 million for the three months ended June 30, 2023. The decrease is primarily due to the impairment recorded on the Company's long-lived assets during 2023, causing reduced depreciation and amortization in 2024, partially offset by the acquisitions of TruHC and AV during the three months ended June 30, 2024.
Bad Debt Expense
Bad debt expense totaled $0.2 million for the three months ended June 30, 2024 compared to less than $0.1 million for the three months ended June 30, 2023. The amounts reflect the Company's estimate of lifetime expected losses related to outstanding trade receivables.
Asset Impairment
Asset impairment totaled $0.2 million for the three months ended June 30, 2024 compared to $34.9 million for the three months ended June 30, 2023. The amount for the three months ended June 30, 2024 represents impairment of the property, plant and equipment at JustCBD as well as the patents at Vessel. The amount for the three months ended June 30, 2023 represents impairment of the goodwill at JustCBD and FGH and the long-lived assets at Vessel, JustCBD and FGH.
Other Expenses
Other expenses totaled $0.5 million for the three months ended June 30, 2024 compared to $1.1 million for the three months ended June 30, 2023. For both periods, these expenses consist mainly of insurance, repairs and maintenance and royalties partially offset by miscellaneous incomes. The decrease is due to lower royalty fees and increased sublease income during the three months ended June 30, 2024.
Non-operating Income
Flora realized $0.8 million in non-operating income for the three months ended June 30, 2024 compared to non-operating income of $2.0 million for the three months ended June 30, 2023. These incomes consist of unrealized gains from changes in fair value, interest (income) expense and foreign exchange loss (gain). The decrease in income is primarily due to a $0.8 million gain on the value of the contingent consideration related to the JustCBD acquisition during the three months ended June 30, 2024 compared to a $2.0 million gain during the three months ended June 30, 2023.
Income Tax
The Company recognized less than $0.1 million and $1.1 million in income tax benefit for the three months ended June 30, 2024 and 2023, respectively. The Company's effective tax rate during the periods ended June 30, 2024 and 2023 was 1.3% and 2.9%, respectively. We maintain valuation allowances when it is more likely than not that all or a portion of a deferred tax asset will not be realized. Changes in valuation allowances from period to period are included in the tax provision in the period of change. In determining whether a valuation allowance is required, we consider such factors as prior earnings history, expected future earnings, carry-back and carry-forward periods, and tax strategies that could potentially enhance the likelihood of realization of a deferred tax asset. We continue to believe our deferred tax assets are not more-likely-than-not to be realized and a full valuation allowance remains recorded against net deferred taxes as of June 30, 2024 and 2023. The income tax benefit in the three months ended June 30, 2023 is primarily related to the tax effect of the amortization and impairment on the intangible assets at FGH.
Loss from Discontinued Operations
Loss from discontinued operations totaled $nil in the three months ended June 30, 2024 compared to loss from discontinued operations of $7.6 million in the three months ended June 30, 2023. The sale of the Colombian subsidiaries was completed during the third and fourth quarters of 2023.
32
Net Loss
Flora recorded a net loss of $2.7 million for the three months ended June 30, 2024 compared to a net loss of $44.6 million for the three months ended June 30, 2023. This decrease in net loss is driven by lower operating expenses and the loss from the disposed Colombia operations in 2023 partially offset by lower gross profit, non-operating income and income tax benefit.
For the Six Months Ended June 30, 2024, and 2023
Revenue
Revenue totaled $33.7 million and $40.8 million for the six months ended June 30, 2024 and 2023, respectively. The decrease was primarily driven by the following:
Gross Profit
Gross profit totaled $7.0 million and $9.3 million for the six months ended June 30, 2024 and 2023, respectively. The decrease was primarily driven by the decreased sales at JustCBD, which contributed $4.2 million in the six months ended June 30, 2024 compared to $7.0 million in the six months ended June 30, 2023. In addition, $0.7 million of inventory impairment was recorded at JustCBD in the six months ended June 30, 2024 related to inventory theft and recoveries of stolen inventory that is no longer saleable. The remaining fluctuation is due to increased gross margins at FGH with $1.4 million in the six months ended June 30, 2024 compared to $1.3 million in the six months ended June 30, 2023. AV was acquired in June 2024 and contributed $0.1 million during the six months ended June 30, 2024. As a percentage of net sales, or gross margin, the Company reported 21% and 23% for the six months ended June 30, 2024 and 2024, respectively. The decrease is primarily due to unfavorable mix, with increased sales at FGH which distributes relatively lower margin pharmaceuticals.
Operating Expenses
Operating expenses totaled $13.0 million and $51.7 million for the six months ended June 30, 2024 and June 30, 2023, respectively. The decrease is seen across multiple expense categories and is due to management's cost-cutting initiatives implemented during the second half of 2023 as well as asset impairments recorded during the period ending June 30, 2023.
Consulting and Management Fees
Consulting and management fees were $4.7 million for the six months ended June 30, 2024 compared to $7.3 million for the six months ended June 30, 2023. These fees are related to employment and consulting contracts with most of the Company's management, as well as directors. The decrease is primarily due to a substantial reduction in the Company's total headcount across all its business units.
Professional Fees
Professional fees totaled $1.6 million for the six months ended June 30, 2024 compared to $0.7 million for the six months ended June 30, 2023. These expenses are associated with legal, accounting and audit services. The increase is due to costs related to the acquisitions of TruHC and AV during the six months ended June 30, 2024, as well as credit memos received during the six months ended June 30, 2023.
General and Administrative Expenses
General and administrative expenses totaled $1.0 million for both the six months ended June 30, 2024 and the six months ended June 30, 2023. The primary expenses included in both periods were filing services and shareholder communications, as well as professional dues and subscriptions.
33
Promotion and Communication Expenses
Promotion and communication expenses totaled $2.2 million for the six months ended June 30, 2024 compared to $2.6 million for the six months ended June 30, 2023. The decrease is due to reduced sales as well as cost-cutting initiatives by the Company aimed at reducing corporate overhead. Promotion expenses incurred in the period largely relate to the nature of JustCBD's business model, which is centered around promoting its products as a method for stimulating revenue growth.
Travel Expenses
Travel expenses totaled $0.2 million for the six months ended June 30, 2024 compared to $0.3 million for the six months ended June 30, 2023. These expenses were for various trips related to the subsidiaries and the Company's promotional activities.
Share-based Compensation Expenses
Share based compensation expenses totaled less than $0.1 million for the six months ended June 30, 2024 compared to $1.0 million for the six months ended June 30, 2023. These expenses represent the amortization of the fair value of share-based payments. The decrease is primarily due to the granting of fewer stock-based compensation awards during 2023 as well as a substantial reduction in total headcount across all its business units.
Research and Development Expenses
Research and development expenses totaled $0.1 million for the six months ended June 30, 2024 compared to less than $0.1 million for the six months ended June 30, 2023. Research and development expenses consist primarily of contract research fees, manufacturing, consultant fees, and costs related to the launch of new brands for the Vessel business.
Operating Lease Expenses
Operating lease expenses totaled $0.4 million for the six months ended June 30, 2024 compared to $0.6 million for six months ended June 30, 2023. The decrease is due to the impairment of the right-of-use operating lease assets during 2023, causing reduced operating lease expense in 2024.
Depreciation and Amortization Expense
Depreciation and amortization expenses totaled $0.3 million for the six months ended June 30, 2024 compared to $1.7 million for the six months ended June 30, 2023. The decrease is primarily due to the impairment recorded on the Company's long-lived assets during 2023, causing reduced depreciation and amortization in 2024, partially offset by the acquisitions of TruHC and AV during the six months ended June 30, 2024.
Bad Debt Expense
Bad debt expense totaled $0.2 million for the six months ended June 30, 2024 compared to less than $0.1 million for the six months ended June 30, 2023. The amounts reflect the Company's estimate of lifetime expected losses related to outstanding trade receivables.
Asset Impairment
Asset impairment totaled $1.1 million for the six months ended June 30, 2024 compared to $34.9 million for the six months ended June 30, 2023. The amount for the six months ended June 30, 2024 represents impairment of the long-lived assets at Vessel and JustCBD. The amount for the six months ended June 30, 2023 represents impairment of the goodwill at JustCBD and FGH and the long-lived assets at Vessel, JustCBD and FGH.
Other Expenses
Other expenses totaled $1.2 million for the six months ended June 30, 2024 compared to $1.5 million for the six months ended June 30, 2023. For both periods, these expenses consist mainly of insurance, repairs and maintenance and royalties partially offset by miscellaneous incomes. The decrease is primarily due to sublease income collected during the six months ended June 30, 2024.
34
Non-operating Expenses
Flora realized $0.1 million in non-operating income for the six months ended June 30, 2024 compared to non-operating income of $1.1 million for the six months ended June 30, 2023. These incomes consist of unrealized gains from changes in fair value, interest (income) expense and foreign exchange loss (gain). The decrease in income is primarily due to a $0.2 million gain on the value of the contingent consideration related to the JustCBD acquisition during the six months ended June 30, 2024 compared to a $1.1 million gain during the six months ended June 30, 2023.
Income Tax
The Company recognized $0.1 million expense and $1.2 million in income tax benefit for the six months ended June 30, 2024 and 2023, respectively. The Company's effective tax rate during the periods ended June 30, 2024 and 2023 was -1.6% and 2.9%, respectively. We maintain valuation allowances when it is more likely than not that all or a portion of a deferred tax asset will not be realized. Changes in valuation allowances from period to period are included in the tax provision in the period of change. In determining whether a valuation allowance is required, we consider such factors as prior earnings history, expected future earnings, carry-back and carry-forward periods, and tax strategies that could potentially enhance the likelihood of realization of a deferred tax asset. We continue to believe our deferred tax assets are not more-likely-than-not to be realized and a full valuation allowance remains recorded against net deferred taxes as of June 30, 2024 and 2023. The income tax benefit in the six months ended June 30, 2023 is primarily related to the tax effect of the amortization and impairment on the intangible assets at FGH.
Loss from Discontinued Operations
Loss from discontinued operations totaled $nil in the six months ended June 30, 2024 compared to loss from discontinued operations of $8.3 million in the six months ended June 30, 2023. The sale of the Colombian subsidiaries was completed during the third and fourth quarters of 2023.
Net Loss
Flora recorded a net loss of $6.0 million for the six months ended June 30, 2024 compared to a net loss of $48.5 million for the six months ended June 30, 2023. This decrease in net loss is driven by lower operating expenses and the loss from the disposed Colombia operations in 2023 partially offset by lower gross profit, non-operating income and income tax benefit.
EBITDA and Adjusted EBITDA
EBITDA and Adjusted EBITDA are non-U.S. GAAP financial measures that do not have any standardized meaning prescribed by U.S. GAAP and may not be comparable to similar measures presented by other companies. We calculate EBITDA as total net income (loss) from continuing operations, plus (minus) income taxes (recovery), plus (minus) interest expense (income), plus depreciation and amortization. We calculate Adjusted EBITDA as EBITDA plus (minus) non-operating expense (income), plus share based compensation expense, plus asset impairment charges, plus (minus) unrealized loss (gain) from changes in fair value, plus charges related to the flow-through of inventory step-up on business combinations, plus other acquisition and transaction costs. Management believes that EBITDA and Adjusted EBITDA provide meaningful and useful financial information as these measures demonstrate the operating performance of the business.
The reconciliation of the Company's Adjusted EBITDA, a non-U.S. GAAP financial measure, to net (loss) income from continuing operations, the most directly comparable U.S. GAAP financial measure, for the six months ended June 30, 2024 is presented in the table below:
| (In thousands of United States dollars) | JustCBD | Vessel | Germany (3) |
Australian Vaporizers |
Corporate & Other |
Consolidated | ||||||||||||
| Net (loss) income from continuing operations | $ | (1,331 | ) | $ | (1,318 | ) | $ | (51 | ) | $ | 66 | $ | (3,397 | ) | $ | (6,031 | ) | |
| Income tax expense | - | - | 77 | - | 16 | 93 | ||||||||||||
| Interest expense (income) | 1 | - | 65 | - | (69 | ) | (3 | ) | ||||||||||
| Depreciation and amortization | 110 | 34 | 178 | 3 | 6 | 331 | ||||||||||||
| EBITDA | (1,220 | ) | (1,284 | ) | 269 | 69 | (3,444 | ) | (5,610 | ) | ||||||||
| Non-operating loss (1) | 1 | - | - | - | 182 | 183 | ||||||||||||
| Share based compensation | - | - | - | 22 | 22 | |||||||||||||
| Asset impairment | 93 | 934 | - | - | 31 | 1,058 | ||||||||||||
| Unrealized gain from changes in fair value (2) | (57 | ) | - | - | (208 | ) | (265 | ) | ||||||||||
| Charges related to the flow-through of inventory step-up on business combinations | - | - | - | 20 | - | 20 | ||||||||||||
| Other acquisition and transaction costs | - | - | 216 | 33 | 20 | 269 | ||||||||||||
| Adjusted EBITDA | $ | (1,183 | ) | $ | (350 | ) | $ | 485 | $ | 122 | $ | (3,397 | ) | $ | (4,323 | ) |
The reconciliation of the Company's Adjusted EBITDA, a non-U.S. GAAP financial measure, to net (loss) income from continuing operations, the most directly comparable U.S. GAAP financial measure, for the six months ended June 30, 2023 is presented in the table below:
35
| (In thousands of United States dollars) | JustCBD | Vessel | Germany (3) | Corporate & Other |
Consolidated | ||||||||||
| Net (loss) income from continuing operations | $ | (19,757 | ) | $ | (9,093 | ) | $ | 98 | $ | (11,426 | ) | $ | (40,178 | ) | |
| Income tax expense (recovery) | - | - | 39 | (1,235 | ) | (1,196 | ) | ||||||||
| Interest expense (income) | 8 | - | 45 | (2 | ) | 51 | |||||||||
| Depreciation and amortization | 401 | 704 | 15 | 618 | 1,738 | ||||||||||
| EBITDA | (19,348 | ) | (8,389 | ) | 197 | (12,045 | ) | (39,585 | ) | ||||||
| Non-operating loss (gain) (1) | 2 | (1 | ) | - | (177 | ) | (176 | ) | |||||||
| Share based compensation | - | - | - | 992 | 992 | ||||||||||
| Asset impairment | 19,640 | 7,834 | 7,467 | 34,941 | |||||||||||
| Unrealized gain from changes in fair value (2) | (357 | ) | - | - | (575 | ) | (932 | ) | |||||||
| Charges related to the flow-through of inventory step-up on business combinations | - | - | 45 | - | 45 | ||||||||||
| Adjusted EBITDA | $ | (63 | ) | $ | (556 | ) | $ | 242 | $ | (4,338 | ) | $ | (4,715 | ) |
The reconciliation of the Company's Adjusted EBITDA, a non-U.S. GAAP financial measure, to net (loss) income from continuing operations, the most directly comparable U.S. GAAP financial measure, for the three months ended June 30, 2024 is presented in the table below:
| (In thousands of United States dollars) | JustCBD | Vessel | Germany (3) |
Australian Vaporizers |
Corporate & Other |
Consolidated | ||||||||||||
| Net (loss) income from continuing operations | $ | (1,442 | ) | $ | (241 | ) | $ | (45 | ) | $ | 66 | $ | (995 | ) | $ | (2,657 | ) | |
| Income tax expense (benefit) | - | - | 12 | - | (47 | ) | (35 | ) | ||||||||||
| Interest expense (income) | - | - | 29 | - | (54 | ) | (25 | ) | ||||||||||
| Depreciation and amortization | 62 | 16 | 172 | 3 | 4 | 257 | ||||||||||||
| EBITDA | (1,380 | ) | (225 | ) | 168 | 69 | (1,092 | ) | (2,460 | ) | ||||||||
| Non-operating loss (1) | - | - | - | - | 51 | 51 | ||||||||||||
| Share based compensation | - | - | - | 12 | 12 | |||||||||||||
| Asset impairment | 93 | 70 | - | - | (3 | ) | 160 | |||||||||||
| Unrealized gain from changes in fair value (2) | (57 | ) | - | - | (815 | ) | (872 | ) | ||||||||||
| Charges related to the flow-through of inventory step-up on business combinations | - | - | - | 20 | - | 20 | ||||||||||||
| Other acquisition and transaction costs | - | - | 216 | 33 | 20 | 269 | ||||||||||||
| Adjusted EBITDA | $ | (1,344 | ) | $ | (155 | ) | $ | 384 | $ | 122 | $ | (1,827 | ) | $ | (2,820 | ) |
The reconciliation of the Company's Adjusted EBITDA, a non-U.S. GAAP financial measure, to net (loss) income from continuing operations, the most directly comparable U.S. GAAP financial measure, for the three months ended June 30, 2023 is presented in the table below:
| (In thousands of United States dollars) | JustCBD | Vessel | Germany (3) |
Corporate & Other |
Consolidated | ||||||||||
| Net (loss) income from continuing operations | $ | (20,003 | ) | $ | (8,536 | ) | $ | 44 | $ | (8,496 | ) | $ | (36,991 | ) | |
| Income tax expense (recovery) | - | - | 14 | (1,133 | ) | (1,119 | ) | ||||||||
| Interest expense (income) | 6 | - | 24 | (2 | ) | 28 | |||||||||
| Depreciation and amortization | 206 | 351 | 7 | 310 | 874 | ||||||||||
| EBITDA | (19,791 | ) | (8,185 | ) | 89 | (9,321 | ) | (37,208 | ) | ||||||
| Non-operating loss (gain) (1) | 4 | (1 | ) | - | (167 | ) | (164 | ) | |||||||
| Share based compensation | - | - | - | 338 | 338 | ||||||||||
| Asset impairment | 19,640 | 7,834 | 7,467 | 34,941 | |||||||||||
| Unrealized gain from changes in fair value (2) | (357 | ) | - | - | (1,458 | ) | (1,815 | ) | |||||||
| Adjusted EBITDA | $ | (504 | ) | $ | (352 | ) | $ | 89 | $ | (3,141 | ) | $ | (3,908 | ) |
(1) Non-operating loss (gain) includes foreign exchange losses (gains).
(2) Unrealized gain from changes in fair value includes changes in the value of the Company's contingent consideration associated with its acquisition of JustCBD and Original Hemp.
(3) Germany includes the Company's main operating entities in Germany, Phatebo and TruHC.
36
Liquidity and Capital Resources
Since the Company's inception, we have funded our operations and capital spending through cash flows from product sales and proceeds from the sale of our capital stock. The Company is generating cash from sales and is deploying its capital reserves to acquire and develop assets capable of producing additional revenues and earnings over both the immediate and near term to support our business growth and expansion. We have generated significant operating losses and negative cash flows from operations as reflected in our accumulated deficit and unaudited condensed interim consolidated statements of cash flows. We expect to continue to incur operating losses and negative cash flows in the foreseeable future. Our current principal sources of liquidity are cash and cash equivalents provided by our operations and prior equity offerings. Cash and cash equivalents consist primarily of cash on deposit with banks. Cash and cash equivalents were $6.1 million and $4.4 million as of June 30, 2024, and December 31, 2023, respectively. As of June 30, 2024, the Company's current working capital, anticipated operating expenses and net losses, and the uncertainties surrounding its ability to raise additional capital as needed, raise substantial doubt as to whether existing cash and cash equivalents will be sufficient to meet its obligations as they come due within twelve months from the date the unaudited condensed interim consolidated financial statements were issued. The unaudited condensed interim consolidated financial statements do not include any adjustments for the recovery and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
The Company's ability to execute its operating plans depends on its ability to obtain additional funding through equity offerings, debt financing, or other forms of financing to meet planned growth requirements and to fund future operations, which may not be available on acceptable terms, or at all. If we are unable to raise the requisite funds, we will need to curtail or cease operations. See Note 2 to the Company's unaudited condensed interim consolidated financial statements included elsewhere in this Quarterly Report and to the Company's audited consolidated financial statements for the years ended December 31, 2023, and 2022, included in the 2023 Annual Report, for more information, and "Part I., Item IA Risk Factors - Management has performed an analysis of our ability to continue as a going concern, and has determined that, based on our current financial position, there is a substantial doubt about our ability to continue as a going concern" in the Company's 2023 Annual Report. We have based our estimates as to how long we expect we will be able to fund our operations on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. In the long term, we will be required to obtain additional financing to fund our current planned operations, which may consist of incurrence of additional indebtedness, additional equity financings or a combination of these potential sources of funds. There can be no assurance that the Company will be able to obtain additional funds on terms acceptable to it, on a timely basis or at all. The failure to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on the results of operations, and financial condition. If we do raise additional capital through public or private equity offerings, the ownership interest of our existing shareholders will be diluted. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends.
The Company's primary uses of cash are for working capital requirements and capital expenditures. Additionally, from time to time, it may use capital for acquisitions and other investing and financing activities. Working capital is used principally for the Company's personnel as well as costs related to the manufacture and production of its products. The Company's capital expenditures consist primarily of additional facilities, improvements in existing facilities and product development.
Cash Flows
The following table sets forth the major components of the Company's unaudited condensed interim consolidated statements of cash flows for the periods presented.
37
| (In thousands of United States dollars) | For the six months ended June 30, 2024 |
For the six months ended June 30, 2023 |
||||
| Cash used in operating activities | $ | (1,605 | ) | $ | (7,783 | ) |
| Cash from financing activities | 3,368 | 112 | ||||
| Cash used in investing activities | (33 | ) | (195 | ) | ||
| Effect of exchange rate change | 47 | 584 | ||||
| Change in cash during the period | 1,777 | (7,282 | ) | |||
| Cash, beginning of period | 4,385 | 9,537 | ||||
| Cash included in assets held for sale | - | (448 | ) | |||
| Cash, end of period | $ | 6,162 | $ | 1,807 |
Cash used in Operating Activities
Net cash used in operating activities in the six months ended June 30, 2024 was $1.6 million compared to net cash used in operating activities of $7.8 million for the six months ended June 30, 2023. Cash flows used in operating activities for the periods ended June 30, 2024 and 2023 were due primarily to operating expenses exceeding the gross profit for the periods.
Cash provided by Financing Activities
Net cash provided by financing activities for the six months ended June 30, 2024 totaled $3.4 million compared to net cash provided in financing activities of $0.1 million for the six months ended June 30, 2023. Cash flows provided from financing activities for the period ending June 30, 2024 were due to the sale of common shares of the Company in April 2024 as well as net borrowings on the credit facilities in Germany through the Company's Phatebo subsidiary. Cash flows provided in financing activities for the period ended June 30, 2023 were related to loan borrowings.
Cash used in Investing Activities
Net cash used in investing activities for the six months ended June 30, 2024 totaled less than $0.1 million compared to net cash used in investing activities for the six months ended June 30, 2023 of $0.2 million. Cash flows used in investing activities for the period ended June 30, 2024 were primarily related to the purchases of property, plant and equipment. Cash flows used in investing activities for the period ended June 30, 2023 were primarily related to the purchases of property, plant and equipment, and intangible assets.
Working Capital
As of June 30, 2024, we had working capital of $3.0 million, including $6.1 million of cash. The Company's primary cash flow needs are for the development of its operating activities, administrative expenses and for general working capital to support growing sales with related receivables and payables.
Funding Requirements
Our continued existence is dependent on our ability to generate positive cash flows through synergies within our operations, expanding our production capacity and geographic footprint, exploring strategic partnerships, and pursuing accretive acquisitions to supplement our organic growth. We are committed to attaining a level of sustained growth that will effectively offset our overhead costs, thereby paving the path to achieving profitability. We will be required in the future to raise additional capital through either equity or debt financings. To date, we have raised capital through multiple equity offerings. On April 8, 2024, the Company closed a registered direct offering of 1,700,000 common shares of the Company at a price of $1.90 per common share for net proceeds of $2.8 million. On April 26, 2024, the Company entered into an At-The-Market Issuance Sales Agreement with Aegis Capital Corp. (the "Agent") pursuant to which the Company may sell from time to time, at its option, common shares through the Agent in its capacity as sales agent, common shares with an aggregate value of up to $3.8 million. There were no other equity offerings in the periods ended June 30, 2024 and June 30, 2023.
Debt
In addition to the equity offerings described above, the Company also has access to credit facilities through its FGH subsidiary. The credit facilities total 4.1 million Euros with three different German banks and are secured by default guarantees. On June 30, 2024, the outstanding amount was 2.3 million Euros ($2.4 million USD) and was due within the next twelve months. The credit facilities have interest rates ranging from 5.45% to 6.33% per year and does not have a set maturity date. The interest rate is reset every time a new amount is drawn.
38
Off-Balance Sheet Arrangements
As of June 30, 2024, the Company did not have any off-balance-sheet arrangements that have, or are reasonably likely to have, a current or future effect on its results of operations or financial condition, including, and without limitation, such considerations as liquidity and capital resources.
Contractual Obligations
At June 30, 2024, the Company had the following contractual obligations to make future payments, representing contracts and other commitments that are known and committed:
| (In thousands of United States dollars) | Total | Less than 1 Year |
1 - 3 Years | More than 3 Years |
||||||||
| Legal disputes (1) | $ | 4,138 | $ | 4,138 | $ | - | $ | - | ||||
| Sales tax (1) | 2,536 | 2,536 | - | - | ||||||||
| Contingent purchase consideration (2) | 829 | 829 | - | - | ||||||||
| Operating lease obligations (3) | 3,937 | 559 | 1,988 | 1,390 | ||||||||
| Debt (4) | 2,415 | 2,415 | - | - | ||||||||
| Total | $ | 13,855 | $ | 10,477 | $ | 1,988 | $ | 1,390 |
(1) See Note 15 of the Company's unaudited condensed interim consolidated financial statements, included elsewhere in this Quarterly Report.
(2) Contingent purchase consideration related to the February 2022 acquisition of JustCBD and the March 2023 acquisition of Original Hemp.
(3) See Note 11 of the Company's unaudited condensed interim consolidated financial statements, included elsewhere in this Quarterly Report.
(4) See Note 10 of the Company's unaudited condensed interim consolidated financial statements, included elsewhere in this Quarterly Report.
Critical Accounting Estimates
For information regarding our critical accounting policies and estimates, see "Critical Accounting Estimates" included in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2023 Annual Report.
Recently Adopted Accounting Principles
There were no new accounting standards issued during the three months ended June 30, 2024 that impacted the Company. See Note 3, Significant Accounting Policies, of the notes to the consolidated financial statements for the year ended December 31, 2023 for a discussion of recently issued accounting standards.
39
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act and the regulations promulgated thereunder) as of June 30, 2024 (the "Evaluation Date"). Based on such evaluation, those officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the three months ended June 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
40
PART II
Item 1. Legal Proceedings
There have been no material changes to the legal proceedings described in Item 3 of our 2023 Annual Report, other than as disclosed in Note 15 of the Company's unaudited condensed interim consolidated financial statements, included in Item 1 of Part I of this Quarterly Report.
Item 1A. Risk Factors
There have been no material changes to the risk factors described in the 2023 Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
(c) Trading Plans.
On
On
41
Item 6. Exhibits
42
# Indicates management contract or compensatory plan or arrangement.
* Furnished herewith.
43
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 hereunto duly authorized.
| Dated: August 12, 2024 | Flora Growth Corp. | |
| By: | /s/ Clifford Starke | |
| Clifford Starke | ||
| Chief Executive Officer (Principal Executive Officer) | ||
| Dated: August 12, 2024 | ||
| By: | /s/ Dany Vaiman | |
| Dany Vaiman | ||
| Chief Financial Officer (Principal Financial and Accounting Officer) |
44