Form 10-Q iANTHUS CAPITAL HOLDINGS For: Jun 30
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
British Columbia, |
98-1360810 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
420 Lexington Aven ue |
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(Address of principal executive offices) |
(Zip Code) |
Large accelerated filer |
☐ |
Accelerated filer |
☐ | |||
Non-accelerated filer |
☒ |
Smaller reporting company |
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Emerging growth company |
Page No. |
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PART I. FINANCIAL INFORMATION |
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Item 1. |
4 |
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4 |
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5 |
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6 |
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7 |
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8 |
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Item 2. |
34 |
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Item 3. |
43 |
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Item 4. |
43 |
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44 |
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Item 1. |
44 |
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Item 1A. |
45 |
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Item 2. |
61 |
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Item 3. |
61 |
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Item 4. |
61 |
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Item 5. |
61 |
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Item 6. |
61 |
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62 |
ITEM 1. |
FINANCIAL STATEMENTS |
June 30, |
December 31, |
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2022 |
2021 |
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(Revised) |
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Assets |
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Cash |
$ | $ | ||||||
Restricted cash |
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Accounts receivable, net of allowance for doubtful accounts of $ |
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Prepaid expenses |
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Inventories, net |
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Other current assets |
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Current Assets |
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Investments |
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Property, plant and equipment, net |
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Right-of-use |
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Other long-term assets |
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Intangible assets, net |
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Total Assets |
$ |
$ |
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Liabilities and Shareholder’s Deficit |
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Accounts payable |
$ | $ | ||||||
Accrued and other current liabilities |
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Current portion of long-term debt, net of issuance costs |
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Derivative liabilities |
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Current portion of lease liabilities |
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Current Liabilities |
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Long-term debt, net of issuance costs |
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Deferred income tax |
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Long-term portion of lease liabilities |
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Total Liabilities |
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Commitments and Contingencies |
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Shareholders’ Equity (Deficit) |
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Common shares — d |
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Shares to be issued |
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Additional paid-in capital (Refer to Note 6) |
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Accumulated deficit |
( |
) | ( |
) | ||||
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Total Shareholders’ Equity (Deficit) |
$ |
$ |
( |
) | ||||
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Total Liabilities and Shareholders’ Equity (Deficit) |
$ |
$ |
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Three Months Ended June 30, |
Six Months Ended June 30, |
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2022 |
2021 |
2022 |
2021 |
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Revenues, net of discounts |
$ |
$ |
$ |
$ |
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Costs and expenses applicable to revenues |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||
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Gross profit |
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Operating expenses |
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Selling, general and administrative expenses |
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Depreciation and amortization |
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Write-downs, recoveries and other charges, net |
( |
) | ||||||||||||||
Impairment loss |
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Total operating expenses |
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(Loss) Income from operations |
( |
) |
( |
) |
( |
) | ||||||||||
Interest income |
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Other income |
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Interest expense |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Accretion expense |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Provision for debt obligation fee |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Loss on debt extinguishment (Refer to Note 5) |
( |
) | ( |
) | ||||||||||||
Losses from change in fair value of financial instruments |
( |
) | ( |
) | ||||||||||||
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Loss before income taxes |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||
Income tax expense |
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Net loss |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) | ||||
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Net loss per share - basic and diluted |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) | ||||
Weighted average number of common shares outstanding - basic and diluted |
Three Months Ended June 30, 2022 |
||||||||||||||||||||
Number of Common Shares (‘000) |
Shares to be Issued |
Additional Paid-in-Capital |
Accumulated Deficit |
Total Shareholders’ (Deficit) Equity |
||||||||||||||||
Balance – March 31, 2022 |
$ |
$ |
$ |
( |
) |
$ |
( |
) | ||||||||||||
Share-based compensation |
— | — | — | |||||||||||||||||
Share issuance - Recapitalization Transaction |
— | — | ||||||||||||||||||
Net loss |
— | — | — | ( |
) | ( |
) | |||||||||||||
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Balance – June 30, 2022 |
$ |
$ |
$ |
( |
) |
$ |
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|
Six Months Ended June 30, 2022 |
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Number of Common Shares (‘000) |
Shares to be Issued |
Additional Paid-in-Capital |
Accumulated Deficit |
Total Shareholders’ (Deficit) Equity |
||||||||||||||||
Balance – January 1, 2022 - (Revised) |
$ |
$ |
$ |
( |
) |
$ |
( |
) | ||||||||||||
Share-based compensation |
— | — | — | |||||||||||||||||
Share issuance - Recapitalization Transaction |
— | — | ||||||||||||||||||
Net loss |
— | — | — | ( |
) | ( |
) | |||||||||||||
|
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|
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Balance – June 30, 2022 |
$ |
$ |
$ |
( |
) |
$ |
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Three Months Ended June 30, 2021 |
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Number of Common Shares (‘000) |
Shares to be Issued |
Additional Paid-in-Capital |
Accumulated Deficit |
Total Shareholders’ Equity |
||||||||||||||||
Balance – March 31, 2021 |
$ |
$ |
$ |
( |
) |
$ |
||||||||||||||
Share-based compensation |
— | — | — | |||||||||||||||||
Net loss |
— | — | — | ( |
) | ( |
) | |||||||||||||
|
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|
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|
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Balance – June 30, 2021 |
$ |
$ |
$ |
( |
) |
$ |
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Six Months Ended June 30, 2021 |
||||||||||||||||||||
Number of Common Shares (‘000) |
Shares to be Issued |
Additional Paid-in-Capital |
Accumulated Deficit |
Total Shareholders’ Equity |
||||||||||||||||
Balance – January 1, 2021 - (Revised) |
$ |
$ |
$ |
( |
) |
$ |
||||||||||||||
Share-based compensation |
— | — | — | |||||||||||||||||
Net loss |
— | — | — | ( |
) | ( |
) | |||||||||||||
|
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Balance – June 30, 2021 |
$ |
$ |
$ |
( |
) |
$ |
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Six Months Ended June 30, |
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2022 |
2021 |
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CASH FLOW FROM OPERATING ACTIVITIES |
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Net loss |
$ |
( |
) | $ | ( |
) | ||
Adjustments to reconcile net loss to cash (used in) provided by operations: |
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Interest income |
( |
) | ( |
) | ||||
Interest expense |
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Accretion expense |
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Debt obligation fees |
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Impairment loss |
— | |||||||
Depreciation and amortization |
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Write-downs, recoveries and other charges, net |
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Share-based compensation |
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Losses from change in fair value of financial instruments |
( |
) | ||||||
Gain from nonmonetary consideration from acquisition (Refer to Note 4) |
( |
) | — | |||||
Loss on debt extinguishment (Refer to Note 5) |
— | |||||||
Change in operating assets and liabilities (Refer to Note 13) |
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NET CASH FLOW (USED IN) PROVIDED BY OPERATING ACTIVITIES |
$ |
( |
) |
$ |
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CASH FLOW FROM INVESTING ACTIVITIES |
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Purchase of property, plant and equipment |
( |
) | ( |
) | ||||
Acquisition of other intangible assets |
( |
) | ( |
) | ||||
Proceeds from sale of property, plant and equipment |
— | |||||||
Issuance of related party promissory note |
( |
) | ( |
) | ||||
Purchase of subsidiaries, net of cash acquired |
— | |||||||
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NET CASH USED IN INVESTING ACTIVITIES |
$ |
( |
) |
$ |
( |
) | ||
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CASH FLOW FROM FINANCING ACTIVITIES |
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Proceeds from issuance of debt |
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Debt issuance costs |
— | ( |
) | |||||
Repayment of debt |
( |
) | ( |
) | ||||
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NET CASH PROVIDED BY FINANCING ACTIVITIES |
$ |
$ |
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CASH AND RESTRICTED CASH: |
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NET INCREASE IN CASH AND RESTRICTED CASH DURING THE PERIOD |
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CASH AND RESTRICTED CASH, BEGINNING OF PERIOD (Refer to Note 13) |
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CASH AND RESTRICTED CASH, END OF PERIOD (Refer to Note 13) |
$ |
$ |
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(a) |
Description of Business |
(b) |
Basis of Presentation |
(c) |
Consummation of Recapitalization Transaction |
(d) |
Going Concern |
(e) |
Basis of Consolidation |
(f) |
Use of Estimates |
(g) |
Change in Estimates |
(h) |
Coronavirus Pandemic |
(i) |
Reclassification |
Prior Year’s Line item |
Reclassified Amount |
Current Year’s Line item | ||||||||
Three Months Ended June 30, 2021 |
Six Months Ended June 30, 2021 |
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Depreciation and amortization |
$ | $ | Selling, general and administrative expenses | |||||||
Depreciation and amortization |
( |
) | ( |
) | Depreciation and amortization |
(j) |
Revision of Prior Period Financial Statements |
December 31, 2021 |
||||||||||||
As previously reported |
Adjustment |
As adjusted |
||||||||||
Inventories |
$ | $ | ( |
) | $ | |||||||
Current assets |
( |
) | ||||||||||
Total assets |
( |
) | ||||||||||
Accrued and other current liabilities |
( |
) | ||||||||||
Current liabilities |
( |
) | ||||||||||
Total liabilities |
( |
) | ||||||||||
Accumulated deficit |
( |
) | ( |
) | ( |
) | ||||||
Total shareholders’ deficit |
( |
) | ( |
) | ( |
) | ||||||
Total liabilities and shareholders’ deficit |
( |
) |
Year Ended December 31, 2021 |
||||||||||||
As previously reported |
Adjustment |
As adjusted |
||||||||||
Costs and expenses applicable to revenues |
$ | ( |
) | $ | ( |
) | $ | ( |
) | |||
Gross profit |
( |
) | ||||||||||
Loss from operations |
( |
) | ( |
) | ( |
) | ||||||
Loss from operations before income tax |
( |
) | ( |
) | ( |
) | ||||||
Income tax expense |
( |
) | ||||||||||
Net loss |
( |
) | ( |
) | ( |
) | ||||||
Earnings per share |
( |
) | ( |
) | ( |
) |
June 30, 2022 |
||||||||||||
As reported |
Adjustment |
As adjusted |
||||||||||
Accumulated deficit – Balance January 1, 2022 |
$ | ( |
) | $ | ( |
) | $ | ( |
) | |||
Total Shareholders’ deficit – Balance January 1, 2022 |
( |
) | ( |
) | ( |
) |
Operating Leases |
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2023 |
$ | |||
2024 |
||||
2025 |
||||
2026 |
||||
2027 |
||||
Thereafter |
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Total lease payments |
$ | |||
Less: interest expense |
( |
) | ||
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|
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Present value of lease liabilities |
$ | |||
Weighted-average remaining lease term (years) |
||||
Weighted-average discount rate |
% | |||
|
|
Balance Sheet Information |
Classification |
June 30, 2022 |
December 31, 2021 |
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Right-of-use |
Operating leases | $ |
$ |
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Lease l iabilities |
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Current portion of lease liabilities |
Operating leases |
$ | $ | |||||||
Long-term lease liabilities |
Operating leases |
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Total |
$ |
$ |
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June 30, 2022 |
December 31, 2021 |
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(Revised) |
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Supplies |
$ | $ | ||||||
Raw materials |
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Work in process |
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Finished goods |
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Total |
$ |
$ |
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Consideration |
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Cash |
$ | |||
Settlement of pre-existing relationships |
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|
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Fair value of consideration |
$ |
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|
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Assets acquired and liabilities assumed |
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Cash |
$ | |||
Fixed assets |
||||
Other non-current assets |
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Intangible assets |
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Accounts payable |
( |
) | ||
Accrued and other current liabilities |
( |
) | ||
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Net assets acquired |
$ |
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• | renegotiation of existing financing arrangements and other material contracts, including any amendments, waivers, extensions or similar agreements with the Lenders and/or stakeholders of the Company and/or its subsidiaries that the Special Committee determines are in the best interest of the Company and/or its subsidiaries; |
• | managing available sources of capital, including equity investments or debt financing or refinancing and the terms thereof; |
• | implementing the operational and financial restructuring of the Company and its subsidiaries and their respective businesses, assets and licensure and other rights; and |
• | implementing other potential strategic transactions. |
Secured Notes (1) |
March 2019 Debentures |
May 2019 Debentures |
June Secured Debentures |
Additional Secured Debentures |
June Unsecured Debentures |
Other |
Total |
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As of January 1, 2022 |
$ |
$ |
$ |
$ |
$ |
$ |
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Fair value of financial liabilities issued |
— | — | ||||||||||||||||||||||||||||||
Accretion of balance |
— |
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Debt extinguishment |
( |
) | ( |
) | ( |
) | — | — | — | — | ( |
) | ||||||||||||||||||||
Repayment |
— | — | — | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||||
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As of June 30, 2022 |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
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(1) | This amount includes the Company’s obligation to pay an exit fee of $ |
• | An aggregate of |
• | There were |
June 30, 2022 |
||||||||
Units |
Weighted Average Exercise Price (C$) |
|||||||
Warrants outstanding, beginning |
$ | |||||||
Granted |
||||||||
Forfeited |
( |
) | ||||||
Expired |
( |
) | ||||||
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|
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Warrants outstanding, ending |
$ |
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|
June 30, 2022 |
December 31, 2021 |
|||||||
Risk-free interest rate |
% | |||||||
Expected dividend yield |
% | |||||||
Expected volatility |
% | |||||||
Expected life |
June 30, 2022 |
December 31, 2021 |
|||||||||||||||
Year of expiration |
Number Outstanding |
Weighted Average Exercise Price (C$) |
Number Outstanding |
Weighted Average Exercise Price (C$) |
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2022 |
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2023 |
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|
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Warrants outstanding |
$ |
$ |
||||||||||||||
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June 30, 2022 |
December 31, 2021 |
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Common share options |
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Restricted s tock units |
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Warrants |
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Secured notes |
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Debentures |
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MPX dilutive instruments (1) |
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Total |
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(1) |
Prior to the acquisition of MPX Bioceutical Corporation (“MPX”) on February 5, 2019 (the “MPX Acquisition”), MPX had instruments outstanding that were potentially dilutive and as a result of the MPX Acquisition, the Company assumed certain of these instruments. |
June 30, 2022 |
December 31, 2021 |
|||||||||||||||||||||||
Units |
Weighted Average Exercise Price (C$) |
Weighted Average Contractual Life |
Units |
Weighted Average Exercise Price (C$) |
Weighted Average Contractual Life |
|||||||||||||||||||
Options outstanding, beginning |
$ | — | $ | — | ||||||||||||||||||||
Granted |
— | — | ||||||||||||||||||||||
Exercised |
— | — | ||||||||||||||||||||||
Cancellations |
( |
) | — | — | ||||||||||||||||||||
Forfeitures |
( |
) | — | — | ||||||||||||||||||||
Expirations |
( |
) | — | ( |
) | — | ||||||||||||||||||
|
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|
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Options outstanding, ending |
$ |
— |
$ |
|||||||||||||||||||||
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|
June 30, 2022 |
||||||||
Units |
Weighted Average Grant Price (C$) |
|||||||
Unvested balance, beginning |
$ | |||||||
Granted |
||||||||
Vested |
( |
) | ||||||
Forfeited |
( |
) | ||||||
|
|
|
|
|||||
Unvested balance, ending |
$ |
|||||||
|
|
|
|
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||
Loss before income taxes |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
Income tax expense |
||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Effective tax rate |
( |
)% | ( |
)% | ( |
)% | ( |
)% | ||||||||
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||
Revenues |
||||||||||||||||
Eastern Region |
$ | $ | $ | $ | ||||||||||||
Western Region |
||||||||||||||||
Other (1) |
||||||||||||||||
Total |
$ |
$ |
$ |
$ |
||||||||||||
Gross profit (loss) |
||||||||||||||||
Eastern Region |
$ | $ | $ | $ | ||||||||||||
Western Region |
||||||||||||||||
Other |
( |
) | ( |
) | ||||||||||||
Total |
$ |
$ |
$ |
$ |
||||||||||||
Depreciation and amortization |
||||||||||||||||
Eastern Region |
$ | $ | $ | $ | ||||||||||||
Western Region |
||||||||||||||||
Other |
||||||||||||||||
Total |
$ |
$ |
$ |
$ |
||||||||||||
Asset impairments and write-downs |
||||||||||||||||
Eastern Region |
$ | $ | $ | $ | ||||||||||||
Western Region |
||||||||||||||||
Other |
||||||||||||||||
Total |
$ |
$ |
$ |
$ |
||||||||||||
Net income (loss) |
||||||||||||||||
Eastern Region |
$ | ( |
) | $ | $ | $ | ||||||||||
Western Region |
( |
) | ( |
) | ||||||||||||
Other |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Total |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) | ||||
Purchase of property, plant and equipment |
||||||||||||||||
Eastern Region |
$ | $ | $ | $ | ||||||||||||
Western Region |
||||||||||||||||
Other |
||||||||||||||||
Total |
$ |
$ |
$ |
$ |
||||||||||||
Purchase of intangibles |
||||||||||||||||
Eastern Region |
$ | — | $ | $ | — | $ | ||||||||||
Western Region |
— | — | — | — | ||||||||||||
Other |
— | — | ||||||||||||||
Total |
$ |
$ |
$ |
$ |
||||||||||||
(1) | Revenues from segments below the quantitative thresholds are attributable to an operating segment of the Company that includes revenue from the sale of CBD products throughout the United States. This segment has never met any of the quantitative thresholds for determining reportable segments nor does it meet the qualitative criteria for aggregation with the Company’s reportable segments. |
June 30, |
December 31, |
|||||||
2022 |
2021 (Revised) |
|||||||
Assets |
||||||||
Eastern Region |
$ | $ | ||||||
Western Region |
||||||||
Other |
||||||||
Total |
$ |
$ |
||||||
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||
Revenue |
||||||||||||||||
iAnthus branded products |
$ | $ | $ | $ | ||||||||||||
Third party branded products |
||||||||||||||||
Wholesale/bulk/other products |
||||||||||||||||
Total |
$ |
$ |
$ |
$ |
||||||||||||
• | Level 1 – fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities; |
• | Level 2 – fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and |
• | Level 3 – fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). |
June 30, 2022 |
December 31, 2021 |
|||||||||||||||||||||||||||||||
Level 1 |
Level 2 |
Level 3 |
Total |
Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||||||||||||||
Financial Assets |
||||||||||||||||||||||||||||||||
Long term investments - other 1 |
$ | $ | — | $ | — | $ | $ | $ | — | $ | — | $ | ||||||||||||||||||||
Financial Liabilities |
||||||||||||||||||||||||||||||||
Derivative liabilities |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | $ | ||||||||||||||||||
(1) | Long-term investments – other are included in the investments balance on the unaudited interim condensed consolidated balance sheets. |
Financial Assets |
||||
Balance as of December 31, 2021 |
$ |
|||
Revaluations on Level 1 instruments |
( |
) | ||
Balance as of June 30, 2022 |
$ |
|||
Derivative Liabilities |
||||
Balance as of December 31, 2021 |
$ |
|||
Revaluations on Level 3 instruments |
( |
) | ||
Balance as of June 30, 2022 |
$ |
|||
June 30, 2022 |
December 31, 2021 |
|||||||||||||||
Carrying Value |
Fair Value |
Carrying Value |
Fair Value |
|||||||||||||
June Unsecured Debentures |
$ | $ | $ | $ | ||||||||||||
June Secured Debentures |
||||||||||||||||
Secured Notes |
— | — | ||||||||||||||
Other |
||||||||||||||||
Total |
$ |
$ |
$ |
$ |
||||||||||||
For the twelve months ended June 30, |
2023 |
2024 |
2025 |
2026 |
2027 |
|||||||||||||||
Operating leases |
$ | $ | $ | $ | $ | |||||||||||||||
Service contracts |
||||||||||||||||||||
Long-term debt |
||||||||||||||||||||
Total |
$ |
$ |
$ |
$ |
$ |
|||||||||||||||
* |
The Company’s commitments include payments to employees, consultants and advisors, as well as leases and construction contracts for offices, dispensaries and cultivation facilities in the U.S. and Canada. The Company has certain operating leases with renewal options extending the initial lease term for an additional to |
• | There wa s a claim by a former consultant against the Company, with respect to alleged consulting fees owed by MPX to the consultant, claiming the right to receive approximately $ |
• | There is a claim from two former noteholders against the Company and MPX Bioceutical ULC (“MPX ULC”), with respect to alleged payments of $ |
• | There is a claim against the Company, MPX ULC and MPX, with respect to a prior acquisition made by MPX in relation to a subsidiary that was not acquired by the Company as part of the MPX Acquisition, claiming $ |
June 30, 2022 |
December 31, 2021 |
|||||||
Financial Statement Line Item |
||||||||
Current portion of long-term debt, net of issuance costs (1) |
— | |||||||
Long-term debt, net of issuance costs (1) |
— | |||||||
Accrued and other current liabilities |
|
|
|
|
|
|
|
|
Other long-term assets |
— | |||||||
|
|
|
|
|||||
Total |
$ |
$ |
||||||
|
|
|
|
(1) | Upon the closing of the Recapitalization Transaction, certain of the Company’s lenders held greater than |
Six Months Ended June 30, |
||||||||
2022 |
2021 |
|||||||
Income taxes |
$ | $ | ||||||
Interest |
Six Months Ended June 30, |
||||||||
2022 |
2021 |
|||||||
Decrease (increase) in: |
||||||||
Accounts receivables |
$ | $ | ( |
) | ||||
Prepaid expenses |
( |
) | ( |
) | ||||
Inventories |
( |
) | ( |
) | ||||
Other current assets |
( |
) | ||||||
Other long-term assets |
( |
) | ||||||
Operating leases |
( |
) | ( |
) | ||||
(Decrease) increase in: |
||||||||
Accounts payable |
( |
) | ( |
) | ||||
Accrued and other current liabilities |
||||||||
|
|
|
|
|||||
$ |
$ |
|||||||
|
|
|
|
Six Months Ended June 30, |
||||||||
2022 |
2021 |
|||||||
Property, plant and equipment |
$ | $ | ||||||
Operating lease right-of-use |
||||||||
Intangible assets |
||||||||
|
|
|
|
|||||
$ |
$ |
|||||||
|
|
|
|
Six Months Ended June 30, |
||||||||
2022 |
2021 |
|||||||
Write-downs : |
||||||||
Account receivable recoveries |
$ | ( |
) | $ | ( |
) | ||
Operating lease right-of-use |
— | |||||||
Property, plant and equipment |
— | |||||||
|
|
|
|
|||||
$ |
$ |
|||||||
|
|
|
|
Six Months Ended June 30, |
||||||||
2022 |
2021 |
|||||||
Supplemental Cash Flow Information: |
||||||||
Non-cash consideration for paid-in-kind |
||||||||
Non-cash consideration for asset acquisition |
— | |||||||
Non-cash issuance of shares from consummation of the Recapitalization Transaction |
— | |||||||
Non-cash debt extinguishment from the consummation of the Recapitalization Transaction |
( |
) | — | |||||
Non-cash issuance of June Secured Debentures and June Unsecured Debentures from the consummation of the Recapitalization Transaction |
— |
June 30, 2022 |
December 31, 2021 |
|||||||
Cash |
$ | $ | ||||||
Restricted cash |
||||||||
|
|
|
|
|||||
Total cash and restricted cash presented in the statements of cash flows |
$ |
$ |
||||||
|
|
|
|
ITEM 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
(in ’000s of U.S. dollars) |
June Secured Debentures 1 |
Interim Financing 2 |
June Unsecured Debentures 3 |
Pro Forma Common Equity 4 |
||||||||||||
Secured Lenders |
$ | 85,000 | $ | 14,737 | $ | 5,000 | 48.625 | % | ||||||||
Unsecured Lenders |
— | — | 15,000 | 48.625 | % | |||||||||||
Existing Shareholders |
— | — | — | 2.75 | % | |||||||||||
Total |
$ |
85,000 |
$ |
14,737 |
$ |
20,000 |
100 |
% |
(1) | The Secured Notes and Interim Financing (as defined below) were extinguished as of the Closing Date and, in exchange, ICM issued the June Secured Debentures, which may be prepaid on a pro rata basis from and after the third anniversary of the Closing Date upon prior written notice to the New Secured Lenders without premium or penalty. |
(2) | Certain of the Secured Lenders provided $14.7 million of interim financing (the “Interim Financing”) to ICM pursuant to the Restructuring Support Agreement. |
(3) | The Unsecured Debentures were extinguished as of the Closing Date, and in exchange, ICM issued the June Unsecured Debentures, which may be prepaid on a pro rata basis from and after the third anniversary of the Closing Date upon prior written notice to the Unsecured Lenders without premium or penalty. The June Unsecured Debentures are subordinate to the June Secured Debentures, but are senior to the Company’s common shares. |
(4) | On December 31, 2021, our Board of Directors approved the terms of a Long-Term Incentive Program (“LTIP”) recommended by our compensation committee and, pursuant to which, on July 26, 2022 we issued to certain of our employees (including executive officers) an aggregate of 320,165,409 restricted stock units (“RSUs”), under our Amended and Restated Omnibus Incentive Plan dated October 15, 2018 in order to attract and retain such employees. All of our existing warrants and options were cancelled, and our common shares may be consolidated pursuant to a consolidation ratio which has yet to be determined. |
• | one investor (the “First Investor”) shall be entitled to designate director nominees as follows: |
i. | For so long as the First Investor’s Debt Exchange Common Share Percentage (as defined in the IRA) is at least 30.0%, the First Investor shall be entitled to designate up to three individuals as director nominees; |
ii. | For so long as the First Investor’s Debt Exchange Common Share Percentage is less than 30.0% but is at least 15.0%, the First Investor shall be entitled to designate up to two individuals as director nominees; and |
iii. | For so long as the First Investor’s Debt Exchange Common Share Percentage is less than 15.0% but is at least 5.0%, the First Investor shall be entitled to designate up to one individual as a director nominee. |
• | a second Investor (the “Second Investor”) shall be entitled to designate up to one individual as a director nominee for so long as such Investor’s Debt Exchange Common Share Percentage is at least 5.0%. |
• | a third Investor (the “Third Investor”) shall be entitled to designate up to one individual as a director nominee for so long as such Investor’s Debt Exchange Common Share Percentage is at least 5.0%. |
• | a fourth Investor (the “Fourth Investor”) shall be entitled to designate up to one individual as a director nominee for so long as such Investor’s Debt Exchange Common Share Percentage is at least 5.0%. |
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
(in ’000s of U.S. dollars) |
2022 |
2021 |
2022 |
2021 |
||||||||||||
Revenues |
||||||||||||||||
Eastern Region |
$ | 25,760 | $ | 34,725 | $ | 50,545 | $ | 67,780 | ||||||||
Western Region |
17,429 | 19,103 | 35,145 | 37,406 | ||||||||||||
Other |
292 | 400 | 581 | 847 | ||||||||||||
Total revenues |
$ |
43,481 |
$ |
54,228 |
$ |
86,271 |
$ |
106,033 |
||||||||
Cost of sales applicable to revenues |
||||||||||||||||
Eastern Region |
$ | (11,491 | ) | $ | (10,322 | ) | $ | (20,208 | ) | $ | (22,216 | ) | ||||
Western Region |
(12,217 | ) | (12,099 | ) | (23,522 | ) | (21,823 | ) | ||||||||
Other |
(105 | ) | (496 | ) | (381 | ) | (963 | ) | ||||||||
Total cost of sales applicable to revenues |
$ |
(23,813 |
) |
$ |
(22,917 |
) |
$ |
(44,111 |
) |
$ |
(45,001 |
) | ||||
Gross profit |
||||||||||||||||
Eastern Region |
$ | 14,269 | $ | 24,403 | $ | 30,337 | $ | 45,565 | ||||||||
Western Region |
5,212 | 7,004 | 11,623 | 15,583 | ||||||||||||
Other |
187 | (96 | ) | 200 | (116 | ) | ||||||||||
Total gross profit |
$ |
19,668 |
$ |
31,311 |
$ |
42,160 |
$ |
61,032 |
||||||||
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
(in ’000s of U.S. dollars) |
2022 |
2021 |
2022 |
2021 |
||||||||||||
Total operating expenses |
$ | 65,094 | $ | 30,378 | $ | 96,963 | $ | 61,697 | ||||||||
Total other expenses |
322,745 | 8,305 | 318,595 | 18,868 | ||||||||||||
Income tax expense |
5,391 | 7,884 | 10,266 | 15,175 |
Three Months Ended June 30, |
Six Months Ended June 30, | |||||||||||||||
(in ‘000s of U.S. dollars) |
2022 |
2021 |
2022 |
2021 |
||||||||||||
Salaries and employee benefits |
$ | 8,950 | $ | 9,344 | $ | 19,240 | $ | 19,350 | ||||||||
Severance |
11,889 | — | 11,889 | — | ||||||||||||
Share-based compensation |
21,372 | 1,661 | 22,836 | 3,295 | ||||||||||||
Legal and other professional fees |
1,747 | 3,597 | 5,370 | 8,836 | ||||||||||||
Deferred Professional Fees related to the Recapitalization Transaction |
7,091 | — | 7,091 | — | ||||||||||||
Facility, insurance and technology costs |
3,805 | 3,873 | 7,965 | 7,973 | ||||||||||||
Marketing expenses |
1,213 | 1,019 | 2,508 | 2,171 | ||||||||||||
Travel and pursuit costs |
208 | 113 | 470 | 264 | ||||||||||||
Amortization on right-of-use assets |
585 | 495 | 1,208 | 1,037 | ||||||||||||
Other general corporate expenditures |
1,270 | 1,389 | 2,959 | 2,793 | ||||||||||||
Total |
$ |
58,130 |
$ |
21,491 |
$ |
81,536 |
$ |
45,719 |
||||||||
ITEM 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
ITEM 4. |
CONTROLS AND PROCEDURES. |
ITEM 1. |
LEGAL PROCEEDINGS. |
ITEM 1A. |
RISK FACTORS. |
• | a decline in the price of our common shares to the extent that the current market price reflects a market assumption that these transactions will be completed; |
• | the payment of certain costs related to each transaction, such as legal, accounting and consulting fees, even if a transaction is not completed; and |
• | an absence of assurance that such opportunities will be available to us in the future, or at all. |
• | have business interests or targets that are inconsistent with ours; |
• | take action contrary to our policies or objectives; |
• | be unable or unwilling to fulfill their obligations under their agreements with us; or |
• | experience financial, operational or other difficulties, including insolvency, which could limit or suspend their ability to perform their obligations. |
• | our reputation and our ability to conduct business; |
• | our ability to obtain and/or maintain cannabis licenses, whether directly or indirectly, in the United States; |
• | the listing of our securities on various stock exchanges |
• | our financial position, operating results, profitability, or liquidity; and |
• | the market price of our securities. |
ITEM 2. |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. |
ITEM 3. |
DEFAULTS UPON SENIOR SECURITIES. |
ITEM 4. |
MINE SAFETY DISCLOSURES. |
ITEM 5. |
OTHER INFORMATION. |
ITEM 6. |
EXHIBITS. |
Exhibit No. |
Description | |
10.1 | ||
10.2 | ||
10.3†# | ||
10.4†# | ||
10.5 |
10.6 | ||
10.7# | ||
10.8# | ||
31.1* | ||
31.2* | ||
32.1** | ||
32.2** | ||
101.INS* | Inline XBRL Instance Document | |
101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
104* | Cover Page Interactive Data File—the cover page from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022 is formatted in Inline XBRL |
* | Filed herewith. |
** | Furnished herewith. |
† | Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company hereby undertakes to furnish supplementally copies of any of the omitted schedules upon request by the Securities and Exchange Commission. |
# | Pursuant to Item 601(b)(10) of Regulation S-K, certain confidential portions of this exhibit were omitted by means of marking such portions with an asterisk because the identified confidential portions (i) are not material and (ii) the Company customarily and actually treats that information as private or confidential. |
IANTHUS CAPITAL HOLDINGS, INC. | ||||||
Date: August 15, 2022 |
By: |
/s/ Robert Galvin | ||||
Robert Galvin | ||||||
Interim Chief Executive Officer | ||||||
(Principal Executive Officer) | ||||||
Date: August 15, 2022 |
By: |
/s/ Julius Kalcevich | ||||
Julius Kalcevich | ||||||
Chief Financial Officer | ||||||
(Principal Financial and Accounting Officer) |
Exhibit 31.1
Certification of Chief Executive Officer of iAnthus Capital Holdings, Inc.
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Robert Galvin, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of iAnthus Capital Holdings, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrants disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: August 15, 2022 |
/s/ Robert Galvin | |||||
Robert Galvin | ||||||
Interim Chief Executive Officer | ||||||
(Principal Executive Officer) |
Exhibit 31.2
Certification of Chief Financial Officer of iAnthus Capital Holdings, Inc.
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Julius Kalcevich, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of iAnthus Capital Holdings, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrants disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: August 15, 2022 |
/s/ Julius Kalcevich | |||||
Julius Kalcevich | ||||||
Chief Financial Officer | ||||||
(Principal Financial and Accounting Officer) |
Exhibit 32.1
Certification of Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, Robert Galvin, Interim Chief Executive Officer of iAnthus Capital Holdings, Inc. (the Company), hereby certifies that based on the undersigneds knowledge:
1. | The Companys Quarterly Report on Form 10-Q for the period ended June 30, 2022 (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: August 15, 2022 |
/s/ Robert Galvin | |||||
Robert Galvin | ||||||
Interim Chief Executive Officer | ||||||
(Principal Executive Officer) |
Exhibit 32.2
Certification of Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, Julius Kalcevich, Chief Financial Officer of iAnthus Capital Holdings, Inc. (the Company), hereby certifies that based on the undersigneds knowledge:
1. | The Companys Quarterly Report on Form 10-Q for the period ended June 30, 2022 (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: August 15, 2022 |
/s/ Julius Kalcevich | |||||
Julius Kalcevich | ||||||
Chief Financial Officer | ||||||
(Principal Financial and Accounting Officer) |
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